Table of Contents
As filed with the U.S. Securities and Exchange
Commission on April 9, 2021
Registration No. 333-250011
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
Amendment No. 3
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________________
VIVAKOR, INC.
(Exact name of registrant as specified
in charter)
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Nevada
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8731
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26-2178141
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(State or other jurisdiction
of incorporation)
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(Primary Standard Classification
Code Number)
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(IRS Employer
I.D. Number)
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Vivakor, Inc.
433 Lawndale Drive
South Salt Lake City, UT 84115
(949) 281-2606
(Address and telephone number of principal executive offices)
_________________
Matthew Nicosia
Chief Executive Officer
Vivakor, Inc.
433 Lawndale Drive
South Salt Lake City, UT 84115
(949) 281-2606
(Name, address, including zip code, and
telephone number including area code, of agent for service)
_________________
With copies to:
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Joseph M. Lucosky, Esq.
Scott E. Linsky, Esq.
Lucosky Brookman LLP
101 Wood Avenue South, 5th Floor
Woodbridge, NJ 08830
Tel. No.: (732) 395-4400
Fax No.: (732) 395-4401
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_________________
Approximate date of commencement of
proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.
If any of the securities being registered
on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the
following box. ☐
If this Form is filed to register additional
securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment
filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment
filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large-Accelerated Filer
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☐
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Accelerated Filer
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☐
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Non-Accelerated Filer
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☒
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Smaller Reporting Company
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☒
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Emerging Growth Company
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☒
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CALCULATION
OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered
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Proposed
Maximum
Aggregate
Offering
Price(1)(2)
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Amount
of
Registration
Fee (6)
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Common Stock, par value $0.001(3)
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$
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13,800,000
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$
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1,505.58
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Representative’s Warrants (4)
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–
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–
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Shares of Common Stock underlying Representative’s Warrants (5)
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$
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862,500
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$
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94.10
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Total
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$
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14,662,500
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$
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1,599.68
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(1)
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Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities
Act of 1933, as amended (the “Securities Act”).
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(2)
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Includes initial public offering price of shares that the underwriters have the option to purchase
to cover over-allotments, if any.
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(3)
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Pursuant to Rule 416 of the Securities Act, the shares of common stock registered hereby also includes
an indeterminable number of additional shares of common stock as may from time to time become issuable by reason of stock splits,
stock dividends, recapitalizations or other similar transactions.
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(4)
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No fee required pursuant to Rule 457(g) under the Securities Act.
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(5)
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Estimated
solely for the purpose of calculating the registration fee pursuant to Rule 457(g) under
the Securities Act. The Representative’s Warrants are exercisable for a number of shares
equal to 5% of the shares of common stock offered hereby at a per share exercise price equal
to 125% of the public offering price per share. As estimated solely for the purpose of calculating
the registration fee pursuant to Rule 457(g) under the Securities Act, the proposed maximum
aggregate offering price of the Representative’s Warrants (including the over-allotment)
is $862,500, which is equal to 125% of $690,000 (5% of $13,800,000).
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(6)
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Previously paid.
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The registrant hereby amends this Registration
Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment
which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
The information
contained in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
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PRELIMINARY PROSPECTUS
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SUBJECT TO COMPLETION
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DATED APRIL 9, 2021
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Shares
Common
Stock
Vivakor, Inc.
This is a firm commitment public offering
of shares of common stock of Vivakor, Inc.
We have applied to list our common stock
on the Nasdaq Capital Market under the symbol “VIVK”. If our listing application is not approved, we will not proceed
with the offering. Our common stock is currently quoted on the OTCPink Marketplace operated by OTC Markets Group Inc. (the “OTCPink”)
under the trading symbol “VIVK”. On April 8, 2021,
the last reported sale price for our common stock on the OTCPink
was $0.39.
We expect to effect a -for-
reverse stock split of our outstanding common stock prior to the completion of this offering (the “Reverse Stock Split”).
The bona fide estimate of
the range of the maximum offering price is from to
and the maximum number of securities offered is
(after giving effect to the Reverse Stock Split). The
actual public offering price per share will be determined through negotiations between us and the underwriter at the time of
pricing and may be at a discount to the current market price. Therefore, the estimated public offering price used
throughout this prospectus may not be indicative of the final offering price.
We are an “emerging growth company”
under the Jumpstart Our Business Startups Act of 2012 and have elected to comply with certain reduced public company reporting
requirements.
Investing in our common stock involves
a high degree of risk. See “Risk Factors” beginning on page 11. Neither the Securities
and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
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Per Share
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Total
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Initial public offering price
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$
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$
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Underwriting discounts and commissions(1)
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$
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$
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Proceeds to us, before expenses
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$
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$
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(1)
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Underwriting discounts and commissions do not include a non-accountable expense allowance
up to $75,000 payable to the underwriters. We refer you to “Underwriting” beginning on page
65 for additional information regarding underwriters’ compensation.
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We have granted a 45-day option to
the representative of the underwriters to purchase up to
additional shares of common stock solely to
cover over-allotments, if any.
The underwriters expect to deliver
the shares to purchasers on or about ,
2021.
The date of this
prospectus is , 2021
TABLE OF CONTENTS
You should rely only on information
contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We have
not, and the underwriters have not, authorized anyone to provide you with additional information or information different from
that contained in this prospectus or in any free writing prospectus. Neither the delivery of this prospectus nor the sale of our
securities means that the information contained in this prospectus or any free writing prospectus is correct after the date of
this prospectus or such free writing prospectus. This prospectus is not an offer to sell or the solicitation of an offer to buy
our securities in any circumstances under which the offer or solicitation is unlawful or in any state or other jurisdiction where
the offer is not permitted.
No person is authorized in connection
with this prospectus to give any information or to make any representations about us, the securities offered hereby or any matter
discussed in this prospectus, other than the information and representations contained in this prospectus. If any other information
or representation is given or made, such information or representation may not be relied upon as having been authorized by us.
Neither we nor any of the underwriters
have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action
for that purpose is required, other than the United States. You are required to inform yourself about, and to observe any restrictions
relating to, this offering and the distribution of this prospectus.
We also use certain trademarks, trade names,
and logos that have not been registered. We claim common law rights to these unregistered trademarks, trade names and logos.
PROSPECTUS SUMMARY
This summary highlights selected information
appearing elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information you should consider
before investing in our securities. You should read this prospectus carefully, especially the risks and other information set forth under
the heading “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and our consolidated financial statements and related notes included elsewhere in this prospectus before making an investment decision.
Our fiscal year end is December 31 and our fiscal years ended December 31, 2020 and December 31, 2019 are sometimes referred to herein
as fiscal years 2020 and 2019, respectively. Some of the statements made in this prospectus discuss future events and developments,
including our future strategy and our ability to generate revenue, income and cash flow. These forward-looking statements involve risks
and uncertainties that could cause actual results to differ materially from those contemplated in these forward-looking statements. See
“Cautionary Note Regarding Forward-Looking Statements”. Unless otherwise indicated or the context requires otherwise, the
words “we,” “us,” “our,” the “Company,” or “our Company,” and “Vivakor”
refer to Vivakor, Inc., a Nevada corporation, and its wholly owned subsidiaries.
Overview
Vivakor, Inc.
is a socially responsible operator, acquirer and developer of clean energy technologies and environmental solutions, primarily
focused on soil remediation. We specialize in the remediation of soil and the extraction of hydrocarbons, such as oil, from properties
contaminated by or laden with heavy crude oil and other hydrocarbon-based substances. Our process allows us to successfully recover
hydrocarbons from the soil, which we believe could then be used to produce asphaltic cement and/or other petroleum-based products.
In 2015, we acquired and improved technology aimed at remediating contaminated soil and recovering usable hydrocarbons, which
we refer to as Remediation Processing Centers (“RPCs”). We presently have two US patents and pending foreign applications
related to our RPCs and two issued US patents related to our other remediation technologies. Our RPCs each have the potential
to clean a minimum of 20 tons of contaminated material per hour, depending on the oil contamination percentage in the processed
material. Each RPC has the capacity to extract on a 24-hour operation 500 tons or more of contaminated material per day. The amount
of extracted hydrocarbon recovered depends on the extent to which the material is contaminated. For example, we estimate that
for every 480 tons of contaminated material recovered per day that contains at least 10% oil, we will recover approximately 250
barrels of extracted hydrocarbons, calculated as follows: contaminated material that is 10% oil is comprised of 200 pounds of
oil per ton; one gallon of oil weighs 8.44 pounds, resulting in 23.69 gallons of oil per ton of contaminated material (200/8.44);
there are 42 gallons per barrel, resulting in 0.56 barrels of oil per ton of contaminated material (23.69/42); 20 tons of contaminated
material can typically be processed per hour, resulting in 11.2 barrels of oil per hour (0.56*20); and operations continue 24
hours per day, resulting in 268.8 barrels per day (11.2*24).
We have designed
our RPCs to provide an environmentally friendly solution to the remediation of hydrocarbon-contaminated soil, as they do not utilize
water. Our RPCs operate by loading contaminated soil onto a feeder and conveyor system that effectively delivers the material into
a fully contained, closed-loop system. Physical separation of the hydrocarbons from the contaminated soil does not utilize water
or steam and is instead accomplished using a proprietary extraction fluid to dissolve the hydrocarbon components.
The entire extraction
process is completed in a series of sealed chambers. The reclaimed extraction fluid is then recycled back into the process,
which ensures that no toxic chemicals are released into the soil or the environment. Upon completion of our remediation and
separation process, the extracted hydrocarbons are placed into holding tanks to be picked up by our customers, while clean soil
is returned to the environment.
We believe our
RPCs are significantly more advanced than other oil remediation technologies or offerings presently available on the market. Our
RPCs have successfully cleaned contaminated soil containing greater than 7% hydrocarbon content, while, to our knowledge, our
competitors are limited to projects containing less than 5% hydrocarbon contamination. We believe our ability to clean soil
with more highly concentrated hydrocarbon contamination gives us a distinct advantage that will allow us to operate on a global
basis in any location that has suffered from oil spills or naturally occurring oil sands deposits. While our primary focus
and mandate will be on the manufacture and deployment of our RPCs, we intend to continue to develop, acquire or license additional
clean energy technologies and environmental solutions that will directly enhance and expand our current technologies and service
offerings.
Our current
focus is on the clean-up of greater than 7% hydrocarbon contaminated soil located in Kuwait as a result of the Iraqi invasion
in 1991 and naturally occurring oil sands deposits in Utah. We have deployed two RPC units to date, including one unit to
Kuwait (for which operations have been temporarily suspended due to COVID-19) and another to Vernal, Utah (which is presently
operating). We expect to deploy two additional RPCs to Vernal, Utah with the proceeds from this offering and believe that there
may be an opportunity to deploy additional RPCs in Utah, as well as to Kuwait and the Middle East.
In April 2020, we entered into a project
charter agreement with solvAQUA Inc. (“solvAQUA”), a Canadian-based clean water technology company, pursuant to which
we may purchase certain wastewater removal equipment from solvAQUA. The solvAQUA Wastewater Management System (“WMS”)
is a compact solution that continually processes and separates large volumes of wastewater (4,000+ m3/day for each WMS) with an
ability to scale to remove any volume of oil, grease and suspended solids from wastewater, in most cases removing 99.99% of waste.
The processed water stream can in some cases be discharged or reused without further treatment. In 2021, we took possession
of our first order with solvAQUA for WMS equipment and anticipate installation of the equipment prior to June 30, 2021, with operations
to commence shortly thereafter. On July 15, 2020, solvAQUA granted us an exclusive license to either incorporate solvAQUA’s
technology platform into our RPCs or to use it independently. This will allow us to service remediation projects that have a combination
of wet and dry opportunities. The exclusive license has an initial term of one year, which may be extended to five years upon
our successful installation and deployment of the first two WMSs.
Our proprietary
metallic separation technology uses a thermal vapor process to extract and process micro particles of precious metals and
rare earth minerals, including gold, silver, platinum, palladium and rhodium from soils. After
we complete our soil remediation services, we evaluate the post-remediated soil and, if we find that the soil contains
more than 1% concentration of these metals, we process it through this technology to extract and concentrate these micro
particles of precious metals and rare earth minerals into a
concentrated, unrefined flake form.
We
have also acquired and/or licensed two separate technologies described below that will enable us to upgrade the hydrocarbons recovered
from our remediation process. These processes have been proven in laboratory tests, but we have not yet performed this upgrading
in a commercial setting.
We have been granted a worldwide, exclusive,
non-transferable license to the intellectual property embodied in cavitation technology developed by B Green, Inc. (“B Green”)
to develop, manufacture, have manufactured, use market, import, have imported, offer for sale and sell cavitation devices built
from the licensed intellectual property. Third party, independent testing conducted by the University of Utah has shown that this
proprietary technology increases the API gravity of hydrocarbons by elongating the hydrocarbon chains without cutting or cracking
these chains. API gravity is the measure of how heavy or light petroleum liquid is compared to water and is used in the industry
as the standard measure for viscosity. The API of the recovered crude is increased, allowing such crude to have additional uses
and usually at higher unit prices.
We have also been granted an exclusive right to use the nano-sponge
technology developed by CSS Nanotech, which essentially serves as a micro-upgrader, transforming hydrocarbon product into a more
useful product, such as petroleum or gasoline, as an addition to our hydrocarbon extraction technology. The inventor of this technology
subsequently joined us as our Chief Scientific Officer. This patented technology allows for hydrocarbon material to be absorbed
by a specialized sponge. Low energy microwaves are then introduced into the process and the sponge, which is made of a highly thermally
conductive material, absorbs this energy causing an instant thermal effect, which essentially refines the crude by cutting or cracking
the carbon chains. We intend to add this system to our process of upgrading the heavy crude recovered by our RPCs.
Corporate Structure
Revenue
Our RPC situated in Vernal, Utah has the
capacity to process 480 tons or more of naturally occurring oil sands deposits per day. We estimate that if the extracted
material is composed of at least 10% oil, we will recover approximately 250 barrels of extracted hydrocarbons each day, which
could then be sold for energy or converted to asphaltic cement and sold for use in roads at higher prices. The above example
has been calculated as follows: contaminated material that is 10% oil is comprised of 200 pounds of oil per ton; one gallon of
oil weighs 8.44 pounds, resulting in 23.69 gallons of oil per ton of contaminated material (200/8.44); there are 42 gallons per
barrel, resulting in 0.56 barrels of oil per ton of contaminated material (23.69/42); 20 tons of contaminated material can typically
be processed per hour, resulting in 11.2 barrels of oil per hour (0.56*20); and operations continue 24 hours per day, resulting
in 268.8 barrels per day (11.2*24).
In Kuwait, where we do not have ownership
of the recovered oil, we will generate revenues by charging per cubic meter of soil remediated. For our current project
we will generate revenues of $72 per cubic meter of contaminated material processed.
We market and sell the precious metals
we extract from our remediated and waste soils. As we continue our efforts, we anticipate increased opportunities to monetize
our precious metals end product. Additionally, we had recently engaged in open market precious metals transactions, utilizing
our knowledge and contacts related to this industry, during a time when we could not operate in Kuwait due to COVID-19 restrictions.
Although engaging in such open market precious metals transactions is not part of our current plans for business operation, we
expect to have the ability to revisit this business in the future should extenuating circumstances occur that adversely impact
our remediation business.
Market Opportunity
We believe that the market for remediating oil from both soil
and water is significant. According to Grandview Research,
the market for environmental clean-up of oil spills will reach $177 billion by 2025. We believe that a large portion of that market
will originate from contamination of more than 7% hydrocarbon content and that our technology is currently the only one that can
economically remediate these environmental disasters, while allowing for the capture and reuse of the crude.
In addition, we believe that the heavy
crude that we have been recovering in Utah is ideal for producing asphaltic cement. The demand for asphaltic cement in the United
States is presently estimated to be $116 billion this year according to Global Market Insights. We have provided our material
to asphalt companies for testing to determine what modifications, if any, needed to be made to meet general asphalt specifications.
We recently received notification that our asphaltic cement now meets the general classification of AC20 asphaltic cement and
that it has passed the specifications of several potential clients. We are expecting several orders in the near term and we
believe that we will be able to offer our product at very competitive prices and in an environmentally friendly manner.
Competitive Strengths and Growth Strategy
We are focused on the remediation of contaminated
soil and water resulting from either man-made spills or naturally occurring deposits of oil. Our primary focus has been the
remediation of oil spills resulting from the Iraqi invasion of Kuwait in 1991 and naturally occurring oil sands deposits in the
Uinta basin located in Eastern Utah. We plan to expand into other markets, both in Utah and globally, where we believe our
technology and services will provide a distinct competitive advantage over our competition.
Competitive Strengths
We believe the following strengths provide
us with a distinct competitive advantage and will enable us to effectively compete on a global basis:
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Proprietary
patented and patent-pending technology;
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Strong relationships with customers and regulatory agencies; and
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Experienced and highly-skilled management, Board of Directors and Advisory Board.
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Proprietary Patented Technology
We presently have two US patents and
pending foreign applications related to our RPCs and two issued US patents related to our other remediation technologies.
We believe, based on direct and ongoing
conversations with our customers and third-party independent test results, that our technology is the only commercially available
technology that can not only clean soil that contains greater than 7% hydrocarbon, but also preserve the hydrocarbons extracted
from such soil for future use. We believe that this provides us with a true competitive advantage.
We believe our technology and service offerings
will position us well to conduct our business in any geographical region in which soil or water has been contaminated by hydrocarbons.
Strong Relationships with Customers
and Regulatory Agencies
We have developed close relationships
with customers and government agencies, including the Utah School and Institutional Trust Lands Administration (“SITLA”)
and the Kuwait Oil Company (“KOC”). Based on our existing relationship with SITLA, arising out of our having successfully
completed a clean-up project for SITLA in the past, which the original provider was unable to complete, as well as further conversations
with SITLA, we expect that SITLA will award additional projects to us in the future related to oil sands deposits located in Utah
from SITLA. We also anticipate receiving additional contracts from KOC to remediate contaminated properties in Kuwait, based
on our existing relationship with KOC and conversations with them.
Experienced and Highly Skilled
Management, Board of Directors and Advisory Board
Our management team has started and successfully
grown numerous technology-based companies and has utilized this experience to develop a strategic vision for the Company. The implementation
of this plan has resulted in the acquisition and in-house development of numerous technologies, which are currently in operation.
We have demonstrated the effectiveness of our technologies in both Vernal, Utah and Kuwait, accomplishing the clean-up of contaminated
areas while also recovering precious metals through our metallic separation technology.
Our Board of Directors is comprised of
accomplished professionals who bring decades of experience to the Company. Our Board of Directors includes a director who has served
as a member of the Executive Committee of one of the largest global accounting firms and has served on the Board of Directors of
two multi-billion dollar publicly traded companies, a former director of technology investment banking at Goldman Sachs, a successful
investor and entrepreneur who has founded and provided initial financing for numerous life science companies, several of which
have grown to become multi-billion dollar publicly traded companies, and the mayor of a city in Utah.
In addition, we have an Advisory Board
comprised of Dr. Khalid Bin Jabor Al Thani and Ron Chevalier, former senior members of oil and gas companies, both in the United
States and in the Middle East. Dr. Khalid Bin Jabor Al Thani, is an accomplished business professional and a member of a royal
family based in the Middle East Mr. Chevalier is an experienced health and safety expert operating in the oil and gas industries.
We rely on our Board of Directors and
Advisory Board to provide it both high level advice and guidance along with using their contacts to help open various markets.
Additionally, the Advisory Board acts as a preliminary informal sounding board for the Board and management for these particular
areas in which the Advisory Board members have expertise. We believe the combination of our management team, Board of Directors
and Advisory Board provides us with a significant competitive advantage over our competitors due to their breadth of experiences
and relationships. Presently, we do not pay compensation to the members of the Advisory Board.
Growth Strategies
We will strive to grow our business by
pursuing the following strategies:
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Expansion of our oil recovery projects in Utah;
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Expansion of our remediation projects in Kuwait;
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Expansion into new and complementary markets;
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Increase of revenue via new service and product offerings;
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Strategic acquisitions and licenses targeting complementary technologies; and
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Redeployment of our metallic separation technology.
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Expansion of our Oil Recovery Projects
in Utah
The State of Utah has, according to
the U.S. Geological Survey, approximately 14 billion barrels of measured oil in place with an additional estimated 23 to 28 billion
barrels of oil contained in contaminated oil sands that are deposited near the ground surface. The majority of these oil sands
deposits are located on land owned by SITLA. We believe, based on the number of estimated barrels of oil contained in oil sands
deposits located on SITLA property, that there may be an opportunity to deploy as many as 100 RPCs to properties containing oil
sands deposits owned by the State of Utah. We will seek to acquire additional properties and mineral rights in the vicinity of
Vernal, Utah from individual land owners and the State of Utah with a goal of increasing our hydrocarbon holdings to as much as
one billion barrels of contingent resources containing a minimum of 10% hydrocarbon saturation.
Expansion of our Remediation Projects
in Kuwait
Our RPC technology was successfully
used in our initial project for KOC in Kuwait, where we removed hydrocarbons from soil with more than 7% contamination and,
following the process, the hydrocarbon contamination level of the soil was reduced to less than 0.5%, which was lower than
the level needed to meet the project specifications. There is still approximately 26 million cubic meters of soil
contaminated by oil as a result of the Iraqi invasion of Kuwait. We intend to seek additional contracts directly from KOC to
deploy our RPCs for the remediation of this contaminated soil. Under our current contract, we will charge $72 per cubic meter
of soil remediated. We are currently working with KOC and other government-controlled entities to expand our remediation
projects in Kuwait. We are in active negotiations to provide the technology and operations as a subcontractor to large,
multinational remediation companies within the region where our technology could be used on all of the sands with
contamination levels greater than 7%. Other technologies may also be used for the less contaminated soils.
Expansion into New and Complementary
Markets
We intend to explore expansion opportunities on a global basis, including in places with extreme contamination such as the
Ogoni Lands region of Nigeria, oil spill lakes located in Saudi Arabia and Turkmenistan, and naturally occurring oil sands deposits
in Kazakhstan, where we believe our technology and service offerings may provide a distinct competitive advantage. We are currently
in discussions with several groups for deploying our RPCs for remediation projects (primarily for oil spills, tank bottom sludge
and drill cuttings) in Saudi Arabia, Qatar and Texas. Saudi Arabia has the objective to create a circular carbon economy that
will ultimately have zero wasted hydrocarbons. Our technology is able to process tank bottom sludge, drill cuttings, and soils
from hydrocarbon spills, returning the sand to less than 0.5% contamination while reclaiming the oil for waste energy use.
Increase of Revenue via New Service
and Product Offerings.
To date, we have focused on the remediation
of soil contaminated by oil. We are in the process of expanding our services to include the remediation of water and the recovery
of hydrocarbons from water through our exclusive license with solvAQUA. We also intend to target other hydrocarbon remediation
businesses that focus on, among other things, the cleaning of tank bottom sludge and the cleaning of the water used from drilling
oil wells. Oil producers generally pay to dispose of sludge at the bottom of storage tanks and contaminated water produced from
the drilling of oil wells. We believe that our technologies could be used to clean these contaminated products, while simultaneously
recovering the heavy crude. We believe we will be able to offer these services at a cost that is very competitive with current
methods and that our ability to recover the heavy crude for resale will give us a competitive advantage. The patented RPC
technology, in conjunction with the enzymatic water remediation technology that we have licensed from solvAQUA, have the potential
to eradicate all oil evaporation ponds and landfills in the United States presently utilized for disposal of tank bottom sludge
and drill cutting waste. We are currently in early stage discussions relating to some of these remediation projects.
Strategic Acquisitions and Licenses
Targeting Complementary Technologies
We intend to seek out opportunities to
acquire or license only specific technologies that are either complementary to our existing product offerings or that will allow
us to expand into the environmental infrastructure markets. In 2021 we entered into a license for smart sensor technologies
for autonomous vehicles that we believe could be embedded directly into the asphaltic cement we intend to produce from the hydrocarbons
we extract, providing the basis for smart roads and infrastructure. We believe that these sensors, which are self-powered, could
be used to provide information about traffic, road conditions and repair needs as well as allowing the roads to communicate directly
with autonomous vehicles enabling these vehicles to sense the road in all weather conditions. By complementing the asphaltic cement
we expect to produce with integrated sensors for automated vehicles, we believe that we will be able to offer a smart road technology
– moving this company from one of “Waste to Road” to one of “Waste to Smart Road”.
Redeployment of our Metallic Separation
Technology
Our licensed metallic separation technology
has successfully recovered precious metals including, but not limited to, gold, palladium, platinum, rodium and silver. We intend
to modify our existing metallic separation equipment to allow us to capture a greater amount of the precious metals, which are
typically wasted. We intend to redeploy our metallic separation technology machines in conjunction with our RPC machines to locations
where precious metals have been detected in the soil and to standalone locations to process mine tailings and other soils.
Risks Associated with Our Business
Our business is subject to a number of
risks of which you should be aware before making a decision to invest in our common shares. The following, and other risks, are
discussed more fully in the “Risk Factors” section of this prospectus:
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We are an early stage operating company and we are subject to substantial risks inherent in the establishment of a new business venture;
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We have historically suffered net losses and we may not be able to achieve or sustain future profitability;
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We will require additional funding beyond this contemplated offering to fund our operations generally and such funding may not be available on acceptable terms or at all;
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The COVID-19 pandemic has had and may continue to have a negative impact on our business and operations;
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We rely on the experience and knowledge of our management team, Board of Directors and Advisory Board, and the loss of one or more members of our management team, Board of Directors and/or Advisory Board would adversely impact our business;
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Our business is subject to extensive legal regulation and unexpected changes to law or increases to fees could have a significant adverse impact on our business;
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Our primary business is impacted by the oil industry and manufacturing industry, which
are subject to uncertain economic conditions;
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We currently depend and are likely to continue to depend on a limited number of customers
for a significant portion of our revenues; and
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We may not be able to adequately protect our proprietary rights.
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Implications of Being an Emerging Growth
Company and a Smaller Reporting Company
We qualify as an “emerging growth company” as defined
in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we may take advantage
of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. See “Risk
Factors — Risks Relating to Our Common Stock and the Offering — We are an ‘emerging
growth company’ and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies,
which could make our common stock less attractive to investors.” These provisions include:
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·
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being permitted to provide only two years of audited financial statements
in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” disclosure;
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reduced disclosure obligations regarding executive compensation arrangements;
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not being required to hold a non-binding advisory vote on executive compensation
or golden parachute arrangements; and
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exemption from the auditor attestation requirement in the assessment of our
internal control over financial reporting.
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We have irrevocably elected to
opt-out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b)
of the JOBS Act. As a result, we will comply with new or revised accounting standards on the relevant dates on which adoption
of such standards is required for non- emerging growth companies.
We will remain an emerging growth company until the earlier
of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which
we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which
means the market value of our common stock that is held by non-affiliates exceeded $700.0 million as of the prior June 30th, and
(2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We may
choose to take advantage of some but not all of these exemptions. We have taken advantage of reduced reporting requirements in
this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public
companies in which you hold stock.
Notwithstanding the above, we are also currently qualified as
a “smaller reporting company” under SEC rules. In the event that we are still considered a smaller reporting company
at such time as we cease to be an emerging growth company, the disclosure we will be required to provide in our filings with the
SEC will increase, but will still be less than it would be if we were not considered either an emerging growth company or a smaller
reporting company. Specifically, similar to emerging growth companies, smaller reporting companies are able to provide simplified
executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act
of 2002 (the “Sarbanes-Oxley Act”) requiring that independent registered public accounting firms provide an attestation
report on the effectiveness of their internal control over financial reporting; and have certain other decreased disclosure obligations
in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in
their annual reports.
Corporate History and Information
The Company was originally organized
on November 1, 2006 as a limited liability company in the State of Nevada as Genecular Holdings, LLC. Our name was changed to
NGI Holdings, LLC on November 3, 2006. On April 30, 2008, we converted to a Nevada corporation and changed our name to
Vivakor, Inc. pursuant to Articles of Conversion filed with the Nevada Secretary of State.
We have the following direct and indirect wholly-owned
active subsidiaries: VivaVentures Management Company, Inc., a Nevada corporation, VivaSphere, Inc., a Nevada corporation, VivaVentures
Oil Sands, Inc., a Utah corporation, and RPC Design and Manufacturing LLC, a Utah limited liability company. We have a 99.95%
ownership interest in VivaVentures Energy Group, Inc., a Nevada Corporation; the 0.05% minority interest in VivaVentures Energy Group,
Inc. is held by a private investor unaffiliated with the Company. We also have an approximate 49% interest in Vivakor Middle East Limited
Liability Company, a Qatar limited liability company.
On December 18, 2020, our Board of Directors and stockholders
holding a majority of our outstanding voting shares, authorized a reverse stock split of each of the outstanding shares of
the Corporation’s common stock, $0.001 par value per share, as well as each of the outstanding shares of the Corporation’s
preferred stock, at a ratio to be determined by the Board of within a range of a minimum of a one-for-twelve (1-for-12) to a maximum
of one-for-forty (1-for-40) (the “Reverse Stock Split Ratio”), with the exact ratio to be set at a number within this
range as determined by the Board in its sole discretion, with no change in par value. The Board of Directors has not approved
a stock split ratio as of the date of this prospectus.
Our address is 433 Lawndale Drive South
Salt Lake City, UT 84115. Our phone number is (949) 281-2606. Our website is: www.vivakor.com. The information on, or that
can be accessed through, this website is not part of this prospectus, and you should not rely on any such information in making
the decision whether to purchase our common stock.
THE OFFERING
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Common stock offered by us
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shares of common stock, par value $0.001
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Estimated public offering price
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From $
to $ and the maximum
number of securities offered is
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Common stock to be outstanding after the offering:
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shares.
If the underwriter’s over-allotment option is exercised in full, the total number of shares of our common stock
outstanding immediately after this offering will
be .
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Overallotment option:
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We have granted the underwriters a 45-day option to purchase up to an additional shares of common stock to cover over-allotments, if any, at the public offering price less underwriting discounts and commissions.
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Use of proceeds:
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We expect to use the net proceeds from this offering to purchase
two RPC units, together with related equipment and enhancements, for the continued development of our hydrocarbon upgrading technologies
and for working capital and other general corporate purposes including the potential repayment of outstanding bridge notes. See “Use of Proceeds.”
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Risk factors:
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Investing in our securities is highly speculative and involves a high degree of risk. You should carefully consider the information set forth in the “Risk Factors” section of this prospectus beginning on page 11 before deciding to invest in our securities.
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OTCPink Trading symbol:
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Our common stock is currently quoted on the OTCPink under the trading symbol “VIVK”.
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Proposed Nasdaq trading symbol:
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We have applied
to list our common stock on the Nasdaq Capital Market under the symbol “VIVK.”
No assurance can be given that our application will be approved.
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____________
The number of shares of common stock shown
above to be outstanding after this offering is based on 339,067,621 shares outstanding as of April 1, 2021, and excludes
the following:
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436,800 shares of common stock issuable upon the conversion
of $602,408 of various convertible notes payable that convert at a range between $0.10 and $0.125 per share;
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2,373,571 shares of common stock issuable upon the conversion of $702,577 of certain convertible
bridge notes that may be converted into common stock at the lesser of $0.40 or a discount of 20% to the offering price or
repaid with the proceeds from this offering;
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2,035,162 shares of common stock issuable upon the conversion of
$602,408 of certain convertible bridge notes that may, at the option of the Company, be converted into common stock at a discount
of 20% to the offering price or repaid with the proceeds from this offering;
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60,000,000 shares of common stock reserved for future issuance
under the new Vivakor Inc. 2020 Equity Incentive Plan (the “Vivakor 2021 Plan”) we intend to adopt immediately prior
to this offering (including 500,000 shares to be issued to a former employee, and options to purchase 5,000,000 shares to be issued
to Matthew Nicosia, our Chief Executive Officer, pursuant to his employment agreement, all in the form of stock options that will
be issued under the Vivakor 2021 Plan);
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Non-statutory options to purchase 14,000,000 shares of common stock
issued for services, including 10,000,000 options to purchase common stock issued to LBL Professional Consulting, Inc., and 4,000,000
options to purchase common stock issued to the Board of Directors (Al Ferraro, Trent Staggs, Joseph Spence, and Matthew Balk).
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Any shares that may be issuable in exchange for convertible
notes or LLC units of Viva Wealth Fund I, LLC, Vivaventures Royalty II LLC, and/or Vivaventures Opportunity Fund pursuant
to the respective operating agreements of such entities, as described in this prospectus.
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Prior to the consummation of this offering,
we expect to effect a -for-
reverse stock split of our issued and outstanding common stock (the “Reverse Stock Split”). No fractional shares of
the Company’s common stock will be issued as a result of the Reverse Stock Split. Any fractional shares resulting from the
Reverse Stock Split will be rounded up to the nearest whole share.
Unless otherwise stated, all information in this prospectus
assumes:
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the
automatic conversion of all outstanding shares of our Series A, Series B, Series B-1
and Series C-1 convertible preferred stock into an aggregate of 52,848,964 shares
of common stock, the conversion of which will occur immediately prior to the consummation
of this offering.
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no exercise of the underwriters’ over-allotment option to purchase additional shares;
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no exercise of the warrants to be issued to the representative of the underwriters in
connection with this offering as described in the “Underwriting — Representative’s Warrants”
section of this prospectus; and
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the completion of the Reverse Stock Split.
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following summary consolidated
statements of operations data for the years ended December 31, 2020 and 2019 have been derived from our audited
consolidated financial statements included elsewhere in this prospectus. The historical financial data presented below is not
necessarily indicative of our financial results in future periods. You should read the summary consolidated financial data in
conjunction with those financial statements and the accompanying notes and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations.” Our consolidated financial statements are prepared and presented in
accordance with United States generally accepted accounting principles, or U.S. GAAP. Our unaudited condensed interim
consolidated financial statements have been prepared on a basis consistent with our audited financial statements and include
all adjustments, consisting only of normal and recurring adjustments that we consider necessary for a fair presentation of
the financial position and results of operations as of and for such periods.
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Year
Ended
December 31,
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2020
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2019
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(audited)
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Consolidated Statements of Operations
Data:
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Revenues
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$
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1,457,781
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$
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–
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Cost of revenues
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1,356,378
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–
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Gross profit
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101,403
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–
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Total operating expenses
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4,949,795
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2,303,181
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Loss from operations
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(4,848,392
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)
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(2,303,181
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Total other income
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2,443,987
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618,177
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Loss before provision for income taxes
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(2,404,405
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(1,685,004
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Provision for income taxes
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(466,964
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(589,203
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Consolidated net loss
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$
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(2,871,369
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$
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(2,274,207
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Net loss attributable to
Vivakor, Inc.
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$
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(2,183,697
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$
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(2,159,242
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)
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Loss per common share- Basic
and diluted
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$
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(0.01
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$
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(0.01
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Pro
forma loss per common share- Basic and diluted(2)
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(0.01
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(0.01
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As
of December 31, 2020
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Actual
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Pro
Forma(2)
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Pro
Forma As Adjusted(1)
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Selected Balance Sheet Data (end
of period):
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Cash and marketable securities
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$
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4,415,855
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$
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4,415,855
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$
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Total assets
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42,300,490
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42,300,490
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Total debt
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7,797,358
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7,797,358
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Total liabilities
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16,251,466
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16,251,466
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Total temporary equity
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9,360,458
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–
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Total stockholders’ equity
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16,688,566
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26,049,024
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(1) Each $0.10 increase (decrease) in
the public offering price per share would increase (decrease) each of cash and marketable securities, total assets and total shareholders’
equity by approximately $ , assuming that the number of shares we are
offering, as set forth on the cover page of this prospectus, remains the same and that the underwriters do not exercise their
over-allotment option. Depending on market conditions and other considerations at the time we price this offering, we may sell
a greater or lesser number of shares than the number set forth on the cover page of this prospectus. An increase (decrease) of
1,000,000 in the number of shares we are offering would increase (decrease) each of cash and marketable securities, total assets
and total shareholders’ equity by approximately $ , assuming
the public offering price per share remains the same.
(2) Pro forma information has been prepared giving the effect of the
conversion of preferred stock in conjunction with this Offering. Separate pro forma earnings per share information has been prepared
in the statements of operations for the years ended December 31, 2020 and 2019, giving the effect of the conversion of certain
preferred stock in conjunction with this Offering.
RISK FACTORS
Investing in our common stock involves
a great deal of risk. Careful consideration should be made of the following factors as well as other information included in this
prospectus before deciding to purchase our common stock. There are many risks that affect our business and results of operations,
some of which are beyond our control. Our business, financial condition or operating results could be materially harmed by any
of these risks. This could cause the trading price of our common stock to decline, and you may lose all or part of your investment.
Additional risks that we do not yet know of or that we currently think are immaterial may also affect our business and results
of operations.
Risks Relating to our Business
We are at an early operational stage,
and our success is subject to the substantial risks inherent in the establishment of a new business venture.
Our business and operations are in an
early stage and subject to all of the risks inherent with new business ventures. Our initial operations have been focused on the
remediation of soil and the extraction of hydrocarbons, such as oil, from properties contaminated by or laden with heavy crude
oil and hydrocarbon-based substances. We intend to, but have not yet, completed the second stage of our operational strategy, selling
the asphaltic cement and/or other petroleum-based products we are able to produce from the hydrocarbons we recover.
Our business and operations may not prove
to be successful. We have deployed only two RPC units to date, including one unit to Kuwait (for which operations have been temporarily
suspended due to COVID-19) and another to Vernal, Utah (which is presently operating). We will need to scale our business beyond
these two RPCs and demonstrate that our scaled-up recovery and remediation business can be profitable Any future success that we
may enjoy will depend on many factors, some of which may be beyond our control, and others which cannot be predicted at this time.
Although we began operations in 2008 as a technology acquisition company primarily focused on medical technologies, we have only
been operating under our current business plan focused on soil remediation since 2011, and we have not yet proven to be profitable.
We have not yet sold any substantial amount of products or services commercially and have not proven that our business model will
allow us to identify and develop commercially feasible products or technologies.
We have historically suffered net
losses, and we may not be able to sustain profitability.
We had an accumulated deficit of $30,204,992
as of December 31, 2020, and we expect to continue to incur significant development expenses in the foreseeable future related to
the completion of the development and commercialization of our products. As a result, we are incurring operating and net losses, and
it is possible that we may never be able to sustain the revenue levels necessary to achieve and sustain profitability. If we fail to
generate sufficient revenues to operate profitably on a consistent basis, or if we are unable to fund our continuing losses, you
could lose all or part of your investment.
We rely upon a few, select key employees
who are instrumental in our ability to conduct and grow our business. In the event any of those key employees would no longer be
affiliated with the Company, it may have a material detrimental impact as to our ability to successfully operate our business.
Our future success will depend in large
part on our ability to attract and retain high-quality management, operations, and other personnel who are in high demand, are
often subject to competing employment offers, and are attractive recruiting targets for our competitors. The loss of qualified
executives and key employees, or our inability to attract, retain, and motivate high-quality executives and employees required
for the planned expansion of our business, may harm our operating results and impair our ability to grow.
We depend on the continued services of
our key personnel, including Matthew Nicosia, our Chief Executive Officer, Tyler Nelson, our Chief Financial Officer, and Daniel
Hashim, our Chief Scientific Officer. Our work with each of these key personnel are subject to changes and/or termination, and
our inability to effectively retain the services of our key management personnel, could materially and adversely affect our operating
results and future prospects.
We may have difficulty raising additional
capital, which could deprive us of necessary resources, and you may experience dilution or subordinate stockholder rights, preferences
and privileges as a result of our financing efforts.
We expect to continue to devote significant
capital resources to fund the continued development of our RPCs and related technologies. In order to support the initiatives
envisioned in our business plan, we will need to raise additional funds through the sale of public or private debt or equity financing
or other arrangements. Our ability to raise additional financing depends on many factors beyond our control, including the state
of capital markets, the market price of our common stock and the development or prospects for development of competitive technologies
by others. Sufficient additional financing may not be available to us or may be available only on terms that would result in further
dilution to the current owners of our common stock.
We expect to obtain additional capital
during 2021 through financing lease structures for our RPCs
or other financing structures related to our RPCs. We also expect that the net proceeds from this offering, along with our current
cash position, will enable us to fund our operating expenses and capital expenditure requirements for the next twelve months.
Thereafter, unless we can achieve and sustain profitability, we anticipate that we will need to raise additional capital to fund
our operations while we implement and execute our business plan.
Any future equity financing may involve
substantial dilution to our then existing shareholders. Any future debt
financing could involve restrictive covenants relating to our capital raising activities and other financial and operational matters,
which may make it more difficult for us to obtain additional capital and to pursue business opportunities. There can be
no assurance that such additional capital will be available, on a timely basis, or on terms acceptable to us. If we are unsuccessful
in raising additional capital or the terms of raising such capital are unacceptable, then we may have to modify our business plan
and/or curtail our planned activities and other operations.
If we raise additional funds through government
or other third-party funding, collaborations, strategic alliances, licensing arrangements or marketing and distribution arrangements,
we may have to relinquish valuable rights to our technologies, future revenue stream or grant licenses on terms that may not be
favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to
delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market
products that we would otherwise prefer to develop and market ourselves.
The COVID-19 pandemic has had and
may continue to have a negative impact on our business and operations.
Our
Kuwait operations have been suspended to comply with the social distancing measures implemented in Kuwait. Our Utah operations
were temporarily suspended from March through May 2020, but have since resumed in full. These suspensions have had a negative impact
on our business and there can be no guaranty that we will not need to suspend operations again in the future as a result of the
pandemic. We are closely monitoring the COVID-19 pandemic and the directives from federal and local authorities in the United
States and in Kuwait affecting not only our workforce, but those of companies
with whom we work.
Economic conditions in the
current period of disruption and instability could adversely affect our ability to access the capital markets, in both the near
and long term, and thus adversely affect our business and liquidity.
The current economic conditions related
to the COVID-19 pandemic have had, and likely will continue to have for the foreseeable future a negative impact on the capital
markets. Even if we are able to raise capital, it may not be at a price or on terms that are favorable to us. We cannot predict
the occurrence of future disruptions or how long the current conditions may continue.
Failure to effectively manage
our expected growth could place strains on our managerial, operational and financial resources and could adversely affect our
business and operating results.
Our expected growth could place a strain
on our managerial, operational and financial resources. Further, if our subsidiaries’ businesses grow, then we will be required
to manage multiple relationships. Any further growth by us or our subsidiaries, or any increase in the number of our strategic
relationships, will increase the strain on our managerial, operational and financial resources. This strain may inhibit our ability
to achieve the rapid execution necessary to implement our business plan and could have a material adverse effect on our financial
condition, business prospects and operations and the value of an investment in our company.
We will need to achieve commercial
acceptance of our products to continue to generate revenues and sustain profitability.
Our goal is to ultimately produce asphaltic cement and/or other petroleum-based products from the hydrocarbons
we recover and sell these products to customers; however, we may not be able to successfully commercialize our products, and even
if we do, we may not be able to do so on a timely basis. Superior competitive technologies may be introduced, or customer needs
may change, which will diminish or extinguish the commercial uses for our applications. We cannot predict when significant commercial
market acceptance for our products will develop, if at all, and we cannot reliably estimate the projected size of any such potential
market. If the markets fail to accept our products, then we may not be able to generate revenues from the commercial application
of our technologies. Our revenue growth and profitability will depend substantially on our ability to manufacture and deploy additional
RPCs and produce asphaltic cement to the specifications required by each of our potential customers.
We have
identified a material weakness in our internal control over financial reporting. Failure to maintain effective internal
controls could cause our investors to lose confidence in us and adversely affect the market price of our common stock. If our
internal controls are not effective, we may not be able to accurately report our financial results or prevent fraud.
Section 404 of the Sarbanes-Oxley
Act of 2002 (“Section 404”), requires that we maintain internal control over financial reporting that meets applicable
standards. We may err in the design or operation of our controls, and all internal control systems, no matter how well designed
and operated, can provide only reasonable assurance that the objectives of the control system are met. Because there are inherent
limitations in all control systems, there can be no assurance that all control issues have been or will be detected. If we are
unable, or are perceived as unable, to produce reliable financial reports due to internal control deficiencies, investors could
lose confidence in our reported financial information and operating results, which could result in a negative market reaction and
a decrease in our stock price.
We have identified
a material weakness in our internal controls related to management not yet having completed a formal assessment of internal controls.
Management anticipates completing the formal assessment in 2021.We believe that we will have substantially resolved our previously
identified material weakness in our internal controls as a result of implementation of new policies and procedures. There can
be no assurances that weakness in our internal controls will not occur in the future.
If we identify
new material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404
in a timely manner, if we are unable to assert that our internal control over financial reporting is effective, or if our independent
registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial
reporting (if and when required), we may be late with the filing of our periodic reports, investors may lose confidence in the
accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected. As a
result of such failures, we could also become subject to investigations by the stock exchange on which our securities are listed,
the SEC, or other regulatory authorities, and become subject to litigation from investors and stockholders, which could harm our
reputation, financial condition or divert financial and management resources from our core business, and would have a material
adverse effect on our business, financial condition and results of operations.
A major portion of our business is
dependent on the oil industry, which is subject to numerous worldwide variables.
Our prospective customers are concentrated
in the oil industry. As a result, we will be subject to the success of the oil industry, which is subject to substantial volatility
based on numerous worldwide factors. A decline in the oil industry may have a material adverse effect on our business, financial
condition, results of operations and cash flows. The oil and gas industry is competitive in all its phases. Competition in the
oil and gas industry is intense. We will compete with other participants in the search for oil sand properties and in the marketing
of oil and other hydrocarbon products. Our customers could include competitors such as oil and gas companies that have substantially
greater financial resources, staff and facilities than those of our customers and lessees. Competitive factors in the distribution
and marketing of oil and other hydrocarbon products include price and methods and reliability of delivery.
Within the oil remediation market, demand
for our services will be limited to a specific customer base and highly correlated to the oil industry. The oil industry’s
demand for equipment is affected by a number of factors including the volatile nature of the oil industry’s business, increased
use of alternative types of energy and technological developments in the oil extraction process. A significant reduction in the
target market’s demand for oil would reduce the demand for the equipment, which would have a material adverse effect upon
our business, financial condition, results of operations and cash flows.
Low oil prices may substantially impact our ability to
generate revenues.
Low
oil prices may negatively impact our ability to operate. The demand for our products and services depend, in part, on the price
of oil and the margins oil producers receive on the sale of oil. Oil prices are volatile and can fluctuate widely based upon a
number of factors beyond our control. Any decline in the prices of and demand for oil could have a material adverse effect on
our business, financial condition, results of operations and cash flows.
We require a variety of permits to
operate our business. If we are not successful in obtaining and/or maintaining those permits it will adversely impact our operations.
Our business requires permits to operate.
Our inability to obtain permits in a timely manner could result in substantial delays to our business. In addition, our customers
may not receive permitting for our equipment’s specific use and we may be unable to adjust our equipment to meet our customer’s
permitting needs. The issuance of permits is dependent on the applicable government agencies and is beyond our control and that
of our customers. There can be no assurance that we and/or our customers will receive the permits necessary to operate, which could
substantially and adversely affect our operations and financial condition.
We are required to pay permit and
approval fees to operate in certain business segments and locations. If we are not able to pay those fees it would adversely impact
our business.
We are required to pay various types of
permit and approval fees to the applicable governmental and quasi-governmental agencies to operate our business. These fees are
subject to change at the discretion of the various agencies. Our inability to pay these permit and approval fees could substantially
and adversely affect our operations and financial condition.
We, and our customers and prospective
customers, are subject to numerous governmental regulations, both domestically and internationally. In order to operate successfully
we must be able comply with these regulations.
Current and future government laws, regulations
and other legal requirements may increase the costs of doing business or restrict business operations. Laws, regulations and other
legal requirements, such as those relating to the protection of the environment and natural resources, health, business and tax
have an effect on our cost of operation or those of our customers. Such governmental regulation may result in delays, cause us
to incur substantial compliance and other costs and prohibit or severely restrict our business or that of our customers, which
could have an adverse effect on our business, financial condition, results of operations and cash flows.
Based on the nature of our business we currently depend
and are likely to continue to depend on a limited number of customers for a significant portion of our revenues.
We currently have two customers in Utah
and a single customer in Kuwait. The failure to obtain additional customers or the loss of all or a portion of the revenues attributable
to any current or future customer as a result of competition, creditworthiness, inability to negotiate extensions or replacement
of contracts or otherwise could have a material adverse effect on our business, financial condition, results of operations and
cash flows.
If our customers do not enter into,
extend or honor their contracts with us, our profitability could be adversely affected. Our ability to receive payment for
production depends on the continued solvency and creditworthiness of our customers and prospective customers. If any of our
customers’ creditworthiness suffers, we may bear an increased risk with respect to payment defaults. If customers
refuse to accept our equipment or make payments for which they have a contractual obligation, our revenues could be adversely
affected. In addition, if a substantial portion of our contracts are modified or terminated and we are unable to replace the
contracts (or if new contracts are priced at lower levels), our results of operations will be adversely affected.
Our primary business is impacted by the oil industry and
the manufacturing industry, which are subject to uncertain economic conditions.
The global economy is subject to fluctuation
and it is unclear how stable the oil industry and the manufacturing industry will be in the future. As a result, there can be no
assurance that the business will achieve anticipated cash flow levels. Further, recent world events evolving out of trade disputes,
increased terrorist activities and political and military action, and the COVID-19 pandemic, among other events, have created an
air of uncertainty concerning the stability of the global economy. Historically, such events have resulted in disturbances in financial
markets, and it is impossible to determine the likelihood of future events. Any negative change in the general economic conditions
in the United States and globally could adversely affect the financial condition and operating results of the business. We plan
to expand our level of operations. Slower economic activity, concerns about inflation or deflation, decreased consumer confidence,
reduced corporate profits and capital spending, adverse business conditions and liquidity concerns in the general economy and recent
international conflicts and terrorist and military activity have resulted in a downturn in worldwide economic conditions, especially
in the United States. Political and social turmoil related to international conflicts and terrorist acts may place further pressure
on economic conditions in the United States and worldwide. These political, social and economic conditions make it extremely difficult
for us to accurately forecast and plan future business activities. If such conditions continue or worsen, then our business, financial
condition and results of operations could be materially and adversely affected.
We will continue to be subject to
competition in our business.
Our oil remediation equipment utilizes
specific technology to extract oil from sand. Oil producers are continually investigating alternative oil production technologies
with a view to reduce production costs. In addition, industries that compete with the oil industry, such as the electric power
industry, also continue to innovate and create products that compete with the oil industry. There can be no assurance that superior
alternative technologies will emerge, which could reduce the demand for and price of our product and services.
The market for our products and services
is highly competitive and is becoming more so, which could hinder our ability to successfully market our products and services.
We may not have the resources, expertise or other competitive factors to compete successfully in the future. We expect to face
additional competition from existing competitors and new market entrants in the future. Many of our competitors have greater name
recognition and more established relationships in the industry than we do. As a result, these competitors may be able to:
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develop and expand their product offerings more rapidly;
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adapt to new or emerging changes in customer requirements more quickly;
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take advantage of acquisition and other opportunities more readily;
and
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devote greater resources to the marketing and sale of their products
and adopt more aggressive pricing policies than we can.
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We carry insurance coverage against
liabilities for personal injury, death and property damage, but there is no guarantee this coverage will be sufficient to cover
us against all claims.
Although, we maintain insurance coverage
against liability for personal injury, death and property damage. There can be no assurance that this insurance will be sufficient
to cover any such liabilities. We may not be insured or fully insured against the losses or liabilities that could arise from a
casualty in the business operations. In addition, there can be no assurance that particular risks that are currently insurable
will continue to be insurable on an economical basis or that the current levels of coverage will continue to be available. If a
loss occurs that is partially or completely uninsured, we may incur a significant liability.
We may be unable to adequately protect our proprietary
rights.
Our ability to compete partly depends on
the superiority, uniqueness and value of our intellectual property. To protect our proprietary rights, we will rely on a combination
of patents, copyrights and trade secrets, confidentiality agreements with our employees and third parties, and protective contractual
provisions. Despite these efforts, any of the following occurrences may reduce the value of our intellectual property:
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Our applications for patents relating to our business may not be granted
and, if granted, may be challenged or invalidated;
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Issued patents may not provide us with any competitive advantages;
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Our efforts to protect our intellectual property rights may not be
effective in preventing misappropriation of our technology;
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Our efforts may not prevent the development and design by others of
products or technologies similar to or competitive with, or superior to those we develop; or
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Another party may obtain a blocking patent and we would need to either
obtain a license or design around the patent in order to continue to offer the contested feature or service in our products.
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We may become involved in lawsuits
to protect or enforce our patents that would be expensive and time consuming.
In order to protect or enforce our patent
rights, we may initiate patent litigation against third parties. In addition, we may become subject to interference or opposition
proceedings conducted in patent and trademark offices to determine the priority and patentability of inventions. The defense of
intellectual property rights, including patent rights through lawsuits, interference or opposition proceedings, and other legal
and administrative proceedings, would be costly and divert our technical and management personnel from their normal responsibilities.
An adverse determination of any litigation or defense proceedings could put our pending patent applications at risk of not being
issued.
Furthermore, because of the substantial
amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential
information could be compromised by disclosure during this type of litigation. For example, during the course of this type of litigation,
confidential information may be inadvertently disclosed in the form of documents or testimony in connection with discovery requests,
depositions or trial testimony. This disclosure could have a material adverse effect on our business and our financial results.
Our primary business operations rely
on our ability to transport our equipment to different locations. Any impact on the cost, availability and reliability of transportation
could adversely affect our business.
The availability and reliability of transportation
and fluctuation in transportation costs could negatively impact the business. Transportation logistics play an important role in
the sale of our products and services and in the oil industry generally. Delays and interruptions of transportation services because
of accidents, failure to complete construction of infrastructure, infrastructure damage, lack of capacity, weather-related problems,
governmental regulation, terrorism, strikes, lock-outs, third-party actions or other events could impair the operations of our
customers and may also directly impair our ability to commence or complete production or services, which could have a material
adverse effect on our business, financial condition, results of operations and cash flows.
The lands on which we conduct our
business operations must be properly zoned for our services. If they aren’t then it could impact our business.
The lands on which we conduct our business
operates must comply with applicable zoning regulations. Any unknown or future violations could limit or require
us to cease operations.
Data security breaches are increasing
worldwide. If we are the victim of such a breach it will materially impact our business.
We will collect and retain certain personal
information provided by our employees and investors. We intend to implement certain protocols designed to protect the confidentiality
of this information and periodically review and improve our security measures; however, these protocols may not prevent unauthorized
access to this information. Technology and safeguards in this area are consistently changing and there is no assurance that we
will be able to maintain sufficient protocols to protect confidential information. Any breach of our data security measures and
disbursement of this information may result in legal liability and costs (including damages and penalties), as well as damage to
our reputation, that could materially and adversely affect our business and financial performance.
We may indemnify our directors and
officers against liability to us and holders of our securities, and such indemnification could increase our operating costs.
Our bylaws allow us to indemnify our
directors and officers against claims associated with carrying out the duties of their offices. Our Bylaws also allow us to
reimburse them for the costs of certain legal defenses. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the “Securities Act”) may be permitted to our directors, officers or control persons, we
have been advised by the SEC that such indemnification is against public policy and is therefore unenforceable. If our
officers and directors file a claim against us for indemnification, the associated expenses could also increase our operating
costs.
We may be subject to liability if our equipment does not
perform as expected.
We may be exposed to liability in the event
our equipment does not perform as expected. We intend to enter into contracts with customers, which will grant certain rights with
respect to the condition and use of our products. Certain contractual and legal claims could arise in the event the equipment does
not perform as expected and in the event of personal injury, death or property damage as a result of the use of our equipment.
There can be no assurance that particular risks are insured or, if insured, will continue to be insurable on an economical basis
or that current levels of coverage will continue to be available. We may be liable for any defects in the equipment or its products
and services and uninsured or underinsured personal injury, death or property damage claims.
Our business depends on our ability
to manufacture various pieces of equipment, many of which are quite large. Any disruption in our manufacturing ability will adversely
affect our business and operations.
Our business involves manufacturing and
plant operation risks of delay that may be outside of our control. Production or services may be delayed or prevented by factors
such as adverse weather, strikes, energy shortages, shortages or increased costs of materials, inflation, environmental conditions,
legal matters and other unknown contingencies. Our business also requires certain manufacturing apparatus to manufacture the equipment.
If the manufacturing apparatus were to suffer major damage or are destroyed by fire, abnormal wear, flooding, incorrect operation
or otherwise, we may be unable to replace or repair such apparatus in a timely manner or at a reasonable cost, which would impact
the our ability to stay in production or service. Any significant downtime of the equipment manufacturing could impair our ability
to produce for or serve customers and materially and adversely affect our results of operations. In addition, changes in the equipment
plans and specifications, delays due to compliance with governmental requirements or impositions of fees or other delays could
increase production costs beyond those budgeted for the business. If any cost overruns exceed the funds budgeted for operations,
the business would be negatively impacted.
Any accident at our manufacturing facilities could subject
us to substantial liability.
The manufacturing and operation of the
equipment involves hazards and risks which could disrupt operations, decrease production and increase costs. The occurrence of
a significant accident or other event that is not fully insured could adversely affect our business, financial condition, results
of operations and cash flows.
If critical components become unavailable
or our suppliers delay their production of our key components, our business will be negatively impacted.
Our ability to get key components to build
our equipment is crucial to our ability to manufacture our products. These components are supplied by certain third-party manufacturers,
and we may be unable to acquire necessary amounts of key components at competitive prices.
If we are successful in our growth, outsourcing
the production of certain parts and components would be one way to reduce manufacturing costs. We plan to select these particular
manufacturers based on their ability to consistently produce these products according to our requirements in an effort to obtain
the best quality product at the most cost-effective price. However, the loss of all or any one of these suppliers or delays in
obtaining shipments would have an adverse effect on our operations until an alternative supplier could be found, if one may be
located at all. If we get to that stage of growth, such loss of manufacturers could cause us to breach any contracts we have in
place at that time and would likely cause us to lose sales.
Any shortage of skilled labor would
have a detrimental impact on our ability to provide our products and services.
The manufacturing and operating of the
equipment requires skilled laborers. In the event there is a shortage of labor, including skilled labor, it could have an adverse
impact on our productivity and costs and our ability to expand production in the event there is an increase in demand for our product
or services.
We rely on third party contractors for some of our operations.
If we are unable to find quality contractors, it would severely impact our business.
We outsource certain aspects of our business
to third party contractors. We are subject to the risks associated with such contractors’ ability to successfully provide
the necessary services to meet the needs of our business. If the contractors are unable to adequately provide the contracted services,
and we are unable to find alternative service providers in a timely manner, our ability to operate the business may be disrupted,
which may adversely affect our business, financial condition, results of operations and cash flows.
Union activities could adversely impact our business.
While none of our employees are currently
members of unions, we may become adversely effected by union activities. We are not subject to any collective bargaining or union
agreement; however, it is possible that future employees may join or seek recognition to form a labor union or may be required
to become a labor agreement signatory. If some or all of our employees become unionized, it could adversely affect productivity,
increase labor costs and increase the risk of work stoppages. If a work stoppage were to occur, it could interfere with the business
operations and have a material adverse effect on our business, financial condition, results of operations and cash flows.
Although
we do not believe that we are, or will be, an investment company covered by the Investment Company Act of 1940, if we are deemed
to be an investment company, we may be required to institute burdensome compliance requirements and our activities may be restricted,
which may make it difficult for us to engage in strategic transactions.
A company that,
among other things, is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of
investing, reinvesting, owning, trading or holding certain types of securities would be deemed an investment company under the
Investment Company Act of 1940, as amended, (the “Investment Company Act”). We are not in the business of buying and
selling securities of other companies. As our strategy had involved the Company investing in other companies, including Scepter
Holdings and Odyssey Group International, it is possible that we could be deemed an investment company, although, given the nature
and extent of our business operations, we do not believe that we are or will be subject us to the Investment Company Act. Our
investments in Scepter Holdings and Odyssey Group International arise from loan agreements that were settled in the form of equity
because cash was not available for the borrowers. The Company has not traded or sold any securities of other companies that it has
acquired. For those LLCs for which the Company serves as manager, it has been disclosed in the business plan of these LLCs that
their primary business is manufacturing heavy machinery or to provide the Company with cash to specifically manufacture or purchase
heavy machinery in exchange for a royalty from the production of the heavy machinery. These entities do not engage in activities
such as investing, reinvesting, owning, holding or trading “investment securities,” and neither the units of ownership
for these entities, nor rights to royalties, have any market and are not traded, and such interests are accounted for at cost.
In order not to be regulated as an investment company under
the Investment Company Act, unless we can qualify for an exclusion, we must ensure that we are engaged primarily in a business
other than investing, reinvesting or trading in securities and that our activities do not include investing, reinvesting, owning,
holding or trading “investment securities” constituting more than 40% of our total assets (exclusive of U.S. government
securities and cash items) on an unconsolidated basis. We do not plan to buy businesses or assets with a view to resale or profit
from their resale. We do not plan to buy unrelated businesses or assets or to be a passive investor.
If we are nevertheless
deemed to be an investment company under the Investment Company Act, we may be subject to certain restrictions that may make it
more difficult for us to complete a business combination, including:
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restrictions on the nature of our investments; and
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restrictions on the issuance of securities.
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In addition,
we may have imposed upon us certain burdensome requirements, including:
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registration as an investment company;
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adoption of a specific form of corporate structure; and
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reporting, record keeping, voting, proxy, compliance policies and procedures and disclosure requirements and other
rules and regulations.
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Compliance
with these additional regulatory burdens would require additional expense for which we have not allotted.
Risks Relating to our Common Stock and the Offering
Future sales or potential sales of
our common stock in the public market could cause our share price to decline.
If the existing holders of our common stock,
particularly our directors and officers, sell a large number of shares, they could adversely affect the market price for our common
stock. Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could
cause the market price of our common stock to decline.
Because we will not pay dividends
on our common stock in the foreseeable future, stockholders will only benefit from owning common stock if it appreciates.
We have never paid cash dividends on our
common stock, and we do not intend to do so in the foreseeable future. We intend to retain any future earnings to finance our growth.
Accordingly, any potential investor who anticipates the need for current dividends from his investment should not purchase our
common stock.
Our share price has been, and will
likely continue to be, volatile, and you may be unable to resell your shares at or above the price at which you acquired them.
The
trading price of our common stock has been, and is likely to continue to be, highly volatile and could be subject to wide fluctuations
in response to various factors, some of which are beyond our control.
The market price for our securities may
be influenced by many factors that are beyond our control, including, but not limited to:
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variations in our revenue and operating expenses;
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market conditions in our industry and the economy as a whole;
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actual or expected changes in our growth rates or our competitors’
growth rates;
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developments or disputes concerning patent applications, issued patents
or other proprietary rights;
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developments in the financial markets and worldwide or regional economies;
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variations in our financial results or those of companies that are
perceived to be similar to us;
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announcements by the government relating to regulations that govern
our industry;
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sales of our common stock or other securities by us or in the open
market;
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changes in the market valuations of other comparable companies;
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general economic, industry and market conditions; and
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the other factors described in this “Risk Factors” section.
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The trading price of our shares might also
decline in reaction to events that affect other companies in our industry, even if these events do not directly affect us. Each
of these factors, among others, could harm the value of your investment in our securities. In the past, following periods of volatility
in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against
us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely
affect our business, operating results and financial condition.
Investors in this offering will experience
immediate and substantial dilution in net tangible book value.
The public offering price per share will
be substantially higher than the net tangible book value per share of our outstanding shares of common stock. As a result, investors
in this offering will incur immediate dilution of $
per share, based on the estimated public offering price of $
per share. Investors in this offering will pay a price per share that substantially exceeds the book value of our assets after
subtracting our liabilities. See “Dilution” for a more complete description of how the value of your investment will
be diluted upon the completion of this offering.
Our failure to meet the continued
listing requirements of Nasdaq could result in a delisting of our common stock.
If our common stock is approved for
listing on the Nasdaq Capital Market and we subsequently fail to meet any of Nasdaq’s continued listing requirements,
our common stock may be delisted. In addition, our Board of Directors may determine that the cost of maintaining our listing on
a national securities exchange outweighs the benefits of such listing. A delisting of our common stock from the Nasdaq
Capital Market may materially impair our stockholders’ ability to buy and sell our common stock and could have an adverse
effect on the market price of, and the efficiency of the trading market for, our common stock. The delisting of our common
stock could significantly impair our ability to raise capital and the value of your investment.
If our shares of common stock become
subject to the penny stock rules, it would become more difficult to trade our shares.
The SEC has adopted rules that regulate
broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price
of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain
automated quotation systems, provided that current price and volume information with respect to transactions in such securities
is provided by the exchange or system. Although the shares being offered will not initially be subject to the penny stock rules,
if we do not retain a listing on the Nasdaq Capital Market or another national securities exchange and if the price of our
common stock is less than $5.00, our common stock could be deemed a penny stock. The penny stock rules require a broker-dealer,
before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document
containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny
stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk
disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a
written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary
market for our common stock, and therefore stockholders may have difficulty selling their shares.
The proposed Reverse
Stock Split may decrease the liquidity of our common stock.
The liquidity
of our common stock may be affected adversely by the Reverse Stock Split given the reduced number of common stock that will be
outstanding following the reverse stock split. In addition, the reverse stock split may increase the number of stockholders
who own odd lots (less than 100 shares) of our common stock, creating the potential for such stockholders to experience an increase
in the cost of selling their common stock and greater difficulty effecting such sales.
Following the Reverse Stock Split,
the resulting market price of our common stock may not attract new investors, including institutional investors, and may not satisfy
the investing requirements of those investors. Consequently, the trading liquidity of our common stock may not improve.
Although we believe that a higher market
price of our common stock may help generate greater or broader investor interest, there can be no assurance that the reverse stock
split will result in a common stock price that will attract new investors, including institutional investors. In addition, there
can be no assurance that the market price of our common stock will satisfy the investing requirements of those investors.
We have broad discretion in the use
of the net proceeds from this offering and may not use them effectively.
Our management will have broad discretion
in the application of the net proceeds, including for any of the purposes described in the section of this prospectus entitled
“Use of Proceeds.” You will be relying on the judgment of our management with regard to the use of these net proceeds,
and you will not have the opportunity, as part of your investment decision, to assess whether the net proceeds are being used appropriately.
The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse
effect on our business, cause the price of our securities to decline. Pending the application of these funds, we may invest the
net proceeds from this offering in a manner that does not produce income or that loses value.
Sales of a substantial number of
shares of our common stock following this offering may adversely affect the market price of our common stock and the issuance of
additional shares will dilute all other stockholders.
Sales of a substantial number of shares
of our common stock in the public market or otherwise following this offering, or the perception that such sales could occur,
could adversely affect the market price of our common stock. After completion of this offering at an estimated offering price
of $ per share, which is the midpoint of our bona
fide estimated price range of $ to $ ,
our existing stockholders will own approximately % of our common stock assuming there is no exercise
of the underwriters’ over-allotment option.
After completion of this offering at
an estimated offering price of $ per share, which
is the midpoint of our bona fide estimated price range of $
to $ , there will be
shares of our common stock outstanding. In addition, our articles of incorporation, as amended, will permit the issuance of up
to approximately additional shares of common stock
after the completion of this offering. Thus, we will have the ability to issue substantial amounts of common stock in the future,
which would dilute the percentage ownership held by the investors who purchase shares of our common stock in this offering.
We and our officers, directors and certain
stockholders have agreed, subject to customary exceptions, not to, without the prior written consent of , the representative of
the underwriters, during the period ending 180 days from the date of this offering in the case of us and our directors and officers,
and 90 days from the date of this offering in the case of our stockholders who beneficially own more than 5% of our common stock
directly or indirectly, offer to sell, sell, pledge or otherwise transfer or dispose of any of shares of our common stock, enter
into any swap or other derivatives transaction that transfers to another any of the economic benefits or risks of ownership of
shares of our common stock, make any demand for or exercise any right or cause to be filed a registration statement, including
any amendments thereto, with respect to the registration of any shares of common stock or securities convertible into or exercisable
or exchangeable for common stock or any other securities of the Company or publicly disclose the intention to do any of the foregoing.
Anti-takeover provisions in our charter
documents and Nevada law could discourage, delay or prevent a change in control of our company and may affect the trading price
of our common stock.
We are a Nevada corporation and the anti-takeover
provisions of the Nevada Revised Statutes may discourage, delay or prevent a change in control by prohibiting us from engaging
in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder,
even if a change in control would be beneficial to our existing stockholders. In addition, our articles of incorporation and bylaws
may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Our articles
of incorporation and bylaws:
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authorize the issuance of “blank check” preferred stock that could be issued by our Board of Directors to thwart a takeover attempt;
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provide that vacancies on our Board of Directors, including newly created directorships, may be filled by a majority vote of directors then in office;
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place restrictive requirements (including advance notification of stockholder nominations and proposals) on how special meetings of stockholders may be called by our stockholders;
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do not provide stockholders with the ability to cumulate their votes; and
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provide that our Board of Directors or a majority of our stockholders may amend our bylaws.
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We are an “emerging growth company” and will
be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common
stock less attractive to investors.
We are an “emerging growth company,” as defined
in the JOBS Act and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to
other public companies that are not “emerging growth companies” including not being required to comply with the auditor
attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation
in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive
compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors
will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less
attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
We may take advantage of these reporting exemptions until we
are no longer an “emerging growth company.” We will remain an “emerging growth company” until the earliest
of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii)
the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date
on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which
we are deemed to be a large accelerated filer under the rules of the SEC.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus contains forward-looking
statements that present our current expectations or forecasts of future events. These statements do not relate strictly to historical
or current facts. Forward-looking statements involve risks and uncertainties and include statements regarding, among other
things, our projected revenue growth and profitability, our growth strategies and opportunity, anticipated trends in our market
and our anticipated needs for working capital. They are generally identifiable by use of the words “may,” “will,”
“should,” “anticipate,” “estimate,” “plans,” “potential,” “projects,”
“continuing,” “ongoing,” “expects,” “management believes,” “we believe,”
“we intend” or the negative of these words or other variations on these words or comparable terminology. These statements
may be found under the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” as well as in this
prospectus generally. In particular, these include statements relating to future actions, prospective products, market acceptance,
future performance or results of current and anticipated products, sales efforts, expenses, and the outcome of contingencies such
as legal proceedings and financial results.
Examples of forward-looking statements
in this prospectus include, but are not limited to, our expectations regarding our business strategy, business prospects, operating
results, operating expenses, working capital, liquidity and capital expenditure requirements. Important assumptions relating to
the forward-looking statements include, among others, assumptions regarding demand for our products and services, the cost, terms
and availability of components, pricing levels, the timing and cost of capital expenditures, competitive conditions and general
economic conditions. These statements are based on our management’s expectations, beliefs and assumptions concerning future
events affecting us, which in turn are based on currently available information. These assumptions could prove inaccurate. Although
we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may
prove to be incorrect.
Important factors that could cause actual
results to differ materially from the results and events anticipated or implied by such forward-looking statements include, but
are not limited to:
|
|
·
|
changes in the market acceptance of our products and services;
|
|
|
·
|
increased levels of competition;
|
|
|
·
|
changes in political, economic or regulatory conditions generally
and in the markets in which we operate;
|
|
|
·
|
our relationships with our key customers;
|
|
|
·
|
adverse conditions in the industries in which our customers operate;
|
|
|
·
|
our ability to retain and attract senior management and other key
employees;
|
|
|
·
|
our ability to quickly and effectively respond to new technological
developments;
|
|
|
·
|
our ability to protect our trade secrets or other proprietary rights,
operate without infringing upon the proprietary rights of others and prevent others from infringing on the proprietary rights of
the Company; and
|
|
|
·
|
other risks, including those described in the “Risk Factors”
discussion of this prospectus.
|
We operate in a very competitive and rapidly
changing environment. New risks emerge from time to time. It is not possible for us to predict all of those risks, nor can we assess
the impact of all of those risks on our business or the extent to which any factor may cause actual results to differ materially
from those contained in any forward-looking statement. The forward-looking statements in this prospectus are based on assumptions
management believes are reasonable. However, due to the uncertainties associated with forward-looking statements, you should not
place undue reliance on any forward-looking statements. Further, forward-looking statements speak only as of the date they are
made, and unless required by law, we expressly disclaim any obligation or undertaking to publicly update any of them in light of
new information, future events, or otherwise.
USE OF PROCEEDS
We estimate that the net proceeds from
the sale of the shares that we are offering will be approximately $
(or approximately $ if the underwriter exercises its option
to purchase additional shares of common stock from us in full), based on an estimated offering price of $
per share, which is the midpoint of our bona fide estimated price range of $
to $
, and after deducting the
underwriting discounts and commissions and estimated offering expenses.
We currently expect to use the net proceeds
of this offering primarily for the following purposes:
|
|
·
|
approximately $ for the purchase of two RPC units, together with related
equipment and enhancements;
|
|
|
|
|
|
|
·
|
approximately $ towards the continued development of our hydrocarbon
upgrading technologies; and
|
|
|
|
|
|
|
·
|
the remaining $ for working capital and other general corporate purposes,
including potential repayment of outstanding bridge notes.
|
Each $0.10 increase or decrease in
the estimated public offering price of $ per share
would increase or decrease our net proceeds from this offering by approximately $
million , assuming that the number of shares offered by us remains the same, and after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by us. An increase or decrease of 1,000,000 in the number of shares offered
by us would increase or decrease our net proceeds from this offering by approximately $
million, assuming no change in the estimated public offering price per share, and after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by us. We do not expect that a change in the offering price
or the number of shares by these amounts would have a material effect on our intended uses of the net proceeds from this offering,
although it may impact the amount of time prior to which we may need to seek additional capital.
We believe that the net proceeds from this
offering together, along with our current cash position, will be sufficient to fund our operations for at least the next 12 months,
although we cannot assure you that this will occur.
Our
expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition.
The amount and timing of our actual expenditures will depend on numerous factors, including the status of our development
efforts, sales and marketing activities and the amount of cash generated or used by our operations. We may find it necessary or
advisable to use portions of the proceeds for other purposes, and we will have broad discretion and flexibility in the application
of the net proceeds. Pending these uses, the proceeds will be invested in short-term bank deposits.
MARKET FOR OUR COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Market and Other Information
The following table sets forth the quarterly
high and low sales price of our common stock on the OTCPink for the two most recent fiscal years. These prices are based on inter-dealer
bid and asked prices, without markup, markdown, commissions, or adjustments and may not represent actual transactions.
|
Period
|
|
High
|
|
|
Low
|
|
|
Fiscal Year 2021:
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.57
|
|
|
$
|
0.30
|
|
|
Second Quarter (through April 9, 2021)
|
|
|
0.40
|
|
|
|
0.37
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2020:
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.24
|
|
|
$
|
0.12
|
|
|
Second Quarter
|
|
|
0.33
|
|
|
|
0.21
|
|
|
Third Quarter
|
|
|
0.65
|
|
|
|
0.30
|
|
|
Fourth Quarter
|
|
|
0.52
|
|
|
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2019:
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.72
|
|
|
$
|
0.25
|
|
|
Second Quarter
|
|
|
0.68
|
|
|
|
0.30
|
|
|
Third Quarter
|
|
|
0.48
|
|
|
|
0.23
|
|
|
Fourth Quarter
|
|
|
0.33
|
|
|
|
0.18
|
|
Listing
Our common stock is currently quoted on the
OTCPink Marketplace operated by OTC Markets Group Inc. (the “OTCPink”) under the trading symbol “VIVK”. We
have applied to list our common stock on the Nasdaq Capital Market under the symbol “VIVK”.
Immediately following the
offering, we expect to have one class of common stock outstanding. As of April 1, 2021, there were approximately 479
registered holders of record of our common stock, and the last reported sale price of our common stock on the OTCPink was $0.39 per share on April 1, 2021. OTCPink does not constitute an established
public trading market. Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
Dividend Policy
To date, we have not paid any dividends
on our common stock and do not anticipate paying any dividends in the foreseeable future. The declaration and payment of dividends
on the common stock is at the discretion of our Board of Directors and will depend on, among other things, our operating results,
financial condition, capital requirements, contractual restrictions or such other factors as our Board of Directors may deem relevant.
We currently expect to use all available funds to finance the future development and expansion of our business and do not anticipate
paying dividends on our common stock in the foreseeable future.
CAPITALIZATION
The following table sets forth our consolidated
cash and capitalization as of December 31, 2020.
Such information is set forth on the following basis:
|
|
·
|
on
a pro forma basis after giving effect to the conversion of all of our preferred stock
outstanding immediately prior to this offering into 53,198,006 shares of common
stock; and
|
|
|
·
|
on
a pro forma as adjusted basis, giving further effect to the sale by us of shares
of common stock in this offering at an estimated offering price of $
per share, which is the midpoint of our bona fide estimated price range of $
to $ , after deducting underwriting
discounts and commissions and estimated offering expenses.
|
The information below is illustrative only
and our capitalization following the completion of this offering will be adjusted based on the actual public offering price and
other terms of this offering determined at pricing. You should read this table together with “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and our audited and unaudited consolidated financial statements
and the related notes appearing elsewhere in this prospectus.
|
|
|
Actual
|
|
|
Pro Forma As Adjusted
(unaudited)
|
|
|
As Adjusted
(unaudited)
|
|
|
Cash and marketable securities
|
|
$
|
4,415,855
|
|
|
$
|
4,415,855
|
|
|
$
|
|
|
|
Total liabilities
|
|
|
16,251,466
|
|
|
|
16,251,466
|
|
|
|
|
|
|
Temporary equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable, convertible preferred stock, $0.01 par
value; 348,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B- 12.5%, cumulative, 6,507,492 and 21,251,890
issued and outstanding as of December 31,2020 and 2019;
|
|
|
1,301,500
|
|
|
|
0
|
|
|
|
|
|
|
Series B-1- 14,031,834 and 22,758,670 issued and outstanding
as of December 31, 2020 and 2019;
|
|
|
3,507,981
|
|
|
|
0
|
|
|
|
|
|
|
Series C-1- 7,658,680 and 13,384,760
issued and outstanding as of December 31, 2020 and 2019
|
|
|
4,550,977
|
|
|
|
0
|
|
|
|
|
|
|
Total temporary equity
|
|
|
9,360,458
|
|
|
|
0
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 102,000,000 shares authorized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A, 2,000,000 shares issued and outstanding as of December 31,
2020;
|
|
|
2,000
|
|
|
|
0
|
|
|
|
|
|
|
Common stock, $.001 par value; 1,250,000,000 shares
authorized; 337,679,020 and 285,343,964 were issued and outstanding as of December 31, 2020 and 2019 on an actual and pro-forma
adjusted basis, respectively
|
|
|
337,679
|
|
|
|
390,877
|
|
|
|
|
|
|
Additional paid in capital
|
|
|
45,294,790
|
|
|
|
54,604,050
|
|
|
|
|
|
|
Treasury Stock, at cost
|
|
|
(20,000
|
)
|
|
|
(20,000
|
)
|
|
|
|
|
|
Accumulated deficit
|
|
|
(30,204,992
|
)
|
|
|
(30,204,992
|
)
|
|
|
|
|
|
Total Vivakor, Inc. stockholders’ equity
|
|
|
15,409,477
|
|
|
|
24,769,935
|
|
|
|
|
|
|
Equity attributed to noncontrolling interests
|
|
$
|
1,279,089
|
|
|
$
|
1,279,089
|
|
|
|
|
|
|
Total Stockholders’ equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capitalization
|
|
$
|
16,688,566
|
|
|
$
|
26,049,024
|
|
|
|
|
|
Each $0.10
increase or decrease in the estimated public offering price of $
per share would increase or decrease, as applicable, our cash, additional paid-in capital, total stockholders’ equity
and total capitalization by approximately $ million, assuming that the number
of shares offered by us remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering
expenses payable by us. Each increase or decrease of 1,000,000 shares to the shares offered by us in the offering would increase
or decrease the amount of our cash and total stockholders’ equity by approximately $
million, assuming a public offering price of $ per share, after deducting
estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The above discussion and table is based
on 390,877,026 outstanding shares of common stock as of December 31, 2020 after taking into account the conversion of all of our
preferred stock outstanding immediately prior to this offering into 53,198,006 shares of common stock, and excludes:
|
|
·
|
436,800 shares of common stock issuable upon the conversion of $81,696
of various convertible notes payable that convert at a range between $0.10 and $0.25;
|
|
|
|
|
|
|
·
|
1,113,750 shares of common stock issuable upon the conversion of $445,500
of certain convertible bridge notes that may be converted into common stock at the lesser of $0.40 or a discount of 20% to
the offering price or repaid with the proceeds from this offering;
|
|
|
|
|
|
|
·
|
1,131,020 shares of common stock issuable upon the conversion of $452,408
of certain convertible bridge notes that may, at the option of the Company, be converted into common stock at a discount of
20% to the offering price or repaid with the proceeds from this offering;
|
|
|
|
|
|
|
·
|
60,000,000 shares of common stock reserved for future issuance under the
new Vivakor Inc. 2020 Equity Incentive Plan (the “Vivakor 2021 Plan”) we intend to adopt immediately prior to
this offering (including 500,000 shares to be issued to a former employee, and options to purchase 5,000,000 shares to be
issued to Matthew Nicosia, our Chief Executive Officer, pursuant to his employment agreement, all in the form of stock options
that will be issued under the Vivakor 2021 Plan);
|
|
|
|
|
|
|
·
|
Non-statutory options to purchase 14,000,000 shares of common stock issued for
services, including 10,000,000 options to purchase common stock issued to LBL Professional Consulting, Inc., and 4,000,000 options
to purchase common stock issued to the Board of Directors (Al Ferraro, Trent Staggs, Joseph Spence, and Matthew Balk); and
|
|
|
|
|
|
|
·
|
Any shares that may be issuable in exchange for LLC units of Vivaventures Royalty II LLC and/or Vivaventures Opportunity Fund pursuant to the respective operating agreements of such entities, as described in this prospectus.
|
Prior to the consummation of this offering,
we expect to effect a -for-
reverse stock split of our issued and outstanding common stock (the “Reverse Stock Split”). No fractional shares of the Company’s
common stock will be issued as a result of the Reverse Stock Split. Any fractional shares resulting from the Reverse Stock Split will
be rounded up to the nearest whole share.
Unless otherwise stated, all information in this prospectus assumes:
|
|
·
|
the automatic conversion of all outstanding shares
of our Series A, Series B, Series B-1 and Series C-1 convertible preferred stock into an aggregate of 52,848,964 shares of common
stock, the conversion of which will occur immediately prior to the consummation of this offering.
|
|
|
·
|
no exercise of the underwriters’ over-allotment option to purchase
additional shares;
|
|
|
·
|
no exercise of the warrants to be issued to the
representative of the underwriters in connection with this offering as described in the “Underwriting — Representative’s
Warrants” section of this prospectus; and
|
|
|
·
|
the completion of the Reverse Stock Split.
|
DILUTION
If you invest in our securities, your ownership
interest will be diluted immediately to the extent of the difference between the public offering price per share you pay in this
offering and the as adjusted net tangible book value per share of common stock immediately following this offering.
Net tangible book value per common share
represents the amount of our total tangible assets less total liabilities, divided by the number of shares of common stock outstanding.
Our net tangible book value as of December 31, 2020 was approximately $8,014,828 or $0.71 per share of common stock, based
upon 337,679,020 shares of common stock outstanding.
Our pro forma net tangible book value
as of December 31, 2020 was approximately $8,014,828, or $0.21 per share of common stock. Pro forma net tangible book value
per share represents the amount of our total tangible assets less our total liabilities, divided by the number of shares of our
common stock outstanding, as of December 31, 2020, after giving effect to the conversion of all of our preferred stock outstanding
immediately prior to this offering into 53,198,006 shares of common stock.
After giving effect to the sale of shares
of common stock in this offering, at the estimated offering price of $
per share, which is the midpoint of our bona fide estimated price range of $
to $ , and after deducting the underwriting
discount and commission and our estimated offering expenses, our as adjusted net tangible book value as of December 31, 2020
would have been $ or $
per share. This represents an immediate increase in net tangible book value (deficit) of $
per share to existing stockholders and an immediate dilution of $
per share to new investors purchasing shares in the offering. If the public offering price is higher or lower than the estimated
public offering price, the dilution to new investors will be greater or lower, respectively.
The following table illustrates this per
share dilution:
|
Estimated public offering price per share
|
|
|
|
|
|
$
|
|
|
|
Net tangible book value per share
|
|
$
|
0.024
|
|
|
|
|
|
|
Decrease per share due to the conversion of all shares of preferred stock
|
|
|
0.003
|
|
|
|
|
|
|
Pro forma net
tangible book value per share as of December 31, 2020
|
|
|
0.021
|
|
|
|
|
|
|
Increase in net tangible book value per share attributable to new investors
|
|
|
|
|
|
|
|
|
|
Pro forma as adjusted net tangible book value per share after this offering
|
|
|
|
|
|
|
|
|
|
Dilution in net tangible book value per share to new investors
|
|
|
|
|
|
$
|
|
|
If the underwriter’s overallotment
option is exercised in full, the pro forma as adjusted net tangible book value following the offering will be $ per share, and
the dilution to new investors in the offering will be $ per share.
A $0.10 increase (decrease) in the
estimated public offering price of $ per share would
result in an incremental increase (decrease) in our pro forma as adjusted net tangible book value of approximately $
million or approximately $ per share, and would result
in an incremental increase (decrease) in the dilution to new investors of approximately $
per share, assuming that the number of shares of our common stock sold by us in this offering remains the same, and after deducting
the underwriting discounts and commissions and estimated offering expenses payable by us.
We may also increase or decrease the number
of shares of common stock we are offering in this offering. An increase (decrease) of 1,000,000 shares in the estimated number
of shares of common stock sold by us in this offering would result in an incremental increase (decrease) in our as adjusted net
tangible book value of approximately $ million, or approximately $
per share, and would result in an incremental increase (decrease) in the dilution to new investors of $
per share, assuming that the estimated public offering price of the common stock remains the same and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable by us.
The information above is based on 390,877,026
outstanding shares of common stock as of December 31, 2020 after taking into account the conversion of all of our preferred stock
outstanding immediately prior to this offering into 53,198,006 shares of common stock, and excludes:
|
|
·
|
436,800 shares of common stock issuable upon the conversion of $81,696 of various convertible
notes payable that convert at a range between $0.10 and $0.25;
|
|
|
|
|
|
|
·
|
1,113,750 shares of common stock issuable upon the conversion of $445,500 of certain convertible
bridge notes that may be converted into common stock at the lesser of $0.40 or a discount of 20% to the offering price or
repaid with the proceeds from this offering;
|
|
|
|
|
|
|
·
|
1,131,020 shares of common stock issuable upon the conversion of $452,408 of certain convertible
bridge notes that may, at the option of the Company, be converted into common stock at a discount of 20% to the offering price
or repaid with the proceeds from this offering;
|
|
|
|
|
|
|
·
|
60,000,000 shares of common stock reserved for future issuance
under the new Vivakor Inc. 2020 Equity Incentive Plan (the “Vivakor 2021 Plan”) we intend to adopt immediately
prior to this offering (including 500,000 shares to be issued to a former employee, and options to purchase 5,000,000 shares
to be issued to Matthew Nicosia, our Chief Executive Officer, pursuant to his employment agreement, all in the form of stock
options that will be issued under the Vivakor 2021 Plan);
|
|
|
|
|
|
|
·
|
Non-statutory options to purchase 14,000,000 shares of common stock issued for services,
including 10,000,000 options to purchase common stock issued to LBL Professional Consulting, Inc., and 4,000,000 options to
purchase common stock issued to the Board of Directors (Al Ferraro, Trent Staggs, Joseph Spence, and Matthew Balk).
|
|
|
|
|
|
|
·
|
Any shares that may be issuable in exchange for LLC units of Vivaventures Royalty II LLC and/or Vivaventures Opportunity Fund pursuant to the respective operating agreements of such entities, as described in this prospectus.
|
Prior to the consummation of this offering,
we expect to effect a -for-
reverse stock split of our issued and outstanding common stock (the “Reverse Stock Split”). No fractional shares of the Company’s
common stock will be issued as a result of the Reverse Stock Split. Any fractional shares resulting from the Reverse Stock Split will
be rounded up to the nearest whole share.
Unless otherwise stated, all information in this prospectus assumes:
|
|
·
|
the automatic conversion of all outstanding shares
of our Series A, Series B, Series B-1 and Series C-1 convertible preferred stock into an aggregate of 52,848,964 shares of common
stock, the conversion of which will occur immediately prior to the consummation of this offering.
|
|
|
·
|
no exercise of the underwriters’ over-allotment option to purchase
additional shares;
|
|
|
·
|
no exercise of the warrants to be issued to the
representative of the underwriters in connection with this offering as described in the “Underwriting — Representative’s
Warrants” section of this prospectus; and
|
|
|
·
|
the completion of the Reverse Stock Split.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis
of the financial condition and results of our operations should be read in conjunction with the “Summary Statements of Operations
Data” and our consolidated financial statements and the notes to those statements appearing elsewhere in this prospectus.
This discussion and analysis contains forward-looking statements reflecting our management’s current expectations that involve
risks, uncertainties and assumptions. Our actual results and the timing of events may differ materially from those described in
or implied by these forward-looking statements due to a number of factors, including those discussed below and elsewhere in this
prospectus particularly on page 11 entitled “Risk Factors”.
Overview
Vivakor, Inc. is a socially responsible
operator, acquirer and developer of clean energy technologies and environmental solutions, primarily focused on soil remediation.
We specialize in the remediation of soil and the extraction of hydrocarbons, such as oil, from properties contaminated by or laden
with heavy crude oil and other hydrocarbon-based substances.
Plan of Operation
We are focused on the remediation of contaminated
soil and water resulting from either man-made spills or naturally occurring deposits of oil. Our primary focus has been the remediation
of oil spills resulting from the Iraqi invasion of Kuwait and naturally occurring oil sands deposits in the Uinta basin located
in Eastern Utah. We plan to expand into other markets, both in Utah and globally, where we believe our technology and services
will provide a distinct competitive advantage over our competition.
We have historically suffered net losses,
including net losses of approximately $2,183,697 and $2,159,242 for the years ended December 31, 2020 and 2019, respectively. We
had an accumulated deficit of $30,204,992 as of December 31, 2020.
We will need to raise additional capital in order to scale up
production and deployment of our RPCs. We may continue to sell our equity investments that are traded in an active market to raise
capital, as well as our precious metal concentrate, assuming there is demand and we are able to negotiate acceptable contract terms.
We may need to raise additional capital through loans from current stockholders, public or private equity or debt offerings, grants,
or strategic arrangements with third parties. There can be no assurance that additional capital will be available to us on acceptable
terms, or at all. If we are not able to obtain additional financing on a timely basis, we may be required to scale down or perhaps
even cease the operation of our business. The issuance of additional equity securities could result in a significant dilution in
the equity interests of our stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our
liabilities and future cash commitments. If we are unable to raise additional capital, we will need to adjust our current business
plan.
We have no material commitments or contractual purchase obligations
for the next twelve months.
Working Interest Agreements
To assist in the funding for the manufacture
of our first two RPCs, between 2015 and 2017, we entered into working interest agreements with Vivaventures UTSI LLC (“VV
UTSI”) and Vivaventures Royalty II LLC (“VV RII”), respectively, pursuant to which VV UTSI and VV RII purchased
revenue participation rights and working interest payables in exchange for payments to us of $5 million and $8 million, respectively.
VV UTSI and VV RII are investment limited liability companies that are pass through entities to individual investors that have
purchased Class B Units in these entities. The working interest agreements require us to make quarterly payments to VV UTSI and
VV RII equal to 25% of the gross revenues that we generate from our RPCs for such quarter for 20 years after operations commence.
The investors in these entities are entitled to receive their pro rata portion of these payments. These agreements also require
us to make working interest budget payments to VV UTSI and VV RII, which are accounted for as a working interest payable. The
working interest payable is paid down through pass-through expenses or cash according to the contract. The agreements give each
of VV UTSI and VV RII a security interest in all of our collateral, including a security interest in 20 million shares of our
common stock; the security interest in VV UTS1 has been released. Holders of VV RII Class B Units have the right to exchange their
Class B Units for our common stock any time after the one year anniversary of their date of purchase and before the date that
is 10 years and six months after the date they purchased their Class B Units. The number of shares of our common stock to be issued
upon exchange will be determined by the fair market value of the LLC units and the discount to market ranging from between 5%
and 20% depending on the year of exchange. The working interest agreements with VV UTSI and VV RII are accounted for as debt.
For further information on these working interest agreements, see Note 16 in the Notes to the Audited Consolidated Financial Statements.
In 2016 and 2017, the VV UTSI investors were issued an aggregate of 3,390,000 shares of our Series B-1 Preferred Stock, with
a relative fair value of $0.25 per share at the time of issuance as additional consideration for their original investment.
The Company also issued 3,185,000 common stock purchase warrants to these investors. The relative fair value of the warrants
and the Series B-1 preferred stock in aggregate was $1,488,550, and was recorded as a debt discount, which is amortized to interest
expense over the term of the working interest agreements using the effective interest method. The Company issued an additional
768,160 shares of Series C-1 Preferred Stock to these investors in order to compensate them for our first RPC unit having
been taken offline in May 2018 to be shipped to Kuwait for remediation services. We anticipate commencing estimated annual
payments of $1,769,000 late in 2021 under the terms of these agreements based on revenue projections for the RPCs.
VV UTSI is a Nevada limited liability
company, managed by Vivaventures Management Company, Inc., a Nevada corporation, a wholly owned subsidiary of Vivakor, Inc. (“VVMCI”).
VV UTSI is authorized to issue 1,001,000 units, of which 1,000 Units are designated Class A Units, and 1,000,000 Units are designated
Class B Units, subject to increase and/or designation of new classes pursuant to the authority of the Manager, as approved by a
majority in interest of the holders of Class A Units. VVMCI is the holder of all 1,000 Class A Units. Class B Units have the same
economic rights as the Class A Units, but Class B Units do not have voting rights, except as is required pursuant to the Nevada
Revised Statutes. Capital accounts are maintained for the members and, subject to certain adjustment provisions VV UTSI’s
LLC Agreement, net income, net loss and nonrecourse deductions attributable to operations of VV UTSI will be allocated among members
in accordance with their percentage interests. VV UTSI cannot require members to make additional capital contributions. Except
as may be provided in VV UTSI’s LLC agreement, no member may withdraw any portion of the capital of the VV UTSI, and no member
will be entitled to the return of its contribution to the capital of the VV UTSI except upon dissolution of the VV UTSI in accordance
with the dissolution provisions of VV UTSI’s LLC agreement. Subject to certain special allocation provisions of VV UTSI’s
LLC agreement, all income, gains, losses, deductions and credits of VV UTSI will be allocated for federal, state and local income
tax purposes in accordance with the allocations of net income and net loss, and cash will be distributed by the VV UTSI Manager
in accordance with VV UTSI’s LLC agreement to the Members, including for payment of accrued taxes. Assignment or transfer
of VV UTSI membership interests is prohibited, except as expressly permitted in VV UTSI’s LLC agreement, including in connection
with estate planning. Rights of first refusal are available, first to VV UTSI, and then to VV UTSI’s other membership interests,
in the event a VV UTSI member desires to sell VV UTSI Units.
VV RII is a Nevada limited liability
company, managed by VVMCI. VV RII is authorized to issue 1,001,000 units, of which 1,000 Units are designated Class A Units, and
1,000,000 Units are designated Class B Units, subject to increase and/or designation of new classes pursuant to the authority of
the Manager, as approved by a majority in interest of the holders of Class A Units. VVMCI is the holder of all 1,000 Class A Units.
Class B Units have the same economic rights as the Class A Units, but Class B Units do not have voting rights, except as is required
pursuant to the Nevada Revised Statutes.
Upon purchasing Class B Units, such VV
RII member was issued a conversion option to purchase shares of Vivakor common stock (the “VV RII Conversion Option”).
The VV RII Conversion Option is exercisable at any time during the period beginning on the first anniversary of the date
of purchase of the VV RII Class B Units until the date that is five years and six months from the date of purchase of the VV RII
Class B Units. Upon exercise of the VV RII Conversion Option, such member will convert all of his remaining value of the
revenue participation rights into Vivakor Common Stock, and such member would cancel all of his remaining VV RIII Class B Units.
The purchase price of the VV RII Conversion Option shall be the original purchase price of the Class B Units adjusted for
the number of years it was held by such member. The twenty-year term of the revenue participation right begins on the date an
extraction machine funded by VV RII is placed into production. The amortization of member participation rights will be on a straight-line
basis. Pursuant to the VV RII Conversion Option, the exercise price will be based on a discount to market for Vivakor Common
Stock based on a minimum conversion price that will not be lower than 200% of the per share price of the Company common stock
sold in an underwritten offering pursuant to the Company becoming listed on a senior stock exchange (i.e. The Nasdaq Capital Market
or New York Stock Exchange).
Capital accounts are maintained for
the members and, subject to certain adjustment provisions VV RII’s LLC Agreement, net income, net loss and nonrecourse deductions
attributable to operations of VV RII will be allocated among members in accordance with their percentage interests. VV RII cannot
require members to make additional capital contributions. Except as may be provided in VV RII’s LLC agreement, no member
may withdraw any portion of the capital of the VV RII, and no member will be entitled to the return of its contribution to the
capital of the VV RII except upon dissolution of the VV RII in accordance with the dissolution provisions of VV RII’s LLC
agreement. Subject to certain special allocation provisions of VV RII’s LLC agreement, all income, gains, losses, deductions
and credits of VV RII will be allocated for federal, state and local income tax purposes in accordance with the allocations of
net income and net loss, and cash will be distributed by the VV RII Manager in accordance with VV RII’s LLC agreement to
the Members, including for payment of accrued taxes. Assignment or transfer of VV RII membership interests is prohibited, except
as expressly permitted in VV RII’s LLC agreement, including in connection with estate planning. Rights of first refusal are
available, first to VV RII, and then to VV RII’s other membership interests, in the event a VV RII member desires to sell
VV RII Units.
In 2018 we formed RPC Design
and Manufacturing LLC (“RDM”) which assisted in the manufacture of our second RPC and will continue to assist in the
manufacture of our RPCs going forward. A majority of the LLC units of RDM are owned by Vivaopportunity Fund LLC (“VOF”).
VOF is an investment limited liability company that is a pass through entity to individual investors that have purchased Class
B Units in this entity. VOF is allocated its portion of cash distributions, net income, and net loss based on its ownership percentage
in RDM, which it then passes on to its investors. Holders of Class B Units of VOF have the right to exchange their Class B Units
for our common stock following the 10 year anniversary of the date they purchased their Class B Units. The number of shares of
our common stock to be issued upon exchange will be determined by the fair market value of the LLC units, and a 20% discount to
market. RDM is considered a variable interest entity and is consolidated in our Consolidated Financial Statements.
VOF is a Utah limited
liability company, managed by VVMCI. Members have the right to vote on the removal of the VOF Manager as provided in the operating
agreement and admission of the Manager or election to continue the business of the Company after the Manager ceases to be the Manager
when there is no remaining Manager. Capital accounts are maintained for the members and, subject to certain adjustment provisions
VOF’s operating agreement, net income, net loss and nonrecourse deductions attributable to operations of VOF will be allocated
among members in accordance with their percentage interests. VOF cannot require members to make additional capital contributions.
Except as may be provided in VOF’s LLC agreement, no member may withdraw any portion of the capital of the VOF, and no member
will be entitled to the return of its contribution to the capital of the VOF except upon dissolution of the VOF in accordance with
the dissolution provisions of VOF’s LLC agreement. Subject to certain special allocation provisions of VOF’s LLC agreement,
all income, gains, losses, deductions and credits of VOF will be allocated for federal, state and local income tax purposes in
accordance with the allocations of net income and net loss, and cash will be distributed by the VOF Manager in accordance with
VOF’s LLC agreement to the Members, including for payment of accrued taxes. Assignment or transfer of VOF membership interests
is prohibited, except as expressly permitted in VOF’s LLC agreement, including in connection with estate planning. Rights
of first refusal are available, first to VOF, and then to VOF’s other membership interests, in the event a VOF member desires
to sell VOF Units.
On December 31,
2021, VOF Members will have the right to convert their Units into shares of common stock of Vivakor, at the price of the Units
determined by the VOF Manager to be the fair market value based on the amount that the VOF Members would have received if VOF’s
assets were sold on the Conversion Determination Date, all VOF liabilities paid and the remaining amount distributed to the VOF
Members and Manager in accordance with the terms of the VOF Operating Agreement. Each VOF Member will have 30 days from receipt
of the such conversion fair market value to provide written notice to VOF of the Member’s election to exercise the such conversion
right. Within 15 days after the expiration of the 30-day period described above (the “Conversion Closing Date”), Members
who delivered a conversion notice will have their Units converted into shares of Vivakor Common Stock. The number of shares of
Vivakor Common Stock to be issued upon conversion of the Units will be based on the 30-day average share price of Vivakor’s
Common Stock for the 30-day period immediately preceding the Conversion Closing Date, discounted by 10%. All conversions must comply
with all state and federal securities laws and requirements. As of the day following the Conversion Closing Date,
Vivakor will have the right to purchase any Units owned by Members who did not exercise their Conversion Right. Within 15 days
of the Conversion Closing Date, Vivakor will provide the Members with written notice of its election to exercise the Call Option.
The fair market value for the Units will be equal to the Conversion FMV. The purchase of Units to be acquired pursuant to the Call
Option must be made within 30 days of the Conversion Closing Date (the “Call Option Closing Date”). At any time following
10 years after December 31, 2021, the Manager will have the right (the “Call Right”), in its sole discretion, to require
all of the Members to sell their Units to a third-party purchaser pursuant to a sale, transfer, assignment, exchange or other disposition
(a “Call Right Transfer”), which the Manager believes is in the best interest of VOF or to provide or increase certain
tax benefits. If the Manager elects to exercise the Call Right, the Manager will send a written notice to each Member specifying
the terms of the Call Right Transfer and the date on which the closing is anticipated to occur (the “Call Right Closing”),
which date will not be earlier than 10 business days nor later than 60 business days from the date that such notice is delivered
to the Members. At the Call Right Closing, upon payment of the purchase price to the Members, each Member will transfer and assign
to the purchaser all of its Units free and clear of any encumbrances and execute and deliver any and all documentation reasonably
required in order to effectuate the Call Right Transfer of the Units. Each of the Members must grant to the Manager a special
power of attorney to take all action as may be necessary or appropriate to transfer or sell such Member’s Units in accordance
with the terms of the Operating Agreement.
RDM and Vivakor are
party to that certain Venture Agreement (the “Venture Agreement”), pursuant to which it is anticipated that RDM will
contribute $7,000,000, the gross proceeds from the offering of equity interests (the “Venture Offering”) in the entity
established pursuant to the Venture Agreement (the “Venture”), in exchange for ownership interest in the Venture based
on the units of equipment funded by the Venture Offering and the divided by the total number of units of equipment being leased
or financed for sale by the Venture, if the maximum Venture Offering amount is raised. The manager of the Venture will be Vivakor
or one of its subsidiaries or affiliates as it shall designate in writing, and has the authority to manage and control all aspects
of the business of the Venture. Cash from operations from the Venture will be distributed at 25% of gross revenue from the lease
or sale of the unit of equipment funded by the Venture Offering and 75% to the Venture’s Manager. The Venture’s Manager
and its Affiliates will be reimbursed for all reasonable expenses advanced by the Venture’s Manager or its Affiliates in
connection with the Venture Offering and operation of the Venture’s business. A Venture member may not sell, mortgage, hypothecate
or assign its membership interest without the prior written consent of the Venture’s Manager. The Venture Agreement may be
amended or modified with the written consent of both the Manager of the Venture and RDM. To raise additional capital in the future
to expand the Venture’s business and manufacture additional equipment, the Venture intends to issue and sell additional membership
interests to other Qualified Opportunity Funds or other investors. In the event additional membership interests are sold to raise
additional capital, the book value of the Venture’s assets will be adjusted to their fair market value, and the additional
membership interests will be priced correspondingly. As a result, an investor’s ownership interest in the Venture will be
diluted. In addition, it is possible that the future investors will become co-managers of the Venture and may have a right to co-manage
the Venture.
In November 2020, the Company assisted
in forming a special purpose entity, Viva Wealth Fund I, LLC (“VWFI”), for the purpose of manufacturing, leasing and
selling custom equipment to the Company. Wealth Space, LLC, an unaffiliated entity, will manage VWFI and the Company will assist
in the day-to-day operations. In November 2020, VWFI commenced a $25,000,000 private placement offering to sell convertible promissory
notes, which convert to VWFI LLC units, to accredited investors to raise funds to manufacture equipment that will expand the Company’s
second RPC. VWFI has contracted with RDM to assist it in its manufacturing needs for the Company. In the event that VWFI does
not raise at least $6,250,000 by the offering termination date, then the convertible notes and/or units would convert into Vivakor
common stock at a minimum conversion price that will not be lower than 200% of the per share price of the Company common stock
sold in an underwritten offering pursuant to the Company becoming listed on a senior stock exchange (i.e. The Nasdaq Capital Market
or New York Stock Exchange). VWFI unit holders may also sell their units to the Company for their principal investment amount
on the 3rd, 4th, and 5th anniversary of the offering termination date. The Company has the option
to use cash or common stock to purchase the LLC units if this option is exercised. If the Company chooses to pay in common stock,
the number of shares the LLC unit holder will receive will be based on the price that is the greater of $0.45 per share or the
30-day average share price of the Company’s common stock (determined on the 30 days prior to the conversion determination
date) discounted by 10%. The Company also has the option to purchase any LLC units where the members did not exercise their conversion
option under the same terms and pricing. Any of the Company’s common stock received in any manner related to this offering
will carry a trade restriction for a period of two years after the date of sale, in which the holder of the common stock will
not, in any 90-day period, sell a greater number of shares than 10% of the 10-day average trading volume at the time of the proposed
sale. If the Company undertakes an underwritten public offering of stock, each holder of this restriction will be required to
comply with a six-month market stand-off agreement. VWFI raised $735,000 for the year ended December 31, 2020.
COVID-19
On March 11, 2020, the World Health Organization
(“WHO”) declared the COVID-19 outbreak to be a global pandemic. In addition to the devastating effects on human life,
the pandemic is having a negative ripple effect on the global economy, leading to disruptions and volatility in the global financial
markets. Most U.S. states and many countries have issued policies intended to stop or slow the further spread of the disease.
Our Kuwait operations have been suspended
to comply with the social distancing measures implemented in Kuwait. Our Utah operations were temporarily suspended from March
through May 2020, but have since resumed in full. These suspensions have had a negative impact on our business and there can be
no guaranty that we will not need to suspend operations again in the future as a result of the pandemic.
COVID-19 and the U.S. response to the pandemic
are significantly affecting the economy. There are no comparable events that provide guidance as to the effect the COVID-19 pandemic
may have in the long-term, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We
do not yet know the full extent of the effects on the economy, the markets we serve, our business, or our operations.
Results of Operations
The following discussion and analysis
of our financial condition and results of operations should be read in conjunction with our financial statements and related notes
included elsewhere in this prospectus. Material changes in our Statement of Operations for the years ended December 31, 2020
and 2019 are discussed below.
Revenue
For the years ended December 31, 2020
and 2019 we realized revenues of $1,457,781 and none, respectively. We realized precious metal sales from our business plan of
buying and selling precious metal commodities on the open market of $1,406,316 for the year ended December 31, 2020. These precious
metals having been acquired for immediate resale, with the Company acting as intermediary and never keeping an inventory of precious
metals. We also realized revenues of $54,250 for the sale to a related party of our precious metal concentrate produced
from our own precious metal extraction operations. We also received a payment of $6,000 pursuant to our Kuwait contract for
remediation services as described above, and we also made a sale of $7,735 of extracted test material from our RPCII located in
Utah. For the year ended December 31, 2019 we had not yet completed our Kuwait or Utah RPC site infrastructure or implemented
our business plan to buy and sell precious metals on the open market and as such there were no precious metal sales during this
period.
Cost of Revenue
Our cost of revenues consisted primarily
of costs associated with selling our precious metals on the open market and precious metal commodity broker fees.
Our costs of revenue increased from
none for the year ended December 31, 2019 to $1,356,378 for the year ended December 31, 2020. The increase in the cost of
revenue directly relates to costs associated with selling our precious metals on the open market and precious metal commodity
broker fees.
Gross Profit and Gross Margin
For the year ended December 31, 2020
and 2019 we realized gross profit of $101,403 and $0, respectively. The gross profit increased in proportion to the revenue
and costs of revenue related to the purchase and sale of precious metals as described above.
Our gross margin will continue to be affected
by a variety of factors that include the market prices of precious metals, the volume hydrocarbons produced by our RPC units, the
number of RPC units placed into production, and our ability to raise capital to continue to fund our operations and RPC unit manufacturing.
Operating Expenses
Our operating expenses consist primarily
of marketing, general and administrative expenses, bad debt expense, and amortization and depreciation expense. Marketing expenses
include marketing fees of company representatives for marketing the business and is products and services as well as investor customer
service. General and administrative expenses include professional services and legal fees associated with the costs for services
in finance, accounting, administrative activities and the formation and compliance of a public company. Bad debt expense includes
the expense associated with assets that management analyses and estimates may be uncollectible. Amortization and depreciation expense
uses the useful life of the asset to calculate the amortization or depreciation expense in accordance with accounting principles
generally accepted in the United States of America ("GAAP") and management’s judgment.
Overall operating expenses increased
by $2,646,614, or 114.91%, from the year ended December 31, 2019 to the year ended December 31, 2020. Our operating expenses increased
in 2020 due to the fact that we were no longer receiving any contribution to our expenses from VV USTI or VV RII under the terms
of our Working Interest Agreements as we did in the prior period, we organized and commenced operations of VWFI, and we have added
significant professional service expenses in regards to audit, tax, and legal expense in relation to our registration statement,
its amendments, and in preparing this offering, including our preparations for an uplist of our common stock to a senior stock
exchange.
Loss from Operations
Our loss from operations increased
from a loss of $2,303,181 for the year ended December 31, 2019 to a loss of $4,848,392 for the year ended December 31, 2020, an
increase in loss of $2,545,211, or 110.51%. The increase in loss is attributed to the increase in operating expenses discussed
above.
Interest income and expense
Interest income was $73,761 for the
year ended December 31, 2019 and $35,344 for the year ended December 31, 2020, a decrease of $38,417, or 52.08%. The decrease
in interest income is mainly attributed to the conversion of the Odyssey note as described below.
Interest expense was $9,288 for year
ended December 31, 2019 and $86,162 for the year ended December 31, 2020, an increase of $76,874, or 827.67%. The increase
in interest expense is mainly attributable to our entering into loans and notes payable to cover operating expenses during the
COVID-19 pandemic, which temporarily suspended our operations in Utah and continues to suspend our operations in Kuwait.
Gain on extinguished debt
For the year ended December 31, 2019,
we recorded a gain on extinguishment of debt in the amount of $607,536. In March 2019 we settled outstanding debt with an
aggregate principal and accrued interest balance of $632,850 in exchange for 2,531,400 shares of Odyssey common stock that we
owned, and which were accounted for on a cost basis of approximately $25,000.
Unrealized gain (loss) on marketable
securities
For the year ended December 31,
2020, we recorded an unrealized gain on marketable securities in the amount of $2,614,338. We hold an equity investment in
the common stock of Odyssey Group International, Inc. (Ticker: ODYY, OTC Markets), which was accounted for at cost minus
impairment for the year ended December 31, 2019 due to the securities not being traded in an active market. In January 2020,
the securities were considered to be traded on an active market and were accounted for at a fair value based on the quoted
prices in the active markets resulting in the unrealized loss of $56,198 for the year ended December 31, 2020. We also hold
an equity investment in the common stock of Scepter Holdings, Inc. (Ticker: BRZL, OTC Markets), which was accounted for as an
equity method investment for the year ended December 31, 2019 due to the Company owning holdings of approximately 23% of
Scepter on a diluted basis. For the year ended December 31, 2020 the Company was diluted to an approximate 19% holding of
Scepter on a diluted basis, and thereby these securities were accounted for at a fair value based on the quoted prices in the
active markets resulting in the unrealized gain of $2,670,536 for the year ended December 31, 2020.
Loss on conversion of note receivable
For the year ended December 31, 2020,
we recorded a loss on a conversion of note receivable in the amount of $121,428. In September 2020 we converted $809,578 of
our note receivable with Odyssey into 809,578 shares of Odyssey common stock pursuant to the terms of the note at $1.00 per share.
On the date of the conversion, the Odyssey price per share on OTC Markets was $0.85 per share, which resulted in a $121,428 loss
on the disposition of the note receivable.
Provision for income
tax
The Company
recorded income tax provision of $466,964 and $589,203 for the years ended December 31, 2020 and 2019, respectively. The Company’s
effective tax rate for 2020 and 2019 was -21.96% and -35.94%, which was the result of the benefit of book losses offset by
an additional valuation allowance on the net operating losses.
Cash flows
The following table sets forth the primary
sources and uses of cash and cash equivalents for the years ended December 31, 2020 and 2019 as presented below:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Net cash used in operating activities
|
|
$
|
(1,753,655
|
)
|
|
$
|
(195.474
|
)
|
|
Net cash used in investing activities
|
|
|
(1,227,217
|
)
|
|
|
(2,054,999
|
)
|
|
Net cash provided by financing activities
|
|
|
2,774,873
|
|
|
|
1,938,896
|
|
Liquidity and Capital Resources
We have historically suffered net losses
and cumulative negative cash flows from operations and, as of December 31, 2020, we had an accumulated deficit of approximately
$30 million.
As of December 31, 2020 and 2019, we had
cash and cash equivalents of $309,404 and $604,903, respectively.
To date we have financed our operations
primarily through debt financing, private equity offerings and our working interest agreements.
For the years ended December 31, 2020
and 2019, our net cash used in operating activities was mainly comprised of net effect of the consolidated net loss of $2,871,369
and $2,274,207, we recognized an increase in deferred tax liabilities of $466,164 and $588,403 related to our provision for income
taxes as described above, our depreciation and amortization of $1,562,662 and $1,524,274, and an increase in accounts payable
of $478,941 and $547,494 related to the building of our second RPC. For the years ended December 31, 2020 and 2019, we were also
able to issue stock for services of $281,231 and $219,597 in lieu of using cash. For the year ended December 31, 2020 we also
realized a loss of $121,428 on a conversion of a note receivable, issued stock options for services of $555,000 in lieu of using
cash, and an unrealized gain on marketable securities of $2,614,338 as described above. For the year ended December 31, 2019 material
transactions include a gain on extinguished debt of $607,536. For the year ended December 31, 2019 we also increased other assets
by $250,590, which was mainly attributed to our payment of $200,000 for the exclusive right to purchase certain real property
commonly known as Asphalt Ridge.
For the years ended December 31, 2020
and 2019, our net cash used in investing activities was mainly attributed to our purchase of equipment of $1,197,922 and $1,861,667
related to the manufacturing of our RPCs.
For the years ended December 31, 2020
and 2019, our net cash provided by our financing activities was mainly attributed to the net effect of the following events: For
the years ended December 31, 2020 and 2019, we issued $624,907 and $1,464,000 noncontrolling units of RDM, we received proceeds
of none and $2,418,142 from our working interest agreements with VV UTSI and VV RII, made payments on our working interest agreements
with VV UTSI and RII of $116,535 and $2,123,708, and we also received proceeds of $2,231,796 and $89,960 related to the issuance
of convertible bridge notes and other loans. For the year ended December 31, 2020, as included in the proceeds above, we obtained
Paycheck Protection Program loans for $295,745 that may be forgiven under the CARES Act,
if we can demonstrate that the proceeds from the loan were used for eligible expenses. We also obtained a loan from the
Small Business Administration in the amount of $299,900 in May 2020, as included in the proceeds above. For the year ended December
31, 2019, investors exercised stock warrants in the amount of $91,982.
Capitalized interest on construction
in process was $1,025,852 for the year ended December 31, 2020 and $1,061,215 for the year ended December 31, 2019. There
are no further existing firm obligations to make payments in connection with our construction in process; however, construction
for each Nanosponge costs approximately $200,000, and we intend to manufacture for and add a Nanosponge to our current and any
future RPCs.
Our ability to continue to access capital
could be affected adversely by various factors, including general market and other economic conditions, interest rates, the perception
of our potential future earnings and cash distributions, any unwillingness on the part of lenders to make loans to us and any deterioration
in the financial position of lenders that might make them unable to meet their obligations to us. If we cannot raise capital through
public or private debt financings, equity offerings, or other means, our ability to grow our business may be negatively affected.
