Document:

besv_ex1084.htm

EXHIBIT 10.84

 

EXECUTION VERSION

 

 

PACIFIC ENERGY TECHNOLOGY SERVICES, LLC

 

OPERATING AGREEMENT

 

by and between

 

PACIFIC ENERGY DEVELOPMENT CORP.

 

and

 

SOUTH TEXAS RESERVOIR ALLIANCE LLC

 

 

 

 

Dated as of October 4, 2012

 

 

 

 

 

  

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OPERATING AGREEMENT

 

This OPERATING AGREEMENT (“Agreement”) is entered into effective as of October 4, 2012 (the “Effective Date”) between and among PACIFIC ENERGY TECHNNOLOGY SERVICES, LLC, a limited liability company organized and existing under the laws of the State of Nevada, United States of America, and having its principal office at 4125 Blackhawk Plaza Circle, Suite 201, Danville, CA 94506, United States of America (“PETS” or the “Company”), PACIFIC ENERGY DEVELOPMENT CORP., a  company organized and existing under the laws of the State of Nevada, United States of America, and having its principal office at Suite 201, 4125 Blackhawk Plaza Circle, Suite 201A, Danville, California 94506, United States of America (“PEDCO”), and SOUTH TEXAS RESERVOIR ALLIANCE, LLC, a limited liability company organized and existing under the laws of the State of Delaware, and having its principal office at 1416 Campbell Road, Building B, Suite 204, Houston, Texas 77055 (“STXRA”). PEDCO and STXRA are referred to collectively as the “Parties” and individually as a “Party,” and unless the context otherwise requires, include their respective successors and permitted assigns.

 

RECITALS

 

WHEREAS, the Company was originally formed on September 21, 2012 through the filing of Articles of Organization in the office of the Secretary of State of the State of Nevada;

 

WHEREAS, PEDCO, along with its affiliated entities, is engaged in activities involving the development and operation of petroleum resources in the United States and Pacific Rim countries, with a particular focus on the People’s Republic of China, and has extensive strategic relationships with energy industry partners in the United States and abroad;

 

WHEREAS, STXRA is a consulting firm specializing in the delivery of petroleum resource acquisition services and practical engineering solutions to clients engaged in the acquisition, exploration and development of petroleum resources, with the STXRA team having hands-on experience in drilling and completing horizontal wells, including over 50 horizontal wells with lengths exceeding 4,000 ft. from 2010 to 2012, as well as experience in both slick water and hybrid multi-stage hydraulic fracturing technologies and in the operation of shale wells and fields;

 

WHEREAS PEDCO and STXRA plan for the Company to provide technical and operational services to PEDCO and its Affiliates, and other non-affiliated clients and customers within the United States and Pacific Rim countries, and to assist PEDCO’s parent company, PEDEVCO Corp, in the pursuit of interest in shale gas blocks in the People’s Republic of China (the “Business”);

 

WHEREAS, following the Effective Date, PEDCO and STXRA will be the only Members of the Company; and

 

WHEREAS, the Parties desire to enter into this Agreement to memorialize their agreements with respect to the governance, management and operation of the Company, and set out in writing their respective rights, restrictions and obligations as Members of the Company and with respect to Business projects involving the Company.

 

NOW THEREFORE, in consideration of the mutual promises set forth herein and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as set forth in this Agreement:

 

  

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Article 1

Definitions

 

Section 1.1Definitions.  As used in this Agreement, the following terms shall have the following meanings:

 

“Advisors” shall have the meaning set forth in Section 11.1.

 

“Affiliate” (including the terms “Affiliated” and “Affiliated with”) means, with respect to any Person, any other Person who or which, directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with such Person.  As used in the preceding sentence, the term “control” (including the terms “controlling”, “controlled by” or “under common control with”) means the possession, directly or indirectly, through one or more intermediaries, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise; provided however that in any event, any Person that owns directly or indirectly more than fifty percent (50%) of the ordinary voting interests in such other Person shall be deemed to control such other Person.

 

“Agreed Interest Rate” means interest compounded on an annual basis, at the rate per annum equal to the one (1) month term, London Interbank Offered Rate (LIBOR rate) for U.S. dollar deposits, as published by The Wall Street Journal, plus four (4.0) percentage points, as calculated and fixed as of the date the loan is made.  If the aforesaid rate is contrary to any applicable usury law, the rate of interest to be charged shall be the maximum rate permitted by such applicable law.

 

“Agreement” means this Operating Agreement of Pacific Energy Technology Services, LLC, as amended and in effect from time to time.

 

 “Articles of Organization” or “Articles” means the Articles of Organization of the Company, dated September 21, 2012, as amended or supplemented from time to time.

 

“Board” shall mean the board of Managers of the Company.

 

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

 

“Chairman of the Board” means the chairman of the Board of the Company.

 

 “Confidential Information” shall have the meaning set forth in Section 11.1.

 

“Dispute” shall have the meaning set forth in Section 16.1(a).

 

“Effective Date” shall have the meaning set forth in the introductory paragraph to this Agreement.

 

 “FCPA” shall have the meaning set forth in Section 17.13(a).

 

 “Governmental Authority” means each nation, state, department, region, county, municipality or other political subdivision, and any agency, authority, court, department, commission, board, bureau or instrumentality of any of them.

 

  

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“Governmental Approvals” means all clearances, permits, consents, licenses, approvals or any other authorization required by any Governmental Authority for the (i) development, finance, maintenance, operation or ownership of a Project, (ii) ownership of, or investment in, the Company, (iii) distribution or receipt of dividends, earnings or other moneys generated by a Project or the Company and (iv) transfer of any such dividends, earnings or moneys outside the United States.

 

“Independent Third Party” means any Person who, immediately prior to the contemplated transaction, does not own in excess of 10% of the Company’s Interests on a fully-diluted basis (a “10% Owner”), who is not a member of management of the Company, who is not controlling, controlled by or under common control with any such 10% Owner and who is not the spouse or descendent (by birth or adoption) of any such 10% Owner or a trust for the benefit of such 10% owner and/or other such persons.

 

 “Interest(s)” or “Membership Interest(s)” or “Unit(s)” mean a membership interest(s) of the Company, including Class A Units and any other class or series of units or interests issued by the Company.

 

“IPO” means the offering of Interests of the Company for subscription by the general public on any exchange.

 

“Manager(s)” shall mean a Manager of the Board of the Company elected by the Members in compliance with the terms of the Articles, this Agreement and Nevada Law.

 

“Members” means, collectively, PEDCO, STXRA, and any other holder of Units of the Company from time to time.

 

 “Nevada” means the State of Nevada, United States of America.

 

“Nevada Law” means all State of Nevada laws, statutes, orders, policies, licenses, permits, clearances, approvals, regulations, rules of and agreements with any State of Nevada governmental instrumentality and interpretations thereof having jurisdiction over the matter in question.

 

“Party” and “Parties” shall have the meaning set forth in the introductory paragraph to this Agreement.

 

“Person” means any individual, general or limited partnership, corporation, limited liability company, executor, administrator or estate, association, trustee or trust or other entity.

 

“PETS” and the “Company” shall have the meanings set forth in the introductory paragraph to this Agreement.

 

“Project” and “Projects” shall mean such petroleum resource due diligence, acquisition, joint venture, exploration, development, operation and service projects as undertaken by the Company.

 

“Sale of the Company” means the sale of the Company to an Independent Third Party or group of Independent Third Parties pursuant to which such party or parties acquire (i) Interests of the Company possessing the voting power to elect a majority of the Company’s Managers (whether by merger, consolidation or sale or transfer of the Company’s Interests) or (ii) all or substantially all of the Company’s assets as determined on a consolidated basis.

 

 “Senior Officer” means the chief executive officer, chief operating officer, president or any executive vice president of the Parties.

 

  

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“Transfer” means any sale, assignment, transfer or other disposition (whether voluntarily, involuntarily or by operation of law).

 

“Unitholder(s)” or “Member(s)” means any holder of Units of the Company.

 

“Unitholder Interest” means with respect to each Member, the interest of such Member in the Company derived by dividing the total number of Units registered in the name of such Member by the total outstanding Units, on an as-converted basis.

 

Article 2

Organizational Matters

 

Section 2.1Formation.

 

The Members hereby ratify and approve the Articles and approve this Agreement as the Company’s operating agreement.

 

Section 2.2Name.

 

The name of the Company shall be Pacific Energy Technology Services, LLC, as set forth in the Articles, and the business of the Company shall be conducted under such name or, subject to compliance with applicable law, any other name that the Managers deem appropriate.  The Managers shall file on the Company’s behalf all fictitious name certificates and similar filings that the Managers consider necessary or advisable.

 

Section 2.3Term.

 

The term of the Company commenced as of the date of the filing of the Articles and, unless sooner terminated under Section 12.1 or as otherwise provided by law, shall continue until the date specified in the Articles.

 

Section 2.4Office and Agent.

 

The Company shall continuously maintain a registered agent in the State of Nevada.  The registered agent shall be as stated in the Articles or as otherwise determined by the Managing Member.

 

Section 2.5Principal Place of Business; Other Offices. 

 

The principal place of business of the Company shall be 4125 Blackhawk Plaza Circle, Suite 201, Danville, CA 94506. The Managers may change the Company’s principal place of business and may establish on the Company’s behalf such additional places of business as they may determine.

 

Section 2.6Purpose and Business of the Company.

 

The purpose and business of the Company shall be to engage in any lawful act or activity for which a limited liability company may be formed under Nevada law, including to conduct the Business.

 

 

Article 3

Ownership Interests and Capital Contributions

 

Section 3.1Units and Classes of Units.

 

The ownership interests in the Company shall be reflected as Units of which there shall be one class, Class A Units, which shall be issued to the initial Members (the “Class A Members”).  The additional characteristics of the Class A Units shall be as described in this Agreement.  References in this Agreement to Units shall refer to Units regardless of class; and references to a “Unitholder” or “Unitholders” shall include any or all owners of Units.

 

  

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Section 3.2Capital Contributions; Issuance of Units.

 

Previously or concurrently with the effective date of this Agreement, the initial Members, also called the Class A Members, have each contributed to the Company the amount of cash, property or other consideration set forth opposite such Class A Member’s name on Exhibit A hereto.

 

Section 3.3No Return of Capital Contributions; No Interest.

 

Except as otherwise provided in this Agreement, no Member shall be entitled to demand or receive the return of all or any portion of such Member’s capital contribution or to be paid interest in respect of either its capital account or capital contribution.  No Member shall have any right to receive property other than cash.

 

Section 3.4Capital Accounts.

 

The Company shall maintain a separate Capital Account for each Unitholder according to the rules of Treasury Regulation Section 1.704-1(b)(2)(iv).  For this purpose, the Company may, upon the occurrence of the events specified in Treasury Regulation Section 1.704-1(b)(2)(iv)(f), increase or decrease the Capital Accounts in accordance with the rules of such regulation and Treasury Regulation Section 1.704-1(b)(2)(iv)(g) to reflect a revaluation of Company property.

 

Section 3.5No Obligation to Restore Deficits.

 

No Member or Unitholder shall have any liability or obligation to the Company, the Members or other Unitholders or any creditor of the Company to restore at any time any deficit balance in such Member’s or Unitholder’s Capital Account.

 

Section 3.6Units as Profits Interests.

