Document:

ex10-1.htm

EXHIBIT 10.1

 

UNIT PURCHASE AGREEMENT

 

 

By and Among

 

 

TNR HOLDINGS LLC,

 

MESA ENERGY, INC.,

 

ARMADA OIL, INC.,

and

GULFSTAR RESOURCES LLC

 

 

 

 

 

 

Dated as of December 20, 2013

 

  

  

  

 

INDEX TO SCHEDULES

 

	
SCHEDULE I

	
Disclosure Schedule

 

 

INDEX TO EXHIBITS

 

	
EXHIBIT A

EXHIBIT B

EXHIBIT C

EXHIBIT D

	
Use of Proceeds for Initial Closing

Use of Proceeds for Subsequent Closing(s)

Use of Proceeds for Purchase Option Exercise

Form of LLC Agreement

	
EXHIBIT E

	
Form of Contribution Agreement

	
EXHIBIT F

	
Form of Opinion of Company Counsel

	
EXHIBIT G

	
Form of Transition Services Agreement

	
EXHIBIT H

	
Pro Forma Statement of Assets and Liabilities

 

  

  

  

 

UNIT PURCHASE AGREEMENT

 

UNIT PURCHASE AGREEMENT, dated as of December 20, 2013, by and among TNR HOLDINGS LLC, a Delaware limited liability company (the “Company”), MESA ENERGY, INC., a Nevada corporation (“Mesa”), ARMADA OIL, INC., a Nevada corporation (“Armada”; together with Mesa, the “Parent Parties”) and GULFSTAR RESOURCES LLC, a Nevada limited liability company (the “Purchaser”).

 

W I T N E S S E T H

 

WHEREAS, the Company is in the business of engaging in oil exploration and production (the “Business”);

 

WHEREAS, the Company is a wholly-owned subsidiary of Mesa;

 

WHEREAS, each of Tchefuncte Natural Resources, LLC (“Tchefuncte”) and Mesa Gulf Coast, LLC (“MGC,” and, together with Tchefuncte, the “Subsidiaries”) are wholly-owned subsidiaries of the Company;

 

WHEREAS, the Company wishes to (i) issue and sell to the Purchaser 18,123 Class A Units (the “Purchased Units”) of the Company and (ii) grant the Purchaser the option to purchase an additional 9,718 Class A Units on the terms and conditions set forth herein; and

 

WHEREAS, the Purchaser wishes to purchase the Purchased Units, on the terms and subject to the conditions set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained in this Agreement, the parties agree as follows:

 

ARTICLE I

 

THE PURCHASED UNITS

 

Section 1.1 Issuance, Sale and Delivery of the Purchased Units.  On the Initial Closing Date (as hereinafter defined), the Company shall issue and sell to the Purchaser, and the Purchaser hereby agrees to purchase from the Company on the terms and subject to the conditions of this Agreement (the “Initial Unit Purchase”), 6,250 Class A Units at a price of $1,000 per Class A Unit (the “Purchase Price”), including, for the avoidance of doubt, Class A Units to be issued pursuant to the terms of that certain Convertible Promissory Note dated December 2, 2013 made by Armada in favor of the Purchaser (the “Convertible Note”).

 

Section 1.2 Initial Closing.  The initial closing of the sale and purchase of Purchased Units (the “Initial Closing”) shall take place at the offices of Herrick, Feinstein LLP, 2 Park Avenue, New York, New York 10016, on December 31, 2013, at 10:00 a.m., New York time, or at such other date and time as may be agreed upon between the Purchaser and the Company (such date and time being called the “Initial Closing Date”).  The closing may take place by .pdf or facsimile signatures with originally executed documents to follow by overnight delivery.  At the Initial Closing, the Company shall issue the appropriate number of Purchased Units to Purchaser and register the Purchaser as the owner of such Purchased Units in the books and records of the Company.  As payment in full for the Purchased Units on the Initial Closing Date, the Purchaser shall deliver the Purchase Price for the applicable number of Purchased Units to the Company by wire transfer pursuant to wire instructions provided by the Company to the Purchaser in writing, taking into account, for the avoidance of doubt, the conversion of the Convertible Note pursuant to Section 5 thereof.

 

  

1

  

 

Section 1.3 Subsequent Closing.  The Purchaser shall be obligated to purchase an additional aggregate 11,873 Class A Units at a price of $564.31 per Class A Unit at one or more additional closings (each, a “Subsequent Closing”), such Subsequent Closing(s) to take place within thirty (30) days after the written request of the management of the Company, provided that the Subsequent Closings shall occur within 90 days of the Initial Closing.

 

Section 1.4 Option to Purchase Additional Class A Units.

 

(a) Grant of Option.  The Company hereby grants the Purchaser the option (the “Purchase Option”) to purchase up to an additional 9,718 Class A Units (the “Additional Units”), at one or more additional closings, at a price of $468.20 per Class A Unit, for an aggregate additional purchase price of up to Four Million Five Hundred Fifty Thousand Dollars ($4,550,000) (the “Additional Unit Purchase”).

 

(b) Purchase Option Exercise.  If the Purchaser elects to exercise the Purchase Option for all or any portion of the Additional Units, it shall do so by delivering written notice (the “Exercise Notice”) to the Company of its intention to exercise the Purchase Option.    Upon receipt of the Exercise Notice by the Company, the Company and the Purchaser shall endeavor to close a purchase transaction as soon as practicable thereafter, but in any event within five (5) business days thereof.  The purchase of Additional Units shall be made pursuant to a purchase agreement that is substantially similar to this Agreement.

 

Section 1.5 Use of Funds.  The parties agree that the proceeds of the Initial Unit Purchase, less transaction expenses, shall be used by the Company for the uses and in the amounts set forth on Exhibit A. The parties agree that the proceeds of the Subsequent Closing(s), less transaction expenses, shall be used by the Company for the uses and in the amounts set forth on Exhibit B.  The parties agree that the proceeds of the Purchase Option Exercise, less transaction expenses, shall be used by the Company for the uses and in the amounts set forth on Exhibit C.

 

ARTICLE II

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company and the Parent Parties jointly and severally represent and warrant to the Purchaser as provided in this Article II.  For the avoidance of doubt, the term “Company” as used in the remainder of this Article II shall, as appropriate, include the Company and each of the Subsidiaries.

 

  

2

  

 

Section 2.1 Organization, Qualifications and Corporate Power.

 

(a) The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly licensed or qualified to transact business as a foreign limited liability company and is in good standing in each jurisdiction in which the nature of the business transacted by it or the character of the properties owned or leased by it requires such licensing or qualification, except where the failure to do so would not be reasonably expected to have a material adverse effect on the operations, assets or liabilities, results of operations or financial condition of the Company and its subsidiaries taken as a whole (a “Material Adverse Effect”).  Each of Mesa and the Subsidiaries (the “Related Parties”) is an entity duly organized, validly existing and in good standing under the laws of its state, province or territory of its organization and is duly licensed or qualified to transact business as a foreign entity and is in good standing in each jurisdiction in which the nature of the business transacted by it or the character of the properties owned or leased by it requires such licensing or qualification, except where the failure to do so would not be reasonably expected to have a Material Adverse Effect; such jurisdictions are set forth on Section 2.1(a) of the Disclosure Schedule attached hereto as Schedule I (which Disclosure Schedule makes explicit reference to the particular representation as to which such exception shall apply).  (The disclosure of an item in one section of the Disclosure Schedule shall be sufficient to respond to any other applicable Section of this Article II; provided that the applicability to any other section of the Disclosure Schedule be apparent on the face of the item disclosed or appropriately cross-referenced.)  Each of the Company and each Related Party has all requisite entity power and authority to own and hold its properties and to carry on its business as now conducted and as proposed to be conducted, and to execute, deliver and perform this Agreement.  Mesa has all requisite entity power and authority to execute, deliver and perform the LLC Agreement in the form attached as Exhibit D (the “LLC Agreement”), that certain Contribution Agreement dated of even date herewith between Mesa and the Company in the form attached hereto as Exhibit E (the “Contribution Agreement” and, together with the LLC Agreement and this Agreement, the “Transaction Documents”), and to issue, sell and deliver the Purchased Units.

 

(b) Except for Subsidiaries, the Company has no subsidiaries.  Neither the Company nor any of the Subsidiaries (i) owns of record or beneficially, directly or indirectly, (A) any shares of capital stock or securities convertible into capital stock of any other corporation or (B) any equity interest in any partnership, limited liability company, joint venture or other non-corporate business enterprise or (ii) controls, directly or indirectly, any other entity.

 

Section 2.2 Authorization of Agreements, Etc.

 

(a) The execution and delivery by the Company and each of the Related Parties of the Transaction Documents to which each such entity is a party, the performance by the Company and the Related Parties of their respective obligations thereunder, and the issuance, sale and delivery of the Purchased Units have been duly authorized by all requisite action, (including, for the avoidance of doubt, the requisite approval of the directors of the Related Parties and the unanimous approval of all members of the Company) and do not and will not violate any law, any order of any court or other agency of government, the Certificate of Formation of the Company (the “Certificate”), the organizational documents of any of the Related Parties, or the LLC Agreement, or, except as set forth on Section 2.2(a) of the Disclosure Schedule, any provision of any indenture, agreement or other instrument to which the Company, the Related Parties, or any of their respective properties or assets is bound, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation, under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge, restriction, claim or encumbrance of any nature whatsoever upon any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge, restriction, claim or encumbrance of any nature whatsoever upon any of the properties or assets of the Company or the Related Parties, or result in the imposition of a penalty on the Company or the Related Parties or other adverse consequence.

 

  

3

  

 

(b) The Purchased Units have been duly authorized and, when issued and sold in accordance with this Agreement, will be validly issued, fully paid and non-assessable, with no personal liability attaching to the ownership thereof, and will be free and clear of all liens, charges, restrictions, claims and encumbrances imposed by or through the Company except as set forth in the LLC Agreement.  Except as set forth in the LLC Agreement, neither the issuance, sale or delivery of the Purchased Units is subject to any preemptive right of members of the Company or to any right of first refusal or other right in favor of any person.

 

Section 2.3 Validity.  This Agreement has been duly executed and delivered by each of the Company and each of the Related Parties and constitutes the legal, valid and binding obligation of the Company and each of the Related Parties, respectively, enforceable in accordance with its terms, except that (i) enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally, and (ii) the remedies of specific performance and injunctive relief are subject to certain equitable defenses and to the discretion of the court before which any proceedings may be brought.  The other Transaction Documents, when executed and delivered in accordance with this Agreement, will constitute the legal, valid and binding obligations of the Company and each of the Related Parties, respectively, enforceable in accordance with their respective terms, except that (i) enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally, and (ii) the remedies of specific performance and injunctive relief are subject to certain equitable defenses and to the discretion of the court before which any proceedings may be brought.

 

Section 2.4 Units.

 

(a) Immediately after the Initial Closing, the outstanding equity interests of the Company will consist of (i) 6,250 Class A Units and (ii) 11,932 Class B Units (the Class A Units and Class B Units are collectively referred to herein as, the “Units”).  

 

(b) Except for the 11,932 Class B Units owned by Mesa and as contemplated by the Transaction Documents, (i) no person owns of record or is known to the Company to own beneficially any membership interests of the Company or , (ii) no subscription, warrant, option, convertible security, or other right (contingent or other) to purchase or otherwise acquire equity securities of the Company is authorized or outstanding and (iii) there is no commitment by the Company to issue membership interests, subscriptions, warrants, options, convertible securities, or similar rights or, except pursuant to leases and overriding royalty interests existing on the date hereof, to distribute any share of profits or revenues.  Except as provided for in the LLC Agreement or as contemplated by this Agreement, the Company has no obligation (contingent or other) to purchase, redeem or otherwise acquire any of its equity securities or any interest therein or to pay any dividend or make any other distribution in respect thereof.  Except for the LLC Agreement, the Company is not a party or subject to, and to the Company’s knowledge, there are no voting trusts or agreements, pledge agreements, buy-sell agreements, rights of first refusal, preemptive rights or proxies relating to any securities of the Company (whether or not the Company is a party thereto).  All of the outstanding securities of the Company were issued in compliance with all applicable Federal and state securities laws.

 

  

4

  

 

(c) Neither the offer nor the issuance, sale or delivery of the Purchased Units constitutes or will constitute an event, under any equity or convertible security or any anti-dilution or similar provision of any agreement or instrument to which the Company is a party or by which it is bound or affected, which shall either increase the number of membership interests issuable upon conversion of any securities or upon exercise of any warrant or right to subscribe to or purchase any membership interests or similar security, or decrease the consideration per membership interest to be received by the Company upon such conversion or exercise.

 

Section 2.5 Financial Statements.  Attached hereto as Section 2.5 of the Disclosure Schedule are true and correct copies of (a) the unaudited balance sheet of Tchefuncte and MGC as of September 30, 2013 and the related unaudited statements of income for each of the fiscal quarters ended March 31, 2013, June 30, 2013, and September 30, 2013.  All such financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”), consistently applied with the exception of footnotes, normal year-end adjustments and the specific items listed at the top of Schedule 2.5 of the Disclosure Schedule and fairly present in all material respects the financial position of Tchefuncte and MGC and results of operation of Tchefuncte and MGC as of the dates set forth therein.  Since September 30, 2013 (the “Balance Sheet Date”), (i) there has been no change in the assets, liabilities or financial condition of Tchefuncte from that reflected in the September 30, 2013 balance sheet (the “Balance Sheet”) except for changes in the ordinary course of business which in the aggregate have not been materially adverse and (ii) there has been no Material Adverse Effect.  Except as set forth on the Balance Sheet or the exceptions listed in the Schedule, none of the Companies or the Subsidiaries has any liabilities, other than (i) operating expenses incurred by Tchefuncte and MGC in the ordinary course since the date of the Balance Sheet which are not material in the aggregate and (ii) subsidiary guarantor liability under the F&M Facility.

 

Section 2.6 Absence of Changes.  Since the date of the Balance Sheet and except to the extent set forth in Section 2.6 of the Disclosure Schedule, or as contemplated by this Agreement, the Company has not (i) issued any membership interest, bond or other security, (ii) borrowed any amount or incurred or become subject to any liability of the type that would be required by generally accepted accounting principles to be included on the Balance Sheet, except trade payables incurred in the ordinary course of business which are not in the material in the aggregate (iii) discharged or satisfied any lien or encumbrance or incurred or paid any obligation or liability (absolute, accrued or contingent) except in the ordinary course of business and consistent with past practices, (iv) declared or made any payment or distribution in respect of its equity to members to stockholders, or purchased or redeemed any membership interest, capital stock or other security, (v) mortgaged, pledged, encumbered or subjected to lien any of its assets, tangible or intangible, (vi) sold, assigned or transferred any of its assets except in the ordinary course of business, or canceled any debt or claim, (vii) suffered any loss of property or waived any right of substantial value whether or not in the ordinary course of business, (ix) made any change in officer compensation except in the ordinary course of business and consistent with past practice, (x) made any material change in the manner of business or operations of the Company, (xi) entered into any transaction except in the ordinary course of business or as otherwise contemplated hereby, (xii) sold, assigned or transferred any claims, Real Property, or fee property, or (xiii) entered into any commitment (contingent or otherwise) to do any of the foregoing.

 

  

5

  

 

Section 2.7 Litigation; Compliance with Law and Organizational Documents.

 

(a) There is no (i) action, suit, claim, proceeding or investigation pending or, to the Company’s knowledge, threatened against or affecting the Company or any of its assets or properties, at law or in equity, or before or by any foreign or domestic, Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, (ii) arbitration proceeding relating to the Company pending under collective bargaining agreements or otherwise or (iii) foreign or domestic governmental inquiry pending or, to the Company’s knowledge, threatened against or affecting the Company (including without limitation, any inquiry as to the qualification of the Company to hold or receive any license or permit), and there is no basis for any of the foregoing.  The Company is not in default with respect to any order, writ, injunction or decree known to or served upon the Company of any court or of any foreign or domestic, Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign.  There is no action or suit by the Company pending, threatened or contemplated against others.

 

(b) The Company has not received any notice of any shareholder, member, or other equity holder action, suit, claim, proceeding or investigation that is pending or, to the Company’s knowledge, threatened against or affecting any Related Party or any of their respective assets or properties, at law or in equity, or before or by any foreign or domestic, Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality.

 

(c) The Company has complied with all foreign and domestic laws, rules, regulations and orders applicable to its business, operations, properties, assets, products and services, except where the failure to be so in compliance would not have a Material Adverse Effect.  The Company has all necessary permits, licenses and other authorizations required to conduct its business as conducted, and the Business has been operated pursuant to and in compliance in all material respects with the terms of all such permits, licenses and other authorizations; all such permits, licenses and other authorizations are listed on Section 2.7(c) of the Disclosure Schedule, other than permits, licenses and other authorizations the failure to have or maintain which would not reasonable be expected to have a Material Adverse Effect.  To the knowledge of the Company, there is no existing law, rule, regulation or order, whether foreign or domestic, Federal, state, county or local, which would prohibit or restrict the Company from, or otherwise materially adversely affect the Company in, conducting its business in any jurisdiction in which it is now conducting business.

 

  

6

  

 

Section 2.8 Properties; Assets.  The Company has good, clear and valid title to its properties and assets other than interests in real property (which are the subject of Section 2.9 below), including those reflected on the Balance Sheet or acquired by it since the date of the Balance Sheet, and, except as set forth on Section 2.8 of the Disclosure Schedule, all such properties and assets are free and clear of pledges, security interests, liens, charges, claims, restrictions and other encumbrances (including without limitation, licenses, except for Third Party Licenses consisting of off-the-shelf commercial software).  The tangible properties and assets of the Company used in the operation of its business are in good working condition and repair, ordinary wear and tear excepted.  The assets owned by the Company constitute all of the assets used or held for use or otherwise needed for the conduct of the Business by the Company.

 

Section 2.9 Real Property and Leases; Oil and Gas Leases.

 

(a) Section 2.9(a) of the Disclosure Schedule sets forth a legal description of all Real Property that the Company owns, leases or subleases, and any lien or encumbrance arising by, through or under the Company on any such owned Real Property or the Company’s leasehold interest therein.

 

(b) Section 2.9(b) of the Disclosure Schedule sets forth all (i) capital leases to which the Company is a party, (ii) Leases to which the Company is a party.

 

(c) Each Lease and all other leases or agreements to which the Company is a party under which it is a lessee of any Real Property or personal property (including mineral, oil and gas leases) (i) is a valid and subsisting agreement of the Company, duly authorized and entered into, acquired, or assumed by the Company, (ii) there exists no default of the Company thereunder which could reasonably be expected to give rise to, with due notice or lapse of time or both, a material penalty or termination thereof and, to the Company’s knowledge, there are no defaults thereunder by any other party thereto, (iii) all royalties, signing bonuses, delay rentals, and other payments due under the Leases have been timely and properly paid, and (iv) record title to all Leases is held in the name of the Company.  The Company’s possession of such property has not been disturbed and, to the Company’s knowledge, no claim has been asserted against the Company adverse to its rights in such leasehold interests.  All active mineral, oil, and gas leases to which the Company is a party, including each of the Leases (1) are on “pay” or “paid up” status with the applicable pipeline companies and lessors, (2) require no further obligation payments (including lease bonuses, lease rentals and deferred payments of any kind) through the remainder of the respect terms of such Leases, and (3) the Company is receiving its full share of net revenue from such Leases.

 

(d) The Company has paid all lease operating expenses, capital expenses, joint interest billings, and other costs and expenses attributable to the ownership and operation of the Leases and other Oil and Gas Assets in a timely manner before becoming delinquent.  None of the Company’s mineral, oil, and gas leases have been suspended during the time in which the Company has been party to such leases and payments have been made to the Company every month during the time in which the Company has been party to such leases.  The performance by the Company of this Agreement and the Transaction Documents will not result in the termination of, or in any increase of any amounts payable under, any Lease.  To the Company’s knowledge, there are no condemnation, environmental, zoning or other land use regulation proceedings, either instituted or to the Company's knowledge planned to be instituted, which would adversely affect the use or operation of the Company’s properties and assets for their respective intended uses and purposes, or the value of such properties, and the Company has not received notice of any special assessment proceedings which would affect such properties and assets.

 

  

7

  

 

(e) All of the Leases are held by production and are not expired.

 

(f) The Company is not a party to any agreement for the sale of hydrocarbons from the Oil and Gas Assets containing a take-or-pay, advance payment, prepayment or similar provision, or under any gathering, transmission or any other agreement with respect to the Oil and Gas Assets to gather, deliver, process or transport any hydrocarbons without then or thereafter receiving full payment therefor.

 

(g) With respect to each of the Leases: (i) the Net Acres attributable to each of the Leases total not less than the Stated Net Acres for such Lease and (ii) the Net Revenue Interest in each of the Oil and Gas Assets is not less than the Stated Net Revenue Interest for each such Oil and Gas Asset.

 

(h) The Oil and Gas Assets are free and clear of all liens, encumbrances, and material defects in and claims on title.