In such case, we may need to suspend machine construction or further acquisitions until market conditions improve.
Contractual Obligations
Our contractual obligations as of December 31,
2020 are for operating lease liabilities for office and warehouse space. Operating lease obligations as of December 31,
2020 are as follows:
|
2021
|
|
$
|
276,699
|
|
|
2022
|
|
$
|
287,769
|
|
|
2023
|
|
$
|
299,466
|
|
|
2024
|
|
$
|
231,174
|
|
|
Total
|
|
$
|
1,095,108
|
|
Interest Rate and Market Risk
Our financing arrangements are not subject
to variable interest rates of the prime rate or LIBOR.
Inflation
Inflation generally will cause suppliers
to increase their rates. In connection with such rate increases, we may or may not be able to increase our pricing to consumers.
Inflation could cause both our investment and cost of revenue to increase, thereby lowering our return on investment and depressing
our gross margins.
Off Balance Sheet Arrangements
None.
Critical
Accounting Policies & Use of Estimates
Management’s Discussion and
Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements included in
this Annual Report on Form 10-K, which have been prepared in accordance with GAAP. For further information on the critical
accounting policies see Note 3 of the Notes to the Consolidated Financial Statements. The preparation of these financial
statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, sales
and expenses, and related disclosure of contingent assets and liabilities. Estimates by their nature are based on judgments
and available information. Our estimates are made based upon historical factors, current circumstances and the experience and
judgment of management. Assumptions and estimates are evaluated on an ongoing basis, and we may employ outside experts to
assist in evaluations. Therefore, actual results could materially differ from those estimates under different assumptions and
conditions. We believe our critical accounting estimates relate to the following: Recoverability of current and noncurrent
assets, revenue recognition, stock-based compensation, income taxes, effective interest rates related to long-term debt,
marketable securities, lease assets and liabilities, equity method investments, valuation of stock used to acquire assets,
and derivatives.
BUSINESS
Vivakor, Inc. is a socially responsible
operator, acquirer and developer of clean energy technologies and environmental solutions, primarily focused on soil remediation.
We specialize in the remediation of soil and the extraction of hydrocarbons, such as oil, from properties contaminated by or laden
with heavy crude oil and other hydrocarbon-based substances. Our patented process allows us to successfully recover the
hydrocarbons which we believe could then be used to produce asphaltic cement and/or other petroleum-based products.
We are focused on the remediation of contaminated
soil and water resulting from either man-made spills or naturally occurring deposits of oil. Our primary focus has been the remediation
of oil spills resulting from the Iraqi invasion of Kuwait and naturally occurring oil sands deposits in the Uinta basin located
in Eastern Utah. We plan to expand into other markets, both in Utah and globally, where we believe our technology and services
will provide a distinct competitive advantage over our competition.
Our current focus
is on the clean-up of greater than 7% hydrocarbon contaminated soil located in Kuwait as a result of the
Iraqi invasion, and naturally occurring oil sands deposits in Utah. We have deployed two RPC units to date including one unit to
Kuwait (for which operations have been temporarily suspended due to COVID-19) and another to Vernal, Utah (which is presently operating).
We expect to deploy two additional RCPs to Vernal, Utah with the proceeds from this offering and believe that there may be an opportunity
to deploy additional RPCs in Utah as well as to Kuwait and the Middle East.
Our Technologies
We own and/or license a number of technologies
that allow us to effectively operate our remediation and recovery business along with other technologies that provide synergies
with our core business. The description of these various technologies follows.
Hydrocarbon Extraction Technology
In 2015, we acquired and improved technology
aimed at remediating contaminated soil and recovering usable hydrocarbons, which we refer to as RPCs. We presently have two
US patents and pending foreign applications related to our RPCs. Our RPCs each have the potential to clean a minimum of 20
tons of contaminated material per hour, depending on the oil contamination percentage in the processed material. Each RPC has
the capacity to extract on a 24-hour operation 500 tons or more of contaminated material per day. The amount of extracted hydrocarbon
recovered depends on the extent to which the material is contaminated. For example, we estimate that for every 480 tons of contaminated
material processed per day that contains at least 10% oil, we will recover approximately 250 barrels of extracted hydrocarbons.
The above example has been calculated as follows: contaminated material that is 10% oil is comprised of 200 pounds of oil per
ton; one gallon of oil weighs 8.44 pounds, resulting in 23.69 gallons of oil per ton of contaminated material (200/8.44); there
are 42 gallons per barrel, resulting in 0.56 barrels of oil per ton of contaminated material (23.69/42); 20 tons of contaminated
material can typically be processed per hour, resulting in 11.2 barrels of oil per hour (0.56*20); and operations continue 24
hours per day, resulting in 268.8 barrels per day (11.2*24).
We believe our
RPCs are significantly more advanced than other oil remediation technologies or offerings presently available on the market. Our
RPCs have successfully cleaned contaminated soil containing greater than 7% hydrocarbon content, while, to our knowledge, our competitors
are limited to projects containing less than 5% hydrocarbon contamination. We believe our ability to clean soil with higher percentages
of hydrocarbon contamination is a distinctive advantage that will allow us to operate on a global basis in any location that has
suffered from oil spills or naturally occurring oil sands deposits. While our primary focus and mandate will be on the manufacture
and deployment of our RPCs, we intend to continue to develop, acquire or license additional clean energy technologies and environmental
solutions that will directly enhance and expand our current technologies and service offerings.
We have designed our RPCs to provide an
environmentally friendly solution to the remediation of hydrocarbon-contaminated soil, as they do not utilize water. Our RPCs operate
by loading contaminated soil onto a feeder and conveyor system that effectively delivers the material prepares the material into
a fully contained, closed-loop system. Physical separation of the hydrocarbons from the contaminated soil does not utilize water
or steam and is instead accomplished using a proprietary extraction fluid to dissolve the hydrocarbon components.
In the first stage of the process, hydrocarbon
contaminated soil is mixed with our proprietary solvent which forms a slurry of sand, hydrocarbon and extraction fluid. This slurry
moves from the mixing chamber into a separation chamber where the sand is separated from the hydrocarbon/extraction fluid mix by
gravity. The soil is then dried and transported via a conveyer to a lined pit where extensive testing is performed to ensure the
hydrocarbons have been properly removed. Meanwhile, the extracted hydrocarbon and solvent travels to a separate chamber where the
hydrocarbons are separated from the extraction solvent. The solvent is then reclaimed.
The entire extraction process is completed
in a series of sealed chambers. The reclaimed extraction fluid is then recycled back into the process, which ensures that
no toxic chemicals are released into the soil or the environment. Upon completion of our remediation and separation process,
the extracted hydrocarbons are placed into holding tanks to be picked up by our customers, while clean soil is returned to the
environment.
Our RPCs are manufactured in Salt Lake
City, Utah. In the future, we expect to finance our RPCs through special purpose vehicles pursuant to 20-year sale/leaseback
arrangements. In each instance, the special purpose vehicle will finance the RPC through third party investors, and we will
act as the manager of such special purpose vehicle and hold a 1% ownership interest. Management believes that utilizing this structure
provides significant benefits to our shareholders, as these financings are less dilutive in nature.
Wastewater Management System
In April 2020, we entered into a project
charter agreement with solvAQUA, a Canadian-based clean water technology company, pursuant to which we may purchase certain wastewater
removal equipment from solvAQUA. The solvAQUA WMS is a compact solution that continually processes and separates large volumes
of wastewater (4,000+ m3/day for each WMS) with an ability to scale to remove any volume of oil, grease and suspended solids from
wastewater, in most cases removing 99.99% of waste. The processed water stream can in some cases be discharged or reused without
further treatment. We have placed our first order with solvAQUA for WMS equipment and anticipate receipt and installation
of the equipment prior to December 31, 2020, with operations to commence shortly thereafter. On July 15, 2020, solvAQUA granted
us an exclusive license to either incorporate solvAQUA’s technology platform into our RPCs or to use independently. This
will allow us to service remediation projects that have a combination of wet and dry opportunities. The exclusive license has an
initial term of one year, which may be extended to five years upon our successful installation and deployment of the first two
WMSs.
We believe that the combination of being
able to remediate both dry and wet locations could more than double our market opportunity in the future, given the prevalence
of remediation locations where oil is mixed with water. Although wastewater remediation is not required for any of our current
projects, we believe that this capability will prove valuable to us in the future.
Automation and Machine Learning
The RPC systems we build are
automated and controlled by software enabling us to maximize efficiencies. We believe that these automations may
ultimately allow us to operate the RPCs twenty-four hours a day, resulting in continuous feed capabilities that will
allow us to manage our systems remotely world-wide. Each RPC unit is designed with a focus on automation to achieve our
Key Performance Indicators (KPIs). We have deployed data analytics and machine learning, to enable operations to be
predictive, reduce risk, improve safety, and reduce costs.
Metallic Separation Technology
In 2015, we obtained two metal extraction
systems and a perpetual license to use the proprietary technology and machinery for extracting precious metals from sand-based
ore materials for $7.6 million from Vivaventures Precious Metals, LLC (“VV Precious Metals”), pursuant to our loan
outstanding to VV Precious Metals being extinguished. We also received a 75% ownership interest in the concentrated unrefined flakes
of precious metals and rare earth minerals that had already been recovered from soils by VV Precious Metals through a royalty agreement.
We divested our 39% interest in VV Precious Metals in July 2020. Such divestiture has had a de minimis impact on our business.
Our proprietary metallic separation technology
uses a thermal vapor process to extract and process micro particles of precious metals and rare earth minerals, including gold,
silver, platinum, palladium and rhodium from soils. After we complete our soil remediation services, we evaluate the post-remediated
soil and, if we find that the soil contains more than 1% concentration of these metals, we process it through this technology to
extract and concentrate these micro particles of precious metals and rare earth minerals into a concentrated, unrefined flake form.
We market and sell the precious metals
we extract from contaminated soil. As we continue our efforts, we anticipate increased opportunities to monetize our
precious metals end product.
Hydrocarbon Upgrading Technologies
We have acquired and/or licensed two separate
technologies described below that will enable us to upgrade the hydrocarbons recovered from our remediation process. These
processes have been proven in laboratory tests, but we have not yet performed this upgrading in a commercial setting.
We entered into a letter of intent
with B Green, Inc. (“B Green”) in February 2020 providing us with certain rights to use on a trial basis
cavitation hydrocarbon technology (CHU) from B Green, Inc. Subsequently, on September 30, 2020, we entered into
an Intellectual Property License Agreement with B Green (“B Green License Agreement”), pursuant to which we have
been granted a worldwide, exclusive, non-transferable license to the intellectual property embodied in B Green’s
cavitation technology to develop, manufacture, have manufactured, use market, import, have imported, offer for sale and sell
cavitation devices built from the licensed intellectual property. The B Green License Agreement also grants us the first
right of refusal to purchase all devices and all intellectual property associated with the cavitation technology. The B Green
License Agreement extends for the lifetime of the Intellectual Property. In 2021 we made an initial payment of $5,000
after delivery of the first simple cavitation device, and thereafter we will be obligated to pay $3,000 in monthly services
fees, for any requested engineering support, and 50% of the net profits. Additionally, under the terms of the B Green
License Agreement, at such time as we successfully improve and manufacture a cavitation device with a processing rate equal
to, or greater than, 30 barrels per hour, we will be required to issue 1,000,000 shares of our common
stock to B Green. Third
party, independent testing conducted by the University of Utah has shown that this proprietary technology increases the API
gravity of hydrocarbons by elongating the hydrocarbon chains without cutting or cracking these chains. API gravity is the
measure of how heavy or light petroleum liquid is compared to water and is used in the industry as the standard measure for
viscosity. The API of the recovered crude is increased, allowing such crude to have additional uses and usually at higher
unit prices.
In addition, in 2017, we acquired from
CSS Nanotech an exclusive right to use their nano-sponge technology, which essentially serves as a micro-upgrader, transforming
hydrocarbon product into a more useful product, such as petroleum or gasoline, as an addition to our hydrocarbon extraction technology.
The inventor of this technology subsequently joined us as our Chief Scientific Officer. This patented technology allows for hydrocarbon
material to be absorbed by a specialized sponge. Low energy microwaves are then introduced into the process and the sponge, which
is made of a highly thermally conductive material, absorbs this energy causing an instant thermal effect, which essentially refines
the crude by cutting or cracking the carbon chains. We intend to add this system to our process of upgrading the heavy crude recovered
by our RPCs.
We believe that each of these technologies
has the ability to upgrade the heavy crude that is recovered from our recovery and remediation process based on our needs and demand,
and we intend to fully integrate these technologies into our process. For example, if there is a high demand for fuels we would
process the extracted crude through the nano-sponge technology to refine and upgrade the product into diesel fuel. If the demand
is instead for certain types of asphaltic cement, where the heavy crude is not refined but processed, we would utilize the CHU
technology.
Market Opportunity
We believe that the market for remediating
oil from both soil and water is significant. According to Grandview Research, the market for environmental clean-up of oil spills
will reach $177 billion by 2025. We believe that a large portion of that market will originate from contamination of more than
7% hydrocarbon content and that our technology is currently the only one that can economically remediate these environmental disasters,
while allowing for the capture and reuse of the crude.
In addition, we believe that the heavy
crude that we have been recovering in Utah is ideal for producing asphaltic cement. The demand for asphaltic cement in the United
States is presently estimated to be $93 billion this year according to Transparency Market Research. We provided our material
to asphalt companies for testing to determine what modifications, if any, needed to be made to meet general asphalt specifications.
We recently received notification that our asphaltic cement now meets the general classification of AC20 asphaltic cement and
that it passed the specifications of several potential clients. We are expecting several orders in the near term and we believe
that we will be able to offer our product at very competitive prices and in an environmentally friendly manner.
Revenue
We presently have two projects utilizing
our first two manufactured RPCs - our project in Kuwait (which has been temporarily suspended due to COVID-19) and our project
in Vernal, Utah (which is currently operating).
In Kuwait, where we do not have ownership
of the recovered oil, we will generate revenues by charging per cubic meter of soil remediated. For our current project
we generate revenues of $72 per cubic meter of contaminated material processed.
Our RPC situated in Vernal, Utah has
the capacity to process 500 tons or more of naturally occurring oil sands deposits per day. We estimate that if the extracted
material is composed of at least 10% oil, we will recover approximately 250 barrels of extracted hydrocarbons each day, which
could then be sold for energy or converted to asphaltic cement and sold for use in roads at higher prices.
We also market and sell the precious metals
we extract from our remediated and waste soils. As we continue our efforts, we anticipate increased opportunities to monetize
our precious metals end product.
Kuwait Project
The United Nations (UN) had allocated up
to $14.7 billion for post-Iraq war reparations in order to clean up Kuwait. Kuwait suffered extensive contamination as a result
of the 1991 Persian Gulf War. At the close of the Gulf War, Saddam Hussein ordered Kuwaiti oil wells to be blown up, resulting
in the destruction of approximately 600 oil wells. The damage resulting from such fires, which burned for seven months, included
a layer of hardened “tarcrete,” caused by the sand and gravel on the land's surface combining with oil and soot, forming
over almost 5% of the country's area.
We were engaged as a subcontractor by the
KOC for two hydrocarbon remediation projects in the country in January 2018 and July 2019: the Sustainable Economic Environmental
Development Project (“SEED”) project and the Kuwait Environmental Remediation Program (“KERP”) project.
Both projects are managed by the Soils Remediation team at KOC. Both projects have a range of contaminated soils to be remediated.
Our technology has been successful in reducing
the amount of contaminated material in the SEED project from 20% hydrocarbon contamination to just 0.2% hydrocarbon contamination,
based on third party independent testing performed by ALS Arabia in March 2020. We believe we possess the only technology
that has been successful at remediating such highly contaminated soil (defined as anything above 20% hydrocarbon contamination),
while also returning usable hydrocarbons. KOC has advised us that we are the only company to have submitted third-party testing
results regarding our technology that has met KOC’s specifications for remediating oil sands in excess of 7% hydrocarbons.
For this reason, we believe that our technology will be selected for future KOC projects to clean contaminated soils containing
in excess of 7% hydrocarbons. Our initial contract for the SEED projects was to clean 14,000 metric tons of contaminated soil and
is expected to significantly grow in size and scope. The project pays us, based on the specific characteristics of the soil, a
flat fee of $70 to $100 per ton of contaminated soil we clean. We then return the remediated soil and the recovered oil to the
Kuwaiti government. Accordingly, for this project, the Company does not have any short-term risk relating to volatile oil prices.
The KERP project is anticipated to involve
approximately 26 million cubic meters of contaminated oil sands requiring remediation. We expect that as much as 20% of the contaminated
soil will contain more than 5% hydrocarbon contamination. We also believe that we will have the opportunity to act as a technology
provider to the main KERP project contractors on other projects requiring remediation of sands exhibiting greater than 7% contamination,
which we believe could have a market potential of up to $500 million for us.
The oil recovered from these projects in
Kuwait is considered a sovereign asset, so the ability to reclaim this asset also creates a social value for the country. In order
to remediate all of the contaminated sand exhibiting greater than 7% contamination in the timeframe required by the UN, the Company
expects to expand its contract and deploy 10 RPC units to Kuwait over the next several years.
Other International Projects
In addition to managing the projects in
Kuwait, the UN is overseeing the funds allocated to the remediation and clean-up of the Ogoni Lands in Africa, which is estimated
to contain millions of tons of both contaminated soil and water and has allocated significant funding for its cleanup. Taking into
consideration this particular environmental disaster, plus other global oil contamination projects involving oversight by the UN,
together with our successful performance on the UN-managed SEED Project in Kuwait, we believe we will be a contender for significant
additional contracts.
Vernal, Utah Project
The State of Utah has, according to the U.S.
Geological Survey, approximately 14 billion barrels of measured oil in place with an additional estimated 23 to 28 billion barrels of
oil contained in contaminated oil sands that are deposited near the ground surface. We believe that the crude from these oil sands can
be turned into asphaltic cement for making roads, or upgraded for polymers or fuel. In 2019, we acquired an option to acquire surface
rights and the approvals to operate on an oil sands parcel of land located in Vernal, Utah, for which an initial fee of $200,000 was
paid. Such option has expired, and we are currently negotiating an agreement to provide for such option to continue. We are continuing
to operate on the land, pursuant to an arrangement with the landowner, as we negotiate extension of the option. Vernal is the county
seat, and largest city in Uintah County, located in northeastern Utah, approximately 175 miles east of Salt Lake City, and 20 miles west
of the Colorado border.
The Vernal property contains approximately
300 million cubic yards of oil sand material available for processing. The property is located on approximately 600 acres. If acquired,
we believe that we could ultimately recover as much as 40 million barrels of oil from this property if we are able to economically
scale our operations. Each upgraded RPC unit, such as the RPC unit in Vernal, Utah, has the ability to process, at a minimum, 20
tons of contaminated material per hour depending on the oil contamination percentage in the processed material. We believe, based
on the number of estimated barrels of oil contained in oil sands deposits located on SITLA property, that there may be an opportunity
to deploy as many as 100 RPCs to properties containing oil sands deposits owned by the State of Utah.
Material extracted from our Vernal,
Utah project can be sold for energy or converted into asphaltic cement, which we believe is less affected by daily changes
in oil prices. With our one RPC unit, assuming full utilization, we anticipate producing approximately 50 tons of asphaltic cement
per day. We anticipate that we will be able to sell our asphaltic cement for, referencing present pricing, approximately $50 per
ton.
Competitive Strengths and Growth Strategy
We are focused on the remediation of contaminated
soil and water resulting from either man-made spills or naturally occurring deposits of oil. Our primary focus has been the remediation
of oil spills resulting from the Iraqi invasion of Kuwait and naturally occurring oil sands deposits in the Uinta basin located
in Eastern Utah. We plan to expand into other markets, both in Utah and globally, where we believe our technology and services
will provide a distinct competitive advantage over our competition.
Competitive Strengths
We believe the following strengths provide
us with a distinct competitive advantage and will enable us to effectively compete on a global basis:
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Proprietary patented technology;
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Environmental advantages;
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Strong relationships with customers and regulatory agencies; and
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Experienced and highly-skilled management, Board of Directors and Advisory Board.
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Proprietary Patented Technology
In total, we, together with our subsidiaries,
have intellectual property that is in the form of both proprietary knowledge and patents. Our patent portfolio consists of four
issued U.S. patents, one pending international patent application filed through the Paris Cooperation Treaty (PCT), and one
pending patent application in Kuwait. In addition, we have licensed from our partners the right to use additional patented technologies.
We presently have two US patent and
pending foreign applications related to our RPCs and two issued US patents related to our other remediation technologies.
We believe, based on direct and ongoing
conversations with our customers and third-party independent test results, that our technology is the only commercially available
technology that can not only clean soil that contains greater than 7% hydrocarbon, but also preserves the hydrocarbons extracted
from such soil for future use. We believe that this provides us with a true competitive advantage.
Our main technology has been tested and
validated for all of its claims by multiple separate independent expert firms both in the United States and the Middle East, whose
reports confirm that we have reclamation technology, which has been tested and reviewed, that possesses the ability to clean soil
with more than 7% hydrocarbon contamination and still leave the recovered hydrocarbons in a usable state.
We are also expanding our remediation services
and offerings to include the solvAQUA technology, which will enable us to remove hydrocarbons from water (as opposed to soil),
while preserving the hydrocarbons for future usage. We expect delivery of our first solvAQUA WMS machine by the end of the calendar
year, with operations to commence shortly thereafter. The solvAQUA WMS machines can operate either in conjunction with, or independently
of, the RPCs.
Environmental Advantages
Among our key corporate objectives is to
be at the forefront of social responsibility for its technological impact. We strive for all of our systems to ultimately
become closed loop systems, to minimize adverse impacts on air quality and reduce the need for use of clean water. Our ability
to turn waste into value is in line with this core objective. Our remediation projects in Kuwait are expected to reduce emissions from
vaporization of the oil spilled in the soil. The ability to clean produced water from oil production can eliminate the need for
evaporation ponds, improving air quality and saving on the use of clean water.
We believe our technology and service offerings
will position us well to conduct our business in any geographical region in which soil or water has been contaminated by hydrocarbons.
Strong Relationships with Customers
and Regulatory Agencies
We have developed close relationships with
customers and government agencies, including SITLA and the KOC. We anticipate receiving access to additional oil sands deposits
located in Utah from SITLA, based on our existing relationship with SITLA and our conversations with them. We also anticipate receiving
additional contracts from KOC to remediate contaminated properties in Kuwait, based on our existing relationship with KOC and conversations
with them.
Experienced and Highly Skilled Management,
Board of Directors and Advisory Board
Our management team has started and successfully
grown numerous technology-based companies and has utilized this experience to develop a strategic vision for the Company. The implementation
of this plan has resulted in the acquisition and in-house development of numerous technologies, which are currently in operation.
We have demonstrated the effectiveness of our technologies in both Vernal, Utah and Kuwait, accomplishing the clean-up of contaminated
areas while also recovering precious metals through our metallic separation technology.
Our Board of Directors is comprised of
accomplished professionals who bring decades of experience to the Company. Our Board of Directors includes a director who has served
as a member of the Executive Committee of one of the largest global accounting firms and has served on the Board of Directors of
two multi-billion dollar publicly traded companies, a former director of technology investment banking at Goldman Sachs, a successful
investor and entrepreneur who has founded and provided initial financing for numerous life science companies, several of which
have grown to multi-billion dollar publicly traded companies, and the mayor of a city in Utah.
In addition, we have an Advisory Board
comprised of former senior members of oil and gas companies, both in the United States and in the Middle East. Our Advisory Board
is led by one member who is an accomplished business professional and a member of a royal family based in the Middle East and another
member who is an experienced health and safety expert operating in the oil and gas industries.
We rely on our Board of Directors and Advisory
Board to provide it both high level advice and guidance along with using their contacts to help open various markets. Additionally,
the Advisory Board acts as a preliminary informal sounding board for the Board and management for these particular areas in which
the Advisory Board members have expertise. We believe the combination of our management team, Board of Directors and Advisory
Board provides us with a significant competitive advantage over our competitors due to their breadth of experiences and relationships.
Growth Strategies
We will strive to grow our business by
pursuing the following strategies:
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Expansion of our oil recovery projects in Utah;
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Expansion of our remediation projects in Kuwait;
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Expansion into new and complementary markets;
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Increase of revenue via new service and product offerings;
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Strategic acquisitions and licenses targeting complementary technologies; and
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Redeployment of the metallic separation technologies.
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Expansion of our Oil Recovery Projects
in Utah
The State of Utah has, according to the
U.S. Geological Survey, approximately 14 billion barrels of measured oil in place with an additional estimated 23 to 28 billion
barrels of oil contained in contaminated oil sands that are deposited near the ground surface. The majority of these oil sands
deposits are located on land owned by SITLA. While our current project in Vernal, Utah is not located on SITLA land and we
do not yet have a definitive agreement, SITLA has expressed an interest in providing us leased access to these lands in exchange
for a royalty to be paid by us in an amount equal to 8% of all revenue generated from any hydrocarbon-based products produced
by us from hydrocarbons extracted from these lands. All royalty payments to SITLA would result in direct funding to the State’s
school system. We believe, based on the number of estimated barrels of oil contained in oil sands deposits located on SITLA property,
that there may be an opportunity to deploy as many as 100 RPCs to oil sands deposits located on land owned by the State of Utah.
We will seek to acquire additional properties and mineral rights in the vicinity of Vernal, Utah from individual land owners and
the State of Utah with a goal of increasing our hydrocarbon holdings to as much as one billion barrels of contingent resources
containing a minimum of 10% hydrocarbon saturation.
Expansion of our Remediation Projects
in Kuwait
Our RPC technology was successfully used
in our initial project for KOC in Kuwait, where we removed hydrocarbons from soil with more than 7% contamination and, following
the process, the hydrocarbon contamination level of the soil was reduced to less than 0.5%, which was lower than the level needed
to meet the project specifications. There is still approximately 26 million cubic meters of soil contaminated by oil from the Iraqi
invasion of Kuwait. Under our current contract, we will charge $72 per cubic meter of soil remediated. We are currently working
with KOC and other government-controlled entities to expand our remediation projects in Kuwait. We are in active negotiations to
provide the technology and operations as a subcontractor to large, multinational remediation companies within the region where
our technology could be used on all of the sands with contamination levels greater than 7%. Other technologies may also be used
for the less contaminated soils.
Expansion into New and Complementary
Markets
We intend to explore expansion opportunities
on a global basis, including in places with extreme contamination such as the Ogoni Lands region of Nigeria, oil spill lakes located
in Saudi Arabia and Turkmenistan, and naturally occurring oil sands deposits in Kazakhstan, where we believe our technology and
service offerings may provide a distinct competitive advantage. We are currently in discussions with several groups for deploying
our RPCs for remediation projects (primarily for oil spills, tank bottom sludge and drill cuttings) in Saudi Arabia, Qatar and
Texas. Saudi Arabia has the objective to create a circular carbon economy that will ultimately have zero wasted hydrocarbons. Our
technology is able to process tank bottom sludge, drill cuttings, and soils form hydrocarbon spills, returning the sand to less
than 0.5% contamination while reclaiming the oil for waste energy use.
Increase of Revenue via New Service
and Product Offerings.
To date, we have focused on the remediation
of soil contaminated by oil. We are in the process of expanding our services to include the remediation of water and the recovery
of hydrocarbons from water through our exclusive license with solvAQUA. We also intend to target other hydrocarbon remediation
businesses that focus on, among other things, the cleaning of tank bottom sludge, and the cleaning of the water used from drilling
oil wells. Oil producers generally pay to dispose of sludge at the bottom of storage tanks and contaminated water produced from
the drilling of oil wells. We believe that our technologies could be used to clean the contaminated water produced from drilling,
while simultaneously recovering the heavy crude. We believe we will be able to offer these services at a cost that is very competitive
with current methods and that our ability to recover the heavy crude for resale will give us a competitive advantage. The patented
RPC technology, in conjunction with the enzymatic water remediation technology that we have licensed from solvAQUA, have the
potential to eradicate all oil evaporation ponds and landfills in the United States presently utilized for disposal of tank bottom
sludge and drill cutting waste. We are currently in early stage discussions relating to some of these remediation projects.
Strategic Acquisitions and Licenses
Targeting Complementary Technologies
We intend to seek out opportunities to
acquire or license only specific technologies that are either complementary to our existing product offerings or that will allow
us to expand into the environmental infrastructure markets. We recently entered into
a worldwide, exclusive license agreement with TBT Group, Inc. to license piezo electric and energy harvesting technologies for
creating self-powered sensors for making smart roadways, which we believe could be embedded directly into the asphaltic
cement we intend to produce from the hydrocarbons we extract, providing the basis for smart roads and infrastructure. We believe
that these sensors, which are self-powered, could be used to provide information about traffic, road conditions and repair needs
as well as allowing the roads to communicate directly with autonomous vehicles enabling these vehicles to sense the road in all
weather conditions. By complementing the asphaltic cement we expect to produce with integrated sensors for automated vehicles,
we believe that we will be able to offer a smart road – moving this company from one of “Waste to Road” to one
of “Waste to Smart Road”.
Redeployment of the Metallic Separation
Technology
Our licensed metallic separation technology
has successfully recovered precious metals including, but not limited to, gold, palladium, platinum, rodium and silver. We intend
to modify our existing metallic separation equipment to allow us to capture more precious metals. We intend to redeploy our metallic
separation technology machines in conjunction with our RPC machines to locations where precious metals have been detected in the
soil and to standalone locations to process mine tailings and other soils.
Other Holdings
Historically, as part of our strategy
to find and invest in technologies that might develop synergies with our existing businesses, we have invested in other companies
and/or entities. Not all of our investments to date have developed into complementary technologies and/or businesses, but with
our management’s assistance, many of them have still become successful and accretive to our Company’s value. Over
time, we intend to divest our ownership of companies that are not synergistic with our business.
Scepter Holdings
In 2012, we provided secured loan financing
and assistance to Vivaceuticals, Inc. (“Vivaceuticals”) for the development and commercialization of two bioactive
beverages and one weight loss beverage. In 2018, Scepter Holdings, Inc. (OTCMarkets: BRZL), a company that manages the sales and
development of consumer-packaged goods, purchased certain assets of Vivaceuticals, and in 2019, we received 800,000 shares of
preferred stock in Scepter Holdings, Inc. in exchange for extinguishing our loan, which had become an obligation of Scepter Holdings,
Inc. The Company has since converted such shares of preferred stock into 800,000,000 shares of common stock of Scepter Holdings,
Inc., which represents a market value of approximately $13,680,000 as of the date of April 1, 2021.
Odyssey Group International
In 2014, we acquired a minority interest
in Odyssey Group International, Inc. (“Odyssey”) (OTCQB: ODYY), a trans-disciplinary product development enterprise
involved in the discovery, development and commercialization of a broad range of products applied to targeted segments of the
health care industry. We also have provided a $750,000 secured loan Odyssey, which they used to acquire a license to use and develop
a new technology called CardioMap®, which is an advanced technology for early non-invasive testing for heart disease. The
loan is secured by Odyssey’s assets, and we are entitled to receive a percentage of Odyssey’s total gross sales until
the loan has been repaid in full. During June 2020, we converted the outstanding secured loan into 809,578 shares of Odyssey common
stock. We presently own 3,309,578 shares of Odyssey common stock representing a market value of approximately $2,615,559, as
of April 1, 2021.
Future Products; Research and Acquisition
We intend to identify, develop or acquire,
and bring to market products primarily in the Clean Tech sector with a primary focus on the petroleum, mining and minerals, and
alternative energy industries, as well opportunities that may arise in the natural and formulary products industry. Our general
approach is to select products or processes that are at or near commercial viability, or that we believe can be substantially developed
for commercialization. We then negotiate agreements to either acquire or to provide secured loan financing to these companies to
complete their development, testing and product launches in exchange for control of, or a significant ownership interest in, the
products or companies.
History
The Company was originally organized on
November 1, 2006 as a limited liability company in the State of Nevada as Genecular Holdings, LLC. The Company’s name was
changed to NGI Holdings, LLC on November 3, 2006. On April 30, 2008, the Company was converted to a Nevada corporation and
changed its name to Vivakor, Inc. pursuant to Articles of Conversion filed with the Nevada Secretary of State.
We have the following direct and indirect
wholly-owned active subsidiaries: VivaVentures Management Company, Inc., a Nevada corporation, VivaSphere, Inc., a Nevada
corporation, VivaVentures Oil Sands, Inc., a Utah corporation, and RPC Design and Manufacturing LLC, a Utah limited liability
company. We have a 99.95% ownership interest in VivaVentures Energy Group, Inc., a Nevada Corporation; the 0.05% minority
interest in VivaVentures Energy Group, Inc. is held by a private investor unaffiliated with the Company. We also have an approximate
49% ownership interest in Vivakor Middle-East Limited Liability Company, a Qatar limited liability company.
Regulations Affecting our Business
The Company’s business is subject
to federal, state and local laws, regulations and policies, including laws regulating the removal of natural resources from the
ground and the discharge of materials into the environment. These regulations mandate, among other things, the maintenance of air
and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and
disposal of solid and hazardous waste. Exploration and exploitation activities are also subject to federal, state and local laws
and regulations which seek to maintain health and safety standards by regulating the design and use of exploration methods and
equipment. Environmental and other legal standards imposed by federal, state or local authorities are constantly evolving, and
typically in a manner which will require stricter standards and enforcement, and increased fines and penalties for noncompliance.
Such changes may prevent us from conducting planned activities or increase our costs of doing so, which would have material adverse
effects on our business. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess
of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other
environmental damages that we may not be able to or elect not to insure against due to prohibitive premium costs and other reasons.
Unknown environmental hazards may exist on our mining claims, or we may acquire properties in the future that have unknown environmental
issues caused by previous owners or operators, or that may have occurred naturally.
Failure to comply with applicable federal,
state, local or foreign laws or regulations could subject our company to enforcement action, including product seizures, recalls,
withdrawal of marketing clearances and civil and criminal penalties, any one or more of which could have a material adverse effect
on our company’s businesses. We believe that our company is in substantial compliance with such governmental regulations.
However, federal, state, local and foreign laws and regulations regarding the manufacture and sale of medical devices are subject
to future changes. There can be no assurance that such changes would not have a material adverse effect on our company.
Intellectual Property
We own four issued US patents and
two pending international PCT patent application covering our propriety technology, specifically:
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US Patent 7,282,167 for methods for producing nano-scale particles by vaporizing raw material and
then cooling the vaporized raw material using a cooling gas, granted October 16, 2007 and expiring July 23, 2025;
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US Patent 9,272,920 for methods for producing ammonia by mixing a first catalyst including a millimeter-sized,
granular, ferrous material and a promoter and a second catalyst including discrete nano-sized ferrous catalyst particles that comprise
a metallic core with an oxide shell and then reacting hydrogen and nitrogen in the presence of the mixture, granted March 1, 2016
and expiring November 7, 2028; and
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US
Patent 10,913,903 for SYSTEM AND METHOD FOR USING A FLASH EVAPORATOR TO SEPARATE BITUMEN
AND HYDROCARBON CONDENSATE granted February 9, 2021 and expiring August 28, 2039;
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US Patent
7,282,167 for US Patent 10,947,456
for SYSTEMS FOR THE EXTRACTION OF BITUMEN FROM OIL SAND
MATERIAL granted on March
16, 2021 to expire on December 3, 2038;
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Pending US Patent Series Nos. 16/177,210 and 16/554,158, International PCT Application No. PCT
Application No. PCT/US2019/048587, and pending Kuwait application KW/P/2020/000111 relating to systems and processes for extracting
bitumen from oil sands material which employ a centrifuge and a flash evaporator.
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Employees
As of the date of this prospectus, we have 25 full-time or contracted employees, consisting of our CEO, CFO, and additional administrative and direct operations
personnel. None of these employees are represented by a labor union or subject to a collective bargaining agreement. We have never
experienced a work stoppage and our management believes that our relations with employees are satisfactory.
Properties
We do not own real property. We currently
lease executive office space in Salt Lake City, Utah, and Irvine, California. The Company also leases warehouses in Salt Lake City,
UT and have paid to be on a land site in Vernal, UT. We believe these facilities are in good condition but that we may need to
expand our leased space and warehouses as business increases.
Legal Proceedings
From time to time, we may become involved
in various legal actions that arise in the normal course of business. We are not currently involved in any material disputes and
do not have any material litigation matters pending.
MANAGEMENT
As of the date of this prospectus, our
directors, executive officers and significant employees are as follows:
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Name
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Age
|
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Position(s)
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Matthew Nicosia
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46
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Chief Executive Officer (Principal Executive Officer) and Director
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Tyler Nelson
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40
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Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
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Dr. Daniel Hashim
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37
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Chief Scientific Officer
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Al Ferrara
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69
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Director
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Joseph Spence
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46
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Director
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Matthew Balk
|
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60
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Director
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Trent Staggs
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46
|
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Director
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Background of Officers and Directors
Matthew
Nicosia joined Vivakor as Chief Executive Officer and Chairman of the Board in 2011. Prior to joining the Company, Mr. Nicosia
co-founded Dermacia Inc. in 1999, a dermatology product development Company. From December 2012 through December 2015, concurrent
with his time serving as Chairman and Chief Executive Officer of Vivakor, Mr. Nicosia served as the interim Chief Executive Officer
of Vivaceuticals, d/b/a Regeneca Worldwide. In February 2019, Mr. Nicosia joined Ridepair Inc., a software development company
focused on the transportation market, as Chairman of the Board. Mr. Nicosia joined the Board of Directors of NarcX Solutions Inc.,
a developer of onsite drug destruction technologies in June 2019. During 2018, Mr. Nicosia co-founded and has since served as
co-Chairman of the Board of Prosperity Utah, a non-profit economic think tank focused on the State of Utah. Since April 2018,
Mr. Nicosia has served on the Board of Directors of CannapharmaRx Inc., a public company which trades on the OTC Markets. Mr.
Nicosia received his Bachelor of Arts degree from Brigham Young University and a MBA from Pepperdine University. Mr.
Nicosia is qualified to serve on our Board of Directors based on his in depth knowledge of the Company as Chief Executive Officer
and because of his extensive experience with thermal vaporization technologies, business development in the Middle East
and U.S. capital markets experience.
On November 16, 2015, the Consumer Protection
Branch of the Department of Justice of the United States of America initiated an action, on behalf of the Food and Drug Administration,
against Vivaceuticals, d/b/a Regeneca Worldwide, and Mr. Nicosia alleging various violations of the Federal Food, Drug, and Cosmetic
Act in relation to the manufacturing, labeling and distribution of adulterated dietary supplements. The complaint sought a permanent
injunction against Regeneca Worldwide for unlawfully distributing unapproved new drugs, and adulterated and misbranded dietary
supplements. A consent decree of permanent injunction was filed on February 8, 2017. The consent decree prohibits Regeneca from
marketing unapproved new drugs, and adulterated and misbranded dietary supplements. The consent decree also provides that before
Regeneca can resume operations, it must, among other things, hire good manufacturing practice and labeling experts, implement
procedures to comply with good manufacturing practice and labeling requirements and receive written permission from the FDA to
resume operations, and Mr. Nicosia is required to notify the FDA and accept their inspections if he works in the pharmaceutical
industry. Regeneca was also required to destroy all remaining products. Vivaceuticals sold its assets to Scepter Holdings,
Inc. in 2018 and is no longer in operation.
Tyler Nelson joined Vivakor
on a part-time basis as Chief Financial Officer in 2014 and has served as full-time Chief Financial Officer since September 2020.
Mr. Nelson is a CPA who worked from 2006 to 2011 in Audit and Enterprise Risk Services at Deloitte LLP (USA) and later at Withum+Brown,
PC. He worked with clients with assets of more than $100 billion and annual revenues of more than $15 billion, which are considered
some of the most respected financial institutions in the world. In 2011, Mr. Nelson began working for LBL Professional Consulting,
Inc. where he provided merger and acquisition, initial public offering, and interim chief financial officer services to clients.
Mr. Nelson continues to sit on the Board of Directors and remains an officer of LBL Professional Consulting, Inc. Mr. Nelson
earned a Master’s Degree in Accountancy from the University of Illinois- Urbana-Champaign, and a Bachelor’s Degree
in Economics with a minor in Business Management from Brigham Young University.
Dr. Daniel Hashim joined Vivakor
as Chief Scientific Officer in 2017. Dr. Hashim has extensive experience in the areas of nanoscience research, advanced materials
synthesis, characterization, application, innovation and technological entrepreneurship. In addition to leading scientific efforts
for Vivakor and its related companies, Dr. Hashim has served as the Founder, Chairman and CEO of CSS Nanotech, Inc. (“CSS”)
since 2014. CSS is a nonmaterials research and development company that designs and commercializes useful structural nanomaterials
that exhibit “safe-to-handle” nanofunctionality on a macro-scale, to include carbon filtration media, water purification,
oil spill remediation, structural composite materials, electrode materials, petrochemical refining and thermal management systems.
Mr. Hashim holds a Bachelor’s Degree in Materials Science Engineering from Rensselaer Polytechnic Institute, with a PhD
from Rice University in the field of Materials Science and NanoEngineering.
Al
Ferrara joined Vivakor as a director on September 21, 2020. Mr. Ferrara retired
as the National Director of Retail & Consumer Products at BDO USA, LLP in 2016. Mr. Ferrara is a CPA, who worked at BDO USA,
LLP in a variety of positions beginning in 1991, and was a member of its board of directors from 2003 to 2010. Mr. Ferrara served
as the Northeast Regional Managing Partner at BDO USA, LLP from 2000 to 2003. Mr. Ferrara was also a director representative at
Trenwith Capital, Inc. (now BDO Capital Advisors, LLC) from 2000 to 2015 and a member of the retail advisory board at Hilco Retail
Consulting from 2013 to 2015. Mr. Ferrara was previously on the Board of Directors for Barnes & Noble, Inc., from August 2016
until the company was sold in August 2019, where he served on its audit committee and compensation committee, and in July 2019,
he joined the Board of Directors of Steven Madden, Ltd., where he serves as Chairman of its audit committee and a member of its
governance committee. Mr. Ferrara is qualified to serve on our Board of Directors because of his extensive experience in
auditing public companies and serving as a director of large public companies.
Joseph Spence joined Vivakor as
a director on September 21, 2020. Mr. Spence previously spent the past two years as an investor, advisor, executive and philanthropist
specializing in catalyzing high tech and tech infused real estate to create smart, sustainable cities that work for everyone, with
ASPIRE Center for Electrified Transportation, We Are Makers Social Impact Initiative and IconIQ Talks. Previously, from 2014 through
2018, he was an executive director at Goldman Sachs leading teams in the Technology, Media and Telecom; Real Estate, Gaming
and Lodging; and Structured Finance sectors for the Americas and EMEA regions. From 2007 to 2014, he was an associate director
at Standard & Poor’s covering approximately $144 billion in debt, and, from 2006 to 2007, he was an assistant treasurer
at Bank of NY Mellon. He started his career as an engineer at the NASA Academy at Goddard Space Flight Center. Mr. Spence
holds an MBA from Columbia University and BS in Electrical Engineering Howard University (Magna Cum Laude). Mr. Spence also holds
a Master’s degree in Nano & Biotechnology from Harvard University. Mr. Spence is
qualified to serve on our Board of Directors because of his extensive experience in raising capital and financing companies
through all stages of growth.
Matthew Balk joined Vivakor as a
director on September 21, 2020. Mr. Balk previously spent more than 25 years as an investment banker specializing in technology
and biotechnology where he raised billions of dollars for both public and private companies and dozens of mergers and acquisitions.
In 2011, he left investment banking to start his family office. He has since co-founded several companies including AzurX (Nasdaq:
AZRX) and VerifyH20 and invested in a number of other technology companies. Mr. Balk also works as a consultant to a small number
of companies in the areas of Biotech and technology in general. Mr. Balk received his MBA from New York University Stern School
of Business. Mr. Balk is qualified to serve on our Board of Directors because of his extensive
experience acting as an investment banker supporting large public companies.
Trent Staggs joined Vivakor as
a director on September 21, 2020. Mr. Staggs brings a 20-year track record of developing and executing on business strategy, teams
and relationships. Prior to advising the Vivakor Team, he was on the corporate leadership team of Unicity International, Inc.,
a global direct sales company that operates in over 35 markets, providing strategic direction and leadership of global integrated
systems, software and IT infrastructure. Mr. Staggs has also been directly responsible for financial transactions in excess of
2 billion dollars as a VP at Morgan Stanley and also running his own nationwide financial company. Mr. Staggs served as a consultant
for RDM from January 2019 through March 2020, advising with respect to obtaining required permitting from State agencies and other
regulatory matters. Mr. Staggs received his Bachelor of Arts degree from the University of Utah and received an MBA from the Marriott
School of Management at Brigham Young University. Mr. Staggs is also the Mayor of Riverton, Utah and serves on many boards,
providing needed political guidance and consultation to Vivakor and its related companies. Mr.
Staggs is qualified to serve on our Board of Directors because of his extensive experience in capital markets and his understanding
of Utah regulatory requirements.
Family Relationships
There are no family relationships between
any of our directors and executive officers.
Board Composition and Director Independence
Upon the completion of this offering,
our common stock is expected to be listed on the Nasdaq Capital Market. Under the rules of the Nasdaq Stock Market LLC (“Nasdaq”),
a majority of a listed company’s board of directors must be comprised of “independent” directors, as defined
in Rule 5605. In addition, applicable Nasdaq rules require that, subject to specified exceptions, each member of a listed company’s
audit and compensation committees must be independent within the meaning of the applicable Nasdaq rules. Audit committee members
must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act.
Our Board of Directors consists of
five members. The directors are elected at each annual meeting to hold office until the next annual meeting and until their
successors are duly elected and qualified. The Company defines “independent” as that term is defined in
.
In making the determination of whether
a member of the board is independent, our board considers, in addition to Nasdaq rules, among other things, and, transactions
and relationships between each director and his immediate family and the Company, including those reported under the caption “Related
Party Transactions.” The purpose of this review is to determine whether any such relationships or transactions are material
and, therefore, inconsistent with a determination that the directors are independent. On the basis of such review and its understanding
of such relationships and transactions, our Board of Directors affirmatively determined that Al Ferrara, Joseph Spence, Matthew
Balk and Trent Staggs are qualified as independent and do not have any material relationships with us that might interfere with
his exercise of independent judgment.
Board Committees
Our Board of Directors has established
an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. Each committee has its own charter,
which is available on our website at www.vivakor.com. Each of the board committees has the composition and responsibilities
described below.
Members will serve on these committees
until their resignation or until otherwise determined by our Board of Directors.
Audit Committee
Our Audit Committee is currently comprised
of Al Ferrara, Matthew Balk and Trent Staggs, each of whom qualify as an independent director under applicable Nasdaq and SEC
rules, and “financially literate” under applicable Nasdaq rules. Our board has determined that Al Ferrara, Matthew
Balk and Trent Staggs each qualify as an “audit committee financial expert”, as such term is defined in Item 407(d)(5)
of Regulation S-K. Al Ferrara serves as chairman of the Audit Committee.
The Audit Committee oversees our accounting
and financial reporting processes and oversee the audit of our consolidated financial statements and the effectiveness of our internal
control over financial reporting. The responsibilities of this committee include, but are not limited to:
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selecting and recommending to our Board of Directors the appointment
of an independent registered public accounting firm and overseeing the engagement of such firm;
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approving the fees to be paid to the independent registered public
accounting firm;
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helping to ensure the independence of the independent registered public
accounting firm;
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·
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overseeing the integrity of our financial statements;
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preparing an audit committee report as required by the SEC to be included
in our annual proxy statement;
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resolving any disagreements between management and the auditors regarding
financial reporting;
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reviewing with management and the independent auditors any correspondence
with regulators and any published reports that raise material issues regarding the Company’s accounting policies;
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reviewing and approving all related-party transactions; and
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overseeing compliance with legal and regulatory requirements.
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The Audit Committee is authorized to retain
independent legal and other advisors, and conduct or authorize investigations into any matter within the scope of its duties.
Compensation Committee
Our Compensation Committee is currently
comprised of Trent Staggs, Al Ferrara and Matthew Balk, each of whom qualify as an independent director under applicable Nasdaq
rules. Trent Staggs serves as chairman of the Compensation Committee.
Our Compensation Committee assists the
board of directors in the discharge of its responsibilities relating to the compensation of the board of directors and our executive
officers.
The responsibilities of this committee
include, but are not limited to:
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reviewing and approving on an annual basis the corporate goals and
objectives with respect to compensation for our Chief Executive Officer;
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reviewing, approving and recommending to our board of directors on
an annual basis the evaluation process and compensation structure for our other executive officers;
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determining the need for and the appropriateness of employment agreements
and change in control agreements for each of our executive officers and any other officers recommended by the Chief Executive Officer
or Board of Directors;
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providing oversight of management’s decisions concerning the
performance and compensation of other company officers, employees, consultants and advisors;
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reviewing our incentive compensation and other equity-based plans
and recommending changes in such plans to our Board of Directors as needed, and exercising all the authority of our Board of Directors
with respect to the administration of such plans;
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reviewing and recommending to our Board of Directors the compensation
of independent directors, including incentive and equity-based compensation; and
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selecting, retaining and terminating such compensation consultants,
outside counsel or other advisors as it deems necessary or appropriate.
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The Compensation Committee may delegate
any of its responsibilities to subcommittees as it deems appropriate. The Compensation Committee is authorized to retain independent
legal and other advisors, and conduct or authorize investigations into any matter within the scope of its duties.
Nominating and Corporate Governance
Committee
Our Nominating and Corporate Governance
Committee is currently comprised of Trent Staggs, Matthew Balk and Al Ferrara, each of whom qualify as an independent director
under applicable Nasdaq rules. Trent Staggs serves as chairman of the Nominating and Corporate Governance Committee.
The purpose of the Nominating and Corporate
Governance Committee is to recommend to the Board of Directors nominees for election as directors and persons to be elected to
fill any vacancies on the Board of Directors, develop and recommend a set of corporate governance principles and oversee the performance
of the Board of Directors.
The responsibilities of this committee
include, but are not limited to:
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recommending to the Board of Directors nominees for election as directors
at any meeting of stockholders and nominees to fill vacancies on the board;
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considering candidates proposed by stockholders in accordance with
the requirements in the Committee charter;
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overseeing the administration of the Company’s code of business
conduct and ethics;
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reviewing with the entire Board of Directors, on an annual basis,
the requisite skills and criteria for board candidates and the composition of the board as a whole;
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the authority to retain search firms to assist in identifying board
candidates, approve the terms of the search firm’s engagement, and cause the Company to pay the engaged search firm’s
engagement fee;
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recommending to the Board of Directors on an annual basis the directors
to be appointed to each committee of the Board of Directors;
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overseeing an annual self-evaluation of the Board of Directors and
its committees to determine whether it and its committees are functioning effectively; and
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developing and recommending to the board a set of corporate governance
guidelines applicable to the Company.
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The Nominating and Corporate Governance
Committee may delegate any of its responsibilities to subcommittees as it deems appropriate. The Nominating and Corporate Governance
Committee is authorized to retain independent legal and other advisors, and conduct or authorize investigations into any matter
within the scope of its duties.
Code of Business Conduct and Ethics
We have adopted a code of business conduct
and ethics applicable to our principal executive, financial and accounting officers and all persons performing similar functions.
A copy of that code is available on our corporate website at www.vivakor.com. We expect that any amendments to such code,
or any waivers of its requirements, will be disclosed on our website.
EXECUTIVE COMPENSATION
The following table summarizes information
concerning the compensation awarded to, earned by, or paid to, our principal executive officer. No other executive officer received
compensation greater than $100,000 in the last two fiscal years.
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Name and Principal Position
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Year
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Salary
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Total
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Matthew Nicosia,
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2020
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$
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50,000
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$
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50,000
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Chief Executive Officer and Chairman
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2019
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|
$
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50,000
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|
|
$
|
50,000
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Tyler Nelson
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2020
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$
|
11,520
|
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$
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11,520
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Chief Financial Officer
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|
|
|
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Employment Agreements
Matthew Nicosia
On September 24, 2020, we entered into
an Employment Agreement with Matthew Nicosia to serve as our Chief Executive Officer. The agreement provides for an annual base
salary of $50,000 (the “Nicosia Base Salary”). The Nicosia Base Salary will increase as follows: (i) upon the Company
earning a total of at least $3,000,000 in Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”)
during any calendar year, the Nicosia Base Salary will increase to $100,000 for all calendar years thereafter until if and when
further increased pursuant to this Section 4.1; and (ii) for every $1,500,000 increase in EBITDA earned by the Company during any
calendar year, the Nicosia Base Salary will increase an additional $50,000 up to a maximum base salary of $350,000. Any increase
to the Nicosia Base Salary will be effective the first pay period of the Company after the Company reaches a particular EBITDA
amount is achieved that triggers the increase. For example purposes only and not by way of limitation: (i) if on October 31, 2021
the Company reaches $3,000,000 in EBITDA earned during the 2021 calendar year, the Nicosia Base Salary would increase to $100,000
commencing the Company’s first pay period after October 31, 2021; and (ii) if on November 15, 2022 the Company reaches $4,500,000
in EBITDA earned during the 2022 calendar year, the Nicosia Base Salary would increase to $150,000 commencing the Company’s
first pay period after November 15, 2022.
The Employment Agreement has a term of
three years and automatically extends for successive one-year periods unless terminated by the Company or Mr. Nicosia, with three
months advance written notice required. The agreement provides for incremental increases upon the Company’s achievement of
specific performance metrics. The Employment Agreement provides for a grant of a stock option to Mr. Nicosia to purchase up to
5,000,000 shares of the Company’s common stock at an exercise price equal to 110% of the fair market value of the Company’s
common stock on the date of grant. The stock option will vest after five years of continuous employment, subject to acceleration
if Mr. Nicosia is terminated without cause or resigns for good reason. The agreement also provides for an annual bonus of up to
100% of Mr. Nicosia’s then base salary based upon the achievement of certain performance goals established and approved by
the Board of Directors; provided, that at any time Mr. Nicosia’s base salary is $200,000 or more, the Company will pay Mr.
Nicosia a minimum annual bonus of $200,000 within ninety days after the end of each calendar year. The agreement entitles Mr. Nicosia
to receive various employee benefits generally made available to other officers and senior managers of the Company.
Upon termination of Mr. Nicosia’s
employment by Mr. Nicosia for good reason, by the Company without cause, by the Company because of disability, or upon the Company’s
or Mr. Nicosia’s decision not to renew Mr. Nicosia’s employment in accordance with the automatic successive one-year
extensions, the Company will pay or provide Mr. Nicosia (i) any unpaid base salary and any accrued vacation through the date of
termination; (ii) amounts payable under any Company bonus plans in which Mr. Nicosia is eligible to participate as of the date
of the termination of his employment on a pro-rated basis; (iii) for a period of 12 months, Mr. Nicosia’s then current monthly
base salary multiplied by 2 (but not to exceed $150,000); (iv) outplacement services for Mr. Nicosia for a period of 12 months
with an outplacement firm selected by Mr. Nicosia; (v) at Mr. Nicosia’s election to continue health insurance coverage under
COBRA, Mr. Nicosia’s monthly premium until (a) the close of the severance period, as defined therein, (b) the expiration
of Mr. Nicosia’s continuation of coverage under COBRA, or (c) the date when Mr. Nicosia becomes eligible for substantially
equivalent health insurance coverage in connection with new employment; and (vi) the Company will amend each option agreement then
in effect by and between the Company and Mr. Nicosia (a) to make 100% of the then unvested shares subject to each option agreement
fully vested and fully exercisable, (b) to terminate any rights the Company may have to repurchase unvested shares and (c) to permit
Mr. Nicosia to exercise the options provided by each option agreement for a period of ten (10) years following the termination
of Mr. Nicosia’s employment. Upon the termination of Mr. Nicosia’s employment because of death, Mr. Nicosia’s
estate will be entitled to receive (i) Mr. Nicosia’s then current base salary through the end of the month in which his death
occurs, (ii) all accrued and unpaid compensation (including any accrued and unused vacation time) and earned but unpaid bonus payments.
Upon the termination of Mr. Nicosia’s employment by the Company for cause or by Mr. Nicosia without good reason, the Company
will pay Mr. Nicosia (i) a pro rata amount of Mr. Nicosia’s then current base salary through the date his employment is terminated
and (ii) all unpaid bonuses and accrued and unpaid compensation (including any accrued and unused vacation).
Tyler Nelson
On September 24, 2020, we entered into
an Employment Agreement with Tyler Nelson to serve as our Chief Financial Officer. The agreement provides for an annual salary
of $50,000 (the “Nelson Base Salary”). The Nelson Base Salary is payable in equal installments and will be paid
every two weeks. The Nelson Base Salary will increase as follows: (i) upon the Company earning a total of at least $3,000,000 in
Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) during any calendar year, the Nelson Base
Salary will increase to $100,000 for all calendar years thereafter until if and when further increased pursuant to this Section
4.1; and (ii) for every $1,500,000 increase in EBITDA earned by the Company during any calendar year, the Nelson Base Salary will
increase an additional $50,000 up to a maximum base salary of $350,000. Any increase to the Nelson Base Salary will be effective
the first pay period of the Company after the Company reaches a particular EBITDA amount is achieved that triggers the increase.
For example purposes only and not by way of limitation: (i) if on October 31, 2021 the Company reaches $3,000,000 in EBITDA earned
during the 2021 calendar year, the Nelson Base Salary would increase to $100,000 commencing the Company’s first pay period
after October 31, 2021; and (ii) if on November 15, 2022 the Company reaches $4,500,000 in EBITDA earned during the 2022 calendar
year, the Nelson Base Salary would increase to $150,000 commencing the Company’s first pay period after November 15, 2022.
The Employment Agreement has a term of
three years and automatically extends for successive one-year periods unless terminated by the Company or Mr. Nelson, with three
months written notice required. The agreement provides for incremental increases upon the Company’s achievement of specific
performance metrics. The agreement also provides for an annual bonus of up to 100% of Mr. Nelson’s then base salary upon
the achievement of certain performance goals established and approved by the Board of Directors; provided, that at any time Mr.
Nelson’s base salary is $200,000 or more, the Company will pay Mr. Nelson a minimum annual bonus of $200,000 within ninety
days after the end of each calendar year. The agreement entitles Mr. Nelson to receive various employee benefits generally made
available to other officers and senior managers of the Company.
Upon termination Mr. Nelson’s employment
by Mr. Nelson for good reason, by the Company without cause, by the Company because of disability, or upon the Company’s
or Mr. Nelson’s decision not to renew Mr. Nelson’s employment in accordance with the automatic successive one-year
extensions, the Company will pay or provide Mr. Nelson (i) any unpaid base salary and any accrued vacation through the date of
termination; (ii) amounts payable under any Company bonus plans in which Mr. Nelson is eligible to participate as of the date of
the termination of his employment on a pro-rated basis; (iii) for a period of 12 months, Mr. Nelson’s then current monthly
base salary multiplied by 2 (but not to exceed $150,000); (iv) outplacement services for Mr. Nelson for a period of 12 months with
an outplacement firm selected by Mr. Nelson; and (v) at Mr. Nelson’s election to continue health insurance coverage under
COBRA, Mr. Nelson’s monthly premium until (a) the close of the severance period, as defined therein, (b) the expiration of
Mr. Nelson’s continuation of coverage under COBRA, or (c) the date when Mr. Nelson becomes eligible for substantially equivalent
health insurance coverage in connection with new employment. Upon the termination of Mr. Nelson’s employment because of death,
Mr. Nelson’s estate will be entitled to receive (i) Mr. Nelson’s then current base salary through the end of the month
in which his death occurs, (ii) all accrued and unpaid compensation (including any accrued and unused vacation time) and earned
but unpaid bonus payments. Upon the termination Mr. Nelson’s employment by the Company for cause or by Mr. Nelson without
good reason, the Company will pay Mr. Nelson (i) a pro rata amount of Mr. Nelson’s then current base salary through the
date his employment is terminated and (ii) all unpaid bonuses and accrued and unpaid compensations (including any accrued and unused
vacation).
Stock Incentive Plan
2021 Equity Incentive Plan
We intend to adopt a new equity incentive
plan prior to the offering, which will authorize the issuance of up to 60,000,000 shares of common stock through the grant
of stock options (including incentive stock options qualifying under section 422 of the Code and nonstatutory stock options),
restricted stock awards, stock appreciation rights, restricted stock units, performance awards, other stock-based awards or any
combination of the foregoing.
Outstanding Equity Awards at December
31, 2020
At December 31, 2020 there were granted
to Matthew Nicosia non-qualified options to purchase up to 5,000,000 shares of the Company’s common stock at
an exercise price equal to 110% of the fair market value of the Company’s Common Stock on the date of grant. There are no
other outstanding equity awards held by our executive officers.
For the year ended December 31,
2020, the Company granted stock-based non-qualified compensation to employees, including a 500,000 share stock award, which
vests at the end of four years and a 5,000,000 stock options that cliff vests at the end of five years. For the year ended
December 31, 2020, stock-based compensation was $146,114.
For the year ended December 31, 2020,
the Company also granted non-statutory stock options, including 4,000,000 stock options to members of the Board of Directors, which
vest over one year, and a 10,000,000 stock option to a consultant, which vests over four years. Non-statutory stock based compensation
was $555,000 for the year ended December 31, 2020.
Employee Pension, Profit Sharing or other Retirement Plan
We do not have a defined benefit, pension
plan, profit sharing or other retirement plan, although we may adopt one or more of such plans in the future.
Director Compensation
The table below shows the compensation
paid to our directors during the years ended December 31, 2019. Matthew Nicosia was not compensated for acting as a director during
fiscal year 2020 or 2019. Each of Al Ferrarra, Trent Staggs, Matthew Balk and Joseph Spence were appointed to the
Board of Directors after January 1, 2020.
|
Name
|
|
Year
|
|
Fees Earned or
Paid
in Cash
|
|
|
Stock Compensation
|
|
|
Total
|
|
|
Pablo Peneloza(1)
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
$
|
16,615
|
|
|
|
|
|
|
$
|
16,615
|
|
|
Trent Staggs(2)
|
|
2020
|
|
$
|
3,333
|
|
|
$
|
40,000
|
|
|
$
|
43,333
|
|
|
|
|
2019
|
|
$
|
84,704
|
|
|
|
|
|
|
$
|
84,704
|
|
|
Al Ferraro
|
|
2020
|
|
$
|
3,333
|
|
|
$
|
40,000
|
|
|
$
|
43,333
|
|
|
Joseph Spence
|
|
2020
|
|
$
|
3,333
|
|
|
$
|
40,000
|
|
|
$
|
43,333
|
|
|
Matthew Balk
|
|
2020
|
|
$
|
3,333
|
|
|
$
|
40,000
|
|
|
$
|
43,333
|
|
_________________
|
(1)
|
Pablo Peneloza resigned from the Company’s Board of
Directors on September 21, 2020.
|
|
(2)
|
Trent Staggs received $84,704 from the Company as payment for consulting services rendered in 2019.
|
PRINCIPAL SHAREHOLDERS
The following table sets forth certain
information regarding our voting shares beneficially owned as of April 1, 2021 by (i) each stockholder known to be the
beneficial owner of 5% or more of the outstanding shares of the particular class of voting stock, (ii) each executive officer,
(iii) each director, and (iv) all executive officers and directors as a group. A person is considered to beneficially own any
shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii)
of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options,
warrants and/or other convertible securities. Unless otherwise indicated, voting and investment power relating to the shares shown
in the tables for each beneficial owner is exercised solely by the beneficial owner.
For purposes of computing the percentage
of outstanding shares of our common stock held by each person or group of persons, any shares that such person or persons has
the right to acquire within 60 days of April 1, 2021 is deemed to be outstanding, but is not deemed to be outstanding
for the purpose of computing the percentage ownership of any other person.
The percentage of beneficial ownership
of our common stock before this offering is based on an aggregate of 391,916,585 shares outstanding, consisting of (i) 339,067,621
shares of common stock outstanding as of the date of this prospectus and (ii) 52,848,964 shares of common stock into which
all of our preferred stock outstanding as of the date of this prospectus will be converted immediately prior to this offering.
The percentage of beneficial ownership of our common stock after the offering is based on shares of common stock outstanding after
the offering, which includes the common stock to be sold by us in the offering, assuming no exercise of the over-allotment option
by the underwriter.
Except as indicated in footnotes to this
table, we believe that the stockholders named in this table have sole voting and investment power with respect to all shares of
common stock shown to be beneficially owned by them, based on information provided to us by such stockholders. Unless otherwise
indicated, the address for each director and executive officer listed is: c/o Vivakor, Inc., 433 Lawndale Drive, South Salt Lake
City, UT 84115.
|
Name and Address of Beneficial Owner
|
|
Shares of Common Stock Beneficially
Owned
|
|
Percentage of Common Stock
Beneficially Owned
|
|
Shares of Series A Preferred
Stock Beneficially Owned
|
|
Percentage of Series A Preferred Stock Beneficially
Owned
|
|
Shares of Series B Preferred Stock Beneficially
Owned
|
|
Percentage of Series B Preferred Stock Beneficially
Owned
|
|
Shares of Series B-1 Preferred Stock Beneficially
Owned
|
|
Percentage of Series B-1 Preferred Stock Beneficially
Owned
|
|
Shares of Series C-1 Preferred Stock Beneficially
Owned
|
|
Percentage of Series C-1 Preferred Stock Beneficially
Owned
|
|
|
Matt Nicosia, Chief Executive Officer and Director (1)(2)(3)
|
|
108,682,850
|
|
27.73 %
|
|
2,000,000
|
|
100.00%
|
|
|
|
|
|
|
|
-
|
|
-
|
|
-
|
|
|
Tyler Nelson, Chief Financial Officer
|
|
0
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel Hashim, Chief Scientific Officer (3)
|
|
5,000,000
|
|
1.28 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Al Ferrara, Director
|
|
100,000
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trent Staggs, Director (4)
|
|
10,100,000
|
|
2.58 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matthew Balk, Director
|
|
100,000
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph Spence, Director
|
|
100,000
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Officers and Directors as a group (seven persons)
|
|
124,082,850
|
|
31.66 %
|
|
2,000,000
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5% Beneficial Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AKMN Irrevocable Trust (2)
|
|
108,682,850
|
|
29.70%
|
|
2,000,000
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sustainable Fuels, Inc. (5)
|
|
20,000,000
|
|
5.87%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regal Growth Inc.(6)
|
|
20,000,000
|
|
5.87%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manta Pointe Holdings, Ltd. (7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,330,537
|
|
17.37%
|
|
|
Srinivasa Rao Kothapalli (8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
804,088
|
|
10.50%
|
|
|
Quba Holdings, LLC (9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
772,988
|
|
10.09%
|
|
|
Kevin Maloney (10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
537,410
|
|
7.02%
|
|
|
Everett Monroe (11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel O. Ritt Trust (12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter D'Arruda (13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evelyn Pastor (14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Celedonia Mehr (15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maria Teresa Rivera (16)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dudley Frank(17)
|
|
|
|
|
|
|
|
|
|
4,250,000
|
|
62.10%
|
|
|
|
|
|
|
|
|
|
(continued)
|
Name and Address of Beneficial Owner
|
|
Percentage of Series C-1 Preferred Stock Beneficially
Owned After the Offering
|
|
Value of Class B Units of VV RII Beneficially Owned
|
|
Percentage of VV RII Class B Units Beneficially
Owned
|
|
Percentage of VV RII Class B Units Beneficially
Owned After the Offering
|
|
Value of Units of VWFI Beneficially Owned
|
|
Percentage of VWFI Units Beneficially Owned
|
|
Percentage of VWFI Units Beneficially Owned After
the Offering
|
|
Shares of Common Stock Beneficially
Owned After the Offering
|
|
Percentage of Common Stock
Beneficially Owned After the Offering
|
|
|
Matt Nicosia, Chief Executive Officer and Director (1)(2)(3)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
133,682,850
|
|
-
|
|
|
Tyler Nelson, Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel Hashim, Chief Scientific Officer (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000,000
|
|
|
|
|
Al Ferrara, Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
|
Trent Staggs, Director (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,100,000
|
|
|
|
|
Matthew Balk, Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
|
Joseph Spence, Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
|
All Officers and Directors as a group (seven persons)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149,082,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5% Beneficial Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AKMN Irrevocable Trust (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sustainable Fuels, Inc. (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regal Growth Inc. (6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manta Pointe Holdings, Ltd. (7)
|
|
17.37%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,330,537
|
|
|
|
|
Srinivasa Rao Kothapalli (8)
|
|
10.50%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
804,088
|
|
|
|
|
Quba Holdings, LLC (9)
|
|
10.09%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
772,988
|
|
|
|
|
Kevin Maloney (10)
|
|
7.02%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
537,410
|
|
|
|
|
Everett Monroe (11)
|
|
|
|
$90,000
|
|
7.88%
|
|
7.88%
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel O. Ritt Trust (12)
|
|
|
|
$65,000
|
|
5.69%
|
|
5.69%
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter D'Arruda (13)
|
|
|
|
$60,000
|
|
5.25%
|
|
5.25%
|
|
|
|
|
|
|
|
|
|
|
|
|
STRATA Trust Company, Custodian FBO: Donna Hansen IRA (14)
|
|
|
|
|
|
|
|
|
|
$525,000
|
|
16.75%
|
|
|
|
|
|
|
|
|
STRATA Trust Company, Custodian FBO: Bella Manansala IRA (15)
|
|
|
|
|
|
|
|
|
|
$525,000
|
|
16.75%
|
|
|
|
|
|
|
|
|
Provident Trust Group, Custodian FBO: Wilfredo E. Rivera IRA (16)
|
|
|
|
|
|
|
|
|
|
$515,000
|
|
16.43%
|
|
|
|
|
|
|
|
|
Dudley Frank(17)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,250,000
|
|
|
|
|
STRATA Trust Company, Custodian FBO: Barry Charity IRA(18)
|
|
|
|
|
|
|
|
|
|
$200,000
|
|
6.38%
|
|
|
|
|
|
|
|
________________________
|
*
|
|
Less than 1%
|
|
|
|
|
|
(1)
|
|
The address for these stockholders is: c/o Vivakor, Inc., 433 Lawndale Drive, South Salt Lake City, Utah 84115.
|
|
(2)
|
|
The shares
of common stock beneficially owned by Matthew Nicosia includes 108,652,850 shares of common
stock held by AKMN Irrevocable Trust. Matthew Nicosia is the trustee of the AKMN Irrevocable
Trust, of which Jonathan Nicosia, Matthew Nicosia’s son, a minor, is the beneficiary.
AKMN Irrevocable Trust also holds 2,000,000 shares of Series A preferred stock and has agreed
to convert these shares into 25,000,000 shares of our common stock immediately prior to
the closing of this offering. Does not include options to purchase 5,000,000 shares of
common stock.
|
|
(3)
|
|
The
5,000,000 shares of Series C-1 Preferred Stock beneficially owned by Dr. Hashim
are directly held by CSS Nanotech Ltd. Dr. Hashim is the Chief Executive Officer of CSS
Nanotech Ltd.
|
|
(4)
|
|
The 10,100,000 shares of common stock beneficially owned
by Trent Staggs are held by TABBS Irrevocable Trust. Trent Staggs is the trustee of TABBS Irrevocable Trust, of which Brennan Trent
Staggs and Brecklyn Staggs, Trent Staggs’s children, are the beneficiaries.
|
|
(5)
|
|
Sustainable Fuels, Inc. is owned by Debbie Carpenter, who may be deemed the beneficial owner of these shares. The address for Sustainable Fuels, Inc. is 10124 Marchant Avenue Tustin, CA 92872.
|
|
(6)
|
|
Regal Growth, Inc. is owned by William Reininger, who may be deemed the beneficial owner of these shares. The address for Regal Growth is 2309 Balleyfield Avenue Thousand Oaks, CA 91360.
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(7)
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Manta Point Holdings, Ltd. is owned by Rakan Al-Ghanim, who may be deemed the beneficial owner of these shares. The address for Manta Point Holdings, Ltd. is Whiteley Chambers Don Street, St. Helier, Jersey JE2 4TR.
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(8)
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Srinivasa Rao Kothapali’s address is 2501 Jimmy Johnson
Suite 500 Port Arthur, TX 77640.
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(9)
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Quba Holdings, LLC is owned by Benjamin Bequer, who may be deemed the beneficial owner of these shares. The address for Quba Holdings, LLC is 5405 Seashore Drive Newport Beach, CA 92663.
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(10)
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Kevin Maloney’s address is 15
Crest Circle, Corona Del Mar, CA 92625.
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(11)
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Everett Monroe’s address is 5813 114th Street, Lubbock TX 79424.
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(12)
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Daniel O. Ritt Trust’s address is 168 Dover Pkwy, Stewart Manor, NY 11530.
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(13)
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Peter D’Arruda’s address is 124 Poppleford Place, Cary, NC 27518.
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(14)
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Strata Trust Company’s address is 7901
Woodway Dr., Ste 200, Waco, TX, 76712.
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(15)
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Strata Trust Company’s address is 7901
Woodway Dr., Ste 200, Waco, TX, 76712.
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(16)
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Provident Trust Group’s address is 8880
W. Sunset Rd., Las Vegas, NV, 89148.
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(17)
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Dudley Frank’s address is 1827 Loma Roja, Santa Ana, CA 92705.
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(18)
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Strata Trust Company’s address
is 7901 Woodway Dr., Ste 200, Waco, TX, 76712.
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CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS
Related Party Transactions
The following is a description of each
transaction since January 1, 2019 and each currently proposed transaction in which:
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we have been or are to be a participant;
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the amount involved exceeded the lesser of $120,000 or one percent
of the average of our total assets at year-end for the last two completed fiscal years; and
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any of our directors, executive officers or holders of more than 5%
of our outstanding capital stock, or any immediate family member of, or person sharing the household with, any of these individuals
or entities, had or will have a direct or indirect material interest.
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Our current policy with regard to related
party transactions is for the Board as a whole to approve any material transactions involving our directors, executive officers
or holders of more than 5% of our outstanding capital stock.
We provided secured loan financing and
assistance to Vivaceuticals for the development and commercialization of two bioactive beverages and one weight loss beverage.
Our Chief Executive Officer, at the time we made the loan, Matthew Nicosia was an officer and director of Vivaceuticals. Vivaceuticals
sold its assets to Scepter Holdings, Inc. in 2018. In 2019, we received 800,000 shares of preferred stock in Scepter Holdings,
Inc. to extinguish the loan encumbering the assets. We have converted these preferred shares into 800,000,000 shares of Common
Stock of Scepter Holdings, Inc., which is traded on the OTC Markets (ticker: BRZL).
In September 2020, we entered into
a consulting contract with LBL Professional Consulting, Inc. (“LBL”), of which Tyler Nelson is a common officer, which
remains in effect. For the years ended December 31, 2020 and 2019, we paid LBL $191,295 and $231,199, respectively, for a team
of consultants serving us. In September 2020, the Company granted non-statutory stock options to LBL to purchase 30,000,000 shares
of common stock. On December 17, 2020 the parties agreed to amend the contract to reduce the stock options to purchase 10,000,000
shares of common stock. The stock options vest over four years. The stock option is exercisable up to ten years from the grant
date. Mr. Nelson is not the beneficiary of the Company and is not be permitted to participate in any discussion, including LBL’s
board meetings, regarding any Company stock that LBL may own at any time.
We have an existing note payable issued
to TriValley and Triple T, which is owned by Dr. Khalid Bin Jabor Al Thani, the 51% majority-owner of Vivakor Middle East LLC
The note is interest free, has no fixed maturity date and will be repaid from revenues generated by Vivakor Middle East LLC. As
of December 31, 2020 and 2019 the balance owed was $295,543 and $247,192, respectively.
In July 2020, the Company entered into
an agreement with International Metals Exchange, LLC (“IME”), giving IME the option to purchase approximately 1,331
ounces of our precious metal concentrate for approximately $2,800,000. VVMCI, a wholly-owned subsidiary of Vivakor, Inc. owns
all of the Class A Units of IME, which have sole voting power for all material matters except for removal of the manager, and
VVMCI serves as a manager of IME. As of December 31, 2020, the Company has sold $54,250 of the precious metal concentrate
through this option.
On
January 20, 2021, the Company entered into a worldwide, exclusive license agreement with TBT Group, Inc. (of which an independent
Vivakor Board member is a 7% shareholder) to license piezo electric and energy harvesting technologies for creating self-powered
sensors for making smart roadways. The Company is required to pay $25,000 and 500,000 shares of restricted common stock within
upon signing. Upon the earlier of (i) 120 days or (ii) the effectiveness of the Company's Registration Statement and receipt
of public offering proceeds, the Company will pay licensor $225,000 and 500,000 shares of restricted common stock. When the licensor
delivers to the Company data showing that the sensor performs based on mutually defined specifications and all designs for the
sensor are completed, Company shall pay an additional $250,000 and 500,000 shares of restricted common stock. Upon the delivery
of a mutually agreed working prototype, Company will pay licensor $250,000 and 500,000 shares of restricted common stock. Upon
commercialization of the product, the Company will pay licensor $250,000 and 1,000,000 shares of restricted common stock. TBT
shall have the option, at its sole discretion, to convert the license to a non-exclusive license if the Company fails to pay $500,000
to TBT for sensor inventory per year, which will commence after the second anniversary of product commercialization. The Company
shall share in the development costs of the sensor technology to the time of commercialization. Total costs attributed to the
Company are estimated to be $125,000.
Policy on Future Related-Party Transactions
Following this offering, all future transactions
between us and our officers, directors, principal stockholders and their affiliates will be approved by the audit committee, or
a similar committee consisting of entirely independent directors, according to the terms of our Code of Business Conduct and Ethics
and our Related-Party Transaction Policies and Procedures.
DESCRIPTION OF SECURITIES
Introduction
In the discussion that follows, we have
summarized selected provisions of our articles of incorporation (including the amended and restated articles of incorporation we
intend to adopt in connection with this offering), bylaws and the Nevada Revised Statutes relating to our capital stock. This summary
is not complete. This discussion is subject to the relevant provisions of Nevada law and is qualified by reference to our articles
of incorporation and our bylaws. You should read the provisions of our articles of incorporation and our bylaws as currently in
effect for provisions that may be important to you.
Current Amended and Restated Articles
of Incorporation
Authorized Capital Stock
We are currently authorized to issue
up to 1,700,000,000 shares of capital stock consisting of: 1,250,000,000 shares of common stock, par value $0.001 per share, and 450,000,000
shares of preferred stock, par value of $0.001 per share. As of April 1, 2021, there were 339,067,621 shares of common stock
that were issued and outstanding and held of record by 479 stockholders. As of April 1, 2021, there were 29,848,964 shares of preferred
stock outstanding.
On December 18, 2020, our Board of Directors and stockholders
holding a majority of our outstanding voting shares, authorized a reverse stock split of each of the outstanding shares
of the Corporation’s common stock, $0.001 par value per share, as well as each of the outstanding shares of the Corporation’s
preferred stock, at a ratio to be determined by the Board of within a range of a minimum of a one-for-twelve (1-for-12) to a maximum
of one-for-forty (1-for-40) (the “Reverse Stock Split Ratio”), with the exact ratio to be set at a number within this
range as determined by the Board in its sole discretion, with no change in par value. The Board of Directors has not approved
a stock split ratio as of the date of this report.
Common Stock
Holders of our common stock are each entitled
to cast one vote for each share held of record on all matters presented to the shareholders. Cumulative voting is not allowed.
Holders of our common stock are entitled
to receive such dividends as may be declared by our Board of Directors out of funds legally available (subject to the rights of
holders of all classes of stock at the time outstanding having prior rights as to dividends) and, in the event of liquidation,
to share pro rata in any distribution of our assets after payment of liabilities (subject to the rights of holders of all classes
of stock at the time outstanding having prior rights as to distributions). Our Board of Directors is not obligated to declare a
dividend. It is not anticipated that dividends will be paid in the foreseeable future.
Holders of our common stock do not have
preemptive rights to subscribe to additional shares if issued. There is no conversion, redemption, sinking fund or similar provisions
regarding the common stock. All outstanding shares of common stock are fully paid and non-assessable.
We expect to effect a
-for-
reverse stock split of our outstanding common stock prior to the completion of this offering.
Preferred Stock
We are authorized to issue 450,000,000
shares of preferred stock, of which 300,000,000 shares have been designated as follows: (i) 2,000,000 shares of Series A preferred
stock, of which all 2,000,000 are outstanding as of December 31, 2020; (ii) 98,000,000 shares of Series B preferred stock, of
which 9,594,496 are outstanding as of December 31, 2020; (iii) 50,000,000 shares of Series B-1 preferred stock, of which 18,787,319
are outstanding as of December 31, 2020; (iv) 100,000,000 shares of Series C preferred stock, of which zero are outstanding as
of December 31, 2020; and (v) 100,000,000 shares of Series C-1 preferred stock, of which 12,715,821 shares are outstanding as
of December 31, 2020.
An additional 150,000,000 shares
may be designated from time to time in one or more series as may be determined by our Board of Directors, subject to the protective
rights of any classes of preferred stock then outstanding, with the voting powers and preferences, the relative rights of each
such series and the qualifications, limitations and restrictions of each such series of undesignated shares to be established
by the Board of Directors. Our directors may issue preferred stock with multiple votes per share and dividend rights which would
have priority over any dividends paid with respect to the holders of our common stock. The issuance of preferred stock with these
rights may make the removal of management difficult even if the removal would be considered beneficial to shareholders generally,
and will have the effect of limiting shareholder participation in transactions such as mergers or tender offers if these transactions
are not favored by our management.
The Series A Preferred Stock provides holders
the right to convert each share into shares of common stock at a conversion price of $0.02 per share, subject to adjustment.
Holders of the Series A preferred stock are not entitled to receive dividends. Holders of Series A preferred stock have the right
to 25 votes for each share of common stock into which such shares of Series A Preferred Stock may then be converted. Holders of
Series A preferred stock are entitled to receive liquidation preference, prior to and in preference to any distribution of any
of the assets of the Company to the holders of common stock, or any other series of preferred stock. Immediately prior to the closing
of this offering, the outstanding shares of Series A preferred stock will be converted into 25,000,000 shares of common stock.
The Series B Preferred Stock provides
holders the right to convert, at any time on or after the date that is one (1) year after the date of issuance of such share,
at a conversion price that is the lesser of (i) the Original Series B Issue Price and (ii) ninety percent (90%) of the Market
Price (as defined in the Company’s Articles of Incorporation, as amended); provided, however, upon the earlier to occur
of a Qualified Public Offering (as defined in the Company’s Articles of Incorporation, as amended) or May 1, 2021, each
share of Series B Preferred Stock is convertible into one share of common stock. Holders of Series B preferred stock are entitled
to receive dividends at the rate of $0.025 per share per annum. Each Holder of Series B is entitled to vote upon matters
presented to the Company’s shareholders on an as converted basis. Holders of Series B preferred stock are entitled to receive
liquidation preference, prior to and in preference to any distribution of any of the assets of the Company to the holders of common
stock, Series A preferred stock or any other series of preferred stock. Immediately prior to the closing of this offering, the
outstanding shares of Series B preferred stock will be converted into 9,594,496 shares of common stock.
The Series B-1 Preferred Stock provides
holders the right to convert at any time on or after the date that is one (1) year after the date of issuance of such share, at
a conversion price that is the lesser of (i) the Original Series B-1 Issue Price and (ii) ninety percent (90%) of the Market Price;
provided, however, upon the earlier to occur of a Qualified Public Offering or May 1, 2021, each share of Series B-1 Preferred
Stock is convertible into one share of common stock. Holders of Series B-1 preferred stock are not entitled to receive dividends.
Holders of Series B-1 preferred stock are not entitled to vote on matters presented to the shareholders of the Company. Holders
of Series B-1 preferred stock are entitled to receive liquidation preference, pari passu with the holders of Series B preferred
stock and prior to and in preference to any distribution of any of the assets of the Company to holders of common stock, Series
A preferred stock, Series C preferred stock, Series C-1 preferred stock, or any other class of preferred stock. Immediately prior
to the closing of this offering, the outstanding shares of Series B-1 preferred stock will be converted into 18,787,319 shares
of common stock.
There are currently no shares of Series
C preferred stock outstanding. Holders of the Series C preferred stock would have the right to convert each share into common stock
in the number of fully paid and nonassessable shares of common stock at a conversion price of the lesser of (i) $0.35 per
share and (ii) ninety percent (90%) of the market price on the conversion date, subject to adjustment. Holders of Series C preferred
stock would be entitled to receive dividends at the rate of $0.04375 per share per annum. Holders of Series C preferred stock
would be entitled to vote upon matter presented to the Company’s shareholders on an as converted basis. Holders of Series
C preferred stock are entitled to receive liquidation preference, prior to and in preference to any distribution of any of the
assets of the Company to the holders of common stock, Series A Preferred Stock or any other series of preferred stock.
The Series C-1 Preferred Stock provides
holders the right to convert each share into one share of common stock. Holders of Series C-1 preferred stock are not entitled
to receive dividends. Holders of Series C-1 preferred stock shall be entitled to vote on all matters submitted to the shareholders
of the Company on an as-converted basis. Holders of Series C-1 Preferred Stock are entitled to receive liquidation preference,
pari passu with the holders of Series C Preferred Stock and prior to and in preference to any distribution of any of the
assets of the Company to the holders of common stock, Series A preferred stock or any other series of preferred stock. Immediately
prior to the closing of this offering, the outstanding shares of Series C-1 convertible preferred stock will be converted into
12,715,821 shares of common stock.
Second Amended and Restated
Articles to be Adopted in Connection with this Offering
Prior to the closing of this offering,
we intend to amend and restate our amended and restated articles of incorporation, to, among other things, effect a
-for- reverse stock split and to eliminate the current provisions related
to our preferred stock.
The following is a summary of our capital stock
and provisions of our second amended and restated articles of incorporation, as it will be in effect upon the closing of this
offering. For more detailed information, please see the form of second amended and restated articles of incorporation and the
form of amended and restated bylaws, which are filed as exhibits to the registration statement of which this prospectus forms a part.
The descriptions of our common stock and preferred stock reflect changes to our capital structure that will occur upon the closing of
this offering.
Upon completion of this offering, we will be authorized to
issue shares of common stock, $0.001 par value per share, and
shares of preferred stock, $0.001 par value per share, and there will be
shares of common stock and no shares of preferred stock outstanding.
Common Stock
Pursuant to the terms of the second amended
and restated articles of incorporation we intend to adopt in connection with this offering, the holders of common stock will be entitled
to one vote per share on all matters to be voted upon by the shareholders, except on matters relating solely to terms of preferred stock.
Subject to preferences that may be applicable to any outstanding preferred stock, the holders of common stock will be entitled to receive
ratably such dividends, if any, as may be declared from time to time by the board of directors out of funds legally available therefor.
See “Dividend Policy.” In the event of our liquidation, dissolution or winding up, the holders of our common stock will be
entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock,
if any, then outstanding. The holders of our common stock will have no preemptive or conversion rights or other subscription rights.
There will be no redemption or sinking fund provisions applicable to our common stock.
Preferred Stock
Pursuant to the terms of the second amended
and restated articles of incorporation we intend to adopt in connection with this offering, our board of directors will have the authority
to issue preferred stock in one or more classes or series and to fix the designations, powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, including dividend rights, conversion right, voting rights, terms of redemption, liquidation preferences
and the number of shares constituting any class or series, without further vote or action by the stockholders. Although we have no present
plans to issue any shares of preferred stock, the issuance of shares of preferred stock, or the issuance of rights to purchase such shares,
could decrease the amount of earnings and assets available for distribution to the holders of common stock, could adversely affect the
rights and powers, including voting rights, of the common stock, and could have the effect of delaying, deterring or preventing a change
of control of us or an unsolicited acquisition proposal.
Limitation on Directors’ Liability
The Nevada Revised Statutes limits or eliminates
the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’
fiduciary duties as directors. Our Amended and Restated Bylaws include provisions that require the company to indemnify our directors
or officers against monetary damages for actions taken as a director or officer of our Company. We are also expressly authorized
to carry directors’ and officers’ insurance to protect our directors, officers, employees and agents for certain liabilities.
Our Amended and Restated Articles of Incorporation do not contain any limiting language regarding director immunity from liability.
The limitation of liability and indemnification
provisions under the Nevada Revised Statutes and our Amended and Restated Bylaws may discourage stockholders from bringing a lawsuit
against directors for breach of their fiduciary duties. These provisions may also have the effect of reducing the likelihood of
derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and
our stockholders. However, these provisions do not limit or eliminate our rights, or those of any stockholder, to seek non-monetary
relief such as injunction or rescission in the event of a breach of a director’s fiduciary duties. Moreover, the provisions
do not alter the liability of directors under the federal securities laws. In addition, your investment may be adversely affected
to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers
pursuant to these indemnification provisions.
Nevada Anti-Takeover Statute
We may be subject to Nevada’s Combination
with Interested Stockholders Statute (Nevada Corporation Law Sections 78.411-78.444) which prohibits an “interested
stockholder” from entering into a “combination” with the corporation, unless certain conditions are met. An “interested
stockholder” is a person who, together with affiliates and associates, beneficially owns (or within the prior two years,
did beneficially own) 10% or more of the corporation’s capital stock entitled to vote.
Transfer Agent and Registrar
The transfer agent and registrar for our
common stock is Empire Stock Transfer with an address at 1859 Whitney Mesa Drive, Henderson, Nevada 89014.
Listing
Our common stock is currently quoted on the
OTCPink under the trading symbol “VIVK”. We have applied to list our common stock on the Nasdaq Capital Market under
the symbol “VIVK”.
UNDERWRITING
We have entered into an underwriting
agreement, dated , 2021, with ,
acting as the representative of the several underwriters named below, with respect to the shares of common stock and accompanying
purchase warrants. Subject to certain conditions, we have agreed to sell to the underwriters, and the underwriters have severally
agreed to purchase, the shares of common stock and accompanying purchase warrants, provided below opposite their respective names.
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Underwriter
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Number of shares
of common stock
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Total:
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The underwriters are committed to purchase
all the shares of common stock offered by us other than those covered by the option to purchase additional shares as described
in the “Over-allotment Option” section below. The obligations of the underwriters may be terminated upon the occurrence
of certain events specified in the underwriting agreement. Furthermore, pursuant to the underwriting agreement, the underwriters’
obligations are subject to customary conditions, representations and warranties contained in the underwriting agreement, such
as receipt by the underwriters of officers’ certificates and legal opinions.
Discount, Commissions and Expenses
The underwriters have advised us that
they propose to offer the shares of common stock at the public offering price set forth on the cover page of this prospectus and
to certain dealers at that price less a concession not in excess of $
per share of common stock. The underwriters may allow, and certain dealers may reallow, a discount from the concession not in
excess of $ per share of common stock to certain
brokers and dealers. After this offering, the public offering price, concession and reallowance to dealers may be changed by the
representative. No such change shall change the amount of proceeds to be received by us as set forth on the cover page of this
prospectus. The shares of common stock and accompanying purchase warrants are offered by the underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order in whole or in part. The underwriters have informed
us that they do not intend to confirm sales to any accounts over which they exercise discretionary authority.
The following table shows the underwriting
discount payable to the underwriters by us in connection with this offering:
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Per Share and
accompanying Purchase Warrants
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Total without
Exercise of Over-allotment option
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Total with
Exercise of Over-allotment option
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Public offering price
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$
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$
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$
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Underwriting discounts and commissions (8.5%)
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$
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$
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$
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Proceeds, before expenses, to us
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$
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$
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$
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We have agreed to reimburse the underwriters
up to $100,000 for their actual and accountable out-of-pocket expenses and up to $75,000 for their non-accountable expenses. We
estimate that expenses payable by us in connection with this offering, including reimbursement of the underwriters’ out-of-pocket
expenses, but excluding the underwriting discount referred to above, will be approximately $ .
Over-allotment
Option
We have granted to the underwriters
an option exercisable not later than 45 days after the date of this prospectus to purchase up to an additional shares
of common stock (equal to 15% of the number of shares of common stock sold in this offering), solely to cover overallotments,
if any, at the public offering price set forth on the cover page hereto less the underwriting discounts and commissions. The underwriters
may exercise the option solely to cover overallotments, if any, made in connection with this offering. If any additional shares
of common stock are purchased pursuant to the over-allotment option, the underwriters will offer these shares of common stock
on the same terms as those on which the other securities are being offered.
Indemnification
We have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act and liabilities arising from breaches of representations
and warranties contained in the underwriting agreement, or to contribute to payments that the underwriters may be required to
make in respect of those liabilities.
Right of
First Refusal
Provided this
offering is completed, for a period of twenty-four (24) months from the closing date of this offering, we have granted the representative
of the underwriters a right of first refusal to act as our sole investment banker, sole book-runner, sole financial advisor, sole
underwriter and/or sole placement agent, as applicable, in the event we decide to pursue an offering of public and private equity
and debt securities during such period.
Lock-up Agreements
Our directors, executive officers, and holders
of 5% or more of our common stock (measured as of the effective date of the registration statement of which this prospectus forms a part)
have entered into lock-up agreements. Under these agreements, these individuals have agreed, subject to specified exceptions, not to
sell or transfer any shares of common stock or securities convertible into, or exchangeable or exercisable for, our shares of common
stock during a period ending ninety (90) days after the date of this prospectus, without first obtaining the written consent of the
representative of the underwriters. Specifically, these individuals have agreed, in part, not to:
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offer, pledge, sell, contract to sell, grant, lend or otherwise
transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable
or exchangeable for shares of common stock, whether now owned or hereafter acquired or with respect to which such person has
or later acquires the power of disposition, whether any such transaction is to be settled by delivery of our securities, in
cash, or otherwise;
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enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of our securities, whether any such transaction
is to be settled by delivery of our shares of common stock, in cash or otherwise;
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make any demand for or exercise any right with respect to
the registration of any of our securities; or
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publicly disclose the intention to make any offer, sale,
pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement relating to any of our securities.
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Notwithstanding these limitations,
these shares of common stock may be transferred under limited circumstances, including, without limitation, by gift, will or intestate
succession.
In addition, we have agreed that, for
a period of ninety (90) days from the date of this prospectus, with certain exceptions, we will not (i) offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant
to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any of our shares of common stock or any securities
convertible into or exercisable or exchangeable for our shares of common stock; (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences of ownership of our capital, whether any such
transaction described in clause (i) or (ii); or (iii) except as provided in the lock-up agreement, make any demand for or exercise
any right or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of
any shares or securities convertible into or exercisable or exchangeable for shares or any other of our securities; or (iv) publicly
disclose the intention to do any of the foregoing for a period commencing on the date hereof and ending ninety (90) days after
the closing date of the offering.
Representative’s Warrants
We have also agreed to issue to the
representative warrants to purchase a number of our shares of common stock equal to an aggregate of 5% of the shares of common
stock sold in this offering (excluding any shares sold for over-allotments). The warrants will have an exercise price equal to
110% of the initial public offering price of the shares of common stock sold in this offering and may be exercised on a cashless
basis. The warrants will expire on the fifth anniversary of the effective date of this offering. The warrants provide for one
demand registration of the shares of common stock underlying the warrants at our expense commencing 180 days after the effective
date of this offering and for a period of no more than five years from the effective date of this offering or the commencement
of sales of shares in this offering. In addition, the warrants provide for “piggyback” registration rights at our
expense with respect to the underlying shares of common stock for a period of not more than years from the effective date of the
of the offering or the commencement of sales of shares in this offering. The warrants will provide for adjustment in the number
and price of such warrants (and the shares of common stock underlying such warrants) in the event of recapitalization, merger
or other fundamental transaction. The warrants and the underlying shares of common stock have been deemed compensation by FINRA
and are therefore subject to FINRA Rule 5110(g)(1). In accordance with FINRA Rule 5110(g)(1), neither the warrants nor any shares
of our common stock issued upon exercise of the warrants may be sold, transferred, assigned, pledged, or hypothecated, or be the
subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition
of such securities by any person for a period of 180 days immediately following the date of effectiveness or commencement of sales
of the offering pursuant to which the warrants are being issued, except the transfer of any security:
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by operation of law or by reason of reorganization
of the Company;
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to any FINRA member firm participating in this
offering and the officers or partners thereof, if all securities so transferred remain subject to the lock-up restriction
described above for the remainder of the time period;
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if the aggregate amount of securities of the
Company held by either an underwriter or a related person do not exceed 1% of the securities being offered;
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that is beneficially owned on a pro-rata basis
by all equity owners of an investment fund, provided that no participating member manages or otherwise directs investments
by the fund, and participating members in the aggregate do not own more than 10% of the equity in the fund; or
|
|
|
●
|
the exercise or conversion of any security, if
all securities received remain subject to the lock-up restriction set forth above for the remainder of the time period.
|
In accordance with FINRA Rule 5110(f)(2)(G),
the warrants may not contain certain terms.
Stabilization
In connection with this offering, the
underwriters may engage in over-allotment transactions, syndicate-covering transactions, stabilizing transactions, penalty bids
and purchases to cover positions created by short sales.
|
|
·
|
Stabilizing transactions permit bids to purchase
shares, so long as the stabilizing bids do not exceed a specified maximum and are engaged in for the purpose of preventing
or retarding a decline in the market price of the shares while the offering is in progress.
|
|
|
·
|
Over-allotment transactions involve sales by
the underwriters of shares of common stock in excess of the number of shares the underwriters are obligated to purchase. This
creates a syndicate short position, which may be either a covered short position or a naked short position. In a covered short
position, the number of shares of common stock over-allotted by the underwriters is not greater than the number of shares
of common stock that they may purchase in the over-allotment option. In a naked short position, the number of securities involved
is greater than the number of shares in the over-allotment option. The underwriters may close out any short position by exercising
their over-allotment option and/or purchasing common stock in the open market.
|
|
|
·
|
Syndicate covering transactions involve purchases
of common stock in the open market after the distribution has been completed in order to cover syndicate short positions.
In determining the source of common stock to close out the short position, the underwriters will consider, among other things,
the price of common stock available for purchase in the open market as compared to the price at which they may purchase common
stock through exercise of the over-allotment option. If the underwriters sell more shares of common stock than could be covered
by exercise of the over-allotment option, and, therefore, have a naked short position, the position can be closed out only
by buying common stock in the open market. A naked short position is more likely to be created if the underwriters are concerned
that after pricing there could be downward pressure on the price of the shares in the open market that could adversely affect
investors who purchase in the offering.
|
|
|
·
|
Penalty bids permit the underwriters to reclaim
a selling concession from a syndicate member when the common stock originally sold by that syndicate member are purchased
in stabilizing or syndicate covering transactions to cover syndicate short positions.
|
These stabilizing transactions, syndicate
covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing
or retarding a decline in the market price of our common stock. As a result, the price of our common stock in the open market
may be higher than it would otherwise be in the absence of these transactions.
Neither we nor the underwriters make
any representation or prediction as to the effect that the transactions described above may have on the prices of our securities.
These transactions may occur on the Nasdaq Capital Market or on any other trading market. If any of these transactions are commenced,
they may be discontinued without notice at any time.
Passive Market Making
In connection with this offering, the
underwriters and any selling group members may engage in passive market making transactions in our common shares on Nasdaq in
accordance with Rule 103 of Regulation M under the Exchange Act during a period before the commencement of offers or sales of
common shares and extending through the completion of the distribution. A passive market maker must display its bid at a price
not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive
market maker’s bid that bid must then be lowered when specified purchase limits are exceeded.
Electronic Distribution
This prospectus in electronic format
may be made available on websites or through other online services maintained by one or more of the underwriters, or by their
affiliates. Other than this prospectus in electronic format, the information on any underwriter’s website and any information
contained in any other website maintained by an underwriter is not part of this prospectus or the registration statement of which
this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter in its capacity as underwriter, and
should not be relied upon by investors.
Other
From time to time, certain of the underwriters
and/or their affiliates may in the future provide, various investment banking and other financial services for us for which services
they may in the future receive, customary fees. In the course of their businesses, the underwriters and their affiliates may actively
trade our securities or loans for their own account or for the accounts of customers, and, accordingly, the underwriters and their
affiliates may at any time hold long or short positions in such securities or loans.
Offer restrictions outside the United
States
Other than in the United States, no
action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus
in any jurisdiction where action for that purpose is required. The securities offered by this prospectus and the accompanying
prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements
in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances
that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this
prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution
of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered
by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
LEGAL MATTERS
The validity of the securities being offered
by this prospectus has been passed upon for us by Lucosky Brookman LLP, Woodbridge, New Jersey. Certain legal matters in connection
with this offering will be passed upon for the underwriters by .
EXPERTS
The consolidated balance sheets of Vivakor,
Inc. for the years ended December 31, 2020 and December 31, 2019, and the related consolidated statements of operations,
changes in stockholders’ deficit, and cash flows for the years then ended, have been audited by Macias Gini & O’Connell,
LLP and Hall & Company CPAs and Consultants, Inc., independent registered public accounting firms, as set forth in its
report appearing herein and are included in reliance upon such report given on the authority of said firms as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration
statement on Form S-1 under the Securities Act with respect to the shares offered hereby. This prospectus, which constitutes a
part of the registration statement, does not contain all of the information in the registration statement and the exhibits of the
registration statement. For further information with respect to us and the securities being offered under this prospectus, we refer
you to the registration statement, including the exhibits and schedules thereto.
The SEC maintains a website, which is located
at www.sec.gov, which contains reports, proxy and information statements and other information regarding issuers that file
electronically with the SEC. You may access the registration statement of which this prospectus is a part at the SEC’s website.
We are subject to the information reporting requirements of the Exchange Act, and we will file reports, proxy statements and other
information with the SEC.
VIVAKOR, INC.
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Vivakor, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheet of Vivakor, Inc. (the Company) as of December 31, 2019, and the related consolidated statements of operations, changes in
stockholders’ deficit, and cash flows for the year ended December 31, 2019, and the related notes (collectively referred to as the
“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year ended December 31,
2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility
of the entity’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are
a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
//s Hall & Company CPAS
We have served as the Company's auditor since
2019.
Irvine, CA
November 6, 2020
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Vivakor, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheet of Vivakor, Inc. (the Company) as of December 31, 2020, and the related consolidated statements of operations, stockholders’
equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December
31, 2020, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally
accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility
of the entity’s management. Our responsibility is to express an opinion on the entity’s financial statements based on our
audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Macias Gini & O’Connell LLP
Macias Gini & O’Connell LLP
Irvine, CA 92816
We have served as the Company's auditor since
2021.
Irvine, California
April 9, 2021
VIVAKOR, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
December 31,
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Pro Forma*
|
|
|
ASSETS
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
309,404
|
|
|
$
|
93,361
|
|
|
$
|
309,404
|
|
|
Cash and cash equivalents attributed to variable interest entity
|
|
|
89,500
|
|
|
|
511,542
|
|
|
|
89,500
|
|
|
Accounts Receivable, less allowances of $33,000 and $21,000, respectively
|
|
|
7,735
|
|
|
|
–
|
|
|
|
7,735
|
|
|
Marketable securities, trading
|
|
|
4,016,951
|
|
|
|
–
|
|
|
|
4,016,951
|
|
|
Inventories
|
|
|
525,744
|
|
|
|
525,744
|
|
|
|
525,744
|
|
|
Precious metal concentrate
|
|
|
1,166,709
|
|
|
|
1,183,228
|
|
|
|
1,166,709
|
|
|
Prepaid expenses and other assets
|
|
|
87,052
|
|
|
|
202,392
|
|
|
|
87,052
|
|
|
Total current assets
|
|
|
6,203,095
|
|
|
|
2,516,267
|
|
|
|
6,203,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity method investments
|
|
|
–
|
|
|
|
727,129
|
|
|
|
–
|
|
|
Other investments
|
|
|
4,000
|
|
|
|
28,000
|
|
|
|
4,000
|
|
|
Notes receivable
|
|
|
78,455
|
|
|
|
844,892
|
|
|
|
78,455
|
|
|
Property and equipment, net
|
|
|
18,152,699
|
|
|
|
15,925,548
|
|
|
|
18,152,699
|
|
|
Rights of use assets- operating leases
|
|
|
881,804
|
|
|
|
1,167,149
|
|
|
|
881,804
|
|
|
License agreement, net
|
|
|
2,013,810
|
|
|
|
2,134,639
|
|
|
|
2,013,810
|
|
|
Intellectual property, net
|
|
|
14,966,627
|
|
|
|
16,260,169
|
|
|
|
14,966,627
|
|
|
Total assets
|
|
$
|
42,300,490
|
|
|
$
|
39,603,793
|
|
|
$
|
42,300,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) AND TEMPORARY EQUITY
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
1,350,808
|
|
|
$
|
871,867
|
|
|
$
|
1,350,808
|
|
|
Stock payable
|
|
|
–
|
|
|
|
11,800,000
|
|
|
|
–
|
|
|
Operating lease liabilities, current
|
|
|
276,699
|
|
|
|
345,442
|
|
|
|
276,699
|
|
|
Loans and notes payable, current
|
|
|
1,332,770
|
|
|
|
662,179
|
|
|
|
1,332,770
|
|
|
Loans and notes payable, current attributed to variable interest entity
|
|
|
735,000
|
|
|
|
31,966
|
|
|
|
735,000
|
|
|
Long-term debt, current
|
|
|
593,457
|
|
|
|
126,535
|
|
|
|
593,457
|
|
|
Total current liabilities
|
|
|
4,288,734
|
|
|
|
13,837,989
|
|
|
|
4,288,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities, long term
|
|
|
618,696
|
|
|
|
826,010
|
|
|
|
618,696
|
|
|
Loans and notes payable, long term
|
|
|
777,928
|
|
|
|
–
|
|
|
|
777,928
|
|
|
Long-term debt
|
|
|
4,358,203
|
|
|
|
3,900,923
|
|
|
|
4,358,203
|
|
|
Deferred income tax liabilities
|
|
|
6,207,905
|
|
|
|
5,702,751
|
|
|
|
6,207,905
|
|
|
Total liabilities
|
|
|
16,251,466
|
|
|
|
24,267,673
|
|
|
|
16,251,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable, convertible preferred stock, $.001 par value; 348,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B- 12.5%, cumulative, 6,507,492
and 21,251,890 issued and outstanding as of December 31, 2020 and 2019
|
|
|
1,301,500
|
|
|
|
4,250,380
|
|
|
|
–
|
|
|
Series B-1- 14,031,834 and 22,758,670 issued and outstanding as of December 31, 2020 and 2019
|
|
|
3,507,981
|
|
|
|
5,689,690
|
|
|
|
–
|
|
|
Series C-1-
7,658,680 and 13,384,760 issued and outstanding as of December 31, 2020 and 2019
|
|
|
4,550,977
|
|
|
|
6,841,409
|
|
|
|
|
|
|
Total temporary equity
|
|
|
9,360,458
|
|
|
|
16,781,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible, preferred stock, $.001 par value; 102,000,000
shares authorized; Series A- 2,000,000 issued and outstanding
|
|
|
2,000
|
|
|
|
2,000
|
|
|
|
–
|
|
|
Common stock, $.001 par value; 1,250,000,000 shares authorized; 337,679,020 and 285,343,964 were issued and outstanding as of December 31, 2020 and 2019
|
|
|
337,679
|
|
|
|
285,344
|
|
|
|
390,877
|
|
|
Additional paid-in capital
|
|
|
45,294,790
|
|
|
|
24,793,943
|
|
|
|
54,604,050
|
|
|
Treasury stock, at cost
|
|
|
(20,000
|
)
|
|
|
(20,000
|
)
|
|
|
(20,000
|
)
|
|
Accumulated deficit
|
|
|
(30,204,992
|
)
|
|
|
(27,848,500
|
)
|
|
|
(30,204,992
|
)
|
|
Total Vivakor, Inc. stockholders' equity (deficit)
|
|
|
15,409,477
|
|
|
|
(2,787,213
|
)
|
|
|
24,769,935
|
|
|
Noncontrolling interest
|
|
|
1,279,089
|
|
|
|
1,341,854
|
|
|
|
1,279,089
|
|
|
Total stockholders' equity (deficit)
|
|
|
16,688,566
|
|
|
|
(1,445,359
|
)
|
|
|
26,049,024
|
|
|
Total liabilities and stockholders’ equity (deficit) and temporary equity
|
|
$
|
42,300,490
|
|
|
$
|
39,603,793
|
|
|
$
|
42,300,490
|
|
*
See Note 3 of the consolidated financial statements for further details in the preparation our pro forma financial
information.
See accompanying notes to consolidated financial
statements
VIVAKOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
Year Ended
|
|
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,457,781
|
|
|
$
|
–
|
|
|
Cost of revenues
|
|
|
1,356,378
|
|
|
|
–
|
|
|
Gross profit
|
|
|
101,403
|
|
|
|
–
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
567,290
|
|
|
|
18,559
|
|
|
General and administrative
|
|
|
2,806,238
|
|
|
|
748,348
|
|
|
Bad debt expense
|
|
|
13,645
|
|
|
|
12,000
|
|
|
Amortization and depreciation
|
|
|
1,562,622
|
|
|
|
1,524,274
|
|
|
Total operating expenses
|
|
|
4,949,795
|
|
|
|
2,303,181
|
|
|
Loss from operations
|
|
|
(4,848,392
|
)
|
|
|
(2,303,181
|
)
|
|
Other income:
|
|
|
|
|
|
|
|
|
|
Equity investment loss
|
|
|
(37,665
|
)
|
|
|
(72,871
|
)
|
|
Gain on extinguished debt
|
|
|
–
|
|
|
|
607,536
|
|
|
Realized loss on conversion of note receivable
|
|
|
(121,428
|
)
|
|
|
–
|
|
|
Unrealized gain on marketable securities
|
|
|
2,614,338
|
|
|
|
–
|
|
|
Interest income
|
|
|
35,344
|
|
|
|
73,761
|
|
|
Interest expense
|
|
|
(86,162
|
)
|
|
|
(9,288
|
)
|
|
Other income
|
|
|
39,560
|
|
|
|
19,039
|
|
|
Total other income
|
|
|
2,443,987
|
|
|
|
618,177
|
|
|
Loss before provision for income taxes
|
|
|
(2,404,405
|
)
|
|
|
(1,685,004
|
)
|
|
Provision for income taxes
|
|
|
(466,964
|
)
|
|
|
(589,203
|
)
|
|
Consolidated net loss
|
|
|
(2,871,369
|
)
|
|
|
(2,274,207
|
)
|
|
Less: Net loss attributable to noncontrolling interests
|
|
|
(687,672
|
)
|
|
|
(114,965
|
)
|
|
Net loss attributable to Vivakor, Inc.
|
|
$
|
(2,183,697
|
)
|
|
$
|
(2,159,242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders
|
|
$
|
(2,183,697
|
)
|
|
$
|
(2,159,242
|
)
|
|
Dividend on preferred stock
|
|
|
172,795
|
|
|
|
495,054
|
|
|
|
|
$
|
(2,356,492
|
)
|
|
$
|
(2,654,296
|
)
|
|
Loss per common share- basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
Weighted average number of common shares- basic and diluted
|
|
|
309,305,009
|
|
|
|
257,611,762
|
|
|
Pro forma loss per common share- basic and diluted*
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
Pro forma weighted average number of common shares- basic and diluted*
|
|
|
362,503,015
|
|
|
|
310,809,768
|
|
* See Note 3 of the consolidated financial statements for further details in the preparation our pro forma financial information.
See accompanying notes to consolidated financial
statements
VIVAKOR, INC.
CONSOLIDATED STATEMENTS
OF CHANGES IN STOCKHOLDERS’ EQUITY(DEFICIT)
|
|
|
Series A Preferred Stock
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Additional Paid-in Capital
|
|
|
Treasury Stock
|
|
|
Accumulated Deficit
|
|
|
Non-controlling Interest
|
|
|
Total Stockholders' Equity (Deficit)
|
|
|
December 31, 2018
|
|
|
2,000,000
|
|
|
$
|
2,000
|
|
|
|
230,256,188
|
|
|
$
|
230,257
|
|
|
$
|
13,363,511
|
|
|
$
|
(20,000
|
)
|
|
$
|
(25,194,204
|
)
|
|
$
|
(7,181
|
)
|
|
$
|
(11,625,617
|
)
|
|
Common Stock issued for reduction in liabilities
|
|
|
–
|
|
|
|
–
|
|
|
|
209,414
|
|
|
|
209
|
|
|
|
53,291
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
53,500
|
|
|
Common Stock issued for services
|
|
|
–
|
|
|
|
–
|
|
|
|
1,155,779
|
|
|
|
1,156
|
|
|
|
218,441
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
219,597
|
|
|
Exercise of Common Stock warrants
|
|
|
–
|
|
|
|
–
|
|
|
|
230,000
|
|
|
|
230
|
|
|
|
91,752
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
91,982
|
|
|
Conversion of temporary equity Series B, B-1, and C-1 Preferred Stock to Common Stock
|
|
|
–
|
|
|
|
–
|
|
|
|
53,492,583
|
|
|
|
53,492
|
|
|
|
11,018,527
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
11,072,019
|
|
|
Stock based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
48,421
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
48,421
|
|
|
Issuance of noncontrolling interest
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,464,000
|
|
|
|
1,464,000
|
|
|
Dividend paid in Series B-1 Preferred Stock
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(495,054
|
)
|
|
|
–
|
|
|
|
(495,054
|
)
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(2,159,242
|
)
|
|
|
(114,965
|
)
|
|
|
(2,274,207
|
)
|
|
December 31, 2019
|
|
|
2,000,000
|
|
|
$
|
2,000
|
|
|
|
285,343,964
|
|
|
$
|
285,344
|
|
|
$
|
24,793,943
|
|
|
$
|
(20,000
|
)
|
|
$
|
(27,848,500
|
)
|
|
|
1,341,854
|
|
|
$
|
(1,445,359
|
)
|
|
Common Stock issued for reduction in stock payable
|
|
|
–
|
|
|
|
–
|
|
|
|
20,000,000
|
|
|
|
20,000
|
|
|
|
11,780,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
11,800,000
|
|
|
Common Stock issued for a reduction in liabilities
|
|
|
–
|
|
|
|
–
|
|
|
|
274,922
|
|
|
|
275
|
|
|
|
135,718
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
135,993
|
|
|
Common Stock issued for cash
|
|
|
–
|
|
|
|
–
|
|
|
|
228,000
|
|
|
|
228
|
|
|
|
40,800
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
41,028
|
|
|
Common Stock issued for services
|
|
|
–
|
|
|
|
–
|
|
|
|
700,000
|
|
|
|
700
|
|
|
|
280,531
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
281,231
|
|
|
Conversion of temporary equity Series B, B-1, and C-1 Preferred Stock to Common Stock
|
|
|
–
|
|
|
|
–
|
|
|
|
31,132,130
|
|
|
|
31,132
|
|
|
|
7,562,684
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
7,593,816
|
|
|
Stock options issued for services
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
555,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
555,000
|
|
|
Stock based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
146,114
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
146,114
|
|
|
Issuance of noncontrolling interest
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
624,907
|
|
|
|
624,907
|
|
|
Dividend paid in Series B-1 Preferred Stock
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(172,795
|
)
|
|
|
–
|
|
|
|
(172,795
|
)
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(2,183,697
|
)
|
|
|
(687,672
|
)
|
|
|
(2,871,369
|
)
|
|
December 31, 2020
|
|
|
2,000,000
|
|
|
$
|
2,000
|
|
|
|
337,679,020
|
|
|
$
|
337,679
|
|
|
$
|
45,294,790
|
|
|
$
|
(20,000
|
)
|
|
$
|
(30,204,992
|
)
|
|
$
|
1,279,089
|
|
|
$
|
16,688,566
|
|
See accompanying notes to consolidated financial
statements
VIVAKOR, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
|
|
|
Year Ended
|
|
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Consolidated net loss
|
|
$
|
(2,871,369
|
)
|
|
$
|
(2,274,207
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,562,622
|
|
|
|
1,524,274
|
|
|
Bad debt expense
|
|
|
13,645
|
|
|
|
12,000
|
|
|
Equity investment loss
|
|
|
37,665
|
|
|
|
72,871
|
|
|
Gain on extinguished debt
|
|
|
–
|
|
|
|
(607,536
|
)
|
|
Common stock issued for services
|
|
|
281,231
|
|
|
|
219,597
|
|
|
Common stock options issued for services
|
|
|
555,000
|
|
|
|
–
|
|
|
Realized loss on conversion of note receivable
|
|
|
121,428
|
|
|
|
–
|
|
|
Unrealized gain- marketable securities
|
|
|
(2,614,338
|
)
|
|
|
–
|
|
|
Deferred income taxes
|
|
|
466,164
|
|
|
|
588,403
|
|
|
Stock-based compensation
|
|
|
146,114
|
|
|
|
48,421
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(19,735
|
)
|
|
|
(11,730
|
)
|
|
Precious metal concentrate
|
|
|
16,519
|
|
|
|
–
|
|
|
Other assets
|
|
|
(2,549
|
)
|
|
|
(250,590
|
)
|
|
Right of use assets
|
|
|
285,345
|
|
|
|
(1,167,149
|
)
|
|
Operating lease activities
|
|
|
(285,345
|
)
|
|
|
1,167,151
|
|
|
Accounts payable
|
|
|
517,931
|
|
|
|
547,494
|
|
|
Accrued interest on notes receivable
|
|
|
(35,344
|
)
|
|
|
(73,761
|
)
|
|
Accrued interest on notes payable
|
|
|
71,361
|
|
|
|
9,288
|
|
|
Net cash used in operating activities
|
|
|
(1,753,655
|
)
|
|
|
(195,474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Issuance of notes receivable
|
|
|
(10,441
|
)
|
|
|
(112,122
|
)
|
|
Payment on costs of patents
|
|
|
(18,854
|
)
|
|
|
(81,210
|
)
|
|
Purchase of equipment
|
|
|
(1,197,922
|
)
|
|
|
(1,861,667
|
)
|
|
Net cash used in investing activities
|
|
|
(1,227,217
|
)
|
|
|
(2,054,999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
–
|
|
|
|
2,418,142
|
|
|
Payment of long-term debt
|
|
|
(116,535
|
)
|
|
|
(2,123,708
|
)
|
|
Proceeds from loans and notes payable
|
|
|
2,231,796
|
|
|
|
89,960
|
|
|
Proceeds from the sale of common stock
|
|
|
41,028
|
|
|
|
–
|
|
|
Payment of notes payable
|
|
|
(6,323
|
)
|
|
|
(1,480
|
)
|
|
Proceeds from exercised stock warrants for cash
|
|
|
–
|
|
|
|
91,982
|
|
|
Issuance of noncontrolling interest
|
|
|
624,907
|
|
|
|
1,464,000
|
|
|
Net cash provided by financing activities
|
|
|
2,774,873
|
|
|
|
1,938,896
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(205,999
|
)
|
|
|
(311,577
|
)
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
604,903
|
|
|
|
916,480
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
398,904
|
|
|
$
|
604,903
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASHFLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
–
|
|
|
|
–
|
|
|
Income taxes
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash transactions:
|
|
|
|
|
|
|
|
|
|
Conversion of Series B, B-1, and C-1 Preferred Stock to Common Stock
|
|
$
|
7,593,816
|
|
|
$
|
11,072,019
|
|
|
Stock issued for a reduction in liabilities
|
|
$
|
11,935,993
|
|
|
$
|
53,500
|
|
|
Dividend paid in Series B-1 Preferred Stock
|
|
$
|
172,795
|
|
|
$
|
495,054
|
|
|
Series C-1 Preferred Stock issued for the purchase of equipment
|
|
$
|
–
|
|
|
$
|
507,044
|
|
|
Extinguished debt for equity investment
|
|
$
|
–
|
|
|
$
|
25,314
|
|
|
Extinguished notes receivable for equity investment
|
|
$
|
809,578
|
|
|
$
|
800,000
|
|
|
Capitalized interest on construction in process
|
|
$
|
1,025,852
|
|
|
$
|
1,061,215
|
|
See accompanying notes to consolidated financial
statements
VIVAKOR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Basis of Presentation
Vivakor, Inc. (collectively “we”,
“us,” “our,” “Vivakor” or the “Company”) is a socially responsible operator, acquirer
and developer of clean energy technologies and environmental solutions, which is currently focused on soil remediation in the United
States and Kuwait, and we have corporate offices in Utah, California, and in Qatar. We specialize in the remediation of soil from
properties contaminated by or laden with heavy crude oil and other substances. The Company was originally organized on November
1, 2006 as a limited liability company in the State of Nevada as Genecular Holdings, LLC. The Company’s name was changed
to NGI Holdings, LLC on November 3, 2006. On April 30, 2008, the Company was converted to a C-corporation and changed its name
to Vivakor, Inc. pursuant to Articles of Conversion filed with the Nevada Secretary of State.
