STRATEGIC ENERGY ASSETS - III, LLC PA R T N E R R E L AT I O N S (888) 660-8159 invest@rcp-ltd.com
STRATEGIC ENERGY ASSETS - III, LLC  PA R T N E R R E L AT I O N S  888  660-8159 invest rcp-ltd.com
453"5&(*$ &/&3(: "44&54*** CONFIDENTIAL SUMMARY *OWFTUNFOU)JHIMJHIUT *OUIFIZESPDBSCPOQPSUJPOPGUIFFOFSHZTFDUPS3FTPMVUF$BQJUBM 1BSUOFST 3$1 MPPLTGPSJOWFTUNFOUPQQPSUVOJUJFTXJUIMPX QSPEVDUJPODPTUTJOQSPWFOMPDBUJPOTUIBUBSFFDPOPNJDBMMZWJBCMFHJWFOUPEBZTQSJDFQPJOUT4USBUFHJD&OFSHZ"TTFUT*** --$JTB TecuritieTPGGFSJOH NFNCFSTIJQJOUFSFTUTJOBQPPMFEJOWFTUNFOUWFIJDMF XIPTFCVTJOFTTQMBOJTUPBDRVJSFTJYQSPQPTFEUVSOLFZ0JMBOE (BTXFMMT JEFOUJGJFECZ)PNFCPVOE3FTPVSDFT )#3 --$)#3JTB5FYBTCBTFEDPSQPSBUJPOJOWPMWFEJOUIFQSPEVDUJPO EFWFMPQNFOU BOE FYQMPSBUJPOPGPJMBOEHBTQSPKFDUTJO5FYBTBOE-PVJTJBOB 5"9#&/&'*54 5IF64HPWFSONFOUPGGFSTVOQBSBMMFMFEUBYJODFOUJWFTUPFODPVSBHFJOWFTUNFOUJOEPNFTUJDPJMBOEHBTQSPKFDUT*OUBOHJCMF%SJMMJOg $PTUT XIJDIJODMVEFJUFNTMJLFMBCPSBOEXBUFS UZQJDBMMZBDDPVOU GPSVQXBSETPGPGUIFUPUBMDPTUPGDPNQMFUJOHBXFMMBOEBSF UBYEFEVDUJCMFEVSJOHUIFGJSTUZFBS 5)&410/403 The Sponsor, HomeBound Resources, has a knowledgeable team of executives from the oil and gas and insurance industries as well as the finance, and business sectors. The strength of the team is in their disciplined approach to targeting profitable oil and gas projects by applying new methodology to existing data in well logs and geological studies while concurrently utilizing new technology to identify and access oil and gas PARTNER RELATIONS 1)0/& &."*-invest!SDQMUEDPN 8&#SEA***DPN 88BMOVU)JMM-BOF 4VJUF *SWJOH 5FYBT 3FTPMVUF$BQJUBM1BSUOFSTEPFTOPUQSPWJEFUBYBEWJDFGPSBOZ KVSJTEJDUJPO Please consult your tax advisor regarding the potential tax deductions and how they affect your tax liability. 4FDVSJUJFTBSFPGGFSFEUISPVHI8FBMUI'PSHF4FDVSJUJFT --$ member FINRA/SIPC.
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SENSITIVITY ANALYSIS INVESTOR PROFITABILITY
SENSITIVITY ANALYSIS INVESTOR PROFITABILITY
Strategic Energy Assets-III, LLC Partner Relations P: 888.660.8159 E: invest@rcp-ltd.com Securities are offered by WealthForge Securities, LLC Member FINRA/SIPC.
Strategic Energy Assets-III, LLC  Partner Relations P  888.660.8159 E  invest rcp-ltd.com  Securities are offered by Wealt...
DISCLAIMER This Executive Summary (including any and all drafts and parts thereof) is/are based upon information supplied by the Company, its managing executives and its stockholders or membership shareholders (collectively “the Company” and/or “management”), and is being furnished on a confidential basis, solely for use by prospective investors in and/or potential strategic business associates of the company (collectively “recipient”). The use or distribution of this Executive Summary to any other parties or for any other purposes is not authorized. Neither the company nor any of its employees, affiliates or representatives makes any representation or warranty, express or implied, as to the accuracy or completeness of any of the information contained in this Executive Summary or in any other written or oral communication transmitted or made available to a recipient. Each of such parties expressly disclaims any and all liability relating to or resulting from the use of this Executive Summary or such communications by a recipient or any of its affiliates or representatives. Only those specific, express representations and warranties, if any, which may be made to a recipient in one or more definitive written agreements when, as and if executed, and subject to all such limitations and restrictions as may be specified in such definitive written agreements, may be relied on by a recipient or have any legal effect whatsoever. Investments in Private Placements are considered risky and you may lose some or your entire principal. Material portions of the information presented in this Executive Summary constitute “forward-looking statements” which can be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “anticipate”, “estimate”, “plan”, or “continue” or the negative form thereof or other variations thereon or comparable terminology. Such forward-looking statements represent the subjective views of the management of the company, and management’s current estimates of future performance are based on assumptions which management believes are reasonable but which may or may not prove to be correct. There can be no assurance that management’s views are accurate or that management’s estimates will be realized, and nothing contained herein is or should be relied on as a representation, warranty or promise as to the future performance or condition of the company. Industry experts may disagree with these assumptions and with management’s view of the market and the prospects of the company. The sole purpose of the Executive Summary is to assist a recipient in deciding whether to proceed with further investigation but this Executive Summary does not purport to contain all material information that an interested party might consider in investigating the company. A recipient should conduct his or her own independent analysis and investigation. This Executive Summary shall not be construed to indicate that there has not been any change in the financial condition, business, operations, plans or other affairs of the company since the date of preparation. The company does not expect to update or otherwise revise this Plan to reflect any such changes. The recipient of this Executive Summary acknowledges and agrees that: (a) all of the information contained herein or received in written or oral form from the company will be kept confidential; (b) the recipient will not reproduce this Plan, in whole or in part; (c) if the recipient does not wish to pursue this matter, it will return the Executive Summary to the company as soon as practicable, together with any other material relating to the company which the recipient may have received from the company; and (d) proposed actions by the recipient which are inconsistent in any manner with the foregoing agreement will require the prior written consent of the company. THIS EXECUTIVE SUMMARY IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. The company reserves the right, in its sole discretion, to reject any and all proposals made by or on behalf of any recipient, to accept any such proposal, to negotiate with one or more recipients at any time, and to enter into a definitive agreement without prior notice to other recipients. The company also reserves the right to terminate, at any time, further participation in the investigation and proposal process by, or discussions or negotiations with, any recipient without reason. RESIDENTS OF THE STATE OF NEW YORK ARE NOT ELIGIBLE TO PURCHASE THE OFFERED SECURITIES Securities are offered through WealthForge Securities, LLC member FINRA / SIPC.
DISCLAIMER This Executive Summary  including any and all drafts and parts thereof  is are based upon information supplied ...
OVERVIEW In the energy sector Resolute Capital Partners (RCP) looks for investment opportunities with low production costs in proven locations that are economically viable given today’s price points. Strategic Energy Assets-III, LLC has been formed to invest in six prospective Oil and Gas wells identified by Homebound Resources, LLC (the Sponsor) a Texas based corporation involved in the production, development and exploration of oil and gas projects in Texas and Louisiana. Opportunities for the sponsor exist across exploration, production and work-over projects. The sponsor’s ability to find projects with various levels of risk creates the potential for significant returns while employing a proven methodology, as opposed to high-risk pure exploration programs. Additionally, Homebound Resources (HB) uses state of the art seismic technology to identify prime exploration prospects and applies technology to maximize the recovery of reserves. SPONSOR’S TEAM One of RCP’s key criteria in choosing investment opportunities is the quality of the Sponsor’s management team. HB has assembled a top tier management team with a proven track record in the oil and gas industry with decades of combined experience. These individuals consist of tenured operations, finance, and business professionals, coupled with experienced engineers, geologists and geophysicists, positioning Strategic Energy Assets-III, LLC for strong investment potential. THE OPPORTUNITY In this transaction, members will invest in Strategic Energy Assets-III, LLC an investment vehicle managed by Resolute Capital Partners, LLC. Strategic Energy Assets-III, LLC will subsequently invest in six turn-key well prospects located in central-west Texas, north-central Texas, and east Texas offered by HB. Invested funds will cover lease/land expense, drilling and completion for the six wells, as well as infrastructure and all necessary rights of way. ECONOMICS In 2015 Average well drilling and completion costs in five onshore areas evaluated in 2015 were between 25% and 30% below 2012 costs. (https://www.eia.gov/analysis/studies/drilling/pdf/upstream.pdf). ü Wells once deemed as non-financially viable are now becoming viable due to the combination of decreased drilling and completion costs and an increase in average oil and gas prices. ü NEW TECHNOLOGY ü HB uses state of the art logging equipment to correctly identify and assess viability of each site. ü HB logs run on a one-foot scale, greatly increasing the quality and quantity of data gathered and improving ü analysis of subsurface geology, as compared to older logging equipment, which operate on a 5 to 10-foot scale. Zones once shown non-financially viable are often found to now be viable when re-evaluated using new logging technology. WELL LOG YESTERDAY / TODAY
OVERVIEW In the energy sector Resolute Capital Partners  RCP  looks for investment opportunities with low production costs...
MARKET OPPORTUNITY ENERGY PRODUCTION & CONSUMPTION ü ü ü Currently world energy consumption closly mirrors world energy production at 1.2521 vs. 1.2522 billion BTU’s, respectively.1 The U.S. Energy Information Administration projects energy consumption to grow by 8.9% from 2013 to 2040.2 Petroleum consumption is projected to remain constant due to increases in vehicle effeciency being offset by a corresponding increase in vehicle miles traveled.2 Table 1: Primary Energy Consumption by Fuel2 PROSPECTS Strategic Energy Assets-III, LLC consists of well sites identified by the HB team to meet the following criteria: 1) past proven production, 2) previously non-economically viable at time of discovery due to either water disposal or extraction costs/ capabilities, 3) projected extraction costs lower than current revenue models. HB identified six well sites meeting these criteria in central-west Texas and north-central Texas. CENTRAL - WEST TEXAS Well sites have been identified in Concho and McCulloch Counties situated in Central – West Texas. These wells target the Strawn Age Sands & Lime Stone as well as the Ellenburger formations. NORTH - CENTRAL TEXAS Well sites have been identified in Baylor, Nolan and Fisher Counties in north-central Texas. The wells in these location target the Canyon, Pennsylvanian Reef and Ellenburger Field. A well drilled by HB in 2015 near this location has averaged 60 BOPD (barrels of oil per day) with minimal water disposal required. EAST TEXAS Well sites have been identified in central Marion County in east Texas. This prospect, called Cypress Bayou, is inside the southwestern most productive closure, and lowest structural part, of the Rodessa Ridge. Most of the development in the prospect area was conducted in the 1950’s, with very little drilling later. This provides an excellent opportunity to utilize new technology to identify and extract oil and gas. Recent nearby horizontal drilling by another operator has resulted in wells producing in the 150-250 BOPD range. 1http://www.oilprice.com/widgets/worldenergy.js and http://www.oilprice.com/widgets//energyproduction.js 2http://www.eia.gov/forecasts/aeo/pdf/0383(2015).pdf
MARKET OPPORTUNITY ENERGY PRODUCTION   CONSUMPTION           Currently world energy consumption closly mirrors world energ...
HOMEBOUND MANAGEMENT TEAM OVERVIEW As the operator of the six well investment package, Homebound Resources, LLC will be directly involved in the selection, approval, acquisition, drilling, and management of well as part of the STRATEGIC ENERGY ASSETS-III, LLC investment opportunity. Highlighted below are the management team members of Homebound Resources. STEFAN TOTH CHAIRMAN & CEO Stefan Toth is a distinguished entrepreneur with over 20 years of experience in strategic planning and company growth in both the energy and real estate industries. As Chairman and CEO Stefan provides leadership and strategic vision to the HB team. TED ETHEREDGE PRESIDENT & COO Ted Etheredge is the former CEO of ARMtech Insurance Services, Inc. the 5th largest publicly traded crop insurance company in the nation. Ted brings 30 years of involvement in oil and gas investing to the HB management team. He is responsible for operational management, oversight of the day-to-day operations, and handles all compliance issues for the company. TONY GOSSETT - OPERATIONS MANAGER/PETROLEUM ENGINEER Tony Gossett has over 20 years of experience in oil and gas production across the gulf coast area. As operations manager Tony develops and oversees drilling, completion procedures. He has worked for both independent and publically traded oil and gas operators in varied positions focusing on revitalization and increased production of older fields. PABLO CORTEZ - EVP, BD & FINANCE As the Business Development and Finance lead, Pablo Cortez is responsible for acquisition and divestitures, as well as budgeting and reserves. He brings extensive experience in the energy sector including oil and gas exploration and renewable energy. Prior to joining HB, Pablo worked for a boutique oil and gas development firm in Dallas, assisting in acquisitions.
HOMEBOUND MANAGEMENT TEAM OVERVIEW As the operator of the six well investment package, Homebound Resources, LLC will be di...
OPERATIONS STRATEGIC PARTNERS WARREN TARYLE – TARYLE AND ASSOCIATES CERTIFIED PUBLIC ACCOUNTANT Warren Taryle is a Certified Public Accountant and founder of Taryle and Associates, CPAs, PLLC; specializing in working with real estate investors, entrepreneurs, and wealth builders. Warren received a Masters Degree in Taxation from Frontbonne College. He has focused his practice on helping people grow their investments and businesses by reducing their largest expense, taxes. ROGER A. CRABB - SCHEEF AND STONE, LLP LEGAL COUNSEL Roger Crabb is a seasoned corporate attorney, with extensive industry experience including technology, energy, management consulting and investments, and over 25 years of experience negotiating and documenting corporate transactions. Mr. Crabb advises clients on matters involving acquisitions and other commercial transactions, SEC compliance and periodic filings, financings, risk management and insurance, employment-related matters, general contract law, corporate ethics and compliance programs and corporate governance. Prior to joining Scheef & Stone, he served as Director of Legal Affairs, Global Corporate, for Network Associates, General Counsel, Secretary and Executive Committee Member for Thomas Group and Associate General Counsel for Triton Energy. MICHAEL S. WILLEY – ALPINE EXPLORATION, LLC GEOLOGY Michael Willey is manager director of Alpine Exploration, LLC and is a registered, licensed and certified (by the Texas Board of Professional Geologists) geologist/geophysicist. During his career, Mr. Willey has served as the senior geoscientists for numerous oil and gas companies and is credited with numerous field discoveries in East Texas and the Gulf Coast. Mr. Willey provides expert analysis of reservoir data and recommendations on prospect selection and analysis. COMPANY INFORMATION MANAGER Resolute Capital Partners, LLC is a private equity group that makes investments in operating companies and projects through a variety of investment strategies. The RCP team brings decades of proven experience in wealth management, raising capital, investment and commercial banking, commercial real estate, oil and gas exploration, production and operating, and alternatives investments. THOMAS J. POWELL- SENIOR MANAGING PARTNER Tom Powell is an innovative investment manager and banker with expertise in raising capital, investment risk analysis, distressed debt recovery, and deal structure. Tom’s focus is on the art and science of raising, deploying, and managing investment capital across various spectrums from commercial real estate to venture startups. Tom is an International Guest Lecturer and has served as an instructor in the Office of Executive Education at Harvard University. The author of numerous publications, including Six Secrets: An Entrepreneur’s Guide to Attracting Startup Capital (co-author), Tom also pens a Newsletter and Blog, The Powell Perspective: Observations on the Economy, Real Estate, Finance and Investing.
OPERATIONS STRATEGIC PARTNERS WARREN TARYLE     TARYLE AND ASSOCIATES CERTIFIED PUBLIC ACCOUNTANT Warren Taryle is a Certi...
OPERATIONAL GOALS Month 5 Year 1 End of Year 1: First Well Begins Active Production All Six Wells Actively Producing Years 2-5: Continued return on investment With full production, $841,500 in estimated monthly revenue* Years: 3-5 Potential Sale Opportunity INVESTMENT DETAILS INVESTMENT OPPORTUNITY RCP is offering membership shares in Strategic Energy Assets-III, LLC. The target returns set forth within all offerings may not be realized: actual results may differ materially from the stated goals. Past performance is not a guarantee of future results. All investments involve risk, including the loss of entire principal. ESTIMATED NET WORKING INTEREST (per Membership Interest of $37,500) # of Wells 6 Barrels of Oil/Day 510 Estimated Price of Oil $55 Year 1 Working Interest Cash Flows 5 Year Total Working Interest Cash Flows Target Exit Value (Year 3-5)* $5,739 $57,954 $45,518 Deep wells estimated selling price of $60,000 (*) BOEPD with Lease Operating Expenses (LOE) of 10% and 8.0% Decline Curve. Shallow wells estimated selling price of $50,000 (*) BOEPD with LOE of 10% and 10.0% Decline Curve. An Investment of $37,500 equals 0.255% of Working Interest. Year 1 Debt service of 12 months with Working Interest cash flows beginning Month 8 for a total of 53 months over 5 years. Debt service on $3.75M calculated at 9.0% interest only. This is not an offering or the solicitation of an offer to purchase an interest in any investment vehicle. Any such offer or solicitation will only be made to qualified investors by means of an offering memorandum and only in those jurisdictions where permitted by law. The target returns set forth within all offerings may not be realized; actual results may differ materially from the stated goals. Prior to investing, investors must receive a prospectus, which contains important information regarding the investment objectives, risks, fees, and expenses of any funds and/or other investment opportunities. Past performance is no guarantee of future results. All investments involve risk, including the loss of principal. Securities are offered through WealthForge Securities, LLC Member FINRA/SIPC.
OPERATIONAL GOALS  Month 5 Year 1  End of Year 1   First Well Begins Active Production  All Six Wells Actively Producing  ...
FINANCIAL ASSUMPTIONS Year 1 Year 2 Year 3 Year 4 Year 5 $4,207,500 $10,098,000 $9,230,760 $8,438,839 $7,715,618 RR Commission Tax (195,649) (469,557) (429,230) (392,406) (358,776) Royalty Lease Interest (1,002,963) (2,407,111) (2,200,382) (2,011,608) (1,839,210) Lease Operating Expenses (420,750) (1,009,800) (923,076) (843,884) (771,562) Interest Expense (337,500) (337,500) (337,500) (375,000) (337,500) Free Cash Flows to Equity $2,250,638 $5,874,032 $5,340,571 $4,853,441 $4,408,570 Total Revenue $29,100,000 Capital Market Value of Production Working Interest (6 Well Prospects) HomeBound Resources, 40% Strategic Energy Assets- III, LLC, 60% Free Cash Flow $22,727,252 Capital Market Value $29,100,00 Total $51,827,252 Number of Equity Member Shares 100 Value Per Share $73,096
FINANCIAL ASSUMPTIONS Year 1  Year 2  Year 3  Year 4  Year 5   4,207,500   10,098,000   9,230,760   8,438,839   7,715,618 ...
CONTACT US Partner Relations P: 888.660.8159 E: invest@rcp-ltd.com Securities are offered by WealthForge Securities, LLC. Member FINRA/SIPC
CONTACT US Partner Relations P  888.660.8159 E  invest rcp-ltd.com  Securities are offered by WealthForge Securities, LLC....
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES DESCRIBED IN THIS CONFIDENTIAL INVESTOR DISCLOSURE DOCUMENT OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE INFORMATION PROVIDED. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS OFFER IS NOT AVAILABLE TO RESIDENTS OF NEW YORK. CONFIDENTIAL INVESTOR DISCLOSURE DOCUMENT Strategic Energy Assets - III, LLC (A Delaware Limited Liability Company) 1303 West Walnut Hill Lane, Suite 305 Irving, Texas 75038 888.660.8159 SEA III – Disclosure Package v17OCT2016 5858846 v2
NEITHER  THE  SECURITIES  AND  EXCHANGE  COMMISSION  NOR  ANY  STATE  SECURITIES  COMMISSION  HAS  APPROVED  OR  DISAPPROV...
Strategic Energy Assets - III, LLC CONFIDENTIAL INVESTOR DISCLOSURE DOCUMENT INTRODUCTION Strategic Energy Assets - III, LLC is a Delaware limited liability company that we refer to as “SEA III,” the “Company,” “we,” “us” or “our.” The Company was formed to own 60% of the working interests in six oil and gas well leases located in Concho, Baylor and McCulloch Counties in central-west Texas, Nolan and Fisher Counties north-central Texas, and Central Marion County in east Texas, respectively (the “Working Interests”). We refer to the oil well leases themselves as the “Wells” and the project to develop them as the “Project.” The Project is being sponsored by HomeBound Resources, LLC, which we refer to as the “Sponsor.” The Sponsor owns the remaining 40% of the working interests in the Wells. The Company is seeking to raise up to $3,750,000 of capital by selling limited liability company interests to qualified investors. We refer to the interests themselves as the “LLC Interests” and to the investors who buy them as “Investors.” The LLC Interests are offered through WealthForge Securities, LLC, a registered broker/dealer and member FINRA/SIPC, referred to in this Confidential Investor Disclosure Document as (“WealthForge”). The Company has entered into an agreement with WealthForge Securities, LLC (“WealthForge”), a Virginia limited liability company and a broker-dealer registered with the SEC, Financial Industry Regulatory Authority, Inc., and other necessary state or other regulators, to provide execution and other services relating to this offering. WealthForge may enter into selling agreements with broker-dealers who are members of FINRA (“Selling Group Members”) to sell Units in this Offering. WealthForge will receive selling commissions (the “Selling Commissions”) in an amount up to 9.5% of the purchase price of the Units it sells (the “Total Sales”), which it will re-allow to the Selling Group Members; provided, however, that this amount will be reduced in the event a lower commission rate is negotiated by WealthForge and the commission rate will be the lower agreed upon rate. WealthForge will also receive a transaction processing fee of 0.5% of the Total Sales. The total aggregate amount of commissions, expense reimbursements and placement fees (the “Selling Commissions and Expenses”) will not exceed 10% of the Total Sales. The Company will be responsible for paying all Selling Commissions and Expenses to WealthForge. The most important financial attributes of the Working Interests are as follows: • The owners of the Working Interests will be entitled to receive 75% of the net revenues generated by the Wells, i.e., the net revenues generated from the sale of oil, gas and other mineral products produced from Wells, after paying all expenses and taxes. The other 25% will be paid as a royalty to the mineral rights owners. Because the Company will own 60% of the Working Interests, it will be entitled to 45% (60% of 75%) of the net revenues generated by the Wells. (i) 5858846 v2
Strategic Energy Assets - III, LLC     CONFIDENTIAL INVESTOR DISCLOSURE DOCUMENT      INTRODUCTION  Strategic Energy Asset...