 

The Class A Units issued to the initial Members, insofar as they differ in participation in profit from the relative capital contributed in exchange therefor, may be treated in part as “profits interests” under IRS Revenue Procedure 93-27 and IRS Revenue Procedure 2001-43 and the provisions of this Agreement shall be interpreted and applied consistently therewith.  Each Unitholder authorizes and directs the Company to elect to have the “Safe Harbor” described in the proposed Revenue Procedure set forth in Internal Revenue Service Notice 2005-43 (the “Notice”) apply to any interest in the Company transferred to a service provider by the Company on or after the effective date of such Revenue Procedure in connection with services provided to the Company.  For purposes of making such Safe Harbor election, the Tax Matters Member (as defined below) is hereby designated as the “partner who has responsibility for federal income tax reporting” by the Company and, accordingly, execution of such Safe Harbor election by the Tax Matters Member constitutes execution of a “Safe Harbor Election” in accordance with Section 3.03(1) of the Notice.  The Company and each Unitholder hereby agree to comply with all requirements of the Safe Harbor described in the Notice, including, without limitation, the requirement that each Unitholder shall prepare and file all federal income tax returns reporting the income tax effects of each interest in the Company issued by the Company covered by the Safe Harbor in a manner consistent with the requirements of the Notice.

 

  

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Article 4

Members; Transfer Of Membership Interests

 

Section 4.1  Initial Members.

 

The Members (those who have signed this Agreement) are hereby admitted to the Company.

 

Section 4.2Limited Liability.

 

The Members shall have no personal liability or obligation under any judgment of a court, or in any other manner, for any debt, obligation or liability of the Company, whether that liability or obligation arises in contract, tort or otherwise, solely by reason of their status as Members.

 

Section 4.3Transfer of Membership Interests.

 

A Member’s or Unitholder’s interest in the Company, including the Member’s economic interest, may not be transferred unless in accordance with the provisions of Article 5 below.  For purposes of this Section 4.3, a pledge of Units shall not be deemed a transfer.

 

Article 5

Restrictions on Transfers, Issuances, Repurchases or Other Changes in the Units

 

Section 5.1  General Restrictions.

 

No Transfer of Units of the Company by any Unitholder shall be permitted; provided however that any Unitholder may Transfer Units to one (1) or more of its Affiliates in accordance with Clause 5.5 of this Agreement shall be permitted.

 

Section 5.2  Attempted Transfers Void.

 

Except as provided in this Article 5, no Transfer or attempted Transfer of the Units of any Unitholder, whether by absolute or by collateral assignment or otherwise, whether by gift or for valuable consideration, and no matter how conditioned, shall in any manner be effective or binding upon the other Unitholders or the Company, unless made in full compliance with the terms hereof.

 

Section 5.3  After-Acquired Units.

 

Whenever any Unitholder who is a party to this Agreement acquires additional Units, such Units so acquired shall be subject to all of the terms and provisions of this Agreement.

 

Section 5.4  Deed of Adherence.

 

No transfer of Units by any selling Party to any third party shall be entered into the Company’s register of Unit transfers and all Parties shall procure that unless such third party has first entered into a deed of adherence with all parties hereto other than the selling Party pursuant to which such third party shall agree, inter alia, to be bound by all the restrictions of, and discharge all duties and obligations as set out in this Agreement as if it were an original party hereto.  Such deed of adherence shall be in such form at such other parties shall reasonably require.

 

  

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Section 5.5  Exempt Transfer.

 

 (a)           Notwithstanding anything to the contrary herein, the foregoing provisions of this Article 5 shall not apply to a Transfer by a Unitholder of all or part of its Units to an Affiliate, provided, however, that any such Transfer shall be in accordance with each of the following terms:

 

 (i)           Such Unitholder shall provide written notice of such Transfer to each other Unitholder;

 

 (ii)           The transferee to whom the Unitholder Transfers its Units shall execute and deliver to each other Unitholder and the Company a deed of adherence to this Agreement, in form and substance reasonably satisfactory to the Company, indicating such transferee’s agreement to be bound by the terms and conditions of this Agreement as a Party and a Unitholder hereunder in the same manner as the Transferring Unitholder and be entitled to the same right to the same extent and in the same manner as the Transferring Unitholder;

 

 (iii)           such Unitholder shall remain bound by its obligations under this Agreement; and

 

 (iv)           if any such transferee Affiliate shall cease to be an Affiliate of such Unitholder, any Units held by such transferee shall be promptly retransferred to such Unitholder or transferred to another of such Unitholder’s Affiliates.

 

 (b)           Notwithstanding anything to the contrary herein, the provisions of this Article 5 shall not apply to (i) the sale of Units pursuant to an IPO or (ii) any Transfer after the expiration of a customary lock up period of an IPO.

 

 

Article 6

Meetings of Unitholders

 

Section 6.1  General Meeting.

 

A General Meeting of the Unitholders of the Company (the “Annual General Meeting”) may be held once in every calendar year upon the written request of a Unitholder to the other Unitholder(s).

 

Section 6.2  Extraordinary Meetings.

 

Extraordinary meetings of the Unitholders of the Company shall be held upon the request of the Chairman, any PEDCO Manager, or any STXRA Manager (or as otherwise required pursuant to the provisions of applicable law) upon at least fourteen (14) days written notice (containing the agenda, date, time and place of the meeting) to all Unitholders of the Company; provided, however, that, subject to applicable law, such fourteen (14) day notice requirement may be waived by Unitholders of the Company having an aggregate Unitholder Interest of not less than seventy-five percent (75%) in a particular case.  Any notice period referred to above shall exclude both the day on which the notice is served or deemed to be served and the day for which the notice is given.

 

Section 6.3  Quorum.

 

The quorum for any meeting of the Unitholders of the Company shall be Unitholders of the Company whose aggregate Unitholder Interest is not less than seventy-five percent (75%) present personally or by duly appointed proxy, attorney or representative.  If within half an hour of the time appointed for the meeting no quorum is present, the meeting shall be adjourned to the same day one (1) week later at the same time and place or to such other day or time as the Chairman may designate upon at least five (5) days’ written notice to all of the Unitholders of the Company.  If at the adjourned meeting no quorum is present within half an hour from the time appointed for the meeting, Unitholders of the Company whose Unitholder Interest is not less than seventy-five percent (75%) present or represented at such meeting shall constitute a quorum; provided, however, that no action or decision shall be taken on any matter not specified in the agenda of the meeting when it was first called.

 

  

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Section 6.4  Unitholder Approval.

 

(a) All the Reserved Matters shall be subject to the approval of the Unitholders of the Company.

 

(b) Except as required by applicable law or otherwise provided in this Agreement, any action by the Unitholders of the Company at any General Meeting or extraordinary meeting shall require the approval of Unitholders of the Company having an aggregate Unitholder Interest of not less than seventy-five percent (75%) present and voting at a validly held meeting.

 

Section 6.5  Written Resolution.

 

Except as otherwise required by applicable law, a resolution in writing (circulated to all the Unitholders of the Company) approved and signed by all the Unitholders of the Company shall be valid and effectual as if it had been a resolution passed at a meeting of the Unitholders of the Company duly convened and held.

 

Section 6.6  Chairman.

 

The Chairman of the Board for the time being shall also preside as chairman at any General Meeting.  If the Chairman of the Board is absent at any General Meeting, a Manager shall act as the chairman.

 

 

Article 7

Company Management

 

Section 7.1  Board of Managers.

 

 (a)           The number of Managers holding office at any one time shall be three (3), unless otherwise agreed by all of the Unitholders. So long as the Company is not listed on any stock exchange, the Board shall be comprised of members nominated by the Unitholders whereby the number of nominated Managers by each Unitholder shall be as nearly as practicable in proportion to such Unitholder’s Unitholder Interest (for which purposes a Unitholder may aggregate the Unitholder Interests of some or all of its Affiliates provided those Affiliates do not also exercise their nomination rights) provided that any Manager nominated by a Unitholder shall have acceptable qualifications to serve on the Board and provided further that:

 

(i) As long as PEDCO and its Affiliates shall have an aggregate Unitholder Interest of at least fifty percent (50%), PEDCO may appoint two (2) Managers, and so long as PEDCO and its Affiliates shall have an aggregate Unitholder Interest of at least twenty-five percent (25%), PEDCO may appoint one (1) Manager (on a non-cumulative basis) (each, a  “PEDCO Manager”); and

 

(ii) So long as STXRA and its Affiliates shall have an aggregate Unitholder Interest of at least twenty-five percent (25%), STXRA may appoint one (1) Manager (the “STXRA Manager”).

 

  

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(b)           The Chairman of the Board shall be a PEDCO Manager, as designated by PEDCO. The Chairman shall chair all meetings of the Board.

 

(c)           In the event of the resignation, death, removal or disqualification of a Manager selected as set forth above, the appropriate designating Party or Parties shall promptly nominate a new Manager, and, after written notice of the nomination has been given by such designating Party or Parties to the other parties, each Unitholder shall vote its Units to elect such nominee to the Board, if and as required.

 

(d)           The appropriate designating Party or Parties may specify that the Manager elected by it shall be removed at any time and from time to time, with or without cause (subject to applicable Nevada Law, this Agreement, and the Articles), in such Party or Parties’ sole discretion.  After written notice to each of the Parties of the new nominee to replace a removed Manager, each Unitholder shall promptly vote its Units to remove the Manager in question and to replace such Manager with the nominee of the Party entitled to designate such Manager.

 

(e)           Appointment of Managers.  In the event of the appointment of a Manager nominated in accordance with this section, the Unitholders shall vote their Units to cause the appointment to the Board of the Manager so designated for appointment by the appropriate Unitholder.

 

(f)   Frequency of meetings; Notice.  Except as otherwise provided in this Agreement, the Board shall hold a regular meeting at least once each year at a location the Board shall determine.  The date, time and location of any such regular meeting shall be established by the Board and notified to each Manager in writing at least fourteen (14) days in advance.  Special meetings of the Board shall be held upon the request of the Chairman or any Manager upon at least two (2) Business Days’ written notice (containing the agenda, date, time and place of the meeting) to the Managers and shall be held at such time and place designated in such notice.

 

(g)   Quorum.  The quorum for any meeting of the Board shall be a majority of the Managers, each Manager present personally or by his alternate. If within half an hour of the time appointed for the meeting no quorum is present, the meeting shall be adjourned to the same day one (1) week later at the same time and place or to such other day or time as the Chairman may designate upon at least two (2) days’ written notice to all of the Managers (the “Adjourned Meeting”).  If at the Adjourned Meeting no quorum is present within half an hour from the time appointed for the meeting, any two (2) Managers present at such meeting shall constitute a quorum; provided, however, that no action or decision shall be taken on any matter not specified in the agenda of the meeting when it was first called.

 

(h)   Conference Meetings.  Meetings of the Managers held by means of a telephone conference which enables all persons participating in the meeting to hear each other at the same time and to communicate with each other shall be valid as if they were attended by all Managers in person.  Such participation by any Manager shall constitute presence in person at the meeting by such Manager.  All meetings of the Managers shall enable Managers to participate by means of telephone conference.

 

(i)  Board Approvals.

 

(i) Except as otherwise provided in, or delegated in accordance with, this Agreement or required by applicable law, all matters requiring the approval of the Board shall be subject to the approval of a majority of the Managers present and voting at a duly convened meeting.

 

(ii) Each Manager shall have one (1) vote and no Manager shall have a casting vote.

 

  

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(j)   Written Resolution.  The Board may take action by written resolution signed and approved by all of the Managers in lieu of holding a meeting.  Such written resolution may be signed in counterparts.

 

Section 7.2  Officers and Employees.

