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  Exhibit 10.1

 

 

ACCOUNT PURCHASE AGREEMENT

 

THIS
ACCOUNT PURCHASE AGREEMENT (such Account Purchase Agreement,
together with the Schedules, Riders and Exhibits hereto, as the
same may be amended and renewed from time to time, this
“Agreement”) by
and among COMMAND CENTER, INC., a Washington corporation having its
chief executive office at 3609 S. Wadsworth Blvd., Suite 250,
Lakewood, CO 80235 (the “Client”), and WELLS FARGO BANK,
NATIONAL ASSOCIATION (“WFB”) is dated as of the Effective
Date. Except as set forth in Section 12.1 below, all capitalized
terms used in this Agreement are defined in Rider A annexed
hereto.

 

Client
has advised WFB that Client desires to offer to sell and assign to
WFB certain of Client’s Accounts that satisfy the
requirements of Acceptable Accounts hereunder. WFB may, in its sole
discretion, purchase certain Acceptable Accounts offered for sale
and assignment, and all such purchases shall be with full recourse
to Client. This Agreement, including the Schedules, Riders and
Exhibits annexed hereto, memorializes the terms and conditions
under which WFB shall purchase such Acceptable Accounts from
Client.

 

In
consideration of the premises and for other good and valuable
consideration, the receipt of which is hereby acknowledged, Client
and WFB hereby agree as follows:

 

ARTICLE
1

PURCHASE AND
PRICING TERMS

 

Section
1.1                                 Purchase
and Assignment of Accounts

 

1.1.1 Purchase
and Assignment. Client hereby agrees to assign and sell, and
does hereby assign and sell, to WFB, as absolute owner, and WFB
hereby agrees to purchase, and does hereby purchase, certain
Acceptable Accounts of Client selected by WFB for purchase
hereunder, without further act or instrument. All purchases of
Acceptable Accounts shall be with full recourse to Client.
Concurrently with the purchase of each Acceptable Account by WFB,
Client shall deliver to WFB an assignment schedule for such
Acceptable Account, together with copies of the assigned invoices
(or equivalent thereof if Client delivered such invoice to its
Customer electronically) and any other information or documentation
as requested by WFB in connection with such Acceptable
Account.

 

Section
1.2                                 Payment
of Purchase Price. As consideration for the assignment
and sale of an Acceptable Account to WFB, WFB shall pay to Client
the Purchase Price for such Acceptable Account on the date of
purchase thereof. WFB may withhold from the payment of any Purchase
Price such Reserves as WFB has established from time to time, in
its sole discretion. WFB shall remit to Client payment for an
Acceptable Account by crediting the Client Ledger
Account.

 

Section
1.3                                 Commercial
Disputes; Repurchase of Accounts

 

1.3.1 WFB
may settle any Commercial Dispute with any Customer; it being
acknowledged, that, WFB’s general policy is, absent the
occurrence of a Default or an Event of Default, to permit Client to
settle any such Commercial Dispute. Such settlement does not
relieve Client of any Obligation (including the obligation to pay
the Repurchase Price) under this Agreement with respect to the
Acceptable Account that is subject to the Commercial
Dispute.

 

 

 

 

1.3.2 Upon
the occurrence of a Commercial Dispute with respect to an
Acceptable Account, Client shall immediately repurchase such
Acceptable Account from WFB by remitting payment of the Repurchase
Price to WFB. Regardless of whether there is a Commercial Dispute,
in the event that an Acceptable Account is unpaid on the Maximum
Terms Date, Client shall immediately repurchase such Account by
remitting the Repurchase Price to WFB.

 

1.3.3 In
addition to and not in limitation of Section 1.3.2, upon
WFB’s demand, Client shall immediately repurchase an
Acceptable Account and remit the Repurchase Price to WFB in
accordance with this Agreement if (a) Client fails to timely
deliver to WFB an assignment schedule for such Acceptable Account,
together with copies of the assigned invoices (or equivalent
thereof if Client delivered such invoice to its Customer
electronically), the Ancillary Documents and such other information
or documentation as requested by WFB in connection with such
Account; (b) any representation or warranty made by Client
hereunder with respect to such Acceptable Account is untrue,
incorrect or misleading in any respect at any time; (c) any
covenant or agreement made by Client hereunder with respect to such
Acceptable Account is breached; (d) Client is required to
repurchase such Acceptable Account under any term or provision of
this Agreement; or (e) this Agreement is terminated by
Client.

 

1.3.4 If
at any time the aggregate Purchase Price of Accounts for which a
Settlement Date has not occurred, plus the aggregate face amount of
all outstanding letters of credit under the LC Supplement, exceeds
the Maximum Facility Amount, Client shall promptly repay the excess
to WFB, the amount of which repayment may be charged by WFB to the
Client Ledger Account.

 

 ARTICLE
2

ADMINISTRATION

 

Section
2.1                                 Client
Ledger Account

 

2.1.1 WFB
shall record in the Client Ledger Account all debits, credits and
other entries for all transactions between Client and WFB hereunder
or under any Other Agreement, including, without limitation, all
purchases of Acceptable Accounts, payments of the Purchase Price of
each Acceptable Account purchased hereunder, collections of
Accounts, Reserves, and charges for all other Obligations,
including, without limitation, amounts due for any Repurchase
Price, accrued interest, discount, fees, costs and
expenses.

 

2.1.2 Absent
the occurrence of an Event of Default, WFB shall make available to
Client an internet accessible website which will permit Client to
view all debits, credits and other entries made by WFB to the
Client Ledger Account during specific periods.

 

2.1.3 Client
agrees to log on to the internet accessible website provided by WFB
no less frequently than monthly, and Client shall review all
transactions posted to the Client Ledger Account through the last
day of each month. All postings to the Client Ledger Account for
each month shall be subject to subsequent adjustment by WFB but
shall, absent manifest error, be conclusively presumed to be
correct and accurate and constitute an account stated between
Client and WFB unless, within 60 days after the last day of any
month, Client shall deliver to WFB written objection to the
postings for such month describing the error or errors contained in
any such statement.

 

2.1.4 Client
hereby unconditionally promises to pay to WFB all Obligations, as
and when due, without deduction or setoff, regardless of any
defense or counterclaim, in accordance with this Agreement. Client
hereby irrevocably authorizes WFB, from time to time and without
prior notice to Client, to charge all Obligations, including,
without limitation, the amount of any Repurchase Price, all
interest, discount, costs, fees, expenses and other charges payable
by Client hereunder or under any of the Other Agreements, to the
Client Ledger Account maintained by WFB.

 

 

2

 

 

Section
2.2                                 Payments
and Remittances

 

2.2.1 All
checks, remittances, other items of payment and other Proceeds of
Collateral shall be property of WFB. If any checks, remittances,
other items of payment or other Proceeds of Collateral are received
by Client, Client shall hold the same in trust for the benefit of
WFB and will immediately deliver to WFB all such checks,
remittances, other items of payment and other Proceeds of
Collateral in the same form as received by Client. Without limiting
WFB’s other rights and remedies, Client shall pay a
misdirected payment fee to WFB in the amount of fifteen percent
(15%) of the amount of any check, remittance, other item of payment
or other Proceeds of Collateral which has been received by Client
and not delivered to WFB on the next Business Day following receipt
by Client as required by the preceding sentence.

 

2.2.2 If
WFB is required to repay, refund or otherwise disgorge any payment
received by WFB for an Account, Client hereby indemnifies, saves
and holds WFB harmless with respect to such payment and the amount
of the repayment by WFB shall be part of the Obligations,
notwithstanding any termination of this Agreement, and such amount
may be charged by WFB to the Client Ledger Account.

 

2.2.3 In
the event Client at any time receives a payment from WFB with
respect to any Account to which Client has no rights, repayment of
such payment shall be part of the Obligations whether or not this
Agreement has been terminated, and may be charged by WFB to the
Client Ledger Account.

 

2.2.4 If
WFB receives a duplicate payment with respect to an Account or
other payment which is not identified as applicable to an
outstanding Account, WFB will account for such payment as an open
item and, in WFB’s discretion, WFB may return any duplicate
or unidentified payment to the Customer or apply such unidentified
payment pursuant to the terms hereof upon proper identification and
documentation acceptable to WFB.

 

Section
2.3                                 Settlement
Date. WFB will credit the Client Ledger Account in the
amount of the Proceeds of any Account, less the Purchase Price of
such Account, on the Settlement Date for such Account. Provided
there is no Event of Default or Default hereunder, at
Client’s written request, subject to WFB’s right to
withhold Reserves, any credit balance in the Client Ledger Account
shall be released to the Client. Upon the occurrence of an Event of
Default or a Default, WFB may hold any credit balance in the Client
Ledger Account as a Reserve or as additional Collateral for the
Obligations. Should the Client Ledger Account at any time have a
deficit balance, Client shall immediately pay to WFB the amount of
such deficit plus accrued interest thereon at the Deficit
Rate.

 

ARTICLE
3

INTEREST, FEES AND
EXPENSES

 

Section
3.1                                 Interest.
All Obligations (including Repurchase Obligations) hereunder shall
bear interest at the lesser of the Contract Rate or the Maximum
Rate; except,
that, (a) at any
time that a Client Ledger Account Deficit exists, such Client
Ledger Account Deficit shall bear interest at the lesser of the
Deficit Rate or the Maximum Rate and (b) from and after the
occurrence of an Event of Default, and at all times during its
continuance, all Obligations hereunder shall bear interest at the
lesser of the Default Rate or the Maximum Rate. Interest hereunder
shall be accrued daily and shall be due and charged to the Client
Ledger Account monthly. All interest due and payable hereunder by
Client shall be calculated on the basis of a 360 day year, for
actual days elapsed. The Contract Rate shall be automatically and
immediately increased or decreased, as the case may be, as Daily
One Month LIBOR is increased or decreased and to the extent
thereof.

 

 

 

3

 

 

Section
3.2                                 Fees.
Client agrees to timely pay all fees set forth on Schedule 1
annexed hereto, all of which fees shall be fully earned and payable
when due, may be charged by WFB to the Client Ledger Account and
shall not be subject to refund, rebate or proration for any reason
whatsoever.

 

Section
3.3                                 Reimbursement
of Costs, Fees and Expenses Incurred by WFB. Client shall pay
to WFB all costs, fees and expenses, including attorneys’ and
other professional’s costs, fees and expenses, incurred by
WFB in connection with: (a) the preparation, execution, delivery,
administration and enforcement of this Agreement and all Other
Agreements; (b) any waiver, amendment, supplement, consent or
modification hereof or with respect to any of the Other Agreements;
and (c) the filing or perfecting of any security interest in any
Collateral. Client shall also reimburse WFB for all costs, fees and
expenses incurred by WFB, including attorneys’ costs, fees
and expenses, in connection with: (i) obtaining or enforcing
payment or performance of any Obligation; (ii) the prosecution or
defense of any action or proceeding concerning any matter arising
out of or connected with this Agreement, any Other Agreement or any
of the Collateral; (iii) any action or effort to inspect, examine,
verify, protect, collect, sell, liquidate or otherwise dispose of
any Collateral, including all Field Examination Fees; and (iv) the
employment of services of one or more individuals to perform
financial audits, business valuations or quality of earnings
analyses of Client, or to appraise or re-appraise the Collateral or
any portion thereof. In addition to the foregoing, Client shall pay
to WFB WFB’s standard and customary fees relating to bank
services, wire transfers, special or additional reports, remittance
expenses (including, without limitation, incoming wire charges,
currency conversion fees and stop payment fees), and other services
at such rates as shall be charged by WFB to its Clients from time
to time. All such costs, fees and expenses, together with all
filing, recording and search fees and taxes payable by Client to
WFB, shall be payable on demand and may be charged by WFB to the
Client Ledger Account.

 

Section
3.4                                 Nature
of Charges . The Purchase
Price Rate, any and all other discounts, and any and all fees,
commissions or other charges payable hereunder constitute
consideration for WFB's services provided hereunder in connection
with making credit investigations, supervising the ledgering of
accounts purchased, supervising the collection of the accounts
purchased, assuming certain risks and other services provided by
WFB hereunder. Nothing contained herein shall be construed to
require the payment of interest for the use, forbearance, or
detention of money (except with respect to the interest that may be
charged by WFB under Section 3.1); however, should a
court of competent jurisdiction rule that any part of WFB’s
Purchase Price Rate, other discounts, fees, account purchase
commissions or any other charges hereunder are in fact or in law to
be treated as interest on funds advanced, in no event shall Client
be obligated to pay that interest at a rate in excess of the
maximum amount permitted by applicable law. Client and WFB
acknowledge that, for purposes of Section 306 of the Texas Finance
Code, the sale of Acceptable Accounts by Client to WFB pursuant to
this Agreement constitutes a purchase and sale transaction and not
a transaction for the use, forbearance or detention of
money.

 

Section
3.5                                 Maximum
Rate

 

 

 

(a) No provision of
this Agreement or of any Other Agreements shall require the payment
or the collection of interest in excess of the maximum amount
permitted by applicable law. If any excess of interest in such
respect is hereby provided for, or shall be adjudicated to be so
provided, in this Agreement or any Other Agreement or otherwise in
connection with this Agreement, the provisions of this Section
shall govern and prevail and neither Client nor the sureties,
guarantors, successors, or assigns of Client shall be obligated to
pay the excess amount of such interest or any other excess sum paid
for the use, forbearance, or detention of sums owed pursuant
hereto. In the event WFB ever receives, collects, or applies as
interest any such sum, such amount which would be in excess of the
maximum amount permitted by applicable law shall be applied as a
payment and reduction of the principal of the Obligations of Client
hereunder; and, if the principal of such Obligations has been paid
in full, any remaining excess shall forthwith be paid to Client. In
determining whether or not the interest paid or payable exceeds the
Maximum Rate, Client and WFB shall, to the extent permitted by
applicable law, (a) characterize any non-principal payment as an
expense, fee, or premium rather than as interest, (b) exclude
voluntary prepayments and the effects thereof, and (c) amortize,
prorate, allocate, and spread in equal or unequal parts the total
amount of interest throughout the entire contemplated term of this
Agreement so that interest for the entire term does not exceed the
Maximum Rate.

 

 

 

4

 

 

(b) If at any time the
rate of interest applicable to the Obligations of Client
hereunder, together with
any other fees and other amounts payable pursuant to this Agreement
and the Other Agreements and deemed interest under applicable law,
exceeds that amount that would have accrued at the Maximum Rate,
then the amount of interest and any such fees and other amounts to
accrue to WFB pursuant to this Agreement and the Other Agreements
shall be limited, notwithstanding anything to the contrary in this
Agreement or any Other Agreement, to that amount that would have
accrued at the Maximum Rate, but to the extent permitted by
applicable law, any subsequent reductions, as applicable, shall not
reduce the interest to accrue to WFB pursuant to this Agreement and
the Other Agreements below the Maximum Rate until the total amount
of interest accrued pursuant to this Agreement and the Other
Agreements and such fees and other amounts deemed to be interest
equals the amount of interest, fees and other amounts that would
have accrued to WFB but for the effect of this Section 3.5.

 

ARTICLE 4

SECURITY
INTERESTS

 

Section
4.1                                 Grant
of Security Interest . As security for the Obligations,
Client hereby grants to WFB, for itself and its affiliates, a
continuing security interest in and first priority Lien upon all of
the Collateral, subject only to such Liens of other Persons that
are party to an intercreditor agreement with WFB, or to which WFB
has otherwise consented in writing, in any such case, all in form
and content satisfactory to WFB.

 

Section
4.2                                 Perfection
. Subject to the Liens described in
Section 4.1, Client shall take all actions requested by WFB from
time to time to cause the attachment, perfection and first priority
of, and WFB’s ability to enforce, WFB’s security
interest in any and all of the Collateral. Client irrevocably and
unconditionally authorizes WFB (or WFB’s agent) to complete
and file, and Client ratifies such filing, at any time and from
time to time, such financing statements with respect to the
Collateral naming WFB as the secured party and Client as debtor, as
WFB may require, together with all amendments and continuations
with respect thereto.

 

 ARTICLE
5

CLIENT
REPRESENTATIONS AND WARRANTIES

 

Client
hereby makes all of the representations and warranties set forth on
Rider B annexed hereto.

 

ARTICLE 6

AFFIRMATIVE
COVENANTS

 

Until
the Obligations are repaid in full and this Agreement has been
terminated, Client agrees as follows:

 

Section
6.1                                 Recordkeeping,
Rights of Inspection, Audit, Etc.

 

(a) Client shall
maintain a standard system of accounting in accordance with GAAP,
and proper books of record and account in which full, true and
correct entries are made of all dealings and transactions in
relation to Client’s properties, business and activities,
including without limitation, immediately upon the sale of each
Acceptable Account to WFB.

 

 

5

 

 

(b) (i) Prior to the
occurrence of a Default or an Event of Default, upon reasonable
notice and during Client’s normal business hours, and (ii)
after the occurrence of a Default or an Event of Default,
immediately upon WFB’s demand, Client shall permit authorized
representatives of WFB to perform field examinations, to visit and
inspect the properties of Client, to review, audit, check and
inspect the Collateral, to review, audit, check and inspect
Client’s books or records and to make abstracts and
photocopies thereof, and to discuss the affairs, finances and
accounts of Client, with the officers, directors, employees and
other representatives of Client and its accountants.

 

(c) At any time prior
to Client’s payment and satisfaction in full of the
Obligations and termination of this Agreement, Client hereby
irrevocably authorizes and directs all accountants and auditors
employed by Client to execute and deliver to WFB copies of any and
all of the financial statements, trial balances, management
letters, or other accounting records of any nature of Client in the
accountant’s or auditor’s possession, and to disclose
to WFB any information they may have concerning the financial
status and business operations of Client.

 

Section
6.2                                 Notation
of Assignment and Remittance Information.

 

(a) Client agrees that
WFB may, and Client irrevocably authorizes WFB to at any time,
notify Customers of the assignment to WFB of the Accounts,
including pursuant to a Notice of Assignment of Accounts. Without
limiting the foregoing, Client shall make the notation described
below on each original invoice (or the electronic equivalent of an
invoice) or other such documentation accepted by WFB for each
Account. Client shall promptly advise WFB if, for any reason,
Client is unable to place the notation required pursuant to this
clause (a) on any invoice and WFB, in its sole discretion, will
consider waiving such requirement. The notation shall one of the
following:

 

This
invoice is payable to:

 

Command
Center, Inc.

PO Box
932685

Atlanta,
GA 31193-2685

 

This
invoice is payable to:

 

Command
Center, Inc.

PO Box
79081

City of
Industry, CA 91716-9081

 

 

This
invoice is payable to:

 

Command
Center, Inc.

PO Box
951753

Dallas,
TX 75395-1753

 

 

6

 

 

In
addition, Client shall cause all payments by wire transfer or ACH
to be directed as follows:

 

Wells Fargo Bank, N.A.

San
Francisco, CA

ABA#
121000248

Beneficiary:
Wells Fargo Business Credit

Acct
#2000045334645

Reference:
Command Center, Inc.

 

(b) Notwithstanding the
placement or non-placement of any such notation on invoices or
other documentation, Client shall cause all payments of Accounts to
be remitted, and shall take all necessary actions to ensure that
all Customers remit payment of Accounts, to the address or bank
account, as applicable, set forth Section 6.2(a) above or as
otherwise directed by WFB.

 

Section
6.3                                 Financial
Information. Client
shall cause to be prepared and shall timely deliver to WFB, in each
case certified by Client’s President, Chief Financial Officer
or other authorized officer at Client acceptable to WFB, and in
form and content satisfactory to WFB, all financial statements and
other financial information set forth on Schedule 2 annexed
hereto.

 

Section
6.4                                 Insurance.
At Client’s expense, Client shall (a) maintain insurance of
types and amounts as is customary and adequate for businesses
similar to that of Client’s, and with carriers acceptable to
WFB, in its sole discretion and (b) cause WFB to be named as an
additional insured on all liability insurance policies of Client
and, at WFB’s request, as a lender’s loss payee on all
property insurance policies of Client, and deliver to WFB such
endorsements and certificates of insurance as WFB may request with
respect Client’s insurance policies.

 

Section
6.5                                 Notification of
Events of Default and Material Disputes. Client shall
promptly notify WFB upon obtaining knowledge of the occurrence
of:

 

(a) any Event of
Default or Default;

 

(b) any material
dispute (including, without limitation, any Commercial Dispute)
between a Customer and Client or WFB or the return by or
repossession of Goods from any Customer;

 

(c) the assertion,
filing, recording or perfection by any means of any Lien against
any of the Collateral, other than in favor of WFB;

 

(d) the commencement of
any legal proceeding or service of any legal document affecting any
Obligor or the Collateral; and

 

(e) the commencement of
an Insolvency Proceeding with respect to any Customer.

 

Section
6.6                                 Maintenance of
Collateral. Client shall maintain the Collateral in good
working order, saving and excepting ordinary wear and tear, and
will not permit anything to be done to the Collateral that may
materially impair the value thereof.

 

Section
6.7                                 Taxes.
Client shall pay and discharge all federal, state and local taxes
when due.

 

 

 

7

 

 

Section
6.8                                 USA PATRIOT Act,
Etc. Client will (a) ensure, and cause each subsidiary to
ensure, that no equity owner shall be listed on the Specially
Designated Nationals and Blocked Person List or other similar lists
maintained by the Office of Foreign Assets Control, the Department
of the Treasury or included in any Executive Orders of the
President of the United States, (b) not use or permit the use of
the proceeds of any Acceptable Account purchased hereunder or any
other financial accommodation from WFB to violate any of the
foreign asset control regulations of the Office of Foreign Assets
Control or other applicable law, rule or regulation, (c) comply,
and cause each subsidiary to comply, with all applicable Bank
Secrecy Act laws and regulations, as amended from time to time, and
(d) otherwise comply with the USA PATRIOT Act (Title III of Pub. L.
107-56 (signed into law October 26, 2001)) as required by federal
law and WFB’s policies and practices.

 

Section
6.9                                 Communications with
Customers. Client irrevocably authorizes WFB (in WFB’s
name or in the name of a nominee of WFB) to communicate with any
Customer obligated on an Account to disclose WFB’s interest
in such Account, to verify the balance of such Account, to confirm
Client’s sale of goods or rendition of services to such
Customer, to settle Commercial Disputes, and for all such other
purposes arising in connection with the Account.

 

Section
6.10                                 Financial
Covenant. The Client
shall maintain positive Adjusted Liquidity, measured quarterly as
of the last day of each quarter.

 

 ARTICLE
7

NEGATIVE
COVENANTS

 

Until
the Obligations are repaid in full and this Agreement has been
terminated, Client agrees as follows:

 

Section
7.1                                 Negative
Covenants. Client shall
not:

 

7.1.1 Without giving WFB
at least thirty (30) days prior written notice:

 

(a) change
Client’s legal name or conduct business under a fictitious,
assumed or “d/b/a” name;

 

(b) change
Client’s organizational identification number (or acquire an
organizational number if Client does not have one as of the
Effective Date);

 

(c) change
Client’s type of organization;

 

(d) change
Client’s jurisdiction of organization;

 

(e) change
Client’s chief executive office, mailing address or any
location of Collateral;

 

(f) change
Client’s Accountants; or

 

(g) change
Client’s chief executive officer, chief financial officer or
chief operating officer, or any officer of similar title and
authority.

 

 

 

8

 

 

7.1.2 At any
time:

 

(a) interfere with any
of WFB’s rights under this Agreement or the Other
Agreements;

 

(b) be a party to a
merger or consolidation unless Client shall be the surviving entity
of such merger or consolidation; or acquire all or substantially
all of the assets of any Person;

 

(c) grant or permit to
exist any Lien or otherwise transfer any other interest in any of
the Collateral (other than the sale of Inventory in the ordinary
course of Client’s business and the Liens described in
Section 4.1) to any Person other than WFB, without WFB’s
prior written consent;

 

(d) permit to exist or
remain outstanding any loans or advances to Client from any
officer, director or shareholder of Client or any subsidiary,
related entity or affiliate of Client, except to the extent any
such loans or advances are subordinate to the Obligations pursuant
to a duly executed subordination agreement containing terms and
conditions acceptable to WFB;

 

(e) make any payment in
respect of the indebtedness described in clause (d) above
unless either (i)
WFB has consented in writing to the same, or (ii) such payment is
permitted pursuant to any applicable subordination agreement, in
form and substance acceptable to WFB and duly executed by the
holders of such indebtedness;

 

(f) make any loans,
advances, or intercompany transfers between Client and any
subsidiary, related entity or affiliate of Client, or with any
company that has common shareholders, officers or directors with
Client, unless
either (i) WFB has consented in writing to the same,
or (ii) such
transactions are in the ordinary course of business, upon the same
terms and conditions as are applicable to ordinary course of
business transactions with unaffiliated parties;

 

(g) permit the
aggregate face amount of all outstanding letters of credit under
the LC Supplement to exceed the LC Sublimit; or

 

(h) permit the
aggregate Purchase Price for all Acceptable Accounts for which a
Settlement Date has not occurred, plus the aggregate face amount of
all outstanding letters of credit under the LC Supplement, to
exceed the Maximum Facility Amount.

 

ARTICLE 8

TERM

 

Section
8.1                                 Termination
and Autorenewal. This Agreement
shall remain in full force and effect until terminated as
follows:

 

8.1.1 Client may
terminate this Agreement at any time upon thirty (30) days prior
written notice to WFB.

 

8.1.2 WFB may terminate
this Agreement at any time upon thirty (30) days prior written
notice; and

 

8.1.3 WFB may terminate
this Agreement without notice at any time after the occurrence of
an Event of Default, after giving effect to any applicable grace or
cure period.

 

 

 

9

 

 

 

8.1.4 Unless Client shall
have delivered to WFB, or WFB shall have delivered to Client,
written notice of its intention to terminate this Agreement at
least 60 days prior to and effective as of the end of the then
current Term, or this Agreement shall be sooner terminated in
accordance with the terms hereof, this Agreement shall
automatically renew for successive Renewal Terms;

 

Immediately upon
termination, all Obligations, including, without limitation, any
accrued but unpaid fees for the balance of the Term, shall become
immediately due and payable in full without further notice or
demand. Without limiting the foregoing, all of WFB’s Liens in
and to all Collateral shall remain in full force and effect until
such time that all the Obligations have been indefeasibly paid and
satisfied in full, as determined by WFB in its sole
discretion.

 

Section
8.2                                 Repurchase
of Acceptable Account

 

(a) Immediately upon
termination of this Agreement, including at the end of the Term if
not renewed, or after the occurrence of an Event of Default, Client
shall repurchase any and all Acceptable Accounts purchased by WFB
hereunder, whether or not subject to a Commercial Dispute, as may
be requested by WFB, and WFB may charge the Repurchase Price
therefor to the Client Ledger Account, together with all other
Obligations.

 

(b) Without limiting
WFB’s rights and Client’s obligations under Clause
8.2(a) above, if WFB notifies Client that WFB is unable to verify
the balance of any Acceptable Account or if WFB determines, in its
sole discretion, that any Account ceases to satisfy the criteria
for Acceptable Accounts hereunder, Client shall repurchase such
Acceptable Account and WFB may charge the Repurchase Price therefor
to the Client Ledger Account.

