Exhibit 10.6

Execution Version

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

December 19, 2016

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TABLE OF CONTENTS

 

         Page  

ARTICLE I FORMATION OF COMPANY

     1   

Section 1.1.

  Formation and Continuation      1   

Section 1.2.

  Name      1   

Section 1.3.

  Business      2   

Section 1.4.

  Places of Business; Registered Agent; Names and Addresses of Members.      2
  

Section 1.5.

  Term      2   

Section 1.6.

  Filings      2   

Section 1.7.

  Title to Company Property      2   

Section 1.8.

  No Payments of Individual Obligations      2   

ARTICLE II DEFINITIONS AND REFERENCES

     3   

Section 2.1.

  Defined Terms      3   

Section 2.2.

  References and Titles      17   

ARTICLE III

  CAPITALIZATION AND UNITS      17   

Section 3.1.

  Capital Contributions of Members.      17   

Section 3.2.

  Issuances of Additional Securities.      17   

Section 3.3.

  Return of Contributions      17   

Section 3.4.

  Incentive Interests.      17   

ARTICLE IV

  ALLOCATIONS AND DISTRIBUTIONS      21   

Section 4.1.

  Allocations of Net Profits and Net Losses.      21   

Section 4.2.

  Special Allocations.      22   

Section 4.3.

  Income Tax Allocations.      24   

Section 4.4.

  Distributions.      25   

ARTICLE V MANAGEMENT AND RELATED MATTERS

     29   

Section 5.1.

  Power and Authority of Board.      29   

Section 5.2.

  Officers.      30   

Section 5.3.

  Acknowledged and Permitted Activities.      31   

Section 5.4.

  Duties and Services of the Board      31   

Section 5.5.

  Liability and Indemnification.      31   

Section 5.6.

  Reimbursement of Members      33   

Section 5.7.

  Insurance      33   

Section 5.8.

  Tax Elections and Status.      33   

Section 5.9.

  Tax Returns      33   

Section 5.10.

  Tax Matters Member      33   

Section 5.11.

  Section 83(b) Election      34   

Section 5.12.

  Tax Reimbursement      34   

ARTICLE VI RIGHTS OF MEMBERS

     35   

Section 6.1.

  Rights of Members      35   

 

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Section 6.2.

  Limitations on Members      35   

Section 6.3.

  Liability of Members      35   

Section 6.4.

  Withdrawal and Return of Capital Contributions      35   

Section 6.5.

  Voting Rights      36   

ARTICLE VII BOOKS, REPORTS, MEETINGS AND CONFIDENTIALITY

     36   

Section 7.1.

  Capital Accounts, Books and Records.      36   

Section 7.2.

  Bank Accounts      38   

Section 7.3.

  Reports      38   

Section 7.4.

  Meetings of Members      38   

Section 7.5.

  Confidentiality      39   

ARTICLE VIII DISSOLUTION, LIQUIDATION AND TERMINATION

     39   

Section 8.1.

  Dissolution      39   

Section 8.2.

  Winding Down      39   

Section 8.3.

  Liquidation and Termination      39   

ARTICLE IX ASSIGNMENTS OF COMPANY INTERESTS

     40   

Section 9.1.

  Assignments of Company Interests.      40   

ARTICLE X REPRESENTATIONS AND WARRANTIES

     41   

Section 10.1.

  Representations and Warranties      41   

ARTICLE XI MISCELLANEOUS

     44   

Section 11.1.

  Notices      44   

Section 11.2.

  Amendment.      44   

Section 11.3.

  Partition      45   

Section 11.4.

  Entire Agreement      45   

Section 11.5.

  Severability      45   

Section 11.6.

  No Waiver      46   

Section 11.7.

  Applicable Law      46   

Section 11.8.

  Successors and Assigns      46   

Section 11.9.

  Arbitration      46   

Section 11.10.

  Counterparts      48   

 

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AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

OF

WILDHORSE INVESTMENT HOLDINGS, LLC

THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this
“Agreement”), dated effective as of December 19, 2016, is made by and among
WildHorse Investment Holdings, LLC, a Delaware limited liability company (the
“Company”), and the Persons who have executed a signature page to this Agreement
as the Members and the Managers.

WHEREAS, the Company was formed pursuant to the filing of a Certificate of
Formation with the Secretary of State of the State of Delaware effective on
November 21, 2016, in accordance with the provisions of the Act (as defined
below) and by the execution of that certain Limited Liability Company Agreement,
dated effective as of November 21, 2016 (the “Original Agreement”); and

WHEREAS, effective as of the date hereof, the parties to this Agreement hereby
amend and restate the Original Agreement in its entirety as set forth herein in
order to reflect the admission of the WildHorse Members, and the parties’
agreement regarding the manner in which the Company shall be governed and
operated and the other matters set forth herein.

ARTICLE I

FORMATION OF COMPANY

Section 1.1. Formation and Continuation. Subject to the provisions of this
Agreement, the parties do hereby desire to establish this Agreement to continue
and govern the Company as a limited liability company under the provisions of
the Delaware Limited Liability Company Act, DEL. CODE ANN. TIT. 6 §§ 18-101
(2010) et seq., as amended from time to time, and any successor statute or
statutes (the “Act”). The Company was formed upon the execution and filing by
the organizer with the Secretary of State of the State of Delaware of a
Certificate of Formation of the Company effective on November 21, 2016. This
Agreement shall amend and restate in its entirety the Original Agreement in all
respects and such Original Agreement shall be of no force or effect after the
date hereof. The parties hereby continue the Company pursuant to the terms and
provisions of this Agreement.

Section 1.2. Name. The name of the Company shall be WildHorse Investment
Holdings, LLC. Subject to all applicable laws, the business of the Company shall
be conducted in the name of the Company unless under the law of some
jurisdiction in which the Company does business such business must be conducted
under another name or unless the Board determines that it is advisable to
conduct Company business under another name. In such a case, the business of the
Company in such jurisdiction or in connection with such determination may be
conducted under such other name or names as the Board shall determine to be
necessary. The Board shall cause to be filed on behalf of the Company such
assumed or fictitious name certificate or certificates or similar instruments as
may from time to time be required by law.

 

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Section 1.3. Business. The business of the Company shall be, whether directly or
indirectly through subsidiaries, to hold shares of common stock of WRDC and to
make distributions to Members as provided herein.

Section 1.4. Places of Business; Registered Agent; Names and Addresses of
Members.

(a) The address of the principal United States office and place of business of
the Company and its street address shall be 9805 Katy Freeway, Suite 400,
Houston, Texas 77024. The Board, at any time and from time to time, may change
the location of the Company’s principal place of business upon giving prior
written notice of such change to the Members and may establish such additional
place or places of business of the Company as the Board shall determine to be
necessary or desirable.

(b) The registered office of the Company in the State of Delaware shall be and
it hereby is, established and maintained at 1209 Orange Street, Wilmington,
Delaware 19801, and the registered agent for service of process on the Company
shall be The Corporation Trust Company, whose business address is the same as
the Company’s registered office in Delaware. The Board, at any time and from
time to time, may change the Company’s registered office or registered agent or
both by complying with the applicable provisions of the Act, and may establish,
appoint and change additional registered offices and registered agents of the
Company in such other states as the Board shall determine to be necessary or
advisable.

(c) The mailing address and street address of each of the Members shall be the
same as for the Company, unless another address for such Member is set forth on
Exhibit A to this Agreement.

Section 1.5. Term. The Company shall continue until terminated in accordance
with Section 8.1.

Section 1.6. Filings. Upon the request of the Board, the Members shall promptly
execute and deliver all such certificates and other instruments conforming
hereto as shall be necessary for the Board to accomplish all filing, recording,
publishing and other acts appropriate to comply with all requirements for the
formation and operation of a limited liability company under the laws of the
State of Delaware and for the qualification and operation of a limited liability
company in all other jurisdictions where the Company shall propose to conduct
business. Prior to conducting business in any jurisdiction, the Board shall use
its reasonable good faith efforts to cause the Company to comply with all
requirements for the qualification of the Company to conduct business as a
limited liability company in such jurisdiction.

Section 1.7. Title to Company Property. All property owned by the Company,
whether real or personal, tangible or intangible, shall be deemed to be owned by
the Company as an entity, and no Member, individually, shall have any ownership
of such property. The Company may hold its property in its own name or in the
name of a nominee which may be the Board or any of its Affiliates or any trustee
or agent designated by it.

Section 1.8. No Payments of Individual Obligations. The Members shall use the
Company’s credit and assets solely for the benefit of the Company. No asset of
the Company shall be Transferred for or in payment of any individual obligation
of any Member.

 

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ARTICLE II

DEFINITIONS AND REFERENCES

Section 2.1. Defined Terms. When used in this Agreement, the following terms
shall have the respective meanings set forth below:

“Act” shall have the meaning assigned to such term in Section 1.1.

“Adjusted Capital Account” shall mean the Capital Account maintained for each
Member as provided in Section 7.1(b) as of the end of each Fiscal Period,
(a) increased by (i) the amount of any unpaid Capital Contributions agreed to be
contributed by such Member under Section 3.1, if any, and (ii) an amount equal
to such Member’s allocable share of Minimum Gain as computed on the last day of
such Fiscal Period in accordance with the applicable Treasury Regulations, and
(b) reduced by the adjustments provided for in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4)-(6).

“Adjusted Obligation” shall mean any Obligation the Carrying Value of which has
been adjusted pursuant to Section 7.1(b)(vi) or any Obligation that has a
Carrying Value different than its adjusted issue price at the time the
Obligation is assumed, or taken subject to, by the Company from a Member in
connection with a contribution to the Company subject to Section 721 of the
Code.

“Adjusted Property” shall mean any property the Carrying Value of which has been
adjusted pursuant to Section 7.1(b)(vi) or any property that has a Carrying
Value different than the adjusted tax basis at the time of a Capital
Contribution by a Member.

“Affiliate” (whether or not capitalized) shall mean, with respect to any Person:
(a) any other Person directly or indirectly owning, controlling or holding power
to vote 10% or more of the outstanding voting securities of such Person, (b) any
other Person 10% or more of whose outstanding voting securities are directly or
indirectly owned, controlled or held with power to vote by such Person, (c) any
other Person directly or indirectly controlling, controlled by or under common
control with such Person, and (d) any officer, director, member, partner or
immediate family member of such Person or any other Person described in
subsection (a), (b) or (c) of this paragraph.

“Agreement” shall have the meaning assigned to such term in the introductory
paragraph.

“Amended Code” means the Code (as amended by the Bipartisan Budget Act).

“Benchmark Value Payout” shall have the meaning assigned to such term in Section
3.4(b)(iv).

“Benchmark Value Re-grant Payout” shall have the meaning assigned to such term
in Section 3.4(c)(i).

 

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“Bipartisan Budget Act” shall mean Title XI of the Bipartisan Budget Act of 2015
and any related provisions of law, court decisions, regulations, rules, and
administrative guidance.

“Board” and “Board of Managers” shall have the meaning assigned to such term in
Section 5.1(a).

“Capital Account” shall have the meaning assigned to such term in Section
7.1(b).

“Capital Contributions” shall mean for any Member at the particular time in
question the aggregate of the dollar amounts of any cash, or the fair market
value (as determined in the reasonable discretion of the Board) of any property,
contributed to the capital of the Company, or, if the context in which such term
is used so indicates, the dollar amounts of cash or the fair market value (as
determined in the reasonable discretion of the Board) of any property agreed to
be contributed, or requested to be contributed, by such Member to the capital of
the Company.