 

(a)           Both the PEDCO Managers and the STXRA Manager are entitled to nominate corporate officers of the Company, subject to approval by the Board.  Any officer so expressly designated shall have such authority and perform such duties as the Board may, from time to time, delegate to such officer.

 

(b)           Subject to the approval rights described herein, the business and affairs of the Company shall be managed exclusively under the direction of the Board, by or under the direction of one or more officers pursuant to expressly delegated authority from the Board.  The power to act for or to bind the Company shall be vested exclusively in such officers of the Company, subject to the Board’s authority to delegate powers and duties to officers, as set forth herein.  Subject to the foregoing, the officers shall have the power and authority to execute and deliver contracts, instruments, filings, notices, certificates, and other documents of whatsoever nature on behalf of the Company.  The officers of the Company shall have power and authority, as expressly delegated to them by the Board of Managers of the Company to cause the Company to hire employees, including officers appointed by the Board of Managers, as such officers deem necessary and to cause the Company to pay such employees as such officers deem fit, in their reasonable discretion.

 

Article 8

Allocation Of Profit, Loss And Distributions

 

Section 8.1Allocations.

 

Subject to Sections 8.4-8.7, Company profit shall first be allocated to the Unitholders, pro rata, in accordance with the prior allocation of Company loss and to the extent thereof; and thereafter such profit shall be allocated to the Unitholders, pro rata, in accordance with their ownership of Units.  For avoidance of doubt, profits allocable with respect to equity ownership in assets and/or Projects held by Members as contemplated with respect to Projects hereunder shall be allocated to Members in accordance with the ownership interests therein, and/or as otherwise agreed upon by the parties in writing.

 

Section 8.2  Company Loss.

 

Company loss shall be allocated to the Unitholders, pro rata, in accordance with their positive Capital Account balances and to the extent thereof; and thereafter such loss shall be allocated to the Unitholders, pro rata, in accordance with their ownership of Units.  For avoidance of doubt, losses allocable with respect to equity ownership in assets and/or Projects held by Members as contemplated with respect to Projects hereunder shall be allocated to Members in accordance with the ownership interests therein, and/or as otherwise agreed upon by the parties in writing.

 

Section 8.3Distributions.

 

Subject to any restrictions under applicable law, the Company may make distributions of money or property at least annually or at such other times and in such amounts as the Managers may determine.  Such distributions, other than liquidating distributions, shall be made to Unitholders, pro rata, in accordance with their ownership of Units.   Liquidating distributions shall be made to the Unitholders, pro rata, in accordance with their  positive capital account balances after all allocations of profit and loss are made.  For avoidance of doubt, distributions allocable with respect to equity ownership in assets and/or Projects held by Members as contemplated with respect to Projects hereunder shall be allocated to Members in accordance with the ownership interests therein, and/or as otherwise agreed upon by the parties in writing.

 

  

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Section 8.4Company Non-Recourse Deductions.

 

Any Company non-recourse deductions (as defined in Treasury Regulations Section 1.704-2(1)) for any taxable year or other period shall be specially allocated to the Members in accordance with their respective interests in profit.

 

Section 8.5  Member Non-recourse Deductions.

 

Member non-recourse deductions shall be specially allocated to the Member who bears the economic risk of loss with respect to the Member non-recourse debt in accordance with Treasury Regulations Section 1.704-2.

 

Section 8.6  Minimum Gain.

 

Notwithstanding any other provision of this Article 8, if there is a net decrease in Company non-recourse debt or Member non-recourse debt, minimum gain shall be determined in accordance with the principles of Treasury Regulations Sections 1.704-2 and 1.704-2, and 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 the Member’s respective share of such net decrease during such year, determined pursuant to Treasury Regulations Sections 1.704-2.  The items to be so allocated shall be determined in accordance with Treasury Regulations Section 1.704-2.

 

Section 8.7Section 704 Allocations.

 

In the event that the fair market value of an item of Company property differs from its tax basis, allocations of depreciation and amortization, gain and loss with respect to such property will be made for tax purposes in a manner that takes account of the variation between the tax basis and the fair market value of such property in accordance with the Internal Revenue Code Section 704 and Treasury Regulations Section 1.704-1(4).

 

Article 9

Certain Additional Covenants

 

Section 9.1  Funding of the Company.

 

As a means to finance the operations of the Company without contributing to, changing or otherwise affecting the Unit capital of the Company, the Unitholders and the Board, via unanimous approval, respectively, may require some or all the Unitholders to provide intercompany loans to the Company from time to time in such amounts as unanimously agreed upon by the Unitholders (each, a “Cash Call”). The terms and conditions of each Cash Call and related intercompany loans must be unanimously approved by the Unitholders and the Board.  The Chairman shall propose the due dates for payment of Cash Calls and purposes of use of respective Cash Calls, including funding the Company’s operations and the general administrative expenses of the Company, and any such loans shall be documented using Board-approved promissory notes and shall accrue interest at the Agreed Interest Rate.

 

  

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Section 9.2  Projects.

 

From time to time the Company may consider pursuing Business opportunities that, if unanimously approved by the Board of Managers, shall become Projects subject to this Agreement.  The Company shall set forth the scope, terms, conditions, economics, obligations and other aspects of each Project in separate Schedules unanimously approved by the Board of Managers and attached to this Agreement under Exhibit B.  Nothing herein shall obligate any Member or Manager to present Business opportunities to the Company, or preclude any Member or Manager from independently pursuing any Business opportunities that have not been presented, or if presented, rejected, by the Board of Managers as a Project hereunder.

 

Section 9.3  Observance of Laws.

 

Each Unitholder and the Company shall comply with and shall cause its Affiliates to comply with all applicable Nevada Law or other applicable laws, rules, or regulations of any other jurisdiction that are or may be applicable to the Company’s business and the Unitholders’ and their Affiliates’ activities in connection with the Company or a Project.  Each of the Unitholders shall use reasonable efforts to obtain all regulatory approvals that are necessary for it to perform its obligations under this Agreement.  The Company shall use reasonable efforts to obtain all other Governmental Approvals necessary to effect each of the transactions contemplated herein.

 

Article 10

Representations, Warranties and Acknowledgments of the Unitholders

 

Section 10.1  Representations and Warranties of Unitholders.

 

Each Unitholder hereby represents and warrants to the Company and the other Unitholders as of the date hereof as follows:

 

(a)           If such Unitholder is an entity, such Unitholder is duly organized and validly existing in good standing under the laws of the jurisdiction of its creation and has all requisite power and authority, corporate or otherwise, to enter into and to perform its obligations hereunder and to carry out the terms hereof and the transactions contemplated hereby.

 

(b)           The execution, delivery and performance of this Agreement by such Unitholder have been duly authorized by all necessary action on the part of such Unitholder and do not require any approval or consent of any holder (or any trustee for any holder) of any indebtedness or other obligation of such Unitholder.

 

(c)           This Agreement has been duly executed and delivered on behalf of such Unitholder by an appropriate officer of such Unitholder and constitutes the legal, valid and binding obligation of such Unitholder, enforceable against it in accordance with its terms, as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights generally and by general principles of equity.

 

(d)           There is no legislation, action, suit, proceeding or investigation pending or, to the best of such Unitholder’s knowledge, threatened, before or by any court, administrative agency, environmental council, arbitrator or governmental authority, body or agency which could reasonably be expected to materially and adversely affect the performance by such Unitholder of its obligations hereunder or which questions the validity, binding effect or enforceability hereof, any action taken or to be taken by such  Unitholder pursuant hereto or any of the transactions contemplated hereby.

 

  

13

  

 

(e)           The execution, delivery and performance by such Unitholder of this Agreement and the consummation of the transactions contemplated hereby and thereby, including the incurrence by such Unitholder of its financial obligations hereunder and thereunder, will not result in any violation of any term of its constituent documents, or its Articles, as the case may be, or any material contract or agreement applicable to it, or of any license, permit, franchise, judgment, writ, injunction or regulation, decree, order, charter, law, ordinance, rule or regulation applicable to it, including any loan agreements executed with the banks/other creditors, or any of its properties or to any obligations incurred by it or by which it or any of its properties or obligations are bound or affected, or of any determination or award of any arbitrator applicable to it, and will not conflict with, or cause a breach of, or default under, any such term or result in the creation of any lien upon any of its properties or assets.

 

(f)           All third party consents and approvals including banks/other creditors approval(s) required for the execution, delivery and performance if this Agreement have been obtained to the satisfaction of each other and no other consent, approval, order or authorization of, or registration, declaration or filing with, or giving of notice to, obtaining of any license or permit from, or taking of any other action with respect to, any central, state or local government or public body, authority or agency or banks/other creditors is required in connection with the valid authorization, execution, delivery and performance by such Unitholder of this Agreement or the consummation of any of the transactions contemplated hereby.

 

Section 10.2  Investment Intent.

 

Each Unitholder hereby represents and warrants to the Company and the other Unitholders that such Unitholder has acquired its Units for such Unitholder’s own account, for investment purposes only and not with a view to the distribution or resale thereof, in whole or in part, and agrees that it will not Transfer, or offer to Transfer, all or any portion of its Units in any manner that would violate, or cause the Company to violate, this Agreement or any applicable securities laws.

 

Section 10.3  Unregistered Securities.

 

Each Unitholder hereby acknowledges that such Unitholder is aware that the Units (and the offering, issuance and sale thereof to such Unitholder) have not been listed with any stock exchanges under any applicable securities laws.  Each Unitholder further acknowledges that the Company will not, and has no obligation to, recognize any Transfer of all or any part of Units to any Person except in accordance with this Agreement.

 

Article 11

Confidentiality

 

Section 11.1  Obligation to Maintain Confidentiality.

 

With respect to each Unitholder and their respective Affiliates, except to the extent necessary for the exercise of its rights and remedies and the performance of its obligations under this Agreement, such Unitholder will not itself use or intentionally disclose (and will not permit the use or disclosure by any of its Affiliates or its advisors, counsel and public accountants (collectively, “Advisors”)) of, directly or indirectly, any the Company documents or this Agreement or information furnished thereunder (the “Confidential Information”), and will use all reasonable efforts to have all such Confidential Information kept confidential (consistent with its own practices) and not used in any way known to such Unitholder to be detrimental to any of the other Parties; provided, that (i) any such Unitholder, its Affiliates and its advisors may use, retain and disclose any such Confidential Information to its special counsel and public accountants or any Governmental Authority, including the U.S. Securities and Exchange Commission in such public filings as required under applicable law or advised by counsel to be disclosed therein, (ii) any such Unitholder, its Affiliates and its advisors may use, retain and disclose any such Confidential Information that has been publicly disclosed (other than by such Unitholder, its Affiliates or any of its advisors in breach of this Section) or has rightfully come into the possession of such Unitholder thereof or any of its Affiliates or advisors other than from another Unitholder or a Person acting on such other Unitholder’s behalf, (iii) to the extent that any such Unitholder, its Affiliates or its advisors may have received a subpoena or other written demand under color of legal right for such information, such Unitholder, its Affiliates or advisors may disclose such information, but such Unitholder will first, as soon as practicable upon receipt of such demand and unless otherwise prohibited by applicable Law, furnish a copy thereof to the other Parties and, if practicable so long as such Unitholder, its Affiliates or advisors will not be in violation of such subpoena or demand or likely to become liable to any penalty or sanctions thereunder, afford the other Parties reasonable opportunity, at such other Parties’ cost and expense, to obtain a protective order or other reasonably satisfactory assurance of confidential treatment for the information required to be disclosed, (iv) disclosures to lenders, potential lenders, investors, potential investors, strategic partners or acquirers, or potential strategic partners or acquirers, or other Persons providing financing to the Company, PEDCO or STXRA, if such Persons have agreed to abide by the terms of this Section, (v) any such Unitholder, its Affiliates and its advisors may disclose any such information, and make such filings, as may be required by this Agreement or applicable law, including, but not limited to, U.S. securities laws, and (vi) nothing in this Section will prevent any such Unitholder from using such information for its own internal purposes.  Notwithstanding anything herein to the contrary, a Unitholder may disclose information to its Affiliates and other advisors in accordance with this Agreement if such Persons have agreed to the terms of this Section.