• The owners of the Working Interests will be responsible for all of the costs of developing, completing, and operating the Wells. We estimate that the total costs will be $7,500,000, of which $3,750,000 will be financed by the sale of the LLC Interests and the balance ($[3,750,000]), will be financed by a loan obtained by our Sponsor. If the estimates are wrong, however, then each owner of a Working Interest will be responsible to fund his, her, or its pro rata share of any cost overruns. This means that the Company will be responsible for 60% of such cost overruns (owning 60% of the Working Interests) and that each Investor will be personally responsible for his, her, or its pro rata share, based on his, her, or its LLC Interest. This Confidential Investor Disclosure Document is intended to provide you with important information about the Company, the LLC Interests, and the Project. You should read all of the sections carefully before investing. If you have questions or need more information, please contact us at (888) 660-8159. All of the capitalized terms used in this Confidential Investor Disclosure Document are defined in the “Definitions” section starting on page 39. THE PURCHASE OF LLC INTERESTS INVOLVES A HIGH DEGREE OF RISK AND IS SUITABLE ONLY FOR INVESTORS WHO CAN AFFORD TO LOSE SOME OR ALL OF THEIR INVESTMENT AND ARE WILLING TO ASSUME PERSONAL RESPONSIBILITY FOR THE DEBTS AND OBLIGATIONS OF THE COMPANY, WHICH COULD REQUIRE THE CONTRIBUTION OF SUBSTANTIAL ADDITIONAL CAPITAL. PLEASE REVIEW THE “RISKS OF INVESTING” SECTION STARTING ON PAGE 23. (ii) 5858846 v2
     The  owners  of  the  Working  Interests  will  be  responsible  for  all  of  the  costs  of  developing, completing...
LEGAL LEGENDS THIS OFFERING HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION (“SEC”). WE BELIEVE WE ARE EXEMPT FROM REGISTRATION UNDER SECTION 4(a)(2) OF THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) AND 17 CFR §230.506(B), A REGULATION ISSUED BY THE SEC, AND POSSIBLY BY OTHER EXEMPTIONS AS WELL. THIS CONFIDENTIAL INVESTOR DISCLOSURE DOCUMENT HAS BEEN PREPARED SOLELY FOR THE BENEFIT OF QUALIFIED INVESTORS INTERESTED IN THE OFFERING. IT CONTAINS CONFIDENTIAL INFORMATION AND MAY NOT BE DISCLOSED TO ANYONE OTHER THAN PERSONS SUCH AS ACCOUNTANTS, FINANCIAL PLANNERS OR ATTORNEYS RETAINED BY THE QUALIFIED INVESTOR FOR THE PURPOSE OF RENDERING PROFESSIONAL ADVICE RELATED TO THE PURCHASE OF THE LLC INTERESTS, AND MAY NOT BE REPRODUCED, DIVULGED OR USED FOR ANY OTHER PURPOSE UNLESS WRITTEN PERMISSION IS OBTAINED FROM THE COMPANY. THIS CONFIDENTIAL INVESTOR DISCLOSURE DOCUMENT DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANY PERSON EXCEPT THOSE PARTICULAR PERSONS WHO SATISFY THE INVESTOR QUALIFICATION STANDARDS. THE SALE OR OTHER TRANSFER OF LLC INTERESTS IS RESTRICTED BY CONTRACT. IN ADDITION, UNDER THE ACT, THE LLC INTERESTS MAY NOT BE RESOLD OR OTHERWISE DISPOSED OF UNLESS EITHER A REGISTRATION STATEMENT COVERING DISPOSITION OF SUCH LLC INTERESTS IS THEN IN EFFECT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT IS AVAILABLE. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE IN THIS CONFIDENTIAL INVESTOR DISCLOSURE DOCUMENT AND THOSE AT THE SITE; ANY OTHER INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED UPON. ANY PROSPECTIVE PURCHASER OF AN LLC INTEREST WHO RECEIVES INFORMATION OR REPRESENTATIONS FROM ANY OTHER SOURCE ABOUT THE COMPANY, THE LLC INTERESTS, THE PROJECT, OR ANY OTHER MATTER RELEVANT TO THE PURCHASER’S INVESTMENT DECISION, SHOULD CONTACT THE COMPANY IMMEDIATELY TO DETERMINE THE ACCURACY OF SUCH INFORMATION. PROSPECTIVE PURCHASERS SHOULD NOT REGARD THE INFORMATION PROVIDED BY THE COMPANY AS A SUBSTITUTE FOR CAREFUL AND INDEPENDENT TAX AND FINANCIAL PLANNING. YOU ARE ENCOURAGED TO CONSULT WITH YOUR OWN INDEPENDENT LEGAL COUNSEL, ACCOUNTANT AND OTHER PROFESSIONALS WITH RESPECT TO THE LEGAL AND TAX ASPECTS OF THIS INVESTMENT, WITH SPECIFIC REFERENCE TO YOUR OWN TAX AND FINANCIAL SITUATION, BEFORE SUBSCRIBING. THE COMPANY RESERVES THE RIGHT TO REJECT ANY SUBSCRIPTIONS IN WHOLE OR IN PART FOR ANY REASON OR FOR NO REASON. (iii) 5858846 v2
LEGAL LEGENDS  THIS  OFFERING  HAS  NOT  BEEN  REGISTERED  WITH  THE  SECURITIES  AND  EXCHANGE  COMMISSION      SEC    . ...
THE COMPANY WILL MAKE AVAILABLE TO ANY PROSPECTIVE PURCHASER THE OPPORTUNITY TO ASK QUESTIONS AND RECEIVE ANSWERS CONCERNING THE TERMS AND CONDITIONS OF THE OFFERING, THE WELLS, THE COMPANY, OR ANY OTHER RELEVANT MATTERS, AND TO OBTAIN ANY ADDITIONAL INFORMATION THAT IS NECESSARY TO VERIFY THE ACCURACY OF THE INFORMATION PROVIDED, TO THE EXTENT THE COMPANY POSSESSES SUCH INFORMATION OR CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORT OR EXPENSE. COPIES OF ANY DOCUMENTS REFERRED TO IN THIS CONFIDENTIAL INVESTOR DISCLOSURE DOCUMENT BUT NOT INCLUDED AT THE SITE WILL BE MADE AVAILABLE TO A QUALIFIED PROSPECTIVE INVESTOR UPON REQUEST, BUT THE COMPANY RESERVES THE RIGHT TO REQUIRE A PROSPECTIVE INVESTOR TO EXECUTE A NON-DISCLOSURE AGREEMENT BEFORE THE COMPANY PROVIDES THE DOCUMENTS. NASAA UNIFORM LEGEND YOU SHOULD MAKE YOUR OWN DECISION WHETHER THIS OFFERING MEETS YOUR INVESTMENT OBJECTIVES AND RISK TOLERANCE LEVEL. NO FEDERAL OR STATE SECURITIES COMMISSION HAS APPROVED, DISAPPROVED, ENDORSED, OR RECOMMENDED THIS OFFERING. NO INDEPENDENT PERSON HAS CONFIRMED THE ACCURACY OR TRUTHFULNESS OF THIS DISCLOSURE, NOR WHETHER IT IS COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS ILLEGAL. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. YOU SHOULD BE AWARE THAT YOU WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. OFFER AVAILABILITY RESIDENTS OF THE STATES OF NEW YORK ARE NOT ELIGIBLE TO PURCHASE THE OFFERED SECURITIES. (iv) 5858846 v2
THE  COMPANY  WILL  MAKE  AVAILABLE  TO  ANY  PROSPECTIVE  PURCHASER  THE  OPPORTUNITY  TO  ASK  QUESTIONS AND RECEIVE ANS...
A WARNING ABOUT FORWARD-LOOKING STATEMENTS The term “forward-looking statements” means any statements, including financial projections, that relate to events or conditions in the future. Often, forward-looking statements include words like “we anticipate,” “we believe,” “we expect,” “we intend,” “we plan to,” “this might,” or “we will.” Because the Company has not yet drilled any wells or found any deposits of oil or gas, most of the things we say in this Confidential Investor Disclosure Document about the business of the Company are forward-looking statements. Forward-looking statements are by their nature subject to uncertainties and assumptions. It is impossible for us to know exactly what is going to happen in the future or even to anticipate all the things that could happen. Our business could be subject to many unanticipated events, including all the things we talk about in the “RISKS OF INVESTING” section starting on page 23. Consequently, the actual result of investing in the Company could (and almost certainly will) differ from those anticipated or implied in any forward-looking statement, and the differences could be both material and adverse. We do not undertake any obligation to revise, or publicly release the results of any revision to, any forward-looking statements, except as required by applicable law. GIVEN THE RISKS AND UNCERTAINTIES, PLEASE DO NOT PLACE UNDUE RELIANCE ON ANY FORWARD-LOOKING STATEMENTS. (v) 5858846 v2
A WARNING ABOUT FORWARD-LOOKING STATEMENTS  The  term     forward-looking  statements     means  any  statements,  includi...
Table of Contents INTRODUCTION I HOW TO INVEST 1 SUMMARY OF OFFERING 3 QUALIFICATION OF INVESTORS 7 WHAT YOU GET: YOUR LLC INTEREST 8 THE DEVELOPMENT LOAN 12 PARTICIPATION AGREEMENT AND JOINT OPERATING AGREEMENT 12 THE SPONSOR AND ITS BUSINESS 13 SUMMARY OF THE OPPORTUNITY 14 FINANCIAL PROJECTIONS 19 THE SPONSOR’S TEAM 20 STRATEGIC PARTNERS 21 OUR FEES AND DISTRIBUTIONS 22 USE OF PROCEEDS 22 RISKS OF INVESTING 23 LIMITED LIABILITY COMPANY AGREEMENT 29 FEDERAL INCOME TAX CONSEQUENCES 32 LEGAL PROCEEDINGS 38 DEFINITIONS 39 (vi) 5858846 v2
Table of Contents  INTRODUCTION   I   HOW TO INVEST   1   SUMMARY OF OFFERING   3   QUALIFICATION OF INVESTORS   7   WHAT ...
HOW TO INVEST Your Subscription To invest, you must complete and submit an Investment Agreement. In your Investment Agreement, you will: • Provide important personal information. • Specify the amount you would like to invest. • Confirm that you are an “accredited investor,” as that term is defined in Rule 501 of Regulation D under the Securities Act of 1933. Please refer to the “QUALIFICATION OF INVESTORS” section on page 7. • Verify that you have carefully reviewed and understand this entire Confidential Investor Disclosure Document. The package you submit, including your signed Purchase and Subscription Agreement, is called your "subscription." We will review your subscription and decide whether to accept it. We have the right to accept or reject subscriptions in our sole discretion, for any reason or for no reason. Escrow Account When you invest, your money will be held in an escrow account with an FDIC-insured bank until: • We confirm that you are a qualified investor; • We have received subscriptions from qualified Investors (who may be owners or affiliates of the Company) representing at least the minimum offering amount we have stipulated; and • We decide to accept your subscription. We refer to these three items as the “Escrow Release Conditions.” When and if all of the Escrow Release Conditions are satisfied, we will release your money from the escrow account to the Company at a time we select. If one or more of the Escrow Release Conditions is not satisfied, we will return your money to you. Once we have accepted your subscription and issued your Note, we will notify you by email and the investment process will be complete. We will also notify you by email if we do not accept your subscription, although we might not explain why. P a g e | 1 5858846 v2
HOW TO INVEST    Your Subscription  To invest, you must complete and submit an Investment Agreement. In your Investment Ag...
Over-Subscription If we receive subscriptions from qualified investors for more than the total amount we are trying to raise, we have the right to either (1) reject some of the subscriptions, (2) reduce subscriptions, or (3) both. Usually, when we reduce subscriptions we will reduce all subscriptions on a pro rata basis. However, we have the right to reduce subscriptions in any way we choose. You will not have the right to revoke your subscription due to a reduction in the subscription amount. Your LLC Interest We will not issue a paper certificate representing your LLC Interest. Instead, your LLC Interest will be issued in electronic form only. You may print a copy for your records if desired. P a g e | 2 5858846 v2
Over-Subscription  If  we  receive  subscriptions  from  qualified  investors  for  more  than  the  total  amount  we  ar...
SUMMARY OF OFFERING Issuer Strategic Energy Assets – III, LLC, a Delaware limited liability company, which we refer to as “SEA III,” the “Company,” “we,” “us” or “our.” Business of Issuer SEA III was formed to own 60% of the working interests in six oil and gas well leases located in Concho, Baylor and McCulloch Counties in central-west Texas, Nolan and Fisher Counties north-central Texas, and Central Marion County in east Texas, respectively. We refer to the working interests as the “Working Interests,” to the oil well leases as the “Wells,” and to the development and exploitation of the Wells as the “Project.” Securities Offered Limited liability company interests in the Company, which we refer to as the “LLC Interests.” WealthForge Interests in the Company are offered through WealthForge, LLC, a registered broker/dealer and member FINRA/SIPC (“WealthForge”). The Company has entered into an agreement with WealthForge Securities, LLC (“WealthForge”), a Virginia limited liability company and a broker-dealer registered with the SEC, Financial Industry Regulatory Authority, Inc., and other necessary state or other regulators, to provide execution and other services relating to this offering. WealthForge may enter into selling agreements with broker-dealers who are members of FINRA (“Selling Group Members”) to sell Units in this Offering. WealthForge will receive selling commissions (the “Selling Commissions”) in an amount up to 9.5% of the purchase price of the Units it sells (the “Total Sales”), which it will re-allow to the Selling Group Members; provided, however, that this amount will be reduced in the event a lower commission rate is negotiated by WealthForge and the commission rate will be the lower agreed upon rate. WealthForge will also receive a transaction processing fee of 0.5% of the Total Sales. The total aggregate amount of commissions, expense reimbursements and placement fees (the “Selling Commissions and Expenses”) will not exceed 10% of the Total Sales. The Company will be responsible for paying all Selling Commissions and Expenses to WealthForge. Sponsor The sponsor of the Project is HomeBound Resources, LLC, which we refer to as “HomeBound” or the “Sponsor.” HomeBound owns the remaining 40% of the Working Interests in the Wells. Offering Amount We are trying to raise up to $3,750,000 in this offering. We will cancel the offering if we cannot raise $500,000. P a g e | 3 5858846 v2
SUMMARY OF OFFERING  Issuer       Strategic Energy Assets     III, LLC, a Delaware limited liability company, which we  re...
Leverage HomeBound has secured a loan of $[3,750,000] to provide the balance of the funding that HomeBound believes will be required to develop the Wells (a total of $7,500,000). We refer to this as the “Development Loan.” The Development Loan is secured by 100% of the Working Interests (inclusive of the Working Interest of both the Company and the Sponsor) and bears interest at [9.0] % per year, with interest payable on a quarterly basis and all principal due at the end of three years. If desired, the Sponsor may extend the maturity date for up to two years. For more information, see “THE DEVELOPMENT LOAN” section starting on page 12. Minimum Initial The minimum initial investment is $10,000, although smaller investments may be Investment allowed at the Company’s discretion. Management of Resolute Capital Partners, LTD., a Nevada limited liability company which we refer Company to as the “Manager” or “RCP,” will manage the Company. The Manager, will have exclusive authority to manage all aspects of the Company’s business, including, but not limited to, entering into contracts, admitting new members, and deciding on the timing and amount of distributions. Management of Mercury Operating, LLC, which we refer to as the “Operator,” will operate the the Wells Wells. The Operator is an affiliate of HomeBound. Right to After paying all applicable taxes (including a Texas production tax, imposed by the Distributions Texas Railroad Commission, of 4.65%), the net revenues generated from the sale of oil, gas and other mineral products produced from Wells will be divided 75% to the owners of the Working Interests and 25% to the royalty owner (the owner of the mineral rights). Lease-operating expenses to include an operating fee paid to the Operator, followed by debt service payments are then deducted from the remaining amount. The net balance will then be distributed 60% to the Company, as the owner of 60% of the Working Interests, and 40% to HomeBound, as the owner of 40% of the Working Interests. The amount received by the Company is then distributed as follows: 42.5% to investors and 57.5% to Mountain High Capital, LLC, after paying expenses of the Company. Upon a sale or other capital transaction involving the Wells, the net proceeds will also be distributed 60% to the Company and 40% to HomeBound. The amount received by the Company will then be distributed 42.5% to investors and 57.5% to RCP, but only after investors have received a return of initial capital investment. For more information, see “WHAT YOU GET: YOUR LLC INTEREST” starting on page 8. P a g e | 4 5858846 v2
Leverage     HomeBound  has  secured  a  loan  of    3,750,000   to  provide  the  balance  of  the  funding that HomeBoun...
Obligation to Contribute We have estimated that $7,500,000 will be sufficient to cover the costs of developing, completing, and operating the Wells. If our estimates are wrong, however, then each owner of a Working Interest will be responsible to fund his, her, or its pro rata share of any cost overruns. This means that the Company will be responsible for 60% of such cost overruns (owning 60% of the Working Interests) and that each Investor will be personally responsible for his, her, or its pro rata share. “WHAT YOU GET: YOUR LLC INTEREST” starting on page 8. Operating Fees Assuming a particular Well is producing, the Operator will charge an operating fee in the amount of $2,500 per Well per month, in addition to actual operating expenses. For more information, refer to the “Our FEES AND DISTRIBUTIONS” section starting on page 22. Use of Proceeds We intend to use the proceeds of this offering to pay (i) the cost of acquiring the leases on the wells, (ii) drilling and testing costs, (iii) completing and equipping the wells, (iv) the expenses of this offering, including the preparation of this Confidential Investor Disclosure Document, (v) marketing expenses, and (vi) management and other fees. For more information, see the “USE OF PROCEEDS” section starting on page 22 and the “Our FEES AND DISTRIBUTIONS” section starting on page 22. Fees and Charges Our Sponsor and Operator will be entitled to certain fees or distributions, as described in the “Our FEES AND DISTRIBUTIONS” section on page 22. Electronic Form The LLC Interests will be issued in electronic form only; you will not receive a paper stock certificate. The Company will execute and deliver forms of assignment reflecting the Working Interest attributable to an Investor upon request. Transferability The LLC Interests will be transferrable only with the consent of the Manager. Who Can We will accept subscriptions only from “accredited investors.” For more Participate information, see the “QUALIFICATION OF INVESTORS” section starting on page 7. In addition, retirement plans governed under ERISA or Section 4975 of the U.S. Internal Revenue Code (the “Code”) will not be permitted to acquire greater than 25% of the LLC Interests. Federal Income Investments in oil and gas properties are in some cases subject to favorable tax Tax Consequences treatment, including the ability to deduct intangible drilling and development costs and the depletion allowance. You should consult your own tax advisor regarding these and other Federal, State, and local tax consequences of acquiring a LLC Interest. For more information, see the “FEDERAL INCOME TAX CONSEQUENCES” section starting on page 32. P a g e | 5 5858846 v2
Obligation to  Contribute     We  have  estimated  that   7,500,000  will  be  sufficient  to  cover  the  costs  of  deve...
Risks Purchasing an LLC Interest entails significant risk, including the risk that you could lose all or some of your money and the risk that you could be required to contribute additional capital. For more information, see the “RISKS OF INVESTING” section starting on page 23. P a g e | 6 5858846 v2
Risks     Purchasing an LLC Interest entails significant risk, including the risk that you could  lose  all  or  some  of ...
QUALIFICATION OF INVESTORS The Company will accept subscriptions only from “accredited investors,” as defined in 17 CFR §230.501, a regulation issued by the Securities and Exchange Commission, or “SEC.” An “accredited investor” means: • A natural person with income exceeding $200,000 in each of the two most recent years, or joint income with a spouse exceeding $300,000 for those years, and a reasonable expectation of the same income level in the current year; • A natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person; • A trust with assets in excess of $5 million, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person; • An entity in which all the equity owners are accredited investors; • An employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million; • A bank, insurance company, registered investment company, business development company, or small business investment company; • A charitable organization, corporation, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets exceeding $5 million; or • A director, executive officer, or general partner of the company selling the securities, or any director, executive officer, or general partner of a general partner of that issuer. We will also take steps to ensure that we do not accept subscriptions representing greater than 25% of the LLC Interests from retirement plans governed under ERISA or Section 4975 of the Code, so that the assets of the Company are not deemed “plan assets” under Department of Labor regulations. Each Investor will also be required to represent that he is purchasing his LLC Interest for his own account for investment purposes and not with a view to resale or distribution. The Company reserves the right to reject subscriptions for any reason or for no reason, at its sole discretion. P a g e | 7 5858846 v2
QUALIFICATION OF INVESTORS   The Company will accept subscriptions only from    accredited investors,    as defined in 17 ...
