HomeMy WebLinkAboutC-20-65 5048 Blackstone OPCO RedactedApplicant (Entity) Information
Application Type
Proposed Location
Commercial Cannabis Business
Permit Application
C-20-65
Submitted On: Dec 04, 2020
Applicant
Marcus Vik
marcus@cookiesre.com
Applicant (Entity) Name:
5048 Blackstone OPCO. LLC
DBA:
--
Physical Address:
5048 North Blackstone
City:
Fresno
State:
California
Zip Code:
93710
Primary Contact Same as Above?
Yes
Primary Contact Name:
C Marcus Vik
Primary Contact Title:
Application Manager
Primary Contact Phone:
Primary Contact Email:
marcus@cookiesre.com
HAS ANY INDIVIDUAL IN THIS APPLICATION APPLIED FOR
ANY OTHER CANNABIS PERMIT IN THE CITY OF FRESNO?:
Yes
Select one or more of the following categories. For each
category, indicate whether you are applying for Adult-Use (“A”)
or/and Medicinal (“M”) or both
Both
Please make one selection for permit type. If making multiple
applications, please submit a new application for each permit
type and proposed location.
Permit Type
Retail (Storefront)
Business Formation Documentation:
Limited Liability Company
Property Owner Name:
Marc Tavakoli
Proposed Location Address:
5048 Blackstone Avenue
City:
Fresno
State:
California
Zip Code:
93710
Property Owner Phone:
310-285-6062
Property Owner Email:
marc@mdtproperties.com
Assessor's Parcel Number (APN):
418-080-80
Proposed Location Square Footage:
Supporting Information
Application Certification
Owner Information
3000
List all fictitious business names the applicant is operating under including the address where each business is located:
N/A
Has the Applicant or any of its owners been the subject of any
administrative action, including but not limited to suspension,
denial, or revocation of a cannabis business license at any time
during the past three (3) years?
No
Is the Applicant or any of its owners currently involved in an
application process in any other jurisdiction?
Yes
If so, please list and explain:
Applicant and/or its owners are currently involved in application processes in Illinois, Missouri, Antioch CA, Coalinga CA, El Cerrito
CA, Stanton CA, San Diego CA, San Francisco CA, Santa Rosa CA, Santa Barbara CA, Napa CA, Union City CA, Puerto Rico,
Portland OR, Corvallis OR.
I hereby certify, under penalty of perjury, on behalf of myself
and all owners, managers and supervisors identified in this
application that the statements and information furnished in this
application and the attached exhibits present the data and
information required for this initial evaluation to the best of my
ability, and that the facts, statements, and information
presented are true and correct to the best of my knowledge and
belief. I understand that a misrepresentation of fact is cause for
rejection of this application, denial of the permit, or revocation
of a permit issued.
In addition, I understand that the filing of this application grants
the City of Fresno permission to reproduce submitted materials
for distribution to staff, Commission, Board and City Council
Members, and other Agencies to process the application.
Nothing in this consent, however, shall entitle any person to
make use of the intellectual property in plans, exhibits, and
photographs for any purpose unrelated to the City's
consideration of this application.
Furthermore, by submitting this application, I understand and
agree that any business resulting from an approval shall be
maintained and operated in accordance with requirements of
the City of Fresno Municipal Code and State law. Under penalty
of perjury, I hereby declare that the information contained in
within and submitted with the application is true, complete, and
accurate. Iunderstand that a misrepresentation of the facts is
cause for rejection of this application, denial of a permit or
revocation of an issued permit. A denial or revocation on these
grounds shall not be appealable (FMC 9-3319(d)).
Name and Digital Signature
true
Title
CEO
Please note: the issuance of a permit will be determined based
on the application you submit and any major changes to your
business or proposal (i.e. ownership, location, etc.) after your
application is submitted may result in a denial.
All applications submitted are considered public documents for
Public Records Act request purposes.
For details about the information required as part of the
application process, see the Application Procedures &
Guidelines, City of Fresno Municipal Code Article 33 and any
additional requirements to complete the application process. All
documents can be found online via this link.
For questions please contact the City Manager’s Office at
559.621.5555.
PLANNING AND DEVELOPMENT DEPARTMENT
2600 Fresno Street • Third Floor Jennifer K. Clark, AICP, Director
Fresno, California 93721-3604
(559) 621-8277 FAX (559) 498-1026
November 17, 2020 Please reply to:
Rob Holt
(559) 621-8056
Marcus Vik
5048 Blackstone OPCO, LLC
4675 MacArthur Court, Suite 1500
Newport Beach, CA 92660
Dear Applicant:
SUBJECT: ZONING INQUIRY NUMBER P20-03927 REQUESTING INFORMATION
REGARDING CANNABIS RETAIL FOR PROPERTY LOCATED AT 5048
NORTH BLACKSTONE AVENUE
(APN 418-080-80)
Thank you for your inquiry regarding the allowance of new cannabis retail uses. The requested
information about cannabis retail uses was analyzed using Article 27, Chapter 15 of the Fresno
Municipal Code (FMC) of the City of Fresno. Please note, all research for this inquiry is based
on existing land development of the subject property. If there are multiple buildings on the
subject property, this research was based on the address provided in the request. This research
does not take into effect of future development unless provided in your application request. With
that, research of a proposed cannabis retail business on the subject property conveys the
following:
1. All cannabis retail businesses must be located on property zoned DTN (Downtown
Neighborhood), DTG (Downtown General), CMS (Commercial Main Street), CC
(Commercial Community), CR (Commercial Regional), CG (Commercial General), CH
(Commercial Highway), NMX (Neighborhood Mixed-Use), CMX (Corridor/Center Mixed-
Use), RMX (Regional Mixed-Use), and must meet all of the requirements for
development in these zones, including, but not limited to, parking, lighting, building
materials, etc.
The subject property is zoned RMX , which is one of the allowable zone districts for
cannabis retail businesses. Development standards of the RMX zone district are
available in Sections 15-1103, 15-1104, and 15-1105 of the FMC. The subject location
meets the zone district requirement, per Section 15-2739.B.1.a of the FMC, for a
cannabis retail business.
2. All building(s) in which a cannabis retail business is located shall be no closer than 800
feet from any property boundary containing the following: (1) A cannabis retail business;
(2) A school providing instruction for any grades pre-school through 12 (whether public,
private, or charter, including pre-school, transitional kindergarten, and K-12); (3) A day
care center licensed by the state Department of Social Services that is in existence at
the time a complete commercial cannabis business permit application is submitted; and,
(4) A youth center that is in existence at the time a complete commercial cannabis
business permit is submitted.
Zoning Inquiry P20-03927
5048 North Blackstone Avenue
Page 2
November 17, 2020
Although the subject property is located within 800 feet of a youth center, the existing
multi-tenant retail building, located at 5048 North Blackstone Avenue (southerly building)
on the subject property is not located within 800 feet of the property boundary of any of
the above-mentioned uses. The subject building meets the separation requirements,
per Section 15-2739.B.1.b of the FMC, for a cannabis retail business.
3. Prior to commencing operations, a cannabis retail business must obtain a Cannabis
Conditional Use Permit from the Planning and Development Department per Section 15-
2739.N of the FMC.
4. No more than 2 cannabis retail businesses may be located in any one Council District. If
more than 14 are ever authorized by Council (more than 2 per Council District), they
shall be dispersed evenly by Council District.
The subject property is in Council District 4. There are currently no cannabis retail
businesses located in Council District 4. This location requirement is satisfied for a
cannabis retail business.
Please review the entirety of Article 33, Chapter 9 (Cannabis Retail Business and
Commercial Cannabis), and Section 15-2739 (Adult Use and Medicinal Cannabis Retail
Business and Commercial Cannabis Business) of the FMC to understand other
requirements of cannabis retail businesses, including but not limited to, application
requirements, signage, etc.
This information was researched by the undersigned per the zoning request. The undersigned
certifies that the above information contained herein is believed to be accurate and is based
upon, or relates to, the information supplied by the requestor. The City of Fresno assumes no
liability for errors and omissions. All information was obtained from public records held by the
Planning and Development Department.
A copy of the Fresno Municipal Code may be obtained by contacting the City Clerk’s office at
559-621-7650. The Fresno Municipal Code may also be searched on the Internet, free of
charge, by going to www.fresno.gov. If you have questions regarding this matter, please
contact me by telephone at 559-621-8056 or at Robert.Holt@fresno.gov.
Cordially,
Rob Holt, Planner III
Development Services Division
Planning and Development Department
INDEMNIFICATION AND HOLD HARMLESS AGREEMENT
FOR COMMERCIAL CANNABIS BUSINESS PERMIT APPLICATION
To the fullest extent permitted by law, the City of Fresno (City) shall not assume any liability whatsoever with respect to
having issued a commercial cannabis business permit pursuant to Fresno Municipal Code Section. 9-3333 or otherwise
approving the operation of any commercial cannabis business or cannabis retail business.
In consideration for the submittal of an application for a commercial cannabis business permit application and/or issuance
of a cannabis business permit, and to the furthest extent allowed by law, Applicant does hereby agree to indemnify, hold
harmless and defend the City and each of its officers, officials, employees, agents and volunteers from any and all loss,
liability, fines, penalties, forfeitures, costs and damages (whether in contract, tort or strict liability, including but not limited
to personal injury, death at any time and property damage) incurred by City, Applicant or any other person, and from any
and all claims, demands and actions in law or equity (including reasonable attorney's fees and litigation expenses), arising
or alleged to have arisen directly or indirectly out of the issuance of a cannabis business permit. Applicant’s obligations
under the preceding sentence shall not apply to any loss, liability, fines, penalties, forfeitures, costs or damages caused
solely by the gross negligence, or caused by the willful misconduct, of City or any of its officers, officials, employees,
agents or volunteers.
Applicant must, at the time of permit issuance, maintain insurance at coverage limits and with conditions thereon
determined necessary and appropriate from time to time by the City Manager.
Applicant shall conduct all defense at his/her/its sole cost. The fact that insurance is obtained by Applicant shall not be
deemed to release or diminish the liability of Applicant, including, without limitation, liability assum ed under this Agreement.
The duty to indemnify shall apply to all claims regardless of whether any insurance policies are applicable. The duty to
defend hereunder is wholly independent of and separate from the duty to indemnify and such duty to defend exists
regardless of any ultimate liability of Applicant. The policy limits do not act as a limitation upon the amount of defense
and/or indemnification to be provided by Applicant. Approval or purchase of any insurance contracts or policies shall in no
way relieve from liability nor limit the liability of Applicant, its officials, officers, employees, agents, volunteers or invitees.
City shall be reimbursed for all costs and expenses, including but not limited to legal fees and costs and court
costs, which the city may be required to pay as a result of any legal challenge related to the city's approval of the
applicant's commercial cannabis business permit. The City may, at its sole discretion, participate at its own
expense in the defense of any such action, but such participation shall not relieve any of the obligations imposed
hereunder.
This Indemnification and Hold Harmless Agreement shall survive the expiration or termination of the Application
and/or Permit.
The undersigned acknowledges that he/she (i) has read and fully understands the content of this Indemnification
and Hold Harmless Agreement; (ii) is aware that this is a contract between the City and Applicant; (iii) has had the
opportunity to consult with his/her attorney, in his/her discretion; (iv) is fully aware of the legal consequences of
signing this document; and (v) is the Applicant or his/her/its authorized signatory.
Signed on this day of 2020.
Applican Signature City Employee Signature
Print Name and Company Name Print Name
Address Title
Telephone Number Telephone Number
12th December
2804 Gateway Oaks Drive, #100Sacrament CA 95833
Kacey Auston, 5048 Blackstone OPCO, LLC
OWNERSHIP ACKNOWLEDGEMENT FORM
FOR COMMERCIAL CANNABIS BUSINESS PERMIT APPLICATION
It is the intent of the City of Fresno to promote equitable ownership and employment opportunities in the cannabis industry to
decrease the disparities in life outcomes for marginalized communities and to provide opportunities for local residents to
compete for cannabis business permits. Therefore, this notice is to clarify the eligibility requirements in order to receive
qualification as a Social Equity Applicant or points for Local Preference by establishing this acknowledgement to provide
additional protections to mitigate against potential predatory practices.
In order to qualify as a social equity applicant, or for the full points relating to the local preference criteria, the business entity
must have ownership that meets the respective eligibility factors and hold at least 51% ownership interest. The social equity
eligibility requirements are identified in FMC section 9-3316(b)(6), while the local preference criteria is identified in FMC 9-
3317(a) and the application evaluation criteria 2.5 (Appendix A). This majority interest can be made up of a single individual that
meets this criteria, or any combination of individuals that hold at least 20% interest individually and meet the definition of an
owner in FMC 9-3304(j). The cannabis social equity permits, and the local preference criteria are intended for the benefit of the
Social Equity or Local Preference Individual Applicants related to business profits, proceeds of the sale of business assets, voting
rights and additional protections. This also requires the Social Equity or Local Preference Owner to receive the Equity Share
percent of the retained earnings and 100 percent of the unencumbered value of each share of stock, member interest or
partnership interest owned in the event of the dissolution of the entity to their equity share, or 100 percent of the value of each
of stock, member interest or partnership interest in the event that the stock, member interest or partnership interest is sold.
Chief among the concepts of equity share, is unconditional ownership which means such individual(s) will receive equal profits,
and distributions or other payments proportionate to their ownership interests. This is intended to ensure true ownership by the
Social Equity or Local Preference Individual Applicant and as such, prohibits the divestment or relinquishment of any part of their
ownership under any circumstance. In addition, the Equity Share is also expanded to address voting rights on fundamental
decisions relating to the business and control of at least the equity share percent of the voting rights on all decisions involving
the operation of the business. Furthermore, it requires the Social Equity or Local Preference Individual owner be the highest
officer position of the business or that another individual is appointed to that position by mutual agreement of the parties. This
requirement is also subject to being audited to assess compliance and the Social Equity or Local Preference Owner can initiate
legal action due to a breach of contract agreement, and the City may suspend and/or revoke a license if any provision in an
operating agreement violates any of the Equity Share or Local Preference requirements. Lastly, all applicants will be required to
incorporate an addendum into their operating agreements that makes any provision ineffective, unenforceable, null and void, if
it is inconsistent with, or in violation of, the Equity Share requirements. As proposed, Social Equity Applicants or Local Preference
Applicants will be required to verify under Section 9-3316(b)(6), 9-3317(a), and Criteria 2.5 of appendix A that they meet the
definition of a Social Equity or Local Preference Owner at the time of applying for a permit or permit renewal. The City shall have
the sole and absolute discretion to determine whether the Applicant qualifies as a Social Equity Applicant and the number of
points for Local Preference.
The undersigned acknowledges that he/she has read and fully understands the content of this Agreement and is
the Applicant or his/her/its authorized signatory.
__________________________________________________ __________________________________________________
Applicant Signature Date Signed
__________________________________________________ __________________________________________________
Print Name Title
__________________________________________________ _____________________________________
Company Name Address/Telephone
Kacey Auston
12/3/2020
Chief Executive Officer, Majority Owner
2804 Gateway Oaks Drive, #100Sacrament CA 958335048 Blackstone OPCO, LLC
5048 Blackstone OPCO, LLC
2804 Gateway Oaks Drive, #100
Sacramento CA 95833
Cal-OSHA Statement – 5048 Blackstone OPCO, LLC
In accordance with Fresno Municipal Code Section 9-3316(c) and California Business and
Professions Code Section 26051.5(11)(A), 5048 Blackstone OPCO, LLC will employ within
one year of receiving a commercial cannabis business permit, one supervisor and one
employee who have successfully completed a Cal-OSHA 30-hour general industry outreach
course offered by a training provider that is authorized by an OSHA Training Institute
Education Center to provide the course.
____________________________________
Kacey Auston, CEO of 5048 Blackstone OPCO, LLC
EXECUTION COPY
OPERATING AGREEMENT
among
5048 BLACKSTONE OPCO, LLC
and
THE MEMBERS NAMED HEREIN
December, 1, 2020
THE UNITS REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES ACTS OR LAWS OF ANY
STATE IN RELIANCE UPON EXEMPTIONS UNDER THOSE ACTS AND LAWS. THE
SALE OR OTHER DISPOSITION OF SUCH UNITS IS RESTRICTED AS STATED IN
THIS AGREEMENT, AND IN ANY EVENT IS PROHIBITED UNLESS THE COMPANY
RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO IT AND ITS COUNSEL
THAT SUCH SALE OR OTHER DISPOSITION CAN BE MADE WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
APPLICABLE STATE SECURITIES ACTS AND LAWS. BY ACQUIRING UNITS
REPRESENTED BY THIS AGREEMENT, EACH MEMBER REPRESENTS THAT IT
WILL NOT SELL OR OTHERWISE DISPOSE OF ITS UNITS WITHOUT
COMPLIANCE WITH THE PROVISIONS OF THIS AGREEMENT AND
REGISTRATION OR OTHER COMPLIANCE WITH THE AFORESAID ACTS AND
LAWS AND THE RULES AND REGULATIONS ISSUED THEREUNDER.
EXECUTION COPY
Table of Contents
ARTICLE I ORGANIZATION ...................................................................................................... 1
Section 1.01 Formation. ...................................................................................................... 1
Section 1.02 Name .............................................................................................................. 1
Section 1.03 Principal Place of Business ............................................................................ 2
Section 1.04 Registered Office; Registered Agent. ............................................................ 2
Section 1.05 Purpose; Powers. ............................................................................................ 2
Section 1.06 Term. .............................................................................................................. 2
Section 1.07 No State-Law Partnership. ............................................................................. 2
Section 1.08 Regulatory Licenses ....................................................................................... 3
Section 1.09 Cannabis Activities. ....................................................................................... 3
ARTICLE II UNITS ....................................................................................................................... 4
Section 2.01 Units Generally .............................................................................................. 4
Section 2.02 Authorization and Issuance of Common Units .............................................. 4
Section 2.03 Other Issuances .............................................................................................. 4
Section 2.04 Regulatory Compliance. ................................................................................ 4
ARTICLE III MEMBERS .............................................................................................................. 5
Section 3.01 Admission of New Members. ........................................................................ 5
Section 3.02 Representations and Warranties of Members ................................................ 5
Section 3.03 No Personal Liability ..................................................................................... 7
Section 3.04 No Withdrawal ............................................................................................... 8
Section 3.05 Death .............................................................................................................. 8
Section 3.06 Voting ............................................................................................................ 8
Section 3.07 No Interest in Company Property. ................................................................. 8
ARTICLE IV CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS ...................................... 8
Section 4.01 Initial Capital Contributions. ......................................................................... 8
Section 4.02 Additional Capital Contributions. .................................................................. 8
Section 4.03 Maintenance of Capital Accounts .................................................................. 9
Section 4.04 Succession Upon Transfer ........................................................................... 10
Section 4.05 Negative Capital Accounts .......................................................................... 10
Section 4.06 No Withdrawal. ............................................................................................ 10
Section 4.07 Treatment of Loans from Members ............................................................. 10
Section 4.08 Intent and Modifications .............................................................................. 10
ARTICLE V ALLOCATIONS ..................................................................................................... 10
Section 5.01 Allocation of Net Income and Net Loss ...................................................... 10
Section 5.02 Regulatory and Special Allocations ............................................................. 11
Section 5.03 Tax Allocations. ........................................................................................... 12
Section 5.04 Allocations in Respect of Transferred Units ................................................ 13
Section 5.05 Curative Allocations .................................................................................... 13
4840-1943-8017, v. 1
ARTICLE VI DISTRIBUTIONS ................................................................................................. 13
Section 6.01 General. ........................................................................................................ 13
Section 6.02 Priority of Distributions ............................................................................... 14
Section 6.03 Tax Distributions. ........................................................................................ 14
Section 6.04 Tax Withholding; Withholding Advances. .................................................. 15
Section 6.05 Distributions in Kind.................................................................................... 16
Section 6.06 Distribution Upon Deemed Liquidation Event ............................................ 17
Section 6.07 Limitations on Distributions to Units Treated as Profits Interests. .............. 17
ARTICLE VII MANAGEMENT ................................................................................................. 17
Section 7.01 Establishment of the Board .......................................................................... 17
Section 7.02 Board Composition; Vacancies.................................................................... 17
Section 7.03 Meetings of the Board; Quorum; Manner of Acting. .................................. 19
Section 7.04 Actions Requiring Approval of Members.................................................... 19
Section 7.05 Meetings of the Members. ........................................................................... 20
Section 7.06 Compensation; No Employment. ................................................................. 22
Section 7.07 No Personal Liability. .................................................................................. 22
Section 7.08 No Exclusive Duty ....................................................................................... 22
Section 7.09 Officers. ....................................................................................................... 22
ARTICLE VIII TRANSFER ........................................................................................................ 24
Section 8.01 General Restrictions on Transfer. ................................................................ 24
Section 8.02 Permitted Transfers ...................................................................................... 25
Section 8.03 Drag-Along Rights. ...................................................................................... 26
Section 8.04 Tag-Along Rights......................................................................................... 28
Section 8.05 Right of First Refusal. .................................................................................. 29
Section 8.06 Regulatory Redemption. .............................................................................. 30
ARTICLE IX COVENANTS ....................................................................................................... 32
Section 9.01 Confidentiality. ............................................................................................ 32
Section 9.02 Regulatory Covenants of the Members........................................................ 35
ARTICLE X TAX MATTERS ..................................................................................................... 36
Section 10.01 Income Tax Audits. ...................................................................................... 36
Section 10.02 Tax Returns; Tax Elections. ......................................................................... 38
Section 10.03 Company Funds ........................................................................................... 38
ARTICLE XI DISSOLUTION AND LIQUIDATION ................................................................ 39
Section 11.01 Events of Dissolution ................................................................................... 39
Section 11.02 Effectiveness of Dissolution. ....................................................................... 39
Section 11.03 Liquidation ................................................................................................... 39
Section 11.04 Cancellation of Articles ............................................................................... 40
Section 11.05 Survival of Rights, Duties and Obligations ................................................. 40
Section 11.06 Resource for Claims. .................................................................................... 41
ARTICLE XII EXCULPATION AND INDEMNIFICATION ................................................... 41
Section 12.01 Exculpation of Covered Persons. ................................................................. 41
4840-1943-8017, v. 1
Section 12.02 Liabilities and Duties of Covered Persons. .................................................. 41
Section 12.03 Indemnification. ........................................................................................... 42
ARTICLE XIII MISCELLANEOUS ........................................................................................... 44
Section 13.01 Expenses ...................................................................................................... 44
Section 13.02 Further Assurances....................................................................................... 44
Section 13.03 Notices ......................................................................................................... 44
Section 13.04 Interpretation; Headings............................................................................... 45
Section 13.05 Severability. ................................................................................................. 45
Section 13.06 Entire Agreement ......................................................................................... 45
Section 13.07 Successors and Assigns................................................................................ 46
Section 13.08 No Third-party Beneficiaries ....................................................................... 46
Section 13.09 Amendment. ................................................................................................. 46
Section 13.10 Waiver. ......................................................................................................... 46
Section 13.11 Governing Law. ........................................................................................... 46
Section 13.12 Dispute Resolution. ...................................................................................... 46
Section 13.13 Binding Arbitration ...................................................................................... 47
Section 13.14 Equitable Remedies. .................................................................................... 47
Section 13.15 Attorneys’ Fees ............................................................................................ 47
Section 13.16 Remedies Cumulative .................................................................................. 48
Section 13.17 Federal Cannabis Laws ................................................................................ 48
Section 13.18 Counterparts ................................................................................................. 48
EXECUTION COPY
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
THIS OPERATING AGREEMENT (this “Agreement”) of 5048 Blackstone OPCO,
LLC, a California limited liability company (the “Company”), is effective as of the 1st day of
December, 2020, by and among the Company and each person and entity who from time-to-time
is admitted as a member of the Company in accordance with the terms of this Agreement (each
individually a “Member,” and collectively, along with the Local Preference Owner, the
“Members”) and is listed as a member on Schedule A attached hereto (the “Members Schedule”)
and Kacey Auston (the “Local Preference Owner”). Capitalized terms used herein shall have the
meanings set forth in Annex 1 attached hereto.
RECITALS
WHEREAS, the Company was formed as a limited liability company under the California
Revised Uniform Limited Liability Company Act, Title 2.6, §§ 17701, et seq. (as amended from
time to time, the “LLC Act”) by the filing of the Company’s Articles of Organization (the “Articles
of Organization”) with the Secretary of the State of California on June, 18, 2020;
WHEREAS, the Local Preference Owner qualifies as such pursuant to the City of Fresno’s
Commercial Cannabis Business Permit Application Evaluation Criteria 2.5;
WHEREAS, the Members intend for the Local Preference Owner to maintain unconditional
ownership of its equity share; and
WHEREAS, the parties agree that the membership in and management of the Company shall
be governed by the terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter
set forth and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
ORGANIZATION
Section 1.01 Formation.
(a) The Company was formed on June, 18, 2020 upon the filing of the Articles
of Organization with the Secretary of the State of California.
(b) This Agreement shall constitute the “operating agreement” (as that term is
used in the LLC Act) of the Company. The rights, powers, duties, obligations, and liabilities of the
Members shall be determined pursuant to this Agreement and the LLC Act. To the extent such
rights, powers, duties, obligations and liabilities are different by reason of any provision of this
Agreement than they would be under the LLC Act, in the absence of such provision, this
Agreement shall, to the extent permitted by the LLC Act, control.
Section 1.02 Name. The name of the Company is “5048 Blackstone OPCO, LLC” or
such other name or names as the Board may from time-to-time designate in accordance with the
LLC Act; provided, however, that the name shall always contain the words “Limited Liability
PAGE 2 OF 48
4840-1943-8017, v. 1
Company” or other abbreviation “L.L.C.” or the designation “LLC”. The Board shall give prompt
notice to each of the Members of any change to the name of the Company.
Section 1.03 Principal Place of Business. The principal place of business of the
Company will be at such place as may from time to time be determined by the Board. The Board
shall give prompt notice of any such change to each of the Members.
Section 1.04 Registered Office; Registered Agent.
(a) The street and mailing address of the registered office of the Company shall
be the office of the initial registered agent named in the Articles of Organization or such other
office (which need not be a place of business of the Company) as the Board may designate from
time to time in the manner provided by Applicable Law.
(b) The registered agent of the Company for service of process in the State of
California shall be as set forth in the Articles of Organization or any subsequent filing with the
Secretary of the State of California.
(c) In the event of a change in the registered office or agent of the Company by
the Board, the Company shall promptly file a statement of change with the Secretary of State of
California in the manner provided by the LLC Act.