 

  

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Section 11.2  Return of Confidential Information.

 

The receiving Unitholder shall immediately destroy or return all tangible and, to the extent practicable, intangible material in its possession or control embodying the disclosing Unitholder’s Confidential Information (in any form and including, without limitation, all summaries, copies and excerpts of Confidential Information) upon the earlier of (a) the completion or termination of the dealings between the Parties or (b) such time as the disclosing Unitholder may so request and shall not thereafter be retained in any form by receiving Unitholder, except that notwithstanding the above, one copy may be retained by receiving Unitholder to show compliance with the terms of this Agreement or for regulatory compliance purposes.

 

Section 11.3  Compliance with Securities Laws.

 

The Parties hereby acknowledge that they are aware of the U.S. securities laws that prohibit any person who has material non-public information about a company from purchasing or selling, directly or indirectly, any securities of such company (including entering into hedge transactions involving such securities), or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities.  Each Party agrees that it will not use or permit any third party to use, and that it will use reasonable best efforts to assure that none of its representatives will use or permit to use, any Confidential Information in contravention of U.S. securities laws.

 

Section 11.4  Survival.

 

The restrictions contained in Sections 11.1 through 11.3 will survive the termination or expiration of this Agreement for a period of six (6) years from the date of such termination or expiration of this Agreement.

 

Article 12

Term and Termination

 

Section 12.1  Term.

 

This Agreement shall remain in full force and effect for so long as any of the Unitholders continue to own Units of the Company or as otherwise terminated earlier pursuant to Section 12.2.

 

Section 12.2  Termination.

 

This Agreement shall terminate

 

 (a)           upon the written agreement of the Unitholders;

 

 (b)           upon the dissolution and winding up of the Company pursuant to this Agreement;

 

  

15

  

 

 (c)           upon the consummation of an IPO;

 

 (d)           upon a Sale of the Company; or

 

 (e)           with respect to any Unitholder, if such Unitholder and its Affiliates no longer own any Units.

 

Except as otherwise provided herein or as may be agreed by the Parties, no termination of this Agreement shall release any Unitholder from any liability to any other Unitholder which at the time of such termination has already accrued, nor affect in any way the survival of any right, duty or obligation of any Unitholder which is expressly stated elsewhere in this Agreement to survive the termination hereof.

 

Article 13

Accounting, Records, Reporting, Company Expenses

 

Section 13.1Books and Records; Fiscal Year.

 

The books and records of the Company shall be kept in accordance with the accounting method followed by the Company for federal income tax purposes.  The Company shall maintain at its registered office those books and records as required by law. The fiscal year of the Company shall be the calendar year.

 

Section 13.2Bank Accounts.

 

The Company shall maintain the funds of the Company in one or more separate bank accounts in the name of the Company.  The executive officers and Managers of the Company shall be authorized to draw funds out of any Company bank account.

 

Section 13.3Financial Information.

 

The Company shall cause to be filed all required reports and documents with any governmental agency.  The Company shall cause to be prepared information concerning the Company’s operations as soon as practicable after the end of the Company’s fiscal year. The Company shall send or cause to be sent to each Unitholder within ninety (90) days after the end of each taxable year state and federal schedules K-1 (such information as is necessary to complete the Unitholder’s federal and state income tax or information returns) and a copy of the Company’s federal, state, and local income tax or information returns for the year.

 

  

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Section 13.4Tax Matters Member.

 

Mr. Frank C. Ingriselli (the “Tax Matters Member”) shall be the initial Tax Matters Member as defined under the Internal Revenue Code and in any similar capacity under state or local law. Any successor to the Tax Matters Member shall be selected by the Managers. The Tax Matters Member agrees to promptly notify the other Members upon the receipt of any correspondence from any federal, state or local tax authorities relating to any examination of the Company’s affairs.  The Tax Matters Member shall manage all audits or other tax proceedings of the Company and shall keep the Members informed with respect to such proceedings.  The Tax Matters Member may retain, at the Company’s expense, such outside counsel, accountants and other professional consultants as the Tax Matters Member may deem necessary in the course of fulfilling his obligations as Tax Matters Member.

 

Section 13.5Company Expenses.

 

In addition to the expenses and costs of operating the Business, Company expenses shall also include professional fees in connection with the accounting and legal aspects of preparing, documenting and distributing the financial and tax information described in this Article 13, other costs directly connected with the foregoing, and the costs of preparation and filing of forms, returns and documents with governmental agencies, and the maintenance of proper books and records.   Notwithstanding the foregoing, all additional expenses and costs solely incurred by the Company due to the status of PEDCO’s parent company as a publicly-reporting entity shall be borne by PEDCO or PEDCO’s parent company, including, but not limited to, expenses and costs arising in connection with PEDCO’s parent company’s public-reporting and disclosure requirements, and all audit-related expenses and costs if, and to the extent, the Company’s financial records are audited by PEDCO’s parent company auditors.

 

Article 14

Dissolution And Winding Up

 

Section 14.1  Conditions of Dissolution.

 

The Company shall dissolve at such time or upon the occurrence of any of the following events:

 

	
(a)  

	
the sale or other disposition of all or substantially all the property and assets of Company;

 

	
(b)  

	
the determination of a majority in Interest of the Members at any time to dissolve the Company;

 

	
(c)  

	
the determination of the Managing Member that it is in the best interests of the Members to dissolve the Company; or

 

	
(d)  

	
the entry of a judgment of dissolution.

 

Section 14.2Winding Up.

 

Upon dissolution, the Company shall continue solely for the purpose of winding up its affairs in an orderly manner, liquidating or distributing its assets, and satisfying the claims of its creditors.  The Managing Members shall be responsible for overseeing the winding up of the Company.

 

  

17

  

 

Section 14.3Liabilities Upon Dissolution, Notices and Filings.

 

After determining that all the known debts and liabilities of the Company in the process of winding up have been paid or adequately provided for, the remaining assets shall be distributed to the Members as provided in Article 8 and appropriate notices and filings shall be made by the Members.

 

Article 15

Indemnification; Liability Of Members

 

Section 15.1  Indemnification.

 

The Company shall indemnify the Members, including the Managers, to the full extent permissible under Nevada law.

 

Section 15.2  Limitation of Liability.

 

Except as otherwise provided herein or in any agreement entered into by such person and the Company and to the maximum extent permitted by Nevada law, no present or former Manager nor any such person’s affiliates, employees, agents or representatives shall be liable to the Company or to any Member for any act or omission performed or omitted by such person in his or her capacity as Manager,  provided that, except as otherwise provided herein, such limitation of liability shall not apply to the extent the act or omission was attributable to such person’s willful misconduct or knowing violation of law as determined by a final judgment, order or decree of an arbitrator or a court of competent jurisdiction (which is not subject to appeal or with respect to which the time for appeal has expired and no appeal has been perfected).  The Managers shall be entitled to rely upon the advice of legal counsel, independent public accountants and other experts, including financial advisors, and any act of or failure to act by a Manager in good faith reliance on such advice shall in no event subject a Manager or any of such person’s affiliates, employees, agents or representatives to liability to the Company or any Member.

 

Section 15.3Insurance.

 

The Company shall have the power to purchase and maintain insurance on behalf of the Members or any person who is or was an agent of the Company against any liability asserted against such person arising out of such person’s status as an agent, whether or not the Company would have the power to indemnify such person against such liability under law.

 

Article 16

Dispute Resolution

 

Section 16.1  Initial Procedure.

 

The Parties will attempt, in good faith, to resolve or cure all disputes and claims (including any claimed breaches of this Agreement) (each a “Dispute”)) through the Unitholders before initiating any legal action or attempting to enforce any rights or remedies under this Agreement (including termination), at law or in equity (regardless of whether this Article is referenced in the provision of this Agreement which is the basis for any such dispute).  If any Unitholder believes that a Dispute under this Agreement has arisen, such Unitholder will give written notice thereof to the other Parties which notice will describe in reasonable detail the basis and specifics of the Dispute.  Within five (5) days after delivery of such notice, the Unitholders will meet to discuss and attempt to resolve or cure such Dispute.  If the Unitholders are unable to resolve the Dispute within fifteen (15) days after delivery of such notice, the matter will be referred to a “Senior Officer” of each Unitholder for resolution or cure.  If such Senior Officers are unable to agree on an appropriate cure or resolution within ten (10) days after the matter has been referred to them, the Parties may refer such Dispute to mediation in accordance with Section 16.2.

 

  

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Section 16.2  Mediation.

 

If the Parties are unable to resolve a Dispute pursuant the procedures described in Clause 16.1, and if the continued failure to settle such disagreement is likely to have a material adverse impact on the Company, either Party may elect to submit the disagreement to mediation under the Commercial Mediation Rules of the American Arbitration Association. If either Party so elects, the other Party shall submit to mediation. The mediator shall not have authority to impose a settlement upon the Parties, but will attempt to help them reach a satisfactory resolution of the disagreement. The mediator shall end the mediation whenever, in his judgment, further efforts at mediation would not contribute to a resolution of the submitted disagreement.  If the Parties are unable to agree on an appropriate cure or resolution within thirty (30) days after the matter has been submitted to , the Parties may refer such Dispute to arbitration in accordance with Clause 16.3.

 

Section 17.3  Arbitration

 

Any Dispute relating to, this Agreement or the performance thereof, including but not limited to questions as to whether a matter is governed by this arbitration clause, shall be subject to arbitration if good faith negotiations among the parties do not resolve such claim, dispute or other matter the parties have not resolved such Dispute pursuant to Clause 16.1 and 16.2. Such arbitration shall proceed in accordance with the Commercial Arbitration Rules of the American Arbitration Association then pertaining (the “Rules”), insofar as such Rules are not inconsistent with the provisions expressly set forth in this Agreement, unless the parties mutually agree otherwise, and pursuant to the following procedures:

 

(a) Reasonable discovery shall be allowed in arbitration.

 

(b) All proceedings before the arbitrators shall be held in San Francisco, California. 

 

(c) The costs and fees of the arbitration, including attorneys’ fees, shall be allocated by the arbitrators.

 

(d) The award rendered by the arbitrators shall be final and judgment may be entered in accordance with applicable law and in any court having jurisdiction thereof.

 

(e) The existence and resolution of the arbitration shall be kept confidential by the Parties in the same manner as confidential information is required to be kept under this Agreement, and shall also be kept confidential by the arbitrators.

 

  

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Section 16.2  Continued Performance.

 

Pending final resolution of any Dispute, the Parties will continue to fulfill their respective obligations under this Agreement; provided that the applicable Unitholder may withhold any amount that is the subject of Dispute from any payment otherwise due under this Agreement during the pendency of any dispute resolution proceeding.  Upon resolution of the Dispute, the Unitholder owing such amount shall promptly pay to the relevant Unitholder any amount determined to be due, together with interest at the greater of the highest legally permitted rate or 10% per annum on the unpaid balance from the date the amount was originally owed until the date paid in full.