WHAT YOU GET: YOUR LLC INTEREST Your Right to Share in Distributions As an owner of an LLC Interest, you will have the right to share in any distributions made by the Company. Of course, there is no guaranty that the Company will make any distributions. Your right to share in a given distribution depends on whether the distribution is from (i) the normal operation of the Wells, or (ii) a “capital transaction” involving a Well, such as a sale or refinancing. Distributions from Normal Operations In the case of a distribution from the normal operation of the Wells, your share will be calculated as follows: Step One Divide your capital contribution (the amount you paid for your LLC Interest) by the capital contributions made by all Investors (if all of the LLC Interests are sold, this figure will be $3,750,000). Step Two Multiply the result of Step One by the amount of the total distribution. Step Three Multiply the result of Step Two by 42.5%. EXAMPLE: If (i) you buy an LLC Interest for $50,000, (ii) the Company raises the entire $3,750,000 it is trying to raise from investors, and (iii) it makes a distribution of $100,000 from the normal operation of the Wells. • Step One $50,000/$3,750,000 = 1.33% • Step Two $100,000 * 1.33% = $1,333.00 • Step Three $1,333.00 * 42.5%. = $566.52 (Your distribution) Distributions from Capital Transactions In the case of a distribution from a capital transaction involving the Wells, your share will be calculated as follows: Step One The Manager will calculate a percentage representing how much of the Company’s property was involved in the capital transactions, based on value. For example, if all six Wells are producing equally and three are sold, the percentage would be 50%. If two were sold the percentage would be one-third. Step Two Multiply the result of Step One by the total capital contributed by Investors (if all of the LLC Interests are sold, this figure will be $3,750,000). P a g e | 8 5858846 v2
WHAT YOU GET   YOUR LLC INTEREST  Your Right to Share in Distributions  As  an  owner  of  an  LLC  Interest,  you  will  ...
Step Three Divide your capital contribution (the amount you paid for your LLC Interest) by the capital contributions made by all Investors (if all of the LLC Interests are sold, this figure will be $3,750,000). Step Four Multiply the result of Step Three by the amount of the total distribution. Step Five If the total distribution is less than or equal to the result of Step Two, stop here. Your distribution is equal to the result of Step Four. Step Six If the total distribution is greater than the result of Step Two, subtract the result of Step Two from the total distribution. Step Seven If the total distribution is greater than the result of Step Two, your distribution is equal to the sum of (i) the result of Step Two multiplied by the result of Step Three, plus (ii) the result of Step Six multiplied by the result of Step Three multiplied by 42.5%. EXAMPLE: Suppose that (i) you buy an LLC Interest for $50,000, (ii) the Company raises the entire $3,750,000 it is trying to raise from investors, (iii) all six Wells are producing equally, (iv) two of the Wells are sold, and (v) the sale results in a distribution of $2,000,000 by the Company. The calculation: • Step One 2 / 6 = 1/3 (number of sold wells / by total number of wells) • Step Two $3,750,000 * 1/3 = $1,250,000 • Step Three $50,000 / $3,750,000 = 1.33% • Step Four 1.33% * $2,000,000 = $26,600 • Step Five • Step Six Because $2,000,000 (the total distribution) is greater than $1,250,000, proceed to Step Six. If it were smaller than $1,250,000, your distribution would be the amount in Step Four. $2,000,000 - $1,250,000 = $750,000 • Step Seven ($1,250,000 * 1.33%) + ($750,000 * 1.33% * 42.5%) =$20,864.37 $16,625 + $4,239.37 = $20,864.37 (Your distribution) P a g e | 9 5858846 v2
Step Three   Divide your capital contribution  the amount you paid for your LLC Interest  by the  capital  contributions  ...
Calculating the Amount of Distributions The amount available to be distributed by the Company is calculated as follows: Step One Gross revenues (calculated from the sale of oil, gas and other mineral products produced from Wells, or from a sale or other capital transaction). Step Two Subtract from Step One all applicable taxes, including a 4.6% Texas production tax, procured by the Texas Railroad Commission. Step Three 25% of Step Two is paid to the owner(s) of the mineral interest (who is not affiliated with HomeBound or the Company). Step Four From the remaining 75% of Step Two; subtract lease-operating expenses, including a fee to the Operator. Step Five If applicable, subtract debt service payments (debt service of the Development loan). Step Six 40% of Step Five is paid to the Company, (The Company owns 40% of the Working Interests). Step Seven From remaining 60%, Manager expenses, including legal and accounting expenses, are deducted and an amount to establish such reserve accounts, as the Manager deems necessary or appropriate, is also subtracted. Step Eight The remaining amount is then distributed to Investors as follows: 42.5% to Class “A” Shareholders, 57.5% to Class “B” Shareholders. Non-Participating Working Interests The Working Interests acquired by Investors (indirectly, through the Company) will be “non-operating” Working Interests, meaning that Investors will not be involved in the actual operation of the Wells. Instead, Mercury Operating, LLC, (which we refer to as the “Operator”), an affiliate of the Sponsor, will be responsible for all the development, management and operation of the Wells. Possible Obligation to Contribute Investors could be required to contribute more money to the Company in any of these circumstances: • The purchase price of the LLC Interests reflects our estimate of the cost of drilling, testing, equipping, and completing the Wells – we refer to these as “Well Development Costs.” If our estimates prove to be too low, and the actual Well Development costs are higher, then each Investor will be required to contribute additional money to the Company, on a pro rata basis. P a g e | 10 5858846 v2
Calculating the Amount of Distributions  The amount available to be distributed by the Company is calculated as follows   ...
• If, in the future, additional remedial work on a Well is required each Investor will be required to pay for his pro rata share. • The price of the LLC Interests does not include construction of “flow-lines” or pipelines for the transportation of oil or gas. If a given Well is found to produce oil and/or gas in commercial quantities, each Investor will be assessed a pro rata share of cost to build a pipeline or flow-line. • Investors will also be personally responsible for their share of operating costs and the taxes on production. Operating costs will be charged against revenues in accordance with generally accepted accounting principles, and in accordance with certain accounting procedures set forth in the Operating Agreement. Although the business of the Company is being conducted through a limited liability company, Investors will be personally liable for these additional funds. The obligation to contribute more money will be made on a pro rata basis. Because the Company owns 60% of the Working Interests, the Company will be obligated for 60% of the additional contributions. Each Investor will be liable for a pro rata portion of that 60% based on a fraction, the numerator of which is the amount such Investor paid for his, her, or its LLC Interest and the denominator of which is the total amount paid for LLC Interests by all Investors. If a Member fails to contribute the amount that such Member is required to contribute then he, she, or it will be personally responsible for any damages incurred by the Company as a result of such failure. For example, [Article VI.B.2(a)-(b) of the Operating Agreement with Mercury Operating LLC] imposes financial penalties on the Company if the Company fails to contribute its share of required funds. If the Company incurs these financial penalties as a result of a Member’s failure to contribute, then that Member will be personally liable for the penalties. No Right to Transfer Your LLC Interest will be illiquid (meaning you probably will not be able to sell it) for three reasons: • The Operating Agreement prohibits the sale or other transfer of LLC Interests without the Manager’s consent. • Even if a sale were permitted, there is no ready market for the LLC Interests, as there would be for a publicly traded stock such as Exxon. • Any transfer of an LLC Interest would have to comply with Federal and State securities laws. • The Operating Agreement gives the Manager a first right of refusal to buy your LLC Interest if you wish to sell it. As a result, you should plan to hold your LLC Interest indefinitely. P a g e | 11 5858846 v2
     If,  in  the  future,  additional  remedial  work  on  a  Well  is  required  each  Investor  will  be  required to p...
THE DEVELOPMENT LOAN The Sponsor has secured a loan of $[3,750,000] to fund a portion of the costs to develop the Wells. We refer to this loan as the “Development Loan.” The principal terms of the Development Loan are as follows: Principal Amount $3,750,000 Borrower Strategic Energy Assets – III, LLC (i.e., the Company) Annual Interest Rate 9.0% Interest Payments Required Interest is payable on a quarterly basis. Principal Payments Required All principal is payable in a balloon at the end of the third year. However, the Company has the right to extend the maturity date for up to two years. Security The loan is secured by 100% of the Working Interests and is full recourse to the Company. Prepayments Required If HomeBound Resources, LLC sells any part of its Working Interests, then a proportionate amount of the principal of the loan must be prepaid. For example, if HomeBound Resources, LLC sells its entire 40% Working Interest, then 40% of the principal must be prepaid. The actual loan documents are available on request. PARTICIPATION AGREEMENT AND JOINT OPERATING AGREEMENT Participation Agreement The Company has entered into an agreement with HomeBound Resources, LLC, our Sponsor, captioned “Participation Agreement” and dated September 15, 2016. The Participation Agreement sets forth the terms upon which the Company acquired its interests in the Working Interests and other related matters. A copy of the Participation Agreement is available upon request. Joint Operating Agreement When a Well begins to produce, the Company will enter into a Joint Operating Agreement with Mercury Operating, LLC, the Operator, pursuant to which the Operator will assume responsibility for the actual operation of the Wells and will be entitled to an operating fee in the amount of $2,500 per producing well per month, in addition to actual operating expenses incurred in developing and operating the wells. The Joint Operating Agreement also sets forth a number of other terms of the relationship, including the obligation to contribute additional funds. A copy of the form the Company expects to enter into with the Operator is available upon request P a g e | 12 5858846 v2
THE DEVELOPMENT LOAN   The Sponsor has secured a loan of   3,750,000  to fund a portion of the costs to develop the Wells....
THE SPONSOR AND ITS BUSINESS HomeBound Resources HomeBound Resources, LLC, which we refer to in this section as “HBR” or the “Sponsor,” is a Texas limited liability company involved in the production, development and exploration of multiple oil and gas projects in Texas and Louisiana. The primary focus of HBR is the exploration of new wells, but the company also considers exceptional opportunities in production and workover projects. The ability to identify and combine projects with varying risk levels – including production, workovers, development drilling, and low-risk exploratory wells – creates the potential for significant returns while mitigating risk typically associated with pure exploration programs. HBR has assembled a top-tier management team, with decades of combined experience and a proven track record of success in the oil and gas industry. With seasoned professionals in operations, finance and business, together with highly experienced engineers, geologists, and geophysicists, HBR is poised for success and growth. Technology – Old vs. New The technological advances in subsurface identification and well log data can be summed up by one word: resolution. Today’s logging equipment provides a much more detailed analysis of rock formations and the presence of hydrocarbons within those formations than the technology used a decade ago. Older logs were typically run on a five- or even ten-foot scale, often missing the subtle changes in formation porosity and resistivity indicative of hydrocarbon presence. Current technology allows for logs to be run on a onefoot scale, providing greatly improved resolution. This allows a closer, more in depth analysis of the subsurface geology, and provides more accurate data used in calculating the thickness of a pay zone or formation change. Additional advances have been made in instrument sensitivity and reliability. The result provides a “higher definition” picture of the subsurface formations and the presence of oil or gas within those formations. Zones that once showed to be nonproductive or noncommercial are often re-evaluated and found to be financially viable. P a g e | 13 5858846 v2
THE SPONSOR AND ITS BUSINESS   HomeBound Resources  HomeBound Resources, LLC, which we refer to in this section as    HBR ...
SUMMARY OF THE OPPORTUNITY Location of Drilling and Exploration In this project, the Sponsor will identify and complete up to six well sites. Well sites 1, 2 and 3 will be located in Marion, Harrison and Nolan Counties in East and Central Texas, respectively, about 120 to 150 miles east of the city Dallas. Well sites 4 and 5 will be located in Nolan and Fisher Counties, respectively, in north-central Texas. Well site 6 will be located in central Concho County in West Texas. The Sponsor has already identified several potential well locations on the leases through various stages of engineering and geological analysis. Funds will cover lease/land expense for all six-drill sites, drilling and completion for the six wells, lease infrastructure and all necessary rights of way. However, Sponsor has the right to change location mid-stream if it deems better outcome for the package. The Prospect Area Concho and Menard Counties are situated in Central-West Texas, about 30 to 45 miles SE of San Angelo, and also approximately halfway between Midland and Austin, Texas. The surface is semi-flat topography, covered mostly with Mesquite and Scrub Oak trees. P a g e | 14 5858846 v2
SUMMARY OF THE OPPORTUNITY  Location of Drilling and Exploration  In this project, the Sponsor will identify and complete ...
In the prospect area, structural mapping on the top of the Ellenburger, and on the lower Strawn horizons, all show a general strike direction trending NNE-SSW, with very low gentle dip rates (approx. 120’/mile, est. 1°-3° dips) down-dip to the WNW. Isopach mapping between these intervals show a general thickening in the WNW down-dip direction, which is towards the middle of the West Texas basin. Regional knowledge of this area, as well as a rough statistical analysis of the nearby surrounding productive fields, shows a strong production lineation preference along the strike axis direction of NNESSW. This production orientation, in conjunction with prior geologic studies, suggests that much of the hydrocarbon pay in this area is more stratigraphic in nature (figure 3), along with minor structural influences upon pay accumulations. This suggests that sedimentary deposits were greatly influenced by the orientation of the prior substrate, and that a lot of the local fields are “strand-line” type deposits that parallel the Paleo shorelines. This is a common expected sedimentary geometry found in shallow marine conditions. These data strongly indicate possible production at a deeper interval than was previously tested in this area. Based in this geology, the Operator, drilled the Pfluger 1 well on October 9th, 2015 and encountered a productive 22 feet of Detrital Sandstone formation. This well was tested and to date has averaged 60 bbls of oil per day with minimal water. During logging of Pfluger 1, a formation micro-imaging log was run in conjunction with a dip meter. These tools agree with the geology and indicate the Detrital formation was deposited in a NNE-SSW orientation. The Sponsor has derived similar geological evaluations as the above-mentioned Mercury Pfluger 1 on two other prospects. One of these prospects is in Concho County and the other is in McCulloch County. The Concho County prospect is targeting the Strawn Series and Ellenberger formations, while the Menard County prospect is targeting the Canyon Sands, Strawn Series and Ellenberger formations. The Company will consist of wells offsetting the Detrital production identified in the Mercury Pfluger 1, as well as testing the geological data in the above mentioned Concho or Menard County and/or wells offsetting the Rodessa production identified in the Edlridge 3 well in Marion County as well as testing the geological data on the lease (site to be determined). The Cypress Bayou Prospect is geographically situated in far NE Texas, in central Marion County, just SW of the Town of Jefferson, Texas. Geologically, this prospect is inside the southwestern most productive closure, and lowest structural part, of the very famous giant “Rodessa Field” (figure 4). The oil and/or gas produced from the Wells will be sold on a competitive basis to third parties, such as pipeline companies, gathering companies, refineries, or major oil companies and utilities. The area in which the Wells are to be drilled has pipeline infrastructure already in place. P a g e | 15 5858846 v2
In  the  prospect  area,  structural  mapping  on  the  top  of  the  Ellenburger,  and  on  the  lower  Strawn  horizons,...
The giant “Rodessa Field” complex, which straddles the Texas / Louisiana State line, was originally discovered in Louisiana in 1930, and in Texas in 1937. The Rodessa Field complex is a massive anticline that runs SW-NE across Marion and Cass Counties, and into Caddo Parish, Louisiana. It is approx. 40 miles long, and approx. 3-5 miles wide. This famous early Rodessa field is the “Type Area”, where there are 6 different productive Rodessa “bars” or “lobes”. This is also where the different Rodessa bars got their individual names that have been used since, in all further exploration and development across Texas and Louisiana. The field is primarily an oil field, with about 3 specific areas that are smaller separate closures in the overall structure where there is a significant “gas-cap” or “gassier” part of the oil accumulation. One of the 3 gassier areas is near the field apex, which straddles the state lines of Texas and Louisiana, the second is in the immediate area around the town of Jefferson, and the third is right in the middle of the Cypress Bayou prospect area. As with a lot of the early oil and gas fields of this area, a lot of the early production data has not been well documented, and most of the data figures used today are quite understated. In 1951, the University of Texas issued a comprehensive report on the field, providing the following information: As of 1939, the field had produced over 102,000,000 BO + over 556 BCFG from approximately 1045 oil wells, and 138 gas wells. This equates to an early average of over 98,036 BO/well for the oil wells, and over 4.03 BCFG /well for the gas wells. By 1949, the field had produced over P a g e | 16 5858846 v2
   The  giant     Rodessa  Field     complex,  which  straddles  the  Texas     Louisiana  State  line,  was  originally  ...
159,000,000 BO from approx. 1045 wells, and over 1.045 TCFG of gas from 156 gas wells. This equates to an early average of over 152,709 BO/well for the oil wells, and over 6.69 BCFG/well for the gas wells. The field complex has incorporated about a dozen smaller field names into the whole, but the other field names used in the Cypress Bayou prospect area are the “Vicki-Lynn” (down-dip oil leg), and the “Wallace-Johnson” (crestal gas cap area) fields. With the exception of the Vicki Lynn and Wallace Johnson areas, the rest of the field has had long established production from all 6 bars of the Rodessa, as well as the Pettet limestone, and deeper Travis Peak sands. There is also a considerable part of the field where Cotton Valley sands are being produced. The Pettet at Jefferson has several wells reported to have made in excess of 13 BCFG, in addition to over 8-10 BCFG + 100,000 BO/well from the Travis Peak sands. History shows this to be some the best vertical Travis Peak production in all of east Texas. The “Vicki-Lynn” and the “Wallace-Johnson” parts of this field have had a somewhat unique development history, primarily due to their being developed by two very wealthy and infamous families of the East Texas area. The Manziel Family of Tyler developed the Vicki Lynn area, while the Whelan family of the Marshall/Jefferson area developed the “Wallace-Johnson” area. The Vicki Lynn area has produced in excess of 2,395,236 BO + 1,069,271 BCFG from approximately 23 wells primarily from just the uppermost “Hill” and “Neugent” sandy limes at the top of the Rodessa. This equates to an average well having produced over 104,140 BO/well, from just the Hill and Neugent. The lower Rodessa has really not been produced here with the exception of just a few wells, and those are mostly in the ”gassier” Wallace Johnson part of this smaller closure. Those Wallace Johnson wells were mostly drilled in the 1950’s, when gas was not a viable marketing commodity and because of such those wells only produced a short time with minor cumulatives. The prospect area was mostly developed during the 50’s, with very little drilling later. On the Manziel lease, Bobby Manziel drilled just 10 wells there in 1956 before passing away, leaving further development to the wife and several children, whom knew very little about the oil business. Review of the few wells which penetrated the lower Rodessa / Pettet / Travis Peak, show that almost all those lower Rodessa bars appear to be productive, as well as the Pettet, and Travis Peak sands. There were four important wells drilled in the Vicki Lynn oil part of this prospect area. The first being the Whelan, #1 Fuller well drilled in 1956. This is one of the few wells that penetrated down to the uppermost Travis Peak section. The #1 Fuller shows a well-developed, probably productive, Hill, lower Gloyd, upper and lower Deese, Pettet, and 2 anomalous Travis peak sands. The second well was the Whelan #4 Eldridge, drilled in 1986, which tested the Pettet @ 5 MMCFG/day, and produced 10,571 MCFG + 4,948 BO from the Pettet. The third is the Whelan #3 Eldridge well (drilled 1984) which tested the Deese for 123 BO + 737 MCFG + 20 BW. The #3 Eldridge is a real enigma because no production records have been found for this well, in spite of this excellent test. The fourth is a well drilled by Petroven in August, 1984. The Petroven #1 Deware well offset the early R. Lacy #1 Deware 1946 well that was plugged. The 1946 well had an upper Travis peak sand that appeared to be pay. The Petroven #1 Deware tested that upper Travis Peak sand, and produced .64 BCFG + 8,995 BO, from a single 5' thick sand that had 15% cross-plot porosity. This indicates that the lower Rodessa bars, the Pettet, and some of the Travis Peak are already proven productive in the prospect area, even though no other completions were attempted. P a g e | 17 5858846 v2
159,000,000 BO from approx. 1045 wells, and over 1.045 TCFG of gas from 156 gas wells. This equates  to an early average o...