On December 18, 2020, our Board of Directors and stockholders
holding a majority of our outstanding voting shares, authorized a reverse stock split of each of the outstanding shares of
the Corporation’s common stock, $0.001 par value per share, as well as each of the outstanding shares of the Corporation’s
preferred stock, at a ratio to be determined by the Board of within a range of a minimum of a one-for-twelve (1-for-12) to a maximum
of one-for-forty (1-for-40) (the “Reverse Stock Split Ratio”), with the exact ratio to be set at a number within this
range as determined by the Board in its sole discretion, with no change in par value. The Board of Directors has not approved a stock
split ratio as of the date of this report.
COVID-19
On March 11, 2020, the World Health Organization
(“WHO”) declared the COVID-19 outbreak to be a global pandemic. In addition to the devastating effects on human life,
the pandemic is having a negative ripple effect on the global economy, leading to disruptions and volatility in the global financial
markets. Most U.S. states and many countries have issued policies intended to stop or slow the further spread of the disease.
COVID-19 and the U.S. response to the pandemic
are significantly affecting the economy. There are no comparable events that provide guidance as to the effect the COVID-19 pandemic
may have, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know the
full extent of the effects on the economy, the markets we serve, our business, or our operations. In March 2020 we temporarily
suspended operations in Kuwait and Utah due to COVID-19 government restrictions and as of the date of this report we have not resumed
operations in Kuwait.
Note 2. Liquidity
We have historically suffered net losses
and cumulative negative cash flows from operations and, as of December 31, 2020, we had an accumulated deficit of approximately
$30 million. As of December 31, 2020 we had cash of $309,404. To date we have financed our operations primarily through debt financing,
private equity offerings and our working interest agreements. For the years ended December 31, 2020 and 2019, we issued $624,907
and $1,464,000 noncontrolling units of RDM, respectively, we received proceeds of none and $2,418,142 from our working interest
agreements with VV UTSI and VV RII, made payments on our working interest agreements with VV UTSI and RII of $116,535 and $2,123,708,
and we also received proceeds of $2,231,796 and $89,960 related to the issuance of convertible bridge notes and other loans. For
the year ended December 31, 2020, as included in the proceeds above, we obtained Paycheck Protection Program loans for $295,745
that may be forgiven under the CARES Act, if we can demonstrate that the proceeds from the
loan were used for eligible expenses. We also obtained a loan from the Small Business Administration in the amount of $299,900
in May 2020, as included in the proceeds above. We believe we have other liquid assets that may be used to assist in financing
the operations of the Company if needed, including marketable securities in Odyssey and Scepter, which hold a fair value of $4,016,951
as of December 31, 2020 and have been deposited for trading. Subsequent to December 31, 2020, the Company has also obtained further
financing of approximately $1,715,000 through the operations of Viva Wealth Fund I, LLC, and approximately $855,100 from various
convertible promissory notes, and a PPP loan. We believe the liquid assets from the Company’s available for sale investments
and provided from subsequent fundraising activities of the Company give it adequate working capital to finance our day-to-day operations
for at least twelve months through April 2022.
Note 3. Summary of Significant Accounting
Policies
Basis of Presentation
The accompanying consolidated financial
statements have been prepared in accordance with the Financial Accounting Standards Board (“FASB”) “FASB
Accounting Standard Codification™” (the “Codification”) which is the source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in the preparation of consolidated financial statements
in conformity with generally accepted accounting principles (“GAAP”) in the United States. Separate pro forma
earnings per share information has been prepared in the statements of operations for the years ended December 31, 2020 and 2019,
giving the effect of the conversion of certain preferred stock in conjunction with an anticipated public offering of the Company’s
common stock.
All figures are in U.S. dollars unless
indicated otherwise.
Principles of Consolidation
The consolidated financial statements include
the accounts of Vivakor, Inc., its wholly owned and majority-owned active subsidiaries, or joint ventures (collectively, the “Company”).
Intercompany balances and transactions between consolidated entities are eliminated. Inactive entities have no value, assets or
liabilities. Vivakor has the following wholly and majority-owned subsidiaries: Vivaventures Management Company, Inc., Vivaventures
Energy Group, Inc. (99%), Vivaventures Oil Sands, Inc., Vivasphere, Inc., Vivasight, Inc. (inactive), and Vivathermic, Inc. (inactive).
Vivakor maintains an interest in the following entities: Health America, Inc. (39%, inactive), VVPM 100, LLC (inactive), which
is managed by Vivakor, VPM VII, LLC (inactive), which is managed by Vivakor, Vivakor Middle East, LLC (49%, consolidated), VivaRRT,
LLC (50%, inactive). The Company withdrew from VivaVentures Precious Metal, LLC (39%, equity method investment) in July 2020. Vivakor
manages and consolidates RPC Design and Manufacturing LLC, which includes a noncontrolling interest investment from Vivaopportunity
Fund, LLC, which is also managed by Vivaventures Management Company, Inc. Vivakor has common officers with and consolidates Viva
Wealth Fund I, LLC.
The Company follows ASC 810-10-15 guidance
with respect to accounting for Variable Interest Entities (“VIE”). A VIE is an entity that does not have sufficient
equity at risk to finance its activities without additional subordinated financial support from other parties, or whose equity
investors lack any of the characteristics of a controlling financial interest. A variable interest is an investment or other interest
that will absorb portions of a VIE’s expected losses or receive portions of the entity’s expected residual returns.
Variable interests are contractual, ownership, or other pecuniary interests that change with changes in the fair value of the entity’s
net assets. A party is the primary beneficiary of a VIE and must consolidate it when that party has a variable interest, or combination
of variable interests, that provides the party with a controlling financial interest. A party is deemed to have a controlling financial
interest if it meets both of the power and losses/benefits criteria. The power criterion is the ability to direct the activities
of the VIE that most significantly impact its economic performance. The losses/benefits criterion is the obligation to absorb losses
from, or right to receive benefits from, the VIE that could potentially be significant to the VIE. The VIE model requires an ongoing
reconsideration of whether a reporting entity is the primary beneficiary of a VIE due to changes in facts and circumstances. For
the years ended December 31, 2020 and 2019 the following entities are considered to be a VIE and is consolidated in our consolidated
financial statements: Viva Wealth Fund I, LLC (organized and operated during 2020) and RPC Design and Manufacturing, LLC. For the
years ended December 31, 2020 and 2019 the following entities were considered to be a VIE, but were not consolidated in our consolidated
financial statements due to a lack of the power criterion or the losses/benefits criterion: Vivaventures UTSI, LLC, Vivaventures
Royalty II, LLC, Vivaopportunity Fund, LLC, and International Metals Exchange, LLC. For the years ended December 31, 2020 and 2019
the unaudited financial information for the unconsolidated VIEs is as follows: Vivaventures UTSI, LLC held assets of $3,113,292
and $2,341,192 (where the primary asset represents a receivable from the Company), and liabilities of $41,894 and $40,019. Vivaventures
Royalty II, LLC held assets of $2,117,066 and $1,776,360 (where the primary asset represents a receivable from the Company), and
liabilities of $300. Vivaopportunity Fund LLC held assets of $2,119,972 and $1,793,000 (where the primary asset represents a noncontrolling
interest in units of a consolidated entity of the Company) and no liabilities. International Metals Exchange, LLC held assets of
$82,711 and none and liabilities of $4,900 and none.
RPC Design and Manufacturing,
LLC: The Company established RPC Design and Manufacturing, LLC (“RDM”) in December 2018 with a business
purpose of manufacturing custom machinery and selling or leasing the manufactured equipment in long term contracts with
financing or leasing activities to the Company. We own 100% of the voting rights in the RDM. We, as the sole general partner
of RDM, have the full, exclusive and complete right, power and discretion to operate, manage and control the affairs of RDM
and take certain actions necessary to maintain RDM in good standing without the consent of the limited partners. RDM has
entered into a license agreement with the Company indicating that while RDM builds custom machinery incorporating the
Company’s hydrocarbon extraction technology, RDM will pay the Company a license fee of $500,000 per Remediation
Processing Center manufactured. Creditors of RDM have no recourse to the general credit of the Company. For the years ended
December 31, 2020 and 2019 investors in RDM have a noncontrolling interest of $2,110,000 and $1,464,000, respectively. We
have the primary risk (expense) exposure in financing and operating the assets and are responsible for 100% of the operation,
maintenance and any unfunded capital expenditures, which ultimately could be 100% of a custom machine, and the decisions
related to those expenditures including budgeting, financing and dispatch of power. Based on all these facts, it was
determined that we are the primary beneficiary of RDM. Therefore, RDM has been consolidated by the Company. Any intercompany
revenue and expense associated with RDM and its license agreement with the Company has been eliminated in consolidation.
Viva Wealth Fund I,
LLC: The Company assisted in designing and organizing Viva Wealth Fund I, LLC (“VWFI”) in November 2020,
as a special purpose entity, for the purpose of manufacturing, leasing and selling custom equipment solely to the Company.
The Company commenced co-managing VWFI with Wealth Space, LLC, an unaffiliated entity, but as of the date of this report
Wealth Space, LLC is the sole manager. The Company has been retained by the manager and continues to have common officers
with VWFI, including our CEO and CFO, who will assist in the day-to-day operations. VWFI has also retained the Company to act
as its sole Plant manager, and we will manage and direct all of the manufacturing, leasing and selling of custom equipment in
behalf of VWFI to the Company. In November 2020, VWFI commenced a $25,000,000 private placement offering to sell convertible
promissory notes, which convert to VWFI LLC units, to accredited investors to raise funds to manufacture equipment that will
expand the Company’s second RPC. In the event that VWFI does not raise at least $6,250,000 by the offering termination
date (November 13, 2021, which date may be extended until November 13, 2022 in the sole discretion of the Company), then the
convertible notes and/or units would convert into Vivakor common stock where the minimum conversion price will not be lower
than 200% of the per share price of the Company common stock sold in an underwritten offering pursuant to the Company
becoming listed on a senior stock exchange (i.e. The Nasdaq Capital Market or New York Stock Exchange). As of April 1,
2021 VWFI has raised approximately $3,135,000 of the $6,250,000. VWFI unit holders may also sell their units to the Company
for their principal investment amount on the 3rd, 4th, and 5th anniversary of the offering
termination date. The Company also has the option to purchase any LLC units where the members did not exercise their
conversion option under the same terms and pricing. VWFI has entered into a license agreement with the Company indicating
that VWFI will pay the Company a license fee of $1,000,000 per series of equipment manufactured with the Company’s
proprietary technology. All of the operations of VWFI relate to private placement offering to fund and manufacture
proprietary equipment for the Company, as intended in VWFI’s design and organization by the Company, so that the
Company controls VWFI in its business purpose, use of proceeds, and selling and leasing of its equipment solely to the
Company. Creditors of VWFI have no recourse to the general credit of the Company. We have the primary risk (expense) exposure
in financing and operating the assets and are responsible for 100% of the operation, and any unfunded capital expenditures,
and the expense to the unit holders in conversion to common stock if series of equipment cannot be fully funded, which
ultimately could be 100% of any custom machine. We are responsible for the decisions related to the expenditures of VWFI
proceeds including budgeting, financing and dispatch of power surrounding the series of equipment. Based on all these facts,
it was determined that we are the primary beneficiary of VWFI. Therefore, VWFI has been consolidated by the Company.
Cash and Cash Equivalents
The Company considers all highly liquid
investments with an original maturity of three months or less when acquired to be cash equivalents. As of December 31, 2020 and
2019, the Company does not have any cash equivalents. The Company places its cash with high credit quality financial institutions.
The Company’s accounts at these institutions are insured by the Federal Deposit Insurance Corporation (“FDIC”)
up to $250,000. As of December 31, 2020 and 2019, the Company had bank balances exceeding the FDIC insurance limit. To reduce its
risk associated with the failure of such financial institutions, the Company annually evaluates the rating of the financial institutions
in which it holds deposits.
Accounts Receivable
Accounts receivable are carried at original
invoice amount less an estimated allowance for doubtful accounts, if deemed necessary by management, and based on a review of all
outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts, if any, by identifying troubled
accounts and by using historical experience applied to an aging of accounts. An allowance for doubtful accounts was considered
necessary by management as of December 31, 2020 and 2019 in the amounts of $33,000 and $21,000, respectively.
Equity Method Investments
Consolidated net income (loss) includes
the Company’s proportionate net income or loss of equity investments. The carrying value of the Company’s equity method
investments is increased and decreased by the Company’s proportionate share of the net income or loss of the investee. The
carrying value of our equity method investment is also decreased by dividends the Company receives from the investee. As of December
31, 2020 and 2019 the equity method investments consisted of the following:
In 2019 the Company had an investment of
$800,000 or 800,000,000 shares of common stock, or a diluted 23% equity holding in Scepter Holdings, Inc. (ticker: BRZL, OTC Markets).
In the fourth quarter of 2020, the Company was diluted to a 19% equity holding in Scepter Holdings, Inc., and was no longer deemed
to have significant influence and ceased to be an equity investment, and as the stock is traded on an active market, the Company
has classified the investment as trading securities for the year ended December 31, 2020 with the change in unrealized gains and
losses on the investment included in the statement of operations (see Note 5). For the years ended December 31, 2020 and 2019,
the Company was attributed a loss on this equity investment in the amount of $37,665 and $72,871. There were no distributions to
the Company in 2020 or 2019 from Scepter Holdings, Inc. As of December 31, 2019 the net value of equity investment was $727,129.
As of December 31, 2020 and 2019, the Company’s Chief Executive Officer has an immediate family member who is sits on the
board of directors of Scepter Holdings, Inc. The Company’s 800,000,000 shares of common stock of Scepter Holdings, Inc. have
a market value of approximately $13,680,000 as of April 1, 2021 based on the quoted market price.
As of December 31, 2019, the Company held
a 39% interest in Vivaventures Precious Metals, LLC for which the fair value of this investment is none. In July 2020, the Company
withdrew from this LLC.
Cost Method Investments
Investments in marketable securities consist
of equity securities recorded at fair value. Fair value is defined as the price that would be received to sell an asset in an orderly
transaction between market participants at the measurement date. We analyze our marketable securities in accordance with Accounting
Standard Codification 321 (“ASC 321”). Valuations for marketable securities are based on quoted prices for identical
assets in active markets. Where marketable securities were found not be part of an actively traded market, we made a measurement
alternative election and estimate the fair value at cost of the investment minus impairment.
As of December 31, 2020 and 2019, the Company
owns 1,000 Class A LLC Units in each of the following entities, which are not consolidated: Vivaopportunity Fund LLC, Vivaventures
UTSI, LLC and Vivaventures Royalty II, LLC. In 2020 the Company purchased 1,000 Class A Units in International Metals Exchange,
LLC. In aggregate these units amount to $4,000 and $3,000 as of December 31, 2020 and 2019. These Class A Units give the Company’s
management control of the entities but lack the necessary economics criterion, where the Company lacks the obligation to absorb
losses of these entities, as well as the right to receive benefits from the LLCs.
As of December 31, 2019, the Company owned
2,500,000 shares of common stock in Odyssey Group International, Inc. (ticker: ODYY, OTC Markets), at a cost of $25,000. For the
year ended December 31, 2020, the Company noted that this investment began trading on an active market and accounted for such securities
based on the quoted price from the OTC Markets where the stock is currently traded (See Note 5). As of December 31, 2019, the Company
accounted for such securities at cost minus impairment due to the investment not being traded on an active market noting that the
stock was thinly traded.
Convertible Instruments
The Company reviews the terms of convertible
debt and preferred stock for indications requiring bifurcation, and separate accounting for the embedded conversion feature. Generally,
embedded conversion features where the ability to physical or net-share settle the conversion option is not within the control
of the Company or the number of shares is variable are bifurcated and accounted for as derivative financial instruments. (See Derivative
Financial Instruments below). Bifurcation of the embedded derivative instrument requires the allocation of the proceeds first
to the fair value of the embedded derivative instrument with the residual allocated to the host instrument. The resulting discount
to the debt instrument or the redemption value of convertible preferred securities is accreted through periodic charges to interest
expense over the term of the agreements or to dividends over the period to the earliest conversion date using the effective interest
rate method, respectively.
Derivative Financial Instruments
The Company does not use derivative financial
instruments to hedge exposures to cash-flow or market risks. However, certain other financial instruments, such as warrants to
purchase the Company’s common stock and the embedded conversion features of debt and preferred instruments that are not considered
indexed to the Company’s common stock are classified as liabilities when either (a) the holder possesses rights to net-cash
settlement, (b) physical or net share settlement is not within the control of the Company, or (c) based on its anti-dilutive provisions.
In such instances, net-cash settlement is assumed for financial accounting and reporting. Such financial instruments are initially
recorded at fair value and subsequently adjusted to fair value at the close of each reporting period. Fair value for embedded conversion
features and option-based derivative financial instruments is determined using the Monte Carlo Simulation or the Black-Scholes
Option Pricing Model, respectively.
Other convertible instruments that are
not derivative financial instruments are accounted for by recording the intrinsic value of the embedded conversion feature as a
discount from the initial value of the instrument and accreting it back to face value over the period to the earliest conversion
date using the effective interest rate method.
Leases
Effective January 1, 2019, we adopted Accounting Standards
Codification 842, Leases ("ASC 842"). We determine if an arrangement contains a lease at inception based
on whether or not the Company has the right to control the asset during the contract period and other facts and circumstances.
We are the lessee in a lease contract when
we obtain the right to control the asset. Operating lease right-of-use ("ROU") assets represent our right to use an underlying
asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease, both of
which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date.
Leases with a lease term of 12 months or less at inception are not recorded on our consolidated balance sheet and are expensed
on a straight-line basis over the lease term in our consolidated statement of operations. We determine the lease term by assuming
the exercise of renewal options that are reasonably certain. As most of our leases do not provide an implicit interest rate, we
use our local incremental borrowing rate based on the information available at the commencement date in determining the present
value of future payments. ASC 842 is effective for us beginning on January 1, 2019. As of December 31, 2020 and 2019, we recorded
right-of-use assets of $881,804 and $1,167,149 and lease obligations of $895,395 and $1,171,452. On adoption, we recognized additional
liabilities, with corresponding ROU assets based on the present value of the lease payments over the lease term under
current leasing contracts for existing operating leases. There was no statement of operations or cash flow statement impact on
adoption, nor were prior periods adjusted.
The effects of the changes made to our
balance sheet at adoption were as follows:
|
|
|
Balance at
December 31, 2018
|
|
|
Impact from
ASU 2016-02 Adoption
|
|
|
Balance at
January 1, 2019
|
|
|
Financial statement line item:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets- operating leases
|
|
$
|
–
|
|
|
$
|
130,383
|
|
|
$
|
130,383
|
|
|
Current lease liabilities
|
|
$
|
–
|
|
|
$
|
(130,383
|
)
|
|
$
|
(130,383
|
)
|
Long Lived Assets
The Company reviews the carrying values
of its long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. If the expected future cash flow from the use of the asset and its eventual disposition is less than the
carrying amount of the asset, an impairment loss is recognized and measured using the fair value of the related asset. No impairment
charges were incurred during the years ended December 31, 2020 and 2019 as the Company was
still in the early phases of our business plan and operating losses were expected in our early phases. There can be no assurance,
however, that market conditions will not change or demand for the Company’s services will continue, which could result in
impairment of long-lived assets in the future.
Property and equipment, net
Property and equipment are stated at cost
or fair value when acquired. Depreciation is computed by the straight-line method and is charged to the statement of operations
over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of the estimated useful
lives of the assets or the term of the related lease. Impairment losses are recognized for long-lived assets, including definite-lived
intangibles, used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated
by those assets are not sufficient to recover the assets' carrying amount. Impairment losses are measured by comparing the fair
value of the assets to their carrying amount.
Interest on long-term debt for the development
or manufacturing of Company assets is capitalized to the asset until the asset enters production or use, and thereafter all interest
is charged to expense as incurred. Maintenance and repairs are charged to expense as incurred. Leasehold improvements are depreciated
over the shorter of the estimated useful lives of the assets or the term of the related lease.
The carrying amount and accumulated depreciation
of assets sold or retired are removed from the accounts in the year of disposal and any resulting gain or loss is included in results
of operations. The estimated useful lives of property and equipment are as follows:
|
Computers, software, and office equipment
|
1-5 years
|
|
Machinery and equipment
|
3-5 years
|
|
Vehicles
|
5 years
|
|
Furniture and fixtures
|
5 – 10 years
|
|
Precious metal extraction machinery (heavy extraction equipment)
|
10 years
|
|
Remediation Processing Centers (heavy extraction and remediation equipment) (“RPC”)
|
20 years
|
|
Leasehold improvements
|
Lesser of the lease term or estimated useful life
|
Equipment that is currently being manufactured
is considered construction in process and is not depreciated until the equipment is placed into service.
Intangible Assets:
We account for intangible assets in accordance
with ASC 350 “Intangibles-Goodwill and Other” (“ASC 350”). Intangible asset amounts represent the
acquisition date fair values of identifiable intangible assets acquired. The fair values of the intangible assets were determined
by using the income approach, discounting projected future cash flows based on management’s expectations of the current and
future operating environment. The rates used to discount projected future cash flows reflected a weighted average cost of capital
based on our industry, capital structure and risk premiums including those reflected in the current market capitalization. Definite-lived
intangible assets are amortized over their useful lives, which have historically ranged from 10 to 20 years. The carrying amounts
of our definite-lived intangible assets are evaluated for recoverability whenever events or changes in circumstances indicate that
the entity may be unable to recover the asset’s carrying amount.
We assess our intangible assets in accordance
with ASC 360 “Property, Plant, and Equipment” (“ASC 360”). Impairment testing is required when events
occur that indicate an asset group may not be recoverable (“triggering events”). As detailed in ASC 360-10-35-21, the
following are examples of such events or changes in circumstances (sometimes referred to as impairment indicators or triggers):
(a) A significant decrease in the market price of a long-lived asset (asset group) (b) A significant adverse change in the extent
or manner in which a long-lived asset (asset group) is being used or in its physical condition. (c) A significant adverse change
in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse
action or assessment by a regulator (d) An accumulation of costs significantly in excess of the amount originally expected for
the acquisition or construction of a long-lived asset (asset group) (e) A current-period operating or cash flow loss combined with
a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the
use of a long-lived asset (asset group) (f) A current expectation that, more likely than not, a long-lived asset (asset group)
will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The term more likely
than not refers to a level of likelihood that is more than 50 percent. We have evaluated our intangible assets and found that certain
losses and a delay in our business plan does not constitute a triggering event for our intangible assets, and we have assessed
that there to be no impairment for the years ended December 31, 2020 and 2019.
Share-Based Compensation
Share-based compensation is accounted for
based on the requirements of ASC 718, “Compensation-Stock Compensation’ (“ASC 718”) which requires recognition
in the financial statements of the cost of employee, consultant, or director services received in exchange for an award of equity
instruments over the period the employee, consultant, or director is required to perform the services in exchange for the award
(presumptively, the vesting period). ASC 718 also requires measurement of the cost of employee, consultant, or director services
received in exchange for an award based on the grant-date fair value of the award.
Income tax
Deferred income taxes are provided on the
asset and liability method whereby deferred income tax assets are recognized for deductible temporary differences and operating
loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred income tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the
deferred income tax assets will not be realized. Deferred income tax assets and liabilities are adjusted for the effects of changes
in tax laws and rates on the date of enactment.
Our annual effective tax rate is based
on our income and the tax laws in the various jurisdictions in which we operate. Judgment is required in determining our annual
tax expense and in evaluating our tax positions. We establish reserves to remove some or all of the tax benefit of any of our tax
positions at the time we determine that the position becomes uncertain based upon one of the following conditions: (1) the tax
position is not "more likely than not" to be sustained; (2) the tax position is "more likely than not" to be
sustained, but for a lesser amount; or (3) the tax position is "more likely than not" to be sustained, but not in the
financial period in which the tax position was originally taken. For purposes of evaluating whether or not a tax position is uncertain,
(1) we presume the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information;
(2) the technical merits of a tax position are derived from authorities such as legislation and statutes, legislative intent, regulations,
rulings and case law and their applicability to the facts and circumstances of the tax position; and (3) each tax position is evaluated
without considerations of the possibility of offset or aggregation with other tax positions taken. We adjust these reserves, including
any impact on the related interest and penalties, in light of changing facts and circumstances, such as the progress of a tax audit.
See Note 19 for further information on income tax.
Revenue Recognition
Effective January 1, 2018, we adopted Accounting
Standards Codification 606, Revenue from Contracts with Customers ("ASC 606"). Approximately 96% of our sales consist
of the sale of precious metals with a commitment to deliver precious metals to the customer, and revenue is recognized
on the settlement date, which is defined as the date on which: (1) the quantity, price, and specific items being purchased have
been established, (2) metals have been shipped to the customer, and (3) payment has been received or is covered by the customer’s
established credit limit with the Company.
The new standard contains a five-step
approach that entities will apply to determine the measurement of revenue and timing of when it is recognized, including (i) identifying
the contract(s) with a customer, (ii) identifying the separate performance obligations in the contract, (iii) determining
the transaction price, (iv) allocating the transaction price to separate performance obligations, and (v) recognizing
revenue when (or as) each performance obligation is satisfied. The new standard requires a number of disclosures intended to enable
users of financial statements to understand the nature, amount, timing and uncertainty of revenue, and the related cash flows.
The disclosures include qualitative and quantitative information about contracts with customers, significant judgments made in
applying the revenue guidance, and assets recognized from the costs to obtain or fulfill a contract.
In order to ensure the revenue recognition
in the proper period, we review material sales contracts for proper cut-off based upon the business practices and legal requirements
of each country
Our performance obligation generally consists
of the promise to sell products or complete services to our customers. Control of the products is transferred upon shipment to
our customers' locations, as determined by the specific terms of the contract. Upon transfer of control to the customer, which
completes our performance obligation, revenue is recognized. Services are completed upon the terms of each contract, specifically
in regard to remediation, when the tonnage of contaminated soil is completed and tested our performance obligation is completed
and revenue is recognized. After completion of our performance obligation, we have an unconditional right to consideration as outlined
in the contract. Historically, we have not accepted returns so there are no sales allowances. Due to the nature of the product we
do accept returns. Our receivables will generally be collected in less than nine months, in accordance with the underlying payment
terms.
Advertising Expense
Advertising
costs are expensed as incurred. The Company did not have advertising expense for the years ended December 31, 2020 and 2019.
Recent Accounting Pronouncements
Under the Jumpstart Our Business Startups
Act, or the JOBS Act, we meet the definition of an “emerging growth company.” We have irrevocably elected to opt-out
of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the
JOBS Act. As a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such
standards is required for non- emerging growth companies.
In December 2019, the Financial Accounting
Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, Simplifying the Accounting
for Income Taxes, which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology
for calculating taxes during the quarters and the recognition of deferred tax liabilities for outside basis differences. This guidance
also simplifies aspects of the accounting for franchise taxes and changes in tax laws or rates, as well as clarifies the accounting
for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for the Company beginning January
1, 2021. We are currently evaluating the impact that ASU 2019-12 may have on our consolidated financial statements.
In
August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
2020-06 Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s
Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which improves
Convertible Instruments and Contracts in an Entity’s Own Equity and is expected to
improve financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity.
The ASU simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP.
Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred
stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement
conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity
contracts to qualify for it. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas. We
are currently evaluating the impact that ASU 2020-06 may have on our consolidated financial statements.
Net Income/Loss Per Share
Basic net income (loss) per share is calculated
by subtracting any preferred interest distributions from net income (loss), all divided by the weighted-average number of common
shares outstanding for the period, without consideration for common stock equivalents. Diluted net income (loss) per common share
is computed by dividing the net income (loss) by the weighted-average number of common share equivalents outstanding for the period
determined using the treasury stock method if their effect is dilutive. Potential dilutive instruments for the years ended December
31, 2020 and 2019 include the following: convertible notes payable convertible into approximately 1,072,954 and 551,830 shares
of common stock, convertible Series A preferred stock convertible into 20,000,000 shares of common stock (in the event of a public
offering of the Company’s common stock this will convert to 25,000,000 shares), convertible Series B preferred stock convertible
into approximately 6,507,492 and 36,009,711 shares of common stock, convertible Series B-1 preferred stock convertible into approximately
14,031,834 and 23,544,455 shares of common stock, convertible Series C-1 preferred stock convertible into approximately 7,658,680
and 12,117,160 shares of common stock, stock options granted to employees of 5,500,000 shares of common stock, stock options granted
to Board members or consultants of 14,000,000 shares of common stock, and warrants of none and 10,080,000 shares of common stock.
As of December 31, 2019, a stock payable for 20,000,000 shares of common stock was also outstanding.
Use of Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates,
judgments, and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We
believe our critical accounting estimates relate to the following: Recoverability of current and noncurrent Assets, revenue recognition,
stock-based compensation, income taxes, effective interest rates related to long-term debt, marketable securities, cost basis and
equity method investments, lease assets and liabilities, equity method investments, valuation of stock used to acquire assets,
and derivatives.
While our estimates and assumptions are
based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ from
these estimates and assumptions.
Fair Value of Financial Instruments
The Company follows Accounting Standards
Codification (“ASC”) 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets
and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied
to existing generally accepted accounting principles that requires the use of fair value measurements, establishes a framework
for measuring fair value, and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact
on the Company’s financial position or operating results but did expand certain disclosures.
ASC 820 defines fair value as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs
and minimize the use of unobservable inputs. These inputs are prioritized below:
Level 1: Applies to assets or liabilities
for which there are quoted prices in active markets for identical assets or liabilities.
Level 2: Applies to assets or liabilities
for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar
assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume
or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can
be derived principally from, or corroborated by, observable market data.
Level 3: Applies to assets or liabilities
for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value
of the assets or liabilities.
The Company analyzes all financial instruments
with features of both liabilities and equity under the Financial Accounting Standard Board’s (“FASB”) accounting
standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on
the lowest level of input that is significant to the fair value measurement. The carrying amounts reported in the consolidated
balance sheets for cash, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their estimated
fair market values based on the short-term maturity of these instruments. The recorded values
of notes payable approximate their current fair values because of their nature, rates, and respective maturity dates or durations.
Note 4. Prepaid Expenses and Other Assets
As of December 31, 2020 and 2019, our prepaid
expenses and other assets consist of the following:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Prepaid expense on option to purchase land, net (a)
|
|
$
|
–
|
|
|
$
|
117,889
|
|
|
Deposits (b)
|
|
|
87,052
|
|
|
|
84,503
|
|
|
Total Prepaid Expenses and Other Assets
|
|
$
|
87,052
|
|
|
$
|
202,392
|
|
(a) The Company entered into an Option Agreement
in July 2019 for the exclusive right to purchase certain real property commonly known as Asphalt Ridge. The right to purchase the land
was purchased for $200,000, which would be applied as a payment on the land if the option is exercised to purchase the land. The agreement
gives the Company 12 months for due diligence and to operate on the land. The agreement grants the Company the option to extend the option
for an additional 6 months for a cost of $200,000. The Company capitalized the cost of legal expense for this option in the amount of
$2,096 bringing the gross value of the option to $202,096. The Company amortized the prepaid over the life of the agreement, 12 months.
For the years ended December 31, 2020 and 2019 amortization expense was $117,889 and $84,207. In July 2020, the landowner agreed to amend
the Option Agreement to extend the term of this option for an additional 6 months at no cost to the Company. As of December 31, 2020,
the Option Agreement has expired, and the Company is currently negotiating an agreement to provide for such option to continue. As the
Company negotiates extending the option, it is continuing to operate on the land, pursuant to an arrangement with the landowner.
(b) Various deposits with vendors, professional service agents,
or security deposits on office and warehouse leases.
Note 5. Marketable Securities
Investments in marketable securities consist
of equity securities recorded at fair value. Fair value is defined as the price that would be received to sell an asset in an orderly
transaction between market participants at the measurement date. We analyze our marketable securities in accordance with Accounting
Standard Codification 321 (“ASC 321”). Valuations for marketable securities are based on quoted prices for identical
assets in active markets. Where marketable securities were found not be part of an actively traded market, we made a measurement
alternative election and estimate the fair value at cost of the investment minus impairment.
As of December 31, 2019, the Company owned
2,500,000 shares of common stock in Odyssey Group International, Inc. (“Odyssey”) ticker: ODYY, OTC Markets, at a cost
of $25,000. As of December 31, 2019, the Company accounted for such securities at cost minus impairment due to the investment not
being traded on an active market noting that the stock was thinly traded. In June 2020, the Company converted the outstanding balance
of $809,578 of its note receivable with Odyssey into 809,578 shares of Odyssey common stock according to the terms of the note
receivable. As of December 31, 2020, the Company owns 3,309,578 shares of Odyssey common stock. The Company noted that Odyssey’s
common stock began trading on an active market and classified them as trading securities with the change in unrealized gains and
losses on the investment included in the statement of operations. As of December 31, 2020,
these marketable securities are classified as trading securities. The
Company accounted for such securities based on the quoted price from the OTC Markets where the stock is traded which resulted in
the Company recording an unrealized loss on these marketable securities of $56,198 for the year ended December 31, 2020.
In 2019 the Company had an investment of
$800,000 or 800,000,000 shares of common stock, or a diluted 23% equity holding in Scepter Holdings, Inc. (“Scepter”),
ticker: BRZL, OTC Markets. In the fourth quarter of 2020, the Company was diluted to a 19% equity holding in Scepter, and was no
longer deemed to have significant influence and ceased to be an equity investment, and as the stock is traded on an active market,
the Company has classified the investment as trading securities for the year ended December 31, 2020 with the change in unrealized
gains and losses on the investment included in the statement of operations. As of December, 31, 2020, the Company owns 800,000,000
shares of Scepter. The Company classified these marketable securities as trading securities with the change in unrealized gains
and losses on the investment included in the statement of operations. The Company accounted for such securities based on the quoted
price from the OTC Markets where the stock is traded which resulted in the Company recording an unrealized gain on marketable securities
of $2,670,536 for the year ended December 31, 2020. As of December 31, 2020 and 2019, the Company’s Chief Executive Officer
has an immediate family member who sits on the board of directors of Scepter Holdings, Inc.
As of December 31, 2020, marketable securities
were $4,016,951. For the year ended December 31, 2020, the Company recorded a total unrealized gain on marketable securities in
the statement of operations of $2,614,338.
Note 6. Inventories
Inventories consist primarily of raw materials
(including tar-sand stockpiles) and finished goods (which includes Fenix iron). Inventories are valued at the lower of cost or
market (net realizable value). The tar-sand stockpiles consist of 400,000 tons of tar sand stockpile and are anticipated to be
used as test material for our extraction remediation units. The stockpiles were acquired at a cost of approximately $0.83 per ton
or $333,744. The nano Fenix Iron are finished goods that have a 20-year shelf life and were acquired at cost for $192,000.
Note 7. Precious Metal Concentrate
Precious metal concentrate includes metal
concentrates located at the Company’s facilities. Concentrates consist of gold, silver, platinum, palladium, and rhodium.
Precious metal concentrate was acquired from our funding agreements for extraction operations with Vivaventures Precious Metals
LLC from 2013 through 2016. Our precious metal concentrate requires further refining to be sold as a finished product and is valued
at the lower of cost or market (net realizable value).
As of December 31, 2020 and 2019, the Company
carried a refining reserve of $1,166,709 and $1,183,229 against its precious metal concentrate asset based on estimates that the
Company received if it were to sell the precious metal concentrate in its current concentrated form to processing refineries. The
Company intends to sell our precious metal concentrate in its current state or refine it into dore bars for sale or monetization
and investment purposes. In July 2020, the Company entered into an agreement with International Metals Exchange, LLC (“IME”,
a related party) giving IME the option to purchase approximately 1,331 ounces of our precious metal concentrate for approximately
$2,800,000. As of December 31, 2020, the Company has sold $54,250 of the precious metal concentrate through this option.
As of December 31, 2020 and 2019 the net
realizable value of our precious metal concentrate is $1,166,709 and $1,183,228.
Note 8. Notes Receivable
Notes receivable consist of the following:
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Related party receivable (a)
|
|
$
|
–
|
|
|
$
|
2,202
|
|
|
Odyssey Group International, Inc. note receivable (b)
|
|
|
–
|
|
|
|
779,176
|
|
|
Scepter Holdings, Inc. note receivable (c)
|
|
|
78,455
|
|
|
|
63,514
|
|
|
Total Notes Receivable
|
|
$
|
78,455
|
|
|
$
|
844,892
|
|
(a) In 2019, the Company loaned $2,202
to Vivaopportunity Fund, LLC, which holds a noncontrolling interest in our consolidated financial statements. As of December 31,
2020, the $2,202 has been repaid. The Company is not required to provide any subordinated support to this entity.
(b) We entered into a Master Revolving
Note with Odyssey Group International, Inc., (ticker: ODYY, OTC Markets) in January 2017 for the Company to lend up to $450,000
to the holder. The note accrued interest at a rate of 12.5% per annum and accrued monthly on the outstanding principal. The loan
was amended in November 2017 to extend the maturity date to lend up to $750,000 and it extended the maturity to January 2020. All
outstanding principal and accrued interest of $809,578 was converted to the borrower’s common stock in June 2020 at $1.00
per share for 809,578 shares of common stock.
(c) We entered into a Master Revolving
Note with Scepter Holdings, Inc. (ticker: BRZL, OTC Markets) in January 2019 for the Company to lend up to $70,000 to the holder.
The note accrues interest at a rate of 7% per annum and accrues monthly on the outstanding principal. The note is convertible into
common shares of Scepter Holdings, Inc. at a rate of $0.002 per share or a 50% discount to market on the date of conversion, whichever
is less. The note matured in January 2020 and was amended to extend the maturity for an additional year with a maturity of January
2022 and the maximum amount of note was increased to $100,000.
Note 9. Property and Equipment
The following table sets forth the components
of the Company’s property and equipment at December 31, 2020 and 2019:
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Depreciation
|
|
|
Net Book Value
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Depreciation
|
|
|
Net Book Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office furniture and equipment
|
|
$
|
14,998
|
|
|
$
|
2,088
|
|
|
$
|
12,910
|
|
|
$
|
9,617
|
|
|
$
|
229
|
|
|
$
|
9,388
|
|
|
Vehicles
|
|
|
48,248
|
|
|
|
16,657
|
|
|
|
31,591
|
|
|
|
48,248
|
|
|
|
7,007
|
|
|
|
41,241
|
|
|
Precious metal extraction machine- 1 ton
|
|
|
2,280,000
|
|
|
|
228,000
|
|
|
|
2,052,000
|
|
|
|
2,280,000
|
|
|
|
228,000
|
|
|
|
2,052,000
|
|
|
Precious metal extraction machine- 10 ton
|
|
|
5,320,000
|
|
|
|
532,000
|
|
|
|
4,788,000
|
|
|
|
5,320,000
|
|
|
|
532,000
|
|
|
|
4,788,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction in process:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nanosponge prototype
|
|
|
17,103
|
|
|
|
–
|
|
|
|
17,103
|
|
|
|
17,103
|
|
|
|
–
|
|
|
|
17,103
|
|
|
Bioreactors
|
|
|
1,440,000
|
|
|
|
–
|
|
|
|
1,440,000
|
|
|
|
1,440,000
|
|
|
|
–
|
|
|
|
1,440,000
|
|
|
Cavitation device
|
|
|
5,000
|
|
|
|
–
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remediation Processing Unit 1
|
|
|
5,558,949
|
|
|
|
–
|
|
|
|
5,558,949
|
|
|
|
4,983,731
|
|
|
|
–
|
|
|
|
4,983,731
|
|
|
Remediation Processing Unit 2
|
|
|
4,149,793
|
|
|
|
–
|
|
|
|
4,149,793
|
|
|
|
2,496,732
|
|
|
|
–
|
|
|
|
2,496,732
|
|
|
Remediation Processing Unit 3
|
|
|
97,353
|
|
|
|
–
|
|
|
|
97,353
|
|
|
|
97,353
|
|
|
|
–
|
|
|
|
97,353
|
|
|
Total fixed assets
|
|
$
|
18,931,444
|
|
|
$
|
778,745
|
|
|
$
|
18,152,699
|
|
|
$
|
16,692,784
|
|
|
$
|
767,236
|
|
|
$
|
15,925,548
|
|
For the year ended December 31, 2019 the
Company paid $507,044 with 42,254 shares of Series C-1 Preferred Stock for equipment, which has been valued based on similar cash
purchases of the Series C-1 Preferred Stock at $0.40 per share. For the years ended December 31, 2020 and 2019 depreciation
expense was $11,508 and $6,843. For the years ended December 31, 2020 and 2019 capitalized interest to equipment from debt financing
was $1,025,852 and $1,061,215. Equipment that is currently being manufactured is considered construction in process and is not
depreciated until the equipment is placed into service. Equipment that is temporarily not in service is not depreciated until placed
into service.
Note 10. License Agreements
On August 17, 2017, the Company purchased
rights to an exclusive license for the applications and implementations involving the Nanosponge Technology and to use and develop
the Nanosponge as we see fit at our sole discretion. The Nanosponge contribution in the Company’s processes is to facilitate
a cracking process whereby remediated or extracted oil may be further refined from a crude product to a diesel fuel. The license
was valued at $2,416,572 and is amortized over its useful life of 20 years. As of December 31, 2020 and 2019 the accumulated amortization
of the license was $402,762 and $281,933. For the years ended December 31, 2020 and 2019 amortization expense of the license was
$120,829 and $120,828. Amortization expense for the years 2021 through 2024 is $120,829 in each respective year. As of December
31, 2020 and 2019 the net value of the license is $2,013,810 and $2,134,639.
Note 11. Intellectual Property, Net
The Company entered into a Contribution
Agreement dated January 5, 2015, where proprietary information and intellectual property related to certain petroleum extraction
technology (also known as hydrocarbon extraction technology) suitable to extract petroleum (or hydrocarbons) from tar sands and
other sand-based ore bodies, and all related concepts and conceptualizations thereof (the “Extraction Technology”)
was contributed to VivaVentures Energy Group, Inc., a 99% majority-owned subsidiary of Vivakor, and was assessed a fair market
value of $16,385,157, which consists of the consideration of $11,800,000 and the Company assuming a deferred tax liability in the
amount of $4,585,157. All ownership in the Extraction Technology (including all future enhancements, improvements, modifications,
supplements, or additions to the Extraction Technology) was assigned to the Company and is currently being applied to the Company
Remediation Processing Centers, which are the units that remediate material. The Extraction Technology is amortized over a 20-year
life. For the years ended December 31, 2020 and 2019 the amortization expense of the patents
was $819,258. Amortization expense for the years 2021 through 2024 is $819,258 in each respective year. As of December 31,
2020 and 2019 the net value of the Extraction Technology is $11,537,881 and $12,357,139.
In 2019, the Company began the process
of patenting the Extraction Technology and all of its developments and additions since the acquisition, and we have filed a series
of patents and capitalized the costs of these patents. As of December 31, 2020 and 2019, the capitalized costs of these patents
are $100,064 and $81,210. The patents were placed in service in 2021, at which time the Company will be begin amortizing the cost
over the patent useful life.
The Company entered into an asset purchase
agreement dated September 5, 2017, where two patents (US patent number 7282167- Method and
apparatus for forming nano-particles and US patent number 9272920- System and method
for ammonia synthesis) were purchased and attributed a fair market value of $4,931,380, which consists of the consideration
of $3,887,982 and the Company assuming a deferred tax liability in the amount of $1,043,398. The patents grant the Company ownership
of a nano catalyst technology that facilitates chemical manufacturing, with a focus on the production of ammonia, specifically
for the gas phase condensation process used to create the iron catalyst. The nano
catalyst accelerators make the Haber-Bosch process more efficient by increasing the active
surface area of standard commercial iron catalysts, thereby lowering the reaction temperature and pressure required for the Haber-Bosch
process to occur. As a result, less energy is needed to complete the reaction and create ammonia. The patents are amortized over
their useful life of 10 years. For the years ended December 31, 2020 and 2019 the amortization expense of the patents was $493,138.
Amortization expense for the years 2021 through 2025 is $493,138 in each respective year. As
of December 31, 2020 and 2019 the net value of the patents was $3,328,682 and $3,821,820.
The following table sets forth the components
of the Company’s intellectual property at December 31, 2020 and 2019:
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net Book Value
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net Book Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extraction Technology patents
|
|
$
|
100,064
|
|
|
$
|
–
|
|
|
$
|
100,064
|
|
|
$
|
81,210
|
|
|
$
|
–
|
|
|
$
|
81,210
|
|
|
Extraction Technology
|
|
|
16,385,157
|
|
|
|
4,847,276
|
|
|
|
11,537,881
|
|
|
|
16,385,157
|
|
|
|
4,028,018
|
|
|
|
12,357,139
|
|
|
Ammonia synthesis patents
|
|
|
4,931,380
|
|
|
|
1,602,698
|
|
|
|
3,328,682
|
|
|
|
4,931,380
|
|
|
|
1,109,560
|
|
|
|
3,821,820
|
|
|
Total Intellectual property
|
|
$
|
21,416,601
|
|
|
$
|
6,449,974
|
|
|
$
|
14,966,627
|
|
|
$
|
21,397,747
|
|
|
$
|
5,137,578
|
|
|
$
|
16,260,169
|
|
Note 12. Accounts Payable and Accrued
Expenses
Accounts payable consist of the following:
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Accounts payable
|
|
$
|
1,003,953
|
|
|
$
|
583,966
|
|
|
Office access deposits
|
|
|
705
|
|
|
|
1,490
|
|
|
Accrued compensation
|
|
|
101,920
|
|
|
|
125,000
|
|
|
Accrued tax penalties and interest
|
|
|
244,230
|
|
|
|
161,411
|
|
|
Accounts payable and accrued expenses
|
|
$
|
1,350,808
|
|
|
$
|
871,867
|
|
As of December 31, 2020 and 2019 accounts
payable attributed to variable interest entities was none and $161,415.
Note 13. Stock Payable
As of December 31, 2019, the Company had
an outstanding payable of $11,800,000 payable in common stock to Sustainable Fuels, Inc. (“SFI”) for the Extraction
Technology (See Note 11). Before the Common Stock was issued, the owner of SFI died and the matters and affairs of his estate were
passed to the executor of his estate. We attempted to contact SFI and the executor of the estate multiple times to issue and send
the common stock to the company or appropriate successor of the estate to no avail. As of December 31, 2020, the Company was able
to make contact with the new owner of SFI and has issued 20,000,000 shares of Common Stock to SFI per the terms of the agreement.
Note 14. Loans and Notes Payable
Loans and Notes payable consist of the
following:
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Various promissory notes and convertible notes (a)
|
|
$
|
50,960
|
|
|
$
|
80,212
|
|
|
Novus Capital Group LLC Note (b)
|
|
|
363,231
|
|
|
|
334,775
|
|
|
TriValley & Triple T Notes (c)
|
|
|
295,543
|
|
|
|
247,192
|
|
|
National Buick GMC (d)
|
|
|
25,643
|
|
|
|
31,966
|
|
|
Various Convertible Bridge Notes, net of debt discounts of $67,605 (e)
|
|
|
774,522
|
|
|
|
–
|
|
|
Blue Ridge Bank (f)
|
|
|
205,100
|
|
|
|
–
|
|
|
Small Business Administration (g)
|
|
|
305,054
|
|
|
|
–
|
|
|
JP Morgan Chase Bank (h)
|
|
|
90,645
|
|
|
|
–
|
|
|
Various Promissory Notes (i)
|
|
|
735,000
|
|
|
|
–
|
|
|
Total Notes Payable
|
|
$
|
2,845,698
|
|
|
$
|
694,145
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and notes payable, current
|
|
$
|
1,332,770
|
|
|
$
|
662,179
|
|
|
Loans and notes payable, current attributed to variable interest entity
|
|
|
735,000
|
|
|
|
31,966
|
|
|
Loans and notes payable, long term
|
|
$
|
777,928
|
|
|
$
|
–
|
|
_____________
|
|
|
Principal
|
|
|
Interest
|
|
|
Total
|
|
|
2021
|
|
$
|
2,067,770
|
|
|
$
|
7,997
|
|
|
$
|
2,075,767
|
|
|
2022
|
|
|
78,857
|
|
|
|
12,874
|
|
|
|
91,731
|
|
|
2023
|
|
|
306,546
|
|
|
|
12,361
|
|
|
|
318,907
|
|
|
2024
|
|
|
11,545
|
|
|
|
11,819
|
|
|
|
23,364
|
|
|
2025
|
|
|
18,231
|
|
|
|
11,010
|
|
|
|
29,241
|
|
|
Thereafter
|
|
|
362,749
|
|
|
|
160,022
|
|
|
|
522,771
|
|
|
Total
|
|
$
|
2,845,698
|
|
|
$
|
216,083
|
|
|
$
|
3,061,781
|
|
(a) From 2013 through 2018 the Company
issued a series of promissory notes and convertible notes with various interest rates ranging up to 12% per annum. The convertible
notes convert at the holder’s option after 1 year of issuance and may be converted into shares of common stock. The conversion
price is generally equal to the specified per share conversion rate as noted in the note agreements. In 2019 a series of the promissory
note holders agreed to settle $632,850 in notes payable for 2,531,400 shares of marketable securities of Odyssey Group International,
Inc. owned by the Company. The Company converted $25,314 of its convertible note receivable into 2,531,400 shares of Odyssey Group
International, Inc. and transferred these shares to the note holders to extinguish the notes payable and has accounted for these
marketable securities at cost or $25,314 and recorded a $607,536 gain on the extinguishment of debt in “Gain (loss) on extinguishment
of debt” in the accompanying consolidated statement of operations.
(b) On September 5, 2017, the Company acquired
patents in the amount of $4,931,380 in which the Company also agreed to assume the encumbering debt on asset in the amount of $334,775
due in December 2019 with no interest accruing until 2020 and a deferred tax liability of $1,043,398. The Company has agreed with
the holder of the encumbering debt to extend the note to July 2, 2021 and accrue interest at 7% per annum commencing January 1,
2020 through July 1, 2020, and 10% per annum commencing July 2, 2020 and thereafter.
(c) The balance of these outstanding notes
is due to related parties, specifically the 51% owner of Vivakor Middle East LLC, in which the Company owns 49% and consolidates
this entity in its consolidated financial statements. The loans were granted to Vivakor Middle East LLC by the majority owner for
operational use with only the agreement of repayment from the net proceeds of such entity’s operations once it commences
scaled up operations. No interest accrues on the loans, and no specific maturity date has been agreed upon. On March 10, 2021, the Company entered into a master revolving note with Triple T Trading Company LLC
to set forth the relationship of the parties to retain the previous terms of the note payable to Triple T Trading Company LLC,
but to include a note maturity of March 20, 2023 and maximum lending amount of 1,481,482 QAR or approximately $400,000, valued
at an exchange rate of approximately $0.27 per QAR on March 10, 2021.
(d) In May 2019, the Company purchased
a vehicle for $36,432 and financed $34,932 over six years with an interest rate of 6.24% per annum. Monthly payments of $485 are
required and commenced in July 2019.
(e) In 2020 the Company entered into various
convertible promissory notes as follows:
In 2020 the Company entered into convertible
promissory notes with an aggregate principal of $433,000. The notes accrue interest at 10% per annum and have a maturity of the
earlier of 12 months or the consummation of the Company listing its Common Stock on a senior stock exchange. The notes are convertible
at the Company’s option into shares of the Company’s common stock at a price equal to 80% of the opening price of the
Company’s common stock on the national exchange or the offering price paid by the investors in the financing in connection
with the uplist, whichever is lower, or (ii) repaid in cash in an amount equal to the indebtedness being repaid plus a premium
payment equal to 15% of the amount being repaid. If an event of default has occurred and the Company does not convert the amounts
due under the Note into the Company’s common stock, then the Company will have the option to convert the outstanding indebtedness
into shares of the Company’s common stock at a price equal to 80% of the weighted average trading price of the Company’s
common stock on the OTC Markets, or be repaid in cash in an amount equal to all principal and interest due under the Note.
On
October 13, 2020, the Company entered into a convertible promissory note in an amount of $280,500 having an interest rate of 12%
per annum. The note bears a 10% Original Issue Discount. The loan shall mature in 1 year and may be convertible at the lower of
$0.40 or 80% of the lowest median daily traded price over ten trading days prior to conversion, but in the event of a Qualified
Uplist the note may be converted at a 30% discount to market. The Company also issued 100,000 restricted shares with no registration
rights in conjunction with this note, which was recorded as a debt discount in the amount of $44,000, which is amortized
to interest expense over the term of the agreements using the effective interest method.
On November 23, 2020, the
Company entered into a convertible promissory note in an amount of $165,000 having an interest rate of 8% per annum. The note bears
a $15,000 Original Issue Discount. The loan shall mature in nine months and may be convertible at the $0.40 per share. If
an event of default occurs, the conversion price shall be the lesser of $0.25 cents or 70% of the lowest traded price in the prior
twenty trading days immediately preceding the notice of conversion. In the event of an Uplist, the conversion price shall equal
the lower of 80% of the opening price of the Company’s shares of Common Stock, as listed on the Senior Exchange, on the first
day on which the Company’s shares are traded thereon (representing a 20% discount), or 80% of the offering price of the Company’s
shares of Common Stock, as offered in a financing in connection with the Uplisting (representing a 20% discount). The
Company also issued 50,000 restricted shares with no registration rights in conjunction with this note, which was recorded
as a debt discount in the amount of $23,605, which is amortized to interest expense over the term of the agreements using the effective
interest method.
(f)
In May 2020, the Company entered into a Paycheck Protection Program loan agreement with Blue Ridge Bank, subject to the Small Business
Administration’s (“SBA”) Paycheck Protection Program. The loan carries an annual interest rate of one (1) percent
per annum with payment beginning in the seventh month with monthly payments required until maturity in the 18th month.
The loan may be fully forgivable according to the CARES Act if the Company can provide proper documentation for the use of the
proceeds of the loan. The Company has achieved the milestones for loan forgiveness and anticipates that this debt will be forgiven
in full in 2021.
(g)
From May through August 2020, the Company entered into various loan agreements with the Small Business Administration for an aggregate
loan amount of $299,900. The loans carry an interest rate of 3.75% per annum. The loans shall mature in 30 years.
(h)
In July 2020, the Company entered into a Paycheck Protection Program loan agreement with JP Morgan Chase Bank, subject to the Small
Business Administration’s (“SBA”) Paycheck Protection Program. The loan may be fully forgivable according to
the CARES Act if the Company can provide proper documentation for the use of the proceeds of the loan. The Company has achieved
the milestones for loan forgiveness and anticipates that this debt will be forgiven in full in 2021.
(i) Viva
Wealth Fund I, LLC is offering up to $25,000,000 in convertible notes in a private offering.
As of December 31, 2020, VWFI has raised $735,000. A convertible note will automatically convert
into the LLC units at the earlier of (i) the date that the Equipment is placed into quality control and testing or (ii) six
months from the date of investment. The convertible notes will accrue interest at 12% per annum and are paid
quarterly. At the maturity date, remaining interest will be paid, at which time no further interest payments will accrue.
Upon the offering termination date, all units accepted for any series of equipment will automatically convert to Vivakor
common stock if the Company has not accepted subscriptions for at least $6,250,000 for a series of equipment. The conversion
price of the automatic stock conversion is the greater of $0.45 per share or the share price based
on the 30-day average share price of Vivakor common stock discounted by 10%. The termination date of the offering is
November 13, 2021, which date may be extended until November 13, 2022 in the sole discretion of the Company. As of April
1, 2021 VWFI has raised approximately $3,135,000 of the $6,250,000.
Note 15. Commitments and Contingencies
Leases
In June 2019, the Company entered into
a Sublease agreement with US Closer, LLC, whereby we agreed to lease approximately 12,061 square feet of office and manufacturing
space located in South Salt Lake City, Utah. Pursuant to the Sublease, the sublease expires on December 31, 2020 and requires a
monthly lease payment of $6,633.55 plus other pass-through expenses as required under the Primary Lease. The Company renegotiated
with the landlord to renew this lease as the primary tenant in January 2021 to lease this warehouse on a month to month basis.
The lease may be terminated at any time or for any reason with a 30 day written notice to terminate.
Commencing on September 15, 2019, the Company
entered into a five-year lease with Jamboree Center 1 & 2 LLC covering approximately 6,961 square feet of office space in Irvine,
CA. Under the terms of the lease agreement, we are required to make the following monthly lease payments: Year 1 $21,927, Year
2 $22,832, Year 3 $23,737, Year 4 $24,712, Year 5 $25,686. As a condition of the lease, we were required to provide a $51,992 security
deposit.
The right-of-use asset for operating leases
as of December 31, 2020 and 2019 was $881,804 and $1,167,149. Rent expense for the years ended December 31, 2020 and 2019 was $257,948
and $241,131.
The following table reconciles the undiscounted
cash flows for the leases as of December 31, 2020 to the operating lease liability recorded on the balance sheet
|
2021
|
|
$
|
276,699
|
|
|
2022
|
|
|
287,769
|
|
|
2023
|
|
|
299,466
|
|
|
2024
|
|
|
231,174
|
|
|
2025
|
|
|
–
|
|
|
Total undiscounted lease payments
|
|
|
1,095,108
|
|
|
Less: Abatement of rents
|
|
|
46,569
|
|
|
Less: Imputed interest
|
|
|
153,144
|
|
|
Present value of lease payments
|
|
$
|
895,395
|
|
|
|
|
|
|
|
|
Operating lease liabilities, current
|
|
$
|
276,699
|
|
|
Operating lease liabilities, long-term
|
|
$
|
618,696
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term
|
|
|
3.75 years
|
|
|
Weighted-average discount rate
|
|
|
7.0%
|
|
The discount rate is the Company’s
incremental borrowing rate, or the rate of interest that the Company would have to pay to borrow on a collateralized basis over
a similar term an amount equal to the lease payments in a similar economic environment. Based on an assessment of the Company’s
borrowings the incremental borrowing rate was determined to be 7%.
Note 16. Long-term Debt
To assist in funding the manufacture of
the Company’s Remediation Processing Centers, between 2015 and 2017, the Company entered into two agreements which include
terms for the purchase of participation rights for the sale of future revenue of the funded RPCs, and which also require working
interest budget payments by the Company.
The Company accounts for the terms under
these contracts for the sale of future revenue under Accounting Standards Codification 470 (“ASC 470”). Accordingly,
these contracts include the receipt of cash from an investor where the Company agrees to pay the investor for a defined period
a specified percentage or amount of the revenue or a measure of income (for example, gross revenue) according to their contractual
right, in which the Company will record the cash as debt and apply the effective interest method to calculate and accrue interest
on the contracts. The terms of these agreements grant the holder a prorated 25% participation in the gross revenue of the assets
as defined in the agreements for 20 years after operations commence for a purchase price of approximately $2,200,000. In the event
that the contract is not fully subscribed by the LLCs it will receive only a prorated participation of the available 25% participation.
Under the terms of the agreement, we anticipate Remediation Processing Centers to commence operations and to begin making estimated
annual payments of $1,769,000 in September 2021 based on revenue projections from the RPCs.
In
accordance with ASC 470, the Company records the proceeds from these contracts as debt because the Company has significant
continuing involvement in the generation of the cash flows due to the investor (for example, active involvement in the generation
of the operating revenues of the business segment), which constitutes the presence of a factor that independently creates a rebuttable
presumption that debt classification is appropriate. The Company has determined its effective interest rates to be between 36.1%
and 36.52% based on each contract’s future revenue streams expected to be paid to the investor. These rates represent the
discount rate that equates estimated cash flows with the initial proceeds received from the investor and is used to compute the
amount of interest expense to be recognized each period. During the development and manufacturing of the assets the effective interest
has been capitalized to the assets. As the assets enter operations or service of their intended use, the effective interest on
these contracts will be recognized as interest expense (See Note 9).
In 2016 and 2017, additional consideration
to investors to enter into these agreements was granted, and the Company issued to these investors 3,390,000 shares of Series B-1
Preferred Stock with a relative fair value of $0.25 per share or based on conversion terms and price of the Company’s Common
Stock at the time of issuance. The Company also issued 3,185,000 common stock warrants to investors. The relative fair value of
the warrants and Series B-1 preferred stock in aggregate was $1,488,550, and was recorded as a debt discount, which is amortized
to interest expense over the term of the agreements using the effective interest method. During the manufacturing phase of the
asset, the interest expense is capitalized to the asset.
Some holders of these participation rights
also have the option to relinquish ownership and all remaining benefits of their LLC units in exchange for Common Stock in the
Company. Depending on the contract, these options to convert to common stock range from between 1 and 5.5 years. The exercise period
ranges from between 1 year to 5.5 years with a step-up discount to market for each year the option is not exercised with a range
of between a 5% to a 25% discount to market. Accordingly, under Accounting Standards Codification 815 (“ASC 815”) the
Company valued these options at fair value using a Monte Carlo Simulation by a third-party valuation expert, which found the fair
value of the options to be nominal. Long-term debt related to these participation rights is recorded in “Long-term debt”
on the consolidated balance sheet.
The accounting for the terms under these
contracts that call for working interest budget payments by the Company are recorded in current liabilities on the consolidated
balance sheet and paid down through pass-through expenses or cash according to the contract. Accordingly, the Company records any
unpaid balance of budget payments received in “Long-term debt, current” as these liabilities are generally paid within
12 months after proceeds are received.
Long-term debt consists of the following:
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Principal
|
|
$
|
2,196,233
|
|
|
$
|
2,186,233
|
|
|
Accrued interest
|
|
|
2,997,136
|
|
|
|
1,971,285
|
|
|
Debt discount
|
|
|
(241,709
|
)
|
|
|
(256,595
|
)
|
|
Working interest payable
|
|
|
–
|
|
|
|
126,535
|
|
|
Total long term debt
|
|
$
|
4,951,660
|
|
|
$
|
4,027,458
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term debt, current
|
|
$
|
593,457
|
|
|
$
|
126,535
|
|
|
Long term debt
|
|
$
|
4,358,203
|
|
|
$
|
3,900,923
|
|
The following table sets forth the
estimated payment schedule of long-term debt as of December 31, 2020:
|
|
|
Principal
|
|
|
Interest
|
|
|
Total
|
|
|
2021
|
|
$
|
1,020
|
|
|
$
|
1,767,590
|
|
|
$
|
1,768,610
|
|
|
2022
|
|
|
4,971
|
|
|
|
1,952,580
|
|
|
|
1,957,551
|
|
|
2023
|
|
|
6,774
|
|
|
|
1,950,777
|
|
|
|
1,957,551
|
|
|
2024
|
|
|
9,231
|
|
|
|
1,948,320
|
|
|
|
1,957,551
|
|
|
2025
|
|
|
12,579
|
|
|
|
1,944,972
|
|
|
|
1,957,551
|
|
|
Thereafter
|
|
|
2,161,658
|
|
|
|
24,691,026
|
|
|
|
26,852,684
|
|
|
Total
|
|
$
|
2,196,233
|
|
|
$
|
34,255,265
|
|
|
$
|
36,451,498
|
|
Note 17. Stockholders' Equity
Series A, Series B, Series B-1, Series
C and Series C-1 Preferred Stock
The Preferred Stock authorized by the Company
may be issued from time to time in one or more series. The Company is authorized to issue 450,000,000 shares of preferred stock.
The Company is authorized to issue 2,000,000 shares of Series A Preferred Stock, 98,000,000 shares of Series B Preferred Stock,
50,000,000 shares of Series B-1 Preferred Stock, 100,000,000 shares of Series C Preferred Stock, and 100,000,000 shares of Series
C-1 Preferred Stock. The Board of Directors is authorized to fix or alter the number of shares constituting any series of Preferred
Stock and the designation thereof. Subsequent to December 31, 2020, the Board of Directors authorized and a majority vote acceptance
was received of each voting class of preferred stock, including Series B Preferred Stock, Series B-1 Preferred Stock, and Series
C-1 Preferred Stock, that each class’ designations be amended that upon the Company’s public offering in conjunction
with an uplist to a senior stock exchange that these classes of preferred stock will convert their preferred shares to common shares
on a one for one basis.
The Company has issued 2,000,000 shares
of Series A Preferred Stock, convertible at a current ratio of 10 shares of Common Stock for each outstanding share of Series A
Preferred Stock. The conversion price is subject to adjustment under certain customary circumstances, including as a result of
stock splits and combinations, dividends and distributions, and certain issuances of common stock. Holders of shares of Series
A Preferred Stock will have the right to 25 votes for each share of Common Stock into which such shares of Series A Preferred Stock
can then be converted (with a current conversion ratio of 10 shares of Common Stock for each outstanding share of Series A Preferred
Stock) and the right to a liquidation preference in any distribution of net assets made to the shareowners prior to and in preference
to the holders of Common Stock and any other Preferred Stock holder in the liquidation, dissolution or winding up of our Company.
As of December 31, 2020 and 2019 the liquidation preference is $400,000. Holders of shares of Series A Preferred Stock are not
currently entitled to dividends. The Company has the right, but not the obligation, to redeem shares of Series A Preferred Stock.
The Company has issued 6,507,492 and 21,251,890
of Series B Preferred Stock as of December 31, 2020 and 2019, respectively. Shares of Series B Preferred Stock are convertible
one year after issuance, at any time at the option of the holder, into shares of Common Stock (with a conversion price at the lesser
of the issuance price ($0.20) or a 10% discount to market on the conversion date). Also, automatic conversion of shares of Series
B Preferred Stock into shares of Common Stock may occur due to certain qualified public offerings entered into or by written consent
of a majority of the holders of Series B Preferred Stock. The conversion price is subject to adjustment under certain customary
circumstances, including as a result of stock splits and combinations, dividends and distributions, and certain issuances of common
stock. Certain holders of Series B contractually agreed to an automatic conversion to Common Stock after 4 years of issuance. The
Company has the right, but not the obligation, to redeem shares of Series B Preferred Stock one year after issuance. Holders of
Series B Preferred Stock will have the right to one vote for each share of Common Stock into which such Series B Preferred Stock
is then convertible, and a right to a liquidation preference in any distribution of net assets made to the shareowners prior to
and in preference to the holders of Common Stock and any Preferred Stock holder, except holders of Series A Preferred Stock, in
the liquidation, dissolution or winding up of our Company. As of December 31, 2020 and 2019 the liquidation preference was $1,341,233
and $4,383,202. Dividends are 12.5% and cumulative and are payable only when, as, and if declared by the Board of Directors.
The Company has issued 14,031,834 and 22,758,670
of Series B-1 Preferred Stock as of December 31, 2020 and 2019, respectively. Shares of Series B-1 Preferred Stock are convertible
one year after issuance, at any time at the option of the holder, into shares of Common Stock (with a conversion price at the lesser
of the issuance price ($0.25) or a 10% discount to market on the conversion date). Also, automatic conversion of shares of Series
B-1 Preferred Stock into shares of Common Stock may occur due to certain qualified public offerings entered into or by written
consent of a majority of the holders of Series B-1 Preferred Stock. The conversion price is subject to adjustment under certain
customary circumstances, including as a result of stock splits and combinations, dividends and distributions, and certain issuances
of common stock. The Company has the right, but not the obligation, to redeem shares of Series B-1 Preferred Stock one year after
issuance. Holders of Series B-1 Preferred Stock have no voting or dividend rights, and a right to a liquidation preference in any
distribution of net assets made to the shareowners prior to and in preference to the holders of Common Stock and any Preferred
Stockholder, except holders of Series A and Series B Preferred Stock, in the liquidation, dissolution or winding up of our Company.
As of December 31, 2020 and 2019 the liquidation preference was $3,507,959 and $5,689,690.
The Company has not issued any Series C
Preferred Stock as of December 31, 2020 and 2019, respectively. Shares of Series C Preferred Stock are convertible one year after
issuance, at any time at the option of the holder, into shares of Common Stock (with a conversion price at the lesser of the issuance
price ($0.35) or a 10% discount to the market price on the conversion date). Automatic conversion of shares of Series C Preferred
Stock into shares of Common Stock may occur due to certain qualified public offerings entered into or by written consent of a majority
of the holders of Series C Preferred Stock or upon the four year anniversary date of the issuance of such shares. The conversion
price is subject to adjustment under certain customary circumstances, including as a result of stock splits and combinations, dividends
and distributions, and certain issuances of common stock. The Company has the right, but not the obligation, to redeem shares of
Series C Preferred Stock one year after issuance. Holders of Series C Preferred Stock will have the right to one vote for each
share of Common Stock into which such Series C Preferred Stock is then convertible, and a right to a liquidation preference in
any distribution of net assets made to the shareowners prior to and in preference to the holders of Common Stock and any Preferred
Stock holder, except holders of Series B and B-1 Preferred Stock, in the liquidation, dissolution or winding up of our Company.
Dividends are 12.5% and cumulative and are payable only when, as, and if declared by the Board of Directors.
The Company has issued 7,658,680 and 13,384,760
of Series C-1 Preferred Stock as of December 31, 2020 and 2019, respectively. Shares of Series C-1 Preferred Stock are convertible
one year after issuance, at any time at the option of the holder, into shares of Common Stock (with a conversion price at the lesser
of the issuance price ($0.40) or a 10% discount to the market price on the conversion date). In addition, automatic conversion
of shares of Series C-1 Preferred Stock into shares of Common Stock may occur due to certain qualified public offerings entered
into or by written consent of a majority of the holders of Series C-1 Preferred Stock. The conversion price is subject to adjustment
under certain customary circumstances, including as a result of stock splits and combinations, dividends and distributions, and
certain issuances of common stock. The Company has the right, but not the obligation, to redeem shares of Series C-1 Preferred
Stock one year after issuance. Holders of Series C-1 Preferred Stock have no voting or dividend rights, and a right to a liquidation
preference in any distribution of net assets made to the shareowners prior to and in preference to the holders of Common Stock
and any Preferred Stock holder, except holders of Series A, Series B, Series B-1, and Series C Preferred Stock, in the liquidation,
dissolution or winding up of our Company. As of December 31, 2020 and 2019 the liquidation preference was $3,063,472 and $5,353,904.
For the year ended December 31, 2020, $7,593,816
or 29,888,496, shares of Series B, Series B-1, and Series C-1 Preferred Stock were converted into 31,132,130 shares of Common Stock.
For the year ended December 31, 2020, the
Company issued 691,182 shares of Series B-1 Preferred Stock as a $172,795 stock dividend paid to Series B Preferred Shareholders.
For the year ended December 31, 2019, the
Company issued 1,980,126 shares of Series B-1 Preferred Stock as a $495,054 stock dividend paid to Series B Preferred Shareholders.
For the year ended December 31, 2019, $11,072,019,
or 53,492,573 shares of Series B and Series B-1 Preferred Stock, were converted into 53,492,583 shares of Common Stock.
For the year ended December 31, 2019, the
Company issued 1,267,608 Series C-1 Preferred Stock for $507,044 for the purchase of equipment.
Common Stock
The Company is authorized to issue 1,250,000,000
shares of common stock. As of December 31, 2020 and 2019, there were 337,679,020 and 285,343,964 shares of our common stock issued
and outstanding, respectively. Treasury stock is carried at cost.
For the year ended December 31, 2020, $7,593,816
or 29,888,496, shares of Series B, Series B-1, and Series C-1 Preferred Stock were converted into 31,132,130 shares of Common Stock.
For the year ended December 31, 2020 the
Company issued 20,000,000 shares of Common Stock for a $11,800,000 reduction in stock payables.
For the year ended December 31, 2020 the
Company issued 228,000 shares of Common Stock in the amount of $41,028 for cash.
For the year ended December 31, 2020, the
Company granted stock-based compensation to employees, including a 500,000 share stock award, which vests at the end of four years
and a 5,000,000 stock options that cliff vests at the end of five years. For the year ended December 31, 2020, stock-based compensation
was $146,114. For the year ended December 31, 2020, the Company also granted non-statutory stock options, including 4,000,000 stock
options to the Board of Directors, which vests over 1 year, and a 10,000,000 stock option to a consultant, which vests over 4 years.
Non-statutory stock based compensation was $555,000 for the year ended December 31, 2020.
For the year ended December 31, 2019, $11,072,019,
or 53,492,573 shares of Series B and Series B-1 Preferred Stock, were converted into 53,492,583 shares of Common Stock.
For the year ended December 31, 2019, the
Company issued 209,414 shares for a $53,500 reduction of liabilities.
For the year ended December 31, 2019, the
Company issued 230,000 shares of Common Stock for $91,982 in cash due to exercised warrants.
For the year ended December 31, 2019, the
Company issued 1,155,779 shares of Common Stock for $219,597 for services to the Company.
For the year ended December 31, 2019, the
Company granted stock-based compensation to an employee, including a 500,000 share stock award, which vests after 4 years. For
the year ended December 31, 2019, stock-based compensation was $48,421.
Noncontrolling Interest
For the year ended December 31, 2020 and
2019, the Company issued 124,981 and 292,800 units of noncontrolling interest in RPC Design and Manufacturing LLC for cash of $624,907
and $1,464,000.
Note 18. Temporary Equity
Shares of Series
B, B-1, C and C-1 convertible preferred stock hold conversion features providing that, at the holder’s election, the holder
may convert the preferred stock into common stock. Upon conversion, the Company may be required to deliver a variable number of
equity shares that is determined by using a formula based on the market price of the Company’s Common Stock. After four years
from the date of issuance, Series B and C preferred shareholders are forced to automatically convert to Common Stock. For each
respective series, the holder may convert their preferred shares to common shares at the original issue price as defined, which
ranges from between $0.20 per share to $0.40 per share, at the lesser of the original issue price or 90% of the market price on
the conversion date. As of December 31, 2020 and 2019, the market price of the Company’s Common Stock was $0.50 and $0.20
per share. As of the date of this report the market price of the shares is approximately $0.38 per share. There is no contractual
cap on the number of common shares that the Company could be required to deliver on preferred shareholders’ conversions to
Common Stock. Because the feature contains no explicit share limit, the Company assumes that it may be forced to cash settle the
conversion feature in accordance with the accounting analysis under ASC 815-40-25.
Accordingly, under
ASC 815-40-25-10 the Company may be forced to settle these conversion features in cash, specifically since it is unknown as to
what date the shareholders’ may convert their preferred stock to common stock and if there will be sufficient authorized
and unissued common shares on that date. As of December 31, 2020 and 2019 the Company did have sufficient authorized and unissued
common shares to satisfy all preferred shareholders interest if it were converted to Common Stock, although if the stock price
were to drop below $0.02 per share and the Company could not authorize further shares it may be forced to settle such conversions
in cash, which may consider them redeemable. Accordingly, Series B, B-1, C and C-1 preferred stock has been classified in temporary
equity.
The following table shows all changes to temporary equity during
for the year ended December 31, 2020 and 2019.
|
|
|
Convertible Preferred Stock
|
|
|
|
|
Series B
|
|
|
Series B-1
|
|
|
Series C-1
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
December 31, 2018
|
|
|
67,271,587
|
|
|
$
|
13,454,255
|
|
|
|
28,251,420
|
|
|
$
|
7,062,780
|
|
|
|
12,117,160
|
|
|
$
|
6,334,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series B and B-1 Preferred Stock to Common Stock
|
|
|
(46,019,697
|
)
|
|
|
(9,203,875
|
)
|
|
|
(7,472,876
|
)
|
|
|
(1,868,144
|
)
|
|
|
–
|
|
|
|
–
|
|
|
Series C-1 Preferred Stock issued for the purchase of equipment
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,267,600
|
|
|
|
507,044
|
|
|
Dividend paid in Series B-1 Preferred Stock
|
|
|
–
|
|
|
|
–
|
|
|
|
1,980,126
|
|
|
|
495,054
|
|
|
|
–
|
|
|
|
–
|
|
|
December 31, 2019
|
|
|
21,251,890
|
|
|
$
|
4,250,380
|
|
|
|
22,758,670
|
|
|
$
|
5,689,690
|
|
|
|
13,384,760
|
|
|
$
|
6,841,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series B, B-1, and C-1 Preferred Stock to Common Stock
|
|
|
(14,744,398
|
)
|
|
|
(2,948,880
|
)
|
|
|
(9,418,018
|
)
|
|
|
(2,354,504
|
)
|
|
|
(5,726,080
|
)
|
|
|
(2,290,432
|
)
|
|
Dividend paid in Series B-1 Preferred Stock
|
|
|
–
|
|
|
|
–
|
|
|
|
691,182
|
|
|
|
172,795
|
|
|
|
–
|
|
|
|
–
|
|
|
December 31, 2020
|
|
|
6,507,492
|
|
|
$
|
1,301,500
|
|
|
|
14,031,834
|
|
|
$
|
3,507,981
|
|
|
|
7,658,680
|
|
|
$
|
4,550,977
|
|
Note 19. Warrants
As of December 31, 2020 and 2019, the Company
had none and 1,080,000 warrants outstanding. These warrants relate to the warrants issued as an incentive to investors with an investment
into the Company. The outstanding warrants were issued at $0.40 per share of Common Stock. The warrants were granted for a one-year
period.
Management uses the Black-Scholes option
pricing model to determine the fair value of warrants on the date of issuance. The fair value of warrants issued pursuant to the
issuance of notes payable was recorded as deferred debt issuance cost and amortized over the remaining term of the associated debt.
The assumptions used in the Black-Scholes option pricing model
to determine the fair value of the warrants on the date of issuance are as follows:
|
Risk-free interest rate
|
1.2%
|
|
Expected dividend yield
|
None
|
|
Expected life of warrants
|
1 years
|
|
Expected volatility rate
|
119%
|
The following table summarizes the activity
of the Company’s share purchase warrants:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
Aggregate
|
|
|
|
|
Number of
|
|
|
exercise
|
|
|
Intrinsic
|
|
|
|
|
warrants
|
|
|
price
|
|
|
Value
|
|
|
Balance, December 31, 2018
|
|
|
16,485,000
|
|
|
$
|
0.55
|
|
|
$
|
–
|
|
|
Expired
|
|
|
(15,195,000
|
)
|
|
|
0.56
|
|
|
|
|
|
|
Exercised
|
|
|
(210,000
|
)
|
|
|
0.40
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
|
1,080,000
|
|
|
$
|
0.40
|
|
|
$
|
–
|
|
|
Expired
|
|
|
(1,060,000
|
)
|
|
|
0.40
|
|
|
|
|
|
|
Exercised
|
|
|
(20,000
|
)
|
|
|
0.40
|
|
|
|
|
|
|
Balance, December 31, 2020
|
|
|
–
|
|
|
$
|
0.40
|
|
|
$
|
–
|
|
There were no share purchase warrants outstanding as of December
31, 2020. As of December 31, 2019, the following share purchase warrants were outstanding:
|
|
|
Number of warrants outstanding
|
|
|
Exercise price
|
|
|
Expiration date
|
|
|
Balance, December 31, 2019
|
|
|
1,080,000
|
|
|
$
|
0.40
|
|
|
|
December 2020
|
|
Note 20. Income Tax
Provision for income taxes is as follows:
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Current:
|
|
|
|
|
|
|
|
State
|
|
$
|
800
|
|
|
$
|
800
|
|
|
|
|
|
800
|
|
|
|
800
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
336,124
|
|
|
|
422,037
|
|
|
State
|
|
|
130,040
|
|
|
|
166,366
|
|
|
|
|
|
466,164
|
|
|
|
588,403
|
|
|
|
|
|
|
|
|
|
|
|
|
Net provision
|
|
$
|
466,964
|
|
|
$
|
589,203
|
|
The differences between the expected
income tax benefit based on the statutory Federal United States income tax rates and the Company's effective tax rates are summarized
below:
|
|
|
December 31, 2020
|
|
|
Tax Computed At The Federal Statutory Rate
|
|
$
|
(447,850
|
)
|
|
|
21.00%
|
|
|
State Tax, Net Of Fed Tax Benefit
|
|
|
(77,025
|
)
|
|
|
3.54%
|
|
|
Nondeductible Expenses
|
|
|
22,040
|
|
|
|
-1.03%
|
|
|
Flowthrough Entity not Subject to Tax
|
|
|
187,948
|
|
|
|
-8.81%
|
|
|
Foreign Corporation - Minority Interest
|
|
|
8,996
|
|
|
|
-0.42%
|
|
|
Valuation Allowance
|
|
|
772,855
|
|
|
|
-36.24%
|
|
|
Rate Change
|
|
|
–
|
|
|
|
0.00%
|
|
|
R&D Credits
|
|
|
–
|
|
|
|
0.00%
|
|
|
Other/Prior Year True-Up
|
|
|
–
|
|
|
|
0.00%
|
|
|
Provision for income taxes
|
|
$
|
466,964
|
|
|
|
-21.96%
|
|
|
|
|
December 31, 2019
|
|
|
Tax Computed At The Federal Statutory Rate
|
|
$
|
(344,301
|
)
|
|
|
21.00%
|
|
|
State Tax, Net Of Fed Tax Benefit
|
|
|
(100,906
|
)
|
|
|
6.15%
|
|
|
Nondeductible Expenses
|
|
|
3,406
|
|
|
|
-0.21%
|
|
|
Flowthrough Entity not Subject to Tax
|
|
|
21,313
|
|
|
|
-1.30%
|
|
|
Foreign Corporation - Minority Interest
|
|
|
14,251
|
|
|
|
-0.87%
|
|
|
Valuation Allowance
|
|
|
995,440
|
|
|
|
-60.72%
|
|
|
Rate Change
|
|
|
–
|
|
|
|
0.00%
|
|
|
R&D Credits
|
|
|
–
|
|
|
|
0.00%
|
|
|
Other/Prior Year True-Up
|
|
|
–
|
|
|
|
0.00%
|
|
|
Provision for income taxes
|
|
$
|
589,203
|
|
|
|
-35.94%
|
|
Significant components of the Company's deferred tax assets and liabilities are as follows:
|
|
|
December 31, 2020
|
|
|
Reserves
|
|
$
|
336,875
|
|
|
Fixed Assets
|
|
|
(1,915,021
|
)
|
|
Leases
|
|
|
3,803
|
|
|
Intangibles
|
|
|
(3,964,173
|
)
|
|
Net Operating Losses
|
|
|
3,544,614
|
|
|
Impairment Losses
|
|
|
–
|
|
|
Stock Options
|
|
|
155,309
|
|
|
Accruals
|
|
|
19,440
|
|
|
Other
|
|
|
(699,478
|
)
|
|
Net Deferred Liability
|
|
|
(2,518,631
|
)
|
|
Less: Valuation Allowance
|
|
|
(3,689,274
|
)
|
|
Total deferred tax liability:
|
|
$
|
(6,207,905
|
)
|
|
|
|
|
December 31, 2019
|
|
|
Reserves
|
|
$
|
336,987
|
|
|
Fixed Assets
|
|
|
(1,711,017
|
)
|
|
Leases
|
|
|
1,204
|
|
|
Intangibles
|
|
|
(4,301,036
|
)
|
|
Net Operating Losses
|
|
|
2,819,624
|
|
|
Impairment Losses
|
|
|
–
|
|
|
Accruals
|
|
|
46,508
|
|
|
Other
|
|
|
21,400
|
|
|
Net Deferred Liability
|
|
|
(2,786,330
|
)
|
|
Less: Valuation Allowance
|
|
|
(2,916,421
|
)
|
|
Total deferred tax liability:
|
|
$
|
(5,702,751
|
)
|
In determining the possible future realization
of deferred tax assets, the Company has considered future taxable income from the following sources: (a) reversal of taxable temporary
differences; and (b) tax planning strategies that, if necessary, would be implemented to accelerate taxable income into years
in which net operating losses might otherwise expire.
Deferred tax assets are recognized subject
to management’s judgment that realization is more likely than not. A valuation allowance is recognized for a deferred tax
asset if, based on the weight of the available evidence, it is more likely than not that some portion of the deferred tax asset
will not be realized. In making such judgments, significant weight is given to evidence that can be objectively verified. Based
on our review of the deferred tax assets the Company has concluded that a valuation allowance is necessary on the net operating
loss balance, as realization of this asset does not meet the more likely than not threshold.
As of December 31, 2020 the Company had
estimated net operating losses for federal and state purposes of $11.7 million, respectively. Federal and state net operating losses
will begin to expire in 2028.
We recognize a tax position as a benefit
only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination
being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized
on examination.
For tax positions not meeting the “more
likely than not” test, no tax benefit is recorded. We recognize potential interest and penalties related to unrecognized
tax benefits in the general and administrative expense in the statement of operations of the Company.
The Company is in the process of filing
back income tax returns from 2010 through the current year and subject to IRS examination for these year. The Company has booked
a reserve for potential penalties associated with non-filing of certain foreign information reports related to its subsidiary in
the Middle East. Penalties and interest have been reported in the general and administrative section of the statement of operations.
The reserve balance at December 31, 2020 and 2019 was $238,000 and $156,000, respectively. The Company does not expect this reserve
to reverse within the next 12 months, as they will apply for a penalty waiver when the tax returns are ultimately filed. Due to
the non-filing of income tax returns, statutes of limitations on the potential examination of those income tax periods will continue
to run until the returns are filed, at which time the statutes will begin. The Company expects to file all past due income tax
returns within the next 12 months.
Note 21. Related Party Transactions
The Company provided secured loan financing
and assistance to the development and commercialization of two bioactive beverages and one weight loss beverage for Vivaceuticals,
Inc., which shared a common officer and board of director member with the Company. Vivaceuticals sold its assets to Scepter Holdings,
Inc. in 2018. In 2019, the Company received 800,000 shares of preferred stock in Scepter Holdings, Inc. to extinguish the loan
encumbering the assets. The Company has converted these preferred shares into 800,000,000 shares of Common Stock of Scepter Holdings,
Inc., which is traded on the OTC Markets (ticker: BRZL) (see Note 3). As of December 31, 2020 and 2019, the Company’s Chief
Executive Officer has an immediate family member who sits on the board of directors of Scepter Holdings, Inc.
The Company has a consulting contract with
Vivaventures Precious Metals, LLC, which is majority owned by an employee of the Company. For the year ended December 31, 2020
and 2019 the Company paid Vivaventures Precious Metals LLC none and $290,000 for consulting services rendered.
The Company has a consulting contract with
LBL Professional Consulting, Inc. (“LBL”), which shares a common officer with the Company. For the year ended December
31, 2020 and 2019, the Company paid LBL $191,295 and $231,199 for rendered services for a team of consultants serving the Company.
In September 2020, the Company granted non-statutory stock options to LBL for 30,000,000 shares of Common Stock. As of December
17, 2020 the parties have agreed to amend the contract to reduce the stock options to purchase 10,000,000 shares of common stock.
The stock options vest over four years. The stock options are exercisable for up to ten years from the grant date. The common officer
is not the beneficiary of the Company and is not permitted to participate in any discussion, including the LBL’s board meetings,
regarding any Company stock that LBL may own at any time.
In July 2020, the Company entered into an agreement
with IME giving IME the option to purchase approximately 1,331 ounces of our precious metal concentrate for approximately $2,800,000.
VVMCI, a wholly-owned subsidiary of Vivakor, Inc. owns all of the Class A Units of IME, which have sole voting power for all material
matters except for removal of the manager, and VVMCI serves as a manager of IME. For the year ended December 31, 2020, the Company sold
$54,250 of the precious metal concentrate through this option. The option agreement expired on December 31, 2020, and the parties are
currently negotiating if they will extend the option agreement.
The Company has a note payable to TriValley
and Triple T, which is owned by the 51% majority-owner of Vivakor Middle East LLC. As of December 31, 2020 and 2019 the balance
owed was $295,543 and $247,192.
The Company has a common board of directors
member with CannaPharmaRx Inc. As of December 31, 2020 and 2019, the Company has a $33,000 and $21,000 account receivable with
CannaPharmaRx Inc. for leasing office space to this entity. As of December 31, 2020 and 2019, the Company recorded an allowance
for doubtful accounts on these receivables in the amount of $33,000 and $21,000.
Note 22. Subsequent Events
The Company has evaluated subsequent events
through April 9, 2021, the date the financial statements were available to issue.
On January 28, 2021, the Company issued
124,924 shares of common stock for a $31,231 reduction of liabilities pursuant to conversion of a promissory note at approximately
$0.25 per share.
On January 28, 2021, the Company issued
407,500 shares of common stock at approximately $0.40 per share for $163,000 in services.
On January
20, 2021, the Company entered into a worldwide, exclusive license agreement with TBT Group, Inc. (of which an independent Vivakor Board
member is a 7% shareholder) to license piezo electric and energy harvesting technologies for creating self-powered sensors for making
smart roadways. The Company is required to pay $25,000 and 500,000 shares of restricted common stock within upon signing. Upon
the earlier of (i) 120 days or (ii) the effectiveness of the Company's Registration Statement and receipt of public offering proceeds,
the Company will pay licensor $225,000. When the licensor delivers to the Company data showing that the sensor performs based on mutually
defined specifications and all designs for the sensor are completed, Company shall pay an additional $250,000 and 500,000 shares of restricted
common stock. Upon the delivery of a mutually agreed working prototype, Company will pay licensor $250,000 and 500,000 shares of restricted
common stock. Upon commercialization of the product, the Company will pay licensor $250,000 and 1,000,000 shares of restricted common
stock. TBT shall have the option, at its sole discretion, to convert the license to a non-exclusive license if the Company fails to pay
$500,000 to TBT for sensor inventory per year, which will commence after the second anniversary of product commercialization. The Company
shall share in the development costs of the sensor technology to the time of commercialization. Total costs attributed to the Company
are estimated to be $125,000.
On January 21,
2021, the Company amended its agreements with VivaVentures Royalty II, LLC in which the parties agreed to amend the conversion
terms of VV RII’s options to convert to the Company’s common stock. The amendment provides for a minimum price for
conversion of LLC units into Vivakor common stock. The minimum conversion price will not be lower than 200% of the per share price
of the Company common stock sold in an underwritten offering pursuant to the Company becoming listed on a senior stock exchange
(i.e. The Nasdaq Capital Market or New York Stock Exchange).
On
February 4, 2021, the Company entered into a convertible promissory note in an amount of $250,000 having an interest rate of 12%
per annum. The note bears a 10% Original Issue Discount. The loan shall mature in 1 year and may be convertible at the lower of
$0.40 or 80% of the lowest median daily traded price over ten trading days prior to conversion, but in the event of a Qualified
Uplist the note may be converted at a 30% discount to market. The Company also issued 100,000 restricted shares with no registration
rights in conjunction with this note.
On February 2, 2021, the Company issued
50,000 shares of common stock at approximately $0.47 per share pursuant to a convertible promissory note.
On
March 10, 2021, the Company entered into a master revolving note with Triple T Trading Company LLC to set forth the relationship
of the parties to retain the previous terms of the note payable to Triple T Trading Company LLC, and include a note maturity of
March 20, 2023 and maximum lending amount of 1,481,482 QAR or approximately $400,000, valued at an exchange rate of approximately
$0.27 on March 10, 2021.
On March 22,
2021, the Company amended its agreements with Viva Wealth Fund I, LLC in which the parties agreed to amend the conversion terms
of LLC units holder options to convert to the Company’s common stock. The amendment provides for a minimum price for conversion
of LLC units into Vivakor common stock. The minimum conversion price will not be lower than 200% of the per share price of the
Company common stock sold in an underwritten offering pursuant to the Company becoming listed on a senior stock exchange (i.e.
The Nasdaq Capital Market or New York Stock Exchange).
Subsequent
to December 31, 2020, the Company entered into a Paycheck Protection Program loan agreement with Blue Ridge Bank, subject to the
Small Business Administration’s (“SBA”) Paycheck Protection Program for $205,100. The loan carries an annual
interest rate of one (1) percent per annum with payment beginning in the seventh month with monthly payments required until maturity
in the 18th month. The loan may be fully forgivable according to the CARES Act if the Company can provide proper documentation
for the use of the proceeds of the loan.
Subsequent to December 31, 2020, the Company
entered into convertible promissory notes with an aggregate principal of $400,000. The notes accrue interest at 10% per annum and
have a maturity of the earlier of 12 months or the consummation of the Company listing its Common Stock on a senior stock exchange.
The notes are convertible at the Company’s option into shares of the Company’s common stock at a price equal to 80%
of the opening price of the Company’s common stock on the national exchange or the offering price paid by the investors in
the financing in connection with the uplist, whichever is lower, or (ii) repaid in cash in an amount equal to the indebtedness
being repaid plus a premium payment equal to 15% of the amount being repaid. If an event of default has occurred and the Company
does not convert the amounts due under the Note into the Company’s common stock, then the Company will have the option to
convert the outstanding indebtedness into shares of the Company’s common stock at a price equal to 80% of the weighted average
trading price of the Company’s common stock on the OTC Markets, or be repaid in cash in an amount equal to all principal
and interest due under the Note.
Subsequent to December 31, 2020, VWFI has
raised $1,715,000 in conjunction with the $25,000,000 private placement offering to sell convertible promissory notes, which
convert to VWFI LLC units, to accredited investors to raise funds to manufacture equipment that will expand the Company’s
second RPC.
Subsequent to December 31, 2020, 100,000
shares of Series B Preferred Stock and 249,059 shares of Series B-1 Preferred Stock, for an aggregate of $82,265, were converted
into 349,059 shares of Common Stock.
Subsequent to December 31, 2020, 1,010,000
shares of Common Stock were issued for $438,000 in services.
Shares
Common
Stock
Vivakor, Inc.
____________________________________
PROSPECTUS
____________________________________
, 2021
Through and including , 2021 (the 25th day after the date of this offering), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s
obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs
and expenses, other than underwriting discounts and commissions, to be paid by the Registrant in connection with the issuance and
distribution of the common stock being registered. All amounts other than the SEC registration fee and FINRA fee are estimates.
|
SEC Registration Fee
|
|
$
|
1,587.41
|
|
|
FINRA Filing Fee
|
|
|
2,699.38
|
|
|
Listing Fee
|
|
|
|
*
|
|
Printing and Engraving Expenses
|
|
|
|
*
|
|
Legal Fees and Expenses
|
|
|
|
*
|
|
Accounting Fees and Expenses
|
|
|
|
*
|
|
Transfer Agent Fees
|
|
|
|
*
|
|
Miscellaneous
|
|
|
|
*
|
|
Total
|
|
$
|
*
|
|
* To
be completed by amendment.
Item 14. Indemnification of Officers and Directors
The Nevada Revised Statutes limits or eliminates
the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’
fiduciary duties as directors. Our Bylaws include provisions that require the company to indemnify our directors or officers against
monetary damages for actions taken as a director or officer of our Company. We are also expressly authorized to carry directors’
and officers’ insurance to protect our directors, officers, employees and agents for certain liabilities. Our Amended and
Restated Articles of Incorporation do not contain any limiting language regarding director immunity from liability.
The limitation of liability and indemnification
provisions under the Nevada Revised Statutes and our Amended and Restated Bylaws may discourage stockholders from bringing a lawsuit
against directors for breach of their fiduciary duties. These provisions may also have the effect of reducing the likelihood of
derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and
our stockholders. However, these provisions do not limit or eliminate our rights, or those of any stockholder, to seek non-monetary
relief such as injunction or rescission in the event of a breach of a director’s fiduciary duties. Moreover, the provisions
do not alter the liability of directors under the federal securities laws. In addition, your investment may be adversely affected
to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers
pursuant to these indemnification provisions.
Item 15. Recent Sales of Unregistered Securities.
The following sets forth information regarding
all unregistered securities sold by us in transactions that were exempt from the requirements of the Securities Act in the last
three years. Except where noted, all of the securities discussed in this Item 15 were all issued in reliance on the exemption under
Section 4(a)(2) of the Securities Act.
2021
On January 13, 2021, the Company issued
1,000,000 shares of common stock at approximately $0.44 per share for $438,000 in services.
On January 28, 2021, the Company issued
124,922 shares of common stock for a $31,231 reduction of liabilities pursuant to conversion of a promissory note at $0.25
per share.
On January 28, 2021, the Company issued
410,000 shares of common stock at approximately $0.40 per share for $163,000 in services.
On February 2, 2021, the Company issued
50,000 shares of common stock at $0.47 per share pursuant to a convertible promissory note.
From January 1, 2021 through April
1, 2021, the Company issued 249,059 shares of common stock for $55,771 for the conversion of 249,059 shares of Series B-1
Preferred Stock, at an average price of approximately $0.25 per share.
From January 1, 2021 through April
1, 2021, the Company issued 100,000 shares of common stock for $20,000 for the conversion of 100,000 shares of Series B
Preferred Stock, at $0.20 per share.
2020
On November 4, 2020, the Company issued
100,000 shares of common stock at $0.44 per share pursuant to a convertible promissory note.
On November 4, 2020, the Company issued
300,000 shares of common stock at $0.40 per share for $121,230 in services.
On April 21, 2020, the Company issued 20,000,000
shares of common stock pursuant to a contribution agreement at a price of $0.59.
On April 13, 2020, the Company issued
60,000 shares of common stock to investors at $0.3198 per share for cash proceeds of $19,188.
On January 27, 2020, the Company issued
168,000 shares of common stock to investors at $0.13 per share for cash proceeds of $21,840.
From January 1, 2020 through December
31, 2020, the Company issued 691,182 shares of Series B-1 Preferred Stock as a $172,795 stock dividend paid to Series B Preferred
Shareholders at a price of approximately $0.25 per share.
From January 1, 2020 through December
31, 2020, the Company issued 15,715,242 shares of common stock for $2,948,880 for the conversion of 14,744,398 shares of Series
B Preferred Stock, at an average price of approximately $0.20 per share.
From January 1, 2020 through December
31, 2020, the Company issued 9,658,048 shares of common stock for $2,354,504 for the conversion of 9,418,018 shares of Series
B-1 Preferred Stock, at an average price of approximately $0.25 per share.
From January 1, 2020 through December
31, 2020, the Company issued 5,758,844 shares of common stock for $2,290,432 for the conversion of 5,726,080 shares of Series
C-1 Preferred Stock, at an average price of approximately $0.40 per share.
2019
On December 31, 2019, the Company issued
1,155,779 shares of common stock to a consultant for market services valued at $219,597 at a price of $0.19 per share.
On December 18, 2019, the Company issued
539,373 shares of Series C-1 Preferred Stock at $0.40 per share for the purchase of equipment valued at $215,749.
On December 16, 2019 the Company issued
32,931 shares of Series C-1 Preferred Stock at $0.40 per share for the purchase of equipment valued at $13,172.
On July 11, 2019 the Company issued 695,304
shares of Series C-1 Preferred Stock at $0.40 per share for the purchase of equipment valued at $278,122.
From January 1, 2019 through December 31,
2019, the Company issued 1,980,126 shares of Series B-1 Preferred Stock as a $495,054 stock dividend paid to Series B Preferred
Shareholders at a price of $0.25 per share.
From January 1, 2019 through December 31,
2019, the Company issued 46,019,697 shares of common stock for $9,203,875 for the conversion of 46,019,697 shares of Series B Preferred
Stock, at an average price of $0.20 per share.
From January 1, 2019 through December 31,
2019, the Company issued 7,472,876 shares of common stock for $1,868,144 for the conversion of 7,472,876 shares of Series B-1 Preferred
Stock, at an average price of $0.25 per share.
From January 1, 2019 through December 31,
2019, the Company issued 209,414 shares for a $53,500 reduction of liabilities pursuant to conversion of promissory notes at an
average price of $0.25 per share.
From January 1, 2019 through December 31,
2019, the Company issued 230,000 shares of common stock for $91,982 in cash for the exercise of 230,000 warrants at an average
price of $0.40 per share.
Item 16. Exhibits and Financial Statement Schedules
The following exhibits are filed with this
Registration Statement:
|
Exhibit Number
|
|
Exhibit Description
|
|
|
|
|
|
1.1*
|
|
Form of Underwriting Agreement
|
|
3.1 (1)
|
|
Amended and Restated Articles of Incorporation
|
|
3.2 (1)
|
|
Amended and Restated Bylaws
|
|
3.3 (1)
|
|
Amendment to Amended and Restated Articles of Incorporation
|
|
3.4*
|
|
Second Amendment to Amended and Restated Articles of Incorporation
|
|
3.5*
|
|
Second Amended and Restated Articles of Incorporation
|
|
4.1*
|
|
Form of Representative Warrant
|
|
4.2
|
|
Form of Convertible Promissory Note (2013)
|
|
4.3
|
|
Form of Convertible Promissory Note
|
|
4.4
|
|
Payroll Protection Program Loan, with Chase Bank
|
|
4.5
|
|
Payroll Protection Program Loan, with Blue Ridge Bank
|
|
4.6
|
|
Small Business Association Loan
|
|
5.1*
|
|
Opinion of Lucosky Brookman LLP
|
|
10.1
|
|
Amended Contribution Agreement between Sustainable Fuels Incorporated and Vivakor, Inc. dated as of June 15, 2016
|
|
10.2
|
|
Project Charter between SolvAQUA Inc. and Vivakor, Inc. dated April
9, 2020
|
|
10.3
|
|
Letter of Clarification from SolvAqua, Inc. to Vivakor, Inc. dated
July 15, 2020
|
|
10.4 (1)
|
|
Intellectual Property License Agreement by and between BGreen, LLC and Vivakor, Inc. dated as of September 30, 2020
|
|
10.5 (1)
|
|
Patent and Intellectual Property License Agreement by and between CSS Nanotech, Inc. and Vivakor, Inc. dated as of July 22, 2020
|
|
10.6 (1)
|
|
Employment Agreement by and between Vivakor, Inc. and Matthew Nicosia
|
|
10.7 (1)
|
|
Employment Agreement by and between Vivakor, Inc. and Tyler Nelson
|
|
10.8*
|
|
Vivakor, Inc. 2020 Stock Incentive Plan
|
|
10.9*
|
|
Form of Director Agreement
|
|
10.10
|
|
Sub-contract Agreement for Remediation of oily sludge material
in KOC SEK Fields
|
|
10.11 (2)
|
|
Sub-contract Agreement for Remediation of oily sludge material in KOC SEK Fields – Sub-contract No. 01-2018
|
|
10.12 (2)
|
|
Option Agreement
|
|
10.13 (2)
|
|
First Amendment to Option Agreement
|
|
10.14 (2)
|
|
Second Amendment to Option Agreement
|
|
10.15
|
|
Intellectual Property Agreement by and between VivaVentures Precious
Metals, LLC and Vivakor, Inc.
|
|
10.16
|
|
Form of Operating Agreement VV UTSI
|
|
10.17 (2)
|
|
Restated Working Interest Agreement by and between VivaVentures Energy Group, Inc. and VivaVentures UTSI, LLC
|
|
10.18 (2)
|
|
Amendment No. 1 to Amended and Restated Working Interest Agreement by and between VivaVentures Energy Group, Inc. and VivaVentures UTSI, LLC
|
|
10.19 (2)
|
|
Operating Agreement VV RII
|
|
10.20 (2)
|
|
Restated Working Interest Agreement by and between VivaVentures Energy Group, Inc. and VivaVentures Royalty II
|
|
10.21 (2)
|
|
Articles of Association of Vivakor Company
|
|
10.22
|
|
Form of LLC Agreement of IMX
|
|
10.23
|
|
Form of LLC Agreement of RPC Design
|
|
10.24
|
|
Form of LLC Agreement of Viva Wealth
|
|
10.25
|
|
Form of LLC Agreement of VOF
|
|
10.26
|
|
Agreement Regarding Assets, entered into as of December 3, 2018
|
|
10.27 (2)
|
|
Amendment to Agreement
|
|
10.28
|
|
Master Revolving Note made in favor of TriValley
|
|
10.29
|
|
Master Revolving Note made in favor of Triple T
|
|
10.30
|
|
Amendment No. 3 to Novus Loan Agreement
|
|
21.1 (1)
|
|
List of Subsidiaries
|
|
23.1
|
|
Consent of Hall & Company, Independent Registered Public Accounting Firm
|
|
23.2
|
|
Consent of Macias Gini & O’Connell, LLP, Independent Registered Public Accounting Firm
|
|
23.3
|
|
Consent of Lucosky Brookman LLP (included in Exhibit 5.1)
|
|
24.1
|
|
Power of Attorney (included in signature page)
|
|
|
*
|
to be filed by amendment.
|
|
|
(1)
|
Incorporated by reference with Form S-1 filed November
11, 2020
|
|
(2)
|
Incorporated by reference with Form S-1/A filed February 12, 2021
|
(b) Financial statement schedules.
All schedules have been omitted because
either they are not required, are not applicable or the information is otherwise set forth in the financial statements and related
notes thereto.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
|
|
(1)
|
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
|
|
|
(i)
|
To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
|
|
|
|
|
|
|
(ii)
|
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;
|
|
|
|
|
|
|
(iii)
|
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
|
|
|
(2)
|
That for the purpose of determining any liability under the Securities Act of 1933 each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
|
|
|
|
|
|
|
(3)
|
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold
at the termination of the offering.
|
|
|
(4)
|
That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant
to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule
430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement
or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document immediately prior to such date of first use.
|
|
|
|
|
|
|
(5)
|
That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial
distribution of the securities:
|
The undersigned registrant undertakes
that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the
underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means
of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to
offer or sell such securities to such purchaser:
|
|
(i)
|
Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant
to Rule 424;
|
|
|
|
|
|
|
(ii)
|
Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred
to by the undersigned registrant;
|
|
|
|
|
|
|
(iii)
|
The portion of any other free writing prospectus relating to the offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the undersigned registrant; and
|
|
|
|
|
|
|
(iv)
|
Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
|
|
|
(f)
|
The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each
purchaser.
|
|
|
|
|
|
|
(h)
|
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in Item 14 above, or otherwise, the Registrant has been advised
that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant
of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
|
|
|
|
|
|
|
(i)
|
The undersigned Registrant hereby undertakes:
|
|
|
(1)
|
That for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part of this registration statement
as of the time it was declared effective.
|
|
|
|
|
|
|
(2)
|
That for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and this offering
of such securities at that time shall be deemed to be the initial bona fide offering thereof.
|
|
|
|
|
|
|
*
|
Paragraph references correspond to those of Regulation S-K, Item 512.
|
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Salt Lake City, State of Utah, on April 9, 2021.
|
|
|
Vivakor, Inc.
|
|
|
|
|
|
|
|
By:
|
|
/s/ Matthew Nicosia
|
|
|
|
|
|
Name: Matthew Nicosia
|
|
|
|
|
|
Title: Chief Executive Officer
|
|
|
|
|
|
|
Pursuant to the requirements of the Securities
Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/ Matthew Nicosia
|
|
Chief Executive Officer and Director
|
|
April 9, 2021.
|
|
Matthew Nicosia
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
|
|
*
|
|
Chief Financial Officer
|
|
April 9, 2021.
|
|
Tyler Nelson
|
|
(Principal Accounting Officer and
Principal Financial Officer)
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
April 9, 2021.
|
|
Joseph Spence
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
April 9, 2021.
|
|
Matthew Balk
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
April 9, 2021.
|
|
Trent Staggs
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
April 9, 2021.
|
|
Al Ferrara
|
|
|
|
|
|
Director
|
|
|
|
|
|
* By:
|
/s/ Matthew Nicosia
|
|
|
|
Matthew Nicosia, Attorney-in-fact
|
|
Exhibit 10.2
|
PROJECT CHARTER
|
|
Project Charter
For VIVAVENTURES WMS Process Water Recovery
April 9, 2020
Document Control
Document Information
|
|
Information
|
|
Document ID
|
WMS Water Recovery
|
|
Document Owner
|
Allan Mahoney
|
|
Issue Date
|
April
2nd, 2020
|
|
Last Saved Date
|
April
2nd, 2020
|
|
File Name
|
WMS 202 Charter
|
Document History
|
Version
|
Issue Date
|
Changes
|
|
[1.0]
|
April
2nd, 2020
|
New issue
|
|
|
|
|
|
|
|
|
|
|
|
|
Document Approvals
|
Role
|
Name
|
Signature
|
Date
|
|
Project Sponsor
|
Chris Tesarski
|
|
|
|
Project Review Group
|
Chris Tesarski Audrey Tesarski
|
|
|
|
Project Manager
|
Allan Mahoney
|
|
|
|
Quality Manager
|
Pending
|
|
|
|
Procurement Manager
|
|
|
|
|
Communications Manager
|
|
|
|
Table of Contents
|
1
|
EXECUTIVE SUMMARY
|
4
|
|
|
|
|
|
2
|
PROJECT DEFINITION
|
4
|
|
|
|
|
|
|
2.1
|
HIGH
LEVEL VISION
|
4
|
|
|
2.2
|
OBJECTIVES
|
4
|
|
|
2.3
|
OVERVIEW OF SCOPE
|
5
|
|
|
2.4
|
PROCUREMENT ITEMS
|
5
|
|
|
2.5
|
CALCULATION OF MATERIAL –
PRODUCED WATER PROCESSING (FIELD FORMS)
|
5
|
|
|
|
|
|
|
3
|
RESPONSIBILITIES
|
5
|
|
|
|
|
|
|
|
3.1
|
SOLVAQUA
|
5
|
|
|
3.2
|
CLIENT/REPRESENTATIVE
|
5
|
|
|
|
|
|
|
4
|
PERFORMANCE
|
6
|
|
|
|
|
|
|
4.1
|
SERVICE EXECUTION PERFORMANCE
CRITERIA
|
6
|
|
|
4.2
|
REVIEW PROCESS
|
6
|
|
|
4.3
|
MAJOR DELIVERABLES
|
6
|
|
|
|
|
|
|
5
|
PROJECT ORGANIZATION
|
6
|
|
|
|
|
|
|
5.1
|
CUSTOMER
|
6
|
|
|
5.2
|
KEY STAKEHOLDERS
|
6
|
|
|
5.3
|
IDENTIFY KEY INTERNAL STAKEHOLDERS
|
7
|
|
|
|
|
|
|
6
|
EQUIPMENT SPECIFICATIONS
|
7
|
|
|
|
|
|
|
6.1
|
FODDER
WMS SYSTEM DESCRIPTION AND FEATURES
|
7
|
|
|
|
|
|
|
7
|
PROJECT CONSIDERATIONS
|
8
|
|
|
|
|
|
|
7.1
|
KEY ASSUMPTIONS
|
8
|
|
|
7.2
|
EQUIPMENT AND CHEMICAL PROVIDED
|
9
|
|
|
7.3
|
ASSUMPTIONS
|
9
|
|
|
|
|
|
|
8
|
APPENDIX
|
9
|
|
|
|
|
|
|
|
8.1
|
SUPPORTING DOCUMENTATION
|
9
|
It is estimated that well over 80 per cent of wastewater
worldwide (over 95 per cent in some developing countries) is released into the environment without treatment (UNESCO, 2017, p.
10). A United-Nations backed study showed that annual treated wastewater in North America roughly equates to the volume of Niagara
Falls; less than 4 percent is reused (Collins, 2013, para. 1).
The market for water and wastewater treatment
technologies is likely to grow at a compound annual growth rate of 9% during the forecast period 2019 - 2024. One of the major
driving factors of the market is the rapidly diminishing freshwater resources across the globe. However, lack of awareness on appropriate
usage of water treatment techniques is likely to restrain the market ("Wastewater Growth Trends," 2019, para. 1). The
demand for innovative treatments to enable reuse of water is on the rise as operators and municipalities seek the most cost-effective
strategies to handle the increasing volumes of oily and organic wastewater and the effective recovery from a release of hydrocarbons
to a waterway. It is sometimes the case where the most cost-effective strategy in the short-term is not always the most cost effective
long-term. SOLVAQUA supports organizations in their short and long-term waste reduction goals by providing location specific and
process specific solutions for the treatment of wastewater for reuse or repurposing.
The primary environmental benefit from our technology
is to provide Clean Water for re-use in many sectors such as:
|
•
|
A preface for reintroduction into navigable water or for preparation of drinking water
|
The use of our technology
results in environmental benefits by enabling increased volumes of produced water for re-use in fracking or by providing a more
effective injection fluid and by reducing the amount of fresh water used for industrial and oil & gas purposes.
Enabling the processing of industrial wastewaters, existing
wastewater storage, polluted lakes, rivers, streams and storage sites (tailings ponds). Reuse of wastewater reduces the continued
use of freshwater while wastewater is being discharged.
Our vision is to provide an integrated and automated
daily treatment process of wastewater for the recovery of water and reduction in waste. This processed fluid from SolvAQUA will
undergo additional processing to allow for effective Secondary, Tertiary and Desalination processes. The By-Product Waste will
be recycled, reused or repurposed.
The objective in 2020 is for SolvAQUA to:
·
Design, manufacture and sell 25,000+ bpd Wastewater Management Systems (WMS) for commercial processing of wastewater.