 

ARTICLE 9

INDEMNITIES

 

Section
9.1                                 Indemnification

 

.
Client hereby indemnifies and holds each Indemnified Person
harmless from and against any and all suits, actions, proceedings,
claims, damages, losses, liabilities and expenses of every kind and
nature (including attorneys’ costs, fees and expenses) which
may be instituted or asserted against or incurred by any such
Indemnified Person with respect to the execution, delivery,
enforcement, performance or administration of, or in any other way
arising out of or relating to, this Agreement or any Other
Agreement, and any actions or inactions with respect to any of the
foregoing, except to the extent that any such indemnified liability
is determined pursuant to a final, non-appealable order issued by a
court of competent jurisdiction to have resulted solely from such
Indemnified Person’s gross negligence or willful misconduct.
WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH
INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH IN
WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF ANY NEGLIGENT ACT OR
OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON. No
Indemnified Person shall be responsible or liable to Client or to
any other party for indirect, punitive, special, exemplary or
consequential damages which may be alleged as a result of the
purchase of any Acceptable Account or other financial accommodation
having been extended, denied, delayed, conditioned, suspended or
terminated under this Agreement or any Other Agreement or as a
result of any other event or transaction contemplated hereunder or
thereunder.

 

 

10

 

 

Section
9.2                                 Taxes

 

(a) If any tax or fee
by any Governmental Authority (other than income and franchise
taxes owing by WFB) is or may be imposed on or as a result of any
transaction between Client and WFB, or with respect to sales or the
goods affected by such sales, which WFB is or may be required to
withhold or pay, Client acknowledges sole responsibility for such
fee or tax and agrees to indemnify and hold WFB harmless in respect
of such taxes. Client will pay to WFB, upon WFB’s demand, the
amount of any such taxes, which shall be charged to the Client
Ledger Account by WFB.

 

(b) Client agrees to
pay any present or future stamp, value added or documentary taxes
or any other excise or property taxes, charges or similar levies
that arise from any payment made hereunder or from the execution,
delivery, performance, recordation, or filing of, or otherwise with
respect to this Agreement or any Other Agreement.

 

Section
9.3                                 No
Liability.                                 WFB
shall not be liable to Client or any other Person or in any manner
for declining, withholding or terminating the designation of any
Account as an Acceptable Account. If WFB declines, withholds or
terminates the designation of an Account as an Acceptable Account
and provides Client with any information regarding the Customer
obligated on such Account, Client agrees to hold such information
as confidential, and Client agrees not to disclose such information
to the Customer or any other Person.

 

ARTICLE
10                                 

 

ARTICLE 9

DEFAULT

 

Section
10.1                                 Events
of Default. Any one or more of the following shall
constitute an “Event of Default” hereunder: (a) Client
shall fail to pay any of the Obligations when due; (b) any
statement, representation or warranty made by any Obligor orally or
in writing under or in connection with this Agreement or any Other
Agreement to which such Obligor is a party, or in connection with
the transactions contemplated hereby or thereby, shall be untrue,
incorrect or misleading when made or during the period covered
thereby; (c) any Obligor commits any breach or default in the
performance of any covenant or other agreement in this Agreement or
any Other Agreement to which such Obligor is a party which breach
or default is not cured within any applicable cure period or, if no
cure period is provided, within five (5) days of such
Obligor’s receipt of notice or knowledge thereof; provided
that such five (5) day period shall not apply in the case of (i)
any breach or default of Section 6.3 or Section 6.10 of this
Agreement, (ii) any breach or default of any such covenant which is
not capable of being cured at all or within such five (5) day
period or which has been the subject of a prior failure two (2) or
more times during the term of this Agreement, (iii) an intentional
breach by any Obligor of any such covenant or agreement, or (iv)
the occurrence of any event described in any other clause of this
Section 10.1, (d) any Obligor suspends or ceases operation of all
or a material portion or line of such Obligor’s business; (e)
any breach or default by an Obligor occurs under any document,
instrument or agreement to which it is a party or by which such
Obligor or any of its properties are bound, if the maturity of or
any payment with respect to such indebtedness may be accelerated or
demanded due to such breach or default; (f) there shall be issued
or filed against any Obligor any attachment, injunction, order,
writ, or judgment affecting Client or the Collateral; (g) an
Obligor is enjoined, restrained or in any way prevented by any
Governmental Authority from conducting any material part of its
business; (h) an Obligor suffers the loss, revocation or
termination of any material license, permit, lease or agreement
necessary to run its business; (i) any material portion of
Collateral or other property of an Obligor is taken or impaired
through condemnation; (j) an Obligor or any of its senior
management is or at any time has been criminally indicted or
convicted for a felony offense under any state or federal law; (k)
the results of any background investigation or report conducted by
WFB with respect to any of Client’s senior management or
financial personnel fail to be satisfactory to WFB, in WFB’s
sole discretion; (l) any Obligor becomes insolvent, becomes unable
to pay its debts as they mature, makes an assignment for the
benefit of creditors, or if a receiver is appointed for any of the
Collateral, or if a petition under any provision of Title 11 of the
United States Code, as amended or modified from time to time, is
filed by or against any Obligor; (m) any Obligor that is a natural
person shall die or be declared incompetent, any Person that is a
partner in a partnership or a member in a limited liability company
that is an Obligor shall die (if such Person is a natural person)
or withdraw from such partnership or limited liability company, or
any Obligor that is a corporation or a limited liability company
shall dissolve or merge or be consolidated with any other Person;
(n) any Obligor or Validity Guarantor shall challenge the validity,
enforceability or effectiveness of, terminate, seek or purport to
seek termination of such Payment Obligor’s Payment Guaranty
or such Validity Guarantor’s Validity Guaranty, as the case
may be; (o) any Validity Guarantor shall die or be declared
incompetent unless, within 30 days of the date of such death or
declaration of incompetence, a substitute Person, acceptable to WFB
in its discretion, executes a Validity Guarantor in favor of WFB;
or (p) the occurrence of a Change of Control.

 

 

11

 

 

ARTICLE 11

REMEDIES

 

Section
11.1                                 Remedies.
Upon the occurrence of any Event of Default, WFB shall have all the
rights and remedies of a secured party under the UCC and other
applicable laws with respect to all Collateral, such rights and
remedies being in addition to all of WFB’s other rights and
remedies provided for herein, and all of which rights and remedies
may be exercised without notice to, or consent by, Client except as
such notice or consent is expressly provided for hereunder.
Notwithstanding anything to the contrary herein, upon the
occurrence of an Event of Default described in Section 10.1(l)
concerning Client, all Obligations shall be accelerated, and shall
be immediately due and payable, without notice or demand of any
kind, all of which is hereby waived by Client. WFB may for any
reason apply for the appointment of a receiver, ex parte without
notice, of the Collateral (to which appointment Client hereby
consents) without the necessity of posting a bond or other form of
security (which Client hereby waives). WFB may sell or cause to be
sold any or all of such Collateral, in one or more sales or
parcels, at such prices and upon such terms as WFB shall elect, for
cash or on credit or for future delivery, without assumption of any
credit risk, and at a public or private sale as WFB may deem
appropriate. Unless the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a
recognized market, WFB will give Client reasonable notice of the
time and place of any public sale thereof or of the time after
which any private sale or any other intended disposition thereof is
to be made. At any such sale, WFB may disclaim warranties of title,
possession, quiet enjoyment, merchantability and the like and any
such disclaimer shall not affect the commercial reasonableness of
the sale. The requirements of reasonable notice shall be met if any
such notice is mailed, postage prepaid, to Client’s address
set forth on the signature page hereto, at least seven (7) days
before the time of the sale or disposition thereof. WFB may invoice
any such sale in WFB’s name or in Client’s name, as WFB
may elect, as the seller, and in such latter event such invoice
shall be marked payable to WFB as provided in Section 6.2 of this
Agreement. WFB may be the purchaser at any such public sale and
thereafter hold the property so sold at public sale, absolutely,
free from any claim or right of any kind, including any equity of
redemption. The proceeds of sale shall be applied first to all
costs and expenses of, and incident to, such sale, (including
attorneys’ costs, fees and expenses), and then to the payment
(in such order as WFB may elect in its sole discretion) of all
other Obligations. After application of the proceeds of any
Collateral to the Obligations, Client shall remain liable for any
deficiency.

 

ARTICLE 12

MISCELLANEOUS
PROVISIONS

 

Section
12.1                                 UCC
Terms. When used herein,
unless otherwise indicated herein, the terms “Account”,
“Chattel Paper”, “Commercial Tort Claim”,
“Deposit Account”, “Document”,
“Electronic Chattel Paper”, “Equipment”,
“General Intangible”, “Goods”,
“Instrument”, “Inventory”,
“Investment Property”, “Letter-of-Credit
Right”, “Proceeds”, “Record” and
“Supporting Obligation” shall have their respective
meanings set forth in the UCC.

 

Section
12.2                                 Purpose.
The purpose of this Agreement is commercial in nature and not for
household, family and/or personal use.

 

 

12

 

 

Section
12.3                                 Power
of Attorney. In order to carry out this Agreement,
Client irrevocably appoints WFB, or any Person designated by WFB,
as its special attorney in fact, or agent, with power
to:

 

(a) receive, open, read
and thereafter forward to Client (if appropriate) all mail
addressed to Client (including any trade name of Client) sent to
WFB’s address. Any payments received shall be processed in
accordance with this Agreement;

 

(b) endorse the name of
Client or Client’s trade name on any checks or other items of
payment that may come into the possession of WFB with respect to
any Account and on any other documents relating to any of the
Accounts or to Collateral;

 

(c) in Client’s
name, or otherwise, demand, sue for, settle, collect and give
releases for any and all moneys due or to become due on any
Account;

 

(d) initiate electronic
debit or credit entries through any ACH system to the Client
account or any other deposit account maintained by Client wherever
located;

 

(e) access, interface
and execute transactions in connection with Acceptable Accounts in
the name of Client or Client’s trade name through any on-line
or web-based exchange used or otherwise available to
Client;

 

(f) sign the name of
Client on any notices to Customers of the assignment to WFB of the
Accounts, including on any Notice of Assignment of Accounts, to the
extent such notices are permitted hereunder.

 

(g) do any and all
things necessary and proper to carry out this
Agreement.

 

This
power, being coupled with an interest, is irrevocable while this
Agreement remains in effect or any of the Obligations remain
outstanding. WFB, as attorney-in-fact, shall not be liable for any
errors of judgment or mistake of fact.

 

Section
12.4                                 Successors
and Assigns. This Agreement binds and is for the
benefit of the heirs, executors, administrators, successors and
assigns of the parties hereto, except that Client shall not have the
right to assign its rights hereunder or any interest herein without
WFB’s prior written consent.

 

Section
12.5                                 Cumulative
Rights. The rights, powers and remedies
provided in this Agreement and in the Other Agreements are
cumulative, may be exercised concurrently, or separately, may be
exercised from time to time and in such order as WFB shall
determine, subject to the provisions of this Agreement, and are in
addition to, and not exclusive of, the rights, powers, and remedies
provided by existing or future applicable laws. WFB’s failure
or delay to exercise or enforce, in whole or in part, any right,
power or remedy under this Agreement or any Other Agreement, shall
not constitute a waiver thereof, nor preclude any other or further
exercise thereof.

 

 

13

 

 

Section
12.6                                 Waiver.
WFB shall not waive any of its rights and remedies unless the
waiver thereof is in writing and signed by WFB. A waiver by WFB of
a right or remedy under this Agreement on one occasion shall not
constitute a waiver of the right or remedy on any subsequent
occasion.

 

Section
12.7                                 Amendment.
Except as otherwise provided herein, this Agreement may not be
supplemented, changed, waived, discharged, terminated, modified or
amended, except by written instrument executed by WFB and
Client.

 

Section
12.8                                 Choice
of Law. This Agreement shall be governed by
and construed in accordance with the laws of the Applicable State,
without giving effect to the principles of conflicts of
laws.

 

Section
12.9                                 Severability
of Provisions. In the event any provision of this
Agreement (or any part of any provision) is held by a court of
competent jurisdiction to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall
not affect any other provision (or remaining part of the affected
provision) of this Agreement, but this Agreement shall be construed
as if such invalid, illegal or unenforceable provision (or part
thereof) had not been contained in this Agreement, but only to the
extent it is invalid, illegal or unenforceable.

 

Section
12.10                                 Survival.
All covenants, representations and warranties made in this
Agreement continue in full force until this Agreement has been
terminated in accordance with its terms and all Obligations have
been indefeasibly paid and satisfied in full. The obligation of
Client in Article 9 to indemnify WFB shall survive until the
statute of limitations with respect to any such claim or cause of
action described in Article 9 shall have expired.

 

Section
12.11                                 Entire
Agreement. This Agreement, together with the
Other Agreements, is intended by WFB and Client to be a complete,
exclusive and final expression of the agreements contained herein.
Neither WFB nor Client shall hereafter have any rights under any
prior agreements pertaining to the matters addressed by this
Agreement or the Other Agreements but shall look solely to this
Agreement and the Other Agreements for definition and determination
of all of their respective rights, liabilities and responsibilities
under this Agreement and the Other Agreements. THIS AGREEMENT AND
THE OTHER AGREEMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.

 

Section
12.12                                 Data
Transmission. WFB assumes no responsibility for
privacy or security risks as a result of the method of data
transmission selected by Client. WFB only assumes responsibility
for data transmitted from Client once the data is received within
Wells Fargo Bank, National Association’s internal network.
WFB assumes no responsibility for privacy or security for data
transmitted from WFB to Client once the data is dispensed from
Wells Fargo Bank, National Association’s internal
network.

 

 

 

14

 

 

Section
12.13                                 Information.
Without limiting WFB?s right to share information regarding Client
and its affiliates with WFB?s agents, accountants, lawyers and
other advisors, Client agrees that Wells Fargo & Co., and all
direct and indirect subsidiaries of Wells Fargo & Co., may,
among themselves, discuss or otherwise utilize any and all
information they may have in their possession regarding any
Obligor, and Client, for itself and each Payment Guarantor, waives
any right of confidentiality Client or any such Payment Guarantor
may have with respect to such exchange of such
information.

 

Section
12.14                                 Notice.
Unless otherwise specified herein, all notices pursuant to this
Agreement shall be in writing and sent either (a) by hand, (b) by
certified mail, return receipt requested, or (c) by recognized
overnight courier service, to the other party at the address set
forth herein, or to such other addresses as a party may from time
to time furnish to the other party by notice. Any notice hereunder
shall be deemed to have been given on (i) the day of hand delivery,
(ii) the third Business Day after the day it is deposited in the
U.S. Mail, if sent as aforesaid, or (iii) the day after it is
delivered to a recognized overnight courier service with
instructions for next day delivery.

 

Section
12.15                                 Counterparts.
This Agreement may be executed in any number of duplicate originals
or counterparts, each of which shall be deemed to be an original
and all taken together shall constitute but one and the same
instrument. Client agrees that a facsimile or electronic
transmission of any signature of Client shall be effective as an
original signature thereof. WFB agrees that a facsimile or
electronic transmission of this Agreement executed by WFB shall be
effective as an original signature thereof.

 

Section
12.16                                 Headings.
The headings set forth herein are for convenience only and shall
not be deemed to define, limit or describe the scope or intent of
this Agreement.

 

Section
12.17                                 Retention
of Records. WFB shall have no
obligation to maintain electronic records or retain any documents,
schedules, invoices, agings or other records delivered to WFB by
Client in connection with this Agreement or any other document or
agreement described in or related to this Agreement beyond the time
periods set forth for retention of records in WFB’s internal
policies.

 

Section
12.18                                 Arbitration.

 

(a) ARBITRATION. THE PARTIES HERETO
AGREE, UPON DEMAND BY ANY PARTY, WHETHER MADE BEFORE THE
INSTITUTION OF A JUDICIAL PROCEEDING OR NOT MORE THAN 60 DAYS AFTER
SERVICE OF A COMPLAINT, THIRD PARTY COMPLAINT, CROSS-CLAIM,
COUNTERCLAIM OR ANY ANSWER THERETO OR ANY AMENDMENT TO ANY OF THE
ABOVE TO SUBMIT TO BINDING ARBITRATION ALL CLAIMS, DISPUTES AND
CONTROVERSIES BETWEEN OR AMONG THEM (AND THEIR RESPECTIVE
EMPLOYEES, OFFICERS, DIRECTORS, ATTORNEYS, AND OTHER AGENTS),
WHETHER IN TORT, CONTRACT OR OTHERWISE ARISING OUT OF OR RELATING
TO IN ANY WAY (I) ANY CREDIT SUBJECT HERETO, OR ANY OF THE OTHER
AGREEMENTS, AND THEIR NEGOTIATION, EXECUTION, COLLATERALIZATION,
ADMINISTRATION, REPAYMENT, MODIFICATION, EXTENSION, SUBSTITUTION,
FORMATION, INDUCEMENT, ENFORCEMENT, DEFAULT OR TERMINATION; OR (II)
REQUESTS FOR ADDITIONAL CREDIT; PROVIDED HOWEVER THAT THE PARTIES
AGREE THAT, NOTWITHSTANDING THE FOREGOING, EACH PARTY RETAINS THE
RIGHT TO PURSUE IN SMALL CLAIMS COURT ANY DISPUTE WITHIN THAT
COURT’S JURISDICTION. IN THE EVENT OF A COURT ORDERED
ARBITRATION, THE PARTY REQUESTING ARBITRATION SHALL BE RESPONSIBLE
FOR TIMELY FILING THE DEMAND FOR ARBITRATION AND PAYING THE
APPROPRIATE FILING FEE WITHIN THE 30 DAYS OF THE ABATEMENT ORDER OR
THE TIME SPECIFIED BY THE COURT. FAILURE TO TIMELY FILE THE DEMAND
FOR ARBITRATION AS ORDERED BY THE COURT WILL RESULT IN THAT
PARTY’S RIGHT TO DEMAND ARBITRATION BEING AUTOMATICALLY
TERMINATED.

 

 

 

15

 

 

(b) GOVERNING RULES. ANY
ARBITRATION PROCEEDING WILL (I) PROCEED IN A LOCATION IN THE
APPLICABLE STATE (AS DEFINED HEREIN) SELECTED BY THE AMERICAN
ARBITRATION ASSOCIATION (“AAA”); (II) BE GOVERNED
BY THE FEDERAL ARBITRATION ACT (TITLE 9 OF THE UNITED STATES CODE),
NOTWITHSTANDING ANY CONFLICTING CHOICE OF LAW PROVISION IN ANY OF
THE DOCUMENTS BETWEEN THE PARTIES; AND (III) BE CONDUCTED BY THE
AAA, OR SUCH OTHER ADMINISTRATOR AS THE PARTIES SHALL MUTUALLY
AGREE UPON, IN ACCORDANCE WITH THE AAA’S COMMERCIAL DISPUTE
RESOLUTION PROCEDURES, UNLESS THE CLAIM OR COUNTERCLAIM IS AT LEAST
$1,000,000.00 EXCLUSIVE OF CLAIMED INTEREST, ARBITRATION FEES AND
COSTS IN WHICH CASE THE ARBITRATION SHALL BE CONDUCTED IN
ACCORDANCE WITH THE AAA’S OPTIONAL PROCEDURES FOR LARGE,
COMPLEX COMMERCIAL DISPUTES (THE COMMERCIAL DISPUTE RESOLUTION
PROCEDURES OR THE OPTIONAL PROCEDURES FOR LARGE, COMPLEX COMMERCIAL
DISPUTES TO BE REFERRED TO HEREIN, AS APPLICABLE, AS THE
“RULES”). IF THERE IS ANY
INCONSISTENCY BETWEEN THE TERMS HEREOF AND THE RULES, THE TERMS AND
PROCEDURES SET FORTH HEREIN SHALL CONTROL. ANY PARTY WHO FAILS OR
REFUSES TO SUBMIT TO ARBITRATION FOLLOWING A DEMAND BY ANY OTHER
PARTY SHALL BEAR ALL COSTS AND EXPENSES INCURRED BY SUCH OTHER
PARTY IN COMPELLING ARBITRATION OF ANY DISPUTE.

 

(c) NO WAIVER OF PROVISIONAL REMEDIES,
SELF-HELP AND FORECLOSURE. THE ARBITRATION REQUIREMENT DOES
NOT LIMIT THE RIGHT OF ANY PARTY BEFORE, DURING OR AFTER THE
PENDENCY OF ANY ARBITRATION PROCEEDING TO (I) FORECLOSE AGAINST
REAL OR PERSONAL PROPERTY COLLATERAL; (II) EXERCISE SELF-HELP
REMEDIES RELATING TO COLLATERAL OR PROCEEDS OF COLLATERAL SUCH AS
SETOFF OR REPOSSESSION; OR (III) OBTAIN PROVISIONAL OR ANCILLARY
REMEDIES SUCH AS REPLEVIN, WRIT OF POSSESSION, INJUNCTIVE RELIEF,
ATTACHMENT, GARNISHMENT OR THE APPOINTMENT OF A RECEIVER. THIS
EXCLUSION DOES NOT CONSTITUTE A WAIVER OF THE RIGHT OR OBLIGATION
OF ANY PARTY TO SUBMIT ANY DISPUTE TO ARBITRATION OR REFERENCE
HEREUNDER, INCLUDING THOSE ARISING FROM THE EXERCISE OF THE ACTIONS
DETAILED IN SECTIONS (I), (II) AND (III) OF THIS
PARAGRAPH.

 

(d) ARBITRATOR QUALIFICATIONS AND
POWERS. ANY ARBITRATION PROCEEDING IN WHICH THE AMOUNT IN
CONTROVERSY IS $5,000,000.00 OR LESS WILL BE DECIDED BY A SINGLE
ARBITRATOR SELECTED ACCORDING TO THE RULES, AND WHO SHALL NOT
RENDER AN AWARD OF GREATER THAN $5,000,000.00. ANY DISPUTE IN WHICH
THE AMOUNT IN CONTROVERSY EXCEEDS $5,000,000.00 SHALL BE DECIDED BY
MAJORITY VOTE OF A PANEL OF THREE ARBITRATORS; PROVIDED HOWEVER,
THAT ALL THREE ARBITRATORS MUST ACTIVELY PARTICIPATE IN ALL
HEARINGS AND DELIBERATIONS, EXCEPT THAT A SINGLE ARBITRATOR MAY
DECIDE PRE-HEARING DISCOVERY DISPUTES. THE ARBITRATOR(S) WILL BE A
NEUTRAL ATTORNEY LICENSED IN THE APPLICABLE STATE (AS DEFINED
HEREIN) OR A NEUTRAL RETIRED JUDGE OF THE STATE OR FEDERAL
JUDICIARY OF THE APPLICABLE STATE (AS DEFINED HEREIN), IN EITHER
CASE WITH A MINIMUM OF TEN YEARS EXPERIENCE IN THE SUBSTANTIVE LAW
APPLICABLE TO THE SUBJECT MATTER OF THE DISPUTE TO BE ARBITRATED.
THE ARBITRATOR(S) WILL DETERMINE WHETHER OR NOT AN ISSUE IS
ARBITRATABLE AND WILL GIVE EFFECT TO THE STATUTES OF LIMITATION OR
REPOSE IN DETERMINING ANY CLAIM. IN ANY ARBITRATION PROCEEDING THE
ARBITRATOR(S) WILL DECIDE (BY DOCUMENTS ONLY OR WITH A HEARING AT
THE ARBITRATOR'S DISCRETION) ANY PRE-HEARING MOTIONS WHICH ARE
SIMILAR TO MOTIONS TO DISMISS FOR FAILURE TO STATE A CLAIM OR
MOTIONS FOR SUMMARY ADJUDICATION. THE ARBITRATOR(S) SHALL RESOLVE
ALL DISPUTES IN ACCORDANCE WITH THE SUBSTANTIVE LAW OF THE
APPLICABLE STATE (AS DEFINED HEREIN) AND MAY GRANT ANY REMEDY OR
RELIEF THAT A COURT OF SUCH STATE COULD ORDER OR GRANT WITHIN THE
SCOPE HEREOF AND SUCH ANCILLARY RELIEF AS IS NECESSARY TO MAKE
EFFECTIVE ANY AWARD. THE ARBITRATOR(S) SHALL ALSO HAVE THE POWER TO
AWARD RECOVERY OF ALL COSTS AND FEES, TO IMPOSE SANCTIONS AND TO
TAKE SUCH OTHER ACTION AS THE ARBITRATOR(S) DEEMS NECESSARY TO THE
SAME EXTENT A JUDGE COULD PURSUANT TO THE FEDERAL RULES OF CIVIL
PROCEDURE, THE APPLICABLE STATE’S (AS DEFINED HEREIN) RULES
OF CIVIL PROCEDURE OR OTHER APPLICABLE LAW. JUDGMENT UPON THE AWARD
RENDERED BY THE ARBITRATOR(S) MAY BE ENTERED IN ANY COURT HAVING
JURISDICTION. THE INSTITUTION AND MAINTENANCE OF AN ACTION FOR
JUDICIAL RELIEF OR PURSUIT OF A PROVISIONAL OR ANCILLARY REMEDY
SHALL NOT CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING
THE PLAINTIFF, TO SUBMIT THE CONTROVERSY OR CLAIM TO ARBITRATION IF
ANY OTHER PARTY CONTESTS SUCH ACTION FOR JUDICIAL
RELIEF.

 

 

16

 

 

(e) DISCOVERY. IN ANY ARBITRATION
PROCEEDING, DISCOVERY WILL BE PERMITTED IN ACCORDANCE WITH THE
RULES. ALL DISCOVERY SHALL BE EXPRESSLY LIMITED TO MATTERS DIRECTLY
RELEVANT TO THE DISPUTE BEING ARBITRATED AND MUST BE COMPLETED NO
LATER THAN 20 DAYS BEFORE THE HEARING DATE. ANY REQUESTS FOR AN
EXTENSION OF THE DISCOVERY PERIODS, OR ANY DISCOVERY DISPUTES, WILL
BE SUBJECT TO FINAL DETERMINATION BY THE ARBITRATOR(S) UPON A
SHOWING THAT THE REQUEST FOR DISCOVERY IS ESSENTIAL FOR THE PARTY'S
PRESENTATION AND THAT NO ALTERNATIVE MEANS FOR OBTAINING
INFORMATION IS AVAILABLE.

 

(f) CLASS PROCEEDINGS AND
CONSOLIDATIONS. NO PARTY HERETO SHALL BE ENTITLED TO JOIN OR
CONSOLIDATE DISPUTES BY OR AGAINST OTHERS IN ANY ARBITRATION,
EXCEPT PARTIES WHO HAVE EXECUTED THIS AGREEMENT OR ANY OTHER
CONTRACT, INSTRUMENT OR DOCUMENT RELATED TO THE OBLIGATIONS, OR TO
INCLUDE IN ANY ARBITRATION ANY DISPUTE AS A REPRESENTATIVE OR
MEMBER OF A CLASS, OR TO ACT IN ANY ARBITRATION IN THE INTEREST OF
THE GENERAL PUBLIC OR IN A PRIVATE ATTORNEY GENERAL
CAPACITY.