 

Section 2.10 Reserve Reports, Production Reports, and Lease Operating Statement.  The Company has delivered to the Purchaser true and correct copies of all reports requested or commissioned by any of the Related Parties in writing estimating the Company’s proved oil and gas reserves (the “Company Reserve Reports”), as well as unaudited production reports (the “Production Reports”) and a 2012 lease operating statement (the “Lease Operating Statement”).  The Company has no knowledge of any material errors in the assumptions and estimates employed in connection with the preparation of the Company Reserve Reports.  The Production Reports and the Lease Operating Statement are true and correct in all material respects.  Set forth in Section 2.10 of the Disclosure Schedule is a list of all oil and gas interests reflected in the Company Reserve Reports or that are otherwise held by the Company.  To the best of Company’s knowledge, the Company has good and defensible title for oil and gas purposes to all such oil and gas interests.

 

Section 2.11 Insurance.  Mesa or the Company has at all times maintained, and caused each of its subsidiaries (if any) to maintain as to the Company’s and its subsidiaries’ respective properties and business, insurance against such casualties and contingencies and of such types and in such amounts as is customary for companies similarly situated.

 

Section 2.12 Taxes.  Except as set forth in Section 2.12 of the Disclosure Schedule, the Company has filed all tax returns, Federal, foreign, state, county and local, required to be filed by it, and all taxes shown to be due by such returns as well as all other ad valorem, property, production, severance, excise and other taxes and assessments based on or measured by the ownership of the Oil and Gas Assets, the production of hydrocarbons therefrom or the receipt of proceeds therefrom as are due and payable, and all other taxes, assessments and governmental charges which have become due or payable have been paid, including without limitation all taxes which the Company is obligated to withhold from amounts owing to employees, creditors and third parties.  The Company has established adequate reserves for all taxes accrued but not yet payable.  All tax elections of any type that the Company has made as of the date hereof are set forth in the financial statements referred to in Section 2.5.  The Federal tax returns of the Company have never been audited by the Internal Revenue Service or other taxing or governmental authority.  No deficiency assessment with respect to or proposed adjustment of the Company’s Federal, state, county or local taxes is pending or, to the Company’s knowledge, threatened.  There is no tax lien (other than for current taxes not yet due and payable), whether imposed by any foreign, Federal, state, county or local taxing authority, outstanding against the assets, properties or business of the Company.  The Company has not elected to be treated as a corporation for Federal income tax purposes.  Neither the Company nor any of its present members or former stockholders has ever filed an election pursuant to Section 1362 of the Internal Revenue Code of 1986, as amended (the “Code”), that the Company be taxed as an “S” corporation.

 

  

8

  

 

Section 2.13 Other Agreements.  Except as provided in the Transaction Documents and as set forth in Section 2.13 of the Disclosure Schedule, the Company is not a party to or otherwise bound by any written or oral:

 

(a) agreement for the employment of any officer, employee or other person (whether of a legally binding nature or in the nature of informal understandings) on a full-time or consulting basis which is not terminable on notice without cost or other liability to the Company;

 

(b) bonus, pension, profit-sharing, retirement, hospitalization, insurance, equity purchase, equity incentive or other plan, agreement or understanding pursuant to which benefits are provided to any employee of the Company (other than as set forth in the LLC Agreement and group insurance plans which are not self-insured and are applicable to employees generally);

 

(c) agreement relating to the borrowing of money or to the mortgaging or pledging of, or otherwise placing a lien or security interest on, any asset of the Company;

 

(d) guaranty of any obligation for borrowed money or otherwise, including personal guarantees by members, managers, officers, or employees of the Company or any affiliate;

 

(e) voting trust or agreement, operating agreement, pledge agreement, buy-sell agreement or first refusal or preemptive rights agreement relating to any securities of the Company (other than the LLC Agreement and the limited liability company agreements of the Subsidiaries);

 

(f) agreement, or group of related agreements with the same party or any group of affiliated parties, under which the Company (a) has advanced or agreed to advance money or (b) has agreed to lease (other than leases covered by Section 2.9) any property as lessee or lessor exceeding $25,000 per annum individually;

 

  

9

  

 

(g) agreement or obligation (contingent or otherwise) to issue, sell or otherwise distribute or to repurchase or otherwise acquire or retire any of its equity securities, other than this Agreement;

 

(h) assignment, license or other agreement with respect to any form of intangible property;

 

(i) agreement obligating the Company to register any of its presently outstanding securities or any of its securities that may hereafter be issued;

 

(j) agreement relating to any conveyance of assets or liabilities, other than the Contribution Agreement;

 

(k) agreement under which it has limited or restricted its right to compete with any person in any respect;

 

(l) hedge, swap, option or other agreement related to the mitigation of risk; or

 

(m) other agreement or group of related agreements with the same party involving more than $25,000 or continuing over a period of more than six months from the date or dates thereof (including renewals or extensions optional with another party), which agreement or group of agreements is not terminable by the Company without penalty or cost upon notice of thirty (30) days or less.

 

The Company, and to the Company’s knowledge, each other party thereto have in all material respects performed all the obligations required to be performed by them to date (or such non-performing party has received a valid, enforceable and irrevocable written waiver with respect to its non-performance), have received no notice of default and are not in default (with due notice or lapse of time or both) under any agreement, instrument, commitment, plan or arrangement to which the Company is a party or by which it or its property may be bound.  The Company is in full compliance with all of the terms and provisions of the LLC Agreement.

 

Section 2.14 Loans and Advances.  Except to the extent set forth on Section 2.14 of the Disclosure Schedule, the Company does not have any outstanding loans or advances to any person and is not obligated to make any such loans or advances, except, in each case, for advances to employees of the Company in respect of reimbursable business expenses anticipated to be incurred by them in connection with their performance of services for the Company.

 

Section 2.15 Third Party Approvals.  Subject to the accuracy of the representations and warranties of the Purchaser set forth in Article III, no registration or filing with, or consent or approval of or other action by, any Federal, state or other governmental agency or instrumentality (a “Governmental Body”), and,  except as set forth in Section 2.15 of the Disclosure Schedule, no consent or approval of, or advance written notification to, any other person (including, for the avoidance of doubt, the respective shareholders or other equity owners of the Related Parties) is or will be necessary for the valid execution, delivery and performance by the Company of the Transaction Documents, the issuance, sale and delivery of the Purchased Units.

 

  

10

  

 

Section 2.16 Disclosure.  Neither this Agreement nor any Schedule or Exhibit to this Agreement or any other Transaction Document delivered by the Company to the Purchaser or their attorneys in connection herewith or therewith, when taken as a whole, contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading.  To the knowledge of the Company, there is no fact which the Company has not disclosed to the Purchaser in writing and of which the Company is aware which has resulted in or could result in a Material Adverse Effect.

 

Section 2.17 Offering of the Purchased Units.  Neither the Company nor any person authorized or employed by the Company as agent, broker, dealer or otherwise in connection with the offering or sale of the Purchased Units or any security of the Company similar to the Purchased Units has offered the Purchased Units or any such similar security for sale to, or solicited any offer to buy the Purchased Units or any such similar security from, or otherwise approached or negotiated with respect thereto with, any person or persons, and neither the Company nor any person acting on its behalf has taken or will take any other action (including, without limitation, any offer, issuance or sale of any security of the Company under circumstances which might require the integration of such security with Purchased Units under the Securities Act or the rules and regulations of the Securities and Exchange Commission (the “Commission”) thereunder), in either case so as to subject the offering, issuance or sale of the Purchased Units to the Purchaser to the registration provisions of the Securities Act.

 

Section 2.18 Brokers.  Except as set forth in Section 2.18 of the Disclosure Schedule, the Company has no contract, arrangement or understanding with any broker, finder or similar agent with respect to the transactions contemplated by this Agreement.

 

Section 2.19 Officers.  Set forth in Section 2.19 of the the Disclosure Schedule is a list of the names of the officers and other key persons (including any key consultants) of the Company and the Subsidiaries, together with the title or job classification of each such person and the total compensation anticipated to be paid to each such person by the Company in 2013. Except as set forth in Section 2.19 of the Disclosure Schedule, none of such persons has an employment agreement or understanding, whether oral or written, with the Company that is not terminable on notice by the Company without cost or other liability to the Company.

 

Section 2.20 Transactions with Affiliates.  Except as set forth in Section 2.20 of the Disclosure Schedule, no director, officer, employee or stockholder of the Company, any Related Party, or their respective affiliates, or member of the family of any such person, or any corporation, partnership, trust or other entity in which any such person, or any member of the family of any such person, has a substantial interest or is an officer, director, trustee, partner or holder of more than 5% of the outstanding capital stock thereof, is a party to any transaction with the Company, including any contract, agreement or other arrangement providing for the employment of, furnishing of services by rental of Real Property or personal property from or otherwise requiring payments to any such person or firm, other than employment-at-will arrangements in the ordinary course of business.

 

  

11

  

 

Section 2.21 Employees.  No employee or former employee of the Company is in violation of any term of any employment contract, patent disclosure agreement, confidentiality agreement or any other contract or agreement relating to the relationship of any such employee with the Company.  No officer or key employee of the Company has advised the Company (orally or in writing) that he intends to terminate employment with the Company.  The Company has complied in all material respects with all applicable laws relating to the employment of labor, including provisions relating to wages, hours, equal opportunity, collective bargaining and the payment of Social Security and other taxes.  The Company does not have collective bargaining agreements with any of its employees.

 

Section 2.22 ERISA.  Neither, the Company nor any trade or business which would be treated as a single employer with the Company for purposes of Section 4001 of ERISA or Section 414(b), (c), (m) or (o) of the Code (an “ERISA Affiliate”) has maintained, adopted or established, contributed to or been required to contribute to, or otherwise participated in or been required to participate in, (i) any “employee welfare benefit plan” or “welfare plan” as defined under Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), (ii) any “employee pension benefit plan” or “pension plan” as defined under Section 3(2) of ERISA, (iii) any “excess benefit plan” as defined under Section 3(36) of ERISA; (iv) any “multiemployer plan” as such term is defined under Section 3(37)(A) of ERISA; (v) any “multiple employer welfare arrangement” as defined under Section 3(40) of ERISA; (vi) any plan, fund, program, agreement or arrangement which is unfunded and which is maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees as such term is referred to in Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA; or (vii) any other plan, fund program, agreement or arrangement, whether oral or written, which is subject to any of the provisions of ERISA or to Section 401 of the Code.  Neither the Company nor any ERISA Affiliate has committed itself, orally or in writing, or is subject to any obligation, to create, establish, adopt, maintain or participate in any plan, fund, program, agreement or arrangement subject to the provisions of ERISA.  In addition, neither the Company nor any ERISA Affiliate is subject to any obligation to provide or to cause to be provided any severance, salary continuation, termination, disability, death, retirement, health or medical benefit, bonus or other incentive compensation, stock option, stock purchase, stock appreciation, lay-off or reduction in force, change in control, sick pay, vacation pay, retainer, leave of absence, educational assistance, service award, employee discount, fringe benefit or similar benefit to any person (including, without limitation, any former or current employee) under any contract, plan, arrangement, policy or practice, whether in writing or not, and whether legally binding or not.

 

Section 2.23 Environmental and Safety Laws.  The Company has conducted its business at all times in material compliance with all applicable Environmental Laws.  To the Company’s knowledge none of the properties (including Real Property) currently owned, leased or operated by the Company contain any Hazardous Substance in amounts exceeding in any material respects the levels permitted by applicable Environmental Laws.  The Company has not received any notices, demand letters or requests for information from any governmental authority or other person, which have not heretofore been resolved with such governmental authority or other person, indicating that the Company may be in violation of, or liable under, any Environmental Law.  There are no actions, suits, claims, proceedings, or investigations pending or to the Company’s knowledge threatened against the Company relating to any violation, or alleged violation, of any Environmental Law.  No reports have been filed, or are required to be filed, by the Company concerning the Release of any Hazardous Substance or the threatened or actual violation of any Environmental Law which have not heretofore been resolved.  To the Company’s knowledge no Hazardous Substance has been disposed of, Released, or transported in violation of any applicable Environmental Law from any properties (including Real Property) owned or operated by the Company, except where such event would not be reasonably expected to have a Material Adverse Effect.  No remediation (other than reclamation in the ordinary course of business) or investigation of Hazardous Substances is occurring at any Real Property owned or operated by the Company.  The Company and its properties (including Real Property) are not subject to any material liabilities relating to any proceeding, settlement, court order, administrative order, regulatory requirement, judgment or claim asserted or arising under any Environmental Law or relating to a violation or alleged violation of any Environmental Law by the Company or any person.

 

  

12

  

 

Section 2.24 Bank Accounts.  The Company and the Subsidiaries each maintain separate bank accounts.  Section 2.24 of the Disclosure Schedule sets forth all bank accounts maintained by the Company and each Subsidiary and all authorized signatories therefor, specifying their respective authority.  The accounts set forth on Section 2.24 of the Disclosure Schedule are the only bank accounts which the Company and the Subsidiaries use to conduct their respective businesses.

 

Section 2.25 Investment Company.  The Company is not an “investment company” as such term is defined in the Investment Company Act of 1940, as amended, and will not be an investment company under such Act after giving effect to the use of proceeds from the sale of the Shares to the Purchaser.

 

Section 2.26 Foreign Corrupt Practices Act.  The Company has not taken any action which would cause it to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any rules and regulations thereunder.  To the best of the Company’s knowledge after due inquiry, there is not now, and there has never been, any employment by the Company of, or beneficial ownership in the Company by, any governmental or political official in any country in the world.

 

Section 2.27 Plug and Abandonment Liabilities.  Section 2.27 of the Disclosure Schedule sets forth the Company’s plug and abandonment liabilities, the Company’s reserves in connection therewith, and the accounts where such reserves are kept, including all site-specific trust accounts.  Except for the Wells or wells that have been plugged and abandoned in accordance with all applicable laws, and except as set forth on Section 2.27 of the Disclosure Schedule, there are no dry holes, or shut in or otherwise inactive wells, located in any portion of the Oil and Gas Assets or on lands pooled or unitized therewith that were drilled, completed or operated by the Company or, to the Company’s knowledge, by any other operator. In addition, all Wells that were drilled, completed or operated by the Company, or drilled, completed or operated by a third party operator are in compliance with all applicable laws and such applicable laws do not, as of the Effective Date, require that such Wells be plugged or abandoned.

 

Section 2.28 Permits.  The Company has obtained and is maintaining all permits that are necessary or required for the ownership and operation of the Oil and Gas Assets as currently owned and operated. The Company has operated the Oil and Gas Assets in accordance with the conditions and provisions of such permits, and no written notices of violation have been received by the Company, and no proceedings are pending or, to the Company’s knowledge, threatened in writing that might result in any modification, revocation, termination or suspension of any such permits or that would require any corrective or remediation action by the Company.

 

  

13

  

 

Section 2.29 Drilling Obligations.  Except to the extent of those obligations previously fulfilled by the Company, none of the Leases contain any express provision obligating the Company to drill any wells (other than provisions requiring optional drilling as a condition of maintaining or earning all or a portion of a presently non-producing Lease).

 

Section 2.30 Non-Consent Operations. The Company has not elected not to participate in any operation or activity proposed with respect to any of the Leases or Wells that could result in any of the Company’s interest in any portion of the Oil and Gas Assets becoming subject to a preferential right, relinquishment, reassignment, penalty or forfeiture as a result of such election not to participate in such operation or activity.

 

Section 2.31 Preferential Rights and Consents.  There are no preferential rights to purchase or consents to assignment that are applicable to any of the Oil and Gas Assets and the transactions contemplated hereby.

 

Section 2.32 Area of Mutual Interest and Other Agreements.  None of the Oil and Gas Assets are subject to (i) any area of mutual interest agreement, or (ii) any farmout agreement, farmin agreement or similar agreement under which any party thereto is entitled to receive assignments not yet made, or could earn additional assignments.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

 

Section 3.1 Securities Act; Authorization.  The Purchaser, represents and warrants to the Company and the Related Parties that:

 

(a) it is an “accredited investor” within the meaning of Rule 501 under the Securities Act and was not organized for the specific purpose of acquiring the Purchased Units; and

 

(b) the Purchased Units being purchased by it are being acquired for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof.

 

Section 3.2 Organization and Authorization of Purchaser.  Purchaser is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Nevada with all requisite limited liability company power and authority to own, lease and operate its properties and to carry on its business as now being conducted.  Purchaser has the requisite limited liability company power, capacity and authority to execute and deliver this Agreement and the Transaction Documents to which it is a party.  The execution and delivery of this Agreement and such other agreements and documents by Purchaser and the consummation by Purchaser of the transactions contemplated hereby have been duly authorized by Purchaser and no other action on the part of Purchaser is necessary to authorize the transactions contemplated by this Agreement.  This Agreement has been duly executed and delivered by Purchaser and constitutes the valid and binding obligation of Purchaser, enforceable in accordance with its terms, except that (a) such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally, and (b) the remedies of specific performance and injunctive relief are subject to certain equitable defenses and to the discretion of the court before which any proceedings may be brought.

 

  

14

  

 

Section 3.3 No Violation.  The execution and delivery of this Agreement and the other agreements and documents contemplated hereby by Purchaser and the consummation of the Transactions will not (a) violate any provision of the organizational documents of Purchaser, (b) violate any law or order by which Purchaser or its properties or assets are bound, or (c) result in a violation or breach of, or constitute a default under or result in the creation of any encumbrance upon, or create any rights of termination, cancellation or acceleration in any Person with respect to any indenture or material agreement or instrument to which Purchaser is a party or any of its properties or assets is bound, in each case that would affect the Purchaser’s ability to consummate the transactions contemplated by this Agreement.

 

Section 3.4 Consents. No consent, approval or other authorization of any governmental authority or third party is required as a result of or in connection with the execution and delivery of this Agreement and the other Transaction Documents to be executed by Purchaser or the consummation by Purchaser of the transactions contemplated by this Agreement.

 

Section 3.5 Brokerage, Financial Advisor or Finder Fees.  No agent, advisor, broker, person or firm acting on behalf of the Purchaser is, or will be, entitled to any commission or broker’s, advisor’s or finder’s fees from the Company in connection with any of the transactions contemplated hereby.

 

ARTICLE IV

 

CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER

 

Section 4.1 Condition to the Obligations of the Purchaser on the Initial Closing Date.  The obligation of the Purchaser to purchase and pay for the Purchased Units being purchased by it on the Initial Closing Date is subject to the satisfaction or waiver, on or before the Initial Closing Date, of the following conditions:

 

(a) Opinion of Company’s Counsel.  The Purchaser shall have received from Gottbetter & Partners, LLP, counsel for the Company and the Parent Parties, an opinion dated the Initial Closing Date, in form and scope reasonably satisfactory to the Purchaser and their counsel, in the form set forth on Exhibit F attached hereto.

 

(b) Representations and Warranties to be True and Correct.  The representations and warranties contained in Article II shall be true, complete and correct on and as of the Initial Closing Date with the same effect as though such representations and warranties had been made on and as of such date, and the President of the Company shall have certified to such effect to the Purchaser in writing.

 

(c) All Proceedings to be Satisfactory.  All corporate and other proceedings to be taken by the Company in connection with the transactions contemplated hereby and all documents incident thereto shall be satisfactory in form and substance to the Purchaser and their counsel, and the Purchaser and their counsel shall have received all such counterpart originals or certified or other copies of such documents as they reasonably may request.

 

  

15

  

 

(d) Supporting Documents.  The Purchaser and its counsel shall have received copies of the following documents:

 

(i) (A) the Certificate, certified as of a recent date by the Secretary of State of the State of Delaware, and (B) a certificate of said Secretary, dated as of a recent date, as to the due organization and good standing of the Company;

 

(ii) certificates of the Secretary or an Assistant Secretary of the Company and each Related Party dated the Initial Closing Date and certifying: (A) that attached thereto is a true and complete copy of the By-laws (or, other organizational documents) of the Company or Related Party, as applicable, as in effect on the date of such certification; (B) that attached thereto is a true and complete copy of all resolutions adopted by the Board of Directors and the stockholders of the Company or Related Party, as applicable, authorizing the execution, delivery and performance of the Transaction Documents, the issuance, sale and delivery of the Purchased Units, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by the Transaction Documents; (C) that the Certificate or other appropriate organizational document, as applicable has not been amended since the date of certification set forth on the Certificate or other organizational document delivered pursuant to clause (i)(A) above; (D) that no proceeding for liquidation or dissolution of the Company or Related Party, as applicable, is pending or contemplated; and (E) to the incumbency of each officer of the Company or Related Party, as applicable, executing any of the Transaction Documents and any certificate or instrument furnished pursuant hereto, and a certification by another officer of the Company or Related Party, as applicable, as to the incumbency of the officer signing the certificate referred to in this clause (ii); and

 

(iii) such additional supporting documents and other information with respect to the operations and affairs of the Company as the Purchaser or their counsel reasonably may request.

 

(e) LLC Agreement.  The LLC Agreement shall have been executed and delivered by each party thereto other than the Purchaser.

 

(f) Bank Consent.  The Purchaser shall have received an executed document evidencing the Bank’s consent to the transactions contemplated by this Agreement, in form and scope reasonably satisfactory to the Purchaser and their counsel.

 

(g) Contribution Agreement.  The Company and Mesa shall have executed a Contribution Agreement in the form set forth on Exhibit D attached hereto.