Three recent wells drilled in the prospect area in the last few years have tested the lower Rodessa, and Travis Peak sands producing exceptional initial rates. These wells have excellent mud logs and the logs show most of the Rodessa, the Pettet, and across numerous sands in the Travis Peak. These wells are still producing, and there is an ongoing extensive development program by their operator, as well as the building of a gas pipeline to accommodate a large amount of gas that had been vented for the prior 2 years. This proves the existence of additional reserves in the prospect area in the other 5 lower Rodessa bars, the Pettet, and the Travis Peak. There is easily probably over an additional 3,000,000 – 8,000,000 BO left to recover in the prospect area, as well as 5-30 BCFG. In the Cypress Bayou prospect, the Sponsor will target all of the Rodessa bars, the Pettet, and even the Travis Peak. Nearby horizontal drilling for the Pettet by another operator has resulted in wells currently producing in the 150-250 BOPD range. All of the Rodessa, Pettet, and Travis Peak will be candidates for both Vertical and Horizontal drilling applications. Sponsor has also identified well locations in Nolan County, Texas. The Estaban Prospect is a field extension and further development of the Estaban Pennsylvanian Reef and Ellenburger Field in Nolan County, Texas. It is approximately 3 miles southwest of Sweetwater, Texas and geologically located on the Eastern Shelf of the Permian Basin. The field was discovered by C.L. Norsworthy in 1955 with the completion of the #1 L.S. Howard in the SE corner of section 66. Completed in the Ellenburger flowing 149 BOPD, the well was later plugged back and completed in the Pennsylvanian Reef flowing 156 BOPD. It ultimately made 131,193 barrels of oil before being plugged. After drilling four wells, Norsworthy sold to U.S. Smelting and Refining Company in 1956 and they developed the field further. The original field was comprised of 10 reef wells and 4 Ellenburger wells which produced 799,986 barrels of oil and averaged 53,786 BO/WELL from the reef and 65,531 BO/WELL from the Ellenburger respectively. This original part of the field has been completely plugged out. Since then, additional wells have been drilled on the flanks of the field adding an additional 700 MBO. Like most fields on the Eastern Shelf, the Estaban Field is oriented on a Northeast-Southwest axis. This axis is usually parallel to strike of the Eastern Shelf and consists of deeper faults or flexures. Photogeologic-geomorphic evaluation maps prepared by TGA of Denver in 1976, show Estaban to be in a probable fault zone and adjacent to or on a local fault with dip reversal on surface beds. Estaban Reef, at a measured depth of 6200’, consists of several small anomalies about 160 acres in size, only one of which appears to have been fully developed. The Structure Map on top of the reef porosity shows 2 closures (one in the SE/4 of section 66 and one in the S/2 of 65) that may have 3 additional development locations each, for the Pennsylvanian Reef. These locations anticipate either being high to previous producers or at a distance in which previous producers have not adequately drained the acreage. One interesting observation about the anomaly in section 66 is the fact that the U.S. Smelting #3C Howard (labeled “3WD” on some maps) located in the SW/4 of section 66 was D&A. However, they drill stem tested the reef porosity and had GTS in 54”, recovered 600’ HO&GCM, 690’ SW, with good flowing and shut-in pressures. This is probably the original oil/water contact for this feature. If this well is on the P a g e | 18 5858846 v2
Three recent wells drilled in the prospect area in the last few years have tested the lower Rodessa, and  Travis Peak sand...
west flank of the structure in question and connected to the wells to the east, there is a significant amount of oil yet to be recovered. With a subsea of -4058’, this porosity is 86’ low to the productive porosity in the discovery well to the east. Many producing wells that DST’d the reef did not have recoveries or pressures as good as the #3C, yet produced in excess of 50 MBO. Porosities can produce from as little as 5% if good microlog permeability is present. The gravity of the reef oil is 45* API with GOR averaging 1100:1. FINANCIAL PROJECTIONS The Company has prepared financial projections illustrating a possible outcome of acquiring an LLC Interest. It is critical to note, however, that these projections are based on, and depend on, a number of assumptions about what will happen in the future. While we believe our assumptions are cautious, there are many factors that could cause our actual results to differ than the projections, including but not limited to (i) a failure to discover productive wells within our target geographic area, (ii) lower-thanexpected energy prices, (iii) higher-than-expected development costs, and (iv) environmental regulations. For a more complete list of the things that could go wrong, and cause the projections to be inaccurate, see the “RISKS OF INVESTING” section starting on page 23. P a g e | 19 5858846 v2
west  flank  of  the  structure  in  question  and  connected  to  the  wells  to  the  east,  there  is  a  significant  ...
THE SPONSOR’S TEAM Stefan Toth – Chairman and Chief Executive Officer Stefan Toth is a distinguished entrepreneur with over 20 years of experience in strategic planning and company growth in both the energy and real estate industries. As Chairman and CEO Stefan provides leadership and strategic vision to the HB team. Ted Etheredge – President and Chief Operating Officer Ted Etheredge is the former CEO of ARMtech Insurance Services, Inc. the 5th largest publicly traded crop insurance company in the nation. Ted brings 30 years of involvement in oil and gas investing to the HB management team. He is responsible for operational management, oversight of the day-to-day operations, and handles all compliance issues for the company. Tony Gossett – Operations Manager/ Petroleum Engineer Tony Gossett has over 20 years of experience in oil and gas production in a variety of geographical areas across Texas, Louisiana, Mississippi and Alabama. As operations manager Tony develops and oversees drilling, completion and workover procedures. He has worked for both independent and publically traded oil and gas operators in varied position from drilling design to production facility design, focusing on revitalization of older fields and increased production. Pablo Cortez – Executive Vice President, Business Development and Finance Pablo Cortez brings extensive experience in the energy sector including oil and gas exploration and renewable energy. As the Business Development and Finance lead, Pablo Cortez is responsible for acquisition and divestitures, as well as budgeting and reserves. Prior to joining HB, Pablo worked for a boutique oil and gas development firm in Dallas, assisting in acquisitions. Cortez holds a bachelor’s degree in finance and management from the University of Texas at Arlington. P a g e | 20 5858846 v2
THE SPONSOR   S TEAM  Stefan Toth     Chairman and Chief Executive Officer  Stefan Toth is a distinguished entrepreneur wi...
STRATEGIC PARTNERS Michael S. Willey – Geologist/Geophysicist – Alpine Exploration Michael Willey is manager director of Alpine Exploration, LLC and is a registered, licensed and certified (by the Texas Board of Professional Geologists) geologist/geophysicist. During his career, Mr. Willey has served as the senior geoscientists for numerous oil and gas companies and is credited with numerous field discoveries in East Texas and the Gulf Coast. Mr. Willey provides expert analysis of reservoir data and recommendations on prospect selection and analysis. Roger A. Crabb - Scheef and Stone, LLP - Legal Counsel Roger Crabb is a seasoned corporate attorney, with extensive industry experience including technology, energy, management consulting and investments, and over 25 years of experience negotiating and documenting corporate transactions. Mr. Crabb advises clients on matters involving acquisitions and other commercial transactions, SEC compliance and periodic filings, financings, risk management and insurance, employment-related matters, general contract law, corporate ethics and compliance programs and corporate governance. Prior to joining Scheef & Stone, he served as Director of Legal Affairs, Global Corporate, for Network Associates, General Counsel, Secretary and Executive Committee Member for Thomas Group and Associate General Counsel for Triton Energy. Warren Taryle – Taryle and Associates – Certified Public Accountant Warren Taryle is a Certified Public Accountant and founder of Taryle and Associates, CPAs, PLLLC. He specializes in working with real estate investors, entrepreneurs, and wealth builders. Thomas J. Powell – Financial Consultant Tom Powell is a leading financier with expertise in investment banking, commercial banking, mortgage banking, alternative asset management, corporate finance and governance. Powell’s background includes a proven track record in raising private and institutional capital, investment and credit risk analysis, risk mitigation, portfolio management, distressed debt recovery, and deal structure. Powell’s career began in 1988 in Silicon Valley at Wells Fargo Bank, where he was named the youngest Vice President in the Company’s then 140-year history. Most recently, Powell founded and successfully grew a diversified private investment company, Resolute Capital Partners (f/k/a ELP Capital), an alternative investment firm specializing in serving middle market borrowers and real estate developers. With his combined education and experience, Powell has been able to lead several companies through cyclical market growths and contractions for maximum profitability. P a g e | 21 5858846 v2
STRATEGIC PARTNERS  Michael S. Willey     Geologist Geophysicist     Alpine Exploration   Michael Willey is manager direct...
OUR FEES AND DISTRIBUTIONS The Sponsor and its affiliates will be entitled to the following fees and distributions from the Company: • The Sponsor, HomeBound Resources, LLC, will own 40% of the Working Interests. • Mountain High Capital, LLC, a Holding Company managed by Resolute Capital Partners, LTD., will own 57.5% of the Company. • The Operator, which is an affiliate of the Sponsor, will be entitled to an operating fee in the amount of $2,500 per producing well per month, in addition to actual operating expenses incurred in developing and operating the wells. WealthForge Securities, LLC will deduct and retain ½%, (50 basis points) from Gross Proceeds of this Offering, and is authorized to enter into selling agreements with broker-dealers who are members of FINRA (“Selling Group Members”) to sell Units in this Offering. WealthForge will receive selling commissions (the “Selling Commissions”) in an amount up to 9.5% of the purchase price of the Units it sells (the “Total Sales”), which it will re-allow to the Selling Group Members; provided, however, that this amount will be reduced in the event a lower commission rate is negotiated by WealthForge and the commission rate will be the lower agreed upon rate. The total aggregate amount of commissions, expense reimbursements and placement fees (the “Selling Commissions and Expenses”) will not exceed 10% of the Total Sales. The Company will be responsible for paying all Selling Commissions and Expenses to WealthForge. USE OF PROCEEDS Proceeds will be used to purchase 60% Working Interest in six turnkey wells as identified by the offering. • CENTRAL - TEXAS Well sites have been identified in Concho and McCulloch Counties situated in Central – West Texas. These wells will target the Strawn Age Sands & Lime Stone as well as the Ellenburger formations. • NORTH - CENTRAL TEXAS Well sites have been identified in Baylor, Nolan and Fisher Counties in north-central Texas. The wells in these location will target the Canyon, Pennsylvanian Reef and Ellenburger Field. A well drilled by HB in 2015 near this location has averaged 60 BOPD (barrels of oil per day) with minimal water disposal required. • EAST TEXAS Well sites also sit in central Marion County in east Texas. This prospect, called Cypress Bayou, is inside the southwestern most productive closure, and lowest structural part, of the Rodessa Ridge. Most of the development in the prospect area was conducted in the 1950’s, with very little drilling later. This provides an excellent opportunity to utilize new technology to identify and extract oil and gas. Recent nearby horizontal drilling by another operator has resulted in wells producing in the 150-250 BOPD range. P a g e | 22 5858846 v2
OUR FEES AND DISTRIBUTIONS   The Sponsor and its affiliates will be entitled to the following fees and distributions from ...
RISKS OF INVESTING THE PURCHASE OF LLC INTERESTS IS SPECULATIVE AND INVOLVES SIGNIFICANT RISK, INCLUDING THE RISK THAT YOU COULD LOSE SOME OR ALL OF YOUR MONEY AND/OR WILL BE REQUIRED TO CONTRIBUTE MORE CAPITAL. THE PURCHASE OF LLC INTERESTS IS SUITABLE ONLY FOR INVESTORS WHO FULLY UNDERSTAND AND ARE CAPABLE OF BEARING THE RISKS. SOME OF THE RISKS ARE DESCRIBED BELOW. THE ORDER THESE RISKS ARE DISCUSSED IS NOT INTENDED TO SUGGEST THAT SOME RISKS ARE MORE IMPORTANT OR MORE LIKELY THAN OTHERS. No Guaranty of Distributions: There is no guaranty that we will be able to make any distributions or, that Investors will not lose their entire investment. Speculative Nature of Oil and Gas Exploration: The value of your LLC Interest will depend on the Sponsor’s ability to locate and successfully develop producing oil and gas wells on a cost-effective basis. Oil and gas exploration is by nature highly speculative, for example: • The selection of leases and drill sites and the drilling of wells are not exact sciences, and require a great deal of time and investment. • The ratio of productive oil and gas wells is very low relative to the total number of wells drilled. When the Sponsor drills a well, they might not find any oil or gas, or might not find enough to turn a profit. • Even though a well may be drilled in an area adjacent to known and existing production, there is no assurance that the well will be productive. • A promising well can be ruined due to technical or mechanical failures. • Even after a well is successfully drilled to the required depth, and tests indicate hydrocarbon-bearing formations with sufficient porosity and permeability to warrant completion, there is still no assurance the well will be successful. • The value of a well cannot be determined even after it begins to produce. The rate of future production cannot be determined with reasonable accuracy until and unless the well has a history of continuous production over a period of time sufficient to provide a reservoir engineer with data upon which an evaluation can be reasonably based. Obligation to Contribute More Capital: Investors could be required to contribute more money to the Company in several circumstances, including (i) cost overruns in drilling, testing, equipping, and completing the Wells, (ii) remedial work on a Well is required, (iii) pipelines or flow-lines must be built, (iv) operating expenses exceed operating revenue, or (v) the wells experience an uninsured loss. There is no limit to the amount you could be required to contribute. P a g e | 23 5858846 v2
RISKS OF INVESTING   THE  PURCHASE  OF  LLC  INTERESTS  IS  SPECULATIVE  AND  INVOLVES  SIGNIFICANT  RISK,  INCLUDING  THE...
Crude Oil, Natural Gas, and Other Commodity Prices Are Highly Volatile: The value of the wells will depend in significant measure on the price of oil and gas – the higher the price of oil and gas, the higher the value of the wells. Energy prices are highly volatile, influenced by factors that include, but are not limited to (i) consumer demand; (ii) national and international economic conditions; (iii) geopolitical conditions; (iv) production by other suppliers, including those affiliated with the Organization of Petroleum Exporting Countries (OPEC); and (v) governmental regulations and taxes. Oil Prices Today Are Very Low: Today, the price of oil is at or near historic lows. If today’s prices remain in effect for an extended period the wells would likely have lower value, and possibly not enough value to justify selling proven reserves. Therefore, the success of the Company is significantly dependent on the price of oil. Our Operations Are Subject To Numerous Hazards and Risks: Drilling, producing, and transporting crude oil and natural gas can be a very hazardous. The risks include, but are not limited to (i) well blowouts, explosions, and cratering; (ii) pipeline or other facility ruptures and spills; (iii) fires; (iv) geological formations with abnormal and dangerous pressures; (v) equipment malfunctions; (vi) severe weather; and (vii) surface spillage and surface or ground water contamination from petroleum constituents, saltwater, or hydraulic fracturing chemical additives. Any of these risks could lead to property damage, personal injury (including death), environmental pollution, and other damages for which the Company, the Sponsor and/or the Operator could be liable, as well as a prolonged or even permanent interruption of production. Our Wells Might Not Be Productive: The Sponsor will attempt to select wells in historically productive geological areas or areas of new potential. However, there can be no assurance that the wells chosen will be economically viable or will yield financial results similar to other wells producing oil and gas in the same geological are. There Can Be No Assurance of Adequate Insurance Coverage: We will try to ensure that the Operator and the contractors hired by the Sponsor or Operator carry adequate insurance, but there is no assurance that we will be successful. Capital Requirements and Expenditures: Oil and natural gas exploration and production is very expensive and capital-intensive. The Company and/or Sponsor might need to raise additional capital in the future, in the form of either debt or equity. Additional capital may be raised through debt (borrowing money) or through equity (selling interests in the Company) or both. However, there is no assurance that additional capital will be available at the time it is needed, and if the Company needs but cannot obtain additional capital the Project could fail. Even if additional capital is available, it may be on terms that are adverse to the interests of Investors. A loan, for example, could bear a high interest rate or other onerous terms, while raising additional capital in the form of equity could dilute the interests of Investors. P a g e | 24 5858846 v2
Crude  Oil,  Natural  Gas,  and  Other  Commodity  Prices  Are  Highly  Volatile     The  value  of  the  wells  will  dep...
Our Leases Could Have Title Defects: The Sponsor will not obtain title insurance on the leasehold interests or other oil, gas and mineral interests they acquire. While the Sponsor will exercise normal procedures and take prudent precautions in the acquisition and assignment of the leases or interests, the Company could incur losses as a result of title defects or from defects in the assignment of rights. We Are Subject to Stringent Regulatory Requirements: The Oil and Gas business is subject to a variety of health, safety, and environmental laws, rules, and regulations, including those concerning (i) the containment and disposal of hazardous substances, oilfield waste, and other waste materials; (ii) radioactive materials; (iii) underground storage tanks; (iv) underground injection wells; and (v) worker safety. Should the Sponsor or Operator violate any of these laws, rules, or regulations, the Manager, Sponsor, Operator, and Company could become subject to administrative, civil, and criminal penalties, the revocation of our permits to conduct business, and corrective action orders, including orders to investigate and/or clean up contamination, among other sanctions. Moreover, the regulations that govern our industry change frequently. Consistent Revenue Distributions May Not Be Possible: There are a number of factors that could cause a delay in the beginning or continuance of revenue distributions, including, but not limited to, title defects, completion problems, problems with well production equipment, compression problems, pipeline space availability, availability of oil and gas markets, acceptable price considerations, and regulatory or environmental concerns. Competition from Alternative Energy Sources: Technological advances and alternative energy sources, such as solar energy and electric, hybrid or battery powered motor vehicles, rising efficiency and fuel economy standards, and increased conservation efforts, may adversely affect the demand for oil and natural gas. Reliance on Operator: Investors will not have any right to manage or control the operations of the wells. Instead, the Operator will control all aspects of the development and production of the wells. Therefore, Investors should purchase an LLC Interest only if he/she/they are willing to rely on the ability and judgment of our Operator and our Sponsor. If members of our Sponsor or Operator resign, die, or become ill, Investors could suffer. The Value of the LLC Interests Will Depend On Our Ability to Acquire Profitable Leases: The value of the Company’s Prospects, and thus your LLC Interest, will depend on the Sponsor’s ability to identify, acquire, and successfully develop oil and gas wells. There is no guaranty that the Sponsor will be able to identify or execute upon suitable investment opportunities, or that any well selected by the Sponsor will be successful in generating sufficient oil and gas on a cost effective basis. The Sponsor will face significant competition from many other companies that invest in oil and gas assets, which could limit the number of suitable investment opportunities available. This may also result in higher prices, making acquiring new well leases on attractive terms more difficult. As a result, the Company may not be able to execute on our investment strategies and objectives. P a g e | 25 5858846 v2
Our  Leases  Could  Have  Title  Defects     The  Sponsor  will  not  obtain  title  insurance  on  the  leasehold  intere...
Reliance on Third Parties: Pursuant to the terms of the Operating Agreement, the Operator will contract with various providers of goods and/or services necessary to drill, test, complete and operate each well. Delays or non-performance by our contractors could negatively affect the performance of the wells and thus the value of your LLC Interest. Disputes with Vendors – Effect of Liens: From time to time disputes may arise with vendors with whom the Operator contracts for goods and/or services. For example, the Operator may dispute certain charges reflected on invoices tendered by a vendor, question the workmanlike manner in which the services were performed, or challenge the quality of the goods or equipment provided. When a dispute cannot be resolved amicably, a lawsuit may be filed to resolve the dispute. A vendor who have provided goods and/or rendered services could be permitted, under applicable law, to file a lien with respect to a well, in order to perfect a lien claim pending resolution of the dispute. If proper notice is filed of record by a vendor, the existence of the lien will be preserved and could permit the vendor, upon the exercise of judicial or administrative remedies, to suspend the disbursement of production proceeds, to seize the applicable mineral leases, or to seize the well and its associated equipment in order to secure the amount of the claim. If a given lien is ultimately determined to be valid, it could ultimately permit the vendor to satisfy its claim out of production proceeds, the value of the mineral leases or the value of the well and its equipment. Lack of Diversification: The Company’s business will be concentrated in the oil and natural gas sector and will be focused in a select geographic market, increasing the risk of loss to Investors if these markets experience a downturn. The Company Has No Track Record: Although the principals of the Manager, Sponsor and Operator and have been involved in the oil and natural gas industry for many years, the Company itself does not have a track record upon which Investors can gauge or predict its financial performance. Oil and Gas Assets Are Illiquid: Interests in oil and gas leases are not as liquid as other types of assets. As a result, our ability to sell under-performing assets or respond to changes in economic and other conditions may be relatively limited. Incomplete Due Diligence: The Sponsor will perform “due diligence” on the oil and gas assets purchased, meaning they review some of the available information about the assets. As a practical matter, however, it is simply impossible to review all of the information about a given asset (or about anything) and there is no assurance that all of the information we have reviewed is accurate. For example, sometimes important information is hidden or unavailable, or a third party might have an incentive to conceal information or provide inaccurate information, and the Sponsor cannot independently verify all the information it receives. It is also possible that the Sponsor may reach inaccurate conclusions concerning the information reviewed. Uninsurable Losses: Both the Sponsor and the Operator will maintain insurance against certain kinds of losses pertaining to the operation of the wells, but there are certain types of losses which either cannot be insured or cannot be insured at a reasonable cost. P a g e | 26 5858846 v2
Reliance  on  Third  Parties     Pursuant  to  the  terms  of  the  Operating  Agreement,  the  Operator  will  contract w...
No Market for the LLC Interests, Limits on Transferability: There are at least four obstacles to selling or otherwise transferring your LLC Interest: • There will be no public market for your LLC Interest, meaning you could have difficulty time finding a buyer. • The Limited Liability Company Agreement prohibits you from transferring your LLC Interest without the consent of the Manager. • If you want to sell your LLC Interest, you must first offer it to the Manager. • By law, you may not sell your LLC Interest unless it is registered under applicable securities laws or the transfer is eligible for an exemption from registration. Taking all that into account, you should plan to own your LLC Interest indefinitely. No Registration Under Securities Laws: Neither the Company nor the LLC Interests will be registered with the SEC or the securities regulator of any State. Hence, neither the Company nor your LLC Interest is subject to the same degree of regulation and scrutiny as if the LLC Interests were registered. Incomplete Offering Information: The LLC Interests are being offered pursuant to 17 CFR 230.506(b), a regulation issued by the SEC. Rule 506(b) does not require the Manager to provide all of the information that would be required in some other kinds of securities offerings, such as a public offering of shares. Although the Manager has tried to provide all the information believed necessary to make an informed decision, and the Manager is ready to answer any questions, it is possible that you may make a different decision if information was available. Lack of Ongoing Information: The Company will provide periodic statements concerning the status, operations and results of the wells, but will not provide audited financial statements or other detailed information. Our Operator’s Fees will Reduce Investor Returns: The Operator may charge industry standard fees to the Company, which may be significant, which would reduce the amount of net operating revenues available for distribution to Investors. Conflicts of Interest: Your interests as an Investor could conflict with the interests of our Sponsor in a number of important ways, including these: • Your interests might be better served if the principals of our Operator and Sponsor devoted their full attention to the Company’s business. Instead, they will be managing a number of different projects concurrently. • Although we believe the fees and other compensation payable to the Sponsor and its affiliates represent fair value for the services provided, these fees were not the result of arm’s length negotiation. P a g e | 27 5858846 v2
No Market for the LLC Interests, Limits on Transferability   There are at least four obstacles to selling or  otherwise tr...