SolvAQUA will provide equipment and ongoing support
utilizing an automated daily treatment process for the treatment of wastewater to recover water for reuse and provide a reduced
by-product waste that can be recycled, reused, repurposed or as a reduced volume for disposal meeting regulatory requirements.
SolvAQUA will provide processing equipment, chemical
additives and service execution support for the processing of the fodder crop irrigation wastewater (wastewater).
|
|
·
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SolvAQUA Skid to process up to 25,000 barrels of wastewater per day.
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·
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Chemical additives for the processing of up to 25,000 barrels of wastewater per day.
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·
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Service Technician to mobilize, setup processing equipment, initiate service execution and train local operators.
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·
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Service Technician to assess the competence of personnel.
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·
|
Service Execution process documents are provided for daily operations and recording of predictive
maintenance.
|
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2.5
|
Calculation of Material – Produced Water Processing (Field Forms)
|
WMS
Volumes (21, 650 bpd)
|
Chemical Additive
|
Bulk
Concentration
|
Volume Dosed per month
|
Final
Concentration
|
Minimum Volumes on site
+ contingency
|
|
NaOH pH
|
50%
|
650,000 bbl.
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N/A
|
|
|
MFD
|
2.0%
|
650,000 bbl.
|
30 ppm
|
20 x 264 gal Totes
|
|
Activator
|
48%
|
650,000 bbl.
|
150 - 200 ppm
|
40 x 264 gal Totes
|
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Conditioner
|
100%
|
650,000 bbl.
|
3 ppm
|
1 x 275 gal tote
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|
|
·
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SolvAQUA WMS Processing Skid, 25,000 bpd rated
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|
|
·
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Chemical Additives to process wastewater
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|
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·
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Suction and Discharge hoses for WMS unit
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|
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·
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Competent personnel to initiate service execution
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|
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·
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SolvAQUA competent personnel to assess competence.
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3.2
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Client/Representative
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|
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·
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Waste/Source fluid supply
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·
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Crossovers to source fluid and settling tanks.
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|
|
·
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Personnel to operate WMS equipment and manage chemical additives.
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|
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4.1
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Service Execution Performance Criteria
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|
Criteria
|
Description
|
|
SolvAQUA WMS
Operation
|
WMS processing unit will deliver a maximum of 25,000 bpd per unit with a <5% non-productive time.
|
|
Contingency Additives
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No-less-than 30 days of chemical additives on site for ongoing operations and as a contingency volume.
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PMITP
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Preventive Maintenance Inspection and Test document provided with WMS unit.
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Assessment of Competence
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Operations personnel will be assessed based on agreed upon times between SolvAQUA and Client/Representative.
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|
|
·
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Quarterly reviews with Client/Representative:
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|
|
o
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Service Execution performed (CEO)
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|
|
o
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Minor or Serious Non-Conformance (COO)
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|
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o
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Major Non-Conformance (CEO)
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|
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·
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Yearly Reviews with Client/Representative (CEO, COO)
|
In order to meet the project requirements SolvAQUA must
provide the equipment and infrastructure to process wastewater to meet project agreed upon requirements.
|
Deliverable
|
Components
|
Description
|
|
Equipment
|
Wastewater Processed
|
Commercial unit. Initiate project.
|
|
Equipment
|
Wastewater Management System
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WMS
|
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Chemicals
|
·
pH Adjustment
·
NFD
·
Aluminum Sulfate
·
Conditoner Polymer
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Minimum 15 days chemical on site
|
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Process Deliverables
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Documetation
Training Assessment
|
·
Equipment Manuals
·
Predictive Maintenance recommendations
·
2 Years Spares List
·
Training and Competence process
|
|
Customer Group
|
Customer Representative
|
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VIVAVENTURES Inc.
|
Matt Nicosia
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SolvAQUA Inc.
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Chris Tesarski Allan Mahoney
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Stakeholder / Group
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Stakeholder Interest
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|
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TBD
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5.3
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Identify Key Internal Stakeholders
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Project Sponsor: SolvAQUA with Client
The Project Sponsor will be primarily responsible for:
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·
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Leading the Project Governance Council as Chairman
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·
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Defining the vision, purpose and objectives of the project
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·
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Approving the requirements, timetable and resources
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·
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Approving the provision of funds and resources
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|
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·
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Authorizing acceptance of the final solution delivered by the project
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Project Governance Council (To be determined)
The Project Governance Council will be primarily responsible
for:
|
|
·
|
Overseeing the progress of the project
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|
|
·
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Resolving all high-level risks, issues and change requests
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|
|
·
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Ensuring that the project team has everything it needs to deliver successfully
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Project Manager: Allan Mahoney
The Project Manager will be primarily responsible for:
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|
·
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Delivering the project on time, within budget and to specification
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·
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Managing project staff, suppliers, customers and all other project stakeholders
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·
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Undertaking the activities required to initiate, plan, execute and close the project successfully
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Project Team/Leaders: (To be determined.
Can be suppliers)
The Project Leaders will be primarily responsible for:
|
|
·
|
Undertaking all tasks allocated by the Project Manager per the Project Plan
|
|
|
·
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Reporting progress of the execution of tasks to the Project Manager on a frequent basis
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|
|
·
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Escalating risks and issues to be addressed by the Project Manager
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|
6
|
Equipment Specifications
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|
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6.1
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Fodder WMS System Description and Features
|
The system consists of the following:
|
|
·
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Chemical injection pumps
|
In the process, feed water will be injected into
the pipe mixers using a feed pump. SolvAQUA proprietary chemicals such as NFD will be injected continuously to the pipe mixer.
Aluminum Sulfate will be added to adjust the fully activate the nano-polymer forming a floc. A conditioner is added to bulk the
floc. Both the TSS and organics present in the feed water will be entrapped, encapsulated/bonded. These bonded particles have flowed
through static mixers to promote slow and gentle mixing with the polymers required to help the particles form bridges and agglomerate
into much larger flocs. Once formed, the large flocs are easily removed by filtration, straining, floatation or sedimentation.
Housing
|
|
o
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Class I Division II certified
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|
|
·
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Environmental containment pan
|
|
|
·
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Internal structure to support mounted equipment
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|
|
·
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Painted with epoxy paint
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Fluid Processing Equipment (Additional
Details pending)
|
|
·
|
Dosing Pumps and Motors
|
|
|
·
|
Internal Additive Tanks
|
Instrumentation/Control System
|
|
·
|
CIDII Enclosure for instrumentation
|
|
|
·
|
Internal power supplies
|
|
|
·
|
Installed PLC and VFD (PLC is expandable to support additional functions)
|
|
|
·
|
HMI Touchscreen Display
|
|
|
·
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Cellular/Satellite modem w/ WIFI and GPS
|
|
|
·
|
Cellular/GPS/WIFI Combination Antenna
|
|
|
·
|
Satellite Antenna (Iridium System)
|
|
|
·
|
Programming logic to control system parameters
|
|
|
o
|
VFD Drive for main pump
|
|
|
o
|
Control of dosing pumps
|
|
|
o
|
Control of dosing pumps based on main pump operation as well as flowmeter readings
|
|
|
·
|
Remote access troubleshooting capability w/ satellite/cellular connect is available (account data plan not included)
|
|
|
·
|
Remote monitoring capability via private network (Through instrumentation provider – annual
fee applies)
|
Within this project scope, it is assumed that:
|
|
·
|
There may be additional secondary and tertiary processing based on wastewater test results
|
|
|
·
|
There are no permitting issues for the removal and disposal or reuse of the by-product,
|
|
|
·
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Additive, Settling, Water and By-Product tanks will be supplied by the client
|
|
|
·
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25,000 bpd WMS will meet upper and lower end requirements for processing of wastewater.
|
|
|
·
|
Client/Representative team will manage the wastewater processing as a stand-alone team 7 days of onsite training and monitoring.
|
|
|
·
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Competence assessment process and remote monitoring will enable effective ongoing operation.
|
|
|
·
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By-product disposal or reuse will be managed by the client.
|
|
|
o
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The long-term internment (burial) in a secure landfill site approved for such by the appropriate
state or federal agency.
|
|
|
7.2
|
Equipment and Chemical Provided & Valuation of Same
|
|
|
·
|
One 25,000 bpd WMS - $300,000 US
|
o 5
units = $1,500,000 US
|
|
·
|
3 months of chemicals for 5 WMS = 9,750,000 bbl
|
|
|
o
|
Five units = ~$1,000,000 US
|
|
|
o
|
Payment & Deployment Schedule
|
|
|
·
|
Navajo Nation (2 systems)
|
Deployment Date will be July 1st, 2020
|
20%
|
|
|
·
|
Mexico Industrial
|
Deployment Date will be August 1st, 2020
|
20%
|
|
|
·
|
Kuwait Gulf war Oilspill Remediation
|
Deployment Date will be Sept 1st, 2020
|
20%
|
|
|
·
|
Balance Due (Initial PO)
|
October 1st, 2020
|
|
|
|
·
|
Regular Cashflow/Billing Cycle
|
November 1st, 2020
|
|
The above Payment & Deployment
Schedule may be adjusted in writing by consent of both parties. However, any such adjustment shall not extend the balance due and
payable from this initial Charter past December 31st, 2020.
|
|
·
|
One 25,00 bpd WMS unit is design, built, tested and installed by end of June 2020
|
|
|
·
|
Chemical costs will stay consistent in 2020
|
|
|
·
|
Monthly volumes required will be >95% efficiency
|
|
|
·
|
Client/Representative will manage operation of WMS steady state
|
|
|
8.1
|
Supporting Documentation
|
All correspondence and/or billing Statements and Invoices
shall be emailed to:
|
As to VIVAVENTURES:
|
matt@vivakor.com
|
|
As to SOLVAQUA:
|
ctesarski@solvaqua.com
|
All correspondence and/or billing Statements and Invoices
shall be delivered by hand to:
|
VIVAVENTURES, INC.
|
SOLVAQUA INC.
|
|
a wholly owned subsidiary of VIVAKOR INC.
|
Suite 1050, 444 – 5th Ave SW
|
|
8565 S. Eastern Ave., Suite 150
|
Calgary, AB, Canada
|
|
Las Vegas, NV 89123
|
T2P 2T8
|
(949) 281-2606
The undersigned have the authority to hereby bind
and authorize the respective corporations for the above Charter and Purchase Order.
Executed
on this 17th day of April, 2020.
On behalf of VIVAVENTURES INC.
/s/ Matt Nicosia
Name: Matt Nicosia
Title: CEO
On behalf of SOLVAQUA INC.
/s/ Chris Tesarski
Name: Chris Tesarski
Title: CEO
Exhibit 10.3
|
|
Letter
of Clarification
|
|
July
15th, 2020
Mr.
Matt Nicosia
CEO,
VIVAKOR Inc.
RE:
Invoice/Operating Charter SOLV-VIV-001
With respect
to the initial Agreement between Vivakor and solvAQUA; solvAQUA wishes to append such agreement with the following clarifications.
1.
solvAQUA acknowledges Vivakor's key technology is the Remediation Processing Center (RPC) that separates hydrocarbons from dry
soil. The RPC is currently being used in remediation projects in Vernal Utah to extract oil from the dry oil sands and in Kuwait
to clean up large scale oil spills. Understanding that Vivakor wants to combine the solvAQUA technology to allow it to deal
with remediation projects that have a combination of wet and dry opportunities both in existing locations and new opportunities
globally which may include but not be limited to immediate projects on Native American lands; solvAQUA hereby grants to Vivakor
an exclusive license to incorporate its technology platform into scenarios such as described above for a term of ONE YEAR. Upon
successful installation and deployment of Vivakor initial TWO WMS UNITS such term shall be extended to FIVE YEARS.
In
addition, understanding through its field operation activities and relationships, Vivakor may from time to time have the opportunity
to deploy the technology for cleaning other waste streams such as, but not limited to: produced water, tank bottom sludge and mining
water clean up; SUBJECT TO initial conditions being met as described above; solvAQUA shall grant to Vivakor a non-exclusive license
to deploy the technology on a case by case basis for the same term as above.
2.
Due to AHS (Alberta Health Services) and Government of Canada COVID 19 Guidelines and Restrictions; solvAQUA hereby exercises its
rights under the terms of the invoice SOLV-VIV-001 to extend delivery of units to October 31st, 2020. Accordingly, solvAQUA again
has the right to further adjust the timeline as per the above referenced Guidelines. Initial payment is due upon completion of
the machinery.
We
trust the above to be satisfactory and an accurate reflection of our discussions regarding same.
/s/ Chris Tesarski
Chris
Tesarski
CEO,
solvAQUA Inc.
Exhibit 10.10
SUB-CONTRACT
AGREEMENT
FOR
Remediation
of oily sludge material in KOC SEK Fields {Lot - C)
BETWEEN
BETWEEN
[ ]
AND
VIVAKOR-ME
(SUB-CONTRACT
No. )
SUB-CONTRACT
AGREEMENT
This SUB-CONTRACT AGREEMENT ("AGREEMENT") for oily sludge
material remediation services is made and entered into as on 07/12/2019
(the "Effective Date"), by and between:
|
(a)
|
[ ], having its registered address at [ ], hereinafter
referred to as "[ ]" (the "CONTRACTOR"); and
and
|
|
(b)
|
VIVAKOR
MIDDLE EAST, a company organized
and existing under the laws of the State of Qatar and having its registered address at
Al Mana Twin Towers, CR Number 74308 hereinafter referred to as "VIVAKOR-ME"
(the "SUB-CONTRACTOR"
).
|
[ ] and Vivakor-ME, agree to cooperate
on a pilot up to 1,000 cubic meters for KOC's Soil Remediation program to allow for Vivakor-ME to prove its technology on KOC
sludge/soil.
By agreeing to cooperate on a pilot of
1,000 cubic meters for KOC's Soil Remediation program, Vivakor ME agrees not to burden [ ] with any legal or financial
responsibility for the pilot program and [ ]also agrees not to burden Vivakor-ME with any legal or financial responsibility
for the pilot program.
[ ] will seek approval from KOC
to have Vivakor-ME as a sub-contractor. [ ] will also seek approval from KOC to allow for Vivakor-ME to operate from the
site currently occupied by TERI & process sludge from that site as Vivakor-ME's machinery &equipment is fully set-up and
installed on that site.
Should KOC insist that Vivakor-ME work
using [ ]'s sludge, Vivakor-ME is ready and willing to truck the sludge from site to the site currently occupied
by TERI.
[ ] will not contribute financially
to this pilot program; all costs are to be borne by Vivakor-ME.
[ ] will, also help by providing
a safety officer and a site supervisor on site.
In turn, Vivakor-ME will not absorb any
outstanding legal or financial commitments that are currently held by .
[ ] will not have any responsibility
with Vivakor-ME either in the event that the trial is satisfactory or in the event that it unsuccessful.
|
2.1
|
SUB-CONTRACTOR
agrees to indemnify, hold harmless, and defend CONTRACTOR, its officers, directors,
members, agents, representatives employees from any and all liabilities, claims, damages,
penalties, fines, forfeitures, suits and the cost incidents thereto caused by SUB-CONTRACTOR
or its officers, directors, agentsor
employees, negligent or willful acts or omissions in the performance of work or by the breach of any term or provisions set forth
in the Agreement.
|
|
2.2
|
CONTRACTOR
agrees to indemnify, hold harmless, and defend SUB-CONTRACTOR, its
officers, directors, members, agents, representatives employees from any and all
liabilities, claims, damages, penalties, fines, forfeitures, suits and the cost incidents
thereto caused by CONTRACTOR or its officers, directors, agents or employees, negligent
or willful acts or omissions in the performance of work or by the breach of any term
or provisions set forth in the Agreement.
|
IN
WITNESS WHEREOF, the duly authorized representatives of the parties hereto have executed this AGREEMENT as of the day and
year first written above:
|
For and on behalf of the CONTRACTOR
|
For and on behalf of
the SUB-CONTRACTOR
|
|
|
|
|
/s/
|
VIVAKOR
MIDDLE EAST
|
|
|
|
|
|
/s/ Matt Nicosia
Name: Matt Nicosia
Title: President
|
Exhibit 10.15
INTELLECTUAL PROPERTY LICENSE AGREEMENT
This Intellectual Property
Agreement (the “Agreement”) is hereby entered into effective as of May 15th, 2020 (the “Effective Date”),
by and between, VivaVentures Precious Metals, LLC, a Nevada limited liability company (“VivaVentures”) and Vivakor,
Inc., a Nevada corporation (“Vivakor” and together with VivaVentures, the “Licensees”) on
the one hand, and of Bill Ison (“Ison”) and Vaporetek Holdings, LLC an unincorporated entity (“Vaporetek”
and together with Ison, the “Licensor”). The Licensees and the Licensor may each be referred to herein as a
“Party” and together as the “Parties.”
I. RECITALS
A. WHEREAS,
Licensor is the owner of certain intellectual property related to a vapor extraction technology suitable to extract gold and other
precious metals from sands and other sand-based ore bodies, as described in Exhibit A, hereto (the “Extraction
Technology”), which Licensees are interested in licensing from Licensor for the purpose of developing commercially-viable
applications using the intellectual property;
B. WHEREAS,
the Parties are parties that certain Contribution Agreement dated March 14th, 2014, under which the Parties formed VivaVentures Precious
Metals, LLC for the purpose of building machines capable of extracting gold and other precious metals from sands and other sand-based
ore bodies based on the Extraction Technology (the “Contribution Agreement”);.
C. WHEREAS,
one of the Licensor’s obligations under the Contribution Agreement is to grant an exclusive license to the Licensees for
the purpose of allowing both Licensees the right to use the Extraction Technology to develop and build machines using the Extraction
Technology, and run a business based on operating said machines, once built;
D. The
Parties desire that Licensor grant an exclusive license for applications and implementations involving the Extraction Technology
as set forth herein.
NOW, THEREFORE, in
consideration of the promises and agreements set forth below and the other considerations cited herein, the Parties agree as follows.
II. DEFINITIONS
As used in this Agreement,
the following terms shall be defined as set forth below:
2.1 “Confidential Information”
shall mean any and all information disclosed by a Party (the “Disclosing Party”) to the other party (the “Recipient”)
hereunder that is clearly marked or identified as “confidential,” such as proprietary information relating to the Disclosing
Party’s technology (including the Intellectual Property and any associated knowhow), products, processes, business information,
or intellectual property rights. “Confidential Information” further includes the terms and conditions of this Agreement
not otherwise made public by agreement of the parties as well as information arising or disclosed pursuant to this Agreement. Notwithstanding
the foregoing, information will not be considered “Confidential Information” to the extent the Recipient can demonstrate
by written record or other suitable physical evidence that:
|
|
a)
|
such specific information was lawfully in the Recipient’s possession or control prior to
the time such information was disclosed to the Recipient by the Disclosing Party;
|
|
|
b)
|
such specific information was independently developed by one or more employees or other agents
of the Recipient without reference to such Confidential Information;
|
|
|
c)
|
such specific information was lawfully obtained by the Recipient from a third party under no obligation
of confidentiality to the Disclosing Party; or
|
|
|
d)
|
such specific information was, at the time it was disclosed or obtained by the Recipient, or thereafter
became, publicly known otherwise than through a breach of the Recipient’s obligations hereunder.
|
2.2 “Improvements”
shall mean inventions or other improvements which relate to or are based on the Inventions and which are within the scope of the
then existing Intellectual Property. An Improvement shall be within the scope of a patent in the Intellectual Property if covered
by a claim, either literally or under the doctrine of equivalents.
2.3 “Intellectual Property”
shall mean:
|
|
a)
|
all issued patents, continuations, continuations-in-part, divisionals, and other patents or applications
derived from the Extraction Technology;
|
|
|
b)
|
all related knowhow and trade secrets relating to the Extraction Technology; and
|
|
|
c)
|
all other trade secrets and intellectual property information related to the Extraction Technology.
|
2.4 “Licensed Products”
shall mean any product, device, process, method, apparatus, kit or component part, or any part thereof, or any subject matter,
where manufacture, use, or sale is covered, in whole or in part, either literally or under the doctrine of equivalents, by any
issued or pending claim of one ore more of the Intellectual Property pending or issued in the country of manufacture, use, or sale.
2.5 "New Invention(s)"
shall mean an invention conceived or reduced to practice by Licensees or jointly by Licensees and Licensor which relates to or
is based on the subject matter of the Intellectual Property or on work developed under the direction of Licensor, but which is
outside the scope of the then-existing Intellectual Property.
2.6 “Party” (and
collectively, “Parties”) shall mean either or collectively the Licensor and/or Licensees, and all associated affiliates.
Affiliates shall include a) any officer, director, and/or legal entity directly or indirectly controlled by, or controlling, a
Party, b) an entity of which fifty percent or more of the voting stock is controlled or owned directly by a Party; c) an entity
which owns fifty percent or more of the voting stock of a Party; and e) an entity the majority ownership of which is directly or
indirectly common to the majority ownership of a Party.
2.7 “Sublicensee”
shall mean third parties to whom the Licensees sublicenses the Intellectual Property pursuant to the terms of this Agreement to
develop, manufacture, have manufactured, use, and sell the Licensed Products.
2.8 “Sublicensee Income”
shall mean compensation or consideration of any kind received by Licensees from a Sublicensee, including without limitation cash,
marketable securities, stock or shares, and any tangible or intangible assets.
III. grant of license
3.1 Grant. Subject
to the terms and conditions of this Agreement, Licensor grants and the Licensees hereby accept a worldwide, exclusive, non-transferable
license in the Intellectual Property to develop, manufacture, have manufactured, use, market, import, have imported, offer for
sale, and sell the Licensed Products. This license grant shall be for the lifetime of the Intellectual Property.
3.2 Sublicense. The
Licensees shall have the right to sublicense the Intellectual Property to third parties (hereinafter “Sublicensee”),
subject to the prior written consent of Licensor, whose consent shall not be unreasonably withheld. The sublicense terms shall
be commercially reasonable when compared to similar transactions conducted at arms length, and no sublicense shall contain the
right to grant further sublicenses without the prior written consent of Licensor.
3.3 Retention of Rights.
Licensor shall retain the nontransferable right to make, use and practice the Intellectual Property for his own noncommercial purposes.
The license granted hereunder shall not be construed to confer any rights upon Licensees by implication, estoppel or otherwise
as to any technology or intellectual property other than the Intellectual Property.
3.4 Third Party Licenses.
The parties recognize that Licensees may encounter patents held by third parties, and that licenses between Licensor or Licensees
and such third parties may be necessary in order to enable the Licensees to develop, make or market certain Licensed Products.
In that event, the Licensees have the right to enter into licensing agreements with such third parties, provided Licensor is consulted
before hand, is reasonably satisfied that the third party does in fact hold a patent that limits Licensees’ rights in respect
of the making, using and/or marketing the Licensed Products, and Licensor gives its written approval to such license, which approval
shall not be unreasonably withheld. Any money received by Licensees in exchange for such cross-licensing shall be treated as consideration
from Sublicensees for sublicensing.
IV. payments FOR THE LICENSE
4.1 Payments. All
payments due to the Licensor for the License to the Intellectual Property are set forth in the Contribution Agreement and the VivaVentures
Operating Agreement, which all the Parties hereto are also parties.
V. Reports and Records
5.1 Record Retention.
Licensees shall make and retain and shall cause its Sublicensees to make and retain, for a period of three (3) years following
the period of each report required by the Article true and accurate records of the account containing all the data reasonably required
for the full computation and verification of gross sales, gross revenues, and other information for use by VivaVentures to calculate
any amounts due and owing to the Parties. Such records shall be in accordance with generally accepted accounting principles consistently
applied and shall be kept at Licensees’ principal place of business. The Licensees and any of their Sublicensees shall permit
the inspection of such records by an independent certified public accountant chosen by Licensor and reasonably acceptable to Licensees
during regular business hours upon five (5) business days’ written notice to Licensees, to the extent necessary to verify
compliance with this Agreement. Such inspection shall not be made more than once each calendar year unless an error is discovered,
or for other good cause. All costs of such inspection and copying shall be paid by Licensor, provided that if any such inspection
shall reveal that an error has been made in an amount equal to 5% or more of any such payment due, such costs shall be paid by
Licensees.
VI. Due Diligence in ComMercialization
6.1 Reasonable Efforts.
Licensees agree that they shall use its reasonable efforts and diligently endeavor to achieve the development, regulatory approval,
and commercialization of the Licensed Products. Licensees may conduct such efforts itself or through a Sublicensee.
6.2 Termination. If,
after a period of ten years from the Effective Date, the Licensees have not commercialized a Licensed Product, Licensor shall have
the right, at its option to: (a) terminate the Agreement; or, (b) convert any or all of the rights granted to Licensees from exclusive
to non-exclusive.
6.3 Status Reports.
Licensees shall provide periodic Status Reports to Licensor, at least quarterly, indicating progress and problems to date in commercialization
of the Licensed Products. Such Status Reports shall also include a forecast and schedule of major events required to marked the
Licensed Products. Licensor shall treat all such information as confidential.
VII. Patent Prosecution
7.1 Patent Prosecution
Expenses. Beginning from the Effective Date and during the term of this Agreement and subject to Section 0, Licensor shall
diligently prosecute and maintain, at the Licensees’ expense, any United States and foreign patents comprising the Intellectual
Property, using patent counsel of the Licensees’ choice that is reasonably acceptable to Licensees.
7.2 Patent Prosecution
Cooperation. The Parties agree to fully cooperate with one another and to keep each other fully informed regarding the preparation,
filing, and prosecution of all patent applications which Licensor may file and prosecute pursuant to this Agreement. Licensees
will also execute and deliver all documents which Licensor may deem necessary or desirable for the Intellectual Property. Licensor
will also promptly provide copies of all documents received from any patent office, so as to keep Licensees informed of the continuing
prosecution. The Parties agree that representatives of each Party shall meet periodically to review and keep one another fully
informed as to the status of all Intellectual Property and all patent-related matters. Such representatives may meet in person
or telephonically, as mutually agreed upon by the Parties.
7.3 Protection of Licensed
Products. Licensor will use reasonable efforts to amend any patent application to include claims reasonably requested by the
Licensees to protect the Licensed Products.
7.4 Foreign Protection
of Licensed Products. The Licensees will have the right to request that Licensor obtain or maintain patent protection on the
Intellectual Property in foreign countries if possible or available. Licensees shall notify Licensor in writing of the countries
in which it desires to obtain or maintain foreign patents not less than sixty (60) days prior to the deadline for any payment,
filing, or action to be taken in connection therewith, and Licensees shall be responsible for all associated costs. Upon receipt
of such request, Licensor will undertake the actions described in Section VII with respect to each foreign country requested by
Licensees and shall timely file any applicable patent applications. Licensees will be responsible for all costs associated with
such a request.
7.5 Patent Marking.
The Licensees and their Sublicensees shall mark all Licensed Products sold by it with appropriate patent markings indicating that
the Licensed Products are protected by one or more of patents in the Intellectual Property, if applicable. All Licensed Products
shipped to or sold in other countries shall be marked in such a manner as to conform to the patent laws and practices of the country
of manufacture or sale.
7.6 Decision Not To file.
If Licensor decides to take steps which would result in either not filing a patent application or the abandonment of a patent or
patent application, it shall promptly give notice to Licensees of such decision, which notice shall in no event be less than thirty
(30) days prior to the next deadline for payment, filing, or any other related action. Further, Licensor shall provide Licensees
an opportunity to assume responsibility for such patent application or patent.
7.7 Decision Not To pay.
At any time, upon providing sixty (60) days written notice, Licensees may discontinue making payments with regard to any patent
application(s) and/or patent(s) within the Intellectual Property, and in such case, Licensees shall have no further rights under
this Agreement and this license shall terminate with respect to those patent applications and/or patents.
7.8 Patent Extension.
With respect to any issued patent in the Intellectual Property, Licensor will designate Licensees as its agent for obtaining an
extension of such patent or governmental equivalent which extends the exclusivity of any of the patent subject matter where available
in any country in the world, or if not feasible, at Licensees’ option, permit Licensees to file in Licensor’s name
or diligently obtain such extension for the Licensees, or their Sublicensees at Licensees’ expense. Licensor agrees to provide
reasonable assistance, at no out-of-pocket expense, to facilitate Licensees’ efforts to obtain any extension. If for any
reason the Licensees fail to exercise diligent efforts to obtain any extension or determine that it will not seek such extension,
the Licensees shall provide reasonable assistance, at no out-of-pocket expense, to facilitate Licensor’s efforts to obtain
any such extension.
VIII. Infringement
8.1 Notice of Infringement.
The Parties shall promptly give written notice to each other of any apparent infringement discovered with respect to any patent
issuing from the Intellectual Property. Such notice shall set forth the known facts of the apparent infringement in reasonable
detail. Upon written notice to Licensor, the Licensees shall have the first right, but not the obligation, to bring any legal action
with respect to such apparent infringement at its own expense and for its own benefit. In such event, Licensor agrees to cooperate
with the Licensees and to join in such action as a party plaintiff if requested to do so by the Licensees and, at the Licensees’
request, to give the Licensees all needed information, assistance, and authority to file and prosecute such suit. The Licensees
shall reimburse Licensor for all verified out-of-pocket expenses incurred by Licensor in providing such assistance, including attorneys’
fees, expenses, and expert witness fees incurred by Licensor. To ensure that no rights of Licensor are compromised in any such
action, the Licensees shall not settle any such claim or action, or enter into any settlement agreement that admits that any third
party product does not infringe the Intellectual Property or that any patent in the Intellectual Property is invalid or enforceable
without Licensor’s prior written consent, which consent shall not be unreasonably withheld. If there is a recovery in such
action (including a recovery as a result of a settlement), after recovery of all direct out-of-pocket expenses incurred by the
Licensees and Licensor in connection with the action, the Licensees shall pay to Licensor an cash or cash equivalent received from
any alleged infringer equivalent to the royalties which Licensor would have received if such alleged infringer had been a Sublicensee.
8.2 Infringement of Third
Party Rights. If the Licensees or Licensor receive notice of a claim or action by a third party alleging infringement of such
third party’s rights in connection with the development, manufacture, use, marketing, or sale of a Licensed Product by the
Licensees or their Sublicensees, the Licensees shall have the right to conduct the legal defense, but shall not enter into any
disposition with respect thereto, or enter into any settlement agreement that admits that any Licensed Product infringes any third
party right without Licensor’s prior written consent to such disposition, which consent shall not be unreasonably withheld.
All costs of the Licensees’ defense, and any damages awarded or amounts paid in settlement in any such claim shall be the
sole responsibility of the Licensees. Licensor shall cooperate with the Licensees if requested by the Licensees in its defense
of such infringement claim or action, provided that Licensees shall reimburse Licensor for all out-of-pocket expenses, including
attorneys’ fees, expenses, and expert witness fees incurred by Licensor in providing such cooperation.
8.3 Indemnification.
Subject to the notification provisions of Section 0 below, the Licensees shall defend and hold harmless Licensor against a third
party infringement claim or action which results from the development, manufacture, use, marketing, or sale of a Licensed Product
by the Licensees or their Sublicensees, and indemnify Licensor against the cost of such defense undertaken by the Licensees, including
attorneys’ fees and all other legal expenses, costs, expert witness fees, and damages awarded or amounts paid in settlement
in any such claim or action. Such indemnification shall include attorneys’ fees for independent counsel retained by Licensor
if Licensor deems such separate independent counsel to be necessary as a result of conflicts of interest with the Licensees, but
only in connection with services rendered in connection with matters with respect to which the parties have adverse interests.
The Licensees’ indemnification shall not include indemnification to the extent to which such infringement is directly caused
by Licensor prior to the date of this Agreement.
8.4 Notification.
In the event that any claim is asserted against Licensor or the Licensees (or any of their respective officers, directors, trustees,
employees, agents, or representatives), or if any such person is made a party defendant in any action involving a matter which
is the subject of Licensor’s indemnification as set forth above, or if either Party becomes aware of a claim or patent which
might provide the basis for a third party’s claim of infringement against Licensees for the development, manufacture, use,
marketing, or sale of a Licensed Product, then such Party shall give written notice to the other within thirty (30) days of having
learned of such, or within ten (10) days of the receipt of a written complaint or formal pleading regarding the same.
IX. Term and Termination of agreement
9.1 Term. The term
of the license granted under this Agreement shall continue for the life of the Intellectual Property, unless terminated sooner
under the provisions of this Agreement.
9.2 Termination by Licensor.
In addition to any other rights of termination set forth in this Agreement, and subject to any applicable cure periods prescribed
herein, Licensor may in his sole discretion terminate this Agreement in the event that:
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a)
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The Licensees fail to make payments when due of any amounts owed to Licensor under this the Contribution
Agreement and VivaVentures Operating Agreement and the Licensees does not correct such failure within thirty (30) business days
after receipt of written notice of such failure is delivered to the Licensees;
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b)
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The Licensees commit a breach of any other obligation of this Agreement or related Party agreement
which is not cured (if capable of being cured) within thirty (30) days after receiving notice of such;
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c)
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The Licensees or their Sublicensees intentionally provide any materially false report, in which
event such termination shall be effective thirty (30) days after written notice to Licensees; or,
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d)
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The Licensees become insolvent or a petition in bankruptcy is filed against the Licensees and is
consented to, acquiesced, and remains undismissed for ninety (90) days; or Licensees makes a general assignment for the benefit
of creditors, or a receiver is appointed for the Licensees, and the Licensees do not return to solvency before the expiration of
said thirty (30) day period set by the notice, in which event such termination shall be effective thirty (30) days after written
notice to the Licensees.
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9.3 Conversion to Non-Exclusive
License. In addition to the provision set forth in Section 9.2 above, Licensor shall have the option, at its sole discretion,
to convert the license set forth in this Agreement to a non-exclusive license if the Licensees or their Sublicensees have not commercialized
a Licensed Product after a period of ten years from the Effective Date.
9.4 Termination by Licensees.
The Licensees shall have the option to terminate this Agreement upon providing sixty (60) days’ written notice to Licensor.
9.5 Obligations on Termination.
9.5.1 Rights
Termination. Upon termination of this Agreement and except as otherwise expressly provided herein, all of the rights and licenses
granted to Licensees under the terms of this Agreement shall terminate. The Licensees shall assign any sublicenses granted under
this Agreement to Licensor. All rights licensed or transferred by Licensor to the Licensees hereunder which are subject to termination
shall revert to Licensor, and the Licensees agree to execute all instruments reasonably necessary and desirable to revest said
rights in Licensor.
9.5.2 Regulatory
Records. Upon termination, the Licensees shall transfer ownership and possession of all records and documents of Licensees
filed with regulatory authorities relating to the Licensed Products.
9.5.3 Return
of Confidential Material. Upon termination, the Licensees and their Sublicensees shall return all Confidential Information,
including any knowhow relating to the Intellectual Property, transferred to the Licensees by Licensor. The Licensees and their
Sublicensees shall maintain confidentiality and not use any such information for a period of five (5) years after termination of
this Agreement.
9.5.4 Unsold
Inventory. In the event this Agreement is terminated for any reason, the Licensees and their Sublicensees shall have the right
to sell or otherwise dispose of their stock of any Licensed Products, subject to the obligation of the Licensees to pay Licensor
the payments as provided in Section IV of this Agreement. The Licensees shall immediately discontinue any additional production
of the Licensed Products.
9.5.5 Sublicensees.
In the event that the license granted to the Licensees under this Agreement is terminated, any sublicenses granted to Sublicensees
shall remain in full force and effect, provided that the Sublicensee is not then in breach of its sublicense agreement, and the
Sublicensee agrees to be bound to Licensor as a licensee under the terms and conditions of the agreement, in which case Licensor
and Sublicensee shall enter into appropriate agreements or amendments to the sublicense agreements to substitute Licensor for the
Licensees as the licensor.
9.5.6 Other
Rights. Termination of this Agreement for any reason shall not release any Party hereto from any liability which, at the time
of such termination, has already accrued to the other party or which is attributable to a period prior to such termination, nor
preclude either party from pursuing any rights and remedies it may have hereunder or at law or in equity which accrued or are based
upon any event occurring prior to such termination, including, without limitation, Licensees' obligation to pay all royalties or
other payments and/or reimbursements specified in Section IV. The rights provided in. this Section shall be in addition and without
prejudice to any other rights which the parties may have with respect to any breach or violations of the provisions of this Agreement.
X. Indemnification and Warranties
10.1 Disclaimers.
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, LICENSOR DISCLAIMS ALL WARRANTIES WHATSOEVER, WITH RESPECT TO THE Intellectual
Property, EITHER EXPRESS OR IMPLIED, INCLUDING WARRANTIES AS TO THE MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE,
VALIDITY OF PATENT CLAIMS (ISSUED OR PENDING), OR THAT THE MANUFACTURE, USE OR SALE OF THE LICENSED PRODUCT(S) AND USE OF THE INTELLECTUAL
PROPERTY WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER RIGHTS. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY
SPECIAL, INDIRECT, INCIDENTAL. OR CONSEQUENTIAL LOSSES OR DAMAGES, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. LICENSEES TAKES THE Intellectual Property “AS-IS,” “WITH
ALL FAULTS,” AND “WITH ALL DEFECTS” AND EXPRESSLY WAIVES ALL RIGHTS TO MAKE ANY CLAIM WHATSOEVER AGAINST LICENSOR
FOR WARRANTY OF ANY KIND RELATING TO THE Intellectual Property SUBJECT TO THE REPRESENTATIONS
MADE HEREIN. IN NO CASE SHALL LICENSOR’S LIABILITY FOR DAMAGES OF ANY TYPE EXCEED THE TOTAL ROYALTIES WHICH HAVE ACTUALLY
BEEN PAID TO LICENSOR BY LICENSEES AS OF THE DATE OF FILING OF THE ACTION AGAINST LICENSOR WHICH RESULTS IN A SETTLEMENT OR AWARD
OF DAMAGES.
10.2 Indemnity.
With the exception of infringement claims or actions covered by Section VIII, Licensees shall defend, indemnify, and hold harmless
Licensor from and against any and all liabilities, claims, suits, damages, and expenses of any nature related to a third party
claim in connection with (i) the use by the Licensees or their Sublicensees of the Intellectual Property; (ii) the development,
manufacture, use, marketing, sale, or other disposition of any Licensed Products by the Licensees or their Sublicensees, or any
statement or breach of any representation or warranty made by the Licensees or their Sublicensees with respect thereto; or (iii)
resulting from or arising out of the exercise by Licensees of this license or any sublicense granted by Licensees pursuant to this
Agreement. In the event of such indemnification, Licensor shall reasonably cooperate with the Licensees in defending any such claims.
Licensor shall be entitled to receive information regarding the status of any such matter, and shall be entitled to retain counsel
on its own behalf at Licensees’ expense, in addition to counsel retained by Licensees to defend Licensor, if Licensor is
named a party, and if Licensor deems such separate independent counsel to be necessary as a result of conflicts of interest with
the Licensees, or if Licensor is not satisfied with the defense provided by the Licensees for any reason.
10.3 Insurance.
The Licensees, at their sole
cost and expense, shall purchase and maintain in effect and shall require their Sublicensees to purchase and maintain in effect
comprehensive or commercial form general liability insurance (contractual liability and products liability included on a world-wide
basis) insuring its and their activities in connection with clinical trials, marketing approvals, and covering all claims with
respect to any Licensed Products manufactured or sold within the term of any license granted hereunder, and professional liability
(errors and omissions), and workers’ compensation as required by law and automobile liability, which policies shall, if required
by the Licensor in writing: (i) be in such form of coverage and written by such company licensed to conduct business in the State
of California as Licensor shall reasonably approve, (ii) provide that such policy is primary and not excess or contributory with
regard to other insurance Licensor may have, and (iii) provide at least thirty (30) days’ notice to Licensor of cancellation.
In the event the Licensees cannot obtain such insurance, or cannot obtain such insurance at a reasonable price, it shall obtain
insurance in an amount to reasonable to cover the Licensees in the event of a covered event, based on the then-current operations
of the company. Such insurance shall be written to cover claims incurred, discovered, manifested or made during or after expiration
of this Agreement. The Licensees shall have this insurance in place prior to beginning development on a Licensed Product and at
such time will furnish a certificate of such insurance to Licensor within thirty (30) days thereafter. The Licensees shall obtain
such additional insurance coverage as shall be reasonably requested by Licensor, and reasonably agreed to by the parties, provided
that Licensor shall not request changes in such coverage more frequently than annually.
The Licensees expressly waive
any right of subrogation that it may have against Licensor resulting from any liabilities, claims, suits, damages, and expenses
of any nature for which Licensees has agreed to indemnify Licensor or hold Licensor harmless under this Section.
10.4 Representations
and Warranties of Licensor. Licensor represents, warrants, and covenants to the Licensees as follows:
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a)
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Licensor warrants that Licensor has the rights, ownership, titles and interests, legal and equitable,
necessary in the Intellectual Property to grant the Licensees the exclusive license and rights described herein.
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b)
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The license granted to the Licensees under this Agreement is the only license granted by Licensor
with respect to the Intellectual Property and during the term of this Agreement Licensor shall not grant any third party rights
inconsistent with the rights granted Licensees herein.
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c)
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There are no pending, and to the knowledge of Licensor as of the Effective Date, any threatened
actions, claims, or proceedings in any way relating to the Intellectual Property.
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10.5 Representations
and Warranties of the Licensees. The Licensees represent, warrant, and covenant to Licensor as follows:
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a)
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The Licensees are a corporation (Vivakor) and a limited liability company (VivaVentures Precious
Metals), duly organized, validly existing and in good standing under the laws of the State of Nevada having full Corporate power
to conduct each business as presently conducted, and to enter into and consummate the transactions contemplated by this Agreement.
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b)
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The execution, delivery and performance under this Agreement by the Licensees has been duly authorized
by all required corporate action, do not constitute a breach, default or violation of any of the provisions of Licensees' Articles
of Incorporation, Bylaws or other charter documents, or any other agreement, law, or regulation to which it may be a party or by
the terms of which it may be bound.
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XI. OWNERSHIP OF IMPROVEMENTS AND nEW INVENTIONS
Improvements and New Inventions
will be owned solely by the Licensees and shall be free and clear of any ownership or other rights claimed by Licensor and shall
not be part of the Intellectual Property and/or Extraction Technology. Furthermore, the Licensees will have the sole right to file
any patent, copyright, or other intellectual property rights applications or registrations resulting from any such Improvements
or New Inventions anywhere in the world. Without limiting the generality of the foregoing, and in the alternative, the Licensor
hereby irrevocably transfers and assigns to the Licensees, completely and exclusively, and by virtue of the execution of this Agreement
and without any other additional compensation, all of the Licensor’s rights, title, and interest, including, but not limited
to, all intellectual property rights, if any, in and to the Improvements and New Inventions. The Licensor acknowledges and agrees
that, as a result of the foregoing provisions of this Section 11, all such Improvements and New Inventions hereby become the exclusive
property of the Licensees, and, the Licensees will have the sole right to determine the treatment of any Improvements and New Inventions,
including, without limitation, the rights to keep Improvements and New Inventions as trade secrets, to file and execute patent
applications on Improvements and New Inventions, to use and disclose Improvements and New Inventions without prior patent application,
to file registrations for any other intellectual property rights, and to transfer any intellectual property rights to any party
the Licensees so choose, or to follow any other procedure that the Licensees deems appropriate. Notwithstanding anything contained
in this Agreement to the contrary, nothing in this Agreement shall preclude Licensees from developing, manufacturing, marketing
or distributing devices suitable to extract gold and other precious metals from sands and other sand-based ore bodies.
XII. Miscellaneous
12.1 Choice
of Law. This Agreement will be governed by the laws of the State of California.
12.2 Compliance
with Laws and Regulations. The Licensees shall use reasonable efforts to comply with all foreign and United States federal,
state and local laws and regulations applicable to the testing, production, transportation, packaging, labeling, export, sale and
use of the Licensed Products. In particular, Licensees shall be responsible for assuring compliance with all U.S. export laws and
regulations applicable to this license and the Licensees’ activities hereunder. The Licensees shall be responsible for all
taxes, duties, and other governmental charges, however, designated, which are now or hereafter imposed by any such authority (a)
by reason of the performance by the Licensees of their obligations under this Agreement, or the payment of any amounts by the Licensees
to Licensor under this Agreement, (b) based on the Intellectual Property or Licensed Products, or (c) relating to the import of
the Licensed Products into any such territory. Licensor agrees to use reasonable efforts to cooperate with Licensees at Licensees’
expense, in connection with any filings required by any governmental entity.
12.3 Notices.
Any notice, report, request or other communication required or permitted to be given under this Agreement by a Party to the other
parties shall be either hand-delivered (including delivery by courier), or mailed by first-class registered or certified mail (airmail
if internationally), with return receipt requested, and addressed as follows:
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To Licensees:
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Vivakor, Inc.
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2 Park Plaza,
Suite 800
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Irvine, CA 92614
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Tel: 949-281-2606
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Fax:
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VivaVentures
Precious Metals, LLC
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3691 Misty Falls
Ln.
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Las Vegas, Nevada,
89129
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702-326-0281
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With a copy to:
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Law
Offices of Craig V. Butler
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300 Spectrum
Center Drive, Suite 300
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Irvine, CA
92618
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Attn. Craig
V. Butler
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Fax: (949)
209-2545
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Email: cbutler@craigbutlerlaw.com
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To Licensor:
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William Ison
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12622 S. Park Ave.
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Riverton, UT 84065
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Tel: 949-698-8520
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Fax:
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With a copy to:
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_________________________
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_________________________
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_________________________
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_________________________
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Each Party may designate in
writing a new address to which any notice may thereafter be given. Any notice sent by registered or certified mail shall be deemed
to have been given at the time of the receipt thereof by the other Party or three (3) calendar days after the time of mailing,
whichever is earlier.
12.4 Entire
Agreement. This Agreement contains the entire agreement with respect to the subject matter hereof and supersedes any and all
prior agreements, written or oral with respect thereto.
12.5 Waivers
and Amendments; Non-Contractual Remedies; Preservation of Remedies. This Agreement shall not be modified or amended except
pursuant to an instrument in writing executed and delivered on behalf of each Party to be bound. No delay on the part of any Party,
in exercising any right hereunder shall operate as a waiver thereof. Neither any waiver on the part of any Party of any such right,
nor any single or partial exercise of any such right shall preclude any further exercise thereof or the exercise of any other such
right unless waived in writing. The rights and remedies hereunder provided are cumulative and except as otherwise provided herein
are not exclusive of any rights or remedies that any party may otherwise have at law or in equity. The rights and remedies of any
party based upon, arising out of or otherwise in respect of any inaccuracy in or breach of any representation, warranty, covenant
or agreement contained in this Agreement shall in no way be limited by the fact that the act, omission, occurrence, or other state
of facts upon which any claim of any such inaccuracy or breach is based may also be the subject matter of any other representation,
warranty, covenant or agreement contained in this Agreement (or in any other agreement between the Parties) as to which there is
no inaccuracy or breach.
12.6 Binding
Effect; No Assignment. This Agreement shall be binding upon and inure to the benefit of the parties named herein and their
respective successors and permitted assigns. The parties may not assign either this Agreement or any of its rights, interests,
or obligations hereunder without the prior written approval of the other party.
12.7 Severability.
If any term or provision in this Agreement or the application thereof shall be held invalid, void or unenforceable, the remainder
of such term or provision shall remain in full force and effect, and the invalid, void, or unenforceable term or provision shall
be reformed to the extent possible in order to give its intended effect and/or meaning.
12.8 Method
of Dispute Resolution. In the event that there arises any disagreement or dispute between the Parties that cannot be amicably
resolved and which relates to the interpretation, enforcement, or violation of the terms of this Agreement, such matters will be
resolved in a United States District Court in the Central District of California. If no such jurisdiction exists, then any such
dispute will be resolved in a state court located in the geographic region of the Central District of California.
12.9 Headings.
The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.
12.10 Construction.
The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question
of intent or interpretation arises, the Agreement shall be construed as if drafted jointly by the parties and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.
12.11 Confidential
Information. Except as expressly provided herein, the Parties agree that, for the term of this Agreement and for five (5) years
thereafter, the Recipient shall keep completely confidential and shall not publish or otherwise disclose and shall not use for
any purpose except for the purposes contemplated by this Agreement any Confidential Information furnished to it by the Disclosing
Party hereto pursuant to this Agreement. Each Party hereto may use or disclose Confidential Information disclosed to it by the
other Party to the extent such use or disclosure is reasonably necessary in filing or prosecuting patent applications, prosecuting
or defending litigation, complying with applicable governmental regulations or otherwise submitting information to tax or other
governmental authorities, conducting clinical trials, or making a permitted sublicense or otherwise exercising its rights hereunder,
provided that if a Party is required to make any such disclosure of another Party’s Confidential Information, other than
pursuant to a confidentiality agreement, it will give reasonable advance notice to the latter Party of such disclosure and, save
to the extent inappropriate in the case of patent applications, will use its best efforts to secure confidential treatment of such
information prior to its disclosure (whether through protective orders or otherwise.) Except as expressly provided herein, each
Party agrees not to disclose any terms of this Agreement to any third party without the consent of the other Party; provided disclosures
may be made as required by securities or other applicable laws, or to actual or prospective investors or corporate partners, or
to a Party’s accountants, attorneys and other professional advisors.
12.12 Publicity.
Unless required by federal and/or state law or regulation, no Party shall release any materials containing the name of another
Party or any of its employees without the prior approval by an authorized representative of such Party, which approval shall not
be unreasonably withheld. The Parties agree to make a mutually-agreed press release regarding this Agreement promptly following
the Effective Date. Should a Party reject a proposed news release, the Parties agree to discuss the reasons for such rejection,
and every effort shall be made to develop an appropriate informational news release.
12.13 Further
Assurances. Each Party to this Agreement shall, at the request of the other, furnish and deliver such documents, or other further
assurances as the requesting Party shall reasonably request as necessary or desirable to effect complete consummation of this Agreement
and the transactions contemplated hereby.
12.14 Force
Majeure. Neither Party shall lose any rights hereunder or be liable to the other party for damages or losses (except for payment
obligations) on account of failure of performance by the defaulting party if the failure is caused by war, strike, fire, Act of
God, earthquake, flood, lockout, embargo, governmental acts or orders or restrictions, where failure to perform is beyond the reasonable
control and not caused by the negligence, intentional conduct or misconduct of the nonperforming party and the nonperforming party
has exerted all reasonable efforts to avoid or remedy such force majeure; provided, however, that in no event shall any party be
required to settle any labor dispute or disturbance.
12.15 Survival.
The following obligations shall survive the termination of this Agreement: (a) the Licensees’ obligation to supply reports
covering the time periods up to the date of termination; (b) Licensor’s right to receive payments and fees, accrued or accruable,
from payments at the time of any termination; (c) The Licensees’ obligation to maintain records, and Licensor’s right
to have those records inspected; (d) any cause of action or claim of either party, accrued or to accrue because of any action or
omission by the other; (e) The Licensees’ obligations stated in Sections V, VIII, of this Agreement; and (f) Licensees’
obligations to return all materials given to it by Licensor.
[signature page follows]
IN WITNESS WHEREOF,
the Parties have executed this Agreement as of the date set forth below:
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Licensor:
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William Ison
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an individual and on
behalf of Vaporetek
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/s/ William Ison
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William Ison
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Licensees:
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Vivakor, Inc.
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a Nevada corporation
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/s/ Matthew Nicosia
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By: Matthew Nicosia
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Its: Chief Executive Officer
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VivaVentures Precious
Metals, LLC
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a Nevada limited
liability company
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/s/ Kevin Wiltz
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By: Kevin Wiltz
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Its: President
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Exhibit A
Description of the Extraction Technology
The vapor extraction technology developed
and owned by the Vaportek Parties and licensed to VivaVentures Precious Metals, LLC and Vivakor under this Agreement and the License
Agreement is a proprietary technology that extracts gold and other precious metals from sands and other sand-based ore bodies.
Specifically, the technology utilizes a thermal vapor extraction process to heat salts or other detritus materials in order to
extract gold and other precious metals from the materials.
Exhibit 10.16
THE INTERESTS REPRESENTED BY THIS LIMITED
LIABILITY COMPANY AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR QUALIFIED UNDER APPLICABLE STATE SECURITIES
LAWS IN RELIANCE ON EXEMPTIONS THEREFROM. THESE INTERESTS HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE AND MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH INTERESTS UNDER THE SECURITIES ACT OF 1933 AND THE REGULATIONS PROMULGATED PURSUANT THERETO (UNLESS EXEMPT THEREFROM)
AND COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS AND REGULATIONS.
LIMITED LIABILITY COMPANY AGREEMENT
OF
VIVAVENTURES UTS I, LLC,
a Delaware limited liability company
This Limited Liability
Company Agreement (this “Agreement”) is effective as of September 24, 2015 by and among VIVAVENTURES MANAGEMENT
COMPANY, INC., a Nevada corporation (“VVMCI”), as a Member (as defined below herein) and as the Manager (as
defined below herein), and such other Persons who have been or may be admitted to the Company from time to time as Members (as
defined below herein) and set forth in Exhibit A hereto (all of the foregoing (including VVMCI) together, collectively,
the “Members” and each of them, individually, a “Member”). Certain capitalized terms used
herein have the meanings set forth in Section 2.
1. ORGANIZATION
1.1 General.
VivaVentures UTS I, LLC (the “Company”) was formed as a Delaware limited liability company by the execution
and filing of the Certificate of Formation with the Delaware Secretary of State in accordance with the Act, and the rights and
liabilities of the Members shall be as provided in the Act, as may be modified in this Agreement. In the event of a conflict between
the provisions of the Act and the provisions of this Agreement, the provisions of this Agreement shall prevail unless the Act specifically
provides that a Limited Liability Company Agreement may not change the provision in question.
1.2 Business
Purpose. The Company may engage in any business in which a Delaware limited liability company may engage, except that the Company
shall not engage in the trust company business or in the business of banking or insurance; provided, however, that, as of
the effective date of this Agreement, the Company’s sole and exclusive purpose shall be to enter into a Royalty Agreement
(the “VV Energy Group Royalty Agreement”) with VIVAVENTURES ENERGY GROUP, INC., a Nevada corporation (“VV
Energy Group”), and be entitled to collect payments from VV Energy Group pursuant to and in accordance with the VV Energy
Group Royalty Agreement.
1.3 Name
and Address of Company. The business of the Company shall be conducted under the name “VivaVentures UTS I, LLC”.
The principal executive office of the Company shall be at the address determined from time to time by the Manager.
1.4 Term.
The term of this Agreement shall be perpetual unless sooner terminated as provided in this Agreement.
1.5 Required
Filings. The Manager shall cause to be executed, filed, recorded and/or published such certificates and documents as may be
required by this Agreement or by law in connection with the formation and operation of the Company.
1.6 Registered
Agent. The Company’s initial registered agent shall be as provided in the Certificate of Formation. The registered agent
may be changed from time to time by the Manager by causing the filing of the name of the new registered agent in accordance with
the Act.
1.7 Tax
Status. The Members intend that the Company be treated as a partnership for federal and state income tax purposes. Accordingly,
this Agreement shall be construed in a manner consistent with the Company’s classification as a partnership for federal and
state income tax purposes at all times. Neither the Company nor any Member shall take any action inconsistent with such classification.
2. DEFINITIONS
For purposes of this
Agreement, the terms defined herein below shall have the following meanings unless the context clearly requires a different interpretation:
2.1 “Act”
means the Delaware Limited Liability Company Act, as codified in the Delaware Code Annotated, Title 6, Sections 18-101 et
seq., as the same may be amended from time to time, and including any successor statute of similar import.
2.2 “Adjusted
Capital Account Deficit” means, with respect to any Member, the deficit balance, if any, in such Member’s Capital
Account as of the end of the relevant fiscal year, after giving effect to the following adjustments:
(a)
Credit to such Capital Account amounts that such Member is deemed to be obligated to restore pursuant to the penultimate
sentences of Treasury Regulations Section 1.704-2(g)(1) and 1.704-2(i)(5); and
(b)
Debit to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6)
of the Treasury Regulations.
The foregoing definition of Adjusted Capital
Account Deficit is intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations and shall
be interpreted consistently therewith.
2.3 “Affiliate”
means, with respect to any person or entity: (a) any person or entity directly or indirectly controlling, controlled by or
under common control with such person or entity; (b) any person or entity owning or controlling ten percent (10%) or more of the
outstanding voting securities or beneficial interests of such person or entity; (c) any officer, director, general partner, manager
or trustee of, or anyone acting in a substantially similar capacity as to, such person or entity; (d) any person or entity who
is an officer, director, general partner, manager, trustee or holder of ten percent (10%) or more of the voting securities or beneficial
interests of any of the foregoing; and (e) any person or entity related to such person or entity within the meaning of Code Section
267(b). Notwithstanding the foregoing, VV Energy Group shall not be considered an Affiliate of the Company.
2.4 “Agreement”
means this Limited Liability Company Agreement of the Company, as the same may be amended from time to time.
2.5 “Assignee”
means a Person who has acquired Units in the Company from a Member or an Assignee but who is not a Substituted Member.
2.6 “Capital
Account” of a Member means the capital account of that Member determined from the inception of the Company strictly
in accordance with the rules set forth in Section 1.704-1(b)(2)(iv) of the Treasury Regulations. In accordance with that
Section of the Treasury Regulations, a Member’s Capital Account shall be equal to the amount of money contributed by
such Member and the initial Gross Asset Value of any property contributed by such Member, increased by (a) allocations of Net
Income to such Member and (b) the amount of Company liabilities assumed by such Member or that are secured by any property
distributed to such Member, and decreased by (v) the amount of money distributed to such Member, (w) the Gross Asset Value of
any property distributed to such Member by the Company, (x) such Member’s share of expenditures of the Company
described in Section 705(a)(2)(B) of the Code (including, for this purpose, losses that are nondeductible under Section
267(a)(1) or Section 707(b) of the Code), (y) the Net Loss allocated to such Member and (z) the amount of liabilities of such
Member assumed by the Company or that are secured by any property contributed by such Member to the Company. In addition, the
Capital Accounts of Members may be adjusted by the Manager to reflect a revaluation of Company assets pursuant to subsection
(b) or (c) of the definition of Gross Asset Value. The Capital Account of a Member shall be further adjusted as required by
Section 1.704-1(b)(2)(iv) of the Treasury Regulations. To the extent that anything contained herein is inconsistent with
Section 1.704-1(b)(2)(iv) of the Treasury Regulations, the Treasury Regulations shall control. The Capital Account of an
Assignee shall be the same as the Capital Account of the Member from whom such Assignee acquired its interest, as further
adjusted pursuant to this definition of Capital Account.
2.7 “Capital Contributions” means
the total of all cash contributions and property contributions to the capital of the Company by the Members as provided in Section
3.2.
2.8 “Certificate
of Formation” means the Certificate of Formation of the Company filed with the Delaware Secretary of State, as the same
may be amended from time to time.
2.9 “Class A Units” means
Units that have voting power pursuant to this Agreement. Except as otherwise provided in this Agreement or as otherwise required
by applicable law, Members holding Class A Units will be entitled to one (1) vote per Class A Unit on all matters to be voted
on by the Members holding Class
A Units.
2.10 “Class
B Units” means Units that have no voting power pursuant to this Agreement. Except as otherwise provided
in this Agreement or as otherwise required by applicable law, Members holding Class B Units will not be entitled
to vote on any matter except to the extent otherwise required under the Act.
2.11 “Code” means the Internal
Revenue Code of 1986, as amended to date, or corresponding provisions of subsequent superseding revenue laws.
2.12 “Company”
means the limited liability company created pursuant to the Certificate of Formation as governed by this Agreement.
2.13 “Company Minimum Gain” with
respect to any taxable year of the Company means the “partnership minimum gain” of the Company computed strictly in
accordance with the principles of Section l.704-2(d) of the Treasury Regulations.
2.14 “Distributable
Cash” means the amount of cash received by the Company from operations and the sale of Company assets, less all expenses
attributable thereto and less amounts set aside for reasonable reserves, contingencies and anticipated obligations, each as determined
by the Manager.
2.15 “Distributable Cash from Capital Events”
means Distributable Cash attributable to any (i) merger, consolidation or other form of entity reorganization (other than
a merger effected exclusively for the purpose of changing the domicile of the entity) in which the Members immediately before
such merger, consolidation or reorganization (and before any acquisition of equity interests of the Company effected in connection
with such merger, consolidation or reorganization) own less than fifty percent (50%) of the Company’s voting power (or,
if the Company is not the surviving entity, less than fifty percent (50%) of the voting power of the surviving entity in such
consolidation, merger or reorganization) immediately after such merger, consolidation or reorganization or (ii) sale, lease, license,
transfer or other disposition of the assets of the Company other than in the ordinary course of business.
2.16 “Distributable Cash from Operations”
means Distributable Cash (a) received by the Company from ordinary operations or (b) that is not Distributable Cash from Capital
Events, as determined by the Manager in its commercially reasonable discretion.
2.17 “Distributions” means any
cash (or property to the extent applicable) distributed to the Members or Assignees arising from their ownership of Units.
2.18 “Economic Risk of Loss” means
the “economic risk of loss” within the meaning of Section 1.752-2 of the Treasury Regulations.
2.19 “Gross Asset Value” means,
with respect to any asset, the asset’s adjusted basis for federal income tax purposes, except as follows:
(a)
The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of
such asset, as determined by the Manager;
(b)
The Gross Asset Values of all Company assets shall be adjusted to equal their respective gross fair market values, as determined
by the Manager, as of the following times: (i) the acquisition of an additional interest in the Company by any new or existing
Member in exchange for more than a de minimis Capital Contribution; (ii) the distribution by the Company to a Member of
more than a de minimis amount of property as consideration for an interest in the Company; (iii) the liquidation of the
Company within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g); and (iv) the grant of an interest in the Company
as consideration for the provision of services to or for the benefit of the Company; provided, however, that the adjustments
pursuant to the preceding clauses (i), (ii) and (iv) shall be made only if the Manager reasonably determines that such adjustments
are necessary or appropriate to reflect the relative economic interests of the Members in the Company;
(c)
The Gross Asset Value of any Company asset distributed to any Member shall be adjusted to equal the gross fair market value
of such asset on the date of distribution as determined by the Manager; and
(d)
The Gross Asset Value of Company assets shall be increased (or decreased) to reflect adjustments to the adjusted basis of
such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into
account in determining Capital Accounts pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m); provided, however, that
Gross Asset Values shall not be adjusted pursuant to this subsection (d) to the extent that the Manager determines that an adjustment
pursuant to subsection (b) above is necessary or appropriate in connection with a transaction that otherwise would result in an
adjustment pursuant to this subsection (d).
If the Gross Asset Value of an asset has
been determined or adjusted pursuant to subsection (a), (b) or (d) of this Section defining “Gross Asset Value,”
then such Gross Asset Value thereafter shall be adjusted by the depreciation taken into account with respect to such asset
for purposes of computing Net Income and Net Loss.
2.20 “Indemnitees” has the meaning
given to such term in Section 14.1.
2.21 “Majority in Interest of the Members
Holding Class A Units” means those Members holding more than fifty percent (50%) of the total number of issued and outstanding
Class A Units from time to time.
2.22 “Manager” means the Person
appointed or elected as the Manager pursuant to Section 5.
2.23 “Member” means any Person
admitted to the Company as a Member or Substituted Member and who has not ceased to be a Member.
2.24 “Member Nonrecourse Debt” means
liabilities of the Company treated as “partner nonrecourse debt” under Section 1.704-2(b)(4) of the Treasury Regulations.
2.25 “Member Nonrecourse Deductions”
means in any Company fiscal year the Company deductions that are characterized as “partner nonrecourse deductions”
under Section 1.704-2(i)(2) of the Treasury Regulations.
2.26 “Net
Income” and “Net Loss” means the net book income or loss of the Company for any relevant period.
The net book income or loss of the Company shall be computed in accordance with federal income tax principles (i) under the method
of accounting elected by the Company for federal income tax purposes, (ii) as applied without regard to any recharacterization
of transactions or relationships that otherwise might be required under such tax principles and (iii) as otherwise adjusted pursuant
to the following provisions. The net book income or loss of the Company shall be computed, inter alia, by:
(a)
including as Net Income or Net Loss, as appropriate, any adjustment to the Gross Asset Value of any Company asset pursuant
to subsection (b) or (c) of Section 2.18 defining “Gross Asset Value”;
(b)
including as income or deductions, as appropriate, any tax-exempt income and related expenses that are neither properly
included in the computation of taxable income nor capitalized for federal income tax purposes;
(c)
including as a deduction when paid or incurred (depending on the Company’s method of accounting) all amounts used
to organize the Company or to promote the sale of (or to sell) Units, except that amounts for which an election is properly made
by the Company under Section 709(b) of the Code shall be accounted for as provided therein;
(d)
including as a deduction or loss losses incurred by the Company in connection with the sale or exchange of property, notwithstanding
that such losses may be disallowed to the Company for federal income tax purposes under the related party rules of Code Sections
267(a)(1) or 707(b) or otherwise;
(e)
calculating the gain or loss on disposition of Company assets and the depreciation, amortization or other cost recovery
deductions, if any, with respect to Company assets by reference to their Gross Asset Value rather than their adjusted tax basis;
(f)
excluding any gain or income specially allocated under Sections 4.4(e), 4.5 and 4.6; and
(g)
excluding Nonrecourse Deductions.
2.27 “Net
Income, Net Loss and Nonrecourse Deductions Attributable to Operations” means the Net Income, Net Loss and Nonrecourse
Deductions of the Company that are attributable to the normal operations of the Company and not to dispositions of assets of the
Company that are capital in nature, as determined by the Manager in its discretion. For the purpose of clarity, any book income
or loss resulting from a revaluation of a Company asset that is capital in nature shall not be considered attributable to the
normal operations of the Company.
2.28 “Nonrecourse Deductions” in
any fiscal year means the amount of Company deductions that are characterized as “nonrecourse deductions” under Section
1.704-2(b)(1) of the Treasury Regulations.
2.29 “Nonrecourse Liabilities” means
the liabilities of the Company treated as “nonrecourse liabilities” under Section 1.752-1(a)(2) of the Treasury Regulations.
2.30 “Percentage
Interest” means, with respect to each Member, the percentage derived by dividing the number of outstanding Units owned
by such Member by the total number of issued and outstanding Units from time to time.
2.31 “Person” means any natural
person or entity and the heirs, executors, administrators, legal representatives, successors and assigns of such Person where
the context so admits.
2.32 “Purchase Price” has the
meaning given to such term in Section 9.4(a).
2.33 “Regulatory Allocations” has
the meaning given to such term in Section 4.5.
2.34 “Substituted
Member” means an Assignee who becomes a Member pursuant to Section 8.3.
2.35 “Tax
Distributions” has the meaning given to such term in Section 4.4(a)(ii).
2.36 “Tax
Liability” has the meaning given to such term in Section 4.4(a)(ii).
2.37 “Treasury
Regulations” means the regulations of the United States Treasury Department pertaining to the Code, as amended, and all
successor provisions thereto.
2.38 “Unit(s)”
means a unit of measurement by which a Member’s right to vote (as applicable) and to participate in Net Income, Net Loss,
Nonrecourse Deductions and Distributions shall be determined in accordance with the terms of this Agreement. “Units”
may be designated as Class A Units or Class B Units. Except as otherwise provided in this Agreement or as otherwise required
by applicable law, all Class A Units and Class B Units will be identical in all respects and will entitle the holders of such Units
to the same rights and privileges, subject to the same qualifications, limitations and restrictions, except that, in the case of
Class B Units, holders of Class B Units will not be entitled to vote on any matter except to the extent otherwise
required under the Act. Notwithstanding any other provision of this Agreement, Class A Units or Class B Units may not be subdivided
(by Unit split or distribution of Units), combined or reclassified unless the Units of the other class of Units are concurrently
therewith proportionately subdivided (by Unit split or distribution of Units), combined or reclassified in a manner that maintains
the same proportionate equity ownership (and same proportionate voting power, as applicable) among the holders of Class A Units
and Class B Units on the record date for such subdivision (by Unit split or distribution of Units), combination or reclassification.
2.39 “VV
Energy Group” has the meaning given to such term in Section 1.2.
2.40 “VV
Energy Group Royalty Agreement” has the meaning given to such term in Section 1.2.
3. UNITS;
CAPITAL
3.1 Units
Generally.
(a)
Authorized Units. The total number of Units that the Company currently is authorized to issue is 1,001,000 Units, of
which, as of the effective date of this Agreement, 1,000 Units are designated Class A Units (“Class A Units”),
and 1,000,000 Units are designated Class B Units (“Class B Units”). In each case pursuant to the consent of
a Majority in Interest of Members Holding Class A Units, the Manager is authorized, from time to time, to increase the total number
of Units that the Company is authorized to issue and to designate additional Classes of Units and series of Classes of Units. Subject
to the preceding sentence, the rights of all Units are subject to the rights of any and all future Classes or series of Classes
of Units, which from time to time may be authorized and issued in accordance with this Agreement and applicable law.
(b)
Issuance of Units. The authorized Class A Units have been issued and allocated as set forth in Exhibit A hereto.
Class B Units may be issued by the Manager from time to time and set forth in Exhibit A hereto.
3.2 Capital
Contributions.
(a)
Initial
Contributions.
(i)
Contribution by VVMCI. Upon the execution of this Agreement by VVMCI, VVMCI contributes to the Company cash in the amount
of One Thousand Dollars ($1,000) in exchange for the Company’s issuance of Class A Units to VVMCI in the amount set forth
in Exhibit A hereto.
(ii)
Contribution by Other Members. Upon the execution or adoption of this Agreement by each other Member, such Member shall
contribute to the Company such consideration or other property as the Manager may determine in exchange for the Company’s
issuance of Class B Units to such Member in the amount set forth in Exhibit A hereto.
(b) Subsequent
Contributions. No Member will be required to contribute additional capital to the Company. No Member will be permitted to contribute
additional capital or loan money to the Company without the approval of the Manager and on such terms as the Manager shall determine.
3.3 Interest.
No Member will receive interest on its contribution to the capital of the Company.
3.4 Withdrawal
and Return of Capital. Except as may be provided herein, no Member may withdraw any portion of the capital of the Company,
and no Member will be entitled to the return of its contribution to the capital of the Company except upon dissolution of the Company
in accordance with Section 13.3.
3.5 Capital
Accounts.
(a)
Member Capital Accounts. An individual Capital Account shall be maintained for each Member.
(b)
Capital Account of Assignee. Upon any sale or transfer of Units, the Capital Account of the transferor with respect
to the Units transferred shall become the Capital Account of the Assignee or Substituted Member, as applicable, with respect to
such Units, as such Capital Account existed at the effective date of the transfer of such Units.
(c)
Deficit Capital Account. Except as otherwise required by the Act, no Member will have any liability to the Company,
to any other Member or to the creditors of the Company on account of any deficit Capital Account balance.
4. FINANCIAL
4.1 Accounting
Method. The Company books shall be kept in accordance with the method of accounting as determined by the Manager.
4.2 Fiscal
Year. The fiscal year of the Company shall end on December 31, unless the Manager determines that some other fiscal year would
be more appropriate and obtains the consent, if required, of the Internal Revenue Service to use that other fiscal year.
4.3 Expenses
of the Company. The Company shall pay to or reimburse the Members and the Manager for any and all expenses incurred by a Member
or the Manager, as the case may be, on behalf of the Company, including the organizational expenses of the Company (including legal
and filing fees), the operational expenses of the Company and all expenses incurred in connection with investigating, purchasing,
operating and disposing of any Company property; provided, however, that a Member or the Manager shall not incur expenses
on behalf of the Company or be reimbursed for expenses that are not related to the business of the Company and, in the case of
a Member, shall only be reimbursed for expenses approved by the Manager in accordance with Section 5.
4.4 Net
Income, Net Loss, Nonrecourse Deductions and Distributions.
(a)
Distributions.
(i) General.
Other than Tax Distributions (as defined below in this Section 4.4(a)), Distributable Cash shall be distributed at such
times as determined by the Manager and, when distributed, shall be distributed to the Members in accordance with the following
order of priority:
(A) Distributable
Cash from Operations. Distributable Cash from Operations shall be distributed to the Members in accordance with their Percentage
Interests.
(B) Distributable
Cash from Capital Events. Distributable Cash from Capital Events shall be distributed to the Members in proportion to their
relative Capital Account balances after giving effect to Sections 4.4(b), 4.4(c), 4.4(e), 4.5 and 4.6.
(ii)
Tax Distributions. Notwithstanding anything to the contrary in Section 4.4(a)(i), the Manager shall distribute
Distributable Cash to each Member in an amount sufficient to pay the federal and state income tax on the taxable income allocated
to such Member pursuant to this Agreement in order to provide cash to the Members to pay taxes on the taxable income so allocated
and not yet distributed (“Tax Distributions”). Tax Distributions may be made at least annually so as to enable
the Members to satisfy their annual federal and state tax payment obligations; provided, however, that Tax Distributions
shall be made only to the extent that cumulative Distributions under Section 4.4(a)(i) are less than such Member’s
Tax Liability (as defined below). Any amount distributed to a Member pursuant to this Section 4.4(a)(ii) shall be treated
as an advance against other Distributions to which such Member is entitled and shall be credited against and subtracted from the
other Distributions to which such Member is entitled, which subtraction shall be from the next Distribution to which such Member
is entitled and, if any creditable amount remains thereafter, from the next immediate Distribution until fully credited. Any amount
credited to a Distribution pursuant to the foregoing sentence shall be deemed distributed for purposes of the Distribution against
which it is credited. The amount of any such Member’s “Tax Liability” shall be calculated (A) taking into
account the character of the cumulative Company net taxable income allocated to such Member, (B) taking into account the deductibility
(to the extent allowed) of state and local income taxes for United States federal income tax purposes and (C) deducting from such
income or gain the amount of net cumulative tax loss previously allocated to such Member in prior fiscal years and not used in
prior fiscal years to reduce taxable income. The calculation shall be made on the assumptions that (1) taxable income or tax loss
from the Company is the only taxable income or tax loss of the Member (and the direct or indirect equity holders of such Member),
and (2) except as provided in clause (A) of this definition, the Member is subject to tax at a rate equivalent to the maximum marginal
combined federal and state income tax rate for an individual residing in the state of such Member’s primary residence.
(iii)
Withholding. The Company may be required under applicable state or federal law to withhold on amounts distributed or
allocated to a Member. In that event, the Manager may, but is not required to, either (A) make equivalent distributions to the
non-affected Members or (B) require that the affected Members immediately contribute the amount of withholding to the Company.
Any amount withheld with respect to a Member pursuant to this Section 4.4(a)(iii) (and that is not immediately contributed
to the Company by such Member) shall be treated as an advance against other Distributions to which such Member is entitled and
shall be credited against and subtracted from the other Distributions to which such Member is entitled, which subtraction shall
be from the next Distribution to which such Member is entitled and, if any creditable amount remains thereafter, from the next
immediate distribution until fully credited. Any amount credited to a Distribution pursuant to the foregoing sentence shall be
deemed distributed for purposes of the Distribution against which it is credited.
(iv)
Distributions in Kind. No right is given to any Member to demand or receive property or cash other than as provided
in this Agreement. The Manager may determine to make a Distribution in kind of Company property to the Members, and such property
shall be distributed such that the fair market value thereof, as determined by the Manager, is distributed in accordance with Section
4.4(a)(i).
(b)
Allocations of Net Income, Net Loss and Nonrecourse Deductions Attributable to Operations. Subject to Sections 4.4(e),
4.5 and 4.6, Net Income, Net Loss and Nonrecourse Deductions Attributable to Operations shall be allocated among
the Members in accordance with their Percentage Interests.
(c)
Other Net Income, Net Loss and Nonrecourse Deductions. Subject to Sections 4.4(e), 4.5 and 4.6,
Net Income, Net Loss and Nonrecourse Deductions that are not Net Income, Net Loss and Nonrecourse Deductions Attributable to Operations,
as determined by the Manager in its discretion, shall be allocated among the Members as follows:
(i)
Net Income. Net Income that is not attributable to operations shall be allocated among the Members in such a manner
that the sum of (A) the Capital Account of each Member, (B) each Member’s share of Company Minimum Gain (as determined according
to Treasury Regulation Section 1.704-2(g)) and (C) each Member’s partner nonrecourse debt minimum gain (as defined in Treasury
Regulation Section 1.704-2(i)(3)) shall be in proportion to their respective Percentage Interests.
(ii)
Net Loss and Nonrecourse Deductions. Subject to Section 4.6, Net Loss and Nonrecourse Deductions that are not attributable
to operations shall be allocated among the Members in proportion to their relative Capital Account balances.
(d)
Tax Allocations. Except for the allocations contained in Section 4.4(e)(i), all income, gains, losses, deductions
and credits of the Company shall be allocated for federal, state and local income tax purposes in accordance with the allocations
of Net Income and Net Loss.
(e)
Special Allocations. The following special allocations shall be made:
(i)
Code Section 704 Allocations. In accordance with Code Section 704(c) and the Treasury Regulations thereunder, income,
gain, loss and deductions with respect to any property contributed to the capital of the Company shall, solely for tax purposes,
be allocated among the Members so as to take account of the variation between the adjusted basis of such property to the Company
for federal income tax purposes and its initial Gross Asset Value.
In the event that the
Gross Asset Value of any Company asset is adjusted due to a revaluation of Company assets under Treasury Regulations Section 1.704-1(b)(2)(iv)(f),
subsequent allocations of income, gain, loss and deductions 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 Gross Asset Value in the same manner as under Code Section
704(c) and the Treasury Regulations thereunder.
Notwithstanding anything
to the contrary herein, the Manager may allocate income, gains, losses, deductions and credits of the Company pursuant to this
Section 4(e)(i) to one or more Members in the event of a redemption of all or any portion of a Member’s interest,
in such manner as the Manager deems necessary to equitably account for such items.
All elections or other
decisions relating to such allocations shall be made by the Manager in any manner that reasonably reflects the purpose and intention
of this Agreement. Allocations pursuant to this Section 4.4(e)(i) 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 Loss, other items or distributions pursuant to any provision of this Agreement.
(ii)
Recapture. In the event that the Company has taxable income that is characterized as ordinary income under the recapture
provisions of the Code, each Member’s distributive share of taxable gain or loss from the sale of Company assets (to the
extent possible) shall include a proportionate share of this recapture income equal to such Member’s prior share of prior
cumulative depreciation deductions with respect to the assets that gave rise to the recapture income.
(iii)
Minimum Gain Chargeback. Except as otherwise provided in Section 1.704-2(f) of the Treasury Regulations, in the event
that there is a net decrease in the Company Minimum Gain during any taxable year, each Member shall be allocated items of income
and gain for such year (and, if necessary, subsequent years) in an amount equal to such Member’s share of the net decrease
in such Company Minimum Gain during such year in accordance with Section 1.704-2(g) of the Treasury Regulations. This Section
4.4(e)(iii) is intended to comply with the minimum gain chargeback requirement of Section 1.704-2(f) of the Treasury Regulations
and shall be interpreted consistent therewith.
(iv)
Member Minimum Gain Chargeback. Except as otherwise provided in Section 1.704-2(i)(4) of the Treasury Regulations,
in the event that there is a net decrease in the minimum gain attributable to a Member Nonrecourse Debt during any taxable year,
each Member with a share of such minimum gain shall be allocated income and gain for such year (and, if necessary, subsequent
years) in accordance with Section 1.704-2(i) of the Treasury Regulations. This Section 4.4(e)(iv) is intended to comply
with the chargeback requirement of Section 1.704-2(i)(4) of the Treasury Regulations and shall be interpreted consistent therewith.
(v)
Qualified Income Offset. Any Member who unexpectedly receives an adjustment, allocation or distribution described in
subparagraphs (4), (5) or (6) of Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations, which adjustment, allocation or distribution
creates or increases a deficit balance in such Member’s Capital Account, shall be allocated items of “book” income
and gain in an amount and manner sufficient to eliminate or to reduce the deficit balance in such Member’s Capital Account
so created or increased as quickly as possible in accordance with Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations and
its requirements for a “qualified income offset.” The Members intend that the provision set forth in this Section
4.4(e)(v) will constitute a “qualified income offset” as described in Section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations and shall be interpreted consistent therewith.
(vi)
Member Nonrecourse Deductions. After the allocations of Net Loss and Nonrecourse Deductions, Member Nonrecourse Deductions
shall be allocated among the Members as required in Section 1.704-2(i)(1) of the Treasury Regulations, in accordance with the manner
in which the Member or Members bear the Economic Risk of Loss for the Member Nonrecourse Debt corresponding to the Member Nonrecourse
Deductions, and, if more than one Member bears such Economic Risk of Loss for a Member Nonrecourse Debt, the corresponding Member
Nonrecourse Deductions must be allocated among such Members in accordance with the ratios in which the Members share the Economic
Risk of Loss for the Member Nonrecourse Debt.
(vii)
Code Section 754 Adjustment. To the extent that an adjustment to the adjusted tax basis of any Company asset pursuant
to Code Section 734(b) or Code Section 743(b) is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) or
Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as a result of a
distribution to a Member in complete liquidation of such Member’s interest, the amount of such adjustment to the Capital
Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases
such basis), and such gain or loss shall be specifically allocated to the Members in accordance with their interests in the Company
in the event that Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies or to the Members to whom such distribution was
made in the event that Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
(viii)
Allocations Relating to Taxable Issuance of Company Interests. Any income, gain, loss or deduction realized as a direct
or indirect result of the issuance of an interest in the Company to a Member (the “issuance items”) shall be allocated
among the Members so that, to the extent possible, the net amount of such issuance items, together with all other allocations under
this Agreement to each Member, shall be equal to the net amount that would have been allocated to each such Member of the issuance
items had not be realized.
(f)
Varying Interests. Where any Member’s interest, or portion thereof, is acquired or transferred during a taxable
year or for any other purpose requiring the determination of Net Income, Net Loss or other items allocable to any period, the Manager
may choose to implement the provisions of Section 706(d) of the Code in allocating among the varying interests.
(g)
Excess Nonrecourse Liabilities. Solely for purposes of determining a Member’s proportionate share of the “excess
nonrecourse liabilities” of the Company within the meaning of Treasury Regulations Section 1.752-3(a)(3), the Members’
interests in Company profits are in proportion to their Percentage Interests.
(h)
Consent of Member. The Members are aware of the income tax consequences of the methods, hereinabove set forth, by which
Net Income, Net Loss and Distributions are allocated and distributed and hereby agree to be bound by them in reporting them for
income tax purposes. The Members hereby expressly consent to such provisions as an express condition of becoming a Member.
4.5 Curative
Allocations. The allocations set forth in Sections 4.4(e)(iii), (iv), (v), (vi) and (vii) and
the allocations of Nonrecourse Deductions in Section 4.4(b) (the “Regulatory Allocations”) are intendedto
comply with certain requirements of the Treasury Regulations. It is the intent of the Members that, to the extent possible, all
Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of
Company income, gain, loss or deduction pursuant to this Section 4.5. Therefore, notwithstanding any other provision of
this Section 4 (other than the Regulatory Allocations), the Manager shall make such offsetting special allocations of Company
income, gain, loss or deduction in whatever manner they determine appropriate so that, after such offsetting allocations are made,
each Member’s Capital Account balance is, to the extent possible, equal to the Capital Account balance that such Member
would have had if the Regulatory Allocations were not part of this Agreement and all Company items were allocated pursuant to
Section 4.4(b). In exercising its discretion under this Section 4.5, the Manager shall take into account future
Regulatory Allocations under Sections 4.4(e)(iii) and (iv) that, although not yet made, are likely to offset Regulatory
Allocations made under Section 4.4(b) and Section 4.4(e)(vi).
4.6 Loss
Limitation. Net Loss and Nonrecourse Deductions allocated
pursuant to Section 4.4(b) shall not exceed the maximum amount of Net Loss and Nonrecourse Deductions that can be allocated
without causing any Member to have an Adjusted Capital Account Deficit at the end of any fiscal year. In the event that some but
not all of the Members would have Adjusted Capital Account Deficits as a consequence of allocations of Net Loss and Nonrecourse
Deductions pursuant to Section 4.4(b), the limitations set forth in this Section 4.6 shall be applied on a Member
by Member basis, and Net Loss and Nonrecourse Deductions not allocable to any Member as a result of such limitation shall be allocated
to the other Members in accordance with the positive balances in such Member’s Capital Accounts so as to allocate the maximum
permissible Net Loss and Nonrecourse Deductions to each Member under Treasury Regulations Section 1.704-1(b)(2)(ii)(d). If Net
Loss or Nonrecourse Deductions are allocated to a Member pursuant to this Section 4.6, then thereafter income of the Company
shall first be allocated among the Members to offset in reverse order the allocations of Loss and Nonrecourse previously made pursuant
to this Section 4.6.
4.7 Tax
Elections. The Manager shall, without further consent of the Members being required (except as specifically required herein),
have the authority to make any and all elections for federal, state and local tax purposes, including any election, if permitted
by applicable law, to adjust the basis of Company property pursuant to Code Sections 754, 734(b) and 743(b) or comparable provisions
of state or local law in connection with transfers of interests in the Company and Company distributions.
5. MANAGEMENT
5.1 Management
of the Company. Subject to the provisions of this Agreement relating to actions required to be approved by the Members, the
Company’s business, property and affairs shall be managed and all powers of the Company shall be exercised by or under the
direction of a single Manager (the “Manager”). The Manager shall be appointed or elected in accordance with
Section 5.3. Except as otherwise set forth in this Agreement, the Manager shall have all authority, rights and powers conferred
by law and those necessary or appropriate to carry out the purposes of the Company as set forth in Section 1.2. Unless otherwise
expressly provided in this Agreement, action by the Manager shall not require the vote or written consent of any Member, including
any Member holding Class A Units.
5.2 Agency
Authority of Manager. The Manager shall have all authority, rights and powers as a Manager, to the maximum extent authorized
and permitted by the Act, to conduct or engage in all matters of ordinary and customary business activity on behalf of the Company.
5.3 Appointment
or Election of Manager.
(a)
Number. The authorized number of Managers shall be one (1). The number of Managers shall not be changed or be subject
to being changed at any time for any reason.
(b)
Tenure. Unless such Person resigns or is removed, the Manager shall hold office until a successor has been appointed
or elected and qualified.
(c)
Appointment or Election; Qualifications of Manager; Vote Required. The Manager shall be appointed or elected in accordance
with this Section 5.3(c). The Manager shall be appointed or elected exclusively pursuant to the consent of a Majority in
Interest of the Members Holding Class A Units. The Manager need not be a Member, an individual, a resident of the State of Delaware
or a citizen of the United States. The initial Manager shall be VVMCI.
(d)
Resignation. The Manager may resign at any time by giving written notice of resignation to the Members. The resignation
of a Manager who also is a Member, or associated with a Member, shall not affect such resigned Manager’s rights as a Member
and shall not constitute a withdrawal of that Member.
(e)
Removal. The Manager may be removed as such with or without cause only pursuant to the consent of a Majority in Interest
of the Members Holding Class A Units. The removal of any Manager who also is a Member, or associated with a Member, shall not affect
such removed Manager’s rights as a Member and shall not constitute a withdrawal of that Member.
(f)
Vacancies. Any vacancy in the office of the Manager that occurs for any reason shall be filled by appointment pursuant
to the consent of a Majority in Interest of the Members Holding Class A Units.
5.4 Responsibilities
of the Manager. The Manager shall devote such time to administering the business of the Company as the Manager reasonably deems
necessary to perform the Manager’s duties as such as set forth in this Agreement. Nothing in this Agreement shall preclude
the employment by the Company of any agent or third party to provide services in respect of the business of the Company; provided,
however, that the Manager shall continue to have ultimate responsibility for the Company’s business, property and affairs
under this Agreement. The Manager shall cause to be filed such certificates or filings as may be required for the continuation
and operation of the Company as a limited liability company in any state in which the Company elects to do business.
5.5 Meetings
of the Manager; Action by Written Consent. Nothing in this Agreement is intended to require that meetings of the Manager be
held, it being the intent of the Members that meetings of the Manager are not required. Any action required or permitted to be
taken by the Manager may be taken by the Manager without a meeting, if the Manager approves such action in writing before such
action. Such action by written consent shall have the same force and effect as a vote of the Manager at a meeting of the Manager.
5.6 Compensation
of the Manager. The Manager shall not be entitled to compensation for services in its capacity as the Manager.
5.7 Tax
Matters Partner. If required by Section 6231(a)(7) of the Code, the Manager shall appoint a “Tax Matters Partner”
in accordance with such Section, and in connection therewith and in addition to all the powers given thereunder, the Tax Matters
Partner shall have all other powers needed to fully perform hereunder, including the power to retain all attorneys and accountants
of such Tax Matters Partner’s choice. The initial Tax Matters Partner shall be VVMCI (i.e., the Manager). The designation
made in this Section is hereby expressly consented to by each Member as an express condition to becoming a Member.
5.8 Appointment
and Duties of Officers. In connection with the management of the operations and affairs of the Company, the Manager may appoint
such officers of the Company as the Manager deems necessary, including a President, a Chief Executive Officer, a Chief Operating
Officer, a Chief Financial Officer and a Secretary. Each officer shall exercise such powers and perform such duties as are determined
by the Manager, and, if not specifically set forth by the Manager, each officer shall have those duties and have such authority
as is typically provided to an officer of a corporation holding the same position. The Manager shall have the discretion to set
the terms of employment of each officer, including the term of office and the compensation paid to each officer. An officer need
not be a Member of the Company.
6. LIABILITY, RIGHTS, AUTHORITY AND VOTING
OF MEMBERS
6.1 Liability
of Members. Except as specifically provided in this Agreement or the Act, the Members shall not be liable for the debts, liabilities,
contracts or other obligations of the Company except with respect to their Capital Contributions as indicated herein. Only the
Company or the Manager (and no third party creditor, either in its own right or as a successor-in-interest of the Company, and
including a trustee, receiver or other representative of the Company or a Member) shall be entitled to enforce the requirements
to make Capital Contributions. The Members intend and agree that the obligation of the Members to make Capital Contributions constitutes
an agreement to make financial accommodations to and for the benefit of the other Members and the Company.
6.2 Members
are not Agents. Pursuant to Section 5, the management of the Company is vested in the Manager. No Member, acting solely
in the capacity of a Member, is an agent of the Company, nor can any Member in such capacity bind or execute any instrument on
behalf of the Company, except as expressly provided in Section 5.
6.3 Voting.
The voting rights of the Members shall be based on the following:
(a)
To the extent that holders of Units in the Company are provided with the right to vote hereunder or as required under the
Act, such Units shall have the right to vote on a one (1) vote per Unit basis. Assignees who have not become Substituted Members
shall not be entitled to vote, and all voting rights associated with the Units transferred to such Assignee shall remain with the
transferring Member.
(b)
Notwithstanding Section 6.3(a), any action in which the Members are entitled to vote may be taken without a meeting
and without prior notice if a consent in writing, setting forth the action so taken, is signed by those Members representing the
requisite vote that would be necessary to authorize or take such action at a meeting at which all Members entitled to vote thereon
were present and voted. Each Member entitled to vote pursuant to this Agreement shall be notified of any action so taken within
thirty (30) days of its approval if such action is material to the operation of the Company’s business, as determined by
the Manager.
6.4 Meetings
of Members. The Manager shall have the discretion to call meetings of the Members; provided, however, that nothing in
this Agreement will be interpreted to require that meetings of the Members be held, it being the intent of the Members that meetings
of the Members are not required.
6.5 Limitation
of Rights of Members. No Member will have the right or power to: (a) withdraw or reduce its Capital Contribution, except as
a result of the dissolution of the Company or as otherwise provided in this Agreement or by law; (b) bring an action for partition
against the Company; or (c) demand or receive property in any distribution other than cash. Except as otherwise provided in this
Agreement, no Member will have priority over any other Member either as to the return of Capital Contributions or as to allocations
of the Net Income, Net Loss or Distributions of the Company.
6.6 Return
of Distributions. In accordance with the Act, a Member may, under certain circumstances, be required to return to the Company,
for the benefit of the Company’s creditors, amounts previously distributed to such Member.
6.7 Resignation
or Withdrawal of a Member. A Member shall not resign or withdraw as a Member without the consent of the other Member or Members.
7. AMENDMENTS
This Agreement and the
Certificate of Formation may not be amended without the approval of the Manager and the unanimous written consent of the Members
holding Class A Units. By executing or adopting this Agreement, each Member hereby consents to the admission of additional Members
and Substituted Members upon the consent of the Manager in compliance with this Agreement. Amendments to this Agreement for the
admission of any Member or Substituted Member shall not, if in accordance with the terms of this Agreement, require the consent
of any Member, including any Member holding Class A Units. The Manager shall have the right at any time and from time to time
to modify and update Exhibit A hereto to reflect changes in the information set forth therein caused by events or transactions
effected in accordance with this Agreement, and no such modification or update of Exhibit A hereto will require the consent
or approval of any Member, including any Member holding Class A Units.
8. TRANSFERS
OF UNITS
8.1 Assignment
of Units.
(a)
Transferability.
Except as otherwise expressly provided in this Agreement, each Member agrees that such Member shall not transfer, assign or
in any way alienate any of such Member’s Units, or any right or interest therein, whether voluntarily or by operation of
law, or whether during lifetime or upon death by will or otherwise, without the prior written consent of the Manager, the granting
or denial of which shall be within the sole and absolute discretion of the Manager. Each Member agrees that such Member shall not
hypothecate or otherwise create or suffer to exist any lien, claim or encumbrance on any of such Member’s Units at any time
subject hereto, other than the encumbrance created by this Agreement. Any purported transfer of Units in violation of any provision
of this Agreement shall be void and ineffectual, shall not operate to transfer any interest or title to the purported transferee
and shall give the Company and the non-transferring Members an option to purchase such Units in the manner and on the terms and
conditions provided for herein.
Any transferee of Units
in compliance with this Section 8.1 and Section 8.2 shall merely be an Assignee possessing only an economic interest
and shall not become a Substituted Member except upon compliance with Section 8.3. A Member assigning all or any portion
of such Member’s Units to an Assignee shall not assign to, or obligate itself to act on behalf of or upon the direction of
that Assignee with regard to, such Member’s right:
(i)
to require any information from the Company or obtain accountings of the Company’s activities;
(ii)
to inspect the Company’s books and records; or
(iii)
to vote on any matter on which a Member is entitled to vote pursuant to either this Agreement or any applicable law.
(b)
Permitted
Transfers. Notwithstanding this Section 8.1, a Member that is an individual may transfer, for estate planning purposes,
all or any portion of such Member’s Units to a trust for the sole benefit of such Member and/or such Member’s spouse
or issue, without such transfer being subject to the Manager consent requirement set forth in Section 8.1(a) or the Right
of First Refusal set forth in Section 8.2, provided that a transferring Member shall continue to have sole voting control
of such transferred Units, that such transferred Units shall remain subject to all of the terms and conditions contained herein
and that no further transfer of such Units shall be permitted unless such transfer complies with all of the terms and conditions
of this Agreement. In the event of a transfer to a trust, all notices required by this Agreement shall be given to both the transferring
Member and to the trustee or the successor trustee of such trust.
(c)
Distributions,
Allocations and Reports. An Assignee shall be entitled to receive Distributions from the Company attributable to the Units
acquired by reason of such assignment from and after the effective date of the assignment of such Units to such Assignee; provided,
however, that, anything herein to the contrary notwithstanding, the Company shall be entitled to treat the assignor of such
Units as the absolute owner thereof in all respects and shall incur no liability for allocations of Net Income or Net Loss, Distributions
or for the transmittal of reports and notices required to be given to Members hereunder that are made in good faith to such assignor
until such time as the written instrument of assignment has been received by the Company and recorded on its books, and the effective
date of assignment has passed.
(d)
Consent
to Transfer Restrictions. Each Member acknowledges the reasonableness of the restrictions on transfer imposed by this Agreement
in view of the purposes of the Company, its status as a limited liability company and the relationship of its Members. The transfer
restrictions contained herein are expressly consented to by each Member as an express condition of becoming a Member.
8.2 Right
of First Refusal.
(a)
The Company’s Right of First Refusal. Except as otherwise provided herein, if a Member decides to sell or transfer
all or any portion of such Member’s Units (“Offered Units”) pursuant to a bona fide offer, then
such Member shall give written notice, setting forth in full the terms of such bona fide offer and the identity of the offeror(s),
to the Company and the non-transferring Members (the “Notice”). As set forth in Section 8.1(a), the Offered
Units may not be transferred unless the Manager consents to the proposed transfer. In the event that the Manager consents to the
proposed transfer, for thirty (30) days following the receipt of the Notice by the Company and the non-transferring Members, the
Company shall have the right to purchase the Offered Units for the consideration and according to the terms of payment stated in
the Notice. The Company’s right accorded hereunder shall be exercised only upon the consent of the Manager. Such right shall
be exercised by delivering to the transferring Member a written election to purchase the Offered Units and may not be exercised
as to less than all of the Offered Units proposed to be transferred, unless the non-transferring Members exercise such non-transferring
Members’ right (as provided below) to purchase any of the Offered Units not purchased by the Company so that, between the
Company and such non-transferring Members, all of the Offered Units are purchased.
(b)
Members’ Right of First Refusal. If such right is not exercised by the Company as to all of the Offered Units
proposed to be transferred within the thirty (30) day period prescribed above, then notice of the contemplated transfer shall be
given forthwith by registered or certified mail to the non-transferring Members, who shall have the right to purchase Offered Units
not to be purchased by the Company (the “Remaining Offered Units”) for the consideration and according to the
terms of payment on which the Company was entitled to purchase such Offered Units under the foregoing provisions. Within fifteen
(15) days after the mailing of such notice, if the non-transferring Members desire to acquire all or any portion of the Remaining
Offered Units, then such Members shall deliver to the Secretary (or to the Company in the event that there is no Secretary) a written
election to purchase such Remaining Offered Units or a specified number thereof. Subject to the foregoing, each non-transferring
Member shall have the right to elect to purchase all or any portion of such non-transferring Member’s pro rata share
of the Remaining Offered Units (with any reallotment as provided below in this Agreement). Each such non-transferring Member’s
pro rata share of the Remaining Offered Units shall be a fraction of the Remaining Offered Units, of which the number of
Units owned by such non-transferring Member on the date of the Notice shall be the numerator, and the total number of Units owned
by all of the non-transferring Members on the date of the Notice shall be the denominator. Each non-transferring Member shall have
a right of reallotment such that, if any other non-transferring Member fails to exercise the right to purchase such non-transferring
Member’s full pro rata share of the Remaining Offered Units, then the participating non-transferring Members may exercise
an additional right to purchase, on a pro rata basis, the Remaining Offered Units not previously purchased.
(c)
Consideration Other Than Cash. If the Company and/or the non-transferring Members elect to purchase all of the Offered
Units mentioned in the Notice, then the Company and the non-transferring Members shall have the right to purchase the Offered Units
for cash consideration, whether or not part or all of the consideration specified in such Notice is other than cash. If part or
all of the consideration to be paid for the Offered Units as stated in the Notice is other than cash, then the price stated in
such Notice shall be deemed to be the sum of the cash consideration, if any, specified in such Notice plus the fair market value
of the non-cash consideration. If the parties are unable to agree upon the fair market value of the non-cash consideration, then
the fair market value shall be determined in the manner set forth in Section 9.4(b), which determination shall be conclusive
and binding on all of the parties.
(d)
Closing. If the Company and/or the non-transferring Members have contracted to purchase all of the Offered Units, then
the closing of the purchase and sale shall occur at the offices of the Company at 10:00 a.m. on the thirtieth (30th) day following
the giving by the Company to the transferring Member of notice of either (i) its election to purchase all of the Offered Units
pursuant to Section 8.2(a) or (ii) the final allocation of such Units pursuant to Section 8.2(b), as the case may
be, or at such other time and place as may be mutually agreed to in writing by the Company and/or the purchasing Members and the
transferring Member (the “Closing”). At the Closing, the transferring Member shall deliver to the Company and/or
the purchasing Members, as the case may be, a certificate or certificates (if applicable) representing the transferring Member’s
Units duly endorsed for transfer, and the Company and/or the purchasing Members, as the case may be, shall deliver to the transferring
Member cash (or a certified or cashier’s check) for the amount of the cash consideration and any other consideration to
be paid by the Company and/or the purchasing Members for the Units that they have contracted to purchase. The transferring Member
and the Company and/or the purchasing Members, as the case may be, shall each execute and deliver such other documents as may
reasonably be requested by any of the parties mentioned above in connection with the transactions contemplated in this Agreement.
(e)
Failure
to Exercise Right of First Refusal. In the event that the Company and/or the purchasing Members fail to tender the required
consideration at the Closing, or the Company and such Members do not elect to purchase all of the Offered Units set forth in the
Notice within the time periods specified above, then all of the Offered Units may be transferred by the transferring Member at
any time within ninety (90) days from the date of receipt of the Notice by the Company to the person and for the consideration
and on the terms and conditions specified in the Notice, provided that such transferee executes a counterpart of this Agreement
concurrently with the purchase of such Units. Any transfer of the Offered Units after the end of the ninety (90) day period or
any change in the terms of the sale from the terms set forth in the original Notice shall require a new notice of intent to transfer
delivered to the Company and shall give rise anew to the rights provided in the preceding paragraphs.
8.3 Substituted
Members.
(a)
Conditions
of Substitution. An Assignee may have the right to become a Substituted Member in place of such Assignee’s assignor only
if all of the following conditions are first satisfied:
(i)
Written Assignment. A duly executed and acknowledged written instrument of assignment shall have been filed with the
Company, which instrument shall specify the number of Units in the Company being assigned, and which instrument sets forth the
intention of the assignor that the Assignee succeed to the assignor’s Units as a Substituted Member in such assignor’s
place;
(ii)
Instruments of Substitution. The Assignee shall have executed and acknowledged such other instruments as may be necessary
or desirable to effect such substitution, including the written acceptance and adoption by the Assignee of the provisions of this
Agreement; and
(iii)
Consent of Manager. The written consent to such substitution shall have been obtained from the Manager, the granting
or denial of which shall be within the sole and absolute discretion of the Manager.
9. OPTION
TO PURCHASE UNITS UPON SPECIFIED EVENTS
9.1 Option
to Purchase. Upon the occurrence of any of the following events (each referred to hereinafter as an “Option Event”)
affecting a Member (the “Affected Member”), the Company and then the other Members shall have the option to
purchase the number of Units of the Affected Member as described in Section 9.2, for the price and on the terms set forth
in Sections 9.3 and 9.4; provided, however, that no Option Event shall be deemed to occur (and this Section
9 shall not apply) if the Manager consents to any assignment or transfer (or potential assignment or transfer) resulting from
an event described below (which consent may not be unreasonably withheld) as if such assignment or transfer were made by the Affected
Member pursuant to Section 8.1:
(a)
The maintenance of any proceeding initiated by or against a Member under any bankruptcy or debtors’ relief law of
the United States or of any other jurisdiction, which proceeding is not terminated within ninety (90) days after its commencement;
(b)
A general assignment for the benefit
of the creditors of a Member;
(c)
A levy upon the Units of a Member pursuant to a writ of execution or subject to the authority of any governmental entity,
which levy is not removed within thirty (30) days, and only to the extent of the Units subject to such levy;
(d)
The entry of a Final Judgment of Dissolution of Marriage of a Member if in connection with such dissolution the spouse of
such Member is awarded Units or any interest therein as a result of a property settlement agreement or otherwise, but in such event
such option to purchase shall extend only to such spouse’s Units or interest therein. In such event, the Units of such spouse
or such spouse’s interest therein shall be deemed to be the “Units of the Affected Member” for the purposes
of this Agreement;
(e)
With respect to Units transferred by a Member pursuant to Section 8.1(b), the loss of sole voting control over such
Units by the transferring Member or such Units becoming no longer subject to such trust, unless such Units are returned to the
original transferor thereof. In such event, the Units so transferred shall be deemed to be the “Units of the Affected
Member” for the purposes of this Agreement;
(f)
The death of a Member (the “Deceased Member”) or upon the death of any spouse of a Member who has acquired
any interest in such Member’s Units subject to such spouse’s disposition by will or otherwise at such spouse’s
death if such spouse’s death occurs before such Member’s death (the “Deceased Spouse”); provided,
however, that the prior death of a spouse of a Member shall not give rise to an option to purchase such Deceased Spouse’s
interest in a Member’s Units by the Company or the other Members if, as a result of such spouse’s death, such spouse’s
Units or interest therein pass or will pass by will or otherwise to the Member outright or to a trust pursuant to which the Member
has sole voting control of such Units; provided further that, at such time that the Member ceases to have sole voting control
over Units or over any interest therein transferred to trust or the Units or interest therein are distributed free of trust to
other than such Member, the cessation of such voting control or distribution free of trust shall give rise at such time to an option
to purchase such Units or interest therein as though the Deceased Spouse had then died without leaving the Deceased Spouse’s
Units to the Member or to a trust over which such Member has sole voting control of such Units or interest therein. In the event
of the prior death of a spouse of a Member, such spouse and the interest of such spouse in Units of the Member shall be deemed
to be the “Affected Member” and the “Units of the Affected Member,” respectively, for the
purposes of this Agreement. Notwithstanding anything to the contrary hereinabove, if the Deceased Spouse of a Member leaves such
Deceased Spouse’s interest in such Member’s Units in a manner that would otherwise give rise to an option to purchase
such interest by the Company and/or the remaining Members, then such Member shall have the first option to purchase any such interest
of his or her Deceased Spouse for the price and on the terms specified in Sections 9.4 and 9.5.
9.2 Exercise
of Option. The Affected Member or the Affected Member’s legal representative shall give written notice to the Company
and the non-transferring Members immediately upon the occurrence of an Option Event and in no event more than ten (10) days after
the occurrence of such Option Event or the appointment of a legal representative for such Affected Member, whichever occurs last.
Upon receipt of written notice of the occurrence of an Option Event and for a period of thirty (30) days thereafter, the Company
shall have the first option to purchase all or any portion of the Units of the Affected Member subject to repurchase pursuant
to Section 9.1, provided that, in the event of the dissolution of the marriage of a Member, or on the occurrence
of an Option Event within the meaning of Section 9.1(e) or (f), the divorced, transferring or widowed Member, as
the case may be, shall have during the first fifteen (15) days of such thirty (30) day period a concurrent but priority right
to purchase the Units or interest therein that have been awarded to such Member’s spouse as a result of the dissolution
of such Member’s marriage or with respect to which such Member was the transferring Member under Section 8.1(b),
or which are not distributed to such Member outright or to a trust over which such Member has sole voting control. In the event
that the Company and, in any situation where a divorced, transferring or widowed Member has a concurrent but priority option to
purchase, such Member does not elect to purchase all of the Units within such thirty (30) day period, the Company shall forthwith
notify the non-transferring Members of the election not to purchase all or a portion of the Affected Member’s Units, and
such non-transferring Members shall then have the option for a period of fifteen (15) days from the receipt of such notice to
purchase the Units of the Affected Member not purchased by the Company and/or the divorced, transferring or widowed Member (the
“Remaining Units of the Affected Member”). Within fifteen (15) days after the receipt of such notice, if the
non-transferring Members desire to acquire all or any portion of the Remaining Units of the Affected Member (the “Purchasing
Members”), then the Purchasing Members shall deliver to the Secretary (or to the Company in the event that there is
no Secretary) a written election to purchase such Remaining Units of the Affected Member or a specified number thereof. Except
upon the occurrence of the death of a Deceased Member or Deceased Spouse, as hereinabove defined, the option set forth in this
Section 9 may not be exercised unless the Company and/or the Purchasing Members purchase all of the Units of the Affected
Member. Subject to the foregoing, each non-transferring Member shall have the right to elect to purchase all or any portion of
such non-transferring Member’s pro rata share of the Remaining Units of the Affected Member (with any reallotment
as provided below in this Agreement). Each such non-transferring Member’s pro rata share of the Remaining Units of
the Affected Member shall be a fraction of the Remaining Units of the Affected Member, of which the number of Units owned by such
non-transferring Member on the date of the Option Event shall be the numerator, and the total number of Units owned by all of
the non-transferring Members on the date of the Option Event shall be the denominator. Each non-transferring Member shall have
a right of reallotment such that, if any other non-transferring Member fails to exercise the right to purchase such non-transferring
Member’s full pro rata share of the Remaining Units of the Affected Member, then the participating non-transferring
Members may exercise an additional right to purchase, on a pro rata basis, the Remaining Units of the Affected Member not
previously purchased.
9.3 Notice of Exercise of Option. If the
Company and/or the non-transferring Members elect to purchase all of the Units of the Affected Member, then the Company shall
give notice of such election, setting forth the number of such Units to be purchased by each party, by giving written notice of
such election to the Affected Member and, if applicable, the Affected Member’s receiver or trustee in bankruptcy, the creditor
who secured a levy upon the Affected Member’s assets and the Affected Member’s legal representative, spouse or other
transferee, as the case may be. Such notice shall be given within thirty (30) days after the Company’s receipt of notice
of the Option Event giving rise to the option to purchase in the event that the Company elects to purchase all of the Affected
Member’s Units, or within fifteen (15) days after the non-transferring Members have received notice of the Company’s
election not to purchase all of such Units in the event that all or a portion of such Units are to be purchased by the non-transferring
Members.
9.4 Purchase Price for Units.
(a)
Purchase Price. The purchase price to be paid by the Company and/or the Purchasing Members upon the exercise of any
option to purchase Units under Section 9.3 (the “Purchase Price”) shall be the fair market value of the
Units.
(b)
Fair Market Value. The Affected Member or the legal representative of an Affected Member or Deceased Member or Deceased
Spouse, as one party, and the Company, as another party, shall attempt to agree upon the fair market value of the Units. If such
parties are unable to agree upon the fair market value of the Units within thirty (30) days following the notice of the exercise
of the option pursuant to Section 9.3, then the value per Unit of the Units shall be determined by an independent appraiser
experienced in appraising closely held businesses selected by the mutual agreement of such parties. If such parties are unable
to agree upon a mutually acceptable appraiser within forty-five (45) days following the notice of exercise of the option pursuant
to Section 9.3, then the fair market value shall be determined by the Company’s independent certified public accountant.
In performing such valuation, the appraiser or accountant, as the case may be, shall consider such methods of valuation as are
customary and appropriate in the discretion of such appraiser or accountant.
(c)
Binding Effect. The value determined pursuant to this Section 9.4 shall be binding on the parties to this Agreement,
their legal representatives and their successors in interest for purposes of purchases and sales made pursuant to Section 9.3.
9.5 Payment of Purchase Price.
(a)
Form
of Payment. The Company and/or the Purchasing Members shall execute and deliver a negotiable promissory note (the “Note(s)”)
representing the purchase price of that portion of the Units of the Affected Member or Deceased Member or Deceased Spouse to be
purchased by him, her or it no later than thirty (30) days following (i) the giving of notice pursuant to Section 9.3 containing
the election of the Company and/or the Purchasing Members to purchase the Units of the Affected Member; (ii) the appointment of
a legal representative for a Deceased Member or Deceased Spouse; or (iii) if applicable, receipt of the decision of the appraiser
or independent certified public accountant as to the value of the Units of the Affected Member or Deceased Member or Deceased
Spouse under Section 9.4, whichever is later.
(b)
Terms
of Note(s). The Note(s) shall be fully amortized over a period of not more than forty-eight (48) months and shall bear interest
from the date of delivery at a rate equal to nine percent (9%) per annum or the maximum lawful rate, whichever is less. Anything
herein to the contrary notwithstanding, in no event shall the interest rate exceed the maximum rate permitted by law. Principal
and interest on the Note(s) shall be payable in equal quarterly installments commencing three (3) months after the Option Event
date or ten (10) days after the date specified in Section 9.5(a) for delivery of the Note(s), whichever occurs later, and
ending no later than forty-eight (48) months after the Option Event date, provided that the Note(s) shall be subject to
prepayment, in whole or in part, without penalty, at any time after the calendar year of the sale of the Units of the Affected
Member or Deceased Member or Deceased Spouse. All prepaid sums shall be applied against the installments thereafter falling due
in inverse order of their maturity or against all the remaining installments equally, at the option of the payee. The Note(s) shall
provide that, in any case of default, at the election of the holder the entire sum of principal and interest shall immediately
be due and payable and that the maker shall pay reasonable attorneys’ fees to the holder in the event that suit is commenced
because of default. Any promissory note executed by the Company and/or the Purchasing Members pursuant to this Section 9.5 shall
be secured by a pledge of the Units so purchased. The pledgeholder shall be such person as the parties shall mutually agree upon,
and the pledge agreement shall contain such other terms and provisions as may be customary and reasonable. As long as no default
occurs in payment on the Note(s), the purchasers (other than the Company) shall be entitled to vote the Units (provided that the
Units are Class A Units); however, Distributable Cash shall be paid to the holder of the Note(s) as a prepayment of principal.
The Company and/or the Purchasing Members shall expressly waive demand, notice of default and notice of sale and shall consent
to public or private sale of the Units in the event of default, in mass or in lots at the option of the pledgeholder, and the holder
of the Note(s) shall have the right to purchase at the sale.
9.6 Agreement
to Transfer. Each Member agrees that, upon receipt of the Note(s) in connection with the purchase of such Member’s Units
pursuant to Sections 9.3 and 9.5, such Member or such Member’s legal representative shall execute and deliver
all documents that are required to transfer the Units to the Company and/or the Purchasing Members. If such Member or such Member’s
legal representative refuses to do so, then the Company nevertheless shall enter the transfer on its Member records and hold such
consideration available for the Member or such Member’s legal representative, and thereafter all voting rights of such Units
shall be exercised by the designated transferees of such Units under this Agreement.
10. ADMISSION OF NEW MEMBERS
New Members may be admitted from time to time by the
Manager in its discretion.
11. REFERENCE TO A MEMBER
Wherever the context
requires, reference in this Agreement to a Member shall include an Assignee who does not become a Substituted Member wherever such
reference relates solely to an economic interest in the Company.
12. BOOKS AND RECORDS
12.1 Records.
The Company shall keep at its principal office, or such other place as shall be designated by the Manager, the following documents:
(a)
A current list of the full name and last known business, residence or mailing address of each Member and Assignee set forth
in alphabetical order, together with the number of Units held by each Member or Assignee;
(b)
The full name and last known business, residence or mailing address of the Manager;
(c)
A copy of the Certificate of Formation and all amendments thereto, and executed copies of all powers of attorney (if any)
pursuant to which the Certificate of Formation or any amendment thereto was executed;
(d)
Copies of the Company’s federal, state and local income tax returns for the six (6) most recent years;
(e)
Copies of this Agreement and all amendments to this Agreement, together with all powers of attorney (if any) pursuant to
which this Agreement or any amendment to this Agreement was executed;
(f)
Copies of the financial statements of the Company (if any) for the six (6) most recent fiscal years; and
(g)
Books and records of the Company as they relate to the internal affairs of the Company for at least the current and past
four (4) years.
12.2 Inspection.
Upon the request of a Member in writing and with the stated purpose of the request reasonably related to such Member’s
interest as a Member of the Company, the Company shall promptly make available for inspection by the requesting Member the information
required to be maintained by Section 12.1 to the extent reasonably related to the purpose of that inspection.
12.3 Provision
of Reports. Within ninety (90) days of the end of the fiscal year, the Company shall supply all other information necessary
to enable each Member to prepare such Member’s federal and state income tax returns and such other information as such Member
may reasonably request for the purpose of enabling such Member to comply with all reporting requirements imposed by any statute,
rule, regulation or otherwise by any governmental agency or authority.
13. DISSOLUTION
AND TERMINATION OF THE COMPANY
13.1 Events
Causing Dissolution. Notwithstanding any provision of the Act, the Company shall be dissolved and its affairs shall be wound
up only upon the earliest to occur of the following events:
(a)
The approval of the Manager and the unanimous consent of the Members; or
(b)
Entry of a decree of judicial dissolution under the Act.
13.2 Certificate
of Cancellation. As soon as possible following the occurrence of any of the events specified in Section 13.1, the Manager
shall execute a certificate of cancellation in such form as shall be prescribed by the Delaware Secretary of State and file such
certificate as required by the Act.
13.3 Distribution
Upon Dissolution. Upon a dissolution event described in Section 13.1, the Manager shall take full account of the Company’s
assets and liabilities, shall liquidate the assets as promptly as is consistent with obtaining their fair value, or, if the assets
cannot be sold, they shall be valued and distributed in kind, and shall apply and distribute the proceeds or assets in the following
order:
(a)
To the payment of creditors of the Company;
(b)
To the creation of reserves that the Manager deems reasonably necessary for contingent or unforeseen liabilities or obligations
of the Company;
(c)
To the repayment of outstanding loans made by any Member to the Company;
and
(d)
To the Members with positive Capital Accounts in accordance with the ratio of their Capital Account balances (which Capital Account
balances are intended to reflect the priority to distributions in Section 4.4(a)(i)).