 

Article 17

Miscellaneous Provisions

 

Section 17.1  Equitable Relief.

 

The Parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.

 

Section 17.2  Notices.

 

Any notice given under this Agreement will be in writing and delivered by personal service, or by certified or registered first class mail, or nationally recognized overnight courier, or by facsimile or email with a copy, in the case of facsimile or email, by first class mail, to the addresses specified below:

 

If to PEDCO:                                  Mr. Frank C. Ingriselli

4125 Blackhawk Plaza Circle

Suite 201

Danville, CA 94506

FAX:                 (925) 403-0703

Email:                 ingriselli@pacificenergydevelopment.com

 

If to STXRA:                                 Mr. Sean Fitzgerald

1416 Campbell Road

Building B, Suite 204

Houston, Texas 77055

 

 

Email:  Sean.Fitzgerald@STXRA.com

If to the Company:                       Mr. Frank C. Ingriselli

4125 Blackhawk Plaza Circle

Suite 201

Danville, CA 94506

FAX:                 (925) 403-0703

Email:                 ingriselli@pacificenergydevelopment.com

Any Unitholder may change the addresses provided above by notifying the other Parties in the manner provided above.  In the case of personal delivery, certified or registered first class mail, or nationally recognized overnight courier, such transmittal will be deemed to have been received by the recipient party on the date of such delivery.  In the case of delivery via facsimile or email, the transmittal shall be deemed to have been received on the day following the date of communication by facsimile or email.

 

  

20

  

 

Section 17.3  Governing Law and Venue.

 

(a)           This Agreement shall be governed by, and construed in accordance with, the Nevada Law without regard to conflicts of law principles.

 

(b)           With respect to any question, dispute, suit, action or proceedings arising out of or in connection with this Agreement (the “Proceedings”), each party irrevocably:

 

(i)            submits to the non-exclusive jurisdiction of the courts of the State of Nevada; and

 

(ii)            waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such party.

 

Nothing in this Agreement precludes either party from bringing Proceedings in any other jurisdiction nor will the bringing of Proceedings in any one or more jurisdictions preclude the bringing of Proceedings in any other jurisdiction.

 

Section 17.4  Entire Agreement and Modifications.

 

This Agreement constitutes the entire agreement between the Parties relating to the subject matter hereof, and all previous agreements, discussions, communications, and correspondence with respect to the subject matter, including the Original Agreement, are hereby superseded and terminated by the execution of this Agreement.  This Agreement may not be modified or amended except in writing signed on behalf of each Unitholder by its duly authorized representative. Any such modification or amendment shall form part of this Agreement and shall be read co-terminus with this Agreement. The Parties agree and acknowledge that this Agreement creates legal rights and obligations between them even though it contemplates their entry into additional agreements.

 

Section 17.5  No Waiver of Rights.

 

No right under this Agreement may be waived by a Unitholder, except pursuant to a writing signed by the Unitholder against which enforcement of the waiver is sought.  Without limitation, no failure or delay on the part of any Unitholder in exercising any of its rights under this Agreement, no partial exercise by any Unitholder of any of its rights under this Agreement, and no course of dealing among the Parties, will constitute a waiver of the rights of a Unitholder.

 

Section 17.6  Severability.

 

If at any time subsequent to the Effective Date, any provisions of this Agreement will be held by any court of competent jurisdiction to be illegal, void or unenforceable, such provision will be of no force and effect, but the illegality or unenforceability of such provision will have no effect upon and will not impair the enforceability of any other provision of this Agreement.

 

  

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Section 17.7  Attorneys’ Fees.

 

In any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorneys’ fees in addition to any other available remedy.

 

Section 17.8  After- Acquired Units.

 

All of the provisions of this Agreement shall apply to all Units now owned or hereafter issued or transferred to a Unitholder in consequence of any additional issuance, purchase, exchange or reclassification of Units, corporate reorganization, or any other recapitalization, or consolidation, amalgamation, or merger of the Company, or Unit split, or Unit dividend, or which are acquired by a Unitholder of the Company in any other manner.

 

Section 17.9  Successors and Assigns.

 

Except as otherwise provided herein, all of the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the respective successors and permitted assigns of the Parties hereto. No Unitholder may assign any of its rights hereunder to any other person except in writing and in accordance with the provisions of applicable Nevada Law, the Articles, and this Agreement in all respects.

 

Section 17.10  Further Assurances.

 

From time to time, the Parties shall take all appropriate actions and execute and deliver, or cause to be executed and delivered, such documents, agreements or instruments which may be reasonably necessary or advisable to carry out any of the provisions of this Agreement.

 

Section 17.11  No Third-Party Beneficiaries.

 

This Agreement is solely for the benefit of the Unitholders and the Company, and their respective successors and permitted assigns, and this Agreement shall not otherwise be deemed to confer upon or give to any other third party any remedy, claim, liability, reimbursement, cause of action or other right.

 

Section 17.12  Fees and Expense.

 

Unless otherwise provided, each Party shall bear its own costs and expenses in connection with the negotiation and preparation of this Agreement and the consummation of the transactions contemplated hereby.

 

Section 17.13  Illicit Payments.

 

 (a)           Each Unitholder represents and warrants that it and its employees (i) are familiar with the provisions and requirements of the United States Foreign Corrupt Practices Act (“FCPA”), including the record keeping requirements thereof, and (ii) recognize that full compliance with the letter and spirit of the FCPA is the corporate policy of the Company.  In all matters relating to this Agreement and all Projects, each Unitholder will conduct itself in full compliance with the FCPA and the anti-bribery laws of the U.S. or any other jurisdiction.  Consequently, each Unitholder specifically agrees as follows:

 

  

22

  

 

 (i)           In carrying out its responsibility under this Agreement, no Unitholder shall pay or agree to pay, directly or indirectly, any funds or anything of value to any public official for the purpose of influencing such official’s official acts or decisions.

 

 (ii)           Each Unitholder shall immediately notify the other Unitholders of any request that such Unitholder receives to take any action that might constitute a violation of the FCPA, or the anti-bribery laws of the U.S. or any other jurisdiction.

 

Section 17.14  Participation of All Parties.

 

This Agreement shall not be construed to have originated with any Unitholder, and the Parties have been fully represented by counsel in the drafting and negotiation of this Agreement.

 

Section 17.15  Conflict of Terms.

 

If the terms of this Agreement and the terms of the Articles shall conflict, the Unitholders shall endeavor to amend the Articles, so as to reflect the terms of this Agreement, so far as permitted by applicable law. In the event that any provision of this Agreement is found to be contrary to applicable law by any applicable court or governmental authority, such provision shall be modified to the extent necessary to comply with the statutory requirements while retaining as much as possible of the intent of the Parties.

 

Section 17.16  Force Majeure.

 

No Unitholder shall be liable for any delay, failure or non-performance of its obligations under this Agreement to the extent that such performance is prevented by adverse change in Nevada Law, acts of God, war, acts of terrorism, armed conflict, embargo, blockade, civil disturbance, strike, storm, typhoon or any other act or circumstance beyond such Unitholder’s reasonable control that was not reasonably foreseeable and that could not have been prevented with due diligence, provided that (i) written notice of the occurrence of such event shall be given to each of the other Unitholders without delay, (ii) the affected Unitholder shall use diligent efforts at all times to overcome the effects of the event and to resume full performance under this Agreement, and (iii) no such event shall excuse an obligation to make a payment of money, except that if such payment would be illegal, such obligation shall be deferred until payment becomes legally permissible, and the amount owning shall bear interest at the rate of six percent (6%) per annum.

 

Section 17.17  Amendment to the Articles.

 

The Company shall ensure that the Articles of the Company are suitably amended, if and as applicable, to ratify and adopt the provisions of this Agreement so that the Articles of the Company do not, at any time, conflict with the provisions of this Agreement.

 

  

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Section 17.18  Consequential and Indirect Damages.

 

EXCEPT FOR DAMAGES ARISING FROM A BREACH OF SECTION 11 (CONFIDENTIALITY) AND OTHERWISE NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, NO UNITHOLDER OR ITS AFFILIATES, NOR ITS OR THEIR MANAGERS, MEMBERS, OFFICERS, MANAGERS, EMPLOYEES, AGENTS OR REPRESENTATIVES, WILL BE LIABLE TO ANY OTHER UNITHOLDERS, FOR CLAIMS OF PUNITIVE, SPECIAL, EXEMPLARY, TREBLE, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES, INCLUDING DAMAGES FOR LOSS OF PROFITS, LOSS OF USE OR REVENUE, OR LOSSES BY REASON OF COST OF CAPITAL, CONNECTED WITH OR RESULTING FROM ANY PERFORMANCE OR LACK OF PERFORMANCE UNDER THIS AGREEMENT, REGARDLESS OF WHETHER A CLAIM IS BASED ON CONTRACT, WARRANTY, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY, VIOLATION OF ANY APPLICABLE DECEPTIVE TRADE PRACTICES ACT OR ANY OTHER LEGAL OR EQUITABLE PRINCIPLE.

 

Section 17.19  Counterparts.

 

This Agreement may be executed in any number of counterparts (including by facsimile) and by the Parties in separate counterparts (including by facsimile), each of which shall be deemed an original, but all of which such counterparts shall together constitute but one and the same agreement.

 

 

 

 

[SIGNATURE PAGE FOLLOWS]

 

  

24

  

 

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date set forth in the first paragraph hereof.

 

	 	
MEMBERS:

	 
	 	 	 
	 	
PACIFIC ENERGY DEVELOPMENT CORP.

	 
	 	 	 	 
	
 

	
By: 

	/s/ Frank C. Ingriselli  	 
	 	Name:	Frank C. Ingriselli	 
	 	Title:	President and CEO 	 

 

	 	SOUTH TEXAS RESERVOIR ALLIANCE LLC	 
	 	 	 	 
	
 

	
By: 

	/s/ Sean Fitzgerald  	 
	 	Name:	Sean Fitzgerald 	 
	 	Title:	Manager	 

 

	 	PACIFIC ENERGY TECHNOLOGY SERVICES, LLC	 
	 	 	 	 
	
 

	
By: 

	/s/ Frank C. Ingriselli  	 
	 	Name:	Frank C. Ingriselli 	 
	 	Title:	President and CEO	 
	 	 	 	 

 

  

25

  

 

EXHIBIT A

 

	
NAME

	
CONTRIBUTION

	
CLASS A INTERESTS

	
PERCENTAGE

	
Pacific Energy Development Corp.

	
$700.00

	
700,000

	
70.00%

	
South Texas Reservoir Alliance, LLC

	
$300.00

	
300,000

	
30.00%

	
Total

	
$1,000.00

	
1,000,000

	
100.00%

 

  

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EXHIBIT B

 

COMPANY PROJECTS

 

	
Project Name

	
Schedule

	  	  
	  	  
	  	  
	  	  
	  	  

 

 

27wmtn_ex101.htm

Exhibit 10.1

 

AMENDED AND RESTATED REVOLVING CREDIT

LOAN AND SECURITY AGREEMENT

This AMENDED AND RESTATED REVOLVING CREDIT LOAN And SECURITY Agreement (“Agreement”) is made as of September 17, 2012 (the “Effective Date”) by and between WestMountain Index Advisor, Inc., a Colorado corporation (the “Company”), and BOCO Investments, LLC, a Colorado limited liability company (“Lender”).

