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An offering statement pursuant to Regulation A relating to these securities has been filed with the Securities and Exchange Commission. Information contained in this Preliminary Offering Circular is subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted before the offering statement filed with the Commission is qualified. This Preliminary Offering Circular shall not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sales of these securities in any state in which such offer, solicitation or sale would be unlawful before registration or qualification under the laws of any such state. We may elect to satisfy our obligation to deliver a Final Offering Circular by sending you a notice within two business days after the completion of our sale to you that contains the URL where the Final Offering Circular or the offering statement in which such Final Offering Circular was filed may be obtained.

Preliminary Offering Circular Subject To Completion

Dated May __, 2019

MERGER OF

SMART INITIATIVES, LLC, VALLEY VIEW ENTERPRISES, LLC AND TARGET EQUITY, LLC

with and into

ZABALA FARMS GROUP, LLC

Up to 14,000,000 Class A Common Units of Membership Interest

Zabala Farms Group, LLC, a Delaware limited liability company (the “Company,” “we,” “us,” and “our”) is offering up to 14,000,000 Class A Common Units of membership interests (the “Class A Units”), to members of Smart Initiatives, LLC, a California limited liability company (“Smart Initiatives”), the members of Target Equity, LLC, a California limited liability company (“Target Equity”) and the members of Valley View Enterprises, LLC, a California limited liability company (“Valley View”) in exchange for their respective membership interests in those entities. Smart Initiatives, Valley View and Target Equity are collectively referred to as the “Disappearing Entities.” The Disappearing Entities are each owners of membership interests in Zabala Farms of Salinas, LLC, a California limited liability company (“Zabala Salinas”). The Disappearing Entities collectively own 70% of Zabala Salinas. The purpose of the Merger is to consolidate the ownership of Zabala Salinas into one entity and to assume operational control thereof.

The Company and each of the Disappearing Entities have entered into a merger agreement pursuant to which, upon completion of the merger (the “Merger”), the Disappearing Entities will merge with and into the Company and the members of the Disappearing Entities will become members of the Company.

The Merger requires the approval of the holders of a majority in interest of each of the Disappearing Entities, except that holder of 60% of the membership interests of Smart Initiatives must approve the Merger (each referred to as the “Required Vote”). This Offering Circular solicits the votes of Members in each of the Disappearing Entities.

If the Required Vote of each Disappearing Entity approves the Merger, then such Disappearing Entity will merge with and into the Company and all Members of such Disappearing Entity will automatically receive a number of Class A Units such that they will maintain their indirect ownership percentage of Zabala Salinas as set forth in the exchange ratio on page 20 and will be members of the Company in interest. If the Merger is not approved by the Required Vote of Members of any Disappearing Entity, then such Disappearing Entity will not be included in the Merger and Members of such Disappearing Entity will retain their respective ownership interests in such entity.

The managers of each of the Disappearing Entities have determined that the merger agreement, the Merger and the other transactions contemplated by the merger agreement are fair to, and in the best interests of, each of the Disappearing Entities and their respective Members; have unanimously approved the merger agreement, the Merger and the other transactions contemplated by the merger agreement, including the issuance of Class A Units of the Company in connection with the Merger; and unanimously recommends that each Member of the Disappearing Entities votes “FOR” the merger agreement and the transactions contemplated thereby.

Each Disappearing Entity will submit the Merger to a vote by written consent; no meetings of Members will be held. The Company and the Disappearing Entities cannot complete the proposed merger unless, among other things, the Required Vote of the Members of the Disappearing Entities to approve the merger agreement is obtained.

Each member of the Disappearing Entities (the “Members”) will receive a number of Class A Units such that they will maintain their indirect ownership percentage of Zabala Salinas, subject to the Company’s obligation to repurchase “Excess Interests.” No fractional Class A Units will be issued and in lieu thereof the number of Class A Units issued to any Member will be rounded up or down to the nearest whole number of Class A Units. For more information regarding the securities being offered, see the section entitled “Securities Being Offered” on page .

The Company is not selling any Class A Units for cash, and will not receive any cash proceeds from exchange of Class A Units for the membership interest of the Disappearing Entities.

We expect to commence the Offering on the date on which the Offering Statement of which this Offering Circular is a part (this “Offering Circular”) is qualified by the Securities and Exchange Commission (“SEC”) and will terminate upon the earliest to occur of (i) 60 days after such qualification is received or (ii) approval of the Merger by all of the Disappearing Entities. Notwithstanding the foregoing, the Company may extend the Offering by an additional 90 days or terminate the Offering at any time.

Our Class A Units are not listed on any national securities exchange and we do not anticipate that the Class A Units will ever be listed or traded on a national securities exchange.

This Offering is being made pursuant to Tier 2 of Regulation A following the Offering Circular disclosure format.

(1) The consideration to be paid for each Class A Unit shall be the exchange of membership interests in the Disappearing Entities. No cash will be received by the Company. For purposes of the Merger, the Company has estimated that the fair value of the Class A Units is $1.30 per Class A Unit.

(2) We do not intend to offer the Class A Units through registered broker-dealers.

(3) We estimate that our total expenses for this Offering will be $35,000. See “Plan of Distribution.”

If the aggregate purchase price of the membership interests to be exchanged in the Merger held by any Member is more than 10% of the greater of the Member’s annual income or net worth, then such membership interests are considered disqualified interests (“Excess Interests”). Members will only be entitled to receive cash for Excess Interests in an amount equal to the original purchase price paid by such Member. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov.

This Offering is highly speculative and these securities involve a high degree of risk and should be considered only by persons who can afford the loss of their entire investment. See “Risk Factors” on page 8.

THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OF OR GIVE ITS APPROVAL TO ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SOLICITATION MATERIALS. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED ARE EXEMPT FROM REGISTRATION.

38625 Calistoga Drive, Suite 200, Murrieta, CA 92563

(951) 550-7641

Offering Circular Date: May __, 2019

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USE OF MARKET AND INDUSTRY DATA

This Offering Circular includes market and industry data that we have obtained from third-party sources, including industry publications, as well as industry data prepared by our management on the basis of its knowledge of and experience in the industries in which we operate (including our management’s estimates and assumptions relating to such industries based on that knowledge). Management has developed its knowledge of such industries through its experience and participation in these industries. While our management believes the third-party sources referred to in this Offering Circular are reliable, neither we nor our management have independently verified any of the data from such sources referred to in this Offering Circular or ascertained the underlying economic assumptions relied upon by such sources. Furthermore, internally prepared and third-party market prospective information, in particular, are estimates only and there will usually be differences between the prospective and actual results, because events and circumstances frequently do not occur as expected, and those differences may be material. Also, references in this Offering Circular to any publications, reports, surveys or articles prepared by third parties should not be construed as depicting the complete findings of the entire publication, report, survey or article. The information in any such publication, report, survey or article is not incorporated by reference in this Offering Circular.

Solely for convenience, we refer to our trademarks in this Offering Circular without the ® or the ™ or symbols, but such references are not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights to our own trademarks. Other service marks, trademarks and trade names referred to in this Offering Circular, if any, are the property of their respective owners, although for presentational convenience we may not use the ® or the ™ symbols to identify such trademarks.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Offering Circular contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue,” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

We cannot predict all risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements will occur or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Offering Circular and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management, any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.

Some factors that might cause such differences are described in the section entitled “Risk Factors” in this Offering Circular, which factors include, without limitation, the following:

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Offering Circular. All subsequent written and oral forward-looking statements concerning other matters addressed in this Offering Circular and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Offering Circular.

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

SUMMARY INFORMATION

This summary highlights some of the information in this Offering Circular. It is not complete and may not contain all of the information that you may want to consider. To understand this Offering fully, you should carefully read the entire circular, including the section entitled “Risk Factors,” before making a decision to invest in our securities. Unless otherwise noted or unless the context otherwise requires, the terms “we,” “us,” “our,” and the “Company,” refer to Zabala Farms Group, LLC.

Overview

Our goal is to become a leading, high-quality cultivator and wholesaler of cannabis and cannabis-related products, beginning with the acquisition of Zabala Farms of Salinas, LLC, which owns a cultivation facility in Salinas, California. The Company was formed under the laws of the State of Delaware in June 2018. The Company intends to acquire 100% ownership of Zabala Farms of Salinas, LLC (“Zabala Salinas”). We have entered into a merger agreement with each of Smart Initiatives, LLC (“Smart Initiatives”), Target Equity, LLC (“Target Equity”) and Valley View Enterprises, LLC (“Valley View”), each a California limited liability company, pursuant to which each of those entities (the “Disappearing Entities”) will merge with and into the Company (the “Merger”). Each of the Disappearing Entities owns membership interests of Zabala Salinas collectively representing 70% of its outstanding membership interests; Valley View owns membership interests representing 25%, Smart Initiatives owns 20% and Target Equity owns 25%.

The Company has also entered into a membership interest transfer agreement to acquire (the “Acquisition Agreement”) the remaining 30% of the membership of Zabala Salinas for its holders. Upon consummation of the Merger, and closing of the Acquisition Agreement, the Company would own 100% of Zabala Salinas and would become the sole owner and operator of the cultivation facility. There can be no guaranty that the Company will be able to consummate the Acquisition Agreement.

The Merger will be consummated with respect to any Disappearing Entity if and only if holders of at least a majority of the membership interests of such Disappearing Entity vote in favor of the Merger, except in the case of Smart Initiatives which requires approval of members owning 60% of the membership interests. If members holding more than the required percentage vote in favor of the Merger, then such Disappearing Entity will merge with and into the Company and all of the members of such Disappearing Entity will cease to be member of the Disappearing Entity. They will become members of the Company and will receive a number of Class A Units based upon their original membership interests in the Disappearing Entity.

Corporate Information

Our principal executive offices are located at 38625 Calistoga Drive, Suite 200, Murrieta, CA 92563. Our telephone number is (951) 550-7641. We do not have a website.

The Offering

This Offering Circular relates to the sale of up to 14,000,000 Class A Common Units (“Class A Units”) of membership interest in the Company in exchange for the membership interests of the Disappearing Entities. The Company has entered into a merger agreement with the Disappearing Entities pursuant to which each Disappearing Entity will merge with and into the Company and cease to exist. All of the membership interests in the Disappearing Entities will be exchanged for Class A Units of the Company. Upon consummation of the Merger, all of the members of the Disappearing Entities (the “Members”) will be members of the Company and will be subject to the terms and conditions of the Limited Liability Company Agreement of the Company (the “LLC Agreement”).

The Company is not offering or selling any of the Class A Units for cash in this Offering. The Offering is made only to existing members of the Disappearing Entities. 

We expect to commence the Offering on the date on which the Offering Statement of which this Offering Circular is a part (this “Offering Circular”) is qualified by the Securities and Exchange Commission (“SEC”) and will terminate upon the earlier to occur of (i) 60 days after such qualification has been received or (ii) the date on which the Merger has been approved by all of the Disappearing Entities. Notwithstanding the foregoing, the Company may extend the Offering by an additional 90 days or terminate the Offering at any time.

The Class A Units are not listed on any national securities exchange and we do not anticipate that the Class A Units will ever be listed on such an exchange.

ABOUT THIS OFFERING CIRCULAR

We have prepared this Offering Circular to be filed with the Securities and Exchange Commission (“SEC”) for our Offering of securities. The Offering Circular includes exhibits that provide more detailed descriptions of the matters discussed in this Offering Circular. You should rely only on the information contained in this Offering Circular and its exhibits. The Company has not authorized any person to provide you with any information different from that contained in this Offering Circular. The information contained in this Offering Circular is complete and accurate only as of the date of this Offering Circular, regardless of the time of delivery of this Offering Circular or sale of our Class A Units. This Offering Circular contains summaries of certain other documents, but reference is hereby made to the full text of the actual documents for complete information concerning the rights and obligations of the parties thereto. All documents relating to this Offering and related documents and agreements, if readily available to us, will be made available to a prospective investor or its representatives upon request.

TAX CONSIDERATIONS

No information contained herein, nor in any prior, contemporaneous or subsequent communication should be construed by a prospective investor as legal or tax advice. We are not providing any tax advice as to the acquisition, holding or disposition of the securities offered herein. In making an investment decision, investors are strongly encouraged to consult their own tax advisor to determine the U.S. Federal, state and any applicable foreign tax consequences relating to their investment in our securities. This written communication is not intended to be “written advice,” as defined in Circular 230 published by the U.S. Treasury Department.

RISK FACTORS

In addition to the other information provided in this Offering Circular, you should carefully consider the following risk factors in evaluating our business and before voting in favor of the Merger. All material risks identified by the Company are discussed in this section.

We are subject to a number of risks, including risks that may prevent us from achieving our business objectives or that may adversely affect our business, financial condition, results of operations, cash flows and prospects. You should carefully consider the risks discussed in this section.

Risks Related to the Merger

The Class A Units received by Members in the Merger will have different rights from the membership interests in the Disappearing Entities.

Upon completion of the Merger, the members of the Disappearing Entities will become members of the Company and will receive Class A Units. The Company is a Delaware limited liability company subject to the laws, rules and regulations of the Delaware Limited Liability Company Act. The provisions of Delaware law may differ substantially from the California Revised Uniform Limited Liability Company Act and the rules and regulations promulgated thereunder. See “Comparison of Member Rights.”

The Company has not obtained and is not seeking any opinion with respect to the tax effects of the Merger upon the Members.

The general description of the tax effects of the Merger upon the Members contained in this Offering Circular has been prepared based upon the best available information. However, the tax consequences for each Member can vary significantly based upon such Member’s particular facts and circumstances. There can be no guaranty that such disclosure is accurate with respect to every Member. The Company has not obtained an opinion of an independent tax attorney. As a result, each Member is solely responsible for determining the tax effects of the Merger upon such Member and is advised to seek advice from tax professionals before making the decision to vote in favor of the Merger and accept the Class A Units in exchange for their membership interests in the Disappearing Entities.

Certain Members may be ineligible to receive Class A Units upon completion of the Merger and will receive cash in lieu thereof, which cash may be more or less than the current fair market value of the Class A Units.

Pursuant to the rules and regulations of the SEC relating to this Offering, Members may not invest more than 10% of the greater of (i) their net worth or (ii) their annual income in the Class A Units. As a result, if any Member has invested more than the permitted amount in the membership interests of the Disappearing Entities (the “Excess Interests”), then the excess amount cannot be exchanged for Class A Units. In lieu thereof, the Company will pay cash for the Excess Interests in an amount equal to the original purchase price of such Excess Interests. Such members will be permitted to retain any distributions made with respect to such Excess Interests prior to the closing date of the Merger. The cash amount paid for the Excess Interests may be less than or greater than the fair market value of the Class A Units.

Risks Related to Our Industry

Cannabis remains illegal under federal law, and any change in the enforcement priorities of the federal government could render our current and planned future operations unprofitable or even prohibit such operations.

We operate in the cannabis industry, which is dependent on state laws and regulations pertaining to such industry; however, under federal law, cannabis remains illegal.

The United States federal government regulates drugs through the Controlled Substances Act (the “CSA”), which places controlled substances, including cannabis, on one of five schedules. Cannabis is currently classified as a Schedule I controlled substance, which is viewed as having a high potential for abuse and having no currently accepted medical use in treatment in the United States. No prescriptions may be written for Schedule I substances, and such substances are subject to production quotas imposed by the United States Drug Enforcement Administration (the “DEA”). Because of this, doctors may not prescribe cannabis for medical use under federal law, although they can recommend its use under the First Amendment.

Currently, 30 U.S. states, the District of Columbia and the U.S. territories of Guam and Puerto Rico have passed legislation allowing the use of medical cannabis. Voters in the states of Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon and Washington have approved ballot measures, and the state legislature of Vermont has approved legislation, to legalize cannabis for adult recreational use. Such state and territorial laws are in conflict with the federal CSA, which makes cannabis use and possession illegal at the federal level. Because cannabis is a Schedule I controlled substance, however, the development of a legal cannabis industry under the laws of these states is in conflict with the CSA, which makes cannabis use and possession illegal on a national level. The United States Supreme Court has confirmed that the federal government has the right to regulate and criminalize cannabis, including for medical purposes, and that federal law criminalizing the use of cannabis preempts state laws that legalize its use.

In light of such conflict between federal laws and state laws regarding cannabis, the previous administration under President Obama had effectively stated that it was not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical cannabis. For example, the prior Department of Justice (“DOJ”) Deputy Attorney General of the Obama administration, James M. Cole, issued a memorandum (the “Cole Memo”) to all United States Attorneys providing updated guidance to federal prosecutors concerning cannabis enforcement under the CSA (see “Description of Business—Government and Industry Regulation—The Cole Memo”). In addition, the Financial Crimes Enforcement Network (“FinCEN”) provided guidelines (the “FinCEN Guidelines”) on February 14, 2014, regarding how financial institutions can provide services to cannabis-related businesses consistent with their Bank Secrecy Act (“BSA”) obligations (see “Description of Business—Government and Industry Regulation—FinCEN”).

In 2014, the United States House of Representatives passed an amendment (the “Rohrabacher-Blumenauer Amendment”) to the Commerce, Justice, Science, and Related Agencies Appropriations Bill, which funds the United States DOJ. The Rohrabacher-Blumenauer Amendment prohibits the DOJ from using funds to prevent states with medical cannabis laws from implementing such laws. In August 2016, the Ninth Circuit Court of Appeals ruled in United States v. McIntosh that the Rohrabacher-Blumenauer Amendment bars the DOJ from spending funds on the prosecution of conduct that is allowed by state medical cannabis laws, provided that such conduct is in strict compliance with applicable state law. In March 2015, bipartisan legislation titled the Compassionate Access, Research Expansion, and Respect States Act (the “CARERS Act”) was introduced, proposing to allow states to regulate the medical use of cannabis by changing applicable federal law, including by reclassifying cannabis under the CSA to a Schedule II controlled substance and, thereby, changing the plant from a federally criminalized substance to one that has recognized medical uses. More recently, the Respect State Marijuana Laws Act of 2017 has been introduced in the U.S. House of Representatives, which proposes to exclude persons who produce, possess, distribute, dispense, administer or deliver marijuana in compliance with state laws from the regulatory controls and administrative, civil and criminal penalties of the CSA.

These developments previously were met with a certain amount of optimism in the cannabis industry, but (i) neither the CARERS Act nor the Respect State Marijuana Laws Act of 2017 has yet been adopted, (ii) the Rohrabacher-Blumenauer Amendment, being an amendment to an appropriations bill that must be renewed annually, has not currently been renewed beyond March 23, 2018, and (iii) the ruling in United States v. McIntosh is only applicable precedent in the Ninth Circuit, which includes California, the state where we currently primarily operate.

On January 4, 2018, the U.S. Attorney General, Jeff Sessions, issued a memorandum for all U.S. Attorneys (the “Sessions Memo”) stating that the Cole Memo was rescinded effective immediately. In particular, Mr. Sessions stated that “prosecutors should follow the well-established principles that govern all federal prosecutions,” which require “federal prosecutors deciding which cases to prosecute to weigh all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community.” The Sessions Memo went on to state that given the DOJ’s well-established general principles, “previous nationwide guidance specific to marijuana is unnecessary and is rescinded, effective immediately.”

It is unclear at this time whether the Sessions Memo indicates that the Trump administration will strongly enforce the federal laws applicable to cannabis or what types of activities will be targeted for enforcement. However, a significant change in the federal government’s enforcement policy with respect to current federal laws applicable to cannabis could cause significant financial damage to us. As our business plan is primarily focused on the cultivation and distribution of cannabis, we may be irreparably harmed by a change in enforcement policies of the federal government depending on the nature of such change.

Laws and regulations affecting the cannabis industry are constantly changing, which could detrimentally affect our proposed operations. 

Local, state and federal cannabis laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance or to alter our business plan. In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our operations. In addition, it is possible that regulations may be enacted in the future that will be directly applicable to our proposed business. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business.

The cannabis industry faces strong opposition.

It is believed by many that large well-funded businesses may have a strong economic opposition to the cannabis industry.  We believe that the pharmaceutical industry clearly does not want to cede control of any product that could generate significant revenue. For example, medical marijuana will likely adversely impact the existing market for the current “marijuana pill” sold by mainstream pharmaceutical companies. Further, the medical marijuana industry could face a material threat from the pharmaceutical industry, should marijuana displace other drugs or encroach upon the pharmaceutical industry’s products. The pharmaceutical industry is well funded with a strong and experienced lobby that eclipses the funding of the medical marijuana movement. Any inroads the pharmaceutical industry could make in halting or impeding the marijuana industry could have a detrimental impact on our proposed business.

Significant additional labeling or warning requirements or limitations on the availability of our products may inhibit sales of affected products.

States and the various local municipalities that have, or may have in the future, legalized the sale of cannabis may seek to adopt significant additional product testing, labeling, warning requirements or limitations on the availability of our products relating to pesticide use, potency or perceived adverse health consequences of our products. If these types of requirements become applicable to one or more of our products under current or future cannabis regulatory, environmental or health laws or regulations, they may inhibit sales of such products or increase the cost of such products so as to render them unprofitable.

Persons that may rent properties from, or otherwise do business with, us may have difficulty accessing the service of banks, which may make it difficult to conduct business. 

As discussed above, the cultivation, distribution and use of cannabis is illegal under federal law. Therefore, most banks do not accept for deposit funds from the legal cannabis industry and, therefore, do not do business with the entities involved in the cannabis industry.  The inability of people that may rent properties from, or otherwise do business with, us to open accounts and otherwise use the services of banks may have a material adverse effect on our business operations since these entities will be required to pay us in cash or with money orders. Since the monthly rent or fees we may charge could be substantial, paying in cash or with money orders may be difficult.

 We may have difficulty using bankruptcy courts due to our involvement in the legal cannabis industry. 

We have no current plans and no current need to seek bankruptcy protection. However, in the event we ever need to seek bankruptcy protection, we may have difficulty accessing bankruptcy courts considering our involvement in the legal cannabis industry. In September 2014, the U.S. Bankruptcy Court in Denver, Colorado, in the matter of In re Frank Arenas and Sarah Arenas, 14-11406-HRT (Bankr. D. Co. 2014), denied bankruptcy protection to the individuals in the business of growing and storing marijuana in a commercial building in Denver, Colorado. The building had been partially leased to a corporate entity that operated a marijuana dispensary. The U.S. Bankruptcy Court ruled that, although the activities of Mr. and Mrs. Arenas were legal under Colorado law, they were violating the federal CSA. The U.S. Bankruptcy Court denied protection to the debtors under both bankruptcy liquidation and reorganization because marijuana is illegal under federal law. Therefore, in the event we ever need to seek protection under the bankruptcy laws, our involvement in the legal cannabis industry may prevent us from obtaining such relief.

Risks Related to Our Company

We have a limited operating history in an evolving industry, which makes it difficult to accurately assess our future growth prospects.

Although we believe our team has extensive knowledge of the cannabis industry and we closely monitor changes in legislation, we also operate in an evolving industry that may not develop as expected. Furthermore, our operations continue to evolve under our nascent business plan as we continually assess new strategic opportunities for our business within our industry. Assessing the future prospects of our business is challenging in light of both known and unknown risks and difficulties we may encounter. Growth prospects in our industry can be affected by a wide variety of factors including:

We may not be able to successfully address these factors, which could negatively impact our growth, harm our business and cause our operating results to be worse than expected.

We may be unable to obtain capital to execute our business plan.

Our business plan involves the acquisition of Zabala Salinas, as well as the general expansion of our business in California. We will need additional capital to implement our business strategy and we do not currently have any commitments to provide such capital. We will need to borrow funds or raise additional equity capital to execute most of our business plan, and then in the future, to sustain our operations. There can be no assurances we will be able to obtain financing on agreeable terms, if at all in the future. Furthermore, this Offering, as well as any future sale of our equity securities, will dilute the ownership of our existing Members. Such dilution could cause future sales of our equity securities to be at prices substantially below the implied value of the Class A Units in this Offering. If we are unable to obtain the necessary capital, we may need to delay the implementation of or curtail our business plan materially, which in turn could adversely impact our ability to execute our business strategy, which could adversely affect our growth prospects and future Member returns.

We may not be able to manage successfully our growth resulting in possible failure or flawed implementation of our business plan.

We believe that our business plan can be readily scaled to accommodate numerous cannabis cultivation and distribution facilities. However, we cannot be certain of that belief until such scaling occurs. In addition, significant growth will require more than marketing capabilities, capabilities such as operating and financial procedures and controls; replacing or upgrading our operational, financial and management information systems; and attracting, training, motivating, managing and retaining key employees. If our executives are unable to manage growth effectively, our business, results of operations and financial condition could be materially adversely affected.

Adverse economic conditions may adversely affect our business, financial condition, results of operations and prospects.

As a cultivator and distributor of cannabis, our business will depend on the overall demand for cannabis and cannabis-related products in retail locations. Weak domestic or global economic conditions, or fear or anticipation of such conditions, could adversely affect our business, financial condition, results of operations and prospects in a number of ways, including longer sales cycles, lower prices for our services, higher default rates among our distributors, reduced unit sales and lower or no growth. A prolonged period of economic uncertainty or a downturn may also significantly affect financing markets, the availability of capital and the terms and conditions of financing arrangements, including the overall cost of financing as well as the financial health or creditworthiness of our end customers. Circumstances may arise in which we need, or desire, to raise additional capital, and such capital may not be available on commercially reasonable terms, or at all.

A failure of one or more of our information technology systems, networks, processes, associated sites, or service providers could have a negative impact on our business.

To an extent, we rely on information technology (“IT”) systems, networks, and services, including internet sites, data hosting and processing facilities and tools, hardware (including laptops and mobile devices), software and technical applications and platforms, some of which are managed and hosted by third-party vendors to assist us in the management of our business. The various uses of these IT systems, networks, and services include, but are not limited to: hosting our internal network and communication systems; enterprise resource planning; processing transactions; summarizing and reporting results of operations, business plans, and financial information; complying with regulatory, legal, or tax requirements; providing data security; and handling other processes necessary to manage our business. Although we have some offsite backup systems and a disaster recovery plan, any failure of our information systems could adversely impact our ability to operate. Routine maintenance or development of new information systems may result in systems failures, which may have a material adverse effect on our business, financial condition, or results of operations.

Increased IT security threats and more sophisticated cyber-crime pose a potential risk to the security of our IT systems, networks, and services, as well as the confidentiality, availability, and integrity of our data. This can lead to outside parties having access to our privileged data or strategic information, our employees, or our customers. Any breach of our data security systems or failure of our information systems may have a material adverse impact on our business operations and financial results. If the IT systems, networks, or service providers we rely upon fail to function properly, or if we suffer a loss or disclosure of business or other sensitive information due to any number of causes, ranging from catastrophic events to power outages to security breaches, and our disaster recovery plans do not effectively address these failures on a timely basis, we may suffer interruptions in our ability to manage operations and reputational, competitive, or business harm, which may have a material adverse effect on our business, financial condition, or results of operations. In addition, such events could result in unauthorized disclosure of material confidential information, and we may suffer financial and reputational damage because of lost or misappropriated confidential information belonging to us or to our partners, employees, customers, and suppliers. Although we maintain insurance coverage for various cybersecurity risks, in any of these events, we could also be required to spend significant financial and other resources to remedy the damage caused by a security breach or to repair or replace networks and IT systems.

Competition from more established cannabis cultivators and distributors may adversely affect our distribution relationships and may hinder development of our existing markets, as well as prevent us from expanding our markets.

The cannabis industry is highly competitive. We will compete with other cannabis companies not only for consumer acceptance but also for shelf space and marketing focus in retail outlets, all of whom also will likely stock other cannabis products. We do not have any exclusivity agreements or even distribution agreements in place with any retailers. Our products will compete with a wide range of cannabis products, produced by a relatively large number of producers, most of which have substantially greater financial, marketing and distribution resources than ours.

Increased competitor consolidations, market-place competition, competitive product offerings and pricing pressures could impact our earnings, market share and volume growth. If, due to such pressure or other competitive threats, we are unable to sufficiently maintain or develop our distribution channels, we may be unable to achieve our revenue and financial targets. Competition, particularly from companies with greater financial and marketing resources than ours, could have a material adverse effect on our ability to establish and expand the market for our products.

Potential competitors could duplicate our business model. 

There is no aspect of our business which is protected by patents, copyrights, trademarks, or trade names. As a result, we believe that is likely that potential competitors could duplicate our business model with little effort and minimal financing.

Our success depends on our key personnel and our ability to hire, retain and motivate qualified product development, sales, marketing and finance personnel.

Our success depends to a significant degree upon the continued contributions of our key management, product development, sales, marketing and finance personnel, many of whom may be difficult to replace. The complexity of our business requires us to retain highly trained professional services, customer support and sales personnel with specific expertise related to our business. We may not be successful in attracting, integrating, or retaining qualified personnel to fulfill our current or future needs, nor may we be successful in keeping the qualified personnel we currently have. Our ability to hire and retain these personnel may be adversely affected by volatility or reductions in the price of our Class A Units, since these employees are generally granted equity-based awards. Also, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited, or that they have divulged proprietary or other confidential information, or that their former employers own their inventions or other work product.

Our future performance also depends on the continued services and continuing contributions of our senior management to execute on our business plan and to identify and pursue new opportunities and product innovations. The loss of services of senior management could significantly delay or prevent the achievement of our development and strategic objectives, which could adversely affect our business, financial condition, and operating results.

Our reputation and ability to do business may be negatively impacted by the improper conduct of our business partners, employees or agents.

As we intend to be a cultivator and distributor of cannabis, we will largely depend on third-party retailers to resell our cannabis and related products to end-user consumers. These suppliers could tamper with our products or otherwise ignore our quality standards, which could harm the end-user customers, with whom we have no contact. Any changes in our retailer customer’s business or fortunes could disrupt our ability to sell our products at volume. Any such changes or other unrelated production issues could also disrupt our business due to delays in finding new retailers.

Furthermore, we cannot provide assurance that our internal controls and compliance systems will always protect us from acts committed by our employees, agents or business partners in violation of U.S. federal or state laws. Any improper acts or allegations could damage our reputation and subject us to civil or criminal investigations and related shareholder lawsuits, could lead to substantial civil and criminal monetary and non-monetary penalties, and could cause us to incur significant legal and investigatory fees.

Our LLC Agreement limits the liability of, and provides indemnification for, our officers and managers.