 

(g) PAYMENT OF ARBITRATION COSTS AND
FEES. THE ARBITRATOR(S) SHALL AWARD ALL COSTS AND EXPENSES
OF THE ARBITRATION PROCEEDING.

 

(h) MISCELLANEOUS. TO THE MAXIMUM
EXTENT PRACTICABLE, THE AAA, THE ARBITRATOR(S) AND THE PARTIES
SHALL TAKE ALL ACTION REQUIRED TO CONCLUDE ANY ARBITRATION
PROCEEDING WITHIN 180 DAYS OF THE FILING OF THE DISPUTE WITH THE
AAA. NO ARBITRATOR(S) OR OTHER PARTY TO AN ARBITRATION PROCEEDING
MAY DISCLOSE THE EXISTENCE, CONTENT OR RESULTS THEREOF, EXCEPT FOR
DISCLOSURES OF INFORMATION BY A PARTY REQUIRED IN THE CONNECTION
WITH FINANCIAL REPORTING IN THE ORDINARY COURSE OF ITS BUSINESS OR
BY APPLICABLE LAW OR REGULATION. IF MORE THAN ONE AGREEMENT FOR
ARBITRATION BY OR BETWEEN THE PARTIES POTENTIALLY APPLIES TO A
DISPUTE, THE ARBITRATION PROVISION MOST DIRECTLY RELATED TO THE
SUBJECT MATTER OF THE DISPUTE SHALL CONTROL. THIS ARBITRATION
PROVISION SHALL SURVIVE TERMINATION, AMENDMENT OR EXPIRATION OF ANY
OF THIS AGREEMENT, THE OTHER AGREEMENTS OR ANY RELATIONSHIP BETWEEN
THE PARTIES.

 

(i) WAIVER OF JURY TRIAL. THE
PARTIES HERETO HEREBY ACKNOWLEDGE THAT BY AGREEING TO BINDING
ARBITRATION THEY HAVE IRREVOCABLY WAIVED THEIR RESPECTIVE RIGHTS TO
A JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING
ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT OR ANY
OTHER AGREEMENT OR DOCUMENT DELIVERED IN CONNECTION HEREWITH, ANY
RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER, OR THE PERFORMANCE
OF SUCH RIGHTS AND OBLIGATIONS. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE PARTIES ENTERING INTO THIS
AGREEMENT.

 

 

17

 

 

Section
12.19                                 Increased
Cost and Reduced Return. After the date of
this Agreement, if the adoption of any applicable law, rule or
regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental
authority charged with the interpretation or administration
thereof, or compliance by WFB with any request or directive
(whether or not having the force of law) of any such Governmental
Authority (a) subjects WFB to any charge or withholding on or in
connection with this Agreement or any Other Agreement or any
Acceptable Account or any Collateral, (b) changes the basis of
taxation of payments to WFB in respect of any amounts payable under
this Agreement or any Other Agreement (except for changes in the
rate of tax on the overall net income before tax of WFB), (c)
imposes, modifies or deems applicable any reserve, assessment,
insurance charge, special deposit or similar requirement against
assets of, deposits with or for the account of, or any credit
extended by WFB, (d) has the effect of reducing the rate of return
on WFB's capital to a level below that which WFB could have
achieved but for such adoption, change or compliance (taking into
consideration WFB's policies concerning capital adequacy, (e) WFB
is required to post or allocate additional capital or the
maintenance or allocation of capital by WFB is otherwise affected
by any of the following, to or from that which is maintained by
WFB, pursuant to any legal or regulatory requirement, request,
direction or guideline, or change in the interpretation or
administration thereof (including with respect to reserve, deposit,
capital adequacy, capital allocation or similar requirements) made
after the date hereof (or, in the case of The Dodd-Frank Wall
Street Reform and Consumer Protection Act adopted by the United
States Congress on July 21, 2010 or the Bank for International
Settlements or the Basel Committee on Banking Regulations and
Supervisory Practices (or any successor or similar authority to any
of them), any law, regulation, direction or guideline thereof or
thereunder or enacted thereby or pursuant to the terms thereof,
regardless of the date adopted, enacted or issued), from or by any
governmental authority or other similar body; or (f) imposes any
other condition, and the result of any of the foregoing is (x) to
impose a cost on, or increase the cost to WFB of its purchasing,
maintaining or funding any interest acquired under this Agreement
or any Other Agreement, (y) to reduce the amount of any sum
received or receivable by, or to reduce the rate of return of, WFB
under this Agreement or any related transaction document or (z) to
require any payment calculated by reference to the amounts received
by it hereunder, then, upon demand by WFB, the Client shall pay to
WFB (with respect to amounts owed to it) such additional amounts as
will compensate WFB for such increased cost or
reduction.

 

Section
12.20                                 USA
PATRIOT Act Notice. WFB hereby
notifies Client that pursuant to the requirements of the USA
PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October
26, 2001)), it is required to obtain, verify and record information
that identifies Client, which information includes the name and
address of Client and other information that will allow WFB to
identify Client in accordance with the USA PATRIOT Act (Title III
of Pub. L. 107-56 (signed into law October 26, 2001)).

 

Section
12.21                                 Marketing
Materials. Client hereby irrevocably authorizes WFB to use
the name, logo and other insignia of Client in any
“tombstone” or comparable advertising, on its website
or in other marketing materials.

 

Section
12.22                                 Amendment
and Restatement; Ratification.

 

12.22.1 Client
acknowledges, confirms and agrees that (i) the security interests
and liens granted to WFB pursuant to the Existing Account Purchase
Agreement and Existing Other Agreements shall remain in full force
and effect and shall secure all Obligations hereunder, (ii) such
security interests and liens shall be deemed to be continuously
granted and perfected from the earliest date of the granting and
perfection of such security interests and liens, whether under the
Existing Account Purchase Agreements, the Existing Other Agreements
or otherwise, (c) the obligations owing by Client hereunder
represent, among other things, the amendment, restatement, renewal,
extension, consolidation and modification of the Existing
Obligations arising in connection with the Existing Account
Purchase Agreement and the Existing Other Agreements and (d) the
Existing Account Purchase Agreement and the Existing Other
Agreements have been duly executed and delivered by Client and are
in full force and effect as of the date hereof.

 

 

 

18

 

 

12.22.2 The terms,
conditions, agreements, covenants, representations and warranties
set forth in the Existing Account Purchase Agreement are, effective
as of the Effective Date, amended and restated in their entirety,
and as so amended and restated, replaced and superseded, by the
terms, conditions, agreements, covenants, representations and
warranties set forth in this Agreement; provided that each of Client and WFB
acknowledges, confirms and agrees that such amendment and
restatement shall not, in any manner, (i) be construed to
constitute payment of, or impair, limit, cancel or extinguish, or
constitute a novation in respect of, the Existing Obligations
evidenced by or arising under the Existing Account Purchase
Agreement or the Existing Other Agreements, all such Existing
Obligations deemed obligations of Client under this Agreement or
(ii) adversely affect or impair the priority of security interests
and liens granted by the Existing Account Purchase Agreement and
the Existing Other Agreements.

 

[Signature
Page Follows]

 

 

19

 

IN
WITNESS WHEREOF, the parties hereto have signed and sealed this
Agreement on the day and year first above written.

 

 

	
 

	

CLIENT:

 

COMMAND CENTER, INC.

 

By:    
/s/ Frederick J. Sandford

Name:
Frederick J. Sandford

Title:
President and CEO

 

	
 

	

Address:       
3609 S. Wadsworth Blvd., Suite 250,

Lakewood, CO
80235

 

 

 

 

STATE/COMMONWEALTH
OF COLORADO, COUNTY OF JEFFERSON, TO WIT:

 

 

I
HEREBY CERTIFY, that on this 11th day of May, 2016, before me, a
Notary Public of said State, personally appeared Frederick
Sandford, who acknowledged himself to be the CEO of COMMAND CENTER,
INC., a Washington corporation, known to me (or satisfactorily
proven) to be the person whose name is subscribed to the foregoing
instrument and acknowledged that he executed the same for the
purposes therein contained as the duly authorized CEO of said
company by signing the name of the company by himself as Frederick
Sandford.

 

WITNESS
my hand and Notarial Seal.

 

 

/s/          
                 
                 
               
  

Notary
Public

 

 

My
Commission Expires: Dec. 3, 2019

My
Notarial Registration No.:

 

 

Signature
Page to Account Purchase Agreement

 

 

 

ACCEPTED:

 

 

WELLS
FARGO BANK, NATIONAL ASSOCIATION

 

By: /s/
Angela Brown

Name:
Angela Brown

Title:
Vice President

 

Address:  
14241 Dallas Parkway, Suite 900

   Dallas,
Texas 75254

 

 

 

Effective
Date May 12, 2016.

 

Signature
Page to Account Purchase Agreement

 

 

 

 

Rider A

To

Account Purchase Agreement

Between

Wells Fargo Bank, National Association

And

Command Center, Inc.

 

DEFINITIONS

 

 

“AAA” shall have the meaning set
forth in Section 12.18(b) of this Agreement.

 

“Acceptable Account” means an
Account created by Client in the ordinary course of its business,
that arises out of Client’s sale of Goods or rendition of
services, that complies with each of the representations and
warranties respecting Acceptable Accounts made by Client in this
Agreement, is deemed to be acceptable by WFB in its sole
discretion, and that is not excluded as unacceptable by virtue of
one or more of the excluding criteria set forth below. Without
limiting the foregoing, Acceptable Accounts shall not include the
following:

 

(a)           Accounts
that the Customer has failed to pay within 90 days of original
invoice;

 

(b)           Accounts
with selling terms of more than 30 days;

 

(c)           Accounts
with respect to which the Customer is an affiliate, employee, agent
or equity owner of Client;

 

(d)           Accounts
arising in a transaction wherein Goods are placed on consignment or
are sold pursuant to a guaranteed sale, a sale or return, a sale on
approval, or any other terms by reason of which the payment by the
Customer may be conditional or contingent;

 

(e)           Accounts
that are not payable in U.S. Dollars;

 

(f)           Accounts
with respect to which the Customer either (i) does not maintain its
chief executive office in the United States, or (ii) is not
organized under the laws of the United States or any state thereof,
or (iii) is the government of any foreign country or sovereign
state, or of any state, province, municipality, or other political
subdivision thereof, or of any department, agency, public
corporation or other instrumentality thereof;

 

(g)           Accounts
with respect to which the Customer is a creditor of Client, has or
has asserted a right of setoff or contra account, or has disputed
its obligation to pay all or any portion of the Account, to the
extent of such claim, right of setoff or contra account, or
dispute;

 

(h)           Accounts
owing by a single Customer or group of affiliated Customers whose
total obligations owing to Client exceed the credit limit
established by WFB for such Customer;

 

(i)           Accounts
with respect to which the Customer is subject to an Insolvency
Proceeding, is not solvent, has gone out of business, or as to
which Client has knowledge or has received notice of an imminent
Insolvency Proceeding or a material impairment of the financial
condition of such Customer;

 

 

Account
Purchase Agreement

 

 

Rider
A

 

 

(j)           Accounts,
the collection of which, WFB, in its sole discretion, believes to
be doubtful by reason of the Customer’s financial
condition;

 

(k)           Accounts
that are not subject to a valid and perfected first priority Lien
in favor of WFB or that are subject to any Lien other than in favor
of WFB;

 

(l)           Accounts
with respect to which the obligation to pay is conditional or
subject to a repurchase obligation or right to return or with
respect to which the goods or services giving rise to such Accounts
have not been delivered (or performed, as applicable) or requiring
any additional performance subsequent to the date of sale and
assignment to WFB and accepted by the Customer or Person obligated
on such Account, including progress billings, bill and hold sales,
guaranteed sales, sale or return transactions, sales on approval or
consignments;

 

(m)           Accounts
with respect to which the Customer is a Sanctioned Person or
Sanctioned Entity;

 

(n)           that
portion of Accounts which represent finance charges, service
charges, sales taxes or excise taxes;

 

(o)           Accounts
which have been restructured, extended, amended or otherwise
modified without the prior written consent of WFB;

 

(p)           Accounts
which have not been invoiced;

 

(q)           Accounts
for which Client has not indicated on the invoice evidencing such
Account that the Account has been assigned to and is payable only
to WFB at such address or location as set forth in Section 6.2, if
such notation is required by WFB in accordance with this
Agreement;

 

(r)           Accounts
or that portion of Accounts otherwise deemed ineligible by WFB in
its sole discretion; or

 

(s)           Those
Accounts or portion of Accounts that are not for services rendered
by the Client, including Accounts for the sale of software,
etc.;

 

Any
Accounts which are not Acceptable Accounts shall nonetheless
constitute Collateral.

 

“Accountants” means certified
public accountants selected by Client and acceptable to WFB in its
sole discretion.

 

“Adjusted Liquidity” means, as of
any date of determination, an amount equal to (a) unrestricted cash
of Client, plus (b) the face amount of all Accounts of Client net
of reserves for bad debt, minus (c) the Obligations, minus (d) all
accrued and unpaid payroll and payroll tax liability of
Client.

 

“Agreement” means this Account
Purchase Agreement, together with all schedules, riders and
exhibits annexed hereto, as amended, restated, renewed, replaced,
substituted, supplemented or otherwise modified from time to
time.

 

“Ancillary Documents” means, with
respect to any Account submitted by Client to WFB for sale, such
documents as may be required and in form and content satisfactory
to WFB in its sole discretion, including, without
limitation:

 

 

Rider
A

2

 

 

(a)           an
assignment and schedule listing the Account, together with other
Accounts then being purchased by WFB from Client, signed by an
authorized representative of Client or uploaded to WFB
electronically in form and manner acceptable to WFB and
electronically signed by an authorized representative of
Client;

 

(b)           a
copy of each contract for the sale of services or goods between
Client and each Customer, and all amendments, supplements and
modifications thereto;

 

(c)           an
original invoice or an electronic equivalent thereof;

 

(d)           a
copy of the bill of lading, if applicable;

 

(e)           proof
of delivery of the Goods or completion of the services covered by
such Account;

 

(f)           the
purchase order, or purchase order number, as applicable,
corresponding to such Account;

 

(g)           the
Notice of Assignment of Accounts, if required by WFB in its sole
discretion; and

 

(h)           any
other documentation WFB may require in its sole
discretion.

 

“Applicable State” means the State
of Texas.

 

 “Bank
Product Obligations” shall have the meaning set forth
in the Bank Products Supplement to Account Purchase Agreement dated
the date hereof by and between WFB and Client, as amended and
modified from time to time.

 

“Bank Product Provider” shall have
the meaning set forth in the Bank Products Supplement to Account
Purchase Agreement dated the date hereof by and between WFB and
Client, as amended and modified from time to time.

 

“Business Day” means any day other
than a Saturday, Sunday or other day on which WFB is required by
law to close.

 

“Change of Control” means that (a)
any “person” or “group” (within the meaning
of Sections 13(d) and 14(d) of the Securities Exchange Act of
1934), other than Permitted Holders, becomes the beneficial owner
(as defined in Rule 13d-3 under the Securities Exchange Act of
1934), directly or indirectly, of 25%, or more, of the stock of
Command Center having the right to vote for the election of members
of the Board of Directors of Command Center, or (b) Command Center
fails to own and control, directly or indirectly, 100% of the stock
or equity interest of each other corporate Obligor.

 

“Client” shall have the meaning set
forth in the introductory paragraph of this Agreement.

 

“Client Ledger Account” means,
collectively, one or more ledger accounts maintained by WFB in the
name of Client.

 

“Client Ledger Account Deficit”
means, as of any given date, the excess of the aggregate amount of
all debits and charges to the Client Ledger Account over the
aggregate amount of all credits to the Client Ledger Account as of
such date.

 

 

Rider
A

3

 

 

“Collateral” means all properties,
assets and rights of Client, wherever located, whether now owned or
hereafter acquired or arising, and all Proceeds and products
thereof, including: all of Client’s Accounts (including,
without limitation, all Acceptable Accounts), Chattel Paper
(including Electronic Chattel Paper), Commercial Tort Claims,
Deposit Accounts, Documents, General Intangibles, Goods (including
Inventory (including all merchandise and other Goods, and all
additions, substitutions and replacements thereof, together with
all Goods and materials used or usable in manufacturing,
processing, packaging or shipping such Inventory) and Equipment),
Instruments, Investment Property, Letter-of-Credit Rights, Returned
Goods, and Supporting Obligations; all reserves, matured funds,
credit balances and other property of Client in WFB’s
possession; all rights of stoppage in transit, replevin,
repossession, reclamation and all other rights and remedies of an
unpaid vendor; all of Client’s Records; and all insurance
policies and Proceeds and rights relating thereto.

 

“Commercial Dispute” means any
dispute or claim in any respect, regardless of merit, (including,
without limitation, any alleged dispute as to price, invoice terms,
quantity, quality or late delivery and claims of release from
liability, counterclaim or any alleged claim of deduction, offset,
or counterclaim or otherwise) arising out of or in connection with
an Acceptable Account or any other transaction related
thereto.

 

“Contract Rate” means the Contract
Rate set forth on Schedule 1 annexed hereto.

 

“Contract Year” shall mean the
period commencing on the Effective Date through and including April
7, 2017, and each successive twelve (12) month period thereafter
during the Term.

 

“Customer” shall mean a Person that
purchases goods or services from Client.

 

“Daily One Month LIBOR” shall
mean, for any date of determination, the rate per annum for United
States dollar deposits with a maturity of one (1) month as reported
on Reuters LIBOR01 Screen (or any successor page) at approximately
11:00 am London time on such date of determination or, if such day
is not a London business day, then on the immediately preceding
London business day. If such rate is not so reported, such rate
shall be as determined by WFB from another recognized source or
interbank quotation. When interest or any fee hereunder is
determined in relation to Daily One Month LIBOR, each change in
such interest rate or fee shall become effective each Business Day
that WFB determines that Daily One Month LIBOR has
changed.

 

“Default” means, an event,
condition or occurrence which, with the giving of notice or lapse
of time, or both could or would constitute an Event of
Default.

 

“Default Rate” means the Default
Rate set forth on Schedule 1 annexed hereto.

 

“Deficit Rate” means the Deficit
Rate set forth on Schedule 1 annexed hereto.

 

“Effective Date” means the date on
which WFB executes this Agreement as set forth below WFB’s
signature block on the signature page of this
Agreement.

 

“Event of Default” shall have the
meaning set forth in Section 10.1 of this Agreement.

 

“Existing Account Purchase
Agreement” means the Account Purchase Agreement, dated
February 19, 2010, by and between Client and WFB, as amended,
refinanced, supplemented, or otherwise modified from time to
time.

 

 

Rider
A

4

 

 

“Existing Obligations” shall
mean all indebtedness, obligations and liabilities of Client to WFB
under or pursuant to the Existing Account Purchase Agreement and
the Existing Other Agreements.

 

“Existing Other Documents”
means, collectively, all agreements, documents and/or instruments
at any time executed or delivered in connection with the Existing
Account Purchase Agreements, including, without limitation, all
inventory supplements, letter of credit supplements, other
supplements and schedules thereto, in each instance, as amended,
refinanced, supplemented, or otherwise modified from time to
time.

 

 “Facility
Fee” means the Facility Fee set forth on Schedule 1
annexed hereto.

 

“Field Examination Fees” means the
Field Examination Fees set forth on Schedule 1 annexed
hetero.

 

“GAAP” means generally accepted
accounting principles as in effect from time to time in the United
States of America, consistently applied.

 

“Governmental Authority” means any
federal, state, local, or other governmental or administrative
body, instrumentality, board, department, or agency or any court,
tribunal, administrative hearing body, arbitration panel,
commission, or other similar dispute-resolving panel or
body.

 

 “Indemnified
Person” means each of WFB and its affiliates, and
their respective shareholders, directors, officers, employees,
attorneys and agents.

 

“Initial Term” means the Initial
Term set forth on Schedule 1 annexed hereto.

 

“Insolvency Proceeding” means any
proceeding under Title 11 of the United States Code or under the
Bankruptcy and Insolvency
Act (Canada) or the Companies' Creditors Arrangement Act
(Canada) or any other federal, state or provincial proceeding
instituted by or against a Person seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or
composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors, or any
proceeding seeking the entry of an order for relief by the
appointment of a receiver, trustee, custodian or similar official
for its or a substantial part of its property.

 

“LC Supplement” means that certain
Letter of Credit and Security Agreement, dated on or about the date
hereof, by and between Client and WFB, as amended, restated,
renewed, replaced, substituted, supplemented or otherwise
modified.

 

“LC Sublimit” shall have the
meaning ascribed to such term on Schedule 1 annexed
hereto.

 

 “Lien”
means any mortgage, deed of trust, pledge, hypothecation,
assignment, charge, deposit arrangement, encumbrance, easement,
lien (statutory or other), security interest, or other security
arrangement and any other preference, priority or preferential
arrangement of any kind or nature whatsoever, including, without
limitation, any conditional sale contract or other title retention
agreement, the interest of a lessor under a capital lease and any
synthetic or other financing lease having substantially the same
economic effect as any of the foregoing.

 

“Material Adverse Change” means (a)
a material adverse change in the business, prospects, operations,
results of operations, assets, liabilities or condition (financial
or otherwise) of Client, (b) a material impairment of
Client’s ability to perform its obligations under this
Agreement or the Other Agreements to which it is a party or of
WFB’s ability to enforce the Obligations or realize upon the
Collateral, (c) a material impairment of the enforceability or
priority of WFB’s Liens with respect to the Collateral as a
result of an action or failure to act on the part of Client or (d)
any claim against Client or threat of litigation which if
determined adversely to Client, would result in the occurrence of
an event described in clauses (a), (b) or (c) above.

 

 

Rider
A

5

 

 

“Maximum Facility Amount” means the
Maximum Facility Amount set forth on Schedule 1 annexed
hereto.

 

“Maximum Rate” means the maximum
rate of interest under applicable law that WFB may charge Client:
For purposes of determining the Maximum Rate under Texas law, the
applicable rate ceiling shall be the weekly ceiling described in,
and computed in accordance with, Chapter 303 of the Texas Finance
Code; provided, however, that to the extent permitted by applicable
law, WFB reserves the right to change, from time to time by further
notice and disclosure to Client by WFB, the ceiling on which the
Maximum Rate is based under the Texas Finance Code; and, provided
further, that the Maximum Rate for purposes of this Agreement shall
not be limited to the applicable weekly rate under the Texas
Finance Code if federal laws or other state laws now or hereafter
in effect and applicable to this Agreement (and the interest
contracted for, charged and collected hereunder) shall permit a
higher rate of interest.

 

“Maximum Terms Date” means the
Maximum Terms Date set forth on Schedule 1 annexed
hereto.

 

“Notation Fee” means the Notation
Fee set forth on Schedule 1 annexed hereto.

 

“Notice of Assignment of Accounts”
means a Notice of Assignment of Accounts executed and delivered by
Client to WFB in form and substance satisfactory to WFB in its sole
discretion.

 

“Obligations” means all charges,
debts, liabilities, obligations, guaranties, covenants, duties and
indebtedness of every nature at any time owing by Client to WFB or
WFB’s affiliates, whether evidenced by or arising under this
Agreement, any Other Agreement or any note or other instrument or
document, whether arising by law or otherwise, whether arising from
an extension of credit, loan, guaranty, indemnification or
otherwise, whether direct or indirect (including all indebtedness
owing by Client for Goods and services purchased by Client from any
entity whose Accounts are factored or financed by WFB, and all
debts, liabilities and obligations acquired as a result of any
purchase of, assignment of, participation in or other acquisition
of Client’s debts, liabilities or obligations owing to other
entities), absolute or contingent, due or to become due,
contractual or tortious, liquidated or unliquidated, now existing
or hereafter arising (whether before or after the filing of any
petition in bankruptcy by or against Client or the commencement of
any other insolvency proceedings with respect to Client) including
all interest, charges, expenses, fees, attorney’s fees,
consultant’s fees, expert witness fees, Field Examination
Fees, loan fees, termination fees, minimum interest charges, Bank
Product Obligations, Repurchase Obligations and any other sums
chargeable to Client or incurred by WFB under or in connection with
this Agreement, the Other Agreements or the transactions
contemplated hereby or thereby.

 

“Obligor” means, individually and
collectively, Client and all Payment Guarantors. Obligors do not
include any Person that is solely a Validity
Guarantor.

 

“OFAC” means The Office of Foreign
Assets Control of the U.S. Department of the Treasury.

 

“Other Agreements” means
collectively, this Agreement, and all schedules, exhibits and/or
riders attached hereto, any Ancillary Document and any supplement,
agreement, guaranty, security agreement, notes, subordination
agreement or other such instruments now or hereafter executed by
Client or any other Obligor for the benefit of WFB in connection
with this Agreement, all as amended, restated, renewed, replaced,
substituted, supplemented or otherwise modified.

 

 

Rider
A

6

 

 

“Payment Guarantor” means
any Person that now or hereafter executes a Payment Guaranty in
favor of WFB including, without limitation, the Person or Persons
set forth on the Schedule 1 annexed hereto. The term Guarantor
shall not include any Person who executes a Validity Guaranty
unless such Person also executes a Payment Guaranty.

 

“Payment Guaranty” means each
guaranty of payment of the Obligations executed by a Payment
Guarantor for the benefit of WFB, as amended, restated, renewed,
replaced, substituted, supplemented or otherwise modified. The term
Payment Guaranty shall not include a Validity
Guaranty.

 

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

 

“Purchase Price” means for any
Acceptable Account purchased under this Agreement the gross face
amount of such Acceptable Account, less any amount of any returns,
trade discounts (which may be calculated on the shortest or longest
terms, at WFB’s option), credits or allowances, reductions or
adjustments taken by or granted to the Customer, and any other
charges with respect to such Acceptable Account multiplied by the
Purchase Price Rate.

 

“Purchase Price Rate” means the
Purchase Price Rate set forth on Schedule 1 annexed hereto. The
Purchase Price Rate may be adjusted at any time and from time to
time by WFB in WFB’s sole discretion.

 

“Renewal Term” means the Renewal
Term set forth on Schedule 1 annexed hereto.

 

“Repurchase Obligations” shall mean
the obligation of Client to repurchase Accounts from WFB in
accordance with the terms hereof, the amount of which obligation,
as of any date of determination, is equal to the Repurchase Price,
calculated as of such date of determination, of all Accounts for
which a Settlement Date has not then occurred.

 

“Repurchase Price” means for any
Acceptable Account purchased hereunder, an amount equal to (a) the
Purchase Price paid by WFB with respect to such Acceptable Account,
minus, (b) the
lesser of (i) such Purchase Price and (ii) any amounts collected by
WFB and retained from the Customer with respect to such Acceptable
Account, and plus
(c) all interest, fees, costs or expenses associated with the
repurchase or collection of such Account.

 

“Reserves” means any amount, as
determined by WFB in its sole discretion from time to time, as WFB
deems necessary as security for the payment and performance of the
Obligations, including, without limitation, an amount equal to the
face amount of the letters of credit issued from time to time under
the LC Supplement.