“Capital Interest Percentage” means, at any time of determination and as to any
Member, the percentage of the total distributions that would be made to such
Member if the assets of the Company were sold for their respective Carrying
Values, all liabilities of the Company were paid in accordance with their terms
(limited in the case of non-recourse liabilities to the Carrying Value of the
property securing such liabilities), all items of Company Net Profit, Net Loss,
income, gain, loss and deduction were allocated to the Members in accordance
with Section 4.4, and the resulting net proceeds were distributed to the Members
in accordance with Article VIII; provided, however, that the Board may determine
that the Members’ Capital Interest Percentages should be determined based upon a
hypothetical sale of the assets of the Company for their respective fair market
values (instead of Carrying Values) in order to ensure that such percentages
correspond to the Members’ “proportionate interests in partnership capital” as
defined in Treasury Regulation Section 1.613A-3(e)(2)(ii). The foregoing
definition of Capital Interest Percentage is intended to result in a percentage
for each Member that corresponds with the Member’s “proportionate interest in
partnership capital” as defined in Treasury Regulation Section
1.613A-3(e)(2)(ii), and Capital Interest Percentage shall be interpreted
consistently therewith.

“Capital Member” means any Member holding Company Interests with respect to
which Capital Contributions have been, or have been deemed to have been,
previously made.

“Carrying Value” shall mean with respect to any asset or Obligation of the
Company, the asset’s adjusted basis or the Obligation’s adjusted issue price for
federal income tax purposes, except as follows:

(a) The initial Carrying Value of any asset contributed by a Member to the
Company will be the fair market value of the asset on the date of the
contribution, as determined by the Board;

(b) The initial Carrying Value of any Obligation assumed, or taken subject to,
by the Company from a Member in connection with a contribution to the Company
subject to Section 721 of the Code shall be the Gross Liability Value of such
Obligation as of the date of such assumption or taking subject to;

 

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(c) The Carrying Value of all Company assets shall be adjusted to equal their
respective fair market values, as determined by the Board, upon (i) the
acquisition of an additional Company Interest by any new or existing Member in
exchange for a Capital Contribution that is not de minimis; (ii) the
distribution by the Company to a Member of Company property that is not de
minimis as consideration for a Company Interest; (iii) the grant of a Company
Interest that is not de minimis consideration for the performance of services to
or for the benefit of the Company by any new or existing Member; (iv) the
liquidation of the Company as provided in Section 8.2; (v) the acquisition of a
Company Interest by any new or existing Member upon the exercise of a
noncompensatory warrant or the making of any Capital Contribution in accordance
with Treasury Regulation Section 1.704-1(b)(2)(iv)(s); or (vi) any other event
to the extent determined by the Board to be necessary to properly reflect
Carrying Values in accordance with the standards set forth in Treasury
Regulations Section 1.704-1(b)(2)(iv)(q), provided that any adjustments to the
Capital Accounts of the Members shall be made as provided in Section 7.1(b)(vi).
If any noncompensatory warrants (or similar interests) are outstanding upon the
occurrence of an event described in clauses (i) through (vi) above, the Company
shall adjust the Carrying Values of its properties in accordance with Treasury
Regulations Sections 1.704-1(b)(2)(iv)(f)(1) and 1.704-1(b)(2)(iv)(h)(2);

(d) The Carrying Value of any Company asset distributed to any Member shall be
adjusted to equal the fair market value of such asset on the date of
distribution, as determined by the Board;

(e) The Carrying Value of an asset shall be adjusted by Depreciation and
Simulated Depletion taken into account with respect to such asset for purposes
of computing Net Profits, Net Losses and other items allocated pursuant to
Section 7.1(b)(iv);

(f) (i) The Carrying Value of each Obligation of the Company shall be adjusted
to equal the obligation’s Gross Liability Value at such times as an adjustment
to the Carrying Value of Company assets is made pursuant to paragraph
(c) hereof, and (ii) the Carrying Value of any Obligation of the Company that is
assumed, or taken subject to, by a Member in connection with a distribution of
property to the Member in a transaction subject to Code Section 731 shall be
adjusted immediately prior thereto to equal the Gross Liability Value of such
Obligation as of the date it is assumed or taken subject to by such Member;
provided, that any adjustments to the Capital Accounts of the Members shall be
made as provided in Section 7.1(b)(vi);

(g) If the Carrying Value of an Obligation of the Company has been determined or
adjusted pursuant to clauses (b) or (f) hereof, such Carrying Value shall
thereafter be adjusted based on the method adopted under subparagraph (c) of the
definition of “Net Profit” or “Net Loss” to determine the extent to which the
Carrying Value of such Obligation is treated as satisfied or otherwise taken
into account; and

(h) The Carrying Value of Company assets and Obligations shall be adjusted at
such other times as required in the applicable Treasury Regulations.

“Company” shall have the meaning assigned to it in the introductory paragraph of
this Agreement.

 

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“Company Interest” shall mean any Member’s interest in, or rights in, the
Company including and representing, as the context shall require, any membership
interest in the Company, Incentive Interests, and/or any other class or series
of interests created pursuant to Section 3.2.

“Company Nonrecourse Liabilities” shall mean nonrecourse liabilities (or
portions thereof) of the Company for which no Member bears the economic risk of
loss in accordance with applicable Treasury Regulations.

“Confidential Information” shall mean, without limitation, all proprietary and
confidential information of the Company, including business opportunities of the
Company, intellectual property, and any other information heretofore or
hereafter acquired, developed or used by the Company relating to its business,
including any confidential information contained in any lease files, well files
and records, land files, abstracts, title opinions, title or curative matters,
contract files, seismic records, electric logs, core data, pressure data,
production records, geological and geophysical reports and related data,
memoranda, notes, records, drawings, correspondence, financial and accounting
information, customer lists, statistical data and compilations, patents,
copyrights, trademarks, trade names, inventions, formulae, methods, processes,
agreements, contracts, manuals or any other documents relating to the business
of the Company, developed by, or originated by any third party and brought to
the attention of, the Company; provided that such Confidential Information shall
not include such information that is part of common knowledge or understanding
in the oil and gas industry or otherwise in the public domain (other than from
disclosure by such Member in violation of this Agreement).

“Depreciation” shall mean for each Fiscal Period or other period, an amount
equal to the depreciation, amortization, or other cost recovery deduction (other
than Simulated Depletion) allowable with respect to an asset for such year or
other period, except that if the Carrying Value of an asset differs from its
adjusted basis for federal income tax purposes at the beginning of such year or
other period, Depreciation shall be an amount which bears the same ratio to such
beginning Carrying Value as the federal income tax depreciation, amortization or
other cost recovery deduction for such year or other period bears to such
beginning adjusted tax basis (unless the adjusted tax basis is equal to zero, in
which event Depreciation shall be determined under any reasonable method
selected by the Board).

“Descendants” means the legitimate children of the person or persons designated
and the legitimate lineal Descendants of such legitimate children, and includes
any person adopted before attaining the age of eighteen (18) and the adopted
person’s Descendants. A child is “legitimate” as to such child’s father if
(a) such child’s father has been determined to be such child’s parent by virtue
of genetic testing of a type then reasonably relied upon by experts in the field
of genetic testing; and (b) the father is, or has ever been, married to such
child’s mother as of the date on which such determination must be made. The
presumptions of paternity found in section 160.204 of the Texas Family Code, as
amended, shall not apply. A child is always legitimate as to the mother who has
given birth to such child.

“Dispute” shall have the meaning assigned to such term in Section 11.9.

 

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“Distributable Funds” shall mean the available cash of the Company in excess of
the working capital and other requirements of the Company as determined by the
Board of Managers.

“Employee” shall mean an individual who is employed by, or serves as an
independent contractor for, the Company or any of its subsidiaries, including
WRDC, or other Affiliates, or is employed by an entity with which the Company
has entered into an agreement to provide personnel, management and
administrative service to the Company. In the event any provision of this
Agreement refers to the resignation of an Employee, such resignation or
termination shall apply to the entity that is the employer of such Employee.

“Excluded Affiliate Transfer” shall mean (a) any Transfer of a Company Interest
by NGP (whether voluntarily or by operation of law) to a partner or other
Affiliate or a legal successor of NGP; (b) any Transfer of a Company Interest by
a Member who is an individual to or among such Member’s Family Group, but only
if and for so long as such Member retains the exclusive right to vote such
Company Interest following such Transfer unless the Transferee was a Member
prior to such Transfer and had voting rights prior to such Transfer; (c) upon
the death of a Member who is an individual, any Transfer of such Member’s
Company Interest pursuant to the duly executed Last Will or similar document
controlling the testamentary disposition of such Member’s property, or pursuant
to the applicable laws of descent and distributions; and (d) any Transfer to a
corporation, partnership or limited liability company which is wholly owned by
the Family Group and controlled (through voting rights) by such Member, but only
if and for so long as such Transferring Member retains the exclusive right to
vote such Company Interest following such Transfer, it being acknowledged and
agreed that any failure by such Transferring Member to retain the exclusive
right to vote such Company Interest following such Transfer shall then
immediately and automatically be deemed to be a Transfer that is not an Excluded
Affiliate Transfer, unless such Transfer would otherwise be an Excluded
Affiliate Transfer under clauses (a), (b) or (c) above; provided that, in the
case of any Transfer described in clauses (a) – (d) above, such Transferee
agrees to be bound by the terms of this Agreement and evidences same by
executing a copy of this Agreement and such other documents as the Company may
reasonably request promptly upon receiving the assignment of such Company
Interest.

“Excluded Business Opportunity” shall mean a business opportunity other than a
business opportunity: (a) that (i) has come to the attention of a Person solely
in, and as a direct result of, its or his capacity as a director of or an
advisor to, principal of or employee of the Company or a subsidiary of the
Company, or as employee of an entity that has contracted with the Company to
provide personnel, management and administrative services to the Company, or
(ii) was developed with the use or benefit of the personnel or assets of the
Company, or a subsidiary of the Company, and (b) that has not been previously
independently brought to the attention of the subject Person from a source that
is not affiliated (other than through such subject Person) with the Company or a
subsidiary of the Company.

 

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“Family Group” means, as to any particular Member who is an individual, (a) such
Member’s spouse, other than a spouse who is legally separated from such Member
under a decree of separate maintenance or with respect to whom there is an
action for divorce pending; (b) such Member’s Descendants; (c) such Member’s
parents or any Descendants of such Member’s parents; (d) such Member’s spouse’s
parents or any Descendants of such Member’s spouse’s parents; and (e) any trust
solely for the benefit of such Member, or solely for the benefit of such Member
and/or any individual described in clause (a) – (d) above.

“Fiscal Period” shall mean each period (a) beginning, for the first Fiscal
Period, on the date of formation of the Company, or for each succeeding Fiscal
Period on the day after the last day of the immediately preceding Fiscal Period
and (b) ending on the earliest to occur of the last day of the calendar year and
the day on which the Carrying Value of all Company assets are adjusted pursuant
to clause (b) of the definition of Carrying Value.