Our LLC Agreement provides that the Company shall indemnify its managers and officers for any liability including reasonable costs of defense arising out of any act or omission of any officer or manager acting on behalf of the Company to the full extent allowed by the laws of the State of Delaware, if the officer or manager acted in good faith and in a manner the officer or manager reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful. Thus, the Company may be prevented from recovering damages for certain alleged errors or omissions by the officers and managers for liabilities incurred in connection with their good faith acts for our Company. Such an indemnification payment might deplete our assets. Members who have questions respecting the fiduciary obligations of the managers and officers of the Company should consult with independent legal counsel. It is the position of the SEC that exculpation from and indemnification for liabilities arising under the Securities Act and the rules and regulations thereunder is against public policy and therefore unenforceable.

Risks Related to this Offering and Our Securities

The valuation of our Class A Units has been arbitrarily determined.

Our management has determined the number and implied value of the Class A Units offered by the Company in the Merger. The value of the Class A Units was arbitrarily determined based upon the current market value, illiquidity and volatility of our Class A Units, our current financial condition and the prospects for our future cash flows and earnings, and market and economic conditions at the time of the Offering. The implied value of the Class A Units exchanged in the Merger may be more or less than the fair market value.

Purchasers of our Class A Units may experience immediate dilution and/or future dilution.

We are authorized to issue up to 30,000,000 units of membership interest, of which 15,000,000 are Class A Common Units, 2,000,000 are designated as non-voting Class B Common Units and 3,000,000 are designated as Preferred Units. Our board of managers has the authority to cause us to issue additional Class A Units, Class B Units or Preferred Units without consent of any of our Members and to create several classes of Preferred Units that may be converted to Class A Common Units. Consequently, holders of our Class A Common Units may experience dilution in their ownership.

Units eligible for future sale may have adverse effects on the value of the Class A Units.

We are offering up to 14,000,000 Class A Units as described in this Offering Circular. We cannot predict the effect, if any, of future sales of our Class A Units or Preferred Units on the value of the Class A Units. After the completion of this Offering, we may issue additional Class A Units, Class B Units or Preferred Units in subsequent private placements or to employees under the Class B Common Units Award Plan. We are not required to offer any such Units to existing Members on a preemptive basis. Therefore, it may not be possible for existing Members to participate in such future share issuances, which may dilute the existing Members’ interests in us.

The rights of the holders of Class A Units may be impaired by the potential issuance of Preferred Units.

Although we have no present intention to issue any Preferred Units, we may issue Preferred Units in the future. If we were to issue Preferred Units, the rights of the holders of Class A Units could be impaired by such issuances.

Because the risk factors referred to above, as well as other risks not mentioned above, could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us, you should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which ones will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

DILUTION

The Company is not selling any Class A Units for cash and each member of the Disappearing Entities will continue to own the same indirect percentage of ownership in Zabala Salinas. As a result, Members of the Disappearing Entities will not experience any dilution.  

PLAN OF DISTRIBUTION

We are offering to current members of the Disappearing Entities up to 14,000,000 Class A Units in exchange for their membership interests in the Disappearing Entities. No offers or sales of the Class A Units for cash will be made pursuant to this Offering Circular, except for Excess Interests which will be redeemed for cash. See “Description of the Merger—Consideration to Members.”

The Class A Units are not now listed on any national securities exchange and we do not anticipate that the Class A Units will be listed or traded on any national securities exchange or quotation system in the foreseeable future. Accordingly, the Class A Units should be considered highly illiquid, which inhibits investors’ ability to resell their Class A Units at any time in the future. Additionally, the LLC Agreement prohibits transfer or sale of the Class A Units except in certain permitted instances.

Upon this Offering Circular being qualified by the SEC, the Company will seek approval of the Merger from the members of the Disappearing Entities. This Offering will continue until the earlier of (i) 60 days after such qualification is received or (ii) approval of the Merger by all of the Disappearing Entities. Notwithstanding the foregoing, the Company may extend the Offering by an additional 90 days or terminate the Offering at any time.

Currently, we plan to have our managers communicate with the Members regarding the member votes to approve the Merger. They will receive no compensation for such activities. Our managers will deliver this Offering Circular only to the existing members of the Disappearing Entities.

USE OF PROCEEDS

The Company is not selling any of the Class A Units for cash; the sole consideration for the Class A Units is the membership interests of the Disappearing Entities. As a result, the Company will not receive any cash proceeds from the Offering. In consequence of the Merger, the Company will acquire all of the bank accounts and accounts at financial institutions owned by the Disappearing Entities and will have access to the funds in such accounts as of the closing date of the Merger.

DESCRIPTION OF BUSINESS

Overview

Zabala Farms Group, LLC (“we,” “us,” “our,” and the “Company”) was formed in June 2018 for the purpose of acting as a holding company for the membership interests in Zabala Farms of Salinas, LLC (“Zabala Salinas”), a cannabis cultivator in Monterey County, California. The Company intends to merge (the “Merger”) Valley View Enterprises, LLC, Target Equity, LLC and Smart Initiatives, LLC, all California limited liability companies (the “Disappearing Entities”) with and into the Company, with the Company being the sole surviving company in the Merger. Each of the Disappearing Companies is currently a member of Zabala Salinas and collectively the Disappearing Entities own 70% of the outstanding membership interests of Zabala Salinas. The Company has also entered into a membership interest transfer agreement with the holders of the remaining 30% of Zabala Salinas. Assuming the Company is able to close the acquisition of such remaining 30%, the Company would become the sole owner of Zabala Salinas which would be a wholly owned subsidiary of the Company. However, even if the remaining 30% of Zabala Salinas is not acquired by the Company, the Company will become the primary operator of the business of Zabala Salinas.

The following business description relates to the operations of Zabala Salinas.

Zabala Salinas

Zabala Salinas is a company that operates a marijuana cultivation facility in Monterey County, California. As such, Zabala Salinas has applied for and obtained temporary licenses for cannabis production and a cannabis nursery; all licenses are held on one parcel of land. Zabala Salinas is now preparing to file for and obtain permanent cultivation licenses, as well as self-distribution licenses.

Zabala Salinas has finished redressing an 83,000 +/- square foot greenhouse; and also operates a separate 63,000 +/-square foot greenhouse in Monterey County. The 63,000 +/- square foot greenhouse produced approximately 1,561.11 pounds of cannabis through April 5, 2019, hitting the company’s target production goal for that time frame.

Zabala Salinas’ growth strategy is to focus on its nursery in order to smoothly transition their production to full capacity by operating both of the greenhouses. Zabala Salinas currently has approximately 20,000 cannabis clones, 15,000 cannabis teens planted into 4-inch pots, 12,000 plants vegging in 2-gallon pots and 9,000 plants that are flowering and in production. The total count approximates 56,000 plants on site in different production stages. This number changes on a daily basis due to plant health, production, harvesting schedules and plant sales. 

Efficiency, compliance, product packaging and administrative scaling are Zabala Salinas’ priorities, which is why they have recently engaged Rare Earth Development to assist in operating the farm over the next year. Rare Earth Development has successfully operated marijuana farms in neighboring states with competitive marketplaces. Rare Earth Development will bring in an experienced Manager of Operations, director of compliance and director of cultivation to support Zabala Salinas, to help thin out inefficiencies by reducing unnecessary overhead expenses and ensuring legal compliance with track and trace and seed to sell; and to assist with flower yield, potency and consistency. Additionally, Rare Earth Development will be authoring and implementing standard operating procedures and protocols for cultivation and operations at Zabala Salinas.

According to its unaudited profit and loss statement, Zabala Salinas hit profitability during the month of April 2018. Production in the farm has reached full capacity under the current greenhouse footprint, and harvesting is moving forward on a perpetual cycle. When a harvest of adult plants is completed, it takes Zabala Salinas at least three days to plant its teens into the adult plots and continue the cycle.

Zabala Salinas’ current harvest goal is to produce 35 grams of marijuana per square foot of canopy space per harvest. Though they anticipate harvests to yield different amounts during the year due to environmental factors such as hours of sunlight, temperature, humidity and other factors, Zabala Salinas’ goal is to achieve five harvests per calendar year, with approximately nine to ten weeks between harvest intervals.

The latest harvest for 2019 occurred in April. The area currently cultivated covers 13,006 square feet. We anticipate that such harvest will yield approximately 35 grams per square foot.

Zabala Salinas has implemented a sales department to handle all product sales. They are currently selling the following products:

The Land

Zabala Salinas has leased 9.5 acres of land in Monterey County, California that is zoned for cannabis cultivation. Zabala Salinas benefits from such factors as natural sunlight, supportive neighbors, and climate. All of these factors assist in the healthy production of high-quality cannabis.

The Equipment

The farm has implemented commercial farming equipment and commercial growing technology.

The Know-How

Zabala Salinas’ farming partners understand the current market expectations and are experienced agriculture scientists with a passion for growing marijuana. Their consultants permit the farm to scale its business legally, through the obtainment of the California cannabis license; while applying agricultural technology and equipment into their crops. They intend to place themselves as a go-to provider for top quality cannabis in the marketplace.

Environment and Sustainability

Zabala Salinas takes environmental concerns very seriously because they understand that how we farm today will affect all our tomorrows. They are willing to sacrifice a portion of profit potential this year to ensure that they are safely and responsibly farming for decades. 

Zabala Salinas’ Primary Target Market

Zabala Salinas’ current primary target market is licensed distributors who will sell to licensed dispensaries and, for nursery stock, licensed cannabis farms within California.

Competition and Industry Background

The cannabis industry is highly competitive. We will compete with other cannabis companies not only for consumer acceptance but also for shelf space and marketing focus in retail outlets, all of whom also will likely stock other cannabis products. We do not have any exclusivity agreements or even distribution agreements in place with any retailers. Our products will compete with a wide range of cannabis products, produced by a relatively large number of producers, most of which have substantially greater financial, marketing and distribution resources than ours.

Increased competitor consolidations, market-place competition, competitive product offerings and pricing pressures could impact our earnings, market share and volume growth. If, due to such pressure or other competitive threats, we are unable to sufficiently maintain or develop our distribution channels, we may be unable to achieve our revenue and financial targets. Competition, particularly from companies with greater financial and marketing resources than ours, could have a material adverse effect on our ability to establish and expand the market for our products.

However, we believe that we can differentiate ourselves from our competitors by providing better quality products, with fewer pesticides. We also believe that we have a stronger focus on developing strains and new products than our competitors.

Intellectual Property

Our policy will be to seek to protect and enhance the proprietary products, inventions, and improvements that are commercially important to our business, including seeking, maintaining, and defending intellectual property rights, whether developed internally or acquired from third parties. However, as of this time, there is no aspect of our business which is protected by patents, copyrights, trademarks, or trade names.

Our commercial success may depend in part on our ability to obtain and maintain patent and other proprietary protection for our products, inventions, and improvements; preserve the confidentiality of our trade secrets; defend and enforce our proprietary rights, including our patents; and operate without infringing on the valid and enforceable patents and other proprietary rights of third parties.

Government and Industry Regulation

Cannabis is currently a Schedule I controlled substance under the CSA and is, therefore, illegal under federal law. Even in those states in which the use of cannabis has been legalized pursuant to state law, its use, possession and/or cultivation remains a violation of federal law. See “Risk Factors—Risks Related to Our Industry—Cannabis remains illegal under federal law, and any change in the enforcement priorities of the federal government could render our current and planned future operations unprofitable or even prohibit such operations. A Schedule I controlled substance is defined as one that has no currently accepted medical use in the United States, a lack of safety for use under medical supervision and a high potential for abuse. The DOJ describes Schedule I controlled substances as “the most dangerous drugs of all the drug schedules with potentially severe psychological or physical dependence.” If the federal government decides to enforce the CSA in California with respect to state-regulated cannabis activities in California and other states, persons that are charged with distributing, possessing with intent to distribute or growing cannabis could be subject to fines and/or terms of imprisonment, the maximum being life imprisonment and a $50 million fine.

The Cole Memo

Because of the discrepancy between the laws in some states, which permit the distribution and sale of medical and recreational cannabis, from federal law that prohibits any such activities, DOJ Deputy Attorney General James M. Cole issued the Cole Memo concerning cannabis enforcement under the CSA.

At the time of its issuance, the Cole Memo reiterated Congress’s determination that cannabis is a dangerous drug and that the illegal distribution and sale of cannabis is a serious crime that provides a significant source of revenue to large-scale criminal enterprises, gangs, and cartels. The Cole Memo noted that the DOJ was committed to enforcement of the CSA consistent with those determinations. It also noted that the DOJ was committed to using its investigative and prosecutorial resources to address the most significant threats in the most effective, consistent, and rational way.

Although the Sessions Memo has rescinded the Cole Memo and it is unclear at this time what the ultimate impact of that rescission will have on our business, if any, we intend to continue to conduct rigorous due diligence to verify the legality of all activities that we engage in and ensure that our activities do not interfere with any of the enforcement priorities set forth in the Cole Memo (the “Cole Memo Enforcement Priorities”).

FinCEN

FinCEN provided guidance regarding how financial institutions can provide services to cannabis-related businesses consistent with their BSA obligations. For purposes of the FinCEN guidelines, a “financial institution” includes any person doing business in one or more of the following capacities:

In general, the decision to open, close, or refuse any particular account or relationship should be made by each financial institution based on a number of factors specific to that institution. These factors may include its particular business objectives, an evaluation of the risks associated with offering a particular product or service, and its capacity to manage those risks effectively. Thorough customer due diligence is a critical aspect of making this assessment.

In assessing the risk of providing services to a cannabis-related business, a financial institution should conduct customer due diligence that includes: (i) verifying with the appropriate state authorities whether the business is duly licensed and registered, (ii) reviewing the license application (and related documentation) submitted by the business for obtaining a state license to operate its cannabis-related business, (iii) requesting from state licensing and enforcement authorities available information about the business and related parties, (iv) developing an understanding of the normal and expected activity for the business, including the types of products to be sold and the type of customers to be served (e.g., medical versus recreational customers), (v) ongoing monitoring of publicly available sources for adverse information about the business and related parties, (vi) ongoing monitoring for suspicious activity, including for any of the red flags described in relevant guidance, and (vii) refreshing information obtained as part of customer due diligence on a periodic basis and commensurate with the risk. With respect to information regarding state licensure obtained in connection with such customer due diligence, a financial institution may reasonably rely on the accuracy of information provided by state licensing authorities, where states make such information available.

As part of its customer due diligence, a financial institution should consider whether a cannabis-related business implicates one of the Cole Memo Enforcement Priorities or violates state law. This is a particularly important factor for a financial institution to consider when assessing the risk of providing financial services to a cannabis-related business. Considering this factor also enables the financial institution to provide information in BSA reports pertinent to law enforcement’s priorities. A financial institution that decides to provide financial services to a cannabis-related business would be required to file suspicious activity reports. It is unclear at this time what impact the Sessions Memo will have on customer due diligence by a financial institution.

While we believe we do not qualify as a financial institution in the United States, we cannot be certain that we do not fall under the scope of the FinCEN guidelines. We plan to use the FinCEN Guidelines, as may be amended, as a basis for assessing our relationships with potential clients and customers. As such, as we engage in financing activities, we intend to adhere to the guidance of FinCEN in conducting and monitoring our financial transactions. Because this area of the law is uncertain and is expected to evolve rapidly, we believe that FinCEN’s guidelines will help us best operate in a prudent, reasonable and acceptable manner. There is no assurance, however, that our activities will not violate some aspect of the CSA. If we are found to violate the federal statute or any other in connection with our activities, our company could face serious criminal and civil sanctions.

Moreover, since the use of cannabis is illegal under federal law, we may have difficulty acquiring or maintaining bank accounts and insurance, and our Members may find it difficult to deposit their securities with brokerage firms.

Licensing and Local Regulations

Zabala Salinas currently has the local and state permits and licenses necessary to cultivate and sell cannabis products in Monterey County, California. We must continue to abide by local and state laws in California. Despite California’s adoption of legislation legalizing cannabis, counties and municipalities within the state may have the ability to otherwise restrict cannabis activities, including but not limited to cultivation, retail, distribution, manufacturing or consumption.

We are subject to the zoning requirements of Monterey County. Zoning laws set forth the approved use of land in any given city, county or municipality. Zoning can be subject to change or withdrawal, discretionary approvals may be required for certain uses, and properties can be re-zoned. The zoning of our property has a direct impact on our business operations. We believe that Zabala Salinas is currently in compliance will all zoning laws, rules and regulations.

Corporate Information

Our principal executive offices are located at 38625 Calistoga Drive, Suite 200, Murrieta, CA 92563. Our telephone number is (951) 550-7641. We do not currently have a website.

Employees

As of the date of this Offering Circular, the Company has no employees. All operations are conducted by the managers who are not receiving compensation for such services, or through Red Sparrow 360. See “Interests of Management and Other in Certain Transactions”. Upon completion of the Merger, the Company will hire all of the existing employees of the Disappearing Entities and upon closing of the acquisition will assume all operations of Zabala Salinas. At such time we expect to have several employees and consultants. We anticipate that none of our employees will be represented by a union or parties to a collective bargaining agreement.

Legal Proceedings

We are not currently a party to any material legal proceedings. Although we are not currently a party to any material legal proceedings, from time to time, we may be subject to various other legal proceedings and claims that are routine and incidental to our business. Although some of these proceedings may result in adverse decisions or settlements, management believes that the final disposition of such matters will not have a material adverse effect on our business, financial position, results of operations or cash flows.

DESCRIPTION OF PROPERTY

The following table summarizes pertinent details of our properties as of April 15, 2019, which includes the land under cultivation owned by Zabala Salinas of which we would own 70% of the membership interests after this Merger:

Our principal executive office is an 8,106 square foot facility located in Murrieta, California, and is subject to a three-year lease, plus an option to extend for three additional years, with monthly rent initially starting at $1.80 per square foot. The rent is increased each year over the course of the lease by approximately $0.05 per square foot per month.

DESCRIPTION OF THE MERGER

Background to the Merger

Each of the Disappearing Entities was formed by Jeremy Johnson and Anthony Johnson to invest in the membership interests of Zabala Salinas. Jeremy and Anthony Johnson are brothers and are the managers of each of the Disappearing Entities. The Disappearing Entities collectively purchased 70% of the membership interests of Zabala Salinas and the remaining 30% was owned by the two original founders of Zabala Salinas. The Company intends to take over and assume management and administrative control of Zabala Salinas. The purpose of the Merger is to combine the ownership interests of Zabala Salinas into one entity, while maintaining each Member’s respective indirect ownership percentage in Zabala Salinas.

Transaction Structure

The transaction is structured as a merger in which each of the Disappearing Entities will merge with and into the Company and the Company will assume all assets, liabilities and obligations of the Disappearing Entities. The Disappearing Entities will cease to exist and each member of the Disappearing Entities prior to the closing of the merger will become a member of the Company. The terms and conditions of the Merger are governed by a merger agreement (the “Merger Agreement”) between and among the Company, on the one hand, and each of the Disappearing Entities, on the other hand. A copy of the Merger Agreement is attached hereto as Exhibit A. The Members will become parties to the LLC Agreement of the Company upon closing of the Merger. A summary of the LLC Agreement and a comparison of the rights of members is set forth below under “Comparison of Rights.” A copy of the LLC Agreement is attached to this Offering Circular as Exhibit B.

Consideration to the Members

Each member of the Disappearing Entities prior to the Merger will receive Class A Units of the Company in exchange for the membership interests that they own in the Disappearing Entities, subject to the Company’s obligation to repurchase “Excess Interests” (as described below). The number of Class A Units to be received by each Member was calculated to maintain such Member’s indirect ownership interest in Zabala Salinas. No cash will be paid for fractional units. In lieu thereof, fractional units will be rounded up or down to the nearest whole number of Class A Units. If any of the Disappearing Entities receives any cash or non-cash distribution form Zabala Salinas prior to the closing of the Merger, then each such Disappearing Entity will distribute such cash or non-cash consideration to its members immediately prior to the closing of the Merger, less any amount maintained by the managers of such Disappearing Entity as they deem necessary or advisable to pay the operating expenses or accrued liabilities of such Disappearing Entity.

The Company is not selling any Class A Units for cash in this Offering.

Exchange Ratios

The exchange ratio for each Disappearing Entity was calculated such that each member of the Disappearing Entities would maintain its indirect ownership percentage in Zabala Salinas that they held through the Disappearing Entity prior to the Merger. By way of example and clarification only, assume a member owns ten percent (10%) of the membership interests of Smart Initiatives which in turn owns twenty percent (20%) of Zabala Salinas. Prior to the Merger, such member indirectly owns two percent (2%) of Zabala Salinas. In the Merger, such member would receive a number of Class A Units that will result in such member maintaining its two percent (2%) indirect ownership interest in Zabala Salinas, subject to the Company’s obligation to repurchase “Excess Interests.” If the Acquisition Agreement is consummated and the Company acquires the 30% ownership interests in Zabala Salinas that were not owned by the Disappearing Entities, then the ownership percentage of each member will be proportionately increased.

EXCHANGE RATIOS FOR EACH DISAPPEARING ENTITY

Redemption of Excess Interests for Cash

The Offering is being conducted pursuant to Rules 251 through 262 promulgated under the Securities Act. Pursuant to such Rules, this Offering is a Tier 2 Offering and, therefore, the Members receiving Class A Units in this Offering may be subject to certain limitations on the amount that may be invested. If a member is an “accredited investor” as such term is defined in Rule 501 of Regulation D, then there is no limitation on the amount such person may invest. An accredited investor is generally an individual with a net worth, alone or with such person’s spouse, in excess of $1,000,000 (excluding the value of his or her personal residence and excluding the amount of debt thereon up to the amount of the value of the residence) or with annual income in the last two years of $200,000 individually or $300,000 with his or her spouse.

For Members who are not accredited investors, the aggregate purchase price of their respective membership interests in the Disappearing Entity cannot exceed ten percent (10%) of the greater of (i) their net worth and (ii) their annual income. Any amount invested in the membership interests of the Disappearing Entities in excess of the permitted amount will be deemed to be a “Excess Interest.” Each Member must complete a written consent to approve or disapprove the Merger and disclose to the Company the Member’s net worth and annual income. The Company will then determine if any membership interests held by any Member is a Excess Interest. Within 30 days after the closing of the Merger, the Company will distribute to Members cash in lieu of Class A Units for all Excess Interests. The amount of the cash distribution will equal the amount invested in the Disappearing Interests in excess of the permitted investment in the Offering. The cash distributed for the Excess Interests may be more or less than the current fair market value of the Class A Units. However, each member will also be permitted to retain all cash distributions made with respect to their membership interests in the Disappearing Entities. To date, members of the Disappearing Entities have received cash distributions with respect to their membership interests, which they are entitled to retain and will not be deducted from the amount paid to repurchase the Excess Interests. As a result, the cash amount paid for Excess Interests plus the prior distributions will exceed the original purchase price of the Excess Interests.

If the aggregate amount of cash that would be necessary to redeem the Excess Interests exceeds $1,000,000, then the Company may elect to terminate the Merger Agreement and the Merger will not be consummated.

Board of Managers Following the Merger

The board of managers of the Company is currently comprised of two persons, Anthony Johnson and Jeremy Johnson. Following consummation of the Merger, the board of managers will remain the same and it is not contemplated that any additional managers will be added in the future.

Interests of the Managers in the Merger

The board of managers will not receive any compensation or remuneration as a result of the Merger. No Class A Units will be issued or held by the managers upon closing of the Merger, except for Class A Units issued in exchange for the membership interests in the Disappearing Entities held by the managers.

The Merger Agreement

The following discussion is a brief summary of the Merger Agreement which is attached hereto as Exhibit A and does not set forth a full discussion of all of the terms and conditions. Each Member is encouraged to review the entire Merger Agreement.

Closing and Timing. The closing occurs when the Company files certificates of merger with each of the Secretary of State of California and Delaware. The Company anticipates that the closing of the Merger of all Disappearing Entities will occur simultaneously, subject to the closing conditions described below. The Merger will close within 15 business days after each of the closing conditions has been satisfied or waived. The Company anticipates that the closing will occur in June 2019, but such date is subject to numerous conditions that are outside the control of the Company.

Conditions to Closing. The closing will not occur unless the following conditions are fulfilled or waived by the appropriate party:

The obligations of all parties to consummate the Merger are subject to the following conditions:

The obligation of the Company to consummate the Merger is conditioned upon satisfaction or waiver by the Company of the following conditions:

The obligation of each Disappearing Entity to consummate the Merger is conditioned upon satisfaction or waiver by the Company of the following conditions:

Exchange Procedures. Upon effectiveness of the Merger, each outstanding unit of membership interest in each of the Disappearing Entities automatically converts into the right to receive Class A Units of the Company at the ratio set forth in the Merger Agreement, except Excess Interests and dissenting interests (as described below). None of the membership interests in the Disappearing Entities are certificated and the Class A Units will be maintained as book entry securities only. As a result, Members are not required to take any further action to convert their membership interests into Class A Units. Following the closing, the Company will send inform the Members of their respective ownership interests after giving effect to the repurchase of the issenting Interests and the Excess Interests.

Representations and Warranties of the Parties. The Company and each of the Disappearing Entities makes customary representations and warranties regarding the business, operations, condition and authority to enter into the Merger Agreement.

Termination Provisions. The Merger Agreement may be terminated as follows:

Tax Treatment

All of the Disappearing Entities are California limited liability companies and the Company is a Delaware limited liability company. None of the Disappearing Entities nor the Company has incurred more than an immaterial amount of debt. None of the Disappearing Entities nor the Company has elected to be treated as an association taxable as a corporation.

Each of the Disappearing Entities will merge into the Company. Under the Internal Revenue Code, the resulting limited liability company will be considered the continuation of the Company and the Disappearing Entity whose members own 50% or more of the Company after the transactions. Nevertheless, for all of the members of the Disappearing Entities the mergers will result in no gain or loss. The members of the Disappearing Entities will substitute their adjusted tax basis and tax holding period in their membership interests in the Disappearing Entities as the tax basis and holding period for their Class A Units in the Company. The Company will acquire the assets of the Disappearing Entities on a tax free basis, substituting the tax basis of the Disappearing Entities.

Description of the Acquisition Agreement

The Company has entered into a Membership Interest Purchase Agreement with each of David Brown and David Emerson to purchase the remaining 30% of the membership interests of Zabala Salinas. The purchase price for the membership interests is $5,400,000, a portion of which has already been paid by the Company. The closing of the acquisition is conditioned on a number of events, including the raise of additional a capital by the Company. The Company is currently in the process of raising $5,400,000 through the sale of Class A Units at a price of $1.80 per unit. No Class A Units have been sold to date and there can be no guaranty that the Company will be able to raise the capital necessary to purchase those membership interest. Whether the Company purchases the remaining 30% of the interests, the Company will assume management and control of the day-to-day operations of Zabala Salinas upon consummation of the Merger.

APPROVAL OF THE MERGER; VOTING BY MEMBERS

Vote Required

The Merger between the Company and each of the Disappearing Entities will be consummated when the requisite number of members of each Disappearing Entity vote in favor of the Merger. For Target Equity and Valley View, the required vote is members holding a Majority of the membership interests. For Smart Initiatives, the required vote is members owning sixty percent of the membership interests. (Such vote referred to respectively as the “Required Votes”.) There can be no guaranty that the Required Votes will be received. If any Disappearing Entity does not receive the Required Votes to approve the Merger, then such Disappearing Entity will not be included in the Merger and the members of such Disappearing Entity will retain their membership interests in the Disappearing Entity.

Recommendation of the Managers of the Disappearing Entities

The managers of each of the Disappearing Entities have recommended a vote in “Favor” of the Merger. The managers of all Disappearing Entities are Anthony Johnson and Jeremy Johnson. Both Anthony and Jeremy Johnson own membership interests in each of the Disappearing Entities and will receive their proportionate ownership interest in the Company upon consummation of the Merger.

How to Vote

Each member of the Disappearing Entities will be provided with a written consent of the members to vote on the Merger. Members may elect to vote in favor of the Merger and the transactions contemplated by the Merger Agreement, or may vote against the Merger. If a member elects not to complete the written consent, it will be counted as a vote against the Merger. Each member should complete the written consent, including the questions relating to their net worth and annual income, and return it to the Company per the instructions thereon. The written consent may be mailed, emailed or faxed to the respective Disappearing Entity. The deadline for voting will be approximately 30 days after the date the written consent is sent to the members of each Disappearing Entity. The written consents will be sent promptly after this Offering Circular becomes effective with the SEC.

Questions About Voting

Each written consent will set forth the person that members may contact with questions regarding the Merger, the Merger Agreement, the written consent and the voting requirements, as well as any other matter relating thereto.

Dissenters’ Rights

Pursuant to Section 17711.01 et seq. of the California Revised Uniform Limited Liability Company Act (the “RULLCA”), each of the members of the Disappearing Entities and of the Company will have dissenters’ rights. Such dissenters’ rights entitle each member to receive the fair market value of their respective membership interests in the Disappearing Entity in lieu of Company Class A Units if they comply with the requirements of the RULLCA. In order to be a “dissenting interest” a member must satisfy all of the following conditions:

Within 10 days after the date that the Company receives the Required Vote of members of each Disappearing Entity, the Company will mail to all members a notice of such approval, accompanied by copies of Sections 17711.01 through 17711.05 of the RULLCA and its determination of the fair market value of the interests, as well as a brief description of the procedure to be followed by members desiring to exercise dissenters’ rights (the “Dissenters’ Rights Notice”). Section 17711.03 requires that, within 30 days after the receipt of the date the Dissenters’ Rights Notice is mailed, members desiring to exercise dissenters’ rights send a written notice to the Company stating such member’s desire to sell the member’s interests at fair market value and setting forth the value at which the member believes is fair market value.

If the Company agrees that a member’s interest has qualified as a “dissenting interest” and the Company and the dissenting member agree upon the fair market value of the interests, then the Company shall pay the dissenting member the agreed price for the dissenting interests within 30 days after the date the Merger is consummated.

If the Company disagrees that the member has satisfied the requirements to be a dissenting interest or if the Company and the member cannot agree on the fair market value of the dissenting interest, then the member may file a complaint in the California superior court to adjudicate whether such member’s interest was a dissenting interest and the fair market value of the dissenting interest. Such complaint must be filed within six months after the date the Dissenters’ Rights Notice was mailed by the Company. A dissenting member may also join in any action brought by another dissenting member. The court is entitled to determine whether the interests were qualified as dissenting interests and what the fair market value is, or may appoint an appraiser to determine the fair market value. The costs of such lawsuit, including the costs of any appraisers shall be apportioned between the Company and the members as the court deems to be equitable; provided, however, if the appraised value is higher than the price offered by the Company, then the Company shall pay the costs of the action. If the fair market value as determined by the court is more than 125% of the price offered by the Company, then the court may also require the Company to pay the attorneys’ fees and fees of expert witnesses engaged by the members.