 

  

16

  

 

(h) Transition Services Agreement.  The Purchaser and Mesa shall have executed a Transition Services Agreement in the form set forth on Exhibit G attached hereto.

 

ARTICLE V

 

COVENANTS

 

Section 5.1 F&M Facility.  In the event that there is a default under the F&M Facility, Purchaser shall have the right to pay such amounts to the Bank as may be necessary to cure such default.  Any such payment shall be deemed to be a capital contribution under the terms of the LLC Agreement.  In the event that any cash or other property is transferred from the Company or any Subsidiary (including, without limitation, pursuant to an account control agreement) in connection with the F&M Facility, whether voluntarily or involuntarily, then Purchaser’s pro rata share of such cash or other property (in proportion to Purchaser’s Ownership Percentage, as that term is defined in the LLC Agreement) shall be deemed to be a capital contribution by the Purchaser under the terms of the LLC Agreement.  The Parent Parties agree not to take, or fail to take, any action, including requesting advances or borrowing additional funds, that will result in the Bank advancing any funds under the F&M Facility or making any payment that would be deemed to be an advance of funds to the extent such advance or payment would result in the total amount of principal and interest outstanding under the F&M Facility to be more than $8,222,693 or in the total amount of letters of credit outstanding to be more than $4,603,125.  If the Bank’s liens on the assets of the Company and the Subsidiaries are not removed by December 31, 2014, Purchaser shall have the right to pay such amounts to the Bank and/or provide such other security and/or replacement letters of credit as may be necessary to remove all such liens.  Any such payment shall be deemed to be a capital contribution under the terms of the LLC Agreement.

 

Section 5.2 Effective Time Balance Sheet.  Mesa hereby assumes and agrees to timely discharge (i) all current liabilities and trade payables accrued as of 11:59 p.m. CST on December 31, 2013 (the “Effective Time”), or otherwise relating to services performed or goods delivered on or before the Effective Time and (ii) any obligations under any hedge agreements relating to production prior to the Effective Time.  The Purchaser agrees that all cash held by the Company as of the Effective Time or collected by the Company after the Effective Time, in each case, that represents revenue accrued by the Company as of the Effective Time shall be distributed to Mesa (including, for the avoidance of doubt, any amounts owed to the Company under any hedge agreements relating to production prior to the Effective Time); provided that any cash held by the Company as of the Effective Time which represents pre-paid revenue that would otherwise be accrued after the Effective Time shall remain with the Company.  For illustrative purposes, attached as Exhibit H is a pro forma statement of the assets and liabilities of the Company as of January 1, 2014 that gives effect to the foregoing assumption of liabilities of Mesa and allocation of cash to Mesa.

 

  

17

  

 

ARTICLE VI

 

MISCELLANEOUS

 

Section 6.1 Expenses.  The Company shall pay the all of the reasonable, documented out-of-pocket expenses of Purchaser and Purchaser’s affiliates in connection with the transactions contemplated hereby and in connection with any subsequent amendment or waiver thereof, including without limitation all reasonable fees and disbursements of any outside accounting, legal, insurance, real estate, environmental, geological, or other professionals engaged by Purchaser in connection with such transactions.

 

Section 6.2 Survival of Agreements; Indemnification.

 

(a) All covenants and agreements made in this Agreement or any other Transaction Document shall survive the execution and delivery of the Transaction Documents and the issuance, sale and delivery of the Purchased Units.  All representations and warranties made in this Agreement or any other Transaction Document shall survive for a period of eighteen (18) months following the Initial Closing Date, except that the representations and warranties made in Sections 2.1, 2.2, 2.3 and 2.4 (the “Fundamental Representations”) will survive until the expiration of the applicable statute of limitation.  All statements contained in any certificate or other instrument delivered by the Company and/or the Related Parties hereunder or thereunder or in connection herewith or therewith shall be deemed to constitute representations and warranties made by the Company and the Related Parties.  All covenants, agreements, representations, and warranties made herein or in the Transaction Documents or any other document referred to herein or delivered to the Purchaser pursuant hereto will be deemed to have been relied on by the Purchaser, notwithstanding any investigation made by or on behalf of the Purchaser.

 

(b) The Parent Parties will jointly and severally defend, indemnify and save and hold harmless the Purchaser and its affiliates, together with their respective stockholders, members, partners, officers, directors, managers, employees, trustees, attorneys and representatives and affiliates (each, an “Indemnified Person”), from and against any and all losses, costs, expenses, liabilities, claims or legal damages (including, without limitation, reasonable fees and disbursements of counsel and accountants and other costs and expenses incident to any actual or threatened claim, suit, action or proceeding, whether incurred in connection with a claim against the Company or a third party claim) (collectively, “Losses”) arising out of or resulting from:  (i) any inaccuracy in or breach of any representation, warranty, covenant or agreement made by the Company or the Related Parties in this Agreement, any Transaction Document or in any certificate or other writing delivered pursuant to this Agreement, any Transaction Document or at Initial Closing; (ii) the failure of the Company or any Related Party to perform or observe fully any covenant, agreement or provision to be performed or observed by it pursuant to this Agreement or any Transaction Document; (iii) any legal, administrative or other proceedings brought by any existing shareholders of Armada arising out of the transactions contemplated by this Agreement or any Transaction Document; or (iv) any litigation, tax, regulatory, environmental, employment or other claims made against the Company or any Subsidiary relating to the period of time prior to the Initial Closing Date; provided, however, that, if and to the extent that any indemnification is unenforceable for any reason, the Related Parties shall make the maximum contribution to the payment and satisfaction of such indemnified liability which shall be permissible under applicable laws.

 

  

18

  

 

(c) Each Indemnified Person shall notify the Related Parties in writing of any action against such Indemnified Person in respect of which the Company may be obligated to provide indemnification on account of Section 6.2, promptly (which in the case of formal litigation against the Indemnified Person, shall mean within thirty (30) days of the receipt of any summons) after the receipt of notice of the commencement thereof.  The omission of any Indemnified Person so to notify the Related Parties of any such action shall not relieve the Related Parties from any liability which the Related Parties may have to such Indemnified Person except to the extent the Related Parties shall have been materially prejudiced by the omission of such Indemnified Person to so notify the Related Parties, pursuant to this Section 6.2.  In case any such action shall be brought against any Indemnified Person and it shall notify the Related Parties of the commencement thereof, the Related Parties shall be entitled to participate therein and, to the extent that the Related Parties may wish, to assume the defense thereof, with counsel selected by the Related Parties and reasonably satisfactory to such Indemnified Person; provided, however, that (i) if the Parent Parties shall elect not to assume the defense of such claim or action or (ii) if the Indemnified Person reasonably determines (x) that there may be a conflict between the positions of any Parent Party and of the Indemnified Person in defending such claim or action or (y) that there may be legal defenses available to such Indemnified Person different from or in addition to those available to the Related Parties, then separate counsel for the Indemnified Person shall be entitled to participate in and conduct the defense and the Related Parties shall be liable for any reasonable legal or other expenses incurred by the Indemnified Person in connection with the defense.  The Related Parties will not file any papers or consent to the entry of any judgment or enter into any settlement with respect to any third party claim against an Indemnified Person without the prior written consent of such Indemnified Person.

 

Section 6.3 Parties in Interest.  All representations, covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not.  Without limiting the generality of the foregoing, all representations, covenants and agreements benefiting the Purchaser shall inure to the benefit of any and all subsequent holders from time to time of Purchased Units.

 

Section 6.4 Notices.  All notices, requests, consents and other communications hereunder shall be in writing and shall be delivered in person, mailed by certified or registered mail, return receipt requested, or sent by facsimile, addressed as follows:

 

(a) if to the Company or the Parent Parties, to such parties at 5220 Spring Valley Road, Suite 615, Dallas, TX  75254, Facsimile Number:  (972-490-9161), Attn:  Randy M. Griffin, with an email copy (which shall not constitute notice) to rgriffin@armadaoil.us, and with a copy to Gottbetter & Partners, LLP, 488 Madison Avenue, 12th Floor, New York, NY  10022, Facsimile Number:  (212) 400-6930, Attn:  Barrett S. DiPaolo.

 

  

19

  

 

(b) if to the Purchaser, to it at 757 Third Avenue, Suite 1703, New York, New York 10017, Facsimile Number: (646) 467-5271, Attn: Marceau N. Schlumberger and Peter Meyers, with an email copy (which shall not constitute notice) to marceau@coralreefcap.com and peter@coralreefcap.com, and with a copy to Herrick, Feinstein LLP, 2 Park Avenue, New York, NY 10016, Facsimile Number: (212) 592-1500, Attn.: John A. Rogers, Esq.;

 

or, in any such case, at such other address or addresses as shall have been furnished in writing by such party to the others.

 

Section 6.5 Governing Law; Exclusive Jurisdiction; Waiver of Jury Trial. 

 

(a) This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without regard to conflict of laws principles thereof that would cause the application of the laws of a jurisdiction other than the State of New York.

 

(b) Each party hereto hereby consents to the non-exclusive jurisdiction of a federal court located within the county of New York, State of New York, (or if there shall not be federal jurisdiction in such court, a state court located within the county of New York, State of New York) and irrevocably agrees that all actions or proceedings relating to or arising out of this Agreement, the Transaction Documents, or the Purchased Units may be tried and litigated in such court.  Each party hereto hereby waives to the extent not prohibited by applicable law, and agrees not to assert, by way of motion, as a defense or otherwise, in any such action, suit, or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that it is immune from extraterritorial injunctive relief or other injunctive relief, that its property is exempt or immune from attachment or execution, that any such action, suit, or proceeding may not be brought or maintained in one of the above-named courts, that any such action, suit or proceeding brought or maintained in one of the above-named courts should be dismissed on the grounds of forum non conveniens, should be transferred to any court other than one of the above-named courts, or that this agreement or the subject matter hereof may not be enforced in or by any of the above-named courts.  Each of the parties hereto hereby consents to service of process in any such action, suit, or proceeding in any manner permitted by the laws of the State of New York, agrees that service of process by registered or certified mail, return receipt requested, to the persons and at the addresses set forth in Section 6.4 above, is reasonably calculated to give actual notice, and waives and agrees not to assert by way of motion, as a defense or otherwise, in any such action, suit or proceeding any claim that such service of process does not constitute good and sufficient service of process.

 

(c) Each party hereto hereby waives its rights to a jury trial of any claim or cause of action based upon or arising out of this Agreement, the Transaction Documents, or the subject matter hereof or thereof.  The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including, without limitation, contract claims, tort claims, breach of duty claims, and all other common law and statutory claims.  This Section 6.6 has been fully discussed by each of the parties hereto and these provisions shall not be subject to any exceptions.  Each party hereto hereby further warrants and represents that such party has reviewed this waiver with its legal counsel, and that such party knowingly and voluntarily waives its jury trial rights following consultation with legal counsel.  This waiver is irrevocable, meaning that it may not be modified either orally or in writing, and this waiver shall apply to any subsequent amendments, supplements or modifications to (or assignments of) this agreement.  In the event of litigation, this agreement may be filed as a written consent to a trial (without a jury) by the court.

 

  

20

  

 

Section 6.6 Entire Agreement.  This Agreement, including the Schedules and Exhibits hereto, constitutes the sole and entire agreement of the parties with respect to the subject matter hereof.  All Schedules and Exhibits hereto are hereby incorporated herein by reference.

 

Section 6.7 Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

Section 6.8 Amendments.  This Agreement may not be amended or modified, and no provisions hereof may be waived, without the written consent of the Company and the Purchaser.

 

Section 6.9 Severability.  If any provision of this Agreement shall be declared void or unenforceable by any judicial or administrative authority, the validity of any other provision and of the entire Agreement shall not be affected thereby.

 

Section 6.10 Titles and Subtitles.  The titles and subtitles used in this Agreement are for convenience only and are not to be considered in construing or interpreting any term or provision of this Agreement.

 

Section 6.11 Certain Defined Terms.  As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

 

(a) “affiliate” or “affiliated” shall mean, with respect to any person, any other person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such specified person.

 

(b) “Bank” means The F&M Bank & Trust Company.

 

(c) “Environment” shall mean navigable waters, waters of the contiguous zone, ocean waters, natural resources, surface waters, ground water, drinking water supply, land surface, subsurface strata, ambient air, both inside and outside of buildings and structures, man-made buildings and structures, and plant and animal life on earth.

 

(d) “Environmental Laws” shall mean all laws, ordinances, regulations, codes, orders, judgments, injunctions, awards or decrees relating to pollution, protection of the Environment, public or worker health and safety, or the emission, discharge, release or threatened release of pollutants, contaminants or industrial, medical, toxic or hazardous substances or wastes into the Environment or otherwise relating to the manufacturing, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants or industrial, medical, toxic or hazardous substances or wastes, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act, 42 USC Section 9601 et. seq., the Resource Conservation and Recovery Act, 42 USC Section 6901 et. seq., the Toxic Substances Control Act, 15 USC Section 2601 et. seq., the Federal Water Pollution Control Act, 33 USC Section 1251 et. seq., the Clean Air Act, 42 USC Section 121 et. seq., the Federal insecticide, Fungicide and Rodenticide Act, 7 USC Section 121 et. seq., the Occupational Safety and Health Act, 29 USC Section 651 et. seq., the Asbestos Hazard Emergency Response Act, 15 USC Section 2641 et. seq., the Safe Drinking Water Act, 42 USC Section 300f et. seq., the Oil Pollution Act of 1990 and analogous state acts, and all such laws, ordinances, regulations, codes, orders, judgments, injunctions, awards and decrees as are applicable.

 

  

21

  

 

(e) “F&M Facility” shall mean the Loan Agreement, dated July 22, 2011 among Mesa Energy, Inc, Mesa Energy Holdings, Inc., the Subsidiaries and the Bank.

 

(f) “Hazardous Substance” shall mean any toxic waste, pollutant, hazardous substance, toxic substance, hazardous waste, special waste, industrial substance or waste, petroleum or petroleum-derived substance or waste, radioactive substance or waste, or any constituent of any such substance or waste, or any other substance regulated under or defined by any Environmental Law.

 

(g) “knowledge of the Company” or “the Company’s knowledge” shall mean, with respect to a particular fact or matter (i) the actual knowledge of such fact or matter of any member of the board of directors or executive officer (including, for the avoidance of doubt, David Freeman) of the Company or any Related Party and (ii) such knowledge of such fact or matter as any such persons would reasonably be expected to discover or otherwise become aware of in the ordinary course of performing his or her respective responsibilities.

 

(h) “Leases” shall mean the active oil, gas, and/or mineral leases to which the Company or any Subsidiary is a party.

 

(i) “Net Acres” shall mean, with respect to a particular Lease, the interest in and to all oil, gas and other minerals produced, saved and sold from or allocated to such Lease, after giving effect to all valid landowners’ royalties, overriding royalties, production payments and other burdens upon, measured by, or payable out of production therefrom.

 

(j) “Net Revenue Interest” shall mean, with respect to a particular Oil and Gas Asset, the interest in and to all oil and gas produced, saved and sold from or allocated to such Oil and Gas Asset, after giving effect to all valid landowners’ royalties, overriding royalties, production payments and other burdens upon, measured by, or payable out of production therefrom.

 

(k) “Oil and Gas Assets” shall mean all rights, titles, and interests owned by any of the Company or any Subsidiary in and to the Leases and the Wells.

 

  

22

  

 

(l) “person” shall mean an individual, corporation, trust, partnership, joint venture, unincorporated organization, government agency or any agency or political subdivision thereof, or other entity.

 

(m) “Real Property” shall mean real property, easements, rights of way, mining claims, water rights, and leaseholds.

 

(n) “Release” shall mean any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into, onto, or through the indoor or outdoor Environment or into, through, or out of any property, including the movement of Hazardous Substances through or in the air, soil, surface water, ground water, or property.

 

(o) “Stated Net Acres” shall mean, with respect to any Lease, the Net Acres as set forth in such Lease.

 

(p) “Stated Net Revenue Interest” shall mean, with respect to any Lease, the Net Revenue Interest as set forth in such Lease.

 

(q) “subsidiary” shall mean, as to the Company, any corporation, partnership, limited liability company or other legal entity of which more than 50% of the outstanding voting power or the ability to designate a majority of the Board of Directors or other governing body, as the case may be (irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency), is at the time directly or indirectly owned by the Company, or by one or more of its subsidiaries, or by the Company and one or more of its subsidiaries.

 

(r) “Wells” shall mean the active oil and gas wells owned, leased, or operated by the Company or any Subsidiary.

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

 

  

23

  

 

IN WITNESS WHEREOF, the Company and the Purchaser have executed this Agreement as of the day and year first above written.

 

ARMADA OIL, INC.

 

By:                                                                      

 

Name:

 

Title:

 

MESA ENERGY, INC.

 

By:                                                                      

 

Name:

 

Title:

 

GULFSTAR RESOURCES LLC

 

By:                                                                      

 

Name:

 

Title:

 

TNR HOLDINGS LLC

 

By: Mesa Energy, Inc., its managing member

 

By:                                                                      

 

Name:

 

Title:

 

  

Schedule I

  

 

Exhibit A

Use of Proceeds from Initial Unit Purchase

The initial budget for the Use of Proceeds from the Initial Unit Purchase (Tranche A) is as follows:

In the Lake Hermitage Field:

 

	LLDSB # 4 - pull tubing, clean or replace joints as necessary and re-perforate	$    350,000
	 	 
	LLDSB # 30 – pull tubing, clean or replace joints as necessary and re-perforate 	$    250,000
	 	 
	Conversion of existing well bore with no future utility to SWD well  	$   350,000
	 	 
	Acquire and re-process 3-D over the Lake Hermitage Field	$   225,000
	 	 
	Sidetrack the LLDSB   # 34	$2,700,000
	 	 
	LLDSB # 5 – pull tubing, clean or replace joints as necessary and re-perforate	$   200,000
	
    Contingency and reserve for additional projects and cash requirements

    to be approved by the Management Committee and a majority of the 

    holders of Class A Units

	 
	 	 
	Working Capital to be retained by TNR Holdings LLC	$   425,000
	 	 
	Commitment Fees and Transaction Expenses	$   250,000
	 	 
	Total for Tranche A	$6,250,000

*  The first two projects listed above are certain.  Beyond those two, the project selection, budget and order of completion shall be at the discretion of the Management Committee and upon the consent of a majority of the holders of Class A Units.

  

  

  

 

Exhibit B

Use of Proceeds from Subsequent Closing(s)

The initial budget for the Use of Proceeds from the Subsequent Closing (s) (Tranche B) is not yet determined but shall ultimately be to acquire producing properties or properties that are imminently producible, as reasonably determined by Armada after consultation with the Purchaser, in order to remove, if not entirely, then at least fifty percent (50%) of, the F&M Bank lien from the portion of the properties owned by TNR that is equivalent to the Purchaser’s portion of the ownership of the Company.  The Purchaser and Armada shall work together in this regard in the identification and evaluation of prospective properties.  Subject to the above, the general budget is:

 

	Acquire producing properties or properties that are imminently producible	$5,850,000
	 	 
	Funds to Armada to pay off existing unsecured debt balance  	$   650,000
	 	 
	Commitment Fees and Expenses	$   200,000
	 	    
	Total for Tranche B	$6,700,000

 

  

  

  

 

Exhibit C

 

Use of Proceeds from Purchase Option Exercise

Upon completion of the Purchaser’s due diligence and at the Purchaser’s sole discretion, the Company will be permitted to draw on Tranche C of the Total Commitment.  The preliminary budget for the Use of Proceeds from the Purchase Option Exercise (Tranche C) is as follows:

 

	Wyoming:	 
	 	 
	Drill pilot hole/vertical well as a Tensleep and log	$1,000,000
	 	 
	Complete as vertical well	$   800,000
	 	 
	Contingency to complete as horizontal Niobrara well	$2,400,000
	 	 
	Infrastructure/additional contingency	$   200,000
	 	 
	Commitment Fees and Expenses	$   150,000
	 	 
	Total for Tranche C	$4,550,000

In connection with the development of the Parent Parties’ (or their Subsidiaries’) Wyoming properties:  In any well (or portion of a well) drilled with proceeds from the Purchaser, Purchaser shall receive a 5% permanent overriding royalty interest (“ORRI”) and a 5% temporary ORRI, to be assigned upon receipt of an executed lease per the appropriate Parent Party’s (or an affiliate’s) Seismic and Farmout Agreement with Anadarko Petroleum, in the initial lease drilled in the Parent Parties’ Wyoming project area.  Upon a sale of assets by the appropriate Parent Party (or any affiliate) that includes the leasehold on which a temporary ORRI has been assigned, the Purchaser agrees to include the temporary ORRI in the sale at a price reasonably equivalent to the asset sale price being received by such  Parent Party (or its affiliate).  In any case where a Parent Party’s (or its affiliate’s) working interest in the well is less than 100%, the ORRIs shall be proportionately reduced.