14. INDEMNIFICATION
14.1 General. The Company, its receiver or
its trustee shall indemnify, defend and save harmless the Manager, the Members and their successors (“Indemnitees”)
from any liability, loss or damage incurred by any Indemnitee by reason of any act performed or omitted to be performed by any
Indemnitee in connection with the business of the Company, including costs and attorneys’ fees and amounts expended in the
settlement of claims of liability, loss or damage; provided that, if the liability, loss or claim arises out of any action
or inaction of an Indemnitee: (a) such Indemnitee must have determined, in good faith, that such Indemnitee’s course of
conduct was in the best interests of the Company; and (b) the action or inaction did not constitute fraud, deceit, breach of fiduciary
duty, gross negligence, reckless or intentional misconduct, willful malfeasance or willful violation of a law by such Indemnitee;
and provided further that the indemnification shall be recoverable only from the assets of the Company and not any assets
of the Manager or the Members. The Company may, however, purchase and pay for insurance, including extended coverage liability
and casualty and worker’s compensation, as would be customary for any person engaging in a similar business, and name the
Indemnitees as additional or primary insured parties.
14.2 Advancement of Expenses. The Company
shall advance all expenses incurred by an Indemnitee in connection with the investigation, defense, settlement or appeal of any
civil or criminal action or proceeding referenced in Section 14.1. The Indemnitee shall repay such amounts advanced only
if, and to the extent that, it shall ultimately be determined that such Indemnitee is not entitled to be indemnified by the Company
as authorized hereby. The advances to be made hereunder shall be paid by the Company to the Indemnitee within ten (10) days following
delivery of a written request therefor by the Indemnitee to the Company.
15. REPRESENTATION AND WARRANTIES OF MEMBERS. Each Member hereby represents, warrants and covenants to the Company that,
as of the effective date hereof:
15.1 Investment Representation. Such Member
has acquired or is acquiring such Member’s Units in good faith for such Member’s own personal account, for investment
purposes only and not with a view to or for the distribution, resale, subdivision, fractionalization or disposition thereof, and
such Member has no present intention of selling or otherwise distributing such Units. Such Member is or will be the sole party
in interest in such Member’s Units and as such is or will be vested with all legal and equitable rights in such Units.
15.2 Sophistication of the Member. Such Member
either has a pre-existing personal or business relationship with the Company or any of its Members or, by reason of such Member’s
business or financial experience or the business or financial experience of such Member’s professional advisers, who are
unaffiliated with and not compensated by the Company, directly or indirectly, has the capacity to protect such Member’s
own interests in connection with this investment. Such Member is able to bear the economic risk of an investment in such Member’s
Units and can afford to sustain a total loss on such investment. The nature and amount of such Member’s investment in such
Units is consistent with such Member’s investment objectives, abilities and resources. Such Member is an “accredited
investor” within the meaning of Regulation D under the Securities Act of 1933, as amended.
15.3 No Public
Market. Such Member understands that there is no public market for such Member’s Units and that there is no assurance
that there will be such a market in the future. Such Member has been advised that such Member’s Units have not been registered
under the Securities Act of 1933, as amended, and that such Units must be held indefinitely unless they are subsequently registered
under the Securities Act of 1933, as amended, or an exemption from such registration is available, and such Member understands
that the Company is under no obligation to register such Units or to comply with any exemption from such registration requirement.
In addition, such Member understands that the transferability of such Member’s Units are and will be further restricted
by this Agreement, which, among other things, requires that any sale or assignment of such Member’s Units will be subject
to certain terms and conditions. Thus, such Member realizes that such Member cannot expect to be able to liquidate such Member’s
investment in the Company readily, or at all, in the case of an emergency.
15.4 Speculative
Investment. Such Member recognizes that an investment in the Company is speculative in nature and involves a high degree of
risk, and such Member has carefully considered the risk factors involved. These factors include, without limitation, the fact that
the business of the Company is in the formative stages and that the Company’s initial capitalization may be insufficient
to satisfy the Company’s working capital requirements.
16. SPECIAL POWER OF ATTORNEY
16.1 In
General. Each Member hereby irrevocably makes, constitutes and appoints the Manager, with full power of substitution, the true
and lawful representative and attorney in fact of, and in the name, place and stead of, such Member, with the power from time to
time to make, execute, sign, acknowledge, swear to, verify, deliver, record, file and/or publish:
(a)
One or more amendments to this Agreement that have been approved in accordance with Section 7; and
(b)
The Certificate of Formation and any amendment thereof required because this Agreement is amended, including an amendment
to effect any change in the membership of the Company.
16.2 Acknowledgment.
Each Member is aware that the terms of this Agreement permit certain amendments to this Agreement to be effected and certain
other actions to be taken or omitted by or with respect to the Company without such Member’s consent. If an amendment of
the Certificate of Formation or this Agreement or any action by or with respect to the Company is taken by the Manager in the manner
contemplated by this Agreement, then each Member hereby agrees that, notwithstanding any objection that such Member may assert
with respect to such action, the Manager is authorized and empowered, with full power of substitution, to exercise the authority
granted above in any manner that may be necessary or appropriate to permit such amendment to be made or action lawfully taken or
omitted. Each Member is fully aware that the Manager will rely on the effectiveness of this special power-of-attorney with a view
to the orderly administration of the affairs of the Company. This power-of-attorney is a special power-of-attorney and is coupled
with an interest in favor of the Manager and as such (a) is and will be irrevocable and will continue in full force and effect
notwithstanding the subsequent death or incapacity of any party granting this power-of-attorney, regardless of whether the Company
or the Manager have had notice of such death or incapacity, and (b) will survive the delivery of an assignment by a Member of the
whole or any portion of such Member’s interest in the Company, except that where the assignee of such interest has been approved
by the Manager for admission to the Company as a Substituted Member in accordance with Section 8.3(a)(iii), this power-of-attorney
given by the assignor will survive the delivery of such assignment for the sole purpose of enabling the Manager to execute, acknowledge
and file any instrument necessary to effect such substitution.
17. MISCELLANEOUS
17.1 Counterparts.
This Agreement may be executed in several counterparts, and such counterparts so executed shall constitute one agreement, binding
on all of the Members, notwithstanding that all of the Members are not signatory to the original or the same counterpart.
17.2 Facsimile
or Other Electronic Transmission. The confirmed facsimile or other electronic transmission (including email) by any party hereto
of a signed copy of the signature page of this Agreement to each other party hereto or such party’s agent shall constitute
the delivery of this Agreement.
17.3 Binding
on Successors. This Agreement shall be binding on and shall inure to the benefit of the successors and permitted assigns of
the Members.
17.4 Severability.
If any sentence, paragraph, clause or combination of the same in this Agreement is held by a court of competent jurisdiction
to be unenforceable in any jurisdiction, then such sentence, paragraph, clause or combination shall be unenforceable in the jurisdiction
where it is so held invalid, and the remainder of this Agreement shall remain binding on the parties hereto in such jurisdiction
as if such unenforceable provision had not been contained herein. The enforceability of such sentence, paragraph, clause or combination
of the same in this Agreement otherwise shall be unaffected and shall remain enforceable in all other jurisdictions.
17.5 Notices. Unless otherwise specifically
provided in this Agreement, all notices and demands required to be given hereunder shall be deemed to be duly given at the time
of delivery if such notice or demand is personally delivered, or forty-eight (48) hours after mailing if such notice or demand
is deposited with the United States Postal Service, postage prepaid, for mailing via certified mail, return receipt requested,
to the Manager and to the Members at the address maintained by the Company for such person or at any other address that such person
specifies in writing.
17.6 Headings and Captions. The headings
and captions appearing at the beginning of each Section of this Agreement are included herein for the convenience of reference
only, do not constitute a part of this Agreement and shall not be deemed to limit, characterize or in any way affect any term
or provision of this Agreement or its interpretation. This Agreement shall be enforced and construed as if no headings or captions
appeared herein.
17.7 Interpretation. All references in this
Agreement to “Sections” refer to the corresponding Sections of this Agreement unless otherwise expressly specified.
All words used in this Agreement will be construed to be of such gender or number as the context requires. Unless otherwise expressly
provided herein, the word “including” or “includes” wherever it appears in this Agreement does not limit
the preceding words or terms and shall be interpreted to mean “including, without limitation” and “includes,
without limitation” respectively, and the word “or” is used in this Agreement in the inclusive sense. All references
in this Agreement to documents, instruments or agreements shall be deemed to refer as well to all addenda, exhibits, schedules
and amendments thereto.
17.8 Gender. Whenever required by the context,
the masculine gender shall include the feminine and neuter genders, and vice versa.
17.9 Choice of Law. This Agreement shall
be construed under the laws of the State of Delaware.
17.10 Entire Agreement.
This Agreement contains the entire understanding among the Members and supersedes all prior written or oral agreements among
them respecting the subject matter contained herein. There are no representations, agreements, arrangements or understandings,
oral or written, among the Members relating to the subject matter of this Agreement that are not fully expressed herein.
17.11 Waiver. No
waiver of any breach or default of this Agreement by any party hereto shall be considered to be a waiver of any other breach or
default of this Agreement.
17.12 Further Assurances.
Each party hereto agrees to perform all further acts and to execute and deliver all further documents that may be reasonably
necessary to carry out the provisions of this Agreement.
17.13 Mediation.
If any dispute arises (a) out of or relating to this Agreement or any alleged breach thereof or (b) with respect to any of
the transactions or events contemplated by this Agreement (each, a “Dispute”), then the party desiring to resolve
such Dispute shall deliver a written notice describing such Dispute with reasonable specificity to the other parties (the “Dispute
Notice”). If any party delivers a Dispute Notice pursuant to this Section 17.13, then the parties involved in
the Dispute shall meet at least twice within the fifteen (15) business day period commencing with the date of the Dispute Notice
and in good faith shall attempt to resolve such Dispute. Except as provided herein, no civil action with respect to any dispute,
claim or controversy arising out of or relating to this Agreement may be commenced until the matter has been submitted to Judicial
Arbitration & Mediation Services, Inc. (“JAMS”) for mediation. Either party may commence mediation by providing
to JAMS and the other party a written request for mediation, setting forth the subject of the dispute and the relief requested.
The parties will cooperate with JAMS and with one another in selecting a mediator from JAMS and in scheduling the mediation proceedings.
The parties covenant that they will participate in the mediation in good faith and that they will share equally in its costs.
All offers, promises, conduct and statements, whether oral or written, made in the course of the mediation by any of the parties,
their agents, employees, experts and attorneys, and by the mediator and JAMS employees, are confidential, privileged and inadmissible
for any purpose, including impeachment, in any litigation or other proceeding involving the parties, provided that evidence
that is otherwise admissible or discoverable will not be rendered inadmissible or non-discoverable as a result of its use in the
mediation. Either party may seek equitable relief before the mediation to preserve the status quo pending the completion of that
process. Except for such an action to obtain equitable relief, neither party may commence a civil action with respect to the matters
submitted to mediation until after the completion of the initial mediation session or forty-five (45) days after the date of filing
the written request for mediation, whichever occurs first. Mediation may continue after the commencement of a civil action if
the parties so desire. The provisions of this Section 17.13 may be enforced by any court of competent jurisdiction, and
the party seeking enforcement shall be entitled to an award of all costs, fees and expenses, including attorneys’ fees,
to be paid by the party against whom enforcement is ordered.
17.14 Confidentiality.
Each of the Members acknowledges and agrees that the information, observations and data obtained by such Member or its Affiliates
while such Member is a Member (including all information, observations and data obtained before the effective date of this Agreement
concerning the business or affairs of the Company) (collectively, “Confidential Information”) is the exclusive
property of the Company. Each Member shall treat and hold as confidential all of the Confidential Information and refrain from
using any Confidential Information, unless and to the extent that the aforementioned matters: (a) become generally known to and
available for use by the public other than as a result of such Member’s or such Member’s Affiliates’ acts or
omissions or (b) are required to be disclosed by judicial process or law. Such Member and its Affiliates shall promptly deliver
to the Company at any time the Company may request all lists, memoranda, notes, plans, records, reports, computer tapes, printouts
and software and other documents and data (and copies of such items) relating to the Confidential Information or the business of
the Company that such Member or its Affiliates may then possess or have under his, her or its control.
17.15 Attorneys’
Fees. In the event that a dispute arises with respect to this Agreement, the party prevailing in such dispute shall be entitled
to recover all expenses, including reasonable attorneys’ fees and expenses, incurred in ascertaining such party’s rights,
in preparing to enforce or in enforcing such party’s rights under this Agreement, whether or not it was necessary for such
party to institute suit.
17.16 Legal Counsel.
The Company has selected Wilson & Oskam, LLP (“W&O”) as special legal counsel to the Company in
connection with the formation and initial organization of the Company, the preparation of this Agreement and related matters. W&O
also may be legal counsel to any Member, the Manager or any Affiliate of a Member or the Manager. The Manager may execute on behalf
of the Company and the Members any consent to the representation of the Company that W&O may request pursuant to the California
Rules of Professional Conduct or similar rules in any other jurisdiction (the “Rules”). Each Member acknowledges
that W&O does not represent any Member in the absence of a clear and explicit written agreement to such
effect between such Member and W&O and that, in the absence of any such agreement, W&O shall owe no duties
directly to a Member. Notwithstanding any adversity that may develop, if any dispute or controversy arises between any Member and
the Company, or between any Member or the Company, on the one hand, and the Manager (or an Affiliate of the Manager) that W&O
represents, on the other hand, then each Member agrees that W&O may represent either the Company or the Manager (or the Manager’s
Affiliate), or both, in any such dispute or controversy to the extent permitted by the Rules, and each Member hereby consents to
such representation.
EACH MEMBER FURTHER ACKNOWLEDGES,
REPRESENTS AND WARRANTS THAT SUCH MEMBER HAS BEEN ADVISED TO CONSULT WITH SUCH MEMBER’S OWN SEPARATE AND INDEPENDENT LEGAL
COUNSEL REGARDING THIS AGREEMENT AND HAS DONE SO TO THE EXTENT THAT SUCH MEMBER CONSIDERS NECESSARY OR HAS WAIVED SUCH MEMBER’S
RIGHT TO DO SO.
W&O has no
attorney-client relationship with any Member or any trustee or other legal representative of any Member, and no
attorney-client relationship with any Member or any trustee or other legal representative of any Member shall exist or
be deemed to exist as a result of W&O’s representation of the Company. W&O has not been engaged
to protect or represent the interests of any Member vis-à-vis the Company or any Affiliate in connection with the
preparation of this Agreement. The Members acknowledge that, as to their respective interests inter se, and as to their
respective individual circumstances, they have been advised by W&O to seek independent legal counsel as to all matters related
to the Company and this Agreement.
[Signature Page Follows]
IN WITNESS WHEREOF,
the parties hereto have executed this Agreement to be effective as of the date first written above.
“Member”:
VIVAVENTURES MANAGEMENT COMPANY, INC., a Nevada
corporation
|
|
By:
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/s/ Matt Nicosia
Matt Nicosia,
President
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“Manager”:
VIVAVENTURES MANAGEMENT COMPANY, INC., a Nevada
corporation
|
|
By:
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/s/ Matt Nicosia
Matt Nicosia,
President
|
|
|
|
|
|
|
Address:
|
|
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252 Sunpac
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|
Henderson, NV 89011
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[SIGNATURE PAGE TO LIMITED LIABILITY
COMPANY AGREEMENT]
IN WITNESS WHEREOF,
the parties hereto have executed this Agreement to be effective as of the date first written above.
“Members”:
_________________________
Signature
_________________________
Print
Name
Address:
_________________________
_________________________
[SIGNATURE PAGE TO LIMITED LIABILITY
COMPANY AGREEMENT]
CONSENT OF SPOUSE OF [NAME]
I, the undersigned, am the spouse of____________________ .
I acknowledge that I have read the foregoing Limited Liability Company Agreement of VivaVentures UTS I, LLC (the “Agreement”)
and that I know the contents of the Agreement. I am aware that by the Agreement’s provisions my spouse agrees, among other
things, to the imposition of certain restrictions on the transfer of my spouse’s Units (the “Units”)
in VivaVentures UTS I, LLC, a Delaware limited liability company, including my community property interest therein (if any), which
rights and restrictions may survive my spouse’s death. I hereby consent to such rights and restrictions, approve of the
provisions of the Agreement and agree that I will bequeath any interest that I may have in the Units, including my community property
interest therein (if any), or permit the Units to be purchased, in a manner consistent with the provisions of the Agreement. I
direct that any residuary clause in my Will shall not be deemed to apply to my community property interest (if any) in the Units
except to the extent consistent with the provisions of the Agreement. I further agree that, in the event of a dissolution of the
marriage between my spouse and me, in connection with which I secure or am awarded all or any portion of the Units or any interest
therein through property settlement agreement or otherwise, I shall receive and hold such Units or interest therein subject to
all of the provisions and restrictions contained in the Agreement.
|
Date: _____________, 2015
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____________________________
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Signature
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____________________________
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Print Name
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EXHIBIT A
VIVAVENTURES UTS I, LLC
As of September 24, 2015
|
Member
|
Capital
Contribution
|
Class A Units
|
Percentage
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
|
VVMCI
|
$1,000 in cash
|
1,000
|
100%
|
|
|
Member
|
Capital
Contribution
|
Class B Units
|
Percentage
|
|
|
Interest
|
|
|
|
|
|
|
|
|
______ Class B Units
|
____%
|
|
|
|
|
|
|
|
______ Class B Units
|
____%
|
|
|
|
|
|
|
|
______ Class B Units
|
____%
|
|
|
|
|
|
|
|
______ Class B Units
|
____%
|
|
|
|
|
|
|
|
______ Class B Units
|
____%
|
|
|
|
|
|
|
|
______ Class B Units
|
____%
|
|
|
|
|
|
|
|
______ Class B Units
|
____%
|
|
|
|
|
|
|
|
______ Class B Units
|
____%
|
|
|
|
|
|
|
|
______ Class B Units
|
____%
|
|
|
|
|
|
|
|
______ Class B Units
|
____%
|
|
|
|
|
|
|
|
______ Class B Units
|
____%
|
|
|
|
|
|
|
|
______ Class B Units
|
____%
|
|
|
|
|
|
|
|
______ Class B Units
|
____%
|
|
|
|
|
|
|
|
______ Class B Units
|
____%
|
|
|
|
|
|
|
|
______ Class B Units
|
____%
|
|
|
|
|
|
|
|
______ Class B Units
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____%
|
|
|
|
|
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Totals
|
|
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100.0%
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|
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Exhibit 10.22
LIMITED LIABILITY COMPANY
AGREEMENT
OF
International
Metals Exchange, LLC
THE SECURITIES OFFERED
HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION NOR BY THE SECURITIES REGULATORY AUTHORITY OF ANY STATE, NOR HAS ANY COMMISSION OR AUTHORITY PASSED UPON OR
ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF ANY DISCLOSURE MADE IN CONNECTION THEREWITH. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SECURITIES OFFERED HEREBY MAY NOT BE RESOLD WITHOUT REGISTRATION UNDER THE SECURITIES
ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS OR EXEMPTION THEREFROM. ANY TRANSFER OF THE SECURITIES REPRESENTED BY THIS AGREEMENT
IS FURTHER SUBJECT TO OTHER RESTRICTIONS, TERMS AND CONDITIONS WHICH ARE SET FORTH IN THIS AGREEMENT.
TABLE
OF CONTENTS
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|
Page
|
|
1. Organization
|
1
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|
1.1 Formation
|
1
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|
1.2 Name and Place of Business
|
1
|
|
1.3 Business and Purpose of the Company
|
1
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1.4 Term
|
1
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|
1.5 Required Filings
|
1
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|
1.6 Registered Office and Registered Agent
|
1
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1.7 Competitive Transactions
|
1
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2. Definitions
|
1
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|
3. Capitalization and Financing
|
1
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3.1 Capital Contributions
|
1
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|
3.2 Additional Capital Contributions
|
2
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|
3.3 Failure to Make Additional Capital Contribution
|
2
|
|
3.3.1 Loan
|
2
|
|
3.3.2 Return of Additional Capital Contribution
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2
|
|
3.4 Enforcement of Obligation
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2
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3.5 Liabilities of Members
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2
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|
3.6 Company Loans
|
2
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|
3.7 Additional Equity Investors
|
2
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|
4. Allocation of Tax Items
|
3
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|
4.1 Allocation of Net Income and Net Loss
|
3
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|
4.1.1 Net Income
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3
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|
4.1.2 Net Loss
|
3
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|
4.2 Special Allocations
|
3
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|
4.2.1 Qualified Income Offset
|
3
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|
4.2.2 Gross Income Allocation
|
3
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|
4.2.3 Minimum Gain Chargeback
|
3
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|
4.2.4 Member Minimum Gain Chargeback
|
4
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|
4.2.5 Nonrecourse Deductions
|
4
|
|
4.2.6 Member Nonrecourse Deductions
|
4
|
|
4.2.7 Code Section 754 Adjustments
|
4
|
TABLE
OF CONTENTS
(continued)
|
4.3 Curative Allocations
|
4
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|
4.4 Contributed Property
|
4
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|
4.5 Recapture Income
|
4
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|
4.6 Allocation of Company Items
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4
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|
4.7 Assignment
|
5
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|
4.8 Power of Managers to Vary Allocations
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5
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4.9 Consent of Members
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5
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4.10 Withholding Obligations
|
5
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5. Distributions
|
6
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|
5.1 Cash From Operations
|
6
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5.2 Restrictions
|
6
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|
6. Compensation to the Managers and their Affiliates
|
6
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6.1 Compensation
|
6
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|
6.2 Company Expenses
|
6
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|
6.2.1 Operating Expenses
|
6
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|
6.2.2 Overhead of Managers
|
6
|
|
7. Authority and Responsibilities of the Managers
|
6
|
|
7.1 Management
|
6
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|
7.2 Number, Tenure and Qualifications
|
6
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|
7.3 Managers’ Authority
|
6
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|
7.4 Major Decisions
|
9
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|
7.5 Obligations of the Managers
|
10
|
|
7.6 Administration of the Company
|
11
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|
7.7 Indemnification of the Managers and the Officers
|
11
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|
7.8 No Personal Liability for Return of Capital
|
11
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7.9 Authority as to Third Persons
|
11
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|
7.10 Insurance
|
12
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|
7.11 Officers
|
12
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|
7.11.1 Appointment of Officers
|
12
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|
7.11.2 Removal, Resignation and Filling of Vacancy of Officers
|
12
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7.11.3 Salaries of Officers
|
12
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|
7.11.4 Signing Authority
|
12
|
TABLE
OF CONTENTS
(continued)
|
8. Rights, Authority and Voting of the Members
|
12
|
|
8.1 Members Are Not Agents
|
12
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|
8.2 Voting by the Members
|
12
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8.3 Member Vote
|
13
|
|
8.4 Meetings of the Members
|
13
|
|
8.4.1 Notice
|
13
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|
8.4.2 Adjourned Meeting and Notice Thereof
|
13
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8.4.3 Quorum
|
13
|
|
8.4.4 Consent of Absentees
|
13
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|
8.4.5 Action Without Meeting
|
13
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|
8.4.6 Record Dates
|
14
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|
8.4.7 Proxies
|
14
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|
8.4.8 Chairman of Meeting
|
14
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|
8.4.9 Record Date and Closing Company Books
|
14
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8.4.10 Meetings
|
14
|
|
8.5 Rights of Members
|
14
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|
8.6 Restrictions on the Owners
|
15
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|
8.7 Return of Capital
|
15
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|
8.8 Indemnification of Members
|
15
|
|
9. Resignation, Withdrawal or Removal of a Manager
|
15
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|
9.1 Resignation or Withdrawal of Manager
|
15
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|
9.2 Removal
|
15
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|
9.3 Purchase of Manager’s Interest
|
15
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|
9.4 Fair
Market Value
|
16
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|
10. Assignment of a Manager’s Interest
|
16
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|
10.1 Permitted Assignments
|
16
|
|
10.2 Substitute Manager
|
16
|
|
10.3 Transfer in Violation Not Recognized
|
16
|
|
10.4 Transfers to Affiliates
|
16
|
TABLE
OF CONTENTS
(continued)
|
11. Member and Owner Transfers
|
16
|
|
11.1 Resignation or Withdrawal of a Member
|
16
|
|
11.2 Permitted Assignments
|
16
|
|
11.3 Substituted Members
|
17
|
|
11.4 Loss of Rights
|
17
|
|
11.5 Consent of Members
|
17
|
|
11.6 Transfer in Violation Not Recognized
|
17
|
|
11.7 Rights of Economic Interest Owner
|
17
|
|
11.8 Right to Inspect Books
|
18
|
|
11.9 Transfer Subject to Law
|
18
|
|
11.10 Right of First Refusal
|
18
|
|
11.11 Repurchase Upon Violation of this Agreement
|
18
|
|
11.12 Exit
Opportunities
|
18
|
|
11.13 Specific Performance
|
19
|
|
12. Option
to Purchase Units Upon Specified Events
|
19
|
|
12.1 Option
to Purchase
|
19
|
|
12.2 Exercise
of Option
|
20
|
|
12.3 Notice
of Exercise of Option
|
20
|
|
12.4 Purchase
Price for Units
|
20
|
|
12.5 Payment
of Purchase Price
|
21
|
|
12.6 Agreement
to Transfer
|
|
13. Books,
Records, Accounting and Reports
|
21
|
|
13.1 Records
|
21
|
|
13.2 Delivery to Members and Inspection
|
22
|
|
13.3 Reports
|
22
|
|
13.4 Tax Information
|
22
|
|
13.5 Limitations
|
22
|
|
13.6 Partnership Audit Rules
|
22
|
|
14. Termination and Dissolution of the Company
|
23
|
|
14.1 Termination of the Company
|
23
|
|
14.2 Certificate of Cancellation
|
23
|
|
14.3 Liquidation of Assets
|
24
|
|
14.4 Distributions Upon Dissolution
|
24
|
|
14.5 Liquidation of Member’s Interest
|
24
|
|
15. Special and Limited Power of Attorney and Amendments
|
24
|
|
15.1 Power of Attorney
|
24
|
|
15.2 Provision of Power of Attorney
|
25
|
|
15.3 Notice to Members
|
25
|
|
15.4 Amendment of Agreement
|
25
|
TABLE
OF CONTENTS
(continued)
|
15.4.1 Admission of Member
|
25
|
|
15.4.2 Amendments with Consent of Member
|
25
|
|
15.4.3 Amendments Without Consent of the Members
|
26
|
|
15.4.4 Execution and Recording of Amendments
|
|
|
15.4.5 Prohibitions
|
26
|
|
16. Relationship of this Agreement to the Act
|
26
|
|
17. Representations of Each Member
|
26
|
|
17.1 Sophistication and Risk Tolerance
|
26
|
|
17.2 Unregistered Securities
|
27
|
|
17.3 No View to Resell
|
27
|
|
17.4 Status
|
27
|
|
17.5 Due Authorization
|
27
|
|
17.6 Other Agreements
|
27
|
|
18. Miscellaneous
|
27
|
|
18.1 Counterparts
|
27
|
|
18.2 Successors and Assigns
|
27
|
|
18.3 Severability
|
27
|
|
18.4 Notices
|
27
|
|
18.5 Members’ Address
|
27
|
|
18.6 Name and Address of Managers
|
27
|
|
18.7 Governing Law
|
28
|
|
18.8 Captions
|
28
|
|
18.9 Gender
|
28
|
|
18.10 Time
|
28
|
|
18.11 Additional Documents
|
28
|
|
18.12 Descriptions
|
28
|
|
18.13 Attorneys’ Fees
|
28
|
|
18.14 Venue
|
28
|
|
18.15 Partition
|
28
|
|
18.16 Integrated and Binding Agreement
|
28
|
|
18.17 Title to Company Property
|
28
|
|
18.18 Electronic Signatures
|
28
|
EXHIBITS:
EXHIBIT A: Definitions
EXHIBIT B: Members
LIMITED LIABILITY COMPANY
AGREEMENT
OF
International
Metals Exchange, LLC
This Limited Liability
Company Agreement (this “Agreement”) of International Metals Exchange, LLC, effective as of June 10, 2020, is entered
into by and between VivaVentures Management Company, Inc., a Nevada corporation (“VVMC”), as a Member and a Manager,
pursuant to the Act on the following terms and conditions.
1.
Organization.
1.1
Formation. On June 10, 2020, a Certificate of Formation was filed in the office of the Secretary of State of the
state of Nevada in accordance with and pursuant to the Act.
1.2
Name and Place of Business. The name of the Company shall be International Metals Exchange, LLC, and its principal
place of business shall be 8565 S. Eastern Ave, Ste. 150 Las Vegas, Nevada 89123. The Managers may change such name, change such
place of business or establish additional places of business of the Company as the Managers may determine to be necessary or desirable.
1.3
Business and Purpose of the Company. The purpose of the Company is to (i) preserve the Members’ capital
investment, (ii) realize income through its investment in the Business, and (iii) engage in such other activities which
are allowed under Nevada law in the sole discretion of the Managers. The Company intends to purchase
precious metals concentrate with the goal of marketing and selling the precious metal concentrate to international buyers of precious
metal
1.4
Term. The term of the Company shall commence on the effective date of this Agreement and shall terminate on December
31, 2099, unless the Company is sooner dissolved and terminated as provided in this Agreement.
1.5
Required Filings. The Administrative Manager shall execute, acknowledge, file, record, amend and/or publish such
certificates and documents as may be required by this Agreement or by law in connection with the formation and operation of the
Company.
1.6
Registered Office and Registered Agent. The Company’s initial registered office and initial registered agent
shall be as provided in the Certificate of Formation. The registered office and registered agent may be changed from time to time
by the Administrative Manager by filing the address of the new registered office and/or the name of the new registered agent pursuant
to the Act.
1.7
Competitive Transactions. Any Manager, Owner or any Affiliate thereof, or any shareholder, officer, director, employee,
partner, member, manager or any Person owning an interest therein, may engage in or possess an interest in any other business or
venture of any nature or description, whether or not competitive with the Company, including, but not limited to, the acquisition,
syndication, ownership, financing, leasing, operation, maintenance, management and development of property similar to the Business
and no Manager, Owner or any Affiliate, or other Person shall have any interest in such other business or venture by reason of
their interest in the Company.
2.
Definitions. Definitions for this Agreement are set forth on Exhibit A and are incorporated herein.
3.
Capitalization and Financing.
3.1
Capital Contributions.
3.1.1
Manager’s Capital Contribution. Upon the execution of this Agreement by VVMC, VVMC contributes to the Company
cash in the amount of One Thousand Dollars ($1,000) in exchange for the Company’s issuance of 1,000 Class A Units to VVMC.
3.1.2
Units. The Company is hereby authorized to sell and issue not more than 2,201,000 units, 1,000 Class A Units, 2,200,000
Class B Units and to admit the Persons who acquire such Units as Members.
3.2
Additional Capital Contributions. If the Managers determine that the Company requires cash in addition to the Capital
Contributions set forth in Section 3.1 in order to carry out the purposes of this Agreement or to carry on the business of
the Company, no more than 30 days after the written request of the Managers, the Members shall contribute the additional Capital
Contributions required. All future additional Capital Contributions shall be made pro rata by the Members according to their respective
Percentage Interests in their respective class of unit at the time of the request for additional Capital Contributions.
3.3
Failure to Make Additional Capital Contribution. In the event a Member (the “Delinquent Member”) fails
to make all or any portion of its capital contribution as set forth in Section 3.2 (the “Required Additional Capital
Contribution”) by the specified contribution date for the Required Additional Capital Contribution, the non-defaulting Member
(the “Non-Delinquent Member”) may elect one of the following:
3.3.1
Loan. The Non-Delinquent Member may fund the amount of the Required Additional Capital Contribution not made by the
Delinquent Member, such amount together with the amount funded by the Non-Delinquent Member shall be treated as a loan to the Company
by the Non-Delinquent Member. Any such loan shall bear interest at a fixed rate equal to the lesser of 10% or the maximum interest
rate permitted by applicable law. Any principal and interest on any such loan shall be repaid prior to any Distributions to the
Members pursuant to Section 5.1; or
3.3.2
Return of Additional Capital Contribution. The Non-Delinquent Member may elect to have its Required Additional Capital
Contribution returned to it by the Company.
3.4
Enforcement of Obligation. Only the Company, the Managers or a Member and no third party creditor (either in its
own right or as a successor-in-interest of the Company, and including a trustee, receiver or other representative of the Company
or an Owner), shall be entitled to enforce the requirements to make additional Capital Contributions. The Members intend and agree
that the obligation of a Member to make Capital Contributions constitutes an agreement to make financial accommodations to and
for the benefit of the other Member and the Company.
3.5
Liabilities of Manager or Members. Except as specifically provided in this Agreement, neither the Managers nor any
Member shall be required to make any additional contributions to the Company and no Manager or Member shall be liable for the debts,
liabilities, contracts or any other obligations of the Company, by reason of being a Manager or Member of the Company, nor shall
the Managers or Members be required to lend any funds to the Company, the Managers or to repay or to contribute to the Company
or any Member, or any creditor of the Company any portion or all of any deficit balance in a Member’s Capital Account.
3.6
Company Loans. Any Manager, Member or an Affiliate (at the request of the Managers) may, but will have no obligation
to, make loans to the Company in the sole discretion of the Managers. All of the terms and conditions of such loan shall be approved
by the Managers in their sole discretion.
3.7
Additional Equity Investors. To raise additional capital in the future to expand the Business, the Company intends
to issue and sell additional Membership Interests to other investors. In the event additional Membership Interests are sold to
raise additional capital, the Company may either amend this Agreement to add additional classes of units or the book value of the
Company’s assets may be booked up or booked down to their fair market value, and the additional Membership Interests will
be priced correspondingly. Each class of unit is anticipated to only receive distributions based on the Assets that each fund or
Member may have funded or that is associated with that class of unit.
4.
Allocation of Tax Items.
4.1
Allocation of Net Income and Net Loss. For each fiscal year, the Net Income and Net Loss of the Company shall be
allocated to each class of unit based on the Net Income or Net Loss from the Assets funded by that class of unit. Net Income and
Net Loss of the Company shall be allocated as follows:
4.1.1
Net Income. After giving effect to the special allocations set forth in Sections 4.2 and 4.3, Net Income for
any fiscal year shall be allocated as follows:
(a)
To the Members of their respective class of unit in proportion to and to the extent of Net Loss allocated to the Members
pursuant to Section 4.1.2(b) until the aggregate Net Income allocated to the Members pursuant to this Section 4.1.1(a) for
such fiscal year and all previous fiscal years is equal to the aggregate Net Loss of their respective class of unit allocated to
the Members pursuant to Section 4.1.2(b) for all previous fiscal years; and
(b)
Thereafter, to the Members in proportion to their Percentage Interests within and according to their class of unit.
4.1.2
Net Loss. After giving effect to the special allocations set forth in Sections 4.2 and 4.3, Net Loss for any
fiscal year shall be allocated as follows:
(a)
To the Members of their respective class of unit in proportion to and to the extent of Net Income allocated to the Members
pursuant to Section 4.1.1(b) until the aggregate Net Loss allocated pursuant to this Section 4.1.2(a) for such
fiscal year and all previous fiscal years equals the aggregate Net Income of their respective class of unit allocated to the Members
pursuant to Section 4.1.1(b) for all previous fiscal years; and
(b)
Thereafter, to the Members in proportion to their Percentage Interests within and according to their class of unit.
4.2
Special Allocations.
4.2.1
Qualified Income Offset. Except as provided in Section 4.2.3, in the event any Member unexpectedly receives
any adjustments, allocations, or distributions described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5),
or 1.704-1(b)(2)(ii)(d)(6), items of Company income and gain shall be specially allocated to such Member in an amount and manner
sufficient to eliminate, to the extent required by the Treasury Regulations, the Adjusted Capital Account Deficit created by such
adjustment, allocation or distribution as quickly as possible.
4.2.2
Gross Income Allocation. Net Loss shall not be allocated to any Member to the extent such allocation would cause
such Member to have an Adjusted Capital Account Deficit at the end of a fiscal year. In the event any Member has an Adjusted Capital
Account Deficit at the end of any fiscal year, each such Member shall be specially allocated items of Company gross income and
gain in the amount of such Adjusted Capital Account Deficit as quickly as possible.
4.2.3
Minimum Gain Chargeback. Notwithstanding any other provision of this Section 4, if there is a net decrease in
Company Minimum Gain during any Company fiscal year, each Member shall be specially allocated items of Company income and gain
for such year (and, if necessary, subsequent years) in an amount equal to such Member’s share of the net decrease in Company
Minimum Gain, determined in accordance with Treasury Regulations Section 1.704-2(g)(2). This Section 4.2.3 is intended
to comply with the partnership minimum gain chargeback requirement in the Treasury Regulations and shall be interpreted consistently
therewith. This provision shall not apply to the extent the Member’s share of net decrease in Company Minimum Gain is caused
by a guaranty, refinancing or other change in the debt instrument causing it to become partially or wholly recourse debt or Member
Nonrecourse Debt, and such Member bears the economic risk of loss (within the meaning of Treasury Regulations Section 1.752-2)
for the newly guaranteed, refinanced or otherwise changed debt or to the extent the Member contributes cash to the capital of the
Company that is used to repay the Nonrecourse Debt, and the Member’s share of the net decrease in Company Minimum Gain results
from the repayment.
4.2.4
Member Minimum Gain Chargeback. Notwithstanding any other provision of this Section 4, except Section 4.2.3,
if there is a net decrease in Member Minimum Gain, any Member with a share of that Member Minimum Gain (as determined under Treasury
Regulations Section 1.704-2(i)(5)) as of the beginning of the year shall be allocated items of Company income and gain for
such year (and, if necessary, subsequent years) in an amount equal to such Member’s share of the net decrease in Member Minimum
Gain, determined in accordance with Treasury Regulations Section 1.704-2(g)(2). This Section shall not apply to the extent
the net decrease in Member Minimum Gain arises because the liability ceases to be Member Nonrecourse Debt due to conversion, refinancing
or other change in a debt instrument that causes it to become partially or wholly a Nonrecourse Debt. This Section is intended
to comply with the partner minimum gain chargeback requirements in the Treasury Regulations and shall be interpreted consistently
therewith and applied with the restrictions attributable thereto.
4.2.5
Nonrecourse Deductions. Nonrecourse Deductions for any fiscal year or other period shall be allocated to the Members
based on Nonrecourse Deductions pertaining to each class of unit’s Assets, and then in proportion to their Percentage Interests
and each Member’s share of excess Nonrecourse Debt shall be in the same proportion.
4.2.6
Member Nonrecourse Deductions. Member Nonrecourse Deductions for any fiscal year shall be allocated to the Member
who bears the economic risk of loss as set forth in Treasury Regulations Section 1.752-2 with respect to the Member Nonrecourse
Debt. If more than one Member bears the economic risk of loss for a Member Nonrecourse Debt, any Member Nonrecourse Deductions
attributable to that Member Nonrecourse Debt shall be allocated among the Members according to the ratio in which they bear the
economic risk of loss.
4.2.7
Code Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any Company asset pursuant
to Code Section 734(b) or Code Section 743(b) is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated
as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such
gain or loss shall be specially allocated to the Members in a manner consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to such Section of the Treasury Regulations.
4.3
Curative Allocations. Notwithstanding any other provision of this Agreement, the Regulatory Allocations shall be
taken into account in allocating items of income, gain, loss and deduction among the Members so that, to the extent possible, the
net amount of such allocations of other items and the Regulatory Allocations to each Member shall be equal to the net amount that
would have been allocated to each such Member if the Regulatory Allocations had not occurred.
4.4
Contributed Property. Notwithstanding any other provision of this Agreement, the Administrative Manager shall cause
depreciation and/or cost recovery deductions and gain or loss attributable to Property contributed by a Member or revalued by the
Company to be allocated among the Members for income tax purposes in accordance with Code Section 704(c) and the Treasury
Regulations promulgated thereunder. The Managers shall be entitled to select the appropriate method to account for the variation
between the basis of a Member’s interest in a contributed Property and the fair market value of the interest at the time
it is contributed to the Company or revalued.
4.5
Recapture Income. The portion of each Member’s distributive share of Net Income that is characterized as ordinary
income pursuant to Code Sections 1245 or 1250 shall be proportionate to the amount of Net Income or Net Loss which included
the corresponding depreciation deductions that were allocated to such Member as compared with the amount of depreciation deductions
allocated to all of the Members.
4.6
Allocation of Company Items. Except as otherwise provided herein, whenever a proportionate part of Net Income or
Net Loss is allocated from the Assets funded by each class of unit, and then to a class of unit and a Member within its respective
class, every item of income, gain, loss or deduction entering into the computation of such Net Income or Net Loss, and every item
of credit or tax preference related to such allocation and applicable to the period during which such Net Income or Net Loss was
realized shall be allocated to the Member in the same proportion. For purposes of this Section 4 and Section 5, an Economic
Interest Owner shall be treated as a Member.
4.7
Assignment.
4.7.1
Unless otherwise agreed to by the Managers, in the event of the assignment of an Interest pursuant to the terms of this
Agreement (or a change in a Member’s Percentage Interest), the Net Income and Net Loss shall be allocated as between the
Owner and such Owner’s assignee based upon the number of months of their respective ownership during the year in which the
assignment occurs, without regard to the results of the Company’s operations during the period before or after such assignment.
Distributions shall be made to the Owner or the assignee, whichever is the owner of the Interest, as of the date of the Distribution.
An assignee who receives an Interest during the first 15 days of a month will receive any allocations relative to such month. An
assignee who acquires an Interest on or after the 16th day of a month will be treated as acquiring the Interest on the
first day of the following month. Net Income and Net Loss from a sale or exchange of Property will be allocated between the Owner
and its assignee (or to reflect such change in Percentage Interest) as of the date of any such transaction.
4.8
Power of Managers to Vary Allocations. It is the intent of the Members that each Member’s share of Net Income
and Net Loss be determined and allocated in accordance with Code Section 704(b) and the provisions of this Agreement shall
be so interpreted. Therefore, if the Company is advised that the allocations provided in this Section 4 are unlikely to be
respected for federal income tax purposes, the Managers are hereby granted the power to amend the allocation provisions of this
Agreement to the minimum extent necessary to comply with Code Section 704(b) and effect the plan of allocations and Distributions
provided for in this Agreement.
4.9
Consent of Members. The allocation methods of Net Income and Net Loss are hereby expressly consented to by each Member
as a condition of becoming a Member.
4.10
Withholding Obligations.
4.10.1
If the Company is required (as determined by the Administrative Manager) to make a payment (“Tax Payment”) with
respect to any Member to discharge any legal obligation of the Company or the Managers to make payments to any governmental authority
with respect to any federal, foreign, state or local tax liability of such Member arising as a result of such Member’s interest
in the Company, then, notwithstanding any other provision of this Agreement to the contrary, the amount of any such Tax Payment
shall be deemed to be a loan by the Company to such Member, which loan shall bear interest at the Prime Rate and be payable upon
demand or by offset to any Distribution which otherwise would be made to such Member.
4.10.2
If and to the extent the Company is required to make any Tax Payment with respect to any Member, or elects to make payment
on any loan described in Section 4.10.1 by offset to a Distribution to a Member, either (i) such Member’s proportionate
share of such Distribution shall be reduced by the amount of such Tax Payment or offset or (ii) such Member shall pay to the
Company prior to such Distribution an amount of cash equal to such Tax Payment or offset. In the event a portion of a Distribution
in kind is retained by the Company pursuant to clause (i) above, such retained Property may, in the discretion of the Administrative
Manager, either (A) be distributed to the other Members, or (B) be sold by the Company to generate the cash necessary
to satisfy such Tax Payment. If the Property is sold, then for purposes of income tax allocations only under this Agreement, any
gain or loss from such sale or exchange shall be allocated to the Member to whom the Tax Payment relates. If the Property is sold
at a gain, and the Company is required to make any Tax Payment on such gain, the Member to whom the gain is allocated shall pay
the Company prior to the due date of the Tax Payment an amount of cash equal to such Tax Payment.
4.10.3
The Administrative Manager shall be entitled to hold back any Distribution to any Member to the extent the Administrative
Manager believes in good faith that a Tax Payment will be required with respect to such Member in the future and the Administrative
Manager believes that there will not be sufficient subsequent Distributions to make such Tax Payment.
5.
Distributions.
5.1
Cash From Operations. Except as otherwise provided in Section 13, Cash From Operations with respect to each
calendar year shall be distributed to each class of unit from the Assets funded by that class of unit. No class of unit will receive
Distributions from the operations of any unit of Assets not funded or associated with that class of unit. Distributions within
each class of unit will be distributed to the Members of their respective class of unit in proportion to their Percentage Interests
within their class of unit.
5.2
Restrictions. The Company intends to make periodic Distributions of substantially all cash determined by the Managers
to be distributable, subject to the following: (i) Distributions may be restricted or suspended for periods when the Managers
determine that it is in the best interest of the Company; and (ii) all Distributions are subject to the payment, and the maintenance
of reasonable reserves for payment of Company obligations.
6.
Compensation to the Managers and their Affiliates.
6.1
Compensation. All compensation to be received by the Managers or their Affiliates from the Company or any subsidiary
thereof shall be approved by all of the Managers. Any agreements that the Company enters into with an Affiliate of the Managers
will be at arm’s length, market terms.
6.1.1
Affiliates of the Managers may provide other services to the Company and shall be entitled to receive market fees and compensation
for such services as determined by the Managers.
6.2
Company Expenses.
6.2.1
Operating Expenses. Subject to the limitations set forth in Section 6.2.2, the Company shall pay directly, or
reimburse the Managers, as the case may be, for all of the costs and expenses of the Company’s operations.
6.2.2
Overhead of Managers. The Managers and their Affiliates shall be reimbursed for the Managers’ or their Affiliate’s
overhead expenses attributable to the business of the Company.
7.
Authority and Responsibilities of the Managers.
7.1
Management. Subject to the terms of this Agreement, the business and affairs of the Company shall be managed by the
Managers. Except as otherwise set forth in this Agreement, the Managers shall have full and complete authority, power and discretion
to manage and control the business, affairs and properties of the Company, to make all decisions regarding those matters and to
perform any and all other acts or activities customary or incident to the management of the Company’s business. The Managers
may delegate, in their sole discretion, any power and authority to officers of the Company.
7.2
Number, Tenure and Qualifications. The Company shall have one Manager which shall be VVMC. The Manager shall hold
office until the Manager withdraws, resigns or is removed as set forth in this Agreement.
7.3
Managers’ Authority. The Manager shall have all authority, rights and powers conferred by law (subject to Section 7.4
and Section 8.2) and those required or appropriate to the management of the Company’s business, which, by way of illustration
but not by way of limitation, shall include the right, authority and power to cause the Company, in its own capacity or in its
capacity as the manager, general partner or member of any subsidiary of the Company, to:
7.3.1
Enter into any limited liability company agreement, partnership agreement, other operating agreement or any joint venture
directly or for any subsidiary;
7.3.2
Take all actions as the manager, general partner, or member of any subsidiary;
7.3.3
Acquire, hold, develop, lease, rent, operate, sell, exchange and otherwise dispose of Property;
7.3.4
Plan, manage and coordinate the operation of the Business, obtain all necessary licenses, permits and entitlements in connection
therewith, and enter into any contracts and agreements with any Affiliates or third parties to perform any services in connection
with the Business;
7.3.5
Place record title to, or the right to use, the Property in the name or names of a nominee or nominees for any purpose convenient
or beneficial to the Company;
7.3.6
Borrow money, and, if security is required therefor, to pledge or mortgage or subject Property to any security device, to
obtain replacements of any mortgage or other security device and to prepay, in whole or in part, refinance, increase, modify, consolidate
or extend any mortgage or other security device. All of the foregoing shall be on such terms and in such amounts as the Managers,
in their sole discretion, deems to be beneficial;
7.3.7
Provide guarantees with respect to any loan or preferred equity obtained by the Company;
7.3.8
Enter into such contracts and agreements as the Managers determine to be reasonably necessary or appropriate in connection
with the Company’s business and purpose (including contracts with Affiliates of the Managers) and any contract of insurance
that the Managers deem necessary or appropriate for the protection of the Company, any subsidiary, the Managers and any officers,
including errors and omissions insurance, for the conservation of Company assets, or for any purpose convenient or beneficial to
the Company;
7.3.9
Employ Persons, who may be Affiliates of the Managers, in the operation and management of the business of the Company or
any subsidiary;
7.3.10
Prepare or cause to be prepared reports, statements and other relevant information for distribution to the Members;
7.3.11
Open accounts and deposit and maintain funds in the name of the Company or any subsidiary in banks, savings and loan associations,
“money market” mutual funds and in such other entities or instruments as the Managers may deem in their discretion
to be necessary or desirable;
7.3.12
Cause the Company to make or revoke any of the elections referred to in the Code (the Managers shall have no obligation
to make any such elections);
7.3.13
Select as the Company’s accounting year a calendar or fiscal year as may be approved by the Internal Revenue Service
(the Company initially intends to adopt the calendar year);
7.3.14
Determine the appropriate accounting method or methods to be used by the Company;
7.3.15
In addition to any amendments otherwise authorized herein, amend this Agreement without any action on the part of the Members
by special or general power of attorney or otherwise:
(a)
To add to the representations, duties, services or obligations of the Managers or its Affiliates, for the benefit of the
Members;
(b)
To cure any ambiguity or mistake, to correct or supplement any provision herein that may be inconsistent with any other
provision herein, or to make any other provision with respect to matters or questions arising under this Agreement that will not
be inconsistent with the provisions of this Agreement;
(c)
To amend this Agreement to reflect the addition or substitution of the Members or the reduction of Capital Accounts upon
the return of capital to the Members;
(d)
To minimize the adverse impact of, or comply with, any final regulation of the United States Department of Labor, or other
federal agency having jurisdiction, defining “plan assets” for ERISA purposes;
(e)
To reconstitute the Company under the laws of another state if beneficial;
(f)
To execute, acknowledge and deliver any and all instruments to effectuate the foregoing, including the execution, acknowledgement
and delivery of any such instrument by the attorney-in-fact for the Managers under a special or limited power of attorney, and
to take all such actions in connection therewith as the Managers shall deem necessary or appropriate with the signature of the
Managers acting alone; and
(g)
To make any changes to this Agreement as requested or required by any lender or potential lender which may be required to
obtain financing including, but not limited to, complying with any special purpose entity requirements;
7.3.16
Structure or restructure the Company to accommodate any financing;
7.3.17
Temporarily invest the proceeds from Cash From Operations in short-term, highly-liquid investments;
7.3.18
Require in any Company or any subsidiary contract that the Managers shall not have any personal liability, but that the
Person contracting with the Company or any subsidiary is to look solely to the Company or any subsidiary and its respective assets
for satisfaction;
7.3.19
Lease personal property for use by the Company or any subsidiary;
7.3.20
Establish reserves from income in such amounts as the Managers may deem appropriate;
7.3.21
Represent the Company and the Members as the “partnership representative” within the meaning of the Code in
discussions with the Internal Revenue Service regarding the tax treatment of items of Company income, loss, deduction or credit,
or any other matter reflected in the Company’s returns, and, if deemed in the best interest of the Members, to agree to final
Company administrative adjustments or file a petition for a readjustment of the Company items in question with the applicable court
and take any action permitted to the “partnership representative” pursuant to applicable law or regulation;
7.3.22
Initiate legal actions, settle legal actions and defend legal actions on behalf of the Company;
7.3.23
Merge or combine the Company or a subsidiary or “roll-up” the Company into a partnership, limited liability
company or other entity;
7.3.24
Appoint officers of the Company as set forth in Section 7.11;
7.3.25
Structure or restructure the Company to accommodate any financing;
7.3.26
Perform any and all other acts which the Managers are obligated to perform hereunder or which the Company or a subsidiary
is obligated to perform as the manager, general partner or member of any subsidiary of the Company;
7.3.27
Admit additional Members as set forth herein;
7.3.28
Redeem or repurchase Membership Interests on behalf of the Company;
7.3.29
Hold an election for a successor Manager before the resignation, expulsion or dissolution of a Manager; and
7.3.30
Execute, acknowledge and deliver any and all instruments to effectuate the foregoing and take all such actions in connection
therewith as the Managers may deem necessary or appropriate. Any and all documents or instruments may be executed on behalf of
and in the name of the Company by the Managers or any officer of the Company designated by the Managers.
7.4
Major Decisions. The Company may not take the following actions without the consent of all of the Managers (each
a “Major Decision”):
7.4.1
Use or permit any other Person to use Company funds or assets in any manner except for the exclusive benefit of the Company;
7.4.2
Alter the primary purpose of the Company;
7.4.3
Receive from the Company a rebate or give-up or participate in any reciprocal business arrangements which would enable it
or any Affiliate to do so;
7.4.4
Enter into any limited liability company agreement, partnership agreement, other operating agreement or joint venture directly
or for any subsidiary;
7.4.5
Sell or transfer all or substantially all of the assets of the Company or the Business;
7.4.6
Make any decisions regarding the acquisition, management, financing, leasing, operation or disposition of the Business;
7.4.7
Make any decisions regarding the development of the Business or enter into any contracts or agreements relating thereto;
7.4.8
Borrow or lend any sum of money, extend any credit or become a surety, guarantor, endorser or accommodation maker;
7.4.9
Acquire any real estate;
7.4.10
Merge, combine or “roll up” the Company with another entity;
7.4.11
Do any act in contravention of this Agreement;
7.4.12
Do any act that would make it impossible to carry on the ordinary business of the Company;
7.4.13
Obtain insurance on behalf of the Company or any of its principals;
7.4.14
Require any additional capital contributions by the Members;
7.4.15
Select or vary accounting methods, file federal or state income tax returns or other income tax filings and make other decisions
with respect to treatment of items for accounting, financial reporting, or federal or state income tax purposes, or other matters
in connection therewith;
7.4.16
Approve any proposed settlement with the Internal Revenue Service or other taxing authority regarding any Company matter;
7.4.17
Distribute any Company assets in-kind;
7.4.18
Confess any judgment against the Company;
7.4.19
Structure or restructure the Company to accommodate any financing.
7.4.20
Modify the terms of any subsidiary partnership or operating agreement; and
7.4.21
Dissolve and wind up the Company as set forth in Section 13.1.2.
7.5
Obligations of the Managers. Except as may be otherwise provided herein, the Managers shall be obligated to:
7.5.1
Exercise their management powers in order to carry out the purposes of the Company on a commercially reasonable basis;
7.5.2
Devote such of its time and business efforts to the business of the Company as it shall in its discretion, exercised in
good faith, determine to be necessary to conduct the business of the Company on a commercially reasonable basis;
7.5.3
Keep all bank and other accounts and records in the name of the Company; and
7.5.4
File and publish all certificates, statements, or other instruments required by law for the formation, qualification and
operation of the Company and for the conduct of its business in all appropriate jurisdictions.
7.6
Administration of the Company.
7.6.1
So long as they are Managers and the provisions of this Agreement for compensation
and reimbursement of expenses of the Managers are observed, the Managers shall have the responsibility of providing administrative
and executive support, advice, consultation, analysis and supervision with respect to the functions of the Company on a commercially
reasonable basis. In this regard, the Managers may retain the services of such Affiliates or unaffiliated parties as the Managers
may deem appropriate to provide management and financial consultation and advice, and may enter into agreements for the management
and operation of Company assets.
7.6.2
The Administrative Manager shall have the obligation to (i) manage the day to day operations of the Company and (ii) comply
with the obligations specifically allocated to the Administrative Manager in this Agreement.
7.7
Indemnification of the Managers and the Officers.
7.7.1
The Managers, their shareholders, Affiliates, officers, directors, partners, managers, members, employees, agents, assigns,
principals, trustees and any officers of the Company, shall not be liable for, and shall be indemnified and held harmless (to the
extent of the Company’s Property) from, any loss or damage incurred by them, the Company or the Members in connection with
the business of the Company, including costs and reasonable attorneys’ fees and any amounts expended in the settlement of
any claims of loss or damage resulting from any act or omission performed or omitted in good faith, which shall not constitute
fraud, gross negligence or willful misconduct, pursuant to the authority granted to promote the interests of the Company. Moreover,
neither the Managers nor any officer of the Company shall be liable to the Company or the Members because any taxing authorities
disallow or adjust any deductions or credits in the Company’s income tax returns.
7.7.2
Neither the Managers nor any of their Affiliates shall have any obligation to cause the Company to take any action that
would result in personal liability to the Managers, their principals or any of their Affiliates in their capacity as obligator
or guarantor of any loan that is obtained or assumed by the Company or any subsidiary thereof, notwithstanding that the failure
to take any such action might result in the total or partial loss of the Company’s (or any subsidiary’s) interest in
some or all of the Company’s (or subsidiary’s) Property. Any action or inaction by the Managers or any of their Affiliates
that is intended to avoid personal liability under any obligation or guaranty related to a loan that is obtained or assumed by
the Company will not constitute a breach of any fiduciary or other duty that the Managers or their Affiliates may owe the Company
or the Members.
7.7.3
The Members acknowledge that the Managers are also Members and it shall not be a breach
of any fiduciary duty or fiduciary obligation or any other duty or obligation if the Managers vote their Membership Interest in
its own best interest with respect to any vote of the Members.
7.8
No Personal Liability for Return of Capital. The Managers shall not be personally liable or responsible for the return
or repayment of all or any portion of the Capital Contribution of any Member or any loan made by any Member to the Company, it
being expressly understood that any such return of capital or repayment of any loan shall be made solely from the assets (which
shall not include any right of contribution from any Member) of the Company.
7.9
Authority as to Third Persons.
7.9.1
No third party dealing with the Company shall be required to investigate the authority of the Managers or the officers of
the Company or secure the approval or confirmation by any Member of any act of the Managers or officers in connection with the
Company’s business. No purchaser of any Property owned by the Company shall be required to determine the right to sell or
the authority of the Managers or any officers to sign and deliver any instrument of transfer on behalf of the Company, or to see
to the application or distribution of revenues or proceeds paid or credited in connection therewith.
7.9.2
The Managers and any officer designated by the Managers, shall have full authority to execute on behalf of the Company,
in its own capacity or in its capacity as the general partner, manager or member of any subsidiary, any and all agreements, contracts,
conveyances, deeds, mortgages and other instruments, and the execution thereof by the Managers or any officer designated by the
Managers, executing on behalf of the Company, in its own capacity or in its capacity as the general partner, manager or member
of any subsidiary, shall be the only execution necessary to bind the Company thereto. No signature of any Member shall be required.
7.10
Insurance. The Company shall maintain insurance in the amounts determined by the Managers.
7.11
Officers.
7.11.1
Appointment of Officers. The Managers, in their sole discretion, may appoint officers of the Company at any time.
The officers of the Company, if appointed by the Managers, may include a president, chief executive officer, chief legal officer,
chief financial officer, chief accounting officer, chief investment officer, any number of vice presidents and a secretary. The
officers shall serve at the pleasure of the Managers. Any individual may hold any number of offices. The officers shall exercise
such powers and perform such duties as determined and authorized by the Managers.
7.11.2
Removal, Resignation and Filling of Vacancy of Officers. Subject to the rights, if any, of an officer under a contract
of employment, any officer may be removed, either with or without cause, by the Managers at any time. Any officer may resign at
any time by giving written notice to the Managers. Any resignation shall take effect on the date of the receipt of that notice
or at any later time specified in that notice and, unless otherwise specified in that notice, the acceptance of the resignation
shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Company under any
contract to which the officer is a party. A vacancy in any office because of death, resignation, removal, disqualification or any
other cause shall be filled in the manner prescribed in this Agreement for regular appointments to that office.
7.11.3
Salaries of Officers. Subject to the requirements set forth in this Agreement, the salaries and the compensation
of the officers of the Company shall be determined by the Managers.
7.11.4
Signing Authority. Subject to any restrictions imposed by the Managers, and in accordance with the terms of this
Agreement, the chief executive officer, the president, the chief financial officer, the chief legal officer or the chief accounting
officer, acting alone, are authorized to sign and endorse checks, drafts, and other evidences of indebtedness made payable to the
order of the Company. Only the Managers shall be authorized to sign contracts and obligations on behalf of the Company; provided,
however, that the chief executive officer, the president, the chief financial officer, the chief legal officer or the chief accounting
officer shall have the authority to execute any contract that has been approved by written consent of the Managers.
8.
Rights, Authority and Voting of the Members.
8.1
Members Are Not Agents. Pursuant to Section 7 the management of the Company is vested in the Managers. No Member,
acting solely in the capacity of a Member, is an agent of the Company nor can any Member in such capacity bind nor execute any
instrument on behalf of the Company.
8.2
Voting by the Members. To the extent that holders of Units in the Company are provided with the right to vote hereunder
or as required under the Act, the Members shall be entitled to cast one vote for each Percentage
Interest attributable to their Membership Interest. Except as otherwise specifically provided in this Agreement, Members (but not
Economic Interest Owners) with the right to vote shall have the right to vote only upon the following matters:
8.2.1
Election of a new Manager after the resignation of a Manager as set forth in this Agreement;
8.2.2
Dissolution and winding up of the Company as set forth in Section 13.1.2;
8.2.3
Amendment of this Agreement unless otherwise provided herein; or
8.2.4
Any merger or combination of the Company or roll-up of the Company.
8.3
Member Vote. Matters upon which the Members may vote shall require a Majority Vote and the consent of all of the
Managers to pass and become effective.
8.4
Meetings of the Members. The Managers may at any time call for a meeting of the Members, or for a vote without a
meeting, on matters on which the Members are entitled to vote, and shall call for such a meeting (but not a vote without a meeting)
following receipt of a written request therefor of Members holding more than 10% of the Percentage Interests entitled to vote as
of the record date. Within 20 days after receipt of such request, the Managers shall notify all Members of record on the record
date of the Company meeting.
8.4.1
Notice. Written notice of each meeting shall be given to each Member entitled to vote, either personally or by mail
or other means of written communication, charges prepaid, addressed to such Member at its address appearing on the books of the
Company or given by it to the Company for the purpose of notice or, if no such address appears or is given, at the principal executive
office of the Company. All such notices shall be sent not less than 10, nor more than 60, days before such meeting. The notice
shall specify the place, date and hour of the meeting and the general nature of business to be transacted, and no other business
shall be transacted at the meeting.
8.4.2
Adjourned Meeting and Notice Thereof. When a Members’ meeting is adjourned to another time or place, notice
need not be given of the subsequent meeting if the time and place thereof are announced at the meeting at which the adjournment
is taken. At the subsequent meeting, the Company may transact any business which might have been transacted at the original meeting.
If the adjournment is for more than 45 days or if after the adjournment a new record date is fixed for the subsequent meeting,
a notice of the subsequent meeting shall be given to each Member of record entitled to vote at the meeting.
8.4.3
Quorum. The presence in person or by proxy of the Persons entitled to vote a majority of the Membership Interests
shall constitute a quorum for the transaction of business. The Members present at a duly called or held meeting at which a quorum
is present may continue to transact business until adjournment notwithstanding the withdrawal of enough Members to leave less than
a quorum, if any action taken (other than adjournment) is approved by at least a Majority Vote or such greater vote as may be required
by this Agreement or by law. In the absence of a quorum, any meeting of Members may be adjourned from time to time by the vote
of a majority of the Membership Interests represented either in person or by proxy, but no other business may be transacted, except
as provided above.
8.4.4
Consent of Absentees. The transactions of any meeting of Members, however called and noticed and wherever held, are
as valid as though they occurred at a meeting duly held after regular call and notice, if a quorum is present either in person
or by proxy, and if, either before or after the meeting, each of the Persons entitled to vote, not present in person or by proxy,
signs a written waiver of notice, or a consent to the holding of the meeting or an approval of the minutes thereof. All waivers,
consents and approvals shall be filed with the Company records or made a part of the minutes of the meeting.
8.4.5
Action Without Meeting. Except as otherwise provided in this Agreement, any action which may be taken at any meeting
of the Members may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by the
Members having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting
at which all entitled to vote thereon were present and voted. In the event the Members are requested to consent on a matter without
a meeting, each Member shall be given not less than 10 nor more than 20 days’ notice. In the event the Members request a
meeting for the purpose of discussing or voting on the matter, the notice of a meeting shall be given in the same manner as required
by Section 8.4.1 and no action shall be taken until the meeting is held. Unless delayed as a result of the preceding sentence,
any action taken without a meeting will be effective immediately after the Members representing the minimum number of votes have
signed the consent.
8.4.6
Record Dates. For purposes of determining the Members entitled to notice of any meeting or to vote or entitled to
receive any Distributions or to exercise any rights in respect of any other lawful matter, the Managers may fix in advance a record
date, which is not more than 60 nor less than 10 days prior to the date of the meeting nor more than 60 days prior to any other
action. If no record date is fixed:
(a)
The record date for determining Members entitled to notice of or to vote at a meeting of Members shall be at the close of
business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business
on the business day next preceding the day on which the meeting is held;
(b)
The record date for determining Members entitled to give consent to Company action in writing without a meeting shall be
the day on which the first written consent is given;
(c)
The record date for determining Members for any other purpose shall be at the close of business on the day on which the
Managers adopt the resolution relating thereto, or the 60th day prior to the date of such other action, whichever is later; and
(d)
A determination of Members of record entitled to notice of or to vote at a meeting of Members shall apply to any adjournment
of the meeting unless the Managers fix a new record date for the adjourned meeting, but the Managers shall fix a new record date
if the meeting is adjourned for more than 45 days from the date set for the original meeting.
8.4.7
Proxies. Every Person entitled to vote or execute consents shall have the right to do so either in person or by one
or more agents authorized by a written proxy executed by such Person or its duly authorized agent and filed with the Managers.
No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy
continues in full force and effect until revoked as specified or unless it states that it is irrevocable. A proxy which states
that it is irrevocable is irrevocable for the period specified therein.
8.4.8
Chairman of Meeting. A Manager may select any Person to preside as chairman of any meeting of the Members, and if
such Person shall be absent from the meeting, or fail or be unable to preside, a Manager may name any other Person in substitution
therefor as chairman. The chairman of the meeting shall designate a secretary for such meeting, who shall take and keep or cause
to be taken and kept minutes of the proceedings thereof. The conduct of all Members’ meetings shall at all times be within
the discretion of the chairman of the meeting and shall be conducted under such rules as the chairman may prescribe. The chairman
shall have the right and power to adjourn any meeting at any time, without a vote of the Membership Interests present in person
or represented by proxy, if the chairman shall determine such action to be in the best interests of the Company.
8.4.9
Record Date and Closing Company Books. When a record date is fixed, only Members of record on that date are entitled
to notice of and to vote at the meeting or to receive a Distribution, or allotment of rights, or to exercise the rights, as the
case may be, notwithstanding any transfer of any Membership Interests on the books of the Company after the record date.
8.4.10
Meetings. No meeting of the Members shall be required.
8.5
Rights of Members. No Owner shall have the right or power to: (i) withdraw or reduce its Capital Contribution,
except as a result of the dissolution and termination of the Company or as otherwise provided in this Agreement or by law; (ii) bring
an action for partition against the Company; or (iii) demand or receive property other than cash in return of its Capital
Contribution. Except as provided in this Agreement, no Owner shall have priority over any other Owner either as to the return of
Capital Contributions or as to allocations of the Net Income, Net Loss or Distributions of the Company. Other than upon the termination
and dissolution of the Company as provided by this Agreement, there has been no time agreed upon when the contribution of each
Owner is to be returned.
8.6
Restrictions on the Owners. No Owner shall:
8.6.1
Disclose to any non-Owner, other than their lawyers, accountants or consultants, and/or commercially exploit any of the
Company’s business practices, trade secrets or any other information not generally known to the business community, including
the identity of suppliers utilized by the Company;
8.6.2
Do any other act or deed with the intention of harming the business operations of the Company;
8.6.3
Do any act contrary to this Agreement; or
8.6.4
Do any act which would make it impossible to carry on the intended purposes or ordinary business of the Company.
8.7
Return of Capital. In accordance with the Act, an Owner may, under certain circumstances, be required to return to
the Company, for the benefit of the Company’s creditors, amounts previously distributed to the Owner. If any court of competent
jurisdiction holds that any Owner is obligated to make any such payment, such obligation shall be the obligation of such Owner
and not of the Company, the Managers or any other Owner.
8.8
Indemnification of Members. The Company shall indemnify, protect, defend and hold harmless the Members, in their
capacity as Members (as opposed to the Managers which are indemnified pursuant to Section 7.7 in their capacity as the Managers),
and their shareholders, Affiliates, officers, directors, partners, managers, members, employees, agents and its and their respective
successors and assigns, from and against any loss, liability, damage, cost or expense (including legal fees and expenses incurred
in defense of any demands, claims or lawsuits) arising from actions or omissions concerning business or activities undertaken by
or on behalf of the Company from any source other than for the Member’s gross negligence, willful misconduct or fraud. The
Company shall advance to any Person entitled to indemnification pursuant to this Section 8.8 such funds as shall be required
to pay legal fees and expenses incurred in defense of any demands, claims or lawsuits as they become due. Notwithstanding the foregoing,
if the claim for indemnification is in connection with an action against the Company, or against another indemnified party by the
Person requesting the indemnification, the Company shall have no such obligation to advance any funds for the payment of legal
fees and expenses. In the event that there is a final, non-appealable determination by a court of competent jurisdiction that the
Member committed gross negligence, willful misconduct or fraud, such Member shall reimburse the Company for all costs and expenses
advanced pursuant to this Section 8.8. The obligations contained herein shall survive the termination or expiration of this Agreement
until such time as an action against the Members is absolutely barred by the statute of limitations.
9.
Resignation, Withdrawal or Removal of a Manager.
9.1
Resignation or Withdrawal of Manager. A Manager may withdraw as a Manager at any time, in its sole discretion.
9.2
Removal. A Manager may be removed as a manager by the Members with a Majority Vote. Members holding Class B Units
are entitled to one (1) vote per Class B Unit only in the matter of removing Manager.
9.3
Purchase of Manager’s Interest. Upon a Manager withdrawing pursuant to Section 9.1, (i) the withdrawing
Manager’s and any Affiliated Member’s Interest in the Distributions and allocations of Net Income and Net Loss set
forth in this Agreement and (ii) its interest in its right to the earned but unpaid fees and other compensation remaining
to be paid under this Agreement, shall be purchased by the Company for a purchase price equal to the Fair Market Value of the Manager’s
and the Affiliated Member’s Interest determined according to the provisions of Section 9.4 plus any unpaid fees and
compensation. The purchase price of such Interest shall be paid by the Company to the Manager and any Affiliated Member in cash
within 30 days of the determination of the aggregate Fair Market Value.
9.4
Fair Market Value. The Fair Market Value of a Manager’s Interest to be purchased by the Company pursuant to
Section 9.3 shall be determined by agreement between the Manager and the Company. If the Manager and the Company cannot agree
upon the Fair Market Value of such Company interest within 30 days, the Fair Market Value thereof shall be determined by appraisal,
the Company and the withdrawing Manager each to choose one appraiser and the two appraisers so chosen to choose a third appraiser.
The decision of a majority of the appraisers as to the Fair Market Value of such Company interest shall be final and binding and
may be enforced by legal proceedings. The withdrawing Manager and the Company shall each compensate the appraiser appointed by
it and the compensation of the third appraiser shall be borne equally by such parties.
10.
Assignment of a Manager’s Interest.
10.1
Permitted Assignments. A Manager may sell, assign, hypothecate, encumber or otherwise transfer all or any portion
of the Manager’s Interest in its sole discretion.
10.1.1
Any assignment or transfer of a Manager’s Interest provided for by this Agreement can be an assignment or transfer
of all or any portion of the Manager’s Interest.
10.1.2
Any transfer of all or a portion of a Manager’s Interest may be made only pursuant to the terms and conditions contained
in this Section 10.
10.1.3
Any such assignment shall be by a written instrument of assignment, the terms of which are not in contravention of any of
the provisions of this Agreement, and which has been duly executed by the assignor of the Manager’s Interest.
10.2
Substitute Manager. Any assignee of all of a Manager’s Interest in compliance with this Section 10 shall
automatically be substituted as a Manager.
10.3
Transfer in Violation Not Recognized. Any assignment, sale, exchange or other transfer in contravention of the provisions
of this Section 10 shall be void and ineffectual and shall not bind or be recognized by the Company.
10.4
Transfers to Affiliates. Notwithstanding the limitations set forth in this Section, a Manager may transfer its interest
without any restrictions and without application of Section 10 with respect to transfers to an Affiliate.
11.
Member and Owner Transfers.
11.1
Resignation or Withdrawal of a Member. Subject to this Section 11, a Member shall not resign or withdraw as
a Member, without the consent of the Managers.
11.2
Permitted Assignments. No Owner may directly or indirectly sell, assign, hypothecate, encumber or otherwise transfer
all or any portion of its Interest without the written consent of the Managers in their sole discretion.
11.2.1
Any assignment or transfer by an Owner of its Interest provided for by this Agreement can be an assignment or transfer of
all or any portion of its Interest.
11.2.2
Any transfer of all or any portion of an Owner’s Interest may be made only pursuant to the terms and conditions contained
in this Section 11.
11.2.3
Any such assignment shall be by a written instrument of assignment, the terms of which are not in contravention of any of
the provisions of this Agreement, and which has been duly executed by the assignor of such Interest and accepted by the Managers.
11.2.4
All costs of the transfer, including reasonable attorneys’ fees (if any), shall be borne by the transferring Owner.
11.2.5
The Company will limit transfers of Units to transfers of not more than 2% of the total Units per year other than transfers
for the following: (i) transfers as a result of death or incompetency, (ii) transfers between family members, (iii) other transfers
that qualify as “private transfers” as set forth in Treasury Regulations § 1.7704-1(e) or (iv) other transfers
that will not result in the Company being treated as a publicly traded partnership as set forth in the Treasury Regulations.
11.3
Substituted Members. No assignee of an Interest shall have the right to become a Substituted Member unless the Managers
shall consent thereto and all of the following conditions are satisfied:
11.3.1
A duly executed and acknowledged written instrument of assignment shall have been filed with the Company, which instrument
shall specify the Interest being assigned and set forth the intention of the assignor that the assignee succeed to the assignor’s
Interest as a Substituted Member in its place;
11.3.2
The assignor and assignee shall have executed, acknowledged and delivered such other instruments as the Managers may deem
necessary or desirable to effect such substitution, which may include an opinion of counsel regarding the effect and legality of
any such proposed transfer, and which shall include the written acceptance and adoption by the assignee of the Membership Interest
of the provisions of this Agreement;
11.3.3
The Managers shall have consented to admit the proposed assignee as a Substituted Member as set forth in this Section 11.3;
and
11.3.4
The assignee shall have delivered to the Managers a signed acknowledgement of receipt of a copy of this Agreement.
11.4
Loss of Rights. A Member shall cease to have the power to exercise any rights with respect to that portion of the
assigning Member’s Membership Interest that is assigned to a Substituted Member. In the event that the Member has assigned
all of the Member’s Membership Interest when the assignee becomes a Substituted Member, the assigning Member shall cease
to be a Member and shall cease to have the power to exercise any rights of a Member.
11.5
Consent of Members. By executing or adopting this Agreement, each Member hereby consents to the admission of a Substituted
Member, and to any Economic Interest Owner becoming a Substituted Member upon the consent of the Managers in compliance with this
Agreement.
11.6
Transfer in Violation Not Recognized. Any assignment, sale, transfer, exchange or other disposition in contravention
of the provisions of this Section 11 shall be void and ineffectual and shall not bind or be recognized by the Company. Upon
the transfer of a Member’s Membership Interest in violation of this Agreement, the Membership Interest of a Member shall
be converted to an Economic Interest.
11.7
Rights of Economic Interest Owner. An Economic Interest Owner shall be entitled to receive Distributions from the
Company attributable to the Interest acquired by reason of such assignment from and after the effective date of the assignment;
provided, however, that notwithstanding anything herein to the contrary, the Company shall be entitled to treat the assignor of
such Interest as the absolute owner thereof in all respects, and shall incur no liability for allocations of Net Income and Net
Loss or Distributions, or for the transmittal of reports or other information until the written instrument of assignment has been
received by the Company and recorded on its books. The effective date of such assignment shall be the date on which all of the
requirements of this Section have been complied with, subject to Section 4.7.
11.8
Right to Inspect Books. Economic Interest Owners shall have no right to inspect the Company’s books or records,
to vote on Company matters based on the voting rights attributable to the their class of unit, or to exercise any other right or
privilege as Members, until they are admitted to the Company as Substituted Members except as required by the Act.
11.9
Transfer Subject to Law. No assignment, sale, transfer, exchange or other disposition of any Membership Interest
may be made except in compliance with the applicable governmental laws and regulations, including state and federal securities
laws.
11.10
Right of First Refusal. This Section 11.10 is applicable whenever a Member desires to sell, assign, or otherwise
transfer any part or all of its Membership Interest:
11.10.1
If the Member desires to transfer all or a portion of its Interest, the Member shall give the Company written notice of
such proposed transfer (the “Transfer Notice”) and offer to sell such Interest to the Company or non-transferring Members.
The price of the Interest shall be the price at which such Interest is intended to be transferred by the Member to a third party
in a bona fide transaction. The Transfer Notice shall set forth the intended terms, conditions, price and the name and address
of such third party.
11.10.2
The Company or non-transferring Members shall have the option for a period of 10 business days from the date of receipt
of such written offer (the “Offer Period”) to accept such offer, and 2 months from the date of the receipt of such
written offer to purchase the Interest (the “Option Period”) on the terms and conditions set forth therein.
11.10.3
If the offer has not been accepted in writing prior to the expiration of the Offer Period, or, if so accepted in writing,
the closing of the purchase of the Interest by the Company or non-transferring Members is done so by delivering such written acceptance,
but if the applicable Interest has not been purchased, the Member shall have the right for a period of 180 days following the end
of the Offer Period (where no acceptance has been delivered by the Company) or the Option Period (where acceptance of the offer
has been delivered but the applicable Interest has not been purchased on or prior to the expiration of the Option Period), as applicable,
to dispose of all (but not less than all) of such Interest in accordance with the terms set forth in the Transfer Notice.
11.11
Repurchase Upon Violation of this Agreement. In the event a Member assigns all or a portion of its Membership Interest
without approval of the Managers or in violation of this Agreement, the Company may, at its option exercised within 60 days following
receipt of notice of such assignment from the Member or at any time if such information is obtained from any other Person, purchase
from such Member, and the Member shall transfer to the Company for the consideration of $100, all of the Member’s remaining
rights in the Company other than its Economic Interest. Each Member acknowledges and agrees that the right of the Company to purchase
such remaining rights and interest from a Member who transfers a Membership Interest in violation of Section 11 is not unreasonable
under the circumstances existing as of the date hereof. No such purchase by the Company of the remaining rights and interest of
the Member shall operate to make a Member’s assignee a Substituted Member. Upon exercise of the Company’s repurchase
rights under this Section 11.11, the Company shall have the right to purchase from the assignee the Economic Interest purchased
from the Member at the same price and terms paid by the assignee.
11.12
Exit Opportunities. Sale of Metals Concentrate: Management intends to sell the metals concentrate to a buyer and
upon the close of the sale shall use proceeds to redeem the units from the investors at a anticipated twelve and a half percent
(12.5%) return. Sale of the Company: The Manager will have the right, in its sole discretion, to cause the Company to sell the
interests in the Company. In the event that the Company provisions are revised the Company may sell the business.
11.13
Specific Performance. It is agreed that the rights granted to the parties in this Section 11 are of a special
and unique kind and character and if there is a breach by any Member of any material provision in this Section, the other Member
would not have adequate remedy at law. It is expressly agreed, therefore, that the provisions in this Section and the rights of
the Members thereunder may be enforced by an action for specific performance and such other equitable relief as is provided for
under the laws of the State of Nevada, and that any such action may only be brought in a court of competent jurisdiction in the
State of Nevada.
12.
Option to Purchase Units Upon Specified Events
12.1
Option to Purchase. Upon the occurrence of any of the following
events (each referred to hereinafter as an “Option Event”)
affecting a Member (the “Affected Member”), the Company
and then the other Members shall have the option to purchase the number of Units of the Affected Member as described in Section
9.2, for the price and on the terms set forth in Sections 12.3
and 12.4; provided, however, that no Option Event
shall be deemed to occur (and this Section 12 shall not apply)
if the Manager consents to any assignment or transfer (or potential assignment or transfer) resulting from an event described below
(which consent may not be unreasonably withheld) as if such assignment or transfer were made by the Affected Member pursuant to
Section 11: (a)
The maintenance of any proceeding initiated by or against a Member under any bankruptcy or debtors’ relief law
of the United States or of any other jurisdiction, which proceeding is not terminated within ninety (90) days after its commencement;
(b) A general assignment for the benefit of the creditors
of a Member; (c) A levy upon the Units of a Member pursuant
to a writ of execution or subject to the authority of any governmental entity, which levy is not removed within thirty (30) days,
and only to the extent of the Units subject to such levy; (d) The
entry of a Final Judgment of Dissolution of Marriage of a Member if in connection with such dissolution the spouse of such Member
is awarded Units or any interest therein as a result of a property settlement agreement or otherwise, but in such event such option
to purchase shall extend only to such spouse’s Units or interest therein. In such event, the Units of such spouse or such
spouse’s interest therein shall be deemed to be the “Units
of the Affected Member” for the purposes of this Agreement; (e)
With respect to Units transferred by a Member pursuant to Section
11, the loss of sole voting control over such Units by the transferring Member or such Units becoming no longer subject
to such trust, unless such Units are returned to the original transferor thereof. In such event, the Units so transferred shall
be deemed to be the “Units of the Affected Member” for
the purposes of this Agreement; (f) The death of a Member
(the “Deceased Member”) or upon the death of
any spouse of a Member who has acquired any interest in such Member’s Units subject to such spouse’s disposition by
will or otherwise at such spouse’s death if such spouse’s death occurs before such Member’s death (the “Deceased
Spouse”); provided, however, that the prior death of a spouse of a Member shall not give rise to an option
to purchase such Deceased Spouse’s interest in a Member’s Units by the Company or the other Members if, as a result
of such spouse’s death, such spouse’s Units or interest therein pass or will pass by will or otherwise to the Member
outright or to a trust pursuant to which the Member has sole voting control of such Units; provided further that, at such
time that the Member ceases to have sole voting control over Units or over any interest therein transferred to trust or the Units
or interest therein are distributed free of trust to other than such Member, the cessation of such voting control or distribution
free of trust shall give rise at such time to an option to purchase such Units or interest therein as though the Deceased Spouse
had then died without leaving the Deceased Spouse’s Units to the Member or to a trust over which such Member has sole voting
control of such Units or interest therein. In the event of the prior death of a spouse of a Member, such spouse and the interest
of such spouse in Units of the Member shall be deemed to be the “Affected
Member” and the “Units of the Affected Member,”
respectively, for the purposes of this Agreement. Notwithstanding anything to the contrary hereinabove, if the Deceased
Spouse of a Member leaves such Deceased Spouse’s interest in such Member’s Units in a manner that would otherwise give
rise to an option to purchase such interest by the Company and/or the remaining Members, then such Member shall have the first
option to purchase any such interest of his or her Deceased Spouse for the price and on the terms specified in Sections
12.4 and 12.5.
12.2
Exercise of Option. The Affected Member or the Affected
Member’s legal representative shall give written notice to the Company and the non-transferring Members immediately upon
the occurrence of an Option Event and in no event more than ten (10) days after the occurrence of such Option Event or the appointment
of a legal representative for such Affected Member, whichever occurs last. Upon receipt of written notice of the occurrence of
an Option Event and for a period of thirty (30) days thereafter, the Company shall have the first option to purchase all or any
portion of the Units of the Affected Member subject to repurchase pursuant to Section
12.1, provided that, in the event of the dissolution of the marriage of a Member, or on the occurrence of an
Option Event within the meaning of Section 12.1(e) or (f),
the divorced, transferring or widowed Member, as the case may be, shall have during the first fifteen (15) days of such thirty
(30) day period a concurrent but priority right to purchase the Units or interest therein that have been awarded to such Member’s
spouse as a result of the dissolution of such Member’s marriage or with respect to which such Member was the transferring
Member under Section 11, or which are not distributed to
such Member outright or to a trust over which such Member has sole voting control. In the event that the Company and, in any situation
where a divorced, transferring or widowed Member has a concurrent but priority option to purchase, such Member does not elect to
purchase all of the Units within such thirty (30) day period, the Company shall forthwith notify the non-transferring Members of
the election not to purchase all or a portion of the Affected Member’s Units, and such non-transferring Members shall then
have the option for a period of fifteen (15) days from the receipt of such notice to purchase the Units of the Affected Member
not purchased by the Company and/or the divorced, transferring or widowed Member (the “Remaining
Units of the Affected Member”). Within fifteen (15) days after the receipt of such notice, if the non-transferring
Members desire to acquire all or any portion of the Remaining Units of the Affected Member (the “Purchasing
Members”), then the Purchasing Members shall deliver to the Secretary (or to the Company in the event that there
is no Secretary) a written election to purchase such Remaining Units of the Affected Member or a specified number thereof. Except
upon the occurrence of the death of a Deceased Member or Deceased Spouse, as hereinabove defined, the option set forth in this
Section 12 may not be exercised unless the Company and/or
the Purchasing Members purchase all of the Units of the Affected Member. Subject to the foregoing, each non-transferring Member
shall have the right to elect to purchase all or any portion of such non-transferring Member’s pro rata share of the
Remaining Units of the Affected Member (with any reallotment as provided below in this Agreement). Each such non-transferring Member’s
pro rata share of the Remaining Units of the Affected Member shall be a fraction of the Remaining Units of the Affected
Member, of which the number of Units owned by such non-transferring Member on the date of the Option Event shall be the numerator,
and the total number of Units owned by all of the nontransferring Members on the date of the Option Event shall be the denominator.
Each non-transferring Member shall have a right of reallotment such that, if any other non-transferring Member fails to exercise
the right to purchase such non-transferring Member’s full pro rata share of the Remaining Units of the Affected Member,
then the participating non-transferring Members may exercise an additional right to purchase, on a pro rata basis, the Remaining
Units of the Affected Member not previously purchased.
12.3
Notice of Exercise of Option. If the Company and/or
the non-transferring Members elect to purchase all of the Units of the Affected Member, then the Company shall give notice of such
election, setting forth the number of such Units to be purchased by each party, by giving written notice of such election to the
Affected Member and, if applicable, the Affected Member’s receiver or trustee in bankruptcy, the creditor who secured a levy
upon the Affected Member’s assets and the Affected Member’s legal representative, spouse or other transferee, as the
case may be. Such notice shall be given within thirty (30) days after the Company’s receipt of notice of the Option Event
giving rise to the option to purchase in the event that the Company elects to purchase all of the Affected Member’s Units,
or within fifteen (15) days after the non-transferring Members have received notice of the Company’s election not to purchase
all of such Units in the event that all or a portion of such Units are to be purchased by the non-transferring Members.
12.4
9.4 Purchase Price for Units. (a) Purchase Price. The
purchase price to be paid by the Company and/or the Purchasing Members upon the exercise of any option to purchase Units under
Section 12.3 (the “Purchase
Price”) shall be the fair market value of the Units. (b)
Fair Market Value. The Affected Member or the legal representative of an Affected Member or Deceased Member or Deceased
Spouse, as one party, and the Company, as another party, shall attempt to agree upon the fair market value of the Units. If such
parties are unable to agree upon the fair market value of the Units within thirty (30) days following the notice of the exercise
of the option pursuant to Section 12.3, then the value per
Unit of the Units shall be determined by an independent appraiser experienced in appraising closely held businesses selected by
the mutual agreement of such parties. If such parties are unable to agree upon a mutually acceptable appraiser within forty-five
(45) days following the notice of exercise of the option pursuant to Section
12.3, then the fair market value shall be determined by the Company’s independent certified public accountant.
In performing such valuation, the appraiser or accountant, as the case may be, shall consider such methods of valuation as are
customary and appropriate in the discretion of such appraiser or accountant. (c)
Binding Effect. The value determined pursuant to this Section
12.4 shall be binding on the parties to this Agreement, their legal representatives and their successors in interest
for purposes of purchases and sales made pursuant to Section 12.3.
12.5
Payment of Purchase Price. (a) Form of Payment. The
Company and/or the Purchasing Members shall execute and deliver a negotiable promissory note (the “Note(s)”)
representing the purchase price of that portion of the Units of the Affected Member or Deceased Member or Deceased Spouse to be
purchased by him, her or it no later than thirty (30) days following (i) the giving of notice pursuant to Section
12.3 containing the election of the Company and/or the Purchasing Members to purchase the Units of the Affected Member;
(ii) the appointment of a legal representative for a Deceased Member or Deceased Spouse; or (iii) if applicable, receipt of the
decision of the appraiser or independent certified public accountant as to the value of the Units of the Affected Member or Deceased
Member or Deceased Spouse under Section 12.4, whichever
is later. (b) Terms of Note(s). The Note(s) shall be fully
amortized over a period of not more than forty-eight (48) months and shall bear interest from the date of delivery at a rate equal
to nine percent (9%) per annum or the maximum lawful rate, whichever is less. Anything herein to the contrary notwithstanding,
in no event shall the interest rate exceed the maximum rate permitted by law. Principal and interest on the Note(s) shall be payable
in equal quarterly installments commencing three (3) months after the Option Event date or ten (10) days after the date specified
in Section 12.5(a) for delivery of the Note(s), whichever
occurs later, and ending no later than forty-eight (48) months after the Option Event date, provided that the Note(s) shall
be subject to prepayment, in whole or in part, without penalty, at any time after the calendar year of the sale of the Units of
the Affected Member or Deceased Member or Deceased Spouse. All prepaid sums shall be applied against the installments thereafter
falling due in inverse order of their maturity or against all the remaining installments equally, at the option of the payee. The
Note(s) shall provide that, in any case of default, at the election of the holder the entire sum of principal and interest shall
immediately be due and payable and that the maker shall pay reasonable attorneys’ fees to the holder in the event that suit
is commenced because of default. Any promissory note executed by the Company and/or the Purchasing Members pursuant to this Section
12.5 shall be secured by a pledge of the Units so purchased. The pledgeholder shall be such person as the parties shall
mutually agree upon, and the pledge agreement shall contain such other terms and provisions as may be customary and reasonable.
As long as no default occurs in payment on the Note(s), the purchasers (other than the Company) shall be entitled to vote the Units
(provided that the Units are Class A Units); however, Distributable Cash shall be paid to the holder of the Note(s) as a prepayment
of principal. The Company and/or the Purchasing Members shall expressly waive demand, notice of default and notice of sale and
shall consent to public or private sale of the Units in the event of default, in mass or in lots at the option of the pledgeholder,
and the holder of the Note(s) shall have the right to purchase at the sale.
12.6
Agreement to Transfer. Each Member agrees that, upon
receipt of the Note(s) in connection with the purchase of such Member’s Units pursuant to Sections
12.3 and 12.5, such Member or such Member’s
legal representative shall execute and deliver all documents that are required to transfer the Units to the Company and/or the
Purchasing Members. If such Member or such Member’s legal representative refuses to do so, then the Company nevertheless
shall enter the transfer on its Member records and hold such consideration available for the Member or such Member’s legal
representative, and thereafter all voting rights of such Units shall be exercised by the designated transferees of such Units under
this Agreement.
13.
Books, Records, Accounting and Reports.
13.1
Records. The Company shall maintain at its principal office the Company’s records and accounts of all operations
and expenditures of the Company including the following:
13.1.1
A current list of the name and last known business, residence or mailing address of each Owner and Managers;
13.1.2
A copy of the Certificate of Formation and all amendments thereto, together with any powers of attorney pursuant to which
the Certificate of Formation or any amendments thereto were executed;
13.1.3
Copies of the Company’s federal, state and local income tax or information returns and reports, if any, for the 6
most recent fiscal years;
13.1.4
Copies of this Agreement and any amendments thereto together with any powers of attorney pursuant to which any written accounting
or any amendments thereto were executed;
13.1.5
Copies of any financial statements of the Company, if any, for the 6 most recent years; and
13.1.6
The Company’s books and records as they relate to the internal affairs of the Company for at least the current and
past 4 fiscal years.
13.2
Delivery to Members and Inspection. Each Member, or its representative designated in writing, has the right, upon
reasonable written request for the purposes related to the interest of that Person as a Member, which purposes shall be set forth
in the written request, to receive from the Company:
13.2.1
True and full information regarding the status of the business and financial condition of the Company;
13.2.2
Promptly after becoming available, a copy of the Company’s federal, state and local income tax returns for each year;
13.2.3
A current list of the name and last known business, residence or mailing address of each Manager;
13.2.4
A copy of this Agreement and the Certificate of Formation and all amendments thereto, together with executed copies of any
written powers of attorney pursuant to which this Agreement and the Certificate of Formation and all amendments thereto have been
executed; and
13.2.5
True and full information regarding the amount of cash and a description and statement of the agreed value of any property
or services contributed by each Owner and which each Owner has agreed to contribute in the future, and the date on which each became
an Owner.
13.3
Reports. The Administrative Manager will cause the Company, at the Company’s expense, to prepare an annual
report on the operations of the Company containing a year-end balance sheet and income statement.
13.4
Tax Information. The Administrative Manager, at the Company’s expense, shall cause the income tax returns for
the Company to be prepared and timely filed with the appropriate authorities. The Company shall send to each Member within 90 days
after the end of each taxable year such information as is necessary to complete federal and state income tax or information returns,
and a copy of the Company’s federal, state, and local income tax or information returns for that year; provided, however,
that this time may be extended by the Administrative Manager in its sole discretion.
13.5
Limitations. Notwithstanding Section 12.2, the Managers, in their sole discretion, may restrict receipt of the
information identified in Section 12.2, if the Managers reasonably believe that disclosure of such information is not in the
best interest of the Company or could damage the Company or its business.
13.6
Partnership Audit Rules.
13.6.1
The Administrative Manager shall be the “partnership representative” for purposes of Code Sections 6223 and
6231, as amended by Section 1101 of the Bipartisan Budget Act of 2015, and shall, at the Company’s expense, cause to be prepared
and timely filed after the end of each taxable year of the Company all federal and state income tax returns required of the Company
for such taxable year. If any state or local tax law provides for a partnership representative or Person having similar rights,
powers, authority or obligations, the Administrative Manager shall also serve in such capacity. The Company shall make such elections
pursuant to the provisions of the Code as the Administrative Manager, in its sole discretion, deems appropriate (including, in
the Administrative Manager’s sole discretion, an election under Code Section 754 or an election to have the Company treated
as an “electing investment partnership” for purposes of Code Section 743).
13.6.2
If any audit adjustment results in an underpayment of tax that is imputed to the Company and would be assessed and collected
at the Company level in the period that the adjustment becomes final, the Company may, in the sole discretion of the Administrative
Manager, elect:
(a)
to pay an imputed underpayment as calculated under Code Section 6225(b) with respect to such adjustment, including interest,
penalties and related tax (“Imputed Underpayment”) in the Adjustment Year or otherwise take the Internal Revenue Service
adjustment into account in the Adjustment Year. The Administrative Manager shall use commercially reasonable efforts to reduce
the amount of such Imputed Underpayment on account of the tax-exempt status (as defined in Code Section 168(h)(2)) of any Members
as provided in Code Section 6225(c)(3). Each Member agrees to indemnify and hold harmless the Company and the Administrative Manager
from and against any liability with respect to the Member’s (or former Member’s) proportionate share of any Imputed
Underpayment, regardless of whether such Member is a Member in the Adjustment Year, and to promptly pay its proportionate share
of any Imputed Underpayment to the Company within 15 days following the Administrative Manager’s request for payment and
any amount that is not funded shall be treated as a Tax Payment under Section 4.10.1. Each Member’s (or former Member’s)
proportionate share shall be determined by the Administrative Manager in good faith taking into account each Member’s (or
former Member’s) particular status, including its tax-exempt or non-United States status, its interest in the Company in
the Reviewed Year, and its timely provision of information necessary to reduce the amount of Imputed Underpayment set forth in
Code Section 6225(c); or
(b)
under Code Section 6226(a), as amended by the Bipartisan Act of 2015, to cause the Company to issue adjusted Schedule K-1s
or any other similar statement prescribed by the Code, Treasury Regulations or other administrative guidance published by the Internal
Revenue Service or other taxing authority to each applicable Member for the Reviewed Year, who will then be required to pay its
allocable share of tax otherwise attributable to the Company. Each Member hereby agrees and consents to such election and agrees
to take any action, and furnish the Administrative Manager with any information necessary to give effect to such election, as required
by such Code Section and applicable Treasury Regulations or other administrative guidance published by the Internal Revenue Service
or other taxing authority.
14.
Termination and Dissolution of the Company.
14.1
Termination of the Company. The Company shall be dissolved, shall terminate and its assets shall be disposed of,
and its affairs wound up upon the earliest to occur of the following:
14.1.1
Upon the happening of any event of dissolution specified in the Certificate of Formation;
14.1.2
A determination by the Managers to terminate the Company;
14.1.3
Upon the entry of a decree of judicial dissolution; or
14.1.4
The expiration of the term of the Company.
14.2
Certificate of Cancellation. As soon as possible following the occurrence of any of the events specified in Section 13.1,
a Manager who has not wrongfully dissolved the Company or, if none, the Members shall execute a Certificate of Cancellation
in such form as shall be required by the Act.
14.3
Liquidation of Assets. Upon a dissolution and termination of the Company, the Managers (or in case there is no Manager,
the Members or Person designated by the Members pursuant to a Majority Vote) shall take full account of the Company assets and
liabilities, shall liquidate the assets as promptly as is consistent with obtaining the fair market value thereof, and shall apply
and distribute the proceeds therefrom in the following order:
14.3.1
To the payment of creditors of the Company, including Members who are creditors to the extent permitted by law, but excluding
secured creditors whose obligations will be assumed or otherwise transferred on the liquidation of Company assets;
14.3.2
To the setting up of any reserves as required by law for any liabilities or obligations of the Company; provided, however,
that said reserves shall be deposited with a bank or trust company in escrow at interest for the purpose of disbursing such reserves
for the payment of any of the aforementioned contingencies and, at the expiration of a reasonable period, for the purpose of distributing
the balance remaining in accordance with the remaining provisions of this Section 13.3; and
14.3.3
To the Owners as set forth in Section 5.1.
14.4
Distributions Upon Dissolution. Each Member shall look solely to the assets of the Company for all Distributions
of its Capital Contributions, and shall have no recourse therefor (upon dissolution or otherwise) against the Managers or any Member.
No Member shall be required to restore any deficit in the Member’s Capital Account.
14.5
Liquidation of Member’s Interest. If there is a Liquidation of a Member’s Interest or a Manager’s
Interest in the Company, any liquidating Distribution pursuant to such Liquidation shall be made only to the extent of the positive
Capital Account balance, if any, of such Member or Manager for the taxable year during which such Liquidation occurs after proper
adjustments for allocations and Distributions for such taxable year up to the time of Liquidation. Such Distributions shall be
made by the end of the taxable year of the Company during which such Liquidation occurs, or if later, within 90 days after such
Liquidation.
15.
Special and Limited Power of Attorney and Amendments.
15.1
Power of Attorney. The Managers shall at all times during the term of the Company have a special and limited power
of attorney as the attorney-in-fact for each Member, with power and authority to act in the name and on behalf of each such Member
to execute, acknowledge, and swear to in the execution, acknowledgment and filing of documents which are not inconsistent with
the provisions of this Agreement and which may include, by way of illustration but not by limitation, the following:
15.1.1
This Agreement, as well as any amendments to the foregoing which, under the laws of the State of Nevada or the laws of any
other state, are required to be filed or which the Managers shall deem it advisable to file;
15.1.2
Any other instrument or document that may be required to be filed by the Company under the laws of any state or by any governmental
agency or which the Managers shall deem it advisable to file;
15.1.3
Any instrument or document that may be required to affect the continuation of the Company, the admission of Substituted
Members, or the dissolution and termination of the Company (provided such continuation, admission or dissolution and termination
are in accordance with the terms of this Agreement);
15.1.4
Any contract for purchase or sale of real estate, and any deed, deed of trust, mortgage, or other instrument of conveyance
or encumbrance, with respect to Property;
15.1.5
Any and all other instruments as the Managers may deem necessary or desirable to affect the purposes of this Agreement and
carry out fully its provisions, including, but not limited to, those in Section 14.4; and
15.1.6
Any document, including assignments or other documents transferring title to an Owner’s Interest to a purchaser, required
to be executed to complete a Transfer, as set forth in Section 11.14.
15.2
Provision of Power of Attorney. The special and limited power of attorney of the Managers:
15.2.1
Is a special power of attorney coupled with the interest of the Managers in the Company, and its assets, is irrevocable,
shall survive the death, incapacity, termination or dissolution of the granting Member, and is limited to those matters herein
set forth;
15.2.2
May be exercised by the Managers by and through one or more of the officers of the Managers for each of the Members by the
signature of the Managers acting as attorney-in-fact for all of the Members, together with a list of all Members executing such
instrument by their attorney-in-fact or by such other method as may be required or requested in connection with the recording or
filing of any instrument or other document so executed; and
15.2.3
Shall survive an assignment by a Member of all or any portion of his Membership Interests except that, where the assignee
of the Membership Interests owned by the Member has been approved by the Managers for admission to the Company as a Substituted
Member, the special power of attorney shall survive such assignment for the sole purpose of enabling the Managers to execute, acknowledge
and file any instrument or document necessary to effect such substitution.
15.3
Notice to Members. The Managers shall promptly furnish to a Member a copy of any amendment to this Agreement executed
by the Managers pursuant to a power of attorney from the Member.
15.4
Amendment of Agreement.
15.4.1
Admission of Member. Amendments to this Agreement for the admission of any Member or Substituted Member shall not,
if in accordance with the terms of this Agreement, require the consent of any Member.
15.4.2
Amendments with Consent of Member. In addition to any amendments otherwise authorized herein, this Agreement may
be amended by the Managers with a Majority Vote.
15.4.3
Amendments Without Consent of the Members. In addition to the amendments authorized pursuant to Section 4.8
and Section 7.3.15 or otherwise authorized herein, the Managers may amend this Agreement, without the consent of any of the Members,
(i) modify the allocation provisions of the Operating Agreement to comply with Code Section 704(b), (ii) add to
the representations, duties, services or obligations of the Manager or any Affiliates for the benefit of the Members, (iii) cure
any ambiguity or mistake, correct or supplement any provision in the Operating Agreement that may be inconsistent with any other
provision, or make any other provision with respect to matters or questions arising under the Operating Agreement that will not
be inconsistent with the provisions of the Operating Agreement, (iv) amend the Operating Agreement to reflect the addition
or substitution of Members or the reduction of the Capital Accounts upon the return of capital to the Members, (v) minimize
the adverse impact of, or comply with, any “plan assets” for ERISA purposes, (vi) reconstitute the Company under
the laws of another state if beneficial to the Company, (vii) execute, acknowledge and deliver any and all instruments to
effectuate the foregoing, including the execution, acknowledgment and delivery of any such instrument by the attorney-in-fact for
the Manager under a special or limited power of attorney and to take all such actions in connection therewith as the Manager deems
necessary or appropriate with the signature of the Manager acting alone, (viii) make any changes to the Operating Agreement
required by a lender, (ix) change the name and/or principal place of business of the Company, (x) decrease the rights
and powers of the Manager (so long as such decrease does not impair the ability of the Manager to manage the Company and conduct
its business affairs). No amendment will be adopted pursuant to (ix) or (x) above without the consent of the Members
unless the adoption thereof (a) is for the benefit of and not adverse to the interests of the Members and (b) does not
affect the limited liability of the Members.
15.4.4
Execution and Recording of Amendments. Any amendment to this Agreement shall be executed by the Managers, and by
the Managers as attorney-in-fact for the Members pursuant to the power of attorney contained in Section 14.1. After the execution
of such amendment, the Managers shall also prepare and record or file any certificate or other document which may be required to
be recorded or filed with respect to such amendment, either under the Act or under the laws of any other jurisdiction in which
the Company holds any Property or otherwise does business.
15.4.5
Prohibitions. The Operating Agreement provides that the Manager may not, without a Majority Vote, receive any rebate
or give-up in connection with the operation of the Company, nor may the Manager participate in any reciprocal business arrangements
that would enable the Manager or its Affiliates to do so. Neither the Manager nor any Affiliates, without a Majority Vote, will
directly or indirectly pay or award any finder’s fees, commissions or other compensation to any person engaged by a potential
investor for investment advice as an inducement to such advisor to advise the purchase of an interest in the Company; provided,
however, that the Manager will not be prohibited from paying underwriting or marketing commissions to registered broker-dealers
or other properly licensed persons for their services in marketing Units as provided for in the Operating Agreement.
16.
Relationship of this Agreement to the Act. Many of the terms of this Agreement are intended to alter or extend provisions
of the Act as they may apply to the Company or the Members. Any failure of this Agreement to mention or specify the relationship
of such terms to provisions of the Act that may affect the scope or application of such terms shall not be construed to mean that
any of such terms is not intended to be a limited liability company agreement provision authorized or permitted by the Act or which
in whole or in part alters, extends or supplants provisions of the Act as may be allowed thereby.
17.
Representations of Each Member. Each Member represents as follows:
17.1
Sophistication and Risk Tolerance. The Member is an “accredited investor” as defined in Section 501 of
Regulation D of the Securities Act of 1933. The Member is capable of evaluating the risks and merits of acquiring an interest in
the Company, has no need for liquidity of investment with respect to the purchase price of such Membership Interest, and can afford
to sustain a complete loss of such purchase price.
17.2
Unregistered Securities. The Member understands that the interests represented by the Membership Interest issued
to the Member have not been registered or qualified and have been offered and sold in reliance on exemptions from registration
and qualification requirements of federal, state or foreign securities laws and that no governmental agency has passed on the merits
or risks of acquiring an interest in the Company.
17.3
No View to Resell. The Member is acquiring the Membership Interest for investment purposes only and not with a view
to resell or distribute to any other Person.
17.4
Status. The Member, if an entity, is duly formed and organized, validly existing and in good standing under the laws
of the state of its formation and has the power under its formation documents and has the power and authority to execute, deliver
and perform this Agreement, which upon execution and delivery will be a valid and binding obligation enforceable in accordance
with its terms (subject only to the application of bankruptcy, insolvency or other similar laws regarding the rights of creditors
generally and the exercise of judicial discretion in equity).
17.5
Due Authorization. The execution, delivery and performance of this Agreement by such Member are duly authorized and
do not require the consent or approval of any Person that has not been obtained, and, if such Member is an entity, are not in contravention
of or in conflict with any term or provision of such Member’s organizational documents.
17.6
Other Agreements. The execution, delivery and performance of this Agreement will not breach or constitute a default
under any agreement, indenture, undertaking or other instrument to which the Member or any Affiliate is a party or by which any
of such Persons or any of their respective properties may be bound or affected, which breach or default would have a materially
adverse effect on the financial condition, properties or operations of this Company, and other than as contemplated by this Agreement,
such execution, delivery and performance will not result in the creation or imposition of (or the obligation to create or impose)
any lien or encumbrance on any of the Company’s property.
18.
Miscellaneous.
18.1
Counterparts. This Agreement may be executed in several counterparts, and all so executed shall constitute one Agreement,
binding on all of the parties hereto, notwithstanding that all of the parties are not signatory to the original or the same counterpart.
18.2
Successors and Assigns. The terms and provisions of this Agreement shall be binding upon and shall inure to the benefit
of the successors and assigns of the respective Members.
18.3
Severability. In the event any sentence or Section of this Agreement is declared by a court of competent jurisdiction
to be void, such sentence or Section shall be deemed severed from the remainder of this Agreement and the balance of this Agreement
shall remain in full force and effect.
18.4
Notices. All notices under this Agreement shall be in writing and shall be given to the Members or Economic Interest
Owners entitled thereto, by personal service or by mail or by overnight courier, posted to the address maintained by the Company
for such Person or at such other address as it may specify in writing.
18.5
Members’ Address. The name and address of the Members are as set forth on Exhibit B.
18.6
Name and Address of Managers. The name and address of the Managers are as follows:
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VivaVentures Management Company, Inc.
2 park Plaza, Suite 800
Irvine, CA 92614
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18.7
Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada.
18.8
Captions. Section titles or captions contained in this Agreement are inserted only as a matter of convenience and
reference. Such titles and captions in no way define, limit, extend or describe the scope of this Agreement nor the intent of any
provisions hereof.
18.9
Gender. Whenever required by the context hereof, the singular shall include the plural, and vice versa, and the masculine
gender shall include the feminine and neuter genders, and vice versa.
18.10
Time. Time is of the essence with respect to this Agreement.
18.11
Additional Documents. Each Member, upon the request of the Managers, shall perform any further acts and execute and
deliver any documents which may be reasonably necessary to carry out the provisions of this Agreement, including, but not limited
to, providing acknowledgment before a Notary Public of any signature made by a Member.
18.12
Descriptions. All descriptions referred to in this Agreement are expressly incorporated herein by reference as if
set forth in full, whether or not attached hereto.
18.13
Attorneys’ Fees. In the event that litigation or arbitration is commenced to enforce any of the provisions
of this Agreement, to recover damages for breach of any of the provisions of this Agreement, or to obtain declaratory relief in
connection with any of the provisions of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys’
fees and costs, whether or not such action proceeds to judgment. The prevailing party shall be determined by either the officiating
judge or arbitrator in the matter or by the presiding judge in Nevada.
18.14
Venue. Any action relating to or arising out of this Agreement shall be brought only in a court of competent jurisdiction
located in Nevada.
18.15
Partition. The Members agree that the assets of the Company are not and will not be suitable for partition. Accordingly,
each of the Members hereby irrevocably waives any and all rights that it may have, or may obtain, to maintain any action for partition
of any of the assets of the Company.
18.16
Integrated and Binding Agreement. This Agreement contains the entire understanding and agreement among the Members
with respect to the subject matter hereof, and there are no other agreements, understandings, representations or warranties among
the Members other than those set forth herein. This Agreement may be amended only as provided in this Agreement.
18.17
Title to Company Property. All Property owned by the Company shall be owned by the Company as an entity and, insofar
as permitted by applicable law, no Member shall have any ownership interest in any Company Property in its individual name or right,
and each Member’s Membership Interest shall be personal property for all purposes.
18.18
Electronic Signatures. Any electronic signature of a party to this Agreement and of a party to take any action related
to this Agreement or any agreement entered into by this Company shall be valid as an original signature and shall be effective
and binding. Any such electronic signature (including the signature(s) to this Agreement) shall be deemed (i) to be “written”
or “in writing,” (ii) to have been signed and (iii) to constitute a record established and maintained in the ordinary
course of business and an original written record when printed from electronic files.
[Signature Page Follows]
IN WITNESS WHEREOF,
this Agreement is effective as of the date first set forth in the preamble.
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MEMBER:
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VIVAVENTURES
MANAGEMENT COMPANY, INC.,
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a Nevada
corporation
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By:
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Vivakor, Inc., its manager
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By:
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/s/ Matt Nicosia
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Name:
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Matt Nicosia,
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Title:
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Chief Executive Officer
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MANAGER:
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VIVAVENTURES
MANAGEMENT COMPANY, INC.,
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a Nevada
corporation
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By:
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/s/ Matt Nicosia
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Name:
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Matt Nicosia,
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Title:
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President
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EXHIBIT A
DEFINITIONS
“Act” shall
mean the Nevada Limited Liability Company Act, as the same may be amended from time to time.
“Adjusted Capital
Account Deficit” shall mean, with respect to any Member, the deficit balance, if any, in such Member’s Capital Account
as of the end of the relevant fiscal year, after giving effect to the following adjustments:
(i)
Credit to such Capital Account any amounts which the Member is obligated to restore and the Member’s share of Member
Minimum Gain and Company Minimum Gain and;
(ii)
Debit to such Capital Account the items described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5),
and 1.704-1(b)(2)(ii)(d)(6).
“Adjustment Year”
shall have the meaning assigned to such term in Code Section 6225(d)(2).
“Administrative
Manager” shall mean VivaVentures Management Company, Inc., a Nevada corporation.
“Affiliate”
shall mean (i) any Person directly or indirectly controlling, controlled by or under common control with another Person, (ii) a
Person owning or controlling 10% or more of the outstanding voting securities of such other Person, (iii) any officer, director
or partner of such other Person and (iv) if such other Person is an officer, director or partner, any company for which such
Person acts in any capacity.
“Agreement”
shall mean this Limited Liability Company Agreement, as amended from time to time.
“Book Gain”
shall mean the excess, if any, of the fair market value of the Property over its adjusted basis for federal income tax purposes
at the time a valuation of the Property is required under this Agreement or Treasury Regulations Section 1.704-1(b) for
purposes of making adjustments to the Capital Accounts.
“Book Loss”
shall mean the excess, if any, of the adjusted basis of Property for federal income tax purposes over its fair market value at
the time a valuation of the Property is required under this Agreement or Treasury Regulations Section 1.704-1(b) for
purposes of making adjustments to the Capital Accounts.
“Book Value”
shall mean the adjusted basis of Property for federal income tax purposes increased or decreased by Book Gain, Book Loss, Built-In
Gain and Built-In Loss as reduced by depreciation, amortization or other cost recovery deductions, or otherwise, based on such
Book Value.
“Built-In Gain
(or Loss)” shall mean the amount, if any, by which the agreed value of contributed Property exceeds (or is less than) the
adjusted basis of Property contributed to the Company by a Member immediately after its contribution by the Member to the capital
of the Company.
“Business”
shall mean purchasing precious metals concentrate with the goal of marketing and selling
the precious metal concentrate to buyers of precious metal.
“Capital Account”
with respect to any Member (or such Member’s assignee) shall mean such Member’s initial Capital Contribution adjusted
as follows:
(i)
A Member’s Capital Account shall be increased by:
(a)
such Member’s share of Net Income from the unit(s) of Assets funded by the Member’s class of unit;
(b)
any item of income or gain specially allocated to a Member and not included in Net Income or Net Loss;
(c)
any additional cash Capital Contribution made by such Member to the Company; and
(d)
the fair market value of any additional Capital Contribution consisting of property contributed by such Member to the capital
of the Company reduced by any liabilities assumed by the Company in connection with such contribution or to which the Property
is subject.
(ii)
A Member’s Capital Account shall be reduced by:
(a)
such Member’s share of Net Loss from the unit(s) of Assets funded by the Member’s class of unit;
(b)
any loss or deduction specially allocated to a Member and not included in Net Income or Net Loss;
(c)
any cash Distribution made to such Member from the unit(s) of Assets funded by the Member’s class of unit; and
(d)
the fair market value, as determined by the Managers, of any Property (reduced by any liabilities assumed by the Member
in connection with the Distribution or to which the distributed Property is subject) distributed to such Member; provided that,
upon liquidation and winding up of the Company, unsold Property will be valued for Distribution at its fair market value and the
Capital Account of each Member before such Distribution shall be adjusted to reflect the allocation of gain or loss that would
have been realized had the Company then sold the Property for its fair market value. Such fair market value shall not be less than
the amount of any nonrecourse indebtedness that is secured by the Property.
Property other than
money may not be contributed to the Company except as specifically provided in this Agreement. Property of the Company may not
be revalued for purposes of calculating Capital Accounts unless the Managers determine the fair market value of the Property and
the Company complies with the requirements of Treasury Regulations Section 1.704-1(b)(2)(iv)(f) and (g); provided, however,
for purposes of calculating Book Gain or Book Loss (but not for purposes of adjusting Capital Accounts to reflect the contribution
and distribution of such Property), the fair market value of Property shall be deemed to be no less than the outstanding balance
of any nonrecourse indebtedness secured by such Property.
The Capital Account
of a Substituted Member shall include the Capital Account of its transferor. Notwithstanding anything to the contrary in this Agreement,
the Capital Accounts shall be maintained in accordance with Treasury Regulations Section 1.704-1(b). For purposes of this
Agreement, any references to the Treasury Regulations shall include corresponding subsequent provisions.
“Capital Contribution”
shall mean the gross amount of cash actually contributed by a Member to the capital of the Company pursuant to Section 3 and
the agreed upon fair market value of a contributing Member’s equity in any property actually contributed pursuant to Section 3
(including any indebtedness assumed by a Member). In the plural, “Capital Contributions” shall mean the aggregate amount
contributed by all of the Members in the Company.
“Cash From Operations”
shall mean the net cash realized by a class of unit from all sources, including, but not limited to, the operations of the class
of unit, and also including the sale, exchange or transfer of the Business, after payment of all cash expenditures of the Company,
including, but not limited to, all operating expenses including all fees payable to the Managers or Affiliates, all payments of
principal and interest on indebtedness, expenses for repairs and maintenance, capital improvements and replacements, and such reserves
and retentions as the Managers reasonably determine to be necessary and desirable in connection with Company operations with its
then existing assets and any anticipated acquisitions.