A dissenting interest loses its status as a dissenting interest and the member ceases to be a dissenting member if:

COMPARISON OF MEMBER RIGHTS

The following comparison summarizes the material, but not all, of the differences between the laws of the State of Delaware (in which the Company is organized) and the laws of the State of California (in which each of the Disappearing Entities is organized) and between the operating agreements of each Disappearing Entity and the LLC Agreement of the Company.

This section does not include a complete description of all differences among the rights of the Disappearing Entity Members and Company Members, nor does it include a complete description of the specific rights referred to below. Furthermore, the description of some of the differences in these rights in this section is not intended to indicate that other differences that may be equally important do not exist. All members of the Disappearing Entities are urged to read carefully the relevant provisions of the Delaware Limited Liability Company Act, as well as the Company’s LLC Agreement. This summary is qualified in its entirety by reference to the full text of the Company’s LLC Agreement attached as Exhibit B and the Delaware Limited Liability Company Act.

Authorized Membership Interests

Number and Election of Managers

Removal of Managers

Manager Scope of Authority

Management Compensation

Member Voting Rights

Involuntary Withdrawal of Members

Distributions

Indemnification of Managers

Equity Incentive Plans

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Our goal is to own 100% of the membership interests of Zabala Salinas, a cultivator and wholesaler of cannabis and cannabis-related products in Monterey County, California. The Company was formed under the laws of the State of Delaware on June 22, 2018.

In order to achieve its goals, the Company has developed a business plan which is described in the section entitled “Description of Business” above.

For the period from inception to December 31, 2018 (Audited)

Revenues

We had no revenues for the period from inception to December 31, 2018. The Company was formed in June 2018 for the purpose of acquiring the Disappearing Entities and to act as a holding company for Zabala Salinas. Until completion of the Merger, the Company does not anticipate any revenue from operations.

Cost of Sales

The Company remains in developmental stage and, therefore, has not commenced selling cannabis. Thus, in conjunction with not having any operational revenue, the Company has incurred no cost of sales.

Operating Expenses

We had operating expenses of $23,738 for the period from inception to December 31, 2018. Operating expenses were incurred principally to develop the Company’s business plan, to implement the necessary infrastructure necessary to conduct the Offering, legal expenses and general administrative expenses.

Income/Losses

We had no revenue during the period from inception through December 31, 2018. Our losses totaled $23,738 during such period. We anticipate that we will incur losses until the consummation of the Merger and the closing of the acquisition, after which we will have positive cash flow from the operations of Zabala Salinas.

Impact of Inflation

We believe that inflation has had a negligible effect on operations since inception. We believe that we can offset inflationary increases in the cost of operations by increasing sales and improving operating efficiencies.

Liquidity and Capital Resources

As of December 31, 2018, we had no available cash or cash equivalents. Such cash is insufficient to sustain our operations or to complete the acquisition. The Company intends to raise additional capital through the sale of membership interests or by borrowing. We have no commitments to invest in our membership interests or to provide a loan at this time, and therefore there can be no assurance that the Company will have sufficient capital to conduct its operations as currently planned or to implement the business strategy set forth in this Offering Circular.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

MANAGERS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES

Our board of managers was appointed by our initial Members. Managers may not be removed or replaced, except for “cause,” which is defined as the conviction of a crime, personal dishonesty, and willful violation of Company policies. A majority in interest of the Members must vote for removal after recommendation by the board of managers. The board of managers appoints our executive officers at their discretion. 

The Company has no employees. See “Compensation of Managers and Officers” below.

 Our directors and executive officers are as follows:

Family Relationships

Jeremy and Anthony Johnson are brothers. Other than such relationship, there are no family relationships among and between the issuer’s managers, officers, persons nominated or chosen by the issuer to become managers or officers, or beneficial owners of more than ten percent of any class of the issuer’s equity securities.

Involvement in Certain Legal Proceedings

No officer, manager, or persons nominated for such positions, promoter, control person or significant employee has been involved in the last ten years in any of the following:

COMPENSATION OF MANAGERS AND OFFICERS

The table below summarizes all compensation awarded to, earned by, or paid to our managers and officers for all services rendered in all capacities to us since inception in June 2018 until the date of the Offering Statement to which this Offering Circular relates. We do not have a compensation committee and compensation for our managers is prohibited by the LLC Agreement unless otherwise agreed by the members. We have approved the Class B Common Units Award Plan for the compensation of managers, employees and contractors.

__________________

Class B Common Units Award Plan

The board of managers and the initial members approved the adoption of the Class B Common Units Award Plan (the “Award Plan”) pursuant to which the Company may award or grant Class B Units or options to purchase Class B Units to employees and consultants. The purpose of the Award Plan is to attract and retain exceptional employees and consultants and to reward those who have provided material contributions to the success of the Company’s business. Awards under the Award Plan will generally vest over a period of three years, unless otherwise determined by the board of managers. Class B Units have no voting rights, so recipients will not be entitled to vote on any matter submitted to the vote of Members, except as required by Delaware law. If a recipient of an award is terminated or resigns, then the Company may repurchase the units subject to the award. The price of the repurchase is nominal for unvested awards, and fair market value for awards that have already vested. No awards have been made or granted under the Award Plan.

SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS

The following tables set forth the ownership of our voting securities based on an aggregate of 1,384,615 Class A Units issued and outstanding as of April 15, 2019. The information includes beneficial ownership by (i) each officer and manager, (ii) all of our executive officers and managers as a group, and (iii) each person or entity who, to our knowledge, owns more than 5% of our Class A Units.

Except as noted below, to our knowledge, each person named in the table has sole voting and investment power with respect to all Class A Units beneficially owned by them.

The information presented below regarding beneficial ownership of our voting securities has been presented in accordance with the rules of the Securities and Exchange Commission and is not necessarily indicative of ownership for any other purpose. Under these rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares the power to vote or direct the voting of the security or the power to dispose or direct the disposition of the security. A person is deemed to own beneficially any security as to which such person has the right to acquire sole or shared voting or investment power within 60 days through the conversion or exercise of any convertible security, warrant, option or other right. More than one person may be deemed to be a beneficial owner of the same securities.

Unless stated otherwise, the business address for these Members is 38625 Calistoga Drive, Suite 200, Murrieta, CA 92563.

______________________

INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS 

Except as described within the section entitled “Executive Compensation of Managers and Officers: in this Offering Circular, the Company had the following transactions with “Related Persons,” as that term is defined in item 404 of Regulation SK, which includes, but is not limited to:

The Company issued Class A Units to the initial managers upon formation of the entity. Such Class A Units were issued at a purchase price less than that paid by cash investors.

Each of the managers also owns membership interests in each of the Disappearing Entities, some of which were acquired for services and not for cash at a price less than paid by cash investors.

The managers of the Company are also the managers of each Disappearing Entity and, therefore, negotiation of the terms and conditions of the Merger Agreement was not done on an arm’s-length basis. While the managers believe that the terms and conditions of the Merger Agreement, including the exchange ratios, are fair and reasonable, had the Merger Agreement been negotiated with unaffiliated third parties, its terms may have been more favorable, or less favorable, to the Disappearing Entities and their Members. In addition, conflicts could arise between the Company and each Disappearing Entity in the interpretation or any extension or renegotiation of the Merger Agreement.

Our LLC Agreement provides that our managers receive annual management fees of $150,000 per person. Changes to the management fee must be approved by members holding a majority of the outstanding voting units.

We have entered into a Management Services Agreement with Red Sparrow 360, LLC, a California limited liability company that is owned and managed by Todd Johnson and Jeremy Johnson. Pursuant to the Management Services Agreement, Red Sparrow provides supervision of all employees of or contractors to the Company, provides communications to members of the Company, provides secure record-keeping, assist with financial reports and updates and provides such other management services as the Company may require. The Company pays Red Sparrow a flat fixed fee of $40,000 per month, plus reimbursement of actual out-of-pocket expenses. Red Sparrow has agreed to obtain insurance coverage with respect to its services and is required to disclose to the Company any activities or interests that may conflict with the interests of the Company. Red Sparrow does not have any interest in or rights to Company intellectual property. However, inventions or improvements developed by Red Sparrow during the course or scope of the Management Services Agreement belong to Red Sparrow. The Management Services Agreement was not negotiated on an arms’-length basis and may be on terms less favorable to the Company than those available form an unrelated third party.

SECURITIES BEING OFFERED

This Offering Circular relates to the sale of up to 14,000,000 Class A Units by the Company in exchange for membership interests in the Disappearing Entities. The Company is not offering or selling any Class A Units for cash; provided, however, the Company will redeem for cash any “Excess Interests.” See “Description of the Merger—Redemption of Excess Interests for Cash.

We are authorized to issue a total of 25,000,000 Class A Units, 2,000,000 Class B Units and 3,000,000 Preferred Units. As of April 15, 2019, the Company had 1,384,615 Class A Units outstanding and no Class B Units or Preferred Units outstanding.

Class A Units

Each Class A Unit entitles the holder to one vote, either in person or by proxy, at meetings of Members. The matters to be voted upon by Members are limited because our managers have broad powers to conduct the Company’s business operations. Members will only have the right to vote upon matters required by Delaware law and those specifically required by the LLC Agreement. Our board of managers is comprised of three persons, two of whom were appointed by the initial Members. One vacancy remains, which will be filled by the existing managers. Managers may not be removed or replaced except for “cause” which is defined in the LLC Agreement to be upon the conviction of a crime, a willful violation of Company policy or an act of dishonesty. The board of managers must first recommend that the manager be removed and a majority in interest of the Members must vote in favor of such removal. On any matter submitted to the vote of Members, the vote of the holders of a majority of the issued and outstanding voting interests entitled to vote thereon is sufficient to authorize, affirm, ratify or consent to such act or action, except as otherwise provided by law. Members may take action by written consent of over 50% of the issued and outstanding Class A Units of the Company.

Holders of Class A Units are entitled to receive ratable distributions, if any, as may be declared by the board of managers out of funds legally available. From inception, the Company has never declared or paid any cash dividends to holders of its Class A Units, and has no intention to do so in the foreseeable future. Although it is the Company’s intention to utilize all available funds for the development of its business, no restrictions are in place that would limit its ability to pay dividends. The payment of any future cash dividends will be at the sole discretion of the Company’s board of managers.

Holders of our Class A Units have no pre-emptive rights or other subscription rights, conversion rights, redemption rights or sinking fund provisions. Upon our liquidation, dissolution or winding up, the holders of our Class A Units will be entitled to share ratably with all other units of membership interest in the net assets legally available for distribution to Members after the payment of all of our debts and other liabilities.

Class B Units

The Company is authorized to issue up to 2,000,000 Class B Common Units (the “Class B Units”). As of the date of this Offering Circular, no Class B Units have been issued or are outstanding. The Class B Units are identical in rights, preferences and privileges as the Class A Units, except that Class B Units have no voting rights, and will be issued solely pursuant to the Company’s Award Plan.

Preferred Units

The Company’s board of managers is authorized, subject to limitations prescribed by law and provisions of the Company’s LLC Agreement, to provide for the issuance from time to time in one or more series of up to 3,000,000 Preferred Units and to established the number of Preferred Units to be included in each series, and to fix the designations, relative rights, preferences, qualifications and limitations of the Preferred Units of each such series. To date, even though it designated 3,000,000 Preferred Units available for issuance, the Company has not issued any Preferred Units.

Uncertificated Securities

All of the Class A Units, the Class B Units and the Preferred Units are, or would be upon issuance, uncertificated. The Company will maintain at its principal executive offices a list of each Member of the Company and such Member’s capital contributions, number of Class A Units or other Units and the contact information of each Member. The Company does not intend to engage any third party as a transfer agent or registrar.

 No Trading Market

Our Class A Units are not traded on a national exchange. There is no market for our Class A Units.

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES LIABILITIES

Our LLC Agreement, subject to the provisions of Delaware law, contains provisions which allow the Company to indemnify any person against liabilities and other expenses incurred as the result of defending or administering any pending or anticipated legal issue in connection with service to us if it is determined that person acted in good faith and in a manner which he reasonably believed was in the best interest of the Company. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our managers, officers and controlling persons, we have 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.

FINANCIAL STATEMENTS

Table of Contents

Report of Independent Registered Public Accounting Firm

To the shareholders and the board of directors of Zabala Farms Group, LLC

Opinion on the Financial Statements

We have audited the accompanying balance sheet of Zabala Farms Group, LLC. (the "Company") as of December 31, 2018, the related statement of operations, stockholders' equity (deficit), and cash flows for the period from June 22, 2018 (inception) to December 31, 2018, 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, 2018, 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.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company'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.

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.

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ BF Borgers CPA PC

BF Borgers CPA PC

Served as Auditor Since 2018

Lakewood, CO

May 1, 2019

Zabala Farms Group, LLC

Balance Sheet

The accompanying footnotes are an integral part of these consolidated financial statements.

Zabala Farms Group, LLC

Statement of Operations

The accompanying footnotes are an integral part of these consolidated financial statements.

Zabala Farms Group, LLC

Statement of Cash Flows

The accompanying footnotes are an integral part of these consolidated financial statements.

Zabala Farms Group, LLC

Statement of Change in Members' Equity

For the period from June 22, 2018 (inception) to December 31, 2018

The accompanying footnotes are an integral part of these consolidated financial statements.

Zabala Farms Group, LLC

Notes to Financial Statements

For the Period June 22, 2018 (inception) to December 31, 2018

Note 1—Nature of Business and Significant Accounting Policies

Nature of Business

Zabala Farms Group, LLC (the “Company”) was formed in the State of Delaware on June 22, 2018. The Company is an investment holding group formed for the sole purpose of making equity investments into Zabala Farms of Salinas, LLC, which is a licensed marijuana cultivation facility operating in the State of California. The Company acquires financing to make these equity investments through a series of private offerings.

Basis of Accounting

The financial statements are prepared using the accrual method of accounting as generally accepted in the United States of America (U.S. GAAP).

Revenue Recognition

The Company recognizes dividend revenue received from Zabala Farms of Salinas, LLC only upon the declaration of such revenues by Zabala Farms of Salinas, LLC. Thereupon, rights to dividend revenue are distributed pro rata among the members of the Company according to their membership interest. The Company has no other current source of revenue nor does it intend to establish any other revenue source.

In May 2014, ASU 2014-09 was issued related to revenue from contracts with customers. ASU 2014-09 was further amended in August 2015, March 2016, April 2016, and May 2016 by ASU 2015-14, 2016-08, 2016-10 and 2016-12, respectively. The new standard provides a five-step approach to be applied to all contracts with customers and also requires expanded disclosures about revenue recognition. In August 2015, the effective date was deferred to reporting periods, including interim reporting periods, beginning after December 31, 2017, and will be applied retrospectively without the possibility of early adoption. The Company reviews new accounting standards as issued and does not believe this standard, nor any announcements made subsequent to the date of these financial statements has any material effect upon these financial statements. The Company uses all cash assets to purchase specific securities it intends to hold to maturity. Dividends received from passive ownership of these securities are recognized as revenue and the Company does not believe the five-step approach articulated in ASU 2014-09 requires this recognition to be deferred.

Fixed Assets

The Company holds no fixed assets and does not intend to acquire fixed assets of any type.

Fair Value of Financial Instruments

Under FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. However, there is no readily observable market value for the financial instruments held by the Company, which consist entirely of restricted private equity holdings in Zabala Farms of Salinas, LLC. There are also no comparable securities with observable market prices trading on an orderly exchange. Further, the Company has informed its members through its Private Placement Memorandum that the valuation placed on its securities in Zabala Farms of Salinas, LLC is arbitrary. Therefore, the Company believes historical cost is the appropriate basis upon which to measure its securities of and has compiled its financial statements accordingly.

Cash and Cash Equivalents

There were no cash or cash equivalents on hand at December 31, 2018.

Income Taxes

The Company is taxed as a partnership and recognizes no income tax expense at the firm level; all income tax expenses are passed on to members at their respective marginal tax rates.

Offering Costs

The Company pays all costs related to its private offerings, not to exceed 10 percent of the total capital raised plus 10 percent of available equity which is awarded to finders and may be liquidated immediately to defray any additional operating costs. These costs are recognized immediately upon the completion of a subscription agreement.

Note 2 – Going Concern

The Company’s financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. At December 31, 2018, the Company had $0 in cash and $0 in working capital. From inception (June 22, 2018) through December 31, 2018, the Company had a net loss of $23,738. Continued losses may adversely affect the liquidity of the Company in the future. Therefore, the factors noted above raise substantial doubt about our ability to continue as a going concern. While the Company is formed as an investment vehicle only and it is neither intended nor necessary that the Company maintain a positive cash or working capital balance to successfully pursue its investment objectives, the recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company. To sustain its operations, the Company may need to raise additional equity financing, which could have a dilutive effect on existing equity holders. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Note 3 – Related Party

Managing Members

Todd Johnson and Jeremy Johnson are the managing members of the Company. Todd Johnson and Jeremy Johnson are also the beneficial owners of Green Bud Initiatives, LLC, a California limited liability company that organized the Company and its offering. Green Bud Initiatives, LLC also operates a call center and manages the administrative, accounting, legal requirements and other operating costs associated with the Company. Therefore, apart from marketing expenses that are paid to unrelated parties, many of the Offering Costs recognized by the Company have been paid to Green Bud Initiatives, LLC. However, this does not imply that Todd Johnson or Jeremy Johnson have enjoyed the full benefit of these payments; instead, they have been used to finance office payroll, rent, utilities, legal and accounting costs, and other operational costs. In total, the Company made five payments to Green Bud Initiatives, LLC during the period covered by the financial statements, totaling $18,850. These payments were made pursuant to a contractual arrangement wherein the Company pays 10 percent of total capital raised in the offering to Green Bud Initiatives, LLC in exchange for organizing the offering and providing legal and administrative support.

Todd Johnson and Jeremy Johnson intend to dissolve Green Bud Initiatives, LLC during 2019 and have created Red Sparrow 360, a California limited liability company specializing in marketing and investor relations. As Todd Johnson and Jeremy Johnson are the beneficial owners of Red Sparrow 360, LLC, it is also a related party to the Company. It is intended that Red Sparrow 360, LLC will become a successor to the services heretofore offered the Company by Green Bud Initiatives, LLC.

No amount is currently payable or receivable from any related party.

Note 4 – Deposit on Purchase Contract

On March 3, 2019, the Company entered into a Purchase Contract to acquire 29% of the issued and outstanding Class A interest in Zabala Farms of Salinas, LLC. Zabala Farms of Salinas, LLC operates a marijuana cultivation facility duly licensed in the State of California. Pursuant to the Purchase Contract, the Company agrees to pay $5,400,000 to acquire the Class A Interest from the selling shareholders in Zabala Farms of Salinas, LLC. As of December 31, 2018, the Company had made a deposit on this purchase contract, which remained in drafting and had not yet been fully executed, in the amount of $193,050.

Note 5 – Accrued Expenses

The Company has no salaries to accrue nor any obligations arising under any form of debt agreement and has no intention to create any such obligations. Therefore, there are no expenses to accrue.

Note 6 – Debt

The Company has never had and does not intend to enter into debt agreements of any kind.

Note 7 – Members’ Equity

Equity Structure

Ownership in the Company is divided into 1,384,615 issued and outstanding Class A units. Founders Todd Johnson and Jeremy Johnson hold 610,024 units each.

The Company is authorized to issue up to 20,000,000 Class A units, 2,000,000 Class B units and 3,000,000 preferred units. Class A units each carry equal voting rights and profit-sharing rights. Class B units entitle the holder to profit-sharing rights but not voting rights and are issued through the Company’s Common Unit Award Program. Preferred units entitle the holder to special voting rights. As of the date of the financial statements, no Class B units nor preferred units have been issued.

Equity Unit Sales

During the period covered by the financial statements, the Company sold 164,567 units for the amount of $214,788.

Options, Warrants, and Derivatives

The Company has not issued and has no plans to issue any options, warrants, convertible notes, preferred shares or any other derivative instruments related to its equity structure.

Note 8 – Subsequent Events

On April 3, 2019, the Company entered into a management services agreement with Red Sparrow 360, LLC. Red Sparrow 360 will provide staffing, member support, legal counsel, circulation of company updates and financial documents and record keeping services. For these services, the Company will render consideration of $40,000 monthly and reimbursement of expenses. Red Sparrow 360, LLC is owned and managed by Jeremy and Anthony Johnson, who also serve as managers of the Company. This agreement was not, therefore, negotiated on an arms’-length basis and may be on terms less favorable than those available from an unaffiliated third party.

On April 4, 2019, the Company formally executed the Purchase Contract and agreed to pay $5.4 million to acquire the Class A Interest from the selling shareholders in Zabala Farms of Salinas, LLC.

PART III—Exhibits

Index to Exhibits

SIGNATURES

Pursuant to the requirements of Regulation A, the issuer certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form 1-A and has duly caused this offering statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Murrieta, State of California, on May 1, 2019.

This offering statement has been signed by the following persons in the capacities and on the dates indicated.

Exhibit 2.1

ARTICLE I.

The name of this limited liability company is ZABALA FARMS GROUP, LLC.

ARTICLE II.

Its registered office in the State of Delaware is to be located at 2035 SUNSET LAKE RD, SUITE B-2, NEWARK, DE 19702. The registered agent in charge thereof is LEGALINC CORPORATE SERVICES INC.

ARTICLE III.

The period of duration of the limited liability company shall be perpetual.

ARTICLE IV.

The purpose of the limited liability company is to engage in any lawful act or activity for which limited liability companies may be organized under the Delaware Limited Liability Company Act.

ARTICLE V.

The name and address of each initial member of the limited liability company is:

GREEN BUD INITIATIVES, LLC - 43264 BUSINESS PARK DR STE 105, TEMECULA, CALIFORNIA 92590

I, the undersigned,. for the purpose of forming a limited liability company under the laws of the State of Delaware, do make, file and record this Certificate, and do certify that the facts herein stated are true, and I have accordingly hereunto set my hand and executed this Certificate of Formation on the date below.

Dated: June 22nd, 2018

/s/ Marsha Siha                                        

Marsha Siha, Organizer

Exhibit 2.2

LIMITED LIABILITY COMPANY AGREEMENT

OF

ZABALA FARMS GROUP, LLC

Effective as of June 23, 2018

THE SECURITIES OFFERED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), NOR APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE “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 THE 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 HAVE BEEN ISSUED AND SOLD PURSUANT TO AN EXEMPTION FROM THE SECURITIES ACT AND MAY NOT BE RESOLD WITHOUT REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR EXEMPTION THEREFROM.

TABLE OF CONTENTS

Page

SCHEDULES:

Schedule of Unitholders

Schedule of Capital Contributions for Units

Schedule of Allocation Method

EXHIBITS:

Exhibit A – Zabala Farms Group, LLC Class B Common Unit Award Plan

ZABALA FARMS GROUP, LLC

LIMITED LIABILITY COMPANY AGREEMENT

THIS LIMITED LIABILITY COMPANY AGREEMENT (this “Agreement”) is effective as of June 28, 2017 by and among ZABALA FARMS GROUP, LLC, a Delaware limited liability company (the “Company”), the other Persons signatory to this Agreement and such other Persons who may be admitted to the Company from time to time as Members pursuant to the Act and this Agreement and/or who may become Economic Interest Owners from time to time pursuant to this Agreement (all of the foregoing Persons, including the Company, being referred to herein as “parties”).

The parties agree as follows:

1.                   DEFINITIONS.

1.1.              Certain Definitions.

The terms defined in this Section 1 shall, whenever such terms are used in this Agreement, have the following respective meanings unless their context expressly or by necessary implication otherwise requires:

“Act” means the Delaware Limited Liability Company Act, Del. Code Ann. tit. 6 §§ 18 101 et seq., as amended from time to time, or its successor statute.

“Advances” means loans to the Company made by one or more Members in accordance with Section 8.3.

“Affiliate” means, with respect to any Person, any other Person directly or indirectly Controlling, Controlled by or under common Control with such Person and any partner of such Person that is a partnership.

“Agreement” means this Limited Liability Company Agreement of Zabala Farms Group, LLC, a Delaware limited liability company, including the Schedules and Exhibits hereto, in each case as amended from time to time in accordance herewith.

“Board of Managers” has the meaning set forth in Section 3.1.

“Capital Account” means the capital account determined and maintained for each Unitholder pursuant to Section 8.4.

“Capital Contribution” means any contribution to the capital of the Company in cash or property by a Member whenever made.

“Cause” has the meaning set forth in Section 3.3.4.

“Certificate of Formation” means the certificate of formation filed with the Delaware Secretary of State on June 22, 2018, as the same may be further amended from time to time.

“Chief Executive Officer” has the meaning set forth in Section 6.7.

“Class A Common Units” has the meaning set forth in Section 7.1.

“Class B Common Unit Award Agreement” means a Class B Common Unit Award Agreement entered into pursuant to the Class B Common Unit Award Plan.

“Class B Common Unit Award Plan” means the Zabala Farms Group, LLC Class B Common Unit Award Plan attached to this Agreement as Exhibit A, as the same may be amended from time to time.

“Class B Common Units” has the meaning set forth in Section 7.1.

“Code” means the Internal Revenue Code of 1986, as amended, or corresponding provisions of subsequent superseding federal revenue laws.

“Company” means Zabala Farms Group, LLC, a Delaware limited liability company.

“Company Minimum Gain” has the same meaning as the term “partnership minimum gain” in Regulation Sections 1.704-2(b)(2) and 1.704-2(d).

“Confidential Information” has the meaning set forth in Section 6.15.

“Control” (including its correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as used with respect to any corporation, partnership, limited liability company or other entity, means: (a) either (i) holding fifty percent (50%) or more of the outstanding voting stock or other ownership interests in the entity entitling the owner or holder to vote for the election of directors of the entity or (ii) having the right to fifty percent (50%) or more of the profits of the entity or the right in the event of dissolution to fifty percent (50%) or more of the assets of the entity; (b) having the contractual power to designate fifty percent (50%) or more of the directors of a corporation or, in the case of an unincorporated entity, of individuals exercising similar functions; or (c) having the direct or indirect power to direct or cause the direction of the management and policies of the entity, whether through ownership interests, by contract or otherwise.

“Deficit Capital Account” means, with respect to any Unitholder, the deficit balance, if any, in such Unitholder’s Capital Account as of the end of the taxable year, after giving effect to the following adjustments: (a) credit to such Capital Account any amount that such Unitholder is obligated to restore to the Company under Regulation Section 1.704-1((b)(2)(ii)(c), as well as any addition to such amount pursuant to the next to last sentences of Regulation Sections 1.704-2(g)(1) and (i)(5); and (b) debit to such Capital Account the items described in Regulation Sections 1.704-1(b)(2)(ii)(d)(4)(5) and (6). This definition is intended to comply with the provisions of Regulation Sections 1.704-1(b)(2)(ii)(d) and 1.704-2 and shall be interpreted consistently with those provisions.

“Distribution” means a distribution made by the Company to a Unitholder, whether in cash, property or securities of the Company and whether by liquidating distribution or otherwise; provided that none of the following is or will be deemed to be a “Distribution”: (a) any redemption or repurchase by the Company or any Member of any Units, (b) any recapitalization or exchange of securities of the Company, (c) any subdivision (by Unit split or otherwise) or any combination (by reverse Unit split or otherwise) of any outstanding Units or (d) any fees or remuneration paid to any Unitholder in such Unitholder’s capacity as an employee, officer, consultant or other provider of services to the Company.

“Economic Interest” means an Economic Interest Owner’s share of Net Profits, Net Losses and other tax items of the Company and distributions of the Company’s assets pursuant to this Agreement and the Act but does not include any right to participate in the management or affairs of the Company, including the right to vote on, consent to or otherwise participate in any decision of the Members.

“Economic Interest Owner” means the owner of an Economic Interest who is not a Member.

“Fair Market Value” of each Unit means the fair value of such Unit as determined in good faith by the Board of Managers.

“Family Group” means a Member’s spouse and descendants (whether natural or adopted), any trust that at the time of a Transfer and at all times thereafter is and remains solely for the benefit of such Member and/or such Member’s spouse and/or descendants and any family partnership or family limited liability company or similar estate planning entity, the partners, members or similar constituents of which consist solely of such Member, such spouse, such descendants or such trusts, partnerships, limited liability companies or other similar entities.

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

“Involuntary Transfer” means, with respect to the affected Unitholder, any one of the following events: (a) the filing of a valid petition of voluntary or involuntary bankruptcy, or the insolvency of a Unitholder, unless such petition is dismissed with prejudice, or such insolvency is cured, within thirty (30) days; (b) receipt by a Unitholder of notice of a public, private or judicial sale of all or any part of the Units owned by such Unitholder to satisfy a judgment against or other indebtedness of such Unitholder, unless such judgment is satisfied and such proposed sale is canceled or otherwise prevented by binding legal process before the earlier of (x) five (5) days before the proposed date of such sale or (y) thirty (30) days after the date of such notice; (c) attachment or garnishment of all or any part of the Units owned by a Unitholder or an assignment of all or any part of the Units owned by a Unitholder for the benefit of any creditor of such Unitholder; (d) the entry of a divorce decree, or the execution by a Unitholder of a property settlement agreement, or any other action in connection with a pending divorce proceeding, the effect of which is to grant rights to all or any part of the Units owned by such Unitholder to any person other than such Unitholder; (e) the entry of a judgment or final determination in any legal proceeding or process by which the Units of any Unitholder are required to be transferred, unless such judgment or determination is stayed, vacated or reversed before the earlier of (x) five (5) days before the proposed date of such transfer or (y) thirty (30) days after the date of such judgment or determination; or (f) any conviction of a Unitholder for violation of any state or federal criminal law involving the commission of a misdemeanor against the Company or a felony.

“Majority Vote of the Members Holding Voting Units” means the affirmative vote of Members holding greater than fifty percent (50%) of the Voting Units entitled to vote with respect to a given matter.

“Manager” means a member of the Board of Managers, and “Managers” means the Board of Managers, collectively.