 

RECITALS:

The Company and Lender entered into that certain Revolving Credit Loan and Security Agreement dated August 8, 2012.

 

The Company and Lender desire to amend and restate in its entirety the Revolving Credit Loan and Security Agreement dated August 8, 2012.  This Agreement shall supersede in its entirety the Revolving Credit Loan and Security Agreement dated August 8, 2012

 

To provide the Company with additional resources to conduct its business, Lender is willing to loan to Company up to the principal amount of One Million Eight Hundred Fifty Three Thousand Nine Hundred Sixty Five Dollars ($1,853,965.00), subject to the terms and conditions specified herein.

 

  

1

  

 

AGREEMENT:

Now, Therefore, in consideration of the foregoing, and the representations, warranties, covenants and conditions set forth below, the Company and Lender, intending to be legally bound, hereby agree as follows:

 

	
1.  

	
Amount and Terms of the Loans

 

1.1 The Loans.  Subject to and in accordance with the terms and conditions of this Agreement and the Note (as defined below), Lender agrees to lend to the Company (as hereinafter defined) up to the principal sum of One Million Eight Hundred Fifty Three Thousand Nine Hundred Sixty Five Dollars ($1,853,965.00) (the “Loan Amount”) against the issuance and delivery by the Company of an Amended and Restated Secured Convertible Promissory Note in the form attached hereto as Exhibit A and incorporated herein (the “Note”).  Upon and subject to the terms and conditions set forth herein, Lender will make loans to Company at any time and from time to time during the period from the Effective Date through July 31, 2013 (“Commitment Period”), up to an aggregate amount not to exceed the Loan Amount.  In no event shall Lender be required to make any loans hereunder after expiration of the Commitment Period.  Company shall deliver to Lender a written request (each a “Loan Request”) for each loan at least five (5) Business Days prior to the proposed funding of the loan specifying the amount of the loan (which shall be the amount on the “Invoice,” as hereinafter defined) and the date of the funding of the loan (“Loan Date”), together with a copy of a bona fide third party invoice for goods, materials or services furnished to Company (each an “Invoice”).  Notwithstanding the preceding sentence, a third party Invoice shall not be required with respect to a Loan Request for funds needed for the Company’s ordinary and necessary operating and administrative expenses, including without limitation, the Company’s payroll and lease obligations; nevertheless, the Company shall provide a detailed documentation in lieu of an Invoice.  Each Loan Date must be between Monday and Thursday, and not on a day that is a federal legal holiday (“Business Day”).  Notwithstanding anything to the contrary set forth herein, in no event shall Lender be obligated to disburse loan proceeds in connection with goods, materials or services furnished to the Company by any person or entity in which a director, officer, or shareholder of the Company owns an interest directly or indirectly. The preceding sentence shall not apply with respect to payroll compensation paid to officers and employees of the Company or to amounts payable by the Company pursuant to that certain Terra Gold Project Exploration Development and Mine Operating Agreement between Raven Gold Alaska Inc. and Terra Gold Corporation effectively dated September 15, 2010. Lender shall transfer the applicable loan proceeds for the Loan Request to the Company (or, in Lender’s discretion, directly to the third party referenced in the Invoice) via cash, wire transfer, or certified funds on the Loan Date. Notwithstanding the foregoing, Lender may require as a condition precedent to disbursing loan proceeds that Company execute and deliver to Lender an original-signed amendment to the Note amending the Schedule to reflect the making of such loan. The Company acknowledges and stipulates that as of the Effective Date, a portion of the Loan Amount equal to One Million Eight Hundred and Fifty Two Thousand One Hundred and Fifteen Dollars ($1,852,115.00) has been disbursed by Lender and received by the Company (the “Disbursed Portion”).

 

  

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1.2 Recording of Loans and Repayments.  Lender will enter on the schedule attached to and incorporated into the Note (the “Schedule”) the principal amount of each loan which it makes to the Company, any repayment of principal which the Company makes, the date on which each such loan or repayment is made, and the outstanding principal balance as a result of each such loan or repayment. The Company hereby authorizes Lender to make such entries and agrees that those entries to the outstanding principal balance as shown on the Schedule will constitute conclusive evidence of all loans and repayments and the dates thereof and of the outstanding principal balance under the Note. The Company hereby appoints Lender as its attorney in fact to make all such entries on the Schedule, and such appointment is coupled with an interest and shall be irrevocable.

1.3 Conversion.  Subject to and upon the terms and conditions of the Note, the principal and all accrued and unpaid interest and other amounts payable under the Note may, solely at the election of the Lender and in its sole discretion, be converted into shares of common stock or preferred stock at the rate set forth in the Note.  The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of common for the sole purpose of issuance upon such conversion not less than such aggregate number of shares of the common stock of Company as shall be issuable upon such conversion.

 

	
2.  

	
The Closing

 

2.1Closing Date.  The closing of the loan (the “Closing”) shall be held as of the date hereof (the “Closing Date”).

 

2.2 Delivery.  At the Closing (i) Lender shall execute and deliver to the Company an executed counterpart of the Note; and (ii) the Company shall duly execute and issue and deliver to Lender an original wet-signed counterpart of the Note and an original wet-signed warrant in the form attached hereto as Exhibit B and incorporated herein (the “Warrant”).

 

	
3.  

	
Representations, Warranties and Covenants of the Company

 

As of the Effective Date, the Company hereby represents and warrants to Lender as follows:

 

3.1 Organization, Good Standing and Qualification.  The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Colorado.  The Company has the requisite corporate power to own, lease and operate its properties and assets and to carry on its business as now conducted and as proposed to be conducted.  The Company is duly qualified and is authorized to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do so would not have a material adverse effect on the Company or its business.

 

  

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3.2 Subsidiaries.  Except as disclosed in the Disclosure Schedule attached as Exhibit C or in the Company’s filings with the Securities and Exchange Commission and publicly available on the EDGAR system (“SEC filings”), the Company does not own any equity security or other interest of or control any other corporation, limited partnership or other business entity.  Except as disclosed in the Company’s SEC filings, the Company is not a participant in any joint venture, partnership or similar arrangement.  Since its inception, the Company has not consolidated or merged with, acquired all or substantially all of the assets of, or acquired the stock of, or any interest in, any corporation, partnership, association, or other business entity.

 

3.3 Corporate Power.  The Company has and will have at the Closing all requisite corporate power to execute and deliver this Agreement and the Note (collectively, the “Transaction Agreements”), and to carry out and perform its obligations under the terms of the Transaction Agreements.

 

3.4 Authorization.  All corporate action on the part of the Company, its directors and its shareholders necessary for the authorization, execution, delivery by the Company of the Transactions Agreements and the performance of the Company’s obligations hereunder and thereunder, including the issuance and delivery of the Note and the reservation of the capital stock issuable upon conversion of the Note and, as applicable, upon the subsequent conversion to Company common stock issued upon the conversion of the Note has been taken or will be taken prior to the issuance of such capital stock. The Transaction Agreements, when executed and delivered by the Company, shall constitute valid and binding obligations of the Company enforceable in accordance with their terms.  The capital stock of the Company issuable upon conversion under the Note (such capital stock, collectively with the Note, the “Securities”), when issued in compliance with the provisions of the Transaction Agreements, will be validly issued, fully paid and nonassessable and free of any liens or encumbrances and issued in compliance with all applicable federal and securities laws and regulations.

 

3.5 Agreements; Action.

 

(a)           Except as disclosed in the Disclosure Schedule attached as Exhibit C or in the Company’s SEC filings, the Company has not (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred or guaranteed any indebtedness for money borrowed or any other liabilities in excess of $1,600,000 in the aggregate, and convertible debentures of $385,000 in the aggregate, (iii) made any loans or advances to any person, other than ordinary course advances for travel or other business expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business.

 

(b)           Except as disclosed in the Disclosure Schedule attached as Exhibit C, the Company has not engaged since inception in any discussion (i) with any representative of any corporation or corporations regarding the consolidation or merger of the Company with or into any such corporation or corporations, (ii) with any corporation, partnership, association or other business entity or any individual regarding the sale, conveyance or disposition of all or substantially all of the assets of the Company, or a transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company is disposed of, or (iii) regarding any other form of acquisition, liquidation, dissolution or winding up, of the Company.

 

(c)           The Company expects to issue stock option grants and options in accordance with employment agreements. Further, the Company expects to implement a stock incentive plan in conjunction with the 2012 annual shareholder meeting.

 

  

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3.6 Obligations to Related Parties.  Except as disclosed in the Disclosure Schedule attached as Exhibit C or in the Company’s SEC filings, there are no obligations of the Company to officers, directors, stockholders, or employees of the Company other than (a) for payment of salary for services rendered, (b) reimbursement for reasonable expenses incurred on behalf of the Company and (c) for other standard employee benefits made generally available to all employees.  None of the officers, directors, key employees or stockholders of the Company, or any members of their immediate families, is indebted to the Company or has any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation that competes with the Company, other than (i) passive investments in publicly traded companies (representing less than 1% of such company) that may compete with the Company and (ii) service as a board member of a company due to a person’s affiliation with a venture capital fund or similar institutional investor in such company.  No officer, director or stockholder, or any member of their immediate families, is, directly or indirectly, interested in any material contract with the Company (other than such contracts as relate to any such person’s ownership of capital stock or other securities of the Company).

 

3.7 Title to Properties and Assets; Liens, Etc.  Except as disclosed in the Company’s SEC filings, the Company has good and marketable title to, or valid leasehold interests in, its properties and assets, including the properties and assets currently used in its business, in each case subject to no Lien other than (i) the Lien of current taxes not yet due and payable, (b) Liens created in connection with the transactions contemplated hereby and (c) Liens and encumbrances which do not materially detract from the value subject thereto or materially adversely affect the Company or its business as conducted and proposed to be conducted.  For the purposes hereof, the term “Lien” shall mean, with respect to any property, any security interest, mortgage, pledge, lien, claim, charge or other encumbrance in, of, or on such property or the income therefrom, including, without limitation, the interest of a vendor or lessor under a conditional sale agreement, capital lease or other title retention agreement, or any agreement to provide any of the foregoing, and the filing of any financing statement or similar instrument under the Uniform Commercial Code or comparable law of any jurisdiction.  All facilities, machinery, equipment, fixtures, vehicles and other properties owned, leased or used by the Company are in good operating condition and repair and are reasonably fit and usable for the purposes for which they are being used. The Company will not, without the Lender’s prior written consent, sell, lease, assign, pledge, hypothecate, or otherwise transfer or encumber all or any portion of its interest in the Collateral, or any portion thereof.

 

(f)           Neither the execution nor delivery of this Agreement, nor the carrying on of the Company’s business by the employees of the Company, nor the conduct of the Company’s business as presently conducted or proposed to be conducted, will, to the Company’s knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any employee is now obligated.

 

3.8 Governmental Consents.  All consents, approvals, orders, or authorizations of, or registrations, qualifications, designations, declarations, or filings with, any governmental authority, required on the part of the Company in connection with the valid execution and delivery of this Agreement, the offer, sale or issuance of the Securities, or the consummation of any other transaction contemplated hereby, shall have been obtained and will be effective at the Closing.

 

3.9 Compliance with Laws; Permits.  The Company is not in violation of any applicable statute, rule, regulation, order or restriction of any domestic or foreign government or any instrumentality or agency thereof in respect of the conduct of its business or the ownership or operation of its properties, which violation would materially and adversely affect the business, assets, liabilities, financial condition, operations or prospects of the Company.  The Company has all franchises, permits, licenses and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could materially and adversely affect the business, properties or financial condition of the Company and believes it can obtain, without undue burden or expense, any similar authority for the conduct of its business as presently proposed to be conducted.