Section 1.05 Purpose; Powers.
(a) The purpose of the Company is to engage in any activity within the purposes
for which a limited liability company may be formed under the LLC Act and to engage in any and
all activities necessary or incidental thereto.
(b) The Company shall have all the powers necessary or convenient to carry
out the purposes for which it is formed, including the powers granted by the LLC Act.
Section 1.06 Term. The term of the Company commenced on the date the Articles of
Organization were filed with the Secretary of State of California and shall continue in existence
perpetually until the Company is dissolved in accordance with the provisions of this Agreement
or the LLC Act.
Section 1.07 No State-Law Partnership. The Members intend that the Company shall
be treated as a partnership for federal and, if applicable, state and local income tax purposes, and,
to the extent permissible, the Company shall elect to be treated as a partnership for such purposes.
The Company and each Member shall file all tax returns and shall otherwise take all tax and
financial reporting positions in a manner consistent with such treatment and no Member shall take
any action inconsistent with such treatment. The Members intend that the Company shall not be a
state law partnership (including, without limitation, a limited partnership) or joint venturer, and
that no Member, Manager or Officer of the Company shall be a partner or joint venture of any
other Member, Manager or Officer of the Company, for any purpose other than as set forth in the
first sentence of this Section 1.07.
PAGE 3 OF 48
4840-1943-8017, v. 1
Section 1.08 Regulatory Licenses. The Members intend that the Company or Company
Subsidiaries shall hold Regulatory Licenses pursuant to applicable Regulatory Laws. The
Company’s management shall, at all times, comply with the requirements of all Regulatory Laws,
including all rules, ordinances and guidelines put forth by the City of Fresno (the “City”). The
Company shall not engage in any Regulated Activity without the applicable Regulatory Licenses.
In connection with the foregoing, the Board and each Member shall take all actions reasonably
necessary in connection with any application for such Regulatory Licenses and shall not otherwise
take or fail to take any action that would reasonably be expected to have a material adverse effect
on such applications. Without limiting the foregoing, the Members and the Board acknowledge
and agree that this Agreement and the management of the Company must comply with Regulatory
Laws and may be subject to review or approval by Regulatory Authorities. In the event that a
Regulatory Authority determines, or the Board or Members otherwise reasonably determine, that
this Agreement or the management of the Company does not comply with Regulatory Laws
(including pursuant to a change in Regulatory Laws or direction by Regulatory Authorities) or
otherwise would reasonably be likely to preclude or materially delay, jeopardize, impede or impair,
or impose materially burdensome terms and conditions on, the ability of the Company or any of
its subsidiaries to conduct any Regulated Activities or to obtain, retain, renew or reinstate any
Regulatory License, the parties hereto shall negotiate in good faith to modify this Agreement so
as to effect the original intent of the parties as closely as possible in a mutually acceptable manner
in order that the transactions contemplated hereby be consummated as originally contemplated to
the greatest extent possible.
Section 1.09 Cannabis Activities.
(a) ACQUISITION OF THE UNITS OR SERVICES TO THE COMPANY
INVOLVES DIRECT AND/OR INDIRECT INTERESTS IN CANNABIS. THE
CULTIVATION, HARVESTING, MANUFACTURING, PRODUCTION,
MARKETING, COMMERCIALIZATION, DISTRIBUTION, TRANSFER, SALE
AND/OR POSSESSION OF CANNABIS IS ILLEGAL UNDER U.S. FEDERAL LAW.
NO PARTY HERETO, NOR ANY ATTORNEYS FOR SUCH PARTY, HAVE MADE
ANY REPRESENTATION TO THE CONTRARY. EACH MEMBER, MANAGER AND
OFFICER ASSUMES ALL RISKS ASSOCIATED WITH ACQUISITION OF THE
UNITS OR SERVICES TO THE COMPANY, INCLUDING THE RISK OF CRIMINAL
PROSECUTION, AND HEREBY REPRESENTS AND WARRANTS THAT IT
ACKNOWLEDGES AND UNDERSTANDS SUCH RISKS AND THAT ITS
ACQUISITION OF THE UNITS OR SERVICES TO THE COMPANY DOES NOT
VIOLATE THE LAWS OF THE JURISDICTIONS UNDER WHICH IT RESIDES OR
IS DOMICILED AND, AS APPLICABLE, IS FORMED OR ORGANIZED (OTHER
THAN THE FEDERAL CANNABIS LAWS).
(b) Each Member acknowledges and is aware that the Company is a
commercial cannabis business and/or shall enter into contractual arrangements with
commercial cannabis businesses. Each Member further acknowledges that as a result of
the Company or subsidiary engaging in commercial cannabis business or business with
commercial cannabis businesses, such Member (and/or its respective owners, directors,
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officers and managers (collectively, the “Member Parties”)) may be required to be listed
as owners, financial interest holders or in another capacity of the Company or other
commercial cannabis businesses under the Regulatory Laws. The Company and each
Member shall promptly and without delay work in good faith to include the Member Parties
as a financial interest holder or owner, as applicable (as may be required by the Regulatory
Laws as determined in good faith by the Company) on the Company’s licenses and, if
applicable as determined in good faith by the Company, on any other licenses of any entity
with which the Company or any subsidiary has contracted. Each Member agrees to provide
the Company with all information regarding the Member Parties as may be required by the
Regulatory Laws. The Members and the Company further agree and acknowledge that any
required disclosure of the Member Parties for purposes of the Regulatory Laws shall not
alter the respective liabilities and indemnifications of the Members as set forth in this
Agreement.
ARTICLE II
UNITS
Section 2.01 Units Generally. The Membership Interests shall be represented by issued
and outstanding Units, which may be divided into one (1) or more types, classes, or series. Each
type, class, or series of Units shall have the privileges, preference, distribution priorities, duties,
liabilities, obligations and rights, including voting rights, if any, set forth in this Agreement. The
Units shall not be certificated. The Board shall maintain the Members Schedule to include the
number of Units, including types, classes and series, held by each of them and shall update the
Members Schedule upon the issuance or Transfer of any Units to any new or existing Member as
permitted hereunder.
Section 2.02 Authorization and Issuance of Common Units. Subject to compliance
with the terms of this Agreement, the Company is hereby authorized to issue a class of Units
designated as Common Units.
Section 2.03 Other Issuances. In addition to the Common Units, the Company is hereby
authorized, subject to compliance with the provisions of this Agreement (including Section 7.04),
to authorize and issue or sell to any Person any of the following (collectively, “New Interests”):
(a) any new type, class or series of Units not otherwise described in this Agreement, which Units
may be designated as classes or series of the Common Units but having different rights; and (b)
Unit Equivalents.
Section 2.04 Regulatory Compliance. Notwithstanding anything else contained herein,
any authorization, issuance, or sale of additional Units, Unit Equivalents or New Interests shall be
permitted only if such authorization, issuance or sale: (a) is conducted in compliance with the
requirements of all Regulatory Laws (including the applicable Regulatory Authority), including
that such authorization, issuance or sale may be subject to the prior approval of the Regulatory
Authorities; and (b) will not be reasonably expected to preclude or materially delay, jeopardize,
impede or impair, or impose materially burdensome terms and conditions on, the ability of the
Company or any of its subsidiaries to conduct any Regulated Activities or to obtain, retain, renew
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or reinstate any Regulatory License Any purported authorization, issuance, or sale of any Units,
Unit Equivalents or New Interests in violation of this Section 2.04 shall be null and void.
ARTICLE III
MEMBERS
Section 3.01 Admission of New Members.
(a) Notwithstanding anything else contained herein, a Person not already a
Member of the Company shall be admitted into the Company as a Member only if: (i) such Person
is suitable, eligible or otherwise qualified pursuant to any Regulatory Laws (including by the
applicable Regulatory Authority) to be a Member and to own or control the applicable Units; (ii)
such admission is conducted in compliance with the Regulatory Laws, including that such
admission may be subject to the prior approval of the Regulator y Authorities; and (iii) such
admission would not reasonably be expected to preclude or materially delay, jeopardize, impede
or impair, or impose materially burdensome terms and conditions on, the ability of the Company
or any of its subsidiaries to conduct any Regulated Activities or to obtain, retain, renew or reinstate
any Regulatory License. Any admission or attempted admission of a Person as a Member in
violation of this Section 3.01(a) shall be null and void and of no effect for all purposes of this
Agreement.
(b) Any Person not already a Member of the Company may be admitted as a
Member from time to time: (i) in connection with an issuance of Units by the Company; and (ii)
in connection with a Transfer of Units, in each case, subject to compliance with the provisions of
this Agreement.
(c) In order for any Person not already a Member of the Company to be
admitted as a Member, whether pursuant to an issuance or Transfer of Units, (i) Section 3.01(a)
shall be complied with and (ii) such Person shall have executed and delivered to the Company a
written undertaking substantially in the form of the Joinder Agreement. Upon the amendment of
the Members Schedule by the Board and the satisfaction of any other applicable conditions,
including, if a condition, the receipt by the Company of payment for the issuance of the applicable
Units, such Person shall be admitted as a Member and deemed listed as such on the books and
records of the Company and thereupon shall be issued his, her or its Units.
Section 3.02 Representations and Warranties of Members. By execution and delivery
of this Agreement or a Joinder Agreement, as applicable, each Member, whether admitted as of
the date hereof or pursuant to Section 3.01, represents and warrants to the Company and
acknowledges that:
(a) The Units have not been registered under the Securities Act or the securities
laws of any other jurisdiction, are issued in reliance upon federal and state exemptions for
transactions not involving a public offering and cannot be disposed of unless: (i) they are
subsequently registered or exempted from registration under the Securities Act ; and (ii) the
provisions of this Agreement have been complied with;
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(b) Such Member’s Units are being acquired for its own account solely for
investment and not with a view to resale or distribution thereof;
(c) Such Member, with the assistance of its advisor (if any): (i) has conducted
its own independent review and analysis of the business, operations, as sets, liabilities, results of
operations, financial condition and prospects of the Company; (ii) has made its own evaluation of
the legal, tax, accounting, financial and other merits and risks of an investment in the Company;
and (iii) acknowledges that it and its advisors (if any) have been provided adequate access to the
personnel, properties, premises and records of the Company and Company Subsidiaries for such
purpose;
(d) The determination of such Member to acquire Units has been made by such
Member independent of any other Member and independent of any statements or opinions as to
the advisability of such purchase or as to the business, operations, assets, liabilities, results of
operations, financial condition and prospects of the Company and Company Subsidiaries that may
have been made or given by any other Member or by any agent or employee of any other Member;
(e) Such Member, with the assistance of its own professional advisors, to the
extent such Member has deemed appropriate, has such knowledge and experience in financial and
business matters and is capable of evaluating the merits and risks of an investment in the Company
and making an informed decision with respect thereto;
(f) Such Member is able to bear the economic and financial risk of an
investment in the Company for an indefinite period of time;
(g) The execution, delivery and performance of this Agreement have been duly
authorized by such Member and do not require such Member to obtain any consent or approval
that has not been obtained and do not contravene or result in a default in any material respect under
any provision of any law or regulation applicable to such Member or other governing documents
or any agreement or instrument to which such Member is a party or by which such Member is
bound;
(h) This Agreement is valid, binding and enforceable against such Member in
accordance with its terms, except as may be limited by Bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general applicability relating to or affecting creditors’ rights
or general equity principles (regardless of whether considered at law or in equity);
(i) Neither the issuance of any Units to any Member nor any provision
contained herein will entitle the Member to remain in the employment of the Company or any
Company Subsidiary or affect the right of the Company or any Company Subsidiary to terminate
the Member’s employment at any time for any reason, other than as otherwise provided in such
Member’s employment agreement or other similar agreement with the Company or Company
Subsidiary;
(j) Such Member is suitable, eligible or otherwise qualified pursuant to any
Regulatory Laws (including by the applicable Regulatory Authority) to be a Member and to own
or control the applicable Units;
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(k) Such Member’s acquisition of the Units does not violate the laws of the
jurisdictions under which such Member resides or is domiciled and, as applicable, is formed or
organized (other than the Federal Cannabis Laws);
(l) SUCH MEMBER UNDERSTANDS AND ACKNOWLEDGES THAT
THE COMPANY INTENDS TO ENGAGE, DIRECTLY OR INDIRECTLY, IN CANNABIS
RELATED ACTIVITIES AND THAT SUCH MEMBER HAS REVIEWED AND
CONSIDERED THE RISK FACTORS RELATED TO AN INVESTMENT IN THE COMPANY
ATTACHED HERETO AS EXHIBIT C AND ADDITIONAL RISK FACTORS THAT MAY
AFFECT AN INVESTMENT IN THE COMPANY, INCLUDING WITHOUT LIMITATION
THE FOLLOWING:
(i) CANNABIS IS CLASSIFIED UNDER FEDERAL LAW AS A
SCHEDULE I NARCOTIC. UNDER SUPREME COURT PRECEDENT,
FEDERAL LAW CRIMINALIZING THE USE OF CANNABIS IS NOT
PREEMPTED BY STATE LAW THAT LEGALIZES ITS USE. THUS,
IRRESPECTIVE OF ANY STATE LAW OR OTHER REGULATORY LAW,
THE FEDERAL GOVERNMENT COULD AT ANY TIME CHOOSE TO
PROSECUTE THE COMPANY AND ITS OWNERS, INCLUDING ITS
MEMBERS;
(ii) Because cannabis is illegal under federal law, many banking
institutions take the position that they cannot accept for deposit funds from the
marijuana trade, and therefore cannot do business with participants in the cannabis
industry, such as the Company; and
(iii) Certain taxable deductions may be barred under 26 U.S.C. § 280E,
which states that a business engaging in the trafficking of a Schedule I or II
controlled substance (e.g. cannabis) is barred from taking certain “necessary and
ordinary” expenses as deductions. As such, the Members may experience “phantom
income,” where they are taxed on the allocated profits of the Company in excess of
the profits of the Company which are actually distributed to them hereunder.
(m) None of the foregoing shall replace, diminish or otherwise adversely affect
any Member’s representations and warranties made by it in any Subscription Agreement.
Section 3.03 No Personal Liability. Except as otherwise expressly provided in the LLC
Act or expressly in this Agreement, no Member will be obligated personally for any debt,
obligation or liability of the Company or of any Company Subsidiary or other Members, whether
arising in contract, tort or otherwise, solely by reason of being a Member. Except as otherwise
expressly provided in the LLC Act, the liability of each Member shall be limited to the amount of
Capital Contributions required to be made by such Member in accordance with the provisions of
this Agreement, but only when and to the extent the same shall become due pursuant to the
provisions of this Agreement.
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Section 3.04 No Withdrawal. A Member shall not cease to be a Member as a result of
the Bankruptcy of such Member. So long as a Member continues to hold any Units, such Member
shall not have the ability to withdraw or resign as a Member prior to the dissolution and winding
up of the Company and any such withdrawal or resignation or attempted withdrawal or resignation
by a Member prior to the dissolution or winding up of the Company shall be null and void. As
soon as any Person who is a Member ceases to hold any Units, such Person shall no longer be a
Member.
Section 3.05 Death. The death of any Member shall not cause the dissolution of the
Company. In such event the Company and its business shall be continued by the remaining
Member or Members and the Units owned by the deceased Member shall , subject to compliance
with the provisions of this Agreement, be Transferred to such Member’s heirs; provided, however,
that within a reasonable time after such Transfer, the applicable heirs shall sign a written
undertaking substantially in the form of the Joinder Agreement.
Section 3.06 Voting. Except as otherwise provided by this Agreement (including Section
13.10) or as otherwise required by Applicable Law, each Member shall be entitled to one (1) vote
per Common Unit on all matters upon which the Members have the right to vote under this
Agreement. For clarity, the Local Preference Owner shall retain control of at least fifty one percent
(51%) of the votes on all decisions involving the operations of the Company’s business upon which
the Members have a right to vote under this Agreement.
Section 3.07 No Interest in Company Property. No real or personal property of the
Company shall be deemed to be owned by any Member individually, but shall be owned by, and
title shall be vested solely in, the Company. Without limiting the foregoing, each Member hereby
irrevocably waives during the term of the Company any right that such Member may have to
maintain any action for partition with respect to the property of the Company.
ARTICLE IV
CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS
Section 4.01 Initial Capital Contributions. Each Member as of the date hereof agrees
to contribute to the Company such initial Capital Contributions in the aggregate amount set forth
on the Members Schedule as consideration for the number, type, series and class of Units in the
amounts set forth opposite such Member’s name on the Members Schedule as in effect on the date
hereof. Capital Contributions shall be credited to the contributing Member's Capital Account at
the time of such contribution to the Company.
Section 4.02 Additional Capital Contributions.
(a) No Member shall be required to make any additional Capital Contributions
to the Company. Any future Capital Contributions made by any Member shall only be made with
the consent of the Board and in connection with an issuance of Units made in compliance with
Article VIII.
(b) No Member shall be required to lend any funds to the Company and no
Member shall have any personal liability for the payment or repayment of any Capital Contribution
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by or to any other Member. If one or more Members lend funds to the Company in order to fund
operating expenses or working capital needs of the Company, the interest rate on such borrowing
shall not exceed an amount equal to the Company Interest Rate, and such loan shall be on such
other terms as determined by the Board and the lending Member.
(c) In the event that the Company, in the Board’s sole discretion, does not have
sufficient cash flow to pay its operating expenses or capital expenses or otherwise requires
additional capital for working capital needs, the Board shall first provide notice to all Members of
such capital needs and permit any Member to lend to the Company at the Company Interest Rate
or to make additional Capital Contributions to the Company (the “Additional Capital”) for such
capital needs, in such Member’s sole discretion. Upon the contribution of any such Additional
Capital, the following shall apply: (i) the Company shall pay a Preferred Return on such Additional
Capital in accordance with Section 6.02 and other provisions of this Agreement, and (ii) the
Member contributing any such Additional Capital shall receive a priority return on Distributions
with respect to its Unrecovered Additional Capital in accordance with Section 6.02 and other
provisions of this Agreement.
Section 4.03 Maintenance of Capital Accounts. The Company shall establish and
maintain for each Member a separate capital account (a “Capital Account”) on its books and
records in accordance with this Section 4.03 and other provisions of this Article IV. Each Capital
Account shall be established and maintained in accordance with the following provisions:
(a) Each Member’s Capital Account shall be increased by the amount of:
(i) such Member’s Capital Contributions, including such Member’s
initial Capital Contribution;
(ii) any Net Income or other item of income or gain allocated to such
Member pursuant to Article V; and
(iii) any liabilities of the Company that are assumed by such Member or
secured by any property Distributed to such Member.
(b) Each Member’s Capital Account shall be decreased by:
(i) the cash amount or Book Value of any property Distributed to such
Member pursuant to Article VI and Section 11.03(c);
(ii) the amount of any Net Loss or other item of loss or deduction
allocated to such Member pursuant to Article V; and
(iii) the amount of any liabilities of such Member assumed by the
Company or which are secured by any property contributed by such Member to the
Company.
(c) The Rules of Treasury Regulations § 1.704-1(b)(2)(iv)(d) (with respect to
the maintenance of capital accounts in connection with the exercise of a noncompensatory option)
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shall be incorporated by reference and shall be given effect in the maintenance of the Capital
Accounts.
Section 4.04 Succession Upon Transfer. In the event that any Units are Transferred in
accordance with the terms of this Agreement, the Transferee shall succeed to the Capital Account
of the Transferor to the extent it relates to the Transferred Units and, subject to Section 5.04, shall
receive allocations and Distributions pursuant to Article V and Article VI in respect of such Units.
Section 4.05 Negative Capital Accounts. In the event that any Member shall have a
deficit balance in his, her or its Capital Account, such Member shall have no obligation, during
the term of the Company or upon dissolution or liquidation thereof, to restore such negative
balance or make any Capital Contributions to the Company by reason thereof, except as may be
required by Applicable Law or in respect of any negative balance resulting from a withdrawal of
capital or dissolution in contravention of this Agreement.
Section 4.06 No Withdrawal. No Member shall be entitled to withdraw any part of his,
her or its Capital Account or to receive any Distribution from the Company, except as provided in
this Agreement. No Member shall receive any interest, salary or drawing with respect to its Capital
Contributions or its Capital Account, except as otherwise provided in this Agreement. The Capital
Accounts are maintained for the sole purpose of allocating items of income, gain, loss and
deduction among the Members and shall have no effect on the amount of any Distributions to any
Members, in liquidation or otherwise.
Section 4.07 Treatment of Loans from Members. Loans by any Member to the
Company shall not be considered Capital Contributions and shall not affect the maintenance of
such Member’s Capital Account, other than to the extent provided in Section 4.03(a)(iii), if
applicable.
Section 4.08 Intent and Modifications. The foregoing provisions and the other
provisions of this Agreement relating to the maintenance of Capital Accounts are intended to
comply with Treasury Regulations § 1.704-1(b) and shall be interpreted and applied in a manner
consistent with such Treasury Regulations. If the Board determines that it is prudent to modify the
manner in which the Capital Accounts, or any increases or decreases to the Capital Accounts, are
computed in order to comply with such Treasury Regulations, the Board may authorize such
modifications.
ARTICLE V
ALLOCATIONS
Section 5.01 Allocation of Net Income and Net Loss. For each Fiscal Year (or portion
thereof), except as otherwise provided in this Agreement, Net Income and Net Loss (and, to the
extent necessary, individual and/or gross items of income, gain, loss or deduction) of the Company
shall be allocated among the Members in a manner such that, after adjusting each Member’s
Capital Account for all Capital Contributions and Distributions made during such Fiscal Year (or
portion thereof) and after giving effect to the special allocations set forth in Section 5.02, the Target
Capital Account balance of each Member (which may be either a positive or negative balance),
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immediately after making such adjustments and allocations, is, as nearly as possible, equal to the
Distributions that would be made to such Member pursuant to Section 11.03(c) if the Company
were dissolved, its affairs wound up and its assets sold for cash equal to their Book Value, all
Company liabilities were satisfied (limited with respect to each Nonrecourse Liability to the Book
Value of the assets securing such liability), and the net assets of the Company were Distributed, in
accordance with Section 11.03(c).
Section 5.02 Regulatory and Special Allocations. Notwithstanding the provisions of
Article VI:
(a) If there is a net decrease in Company Minimum Gain (determined according
to Treasury Regulations § 1.704-2(d)(1)) during any Fiscal Year, each Member shall be specially
allocated Net Income for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an
amount equal to such Member’s share of the net decrease in Company Minimum Gain, determined
in accordance with Treasury Regulations § 1.704-2(g). The items to be so allocated shall be
determined in accordance with Treasury Regulations §§ 1.704-2(f)(6) and 1.704-2(j)(2). This
Section 5.02(a) is intended to comply with the “minimum gain chargeback” requirement in
Treasury Regulations § 1.704-2(f) and shall be interpreted consistently therewith.
(b) Member Nonrecourse Deductions shall be allocated in the manner required
by Treasury Regulations § 1.704-2(i). Except as otherwise provided in Treasury Regulations §
1.704-2(i)(4), if there is a net decrease in Member Nonrecourse Debt Minimum Gain during any
Fiscal Year, each Member that has a share of such Member Minimum Gain shall be specially
allocated Net Income for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an
amount equal to that Member’s share of the net decrease in Member Nonrecourse Debt Minimum
Gain. Items to be allocated pursuant to this paragraph shall be determined in accordance with
Treasury Regulations §§ 1.704-2(i)(4) and 1.704-2(j)(2). This Section 5.02(b) is intended to
comply with the “minimum gain chargeback” requirements in Treasury Regulations § 1.704-
2(i)(4) and shall be interpreted consistently therewith.
(c) In the event any Member unexpectedly receives any adjustments,
allocations, or Distributions described in Treasury Regulations §§ 1.704-1(b)(2)(ii)(d)(4), (5), or
(6), Net Income shall be specially allocated to such Member in an amount and manner sufficient
to eliminate the Adjusted Capital Account deficit created by such adjustments, allocations, or
Distributions as quickly as possible. This Section 5.02(c) is intended to comply with the qualified
income offset requirement in Treasury Regulations § 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
(d) In the event an allocation of Net Loss would cause or increase an Adjusted
Capital Account deficit of a Member in a manner that cannot have substantial economic effect,
such Net Loss will, unless otherwise determined by the Board, be allocated among all Members
according to their Unit holdings.
(e) The allocations set forth in Section 5.02(a) through Section 5.02(c) above
(the “Regulatory Allocations”) are intended to comply with certain requirements of the Treasury
Regulations under Code § 704. Notwithstanding any other provisions of this Article V (other than
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4840-1943-8017, v. 1
the Regulatory Allocations), the Regulatory Allocations shall be taken into account in allocating
Net Income and Net Losses among Members so that, to the extent possible, the net amount of such
allocations of Net Income and Net Losses and other items and the Regulatory Allocations to each
Member shall be equal to the net amount that would have been allocated to such Member if the
Regulatory Allocations had not occurred.
(f) The Board and the Members acknowledge that allocations like those
described in Proposed Treasury Regulations § 1.704-1(b)(4)(xii)(c) (“Forfeiture Allocations”)
result from the allocations of Net Income and Net Loss provided for in this Agreement. For the
avoidance of doubt, the Company is entitled to make Forfeiture Allocations and, once required by
applicable final or temporary guidance, allocations of Net Income and Net Loss will be made in
accordance with Proposed Treasury Regulations § 1.704-1(b)(4)(xii)(c) or any successor provision
or guidance.
Section 5.03 Tax Allocations.
(a) Subject to Section 5.03(b) through Section 5.03(e), all income, gains, losses,
and deductions of the Company shall be allocated, for federal, state, and local income tax purposes,
among the Members in accordance with the allocation of such income, gains, losses, and
deductions among the Members for computing their Capital Accounts, except that if any such
allocation for tax purposes is not permitted by the Code or other Applicable Law, the Company’s
subsequent income, gains, losses, and deductions shall be allocated among the Members for tax
purposes, to the extent permitted by the Code and other Applicable Law, so as to reflect as nearly
as possible the allocation set forth herein in computing their Capital Accounts.
(b) Items of Company taxable income, gain, loss, and deduction with respect to
any property contributed to the capital of the Company shall be allocated among the Members in
accordance with Code § 704(c) and such permissible method(s) under Treasury Regulations §
1.704-3 as determined by the Tax Representative with the consent of the Members, so as to take
account of any variation between the adjusted basis of such property to the Company for federal
income tax purposes and its Book Value.