“Management Fee” shall have the meaning ascribed thereto in Section 3.8.

“Member” means each Person who executes a counterpart of this Agreement as a Member and each Person who hereafter is admitted to the Company as a Member. If a Person is a Member immediately before the acquisition by such Person of an Economic Interest, then such Person shall have all of the rights of a Member with respect to such Economic Interest.

“Member Pro Rata Portion” means, with respect to any Member, the quotient of (x) the sum of all Class A Common Units and Class B Common Units held by such Member divided by (y) the sum of all Class A Common Units and Class B Common Units held by all Members (other than the Transferring Member) as a group.

“Membership Interest” means all of a Member’s share in the Net Profits, Net Losses and tax items of the Company and distributions of the Company’s assets pursuant to this Agreement and the Act and all of a Member’s rights to participate in the management or affairs of the Company, including the right to vote on, consent to or otherwise participate in any decision of the Members in accordance with the terms of this Agreement and the Act.

“Net Profits” and “Net Losses” have the meanings set forth in Section 9.7.

“Nonrecourse Deductions” has the meaning set forth in Regulation Section 1.704-2(b)(1). The amount of Nonrecourse Deductions for a Company fiscal year shall be determined pursuant to Regulation Section 1.704-2(c).

“Nonrecourse Liability” has the meaning set forth in Regulation Section 1.704-2(b)(3).

“Percentage Interest” means, as to each Unitholder at any point in time, a percentage equal to the aggregate number of Class A Common Units and Class B Common Units held by such Unitholder divided by the aggregate number of Class A Common Units and Class B Common Units of all Unitholders. Notwithstanding the foregoing, in each event that pursuant to this Agreement the Percentage Interest of any Class of Units (or combination of Classes of Units) must be determined (whether by express provision or as the context of any provision set forth herein may require), with respect to such Class of Units (or combination of Classes of Units), “Percentage Interest” means, with respect to each Member owning Units of such Class of Units (or Classes of Units), the percentage derived by dividing the number of outstanding Units of such Class of Units (or Classes of Units) owned by such Member by the total number of issued and outstanding Units of such Class of Units (or Classes of Units) from time to time.

“Permitted Transfer” means a Transfer of Units (a) among a Member’s Family Group, provided that, before the death of the Member desiring to make such Transfer (a “Transferring Member”), each such transferee of Units shall have entered into proxies and other agreements satisfactory to the Company pursuant to which the Transferring Member will have the sole right to vote such Units for all purposes, (b) from any Member to one or more of its Affiliates, (c) pursuant to and in compliance with Sections 12.3, 12.4 and 12.5 or (d) by the Company pursuant to Sections 7.4 or 7.5 or as otherwise permitted by the terms and conditions of this Agreement.

“Permitted Transferee” means a transferee or transferees of Units pursuant to a Permitted Transfer.

“Person” means any individual or any general partnership, limited partnership, limited liability company, corporation, joint venture, trust, business trust, cooperative or association or any other organization that is not a natural person, and the heirs, executors, administrators, legal representatives, successors and assigns of such Person, where the context so permits.

“Preferred Units” has the meaning set forth in Section 7.1.

“Protective Provisions” has the meaning set forth in Section 7.3.

“Regulations” means and includes proposed, temporary and final Treasury regulations promulgated under the Code and the corresponding sections of regulations subsequently issued that amend or supersede such regulations.

“Right of First Refusal” means the right of first refusal of the Company and the Other Members set forth in Section 12.3. “Other Members” as used in the preceding sentence has the meaning set forth in Section 12.3.

“Sale of the Company” means a merger, consolidation or exchange of Units, a sale, lease, exchange or disposition of all or substantially all of the Company’s assets, sale or other disposition of Units or any other similar business combination pursuant to which ownership of the Company’s Units or assets is sold for cash, securities or other property of an acquiring entity or any of its Affiliates, such that the holders of the Company’s Voting Units immediately before such transaction beneficially own, directly or indirectly, fifty percent (50%) or less of the combined voting power of the capital units or stock of the acquiring or resulting entity.

“Subsidiary” means, with respect to any Person (the “Owner”), any corporation, limited liability company or other Person of which securities or other interests having the power to elect a majority of that corporation’s, limited liability company’s or other Person’s board of directors or similar governing body, or otherwise having the power to direct the business and policies of that corporation, limited liability company or other Person (other than securities or other interests having such power only upon the occurrence of a contingency that has not occurred) are held by the Owner or one or more of the Owner’s Subsidiaries.

“Termination Event” has the meaning set forth in Section 13.1.

“Transfer” means any direct or indirect sale, exchange, transfer, assignment, gift, donation, bequest or other disposition of all or any portion of Units or any interest in Units. In the case of a Unitholder that is a corporation, partnership, limited liability company or other entity, the term “Transfer” also includes any direct or indirect sale, exchange, transfer, assignment, gift, donation, bequest or other disposition (including a transfer by way of a foreclosure or execution of similar rights) of Control of such entity.

“Unitholder” means a Person who is either (i) a Member or (ii) an Economic Interest Owner. For the avoidance of doubt, “Unitholder” also means any Person who is a Permitted Transferee.

“Unitholder Minimum Gain” has the same meaning as the term “partner nonrecourse debt minimum gain” in Regulation Section 1.704-2(i).

“Unitholder Nonrecourse Deductions” has the same meaning as the term “partner nonrecourse deductions” in Regulation Sections 1.704-2(i)(1) and (2). The amount of Unitholder Nonrecourse Deductions for a Company fiscal year will be determined in accordance with Regulation Section 1.704-2(i)(2).

“Units” means the Units issued to any Unitholder under this Agreement as reflected in the attached Schedule of Unitholders, as amended from time to time, which will represent a Member’s entire Membership Interest in the Company and an Economic Interest Owner’s entire Economic Interest in the Company, as the case may be. As of the effective date of this Agreement, “Units” may be designated as Class A Common Units, Class B Common Units and Preferred Units.

“Unvested Class B Common Units” of a Member means all of such Member’s Class B Common Units that are not Vested Class B Common Units.

“Vested Class B Common Units” means, with respect to each holder of Class B Common Units, the portion of the Class B Common Units that become vested as set forth in the Class B Common Unit Award Plan or any Class B Common Unit Award Agreement entered into pursuant to the Class B Common Unit Award Plan.

“Voting Units” has the meaning set forth in Section 7.2.

1.2.              Other Definitions. In addition to the terms defined in Section 1.1, certain other terms are defined elsewhere in this Agreement, and, whenever such terms are used in this Agreement, they shall have their respective defined meanings unless the context expressly or by necessary implication requires otherwise.

2.                   FORMATION OF COMPANY.

2.1.              Formation. The Company was formed on June 22, 2018, when the Certificate of Formation was executed and filed with the Delaware Secretary of State in accordance with and pursuant to the Act.

2.2.              Name. The name of the Company is “Zabala Farms Group, LLC.”

2.3.              Principal Place of Business.

The principal place of business of the Company shall be located at such location as approved by the Board of Managers. The location of the Company’s principal place of business may be changed by the Board of Managers from time to time in accordance with the then applicable provisions of the Act and other applicable laws. The Company may have other offices at such place or places as the Board of Managers may from time to time designate.

2.4.              Registered Office and Registered Agent. The Company shall continuously maintain a registered agent in the State of Delaware. The registered office and registered agent may be changed by the Board of Managers from time to time in accordance with the Act.

2.5.              Term. The term of the Company shall be perpetual unless the Company is earlier dissolved in accordance with either Section 13 or the Act.

2.6.              Business of Company. The business of the Company shall be:

(a)     The conduct of the cannabis production and distribution business;

(b)     To carry on any lawful business or activity that may be conducted by a limited liability company organized under the Act; and

(c)     To exercise all other powers necessary to or reasonably connected with the Company’s business that may be legally exercised by limited liability companies under the Act.

2.7.              Names of Members. The names of the Members are set forth on the attached Schedule of Unitholders, as amended or restated from time to time.

2.8.              Title to Property. All real and personal property owned by the Company will be owned by the Company as an entity, and no Member will have any ownership interest in such property in such Member’s individual name or right, and each Member’s interest in the Company will be personal property for all purposes. The Company shall hold all of its property in the name of the Company and not in the name of any Member.

2.9.              Members’ Intent. The Members intend that the Company be treated as a “partnership” for United States federal and state income tax purposes. The Members also intend that the Company not be operated or treated as a “partnership” for purposes of Section 303 of the U.S. Bankruptcy Code, as amended or supplemented from time to time, and any successor statute. No Member will take any action inconsistent with the intent of the parties as set forth in this Section 2.9. Notwithstanding the foregoing, the Members acknowledge and agree that the provisions of this Section 2.9 are subject to the provisions of Section 17.2 (Conversion of the Company into a “C” Corporation).

3.                   MANAGEMENT OF THE COMPANY.

3.1.              Board of Managers. The business and affairs of the Company will be managed by or under the direction of a Board of Managers of the Company (the “Board of Managers”). A Manager need not be a Member or a resident of the State of Delaware.

3.2.              Board of Managers Powers.

3.2.1.          In General. Except as otherwise provided in this Agreement or in provisions of the Act not inconsistent with this Agreement, all powers of the Company will be exercised exclusively by or under the authority of the Board of Managers. The Board of Managers shall have all powers to control and manage the business and affairs of the Company and all the rights and powers that may be possessed by the managers of a limited liability company with managers pursuant to the Act. The Board of Managers also shall have such rights and powers as otherwise are conferred by law or are necessary, advisable or convenient to the discharge of its duties under this Agreement and to the management of the business and affairs of the Company. Decisions of the Board of Managers within its scope of authority will be binding on the Company.

3.2.2.          Enumeration of Specific Powers. Without limiting the generality of the foregoing, the Board of Managers shall have the following rights and powers:

(a)     Conduct the Company’s business, carry on its operations and have and exercise the powers granted by the Act in any state, territory, district or possession of the United States, or in any foreign country that may be necessary or convenient to effect any or all of the purposes for which the Company is organized;

(b)     Acquire by purchase, lease or otherwise any real or personal property that may be necessary, convenient or incidental to the accomplishment of the purposes of the Company;

(c)     Operate, maintain, finance, improve, construct, own, grant options with respect to, sell, convey, assign, mortgage and lease any real estate and any personal property necessary, convenient or incidental to the accomplishment of the purposes of the Company;

(d)     Execute any and all agreements, contracts, documents, certifications and instruments necessary or convenient in connection with the management, maintenance and operation of the Company’s business, or in connection with managing the affairs of the Company, including executing amendments to this Agreement and the Certificate of Formation in accordance with the terms of this Agreement, both as Managers of the Company and, if required, as attorney-in-fact for the Unitholders pursuant to the power of attorney granted by the Unitholders to the Managers under Section 16;

(e)     Perform all acts necessary to manage and operate the business of the Company, including engaging such business consultants, managers and professional advisers as the Board of Managers deems advisable to manage the Company;

(f)      Appoint officers for the Company (who need not be Members), establish policies and guidelines for employees and adopt management incentive plans and employee benefit plans;

(g)     Execute, deliver and perform on behalf of and in the name of the Company any and all agreements and documents deemed necessary or desirable by the Board of Managers to carry out the business of the Company, including any lease, deed, easement, bill of sale, mortgage, trust deed, loan agreement, guaranty, security agreement, contract of sale or other document conveying, leasing or granting a security interest in the interests of the Company in any of its assets, or any part thereof;

(h)     Borrow money and issue evidences of indebtedness necessary, convenient or incidental to the accomplishment of the purposes of the Company and secure the same by mortgage, pledge or other lien on any of the Company’s assets;

(i)       Institute, prosecute, defend, settle, compromise and dismiss lawsuits or other judicial or administrative proceedings brought on or in behalf of, or against, the Company, the Members or any member of the Board of Managers in connection with activities arising out of, connected with or incidental to this Agreement, and to engage legal counsel or others in connection therewith;

(j)      Admit Persons as new Members to the Company and issue Units to such newly-admitted Members as is provided in Section 12.12; and

(k)     Cause the forced withdrawal of certain Members pursuant to Section 4.6.

3.3.              Designation of Managers.

3.3.1.          Number and Qualification. The authorized number of Managers of the Company shall be three (3) individuals. The following persons shall be elected to the initial Board of Managers: Anthony “Todd” Johnson, Jeremy Johnson and ______________. The authorized number of Managers may at any time be increased or decreased, but not fewer than three nor more than five by Majority Vote of the Members Holding Voting Units at any annual, special or regular meeting or written consent in lieu of such meeting.

3.3.2.          Term of Office. Managers shall retain their position as Managers until their death, resignation or removal for “Cause” as provided in Section 3.3.4.

3.3.3.          Vacancies. Vacancies on the Board of Managers by reason of death, resignation or increase in the number of Managers shall be filled by the Board of Managers. Each Manager, including a Manager elected to fill a vacancy, shall hold office until death, resignation or removal and until a successor has been elected and qualified.

3.3.4.          Resignation and Removal. Any Manager may resign upon at least thirty (30) days’ notice to the Members and the other Managers (unless, in either case, notice is waived by them). A Manager may be removed at any time for “Cause” upon the recommendation of the Board of Managers and the Majority Vote of the Members Holding Voting Units. “Cause” shall mean any of the following: (a) the conviction of any crime, whether a misdemeanor or felony, (b) violation of any Company policy or code, including but not limited to the prohibition of sexual harassment or discrimination, the code of business conduct and the prohibition of substance abuse and (c) personal dishonesty, incompetence, willful misconduct or breach of fiduciary duty, which has an materially adverse impact on the Company or any of its subsidiaries or its reputation, as determined in the Board of Manager’s reasonable discretion.

3.4.              Board of Managers Action; Quorum Requirement. Except as expressly provided otherwise in this Agreement, in any action taken by the Managers at a duly called meeting of the Board of Managers at which a quorum is present, the act of a majority of the Managers present shall constitute action taken by the Board of Managers. A majority of the Managers constitutes a quorum of the Board of Managers for the transaction of business.

3.5.              Meetings of the Board of Managers.

3.5.1.          Regular Meetings. The Board of Managers shall hold regular meetings not less frequently than once every fiscal year and shall establish meeting times, dates and places and adopt rules or procedures for such meetings consistent with the terms of this Agreement. A regular annual meeting of the Board of Managers shall be held without notice immediately after the adjournment of the annual meeting of the Members. At such meetings, the Board of Managers shall transact such business as may properly be brought before the meetings, whether or not notice of any such meeting referenced the action taken at such meeting. The Chairman of the Board of Managers (or, in the absence of the Chairman of the Board of Managers, a chairman of the meeting selected by the Managers from among their members) shall preside over and control the order of business of the meeting.

3.5.2.          Special Meetings. Special meetings of the Board of Managers for any purpose or purposes may be called at any time by the Chairman of the Board of Managers, the Chief Executive Officer or any other Manager.

3.5.3.          Notice of Special Meetings. Unless Managers waive notice of, or consent to, a special meeting, notice stating the date, hour and place of any special meeting of the Board of Managers shall be given at least forty-eight (48) hours and not more than thirty (30) days before the meeting. Notice of any special meeting of the Board of Managers shall state the purpose of such meeting. Notice of special meetings of the Managers shall be given to each Manager by at least one of the following methods:

(i)                   Oral notice is effective when communicated;

(ii)                 Written notice is effective at the earliest of (i) when received, (ii) three (3) days after its deposit in the United States mail, as evidenced by the postmark, if mailed postpaid and correctly addressed to the address shown in the Company’s records, or (iii) on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee; or

(iii)                Notice may be given to any or all of the Managers by facsimile or electronic mail. If notice is sent by facsimile or electronic mail to any Manager, then notice to such Manager will be deemed to be effective when sent if sent to the facsimile number or electronic mail address of such Manager maintained in the Company’s records.

3.5.4.          Waiver of Notice. Any Manager may waive notice of any meeting in writing before, at or after such meeting. A Manager’s attendance at or participation in a meeting waives any required notice of the meeting unless the Manager at the beginning of the meeting, or promptly upon the Manager’s arrival, objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting.

3.5.5.          Telecommunications. Meetings of the Board of Managers may be held by means of conference telephone or similar communications equipment by which all persons participating may simultaneously hear one another during the meeting. A Manager participating in a meeting by this means is deemed to be present in person at the meeting.

3.5.6.          Board of Managers’ Action Without a Meeting. Any action required or permitted to be taken by the Board of Managers at a meeting may be taken without a meeting if (a) the action is authorized by written consent resolution signed by not less than the minimum number of Managers that would be necessary to authorize or take the action at a meeting at which all Managers were present and voted, and (b) the consents are filed with the records of the Company. Action taken by consent is effective when the last Manager signs the consent, unless the consent specifies a different effective date. A signed consent has the effect of a meeting vote and may be so described in any document.

3.5.7.          Adjournment. A majority of the Managers present, whether or not constituting a quorum, may adjourn any meeting to another time and place.

3.5.8.          Place of Meeting. Meetings of the Board of Managers shall be held at the Company’s principal office or any other place designated by the Board of Managers.

3.6.              Limitation of Liability. To the maximum extent permitted under the Act, no Person will have personal liability to the Company or the Members for monetary damages for conduct as a Manager, except to the extent that the Act, as the same hereafter may be amended (but, in the case of any such amendment, only to the extent that such amendment does not adversely affect any right or protection of such Person for actions or omissions before such amendment), prohibits elimination or limitation of such Person’s liability.

3.7.              Delegation of Authority. The Board of Managers will have the power to delegate authority to such committees of the Board of Managers, officers, employees, agents and representatives of the Company as the Board of Managers from time to time may deem appropriate. Any delegation of authority to take any action must be approved in the same manner as would be required for the Board of Managers to approve such action directly.

3.8.              Expenses; Compensation. The Company shall pay the reasonable out-of-pocket travel expenses incurred by each Manager in connection with attending the meetings of the Board of Managers and committees of the Board of Managers. Each Manager will be entitled to receive as compensation for serving on the Board of Managers and any committee of the Board of Managers and for attendance at any meeting of the Board of Managers or any committee of the Board of Managers an annual management fee of $150,000 (the “Management Fee”), payable in semi-monthly installments in accordance with the Company’s payroll practice. The amount of Management Fee may not be increased unless approved by Majority Vote of the Members Holding Voting Units. The Managers shall also be entitle to provide to the Company other services, whether individually or through affiliated entities, and be compensated for such services so long as the amount of compensation is comparable to the fees that would be charged by an unaffiliated party in an arms’-length transaction.

3.9.              Reliance by Third Parties. Any Person dealing with the Company, the Managers or any Member may rely (without duty of further inquiry) upon a certificate signed by any Manager as to (a) the identity and authority of a Manager or Member to act on behalf of the Company, (b) any factual matter relevant to the affairs of the Company, (c) the persons who are authorized to execute and deliver any document on behalf of the Company or (d) any action taken or omitted by the Company, the Managers or any Member.

4.                   RIGHTS AND OBLIGATIONS OF MEMBERS.

4.1.              Limitation of Liability. Each Member’s liability will be limited as set forth in this Agreement and the Act.

4.2.              Liability for Company Obligations. Members will not be personally liable for any debt, obligation or liability of the Company, except as otherwise provided by law.

4.3.              Inspection of Records. Upon reasonable request, each Member shall have the right to inspect and copy at such Member’s expense, during ordinary business hours, the records required to be maintained by the Company pursuant to Section 11.5.

4.4.              No Priority and Return of Capital. Except as expressly provided in this Agreement, no Unitholder will have priority over any other Unitholder, either as to the return of Capital Contributions or as to Net Profits, Net Losses or Distributions; provided, however, that this Section 4.4 will not apply to loans made by a Unitholder to the Company.

4.5.              No Voluntary Withdrawal of Member. Except as expressly permitted in this Agreement, no Member may or will voluntarily resign or otherwise withdraw as a Member. Unless otherwise approved by the Board of Managers, a Member who resigns or withdraws will be entitled to receive only those Distributions to which such Person would have been entitled had such Person remained a Member (and only at such times as such Distributions would have been made had such Person remained a Member). Except as otherwise expressly provided in this Agreement, a resigning or withdrawing Member shall become an Economic Interest Owner. The remedy for breach of this Section 4.5 will be monetary damages (and not specific performance), which may be offset by the Company against Distributions to which such Person otherwise would be entitled.

4.6.              Forced Withdrawal of Member. If the Board of Managers determines that any Member has violated the provisions of Sections 6.14, or becomes an Ineligible Owner pursuant to Section 6.13, then the Board of Managers may, in its sole discretion, force such Member to withdraw as a Member by electing to repurchase all Units held by such Member. The purchase price for such members Units shall be the greater of (a) the Capital Account of such Member on the date of the forced withdrawal, or (b) the fair market value of the Units as reasonably determined by the Board of Managers. The Board of Managers shall give written notice of its intent to exercise its rights under this Section 4.6 to the affected Member and shall include a check for the amount of the purchase price for such Member’s Units. Upon delivery of such notice and check, the affected Member shall cease to be a Member of the Company and shall have no further rights, privileges or obligations under this Agreement.

5.                   MEETINGS OF MEMBERS.

5.1.              Annual Meeting. The annual meeting of the Members shall be held at such time as shall be determined by the Board of Managers, for the purpose of the transaction of such business as may come before the meeting.

5.2.              Special Meetings. Special meetings of the Members, for any purpose or purposes, may be called by the Chief Executive Officer of the Company, the Chairman of the Board of Managers or a majority of the Managers at any time and shall be called by the Chief Executive Officer of the Company or the Chairman of the Board of Managers if Members holding at least fifty percent (50%) of the Voting Units make a written demand for a special meeting stating one or more reasonable purposes for such meeting.

5.3.              Place of Meetings. The Board of Managers may designate any place, either within or outside the State of Delaware, as the place of meeting for any meeting of the Members. If no designation is made, or if a special meeting is called, the place of meeting shall be the principal office of the Company.

5.4.              Notice of Meetings.

5.4.1.          In General. Written notice stating the time and place of any annual or special meeting of Members shall be given at least ten (10) days and not more than sixty (60) days before the meeting. If a purpose of an annual or special Members’ meeting is to consider action on an amendment to this Agreement, a planned merger or exchange of Units, a proposed sale, lease or other disposition of all or substantially all of the property of the Company other than in the regular course of business or the dissolution of the Company, then the Company shall notify all Members, whether or not entitled to vote, at least twenty (20) days and not more than sixty (60) days before the meeting, and the notice must describe the proposed action with reasonable clarity and contain or be accompanied by a copy of the proposed amendment, the plan of merger or exchange or the agreement of sale or lease, as applicable. The notice of special meetings shall include the purpose of the meeting. No business may or will be transacted at a special meeting except as stated in such notice, unless consented to by all Members having the right to vote with respect to such other business, either in person or by proxy, and following such meeting, notice of any action taken at such special meeting that was not specified in the notice of special meeting is given to any absent Member as soon as reasonably practicable. Notice of all meetings shall be given to the holder of any proxy filed with the Company in the same manner as if such proxy holder were a Member.

5.4.2.          Manner of Giving Notice. Notice of meetings of the Members shall be given to each Member by at least one of the following methods:

(a)     Oral notice is effective when communicated;

(b)     Written notice is effective at the earliest of (i) when received, (ii) upon deposit in the United States mail, as evidenced by the postmark, if mailed postpaid and correctly addressed to the address shown in the Company’s records, or (iii) on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee; or

(c)     Notice may be given to any or all of the Members by facsimile or electronic mail. If notice is sent by facsimile or electronic mail to any Member, then notice to such Member will be deemed to be effective when sent if sent to the facsimile number or electronic mail address of such Member maintained in the Company’s records.

5.5.              Record Date. For the purpose of determining Members entitled to notice of or to vote at any meeting of Members or any adjournment of such meeting, the date on which notice of the meeting is mailed will be the record date for such determination of Members. When a determination of Members entitled to vote at a meeting of Members has been made as provided in this Section 5.5, such determination will apply to any adjournment of such meeting.

5.6.              Quorum. Members holding more than fifty percent (50%) of the then outstanding Voting Units represented in person or by proxy will constitute a quorum at any meeting of Members. In the absence of a quorum at any such meeting, a majority of the Voting Units so represented may adjourn the meeting from time to time for a period not to exceed sixty (60) days without further notice. However, if the adjournment is for more than sixty (60) days, or if after the adjournment a new record date is fixed for the adjourned meeting, then a notice of the adjourned meeting shall be given to each Member of record entitled to vote at the meeting. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. The Members present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal during such meeting of a Member whose absence would cause less than a quorum.

5.7.              Manner of Acting. If a quorum is present, the affirmative vote of Members holding more than fifty percent (50%) of the Voting Units represented at the meeting in person or by proxy shall be the act of the Members, unless the vote of a greater or lesser percentage is required by this Agreement or the Act.

5.8.              Proxies. At all meetings of Members, a Member may vote in person or by proxy executed in writing by such Member. Such proxy must be filed with the Chief Executive Officer before or at the time of the meeting. No proxy will be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy.

5.9.              Waiver of Notice. Any Member may waive notice of any meeting in writing before, at or after such meeting. A Member’s attendance at or participation in a meeting waives any required notice of the meeting unless such Member at the beginning of the meeting, or promptly upon such Member’s arrival, objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting.

5.10.           Telecommunications. Meetings of the Members may be held by means of conference telephone or similar communications equipment by which all persons participating may simultaneously hear one another during the meeting. A Member participating in a meeting by this means is deemed to be present in person at the meeting.

5.11.           Action by Members Without a Meeting.

5.11.1.          Written Consent Action. Action required or permitted to be taken at a meeting of Members may be taken without a meeting if the action is evidenced by one or more written consents describing the action taken, executed by Members holding in the aggregate not less than the minimum number of Voting Units required to approve such action at a meeting at which all Members holding Voting Units entitled to vote thereon were present and voted, and such one or more written consents so executed are delivered to the Chief Executive Officer for inclusion in the Company’s minutes. The record date for determining Members entitled to take action without a meeting shall be the date on which the first Member signs a consent.

5.11.2.          Effectiveness. A written consent is not effective to take the action specified in the consent unless, within sixty (60) days of the earliest consent delivered to the Company, written consents signed by a sufficient number of Members to take action are delivered to the Company. Unless the written consent specifies a later effective date, action taken by written consent under this Section 5.11 is effective when (a) consents signed by all Members have been delivered to the Company or (b) consents signed by Members sufficient to authorize taking the action have been delivered to the Company, and two (2) days have lapsed after the Company has delivered written notice to all of the Members of the Company, requesting such action by written consent, which notice must contain or be accompanied by the same material, if any, that would have been required to be sent to Members in a notice of meeting at which the proposed action would have been submitted for Member action.

6.                   OFFICERS.

6.1.              Officer Designations. The officers of the Company shall be a Chairman of the Board of Managers, a Chief Executive Officer, a President, a Secretary and a Chief Financial Officer. The Company also may have, at the discretion of the Board of Managers, one or more Vice Presidents, one or more assistant secretaries and such other officers as may be appointed. The officer positions may be at will employees or outside contractors at the discretion of the Board of Managers.

6.2.              Election and Term of Office. The officers shall be appointed by the Board of Managers. The officers shall hold office until they resign, are removed or otherwise are disqualified or are unable to serve or until their successors are elected and qualified.

6.3.              Removal and Resignation. Any officer may be removed by the Board of Managers, with or without cause. Such removal will be without prejudice to any contract rights of the person removed. Subject to the terms of any employment agreement with the Company, any officer may resign at any time by giving written or verbal notice to the Company.

6.4.              Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled by the Board of Managers.

6.5.              Chairman of the Board of Managers. The Chairman of the Board of Managers, if such an officer is appointed, shall, if present, preside at all meetings of the Board of Managers and exercise and perform such other powers and duties as from time to time may be assigned to him by the Board of Managers or as may be prescribed by this Agreement. If there is no President and there is no stand-alone Chief Executive Officer, then the Chairman of the Board of Managers also shall be the Chief Executive Officer of the Company and shall have such powers as are set forth in Section 6.7.

6.6.              President. The President, if such an officer is elected, shall report to the Chief Executive Officer of the Company, if such a position is filled by a person other than the President or, if not filled by a person other than the President, shall be the Chief Executive Officer. The President shall have the general powers and duties of management usually vested in the office of president of a company and shall have such other powers and duties as may be prescribed by the Board of Managers, the Chief Executive Officer or this Agreement.

6.7.              Chief Executive Officer. The chief executive officer of the Company shall be subject to the control of the Board of Managers and shall have general supervision, direction and control of the business and affairs of the Company (as such, the “Chief Executive Officer”). The Chief Executive Officer may preside at the meetings of the Members and in the absence or nonexistence of a Chairman of the Board of Managers shall preside at meetings of the Board of Managers.

6.8.              Vice Presidents. In the absence or disability of the President, the Vice President, if any, or Vice President and Chief Operating Officer if there is more than one Vice President, shall perform all the duties of the President and when so acting shall have all the powers of the President. The Vice President(s) shall have such other powers and perform such other duties as from time to time may be prescribed for them by the Board of Managers or this Agreement.

6.9.              Secretary. The Secretary shall keep, or cause to be kept, a minute book at the registered office of the Company or such other place as the Members may order, containing a record of all meetings of Members, indicating the time and place, whether annual or special and, if special, how authorized, the names of those present and a summary of all the proceedings at such meetings. The record must include a copy of the notice given. The Secretary will be responsible for giving notice of all the meetings of Members required to be given by this Agreement or by law. The Secretary will have such other powers and perform such other duties as may be prescribed by the Board of Managers or this Agreement.

6.10.           Chief Financial Officer. The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Company, including accounts of its liabilities, assets, receipts, disbursements, losses and capital. The Chief Financial Officer shall deposit all Company funds and other valuables to the credit of the Company with such depositories as may be designated by the Board of Managers. The Chief Financial Officer shall, in accordance with the terms and provisions of this Agreement, disburse the funds of the Company as may be authorized by the Board of Managers, shall render to the Chief Executive Officer, the President and the Members, whenever they request it, an account of all transactions as Chief Financial Officer and of the financial condition of the Company. The Chief Financial Officer will have such other powers and perform such other duties as may be prescribed by the Board of Managers or this Agreement.

6.11.           Salaries. The salaries of all officers and employees of the Company shall be fixed by the Board of Managers and may be changed from time to time by the Board of Managers.