In connection with the development of the Parent Parties’ (or their Subsidiaries’) Oklahoma properties:  In any well (or portion of a well) drilled with proceeds from the Purchaser, Purchaser shall receive a permanent ORRI on a per drilling unit basis equal to the difference between the existing royalty burden on each lease comprising the unit and 75%.  In addition, Purchaser shall receive a temporary ORRI equal to the difference between the permanent ORRI and 10%.  Upon a sale of assets by the appropriate Parent Party (or any affiliate) that includes the leasehold on which a temporary ORRI has been assigned, Purchaser agrees to include the temporary ORRI in the sale at a price reasonably equivalent to the asset sale price being received by such Parent Party (or its affiliate).  In any case where the a Parent Party’s (or its affiliate’s) working interest in the well is less than 100%, the ORRIs shall be proportionately reduced.ex10-2.htm

EXHIBIT 10.2

 

 

 

 

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

 

OF

 

TNR HOLDINGS LLC

 

Dated as of December 20, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

  

  

 

TABLE OF CONTENTS

 

 

 

	  	  	
Page

	ARTICLE 1 FORMATION AND ORGANIZATION	
1

	
Section 1.1

	
Formation

	
1

	
Section 1.2

	
Basic Rights of Members

	
1

	
Section 1.3

	
Name

	
1

	
Section 1.4

	
Term

	
2

	
Section 1.5

	
Business

	
2

	
Section 1.6

	
Principal Place of Business; Registered Office and Agent

	
2

	
Section 1.7

	
No Liability

	
2

	 	 
	ARTICLE 2 UNITS AND CAPITAL CONTRIBUTIONS	
2

	
Section 2.1

	
Units

	
2

	
Section 2.2

	
Additional Capital Contributions; Dilution

	
4

	
Section 2.3

	
Return of or on Capital Contributions

	
4

	
Section 2.4

	
No Liability; No Deficit Restoration

	
4

	
Section 2.5

	
Waiver of Other Rights

	
5

	 	 
	ARTICLE 3 DISTRIBUTIONS	
5

	
Section 3.1

	
Distributions of Available Cash

	
5

	
Section 3.2

	
Tax Distributions

	
6

	
Section 3.3

	
Withholding

	
7

	 	 
	ARTICLE 4 MANAGEMENT OF COMPANY	
7

	
Section 4.1

	
Management Committee

	
7

	
Section 4.2

	
Approval over Major Decisions

	
9

	
Section 4.3

	
Action by Written Consent

	
10

	
Section 4.4

	
Member Voting Rights

	
10

	
Section 4.5

	
Member and Manager Liability

	
10

	
Section 4.6

	
Coral Reef Consulting Agreement

	
11

	 	 
	ARTICLE 5 REPRESENTATIONS OF MEMBERS	
11

	
Section 5.1

	
Representations of each Member

	
11

	
Section 5.2

	
Securities Laws Representations

	
12

	 	 
	ARTICLE 6 TRANSFERS OF MEMBERSHIP INTERESTS AND INTERESTS IN MEMBERS	
12

	
Section 6.1

	
General Restriction

	
12

	
Section 6.2

	
Transfer of Membership Interests

	
12

	
Section 6.3

	
Right of First Refusal

	
13

	
Section 6.4

	
Transfer Requirements Regarding Membership Interest

	
14

	
Section 6.5

	
Compelled Sale Right

	
15

	
Section 6.6

	
Co-Sale Rights

	
16

	
Section 6.7

	
General Rules

	
16

	 	 
	ARTICLE 7 OBLIGATIONS OF MEMBERS	
16

 

 

 

 

 

	
Section 7.1

	
No Partition

	
16

	
Section 7.2

	
No Right to Act

	
17

	
Section 7.3

	
Investment Opportunities

	
17

	
Section 7.4

	
Confidential Information and Materials

	
17

	 	 
	ARTICLE 8 INDEMNIFICATION	
19

	
Section 8.1

	
Indemnification by Company

	
19

	
Section 8.2

	
Advancement of Expenses

	
19

	
Section 8.3

	
Contract with the Company

	
20

	
Section 8.4

	
Indemnification of Employees and Agents

	
20

	
Section 8.5

	
Nonexclusivity of Rights

	
20

	
Section 8.6

	
Insurance

	
20

	
Section 8.7

	
Savings Clause

	
20

	 	 
	ARTICLE 9 FINANCIAL AND ACCOUNTING MATTERS	
20

	
Section 9.1

	
Books and Records

	
20

	
Section 9.2

	
Bank Accounts

	
21

	
Section 9.3

	
Financial Statements

	
21

	 	 
	ARTICLE 10 TAX MATTERS	
21

	
Section 10.1

	
Taxation as Partnership

	
21

	
Section 10.2

	
Capital Accounts; Tax Allocations

	
21

	
Section 10.3

	
Tax Matters Member

	
22

	
Section 10.4

	
Tax Returns; Tax Elections

	
22

	 	 
	ARTICLE 11 DISSOLUTION AND WINDING UP	
23

	
Section 11.1

	
Events Resulting in Dissolution

	
23

	
Section 11.2

	
Procedure

	
23

	 	 
	ARTICLE 12 NOTICES	
24

	
Section 12.1

	
Notices

	
24

	
Section 12.2

	
Addresses for Notices

	
24

	 	 
	ARTICLE 13 MISCELLANEOUS	
24

	
Section 13.1

	
Entire Agreement

	
24

	
Section 13.2

	
Amendments

	
24

	
Section 13.3

	
Successors and Assigns

	
25

	
Section 13.4

	
No Third Party Beneficiaries

	
25

	
Section 13.5

	
Governing Law

	
25

	
Section 13.6

	
Jurisdiction; Choice of Forum

	
25

	
Section 13.7

	
Waiver of Jury Trial

	
25

	
Section 13.8

	
Severability

	
25

	
Section 13.9

	
Captions

	
26

	
Section 13.10

	
Further Assurances

	
26

	
Section 13.11

	
Counterparts

	
26

	
Section 13.12

	
Herrick, Feinstein LLP

	
26

  

  

  

  

 

SCHEDULES AND EXHIBITS

 

	
Schedule A

	
List of Members

	
Schedule B

	
Permitted Indebtedness

	
Exhibit A

	
Definitions

	
Exhibit B

	
Joinder Agreement

	
Exhibit C

	
Capital Accounts; Tax Allocations

  

  

  

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

 

of

 

TNR HOLDINGS LLC

 

This AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this “Agreement”) is dated as of December 20, 2013 (“Effective Date”) and is made by and among the members set forth on Schedule A attached hereto, and each other person who hereafter is admitted to the Company as a Member (as defined herein) in accordance with the terms hereof.  Exhibit A to this Agreement sets forth the definitions of capitalized words and phrases used in this Agreement.

 

R E C I T A L S

 

WHEREAS, the Company was formed as a limited liability company under the Delaware Act by the filing on December 16, 2013 of the Certificate of Formation of the Company in the office of the Secretary of State of Delaware; and

 

WHEREAS, the Company is a party to that certain Limited Liability Company Agreement (the “Original LLC Agreement”), effective as of December 16, 2013, between the Company and Mesa Energy, Inc., a Nevada corporation;

WHEREAS, in connection with the execution of the Unit Purchase Agreement, the parties hereto desire to enter into this Agreement to amend and restate the Original LLC Agreement to set out in this Agreement their respective rights, obligations and duties with respect to the Company and its business, management and operations.

 

NOW, THEREFORE, in consideration of the terms, covenants and conditions contained herein, the parties hereby agree as follows:

 

ARTICLE 1

 

FORMATION AND ORGANIZATION

 

Section 1.1 Formation.  The Company was formed as a Delaware limited liability company pursuant to the Delaware Act by the filing on December 16, 2013 of the Certificate of Formation (the “Certificate”) of the Company with the Secretary of State of Delaware.

 

Section 1.2 Basic Rights of Members.  The Members intend and agree that this Agreement is for all purposes the “limited liability company agreement” of the Company as defined in the Delaware Act.

 

Section 1.3 Name.  The business of the Company shall be conducted under the name “TNR Holdings LLC” or such other name as the Management Committee may hereafter determine.

 

  

  

  

 

Section 1.4 Term.  The existence of the Company commenced on the date of filing its Certificate and shall continue until dissolved in accordance with Article 11 of this Agreement or upon the entry of a decree of judicial dissolution under Section 18-802 of the Delaware Act.

 

Section 1.5 Business.  The business of the Company is to (a) engage in the exploration, development and production of oil and gas properties directly or through its subsidiaries, (b) do any and all other acts or things that may be incidental or necessary to carry on the business of the Company as described in clause (a) above and all things that the Management Committee may deem necessary, desirable, advisable, expedient, convenient for, incidental or appropriate to the furtherance and accomplishment of the foregoing purposes, and (c) to engage in any activity for which a limited liability company may be organized pursuant to the Delaware Act.  The Company is not authorized to and shall not engage in any business other than as described in this Section.

 

Section 1.6 Principal Place of Business; Registered Office and Agent.  The principal place of business of the Company shall be located at 71683 Riverside Drive, Covington, Louisiana 70433, or at such other location as shall be determined by the Management Committee.  The registered office of the Company required by the Delaware Act to be maintained in the State of Delaware is the office of the initial registered agent named in the Certificate or such other office as the Management Committee may designate from time to time in the manner provided by law.  

 

Section 1.7 No Liability.  Except as otherwise provided in the Delaware Act, or as specifically otherwise provided in this Agreement or in any other written agreement executed by such Member, no Member, as such, shall have any personal liability whatsoever to the Company, any of the other Members or any of the creditors of the Company for the debts, liabilities, contracts or other obligations of the Company (whether arising in contract, tort or otherwise) or any of the Company’s losses beyond, with respect to a Member, such Member’s Capital Contribution actually made.

 

ARTICLE 2

 

UNITS AND CAPITAL CONTRIBUTIONS

 

Section 2.1 Units.  Membership Interests in the Company shall be represented by “Units” as set forth on Schedule A, as amended from time to time in accordance with this Agreement.  Units shall not be represented by certificates.  Units shall be in one of two Classes consisting of “Class A Units” and “Class B Units”, and all Units of a Class shall have identical rights in all respects as all other Units of such Class, except as otherwise set forth in this Agreement.

 

(a) Class A Units.  Class A Units shall not entitle the holder(s) thereof to voting rights unless expressly provided under this Agreement or the Delaware Act.  It is intended by the Members that the Class A Units shall entitle the holders thereof to share in the income, gains, losses, deductions, credit, or similar items of, and to receive distributions from, the Company as set forth in this Agreement.  On or prior to the date hereof, each of the holders of Class A Units shall have made the Capital Contribution to the Company set forth opposite such holder’s name on Schedule A.

 

  

  

  

 

(b) Class B Units.  The Class B Units shall not entitle the holder(s) thereof to voting rights unless expressly provided under this Agreement or the Delaware Act.  It is intended by the Members that the Class B Units shall entitle the holders thereof to share in the income, gains, losses, deductions, credit, or similar items of, and to receive distributions from, the Company as set forth in this Agreement.  On or prior to the date hereof, each of the holders of Class B Units shall have made the Capital Contribution to the Company set forth opposite such holder’s name on Schedule A.

 

(c) Member Listing.  In the event Units shall be issued to or transferred to any Person and such Person shall be admitted as a Member in accordance with the terms of this Agreement, the Company shall amend Schedule A accordingly.

 

(d) Issuance of Units.

 

(1) Subject to the terms of this Section 2.1, the Company, subject to the approval of the Management Committee and the holders of a majority of the outstanding Class A Units, may issue additional Units to one or more Persons in such amounts and on as such terms as the Management Committee shall determine.  Notwithstanding anything to the contrary contained herein, as a condition to the receipt of any such additional Units, any such Person that is not already party to this Agreement shall be required to execute a Joinder Agreement in the form attached hereto as Exhibit B.

 

(2) Preemptive Rights. In the event the Company proposes to undertake an issuance or sale of additional Units (“New Units”), the Company shall provide written notice (the “Preemptive Right Notice”) to each Member of such intention, describing the number and terms of the New Units proposed to be issued or sold, the price per New Unit and the general terms upon which the Company proposes to issue or sell the New Units.  Each Member shall have thirty (30) days from the date the Preemptive Right Notice is received to give the Company written notice of such Member’s election to purchase all or any portion of such Member’s share of such New Units for the price and upon the terms specified in the Preemptive Right Notice.  Such Member’s notice shall state the quantity of New Units such Member desires to purchase.  Any Member who does not provide such notice to the Company within such thirty (30) day period shall be deemed to have waived such Member’s preemptive rights under this Section 2.1(d)(2) with respect to such New Units, provided the Company consummates the issuance thereof within one hundred twenty (120) days after it provides the Preemptive Right Notice to the Members at a price equal to or higher than the price specified in the Preemptive Right Notice given to the Members by the Company under this Section 2.1(d)(2).  Each Member so electing to purchase New Units pursuant to this Section 2.1(d)(2) shall be entitled to purchase his or its pro rata share of the number of New Units specified in the Preemptive Right Notice based on such electing Member’s Ownership Percentage relative to the aggregate Ownership Percentage of all electing Members.  If any New Units remain after the application of the preceding sentence, the Company shall notify the Members properly electing to purchase the entire share of the New Units that they were entitled to purchase pursuant to this Section 2.1(d)(2) and such Members shall be entitled, for a period of ten (10) days thereafter, to purchase such remaining New Units pro rata in accordance with their relative Ownership Percentage.  Any New Units remaining thereafter may be issued by the Company within one hundred twenty (120) days after it provides the Preemptive Right Notice to the Members on terms no less favorable than those contained in the Preemptive Right Notice.  This Section 2.1(d)(2) shall not apply to Class A Units issued pursuant to Section 1.3 or Section 1.4 of the Unit Purchase Agreement.

 

  

  

  

 

(e) Units as Securities.  The Units shall constitute “securities” for purposes of Article 8 of the Uniform Commercial Code as the same may, from time to time, be in effect in the State of Delaware and “investment property” for purposes of Article 9 thereof.

 

(f) Non-Redeemable.  Except as expressly provided in this Agreement, Units shall not be redeemable.

 

Section 2.2 Additional Capital Contributions; Dilution.

 

(a) Except for amounts paid by Gulfstar for additional Units pursuant to Sections 1.3 and 1.4 of the Unit Purchase Agreement, which amounts shall be deemed to be additional Capital Contributions by Gulfstar hereunder, the Members shall be liable only to make their initial Capital Contributions pursuant to Section 2.1, and no Member shall be required to lend any funds to the Company or to make any additional capital contributions to the Company.

 

(b) If Gulfstar exercises any of its rights pursuant to Section 5.1 of the Unit Purchase Agreement to cure a default, remove a lien, or make a payment in connection with that certain reserve-based loan facility pursuant to the Loan Agreement dated July 22, 2011 among Mesa Energy, Inc, Mesa Energy Holdings, Inc., Tchefuncte Natural Resources, LLC, Mesa Gulf Coast, LLC, and The F&M Bank & Trust Company (the “F&M Facility”), then any funds extended by Gulfstar in connection therewith shall be treated as a Capital Contribution by Gulfstar to the Company as follows: (i) additional Class A Units shall be issued to Gulfstar in an amount equal to (w) the amount of cash (including expenses) extended by Gulfstar pursuant to Section 5.1 of the Unit Purchase Agreement divided by (x) the F&M Payment Unit Price (as hereinafter defined); and (ii) for each Class A Unit issued under this Section 2.2(b), a Class B Unit shall be cancelled.  For purposes of calculating the number of Class A Units issued and Class B Units cancelled pursuant to this Section 2.2(b), the “F&M Payment Unit Price” shall be equal to (y) $8,222,693 divided by (z) 11,932.

 

Section 2.3 Return of or on Capital Contributions.  Except as expressly provided in this Agreement, (a) no Member shall receive any return or distribution of its Capital Contributions, (b) no Member shall receive any interest or other return on or with respect to its Capital Contributions, and (c) no Member shall be entitled to withdraw any part of its Capital Contributions.

 

Section 2.4 No Liability; No Deficit Restoration.  The Members shall not be bound by, nor be personally liable for, the expenses, liabilities, indebtedness or obligations of the Company (unless otherwise agreed to by such Member in writing) or of any other Member.  The Members intend and agree that no Member shall be obligated to pay any deficit in its Capital Account to or for the account of the Company or any creditor of the Company.

 

  

  

  

 

Section 2.5 Waiver of Other Rights.  The Members have (i) no right under Section 18-604 of the Delaware Act to withdraw or resign and receive the fair value of their Membership Interests, (ii) no right to demand or receive any distribution from the Company in any form other than cash and in accordance with the provisions of this Agreement concerning distributions, and (iii) no right under Section 18-606 of the Delaware Act to pursue rights as a creditor of the Company with respect to any entitlement to receive distributions hereunder.

 

ARTICLE 3

 

DISTRIBUTIONS

 

Section 3.1 Distributions of Available Cash.

 

(a) Timing; Certain Distributions Pursuant to the Unit Purchase Agreement.

 

(1) Distributions of Available Cash from Operations shall be made to the Members only after the Company has paid all Company Costs then due, paid all amounts then due for principal, interest, fees and other amounts required under any indebtedness of the Company then currently due and established all reserves which shall be approved or determined by the Management Committee in its sole and absolute discretion.  Distributions of Available Cash from Operations, if any, shall be made at such times as the Management Committee shall determine.

 

(2) Distributions of Net Proceeds from a Capital Event shall be made to the Members at such time as the Management Committee shall determine.

 

(3) Notwithstanding anything to the contrary herein, any disbursement by the Company of amounts paid by Gulfstar for Units pursuant to Sections 1.2, 1.3, or 1.4 of the Unit Purchase Agreement in accordance with the use of proceeds set forth in Section 1.5 of the Unit Purchase Agreement, and Exhibit A, B or C thereto (including any changes thereto made in accordance with the terms thereof), whether directly or indirectly by distribution to Mesa or contribution to a subsidiary of the Company, shall not be subject to the provisions of Sections 3.1 and 3.2 hereof.

 

(b) Distribution Priority.  Except as may otherwise be provided pursuant to Section 3.1(a)(3), all distributions of Available Cash from Operations shall be made as follows:

 

(1) First, to the holders of Class A Units, pro rata, in accordance with the amounts due and unpaid pursuant to this Section 3.1(b)(1), until each holder of Class A Units has received cumulative aggregate distributions pursuant to this Section 3.1(b)(1) and Section 3.1(c)(1) in an amount equal to a cumulative eight percent (8%) annual return, compounded annually, on its Unreturned Capital Contributions;

 

  

  

  

 

(2) Second, to the holders of Class B Units and the Class A Units pro rata in proportion to their respective Ownership Percentages.

 

Provided that, notwithstanding anything to the contrary contained in this Section 3.1(b), all distributions made pursuant to this Section 3.1(b) on or prior to June 30, 2014 shall be made pursuant to Section 3.1(b)(2) and shall not be deemed a return of Capital Contributions.

 

(c) Except as may otherwise be provided pursuant to Section 3.1(a)(3), all distributions of Net Proceeds from a Capital Event shall be made as follows:

 

(1) First, to the holders of Class A Units, pro rata, in accordance with the amounts due and unpaid pursuant to this Section 3.1(c)(1), until each holder of Class A Units has received cumulative aggregate distributions pursuant to this Section 3.1(c)(1) and Section 3.1(b)(1) in an amount equal to a cumulative eight percent (8%) annual return, compounded annually, on its Unreturned Capital Contributions;

 

(2) Second, to the holders of Class A Units, pro rata, in accordance with the amounts due and unpaid pursuant to this Section 3.1(c)(2), until each holder of Class A Units has received cumulative aggregate distributions pursuant to this Section 3.1(c)(2) equal to its Unreturned Capital Contributions;

 

(3) Third, to the holders of Class B Units, pro rata in proportion to their respective Ownership Percentage, until the holders of Class B Units have received cumulative aggregate distributions pursuant to this Section 3.1(c)(3) equal to the difference between (x) a number determined by dividing (i) the aggregate Capital Contributions made by holders of the Class A Units by (ii) the aggregate Ownership Percentage (expressed as a decimal) of the holders of the Class A Units and (y) the aggregate Capital Contributions made by holders of the Class A Units; and

 

(4) Fourth, to the holders of Class B Units and Class A Units, pro rata in proportion to their respective Ownership Percentages.

 

Section 3.2 Tax Distributions.  The Company shall distribute to each Member, to the extent that distributions have not otherwise been made to such Member pursuant to Section 3.1(b) or Section 3.1(c), on a quarterly basis (or at such earlier times and in such amounts as determined by Gulfstar to be appropriate to enable the Members to pay their estimated income tax liabilities (or the Members’ members, as applicable), an amount equal to, for such fiscal quarter after adjusting for the Members’ allocable share of the Company’s tax losses carried to such fiscal quarter, fifty percent (50%) of the net taxable income allocated to each Member for such quarter pursuant to Exhibit C.  Any amounts distributed under this Section 3.2 to a Member shall constitute an advance against future distributions from the Company to such Member and, shall be taken into account in computing subsequent distributions to the Member under Sections 3.1(b) and 3.1(c) so that the net amount of distributions to the Members under Sections 3.1(b), 3.1(c), 3.2 and 3.3 shall be equal to the net distributions that would have been made had there been no distributions pursuant to this Section 3.2.  The distributions contemplated by this Section 3.2 shall only be made by the Company from cash on hand and the Company shall not be required to borrow or raise capital to fund such distributions.  In addition, the Company shall not be required to make any such distributions to the extent that the Company is subject to any loan agreement that prohibits such distributions.