(c) If the Book Value of any Company asset is adjusted pursuant to Treasury
Regulations § 1.704-1(b)(2)(iv)(f) as provided in clause (c) of the definition of Book Value,
subsequent allocations of items of taxable income, gain, loss, and deduction with respect to such
asset shall take account of any variation between the adjusted basis of such asset for federal income
tax purposes and its Book Value in the same manner as under Code § 704(c).
(d) Allocations of tax credit, tax credit recapture, and any items related thereto
shall be allocated to the Members according to their interests in such items as determined by the
Tax Representative with the consent of the Members taking into account the principles of Treasury
Regulations § 1.704-1(b)(4)(ii).
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4840-1943-8017, v. 1
(e) The Board shall make allocations pursuant to this Section 5.03 in
accordance with such permissible methods as set forth and in accordance with Treasury
Regulations § 1.704-3 and this Agreement.
(f) Allocations pursuant to this Section 5.03 are solely for purposes of federal,
state, and local taxes and shall not affect, or in any way be taken into account in computing, any
Member’s Capital Account or share of Net Income, Net Losses, Distributions, or other items
pursuant to any provisions of this Agreement.
Section 5.04 Allocations in Respect of Transferred Units. In the event of a Transfer of
Units during any Fiscal Year made in compliance with the provisions of Article VIII Net Income,
Net Losses, and other items of income, gain, loss, and deduction of the Company attributable to
such Units for such Fiscal Year shall be determined using the interim closing of the books method.
Section 5.05 Curative Allocations. In the event that the Tax Representative determines,
after consultation with counsel experienced in income tax matters, that the allocation of any item
of Company income, gain, loss, or deduction is not specified in this Article V (an “Unallocated
Item”), or that the allocation of any item of Company income, gain, loss , or deduction hereunder
is clearly inconsistent with the Members’ economic interests in the Company (determined by
reference to the general principles of Treasury Regulations § 1.704-1(b) and the factors set forth
in Treasury Regulations § 1.704-1(b)(3)(ii)) (a “Misallocated Item”), then the Board may allocate
such Unallocated Items, or reallocate such Misallocated Items, to reflect such economic interests;
provided, however, that no such allocation will be made without the prior consent of each Member
that would be adversely and disproportionately affected thereby; and provided, further, that no
such allocation shall have any material effect on the amounts distributable to any Member,
including the amounts to be distributed upon the complete liquidation of the Company.
ARTICLE VI
DISTRIBUTIONS
Section 6.01 General.
(a) Subject to Section 6.01(b), Section 6.02, and Section 6.03 the Board shall
have sole discretion regarding the amounts and timing of Distributions to Members, including to
decide to forego payment of Distributions in order to provide for the retention and establishment
of reserves of, or payment to third parties of, such funds as it deems necessary with respect to the
reasonable business needs of the Company (which needs may include the payment or the making
of provision for the payment when due of the Company’s obligations, including, but not limited
to, present and anticipated debts and obligations to third parties and Members (as applicable),
capital needs and expenses, the payment of any management or administrative fees and expenses,
and reasonable reserves for contingencies).
(b) Notwithstanding any provision to the contrary contained in this Agreement,
the Company shall not make any Distribution to Members if such Distribution would violate the
LLC Act or Applicable Law.
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Section 6.02 Priority of Distributions. After making all Distributions required for a
given Fiscal Year under Section 6.03, and subject to the priority of Distributions pursuant to
Section 11.03(c), if applicable, all Distributions determined to be made by the Board pursuant to
this Section 6.02 shall be made in the following manner:
(a) First, to the Members who have made Capital Contributions to the Company
until such Members have been reimbursed for their Capital Contributions;
(b) Second, to the Members who have contributed Additional Capital, if any,
pro rata in proportion to their Unpaid Preferred Return, until each such Member has
received aggregate Distributions under this section sufficient to cause each such Member’s
Unpaid Preferred Return to equal zero;
(c) Finally, to the Members holding Units (subject to Section 6.04) pro rata in
proportion to their aggregate holdings of vested Units treated as one class of Units.
Section 6.03 Tax Distributions.
(a) Subject to any restrictions in any of the Company’s then-applicable debt-
financing arrangements, and subject to the Board’s sole discretion to retain any other amounts
necessary to satisfy the Company’s obligations, at least seven (7) days before each date prescribed
by the Code for calendar-year corporation to pay annual installments of estimated tax, the
Company shall use commercially reasonable efforts to Distribute cash to each Member in
proportion to and to the extent of such Member’s Estimated Tax Amount for the applicable
calendar year (each such Distribution, a “Tax Advance”).
(b) If, at any time after the final Estimated Tax Amount has been Distributed
pursuant to Section 6.03(a) with respect to any Fiscal Year, the aggregate Tax Advances to any
Member with respect to such Fiscal Year are less than such Member’s Tax Amount for such Fiscal
Year (a “Shortfall Amount”), the Company shall use commercially reasonable efforts to Distribute
cash in proportion to and to the extent of each Member’s Shortfall Amount. The Company shall
use commercially reasonable efforts to Distribute Shortfall Amounts with respect to a Fiscal Year
before the seventy-fifth (75th) day of the next succeeding Fiscal Year; provided, however that if
the Company has made Distributions other than pursuant to this Section 6.03, the Board may apply
such Distributions to reduce any Shortfall Amount.
(c) If the aggregate Tax Advances made to any Member pursuant to this Section
6.03 for any Fiscal Year exceed such Member’s Tax Amount (an “Excess Amount”), such Excess
Amount shall reduce subsequent Tax Advances that would be made to such Member pursuant to
this Section 6.03, except to the extent taken into account as an advance pursuant to Section 6.03(d)
to reduce subsequent Distributions.
(d) For avoidance of doubt, any Distributions made pursuant to this Section
6.03 shall be treated as advances on Distributions payable to the applicable Member pursuant to
and shall reduce the amount otherwise Distributable to such Member pursuant to Section 6.02 or
Section 11.03(c). Further, the amount to be Distributed as a tax Distribution in respect of any Fiscal
Year pursuant to this Section 6.03 shall be computed as if any Distributions made pursuant to
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Section 6.02 during such Fiscal Year were a tax Distribution in respect of such Fiscal Year, with
the understanding that the Company shall not make a tax Distribution in respect of any Fiscal Year
to the extent any Distributions made pursuant to Section 6.02 during such Fiscal Year exceeds the
Tax Amount of the Member in respect of such Fiscal Year.
(e) Any good faith determination of the amount of a tax Distribution made by
the Board pursuant to this Section 6.03 shall be conclusive and binding on all Members absent
manifest error.
Section 6.04 Tax Withholding; Withholding Advances.
(a) Tax Withholding. If requested by the Board or Members, each Member
shall, if able to do so, deliver to the Board:
(i) any applicable IRS forms or an affidavit in form satisfactory to the
Board that the applicable Member (or its members, as the case may be) is not
subject to withholding under the provisions of any federal, state, local, foreign or
other Applicable Law;
(ii) any certificate that the Board may reasonably request with respect
to any such laws; and/or
(iii) any other form or instrument reasonably requested by the Board
relating to any Member’s status under such law.
(iv) If a Member fails or is unable to deliver to the Board the IRS form
or affidavit described in Section 6.04(a)(i), the Board may withhold amounts from
such Member in accordance with Section 6.04(b).
(b) Withholding Advances. The Company is hereby authorized at all times to
make payments (“Withholding Advances”) with respect to each Member in amounts required to
discharge any obligation of the Company (as determined by the Tax Representative based on the
advice of legal or tax counsel to the Company) to withhold or make payments to any federal, state,
local or foreign taxing authority (a “Taxing Authority”) with respect to any Distribution or
allocation by the Company of income or gain to such Member and to withhold the same from
Distributions to such Member. Any funds withheld from a Distribution by reason of this Section
6.04(b) shall nonetheless be deemed Distributed to the Member in question for all purposes under
this Agreement and, at the option of the Board, shall be charged against the Member’s Capital
Account in accordance with this Agreement.
(c) Repayment of Withholding Advances. Any Withholding Advance made by
the Company to a Taxing Authority on behalf of a Member and not simultaneously withheld from
a Distribution to that Member shall, with interest thereon accruing from the date of payment at the
Company Interest Rate:
(i) be promptly repaid to the Company by the Member on whose behalf
the Withholding Advance was made; or
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(ii) with the consent of the Board, be repaid by reducing the amount of
the next succeeding Distribution or Distributions to be made to such Member.
Interest shall cease to accrue from the time the Member on whose behalf the Withholding
Advance was made repays such Withholding Advance (and all accrued interest) by either method
of repayment described above.
(d) Indemnification. Each Member hereby agrees to indemnify and hold
harmless the Company, the Board and the other Members from and against any liability with
respect to taxes, interest or penalties which may be asserted by reason of the Company’s failure to
deduct and withhold tax on amounts Distributable or allocable to such Member. The provisions of
this Section 6.04(d) and the obligations of a Member pursuant to Section 6.04(c) shall survive the
termination, dissolution, liquidation and winding up of the Company and the withdrawal of such
Member from the Company or Transfer of its Units. The Company may purs ue and enforce all
rights and remedies it may have against each Member under this Section 6.04, including bringing
a lawsuit to collect repayment with interest of any Withholding Advances.
(e) Overwithholding. Neither the Company nor the Board shall be liable for
any excess taxes withheld in respect of any Distribution or allocation of income or gain to a
Member. In the event of an overwithholding, a Member’s sole recourse shall be to apply for a
refund from the appropriate Taxing Authority.
Section 6.05 Distributions in Kind.
(a) The Board is hereby authorized, in its sole discretion, to make Distributions
to the Members in the form of securities or other property held by the Company; provided,
however, that Tax Advances shall only be made in cash. In any non-cash Distribution, the
securities or property so Distributed will be Distributed among the Members in the same
proportion and priority as cash equal to the Fair Market Value of such securities or property would
be Distributed among the Members pursuant to Section 6.02.
(b) Any Distribution of securities shall be subject to such conditions and
restrictions as the Board determines are required or advisable to ensure compliance with
Applicable Law. In furtherance of the foregoing, the Board may require that the Members execute
and deliver such documents as the Board may deem necessary or appropriate to ensure compliance
with all federal and state securities laws that apply to such Distribution and any further Transfer
of the Distributed securities, and may appropriately legend the certificates that represent such
securities to reflect any restriction on Transfer with respect to such laws.
(c) Upon any such Distribution, such Fair Market Value of the non-cash assets
Distributed will be debited against the each applicable Member’s respecti ve Capital Account at
such Fair Market Value, and any such Distributions shall be deemed for purposes of determining
Net Profits or Net Losses (if any) to have been sold by the Company for an amount equal to such
Fair Market Value and any such deemed Net Profits or Net Losses shall be allocated to the
Members’ respective Capital Accounts in accordance with this Agreement.
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Section 6.06 Distribution Upon Deemed Liquidation Event. In the event of a Deemed
Liquidation Event, the Board shall distribute the proceeds of such Deemed Liquidation Event in
the manner provided in Section 11.03(c).
Section 6.07 Limitations on Distributions to Units Treated as Profits Interests.
(a) Unvested Units. Notwithstanding Section 6.02, but subject to Section 6.03
(regarding tax Distributions), any Members holding any Units subject to vesting restrictions shall
not be entitled to Distributions with regard to any such Units that are not vested at the time of an
applicable Distribution, except as may otherwise be provided in an applicable agreement.
(b) Profits Interest Hurdle. It is the intention of the Members that, with respect
to Distributions to Members issued for the benefit of the Company as contemplated in Section 2.03
(together, the “Profits Interest Members”), such Distributions shall be limited to the extent
necessary so that such Units constitutes a “profits interest” for U.S. federal income tax purposes.
In furtherance of the foregoing, and notwithstanding anything to the con trary in this Agreement,
the Board shall, if necessary, limit any such Distributions to Profits Interest Members so that such
Distributions do not exceed each Profits Interest Member’s share of the aggregate amount of
unrealized appreciation in the assets of the Company between the date of the issuance of such
Units and the date of such Distribution, it being understood that such unrealized appreciation shall
be determined on the basis of the Book Value of the assets of the Company at the time any such
Units are issued as determined by the Members at the time (the “Profits Interest Hurdle”). Such
Profits Interest Hurdle amount or value may be set forth in an applicable agreement and/or on
Schedule A. In the event that a Profits Interest Member’s Distributions are reduced pursuant to
this subsection, an amount equal to such excess Distributions shall be treated as instead
apportioned to the other Members (including the Profits Interest Members that have met any prior
Profits Interest Hurdle), pro rata in proportion to their aggregate holdings of vested Units.
ARTICLE VII
MANAGEMENT
Section 7.01 Establishment of the Board. A board of managers of the Company (the
“Board”) is hereby established and shall be comprised of natural Persons (each such Person, a
“Manger”) who shall be appointed in accordance with the provisions of this Section 7.01. The
business and affairs of the Company shall be managed, operated and controlled by or under the
direction of the Board, and the Board shall have, and is hereby granted, the full and complete
power, authority, and discretion for, on behalf of and in the name of the Company, to t ake such
actions as it may in its sole discretion deem necessary or advisable to carry out any and all of the
objectives and purposes of the Company, subject only to the terms of this Agreement. Each initial
Manager and any Person appointed to be a Manager of the Company, in addition to any other
requirements contained herein, shall execute the Joinder Agreement.
Section 7.02 Board Composition; Vacancies
(a) The Company and the Members shall take such actions as may be required
to ensure that the number of Managers of the Company constituting the Board is at all times at
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minimum one (1), unless otherwise modified by a majority vote of the Board, provided, however,
that no new Manager may be admitted to the Board without the consent of a Manager appointed
by CR. The initial Manager shall be Brandon Johnson.
(b) If required by Regulatory Laws, any elected or appointed Manager shall not
be deemed duly elected, appointed or qualified and shall not exercise any powers of the position
to which such Person has been elected or appointed until such Person has been found suitable,
eligible or otherwise qualified to hold such position pursuant to any Regulatory Laws (including
by the applicable Regulatory Authority). Each such elected or appointed Manager, by virtue of
such election or appointment of such Person, consents to (i) the performance of any personal
background investigation that may be required by any Regulatory Authorities or Regulatory Laws
and (ii) the disclosure by the Company of any information regarding such officer required by
Regulatory Authorities or Regulatory Laws without the need to obtain approval from such
Manager.
(c) Each Manager, by virtue of holding such position, agrees to the following:
(i) Such Manager shall comply with all Regulatory Laws including (A)
filing required applications for Regulatory Licenses, if any, (B) providing all
information regarding such Manager as may be requested or required by Regulatory
Authorities (including in connection with any application for a Regulatory
License), and (C) responding to written or oral questions or inquiries from any
Regulatory Authorities.
(ii) In the event that such Manger (A) has experienced an event or
circumstance, or otherwise reasonably believes, that such Manager may meet any
condition to be deemed an Affected Person or (B) has knowledge that any Member
or any other Person elected or appointed as a Manager or Officer of the Company
or any other current Manager or Officer of the Company has experienced an event
or circumstance, or otherwise may meet any condition to be deemed an Affected
Person, then, in all cases, such Manager shall promptly notify the Company of the
relevant details.
(iii) Upon receipt of a notice that a Manager may meet any condition to
be deemed an Affected Person, the Disinterested Managers, or if there are no
Disinterested Managers, the Disinterested Members may, but are not obligated to,
permit the applicable Person a specified period of time (as determined by the
Disinterested Manager or the Disinterested Members, as applicable, to the extent
permitted by any Regulatory Laws (including by the applicable Regulatory
Authority)) to take all actions, at such Person’s costs, to cure such condition.
(iv) Upon the expiration of such period of time (if any) or otherwise, the
Disinterested Managers, or if there are no Disinterested Managers, the Disinterested
Members, shall promptly make a determination regarding such Manager as an
Affected Person. If the Disinterested Managers or the Disinterested Members, as
applicable, determine that such Manager is an Affected Person, the Company shall,
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and the Board shall the cause the Company to, remove such Manager as promptly
as possible or as otherwise directed by the applicable Regulatory Authority. If the
Disinterested Managers or the Disinterested Members determine that such Manager
is a not Affected Person, such Manager shall continue to hold office until such
Manager’s successor is designated by the Members or until such Manager’s earlier
death, resignation or removal.
(d) The removal of a Manager shall not affect the Manager’s rights as a
Member, if applicable, and shall not constitute a withdrawal by such Member from the Company.
Upon the removal or resignation of a Manager, the Manager shall cooperate with the Company to
perform all actions required by Applicable Law or by Regulatory Authorities as related to such
removal or resignation.
(e) In the event that the applicable Members shall fail to designate in writing a
representative to fill a vacant Manager position on the Board, and such failure shall continue for
more than thirty (30) days after notice from the Company with respect to such failure, then the
vacant position shall be filled by an individual designated by the other Manager(s) then in office;
provided, that such individual shall be removed from such position if and when the Members
entitled to fill such vacancy so direct and simultaneously designate a new Manager.
Section 7.03 Meetings of the Board; Quorum; Manner of Acting.
(a) Quorum. A majority of the Managers serving on the Board shall constitute
a quorum for the transaction of business of the Board, provided, however, that a quorum shall
require the presence of any Manager appointed by CR. At all times when the Board is conducting
business at a meeting of the Board, a quorum of the Board must be present at such meeting. If a
quorum shall not be present at any meeting of the Board, then the Managers present at the meeting
may adjourn the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
(b) Participation. Any Manager may participate in a meeting of the Board by
means of telephone or video conference or other communications device that permits all Managers
participating in the meeting to hear each other, and participation in a meeting by such means shall
constitute presence in person at such meeting. A Manager may vote or be present at a meeting
either in person or by proxy, and such proxy may be granted in writing, by means of Electronic
Transmission or as otherwise permitted by Applicable Law.
(c) Binding Act. Each Manager shall have one vote on all matters submitted to
the Board or any committee thereof. Except as otherwise provided in this Agreement, with respect
to any matter before the Board, the act of a majority of the Managers constituting a quorum shall
be the act of the Board.
Section 7.04 Actions Requiring Approval of Members. Subject to any contrary
provision herein, the Company shall not enter into any commitment, without the written approval
of the Unitholders holding at least seventy five percent (75%) of the Common Units, which must
include CR, to:
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(a) Amend, modify or waive any provisions of the Articles of Organization or
this Agreement, in whole or in part; provided, however, that a Manager may, without the
consent of the other Members, amend the (i) the Articles of Organization in accordance
with the provisions of this Agreement or (ii) the Members Schedule following any new
issuance, redemption, repurchase or Transfer of Membership Interests in accordance with
this Agreement;
(b) Issue additional Membership Interests, equity securities, or other securities
or, except in connection with a Transfer of Membership Interests that complies with the
applicable provisions of this Agreement, admit additional Members to the Company;
(c) Incur any indebtedness, pledge or grant liens on any assets or guarantee,
assume, endorse or otherwise become responsible for the obligations of any other Person
in excess of in a single transaction or series of related transactions, or in excess of
in the aggregate at any time outstanding; provided, however, that indebtedness
incurred in the Company’s ordinary course of business for inventory, the full amount of
which is due in thirty (30) days or less, shall not require the approval specified in this
Section 7.04(c).
(d) Make any loan or advance to or a capital contribution or investment in, any
Person, in excess of
(e) Enter into or effect any transaction or series of related transactions involving
the purchase, lease, license, exchange or other acquisition (including by merger,
consolidation, sale of stock or acquisition of assets) by the Company of any assets and/or
equity interests of any Person, other than in the ordinary course of business consistent with
past practice;
(f) Enter into or effect any transaction or series of related transactions involving
the sale, lease, license, exchange or other disposition (including by merger, consolidation,
sale of stock or sale of assets) by the Company of any assets or equity interests, other than
sales of inventory in the ordinary course of business consistent with past practice;
(g) Convert from a limited liability company to a corporation or change tax
status;
(h) Enter into a new line of business;
(i) Settle any lawsuit, action, dispute or other proceeding or otherwise assume
any liability with a value in excess of or agree to the provision of any equitable
relief by the Company;
(j) Materially alter the business operations of the Company; or
(k) Dissolve, wind up or liquidate the Company or initiate a bankruptcy or state
insolvency or receivership proceeding involving the Company.
Section 7.05 Meetings of the Members.
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(a) Generally. The Members shall meet at such time and at such place as the
Members may designate. Meetings of the Members may be held either in person or by means of
telephone or video conference or other communications device that permits all Members
participating in the meeting to hear each other, at the offices of the Company or such other place
(either within or outside the State of California) as may be determined from time to time by the
Members. Written notice of each meeting of the Members shall be given to each Member at least
twenty-four (24) hours prior to each such meeting.
(b) Attendance and Waiver of Notice. Attendance of a Member at any meeting
shall constitute a waiver of notice of such meeting, except where a Member attends a meeting for
the express purpose of objecting to the transaction of any business on the ground that the meeting
is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Members need be specified in the notice or waiver of notice of
such meeting.
(c) Quorum. A majority of the Members holding Common Units shall
constitute a quorum for the transaction of business of the Company; provided, however that a
quorum shall require CR. At all times when the Members are conducting business at a meeting, a
quorum of the Members must be present at such meeting. If a quorum shall not be present at any
meeting of the Members, then the Members present at the meeting may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a quorum shall be
present.
(d) Participation. Any Member holding Common Units may participate in a
meeting of the Members by means of telephone or video conference or other communications
device that permits all Members participating in the meeting to hear each other, and participation
in a meeting by such means shall constitute presence in person at such meeting. A Member may
vote or be present at a meeting either in person or by proxy, and such proxy may be granted in
writing, by means of Electronic Transmission or as otherwise permitted by Applicable Law.
(e) Binding Act. Each Member holding Common Units shall have the number
of votes equivalent to such Member’s Membership Interest on all matters submitted to the
Members. With respect to any matter before the Members, the act of the Members holding at least
seventy five percent (75%) of the Units, which must include CR, shall be the act of the Members.
(f) Action by Written Consent. Notwithstanding anything herein to the
contrary, any action of the Members (or any committee) may be taken without a meeting if either:
(a) a written consent of a majority of the Members holding Common Units, which must include
CR, (or committee), shall approve such action; provided, however that prior written notice of such
action is provided to all Members at least one (1) day before such action is taken; or (b) a written
consent constituting all of the Members (or committee) shall approve such action. Such consent
shall have the same force and effect as a vote at a meeting where a quorum was present and may
be stated as such in any document or instrument filed with the Secretary of State of California.
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Section 7.06 Compensation; No Employment.
(a) A Manager shall be reimbursed for reasonable out-of-pocket expenses
incurred in the performance of such Person’s duties as a Manager, pursuant to such policies as
from time to time are established by the Company. Nothing contained in this Section 7.06 shall be
construed to preclude any Manager from serving the Company in any other capacity and receiving
reasonable compensation for such services.
(b) This Agreement does not, and is not intended to, confer upon any Manager
any rights with respect to continued employment by the Company, and nothing herein should be
construed to have created any employment agreement with any Manager.
Section 7.07 No Personal Liability. By Applicable Law or expressly in this Agreement,
no Manager will be obligated personally for any debt, obligation or liability of the Company,
whether arising in contract, tort or otherwise, solely by reason of being a Manager.
Section 7.08 No Exclusive Duty. No Manager shall be required to manage the Company
as such Manager’s sole and exclusive occupation and a Manager may have other business interests
and may engage in other investments, occupations and activities in addition to those relating to the
Company. Neither the Company nor any Member shall have any right, by virtue of this Agreement,
to share or participate in such other investments or activities of any Manager or to the income or
proceeds derived therefrom. Although a business opportunity of the sort engaged in by the
Company may come to the attention of a Manager, such Manager shall not be under duty, express
or implied, to first offer such opportunity to the Company or to the other Members of the Company
before the Manager may, personally or on behalf of another entity with which the Manager is
affiliated, take advantage of such opportunity, and the Members personally and the Company as
an entity, hereby discharge and release each Manager of and from any duty to the contrary which
may be owed by any Manager, directly or indirectly, from the doctrine generally referred to as the
“corporate opportunity doctrine.”
Section 7.09 Officers.
(a) The Board may appoint individuals as officers of the Company (the
“Officers”) as it deems necessary or desirable to carry on the business of the Company and the
Board may delegate to such Officers such power and authority as the Board deems advisable. No
Officer need be a Member. An individual may hold two (2) or more offices of the Company. Each
Officer shall hold office until such Officer’s successor is designated by the Board or until such
Officer’s earlier death, resignation or removal. Any Officer may resign at any tim e upon written
notice to the Board. Any Officer may be removed by the Board with or without cause at any time.
A vacancy in any office occurring because of death, resignation, removal or otherwise, may, but
need not, be filled by the Board. In accordance with the City of Fresno’s Commercial Cannabis
Business Permit Application Evaluation Criteria 2.5, the Local Preference Owner shall be
appointed to the highest officer position created pursuant to this Section 7.09, unless another
natural person is appointed to that position by mutual agreement of the Board.
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(b) If required by Regulatory Laws, any newly elected or appointed Officer
shall not be deemed duly elected, appointed or qualified and shall not exercise any powers of the
position to which such individual has been elected or appointed until such individual has been
found suitable, eligible or otherwise qualified to hold such position pursuant to any Regulatory
Laws (including by the applicable Regulatory Authority). Each such newly elected or appointed
Officer, by virtue of such election or appointment of such individual, consents to (i) the
performance of any personal background investigation that ma y be required by any Regulatory
Authorities or Regulatory Laws and (ii) the disclosure by the Company of any information
regarding such officer required by Regulatory Authorities or Regulatory Laws without the need to
obtain approval from such officer.
(c) Each Officer, by virtue of holding such position, agrees to the following:
(i) Such Officer shall comply with all Regulatory Laws including (A)
filing required applications for Regulatory Licenses, if any, (B) providing all
information regarding such Officer as may be requested or required by Regulatory
Authorities (including in connection with any application for a Regulatory
License), and (C) responding to written or oral questions or inquiries from any
Regulatory Authorities.
(ii) In the event that such Officer (A) has experienced an event or
circumstance, or otherwise reasonably believes, that such Officer may meet any
condition to be deemed an Affected Person or (B) has knowledge that any Member
or any other individual elected or appointed as a director or Officer of the Company
or any other current director or Officer of the Company has experienced an event
or circumstance, or otherwise may meet any condition to be deemed an Affected
Person, then, in all cases, such Officer shall promptly notify the Company of the
relevant details.
(iii) Upon receipt of a notice that an Officer may meet any condition to
be deemed an Affected Person, the Disinterested Managers, or if there are no
Disinterested Manager, the Disinterested Members may, but are not obligated to,
permit the applicable individual a specified period of time (as determined by the
Disinterested Managers or the Disinterested Members, as applicable, to the extent
permitted by any Regulatory Laws (including by the applicable Regulatory
Authority)) to take all actions, at such individual’s costs, to cure such condition.