 

 “Rules”
shall have the meaning set forth in Section 12.18(b) of this
Agreement.

 

“Sanctioned Entity” means (a) a
country or a government of a country, (b) an agency of the
government of a country, (c) an organization directly or indirectly
controlled by a country or its government, (d) a Person resident in
or determined to be resident in a country, in each case, that is
subject to a country sanctions program administered and enforced by
OFAC.

 

“Sanctioned Person” means a person
named on the list of Specially Designated Nationals maintained by
OFAC.

 

 

Rider
A

7

 

 

 

“Settlement Date” shall mean for
each Account, the number of Settlement Days after the Business Day
on which payment of such Acceptable Account is posted to the Client
Ledger Account by WFB.

 

“Settlement Days” means the
Settlement Days set forth on Schedule 1 annexed
hereto.

 

 “Term”
means, collectively, the Initial Term and any Renewal
Term.

 

“Termination Fee” means the
Termination Fee set forth on Schedule 1 annexed
hereto.

 

“UCC” means, unless otherwise
provided with this Agreement, the Uniform Commercial Code as
adopted by and in effect from time to time in the Applicable State,
or in any other jurisdiction, as applicable.

 

“Validity Guarantor” means any
Person that now or hereafter executes a Validity Guaranty in favor
of WFB including, without limitation, the Person or Persons set
forth on the Schedule 1 annexed hereto.

 

“Validity Guaranty” means each
guaranty of (and limited to) the validity of, and certain
representations and warranties related to, the Accounts executed by
a Validity Guarantor for the benefit of WFB, as amended, restated,
renewed, replaced, substituted, supplemented or otherwise
modified.

 

“WFB” has the meaning set forth in
the introductory paragraph of this Agreement.

 

 

Rider
A

8

 

Rider B

To

Account Purchase Agreement

Between

Wells Fargo Bank, National Association

And

Command Center, Inc.

 

REPRESENTATIONS AND WARRANTIES

 

Client
hereby represents and warrants to WFB that at all times during the
Term:

 

1.           Organization.
Client is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its
organization.

 

2.           Qualification
to do Business. Client is duly qualified to do business and
is in good standing in each jurisdiction where its ownership of
property or the conduct of its business requires such
qualification.

 

3.           Compliance
with Laws. Client operates its business in material
compliance with all applicable local, state and federal
laws.

 

4.           Power
and Authority. Client has all power and authority under the
laws of Client’s jurisdiction of organization and its
articles of organization to conduct Client’s business and to
enter into, execute and deliver this Agreement and the Other
Agreements and to perform its Obligations hereunder and thereunder,
and has taken all necessary action to authorize the execution and
delivery of this Agreement and the Other Agreements and the
performance of its Obligations hereunder and
thereunder.

 

5.           Solvency.
Client is solvent, is able to pay its debts as they mature, has
capital sufficient to carry on its business and all businesses in
which it is about to engage and the fair saleable value of its
assets (calculated on a going concern basis) is in excess of the
amount of its liabilities.

 

6.           Collateral.
Client has good title to the Collateral, free and clear of any
Liens, except in favor of WFB, or as may be subject to an
intercreditor agreement with WFB or to which WFB has consented in
writing, in either case in form and content acceptable to
WFB.

 

7.           Accounts.
Each Acceptable Account purchased by WFB hereunder (a) evidences an
absolute, bona fide sale and delivery of goods or rendition of
services in Client’s ordinary course of business and such
goods or services have been accepted by the Customer obligated
thereon; (b) is genuine, valid and enforceable against the Customer
obligated thereon in the full amount set forth on the invoice
evidencing such Account, without offset, defense, counterclaim,
deduction, recoupment or contra account; (c) is not subject to
Commercial Dispute (real or alleged); (d) is owing by a Customer
located in the United States and is payable in United States
dollars; (e) is owing by a Customer that is not an affiliate of
Client; (f) does not represent goods delivered upon “bill and
hold”, “consignment”, “guaranteed
sale”, “sale or return”, “payment on
reorder” or similar terms; (g) is legally saleable and
assignable by Client to WFB; (h) the invoice evidencing such
Account, all Ancillary Documents and all other documents delivered
to WFB in connection therewith are genuine and valid and are not
mistaken, misleading, fraudulent, incorrect, incomplete or
erroneous in any respect; (i) if arising from the sale of
Inventory, such Inventory is owned by Client and is not subject to
any consignment arrangement, encumbrance, security interest or Lien
other than in favor of WFB; (j) shall not be altered or in any way
modified without the prior written consent of WFB; and (k) has been
issued in the name of Client or a trade style of Client
specifically listed in the Ancillary Agreements Supplement, dated
of even date herewith, by Client in favor of WFB.

 

 

Account
Purchase Agreement

 

 

Rider
B

 

 

8.           Information
Generally. All information submitted by Client to WFB,
including in any Certification of Officers executed by Client in
favor of WFB, is true, correct and complete.

 

9.           Financial
Information. All financial information delivered by Client
to WFB from time to time regarding Client’s financial
condition accurately reflects such financial condition as of the
date of such information, and there has been no Material Adverse
Change in Client’s financial condition since the date of the
financial statements most recently delivered by Client to
WFB.

 

10.           Litigation.
There are no actions or proceedings pending or, to Client’s
knowledge, threatened against or affecting Client, in which an
adverse decision could reasonably be expected to cause a Material
Adverse Change.

 

 

Rider
B

2

 

Schedule 1

to

Account Purchase Agreement

Between

Wells Fargo Bank, National Association

and

Command Center, Inc.

 

SELECTED ECONOMIC AND OTHER TERMS

 

	

Settlement
Days:

	

0
days

	

Maximum
Facility Amount:

	

$14,000,000

	

LC
Sublimit

	

$7,000,000

	

Purchase
Price Rate:

	

90%

	

Contract
Rate:

	

For
each month, an interest rate per annum which is equal to Daily One
Month LIBOR in effect from time to time plus 2.50%.

	

Deficit
Rate:

	

18% per
annum.

	

Default
Rate:

	

An
interest rate per annum which is equal to the then applicable
Contract Rate plus 50% of such Contract Rate.

	

Field
Examination Fees:

	

$900
per person per day, plus out-of-pocket costs.

	

Initial
Term:

	

The
period commencing on the Effective Date through and including April
7, 2018

	

Renewal
Term:

	

24
months, commencing on the first day after the last day of the
Initial Term or the immediately preceding Renewal Term, as
applicable.

	

Payment
Guarantors:

	

None

	

Validity
Guarantors:

	

Frederick
J. Sandford (validity)Ronald L. Junck (validity)Jeff Wilson
(validity)

	

Maximum
Terms Date:

	

With
respect to an Acceptable Account, the ninetieth (90th) day after the
invoice date of such Account.

	

Insurance:

	

Client
shall maintain insurance in such amounts and with such carriers as
is acceptable to WFB, it being acknowledged and agreed that such
insurance carriers and such insurance amounts maintained by Client
as of the date hereof are acceptable to WFB as of the date
hereof.

 

 

 

Account
Purchase Agreement

 

 

Schedule
1

 

 

FEES

 

Client
shall pay to WFB each of the fees described below on the dates
provided below. Each fee shall be fully earned on the Effective
Date, may be charged by WFB to the Client Ledger Account when due
and shall not be subject to refund, rebate or proration for any
reason whatsoever. Client acknowledges, confirms and agrees that,
upon prior written notice to Client, WFB may, in WFB’s sole
discretion, reasonably exercised, increase any fee set forth herein
if WFB’s cost of funds increases for any reason. Such change
shall be effective upon the actual change in WFB’s cost of
funds.

 

1.           Facility
Fee. On the Effective Date, and on each annual anniversary
of the Effective Date, Client shall pay WFB a facility fee in an
amount equal to 0.50% of the Threshold Amount (each, a
“Facility Fee”).
For purposes hereof, the term “Threshold Amount” shall mean
$10,000,000 provided that, if at any time the Adjusted Balance
exceeds the then applicable Threshold Amount, such then applicable
Threshold Amount shall be automatically increased, in minimum
increments of $1,000,000, until the Threshold Amount is not less
than such Adjusted Balance (the date of each such increase, an
“Increase
Date”). The Threshold Amount, once increased in
accordance with the foregoing, shall not be decreased except with
the written consent of WFB. In addition, upon each increase of the
Threshold Amount in accordance with the foregoing, Client shall pay
to WFB, on the Increase Date therefor, an additional fee equal to
0.50% of the amount of such increase (each, an “Increase Fee”). For purposes
hereof, the term “Adjusted
Balance” means, as of any date of determination, the
sum of (a) the aggregate Purchase Price of Acceptable Accounts for
which a Settlement Date has not occurred minus (b) the balance in
the Client Ledger Account. Each such Facility Fee and Increase Fee
shall be fully earned as of the Effective Date, anniversary of the
Effective Date or Increase Date, as the case may be. Any unpaid
portion of any Facility Fee or Increase Fee arising prior to the
termination of this Agreement shall be accelerated and be
immediately payable upon termination of this
Agreement.

 

2.           Notation
Fee. In the event any invoice (or the electronic equivalent
of an invoice) is sent or transmitted to any Customer without the
notation required pursuant to Section 6.2, Client shall pay to WFB
a Notation Fee in an amount equal to two and one-half percent
(2.5%) of the face amount of such invoice, which Notation Fee shall
be immediately due and payable as of the date that the applicable
invoice was sent or transmitted to the Customer.

 

 

Schedule
1

2

 

Schedule 2

to

Account Purchase Agreement

Between

Wells Fargo Bank, National Association

and

Command Center, Inc.

 

REPORTING REQUIREMENTS

 

Client
shall timely deliver the following financial documentation to
WFB:

 

(a) Within 15 days
after the end of each month, Client’s accounts payable
aging;

 

(b) Within 15 days
after the end of each month, Client’s accounts receivable
aging;

 

(c) Within 30 days
after the end of each month, Client’s internally prepared
financial statements for such month, together with evidence,
satisfactory to WFB, of the payment and compliance by Client with
all federal, state and local tax obligations;

 

(d) On a quarterly
basis, promptly upon the filing thereof with the Securities and
Exchange Commission (and in any event with 45 days after the end of
each quarter), Client’s internally prepared financial
statements for such quarter;

 

(e) Within
90 days after the end
of each fiscal year, Client’s annual financial statements for
such year, audited by the Accountants;

 

(f) Promptly after the
same are available, copies of all annual, regular, periodic and
special reports and registration statements which a Client may file
or be required to file with the Securities and Exchange Commission
under Section 13 or 15(d) of the Securities Exchange Act of
1934;

 

(g) Promptly, and in
any event within five (5) Business Days after receipt thereof by
any Client, copies of each notice or other correspondence received
from the Securities and Exchange Commission (or comparable agency
in any applicable non-U.S. jurisdiction) concerning any
investigation or possible investigation or other inquiry by such
agency regarding financial or other operational results of Command
Center or any subsidiary thereof;

 

(h) On or before 30
days prior to the first day of each of Client’s fiscal years,
Client’s financial projections for such fiscal year;
and

 

(i) Promptly, upon
WFB’s request from time to time, such other financial
information as WFB may request.

 

In
addition, Client shall cause each Payment Guarantor who is a
natural Person and who directly or indirectly holds 25% or more of
the equity interests in Client (or such other percentage as WFB may
establish from time to time in its discretion), and each Validity
Guarantor who is a natural Person and who directly or indirectly
holds 25% or more of the equity interests in Client (or such other
percentage as WFB may establish from time to time in its
discretion), to deliver to WFB, within 90 days after the end of
each year, updated certified personal financial statements for such
natural Person.

 

Account
Purchase Agreement

 

 

Schedule
2este-ex101_10.htm

Exhibit 10.1

 

FIRST AMENDED AND RESTATED

 

LIMITED LIABILITY COMPANY AGREEMENT

 

OF

 

EARTHSTONE ENERGY HOLDINGS, LLC

 

DATED AS OF MAY 9, 2017

 

THE LIMITED LIABILITY COMPANY INTERESTS IN EARTHSTONE ENERGY HOLDINGS, LLC HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, THE SECURITIES LAWS OF ANY STATE, OR ANY OTHER APPLICABLE SECURITIES LAWS, AND ARE BEING SOLD IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. SUCH INTERESTS MUST BE ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE OFFERED FOR SALE, PLEDGED, HYPOTHECATED, SOLD, ASSIGNED OR TRANSFERRED AT ANY TIME EXCEPT IN COMPLIANCE WITH (I) THE SECURITIES ACT, ANY APPLICABLE SECURITIES LAWS OF ANY STATE AND ANY OTHER APPLICABLE SECURITIES LAWS; (II) THE TERMS AND CONDITIONS OF THIS FIRST AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT; AND (III) ANY OTHER TERMS AND CONDITIONS AGREED TO IN WRITING BETWEEN THE MANAGING MEMBER AND THE APPLICABLE MEMBER. THE LIMITED LIABILITY COMPANY INTERESTS MAY NOT BE TRANSFERRED OF RECORD EXCEPT IN COMPLIANCE WITH SUCH LAWS, THIS FIRST AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT, AND ANY OTHER TERMS AND CONDITIONS AGREED TO IN WRITING BY THE MANAGING MEMBER AND THE APPLICABLE MEMBER. THEREFORE, PURCHASERS AND OTHER TRANSFEREES OF SUCH LIMITED LIABILITY COMPANY INTERESTS WILL BE REQUIRED TO BEAR THE RISK OF THEIR INVESTMENT OR ACQUISITION FOR AN INDEFINITE PERIOD OF TIME.

 

 

 

 

i

Table of Contents

 

	
ARTICLE I     DEFINITIONS
	
2

	
 
	
 
	
 

	
Section 1.1 
	
Definitions.
	
2

	
Section 1.2 
	
Interpretive Provisions
	
10

	
 
	
 

	
ARTICLE II     ORGANIZATION OF THE LIMITED LIABILITY COMPANY
	
10

	
 
	
 
	
 

	
Section 2.1 
	
Formation.
	
10

	
Section 2.2 
	
Filing.
	
10

	
Section 2.3 
	
Name
	
10

	
Section 2.4 
	
Registered Office; Registered Agent.
	
10

	
Section 2.5 
	
Principal Place of Business.
	
10

	
Section 2.6 
	
Purpose; Powers.
	
10

	
Section 2.7 
	
Term.
	
11

	
Section 2.8 
	
Intent.
	
11

	
 
	
 

	
ARTICLE III     REORGANIZATION TRANSACTIONS
	
11

	
 
	
 
	
 

	
Section 3.1 
	
Transactions In Connection With the Class A Reorganization.
	
11

	
 
	
 

	
ARTICLE IV   OWNERSHIP AND CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS
	
11

	
 
	
 
	
 

	
Section 4.1 
	
Authorized Units; General Provisions With Respect to Units.
	
11

	
Section 4.2 
	
Voting Rights.
	
13

	
Section 4.3 
	
Capital Contributions; Unit Ownership.
	
13

	
Section 4.4 
	
Capital Accounts
	
13

	
Section 4.5 
	
Reserved.
	
14

	
Section 4.6 
	
Other Matters.
	
14

	
Section 4.7 
	
Redemption of Units.
	
14

	
 
	
 

	
ARTICLE V    ALLOCATIONS OF PROFITS AND LOSSES
	
18

	
 
	
 
	
 

	
Section 5.1 
	
Profits and Losses.
	
18

	
Section 5.2 
	
Special Allocations.
	
18

	
Section 5.3 
	
Allocations for Tax Purposes in General.
	
20

	
Section 5.4 
	
Income Tax Allocations with Respect to Depletable Properties.
	
20

	
Section 5.5 
	
Other Allocation Rules.
	
21

	
 
	
 

	
ARTICLE VI     DISTRIBUTIONS
	
22

	
 
	
 
	
 

	
Section 6.1 
	
Distributions.
	
22

	
Section 6.2 
	
Tax-Related Distributions.
	
22

	
Section 6.3 
	
Distribution Upon Resignation.
	
22

	
 
	
 

	
ARTICLE VII     MANAGEMENT
	
23

	
 
	
 
	
 

	
Section 7.1 
	
The Managing Member; Fiduciary Duties.
	
23

	
Section 7.2 
	
Officers.
	
23

	
Section 7.3 
	
Warranted Reliance by Officers on Others.
	
24

	
Section 7.4 
	
Indemnification.
	
24

	
Section 7.5 
	
Maintenance of Insurance or Other Financial Arrangements
	
24

	
Section 7.6 
	
Resignation or Termination of Managing Member
	
24

	
Section 7.7 
	
No Inconsistent Obligations.
	
25

	
Section 7.8 
	
Reclassification Events of PubCo
	
25

	
Section 7.9 
	
Certain Costs and Expenses.
	
25

	
 
	
 

	
ARTICLE VIII     ROLE OF MEMBERS
	
26

	
 
	
 
	
 

	
Section 8.1 
	
Rights or Powers.
	
26

	
Section 8.2 
	
Voting.
	
26

	
Section 8.3 
	
Various Capacities.
	
26

 

ii

	
 
	
 

	
ARTICLE IX     TRANSFERS OF INTERESTS
	
26

	
 
	
 
	
 

	
Section 9.1 
	
Restrictions on Transfer.
	
26

	
Section 9.2 
	
Notice of Transfer
	
27

	
Section 9.3 
	
Transferee Members
	
27

	
Section 9.4 
	
Legend.
	
28

	
 
	
 

	
ARTICLE X     ACCOUNTING
	
28

	
 
	
 
	
 

	
Section 10.1 
	
Books of Account.
	
28

	
Section 10.2 
	
Tax Elections.
	
28

	
Section 10.3 
	
Tax Returns; Information.
	
28

	
Section 10.4 
	
Tax Matters Member; Company Representative, Tax Audit Matters
	
28

	
Section 10.5 
	
Withholding Tax Payments and Obligations
	
29

	
 
	
 

	
ARTICLE XI    DISSOLUTION AND TERMINATION
	
30

	
 
	
 
	
 

	
Section 11.1 
	
Liquidating Events.
	
30

	
Section 11.2 
	
Bankruptcy.
	
31

	
Section 11.3 
	
Procedure.
	
31

	
Section 11.4 
	
Rights of Members.
	
32

	
Section 11.5 
	
Notices of Dissolution.
	
32

	
Section 11.6 
	
Reasonable Time for Winding Up
	
32

	
Section 11.7 
	
No Deficit Restoration
	
32

	
 
	
 

	
ARTICLE XII     GENERAL
	
32

	
 
	
 
	
 

	
Section 12.1 
	
Amendments; Waivers.
	
32

	
Section 12.2 
	
Further Assurances.
	
32

	
Section 12.3 
	
Successors and Assigns
	
32

	
Section 12.4 
	
Entire Agreement.
	
33

	
Section 12.5 
	
Rights of Members Independent.
	
33

	
Section 12.6 
	
Governing Law
	
33

	
Section 12.7 
	
Jurisdiction and Venue.
	
33

	
Section 12.8 
	
Headings.
	
33

	
Section 12.9 
	
Counterparts
	
33

	
Section 12.10 
	
Notices.
	
33

	
Section 12.11 
	
Representation By Counsel; Interpretation
	
34

	
Section 12.12 
	
Severability
	
34

	
Section 12.13 
	
Expenses.
	
34

	
Section 12.14 
	
No Third Party Beneficiaries
	
34

 

 

LIST OF EXHIBITS AND SCHEDULES:

 

	
Exhibit A
	
Initial Issuances and Contributions 

	
Exhibit B
	
Units

	
Exhibit C
	
Class A Conversion Date Capital Account Balances

 

 

 

iii

FIRST AMENDED AND RESTATED

 

LIMITED LIABILITY COMPANY AGREEMENT

 

OF

 

EARTHSTONE ENERGY HOLDINGS, LLC

 

This FIRST AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (as amended, supplemented or restated from time to time, this “Agreement”) is entered into as of May 9, 2017, by and among EARTHSTONE ENERGY HOLDINGS, LLC, a Delaware limited liability company (the “Company”), and each other Person who is or at any time becomes a Member in accordance with the terms of this Agreement and the Act. Capitalized terms used herein and not otherwise defined have the respective meanings set forth in Section 1.1.

 

RECITALS

 

WHEREAS, the Company was formed pursuant to a Certificate of Formation filed in the office of the Secretary of State of the State of Delaware on November 4, 2016, and is currently governed by the Limited Liability Company Agreement, dated as of November 4, 2016 of the Company (the “Existing LLC Agreement”);

 

WHEREAS, the Company, Earthstone Energy, Inc., a Delaware corporation (“PubCo”),  Lynden USA Inc., a Utah corporation (“Lynden”), Lynden USA Operating, LLC, a Texas limited liability company (“Lynden Sub”), Bold Energy Holdings, LLC, a Texas limited liability company (“Bold”), and Bold Energy III LLC, a Texas limited liability company (“Bold Sub”) have entered into a Contribution Agreement dated November 7, 2016 (the “Contribution Agreement”), under which among other things, PubCo, Lynden, Bold and Bold Sub will undertake certain transactions and PubCo, Lynden and Bold will contribute assets to the Company; 

 

WHEREAS, pursuant to the terms of the Contribution Agreement, the parties thereto have agreed to consummate the reorganization of the Company contemplated by the Contribution Agreement and to take the other actions contemplated in such Contribution Agreement (collectively, the “Reorganization”);

 

WHEREAS, in connection with the Reorganization, PubCo is entering into a recapitalization transaction, pursuant to which its existing shares of common stock will be converted into shares of Class A Stock, as defined below (the “Class A Conversion”); 

 

WHEREAS, in connection with the Class A Conversion, Bold shall purchase shares of Class B Stock (as defined below) of PubCo (the “Class B Purchase”) directly from PubCo for cash, all as more particularly described in Exhibit A hereto;

 

WHEREAS, in connection with the Reorganization, following the Class A Conversion and pursuant to the Contribution Agreement, PubCo and Lynden are contributing all of their assets to the Company in exchange for a number of Units equal to the number of shares of Class A Stock issued in the Class A Conversion; 

 

WHEREAS, pursuant to the Contribution Agreement, Bold is contributing all of its assets to the Company in exchange for Units; 

 

WHEREAS, each Unit may be redeemed, at the election of a Redeeming Member (together with the transfer and surrender by such Redeeming Member of one share of Class B Stock), for one share of Class A Stock in accordance with the terms and conditions of this Agreement;

 

WHEREAS, the Members of the Company desire that PubCo become the sole managing Member of the Company (in its capacity as managing Member as well as in any other capacity, the “Managing Member”);

 

WHEREAS, the Members of the Company desire to amend and restate the Existing LLC Agreement; and

 

 

1

WHEREAS, this Agreement shall supersede the Existing LLC Agreement in its entirety as of the date hereof;

 

NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereby amend and restate the Existing LLC Agreement in its entirety and agree as follows:

 

ARTICLE I

DEFINITIONS 

 

	
Section 1.1 
	
Definitions. (a) As used in this Agreement and the Schedules and Exhibits attached to this Agreement, the following definitions shall apply:

 

 

“Act” means the Delaware Limited Liability Company Act, 6 Del. C. § 18-101, et seq., as amended from time to time (or any corresponding provisions of succeeding law).

 

“Action” means any claim, action, suit, arbitration, inquiry, proceeding or investigation by or before any Governmental Entity.

 

“Adjusted Basis” is defined in Section 1011 of the Code.

 

“Adjusted Capital Account Deficit” means the deficit balance, if any, in such Member’s Capital Account at the end of any Fiscal Year or other taxable period, with the following adjustments:

 

	
 
	
a.
	
credit to such Capital Account any amount that such Member is obligated to restore under Treasury Regulations Section 1.704-1(b)(2)(ii)(c), as well as any addition thereto pursuant to the next to last sentences of Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) after taking into account thereunder any changes during such year in Company Minimum Gain and Member Minimum Gain ; and

 

	
 
	
b.
	
debit to such Capital Account the items described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).

 

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

 

“Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person. For these purposes, “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; provided that, for purposes of this Agreement, (i) no Member shall be deemed an Affiliate of the Company or any of its Subsidiaries and (ii) none of the Company or any of its Subsidiaries shall be deemed an Affiliate of any Member.

 

“Agreement” is defined in the preamble to this Agreement.

 

“Available Cash” means the amount of cash on hand (including cash equivalents and temporary investments of Company cash) from time to time in excess of amounts required, as determined by the Managing Member, to pay or provide for payment of existing and projected obligations, capital expenditures and acquisitions, and to provide a reasonable reserve for working capital and contingencies, and taking into account any restrictions contained in any agreement to which the Company is bound.

 

“beneficially own” and “beneficial owner” shall be as defined in Rule 13d-3 of the rules promulgated under the Exchange Act.

 

“Bold” is defined in the recitals to this Agreement.

 

2

 

“Bold Sub” is defined in the recitals to this Agreement.

 

“Business Day” means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by Law to be closed in the City of New York.

 

“Call Election Notice” is defined in Section 4.7(f)(ii).

 

“Call Right” is defined in Section 4.7(f)(i).

 

“Capital Account” means, with respect to any Member, the Capital Account maintained for such Member in accordance with Section 4.4.

 

“Capital Contributions” means, with respect to any Member, the amount of cash and the initial Gross Asset Value of any property (other than cash) contributed to the Company by such Member. Any reference to the Capital Contributions of a Member will include the Capital Contributions made by a predecessor holder of such Member’s Units to the extent the Capital Contributions were made in respect of Units Transferred to such Member.  

 

“Cash Election” is defined in Section 4.7(a)(iv).

 

“Cash Election Amount” means with respect to a particular Redemption on any Redemption Date, an amount of cash equal to the number of shares of Class A Stock that would be received in such Redemption multiplied by the Class A VWAP Price.

 

“Class A Conversion” is defined in the recitals to this Agreement. 

 

“Class A Conversion Date Capital Account Balance” means, with respect to any Member, the positive Capital Account balance of such Member as of the date hereof, the amount or deemed value of which is set forth on Exhibit C.

 

“Class A Stock” means, as applicable, (i) the Class A Common Stock, par value $0.001 per share, of PubCo or (ii) following any consolidation, merger, reclassification or other similar event involving PubCo, any shares or other securities of PubCo or any other Person or cash or other property that become payable in consideration for the Class A Stock or into which the Class A Stock is exchanged or converted as a result of such consolidation, merger, reclassification or other similar event.

 

“Class A VWAP Price” means the (i) the volume weighted average price of a share of Class A Stock for the ten (10) trading days ending on and including the trading day prior to the Redemption Notice Date, as reported by Bloomberg, L.P., or its successor, or (ii) in the event the shares of Class A Stock are not then publicly traded, the value, as reasonably determined by PubCo in good faith, that would be obtained in an arm’s length transaction for cash between an informed and willing buyer and an informed and willing seller, neither of whom is under any compulsion to purchase or sell, respectively, and without regard to the particular circumstances of the buyer or seller.

 

“Class B Purchase” is defined in the recitals to this Agreement.

 

“Class B Stock” means, as applicable, (i) the Class B Common Stock, par value $0.001 per share, of PubCo or (ii) following any consolidation, merger, reclassification or other similar event involving PubCo, any shares or other securities of PubCo or any other Person or cash or other property that become payable in consideration for the Class B Stock or into which the Class B Stock is exchanged or converted as a result of such consolidation, merger, reclassification or other similar event.