“Fundamental Change” shall mean the occurrence of any of the following events:

(a) any of the following transactions occurs: (i) the Company or WRDC merges,
consolidates or reconstitutes with or into, or enters into any similar
transaction with, any Person other than an Affiliate of the Company or a Member
or a Related Party, (ii) the outstanding Company Interests are sold or exchanged
by the holders thereof in a single transaction, or a series of related
transactions, to any Person other than an Affiliate of the Company or a Member
or a Related Party, or (iii) the Company or WRDC sells, leases, licenses or
exchanges or agrees to sell, lease, license or exchange all or substantially all
of its assets to a Person that is not an Affiliate of the Company or a Member or
a Related Party and in the case of any such transaction described in the
immediately preceding clauses (i) – (iii), the Persons who served as members of
the Board immediately before consummation of such transaction cease to
constitute at least a majority of the members of the Board (in the case of a
sale of equity interests) or the members of the board or analogous managing body
of the surviving or acquiring entity (in the case of an asset Transfer,
conversion, merger, consolidation or similar transaction), immediately following
completion of such transaction; or

(b) any single Person or group of related Persons (other than the Company, any
Member or an Affiliate of the Company or a Member or a Related Party) purchases
or otherwise acquires the right to vote or dispose of the securities of the
Company representing 50% or more of the total voting power of all the then
outstanding voting securities of the Company, unless such purchase or
acquisition has been approved by the Board; provided that no Capital
Contribution(s) made by NGP shall cause a Fundamental Change; or

(c) the Company or WRDC is dissolved and liquidated.

“Gross Liability Value” means, with respect to any Company Obligation as of any
date, the amount of cash that a willing assignor would pay to a willing assignee
to assume such Obligation in an arm’s-length transaction as determined by the
Board in good faith.

“Hypothetical Liquidation” shall have the meaning assigned to such term in
Section 3.4(a).

 

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“Incentive Interest Percentage” shall mean, as of any date, the aggregate of the
Tier I Percentage, Tier II Percentage, Tier III Percentage, Tier IV Percentage
and Tier V Percentage (which aggregate amount is equal to 40% as of the date
hereof), which percentage shall be allocated and reflected on Exhibit A, as
revised from time to time.

“Incentive Interests” shall mean the Incentive Units.

“Incentive Unit” shall mean a Unit issued as a Tier I Unit, Tier II Unit, Tier
III Unit, Tier IV Unit or Tier V Unit pursuant to Section 3.4(a) and reflected
on Exhibit A as, from time to time, may be updated pursuant to this Agreement.

“Indemnitee” shall have the meaning assigned to such term in Section 5.5(a).

“Indirect Transfer” shall mean (with respect to any Member that is a
corporation, partnership, limited liability company or other entity) a deemed
Transfer of a Company Interest, which shall occur upon any direct or indirect
Transfer of the ownership of, or voting rights associated with, the equity or
other ownership interests in such Member.

“Internal Revenue Code” shall mean the Internal Revenue Code of 1986, as amended
from time to time, and any successor statute or statutes.

“JAMS” shall have the meaning assigned to such term in Section 11.9(a).

“Majority Interest” of the Members, as to any agreement, election, vote or other
action of the Members, shall mean those Members whose combined Sharing Ratios
exceed 50%.

“Manager” and “Managers” shall have the meanings assigned to such terms in
Section 5.1(a).

“Members” shall mean the Persons (including holders of Incentive Units) who from
time to time shall execute a signature page to this Agreement (including by
counterpart) as the Members, including any Person who becomes a substituted
Member of the Company pursuant to the terms hereof.

“Member Nonrecourse Debt” shall mean any nonrecourse debt of the Company for
which any Member bears the economic risk of loss in accordance with applicable
Treasury Regulations.

“Member Nonrecourse Deductions” shall mean the amount of deductions, losses and
expenses equal to the net increase during the year in Minimum Gain attributable
to a Member Nonrecourse Debt, reduced (but not below zero) by proceeds of such
Member Nonrecourse Debt distributed during the year to the Members who bear the
economic risk of loss for such debt, as determined in accordance with applicable
Treasury Regulations.

“Minimum Gain” shall mean (a) with respect to Company Nonrecourse Liabilities,
the amount of gain that would be realized by the Company if the Company
Transferred (in a taxable transaction) all Company properties that are subject
to Company Nonrecourse Liabilities in full satisfaction of Company Nonrecourse
Liabilities, computed in accordance with applicable

 

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Treasury Regulations, or (b) with respect to each Member Nonrecourse Debt, the
amount of gain that would be realized by the Company if the Company Transferred
(in a taxable transaction) the Company property that is subject to such Member
Nonrecourse Debt in full satisfaction of such Member Nonrecourse Debt, computed
in accordance with applicable Treasury Regulations.

“Net Profit” or “Net Loss” shall mean, with respect to any Fiscal Period, the
net income or net loss of the Company for such period, determined in accordance
with federal income tax accounting principles and Section 703(a) of the Internal
Revenue Code (including any items that are separately stated for purposes of
Section 702(a) of the Internal Revenue Code), with the following adjustments:

(a) any income of the Company that is exempt from federal income tax shall be
included as income;

(b) any expenditures of the Company that are described in Section 705(a)(2)(B)
of the Internal Revenue Code or treated as so described pursuant to Treasury
Regulation Section 1.704-1(b)(2)(iv)(i) shall be treated as current expenses;

(c) if Company assets are distributed to the Members in kind, such distributions
shall be treated as sales of such assets for cash at their respective fair
market values in determining Net Profit and Net Loss;

(d) in the event the Carrying Value of any Company asset is adjusted as provided
in this Agreement, the amount of such adjustment shall be taken into account as
gain or loss from the Transfer of such asset for purposes of computing Net
Profit or Net Loss;

(e) in the event the Carrying Value of any Company Obligations is adjusted as
provided in this Agreement, the amount of any such adjustment shall be treated
for purposes hereof as an item of loss (if the adjustment increases the Carrying
Value of such Obligation of the Company) or an item of gain (if the adjustment
decreases the Carrying Value of such Obligation of the Company) for purposes of
computing Net Profit or Net Loss;

(f) gain or loss resulting from any Transfer of Company property with respect to
which gain or loss is recognized for federal income tax purposes shall be
computed by reference to the Carrying Value of the property Transferred,
notwithstanding that the adjusted tax basis for such property differs from its
Carrying Value;

(g) in lieu of the depreciation, amortization and other cost recovery deductions
taken into account in computing such taxable income or loss, there shall be
taken into account Depreciation for such Fiscal Period;

(h) income, gain, deduction or loss resulting from the satisfaction of, or
accrual for federal income tax purposes of items with respect to, a Company
Obligation with a Carrying Value that differs from its adjusted issue price (if
any) shall be computed by reference to the Carrying Value of such Obligation,
with the extent to which the Carrying Value of such Obligation is treated as
satisfied or otherwise taken into account being determined under any reasonable
method adopted by the Board; and

 

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(i) items specially allocated under Section 4.2 and Section 7.1(b)(iv) shall be
excluded (but the amount of such items shall be determined under principles
similar to those set forth above).

“NGP” shall mean NGP X US Holdings, L.P., a Delaware limited partnership, and
its successors and assigns.

“NGP Portfolio Companies” shall have the meaning assigned to such term in
Section 5.3(a).

“NGP Representatives” shall mean the members, managers and employees of NGP
Energy Capital Management, L.L.C., NGP or any Affiliate thereof, together with
all other Persons serving as representatives of NGP, including those Persons who
are serving as managers of the Company at the request of NGP pursuant to the
Voting and Transfer Restriction Agreement.

“Nonrecourse Deduction” has the meaning assigned to that term in Treasury
Regulation Section 1.704-2(b).

“Obligation” has the meaning assigned to that term in Treasury Regulation
Section 1.752-1(a)(4)(ii).

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

“Person” (whether or not capitalized) shall mean any natural person,
corporation, company, limited or general partnership, joint stock company, joint
venture, association, limited liability company, trust, bank, trust company,
business trust or other entity or organization, whether or not a governmental
authority.

“Pre-existing Incentive Units” shall have the meaning assigned to such term in
Section 3.4(b)(iv).

“Pre-existing Units” shall have the meaning assigned to such term in Section
3.4(b)(iv).

“Pre-grant Incentive Units” shall have the meaning assigned to such term in
Section 3.4(c)(i).

“Pre-grant Units” shall have the meaning assigned to such term in Section
3.4(c)(i).

“Re-grant Incentive Units” shall have the meaning assigned to such term in
Section 3.4(c).

“Regulatory Allocations” shall have the meaning assigned to such term in Section
4.2(f).

 

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“Related Party” shall mean (a) any Person who is a Member of the Company, and
any partner, member, shareholder, officer, director, employee or other Affiliate
of such Person, (b) an Employee or group of Employees, (c) a trustee or other
fiduciary holding securities under an employee benefit plan of the Company, and
(d) an entity owned directly or indirectly by the Members of the Company in
substantially the same proportion as their ownership of the Company.

“Rules” shall have the meaning assigned to such term in Section 11.9(a).

“Securities Act” shall mean the Securities Act of 1933, as amended.

“Service Interests” shall have the meaning assigned to such term in Section
3.4(a).

“Sharing Ratio” shall mean for any Member, at a given time, the proportion that
such Member’s Capital Contributions bear to the total Capital Contributions of
all Members as of the date of such determination.

“Simulated Basis” shall mean the Carrying Value of any oil and gas property (as
defined in Section 614 of the Internal Revenue Code).

“Simulated Depletion” shall mean, with respect to each oil and gas property, a
depletion allowance computed in accordance with federal income tax principles
(as if the Simulated Basis of the property were its adjusted tax basis) and in
the manner specified in Treasury Regulation Section 1.704-1(b)(2)(iv)(k)(2). For
purposes of computing Simulated Depletion with respect to any property, the
Simulated Basis of such property shall be deemed to be the Carrying Value of
such property, and in no event shall such allowance, in the aggregate, exceed
such Simulated Basis.

“Simulated Gain” shall mean the excess of the amount realized from the sale of
an oil or gas property over the Carrying Value of such property.

“Simulated Loss” shall mean the excess of the Carrying Value of an oil or gas
property over the amount realized from the sale of such property.

“Subsequent Units” shall have the meaning assigned to such term in Section
3.4(b)(iv).

“Tax Matters Member” shall have the meaning assigned to such term in
Section 5.10.

“Tier I Distribution Amount” shall mean the aggregate amount of distributions
after the occurrence of Tier I Payout and prior to the occurrence of the earlier
of Tier II Payout or Tier III Payout.

“Tier I Members” shall mean the Members holding Tier I Units as set forth on
Exhibit A, as revised from time to time.

“Tier I Payout” shall mean the first date, if any, at which all of the Capital
Members shall have received cumulative distributions in respect of their Company
Interests (whether as distributions from the Company, as payment for the
exchange, purchase or redemption of such

 

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Company Interests, or in connection with any merger or other combination of the
Company with another Person) equal to their cumulative Capital Contributions to
the Company multiplied by (1.08)n, where “n” is equal to the Weighted Average
Capital Contribution Factor determined as of the date of such distribution. For
the avoidance of doubt, any distribution made prior to the Tier I Payout, if
any, that is subtracted from such contributions shall be first increased by the
exponent for purposes of the payout calculation by multiplying such distribution
by (1.08)m, where “m” is equal to the number of years between the distribution
and the Tier I Payout (with a partial year being expressed as a decimal
determined by dividing the number of days which have passed since the most
recent anniversary by 365).

“Tier I Percentage” shall mean 20%, which percentage shall be allocated to the
Tier I Members in proportion to the Tier I Units held by the Tier I Members as
set forth on Exhibit A, as revised from time to time, including any revisions to
reflect any Transfer of Tier I Units by the Tier I Members made in accordance
with the terms of the Voting and Transfer Restriction Agreement and this
Agreement.

“Tier I Subsequent Units” shall have the meaning assigned to such term in
Section 3.4(a)(i).

“Tier I Units” shall mean Tier I Units representing Company Interests in the
Company entitled to receive the Tier I Percentage and with the other rights and
obligations specified in this Agreement.

“Tier II Distribution Amount” shall mean the aggregate amount of distributions
after the occurrence of Tier II Payout or, if Tier II Payout does not occur,
Tier I Payout and prior to the occurrence of Tier III Payout.