“Certificate
of Formation” shall mean the Certificate of Formation of the Company as filed with the Secretary of State of Nevada as the
same may be amended or restated from time to time.
“Code”
shall mean the Internal Revenue Code of 1986, as amended, or corresponding provisions of subsequently enacted federal revenue laws.
“Company”
shall mean International Metals Exchange, LLC, a Nevada limited liability company.
“Company Minimum
Gain” shall have the same meaning as “partnership minimum gain” as set forth in Treasury Regulations Section 1.704-2(d).
“Delinquent Member”
shall have the meaning set forth in Section 3.3.
“Distribution”
shall refer to any money or other property transferred without consideration to Members or Owners of each class of unit from the
Assets funded by the Member’s class of unit, and then with respect to their Interests in the class of unit.
“Drag-Along Right”
shall have the meaning set forth in Section 11.12.
“Drag-Along Closing”
shall have the meaning set forth in Section 11.12.
“Economic Interest”
shall mean an interest in the Net Income, Net Loss and Distributions associated with the Assets funded by a certain class of unit
but shall not include any right to vote or to participate in the management of the Company.
“Economic Interest
Owner” shall mean the owner of an Economic Interest who is not a Member.
“Fair Market
Value” shall have the meaning set forth in Section 9.4.
“Interest”
shall mean a Membership Interest or an Economic Interest.
“Liquidation”
shall mean in respect to the Company the earlier of the date upon which the Company is terminated under Code Section 708(b)(1)
or the date upon which the Company ceases to be a going concern (even though it may exist for purposes of winding up its affairs,
paying its debts and distributing any remaining balance to its Members), and in respect to a Member where the Company is not in
Liquidation means the date upon which occurs the termination of the Member’s entire interest in the Company by means of a
distribution or the making of the last of a series of Distributions (whether or not made in more than one year) to the Member by
the Company.
“Major Decision”
shall have the meaning set forth in Section 7.4.
“Majority Vote”
shall mean, with respect to the Members, a vote of the Members holding more than 50% of the Membership Interests entitled to vote
to the extent that holders of Units in the Company are provided with the right to vote hereunder or as required under the Act,
in which case Members with the right to vote shall be entitled to cast one vote for each Membership Interest they own, and a fractional
vote for each fractional Membership Interest they own. Whenever a Majority Vote is required, the Company will provide the Members
with notice of such required vote, and the Members will have 15 days after the date such notice is sent by the Company to approve
or disapprove of the matter. If a Member does not disapprove of the matter within such 15-day period, the Member will be deemed
to have voted in accordance with the vote recommended by the Manager.
“Managers”
shall mean VivaVentures Management Company, Inc., a Nevada corporation.
“Manager’s
Interest” shall represent an interest in the class of unit of the Company entitling a Manager to the voting and other
rights that the Member may enjoy by being a Member.
“Member”
shall refer to any Person who is admitted to the Company under a certain class of unit as a Member of that class of unit or a Substituted
Member of that class of unit and who has not ceased to be a Member.
“Member Minimum
Gain” shall mean “partner nonrecourse debt minimum gain” as determined under Treasury Regulations Section 1.704-2(i)(3).
“Member Nonrecourse
Debt” shall mean “partner nonrecourse debt” as set forth in Treasury Regulations Section 1.704-2(b)(4).
“Member Nonrecourse
Deductions” shall mean “partner nonrecourse deductions,” and the amount thereof shall be, as set forth in Treasury
Regulations Section 1.704-2(i).
“Membership Interest”
shall mean a Member’s entire interest in the Company including such Member’s Economic Interest and such voting and
other rights and privileges that the Member may enjoy by being a Member pertaining to the Member’s class of unit.
“Net Income”
or “Net Loss” shall mean, respectively, for each taxable year of the Company the taxable income and taxable loss (exclusive
of Built-In Gain or Loss) of the Assets associated with each class of unit as determined for federal income tax purposes in accordance
with Code Section 703(a) (including all items of income, gain, loss, or deduction required to be separately stated pursuant
to Code Section 703(a)(1)) (other than any specific item of income, gain (exclusive of Built-In Gain), loss (exclusive of
Built-In Loss), deduction or credit subject to special allocation under this Agreement), with the following modifications:
(a)
The amount determined above shall be increased by any income from the Assets associated with each class of unit exempt from
federal income tax;
(b)
The amount determined above shall be reduced by any expenditures described in Code Section 705(a)(2)(B) or expenditures
treated as such pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i);
(c)
Depreciation, amortization and other cost recovery deductions shall be computed based on Book Value instead of on the amount
determined in computing taxable income or loss. Any item of deduction, amortization or cost recovery specially allocated to a Member
and not included in Net Income or Net Loss shall be determined for Capital Account purposes for their individual class of unit
in a similar manner; and
(d)
For purposes of this Agreement, Book Gain and Book Loss attributable to a revaluation of Property attributable to unrealized
gain or loss in such Property shall be treated as Net Income and Net Loss.
“Non-Delinquent
Member” shall have the meaning set forth in Section 3.3.
“Nonrecourse
Debt” shall have the meaning set forth in Treasury Regulations Section 1.704-2(b)(3).
“Nonrecourse
Deductions” shall have the meaning, and the amount thereof shall be, as set forth in Treasury Regulations Section 1.704-2(c).
“Offer Period”
shall have the meaning set forth in Section 11.10.2.
“Option Period”
shall have the meaning set forth in Section 11.10.2.
“Owner”
shall mean a Member or the holder of an Economic Interest.
“Percentage Interest”
shall mean the percentage interest of a Member in its respective class of unit., as set forth opposite the name of such Member
under the column “Percentage Interest” on Exhibit B.
“Person”
shall mean a natural person, corporation, limited partnership, general partnership, joint stock company, joint venture, association,
company, trust, bank trust company, land trust, business trust, statutory trust or other organization, whether or not a legal entity,
and a government or agency or political subdivision thereof.
“Prime Rate”
shall mean the reference rate announced from time-to-time by the Wall Street Journal, and changes in the Prime Rate shall be deemed
to occur on the date that changes in such rate are announced.
“Property”
shall refer to any or all of such real and tangible or intangible personal property or properties as may be acquired by the Company.
“Regulatory Allocations”
shall mean the allocations set forth in Sections 4.2.1 through 4.2.7.
“Required Additional
Capital Contribution” shall have the meaning set forth in Section 3.3.
“Substituted
Member” shall mean any Person admitted as a substituted Member pursuant to this Agreement.
“Tax Cuts and
Jobs Act” shall mean the Tax Cuts and Jobs Act of 2017 and the administrative interpretations and rulings thereunder.
“Tax Payment”
shall have the meaning set forth in Section 4.10.1.
“Transfer Notice”
shall have the meaning set forth in Section 11.10.1.
“Unit”
shall mean means a unit of measurement by which a Member’s right to vote (as applicable) and to participate in Net Income,
Net Loss, Nonrecourse Deductions and Distributions shall be determined in accordance with the terms of this Agreement. “Unit(s)”
may be designated as Class A Units or Class B Units. Except as otherwise provided in this Agreement or as otherwise required by
applicable law, all Class A Units and Class B units will be identical in all respects and will entitle the holders of such Units
to the same rights and privileges, subject to the same qualifications, limitations and restrictions, except that, in the case of
Class B Units, holders of Class B Units will not be entitled to vote on any matter except in the removal of Manager
and to the extent otherwise required under the Act. Notwithstanding any other provision of this Agreement, Class A Units, and Class
B Units may not be subdivided (by Unit split or distribution of Units), combined or reclassified unless the Units of the other
class of Units are concurrently therewith proportionately subdivided (by Unit split or distribution of Units), combined or reclassified
in a manner that maintains the same proportionate equity ownership (and same proportionate voting power, as applicable) among the
holders of Class A Units and Class B Units on the record date for such subdivision (by Unit split or distribution of Units), combination
or reclassification.
“Vivakor”
shall mean Vivakor, Inc., a Nevada corporation, and its subsidiaries.
“VVMC”
shall mean VivaVentures Management Company, Inc., a Nevada corporation.
EXHIBIT B
ROSTER OF MEMBERS
|
Name and Address
|
|
Capital Contribution
|
|
|
Unit Class
|
|
Percentage Class Interest
|
|
VivaVentures Management Company, Inc.
|
|
$
|
1,000
|
|
|
A
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit 10.23
AMENDED AND RESTATED LIMITED
LIABILITY COMPANY AGREEMENT
OF
RPC
Design and Manufacturing LLC
THE SECURITIES OFFERED
HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION NOR BY THE SECURITIES REGULATORY AUTHORITY OF ANY STATE, NOR HAS ANY COMMISSION OR AUTHORITY PASSED UPON OR
ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF ANY DISCLOSURE MADE IN CONNECTION THEREWITH. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SECURITIES OFFERED HEREBY MAY NOT BE RESOLD WITHOUT REGISTRATION UNDER THE SECURITIES
ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS OR EXEMPTION THEREFROM. ANY TRANSFER OF THE SECURITIES REPRESENTED BY THIS AGREEMENT
IS FURTHER SUBJECT TO OTHER RESTRICTIONS, TERMS AND CONDITIONS WHICH ARE SET FORTH IN THIS AGREEMENT.
TABLE OF CONTENTS
|
|
Page
|
|
1. Organization
|
1
|
|
1.1 Formation
|
1
|
|
1.2 Name and Place of Business
|
1
|
|
1.3 Business and Purpose of the Company
|
1
|
|
1.4 Term
|
1
|
|
1.5 Required Filings
|
1
|
|
1.6 Registered Office and Registered Agent
|
1
|
|
1.7 Competitive Transactions
|
1
|
|
2. Definitions
|
1
|
|
3. Capitalization and Financing
|
2
|
|
3.1 Capital Contributions
|
2
|
|
3.1.1 Fund Capital Contribution
|
2
|
|
3.1.2 VVMC Capital Contribution
|
2
|
|
3.2 Additional Capital Contributions
|
2
|
|
3.3 Failure to Make Additional Capital Contribution
|
2
|
|
3.3.1 Loan
|
2
|
|
3.3.2 Return of Additional Capital Contribution
|
2
|
|
3.4 Enforcement of Obligation
|
2
|
|
3.5 Liabilities of Members
|
3
|
|
3.6 Company Loans
|
3
|
|
3.7 Additional Equity Investors
|
3
|
|
4. Allocation of Tax Items
|
3
|
|
4.1 Allocation of Net Income and Net Loss
|
3
|
|
4.1.1 Net Income
|
3
|
|
4.1.2 Net Loss
|
3
|
TABLE OF CONTENTS
(continued)
|
|
Page
|
|
4.2 Special Allocations
|
4
|
|
4.2.1 Qualified Income Offset
|
4
|
|
4.2.2 Gross Income Allocation
|
4
|
|
4.2.3 Minimum Gain Chargeback
|
4
|
|
4.2.4 Member Minimum Gain Chargeback
|
4
|
|
4.2.5 Nonrecourse Deductions
|
4
|
|
4.2.6 Member Nonrecourse Deductions
|
4
|
|
4.2.7 Code Section 754 Adjustments
|
5
|
|
4.3 Curative Allocations
|
5
|
|
4.4 Contributed Property
|
5
|
|
4.5 Recapture Income
|
5
|
|
4.6 Allocation of Company Items
|
5
|
|
4.7 Assignment
|
5
|
|
4.8 Power of Managers to Vary Allocations
|
5
|
|
4.9 Consent of Members
|
6
|
|
4.10 Withholding Obligations
|
6
|
|
5. Distributions
|
6
|
|
5.1 Cash From Operations
|
6
|
|
5.2 Restrictions
|
6
|
|
6. Compensation to the Managers and their Affiliates
|
7
|
|
6.1 Compensation
|
7
|
|
6.2 Company Expenses
|
7
|
|
6.2.1 Operating Expenses
|
7
|
|
6.2.2 Overhead of Managers
|
7
|
|
7. Authority and Responsibilities of the Managers
|
7
|
|
7.1 Management
|
7
|
|
7.2 Number, Tenure and Qualifications
|
7
|
|
7.3 Managers’ Authority
|
7
|
|
7.4 Major Decisions
|
10
|
|
7.5 Obligations of the Managers
|
12
|
|
7.6 Administration of the Company
|
12
|
TABLE OF CONTENTS
(continued)
|
|
Page
|
|
7.7 Indemnification of the Managers and the Officers
|
12
|
|
7.8 No Personal Liability for Return of Capital
|
13
|
|
7.9 Authority as to Third Persons
|
13
|
|
7.10 Insurance
|
13
|
|
7.11 Officers
|
13
|
|
7.11.1 Appointment of Officers
|
13
|
|
7.11.2 Removal, Resignation and Filling of Vacancy of Officers
|
13
|
|
7.11.3 Salaries of Officers
|
13
|
|
7.11.4 Signing Authority
|
14
|
|
8. Rights, Authority and Voting of the Members
|
14
|
|
8.1 Members Are Not Agents
|
14
|
|
8.2 Voting by the Members
|
14
|
|
8.3 Member Vote
|
14
|
|
8.4 Meetings of the Members
|
14
|
|
8.4.1 Notice
|
14
|
|
8.4.2 Adjourned Meeting and Notice Thereof
|
14
|
|
8.4.3 Quorum
|
15
|
|
8.4.4 Consent of Absentees
|
15
|
|
8.4.5 Action Without Meeting
|
15
|
|
8.4.6 Record Dates
|
15
|
|
8.4.7 Proxies
|
15
|
|
8.4.8 Chairman of Meeting
|
16
|
|
8.4.9 Record Date and Closing Company Books
|
16
|
|
8.4.11 Meetings
|
16
|
|
8.5 Rights of Members
|
16
|
|
8.6 Restrictions on the Owners
|
16
|
|
8.7 Return of Capital
|
16
|
|
8.8 Indemnification of Members
|
16
|
|
9. Resignation, Withdrawal or Removal of a Manager
|
17
|
|
9.1 Resignation or Withdrawal of Manager
|
17
|
|
9.2 No Removal
|
17
|
|
9.3 Purchase of Manager’s Interest
|
17
|
TABLE OF CONTENTS
(continued)
|
|
Page
|
|
10. Assignment of a Manager’s Interest
|
17
|
|
10.1 Permitted Assignments
|
17
|
|
10.2 Substitute Manager
|
17
|
|
10.3 Transfer in Violation Not Recognized
|
17
|
|
10.4 Transfers to Affiliates
|
17
|
|
11. Member and Owner Transfers
|
18
|
|
11.1 Resignation or Withdrawal of a Member
|
18
|
|
11.2 Permitted Assignments
|
18
|
|
11.3 Substituted Members
|
18
|
|
11.4 Loss of Rights
|
18
|
|
11.5 Consent of Members
|
18
|
|
11.6 Transfer in Violation Not Recognized
|
19
|
|
11.7 Rights of Economic Interest Owner
|
19
|
|
11.8 Right to Inspect Books
|
19
|
|
11.9 Transfer Subject to Law
|
19
|
|
11.10 Right of First Refusal
|
19
|
|
11.11 Repurchase Upon Violation of this Agreement
|
19
|
|
11.12 Drag Along Right
|
20
|
|
11.13 Specific Performance
|
20
|
|
12. Books, Records, Accounting and Reports
|
20
|
|
12.1 Records
|
20
|
|
12.2 Delivery to Members and Inspection
|
20
|
|
12.3 Reports
|
21
|
|
12.4 Tax Information
|
21
|
|
12.5 Limitations
|
21
|
|
12.6 Partnership Audit Rules
|
21
|
|
13. Termination and Dissolution of the Company
|
22
|
|
13.1 Termination of the Company
|
22
|
|
13.2 Certificate of Cancellation
|
22
|
|
13.3 Liquidation of Assets
|
22
|
|
13.4 Distributions Upon Dissolution
|
22
|
|
13.5 Liquidation of Member’s Interest
|
23
|
TABLE OF CONTENTS
(continued)
|
|
Page
|
|
14. Special and Limited Power of Attorney and Amendments
|
23
|
|
14.1 Power of Attorney
|
23
|
|
14.2 Provision of Power of Attorney
|
23
|
|
14.3 Notice to Members
|
24
|
|
14.4 Amendment of Agreement
|
24
|
|
14.4.1 Admission of Member
|
24
|
|
14.4.2 Amendments with Consent of Member
|
24
|
|
14.4.3 Amendments Without Consent of the Members
|
24
|
|
14.4.4 Execution and Recording of Amendments
|
24
|
|
15. Relationship of this Agreement to the Act
|
24
|
|
16. Representations of Each Member
|
24
|
|
16.1 Sophistication and Risk Tolerance
|
24
|
|
16.2 Unregistered Securities
|
25
|
|
16.3 No View to Resell
|
25
|
|
16.4 Status
|
25
|
|
16.5 Due Authorization
|
25
|
|
16.6 Other Agreements
|
25
|
|
17. Miscellaneous
|
25
|
|
17.1 Counterparts
|
25
|
|
17.2 Successors and Assigns
|
25
|
|
17.3 Severability
|
25
|
|
17.4 Notices
|
25
|
|
17.5 Members’ Address
|
25
|
|
17.6 Name and Address of Managers
|
26
|
|
17.7 Governing Law
|
26
|
|
17.8 Captions
|
26
|
|
17.9 Gender
|
26
|
|
17.10 Time
|
26
|
|
17.11 Additional Documents
|
26
|
|
17.12 Descriptions
|
26
|
|
17.13 Attorneys’ Fees
|
26
|
|
17.14 Venue
|
26
|
|
17.15 Partition
|
26
|
|
17.16 Integrated and Binding Agreement
|
26
|
|
17.17 Title to Company Property
|
26
|
|
17.18 Electronic Signatures
|
26
|
EXHIBITS:
EXHIBIT A: Definitions
EXHIBIT B: Members
AMENDED AND RESTATED LIMITED
LIABILITY COMPANY AGREEMENT
OF
RPC
Design and Manufacturing LLC
This Amended and Restated
Limited Liability Company Agreement (this “Agreement”) of RPC Design and Manufacturing LLC, effective as of October
1, 2019, is entered into by and between VivaOpportunity Fund, LLC, a Utah limited liability company (the “Fund”), as
a Member, and VivaVentures Management Company, Inc., a Nevada corporation (“VVMC”), as a Member and a Manager, pursuant
to the Act on the following terms and conditions.
1.
Organization.
1.1
Formation. On December 20, 2018, a Certificate of Formation was filed in the office of the Secretary of State of
the state of Utah in accordance with and pursuant to the Act.
1.2
Name and Place of Business. The name of the Company shall be RPC Design and Manufacturing LLC, and its principal
place of business shall be 433 Lawndale Dr., Salt Lake City, Utah 84115. The Managers may change such name, change such place of
business or establish additional places of business of the Company as the Managers may determine to be necessary or desirable.
1.3
Business and Purpose of the Company. The purpose of the Company is to (i) to acquire, develop, operate, manage,
finance, manufacture, lease and sell the Equipment, (ii) participate in the Qualified Opportunity Zone program enacted under
the Tax Cuts and Jobs Act, of which the Fund intends to qualify as a Qualified Opportunity Fund, and develop and manage the Company
to qualify as Qualified Opportunity Zone Property, and (iii) engage in such other activities which are allowed under Utah
law in the sole discretion of the Managers.
1.4
Term. The term of the Company shall commence on the effective date of this Agreement and shall terminate on December
31, 2099, unless the Company is sooner dissolved and terminated as provided in this Agreement.
1.5
Required Filings. The Administrative Manager shall execute, acknowledge, file, record, amend and/or publish such
certificates and documents as may be required by this Agreement or by law in connection with the formation and operation of the
Company.
1.6
Registered Office and Registered Agent. The Company’s initial registered office and initial registered agent
shall be as provided in the Certificate of Formation. The registered office and registered agent may be changed from time to time
by the Administrative Manager by filing the address of the new registered office and/or the name of the new registered agent pursuant
to the Act.
1.7
Competitive Transactions. Any Manager, Owner or any Affiliate thereof, or any shareholder, officer, director, employee,
partner, member, manager or any Person owning an interest therein, may engage in or possess an interest in any other business or
venture of any nature or description, whether or not competitive with the Company, including, but not limited to, the acquisition,
syndication, ownership, financing, leasing, operation, maintenance, management and development of property similar to the Business
and no Manager, Owner or any Affiliate, or other Person shall have any interest in such other business or venture by reason of
their interest in the Company.
2.
Definitions. Definitions for this Agreement are set forth on Exhibit A and are incorporated herein.
3.
Capitalization and Financing.
3.1
Capital Contributions.
3.1.1
Manager’s Capital Contribution. Upon the execution of this Agreement by VVMC,
VVMC contributes to the Company cash in the amount of One Thousand Dollars ($1,000) in exchange for the Company’s issuance
of 1,000 Class A Units to VVMC.
3.1.2
Units. The Company is hereby authorized to sell and issue not more than 2,501,000 units, 1,000 Class A Units, 2,500,000
Class B Units and to admit the Persons who acquire such Units as Members.
3.1.3
Fund Capital Contribution. The Fund shall contribute the Capital Contribution set forth on Exhibit B, as may
be amended from time to time, and its Capital Account shall be credited with such amount, and the Fund shall receive its Membership
Interest in exchange.
3.1.4
VVMC Capital Contribution. VVMC shall contribute the Capital Contribution set forth on Exhibit B, as may be
amended from time to time, and its Capital Account shall be credited with such amount, and VVMC shall receive its Membership Interest
in exchange.
3.2
Additional Capital Contributions. If the Managers determine that the Company requires cash in addition to the Capital
Contributions set forth in Section 3.1 in order to carry out the purposes of this Agreement or to carry on the business of
the Company, no more than 30 days after the written request of the Managers, the Members shall contribute the additional Capital
Contributions required. All future additional Capital Contributions shall be made pro rata by the Members according to their respective
Percentage Interests in their respective class of unit at the time of the request for additional Capital Contributions.
3.3
Failure to Make Additional Capital Contribution. In the event a Member (the “Delinquent Member”) fails
to make all or any portion of its capital contribution as set forth in Section 3.2 (the “Required Additional Capital
Contribution”) by the specified contribution date for the Required Additional Capital Contribution, the non-defaulting Member
(the “Non-Delinquent Member”) may elect one of the following:
3.3.1
Loan. The Non-Delinquent Member may fund the amount of the Required Additional Capital Contribution not made by the
Delinquent Member, such amount together with the amount funded by the Non-Delinquent Member shall be treated as a loan to the Company
by the Non-Delinquent Member. Any such loan shall bear interest at a fixed rate equal to the lesser of 10% or the maximum interest
rate permitted by applicable law. Any principal and interest on any such loan shall be repaid prior to any Distributions to the
Members pursuant to Section 5.1; or
3.3.2
Return of Additional Capital Contribution. The Non-Delinquent Member may elect to have its Required Additional Capital
Contribution returned to it by the Company.
3.4
Enforcement of Obligation. Only the Company, the Managers or a Member and no third party creditor (either in its
own right or as a successor-in-interest of the Company, and including a trustee, receiver or other representative of the Company
or an Owner), shall be entitled to enforce the requirements to make additional Capital Contributions. The Members intend and agree
that the obligation of a Member to make Capital Contributions constitutes an agreement to make financial accommodations to and
for the benefit of the other Member and the Company.
3.5
Liabilities of Members. Except as specifically provided in this Agreement, neither the Managers nor any Member shall
be required to make any additional contributions to the Company and no Manager or Member shall be liable for the debts, liabilities,
contracts or any other obligations of the Company, by reason of being a Manager or Member of the Company, nor shall the Managers
or Members be required to lend any funds to the Company, the Managers or to repay or to contribute to the Company or any Member,
or any creditor of the Company any portion or all of any deficit balance in a Member’s Capital Account.
3.6
Company Loans. Any Manager, Member or an Affiliate (at the request of the Managers) may, but will have no obligation
to, make loans to the Company in the sole discretion of the Managers. All of the terms and conditions of such loan shall be approved
by the Managers in their sole discretion.
3.7
Additional Equity Investors. To raise additional capital in the future to expand the Business and manufacture additional
Equipment, the Company intends to issue and sell additional Membership Interests to other Qualified Opportunity Funds or other
investors. In the event additional Membership Interests are sold to raise additional capital, the Company may either amend this
Agreement to add additional classes of units or the book value of the Company’s assets may be booked up or booked down to
their fair market value, and the additional Membership Interests will be priced correspondingly. Each class of unit is anticipated
to only receive distributions based on the number of units of Equipment that each fund or Member may have funded or that is associated
with that class of unit.
4.
Allocation of Tax Items.
4.1
Allocation of Net Income and Net Loss. For each fiscal year, the Net Income and Net Loss of the Company shall be
allocated to each class of unit based on the Net Income or Net Loss from the unit(s) of Equipment funded by that class of unit.
No class of unit will receive Allocations from the operations of any unit of Equipment not funded or associated with that class
of unit. Net Income and Net Loss of the Company shall be allocated as follows:
4.1.1
Net Income. After giving effect to the special allocations set forth in Sections 4.2 and 4.3, Net Income for
any fiscal year shall be allocated as follows:
(a)
To the Members of their respective class of unit in proportion to and to the extent of Net Loss allocated to the Members
pursuant to Section 4.1.2(b) until the aggregate Net Income allocated to the Members pursuant to this Section 4.1.1(a) for
such fiscal year and all previous fiscal years is equal to the aggregate Net Loss of their respective class of unit allocated to
the Members pursuant to Section 4.1.2(b) for all previous fiscal years; and
(b)
Thereafter, to the Members in proportion to their Percentage Interests within and according to their class of unit and number
of associated units of Equipment.
4.1.2
Net Loss. After giving effect to the special allocations set forth in Sections 4.2 and 4.3, Net Loss for any
fiscal year shall be allocated as follows:
(a)
To the Members of their respective class of unit in proportion to and to the extent of Net Income allocated to the Members
pursuant to Section 4.1.1(b) until the aggregate Net Loss allocated pursuant to this Section 4.1.2(a) for such
fiscal year and all previous fiscal years equals the aggregate Net Income of their respective class of unit allocated to the Members
pursuant to Section 4.1.1(b) for all previous fiscal years; and
(b)
Thereafter, to the Members in proportion to their Percentage Interests within and according to their class of unit and number
of associated units of Equipment.
4.2
Special Allocations.
4.2.1
Qualified Income Offset. Except as provided in Section 4.2.3, in the event any Member unexpectedly receives
any adjustments, allocations, or distributions described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5),
or 1.704-1(b)(2)(ii)(d)(6), items of Company income and gain shall be specially allocated to such Member in an amount and manner
sufficient to eliminate, to the extent required by the Treasury Regulations, the Adjusted Capital Account Deficit created by such
adjustment, allocation or distribution as quickly as possible.
4.2.2
Gross Income Allocation. Net Loss shall not be allocated to any Member to the extent such allocation would cause
such Member to have an Adjusted Capital Account Deficit at the end of a fiscal year. In the event any Member has an Adjusted Capital
Account Deficit at the end of any fiscal year, each such Member shall be specially allocated items of Company gross income and
gain in the amount of such Adjusted Capital Account Deficit as quickly as possible.
4.2.3
Minimum Gain Chargeback. Notwithstanding any other provision of this Section 4, if there is a net decrease in
Company Minimum Gain during any Company fiscal year, each Member shall be specially allocated items of Company income and gain
for such year (and, if necessary, subsequent years) in an amount equal to such Member’s share of the net decrease in Company
Minimum Gain, determined in accordance with Treasury Regulations Section 1.704-2(g)(2). This Section 4.2.3 is intended
to comply with the partnership minimum gain chargeback requirement in the Treasury Regulations and shall be interpreted consistently
therewith. This provision shall not apply to the extent the Member’s share of net decrease in Company Minimum Gain is caused
by a guaranty, refinancing or other change in the debt instrument causing it to become partially or wholly recourse debt or Member
Nonrecourse Debt, and such Member bears the economic risk of loss (within the meaning of Treasury Regulations Section 1.752-2)
for the newly guaranteed, refinanced or otherwise changed debt or to the extent the Member contributes cash to the capital of the
Company that is used to repay the Nonrecourse Debt, and the Member’s share of the net decrease in Company Minimum Gain results
from the repayment.
4.2.4
Member Minimum Gain Chargeback. Notwithstanding any other provision of this Section 4, except Section 4.2.3,
if there is a net decrease in Member Minimum Gain, any Member with a share of that Member Minimum Gain (as determined under Treasury
Regulations Section 1.704-2(i)(5)) as of the beginning of the year shall be allocated items of Company income and gain for
such year (and, if necessary, subsequent years) in an amount equal to such Member’s share of the net decrease in Member Minimum
Gain, determined in accordance with Treasury Regulations Section 1.704-2(g)(2). This Section shall not apply to the extent
the net decrease in Member Minimum Gain arises because the liability ceases to be Member Nonrecourse Debt due to conversion, refinancing
or other change in a debt instrument that causes it to become partially or wholly a Nonrecourse Debt. This Section is intended
to comply with the partner minimum gain chargeback requirements in the Treasury Regulations and shall be interpreted consistently
therewith and applied with the restrictions attributable thereto.
4.2.5
Nonrecourse Deductions. Nonrecourse Deductions for any fiscal year or other period shall be allocated to the Members
based on Nonrecourse Deductions pertaining to each class of unit’s unit of Equipment, and then in proportion to their Percentage
Interests and each Member’s share of excess Nonrecourse Debt shall be in the same proportion.
4.2.6
Member Nonrecourse Deductions. Member Nonrecourse Deductions for any fiscal year shall be allocated to the Member
who bears the economic risk of loss as set forth in Treasury Regulations Section 1.752-2 with respect to the Member Nonrecourse
Debt. If more than one Member bears the economic risk of loss for a Member Nonrecourse Debt, any Member Nonrecourse Deductions
attributable to that Member Nonrecourse Debt shall be allocated among the Members according to the ratio in which they bear the
economic risk of loss.
4.2.7
Code Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any Company asset pursuant
to Code Section 734(b) or Code Section 743(b) is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated
as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such
gain or loss shall be specially allocated to the Members in a manner consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to such Section of the Treasury Regulations.
4.3
Curative Allocations. Notwithstanding any other provision of this Agreement, the Regulatory Allocations shall be
taken into account in allocating items of income, gain, loss and deduction among the Members so that, to the extent possible, the
net amount of such allocations of other items and the Regulatory Allocations to each Member shall be equal to the net amount that
would have been allocated to each such Member if the Regulatory Allocations had not occurred.
4.4
Contributed Property. Notwithstanding any other provision of this Agreement, the Administrative Manager shall cause
depreciation and/or cost recovery deductions and gain or loss attributable to Property contributed by a Member or revalued by the
Company to be allocated among the Members for income tax purposes in accordance with Code Section 704(c) and the Treasury
Regulations promulgated thereunder. The Managers shall be entitled to select the appropriate method to account for the variation
between the basis of a Member’s interest in a contributed Property and the fair market value of the interest at the time
it is contributed to the Company or revalued.
4.5
Recapture Income. The portion of each Member’s distributive share of Net Income that is characterized as ordinary
income pursuant to Code Sections 1245 or 1250 shall be proportionate to the amount of Net Income or Net Loss which included
the corresponding depreciation deductions that were allocated to such Member as compared with the amount of depreciation deductions
allocated to all of the Members.
4.6
Allocation of Company Items. Except as otherwise provided herein, whenever a proportionate part of Net Income or
Net Loss is allocated from the unit(s) of Equipment funded by each class of unit, and then to a class of unit and a Member within
its respective class, every item of income, gain, loss or deduction entering into the computation of such Net Income or Net Loss,
and every item of credit or tax preference related to such allocation and applicable to the period during which such Net Income
or Net Loss was realized shall be allocated to the Member in the same proportion. For purposes of this Section 4 and Section 5,
an Economic Interest Owner shall be treated as a Member.
4.7
Assignment.
4.7.1
Unless otherwise agreed to by the Managers, in the event of the assignment of an Interest pursuant to the terms of this
Agreement (or a change in a Member’s Percentage Interest), the Net Income and Net Loss shall be allocated as between the
Owner and such Owner’s assignee based upon the number of months of their respective ownership during the year in which the
assignment occurs, without regard to the results of the Company’s operations during the period before or after such assignment.
Distributions shall be made to the Owner or the assignee, whichever is the owner of the Interest, as of the date of the Distribution.
An assignee who receives an Interest during the first 15 days of a month will receive any allocations relative to such month. An
assignee who acquires an Interest on or after the 16th day of a month will be treated as acquiring the Interest on the
first day of the following month. Net Income and Net Loss from a sale or exchange of Property will be allocated between the Owner
and its assignee (or to reflect such change in Percentage Interest) as of the date of any such transaction.
4.8
Power of Managers to Vary Allocations. It is the intent of the Members that each Member’s share of Net Income
and Net Loss be determined and allocated in accordance with Code Section 704(b) and the provisions of this Agreement shall
be so interpreted. Therefore, if the Company is advised that the allocations provided in this Section 4 are unlikely to be
respected for federal income tax purposes, the Managers are hereby granted the power to amend the allocation provisions of this
Agreement to the minimum extent necessary to comply with Code Section 704(b) and effect the plan of allocations and Distributions
provided for in this Agreement.
4.9
Consent of Members. The allocation methods of Net Income and Net Loss are hereby expressly consented to by each Member
as a condition of becoming a Member.
4.10
Withholding Obligations.
4.10.1
If the Company is required (as determined by the Administrative Manager) to make a payment (“Tax Payment”) with
respect to any Member to discharge any legal obligation of the Company or the Managers to make payments to any governmental authority
with respect to any federal, foreign, state or local tax liability of such Member arising as a result of such Member’s interest
in the Company, then, notwithstanding any other provision of this Agreement to the contrary, the amount of any such Tax Payment
shall be deemed to be a loan by the Company to such Member, which loan shall bear interest at the Prime Rate and be payable upon
demand or by offset to any Distribution which otherwise would be made to such Member.
4.10.2
If and to the extent the Company is required to make any Tax Payment with respect to any Member, or elects to make payment
on any loan described in Section 4.10.1 by offset to a Distribution to a Member, either (i) such Member’s proportionate
share of such Distribution shall be reduced by the amount of such Tax Payment or offset or (ii) such Member shall pay to the
Company prior to such Distribution an amount of cash equal to such Tax Payment or offset. In the event a portion of a Distribution
in kind is retained by the Company pursuant to clause (i) above, such retained Property may, in the discretion of the Administrative
Manager, either (A) be distributed to the other Members, or (B) be sold by the Company to generate the cash necessary
to satisfy such Tax Payment. If the Property is sold, then for purposes of income tax allocations only under this Agreement, any
gain or loss from such sale or exchange shall be allocated to the Member to whom the Tax Payment relates. If the Property is sold
at a gain, and the Company is required to make any Tax Payment on such gain, the Member to whom the gain is allocated shall pay
the Company prior to the due date of the Tax Payment an amount of cash equal to such Tax Payment.
4.10.3
The Administrative Manager shall be entitled to hold back any Distribution to any Member to the extent the Administrative
Manager believes in good faith that a Tax Payment will be required with respect to such Member in the future and the Administrative
Manager believes that there will not be sufficient subsequent Distributions to make such Tax Payment.
5.
Distributions.
5.1
Cash From Operations. Except as otherwise provided in Section 13, Cash From Operations with respect to each
calendar year shall be distributed to each class of unit from the unit(s) of Equipment funded by that class of unit. No class of
unit will receive Distributions from the operations of any unit of Equipment not funded or associated with that class of unit.
Distributions within each class of unit will be distributed to the Members of their respective class of unit in proportion to their
Percentage Interests within their class of unit.
5.2
Restrictions. The Company intends to make periodic Distributions of substantially all cash determined by the Managers
to be distributable, subject to the following: (i) Distributions may be restricted or suspended for periods when the Managers
determine that it is in the best interest of the Company; and (ii) all Distributions are subject to the payment, and the maintenance
of reasonable reserves for payment of Company obligations.
6.
Compensation to the Managers and their Affiliates.
6.1
Compensation. All compensation to be received by the Managers or their Affiliates from the Company or any subsidiary
thereof shall be approved by all of the Managers. Any agreements that the Company enters into with an Affiliate of the Managers
will be at arm’s length, market terms.
6.1.1
For providing the Company intellectual property rights to enable the Company to manufacture Equipment, Vivakor shall be
entitled to receive a license fee in an amount equal to $500,000 per unit of Equipment manufactured by the Company (the “License
Fee”). The license fee will be paid to Vivakor before the commencement of any unit of Equipment being manufactured.
6.1.2
Affiliates of the Managers may provide other services to the Company and shall be entitled to receive market fees and compensation
for such services as determined by the Managers.
6.2
Company Expenses.
6.2.1
Operating Expenses. Subject to the limitations set forth in Section 6.2.2, the Company shall pay directly, or
reimburse the Managers, as the case may be, for all of the costs and expenses of the Company’s operations.
6.2.2
Overhead of Managers. The Managers and their Affiliates shall be reimbursed for the Managers’ or their Affiliate’s
overhead expenses attributable to the business of the Company.
7.
Authority and Responsibilities of the Managers.
7.1
Management. Subject to the terms of this Agreement, the business and affairs of the Company shall be managed by the
Managers. Except as otherwise set forth in this Agreement, the Managers shall have full and complete authority, power and discretion
to manage and control the business, affairs and properties of the Company, to make all decisions regarding those matters and to
perform any and all other acts or activities customary or incident to the management of the Company’s business. The Managers
may delegate, in their sole discretion, any power and authority to officers of the Company.
7.2
Number, Tenure and Qualifications. The Company shall have one Manager which shall be VVMC. The Manager shall hold
office until the Manager withdraws, resigns or is removed as set forth in this Agreement.
7.3
Managers’ Authority. The Manager shall have all authority, rights and powers conferred by law (subject to Section 7.4
and Section 8.2) and those required or appropriate to the management of the Company’s business, which, by way of illustration
but not by way of limitation, shall include the right, authority and power to cause the Company, in its own capacity or in its
capacity as the manager, general partner or member of any subsidiary of the Company, to:
7.3.1
Enter into any limited liability company agreement, partnership agreement, other operating agreement or any joint venture
directly or for any subsidiary;
7.3.2
Take all actions as the manager, general partner, or member of any subsidiary;
7.3.3
Acquire, hold, develop, lease, rent, operate, sell, exchange and otherwise dispose of Property;
7.3.4
Plan, manage and coordinate the operation of the Business, obtain all necessary licenses, permits and entitlements in connection
therewith, and enter into any contracts and agreements with any Affiliates or third parties to perform any services in connection
with the Business;
7.3.5
Place record title to, or the right to use, the Property in the name or names of a nominee or nominees for any purpose convenient
or beneficial to the Company;
7.3.6
Borrow money, and, if security is required therefor, to pledge or mortgage or subject Property to any security device, to
obtain replacements of any mortgage or other security device and to prepay, in whole or in part, refinance, increase, modify, consolidate
or extend any mortgage or other security device. All of the foregoing shall be on such terms and in such amounts as the Managers,
in their sole discretion, deems to be beneficial;
7.3.7
Provide guarantees with respect to any loan or preferred equity obtained by the Company;
7.3.8
Enter into such contracts and agreements as the Managers determine to be reasonably necessary or appropriate in connection
with the Company’s business and purpose (including contracts with Affiliates of the Managers) and any contract of insurance
that the Managers deem necessary or appropriate for the protection of the Company, any subsidiary, the Managers and any officers,
including errors and omissions insurance, for the conservation of Company assets, or for any purpose convenient or beneficial to
the Company;
7.3.9
Employ Persons, who may be Affiliates of the Managers, in the operation and management of the business of the Company or
any subsidiary;
7.3.10
Prepare or cause to be prepared reports, statements and other relevant information for distribution to the Members;
7.3.11
Open accounts and deposit and maintain funds in the name of the Company or any subsidiary in banks, savings and loan associations,
“money market” mutual funds and in such other entities or instruments as the Managers may deem in their discretion
to be necessary or desirable;
7.3.12
Cause the Company to make or revoke any of the elections referred to in the Code (the Managers shall have no obligation
to make any such elections);
7.3.13
Select as the Company’s accounting year a calendar or fiscal year as may be approved by the Internal Revenue Service
(the Company initially intends to adopt the calendar year);
7.3.14
Determine the appropriate accounting method or methods to be used by the Company;
7.3.15
In addition to any amendments otherwise authorized herein, amend this Agreement without any action on the part of the Members
by special or general power of attorney or otherwise:
(a)
To add to the representations, duties, services or obligations of the Managers or its Affiliates, for the benefit of the
Members;
(b)
To cure any ambiguity or mistake, to correct or supplement any provision herein that may be inconsistent with any other
provision herein, or to make any other provision with respect to matters or questions arising under this Agreement that will not
be inconsistent with the provisions of this Agreement;
(c)
To amend this Agreement to reflect the addition or substitution of the Members or the reduction of Capital Accounts upon
the return of capital to the Members;
(d)
To minimize the adverse impact of, or comply with, any final regulation of the United States Department of Labor, or other
federal agency having jurisdiction, defining “plan assets” for ERISA purposes;
(e)
To reconstitute the Company under the laws of another state if beneficial;
(f)
To execute, acknowledge and deliver any and all instruments to effectuate the foregoing, including the execution, acknowledgement
and delivery of any such instrument by the attorney-in-fact for the Managers under a special or limited power of attorney, and
to take all such actions in connection therewith as the Managers shall deem necessary or appropriate with the signature of the
Managers acting alone; and
(g)
To make any changes to this Agreement as requested or required by any lender or potential lender which may be required to
obtain financing including, but not limited to, complying with any special purpose entity requirements;
7.3.16
Structure or restructure the Company to accommodate any financing or to comply with the Qualified Opportunity Zone provisions;
7.3.17
Take any action and perform any acts necessary to qualify the Fund as a Qualified Opportunity Fund and the Company as a
Qualified Opportunity Zone Property in accordance with the provisions of the Tax Cuts and Jobs Act;
7.3.18
Temporarily invest the proceeds from Cash From Operations in short-term, highly-liquid investments;
7.3.19
Require in any Company or any subsidiary contract that the Managers shall not have any personal liability, but that the
Person contracting with the Company or any subsidiary is to look solely to the Company or any subsidiary and its respective assets
for satisfaction;
7.3.20
Lease personal property for use by the Company or any subsidiary;
7.3.21
Establish reserves from income in such amounts as the Managers may deem appropriate;
7.3.22
Represent the Company and the Members as the “partnership representative” within the meaning of the Code in
discussions with the Internal Revenue Service regarding the tax treatment of items of Company income, loss, deduction or credit,
or any other matter reflected in the Company’s returns, and, if deemed in the best interest of the Members, to agree to final
Company administrative adjustments or file a petition for a readjustment of the Company items in question with the applicable court
and take any action permitted to the “partnership representative” pursuant to applicable law or regulation;
7.3.23
Initiate legal actions, settle legal actions and defend legal actions on behalf of the Company;
7.3.24
Merge or combine the Company or a subsidiary or “roll-up” the Company into a partnership, limited liability
company or other entity;
7.3.25
Appoint officers of the Company as set forth in Section 7.11;
7.3.26
Structure or restructure the Company to accommodate any financing or to comply with the Qualified Opportunity Zone provisions;
7.3.27
Take any action and perform any acts necessary to qualify the Company as a Qualified Opportunity Zone Property in accordance
with the Tax Cuts and Jobs Act;
7.3.28
Perform any and all other acts which the Managers are obligated to perform hereunder or which the Company or a subsidiary
is obligated to perform as the manager, general partner or member of any subsidiary of the Company;
7.3.29
Admit additional Members as set forth herein;
7.3.30
Redeem or repurchase Membership Interests on behalf of the Company;
7.3.31
Hold an election for a successor Manager before the resignation, expulsion or dissolution of a Manager; and
7.3.32
Execute, acknowledge and deliver any and all instruments to effectuate the foregoing and take all such actions in connection
therewith as the Managers may deem necessary or appropriate. Any and all documents or instruments may be executed on behalf of
and in the name of the Company by the Managers or any officer of the Company designated by the Managers.
7.4
Major Decisions. The Company may not take the following actions without the consent of all of the Managers (each
a “Major Decision”):
7.4.1
Use or permit any other Person to use Company funds or assets in any manner except for the exclusive benefit of the Company;
7.4.2
Alter the primary purpose of the Company;
7.4.3
Receive from the Company a rebate or give-up or participate in any reciprocal business arrangements which would enable it
or any Affiliate to do so;
7.4.4
Enter into any limited liability company agreement, partnership agreement, other operating agreement or joint venture directly
or for any subsidiary;
7.4.5
Sell or transfer all or substantially all of the assets of the Company or the Business;
7.4.6
Make any decisions regarding the acquisition, management, financing, leasing, operation or disposition of the Business;
7.4.7
Make any decisions regarding the development of the Business and manufacturing of the Equipment or enter into any contracts
or agreements relating thereto;
7.4.8
Borrow or lend any sum of money, extend any credit or become a surety, guarantor, endorser or accommodation maker;
7.4.9
Acquire any real estate;
7.4.10
Merge, combine or “roll up” the Company with another entity;
7.4.11
Do any act in contravention of this Agreement;
7.4.12
Do any act that would make it impossible to carry on the ordinary business of the Company;
7.4.13
Obtain insurance on behalf of the Company or any of its principals;
7.4.14
Require any additional capital contributions by the Members;
7.4.15
Select or vary accounting methods, file federal or state income tax returns or other income tax filings and make other decisions
with respect to treatment of items for accounting, financial reporting, or federal or state income tax purposes, or other matters
in connection therewith;
7.4.16
Approve any proposed settlement with the Internal Revenue Service or other taxing authority regarding any Company matter;
7.4.17
Distribute any Company assets in-kind;
7.4.18
Confess any judgment against the Company;
7.4.19
Structure or restructure the Company to accommodate any financing or to comply with the Qualified Opportunity Zone provisions;
7.4.20
Take any action and perform any acts necessary to qualify the Company as a Qualified Opportunity Zone Property in accordance
with the Tax Cuts and Jobs Act;
7.4.21
Modify the terms of any subsidiary partnership or operating agreement; and
7.4.22
Dissolve and wind up the Company as set forth in Section 13.1.2.
7.5
Obligations of the Managers. Except as may be otherwise provided herein, the Managers shall be obligated to:
7.5.1
Exercise their management powers in order to carry out the purposes of the Company on a commercially reasonable basis;
7.5.2
Devote such of its time and business efforts to the business of the Company as it shall in its discretion, exercised in
good faith, determine to be necessary to conduct the business of the Company on a commercially reasonable basis;
7.5.3
Keep all bank and other accounts and records in the name of the Company; and
7.5.4
File and publish all certificates, statements, or other instruments required by law for the formation, qualification and
operation of the Company and for the conduct of its business in all appropriate jurisdictions.
7.6
Administration of the Company.
7.6.1
So long as they are Managers and the provisions of this Agreement for compensation
and reimbursement of expenses of the Managers are observed, the Managers shall have the responsibility of providing administrative
and executive support, advice, consultation, analysis and supervision with respect to the functions of the Company on a commercially
reasonable basis. In this regard, the Managers may retain the services of such Affiliates or unaffiliated parties as the Managers
may deem appropriate to provide management and financial consultation and advice, and may enter into agreements for the management
and operation of Company assets.
7.6.2
The Administrative Manager shall have the obligation to (i) manage the day to day operations of the Company and (ii) comply
with the obligations specifically allocated to the Administrative Manager in this Agreement.
7.7
Indemnification of the Managers and the Officers.
7.7.1
The Managers, their shareholders, Affiliates, officers, directors, partners, managers, members, employees, agents, assigns,
principals, trustees and any officers of the Company, shall not be liable for, and shall be indemnified and held harmless (to the
extent of the Company’s Property) from, any loss or damage incurred by them, the Company or the Members in connection with
the business of the Company, including costs and reasonable attorneys’ fees and any amounts expended in the settlement of
any claims of loss or damage resulting from any act or omission performed or omitted in good faith, which shall not constitute
fraud, gross negligence or willful misconduct, pursuant to the authority granted to promote the interests of the Company. Moreover,
neither the Managers nor any officer of the Company shall be liable to the Company or the Members because any taxing authorities
disallow or adjust any deductions or credits in the Company’s income tax returns.
7.7.2
Neither the Managers nor any of their Affiliates shall have any obligation to cause the Company to take any action that
would result in personal liability to the Managers, their principals or any of their Affiliates in their capacity as obligator
or guarantor of any loan that is obtained or assumed by the Company or any subsidiary thereof, notwithstanding that the failure
to take any such action might result in the total or partial loss of the Company’s (or any subsidiary’s) interest in
some or all of the Company’s (or subsidiary’s) Property. Any action or inaction by the Managers or any of their Affiliates
that is intended to avoid personal liability under any obligation or guaranty related to a loan that is obtained or assumed by
the Company will not constitute a breach of any fiduciary or other duty that the Managers or their Affiliates may owe the Company
or the Members.
7.7.3
The Members acknowledge that the Managers are also Members and it shall not be a breach
of any fiduciary duty or fiduciary obligation or any other duty or obligation if the Managers vote their Membership Interest in
its own best interest with respect to any vote of the Members.
7.8
No Personal Liability for Return of Capital. The Managers shall not be personally liable or responsible for the return
or repayment of all or any portion of the Capital Contribution of any Member or any loan made by any Member to the Company, it
being expressly understood that any such return of capital or repayment of any loan shall be made solely from the assets (which
shall not include any right of contribution from any Member) of the Company.
7.9
Authority as to Third Persons.
7.9.1
No third party dealing with the Company shall be required to investigate the authority of the Managers or the officers of
the Company or secure the approval or confirmation by any Member of any act of the Managers or officers in connection with the
Company’s business. No purchaser of any Property owned by the Company shall be required to determine the right to sell or
the authority of the Managers or any officers to sign and deliver any instrument of transfer on behalf of the Company, or to see
to the application or distribution of revenues or proceeds paid or credited in connection therewith.
7.9.2
The Managers and any officer designated by the Managers, shall have full authority to execute on behalf of the Company,
in its own capacity or in its capacity as the general partner, manager or member of any subsidiary, any and all agreements, contracts,
conveyances, deeds, mortgages and other instruments, and the execution thereof by the Managers or any officer designated by the
Managers, executing on behalf of the Company, in its own capacity or in its capacity as the general partner, manager or member
of any subsidiary, shall be the only execution necessary to bind the Company thereto. No signature of any Member shall be required.
7.10
Insurance. The Company shall maintain insurance in the amounts determined by the Managers.
7.11
Officers.
7.11.1
Appointment of Officers. The Managers, in their sole discretion, may appoint officers of the Company at any time.
The officers of the Company, if appointed by the Managers, may include a president, chief executive officer, chief legal officer,
chief financial officer, chief accounting officer, chief investment officer, any number of vice presidents and a secretary. The
officers shall serve at the pleasure of the Managers. Any individual may hold any number of offices. The officers shall exercise
such powers and perform such duties as determined and authorized by the Managers.
7.11.2
Removal, Resignation and Filling of Vacancy of Officers. Subject to the rights, if any, of an officer under a contract
of employment, any officer may be removed, either with or without cause, by the Managers at any time. Any officer may resign at
any time by giving written notice to the Managers. Any resignation shall take effect on the date of the receipt of that notice
or at any later time specified in that notice and, unless otherwise specified in that notice, the acceptance of the resignation
shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Company under any
contract to which the officer is a party. A vacancy in any office because of death, resignation, removal, disqualification or any
other cause shall be filled in the manner prescribed in this Agreement for regular appointments to that office.
7.11.3
Salaries of Officers. Subject to the requirements set forth in this Agreement, the salaries and the compensation
of the officers of the Company shall be determined by the Managers.
7.11.4
Signing Authority. Subject to any restrictions imposed by the Managers, and in accordance with the terms of this
Agreement, the chief executive officer, the president, the chief financial officer, the chief legal officer or the chief accounting
officer, acting alone, are authorized to sign and endorse checks, drafts, and other evidences of indebtedness made payable to the
order of the Company. Only the Managers shall be authorized to sign contracts and obligations on behalf of the Company; provided,
however, that the chief executive officer, the president, the chief financial officer, the chief legal officer or the chief accounting
officer shall have the authority to execute any contract that has been approved by written consent of the Managers.
8.
Rights, Authority and Voting of the Members.
8.1
Members Are Not Agents. Pursuant to Section 7 the management of the Company is vested in the Managers. No Member,
acting solely in the capacity of a Member, is an agent of the Company nor can any Member in such capacity bind nor execute any
instrument on behalf of the Company.
8.2
Voting by the Members. To the extent that holders of Units in the Company are provided with the right to vote hereunder
or as required under the Act, the Members shall be entitled to cast one vote for each Percentage
Interest attributable to their Membership Interest. Except as otherwise specifically provided in this Agreement, Members (but not
Economic Interest Owners) with the right to vote shall have the right to vote only upon the following matters:
8.2.1
Election of a new Manager after the resignation of a Manager as set forth in this Agreement;
8.2.2
Dissolution and winding up of the Company as set forth in Section 13.1.2;
8.2.3
Amendment of this Agreement unless otherwise provided herein; or
8.2.4
Any merger or combination of the Company or roll-up of the Company.
8.3
Member Vote. Matters upon which the Members may vote shall require a Majority Vote and the consent of all of the
Managers to pass and become effective.
8.4
Meetings of the Members. The Managers may at any time call for a meeting of the Members, or for a vote without a
meeting, on matters on which the Members are entitled to vote, and shall call for such a meeting (but not a vote without a meeting)
following receipt of a written request therefor of Members holding more than 10% of the Percentage Interests entitled to vote as
of the record date. Within 20 days after receipt of such request, the Managers shall notify all Members of record on the record
date of the Company meeting.
8.4.1
Notice. Written notice of each meeting shall be given to each Member entitled to vote, either personally or by mail
or other means of written communication, charges prepaid, addressed to such Member at its address appearing on the books of the
Company or given by it to the Company for the purpose of notice or, if no such address appears or is given, at the principal executive
office of the Company. All such notices shall be sent not less than 10, nor more than 60, days before such meeting. The notice
shall specify the place, date and hour of the meeting and the general nature of business to be transacted, and no other business
shall be transacted at the meeting.
8.4.2
Adjourned Meeting and Notice Thereof. When a Members’ meeting is adjourned to another time or place, notice
need not be given of the subsequent meeting if the time and place thereof are announced at the meeting at which the adjournment
is taken. At the subsequent meeting, the Company may transact any business which might have been transacted at the original meeting.
If the adjournment is for more than 45 days or if after the adjournment a new record date is fixed for the subsequent meeting,
a notice of the subsequent meeting shall be given to each Member of record entitled to vote at the meeting.
8.4.3
Quorum. The presence in person or by proxy of the Persons entitled to vote a majority of the Membership Interests
shall constitute a quorum for the transaction of business. The Members present at a duly called or held meeting at which a quorum
is present may continue to transact business until adjournment notwithstanding the withdrawal of enough Members to leave less than
a quorum, if any action taken (other than adjournment) is approved by at least a Majority Vote or such greater vote as may be required
by this Agreement or by law. In the absence of a quorum, any meeting of Members may be adjourned from time to time by the vote
of a majority of the Membership Interests represented either in person or by proxy, but no other business may be transacted, except
as provided above.
8.4.4
Consent of Absentees. The transactions of any meeting of Members, however called and noticed and wherever held, are
as valid as though they occurred at a meeting duly held after regular call and notice, if a quorum is present either in person
or by proxy, and if, either before or after the meeting, each of the Persons entitled to vote, not present in person or by proxy,
signs a written waiver of notice, or a consent to the holding of the meeting or an approval of the minutes thereof. All waivers,
consents and approvals shall be filed with the Company records or made a part of the minutes of the meeting.
8.4.5
Action Without Meeting. Except as otherwise provided in this Agreement, any action which may be taken at any meeting
of the Members may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by the
Members having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting
at which all entitled to vote thereon were present and voted. In the event the Members are requested to consent on a matter without
a meeting, each Member shall be given not less than 10 nor more than 20 days’ notice. In the event the Members request a
meeting for the purpose of discussing or voting on the matter, the notice of a meeting shall be given in the same manner as required
by Section 8.4.1 and no action shall be taken until the meeting is held. Unless delayed as a result of the preceding sentence,
any action taken without a meeting will be effective immediately after the Members representing the minimum number of votes have
signed the consent.
8.4.6
Record Dates. For purposes of determining the Members entitled to notice of any meeting or to vote or entitled to
receive any Distributions or to exercise any rights in respect of any other lawful matter, the Managers may fix in advance a record
date, which is not more than 60 nor less than 10 days prior to the date of the meeting nor more than 60 days prior to any other
action. If no record date is fixed:
(a)
The record date for determining Members entitled to notice of or to vote at a meeting of Members shall be at the close of
business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business
on the business day next preceding the day on which the meeting is held;
(b)
The record date for determining Members entitled to give consent to Company action in writing without a meeting shall be
the day on which the first written consent is given;
(c)
The record date for determining Members for any other purpose shall be at the close of business on the day on which the
Managers adopt the resolution relating thereto, or the 60th day prior to the date of such other action, whichever is later; and
(d)
A determination of Members of record entitled to notice of or to vote at a meeting of Members shall apply to any adjournment
of the meeting unless the Managers fix a new record date for the adjourned meeting, but the Managers shall fix a new record date
if the meeting is adjourned for more than 45 days from the date set for the original meeting.
8.4.7
Proxies. Every Person entitled to vote or execute consents shall have the right to do so either in person or by one
or more agents authorized by a written proxy executed by such Person or its duly authorized agent and filed with the Managers.
No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy
continues in full force and effect until revoked as specified or unless it states that it is irrevocable. A proxy which states
that it is irrevocable is irrevocable for the period specified therein.
8.4.8
Chairman of Meeting. A Manager may select any Person to preside as chairman of any meeting of the Members, and if
such Person shall be absent from the meeting, or fail or be unable to preside, a Manager may name any other Person in substitution
therefor as chairman. The chairman of the meeting shall designate a secretary for such meeting, who shall take and keep or cause
to be taken and kept minutes of the proceedings thereof. The conduct of all Members’ meetings shall at all times be within
the discretion of the chairman of the meeting and shall be conducted under such rules as the chairman may prescribe. The chairman
shall have the right and power to adjourn any meeting at any time, without a vote of the Membership Interests present in person
or represented by proxy, if the chairman shall determine such action to be in the best interests of the Company.
8.4.9
Record Date and Closing Company Books. When a record date is fixed, only Members of record on that date are entitled
to notice of and to vote at the meeting or to receive a Distribution, or allotment of rights, or to exercise the rights, as the
case may be, notwithstanding any transfer of any Membership Interests on the books of the Company after the record date.
8.4.10
Meetings. No meeting of the Members shall be required.
8.5
Rights of Members. No Owner shall have the right or power to: (i) withdraw or reduce its Capital Contribution,
except as a result of the dissolution and termination of the Company or as otherwise provided in this Agreement or by law; (ii) bring
an action for partition against the Company; or (iii) demand or receive property other than cash in return of its Capital
Contribution. Except as provided in this Agreement, no Owner shall have priority over any other Owner either as to the return of
Capital Contributions or as to allocations of the Net Income, Net Loss or Distributions of the Company. Other than upon the termination
and dissolution of the Company as provided by this Agreement, there has been no time agreed upon when the contribution of each
Owner is to be returned.
8.6
Restrictions on the Owners. No Owner shall:
8.6.1
Disclose to any non-Owner, other than their lawyers, accountants or consultants, and/or commercially exploit any of the
Company’s business practices, trade secrets or any other information not generally known to the business community, including
the identity of suppliers utilized by the Company;
8.6.2
Do any other act or deed with the intention of harming the business operations of the Company;
8.6.3
Do any act contrary to this Agreement; or
8.6.4
Do any act which would make it impossible to carry on the intended purposes or ordinary business of the Company.
8.7
Return of Capital. In accordance with the Act, an Owner may, under certain circumstances, be required to return to
the Company, for the benefit of the Company’s creditors, amounts previously distributed to the Owner. If any court of competent
jurisdiction holds that any Owner is obligated to make any such payment, such obligation shall be the obligation of such Owner
and not of the Company, the Managers or any other Owner.
8.8
Indemnification of Members. The Company shall indemnify, protect, defend and hold harmless the Members, in their
capacity as Members (as opposed to the Managers which are indemnified pursuant to Section 7.7 in their capacity as the Managers),
and their shareholders, Affiliates, officers, directors, partners, managers, members, employees, agents and its and their respective
successors and assigns, from and against any loss, liability, damage, cost or expense (including legal fees and expenses incurred
in defense of any demands, claims or lawsuits) arising from actions or omissions concerning business or activities undertaken by
or on behalf of the Company from any source other than for the Member’s gross negligence, willful misconduct or fraud. The
Company shall advance to any Person entitled to indemnification pursuant to this Section 8.8 such funds as shall be required
to pay legal fees and expenses incurred in defense of any demands, claims or lawsuits as they become due. Notwithstanding the foregoing,
if the claim for indemnification is in connection with an action against the Company, or against another indemnified party by the
Person requesting the indemnification, the Company shall have no such obligation to advance any funds for the payment of legal
fees and expenses. In the event that there is a final, non-appealable determination by a court of competent jurisdiction that the
Member committed gross negligence, willful misconduct or fraud, such Member shall reimburse the Company for all costs and expenses
advanced pursuant to this Section 8.8. The obligations contained herein shall survive the termination or expiration of this Agreement
until such time as an action against the Members is absolutely barred by the statute of limitations.
9.
Resignation, Withdrawal or Removal of a Manager.
9.1
Resignation or Withdrawal of Manager. A Manager may withdraw as a Manager at any time, in its sole discretion.
9.2
No Removal. A Manager may not be removed as a manager by the Members.
9.3
Purchase of Manager’s Interest. Upon a Manager withdrawing pursuant to Section 9.1, (i) the withdrawing
Manager’s and any Affiliated Member’s Interest in the Distributions and allocations of Net Income and Net Loss set
forth in this Agreement and (ii) its interest in its right to the earned but unpaid fees and other compensation remaining
to be paid under this Agreement, shall be purchased by the Company for a purchase price equal to the Fair Market Value of the Manager’s
and the Affiliated Member’s Interest determined according to the provisions of Section 9.4 plus any unpaid fees and
compensation. The purchase price of such Interest shall be paid by the Company to the Manager and any Affiliated Member in cash
within 30 days of the determination of the aggregate Fair Market Value.
9.4
Fair Market Value. The Fair Market Value of a Manager’s Interest to be purchased by the Company pursuant to
Section 9.3 shall be determined by agreement between the Manager and the Company. If the Manager and the Company cannot agree
upon the Fair Market Value of such Company interest within 30 days, the Fair Market Value thereof shall be determined by appraisal,
the Company and the withdrawing Manager each to choose one appraiser and the two appraisers so chosen to choose a third appraiser.
The decision of a majority of the appraisers as to the Fair Market Value of such Company interest shall be final and binding and
may be enforced by legal proceedings. The withdrawing Manager and the Company shall each compensate the appraiser appointed by
it and the compensation of the third appraiser shall be borne equally by such parties.
10.
Assignment of a Manager’s Interest.
10.1
Permitted Assignments. A Manager may sell, assign, hypothecate, encumber or otherwise transfer all or any portion
of the Manager’s Interest in its sole discretion.
10.1.1
Any assignment or transfer of a Manager’s Interest provided for by this Agreement can be an assignment or transfer
of all or any portion of the Manager’s Interest.
10.1.2
Any transfer of all or a portion of a Manager’s Interest may be made only pursuant to the terms and conditions contained
in this Section 10.
10.1.3
Any such assignment shall be by a written instrument of assignment, the terms of which are not in contravention of any of
the provisions of this Agreement, and which has been duly executed by the assignor of the Manager’s Interest.
10.2
Substitute Manager. Any assignee of all of a Manager’s Interest in compliance with this Section 10 shall
automatically be substituted as a Manager.
10.3
Transfer in Violation Not Recognized. Any assignment, sale, exchange or other transfer in contravention of the provisions
of this Section 10 shall be void and ineffectual and shall not bind or be recognized by the Company.
10.4
Transfers to Affiliates. Notwithstanding the limitations set forth in this Section, a Manager may transfer its interest
without any restrictions and without application of Section 10 with respect to transfers to an Affiliate.
11.
Member and Owner Transfers.
11.1
Resignation or Withdrawal of a Member. Subject to this Section 11, a Member shall not resign or withdraw as
a Member, without the consent of the Managers.
11.2
Permitted Assignments. No Owner may directly or indirectly sell, assign, hypothecate, encumber or otherwise transfer
all or any portion of its Interest without the written consent of the Managers in their sole discretion.
11.2.1
Any assignment or transfer by an Owner of its Interest provided for by this Agreement can be an assignment or transfer of
all or any portion of its Interest.
11.2.2
Any transfer of all or any portion of an Owner’s Interest may be made only pursuant to the terms and conditions contained
in this Section 11.
11.2.3
Any such assignment shall be by a written instrument of assignment, the terms of which are not in contravention of any of
the provisions of this Agreement, and which has been duly executed by the assignor of such Interest and accepted by the Managers.
11.2.4
All costs of the transfer, including reasonable attorneys’ fees (if any), shall be borne by the transferring Owner.
11.3
Substituted Members. No assignee of an Interest shall have the right to become a Substituted Member unless the Managers
shall consent thereto and all of the following conditions are satisfied:
11.3.1
A duly executed and acknowledged written instrument of assignment shall have been filed with the Company, which instrument
shall specify the Interest being assigned and set forth the intention of the assignor that the assignee succeed to the assignor’s
Interest as a Substituted Member in its place;
11.3.2
The assignor and assignee shall have executed, acknowledged and delivered such other instruments as the Managers may deem
necessary or desirable to effect such substitution, which may include an opinion of counsel regarding the effect and legality of
any such proposed transfer, and which shall include the written acceptance and adoption by the assignee of the Membership Interest
of the provisions of this Agreement;
11.3.3
The Managers shall have consented to admit the proposed assignee as a Substituted Member as set forth in this Section 11.3;
and
11.3.4
The assignee shall have delivered to the Managers a signed acknowledgement of receipt of a copy of this Agreement.
11.4
Loss of Rights. A Member shall cease to have the power to exercise any rights with respect to that portion of the
assigning Member’s Membership Interest that is assigned to a Substituted Member. In the event that the Member has assigned
all of the Member’s Membership Interest when the assignee becomes a Substituted Member, the assigning Member shall cease
to be a Member and shall cease to have the power to exercise any rights of a Member.
11.5
Consent of Members. By executing or adopting this Agreement, each Member hereby consents to the admission of a Substituted
Member, and to any Economic Interest Owner becoming a Substituted Member upon the consent of the Managers in compliance with this
Agreement.
11.6
Transfer in Violation Not Recognized. Any assignment, sale, transfer, exchange or other disposition in contravention
of the provisions of this Section 11 shall be void and ineffectual and shall not bind or be recognized by the Company. Upon
the transfer of a Member’s Membership Interest in violation of this Agreement, the Membership Interest of a Member shall
be converted to an Economic Interest.
11.7
Rights of Economic Interest Owner. An Economic Interest Owner shall be entitled to receive Distributions from the
Company attributable to the Interest acquired by reason of such assignment from and after the effective date of the assignment;
provided, however, that notwithstanding anything herein to the contrary, the Company shall be entitled to treat the assignor of
such Interest as the absolute owner thereof in all respects, and shall incur no liability for allocations of Net Income and Net
Loss or Distributions, or for the transmittal of reports or other information until the written instrument of assignment has been
received by the Company and recorded on its books. The effective date of such assignment shall be the date on which all of the
requirements of this Section have been complied with, subject to Section 4.7.
11.8
Right to Inspect Books. Economic Interest Owners shall have no right to inspect the Company’s books or records,
to vote on Company matters based on the voting rights attributable to the their class of unit, or to exercise any other right or
privilege as Members, until they are admitted to the Company as Substituted Members except as required by the Act.
11.9
Transfer Subject to Law. No assignment, sale, transfer, exchange or other disposition of any Membership Interest
may be made except in compliance with the applicable governmental laws and regulations, including state and federal securities
laws.
11.10
Right of First Refusal. This Section 11.10 is applicable whenever VVMC desires to sell, assign, or otherwise
transfer any part or all of its Membership Interest:
11.10.1
If VVMC desires to transfer all or a portion of its Interest, VVMC shall give the Fund written notice of such proposed transfer
(the “Transfer Notice”) and offer to sell such Interest to the Fund. The price of the Interest shall be the price at
which such Interest is intended to be transferred by VVMC to a third party in a bona fide transaction. The Transfer Notice shall
set forth the intended terms, conditions, price and the name and address of such third party.
11.10.2
The Fund shall have the option for a period of 10 business days from the date of receipt of such written offer (the “Offer
Period”) to accept such offer, and 2 months from the date of the receipt of such written offer to purchase the Interest (the
“Option Period”) on the terms and conditions set forth therein.
11.10.3
If the offer has not been accepted in writing prior to the expiration of the Offer Period, or, if so accepted in writing,
the closing of the purchase of the Interest by the Fund delivering such written acceptance has not occurred within the Option Period,
VVMC shall have the right for a period of 180 days following the end of the Offer Period (where no acceptance has been delivered
by the Fund) or the Option Period (where acceptance of the offer has been delivered but the applicable Interest has not been purchased
on or prior to the expiration of the Option Period), as applicable, to dispose of all (but not less than all) of such Interest
in accordance with the terms set forth in the Transfer Notice.
11.11
Repurchase Upon Violation of this Agreement. In the event a Member assigns all or a portion of its Membership Interest
without approval of the Managers or in violation of this Agreement, the Company may, at its option exercised within 60 days following
receipt of notice of such assignment from the Member or at any time if such information is obtained from any other Person, purchase
from such Member, and the Member shall transfer to the Company for the consideration of $100, all of the Member’s remaining
rights in the Company other than its Economic Interest. Each Member acknowledges and agrees that the right of the Company to purchase
such remaining rights and interest from a Member who transfers a Membership Interest in violation of Section 11 is not unreasonable
under the circumstances existing as of the date hereof. No such purchase by the Company of the remaining rights and interest of
the Member shall operate to make a Member’s assignee a Substituted Member. Upon exercise of the Company’s repurchase
rights under this Section 11.11, the Company shall have the right to purchase from the assignee the Economic Interest purchased
from the Member at the same price and terms paid by the assignee.
11.12
Drag Along Right. If at any time the Fund determines to sell, transfer, assign, exchange or otherwise dispose its
of Interest in the Company to a third-party purchaser, the Fund shall have the right (“Drag-Along Right”), in its sole
discretion, to require VVMC to transfer its Interest in the Company on the same terms and conditions and for the same price offered
to the Fund. If the Fund elects to exercise the Drag-Along Right pursuant to this Section 11.12, then the Fund shall send a written
notice to VVMC specifying the terms of the transfer and the date on which the closing is anticipated to occur (the “Drag-Along
Closing”), which date shall not be earlier than 10 business days nor later than 60 business days from the date that such
notice is delivered to VVMC. At the Drag-Along Closing, VVMC will transfer and assign to the purchaser all of its Interest in the
Company free and clear of any encumbrances and execute and deliver any and all documentation reasonably required in order to effectuate
the transfer of its Interest. VVMC grants to the Fund a special power of attorney in accordance with Section 14 to take all action
as may be necessary or appropriate to transfer or sell VVMC’s Interest as provided in this Section 11.12.
11.13
Specific Performance. It is agreed that the rights granted to the parties in this Section 11 are of a special
and unique kind and character and if there is a breach by any Member of any material provision in this Section, the other Member
would not have adequate remedy at law. It is expressly agreed, therefore, that the provisions in this Section and the rights of
the Members thereunder may be enforced by an action for specific performance and such other equitable relief as is provided for
under the laws of the State of Utah, and that any such action may only be brought in a court of competent jurisdiction in the State
of Utah.
12.
Books, Records, Accounting and Reports.
12.1
Records. The Company shall maintain at its principal office the Company’s records and accounts of all operations
and expenditures of the Company including the following:
12.1.1
A current list of the name and last known business, residence or mailing address of each Owner and Managers;
12.1.2
A copy of the Certificate of Formation and all amendments thereto, together with any powers of attorney pursuant to which
the Certificate of Formation or any amendments thereto were executed;
12.1.3
Copies of the Company’s federal, state and local income tax or information returns and reports, if any, for the 6
most recent fiscal years;
12.1.4
Copies of this Agreement and any amendments thereto together with any powers of attorney pursuant to which any written accounting
or any amendments thereto were executed;
12.1.5
Copies of any financial statements of the Company, if any, for the 6 most recent years; and
12.1.6
The Company’s books and records as they relate to the internal affairs of the Company for at least the current and
past 4 fiscal years.
12.2
Delivery to Members and Inspection. Each Member, or its representative designated in writing, has the right, upon
reasonable written request for the purposes related to the interest of that Person as a Member, which purposes shall be set forth
in the written request, to receive from the Company:
12.2.1
True and full information regarding the status of the business and financial condition of the Company;
12.2.2
Promptly after becoming available, a copy of the Company’s federal, state and local income tax returns for each year;
12.2.3
A current list of the name and last known business, residence or mailing address of each Manager;
12.2.4
A copy of this Agreement and the Certificate of Formation and all amendments thereto, together with executed copies of any
written powers of attorney pursuant to which this Agreement and the Certificate of Formation and all amendments thereto have been
executed; and
12.2.5
True and full information regarding the amount of cash and a description and statement of the agreed value of any property
or services contributed by each Owner and which each Owner has agreed to contribute in the future, and the date on which each became
an Owner.
12.3
Reports. The Administrative Manager will cause the Company, at the Company’s expense, to prepare an annual
report on the operations of the Company containing a year-end balance sheet and income statement.
12.4
Tax Information. The Administrative Manager, at the Company’s expense, shall cause the income tax returns for
the Company to be prepared and timely filed with the appropriate authorities. The Company shall send to each Member within 90 days
after the end of each taxable year such information as is necessary to complete federal and state income tax or information returns,
and a copy of the Company’s federal, state, and local income tax or information returns for that year; provided, however,
that this time may be extended by the Administrative Manager in its sole discretion.
12.5
Limitations. Notwithstanding Section 12.2, the Managers, in their sole discretion, may restrict receipt of the
information identified in Section 12.2, if the Managers reasonably believe that disclosure of such information is not in the
best interest of the Company or could damage the Company or its business.
12.6
Partnership Audit Rules.
12.6.1
The Administrative Manager shall be the “partnership representative” for purposes of Code Sections 6223 and
6231, as amended by Section 1101 of the Bipartisan Budget Act of 2015, and shall, at the Company’s expense, cause to be prepared
and timely filed after the end of each taxable year of the Company all federal and state income tax returns required of the Company
for such taxable year. If any state or local tax law provides for a partnership representative or Person having similar rights,
powers, authority or obligations, the Administrative Manager shall also serve in such capacity. The Company shall make such elections
pursuant to the provisions of the Code as the Administrative Manager, in its sole discretion, deems appropriate (including, in
the Administrative Manager’s sole discretion, an election under Code Section 754 or an election to have the Company treated
as an “electing investment partnership” for purposes of Code Section 743).
12.6.2
If any audit adjustment results in an underpayment of tax that is imputed to the Company and would be assessed and collected
at the Company level in the period that the adjustment becomes final, the Company may, in the sole discretion of the Administrative
Manager, elect:
(a)
to pay an imputed underpayment as calculated under Code Section 6225(b) with respect to such adjustment, including interest,
penalties and related tax (“Imputed Underpayment”) in the Adjustment Year or otherwise take the Internal Revenue Service
adjustment into account in the Adjustment Year. The Administrative Manager shall use commercially reasonable efforts to reduce
the amount of such Imputed Underpayment on account of the tax-exempt status (as defined in Code Section 168(h)(2)) of any Members
as provided in Code Section 6225(c)(3). Each Member agrees to indemnify and hold harmless the Company and the Administrative Manager
from and against any liability with respect to the Member’s (or former Member’s) proportionate share of any Imputed
Underpayment, regardless of whether such Member is a Member in the Adjustment Year, and to promptly pay its proportionate share
of any Imputed Underpayment to the Company within 15 days following the Administrative Manager’s request for payment and
any amount that is not funded shall be treated as a Tax Payment under Section 4.10.1. Each Member’s (or former Member’s)
proportionate share shall be determined by the Administrative Manager in good faith taking into account each Member’s (or
former Member’s) particular status, including its tax-exempt or non-United States status, its interest in the Company in
the Reviewed Year, and its timely provision of information necessary to reduce the amount of Imputed Underpayment set forth in
Code Section 6225(c); or
(b)
under Code Section 6226(a), as amended by the Bipartisan Act of 2015, to cause the Company to issue adjusted Schedule K-1s
or any other similar statement prescribed by the Code, Treasury Regulations or other administrative guidance published by the Internal
Revenue Service or other taxing authority to each applicable Member for the Reviewed Year, who will then be required to pay its
allocable share of tax otherwise attributable to the Company. Each Member hereby agrees and consents to such election and agrees
to take any action, and furnish the Administrative Manager with any information necessary to give effect to such election, as required
by such Code Section and applicable Treasury Regulations or other administrative guidance published by the Internal Revenue Service
or other taxing authority.
13.
Termination and Dissolution of the Company.
13.1
Termination of the Company. The Company shall be dissolved, shall terminate and its assets shall be disposed of,
and its affairs wound up upon the earliest to occur of the following:
13.1.1
Upon the happening of any event of dissolution specified in the Certificate of Formation;
13.1.2
A determination by the Managers to terminate the Company;
13.1.3
Upon the entry of a decree of judicial dissolution; or
13.1.4
The expiration of the term of the Company.
13.2
Certificate of Cancellation. As soon as possible following the occurrence of any of the events specified in Section 13.1,
a Manager who has not wrongfully dissolved the Company or, if none, the Members shall execute a Certificate of Cancellation
in such form as shall be required by the Act.
13.3
Liquidation of Assets. Upon a dissolution and termination of the Company, the Managers (or in case there is no Manager,
the Members or Person designated by the Members pursuant to a Majority Vote) shall take full account of the Company assets and
liabilities, shall liquidate the assets as promptly as is consistent with obtaining the fair market value thereof, and shall apply
and distribute the proceeds therefrom in the following order:
13.3.1
To the payment of creditors of the Company, including Members who are creditors to the extent permitted by law, but excluding
secured creditors whose obligations will be assumed or otherwise transferred on the liquidation of Company assets;
13.3.2
To the setting up of any reserves as required by law for any liabilities or obligations of the Company; provided, however,
that said reserves shall be deposited with a bank or trust company in escrow at interest for the purpose of disbursing such reserves
for the payment of any of the aforementioned contingencies and, at the expiration of a reasonable period, for the purpose of distributing
the balance remaining in accordance with the remaining provisions of this Section 13.3; and
13.3.3
To the Owners as set forth in Section 5.1.
13.4
Distributions Upon Dissolution. Each Member shall look solely to the assets of the Company for all Distributions
of its Capital Contributions, and shall have no recourse therefor (upon dissolution or otherwise) against the Managers or any Member.
No Member shall be required to restore any deficit in the Member’s Capital Account.
13.5
Liquidation of Member’s Interest. If there is a Liquidation of a Member’s Interest or a Manager’s
Interest in the Company, any liquidating Distribution pursuant to such Liquidation shall be made only to the extent of the positive
Capital Account balance, if any, of such Member or Manager for the taxable year during which such Liquidation occurs after proper
adjustments for allocations and Distributions for such taxable year up to the time of Liquidation. Such Distributions shall be
made by the end of the taxable year of the Company during which such Liquidation occurs, or if later, within 90 days after such
Liquidation.
14.
Special and Limited Power of Attorney and Amendments.
14.1
Power of Attorney. The Managers shall at all times during the term of the Company have a special and limited power
of attorney as the attorney-in-fact for each Member, with power and authority to act in the name and on behalf of each such Member
to execute, acknowledge, and swear to in the execution, acknowledgment and filing of documents which are not inconsistent with
the provisions of this Agreement and which may include, by way of illustration but not by limitation, the following:
14.1.1
This Agreement, as well as any amendments to the foregoing which, under the laws of the State of Utah or the laws of any
other state, are required to be filed or which the Managers shall deem it advisable to file;
14.1.2
Any other instrument or document that may be required to be filed by the Company under the laws of any state or by any governmental
agency or which the Managers shall deem it advisable to file;
14.1.3
Any instrument or document that may be required to affect the continuation of the Company, the admission of Substituted
Members, or the dissolution and termination of the Company (provided such continuation, admission or dissolution and termination
are in accordance with the terms of this Agreement);
14.1.4
Any contract for purchase or sale of real estate, and any deed, deed of trust, mortgage, or other instrument of conveyance
or encumbrance, with respect to Property;
14.1.5
Any and all other instruments as the Managers may deem necessary or desirable to affect the purposes of this Agreement and
carry out fully its provisions, including, but not limited to, those in Section 14.4; and
14.1.6
Any document, including assignments or other documents transferring title to an Owner’s Interest to a purchaser, required
to be executed to complete a Transfer, as set forth in Section 11.14.
14.2
Provision of Power of Attorney. The special and limited power of attorney of the Managers:
14.2.1
Is a special power of attorney coupled with the interest of the Managers in the Company, and its assets, is irrevocable,
shall survive the death, incapacity, termination or dissolution of the granting Member, and is limited to those matters herein
set forth;
14.2.2
May be exercised by the Managers by and through one or more of the officers of the Managers for each of the Members by the
signature of the Managers acting as attorney-in-fact for all of the Members, together with a list of all Members executing such
instrument by their attorney-in-fact or by such other method as may be required or requested in connection with the recording or
filing of any instrument or other document so executed; and
14.2.3
Shall survive an assignment by a Member of all or any portion of his Membership Interests except that, where the assignee
of the Membership Interests owned by the Member has been approved by the Managers for admission to the Company as a Substituted
Member, the special power of attorney shall survive such assignment for the sole purpose of enabling the Managers to execute, acknowledge
and file any instrument or document necessary to effect such substitution.
14.3
Notice to Members. The Managers shall promptly furnish to a Member a copy of any amendment to this Agreement executed
by the Managers pursuant to a power of attorney from the Member.
14.4
Amendment of Agreement.
14.4.1
Admission of Member. Amendments to this Agreement for the admission of any Member or Substituted Member shall not,
if in accordance with the terms of this Agreement, require the consent of any Member.
14.4.2
Amendments with Consent of Member. In addition to any amendments otherwise authorized herein, this Agreement may
be amended by the Managers with a Majority Vote.
14.4.3
Amendments Without Consent of the Members. In addition to the amendments authorized pursuant to Section 4.8
and Section 7.3.15 or otherwise authorized herein, the Managers may amend this Agreement, without the consent of any of the Members,
to (i) change the name and/or principal place of business of the Company or (ii) decrease the rights and powers of the
Managers (so long as such decrease does not impair the ability of the Managers to manage the Company and conduct its business and
affairs); provided, however, that no amendment shall be adopted pursuant to this Section 14.4.3 unless the adoption thereof
(A) is for the benefit of or not adverse to the interests of the Members and (B) does not affect the limited liability
of the Members or the status of the Company as a partnership for federal income tax purposes.
14.4.4
Execution and Recording of Amendments. Any amendment to this Agreement shall be executed by the Managers, and by
the Managers as attorney-in-fact for the Members pursuant to the power of attorney contained in Section 14.1. After the execution
of such amendment, the Managers shall also prepare and record or file any certificate or other document which may be required to
be recorded or filed with respect to such amendment, either under the Act or under the laws of any other jurisdiction in which
the Company holds any Property or otherwise does business.
15.
Relationship of this Agreement to the Act. Many of the terms of this Agreement are intended to alter or extend provisions
of the Act as they may apply to the Company or the Members. Any failure of this Agreement to mention or specify the relationship
of such terms to provisions of the Act that may affect the scope or application of such terms shall not be construed to mean that
any of such terms is not intended to be a limited liability company agreement provision authorized or permitted by the Act or which
in whole or in part alters, extends or supplants provisions of the Act as may be allowed thereby.
16.
Representations of Each Member. Each Member represents as follows:
16.1
Sophistication and Risk Tolerance. The Member is an “accredited investor” as defined in Section 501 of
Regulation D of the Securities Act of 1933. The Member is capable of evaluating the risks and merits of acquiring an interest in
the Company, has no need for liquidity of investment with respect to the purchase price of such Membership Interest, and can afford
to sustain a complete loss of such purchase price.
16.2
Unregistered Securities. The Member understands that the interests represented by the Membership Interest issued
to the Member have not been registered or qualified and have been offered and sold in reliance on exemptions from registration
and qualification requirements of federal, state or foreign securities laws and that no governmental agency has passed on the merits
or risks of acquiring an interest in the Company.
16.3
No View to Resell. The Member is acquiring the Membership Interest for investment purposes only and not with a view
to resell or distribute to any other Person.
16.4
Status. The Member, if an entity, is duly formed and organized, validly existing and in good standing under the laws
of the state of its formation and has the power under its formation documents and has the power and authority to execute, deliver
and perform this Agreement, which upon execution and delivery will be a valid and binding obligation enforceable in accordance
with its terms (subject only to the application of bankruptcy, insolvency or other similar laws regarding the rights of creditors
generally and the exercise of judicial discretion in equity).
16.5
Due Authorization. The execution, delivery and performance of this Agreement by such Member are duly authorized and
do not require the consent or approval of any Person that has not been obtained, and, if such Member is an entity, are not in contravention
of or in conflict with any term or provision of such Member’s organizational documents.
16.6
Other Agreements. The execution, delivery and performance of this Agreement will not breach or constitute a default
under any agreement, indenture, undertaking or other instrument to which the Member or any Affiliate is a party or by which any
of such Persons or any of their respective properties may be bound or affected, which breach or default would have a materially
adverse effect on the financial condition, properties or operations of this Company, and other than as contemplated by this Agreement,
such execution, delivery and performance will not result in the creation or imposition of (or the obligation to create or impose)
any lien or encumbrance on any of the Company’s property.
17.
Miscellaneous.
17.1
Counterparts. This Agreement may be executed in several counterparts, and all so executed shall constitute one Agreement,
binding on all of the parties hereto, notwithstanding that all of the parties are not signatory to the original or the same counterpart.
17.2
Successors and Assigns. The terms and provisions of this Agreement shall be binding upon and shall inure to the benefit
of the successors and assigns of the respective Members.
17.3
Severability. In the event any sentence or Section of this Agreement is declared by a court of competent jurisdiction
to be void, such sentence or Section shall be deemed severed from the remainder of this Agreement and the balance of this Agreement
shall remain in full force and effect.
17.4
Notices. All notices under this Agreement shall be in writing and shall be given to the Members or Economic Interest
Owners entitled thereto, by personal service or by mail or by overnight courier, posted to the address maintained by the Company
for such Person or at such other address as it may specify in writing.
17.5
Members’ Address. The name and address of the Members are as set forth on Exhibit B.
17.6
Name and Address of Managers. The name and address of the Managers are as follows:
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VivaVentures Management Company, Inc.
2 park Plaza, Suite 800
Irvine, CA 92614
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17.7
Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Utah.
17.8
Captions. Section titles or captions contained in this Agreement are inserted only as a matter of convenience and
reference. Such titles and captions in no way define, limit, extend or describe the scope of this Agreement nor the intent of any
provisions hereof.
17.9
Gender. Whenever required by the context hereof, the singular shall include the plural, and vice versa, and the masculine
gender shall include the feminine and neuter genders, and vice versa.
17.10
Time. Time is of the essence with respect to this Agreement.
17.11
Additional Documents. Each Member, upon the request of the Managers, shall perform any further acts and execute and
deliver any documents which may be reasonably necessary to carry out the provisions of this Agreement, including, but not limited
to, providing acknowledgment before a Notary Public of any signature made by a Member.
17.12
Descriptions. All descriptions referred to in this Agreement are expressly incorporated herein by reference as if
set forth in full, whether or not attached hereto.
17.13
Attorneys’ Fees. In the event that litigation or arbitration is commenced to enforce any of the provisions
of this Agreement, to recover damages for breach of any of the provisions of this Agreement, or to obtain declaratory relief in
connection with any of the provisions of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys’
fees and costs, whether or not such action proceeds to judgment. The prevailing party shall be determined by either the officiating
judge or arbitrator in the matter or by the presiding judge in the Third District Court of Utah.
17.14
Venue. Any action relating to or arising out of this Agreement shall be brought only in a court of competent jurisdiction
located in Salt Lake City, Utah.
17.15
Partition. The Members agree that the assets of the Company are not and will not be suitable for partition. Accordingly,
each of the Members hereby irrevocably waives any and all rights that it may have, or may obtain, to maintain any action for partition
of any of the assets of the Company.
17.16
Integrated and Binding Agreement. This Agreement contains the entire understanding and agreement among the Members
with respect to the subject matter hereof, and there are no other agreements, understandings, representations or warranties among
the Members other than those set forth herein. This Agreement may be amended only as provided in this Agreement.
17.17
Title to Company Property. All Property owned by the Company shall be owned by the Company as an entity and, insofar
as permitted by applicable law, no Member shall have any ownership interest in any Company Property in its individual name or right,
and each Member’s Membership Interest shall be personal property for all purposes.
17.18
Electronic Signatures. Any electronic signature of a party to this Agreement and of a party to take any action related
to this Agreement or any agreement entered into by this Company shall be valid as an original signature and shall be effective
and binding. Any such electronic signature (including the signature(s) to this Agreement) shall be deemed (i) to be “written”
or “in writing,” (ii) to have been signed and (iii) to constitute a record established and maintained in the ordinary
course of business and an original written record when printed from electronic files.
[Signature Page Follows]
IN WITNESS WHEREOF,
this Agreement is effective as of the date first set forth in the preamble.
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MEMBER:
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VivaOpportunity Fund, LLC, a Utah
limited liability company
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By:
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VivaVentures Management Company, Inc., a Nevada corporation, its manager
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By: /s/ Matt Nicosia
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Name: Matt Nicosia
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Title: President
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MEMBER AND MANAGER:
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VivaVentures Management Company, Inc., a Nevada corporation
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By: /s/ Matt Nicosia
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Name: Matt Nicosia,
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Title: President
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EXHIBIT A
DEFINITIONS
“Act” shall
mean the Utah Limited Liability Company Act, as the same may be amended from time to time.
“Adjusted Capital
Account Deficit” shall mean, with respect to any Member, the deficit balance, if any, in such Member’s Capital Account
as of the end of the relevant fiscal year, after giving effect to the following adjustments:
(i)
Credit to such Capital Account any amounts which the Member is obligated to restore and the Member’s share of Member
Minimum Gain and Company Minimum Gain and;
(ii)
Debit to such Capital Account the items described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5),
and 1.704-1(b)(2)(ii)(d)(6).
“Adjustment Year”
shall have the meaning assigned to such term in Code Section 6225(d)(2).
“Administrative
Manager” shall mean VivaVentures Management Company, Inc., a Nevada corporation.
“Affiliate”
shall mean (i) any Person directly or indirectly controlling, controlled by or under common control with another Person, (ii) a
Person owning or controlling 10% or more of the outstanding voting securities of such other Person, (iii) any officer, director
or partner of such other Person and (iv) if such other Person is an officer, director or partner, any company for which such
Person acts in any capacity.
“Agreement”
shall mean this Amended and Restated Limited Liability Company Agreement, as amended from time to time.
“Book Gain”
shall mean the excess, if any, of the fair market value of the Property over its adjusted basis for federal income tax purposes
at the time a valuation of the Property is required under this Agreement or Treasury Regulations Section 1.704-1(b) for
purposes of making adjustments to the Capital Accounts.
“Book Loss”
shall mean the excess, if any, of the adjusted basis of Property for federal income tax purposes over its fair market value at
the time a valuation of the Property is required under this Agreement or Treasury Regulations Section 1.704-1(b) for
purposes of making adjustments to the Capital Accounts.
“Book Value”
shall mean the adjusted basis of Property for federal income tax purposes increased or decreased by Book Gain, Book Loss, Built-In
Gain and Built-In Loss as reduced by depreciation, amortization or other cost recovery deductions, or otherwise, based on such
Book Value.
“Built-In Gain
(or Loss)” shall mean the amount, if any, by which the agreed value of contributed Property exceeds (or is less than) the
adjusted basis of Property contributed to the Company by a Member immediately after its contribution by the Member to the capital
of the Company.
“Business”
shall mean developing, manufacturing, leasing and selling of the Equipment.
“Capital Account”
with respect to any Member (or such Member’s assignee) shall mean such Member’s initial Capital Contribution adjusted
as follows:
(i)
A Member’s Capital Account shall be increased by:
(a)
such Member’s share of Net Income from the unit(s) of Equipment funded by the Member’s class of unit;
(b)
any item of income or gain specially allocated to a Member and not included in Net Income or Net Loss;
(c)
any additional cash Capital Contribution made by such Member to the Company; and
(d)
the fair market value of any additional Capital Contribution consisting of property contributed by such Member to the capital
of the Company reduced by any liabilities assumed by the Company in connection with such contribution or to which the Property
is subject.
(ii)
A Member’s Capital Account shall be reduced by:
(a)
such Member’s share of Net Loss from the unit(s) of Equipment funded by the Member’s class of unit;
(b)
any loss or deduction specially allocated to a Member and not included in Net Income or Net Loss;
(c)
any cash Distribution made to such Member from the unit(s) of Equipment funded by the Member’s class of unit; and
(d)
the fair market value, as determined by the Managers, of any Property (reduced by any liabilities assumed by the Member
in connection with the Distribution or to which the distributed Property is subject) distributed to such Member; provided that,
upon liquidation and winding up of the Company, unsold Property will be valued for Distribution at its fair market value and the
Capital Account of each Member before such Distribution shall be adjusted to reflect the allocation of gain or loss that would
have been realized had the Company then sold the Property for its fair market value. Such fair market value shall not be less than
the amount of any nonrecourse indebtedness that is secured by the Property.
Property other than
money may not be contributed to the Company except as specifically provided in this Agreement. Property of the Company may not
be revalued for purposes of calculating Capital Accounts unless the Managers determine the fair market value of the Property and
the Company complies with the requirements of Treasury Regulations Section 1.704-1(b)(2)(iv)(f) and (g); provided, however,
for purposes of calculating Book Gain or Book Loss (but not for purposes of adjusting Capital Accounts to reflect the contribution
and distribution of such Property), the fair market value of Property shall be deemed to be no less than the outstanding balance
of any nonrecourse indebtedness secured by such Property.
The Capital Account
of a Substituted Member shall include the Capital Account of its transferor. Notwithstanding anything to the contrary in this Agreement,
the Capital Accounts shall be maintained in accordance with Treasury Regulations Section 1.704-1(b). For purposes of this
Agreement, any references to the Treasury Regulations shall include corresponding subsequent provisions.
“Capital Contribution”
shall mean the gross amount of cash actually contributed by a Member to the capital of the Company pursuant to Section 3 and
the agreed upon fair market value of a contributing Member’s equity in any property actually contributed pursuant to Section 3
(including any indebtedness assumed by a Member). In the plural, “Capital Contributions” shall mean the aggregate amount
contributed by all of the Members in the Company.
“Cash From Operations”
shall mean the net cash realized by a class of unit from all sources, including, but not limited to, the operations of the class
of unit, and also including the sale, exchange or transfer of the Business, after payment of all cash expenditures of the Company,
including, but not limited to, all operating expenses including all fees payable to the Managers or Affiliates, all payments of
principal and interest on indebtedness, expenses for repairs and maintenance, capital improvements and replacements, and such reserves
and retentions as the Managers reasonably determine to be necessary and desirable in connection with Company operations with its
then existing assets and any anticipated acquisitions.
“Certificate
of Formation” shall mean the Certificate of Formation of the Company as filed with the Secretary of State of Utah as the
same may be amended or restated from time to time.
“Code”
shall mean the Internal Revenue Code of 1986, as amended, or corresponding provisions of subsequently enacted federal revenue laws.
“Company”
shall mean RPC Design and Manufacturing LLC, a Utah limited liability company.
“Company Minimum
Gain” shall have the same meaning as “partnership minimum gain” as set forth in Treasury Regulations Section 1.704-2(d).
“Delinquent Member”
shall have the meaning set forth in Section 3.3.
“Distribution”
shall refer to any money or other property transferred without consideration to Members or Owners of each class of unit from the
units of Equipment funded by the Member’s class of unit, and then with respect to their Interests in the class of unit.
“Drag-Along Right”
shall have the meaning set forth in Section 11.12.
“Drag-Along Closing”
shall have the meaning set forth in Section 11.12.
“Economic
Interest” shall mean an interest in the Net Income, Net Loss and Distributions associated with the unit(s) of Equipment
funded by a certain class of unit but shall not include any right to vote or to participate in the
management of the Company.
“Economic Interest
Owner” shall mean the owner of an Economic Interest who is not a Member.
“Equipment”
shall mean one unit of equipment that mines oil from oil sand and other materials.
“Fair Market
Value” shall have the meaning set forth in Section 9.4.
“Fund”
shall mean Viva Energy Opportunity Fund III, LLC, a Utah limited liability company.
“Interest”
shall mean a Membership Interest or an Economic Interest.
“License Fee”
shall have the meaning set forth in Section 6.1.2.
“Liquidation”
shall mean in respect to the Company the earlier of the date upon which the Company is terminated under Code Section 708(b)(1)
or the date upon which the Company ceases to be a going concern (even though it may exist for purposes of winding up its affairs,
paying its debts and distributing any remaining balance to its Members), and in respect to a Member where the Company is not in
Liquidation means the date upon which occurs the termination of the Member’s entire interest in the Company by means of a
distribution or the making of the last of a series of Distributions (whether or not made in more than one year) to the Member by
the Company.
“Major Decision”
shall have the meaning set forth in Section 7.4.
“Majority Vote”
shall mean, with respect to the Members, a vote of the Members holding more than 50% of the Membership Interests entitled to vote
to the extent that holders of Units in the Company are provided with the right to vote hereunder or as required under the Act,
in which case Members with the right to vote shall be entitled to cast one vote for each Membership Interest they own, and a fractional
vote for each fractional Membership Interest they own.
“Managers”
shall mean VivaVentures Management Company, Inc., a Nevada corporation.
“Manager’s
Interest” shall represent an interest in the class of unit of the Company entitling a Manager to the voting and other
rights that the Member may enjoy by being a Member.
“Member”
shall refer to any Person who is admitted to the Company under a certain class of unit as a Member of that class of unit or a Substituted
Member of that class of unit and who has not ceased to be a Member.
“Member Minimum
Gain” shall mean “partner nonrecourse debt minimum gain” as determined under Treasury Regulations Section 1.704-2(i)(3).
“Member Nonrecourse
Debt” shall mean “partner nonrecourse debt” as set forth in Treasury Regulations Section 1.704-2(b)(4).
“Member Nonrecourse
Deductions” shall mean “partner nonrecourse deductions,” and the amount thereof shall be, as set forth in Treasury
Regulations Section 1.704-2(i).
“Membership Interest”
shall mean a Member’s entire interest in the Company including such Member’s Economic Interest and such voting and
other rights and privileges that the Member may enjoy by being a Member pertaining to the Member’s class of unit.
“Net Income”
or “Net Loss” shall mean, respectively, for each taxable year of the Company the taxable income and taxable loss (exclusive
of Built-In Gain or Loss) of the unit(s) of equipment associated with each class of unit as determined for federal income tax purposes
in accordance with Code Section 703(a) (including all items of income, gain, loss, or deduction required to be separately
stated pursuant to Code Section 703(a)(1)) (other than any specific item of income, gain (exclusive of Built-In Gain), loss
(exclusive of Built-In Loss), deduction or credit subject to special allocation under this Agreement), with the following modifications:
(a)
The amount determined above shall be increased by any income from the unit(s) of equipment associated with each class of
unit exempt from federal income tax;
(b)
The amount determined above shall be reduced by any expenditures described in Code Section 705(a)(2)(B) or expenditures
treated as such pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i);
(c)
Depreciation, amortization and other cost recovery deductions shall be computed based on Book Value instead of on the amount
determined in computing taxable income or loss. Any item of deduction, amortization or cost recovery specially allocated to a Member
and not included in Net Income or Net Loss shall be determined for Capital Account purposes for their individual class of unit
in a similar manner; and
(d)
For purposes of this Agreement, Book Gain and Book Loss attributable to a revaluation of Property attributable to unrealized
gain or loss in such Property shall be treated as Net Income and Net Loss.
“Non-Delinquent
Member” shall have the meaning set forth in Section 3.3.
“Nonrecourse
Debt” shall have the meaning set forth in Treasury Regulations Section 1.704-2(b)(3).
“Nonrecourse
Deductions” shall have the meaning, and the amount thereof shall be, as set forth in Treasury Regulations Section 1.704-2(c).
“Offer Period”
shall have the meaning set forth in Section 11.10.2.
“Option Period”
shall have the meaning set forth in Section 11.10.2.
“Owner”
shall mean a Member or the holder of an Economic Interest.
“Percentage Interest”
shall mean the percentage interest of a Member in its respective class of unit., as set forth opposite the name of such Member
under the column “Percentage Interest” on Exhibit B.
“Person”
shall mean a natural person, corporation, limited partnership, general partnership, joint stock company, joint venture, association,
company, trust, bank trust company, land trust, business trust, statutory trust or other organization, whether or not a legal entity,
and a government or agency or political subdivision thereof.
“Prime Rate”
shall mean the reference rate announced from time-to-time by the Wall Street Journal, and changes in the Prime Rate shall be deemed
to occur on the date that changes in such rate are announced.
“Property”
shall refer to any or all of such real and tangible or intangible personal property or properties as may be acquired by the Company.
“Qualified Opportunity
Fund” shall have the meaning set forth in Section 1400Z-2(d) of the Code.
“Qualified Opportunity
Zone” shall have the meaning set forth in Section 1400Z-1(a) of the Code.
“Qualified Opportunity
Zone Property” shall have the meaning set forth in Section 1400Z-2(d) of the Code.
“Regulatory Allocations”
shall mean the allocations set forth in Sections 4.2.1 through 4.2.7.
“Required Additional
Capital Contribution” shall have the meaning set forth in Section 3.3.
“Substituted
Member” shall mean any Person admitted as a substituted Member pursuant to this Agreement.
“Tax Cuts and
Jobs Act” shall mean the Tax Cuts and Jobs Act of 2017 and the administrative interpretations and rulings thereunder.
“Tax Payment”
shall have the meaning set forth in Section 4.10.1.
“Transfer Notice”
shall have the meaning set forth in Section 11.10.1.
“Unit”
shall mean means a unit of measurement by which a Member’s right to vote (as applicable) and to participate in Net Income,
Net Loss, Nonrecourse Deductions and Distributions shall be determined in accordance with the terms of this Agreement. “Unit(s)”
may be designated as Class A Units or Class B Units. Except as otherwise provided in this Agreement or as otherwise required by
applicable law, all Class A Units and Class B units will be identical in all respects and will entitle the holders of such Units
to the same rights and privileges, subject to the same qualifications, limitations and restrictions, except that, in the case of
Class B Units, holders of Class B Units will not be entitled to vote on any matter except to the extent otherwise
required under the Act. Notwithstanding any other provision of this Agreement, Class A Units, and Class B Units may not be subdivided
(by Unit split or distribution of Units), combined or reclassified unless the Units of the other class of Units are concurrently
therewith proportionately subdivided (by Unit split or distribution of Units), combined or reclassified in a manner that maintains
the same proportionate equity ownership (and same proportionate voting power, as applicable) among the holders of Class A Units
and Class B Units on the record date for such subdivision (by Unit split or distribution of Units), combination or reclassification.
“Vivakor”
shall mean Vivakor, Inc., a Nevada corporation, and its subsidiaries.
“VVMC”
shall mean VivaVentures Management Company, Inc., a Nevada corporation.
EXHIBIT B
ROSTER OF MEMBERS
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Name and Address
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Capital Contribution
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Unit Class
|
Percentage Class Interest
|
|
VivaVentures Management Company, Inc.
433 Lawndale Dr.
Salt Lake City, Utah 84115
|
$1,000
|
A
|
100%
|
|
|
|
|
|
|
VivaOpportunity Fund, LLC
433 Lawndale Dr.
Salt Lake City, Utah 84115
|
$1,358,000
|
B
|
100%
|
|
|
|
|
|
Exhibit 10.24
LIMITED LIABILITY
COMPANY AGREEMENT
OF
VIVA WEALTH FUND
I, LLC
THE SECURITIES OFFERED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION
NOR BY THE SECURITIES REGULATORY AUTHORITY OF ANY STATE, NOR HAS ANY COMMISSION OR AUTHORITY PASSED UPON OR ENDORSED THE MERITS
OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF ANY DISCLOSURE MADE IN CONNECTION THEREWITH. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE. THE SECURITIES OFFERED HEREBY MAY NOT BE RESOLD WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND
APPLICABLE STATE SECURITIES LAWS OR EXEMPTION THEREFROM. ANY TRANSFER OF THE SECURITIES REPRESENTED BY THIS AGREEMENT IS FURTHER
SUBJECT TO OTHER RESTRICTIONS, TERMS, AND CONDITIONS WHICH ARE SET FORTH IN THIS AGREEMENT.
Table
of Contents
(continued)
|
1. Organization
|
1
|
|
1.1 Formation
|
1
|
|
1.2 Name and Place of Business
|
1
|
|
1.3 Business and Purpose of the Company
|
1
|
|
1.4 Term
|
1
|
|
1.5 Required Filings
|
1
|
|
1.6 Registered Office and Registered Agent
|
1
|
|
1.7 Certain Transactions
|
1
|
|
1.8 Proprietary Information
|
1
|
|
2. Definitions
|
2
|
|
3. Capitalization and Financing
|
2
|
|
3.1 Manager’s Capital Contribution
|
2
|
|
3.2 Members’ Capital Contributions
|
2
|
|
3.2.1 Initial Member
|
2
|
|
3.2.2 Units
|
2
|
|
3.2.3 Payment of Purchase Price
|
2
|
|
3.2.4 Subscription Agreement
|
2
|
|
3.2.5 Manager and its Affiliates as Member
|
2
|
|
3.2.6 Admission of Members
|
3
|
|
3.2.7 Liabilities of Members
|
3
|
|
3.2.8 Cancellation of Offering
|
3
|
|
3.2.9 Escrow Account
|
3
|
|
3.3 Manager Loans
|
3
|
|
3.4 Company Loans
|
3
|
|
3.5 Additional Capital Contributions
|
4
|
|
4. Allocation of Tax Items
|
4
|
|
4.1 Allocation of Net Income and Net Loss
|
4
|
|
4.1.1 Net Income
|
4
|
|
4.1.2 Net Loss
|
4
|
|
4.2 Special Allocations
|
4
|
|
4.2.1 Qualified Income Offset
|
4
|
|
4.2.2 Gross Income Allocation
|
5
|
|
4.2.3 Minimum Gain Chargeback
|
5
|
|
4.2.4 Member Minimum Gain Chargeback
|
5
|
|
4.2.5 Nonrecourse Deductions
|
5
|
|
4.2.6 Member Nonrecourse Deductions
|
5
|
|
4.2.7 Code Section 754 Adjustments
|
5
|
Table
of Contents
(continued)
|
4.3 Curative Allocations
|
6
|
|
4.4 Contributed Property
|
6
|
|
4.5 Commission Discounts
|
6
|
|
4.6 Recapture Income
|
6
|
|
4.7 Allocation Among Units
|
6
|
|
4.8 Allocation of Company Items
|
6
|
|
4.9 Assignment
|
6
|
|
4.10 Power of Manager to Vary Allocations
|
7
|
|
4.11 Consent of Members
|
7
|
|
4.12 Withholding Obligations
|
7
|
|
4.13 Special Allocation
|
7
|
|
5. Distributions
|
8
|
|
5.1 Cash From Operations
|
8
|
|
5.2 Restrictions
|
8
|
|
5.3 Tax Distributions
|
8
|
|
5.4 Clawback
|
8
|
|
6. Compensation to the Manager and its Affiliates
|
8
|
|
6.1 Manager’s and Affiliates’ Compensation
|
8
|
|
6.2 Company Expenses
|
9
|
|
6.2.1 Operating Expenses
|
9
|
|
6.2.2 Manager Overhead
|
9
|
|
7. Authority and Responsibilities of the Manager
|
9
|
|
7.1 Management
|
9
|
|
7.2 Number, Tenure and Qualifications
|
9
|
|
7.3 Manager Authority
|
9
|
|
7.4 Restrictions on Manager’s Authority
|
12
|
|
7.5 Responsibilities of the Manager
|
12
|
|
7.6 Administration of Company
|
13
|
|
7.7 Indemnification of the Manager and Officers
|
13
|
|
7.8 No Personal Liability for Return of Capital
|
14
|
|
7.9 Authority as to Third Persons
|
14
|
|
7.10 Officers of the Company
|
14
|
Table
of Contents
(continued)
|
8. Rights, Authority and Voting of the Members
|
15
|
|
8.1 Members Are Not Agents
|
15
|
|
8.2 Voting by the Members
|
15
|
|
8.3 Member Vote; Consent of Manager
|
15
|
|
8.4 Meetings of the Members
|
15
|
|
8.4.1 Notice
|
15
|
|
8.4.2 Adjourned Meeting and Notice Thereof
|
16
|
|
8.4.3 Quorum
|
16
|
|
8.4.4 Consent of Absentees
|
16
|
|
8.4.5 Action Without Meeting
|
16
|
|
8.4.6 Record Dates
|
16
|
|
8.4.7 Proxies
|
17
|
|
8.4.8 Chairman of Meeting
|
17
|
|
8.4.9 Inspectors of Election
|
17
|
|
8.4.10 Record Date and Closing Company Books
|
17
|
|
8.5 Rights of Members
|
17
|
|
8.6 Restrictions on the Owners
|
18
|
|
8.7 Return of Capital of the Members
|
18
|
|
8.8 Indemnification of the Members
|
18
|
|
8.9 Deemed Approval
|
18
|
|
9. Resignation, Withdrawal or Removal of the Manager
|
18
|
|
9.1 Resignation or Withdrawal of Manager
|
18
|
|
9.2 Removal
|
18
|
|
9.3 Purchase of Manager’s Interest
|
19
|
|
9.4 Purchase Price of the Manager’s Interest
|
19
|
|
10. Assignment of the Manager’s Interest
|
19
|
|
10.1 Permitted Assignments
|
19
|
|
10.2 Substitute Manager
|
20
|
|
10.3 Transfer in Violation Not Recognized
|
20
|
|
10.4 Transfers to Affiliates
|
20
|
|
11. Assignment of Units
|
20
|
|
11.1 Permitted Assignments
|
20
|
|
11.2 Substituted Member
|
21
|
|
11.2.1 Conditions to be Satisfied
|
21
|
|
11.2.2 Consent of Manager
|
21
|
|
11.2.3 Consent of Members
|
21
|
Table
of Contents
(continued)
|
11.3 Rights of Economic Interest Owner
|
21
|
|
11.4 Right to Inspect Books
|
22
|
|
11.5 Transfer Subject to Law
|
22
|
|
11.6 Transfer in Violation Not Recognized
|
22
|
|
11.7 Conversion to Economic Interest
|
22
|
|
11.8 Exit Opportunities
|
22
|
|
11.9 Call Option
|
22
|
|
=
|
|
|
12. Books, Records, Accounting and Reports
|
24
|
|
12.1 Records
|
24
|
|
12.2 Delivery to Members and Inspection
|
24
|
|
12.3 Reports
|
25
|
|
12.4 Tax Information
|
25
|
|
12.5 Confidentiality
|
25
|
|
12.6 Limitations
|
25
|
|
12.7 Partnership Audit Rules
|
25
|
|
13. Termination and Dissolution of the Company
|
26
|
|
13.1 Termination of Company
|
26
|
|
13.2 Certificate of Cancellation
|
26
|
|
13.3 Liquidation of Property
|
26
|
|
13.4 Distributions Upon Dissolution
|
27
|
|
13.5 Liquidation of Member’s Interest
|
27
|
|
14. Special and Limited Power of Attorney
|
27
|
|
14.1 Power of Attorney
|
27
|
|
14.2 Provision of Power of Attorney
|
28
|
|
14.3 Notice to Members
|
28
|
|
15. Relationship of this Agreement to the Act
|
28
|
|
16. Amendment of Agreement
|
28
|
|
16.1 Admission of Member
|
28
|
|
16.2 Amendments with Consent of Member
|
28
|
|
16.3 Amendments Without Consent of the Members
|
28
|
|
16.4 Execution and Recording of Amendments
|
29
|
Table
of Contents
(continued)
|
17. Miscellaneous
|
29
|
|
17.1 Counterparts
|
29
|
|
17.2 Successors and Assigns
|
29
|
|
17.3 Severability
|
29
|
|
17.4 Notices
|
29
|
|
17.5 Manager’s Address
|
29
|
|
17.6 Governing Law
|
29
|
|
17.7 Captions
|
29
|
|
17.8 Gender
|
29
|
|
17.9 Time
|
29
|
|
17.10 Additional Documents
|
29
|
|
17.11 Descriptions
|
29
|
|
17.12 Binding Arbitration
|
30
|
|
17.13 Attorneys’ Fees
|
30
|
|
17.14 Venue
|
30
|
|
17.15 Partition
|
30
|
|
17.16 Integrated and Binding Agreement
|
30
|
|
17.17 Legal Counsel
|
30
|
|
17.18 Title to Company Property
|
30
|
EXHIBITS
A Definitions
LIMITED LIABILITY
COMPANY AGREEMENT
OF
VIVA WEALTH FUND
I, LLC
This Limited Liability
Company Agreement, effective as of November 13, 2020 is entered into by and between Wealth
Space, LLC, a California limited liability company, as the manager, and Vivakor, Inc., a Nevada corporation as Initial Member
(and with respect to certain purchase rights of Vivakor as set forth herein), and such other Persons who become Members in accordance
with the terms of this Agreement, pursuant to the Act on the following terms and conditions.
1.
Organization.
1.1
Formation. On November 13, 2020, a Certificate of Formation was filed in the office of the Secretary of State of
the state of Nevada in accordance with and pursuant to the Act.
1.2
Name and Place of Business. The name of the Company is Viva Wealth Fund I, LLC and its principal place of business
shall be2 Park Plaza, Suite 800, Irvine CA 92614. The Manager may change such name, change such place of business or establish
additional places of business of the Company as the Manager may determine to be necessary or desirable.
1.3
Business and Purpose of the Company. The purpose of the Company is to (i) purchase,
manufacture, lease and sell, either directly or through one or more special purposes entities, the Equipment, (ii) engage
in any other activities relating or incidental thereto as may be necessary to accomplish such purpose and (iii) engage in
such other activities as determined by the Manager which are allowed under Nevada law.
1.4
Term. The term of the Company shall commence on the effective date of this Agreement and shall be perpetual unless
the Company is sooner dissolved and terminated as provided in this Agreement.
1.5
Required Filings. The Manager shall execute, acknowledge, file, record, amend and/or publish such certificates and
documents, as may be required by this Agreement or by law in connection with the formation and operation of the Company.
1.6
Registered Office and Registered Agent. The Company’s initial registered office and initial registered agent
shall be as provided in the Certificate of Formation. The registered office and registered agent may be changed from time to time
by the Manager by filing the address of the new registered office and/or the name of the new registered agent pursuant to the Act.
1.7
Certain Transactions. Any Manager, Owner or any Affiliate thereof, or any shareholder, officer, director, employee,
partner, member, manager or any Person owning an interest therein, may engage in or possess an interest in any other business or
venture of any nature or description, whether or not competitive with the Company, including, but not limited to, the operation
of a business similar to the Business and no Manager, Owner or any Affiliate, or other Person shall have any interest in such other
business or venture by reason of their interest in the Company.
1.8
Proprietary Information. Notwithstanding anything herein to the contrary, the
Members acknowledge that Vivakor has indicated that Vivakor created, cultivated and owns the tradenames and trademarks relating
to the name “Vivakor” and the proposed business of Vivakor and the Company (the “Proprietary Information”).
The parties agree that Vivakor shall retain the ownership of the Proprietary Information and that in the event Vivakor is removed
as an officer or consultant, the Company shall no longer use the Proprietary Information.
2.
Definitions. Definitions for this Agreement are set forth on Exhibit A and are incorporated herein.
3.
Capitalization and Financing.
3.1
Manager’s Capital Contribution. The Manager shall not be required to make a Capital Contribution to the Company.
3.2
Members’ Capital Contributions.
3.2.1
Initial Member. The Initial Member shall contribute the sum of $100 in cash to the Company, but shall not receive
any Units therefor. On the first business day following the admission of additional Members, the Initial Member’s $100 Capital
Contribution will be returned, and the Initial Member shall cease to be a Member. The Members hereby consent to the Initial Member’s
withdrawal of the Initial Member’s Capital Contribution and waive any right, claim or action they may have against the Initial
Member by reason of the Initial Member having been a Member.