 

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

 

“Commission” means the U.S. Securities and Exchange Commission.

 

3

 

“Company” is defined in the preamble to this Agreement.

 

“Company Minimum Gain” has the meaning of “partnership minimum gain” set forth in Treasury Regulations Sections 1.704-2(b)(2) and 1.704-2(d). It is further understood that Company Minimum Gain shall be determined in a manner consistent with the rules of Treasury Regulations Section 1.702-2(b)(2), including the requirement that if the adjusted Gross Asset Value of property subject to one or more Nonrecourse Liabilities differs from its adjusted tax basis, Company Minimum Gain shall be determined with reference to such Gross Asset Value.

 

“Company Representative” has the meaning assigned to the term “partnership representative” in Section 6223 of the Code and any Treasury Regulations or other administrative or judicial pronouncements promulgated thereunder.

 

“Contract” means any written agreement, contract, lease, sublease, license, sublicense, obligation, promise or undertaking.

 

“control” (including the terms “controlled by” and “under common control with”), with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly, or as trustee, personal representative or executor, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, as trustee, personal representative or executor, by contract, credit arrangement or otherwise.

 

“Contribution Agreement” is defined in the recitals to this Agreement.

 

“Debt Securities” means, with respect to PubCo, any and all debt instruments or debt securities that are not convertible or exchangeable into Equity Securities of PubCo.

 

“De Minimis Member” means any Member who owns and has, for a period of no less than six (6) months, owned fewer than 1,000 Units and shares of Class B Stock.

 

“De Minimis Redemption Right” is defined in Section 4.7(f)(iii).

 

“Depletable Property” means each separate oil and gas property as defined in Code Section 614.

 

“Depreciation” means, for each Fiscal Year or other taxable period, an amount equal to the depreciation, amortization, or other cost recovery deduction (excluding depletion) allowable with respect to an asset for such Fiscal Year or other taxable period, except that (a) with respect to any such property the Gross Asset Value of which differs from its Adjusted Basis for U.S. federal income tax purposes and which difference is being eliminated by use of the “remedial method” pursuant to Treasury Regulations Section 1.704-3(d), Depreciation for such Fiscal Year or other taxable period shall be the amount of book basis recovered for such Fiscal Year or other taxable period under the rules prescribed by Treasury Regulations Section 1.704-3(d)(2), and (b) with respect to any other such property the Gross Asset Value of which differs from its Adjusted Basis for U.S. federal income tax purposes at the beginning of such Fiscal Year or other taxable period, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Fiscal Year or other taxable period bears to such beginning Adjusted Basis; provided, however, that if the Adjusted Basis for U.S. federal income tax purposes of an asset at the beginning of such Fiscal Year or other taxable period is zero, Depreciation with respect to such asset shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Tax Matters Member.

 

“DGCL” means the General Corporation Law of the State of Delaware, as amended from time to time (or any corresponding provisions of succeeding law).

 

“Discount” has the meaning set forth in Section 7.9. 

 

“Effective Time” means 12:01 a.m. Central Time on the date of the closing of the Class A Reorganization. 

 

 

4

“Equity Securities” means (a) with respect to a partnership, limited liability company or similar Person, any and all units, interests, rights to purchase, warrants, options or other equivalents of, or other ownership interests in, any such Person as well as debt or equity instruments convertible, exchangeable or exercisable into any such units, interests, rights or other ownership interests and (b) with respect to a corporation, any and all shares, interests, participation or other equivalents (however designated) of corporate stock, including all common stock and preferred stock, or warrants, options or other rights to acquire any of the foregoing, including any debt instrument convertible or exchangeable into any of the foregoing.

 

“Exchange Act” means the Securities Exchange Act of 1934, and the rules and regulations promulgated thereunder, as the same may be amended from time to time (or any corresponding provisions of succeeding law).

 

“Existing LLC Agreement” is defined in the recitals to this Agreement.

 

“Fair Market Value” means the fair market value of any property as determined in good faith by the Managing Member after taking into account such factors as the Managing Member shall deem appropriate.

 

“Fiscal Year” means the fiscal year of the Company, which shall end on December 31 of each calendar year unless, for U.S. federal income tax purposes, another fiscal year is required. The Company shall have the same fiscal year for U.S. federal income tax purposes and for accounting purposes.

 

“GAAP” means generally acceptable accounting principles at the time.

 

“Good Faith” means a Person having acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to a criminal proceeding, having had no reasonable cause to believe such Person’s conduct was unlawful.

 

“Governmental Entity” means any federal, national, supranational, state, provincial, local, foreign or other government, governmental, stock exchange, regulatory or administrative authority, agency or commission or any court, tribunal, or judicial or arbitral body.

 

“Gross Asset Value” means, with respect to any asset, the asset’s Adjusted Basis for federal income tax purposes, except as follows:

 

	
 
	
a.
	
the initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross Fair Market Value of such asset as of the date of such contribution;

 

	
 
	
b.
	
the Gross Asset Values of all Company assets shall be adjusted to equal their respective gross Fair Market Values as of the following times: (i) the acquisition of an interest (or additional interest) in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution to the Company or in exchange for the performance of more than a de minimis amount of services to or for the benefit of the Company; (ii) the distribution by the Company to a Member of more than a de minimis amount of Company assets as consideration for an interest in the Company; (iii) the liquidation of the Company within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g)(1) (other than pursuant to Code Section 708(b)(1)(B)), (iv) the acquisition of an interest in the Company by any new or existing Member upon the exercise of a noncompensatory option in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(s); or (v) any other event to the extent determined by the Managing Member to be permitted and necessary or appropriate to properly reflect Gross Asset Values in accordance with the standards set forth in Treasury Regulations Section 1.704-1(b)(2)(iv)(q); provided, however, that adjustments pursuant to clauses (i), (ii) and (iv) above shall be made only if the Managing Member reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company. If any noncompensatory options are outstanding upon the occurrence of an event described in this paragraph (b)(i) through (b)(v), the Company shall adjust the Gross Asset Values of its properties in accordance with Treasury Regulations Sections 1.704-1(b)(2)(iv)(f)(1) and 1.704-1(b)(2)(iv)(h)(2);

 

	
 
	
c.
	
the Gross Asset Value of any Company asset distributed to any Member shall be adjusted to equal the gross Fair Market Value of such asset on the date of such distribution;

 

5

 

	
 
	
d.
	
the Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and subsection (g) in the definition of “Profits” or “Losses” below or Section 5.2(g); provided, however, that the Gross Asset Value of a Company asset shall not be adjusted pursuant to this subsection to the extent the Managing Member determines that an adjustment pursuant to subsection (b) of this definition is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subsection (d); and

 

	
 
	
e.
	
if the Gross Asset Value of a Company asset has been determined or adjusted pursuant to subsections (a), (b) or (d) of this definition of Gross Asset Value, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits, Losses, Simulated Depletion and other items allocated pursuant to Article V.

 

“Indebtedness” means (a) all indebtedness for borrowed money (including capitalized lease obligations, sale-leaseback transactions or other similar transactions, however evidenced), (b) any other indebtedness that is evidenced by a note, bond, debenture, draft or similar instrument, (c) notes payable and (d) lines of credit and any other agreements relating to the borrowing of money or extension of credit.

 

“Interest” means the entire interest of a Member in the Company, including the Units and all of such Member’s rights, powers and privileges under this Agreement and the Act.

 

“Law” means any federal, national, supranational, state, provincial, local or similar statute, law, ordinance, regulation, rule, code, order, requirement or rule of law (including common law).

 

“Legal Action” is defined in Section 12.7.

 

“Liability” means any liability or obligation, whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated and whether due or to become due, regardless of when asserted.

 

“Liquidating Events” is defined in Section 11.1.

 

“Loss” means any and all losses, damages, claims, costs and expenses, interest, awards, judgments and penalties (including reasonable attorneys’ fees and expenses, but excluding any allocation of corporate overhead, internal legal department costs and other internal costs and expenses).

 

“Managing Member” is defined in the recitals to this Agreement.

 

“Member” means any Person that executes this Agreement as a Member, and any other Person admitted to the Company as an additional or substituted Member, that has not made a disposition of such Person’s entire Interest, in such Person’s capacity as a member of the Company. 

 

“Member Minimum Gain” has the meaning ascribed to “partner nonrecourse debt minimum gain” set forth in Treasury Regulations Section 1.704-2(i). It is further understood that the determination of Member Minimum Gain and the net increase or decrease in Member Minimum Gain shall be made in the same manner as required for such determination of Company Minimum Gain under Treasury Regulations Sections 1.704-2(d) and -2(g)(3).

 

“Member Nonrecourse Debt” has the meaning of “partner nonrecourse debt” set forth in Treasury Regulations Section 1.704-2(b)(4).

 

“Member Nonrecourse Deductions” has the meaning of “partner nonrecourse deductions” set forth in Treasury Regulations Sections 1.704-2(i)(1) and 1.704-2(i)(2).

 

“National Securities Exchange” means an exchange registered with the Commission under the Exchange Act.

 

6

 

“Nonrecourse Deductions” has the meaning assigned that term in Treasury Regulations Section 1.704-2(b).

 

“Nonrecourse Liability” is defined in Treasury Regulations Section 1.704-2(b)(3).

 

“Officer” means each Person appointed as an officer of the Company pursuant to and in accordance with the provisions of Section 7.2.

 

“Permitted Transferee” means, with respect to any Member, (a) any Affiliate of such Member; (b) any partner, shareholder or member of such Member, (c) any successor entity of such Member; (d) a trust established by or for the benefit of a Member of which only such Member and his or her immediate family members are beneficiaries; (e) any Person established for the benefit of, and beneficially owned solely by, an entity Member or the sole individual direct or indirect owner of an entity Member; and (f) upon an individual Member’s death, an executor, administrator or beneficiary of the estate of the deceased Member. 

 

“Person” means any individual, partnership, firm, corporation, limited liability company, association, trust, unincorporated organization or other entity, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Exchange Act.

 

“Plan Asset Regulations” means the regulations issued by the U.S. Department of Labor at Section 2510.3-101 of Part 2510 of Chapter XXV, Title 29 of the Code of Federal Regulations, or any successor regulations as the same may be amended from time to time.

 

“Prime Rate” means, on any date of determination, a rate per annum equal to the rate of interest most recently published by The Wall Street Journal as the “prime rate” at large U.S. money center banks.

 

“Proceeding” is defined in Section 7.4.

 

“Profits” or “Losses” means, for each Fiscal Year or other taxable period, an amount equal to the Company’s taxable income or loss for such year or period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments (without duplication):

 

	
 
	
a.
	
any income or gain of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses shall be added to such taxable income or loss;

 

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

 

	
 
	
c.
	
in the event the Gross Asset Value of any Company asset is adjusted pursuant to subsection (b) or (c) of the definition of Gross Asset Value above, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the Gross Asset Value of the Company asset) or an item of loss (if the adjustment decreases the Gross Asset Value of the Company asset) from the disposition of such asset and shall, except to the extent allocated pursuant to Section 5.2, be taken into account for purposes of computing Profits or Losses;

 

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

 

	
 
	
e.
	
Gain resulting from any disposition of a Depletable Property with respect to which gain is recognized for U.S. federal income tax purposes shall be treated as being equal to the corresponding Simulated Gain;

 

 

7

	
 
	
f.
	
in lieu of the depreciation, amortization and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation;

 

	
 
	
g.
	
to the extent an adjustment to the adjusted tax basis of any asset pursuant to Code Section 734(b) is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Account balances as a result of a distribution other than in liquidation of a Member’s interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or an item of loss (if the adjustment decreases such basis) from the disposition of such asset and shall be taken into account for purposes of computing Profits or Losses; and

 

	
 
	
h.
	
any items of income, gain, loss or deduction which are specifically allocated pursuant to the provisions of Section 5.2 shall not be taken into account in computing Profits or Losses for any taxable year, but such items available to be specially allocated pursuant to Section 5.2 will be determined by applying rules analogous to those set forth in subparagraphs (a) through (g) above.

 

“Property” means all real and personal property owned by the Company from time to time, including both tangible and intangible property.

 

“PubCo” is defined in the recitals to this Agreement.

 

“PubCo Common Stock” means all classes and series of common stock of the Managing Member, including the Class A Stock and Class B Stock.

 

“PubCo Offer” is defined in Section 4.7(g).

 

“Reclassification Event” means any of the following: (i) any reclassification or recapitalization of PubCo Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination or any transaction subject to Section 4.1(g)), (ii) any merger, consolidation or other combination involving PubCo, or (iii) any sale, conveyance, lease, or other disposal of all or substantially all the properties and assets of PubCo to any other Person, in each of clauses (i), (ii) or (iii), as a result of which holders of PubCo Common Stock shall be entitled to receive cash, securities or other property for their shares of PubCo Common Stock.

 

“Redemption” is defined in Section 4.7(a)(i). 

 

“Redemption Date” means (i) (x) if the Company has not made a valid Cash Election with respect to the relevant Redemption, the date that is three (3) Business Days after the Redemption Notice Date or (y) if the Company has made a valid Cash Election with respect to the relevant Redemption, the date that is the first Business Day on which the Company has available funds to pay the Cash Election Amount (but in any event no more than 10 days after the Redemption Notice Date), or (ii) such later date specified in or pursuant to the Redemption Notice.

 

“Redemption Notice” is defined in Section 4.7(a)(iii). 

 

“Redemption Notice Date” is defined in Section 4.7(a)(iii).

 

“Redeeming Member” is defined in Section 4.7(a)(iii).

 

“Regulatory Allocations” is defined in Section 5.2(i).

 

“Reorganization” is defined in the recitals to this Agreement.

 

“Revised Partnership Audit Provisions” shall mean Section 1101 of Title XI (Revenue Provisions Related to Tax Compliance) of the Bipartisan Budget Act of 2015, H.R. 1314, Public Law Number 114-74, as may be amended from time to time (or any corresponding provisions of succeeding law), and any related provisions of law, including court decisions, regulations and administrative guidance.

 

8

 

“Retraction Notice” is defined in Section 4.7(b)(i).

 

“Securities Act” means the Securities Act of 1933, and the rules and regulations promulgated thereunder, as the same may be amended from time to time (or any corresponding provisions of succeeding law).

 

“Simulated Basis” means the Gross Asset Value of any Depletable Property. The Simulated Basis of each Depletable Property shall be allocated to each Member pro rata, in accordance with the number of Units owned by such Member as of the time such Depletable Property is acquired by the Company (and any additions to such Simulated Basis resulting from expenditures required to be capitalized in such Simulated Basis shall be allocated among the Members in a manner designed to cause the Members’ proportionate shares of such Simulated Basis to be in accordance with their proportionate ownership of Units as determined at the time of any such additions), and shall be reallocated among the Members pro rata, in accordance with the number of Units owned by such Member as determined immediately following the occurrence of an event giving rise to an adjustment to the Gross Asset Values of the Company’s Depletable Properties pursuant to clause (b) of the definition of Gross Asset Value.

 

“Simulated Depletion” means, with respect to each Depletable Property, a depletion allowance computed in accordance with federal income tax principles (as if the Simulated Basis of the property were its Adjusted Basis) and in the manner specified in Treasury Regulations Section 1.704-1(b)(2)(iv)(k)(2). For purposes of computing Simulated Depletion with respect to any Depletable Property, the Simulated Basis of such property shall be deemed to be the Gross Asset Value of such property, and in no event shall such allowance, in the aggregate, exceed such Simulated Basis.

 

“Simulated Gain” means the amount of gain realized from the sale or other disposition of Depletable Property as calculated in Treasury Regulations Section 1.704-1(b)(2)(iv)(k)(2).

 

“Simulated Loss” means the amount of loss realized from the sale or other disposition of Depletable Property as calculated in Treasury Regulations Section 1.704-1(b)(2)(iv)(k)(2).

 

“Subsidiary” means, with respect to any specified Person, any other Person with respect to which such specified Person (a) has, directly or indirectly, the power, through the ownership of securities or otherwise, to elect a majority of directors or similar managing body or (b) beneficially owns, directly or indirectly, a majority of such Person’s Equity Securities.

 

“Tax Matters Member” is defined in Section 10.4.

 

“Transfer” means, as a noun, any voluntary or involuntary, direct or indirect (whether through a change of control of the Transferor or any Person that controls the Transferor, the issuance or transfer of Equity Securities of the Transferor, by operation of law or otherwise), transfer, sale, pledge or hypothecation or other disposition and, as a verb, voluntarily or involuntarily, directly or indirectly (whether through a change of control of the Transferor or any Person that controls the Transferor, the issuance or transfer of Equity Securities of the Transferor or any Person that controls the Transferor, by operation of law or otherwise), to transfer, sell, pledge or hypothecate or otherwise dispose of. The terms “Transferee,” “Transferor,” “Transferred,” and other forms of the word “Transfer” shall have the correlative meanings.

 

“Transfer Agent” is defined in Section 4.7(a)(iii).

 

“Treasury Regulations” means pronouncements, as amended from time to time, or their successor pronouncements, which clarify, interpret and apply the provisions of the Code, and which are designated as “Treasury Regulations” by the United States Department of the Treasury.

 

“Units” means the Units representing limited liability company interests in the Company and designated as “Units” herein and shall also include any equity security issued in respect of or in exchange for Units, whether by way of dividend or other distribution, split, recapitalization, merger, rollup transaction, consolidation, conversion or reorganization.

 

 

9

“Winding-Up Member” is defined in Section 11.3(a).

 

Section 1.2 Interpretive Provisions.  For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:

 

	
 
	
a.
	
the terms defined in Section 1.1 have the meanings assigned to them in Section 1.1 and are applicable to the singular as well as the plural forms of such terms;

 

	
 
	
b.
	
all accounting terms not otherwise defined herein have the meanings assigned under GAAP;

 

	
 
	
c.
	
all references to currency, monetary values and dollars set forth herein shall mean United States (U.S.) dollars and all payments hereunder shall be made in United States dollars;

 

	
 
	
d.
	
when a reference is made in this Agreement to an Article, Section, Exhibit or Schedule, such reference is to an Article or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated;

 

	
 
	
e.
	
whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”;

 

	
 
	
f.
	
“or” is not exclusive;

 

	
 
	
g.
	
pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms; and

 

	
 
	
h.
	
the words “hereof”, “herein” and “hereunder” and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement.

 

ARTICLE II

ORGANIZATION OF THE LIMITED LIABILITY COMPANY

 

Section 2.1 Formation.  The Company has been formed and hereby continues as a limited liability company subject to the provisions of the Act upon the terms, provisions and conditions set forth in this Agreement.

 

Section 2.2 Filing.  The Company’s Certificate of Formation has been executed and filed with the Secretary of State of the State of Delaware by an “authorized person” of the Company in accordance with the Act, such execution and filing being hereby ratified and approved in all respects. The Members shall execute such further documents (including amendments to such Certificate of Formation) and take such further action as is appropriate to comply with the requirements of Law for the formation or operation of a limited liability company in Delaware and in all states and counties where the Company may conduct its business.

 

Section 2.3 Name.  The name of the Company is “Earthstone Energy Holdings, LLC” and all business of the Company shall be conducted in such name or, in the discretion of the Managing Member, under any other name.

 

Section 2.4 Registered Office; Registered Agent. The location of the registered office of the Company in the State of Delaware is 1675 South State Street, Suite B, Dover, Delaware 19901, or at such other place as the Managing Member from time to time may select. The name and address for service of process on the Company in the State of Delaware are Capitol Services, Inc., 1675 South State Street, Suite B, Dover, Delaware 19901, or such other qualified Person as the Managing Member may designate from time to time and its business address.

 

Section 2.5 Principal Place of Business. The principal place of business of the Company shall be located in such place as is determined by the Managing Member from time to time.

 

Section 2.6 Purpose; Powers. The nature of the business or purposes to be conducted or promoted by the Company is to engage in any lawful act or activity for which limited liability companies may be formed under the 

 

10

Act. The Company shall have the power and authority to take any and all actions and engage in any and all activities necessary, appropriate, desirable, advisable, ancillary or incidental to the accomplishment of the foregoing purpose.

 

Section 2.7 Term. The term of the Company commenced on the date of filing of the Certificate of Formation of the Company with the office of the Secretary of State of the State of Delaware in accordance with the Act and shall continue indefinitely. The Company may be dissolved and its affairs wound up only in accordance with Article XI.

 

Section 2.8 Intent. It is the intent of the Members that the Company be operated in a manner consistent with its treatment as a “partnership” for federal and state income tax purposes. It is also the intent of the Members that the Company not be operated or treated as a “partnership” for purposes of Section 303 of the Federal Bankruptcy Code. Neither the Company nor any Member shall take any action inconsistent with the express intent of the parties hereto as set forth in this Section 2.8.

 

ARTICLE III

REORGANIZATION TRANSACTIONS

 

Section 3.1 Transactions In Connection With the Class A Reorganization.    

 

	
 
	
a.
	
Effective immediately prior to the Effective Time, the Members agreed to (i) amend and restate the Existing LLC Agreement and adopt this Agreement; (ii) consummate the recapitalization of the Company contemplated by Article II of the Contribution Agreement; and (iii) take the other actions contemplated in the Contribution Agreement. Immediately following such amendment and restatement, the Members of the Company and the Units held by each such Member were as set forth on Exhibit A hereto.

 

	
 
	
b.
	
Effective immediately following the Effective Time, PubCo will consummate the Class A Conversion and PubCo and Bold will consummate the Class B Purchase. 

 

	
 
	
c.
	
Immediately following the consummation of the Class A Conversion and Class B Purchase, and in accordance with the terms of the Contribution Agreement, (i) PubCo and Lynden will contribute, transfer, assign and deliver all of their right, title and interest in all of their assets, as more particularly described in Exhibit A, and (ii) Bold will contribute, transfer, assign and deliver all of its right, title and interest in all of its assets, as more particularly described in Exhibit A, to the Company in exchange for the number of Units set forth opposite such party’s name in Exhibit A.

 

	
 
	
d.
	
The total number of Units issued and outstanding and held by the Members immediately following the consummation of the transactions contemplated by Sections 3.1(b)-(d) of this Agreement is set forth on Exhibit B hereto (as amended from time to time in accordance with the terms of this Agreement).

 

ARTICLE IV

OWNERSHIP AND CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS

 

Section 4.1 Authorized Units; General Provisions With Respect to Units.

 

	
 
	
a.
	
Subject to the provisions of this Agreement, the Company shall be authorized to issue from time to time such number of Units and such other Equity Securities as the Managing Member shall determine in accordance with Section 4.3. Each authorized Unit may be issued pursuant to such agreements as the Managing Member shall approve, including pursuant to options and warrants. 

 

	
 
	
b.
	
Each outstanding Unit shall be identical (except as otherwise provided in Section 4.3).

 

	
 
	
c.
	
Initially, none of the Units will be represented by certificates. If the Managing Member determines that it is in the interest of the Company to issue certificates representing the Units, certificates will be issued and the Units will be represented by those certificates, and this Agreement shall be amended as necessary or desirable to reflect the issuance of certificated Units for purposes of the Uniform Commercial Code. 

 

11

	
 
		
Nothing contained in this Section 4.1(c) shall be deemed to authorize or permit any Member to Transfer its Units except as otherwise permitted under this Agreement.

 

	
 
	
d.
	
The total number of Units issued and outstanding and held by the Members is set forth on Exhibit B (as amended from time to time in accordance with the terms of this Agreement) as of the date set forth therein.

 

	
 
	
e.
	
If at any time PubCo issues a share of its Class A Stock or any other Equity Security of PubCo (other than shares of Class B Stock), (i) the Company shall concurrently issue to PubCo one Unit (if PubCo issues a share of Class A Stock), or such other Equity Security of the Company (if PubCo issues Equity Securities other than Class A Stock) corresponding to the Equity Securities issued by PubCo, and with substantially the same rights to dividends and distributions (including distributions upon liquidation) and other economic rights as those of such Equity Securities of PubCo to be issued, and (ii) PubCo shall concurrently contribute to the Company the net proceeds received by PubCo for such share of Class A Stock or other Equity Security; provided, however, that if PubCo issues any shares of Class A Stock in order to purchase or fund the purchase from a Member of a number of Units (and shares of Class B Stock) equal to the number of shares of Class A Stock so issued, then the Company shall not issue any new Units in connection therewith, PubCo shall not be required to transfer such net proceeds to the Company, and such net proceeds shall instead be transferred to such Member as consideration for such purchase. Notwithstanding the foregoing, this Section 4.1(e) shall not apply to the issuance and distribution to holders of shares of PubCo Common Stock of rights to purchase Equity Securities of PubCo under a “poison pill” or similar shareholders rights plan (and upon any redemption of Units for Class A Stock, such Class A Stock will be issued together with a corresponding right under such plan), or to the issuance under PubCo’s employee benefit plans of any warrants, options, other rights to acquire Equity Securities of PubCo or rights or property that may be converted into or settled in Equity Securities of PubCo, but shall in each of the foregoing cases apply to the issuance of Equity Securities of PubCo in connection with the exercise or settlement of such rights, warrants, options or other rights or property. Except pursuant to Section 4.7, (x) the Company may not issue any additional Units to PubCo or any of its Subsidiaries unless substantially simultaneously therewith PubCo or such Subsidiary issues or sells an equal number of shares of PubCo’s Class A Stock to another Person, and (y) the Company may not issue any other Equity Securities of the Company to PubCo or any of its Subsidiaries unless substantially simultaneously PubCo or such Subsidiary issues or sells, to another Person, an equal number of shares of a new class or series of Equity Securities of PubCo or such Subsidiary with substantially the same rights to dividends and distributions (including distributions upon liquidation) and other economic rights as those of such Equity Securities of the Company.  If at any time PubCo issues Debt Securities, PubCo shall transfer to the Company (in a manner to be determined by the Manager Member in its reasonable discretion) the proceeds received by PubCo in exchange for such Debt Securities in a manner that directly or indirectly burdens the Company with the repayment of the Debt Securities.

 

	
 
	
f.
	
PubCo or any of its Subsidiaries, other than the Company, may not redeem, repurchase or otherwise acquire (i) any shares of Class A Stock (including upon forfeiture of any unvested shares of Class A Stock) unless substantially simultaneously the Company redeems, repurchases or otherwise acquires from PubCo or such Subsidiary an equal number of Units for the same price per security or (ii) any other Equity Securities of PubCo unless substantially simultaneously the Company redeems, repurchases or otherwise acquires from PubCo an equal number of Equity Securities of PubCo of a corresponding class or series with substantially the same rights to dividends and distributions (including distributions upon liquidation) and other economic rights as those of such Equity Securities of PubCo for the same price per security. The Company may not redeem, repurchase or otherwise acquire (A) except pursuant to Section 4.7, any Units from PubCo or any of its Subsidiaries unless substantially simultaneously PubCo or such Subsidiary redeems, repurchases or otherwise acquires an equal number of shares of Class A Stock for the same price per security from holders thereof, or (B) any other Equity Securities of the Company from PubCo or any of its Subsidiaries unless substantially simultaneously PubCo or such Subsidiary redeems, repurchases or otherwise acquires for the same price per security an equal number of Equity Securities of PubCo of a corresponding class or series with substantially the same rights to dividends and distributions (including distribution upon liquidation) and other economic rights as those of such Equity Securities of PubCo. Notwithstanding the foregoing, to the extent that any consideration payable by PubCo in connection with the redemption or repurchase of any shares of Class A Stock or other Equity Securities of PubCo or any of its Subsidiaries consists (in whole or in part) of shares of Class A Stock or such other Equity Securities 

 

12

	
 
		
(including, for the avoidance of doubt, in connection with the cashless exercise of an option or warrant), then the redemption or repurchase of the corresponding Units or other Equity Securities of the Company shall be effectuated in an equivalent manner.