• The lawyers who prepared this Disclosure Document, the Operating Agreement, the Purchase and Subscription Agreement, and the other documents related to your investment in the Fund represent the Company. You must hire your own lawyer (at your own cost) if you want your interests represented separately. Limitations On Rights in Investment Agreement: To purchase an LLC Interest, you are required to sign our Investment Agreement. The Investment Agreement will limit your rights in several important ways if you believe you have claims against the Manager arising from the purchase of your LLC Interest: • In general, your claims would be resolved through arbitration, rather than through the court system. Any such arbitration would be conducted in Wilmington, Delaware, which might not be convenient for you. • You would not be entitled to a jury trial. • You would not be entitled to recover any lost profits or special, consequential, or punitive damages. • If you lost your claim against the Manager, you would be required to pay the Manager’s expenses, including reasonable attorneys’ fees. If you won, we would be required to pay your expenses. Possible Treatment as Passive Activity: If the Company were treated as a “passive activity” to Investors pursuant to section 469 of the Internal Revenue Code, some Investors might not be entitled to current deductions for the operating costs and “intangible drilling costs” incurred by the Company. Because Investors are personally responsible for the debts and obligations of the Company, we believe that the Company should not be treated as a “passive activity.” However, there can be no assurance that our position would be sustained if challenged. Tax Audit Risks: Investing in an oil and gas program may make it more likely that an Investor’s tax returns will be examined by the IRS. Any such examination may result in disallowance of any or all of the tax deductions and benefits associated with investment in the program, and may also involve examination and disallowance of items on the Investor’s returns not associated with the program. The cost of any such examination, and of any legal proceeding instituted to contest the results of any such examination, will be borne by the Investor, even if the examination is triggered by an investment in the Company. THE FOREGOING ARE NOT NECESSARILY THE ONLY RISKS OF INVESTING. PLEASE CONSULT WITH YOUR PROFESSIONAL ADVISORS. P a g e | 28 5858846 v2
     The  lawyers  who  prepared  this  Disclosure  Document,  the  Operating  Agreement,  the  Purchase  and  Subscriptio...
LIMITED LIABILITY COMPANY AGREEMENT The following summarizes some of the key provisions of the Company’s Limited Liability Company Agreement. This summary is qualified in its entirety by the actual Limited Liability Company Agreement. Formation and Ownership The Company was formed in Delaware pursuant to the Delaware Limited Liability Company Act. The Company will be initially only owned by Investors and Resolute Capital Partners, LTD. (“RCP”). However, if Investors contribute less than $3,750,000 to the Company the Manager has the right to admit additional investors. These additional investors might be offered more attractive terms than are being offered to Investors pursuant to this Confidential Investor Disclosure Document. The owners of the interests in the Company are referred to as “Members” and the membership interest in the Company owned by a Member is sometimes referred to as an “Interest.” The term “Interests” includes and refers to any or all of the LLC Interests, the interests owned by any additional investors, and the interest owned by RCP. Management Resolute Capital Partners, LTD., which we refer to as the “Manager”, will manage the Company and its business. The Manager has complete discretion over all aspects of the Company’s business. For example, the Manager may (i) admit new Members to the Company, (ii) sell or refinance any of the assets of the Company, including the wells, (iii) determine the timing and amount of distributions, and (iv) determine the information to be provided to the Members. Obligation to Contribute Capital Investors could be required to contribute more money to the Company in several circumstances, including (i) cost overruns in drilling, testing, equipping, and completing the Wells, (ii) remedial work on a Well is required, (iii) pipelines or flow-lines must be built, (iv) operating expenses exceed operating revenue, or (v) the wells experience an uninsured loss. There is no limit to the amount you could be required to contribute. See the “WHAT YOU GET: YOUR LLC INTEREST” section starting on page 8. Personal Liability Because of the unlimited obligation to contribute capital, every Investor is, in effect, personally liable for a pro rata share of all of the debts and obligations of the Company. P a g e | 29 5858846 v2
LIMITED LIABILITY COMPANY AGREEMENT  The  following  summarizes  some  of  the  key  provisions  of  the  Company   s  Lim...
Distributions The right of Investors to share in distributions made by the Company is described in the “WHAT YOU GET: YOUR LLC INTEREST” section starting on page 8. If Investors do not contribute the entire $3,750,000 of capital being sought, the Manager has the right to admit additional investors, who could have rights to distributions that are superior to the rights of Investors. Transfers No Investor may transfer his LLC Interest in the Company without the consent of the Manager. The only exceptions are for certain transfers to family members. First Right of Refusal If an Investor wants to sell his, her, or its LLC Interest to a third party, he, she, or it must first offer such LLC Interest to the Manager. Death, Disability, Etc. If a Member should die or become incapacitated, the Member or the legal successors-in-interest of the Member will continue to own his, her, or its LLC Interest. No one has the right or obligation to buy the LLC Interest. “Drag-Along” Right If the Manager wants to sell the Company’s business, it may affect the transaction as a sale of the Company’s assets or as a sale of all the interests in the Company. In the latter case, all of the Members, including the Investors, will be required to sell their interests as directed by the Manager, receiving the same amount they would have received had the transaction been structured as a sale of assets. Exculpation and Indemnification The Limited Liability Company Agreement seeks to protect the Manager from legal claims made by Members to the maximum extent permitted by law. For example, it provides that the Manager (i) is not subject to any fiduciary obligations to the Members; (ii) will not be liable for any act or omission that does not constitute fraud or willful misconduct; and (iii) will be indemnified against most claims arising from its position as the Sponsor of the Company. Rights to Information Each year, the Company will provide Investors with (i) a statement showing in reasonable detail the computation of the amount distributed to the Investors; (ii) a balance sheet of the Company; (iii) a statement of the Company’s income and expenses; and (iv) information for Investors to prepare their income tax returns. An Investor’s right to see additional information or inspect the books and records of the Company is limited by the Limited Liability Company Agreement. P a g e | 30 5858846 v2
Distributions  The right of Investors to share in distributions made by the Company is described in the    WHAT  YOU  GET ...
Power of Attorney Each Investor grants to the Manager a limited power of attorney to execute documents relating to the Company. Electronic Delivery The Company will transmit all documents, including all tax-related documents, to the Members via electronic delivery. Distributions to Pay Tax Liability The Company will generally be treated as a “pass-through entity” for Federal and State tax purposes, which means that the income of the Company will be reported on the personal tax returns of its Members. For any year in which the Company reports taxable income or gains, it will try to distribute enough money for the Members to pay their associated tax liabilities. Amendment The Manager has broad discretion to amend the Limited Liability Company Agreement without the consent of Investors, including amendments to correct typographical errors; to reflect the admission of Additional Investors, who may have rights to distributions that are superior to those of Investors; to change the Company’s business plan; and to comply with applicable law. However, the Manager may not, without the consent of each affected Investor, adopt any amendment that would: (i) require an Investor to make additional capital contributions; (ii) change an Investor’s share of distributions relative to other Investors; or (iii) change an Investor’s share of distributions relative to the Manager. P a g e | 31 5858846 v2
Power of Attorney  Each Investor grants to the Manager a limited power of attorney to execute documents relating to the  C...
FEDERAL INCOME TAX CONSEQUENCES The following summarizes some of the Federal income tax consequences of acquiring an LLC Interest. This summary is based on the Internal Revenue Code (the “Code”), regulations issued by the Internal Revenue Service (“Regulations”), and administrative rulings and court decisions, all as they exist today. The tax laws, and therefore the Federal income tax consequences of acquiring an LLC Interest, could change in the future. This is only a summary, applicable to a generic Member. Your personal situation could differ. We encourage you to consult with your own tax advisor before investing. Classification as a Partnership The Company will be treated as a partnership for Federal income tax purposes. If the Company were treated as a corporation and not as a partnership, the operating profit or gain on sale of the Project would generally be subject to two levels of Federal income taxation. This would substantially reduce the economic return to the Investors and other Members. Federal Income Taxation of the Company and its Owners Because it is treated as a partnership, the Company itself will not be subject to Federal income taxes. Instead, each Member will be required to report on his personal Federal income tax return his distributive share of the Company’s income, gains, losses, deductions and credits for the taxable year, whether or not actual distributions of cash or other property are made. Each Member’s distributive share of such items will be determined in accordance with the Operating Agreement. Deduction of Losses Each Member may deduct his allocable share of the Company’s losses, if any, subject to the basis limitations of Code §704(d), the “at risk” rules of Code §465, and the “passive activity loss” rules of Code §469. Unused losses generally may be carried forward indefinitely. The use of tax losses generated by the Company against other income may not provide a material benefit to Members who do not have taxable passive income from other passive activities. Tax Basis Code §704(d) limits a Member’s loss to his tax “basis” in his Interest. A Member’s tax basis will initially equal his capital contribution (i.e., the purchase price for his Interest). Thereafter, his basis generally will be increased by further capital contributions made by the Member, his allocable share of the Company’s taxable and tax-exempt income, and his share of certain liabilities of the Company. His basis generally will be decreased by the amount of any distributions he receives, his allocable share of the Company’s losses and deductions, and any decrease in his share of the Company’s liabilities. P a g e | 32 5858846 v2
FEDERAL INCOME TAX CONSEQUENCES  The  following  summarizes  some  of  the  Federal  income  tax  consequences  of  acquir...
Limitations of Losses to Amounts at Risk In the case of certain taxpayers, Code §465 limits the deductibility of losses from certain activities to the amount the taxpayer has “at risk” in the activities. A Member subject to these rules will not be permitted to deduct his allocable share of the Company’s losses to the extent the losses exceed the amount he is considered to have at risk in the Company. If a Member’s at-risk amount should fall below zero, he would generally be required to “recapture” such amount by reporting additional income. A Member generally will be considered at risk to the extent of his cash contribution (i.e., the purchase price for his Interest), his basis in other contributed property, and his personal liability for repayments of borrowed amounts. His amount at risk will generally be increased by further contributions and his allocable share of the Company’s income, and decreased by distributions he receives and his allocable share of the Company’s losses. With respect to amounts borrowed for investment in the Company, a Member will not be considered to be at risk even if he is personally liable for repayment if the borrowing was from a person who has certain interests in the Company other than an interest as a creditor. In all events, a Member will not be treated as at risk to the extent his investment is protected against loss through guarantees, stop-loss agreements or other similar arrangements. Limitations on Losses from Passive Activities In the case of certain taxpayers, Code §469 generally provides for a disallowance of any loss attributable to “passive activities” to the extent the aggregate losses from all such passive activities exceed the aggregate income of the taxpayer from such passive activities. Losses that are disallowed under these rules for a given tax year may be carried forward to future years to be offset against passive activity income in such future years. Furthermore, upon the disposition of a taxpayer’s entire interest in any passive activity, if all gain or loss realized on such disposition is recognized, and such disposition is not to a related party, any loss from such activity that was not previously allowed as a deduction and any loss from the activity for the current year is allowable as a deduction in such year, first against income or gain from the passive activity for the taxable year of disposition, including any gain recognized on the disposition, next against net income or gain for the taxable year from all passive activities and, finally, against any other income or gain. Under Code §469(c)(3)(A), the term “passive activity” does not include a Working Interest in an oil or gas property that the taxpayer owns directly or through an entity that does not limit the taxpayer’s liability with respect to the Working Interest. Under the terms of the Limited Liability Company Agreement, every Investor is personally liable for his share of all of the debts and obligations of the Company. The Manager believes, therefore, that the Company should be treated as an entity that does not limit an Investor’s liability with respect to the Working Interests in the wells, and that the passive activity limitations of Code §469 should not apply; however, because we not aware of any IRS rulings or cases with exactly these facts, the outcome in the event of a challenge by the IRS is uncertain. P a g e | 33 5858846 v2
Limitations of Losses to Amounts at Risk  In the case of certain taxpayers, Code   465 limits the deductibility of losses ...
Limitation on Capital Losses A Member who is an individual may deduct only $3,000 of net capital losses every year (that is, capital losses that exceed capital gains). Net capital losses in excess of $3,000 per year may generally be carried forward indefinitely. Limitation on Investment Interest Interest that is characterized as “investment interest” generally may be deducted only against investment income. Investment interest would include, for example, interest paid by a Member on a loan that was incurred to purchase an Interest and interest paid by the Company to finance investments, while investment income would include dividends and interest but would not generally include longterm capital gain. Thus, it is possible that a Member would not be entitled to deduct all of his investment interest. Any investment interest that could not be deducted may generally be carried forward indefinitely. Treatment of Liabilities When the Company borrows money or otherwise incurs indebtedness, the amount of the liability will be allocated among all of the Members and the Sponsor in the manner prescribed by the Regulations. In general, (but not for purposes of the “at risk” rules) each Member will be treated as having contributed cash to the Company equal to his allocable share of all such liabilities. Conversely, when a Member’s share of liabilities is decreased (for example, if the Company repays loans or a Member disposes of his Interest) then the Member will be treated as having received a distribution of cash equal to the amount of such decrease. Allocations of Profits and Losses The profits and losses of the Company will be allocated among all the Members of the Company in the manner described in the Operating Agreement. In general, it is intended that profits and losses will be allocated in a manner that corresponds with the distributions each Member is entitled to receive; i.e., so that tax allocations follow cash distributions. The IRS will respect such allocations if they have “substantial economic effect” within the meaning of Code §704(b). If they do not, the IRS could reallocate items of income and loss among the Members. Sale or Exchange of LLC Interests In general, the sale of an Interest by a Member will be treated as a sale of a capital asset. The amount of gain from such a sale generally will be equal to the difference between the selling price and the Member’s basis. Such gain will generally be eligible for favorable long-term capital gain treatment if the Interest has been held for at least 12 months. However, to the extent any of the sale proceeds are attributable to substantially appreciated inventory items or unrealized receivables, as defined in Code §751, the Member will recognize ordinary income. P a g e | 34 5858846 v2
Limitation on Capital Losses  A Member who is an individual may deduct only  3,000 of net capital losses every year  that ...
If, as a result of a sale of an Interest, a Member’s share of liabilities is reduced, such Member could recognize a tax liability greater than the amount of cash received in the sale. Code §6050K requires any Member who transfers an Interest at a time when the Company has unrealized receivables or substantially appreciated inventory items to report such transfer to the Company. For these purposes, “unrealized receivables” includes depreciation subject to “recapture” under Code §1245 or Code §1250. If so notified, the Manager must report the identity of the transferor and transferee to the IRS, together with other information described in the Regulations. Failure by a Member to report a transfer covered by this provision may result in penalties. A gift of an Interest will be taxable if the donor-Member’s share of liabilities is greater than his adjusted basis in the gifted Interest. The gift could also give rise to Federal gift tax liability. If the gift is made as a charitable contribution, the donor-Member is likely to realize gain greater than would be realized with respect to a non-charitable gift, since in general the Member will not be able to offset the entire amount of his adjusted basis in the donated Interest against the amount considered to be realized as a result of the gift (i.e., the Company’s debt). Transfer of an Interest by reason of death would not in general be a taxable event, although it is possible that the IRS would treat such a transfer as taxable where the deceased Member’s share of liabilities exceeds his pre-death basis in his Interest. The deceased Member’s transferee will get a basis in the Interest equal to its fair market value at death (or, in certain circumstances, on the date six (6) months after death), increased by the transferee’s share of liabilities. For this purpose, the fair market value will not include the decedent’s share of Company taxable income to the extent attributable to the pre-death portion of the taxable year. Treatment of Distributions Upon the receipt of any distribution or cash or other property, including a distribution in liquidation of the Company, a Member generally will recognize income only to the extent that the amount of cash and marketable securities he receives exceeds his basis in his Interest. Any such gain generally will be considered as gain from the sale of his Interest. Intangible Drilling Costs Intangible drilling costs, or “IDCs,” consist of costs incurred in connection with the development of a well with respect to items that do not have a salvage value, such as labor, fuel, repairs, and supplies. These costs, which generally constitute a substantial portion of the costs of exploring for and producing oil and gas, would normally be considered as capital expenditures and, absent special provisions, would be added to the tax basis of the property to which they relate and recovered through the depletion allowance or, at the option of the taxpayer, amortized over either (i) a ten year period beginning with the year in which the expenditure is made, or (ii) ratably over a 60 month period beginning with the month in which the cost was paid or incurred. Under Code section 263, however, a taxpayer may elect to deduct IDCs, providing a substantially greater tax savings. P a g e | 35 5858846 v2
If,  as  a  result  of  a  sale  of  an  Interest,  a  Member   s  share  of  liabilities  is  reduced,  such  Member  cou...
Operating Costs With the exception of any portion of the operating costs relating to the replacement of or addition to production equipment and certain work over expenditures which may qualify as IDCs, the costs of operating a well and obtaining production after completion currently deductible in the year paid by a cash basis taxpayer provided the expenditure is an ordinary and necessary expenditure which is reasonable in amount. It is not anticipated that any expenses incurred pursuant to the Operating Agreement will be excessive or unnecessary; therefore, it is anticipated such expenses will be deductible in the year paid. However, because of the factual nature of the proper characterization of such expenses and costs, no assurances can be given that the IRS will not successfully challenge the deduction of a particular item. Depletion Owners of economic interests in oil and gas properties that produce income are entitled to deductions for depletion, which is similar to the depreciation deduction allowable with respect to tangible property such as real estate. The depletion deduction permitted is the greater of “cost depletion” or “percentage depletion,” if the latter is available. Cost depletion is determined by reference to the capitalized cost, or “basis,” of the property in question, and the estimated units of recoverable oil or gas from the property; the allowable deduction in any year is the estimated per unit cost of the property (basis in the property divided by estimated number of units to be produced) multiplied by the number of units sold in that year. When the taxpayer’s basis in the property has been fully recovered through cost depletion deductions, no further cost depletion is allowable. The taxpayer’s basis in the property is generally his leasehold acquisition cost plus the portion, if any, of IDCs that have not been deducted or fully amortized. Alternative Minimum Tax The Code imposes an alternative minimum tax on individuals and corporations. Members may be required to take into account certain items of the Company’s income and loss to determine their alternative minimum tax liability. Taxable Year The Company will report income and losses using the calendar year. In general, each Member will report his share of income and losses for the taxable year that concludes December 31st; i.e., the calendar year for individuals and other Members using the calendar year. Section 754 Election The Company may, but is not required to, make an election under Code §754 on the sale of an Interest or the death of a Member. The result of such an election may increase or decrease the tax basis of the Company’s assets for purposes of allocations made to the buyer or beneficiary that would, in turn, affect depreciation deductions and gain or loss on sale, among other items. P a g e | 36 5858846 v2
Operating Costs  With the exception of any portion of the operating costs relating to the replacement of or addition to  p...
Unrelated Business Taxable Income for Tax-Exempt Investors A church, charity, pension fund, or other entity that is otherwise exempt from Federal income tax must nevertheless pay tax on “unrelated business taxable income.” In general, interest and gains from the sale of property (other than inventory) are not treated as unrelated business taxable income. However, interest and gains from property that was acquired in whole or in part with the proceeds of indebtedness may be treated as unrelated business taxable income. Because the Company has borrowed money to acquire the Property and intends to borrow additional funds to construct the Project, some of the income of the Company could be subject to tax in the hands of tax-exempt entities. Tax Returns and Tax Information; Audits; Penalties; Interest The Company will furnish each Member with the information needed to be included in his Federal income tax returns. Each Member is personally responsible for preparing and filing all personal tax returns that may be required as a result of his purchase (or ownership) of an Interest. The Manager will select accountants to prepare the Company’s tax return. If the Company’s tax returns are audited, it is possible that substantial legal and accounting fees will have to be paid to substantiate the Company’s reporting position on its returns and such fees would reduce the cash otherwise distributable to Members. Such an audit may also result in adjustments to the Company’s tax returns, which adjustments, in turn, would require an adjustment to each Member’s personal tax return. An audit of the Company’s tax returns may also result in an audit of non-Company items on each Member’s personal tax returns, which could result in adjustments to such items. The Company is not obligated to contest adjustments proposed by the IRS. Each Member must either report Company items on his tax return consistent with the treatment on the Company’s information return or file a statement with his tax return identifying and explaining the inconsistency. Otherwise the IRS may treat such inconsistency as a computational error and re-compute and assess the tax without the usual procedural protections applicable to Federal income tax deficiency proceedings. The Manager will be treated as the “tax matters partner” of the Company and will generally control all proceedings with the IRS. The Code imposes interest and a variety of potential penalties on underpayments of tax. Other Tax Consequences The foregoing discussion addresses only selected issues involving Federal income taxes, and does not address the impact of other taxes on an investment in the Company, including Federal estate, gift, or generation-skipping taxes, or State and local income or inheritance taxes. Prospective Investors should consult their own tax advisors with respect to such matters. P a g e | 37 5858846 v2
Unrelated Business Taxable Income for Tax-Exempt Investors  A church, charity, pension fund, or other entity that is other...
LEGAL PROCEEDINGS The Company and its officers, directors and shareholders are not currently parties to any legal proceedings, nor are any legal proceedings threatened. P a g e | 38
LEGAL PROCEEDINGS  The  Company  and  its  officers,  directors  and  shareholders  are  not  currently  parties  to  any ...