3.2.2
Convertible Note and Units. The Company is hereby authorized to sell and issue not less than 10 and not more than
5,000 Units at a purchase price of $5,000 per Unit and to admit the Persons who acquire such Units as Members. Persons who seek
to purchase the Units will first enter into a Convertible Memorandum of Indebtedness (the “Convertible Note”), which
is a convertible note that is convertible into the Units, with a maturity date of the lesser of when the Equipment commences quality
control or testing production or six months (the “Convertible Note Maturity Date”), at which time the note automatically
converts to the sale and purchase of the Units. The minimum purchase shall be 10Convertible Notes, which convert into 10 Units,
except that the Company may, in its sole discretion, sell and issue Convertible Notes in increments of less than 10. In no event
shall the Company have more than 1,950 Owners. The Offering shall terminate on the Offering Termination Date. The Company will
not sell 25% or more of the Units to Employee Benefit Plans. The Convertible Note shall bear an interest rate of 12% per annum,
and the Company shall accrue and pay interest in cash on a quarterly basis from a reserve set aside from the Convertible Note proceeds
specifically for these interest payments (the “Interest Payments”). The Interest Payments shall terminate at the Convertible
Note Maturity Date to Units at which time no further Interest Payments will accrue. One Convertible Note shall be converted into
one Unit.
3.2.3
Payment of Purchase Price. The purchase price of each Convertible Note shall be paid in full in cash at the time
of execution of the Subscription Agreement. Payment of the purchase price for a Convertible Note (and after the conversion of the
Convertible Notes to the Units) shall constitute the Member’s initial Capital Contribution. As described in the Memorandum,
Units may be sold to certain Persons for a contribution to the Company that is net of up to 7% per Convertible Note in the event
that the Company is not obligated to pay some or all of the 7% selling commission normally paid to a broker-dealer in connection
with the sale of these Convertible Notes.
3.2.4
Subscription Agreement Documents and Auto Conversion. Each Person desiring to acquire Convertible Notes shall tender
to the Company a Subscription Agreement for the number of Convertible Notes desired, together with the correct full subscription
payment for the Convertible Notes so subscribed (the “Subscription Payment”). The Company shall accept or reject each
Subscription Agreement within 30 days after the Company receives the same (and the failure by the Company to accept a Subscription
Agreement within the 30-day period shall constitute a rejection thereof). If rejected, all Subscription Payments shall be returned
to the subscriber. Acceptance of a Subscription Agreement shall be evidenced by the execution of the Subscription Agreement by
the Manager. Subject to Section 3.2.6, upon the acceptance of a Subscription Agreement, the accompanying Subscription Payment
shall become a liability until the liability automatically converts into Units at the Convertible Note Maturity Date, at which
time it shall become a Capital Contribution by such subscriber; provided, however, prior to the Company accepting subscriptions
for at least the Minimum Offering Amount. Upon the Offering Termination Date, all Capital Contributions accepted for any series
will automatically convert to Vivakor common stock if the Company has not accepted subscriptions for at least $6,250,000 for that
series of Equipment (the “Automatic Stock Conversion”). The Company intends to manufacture four series of Equipment,
including Series A, B, C and D. The Company will first seek to fully subscribe Series A, then Series B, then Series C, then Series
D, with each series fully subscribed at $6,250,000. The conversion price of the Automatic Stock Conversion is the greater of $0.45
per share or the share price based on the 30-day average share price of Vivakor common stock
discounted by 10%. The shares issued in the Automatic Stock Conversion will carry a trade restriction for a period of two years
after the date of conversion, in which the holder of the common stock will not, in any 90 day period sell a greater number of shares
than 10% of 10 day average trading volume at the time of the proposed sale. If the company undertakes an underwritten public
offering of stock, each holder will be required to comply with a six (6) month market stand-off agreement.
3.2.5
Manager and its Affiliates as Member. The Manager and/or its Affiliates may acquire any number of Units for any reason
deemed appropriate by the Manager for the same price and upon the same terms and conditions, subject to Section 3.2.3, as
all other purchasers thereof; provided, however, that the Manager shall not acquire more than 10% of the Units sold and shall not
acquire any Units until the Company has accepted Subscription Payments for at least the Minimum Offering Amount. Certain Affiliates
of the Manager and their officers and directors may acquire additional Units. In such event, the Manager or its Affiliates will
be admitted to the Company as Members with respect to such Units and will be entitled to all rights as Members appurtenant thereto,
including but not limited to, the right to vote on certain Company matters as provided for in this Agreement and to receive Distributions
and allocations attributable to the Units so purchased. Any interest of the Manager or its Affiliate as a Member shall be separately
designated by listing the Manager or its Affiliate in the roster of Members with respect to its Units.
3.2.6
Admission of Members. The Manager shall amend this Agreement and take such other action as the Manager deems necessary
or appropriate promptly after receipt of the Members’ Capital Contributions to the Company to reflect the admission of those
Persons to the Company as Members.
3.2.7
Liabilities of Members. Except as specifically provided in this Agreement, neither the Manager nor any Member shall
be required to make any additional contributions to the Company and no Manager or Member shall be liable for the debts, liabilities,
contracts or any other obligations of the Company, by reason of being a Manager or Member of the Company, nor shall the Manager
or the Members be required to lend any funds to the Company or to repay to the Company, the Manager or any Member, or any creditor
of the Company any portion or all of any deficit balance in a Member’s Capital Account.
3.2.8
Cancellation of Offering. If the Company has not accepted Subscription Payments for the Minimum Offering Amount on
or before November 13, 2021, the Offering shall be cancelled and all Subscription Payments received shall be promptly refunded
to the subscribers.
3.2.9
Escrow Account. After acceptance of any tendered Subscription Agreement by the Company, the accompanying Subscription
Payment shall be, prior to the Escrow Release Date, placed in a non-interest-bearing escrow account (“Escrow Account”)
and held there until such time as Subscription Payments for the Minimum Offering Amount have been deposited in the Escrow Account
(“Escrow Release Date”). Upon the sale of the Minimum Offering Amount, funds in the Escrow Account shall be released
to the Company.
3.3
Manager Loans. The Manager and its Affiliates may, but will have no obligation to, make loans to the Company. Any
such loan shall bear interest at a rate equal to the lesser of 10% or the maximum interest rate permitted by applicable law and
provide for the payment of principal and any accrued but unpaid interest in accordance with the terms of the promissory note evidencing
such loan, but in no event later than the dissolution of the Company.
3.4
Company Loans. The Company may obtain or assume, in the sole discretion of the Manager, loans to operate or refinance
the Business.
3.5
Additional Capital Contributions. The Manager is hereby authorized to cause the Company to issue additional Units
or an additional class of units (the “Additional Interests”) at any time or from time to time, to the Members or to
other Persons for such consideration and on such terms and conditions as shall be established by the Manager in its sole discretion
without approval of the Members. Any Additional Interests issued hereby may be issued in one or more classes, or one or more series
of any such classes, with such designations, preferences and relative, participating, optional or special rights, powers and duties,
including rights, powers and duties senior to any other units, as determined by the Manager in its sole discretion without the
approval of any Member. In the event that any Additional Interests are issued, the Manager shall have the power and authority to
amend this Agreement to reflect the changes applicable to such issuance, including, but not limited to, changes to adjust the Book
Value of the existing Capital Accounts and amending the allocations and Distributions to reflect the issuance of the newly issued
Additional Interests. No Additional Interests may be offered or sold to any Person that does not meet all qualifications under
applicable federal or state securities laws, rules and regulations in order for such offer and sale to qualify as exempt from all
federal and state registration requirements or if such offer or sale would otherwise violate the terms of this Agreement.
4.
Allocation of Tax Items.
4.1
Allocation of Net Income and Net Loss. For each fiscal year, the Net Income and Net Loss of the Company shall be
allocated as follows:
4.1.1
Net Income. After giving effect to the special allocations set forth in Sections 4.2 and 4.3, Net Income for
any fiscal year shall be allocated as follows:
(a)
First, 100% to the Members until the Net Income allocated to the Members pursuant to this Section 4.1.1(a) for such
fiscal year and all previous fiscal years is equal to the aggregate Net Loss allocated to the Members pursuant to Section 4.1.2(b)
for all previous fiscal years;
(b)
Second, 100% to the Members in proportion to their accrued but unallocated Preferred Return, until the Members have been
allocated an amount equal to their accrued but unallocated Preferred Return; and
(c)
Thereafter, 25% to the Members in proportion to their Units and 75% to the Manager.
4.1.2
Net Loss. After giving effect to the special allocations set forth in Sections 4.2 and 4.3, Net Loss for any
fiscal year shall be allocated as follows:
(a)
First, to the Members so that loss allocations for all fiscal years are proportional to the Members’ pro rata Unit
ownership until all losses are allocated pro rata in proportion to the Members’ Unit ownership; and
(b)
Thereafter, to the Members in proportion to their Units; provided that Net Loss shall not be allocated to any Member to
the extent such allocation would cause such Member to have an Adjusted Capital Account Deficit at the end of a fiscal year.
4.2
Special Allocations.
4.2.1
Qualified Income Offset. Except as provided in Section 4.2.3, in the event any Member unexpectedly receives
any adjustments, allocations, or distributions described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5),
or 1.704-1(b)(2)(ii)(d)(6), items of Company income and gain shall be specially allocated to such Member in an amount and manner
sufficient to eliminate, to the extent required by the Treasury Regulations, the Adjusted Capital Account Deficit created by such
adjustment, allocation or distribution as quickly as possible.
4.2.2
Gross Income Allocation. Net Loss shall not be allocated to any Member to the extent such allocation would cause
such Member to have an Adjusted Capital Account Deficit at the end of a fiscal year. In the event any Member has an Adjusted Capital
Account Deficit at the end of any fiscal year, each such Member shall be specially allocated items of Company gross income and
gain in the amount of such Adjusted Capital Account Deficit as quickly as possible.
4.2.3
Minimum Gain Chargeback. Notwithstanding any other provision of this Section 4, if there is a net decrease in
Company Minimum Gain during any Company fiscal year, each Member shall be specially allocated items of Company income and gain
for such year (and, if necessary, subsequent years) in an amount equal to such Member’s share of the net decrease in Company
Minimum Gain, determined in accordance with Treasury Regulations Section 1.704-2(g)(2). This Section 4.2.3 is intended
to comply with the partnership minimum gain chargeback requirement in the Treasury Regulations and shall be interpreted consistently
therewith. This provision shall not apply to the extent the Member’s share of net decrease in Company Minimum Gain is caused
by a guaranty, refinancing or other change in the debt instrument causing it to become partially or wholly recourse debt or Member
Nonrecourse Debt, and such Member bears the economic risk of loss (within the meaning of Treasury Regulations Section 1.752-2)
for the newly guaranteed, refinanced or otherwise changed debt or to the extent the Member contributes cash to the capital of the
Company that is used to repay the Nonrecourse Debt, and the Member’s share of the net decrease in Company Minimum Gain results
from the repayment.
4.2.4
Member Minimum Gain Chargeback. Notwithstanding any other provision of this Section 4, except Section 4.2.3,
if there is a net decrease in Member Minimum Gain, any Member with a share of that Member Minimum Gain (as determined under Treasury
Regulations Section 1.704-2(i)(5)) as of the beginning of the year shall be allocated items of Company income and gain for
such year (and, if necessary, subsequent years) in an amount equal to such Member’s share of the net decrease in Member Minimum
Gain, determined in accordance with Treasury Regulations Section 1.704-2(g)(2). This Section shall not apply to the extent
the net decrease in Member Minimum Gain arises because the liability ceases to be Member Nonrecourse Debt due to conversion, refinancing
or other change in a debt instrument that causes it to become partially or wholly a Nonrecourse Debt. This Section is intended
to comply with the partner minimum gain chargeback requirements in the Treasury Regulations and shall be interpreted consistently
therewith and applied with the restrictions attributable thereto.
4.2.5
Nonrecourse Deductions. Nonrecourse Deductions for any fiscal year or other period shall be allocated to the Members
in proportion to their Units and each Member’s share of excess Nonrecourse Debt shall be in the same proportion.
4.2.6
Member Nonrecourse Deductions. Member Nonrecourse Deductions for any fiscal year shall be allocated to the Member
who bears the economic risk of loss as set forth in Treasury Regulations Section 1.752-2 with respect to the Member Nonrecourse
Debt. If more than one Member bears the economic risk of loss for a Member Nonrecourse Debt, any Member Nonrecourse Deductions
attributable to that Member Nonrecourse Debt shall be allocated among the Members according to the ratio in which they bear the
economic risk of loss.
4.2.7
Code Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any Company asset pursuant
to Code Section 734(b) or Code Section 743(b) is required pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated
as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such
gain or loss shall be specially allocated to the Members in a manner consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to such Section of the Treasury Regulations.
4.3
Curative Allocations. Notwithstanding any other provision of this Agreement, the Regulatory Allocations shall be
taken into account in allocating items of income, gain, loss and deduction among the Members so that, to the extent possible, the
net amount of such allocations of other items and the Regulatory Allocations to each Member shall be equal to the net amount that
would have been allocated to each such Member if the Regulatory Allocations had not occurred.
4.4
Contributed Property. Notwithstanding any other provision of this Agreement, the Manager shall cause depreciation
and/or cost recovery deductions and gain or loss attributable to Property contributed by a Member or revalued by the Company to
be allocated among the Members for income tax purposes in accordance with Code Section 704(c) and the Treasury Regulations
promulgated thereunder.
4.5
Commission Discounts. In the event any Member receives a commission discount as described in Section 3.2.3,
such Member shall be treated upon liquidation of the Company as if such Member had not received a discount and an appropriate income
allocation shall be made to such Member so that all liquidating Distributions (other than Preferred Return) to the Members per
Unit are equal.
4.6
Recapture Income. The portion of each Member’s distributive share of Net Income that is characterized as ordinary
income pursuant to Code Sections 1245 or 1250 shall be proportionate to the amount of Net Income or Net Loss which included
the corresponding depreciation deductions that were allocated to such Member as compared with the amount of depreciation deductions
allocated to all Members.
4.7
Allocation Among Units. Except as otherwise provided in this Agreement, all Distributions and allocations made to
the Members shall be in the ratio of the number of Units held by each Member on the date of such allocation (which allocation date
shall be deemed to be the last day of each month) to the total outstanding Units as of such date, and, except as otherwise provided
in this Agreement without regard to the number of days during such month that the Units were held by each Member. Members who acquire
Units at different times during the Company tax year shall be allocated Net Income and Net Loss using the monthly convention set
forth in Section 4.9.1. For purposes of this Section 4 and Section 5, an Economic Interest Owner shall be treated
as a Member.
4.8
Allocation of Company Items. Except as otherwise provided herein, whenever a proportionate part of Net Income or
Net Loss is allocated to a Member, every item of income, gain, loss or deduction entering into the computation of such Net Income
or Net Loss, and every item of credit or tax preference related to such allocation and applicable to the period during which such
Net Income or Net Loss was realized shall be allocated to the Member in the same proportion.
4.9
Assignment.
4.9.1
In the event of the assignment of a Unit, the Net Income and Net Loss shall be allocated as between the Member and its assignee
based upon the number of months of their respective ownership during the year in which the assignment occurs, without regard to
the results of the Company’s operations during the period before or after such assignment. Distributions shall be made to
the holder of record of the Units as of the date of the Distribution. An assignee who receives Units during the first 15 days of
a month will receive any allocations relative to such month. An assignee who acquires Units on or after the 16th day of a
month will be treated as acquiring the Units on the first day of the following month.
4.9.2
In the event of the assignment of the Manager’s interest, the allocations of Net Income or Net Loss shall be as agreed
between the Manager and its assignee. In the absence of an agreement, the Net Income, Net Loss and Distributions shall be allocated
in a manner similar to that provided in Section 4.9.1.
4.10
Power of Manager to Vary Allocations. It is the intent of the Members that each Member’s share of Net Income
and Net Loss be determined and allocated in accordance with Code Section 704(b) and the provisions of this Agreement shall be so
interpreted. Therefore, if the Company is advised by the Company’s legal counsel that the allocations provided in this Section 4
are unlikely to be respected for federal income tax purposes, the Manager is hereby granted the power to amend the allocation provisions
of this Agreement to the minimum extent necessary to comply with Code Section 704(b) and effect the plan of allocations and Distributions
provided for in this Agreement.
4.11
Consent of Members. The allocation methods of Net Income and Net Loss are hereby expressly consented to by each Member
as a condition of becoming a Member.
4.12
Withholding Obligations.
4.12.1
If the Company is required (as determined by the Manager) to make a payment (“Tax Payment”) with respect to
any Member to discharge any legal obligation of the Company or the Manager to make payments to any governmental authority with
respect to any federal, foreign, state or local tax liability of such Member arising as a result of such Member’s interest
in the Company, then, notwithstanding any other provision of this Agreement to the contrary, the amount of any such Tax Payment
shall be deemed to be a loan by the Company to such Member, which loan shall bear interest at the Prime Rate and be payable upon
demand or by offset to any Distribution which otherwise would be made to such Member.
4.12.2
If and to the extent the Company is required to make any Tax Payment with respect to any Member, or elects to make payment
on any loan described in Section 4.12.1 by offset to a Distribution to a Member, either (i) such Member’s proportionate
share of such Distribution shall be reduced by the amount of such Tax Payment or offset or (ii) such Member shall pay to the
Company prior to such Distribution an amount of cash equal to such Tax Payment or offset. In the event a portion of a Distribution
in kind is retained by the Company pursuant to clause (i) above, such retained Property may, in the discretion of the Manager,
either (A) be distributed to the other Members or (B) be sold by the Company to generate the cash necessary to satisfy
such Tax Payment. If the Property is sold, then for purposes of income tax allocations only under this Agreement, any gain or loss
from such sale or exchange shall be allocated to the Member to whom the Tax Payment relates. If the Property is sold at a gain,
and the Company is required to make any Tax Payment on such gain, the Member to whom the gain is allocated shall pay the Company
prior to the due date of the Tax Payment an amount of cash equal to such Tax Payment.
4.12.3
The Manager shall be entitled to hold back any Distribution to any Member to the extent the Manager believes in good faith
that a Tax Payment will be required with respect to such Member in the future and the Manager believes that there will not be sufficient
subsequent Distributions to make such Tax Payment.
4.13
Special Allocation. Notwithstanding the other provisions in this Section 4 (but subject to Section 4.10),
in the year of the sale of the Equipment or the Business, Net Income and Net Loss from all sources (or gross income or gross expense)
shall be allocated, to the greatest extent possible, so that the positive Capital Account balance of each Member shall be equal
to the Distributions to be made upon liquidation to such Member.
5.
Distributions.
5.1
Cash From Operations. Except as otherwise provided in Section 13, and subject to the Manager’s discretion
pursuant to Section 5.2 and Section 5.3, Cash From Operations with respect to each calendar year shall be distributed as follows:
5.1.1
First, 100% to the Members in proportion to their accrued but undistributed Preferred
Return until the Members have been distributed an amount equal to their accrued but undistributed Preferred Return;
5.1.2
Thereafter, 25% to the Members in proportion to their Units and 75% to the Members.
5.2
Restrictions. The Company intends to make periodic Distributions of substantially all cash determined by the Manager
to be distributable, subject to the following (i) Distributions may be restricted or suspended for periods when the Manager
determines in its reasonable discretion that it is in the best interest of the Company and (ii) all Distributions are subject
to the payment, and the maintenance of reasonable reserves for payment of Company obligations.
5.3
Tax Distributions. Notwithstanding the provisions set forth in Section 5.1,
the Company may, at the option of the Manager, make Distributions to the Manager prior to making the Distributions set forth in
Section 5.1, to the extent such Distributions are needed to pay any income taxes associated with allocations of Net Income
set forth in Sections 4.1.1(c) to the Manager. Any such Distribution shall reduce subsequent Distributions to be made to the Manager
pursuant to Section 5.1.
5.4
Clawback. Notwithstanding the provisions set forth above, upon the sale, exchange
or other disposition of the last unit of Equipment or the Business, the Manager shall contribute to the Company prior Distributions
it received from the Company pursuant to Section 5.3 to the extent that all Distributions the Manager received from the Company,
determined on a cumulative basis, exceed the amount that would have been distributed to the Manager if all Distributions had been
made without regard to Section 5.3. Any such excess amounts contributed by the Manager shall be distributed to the Members as set
forth in Section 5.1.
6.
Compensation to the Manager and its Affiliates.
6.1
Manager’s and Affiliates’ Compensation. The Manager and its Affiliates shall receive compensation for
services rendered or to be rendered only as specified in this Agreement or as set forth in the Memorandum. Any additional agreements
that the Company enters into with an Affiliate of the Manager will be at arm’s length, market terms.
6.1.1
For the services it provides in connection with operating and managing the Business, including the maintenance of the Equipment
which the Plant Manager shall perform in conformance with the terms in the Lease Agreement, the Plant Manager will be entitled
to receive an annual plant management fee in an amount equal to $10,000 per month plus up to 2% of the gross revenues received
by the Company (the “Plant Management Fee”), which will be paid on a monthly basis.
6.1.2
The Company intends to use RPC Design and Manufacturing, LLC, as a subcontractor to assist in building the Equipment. For
providing the Company or its subcontractors a manufacturing license of intellectual property rights to enable the Company to purchase
and manufacture the Equipment, Vivakor shall waive RPC Design and Manufacturing, LLC’s license fees, and will be entitled
to receive a license fee from the Company in an amount equal to $1,000,000 per unit of Equipment purchased or manufactured by the
Company (the “License Fee”).
6.2
Company Expenses.
6.2.1
Operating Expenses. Subject to the limitations set forth in Section 6.2.2,
the Company shall pay directly, or reimburse the Manager as the case may be, for all of the costs and expenses of the Company’s
operations, including, without limitation, the following costs and expenses: (i) all Organization and Offering Expenses advanced
or otherwise paid by the Manager, (ii) all costs of personnel employed by the Company and directly involved in the Business, (iii)
all compensation due to the Manager or its Affiliates, (iv) all costs of personnel employed by the Manager or its Affiliates and
directly involved in the business of the Company, (v) all costs of borrowed money, taxes and assessments on the Property and other
taxes applicable to the Company, (vi) legal, accounting, audit, brokerage, and other fees, (vii) fees and expenses paid to independent
contractors, mortgage bankers, real estate brokers, and other agents, (viii) costs of purchase, develop, manufacture, lease and
sell of the Equipment, (ix) all expenses incurred in connection with the maintenance of Company books and records, the preparation
and dissemination of reports, tax returns or other information to the Members and the making of Distributions to the Members, (x)
expenses incurred in preparing and filing reports or other information with appropriate regulatory agencies, (xi) expenses of insurance
as required in connection with the business of the Company, other than any insurance insuring the Manager against losses for which
it is not entitled to be indemnified under Section 7.7, (xii) costs incurred in connection with any litigation in which the Company
may become involved, or any examination, investigation, or other proceedings conducted by any regulatory agency, including legal
and accounting fees, (xiii) the actual costs of goods and materials used by or for the Company, (xiv) the costs of services that
could be performed directly for the Company by independent parties such as legal, accounting, secretarial or clerical, reporting,
transfer agent, data processing and duplicating services but which are in fact performed by the Manager or its Affiliates, but
not in excess of the amounts which the Company would otherwise be required to pay to independent parties for comparable services
in the same geographic locale, (xv) expenses of Company administration, accounting, documentation and reporting, (xvi) expenses
of revising, amending, modifying, or terminating this Agreement, (xvii) the portion of the Manager’s payroll expenses allocable
to work performed for the Company and (xviii) all other costs and expenses incurred in connection with the business of the Company
including travel exclusive of those set forth in Section 6.2.2.
6.2.2
Manager Overhead. Except as set forth in this Section 6, the Manager and its Affiliates shall not be reimbursed
for overhead expenses incurred in connection with the Company, including but not limited to rent, utilities, capital equipment
and other administrative items.
7.
Authority and Responsibilities of the Manager.
7.1
Management. The business and affairs of the Company shall be managed by the Manager. Except as otherwise set forth
in this Agreement, the Manager shall have full and complete authority, power and discretion to manage and control the business,
affairs and properties of the Company, to make all decisions regarding those matters and to perform any and all other acts or activities
customary or incident to the management of the Company’s business.
7.2
Number, Tenure and Qualifications. The Company shall have one Manager, which shall be Wealth
Space, LLC. The Manager shall hold office until such Manager is removed or withdraws or resigns as set forth in this Agreement.
7.3
Manager Authority. The Manager shall have all authority, rights and powers
conferred by law (subject to Section 7.4 and Section 8.2, if required) and those required or appropriate to the
management of the Company’s business, which, by way of illustration but not by way of limitation, shall include the right,
authority and power to cause the Company to:
7.3.1
Acquire, hold, operate, sell, exchange and otherwise dispose of the Business;
7.3.2
Plan, manage and coordinate the Business, obtain all necessary licenses, permits and entitlements in connection therewith,
and enter into any contracts and agreements with any Affiliates or third parties to perform any services for the Business;
7.3.3
Borrow money, and, if security is required therefor, pledge or mortgage or subject Property to any security device, obtain
replacements of any mortgage or other security device and prepay, in whole or in part, refinance, increase, modify, consolidate
or extend any mortgage or other security device. All of the foregoing shall be on such terms and in such amounts as the Manager,
in its sole discretion, deems to be in the best interest of the Company and the Business;
7.3.4
Enter into such contracts and agreements as the Manager determines to be reasonably necessary or appropriate in connection
with the Company’s business and purpose (including contracts with Affiliates of the Manager), and any contract of insurance
that the Manager deems necessary or appropriate for the protection of the Company, the Business and the Manager, including errors
and omissions insurance, for the conservation of the assets of the Company or for any purpose convenient or beneficial to the Company
or the Business;
7.3.5
Employ Persons, who may be Affiliates of the Manager, in the operation and management of the business of the Company;
7.3.6
Prepare or cause to be prepared reports, statements and other relevant information for distribution to the Members;
7.3.7
Open accounts and deposit and maintain funds in the name of the Company in banks, savings and loan associations, “money
market” mutual funds and other instruments as the Manager may deem in its discretion to be necessary or desirable;
7.3.8
Cause the Company to make or revoke any of the elections referred to in the Code (the Manager shall have no obligation to
make any such elections);
7.3.9
Select as the Company’s accounting year a calendar or fiscal year as may be approved by the Internal Revenue Service
(the Company initially intends to adopt the calendar year);
7.3.10
Determine the appropriate accounting method or methods to be used by the Company;
7.3.11
In addition to any amendments otherwise authorized herein, amend this Agreement without any action on the part of the Members
by special or general power of attorney or otherwise:
(a)
To add to the representations, duties, services or obligations of the Manager or its
Affiliates, for the benefit of the Members;
(b)
To cure any ambiguity or mistake, to correct or supplement any provision herein that
may be inconsistent with any other provision herein, or to make any other provision with respect to matters or questions arising
under this Agreement that will not be inconsistent with the provisions of this Agreement;
(c)
To amend this Agreement to reflect the addition or substitution of the Members or
the reduction of the Capital Accounts upon the return of capital to the Members;
(d)
To minimize the adverse impact of, or comply with, any final regulation of the United
States Department of Labor, or other federal agency having jurisdiction, defining “plan assets” for ERISA purposes;
(e)
To reconstitute the Company under the laws of another state if beneficial;
(f)
To execute, acknowledge and deliver any and all instruments to effectuate the foregoing,
including the execution, acknowledgment and delivery of any such instrument by the attorney-in-fact for the Manager under a special
or limited power of attorney, and to take all such actions in connection therewith as the Manager shall deem necessary or appropriate
with the signature of the Manager acting alone; and
(g)
To make any changes to this Agreement as requested or required by any lender or potential
lender which may be required to obtain financing including, but not limited to, complying with any special purpose entity requirements;
7.3.12
Require in any Company contract that the Manager shall not have any personal liability, but that the Person contracting
with the Company is to look solely to the Company and its assets for satisfaction;
7.3.13
Lease personal property for use by the Company;
7.3.14
Establish reserves from income in such amounts as the Manager may deem appropriate;
7.3.15
Temporarily invest the proceeds from sale of Units in short-term, highly-liquid investments;
7.3.16
Make secured or unsecured loans to the Company and receive interest at the rates set forth herein;
7.3.17
Represent the Company and the Members as the “partnership representative” within the meaning of the Code in
discussions with the Internal Revenue Service regarding the tax treatment of items of Company income, loss, deduction or credit,
or any other matter reflected in the Company’s returns, and to agree to final Company administrative adjustments or file
a petition for a readjustment of the Company items in question with the applicable court;
7.3.18
Offer and sell Units through any licensed Affiliate of the Manager, or licensed non-Affiliate, and to employ licensed personnel,
agents and dealers for such purpose;
7.3.19
Redeem, repurchase or convert Units on behalf of the Company, including by Conversion Right or Call Option;
7.3.20
Hold an election for a successor Manager before the resignation, removal or dissolution of the Manager;
7.3.21
Initiate legal actions, settle legal actions and defend legal actions on behalf of the Company;
7.3.22
Admit itself or an Affiliate as a Member;
7.3.23
Enter into any limited liability company agreement, partnership agreement or other operating agreement with a joint venture
partner;
7.3.24
Merge or combine the Company or “roll-up” the Company into a partnership, limited liability company or other
entity with a Majority Vote;
7.3.25
Place all or a portion of the Business in a single purpose or bankruptcy remote entity, or otherwise structure or restructure
the Company to accommodate any financing for all or a portion of the Business;
7.3.26
Appoint officers of the Company (as set forth in Section 7.10);
7.3.27
Perform any and all other acts which the Manager is obligated to perform hereunder;
and
7.3.28
Execute, acknowledge and deliver any and all instruments to effectuate the foregoing
and all transactions and actions described in, or contemplated by, the Memorandum, and take all such actions in connection therewith
as the Manager may deem necessary or appropriate. Any and all documents or instruments may be executed by the Manager on behalf
of and in the name of the Company.
7.4
Restrictions on Manager’s Authority. Neither the Manager nor any of its Affiliates shall have authority, without
a Majority Vote, to:
7.4.1
Enter into contracts with the Company that would bind the Company after the expulsion,
Event of Insolvency, or other cessation to exist of the Manager, or to continue the business of the Company after the occurrence
of such event;
7.4.2
Use or permit any other Person to use Company funds or assets in any manner except
for the exclusive benefit of the Company;
7.4.3
Alter the primary purpose of the Company;
7.4.4
Receive from the Company a rebate or give-up or participate in any reciprocal business
arrangements which would enable the Manager or its Affiliate to do so;
7.4.5
Admit another Person as the Manager, except with the consent of the Members as provided
in this Agreement;
7.4.6
Commingle Company funds with those of any other Person, except for (i) the temporary
deposit of funds in a bank checking account for the sole purpose of making Distributions immediately thereafter to the Members
and the Manager or (ii) funds attributable to the Business and held for use in the management and operations of the Business;
7.4.7
Reinvest Cash From Operations in additional Property;
7.4.8
Cause the Company to loan to the Manager or Affiliates Company assets or employ, or
permit employment of, the funds or assets of the Company in any manner except for the exclusive benefit of the Company; or
7.4.9
Directly or indirectly pay or award any finder’s fees, commissions or other
compensation to any Person engaged by a potential investor for investment advice as an inducement to such advisor to advise the
purchaser regarding the purchase of Units; provided, however, that the Manager shall not be prohibited from paying underwriting
or marketing commissions, or finder’s or referral fees to registered broker-dealers or other properly licensed persons for
its services in marketing Units as provided for in this Agreement.
7.5
Responsibilities of the Manager. The Manager shall:
7.5.1
Have the responsibility for the safekeeping and use of all the funds and assets of
the Company;
7.5.2
Devote such of its time and business efforts to the business of the Company as it
shall in its discretion, exercised in good faith, determine to be necessary to conduct the business of the Company;
7.5.3
File and publish all certificates, statements, or other instruments required by law
for formation, qualification and operation of the Company and for the conduct of its business in all appropriate jurisdictions;
7.5.4
Cause the Company to be protected by public liability, property damage and other insurance
determined by the Manager in its discretion to be appropriate to the business of the Company;
7.5.5
At all times use its best efforts to meet applicable requirements for the Company
to be taxed as a partnership and not as an association taxable as a corporation; and
7.5.6
Amend this Agreement to reflect the admission of the Members not later than 90 days
after the date of admission or substitution.
7.6
Administration of Company. So long as it is the Manager and the provisions of this Agreement for compensation and
reimbursement of expenses of the Manager are observed, the Manager shall have the responsibility of providing continuing administrative
and executive support, advice, consultation, analysis and supervision with respect to the functions of the Company, including decisions
regarding development, purchase, manufacture, lease or sale of the Equipment, refinancing and sale, exchange or other disposition
of the Business, and compliance with federal, state and local regulatory requirements and procedures. In this regard, the Manager
may retain the services of its Affiliates or unaffiliated parties as the Manager may deem appropriate to provide management and
financial consultation and advice, and may enter into agreements for the management and operation of Company assets. The Manager
shall have no other fiduciary or other duties or obligations to the Company or the Members except as set forth in this Agreement.
7.7
Indemnification of the Manager and Officers.
7.7.1
The Manager, its owners, Affiliates, officers, directors, partners, managers, employees,
agents, assigns, principals, trustees and any officers of the Company, shall not be liable for, and shall be indemnified and held
harmless (to the extent of the Company’s Property) from, any loss or damage incurred by them, the Company or the Members
in connection with the business of the Company, including costs, expenses and reasonable attorneys’ fees and any amounts
expended in the settlement of any claims of loss or damage resulting from any act or omission performed or omitted in good faith,
which shall not constitute fraud, gross negligence or willful misconduct, pursuant to the authority granted, to promote the interests
of the Company. The Company shall advance to any Person entitled to indemnification pursuant to this Section such funds as shall
be required to pay legal fees and expenses incurred in defense of any demands, claims or lawsuits as they become due. Moreover,
neither the Manager nor any officer of the Company shall be liable to the Company or the Members because any taxing authorities
disallow or adjust any deductions or credits in the Company’s income tax returns.
7.7.2
Notwithstanding Section 7.7.1, the Company shall not indemnify the Manager, its
owners, Affiliates, officers, directors, partners, managers, employees, agents, assigns, principals, trustees or any officers of
the Company, for liability imposed or expenses incurred in connection with any claim arising out of a violation of the Securities
Act of 1933, or any other federal or state securities law, with respect to the offer and sale of the Units. Indemnification will
be allowed for settlements and related expenses in lawsuits alleging securities law violations, and for expenses incurred in successfully
defending such lawsuits, provided that (i) the applicable party is successful in defending the action, (ii) the indemnification
is specifically approved by the court of law which shall have been advised as to the current position of the Securities and Exchange
Commission (as to any claim involving allegations that the Securities Act of 1933 was violated) or the applicable state authority
(as to any claim involving allegations that the applicable state’s securities laws were violated) or (iii) in the opinion
of counsel for the Company, the right to indemnification has been settled by controlling precedent.
7.7.3
The Members acknowledge that the Manager and its Affiliates may own Units and it shall
not be a breach of any fiduciary duty or fiduciary obligation or any other duty or obligation if the Manager or its Affiliates
votes its Units in its own best interest with respect to any Majority Vote.
7.7.4
Neither the Manager nor any of its Affiliates shall have any obligation to cause the
Company to take any action that would result in personal liability to the Manager, its principals or any of its Affiliates in their
capacity as obligator or guarantor of any loan that is obtained or assumed by the Company, notwithstanding that the failure to
take any such action might result in the total or partial loss of the Company’s interest in some or all of the Company’s
Property. Any action or inaction by the Manager or any of its Affiliates that is intended to avoid personal liability under any
obligation or guaranty related to a loan that is obtained or assumed by the Company will not constitute a breach of any fiduciary
or other duty that the Manager or its Affiliates may owe the Company or the Members.
7.8
No Personal Liability for Return of Capital. The Manager shall not be personally liable or responsible for the return
or repayment of all or any portion of the Capital Contribution of any Member or any loan made by any Member to the Company, it
being expressly understood that any such return of capital or repayment of any loan shall be made solely from the assets (which
shall not include any right of contribution from any Member) of the Company.
7.9
Authority as to Third Persons.
7.9.1
No third party dealing with the Company shall be required to investigate the authority
of the Manager or officers of the Company or secure the approval or confirmation by any Member of any act of the Manager in connection
with the Company’s business. No purchaser of any Property owned by the Company shall be required to determine the right to
sell or the authority of the Manager to sign and deliver any instrument of transfer on behalf of the Company, or to see to the
application or distribution of revenues or proceeds paid or credited in connection therewith.
7.9.2
The Manager shall have full authority to execute on behalf of the Company any and
all agreements, contracts, conveyances, deeds, mortgages and other instruments, and the execution thereof by the Manager, executing
on behalf of the Company shall be the only execution necessary to bind the Company thereto. Any officer appointed by the Manager
pursuant to Section 7.10 shall have full authority to execute on behalf of the Company any agreements, contracts, conveyances,
deeds, mortgages and other instruments, to the extent such authority is delegated by the Manager to such officer, and the execution
thereof by such officer, executing on behalf of the Company shall be the only execution necessary to bind the Company thereto.
No signature of any Member shall be required.
7.9.3
The Manager shall have the right by separate instrument or document to authorize one
or more Persons to execute leases and lease-related documents on behalf of the Company and any leases and documents executed by
such agent shall be binding upon the Company as if executed by the Manager.
7.10
Officers of the Company.
7.10.1
The Manager, in its sole discretion, may appoint officers of the Company at any time.
The officers of the Company, if appointed by resolution of the Manager, may include a president, vice president, secretary, and
treasurer. The officers shall serve at the pleasure of the Manager. Any individual may hold any number of offices. The Manager’s
officers may serve as officers of the Company if appointed by resolution of the Manager. The officers shall exercise such powers
and perform such duties as determined and authorized by the Manager.
7.10.2
Any officer may be removed, either with or without cause, by the Manager at any time.
Any officer may resign at any time by giving written notice to the Manager. Any resignation shall take effect at the date of the
receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance
of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of
the Company under any contract to which the officer is a party.
8.
Rights, Authority and Voting of the Members.
8.1
Members Are Not Agents. Pursuant to Section 7, the management of the Company is vested in the Manager. No Member,
acting solely in the capacity of a Member, is an agent of the Company nor can any Member in such capacity bind nor execute any
instrument on behalf of the Company.
8.2
Voting by the Members. Members shall be entitled to cast one vote for each Unit they own. Except as otherwise specifically
provided in this Agreement, Members (but not Economic Interest Owners) shall have the right to vote only upon the following matters:
8.2.1
Removal of the Manager as provided in Section 9.2;
8.2.2
Admission of the Manager or election to continue the business of the Company after
the Manager ceases to be the Manager when there is no remaining Manager;
8.2.3
Amendment of this Agreement (unless otherwise provided for herein);
8.2.4
Any merger or combination of the Company or roll-up of the Company; and
8.2.5
Election to continue the business of the Company as set forth in Section 13.1.2.
8.3
Member Vote; Consent of Manager. Except for the Majority Votes required pursuant to Sections 8.2.1, 8.2.2, 8.2.5,
8.4.3, 9.1, 9.2, 9.3, 9.4, 10.1, 10.1.3, 10.1.4 and 13.3 or as specifically provided in this Agreement which provisions shall only
require a Majority Vote, matters upon which the Members may vote shall require a Majority Vote and the consent of the Manager to
pass and become effective.
8.4
Meetings of the Members. The Manager may at any time call for a meeting of the Members, or for a vote without a meeting,
on matters on which the Members are entitled to vote, and shall call for such a meeting (but not a vote without a meeting) following
receipt of a written request therefor of Members holding more than 10% of the Units entitled to vote as of the record date. Within
20 days after receipt of such request, the Manager shall notify all Members of record on the record date of the Company meeting.
8.4.1
Notice. Written notice of each meeting shall be given to each Member entitled to vote, either personally or by mail
or other means of written communication, charges prepaid, addressed to such Member at its address appearing on the books of the
Company or given by it to the Company for the purpose of notice or, if no such address appears or is given, at the principal executive
office of the Company, or by publication of notice at least once in a newspaper of general circulation in the county in which such
office is located. All such notices shall be sent not less than 10, nor more than 60, days before such meeting. The notice shall
specify the place, date and hour of the meeting and the general nature of business to be transacted, and no other business shall
be transacted at the meeting.
8.4.2
Adjourned Meeting and Notice Thereof. When a Members’ meeting is adjourned to another time or place, notice
need not be given of the subsequent meeting if the time and place thereof are announced at the meeting at which the adjournment
is taken. At the subsequent meeting, the Company may transact any business which might have been transacted at the original meeting.
If the adjournment is for more than 45 days or if after the adjournment a new record date is fixed for the subsequent meeting,
a notice of the subsequent meeting shall be given to each Member of record entitled to vote at the meeting.
8.4.3
Quorum. The presence in person or by proxy of the Persons entitled to vote a majority of the Units shall constitute
a quorum for the transaction of business. The Members present at a duly called or held meeting at which a quorum is present may
continue to transact business until adjournment notwithstanding the withdrawal of enough Members to leave less than a quorum, if
any action taken (other than adjournment) is approved by at least a Majority Vote or such greater vote as may be required by this
Agreement or by law. In the absence of a quorum, any meeting of Members may be adjourned from time to time by the vote of a majority
of the Units represented either in person or by proxy, but no other business may be transacted, except as provided above.
8.4.4
Consent of Absentees. The transactions of any meeting of Members, however called and noticed and wherever held, are
as valid as though they occurred at a meeting duly held after regular call and notice, if a quorum is present either in person
or by proxy, and if, either before or after the meeting, each of the Persons entitled to vote, not present in person or by proxy,
signs a written waiver of notice, or a consent to the holding of the meeting or an approval of the minutes thereof. All waivers,
consents and approvals shall be filed with the Company records or made a part of the minutes of the meeting.
8.4.5
Action Without Meeting. Except as otherwise provided in this Agreement, any action which may be taken at any meeting
of the Members may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by the
Manager and Members having not less than the minimum number of votes that would be necessary to authorize or take that action
at a meeting at which all entitled to vote thereon were present and voted. In the event the Members are requested to consent on
a matter without a meeting, the Manager and each Member shall be given not less than 10, nor more than 60, days’ notice.
In the event the Manager or Members representing more than 10% of the Units, request a meeting for the purpose of discussing or
voting on the matter, the notice of a meeting shall be given in the same manner as required by Section 8.4.1 and no action
shall be taken until the meeting is held. Unless delayed as a result of the preceding sentence, any action taken without a meeting
will be effective 5 days after the required minimum number of voters have signed the consent; however, the action will be effective
immediately if the Manager and Members representing at least 80% of the Units have signed the consent.
8.4.6
Record Dates. For purposes of determining the Members entitled to notice of any meeting or to vote or entitled to
receive any Distributions or to exercise any rights in respect of any other lawful matter, the Manager (or Members representing
more than 10% of the Units if the meeting is being called at their request) may fix in advance a record date, which is not more
than 60 nor less than 10 days prior to the date of the meeting nor more than 60 days prior to any other action. If no record date
is fixed:
(a)
The record date for determining Members entitled to notice of or to vote at a meeting of Members shall be at the close of
business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business
on the business day next preceding the day on which the meeting is held;
(b)
The record date for determining Members entitled to give consent to Company action in writing without a meeting shall be
the day on which the first written consent is given;
(c)
The record date for determining Members for any other purpose shall be at the close of business on the day on which the
Manager adopts it, or the 60th day prior to the date of the other action, whichever is later; and
(d)
A determination of Members of record entitled to notice of or to vote at a meeting of Members shall apply to any adjournment
of the meeting unless the Manager, or the Members who requested the meeting fix a new record date for the adjourned meeting, but
the Manager, or such Members, shall fix a new record date if the meeting is adjourned for more than 45 days from the date
set for the original meeting.
8.4.7
Proxies. Every Person entitled to vote or execute consents shall have the right to do so either in person or by one
or more agents authorized by a written proxy executed by such Person or its duly authorized agent and filed with the Manager. No
proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every
proxy continues in full force and effect until revoked as specified or unless it states that it is irrevocable. A proxy which states
that it is irrevocable is irrevocable for the period specified therein.
8.4.8
Chairman of Meeting. The Manager may select any Person to preside as chairman of any meeting of the Members, and
if such Person shall be absent from the meeting, or fail or be unable to preside, the Manager may name any other Person in substitution
therefor as chairman. The chairman of the meeting shall designate a secretary for such meeting, who shall take and keep or cause
to be taken and kept minutes of the proceedings thereof. The conduct of all Members’ meetings shall at all times be within
the discretion of the chairman of the meeting and shall be conducted under such rules as the chairman may prescribe. The chairman
shall have the right and power to adjourn any meeting at any time, without a vote of the Units present in person or represented
by proxy, if the chairman shall determine such action to be in the best interests of the Company.
8.4.9
Inspectors of Election. In advance of any meeting of Members, the Manager may appoint any Persons other than nominees
for the Manager as the inspector of election to act at the meeting and any adjournment thereof. If an inspector of election is
not so appointed, or if any such Person fails to appear or refuses to act, the chairman of any such meeting may, and on the request
of any Member or its proxy shall, make such appointment at the meeting. The inspector of election shall determine the number of
Units outstanding and the voting power of each, the Units represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, receive votes, ballots or consents, hear and determine all challenges and questions in any way
arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine
the result and do such acts as may be proper to conduct the election or vote with fairness to all Members.
8.4.10
Record Date and Closing Company Books. When a record date is fixed, only Members of record on that date are entitled
to notice of and to vote at the meeting or to receive a Distribution, or allotment of rights, or to exercise the rights, as the
case may be, notwithstanding any transfer of any Units on the books of the Company after the record date.
8.5
Rights of Members. No Owner shall have the right or power to: (i) withdraw or reduce its contribution to the
capital of the Company, except as a result of the dissolution and termination of the Company or as otherwise provided in this Agreement
or by law, (ii) bring an action for partition against the Company or (iii) demand or receive property other than cash
in return for its Capital Contribution. Except as provided in this Agreement, no Owner shall have priority over any other Owner
either as to the return of Capital Contributions or as to allocations of the Net Income, Net Loss or Distributions of the Company.
Other than upon the termination and dissolution of the Company as provided by this Agreement, there has been no time agreed upon
when the contribution of each Owner (other than the Initial Member) is to be returned.
8.6
Restrictions on the Owners. No Owner shall:
8.6.1
Disclose to any non-Owner other than their lawyers, accountants or consultants and/or commercially exploit any of the Company’s
business practices, trade secrets or any other information not generally known to the business community, including the identity
of suppliers utilized by the Company;
8.6.2
Do any other act or deed with the intention of harming the business operations of the Company; or
8.6.3
Do any act contrary to this Agreement.
8.7
Return of Capital of the Members. In accordance with the Act, an Owner may, under certain circumstances, be required
to return to the Company, for the benefit of the Company’s creditors, amounts previously distributed to the Owner. If any
court of competent jurisdiction holds that any Owner is obligated to make any such payment, such obligation shall be the obligation
of such Owner and not of the Company, the Manager or any other Owner.
8.8
Indemnification of the Members. The Company shall indemnify, protect, defend and hold harmless the Members, in their
capacity as Members (as opposed to the Manager which is indemnified pursuant to Section 7.7 in its capacity as the Manager),
and their owners, Affiliates, officers, directors, partners, managers, employees, agents,
assigns, principals and trustees (each an “Indemnified Party”), from and against any loss, liability, damage,
cost or expense (including reasonable legal fees and expenses incurred in defense of any demands, claims or lawsuits) arising from
actions or omissions concerning business or activities undertaken by or on behalf of the Company from any source. The Company shall
advance to any Person entitled to indemnification pursuant to this Section such funds as shall be required to pay reasonable legal
fees and expenses incurred in defense of any demands, claims or lawsuits as they become due. Notwithstanding the foregoing, if
the claim for indemnification is in connection with an action against the Company, or against another Indemnified Party by the
Person requesting the indemnification, the Company shall have no such obligation to advance any funds for the payment of legal
fees and expenses. The obligations contained herein shall survive the termination or expiration of the Agreement until such time
as an action against the Members is absolutely barred by the statute of limitations.
8.9
Deemed Approval. Whenever a Majority Vote is required in this Agreement, the Company shall provide the Members with
notice of such required vote, and the Members shall have 15 days after the date such notice is sent by the Company to approve or
disapprove of the matter. If a Member does not disapprove of such matter within the 15-day specified response period described
above, the Member shall be deemed to have voted in accordance with the vote recommended by the Manager.
9.
Resignation, Withdrawal or Removal of the Manager.
9.1
Resignation or Withdrawal of Manager. Subject to Section 10, the Manager shall not resign or withdraw as the
Manager or do any act that would require its resignation or withdrawal without a Majority Vote.
9.2
Removal. The Manager may be removed by a Majority Vote only (i) for fraud, gross negligence or willful misconduct
of the Manager, as evidenced by a final, non-appealable decision of a court of competent jurisdiction or (ii) upon the occurrence
of an Event of Insolvency of the Manager. Removal of the Manager shall not be effective until the Manager receives in cash the
full value of its interest in the Company and all lenders have released the Manager from all liabilities and obligations under
any loan made to the Company or the Company’s Affiliates.
9.3
Purchase of Manager’s Interest. Upon the removal of the Manager pursuant to Section 9.2 or its withdrawal
with the approval of a Majority Vote, (i) the removed Manager’s interest in the Distributions and allocations of Net
Income and Net Loss set forth in this Agreement, (ii) its interest in its right to the earned but unpaid fees and other compensation
remaining to be paid under this Agreement and (iii) the Manager’s or any Affiliate’s interest as a Member, shall be
purchased by the Company for a purchase price equal to the aggregate fair market value of the Manager’s interest determined
according to the provisions of Section 9.4; provided, however, that in the event the Manager is removed as a result of fraud,
gross negligence or willful misconduct as determined by a final, non-appealable decision of a court of competent jurisdiction,
the purchase price shall be reduced by any damages caused by any such fraud, gross negligence or willful misconduct. The purchase
price of such interest shall be paid by the Company to the Manager in cash within 30 days of the determination of the aggregate
fair market value.
9.4
Purchase Price of the Manager’s Interest. The fair market value of the Manager’s interest to be purchased
by the Company pursuant to Section 9.3 shall be determined by agreement between the Manager and the Company, which agreement
is subject to approval by a Majority Vote. For this purpose, the fair market value of the interest of the terminated Manager shall
be computed as the present value of the future amount which could reasonably be expected to be realized by such Manager upon the
sale of the Company’s assets in the ordinary course of business at the time of removal, including the Manager’s or
any Affiliate’s interest as a Member. If the Manager and the Company cannot agree upon the fair market value of such Company
interest within 30 days, the fair market value thereof shall be determined by appraisal, the Company and the terminated Manager
each to choose one appraiser and the 2 appraisers so chosen to choose a third appraiser. The decision of a majority of the appraisers
as to the fair market value of such Company interest shall be final and binding and may be enforced by legal proceedings. The terminated
Manager and the Company shall each compensate the appraiser appointed by it and the compensation of the third appraiser shall be
borne equally by such parties.
10.
Assignment of the Manager’s Interest.
10.1
Permitted Assignments. Except as otherwise provided in this Agreement, the Manager may not sell or otherwise transfer
any part or all of its interest in the Company except with a Majority Vote. If the Members consent to the transfer, the interest
may only be sold to the proposed transferee within the time period approved by the Members, or within 90 days of such consent on
the proposed terms and price, if later. All costs of the transfer, including reasonable attorneys’ fees (if any), shall be
borne by the transferring Manager. Notwithstanding the above, the Manager may encumber its interest without the consent of the
Members.
10.1.1
Any assignment or transfer of the Manager’s interest provided for by this Agreement can be an assignment or transfer
of all of its interest or any portion or part of its interest.
10.1.2
Any transfer of all or a part of the Manager’s interest may be made only pursuant to the terms and conditions contained
in this Section 10.
10.1.3
Any such assignment shall be by a written instrument of assignment, the terms of which are not in contravention of any of
the provisions of this Agreement, and which has been duly executed by the assignee of the Manager’s interest and accepted
by the Members pursuant to a Majority Vote.
10.1.4
The assignor and assignee shall have executed, acknowledged, and delivered such other instruments as the Members pursuant
to a Majority Vote, may deem necessary or desirable to effect such substitution of any such proposed transfer, and which shall
include the written acceptance and adoption by the assignee of the provisions of this Agreement.
10.2
Substitute Manager. Upon acceptance by the Members of an assignment by the Manager, any assignee of the Manager’s
interest in compliance with this Section 10 shall be substituted as the Manager.
10.3
Transfer in Violation Not Recognized. Any assignment, sale, exchange or other transfer in contravention of the provisions
of this Section 10 shall be void and ineffectual and shall not bind or be recognized by the Company.
10.4
Transfers to Affiliates. Notwithstanding the above, the Manager may assign all or any part of its interest in the
Company to an Affiliate without the consent of the Members.
11.
Assignment of Units.
11.1
Permitted Assignments. A Member may only sell, assign, hypothecate, encumber or otherwise transfer any part (but
not less than the lesser of (i) one Unit or (ii) the Member’s entire interest in the Company) or all of its Units
if the following requirements are satisfied:
11.1.1
The Manager, in its sole discretion, consents in writing to the transfer;
11.1.2
No Owner shall sell, transfer, assign or convey or offer to transfer, assign or convey all or any portion of a Unit to any
Person who does not possess the financial qualifications required of all Persons who become Members, as described in the Memorandum;
11.1.3
No Member shall have the right to transfer any Unit to any minor or to any Person who, for any reason, lacks the capacity
to contract for himself under applicable law. Such limitations shall not, however, restrict the right of any Member to transfer
any one or more Units to a custodian or a trustee for a minor or other Person who lacks such contractual capacity;
11.1.4
The Manager, with advice of counsel, must determine that such transfer will not jeopardize the applicability of the exemptions
from the registration requirements under the Securities Act of 1933, and registration
or qualification under state securities laws relied upon by the Company and Manager in offering and selling the Units or otherwise
violate any federal or state securities laws;
11.1.5
The Manager, with advice of counsel, must determine that, despite such transfer, Units will qualify for one of the safe
harbors described in the Treasury Regulations related to the publicly traded partnership rules and will not cause the Company’s
Units to be deemed to be “traded on an established securities market” or “readily tradable on a secondary market
(or the substantial equivalent thereof)” under the provisions applicable to publicly traded partnership status. In making
this determination, the Manager shall be entitled to limit any transfers so that the transfers comply with one of the safe harbors
in the Treasury Regulations; provided, however that the Manager may, in its sole discretion and upon a determination that the Company
will not be treated as a publicly traded partnership for federal income tax purposes, permit transfers that do not qualify for
one of the safe harbors;
11.1.6
Any such transfer shall be by a written instrument of assignment, the terms of which are not in contravention of any of
the provisions of this Agreement, and which has been duly executed by the assignor of such Units and accepted by the Manager in
writing. Upon such acceptance by the Manager, such an assignee shall take subject to all terms of this Agreement and shall become
an Economic Interest Owner;
11.1.7
A transfer fee shall be paid by the transferring Member in such amount as may be required by the Manager to cover all reasonable
expenses, including attorneys’ fees and lender’s fees, connected with such assignment;
11.1.8
The transfer will not result in Employee Benefit Plans owning 25% or more of the Units;
11.1.9
The transfer will not result in more than 1,950 Owners; and
11.1.10
The transfer will not cause a default with respect to any financing obtained by the Company.
11.2
Substituted Member.
11.2.1
Conditions to be Satisfied. No Economic Interest Owner shall have the right to become a Substituted Member unless
the Manager shall consent thereto in accordance with Section 11.2.2 and all of the following conditions are satisfied:
(a)
A duly executed and acknowledged written instrument of assignment shall have been filed with the Company, which instrument
shall specify the number of Units being assigned and set forth the intention of the assignor that the assignee succeed to the assignor’s
interest as a Substituted Member in its place;
(b)
The assignor and assignee shall have executed, acknowledged and delivered such other instruments as the Manager may deem
necessary or desirable to effect such substitution, which may include an opinion of counsel regarding the effect and legality of
any such proposed transfer, and which shall include: (i) the written acceptance and adoption by the assignee of the provisions
of this Agreement and (ii) the execution, acknowledgment and delivery to the Manager of a special power of attorney, the form
and content of which are more fully described herein; and
(c)
A transfer fee sufficient to cover all reasonable expenses connected with such substitution shall have been paid to the
Company.
11.2.2
Consent of Manager. The consent of the Manager shall be required to admit an Economic Interest Owner as a Substituted
Member. The granting or withholding of such consent shall be within the sole discretion of the Manager.
11.2.3
Consent of Members. By executing or adopting this Agreement, each Member hereby consents to the admission of additional
or Substituted Members, and to any Economic Interest Owner becoming a Substituted Member upon consent of the Manager and in compliance
with this Agreement.
11.3
Rights of Economic Interest Owner. An Economic Interest Owner shall be entitled to receive Distributions from the
Company attributable to the Units acquired by reason of such assignment from and after the effective date of the assignment; provided,
however, that notwithstanding anything herein to the contrary, the Company shall be entitled to treat the assignor of such Units
as the absolute owner thereof in all respects, and shall incur no liability for allocations of Net Income and Net Loss or Distributions,
or for the transmittal of reports or other information until the written instrument of assignment has been received by the Company
and recorded on its books. The effective date of such assignment shall be the date on which all of the requirements of this Section
have been complied with, subject to Section 4.9.
11.4
Right to Inspect Books. Economic Interest Owners shall have no right to inspect the Company’s books or records,
to vote on Company matters, or to exercise any other right or privilege as Members, until they are admitted to the Company as Substituted
Members except as required by the Act.
11.5
Transfer Subject to Law. No assignment, sale, transfer, exchange or other disposition of any Units may be made except
in compliance with the applicable governmental laws and regulations, including state and federal securities laws.
11.6
Transfer in Violation Not Recognized. Any assignment, sale, transfer, exchange or other disposition in contravention
of the provisions of this Section 11 shall be void and ineffectual and shall not bind or be recognized by the Company.
11.7
Conversion to Economic Interest. Upon the transfer of a Unit in violation of this Agreement, the Membership Interest
of a Member shall be converted into an Economic Interest.
11.8
Exit Opportunities. Beginning on the 3rd, 4th, and 5th
anniversary of the Offering Termination Date (each, a “Conversion Determination Date”), each Member shall have
the right to sell its respective Units held to Vivakor, and Vivakor will have sole discretion as to whether it pays for the Units
in cash or Vivakor common stock (the “Conversion Right”). The price for the Units is the original principal of the
Convertible Notes that was converted into the Units. If Vivakor chooses to pay in common stock, the number of shares the Member
will receive will be based on the price that is the greater of $0.45 per share or the 30-day average share price of Vivakor (determined
on the 30 days prior to the Conversion Determination Date) discounted by 10%. The Vivakor
common stock received in this manner will carry a trade restriction for a period of two years after the date of sale, in which
the holder of the common stock will not, in any 90 day period sell a greater number of shares than 10% of 10 day average trading
volume at the time of the proposed sale. If the company undertakes an underwritten public offering of stock, each holder
of this restriction will be required to comply with a six (6) month market stand-off agreement. All conversions shall comply with
all state and federal securities laws and requirements.
11.9
Call Option. As of the day after the expiration of any Conversion Determination
Date (the “Call Option Exercise Date”), Vivakor shall have the option to purchase
any Units owned by the Members who did not exercise the Conversion Right set forth in Section 11.8 (the “Call Option”).
Within 15 days of the Call Option Exercise Date, Vivakor shall provide the Members with written notice of its election to exercise
the Call Option. The purchase price of the Units to be acquired by Vivakor pursuant to the Call Option shall be the original principal
of the Convertible Note that was converted into the Units. The purchase of any Units to be
acquired pursuant to this Section 11.9 shall be made within 30 days of the Call Option Exercise Date (the “Call Option Closing
Date”). Vivakor shall pay to the Members having their Units purchased pursuant to this Section 11.9, at Vivakor’s
sole discretion, in cash or Vivakor common stock on the Call Option Closing Date. If Vivakor chooses to pay in common stock, the
number of shares the Member will receive will be based on the price that is the greater of $0.45 per share or the 30-day average
share price of Vivakor (determined on the 30 days prior to the Conversion Determination Date) discounted by 10%. The
Vivakor common stock received in this manner will carry a trade restriction for a period of two years after the date of sale, in
which the holder of the common stock will not, in any 90 day period sell a greater number of shares than 10% of 10 day average
trading volume at the time of the proposed sale. If the company undertakes an underwritten public offering of stock, each
holder of this restriction will be required to comply with a six (6) month market stand-off agreement. All conversions shall comply
with all state and federal securities laws and requirements. Each of the Members grants to
the Manager a special power of attorney in accordance with Section 14 to take all action as may be necessary or appropriate to
transfer or sell such Member’s Units as provided in this Section 11.9.
12.
Books, Records, Accounting and Reports.
12.1
Records. The Company shall maintain at its principal office the Company’s records and accounts of all operations
and expenditures of the Company including the following:
12.1.1
A current list of the name and last known business, residence or mailing address of each Owner and the Manager;
12.1.2
A copy of the Certificate of Formation and all amendments thereto, together with any powers of attorney pursuant to which
the Certificate of Formation or any amendments thereto were executed;
12.1.3
Copies of the Company’s federal, state and local income tax or information returns and reports, if any, for the 6
most recent fiscal years;
12.1.4
Copies of this Agreement and any amendments thereto together with any powers of attorney pursuant to which any written accounting
or any amendments thereto were executed;
12.1.5
Copies of any financial statements of the Company, if any, for the 6 most recent years; and
12.1.6
The Company’s books and records, but not Member information, as they relate to the internal affairs of the Company
for at least the current and past 4 fiscal years.
12.2
Delivery to Members and Inspection. Subject to limitations set forth in this Section 12.2 and Sections 12.5
and 12.6, each Member, or its representative designated in writing, has the right, upon reasonable written request for purposes
reasonably related to the interest of that Person as a Member, which purposes are set forth in the written request, to receive
from the Company:
12.2.1
True and full information regarding the status of the business and financial condition of the Company;
12.2.2
Promptly after becoming available, a copy of the Company’s federal, state and local income tax returns for each year;
12.2.3
A current list of the name and last known business, residence or mailing address of each Owner and the Manager;
12.2.4
A copy of this Agreement and the Certificate of Formation and all amendments thereto, together with executed copies of any
written powers of attorney pursuant to which this Agreement and the Certificate of Formation and all amendments thereto have been
executed; and
12.2.5
True and full information regarding the amount of cash and a description and statement of the agreed value of any property
or services contributed by each Owner and which each Owner has agreed to contribute in the future, and the date on which each became
an Owner.
12.3
Reports. The Manager will cause the Company, at the Company’s expense, to prepare an annual report containing
a year-end balance sheet and income statement. Copies of such statements shall be distributed to each Member within 120 days after
the close of each fiscal year of the Company.
12.4
Tax Information. The Manager shall cause the Company, at the Company’s expense, to prepare and timely file
income tax returns for the Company with the appropriate authorities, and shall use commercially reasonable efforts to cause all
Company information necessary in the preparation of the Owners’ individual income tax returns to be distributed to the Owners
not later than 90 days after the end of the Company’s fiscal year. The Manager shall also distribute a copy of the Company’s
tax return to a Member, if requested by such Member.
12.5
Confidentiality. The Manager shall have the right to keep confidential from the Owners, for such period of time as
the Manager deems reasonable, any information which the Manager reasonably believes to be in the nature of trade secrets or other
information the disclosure of which the Manager in good faith believes is not in the best interest of the Company or could damage
the Company or its business or which the Company is required by law or by agreement with a third party to keep confidential.
12.6
Limitations. In addition to Section 12.5, the Manager, in its sole discretion, may restrict receipt of the information
identified in Section 12.2, if the Manager reasonably believes that disclosure of such information is not in the best interest
of the Company or could damage the Company or its business or the requesting Member’s reason for obtaining the applicable
information is, in the Manager’s sole discretion, related to the Member’s individual purposes and not for a Company
purpose. In no event shall the Manager be required to provide any Member with access to any personal information with respect
to the Owners, including, but not limited to, the names, addresses, email addresses and phone numbers of the Owners.
12.7
Partnership Audit Rules.
12.7.1
The Manager shall be the “partnership representative” for purposes of Code Sections 6223 and 6231 and shall,
at the Company’s expense, cause to be prepared and timely filed after the end of each taxable year of the Company all federal
and state income tax returns required of the Company for such taxable year. If any state or local tax law provides for a partnership
representative or Person having similar rights, powers, authority or obligations, the Manager shall also serve in such capacity.
12.7.2
If any audit adjustment results in an underpayment of tax that is imputed to the Company and would be assessed and collected
at the Company level in the period that the adjustment becomes final, the Company may, in the sole discretion of the Manager, elect:
(a)
to pay an imputed underpayment as calculated under Code Section 6225(b) with respect to such adjustment, including interest,
penalties and related tax (“Imputed Underpayment”) in the Adjustment Year or otherwise take the Internal Revenue Service
adjustment into account in the Adjustment Year. The Manager shall use commercially reasonable efforts to reduce the amount of such
Imputed Underpayment on account of the tax-exempt status (as defined in Code Section 168(h)(2)) of any Members as provided in Code
Section 6225(c)(3). Each Member agrees to indemnify and hold harmless the Company and the Manager from and against any liability
with respect to the Member’s proportionate share of any Imputed Underpayment, regardless of whether such Member is a Member
in the Adjustment Year, and to promptly pay its proportionate share of any Imputed Underpayment to the Company within 15 days following
the Manager’s request for payment and any amount that is not funded shall be treated as a Tax Payment under Section 4.12.1.
Each Member’s (or former Member’s) proportionate share shall be determined by the Manager in good faith taking into
account each Member’s (or former Member’s) particular status, including its tax-exempt or non-United States status,
its interest in the Company in the Reviewed Year, and its timely provision of information necessary to reduce the amount of Imputed
Underpayment set forth in Code Section 6225(c); or
(b)
under Code Section 6226(a), to cause the Company to issue adjusted Schedule K-1s or any other similar statement prescribed
by the Code, Treasury Regulations or other administrative guidance published by the Internal Revenue Service or other taxing authority
to each applicable Member for the Reviewed Year, who will then be required to pay their allocable share of tax otherwise attributable
to the Company. Each Member hereby agrees and consents to such election and agrees to take any action, and furnish the Manager
with any information necessary to give effect to such election, as required by such Code Section and applicable Treasury Regulations
or other administrative guidance published by the Internal Revenue Service or other taxing authority.
13.
Termination and Dissolution of the Company.
13.1
Termination of Company. The Company shall be dissolved, shall terminate and its assets shall be disposed of, and
its affairs wound up upon the earliest to occur of the following:
13.1.1
Upon the happening of any event of dissolution specified in the Certificate of Formation;
13.1.2
The occurrence of a Dissolution Event unless the business of the Company is continued by the consent of the remaining Members
within 90 days following the occurrence of the event;
13.1.3
A determination by the Manager to terminate the Company;
13.1.4
Upon the entry of a decree of judicial dissolution; or
13.1.5
The sale of the Business.
13.2
Certificate of Cancellation. As soon as possible following the occurrence of any of the events specified in Section 13.1,
the Manager who has not wrongfully dissolved the Company or, if none, the Members, shall execute a Certificate of Cancellation
in such form as shall be required by the Act.
13.3
Liquidation of Property. Upon a dissolution and termination of the Company, the Manager (or in case there is no Manager,
the Members or Person designated by a Majority Vote) shall take full account of the Company Property and liabilities, shall liquidate
the Property as promptly as is consistent with obtaining the fair market value thereof, and shall apply and distribute the proceeds
therefrom in the following order:
13.3.1
To the payment of creditors of the Company but excluding secured creditors whose obligations will be assumed or otherwise
transferred on the liquidation of Company Property;
13.3.2
To the setting up of any reserves as required by law for any liabilities or obligations of the Company; provided, however,
that said reserves shall be deposited with a bank or trust company in escrow at interest for the purpose of disbursing such reserves
for the payment of any of the aforementioned contingencies and, at the expiration of a reasonable period, for the purpose of distributing
the balance remaining in accordance with the remaining provisions of this Section 13.3; and
13.3.3
To the Owners as set forth in Section 5.1, which is intended to be in proportion to their positive Capital Account
balances as of the date of such Distribution, after giving effect to all Capital Contributions, Distributions and allocations for
all periods, including the period during which such Distribution occurs.
13.4
Distributions Upon Dissolution. Each Member shall look solely to the assets of the Company for all Distributions
and its Capital Contributions, and shall have no recourse therefor (upon dissolution or otherwise) against any Manager or any Member.
No Member shall be required to restore any deficit in the Member’s Capital Account.
13.5
Liquidation of Member’s Interest. If there is a Liquidation of a Member’s or Manager’s interest
in the Company, any liquidating Distribution pursuant to such Liquidation shall be made only to the extent of the positive Capital
Account balance, if any, of such Member or Manager for the taxable year during which such Liquidation occurs after proper adjustments
for allocations and Distributions for such taxable year up to the time of Liquidation. Such Distributions shall be made by the
end of the taxable year of the Company during which such Liquidation occurs, or if later, within 90 days after such Liquidation.
14.
Special and Limited Power of Attorney.
14.1
Power of Attorney. The Manager shall at all times during the term of the Company have a special and limited power
of attorney as the attorney-in-fact for each Member, with power and authority to act in the name and on behalf of each such Member
to execute, acknowledge, and swear to in the execution, acknowledgment and filing of documents which are not inconsistent with
the provisions of this Agreement and which may include, by way of illustration but not by way of limitation, the following:
14.1.1
This Agreement, as well as any amendments to the foregoing which, under the laws of the state of Nevada or the laws of any
other state, are required to be filed or which the Manager shall deem it advisable to file;
14.1.2
Any other instrument or document that may be required to be filed by the Company under the laws of any state or by any governmental
agency or which the Manager shall deem it advisable to file;
14.1.3
Any instrument or document that may be required to effect the continuation of the Company, the admission of Substituted
Members, or the dissolution and termination of the Company (provided such continuation, admission or dissolution and termination
are in accordance with the terms of this Agreement);
14.1.4
Any contract for purchase or sale of real estate, and any deed, deed of trust, mortgage, or other instrument of conveyance
or encumbrance, with respect to Property;
14.1.5
Any and all other instruments as the Manager may deem necessary or desirable to effect the purposes of this Agreement and
carry out fully its provisions, including, but not limited to, those in Section 16; and
14.1.6
Take all actions under Sections 11.8 and 11.9.
14.2
Provision of Power of Attorney. The special and limited power of attorney of the Manager:
14.2.1
Is a special power of attorney coupled with the interest of the Manager in the Company, and its assets, is irrevocable,
shall survive the death, incapacity, termination or dissolution of the granting Member, and is limited to those matters herein
set forth;
14.2.2
May be exercised by the Manager by and through one or more of the officers of the Manager for each of the Members by the
signature of the Manager acting as attorney-in-fact for all of the Members, together with a list of all Members executing such
instrument by their attorney-in-fact or by such other method as may be required or requested in connection with the recording or
filing of any instrument or other document so executed; and
14.2.3
Shall survive an assignment by a Member of all or any portion of its Units except that, where the assignee of the Units
owned by the Member has been approved by the Manager for admission to the Company as a Substituted Member, the special power of
attorney shall survive such assignment for the sole purpose of enabling the Manager to execute, acknowledge and file any instrument
or document necessary to effect such substitution.
14.3
Notice to Members. The Manager shall promptly furnish to a Member a copy of any amendment to this Agreement executed
by the Manager pursuant to a power of attorney from the Member.
15.
Relationship of this Agreement to the Act. Many of the terms of this Agreement are intended to alter or extend
provisions of the Act as they may apply to the Company or the Members. Any failure of this Agreement to mention or specify the
relationship of such terms to provisions of the Act that may affect the scope or application of such terms shall not be construed
to mean that any of such terms is not intended to be a limited liability company agreement provision authorized or permitted by
the Act or which in whole or in part alters, extends or supplants provisions of the Act as may be allowed thereby.
16.
Amendment of Agreement.
16.1
Admission of Member. Amendments to this Agreement for the admission of any Member or Substituted Member shall not,
if in accordance with the terms of this Agreement, require the consent of any Member.
16.2
Amendments with Consent of Member. In addition to any amendments otherwise
authorized herein, this Agreement may be amended by the Manager with a Majority Vote.
16.3
Amendments Without Consent of the Members. In addition to the amendments authorized
pursuant to Section 4.10 and Section 7.3.11 or otherwise authorized herein, the Manager may amend this Agreement, without
the consent of any of the Members, to (i) change the name and/or principal place of business of the Company or (ii) decrease
the rights and powers of the Manager (so long as such decrease does not impair the ability of the Manager to manage the Company
and conduct its business and affairs); provided, however, that no amendment shall be adopted pursuant to this Section 16.3 unless
the adoption thereof (A) is for the benefit of or not adverse to the interests of the Members and (B) does not affect
the limited liability of the Members.
16.4
Execution and Recording of Amendments. Any amendment to this Agreement shall be executed by the Manager, and by the
Manager as attorney-in-fact for the Members pursuant to the power of attorney contained in Section 14. After the execution
of such amendment, the Manager shall also prepare and record or file any certificate or other document which may be required to
be recorded or filed with respect to such amendment, either under the Act or under the laws of any other jurisdiction in which
the Company holds any Property or otherwise does business.
17.
Miscellaneous.
17.1
Counterparts. This Agreement may be executed in several counterparts, and all so executed shall constitute one Agreement,
binding on all of the parties hereto, notwithstanding that all of the parties are not signatory to the original or the same counterpart.
17.2
Successors and Assigns. The terms and provisions of this Agreement shall be binding upon and shall inure to the benefit
of the successors and assigns of the respective Members.
17.3
Severability. In the event any sentence or Section of this Agreement is declared by a court of competent jurisdiction
to be void, such sentence or Section shall be deemed severed from the remainder of this Agreement and the balance of this
Agreement shall remain in full force and effect.
17.4
Notices. All notices under this Agreement shall be in writing and shall be given to the Member or Economic Interest
Owner entitled thereto, by personal service or by mail, posted to the address maintained by the Company for such Person or at such
other address as it may specify in writing.
17.5
Manager’s Address. The name and address of the Manager is as follows:
Wealth
Space, LLC
500 N. State College Blvd., Ste 1100
Orange, CA 92868
17.6
Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the state of Nevada.
17.7
Captions. Section titles or captions contained in this Agreement are inserted only as a matter of convenience
and reference. Such titles and captions in no way define, limit, extend or describe the scope of this Agreement nor the intent
of any provisions hereof.
17.8
Gender. Whenever required by the context hereof, the singular shall include the plural, and vice versa, the masculine
gender shall include the feminine and neuter genders, and vice versa.
17.9
Time. Time is of the essence with respect to this Agreement.
17.10
Additional Documents. Each Member, upon the request of the Manager, shall perform any further acts and execute and
deliver any documents which may be reasonably necessary to carry out the provisions of this Agreement, including, but not limited
to, providing acknowledgment before a Notary Public of any signature made by a Member.
17.11
Descriptions. All descriptions referred to in this Agreement are expressly incorporated herein by reference as if
set forth in full, whether or not attached hereto.
17.12
Binding Arbitration. Except as provided in Section 9.2, any controversy arising out of or related to this Agreement
or the breach thereof or an investment in the Units shall be settled by arbitration in Salt Lake City, Utah, in accordance with
the rules of The American Arbitration Association, and judgment entered upon the award rendered may be enforced by appropriate
judicial action. The arbitration panel shall consist of one member, which shall be the mediator if mediation has occurred or shall
be a Person agreed to by each party to the dispute within 30 days following notice by one party that such party desires that a
matter be arbitrated. If there was no mediation and the parties are unable within such 30 day period to agree upon an arbitrator,
then the panel shall be one arbitrator selected by the Salt Lake City office of The American Arbitration Association, which arbitrator
shall be experienced in the area of real estate and limited liability companies and who shall be knowledgeable with respect to
the subject matter area of the dispute. The losing party shall bear any fees and expenses of the arbitrator, other tribunal fees
and expenses, reasonable attorneys’ fees of both parties, any costs of producing witnesses and any other reasonable costs
and expenses incurred by it or the prevailing party or such costs as allocated by the arbitrator. The arbitration panel shall render
a decision within 30 days following the close of presentation by the parties of their cases and any rebuttal. The parties shall
agree within 30 days following selection of the arbitrator to any prehearing procedures or further procedures necessary for the
arbitration to proceed, including reasonable opportunity for discovery, reasonable opportunity for production of relevant documents,
deposition of material witnesses, reasonable interrogatories or other discovery; provided, in any event each Member shall be entitled
to discovery.
17.13
Attorneys’ Fees. In the event that litigation is commenced to enforce any of the provisions of this Agreement,
to recover damages for breach of any of the provisions of this Agreement, or to obtain declaratory relief in connection with any
of the provisions of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys’ fees and costs,
whether or not such action proceeds to judgment. The prevailing party shall be determined by either the officiating judge in the
matter or by the presiding judge of the Las Vegas, Nevada Superior Court.
17.14
Venue. Any action relating to or arising out of this Agreement shall be brought only in a court of competent jurisdiction
located in Las Vegas, Nevada.
17.15
Partition. The Members agree that the assets of the Company are not and will not be suitable for partition. Accordingly,
each of the Members hereby irrevocably waives any and all rights that it may have, or may obtain, to maintain any action for partition
of any of the assets of the Company.
17.16
Integrated and Binding Agreement. This Agreement contains the entire understanding and agreement among the Members
with respect to the subject matter hereof, and there are no other agreements, understandings, representations or warranties among
the Members other than those set forth herein and in the Subscription Agreement. This Agreement may be amended only as provided
in this Agreement.
17.17
Legal Counsel. Each Member acknowledges and agrees that counsel representing the Company, the Manager and its Affiliates
does not represent and shall not be deemed under the applicable codes of professional responsibility to have represented or to
be representing any or all of the Members, other than the Manager and its Affiliates (if applicable), in any respect. In addition,
each Member consents to the Manager hiring counsel for the Company which is also counsel to the Manager.
17.18
Title to Company Property. All Property owned by the Company shall be owned by the Company as an entity and, insofar
as permitted by applicable law, no Member shall have any ownership interest in any Company Property in its individual name or right,
and each Member’s membership interest shall be personal property for all purposes.
IN WITNESS WHEREOF,
this Agreement is effective as of the date first set forth in the preamble.
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MANAGER
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Wealth Space, LLC, a California limited liability company
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By:
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/s/ Tom Lee
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Name:
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Tom Lee
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Title:
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Chief Executive Officer
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INITIAL MEMBER:
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Vivakor, Inc., a Nevada corporation, as the Initial Member and
with respect to the rights set forth in Section 11.8 and 11.9.
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By:
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/s/ Matthew Nicosia
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Name:
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Matthew Nicosia
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Title:
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Chief Executive Officer
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[Signature Page to LLC Agreement of Viva
Wealth Fund I, LLC]
EXHIBIT A
DEFINITIONS
“Act” shall
mean the Nevada Limited Liability Company Act, as the same may be amended from time to time.
“Additional Interests”
shall have the meaning set forth in Section 3.5.
“Adjusted Capital
Account Deficit” shall mean, with respect to any Member, the deficit balance, if any, in such Member’s Capital Account
as of the end of the relevant fiscal year, after giving effect to the following adjustments:
(i)
Credit to such Capital Account any amounts which the Member is obligated to restore and the Member’s share of Member
Minimum Gain and Company Minimum Gain; and
(ii)
Debit to such Capital Account the items described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5),
and 1.704-1(b)(2)(ii)(d)(6).
“Adjustment Year”
shall have the meaning set forth in Code Section 6225(d)(2).
“Affiliate”
shall mean (i) any Person directly or indirectly controlling, controlled by or under common control with another Person, (ii) a
Person owning or controlling 10% or more of the outstanding voting securities of such other Person and (iii) any officer,
director or partner of such other Person and if such other Person is an officer, director or partner, any company for which
such Person acts in any capacity.
“Agreement”
shall mean this Limited Liability Company Agreement, as amended from time to time.
“Automatic
Stock Conversion” shall have the meaning set forth in Section 3.2.4.
“Book Gain”
shall mean the excess, if any, of the fair market value of the Property over its adjusted basis for federal income tax purposes
at the time a valuation of the Property is required under this Agreement or Treasury Regulations Section 1.704-1(b) for
purposes of making adjustments to the Capital Accounts.
“Book Loss”
shall mean the excess, if any, of the adjusted basis of Property for federal income tax purposes over its fair market value at
the time a valuation of the Property is required under this Agreement or Treasury Regulations Section 1.704-1(b) for
purposes of making adjustments to the Capital Accounts.
“Book Value”
shall mean the adjusted basis of Property for federal income tax purposes increased or decreased by Book Gain, Book Loss, Built-In
Gain and Built-In Loss as reduced by depreciation, amortization or other cost recovery deductions, or otherwise, based on such
Book Value.
“Built-In Gain
(or Loss)” shall mean the amount, if any, by which the agreed value of contributed Property exceeds (or is lesser than) the
adjusted basis of Property contributed to the Company by a Member immediately after its contribution by the Member to the capital
of the Company.
“Business”
shall mean purchasing, manufacturing, leasing and selling of the Equipment.
“Call
Option” shall have the meaning set forth in Section 11.9.
“Call
Option Closing Date” shall have the meaning set forth in Section 11.9.
“Call
Option Exercise Date” shall have the meaning set forth in Section 11.9.
“Capital Account”
with respect to any Member (or such Member’s assignee) shall mean such Member’s initial Capital Contribution adjusted
as follows:
(i)
A Member’s Capital Account shall be increased by:
(a)
such Member’s share of Net Income;
(b)
any item of income or gain specially allocated to a Member and not included in Net Income or Net Loss;
(c)
any additional cash Capital Contribution made by such Member to the Company; and
(d)
the fair market value of any additional Capital Contribution, as determined by the Manager, consisting of property contributed
by such Member to the capital of the Company reduced by any liabilities assumed by the Company in connection with such contribution
or to which the Property is subject.
(ii)
A Member’s Capital Account shall be reduced by:
(a)
such Member’s share of Net Loss;
(b)
any loss or deduction specially allocated to a Member and not included in Net Income or Net Loss;
(c)
any cash Distribution made to such Member; and
(d)
the fair market value, as determined by the Manager, of any Property (reduced by any liabilities assumed by the Member in
connection with the Distribution or to which the distributed Property is subject) distributed to such Member; provided that, upon
liquidation and winding up of the Company, unsold Property will be valued for Distribution at its fair market value and the Capital
Account of each Member before such Distribution shall be adjusted to reflect the allocation of gain or loss that would have been
realized had the Company then sold the Property for its fair market value. Such fair market value shall not be less than the amount
of any nonrecourse indebtedness that is secured by the Property.
Property other than
money may not be contributed to the Company except as specifically provided in this Agreement. Property of the Company may not
be revalued for purposes of calculating Capital Accounts unless the Manager determines the fair market value of the Property and
the Company complies with the requirements of Treasury Regulations Section 1.704-1(b)(2)(iv)(f) and (g); provided, however,
for purposes of calculating Book Gain or Book Loss (but not for purposes of adjusting Capital Accounts to reflect the contribution
and distribution of such Property), the fair market value of Property shall be deemed to be no less than the outstanding balance
of any nonrecourse indebtedness secured by such Property.
The Capital Account
of a Substituted Member shall include the Capital Account of its transferor. Notwithstanding anything to the contrary in this Agreement,
the Capital Accounts shall be maintained in accordance with Treasury Regulations Section 1.704-1(b). For purposes of this
Agreement, any references to the Treasury Regulations shall include corresponding subsequent provisions.
“Capital Contribution”
shall mean the gross amount invested in the Company by a Member and shall be equal in amount to the cash purchase price paid by
such Member for the Units sold to the Member by the Company. In the plural, “Capital Contributions” shall mean the
aggregate amount invested by all of the Members in the Company and shall equal, in total, the sum of the amount attributable to
the purchase of Units and the contributions of the Manager.
“Cash From Operations”
shall mean the net cash realized by the Company from all sources, including, but not limited
to, the operations of the Company, including the sale, exchange or transfer of the Business, after payment of all cash expenditures
of the Company, including, but not limited to, all operating expenses including all fees payable to the Manager or Affiliates,
all payments of principal and interest on indebtedness, expenses for repairs and maintenance, capital improvements and replacements,
and such reserves and retentions as the Manager reasonably determines to be necessary and desirable in connection with Company
operations with its then existing assets and any anticipated acquisitions.
“Certificate
of Amendment” shall mean the certificate of amendment filed with the Office of the Secretary of State of the state of Nevada.
“Certificate
of Cancellation” shall mean the certificate of cancellation filed with the Office of the Secretary of State of the state
of Nevada.
“Certificate
of Formation” shall mean the Certificate of Formation of the Company as filed with the office of the Secretary of State of
the state of Nevada as the same may be amended or restated from time to time.
“Code”
shall mean the Internal Revenue Code of 1986, as amended, or corresponding provisions of subsequently enacted federal revenue laws.
“Company”
shall mean Viva Wealth Fund I, LLC, a Nevada limited liability company.
“Company Minimum
Gain” shall have the same meaning as “partnership minimum gain” as set forth in Treasury Regulations Section 1.704-2(d).
“Conversion Determination
Date” shall have the meaning set forth in Section 11.8.
“Conversion Right”
shall have the meaning set forth in Section 11.8.
“Convertible
Note” shall have the meaning set forth in Section 3.2.2
“Convertible
Note Maturity Date” shall have the meaning set forth in Section 3.2.2
“Escrow Account”
shall have the meaning set forth in Section 3.2.9.
“Escrow Release
Date” shall have the meaning set forth in Section 3.2.9.
“Dissolution
Event” shall mean with respect to the Manager one or more of the following: the death, insanity, withdrawal, retirement,
resignation, expulsion, Event of Insolvency or dissolution (unless reconstituted by the Manager) of the Manager unless the Members
consent to continue the business of the Company pursuant to Section 8.2.5.
“Distribution”
shall mean any money or other property transferred without consideration (other than repurchased Units) to Members or Owners with
respect to their interests or Units in the Company, but shall not include any payments to the Manager pursuant to Section 6.
“Economic Interest”
shall mean an interest in the Net Income, Net Loss and Distributions of the Company but shall not include any right to vote or
to participate in the management of the Company.
“Economic Interest
Owner” shall mean the owner of an Economic Interest who is not a Member.
“Employee Benefit
Plan” shall have the meaning set forth in Section 3(3) of the Employee Retirement Income Security Act of 1974.
“Equipment”
shall mean equipment that mines oil from oil sand and other materials.
“Event of Insolvency”
shall occur when an order for relief against the Manager is entered under Chapter 7 of the federal bankruptcy law, or (a) the
Manager: (i) makes a general assignment for the benefit of creditors, (ii) files a voluntary petition under the federal
bankruptcy law, (iii) files a petition or answer seeking for that Manager a reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute, law or regulation, (iv) files an answer or other pleading admitting
or failing to contest the material allegations of a petition filed against the Manager in any proceeding of this nature or (v) seeks,
consents to, or acquiesces in the appointment of a trustee, receiver, or liquidator of that Manager or of all or a substantial
part of that Manager’s properties or (b) the expiration of 60 days after either (i) the commencement of any
proceeding against the Manager seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any statute, law, or regulation, if the proceeding has not been dismissed or (ii) the appointment without the
Manager’s consent or acquiescence of a trustee, receiver, or liquidator of the Manager or of all or any substantial part
of the Manager’s properties, if the appointment has not been vacated or stayed (or if within 60 days after the expiration
of any such stay, the appointment is not vacated).
“Imputed Underpayment”
shall have the meaning set forth in Section 12.7.2(a).
“Indebtedness”
shall have the meaning as set forth in Section 3.2.3
“Indemnified
Party” shall have the meaning set forth in Section 8.8.
“Initial Member”
shall mean Vivakor, Inc., a Nevada corporation.
“Interest”
shall mean a Membership Interest or an Economic Interest.
“Interest Payments”
shall have the meaning as set forth in Section 3.2.2
“Lease Agreement”
shall mean the Equipment Lease Agreement between the Company and Vivakor to be entered into upon the manufacturing of the Equipment.
“License Fee”
shall have the meaning set forth in Section 6.1.2.
“Liquidation”
shall mean in respect to the Company the date upon which the Company ceases to be a going concern (even though it may exist for
purposes of winding up its affairs, paying its debts and distributing any remaining balance to its Members), and in respect to
a Member where the Company is not in Liquidation shall mean the date upon which occurs the termination of the Member’s entire
interest in the Company by means of a Distribution or the making of the last of a series of Distributions (whether or not made
in more than one year) to the Member by the Company.
“Majority Vote”
shall mean the vote of more than 50% of the Units entitled to vote held by the Members (but
not the Economic Interest Owners). Members shall be entitled to cast one vote for each Unit they own, and a fractional vote for
each fractional Unit they own.
“Manager”
shall mean Wealth Space, LLC, a California limited liability company. The term “Manager”
shall also refer to any successor or additional Manager who is admitted to the Company as the Manager.
“Member”
shall mean any holder of a Unit who is admitted to the Company as a Member, including the Manager to the extent it has acquired
Units.
“Member Minimum
Gain” shall mean “partner nonrecourse debt minimum gain” as determined under Treasury Regulations Section 1.704-2(i)(3).
“Member Nonrecourse
Debt” shall mean “partner nonrecourse debt” as set forth in Treasury Regulations Section 1.704-2(b)(4).
“Member Nonrecourse
Deductions” shall mean “partner nonrecourse deductions” and the amount thereof shall be as set forth in Treasury
Regulations Section 1.704-2(i).
“Membership Interest”
shall mean a Member’s entire interest in the Company including such Member’s Economic Interest and such voting and
other rights and privileges that the Member may enjoy by being a Member.
“Memorandum”
shall mean the Confidential Private Placement Memorandum of the Company pertaining to the Offering distributed to potential purchasers
of Units, as may be amended or supplemented from time to time.
“Minimum
Offering Amount” shall mean the sale of $50,000 of Units.
“Net Income”
or “Net Loss” shall mean, respectively, for each taxable year of the Company the taxable income and taxable loss (exclusive
of Built-In Gain or Loss) of the Company as determined for federal income tax purposes in accordance with Code Section 703(a)
(including all items of income, gain, loss, or deduction required to be separately stated pursuant to Code Section 703(a)(1))
(other than any specific item of income, gain (exclusive of Built-In Gain), loss (exclusive of Built-In Loss), deduction or credit
subject to special allocation under this Agreement), with the following modifications:
(i)
The amount determined above shall be increased by any income exempt from federal income tax;
(ii)
The amount determined above shall be reduced by any expenditures described in Code Section 705(a)(2)(B) or expenditures
treated as such pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i);
(iii)
Depreciation, amortization and other cost recovery deductions shall be computed based on Book Value instead of on the amount
determined in computing taxable income or loss. Any item of deduction, amortization or cost recovery specially allocated to a Member
and not included in Net Income or Net Loss shall be determined for Capital Account purposes in a similar manner; and
(iv)
For purposes of this Agreement, Book Gain and Book Loss attributable to a revaluation of Property attributable to unrealized
gain or loss in such Property shall be treated as Net Income and Net Loss.
“Nonrecourse
Debt” shall have the meaning set forth in Treasury Regulations Section 1.704-2(b)(3).
“Nonrecourse
Deductions” shall have the meaning, and the amount thereof shall be, as set forth in Treasury Regulations Section 1.704-2(c).
“Offering”
shall mean the offering and sale of the Units made in accordance with the provisions of Section 3.2.2.
“Offering Termination
Date” shall mean the date the Offering of Units will terminate, which is the earliest of (i) the date all $25,000,000 Units
are sold, (ii) November 13, 2021 which date can be extended to November 13, 2022 in the sole discretion of the Manager or (iii)
the Manager determines, in its sole discretion, to terminate the Offering.
“Organization
and Offering Expenses” shall mean all expenses incurred in connection with the organization and formation of the Company,
the preparation of the Offering materials, and the marketing and sale of the Units, including but not limited to legal, accounting,
tax planning fees, promotional fees or expenses, filing and recording fees, market research and surveys, property inspections and
research, engineering services, printing costs, securities sales commissions, travel expenses and other costs or expenses incurred
in connection therewith.
“Owner”
shall mean a Member or the holder of an Economic Interest.
“Person”
shall mean a natural person, corporation, limited partnership, general partnership, joint stock company, joint venture, association,
company, trust, bank trust company, land trust, business trust, statutory trust or other organization, whether or not a legal entity,
and a government or agency or political subdivision thereof.
“Plant Manager”
shall mean Vivakor, Inc., a Nevada corporation.
“Plant Management
Fee” shall have the meaning set forth in Section 6.1.1.
“Preferred Return”
shall mean an amount equal to a 12% cumulative but not compounded annual return on a Member’s Net Capital Contribution.
“Prime Rate”
shall mean the reference rate announced from time-to-time by the Wall Street Journal, and changes in the Prime Rate shall be deemed
to occur on the date that changes in such rate are announced.
“Property”
shall mean any or all of such real and tangible or intangible personal property or properties as may be acquired by the Company,
including the Business.
“Proprietary
Information” shall have the meaning set forth in Section 1.8.
“Regulatory Allocations”
shall mean the allocations set forth in Sections 4.2.1 through 4.2.7.
“Reviewed Year”
shall have the meaning set forth in Code Section 6225(d)(1).
“Subscription
Agreement” means the agreement, in the form attached to the Memorandum, by which each Person desiring to become a Member
shall evidence (i) the number of Units which such Person wishes to acquire, (ii) such Person’s agreement to become
a party to, and be bound by the provisions of, this Agreement and (iii) certain representations regarding the Person’s
finances and investment intent.
“Subscription
Payment” shall mean the cash payment that must accompany each subscription for Units sold through the Offering.
“Substituted
Member” shall mean any Person admitted as a substituted Member pursuant to this Agreement.
“Tax Payment”
shall have the meaning set forth in Section 4.12.1.
“Unit”
shall represent an interest in the Company entitling the owner of the Unit if admitted as a Member to the respective voting and
other rights afforded to a Member, and affording to such Member a share in Net Income, Net Loss and Distributions as provided for
in this Agreement.
“Vivakor”
shall mean Vivakor, Inc., a Nevada corporation.
Exhibit 10.25
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
VIVA
OPPORTUNITY FUND, LLC
THE SECURITIES OFFERED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION
NOR BY THE SECURITIES REGULATORY AUTHORITY OF ANY STATE, NOR HAS ANY COMMISSION OR AUTHORITY PASSED UPON OR ENDORSED THE MERITS
OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF ANY DISCLOSURE MADE IN CONNECTION THEREWITH. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE. THE SECURITIES OFFERED HEREBY MAY NOT BE RESOLD WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND
APPLICABLE STATE SECURITIES LAWS OR EXEMPTION THEREFROM. ANY TRANSFER OF THE SECURITIES REPRESENTED BY THIS AGREEMENT IS FURTHER
SUBJECT TO OTHER RESTRICTIONS, TERMS, AND CONDITIONS WHICH ARE SET FORTH IN THIS AGREEMENT.
TABLE OF CONTENTS
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Page
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1. Organization
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1
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1.1 Formation
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1
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1.2 Name and Place of Business
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1
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1.3 Business and Purpose of the Company
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1
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1.4 Term
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1
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1.5 Required Filings
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1
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1.6 Registered Office and Registered Agent
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1
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1.7 Certain Transactions
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1
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1.8 Proprietary Information
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1
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2. Definitions
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2
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3. Capitalization and Financing
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2
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3.1 Manager’s Capital Contribution
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2
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3.1.1 Initial Member
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2
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3.1.2 Units
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2
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3.1.3 Payment of Purchase Price
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2
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3.1.4 Subscription Agreement
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2
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3.1.5 Manager and its Affiliates as Member
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2
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3.1.6 Admission of Members
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2
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3.1.7 Liabilities of Members
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3
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3.2 Manager Loans
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3
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3.3 Company Loans
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3
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3.4 Additional Capital Contributions
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3
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4. Allocation of Tax Items
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3
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4.1 Allocation of Net Income and Net Loss
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3
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4.1.1 Net Income
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3
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4.1.2 Net Loss
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3
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4.2 Special Allocations
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4
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4.2.1 Qualified Income Offset
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4
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4.2.2 Gross Income Allocation
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4
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4.2.3 Minimum Gain Chargeback
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4
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4.2.4 Member Minimum Gain Chargeback
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4
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4.2.5 Nonrecourse Deductions
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4
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4.2.6 Member Nonrecourse Deductions
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4
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4.2.7 Code Section 754 Adjustments
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5
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TABLE OF CONTENTS
(continued)
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Page
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4.3 Curative Allocations
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5
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4.4 Contributed Property
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5
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4.5 Commission Discounts
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5
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4.6 Recapture Income
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5
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4.7 Allocation Among Units
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5
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4.8 Allocation of Company Items
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5
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4.9 Assignment
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5
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4.10 Power of Manager to Vary Allocations
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6
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4.11 Consent of Members
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6
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4.12 Withholding Obligations
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6
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4.13 Special Allocation
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6
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5. Distributions
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6
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5.1 Cash From Operations
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6
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5.2 Restrictions
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7
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5.3 Tax Distributions
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7
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6. Compensation to the Manager and its Affiliates
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7
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6.1 Manager’s and Affiliates’ Compensation
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7
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6.2 Company Expenses
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7
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6.2.1 Operating Expenses
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7
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6.2.2 Manager Overhead
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7
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6.2.3 Organization and Offering Expenses
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7
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7. Authority and Responsibilities of the Manager
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7
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7.1 Management
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7
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7.2 Number, Tenure and Qualifications
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8
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7.3 Manager Authority
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8
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7.4 Restrictions on Manager’s Authority
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10
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7.5 Responsibilities of the Manager
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11
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7.6 Administration of Company
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12
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7.7 Indemnification of the Manager and Officers
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12
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7.8 No Personal Liability for Return of Capital
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12
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7.9 Authority as to Third Persons
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13
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7.10 Officers of the Company
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13
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8. Rights, Authority and Voting of the Members
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13
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8.1 Members Are Not Agents
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13
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8.2 Voting by the Members
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13
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8.3 Member Vote; Consent of Manager
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14
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8.4 Meetings of the Members
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14
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8.4.1 Notice
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14
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Page
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8.4.2 Adjourned Meeting and Notice Thereof
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14
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8.4.3 Quorum
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14
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8.4.4 Consent of Absentees
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14
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8.4.5 Action Without Meeting
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15
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8.4.6 Record Dates
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15
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8.4.7 Proxies
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15
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8.4.8 Chairman of Meeting
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15
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8.4.9 Inspectors of Election
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16
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8.4.10 Record Date and Closing Company Books
|
16
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8.5 Rights of Members
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16
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8.6 Restrictions on the Owners
|
16
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8.7 Return of Capital of the Members
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16
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8.8 Indemnification of the Members
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16
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8.9 Deemed Approval
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17
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9. Resignation, Withdrawal or Removal of the Manager
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17
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9.1 Resignation or Withdrawal of Manager
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17
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9.2 Removal
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17
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9.3 Purchase of Manager’s Interest
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17
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9.4 Purchase Price of the Manager’s Interest
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17
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10. Assignment of the Manager’s Interest
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17
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10.1 Permitted Assignments
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17
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10.2 Substitute Manager
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18
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10.3 Transfer in Violation Not Recognized
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18
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10.4 Transfers to Affiliates
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18
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11. Assignment of Units
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18
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11.1 Permitted Assignments
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18
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11.2 Substituted Member
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19
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11.2.1 Conditions to be Satisfied
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19
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11.2.2 Consent of Manager
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19
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11.2.3 Consent of Members
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19
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11.3 Rights of Economic Interest Owner
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19
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11.4 Right to Inspect Books
|
20
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11.5 Transfer Subject to Law
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20
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11.6 Transfer in Violation Not Recognized
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20
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11.7 Conversion to Economic Interest
|
20
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11.8 Conversion of Units
|
20
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11.9 Call Option
|
20
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11.10 Call Right
|
20
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TABLE OF CONTENTS
(continued)
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Page
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12. Books, Records, Accounting and Reports
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21
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12.1 Records
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21
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12.2 Delivery to Members and Inspection
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21
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12.3 Reports
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21
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12.4 Tax Information
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22
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12.5 Confidentiality
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22
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12.6 Limitations
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22
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12.7 Partnership Audit Rules
|
22
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13. Termination and Dissolution of the Company
|
23
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13.1 Termination of Company
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23
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13.2 Certificate of Cancellation
|
23
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13.3 Liquidation of Property
|
23
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13.4 Distributions Upon Dissolution
|
23
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13.5 Liquidation of Member’s Interest
|
23
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14. Special and Limited Power of Attorney
|
24
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14.1 Power of Attorney
|
24
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14.2 Provision of Power of Attorney
|
24
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14.3 Notice to Members
|
24
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15. Relationship of this Agreement to the Act
|
25
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16. Amendment of Agreement
|
25
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16.1 Admission of Member
|
25
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16.2 Amendments with Consent of Member
|
25
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16.3 Amendments Without Consent of the Members
|
25
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16.4 Execution and Recording of Amendments
|
25
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17. Miscellaneous
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25
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17.1 Counterparts
|
25
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17.2 Successors and Assigns
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25
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17.3 Severability
|
25
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17.4 Notices
|
25
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17.5 Manager’s Address
|
26
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17.6 Governing Law
|
26
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17.7 Captions
|
26
|
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17.8 Gender
|
26
|
TABLE OF CONTENTS
(continued)
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Page
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17.9 Time
|
26
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17.10 Additional Documents
|
26
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17.11 Descriptions
|
26
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17.12 Binding Arbitration
|
26
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17.13 Attorneys’ Fees
|
26
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17.14 Venue
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26
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17.15 Partition
|
27
|
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17.16 Integrated and Binding Agreement
|
27
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17.17 Legal Counsel
|
27
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17.18 Title to Company Property
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27
|
EXHIBITS
A Definitions
Amended and restated
LIMITED LIABILITY COMPANY AGREEMENT
OF
VIVAOPPORTUNITY
FUND, LLC
This Amended and Restated
Limited Liability Company Agreement, effective as of October 1, 2019 is entered into by and between VivaVentures Management Company,
Inc. (VVMCI), a Nevada corporation, as the manager, and Vivakor, Inc., a Nevada corporation as Initial Member (and with respect
to certain purchase rights of Vivakor as set forth herein), and such other Persons who become Members in accordance with the terms
of this Agreement, pursuant to the Act on the following terms and conditions.
1.
Organization.
1.1
Formation. On December 20, 2018, a Certificate of Formation was filed in the office of the Secretary of State of
the state of Utah in accordance with and pursuant to the Act.
1.2
Name and Place of Business. The name of the Company shall be VivaOpportunity Fund, LLC, and its principal place of
business shall be 433 Lawndale Dr., Salt Lake City, Utah 84115. The Manager may change such name, change such place of business
or establish additional places of business of the Company as the Manager may determine to be necessary or desirable.
1.3
Business and Purpose of the Company. The purpose of the Company is to (i) qualify
as a Qualified Opportunity Fund and participate in the Qualified Opportunity Zone program enacted under the Tax Cuts and Jobs Act,
(ii) acquire, hold and, in the Manager’s sole discretion, dispose of a membership interest in the Venture, act as managing
member of the Venture and (iii) engage in any other activities relating or incidental thereto as may be necessary to accomplish
such purpose and (v) engage in such other activities as determined by the Manager which are allowed under Utah law.
1.4
Term. The term of the Company shall be perpetual unless the Company is sooner dissolved and terminated as provided
in this Agreement.
1.5
Required Filings. The Manager shall execute, acknowledge, file, record, amend and/or publish such certificates and
documents, as may be required by this Agreement or by law in connection with the formation and operation of the Company.
1.6
Registered Office and Registered Agent. The Company’s initial registered office and initial registered agent
shall be as provided in the Certificate of Formation. The registered office and registered agent may be changed from time to time
by the Manager by filing the address of the new registered office and/or the name of the new registered agent pursuant to the Act.
1.7
Certain Transactions. Any Manager, Owner or any Affiliate thereof, or any shareholder, officer, director, employee,
partner, member, manager or any Person owning an interest therein, may engage in or possess an interest in any other business or
venture of any nature or description, whether or not competitive with the Company, including, but not limited to, the operation
of property similar to the Business and no Manager, Owner or any Affiliate, or other Person shall have any interest in such other
business or venture by reason of their interest in the Company.
1.8
Proprietary Information. Notwithstanding anything herein to the contrary, the
Members acknowledge that Vivakor has indicated that Vivakor created, cultivated and owns the tradenames and trademarks relating
to the name “Vivakor” and the proposed business of Vivakor and the Company (the “Proprietary Information”).
The parties agree that Vivakor shall retain the ownership of the Proprietary Information and that in the event VivaVentures
Management Company, Inc. is removed as the Manager, the Company shall no longer use the name
or a similar name.
2.
Definitions. Definitions for this Agreement are set forth on Exhibit A and are incorporated herein.
3.
Capitalization and Financing.
3.1
Manager’s Capital Contribution. Upon the execution of this Agreement by VVMCI, VVMCI contributes to the Company
cash in the amount of One Thousand Dollars ($1,000) in exchange for the Company’s issuance of 1,000 Class A Units to VVMCI
Members’ Capital Contributions.
3.1.1
Initial Member. The Initial Member shall contribute the sum of $100 in cash to the Company, but shall not receive
any Units therefor. On the first business day following the admission of additional Members, the Initial Member’s $100 Capital
Contribution will be returned, and the Initial Member shall cease to be a Member. The Members hereby consent to the Initial Member’s
withdrawal of the Initial Member’s Capital Contribution and waive any right, claim or action they may have against the Initial
Member by reason of the Initial Member having been a Member.
3.1.2
Units. The Company is hereby authorized to sell and issue not more than 2,501,000 units, 1,000 Class A Units at a
purchase price of $1.00, 1,500,000 Class B Units at a purchase price of $5.00 per unit, and 1,000,000 Class C Units at a purchase
price of $7.00, and to admit the Persons who acquire such Units as Members. The minimum purchase of Class B Units and Class C Units
shall be 6,250 units and 7,000 units, except that the Company may, in its sole discretion, sell and issue Units in increments of
less that stated above. In no event shall the Company have more than 480 Owners. The Offering shall terminate on the Offering Termination
Date. The Company will not sell 25% or more of the Units to Employee Benefit Plans.
3.1.3
Payment of Purchase Price. The purchase price of each Unit shall be paid in full in cash at the time of execution
of the Subscription Agreement. Payment of the purchase price for a Unit shall constitute the Member’s initial Capital Contribution.
The investors will be required to certify whether the funds used to acquire the Units have been derived from “eligible gains”
from the investor’s sale of property within the preceding 180 days as required under the Qualified Opportunity Fund provisions.
As described in the Memorandum, Units may be sold to certain Persons for a contribution to the Company that is net of up to 10%
per Unit in the event that the Company is not obligated to pay some or all of the 10% selling commission normally paid to a broker-dealer
in connection with the sale of these Units.
3.1.4
Subscription Agreement. Each Person desiring to acquire Units and become a Member shall tender to the Company a Subscription
Agreement for the number of Units desired, together with the correct full Subscription Payment for the Units so subscribed. The
Company shall accept or reject each Subscription Agreement within 30 days after the Company receives the same (and the failure
by the Company to accept a Subscription Agreement within the 30 day period shall constitute a rejection thereof). If rejected,
all Subscription Payments shall be returned to the subscriber. Acceptance of a Subscription Agreement shall be evidenced by the
execution of the Subscription Agreement by the Manager. Subject to Section 3.2.6, upon the acceptance of a Subscription Agreement,
the accompanying Subscription Payment shall become a Capital Contribution by such subscriber.
3.1.5
Manager and its Affiliates as Member. The Manager and/or its Affiliates may acquire any number of Units for any reason
deemed appropriate by the Manager for the same price and upon the same terms and conditions, subject to Section 3.2.3, as
all other purchasers thereof; provided, however, that the Manager shall not acquire more than 10% of the Units sold (except pursuant
to Section 11). Certain Affiliates of the Manager and their officers and directors may acquire additional Units. In such event,
the Manager or its Affiliates will be admitted to the Company as Members with respect to such Units and will be entitled to all
rights as Members appurtenant thereto, including but not limited to, the right to vote on certain Company matters as provided for
in this Agreement and to receive Distributions and allocations attributable to the Units so purchased. Any interest of the Manager
or its Affiliate as a Member shall be separately designated by listing the Manager or its Affiliate in the roster of Members with
respect to its Units.
3.1.6
Admission of Members. The Manager shall amend this Agreement and take such other action as the Manager deems necessary
or appropriate promptly after receipt of the Members’ Capital Contributions to the Company to reflect the admission of those
Persons to the Company as Members.
3.1.7
Liabilities of Members. Except as specifically provided in this Agreement, neither the Manager nor any Member shall
be required to make any additional contributions to the Company and no Manager or Member shall be liable for the debts, liabilities,
contracts or any other obligations of the Company, by reason of being a Manager or Member of the Company, nor shall the Manager
or the Members be required to lend any funds to the Company or to repay to the Company, the Manager or any Member, or any creditor
of the Company any portion or all of any deficit balance in a Member’s Capital Account.
3.2
Manager Loans. The Manager and its Affiliates may, but will have no obligation to, make loans to the Company. Any
such loan shall bear interest at a rate equal to the lesser of 10% or the maximum interest rate permitted by applicable law and
provide for the payment of principal and any accrued but unpaid interest in accordance with the terms of the promissory note evidencing
such loan, but in no event later than the dissolution of the Company.
3.3
Company Loans. The Company may obtain or assume, in the sole discretion of the Manager, loans to operate or refinance
the Venture and the Business.
3.4
Additional Capital Contributions. The Manager is hereby authorized to cause the Company to issue additional Units
or an additional class of units (the “Additional Interests”) at any time or from time to time, to the Members or to
other Persons for such consideration and on such terms and conditions as shall be established by the Manager in its sole discretion
without approval of the Members. Any Additional Interests issued hereby may be issued in one or more classes, or one or more series
of any such classes, with such designations, preferences and relative, participating, optional or special rights, powers and duties,
including rights, powers and duties senior to any other units, as determined by the Manager in its sole discretion without the
approval of any Member. In the event that any Additional Interests are issued, the Manager shall have the power and authority to
amend this Agreement to reflect the changes applicable to such issuance, including, but not limited to, changes to adjust the Book
Value of the existing Capital Accounts and amending the allocations and Distributions to reflect the issuance of the newly issued
Additional Interests. No Additional Interests may be offered or sold to any Person that does not meet all qualifications under
applicable federal or state securities laws, rules and regulations in order for such offer and sale to qualify as exempt from all
federal and state registration requirements or if such offer or sale would otherwise violate the terms of this Agreement.
4.
Allocation of Tax Items.
4.1
Allocation of Net Income and Net Loss. For each fiscal year, the Net Income and Net Loss of the Company shall be
allocated as follows:
4.1.1
Net Income. After giving effect to the special allocations set forth in Sections 4.2 and 4.3, Net Income for
any fiscal year shall be allocated to each class of unit based on the Net Income from the unit of Equipment funded by that class
of unit. No class of unit will receive Allocations from the operations of any unit of Equipment not funded or associated with that
class of unit. Net Income, subject to certain limitations, will be allocated as follows:
(a)
To the Members until the Net Income allocated to the Members pursuant to this Section 4.1.1(a) for such fiscal year
and all previous fiscal years is equal to the aggregate Net Loss allocated to the Members pursuant to Section 4.1.2(c) for
all previous fiscal years.
4.1.2
Net Loss. After giving effect to the special allocations set forth in Sections 4.2 and 4.3, Net Loss for any
fiscal year shall be allocated to each class of unit based on the Net Loss from the unit of Equipment funded by that class of unit
and then as follows:
(a)
To the Members and the Manager in proportion to and to the extent of Net Income previously allocated to the Members and
the Manager pursuant to Section 4.1.1(c) until the aggregate Net Loss allocated to the Manager and the Members pursuant to
this Section 4.1.2(a) for such fiscal year and all previous fiscal years is equal to the aggregate Net Income allocated to
the Members and the Manager pursuant to Section 4.1.1(c) for all previous fiscal years.
4.2
Special Allocations.
4.2.1
Qualified Income Offset. Except as provided in Section 4.2.3, in the event any Member unexpectedly receives
any adjustments, allocations, or distributions described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5),
or 1.704-1(b)(2)(ii)(d)(6), items of Company income and gain shall be specially allocated to such Member in an amount and manner
sufficient to eliminate, to the extent required by the Treasury Regulations, the Adjusted Capital Account Deficit created by such
adjustment, allocation or distribution as quickly as possible.
4.2.2
Gross Income Allocation. Net Loss shall not be allocated to any Member to the extent such allocation would cause
such Member to have an Adjusted Capital Account Deficit at the end of a fiscal year. In the event any Member has an Adjusted Capital
Account Deficit at the end of any fiscal year, each such Member shall be specially allocated items of Company gross income and
gain in the amount of such Adjusted Capital Account Deficit as quickly as possible.
4.2.3
Minimum Gain Chargeback. Notwithstanding any other provision of this Section 4, if there is a net decrease in
Company Minimum Gain during any Company fiscal year, each Member shall be specially allocated items of Company income and gain
for such year (and, if necessary, subsequent years) in an amount equal to such Member’s share of the net decrease in Company
Minimum Gain, determined in accordance with Treasury Regulations Section 1.704-2(g)(2). This Section 4.2.3 is intended
to comply with the partnership minimum gain chargeback requirement in the Treasury Regulations and shall be interpreted consistently
therewith. This provision shall not apply to the extent the Member’s share of net decrease in Company Minimum Gain is caused
by a guaranty, refinancing or other change in the debt instrument causing it to become partially or wholly recourse debt or Member
Nonrecourse Debt, and such Member bears the economic risk of loss (within the meaning of Treasury Regulations Section 1.752-2)
for the newly guaranteed, refinanced or otherwise changed debt or to the extent the Member contributes cash to the capital of the
Company that is used to repay the Nonrecourse Debt, and the Member’s share of the net decrease in Company Minimum Gain results
from the repayment.
4.2.4
Member Minimum Gain Chargeback. Notwithstanding any other provision of this Section 4, except Section 4.2.3,
if there is a net decrease in Member Minimum Gain, any Member with a share of that Member Minimum Gain (as determined under Treasury
Regulations Section 1.704-2(i)(5)) as of the beginning of the year shall be allocated items of Company income and gain for
such year (and, if necessary, subsequent years) in an amount equal to such Member’s share of the net decrease in Member Minimum
Gain, determined in accordance with Treasury Regulations Section 1.704-2(g)(2). This Section shall not apply to the extent
the net decrease in Member Minimum Gain arises because the liability ceases to be Member Nonrecourse Debt due to conversion, refinancing
or other change in a debt instrument that causes it to become partially or wholly a Nonrecourse Debt. This Section is intended
to comply with the partner minimum gain chargeback requirements in the Treasury Regulations and shall be interpreted consistently
therewith and applied with the restrictions attributable thereto.
4.2.5
Nonrecourse Deductions. Nonrecourse Deductions for any fiscal year or other period shall be allocated to the Members
based on Nonrecourse Deductions pertaining to each class of unit’s unit of Equipment, and then in proportion to their Units
and each Member’s share of excess Nonrecourse Debt shall be in the same proportion.
4.2.6
Member Nonrecourse Deductions. Member Nonrecourse Deductions for any fiscal year shall be allocated to the Member
who bears the economic risk of loss as set forth in Treasury Regulations Section 1.752-2 with respect to the Member Nonrecourse
Debt. If more than one Member bears the economic risk of loss for a Member Nonrecourse Debt, any Member Nonrecourse Deductions
attributable to that Member Nonrecourse Debt shall be allocated among the Members according to the ratio in which they bear the
economic risk of loss.
4.2.7
Code Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any Company asset pursuant
to Code Section 734(b) or Code Section 743(b) is required pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated
as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such
gain or loss shall be specially allocated to the Members in a manner consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to such Section of the Treasury Regulations.
4.3
Curative Allocations. Notwithstanding any other provision of this Agreement, the Regulatory Allocations shall be
taken into account in allocating items of income, gain, loss and deduction among the Members so that, to the extent possible, the
net amount of such allocations of other items and the Regulatory Allocations to each Member shall be equal to the net amount that
would have been allocated to each such Member if the Regulatory Allocations had not occurred.