“Tier II Members” shall mean the Members holding Tier II Units as set forth on
Exhibit A, as revised from time to time.

“Tier II Payout” shall mean the first date, if any, at which all of the Capital
Members shall have received cumulative distributions in respect of their Company
Interests (whether as distributions from the Company, as payment for the
exchange, purchase or redemption of such Company Interests, or in connection
with any merger or other combination of the Company with another Person) equal
to their cumulative Capital Contributions to the Company multiplied by (1.20)n,
where “n” is equal to the Weighted Average Capital Contribution Factor
determined as of the date of such distribution. For the avoidance of doubt, any
distribution made prior to the Tier II Payout, if any, that is subtracted from
such contributions shall be first increased by the exponent for purposes of the
payout calculation by multiplying such distribution by (1.20)m, where “m” is
equal to the number of years between the distribution and the Tier II Payout
(with a partial year being expressed as a decimal determined by dividing the
number of days which have passed since the most recent anniversary by 365).

“Tier II Percentage” shall mean 5%, which percentage shall be allocated to the
Tier II Members in proportion to the Tier II Units held by the Tier II Members
as set forth on Exhibit A, as revised from time to time, including any revisions
to reflect any Transfer of Tier II Units by the Tier II Members made in
accordance with the terms of the Voting and Transfer Restriction Agreement and
this Agreement.

 

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“Tier II Subsequent Units” shall have the meaning assigned to such term in
Section 3.4(a)(ii).

“Tier II Units” shall mean Tier II Units representing Company Interests in the
Company entitled to receive the Tier II Percentage and with the other rights and
obligations specified in this Agreement.

“Tier III Distribution Amount” shall mean the aggregate amount of distributions
after the occurrence of Tier III Payout and prior to the occurrence of Tier IV
Payout.

“Tier III Members” shall mean the Members holding Tier III Units as set forth on
Exhibit A, as revised from time to time.

“Tier III Payout” shall mean the first date, if any, at which all of the Capital
Members shall have received cumulative distributions in respect of their Company
Interests (whether as distributions from the Company, as payment for the
exchange, purchase or redemption of such Company Interests, or in connection
with any merger or other combination of the Company with another Person) equal
to two times (2.0x) their cumulative Capital Contributions to the Company.

“Tier III Percentage” shall mean 5%, which percentage shall be allocated to the
Tier III Members in proportion to the Tier III Units held by the Tier III
Members as set forth on Exhibit A, as revised from time to time, including any
revisions to reflect any Transfer of Tier III Units by the Tier III Members made
in accordance with the terms of the Voting and Transfer Restriction Agreement
and this Agreement.

“Tier III Subsequent Units” shall have the meaning assigned to such term in
Section 3.4(a)(iii).

“Tier III Units” shall mean Tier III Units representing Company Interests in the
Company entitled to receive the Tier III Percentage and with the other rights
and obligations specified in this Agreement.

“Tier IV Distribution Amount” shall mean the aggregate amount of distributions
after the occurrence of Tier IV Payout and prior to the occurrence of Tier V
Payout.

“Tier IV Members” shall mean the Members holding Tier IV Units as set forth on
Exhibit A, as revised from time to time.

“Tier IV Payout” shall mean the first date, if any, at which all of the Capital
Members shall have received cumulative distributions in respect of their Company
Interests (whether as distributions from the Company, as payment for the
exchange, purchase or redemption of such Company Interests, or in connection
with any merger or other combination of the Company with another Person) equal
to two and one half times (2.5x) their cumulative Capital Contributions to the
Company.

 

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“Tier IV Percentage” shall mean 5%, which percentage shall be allocated to the
Tier IV Members in proportion to the Tier IV Units held by the Tier IV Members
as set forth on Exhibit A, as revised from time to time, including any revisions
to reflect any Transfer of Tier IV Units by the Tier IV Members made in
accordance with the terms of the Voting and Transfer Restriction Agreement and
this Agreement.

“Tier IV Subsequent Units” shall have the meaning assigned to such term in
Section 3.4(a)(iv).

“Tier IV Units” shall mean Tier IV Units representing Company Interests in the
Company entitled to receive the Tier IV Percentage and with the other rights and
obligations specified in this Agreement.

“Tier V Distribution Amount” shall mean the aggregate amount of distributions
after the occurrence of Tier V Payout.

“Tier V Members” shall mean the Members holding Tier V Units as set forth on
Exhibit A, as revised from time to time.

“Tier V Payout” shall mean the first date, if any, at which all of the Capital
Members shall have received cumulative distributions in respect of their Company
Interests (whether as distributions from the Company, as payment for the
exchange, purchase or redemption of such Company Interests, or in connection
with any merger or other combination of the Company with another Person) equal
to three times (3.0x) their cumulative Capital Contributions to the Company.

“Tier V Percentage” shall mean 5%, which percentage shall be allocated to the
Tier V Members in proportion to the Tier V Units held by the Tier V Members as
set forth on Exhibit A, as revised from time to time, including any revisions to
reflect any Transfer of Tier V Units by the Tier V Members made in accordance
with the terms of the Voting and Transfer Restriction Agreement and this
Agreement.

“Tier V Subsequent Units” shall have the meaning assigned to such term in
Section 3.4(a)(i).

“Tier V Units” shall mean Tier V Units representing Company Interests in the
Company entitled to receive the Tier V Percentage and with the other rights and
obligations specified in this Agreement.

“Transaction Documents” shall mean, collectively, this Agreement, the Voting and
Transfer Restriction Agreement and all other agreements, documents or
instruments executed in conjunction with, or relation to, any of the foregoing.

“Transfer,” or any derivation thereof, shall mean any sale, assignment,
conveyance, mortgage, pledge, granting of security interest in, or other
disposition of a Company Interest or any asset of the Company, as the context
may require.

 

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“Treasury Regulations” shall mean regulations promulgated by the United States
Treasury Department under the Internal Revenue Code.

“Unit” shall mean a unit of a membership interest in the Company representing,
as the context shall require, any Company Interest and/or an Incentive Unit, as
well as any other class or series of Units created pursuant to Section 3.2. No
Units will be issued to the Members for Capital Contributions after the date
hereof; provided that the Board of Managers may subsequently amend this
Agreement to provide for an issuance of Units for Capital Contributions in its
sole discretion.

“Unrealized Gain” attributable to (a) any item of Company property shall mean,
as of any date of determination, the excess, if any, of (i) the fair market
value of such property as of such date over (ii) the Carrying Value of such
property as of such date (prior to any adjustment to be made pursuant to Section
7.1(b)(vi) as of such date), and (b) any Company Obligation shall mean, as of
any date of determination, the excess, if any, of (i) the Carrying Value of such
Obligation as of such date (prior to any adjustment to be made pursuant to
Section 7.1(b)(vi), as of such date) over (ii) the Gross Liability Value of such
Obligation as of such date.

“Unrealized Loss” attributable to (a) any item of Company property shall mean,
as of any date of determination, the excess, if any, of (i) the Carrying Value
of such property as of such date (prior to any adjustment to be made pursuant to
Section 7.1(b)(vi), as of such date) over (ii) the fair market value of such
property as of such date, and (b) any Company Obligation shall mean, as of any
date of determination, the excess, if any, of (i) the Gross Liability Value of
such Obligation as of such date over (ii) the Carrying Value of such Obligation
as of such date (prior to any adjustment to be made pursuant to Section
7.1(b)(vi) as of such date).

“Voting and Transfer Restriction Agreement” shall mean that certain Voting and
Transfer Restriction Agreement dated as of the date hereof among the Company and
the Members.

“Weighted Average Capital Contribution Factor” shall mean as of any date of
calculation, a weighted average equal to the sum of the amounts determined for
each date on which Capital Contributions have been, or have been deemed, funded
(as set forth on Exhibit A) calculated as the product of (a) the percentage of
the total Capital Commitments funded on each date, times (b) the number of years
from the date of each Capital Contribution until the date of such calculation
(with a partial year being expressed as a decimal determined by dividing the
number of days which have passed since the most recent anniversary by 365).

“WildHorse Member” shall mean any of Anthony Bahr, Jay Graham, Paul Eschete,
Michael Sherwood, Steve Eckerman, Gary Smith, Steve Habachy and Terence Lynch,
each of whom is a Member of the Company, and any successor(s) thereto or
assignee(s) thereof that shall become a substituted Member of the Company
pursuant to the terms of this Agreement and “WildHorse Members” shall
collectively mean all of such Persons and any additional Members that are or may
become Employees and are admitted after the date hereof pursuant to the terms of
this Agreement.

 

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“WRDC” means WildHorse Resources Development Corporation, a Delaware
corporation.

Any capitalized term used in this Agreement but not defined in this Section 2.1
shall have the meaning assigned to such term elsewhere in this Agreement.

Section 2.2. References and Titles. All references in this Agreement to
articles, sections, subsections and other subdivisions refer to corresponding
articles, sections, subsections and other subdivisions of this Agreement unless
expressly provided otherwise. Titles appearing at the beginning of any of such
subdivisions are for convenience only and shall not constitute part of such
subdivisions and shall be disregarded in construing the language contained in
such subdivisions. The words “this Agreement,” “herein,” “hereof,” “hereby,”
“hereunder” and words of similar import refer to this Agreement as a whole and
not to any particular subdivision unless expressly so limited. Pronouns in
masculine, feminine and neuter genders shall be construed to include any other
gender, and words in the singular form shall be construed to include the plural
and vice versa, unless the context otherwise requires. The word “including” (in
its various forms) means including without limitation.

ARTICLE III

CAPITALIZATION AND UNITS

Section 3.1. Capital Contributions of Members.

(a) As of the date hereof, each Member has contributed, or is deemed to have
contributed, Capital Contributions to the Company in the amounts and on the
dates set forth on Exhibit A. No Member shall be obligated to make any
additional Capital Contributions to the Company.

Section 3.2. Issuances of Additional Securities.

(a) The Company may not issue additional Company Interests, or classes or series
thereof, or options, rights, warrants or appreciation rights relating thereto,
or any other type of equity security without the prior written consent of the
Board of Managers.

Section 3.3. Return of Contributions. No interest shall accrue on any
contributions to the capital of the Company, and no Member shall have the right
to withdraw or to be repaid any capital contributed by such Member except as
otherwise specifically provided in this Agreement.

Section 3.4. Incentive Interests.

(a) The following Incentive Units are hereby created and are hereby granted to
the Persons and in the respective amounts set forth on Exhibit A, subject to the
adjustments provided for in this Section 3.4:

(i) 1,000,000 “Tier I Units,” of which a certain number of such Tier I Units may
be granted to Employees after the date of this Agreement pursuant to this
Section 3.4 (the “Tier I Subsequent Units”);

 

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(ii) 1,000,000 “Tier II Units,” of which a certain number of such Tier II Units
may be granted to Employees after the date of this Agreement pursuant to this
Section 3.4 (the “Tier II Subsequent Units”);

(iii) 1,000,000 “Tier III Units,” of which a certain number of Tier III Units
may be granted to Employees after the date of this Agreement pursuant to this
Section 3.4 (the “Tier III Subsequent Units”);

(iv) 1,000,000 “Tier IV Units,” of which a certain number of Tier IV Units may
be granted to Employees after the date of this Agreement pursuant to this
Section 3.4 (the “Tier IV Subsequent Units”); and

(v) 1,000,000 “Tier V Units,” of which a certain number of such Tier V Units may
be granted to Employees after the date of this Agreement pursuant to this
Section 3.4 (the “Tier V Subsequent Units”).