 

	
 
	
g.
	
The Company shall not in any manner effect any subdivision (by any equity split, equity distribution, reclassification, recapitalization or otherwise) or combination (by reverse equity split, reclassification, recapitalization or otherwise) of the outstanding Units unless accompanied by an identical subdivision or combination, as applicable, of the outstanding PubCo Common Stock, with corresponding changes made with respect to any other exchangeable or convertible securities. PubCo shall not in any manner effect any subdivision (by any stock split, stock dividend, reclassification, recapitalization or otherwise) or combination (by reverse stock split, reclassification, recapitalization or otherwise) of the outstanding PubCo Common Stock unless accompanied by an identical subdivision or combination, as applicable, of the outstanding Units, with corresponding changes made with respect to any other exchangeable or convertible securities.

 

Section 4.2 Voting Rights. No Member has any voting or consent right except with respect to those matters expressly requiring the approval of Members under this Agreement. Each Unit will entitle the holder thereof to one vote on all matters to be voted on by the Members. Except as otherwise expressly provided in this Agreement, the holders of Units having voting rights will vote together as a single class on all matters to be approved by the Members.

 

Section 4.3 Capital Contributions; Unit Ownership.

 

	
 
	
a.
	
Capital Contributions. Each Member named on Exhibit C shall be credited with the Class A Conversion Date Capital Account Balance set forth on Exhibit C in respect of its Interest specified thereon. Except as otherwise set forth in Section 4.1(e), no Member shall be required to make additional Capital Contributions. 

 

	
 
	
b.
	
Issuance of Additional Units or Interests. Except as otherwise expressly provided in this Agreement, the Managing Member shall have the right to authorize and cause the Company to issue on such terms (including price) as may be determined by the Managing Member (i) subject to the limitations of Section 4.1, additional Units or other Equity Securities in the Company (including creating preferred interests or other classes or series of interests having such rights, preferences and privileges as determined by the Managing Member, which rights, preferences and privileges may be senior to the Units), and (ii) obligations, evidences of Indebtedness or other securities or interests convertible or exchangeable for Units or other Equity Securities in the Company; provided that, at any time following the date hereof, in each case the Company shall not issue Equity Securities in the Company to any Person unless such Person shall have executed a counterpart to this Agreement and all other documents, agreements or instruments deemed necessary or desirable in the discretion of the Managing Member. Upon such issuance and execution, such Person shall be admitted as a Member of the Company. In that event, the Managing Member shall amend Exhibits B and C to reflect such additional issuances. Subject to Section 12.1, the Managing Member is hereby authorized to amend this Agreement to set forth the designations, preferences, rights, powers and duties of such additional Units or other Equity Securities in the Company, or such other amendments that the Managing Member determines to be otherwise necessary or appropriate in connection with the creation, authorization or issuance of, any class or series of Units or other Equity Securities in the Company pursuant to this Section 4.3(b); provided that, notwithstanding the foregoing, the Managing Member shall have the right to amend this Agreement as set forth in this sentence without the approval of any other Person (including any Member) and notwithstanding any other provision of this Agreement (including Section 12.1) if such amendment is necessary in order to consummate any offering of shares of PubCo Common Stock or other Equity Securities of PubCo provided that the designations, preferences, rights, powers and duties of any such additional Units or other Equity Securities of the Company as set forth in such amendment are substantially similar to those applicable to such shares of PubCo Common Stock or other Equity Securities of PubCo.

 

Section 4.4 Capital Accounts. A Capital Account shall be maintained for each Member in accordance with the provisions of Treasury Regulations Section 1.704-1(b)(2)(iv) and, to the extent consistent with 

 

13

such regulations, the other provisions of this Agreement. The Capital Account balance of each of the Members as of the date hereof is its respective Class A Conversion Date Capital Account Balance set forth on Exhibit C. Thereafter, each Member’s Capital Account shall be (a) increased by (i) allocations to such Member of Profits pursuant to Section 5.1 and any other items of income or gain allocated to such Member pursuant to Section 5.2, (ii) the amount of additional cash or the initial Gross Asset Value of any asset (net of any Liabilities assumed by the Company and any Liabilities to which the asset is subject) contributed to the Company by such Member, and (iii) any other increases allowed or required by Treasury Regulations Section 1.704-1(b)(2)(iv), and (b) decreased by (i) allocations to such Member of Losses pursuant to Section 5.1 and any other items of deduction or loss allocated to such Member pursuant to the provisions of Section 5.2, (ii) the amount of any cash or the Gross Asset Value of any asset (net of any Liabilities assumed by the Company and any Liabilities to which the asset is subject) distributed to such Member, and (iii) any other decreases allowed or required by Treasury Regulations Section 1.704-1(b)(2)(iv). In the event of a Transfer of Units made in accordance with this Agreement, the Capital Account of the Transferor that is attributable to the Transferred Units shall carry over to the Transferee Member in accordance with the provisions of Treasury Regulations Section 1.704-1(b)(2)(iv)(l).

 

Section 4.5 Reserved.

 

Section 4.6 Other Matters.

 

	
 
	
a.
	
No Member shall demand or receive a return on or of its Capital Contributions or resign from the Company without the consent of the Managing Member. Under circumstances requiring a return of any Capital Contributions, no Member has the right to receive property other than cash.

 

	
 
	
b.
	
No Member shall receive any interest, salary, compensation, draw or reimbursement with respect to its Capital Contributions or its Capital Account, or for services rendered or expenses incurred on behalf of the Company or otherwise in its capacity as a Member, except as otherwise provided in Section 7.9 or otherwise contemplated by this Agreement. 

 

	
 
	
c.
	
The Liability of each Member shall be limited as set forth in the Act and other applicable Law and, except as expressly set forth in this Agreement or required by Law, no Member (or any of its Affiliates) shall be personally liable, whether to the Company, to any of the other Members, to the creditors of the Company, or to any other third party, for any debt or Liability of the Company, whether arising in contract, tort or otherwise, solely by reason of being a Member of the Company.

 

	
 
	
d.
	
Except as otherwise required by the Act, a Member shall not be required to restore a deficit balance in its Capital Account, to lend any funds to the Company or, except as otherwise set forth herein, to make any additional contributions or payments to the Company.

 

	
 
	
e.
	
The Company shall not be obligated to repay any Capital Contributions of any Member.

 

Section 4.7 Redemption of Units.

 

	
 
	
a.
	
(i) Each Redeeming Member shall be entitled to cause the Company to redeem, at any time and from time to time, all or any portion of such Member’s Units (together with the transfer and surrender of the same number of shares of Class B Stock) for an equivalent number of shares of Class A Stock (a “Redemption”) or, at the Company’s election made in accordance with Section 4.7(a)(iv), cash equal to the Cash Election Amount calculated with respect to such Redemption, upon the terms and subject to the conditions set forth in this Section 4.7. Upon the Redemption by a Member of all of its Units, such Member shall, for the avoidance of doubt, cease to be a Member of the Company.

 

(ii) Each Redeeming Member shall be permitted to effect a redemption of Units pursuant to Section 4.7(a)(i) that involves less than 25% of its Units no more frequently than on a quarterly basis; provided, however, that if a  Redeeming Member provides a Redemption Notice with respect to all of the Units held by such Redeeming Member, such Redemption may occur at any time, subject to this Section 4.7; provided, further, that the Managing Member may, in its sole discretion and at any time, permit any Member to effect a redemption of a lesser number of Units.   

 

14

 

(iii) In order to exercise the redemption right under Section 4.7(a)(i), the redeeming Member (the “Redeeming Member”) shall provide written notice (the “Redemption Notice”) to the Company, with a copy to PubCo (the date of delivery of such Redemption Notice, the “Redemption Notice Date”), stating (i) the number of Units (together with the transfer and surrender of an equal number of shares of Class B Stock) the Redeeming Member elects to have the Company redeem, (ii) if the shares of Class A Stock to be received are to be issued other than in the name of the Redeeming Member, the name(s) of the Person(s) in whose name or on whose order the shares of Class A Stock are to be issued, and (iii) if the Redeeming Member requires the Redemption to take place on a specific date, such date, provided that, any such specified date shall not be earlier than the date that would otherwise apply pursuant to clause (i) of the definition of Redemption Date.  If the Units to be redeemed (or the shares of Class B Stock to be transferred and surrendered) by the Redeeming Member are represented by a certificate or certificates, prior to the Redemption Date, the Redeeming Member shall also present and surrender such certificate or certificates representing such Units (or shares of Class B Stock) during normal business hours at the principal executive offices of the Company, or if any agent for the registration or transfer of Class A Stock is then duly appointed and acting (the “Transfer Agent”), at the office of the Transfer Agent. If required by the Managing Member, any certificate for Units and any certificate for shares of Class B Stock (in each case, if certificated) surrendered to the Company hereunder shall be accompanied by instruments of transfer, in forms reasonably satisfactory to the Managing Member and the Transfer Agent, duly executed by the Redeeming Member or the Redeeming Member’s duly authorized representative.

 

(iv) Upon receipt of a Redemption Notice, the Company shall be entitled to elect (a “Cash Election”) to settle the Redemption by delivering to the Redeeming Member, in lieu of the applicable number of shares of Class A Stock that would be received in such Redemption, an amount of cash equal to the Cash Election Amount for such Redemption. In order to make a Cash Election with respect to a Redemption, the Company must provide written notice of such election to the Redeeming Member (with a copy to PubCo) prior to 1:00 p.m., Houston time, on the second Business Day after the Redemption Notice Date. If the Company fails to provide such written notice prior to such time, it shall not be entitled to make a Cash Election with respect to such Redemption.

 

(v) For U.S. federal income (and applicable state and local) tax purposes, each of the Redeeming Member, the Company and PubCo, as the case may be, agree to treat each Redemption and, in the event a De Minimis Redemption Right is exercised or PubCo exercises its Call Right, each transaction between the Redeeming Member and PubCo, as a sale of the Redeeming Member’s Units (together with the same number of shares of Class B Stock) to PubCo in exchange for shares of Class A Stock or cash, as applicable. Accordingly, for purposes of clarity, the parties agree that any Redemption shall be treated as a transfer of an interest in a partnership by sale or exchange within the meaning of Code Section 743(b), as applicable.

 

	
 
	
b.
	
(i) The Redemption shall be completed on the Redemption Date; provided that the Company, PubCo and the Redeeming Member may change the number of Units specified in the Redemption Notice to be redeemed and/or the Redemption Date to another number and/or date by unanimous agreement signed in writing by each of them; provided further that a Redemption Notice may specify that the Redemption is to be contingent (including as to timing) upon the consummation of a purchase by another Person (whether in a tender or exchange offer, an underwritten offering or otherwise) of the shares of Class A Stock for which the Units are redeemable, or the closing of an announced merger, consolidation or other transaction or event in which the shares of Class A Stock would be exchanged or converted or become exchangeable for or convertible into cash or other securities or property, provided that the foregoing shall not apply to any Redemption with respect to which the Company has made a valid Cash Election.  Provided the Company has not made a valid Cash Election, the Redeeming Member may retract its Redemption Notice by giving written notice (the “Retraction Notice”) to the Company (with a copy to PubCo) at any time prior to the Redemption Date. The timely delivery of a Retraction Notice shall terminate all of the Redeeming Member’s, the Company’s and PubCo’s rights and obligations arising from the retracted Redemption Notice. 

 

 

15

(ii) Unless the Redeeming Member has timely delivered a Retraction Notice as provided in Section 4.7(b)(i) or PubCo has elected its Call Right pursuant to Section 4.7(f), on the Redemption Date (to be effective immediately prior to the close of business on the Redemption Date) (A) the Redeeming Member shall transfer and surrender the Units to be redeemed (and a corresponding number of shares of Class B Stock) to the Company, in each case free and clear of all liens and encumbrances, (B) PubCo shall contribute to the Company the consideration the Redeeming Member is entitled to receive under Section 4.7(a)(i), (C) the Company shall (x) cancel the redeemed Units, (y) transfer to the Redeeming Member the consideration the Redeeming Member is entitled to receive under Section 4.7(a)(i), and (z) if the Units are certificated, issue to the Redeeming Member a certificate for a number of Units equal to the difference (if any) between the number of Units evidenced by the certificate surrendered by the Redeeming Member pursuant to clause (ii)(A) of this Section 4.7(b) and the number of redeemed Units, (D) the Company shall issue to PubCo a number of Units equal to the number of Units surrendered by the Redeeming Member, and (E) PubCo shall cancel the surrendered shares of Class B Stock.  Notwithstanding any other provisions of this Agreement to the contrary, in the event that the Company makes a valid Cash Election, PubCo shall only be obligated to contribute to the Company an amount in cash equal to the net proceeds (after deduction of any underwriters’ discounts or commissions and brokers’ fees or commissions) from the sale by PubCo of a number of shares of Class A Stock equal to the number of Units and Class B Stock to be redeemed with such cash; provided that PubCo’s Capital Account shall be increased by an amount equal to any such discounts, commissions and fees relating to such sale of shares of Class A Stock in accordance with Section 7.9;  provided further, that the contribution of such net proceeds shall in no event affect the Redeeming Member’s right to receive the Cash Election Amount. 

 

	
 
	
c.
	
If (i) there is any reclassification, reorganization, recapitalization or other similar transaction pursuant to which the shares of Class A Stock are converted or changed into another security, securities or other property, or (ii) PubCo shall, by dividend or otherwise, distribute to all holders of the shares of Class A Stock evidences of its indebtedness or assets, including securities (including shares of Class A Stock and any rights, options or warrants to all holders of the shares of Class A Stock to subscribe for or to purchase or to otherwise acquire shares of Class A Stock, or other securities or rights convertible into, exchangeable for or exercisable for shares of Class A Stock) but excluding any cash dividend or distribution as well as any such distribution of indebtedness or assets received by PubCo from the Company in respect of the Units, then upon any subsequent Redemption, in addition to the shares of Class A Stock or the Cash Election Amount, as applicable, each Member shall be entitled to receive the amount of such security, securities or other property that such Member would have received if such Redemption had occurred immediately prior to the effective date of such reclassification, reorganization, recapitalization, other similar transaction, dividend, or other distribution, taking into account any adjustment as a result of any subdivision (by any split, distribution or dividend, reclassification, reorganization, recapitalization or otherwise) or combination (by reverse split, reclassification, recapitalization or otherwise) of such security, securities or other property that occurs after the effective time of such reclassification, reorganization, recapitalization or other similar transaction. For the avoidance of doubt, if there is any reclassification, reorganization, recapitalization or other similar transaction in which the shares of Class A Stock are converted or changed into another security, securities or other property, or any dividend or distribution (other than an excluded dividend or distribution, as described above), this Section 4.7 shall continue to be applicable, mutatis mutandis, with respect to such security or other property. This Agreement shall apply to the Units held by the Members and their Permitted Transferees as of the date hereof, as well as any Units hereafter acquired by a Member and his or her or its Permitted Transferees.

 

	
 
	
d.
	
PubCo shall at all times keep available, solely for the purpose of issuance upon a Redemption, out of its authorized but unissued shares of Class A Stock or other Equity Securities, such number of shares of Class A Stock that shall be issuable upon the Redemption of all outstanding Units (other than those Units held by PubCo or any Subsidiary of PubCo); provided, that nothing contained herein shall be construed to preclude PubCo from satisfying its obligations with respect of a Redemption by delivery of shares of Class A Stock or other Equity Securities that are held in the treasury of PubCo. PubCo covenants that all shares of Class A Stock and other Equity Securities that shall be issued upon a Redemption shall, upon issuance thereof, be validly issued, fully paid and non-assessable. In addition, for so long as the shares of Class A Stock or other Equity Securities are listed on a National Securities Exchange, PubCo shall use its commercially reasonable 

 

16

	
 
		
efforts to cause all shares of Class A Stock and such other Equity Securities issued upon an Exchange to be listed on such National Securities Exchange at the time of such issuance.

 

	
 
	
e.
	
The issuance of shares of Class A Stock or other Equity Securities upon an Exchange shall be made without charge to the Redeeming Member for any stamp or other similar tax in respect of such issuance; provided, however, that if any such shares of Class A Stock or other Equity Securities are to be issued in a name other than that of the Redeeming Member, then the Person or Persons in whose name the shares are to be issued shall pay to PubCo the amount of any tax that may be payable in respect of any transfer involved in such issuance or shall establish to the satisfaction of PubCo that such tax has been paid or is not payable.

 

	
 
	
f.
	
(i) Notwithstanding anything to the contrary in this Section 4.7, but subject to Section 4.7(g), a Redeeming Member shall be deemed to have offered to sell its Units as described in the Redemption Notice to PubCo, and PubCo may, in its sole discretion, by means of delivery of Call Election Notice in accordance with, and subject to the terms of, Section 4.7(f), elect to purchase directly and acquire such Units (together with the transfer and surrender of the same number of shares of Class B Stock) on the Redemption Date by paying to the Redeeming Member (or, on the Redeeming Member’s written order, its designee) that number of shares of Class A Stock the Redeeming Member (or its designee) would otherwise receive pursuant to Section 4.7(a)(i) or, at PubCo’s election, an amount of cash equal to the Cash Election Amount of such shares of Class A Stock (the “Call Right”), whereupon PubCo shall acquire the Units offered for Redemption by the Redeeming Member (together with the transfer and surrender of the same number of shares of Class B Stock) and shall be treated for all purposes of this Agreement as the owner of such Units and shares of Class B Stock.

 

(ii) PubCo may, at any time prior to the Redemption Date, in its sole discretion deliver written notice (a “Call Election Notice”) to the Company and the Redeeming Member setting forth its election to exercise its Call Right.  A Call Election Notice may be revoked by PubCo at any time; provided that any such revocation does not prejudice the ability of the parties to consummate a Redemption on the Redemption Date.  Except as otherwise provided by Section 4.7(f), an exercise of the Call Right shall be consummated pursuant to the same timeframe and in the same manner as the relevant Redemption would have been consummated if PubCo had not delivered a Call Election Notice.

 

(iii) Notwithstanding anything to the contrary in this Section 4.7, but subject to Section 4.7(f)(i), the Company may, at any time and from time to time, in its sole discretion, deliver written notice to any De Minimis Member setting forth the Company’s election to exercise its right to redeem all, but not less than all, of such De Minimis Member’s Units (together with the transfer and surrender of the same number of shares of Class B Stock) (a “De Minimis Redemption Right”) as if the applicable De Minimis Member provided a Redemption Notice hereunder.  An exercise of a De Minimis Redemption Right shall be consummated pursuant to the same timeframe and in the same manner as a Redemption would have been consummated under Section 4.7(f)(i) above.

 

	
 
	
g.
	
In the event that a tender offer, share exchange offer, issuer bid, take-over bid, recapitalization or similar transaction with respect to shares of Class A Stock (a “PubCo Offer”) is proposed by PubCo or is proposed to PubCo or its stockholders and approved by the board of directors of PubCo or is otherwise effected or to be effected with the consent or approval of the board of directors of PubCo, the Members (other than PubCo) shall be permitted to participate in such PubCo Offer by delivery of a contingent Redemption Notice in accordance with the second proviso of Section 4.7(b)(i).  In the case of a PubCo Offer proposed by PubCo, PubCo will use its reasonable best efforts expeditiously and in good faith to take all such actions and do all such things as are necessary or desirable to enable and permit the Members to participate in such PubCo Offer to the same extent or on an economically equivalent basis as the holders of shares of Class A Stock without discrimination; provided that, without limiting the generality of this sentence, PubCo will use its commercially reasonable efforts expeditiously and in good faith to ensure that such Members may participate in each such PubCo Offer without being required to redeem Units (or, if so required, to ensure that any such Redemption shall be effective only upon, and shall be conditional upon, the closing of such PubCo Offer). In no event shall Members (other than PubCo) be entitled to receive in 

 

17

	
 
		
such PubCo Offer aggregate consideration for each Unit that is greater than the consideration payable in respect of each share of Class A Stock in connection with a PubCo Offer.

 

	
 
	
h.
	
No Redemption shall impair the right of the Redeeming Member to receive any distributions payable on the Units so redeemed in respect of a record date that occurs prior to the Redemption Date for such Redemption. For the avoidance of doubt, no Redeeming Member, or a Person designated by an Redeeming Member to receive shares of Class A Stock, shall be entitled to receive, with respect to such record date, distributions or dividends both on Units redeemed by such Redeeming Member and on shares of Class A Stock received by such Redeeming Member, or other Person so designated, if applicable, in such Redemption.

 

	
 
	
i.
	
Any Units acquired by the Company under this Section 4.7 and transferred by the Company to PubCo shall remain outstanding and shall not be cancelled as a result of their acquisition by the Company. Notwithstanding any other provision of this Agreement, PubCo shall be automatically admitted as a member of the Company with respect to any Units or other Equity Securities in the Company it receives under this Agreement (including under this Section 4.7 in connection with any Redemption).

 

ARTICLE V

ALLOCATIONS OF PROFITS AND LOSSES

 

 

Section 5.1 Profits and Losses.  After giving effect to the allocations under Section 5.2 and subject to Section 5.5, Profits and Losses (and, to the extent determined by the Managing Member to be necessary and appropriate to achieve the resulting Capital Account balances described below, any allocable items of income, gain, loss, deduction or credit includable in the computation of Profits and Losses) for each Fiscal Year or other taxable period shall be allocated among the Members during such Fiscal Year or other taxable period in a manner such that, after giving effect to the special allocations set forth in Sections 5.2 and all distributions through the end of such Fiscal Year or other taxable period, the Capital Account balance of each Member, immediately after making such allocation, is, as nearly as possible, equal to (a) the amount such Member would receive pursuant to Section 11.3(b) if all assets of the Company on hand at the end of such Fiscal Year or other taxable period were sold for cash equal to their Gross Asset Values, all liabilities of the Company were satisfied in cash in accordance with their terms (limited with respect to each nonrecourse liability to the Gross Asset Value of the assets securing such liability), and all remaining or resulting cash was distributed, in accordance with Section 11.3(b), to the Members immediately after making such allocation, minus (b) the sum of (i) such Member’s share of Company Minimum Gain and Member Minimum Gain, computed immediately prior to the hypothetical sale of assets and (ii) the amount, if any, any such Member is treated as obligated to contribute to the Company computed immediately after the hypothetical sale of assets.

 

Section 5.2 Special Allocations.

 

	
 
	
a.
	
Nonrecourse Deductions for any Fiscal Year or other taxable period shall be specially allocated to the Members in the manner excess nonrecourse liabilities of the Company are allocated pursuant to Section 5.5(c). The amount of Nonrecourse Deductions for a Fiscal Year or other taxable period shall equal the excess, if any, of the net increase, if any, in the amount of Company Minimum Gain during that Fiscal Year or other taxable period over the aggregate amount of any distributions during that Fiscal Year or other taxable period of proceeds of a Nonrecourse Liability that are allocable to an increase in Company Minimum Gain, determined in accordance with the provisions of Treasury Regulations Section 1.704-2(d).

 

	
 
	
b.
	
Any Member Nonrecourse Deductions for any Fiscal Year or other taxable period shall be specially allocated to the Member who bears economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Treasury Regulations Section 1.704-2(i). If more than one Member bears the economic risk of loss for such Member Nonrecourse Debt, the Member Nonrecourse Deductions attributable to such Member Nonrecourse Debt shall be allocated among the Members according to the ratio in which they bear the economic risk of loss. This Section 5.2(b) is intended to comply with the provisions of Treasury Regulations Section 1.704-2(i) and shall be interpreted consistently therewith.

 

18

 

	
 
	
c.
	
Notwithstanding any other provision of this Agreement to the contrary, if there is a net decrease in Company Minimum Gain during any Fiscal Year or other taxable period (or if there was a net decrease in Company Minimum Gain for a prior Fiscal Year or other taxable period and the Company did not have sufficient amounts of income and gain during prior periods to allocate among the Members under this Section 5.2(c)), each Member shall be specially allocated items of Company income and gain for such Fiscal Year or other taxable period in an amount equal to such Member’s share of the net decrease in Company Minimum Gain during such year (as determined pursuant to Treasury Regulations Section 1.704-2(g)(2)). This section is intended to constitute a minimum gain chargeback under Treasury Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.

 

	
 
	
d.
	
Notwithstanding any other provision of this Agreement except Section 5.2(c), if there is a net decrease in Member Minimum Gain during any Fiscal Year or other taxable period (or if there was a net decrease in Member Minimum Gain for a prior Fiscal Year or other taxable period and the Company did not have sufficient amounts of income and gain during prior periods to allocate among the Members under this Section 5.2(d)), each Member shall be specially allocated items of Company income and gain for such year in an amount equal to such Member’s share of the net decrease in Member Minimum Gain (as determined pursuant to Treasury Regulations Section 1.704-2(i)(4)). This section is intended to constitute a partner nonrecourse debt minimum gain chargeback under Treasury Regulations Section 1.704-2(i)(4) and shall be interpreted consistently therewith.

 

	
 
	
e.
	
Notwithstanding any provision hereof to the contrary except Section 5.2(a) and Section 5.2(b), no Losses or other items of loss or expense shall be allocated to any Member to the extent that such allocation would cause such Member to have an Adjusted Capital Account Deficit (or increase any existing Adjusted Capital Account Deficit) at the end of such Fiscal Year.  All Losses and other items of loss and expense in excess of the limitation set forth in this Section 5.2(e) shall be allocated to the Members who do not have an Adjusted Capital Account Deficit in proportion to their relative positive Capital Accounts but only to the extent that such Losses and other items of loss and expense do not cause any such Member to have an Adjusted Capital Account Deficit.

 

	
 
	
f.
	
Notwithstanding any provision hereof to the contrary except Section 5.2(c) and Section 5.2(d), in the event any Member unexpectedly receives any adjustment, allocation or distribution described in paragraph (4), (5) or (6) of Treasury Regulations Section 1.704-1(b)(2)(ii)(d), items of income and gain (consisting of a pro rata portion of each item of income, including gross income, and gain for the Fiscal Year or other taxable period) shall be specially allocated to such Member in an amount and manner sufficient to eliminate any Adjusted Capital Account Deficit of that Member as quickly as possible; provided that an allocation pursuant to this Section 5.2(f) shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article V have been tentatively made as if this Section 5.2(f) were not in this Agreement. This Section 5.2(f) is intended to constitute a qualified income offset under Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

 

	
 
	
g.
	