6.12.           Officer Appointments. The following individuals are appointed to the offices set forth opposite their names:

6.13.           Ineligible Owner. Each of the Unitholders acknowledges and agrees that the Company is subject to state laws, rules and regulations relating to and restricting the ownership of a cannabis manufacturing business. Each Unitholder represents to the Company that he or she is, or with respect to Unitholders that are entities all owners of such Unitholder are, not prohibited from owning equity interests in the Company by any state law, rule or regulation. If any Unitholder is or becomes ineligible to be an owner of the Company pursuant to any law, rule or regulation of any state in which the Company does business, (an “Ineligible Owner”), such Unitholder shall immediately notify the Board of Managers in writing the facts or event that caused such ineligibility. The Board of Managers shall have the authority and power to cause any Ineligible Owner to be forced to withdraw as a Member pursuant to Section 4.6.

6.14.           Confidentiality. Each of the Unitholders acknowledges and agrees that the information, observations and data obtained by such Unitholder or its Affiliates while such Unitholder is a Member or an Economic Interest Owner (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. Confidential Information includes, but is not limited to, business strategy or operational data, financial data (whether historical or projections), terms and provisions of any material agreements or contracts of the Company, information regarding licensing and permits or the business, the identity of any strategic partner, contractor, distributor, or other material relationship of the Company, and any information which, if disclosed is determined by the Board of Managers to cause material injury or damage to the business, operations, financial condition or reputation of the Company. Each Unitholder shall treat and hold as confidential, and shall not disclose to any third party, 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 Unitholder’s or such Unitholder’s Affiliates’ acts or omissions or (b) are required to be disclosed by judicial process or law. Such Unitholder 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 Unitholder or its Affiliates may then possess or have under his, her or its control.

7.                   UNITS.

7.1.              Authorized Units. The total number of Units that the Company currently is authorized to issue is 25,000,000 Units, of which 20,000,000 shall be designated Class A Common Units (“Class A Common Units”), 2,000,000 shall be designated Class B Common Units (“Class B Common Units”), and 3,000,000 Preferred Units (the “Preferred Units”). The rights of all Units of the Company are subject to the rights of any future classes or series of Units of the Company, which from time to time may be authorized and issued in accordance with this Agreement and applicable law.

7.2.              Description of Units. Except as otherwise provided in this Agreement or as otherwise required by applicable law, all Class A Common Units and Class B Common 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 Common Units, holders of Class B Common Units will not be entitled to vote on any matter except to the extent otherwise required under the Act. Except as otherwise provided in this Agreement or as otherwise required by applicable law, Members holding Class A Common Units will be entitled to one (1) vote per Class A Common Unit on all matters to be voted on by the Members. For purposes of this Agreement, the Class A Common Units are referred to and defined herein collectively as the “Voting Units.” Notwithstanding any other provision of this Agreement, Class A Common Units or Class B Common Units may not be subdivided (by Unit split or distribution of Units), combined or reclassified unless the Units of the other classes (or other class and other series) 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.

7.3.              Additional Units and Additional Capital Contributions. The Board of Managers is authorized to obtain additional capital for the Company from time to time by selling additional Units or other securities of the Company, upon such terms and conditions, with such rights and privileges (including, except as otherwise provided herein, rights and preferences that may be senior to outstanding Units) and for such prices and, in the case of equity securities, such Capital Contributions as the Board of Managers may establish and to admit such Unitholders as Members, in each case in the manner set forth in this Agreement, and the Board of Managers is further authorized to amend this Agreement pursuant to Section 15.2 to reflect the creation, establishment, designation and issuance of such Units and securities. Without limiting the generality of the foregoing, the Preferred Units authorized by this Agreement may be issued from time to time in one or more series, and the Board of Managers is authorized to establish or alter the rights, preferences, privileges and restrictions granted to or imposed on each additional series of Preferred Units, and the number of Units constituting any such series and the designation thereof, or any of them. Subject to compliance with applicable protective voting rights that have been or may be granted to the Preferred Units or any series thereof (including the Preferred Units) in this Agreement or any amendment hereto (“Protective Provisions”), but notwithstanding any of the other rights of the Preferred Units or any series thereof, the rights, preferences, privileges and restrictions of any such additional series of Preferred Units may be subordinated to, pari passu with (including inclusion in provisions with respect to liquidation and acquisition preferences and/or approval of matters by vote or written consent) or senior to any of those of any present or future series of Preferred Units or Class A Common Units, Class B Common Units or other future class of Common Units. Subject to compliance with applicable Protective Provisions (if any), the Board of Managers also is authorized to increase or decrease the number of Units of any series of Preferred Units before or after the issuance of such series, but not below the number of Units of such series then outstanding. In case the number of Units of any series of Preferred Units is so decreased, the Units of such series constituting such decrease shall resume the status that they had before the Board of Managers designated such series and fixed the number of Units of such series.

NOTICE: THE INITIAL MEMBERS (AND ALL PERSONS WHO MAY ACQUIRE UNITS AND BE ADMITTED AS ADDITIONAL MEMBERS OF THE COMPANY) ACKNOWLEDGE THAT THE CREATION, ESTABLISHMENT, DESIGNATION AND ISSUANCE OF ADDITIONAL UNITS (INCLUDING ADDITIONAL CLASSES OF UNITS AND SERIES OF CLASSES OF UNITS, INCLUDING ADDITIONAL SERIES OF PREFERRED UNITS) AND THE ADMISSION OF ADDITIONAL MEMBERS AS CONTEMPLATED BY THIS SECTION 7.3 MAY RESULT IN THE DILUTION AND POSSIBLE SUBORDINATION OF THEIR EXISTING UNITS (INCLUDING VOTING INTERESTS AND/OR ECONOMIC INTERESTS) IN THE COMPANY.

7.4.              Initial Issuance of Units. Each Member will be issued those certain Units set forth opposite such Member’s name on the attached Schedule of Unitholders in exchange for the Capital Contribution, if any, of such Member described in Section 8.1.

7.5.              Employee and Consultant Equity; Class B Common Unit Award Plan. Without limiting the generality of Section 7.3, the Company may make available to its employees and consultants options to purchase Class B Common Units and may grant awards of Class B Common Units to employees and consultants (by which such grantees will become admitted as Members of the Company) for such consideration and on such terms and conditions as may be determined by the Board of Managers and in accordance with the provisions of the Class B Common Unit Award Plan, a copy of which is attached to this Agreement as Exhibit A. The number of Class B Common Units to be issued to, and the amount and form of consideration (if any) to be contributed by, any such optionee/grantee will be set forth in the Class B Common Unit Award Plan or in a Class B Common Unit Award Agreement issued pursuant to the Class B Common Unit Award Plan. The Board of Managers shall have the power to amend and/or restate the Class B Common Unit Award Plan from time to time in its sole discretion and shall have the power to amend and/or restate this Agreement pursuant to Section 15.2 to reflect the admission of such additional Members pursuant to the Class B Common Unit Award Plan.

8.                   CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS.

8.1.              Members’ Capital Contributions. Each Member shall contribute to the Company, as such Member’s aggregate Capital Contribution, the cash or property described in the attached Schedule of Capital Contributions. The Board of Managers shall have exclusive authority to cause the issuance and sale of Units as such prices and terms as they may determine from time to time.

8.2.              Capital Commitment. Except as otherwise provided in this Section 8 or under the Act, the holders of Class A Common Units and Class B Common Units will not be required to make additional Capital Contributions to the Company.

8.3.              Advances. If the Board of Managers determines that the Company does not have sufficient cash to enable the Company to operate its business and maintain its assets and to discharge its costs, expenses, obligations and liabilities, then any Member may, with the consent of the Board of Managers, make an Advance to or on behalf of the Company of all or part of the necessary funds. Any such Advance by a Member shall constitute a loan from such Member to the Company, shall bear interest at the rate as agreed between the Member making the Advance, on the one hand, and the Board of Managers, on the other hand, from the date made until repaid in full. Advances will not be considered to be Capital Contributions.

8.4.              Capital Accounts.

8.4.1.          Establishment and Maintenance. A separate capital account (a “Capital Account”) will be maintained for each Unitholder throughout the term of the Company in accordance with the rules of Regulation Section 1.704-1(b)(2)(iv). Each Unitholder’s Capital Account will be increased by: (a) the amount of money contributed by such Unitholder to the Company; (b) the fair market value of property contributed by such Unitholder to the Company (net of liabilities secured by such contributed property that the Company is considered to assume or take the property subject to under Code Section 752); (c) allocations to such Unitholder of Net Profits (as applicable); (d) any items in the nature of income and gain that are specially allocated to such Unitholder pursuant to Sections 9.4 and 9.5; (e) allocations to such Unitholder of income and gain exempt from federal income tax; and (f) any other items properly added to such Unitholder’s Capital Account pursuant to Code Section 704(b) and the Regulations under such Section. Each Unitholder’s Capital Account will be decreased by: (i) the amount of money distributed to such Unitholder by the Company; (ii) the fair market value of property distributed to such Unitholder by the Company (net of liabilities secured by such distributed property that such Unitholder is considered to assume or take the property subject to under Code Section 752); (iii) allocations to such Unitholder of expenditures described in Code Section 705(a)(2)(B); (iv) any items in the nature of deduction and loss that are specially allocated to such Unitholder pursuant to Sections 9.4 and 9.5; (v) allocations to such Unitholder of Net Losses; and (vi) any other items properly subtracted from such Unitholder’s Capital Account pursuant to Code Section 704(b) and the Regulations under such Section. In the event of a Permitted Transfer of Units, the Capital Account of the transferor will become the Capital Account of the transferee to the extent that it relates to the transferred Units.

8.4.2.          Compliance with Regulations. The manner in which Capital Accounts are to be maintained pursuant to this Section 8.4 is intended to comply with the requirements of Code Section 704(b) and the Regulations promulgated under such Code Section. If in the opinion of the Company’s legal counsel or accountants the manner in which Capital Accounts are to be maintained pursuant to the foregoing provisions of this Section 8.4 should be modified in order to comply with Code Section 704(b) and such Regulations, then, notwithstanding anything to the contrary contained in the foregoing provisions of this Section 8.4, the manner in which Capital Accounts are maintained will be so modified; provided, however, that any change in the manner of maintaining Capital Accounts shall not materially alter the economic agreement between or among the Unitholders.

9.                   ALLOCATIONS OF NET PROFITS AND NET LOSSES.

9.1.              Allocation of Net Profits. After giving effect to the special allocations set forth in Sections 9.4 and 9.5, Net Profits from operations for any fiscal year will be allocated as follows:

9.1.1.          First, to the Unitholders holding Class A Common Units and Class B Common Units in the amounts and proportions necessary to reverse on a cumulative basis without duplication all allocations of Net Losses to such Unitholders in the inverse order in which such allocations were made to such Unitholders; and

9.1.2.          Thereafter, to the Unitholders holding Class A Common Units and Class B Common Units pro rata in accordance with their respective Percentage Interests.

9.2.              Allocation of Net Losses. After giving effect to the special allocations set forth in Sections 9.4 and 9.5, Net Losses for any fiscal year will be allocated as follows:

9.2.1.          First, to the Unitholders holding Class A Common Units and Class B Common Units in the amounts and proportions necessary to reverse on a cumulative basis without duplication all allocations of Net Profits to such Unitholders pursuant to Section 9.1.2 in the inverse order in which such allocations were made to such Unitholders pursuant to such Section; and

9.2.2.          Thereafter, to the Unitholders holding Class A Common Units and Class B Common Units pro rata in accordance with their respective Percentage Interests.

9.3.              Adjusted Capital Account Deficit. Notwithstanding Sections 9.1 and 9.2 and after application of Regulation Section 1.704-1(b)(2)(ii)(d), no Net Losses will be allocated to a Unitholder holding Class A Common Units or Class B Common Units that would cause such Unitholder to have an adjusted Capital Account deficit at the end of any fiscal year. Net Losses not allocated to a Unitholder holding Class A Common Units or Class B Common Units due to the foregoing limitation will be specially allocated to the Unitholders holding Class A Common Units and Class B Common Units with positive Capital Account balances in proportion to such Capital Account balances until all such Capital Account balances have been reduced to zero, and any remainder will be allocated to the Unitholders in the manner described in Section 9.1.2.

9.4.              Special Allocations. Except as otherwise expressly provided in this Section 9.4 or as otherwise determined by the Board of Managers, the provisions of this Section 9.4 shall apply only to the Unitholders holding Class A Common Units and Class B Common Units. The following special allocations will be made for any calendar year of the Company in the following order:

9.4.1.          Minimum Gain Chargeback. If there is a net decrease in Company Minimum Gain during any Company fiscal year, then each Unitholder will be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Unitholder’s share of the net decrease in Company Minimum Gain, determined in accordance with Regulation Sections 1.704-2(f) and 1.704-2(g)(2). The items to be so allocated, and the manner in which those items are to be allocated among the Unitholders, will be determined in accordance with Regulation Sections 1.704-2(f) and 1.704-2(j)(2). This Section 9.4.1 is intended to satisfy the minimum gain chargeback requirement in Regulation Section 1.704-2(f) and will be interpreted and applied accordingly.

9.4.2.          Member Minimum Gain Chargeback. If there is a net decrease in Unitholder Minimum Gain during any Company fiscal year, then each Unitholder who has a share of that Unitholder Minimum Gain, determined in accordance with Regulation Section 1.704-2(i)(5), will be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Unitholder’s share of the net decrease in Unitholder Minimum Gain, determined in accordance with Regulation Sections 1.704-2(i)(4) and 1.704-2(i)(5). The items to be so allocated, and the manner in which those items are to be allocated among the Unitholders, will be determined in accordance with Regulation Sections 1.704-2(h)(4) and 1.704-2(j)(2). This Section 9.4.2 is intended to satisfy the minimum gain chargeback requirement in Regulation Section 1.704-2(i)(4) and will be interpreted and applied accordingly.

9.4.3.          Qualified Income Offset. In the event that any Unitholder unexpectedly receives any adjustment, allocation or Distribution described in Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Company income and gain will be specially allocated to such Unitholder in an amount and in a manner sufficient to eliminate as quickly as possible, to the extent required by Regulation Section 1.704-(I)(b)(2)(ii)(d), the Deficit Capital Account of such Unitholder (which Deficit Capital Account will be determined as if all other allocations provided for in this Section 9 have been tentatively made as if this Section 9.4.3 were not in this Agreement).

9.4.4.          Nonrecourse Deductions. Nonrecourse Deductions will be allocated among the Unitholders holding Class A Common Units and Class B Common Units in accordance with their respective Percentage Interests.

9.4.5.          Unitholder Nonrecourse Deductions. Unitholder Nonrecourse Deductions, if any, will be specially allocated among the Unitholders holding Class A Common Units and Class B Common Units in accordance with Regulation Section 1.704-2(i).

9.5.              Corrective Allocations. Except as otherwise expressly provided in this Section 9.5 or as otherwise determined by the Board of Managers, the provisions of this Section 9.5 shall apply only to the Unitholders holding Class A Common Units and Class B Common Units.

9.5.1.          Allocations to Achieve Economic Agreement. The allocations set forth in Sections 9.3 and 9.4 are intended to comply with certain regulatory requirements under Code Section 704(b). The Members intend that, to the extent possible, all allocations made pursuant to such Sections will, over the term of the Company, be offset either with other allocations pursuant to Section 9.1 or with special allocations of other items of Company income, gain, loss or deduction pursuant to this Section 9.5.1. Accordingly, the Board of Managers is hereby authorized and directed to make offsetting allocations of Company income, gain, loss or deduction under this Section 9.5.1 in whatever manner that the Board of Managers determines is appropriate so that, after such offsetting special allocations are made, the Capital Accounts of the Unitholders are, to the extent possible, equal to the Capital Accounts each would have if the provisions of Sections 9.3 and 9.4 were not contained in this Agreement and all income, gain, loss and deduction of the Company were instead allocated pursuant to Section 9.1 and Section 9.2.

9.5.2.          Waiver of Application of Minimum Gain Chargeback. The Board of Managers may request from the Commissioner of the Internal Revenue Service a waiver, pursuant to Regulation Section 1.704-2(f)(4), of the minimum gain chargeback requirements of Regulation Section 1.704-2(f) if the application of such minimum gain chargeback requirement would cause a permanent distortion of the economic arrangement of the Unitholders.

9.6.              Other Allocation Rules. Except as otherwise expressly provided in this Section 9.6 or as otherwise determined by the Board of Managers, the provisions of this Section 9.6 shall apply only to the Unitholders holding Class A Common Units and Class B Common Units.

9.6.1.          General. Except as otherwise provided in this Agreement, all items of Company income, gain, loss, deduction and other allocations not otherwise provided for will be divided among the Unitholders in the same proportions as they share Net Profits or Net Losses, as the case may be, for the year.

9.6.2.          Allocation of Recapture Items. In making any allocation among the Unitholders of income or gain from the sale or other disposition of a Company asset, the ordinary income portion, if any, of such income and gain resulting from the recapture of cost recovery or other deductions will be allocated among those Unitholders who were previously allocated (or whose predecessors-in-interest were previously allocated) the cost recovery deductions or other deductions resulting in the recapture items, in accordance with Regulations Section 1.1245-1.

9.6.3.          Allocation of Excess Nonrecourse Liabilities. Solely for purposes of determining a Unitholder’s proportionate share of the “excess nonrecourse liabilities” of the Company within the meaning of Regulation Section 1.752-3(a)(3), the Unitholders’ interests in the Company’s profits will be in the same proportions as they share Net Profits under Section 9.1.3.

9.6.4.          Allocations in Connection with Varying Interests. If, during any calendar year, there is (a) a transfer of a Unitholder’s Units under this Agreement or (b) the issuance of Units by the Company to a Unitholder, then Net Profits, Net Losses, each item of Net Profits and Net Losses and all other tax items of the Company for such period will be divided and allocated among the Unitholders by taking into account their varying interests during such fiscal year in accordance with Code Section 706(d) and using conventions permitted by law and selected by the Board of Managers.

9.7.              Determination of Net Profits or Net Losses.

9.7.1.          Computation of Net Profits or Net Losses. “Net Profits” or “Net Losses” of the Company, for each fiscal year or other period, will be an amount equal to the Company’s taxable income or loss for such period, determined in accordance with Code Section 703(a) (and, for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1), including income and gain exempt from federal income tax, will be included in computing Net Profits or Net Losses).

9.7.2.          Adjustments to Net Profits or Net Losses. For purposes of computing Net Profits or Net Losses on the disposition of an item of Company property or in determining the cost recovery, depreciation or amortization deduction with respect to any property, the Company shall use such property’s book value determined in accordance with Regulation Section 1.704-1(b). Each property’s book value will be equal to its adjusted basis for federal income tax purposes, except as follows:

(a)       The initial book value of any property contributed by a Member to the Company will be the gross fair market value of such property at the time of contribution;

(b)       In the sole discretion of the Board of Managers, the book value of all Company properties may be adjusted to equal their respective gross fair market values, as determined by the Board of Managers as of the following times: (1) in connection with the acquisition of an interest in the Company by a new or existing Member for more than a de minimis Capital Contribution, (2) in connection with the liquidation of the Company as defined in Regulation Section 1.704-1(b)(2)(ii)(g), (3) in connection with a more than de minimis Distribution to a retiring or a continuing Unitholder as consideration for all or a portion of such Unitholder’s interest in the Company, (4) such other times as are permitted under the Section 704 of the Code and the Regulations adopted under the Code or (5) at such other times as the Board of Managers may determine. In the event of a revaluation of any Company assets pursuant to this Section 9.7.2, the Capital Accounts of the Unitholders will be adjusted to the extent provided in Regulation Section 1.704-1(b)(2)(iv)(f);

(c)       If the book value of an item of Company property has been determined pursuant to this Section 9.7.2, then such book value will thereafter be used, and will thereafter be adjusted by depreciation or amortization, if any, taken into account with respect to such property, for purposes of computing Net Profits or Net Losses in accordance with Regulation Section 1.704-1(b)(2)(iv)(g).

9.7.3.          Items Specially Allocated. Notwithstanding any other provision of this Section 9.7, any items that are specially allocated pursuant to Sections 9.4 or 9.5 will not be taken into account in computing Net Profits or Net Losses.

9.8.              Mandatory Tax Allocations Under Code Section 704(c).

9.8.1.          In General. In accordance with Code Section 704(c) and Regulation Section 1.704-3, income, gain, loss and deduction with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Unitholders so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its initial book value computed in accordance with Section 9.7.2(a). Before the contribution of any property to the Company that has a fair market value that differs from its adjusted basis in the hands of the contributing Member on the date of contribution, the contributing Member and the other Members by Majority Vote of the Members Holding Voting Units (excluding the vote of the contributing Member) shall agree upon the allocation method to be applied with respect to that property under Regulation Section 1.704-3, which allocation method will be set forth on the Schedule of Allocation Method attached to this Agreement, as amended from time to time.

9.8.2.          Revaluation Adjustments. If the book value of any Company property is adjusted pursuant to Section 9.7.2(b), then subsequent allocations of income, gain, loss and deduction with respect to such property will take account of any variation between the adjusted basis of such property for federal income tax purposes and its book value in the same manner as under Code Section 704(c). The choice of allocation methods under Regulation Section 1.704-3 with respect to such revalued property will be made by the Board of Managers, with the approval of the Members by Majority Vote of the Members Holding Voting Units, and set forth on the Schedule of Allocation Method attached to this Agreement, as amended from time to time.

9.8.3.          Allocations Disregarded in Determining Net Profits and Net Losses. Allocations pursuant to this Section 9.8 are solely for purposes of federal, state and local taxes and will not affect, or in any way be taken into account in computing, any Unitholder’s Capital Account or share of Net Profits, Net Losses or other items as computed for book purposes or Distributions pursuant to any provision of this Agreement.

10.                DISTRIBUTIONS.

10.1.           Discretion of Board of Managers.

Subject to the mandatory tax Distribution provisions of Section 10.4 and the limitations on Distributions expressed in Section 10.6, the Board of Managers will have sole discretion to determine the timing, character (i.e., what property is to be distributed) and aggregate amount of Distributions to the Unitholders pursuant to this Section 10.

10.2.           Current Distributions. If current Distributions from operations of the Company are made by the Board of Managers, such Distributions will be made to the Unitholders holding Class A Common Units and Class B Common Units pro rata in accordance with their respective Percentage Interests.

10.3.           Distributions in Kind. Non-cash assets, if any, will be distributed in a manner that reflects how cash proceeds from the sale of such asset for fair market value would have been distributed under Section 10.2 (after any unrealized gain or loss attributable to such non-cash assets has been allocated among the Unitholders in accordance with Section 9).

10.4.           Mandatory Tax Distributions. No later than the tenth (10^th) day of May, August, November and February of each year, the Company shall distribute to each Unitholder, to the extent permitted by law and subject to Section 10.6, an amount equal to the excess of (a) forty-three percent (43%) of (i) the amount estimated by the Board of Managers to be such Unitholder’s allocable share (as determined pursuant to Section 9 and adjusted for any discrepancy between the amount estimated and the actual Net Profits for the prior quarter) of the Company’s Net Profits for the fiscal quarter ending on the last day of March, June, September and December, respectively, and (ii) any amount allocable to such Unitholder in accordance with Section 9.8 over (b) any Distributions under Section 10.2 during such prior calendar quarters. Any Distributions made during any calendar quarter in excess of the Distributions required by this Section 10.4 will be taken into account in determining the extent of any future Distributions so required. It is the intention of the Members that Distributions pursuant to this Section 10.4 provide the Unitholder with funds to pay federal taxes on Net Profits allocated to Unitholders pursuant to this Agreement. In the event that the highest federal income tax rate applicable to individuals or corporations is changed, the reference above to forty-three percent (43%) will be changed to a percentage that is equal to the higher of the highest marginal federal income tax rate applicable to individuals or corporations. All Distributions made pursuant to this Section 10.4 will be treated as amounts distributed to the Unitholders pursuant to this Section 10 for all purposes of this Agreement. In addition, all Distributions made pursuant to this Section 10.4 will be taken into consideration when determining the pro rata amount of Distributions under Section 10.2, such that, to the extent that Distributions under this Section 10.4 are not in accordance with the Members’ Percentage Interests, Distributions under Section 10.2, when made in accordance with such Section, will be made in such proportions as will cause the aggregate Distributions under both such Sections to be in proportion to each Member’s respective Percentage Interest.

10.5.           Withholding; Amounts Withheld Treated as Distributions. The Board of Managers is authorized to withhold from Distributions, or with respect to allocations or payments, to Unitholders and to pay over to the appropriate federal, state or local governmental authority all amounts required to be withheld pursuant to the Code or provisions of applicable state or local law. All amounts withheld pursuant to the preceding sentence in connection with any payment, Distribution or allocation to any Unitholder will be treated as amounts distributed to such Unitholder pursuant to this Section 10 for all purposes of this Agreement.

10.6.           Limitation Upon Distributions. No Distribution will be declared and paid unless, after the Distribution is made, (a) the assets of the Company are in excess of all liabilities of the Company, except liabilities to Members on account of their Capital Contributions, and (b) the Company is able to pay its debts as they become due in the usual course of business.

10.7.           Liquidating Distributions. Notwithstanding the foregoing, Distributions upon liquidation of the Company will be made in accordance with Section 13.2.

11.                ACCOUNTING, BOOKS, AND RECORDS.

11.1.           Accounting Principles. The Company’s books and records will be kept, and its income tax returns prepared, in accordance with GAAP, consistently applied, as the Board of Managers determines is in the best interests of the Company and its Members.

11.2.           Interest on and Return of Capital Contributions. No Member will be entitled to interest on such Member’s Capital Contribution or to the return of such Member’s Capital Contribution, except as otherwise specifically provided for in this Agreement.

11.3.           Loans to Company. Nothing in this Agreement will prevent any Member from making secured or unsecured loans to the Company that have been approved by the Board of Managers.

11.4.           Accounting and Tax Periods. The Company’s accounting and tax periods will be the twelve (12) month period ending on or about December 31^st; provided, however, that the Board of Managers may elect to change the Company’s accounting period at any time upon the advice of legal counsel if it deems that such a change would be in the best interests of the Company.

11.5.           Records, Audits and Reports. At the expense of the Company, the Chief Financial Officer of the Company shall maintain records and accounts of all operations and expenditures of the Company. At a minimum, the Company shall keep at its principal place of business the following records:

(a)                 A current list and past list, setting forth the full name and last known mailing address, of each Member and Economic Interest Owner;

(b)                 A copy of the Certificate of Formation and all amendments thereto;

(c)                 A copy of this Agreement and all amendments to this Agreement;

(d)                 Copies of the Company’s federal, state and local tax returns and reports, if any, for the three (3) most recent years;

(e)                 Minutes of every meeting of the Members and all written consents obtained from Members for actions taken by Members without a meeting; and

(f)                  Copies of the Company’s financial statements for the three (3) most recent years together with management reports, audit letters or similar documents produced by the Company’s auditors.

11.6.           Tax Representative.

11.6.1.          Designation. Jeremy Johnson shall be the “tax representative” of the Company for purposes of Code Sections 6221, et seq. and corresponding provisions of any state or local tax law.

11.6.2.          Expenses of Tax representative; Indemnification. The Company shall indemnify and reimburse the tax representative for all reasonable expenses, including legal and accounting fees, claims, liabilities, losses and damages, incurred in connection with any administrative or judicial proceeding with respect to the tax liability of the Unitholders attributable to the Company. The payment of all such expenses shall be made before any Distributions are made to Unitholders. Neither the tax representative nor any Member will have any obligation to provide funds for such purpose. The provisions for exculpation and indemnification of Managers set forth in Sections 3.6 and 14 shall be fully applicable to the Member acting as tax representative for the Company.

11.6.3.          Duties of Tax Representative. The tax representative (a) shall consult with and consider the views of the Board of Managers before taking any material action in its capacity as the tax representative; (b) shall not settle any audit or judicial proceeding without the approval of the Board of Managers; (c) shall promptly furnish the Members with all copies of material documents and notices received in connection with an administrative or judicial proceeding relating to income tax matters of the Company; and (d) shall notify promptly each of the Members under the following circumstances: (i) if the tax representative causes an amended return to be filed on behalf of the Company; (ii) if the tax representative extends the statute of limitations on assessments with respect to any taxable year of the Company; (iii) if any tax return of the Company is audited or if adjustments to any such return are proposed in writing; and (iv) if the tax representative enters into a settlement agreement relating to any item of Company income, gain, loss, deduction or credit for any taxable year of the Company.

11.7.           Returns and Other Elections. The tax representative of the Company shall cause the preparation and timely filing of all tax and information returns required of the Company pursuant to the Code and all other tax and information returns deemed necessary and required in each jurisdiction in which the Company does business. Copies of such returns, or pertinent information from such returns, will be furnished to the Unitholders within a reasonable time after the end of the Company’s fiscal year. Except as otherwise expressly provided to the contrary in this Agreement, all elections by the Company under federal or state laws shall be approved by the Board of Managers. The Board of Managers shall confirm each tax return.

12.                ISSUANCE AND TRANSFER OF UNITS.

12.1.           General.

12.1.1.          No Certificates for Units. Units upon issuance will not be certificated.

12.1.2.          Issuance. Units will be issued only upon receipt by the Company of the consideration determined by the Board of Managers to be paid or exchanged for such Units.

12.1.3.          Records. The name of the Person owning the Units, together with the number of Units, the class or series of such Units and the date of issuance will be entered in the books of the Company.

12.1.4.          Transfer on the Books. Each transfer of Units shall be entered in the books of the Company, unless such transfer is not permitted pursuant to this Agreement.

12.1.5.          Subscriptions; Class B Common Unit Awards. Subscriptions for Units shall be in writing and in such form and content as the Board of Managers may require. Class B Common Unit Award Agreements pursuant to which Class B Common Units are issued under the Class B Common Unit Award Plan shall be in writing and in such form and content as the Board of Managers may require.

12.2.           Restrictions on Transfer of Units.

12.2.1.          Retention of Units. No Unitholder will Transfer any of such Unitholder’s Units, except as a Permitted Transfer.

12.2.2.          Permitted Transfers. The restrictions contained in Section 12.2.1 will not apply with respect to any Permitted Transfer of Units; provided, however, that (a) the transferees of such Units shall have agreed in writing to be bound by the provisions of this Agreement with respect to the Units so Transferred, and (b) notwithstanding anything contained in this Agreement to the contrary, a holder of Unvested Class A Common Units or Unvested Class B Common Units may not Transfer any Unvested Class A Common Units or Unvested Class B Common Units to a Permitted Transferee or otherwise, and any attempted Transfer of Unvested Class A Common Units or Unvested Class B Common Units will be void and will not be registered on the books of the Company.