To the extent not so granted, the remaining Incentive Units are available for
future grants by the Board to Employees in accordance with the terms of this
Agreement. The Company and each Member intend to treat any interest attributable
to a holder of Incentive Units as a separate “profits interest” within the
meaning of Rev. Proc. 93-27, 1993-2 C.B. 343. In accordance with Rev. Proc.
2001-43, 2001-2 C.B. 191, the Company shall treat a holder of such Incentive
Units as the owner of such profits interest from the date it is granted, and
shall file its IRS Form 1065, and issue an appropriate Schedule K-1 to such
holder of Incentive Units, allocating to such holder of Incentive Units its
distributive share of all items of income, gain, loss, deduction, and credit
associated with such profits interest as if it were fully vested. Each such
holder of Incentive Units agrees to take into account such distributive share in
computing its federal income tax liability for the entire period during which it
holds such profits interest. The undertakings contained in this Section 3.4(a)
shall be construed in accordance with Section 4 of Rev. Proc. 2001-43. The
provisions of this Section 3.4(a) shall apply regardless of whether or not the
holder of a profits interest files an election pursuant to Section 83(b) of the
Internal Revenue Code.

The Incentive Units are issued in consideration of services rendered and to be
rendered by the holders for the benefit of the Company in their capacities as
Employees. To the extent provided for in Treasury Regulations, revenue rulings,
revenue procedures and/or other Internal Revenue Service guidance issued after
the date hereof, the Tax Matters Member acting on behalf of the Company is
hereby specifically authorized and directed to elect a safe harbor implementing
the concepts articulated in Internal Revenue Service Notice 2005-43, 2005-1 C.B.
1221, under which the fair market value of the Incentive Units received by any
Member for services (the “Service Interests”) granted after the effective date
of such Treasury Regulations (or other guidance) will be treated as equal to the
liquidation value of such Service Interests (i.e., a value equal to the total
amount that would be distributed under Section 8.3(b) with respect to such
Service Interests in a Hypothetical Liquidation occurring immediately after the
issuance of such Service Interests and assuming for purposes of such
Hypothetical Liquidation that all assets of the Company are sold for their fair
market values). If the Company makes a safe harbor election as described in the
preceding sentence, the Company and each Member will comply with all safe harbor
requirements with respect to Transfers of the Service Interests while the safe

 

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harbor election remains effective. For purposes hereof, “Hypothetical
Liquidation” means, as of any date, a hypothetical liquidation of the Company as
of such date, assuming for purposes of any such hypothetical liquidation
(i) that a sale of all of the assets of the Company occurs at prices equal to
their respective fair market values as of such date and (ii) the net proceeds of
such sale are distributed to the Members pursuant to Section 8.3(b), but only
after the payment of all actual Company indebtedness, and any other liabilities
related to the Company’s assets, limited, in the case of the hypothetical
payment of non-recourse liabilities, to the collateral securing or otherwise
available to satisfy such liabilities.

(b) The Incentive Units are non-voting and subject to vesting as set forth
herein and on Exhibit B hereto and are subject to forfeiture, and termination as
follows:

(i) (A) The Tier I Units held by each Employee shall vest in accordance with
Exhibit B hereto.

(B) The Tier II Units held by each Employee shall vest in accordance with
Exhibit B hereto.

(C) The Tier III Units held by each Employee shall vest only upon and
concurrently with the occurrence of Tier III Payout.

(D) The Tier IV Units held by each Employee shall vest only upon and
concurrently with the occurrence of Tier IV Payout.

(E) The Tier V Units held by each Employee shall vest only upon and concurrently
with the occurrence of Tier V Payout.

(ii) All Incentive Units that have not yet vested in accordance with the vesting
requirements set forth herein and on Exhibit B and that are held by a Person who
is an Employee will automatically, without any action required of any Person, be
forfeited and thereby become null and void, if and when such Person’s status as
an Employee is terminated for any reason or without reason, except as a result
of death or disability, and any vested, unforfeited Incentive Units held by such
Person shall, upon such termination, remain non-voting and shall not be counted
in the determination of a Majority Interest of the Members. If such Person’s
status as an Employee is terminated by reason of death or disability, any Tier I
Units or Tier II Units that would have become vested within 12 months of such
termination shall automatically vest upon such termination, and any unvested
Tier III Units, Tier IV Units or Tier V Units held by such Person will
automatically, without any action required of any Person, be forfeited and
thereby become null and void upon such termination.

(iii) Anything herein to the contrary notwithstanding, all Incentive Units held
by a Person who is an Employee (regardless of whether vested or unvested) shall
automatically be forfeited and thereby become null and void if and when such
Person’s status as an Employee is terminated:

 

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(A) for “cause,” which shall mean by reason of such holder’s: (I) conviction of,
or plea of nolo contendere to, any felony or to any crime or offense causing
substantial harm to the Company or its Affiliates or involving acts of theft,
fraud, embezzlement, moral turpitude, or similar conduct, (II) repeated
intoxication by alcohol or drugs during the performance of such holder’s duties
in a manner that materially and adversely affects the holder’s performance of
such duties, (III) malfeasance, in the conduct of such holder’s duties,
including, but not limited to, (1) misuse or diversion of funds of the Company
or its Affiliates, (2) embezzlement, or (3) material misrepresentations or
concealments on any written reports submitted to the Company or its Affiliates,
(IV) material violation of any provision of the Voting and Transfer Restriction
Agreement or (V) material failure to perform the duties of such holder’s
employment or service relationship with the Company or its Affiliates, or
material failure to follow or comply with the reasonable and lawful written
directives of the Board of Managers or the managers or directors of a Company
Affiliate by which such holder is employed or in a service relationship with, in
either case after the holder shall have been informed, in writing, of such
material failure and given a period of not less than 60 days to remedy the same;
or

(B) by such Employee’s resignation or early termination of service relationship
by such Employee (other than as a result of death or disability).

(iv) The Company in its sole discretion, taking into account such factors as it
determines from time to time, may issue Tier I Subsequent Units, Tier II
Subsequent Units, Tier III Subsequent Units, Tier IV Subsequent Units and Tier V
Subsequent Units (collectively, “Subsequent Units”). Upon issuance of any
Subsequent Units of a given Tier, such Units may, at the election of the Board,
have a benchmark value equal to the fair market value of the assets of the
Company, net of debt, on the date of grant, as determined in good faith by the
Board, and will be entitled to participate in those distributions allocated to
the Units of that Tier pursuant to Section 4.4(a) or Section 8.3(b), as the case
may be, only after holders of all the Units that were outstanding on the date of
grant (the “Pre-existing Units” and, when referring solely to Pre-existing Units
that are Incentive Units, the “Pre-existing Incentive Units”) have received
distributions pursuant to Section 4.4(a) or Section 8.3(b), as the case may be,
in the aggregate equal to the benchmark value (such limitation on distributions,
the “Benchmark Value Payout”). Holders of Pre-existing Incentive Units of a
given Tier will continue to be entitled to receive all of the profit
distributions payable with respect to the Incentive Units of that Tier pursuant
to Section 4.4(a) or Section 8.3(b), as the case may be, until the applicable
Benchmark Value Payout occurs, at which time future distributions will be shared
among the holders of the Pre-existing Incentive Units in that Tier and the
holders of Subsequent Units in that Tier pro-rata.

(c) If any Incentive Units are forfeited pursuant to Section 3.4(b)(ii) or
Section 3.4(b)(iii), then such forfeited Incentive Units shall be available to
be re-granted, as determined by the Board, in the form of newly awarded, newly
issued Incentive Units in the same Tier and in the same amount as the forfeited
Incentive Units (any such re-granted Incentive Units, “Re-grant Incentive
Units”), subject to the following terms and conditions:

(i) each Re-grant Incentive Unit in a given Tier may, at the election of the
Board, have a benchmark value equal to the fair market value of the assets of
the Company, net of debt, on the date of grant, as determined in good faith by
the Board, and will be entitled to participate in distributions made to holders
of the Incentive Units of that Tier pursuant to Section 4.4(a) or Section
8.3(b), as the case may be, only after holders of all the Units that were
outstanding on the date of such re-grant (the “Pre-grant Units” and, when
referring solely to the Pre-grant Units that are Incentive Units, the “Pre-grant
Incentive Units”) have received distributions in the aggregate equal to the
benchmark value (such limitation on distributions, the “Benchmark Value Re-grant
Payout”); and

 

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(ii) following issuance of such Re-grant Incentive Units in a given Tier,
holders of Pre-grant Incentive Units of that Tier will continue to be entitled
to receive all of the distributions payable with respect to the Incentive Units
of that Tier pursuant to Section 4.4(a) or Section 8.3(b), as the case may be,
until the applicable Benchmark Value Re-grant Payout occurs, at which time
future distributions will be shared among the holders of the Pre-grant Incentive
Units and the Re-grant Incentive Units in that Tier pro-rata.

(d) If all of the Incentive Units available hereunder have not been granted to
Employees before the earlier of (i) a Fundamental Change, or (ii) a payout event
for the corresponding series of Incentive Units (e.g., a Tier I Payout for Tier
I Units), then in such case such available Tier I, Tier II, Tier III, Tier IV,
Tier V or the applicable Subsequent Units, as the case may be, shall
automatically, without any action required of any Person, be cancelled. The
Board shall reflect all changes contemplated by this Section 3.4(d) in an
amended Exhibit A.

(e) Upon any forfeiture or other termination of Incentive Units and upon any
issuance of Re-grant Incentive Units resulting therefrom, the Company shall
amend Exhibit A to reflect such occurrence. In the case of the issuance of
Re-grant Incentive Units in lieu of such forfeited Units, the Tier I, II, III,
IV or V Percentages will not be reduced as a result of such forfeiture, but
appropriate notation shall be made to reflect the issuance of the Re-grant
Incentive Units. The Board shall reflect all changes contemplated by this
Section 3.4(e) in an amended Exhibit A.

ARTICLE IV

ALLOCATIONS AND DISTRIBUTIONS

Section 4.1. Allocations of Net Profits and Net Losses.

(a) After giving effect to the allocations under Sections 4.2 and 7.1(b)(iv),
Net Profits and Net Losses and all related items of income, gain, loss,
deduction and credit for each Fiscal Period shall be allocated among the Members
in such manner as shall cause the Capital Accounts of each Member to equal, as
nearly as possible, (i) the amount such Member would receive if all assets on
hand at the end of such year were sold for cash at the Carrying Values of such
assets, all liabilities were satisfied in cash in accordance with their terms
(limited in the case of Member Nonrecourse Debt and Company Nonrecourse
Liabilities to the Carrying Value of the assets securing such liabilities), and
any remaining or resulting cash was distributed to the Members under Section
4.4(a), minus (ii) an amount equal to such Member’s allocable share of Minimum
Gain as computed immediately prior to the deemed sale described in clause
(i) above in accordance with the applicable Treasury Regulations, and minus
(iii) the amount any such Member is treated as obligated to contribute to the
Company, computed immediately after the deemed sale described in clause
(i) above.

 

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(b) The Board shall make the foregoing allocations as of the last day of each
Fiscal Period; provided, however, that if during any Fiscal Period of the
Company there is a change in any Member’s Company Interest, the Board shall make
the foregoing allocations as of the date of each such change in a manner which
takes into account the varying interests of the Members and in a manner the
Board reasonably deems appropriate.

Section 4.2. Special Allocations.