DEFINITIONS ACT CODE COMPANY DEVELOPMENT LOAN The Securities Act of 1933. The Internal Revenue Code of 1986, as amended. Strategic Energy Assets – III, LLC, a Delaware limited liability partnership. The loan in the principal amount of $3,750,000 secured jointly by the Sponsor and the Company to fund a portion of the costs of developing the wells. ERISA The Employee Retirement Income Security Act of 1974. ESCROW AGENT Atlantic Capital Bank. HOMEBOUND HomeBound Resources, LLC, a Texas limited liability company, also the Sponsor. HOLDING COMPANY A holding company, in this case Mountain High Capital, a Nevada limited liability company, that owns enough voting stock in another company, SEA III, LLC, to control its policies and management. A holding company exists for the sole purpose of controlling another company, which might also be a corporation, limited partnership or limited liability company, rather than for the purpose of producing its own goods or services. INVESTMENT AGREEMENT The contract you sign to purchase your LLC Interest, which will be part of your “subscription” to the Company. INVESTOR An investor who purchases an LLC Interest pursuant to this Confidential Investor Disclosure Document. LIMITED LIABILITY COMPANY The limited liability company agreement of the Company, to which every AGREEMENT Investor will be a party. LLC INTEREST A limited liability company interest in the Company offered and sold pursuant to this Confidential Investor Disclosure Document. MANAGER Resolute Capital Partners, LTD, a Nevada limited liability company, that serves as the manager of the Company, and of the Holding Company, MHC. MOUNTAIN HIGH CAPITAL, LLC Mountain High Capital, LLC, a Nevada limited liability company, (MHC) was formed as a Holding Company for investment purposes and is managed by Resolute Capital Partners, LTD. P a g e | 39
DEFINITIONS  ACT    CODE    COMPANY    DEVELOPMENT LOAN   The Securities Act of 1933.    The Internal Revenue Code of 1986...
OPERATING AGREEMENT OPERATOR PARTICIPATION AGREEMENT PROJECT REGULATIONS SEC SPONSOR WELLS WORKING INTEREST The contract between the Company, the Operator, and the Sponsor governing the operations of the Wells. Mercury Holdings, LLC, a Texas limited liability company. [HBR-SEA III The Participation Agreement]. The project to develop the wells. Regulations issued by the Internal Revenue Service. The Securities and Exchange Commission. HomeBound Resources, LLC, a Texas limited liability company. Six oil and gas well leases located in Concho, Baylor and McCulloch Counties in central-west Texas, Nolan and Fisher Counties north-central Texas, and Central Marion County in east Texas, respectively. The working interests in the wells. P a g e | 40
OPERATING AGREEMENT    OPERATOR    PARTICIPATION AGREEMENT    PROJECT    REGULATIONS    SEC    SPONSOR    WELLS     WORKIN...
STRATEGIC ENERGY ASSETS III, LLC Securities are offered through WealthForge Securities, LLC, a registered broker/dealer and member FINRA/SIPC. INVESTMENT AGREEMENT This is an Investment Agreement, entered into on , 2016, by and between STRATEGIC ENERGY ASSETS III, LLC, a Delaware limited liability company (the “Company”) and (“Purchaser”). Background Purchaser wishes to purchase a limited liability company interest in the Company offered pursuant to the Confidential Investor Disclosure Document of the Company dated , 2016, which we refer to as the “Disclosure Document.” NOW, THEREFORE, acknowledging the receipt of adequate consideration and intending to be legally bound, the parties hereby agree as follows: 1. Defined Terms. Capitalized terms that are not otherwise defined in this Investment Agreement have the meanings given to them in the Disclosure Document. We sometimes refer to the Company using terms like “we” or “us,” and to Purchaser using terms like “you” or “your.” 2. Purchase of LLC Interest. Subject to the terms and conditions of this Investment Agreement, the Company hereby agrees to sell to Purchaser, and Purchaser hereby agrees to purchase from the Company, a limited liability company interest in the Company for $ , pursuant to the Disclosure Document. We refer to your limited liability company interest as the “LLC Interest.” 3. No Right to Cancel. You do not have the right to cancel your subscription or change your mind. Once you sign this Investment Agreement, you are obligated to purchase the LLC Interest. 4. Our Right to Reject Investment. In contrast, we have the right to reject your subscription for any reason or for no reason, in our sole discretion. If we reject your subscription, any money you have given us will be returned to you.
STRATEGIC ENERGY ASSETS III, LLC Securities are offered through WealthForge Securities, LLC, a registered broker dealer an...
5. Your LLC Interest. You will not receive a paper certificate evidencing your LLC Interest. Instead, your LLC Interest will be issued in electronic form only. 6. Terms of Use. The Terms of Use at the Site are part of your agreement with us. If there is any conflict between the Terms of Use and this Investment Agreement, the terms of this Investment Agreement will govern. 7. Your Promises. You promise that: 7.1. Accuracy of Information. All of the information you have given to us is accurate and we may rely on it. If any of the information you have given to us changes before we accept your subscription, you will notify us immediately. If any of the information you have given to us is inaccurate and we are damaged (harmed) as a result, you will indemnify us, meaning you will pay any damages. 7.2. Review of Information. You have read all of the information in the Disclosure Document, including all the exhibits. Without limiting that statement, you have reviewed the Company’s Operating Agreement and understand its terms. 7.3. Risks. You understand all the risks of investing, including the risk that you could lose all your money. Without limiting that statement, you have reviewed and understand all the risks listed under “RISKS OF INVESTING” in the Disclosure Document. 7.4. Qualified Investor. At least one of the following two statements is true: FIRST STATEMENT: You are an individual and either: (1) Your net worth, excluding your principal residence, is at least $1,000,000; or (2) Your income has been at least $200,000 for each of the last two years and you expect it to be at least $200,000 this year; or (3) The combined income of you and your spouse has been at least $300,000 for each of the last two years and you expect it to be at least $300,000 this year. SECOND STATEMENT: You are otherwise an “accredited investor” within the meaning of 17 CFR §230.501(a). Initial _ 7.5. No Representations. Nobody has made any promises or representations to you, except the information in the Disclosure Document. Nobody has guaranteed any financial outcome of your investment. 7.6. Opportunity to Ask Questions. You have had the opportunity to ask questions about the Company and the investment. All of your questions have been answered to your satisfaction.
5. Your LLC Interest. You will not receive a paper certificate evidencing your LLC Interest. Instead, your LLC Interest wi...
7.7. Your Legal Power to Sign and Invest. You have the legal power to sign this Investment Agreement and purchase the LLC Interest. Your investment will not violate any contract you have entered into with someone else. 7.8. Acting On Your Own Behalf. You are acting on your own behalf in purchasing the LLC Interest, not on behalf of anyone else. 7.9. Investment Purpose. You are purchasing the LLC Interest solely as an investment, not with an intent to re-sell or “distribute” any part of it. 7.10. Knowledge. You have enough knowledge, skill, and experience in business, financial, and investment matters to evaluate the merits and risks of the investment. 7.11. Financial Wherewithal. You can afford this investment, even if you lose your money. You don’t need this money for your current needs, like rent or utilities. 7.12. No Government Approval. You understand that no state or federal authority has reviewed this Investment Agreement or the LLC Interest or made any finding relating to the value or fairness of the investment. 7.13. Restrictions on Transfer. You understand that the LLC Interest may not be transferrable, and that securities laws also limit transfer. This mean you will probably be required to hold the LLC Interest indefinitely. 7.14. No Advice. We have not provided you with any investment, financial, or tax advice. Instead, we have advised you to consult with your own legal and financial advisors and tax experts. 7.15. Tax Treatment. We have not promised you any particular tax outcome from buying or holding the LLC Interest. 7.16. Past Performance. You understand that even if we have been successful in the past, this doesn’t mean we will be successful with your LLC Interests. 7.17. Money Laundering. The money you are investing was not acquired from “money laundering” or other illegal activities. You will provide us with additional information relating to the source of the funds if we reasonably believe we are required to request such information by law. 7.18. Additional Documents. You will execute any additional documents we request if we reasonably believe those documents are necessary or appropriate and explain why. 7.19. Authority. If the Purchaser is an entity (for example, a partnership or corporation), then the individual signing this Investment Agreement has the legal authority to do so. 8. Confidentiality. The information on the Site, including the information in the Disclosure Document, is confidential. You will not reveal such information to anyone or use such information for your own benefit, except to purchase the LLC Interests.
7.7. Your Legal Power to Sign and Invest. You have the legal power to sign this Investment Agreement and purchase the LLC ...
9. Re-Purchase of LLC Interest. If we decide that you provided us with inaccurate information or have otherwise violated your obligations, we may (but shall not be required to) repurchase your LLC Interest for an amount equal to the principal amount outstanding. 10. Governing Law. Your relationship with us shall be governed by Delaware law, without taking into account principles of conflicts of law. 11. Arbitration. 11.1. Right to Arbitrate Claims. If any kind of legal claim arises between us, either of us will have the right to arbitrate the claim, rather than use the courts. There are only three exceptions to this rule. First, we will not invoke our right to arbitrate a claim you bring in Small Claims Court or an equivalent court, if any, so long as the claim is pending only in that court. Second, we have the right to seek an injunction in court if you violate or threaten to violate your obligations. Three, disputes arising under the Operating Agreement, the Participation Agreement, or the Joint Operating Agreement will be handled as set forth in those agreements. 11.2. Place of Arbitration; Rules. All arbitration will be conducted in Wilmington, Delaware, unless we agree otherwise in writing in a specific case. All arbitration will be conducted before a single arbitrator in accordance with the rules of the American Arbitration Association. 11.3. Appeal of Award. Within thirty (30) days of a final award by the single arbitrator, you or we may appeal the award for reconsideration by a three-arbitrator panel. If you or we appeal, the other party may cross-appeal within (30) days after notice of the appeal. The panel will reconsider all aspects of the initial award that are appealed, including related findings of fact. 11.4. Effect of Award. Any award by the individual arbitrator that is not subject to appeal, and any panel award on appeal, shall be final and binding, except for any appeal right under the Federal Arbitration Act, and may be entered as a judgment in any court of competent jurisdiction. 11.5. No Class Action Claims. NO ARBITRATION SHALL PROCEED ON A CLASS, REPRESENTATIVE, OR COLLECTIVE BASIS. No party may join, consolidate, or otherwise bring claims for or on behalf of two or more individuals or unrelated corporate entities in the same arbitration unless those persons are parties to a single transaction. An award in arbitration shall determine the rights and obligations of the named parties only, and only with respect to the claims in arbitration, and shall not (i) determine the rights, obligations, or interests of anyone other than a named party, or resolve any claim of anyone other than a named party, or (ii) make an award for the benefit of, or against, anyone other than a named party. No administrator or arbitrator shall have the power or authority to waive, modify, or fail to enforce this paragraph, and any attempt to do so, whether by rule, policy, arbitration decision or otherwise, shall be invalid and unenforceable. Any challenge to the validity of this paragraph shall be determined exclusively by a court and not by the administrator or any arbitrator. If this paragraph shall be deemed unenforceable, then any proceeding in the nature of a class action shall be handled in court, not in arbitration.
9. Re-Purchase of LLC Interest. If we decide that you provided us with inaccurate information or have otherwise violated y...
12. Consent to Electronic Delivery. You agree that we may deliver all notices, tax reports and other documents and information to you by email or another electronic delivery method we choose. You agree to tell us right away if you change your email address or home mailing address so we can send information to the new address. 13. Notices. All notices between us will be electronic. You will contact us by email at info @rcpltd.com. We will contact you by email at the email address you provide to us. Either of us may change our email address by notifying the other (by email). Any notice will be considered to have been received on the day it was sent by email, unless the recipient can demonstrate that a problem occurred with delivery. You should designate our email address as a “safe sender” so our emails do not get trapped in your spam filter. 14. Limitations on Damages. WE WILL NOT BE LIABLE TO YOU FOR ANY LOST PROFITS OR SPECIAL, CONSEQUENTIAL, OR PUNITIVE DAMAGES, EVEN IF YOU TELL US YOU MIGHT INCUR THOSE DAMAGES. This means that at most, you can sue us for the amount of your investment. You can’t sue us for anything else. 15. Waiver of Jury Rights. IN ANY DISPUTE WITH US, YOU AGREE TO WAIVE YOUR RIGHT TO A TRIAL BY JURY. This means that any dispute will be heard by an arbitrator or a judge, not a jury. 16. Execution of Operating Agreement. If we accept your subscription, then your signature of this Investment Agreement will also serve as your signature of the Operating Agreement, just as if you had signed a paper copy of the Operating Agreement. 17. Miscellaneous Provisions. 17.1. No Transfer. You may not transfer your rights or obligations. 17.2. Right to Legal Fees. If we have a legal dispute with you, the losing party will pay the costs of the winning party, including reasonable legal fees. 17.3. Headings. The headings used in this Investment Agreement (e.g., the word “Headings” in this paragraph), are used only for convenience and have no legal significance. 17.4. No Other Agreements. This Investment Agreement and the documents it refers to (including the Terms of Use) are the only agreements between us. 17.5. Electronic Signature. You will sign this Investment Agreement electronically, rather than physically.
12. Consent to Electronic Delivery. You agree that we may deliver all notices, tax reports and other documents and informa...
17.6. WealthForge. Interests in the Company are offered through WealthForge Securities, LLC, a registered broker/dealer and member FINRA/SIPC (“WealthForge”). The Company has entered into an agreement with WealthForge Securities, LLC (“WealthForge”), a Virginia limited liability company and a broker-dealer registered with the SEC, Financial Industry Regulatory Authority, Inc., and other necessary state or other regulators, to provide execution and other services relating to this offering. WealthForge may enter into selling agreements with broker-dealers who are members of FINRA (“Selling Group Members”) to sell Units in this Offering. WealthForge will receive selling commissions (the “Selling Commissions”) in an amount up to 9.5% of the purchase price of the Units it sells (the “Total Sales”), which it will re-allow to the Selling Group Members; provided, however, that this amount will be reduced in the event a lower commission rate is negotiated by WealthForge and the commission rate will be the lower agreed upon rate. WealthForge will also receive a transaction processing fee of 0.5% of the Total Sales. The total aggregate amount of commissions, expense reimbursements and placement fees (the “Selling Commissions and Expenses”) will not exceed 10% of the Total Sales. The Company will be responsible for paying all Selling Commissions and Expenses to WealthForge. 17.7. Escrow. Upon receipt of this Agreement executed by the Purchaser, the Company will accept deposit of, the payment from Purchaser into an escrow account at SunTrust Bank (“Escrow Agent”). The subscription amounts will be held in escrow until (i) the Company has confirmed that Purchaser is qualified to purchase the interests (ii) the Company has received subscriptions from qualified investors (who may be owners or affiliates of the Company) representing at least the minimum offering amount we have stipulated; and (iii) we decide to accept your subscription. When the Escrow Agent has determined that the required contingency has occurred, then Escrow Agent shall disburse Subscription Proceeds in its possession less any placement fees to the account of the Company. 17.8. Risk of Personal Liability. UNDER THE OPERATING AGREEMENT, PURCHASER WILL HAVE PERSONAL LIABILITY FOR A PORTION OF ALL OF THE LIABILITIES OF THE COMPANY.
17.6. WealthForge. Interests in the Company are offered through WealthForge Securities, LLC, a registered broker dealer an...
INVESTOR INFORMATION Social Security Number (If You Are An Individual) Or Employer Identification Number (If You Are An Entity) Mailing Address Street 1 Street 2 City, State, and Zip Code [Signatures on Following Pages]
INVESTOR INFORMATION  Social Security Number  If You Are An Individual  Or Employer Identification Number  If You Are An E...
SIGNATURE PAGE FOR AN INVESTOR WHO IS AN INDIVIDUAL IN WITNESS WHEREOF, the undersigned has executed this Investment Agreement effective on the date first written above. Investor Signature Custodian Information ACCEPTED HBR VI, LLC By: Mountain High Capital Management, LLC As Manager By: Resolute Capital Partners, Ltd. As Manager By Thomas J. Powell, Managing Partner Second Signature, if Required
SIGNATURE PAGE FOR AN INVESTOR WHO IS AN INDIVIDUAL  IN WITNESS WHEREOF, the undersigned has executed this Investment Agre...
SIGNATURE PAGE FOR AN INVESTOR THAT IS A CORPORATION, PARTNERSHIP, LIMITED LIABILITY COMPANY, TRUST, OR OTHER ENTITY. IN WITNESS WHEREOF, the undersigned has executed this Investment Agreement effective on the date first written above. By Signature Print Title Custodian Information ACCEPTED STRATEGIC ENERGY ASSETS III, LLC By: Resolute Capital Partners, Ltd. As Manager By Thomas J. Powell, Managing Partner
SIGNATURE PAGE FOR AN INVESTOR THAT IS A CORPORATION, PARTNERSHIP, LIMITED LIABILITY COMPANY, TRUST, OR OTHER ENTITY.  IN ...
SEA-iii – Equity – Wealth Forge Fields Needed: Vesting (Sidenote– Vestingisthe Purchaser) Interest Payment Instructions: Checks Payable to Check Reference Mail to Custodian Name Custodian Address Custodian Phone #
SEA-iii     Equity     Wealth Forge  Fields Needed  Vesting  Sidenote    Vestingisthe Purchaser  Interest Payment Instruct...
STRATEGIC ENERGY ASSETS III, LLC LIMITED LIABILITY COMPANY AGREEMENT This is an Agreement, entered intoOctober on O c t o18 b e r 1 8 , 2016, by and among Strategic Energy Assets III, LLC, (“SEA III”) a Delaware limited liability company (the “Company”), Mountain High Capital, LLC, a Nevada limited liability company (“MHC”), Resolute Capital Partners, LTD, a Nevada limited liability company (“RCP”)and the other persons admitted to the Company as Members by the Manager (the “Investor Members”). The MHC and the Investor Members are sometimes referred to as “Members” in this Agreement. Background The Members own all of the limited liability company interests of the Company and wish to set forth their understandings concerning the ownership and operation of the Company in this Agreement, which they intend to be the limited liability company agreement of the Company within the meaning of 6 Del. C. §18-101(7). NOW, THEREFORE, acknowledging the receipt of adequate consideration and intending to be legally bound, the parties agree as follows: 1. ARTICLE ONE: FORMATION OF LIMITED LIABILITY COMPANY 1.1. Formation of Limited Liability Company. The Company has been formed in accordance with and pursuant to the Delaware Limited Liability Company Act (the “Act”) for the purpose set for the below. The rights and obligations of the Members to one another and to third parties shall be governed by the Act except that, in accordance with 6 Del. C. §18-1101(b), conflicts between provisions of the Act and provisions in this Agreement shall be resolved in favor of the provisions in this Agreement except where the provisions of the Act may not be varied by contract as a matter of law. 1.2. Name. The name of the Company shall be “Strategic Energy Assets III, LLC” and all of its business shall be conducted under that name or such other name(s) as may be designated by the Manager. 1.3. Purpose. The business and purpose of the Company shall be to own sixty percent (60%) of the “working interests” in six (6) turn-key oil and gas wells proposed in Concho, Baylor and McCulloch Counties in central-west Texas, Nolan and Fisher Counties north-central Texas, and Central Marion County in east Texas, respectively (the “Working Interests”). We refer to the oil well leases themselves as the “Wells” and the project to develop them as the “Project.”), pursuant to an agreement captioned “Participation Agreement” with HomeBound Resources, LLC (”HomeBound”), which is attached to this Agreement as Exhibit A, and engage in such related activities as the Manager shall determine. In carrying on its business, the Company may enter into contracts, incur indebtedness, engage the services of brokers, accountants, attorneys, or other service providers, and take any other action the Manager deems advisable. Page 1
STRATEGIC ENERGY ASSETS III, LLC LIMITED LIABILITY COMPANY AGREEMENT This is an Agreement, entered intoOctober on O c t o1...
1.4. Fiscal Year. The fiscal and taxable year of the Company shall be the calendar year, or such other period as the Manager determines. 2. ARTICLE TWO: CONTRIBUTIONS AND LOANS 2.1. Initial Contributions. Each Investor Member has made a contribution to the capital of the Company (his, her, or its “Capital Contribution”). 2.2. Additional Contributions. 2.2.1. Obligation to Contribute for the Benefit of Creditors. In the event the assets of the Company are insufficient to satisfy any liability of the Company, then each Member, or former Member, shall promptly contribute to the capital of the Company, for the benefit of the creditor, an amount equal to the unsatisfied liability multiplied by the Percentage Interest of the Member or former Member, determined as of the time the liability was incurred or the act or omission giving rise to the liability took place, whichever is earlier. 2.2.2. Obligation to Contribute for Development Costs. If additional funding is required to develop the Wells, in the opinion of the Manager, then each Member, or former Member, shall promptly contribute to the capital of the Company, an amount equal to the amount required multiplied by the Percentage Interest of the Member or former Member, it being understood that HomeBound shall be responsible for forty percent (40%) of such additional funding and the Company shall be responsible for sixty percent (60%). 2.2.3. Construction and Purpose. The obligation to contribute money to satisfy liabilities of the Company set forth in section 2.2.1 and section 2.2.2 is adopted pursuant to 6 Del. C. §18-303(b) and is intended to supercede the general rule set forth in 6 Del. C. §18-303(a) providing that the members of a limited liability company are not personally liable for the debts, obligations, and liabilities of the limited liability company. Each Member has agreed to assume personal liability for a portion of the Company’s liabilities, as if such Member were a general partner of a general partnership with respect to such portion. 2.2.4. Amendment. Any amendment of this section 2.2 seeking to limit the liability of the Members shall be effective only with respect to liabilities incurred following the date of amendment. 2.2.5. Creditor as Third Party Beneficiary. Each creditor of the Company is an intended third-party beneficiary of the obligation set forth in section 2.2.1, and may enforce such obligation for its own benefit. 2.2.6. Failure to Contribute. In the event that a Member fails to contribute the amount that such Member is required to contribute pursuant to this section 2.2, then such Member shall be responsible for any damages incurred by the Company as a result of such failure. Without limiting the generality of the preceding sentence, if the Company incurs any damages pursuant to Article VI.B.2(a)-(b) of the Operating Agreement with Mercury Operating LLC as the result of a Member’s failure to contribute, such Member shall be responsible for all such damages. Page 2
1.4. Fiscal Year. The fiscal and taxable year of the Company shall be the calendar year, or such other period as the Manag...