(iv) Upon the expiration of such period of time (if any) or otherwise, the
Disinterested Managers, or if there are no Disinterested Managers, the Disinterested
Members, shall promptly make a determination regarding such Officer as an
Affected Person. If the Disinterested Managers or the Disinterested Members, as
applicable, determine that such Officer is an Affected Person, the Company shall,
and the Board shall the cause the Company to, remove such Officer as promptly as
possible or as otherwise directed by the applicable Regulatory Authority. If the
Disinterested Managers or the Disinterested Members determine that such Officer
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is a not Affected Person, such Officer shall continue to hold office until such
Officer’s successor is designated by the Members or until such Officer’s earlier
death, resignation or removal.
ARTICLE VIII
TRANSFER
Section 8.01 General Restrictions on Transfer.
(a) Transfer Restrictions. Each Member acknowledges and agrees that each
Member (or any Permitted Transferee of such Member) shall not Transfer any Units or Unit
Equivalents except as permitted pursuant to Section 8.02, or in strict accordance with the
restriction, conditions and procedures described in the other provisions of this Section 8.01,
Section 8.03, Section 8.04 and Section 8.05, as applicable, or pursuant to Section 8.06.
(b) Other Transfer Restrictions. Notwithstanding any other provision of this
Agreement (including Section 8.02), each Member agrees that it will not, directly or indirectly,
Transfer any of its Units or Unit Equivalents, and the Company agrees that it shall not issue any
New Interests:
(i) except as permitted under the Securities Act and other applicable
federal or state securities or blue-sky laws, and then, with respect to a Transfer of
Units or Unit Equivalents, if requested by the Company, only upon delivery to the
Company of a written opinion of counsel in form and substance satisfactory to the
Company to the effect that such Transfer may be effected without registration under
the Securities Act;
(ii) to a Person not already a Member of the Company until the
prospective Transferee is admitted as a Member of the Company;
(iii) if such Transfer or issuance would cause the Company to be
considered a “publicly traded partnership” under § 7704(b) of the Code within the
meaning of Treasury Regulation § 1.7704-1(h)(1)(ii), including the look-through
rule in Treasury Regulation § 1.7704-1(h)(3);
(iv) if such Transfer or issuance would affect the Company’s existence
or qualification as a limited liability company under the LLC Act;
(v) if such Transfer or issuance would cause the Company to lose its
status as a partnership for federal income tax purposes;
(vi) if such Transfer or issuance would violate the Applicable Laws
including that the perspective Transferee is an Affected Person;
(vii) if such Transfer or issuance would reasonably likely to preclude or
materially delay, jeopardize, impede or impair, or impose materially burdensome
terms and conditions on, the ability of the Company or any Company Subsidiary to
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conduct any Regulated Activities or to obtain, retain, renew or reinstate any
Regulatory License;
(viii) if such Transfer or issuance would cause the Company to be required
to register as an investment company under the Investment Company Act of 1940,
as amended; or
(ix) if such Transfer or issuance would cause the assets of the Company
to be deemed “plan assets” as defined under the Employee Retirement Income
Security Act of 1974 or its accompanying regulations or result in any “prohibited
transaction” thereunder involving the Company.
(c) Joinder Agreement. Except with respect to any Transfer pursuant to a Drag-
Along Sale or Tag-Along Sale, no Transfer of Units or Unit Equivalents pursuant to any provision
of this Agreement shall be deemed completed until (i) Section 3.01(a) shall be complied with and
(ii) the Transferee shall have entered into a Joinder Agreement.
(d) Local Preference Owner Transfer. Unless otherwise permitted by the City,
the Local Preference Owner may only transfer control or ownership of its Membership Interest to
Persons who meet the same requirements for a Local Preference Owner, and, where required, only
upon the prior written approval of the City.
(e) Transfers in Violation of this Agreement. Any Transfer or attempted
Transfer of any Units or Unit Equivalents in violation of this Agreement, including any failure of
a Transferee, as applicable, to comply with Section 3.01(a) or enter into a Joinder Agreement
pursuant to Section 8.01(c) above, shall be null and void, no such Transfer shall be recorded on
the Company’s books, and the purported Transferee in any such Transfer shall not be treated (and
the Member proposing to make any such Transfer shall continue to be treated) as the owner of
such Units or Unit Equivalents for all purposes of this Agreement. For the avoidance of doubt, any
Transfer of a Membership Interest permitted by this Agreement shall be deemed a sale, tr ansfer,
assignment, or other disposal of such Membership Interest in its entirety as intended by the parties
to such Transfer, and shall not be deemed a sale, transfer, assignment, or other disposal of any less
than all of the rights and benefits described in the definition of the term “Membership Interest,”
unless otherwise explicitly agreed to by the parties to such Transfer.
Section 8.02 Permitted Transfers. Subject to Section 8.01 above, including the
requirement to comply with Section 3.01(a) and enter into a Joinder Agreement pursuant to Section
8.01(c) above, permitted Transfers include: (a) a trust under which the distribution of Units may
be made only to such Member; (b) a charitable remainder trust, the income from which will be
paid only to such Member during its life; (c) a corporation, partnership or limited liability
company, the stockholders, partners or members of which are only such Member; (d) for bona fide
estate planning purposes, either by will or by the laws of intestate succession, to such Member’s
executors, administrator, testamentary trustees, legatees or beneficiaries; or (e) a Transfer by a
Member to such Member’s Affiliates. In addition, it shall be deemed a Permitted Transfer (to the
extent it’s a Transfer at all) if CR, or any of its Affili ates participate in any transaction which
involves : (w) the sale of all or substantially all of the consolidated assets of CR or any of its
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Affiliates to a Third Party Purchaser; (x) a transaction or series of related transactions in which a
Third Party Purchaser, or a group of related Third Party Purchasers, acquires no less than a majority
of the voting equity of CR or any of its Affiliates; (y) a merger, consolidation, recapitalization, or
reorganization of Surterra or any of its Affiliates with or into a Third Party Purchaser that results
in a Third Party Purchaser having the ability to designate or elect a majority of the board of
directors (or its equivalent) of the resulting entity or its parent company; or (z) CR or any of its
Affiliates consummating an initial public offering of its common stock.
Section 8.03 Drag-Along Rights.
(a) Participation. If one or more Members (together with their respective Permitted
Transferees) holding no less than a majority of all the Common Units, which must include CR
(such Member or Members with the inclusion of CR, the “Dragging Member”), proposes to
consummate, in one transaction or a series of related transactions, a Change of Control (a “Drag-
along Sale”), the Dragging Member shall have the right, after delivering the Drag-along Notice in
accordance with Section 8.03(c) and subject to compliance with Section 8.03(d), to require that
each other Member (each, a “Drag-along Member”) participate in such sale (including, if
necessary, by converting their Unit Equivalents into the Units to be sold in the Drag-along Sale)
in the manner set forth in Section 8.03(b). For avoidance of doubt, CR shall not be a Drag-along
Member pursuant to this Section 8.03.
(b) Sale of Units. Subject to compliance with Section 8.03(d):
(i) If the Drag-along Sale is structured as a sale resulting in a majority
of the Common Units of the Company on a Fully Diluted Basis being held by a
Third Party Purchaser, then each Drag-along Member shall sell, with respect to
each class or series of Units proposed by the Dragging M ember to be included in
the Drag-along Sale, the number of Units and/or Unit Equivalents of such class or
series equal to the product obtained by multiplying: (A) the number of applicable
Units on a Fully Diluted Basis held by such Drag-along Member by; (B) a fraction:
(x) the numerator of which is equal to the number of applicable Units on a Fully
Diluted Basis that the Dragging Member proposes to sell in the Drag-along Sale;
and (y) the denominator of which is equal to the number of applicable Units on a
Fully Diluted Basis held by the Dragging Member at such time; and
(ii) If the Drag-along Sale is structured as a sale of all or substantially
all of the consolidated assets of the Company or as a merger, consolidation,
recapitalization or reorganization of the Company or other transaction requiring the
consent or approval of the Members, then notwithstanding anything to the contrary
in this Agreement (including Section 3.06), each Drag-along Member shall vote in
favor of the transaction and otherwise consent to and raise no objection to such
transaction, and shall take all actions to waive any dissenters’, appraisal or other
similar rights that it may have in connection with such transaction. The Distribution
of the aggregate consideration of such transaction shall be made in accordance with
Section 11.03(c).
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(c) Sale Notice. The Dragging Member shall exercise its rights pursuant to this
Article VIII by delivering a written notice (the “Drag-along Notice”) to the Company and each
Drag-along Member no more than ten (10) Business Days after the execution and delivery by all
of the parties thereto of the definitive agreement entered into with respect to the Drag-along Sale
and, in any event, no later than twenty (20) Business Days prior to the closing date of such Drag-
along Sale. The Drag-along Notice shall make reference to the Dragging Members’ rights and
obligations hereunder and shall describe in reasonable detail:
(i) The name of the person or entity to whom such Units are proposed
to be sold;
(ii) The proposed date, time and location of the closing of the sale;
(iii) The number of each class or series of Units to be sold by the
Dragging Member, the proposed amount of consideration for the Drag-along Sale
and the other material terms and conditions of the Drag-along Sale, including a
description of any non-cash consideration in sufficient detail to permit the valuation
thereof and including, if available, the purchase price per Unit of each applicable
class or series (which may take into account the Profits Interest Hurdle of any
Profits Interest Units to be sold); and
(iv) A copy of any form of agreement proposed to be executed in
connection therewith.
(d) Conditions of Sale. The obligations of the Drag-along Members in respect
of a Drag-along Sale under this Section 8.03 are subject to the satisfaction of the following
conditions:
(i) The consideration to be received by each Drag-along Member shall
be the same form and amount of consideration to be received by the Dragging
Member per Unit of each applicable class or series (the Distribution of which shall
be made in accordance with Section 8.03(b)) and the terms and conditions of such
sale shall, except as otherwise provided in Section 8.03(d)(iii), be the same as those
upon which the Dragging Member sells its Units;
(ii) If the Dragging Member or any Drag-along Member is given an
option as to the form and amount of consideration to be received, the same option
shall be given to all Drag-along Members; and
(iii) Each Drag-along Member shall execute the applicable purchase
agreement, if applicable, and make or provide the same representations, warranties,
covenants, indemnities and agreements as the Dragging Member makes or provides
in connection with the Drag-along Sale; provided, however, that each Drag-along
Member shall only be obligated to make individual representations and warranties
with respect to its title to and ownership of the applicable Units, authorization,
execution and delivery of relevant documents, enforceability of such documents
against the Drag-along Member, and other matters relating to such Drag-along
Member, but not with respect to any of the foregoing with respect to any other
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Members or their Units; provided, further, that all representations, warranties,
covenants and indemnities shall be made by the Dragging Member and each Drag-
along Member severally and not jointly and any indemnification obligation shall be
pro rata based on the consideration received by the Dragging Member and each
Drag-along Member, in each case in an amount not to exceed the aggregate
proceeds received by the Dragging Member and each such Drag-along Member in
connection with the Drag-along Sale.
(e) Cooperation. Each Drag-along Member shall take all actions as may be
reasonably necessary to consummate the Drag-along Sale, including, without limitation, entering
into agreements and delivering certificates and instruments, in each case, consistent with the
agreements being entered into and the certificates being delivered by the Dragging Memb er, but
subject to Section 8.03(d)(iii).
(f) Expenses. The fees and expenses of the Dragging Member incurred in
connection with a Drag-along Sale and for the benefit of all Drag-along Members (it being
understood that costs incurred by or on behalf of a Dragging Member for its sole benefit will not
be considered to be for the benefit of all Drag-along Members), to the extent not paid or reimbursed
by the Company or the Third Party Purchaser, shall be shared by the Dragging Member and all the
Drag-along Members on a pro rata basis, based on the consideration received by each such
Member; provided, however, that no Drag-along Member shall be obligated to make any out-of-
pocket expenditure prior to the consummation of the Drag-along Sale.
(g) Consummation of Sale. The Dragging Member shall have ninety (90) days
following the date of the Drag-along Notice in which to consummate the Drag-along Sale, on the
terms set forth in the Drag-along Notice (which ninety 90-day period may be extended for a
reasonable time not to exceed one-hundred and twenty (120) days to the extent reasonably
necessary to obtain required approvals or consents from any Governmental Authority). If at the
end of such period the Dragging Member has not completed the Drag-along Sale, the Dragging
Member may not then exercise its rights under this Section 8.03 without again fully complying
with the provisions of this Section 8.03.
Section 8.04 Tag-Along Rights.
(a) If the Members holding a majority of Common Units desire to Transfer
Units (the “Control Group Members”), which such Transfer would result in the Control Group
Members, in the aggregate, owning less than a majority of the then outstanding Common Units,
whether by sale, merger, or otherwise (a “Significant Sale”), and the Control Group Members do
not elect to exercise their rights under Section 8.03 (if applicable), then at least twenty (20) days
prior to the closing of such Significant Sale, the Control Group Members, will make an offer (the
“Participation Offer”) to all the Members holding Common Units to include in the proposed
Significant Sale a certain number of each Member’s Common Units, which will be determined
solely by such Member but may not exceed such Member’s Pro Rata Portion.
(b) The Participation Offer will describe the terms and conditions, including
the price, of any such proposed Significant Sale and the number of Units that a Member may
Transfer in the proposed Significant Sale and will be conditioned upon: (i) the consummation of
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the transactions contemplated by the Participation Offer; and (ii) each Member’s execution and
delivery of all agreements and other documents as the Control Group Members are required to
execute and deliver in connection with such Significant Sale. If any Member accepts the
Participation Offer, then the Control Group Members will reduce, to the extent necessary, the
number of Units they otherwise would have Transferred in the proposed Significant Sale so as to
permit those Members who have accepted the Participation Offer to Transfer the number of Units
that they are entitled to Transfer under this Section 8.04, and such Members will Transfer the
number of Units specified in the Participation Offer to the proposed transferee in accordance with
the terms set forth in the Participation Offer.
(c) Any Member that desires to exercise its right to Transfer Units in the
Participation Offer will deliver notice to the Control Group Members within ten (10) days after
such Member’s receipt of the Participation Offer, specifying the number of Units that such
Member desires to Transfer in the Participation Offer, the number of which shall be limited to such
Member’s Pro Rata Portion, whereupon such Member will be obligated to Transfer such Units at
the closing of such Significant Sale, if and when it occurs.
(d) If, prior to the consummation of a Significant Sale, the material terms of
the proposed Significant Sale change with the result that any price per Unit to be paid in such
proposed Significant Sale is materially greater than the price per such Unit set forth in the
Participation Offer or the other principal terms of such proposed Significant Sale are materially
more favorable than what was set forth in the Participation Offer, the Participation Offer shall be
null and void for purposes of such Transfer, and it will be necessary for a separate Participation
Offer to be furnished, and the terms and provisions of this Section 8.04 separately complied with,
in order to consummate such proposed Transfer pursuant to this Section 8.04.
(e) If the Control Group Members have not completed the proposed Transfer
by the end of the one hundred eightieth (180th) day following the date of the delivery of the
Participation Offer, each Member will be released from his, her, or its obligations, the Participation
Offer shall be null and void, and it shall be necessary for a separate Participation Offer to be
furnished, and the terms and provisions of this Section 8.04 separately complied with, in order to
consummate such proposed or any other Transfer pursuant to this Section 8.04, unless the failure
to complete such proposed Transfer resulted from any failure by any Member to comply wit h the
terms of this Section 8.04. Notwithstanding anything to the contrary contained or implied herein,
there will be no liability on the part of the Control Group Members to any Member if a proposed
Significant Sale is not consummated for any reason.
Section 8.05 Right of First Refusal.
(a) Where permitted by the City’s cannabis rules, affirmatively approved by the
City, where applicable, and subject to Section 8.01(d), prior to any Member transferring any
Common Units, such transferring Member (the “Transferring Member”) shall first provide CR
with written notice (the “ROFR Notice”) of such proposed transaction, which notice shall include
the identity of the proposed Transferee, the number of Common Units proposed to be sold, and the
price per Common Unit to be sold in such proposed transaction. The ROFR Notice shall constitute
an irrevocable offer to sell to CR, or its nominee, all of the Common Units proposed to be sold in
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the transaction at a price equal to the price provided in the ROFR Notice (the “ROFR Price”). CR
may at its sole discretion, within thirty (30) days of receipt of the ROFR Notice (the “CR ROFR
Period”), elect to purchase some or all of such Common Units at the ROFR Price by providing
written notice to the Transferring Member (the “CR ROFR Election”).
(b) In the event that (i) CR has not provided the CR ROFR Elections to the
Transferring Member during the CR ROFR Period or (ii) purchased all of the Units offered to it in
the ROFR Notice, then the Transferring Member shall provide the other Members, excluding CR,
(the “Non-Transferring Members”) with written notice (the “Secondary ROFR Notice”) of the
proposed Transfer transaction, which notice shall include the identity of the proposed Transferee,
the number of Common Units (i) proposed to be sold or (ii) available, if CR has not purchased all
of the Units offered to it in the ROFR Notice ((i) or (ii) referred to herein as the “Available
Common Units”), and the ROFR Price. The Secondary ROFR Notice shall constitute an
irrevocable offer to sell to the Non-Transferring Members, or their nominee, all of the Available
Common Units at the ROFR Price. Each Non-Transferring Member may at its sole discretion,
within thirty (30) days of receipt of the Secondary ROFR Notice (the “Secondary ROFR Period”),
elect to purchase some or all of the Available Common Units at the ROFR Price by providing
written notice to the Transferring Member (the “Secondary ROFR Election”). In the event that
multiple Non-Transferring Members make a Secondary ROFR Election electing to purchase, in
the aggregate, more Common Units than are offered in the Secondary ROFR Notice, then the
Members making a Secondary ROFR Election shall be entitled to purchase Available Common
Units pro rata based on the ratio of the respective holdings of Common Unit s of such electing
Members. In the event that no Non-Transferring Members have provided Secondary ROFR
Elections to the Transferring Member during the Secondary ROFR Period, then the Transferring
Member may sell Common Units on the terms described in the Secondary ROFR Notice, provided,
however, that if such transaction does not close within ninety (90) days of the end of the Secondary
ROFR Period, then the Transferring Member may not transfer Common Units without first
complying with this Section 8.05.
Section 8.06 Regulatory Redemption.
(a) The provisions of Section 8.01, Section 8.03, Section 8.04 and Section 8.05
shall not apply to any Transfer or redemption of any Unit or Unit Equivalents pursuant to this
Section 8.06. Upon receipt of a notice that a Member may meet any condition to be deemed an
Affected Person, the Disinterested Managers, or if there are no Disinterested Managers, the
Disinterested Members, may, but are not obligated to, permit such Member a specified period of
time (as determined by the Disinterested Managers or the Disinterested Members, as applicable,
to the extent permitted by any Regulatory Laws (including by the applicable Regulatory
Authority)) to take all actions, at such Member’s costs, to cure such condition. Upon the expiration
of such period of time (if any) or otherwise, the Disinterested Managers or the Disinterested
Members shall promptly make a determination regarding such Member as an Affected Person.
(b) Upon any determination that a Member is an Affected Person, the
Disinterested Managers, or if there are no Disinterested Managers, the Disinterested Members,
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may determine that the Affected Person is permitted to Transfer its Units and Unit Equivalents to
an individual or entity approved by the Disinterested Managers or the Disinterested Members, as
applicable (provided, however, that such Transfer is permitted by any Regulatory Laws (including
by the applicable Regulatory Authority)) and such Transfer otherwise complies with the provisions
of this Agreement. If the Disinterested Managers or the Disinterested Members determine that
such Affected Person shall not be permitted to Transfer its Units and Unit Equivalents, such
applicable Units and Unit Equivalents shall be subject to redemption in accordance with Sections
8.06(c) through (i).
(c) The Units and Unit Equivalents owned or controlled by an Affected Person
shall be redeemable by the Company, subject to applicable law, as directed by a Regulatory
Authority and, if not so directed, as and to the extent deemed necessary or advisable by th e
Disinterested Managers, or if there are no Disinterested Managers, the Disinterested Members, in
which event the Company shall deliver a Regulatory Redemption Notice to the Affected Person
and shall redeem the Units and Unit Equivalents on the Regulatory Redemption Date and for the
Regulatory Redemption Price set forth in the Regulatory Redemption Notice. To the extent that
the redemption of less than all of the Units and Unit Equivalents held by an Affected Person would
address the deficiency, the Disinterested Managers or the Disinterested Members, as applicable
may determine, in their discretion, to redeem only such Units and Unit Equivalents to address the
deficiency and such Units and Unit Equivalents shall be selected in such manner as shall be
determined by the Disinterested Managers or the Disinterested Members. In accordance with the
requirements of the Regulatory Redemption Notice, such Affected Person shall surrender the
certificate(s), if any, representing the Units and Unit Equivalents to be so redeemed.
(d) From and after the Regulatory Redemption Date, the Units and Unit
Equivalents owned or controlled by the Affected Person that will be redeemed shall no longer be
deemed to be outstanding, all rights of such Affected Person in such Units and Unit Equivalents,
other than the right to receive the Regulatory Redemption Price, shall cease and, if such Units and
Unit Equivalents represent all of the Units and Unit Equivalents owned or controlled by the
Affected Person, such Affected Person shall cease to be a member, partner or owner, as applicable,
of the Company with respect to such Units and Unit Equivalents.
(e) The Company may pay the Regulatory Redemption Price in any
combination of cash, property or rights, as required by the applicable Regulatory Authority and, if
not so required, as determined by the Disinterested Managers, or if there are no Disinterested
Managers, the Disinterested Members; provided, however, that in the event the Company elects to
pay all or any portion of the Regulatory Redemption Price with a promissory note, such promissory
note shall be unsecured notes of the Company, shall be subordinated to all existing and future
indebtedness of the Company, and shall contain such other terms and conditions as the
Disinterested Managers or the Disinterested Members determine, in their discretion, to be
necessary or advisable.
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(f) Upon the redemption of the applicable Units and Unit Equivalents, the
Company may, subject to compliance with the provisions of this Agreement, reissue, cancel, or
hold such Units and Unit Equivalents.
(g) Except as required by a Regulatory Authority, nothing in this Sections 8.06
shall be deemed or construed to require the Company to redeem or repurchase any Units and Unit
Equivalents owned or controlled by an Affected Person.
(h) The Disinterested Managers, or if there are no Disinterested Managers, the
Disinterested Members, shall have the exclusive right to interpret all issues arising under this
Sections 8.06, and any determination of the Disinterested Managers or the Disinterested Members,
as applicable, under this Sections 8.06 or by a Regulatory Authority (whether or not such
determination is final, binding, or non-appealable) shall be final, binding and conclusive
determination for all purposes of this Sections 8.06. The Disinterested Managers or the
Disinterested Members may also impose additional terms and conditions in connection with any
redemption under this Sections 8.06 and, from time to time, may adopt such other provisions and
procedures in furtherance of this Sections 8.06. In the event there are no Disinterested Managers
or Disinterested Members, the Company and the Affected Person jointly shall appoint an
independent individual within forty-five (45) days.
(i) Except as may be required by any Regulatory Law or Regulatory Authority,
the Disinterested Managers, or if there are no Disinterested Managers, the Disinterested Members,
may waive any of the rights of the Company or any restrictions contained in this Section 8.06 in
any instance in which and to the extent the Disinterested Managers or the Disinterested Members,
as applicable, determine that a waiver would be in the best interests of the Company.
(j) The restrictions set forth in this Sections 8.06 shall be noted conspicuously
on any certificate (if any) evidencing the Units and Unit Equivalents in accordance with the
requirements of applicable law and any applicable Regulatory Laws.
ARTICLE IX
COVENANTS
Section 9.01 Confidentiality.
(a) In pursuit of the Company’s business (the “Authorized Use”), certain trade
secrets and business information proprietary to each Member and which each Member considers
to be Confidential Information (as hereinafter defined) may be provided to one Member or the
Company, and its affiliates (“Receiving Party”) by another Member, and its affiliates (“Disclosing
Party”). This Section 9.01 is intended to allow the parties to have open discussions regarding the
Confidential Information, while still affording complete protection of the Disclosing Party’s
Confidential Information against disclosure or unauthorized use.
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(b) “Confidential Information” means any Disclosing Party confidential or
proprietary information, whether marked as confidential or not, in the form of notes, documents,
materials, correspondence, or any other form, and anything derived from the foregoing, relating
to: (i) the Disclosing Party’s proprietary technology and products, including without limitation,
technical data, trade secrets, know-how, research, product plans, ideas or concepts, products
services, software, inventions, patent applications, techniques, processes, developments,
algorithms, formulas, technology, designs, schematics, drawings, engineering, and hardware
configuration information; (ii) proprietary information relating to the Disclosing Party’s operations
and business or financial plans or strategies, including but not limited to customers, customer lists,
markets, financial statements and projections, standard operating procedures (SOP’s) product
pricing and marketing, financial or other strategic business plans or information, disclosed to
Receiving Party b y the Disclosing Party, either directly or indirectly, in writing, orally or by
drawings or inspection of samples, equipment or facilities; (iii) information received by the
Disclosing Party from third parties under confidential conditions which information is identified
by the Disclosing Party as being subject to such conditions; and (iv) the Disclosing Party’s “Trade
Secrets” which means information which derives economic value, actual or potential, from not
being generally known to, or readily ascertainable by proper means by, other persons who can
obtain economic value from its disclosure or use, and which is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy. “Confidential Information” shall not
include any information that: (A) is or subsequently becomes publicly available without the
Receiving Party's breach of any obligation owed the Disclosing Party; (B) became known to the
Receiving Party prior to the Disclosing Party's disclosure of such information to the Receiving
Party; (C) became known to the Receiving Party from a source other than the Disclosing Party or
its affiliates or advisors other than by the breach of an obligation of confidentiality owed to the
Disclosing Party; or (D) is independently developed by the Receiving Party without violating any
of its obligations under this Agreement.