(a) Notwithstanding any of the provisions of Section 4.1 to the contrary:

(i) If during any Fiscal Period of the Company there is a net increase in
Minimum Gain attributable to a Member Nonrecourse Debt that gives rise to Member
Nonrecourse Deductions, each Member bearing the economic risk of loss for such
Member Nonrecourse Debt shall be allocated items of Company deductions and
losses for such period (consisting first of cost recovery or depreciation
deductions with respect to property that is subject to such Member Nonrecourse
Debt and then, if necessary, a pro-rata portion of the Company’s other items of
deductions and losses, with any remainder being treated as an increase in
Minimum Gain attributable to Member Nonrecourse Debt in the subsequent period)
equal to such Member’s share of Member Nonrecourse Deductions, as determined in
accordance with applicable Treasury Regulations.

(ii) If for any Fiscal Period of the Company there is a net decrease in Minimum
Gain attributable to Company Nonrecourse Liabilities, each Member shall be
allocated items of Company income and gain for such period (consisting first of
gain recognized from the Transfer of Company property subject to one or more
Company Nonrecourse Liabilities and then, if necessary, a pro-rata portion of
the Company’s other items of income and gain, and if necessary, for subsequent
periods) equal to such Member’s share of such net decrease (except to the extent
such Member’s share of such net decrease is caused by a change in debt structure
with such Member commencing to bear the economic risk of loss as to all or part
of any Company Nonrecourse Liability or by such Member contributing capital to
the Company that the Company uses to repay a Company Nonrecourse Liability), as
determined in accordance with applicable Treasury Regulations. Nonrecourse
Deductions shall be allocated to the Members as determined by the Board, to the
extent permitted by the Treasury Regulations.

(iii) If for any Fiscal Period of the Company there is a net decrease in Minimum
Gain attributable to a Member Nonrecourse Debt, each Member bearing the economic
risk of loss for such Member Nonrecourse Debt shall be allocated items of
Company income and gain for such period (consisting first of gain recognized
from the Transfer of Company property subject to Member Nonrecourse Debt, and
then, if necessary, a pro-rata portion of the Company’s other items of income
and gain, and if necessary, for subsequent periods) equal to such Member’s share
of such net decrease (except to the extent such Member’s share of such net
decrease is caused by a change in debt structure such that the Member
Nonrecourse Debt becomes partially or wholly a Company Nonrecourse Liability or
by the Company’s use of capital contributed by such Member to repay the Member
Nonrecourse Debt) as determined in accordance with applicable Treasury
Regulations.

 

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(b) The Net Losses allocated pursuant to this Article IV to a Member shall not
exceed the maximum amount of Net Losses that can be allocated to such Member
without causing or increasing a deficit balance in the Member’s Adjusted Capital
Account. All Net Losses in excess of the limitation set forth in this Section
4.2(b) shall be allocated to Members with positive Adjusted Capital Account
balances remaining at such time in proportion to such positive balances.

(c) In the event that a Member unexpectedly receives any adjustment, allocation
or distribution described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6) that causes or increases a deficit balance
in such Member’s Adjusted Capital Account, items of Company income and gain
shall be allocated to that Member in an amount and manner sufficient to
eliminate the deficit balance as quickly as possible.

(d) In the event that any Member has a deficit balance in its Adjusted Capital
Account at the end of any Allocation Period, such Member shall be allocated
items of Company gross income and gain in the amount of such deficit as quickly
as possible; provided that an allocation pursuant to this Section 4.2(d) shall
be made only if and to the extent that such Member would have a deficit balance
in its capital account after all other allocations provided for in this Article
IV have been tentatively made as if Section 4.2(c) and this Section 4.2(d) were
not in this Agreement.

(e) If any holder of Incentive Units forfeits all or a portion of such Units,
such holder shall be allocated items of loss and deduction in the year of such
forfeiture in an amount equal to the portion of such holder’s Capital Account
attributable to such forfeited Units.

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

(g) The allocations set forth in subsections (a) through (c) of this Section 4.2
(collectively, the “Regulatory Allocations”) are intended to comply with certain
requirements of the Treasury Regulations. It is the intent of the Members that,
to the extent possible, all Regulatory Allocations that are made be offset
either with other Regulatory Allocations or with special allocations pursuant to
this Section 4.2(g). Therefore, notwithstanding any other provisions of this
Article IV (other than the Regulatory Allocations), the Board shall make such
offsetting special allocations in whatever manner it determines appropriate so
that, after such offsetting allocations are made, the net amount of allocations
to each Member is, to the extent possible, equal to the amount such Member would
have been allocated if the Regulatory Allocations were not part of the Agreement
and all Company items were allocated pursuant to Section 4.1, the remaining
subsections of this Section 4.2 and Section 7.1(b)(iv).

(h) In the event Units are issued to a Person and the issuance of such Units
results in items of income or deduction to the Company, such items of income or
deduction shall be allocated to the Members in proportion to the positive
balances in their Capital Accounts immediately before the issuance of such
Units.

 

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Section 4.3. Income Tax Allocations.

(a) Except as provided in this Section 4.3, each item of income, gain, loss and
deduction of the Company for federal income tax purposes shall be allocated
among the Members in the same manner as such items are allocated for Capital
Account purposes under Section 4.1 and Section 4.2.

(b) The deduction for depletion with respect to each separate oil and gas
property (as defined in Section 614 of the Internal Revenue Code) shall, in
accordance with Section 613A(c)(7)(D) of the Internal Revenue Code, be computed
for federal income tax purposes separately by the Members rather than the
Company. For purposes of such computations, the U.S. federal income tax basis of
each oil and gas property shall be allocated to each Member in accordance with
such Member’s Capital Interest Percentage as of the time such oil and gas
property is acquired by the Company (and any additions to such U.S. federal
income tax basis resulting from expenditures required to be capitalized in such
basis shall be allocated among the Members in a manner designed to cause the
Members’ proportionate shares of such adjusted U.S. federal income tax basis to
be in accordance with their Capital Interest Percentages as determined at the
time of any such additions), and shall be reallocated among the Members in
accordance with the Members’ Capital Interest Percentages as determined
immediately following the occurrence of an event giving rise to an adjustment to
the Carrying Values of the Company’s oil and gas properties pursuant to clause
(b) of the definition of Carrying Value. Each Member, with the assistance of the
Tax Matters Member, shall separately keep records of its share of the adjusted
tax basis in each separate oil and gas property, adjust such share of the
adjusted tax basis for any cost or percentage depletion allowable with respect
to such property and use such adjusted tax basis in the computation of its cost
depletion or in the computation of its share of any gain or loss on the Transfer
of such property by the Company. Upon the request of the Tax Matters Member,
each Member shall advise the Tax Matters Member of its adjusted tax basis in
each separate oil and gas property and any depletion computed with respect
thereto, both as computed in accordance with the provisions of this subsection.
The Tax Matters Member may rely on such information and, if it is not provided
by the Member, may make such reasonable assumptions as it shall determine with
respect thereto

(c) Except as provided in Section 4.3(d), for the purposes of the separate
computation of gain or loss by each Member on the Transfer of each separate oil
and gas property (as defined in Section 614 of the Internal Revenue Code), the
Company’s allocable share of the “amount realized” (as such term is defined in
Section 1001(b) of the Internal Revenue Code) from such Transfer shall be
allocated for federal income tax purposes among the Members as follows:

(i) first, to the extent such amount realized constitutes a recovery of the
Simulated Basis of the property, to the Members in the same proportion as the
depletable basis of such property was allocated to the Members pursuant to
Section 4.3(b) (without regard to any special allocation of basis under Section
4.3(d)); and

(ii) second, the remainder of such amount realized, if any, to the Members so
that, to the maximum extent possible, the amount realized that is allocated to
each Member under this Section 4.3(c)(ii) will equal such Member’s share of the
Simulated Gain recognized by the Company from such Transfer.

 

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(d) The Members recognize that (i) with respect to Adjusted Property, there will
be a difference between the Carrying Value of such property at the time of
revaluation or contribution and the adjusted tax basis of such property at that
time and (ii) with respect to an Adjusted Obligation, there will be a difference
between the Carrying Value of such Obligation at the time of revaluation or at
the time the Obligations is assumed (or taken subject to) contribution and the
adjusted issue price of such Obligation at that time. All items of tax
depreciation, cost recovery, amortization, adjusted tax basis of depletable
properties, amount realized and gain or loss with respect to any such Adjusted
Property or Adjusted Obligation shall be allocated among the Members to take
into account the disparities between the Carrying Value and the adjusted tax
basis or adjusted issue price, as the case may be, with respect to such property
or Obligation in accordance with the provisions of Sections 704(b) and 704(c) of
the Internal Revenue Code and the Treasury Regulations under those sections;
provided, however, that any tax items not required to be allocated under
Sections 704(b) or 704(c) of the Internal Revenue Code shall be allocated in the
same manner as such gain or loss would be allocated for Capital Account purposes
under Section 4.1 and Section 4.2. In making such allocations, the Board shall
use such method or methods of allocation as it shall determine, in its absolute
discretion, to be reasonable and in accord with the applicable Treasury
Regulations.

(e) All recapture of income tax deductions resulting from the Transfer of
Company property shall, to the maximum extent possible, be allocated to the
Member to whom the deduction that gave rise to such recapture was allocated
hereunder to the extent that such Member is allocated any gain from the Transfer
of such property. For this purpose, deductions that were allocated as a
component of Net Profit or Net Loss shall be treated as if allocated in the same
manner as the allocation of the related Net Profit or Net Loss.

Section 4.4. Distributions.

(a) The Board may cause the Company to distribute Distributable Funds or other
assets at such times and in such amounts as the Board, in its sole discretion,
determines to be appropriate; provided that the aggregate value attributable to
any assets other than cash or distributed by the Company shall be valued (i) if
a marketable security, based on the 10 day volume weighted average price of such
security prior to the date of such distribution or (ii) if an asset others than
cash or a marketable security, as determined by the Board. All such
distributions made pursuant to this Section 4.4(a) shall be made to the Members
as follows and in the following order of priority:

(i) First: to the Members, pro-rata in accordance with their respective Sharing
Ratios, until Tier I Payout, if any, has occurred;

(ii) Second: following Tier I Payout, if any, and until the earlier of Tier II
Payout or Tier III Payout: an amount equal to the Tier I Distribution Amount,
multiplied by the Tier I Percentage to the Members holding Tier I Units
(allocated among the holders of Tier I Units pro-rata, in accordance with the
number of Tier I Units of each holder, including, if applicable, taking into
account Section 3.4(b)(iv) and Section 3.4(c)), and the remainder of the Tier I
Distribution Amount to the Members (pro-rata, in accordance with their
respective Sharing Ratios);

 

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(iii) Then, if Tier II Payout has occurred:

(A) following Tier II Payout, if any, and until Tier III Payout: an amount equal
to the Tier II Distribution Amount, multiplied by the Tier I Percentage to the
Members holding Tier I Units (allocated among the holders of Tier I Units
pro-rata, in accordance with the number of Tier I Units of each holder,
including, if applicable, taking into account Section 3.4(b)(iv) and Section
3.4(c)), an amount equal to the Tier II Distribution Amount, multiplied by the
Tier II Percentage to the Members holding Tier II Units (allocated among the
holders of Tier II Units pro-rata, in accordance with the number of Tier II
Units of each holder, including, if applicable, taking into account Section
3.4(b)(iv) and Section 3.4(c)), and the remainder of the Tier II Distribution
Amount to the Members (pro-rata, in accordance with their respective Sharing
Ratios);