12.2.3.          Termination of Restrictions. The restrictions on the Transfer of Units set forth in Section 12.2.1 will continue with respect to all Units (and will survive any Transfer of Units) until (a) the repurchase of such Units pursuant to Section 12.4 or (b) the closing of a Sale of the Company.

12.3.           Right of First Refusal. In the event that any Unitholder (including any Permitted Transferee) receives from a non-Affiliate a bona fide offer to purchase all or any portion of the Units held by such Unitholder (a “Transaction Offer”) that such Unitholder desires to accept (other than (a) a Permitted Transfer, (b) a Sale of the Company, (c) a Transfer pursuant to the repurchase provisions of the Class A Common Unit Award Plan or a Class A Common Unit Award Agreement, (d) a Transfer pursuant to the repurchase provisions of the Class B Common Unit Award Plan or a Class B Common Unit Award Agreement or (e) an Involuntary Transfer), such Unitholder (a “Transferring Unitholder”) shall Transfer such Units pursuant to and in accordance with the following provisions of this Section 12.3.

12.3.1.          The Transferring Unitholder shall deliver a written notice (the “Offer Notice”) to the Company and to the other Unitholders who are Members (the “Other Members”) specifying in reasonable detail the identity of the prospective transferee(s), the number and type of Units to be transferred (the “Subject Securities”) and the price and other terms and conditions of the proposed Transfer. The Transferring Unitholder shall not consummate such proposed Transfer until at least thirty (30) days after the delivery of the Offer Notice, unless the parties to the Transfer have been finally determined pursuant to this Section 12.3 before the expiration of such thirty (30) day period (the date of the first to occur of thirty (30) days after such delivery or such final determination is referred to in this Section 12.3 as the “Authorization Date”).

12.3.2.          First, the Company may elect to purchase all or a portion of the Subject Securities, at the price and on the other terms specified in the Offer Notice, by delivering written notice of such election to the Transferring Unitholder and the Other Members as soon as practicable, but in any event within twenty (20) days after delivery of the Offer Notice.

12.3.3.          Second, if the Company has not elected within such twenty (20) day period to purchase all of the Subject Securities, then each Other Member may elect to purchase its Member Pro Rata Portion of the Subject Securities, at the price and on the other terms specified in the Offer Notice, by delivering written notice of such election to the Transferring Unitholder as soon as practicable, but in any event within thirty (30) days after delivery of the Offer Notice.

12.3.4.          If the Company and/or the Other Members have elected to purchase all of the Subject Securities from the Transferring Unitholder, then such purchase transaction shall be consummated as soon as practicable after delivery of the election notice(s) to the Transferring Unitholder, but in any event within forty-five (45) days after the Authorization Date, subject to extension to the extent reasonably necessary for the purpose of obtaining any required governmental consent or approval (but in no event longer than ninety (90) days).

12.3.5.          If the Company and the Other Members do not elect, in the aggregate, to purchase all of the Subject Securities, then the Transferring Unitholder may, within the ninety (90) days following the Authorization Date, transfer the Subject Securities not purchased by the Company and/or the Other Members to the transferee(s) specified in the Offer Notice on terms no more favorable to such transferee(s) than specified in the Offer Notice. Any Subject Securities not so transferred within such ninety (90) day period will again be subject to the provisions of this Section 12.3 upon any subsequent Transfer.

12.3.6.          The purchase price specified in any Offer Notice shall be payable solely in cash at the closing of the purchase transaction or, at the election of the Transferring Unitholder, in installments over time in accordance with the terms of purchase, if any, specified in the Offer Notice. In addition, the Company may pay the purchase price for any Subject Securities purchased pursuant to this Section 12.3 by offsetting any bona fide debts owed by the Transferring Unitholder to the Company or any of its Subsidiaries.

12.4.           Repurchase Option for Certain Class B Common Units. Certain Class B Common Units may be subject to a repurchase option set forth in the Class B Common Unit Award Plan or any Class B Common Unit Award Agreement.

12.5.           Involuntary Transfers.

12.5.1.          The Company’s Option to Purchase. In the event that a Unitholder suffers an Involuntary Transfer of all or any portion of such Unitholder’s Units, such Unitholder shall immediately give written notice to the Company (the “Involuntary Transfer Notice”), with copies to the other Unitholders who are Members (“Non-Involuntary Transferring Members”), describing the event constituting the Involuntary Transfer, the names and addresses of all parties involved, the number of Units involved and, if applicable, the amount of any judgment or other indebtedness with respect to which the Involuntary Transfer was suffered. The occurrence of the event that constitutes the Involuntary Transfer will be deemed to be an offer to sell to the Company any portion of the Units that are the subject of the event constituting the Involuntary Transfer (“Involuntary Units”) at the Fair Market Value of such Units. The Company will have twenty (20) days from the date of receipt of the Involuntary Transfer Notice in which to accept the offer as to some or all of such Units by providing written notice of acceptance to the offering Unitholder. The Company may make payment for the Involuntary Units to be repurchased directly to the party to whom the Units otherwise would be transferred. The closing of the sale shall occur within thirty (30) days after the Company’s acceptance of the offer, subject to extension to the extent reasonably necessary for the purpose of obtaining any required governmental consent or approval (but in no event longer than ninety (90) days). Any Involuntary Units not purchased by the Company pursuant to this Section 12.5.1, by any Non-Involuntary Transferring Member pursuant to Section 12.5.2 or by a third Person pursuant to Section 12.5.3 will continue to be held by the Unitholder suffering the Involuntary Transfer, subject to the terms and conditions of this Agreement.

12.5.2.          The Members’ Option to Purchase. In the event that the Company does not timely elect to redeem or purchase all of the Involuntary Units pursuant to Section 12.5.1, the Non-Involuntary Transferring Members may purchase up to their Member Pro Rata Portion of all or that remaining portion of the Involuntary Units at the Fair Market Value of such Units. Each of the Non-Involuntary Transferring Members will have forty-five (45) days from the date of receipt of the Involuntary Transfer Notice to the Company in which to exercise their option to purchase by providing written notice of acceptance to such Unitholder, the other Non-Involuntary Transferring Members and the Company. Each Non-Involuntary Transferring Member will have the further option, by providing written notice to such Unitholder, the other Non-Involuntary Transferring Members and the Company within fifty (50) days from the date of receipt of the Involuntary Transfer Notice to the Company, to purchase such Non-Involuntary Transferring Member’s Member Pro Rata Portion of any remaining portion of the Involuntary Units not taken up by the other Non-Involuntary Transferring Members. The closing of the sale of Units pursuant to this Section 12.5.2 shall occur within thirty (30) days after delivery of the final notice of exercise pursuant to this Section 12.5.2, subject to extension to the extent reasonably necessary for the purpose of obtaining any required governmental consent or approval (but in no event longer than ninety (90) days).

12.5.3.          Failure of Acceptance. If the Company or the Non-Involuntary Transferring Members fail to accept the offer made pursuant to Sections 12.5.1 or 12.5.2, or if the Company and the Non-Involuntary Transferring Members elect to purchase less than all of the Involuntary Units, then the offering Unitholder may sell or transfer the Involuntary Units not purchased by the Company or the Non-Involuntary Transferring Members (the “Unsold Units”) upon such terms and conditions as such Unitholder deems advisable; provided that the purchaser or transferee shall execute a counterpart of this Agreement and shall agree to be bound by all of the terms and conditions of this Agreement. If the Unsold Units are not sold or transferred within ninety (90) days following the expiration of the thirty (30) day acceptance period, then the Unsold Units will again become subject to the restrictions of this Agreement.

12.6.           Effect of Change of Units. Except as otherwise provided in this Agreement, if the Company, at any time after any purchase price or repurchase price is determined for any class or series of any class of Units pursuant to this Agreement and before the closing of any purchase or repurchase of such Units pursuant to this Agreement, increases the number of outstanding Units that were or are subject to such purchase price or repurchase price by means of a Unit split or distribution of Units, or decreases the number of outstanding Units that were or are subject to such purchase price or repurchase price by combining such Units into a smaller number of Units, then immediately after the record date for such change, the purchase price or repurchase price of each such Unit will be proportionately decreased, in case of such Unit split or Unit dividend, or proportionately increased in case of such combination of Units, with the result that the aggregate purchase or repurchase of the subject Units to be purchased or repurchased immediately after such change will be the same as the aggregate purchase or repurchase of such Units immediately before such change.

12.7.           Specific Performance. The parties acknowledge that monetary damages are insufficient in the event that any Unitholder does not comply with the provisions of this Section 12 and accordingly agree that, in the event of a breach of any of such provisions, notwithstanding Section 17.10, the other Unitholders or the Company, as applicable, will have the right to seek specific performance and/or injunctive or other relief in order to enforce or prevent any violation of such provisions without proof of damages and without the necessity of posting a bond or other security.

12.8.           Purchase in Cash. Except as otherwise provided in this Agreement, any purchase or repurchase of Units pursuant to this Agreement shall be made in cash at the closing of the purchase or repurchase. All Units shall be sold free and clear of all liens, claims and encumbrances.

12.9.           Setoff. Except as otherwise provided in this Agreement, in the event that the Company repurchases Units pursuant to this Agreement from a Unitholder, the Company shall set off against the repurchase price for the Units any indebtedness owed to the Company by such Unitholder or such Unitholder’s estate, whether or not such indebtedness is then due. If a Member purchases another Unitholder’s Units pursuant to this Agreement, before making any payment to the seller, the purchaser shall pay to the Company that part of the purchase price equal to any indebtedness owed by the seller or such seller’s estate to the Company, whether or not such indebtedness is then due, and such payments will be deemed payments on account of such purchase price.

12.10.          Recognition of Transfer. Upon a Permitted Transfer of Units, and as a condition to recognizing the effectiveness and binding nature of any Permitted Transfer, and (subject to Section 12.13) substitution of a Person as a Unitholder, the Board of Managers may require the transferring Unitholder and the proposed transferee to execute, acknowledge and deliver to the Board of Managers such instruments of transfer, assignment and assumption and such other agreements and to perform all such other acts that the Board of Managers may deem reasonably necessary or desirable to (a) constitute such Person as a Unitholder, (b) confirm that the Person desiring to become a Unitholder has accepted, assumed and agreed to be subject and bound by all of the terms, obligations and conditions of this Agreement (whether such Person is to be admitted as a new Member or will merely be an Economic Interest Owner), (c) maintain the status of the Company as a partnership for federal income tax purposes and (d) assure compliance with any applicable state and federal laws, including securities laws and regulations.

12.11.          Effective Date. Any Transfer of Units or admission of a Member in compliance with this Section 12 will be deemed effective as of the last day of the calendar month in which the remaining Members’ consent to such Transfer is given or, if no such consent is required pursuant to Section 12.12, on such date that the transferor and the transferee both comply with Section 12.10. The transferring Unitholder hereby indemnifies the Company and its Managers, Members and officers against any and all loss, damage or expense (including tax liabilities or loss of tax benefits) arising directly or indirectly as a result of any Transfer or purported Transfer in violation of this Section 12.

12.12.          Admission of Additional Members.

12.12.1.          Consent to Admission of Permitted Transferees as Members. The Members hereby consent to the admission of, and direct the Board of Managers and officers of the Company to take all actions necessary or desirable to admit, all Permitted Transferees as Members of the Company.

12.12.2.          Consent to Admission of Subscribers for Authorized Units as Members. The Members hereby consent to the admission of, and direct the Board of Managers and officers of the Company to take all actions necessary or desirable to admit, all subscribers of authorized Units as Members of the Company.

12.12.3.          Other Transferees Not Members. In the event that the Board of Managers approves, pursuant to Section 12.13.1, the Transfer of Units to other than a Permitted Transferee, the transferee of such Units will not be admitted as a Member and will be merely an Economic Interest Owner.

12.13.          Attempted Transfers in Violation of Transfer Restrictions.

12.13.1.          Void. Any attempt to Transfer Units in violation of this Agreement will be ineffective, and the Company and its Members will have no obligation to recognize the purported Transfer in any manner. Notwithstanding the foregoing, if a Transfer to other than a Permitted Transferee is approved by the Board of Managers, then the Company may, on such terms as it may determine in its sole discretion, elect to waive the violation and to allow the transfer of such Units to the purported transferee.

12.13.2.          Indemnity. In the case of a Transfer or attempted Transfer in violation of this Agreement, the parties engaging or attempting to engage in such Transfer will be liable to indemnify and hold the Company and its Managers, Members and officers harmless from all costs, liability and damages that any of such indemnified persons may incur (including incremental tax liability (including penalties and interest) and attorneys’ and accountants’ fees and expenses) as a result of such Transfer or attempted Transfer.

13.                DISSOLUTION AND TERMINATION.

13.1.           Termination Event. The Company shall dissolve and commence winding up and liquidating upon the first to occur of any of the following events (each, a “Termination Event”):

(a)     The Members vote by Majority Vote of the Members Holding Voting Units to dissolve and liquidate the Company;

(b)     The entry of a decree of judicial dissolution under the Act; or

(c)     The happening of any other event that makes it unlawful or impossible to carry on the business of the Company.

Notwithstanding any provision of the Act, the Company will not dissolve before the occurrence of a Termination Event, including upon the occurrence of an event of dissociation of a Member under the Act, and the remaining Members will have the right to continue the Company following any such event of dissociation. If it is determined by a court of competent jurisdiction that the Company has dissolved before the occurrence of a Termination Event, then the Members hereby agree to continue the business of the Company without a winding up or liquidation.

13.2.           Winding Up, Liquidation and Distribution of Assets. Upon dissolution of the Company, the Chief Executive Officer shall immediately proceed to wind up the affairs of the Company, unless the business of the Company is continued as provided in Section 13.1. The Chief Executive Officer shall sell or otherwise liquidate all of the Company’s assets as promptly as practicable (except to the extent that the Board of Managers may determine to distribute any assets to the Unitholders in kind) and shall apply the proceeds of such sale and the remaining Company assets in the following order of priority:

13.2.1.          First, to the payment of creditors, including Members who are creditors, to the extent otherwise permitted by law, in satisfaction of liabilities of the Company, other than liabilities for Distributions to Members;

13.2.2.          Second, to establish any reserves that the Board of Managers deems reasonably necessary for contingent or unforeseen obligations of the Company and, at the expiration of such period as the Board of Managers shall deem reasonably advisable, the balance then remaining in the manner provided below;

13.2.3.          Third, to and among the Unitholders holding Class A Common Units and Class B Common Units in proportion to their respective positive Capital Account balances (if any) after adjusting such Capital Accounts to reflect the allocations of Net Profits, Net Losses and other tax items of the Company in accordance with Sections 9 and 10 until each such Unitholder’s Capital Account is reduced to zero; and

13.2.4.         Thereafter, to the Unitholders holding Class A Common Units and Class B Common Units pro rata in accordance with their respective Percentage Interests.

13.3.           No Obligation to Restore Negative Capital Account Balance on Liquidation. Notwithstanding anything to the contrary contained in this Agreement, and notwithstanding any custom or rule of law to the contrary, to the extent that a deficit, if any, in the Capital Account of any Unitholder results from or is attributable to deductions or losses of the Company (including non-cash items such as amortization or depreciation) or distributions of money or other property pursuant to this Agreement to Unitholders, such deficit will not be an asset of the Company, and such Unitholder will not be obligated to contribute such amount to the Company to bring the balance of such Unitholder’s Capital Account to zero.

13.4.           Termination. The Chief Executive Officer shall comply with all applicable requirements of applicable law pertaining to the winding up of the affairs of the Company and the distribution of its assets. Upon completion of the winding up, liquidation and distribution of the Company’s assets, the Company will be deemed terminated.

13.5.           Certificate of Cancellation. When all debts, liabilities and obligations have been paid and discharged or adequate provisions have been made for such items and all of the remaining property and assets have been distributed to the Unitholders, the Chief Executive Officer shall file a Certificate of Cancellation with the Delaware Secretary of State as required by the Act. Upon filing the Certificate of Cancellation with the Delaware Secretary of State, the existence of the Company shall cease, except as otherwise provided in the Act.

13.6.           Return of Contribution Nonrecourse to Other Members. Except as provided by law or as expressly provided in this Agreement, upon dissolution of the Company each Unitholder shall look solely to the assets of the Company for the return of such Unitholder’s Capital Contribution. If the property remaining after the payment or discharge of liabilities of the Company is insufficient to return the Capital Contributions of Members, no Unitholder will have recourse against any other Unitholder so long as the assets of the Company have been distributed in accordance with this Section 13.

14.                INDEMNIFICATION.

14.1.           Right to Indemnification. Each Person who was, is or is threatened to be made a party to or is otherwise involved (including as a witness) in any threatened, pending or completed action, suit, claim or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal (a “Proceeding”), by reason of the fact that such Person is or was a Manager, Member, officer or employee of the Company or, that being or having been such a Manager, Member or officer or an employee of the Company, such Person is or was serving at the request of the Company as a manager, member, director, officer, partner, trustee, employee or agent of another limited liability company or of a corporation, partnership, joint venture, trust, employee benefit plan or other enterprise (an “Indemnitee”), whether the basis of a Proceeding is alleged action in an official capacity or in any other capacity while serving as such a manager, member, director, officer, partner, trustee, employee or agent, shall be indemnified and held harmless by the Company against all losses, claims, damages (compensatory, exemplary, punitive or otherwise), liabilities and expenses (including attorneys’ fees, costs, judgments, fines, ERISA excise taxes or penalties and amounts to be paid in settlement and any other expense) actually and reasonably incurred or suffered by such Indemnitee in connection with such Proceeding, and such indemnification shall continue as to an Indemnitee who has ceased to be a Manager, Member, officer or employee of the Company, or ceased to be a manager, member, director, officer, partner, trustee, employee or agent of such other limited liability company or of such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, and shall inure to the benefit of the Indemnitee’s heirs, executors and administrators. Except as provided in Section 14.4 with respect to Proceedings seeking to enforce rights to indemnification, the Company shall indemnify any such Indemnitee in connection with a Proceeding (or part of a Proceeding) initiated by such Indemnitee only if a Proceeding (or part of a Proceeding) was authorized or ratified by the Board of Managers. The right to indemnification conferred in this Section 14 shall be a contract right.

14.2.           Restrictions on Indemnification. No indemnification will be provided to any Indemnitee for acts or omissions of such Indemnitee finally adjudged to be intentional misconduct or a knowing violation of law, for conduct of such Indemnitee finally adjudged to be in violation of the Act, for any transaction with respect to which it was finally adjudged that such Indemnitee personally received a benefit in money, property or services to which such Indemnitee was not legally entitled or if the Company otherwise is prohibited by applicable law from paying such indemnification.

14.3.           Advancement of Expenses. The right to indemnification conferred in this Section 14 includes the right to be paid by the Company the expenses incurred in defending any Proceeding in advance of its final disposition (an “Advancement of Expenses”). An Advancement of Expenses shall be made upon delivery to the Company of an undertaking (an “Undertaking”), by or on behalf of the Indemnitee, to repay all amounts so advanced if it is ultimately determined by final judicial decision from which there is no further right to appeal that such Indemnitee is not entitled to be indemnified.

14.4.           Right of Indemnitee to Bring Suit. If a claim under Section 14.1 or Section 14.3 is not paid in full by the Company within sixty (60) days after a written claim has been received by the Company, except in the case of a claim for an Advancement of Expenses, in which case the applicable period shall be twenty (20) days, the Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim. If the Indemnitee is successful, in whole or in part, in any such suit or in a suit brought by the Company to recover an Advancement of Expenses pursuant to the terms of an Undertaking, the Indemnitee will be entitled to be paid also the expense of litigating such suit. The Indemnitee will be presumed to be entitled to indemnification under this Section 14 upon submission of a written claim (and, in an action brought to enforce a claim for an Advancement of Expenses, when the required Undertaking has been tendered to the Company), and thereafter the Company will have the burden of proof to overcome the presumption that the Indemnitee is so entitled.

14.5.           Procedures Exclusive. The procedures for indemnification and the Advancement of Expenses set forth in this Section 14 are in lieu of the procedures required by the Act or any successor provision of the Act.

14.6.           Nonexclusivity of Rights. Except as set forth in Section 14.5, the right to indemnification and the Advancement of Expenses conferred in this Section 14 will not be exclusive of any other right that any Person may have or hereafter acquire under any statute, provision of this Agreement, general or specific action of the Board of Managers or Members, contract or otherwise.

14.7.           Insurance Contracts and Funding. The Company shall maintain insurance, at its expense, to protect itself and its Managers and officers against expense, liability and loss to the extent that such insurance is available at commercially reasonable rates and in such amounts and upon such terms as is approved by the Board of Managers. The Company may maintain insurance in addition to the foregoing, at its expense, to protect any Member, partner, trustee, employee or agent of the Company or another limited liability company, corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any expense, liability or loss, whether or not the Company would have the authority or right to indemnify such Person against such expense, liability or loss under the Act or other law. The Company may enter into contracts with any officer, partner, trustee, employee or agent of the Company in furtherance of the provisions of this Section and may create a trust fund, grant a security interest or use other means (including a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this Section.

14.8.           Indemnification of Employees and Agents of the Company. In addition to the rights of indemnification set forth in this Section 14, the Company may, by action of the Board of Managers, grant rights to indemnification and advancement of expenses to employees and agents or any class or group of employees and agents of the Company (a) with the same scope and effect as the provisions of this Section 14 with respect to indemnification and the Advancement of Expenses of Managers and officers of the Company, (b) pursuant to rights granted pursuant to, or provided by, the Act or (c) as otherwise are consistent with applicable law.

15.                AMENDMENTS.

15.1.           Procedure. Except as otherwise provided in this Section 15, the provisions of this Agreement may be amended, modified or waived only with the prior written consent of the Company (as authorized by the Board of Managers) and the Members by Majority Vote of the Members Holding Voting Units; provided, however, that in no event (a) will any party be required to make any Capital Contribution to the Company without such party’s prior written consent, except as expressly provided in this Agreement or on the amended attached Schedule of Unitholders, (b) will any such amendment, modification or waiver cause any Member to become personally liable for any obligation of the Company without such Member’s consent or (c) will any such amendment, modification or waiver alter a Member’s rights and privileges with respect to a class of Units in a manner that is disproportionate to the rights and privileges of other holders of such Units, except as expressly set forth in this Agreement with respect to the issuance of additional Units. No course of dealing or the failure of any party to enforce any of the provisions of this Agreement will in any way be construed as a waiver of such provisions and will not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.

15.2.           Exception. Notwithstanding anything in this Agreement to the contrary, the Board of Managers may at any time, without the vote, approval or consent of the Unitholders, (i) amend the attached Schedule of Unitholders to reflect any change required to be made in such Schedule pursuant to the terms of this Agreement, (ii) restate this Agreement together with all amendments to this Agreement that have been duly adopted in accordance with the terms of this Agreement in order to incorporate such amendments in a single, integrated document and (iii) amend this Agreement:

(a)     To admit a Person authorized in accordance with Section 12 as an additional Member and/or to reflect the Transfer of Units to an Economic Interest Owner;

(b)     To reflect that a Person has ceased to be a Member or ceased to own Units as an Economic Interest Owner;

(c)     To reflect any change in the Company’s principal offices, agent for service of process or “tax representative”; and/or

(d)     To delete from or add to this Agreement any provision required to be so deleted or added by the staff of the Securities and Exchange Commission or by a state blue sky commissioner or similar such official, which deletion or addition is deemed by such Commission or official to be for the benefit or protection of the Members.

15.3.           Execution of Amendments. All amendments to this Agreement need only be signed by the Chief Executive Officer or such other officer of the Company authorized by the Board of Managers to execute such amendments unless applicable law also requires execution by one or more Unitholders, in which event such amendment will require the signature(s) of such Unitholders or their attorney(s)-in-fact.

15.4.           Notice. The Board of Managers shall give written notice of any amendment to this Agreement to the Unitholders, which notice shall set forth either (a) the text of the proposed amendment or (b) a summary of the proposed amendment and a statement that the text of the proposed amendment will be furnished to any Unitholder upon request.

16.                SPECIAL POWER OF ATTORNEY.

16.1.           In General. Each Unitholder hereby irrevocably makes, constitutes and appoints the Managers, with full power of substitution, the true and lawful representative and attorney-in-fact of, and in the name, place and stead of, such Unitholder, 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 15; 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 or in the Capital Contributions of the Unitholders.

16.2.           Acknowledgment. Each Unitholder 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 Unitholder’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 Managers in the manner contemplated by this Agreement, then each Unitholder hereby agrees that, notwithstanding any objection that such Unitholder may assert with respect to such action, the Managers are 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 Unitholder is fully aware that each Unitholder 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 Managers 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 Managers have had notice of such death or incapacity; and (ii) will survive the delivery of an assignment by a Unitholder of the whole or any portion of such Unitholder’s interest in the Company, except that where the assignee of such interest has been approved by the Members for admission to the Company as a Member, this power-of-attorney given by the assignor will survive the delivery of such assignment for the sole purpose of enabling the Managers to execute, acknowledge and file any instrument necessary to effect such substitution.

17.                MISCELLANEOUS PROVISIONS.

17.1.           Notices. Except for meeting notices given under Sections 3 and 5, (a) all notices, requests, demands, claims or other communications permitted or required by this Agreement will be deemed duly given by either the Company or a Unitholder to the other three (3) days after placement in the United States Mail by Registered or Certified Mail, return receipt requested, postage prepaid, and addressed to the intended recipient at the address maintained by the Company in its business records for such Unitholder; (b) all notices by a Unitholder to the Company shall be delivered to the attention of the Chief Executive Officer; and (c) a party also may send any notice, request, demand, claim or other communication to the intended recipient using any of the following means (but specifically excluding facsimile transmission or telex): personal delivery, expedited courier, messenger service, ordinary mail or electronic mail), but no such notice, request, demand, claim or other communication will be deemed to have been duly given unless and until it actually is received by the intended recipient, as to which the sender will have the burden of proof. Any party may change the address to which notices, requests, demands, claims or other communications under this Agreement are to be delivered by written notice provided in the manner required by this Section 17.1. Such notices, demands and other communications shall be sent to the following Persons at the addresses set forth below:

or at such street address or email address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. Notwithstanding any of the foregoing, each party to this Agreement hereby agrees, by such party’s signature below or such party’s signature of any agreement entered into pursuant to Section 12.12, and each Unitholder not otherwise a party to this Agreement agrees, that notice may be given hereunder by electronic mail to any party who gives written notice to the Company of such party’s willingness to receive notice by this means. If notice is sent by electronic mail to any such party, then notice to such party will be deemed to be effective when sent if sent to the electronic mail address of such party maintained in the Company’s records.

17.2.           Conversion of the Company into a “C” Corporation. At any time after the effective date of this Agreement, the Board of Managers may elect to have the Company converted (whether by merger, consolidation, by “checking-the-box” pursuant to applicable Regulations or otherwise) into a corporation (as such term is used in Subchapter C of the Code, Sections 301, et seq.). Pursuant to such conversion (if required as a result of the Company’s new corporate form), each holder of Units will receive in exchange for such Units a number of shares of stock of the Company (having rights and preferences substantially identical to the Units exchanged) equal to the product obtained by multiplying (a) the total number of shares of stock issued in such conversion by (b) a fraction, the numerator of which is the number of Units held by such holder immediately before such conversion, and the denominator of which is the total number of Units outstanding immediately before such conversion.

17.3.           Governing Law. All issues and questions concerning the construction, validity, interpretation and enforceability of this Agreement and the Schedules and Exhibits hereto will be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. In furtherance of the foregoing, the internal law of the State of Delaware will control the interpretation and construction of this Agreement (and all Schedules and Exhibits hereto), even though, under that jurisdiction’s choice of law or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily apply.

17.4.           Business Days. If any time period for giving notice or taking action hereunder expires on a day that is a Saturday, Sunday or legal holiday in the State of Delaware, then such time period will automatically be extended to the business day immediately following such Saturday, Sunday or legal holiday.

17.5.           Descriptive Headings; Section References; Interpretation; No Strict Construction. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a substantive part of this Agreement. All references in this Agreement to “Section” or “Sections” refer to the corresponding Section or Sections of this Agreement unless otherwise expressly specified. Whenever required by the context, any pronoun used in this Agreement will include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns (including terms defined in Section 1 or elsewhere in this Agreement), pronouns and verbs will include the plural and vice versa. Except as otherwise expressly provided in this Agreement, reference to any agreement, document or instrument means such agreement, document or instrument as amended or otherwise modified from time to time in accordance with the terms thereof. The use of the words “include” or “including” in this Agreement will be by way of example rather than by limitation, and in all cases the use of the words “include” or “including” in this Agreement will be deemed to be followed by the words “without limitation”. The use of the words “or,” “other” or “any” in this Agreement will not be exclusive but rather are to be interpreted in the inclusive sense. The parties to this Agreement have participated jointly in the negotiation and drafting of this Agreement. In the event that an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties, and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.

17.6.           Modification and Waiver. Neither this Agreement nor any of its provisions may be modified, amended, discharged or terminated except as provided in Section 15. No failure of a party to seek redress for violation of or to insist on strict performance by the other party of any of the terms and conditions of this Agreement will constitute or be deemed to be a waiver of any such term or condition, or constitute an amendment or waiver of any such term or provision by course of performance, and each party, notwithstanding any failure to insist on strict performance, will have the right thereafter to insist on strict performance by the other party of any and all of the terms and conditions of this Agreement.

17.7.           Rights and Remedies Cumulative. The rights and remedies provided by this Agreement are cumulative, and the use of any one right or remedy will not preclude or waive the right to use any or all other remedies. Such rights and remedies are given in addition to all other rights that the parties may have by law, statute, ordinance or otherwise.

17.8.           Severability. The parties intend this Agreement to be enforced as written. If any provision or set of provisions of this Agreement as applied to any party or to any circumstance nonetheless is ruled by an arbitrator or court of competent jurisdiction to be invalid or unenforceable, then such ruling will not affect any other provision of this Agreement, the application of such provision or set of provisions to any other party or in other circumstances or the validity or enforceability of any other provision of this Agreement, which will continue to be enforceable to the fullest extent permitted by law.