 

  

  

  

 

Section 3.3 Withholding.  Notwithstanding anything herein to the contrary, the Company shall, if required by law, withhold any federal, state, local or foreign tax with respect to any Member’s allocable share of Company income or profits, or share of distributions or otherwise.  Such withheld amounts shall be treated as distributed to such Member hereunder.  The Company shall be authorized to take such other actions as shall be necessary or appropriate for the Company to comply with its obligations under federal, state, local and foreign tax laws.   To the extent that any amount deemed distributed hereunder exceeds the amount otherwise distributable during the Fiscal Year in which the withholding is made, the Member shall return such excess to the Company within ten days of the written demand by the Company.  The Members’ obligation to return any excess deemed distribution hereunder shall constitute an unsecured, personal obligation of the respective Members, and such Members shall indemnify the Company for any costs and expenses the Company incurs in connection with the recovery of the excess deemed distribution.  Further, any such excess amount shall accrue interest at the rate of 10 percent per annum, compounded annually, beginning 10 days after the written demand is made by the Company.  The Company is authorized to take such actions as shall be necessary or appropriate for the Company to recoup any such excess distribution.

 

ARTICLE 4

 

MANAGEMENT OF COMPANY

 

Section 4.1 Management Committee.

 

(a) Authority of Management Committee.  The operations and related contractual, financial and other affairs of the Company shall be managed and conducted under the direction of managers (each a “Manager”), who will act collectively as a “Management Committee.”  No individual Manager shall have the authority to act on behalf of the Company, or to bind the Company, except as expressly provided by the Management Committee acting pursuant to this Agreement.  Any action, approval or determination required to be taken by the Management Committee may only be taken by affirmative vote of a majority of the Managers then appointed, unless the vote of a greater number is required by this Agreement; provided, however, that if there is a vacancy on the Management Committee, no action, approval or determination may be taken unless the Member or Members entitled to fill such vacancy are given at least five days’ notice and an opportunity to fill such vacancy.  In all Management Committee votes, each Manager shall have one vote.  Managers need not be employees or Members of the Company.

 

(b) Appointment of Management Committee Members.  The initial Management Committee shall consist of three (3) Managers.  The Managers of the Management Committee shall be designated as follows: (i) Gulfstar, or its Transferee if such Transferee becomes a Member pursuant to Article 6, shall have the right to designate one (1) Manager, which initial designee shall be Mr. Marceau Schlumberger; (ii) Mesa Energy, Inc., or its Transferee if such Transferee becomes a Member pursuant to Article 6, shall have the right to designate one (1) Manager, which initial designee shall be Randy M. Griffin, and (iii) one (1) Manager shall be the President of the Company or, in the absence of a President, such other member of senior management designated by the Management Committee in good faith, which initial Manager shall be David Freeman.  Upon the consummation of the purchase of additional Class A Units by Gulfstar as contemplated by Section 1.3 of the Unit Purchase Agreement, the number of Managers on the Management Committee shall increase to five (5) and Gulfstar, or its Transferee if such Transferee becomes a Member pursuant to Article 6, shall have the right to designate two (2) additional Managers (for the avoidance of doubt, the other three (3) Managers shall be designated as set forth in the previous sentence).  Each Manager will hold office until the earliest to occur of the following events: (i) such Manager’s (A) death or Disability, (B) written resignation as a Manager, or (C) removal by written notice of the Member or Members that designated such Manager, (ii) a Transfer of all Units owned (beneficially or otherwise) by the Member that designated such Manager or (iii) a Transfer of any Units by the Member that designated such Manager in violation of this Agreement. If a Manager elected in accordance with this Section 4.1(b) ceases to be a Manager for any reason other than the reasons set forth in clauses (ii) or (iii) of the immediately preceding sentence, then, the Member or Members that designated such Manager shall designate a successor Manager. Each Manager shall serve until his or her successor shall have been elected and qualified.

 

  

  

  

 

(c) Management Committee Observer Rights.  Gulfstar, or its Transferee if such Transferee becomes a Member pursuant to Article 6, shall have the right to designate a Management Committee observer (the “Management Committee Observer”), which initial designee shall be Peter Meyers.  The Management Committee Observer may not vote at meetings of the Management Committee, but shall be provided with the same notice of meetings of the Management Committee provided to the Managers, shall be provided with any materials provided to the Managers in connection with meetings of the Management Committee, and shall be entitled to all other rights of Managers, including without limitation, the right to indemnification pursuant to Article 8, and all rights of the Managers pursuant to Section 7.3.

 

(d) Meetings of the Management Committee.  Any Manager may call a meeting of the Management Committee upon five (5) days’ notice by mail or forty-eight (48) hours’ notice delivered personally, by facsimile, telephone or email.  Delivery of notice by mail is complete upon delivery in the United States Postal System by 5:00 p.m.  The notice need not indicate the purpose for which the meeting is called.  Notice of a meeting need not be given to any Manager who executes a waiver of notice or consents to the holding of the meeting, whether before or after the meeting or who attends the meeting without objecting to the lack of notice prior to the commencement thereof or who approves the minutes of the meeting.  All such waivers, consents or approval shall be filed with the Company and be made a part of the minutes of the meeting but they need not indicate the purpose for which the meeting was called.

 

(e) Authorized Persons.  The Management Committee shall have the power and authority to appoint persons with the authority to act on behalf of the Company (each, an “Authorized Person”) who shall serve at the pleasure of the Management Committee and may be removed at any time by the Management Committee for any reason or for no reason.

 

(f) Proof of Authority.  In dealing with a Manager or Authorized Person acting on behalf of the Company, no Person shall be required to inquire into the authority of that Manager or Authorized Person to bind the Company.  Persons dealing with the Company are entitled to rely conclusively on the power and authority of each Manager and each Authorized Person as set forth in this Agreement or in any power of attorney, resolution or other document delivered by a Manager or Authorized Person.  This Section shall not, however, relieve a Manager or any Authorized Person of any obligation to the Company or any Member resulting from or arising out of any action by a Manager or Authorized Person without any approval of the Management Committee required under this Agreement.

 

  

  

  

 

Section 4.2 Approval over Major Decisions.  Neither the Management Committee nor any Manager shall take any of the following actions (each, a “Major Decision”) without the prior written approval of the holders of a majority of the Class A Units:

 

(a) File, consent to, or otherwise cause any Bankruptcy Proceeding;

 

(b) Cause a dissolution, liquidation, merger, consolidation, reorganization or sale of all or substantially all assets of the Company or any subsidiary;

 

(c) Cause the Company or any subsidiary to issue any new Membership Interest, Voting Interest, Economic Interest, or other equity interest, except as may be provided pursuant to the Unit Purchase Agreement;

 

(d) Cause the Company or any subsidiary to solicit or accept additional capital contributions from Members, except as may be provided pursuant to the Unit Purchase Agreement;

 

(e) Cause the Company or any subsidiary to incur any indebtedness for borrowed money, incur any obligation evidenced by notes, bonds, debentures or similar instruments, enter into any capital lease obligations or directly or indirectly guarantee the indebtedness of another, except in each case for Permitted Indebtedness;

 

(f) Issue, redeem or repurchase any Units of the Company or any equity interests of any subsidiary, except as may be provided pursuant to the Unit Purchase Agreement;

 

(g) Convert the Company or any subsidiary into another form of entity;

 

(h) Take any action in contravention of this Agreement, or which would make it impossible or commercially impractical to carry on the ordinary business of the Company;

 

(i) Amend, modify or waive any provision of the Certificate; or

 

(j) Adopt a budget for the Company or any of its subsidiaries;

 

(k) Make any capital or drilling expenditures that, in the aggregate, exceed $1,000,000 in any Fiscal Year with respect to the Company or any subsidiary;

 

  

  

  

 

(l) Assign any leases;

 

(m) Appoint an operator in connection with the operations of the Company or any subsidiary, or remove Mesa Gulf Coast, LLC as operator;

 

(n) Appoint or remove officers and upper management personnel, including, without limitation, the President of the Company; or

 

(o) Cause the Company or any subsidiary to enter into a new line of business.

 

Section 4.3 Action by Written Consent.  Any action permitted or required by the Delaware Act or this Agreement to be taken at a meeting of the Management Committee or Members may be taken without a meeting if a consent in writing, setting forth the action to be taken, is signed by not less than the minimum number of Managers or Members that would be necessary to take such action at a meeting at which all Managers or Members were present and voted.  Such consent shall have the same force and effect as a vote at a meeting and may be stated as such in any document or instrument filed with the Secretary of State of Delaware, and the execution of such consent shall constitute attendance or presence in person at a meeting of the Managers or Members.  Prompt notice of the taking of any action without a meeting by less than unanimous written consent will be given to those Managers or Members who did not consent in writing to such action.  Subject to the requirements of the Delaware Act and this Agreement for notice of meetings, the Managers and Members may participate in and hold a meeting of the Managers or Members by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such meeting shall constitute attendance and presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.  Notwithstanding anything to the contrary contained herein, advanced notice of any action of the Management Committee proposed to be taken without a meeting, setting forth the action proposed to be taken, shall be sent in writing or by email by the Manager or Managers proposing such action to all other members of the Management Committee at least five (5) days prior to the effectiveness of such proposed action; provided that in the event of an emergency, the Manager or Managers proposing an action without a meeting shall only be obligated to give such advanced notice, if any, of such proposed action as is practicable under the circumstances.

 

Section 4.4 Member Voting Rights.  Except for those matters for which Member consent is expressly required by this Agreement, the Members shall have no voting, approval or consent rights.

 

Section 4.5 Member and Manager Liability.  It is agreed and understood that the Members and Managers, and their respective principals and Affiliates, may have interests, and may have fiduciary obligations to persons that have interests, in actions taken or not taken by the Company, including interests that may potentially conflict with the interests of one or more Members.  It is expressly agreed that the Members and Managers are permitted to consider and to pursue such interests when acting as Members and Managers, and no Member or Manager shall be liable to the Company or any Member for considering or pursuing such interests when proposing, voting or consenting to an action to be taken or not to be taken by the Company.

 

  

  

  

 

Section 4.6 Coral Reef Consulting Agreement.  The Company’s retention of Coral Reef as a consultant of the Company pursuant to the Coral Reef Consulting Agreement shall be deemed to be an approved act of the Company.  The Company’s Authorized Persons and officers shall be empowered and authorized to execute, deliver and perform the obligations of the Company under the Coral Reef Consulting Agreement, including, without limitation, the payment of the annual consulting fee contemplated thereunder.

 

ARTICLE 5

 

REPRESENTATIONS OF MEMBERS

 

Section 5.1 Representations of each Member.  Each Member hereby represents and warrants that:

 

(a) If such Member is a corporation, limited liability company, partnership or other entity, (i) such Member has been duly organized and is validly existing under the laws of the State of its formation with full power and authority and legal right to be a Member of the Company and to carry on its business in the manner and in the locations in which such business has been and is now being conducted by it, to execute and deliver this Agreement and to perform its obligations hereunder; and (ii) the execution and delivery of this Agreement has been duly authorized by such Member, this Agreement has been duly executed and delivered by such Member and this Agreement constitutes the valid and binding obligation of such Member, enforceable against it in accordance with its terms.

 

(b) If such Member is an individual, (i) such Member has all requisite right, power and authority and full legal capacity to execute and deliver this Agreement; and (ii) this Agreement has been duly executed and delivered by such Member and this Agreement constitutes the valid and binding obligation of such Member, enforceable against it in accordance with its terms.

 

(c) Such Member has all permits, licenses and approvals necessary for it to perform its obligations under this Agreement.

 

(d) Except as set forth in Schedule 5.1(d) hereto, no consent of or approval or permission by any Third Party is required as a condition to the entering into of this Agreement by such Member or any constituent Member, partner or shareholder of such Member.

 

(e) Assuming any consent of or approval or permission by any Third Party set forth in Schedule 5.1(d) hereto has been obtained, neither the execution and delivery of this Agreement nor compliance with its terms will (whether before or after any applicable notice, cure or grace period) result in any breach or violation of the terms, conditions or provisions of, or conflict with or constitute a default under, or result in the creation of any Lien upon any property or assets of such Member pursuant to the terms of any indenture, mortgage, deed of trust, note, evidence of indebtedness, agreement or other instrument or contract to which such Member may be party or by which their or any of their properties or assets may be bound, or violate any provision of law or any applicable order, writ, injunction, judgment or decree of any court, or any order or other public regulation of any governmental commission, bureau or administrative agency.

 

  

  

  

 

(f) Such Member is a “United States person” for United States Federal income tax purposes.

 

Section 5.2 Securities Laws Representations.  To the extent that the Membership Interest held by a Member is deemed to be a “security,” such Member hereby represents and warrants that:

 

(a) Such Member is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire a Membership Interest in the Company.  Such Member is acquiring a Membership Interest for investment for such Member’s own account only and not with a view to, or for resale in connection with, any “distribution” thereof within the meaning of the Securities Act of 1933, as amended (the “Securities Act”).

 

(b) Such Member acknowledges and understands that Membership Interests constitute “restricted securities” under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom.  Such Member further understands that Membership Interests must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available.  Such Member further acknowledges and understands that the Company is under no obligation to register Membership Interests.

 

(c) Such Member (i) is an “accredited investor” as defined in Regulation D promulgated by the Securities and Exchange Commission under the Securities Act, (ii) has such knowledge and experience in business and financial matters that it is able to evaluate the merits and risks of investment in the Company and (iii) is able to bear the economic risk of loss of its entire investment.

 

ARTICLE 6

 

TRANSFERS OF MEMBERSHIP INTERESTS

 

AND INTERESTS IN MEMBERS

 

Section 6.1 General Restriction.  No direct or indirect Transfer of all or part of a Membership Interest in the Company shall be made or become effective unless the Transfer is permitted under this Article.  Any Transfer in violation of this Article shall be invalid, ineffective and not enforceable for any purpose.

 

Section 6.2 Transfer of Membership Interests.  Units held by any Member may only be Transferred upon the prior written consent of the holders of a majority of the Class A Units, which consent shall be deemed to be given in connection with a transfer pursuant to Section 2.2(b) hereof, a co-sale pursuant to Section 6.6, a Compelled Sale, and the exercise of the right of first refusal by the Company or a Member pursuant to Section 6.3, and in accordance with the requirements set forth in Section 6.4.

 

  

  

  

 

Section 6.3 Right of First Refusal.

 

(a) If at any time a Member proposes to Transfer all or any part of his, her or its Units (the “Offered Securities”) pursuant to a bona fide written offer (the “Offer”) from a third party (a “Proposed Transferee”), such Member shall so notify in writing the Company of the offer of such Offered Securities and the terms of said Offer, including the identity of the Proposed Transferee, the amount of Offered Securities proposed to be Transferred to the Proposed Transferee, and the proposed terms and conditions, including price, of the Transfer of the Offered Securities (the “Member Sale Notice”).  The Member Sale Notice shall further state that the Company shall have the rights to acquire all or any of such Offered Securities in accordance with this Section.  Upon delivery of the Member Sale Notice, the Company shall thereupon have the right, on the terms and conditions set forth in the Offer, to purchase some or all of the Offered Securities.

 

(b) If the Company shall desire to purchase all or any of the Offered Securities, the Company shall communicate in writing (“Response Notice”) its election to purchase to such Member, which communication shall state the number of Offered Securities the Company desires to purchase and shall be delivered by the Company to such Member within 30 days following the delivery of the Member Sale Notice (the “Response Notice Deadline”).  Such communication shall, when taken in conjunction with the Member Sale Notice, be deemed to constitute a valid, legally binding and enforceable agreement for the sale and purchase of such Offered Securities.

 

(c) If the Company does not elect to purchase all of the Offered Securities, then any Offered Securities that remain unsold (for purposes of this Section 6.3, “Remaining Securities”) shall be offered by the Transferring Member to the other Members and the Transferring Member shall notify in writing the other Members of the offer of such Offered Securities, the terms of said Offer, including the identity of the Proposed Transferee, the amount of Remaining Securities proposed to be Transferred to the Proposed Transferee, and the proposed terms and conditions, including price, of the Transfer of the Remaining Securities (the “Second Member Sale Notice”).  Upon delivery of the Second Member Sale Notice, each Member who is not a Transferring Member shall thereupon have the right, on the terms and conditions set forth in the Offer, to purchase that portion of the Remaining Securities equal to the product of (i) the total number or amount of Remaining Securities and (ii) a fraction, the numerator of which shall be the total number of Units which such Member owns at such time, and the denominator of which shall be the total number of Units then issued and outstanding (not including the Offered Securities).

 

(d) If a Member shall desire to purchase all or any of such Member’s portion of the Remaining Securities, such Member shall communicate in writing its election to purchase to the Transferring Member and the Company, which communication shall state the number of Remaining Securities the Member desires to purchase and shall be delivered by the Member to the Transferring Member within 15 days following the delivery of the Second Member Sale Notice (the “Second Response Notice”).  Such communication shall, when taken in conjunction with the Second Member Sale Notice, be deemed to constitute a valid, legally binding and enforceable agreement for the sale and purchase of such Remaining Securities.

 

  

  

  

 

(e) If the Company and the Members who are not Transferring Members elect not to purchase all of the Offered Securities and upon the approval of the holders of the Class A Units in accordance with Section 6.2, then any Offered Securities that remain unsold may be sold by the Transferring Member at any time within 90 days after the date the Offer was made.  Any such sale shall be at a price not less than the price, and upon other terms and conditions, if any, not more favorable to the Proposed Transferee than those specified in the Offer.  The balance of any Offered Securities not sold within such 90-day period shall continue to be subject to the requirements of a prior offer pursuant to this Section 6.3.

 

(f) Sales of Offered Securities to be sold to the Company or Members pursuant to this Section 6.3 shall be made, subject to regulatory approvals when necessary, within 45 days following delivery of the Response Notice or the Second Response Notice, as applicable (or if such 45th day shall not be a business day, then on the next succeeding business day).

 

Section 6.4 Transfer Requirements Regarding Membership Interest.  If a Member proposes to Transfer its Membership Interest to another Person as permitted by this Article, the Transfer shall not be completed or effective until all of the requirements stated below have been satisfied:

 

(a) the Transferee has prepared, signed and delivered to the Company and each other remaining Member an agreement (subject to such reasonable modification as requested by the Transferee) in which (1) the Transferring Member assigns all or a portion of its Membership Interest in the Company to the Transferee, (2) the Transferee assumes all obligations of the Transferring Member under the Agreement from and after the effective date of the Transfer relating to the Transferred Units, and (3) the Transferring Member and the Transferee agree to pay all costs and expenses (including reasonable attorney’s fees) incidental to the Transfer, which were incurred by the Company and/or any non-Transferring Member;

 

(b) the Transferring Member and/or the Transferee shall be deemed to have represented to the Company and the remaining Member(s) that (1) the Transfer will not cause the Company to be treated as an association taxable as a corporation for Federal income tax purposes, and (2) the Transfer will not cause the Company to be treated as a “publicly traded partnership” within the meaning of Section 7704 of the Code;

 

(c) upon the Transfer of its entire Membership Interest in the Company and the admission of such Member’s Transferee as a substitute Member pursuant to this Article 6, a Member shall be deemed to have withdrawn from the Company;

 

(d) distributions payable on and after the date of the Transfer shall be payable solely to the Transferee and the Transferring Member shall have no claim to such distributions (unless otherwise provided in any contract or agreement between the Transferor and Transferee) even if all or a portion of such amount relates to a period prior to the Transfer; provided, however, that until notice from the Transferor and the Transferee to the Company and each non-Transferring Member that all distributions and other amounts payable under the Agreement should be paid to the Transferee and until the Transferor has satisfied all of the requirements set forth in this Section 6.4, the Company and each non-Transferring Member shall be entitled to (i) pay all distributions or other amounts payable under this Agreement to the Transferor and any such payment shall fully discharge any obligation owed to the Transferee with respect thereto, and (ii) deal solely with the Transferor with respect to all actions required to be taken pursuant to this Agreement, and any and all decisions, actions or inactions made or taken by the non-Transferring Member and the Transferor shall be binding on the Company and the Transferee; and

 

  

  

  

 

(e) the Transferee shall deliver to the Transferor an opinion of counsel in form and substance reasonably satisfactory to the Transferor and its counsel and covering the due authorization, execution and delivery by the Transferee of the documents and consents evidencing and authorizing the Transfer of the Membership Interest in the Company.

 

Section 6.5 Compelled Sale Right.

 

(a) If a proposal for a sale of all or substantially all of the Company’s securities to, or a merger with or into another person for a specified price payable in cash, securities or any other consideration and on specified terms and conditions (a “Sale Proposal”), shall have been approved by (x) Members holding a majority of the aggregate amount of Units, (y) the holders of a majority of the Class A Units, and (z) the Management Committee, then Members holding a majority of the aggregate amount of Units (such Members being, the “Requesting Members”), may require all of the Members to sell all of the Units held by them to the party or parties whose Sale Proposal was accepted as hereinabove provided on the terms and conditions provided in this Section 6.5.

 

(b) The Company, if instructed in writing by the Requesting Members, shall send a written notice (the “Compelled Sale Notice”) of the exercise of the rights of the Requesting Members pursuant to this Section 6.5 to each of the Members setting forth the consideration to be paid pursuant to the Sale Proposal and the other terms and conditions of the transaction.