(B) then, following Tier III Payout, if any, and until Tier IV Payout: an amount
equal to the Tier III Distribution Amount, multiplied by the Tier I Percentage
to the Members holding Tier I Units (allocated among the holders of Tier I Units
pro-rata, in accordance with the number of Tier I Units of each holder,
including, if applicable, taking into account Section 3.4(b)(iv) and Section
3.4(c)), an amount equal to the Tier III Distribution Amount, multiplied by the
Tier II Percentage to the Members holding Tier II Units (allocated among the
holders of Tier II Units pro-rata, in accordance with the number of Tier II
Units of each holder, including, if applicable, taking into account Section
3.4(b)(iv) and Section 3.4(c)), and an amount equal to the Tier III Distribution
Amount, multiplied by the Tier III Percentage to the Members holding Tier III
Units (allocated among the holders of Tier III Units pro-rata, in accordance
with the number of Tier III Units of each holder, including, if applicable,
taking into account Section 3.4(b)(iv) and Section 3.4(c)), and the remainder of
the Tier III Distribution Amount to the Members (pro-rata, in accordance with
their respective Sharing Ratios);

(C) then, following Tier IV Payout, if any, and until Tier V Payout: an amount
equal to the Tier IV Distribution Amount, multiplied by the Tier I Percentage to
the Members holding Tier I Units (allocated among the holders of Tier I Units
pro-rata, in accordance with the number of Tier I Units of each holder,
including, if applicable, taking into account Section 3.4(b)(iv) and Section
3.4(c)), an amount equal to the Tier IV Distribution Amount, multiplied by the
Tier II Percentage to the Members holding Tier II Units (allocated among the
holders of Tier II Units pro-rata, in accordance with the number of Tier II
Units of each holder, including, if applicable, taking into account Section
3.4(b)(iv) and Section 3.4(c)), an amount equal to the Tier IV Distribution
Amount, multiplied by the Tier III Percentage to the Members holding Tier III
Units (allocated among the holders of Tier III Units pro-rata, in accordance
with the number of Tier III Units of each holder, including, if applicable,
taking into account Section 3.4(b)(iv) and Section 3.4(c)), an amount equal to
the Tier IV Distribution Amount, multiplied by the Tier IV Percentage to the
Members holding Tier IV Units (allocated among the holders of Tier IV Units
pro-rata, in accordance with the number of Tier IV Units of each holder,
including, if applicable, taking into account Section 3.4(b)(iv) and Section
3.4(c)), and the remainder of the Tier IV Distribution Amount to the Members
(pro-rata, in accordance with their respective Sharing Ratios); and

 

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(D) then, following Tier V Payout, if any: an amount equal to the Tier V
Distribution Amount, multiplied by the Tier I Percentage to the Members holding
Tier I Units (allocated among the holders of Tier I Units pro-rata, in
accordance with the number of Tier I Units of each holder, including, if
applicable, taking into account Section 3.4(b)(iv) and Section 3.4(c)), an
amount equal to the Tier V Distribution Amount, multiplied by the Tier II
Percentage to the Members holding Tier II Units (allocated among the holders of
Tier II Units pro-rata, in accordance with the number of Tier II Units of each
holder, including, if applicable, taking into account Section 3.4(b)(iv) and
Section 3.4(c)), an amount equal to the Tier V Distribution Amount, multiplied
by the Tier III Percentage to the Members holding Tier III Units (allocated
among the holders of Tier III Units pro-rata, in accordance with the number of
Tier III Units of each holder, including, if applicable, taking into account
Section 3.4(b)(iv) and Section 3.4(c)), an amount equal to the Tier V
Distribution Amount, multiplied by the Tier IV Percentage to the Members holding
Tier IV Units (allocated among the holders of Tier IV Units pro-rata, in
accordance with the number of Tier IV Units of each holder, including, if
applicable, taking into account Section 3.4(b)(iv) and Section 3.4(c)), an
amount equal to the Tier V Distribution Amount, multiplied by the Tier V
Percentage to the Members holding Tier V Units (allocated among the holders of
Tier V Units pro-rata, in accordance with the number of Tier V Units of each
holder, including, if applicable, taking into account Section 3.4(b)(iv) and
Section 3.4(c)), and the remainder of the Tier V Distribution Amount to the
Members (pro-rata, in accordance with their respective Sharing Ratios).

(iv) and, if Tier II Payout has not occurred:

(A) following Tier III Payout, if any, and until Tier IV Payout: an amount equal
to the Tier III Distribution Amount, multiplied by the Tier I Percentage to the
Members holding Tier I Units (allocated among the holders of Tier I Units
pro-rata, in accordance with the number of Tier I Units of each holder,
including, if applicable, taking into account Section 3.4(b)(iv) and Section
3.4(c)), and an amount equal to the Tier III Distribution Amount, multiplied by
the Tier III Percentage to the Members holding Tier III Units (allocated among
the holders of Tier III Units pro-rata, in accordance with the number of Tier
III Units of each holder, including, if applicable, taking into account Section
3.4(b)(iv) and Section 3.4(c)), and the remainder of the Tier III Distribution
Amount to the Members (pro-rata, in accordance with their respective Sharing
Ratios);

(B) then, following Tier IV Payout, if any, and until Tier V Payout: an amount
equal to the Tier IV Distribution Amount, multiplied by the Tier I Percentage to
the Members holding Tier I Units (allocated among the holders of Tier I Units
pro-rata, in accordance with the number of Tier I Units of each holder,
including, if applicable, taking into account Section 3.4(b)(iv) and Section
3.4(c)), an amount equal to the Tier IV Distribution Amount, multiplied by the
Tier III Percentage to the Members holding Tier III Units (allocated among the
holders of Tier III Units pro-rata, in accordance with the number of Tier III
Units of each holder, including, if applicable, taking into account Section
3.4(b)(iv) and Section 3.4(c)), an amount equal to the Tier IV Distribution
Amount, multiplied by the Tier IV Percentage to the Members holding Tier IV
Units (allocated among the holders of Tier IV Units pro-rata, in accordance with
the number of Tier IV Units of each holder, including, if applicable, taking
into account Section 3.4(b)(iv) and Section 3.4(c)), and the remainder of the
Tier IV Distribution Amount to the Members (pro-rata, in accordance with their
respective Sharing Ratios).

 

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(C) then, following Tier V Payout, if any: an amount equal to the Tier V
Distribution Amount, multiplied by the Tier I Percentage to the Members holding
Tier I Units (allocated among the holders of Tier I Units pro-rata, in
accordance with the number of Tier I Units of each holder, including, if
applicable, taking into account Section 3.4(b)(iv) and Section 3.4(c)), an
amount equal to the Tier V Distribution Amount, multiplied by the Tier III
Percentage to the Members holding Tier III Units (allocated among the holders of
Tier III Units pro-rata, in accordance with the number of Tier III Units of each
holder, including, if applicable, taking into account Section 3.4(b)(iv) and
Section 3.4(c)), an amount equal to the Tier V Distribution Amount, multiplied
by the Tier IV Percentage to the Members holding Tier IV Units (allocated among
the holders of Tier IV Units pro-rata, in accordance with the number of Tier IV
Units of each holder, including, if applicable, taking into account Section
3.4(b)(iv) and Section 3.4(c)), an amount equal to the Tier V Distribution
Amount, multiplied by the Tier V Percentage to the Members holding Tier V Units
(allocated among the holders of Tier V Units pro-rata, in accordance with the
number of Tier V Units of each holder, including, if applicable, taking into
account Section 3.4(b)(iv) and Section 3.4(c)), and the remainder of the Tier V
Distribution Amount to the Members (pro-rata, in accordance with their
respective Sharing Ratios).

(b) In addition to distributions made to the Members pursuant to Section 4.4(a),
and subject to applicable law, to the extent that the Board determines that the
Company has Distributable Funds, the Board shall cause the Company to pay to the
Members within 90 days after the end of each year an amount equal to the lesser
of (i) the Distributable Funds, or (ii) an amount equal to the highest marginal
federal and applicable state income tax rate for individuals (taking into
account the character of the taxable income (e.g., long-term capital gain,
qualified dividend income, ordinary income, etc.)) multiplied by the taxable
income of the Company, if any, for such year, such payment to be made among the
Members in the same percentages as the taxable income for such year was
allocated. Any such payments to a Member under this Section 4.4(b) shall be
deemed to be a draw against such Member’s share of future distributions under
Section 4.4(a) and Section 8.3(b), so that such Member’s share of such future
distributions shall be reduced by the amounts previously drawn under this
Section 4.4(b) until the aggregate reductions in such distributions equal the
aggregate draws made under this Section 4.4(b).

(c) Each of the Company and its subsidiaries may withhold from distributions,
allocations or portions thereof if it is required to do so by any applicable
rule, regulation or law, and each Member hereby authorizes the Company and its
subsidiaries to withhold or pay on behalf of or with respect to such Member any
amount of U.S. federal, state, provincial, local or foreign taxes that the Board
determines, in good faith, that the Company or any of its subsidiaries is
required to withhold or pay with respect to any amount distributable or
allocable to such Member pursuant to this Agreement. To the extent that any tax
is paid by (or withheld from amounts payable to) the Company or any of its
subsidiaries and the Board determines, in good faith, that such tax relates to
one or more specific Members (including any tax payable by the Company or any of
its subsidiaries pursuant to Section 6225 of the Amended Code with respect to
items of income, gain, loss deduction or credit allocable or attributable to
such Member), such tax shall be treated as an amount of taxes withheld or paid
with respect to such Member pursuant to this Section 4.4(c). For all purposes
under this Agreement, any amounts withheld or paid with respect to a Member
pursuant to this Section 4.4(c) shall be treated as having been distributed to
such Member pursuant to Section 4.4(a) at the time such withholding or payment
is made. Further, to the extent that the cumulative amount of such withholding
or payment for any period

 

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exceeds the distributions to which such Member is entitled for such period, the
amount of such excess shall be considered a loan from the Company to such
Member, with interest accruing at the primary rate of interest then publicly
quoted by J.P. Morgan Chase & Co. or, at the request of the Board, the amount of
such excess shall be promptly paid to the Company by the Member on whose behalf
such withholding is required to be made; provided, however, that any such
payment shall not be treated as a Capital Contribution and shall not reduce the
amount that a Member is otherwise obligated to contribute to the Company. Any
income from any deemed loan shall not be allocated to or distributed to the
Member requiring such loan. Any such loan shall be satisfied out of
distributions to which such Member would otherwise be subsequently entitled
until such time as the Board requests that the Member pay such amount to the
Company. Each Member hereby unconditionally and irrevocably grants to the
Company a security interest in such Member’s Units to secure such Member’s
obligation to pay to the Company any amounts required to be paid pursuant to
this Section 4.4(c). Each Member shall take such actions as the Company may
request in order to perfect or enforce the security interest created hereunder.
Each Member hereby agrees to indemnify and hold harmless the Company, the other
Members and the Board from and against any liability (including any liability
for taxes) with respect to income attributable to or distributions or other
payments to such Member. Notwithstanding any other provision of this Agreement,
(i) any Person who ceases to be a Member shall be treated as a Member for
purposes of this Section 4.4(c) and (ii) the obligations of a Member pursuant to
this Section 4.4(c) shall survive indefinitely with respect to any taxes
withheld or paid by the Company that relate to the period during which such
Person was actually a Member, regardless of whether such taxes are assessed,
withheld or otherwise paid during such period.

ARTICLE V

MANAGEMENT AND RELATED MATTERS

Section 5.1. Power and Authority of Board.