17.9.           Heirs, Successors and Assigns. Each of the covenants, terms, provisions and agreements contained in this Agreement shall be binding on and inure to the benefit of the parties to this Agreement and, to the extent permitted by this Agreement, their respective heirs, legal representatives, successors and assigns.

17.10.          Dispute Resolution. If any dispute arises concerning the interpretation, validity or performance of this Agreement or any of its terms and provisions, including the issue of whether or not a dispute is arbitrable, then the parties shall submit such dispute for binding determination before a retired judge selected from an arbitrating organization mutually acceptable to the parties; provided, however, that, if the parties cannot agree, then the Managers shall select the arbitrating organization. The parties shall mutually agree on one (1) arbitrator from the list provided by the arbitrating organization; provided, however, that, if the parties cannot agree, then each party shall select one (1) arbitrator from the list, and the two (2) arbitrators so selected shall agree upon a third arbitrator chosen from the same list, which third arbitrator shall determine the dispute. The arbitration shall be conducted in accordance with the then prevailing rules of the arbitrating organization, except as set forth in this Section 17.10. The parties will have all rights for depositions and discovery as provided to litigants under Delaware law. The arbitrator shall apply Delaware substantive law and evidence rules to the proceeding. The arbitrator will have the power to grant all legal and equitable remedies, including provisional remedies, and to award compensatory damages provided by law, but the arbitrator may not order relief in excess of what a court could order. The arbitrator will not have authority to award punitive or exemplary damages. The arbitrator shall prepare and provide the parties with a written award including factual findings and the legal reasoning on which the award is based. The arbitrator will not have the power to commit errors of law or legal reasoning or to make findings of fact except upon sufficiency of the evidence. Any award that contains errors of law or legal reasoning or makes findings of fact except upon the sufficiency of the evidence exceeds the power of the arbitrator and may be corrected or vacated as provided by applicable law. The arbitrator shall award costs and attorneys’ fees in accordance with the terms and conditions of this Agreement. Any court having jurisdiction may enter judgment on the award rendered by the arbitrator or correct or vacate such award as provided by applicable law. The parties understand that by agreement to binding arbitration they are giving up the rights they otherwise may have to trial by a court or a jury and all rights of appeal and to an award of punitive or exemplary damages. Pending resolution of any arbitration proceeding, either party may apply to any court of competent jurisdiction for any provisional remedy, including a temporary restraining order or a preliminary injunction but excluding any dispute relating to discovery matters, and for enforcement of any such order. The application for or enforcement of any provisional remedy by a party will shall not operate as a waiver of the within agreement to submit a dispute to binding arbitration.

17.11.          Time Periods. For the purposes of the time periods within which a party is permitted or required to act by this Agreement, the day of the act or event from which the designated period of time begins to run will not be included. The last day of the period so computed will be included, unless it is a Saturday, Sunday or legal holiday in the State of Delaware, in which event the time period runs until the end of the next day that is not a Saturday, Sunday or legal holiday in the State of Delaware.

17.12.          Creditors. None of the provisions of this Agreement is or will be for the benefit of or enforceable by any creditor of the Company.

17.13.          Counterparts. This Agreement may be executed in counterparts (including by means of facsimile or electronic mail transmission), each of which shall be deemed an original, and all of which shall constitute one and the same instrument.

17.14.          Exculpation Among Members. Each Member acknowledges that it is not relying upon any person, firm or corporation (including without limitation any other Member), other than the Company and its officers and directors (acting in their capacity as representatives of the Company), in deciding to invest and in making its investment in the Company. Each Member agrees that no other Member or the respective controlling persons, officers, directors, partners, agents or employees of any other Member shall be liable to such Member for any losses incurred by such Member in connection with its investment in the Company.

17.15.          Facsimile or Other Electronic Transmission. The confirmed facsimile or other electronic transmission (including electronic mail) by one party hereto of a signed copy of the signature page of this Agreement to the other party hereto or such party’s agent shall constitute the delivery of this Agreement.

17.16.          Entire Agreement. Except as otherwise expressly set forth in this Agreement, this Agreement embodies the complete agreement and understanding among the parties to this Agreement with respect to the subject matter of this Agreement and supersedes and preempts all prior understandings, agreements or representations by or among the parties, written or oral, that may have related to the subject matter of this Agreement in any way.

17.17.          Legal Counsel. Each Unitholder, including each Member and each Economic Interest Owner, acknowledges and agrees that legal counsel representing the Company 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 Unitholders, including any or all of the Members and the Economic Interest Owners, in any respect. In addition, each Member consents to the Managers hiring legal counsel for the Company that also is or may become legal counsel to one or more of the Managers. Each Unitholder, including each Member and each Economic Interest Owner, further acknowledges that legal counsel representing the Company has not advised such Unitholder in any way in connection with or regarding this Agreement. Each Unitholder, including each Member and each Economic Interest Owner, represents, warrants and acknowledges to the Company that such Unitholder has been given and had the opportunity to be represented by separate independent legal counsel in connection with this Agreement and has consulted with such legal counsel or has waived such Unitholder’s right to do so.

[Signature Pages Follow]

IN WITNESS WHEREOF, the undersigned have executed this Agreement to be effective as of the date first written above.

The “Company”:

ZABALA FARMS GROUP, LLC,

a Delaware limited liability company

By: ____________________________________

Name: Anthony “Todd” Johnson

Title: Chief Executive Officer

“Members”:

____________________________________
Anthony “Todd” Johnson

(Holder of Class A Common Units)

____________________________________
Jeremy Johnson

(Holder of Class A Common Units)

[SIGNATURE PAGE TO LIMITED LIABILITY COMPANY AGREEMENT OF

ZABALA FARMS GROUP, LLC]

SCHEDULE OF UNITHOLDERS

Effective as of June 22, 2018

SCHEDULE OF CAPITAL CONTRIBUTIONS FOR UNITS

SCHEDULE OF ALLOCATION METHOD

ALLOCATION METHODS UNDER CODE SECTION 704(c)

(With Respect to Contributed or Revalued Property)

TRADITIONAL METHOD

EXHIBIT A

ZABALA FARMS GROUP, LLC CLASS B COMMON UNIT AWARD PLAN

Exhibit 2.4

AMENDMENT NO. 1 TO

LLC AGREEMENT

OF ZABALA FARMS GROUP, LLC

THIS AMENDMENT TO LLC AGREEMENT OF ZABALA FARMS GROUP, LLC, a Delaware limited liability company (the “Company”), effective as of April 17, 2019 (this “Amendment”), is entered into by and among the members of the Company (the “Members”), pursuant to that certain LLC Agreement of the Company effective as of June 23, 2018 (the “LLC Agreement”). Capitalized terms not otherwise defined herein shall have the meanings given to them in the LLC Agreement.

RECITALS

A.                  The parties to this Amendment intend that certain provisions of the LLC Agreement be amended and restated as set forth herein.

B.                  The Managers of the Company have approved this Amendment by prior written consent of the Company (as authorized by the Board of Managers) and by the Members by Majority Vote of the Members Holding Voting Units (as defined in the LLC Agreement), as required by Section 15.1 of the LLC Agreement.

AGREEMENT

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

1.                   Section 7.1 of the LLC Agreement hereby is amended and restated as follows:

“Authorized Units. The total number of Units that the Company currently is authorized to issue is 30,000,000 Units, of which 25,000,000 shall be designated Class A Common Units (the “Class A Common Units”), 2,000,000 shall be designated Class B Common Units (the “Class B Common Units”), and 3,000,000 Preferred Units (the “Preferred Units”). The rights of all Units of the Company are subject to the rights of any future classes or series of Units of the Company, which from time to time may be authorized and issued in accordance with this Agreement and applicable law.”

2.                   Full Force and Effect. Except as set forth herein, the LLC Agreement is not otherwise amended, supplemented or modified, and the terms, conditions and agreements set forth in the LLC Agreement hereby are ratified and confirmed and shall continue in full force and effect.

3.                   Governing Law. This Amendment shall be construed in accordance with and governed by the laws of the State of California, without regard to principles of conflicts of law.

4.                   Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

Exhibit 6.1

38625 Calistoga Dr. Suite 200 Murrieta, CA 92563 - P: 951 - F: 951-602-6345 - E: contact@redsparrow360.com - W: www.redsparrow360.com

Management Services Agreement

This Agreement is made effective April 03, 2019, by and between Zabala Farms Group, LLC (“ZFG”), of 38625 Calistoga Dr. Suite 200, Murrieta, California 92563, and Red Sparrow 360, LLC (RS360”), of 38625 Calistoga Dr. Suite 200, Murrieta, California 92563.

RS360 has a background in support services, accounting, data management, record keeping, marketing and branding, direct sales and project management and is willing to provide services to ZFG based on this background.

ZFG desires to have services provided by RS360.

Therefore, the parties agree as follows:

DESCRIPTION OF SERVICES. Beginning on January 15^th, 2019, RS360 will provide the following management services (collectively, the "Services"):

a.                ZFG is a holding corporation for Zabala Farms of Salinas. ZFG has no employees at this time, nor will it in the future. Therefore, RS360 will provide supervision of all employees or independent contractors employed by RS360 and Zabala Farms of Salinas on behalf of ZFG. RS360 shall be responsible for all income and payroll tax withholding and reporting. ZFG will:

b.                Advise and notify RS360 of all equipment and supplies necessary to operate the business.

c.                RS360's services will include:

Live members support, working directly with legal counsel, circulation of company updates and financial documentation, providing secure record keeping and C-Level consultation.

RS360 agrees to devote its best effort to the performance of its management services. The parties further agree RS360 will perform such other services as agreed upon by the parties from time to time.

PERFORMANCE OF SERVICES. The way the Services are to be performed and the specific hours to be worked by RS360 shall be determined by RS360. ZFG will rely on RS360 to work as many hours as may be reasonably necessary to fulfill RS360's obligations under this Agreement.

PAYMENT. ZFG will pay a fee to RS360 for the Services based on $40,000.00 per month. This fee shall be payable monthly, no later than the fifteenth day of the month following the period during which the Services were performed.

38625 Calistoga Dr. Suite 200 Murrieta, CA 92563 - P: 951 - F: 951-602-6345 - E: contact@redsparrow360.com - W: www.redsparrow360.com

EXPENSE REIMBURSEMENT. RS360 shall be entitled to reimbursement from ZFG for all "out-of-pocket" expenses.

SUPPORT SERVICES. ZFG will provide the following support services for the benefit of RS360, including regular updates on farm progress, timely quarterly financials, as well as all relevant data necessary.

NEW PROJECT APPROVAL. RS360 and ZFG recognize that RS360's services will include working on various projects for ZFG. Therefore, RS360 shall obtain the approval of ZFG prior to the commencement of a new project.

TERM/TERMINATION. This Agreement may be terminated by either party upon 30 days written notice to the other party.

RELATIONSHIP OF PARTIES. It is understood by the parties that RS360 is an independent contractor with respect to ZFG and not an employee of ZFG. ZFG will not provide fringe benefits, including health insurance, paid vacation or any other employee benefit, to the betterment of RS360.

DISCLOSURE. RS360 is required to disclose any outside activities or interests, including ownership or participation in the development of prior inventions that conflict or may conflict with the best interests of ZFG. Prompt disclosure is required under this paragraph if the activity or interest is related, directly or indirectly to:

a.                   A product or product line of ZFG.

b.                  Any activity that RS360 may be involved with on behalf of ZFG.

EMPLOYEES. RS360's employees, if any, who perform services for ZFG under this Agreement shall also be bound by the provisions of this Agreement.

INJURIES. RS360 acknowledges RS360's obligation to obtain appropriate insurance coverage for the benefit of RS360 (and RS360's employees, if any). RS360 waives any rights to recovery from ZFG for any injuries that RS360 (and/or RS360's employees) may sustain while performing services under this Agreement and that are a result of the negligence of RS360 or RS360's employees.

ASSIGNMENT. RS360’s obligations under this Agreement may not be assigned or transferred to any other person, firm or corporation without the prior written consent of ZFG.

38625 Calistoga Dr. Suite 200 Murrieta, CA 92563 - P: 951 - F: 951-602-6345 - E: contact@redsparrow360.com - W: www.redsparrow360.com

INTELLECTUAL PROPERTY. The following provisions shall apply with respect to copyrightable works, ideas, discoveries, inventions, applications for patents and patents (collectively, "Intellectual Property"):

Consultant's Intellectual Property. RS360 does not personally hold any interest in any Intellectual Property.

Development of Intellectual Property. Any improvements to Intellectual Property items listed on Exhibit A, further inventions or improvements, and any new items of Intellectual Property discovered or developed by RS360 (or RS360's employees, if any) during the term of this Agreement shall be the property of RS360. This will be subject to ZFG's right to acquire such Intellectual Property on terms agreeable to RS360 and ZFG. ZFG will not acquire shop rights or interest in any way in such Intellectual Property by virtue of the development, experimentation or adaptation for manufacture, sale, or use.

RETURN OF RECORDS. Upon termination of this Agreement, RS360 shall deliver all records, notes, data, memoranda, models, and equipment of any nature that are in RS360's possession or under RS360's control and that are ZFG's property or relate to ZFG's business.

NOTICES. All notices required or permitted under this Agreement shall be in writing and shall be deemed delivered when delivered in person or deposited in the United States mail, postage prepaid, addressed as follows:

IF for ZFG:

Zabala Farms Group, LLC

Jeremy Johnson

Officer

38625 Calistoga Dr. Suite 200

Murrieta, California 92563

IF for RS360:

Red Sparrow 360, LLC

Todd Johnson

CEO

38625 Calistoga Dr. Suite 200

Murrieta, California 92563

38625 Calistoga Dr. Suite 200 Murrieta, CA 92563 - P: 951 - F: 951-602-6345 - E: contact@redsparrow360.com - W: www.redsparrow360.com

Such address may be changed from time to time by either party by providing written notice to the other in the manner set forth above.

ENTIRE AGREEMENT. This Agreement contains the entire Agreement of the parties and there are no other promises or conditions in any other agreement whether oral or written. This Agreement supersedes any prior written or oral agreements between the parties.

AMENDMENT. This Agreement may be modified or amended if the amendment is made in writing and is signed by both parties.

SEVERABILITY. If any provision of this Agreement shall be held to be invalid or unenforceable for any reason, the remaining provisions shall continue to be valid and enforceable. If a court finds that any provision of this Agreement is invalid or unenforceable, but that by limiting such provision it would become valid and enforceable, then such provision shall be deemed to be written, construed, and enforced as so limited.

WAIVER OF CONTRACTUAL RIGHT. The failure of either party to enforce any provision of this Agreement shall not be construed as a waiver or limitation of that party's right to subsequently enforce and compel strict compliance with every provision of this Agreement.

APPLICABLE LAW. This Agreement shall be governed by the laws of the State of California.

SIGNATORIES. This Agreement shall be executed on the behalf of Zabala Farms Group, LLC by Jeremy Johnson, its Officer, and on behalf of Red Sparrow 360, LLC by Todd Johnson, its CEO.

Party receiving services:

Zabala Farms Group, LLC

By:   /s/ Jeremy Johnson                                                       4/3/2019

Jeremy Johnson

Officer

Party providing services:

Red Sparrow 360, LLC

By: /s/ Todd Johnson                                                          4/3/2019

CEO

Todd Johnson

Exhibit 6.3

Torch Securities, LLC

March 28, 2019

Zabala Farms Group, LLC

38625 Calistoga Drive, Suite 200

Murrieta, CA 92563

Attention: Jeremy Johnson, Chief Operations Officer

This letter confirms the agreement between Torch Securities, LLC (“Torch Securities” or “we” or “us”) and Zabala Farms Group, LLC, a Delaware limited liability company (the “Company” or “you”) as follows:

1. Engagement. The Company hereby engages Torch Securities to act as its sole lead placement agent in connection with the proposed private placement of equity, equity-linked or warrant securities (but excluding any venture loan or similar debt financing, even if including A warrant component) (the “Securities”) issued by the Company (the “Placement”),and we accept this engagement upon the terms and conditions set forth in this engagement letter (the “Agreement”).

During the term of our engagement, we will, as appropriate to the Placement:

Member of FINRA

38625 Calistoga Dr. # 200, Murrieta, CA 92563

Zabala Farms Group, LLC

March 28, 2019

Page 2 of 10

You acknowledge and agree that our engagement pursuant to this letter does not constitute an agreement or a commitment, express or implied, by us or any of our affiliates to underwrite, purchase or place any Securities or otherwise provide any financing, nor an agreement by you to issue and sell any Securities. The Placement will be made by Torch Securities, if at all, on a “best efforts” basis.

You further acknowledge and agree that our services hereunder shall be subject to, among other things, satisfactory completion of due diligence by Torch Securities, market conditions, the absence of adverse changes to the Company’s business or financial condition and other conditions that Torch Securities may deem appropriate for placements of such nature. During the term of this engagement, you will not make any commitment with any other person to sell Securities without our prior consent in connection with the Offering.

2.                                   Term. Our engagement shall automatically renew every six (6) months from the date of this engagement letter, unless extended in writing by Torch Securities and the Company. You or we may terminate our engagement under this Agreement prior to automatic expiration, with or without cause, upon ten (10) days’ written notice to the other party; provided, however, no such notice may be given by you prior to 60 days from the date of this Agreement. Upon termination or expiration, this Agreement shall have no further force or effect, except that the provisions concerning the Company’s obligations to Torch Securities and certain related persons provided in Annex A, the Company’s obligation to pay Torch Securities fees and expenses as described in this Agreement, the confidentiality provisions of Section 9 ,the status of Torch Securities as an independent contractor, your representations, warranties and agreements, the limitation on to whom Torch Securities shall owe any duties, governing law, choice of forum, successors and assigns, and waiver of the right to trial by jury shall survive any such termination or expiration of this Agreement.

3.                                   Fees and Expenses. For our services under this Agreement, you agree to pay us the following fees and reimburse the following expenses:

Member of FINRA

38625 Calistoga Dr. # 200, Murrieta, CA 92563

Zabala Farms Group, LLC

March 28, 2019

Page 3 of 10

4.                                     Indemnification and Contribution. Notwithstanding any provision of this engagement letter to the contrary, the Company agrees that neither Torch Securities nor its affiliates, and the respective officers, directors, employees, agents and representatives of Torch Securities, its affiliates and each other person, if any, controlling Torch Securities or any of its affiliates, shall have any liability (whether direct or indirect, in contract or tort or otherwise) to the Company for or in connection with the engagement and transaction described herein except for any such liability for losses, claims, damages or liabilities incurred by us that are finally judicially determined to have resulted from the bad faith or gross negligence of such individuals or entities. Torch Securities will act under this engagement letter as an independent contractor with duties to the Company. Because Torch Securities will be acting on the Company’s behalf in this capacity, it is Torch Securities’ practice to receive indemnification. The Company and Torch Securities agree to the provisions with respect to the Company’s indemnity of Torch Securities and other matters set forth on Annex A attached hereto, the terms of which are here by incorporated into this agreement by reference in their entirety and made a part of this Agreement.

5.                                     Representations, Warranties and Agreements of the Company. Your present and warrant to, and agree with us, that:

(a)                                             The Company has not taken, and will not take, any action, directly or indirectly, that may cause the Placement to fail to be entitled to an exemption from registration under the U.S. federal securities laws, or applicable state securities or “bluesky” laws. The Company shall be responsible for any costs and expenses associated with filings, applications or registrations with any governmental or regulatory body.

(b)                                             The Company hereby warrants that the Offering Materials, and any other information relating to the Company or the Placement, will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements contained therein, in the light of circumstances under which they were made, not misleading. The Company agrees to provide Torch Securities with (i) prompt notice of any material development affecting the Company or the occurrence of any event or other change known to the Company that could result in the Offering Materials containing an untrue statement of a material fact or omitting to state any material fact necessary to make the statements contained there in, in the light of the circumstances under which they were made, not misleading, (ii) copies of any financial reports as soon as reasonably practicable and (iii) such other information concerning the business and financial condition of the Company as Torch Securities may from time to time reasonably request. Torch Securities will have the right to approve the Offering Materials and other written communications furnished by or on behalf of the Company in connection with the Placement.

Member of FINRA

38625 Calistoga Dr. # 200,Murrieta, CA 92563

Zabala Farms Group, LLC

March 28, 2019

Page 4 of 10

(c)                                             The Company acknowledges that Torch Securities will be using information provided by others, including, without limitation, information provided by or on behalf of the Company, and that Torch Securities does not assume responsibility for and may rely, without independent verification, on the accuracy and completeness of any such information.

(d)                                             The Company undertakes to provide Torch Securities with copies of all subscription or purchase agreements entered in to with investors, and to the extent not included in all such subscription or purchase agreements, all information otherwise known to the Company with respect to each investor that is relevant for purposes of compliance by Torch Securities with its filing obligations under Financial Industry Regulatory Authority (“FINRA”) Rule5123.

(e)                                             The Company may engage in general solicitation or general advertising in connection with the Placement; provided, however, all Offering Materials shall be submitted to and approved by us before publication and all Securities sold in the Placement will be sold only by an officer of the Company or a registered agent of Torch Securities.

(f)                                              At each closing, you will permit us to rely on the representations and warranties of the Company. The Company will cause to be furnished to Torch Securities and the purchasers of the Securities, on each closing date of the Placement, copies of such opinions of counsel and such other documents, letters, certificates and opinions as Torch Securities or the purchasers may reasonably request inform and substance reasonably satisfactory to Torch Securities and its counsel and the purchasers and their counsel.

6. Representations, Warranties and Agreements of Torch Securities. We represent and warrant to, and agree with you, that:

(a)                                             Torch Securities is a broker-dealer registered with the U.S. Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, and is a member firm of FINRA, and at all times relevant to this engagement, will maintain such registration and membership.

(b)                                             Torch Securities will offer the Securities only to “accredited investors,” as defined in Rule 501under the Securities Act of 1933, as amended (the “Securities Act”).

(c)                                             Torch Securities may engage in general solicitation or general advertising in connection with the Placement.

7. Compliance with Law. It is understood that the Company intends the Placement to take the form of a private investment in private equity Securities. The Company shall comply with all federal and state securities or blue sky laws, rules and regulations relating to the offer and sale of the Securities.

Member of FINRA

38625 Calistoga Dr. # 200, Murrieta, CA 92563

Zabala Farms Group, LLC

March 28, 2019

Page 5 of 10

8.                                 Confidentiality and Disclosure. We agree to use all material non-public information provided to us by you or on your behalf solely for the purpose of providing the services that are the subject of this Agreement and, except as otherwise required by law, regulation or legal process, to treat all such information confidentially and not disclose such information to any third party without the Company’s consent, other than to our affiliates and our respective employees, legal counsel, independent auditors and other experts or agents who need to know such information in connection with the Placement or any other services provided by us or our affiliates to you and your affiliates. We accept responsibility for compliance with the provisions of this paragraph by the persons referred to above. This undertaking by us will automatically terminate one (1) year following the earlier of completion of the Placement or termination of our engagement hereunder.

The Company agrees that any information or advice, written or oral, rendered by Torch Securities or its representatives in connection with this engagement letter is solely for the confidential use of the Company and/or the Board of Directors of the Company and, except as otherwise required by applicable law, regulation or legal process, the Company will not and will not permit any third party to disclose, reproduce, disseminate, quote or otherwise refer to such advice or information in any manner without Torch Securities prior written consent.

9.                                 No Third Party Beneficiaries. The Company acknowledges and agrees that Torch Securities has been retained to act as exclusive placement agent to the Company, and not as an advisor to or agent of any other person, and that the Company’s engagement of Torch Securities is not intended to confer rights upon any person not a party to this Agreement (including shareholders, employees or creditors of the Company) as against Torch Securities or its affiliates, or their respective directors, officers, employees or agents. Accordingly, no other person (other than the Indemnified Persons set forth in Annex A attached hereto) will acquire or have any rights by virtue of this Agreement.

10.                              Independent Contractor. Torch Securities shall act as an independent contractor under this Agreement, and any duties arising out of its engagement shall be owed solely to the Company. You acknowledge that nothing in this Agreement is intended to create duties to you or your creditors or security holders beyond those expressly provided for in this Agreement, and we and you specifically disclaim the creation of any fiduciary relationship between, or the imposition of any fiduciary duties on, either party.

11.                              Torch Securities Affiliates; Conflicts; Exculpation. At Torch Securities discretion, any right set forth herein may be exercised, and any services to be provided by Torch Securities may be provided, by an affiliate of Torch Securities. The Company hereby agrees that Torch Securities and/or any affiliate or employee of Torch Securities will have the right, but not the obligation, to purchase Securities for its own account and that any such purchase will not constitute a conflict of interest for purposes of Torch Securities engagement hereunder.

You acknowledge that we are a securities firm engaged in the sale of private securities trading and brokerage activities.

Member of FINRA

38625 Calistoga Dr. # 200, Murrieta, CA 92563

Zabala Farms Group, LLC

March 28, 2019

Page 6 of 10

You also acknowledge that we and our affiliates have no obligation to use in connection with this engagement or to furnish you confidential information obtained from other companies.

Furthermore, you acknowledge we may have fiduciary or other relationships whereby we will sale securities of other companies to potential investors or others with interests in respect of their Placements. You acknowledge that we or such affiliates may exercise such powers and otherwise perform our functions in connection with such fiduciary or other relationships without regardless this Agreement to our relationship with you hereunder.

You acknowledge that we are not an advisor as to legal, tax, accounting or regulatory matters in any jurisdiction. You should consult with your own advisors concerning such matters and are responsible for making your own independent investigation and appraisal of the transactions contemplated by this Agreement, and we have no responsibility or liability to you with respect to such matters.

12.                                  Publicity. The Company acknowledges that upon completion of the Placement, Torch Securities may, at its own expense, disseminate or place an announcement in one or more media forums as it may choose, stating that Torch Securities has acted as sole lead placement agent to the Company in connection with such Placement.

13.                                  Amendments and Successors. This Agreement may not be waived, amended, modified or assigned, in anyway, in whole or in part, including by operation of law, without the prior written consent of the Company and Torch Securities, except that this Agreement shall be deemed to be automatically assigned to any successor in interest of the Company or Torch Securities or otherwise by operation of law. The provisions of this Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and Torch Securities. The invalidity or unenforceability of any provision of this Agreement will not affect the validity or enforceability of any other provisions of this Agreement, which will remain in full force and effect.

14.                                  Entire Agreement. This Agreement constitutes the entire agreement between Torch Securities and the Company, and supersedes any prior agreements and understandings, with respect to the subject matter of this Agreement.

15.                                  Counterparts. This Agreement may be executed in any number of counterparts.

16.                                  No Brokers. The Company acknowledges and agrees that there are no brokers, agents, representatives or other parties that have an interest in compensation paid or payable to Torch Securities hereunder.

17.                                  Governing Law and Jurisdiction. This Agreement will be governed by and construed in accordance with the laws of California, without regard to its conflict of law principles. You and whereby waive all right to trial by jury in any action, proceeding, or counter claim (whether based upon contract, to or otherwise) in connection with any dispute arising out of this Agreement or any matters contemplated by this Agreement.

Member of FINRA

38625 Calistoga Dr. # 200, Murrieta, CA 92563

Zabala Farms Group, LLC

March 28, 2019

Page 7 of 10

18. Venue. Both Torch Securities and the Company: (i) agree that any legal suit, action or proceeding arising out of or relating to this engagement letter and/or the transactions contemplated hereby shall be instituted exclusively in courts of the Superior Courts of the State of California located in Orange County, or in the United States District Court for the Central District of California, (ii) waive any objection which they may have or hereafter to the venue of any such suit, action or proceeding, and (iii) irrevocably consent to the jurisdiction of the Superior Courts of the State of California located in Orange County, or in the United States District Court for the Central District of California in any such suit, action or proceeding. Torch Securities and the Company further agree to accept and acknowledge service of any and all process which may be served in any such suit, action or proceeding in the Superior Courts of the State of California located in Orange County, or in the United States District Court for the Central District of California and agree that service of process upon the Company mailed by certified mail to the Company’s address shall be deemed in every respect effective service of process upon the Company, in any such suit, action or proceeding, and service of process upon Torch Securities mailed by certified mail to Torch Securities’ address shall be deemed in every respect effective service process upon Torch Securities, in any such suit, action or proceeding.

We are pleased to accept this engagement and look forward to working with the Company. Please confirm that the foregoing correctly and completely sets forth our understanding by signing and returning to us the enclosed duplicate of this engagement letter, which shall there upon constitute a binding Agreement.

Sincerely,

TORCH SECURITIES, LLC

IMAGE OMITTED

By: /s/ Tom O’Driscoll
Tom O’Driscoll

Managing Director

Agreed and accepted as of the date hereof.

3/28/2019 I 2:04 PM PDT

ZABALA FARMS GROUP, LLC

By: /s/ Jeremy Johnson

Jeremy Johnson

Chief Operations Officer

Member of FINRA

38625 Calistoga Dr. # 200, Murrieta, CA 92563

Annex A to Engagement Letter

You agree to (i) indemnify and hold harmless us, our affiliates (within the meaning of the Securities Act of 1933, as amended), and each of our respective partners, directors, officers, agents, consultants, employees and controlling persons (within the meaning of the Securities Act of 1933, as amended) (each of Torch Securities and such other person or entity is herein after referred to as an “Indemnified Person”), from and against any and all losses, claims, damages, liabilities and expenses, joint or several, and all actions, inquiries, proceedings and investigations in respect thereof, to which any Indemnified Person may become subject arising in any manner out of or in connection with our engagement or any matter referred to in the agreement to which this Annex A is attached and of which this Annex A forms a part (the “Agreement”), regardless of whether any of such Indemnified Persons is a party thereto, and (ii) immediately upon request reimburse an Indemnified Person for such person’s legal and other expenses as they are incurred in connection with investigating, preparing, defending, paying, settling or compromising any such action, inquiry, proceeding or investigation (including without limitation, usual and customary per diem compensation for any Indemnified Person’s involvement in discovery proceedings or testimony), whether or not such action, inquiry, proceeding or investigation is initiated or brought by you, your creditors or stockholders, or any other person. You are not responsible under clause (i) of the foregoing sentence for any losses, claims, damages, liabilities or expenses to the extent that such loss, claim, damage, liability or expense has been finally judicially determined to have resulted primarily and directly from actions taken or omitted to be taken by such Indemnified Person due to such person’s gross negligence or willful misconduct. To the extent that any prior payment you made to an Indemnified Person is determined to have been improper by reason of such Indemnified Person’s gross negligence or willful misconduct, such Indemnified Person will promptly pay you such amount.