2.3. Other Contributions. Except as provided in section 2.1 and section 2.2, no Member shall have the obligation to contribute any additional capital to the Company. Without limitation, except as provided in such sections, no Member shall, upon dissolution of the Company or otherwise, be required to restore any deficit in such Member’s capital account. 2.4. Loans. 2.4.1. Generally. The Manager or its affiliates may (but shall not be required to) lend money to the Company in its sole discretion. No other Member may lend money to the Company without the prior written consent of the Manager. Subject to applicable state laws regarding maximum allowable rates of interest, loans made by any Member to the Company (“Member Loans”) shall bear interest at the higher of (i) the highest prime lending rate published in the Wall Street Journal on the last business day of each month (and changing as that rate changes) plus four percent (4%), or (ii) the minimum rate necessary to avoid “imputed interest” under section 7872 or other applicable provisions of the Internal Revenue Code of 1986, as amended (the “Code”). Such loans shall be payable on demand and shall be evidenced by one or more promissory notes. 2.4.2. Repayment of Loans. After payment of (i) current and past-due debt service on liabilities of the Company other than Member Loans, and (ii) all operating expenses of the Company, the Company shall pay the current and past-due debt service on any outstanding Member Loans before distributing any amount to any Member pursuant to Article Four. Such loans shall be repaid pro rata, paying all past-due interest first, then all past-due principal, then all current interest, and then all current principal. 2.5. Other Provisions on Capital Contributions. Except as otherwise provided in this Agreement or by law: 2.5.1. No Member shall be required to contribute any capital to the Company; 2.5.2. No Member may withdraw any part of his, her, or its capital from the Company; 2.5.3. No Member shall be required to make any loans to the Company; 2.5.4. Loans by a Member to the Company shall not be considered a contribution of capital, shall not increase the capital account of the lending Member, and shall not result in the adjustment of the Percentage Interest of a Member, and the repayment of such loans by the Company shall not decrease the capital accounts of the Members making the loans; 2.5.5. No interest shall be paid on any initial or additional capital contributed to the Company by any Member; 2.5.6. Under any circumstance requiring a return of all or any portion of a capital contribution, no Member shall have the right to receive property other than cash; and 2.5.7. No Member shall be liable to any other Member for the return of his, her, or its capital. Page 3
2.3. Other Contributions. Except as provided in section 2.1 and section 2.2, no Member shall have the obligation to contri...
2.6. No Third Party Beneficiaries. Any obligation or right of the Members to contribute capital under the terms of this Agreement does not confer any rights or benefits to or upon any person who is not a party to this Agreement. 3. ARTICLE THREE: PERCENTAGE INTERESTS; CAPITAL ACCOUNTS 3.1. Percentage Interests. The limited liability company interests of the Company shall consist of “Percentage Interests.” Initially, the Percentage Interest of each Member shall be equal to the Capital Contribution of such Member divided by the aggregate Capital Contributions of all of the Members. However, the Manager may adjust the Percentage Interests of the Members (i) upon the admission of new Members, (ii) upon the contribution of additional capital by existing Members, and (iii) in other circumstances as necessary or appropriate to carry out the purposes of this Agreement. 3.2. Capital Accounts. A capital account shall be established and maintained for each Member. Each Member’s capital account shall initially be credited with the amount of his, her, or its Capital Contribution. Thereafter, the capital account of a Member shall be increased by the amount of any additional contributions of the Member and the amount of income or gain allocated to the Member, and decreased by the amount of any distributions to the Member and the amount of loss or deduction allocated to the Member, including expenditures of the Company described in section 705(a)(2)(B) of the Code. Unless otherwise specifically provided herein, the capital accounts of the Members shall be adjusted and maintained in accordance with Code section 704 and the regulations thereunder. 4. ARTICLE FOUR: DISTRIBUTIONS AND ALLOCATIONS 4.1. Definitions. The following definitions shall apply for purposes of this section 4.1: 4.1.1. “Allocated Capital” means the amount of a Capital Contribution attributable to the property that was the subject of the Capital Transaction, in the discretion of the Manager, taking into account the value of all the Company’s property. 4.1.2. “Capital Transaction” means any sale, refinancing, or other transaction customarily considered as capital in nature. 4.1.3. “Net Capital Proceeds” means the proceeds from any Capital Transaction minus (i) the expenses the Company incurs with respect to the Capital Transaction, (ii) any repayments of debt made in connection with the Capital Transaction, (iii) brokerage commissions, and (iv) other costs customarily taken into account in calculating net proceeds. 4.1.4. “Operating Cash Flow” means the cash flow from the operations of the Company, as determined in the sole discretion of the Manager, taking into account all revenue and all expense (including but not limited to debt service and the fees and charges payable to the Manager and its affiliates), and after establishing such reserves against future needs as the Manager shall determine. Page 4
2.6. No Third Party Beneficiaries. Any obligation or right of the Members to contribute capital under the terms of this Ag...
4.1.5. “Unreturned Investment” means, with respect to any Investor Member, the Capital Contribution of such Member reduced by the aggregate amount of any distributions such Member has received pursuant to section 4.2.2(a). 4.2. Distributions. 4.2.1. Distributions of Operating Cash Flow. Within thirty (30) days after the end of each calendar month, or at such other intervals as the Manager shall determine, the Company shall distribute its Operating Cash Flow in the proportion of forty two and a half percent (42.5%) to the Investor Members and fifty seven and a half percent (57.5%) to MHC. 4.2.2. Distributions of Net Capital Proceeds. Within thirty (30) days after the end of each calendar month, or at such other intervals as the Manager shall determine, the Manager shall distribute its Net Capital Proceeds follows: (a) First, the Net Capital Proceeds shall be distributed to the Investor Members until each Investor Member has received a full return of his, her, or its Allocated Capital. (b) Second, once each Invesor Member has received a full return of his, her, or its Allocated Capital, the remaining Net Capital Proceeds shall be distributed in the proportion of forty two and a half percent (42.5%) to the Investor Members and fifty seven and a half percent (57.5%) to MHC. 4.2.3. Distributions Among Members. Any distributions to the Investor Members pursuant to section 4.2.1 or section 4.2.2 shall be made in accordance with their respective Percentage Interests. 4.2.4. Distributions to Pay Personal Tax Liabilities. In the event that the Company recognizes net gain or income for any taxable year, the Company shall, taking into account its financial condition and other commitments, make a good faith effort to distribute to each Member, no later than April 15th of the following year, an amount equal to the net gain or income allocated to such Member, multiplied by the highest marginal tax rate for individuals then in effect under section 1 of the Code plus the highest rate then in effect under the applicable law of the State where each Investor Member resides, if such amount has not already been distributed to such Member pursuant to this section 4.2. If any Member receives a smaller or larger distribution pursuant to this section than he, she, or it would have received had the same aggregate amount been distributed pursuant to section 4.2, then subsequent distributions shall be adjusted accordingly. Page 5
4.1.5.    Unreturned Investment    means, with respect to any Investor Member, the Capital Contribution of such Member red...
4.2.5. Tax Withholding. To the extent the Company is required to pay over any amount to any federal, state, local or foreign governmental authority with respect to distributions or allocations to any Member, the amount withheld shall be deemed to be a distribution in the amount of the withholding to that Member. If the amount paid over was not withheld from an actual distribution (i) the Company shall be entitled to withhold such amounts from subsequent distributions, and (ii) if no such subsequent distributions are anticipated for six (6) months, the Member shall , at the request of the Company, promptly reimburse the Company for the amount paid over. 4.2.6. Assets Distributed In Kind. If the Company distributes non-cash assets to the Members, including but not limited to promissory notes, each Member shall receive a pro rata share of such non-cash assets. 4.2.7. Manner of Distribution. All distributions to the Members will be made as Automated Clearing House (ACH) deposits into an account designated by each Member. To the extent a Member does not authorize the Company to make such ACH distributions into a designated Member account, distributions to such Member will be made by check and mailed to such Member after deduction by the Company from each such check of a Fifty Dollar ($50) processing fee. 4.2.8. Other Rules Governing Distributions. No distribution prohibited by 6 Del. C. §18-607 or not specifically authorized under this Agreement shall be made by the Company to any Member in his, her, or its capacity as a Member. A Member who receives a distribution prohibited by 6 Del. C. §18-607 shall be liable as provided therein. 4.3. Allocations of Profits and Losses. 4.3.1. General Rule: Allocations Follow Cash. The Company shall seek to allocate its income, gains, losses, deductions, and expenses (“Tax Items”) in a manner so that (i) such allocations have “substantial economic effect” as defined in section 704(b) of the Code and the regulations issued thereunder (the “Regulations”) and otherwise comply with applicable tax laws; (ii) each Member is allocated income equal to the sum of (A) the losses he, she, or it is allocated, and (B) the cash profits he, she, or it receives; and (iii) after taking into account the allocations for each year as well as such factors as the value of the Company’s assets, the allocations likely to be made to each Member in the future, and the distributions each Member is likely to receive, the balance of each Member’s capital account at the time of the liquidation of the Company will be equal to the amount such Member is entitled to receive pursuant to this Agreement. That is, the allocation of the Company’s Tax Items, should, to the extent reasonably possible, following the actual and anticipated distributions of cash, in the discretion of the Manager. In making allocations the Manager shall use reasonable efforts to comply with applicable tax laws, including without limitation through incorporation of a “qualified income offset,” a “gross income allocation,” and a “minimum gain chargeback,” as such terms or concepts are specified in the Regulations. The Manager shall be conclusively deemed to have used reasonable effort if it has sought and obtained advice from counsel. Page 6
4.2.5. Tax Withholding. To the extent the Company is required to pay over any amount to any federal, state, local or forei...
4.3.2. Losses and Income Attributable to Member Loans. In the event the Company recognizes a loss attributable to loans from the Members, then such loss, as well as any income recognized by the Company as a result of the repayment of such loan (including debt forgiveness income), shall be allocated to the Member(s) making such loan. 4.3.3. Allocations Relating to Taxable Issuance of Interest. Any income, gain, loss, or deduction realized as a direct or indirect result of the issuance of an interest in the Company by the Company to a Member (the “Issuance Items”) shall be allocated among the Members so that, to the extent possible, the net amount of such Issuance Items, together with all other allocations under this Agreement to each Member, shall be equal to the net amount that would have been allocated to each such Member if the Issuance Items had not been realized. 4.3.4. Section 754 Election. The Company may, but shall not be required to, make an election under section 754 of the Code at the request of any Member. The Company may condition its consent to make such an election on the agreement of the requesting Member to pay directly or reimburse the Company for any costs incurred in connection with such election or the calculations required as a result of such an election. 4.3.5. Pre-Distribution Adjustment. In the event property of the Company is distributed to one or more the Members in kind, there shall be allocated to the Members the amount of income, gain or loss which the Company would have recognized had such property been sold for its fair market value on the date of the distribution, to the extent such income, gain or loss has not previously been allocated among the Members. The allocation described in this section is referred to as the “Pre-Distribution Adjustment.” 5. ARTICLE FIVE: MANAGEMENT 5.1. Management by Manager. 5.1.1. In General. The business and affairs of the Company shall be directed, managed, and controlled by a single manager (the “Manager”). RCP shall serve as the Manager of the Company. 5.1.2. Powers of Manager. The Manager shall have full and complete authority, power and discretion to manage and control the business, affairs and properties of the Company, to make all decisions regarding those matters, to execute any contracts or other instruments on behalf of the Company, and to perform any and all other acts or activities customary or incidental to the management of the Company’s business. Page 7
4.3.2. Losses and Income Attributable to Member Loans. In the event the Company recognizes a loss attributable to loans fr...
5.1.3. Examples of Manager’s Authority. Without limiting the grant of authority set forth in section 5.1.2, the Manager shall have the power to (i) admit new Members on such terms as the Manager may determine; (ii) take any and all actions involving the Units, including but not limited to selling the Units; (iii) incur indebtedness on behalf of the Company, whether to banks or other lenders; (iv) determine the timing and amount of distributions; (v) determine the information to be provided to the Members; (vi) grant liens and other encumbrances on the Company’s assets; (vii) file and settle lawsuits on behalf of the Company; and (viii) dissolve the Company. 5.2. Resignation. A Manager may resign at any time by giving written notice to all of the Members. The resignation of a Manager shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. The resignation of a Manager shall not affect his, her, or its rights as a Member and shall not constitute a withdrawal of a Member. 5.3. Standard of Care. The Manager shall conduct the Company’s business using its business judgment. 5.4. Appointment of Manager. In the event of the resignation of a Manager, a new Manager shall be appointed by Members owning a majority of the then-outstanding Percentage Interests. 5.5. Restrictions on Members. Except as expressly provided otherwise in this Agreement, Members who are not also the Manager shall not be entitled to participate in the management or control of the Company, nor shall any such Member hold himself out as having such authority. Unless authorized to do so by the Manager, no attorney-in-fact, employee or other agent of the Company shall have any power or authority to bind the Company in any way, to pledge its credit or to render it liable pecuniarily for any purpose. No Member shall have any power or authority to bind the Company unless the Member has been authorized by the Manager in writing to act as an agent of the Company in accordance with the previous sentence. 5.6. Officers. The Manager may, from time to time, designate one or more persons to serve as officers of the Company, with such titles, responsibilities, compensation, and terms of office as the Manager may designate. Any officer may be removed by the Manager with or without cause. The appointment of an officer shall not in itself create contract rights. 5.7. Time Commitment. The Manager shall devote such time to the business and affairs of the Company as the Manager may determine in its sole and absolute discretion. 5.8. Compensation of Manager and its Affiliates. The Company may engage the Manager and/or its affiliates to provide services to the Company, and may purchase asset from and/or sell assets to the Manager and/or its affiliates, provided that all transactions between the Company on one hand and the Manager and/or its affiliates on the other hand shall be (i) on terms substantially equivalent to the terms that would be entered into between unrelated parties, (ii) fair to the Company, and (iii) disclosed to the Members. Page 8
5.1.3. Examples of Manager   s Authority. Without limiting the grant of authority set forth in section 5.1.2, the Manager ...
6. ARTICLE SIX: CONFIDENTIALITY OTHER BUSINESSES; INDEMNIFICATION; 6.1. Other Businesses. Each Member and Manager may engage in any business whatsoever, including a business that is competitive with the business of the Company, and the other Members shall have no interest in such businesses and no claims on account of such businesses, whether such claims arise under the doctrine of “corporate opportunity,” an alleged fiduciary obligation owed to the Company or its members, or otherwise. Without limiting the preceding sentence, the Members understand that the Manager and its affiliates are engaged in the oil and gas business and may be seeking to develop productive wells in the same geographic area as the Company. 6.2. Exculpation and Indemnification 6.2.1. Exculpation. (a) Covered Persons. As used in this section 6.2, the term “Covered Person” means the Manager and its affiliates and the officers, employees, and agents of the Company, acting within the scope of their authority. (b) Standard of Care. No Covered Person shall be liable to the Company for any loss, damage or claim incurred by reason of any action taken or omitted to be taken by such Covered Person in the good-faith business judgment of such Covered Person, so long as such action or omission does not constitute fraud or willful misconduct by such Covered Person. (c) Good Faith Reliance. A Covered Person shall be fully protected in relying in good faith upon the records of the Company and upon such information, opinions, reports, or statements (including financial statements and information) of the following persons: (i) another Covered Person; (ii) any attorney, independent accountant, appraiser, or other expert or professional employed or engaged by or on behalf of the Company; or (iii) any other person selected in good faith by or on behalf of the Company, in each case as to matters that such relying Covered Person reasonably believes to be within such other person’s professional or expert competence. The preceding sentence shall in no way limit any person's right to rely on information to the extent provided in the Act. 6.2.2. Liabilities and Duties of Covered Persons. (a) Limitation of Liability. This Agreement is not intended to, and does not, create or impose any fiduciary duty on any Covered Person. Furthermore, each Member and the Company hereby waives any and all fiduciary duties that, absent such waiver, may be implied by applicable law, and in doing so, acknowledges and agrees that the duties and obligation of each Covered Person to each other and to the Company are only as expressly set forth in this Agreement. The provisions of this Agreement, to the extent that they restrict the duties and liabilities of a Covered Person otherwise existing at law or in equity, are agreed by the Members to replace such other duties and liabilities of such Covered Person. Page 9
6. ARTICLE SIX  CONFIDENTIALITY  OTHER  BUSINESSES   INDEMNIFICATION   6.1. Other Businesses. Each Member and Manager may ...
(b) Duties. Whenever a Covered Person is permitted or required to make a decision, the Covered Person shall be entitled to consider only such interests and factors as such Covered Person desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Company or any other person. Whenever in this Agreement a Covered Person is permitted or required to make a decision in such Covered Person’s “good faith,” the Covered Person shall act under such express standard and shall not be subject to any other or different standard imposed by this Agreement or any other applicable law. 6.2.3. Indemnification. (a) Indemnification. To the fullest extent permitted by the Act, as the same now exists or may hereafter be amended, substituted or replaced (but, in the case of any such amendment, substitution or replacement only to the extent that such amendment, substitution or replacement permits the Company to provide broader indemnification rights than the Act permitted the Company to provide prior to such amendment, substitution or replacement), the Company shall indemnify, hold harmless, defend, pay and reimburse any Covered Person against any and all losses, claims, damages, judgments, fines or liabilities, including reasonable legal fees or other expenses incurred in investigating or defending against such losses, claims, damages, judgments, fines or liabilities, and any amounts expended in settlement of any claims (collectively, “Losses”) to which such Covered Person may become subject by reason of any act or omission or alleged act or omission performed or omitted to be performed by such Covered Person on behalf of the Company in connection with the business of the Company; provided, that (i) such Covered Person acted in good faith and in a manner believed by such Covered Person to be in, or not opposed to, the best interests of the Company and, with respect to any criminal proceeding, had no reasonable cause to believe his, her, or its conduct was unlawful, and (ii) such Covered Person's conduct did not constitute fraud or willful misconduct, in either case as determined by a final, nonappealable order of a court of competent jurisdiction. In connection with the foregoing, the termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Covered Person did not act in good faith or, with respect to any criminal proceeding, had reasonable cause to believe that such Covered Person’s conduct was unlawful, or that the Covered Person's conduct constituted fraud or willful misconduct. (b) Reimbursement. The Company shall promptly reimburse (and/or advance to the extent reasonably required) each Covered Person for reasonable legal or other expenses (as incurred) of such Covered Person in connection with investigating, preparing to defend or defending any claim, lawsuit or other proceeding relating to any Losses for which such Covered Person may be indemnified pursuant to this section 6.2.3; provided, that if it is finally judicially determined that such Covered Person is not entitled to the indemnification provided by this section 6.2.3, then such Covered Person shall promptly reimburse the Company for any reimbursed or advanced expenses. Page 10
 b  Duties. Whenever a Covered Person is permitted or required to make a decision, the Covered Person shall be entitled to...
(c) Entitlement to Indemnity. The indemnification provided by this section 6.2.3 shall not be deemed exclusive of any other rights to indemnification to which those seeking indemnification may be entitled under any agreement or otherwise. The provisions of this section 6.2.3 shall continue to afford protection to each Covered Person regardless whether such Covered Person remains in the position or capacity pursuant to which such Covered Person became entitled to indemnification under this section 6.2.3 and shall inure to the benefit of the executors, administrators, and legal representative of such Covered Person. (d) Insurance. To the extent available on commercially reasonable terms, the Company may purchase, at its expense, insurance to cover Losses covered by the foregoing indemnification provisions and to otherwise cover Losses for any breach or alleged breach by any Covered Person of such Covered Person’s duties in such amount and with such deductibles as the Board may determine; provided, that the failure to obtain such insurance shall not affect the right to indemnification of any Covered Person under the indemnification provisions contained herein, including the right to be reimbursed or advanced expenses or otherwise indemnified for Losses hereunder. If any Covered Person recovers any amounts in respect of any Losses from any insurance coverage, then such Covered Person shall, to the extent that such recovery is duplicative, reimburse the Company for any amounts previously paid to such Covered Person by the Company in respect of such Losses. (e) Funding of Indemnification Obligation. Any indemnification by the Company pursuant to this section 6.2.3 shall be provided out of and to the extent of Company assets only, and no Member shall have personal liability on account thereof or shall be required to make additional capital contributions to help satisfy such indemnification obligation, notwithstanding section 2.2.1. (f) Savings Clause. If this section 6.2.3 or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify and hold harmless each Covered Person pursuant to this section 6.2.3 to the fullest extent permitted by any applicable portion of this section 6.3 that shall not have been invalidated and to the fullest extent permitted by applicable law. 6.2.4. Amendment. The provisions of this section 6.2 shall be a contract between the Company, on the one hand, and each Covered Person who served in such capacity at any time while this section is in effect, on the other hand, pursuant to which the Company and each such Covered Person intend to be legally bound. No amendment, modification or repeal of this section that adversely affects the rights of a Covered Person to indemnification for Losses incurred or relating to a state of facts existing prior to such amendment, modification or repeal shall apply in such a way as to eliminate or reduce such Covered Person’s entitlement to indemnification for such Losses without the Covered Person’s prior written consent. 6.2.5. Survival. The provisions of this section 6.2 shall survive the dissolution, liquidation, winding up, and termination of the Company. Page 11
 c  Entitlement to Indemnity. The indemnification provided by this section 6.2.3 shall not be deemed exclusive of any othe...