4.4
Contributed Property. Notwithstanding any other provision of this Agreement, the Manager shall cause depreciation
and/or cost recovery deductions and gain or loss attributable to Property contributed by a Member or revalued by the Company to
be allocated among the Members for income tax purposes in accordance with Code Section 704(c) and the Treasury Regulations
promulgated thereunder.
4.5
Commission Discounts. In the event any Member receives a commission discount as described in Section 3.2.3,
such Member shall be treated upon liquidation of the Company as if such Member had not received a discount and an appropriate income
allocation shall be made to such Member so that all liquidating Distributions to the Members per Unit are equal.
4.6
Recapture Income. The portion of each Member’s distributive share of Net Income that is characterized as ordinary
income pursuant to Code Sections 1245 or 1250 shall be proportionate to the amount of Net Income or Net Loss which included
the corresponding depreciation deductions that were allocated to such Member as compared with the amount of depreciation deductions
allocated to all Members.
4.7
Allocation Among Units. Except as otherwise provided in this Agreement, Distributions and allocations made to the
Members shall be from the unit of Equipment funded by each class of unit, and then in the ratio of the number of Units held by
each Member on the date of such allocation (which allocation date shall be deemed to be the last day of each month) to the total
outstanding units in its class as of such date, and, except as otherwise provided in this Agreement without regard to the number
of days during such month that the units were held by each Member. Members who acquire Units at different times during the Company
tax year shall be allocated Net Income and Net Loss using the monthly convention set forth in Section 4.9.1. For purposes
of this Section 4 and Section 5, an Economic Interest Owner shall be treated as a Member.
4.8
Allocation of Company Items. Except as otherwise provided herein, whenever a proportionate part of Net Income or
Net Loss is allocated to a Member, every item of income, gain, loss or deduction entering into the computation of such Net Income
or Net Loss, and every item of credit or tax preference related to such allocation and applicable to the period during which such
Net Income or Net Loss was realized shall be allocated based on each class of unit’s unit of Equipment, and then to the Member
of that class in the same proportion.
4.9
Assignment.
4.9.1
In the event of the assignment of a Unit, the Net Income and Net Loss shall be allocated as between the Member and its assignee
based upon the number of months of their respective ownership during the year in which the assignment occurs, without regard to
the results of the Company’s operations during the period before or after such assignment. Distributions shall be made to
the holder of record of the Units as of the date of the Distribution. An assignee who receives Units during the first 15 days of
a month will receive any allocations relative to such month. An assignee who acquires Units on or after the 16th day of a
month will be treated as acquiring the Units on the first day of the following month.
4.9.2
In the event of the assignment of the Manager’s interest, the allocations of Net Income or Net Loss shall be as agreed
between the Manager and its assignee. In the absence of an agreement, the Net Income, Net Loss and Distributions shall be allocated
in a manner similar to that provided in Section 4.9.1.
4.10
Power of Manager to Vary Allocations. It is the intent of the Members that each Member’s share of Net Income
and Net Loss be determined and allocated in accordance with Code Section 704(b) and the provisions of this Agreement shall be so
interpreted. Therefore, if the Company is advised by the Company’s legal counsel that the allocations provided in this Section 4
are unlikely to be respected for federal income tax purposes, the Manager is hereby granted the power to amend the allocation provisions
of this Agreement to the minimum extent necessary to comply with Code Section 704(b) and effect the plan of allocations and Distributions
provided for in this Agreement.
4.11
Consent of Members. The allocation methods of Net Income and Net Loss are hereby expressly consented to by each Member
as a condition of becoming a Member.
4.12
Withholding Obligations.
4.12.1
If the Company is required (as determined by the Manager) to make a payment (“Tax Payment”) with respect to
any Member to discharge any legal obligation of the Company or the Manager to make payments to any governmental authority with
respect to any federal, foreign, state or local tax liability of such Member arising as a result of such Member’s interest
in the Company, then, notwithstanding any other provision of this Agreement to the contrary, the amount of any such Tax Payment
shall be deemed to be a loan by the Company to such Member, which loan shall bear interest at the Prime Rate and be payable upon
demand or by offset to any Distribution which otherwise would be made to such Member.
4.12.2
If and to the extent the Company is required to make any Tax Payment with respect to any Member, or elects to make payment
on any loan described in Section 4.12.1 by offset to a Distribution to a Member, either (i) such Member’s proportionate
share of such Distribution shall be reduced by the amount of such Tax Payment or offset or (ii) such Member shall pay to the
Company prior to such Distribution an amount of cash equal to such Tax Payment or offset. In the event a portion of a Distribution
in kind is retained by the Company pursuant to clause (i) above, such retained Property may, in the discretion of the Manager,
either (A) be distributed to the other Members or (B) be sold by the Company to generate the cash necessary to satisfy
such Tax Payment. If the Property is sold, then for purposes of income tax allocations only under this Agreement, any gain or loss
from such sale or exchange shall be allocated to the Member to whom the Tax Payment relates. If the Property is sold at a gain,
and the Company is required to make any Tax Payment on such gain, the Member to whom the gain is allocated shall pay the Company
prior to the due date of the Tax Payment an amount of cash equal to such Tax Payment.
4.12.3
The Manager shall be entitled to hold back any Distribution to any Member to the extent the Manager believes in good faith
that a Tax Payment will be required with respect to such Member in the future and the Manager believes that there will not be sufficient
subsequent Distributions to make such Tax Payment.
4.13
Special Allocation. Notwithstanding the other provisions in this Section 4 (but subject to Section 4.10),
in the year of the sale of the Venture, Net Income and Net Loss from all sources (or gross income or gross expense) shall be allocated,
to the greatest extent possible, so that the positive Capital Account balance of each Member shall be equal to the Distributions
to be made upon liquidation to such Member.
5.
Distributions.
5.1
Cash from Operations. Except as otherwise provided in Section 13, and subject to the Manager’s discretion
pursuant to Section 5.2 and Section 5.3, Cash from Operations with respect to each calendar year shall be distributed to each
class of unit from the unit of Equipment funded by that class of unit. No class of unit will receive Distributions from the operations
of any unit of Equipment not funded or associated with that class of unit. Distributions within each class of unit will be distributed
in the following order of priority:
5.1.1
100% To the Members in proportion to their Net Capital Contributions.
5.2
Restrictions. The Company intends to make periodic Distributions of substantially all cash determined by the Manager
to be distributable, subject to the following (i) Distributions may be restricted or suspended for periods when the Manager
determines in its reasonable discretion that it is in the best interest of the Company and (ii) all Distributions are subject
to the payment, and the maintenance of reasonable reserves for payment of Company obligations.
5.3
Tax Distributions. Notwithstanding the provisions set forth in Section 5.1, the Company may, at the option of
the Manager, make Distributions to the Manager prior to making the Distributions set forth in Section 5.1, to the extent such
Distributions are needed to pay any income taxes associated with allocations of Net Income set forth in Sections 4.1.1(b) and 4.1.1(c)
to the Manager. Any such Distribution shall reduce subsequent Distributions to be made to the Manager pursuant to Section 5.1.
6.
Compensation to the Manager and its Affiliates.
6.1
Manager’s and Affiliates’ Compensation. The Manager and its Affiliates shall receive reimbursement from
the Venture for services rendered only as specified in this Agreement or as set forth in the Memorandum. Any additional agreements
that the Company or the Venture enters into with an Affiliate of the Manager will be at arm’s length, market terms.
6.1.1
The Manager and its Affiliates will be reimbursed by the Venture for all direct costs incurred by the Manager or its Affiliates
when performing services on behalf of the Venture for certain expenses incurred with respect to the Venture or the Business and
for certain indirect costs allocable to the Company.
6.1.2
The Manager will be reimbursed for all reasonable fees and expenses in connection with the pursuit and operation of the
Business.
6.2
Company Expenses.
6.2.1
Operating Expenses. Subject to the limitations set forth in Section 6.2.2,
the Company shall pay directly, or reimburse the Manager as the case may be, for all of the costs and expenses of the Company’s
operations.
6.2.2
Manager Overhead. Except as set forth in this Section 6, the Manager and its Affiliates shall be reimbursed
for overhead expenses incurred in connection with the Company, including but not limited to rent, depreciation, utilities, capital
equipment and other administrative items.
6.2.3
Organization and Offering Expenses. The Manager and not the Company shall be
obligated to pay all Selling Commissions and Expenses to the extent that the payment of such Selling Commissions and Expenses and
all Organization and Offering Expenses exceed the QOF Limitation. The “QOF Limitation” shall mean an amount that would
cause the Company to fail to comply with the 90% asset test under the Qualified Opportunity Fund provisions as a result of the
payment by the Company of the Selling Commissions and Expenses and the Organization and Offering Expenses in connection with the
Offering.
7.
Authority and Responsibilities of the Manager.
7.1
Management. The business and affairs of the Company shall be managed by the Manager. Except as otherwise set forth
in this Agreement, the Manager shall have full and complete authority, power and discretion to manage and control the business,
affairs and properties of the Company, to make all decisions regarding those matters and to perform any and all other acts or activities
customary or incident to the management of the Company’s business.
7.2
Number, Tenure and Qualifications. The Company shall have one Manager, which shall be VivaVentures Management Company,
Inc. The Manager shall hold office until such Manager is removed or withdraws or resigns as set forth in this Agreement.
7.3
Manager Authority. The Manager shall have all authority, rights and powers
conferred by law (subject to Section 7.4 and Section 8.2, if required) and those required or appropriate to the management
of the Company’s business, which, by way of illustration but not by way of limitation, shall include the right, authority
and power to cause the Company, either directly or as a manager, general partner or member of the Venture (including any subsidiary
of the Venture), to:
7.3.1
Acquire, own, hold and dispose of the interest in the Venture and manage the Venture to qualify as a Qualified Opportunity
Zone Property;
7.3.2
Take all actions as the manager of the Venture;
7.3.3
Acquire, hold, operate, sell, exchange and otherwise dispose of the Venture and the Business;
7.3.4
Plan, manage and coordinate the Business, obtain all necessary licenses, permits and entitlements in connection therewith,
and enter into any contracts and agreements with any Affiliates or third parties to perform any services for the Business through
the Venture;
7.3.5
Borrow money, and, if security is required therefor, pledge or mortgage or subject Property to any security device, obtain
replacements of any mortgage or other security device and prepay, in whole or in part, refinance, increase, modify, consolidate
or extend any mortgage or other security device. All of the foregoing shall be on such terms and in such amounts as the Manager,
in its sole discretion, deems to be in the best interest of the Company, the Venture and the Business;
7.3.6
Enter into such contracts and agreements as the Manager determines to be reasonably necessary or appropriate in connection
with the Company’s or the Venture’s business and purpose (including contracts with Affiliates of the Manager), and
any contract of insurance that the Manager deems necessary or appropriate for the protection of the Company, the Venture, the Business
and the Manager, including errors and omissions insurance, for the conservation of the assets of the Company and the Venture, or
for any purpose convenient or beneficial to the Company, the Venture or the Business;
7.3.7
Employ Persons, who may be Affiliates of the Manager, in the operation and management of the business of the Company or
the Venture;
7.3.8
Prepare or cause to be prepared reports, statements and other relevant information for distribution to the Members;
7.3.9
Open accounts and deposit and maintain funds in the name of the Company or the Venture in banks, savings and loan associations,
“money market” mutual funds and other instruments as the Manager may deem in its discretion to be necessary or desirable;
7.3.10
Cause the Company or the Venture to make or revoke any of the elections referred to in the Code (the Manager shall have
no obligation to make any such elections);
7.3.11
Select as the Company’s or the Venture’s accounting year a calendar or fiscal year as may be approved by the
Internal Revenue Service (the Company and the Venture initially intend to adopt the calendar year);
7.3.12
Determine the appropriate accounting method or methods to be used by the Company and the Venture;
7.3.13
In addition to any amendments otherwise authorized herein, amend this Agreement without any action on the part of the Members
by special or general power of attorney or otherwise:
(a)
To add to the representations, duties, services or obligations of the Manager or its
Affiliates, for the benefit of the Members;
(b)
To cure any ambiguity or mistake, to correct or supplement any provision herein that
may be inconsistent with any other provision herein, or to make any other provision with respect to matters or questions arising
under this Agreement that will not be inconsistent with the provisions of this Agreement;
(c)
To amend this Agreement to reflect the addition or substitution of the Members or
the reduction of the Capital Accounts upon the return of capital to the Members;
(d)
To minimize the adverse impact of, or comply with, any final regulation of the United
States Department of Labor, or other federal agency having jurisdiction, defining “plan assets” for ERISA purposes;
(e)
To reconstitute the Company or the Venture under the laws of another state if beneficial;
(f)
To execute, acknowledge and deliver any and all instruments to effectuate the foregoing,
including the execution, acknowledgment and delivery of any such instrument by the attorney-in-fact for the Manager under a special
or limited power of attorney, and to take all such actions in connection therewith as the Manager shall deem necessary or appropriate
with the signature of the Manager acting alone; and
(g)
To make any changes to this Agreement as requested or required by any lender or potential
lender which may be required to obtain financing including, but not limited to, complying with any special purpose entity requirements;
7.3.14
Require in any Company or Venture contract that the Manager shall not have any personal liability, but that the Person contracting
with the Company or the Venture is to look solely to the Company or the Venture and their assets, as applicable, for satisfaction;
7.3.15
Lease personal property for use by the Company or the Venture;
7.3.16
Establish reserves from income in such amounts as the Manager may deem appropriate;
7.3.17
Temporarily invest the proceeds from sale of Units in short-term, highly-liquid investments;
7.3.18
Make secured or unsecured loans to the Company or the Venture and receive interest at the rates set forth herein;
7.3.19
Represent the Company and the Members as the “partnership representative” within the meaning of the Code in
discussions with the Internal Revenue Service regarding the tax treatment of items of Company income, loss, deduction or credit,
or any other matter reflected in the Company’s returns, and to agree to final Company administrative adjustments or file
a petition for a readjustment of the Company items in question with the applicable court;
7.3.20
Offer and sell Units through any licensed Affiliate of the Manager, or licensed non-Affiliate, and to employ licensed personnel,
agents and dealers for such purpose;
7.3.21
Redeem, repurchase or convert Units on behalf of the Company, including by Conversion Right, Call Right or Call Option;
7.3.22
Hold an election for a successor Manager before the resignation, removal or dissolution of the Manager;
7.3.23
Initiate legal actions, settle legal actions and defend legal actions on behalf of the Company or the Venture;
7.3.24
Admit itself or an Affiliate as a Member;
7.3.25
Enter into any limited liability company agreement, partnership agreement or other operating agreement with a joint venture
partner;
7.3.26
Merge or combine the Company or the Venture or “roll-up” the Company or the Venture into a partnership, limited
liability company or other entity with a Majority Vote;
7.3.27
Place all or a portion of the Business in a single purpose or bankruptcy remote entity, or otherwise structure or restructure
the Company and the Venture to accommodate any financing for all or a portion of the Business;
7.3.28
Structure or restructure the Venture to accommodate any financing or to comply with the Qualified Opportunity Zone provisions;
7.3.29
Take any action and perform any acts necessary to qualify the Company as a Qualified Opportunity Fund and the Venture as
a Qualified Opportunity Zone Property in accordance with the provisions of the Tax Cuts and Jobs Act;
7.3.30
Appoint officers of the Company (as set forth in Section 7.10) or the Venture;
7.3.31
Perform any and all other acts which the Manager is obligated to perform hereunder;
and
7.3.32
Execute, acknowledge and deliver any and all instruments to effectuate the foregoing
and all transactions and actions described in, or contemplated by, the Memorandum, and take all such actions in connection therewith
as the Manager may deem necessary or appropriate. Any and all documents or instruments may be executed by the Manager on behalf
of and in the name of the Venture or the Company.
7.4
Restrictions on Manager’s Authority. Neither the Manager nor any of its Affiliates shall have authority, without
a Majority Vote, to:
7.4.1
Enter into contracts with the Company that would bind the Company after the expulsion,
Event of Insolvency, or other cessation to exist of the Manager, or to continue the business of the Company after the occurrence
of such event;
7.4.2
Use or permit any other Person to use Company funds or assets in any manner except
for the exclusive benefit of the Company;
7.4.3
Alter the primary purpose of the Company;
7.4.4
Receive from the Company a rebate or give-up or participate in any reciprocal business
arrangements which would enable the Manager or its Affiliate to do so;
7.4.5
Admit another Person as the Manager, except with the consent of the Members as provided
in this Agreement;
7.4.6
Commingle Company funds with those of any other Person, except for (i) the temporary
deposit of funds in a bank checking account for the sole purpose of making Distributions immediately thereafter to the Members
and the Manager or (ii) funds attributable to the Business and held for use in the management and operations of the Business;
7.4.7
Reinvest Cash From Operations in additional Property;
7.4.8
Cause the Company to loan to the Manager or Affiliates Company assets or employ, or
permit employment of, the funds or assets of the Company in any manner except for the exclusive benefit of the Company; or
7.4.9
Directly or indirectly pay or award any finder’s fees, commissions or other
compensation to any Person engaged by a potential investor for investment advice as an inducement to such advisor to advise the
purchaser regarding the purchase of Units; provided, however, that the Manager shall not be prohibited from paying underwriting
or marketing commissions, or finder’s or referral fees to registered broker-dealers or other properly licensed persons for
its services in marketing Units as provided for in this Agreement.
7.5
Responsibilities of the Manager. The Manager shall:
7.5.1
Have the responsibility for the safekeeping and use of all the funds and assets of
the Company;
7.5.2
Devote such of its time and business efforts to the business of the Company as it
shall in its discretion, exercised in good faith, determine to be necessary to conduct the business of the Company;
7.5.3
File and publish all certificates, statements, or other instruments required by law
for formation, qualification and operation of the Company and for the conduct of its business in all appropriate jurisdictions;
7.5.4
Cause the Company and the Venture to be protected by public liability, property damage
and other insurance determined by the Manager in its discretion to be appropriate to the business of the Company and Venture;
7.5.5
At all times use its best efforts to meet applicable requirements for the Company
to be taxed as a partnership and not as an association taxable as a corporation; and
7.5.6
Amend this Agreement to reflect the admission of the Members not later than 90 days
after the date of admission or substitution.
7.6
Administration of Company. So long as it is the Manager and the provisions of this Agreement for compensation and
reimbursement of expenses of the Manager are observed, the Manager shall have the responsibility of providing continuing administrative
and executive support, advice, consultation, analysis and supervision with respect to the functions of the Company, including decisions
regarding development, manufacture, lease or sale of the Equipment, refinancing and sale, exchange or other disposition of the
Venture, and compliance with federal, state and local regulatory requirements and procedures. In this regard, the Manager may retain
the services of its Affiliates or unaffiliated parties as the Manager may deem appropriate to provide management and financial
consultation and advice, and may enter into agreements for the management and operation of Company assets. The Manager shall have
no other fiduciary or other duties or obligations to the Company or the Members except as set forth in this Agreement.
7.7
Indemnification of the Manager and Officers.
7.7.1
The Manager, its owners, Affiliates, officers, directors, partners, managers, employees,
agents, assigns, principals, trustees and any officers of the Company, shall not be liable for, and shall be indemnified and held
harmless (to the extent of the Company’s Property) from, any loss or damage incurred by them, the Company or the Members
in connection with the business of the Company, including costs, expenses and reasonable attorneys’ fees and any amounts
expended in the settlement of any claims of loss or damage resulting from any act or omission performed or omitted in good faith,
which shall not constitute fraud, gross negligence or willful misconduct, pursuant to the authority granted, to promote the interests
of the Company. The Company shall advance to any Person entitled to indemnification pursuant to this Section such funds as shall
be required to pay legal fees and expenses incurred in defense of any demands, claims or lawsuits as they become due. Moreover,
neither the Manager nor any officer of the Company shall be liable to the Company or the Members because any taxing authorities
disallow or adjust any deductions or credits in the Company’s income tax returns.
7.7.2
Notwithstanding Section 7.7.1, the Company shall not indemnify the Manager, its
owners, Affiliates, officers, directors, partners, managers, employees, agents, assigns, principals, trustees and any officers
of the Company, for liability imposed or expenses incurred in connection with any claim arising out of a violation of the Securities
Act of 1933, or any other federal or state securities law, with respect to the offer and sale of the Units. Indemnification will
be allowed for settlements and related expenses in lawsuits alleging securities law violations, and for expenses incurred in successfully
defending such lawsuits, provided that (i) the applicable party is successful in defending the action, (ii) the indemnification
is specifically approved by the court of law which shall have been advised as to the current position of the Securities and Exchange
Commission (as to any claim involving allegations that the Securities Act of 1933 was violated) or the applicable state authority
(as to any claim involving allegations that the applicable state’s securities laws were violated) or (iii) in the opinion
of counsel for the Company, the right to indemnification has been settled by controlling precedent.
7.7.3
The Members acknowledge that the Manager or its Affiliates may own Units and it shall
not be a breach of any fiduciary duty or fiduciary obligation or any other duty or obligation if the Manager or its Affiliates
votes its Units in its own best interest with respect to any Majority Vote.
7.7.4
Neither the Manager nor any of its Affiliates shall have any obligation to cause the
Company to take any action that would result in personal liability to the Manager, its principals or any of its Affiliates in their
capacity as obligator or guarantor of any loan that is obtained or assumed by the Company, notwithstanding that the failure to
take any such action might result in the total or partial loss of the Company’s interest in some or all of the Company’s
Property. Any action or inaction by the Manager or any of its Affiliates that is intended to avoid personal liability under any
obligation or guaranty related to a loan that is obtained or assumed by the Company will not constitute a breach of any fiduciary
or other duty that the Manager or its Affiliates may owe the Company or the Members.
7.8
No Personal Liability for Return of Capital. The Manager shall not be personally liable or responsible for the return
or repayment of all or any portion of the Capital Contribution of any Member or any loan made by any Member to the Company, it
being expressly understood that any such return of capital or repayment of any loan shall be made solely from the assets (which
shall not include any right of contribution from any Member) of the Company.
7.9
Authority as to Third Persons.
7.9.1
No third party dealing with the Company shall be required to investigate the authority
of the Manager or officers of the Company or secure the approval or confirmation by any Member of any act of the Manager in connection
with the Company’s business. No purchaser of any Property owned by the Company shall be required to determine the right to
sell or the authority of the Manager to sign and deliver any instrument of transfer on behalf of the Company, or to see to the
application or distribution of revenues or proceeds paid or credited in connection therewith.
7.9.2
The Manager shall have full authority to execute on behalf of the Company any and
all agreements, contracts, conveyances, deeds, mortgages and other instruments, and the execution thereof by the Manager, executing
on behalf of the Company shall be the only execution necessary to bind the Company thereto. Any officer appointed by the Manager
pursuant to Section 7.10 shall have full authority to execute on behalf of the Company any agreements, contracts, conveyances,
deeds, mortgages and other instruments, to the extent such authority is delegated by the Manager to such officer, and the execution
thereof by such officer, executing on behalf of the Company shall be the only execution necessary to bind the Company thereto.
No signature of any Member shall be required.
7.9.3
The Manager shall have the right by separate instrument or document to authorize one
or more Persons to execute leases and lease-related documents on behalf of the Company and any leases and documents executed by
such agent shall be binding upon the Company as if executed by the Manager.
7.10
Officers of the Company.
7.10.1
The Manager, in its sole discretion, may appoint officers of the Company at any time.
The officers of the Company, if appointed by resolution of the Manager, may include a president, vice president, secretary, and
treasurer. The officers shall serve at the pleasure of the Manager. Any individual may hold any number of offices. The Manager’s
officers may serve as officers of the Company if appointed by resolution of the Manager. The officers shall exercise such powers
and perform such duties as determined and authorized by the Manager.
7.10.2
Any officer may be removed, either with or without cause, by the Manager at any time.
Any officer may resign at any time by giving written notice to the Manager. Any resignation shall take effect at the date of the
receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance
of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of
the Company under any contract to which the officer is a party.
8.
Rights, Authority and Voting of the Members.
8.1
Members Are Not Agents. Pursuant to Section 7, the management of the Company is vested in the Manager. No Member,
acting solely in the capacity of a Member, is an agent of the Company nor can any Member in such capacity bind nor execute any
instrument on behalf of the Company.
8.2
Voting by the Members. To the extent that holders of Units in the Company are provided with the right to vote hereunder
or as required under the Act, Members shall be entitled to cast one vote for each Unit they
own. Except as otherwise specifically provided in this Agreement, Members (but not Economic Interest Owners) with the right to
vote shall have the right to vote only upon the following matters:
8.2.1
Removal of the Manager as provided in Section 9.2;
8.2.2
Admission of the Manager or election to continue the business of the Company after
the Manager ceases to be the Manager when there is no remaining Manager;
8.2.3
Amendment of this Agreement (unless otherwise provided for herein);
8.2.4
Any merger or combination of the Company or roll-up of the Company; and
8.2.5
Election to continue the business of the Company as set forth in Section 13.1.2.
8.3
Member Vote; Consent of Manager. Except for the Majority Votes required pursuant to Sections 8.2.1, 8.2.2, 8.2.5,
8.4.3, 9.1, 9.2, 9.3, 9.4, 10.1, 10.1.3, 10.1.4 and 13.3 or as specifically provided in this Agreement which provisions shall only
require a Majority Vote, matters upon which the Members may vote shall require a Majority Vote and the consent of the Manager to
pass and become effective.
8.4
Meetings of the Members. The Manager may at any time call for a meeting of the Members, or for a vote without a meeting,
on matters on which the Members are entitled to vote, and shall call for such a meeting (but not a vote without a meeting) following
receipt of a written request therefor of Members holding more than 10% of the Units entitled to vote as of the record date. Within
20 days after receipt of such request, the Manager shall notify all Members of record on the record date of the Company meeting.
8.4.1
Notice. Written notice of each meeting shall be given to each Member entitled to vote, either personally, by mail
or other means of written communication, charges prepaid, addressed to such Member at its address appearing on the books of the
Company or given by it to the Company for the purpose of notice or, if no such address appears or is given, at the principal executive
office of the Company, or by publication of notice at least once in a newspaper of general circulation in the county in which such
office is located. All such notices shall be sent not less than 10, nor more than 60, days before such meeting. The notice shall
specify the place, date and hour of the meeting and the general nature of business to be transacted, and no other business shall
be transacted at the meeting.
8.4.2
Adjourned Meeting and Notice Thereof. When a Members’ meeting is adjourned to another time or place, notice
need not be given of the subsequent meeting if the time and place thereof are announced at the meeting at which the adjournment
is taken. At the subsequent meeting, the Company may transact any business which might have been transacted at the original meeting.
If the adjournment is for more than 45 days or if after the adjournment a new record date is fixed for the subsequent meeting,
a notice of the subsequent meeting shall be given to each Member of record entitled to vote at the meeting.
8.4.3
Quorum. The presence in person or by proxy of the Persons entitled to vote a majority of the Units shall constitute
a quorum for the transaction of business. The Members present at a duly called or held meeting at which a quorum is present may
continue to transact business until adjournment notwithstanding the withdrawal of enough Members to leave less than a quorum, if
any action taken (other than adjournment) is approved by at least a Majority Vote or such greater vote as may be required by this
Agreement or by law. In the absence of a quorum, any meeting of Members may be adjourned from time to time by the vote of a majority
of the Units represented either in person or by proxy, but no other business may be transacted, except as provided above.
8.4.4
Consent of Absentees. The transactions of any meeting of Members, however called and noticed and wherever held, are
as valid as though they occurred at a meeting duly held after regular call and notice, if a quorum is present either in person
or by proxy, and if, either before or after the meeting, each of the Persons entitled to vote, not present in person or by proxy,
signs a written waiver of notice, or a consent to the holding of the meeting or an approval of the minutes thereof. All waivers,
consents and approvals shall be filed with the Company records or made a part of the minutes of the meeting.
8.4.5
Action Without Meeting. Except as otherwise provided in this Agreement, any action which may be taken at any meeting
of the Members may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by the
Manager and Members having not less than the minimum number of votes that would be necessary to authorize or take that action at
a meeting at which all entitled to vote thereon were present and voted. In the event the Members are requested to consent on a
matter without a meeting, the Manager and each Member shall be given not less than 10, nor more than 60, days’ notice. In
the event the Manager or Members representing more than 10% of the Units, request a meeting for the purpose of discussing or voting
on the matter, the notice of a meeting shall be given in the same manner as required by Section 8.4.1 and no action shall
be taken until the meeting is held. Unless delayed as a result of the preceding sentence, any action taken without a meeting will
be effective 5 days after the required minimum number of voters have signed the consent; however, the action will be effective
immediately if the Manager and Members representing at least 80% of the Units have signed the consent.
8.4.6
Record Dates. For purposes of determining the Members entitled to notice of any meeting or to vote or entitled to
receive any Distributions or to exercise any rights in respect of any other lawful matter, the Manager (or Members representing
more than 10% of the Units if the meeting is being called at their request) may fix in advance a record date, which is not more
than 60 nor less than 10 days prior to the date of the meeting nor more than 60 days prior to any other action. If no record date
is fixed:
(a)
The record date for determining Members entitled to notice of or to vote at a meeting of Members shall be at the close of
business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business
on the business day next preceding the day on which the meeting is held;
(b)
The record date for determining Members entitled to give consent to Company action in writing without a meeting shall be
the day on which the first written consent is given;
(c)
The record date for determining Members for any other purpose shall be at the close of business on the day on which the
Manager adopts it, or the 60th day prior to the date of the other action, whichever is later; and
(d)
A determination of Members of record entitled to notice of or to vote at a meeting of Members shall apply to any adjournment
of the meeting unless the Manager, or the Members who requested the meeting fix a new record date for the adjourned meeting, but
the Manager, or such Members, shall fix a new record date if the meeting is adjourned for more than 45 days from the date
set for the original meeting.
8.4.7
Proxies. Every Person entitled to vote or execute consents shall have the right to do so either in person or by one
or more agents authorized by a written proxy executed by such Person or its duly authorized agent and filed with the Manager. No
proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every
proxy continues in full force and effect until revoked as specified or unless it states that it is irrevocable. A proxy which states
that it is irrevocable is irrevocable for the period specified therein.
8.4.8
Chairman of Meeting. The Manager may select any Person to preside as chairman of any meeting of the Members, and
if such Person shall be absent from the meeting, or fail or be unable to preside, the Manager may name any other Person in substitution
therefor as chairman. The chairman of the meeting shall designate a secretary for such meeting, who shall take and keep or cause
to be taken and kept minutes of the proceedings thereof. The conduct of all Members’ meetings shall at all times be within
the discretion of the chairman of the meeting and shall be conducted under such rules as the chairman may prescribe. The chairman
shall have the right and power to adjourn any meeting at any time, without a vote of the Units present in person or represented
by proxy, if the chairman shall determine such action to be in the best interests of the Company.
8.4.9
Inspectors of Election. In advance of any meeting of Members, the Manager may appoint any Persons other than nominees
for the Manager as the inspector of election to act at the meeting and any adjournment thereof. If an inspector of election is
not so appointed, or if any such Person fails to appear or refuses to act, the chairman of any such meeting may, and on the request
of any Member or its proxy shall, make such appointment at the meeting. The inspector of election shall determine the number of
Units outstanding and the voting power of each, the Units represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, receive votes, ballots or consents, hear and determine all challenges and questions in any way
arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine
the result and do such acts as may be proper to conduct the election or vote with fairness to all Members.
8.4.10
Record Date and Closing Company Books. When a record date is fixed, only Members of record on that date are entitled
to notice of and to vote at the meeting or to receive a Distribution, or allotment of rights, or to exercise the rights, as the
case may be, notwithstanding any transfer of any Units on the books of the Company after the record date.
8.5
Rights of Members. No Owner shall have the right or power to: (i) withdraw or reduce its contribution to the
capital of the Company, except as a result of the dissolution and termination of the Company or as otherwise provided in this Agreement
or by law, (ii) bring an action for partition against the Company or (iii) demand or receive property other than cash
in return for its Capital Contribution. Except as provided in this Agreement, no Owner shall have priority over any other Owner
either as to the return of Capital Contributions or as to allocations of the Net Income, Net Loss or Distributions of the Company.
Other than upon the termination and dissolution of the Company as provided by this Agreement, there has been no time agreed upon
when the contribution of each Owner (other than the Initial Member) is to be returned.
8.6
Restrictions on the Owners. No Owner shall:
8.6.1
Disclose to any non-Owner other than their lawyers, accountants or consultants and/or commercially exploit any of the Company’s
business practices, trade secrets or any other information not generally known to the business community, including the identity
of suppliers utilized by the Company;
8.6.2
Do any other act or deed with the intention of harming the business operations of the Company; or
8.6.3
Do any act contrary to this Agreement.
8.7
Return of Capital of the Members. In accordance with the Act, an Owner may, under certain circumstances, be required
to return to the Company, for the benefit of the Company’s creditors, amounts previously distributed to the Owner. If any
court of competent jurisdiction holds that any Owner is obligated to make any such payment, such obligation shall be the obligation
of such Owner and not of the Company, the Manager or any other Owner.
8.8
Indemnification of the Members. The Company shall indemnify, protect, defend and hold harmless the Members, in their
capacity as Members (as opposed to the Manager which is indemnified pursuant to Section 7.7 in its capacity as the Manager),
and their shareholders, Affiliates, officers, directors, partners, managers, members, employees, agents and its and their respective
successors and assigns (each an “Indemnified Party”), from and against any loss, liability, damage, cost or expense
(including reasonable legal fees and expenses incurred in defense of any demands, claims or lawsuits) arising from actions or omissions
concerning business or activities undertaken by or on behalf of the Company from any source. The Company shall advance to any Person
entitled to indemnification pursuant to this Section such funds as shall be required to pay reasonable legal fees and expenses
incurred in defense of any demands, claims or lawsuits as they become due. Notwithstanding the foregoing, if the claim for indemnification
is in connection with an action against the Company, or against another Indemnified Party by the Person requesting the indemnification,
the Company shall have no such obligation to advance any funds for the payment of legal fees and expenses. The obligations contained
herein shall survive the termination or expiration of the Agreement until such time as an action against the Members is absolutely
barred by the statute of limitations.
8.9
Deemed Approval. Whenever a Majority Vote is required in this Agreement, the Company shall provide the Members with
notice of such required vote, and the Members shall have 15 days after the date such notice is sent by the Company to approve or
disapprove of the matter. If a Member does not disapprove of such matter within the 15 day specified response period described
above, the Member shall be deemed to have voted in accordance with the vote recommended by the Manager.
9.
Resignation, Withdrawal or Removal of the Manager.
9.1
Resignation or Withdrawal of Manager. Subject to Section 10, the Manager shall not resign or withdraw as the
Manager or do any act that would require its resignation or withdrawal without a Majority Vote.
9.2
No Removal. A Manager may not be removed as a manager by the Members.
9.3
Purchase of Manager’s Interest. Upon the removal of the Manager pursuant to Section 9.2 or its withdrawal
with the approval of a Majority Vote, (i) the removed Manager’s interest in the Distributions and allocations of Net
Income and Net Loss set forth in this Agreement and (ii) its interest in its right to the earned but unpaid fees and other
compensation remaining to be paid under this Agreement, shall be purchased by the Company for a purchase price equal to the aggregate
fair market value of the Manager’s interest determined according to the provisions of Section 9.4; provided, however,
that in the event the Manager is removed as a result of fraud, gross negligence or willful misconduct as determined by a final,
non-appealable decision of a court of competent jurisdiction, the purchase price shall be reduced by any damages caused by any
such fraud, gross negligence or willful misconduct. The purchase price of such interest shall be paid by the Company to the Manager
in cash within 30 days of the determination of the aggregate fair market value.
9.4
Purchase Price of the Manager’s Interest. The fair market value of the Manager’s interest to be purchased
by the Company pursuant to Section 9.3 shall be determined by agreement between the Manager and the Company, which agreement
is subject to approval by a Majority Vote. For this purpose, the fair market value of the interest of the terminated Manager shall
be computed as the present value of the future amount which could reasonably be expected to be realized by such Manager upon the
sale of the Company’s assets in the ordinary course of business at the time of removal, including any Units held by the Manager
or its Affiliates. If the Manager and the Company cannot agree upon the fair market value of such Company interest within 30 days,
the fair market value thereof shall be determined by appraisal, the Company and the terminated Manager each to choose one appraiser
and the 2 appraisers so chosen to choose a third appraiser. The decision of a majority of the appraisers as to the fair market
value of such Company interest shall be final and binding and may be enforced by legal proceedings. The terminated Manager and
the Company shall each compensate the appraiser appointed by it and the compensation of the third appraiser shall be borne equally
by such parties.
10.
Assignment of the Manager’s Interest.
10.1
Permitted Assignments. Subject to Section 10.4 and except as otherwise provided in this Agreement, the Manager may
not sell or otherwise transfer any part or all of its interest in the Company except with a Majority Vote. If the Members consent
to the transfer, the interest may only be sold to the proposed transferee within the time period approved by the Members, or within
90 days of such consent on the proposed terms and price, if later. All costs of the transfer, including reasonable attorneys’
fees (if any), shall be borne by the transferring Manager. Notwithstanding the above, the Manager may encumber its interest without
the consent of the Members.
10.1.1
Any assignment or transfer of the Manager’s interest provided for by this Agreement can be an assignment or transfer
of all of its interest or any portion or part of its interest.
10.1.2
Any transfer of all or a part of the Manager’s interest may be made only pursuant to the terms and conditions contained
in this Section 10.
10.1.3
Any such assignment shall be by a written instrument of assignment, the terms of which are not in contravention of any of
the provisions of this Agreement, and which has been duly executed by the assignee of the Manager’s interest and accepted
by the Members pursuant to a Majority Vote.
10.1.4
The assignor and assignee shall have executed, acknowledged, and delivered such other instruments as the Members pursuant
to a Majority Vote, may deem necessary or desirable to effect such substitution of any such proposed transfer, and which shall
include the written acceptance and adoption by the assignee of the provisions of this Agreement.
10.2
Substitute Manager. Upon acceptance by the Members of an assignment by the Manager, any assignee of the Manager’s
interest in compliance with this Section 10 shall be substituted as the Manager.
10.3
Transfer in Violation Not Recognized. Any assignment, sale, exchange or other transfer in contravention of the provisions
of this Section 10 shall be void and ineffectual and shall not bind or be recognized by the Company.
10.4
Transfers to Affiliates. Notwithstanding the above, the Manager may assign all or any part of its interest in the
Company to an Affiliate without the consent of the Members.
11.
Assignment of Units.
11.1
Permitted Assignments. A Member may only sell, assign, hypothecate, encumber or otherwise transfer any part (but
not less than the lesser of (i) one Unit or (ii) the Member’s entire interest in the Company) or all of its Units
if the following requirements are satisfied:
11.1.1
The Manager, in its sole discretion, consents in writing to the transfer;
11.1.2
No Owner shall sell, transfer, assign or convey or offer to transfer, assign or convey all or any portion of a Unit to any
Person who does not possess the financial qualifications required of all Persons who become Members, as described in the Memorandum;
11.1.3
No Member shall have the right to transfer any Unit to any minor or to any Person who, for any reason, lacks the capacity
to contract for himself under applicable law. Such limitations shall not, however, restrict the right of any Member to transfer
any one or more Units to a custodian or a trustee for a minor or other Person who lacks such contractual capacity;
11.1.4
The Manager, with advice of counsel, must determine that such transfer will not jeopardize the applicability of the exemptions
from the registration requirements under the Securities Act of 1933, and registration
or qualification under state securities laws relied upon by the Company and Manager in offering and selling the Units or otherwise
violate any federal or state securities laws;
11.1.5
The Manager, with advice of counsel, must determine that, despite such transfer, Units will qualify for one of the safe
harbors described in the Treasury Regulations related to the publicly traded partnership rules and will not cause the Company’s
Units to be deemed to be “traded on an established securities market” or “readily tradable on a secondary market
(or the substantial equivalent thereof)” under the provisions applicable to publicly traded partnership status. In making
this determination, the Manager shall be entitled to limit any transfers so that the transfers comply with one of the safe harbors
in the Treasury Regulations; provided, however that the Manager may, in its sole discretion and upon receipt of an opinion from
counsel that the Company will not be treated as a publicly traded partnership for federal income tax purposes, permit transfers
that do not qualify for one of the safe harbors;
11.1.6
Any such transfer shall be by a written instrument of assignment, the terms of which are not in contravention of any of
the provisions of this Agreement, and which has been duly executed by the assignor of such Units and accepted by the Manager in
writing. Upon such acceptance by the Manager, such an assignee shall take subject to all terms of this Agreement and shall become
an Economic Interest Owner;
11.1.7
A transfer fee shall be paid by the transferring Member in such amount as may be required by the Manager to cover all reasonable
expenses, including attorneys’ fees and lender’s fees, connected with such assignment;
11.1.8
The transfer will not result in Employee Benefit Plans owning 25% or more of the Units;
11.1.9
The transfer will not result in more than 1,950 Owners; and
11.1.10
The transfer will not cause a default with respect to any financing obtained by the Company or the Venture.
11.2
Substituted Member.
11.2.1
Conditions to be Satisfied. No Economic Interest Owner shall have the right to become a Substituted Member unless
the Manager shall consent thereto in accordance with Section 11.2.2 and all of the following conditions are satisfied:
(a)
A duly executed and acknowledged written instrument of assignment shall have been filed with the Company, which instrument
shall specify the number of Units being assigned and set forth the intention of the assignor that the assignee succeed to the assignor’s
interest as a Substituted Member in its place;
(b)
The assignor and assignee shall have executed, acknowledged and delivered such other instruments as the Manager may deem
necessary or desirable to effect such substitution, which may include an opinion of counsel regarding the effect and legality of
any such proposed transfer, and which shall include: (i) the written acceptance and adoption by the assignee of the provisions
of this Agreement and (ii) the execution, acknowledgment and delivery to the Manager of a special power of attorney, the form
and content of which are more fully described herein; and
(c)
A transfer fee sufficient to cover all reasonable expenses (including legal and lender fees and expenses, if applicable)
connected with such substitution shall have been paid to the Company.
11.2.2
Consent of Manager. The consent of the Manager shall be required to admit an Economic Interest Owner as a Substituted
Member. The granting or withholding of such consent shall be within the sole discretion of the Manager.
11.2.3
Consent of Members. By executing or adopting this Agreement, each Member hereby consents to the admission of additional
or Substituted Members, and to any Economic Interest Owner becoming a Substituted Member upon consent of the Manager and in compliance
with this Agreement.
11.3
Rights of Economic Interest Owner. An Economic Interest Owner shall be entitled to receive Distributions from the
Company attributable to the Units acquired by reason of such assignment from and after the effective date of the assignment; provided,
however, that notwithstanding anything herein to the contrary, the Company shall be entitled to treat the assignor of such Units
as the absolute owner thereof in all respects, and shall incur no liability for allocations of Net Income and Net Loss or Distributions,
or for the transmittal of reports or other information until the written instrument of assignment has been received by the Company
and recorded on its books. The effective date of such assignment shall be the date on which all of the requirements of this Section
have been complied with, subject to Section 4.9.
11.4
Right to Inspect Books. Economic Interest Owners shall have no right to inspect the Company’s books or records,
to vote on Company matters based on the voting rights attributable to the their class of unit, or to exercise any other right or
privilege as Members, until they are admitted to the Company as Substituted Members except as required by the Act.
11.5
Transfer Subject to Law. No assignment, sale, transfer, exchange or other disposition of any Units may be made except
in compliance with the applicable governmental laws and regulations, including state and federal securities laws.
11.6
Transfer in Violation Not Recognized. Any assignment, sale, transfer, exchange or other disposition in contravention
of the provisions of this Section 11 shall be void and ineffectual and shall not bind or be recognized by the Company.
11.7
Conversion to Economic Interest. Upon the transfer of a Unit in violation of this Agreement, the Membership Interest
of a Member shall be converted into an Economic Interest.
11.8
Conversion of Units. As of the 10th anniversary of the Offering Termination
Date (the “Conversion Determination Date”), each Member shall have the right to convert its respective Units
held into shares of Vivakor (the “Conversion Right”). Within 30 days of the Conversion Determination Date, the Manager
shall provide notice to the Members of the fair market value of the Units as of the Conversion Determination Date (the “Conversion
FMV”). The Manager shall make the determination of the Conversion FMV based on the amount that the Members and Manager would
have received if the Company’s assets were sold on the Conversion Determination Date, all Company liabilities paid and the
remaining amount distributed to the Members and Manager pursuant to Section 5.1. In addition, as information only, the Manager
shall provide the Members with the then current value of the shares of Vivakor (Other OTC: VIVK). Each Member shall have 30 days
from receipt of the Conversion FMV to provide written notice to the Company of their election to exercise the Conversion Right
with respect to the Units held by such Member (the “Conversion Right Election Notice”). Within 15 days after the expiration
of the 30 day period described above (the “Conversion Closing Date”), a Members who delivered a Conversion Right Election
Notice shall have their Units converted into shares of Vivakor. The number of shares in Vivakor received will be based on the 30-day
average share price of Vivakor (determined on the 30 days prior to the Conversion Closing Date) discounted by 20%. All conversions
shall comply with all state and federal securities laws and requirements.
11.9
Call Option. As of the day after the Conversion Closing Date and each June
30 and December 31 thereafter (each such date, a “Call Option Exercise Date”), Vivakor shall have the right to purchase
any Units owned by the Members who did not exercise the Conversion Right set forth in Section 11.8 (the “Call Option”).
Within 15 days of the Call Option Exercise Date, Vivakor shall provide the Members with written notice of its election to exercise
the Call Option. The fair market value of the Units to be acquired by Vivakor pursuant to the Call Option shall be the Conversion
FMV. The purchase of any Units to be acquired pursuant to this Section 11.9 shall be made within 30 days of the Call Option Exercise
Date (the “Call Option Closing Date”). Vivakor shall pay to the Members having their Units purchased pursuant
to this Section 11.9 the Conversion FMV in cash on the Call Option Closing Date. Each of
the Members grants to the Manager a special power of attorney in accordance with Section 14 to take all action as may be necessary
or appropriate to transfer or sell such Member’s Units as provided in this Section 11.9.
11.10
Call Right. Notwithstanding anything to the contrary in this Agreement, at
any time following 10 years after the Offering Termination Date, the Manager shall have the right (the “Call Right”),
in its sole discretion, to require all of the Members to sell their Units in the Company to a third-party purchaser pursuant to
a sale, transfer, assignment, exchange or other disposition (a “Transfer”), which the Manager believes is in the best
interest of the Company or to provide or increase the tax benefits to the Members under the Qualified Opportunity Fund provisions.
If the Manager elects to exercise the Call Right pursuant to this Section 11.10, then the Manager shall send a written notice to
each Member specifying the terms of the Transfer and the date on which the closing is anticipated to occur (the “Call Right
Closing”), which date shall not be earlier than 10 business days nor later than 60 business days from the date that such
notice is delivered to the Members. At the Call Right Closing, each Member shall transfer and assign to the purchaser all of its
Units (or Percentage Interests, as applicable) in the Company free and clear of any encumbrances and shall execute and deliver
to the purchaser any and all documentation reasonably required in order to effectuate the Transfer of the Units (or Percentage
Interests, as applicable). Each of the Members grants to the Manager a special power of attorney in accordance with Section 14
to take all action as may be necessary or appropriate, including the execution of applicable documents, to transfer or sell such
Member’s Units as provided in this Section 11.10.
12.
Books, Records, Accounting and Reports.
12.1
Records. The Company shall maintain at its principal office the Company’s records and accounts of all operations
and expenditures of the Company including the following:
12.1.1
A current list of the name and last known business, residence or mailing address of each Owner and the Manager;
12.1.2
A copy of the Certificate of Formation and all amendments thereto, together with any powers of attorney pursuant to which
the Certificate of Formation or any amendments thereto were executed;
12.1.3
Copies of the Company’s federal, state and local income tax or information returns and reports, if any, for the 6
most recent fiscal years;
12.1.4
Copies of this Agreement and any amendments thereto together with any powers of attorney pursuant to which any written accounting
or any amendments thereto were executed;
12.1.5
Copies of any financial statements of the Company, if any, for the 6 most recent years; and
12.1.6
The Company’s books and records, but not Member information, as they relate to the internal affairs of the Company
for at least the current and past 4 fiscal years.
12.2
Delivery to Members and Inspection. Subject to limitations set forth in this Section 12.2 and Sections 12.5
and 12.6, each Member, or its representative designated in writing, has the right, upon reasonable written request for purposes
reasonably related to the interest of that Person as a Member, which purposes are set forth in the written request, to receive
from the Company:
12.2.1
True and full information regarding the status of the business and financial condition of the Company;
12.2.2
Promptly after becoming available, a copy of the Company’s federal, state and local income tax returns for each year;
12.2.3
A current list of the name and last known business, residence or mailing address of each Owner and the Manager;
12.2.4
A copy of this Agreement and the Certificate of Formation and all amendments thereto, together with executed copies of any
written powers of attorney pursuant to which this Agreement and the Certificate of Formation and all amendments thereto have been
executed; and
12.2.5
True and full information regarding the amount of cash and a description and statement of the agreed value of any property
or services contributed by each Owner and which each Owner has agreed to contribute in the future, and the date on which each became
an Owner.
12.3
Reports. The Manager will cause the Company, at the Company’s expense, to prepare an annual report containing
a year-end balance sheet and income statement. Copies of such statements shall be distributed to each Member within 120 days after
the close of each fiscal year of the Company.
12.4
Tax Information. The Manager shall cause the Company, at the Company’s expense, to prepare and timely file
income tax returns for the Company with the appropriate authorities, and shall cause all Company information necessary in the preparation
of the Owners’ individual income tax returns to be distributed to the Owners not later than 90 days after the end of the
Company’s fiscal year. The Manager shall also distribute a copy of the Company’s tax return to a Member, if requested
by such Member.
12.5
Confidentiality. The Manager shall have the right to keep confidential from the Owners, for such period of time as
the Manager deems reasonable, any information which the Manager reasonably believes to be in the nature of trade secrets or other
information the disclosure of which the Manager in good faith believes is not in the best interest of the Company or could damage
the Company or its business or which the Company is required by law or by agreement with a third party to keep confidential.
12.6
Limitations. Notwithstanding Section 12.5, the Manager, in its sole discretion, may restrict receipt of the
information identified in Section 12.2, if the Manager reasonably believes that disclosure of such information is not in the
best interest of the Company or could damage the Company or its business or the requesting Member’s reason for obtaining
the applicable information is, in the Manager’s sole discretion, related to the Member’s individual purposes and not
for a Company purpose. In no event shall the Manager be required to provide any Member with access to any personal information
with respect to the Owners, including, but not limited to, the names, addresses, email addresses and phone numbers of the Owners.
12.7
Partnership Audit Rules.
12.7.1
The Manager shall be the “partnership representative” for purposes of Code Sections 6223 and 6231 and shall,
at the Company’s expense, cause to be prepared and timely filed after the end of each taxable year of the Company all federal
and state income tax returns required of the Company for such taxable year. If any state or local tax law provides for a partnership
representative or Person having similar rights, powers, authority or obligations, the Manager shall also serve in such capacity.
12.7.2
If any audit adjustment results in an underpayment of tax that is imputed to the Company and would be assessed and collected
at the Company level in the period that the adjustment becomes final, the Company may, in the sole discretion of the Manager, elect:
(a)
to pay an imputed underpayment as calculated under Code Section 6225(b) with respect to such adjustment, including interest,
penalties and related tax (“Imputed Underpayment”) in the Adjustment Year or otherwise take the Internal Revenue Service
adjustment into account in the Adjustment Year. The Manager shall use commercially reasonable efforts to reduce the amount of such
Imputed Underpayment on account of the tax-exempt status (as defined in Code Section 168(h)(2)) of any Members as provided in Code
Section 6225(c)(3). Each Member agrees to indemnify and hold harmless the Company and the Manager from and against any liability
with respect to the Member’s proportionate share of any Imputed Underpayment, regardless of whether such Member is a Member
in the Adjustment Year, and to promptly pay its proportionate share of any Imputed Underpayment to the Company within 15 days following
the Manager’s request for payment and any amount that is not funded shall be treated as a Tax Payment under Section 4.12.1.
Each Member’s (or former Member’s) proportionate share shall be determined by the Manager in good faith taking into
account each Member’s (or former Member’s) particular status, including its tax-exempt or non-United States status,
its interest in the Company in the Reviewed Year, and its timely provision of information necessary to reduce the amount of Imputed
Underpayment set forth in Code Section 6225(c); or
(b)
under Code Section 6226(a), to cause the Company to issue adjusted Schedule K-1s or any other similar statement prescribed
by the Code, Treasury Regulations or other administrative guidance published by the Internal Revenue Service or other taxing authority
to each applicable Member for the Reviewed Year, who will then be required to pay their allocable share of tax otherwise attributable
to the Company. Each Member hereby agrees and consents to such election and agrees to take any action, and furnish the Manager
with any information necessary to give effect to such election, as required by such Code Section and applicable Treasury Regulations
or other administrative guidance published by the Internal Revenue Service or other taxing authority.
13.
Termination and Dissolution of the Company.
13.1
Termination of Company. The Company shall be dissolved, shall terminate and its assets shall be disposed of, and
its affairs wound up upon the earliest to occur of the following:
13.1.1
Upon the happening of any event of dissolution specified in the Certificate of Formation;
13.1.2
The occurrence of a Dissolution Event unless the business of the Company is continued by the consent of the remaining Members
within 90 days following the occurrence of the event;
13.1.3
A determination by the Manager to terminate the Company;
13.1.4
Upon the entry of a decree of judicial dissolution; or
13.1.5
The sale of the Venture.
13.2
Certificate of Cancellation. As soon as possible following the occurrence of any of the events specified in Section 13.1,
the Manager who has not wrongfully dissolved the Company or, if none, the Members, shall execute a Certificate of Cancellation
in such form as shall be required by the Act.
13.3
Liquidation of Property. Upon a dissolution and termination of the Company, the Manager (or in case there is no Manager,
the Members or Person designated by a Majority Vote) shall take full account of the Company Property and liabilities, shall liquidate
the Property as promptly as is consistent with obtaining the fair market value thereof, and shall apply and distribute the proceeds
therefrom in the following order:
13.3.1
To the payment of creditors of the Company but excluding secured creditors whose obligations will be assumed or otherwise
transferred on the liquidation of Company Property;
13.3.2
To the setting up of any reserves as required by law for any liabilities or obligations of the Company; provided, however,
that said reserves shall be deposited with a bank or trust company in escrow at interest for the purpose of disbursing such reserves
for the payment of any of the aforementioned contingencies and, at the expiration of a reasonable period, for the purpose of distributing
the balance remaining in accordance with the remaining provisions of this Section 13.3; and
13.3.3
To the Owners as set forth in Section 5.1, which is intended to be in proportion to their positive Capital Account
balances as of the date of such Distribution, after giving effect to all Capital Contributions, Distributions and allocations for
all periods, including the period during which such Distribution occurs.
13.4
Distributions Upon Dissolution. Each Member shall look solely to the assets of the Company for all Distributions
and its Capital Contributions, and shall have no recourse therefor (upon dissolution or otherwise) against any Manager or any Member.
No Member shall be required to restore any deficit in the Member’s Capital Account.
13.5
Liquidation of Member’s Interest. If there is a Liquidation of a Member’s or Manager’s interest
in the Company, any liquidating Distribution pursuant to such Liquidation shall be made only to the extent of the positive Capital
Account balance, if any, of such Member or Manager for the taxable year during which such Liquidation occurs after proper adjustments
for allocations and Distributions for such taxable year up to the time of Liquidation. Such Distributions shall be made by the
end of the taxable year of the Company during which such Liquidation occurs, or if later, within 90 days after such Liquidation.
14.
Special and Limited Power of Attorney.
14.1
Power of Attorney. The Manager shall at all times during the term of the Company have a special and limited power
of attorney as the attorney-in-fact for each Member, with power and authority to act in the name and on behalf of each such Member
to execute, acknowledge, and swear to in the execution, acknowledgment and filing of documents which are not inconsistent with
the provisions of this Agreement and which may include, by way of illustration but not by way of limitation, the following:
14.1.1
This Agreement, as well as any amendments to the foregoing which, under the laws of the state of Utah or the laws of any
other state, are required to be filed or which the Manager shall deem it advisable to file;
14.1.2
Any other instrument or document that may be required to be filed by the Company under the laws of any state or by any governmental
agency or which the Manager shall deem it advisable to file;
14.1.3
Any instrument or document that may be required to affect the continuation of the Company, the admission of Substituted
Members, or the dissolution and termination of the Company (provided such continuation, admission or dissolution and termination
are in accordance with the terms of this Agreement);
14.1.4
Any contract for purchase or sale of real estate, and any deed, deed of trust, mortgage, or other instrument of conveyance
or encumbrance, with respect to Property;
14.1.5
Any and all other instruments as the Manager may deem necessary or desirable to affect the purposes of this Agreement and
carry out fully its provisions, including, but not limited to, those in Section 16; and
14.1.6
Take all actions under Sections 11.9 and 11.10.
14.2
Provision of Power of Attorney. The special and limited power of attorney of the Manager:
14.2.1
Is a special power of attorney coupled with the interest of the Manager in the Company, and its assets, is irrevocable,
shall survive the death, incapacity, termination or dissolution of the granting Member, and is limited to those matters herein
set forth;
14.2.2
May be exercised by the Manager by and through one or more of the officers of the Manager for each of the Members by the
signature of the Manager acting as attorney-in-fact for all of the Members, together with a list of all Members executing such
instrument by their attorney-in-fact or by such other method as may be required or requested in connection with the recording or
filing of any instrument or other document so executed; and
14.2.3
Shall survive an assignment by a Member of all or any portion of its Units except that, where the assignee of the Units
owned by the Member has been approved by the Manager for admission to the Company as a Substituted Member, the special power of
attorney shall survive such assignment for the sole purpose of enabling the Manager to execute, acknowledge and file any instrument
or document necessary to effect such substitution.
14.3
Notice to Members. The Manager shall promptly furnish to a Member a copy of any amendment to this Agreement executed
by the Manager pursuant to a power of attorney from the Member.
15.
Relationship of this Agreement to the Act. Many of the terms of this Agreement are intended to alter or extend
provisions of the Act as they may apply to the Company or the Members. Any failure of this Agreement to mention or specify the
relationship of such terms to provisions of the Act that may affect the scope or application of such terms shall not be construed
to mean that any of such terms is not intended to be a limited liability company agreement provision authorized or permitted by
the Act or which in whole or in part alters, extends or supplants provisions of the Act as may be allowed thereby.
16.
Amendment of Agreement.
16.1
Admission of Member. Amendments to this Agreement for the admission of any Member or Substituted Member shall not,
if in accordance with the terms of this Agreement, require the consent of any Member.
16.2
Amendments with Consent of Member. In addition to any amendments otherwise
authorized herein, this Agreement may be amended by the Manager without the consent of the Members other than with respect to any
amendments that affect any material or economic rights of the Members which shall require a Majority Vote.
16.3
Amendments Without Consent of the Members. In addition to the amendments authorized
pursuant to Section 4.10 and Section 7.3.13 or otherwise authorized herein, the Manager may amend this Agreement, without
the consent of any of the Members, to (i) change the name and/or principal place of business of the Company, (ii) decrease
the rights and powers of the Manager (so long as such decrease does not impair the ability of the Manager to manage the Company
and conduct its business and affairs), (iii) comply with, and maximize the benefits to the Members under, the Qualified Opportunity
Fund provisions, (iv) reflect any guidance issued by the Internal Revenue Service after the date of this Agreement with respect
to the Qualified Opportunity Fund provisions, (v) structure the disposition of the Units by the Members to comply with the
Qualified Opportunity Fund provisions and (vi) qualify the Company as a Qualified Opportunity Fund and maintain the Company’s
compliance in accordance with the Qualified Opportunity Fund provisions; provided, however, that no amendment shall be adopted
pursuant to (i) or (ii) above unless the adoption thereof (A) is for the benefit of or not adverse to the interests of the
Members and (B) does not affect the limited liability of the Members.
16.4
Execution and Recording of Amendments. Any amendment to this Agreement shall be executed by the Manager, and by the
Manager as attorney-in-fact for the Members pursuant to the power of attorney contained in Section 14. After the execution
of such amendment, the Manager shall also prepare and record or file any certificate or other document which may be required to
be recorded or filed with respect to such amendment, either under the Act or under the laws of any other jurisdiction in which
the Company holds any Property or otherwise does business.
17.
Miscellaneous.
17.1
Counterparts. This Agreement may be executed in several counterparts, and all so executed shall constitute one Agreement,
binding on all of the parties hereto, notwithstanding that all of the parties are not signatory to the original or the same counterpart.
17.2
Successors and Assigns. The terms and provisions of this Agreement shall be binding upon and shall inure to the benefit
of the successors and assigns of the respective Members.
17.3
Severability. In the event any sentence or Section of this Agreement is declared by a court of competent jurisdiction
to be void, such sentence or Section shall be deemed severed from the remainder of this Agreement and the balance of this
Agreement shall remain in full force and effect.
17.4
Notices. All notices under this Agreement shall be in writing and shall be given to the Member or Economic Interest
Owner entitled thereto, by personal service or by mail, posted to the address maintained by the Company for such Person or at such
other address as it may specify in writing.
17.5
Manager’s Address. The name and address of the Manager is as follows:
VivaVentures Management Company,
Inc.
2 Park Plaza, Suite 800
Irvine, CA 92614
17.6
Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the state of Utah.
17.7
Captions. Section titles or captions contained in this Agreement are inserted only as a matter of convenience
and reference. Such titles and captions in no way define, limit, extend or describe the scope of this Agreement nor the intent
of any provisions hereof.
17.8
Gender. Whenever required by the context hereof, the singular shall include the plural, and vice versa, the masculine
gender shall include the feminine and neuter genders, and vice versa.
17.9
Time. Time is of the essence with respect to this Agreement.
17.10
Additional Documents. Each Member, upon the request of the Manager, shall perform any further acts and execute and
deliver any documents which may be reasonably necessary to carry out the provisions of this Agreement, including, but not limited
to, providing acknowledgment before a Notary Public of any signature made by a Member.
17.11
Descriptions. All descriptions referred to in this Agreement are expressly incorporated herein by reference as if
set forth in full, whether or not attached hereto.
17.12
Binding Arbitration. Except as provided in Section 9.2, any controversy arising out of or related to this Agreement
or the breach thereof or an investment in the Units shall be settled by arbitration in Salt Lake City, Utah, in accordance with
the rules of The American Arbitration Association, and judgment entered upon the award rendered may be enforced by appropriate
judicial action. The arbitration panel shall consist of one member, which shall be the mediator if mediation has occurred or shall
be a Person agreed to by each party to the dispute within 30 days following notice by one party that such party desires that a
matter be arbitrated. If there was no mediation and the parties are unable within such 30 day period to agree upon an arbitrator,
then the panel shall be one arbitrator selected by the Salt Lake City office of The American Arbitration Association, which arbitrator
shall be experienced in the area of real estate and limited liability companies and who shall be knowledgeable with respect to
the subject matter area of the dispute. The losing party shall bear any fees and expenses of the arbitrator, other tribunal fees
and expenses, reasonable attorney’s fees of both parties, any costs of producing witnesses and any other reasonable costs
or expenses incurred by it or the prevailing party or such costs shall be allocated by the arbitrator. The arbitration panel shall
render a decision within 30 days following the close of presentation by the parties of their cases and any rebuttal. The parties
shall agree within 30 days following selection of the arbitrator to any prehearing procedures or further procedures necessary for
the arbitration to proceed, including interrogatories or other discovery; provided, in any event each Member shall be entitled
to discovery.
17.13
Attorneys’ Fees. In the event that litigation is commenced to enforce any of the provisions of this Agreement,
to recover damages for breach of any of the provisions of this Agreement, or to obtain declaratory relief in connection with any
of the provisions of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys’ fees and costs,
whether or not such action proceeds to judgment. The prevailing party shall be determined by either the officiating judge in the
matter or by the presiding judge of the Salt Lake City, Utah Superior Court.
17.14
Venue. Any action relating to or arising out of this Agreement shall be brought only in a court of competent jurisdiction
located in Salt Lake City, Utah.
17.15
Partition. The Members agree that the assets of the Company are not and will not be suitable for partition. Accordingly,
each of the Members hereby irrevocably waives any and all rights that it may have, or may obtain, to maintain any action for partition
of any of the assets of the Company.
17.16
Integrated and Binding Agreement. This Agreement contains the entire understanding and agreement among the Members
with respect to the subject matter hereof, and there are no other agreements, understandings, representations or warranties among
the Members other than those set forth herein and in the Subscription Agreement. This Agreement may be amended only as provided
in this Agreement.
17.17
Legal Counsel. Each Member acknowledges and agrees that counsel representing the Company, the Manager and its Affiliates
does not represent and shall not be deemed under the applicable codes of professional responsibility to have represented or to
be representing any or all of the Members, other than the Manager and its Affiliates (if applicable), in any respect. In addition,
each Member consents to the Manager hiring counsel for the Company which is also counsel to the Manager.
17.18
Title to Company Property. All Property owned by the Company shall be owned by the Company as an entity and, insofar
as permitted by applicable law, no Member shall have any ownership interest in any Company Property in its individual name or right,
and each Member’s membership interest shall be personal property for all purposes.
IN WITNESS WHEREOF,
this Agreement is effective as of the date first set forth in the preamble.
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MANAGER:
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VivaVentures Management Company, Inc., a Nevada corporation
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By: /s/ Matt Nicosia
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Name: Matt Nicosia,
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Title: President
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INITIAL MEMBER:
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Vivakor, Inc., a Nevada corporation, as the Initial Member and
with respect to the rights set forth in Section 11.8 and 11.9.
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By: /s/ Matt Nicosia
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Name: Matt Nicosia
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Title: Chief Executive Officer
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[Signature Page to LLC Agreement of VivaOpportunity
Fund, LLC]
EXHIBIT A
DEFINITIONS
“Act” shall
mean the Utah Limited Liability Company Act, as the same may be amended from time to time.
“Additional Interests”
shall have the meaning set forth in Section 3.5.
“Adjusted Capital
Account Deficit” shall mean, with respect to any Member, the deficit balance, if any, in such Member’s Capital Account
as of the end of the relevant fiscal year, after giving effect to the following adjustments:
(i)
Credit to such Capital Account any amounts which the Member is obligated to restore and the Member’s share of Member
Minimum Gain and Company Minimum Gain; and
(ii)
Debit to such Capital Account the items described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5),
and 1.704-1(b)(2)(ii)(d)(6).
“Adjustment Year”
shall have the meaning set forth in Code Section 6225(d)(2).
“Affiliate”
shall mean (i) any Person directly or indirectly controlling, controlled by or under common control with another Person, (ii) a
Person owning or controlling 10% or more of the outstanding voting securities of such other Person and (iii) any officer,
director or partner of such other Person and if such other Person is an officer, director or partner, any company for which
such Person acts in any capacity.
“Agreement”
shall mean this Amended and Restated Limited Liability Company Agreement, as amended from time to time.
“Book Gain”
shall mean the excess, if any, of the fair market value of the Property over its adjusted basis for federal income tax purposes
at the time a valuation of the Property is required under this Agreement or Treasury Regulations Section 1.704-1(b) for
purposes of making adjustments to the Capital Accounts.
“Book Loss”
shall mean the excess, if any, of the adjusted basis of Property for federal income tax purposes over its fair market value at
the time a valuation of the Property is required under this Agreement or Treasury Regulations Section 1.704-1(b) for
purposes of making adjustments to the Capital Accounts.
“Book Value”
shall mean the adjusted basis of Property for federal income tax purposes increased or decreased by Book Gain, Book Loss, Built-In
Gain and Built-In Loss as reduced by depreciation, amortization or other cost recovery deductions, or otherwise, based on such
Book Value.
“Built-In Gain
(or Loss)” shall mean the amount, if any, by which the agreed value of contributed Property exceeds (or is lesser than) the
adjusted basis of Property contributed to the Company by a Member immediately after its contribution by the Member to the capital
of the Company.
“Business”
shall mean to (i) qualify as a Qualified Opportunity Fund and participate in the Qualified
Opportunity Zone program enacted under the Tax Cuts and Jobs Act, (ii) acquire, hold and, in the Manager’s sole discretion,
dispose of a membership interest in the Venture, act as managing member of the Venture and (iii) engage in any other activities
relating or incidental thereto as may be necessary to accomplish such purpose and (v) engage in such other activities as determined
by the Manager which are allowed under Utah law.
“Call
Option” shall have the meaning set forth in Section 11.9.
“Call
Option Closing Date” shall have the meaning set forth in Section 11.9.
“Call
Option Exercise Date” shall have the meaning set forth in Section 11.9.
“Call
Right” shall have the meaning set forth in Section 11.10.
“Call
Right Closing” shall have the meaning set forth in Section 11.10.
“Capital Account”
with respect to any Member (or such Member’s assignee) shall mean such Member’s initial Capital Contribution adjusted
as follows:
(i)
A Member’s Capital Account shall be increased by:
(a)
such Member’s share of Net Income from the unit of Equipment funded by the Member’s class of unit;
(b)
any item of income or gain specially allocated to a Member and not included in Net Income or Net Loss;
(c)
any additional cash Capital Contribution made by such Member to the Company; and
(d)
the fair market value of any additional Capital Contribution, as determined by the Manager, consisting of property contributed
by such Member to the capital of the Company reduced by any liabilities assumed by the Company in connection with such contribution
or to which the Property is subject.
(ii)
A Member’s Capital Account shall be reduced by:
(a)
such Member’s share of Net Loss from the unit of Equipment funded by the Member’s class of unit;
(b)
any loss or deduction specially allocated to a Member and not included in Net Income or Net Loss;
(c)
any cash Distribution made to such Member; and
(d)
the fair market value, as determined by the Manager, of any Property (reduced by any liabilities assumed by the Member in
connection with the Distribution or to which the distributed Property is subject) distributed to such Member; provided that, upon
liquidation and winding up of the Company, unsold Property will be valued for Distribution at its fair market value and the Capital
Account of each Member before such Distribution shall be adjusted to reflect the allocation of gain or loss that would have been
realized had the Company then sold the Property for its fair market value. Such fair market value shall not be less than the amount
of any nonrecourse indebtedness that is secured by the Property.
Property other than
money may not be contributed to the Company except as specifically provided in this Agreement. Property of the Company may not
be revalued for purposes of calculating Capital Accounts unless the Manager determines the fair market value of the Property and
the Company complies with the requirements of Treasury Regulations Section 1.704-1(b)(2)(iv)(f) and (g); provided, however,
for purposes of calculating Book Gain or Book Loss (but not for purposes of adjusting Capital Accounts to reflect the contribution
and distribution of such Property), the fair market value of Property shall be deemed to be no less than the outstanding balance
of any nonrecourse indebtedness secured by such Property.
The Capital Account
of a Substituted Member shall include the Capital Account of its transferor. Notwithstanding anything to the contrary in this Agreement,
the Capital Accounts shall be maintained in accordance with Treasury Regulations Section 1.704-1(b). For purposes of this
Agreement, any references to the Treasury Regulations shall include corresponding subsequent provisions.
“Capital Contribution”
shall mean the gross amount invested in the Company by a Member and shall be equal in amount to the cash purchase price paid by
such Member for the Units sold to the Member by the Company. In the plural, “Capital Contributions” shall mean the
aggregate amount invested by all of the Members in the Company and shall equal, in total, the sum of the amount attributable to
the purchase of Units and the contributions of the Manager.
“Cash From Operations”
shall mean the net cash realized by a class of unit from all sources, including, but not limited to, the operations of the class
of unit, and also including the sale, exchange or transfer of the Venture or Business, after payment of all cash expenditures of
the Company, including, but not limited to, all operating expenses including all fees payable to the Manager or Affiliates, all
payments of principal and interest on indebtedness, expenses for repairs and maintenance, capital improvements and replacements,
and such reserves and retentions as the Manager reasonably determines to be necessary and desirable in connection with Company
operations with its then existing assets and any anticipated acquisitions.
“Certificate
of Cancellation” shall mean the certificate of cancellation filed with the Office of the Secretary of State of the state
of Utah.
“Certificate
of Formation” shall mean the Certificate of Formation of the Company as filed with the office of the Secretary of State of
the state of Utah as the same may be amended or restated from time to time.
“Code”
shall mean the Internal Revenue Code of 1986, as amended, or corresponding provisions of subsequently enacted federal revenue laws.
“Company”
shall mean VivaOpportunity Fund, LLC.
“Company Minimum
Gain” shall have the same meaning as “partnership minimum gain” as set forth in Treasury Regulations Section 1.704-2(d).
“Conversion Closing
Date” shall have the meaning set forth in Section 11.8.
“Conversion Determination
Date” shall have the meaning set forth in Section 11.8.
“Conversion FMV”
shall have the meaning set forth in Section 11.8.
“Conversion Right”
shall have the meaning set forth in Section 11.8.
“Conversion Right
Election Notice” shall have the meaning set forth in Section 11.8.
“Dissolution
Event” shall mean with respect to the Manager one or more of the following: the death, insanity, withdrawal, retirement,
resignation, expulsion, Event of Insolvency or dissolution (unless reconstituted by the Manager) of the Manager unless the Members
consent to continue the business of the Company pursuant to Section 8.2.5.
“Distribution”
shall mean any money or other property transferred without consideration (other than repurchased Units) to Members or Owners with
respect to the unit of Equipment funded by the Member’s class of unit, and then their interests or Units in that class of
unit.
“Economic Interest”
shall mean an interest in the Net Income, Net Loss and Distributions associated with the unit of Equipment funded by a certain
class of unit but shall not include any right to vote or to participate in the management of the Company.
“Economic Interest
Owner” shall mean the owner of an Economic Interest who is not a Member.
“Employee Benefit
Plan” shall have the meaning set forth in Section 3(3) of the Employee Retirement Income Security Act of 1974.
“Equipment”
shall mean one unit of equipment that mines oil from oil sand and other materials.
“Event of Insolvency”
shall occur when an order for relief against the Manager is entered under Chapter 7 of the federal bankruptcy law, or (a) the
Manager: (i) makes a general assignment for the benefit of creditors, (ii) files a voluntary petition under the federal
bankruptcy law, (iii) files a petition or answer seeking for that Manager a reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute, law or regulation, (iv) files an answer or other pleading admitting
or failing to contest the material allegations of a petition filed against the Manager in any proceeding of this nature or (v) seeks,
consents to, or acquiesces in the appointment of a trustee, receiver, or liquidator of that Manager or of all or a substantial
part of that Manager’s properties or (b) the expiration of 60 days after either (i) the commencement of any
proceeding against the Manager seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any statute, law, or regulation, if the proceeding has not been dismissed or (ii) the appointment without the
Manager’s consent or acquiescence of a trustee, receiver, or liquidator of the Manager or of all or any substantial part
of the Manager’s properties, if the appointment has not been vacated or stayed (or if within 60 days after the expiration
of any such stay, the appointment is not vacated).
“Impound Release
Date” shall have the meaning set forth in Section 3.2.9.
“Imputed Underpayment”
shall have the meaning set forth in Section 12.7.2(a).
“Indemnified
Party” shall have the meaning set forth in Section 8.8.
“Initial Member”
shall mean Vivakor, Inc., a Nevada corporation.
“Interest”
shall mean a Membership Interest or an Economic Interest.
“Liquidation”
shall mean in respect to the Company the date upon which the Company ceases to be a going concern (even though it may exist for
purposes of winding up its affairs, paying its debts and distributing any remaining balance to its Members), and in respect to
a Member where the Company is not in Liquidation shall mean the date upon which occurs the termination of the Member’s entire
interest in the Company by means of a Distribution or the making of the last of a series of Distributions (whether or not made
in more than one year) to the Member by the Company.
“Majority Vote”
shall mean the vote of more than 50% of the Units entitled to vote held by the Members (but
not the Economic Interest Owners), to the extent that holders of Units in the Company
are provided with the right to vote hereunder or as required under the Act, then in which case, Members
shall be entitled to cast one vote for each Unit they own, and a fractional vote for each fractional Unit they own.
“Manager”
shall mean VivaVentures Management Company, Inc., a Nevada corporation. The term “Manager”
shall also refer to any successor or additional Manager who is admitted to the Company as the Manager.
“Member”
shall mean any holder of a Unit who is admitted to the Company as a Member, including the Manager to the extent it has acquired
Units.
“Member Minimum
Gain” shall mean “partner nonrecourse debt minimum gain” as determined under Treasury Regulations Section 1.704-2(i)(3).
“Member Nonrecourse
Debt” shall mean “partner nonrecourse debt” as set forth in Treasury Regulations Section 1.704-2(b)(4).
“Member Nonrecourse
Deductions” shall mean “partner nonrecourse deductions” and the amount thereof shall be as set forth in Treasury
Regulations Section 1.704-2(i).
“Membership Interest”
shall mean a Member’s entire interest in the Company including such Member’s Economic Interest and such voting and
other rights and privileges that the Member may enjoy by being a Member pertaining to the Member’s class of unit.
“Memorandum”
shall mean the Confidential Private Placement Memorandum pertaining to the Offering distributed to potential purchasers of Units,
as may be amended or supplemented from time to time.
“Net
Capital Contribution” shall mean the Members original Capital Contribution reduced by any Distribution to the Members pursuant
to Section 5.1.1.
“Net Income”
or “Net Loss” shall mean, respectively, for each taxable year of the Company the taxable income and taxable loss (exclusive
of Built-In Gain or Loss) of the unit of equipment associated with each class of unit as determined for federal income tax purposes
in accordance with Code Section 703(a) (including all items of income, gain, loss, or deduction required to be separately
stated pursuant to Code Section 703(a)(1)) (other than any specific item of income, gain (exclusive of Built-In Gain), loss
(exclusive of Built-In Loss), deduction or credit subject to special allocation under this Agreement), with the following modifications:
(i)
The amount determined above shall be increased by any income from the unit of equipment associated with each class of unit
exempt from federal income tax;
(ii)
The amount determined above shall be reduced by any expenditures in relation to the unit of equipment associated with each
class of unit as described in Code Section 705(a)(2)(B) or expenditures treated as such pursuant to Treasury Regulations
Section 1.704-1(b)(2)(iv)(i);
(iii)
Depreciation, amortization and other cost recovery deductions shall be computed based on Book Value instead of on the amount
determined in computing taxable income or loss. Any item of deduction, amortization or cost recovery specially allocated to a Member
and not included in Net Income or Net Loss shall be determined for Capital Account purposes for their individual class of unit
in a similar manner; and
(iv)
For purposes of this Agreement, Book Gain and Book Loss attributable to a revaluation of Property attributable to unrealized
gain or loss in such Property shall be treated as Net Income and Net Loss.
“Nonrecourse
Debt” shall have the meaning set forth in Treasury Regulations Section 1.704-2(b)(3).
“Nonrecourse
Deductions” shall have the meaning, and the amount thereof shall be, as set forth in Treasury Regulations Section 1.704-2(c).
“Offering”
shall mean the offering and sale of the Units made in accordance with the provisions of Section 3.1.2.
“Offering Termination
Date” shall mean the date the Offering of Units will terminate, which is the earliest of (i) All Units are sold pertaining
to their cost and class of unit (the “Maximum Offering Amount”), (ii) the Company terminates the Offering at an earlier
date in the Manager’s sole discretion.
“Organization
and Offering Expenses” shall mean all expenses incurred in connection with the organization and formation of the Company,
the preparation of the Offering materials, and the marketing and sale of the Units, including but not limited to legal, accounting,
tax planning fees, promotional fees or expenses, filing and recording fees, market research and surveys, property inspections and
research, engineering services, printing costs, securities sales commissions, travel expenses and other costs or expenses incurred
in connection therewith.
“Owner”
shall mean a Member or the holder of an Economic Interest.
“Person”
shall mean a natural person, corporation, limited partnership, general partnership, joint stock company, joint venture, association,
company, trust, bank trust company, land trust, business trust, statutory trust or other organization, whether or not a legal entity,
and a government or agency or political subdivision thereof.
“Plant Manager”
shall mean Vivakor.
“Prime Rate”
shall mean the reference rate announced from time-to-time by the Wall Street Journal, and changes in the Prime Rate shall be deemed
to occur on the date that changes in such rate are announced.
“Property”
shall mean any or all of such real and tangible or intangible personal property or properties as may be acquired by the Company
or the Venture, including the Business.
“Proprietary
Information” shall have the meaning set forth in Section 1.8.
“QOF
Limitation” shall have the meaning set forth in Section 6.2.3.
“Qualified
Opportunity Fund” shall have the meaning set forth in Section 1400Z-2(d) of the Code.
“Qualified
Opportunity Zone” shall have the meaning set forth in Section 1400Z-1(a) of the Code.
“Qualified
Opportunity Zone Property” shall have the meaning set forth in Section 1400Z-2(d) of the Code.
“Regulatory Allocations”
shall mean the allocations set forth in Sections 4.2.1 through 4.2.7.
“Reviewed Year”
shall have the meaning set forth in Code Section 6225(d)(1).
“Selling
Commissions and Expenses” shall mean the aggregate amount of selling commissions, allowances, expense reimbursements and
placement fees paid to the managing broker-dealer (which it may reallow in whole or in part to broker-dealers) as provided in connection
with the Offering.
“Subscription
Agreement” means the agreement, in the form attached to the Memorandum, by which each Person desiring to become a Member
shall evidence (i) the number of Units which such Person wishes to acquire, (ii) such Person’s agreement to become
a party to, and be bound by the provisions of, this Agreement and (iii) certain representations regarding the Person’s
finances and investment intent.
“Subscription
Payment” shall mean the cash payment that must accompany each subscription for Units sold through the Offering.
“Substituted
Member” shall mean any Person admitted as a substituted Member pursuant to this Agreement.
“Tax
Cuts and Jobs Act” shall mean the Tax Cuts and Jobs Act of 2017 and the administrative interpretations and rulings thereunder.
“Tax Payment”
shall have the meaning set forth in Section 4.12.1.
“Transfer”
shall have the meaning set forth in Section 11.10.
“Unit”
means a unit of measurement by which a Member’s right to vote (as applicable) and to participate
in Net Income, Net Loss, Nonrecourse Deductions and Distributions shall be determined in accordance with the terms of this Agreement.
“Unit(s)” may be designated as Class A Units, Class B Units, or Class C Units. Except as otherwise provided in this
Agreement or as otherwise required by applicable law, all Class A Units, Class B Units, and Class C units will be identical in
all respects and will entitle the holders of such Units to the same rights and privileges, subject to the same qualifications,
limitations and restrictions, except that, in the case of Class B Units and Class C Units, holders of Class B Units and Class C
Units will not be entitled to vote on any matter except to the extent otherwise required under the Act. Notwithstanding
any other provision of this Agreement, Class A Units, Class B Units, and Class C Units may not be subdivided (by Unit split or
distribution of Units), combined or reclassified unless the Units of the other class of Units are concurrently therewith proportionately
subdivided (by Unit split or distribution of Units), combined or reclassified in a manner that maintains the same proportionate
equity ownership (and same proportionate voting power, as applicable) among the holders of Class A Units, Class B Units, and Class
C Units on the record date for such subdivision (by Unit split or distribution of Units), combination or reclassification.
“Venture”
shall mean RPC Design and Manufacturing LLC, a Utah limited liability company, of which the Company is the managing member.
“Vivakor”
shall mean Vivakor, Inc., a Nevada corporation.
Exhibit - 10.26
AGREEMENT REGARDING ASSETS
This AGREEMENT REGARDING ASSETS (this “Agreement”)
is entered into as of December 3, 2018, by and among VivaSphere, Inc., a Nevada corporation, (“VivaSphere”), Vivakor,
Inc. (“Vivakor”), Quantumsphere Inc. (“Quantumsphere”), and Novus Capital Group, LLC (“Novus”).
RECITALS
Quantumsphere and Novus are parties to a
Loan and Security Agreement dated as of June 19, 2014 (as amended, restated, or otherwise modified from time to time, the “Loan
Agreement”) under which Novus obtained a security interest in substantially all of Quantumsphere’s assets. Quantumsphere
and Vivakor are parties to an Equipment Purchase and Sale Agreement dated as of September 5, 2017, pursuant to which Vivakor purchased
certain property set forth on Exhibit A hereto and made a part hereof (the “Assets”) from Quantumsphere. Vivakor
has asked Novus to consent to that sale, and Novus has agreed to do so, on the terms of this Agreement. Vivakor intends to Dispose
(as defined below) of the Assets to VivaSphere.
AGREEMENT
NOW, THEREFORE, the parties agree as follows:
1. Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below:
“Business Day”
means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the laws of, or
are in fact closed in, the State of Nevada.
“Disposition”
or “Dispose” means the sale, transfer, license, lease or other disposition of any property, or part thereof,
with or without recourse.
“Net Cash Proceeds”
means with respect to any Disposition (other than the Disposition of the Assets from Vivakor to VivaSphere), an amount equal to
the cash proceeds received by VivaSphere (or any affiliate thereof) from or in respect of such Disposition (including deferred
payments and cash proceeds of any non-cash proceeds of such transaction), less (a) any out-of-pocket expenses that are reasonably
incurred by VivaSphere (or any affiliate thereof) in connection therewith (including, without limitation, legal, accounting and
other professional fees, sales commissions, fees and charges), and (b) any taxes paid or reasonably estimated by VivaSphere (or
any affiliate thereof) to be payable by VivaSphere (or any affiliate thereof) in respect of such Disposition, any portion of such
proceeds deposited in an escrow account pursuant to the documentation relating to a Disposition and any portion of such proceeds
which VivaSphere (or any affiliate thereof) determines in its reasonable business judgment should be reserved for post-closing
adjustments and indemnities with respect to such Disposition.
“Vivakor Obligation”
means all costs and expenses of VivaSphere and Vivakor incurred in the ordinary course of business connection with the holding,
development, deployment, mobilization and Disposition of the Assets including, without limitation, the principal and interest under
any intercompany notes by VivaSphere in favor of Vivakor.
2.
Novus consents to the Disposition of all or any part of the Assets (a) from Quantumsphere to Vivakor, and (b) from Vivakor
to VivaSphere; provided Novus retains its security interest in the Assets on the terms of this Agreement.
3.
As of the date hereof, Quantumsphere owes Novus $[334,775] under the Loan Agreement (the “Novus Obligation”).
Quantumsphere acknowledges that the Novus Obligation is due in full to Novus, and Quantumsphere has no defense or offset against
its obligation to pay the Novus Obligation to Novus in full. The Novus Obligation shall remain outstanding under this Agreement
as an obligation of VivaSphere, and by executing and delivering this Agreement, VivaSphere hereby acknowledges and confirms that
VivaSphere shall become liable to pay and perform and does hereby assume and agree to pay and perform, the Novus Obligation. For
the avoidance of doubt, no interest on the Novus Obligation shall accrue from the date hereof. Novus agrees and acknowledges that
as of the date of this Agreement the Vivakor Obligation equals $[71,842] and that the Vivakor Obligation may increase from time
to time. Novus acknowledges that the Vivakor Obligation is due in full to Vivakor by VivaSphere.
4.
As security for the payment of the Novus Obligation, VivaSphere hereby grants to, assigns and creates in favor of Novus,
a security interest under the Uniform Commercial Code as adopted in the State of Nevada (the “Code”) in and to any
and all present and future right, title and interest of VivaSphere in all rights, priorities and privileges relating to the Assets
of VivaSphere, whether arising under United States or foreign laws or otherwise, wherever located, whether now owned or hereafter
acquired or created. VivaSphere hereby authorizes Novus to file Uniform Commercial Code financing statements naming VivaSphere
as debtor and Novus as secured party and describing the Assets, together with proper amendments and continuation statements related
thereto.
5.
Novus consents to the Disposition of all or any part of the Assets by VivaSphere. If VivaSphere Disposes of any Assets which
results in Net Cash Proceeds in connection with such Disposition, VivaSphere shall pay to Novus an aggregate principal amount of
the Novus Obligation equal to 50% of such Net Cash Proceeds promptly after receipt thereof, until payment in full of the Novus
Obligation. Concurrently with the Disposition of any Assets, Novus shall release its security interest in the Assets subject to
such Disposition.
6.
VivaSphere shall pay the entire unpaid balance of the Novus Obligation in full on the first anniversary of the date hereof.
If any payment on this Agreement is due on a day that is not a Business Day, such payment shall be due on the next succeeding Business
Day. VivaSphere may prepay the Novus Obligation at any time without premium or penalty.
7.
Upon payment in full of the Novus Obligation, Novus shall (a) release its security interest in the remaining Assets and
(b) take all further actions, and provide to VivaSphere, it successors, assigns or other legal representatives, all cooperation
and assistance (including, without limitation, the execution and delivery of any and all Uniform Commercial Code termination statements,
documents or other instruments), reasonably requested by VivaSphere to more fully and effectively effectuate the purposes of such
release.
8.
The following shall constitute an event of default (an “Event of Default”) under this Agreement: VivaSphere
fails to make any payment within ten (10) Business Days after such payment is due and payable. During such cure period, the failure
to make or pay any payment specified hereunder is not an Event of Default. Upon the occurrence
and during the continuance of an Event of Default, the only right and remedy available to
Novus under this Agreement or under law or equity is to foreclose on the Assets as a secured party under the Code and other applicable
law. After an Event of Default, VivaSphere, Vivakor and Novus hereby agree the proceeds of any Disposition of the Assets (net of
any actual and reasonable costs and expenses incurred by Vivakor and Novus in effectuating such Disposition) will be paid pari
passu to Vivakor and Novus in proportionate shares based on the amount of each of the Novus Obligation and the Vivakor Obligation
outstanding to the total amount of the Novus Obligation and the Vivakor Obligation outstanding.
9.
The parties hereto agree that at all times, whether before, during or after the pendency of any bankruptcy, reorganization
or other insolvency proceeding of VivaSphere or Quantumsphere, and notwithstanding the priorities that ordinarily would result
under the Uniform Commercial Code as enacted in each and every applicable jurisdiction, and as amended from time to time, and other
applicable law for the order of granting or perfecting of any security interests referred to herein, (a) Vivakor and Novus shall
have a pari passu security interest in, upon and to the Assets and (b) the payment of any and all of the Novus Obligation shall
be pari passu in right and time of payment of the Vivakor Obligation. Without limiting the foregoing, if either Vivakor or Novus
allows any Uniform Commercial Code financing statement or other method of perfection to lapse such that an intervening creditor
shall have priority over such creditor, nothing herein is intended or shall be construed as subordination by one creditor to such
other creditor. Each of Vivakor and Novus declares, covenants, agrees and acknowledges that:
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a.
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It intentionally and unconditionally waives and relinquishes any right to challenge the validity, enforceability and binding
effect of any of the documents evidencing the Novus Obligation or the Vivakor Obligation (the “Loan Documents”), and
any lien, encumbrance, claim or security interest now or hereafter created thereunder, or the attachment, perfection or priority
thereof, regardless of the order of recording or filing of any thereof, or compliance by Vivakor and Novus with the terms of any
of the Loan Documents, by reason of any matter, cause or thing now or hereafter occurring, nor shall Vivakor and Novus raise any
such matter, cause or thing as a defense to the enforcement thereof.
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b.
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It will not in any manner challenge, oppose, object to, interfere with or delay (i) the validity or enforceability of this
Agreement, including without limitation, any provisions regarding the relative priority of the rights and duties of Vivakor and
Novus and the Loan Documents or (ii) each of Vivakor and Novus’ security interest in, liens on and rights as to VivaSphere
and the Assets.
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10.
This Agreement shall not become effective until VivaSphere shall have received a payoff letter, satisfactory in form and
substance to VivaSphere, which evidences the termination of the Loan Agreement and all commitments thereunder and the termination
of all outstanding liens on the Assets, including authorization to terminate Uniform Commercial Code financing statements filed
in connection therewith.
11.
This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada. To the extent that
any Disposition of the Assets by Quantumsphere to VivaSphere is subsequently, in whole or in part, invalidated, declared to be
fraudulent or preferential, void or voidable under applicable law relating to fraudulent conveyance or fraudulent transfer, set
aside or required to be repaid to a trustee, receiver or any other party, then the Novus Obligation shall be deemed satisfied in
full, the security interest granted herein shall automatically be released and this Agreement shall immediately terminate, in each
case with no further action by any party hereto.
12.
This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together
shall constitute one instrument. Each provision of this Agreement is severable from every other provision in determining the enforceability
of any provision. No amendment or modification of this Agreement, or waiver, discharge or termination of any obligation under this
Agreement, shall be enforceable or admissible unless, and only to the extent, expressly set forth in a writing signed by the party
against which enforcement or admission is sought. Without limiting the generality of the foregoing, no oral promise or statement,
nor any action, inaction, delay, failure to require performance or course of conduct shall operate as, or evidence, an amendment,
supplement or waiver or have any other effect on this Agreement. Any waiver granted shall be limited to the specific circumstance
expressly described in it and shall not apply to any subsequent or other circumstance, whether similar or dissimilar, or give rise
to, or evidence, any obligation or commitment to grant any further waiver. This Agreement represents the entire agreement about
this subject matter and supersedes prior negotiations or agreements. All prior agreements, understandings, representations, warranties,
and negotiations between the parties about the subject matter of this Agreement merge into this Agreement. The relationship of
the parties to this Agreement is determined solely by the provisions of this Agreement. The parties do not intend to create any
agency, partnership, joint venture, trust, fiduciary or other relationship with duties or incidents different from those of parties
to an arm’s-length contract. This Agreement binds and is for the benefit of the successors and permitted assigns of each
party.
13.
All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement must be in writing
and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business
Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid;
(b) upon transmission, when sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable
overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed
to the party to be notified and sent to the address, facsimile number, or email address indicated below. Any party may change its
mailing or electronic mail address or facsimile number by giving the other parties written notice thereof in accordance with the
terms of this Section 13.
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If to Novus:
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4500 Kruse Way,
Suite 170
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Lake Oswego, OR 97035
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with a copy to:
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If to Quantumsphere:
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with a copy to:
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If to VivaSphere or
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Vivakor:
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2 Park Plaza, Suite
1200
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Irvine, CA 92614
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with a copy to:
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matt@vivakor.com
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tnelson@vivakor.com
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[Signature page follows.]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered as of the date first written above.
NOVUS CAPITAL LLC
By: /s/ Rob Tobin
Name: Rob Tobin
Title: Chief Investment Officer
VIVAKOR, INC.
By: /s/ Matthew Nicosia
Name: Matthew Nicosia
Title: CEO
QUANTUMSPHERE, INC.
By: /s/ Kevin Maloney
Name: Kevin Maloney
Title: Chief Executive Officer
VIVASPHERE, INC.
By: /s/ Matthew Nicosia
Name: Matthew Nicosia
Title: CEO
Exhibit A
Assets
Patents:
US Patents entitled METHOD & APPARTHUS FOR FORMING NANO-PARTICLES, US Patent No. 7282167
US Patents entitled SYSTEM & METHOD FOR AMMONIA SYNTHESIS, US Patent No. 9272920
Equipment:
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Cross ref #
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Item Name
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1
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Degasser Vessel/1100 lb. Hoist/Vacuum Pump/Blower with LDS controller/Controller with Power Supply
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2
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6 Drawer Tool Chest filled with misc. tools, meters, gauges etc.
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3
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Digital Drop Gauge, IKA RCT Hot Plate, Test Tube holder
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4
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Spare Power Supply (New in Box)
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5
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NANO Process Controller/Display for operating Reactors 1 thru 6
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6
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Parker Porter CM400 Flow Metering Test Stations (2 ea.)
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7
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3 ea. Fluke Temperature Meters, 1 ea. Instrument Travel Case, 1 ea. Regulator Set
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8
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Cress Large Furnace
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9
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1 Safety Cabinet with 16 Canisters
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10
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1 Safety Cabinet with 16 Canisters Number 2
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11
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Spare Parts Shelf with total of 34 Tubs filled with misc. replacement parts for Reactors
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12
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1 Safety Cabinet with Spare Parts, 5 misc. motors, Personal Air Regulators, Vac Pump Part, Boats (73)
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13
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Vacuum Exhaust Hood with Air Cleaner Manufacture is SAS
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14
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VWR 1000ML Beaker
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15
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File Cabinet with MSDS and Operating Manuals
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16
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Work Benches (6 ea.)
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17
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Passivator 2 Plate with Stand, PC, Acer 20" Monitor and Keyboard, Vac System
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18
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Passivator 2 Plate no stand, Vac System
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19
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Dell 360 PC w Acer Monitor and Keyboard
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20
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Fume Hood with misc. cans and parts
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21
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Fume Hood with Sensors and misc. parts inside
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22
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Micrometrics Sample Cryo Analyzer, Tristar S/n 224 with 6 place sample Station Smartprep 065 s/n 125
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23
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Thermotyne Small Lab Furnace
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24
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2 ea. HP PC’s with Key board and Monitor
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25
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3 ea. Dell 360 PC with Dell Monitor and Keyboard
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26
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Lab Table
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27
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Reactor # 6
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28
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Reactor # 5
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29
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Reactor
# 3
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Exhibit A
Assets
(Continued)
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Cross ref #
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Item Name
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30
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Reactor # 4
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31
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Reactor # 2
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32
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Reactor # 1
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33
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Reactor # 10
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34
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Reactor # 14
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35
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Reactor # 13
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36
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Reactor # 9
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37
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Reactor # 12
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38
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Reactor # 8
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39
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Reactor # 7
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40
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Reactor # 11
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41
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6 ea. Metal Finling Drawers/Cabinets
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42
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Vacuum Pump/Blower # 3 2 place w/Controls and Stand
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43
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Big Joe Pallet Lift
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44
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RU Vacuum Blower S/n A881100017 (Spare)
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45
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RU Vacuum Blower S/n L941200181 (spare)
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46
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Crate of misc. Spare Hoses (All different Sizes), Cable
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47
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1 ea. Pallet of Iron Powder (12 ea.- 5 Gal Buckets/38 ea. 102 Gram Iron Powder Bottles for Reactors
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48
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1 ea. Safety Cabinet with 8 ea. 5 Gal Buckets with Iron Nano Fenix 12KG each, 2 empty cans
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49
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Safe Filing Cabinet
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50
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2 Bottle Gas Rack, 1 O2 Bottle, 1 Argon Gas
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51
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SciMatic Cabinet Empty
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52
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Grey Metal Work Tables 4 ea.
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EXHIBIT 10.28
MASTER REVOLVING NOTE
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MAXIMUM AMOUNT
Up to $400,000.00
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NOTE DATE
March 10, 2021
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MATURITY DATE
March 10, 2023
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On the Maturity Date, stated above, for value
received, VIVAKOR, INC., a Nevada corporation (“The Company”), promises to pay, to the order of TriValley, an international
entity formed under the laws of Qatar, or his nominee (“Holder”), at a place designated by the Holder, the sum of all
Advances (as defined below) up to the principal amount FOUR HUNDRED THOUSAND DOLLARS ($400,000.00), or so much of said sum as has been
advanced and is then outstanding hereunder, together with interest thereon as hereafter set forth. This Promissory Note, as may be amended
or supplemented from time to time, shall be referred to herein as the “Note”.
This Note shall not bear interest.
From time to time, the Company may request, and
Holder may, in its sole discretion, approve an advance (each an “Advance”) under this Note; provided that the amount
of the Advance, together with all other advances under the Note, shall not exceed the maximum amount set forth above.
The principal amount payable under this Note shall
be the sum of all advances made by the Holder to or at the request of the undersigned, less principal payments actually received in cash
by the Holder. The books and records of the Company shall be the best evidence of the principal amount owing at any time under this Note
and shall be conclusive absent manifest error. At no time shall the Holder be under any obligation to make any advances to the undersigned
pursuant to this Note (notwithstanding anything expressed or implied in this Note or elsewhere to the contrary, including without limit
if the Holder supplies the undersigned with a borrowing formula) and the Holder, at any time and from time to time, without notice, and
in its sole discretion, may refuse to make advances to the undersigned without incurring any liability due to this refusal and without
affecting the undersigned's liability under this Note for any and all amounts advanced.
General Payment Provisions. All payments
of principal and interest on this Note shall be made in lawful money of the United States of America by certified bank check or wire transfer
to such account as the Lender may designate by written notice to the Borrower in accordance with the provisions of this Note. Whenever
any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day, the same shall instead be due
on the next succeeding Business Day. For purposes of this Note, “Business Day” shall mean any day other than a Saturday, Sunday
or a day on which commercial banks in the State of New York are authorized or required by law or executive order to remain closed.
Optional Prepayment. At any time, upon
receiving the written consent of the Lender, the Borrower may pre-pay this Note without penalty and, upon such prepayment in full, the
Lender shall have no further rights under this Note, including no rights of conversion.
Defaults and Remedies.
(a)
Events of Default. An “Event of Default” means: (i) a default for five (5) days in payment of principal or interest
on this Note; (ii) failure by the Borrower to comply with any material provision of this Note; (iii) the Borrower, pursuant to or within
the meaning of any Bankruptcy Law (as defined herein): (A) commences a voluntary case; (B) consents to the entry of an order for relief
against it in an involuntary case; (C) consents to the appointment of a Custodian (as defined herein) of it or for all or substantially
all of its property; (D) makes a general assignment for the benefit of its creditors; or (E) admits in writing that it is generally unable
to pay its debts as the same become due; or (iv) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law
that: (A) is for relief against the Borrower in an involuntary case; (B) appoints a Custodian of the Borrower for all or substantially
all of its property; or (C) orders the liquidation of the Borrower, and the order or decree remains unstayed and in effect for sixty (60)
days. “Bankruptcy Law” means Title 11, U.S. Code, or any similar Federal or state law for the relief of debtors. The term
“Custodian” means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law.
(b)
Remedies. If an Event of Default occurs and is continuing, the Lender, may declare all of this Note to be due and payable immediately.
The Lender, shall have all rights available to it at law or in equity. Upon the occurrence of an Event of Default, the interest on this
Note shall immediately accrue at the Default Rate. The Lender, may assess reasonable attorneys’ fees, paralegals’ fees and
costs and expenses incurred or anticipated by the Lender in collecting or enforcing payment hereof (whether such fees, costs or expenses
are incurred in negotiations, all trial and appellate levels, administrative proceedings, bankruptcy proceedings or otherwise), and together
with all other sums due by the Borrower hereunder, all without any relief whatsoever from any valuation or appraisement laws, and payment
thereof may be enforced and recovered in whole or in part at any time by one or more of the remedies provided to the Lender at law, in
equity, or under this Note. In connection with the Lender’s rights hereunder upon an Event of Default, the Lender need not provide,
and the Borrower hereby waives, any presentment, demand, protest or other notice of any kind, and the Lender, may immediately enforce
any and all of its rights and remedies hereunder and all other remedies available to it in equity or under applicable law.
Lost or Stolen Note. Upon notice to the
Borrower of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of an indemnification
undertaking by the Lender to the Borrower in a form reasonably acceptable to the Borrower and, in the case of mutilation, upon surrender
and cancellation of the Note, the Borrower shall execute and deliver a new Note of like tenor and date and in substantially the same form
as this Note; provided, however, the Borrower shall not be obligated to re-issue a Note if the Lender contemporaneously requests
the Borrower to convert such remaining principal amount and interest into Common Stock.
Cancellation. After all principal and accrued
interest at any time owed on this Note has been paid in full, this Note shall automatically be deemed canceled, shall be surrendered to
the Borrower for cancellation and shall not be re-issued.
Waiver of Notice. To the extent permitted
by law, the Borrower hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note.
Governing Law. This Note shall be construed
and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note
shall be governed by, the laws of the State of [•], without giving effect to provisions thereof regarding conflict of laws. Each
party hereto hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in [•] in the State
of [•]for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue
of such suit, action or proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by sending by certified mail or overnight courier a copy thereof to such party
at the address indicated in the preamble hereto and agrees that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.
EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF
ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
Indemnity and Expenses. The Borrower agrees:
(a) To
indemnify and hold harmless the Lender and each of its partners, employees, agent and affiliates from and against any and all claims,
damages, demands, losses, obligations, judgments and liabilities (including, without limitation, attorneys’ fees and expenses) in
any way arising out of or in connection with this Note; and
(b) To
pay and reimburse the Lender upon demand for all costs and expenses (including, without limitation, attorneys’ fees and expenses)
that the Lender may reasonably incur in connection with (i) the exercise or enforcement of any rights or remedies (including, but not
limited to, collection) granted hereunder or otherwise available to it (whether at law, in equity or otherwise), or (ii) the failure by
the Borrower to perform or observe any of the provisions hereof. The provisions of this Section shall survive the execution and delivery
of this Note, the repayment of any or all of the principal or interest owed pursuant hereto, and the termination of this Note.
Remedies, Characterizations, Other Obligations,
Breaches and Injunctive Relief. The remedies provided in this Note shall be cumulative and in addition to all other remedies available
under this Note, at law or in equity.
Specific Shall Not Limit General; Construction.
No specific provision contained in this Note shall limit or modify any more general provision contained herein. This Note shall be deemed
to be jointly drafted by the Borrower and the Lender and shall not be construed against any person as the drafter hereof.
Failure or Indulgence Not Waiver. No failure
or delay on the part of this Note in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right,
power or privilege.
Notice. Notice shall be given to each party
at the address indicated in the preamble or at such other address as provided to the other party in writing.
[signature page follows]
IN WITNESS WHEREOF, the
parties have caused this Note to be executed on and as of the Issuance Date.
THE COMPANY:
VIVAKOR, INC.
By: /s/ Matthew Nicosia
Name: Matthew Nicosia
Title: Chief Executive Officer
HOLDER:
TriValley
By: /s/ Garen Kolajian
Name: Garen Kolajian
Title: President
ADVANCE SCHDEULE
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Period
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Amount of Advance
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Amount of Payment
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Balance Owing
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As of March 10, 2021
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$295,543.48
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$295,543.48
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EXHIBIT 10.29
MASTER REVOLVING NOTE
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MAXIMUM AMOUNT
Up to $400,000.00
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NOTE DATE
March 10, 2021
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MATURITY DATE
March 10, 2023
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On the Maturity Date, stated above, for value
received, VIVAKOR MIDDLE EAST LLC., a limited liability company formed under the laws of Qatar (“The Company”), promises
to pay, to the order of Triple T LLC, a limited liability company formed under the laws of Qatar, or his nominee (“Holder”),
at a place designated by the Holder, the sum of all Advances (as defined below) up to the principal amount FOUR HUNDRED THOUSAND DOLLARS
($400,000.00), or so much of said sum as has been advanced and is then outstanding hereunder, together with interest thereon as hereafter
set forth. This Master Revolving Note, as may be amended or supplemented from time to time, shall be referred to herein as the “Note”.
The Company and Holder may each be referred to herein as the “Parties.” Whereas the parties prior to this note had entered
into a lending relationship with advances to the Company by the Holder as set forth in Exhibit A, and shall set forth the relationship
to be governed by this Master Revolving Note between the Parties going forward.
This Note shall not bear interest.
From time to time, the Company may request, and
Holder may, in its sole discretion, approve an advance (each an “Advance”) under this Note; provided that the amount
of the Advance, together with all other advances under the Note, shall not exceed the maximum amount set forth above.
The principal amount payable under this Note shall
be the sum of all advances made by the Holder to or at the request of the undersigned, less principal payments actually received in cash
by the Holder. The books and records of the Company shall be the best evidence of the principal amount owing at any time under this Note
and shall be conclusive absent manifest error. At no time shall the Holder be under any obligation to make any advances to the undersigned
pursuant to this Note (notwithstanding anything expressed or implied in this Note or elsewhere to the contrary, including without limit
if the Holder supplies the undersigned with a borrowing formula) and the Holder, at any time and from time to time, without notice, and
in its sole discretion, may refuse to make advances to the undersigned without incurring any liability due to this refusal and without
affecting the undersigned's liability under this Note for any and all amounts advanced.
General Payment Provisions. All payments
of principal and interest on this Note shall be made in lawful money of the United States of America by certified bank check or wire transfer
to such account as the Holder may designate by written notice to the Company in accordance with the provisions of this Note. Whenever
any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day, the same shall instead be due
on the next succeeding Business Day. For purposes of this Note, “Business Day” shall mean any day other than a Saturday, Sunday
or a day on which commercial banks in Qatar are authorized or required by law or executive order to remain closed.
Optional Prepayment. At any time, upon
receiving the written consent of the Holder, the Company may pre-pay this Note without penalty and, upon such prepayment in full, the
Holder shall have no further rights under this Note, including no rights of conversion.
Defaults and Remedies.
(a)
Events of Default. An “Event of Default” means: (i) a default for five (5) days in payment of principal or interest
on this Note; (ii) failure by the Company to comply with any material provision of this Note; (iii) the Company, pursuant to or within
the meaning of any Bankruptcy Law (as defined herein): (A) commences a voluntary case; (B) consents to the entry of an order for relief
against it in an involuntary case; (C) consents to the appointment of a Custodian (as defined herein) of it or for all or substantially
all of its property; (D) makes a general assignment for the benefit of its creditors; or (E) admits in writing that it is generally unable
to pay its debts as the same become due; or (iv) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law
that: (A) is for relief against the Company in an involuntary case; (B) appoints a Custodian of the Company for all or substantially all
of its property; or (C) orders the liquidation of the Company, and the order or decree remains unstayed and in effect for sixty (60) days.
“Bankruptcy Law” means any similar Federal or state law for the relief of debtors. The term “Custodian” means
any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law.
(b)
Remedies. If an Event of Default occurs and is continuing, the Holder, may declare all of this Note to be due and payable immediately.
The Holder shall have all rights available to it at law or in equity. Upon the occurrence of an Event of Default, the interest on this
Note shall immediately accrue at the Default Rate. The Holder, may assess reasonable attorneys’ fees, paralegals’ fees and
costs and expenses incurred or anticipated by the Holder in collecting or enforcing payment hereof (whether such fees, costs or expenses
are incurred in negotiations, all trial and appellate levels, administrative proceedings, bankruptcy proceedings or otherwise), and together
with all other sums due by the Company hereunder, all without any relief whatsoever from any valuation or appraisement laws, and payment
thereof may be enforced and recovered in whole or in part at any time by one or more of the remedies provided to the Holder at law, in
equity, or under this Note. In connection with the Holder’s rights hereunder upon an Event of Default, the Holder need not provide,
and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder, may immediately enforce any
and all of its rights and remedies hereunder and all other remedies available to it in equity or under applicable law.
Lost or Stolen Note. Upon notice to the
Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of an indemnification
undertaking by the Holder to the Company in a form reasonably acceptable to the Company and, in the case of mutilation, upon surrender
and cancellation of the Note, the Company shall execute and deliver a new Note of like tenor and date and in substantially the same form
as this Note.
Cancellation. After all principal and accrued
interest at any time owed on this Note has been paid in full, this Note shall automatically be deemed canceled, shall be surrendered to
the Company for cancellation and shall not be re-issued.
Waiver of Notice. To the extent permitted
by law, the Company hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note.
Governing Law. This Note shall be construed
and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note
shall be governed by, the laws of Qatar, without giving effect to provisions thereof regarding conflict of laws. Each party hereto hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in Qatar for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court,
that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper.
Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such suit, action
or proceeding by sending by certified mail or overnight courier a copy thereof to such party at the address indicated in the preamble
hereto and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HERETO HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH
OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
Indemnity and Expenses. The Company agrees:
(a) To
indemnify and hold harmless the Holder and each of its partners, employees, agent and affiliates from and against any and all claims,
damages, demands, losses, obligations, judgments and liabilities (including, without limitation, attorneys’ fees and expenses) in
any way arising out of or in connection with this Note; and
(b) To
pay and reimburse the Holder upon demand for all costs and expenses (including, without limitation, attorneys’ fees and expenses)
that the Holder may reasonably incur in connection with (i) the exercise or enforcement of any rights or remedies (including, but not
limited to, collection) granted hereunder or otherwise available to it (whether at law, in equity or otherwise), or (ii) the failure by
the Company to perform or observe any of the provisions hereof. The provisions of this Section shall survive the execution and delivery
of this Note, the repayment of any or all of the principal or interest owed pursuant hereto, and the termination of this Note.
Remedies, Characterizations, Other Obligations,
Breaches and Injunctive Relief. The remedies provided in this Note shall be cumulative and in addition to all other remedies available
under this Note, at law or in equity.
Specific Shall Not Limit General; Construction.
No specific provision contained in this Note shall limit or modify any more general provision contained herein. This Note shall be deemed
to be jointly drafted by the Company and the Holder and shall not be construed against any person as the drafter hereof.
Failure or Indulgence Not Waiver. No failure
or delay on the part of this Note in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right,
power or privilege.
Notice. Notice shall be given to each party
at the address indicated in the preamble or at such other address as provided to the other party in writing.
[signature page follows]
IN WITNESS WHEREOF, the
parties have caused this Note to be executed on and as of the Issuance Date.
THE COMPANY:
VIVAKOR MIDDLE EAST LLC
By: /s/ Matthew Nicosia
Name: Matthew Nicosia
Title: Chief Executive Officer
HOLDER:
TRIPLE T LLC
By: /s/ Garen Kolajian
Name: Garen Kolajian
Title: President
EXHIBIT A
ADVANCE SCHDEULE
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Period
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Amount of Advance
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Amount of Payment
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Balance Owing
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As of March 10, 2021
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$295,543.48
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-
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$295,543.48
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Exhibit 10.30
AMENDMENT NO. 3 TO LOAN AGREEMENT
This Amendment No. 3 to Loan
Agreement (the “Amendment”) is entered into effective the 18th day of February 2021, by and between Novus Capital Group, LLC
(the “Holder”), and Vivasphere, Inc., a Nevada corporation (the “Company”).
RECITALS
WHEREAS, the Company is the
responsible party under that certain Loan and Security Agreement by and between Quantumsphere, Inc. and the Holder dated June 19, 2014
(and assigned to the Company under that certain Agreement Regarding Assets dated December 3, 2018) in the original principal amount of
$334,775, which originally did not carry interest and matured on December 3, 2019 (the “Note”);
WHEREAS, on or about February
6, 2020, the Company and Holding agreed to extend the maturity date under the Note until July 1, 2020 and add a seven percent (7%) simple
interest rate to the Note starting January 1, 2020, which would accrue and be due on the new maturity date (“Amendment No. 1”);
WHEREAS, on or about September
23, 2020, the Company and Holding agreed to extend the maturity date under the Note until January 2, 2021 and increase the interest rate
to ten percent (10%) simple interest rate to the Note starting July 1, 2020, which would accrue and be due on the new maturity date (“Amendment
No. 2”);
WHEREAS, no payment has been
made under the Note, and the Holder and the Company desire to modify the terms of the Note to extend the maturity date as set forth herein.
NOW, THEREFORE, in consideration
of the mutual promises herein contained, the parties hereto hereby agree as follows:
1. The
principal and any unpaid accrued interest on the Note shall be due and payable on or before 5:00 p.m., Pacific Standard Time, on July
2, 2021 (the “New Maturity Date”).
2. Interest shall accrue
at the rate of ten percent (10%) per annum, simple interest, from January 2, 2021 until all unpaid principal and interest is paid in
full.
3. Other
than as set forth herein, the terms and conditions of the Note shall remain in full force and effect.
IN WITNESS WHEREOF, the parties
hereto have caused this Amendment to be duly executed as of the date first set forth above.
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“Company”
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“Holder”
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Vivasphere, Inc.,
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Novus Capital, LLC
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a Nevada corporation
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/s/ Matt Nicosia
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/s/ Robert Tobin
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By: Matt Nicosia
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By: Robert Tobin
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Its: Chief Executive Officer
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Its: Chief Investment Officer
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Exhibit 23.1
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Vivakor, Inc.
Opinion on the Financial Statements
We have audited the accompanying
consolidated balance sheet of Vivakor, Inc. (the Company) as of December 31, 2019, and the related consolidated statements of operations,
changes in stockholders’ deficit, and cash flows for the year ended December 31, 2019, and the related notes (collectively referred
to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year ended December
31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the
responsibility of the entity’s management. Our responsibility is to express an opinion on these financial statements based on our
audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit
in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required
to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for
our opinion.
/s/ Hall & Company
Hall & Company CPAS
We have served as the Company's auditor
since 2019.
Irvine, CA
November 6, 2020
Exhibit 23.2
Consent of Independent Registered Public Accounting
Firm
The Board of Directors
Vivakor, Inc.
We consent to the use, in this Amendment No.
3 Form S-1 Registration Statement under the Securities Act of 1933 (File No_ 333-250011), of our report dated April 9, 2021 with respect
to the audit of the consolidated balance sheet of Vivakor, Inc. (the "Company") as of December 31, 2020 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the year ended December 31, 2020 and the related notes to
the consolidated financial statements, included herein and to the reference to our firm under the heading "Experts" in the prospectus
to be filed on or around April 9, 2021.
/s/ Macias Gini O'Connell LLP
Macias Gini O'Connell LLP
Irvine, California
April 9, 2021