If any Member has a deficit balance in its Capital Account at the end of any Fiscal Year or other taxable period that is in excess of the sum of (i) the amount that such Member is obligated to restore and (ii) the amount that the Member is deemed to be obligated to restore pursuant to the penultimate sentence of Treasury Regulations Sections 1.704-2(g)(1) and (i)(5), that Member shall be specially allocated items of Company income, gain and Simulated Gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 5.2(f) shall be made only if and to the extent that such Member would have a deficit balance in its Capital Account in excess of such sum after all other allocations provided for in this Article V have been made as if Section 5.2(f) and this Section 5.2(g) were not in this Agreement.

 

	
 
	
h.
	
To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Sections 734(b) or 743(b) is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as a result of a distribution to any Member in complete liquidation of such Member’s Interest in the Company, the amount of such 

 

19

	
 
		
adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such item of gain or loss shall be allocated to the Members in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) if such section applies or to the Member to whom such distribution was made if Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.

 

	
 
	
i.
	
Simulated Depletion for each Depletable Property, and Simulated Loss upon the Disposition of a Depletable Property, shall be allocated among the Members in proportion to their shares of the Simulated Basis in such property.

 

	
 
	
j.
	
The allocations set forth in Sections 5.2(a) through 5.2(i) (the “Regulatory Allocations”) are intended to comply with certain requirements of Treasury Regulations Sections 1.704-1(b) and 1.704-2. Notwithstanding any other provision of this Article V (other than the Regulatory Allocations), the Regulatory Allocations (and anticipated future Regulatory Allocations) shall be taken into account in allocating other items of income, gain, loss and deduction among the Members so that, to the extent possible, the net amount of such allocation of other items and the Regulatory Allocations to each Member should be equal to the net amount that would have been allocated to each such Member if the Regulatory Allocations had not occurred. This Section 5.2(j) is intended to minimize to the extent possible and to the extent necessary any economic distortions which may result from application of the Regulatory Allocations and shall be interpreted in a manner consistent therewith.

 

Section 5.3 Allocations for Tax Purposes in General.

 

	
 
	
a.
	
Except as otherwise provided in this Section 5.3, each item of income, gain, loss and deduction of the Company for U.S. federal income tax purposes shall be allocated among the Members in the same manner as such item is allocated under Sections 5.1 and 5.2.

 

	
 
	
b.
	
In accordance with Code Section 704(c) and the Treasury Regulations thereunder (including the Treasury Regulations applying the principles of Code Section 704(c) to changes in Gross Asset Values), items of income, gain, loss and deduction with respect to any Company property having a Gross Asset Value that differs from such property’s adjusted U.S. federal income tax basis shall, solely for U.S. federal income tax purposes, be allocated among the Members to account for any such difference using the “traditional method with curative allocations,” with the curative allocations applied only to sale gain, under Treasury Regulations Section 1.704-3(c), or such other method or methods determined by the Managing Member to be appropriate and in accordance with the applicable Treasury Regulations.

 

	
 
	
c.
	
Any (i) recapture of depreciation or any other item of deduction shall be allocated, in accordance with Treasury Regulations Sections 1.1245-1(e) and 1.1254-5, to the Members who received the benefit of such deductions (taking into account the effect of remedial allocations), and (ii) recapture of grants credits shall be allocated to the Members in accordance with applicable law.

 

	
 
	
d.
	
Allocations pursuant to this Section 5.3 are solely for purposes of federal, state and local taxes and shall not affect or in any way be taken into account in computing any Member’s Capital Account or share of Profits, Losses, other items or distributions pursuant to any provision of this Agreement.

 

	
 
	
e.
	
If, as a result of an exercise of a noncompensatory option to acquire an interest in the Company, a Capital Account reallocation is required under Treasury Regulation Section 1.704-1(b)(2)(iv)(s)(3), the Company shall make corrective allocations pursuant to Treasury Regulation Section 1.704-1(b)(4)(x).

 

Section 5.4 Income Tax Allocations with Respect to Depletable Properties.

 

	
 
	
a.
	
Cost and percentage depletion deductions with respect to any Depletable Property shall be computed separately by the Members rather than the Company. For purposes of such computations, the federal income tax basis of each Depletable Property shall be allocated to each Member pro rata, in accordance with the number of Units owned by such Member as of the time such Depletable Property is acquired by the Company (and any additions to such federal income tax basis resulting from expenditures required to be 

 

20

	
 
		
capitalized in such basis shall be allocated among the Members in a manner designed to cause the Members’ proportionate shares of such adjusted federal income tax basis to be in accordance with their proportionate ownership of Units as determined at the time of any such additions), and shall be reallocated among the Members pro rata, in accordance with the number of Units owned by such Member as determined immediately following the occurrence of an event giving rise to an adjustment to the Gross Asset Values of the Company’s Depletable Properties pursuant to clause (b) of the definition of Gross Asset Value. The Company shall inform each Member of such Member’s allocable share of the federal income tax basis of each Depletable Property promptly following the acquisition of such Depletable Property by the Company, any adjustment resulting from expenditures required to be capitalized in such basis, and any reallocation of such basis as provided in the previous sentence.

 

	
 
	
b.
	
For purposes of the separate computation of gain or loss by each Member on the taxable disposition of Depletable Property, the amount realized from such disposition shall be allocated (i) first, to the Members in an amount equal to the Simulated Basis in such Depletable Property in proportion to their allocable shares thereof and (ii) second, any remaining amount realized shall be allocated consistent with the allocation of Simulated Gains.

 

	
 
	
c.
	
The allocations described in this Section 5.4 are intended to be applied in accordance with the Members’ “interests in partnership capital” under Section 613A(c)(7)(D) of the Code; provided that the Members understand and agree that the Managing Member may authorize special allocations of federal income tax basis, income, gain, deduction or loss, as computed for U.S. federal income tax purposes, in order to eliminate differences between Simulated Basis and adjusted federal income tax basis with respect to Depletable Properties, in such manner as determined consistent with the principles outlined in Section 5.3(b). The provisions of this Section 5.4(c) and the other provisions of this Agreement relating to allocations under Code Section 613A(c)(7)(D) are intended to comply with Treasury Regulations Section 1.704-1(b)(4)(v) and shall be interpreted and applied in a manner consistent with such Treasury Regulations.

 

	
 
	
d.
	
Each Member, with the assistance of the Company, shall separately keep records of its share of the adjusted tax basis in each Depletable Property, adjust such share of the adjusted tax basis for any cost or percentage depletion allowable with respect to such property and use such adjusted tax basis in the computation of its cost depletion or in the computation of its gain or loss on the disposition of such property by the Company. Upon the reasonable request of the Company, each Member shall advise the Company of its adjusted tax basis in each Depletable Property and any depletion computed with respect thereto, both as computed in accordance with the provisions of this subsection for purposes of allowing the Company to make adjustments to the tax basis of its assets as a result of certain transfers of interests in the Company or distributions by the Company. The Company may rely on such information and, if it is not provided by the Member, may make such reasonable assumptions as it shall determine with respect thereto.

 

Section 5.5 Other Allocation Rules.

 

	
 
	
a.
	
The Members are aware of the income tax consequences of the allocations made by this Article V and the economic impact of the allocations on the amounts receivable by them under this Agreement. The Members hereby agree to be bound by the provisions of this Article V in reporting their share of Company income and loss for income tax purposes.

 

	
 
	
b.
	
The provisions regarding the establishment and maintenance for each Member of a Capital Account as provided by Section 4.4 and the allocations set forth in Sections 5.1, 5.2, 5.3 and 5.4 are intended to comply with the Treasury Regulations and to reflect the intended economic entitlement of the Members.  If the Managing Member determines, in its sole discretion, that the application of the provisions in Sections 4.4, 5.1, 5.2, 5.3 or 5.4 would result in non-compliance with the Treasury Regulations or would be inconsistent with the intended economic entitlement of the Members, the Managing Member is authorized to make any appropriate adjustments to such provisions.

 

	
 
	
c.
	
All items of income, gain, loss, deduction and credit allocable to an interest in the Company that may have been Transferred shall be allocated between the Transferor and the Transferee based on the portion of the 

 

21

	
 
		
Fiscal Year or other taxable period during which each was recognized as the owner of such interest, without regard to the results of Company operations during any particular portion of that year and without regard to whether cash distributions were made to the Transferor or the Transferee during that year; provided, however, that this allocation must be made in accordance with a method permissible under Code Section 706 and the Treasury Regulations thereunder.

 

	
 
	
d.
	
The Members’ proportionate shares of the “excess nonrecourse liabilities” of the Company, within the meaning of Treasury Regulations Section 1.752-3(a)(3), shall be allocated to the Members in any manner determined by the Managing Member and permissible under the Treasury Regulations.

 

ARTICLE VI

DISTRIBUTIONS

 

Section 6.1 Distributions.

 

	
 
	
a.
	
Distributions. To the extent permitted by applicable Law and hereunder, and except as otherwise provided in Section 11.3, distributions to Members may be declared by the Managing Member out of funds legally available therefor in such amounts and on such terms (including the payment dates of such distributions) as the Managing Member shall determine using such record date as the Managing Member may designate; such distribution shall be made to the Members as of the close of business on such record date on a pro rata basis (except that, for the avoidance of doubt, repurchases or redemptions made in accordance with Section 4.1(f) or payments made in accordance with Section 7.4 or Section 7.9 need not be on a pro rata basis), in accordance with the number of Units owned by each Member as of the close of business on such record date; provided, however, that the Managing Member shall have the obligation to make distributions as set forth in Sections 6.2 and 11.3(b)(ii); and provided further that, notwithstanding any other provision herein to the contrary, no distributions shall be made to any Member to the extent such distribution would render the Company insolvent or violate the Act. For purposes of the foregoing sentence, insolvency means the inability of the Company to meet its payment obligations when due. Promptly following the designation of a record date and the declaration of a distribution pursuant to this Section 6.1, the Managing Member shall give notice to each Member of the record date, the amount and the terms of the distribution and the payment date thereof.

 

	
 
	
b.
	
Successors. For purposes of determining the amount of distributions, each Member shall be treated as having made the Capital Contributions and as having received the Distributions made to or received by its predecessors in respect of any of such Member’s Units.

 

	
 
	
c.
	
Distributions In-Kind. Except as otherwise provided in this Agreement, any distributions may be made in cash or in kind, or partly in cash and partly in kind, as determined by the Managing Member. To the extent that the Company distributes property in-kind to the Members, the Company shall be treated as making a distribution equal to the Fair Market Value of such property for purposes of Section 6.1(a) and such property shall be treated as if it were sold for an amount equal to its Fair Market Value. Any resulting deemed gain or loss shall be allocated to the Member’s Capital Accounts in accordance with Section 5.1 and Section 5.2.

 

Section 6.2 Tax-Related Distributions.  The Company shall make distributions to all Members on a pro rata basis, in accordance with the number of Units owned by each Member, at such times and in such amounts as the Managing Member reasonably determines is necessary to enable PubCo to timely satisfy all of the U.S. federal, state and local and non-U.S. tax liabilities of PubCo, Lynden Energy Corp., a corporation existing under the laws of British Columbia and a wholly owned subsidiary of PubCo, and Lynden, calculated in the aggregate. 

 

Section 6.3 Distribution Upon Resignation. No resigning Member shall be entitled to receive any distribution or the value of such Member’s Interest in the Company as a result of resignation from the Company prior to the dissolution and winding up of the Company, except as specifically provided in this Agreement.

 

 

22

ARTICLE VII

MANAGEMENT

 

Section 7.1 The Managing Member; Fiduciary Duties.  

 

	
 
	
a.
	
PubCo shall be the sole Managing Member of the Company. Except as otherwise required by Law, (i) the Managing Member shall have full and complete charge of all affairs of the Company, (ii) the management and control of the Company’s business activities and operations shall rest exclusively with the Managing Member, and the Managing Member shall make all decisions regarding the business, activities and operations of the Company (including the incurrence of costs and expenses) in its sole discretion without the consent of any other Member and (iii) the Members other than the Managing Member (in their capacity as such) shall not participate in the control, management, direction or operation of the activities or affairs of the Company and shall have no power to act for or bind the Company.

 

	
 
	
b.
	
In connection with the performance of its duties as the Managing Member of the Company, the Managing Member acknowledges that it will owe to the Company and the Members the same fiduciary duties as it would owe to a Delaware corporation and its stockholders if it were a member of the board of directors of such a corporation and the Members were stockholders of such corporation. The Members acknowledge that the Managing Member will take action through its board of directors, and that the members of the Managing Member’s board of directors will owe comparable fiduciary duties to the stockholders of the Managing Member. 

 

Section 7.2 Officers.  

 

	
 
	
a.
	
The Managing Member may appoint, employ or otherwise contract with any Person for the transaction of the business of the Company or the performance of services for or on behalf of the Company, and the Managing Member may delegate to any such Persons such authority to act on behalf of the Company as the Managing Member may from time to time deem appropriate.

 

	
 
	
b.
	
The initial president and chief executive officer of the Company (the “President and Chief Executive Officer”) will be Frank A. Lodzinski. 

 

	
 
	
c.
	
Except as otherwise set forth herein, the President and Chief Executive Officer will be responsible for the general and active management of the business of the Company and its Subsidiaries and will see that all orders of the Managing Member are carried into effect. The President and Chief Executive Officer will report to the Managing Member and have the general powers and duties of management usually vested in the office of president and chief executive officer of a corporation organized under the DGCL, subject to the terms of this Agreement, and will have such other powers and duties as may be prescribed by the Managing Member or this Agreement. The President and Chief Executive Officer will have the power to execute bonds, mortgages and other contracts requiring a seal, under the seal of the Company, except where required or permitted by Law to be otherwise signed and executed, and except where the signing and execution thereof will be expressly delegated by the Managing Member to some other Officer or agent of the Company.

 

	
 
	
d.
	
Except as set forth herein, the Managing Member may appoint Officers at any time, and the Officers may include one or more vice presidents, a secretary, one or more assistant secretaries, a chief financial officer, a general counsel, a treasurer, one or more assistant treasurers, a chief operating officer, an executive chairman, and any other officers that the Managing Member deems appropriate. Except as set forth herein, the Officers will serve at the pleasure of the Managing Member, subject to all rights, if any, of such Officer under any contract of employment. Any individual may hold any number of offices, and an Officer may, but need not, be a Member of the Company. The Officers will exercise such powers and perform such duties as specified in this Agreement or as determined from time to time by the Managing Member.

 

	
 
	
e.
	
Subject to this Agreement and to the rights, if any, of an Officer under a contract of employment, any Officer may be removed, either with or without cause, by the Managing Member. Any Officer may resign at any time by giving written notice to the Managing Member. Any resignation will take effect at the date 

 

23

	
 
		
of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation will not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Company under any contract to which the Officer is a party. A vacancy in any office because of death, resignation, removal, disqualification or any other cause will be filled in the manner prescribed in this Agreement for regular appointments to that office.

 

Section 7.3 Warranted Reliance by Officers on Others. In exercising their authority and performing their duties under this Agreement, the Officers shall be entitled to rely on information, opinions, reports, or statements of the following persons or groups unless they have actual knowledge concerning the matter in question that would cause such reliance to be unwarranted:

 

	
 
	
a.
	
one or more employees or other agents of the Company or in subordinates whom the Officer reasonably believes to be reliable and competent in the matters presented; and

 

	
 
	
b.
	
any attorney, public accountant, or other person as to matters which the Officer reasonably believes to be within such person’s professional or expert competence.

 

Section 7.4 Indemnification. Subject to the limitations and conditions provided in this Section 7.4, each Person who was or is made a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or arbitrative (each, a “Proceeding”), or any appeal in such a Proceeding or any inquiry or investigation that could lead to such a Proceeding, by reason of the fact he, she or it, or a Person of which he, she or it is the legal representative, is or was a Member, an Officer, or acting as the Tax Matters Member or Company Representative of the Company, in each case, shall be indemnified by the Company to the fullest extent permitted by applicable Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than such Law permitted the Company to provide prior to such amendment) against all judgment, penalties (including excise and similar taxes and punitive damages), fines, settlement and reasonable expenses (including reasonable attorneys’ fees and expenses) actually incurred by such Person in connection with such Proceeding, appeal, inquiry or investigation, if such Person acted in Good Faith. Reasonable expenses incurred by a Person of the type entitled to be indemnified under this Section 7.4 who was, is or is threatened to be made a named defendant or respondent in a Proceeding shall be paid by the Company in advance of the final disposition of the Proceeding upon receipt of an undertaking by or on behalf of such Person to repay such amount if it shall ultimately be determined that he, she or it is not entitled to be indemnified by the Company. Indemnification under this Section 7.4 shall continue as to a Person who has ceased to serve in the capacity which initially entitled such Person to indemnity hereunder. The rights granted pursuant to this Section 7.4 shall be deemed contract rights, and no amendment, modification or repeal of this Section 7.4 shall have the effect of limiting or denying any such rights with respect to actions taken or Proceedings, appeals, inquiries or investigations arising prior to any amendment, modification or repeal. It is expressly acknowledged that the indemnification provided in this Section 7.4 could involve indemnification for negligence or under theories of strict liability.

 

Section 7.5 Maintenance of Insurance or Other Financial Arrangements. In compliance with applicable Law, the Company (with the approval of the Managing Member) may purchase and maintain insurance or make other financial arrangements on behalf of any Person who is or was a Member, employee or agent of the Company, or at the request of the Company is or was serving as a manager, director, officer, employee or agent of another limited liability company, corporation, partnership, joint venture, trust or other enterprise, for any Liability asserted against such Person and Liability and expenses incurred by such Person in such Person’s capacity as such, or arising out of such Person’s status as such, whether or not the Company has the authority to indemnify such Person against such Liability and expenses.

 

Section 7.6 Resignation or Termination of Managing Member. PubCo shall not, by any means, resign as, cease to be or be replaced as Managing Member except in compliance with this Section 7.6. No termination or replacement of PubCo as Managing Member shall be effective unless proper provision is made, in compliance with this Agreement, so that the obligations of PubCo, its successor (if applicable) and any new Managing Member and the rights of all Members under this Agreement and applicable Law remain in full force and effect. No appointment of a Person other than PubCo (or its successor, as applicable) as Managing Member shall be 

 

24

effective unless PubCo (or its successor, as applicable) and the new Managing Member (as applicable) provide all other Members with contractual rights, directly enforceable by such other Members against PubCo (or its successor, as applicable) and the new Managing Member (as applicable), to cause (a) PubCo to comply with all PubCo’s obligations under this Agreement (including its obligations under Section 4.7) other than those that must necessarily be taken in its capacity as Managing Member and (b) the new Managing Member to comply with all the Managing Member’s obligations under this Agreement.

 

Section 7.7 No Inconsistent Obligations. The Managing Member represents that it does not have any contracts, other agreements, duties or obligations that are inconsistent with its duties and obligations (whether or not in its capacity as Managing Member) under this Agreement and covenants that, except as permitted by Section 7.1, it will not enter into any contracts or other agreements or undertake or acquire any other duties or obligations that are inconsistent with such duties and obligations.

 

Section 7.8 Reclassification Events of PubCo. If a Reclassification Event occurs, the Managing Member or its successor, as the case may be, shall, as and to the extent necessary, amend this Agreement in compliance with Section 12.1, and enter into any necessary supplementary or additional agreements, to ensure that, following the effective date of the Reclassification Event: (i) the redemption rights of holders of Units set forth in Section 4.7 provide that each Unit (together with the transfer and surrender of one share of Class B Stock) is redeemable for the same amount and same type of property, securities or cash (or combination thereof) that one share of Class A Stock becomes exchangeable for or converted into as a result of the Reclassification Event and (ii) PubCo or the successor to PubCo, as applicable, is obligated to deliver such property, securities or cash upon such redemption. PubCo shall not consummate or agree to consummate any Reclassification Event unless the successor Person, if any, becomes obligated to comply with the obligations of PubCo (in whatever capacity) under this Agreement.  

 

Section 7.9 Certain Costs and Expenses. The Company shall (i) pay, or cause to be paid, all costs, fees, operating expenses and other expenses of the Company (including the costs, fees and expenses of attorneys, accountants or other professionals and the compensation of all personnel providing services to the Company) incurred in pursuing and conducting, or otherwise related to, the activities or capitalization of the Company, and (ii) in the sole discretion of the Managing Member, bear and/or reimburse the Managing Member for any costs, fees or expenses incurred by it in connection with serving as the Managing Member. To the extent that the Managing Member determines in its sole discretion that such expenses are related to the business and affairs of the Managing Member that are conducted through the Company and/or its Subsidiaries (including expenses that relate to the business and affairs of the Company and/or its Subsidiaries and that also relate to other activities of the Managing Member), the Managing Member may cause the Company to pay or bear all expenses of the Managing Member, including, without limitation, costs of securities offerings not borne directly by members, board of directors compensation and meeting costs, cost of periodic reports to its stockholders, litigation costs and damages arising from litigation, accounting and legal costs and franchise taxes, provided that the Company shall not pay or bear any income tax obligations of PubCo. In the event that (i) shares of Class A Stock were sold to underwriters in any public offering after the Effective Time, in each case, at a price per share that is lower than the price per share for which such shares of Class A Stock are sold to the public in such public offering after taking into account underwriters’ discounts or commissions and brokers’ fees or commissions (including, for the avoidance of doubt, any deferred discounts or commissions and brokers’ fees or commissions payable in connection with or as a result of such public offering) (such difference, the “Discount”) and (ii) the proceeds from such public offering are used to fund the Cash Election Amount for any redeemed Units or otherwise contributed to the Company, the Company shall reimburse the Managing Member for such Discount by treating such Discount as an additional Capital Contribution made by the Managing Member to the Company, issuing Units in respect of such deemed Capital Contribution in accordance with Section 4.7(b)(ii), and increasing the Managing Member’s Capital Account by the amount of such Discount.  For the avoidance of doubt, any payments made to or on behalf of the Managing Member pursuant to this Section 7.9 shall not be treated as a distribution pursuant to Section 6.1(a) but shall instead be treated as an expense of the Company.

 

 

25

ARTICLE VIII

ROLE OF MEMBERS

 

Section 8.1 Rights or Powers. Other than the Managing Member, the Members, acting in their capacity as Members, shall not have any right or power to take part in the management or control of the Company or its business and affairs or to act for or bind the Company in any way. Notwithstanding the foregoing, the Members have all the rights and powers specifically set forth in this Agreement and, to the extent not inconsistent with this Agreement, in the Act. The existence of these relationships and acting in such capacities will not result in the Member (other than the Managing Member) being deemed to be participating in the control of the business of the Company or otherwise affect the limited liability of the Member. A Member, any Affiliate thereof or an employee, stockholder, agent, director or officer of a Member or any Affiliate thereof, may also be an employee or be retained as an agent of the Company. Except as specifically provided herein, a Member (other than the Managing Member) shall not, in its capacity as a Member, take part in the operation, management or control of the Company’s business, transact any business in the Company’s name or have the power to sign documents for or otherwise bind the Company. 

 

Section 8.2Voting. 

 

	
 
	
a.
	
Meetings of the Members may be called by the Managing Member or upon the written request of Members holding at least 50% of the outstanding Units. Such request shall state the location of the meeting and the nature of the business to be transacted at the meeting. Written notice of any such meeting shall be given to all Members not less than two Business Days nor more than 30 days prior to the date of such meeting. Members may vote in person, by proxy or by telephone at any meeting of the Members and may waive advance notice of such meeting. Whenever the vote or consent of Members is permitted or required under this Agreement, such vote or consent may be given at a meeting of the Members or may be given in accordance with the procedure prescribed in this Section 8.2. Except as otherwise expressly provided in this Agreement, the affirmative vote of the Members holding a majority of the outstanding Units shall constitute the act of the Members.

 

	
 
	
b.
	
Each Member may authorize any Person or Persons to act for it by proxy on all matters in which such Member is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Every proxy must be signed by such Member or its attorney-in-fact. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Member executing it.

 

	
 
	
c.
	
Each meeting of Members shall be conducted by an Officer designated by the Managing Member or such other individual person as the Managing Member deems appropriate.

 

	
 
	
d.
	
Any action required or permitted to be taken by the Members may be taken without a meeting if the requisite Members whose approval is necessary consent thereto in writing.

 

Section 8.3 Various Capacities. The Members acknowledge and agree that the Members or their Affiliates will from time to time act in various capacities, including as a Member and as the Tax Matters Member or Company Representative.

 

ARTICLE IX

TRANSFERS OF INTERESTS

 

Section 9.1 Restrictions on Transfer.

 

	
 
	
a.
	
Except as provided in Section 4.7 and except for the Transfers by a Member to Permitted Transferee, no Member shall Transfer all or any portion of its Interest without the prior written consent of the Managing Member, not to be unreasonably withheld, conditioned or delayed. If, notwithstanding the provisions of this Section 9.1(a), all or any portion of a Member’s Interests are Transferred in violation of this Section 9.1(a), involuntarily, by operation of law or otherwise, then without limiting any other rights and remedies available to the other parties under this Agreement or otherwise, the Transferee of such Interest (or portion 

 

26

	
 
		
thereof) shall not be admitted to the Company as a Member or be entitled to any rights as a Member hereunder, and the Transferor will continue to be bound by all obligations hereunder, unless and until the Managing Member consents in writing to such admission, which consent shall be granted or withheld in the Managing Member’s sole discretion. Any attempted or purported Transfer of all or a portion of a Member’s Interests in violation of this Section 9.1(a) shall be null and void and of no force or effect whatsoever. For the avoidance of doubt, the restrictions on Transfer contained in this Article IX shall not apply to the Transfer of any capital stock of the Managing Member; provided that no shares of Class B Stock may be Transferred unless a corresponding number of Units are Transferred therewith in accordance with this Agreement.

 

	
 
	
b.
	
In addition to any other restrictions on Transfer herein contained, including the provisions of this Article IX, in no event may any Transfer or assignment of Interests by any Member be made (i) to any Person who lacks the legal right, power or capacity to own Interests; (ii) if in the opinion of legal counsel or a qualified tax advisor to the Company such Transfer presents a material risk that such Transfer would cause the Company to cease to be classified as a partnership or to be classified as a “publicly traded partnership” within the meaning of Section 7704(b) of the Code; (iii) if such Transfer would cause the Company to become, with respect to any employee benefit plan subject to Title I of ERISA, a “party-in-interest” (as defined in Section 3 (14) of ERISA) or a “disqualified person” (as defined in Section 4975(e)(2) of the Code); (iv) if such Transfer would, in the opinion of counsel to the Company, cause any portion of the assets of the Company to constitute assets of any employee benefit plan pursuant to the Plan Asset Regulation or otherwise cause the Company to be subject to regulation under ERISA; (v) if such Transfer requires the registration of such Interests or any Equity Securities issued upon any exchange of such Interests, pursuant to any applicable federal or state securities Laws; or (vi) if such Transfer subjects the Company to regulation under the Investment Company Act or the Investment Advisors Act of 1940, each as amended (or any succeeding law). Any Transfer purported to be made in violation of this Section 9.1(b) shall be void ab initio.

 

Section 9.2 Notice of Transfer. Other than in connection with Transfers made pursuant to Section 4.7, each Member shall, after complying with the provisions of this Agreement, but in any event no later than three Business Days following any Transfer of Interests, give written notice to the Company of such Transfer. Each such notice shall describe the manner and circumstances of the Transfer.