 

  

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3.10 Compliance with Other Instruments.  The Company is not in violation or default of any term of, and the execution and delivery by the Company of the Transaction Agreements will not result in any violation or default with respect to, its articles of incorporation or bylaws, or of any provision of any mortgage, indenture or contract to which it is a party and by which it is bound or of any judgment, decree, order or writ.  The execution, delivery and performance of this Agreement and the other Transaction Agreements, and the consummation of the transactions contemplated hereby or thereby will not result in any such violation or be in conflict with, give rise to any acceleration or right to accelerate, or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, decree, order or writ or an event that results in the creation of any Lien upon any assets of the Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization or approval applicable to the Company, its business or operations or any of its assets or properties.  Without limiting the foregoing, the Company has obtained all waivers reasonably necessary with respect to any preemptive rights, rights of first refusal or similar rights, including any notice or offering periods provided for as part of any such rights, in order for the Company to consummate the transactions contemplated hereunder without any third party obtaining any rights to cause the Company to offer or issue any securities of the Company as a result of the consummation of the transactions contemplated hereunder.

 

3.11 Litigation.  Except as disclosed in the Disclosure Schedule attached as Exhibit C or in the Company’s SEC filings, there is no action, suit, proceeding or investigation pending or, to the Company’s knowledge, threatened against the Company that questions the validity of this Agreement or the other Transaction Agreements or which questions the right of the Company to enter into any of such agreements, or to consummate the transactions contemplated hereby or thereby, or which would reasonably be expected to result, either individually or in the aggregate, in any material adverse change in the business, assets, liabilities, operations or condition of the Company, financially or otherwise, or any change in the current equity ownership of the Company, nor is the Company aware that there is any basis for any of the foregoing.  The foregoing includes, without limitation, actions pending or, to the Company’s knowledge, threatened (or any basis therefor known by the Company) involving the prior employment of any of the Company’s employees, their use in connection with the Company’s business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers.  The Company is not a party to, or to its knowledge subject to, the provisions of any order, writ, injunction, judgment or decree of any arbitration panel or tribunal, court or other government agency or instrumentality.  There is no action, suit, proceeding or investigation by the Company currently pending or which the Company intends to initiate.

 

3.12 Obligations of Management.  Except as disclosed in the Company’s SEC filings, each officer and key employee of the Company is currently devoting substantially all of his or her business time to the conduct of the business of the Company.  The Company is not aware that any officer or key employee of the Company is planning to work less than full time at the Company in the future.  No officer or key employee is currently working or, to the Company’s knowledge, plans to work for a competitive enterprise, whether or not such officer or key employee is or will be compensated by such enterprise.

 

  

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3.13 Financial Statements.  Except as disclosed in the Disclosure Schedule attached as Exhibit C or in the Company’s SEC filings, the Company has no material liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business and (ii) obligations under contracts and commitments incurred in the ordinary course of business, which, in both cases, individually or in the aggregate, are not material to the financial condition or operating results of the Company.  The Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation.  The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with generally accepted accounting principles.

 

3.14 Brokers or Finders.  The Company has not incurred, and will not incur, directly or indirectly, as a result of any action taken by the Company, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with this Agreement, the Transaction Agreements or any of the transactions contemplated hereby or thereby. The Company shall indemnify, protect and hold Lender harmless from all claims for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with this Agreement, the Transaction Agreements or any of the transactions contemplated hereby or thereby.

3.15 Insurance.  The Company has in full force and effect fire and casualty insurance policies in amounts customary for companies in similar businesses similarly situated.

3.16 Tax Returns, Payments and Elections.  The Company has filed all tax returns and reports (including information returns and reports) as required by law.  These returns and reports are true and correct in all material respects except to the extent that a reserve has been reflected on the Financial Statements in accordance with generally accepted accounting principles.  The Company has paid all taxes and other assessments due, except those contested by it in good faith that are listed in the Schedule of Exceptions and except to the extent that a reserve has been reflected on the Financial Statements in accordance with generally accepted accounting principles.  The provision for taxes of the Company as shown in the Financial Statements is adequate for taxes due or accrued as of the date thereof.  The Company has not elected pursuant to the Internal Revenue Code of 1986, as amended (the “Code”), to be treated as a Subchapter S corporation or a collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the Code, nor has it made any other elections pursuant to the Code (other than elections that relate solely to methods of accounting, depreciation or amortization) that would have a material effect on the Company, its financial condition, its business as presently conducted or proposed to be conducted or any of its properties or material assets.  The Company has never had any tax deficiency proposed or assessed against it and has not executed any waiver of any statute of limitations on the assessment or collection of any tax or governmental charge.  None of the Company’s federal income tax returns and none of its state income or franchise tax or sales or use tax returns have ever been audited by governmental authorities.  Since the Financial Statement Date, the Company has not incurred any taxes, assessments or governmental charges other than in the ordinary course of business and the Company has made adequate provisions on its books of account for all taxes, assessments and governmental charges with respect to its business, properties and operations for such period.  The Company has withheld or collected from each payment made to each of its employees, the amount of all taxes (including, but not limited to, federal income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be withheld or collected therefrom, and has paid the same to the proper tax receiving officers or authorized depositories.

3.17 Minute Books.  The minute books of the Company contain a complete summary of all meetings of directors and shareholders since the time of incorporation and reflect all transactions referred to in such minutes accurately in all material respects.

 

  

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3.18 Labor Agreements and Actions; Employee Compensation.  The Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the Company’s knowledge, has sought to represent any of the employees, representatives or agents of the Company.  There is no strike or other labor dispute involving the Company pending, or to the Company’s knowledge, threatened, that could have a material adverse effect on the assets, properties, financial condition, operating results, or business of the Company (as such business is presently conducted and as it is proposed to be conducted), nor is the Company aware of any labor organization activity involving its employees.  The employment of each officer and employee of the Company is terminable at the will of the Company.  To its knowledge, the Company has complied in all material respects with all applicable state and federal equal employment opportunity and other laws related to employment.  Except as set forth in the Schedule of Exceptions, the Company is not a party to or bound by any currently effective employment contract, deferred compensation agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement, or other employee compensation agreement and there is no accrued or unpaid compensation due or owing by the Company to any contractor, employee, officer or director of the Company.

3.19 Offering.  Assuming the accuracy of the representations and warranties of the Lender contained in this Agreement, the offer, issue, and sale of the Note are and will be exempt from the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the “Act”), and the Note has been registered or qualified (or is exempt from registration and qualification) under the registration, permit, or qualification requirements of all applicable state securities laws and regulations.

3.20 Disclosure.  The Company has provided Lender with all the information regarding the Company reasonably available to it that Lender has requested for deciding whether to purchase the Securities.  To the Company’s knowledge, neither the Agreement nor any of the Transaction Agreements delivered in connection herewith, when taken as a whole, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made.  The Company does not represent or warrant that it will achieve any financial projections provided to the Lender and represents only that such projections were prepared in good faith

 

3.21 Covenants.  Until the earlier of conversion or the repayment in full of the outstanding principal and all accrued and unpaid interest and other amounts payable under the Note, the Company covenants and agrees as follows:

 

(a) The Company shall not undertake any disposition of material assets without the prior written approval of the Lender.

 

(b) The Company shall deliver the Lender (i) unaudited quarterly financial reports within thirty days after the end of each quarter, and (ii) a monthly accounting of the Company’s cash balance.  Both shall be in a format reasonably acceptable to the Lender.

 

  

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(c) The Company shall not incur or agree to incur any indebtedness for borrowed money or financed equipment, or any trade debt in excess of $968,462 in the aggregate without the prior written consent of the Lender. All such indebtedness shall be solely to fund operations of the Terra Project in Alaska, payroll and $30,000 for the proxy, name change and other investor infrastructure costs,, and shall be on terms and conditions no more beneficial to a third-party lender as the terms and conditions set forth in the Transaction Agreements.

 

(d) The Company shall not pledge, encumber or grant any security interest in any assets of the Company or any of its subsidiaries to any third party without the prior written consent of the Lender, excluding the pledge of assets pursuant to this Agreement and the Notes.

 

(e) All loan proceeds shall be used by the Company to pay the Invoices or to pay the Company’s expenses of operation incurred in the ordinary course of business, including without limitation, the Company’s payroll and lease obligations.

 

(f) Without the prior written approval of Lender, the Company shall not enter into any agreement or promise whereby the Company agrees to issue shares in the Company, warrants, options (excluding pursuant to an approved employee stock option plan), debt convertible into shares of the Company, or any other agreement, security, or instrument pledging to issue shares in the Company in consideration for property or services furnished or to be furnished to the Company or any third party.

 

3.22Information and Sophistication.  Lender acknowledges that it has prior investment experience such that it is able to evaluate the merits and risks of an investment in the Company, or that it has employed the services of an investment advisor to read the Disclosure Documents (as defined below) and to evaluate the merits and risks of such an investment on its behalf; that it recognizes the speculative nature of this investment; and that it is able to bear the economic risk it hereby assumes. The Company’s (i) Annual Report for the year ended October 31, 2011, as filed with the U.S. Securities and Exchange Commission (“SEC”) on December 20, 2011 ; (ii) Quarterly Report on Form 10-Q for the quarter ended April 30 2012 as filed with the SEC on June 14, 2012; (iii) Form S-1 and S-1/A, as filed with the SEC; and (iv) other documents as filed with the SEC, are collectively referred to as the “Disclosure Documents.” Lender acknowledges that it or its representative(s) have read the Disclosure Documents. Lender also acknowledges that it and its representative(s) have been afforded the opportunity to make, and has made, all inquiries as it and its representatives deemed appropriate with respect to the Company’s affairs and prospects.

 

	
4.  

	
Conditions to Disbursement of Loan Proceeds

 

Lender’s obligations to consummate the Closing or make any and all loans (except for the Disbursed Funds) are subject to the fulfillment of all of the following conditions, any of which may be waived in whole or in part by the Lender:

 

4.1 Representations and Warranties.  The representations and warranties made by the Company herein or in the Note shall have been true and correct when made, and shall be true and correct on the date of disbursement.  The Company is not in breach of any of its obligations under the Transaction Documents.

 

  

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4.2 Governmental Approvals and Filings.  Except for any notices required or permitted to be filed after the Closing with certain federal and state securities commissions, the Company shall have obtained all governmental approvals required in connection with the lawful sale and issuance of the Note.

 

4.3 Legal Requirements.  At the Closing, the sale and issuance by the Company, and the purchase by the Lender, of the Note shall be legally permitted by all laws and regulations to which the Lender or the Company are subject.

 

4.4 Proceedings and Documents.  All corporate and other proceedings in connection with the transactions contemplated at the Closing or disbursement, as applicable, and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to the Lender.

 

4.5 Transaction Documents.  The Company shall have duly executed and delivered to the Lender the following documents (“Transaction Documents”):

 

(a) This Agreement;

 

(b) The Note;

 

(c) An original wet-signed warrant in the form attached hereto as Exhibit D (each, a “Draw Warrant”).  Each such Draw Warrant shall be dated as of the Loan Date and shall provide for the right to purchase one share in the Company multiplied by every dollar set forth in the Loan Request. By way of example, if a Loan Request requests loan proceeds of $50,000, then the Draw Warrant shall provide for 50,000 shares at the price set forth in the Draw Warrant;

 

(d) All UCC-1 financing statements and other documents and instruments which the Lender may request to perfect its security interest in the collateral described in the Note; and

 

(e) The Warrant referenced in Section 2.2.