(c) Non-Disclosure of Confidential Information. Other than with respect to
disclosures by the Company to a Regulatory Authority in connection with the pursuit of the
Company’s business, the Receiving Party will keep all Confidential Information of the Disclosing
Party confidential and will not, directly or indirectly, commercially exploit the Confidential
Information of the Disclosing Party or use same for any other purpose, except for the Authorized
Use. The Receiving Party shall take all reasonable action and shall take at least the same
commercially reasonable precautions as it takes to prevent the disclosure of its own Confidential
Information, to prevent the disclosure to third parties of the Confidential Information of the
Disclosing Party. The Receiving Party shall only have the right to disclose the Confidential
Information to its employees, agents, consultants and professional advisers on a “need to know”
basis for the Authorized Use. The Receiving Party shall, prior to disclosing any Confidential
Information to any such person, issue appropriate instructions to them and obtain all necessary
undertakings to ensure that such persons comply with the confidentiality and use obligations and
restrictions contained in this Agreement with respect to the Confidential Information of the
Disclosing Party. Each Party shall specifically inform each of its representatives, employees and
agents who receive any Confidential Information of the other Party hereunder of the obligations
created by this Agreement and obtain the written acknowledgment from each such person or entity,
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who shall be bound to accept the non-disclosure obligations of the Receiving Party. Each Party
and its officers (personally, under joint and several liability) shall be liable for any breach hereof
by any of its employees, agents or representatives.
(d) Ownership of Confidential Information. Notwithstanding anything else
contained herein, unless otherwise provided in a separate agreement all Confidential Information
shall remain the property of the Disclosing Party and shall be held in trust by the Receiving Party
for the Disclosing Party unless otherwise provided in a separate agreement. Nothing in this
Agreement shall be construed as granting any rights to Receiving Party under any patent or
copyright, nor shall this Agreement be construed to grant the Receiving Party any rights in or to
the Disclosing Party’s Confidential Information, ex cept the limited right to review such
Confidential Information solely for the Authorized Use.
(e) Required Disclosure. Other than with respect to disclosures to a Regulatory
Authority in connection with the pursuit of the Company’s business, if the Receiving Party
becomes legally required to disclose any Confidential Information, the Receiving Party will, to the
extent permitted by Applicable Law, give the Disclosing Party prompt notice of such fact so that
the Disclosing Party may obtain a protective order or other appropriate remedy concerning any
such disclosure and/or waive compliance with the non-disclosure provisions of this Agreement.
The Receiving Party will fully cooperate with the Disclosing Party in connection with the
Disclosing Party’s efforts to obtain any such order or other remedy. If any such order or other
remedy does not fully preclude disclosure or the Disclosing Party waives such compliance, the
Receiving Party will make such disclosure only to the extent that such disclosure is legally required
and will use its best efforts to have confidential treatment accorded to the disclosed Confidential
Information.
(f) Return of Confidential Information. The Receiving Party shall, immediately
upon the earlier of: (i) the Disclosing Party or Receiving Party no longer being a Member of the
Company; or (ii) the dissolution of the Company, discontinue use of the Confidential Information
of the Disclosing Party and return within ten (10) days of receipt of notice from the Disclosing
Party requesting the return of the Disclosing Party’s Confidential Information all tangible forms
of such Confidential Information, and all copies thereof, which may be or have been in the
Receiving Party’s possession. Except as otherwise required by law, the Receiving Party shall
promptly redeliver or destroy all material containing or reflecting any information contained in the
Confidential Information and will not retain any copies, extracts, or other reproductions of such
written material. Subject to the foregoing exceptions, all documents, memoranda, notes, or other
writings whatsoever, prepared and based on the information contained in the Confidential
Information shall be returned or destroyed. If Confidential Information is destroyed, the Receiving
Party will provide written certification signed by one of its senior officers that such Confidential
Information has been destroyed.
(g) Term. The restrictions on use and disclosure of Confidential Information
shall continue indefinitely and shall survive the termination of this Agreement.
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(h) Injunctive Relief. The Receiving Party acknowledges and agrees that the
breach by it of any of the Receiving Party’s confidentiality obligations hereunder may cause
serious and irreparable harm to the Disclosing Party which could not adequately be compens ated
for in damages. Each of the Parties therefore consents to an order specifically enforcing the
provisions of this Agreement, or an order of injunction being issued against it restraining it from
any further breach of such provisions and agrees that such injunction may be issued against it
without the necessity of an undertaking as to damages by the other Party. The provisions of this
section shall not derogate from any other remedy which a Party may have in the event of such a
breach.
(i) Indemnification. The Receiving Party shall indemnify the Disclosing Party
the officers, members, employees, agents, successors and assigns of the Disclosing Party for any
and all damages incurred as a result of any breach hereof by the Receiving Party and/or any
employee or agent of the Receiving Party.
Section 9.02 Regulatory Covenants of the Members. Each member covenants to the
Company as follows:
(a) all Units and Unit Equivalents held by such Member shall be held subject
to the restrictions and requirements of all Regulatory Laws;
(b) such Member shall comply with all Regulatory Laws including (i) filing
required applications for Regulatory Licenses, as applicable, (ii) providing all information
regarding such Member as may be requested or required by Regulatory Authorities (including in
connection with any application for a Regulatory License), and (iii) responding to written or oral
questions or inquiries from any Regulatory Authorities;
(c) such Member consents to (i) the performance of any personal background
investigation that may be required by any Regulatory Authorities or Regulatory Laws and (ii) the
disclosure by the Company of any information regarding such Member required by Regulatory
Authorities or Regulatory Laws without the need to obtain approval from such Member;
(d) any Transfer of Units or Units Equivalents held by such Member shall be
subject to the requirements of all Regulatory Laws, including that such Transfer may be subject to
the prior approval of the Regulatory Authorities, and any purported Transfer thereof in violation
of such requirements shall be void and of no effect;
(e) such Member shall promptly notify the Company if such Member owns or
controls ten percent (10%) or more of any class or series of Units (assuming the conversion,
exchange or exercise of all Unit Equivalents owned or controlled by such Member); and
(f) in the event that such Member (i) has experienced an event or circumstance,
or otherwise reasonably believes, that such Member may meet any condition to be deemed an
Affected Person or (ii) has knowledge that any other Member or any other individual elected or
appointed as a director or officer of the Company or any current director or officer of the Company
has experienced an event or circumstance, or otherwise may meet any condition to be deemed an
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Affected Person, then, in all cases, such Member shall promptly notify the Company of the relevant
details
ARTICLE X
TAX MATTERS
Section 10.01 Income Tax Audits.
(a) For each year in which the Company is subject to the Partnership Tax Audit
Rules, the Company shall designate Brandon Johnson to serve as the “partnership representative”
of the Company within the meaning of Code § 6223, as amended by the Partnership Tax Audit
Rules (the “Tax Representative”). Tax Representative shall have sole authority to act on behalf of
the Company for purposes of the Code and the Partnership Tax Audit Rules and any comparable
provisions of state or local income tax laws with respect to the taxable year(s) such Person was
designated to serve in such capacity, until such Person resigns or is replaced by the Members in
accordance with the provisions of Section 10.01(b). If the Tax Representative is an entity rather
than an individual, the Tax Representative shall appoint an individual who meets the requirements
of the Partnership Tax Audit Rules to serve as the “designated individual” (the “Designated
Individual”) to act on behalf of the Tax Representative for the Company, which appointment shall
be deemed to be the appointment of the Company. For purposes of this Section 10.01, unless
otherwise specified, all references to provisions of chapter 63 of the Code shall be to such
provisions as enacted by the Partnership Tax Audit Rules.
(b) The Person serving as the Tax Representative (or Designated Individual, as
applicable) shall be automatically removed as Tax Representative upon the death, dissolution
and/or winding up, legal incompetency or Bankruptcy of such Person, and the Person serving as
the Tax Representative may be removed at any time by the Members. Upon such removal of the
Tax Representative (or Designated Individual, as applicable) a successor to serve in such position
shall be designated by the Members, and the removed Tax Representative (or Designated
Individual, as applicable) shall not take any action for or on behalf of the Company without the
prior written consent of the Members.
(c) The Company shall indemnify and hold harmless the Tax Representative
(and Designated Individual, as applicable) in accordance with Article XII as a result of any act or
decision concerning Company tax matters and within the scope of such Person’s responsibility as
Tax Representative. All amounts indemnified may be advanced as incurred in accordance with
Article XII. The Tax Representative (and Designated Individual, as applicable) shall be entitled to
rely on the advice of outside legal counsel and accountants as to the nature and scope of such
Person’s responsibilities and authority, and any act or omission of the Tax Representative pursuant
to such advice in no event shall subject the Tax Representative to liability to the Company or any
Member.
(d) If the Company qualifies to elect pursuant to Code § 6221(b) (or successor
provision) to have federal income tax audits and other proceedings undertaken by each Member
rather than by the Company, the Company shall make such election.
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(e) Notwithstanding other provisions of this Agreement to the contrary, but
subject to Section 10.01(f), if any “partnership adjustment” (as defined in Code § 6241(2)) is
determined with respect to the Company, the Tax Representative, upon the determination of the
Members in their sole discretion, will cause the Company to elect pursuant to Code § 6226 (the
“push-out” election) to have any such adjustment passed through to the Members and former
Members for the year to which the adjustment relates (i.e., the “reviewed year” within the meaning
of Code § 6225(d)(1)). In the event that the Tax Representative has not caused the Company to so
elect pursuant to Code § 6226, then any “imputed underpayment” (as determined in accordance
with Code § 6225) or “partnership adjustment” that does not give rise to an “imputed
underpayment” shall be apportioned among the Members and former Members of the Company
in such manner as may be necessary (as determined by the Members in good faith) so that, to the
maximum extent possible, the tax and economic consequences of the partnership adjustment and
any associated interest and penalties are borne by the Members and former Members based upon
their interests in the Company for the reviewed year.
(f) Each Member and former Member agrees that, upon request of the Tax
Representative, such Member shall: (i) provide any information and take such action as may be
reasonably required by the Tax Representative in order to determine whether any “imputed
underpayment” within the meaning of Code § 6225 may be modified pursuant to Code § 6225(c);
(ii) file amended tax returns or effectuate the alternative “pull-in” procedure as provided in Code
§ 6225(c)(2) with respect to any “reviewed year” (within the meaning of Code § 6225(d)(1)) to
reduce the amount of any “partnership adjustment” otherwise required to be taken into account by
the Company; or (iii) in the event the Members do not fully or timely comply (in the Tax
Representatives sole discretion) with the procedures of such Code § 6225(c)(2), take such actions
as may be necessary or desirable (if any) to allow the Company to comply with the provisions of
Code § 6226 (concerning the “push-out” election) so that any “partnership adjustments” are taken
into account by the Members rather than the Company.
(g) If the Company is obligated to pay any amount of tax, penalty, interest, or
other charges determined under the Code (a “Company Level Tax”), each Member or former
Member to which the assessment or payment relates (an “Indemnifying Member”) shall indemnify
the Company for, and pay to the Company, the Indemnifying Member’s allocable share of the
Company Level Tax. Each Indemnifying Member’s allocable share of the Company Level Tax
shall be determined in good faith by the Board. Promptly upon notification by the Board of the
Indemnifying Member’s obligation to indemnify the Company, an Indemnifying Member shall
make a payment to the Company of immediately available funds, at the time and in the amount
and manner directed by the Board. Amounts paid to the Company under this Section 10.01(g) by
an Indemnifying Member who is not a Member of the Company at the time such payment is made
shall not be treated as a Capital Contribution.
(h) Each Member and former Member agrees that such Member shall not treat
any Company item inconsistently on such Member’s federal, state, foreign, or other income tax
return with the treatment of the item on the Company’s return. Any deficiency for taxes imposed
on any Member or former Member (including penalties, additions to tax or interest imposed with
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respect to such taxes, and any taxes imposed pursuant to Code § 6226, as amended) shall be paid
by such Member, and if paid by the Company will be recoverable from such Member.
(i) The obligations of each Member or former Member under this Section
10.01 shall survive any actual or attempted Transfer, withdrawal or abandonment by such Member
of its Transferable Interest and the termination of this Agreement or the dissolution of the
Company.
Section 10.02 Tax Returns; Tax Elections.
(a) At the expense of the Company, the Board (or any Officer that it may
designate pursuant to Section 7.09) shall endeavor to cause the preparation and timely filing
(including extensions) of all tax returns required to be filed by the Company pursuant to the Code
as well as all other required tax returns in each jurisdiction in which the Company owns property
or does business. As soon as reasonably possible after the end of each Fiscal Year, the Board or
designated Officer will cause to be delivered to each Person who was a Member at any time during
such Fiscal Year, IRS Schedule K-1 to Form 1065 and such other information with respect to the
Company as may be necessary for the preparation of such Person’s federal, state and local income
tax returns for such Fiscal Year.
(b) The Tax Representative with the consent of the Board shall make any and
all elections for federal, state, local, or foreign tax purposes including without limitation any
election, if permitted by Applicable Law: (i) to adjust the basis of property pursuant to Code §§
734(b), 743(b) and 754, or comparable provisions of state, local or foreign law, in connection with
Transfers of Units and Company distributions; (ii) to extend the statute of limitations for
assessment of tax deficiencies against the Members with respect to adjustments to the Company’s
federal, state, local or foreign tax returns; and (iii) to make all decisions on behalf of the Company
and the Members and to direct the activities of the Tax Representative before taxing authorities or
courts of competent jurisdiction in tax matters affecting the Company or the Members in their
capacities as Members, and to direct the filing of any tax returns and to cause the execution of any
agreements or other documents relating to or affecting such tax matters, including agreements or
other documents that bind the Members with respect to such tax matters or otherwise affect the
rights of the Company and the Members.
Section 10.03 Company Funds. All funds of the Company shall be deposited in its name,
or in such name as may be designated by the Board, in such checking, savings or other accounts,
or held in its name in the form of such other investments as shall be designated by the Board. The
funds of the Company shall not be commingled with the funds of any other Person. All withdrawals
of such deposits or liquidations of such investments by the Company shall be made exclusively
upon the signature or signatures of the Board or such Officer or Officers as the Board may
designate.
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ARTICLE XI
DISSOLUTION AND LIQUIDATION
Section 11.01 Events of Dissolution. The Company shall be dissolved and its affairs
wound up only upon the occurrence of any of the following events:
(a) The determination of one hundred percent (100%) of the Members holding
Common Units to dissolve the Company;
(b) At the election of the non-defaulting Member(s), in its/their sole discretion,
if a Member breaches any material covenant, duty, or obligation under this Agreement, which
breach remains uncured for fifteen (15) days after written notice of such breach was received by
the defaulting Member;
(c) The sale, exchange, involuntary conversion, or other disposition or Transfer
of all or substantially all the assets of the Company; or
(d) The entry of a decree of judicial dissolution under the LLC Act.
Section 11.02 Effectiveness of Dissolution. Dissolution of the Company shall be effective
on the day on which any event described in Section 11.01 occurs, but the Company shall not
terminate until the winding up of the Company has been completed, the assets of the Company
have been distributed as provided in Section 11.03 and the Articles of Organization shall have
been cancelled as provided in Section 11.04.
Section 11.03 Liquidation. If the Company is dissolved pursuant to Section 11.01, the
Company shall be liquidated and its business and affairs wound up in accordance with the LLC
Act and the following provisions:
(a) Liquidator. The Board, or, if the Board is unable to do so, a Person selected
by the holders of a majority of the Common Units, shall act as liquidator to wind up the Company
(the “Liquidator”). Subject to a receiver or liquidating trustee being appointed by a court to wind
up and liquidate the affairs of the Company, the Liquidator shall have full power and authority to
sell, assign and encumber any or all of the Company’s assets and to wind up and liquidate the
affairs of the Company in an orderly and business-like manner.
(b) Accounting. As promptly as possible after dissolution and again after final
liquidation, the Liquidator shall cause a proper accounting to be made by a recognized firm of
certified public accountants of the Company’s assets, liabilities and operations through the last day
of the calendar month in which the dissolution occurs or the final liquidation is completed, as
applicable.
(c) Distribution of Proceeds. The Liquidator shall liquidate the assets of the
Company and Distribute the proceeds of such liquidation in the following order of priority, unless
otherwise required by mandatory provisions of Applicable Law:
(i) First, to the payment of all of the Company’s debts and liabilities
(including debts and liabilities (other than distributions) owed to Members who are
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creditors, if applicable) and the expenses of liquidation (including sales
commissions incident to any sales of assets of the Company);
(ii) Second, to the establishment of and additions to reserves that are
determined by the Board in its sole discretion to be reasonably necessary for any
contingent unforeseen liabilities or obligations of the Company;
(iii) Third, to Members and former Members in satisfaction of liabilities
for distributions; and
(iv) Fourth, to the Members, on a pro rata basis, in accordance with the
positive balances in their respective Capital Accounts, as determined after taking
into account all Capital Account adjustments for the taxable year of the Company
during which the liquidation of the Company occurs.
(d) Discretion of Liquidator. Notwithstanding the provisions of Section
11.03(c) that require the liquidation of the assets of the Company, but subject to the order of
priorities set forth in Section 11.03(c), if upon dissolution of the Company the Liquidator
determines that an immediate sale of part or all of the Company’s assets would be impractical or
could cause undue loss to the Members, the Liquidator may defer the liquidation of any assets
except those necessary to satisfy Company liabilities and reserves, and may, in its absolute
discretion, Distribute to the Members, in lieu of cash, as tenants in common and in accordance
with the provisions of Section 11.03(c) and subject to compliance with Regulatory Laws,
undivided interests in such Company assets as the Liquidator deems not suitable for liquidation.
Any such Distribution in kind will be subject to such conditions relating to the disposition and
management of such properties as the Liquidator deems reasonable and equitable and to any
agreements governing the operating of such properties at such time. For purposes of any such
Distribution, the following rules shall be applied consistent with Treasury Regulations § 1.704 -
1(b)(2)(iv)(e): (i) any property to be Distributed will be valued at its Fair Market Value; (ii) the
difference between the Fair Market Value of any asset to be Distributed in kind and its carrying
value on the books of the Company shall be deemed to be gain or loss and any such deemed gain
or loss shall be allocated in accordance with Article V; and (iii) all such allocations of gain or loss
shall be credited or charged to the Members’ Capital Accounts prior to making such Distributions.
Section 11.04 Cancellation of Articles. Upon completion of the Distribution of the assets
of the Company as provided in Section 11.03(c) hereof, the Company shall be terminated and the
Liquidator shall cause the cancellation of the Articles of Organization in the State of California
and of all qualifications and registrations of the Company as a foreign limited liability company in
jurisdictions other than the State of California and shall take such other actions as may be necessary
to terminate the Company.
Section 11.05 Survival of Rights, Duties and Obligations. Dissolution, liquidation,
winding up or termination of the Company for any reason shall not release any party from any
Loss which at the time of such dissolution, liquidation, winding up or termination already had
accrued to any other party or which thereafter may accrue in respect of any act or omission prior
to such dissolution, liquidation, winding up or termination. For the avoidance of doubt, none of
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the foregoing shall replace, diminish or otherwise adversely affect any Member’s right to
indemnification pursuant to Section 12.03.
Section 11.06 Resource for Claims. Each Member shall look solely to the assets of the
Company for all Distributions with respect to the Company, such Member’s Capital Account, and
such Member’s share of Net Income, Net Loss and other items of income, gain, loss and deduction,
and shall have no recourse therefor (upon dissolution or otherwise) against the Board, the
Liquidator or any other Member.
ARTICLE XII
EXCULPATION AND INDEMNIFICATION
Section 12.01 Exculpation of Covered Persons.
(a) Covered Persons. As used herein, the term “Covered Person” shall mean:
(i) each Member; (ii) each officer, director, shareholder, partner, member, controlling Affiliate,
employee, agent or representative of each Member, and each of their controlling Affiliates ; and
(iii) each Manager, Officer, employee, agent or Representative of the Company.
(b) Standard of Care. No Covered Person shall be liable to the Company or any
other Covered Person for any loss, damage or claim incurred by reason of any action taken or
omitted to be taken by such Covered Person in good-faith reliance on the provisions of this
Agreement, so long as such action or omission does not constitute fraud or willful misconduct by
such Covered Person.
(c) Good Faith Reliance. A Covered Person shall be fully protected in relying
in good faith upon the records of the Company and upon such information, opinions, reports or
statements (including financial statements and information, opinions, reports or statements as to
the value or amount of the assets, liabilities, Net Income or Net Losses of the Company or any
facts pertinent to the existence and amount of assets from which Distributions might properly be
paid) of the following Persons or groups: (i) another Manager; (ii) one (1) or more Officers or
employees of the Company; (iii) any attorney, independent accountant, appraiser or other expert
or professional employed or engaged by or on behalf of the Company; or (iv) any other Person
selected in good faith by or on behalf of the Company, in each case as to matters that such relying
Person reasonably believes to be within such other Person’s professional or expert competence.
Section 12.02 Liabilities and Duties of Covered Persons.
(a) Limitation of Liability. This Agreement is not intended to, and does not,
create or impose any fiduciary duty on any Covered Person. Furthermore, to the fullest extent
permitted by Applicable Law, each of the Members and the Company hereby waives any and all
fiduciary duties that, absent such waiver, may be implied by Applicable Law, and in doing so,
acknowledges and agrees that the duties and obligation of each Covered Person to each other and
to the Company are only as expressly set forth in this Agreement. The provisions of this
Agreement, to the extent that they restrict the duties and liabilities of a Covered Person otherwise
existing at law or in equity, are agreed by the Members to replace such other duties and liabilities
of such Covered Person.
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(b) Duties. Whenever in this Agreement a Covered Person is permitted or
required to make a decision (including a decision that is in such Covered Person’s “discretion” or
under a grant of similar authority or latitude), the Covered Person shall be entitled to consider only
such interests and factors as such Covered Person desires, including its/their own interests, and
shall have no duty or obligation to give any consideration to any interest of or factors affecting the
Company or any other Person. Whenever in this Agreement a Covered Person is permitted or
required to make a decision in such Covered Person’s “good faith,” the Covered Person shall act
under such express standard and shall not be subject to any other or different standard imposed by
this Agreement or any other Applicable Law.
Section 12.03 Indemnification.
(a) Indemnification. to the fullest extent permitted under the LLC Act (after
waiving all the LLC Act restrictions on indemnification other than those which cannot be
eliminated under the LLC Act), as the same now exists or may hereafter be amended, substituted
or replaced the Company shall indemnify, hold harmless, defend, pay and reimburse any Covered
Person against any and all losses, claims, damages, judgments, fines or liabilities, including
reasonable legal fees or other expenses incurred in investigating or defending against such losses,
claims, damages, judgments, fines or liabilities, and any amounts expended in settlement of any
claims (collectively, “Losses”) to which such Covered Person may become subject by reason of:
(i) Any act or omission, or alleged act or omission, performed, or
omitted to be performed, on behalf of the Company, any Member or any d irect or
indirect Subsidiary of the foregoing in connection with the business of the
Company; or
(ii) The fact that such Covered Person is or was acting in connection
with the business of the Company as a partner, Member, stockholder, controlling
Affiliate, Manager, director, Officer, employee or agent of the Company, any
Member, or any of their respective controlling Affiliates, or that such Covered
Person is or was serving at the request of the Company as a partner, member,
manager, director, officer, employee or agent of any Person including the
Company;
provided, however, that such Loss did not arise from: (A) the Covered Person's conduct involving
bad faith, willful or intentional misconduct, or a knowing violation of law (other than the Federal
Cannabis Laws); (B) a transaction from which such Covered Person derived an improper personal
benefit; (C) a circumstance under which the liability provisions for improper distributions of the
LLC Act are applicable, or (D) a breach of such Covered Person's duties or obligations under the
LLC Act (taking into account any restriction, expansion, or elimination of such duties and
obligations provided for in this Agreement). In connection with the foregoing, the termination of
any action, suit, or proceeding b y judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a presumption that the Covered Person acted
in bad faith, that the Covered Person's conduct constituted willful or intentional misconduct or a
knowing violation of law, or that the Covered Person derived an improper personal benefit.
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(b) Reimbursement. The Company shall promptly reimburse (and/or advance
to the extent reasonably required) each Covered Person for reasonable legal or other expenses (as
incurred) of such Covered Person in connection with investigating, preparing to defend or
defending any claim, lawsuit or other proceeding relating to any Losses for which such Covered
Person may be indemnified pursuant to this Section 12.03; provided, however, that if it is finally
judicially determined that such Covered Person is not entitled to the indemnification provided by
this Section 12.03, then such Covered Person shall promptly reimburse the Company for any
reimbursed or advanced expenses.
(c) Entitlement to Indemnity. The indemnification provided by this Section
12.03 shall not be deemed exclusive of any other rights to indemnification to which those seeking
indemnification may be entitled under any agreement or otherwise. The provisions of this Section
12.03 shall continue to afford protection to each Covered Person regardless of whether such
Covered Person remains in the position or capacity pursuant to which such Covered Person became
entitled to indemnification under this Section 12.03 and shall inure to the benefit of the executors,
administrators, legatees and distributees of such Covered Person.
(d) Insurance. To the extent available on commercially reasonable terms, the
Company may purchase, at its expense, insurance to cover Losses covered by the forego ing
indemnification provisions and to otherwise cover Losses for any breach or alleged breach by any
Covered Person of such Covered Person’s duties in such amount and with such deductibles as the
Board may determine; provided, however, that the failure to obtain such insurance shall not affect
the right to indemnification of any Covered Person under the indemnification provisions contained
herein, including the right to be reimbursed or advanced expenses or otherwise indemnified for
Losses hereunder. If any Covered Person recovers any amounts in respect of any Losses from any
insurance coverage, then such Covered Person shall, to the extent that such recovery is duplicative,
reimburse the Company for any amounts previously paid to such Covered Person by the Company
in respect of such Losses.
(e) Funding of Indemnification Obligation. Notwithstanding anything
contained herein to the contrary, any indemnity by the Company relating to the matters covered in
this Section 12.03 shall be provided out of and to the extent of Company assets only, and no
Member (unless such Member otherwise agrees in writing) shall have personal liability on account
thereof or shall be required to make additional Capital Contributions to help satisfy such indemnity
by the Company.
(f) Savings Clause. If this Section 12.03 or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify and hold harmless each Covered Person pursuant to this Section 12.03 to
the fullest extent permitted by any applicable portion of this Section 12.03 that shall not have been
invalidated and to the fullest extent permitted by Applicable Law.
(g) Amendment. The provisions of this Section 12.03 shall be a contract
between the Company, on the one hand, and each Covered Person who served in such capacity at
any time while this Section 12.03 is in effect, on the other hand, pursuant to which the Company
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and each such Covered Person intend to be legally bound. No amendment, modification or repeal
of this Section 12.03 that adversely affects the rights of a Covered Person to indemnification for
Losses incurred or relating to a state of facts existing prior to such amendment, modification or
repeal shall apply in such a way as to eliminate or reduce such Covered Person’s entitlement to
indemnification for such Losses without the Covered Person’s prior written consent.