If the indemnity or reimbursement referred to above is, for any reason whatsoever, unenforceable, unavailable or otherwise insufficient to hold each Indemnified Person harmless, you agree to pay to or on behalf of each Indemnified Person contributions for losses, claims, damages, liabilities or expenses so that each Indemnified Person ultimately bears only a portion of such losses, claims, damages, liabilities or expenses as is appropriate (i) to reflect the relative benefits received by each such Indemnified Person, respectively, on the one hand and you and your stockholders on the other hand in connection with the Placement, or (ii) if the allocation on that basis is not permitted by applicable law, to reflect not only the relative benefits referred to in clause (i) above, but also the relative fault of each such Indemnified Person, respectively, and you as well as any other relevant equitable considerations; provided, however, that in no event will the aggregate contribution of all Indemnified Persons to all losses, claims, expenses, damages, liabilities or expenses in connection with any Placement exceed the amount of the fee actually received by us pursuant to this Agreement. The respective relative benefits received by us and you in connection with any Placement will be deemed to be in the same proportion as the aggregate fee paid or proposed to be paid to Torch Securities in connection with the Placement bears to the aggregate consideration paid or proposed to be paid in the Placement, whether or not consummated.

Promptly after its receipt of notice of the commencement of any action or proceeding, any Indemnified Person will, if a claim in respect there of is to be made against you pursuant to this letter, notify you in writing of the commencement thereof; but omission so to notify you will not relieve you from any liability which you may have to any Indemnified Person, except your obligation to indemnify for losses, claims, damages, liabilities or expenses to the extent that you suffer actual prejudice as a result of such failure, but will not relieve you from your obligation to provide reimbursement of expenses and any liability which you may have to an Indemnified Person otherwise than hereunder. If you so elect, you may assume the defense of such action or proceeding in a timely manner, including the employment of counsel (reasonably satisfactory to us) and payment of expenses, provided you permit an Indemnified Person and counsel retained by an Indemnified Person at its expense to participate in such defense. Notwithstanding the foregoing, in the event (i) you fail promptly to assume the defense and employ counsel reasonably satisfactory to us, or (ii) the Indemnified Person has been advised by counsel that there exist actual or potential conflicting interests between you or your counsel and such Indemnified Person, an Indemnified Person may employ separate counsel (in addition to any local counsel) to represent or defend such Indemnified Person in such action or proceeding, and you agree to pay the fees and disbursements of such separate counsel as incurred; provided however, that you will not, in connection with any one such action or proceeding, or separate but substantially similar actions or proceedings arising out of the same general allegations, be liable for fees and expenses of more than one separate firm of attorneys (in addition to any local counsel).

You will not, without our prior written consent, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought under this Agreement, unless such settlement, compromise or consent includes an express, complete and unconditional release of us and each other Indemnified Person from all liability and obligations arising there from. Without your prior written consent, which will not be unreasonably withheld, delayed or conditioned, no Indemnified Person will settle or compromise any claim for which indemnification or contribution may be sought hereunder. Notwithstanding the foregoing sentence, if at any time an Indemnified Person requests that you reimburse the Indemnified Person for fees and expenses as provided in this Agreement, you agree that you will be liable for any settlement of any proceeding effected without your prior written consent if (i) such settlement is entered into more than 30 days after receipt by you of the request for reimbursement, and (ii) you will not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement.

You also agree that no Indemnified Person will have any liability to you or your affiliates, directors, officers, employees, agents, creditors or stockholders, directly or indirectly, related to or arising out of the Agreement or the services performed thereunder, except losses, claims, damages, liabilities and expenses you incur which have been finally judicially determined to have resulted primarily and directly from actions taken or omitted to be taken by such Indemnified Person due to such person’s gross negligence or willful misconduct. In no event, regardless of the legal theory advanced, will any Indemnified Person be liable for any consequential, indirect, incidental or special damages of any nature. Your indemnification, reimbursement, exculpation and contribution obligations in this Annex A will be in addition to any rights that any Indemnified Person may have at common law or otherwise.

You acknowledge that the indemnity, reimbursement and contribution obligations under this Annex A shall be in addition to and shall no way limit or otherwise adversely affect any rights that any Indemnified Person may have at law or equity.

Capitalized terms used, but not defined in this Annex A, have the meanings assigned to such terms in the Agreement.

Exhibit 6.4

ZABALA FARMS GROUP, LLC

CLASS B COMMON UNIT AWARD PLAN

Article I - General Provisions

1.1.              Establishment and Purpose.

There is hereby established the Zabala Farms Group, LLC Class B Common Unit Award Plan (as the same may be amended from time to time, this “Plan”). The purpose of this Plan is to attract, retain and reward persons providing services to Zabala Farms Group, LLC, a Delaware limited liability company (the “Company”), and to any Subsidiary of the Company or successor of the Company, and to motivate such persons to contribute to the growth and profits of the Company in the future.

1.2.              Definitions.

Capitalized terms not otherwise defined in this Plan shall have the meanings given to such terms in that certain Limited Liability Company Agreement of the Company effective as of June 28, 2017 (the “Operating Agreement”). For purposes of this Plan, the following terms shall have the meanings given to them below:

“Board” means the Board of Managers of the Company.

“Cause” means: (a) the commission of (i) a felony, (ii) to the extent it compromises the best interests of the Company or renders a person unfit or unable to perform such person’s services and duties as a manager, director, officer, employee, strategic partner or consultant of the Company, a misdemeanor or (iii) any other act or omission involving dishonesty, disloyalty or fraud with respect to the Company or any of the Company’s customers or suppliers; (b) the continued failure by a person to perform such person’s duties in all material respects for the Company as requested by the Board or any supervisory personnel of the Company to whom such person reports or a material breach by a person of such person’s obligations to the Company; (c) misconduct materially injurious to the Company or the Company’s reputation; (d) gross negligence or willful misconduct that has a material adverse effect with respect to the Company; or (e) “cause” as defined in a person’s employment agreement or Class B Common Unit Award Agreement or Class B Common Unit Option Agreement, if any, with the Company.

“Class B Common Unit Award” means the award of Class B Common Units to a Participant, subject to the terms and conditions of this Plan and the related Class B Common Unit Award Agreement.

“Class B Common Unit Award Agreement” means the agreement between the Company and a Participant evidencing the grant of a Class B Common Unit Award as described in Section 2.2 of this Plan.

“Class B Common Unit Option” means an option to purchase one or more Class B Common Units, subject to the terms and conditions of this Plan and the related Class B Common Unit Option Agreement.

“Class B Common Unit Option Agreement” means the agreement between the Company and a Participant evidencing the grant of a Class B Common Unit Option by the Board as described in Section 3.2 of this Plan.

“Code” means the Internal Revenue Code of 1986, as amended, and any successor code or law.

“Company” means Zabala Farms Group, LLC, a Delaware limited liability company, and any successor entity.

“Disability” means: (a) an injury or illness that restricts a Participant’s ability to perform on a full-time basis the material and substantial duties associated with such Participant’s position with the Company for a period of one hundred eighty (180) days during any twelve (12) consecutive months; (b) permanently disabled as determined under any long-term disability income insurance then maintained by the Company covering such Participant, whichever occurs first; or (c) “disability” as defined in a Participant’s employment agreement or Class B Common Unit Award Agreement or Class B Common Unit Option Agreement, if any, with the Company.

“Fair Market Value” means the fair value of Class B Common Units awarded pursuant to this Plan as determined in good faith by the Board or as otherwise defined in a Participant’s Class B Common Unit Award Agreement or Class B Common Unit Option Agreement.

“Forfeit,” “Forfeiture,” “Forfeited” means: (a) with respect to the grant of a Class B Common Unit Award, the loss by a Participant of the applicable amount of Class B Common Units, including profits allocated to such Participant (or other increases in the Capital Account of such Participant) during the period that such Class B Common Units were held by such Participant, the elimination of such Participant’s Capital Account relating to such Units and the termination of all other rights of such Participant related to such Class B Common Units resulting from such Participant’s termination as a manager, director, officer, employee, strategic partner or consultant of or to the Company; and (b) with respect to a Class B Common Unit Option, the loss by a Participant of any and all rights under such Class B Common Unit Option to acquire Class B Common Units.

“Participant” means any person who has satisfied the eligibility requirements set forth in Section 1.6 of this Plan and with whom the Company has entered into a Class B Common Unit Award Agreement or a Class B Common Unit Option Agreement under this Plan, which Class B Common Unit Award Agreement or Class B Common Unit Option Agreement remains in effect under this Plan.

“Sale of the Company” means a merger, consolidation or exchange of Units, a sale, lease, exchange or disposition of all or substantially all of the Company’s assets, a sale or other disposition of Units or any other similar business combination pursuant to which ownership of the Company’s Units or assets is sold for cash, securities or other property of an acquiring entity or any of its affiliates, such that the holders of the Company’s Voting Units immediately before such transaction beneficially own, directly or indirectly, fifty percent (50%) or less of the combined voting power of the capital units or stock of the acquiring or resulting entity.

“Vesting Date” means a date on which Class B Common Units vest as set forth in the vesting schedule with respect to such Units.

1.3.              Administration.

This Plan will be administered by the Board. Subject to the terms of this Plan, the Board shall, among other things, determine eligibility for participation in this Plan, grant awards under this Plan, establish the terms and conditions of each such award (including, without limitation, the form of such award, the number of Class B Common Units covered by such award and the Forfeiture provisions applicable to such award), approve the form of, adjust, modify or amend any Class B Common Unit Award Agreement or Class B Common Unit Option Agreement as necessary, construe this Plan and any Class B Common Unit Award Agreement or Class B Common Unit Option Agreement issued under this Plan or accelerate at any time the vesting of an award. The Board shall have full authority and discretion to decide all matters relating to the administration and interpretation of this Plan and any Class B Common Unit Award Agreement or Class B Common Unit Option Agreement, which determinations shall be final, conclusive and binding on the Company, the Participant and any and all interested parties. In the event of a conflict between the terms of this Plan and a Class B Common Unit Award Agreement or Class B Common Unit Option Agreement, this Plan shall govern, except to the extent that this Plan gives the Board the express authority to vary the terms of this Plan by means of a Class B Common Unit Award Agreement or a Class B Common Unit Option Agreement, and the Board has so exercised such authority, in which case, such Class B Common Unit Award Agreement or Class B Common Unit Option Agreement shall govern, but only with respect to such changes specifically authorized by the Board. In the event of a conflict between the Operating Agreement and this Plan, a Class B Common Unit Award Agreement or a Class B Common Unit Option Agreement, the Operating Agreement shall govern. Any delegation of authority by the Board to a subcommittee or otherwise must conform to the administration requirements enunciated in this Section 1.3. In the event that any term of this Plan is deemed unenforceable as a matter of law, such term will be deemed modified to the extent necessary to be enforceable, and such term as modified will be enforced to the fullest extent permitted by law.

1.4.              Types of Grants Under this Plan and Units Subject to this Plan.

Grants under this Plan will be in the form of Class B Common Unit Awards and/or Class B Common Unit Options. The maximum aggregate number of Class B Common Units to be issued pursuant to Class B Common Unit Awards and Class B Common Unit Options under this Plan shall not exceed an aggregate of 250,000 Class B Common Units. To the extent that any Class B Common Unit Award or Class B Common Unit Option granted under this Plan is canceled, expires or is terminated for any reason, the unvested Class B Common Units underlying such Class B Common Unit Award or Class B Common Unit Option will again be available for purposes of this Plan.

1.5.              Profits Interest Only.

The Class B Common Unit Awards and Class B Common Unit Options do not entitle the Participant to any interest in the Company’s assets or existing unrealized appreciation with respect to such assets before the effective date of the Class B Common Unit Award Agreement or the Class B Common Unit Option Agreement. The Class B Common Unit Awards and Class B Common Unit Options only entitle the Participant to future earnings of the Company and future appreciation in the value of the Company’s assets. The Participant will obtain no balance in such Participant’s Capital Account as a result of the issuance of the Class B Common Units to such Participant and, consequently, will not be entitled to any allocation or any distribution of assets unless earnings are realized by the Company after the issuance of the Class B Common Units to such Participant. Profits and appreciation realized by the Company before the issuance of Class B Common Units to a Participant will be allocated entirely to the pre-existing Unitholders. Upon making a Class B Common Unit Award to a Participant or issuing Class B Common Units to a Participant pursuant to the exercise of a Class B Common Unit Option, the Board shall, if necessary to effect the provisions of this Section 1.5 and otherwise as provided in the Operating Agreement, revalue the Capital Accounts of the Unitholders other than such Participant.

1.6.              Eligibility and Participation.

Managers, directors, officers, employees, strategic partners and consultants of or to the Company who are determined by the Board to be responsible for the continued growth, development and future financial success of the Company shall be eligible to participate in this Plan.

1.7.              Vesting.

Except as otherwise provided in a Class B Common Unit Award Agreement or a Class B Common Unit Option Agreement, the vesting schedule with respect to the Class B Common Unit Award subject to such Class B Common Unit Award Agreement or the Class B Common Unit Option subject to such Class B Common Unit Option Agreement shall be as set forth in the table below; provided, however, that (a) upon the death or Disability of an employee Participant, the portion of such employee Participant’s Class B Common Units that is vested shall be determined as if (i) such Participant’s death or incapacity occurred on the next succeeding Vesting Date, and (ii) such Participant was employed by the Company or any Subsidiary of the Company on such Vesting Date, and (b) upon the occurrence of the closing of a Sale of the Company, all Class B Common Units shall automatically become Vested Class B Common Units:

1.8.              Conversion upon Vesting.

Upon the vesting of any Class B Common Units, at the election of the holder of any Class B Common Unit Award may convert the Class B Units into Class A Common Units. Notwithstanding such conversion, the Company’s rights to repurchase Class B Common Units under this Plan shall apply to the Class A Common Units received upon conversion on the same terms and conditions as set forth herein.

Article II - Class B Common Unit Awards

2.1.              Grant of Class B Common Units.

The Board may, in its discretion, from time to time grant Class B Common Units to persons eligible to participate in this Plan. Such Class B Common Units will be subject to the provisions of this Plan and the Class B Common Unit Award Agreement pursuant to which such Class B Common Units are granted.

2.2.              Class B Common Unit Award Agreement.

Each Class B Common Unit Award shall be evidenced by a Class B Common Unit Award Agreement. The Class B Common Unit Award Agreement shall specify, among other things, the terms and conditions of the Class B Common Unit Award, the vesting and Forfeiture provisions applicable to such Class B Common Unit Award, the Participant’s rights to share in the capital and profits and losses of the Company and such other provisions applicable to such Class B Common Unit Award; provided, however, that the rights of a Participant as a Unitholder shall be subject to the provisions of the Operating Agreement.

2.3.              Termination of Status as a Manager, Director, Officer, Employee, Strategic Partner or Consultant.

Unless otherwise provided in the Class B Common Unit Award Agreement, any portion of a Class B Common Unit Award that has not vested in accordance with the terms of the applicable Class B Common Unit Award Agreement shall be Forfeited by a Participant if such Participant’s status as a manager, director, officer, employee, strategic partner or consultant of or to the Company or any Subsidiary of the Company is terminated for any reason, including but not limited to death or Disability and without regard to whether such termination is with or without Cause or voluntarily by such Participant. Notwithstanding any provision of this Plan or a Class B Common Unit Award Agreement to the contrary, in the event that a Participant’s position as employee, manager, director, officer, strategic partner or consultant of or to the Company is terminated for Cause, such Participant’s interest in the outstanding Class B Common Units shall be immediately Forfeited regardless of whether such Class B Common Units have otherwise vested in accordance with the provisions of the related Class B Common Unit Award Agreement.

2.4.              Effect of a Sale of the Company on Class B Common Unit Awards.

Unless otherwise provided in a Class B Common Unit Award Agreement, upon the occurrence of a Sale of the Company, the Repurchase Option, if any, applicable to each Class B Common Unit Award shall immediately lapse and be of no further force or effect in the event that any acquiring or surviving limited liability company, corporation or other legal entity shall refuse to assume the Class B Common Unit Award Agreement or substitute for such Class B Common Unit Award Agreement an agreement providing the Participant with similar rights.

Article III – Class B Common Unit Option Awards

3.1.              Class B Common Unit Options.

The Board may, in its discretion, from time to time grant Class B Common Unit Options to persons eligible to participate in this Plan. Such Class B Common Unit Options will be subject to the provisions of this Plan and the Class B Common Unit Option Agreement pursuant to which such Class B Common Unit Options are granted. Each Class B Common Unit Option and all rights and obligations under such Class B Common Unit Option will expire on such date as the Board may determine but not later than ten (10) years from the date on which such Class B Common Unit Option is granted and will be subject to earlier termination as provided elsewhere in this Plan and the applicable Class B Common Unit Option Agreement governing the grant of such Class B Common Unit Option.

3.2.              Class B Common Unit Option Agreement.

Each grant of a Class B Common Unit Option shall be evidenced by a Class B Common Unit Option Agreement. The Class B Common Unit Option Agreement shall specify, among other things, the terms and conditions of the grant and exercise of such Class B Common Unit Option, the exercise price of such Class B Common Unit Option, the Forfeiture provisions applicable to such Class B Common Unit Option and such other provisions applicable to such Class B Common Unit Option; provided, however, that, following the exercise of a Class B Common Unit Option, the rights of a Participant as a Unitholder shall be subject to the provisions of the Operating Agreement.

3.3.              Class B Common Unit Option Exercise Price.

Except as otherwise expressly provided in the Operating Agreement, Class B Common Unit Options may be granted at any exercise price determined by the Board in its sole discretion. Unless otherwise provided in the Class B Common Unit Option Agreement, the exercise price of any Class B Common Unit Option shall be paid in full in cash at the time of exercise. Class Unit Option Agreements may provide for cashless exercise of the option.

3.4.              Exercise of Class B Common Unit Options.

Class B Common Unit Options shall be exercisable in accordance with the provisions of the Participant’s Class B Common Unit Option Agreement; provided, however, that Class B Common Unit Options shall only be exercisable on the last day of each calendar quarter. Each Class B Common Unit Option shall, by its terms, be exercisable during the Participant’s lifetime only by the Participant or by the Participant’s guardian or legal representative. Notwithstanding the foregoing, in the event of a Participant’s death, such Participant’s Class B Common Unit Options may be exercised (to the extent exercisable under the Class B Common Unit Option Agreement) by such Participant’s personal representative or persons entitled to such Class B Common Units under such Participant’s will or the laws of descent and distribution.

3.5.              Termination of Status as a Manager, Director, Officer, Employee, Strategic Partner or Consultant.

Unless otherwise provided in the Class B Common Unit Option Agreement, any portion of a Class B Common Unit Option that has not vested in accordance with the terms of the applicable Class B Common Unit Option Agreement shall be Forfeited by a Participant if such Participant’s status as a manager, director, officer, employee, strategic partner or consultant of or to the Company is terminated for any reason, including but not limited to death or Disability and without regard to whether such termination is with or without Cause or voluntarily by such Participant. Notwithstanding any provision of this Plan or a Class B Common Unit Option Agreement to the contrary, in the event that a Participant’s position as employee, manager, director, officer, strategic partner or consultant of or to the Company is terminated for Cause, such Participant’s interest in the unexercised portion of an outstanding Class B Common Unit Option shall be immediately Forfeited regardless of whether such Class B Common Unit Option has otherwise vested in accordance with the provisions of the related Class B Common Unit Option Agreement.

3.6.              Effect of a Sale of the Company on Class B Common Unit Option Awards.

Unless otherwise provided in a Class B Common Unit Option Agreement, upon the consummation of a Sale of the Company, each Participant’s Class B Common Unit Option shall become immediately fully vested and exercisable. The Company shall provide each Participant written notice of a Sale of the Company at least fifteen (15) days before the planned consummation of such Sale of the Company.

3.7.              Unitholder Rights.

No Participant shall be deemed to be the holder of, or to have any of the rights of a Unitholder with respect to, any Class B Common Units subject to a Class B Common Unit Option unless and until such Participant has satisfied all requirements for the exercise of such Class B Common Unit Option pursuant to its terms.

Article IV - Right of First Refusal/Right to Purchase

4.1.              Right of First Refusal.

The right to sell, transfer, assign, pledge, hypothecate, gift or otherwise dispose of any Class B Common Units or other securities acquired pursuant to a Class B Common Unit Award or upon the exercise of a Class B Common Unit Option shall be determined by and be subject to the Operating Agreement. To the extent that the transfer of any Class B Common Units or other securities acquired pursuant to a Class B Common Unit Award or upon the exercise of a Class B Common Unit Option is otherwise permitted, such transfer shall be subject to the Right of First Refusal as defined and set forth in the Operating Agreement. Notwithstanding the foregoing, the Class B Common Unit Award Agreement or Class B Common Unit Option Agreement may specify the terms and conditions related to the purchase or repurchase of the Class B Common Units.

4.2.              Company’s Right to Purchase Units.

Unless otherwise provided in, and subject to the terms of, a Class B Common Unit Award Agreement or a Class B Common Unit Option Agreement, if a Participant’s position as employee, manager, director, officer, strategic partner or consultant of or for the Company is terminated, for any reason, including but not limited to death, Disability, termination with or without Cause or voluntarily by such Participant, then the Company shall have the right to purchase from such Participant (or such Participant’s estate or legal representative as appropriate) for cash all Vested Class B Common Units issued to such Participant under a Class B Common Unit Award or in connection with the exercise of a Class B Common Unit Option (regardless of who then owns such Vested Class B Common Units), to the extent that such Vested Class B Common Units have not been repurchased in accordance with the terms of this Plan or a Class B Common Unit Award Agreement or Class B Common Unit Option Agreement in connection with a termination for Cause, at a price equal to the Fair Market Value of such Vested Class B Common Units. The Class B Common Unit Award Agreement or Class B Common Unit Option Agreement may specify the terms and conditions related to the purchase or repurchase of such Vested Class B Common Units.

Article V - Tax

5.1.              Tax Matters.

Whenever Class B Common Units are to be issued under this Plan, the Company shall have the right to require the Participant to remit to the Company cash in an amount sufficient to satisfy federal, state and local tax withholding requirements before the issuance of such Class B Common Units. The Company shall have the right to withhold from payroll or other amounts payable to a Participant all amounts required to satisfy applicable tax withholding requirements in connection with the issuance of Class B Common Units.

5.2.              83(b) Election.

Any Participant who makes an election under Section 83(b) of the Code shall make a cash payment to, or enter into a mutually agreeable arrangement with, the Company for such an amount as the Board or its designee deems necessary for the Company to comply with any and all federal, state and local tax withholding obligations of the Company.

Article VI - Other Provisions

6.1.              Adjustment in Class B Common Units.

If the outstanding equity interests of the Company are increased, decreased or changed into or exchanged for a different number or kind of interests or securities, through reorganization, recapitalization, reclassification, Unit split-up, Distribution, combination, merger or consolidation, in each case effected without consideration (and, for such purpose, any conversion of outstanding convertible securities will not be deemed to have been effected without consideration), an appropriate and proportionate adjustment may be made in the number and kind of Class B Common Units granted under a Class B Common Unit Award or into which a Class B Common Unit Option is exercisable or the exercise price for such Class B Common Unit Option. Adjustments under this Section 6.1 may be made by the Board, whose determination as to what adjustments will be made, and the extent of such adjustments, shall be final and conclusive. No fractional interests will be issued under this Plan on account of any such adjustment. A Class B Common Unit Award Agreement or Class B Common Unit Option Agreement may set forth the terms and conditions upon which the Board may or may not make such adjustments. Except as expressly set forth above, the issuance of Units or other equity interests in the Company of any class or series shall not require any adjustment pursuant to this Section 6.1.

6.2.              No Right to Status as a Manager, Director, Officer, Employee, Strategic Partner or Consultant.

Nothing contained in this Plan, a Class B Common Unit Award Agreement or a Class B Common Unit Option Agreement will confer upon any Participant any right with respect to continued status as a manager, director, officer, employee, strategic partner or consultant of or to the Company, nor will this Plan or any Class B Common Unit Award Agreement or Class B Common Unit Option Agreement interfere in any way with the right of the Company to at any time: (a) reassign a Participant to a different job, title, function or relationship; (b) change the compensation or other terms and conditions of or with respect to a Participant; or (c) terminate a Participant’s status as a manager, director, officer, employee, strategic partner or consultant for any reason.

6.3.              Nontransferability.

Notwithstanding any other provision of this Plan to the contrary, a Participant’s rights under this Plan may not be assigned, pledged or otherwise transferred, other than by will or pursuant to the laws of descent and distribution, without the written consent of the Company, which may be withheld, delayed or conditioned by the Company in its sole discretion.

6.4.              Unitholder.

A Participant’s rights as a Unitholder will only arise upon the: (a) execution and satisfaction of such Participant’s obligations under this Plan and under the terms of the Class B Common Unit Award Agreement or, if applicable, the exercise of a Class B Common Unit Option and payment of the exercise price to the Company; (b) satisfaction of any tax withholding obligation as described in Article V of this Plan; and (c) delivery by such Participant to the Company of a signed joinder agreement (in the form prescribed by the Company) agreeing to be bound by the provisions of the Operating Agreement. Upon satisfying the foregoing conditions, a Participant will have the rights of a Unitholder with respect to such Class B Common Units, including but not limited to the right to receive allocations of profit and loss with respect to such Units.

6.5.              Unfunded Plan.

Unless otherwise determined by the Board, this Plan will be unfunded and shall not create (or be construed to create) a trust or separate funds.

6.6.              Other Compensation Plans.

Nothing contained in this Plan will prevent the Company from adopting other or additional compensation arrangements for employees, managers, officers, strategic partners or consultants of or to the Company.

6.7.              Compliance with Governmental Regulations.

Notwithstanding any provision of this Plan or the terms of any Class B Common Unit Award Agreement or Class B Common Unit Option Agreement issued under this Plan, the Company will not be required to issue a Class B Common Unit Option or Class B Common Unit upon exercise of a Class B Common Unit Option before registration of such Class B Common Unit Option or Class B Common Unit under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, (collectively, the “Federal Securities Laws”), if such registration is necessary, or before compliance by the Company or any Participant with any other provision of any of the Federal Securities Laws or of the regulations and rulings of the Securities and Exchange Commission under the Federal Securities Laws, or before compliance with all other applicable federal and state laws and regulations and rulings under such laws. It is intended that Class B Common Unit Awards, Class B Common Unit Options and the Class B Common Units issued upon exercise of Class B Common Unit Options be exempt from the registration requirements of federal and state securities laws. If the Company is unable to obtain from any regulatory agency or commission the authority required to issue Class B Common Units under this Plan after the Company has made reasonable efforts to comply with such laws, regulations and rulings upon advice by its counsel that any such registration, filing or compliance is necessary, then the Company shall be relieved of any obligation to issue such Class B Common Units. Notwithstanding anything to the contrary set forth in this Plan, in no event will the Company be required to register under applicable state or federal securities laws this Plan, any Class B Common Unit Award Agreement, any Class B Common Unit Option Agreement or any Class B Common Units issued or issuable pursuant to the foregoing.

6.8.              Exculpation and Indemnification.

No member of the Board or any committee of the Board delegated the authority to administer this Plan will be liable for any action or inaction or any determination made in good faith with respect to this Plan or any Class B Common Unit Award or Class B Common Unit Option made pursuant to this Plan. The Company shall indemnify and hold harmless the members of the Board from and against any and all liabilities, costs and expenses incurred by such persons as a result of any act or omission to act in connection with the performance of such person’s duties, responsibilities and obligations under this Plan, any Class B Common Unit Award Agreement or any Class B Common Unit Option Agreement, other than such liabilities, costs and expenses as may result from the gross negligence, bad faith, willful misconduct and/or criminal acts of such persons.

Article VII - Amendment and Termination

Subject to the provisions of Section 1.3, the Board may modify, amend or terminate this Plan at any time. Notwithstanding the preceding sentence, no modification, amendment or termination of this Plan will adversely affect the rights of a Participant under an award previously made to such Participant without the written consent of such Participant.

Article VIII - Governing Law

This Plan shall be construed and enforced in accordance with and governed by the laws the State of Delaware, without regard to its conflicts of laws provisions.

Article IX - Effective Date

This Plan was authorized, approved and adopted by the Company as provided in the Operating Agreement on and is effective as of June 28, 2017.

Exhibit 7.1

AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger (“Agreement”), dated as of November 30, 2018, by and between, on the one hand, Zabala Farms Group, LLC, a Delaware limited liability company (the “ZFG”), with its principal executive offices located at 43264 Business Park Dr. Suite # 105 Temecula, CA 92590; and on the other hand, Smart Initiatives, LLC, (“Smart”), Valley View Enterprises, LLC, (“Valley”) and Target Equity, LLC (“Target”), all California limited liability companies, with their principal executive offices located at 43264 Business Park Dr. Suite # 105 Temecula, CA 92590 (Smart, Valley and Target are each referred to as a “Company” and collectively referred to as the “Companies”).

RECITALS

WHEREAS, the parties intend that Companies each be merged with and into ZFG, with ZFG surviving the merger on the terms and subject to the conditions set forth herein (the “Merger”);

WHEREAS, the managers of ZFG and of each of the Companies have (a) determined that this Agreement and the transactions contemplated hereby, including the Merger, are in the best interests of ZFG and the Companies and their respective Members, (b) approved and declared advisable this Agreement and the transactions contemplated hereby, including the Merger, and (c) resolved to recommend that the Members of ZFG and the Members of each of the Companies, respectively, adopt and approve this Agreement and the Merger, in accordance with Section 18-209 of the Delaware Limited Liability Company Act (the “DLLCA”) and in accordance with Section 17710.12 of the California Revised Uniform Limited Liability Company Act (“RULLCA”), as well as in compliance with their respective operating agreements; and

WHEREAS, following the execution of this Agreement, the Companies and ZFG shall seek to obtain, in accordance with Section 18-209 of the DLLCA and Section 17710.12 of RULLCA, the written consent of their respective Members approving this Agreement, the Merger and the transactions contemplated hereby in accordance with the DLLCA.

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

The following terms have the meanings specified or referred to in this Article I:

“Action” means any claim, action, cause of action, demand, lawsuit, arbitration, inquiry, audit, notice of violation, proceeding, litigation, citation, summons, subpoena or investigation of any nature, civil, criminal, administrative, regulatory or otherwise, whether at law or in equity.