 

(c) Each Member, upon receipt of the Compelled Sale Notice, shall be obligated to (i) if applicable, vote in favor of such Sale Proposal at any meeting of Members of the Company called to vote on or approve such Sale Proposal, (ii) sell all of its Units and participate in the transaction (the “Compelled Sale”) contemplated by the Sale Proposal and (iii) otherwise take all necessary action, including, without limitation, expressly waiving any dissenter’s rights or rights of appraisal or similar rights, providing access to documents and records of the Company, entering into an agreement reflecting the terms of the Sale Proposal, surrendering stock certificates, giving any customary and reasonable representations and warranties given by any other Member and executing and delivering any certificates or other documents, reasonably requested by the Requesting Members and their counsel, to cause the Company and the Requesting Members to consummate such Compelled Sale.  Any such Compelled Sale Notice may be rescinded by the Requesting Members by delivering written notice thereof to all of the Members.

 

  

  

  

 

(d) Upon the consummation of the Compelled Sale, all of the Members shall receive the same proportion of the aggregate consideration from such Compelled Sale as such Member would have received if the net proceeds from such Compelled Sale had been distributed by the Company pursuant to Section 3.1(c).

 

Section 6.6 Co-Sale Rights.  If at any time a Member proposes to Transfer all or any part of his, her, or its Units pursuant to an Offer from a Proposed Transferee, then the Transferring Member shall deliver a Member Sale Notice to the other Members and shall not sell the Offered Securities to the Proposed Transferee unless the other Members are given the opportunity to add all or any part of their respective Units to the sale of the Offered Securities to be sold to the Proposed Transferee at the same price and on the same terms and conditions as are involved in such sale by the Transferring Member.  Each non-Transferring Member desiring to sell any or all of its Units (each, a “Co-Sale Participant”) shall communicate the same in writing to the Transferring Member within ten (10) business days following delivery of the Member Sale Notice (the “Co-Sale Notices”).  Within three (3) business days prior to the sale to the Proposed Transferee, the Transferring Member shall be obligated to notify the Proposed Transferee in writing of the availability of any additional Units available for sale by the Co-Sale Participants.  In the event that the Proposed Transferee is not willing to purchase all of the Units offered by the Transferring Member and the Co-Sale Participants, each of the Transferring Member and the Co-Sale Participants will have the right to sell the amount of Units offered equal to the product obtained by multiplying (x) the aggregate amount of Units which the Proposed Transferee is willing to purchase by (y) the Ownership Percentage of such Transferring Member or Co-Sale Participant, as applicable.

 

Section 6.7 General Rules.

 

(a) Any purported Transfer of a Membership Interest (or ownership or beneficial interest in a Member, whether direct or indirect) that is not permitted or authorized pursuant to this Agreement or otherwise consented to in writing by the non-Transferring Member(s) shall be null and void ab initio and of no effect whatsoever.

 

(b) Any Person which is an assignee of all or any portion of the Membership Interest of a Member but which is not admitted as a substitute member in accordance with this Agreement (i) shall have only those rights specifically provided for such an assignee in the Delaware Act, and (ii) shall be subject to all the provisions of this Agreement to the same extent and in the same manner as any Member desiring to make a Transfer of a Membership Interest, if such Person desires to make a further Transfer of such Membership Interest.

 

ARTICLE 7

 

OBLIGATIONS OF MEMBERS

 

Section 7.1 No Partition.  Each Manager and Member hereby irrevocably waives any and all right that it may have to maintain any action for partition of all or any portion of the Company, its assets or properties, or file a complaint or institute any proceeding at law or in equity to have the Company, its assets or properties partitioned, and each Manager and Member for itself, its successors, representatives, and assigns, hereby waives any right to proceed under any applicable law or otherwise to partition the Company, its assets or properties.  Any creditor of a Manager or Member shall have recourse only against such Manager’s or Member’s Membership Interest, if any, in the Company, but such creditor shall not have any recourse against the property of the Company.

 

  

  

  

 

Section 7.2 No Right to Act.  No Member, as such, has the authority or power to act for or on behalf of the Company, to do any act that would be binding on the Company, to manage the business or affairs of the Company, to direct that any action be taken by the Company or any of its Authorized Persons, officers, employees, or agents, or to make any expenditures on behalf of the Company, unless such specific authority has been expressly granted to and not revoked from such Person by the Management Committee.

 

Section 7.3 Investment Opportunities.  Each Member and Manager (other than a Manager who is also an employee of the Company), at any time and from time to time may engage in and own interests in other business ventures of any and every type and description, independently or with others (including ones in competition with the Company) with no obligation to offer to the Company or any other Member or Manager the right to participate therein.  The Members expressly acknowledge that, (i) the other Members, and their respective Affiliates, are permitted to have, and may presently or in the future have, investments or other business relationships with entities that compete with the Company (an "Other Business"), (ii) the other Members, and their respective Affiliates, have and may develop a strategic relationship with businesses that are and may be competitive with the Company, (iii) none of the other Members, or any of their respective Affiliates (including their respective representatives serving on the Management Committee) will be prohibited by virtue of their investments in the Company or their service on the Management Committee from pursuing and engaging in any such activities, (iv) none of the other Members, or any of their respective Affiliates (including their respective representatives serving on the Management Committee) will be obligated to inform the Company, or any Member or Manager, of any such opportunity, relationship or investment, (v) neither the Company nor any other Member or Manager will acquire or be entitled to any interest or participation in any Other Business as a result of the participation therein of any of other Member, or any of their respective Affiliates, and (vi) the involvement of the other Members, or any of their respective Affiliates (including their respective representatives serving on the Management Committee), in any Other Business will not constitute a conflict of interest by such Persons with respect to the Company or its Members.

 

Section 7.4 Confidential Information and Materials.

 

(a) For purposes of this Section 7.4, “Confidential Information” shall include, but is not limited to any information including plans, research, know-how, trade secrets, methodologies, techniques and strategies, product development, distribution plans, contractual arrangements, profits, sales, pricing policies, budget, forecasts, projections, operational methods, technical processes, other business affairs and methods, plans for future developments and other technical and business information, including all intellectual property rights therein, which is not publicly available and can be communicated by any means whatsoever, including, without limitation, oral, visual, written and electronic transmission, that relates to the Company’s:

 

  

  

  

 

(1) business operations, products and services;

 

(2) existing and potential partnerships, strategic alliances or joint ventures;

 

(3) employment and compensation agreements and arrangements;

 

(4) business policies, practices and contracts with others;

 

(5) information received from others that the Company is obligated to treat as confidential or proprietary; or

 

(6) proprietary information of the Company, whether of a technical nature or otherwise.

 

Confidential Information shall not include that information defined as Confidential Information above that such Manager or Member can conclusively establish by documentary evidence: (x) entered the public domain without its breach of any obligation owed to the Company; or (y) was conclusively established to be independently developed by such Manager Member or became known by or available to such Manager Member from a source other than the Company subsequent to the Company's disclosure of such information to such Manager Member, without any breach of any obligation of confidentiality owed to the Company.

 

(b) For purposes of this Section 7.4, “Confidential Materials” shall mean all tangible materials containing Confidential Information, including without limitation written or printed documents and computer disks or tapes whether machine or user readable.

 

(c) Each Manager and Member acknowledges that Confidential Information was developed and will continue to be developed, or acquired and will continue to be acquired, by the Company at great expense and constitutes trade secrets of the Company, and that irreparable injury will result to the Company from unauthorized disclosure of Confidential Information.  Each Manager and Member also recognizes that the Company has received and in the future will receive confidential or proprietary information from third parties subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes and this is also considered Confidential Information.  Each Manager and Member agrees to hold all Confidential Information and Confidential Materials in strict confidence and not to disclose it to third parties.  The obligation to keep Confidential Materials and Confidential Information confidential as provided in this Section 7.4 shall continue so long as Manager or Member is a Manager or Member of the Company and shall continue for a period of three years from the date such Manager or Member ceases to be a Manager or Member of the Company.

 

(d) The provisions of Section 7.4(c) shall not apply to the disclosure of Confidential Information or Confidential Materials (i) approved in writing for disclosure by both Members or (ii) required to be disclosed by Armada Oil, Inc. pursuant to its reporting requirements pursuant to the Securities Exchange Act of 1934 or other applicable law or regulation (including the rules of any securities exchange applicable to the Company).

 

  

  

  

 

ARTICLE 8 

 

INDEMNIFICATION

 

Section 8.1 Indemnification by Company.  Subject to the limitations and conditions as provided in this Article 8, each Person who was or is made a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative (hereinafter a "Proceeding"), or any appeal in such a Proceeding or any inquiry or investigation that could lead to such a Proceeding, by reason of the fact that he or she, or a Person of whom he or she is the legal representative, is or was a Manager or Member or while a Manager or Member is or was serving at the request of the Company as a manager, director, officer, partner, member, venturer, proprietor, trustee, employee, agent, Authorized Person or similar functionary of another foreign or domestic limited liability company, corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise shall be indemnified by the Company to the fullest extent permitted by the Delaware Act, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than said law permitted the Company to provide prior to such amendment) against judgments, penalties (including excise and similar taxes and punitive damages), fines, settlements and reasonable expenses (including, without limitation, attorneys' fees) actually incurred by such Person (or one or more of such Person's direct or indirect equity holders) in connection with such Proceeding, and indemnification under this Article 8 shall continue as to a Person who has ceased to serve in the capacity that initially entitled such Person to indemnity hereunder; provided that no such Person shall be indemnified for any judgments, penalties, fines, settlements or expenses (i) to the extent attributable to such Person's gross negligence, willful misconduct, or intentional violation of law (or, if the Delaware Act is hereafter amended or interpreted to permit indemnification for conduct constituting a higher standard of culpability, to the extent not in violation of such higher standard), (ii) for any present or future breaches of any representations, warranties or covenants by such Person contained in this Agreement or in any other agreement with the Company, or (iii) in any action (except an action to enforce indemnification rights set forth in this Section 8.1) brought by such Person.  It is expressly acknowledged that the indemnification provided in this Article could involve indemnification for negligence or under theories of strict liability.

 

Section 8.2 Advancement of Expenses.  In connection with the right to indemnification conferred upon Members and Managers in this Article 8 pursuant to Section 8.1, the Company shall pay or reimburse the reasonable, necessary, and proper expenses incurred by such a Person in the event such Person was or is threatened to be made a named defendant or respondent in a Proceeding; provided, that the payment of such expenses incurred by such Person in advance of the final disposition of a Proceeding shall be made only upon delivery to the Company of a written affirmation by such Person of its good faith belief that he, she, or it has met the standard of conduct necessary for indemnification under Article 8 and a written undertaking, by or on behalf of such Person, to repay all amounts so advanced if it shall ultimately be determined that such Person is not entitled to be indemnified under this Article 8 or otherwise.    

 

  

  

  

 

Section 8.3 Contract with the Company.  The rights granted pursuant to this Article 8 may, at the discretion of the applicable Person claiming indemnification, be deemed to be contract rights.

 

Section 8.4 Indemnification of Employees and Agents.  The Company, upon the written approval of the Management Committee, may indemnify and advance expenses to any employees or agents of the Company who are not or were not Members or Managers of the Company but who are or were serving at the request of the Company as a manager, director, officer, partner, venturer, proprietor, trustee, employee, agent, Authorized Person or similar functionary of another foreign or domestic limited liability company, corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against liabilities and expenses asserted against such Person and incurred by such Person in such a capacity or arising out of their status as such a Person, to the same extent that it may indemnify and advance expenses to Members under this Article 8.

 

Section 8.5 Nonexclusivity of Rights.  The right to indemnification and the advancement and payment of expenses conferred in this Article 8 shall not be exclusive of any other right that a Member, Manager, or other Person indemnified pursuant to Section 8.1 may have or hereafter acquire under any law (common or statutory), provision of the Certificate or this Agreement, other agreement, vote of Members or otherwise.

 

Section 8.6 Insurance.  The Company may purchase and maintain insurance, at its expense, to protect itself and any Person who is or was serving as a Manager, officer, Authorized Person or agent of the Company or is or was serving at the request of the Company as a manager, director, officer, partner, venturer, proprietor, trustee, employee, agent, Authorized Person or similar functionary of another foreign or domestic limited ability company, corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against any expense, liability or loss, whether or not the Company would have the power to indemnify such Person against such expense, liability or loss under this Article 8.

 

Section 8.7 Savings Clause.  If this Article 8 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 Manager and Member or any other Person indemnified pursuant to this Article 8 as to costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative to the full extent permitted by any applicable portion of this Article 8 that shall not have been invalidated and to the fullest extent permitted by applicable law.

 

ARTICLE 9

 

FINANCIAL AND ACCOUNTING MATTERS

 

Section 9.1 Books and Records.  An Authorized Person shall maintain or cause to be maintained, at the expense of the Company, office records, books and accounts (which shall be and remain the property of the Company) in which shall be entered fully and accurately each and every financial and other transaction with respect to the operations of the Company.  Any Member may inspect and review the books and records of the Company (including, for the avoidance of doubt, the books and records of any subsidiaries of the Company) and may, at the Member’s expense, have the Company make copies of all or any portion of the books and records of the Company.  Unless the Company agrees otherwise, all Member access to the books and records of the Company must take place during the Company’s regular business hours.  The Company may impose additional reasonable conditions and restrictions on Members’ access to the books and records of the Company, including specifying the amount of advance notice a Member must give and the charges imposed for copying.

 

  

  

  

 

Section 9.2 Bank Accounts.  An Authorized Person shall deposit and maintain one or more separate depositary accounts established in the name of the Company and its subsidiaries by an Authorized Person (each, an “Account”).  Each Account shall be solely in the name of the Company or the applicable subsidiary.  In no event shall any Account be commingled with any accounts of any Authorized Person or any other Person, and shall be used strictly for Company purposes.

 

Section 9.3 Financial Statements.  As soon as practicable (but in no event later than one hundred and twenty (120) days after the end of each Fiscal Year during the term of this Agreement), the Management Committee shall arrange for and furnish to the Members annual financial statements, and as soon as practicable (but in no event later than sixty (60) days after the end of each fiscal quarter during the term of this Agreement), the Management Committee shall arrange for and furnish to the Members quarterly financial statements (each, a “Financial Statement”) for such period accurately reflecting the financial condition and the results of operation of the Company, including statements and calculations of Available Cash from Operations, Net Proceeds from a Capital Event, and Company Costs; provided that such Financial Statement need not be audited.  All annual and quarterly Financial Statements of the Company and its subsidiaries shall be reviewed by an independent public accounting firm.

 

ARTICLE 10

 

TAX MATTERS

 

Section 10.1 Taxation as Partnership.  The Members intend that the Company shall be treated as a partnership and that the Members shall be taxed as partners for federal, state and local income tax purposes.  No Party shall take any action that would result in the Company being taxed as a corporation.  The Company shall not file any election pursuant to Treasury Regulation Section 301.7701-3(c) to be treated as an association taxable as a corporation for Federal income tax purposes.  The Company shall not elect, pursuant to Code Section 761(a) to be excluded from the provisions of Subchapter K of the Code.  The Company shall prepare and file with the IRS and other necessary taxing authorities all documents, if any, necessary to elect, confirm and maintain its status as a partnership.  This characterization is intended solely for income tax purposes and the Company, its Members and their Affiliates shall not be treated or deemed to be partners or a partnership for any other purpose.

 

Section 10.2 Capital Accounts; Tax Allocations.  Exhibit C attached to this Agreement provides for the maintenance of Capital Accounts for each Member and allocation of profits, losses and other tax items to the Members, and is incorporated into this Agreement by this reference.

 

  

  

  

 

Section 10.3 Tax Matters Member.

 

(a) Tax Matters Member.  Gulfstar is hereby designated as the tax matters partner within the meaning of Section 6231(a)(7) of the Code (“Tax Matters Member”).  In such capacity, the Tax Matters Member shall have all of the rights, authority and power, and shall be subject to all of the obligations, of a tax matters partner to the extent provided in the Code and the Treasury Regulations.  Consistent with the requirements of the Code and the Treasury Regulations, the Tax Matters Member shall inform the other Members of any decision or actions taken as the Tax Matters Member.

 

(b) State and Local Tax Law.  If any state or local tax law provides for a tax matters partner or Person having similar rights, powers, authority or obligations, the Tax Matters Member shall also serve in such capacity.  In all other cases, the Tax Matters Member shall represent the Company in all tax matters to the extent allowed by law and to the maximum extent not prohibited by law.

 

(c) Expenses of the Tax Matters Member.  Expenses reasonably incurred by the Tax Matters Member shall be borne by the Company as Company Costs.  Such expenses shall include, without limitation, reasonable fees of attorneys and other tax professionals, accountants, appraisers and experts, filing fees and reasonable out of pocket costs.

 

(d) Effect of Certain Decisions by Tax Matters Member.  Any decisions made by the Tax Matters Member concerning whether or not to settle or contest any tax matter, whether or not to extend the period of limitations for the assessment or collection of any tax and the choice of forum for such contest shall be made in the Tax Matters Member’s reasonable discretion.

 

Section 10.4 Tax Returns; Tax Elections.

 

(a) Tax Returns. The Management Committee shall cause to be prepared and filed all applicable income, franchise, gross receipts, payroll and other tax returns that the Company is obligated to file.  Copies of Schedule K 1 of the Company’s tax return (Form 1065) shall be distributed to all Members as soon as practicable after the Partnership’s Fiscal Year.

 

(b) Elections by Company.  Except as provided in Section 10.1 hereof, relating to the tax classification of the Company, the Tax Matters Member shall have the exclusive right to make any determination whether the Company shall make available elections (including any election pursuant to Section 754 of the Code relating to certain adjustments to the basis of the Company’s assets or properties) for federal, state or local income tax purposes.  All decisions and other matters concerning the computation and allocation of items of income, gain, loss, deduction and credits among the Members, and accounting procedures not specifically and expressly provided for by the terms of this Agreement shall be determined by the Tax Matters Member.  Any determination made pursuant to this Section 10.4(b) by the Tax Matters Member shall be conclusive and binding on all Members.  The Tax Matters Member shall be absolved from all liability for any and all consequences to any previously admitted or subsequently admitted Members resulting from its making or failing to make any such election.

 

  

  

  

 

(c) Elections by Members.  The Management Committee shall have the sole discretion to consent to any tax election that a Member may request.  In the event any Member makes any tax election that requires the Company to furnish information to such Member to enable such Member to compute its own tax liability, or requires the Company to file any tax return or report with any tax authority, in either case that would not be required in the absence of such election made by such Member, the Company, acting through the Tax Matters Member, may, as a condition to furnishing such information or filing such return or report, require such Member to pay to the Company any incremental expenses incurred in connection therewith.

 

ARTICLE 11   

 

DISSOLUTION AND WINDING UP

 

Section 11.1 Events Resulting in Dissolution.  The Company shall dissolve pursuant to the Delaware Act only if one or more of the following events occurs:

 

(a) The sale of all or substantially all of the Company, its assets or properties, provided, however, that if such sale is made on the terms that the Company takes a note or other indebtedness or securities of the purchaser for part of the purchase price, no dissolution shall occur until such time as the Company ceases to be the holder of such securities, such note or indebtedness or such note or the indebtedness evidenced by such note has been paid in full.

 

(b) The agreement in writing by the Management Committee and Members holding a majority of the Units.

 

(c) Any judicial entry of an order of dissolution of the Company under the Delaware Act.

 

 

The Company shall not be dissolved or terminated by reason of the bankruptcy, removal, withdrawal, dissolution or admission of any Member.

 

Section 11.2 Procedure.

 

(a) Upon the dissolution of the Company, the Managers shall wind up the affairs of the Company.  The Members shall continue to receive allocations of Net Profit and Net Losses and distributions of Available Cash from Operations during the period of liquidation of the Company in the same manner and proportion as though the Company had not dissolved.  Any sale or sales of the Company, its assets or properties pursuant to such liquidation must still be approved by the Members as a Major Decision.

 

(b) Following the payment of all debts and liabilities of the Company and all expenses of liquidation, and subject to any reserves which may be approved by the Members as a Major Decision for the payment of contingent or unforeseen obligations of the Company (including indemnification obligations), which will continue after the sale of the Company, its assets or properties, the proceeds of the liquidation and any other funds of the Company shall be distributed in accordance with Section 3.1.

 

  

  

  

 

(c) Except as approved by the Members as a Major Decision, no Member shall have the right to demand or receive property other than cash upon liquidation.

 

(d) Upon the completion of the liquidation of the Company and the distribution of all Company funds, the Company shall terminate and the Managers shall have the authority to execute and record a certificate of cancellation of the Company as well as any and all other documents required to complete the dissolution and termination of the Company.

 

ARTICLE 12

 

NOTICES

 

Section 12.1 Notices.  All notices, consents, requests for approval, approvals, demands, waivers or other communications required to be sent or otherwise applicable under this Agreement (each, a “Notice”) shall be in writing and shall be sent to each applicable Party, its or their legal counsel at the addresses set forth below.  A Notice that complies with the requirements of this Section 12.1 shall be deemed to have been duly given and received:  (a) when delivered personally; (b) one (1) Business Day after being delivered to a reputable overnight courier service, marked for next day delivery and with delivery charges prepaid by the sender; or (c) on the first Business Day after receipt, if delivered by facsimile transmission to the facsimile number of the addressee shown below, if (1) receipt is confirmed in writing by the sending facsimile machine and (2) the Notice is also sent by any means described in clause (a) or (b) above.