(h) Survival. The provisions of this Article XII shall survive the dissolution,
liquidation, winding up and termination of the Company.
ARTICLE XIII
MISCELLANEOUS
Section 13.01 Expenses. Except as otherwise expressly provided herein, all costs and
expenses, including fees and disbursements of counsel, financial advisors and accountants,
incurred in connection with the preparation and execution of this Agreement, or any amendment
or waiver hereof, and the transactions contemplated hereby shall be paid by the party incurring
such costs and expenses.
Section 13.02 Further Assurances. In connection with this Agreement and the
transactions contemplated hereby, the Company and each Member hereby agrees, at the request of
the Company or any other Member, to execute and deliver such additional documents, instruments,
conveyances and assurances and to take such further actions as may be required to carry out the
provisions hereof and give effect to the transactions contemplated hereby.
Section 13.03 Notices. All notices, requests, consents, claims, demands, waivers and other
communications hereunder shall be in writing and shall be deemed to have been given: (a) when
delivered by hand (with written confirmation of receipt); (b) when received by the addressee if
sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by e-mail
of a PDF document (with confirmation of transmission) if sent during normal business hours of
the recipient, and on the next Business Day if sent after normal business hours of the recipient; or
(d) on the third (3rd) day after the date mailed, by certified or registered mail, return receipt
requested, postage prepaid. Such communications must be sent to the respective parties at the
following addresses (or at such other address for a party as shall be specified in a notice given in
accordance with this Section 13.03):
If to the Company:
4675 McArthur Court, Floor 15
Newport Beach, California 92660
E-mail: ryan@cookiesre.com; bj@cookiesre.com
Attention: Ryan Johnson and Brandon Johnson
with a copy to: Vicente Sederberg LLP
633 West 5th Street, Floor 26
Los Angeles, CA 90071
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E-mail: Sahar@vicentesederberg.com
Attention: Sahar Ayinehsazian, Esq.
with an additional copy to: Cookies Retail LLC
4675 McArthur Court, Floor 15
Newport Beach, California 92660
E-mail: ryan@cookiesre.com; bj@cookiesre.com
Attention: Ryan Johnson and Brandon Johnson
If to a Member, to such Member’s respective mailing address as set forth on the Members
Schedule.
Section 13.04 Interpretation; Headings. For purposes of this Agreement: (a) the words
“include,” “includes” and “including” shall be deemed to be followed by the words “without
limitation”; (b) the word “or” is not exclusive; and (c) the words “herein,” “hereof,” “hereby,”
“hereto” and “hereunder” refer to this Agreement as a whole. The definitions given for any defined
terms in this Agreement shall apply equally to both the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. Unless the context otherwise requires, references herein:
(i) to Articles, Sections, Schedules, Annexes and Exhibits mean the Articles and Sections of, and
Schedules, Annexes and Exhibits attached to, this Agreement; (ii) to an agreement, instrument or
other document means such agreement, instrument or other document as amended, supplemented
and modified from time to time to the extent permitted by the provisions thereof; and (iii) to a
statute means such statute as amended from time to time and includes any successor legislation
thereto and any regulations promulgated thereunder. This Agreement shall be construed without
regard to any presumption or rule requiring construction or interpretation against the party drafting
an instrument or causing any instrument to be drafted. The Schedules, Annexes and Exhibits
referred to herein shall be construed with, and as an integral part of, this Agreement to the same
extent as if they were set forth verbatim herein. The headings in this Agreement are inserted for
convenience or reference only and are in no way intended to describe, interpret, define or limit the
scope, extent or intent of this Agreement or any provision of this Agreement.
Section 13.05 Severability. If any term or provision of this Agreement is held to be
invalid, illegal or unenforceable under Applicable Law in any jurisdiction or by any Regulatory
Authority, such invalidity, illegality or unenforceability shall not affect any other term or provision
of this Agreement or invalidate or render unenforceable such term or provision in any other
jurisdiction. Upon such determination that any term or other provision is invalid, illegal or
unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated hereby be consummated as originally contemplated to the
greatest extent possible.
Section 13.06 Entire Agreement. This Agreement, together with the Articles of
Organization, any agreement to acquire Units, and all related Schedules, Annexes and Exhibits,
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constitutes the sole and entire agreement of the parties to this Agreement with respect to the subject
matter contained herein and therein, and supersedes all prior and contemporaneous understandings,
agreements, representations and warranties, both written and oral, with respect to such subject
matter.
Section 13.07 Successors and Assigns. Subject to the restrictions on Transfers set forth
herein, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto
and their respective heirs, executors, administrators, successors and assigns.
Section 13.08 No Third-party Beneficiaries. Except as provided in Article XII which
shall be for the benefit of and enforceable by Covered Persons as described therein, this Agreement
is for the sole benefit of the parties hereto (and their respective heirs, executors, administrators,
successors and assigns) and nothing herein, express or implied, is intended to or shall confer upon
any other Person, including any creditor of the Company, any legal or equ itable right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
Section 13.09 Amendment. Subject to Section 7, no provision of this Agreement may be
amended or modified except by an instrument in writing executed by the Company and Members
holding at least fifty-one percent (51%) of the issued and outstanding Common Units, which must
include CR. Any such written amendment or modification will be binding upon the Company and
each Member. Notwithstanding the foregoing, amendments to the Members Schedule following
any new issuance, redemption, repurchase or Transfer of Units in accordance with this Agreement
may be made by the Board without the consent of or execution by the Members.
Section 13.10 Waiver. No waiver by any party of any of the provisions hereof shall be
effective unless explicitly set forth in writing and signed by the party so waiving. No waiver by
any party shall operate or be construed as a waiver in respect of any failure, breach or default not
expressly identified by such written waiver, whether of a similar or different character, and whether
occurring before or after that waiver. No failure to exercise, or delay in exercising, any right,
remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver
thereof, nor shall any single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other right, remedy, power or
privilege. For the avoidance of doubt, nothing contained in this Section 13.10 shall diminish any
of the explicit and implicit waivers described in this Agreement.
Section 13.11 Governing Law. This Agreement and all related documents and all matters
arising out of or relating to this Agreement, whether sounding in contract, tort, or statute are
governed by, and construed in accordance with, the laws of the State of California, without giving
effect to the conflict of laws provisions thereof to the extent such principles or rules would require
or permit the application of the laws of any jurisdiction other than those of the State of California.
Section 13.12 Dispute Resolution. In the event of any dispute, claim or controversy
arising out of or relating to this Agreement, the parties shall first attempt in good faith to resolve
their dispute through in-person negotiation between authorized representatives of each of the
parties with authority to settle the relevant dispute. Either party may commence this negotiation
by delivering written notice to the other party pursuant to the terms outlined in this Agreement.
PAGE 47 OF 48
4840-1943-8017, v. 1
The parties may agree to engage the services of a jointly agreed-upon mediator to facilitate this in-
person meeting, in which case they agree to share equally in the costs of the mediation. If the
dispute cannot be settled amicably within fourteen (14) days of delivery of written notice or the
in-person meeting of authorized representatives, whichever comes later, then the dispute shall be
resolved by binding arbitration as provided in Section 13.14.
Section 13.13 Binding Arbitration. Any dispute, controversy, or claim arising out of or
relating to this Agreement, including any determination of the scope or applicability of this
Section, shall be finally settled by arbitration and judgment on the award rendered by the arbitrator
may be entered in any court having jurisdiction thereof. The Parties shall share the costs of the
arbitration equally; provided, however, that each Party shall be responsible for its own attorneys’
fees and other costs and expenses. The arbitration will be conducted in the English language, in
Orange County, California by a single arbitrator jointly selected by the parties. If the parties are
unable to agree upon an arbitrator within thirty (30) days of delivery of the notice of arbitration,
they agree to use the American Arbitration Association as an appointing authority. The arbitrator
shall have the power to grant legal and equitable remedies, including awarding the prevailing party
its attorneys’ fees and other costs of the arbitration, but they shall not grant punitive damages. TO
THE EXTENT FEDERAL AND STATE LAW CONFLICT AS REGARDS TO THIS
CONTRACT, STATE LAW SHALL APPLY. Except as may be required by law, neither a party
nor an arbitrator may disclose the existence, content, or results of any arbitration hereunder without
the prior written consent of both parties. The arbitrator shall issue an award in this dispute within
one year of their appointment. The award shall be final and binding upon all parties as from the
date rendered and shall be the sole and exclusive remedy between the parties regarding any claims,
counterclaims, issues, or accounting presented to the arbitral tribunal. THE PARTIES
ACKNOWLEDGE THAT THEY ARE IRREVOCABLY WAIVING THE RIGHT TO A TRIAL
IN COURT, INCLUDING A TRIAL BY JURY AND THAT ALL RIGHTS AND REMEDIES
WILL BE DETERMINED BY AN ARBITRATOR AND NOT BY A JUDGE OR JURY.
Section 13.14 Equitable Remedies. Each party hereto acknowledges that a breach or
threatened breach by such party of any of its obligations under this Agreement would give rise to
irreparable harm to the other parties, for which monetary damages would not be an adequate
remedy, and hereby agrees that in the event of a breach or a threatened breach by such party of
any such obligations, each of the other parties hereto shall, in addition to any and all other rights
and remedies that may be available to them in respect of such breach, be entitled to equitable relief,
including a temporary restraining order, an injunction, specific performanc e and any other relief
that may be available from a court of competent jurisdiction (without any requirement to post
bond).
Section 13.15 Attorneys’ Fees. In the event that any party hereto institutes any legal suit,
action or proceeding, including arbitration, against another party in respect of a matter arising out
of or relating to this Agreement, the prevailing party in the suit, action or proceeding shall be
entitled to receive, in addition to all other damages to which it may be entitled, the costs incurred
by such party in conducting the suit, action or proceeding, including reasonable attorneys’ fees
and expenses and court costs.
PAGE 48 OF 48
4840-1943-8017, v. 1
Section 13.16 Remedies Cumulative. The rights and remedies under this Agreement are
cumulative and are in addition to and not in substitution for any other rights and remedies available
at law or in equity or otherwise, except to the extent expressly provided in Section 12.02 to the
contrary.
Section 13.17 Federal Cannabis Laws. The parties hereto agree and acknowledge that
no party makes, will make, or shall be deemed to make or have made any representation or
warranty of any kind regarding the compliance of this Agreement with any Federal Cannabis Laws.
No party hereto shall have any right of rescission or amendment, or shall bring any legal claim,
counter-claim or defense arising out of or relating to any non-compliance with Federal Cannabis
Laws unless such non-compliance also constitutes a violation of Regulatory Laws or this
Agreement, and no Party shall seek to enforce the provisions hereof in federal court.
Section 13.18 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall be deemed to be one and the
same agreement. A signed copy of this Agreement delivered by e-mail or other means of electronic
transmission shall be deemed to have the same legal effect as delivery of an original signed copy
of this Agreement.
Section 13.19 City Requirements. To the extent that any provision of this Agreement, or
any part thereof, is or may be construed to be inconsistent with or in violation of the City’s “Equity
Share” requirement, such provision(s) shall be ineffective, unenforceable, and null and void.
[SIGNATURE PAGE FOLLOWS]
EXECUTION COPY
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as
of the date first written above by their respective officers thereunto duly authorized.
COMPANY:
5048 Blackstone OPCO, LLC
By:
Name: Brandon Johnson
Title: Manager
The Members:
Cookies Retail LLC
By: ___________________________________
Name: Brandon Johnson
Its: Manager
Title: Member
Kacey Auston
By:
Name: Kacey Auston
Title: Member
EXECUTION COPY
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as
of the date first written above by their respective officers thereunto duly authorized.
COMPANY:
5048 Blackstone OPCO, LLC
By:
Name: Brandon Johnson
Title: Manager
The Members:
Cookies Retail LLC
By: ___________________________________
Name: Brandon Johnson
Its: Manager
Title: Member
Kacey Auston
By:
Name: Kacey Auston
Title: Member
SCHEDULE A – MEMBERS’ SCHEDULE
SCHEDULE A
MEMBERS SCHEDULE
Member Name and Address Common Units Capital Contributions
Cookies Retail LLC
4675 McArthur Court, Floor 15
Newport Beach, California 92660
490
Kacey Auston Ave
1271 North Wishon
Fresno, CA 93728
510
Total: 1000
ANNEX 1
DEFINED TERMS
“Additional Capital” has the meaning set forth in Section 4.02(c).
“Adjusted Capital Account” means the balance in the Capital Account maintained for each
Member as of the end of each Fiscal Year: (a) increased by any amount that such Member is
obligated to restore under this Agreement, is treated as obligated to restore under Treasury
Regulations § 1.704-1(b)(2)(ii)(c), or is deemed obligated to restore under the penultimate
sentences of Treasury Regulations §§ 1.704-2(g)(1) and (i)(5); and (b) reduced by the items
described in Treasury Regulations §§ 1.704-1(b)(2)(ii)(d)(4), (5) and (6). This definition of
Adjusted Capital Account is intended to comply with the provisions of Treasury Regulations §
1.704-1(b)(2)(ii)(d) and shall be interpreted and applied consistently therewith.
“Adjusted Taxable Income” of a Member for a Fiscal Year (or portion thereof) with respect
to Units held by such Member means the federal taxable income allocated by the Company to the
Member with respect to such Units (as adjusted by any final determination in connection with any
tax audit or other proceeding) for such Fiscal Year (or portion thereof); provided, however, that
such taxable income shall be computed: (a) minus any excess taxable loss or excess taxable credits
of the Company for any prior period allocable to such Member with respect to such Units that were
not previously taken into account for purposes of determining such Member’s Adjusted Taxable
Income in a prior Fiscal Year to the extent such loss or credit would be available under the Code
to offset income of the Member (or, as appropriate, the direct or indirect members of the Member)
determined as if the income, loss and credits from the Company were the only income, loss and
credits of the Member (or, as appropriate, the direct or indirect members of the Member) in such
Fiscal Year and all prior Fiscal Years; and (b) taking into account any special basis adjustment
with respect to such Member resulting from an election by the Company under Code § 754.
“Affected Person” means any Member, or any elected or appointed or current manager or
officer of the Company, who either (i) in the good faith determination of the Disinterested
Managers, or if there are no Disinterested Managers the Disinterested Members, or (ii) b y a
determination (whether or not such determination is final, binding or non-appealable) by any
Regulatory Authority:
(a) has breached any Regulatory Laws, the condition of any Regulatory
Authority, or the conditions of any Regulatory Licenses;
(b) is not suitable, eligible or otherwise qualified with respect to (1) ay
Regulated Activities, (2) any Regulatory Licenses or (3) owning or controlling any Units or its
position as a manager of officer of the Company, as applicable;
(c) fails to be found suitable, eligible or otherwise qualified with respect to (1)
any Regulated Activities, (2) any Regulatory Licenses or (3) owning or controlling any Units or
its position as a manager of officer of the Company, as applicable pursuant to any Regulatory Laws
(including by the applicable Regulatory Authority); provided, however, such failure, in the good
faith determination of The Disinterested Managers, or if there are no Disinterested Managers, the
ANNEX 1 – DEFINED TERMS
PAGE 2 OF 12
4840-1943-8017, v. 1
Disinterested Members, precludes or materially delays, jeopardizes, impedes or impairs, or
imposes materially burdensome terms and condition on, the ability of the Company or any of its
subsidiaries to conduct any Regulated Activities or to obtain, retain, renew or reinstate any
Regulatory License;
(d) causes, or would reasonably likely to cause, any Regulatory License to be
lost, rejected, rescinded, suspended, revoked, not renewed or not reinstated by any Regulatory
Authority; or
(e) is otherwise reasonably likely to preclude or materially delay, jeopardize,
impede or impair, or impose materially burdensome terms and conditions on, the ability of the
Company or any of its subsidiaries to conduct any Regulated Activities or to obtain, retain, renew
or reinstate any Regulatory License.
“Affiliate” means, with respect to any Person, any other Person who, directly or indirectly
(including through one (1) or more intermediaries), controls, is controlled by, or is under common
control with, such Person. For purposes of this definition, “control,” when used with respect to any
specified Person, shall mean the power, direct or indirect, to direct or cause the direction of the
management and policies of such Person, whether through ownership of voting securities or
partnership or other ownership interests, by contract or otherwise; and the terms “controlling” and
“controlled” shall have correlative meanings.
“Agreement” has the meaning set forth in the preamble hereof.
“Applicable Law” means all Regulatory Laws and applicable provisions of: (a)
constitutions, treaties, statutes, laws (including the common law), rules, regulations, decrees,
ordinances, codes, proclamations, declarations or orders of any Governmental Authority; (b) any
consents or approvals of any Governmental Authority; and (c) any orders, decisions, advisory or
interpretative opinions, injunctions, judgments, awards, decrees of, or agreements with, any
Governmental Authority; provided, however, that Applicable Law shall exclude the Federal
Cannabis Laws.
“Articles of Organization” has the meaning set forth in the Recitals.
“Available Common Units” has the meaning set forth in Section 8.05(b).
“Bankruptcy” means, with respect to a Member, the occurrence of any of the following:
(a) the filing of an application by such Member for, or a consent to, the appointment of a trustee
of such Member’s assets; (b) the filing by such Member of a voluntary petition in bankruptcy or
the filing of a pleading in any court of record admitting in writing such Member’s inability to pay
its debts as they come due; (c) the making by such Member of a general assignment for the benefit
of such Member’s creditors; (d) the filing by such Member of an answer admitting the material
allegations of, or such Member’s consenting to, or defaulting in answering a bankruptcy petition
filed against such Member in any bankruptcy proceeding; or (e) the expiration of sixty (60) days
following the entry of an order, judgment or decree by any court of competent jurisdiction
adjudicating such Member a bankrupt or appointing a trustee of such Member’s assets.
ANNEX 1 – DEFINED TERMS
PAGE 3 OF 12
4840-1943-8017, v. 1
“Board” has the meaning set forth in Section 7.01.
“Book Depreciation” means, with respect to any Company asset for each Fiscal Year, the
Company’s depreciation, amortization, or other cost recovery deductions determined for federal
income tax purposes, except that if the Book Value of an asset differs from its adjusted tax basis
at the beginning of such Fiscal Year, Book Depreciation shall be an amount which bears the same
ratio to such beginning Book Value as the federal income tax depreciation, amortization, or other
cost recovery deduction for such Fiscal Year bears to such beginning adjusted tax basis; provided,
however, that if the adjusted basis for federal income tax purposes of an asset at the beginning of
such Fiscal Year is zero (0) and the Book Value of the asset is positive, Book Depreciation shall
be determined with reference to such beginning Book Value using any permitted method selected
by the Board in accordance with Treasury Regulations § 1.704-1(b)(2)(iv)(g)(3).
“Book Value” means, with respect to any Company asset, the adjusted basis of such asset
for federal income tax purposes, except as follows:
(a) the initial Book Value of any Company asset contributed by a Member to
the Company shall be the gross Fair Market Value of each such Company asset as of the date of
such contribution;
(b) immediately prior to the Distribution by the Company of any Company asset to a
Member, the Book Value of such asset shall be adjusted to its gross Fair Market Value as of the
date of such Distribution;
(c) the Book Value of all Company assets shall be adjusted to equal their
respective gross Fair Market Values, as determined by the Board, as of the following times:
(i) the acquisition of an additional Membership Interest in the
Company by a new or existing Member in consideration of a Capital Contribution
of more than a de minimis amount;
(ii) the acquisition of a Membership Interest in the Company by a new
or existing Member in consideration of services to or on behalf of the Company;
(iii) the Distribution by the Company to a Member of more than a de
minimis amount of property (other than cash) as consideration for all or a part of
such Member’s Membership Interest in the Company; or
(iv) the liquidation of the Company within the meaning of Treasury
Regulations § 1.704-1(b)(2)(ii)(g);
provided, however, that adjustments pursuant to clauses (i), (ii), and (iii) above need not be made
if the Board reasonably determines that such adjustment is not necessary or appropriate to reflect
the relative economic interests of the Members and that the absence of such adjustment does not
adversely and disproportionately affect any Board; and provided, further, the Book Values of the
Company’s assets shall be adjusted to equal their respective gross Fair Market Values, as
determined by the Board, as of the following times: (x) in connection with the issuance by the
ANNEX 1 – DEFINED TERMS
PAGE 4 OF 12
4840-1943-8017, v. 1
Company of a “noncompensatory option” within the meaning of Treasury Regulations §§ 1.721-
2(f) and 1.761-3(a) other than for a de minimis Membership Interest; and (y) immediately after the
exercise of any noncompensator y option in accordance with Treasury Regulations § 1.704-
1(b)(2)(iv)(s); provided, however, that the adjustment resulting from the event described in clause
(x) above shall be made only if the Members reasonably determine 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 an adjustment to the capital accounts
pursuant to this paragraph, the Company shall adjust the Book Values of the Company’s assets as
determined for purposes of maintaining the Capital Accounts in accordance with Treasury
Regulations §§ 1.704-1(b)(2)(iv)(f)(1) and 1.704-1(b)(2)(iv)(h)(2).
(d) the Book Value of each Company asset shall be increased or decreased, as
the case may be, to reflect any adjustments to the adjusted tax basis of such Company asset
pursuant to Code § 734(b) or Code § 743(b), but only to the extent that such adjustments
are taken into account in determining Capital Account balances pursuant to Treasury
Regulations § 1.704-1(b)(2)(iv)(m); provided, however, that Book Values shall not be
adjusted pursuant to this paragraph (d) to the extent that an adjustment pursuant to the
above paragraph (c) above is made in conjunction with a transaction that would otherwise
result in an adjustment pursuant to this paragraph (d); and
(e) if the Book Value of a Company asset has been determined pursuant to the
above paragraph (a) or adjusted pursuant to the above paragraphs (c) or (d), such Book
Value shall thereafter be adjusted to reflect the Book Depreciation taken into account with
respect to such Company asset for purposes of computing Net Income and Net Losses.
“Business Day” means a day other than a Saturday, Sunday or other day on which
commercial banks in the State of California are authorized or required to close.
“Capital Account” has the meaning set forth in Section 4.03.
“Capital Contribution” means, for any Member, the total amount of cash and cash
equivalents and the initial Book Value of any property (net of liabilities assumed by the Company
resulting from such contribution and liabilities to which the property is subject) contributed, or
deemed contributed, as applicable, to the capital of the Company by such Member (excluding any
advances or loans of Members), each as determined and updated from time-to-time by the Board.
“Change of Control” means: (a) the sale of all or substantially all of the consolidated assets
of the Company to a Third Party Purchaser; (b) a sale resulting in no less than a majority of the
Units on a Fully Diluted Basis being held by a Third Party Purchaser; or (c) a merger,
consolidation, recapitalization, or reorganization of the Company with or into a Third Party
Purchaser that results in the inability of the Members to designate or elect a majority of the
Managers (or the board of directors (or its equivalent) of the resulting entity or its parent company).
“City” means the City of Fresno.
“Code” means the Internal Revenue Code of 1986, as amended.
ANNEX 1 – DEFINED TERMS
PAGE 5 OF 12
4840-1943-8017, v. 1
“Common Units” means the Units having the privileges, preference, duties, liabilities,
obligations and rights specified with respect to “common units” in this Agreement.
“Company” has the meaning set forth in the preamble hereof.
“Company Interest Rate” means a rate equal to the prime rate of interest published in the
Wall Street Journal on the applicable date, plus two percent (2%).
“Company Level Tax” has the meaning set forth in Section 10.01(g).
“Company Minimum Gain” means “partnership minimum gain” as defined in Treasury
Regulations § 1.704-2(b)(2), substituting the term “Company” for the term “partnership” as the
context requires.
“Confidential Information” has the meaning set forth in Section 9.01.
“CR” means Cookies Retail LLC.
“CR ROFR Election” has the meaning set forth in Section 8.05(a).
“CR ROFR Period” has the meaning set forth in Section 8.05(a).
“Covered Person” has the meaning set forth in Section 12.01(a).
“Deemed Liquidation Event” means each of the following events:
(a) a merger on consolidation in which: (i) the Company is a constituent party
and the Company issues Units pursuant to such merger or consolidation; provided, however any
such merger or consolidation involving the Company in which the Units of the Company
outstanding immediately prior to such merger or consolidation continue to represent, immediately
following such merger or consolidation, at least a majority, by voting power, of the equity of: (x)
the surviving or resulting entity; or (y) if the surviving or resulting entity is a wholly owned
subsidiary of another entity immediately following such merger or consolidation, the parent entity
of such surviving or resulting entity;
(b) the sale, lease, transfer, exclusive license, or other disposition, in a single
transaction or series of related transactions, by the Company of all or substantially all the assets of
the Company (including, without limitation, the Regulatory Licenses of the Company); or
(c) a transaction or series of transactions that otherwise results in a Change of
Control.
“Deemed Liquidation Event Proceeds” means the proceeds of the Company from a
Deemed Liquidation Event, reduced by: (a) all expenses associated with such transaction
(including investment banking fees, attorneys fees, and other professional advisor fees); (b) all
payments of principal, interest, and other charges in respect of any indebtedness refinanced and
any other indebtedness discharged with such proceeds (including with respect to any Members
loans); and (c) all reasonable reserves required by the Company as reasonably determined by th e
Board with respect to such Deemed Liquidation Event or to wind-up the Company.
ANNEX 1 – DEFINED TERMS
PAGE 6 OF 12
4840-1943-8017, v. 1
“Disinterested Managers” means, with respect to any person or entity, those managers of
the Company that have no material direct or indirect financial interest in or with resp ect to such
person or entity. For the avoidance of doubt, any manager of the Company that is designated to
such position by any person or entity, or is an officer, director, employee or is otherwise engaged
by such person or entity, shall not be deemed a Disinterested Manager with respect to such person
or entity.
“Disinterested Members” means, with respect to any person or entity, those members of
the Company that have no material direct or indirect financial interest in or with respect to such
person or entity. For the avoidance of doubt, any manager of the Company that is designated to
such position by any person or entity, or is an officer, director, employee or is otherwise engaged
by such person or entity, shall not be deemed a Disinterested Member with respect to such person
or entity.
“Distribution” means a distribution made by the Company to a Member, whether in cash,
property, or securities of the Company and whether by liquidating distribution or otherwise;
provided, however that none of the following shall be a Distribution: (a) any redemption or
repurchase by the Company or any Member of any Units or Unit Equivalents; (b) any
recapitalization or exchange of securities of the Company; or (c) any subdivision (by a split of
Units or otherwise) or any combination (by a reverse split of Units or otherwise) of any outstanding
Units. “Distribute” when used as a verb shall have a correlative meaning.