 

Section 9.3 Transferee Members. A Transferee of Interests pursuant to this Article IX shall have the right to become a Member only if (i) the requirements of this Article IX are met, (ii) such Transferee executes an instrument reasonably satisfactory to the Managing Member agreeing to be bound by the terms and provisions of this Agreement and assuming all of the Transferor’s then existing and future Liabilities arising under or relating to this Agreement, (iii) such Transferee represents that the Transfer was made in accordance with all applicable securities Laws, (iv) the Transferor or Transferee shall have reimbursed the Company for all reasonable expenses (including attorneys’ fees and expenses) of any Transfer or proposed Transfer of a Member’s Interest, whether or not consummated and (v) if such Transferee or his or her spouse is a resident of a community property jurisdiction, then such Transferee’s spouse shall also execute an instrument reasonably satisfactory to the Managing Member agreeing to be bound by the terms and provisions of this Agreement to the extent of his or her community property or quasi-community property interest, if any, in such Member’s Interest. Unless agreed to in writing by the Managing Member, the admission of a Member shall not result in the release of the Transferor from any Liability that the Transferor may have to each remaining Member or to the Company under this Agreement or any other Contract between the Managing Member, the Company or any of its Subsidiaries, on the one hand, and such Transferor or any of its Affiliates, on the other hand. Written notice of the admission of a Member shall be sent promptly by the Company to each remaining Member. Notwithstanding anything to the contrary in this Section 9.3, and except as otherwise provided in this Agreement, following a Transfer by one or more Members (or a transferee of the type described in this sentence) to a Permitted Transferee of all or substantially all of their Interests, such transferee shall succeed to all of the rights of such Member(s) under this Agreement.

 

 

27

Section 9.4 Legend. Each certificate representing a Unit, if any, will be stamped or otherwise imprinted with a legend in substantially the following form:

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT. THE TRANSFER AND VOTING OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE FIRST AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF EARTHSTONE ENERGY HOLDINGS, LLC DATED AS OF MAY 9, 2017 AMONG THE MEMBERS LISTED THEREIN, AS IT MAY BE AMENDED, SUPPLEMENTED AND/OR RESTATED FROM TIME TO TIME, AND NO TRANSFER OF THESE SECURITIES WILL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE ISSUER OF SUCH SECURITIES.”

 

ARTICLE X

ACCOUNTING

 

Section 10.1 Books of Account. The Company shall, and shall cause each Subsidiary to, maintain true books and records of account in which full and correct entries shall be made of all its business transactions pursuant to a system of accounting established and administered in accordance with GAAP, and shall set aside on its books all such proper accruals and reserves as shall be required under GAAP.

 

Section 10.2 Tax Elections. The Company and any eligible Subsidiary shall make an election pursuant to Code Section 754, shall not thereafter revoke such election and shall make a new election pursuant to Code Section 754 to the extent necessary following any “termination” of the Company or the Subsidiary under Code Section 708.  In addition, the Company shall make the following elections on the appropriate forms or tax returns:

 

	
 
	
a.
	
to adopt the calendar year as the Company’s Fiscal Year, if permitted under the Code;

 

	
 
	
b.
	
to adopt the accrual method of accounting for U.S. federal income tax purposes;

 

	
 
	
c.
	
to elect to amortize the organizational expenses of the Company as permitted by Code Section 709(b);

 

	
 
	
d.
	
to elect out of the application of the company-level audit and adjustment rules of the Revised Partnership Audit Provisions, if applicable, and, upon request of the Managing Member, each Member shall cooperate in good faith with the Company in connection with such election; and

 

	
 
	
e.
	
any other election the Managing Member may deem appropriate and in the best interests of the Company.

 

Section 10.3 Tax Returns; Information. The Tax Matters Member or Company Representative (as applicable) shall arrange for the preparation and timely filing (including extensions) of all income and other tax and informational returns of the Company. The Tax Matters Member or Company Representative (as applicable) shall furnish to each Member within sixty (60) days after the end of each Fiscal Year an estimate of each Member’s Schedule K-1 and as soon as reasonably practicable thereafter, but in no event later than June 30, a copy of each approved return and statement (including extensions thereto), together with Schedules K-1 and any other schedules or information which each Member may require in connection with such Member’s own tax affairs.

 

Section 10.4 Tax Matters Member; Company Representative; Tax Audit Matters. 

 

	
 
	
a.
	
With respect to Tax Years beginning on or before December 31, 2017, the Managing Member is hereby designated the tax matters partner of the Company, within the meaning given to such term in Section 6231 of the Code (the Managing Member, in such capacity, the “Tax Matters Member”) and is authorized and required to represent the Company (at the Company’s expense) in connection with all examinations of the Company’s affairs by tax authorities, including resulting administrative and judicial proceedings, and to expend Company funds for professional services reasonably incurred in connection therewith.  Each 

 

28

	
 
		
Member agrees to cooperate with the Company and to do or refrain from doing any or all things reasonably requested by the Company with respect to the conduct of such proceedings.  The Tax Matters Member shall keep all Members fully advised on a current basis of any contacts by or discussions with the tax authorities, and the Members shall have the right to observe and participate through representatives of their own choosing (at their sole expense) in any tax proceedings.  Notwithstanding the foregoing, the Tax Matters Member shall not settle or otherwise compromise any issue in any such examination, audit or other proceeding without first obtaining approval of the Managing Member.  Nothing herein shall diminish, limit or restrict the rights of any Member under Subchapter C, Chapter 63, Subtitle F of the Code (Code Sections 6221 et seq.).

 

	
 
	
b.
	
With respect to Tax Years beginning after December 31, 2017, pursuant to the Revised Partnership Audit Provisions, the Managing Member shall be designated and may, on behalf of the Company, at any time, and without further notice to or consent from any Member, act as the Company Representative for purposes of the Code.  The Company Representative shall have the right and obligation to take all actions authorized and required, respectively, by the Code for the Company Representative, and is authorized and required to represent the Company (at the Company’s expense) in connection with all examinations of the Company’s affairs by tax authorities, including resulting administrative and judicial proceedings, and to expend Company funds for professional services reasonably incurred in connection therewith.  Each Member agrees to cooperate with the Company and to do or refrain from doing any or all things reasonably requested by the Company with respect to the conduct of such proceedings.  The Company Representative shall keep all Members fully advised on a current basis of any contacts by or discussions with the tax authorities, and the Members shall have the right to observe and participate through representatives of their own choosing (at their sole expense) in any tax proceedings.  The Members agree to take all actions reasonably requested by the Company or the Company Representative to comply with the Revised Partnership Audit Provisions, including where applicable, filing amended returns as provided in Code Section 6225(c)(2) or making the election as provided in Code Section 6226 as amended by the Revised Partnership Audit Provisions, and providing confirmation thereof to the Company Representative.  Nothing herein shall diminish, limit or restrict the rights of any Member under the Revised Partnership Audit Provisions; provided, however, the Members agree that each Person who was a Member during any reviewed year (whether or not such Person is a Member during any adjustment year) shall report his, her or its allocable share of such adjustment on his, her or its U.S. Federal income tax return pursuant to either Code Section 6225(c)(2) as amended by the Revised Partnership Audit Provisions or pursuant to Code Section 6226 as amended by the Revised Partnership Audit Provisions, as determined by the Company Representative in its sole discretion.

 

	
 
	
c.
	
The provisions of this Section 10.4 shall survive the termination or dissolution of the Company and the termination of any Member’s interest in the Company and shall remain binding on the Members for as long a period of time as is necessary to resolve with the Internal Revenue Service or any other taxing authority any and all matters regarding the taxation of the Company or the Members.  The Members hereby consent to any amendments to this Section 10.4 that the Managing Member determines are reasonably necessary and appropriate to address additional guidance provided in Treasury Regulations or other IRS guidance relating to the partnership audit rules of the Revised Partnership Audit Provisions, or to take into account subsequently enacted amendment thereto.

 

Section 10.5 Withholding Tax Payments and Obligations. 

 

	
 
	
a.
	
The Company and its Subsidiaries may withhold from distributions, allocations or portions thereof if it is required to do so by any applicable rule, regulation or law, and each Member hereby authorizes the Company and its Subsidiaries to withhold or pay on behalf of or with respect to such Member any amount of taxes that the Managing Member determines, in good faith, that the Company or any of its Subsidiaries is required to withhold or pay with respect to any amount distributable or allocable to such Member pursuant to this Agreement.

 

	
 
	
b.
	
To the extent that any tax is paid by (or withheld from amounts payable to) the Company or any of its Subsidiaries and the Managing Member determines, in good faith, that such tax relates to one or more specific Members (including any tax payable by the Company or any of its Subsidiaries pursuant to Section 

 

29

	
 
		
6225 of the Code with respect to items of income, gain, loss deduction or credit allocable or attributable to such Member), such tax shall be treated as an amount of taxes withheld or paid with respect to such Member pursuant to this Section 10.5.

 

	
 
	
c.
	
For all purposes under this Agreement, any amounts withheld or paid with respect to a Member pursuant to this Section 10.5 shall be treated as if distributed to such Member at the time such withholding or payment is made.  Further, to the extent that the cumulative amount of such withholding or payment for any period exceeds the distributions to which such Member is entitled for such period, the amount of such excess shall be considered a loan from the Company to such Member, with interest accruing at the Prime Rate in effect from time to time, compounded annually. The Managing Member may, in its discretion, either demand payment of the principal and accrued interest on such demand loan at any time (which payment shall not be deemed a Capital Contribution for purposes of this Agreement), and enforce payment thereof by legal process, or may withhold from one or more distributions to a Member amounts sufficient to satisfy such Member’s obligations under any such demand loan. 

 

	
 
	
d.
	
Neither the Company nor the Managing Member shall be liable for any excess taxes withheld in respect of any Member, and, in the event of overwithholding, a Member’s sole recourse shall be to apply for a refund from the appropriate Governmental Entity.

 

	
 
	
e.
	
Notwithstanding any other provision of this Agreement, (i) any Person who ceases to be a Member shall be treated as a Member for purposes of this Section 10.5 and (ii) the obligations of a Member pursuant to this Section 10.5 shall survive indefinitely with respect to any taxes withheld or paid by the Company that relate to the period during which such Person was actually a Member, regardless of whether such taxes are assessed, withheld or otherwise paid during such period.

 

ARTICLE XI

DISSOLUTION AND TERMINATION

 

Section 11.1 Liquidating Events. The Company shall dissolve and commence winding up and liquidating upon the first to occur of the following (“Liquidating Events”):

 

	
 
	
a.
	
The sale of all or substantially all of the assets of the Company;  

 

	
 
	
b.
	
The determination of the Managing Member to dissolve, wind up, and liquidate the Company;

 

	
 
	
c.
	
At any time there is no Member of the Company, unless the Company is continued without dissolution pursuant to the Act; or

 

	
 
	
d.
	
Subject to the following sentence, the entry of a decree of judicial dissolution of the Company under Section 18-802 of the Act.

 

The Members hereby agree that the Company shall not dissolve prior to the occurrence of a Liquidating Event and that no Member shall seek a dissolution of the Company, under Section 18-801(a)(3) or Section 18-802 of the Act or otherwise, other than based on the matters set forth in subsections (a) through (c) above (each Member hereby expressly waives its rights to seek judicial dissolution of the Company under Section 18-802 of the Act). If it is determined by a court of competent jurisdiction that the Company has dissolved prior to the occurrence of a Liquidating Event, the Members hereby agree to revoke such dissolution and continue the business of the Company without a winding up or liquidation. In the event of a dissolution pursuant to Section 11.1(b), the relative economic rights of each class of Units immediately prior to such dissolution shall be preserved to the greatest extent practicable with respect to distributions made to Members pursuant to Section 11.3 in connection with such dissolution, taking into consideration tax and other legal constraints that may adversely affect one or more parties to such dissolution and subject to compliance with applicable laws and regulations, unless, with respect to any class of Units, holders of a majority of the Units of such class consent in writing to a treatment other than as described above.

 

 

30

Section 11.2 Bankruptcy. For purposes of this Agreement, the “bankruptcy” of a Member shall mean the occurrence of any of the following: (a) any Governmental Entity shall take possession of any substantial part of the property of that Member or shall assume control over the affairs or operations thereof, or a receiver or trustee shall be appointed, or a writ, order, attachment or garnishment shall be issued with respect to any substantial part thereof, and such possession, assumption of control, appointment, writ or order shall continue for a period of 90 consecutive days; or (b) a Member shall admit in writing of its inability to pay its debts when due, or make an assignment for the benefit of creditors; or apply for or consent to the appointment of any receiver, trustee or similar officer or for all or any substantial part of its property; or shall institute (by petition, application, answer, consent or otherwise) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debts, dissolution, liquidation, or similar proceeding under the Laws of any jurisdiction; or (c) a receiver, trustee or similar officer shall be appointed for such Member or with respect to all or any substantial part of its property without the application or consent of that Member, and such appointment shall continue undischarged or unstayed for a period of 90 consecutive days or any bankruptcy, insolvency, reorganization, arrangements, readjustment of debt, dissolution, liquidation or similar proceedings shall be instituted (by petition, application or otherwise) against that Member and shall remain undismissed for a period of 90 consecutive days.

 

Section 11.3 Procedure.

 

	
 
	
a.
	
In the event of the dissolution of the Company for any reason, the Managing Member shall commence to wind up the affairs of the Company and to liquidate the Company’s investments; provided that if the Managing Member is in bankruptcy or dissolved, another Member designated by the Members, who shall be the “Managing Member” for the purposes of this Agreement (the Managing Member or such other Member, the “Winding-Up Member”) shall commence to wind up the affairs of the Company and, subject to Section 11.4(a), such Winding-Up Member shall have full right and unlimited discretion to determine in good faith the time, manner and terms of any sale or sales of the Property or other assets pursuant to such liquidation, having due regard to the activity and condition of the relevant market and general financial and economic conditions. The Members shall continue to share in allocations of Profits and Losses during the period of liquidation in the same manner and proportion as though the Company had not dissolved. The Company shall engage in no further business except as may be necessary, in the reasonable discretion of the Winding-Up Member, as applicable, to preserve the value of the Company’s assets during the period of dissolution and liquidation.

 

	
 
	
b.
	
Following the allocation of all Profits and Losses as provided in Article V, the proceeds of the liquidation and any other funds of the Company shall be distributed in the following order of priority:

 

	
 
	
i.
	
First, to the satisfaction, in the order of priority as provided by Law, of all of the Company’s debts and Liabilities to creditors (whether third parties or Members) (whether by payment thereof or the making of reasonable provision for the payment thereof (including by setting up such cash reserves as the Managing Member reasonably deems necessary for contingent, conditional or unmatured debts or Liabilities (which reserves when they become unnecessary shall be distributed in accordance with the provisions of subsection (ii), below))), except any obligations to the Members in respect of their Capital Accounts; and 

 

	
 
	
ii.
	
Second, subject to Section 6.2, the balance to the Members, pro rata in proportion to their respective Units.

 

	
 
	
c.
	
Except as provided in Section 11.4(a), no Member shall have any right to demand or receive property other than cash upon dissolution and termination of the Company.

 

	
 
	
d.
	
Upon the completion of the winding up of the Company and the distribution of all Company funds, the Winding-Up Member shall have the authority to execute and record a certificate of cancellation of the Company, as well as any and all other documents required to effectuate the termination of the Company, and the Company shall be terminated. 

 

 

31

Section 11.4 Rights of Members.

 

	
 
	
a.
	
Each Member irrevocably waives any right that it may have to maintain an action for partition with respect to the property of the Company.

 

	
 
	
b.
	
Except as otherwise provided in this Agreement, (i) each Member shall look solely to the assets of the Company for the return of its Capital Contributions, and (ii) no Member shall have priority over any other Member as to the return of its Capital Contributions, distributions or allocations.

 

Section 11.5 Notices of Dissolution. In the event a Liquidating Event occurs or an event occurs that would, but for provisions of Section 11.1, result in a dissolution of the Company, the Company shall, within 30 days thereafter, (a) provide written notice thereof to each of the Members and to all other parties with whom the Company regularly conducts business (as determined in the discretion of the Managing Member) and (b) comply, in a timely manner, with all filing and notice requirements under the Act or any other applicable Law.

 

Section 11.6 Reasonable Time for Winding Up. A reasonable time shall be allowed for the orderly winding up of the business and affairs of the Company and the liquidation of its assets in order to minimize any losses that might otherwise result from such winding up.

 

Section 11.7 No Deficit Restoration. No Member shall be personally liable for a deficit Capital Account balance of that Member, it being expressly understood that the distribution of liquidation proceeds shall be made solely from existing Company assets.

 

ARTICLE XII

GENERAL

 

Section 12.1 Amendments; Waivers.

 

	
 
	
a.
	
The terms and provisions of this Agreement may be waived, modified or amended (including by means of merger, consolidation or other business combination to which the Company is a party) only with the approval of the Managing Member; provided, however, that no amendment to this Agreement may:

 

	
 
	
i.
	
modify the limited liability of any Member, or increase the liabilities or obligations of any Member, in each case, without the consent of each such affected Member; or

 

	
 
	
ii.
	
materially alter or change any rights, preferences or privileges of any Interests in a manner that is different or prejudicial relative to any other Interests, without the approval of a majority in interest of the Members holding the Interests affected in such a different or prejudicial manner.

 

	
 
	
b.
	
Notwithstanding the foregoing subsection (a), the Managing Member, acting alone, may amend this Agreement, including Exhibits B and C, to reflect the admission of new Members, Transfers of Interests, the issuance of additional Units or Equity Securities, as provided by the terms of this Agreement, and, subject to Section 12.1(a), subdivisions or combinations of Units made in compliance with Section 4.1(g).

 

	
 
	
c.
	
Except for amendments adopted in accordance with this Agreement, no waiver of any provision or default under, nor consent to any exception to, the terms of this Agreement or any agreement contemplated hereby shall be effective unless in writing and signed by the party to be bound and then only to the specific purpose, extent and instance so provided.

 

Section 12.2 Further Assurances. Each party agrees that it will from time to time, upon the reasonable request of another party, execute such documents and instruments and take such further action as may be required to accomplish the purposes of this Agreement.

 

Section 12.3 Successors and Assigns. All of the terms and provisions of this Agreement shall be binding upon the parties and their respective successors and assigns, but shall inure to the benefit of and be 

 

32

enforceable by the successors and assigns of any Member only to the extent that they are permitted successors and assigns pursuant to the terms hereof. No party may assign its rights hereunder except as herein expressly permitted.

 

Section 12.4 Entire Agreement. This Agreement, together with all Exhibits and Schedules hereto and all other agreements referenced therein and herein, constitute the entire agreement between the parties hereto pertaining to the subject matter hereof and supersede all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties and there are no warranties, representations or other agreements between the parties in connection with the subject matter hereof except as specifically set forth herein and therein.

 

Section 12.5 Rights of Members Independent. The rights available to the Members under this Agreement and at Law shall be deemed to be several and not dependent on each other and each such right accordingly shall be construed as complete in itself and not by reference to any other such right. Any one or more and/or any combination of such rights may be exercised by a Member and/or the Company from time to time and no such exercise shall exhaust the rights or preclude another Member from exercising any one or more of such rights or combination thereof from time to time thereafter or simultaneously.

 

Section 12.6 Governing Law. This Agreement, the legal relations between the parties and any Action, whether contractual or non-contractual, instituted by any party with respect to matters arising under or growing out of or in connection with or in respect of this Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware applicable to contracts made and performed in such State and without regard to conflicts of law doctrines.

 

Section 12.7 Jurisdiction and Venue. The parties hereto hereby agree and consent to be subject to the exclusive jurisdiction of any federal court of the District of Delaware or the Delaware Court of Chancery (or, to the extent the Delaware Court of Chancery does not have jurisdiction, any state court of the State of Delaware) over any action, suit or proceeding (a “Legal Action”) arising out of or in connection with this Agreement. The parties hereto irrevocably waive the defense of an inconvenient forum to the maintenance of any such Legal Action. Each of the parties hereto further irrevocably consents to the service of process out of any of the aforementioned courts in any such Legal Action by the mailing of copies thereof by registered mail, postage prepaid, to such party at its address set forth in this Agreement, such service of process to be effective upon acknowledgment of receipt of such registered mail. Nothing in this Section 12.7 shall affect the right of any party hereto to serve legal process in any other manner permitted by law.

 

Section 12.8 Headings. The descriptive headings of the Articles, Sections and subsections of this Agreement are for convenience only and do not constitute a part of this Agreement.

 

Section 12.9 Counterparts. This Agreement and any amendment hereto or any other agreement (or document) delivered pursuant hereto may be executed in one or more counterparts and by different parties in separate counterparts. All of such counterparts shall constitute one and the same agreement (or other document) and shall become effective (unless otherwise provided therein) when one or more counterparts have been signed by each party and delivered to the other party.

 

Section 12.10 Notices. Any notice or other communication hereunder must be given in writing and (a) delivered in person, (b) transmitted by facsimile or telecommunications mechanism, provided, that any notice so given is also mailed as provided in clause (c), or (c) mailed by certified or registered mail, postage prepaid, receipt requested as follows:

 

If to the Company or the Managing Member, addressed to it at:

 

c/o Earthstone Energy, Inc.

1400 Woodloch Forest Drive, Suite 300

The Woodlands, Texas 77380

Telephone: (281) 298-4246

Attention: Frank A. Lodzinski, President and Chief Executive Officer

 

 

33

With copies (which shall not constitute notice) to:

 

Jones & Keller, P.C.

1999 Broadway, Suite 3150

Denver, Colorado 80202

Telephone: (303) 573-1600

Facsimile: (303) 573-8133

Attention: Reid A. Godbolt, Esq. 

 

or to such other address or to such other person as either party shall have last designated by such notice to the other parties. Each such notice or other communication shall be effective (i) if given by telecommunication, when transmitted to the applicable number so specified in (or pursuant to) this Section 12.10 and an appropriate answerback is received or, if transmitted after 4:00 p.m. local time on a Business Day in the jurisdiction to which such notice is sent or at any time on a day that is not a Business Day in the jurisdiction to which such notice is sent, then on the immediately following Business Day, (ii) if given by mail, on the first Business Day in the jurisdiction to which such notice is sent following the date three days after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, on the Business Day when actually received at such address or, if not received on a Business Day, on the Business Day immediately following such actual receipt.

 

Section 12.11 Representation By Counsel; Interpretation. The parties acknowledge that each party to this Agreement has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. Accordingly, any rule of Law, or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application and is expressly waived.

 

Section 12.12 Severability. If any provision of this Agreement is determined to be invalid, illegal or unenforceable by any Governmental Entity, the remaining provisions of this Agreement, to the extent permitted by Law shall remain in full force and effect, provided, that the essential terms and conditions of this Agreement for all parties remain valid, binding and enforceable.

 

Section 12.13 Expenses. Except as otherwise provided in this Agreement, in the Contribution Agreement, each party shall bear its own expenses in connection with the transactions contemplated by this Agreement.

 

Section 12.14 No Third Party Beneficiaries. Except as expressly provided in Section 7.4 and Section 10.2, nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto and their respective successors and permitted assigns, any rights or remedies under this Agreement or otherwise create any third party beneficiary hereto.

 

[Signatures on Next Page]

 

 

 

34

 

IN WITNESS WHEREOF, each of the parties hereto has caused this First Amended and Restated Limited Liability Company Agreement to be executed by its duly authorized officers as of the day and year first above written.

 

	
COMPANY:

	
 

	
EARTHSTONE ENERGY HOLDINGS, LLC

	
 

	
By:
	
/s/ Frank A. Lodzinski

	
Name:
	
Frank A. Lodzinski

	
Title:
	
President and Chief Executive Officer

 

	
MEMBER:

	
 

	
EARTHSTONE ENERGY, INC.

	
 

	
By:
	
/s/ Frank A. Lodzinski

	
Name:
	
Frank A. Lodzinski

	
Title:
	
President and Chief Executive Officer

 

	
MEMBER:

	
 

	
LYNDEN USA INC.

	
 

	
By:
	
/s/ Frank A. Lodzinski

	
Name:
	
Frank A. Lodzinski

	
Title:
	
President and Chief Executive Officer

 

	
MEMBER:

	
 

	
BOLD ENERGY HOLDINGS, LLC

	
 

	
By:
	
/s/ Joseph L. Castillo

	
Name:
	
Joseph L. Castillo

	
Title:
	
Authorized Person

 

 

 

 

[Signature Page to the First Amended and Restated Limited Liability Company Agreement]

 

EXHIBIT A

 

Summary of Initial Issuances

 

	
Event
	
 
	
Amount

	
 
	
 
	
 

	
Class A Conversion
	
 
	
22,656,624(1)

	
Class B Purchase
	
 
	
36,070,828(2)

	
Units- Earthstone Energy Holdings, LLC
	
 
	
22,656,624(3)

	
Units- Earthstone Energy Holdings, LLC
	
 
	
36,070,828(4)

_____________

	
(1)
	
To be issued to existing stockholders of PubCo on a one-for-one basis in exchange for shares of PubCo’s presently outstanding common stock, $0.001 par value. 

 

	
(2)
	
To be issued by PubCo to Bold for $36,071.

 

	
(3)
	
These Units of the Company will be issued to PubCo and Lynden in consideration of their respective contributions to the Company of 100% of the limited liability company interests of Earthstone Operating, LLC, a Texas limited liability company, EF Non‐Op, LLC, a Texas limited liability company, Sabine River Energy, LLC, a Texas limited liability company, Earthstone Legacy Properties, LLC, a Texas limited liability company, and Lynden USA Operating, LLC, a Texas limited liability company and $36,071 of cash.

 

	
(4)
	
These Units of the Company will be issued to Bold in consideration of its contribution to the Company of 100% of the limited liability company interest of Bold Energy III LLC.

 

 

 

A-1

 

EXHIBIT B

 

Units of limited liability company interests in Earthstone Energy Holdings, LLC to be held upon the closing of the Contribution Agreement:

 

	
Member
	
 
	
Number of 
Units Owned

	
 
	
 
	
 

	
Earthstone Energy, Inc.
	
 
	
16,791,296(1)

	
Lynden USA Inc.
	
 
	
5,865,328(2)

	
Bold Energy Holdings, LLC
	
 
	
36,070,828   

 

__________________

	
(1) 
	
Does not include Units to be issued to PubCo in connection with the grant of 150,000 shares of Class A Stock to certain individuals immediately after the closing of the Contribution Agreement.

 

	
(2) 
	
Includes number of Units to be held of record by Lynden USA Inc., a wholly-owned subsidiary of Lynden Energy Corp., a wholly-owned subsidiary of PubCo.

 

 

 

B-1

 

EXHIBIT C

 

	
Member
	
 
	
Class A Conversion Date 
Capital Account Balance

	
 
	
 
	
 

	
Earthstone Energy, Inc.
	
 
	
$230,880,320 

	
Lynden USA Inc.
	
 
	
$80,648,260 

	
Bold Energy Holdings, LLC
	
 
	
$495,973,885 

 

 

 

C-1

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