 

4.6 Corporate Documents.  The Company shall have delivered to the Lender each of the following:

 

(a) The Articles of Incorporation of the Company, certified as of a recent date prior to the Closing by the Secretary of State of Colorado.

 

(b) A Certificate of Good Standing or comparable certificate as to the Company, certified as of a recent date prior to the Closing by the Secretary of State of Colorado.

 

  

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(c) A certificate of the Secretary of the Company, dated as of the Closing, certifying (a) that the Articles of Incorporation of the Company, delivered to Lender pursuant to Section 5.6(a) hereof, are in full force and effect and have not been amended, supplemented, revoked or repealed since the date of such certification; (b) that attached thereto is a true and correct copy of the Bylaws of the Company as in effect on the date of the Closing; (c) that attached thereto are true and correct copies of resolutions duly adopted by the Board of Directors of the Company and continuing in effect, which authorize the execution, delivery and performance by the Company of this Agreement, the issuance of the Securities, and the consummation of the transactions contemplated hereby and thereby; and (d) that there are no proceedings for the dissolution or liquidation of the Company (commenced or threatened); and

 

(d) A certificate of the Secretary of the Company, dated as of the Closing, certifying the incumbency, signatures and authority of the officers of the Company authorized to execute and deliver the Transaction Agreements on behalf of the Company and perform the Company’s obligations thereunder on behalf of the Company.

 

	
5.  

	
Security Agreement.

 

5.1 As collateral security for the full, prompt, complete and final payment and performance when due (whether at stated maturity, by acceleration or otherwise) of all of the Company’s obligations under the Note and in order to induce the Lender to make the loan contemplated hereunder, the Company hereby assigns, conveys, mortgages, pledges, hypothecates and transfers to Lender a first security interest in all of the Company’s right, title and interest in, to and under all of the following property and assets, wherever located, whether now owned or hereafter acquired or arising, and all Proceeds, products, accessions, additions, substitutions, rents, profits and replacements thereof, including, without limitation, all Inventory, Equipment, Fixtures, Goods, Accounts, account receivables, contract rights, As-extracted collateral, Commercial Tort Claims, Chattel Paper (tangible and electronic), Deposit Accounts, Documents, General Intangibles, payment intangibles, software, Instruments, Promissory Notes, Investment Property, Letter-of-Credit Rights and letters-of-credit, and Supporting obligations, intellectual property, license rights, distribution rights, and rights to sue for infringement of General Intangible or intellectual property rights (all of which being collectively referred to herein as the “Collateral”).

 

5.2  Company, on behalf of Lender, will file any financing statement or continuation statement (including “in lieu” continuation statements) necessary to perfect Lender’s security interest in the Collateral.

 

5.3 At any time and from time to time, upon the written request of Lender, and at the sole expense of Company, Company shall promptly and duly execute and deliver any and all such further instruments and documents and take such further action as Lender may reasonably deem necessary or desirable to perfect and continue perfected or better perfect Lender’s liens in the Collateral. Company authorizes Lender to file, in jurisdictions where this authorization will be given effect, a UCC-1 Financing Statement and continuation statements, and “in lieu” continuation statements describing the Collateral in the same manner as it is described herein in order to perfect and maintain Lender’s security interest in the Collateral. Company shall register all copyrighted material with the U.S. Copyright Office and promptly take such further actions as reasonably requested by Lender to perfect its security interest in the Collateral.

 

  

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5.4 Company represents and warrants that, except for the security interest granted to Lender hereunder, Company is the sole legal and equitable owner of each item of the Collateral in which it purports to grant a security interest hereunder. No effective security agreement, financing statement, equivalent security or lien instrument or continuation statement covering all or any part of the Collateral exists, except such as may have been filed by Company in favor of Lender pursuant to this Note or in connection with any security interest granted under the Agreement.  The foregoing representations and warranties are true and accurate as of the date hereof and shall be true and accurate for so long as any amount payable under the Note remains outstanding.

 

5.5 Company represents and warrants that it has sufficient title to and ownership of, or other rights to use, all trade secrets, and, to its knowledge, copyrights, patents, information, proprietary rights, trademarks, service marks and trade names (collectively, “Intellectual Property”) in each case necessary for its business as now conducted without any material conflict with or infringement of the rights of others. Company further represents and warrants that there are no material outstanding options, licenses, or agreements of any kind relating to the foregoing, nor is Company bound by or a party to any material options, licenses or agreements of any kind with respect to the trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity.  Company has not received any written, or to its knowledge, oral communications alleging that Company has violated or, by conducting its business as proposed, would violate any of the trademarks, service marks, trade names, patents, copyrights or trade secrets or other proprietary rights of any other person or entity.  The foregoing representations and warranties are true and accurate as of the date hereof and shall be true and accurate for so long as any amount payable under the Note remains outstanding.

 

5.6 Lender may exercise, in addition to and not in lieu of all other rights and remedies granted to it hereunder and under the Note, all rights and remedies of a secured party under the law, including the Uniform Commercial Code in effect in any and all jurisdictions where UCC-1s are filed to perfect Lender’s security interest (the “UCC”). Lender shall not have any obligation or liability hereunder with respect to the Collateral.

 

5.7 For so long as payment obligations under the Note remain outstanding, Company (i) shall not sell, lease, transfer, hypothecate, or otherwise dispose of or encumber any of the Collateral other than in the ordinary course of business; (ii) shall not change the Company’s jurisdiction of organization without at least seven (7) days prior written notice to Lender; and (iii) shall not, directly or indirectly, create, permit or suffer to exist, and shall defend the Collateral against and take such other action as is necessary to remove, any lien on the Collateral except the lien granted to Lender under the Note.

 

5.8  With respect to the Intellectual Property, Company shall timely file and pay all maintenance fees for patents and renewal fees for trademarks and will promptly notify Lender in writing of any infringement litigation in connection with any of the Intellectual Property. Company shall promptly notify Lender in writing of all newly acquired or created Intellectual Property.

 

  

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6.  

	
Miscellaneous

 

6.1 Binding Agreement.  The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties.  Nothing in this Agreement, expressed or implied, is intended to confer upon any third party any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

6.2 Registration, Transfer and Replacement of the Note. The Note issuable under this Agreement shall be a registered note.  The Company will keep, at its principal executive office, books for the registration and registration of transfer of the Note.  Prior to presentation of the Note for registration of transfer, the Company shall treat the person in whose name such Note is registered as the owner and holder of the Note for all purposes whatsoever, whether or not the Note shall be overdue, and the Company shall not be affected by notice to the contrary.  The holder of the Note, at its option, may in person or by duly authorized attorney surrender the same for exchange at the Company’s chief executive office, and promptly thereafter and at the Company’s expense, except as provided below, receive in exchange therefor one or more new Note(s), each in the principal amount requested by such holder, dated the date of the Note so surrendered and registered in the name of such person or persons as shall have been designated in writing by such holder or its attorney for the same principal amount as the then unpaid principal amount of the Note so surrendered.  Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of the Note and (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it; or (b) in the case of mutilation, upon surrender thereof, the Company, at its expense, will execute and deliver in lieu thereof a new Note executed in the same manner as the Note being replaced, in the same principal amount as the unpaid principal amount of such Note and dated the date of such Note.

 

6.3 Successors and Assigns. The rights and obligations of the Company and the Lender shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. All obligations of the Company hereunder shall survive the Closing.

 

6.4 Assignment by the Company. The rights, interests or obligations hereunder may not be assigned, by operation of law or otherwise, in whole or in part, by the Company without the prior written consent of Lender, which may be withheld in Lender’s sole and absolute discretion.

 

6.5 Severability of this Agreement. If any provision of this Agreement shall be judicially determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

 

6.6 Governing Law.  This Agreement shall be governed by and construed under the laws of the State of Colorado as applied to agreements among Colorado residents, made and to be performed entirely within the State of Colorado, without giving effect to conflicts of laws principles. Exclusive venue for all actions arising out of this Agreement shall be in the district court in and for Larimer County, Colorado, which shall have authority to adjudicate all claims arising out of this Agreement.

 

  

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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.

 

6.8 Titles and Subtitles.  The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

6.9 Notices.  All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed telex, electronic mail or facsimile if sent during normal business hours of the recipient to the address on file in the books and records of the Company, and if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, within the United States, (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt, within the United States, or (e) upon actual delivery if mailed or otherwise delivered in hard copy outside the Unites States.  All communications shall be sent to the Company and to Lender at the address(es) set forth on the signature page hereto or at such other address(es) as the Company or Lender may designate by ten (10) days advance written notice to the other party hereto.

 

6.10 Further Assurances.  The Company agrees at any time and from time to time at its expense, upon request of Lender, to promptly execute, deliver, or obtain or cause to be executed, delivered or obtained any and all further instruments and documents and to take or cause to be taken all such other action as the Lender may deem reasonably desirable in obtaining the full benefits of, or in preserving the liens and/or security interests of, the Transaction Agreements.

 

6.11 Survival.  All representations, warranties, covenants and agreements made by the Company in connection herewith shall survive the disbursement of the loans, the execution and delivery of this Agreement and the Note.

 

6.12 Modification; Waiver.  No modification or waiver of any provision of this Agreement or consent to departure therefrom shall be effective unless agreed to in writing by the Company and Lender.

 

6.13 Fees and Expenses.  At the Closing, the Company shall pay the reasonable legal and due diligence fees and expenses of counsel to the Lender.

 

6.14 Delays or Omissions.  It is agreed that no delay or omission to exercise any right, power or remedy accruing to Lender, upon any breach or default of the Company under this Agreement or any other Transaction Agreement, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach or default, or any acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring.  It is further agreed that any waiver, permit, consent or approval of any kind or character by Lender of any breach or default under this Agreement, or any waiver by Lender of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in writing and that all remedies, either under this Agreement, or by law or otherwise afforded to the Lender, shall be cumulative and not alternative.

 

  

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6.15 Entire Agreement. This Agreement together with the other Transaction Agreements constitute and contain the entire agreement among the Company and Lenders and supersede any and all prior agreements, negotiations, correspondence, understandings and communications among the parties, whether written or oral, respecting the subject matter hereof.

 

 

 

 

[Remainder of Page Intentionally Left Blank]

 

  

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In Witness Whereof, the parties have executed this Amended and Restated Revolving Credit Loan and Security Agreement as of the Effective Date.

 

The Company:

WESTMOUNTAIN INDEX ADVISOR, INC.,

a Colorado corporation

By: /s/ Gregory Schifrin            

Print Name: Gregory Schifrin

Chief Executive Officer

Company Address:

2186 S. Holly Street, Suite 104, Denver, CO 80222

Lender:

BOCO INVESTMENTS, LLC,

a Colorado limited liability company

By:  /s/ Joseph Zimlich             

Print Name: Joseph C. Zimlich

Title: President of Managing Member

Lender Address:                                                                         

262 E. Mountain Avenue

Fort Collins, CO 80524

  

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Exhibit A

Form of Secured Convertible Promissory Note

[See attached]

 

 

 

 

 

 

 

 

  

A-1

  

 

Exhibit B

The Warrant

[See attached]

 

 

 

 

 

 

  

B-1

  

Exhibit C

Disclosure Schedule

 

 

 

 

 

  

C-1

  

Exhibit D

Draw Warrant Form

 

 

 

 

 

D-1

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