 

Section 12.2 Addresses for Notices.  All notices must be addressed to a Manager or Member at the Manager’s or Member’s last known street address on the records of the Company.  A notice to the Company must be addressed to the Company’s principal office.  Any party may designate, by notice to all of the others, substitute addresses or addressees for notices.

 

ARTICLE 13

 

MISCELLANEOUS

 

Section 13.1 Entire Agreement.  This Agreement, together with all Exhibits and Schedules, constitutes the entire agreement among the Parties pertaining to its subject matter.  This Agreement supersedes any prior agreement or understanding among the Parties with respect to its subject matter, but shall not amend, modify, supersede or in any way affect any other agreement or understanding among the Members or their respective Affiliates that do not relate to the subject matter of this Agreement.

 

Section 13.2 Amendments.  No provision of this Agreement may be amended, supplemented or waived except in a written instrument approved by the Management Committee, Members holding at an Ownership Percentage of at least fifty percent (50%), and holders of a majority of Class A Units; provided that an Authorized Person may amend Schedule A attached hereto to reflect the addition or removal of Members, the issuance of Units or changes to Ownership Percentages effected in accordance with the terms of this Agreement; and further provided that, in the event any amendment, supplement or waiver to this Agreement has or will have the effect of eliminating any economic or voting rights of the holders of Class A Units or Class B Units, then such amendment, supplement or waiver will require the written consent of the holders of a majority of such affected Units.

 

  

  

  

 

Section 13.3 Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the Members and their permitted successors and assigns.

 

Section 13.4 No Third Party Beneficiaries.  The terms and provisions of this Agreement are for the sole and exclusive benefit of the Parties and their permitted successors and assigns and shall not be deemed to create any rights for the benefit of any other Person.

 

Section 13.5 Governing Law.  This Agreement and the rights of the Parties shall be governed by, interpreted and enforced in accordance with the internal laws of the State of Delaware without regard to principles of conflicts of laws.

 

Section 13.6 Jurisdiction; Choice of Forum.  Each Party hereby irrevocably (a) submits to the exclusive jurisdiction of any New York state or federal court sitting in the County of New York (New York), in any action or proceeding arising out of or relating to this Agreement, the relations between the Parties and any matter, action or transaction described in this Agreement, whether in contract, tort or otherwise, (b) agrees that such courts shall have exclusive jurisdiction over such actions or proceedings, (c) waives the defense that New York is an inconvenient forum to the maintenance and continuation of such action or proceeding, (d) consents to the service of any and all process in any such action or proceeding by the mailing of copies (certified mail, return receipt requested and postage prepaid) of such process to them at their addresses specified in Article 12 and (e) agrees that a final and non-appealable judgment rendered by a court of competent jurisdiction in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.  In the event that an action or proceeding is initiated in one of the courts referenced above and is pending, the Parties agree, for the convenience of the parties and subject to any limitations on subject matter jurisdiction of the court, to initiate any counterclaims or related actions in the same proceeding (as opposed to a separate proceeding in any of the other courts specified above).

 

Section 13.7 Waiver of Jury Trial.  EACH MANAGER AND MEMBER, FOR ITSELF AND ON BEHALF OF ITS AFFILIATES, HEREBY WAIVES ITS RIGHT TO TRIAL BY JURY IN ANY ACTION, LAWSUIT OR PROCEEDING RELATING TO ANY DISPUTE ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION DESCRIBED IN THIS AGREEMENT OR DISPUTE BETWEEN THE PARTIES (INCLUDING DISPUTES WHICH ALSO INVOLVE OTHER PERSONS).

 

Section 13.8 Severability.  If any provision of this Agreement or the application of such provision to any Party or circumstance shall be held invalid or unenforceable, the remainder of this Agreement or the application of that provision to another Party or circumstance shall not be affected thereby.

 

  

  

  

 

Section 13.9 Captions.  The captions and headings used in this Agreement are for convenience only and do not in any way affect, limit, amplify or modify the terms and provisions hereof.

 

Section 13.10 Further Assurances.  Each Member shall execute and deliver any additional documents and instruments and perform any additional acts that may be reasonably necessary or appropriate to effectuate and perform the provisions of this Agreement and the transactions contemplated herein.

 

Section 13.11 Counterparts.  This Agreement may be executed in several counterparts.  If so executed, each of such counterparts shall be deemed an original for all purposes and all counterparts shall, collectively, constitute one agreement.  In making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart and photocopies may be used.

 

Section 13.12 Herrick, Feinstein LLP.  The Members (i) acknowledge and agree that Herrick, Feinstein LLP is acting as the attorney for Gulfstar, Coral Reef and certain of their respective Affiliates, (ii) acknowledge and agree that the Herrick, Feinstein LLP has explained to them the conflicts of interest which could arise as a result of its representation of Gulfstar, Coral Reef and certain of their respective Affiliates, (iii) consent to the Herrick, Feinstein LLP’s representation of Gulfstar, Coral Reef and certain of their respective Affiliates in connection with any on-going and future transactions involving Gulfstar, Coral Reef and certain of their respective Affiliates and (iv) waive any and all claims each of them may have against the Herrick, Feinstein LLP arising out of any potential conflicts of interest that may result from any of the facts described herein or the foregoing representations.  Herrick, Feinstein LLP shall not be disqualified from representing Gulfstar, Coral Reef or any of their respective Affiliates in any action to enforce or interpret, or arising out of, this Agreement by reason of Herrick, Feinstein LLP having acted as counsel to Gulfstar, Coral Reef or any of their respective Affiliates in connection herewith, or by reason of any of its attorneys being witnesses in such litigation.

 

 [Remainder of Page Intentionally Left Blank; Signature Pages Follows]

 

 

 

  

  

  

 

SIGNATURE PAGE TO THE

Amended and Restated Limited Liability Company Agreement of TNR Holdings LLC

IN WITNESS WHEREOF, the undersigned has entered into and executed the Amended and Restated Limited Liability Company Agreement of TNR Holdings LLC.

GULFSTAR RESOURCES LLC

By: Gulfstar Manager LLC, its

Managing Member

By:                                                      

     Name:

     Title:

 

  

  

  

 

SIGNATURE PAGE TO THE

Amended and Restated Limited Liability Company Agreement of TNR Holdings LLC

IN WITNESS WHEREOF, the undersigned has entered into and executed the Amended and Restated Limited Liability Company Agreement of TNR Holdings LLC.

MESA ENERGY, INC.

By:                                                      

     Name:

     Title:

 

  

  

  

 

SCHEDULE A

 

MEMBERS

 

	
Name and Address

	
Capital Contributions

	
Class A Units

	
Class B Units

	
Ownership Percentage

	  	  	  	  	  
	
Gulfstar Resources LLC

757 Third Avenue

Suite 1703

New York, NY 10017

 

	
$6,250,000

	
6,250

	
-

	
34.375%

	
Mesa Energy, Inc.

5220 Spring Valley Road, Suite 615

Dallas, TX 75254

	
100% limited liability company interests in each of Tchefuncte  Natural Resources, LLC, and Mesa Gulf Coast, LLC

	
-

	
11,932

	
65.625%

	  	  	  	  	  

 

 

  

  

  

 

SCHEDULE B

 

PERMITTED INDEBTEDNESS

 

	
1.  

	
All loans and letter of credit reimbursement obligations outstanding under the F&M Facility     

 

	
2.  

	
Automobile Lease dated September 1, 2011, between David L. Freeman  and Mesa Energy, Inc.

 

	
3.  

	
GMAC Smartlease Agreement dated August 17, 2011, between Bryan Chevrolet and Mesa Energy, Inc. (36C PC REA4B6324904)

 

	
4.  

	
GMAC Smartlease Agreement dated August 17, 2011, between Bryan Chevrolet and Mesa Energy, Inc. (3GCPCREA58G327570)

 

	
5.  

	
GMAC Smartlease Agreement dated September 24, 2011, between Bryan Chevrolet and Mesa Energy, Inc. (3GCPCREA5BG3553G7)

 

	
6.  

	
Equipment Lease dated April 4, 2011, between Regional Office Supply & Equipment Company and Tchefuncte Natural Resources, LLC

	
7.  

	
AFCO Commercial Premium Finance Agreement for annual boat policy dated 4/19/13

Total Premium - $40,837.50

Total Financed - $37,348.29

Insured is Mesa Gulf Coast, LLC and affiliated parties

 

	
8.  

	
AFCO Commercial Premium Finance Agreement for annual liability policy dated 7/22/13

Total Premium - $148,793.04

Total Financed - $129,465.06

Insured is Mesa Energy, Inc. and affiliated parties

 

  

  

  

EXHIBIT A

 

DEFINITIONS

 

As used in this Agreement, the following terms shall have the following meanings:

 

“Additional Member” means each Member of the Company other than the Members on the date hereof and their respective successors and assigns.

 

“Affiliate” means as to any specified Person (1) any officer, director, employee, shareholder, partner or member of such Person or any Person for which the specified Person serves as an officer, director, employee, shareholder, partner or member or (2) any Person Controlling, Controlled by or under common Control with such Person.

 

“Available Cash from Operations” means cash from any source, other than Net Proceeds from a Capital Event.

 

“Bankruptcy Proceeding” means (1) the filing by a specified Person of a petition for its bankruptcy or reorganization under the U.S. Bankruptcy Code or the laws of any state of the United States, (2) the commencement against a specified Person with or without its consent or approval of any proceeding seeking its bankruptcy, liquidation or reorganization, appointment of a receiver or trustee of its assets, or comparable relief, which proceeding has not been dismissed or discontinued within ninety (90) days after its filing, (3) the conversion at any time of an involuntary proceeding of the type described in clause (2) into a voluntary proceeding with the consent of a specified Person, (4) the entry by a court of competent jurisdiction of a final and non-appealable order granting any relief of the type described in clause (1) or (2) above, (5) the admission in writing by a specified Person of its inability to pay its debts generally as they become due and (6) the making by a specified Person of a general assignment for the benefit of its creditors.

 

“Business Day” means Monday through Friday of each week, unless such day is a day on which national banks in New York, New York are not open for business.

 

 “Capital Contribution” means with respect to any Member, the aggregate amount of such Member’s Capital Contributions, including without limitation any additional capital contributions made pursuant to Section 2.2.

 

“Capital Event” means: (i) any refinancing, sale, exchange, transfer, condemnation or other disposition of all or a portion of a property, facility, business, subsidiary or division of the Company, including any debt or equity interest therein; (ii) a sale of all or substantially all of the Company’s assets; or (iii) proceeds generated from the sale by the Company of equity interests or acceptance of Capital Contributions, including the sale of equity interests in any subsidiary or in connection with the formation of a joint venture.

 

 “Class” refers to the distinction among Class A Units and the Class B Units as set forth in this Agreement.

 

“Code” means the Internal Revenue Code of 1986, as amended from time to time (or any succeeding law).

 

  

C-1

  

 

“Company” means the limited liability company formed pursuant to this Agreement.

 

“Company Costs” means all of the costs and expenditures of any kind and payments thereof actually made by or on behalf of the Company in cash during any period with respect to its operations.

 

“Control”, “Controlling” and “Controlled by” means, when used with respect to any specified Person, the ability, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, to direct or cause the direction of, alone or in concert with others, the management and policies of a Person.

 

“Coral Reef” means Coral Reef Capital LLC, having offices located at 757 Third Avenue, Suite 1703, New York, New York 10017.

 

“Coral Reef Consulting Agreement” means that certain management agreement to be entered into between Coral Reef and the Company on or about the date hereof, as such agreement may be amended from time to time.

 

“Delaware Act” means the Delaware Limited Liability Company Act, as it may be amended from time to time, and any successor to that act.

 

 “Disability” means when a Manager suffers from a physical or mental ailment or condition that causes the Manager to be incapable of making decisions for the Company and otherwise unable to carry out the management duties of the Company, which ailment or condition shall have existed for a period of 120 consecutive days or for a total of 180 days during any twelve (12) consecutive month period.

 

 “Economic Interest” means a Member’s right to share in the income, gains, losses, deductions, credit, or similar items of, and to receive distributions from, the Company as set forth in this Agreement, but excludes any other rights of a Member, including, without limitation, the right to vote or to participate in management, or, except as may be provided in the Delaware Act, any right to information concerning the business and affairs of the Company.

 

“Fiscal Year” of the Company means the 12-month period ending December 31 of each year, or any other period which constitutes the Company’s taxable year for Federal income tax purposes.

 

“GAAP” shall mean generally accepted accounting principles in the United States.

 

“Gulfstar” means Gulfstar Resources LLC, having offices located at 757 Third Avenue, Suite 1703, New York, New York 10017

 

“Indemnitor” means the Company, obligated to indemnify, defend and hold harmless an Indemnitee pursuant to Article 8.

 

“Indemnitee” means either a Manager, Member or other Person that an Indemnitor is obligated to indemnify, defend and hold harmless pursuant to Article 8 as well as all present and former directors, officers, shareholders, partners, members, employees, agents (including accountants, consultants, attorneys and other professional advisers) and other Affiliates of the specified Indemnitee.

 

  

C-2

  

 

 “IRS” means the U.S. Internal Revenue Service or any successor agency or department with primary responsibility for adopting, interpreting and enforcing provisions of the Code.

 

 “Lien” means any lien, mortgage, charge, restriction, option, contractual restriction on transfer, security interest, tax lien, pledge, encumbrance, conditional sale or title retention arrangement, or any other claim of any kind or nature securing any obligation, indebtedness, or any agreement to create or confer any of the foregoing, in each case whether arising by agreement or under any statute or law or otherwise.

 

 “Members” means the members set forth on Schedule A and any members of the Company subsequently admitted as members in accordance with this Agreement and the Delaware Act.

 

“Membership Interest” means the entire ownership interest of a Member in the Company at any particular time, including, without limitation, the Voting Interest, Economic Interest, the right of such Member to any and all benefits to which a Member may be entitled as provided in this Agreement and under law, and the obligations of such Member to comply with all of the terms and provisions set forth in this Agreement and under applicable law.

 

“Net Proceeds From a Capital Event” means the proceeds to the Company from a Capital Event, after (i) deducting costs and expenses related to such Capital Event, (ii) the creation of any reserves, and (iii) the satisfaction of any indebtedness being refinanced or discharged concurrently with such Capital Event, regardless of whether such indebtedness involves assets related to such Capital Event.

 

 “Ownership Percentage” means, as to each Member, the percentage reflecting the ratio which the aggregate amount of Units held by such Member bears to the aggregate amount of Units held by all Members.  The Ownership Percentage of each Member is set forth opposite such Member’s name and under the heading “Ownership Percentage” in Schedule A hereto, as amended from time to time.

 

 “Parties” means the Members who have signed the Agreement.

 

“Permitted Indebtedness” means (i) indebtedness, capital leases obligations, or guarantees existing on the date hereof as set forth on Schedule B hereto and not including, for the avoidance of debt, any amendments, extensions, or modifications of the foregoing made after the date hereof and (ii) indebtedness secured by purchase money security interests in, or capital leases of, real property, improvements thereto or equipment hereafter acquired (or, in the case of improvements, constructed), provided that such security interests are incurred, and the indebtedness secured thereby is created, within 90 days after such acquisition (or construction) and the indebtedness secured thereby does not exceed the lesser of the cost or the fair market value of such real property, improvements or equipment at the time of such acquisition (or construction), in an aggregate amount outstanding not to exceed $50,000.

 

  

C-3

  

 

 “Person” means an individual or a general partnership, limited partnership, corporation, professional corporation, limited liability company, limited liability partnership, joint venture, trust, business trust, cooperative or association or any other legally-recognized entity.

 

 “Third Party” means any Person who is not a Party to this Agreement and not an Affiliate of a Party to this Agreement.

 

“Transfer” and related usages of that term means any sale, transfer, assignment, pledge, hypothecation, granting of a Lien, or other disposal, directly or indirectly, of all or any part of a Membership Interest (including economic interests) or any direct or indirect (and no matter how remote) ownership interest in a Member or granting any rights to distributions or proceeds from a Membership Interest in any manner, including any agreement to do so, whether directly or indirectly; voluntarily or involuntarily by operation of law or otherwise or by means of any swap, derivative, or similar transaction or by any of the foregoing with respect to all or a portion of any type of equity, profits, distribution or other ownership interest, and shall include the ability to approve or have any right to vote on, consent to or veto any decision or matter set forth in this Agreement and a right to receive (directly or indirectly) any share or portion of payments of dividends, distributions or profits, and the issuance of any new shares or other equity interests.

 

“Treasury Regulations” means the Income Tax Regulations and Procedures and Administration Regulations promulgated under the Code, as amended from time to time.

 

“Unit Purchase Agreement” means that certain Unit Purchase Agreement of even date herewith by and among, the Company, Gulfstar, Mesa Energy, Inc. and Armada Oil, Inc.

 

 “Unreturned Capital Contributions” means, with respect to each Member, each such Member’s Capital Contributions less all distributions made to such Member pursuant to Section 3.1(c)(2), or treated as made pursuant to such Section under the second sentence of Section 3.2.

 

“Voting Interest” means, with respect to each Member, the right, if any, of such Member to vote or to participate in management under this Agreement and the Delaware Act.

 

The following terms have the meanings defined for such terms in the Sections set forth below:

 

	  	
Term

	
Section

	  	
Account

	
9.2

	  	
Agreement

	
Preamble

	  	
Assets

	
4.7

	  	
Authorized Person

	
4.1(c)

	  	
Capital Account

	
Exhibit C

	  	
Certificate

	
1.1

	  	
Class A Units

	
2.1(a)

	  	
Class B Units

	
2.1(b)

 

  

C-4

  

 

	  	
Compelled Sale

	
6.5(c)

	  	
Compelled Sale Notice

	
6.5(b)

	  	
Confidential Information

	
7.4(a)

	  	
Confidential Materials

	
7.4(b)

	  	
Co-Sale Notices

	
6.6

	  	
Co-Sale Participant

	
6.6

	  	
Effective Date

	
Preamble

	  	
F&M Facility

	
2.2(b)

	  	
F&M Payment Unit Price

	
2.2(b)

	  	
Financial Statement

	
9.3

	  	
Major Decision

	
4.2

	  	
Management Committee

	
4.1(a)

	  	
Management Committee Observer

	
4.1(c)

	  	
Manager

	
4.1(a)

	  	
Member Sale Notice

	
6.3

	  	
New Unit

	
2.1(d)(2)

	  	
Notice

	
    12.1

	  	
Offered Securities

	
6.3

	  	
Original LLC Agreement

	
Recitals

	  	
Other Business

	
7.3

	  	
Preemptive Right Notice

	
2.1(d)(2)

	  	
Proceeding

	
8.1

	  	
Proposed Transferee

	
6.3

	  	
Remaining Securities

	
6.3(c)

	  	
Response Notice

	
6.3(b)

	  	
Response Notice Deadline

	
6.3(b)

	  	
Second Member Sale Notice

	
6.3(c)

	  	
Second Response Notice

	
6.3(d)

	  	
Tax Matters Member

	
10.3(a)

	  	
Units

	
2.1

  

C-5

  

 

EXHIBIT B

 

JOINDER AGREEMENT

 

Date: ____________________________

Reference is made to that Amended and Restated Limited Liability Company Agreement of TNR Holdings LLC, dated as of December 20, 2013 (as the same may be amended from time to time, the “LLC Agreement”), among the several members named on Schedule A thereto.  A copy of the LLC Agreement is attached hereto as Exhibit A and such LLC Agreement is made part hereof and incorporated herein by reference.  Terms used in this Joinder Agreement, but not defined herein, are used herein as defined in the LLC Agreement.

 

(i) In accordance with the provisions of Section 2.1(d) of the LLC Agreement, the undersigned has reviewed, and hereby joins in, the LLC Agreement, for purposes of evidencing its consent and agreement to be bound by the terms and provisions of the LLC Agreement under the LLC Agreement of, including the rights and obligations applicable to, an Additional Member and holder of  [Class [A] [B]] Units.

 

(ii) The undersigned, as an Additional Member, hereby confirms that the representations and warranties contained in Article 5 are true and correct with respect to the undersigned as of the date hereof as if set forth herein.

 

IN WITNESS WHEREOF, the parties hereto have caused this Joinder Agreement to be executed this _________ day of ___________, _____________.

 

________________________________________

[ADDITIONAL MEMBER]

Date: ________________, ______________

Agreed and accepted:

TNR HOLDINGS LLC

By: ______________________________

      Name:

      Title:

  

B-1

  

 

EXHIBIT C

 

TAX ALLOCATIONS

 

I.           Purpose.

 

This Exhibit C (this “Exhibit”) is attached to, and constitutes a part of, the Agreement for the purpose of setting forth the rules governing the maintenance of the Capital Account required to be maintained for each Member under the Agreement and the rules governing the allocation of the Company’s items of Net Profit and Net Loss, other items of income, gain, loss, deduction and credit, and taxable income, gain, loss, deduction, and credit.