“Drag-along Member” has the meaning set forth in Section 8.03(a).
“Drag-along Notice” has the meaning set forth in Section 8.03(c).
“Drag-along Sale” has the meaning set forth in Section 8.03(a).
“Dragging Member” has the meaning set forth in Section 8.03(a).
“Electronic Transmission” means any form of communication not directly involving the
physical transmission of paper that creates a record that may be retained, retrieved and reviewed
by a recipient thereof and that may be directly reproduced in paper form by such a recipient through
an automated process.
“Estimated Tax Amount” of a Member for a Fiscal Year means the Member’s Tax Amount
for such Fiscal Year as estimated in good faith from time-to-time by the Board. In making such
estimate, the Board shall take into account amounts shown on Internal Revenue Service Form 1065
filed by the Company and similar state or local forms filed by the Company for the preceding
taxable year and such other adjustments as in the reasonable business judgment of the Board are
necessary or appropriate to reflect the estimated operations of the Company for the Fiscal Year.
“Excess Amount” has the meaning set forth in Section 6.03(c).
“Fair Market Value” of any asset as of any date means the purchase price that a willing
buyer having all relevant knowledge would pay a willing seller for such asset in an arm’s length
transaction, as determined in good faith by the Board based on such factors as the Board, in the
exercise of their reasonable business judgment, consider relevant.
ANNEX 1 – DEFINED TERMS
PAGE 7 OF 12
4840-1943-8017, v. 1
“Financing Document” means any credit agreement, guarantee, financing or security
agreement, or other agreements or instruments governing indebtedness of the Company.
“Family Members” means the spouse, parents, siblings, descendants, (including adoptive
relationships and stepchildren) and the spouses of each such natural person.
“Federal Cannabis Laws” means any U.S. federal laws, civil, criminal or otherwise, as such
relate, either directly or indirectly, to the cultivation, harvesting, manufacturing, production,
marketing, commercialization, distribution, transfer sale and/or possession of cannabis or related
substances, or products, activities or services containing or relating to the same, including, without
limitation, the prohibition on drug trafficking under 21 U.S.C. Ch. 13, et seq., the conspiracy
statute under 18 U.S.C. § 846, the bar against aiding and abetting the conduct of an offense under
18 U.S.C. § 2, the bar against misprision of a felony (concealing another’s felonious conduct)
under 18 U.S.C. § 4, the bar against being an accessory after the fact to criminal conduct under 18
U.S.C. § 3, and federal money laundering statutes under 18 U.S.C. §§ 1956, 1957, and 1960, and
any other U.S. federal law the violation of which is predicated on the violation of any of the
foregoing as it applies to the cultivation, harvesting, manufacturing, production, marketing,
commercialization, distribution, transfer sale and/or possession of cannabis or related substances,
or products, activities or services containing or relating to the same, and all orders, decrees, rules
and regulations promulgated under any of the foregoing.
“Fiscal Year” means the calendar year, unless the Company is required to have a taxable
year other than the calendar year, in which case Fiscal Year shall be the period that conforms to
its taxable year.
“Forfeiture Allocations” has the meaning set forth in Section 5.02(f).
“Fully Diluted Basis” means, as of any date of determination: (a) with respect to all the
Units, all issued and outstanding Units of the Company and all Units issuable upon the exercise of
any outstanding Unit Equivalents as of such date, whether or not such Unit Equivalent is at the
time exercisable; or (b) with respect to any specified type, class, or series of Units, all issued and
outstanding Units designated as such type, class, or series and all such designated Units issuable
upon the exercise of any outstanding Unit Equivalents as of such date, whether or not such Unit
Equivalent is at the time exercisable.
“GAAP” means United States generally accepted accounting principles in effect from time-
to-time.
“Governmental Authority” means any federal, state, local, or foreign government or any
court of competent jurisdiction, administrative or regulatory body, agency, bureau, or commission
or other governmental entity or instrumentality in any domestic or foreign jurisdicti on, and any
appropriate division or any of the foregoing (to the extent that the rules, regulations, or orders
thereof have the force of law). For the avoidance of doubt, Governmental Entity includes any
Regulatory Authority.
“Indemnifying Member” has the meaning set forth in Section 10.01(g).
ANNEX 1 – DEFINED TERMS
PAGE 8 OF 12
4840-1943-8017, v. 1
“Joinder Agreement” means the joinder agreement in form attached hereto as Exhibit A.
“Liquidator” has the meaning set forth in Section 11.03(a).
“LLC Act” has the meaning set forth in the preamble.
“Losses” has the meaning set forth in Section 12.03(a).
“Majority Unitholders” means Members holding greater than fifty percent (50%) of the
Membership Interests.
“Manager” has the meaning set forth in Section 7.01.
“Member” means: (a) each Person identified on the Members Schedule as of the date hereof
as a Member and who has executed this Agreement or a counterpart thereof; and (b) each Perso n
who is hereafter admitted as a Member in accordance with the terms of this Agreement in each
case so long as such Person is shown on the Company’s books and records as the owner of one (1)
or more Units. The Members shall constitute the “members” of the Company.
“Member Nonrecourse Debt” means “partner nonrecourse debt” as defined in Treasury
Regulations § 1.704-2(b)(4), substituting the term “Company” for the term “partnership” and the
term “Member” for the term “partner” as the context requires.
“Member Nonrecourse Debt Minimum Gain” means an amount, with respect to each
Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if the Member
Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with
Treasury Regulations § 1.704-2(i)(3).
“Member Nonrecourse Deduction” means “partner nonrecourse deduction” as defined in
Treasury Regulations § 1.704-2(i), substituting the term “Member” for the term “partner” as the
context requires.
“Member Parties” has the meaning set for in Section 1.09(b).
“Members Schedule” has the meaning set forth in the Preamble.
“Membership Interest” means an interest in the Company owned by a Member, including
such Member’s right (based on the type and class of Unit or Units held by such Member), as
applicable: (a) to a distributive share of Net Income, Net Losses, and other items of income, gain,
loss, and deduction of the Company, in accordance with this Agreement; (b) to a Distribution in
accordance with this Agreement; (c) to vote on, consent to, or otherwise participate in any decision
of the Members as provided in this Agreement; and (d) to any and all other benefits to which such
Member may be entitled as provided in this Agreement.
“Misallocated Item” has the meaning set forth in Section 5.05.
“Net Income” and “Net Loss” mean, for each Fiscal Year or other period specified in this
Agreement, an amount equal to the Company’s taxable income or taxable loss, or particular items
thereof, determined in accordance with Code § 703(a) (where, for this purpose, all items of income,
ANNEX 1 – DEFINED TERMS
PAGE 9 OF 12
4840-1943-8017, v. 1
gain, loss, or deduction required to be stated separately pursuant to Code § 703(a)(1) sh all be
included in taxable income or taxable loss), but with the following adjustments:
(f) any income realized by the Company that is exempt from federal income
taxation, as described in Code § 705(a)(1)(B), shall be added to such taxable income or taxable
loss, notwithstanding that such income is not includable in gross income;
(g) any expenditures of the Company described in Code § 705(a)(2)(B),
including any items treated under Treasury Regulations § 1.704-1(b)(2)(iv)(i) as items described
in Code § 705(a)(2)(B), shall be subtracted from such taxable income or taxable loss,
notwithstanding that such expenditures are not deductible for federal income tax purposes;
(h) any gain or loss resulting from any disposition of Company property with
respect to which gain or loss is recognized for federal income tax purposes shall be computed by
reference to the Book Value of the property so disposed, notwithstanding that the adjusted tax
basis of such property differs from its Book Value;
(i) any items of depreciation, amortization, and other cost recovery deductions
with respect to Company property having a Book Value that differs from its adjusted tax basis
shall be computed by reference to the property’s Book Value (as adjusted for Book Depreciation)
in accordance with Treasury Regulations § 1.704-1(b)(2)(iv)(g);
(j) if the Book Value of any Company property is adjusted as provided in the
definition of Book Value, then the amount of such adjustment shall be treated as an item of gain
or loss and included in the computation of such taxable income or taxable loss; and
(k) to the extent an adjustment to the adjusted tax basis of any Company
property pursuant to Code §§ 732(d), 734(b) or 743(b) is required, pursuant to Treasury
Regulations § 1.704 1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the
amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis).
“New Interests” means (i) any new t ype, class or series of Units not otherwise described in
this Agreement, which Units may be designated as classes or series of the Common Units but
having different rights; and (ii) Unit Equivalents.
“Non-Transferring Member” has the meaning set forth in Section 8.05(b).
“Nonrecourse Liability” has the meaning set forth in Treasury Regulations § 1.704-2(b)(3).
“Officers” has the meaning set forth in Section 7.09.
“Partnership Tax Audit Rules” means Code §§ 6221 through 6241, as amended by the
Bipartisan Budget Act of 2015, together with any guidance issued thereunder (including Treasury
Regulations promulgated pursuant thereto) or successor provisions and any similar provision of
state or local tax laws.
ANNEX 1 – DEFINED TERMS
PAGE 10 OF 12
4840-1943-8017, v. 1
“Preferred Return” shall mean the amount of Distributions necessary to provide a return of
fifteen percent (15%) per annum on the Unreturned Additional Capital of a Member. The Preferred
Return shall be a cumulative, non-compounding, annually-calculated return.
“Permitted Transfer” means a Transfer of Units carried out pursuant to Section 8.02.
“Permitted Transferee” means a recipient of a Permitted Transfer.
“Person” means an individual, corporation, partnership, joint venture, limited liability
company, Governmental Authority, unincorporated organization, trust, association, or other entity.
“Pro Rata Portion” means a fraction determined by dividing: (a) the number of Common
Units on a Fully Diluted Basis owned by such Member immediately prior to the applicable
issuance or transfer, as applicable; by (b) the total number of Common Units on a Fully Diluted
Basis held by the Members on such date.
“Profits Interest Hurdle” shall have the meaning set forth in Section 6.07(b).
“Profits Interest Members” shall have the meaning set forth in Section 6.07(b).
“Regulatory Allocations” has the meaning set forth in Section 5.02(e).
“Regulated Activities” means any activities or intended activities of the Company and its
subsidiaries’ businesses that pursuant to applicable state and local laws requires a license or
franchise (including, without limitation, permit, approval, order, authorization, registration,
finding of suitability, exemption, certification, clearance, waiver and similar qualification) from a
state or local governmental agency to conduct such activities, including without limitation the
cultivation, harvesting, manufacturing, production, marketing, commercialization, distribution,
transfer, sale and/or possession of cannabis or related substances, or products, activities or services
containing or relating to the same.
“Regulatory Authorities” means any state or local regulatory or licensing bodies,
instrumentalities, departments, commissions, authorities, boards, officials, tribunals and agencies
with authority over or responsibility for the regulation or licensing of Regulated Activities within
any applicable state, local or tribal jurisdiction for Regulated Activities, including without
limitation, the City, the California Department of Consumer Affairs Bureau of Cannabis Control,
CalCannabis Cultivation Licensing, and the California Department of Health Manufactured
Cannabis Safety Branch.
“Regulatory Laws” means any applicable state and local laws, statutes and ordinances
requiring a license or franchise (including, without limitation, permit, approval, order,
authorization, registration, finding of suitability, exemption, certification, clearance, waiver and
similar qualifications), including, without limitation the Fresno Code of Ordinance, for Regulated
Activities and all orders, decrees, rules and regulations promulgated thereunder, and all policies
and interpretations of the applicable Regulatory Authorities of such laws, statutes, ordinances,
orders, decrees, rules, and regulations.
“Regulatory License” any licenses or franchises (including, without limitation, permits,
approvals, orders, authorizations, registrations, findings of suitability, exemptions, certifications,
ANNEX 1 – DEFINED TERMS
PAGE 11 OF 12
4840-1943-8017, v. 1
clearances, waivers and similar qualifications) from Regulatory Authorities or pursuant to
Regulatory Laws.
“Regulatory Redemption Date” means the date directed by a Regulatory Authority and, if
not so directed, fixed by the Disinterested Members for the redemption of Units and Unit
Equivalents pursuant to Section 8.06
“Regulatory Redemption Notice” means that notice of redemption delivered by the
Company pursuant to Section 8.06 to a Member that is an Affected Person if the applicable
Regulatory Authority so requires the Company, or if the Disinterested Managers, or if there are no
Disinterested Managers the Disinterested Members, deem it necessary or advisable, to redeem
such Affected Person’s Units and Unit Equivalents. Each Regulatory Redemption Notice shall set
forth (i) the Regulatory Redemption Date, (ii) the number and type of Units to be redeemed, (iii)
the Regulatory Redemption Price and the manner of payment therefor, and (iv) if applicable, the
manner and place where any certificates for such Units (if any) shall be surrendered for payment,
and (v) any other terms and conditions imposed by the applicable Regulatory Authority or the
Disinterested Managers or the Disinterested Members, as applicable.
“Regulatory Redemption Price” shall mean the per share price for the redemption of any
Units and Unit Equivalents to be redeemed pursuant to Section 8.06, which shall be (i) the price
(if any) required to be paid by the applicable Regulatory Authority, or if no such price is required,
(ii) the amount deemed reasonable by the Disinterested Managers, or if there are no Disinterested
Managers, the Disinterested Members (which determination may account for, in their discretion,
the original purchase price per Unit and Unit Equivalents to be redeemed, the then fair market
value of such Unit and Unit Equivalents, the closing price per share of such Unit and Unit
Equivalents on any securities exchange (if listed), the costs and expenses of the Company incurred
in performing its obligations and exercising its rights under Section 8.06 and any applicable
circumstances or events of such Affected Person).
“Representative” means, with respect to any Person, any and all directors, officers,
employees, consultants, financial advisors, counsel, accountants, and other agents of such Person.
“ROFR Notice” has the meaning set forth in Section 8.05(a).
“ROFR Price” has the meaning set forth in Section 8.05(a).
“Secondary ROFR Election” has the meaning set forth in Section 8.05(b).
“Secondary ROFR Notice” has the meaning set forth in Section 8.05(b).
“Secondary ROFR Period” has the meaning set forth in Section 8.05(b).
“Securities Act” means the Securities Act of 1933, as amended, or any successor federal
statute, and the rules and regulations thereunder, which shall be in effect at the time.
“Shortfall Amount” has the meaning set forth in Section 6.03(b).
“Subscription Agreements” means, collectively, those certain Subscription Agreements, a
form of which is attached hereto as Exhibit B, by and between the Company and the respective
ANNEX 1 – DEFINED TERMS
PAGE 12 OF 12
4840-1943-8017, v. 1
Member named therein, pursuant to which the named Member has acquired that number of Units
set forth opposite such Member’s name on the Members Schedule.
“Subsidiary” means, with respect to any Person, any other Person of which a majority of
the outstanding units or other equity interests having the power to vote for directors are owned,
directly or indirectly, by the first Person.
“Target Capital Account” means the balance in the Capital Account maintained for each
Member as of the end of each Fiscal Year, increased by any amount that such Member is obligated
to restore under this Agreement, is treated as obligated to restore under Treasury Regulations §
1.704-1(b)(2)(ii)(c), or is deemed obligated to restore under the penultimate sentences of Treasury
Regulations §§ 1.704-2(g)(1) and (i)(5).
“Tax Advance” has the meaning set forth in Section 6.03(a).
“Tax Amount” of a Member for a Fiscal Year means the product of: (a) the Tax Rate for
such Fiscal Year; and (b) the Adjusted Taxable Income of the Member for such Fiscal Year with
respect to its Units.
“Tax Rate” of a Member, for any period, means the highest marginal blended federal,
state, and local tax rate applicable to ordinary income, qualified dividend income, or capital gains,
as appropriate, for such period for an individual residing in California, taking into account for
federal income tax purposes, the deductibility of state and local taxes and any applicable
limitations on such deductions.
“Tax Representative” has the meaning set forth in Section 10.01(a).
“Taxing Authority” has the meaning set forth in Section 6.04(b).
“Third Party Purchaser” means any Person who, immediately prior to the contemplated
transaction, does not directly or indirectly own or have the right to acquire any outstanding Units.
“Transfer” means to, directly or indirectly, sell, transfer, assign, pledge, encumber,
hypothecate, or similarly dispose of, either voluntarily or involuntarily, by operation of law or
otherwise, or to enter into any contract, option, or other arrangement or understanding with respect
to the sale, transfer, assignment, pledge, encumbrance, hypothecation, or similar disposition of,
any Units or Unit Equivalents or any interest (including a beneficial interest) in any Units or Unit
Equivalents and any agreement, arrangement or understanding, whether or not in writing, to effect
any of the foregoing. “Transferor” and “Transferee” mean a Person who makes or receives a
Transfer, respectively.
“Transferring Member” has the meaning set forth in Section 8.05(a).
“Treasury Regulations” means the final or temporary regulations issued by the United
States Department of Treasury pursuant to its authority under the Code, and any successor
regulations.
“Unallocated Item” has the meaning set forth in Section 5.05.
ANNEX 1 – DEFINED TERMS
PAGE 13 OF 12
4840-1943-8017, v. 1
“Unit” means a unit representing a fractional part of the Membership Interests of the
Members and shall include all types and classes of Units, including the Common; provided,
however, that any type or class of Unit shall have the privileges, preference, duties, liabilities,
obligations, and rights set forth in this Agreement and the Membership Interests represented by
such type or class or series of Unit shall be determined in accordance with such privileges,
preference, duties, liabilities, obligations, and rights.
“Unit Equivalents” means any security or obligation that is by its terms, directly or
indirectly, convertible into, exchangeable for, or exercisable for Units, and any option, warrant, or
other right to subscribe for, purchase, or acquire Units.
“Unpaid Preferred Return” means, with respect to any Member, on any date, an amount
equal to the excess, if any, of (a) the Preferred Return allocated to a Member with respect to its
Additional Capital pursuant to this Agreement, minus (b) the aggregate amount of all Distributions
made (or deemed made) to such Member in payment of such Preferred Return pursuant to this
Agreement, regardless of the source, kind or character.
“Unreturned Additional Capital” means, with respect to any Member, on any date, an
amount equal to the excess, if any, of: (a) the aggregate Additional Capital contributed by a
Member to the Company, minus (b) the aggregate amount of all Distributions made (or deemed
made) to such Member in return of such Additional Capital pursuant to this Agreement, regardless
of the source, kind or character.
“Withholding Advance” has the meaning set forth in Section 6.04(b).
OPERATING AGREEMENT || 5048 BLACKSTONE OPCO, LLC EXHIBIT A – FORM OF JOINDER AGREEMENT
EXHIBIT A
FORM OF JOINDER AGREEMENT
The undersigned is executing and delivering this JOINDER AGREEMENT pursuant to the
Limited Liability Company Operating Agreement dated as of the 1st day of December, 2020, (as
amended, modified, restated or supplemented from time to time, the “Operating Agreement”),
among 5048 Blackstone OPCO, LLC, a California limited liability company (the “Company”),
and its Members party thereto.
By executing and delivering this Joinder Agreement to the Company, the undersigned
hereby agrees to become a party to, to be bound by, and to comply with the provisions of the
Operating Agreement in the same manner as if the undersigned were an original signatory to such
agreement.
The undersigned agrees that the undersigned shall be a [Manager/Member], as such term
is defined in the Operating Agreement.
Accordingly, the undersigned has executed and delivered this Joinder Agreement as of this
[______ day of ______________________, 20__].
By:
Name:
EXHIBIT B
FORM OF SUBSCRIPTION AGREEMENT
Prospective Subscriber: ______________________
Phone:
Email:
Number and Class of Units:____________________
Purchase Price Per Unit: ______________________
Total Capital Commitment: ___________________
5048 BLACKSTONE OPCO, LLC
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this “Agreement”) is entered into by and among
5048 Blackstone OPCO, LLC, a California limited liability company (the “Company”), and the
investor identified on the face page hereto (the “Subscriber”) in connection with the Subscriber’s
purchase of the number of the Company’s [CLASS OF UNITS] Units (the “Units”) set forth on
the face page hereto at a price per Unit identified on the face page hereto.
The Subscriber hereby subscribes for the Units, and the Company and the Subscriber
hereby agree as follows:
1. Commitment. The Subscriber agrees to contribute in immediately available funds
that amount set forth under the heading “Total Capital Commitment” on the face page hereto
within five (5) business days of the date hereof or, if agreed by the Company, to contribute services
with a fair market value equal to such “Total Capital Commitment”.
2. Acceptance of Subscription. The Subscriber understands and agrees that this
subscription is made subject to the following terms and conditions: (a) the members of the
Company (the “Members”) reserve the right to review the suitability of any person desiring to
purchase Units and, in connection with such review, to waive such suitability standards as to such
person as the Members deem appropriate under Applicable Law; (b) the Members shall have the
right to reject this subscription, in whole or in part; (c) the Members shall have no obligation to
accept subscriptions in the order received; (d) the Units to be created on account of this
subscription shall be created only in the name of the Subscriber, and the Subscriber agrees to
comply with the terms of this Agreement and to execute any and all further documents necessary
in connection with becoming a unitholder of the Company; and (e) the Subscriber hereby
undertakes in respect of the Units that the Subscriber understands that upon a default of the
Subscriber’s capital contribution obligations to the Company, the Units may be subject to
forfeiture.
3. Conditions to Closing. Company’s obligations hereunder are subject to acceptance
by the Company of the Subscriber’s subscription, and to the fulfillment, prior to or at the time of
closing, of each of the following conditions: (a) the representations and warranties of the
Subscriber contained in this Agreement shall be true and correct at the time of closing; and (b) all
EXHIBIT B – FORM OF SUBSCRIPTION AGREEMENT
PAGE 2 OF 5
4840-1943-8017, v. 1
proceedings in connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory in substance and form to the
Members, and the Company shall have received all such counterpart originals or certified or other
copies of such documents as the Company may request.
4. Subscriber’s Representations. In connection with the Subscriber’s purchase of
the Units, the Subscriber makes the following representations and warranties on which the
Members, Company and Company’s legal counsel are entitled to rely:
(a) The Units will be held under the following type of ownership (Please check
the applicable box):
Individual
Trust
Company
Other:
(b) The Subscriber has received and read and understands the Company’s
Limited Liability Company Operating Agreement (the “Operating Agreement”) and this
Agreement. THE SUBSCRIBER HEREBY EXPRESSLY ACKNOWLEDGES AND AGREES
THAT IT HAS CAREFULLY REVIEWED THE OMNIBUS RISK FACTORS ATTACHED TO
THE COMPANY’S OPERATING AGREEMENT AS EXHIBIT C (THE “RISK FACTORS”),
INCLUDING, WITHOUT LIMITATION, ALL RISK FACTORS RELATING TO THE
COMPANY’S PROVISION OF GOODS AND SERVICES TO ENTITIES IN THE CANNABIS
INDUSTRY. THE SUBSCRIBER HEREBY FURTHER ACKNOWLEDGES AND AGREES
THAT THE RISK FACTORS DO NOT REFLECT ALL OF THE RISKS INVOLVED IN AN
INVESTMENT IN THE COMPANY.
(c) No representations or warranties have been made to the Subscriber by the
Company, the Members, or any agent of said persons, other than as set forth in this Agreement.
Subscriber acknowledges that the Company has made no representations whatsoever to Subscriber
regarding the value of the Units and Subscriber has independently arrived at his, her or its own
opinion as to the value of the Units.
(d) The Subscriber is acquiring the Units solely for the Subscriber’s own
account and not directly or indirectly for the account of any other person whatsoever (or, if the
Subscriber is acquiring the Units as a trustee, solely for the account of the trust or trust account
named below) for investment. The Subscriber does not have any contract, undertaking or
arrangement with any person to sell, transfer or grant participation to any person with respect to
the Units.
(e) The Subscriber has such knowledge and experience in financial and
business matters that the Subscriber is capable of evaluating the merits and risks of the investment
evidenced by the Subscriber’s purchase of the Units, and the Subscriber is able to bear the
economic risk of such investment.
(f) The Subscriber has had access to such information concerning the Company
as the Subscriber deems necessary to enable the Subscriber to make an informed decision
concerning the purchase of the Units. The Subscriber has had access to the Members and the
EXHIBIT B – FORM OF SUBSCRIPTION AGREEMENT
PAGE 4 OF 5
4840-1943-8017, v. 1
(iii) The Subscriber is an irrevocable trust with total assets in excess of
whose purchase is directed by a person with such knowledge and experience
in financial and business matters that such person is capable of evaluating
the merits and risks of the prospective investment.
(iv) The Subscriber is a corporation, company, business trust or limited
liability company, not formed for the purpose of acquiring the Units, or an
organization described in § 501(c)(3) of the Internal Revenue Code of 1986,
as amended (the “Code”), in each case with total assets in excess of
(v) The Subscriber is an entity in which all of the equity owners are
accredited investors.
(vi) The Subscriber cannot make any of the representations set forth in
clauses (i) through (v) above.
(k) The execution and delivery of this Agreement, the consummation of the
transactions contemplated thereby and the performance of the obligations thereunder will not
conflict with or result in any violation of or default under any provision of any other agreement or
instrument to which the Subscriber is a party or any license, permit, franchise, judgment, order,
writ or decree, or any statute, rule or regulation, applicable to the Subscriber.
(l) The Subscriber has full power and authority to make the representations
referred to in this Agreement, to purchase the Units pursuant to this Agreement and to deliver this
Agreement. This Agreement creates valid and binding obligations of the Subscriber and is
enforceable against the Subscriber in accordance with its terms, except as enforcement may be
limited by applicable bankruptcy, insolvenc y, reorganization, arrangement, moratorium or other
similar laws affecting creditors’ rights, and subject to general equity principles and to limitations
on availability of equitable relief, including specific performance.
(m) The Subscriber acknowledges that the Subscriber understands the meaning
and legal consequences of the representations and warranties made by the Subscriber herein. Such
representations and warranties are complete and accurate, shall be complete and accurate at the
time of closing and may be relied upon by the Company and its legal counsel. Said representations
and warranties shall survive delivery of this Agreement. If in any respect such information shall
not be complete and accurate prior to the time of closi ng, the Subscriber shall give immediate
notice of such incomplete or inaccurate information to the Company, specifying which
representations or warranties are not complete and accurate and the reasons therefor.