6.3. Confidentiality. For as long as he, she, or it owns an interest in the Company and at all times thereafter, no Investor Member shall divulge to any person or entity, or use for his, her, or its own benefit or the benefit of any person, any information of the Company of a confidential or proprietary nature, including, but not limited to (i) financial information; (ii) the business methods, systems, or practices used by the Company; and (iii) the identity of the Company’s Members, customers, or suppliers. The foregoing shall not apply to information that is in the public domain or that an Investor Member is required to disclose by legal process. 7. ARTICLE SEVEN: BANK ACCOUNTS; BOOKS OF ACCOUNT; REPORTS 7.1. Bank Accounts. Funds of the Company may be deposited in accounts at banks or other institutions selected by the Manager. Withdrawals from any such account or accounts shall be made in the Company’s name upon the signature of such persons as the Manager may designate. Funds in any such account shall not be commingled with the funds of any Member. 7.2. Books and Records of Account. The Company shall keep at its principal offices books and records of account of the Company which shall reflect a full and accurate record of each transaction of the Company. 7.3. Annual Financial Statements and Reports. Within a reasonable period after the close of each fiscal year, the Company shall furnish to each Member with respect to such fiscal year (i) a statement showing in reasonable detail the computation of the amount distributed under section 4.1, (ii) a balance sheet of the Company, (iii) a statement of income and expenses, and (iv) such information from the Company’s annual information return as is necessary for the Members to prepare their Federal, state and local income tax returns. The financial statements of the Company need not be audited by an independent certified public accounting firm unless the Manager so elects. 7.4. Right of Inspection. 7.4.1. In General. If a Member wishes additional information or to inspect the books and records of the Company for a bona fide purpose, the following procedure shall be followed: (i) such Member shall notify the Manager, setting forth in reasonable detail the information requested and the reason for the request; (ii) within sixty (60) days after such a request, the Manager shall respond to the request by either providing the information requested or scheduling a date (not more than 90 days after the initial request) for the Member to inspect the Company’s records; (iii) any inspection of the Company’s records shall be at the sole cost and expense of the requesting Member; and (iv) the requesting Member shall reimburse the Company for any reasonable costs incurred by the Company in responding to the Member’s request and making information available to the Member. 7.4.2. Bona Fide Purpose. The Manager shall not be required to respond to a request for information or to inspect the books and records of the Company if the Manager believes such request is made to harass the Company or the Manager, to seek confidential information about the Company, or for any other purpose other than a bona fide purpose. Page 12
6.3. Confidentiality. For as long as he, she, or it owns an interest in the Company and at all times thereafter, no Invest...
7.4.3. Representative. An inspection of the Company’s books and records may be conducted by an authorized representative of a Member, provided such authorized representative is an attorney or a licensed certified public accountant and is reasonably satisfactory to the Manager. 7.4.4. Restrictions. The following restrictions shall apply to any request for information or to inspect the books and records of the Company: (a) No Member shall have a right to a list of the Investor Members or any information regarding the Investor Members. (b) Before providing additional information or allowing a Member to inspect the Company’s records, the Manager may require such Member to execute a confidentiality agreement satisfactory to the Manager. (c) No Member shall have the right to any trade secrets of the Company or any other information the Manager deems highly sensitive and confidential. (d) No Member may review the books and records of the Company more than once during any twelve (12) month period. (e) Any review of the Company’s books and records shall be scheduled in a manner to minimize disruption to the Company’s business. (f) A representative of the Company may be present at any inspection of the Company’s books and records. (g) If more than one Member has asked to review the Company’s books and records, the Manager may require the requesting Members to consolidate their request and appoint a single representative to conduct such review on behalf of all requested Members. (h) The Manager may impose additional reasonable restrictions for the purpose of protecting the Company and the Members. 7.5. Tax Matters Member. The Manager shall serve as the tax matters partner for the Company for Federal income tax purposes. Page 13
7.4.3. Representative. An inspection of the Company   s books and records may be conducted by an authorized representative...
8. ARTICLE EIGHT: TRANSFERS OF INTEREST 8.1. Voluntary Transfers. 8.1.1. Generally. No Investor Member shall sell, transfer, assign or encumber all or any portion of his, her, or its Percentage Interest, with or without consideration, without the prior written consent of the Manager, which may be withheld in the sole discretion of the Manager. In the event an Investor Member proposes to transfer all or portion of his, her, or its Percentage Interest, the Manager may impose reasonable conditions including but not limited to: (i) the transferee shall execute a counterpart of this Agreement; (ii) the transferor shall provide the Company with an opinion of counsel, satisfactory in form and substance to the Company’s counsel, stating that the transfer is exempt from registration under the Securities Act of 1933 and other applicable securities laws; and (iii) the transferor and transferee shall together reimburse the Company for any reasonable expenses they incur in connection with the transfer or encumbrance, including attorneys’ fees. 8.1.2. Prohibited Transfers. No transfer of a Percentage Interest shall be permitted if, in the judgment of the Manager, such transfer would (i) cause the Company to be treated as a publicly traded partnership as defined in Section 7704 of the Code, (ii) result in “benefit plan investors” (as such term is defined in regulations issued by the Treasury Department) holding, in the aggregate, twenty five percent (25%) or more of the value of any class of equity interests in the Company, or (iii) together with other transfers within the preceding twelve (12) months, result in the termination of the Company under section 708 of the Code. 8.1.3. First Right of Refusal. (a) In General. In the event an Investor Member (the “Selling Member”) receives an offer from a third party to acquire all or a portion of his, her, or its Percentage Interest (the “Transfer Interest”), he, she, or it shall notify the Manager and MHC, specifying the Percentage Interest to be purchased, the purchase price, the approximate closing date, the form of consideration, and such other terms and conditions of the proposed transaction that have been agreed with the proposed purchaser (the “Sales Notice”). Within thirty (30) days after receipt of the Sales Notice, MHC shall notify the Selling Member whether MHC elects to purchase the entire Transfer Interest on the terms set forth in the Sales Notice. (b) Special Rules. The following rules shall apply for purposes of this section: (1) If MHC elects not to purchase the Transfer Interest, or fails to respond to the Sales Notice within the thirty (30) day period described above, the Selling Member may proceed with the sale to the proposed purchaser, subject to section 8.1.1. (2) If MHC elects to purchase the Transfer Interest, it shall do so , at their election, either (i) on the terms and conditions set forth in the Sales Notice, it shall do so within thirty (30) days. Page 14
8.  ARTICLE EIGHT  TRANSFERS OF INTEREST 8.1.  Voluntary Transfers.  8.1.1. Generally. No Investor Member shall sell, tran...
(3) If MHC elects not to purchase the Transfer Interest, or fails to respond to the Sales Notice within the thirty (30) day period described above, and the Selling Member and the purchaser subsequently agree to a reduction of the purchase price, a change in the consideration from cash or readily tradeable securities to deferred payment obligations or nontradeable securities, or any other material change to the terms set forth in the Sales Notice, such agreement between the Selling Member and the purchaser shall be treated as a new offer and shall again be subject to this section. (4) If MHC elects to purchase the Transfer Interest in accordance with this section, such election shall have the same binding effect as the then-current agreement between the Selling Member and the proposed purchaser. Thus, for example, if the Selling Member and the purchaser have entered into a non-binding letter of intent but have not entered into a binding definitive agreement, the election of MHC shall have the effect of a non-binding letter of intent with the Selling Member. Conversely, if the Selling Member and the purchaser have entered into a binding definitive agreement, the election of MHC shall have the effect of a binding definitive agreement. If the Selling Member and MHC are deemed by this subsection to have entered into only a non-binding letter of intent, neither shall be bound to consummate a transaction if they are unable to agree to the terms of a binding agreement. 8.1.4. Admission of Transferee. Any permitted transferee of a Percentage Interest Company shall be admitted to the Company as a Member on the date agreed by the transferor, the transferee, and the Manager. 8.1.5. Exempt Transfers. The following transactions shall be exempt from the provisions of section 8.1: (a) A transfer to or for the benefit of any spouse, child or grandchild of an Investor Member, or to a trust for their exclusive benefit; (b) Any transfer pursuant to an effective registration statement filed by the Company under the Securities Act of 1933, as amended; and (c) The sale of all or substantially all of the interests of the Company (including pursuant to a merger or consolidation); provided, however, that in the case of a transfer pursuant to section 8.1.5(a), (i) the transferred Percentage Interest shall remain subject to this Agreement, (ii) the transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Agreement, and (iii) the transferred Percentage Interest shall not thereafter be transferred further in reliance on section 8.1.5(a). Page 15
 3  If MHC elects not to purchase the Transfer Interest, or fails to respond to the Sales Notice within the thirty  30  da...
8.1.6. Application to Certain Entities. In the case of an investor that is a Special Purpose Entity, the restrictions set forth in section 8.1 shall apply to indirect transfers of interests in the Company by transfers of interests in such entity (whether by transfer of an existing interest or the issuance of new interests), as well as to direct transfers. A “Special Purpose Entity” means (i) an entity formed or availed of principally for the purpose of acquiring or holding an interest in the Company, and (ii) any entity if the purchase price of its interest in the Company represents at least seventy percent (70%) of its capital. 8.1.7. Other Transfers Void. Transfers in contravention of this section shall be null, void and of no force or effect whatsoever, and the Members agree that any such transfer may and should be enjoined. 8.2. Death, Insolvency, Etc. Neither the death, disability, bankruptcy, or insolvency of a Member, nor the occurrence of any other voluntary or involuntary event with respect to a Member, shall give the Company or any Member the right to purchase such Member’s Percentage Interest, nor give the Member himself (or his, her, or its heirs, assigns, or representatives) the right to sell such Percentage Interest to the Company or any other Member. Instead, such Member or his, her, or its heirs, assigns, or legal representatives shall remain a Member subject to the terms and conditions of this Agreement. 8.3. Incorporation. If the Manager determines that the business of the Company should be conducted in a corporation rather than in a limited liability company, whether for tax or other reasons, each Member shall cooperate in transferring the business to a newly-formed corporation and shall execute such agreements as the Manager may reasonably determine are necessary or appropriate, consistent with the terms of the this Agreement. In such event each Member shall receive stock in the newly-formed corporation equivalent to his, her, or its Percentage Interest. 8.4. Drag-Along Right. In the event the Manager approves a sale or other disposition of all of the interests in the Company, then, upon notice of the sale or other disposition, each Member shall execute such documents or instruments as may be requested by the Manager to effectuate such sale or other disposition and shall otherwise cooperate with the Manager. The following rules shall apply to any such sale or other disposition: (i) each Investor Member shall represent that he, she, or it owns his, her, or its Percentage Interest free and clear of all liens and other encumbrances. that he, she or it has the power to enter into the transaction, and that he, she or its is a U.S. person, but shall not be required to make any other representations or warranties; (ii) each Investor shall grant to the Manager a power of attorney to act on behalf of such Investor Member in connection with such sale or other disposition; and (iii) each Member shall receive, as consideration for such sale or other disposition, the same amount he, she, or it would have received had all or substantially all of the assets of the Company been sold and the net proceeds distributed in liquidation of the Company. 8.5. Waiver of Appraisal Rights. Each Member hereby waives any contractual appraisal rights such Member may otherwise have pursuant to 6 Del. C. §18-210 or otherwise, as well as any “dissenter’s rights.” Page 16
8.1.6. Application to Certain Entities. In the case of an investor that is a Special Purpose Entity, the restrictions set ...
8.6. Withdrawal. A Member may withdraw from the Company by giving at least ninety (90) days notice to the Manager. The withdrawing Member shall be entitled to no distributions or payments from Company on account of his, her, or its withdrawal, nor shall he, she, or it be indemnified against liabilities of Company. The withdrawing Member’s Percentage Interest shall be reallocated among the remaining Members in proportion to their Percentage Interests. For purposes of this section, a Member who transfers his, her, or its Percentage Interest pursuant to (i) a transfer permitted under section 8.1, or (ii) an involuntary transfer by operation of law, shall not be treated as thereby withdrawing from Company. 9. ARTICLE NINE: DISSOLUTION AND LIQUIDATION 9.1. Dissolution. The Company shall be dissolved only upon (i) the determination of the Manager to dissolve, or (ii) the entry of a judicial decree of dissolution. Dissolution shall be effective on the date designated by the Manager, but the Company shall not terminate until liquidation of the Company has been completed in accordance with the provisions of section 9.2. 9.2. Liquidation. 9.2.1. Generally. If the Company is dissolved, the Company’s assets shall be liquidated and no further business shall be conducted by the Company except for such action as shall be necessary to wind-up its affairs and distribute its assets to the Members pursuant to the provisions of this Article Nine. Upon such dissolution, the Manager shall have full authority to wind-up the affairs of the Company and to make final distribution as provided herein. 9.2.2. Distribution of Assets. After liquidation of the Company, the assets of the Company shall be distributed as set forth in section 4.1.2, except that all loans (including Member Loans) shall be paid in full. 9.2.3. Distributions In Kind. The assets of the Company shall be liquidated as promptly as possible so as to permit distributions in cash, but such liquidation shall be made in an orderly manner so as to avoid undue losses attendant upon liquidation. In the event that in the Manager’ opinion complete liquidation of the assets of the Company within a reasonable period of time proves impractical, assets of the Company other than cash may be distributed to the Members in kind but only after all cash and cash-equivalents have first been distributed and after the Pre-Distribution Adjustment. 9.2.4. Statement of Account. Each Member shall be furnished with a statement prepared by the Company’s accountants, which shall set forth the assets and liabilities of the Company as of the date of complete liquidation, and the capital account of each Member immediately prior to any distribution in liquidation. Page 17
8.6. Withdrawal. A Member may withdraw from the Company by giving at least ninety  90  days notice to the Manager. The wit...
10. ARTICLE TEN: MISCELLANEOUS 10.1. Amendments. 10.1.1. Amendments by Manager. The Manager may, without the consent of the Members, amend this Agreement to (i) correct typographical mistakes; (ii) reflect the admission of additional Members, including an additional class of Members with different rights to distributions; and (iii) comply with applicable law. 10.1.2. Other Amendments. Amendments other than those described above shall require the consent of the Manager and Members owning a majority of the then-outstanding Percentage Interests. Without limiting the preceding sentence, the Manager may not, without such consent, adopt any amendment that would (i) amend this section 10.1; (ii) require any Member to make additional Capital Contributions; (iii) impose personal liability on any Member, beyond the personal liability described in section 2.2.1; (iv) change the business and purpose of the Company; or (v) change an Investor Member’s share of distributions relative to other Investor Members. 10.2. Waivers. No delay in the exercise of any right shall be deemed a waiver thereof, nor shall the waiver of a right or remedy in a particular instance constitute a waiver of such right or remedy generally. 10.3. Notices. Any notice or document required or permitted to be given under this Agreement may be given by a party or by its legal counsel and shall be deemed to be given by electronic mail with transmission acknowledgment, to the principal business address of the Company, if to the Company or the Manager, to the email address of an Investor Member provided by such Investor Member to the Company, or such other address or addresses as the parties may designate from time to time by notice satisfactory under this section. 10.4. Electronic Delivery. Each Member hereby agrees that all communications with the Company, including all tax forms, shall be via electronic delivery. 10.5. Governing Law. This Agreement shall be governed by the internal laws of Delaware without giving effect to the principles of conflicts of laws. Each Member hereby (i) consents to the personal jurisdiction of the Delaware courts or the Federal courts located in Delaware, (ii) agrees that all disputes arising from this Agreement shall be prosecuted in such courts, (iii) agrees that any such court shall have in personam jurisdiction over such Member, (iv) consents to service of process by notice sent by regular mail to the address set forth on Schedule A and/or by any means authorized by Delaware law, and (v) if such Member is not otherwise subject to service of process in Delaware, agrees to appoint and maintain an agent in Delaware to accept service, and to notify the Company of the name and address of such agent. 10.6. Waiver of Jury Trial. Each Member acknowledges and agrees that any controversy that may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, each Member irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this Agreement. 10.7. Signature in Counterparts. This Agreement may be signed in counterparts, each of Page 18
10.  ARTICLE TEN  MISCELLANEOUS 10.1.  Amendments.  10.1.1. Amendments by Manager. The Manager may, without the consent of...
which shall be deemed to be a fully-executed original. 10.8. Signature by Investor Members. It is anticipated that this Agreement will be signed by the Investor Members electronically, by executing a separate agreement captioned “Investment Agreement.” 10.9. No Third Party Beneficiaries. Except as otherwise specifically provided in this Agreement, this Agreement is made for the sole benefit of the parties. No other persons shall have any rights or remedies by reason of this Agreement against any of the parties or shall be considered to be third party beneficiaries of this Agreement in any way. 10.10. Binding Effect. This Agreement shall inure to the benefit of the respective heirs, legal representatives and permitted assigns of each party, and shall be binding upon the heirs, legal representatives, successors and assigns of each party. 10.11. Titles and Captions. All article, section and paragraph titles and captions contained in this Agreement are for convenience only and are not deemed a part of the context hereof. 10.12. Pronouns and Plurals. All pronouns and any variations thereof are deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the person or persons may require. 10.13. Legal Representation. The Company and the HomeBound Member have been represented by Flaster/Greenberg P.C. in connection with the preparation of this Agreement. Each other Member (i) represents that such Member has not been represented by Flaster/Greenberg P.C. in connection with the preparation of this Agreement, (ii) agrees that Flaster/Greenberg P.C. may represent the Company and/or the HomeBound Member in the event of a dispute involving such Member, and (iii) acknowledges that such Member has been advised to seek separate counsel in connection with this Agreement. 10.14. Days. Any period of days mandated under this Agreement shall be determined by reference to calendar days, not business days, except that any payments, notices, or other performance falling due on a Saturday, Sunday, or federal government holiday shall be considered timely if paid, given, or performed on the next succeeding business day. 10.15. Entire Agreement. This Agreement constitutes the entire agreement among the parties with respect to its subject matter and supersedes all prior agreements and understandings. Page 19
which shall be deemed to be a fully-executed original. 10.8. Signature by Investor Members. It is anticipated that this Ag...
Unique Tax Benefits of Investing in Oil & Gas Programs In an effort to become less dependent on foreign oil, the U.S. government offers unparalleled tax incentives to encourage investment in domestic oil and gas projects. The tax benefits found in oil and gas investments are some of the only tax shelters that survived the Tax Reform Act of 1986. These incentives are not found in any other recognized investment vehicle and include: • 100% write-off of Intangible Drilling Costs • 100% depreciation write-off of equipment costs (over 7 years) • 15% tax-free income Other tax perks include being able to… • Invest a sum of money late in the tax year and deduct almost your full investment amount as an expense in the same year • Use the deduction to offset other income • Have 15% of resulting income be tax-free • Have resulting income be subject only to regular income tax (i.e. not taxed as self-employment income) For more information and to inquire about current investment opportunities, call or click today. HomeBound Resources, LLC 888.660.8159 hb-resources.com TYPES OF INVESTORS Individuals | Trusts | IRAs | Pension Plans | Profit Sharing Plans | LLCs | Partnerships | Corporations | Foundations HomeBound Resources A Robust Team Bound to the Interests of Our Investors 1303 West Walnut Hill Lane, #305. Irving, Texas 75038 | hb-resources.com Securities offered by WealthForge Securities, LLC member FINRA / SIPC
Unique Tax Benefits of Investing in Oil   Gas Programs In an effort to become less dependent on foreign oil, the U.S. gove...
Intangible Drilling Costs Intangible Drilling Costs, which include items like labor and water, typically account for upwards of 80% of the total cost of completing a well. Tangible Drilling Costs (Equipment Costs) Tangible Drilling Costs typically account for around 20% of the total cost of completing a well. These costs include equipment that is generally viewed as having some salvageable value after drilling, such as casing, tanks, wellheads, etc. These costs may be depreciated over a 7-year timeframe. An Example To put the tax deductions into perspective, consider this simplified example: Original Investment Price: Estimated Intangible Drilling Costs @ 75%: Estimated Tangible Drilling Costs @ 2% (first year only): Total Tax Deduction: $150,000 $112,500 $3,000 $115,500 Tax Bracket: First Year Tax Savings: Out of Pocket Investment: 35% $40,425 $109,575 *Once the wells begin producing, 15% of gross income made from your monthly dividends each year will also be tax-free. Tax Calculator Use the following section to estimate your first-year tax savings: Original Investment Price: $ Estimated Intangible Drilling Costs @ 75%: $ Estimated Tangible Drilling Costs @ 2% (first year only): $ Total Tax Deduction (add two above numbers): $ Tax Bracket: % First Year Tax Savings: $ Out of Pocket Investment: $ This sheet contains simplified examples of the tremendous tax benefits available. For a much more detailed explanation of these tax deductions, please refer to the Tax Code, Section 263 or consult a qualified CPA. This is not an offering or the solicitation of an offer to purchase an interest in any investment vehicle. Any such offer or solicitation will only be made to qualified investors by means of an offering memorandum and only in those jurisdictions where permitted by law. The target returns set forth within all offerings may not be realized; actual results may differ materially from the stated goals. Prior to investing, investors must receive a prospectus, which contains important information regarding the investment objectives, risks, fees, and expenses of any funds and/or other investment opportunities. Past performance is no guarantee of future results. All investments involve risk, including the loss of principal. Securities offered by WealthForge Securities, LLC member FINRA / SIPC
Intangible Drilling Costs Intangible Drilling Costs, which include items like labor and water, typically account for upwar...