 

II.           Certain Definitions.

 

	
1.  

	
Certain Additional Definitions

 

Unless otherwise provided in this Exhibit, all capitalized terms used in this Exhibit shall have the meanings assigned to them in the Agreement of which this Exhibit is a part.  In addition, the following definitions shall be for all purposes applied to the terms used in this Exhibit.

 

“Adjusted Capital Account” means the Capital Account maintained for each Member as of the end of each Fiscal Year (i) increased by any amounts which such Member is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) and (ii) decreased by the items described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6).  The foregoing definition of Adjusted Capital Account is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

 

“Adjusted Capital Account Deficit” means, with respect to any Member, the deficit balance, if any, in such Member’s Adjusted Capital Account as of the end of the relevant Fiscal Year.

 

“Adjusted Property” means any property the Carrying Value of which has been adjusted pursuant to this Exhibit.

 

“Agreed Value” means (i) in the case of any Contributed Property, the 704(c) Value of such property as of the time of its contribution to the Company, reduced by any liabilities either assumed by the Company upon such contribution or to which such property is subject when contributed; and (ii) in the case of any property distributed to a Member by the Company, the Company’s Carrying Value of such property at the time such property is distributed, reduced by any indebtedness either assumed by such Member upon such distribution or to which such property is subject at the time of distribution as determined under Section 752 of the Code and the Regulations thereunder.

 

“Book-Tax Disparities” means, with respect to any item of Contributed Property or Adjusted Property, as of the date of any determination, the difference between the Carrying Value of such property and the adjusted basis thereof for federal income tax purposes as of such date.  A Member’s share of the Company’s Book-Tax Disparities in all of its Contributed Property and Adjusted Property shall be reflected by the difference between such Member’s Capital Account balance as maintained pursuant to this Exhibit and the hypothetical balance of such Member’s Capital Account computed as if it had been maintained, with respect to each such Contributed Property or Adjusted Property, strictly in accordance with federal income tax accounting principles.

 

  

C-1

  

 

“Capital Account” has the meaning set forth in Section 2.

 

“Carrying Value” means (i) with respect to a Contributed Property, the 704(c) Value of such property, (ii) with respect to an Adjusted Property that was initially a Contributed Property, the 704(c) Value of such property adjusted (but not below zero) pursuant to provisions of this Exhibit including Section 2.D(2) and taking into account all Depreciation with respect to such Adjusted Property charged to the Members’ Capital Accounts, (iii) with respect to an Adjusted Property that was not initially a Contributed Property, the adjusted basis of such property for federal income tax purposes as adjusted (but not below zero) pursuant to provisions of this Exhibit including Section 2.D(2) and taking into account all Depreciation with respect to such Adjusted Property charged to the Members’ Capital Accounts and (iv) with respect to any other Company property, the adjusted basis of such property for federal income tax purposes, all as of the time of determination.  The Carrying Value of any property shall be adjusted from time to time in accordance with this Exhibit, and to reflect changes, additions or other adjustments to the Carrying Value for dispositions and acquisitions of Company properties, as otherwise provided in this Exhibit, or as deemed appropriate by the Management Committee.

 

“Company Minimum Gain” shall mean “partnership minimum gain” as set forth in Regulations Section 1.704-2(b)(2), and the amount of Company Minimum Gain, as well as any net increase or decrease in Company Minimum Gain, for a Fiscal Year shall be determined in accordance with the rules of Regulations Section 1.704-2(d).

 

“Contributed Property” means each property or other asset contributed to the Company, in such form as may be permitted by the Delaware Act, but excluding cash contributed or deemed contributed to the Company.  Once the Carrying Value of a Contributed Property is adjusted pursuant to this Exhibit, such property shall no longer constitute a Contributed Property for purposes of this Exhibit, but shall be deemed an Adjusted Property for such purposes.

 

“Depreciation” means, for each Fiscal Year, an amount equal to the federal income tax depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such year, except that if the Carrying Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation shall be an amount which bears the same ratio to such beginning Carrying Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such year bears to such beginning adjusted tax basis; provided, however, that if the federal income tax depreciation, amortization, or other cost recovery deduction for such year is zero, Depreciation shall be determined with reference to such beginning Carrying Value using any other reasonable method selected by the Management Committee in its reasonable discretion subject to other provisions of this Exhibit.

 

  

C-2

  

 

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

 

“Member Nonrecourse Debt” shall mean “partner nonrecourse debt” as set forth in Regulations Section 1.704-2(b)(4).

 

“Member Nonrecourse Deductions” shall mean “partner nonrecourse deduction” as set forth in Regulations Section 1.704-2(i)(2), and the amount of Member Nonrecourse Deductions with respect to a Member Nonrecourse Debt for a Fiscal Year shall be determined in accordance with the rules of Regulations Section 1.704-2(i)(2).

 

“Net Profit” or “Net Loss” shall mean for each Fiscal Year the Company taxable income or taxable loss for such Fiscal Year, determined in accordance with this Exhibit.

 

“Nonrecourse Built-in Gain” means, with respect to any Contributed Properties or Adjusted Properties that are subject to a mortgage or negative pledge securing a Nonrecourse Liability, the amount of any taxable gain that would be allocated to the Members pursuant to Sections 5.B.(1)(a) and 5.B.(2)(a)(i) of this Exhibit hereto if such properties were disposed of in a taxable transaction in full satisfaction of such liabilities and for no other consideration.

 

“Nonrecourse Deductions” has the meaning set forth in Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Fiscal Year shall be determined in accordance with the rules of Regulations Section 1.704-2(c).

 

“Nonrecourse Liability” has the meaning set forth in Regulations Section 1.752-1(a)(2).

 

“Partially Adjusted Capital Account” means, with respect to any Member for any Fiscal Year or other period, the Capital Account balance of such Member at the beginning of such period, adjusted as set forth in Section 2 of this Exhibit for all contributions and distributions during such period and all special allocations pursuant to Section 4 of this Exhibit with respect to such period, but before giving effect to any allocation with respect to such period pursuant to Section 3 of this Exhibit.

 

“Recapture Income” means any gain recognized by the Company (computed without regard to any adjustment required by Sections 734, 743, and 754 of the Code) upon the disposition of any property or asset of the Company, which gain is characterized as ordinary income because it represents the recapture of deductions previously taken with respect to such property or asset.

 

“Regulations” means the federal income tax regulations issued by the U.S. Department of Treasury in their proposed, temporary and final forms, as amended from time to time.

 

“Residual Gain” or “Residual Loss” means any item of gain or loss, as the case may be, of the Company recognized for federal income tax purposes resulting from a sale, exchange or other disposition of Contributed Property or Adjusted Property, to the extent such item of gain or loss is not allocated pursuant to Sections 5.B.(1)(a) or 5.B.(2)(a) of this Exhibit to eliminate Book-Tax Disparities.

 

  

C-3

  

 

“704(c) Value” means with respect to any Contributed Property the fair market value of such property at the time of contribution as determined under this Agreement.  Subject to this Exhibit, the Management Committee shall elect to use such method as it reasonably deems appropriate to allocate the aggregate of the 704(c) Values of Contributed Properties in a single or integrated transaction among each separate property on a basis proportional to their fair market values.

 

“Target Capital Account” means, with respect to any Member for any Fiscal Year or other period, an amount (which may be either a positive or negative balance) equal to the difference between (i) the hypothetical distribution (if any) such Member would receive if all Company assets, including cash, were sold for cash equal to their Carrying Value (taking into account any adjustments to Carrying Value for such period), all Company liabilities were satisfied in cash according to their terms (limited, with respect to each nonrecourse liability of the Company, to the Carrying Value of the assets securing such liability), and the net proceeds to the Company of such sale (after satisfaction of said liabilities) were distributed in full pursuant to Article III and other applicable provisions, if any, of the Agreement on the last day of such period, minus (ii) the sum of such Member’s share of Company Minimum Gain and Member Minimum Gain, determined as provided in Section 4 of this Exhibit immediately prior to such deemed sale.

 

“Unrealized Gain” means, with respect to any item of Company property as of any date of determination, the excess, if any, of (i) the fair market value of such property (as determined under this Exhibit) as of such date, over (ii) the Carrying Value of such property (prior to any adjustment to be made pursuant to this Exhibit for the applicable Fiscal Year or other period) as of such date.

 

“Unrealized Loss” means, with respect to any item of Company property as of any date of determination, the excess, if any, of (i) the Carrying Value of such property (prior to any adjustment to be made pursuant to this Exhibit) as of such date, over (ii) the fair market value of such property (as determined under this Exhibit for the applicable Fiscal Year or other period) as of such date.

 

	
2.  

	
Capital Accounts of the Members

 

A. The Company shall maintain for each Member a separate “capital account” (“Capital Account”) in accordance with the rules of Regulations Section 1.704-1(b)(2)(iv).  Such Capital Account shall be increased by (i) the amount of cash contributed or deemed contributed or the Agreed Value of all actual and deemed contributions of property made by such Member to the Company pursuant to this Agreement and (ii) all items of Company income and gain (including income and gain exempt from tax) computed in accordance with Section 2.B hereof and allocated to such Member pursuant to Section 3 or Section 4 hereof, and decreased by (x) the amount of cash distributed or deemed distributed or the Agreed Value of all actual and deemed distributions of cash or property made to such Member pursuant to this Agreement and (y) all items of Company deduction and loss computed in accordance with Section 2.B hereof and allocated to such Member pursuant to Section 3 or Section 4 hereof.

 

B. For purposes of computing the amount of Net Profit or Net Loss to be reflected in the Members’ Capital Accounts, the determination, recognition and classification of any item of income, gain, deduction or loss shall be the same as its determination, recognition and classification for federal income tax purposes determined in accordance with Section 703(a) of the Code (for this purpose all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code shall be included in taxable income or loss), with the following adjustments:

 

  

C-4

  

 

	
(1)  

	
Except as otherwise provided in Regulations Section 1.704-1(b)(2)(iv)(m), the computation of all items of income, gain, loss and deduction shall be made without regard to any election under Section 754 of the Code which may be made by the Company, provided that the amounts of any adjustments to the adjusted bases of the assets of the Company made pursuant to Section 734 of the Code as a result of the distribution of property by the Company to a Member (to the extent that such adjustments have not previously been reflected in the Members’ Capital Accounts) shall be reflected in the Capital Accounts of the Members in the manner and subject to the limitations prescribed in Regulations Section 1.704-1(b)(2)(iv) (m)(4).

 

	
(2)  

	
The computation of all items of income, gain, and deduction shall be made without regard to the fact that items described in Sections 705(a)(1)(B) or 705(a)(2)(B) of the Code are not includable in gross income or are neither currently deductible nor capitalized for federal income tax purposes.

 

	
(3)  

	
Any income, gain or loss attributable to the taxable disposition of any Company property shall be determined as if the adjusted basis of such property as of such date of disposition were equal in amount to the Company’s Carrying Value with respect to such property as of such date.

 

	
(4)  

	
In lieu of the depreciation, amortization, depletion, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year.

 

	
(5)  

	
In the event the Carrying Value of any Company asset is adjusted pursuant to Section 2.D hereof, the amount of any such adjustment shall be taken into account as gain or loss from the disposition of such asset.

 

	
(6)  

	
Any items specially allocated under Section 4 hereof shall not be taken into account.

 

C. Generally, a transferee of an interest in the Company shall succeed to a pro rata portion of the Capital Account of the transferor.

 

	
D.  

	
(1)Consistent with the provisions of Regulations Section 1.704-1(b)(2)(iv)(f), and as provided in Section 2.D(2) hereof, the Carrying Values of all Company assets shall be adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss attributable to such Company property, as of the times of the adjustments provided in Section 2.D(2) hereof, as if such Unrealized Gain or Unrealized Loss had been recognized on an actual sale of each such property and allocated pursuant to Section 3 hereof.

 

  

C-5

  

 

	
  

	
(2)

	
Such adjustments shall be made as of the following times: (a) immediately prior to the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis capital contribution; (b) immediately prior to the distribution by the Company to a Member of more than a de minimis amount of property as consideration for an interest in the Company; and (c) immediately prior to the liquidation of the Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), provided however that adjustments pursuant to clauses (a) and (b) above shall be made only if the Management Committee reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company.

 

	
  

	
(3)

	
In accordance with Regulations Section 1.704- 1(b)(2)(iv)(e), the Carrying Value of Company assets distributed in kind shall be adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss attributable to such Company property, as of the time any such asset is distributed.

 

	
  

	
(4)

	
In determining Unrealized Gain or Unrealized Loss for purposes of this Exhibit, the aggregate cash amount and fair market value of all Company assets (including cash or cash equivalents) shall be determined by the Management Committee using such reasonable method of valuation as it may adopt.  The Management Committee shall allocate such aggregate fair market value among the assets of the Company in such manner as it determines in its reasonable discretion to arrive at a fair market value for individual properties.

 

E. The provisions of this Agreement (including this Exhibit) relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations.  In the event the Management Committee shall reasonably determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities which are secured by contributed or distributed property or which are assumed by the Company or the Members) are computed in order to comply with such Regulations, the Management Committee may make such modification it reasonably deems appropriate, provided that it is not likely to have a material effect on the amounts distributable to any Member pursuant to the Agreement upon the dissolution of the Company.  The Management Committee also shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Members and the amount of Company capital reflected on the Company’s balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b).

 

  

C-6

  

 

	
3.  

	
General Allocation Rules

 

After giving effect to the special allocations set forth in Section 4 of this Exhibit, all Net Profit and Net Loss (and to the extent necessary, as set forth in clauses (i), (ii) and (iii) of this Section 3, items of gross income, gain, expense and loss) of the Company shall be allocated among the Members as follows:

 

	
(1)  

	
If the Company has a Net Profit for any Fiscal Year (determined prior to giving effect to this clause (1)), each Member whose Partially Adjusted Capital Account is greater than its Target Capital Account shall be allocated items of Company expense or loss for such Fiscal Year equal to the difference between its Partially Adjusted Capital Account and Target Capital Account.  If the Company has insufficient items of expense or loss for such Fiscal Year to satisfy the previous sentence with respect to all such Members, the available items of expense or loss shall be divided among such Members in proportion to such difference.

 

	
(2)  

	
If the Company has a Net Loss for any Fiscal Year (determined prior to giving effect to this clause (2)), each Member whose Partially Adjusted Capital Account is less than its Target Capital Account shall be allocated items of Company gain or income for such Fiscal Year equal to the difference between its Partially Adjusted Capital Account and Target Capital Account.  If the Company has insufficient items of income or gain for such Fiscal Year to satisfy the previous sentence with respect to all such Members, the available items of income or gain shall be divided among such Members in proportion to such difference.

 

	
(3)  

	
Any remaining Net Profit or Net Loss (as computed after giving effect to clauses (1) and (2) of this Section 3) (and to the extent necessary to achieve the purposes hereof, items of income, gain, loss and deduction) shall be allocated among the Members so as to reduce, proportionately, the differences between their respective Partially Adjusted Capital Accounts and Target Capital Accounts for the period under consideration.  To the extent possible, each Member shall be allocated a pro rata share of all Company items allocated pursuant to this clause (3).

 

	
4.  

	
Special Allocation Rules

 

Notwithstanding any other provision of the Agreement or this Exhibit, the following special allocations shall be made in the following order:

 

A. Minimum Gain Chargeback.  If there is a net decrease in Company Minimum Gain during any Fiscal Year, each Member shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Member’s share of the net decrease in Company Minimum Gain, as determined under Regulations Section 1.704-2(g).  Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto.  The items to be so allocated shall be determined in accordance with Regulations Section 1.704-2(f)(6).  This Section 4.A is intended to comply with the minimum gain chargeback requirements in Regulations Section 1.704-2(f) and shall be interpreted consistently therewith solely for purposes of this Section 4.A, each Member’s Adjusted Capital Account Deficit shall be determined prior to any other allocations pursuant to Section 3 of this Exhibit with respect to such Fiscal Year and without regard to any decrease in Member Minimum Gain during such Fiscal Year.

 

  

C-7

  

 

B. Member Minimum Gain Chargeback.  Notwithstanding any other provision of the Agreement or this Exhibit (except Section 4.A hereof), if there is a net decrease in Member Minimum Gain attributable to a Member Nonrecourse Debt during any Fiscal Year, each Member who has a share of the Member Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Member’s share of the net decrease in Member Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(5).  Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto.  The items to be so allocated shall be determined in accordance with Regulations Section 1.704-2(i)(4).  This Section 4.B is intended to comply with the minimum gain chargeback requirement in such Section of the Regulations and shall be interpreted consistently therewith. Solely for purposes of this Section 4.B, each Member’s Adjusted Capital Account Deficit shall be determined prior to any other allocations pursuant to Section 3 of this Exhibit with respect to such Fiscal Year, other than allocations pursuant to Section 3.A hereof.

 

C. Qualified Income Offset.  In the event any Member unexpectedly receives any adjustments, allocations or distributions described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), and after giving effect to the allocations required under Sections 4.A and 4.B hereof with respect to such Fiscal Year, such Member has an Adjusted Capital Account Deficit, items of Company income and gain (consisting of a pro rata portion of each item of Company income, including gross income and gain for the Fiscal Year) shall be specially allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Regulations, its Adjusted Capital Account Deficit created by such adjustments, allocations or distributions as quickly as possible.  This Section 4.C is intended to constitute a “qualified income offset” under Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

 

D. Gross Income Allocation.  In the event that any Member has an Adjusted Capital Account Deficit at the end of any Fiscal Year (after taking into account allocations to be made under the preceding paragraphs hereof with respect to such Fiscal Year), each such Member shall be specially allocated items of Company income and gain (consisting of a pro rata portion of each item of Company income, including gross income and gain for the Fiscal Year) in an amount and manner sufficient to eliminate, to the extent required by the Regulations, its Adjusted Capital Account Deficit.

 

E. Excess Percentage Depletion.  Excess percentage depletion deductions with respect to depletable property shall be allocated to the Members in accordance with the allocation of gross income from the property from which such deductions are derived. The term “excess percentage depletion” shall mean the excess, if any, of deductions for percentage depletion as determined for tax purposes over the adjusted basis of the depletable property

 

  

C-8

  

 

F. Nonrecourse Deductions.  Nonrecourse Deductions for any Fiscal Year shall be allocated to the Members in accordance with the respective percentage interest of such Members.  If the Management Committee determines in its good faith discretion that the Company’s Nonrecourse Deductions must be reasonably allocated in a different ratio to satisfy the safe harbor requirements of the Regulations promulgated under Section 704(b) of the Code, the Management Committee is authorized, upon notice to the Members, to revise the prescribed ratio for such Fiscal Year to the numerically closest ratio which would satisfy such requirements.

 

G. Member Nonrecourse Deductions.  Any Member Nonrecourse Deductions for any Fiscal Year shall be specially allocated to the Member who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Regulations Sections 1.704-2(b)(4) and 1.704-2(i).

 

H. Code Section 754 Adjustments.  To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Section 734(b) or 743(b) of the Code is required, pursuant to 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), and such item of gain or loss shall be specially allocated to the Members in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such section of the Regulations.

 

	
5.  

	
Allocations for Tax Purposes

 

A. Except as otherwise provided in this Section 5, for federal income tax purposes, each item of income, gain, loss and deduction shall be allocated among the Members in the same manner as its correlative item of “book” income, gain, loss or deduction is allocated pursuant to Sections 3 and 4 of this Exhibit.

 

B. In an attempt to eliminate Book-Tax Disparities attributable to a Contributed Property or Adjusted Property, items of income, gain, loss, and deduction shall be allocated for federal income tax purposes among the Members as follows:

 

	
(1)  

	
In the case of a Contributed Property

 

(a) such items attributable thereto shall be allocated among the Members consistent with the principles of Section 704(c) of the Code to take into account the variation between the 704(c) Value of such property and its adjusted basis at the time of contribution (taking into account Section 5.C of this Exhibit); and

 

(b) any item of Residual Gain or Residual Loss attributable to a Contributed Property shall be allocated among the Members in the same manner that its correlative item of “book” gain or loss is allocated pursuant to Sections 3 and 4 of this Exhibit.

 

  

C-9

  

 

	
(2)  

	
In the case of an Adjusted Property, such items shall

 

(a) first, be allocated among the Members in a manner consistent with the principles of Section 704(c) of the Code to take into account the Unrealized Gain or Unrealized Loss attributable to such property and the allocations thereof pursuant to Section 2 hereof;

 

(b) second, in the event such property was originally a Contributed Property, be allocated among the Members in a manner consistent with Section 5.B(1) of this Exhibit; and

 

(c) any item of Residual Gain or Residual Loss attributable to an Adjusted Property shall be allocated among the Members in the same manner that its correlative item of “book” gain or loss is allocated pursuant to Sections 3 and 4 of this Exhibit.

 

In administering this Section 5.B, the Company shall use the “traditional method” with curative allocations as described in Regulations Section 1.704-3(b), unless such time as the Management Committee elects another method available under Regulations Section 1.704-3.

 

C. If any interest is transferred during a Fiscal Year, allocations made in this Exhibit for such Fiscal Year shall be allocated, using any permissible method selected at the reasonable discretion of the Management Committee.

 

  

C-10

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00225-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00225-of-00352.parquet"}]]