(n) The Subscriber confirms that he, she or it has been advised to consult with
his, her or its attorney regarding legal matters concerning the Company and to consult with
independent tax advisers regarding the tax consequences of investing in the Company. The
Subscriber further acknowledges that he, she or it understands that any anticipated United States
federal or state income tax benefits may not be available and, further, may be adversely affected
through adoption of new laws or regulations or amendments to existing laws or regulations . The
Subscriber acknowledges and agrees that the Company has no warranty or assurance regarding the
EXHIBIT B – FORM OF SUBSCRIPTION AGREEMENT
PAGE 5 OF 5
4840-1943-8017, v. 1
ultimate availability of any particular tax treatment of the Company’s investments or of any tax
benefits to the Subscriber by reason of the Subscriber’s investment in the Company.
(o) None of the cash or property that the Subscriber has paid, will pay or will
contribute to the Company has been or shall be derived from, or related to, any activity that is
deemed criminal under United States law and no contribution or payment by the Subscriber to
Company, to the extent that they are within the Subscriber’s control, shall cause Company or the
Members to be in violation of the United States Bank Secrecy Act, the United States Money
Laundering Control Act of 1986 or the United States International Money Laundering Abatement
and Anti-Terrorist Financing Act of 2001, and any regulations promulgated thereunder. The
Subscriber further understands that the Company or the Members may release confidential
information about the Subscriber and, if applicable, any underl ying beneficial owners, to proper
authorities if the Members, in their sole discretion, determine that it is in the best interests of the
Company in light of relevant rules and regulations under the laws set forth in above.
5. Indemnification. The Subscriber hereby agrees to indemnify and hold harmless
the Company, the Members and each director, officer or employee thereof from and against any
and all loss, damage or liability due to or arising out of any inaccuracy or breach of an y
representation or warranty of the Subscriber set forth herein.
6. Survival of Agreements, Representations and Warranties. All agreements,
representations and warranties contained herein or made in writing in connection with the
transactions contemplated by this Agreement shall survive the execution of this Agreement, any
investigation at any time made by the Subscriber, the Company or the Members or on behalf of
any of them and the sale and purchase of the Units and payment therefor.
7. Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall be deemed to be one and the same
agreement. A signed copy of this Agreement delivered by facsimile, e-mail, or other means of
electronic transmission shall be deemed to have the same legal effect as delivery of an original
signed copy of this Agreement.
8. Amendments. Neither this Agreement nor any term hereof may be changed,
waived, discharged or terminated orally, but only with the written consent of the Subscriber and
the Members.
9. Governing Law. All issues and questions concerning the application, construction,
validity, interpretation and enforcement of this Agreement shall be governed by and construed in
accordance with the internal laws of the State of California, without giving effect to any choice or
conflict of law provision or rule (whether of the State of California or any other jurisdiction) that
would cause the application of laws of any jurisdiction other than those of the State of California.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and investor
questionnaire as of the dates set forth below.
SUBSCRIBER:
Name: ______________________________
Dated:
Total Capital Commitment: _____________
Mailing Address:
Telephone Number:
Email Address:
State/Country of Domicile:
Federal Tax ID (or Soc. Sec. #):
5048 BLACKSTONE OPCO, LLC:
By:
Name:
Title:
Dated: _____
EXHIBIT C
RISK FACTORS
Legal and Political Risks
Cannabis remains illegal under federal law.
Cannabis is a Schedule-I controlled substance and is illegal under federal law in the United States.
It remains illegal under United States federal law to grow, cultivate, sell or possess cannabis for
any purpose or to assist or conspire with those who do so. Additionally, 21 U.S.C. 856 makes it
illegal to “knowingly open, lease, rent, use, or maintain any place, whether permanently or
temporarily, for the purpose of manufacturing, distributing, or using any controlled substance.”
Even in those states in which the use of cannabis has been authorized, its use remains a violation
of federal law. Any person that is connected to the cannabis industry, including, but not limited to,
the Subscriber or investors in the Company, may be at risk of federal criminal prosecution and
civil liability. Any investments could also be subject to civil or criminal forfeiture and a total loss.
Since federal law criminalizing the use of cannabis preempts state laws that legalize its use, strict
enforcement of federal law regarding cannabis would likely result in the Company’s inability to
proceed with its business plan and a possible total loss of its investment. Additionally, pursuant to
26 U.S. Code § 280E, any business engaged in the trafficking of a controlled substance may be
prohibited from making certain deductions or obtaining certain tax credits.
Some courts have determined that contracts relating to state legal cultivation and sale of cannabis
are unenforceable on the grounds that they are illegal under federal law and therefore void as a
matter of public policy. This could substantially impact the rights of parties making or defending
claims involving the Company and any lender or member of the Company.
Due to the federal illegality of cannabis and the charged political climate surrounding the cannabis
industries of various states, political risks are inherent in the cannabis industry. It remains to be
seen whether policy changes at the federal level will have a chilling effect on the cannabis industry.
Rescission of the “Cole Memo.”
On January 4, 2018, then-Attorney General Sessions rescinded the previously issued memoranda
from the Justice Department which de-prioritized the enforcement of federal law against cannabis
users and businesses who comply with state cannabis laws, adding uncertainty to the question of
how the Federal government will now choose to enforce federal laws regarding cannabis. Attorney
General Sessions issued a memorandum to all United States Attorneys in which Attorney General
Sessions affirmatively rescinded the previous guidance as to cannabis enforcement, calling such
guidance “unnecessary.”
Attorney General Sessions’ one-page memorandum was vague in nature, stating that federal
prosecutors should use established principals in setting their law enforcement priorities. Under
previous administrations, the U.S. Department of Justice indicated that those users and suppliers
of medical cannabis who complied with state laws, which required compliance with certain
criteria, would not be prosecuted. As a result, it is now unclear if the Justice Department will seek
to enforce the Controlled Substances Act against those users and suppliers who comply with state
EXHIBIT C – OMNIBUS RISK FACTORS
PAGE 2 OF 10
4840-1943-8017, v. 1
cannabis laws. If such enforcement occurs, the federal government may raid the Company, seize
all of its equipment and inventory, and arrest all of its officers, executives, and owners, including
the Subscriber.
However, current Attorney General William Barr indicated he would not promote prosecution
against companies that have relied on the Cole Memo, nor would he upset expectations or reliant
interests related to it. At this point, it is unclear whether, and to what extent, the risk of federal
enforcement will be altered under Attorney General Barr.
The FinCEN Memo could be rescinded.
Despite Attorney General Sessions’ rescission of the Cole Memorandum, the Department of the
Treasury, Financial Crimes Enforcement Network has not rescinded the “FinCEN Memo” dated
February 14, 2014, which de-prioritizes enforcement of the Bank Secrecy Act against financial
institutions and cannabis-related businesses which utilize them. This memo appears to be a
standalone document, and is presumptively still in effect.
At any time, the Department of the Treasury, Financial Crimes Enforcement Network could elect
to rescind the FinCEN Memo. This would make it more difficult for the Company to access the
U.S. banking system and conduct financial transactions, which would have a material adverse
effect on the Company Business (as defined herein). Enforcement of the Bank Secrecy Act against
the Company would also be made more likely by the rescission of the FinCEN Memo. This would
subject the Company’s officers, executives, and owners, including the Subscriber, to potential
criminal prosecution, and would have a material adverse effect on the Company Business.
Even with the FinCEN Memo in place, prosecution of the Company for violations of the Bank
Secrecy Act remains possible, as the FinCEN Memo is only prosecutorial guidance and does not
have the force of law.
The 2015 Appropriations Rider must be reauthorized every year to provide any protections.
In 2014, Congress passed a spending bill (the “2015 Appropriations Bill”) containing a provision
(the “Appropriations Rider”) blocking federal funds and resources allocated under the 2015
Appropriations Bill from being used to “prevent such States from implementing their own State
[medical marijuana] law.” The Appropriations Rider seemed to have prohibited the federal
government from interfering with the ability of states to administer their medical cannabis laws,
although it did not codify federal protections for medical cannabis patients and producers.
Moreover, despite the Appropriations Rider, th e Justice Department maintains that it can still
prosecute violations of the federal cannabis ban and continue cases already in the courts.
Additionally, the Appropriations Rider must be re-enacted every year. While it was continued in
2016, 2017, and through a series of short-term spending bills in 2018 and early 2019, the
Appropriations Rider was briefly not in effect during the federal government shutdown that began
on December 22, 2018. However, on February 15, 2019, Congress passed the Consolidated
Appropriations Act, 2019, extending the Appropriations Rider through September 30, 2019. Prior
to the expiration of the Consolidated Appropriations Act, 2019, Congress passed a continuing
resolution on September 26, extending the Appropriations Rider through November 21, 2019, and
EXHIBIT C – OMNIBUS RISK FACTORS
PAGE 3 OF 10
4840-1943-8017, v. 1
later passed an additional continuing resolution on November 21, 2019, extending the
Appropriations Rider through December 20, 2019. The Appropriations Rider was most recently
renewed on December 20, 2019 through the signing of the FY 2020 omnibus spending bill, which
will remain effective through September 30, 2020.
The Company’s business is dependent on laws pertaining to the cannabis industry, and
further legislative development is not guaranteed.
The Company’s business plan involves the cultivation, distribution, manufacture, storage,
transportation, and/or sale of medical and adult use cannabis products in compliance with
applicable state law, but in violation of federal law, (generally referred to herein as the “Company
Business”). Continued development of the cannabis industry is dependent upon continued
legislative and regulatory authorization of cannabis at the state level. Any number of factors could
slow or halt progress in this area. Further progress is not assured. While there may be ample public
support for legislative action, numerous factors impact the legislative and regulatory process. Any
one of these factors could slow or halt business operations relating to cannabis or the current
tolerance for the use of cannabis by consumers, which would negatively impact the Company
Business.
The cannabis industry faces strong opposition.
Many believe that several large, well-funded businesses may have a strong economic opposition
to the cannabis industry. The Company believes that the pharmaceutical industry does not want to
cede control of any product that could generate significant revenue. For example, medical cannabis
will likely adversely impact the existing market for the current “marijuana pill” sold by mainstream
pharmaceutical companies. Further, the medical cannabis industry could face a material threat
from the pharmaceutical industry should cannabis displace other drugs or encroach upon the
pharmaceutical industry’s products. The pharmaceutical industry is well funded with a strong and
experienced lobby that eclipses that of the medical and retail cannabis industries. Any inroads the
pharmaceutical industry makes in halting or impeding the cannabis industry could have a
detrimental impact on the Company Business.
Tax matters.
To the extent that § 280E of the Internal Revenue Code is applicable to the Com pany and its
business, the Company may not be able to deduct certain business expenses, thereby reducing its
taxable income, and as a result may pay much higher federal taxes than other businesses. This
could have a materially adverse impact on the Company’s financing results and ability to fund its
operations and the Company may, in fact, operate at a loss, after taking into account its U.S. income
tax expenses.
The Company and its advisors have not provided any tax advice or made any representations
relating to the tax treatment of any investment in the Company, including any acquisition of the
Units by the Subscriber. THE SUBSCRIBER SHOULD SEEK TAX ADVICE, BASED ON THE
SUBSCRIBER’S PARTICULAR CIRCUMSTANCES, FROM AN INDEPENDENT TAX
ADVISOR PRIOR TO ACQUIRING THE UNITS.
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The legality of cannabis could be reversed.
The voters or legislatures of California could potentially repeal Applicable Laws which permit
both the operation of medical and retail cannabis businesses. These actions might force the
Company to cease the Company Business.
Enforceability of contracts.
It is a fundamental principle of law that a contract will not be enforced if it involves a violation of
law or public policy. Notwithstanding that cannabis-related businesses operate pursuant to the laws
of states in which such activity is legal under state law, judges have on a number of occasions
refused to enforce contracts for the repayment of money when the loan was used in connection
with activities that violate federal law, even if there is no violation of state law. There remains
doubt and uncertainty that the Company will be able to legally enforce contracts it enters into if
necessary. As the Company cannot be assured that it will have a remedy for breach of contract,
the Subscriber must bear the risk of the uncertainty in the law. If borrowers fail or refuse to repay
loans and the Company is unable to legally enforce its contracts, the Company may su ffer
substantial losses for which it has no legal remedy.
Risk of criminal prosecutions for money laundering.
One possible repercussion for the Subscriber is a prosecution for violation of federal money
laundering statutes, specifically U.S.C.A. § 1956 and § 1957. Because these statutes criminalize
certain transactions involving the proceeds of activity which is itself criminal, it is possible that
the Subscriber could be subject to prosecution for investing in, obtaining dividends from, or
otherwise transacting with the Company. While there have been no recent prosecutions of creditors
to or investors in cannabis-related businesses for violation of either § 1956 or § 1957, this could
change along with federal enforcement priorities.
Risk of civil asset forfeiture.
Because the cannabis industry remains illegal under federal law, any property owned by
participants in the cannabis industry which are either used in the course of conducting such
business, or are the proceeds of such business, could be subject to seizure by law enforcement and
subsequent civil asset forfeiture. Even if the owner of the property were never charged with a
crime, the property in question could still be seized and subject to an administrative proceeding by
which, with minimal due process, it could be subject to forfeiture.
Risk of RICO prosecution or civil liability.
The Racketeer Influenced Corrupt Organizations Act (“RICO”) criminalizes the use of any profits
from certain defined “racketeering” activities in interstate commerce. While intended to provide
an additional cause of action against organized crime, due to the fact that cannabis is illegal under
U.S. federal law, the production and sale of cannabis qualifies cannabis-related businesses as
“racketeering” as defined by RICO. As such, all officers, executives, and owners in a cannabis-
related business could be subject to criminal prosecution under RICO, which carries substantial
criminal penalties.
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RICO can create civil liability as well: persons harmed in their business or property by actions
which would constitute racketeering under RICO often have a civil cause of actio n against such
“racketeers,” and can claim triple their amount of estimated damages in attendant court
proceedings. The Company as well as its officers, executives, and owners could all be subject to
civil claims under RICO.
Legal uncertainty.
Laws and regulations affecting the medical and retail cannabis industry are constantly changing,
which could detrimentally affect the Company’s proposed operations. Local, state, and federal
cannabis laws and regulations are broad in scope and subject to evolving inte rpretations, which
could require the Company to incur substantial costs associated with compliance or alter its
business plan. In addition, violations of these laws, or allegations of such violations, could disrupt
the Company Business and result in a material adverse effect on the Company’s operations. In
addition, it is possible that regulations may be enacted in the future that will be directly applicable
to the Company Business, including, but not limited to, regulations or laws impacting the amount
of production that the Company’s partners are authorized to produce. The Company cannot predict
the nature of any future laws, regulations, interpretations, or applications, nor can the Company
determine what effect additional governmental regulations or administrative policies and
procedures, if promulgated, could have on the Company Business.
The Company Business is dependent on the acquisition and retention of vari ous licenses by
its partners and customers.
The Company Business is dependent on obtaining and maintaining various licenses from various
municipalities and state licensing agencies in the State of California. There can be no assurance
that the Company will obtain any or all licenses necessary to operate their businesses, which could
have a negative impact on the Company Business. If a licensing body were to determine the
Company had violated the applicable rules and regulations, there is a risk the licenses granted
could be revoked, which would negatively impact the Company Business. Further, there is no
guarantee the Company will be able to obtain any additional licenses necessary to expand the
Company Business.
The Company’s management team or other owners could be disqualified from ownership in
the Company.
The Company Business is in a highly regulated industry in which many states have enacted
extensive rules for ownership of a participant company. The Company’s founders, investors, or
other owners (which could include the Subscriber) could become disqualified from having an
ownership stake in the Company under relevant laws and regulations of applicable state and/or
local regulators, if the applicable owner is convicted of a certain type of felony or fails to meet the
requirements for owning equity in a company like the Company.
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The Company may have difficulty accessing the service of banks and bankruptcy
protections, which may make it difficult for them to operate or unwind.
Since the use of cannabis is illegal under federal law, there is a compelling argument that banks
cannot lawfully accept for deposit funds from businesses involved with cannabis. Consequently,
businesses involved in the cannabis industry often have trouble finding a bank willing to accept
their business. The inability to open bank accounts may make it difficult for the Compan y or its
partners or customers to operate and the reliance on cash can result in a heightened risk of theft.
Additionally, some courts have denied cannabis businesses bankruptcy protection, thus, making it
very difficult for lenders to recoup their investments.
The Company will not have full access to federal intellectual property protections.
The United States Patent and Trademark Office does not allow trademarks directly related to
cannabis and cannabis products to be registered due to the illegal nature of the business and
products under federal law. While patent protection for inventions related to cannabis and cannabis
products is available, there are substantial difficulties faced in the patent process by cannabis-
related businesses. There can be no assurances that any proprietary business processes, patents,
copyrights or trademarks that may be issued to a cannabis business will offer any degree of
protection.
Insurance risks.
In the United States, many cannabis-related companies are subject to a lack of adequate insurance
coverage including, without limitation, general coverage for cultivating cannabis and traditional
commercial insurance covering dispensary transit. In addition, many insurance companies may
deny claims for any loss relating to cannabis for reasons such as it is illegal under federal law, a
contract for an illegal item is unenforceable, or there can be no insurable interest in an illegal item.
Product liability in cannabis-related companies.
Many cannabis-related companies are subject to strict product liability laws where a cannabis-
related retailer who sells a defective product to a consumer is subject to liability for any harm that
befalls that consumer due to the defect. For example, a retailer who sells cannabis infused products
could be held liable if that product was tainted in the manufacturing process or inadequately
labeled and a consumer subsequently fell ill, even if the retailer had nothing to do with the
manufacturing process. Any suit against any cannabis-related business could adversely affect the
Company and cause substantial losses for the Company. This area of law is unsettled and there is
very little statutory or case law regarding cannabis and products liability.
Risks associated with young industries.
The cannabis industries in those states which have legalized such activity are not yet well-
developed, and many aspects of these industries’ development and evolution cannot be accurately
predicted. While the Company has attempted to identify many risks specific to the cannabis
industry, the Subscriber should carefully consider that there are probably other risks that the
Company has not foreseen or not mentioned in this document, which may cause the Subscriber to
EXHIBIT C – OMNIBUS RISK FACTORS
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lose some, or all, of the Subscriber’s investment. Given the limited history, it is difficult to predict
whether the cannabis market will continue to grow or whether it can be maintained. For example,
as a result of the Company’s limited operating history in a new industry, it is difficult to discern
meaningful or established trends with respect to the purchase activity of the Company’s customers.
The Company expects that the market will evolve in ways which may be difficult to predict. For
example, the Company anticipates that over time it will reach a point in mo st markets where the
Company has achieved a market penetration such that investments in new customer acquisition
are less productive and the continued growth of the Company’s revenue will require more focus
on increasing the rate at which the Company’s existing customers purchase products. In the event
of these or any other changes to the market, the Company’s continued success will depend on the
Company’s ability to successfully adjust the Company’s strategy to meet the changing market
dynamics. If the Company is unable to successfully adapt to changes in its markets, the Company’s
business, financial condition, and results of operations could suffer a material negative impact.
Possible shrinkage or lack of growth in the cannabis industry.
If no additional states, U.S. territories, or countries allow the legal use of cannabis, or if one or
more jurisdictions which currently allow it were to reverse position, the Company may not be able
to grow, or the market for the Company’s products and services may declin e. There can be no
assurance that the number of jurisdictions which allow the use of cannabis will grow, and if it does
not, there can be no assurance that the existing jurisdictions will not reverse position and disallow
such use. If either of these events were to occur, not only would the growth of the Company’s
business be materially impacted in an adverse manner, but the Company may experience declining
revenue as the market for its products and services decline.
Illiquid investment, restrictions on transfer.
The Units are subject to legal and other restrictions on transfer and are investments for which no
liquid market exists. As a consequence, the Subscriber may not be able to sell their Units if the
Subscriber desired to do so, or to realize what it perceives to be fair value in the event of a sale or
liquidation. There is no market for the Units and it should not be assumed that a public market will
develop. The Units may not be resold, transferred, or otherwise disposed of by any holder except
in compliance with applicable securities laws and the transfer restrictions contained in the
Organization Documents. Accordingly, the Subscriber may not be able to liquidate their
investment in the Company, or pledge the investment as collateral, and should consider their
investment to be long-term.
Units not registered under the Securities Act or state Blue Sky laws.
The Units will not be registered for public sale or resale under the Securities Act or the securities
laws of any state, in reliance upon exemptions which depend in part upon the investment intent of
the Subscriber. There is no present plan to register the Units in the future. Accordingly, the Units
must be acquired for investment purposes only and not with a view to resale or other distribution.
The Units will only be offered and sold to such persons who are “accredited investors” as defined
in Rule 501 of Regulation D promulgated under the Securities Act. The Units will be offered
EXHIBIT C – OMNIBUS RISK FACTORS
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without registration in reliance upon the Securities Act exemption for transactions not involving a
public offering. The Subscriber will be required to make certain representations to the Company,
including that they are acquiring interests in the Company for their own account, for investment
purposes only, and not with a view to their distribution.
Need for additional financing.
The Company anticipates that it will be able to raise sufficient capital to fund its anticipated
development and operation through various sources. However, the estimated budget is based on
certain assumptions, including assumptions related to the performance of the business, and there
can be no assurance that unanticipated unbudgeted costs will not be incurred or that the business
will not perform as expected. Future events, including problems, delays, expenses and difficulties
frequently encountered in the industry, as well as changes in economic, regulatory, or competitive
conditions, may lead to cost increases that could make it necessary or advisable for the Company
to seek additional financing. There can be no assurance that the Company would be able to obtain
any necessary additional financing on terms acceptable to the Company, if at all. Also, additional
financings may result in dilution of equity stakes in the Company.
Product risks.
The Company’s product line is in a new and unique product category and there can be no guarantee
that any products will be appealing to consumers or will be a success commercially. As with any
product, there is the possibility that a claim could be brought against the Company if any consumer
has a negative reaction to the product.
Product recalls.
Manufacturers and distributors of products are sometimes subject to the recall or return of their
products for a variety of reasons, including product defects, such as contamination, unintended
harmful side effects or interactions with other substances, packaging safety, and inadequate or
inaccurate labeling disclosure. Such recalls cause unexpected expenses of the recall and any legal
proceedings that might arise in connection with the recall. This can cause loss of a significant
amount of sales. In addition, a product recall may require significant management attention.
Although the Company has detailed procedures in place for testing its products, there can be no
assurance that any quality, potency, or contamination problems will be detected in time to avoid
unforeseen product recalls, regulatory action, or lawsuits. Additionally, if one of the Company’s
brands or products were subject to recall, the image of that brand and the Company could be
harmed. Additionally, product recalls can lead to increased scrutiny of operations by applicable
regulatory agencies, requiring further management attention and potential legal fees and other
expenses.
Results of future clinical research.
Research in Canada, the U.S., and internationally regarding the medical benefits, viability, safety,
efficacy, dosing, and social acceptance of cannabis or isolated cannabinoids remains in early
stages. There have been relatively few clinical trials on the benefits of cannabis or isolated
cannabinoids (such as CBD and THC). Future research and clinical trials may prove such
EXHIBIT C – OMNIBUS RISK FACTORS
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statements to be incorrect, or could raise concerns regarding, and perceptions relating to, cannabis.
Given these risks, uncertainties, and assumptions, the Subscriber should not place undue reliance
on such articles and reports. Future research studies and clinical trials may reach negative
conclusions regarding the medical benefits, viability, safety, efficacy, dosing, social acceptance,
or other facts and perceptions related to cannabis, which could have a material adverse effect on
the demand for the Company’s products with the potential to lead to a material adverse effect on
the Company’s business, financial condition, results of operations, or prospects.
Reliance on key inputs.
The cannabis business is dependent on a number of key inputs and their related costs including
raw materials and supplies related to growing operations, as well as electricity, water , and other
local utilities. Any significant interruption or negative change in the availability or economics of
the supply chain for key inputs could materially impact the business, financial condition, results
of operations, or prospects of the Company. Some of these inputs may only be available from a
single supplier or a limited group of suppliers. If a sole source supplier was to go out of business,
the Company might be unable to find a replacement for such source in a timely manner or at all.
If a sole source supplier were to be acquired by a competitor, that competitor may elect not to sell
to the Company in the future. Any inability to secure required supplies and services or to do so on
appropriate terms could have a materially adverse impact on the business, financial condition,
results of operations, or prospects of the Company.
Competition from synthetic production and technological advances.
The pharmaceutical industry may attempt to dominate the cannabis industry through the
development and distribution of synthetic products which emulate the effects and treatment of
organic cannabis. If they are successful, the widespread popularity of such s ynthetic products could
change the demand, volume, and profitability of the cannabis industry. This could adversely affect
the ability of the Company to secure long-term profitability and success through the sustainable
and profitable operation of its business. There may be unknown additional regulatory fees and
taxes that may be assessed in the future.
Constraints on marketing products.
The development of the Company’s business and operating results may be hindered by applicable
restrictions on sales and marketing activities imposed by government regulatory bodies. The
regulatory environment in the United States limits companies’ abilities to compete for market share
in a manner similar to other industries. If the Company is unable to effectively market its products
and compete for market share, or if the costs of compliance with government legislation and
regulation cannot be absorbed through increased selling prices for its products, the Company’s
sales and results of operations could be adversely affected.
Fraudulent or illegal activity by employees, contractors, and consultants.
The Company is exposed to the risk that its employees, independent contractors, and consultants
may engage in fraudulent or other illegal activity. Misconduct by these parties cou ld include
intentional, reckless, and/or negligent conduct or disclosure of unauthorized activities to the
EXHIBIT C – OMNIBUS RISK FACTORS
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Company that violates: (i) government regulations; (ii) manufacturing standards; (iii) federal and
provincial healthcare fraud and abuse laws and regulations; or (iv) laws that require the true,
complete, and accurate reporting of financial information or data. It may not always be possible
for the Company to identify and deter misconduct by its employees and other third parties, and the
precautions taken by the Company to detect and prevent this activity may not be effective in
controlling unknown or unmanaged risks or losses or in protecting the Company from
governmental investigations or other actions or lawsuits stemming from a failure to be in
compliance with such laws or regulations. If any such actions are instituted against Company, and
it is not successful in defending itself or asserting its rights, those actions could have a significant
impact on the Company’s business, including the imposition of civil, criminal, and administrative
penalties, damages, monetary fines, contractual damages, reputational harm, diminished profits
and future earnings, and curtailment of the Company’s operations, any of which could have a
material adverse effect on the Company’s business, financial condition, results of operations, or
prospects.
The foregoing list of risk factors does not purport to be a complete enumeration or
explanation of the risks involved in an investment in the Company. The Subscriber should
read this Agreement in its entirety and consult with their own advisors before deciding
whether to invest in the Company. In addition, as the Company’s investment program
develops and changes over time, an investment in the Company may be subject to additional
and different risk factors.