(a) The Company shall be managed by a Board of Managers (“Board” or “Board of
Managers”). The Company shall initially have five (5) managers (each, a
“Manager” and, collectively, the “Managers”) and the Managers serving on the
Board shall be appointed and removed by a Majority Interest of the Members,
subject to the terms of the Voting and Transfer Restriction Agreement. The
Managers making up the initial Board shall be Anthony Bahr, Jay Graham, Scott
Gieselman, David W. Hayes and Tony R. Weber. Except as otherwise expressly
provided in Section 5.4 and elsewhere in this Agreement, all management powers
over the business and affairs of the Company shall be exclusively vested in the
Board, and the Members shall have no right of control over the business and
affairs of the Company. In addition to the powers now or hereafter granted to
managers under the Act or which are granted to the Board under any other
provision of this Agreement, the Board shall have full power and authority to do
all things deemed necessary or desirable by it to conduct the business of the
Company in the name of the Company.

(b) The Board may hold such meetings at such place and at such time as it may
determine. Notice of a meeting shall be served not less than 24 hours before the
date and time fixed for such meeting by confirmed facsimile or other written
communication or not less than three days prior to such meeting if notice is
provided by overnight delivery service. Notice of a

 

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meeting need not be given to any Manager who signs a waiver of notice or
provides a waiver by electronic transmission or a consent to holding the meeting
or an approval of the minutes thereof, whether before or after the meeting, or
who attends the meeting without protesting, either prior thereto or at its
commencement, the lack of notice to such Manager. A special meeting of the Board
may be called by any member of the Board. Any member of the Board may
participate in a meeting by conference telephone or similar communications
equipment. Any action required or permitted to be taken by the Board may be
taken without a meeting if such action is evidenced in writing and signed by all
of the members of the Board. At any meeting of the Board, the presence in person
or by telephone or similar electronic communication of Managers representing at
least a majority of the Board shall constitute a quorum.

(c) Each Manager serving on the Board of Managers shall have one vote on any
Company matter. Except as otherwise provided in this Agreement, the business of
the Company presented at any meeting of the Board of Managers shall be decided
by a vote of Managers representing a majority of the entire Board of Managers.

(d) In accomplishing all of the foregoing and in fulfilling its obligations
pursuant to this Agreement, the Board may, in its sole discretion, retain or use
any Company Affiliates’ personnel, properties and equipment or the Board may
hire or rent those of third parties and may employ on a temporary or continuing
basis outside accountants, attorneys, consultants and others on such terms as
the Board deems advisable. No Person, firm or corporation dealing with the
Company shall be required to inquire into the authority of the Board to take any
action or make any decision.

Section 5.2. Officers.

(a) Designation. The Board may, from time to time, designate individuals (who
need not be a Manager) to serve as officers of the Company. The officers may,
but need not, include a chief executive officer, a president, a chief operating
officer, a chief financial officer, a general counsel and secretary and a chief
accounting officer. Any two or more offices may be held by the same Person.

(b) Duties of Officers. Each officer of the Company designated hereunder shall
devote such time to the Company’s business as he deems necessary to manage and
supervise Company business and affairs in an efficient manner.

(c) Term of Office; Removal; Filling of Vacancies.

(i) Each officer of the Company shall hold office until his successor is chosen
and qualified in his stead or until his earlier death, resignation, retirement,
disqualification or removal from office.

(ii) Any officer may be removed at any time by the Board whenever in their
judgment the best interests of the Company will be served thereby. Designation
of an officer shall not of itself create any contract rights in favor of such
officer.

(iii) If the office of any officer becomes vacant for any reason, the vacancy
may be filled by the Board.

 

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Section 5.3. Acknowledged and Permitted Activities.

(a) The Company and the Members recognize that (i) NGP and its Affiliates may
own or will own substantial equity interests in other companies (existing and
future) that participate in the energy industry (“NGP Portfolio Companies”) and
enter into advisory service agreements with those NGP Portfolio Companies,
(ii) the NGP Representatives who serve as members of the Board may also serve as
principals of other NGP Portfolio Companies, and (iii) that at any given time,
other NGP Portfolio Companies may be in direct or indirect competition with the
Company and/or its subsidiaries. The Company and the Members acknowledge and
agree that (A) NGP, its Affiliates and the NGP Representatives: (I) shall not be
prohibited or otherwise restricted by their relationship with the Company and
its subsidiaries from engaging in the business of investing in NGP Portfolio
Companies, entering into agreements to provide services to such companies or
acting as directors or advisors to, or other principals of, such NGP Portfolio
Companies, regardless of whether such activities are in direct or indirect
competition with the business or activities of the Company or its subsidiaries,
and (II) shall not have any obligation to offer the Company or its subsidiaries
any Excluded Business Opportunity, and (B) the Company and the Members hereby
renounce any interest or expectancy in any Excluded Business Opportunity pursued
by NGP, its Affiliates, the NGP Representatives or another NGP Portfolio Company
and waive any claim that any such business opportunity constitutes a corporate,
partnership or other business opportunity of the Company or any of its
subsidiaries.

Section 5.4. Duties and Services of the Board. The Board shall comply in all
respects with the terms of this Agreement. The Board shall be obligated to
perform the duties, responsibilities and obligations of the Board hereunder only
to the extent that funds of the Company are available therefor. During the
existence of the Company, each Manager serving on the Board shall devote such
time and effort to the Company’s business as he deems necessary to manage and
supervise Company business and affairs in an efficient manner. No Member, in its
capacity as a Member, shall have any fiduciary or other duty to the Company, any
other Member or any other Person that is a party to or is otherwise bound by
this Agreement other than (i) to the extent required by law, the implied
contractual covenant of good faith and fair dealing and (ii) such other
contractual obligations as are expressly set forth in this Agreement. Each
Manager serving on the Board, in its capacity as Manager, shall not have any
fiduciary or other duty to the Company, any other Member or any other Person
that is a party to or is otherwise bound by this Agreement other than (i) to the
extent required by law, the implied contractual covenant of good faith and fair
dealing and (ii) such other contractual obligations as are expressly set forth
in this Agreement. The provisions of this Agreement, to the extent that they
modify or eliminate the duties and liabilities of any Member or Manager
otherwise existing at law or in equity, are agreed by the Members and Managers
to modify or eliminate to that extent such other duties and liabilities of such
Member or Manager to the fullest extent permitted by applicable law.

Section 5.5. Liability and Indemnification.

(a) The Company’s officers, the Managers, the Members and their Affiliates, and
their partners, officers, directors, employees and agents, shall not be liable,
responsible or accountable in damages or otherwise to the Company or the other
Members for any acts or omissions that do not constitute gross negligence,
willful misconduct, or a breach of the express terms of this Agreement, and the
Company shall indemnify to the maximum extent permitted

 

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under the Act and save harmless the Company’s officers, the Managers and the
Members and their Affiliates, and their partners, officers, directors, employees
and agents (individually, an “Indemnitee”) from all liabilities for which
indemnification is permitted under the Act. Any act or omission performed or
omitted by an Indemnitee on advice of legal counsel or an independent consultant
who has been employed or retained by the Company shall be presumed to have been
performed or omitted in good faith without gross negligence or willful
misconduct. THE PARTIES RECOGNIZE THAT THIS PROVISION SHALL RELIEVE ANY SUCH
INDEMNITEE FROM ANY AND ALL LIABILITIES, OBLIGATIONS, DUTIES, CLAIMS, ACCOUNTS
AND CAUSES OF ACTION WHATSOEVER ARISING OR TO ARISE OUT OF ANY ORDINARY
NEGLIGENCE BY ANY SUCH INDEMNITEE, AND SUCH INDEMNITEE SHALL BE ENTITLED TO
INDEMNIFICATION FROM ACTS OR OMISSIONS THAT MAY CONSTITUTE ORDINARY NEGLIGENCE.

(b) The Company shall, to the maximum extent permitted under the Act, pay or
reimburse expenses incurred by an Indemnitee in connection with the Indemnitee’s
appearance as a witness or other participation in a proceeding involving or
affecting the Company at a time when the Indemnitee is not a named defendant or
respondent in the proceeding.

(c) The Board shall have the right to require that any contract entered into by
the Company provide that the Board shall have no personal liability for the
obligations of the Company thereunder.

(d) The indemnification provided by this Section 5.5 shall be in addition to any
other rights to which each Indemnitee may be entitled under any agreement or
vote of the Members, as a matter of law or otherwise, both as to action in the
Indemnitee’s capacity as a Member or an officer, director, employee or agent of
a Member or as a Person serving at the request of the Company as set forth above
and to action in another capacity, and shall continue as to an Indemnitee who
has ceased to serve in such capacity and shall inure to the benefit of the
heirs, successors, assigns, administrators and personal representatives of the
Indemnitees; provided that the indemnification provided by this Section 5.5
shall be the primary source of indemnification with respect to the matters
addressed herein, without regard to other potential sources of indemnification,
reimbursement or contribution (subject to applicable express provisions of any
insurance policy to which the Company is a party) and the Company irrevocably
waives, relinquishes and releases all right to contribution, subrogation or any
other recovery of any kind from NGP or its Affiliates and insurance provided by
NGP or its Affiliates to any Indemnitee; and provided, further, no advancement
or payment by NGP, its Affiliates or insurance provided by any of them to an
Indemnitee with respect to any claim for which an Indemnitee has sought
indemnification from the Company shall affect the foregoing and NGP and its
Affiliates shall have a right of contribution and/or be subrogated to the extent
of such advancement or payment to all of the rights of recovery of such
Indemnitee against the Company. The Company and each Member agree that NGP, its
Affiliates and the insurers they engage to provide insurance to Indemnitees are
express third party beneficiaries of the terms of this Section 5.5(d).

(e) In no event may an Indemnitee subject the Members to personal liability by
reason of this indemnification provision.

 

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(f) An Indemnitee shall not be denied indemnification in whole or in part under
this Section 5.5 because the Indemnitee had an interest in the transaction with
respect to which the indemnification applies if the transaction was otherwise
permitted by the terms of this Agreement.

Section 5.6. Reimbursement of Members. The Company or its subsidiaries shall pay
or reimburse to the WildHorse Members and NGP all reasonable direct and indirect
costs and expenses incurred by such Members in organizing the Company, including
legal fees and accounting fees.

Section 5.7. Insurance. The Company shall acquire and maintain insurance
covering such risks and in such amounts as the officers of the Company shall
from time to time determine to be necessary or appropriate.

Section 5.8. Tax Elections and Status.

(a) The Board shall make such tax elections on behalf of the Company as it shall
deem appropriate in its sole discretion. Upon request of the Board, each Member
shall cooperate in good faith with the Company in connection with the Company’s
efforts to elect out of the application of the company-level audit and
adjustment rules of the Bipartisan Budget Act, if applicable.

(b) The Members agree to classify the Company as a partnership for income tax
purposes. Therefore, any provision hereof to the contrary notwithstanding,
solely for income tax purposes, each of the Members hereby recognizes that the
Company, so long as it has at least two Members, shall be subject to all
provisions of subchapter K of Chapter 1 of Subtitle A of the Internal Revenue
Code and, to the extent permitted by law, any comparable state or local income
tax provisions. Neither the Company, any Member, nor any Manager shall file an
election to classify the Company as an association taxable as a corporation for
income tax purposes.

Section 5.9. Tax Returns. The Company shall deliver necessary tax information to
each Member after the end of each fiscal year of the Company. Not less than 60
days prior to the date (as extended) on which the Company intends to file its
federal income tax return or any state income tax return but in any event no
earlier than March 1 of each year, the return proposed by the Board to be filed
by the Company shall be furnished to the Members for review; provided, however,
that an IRS Schedule K-1 or a good faith estimate of the amounts to be included
on such IRS Schedule K-1 for each Member shall be sent to each Member on or
before March 1 of each year. In addition, not more than 10 days after the date
on which the Company files its federal income tax return or any state income tax
return, a copy of the return so filed shall be furnished to the Members.

Section 5.10. Tax Matters Member. Partnership Representative.

(a) Anthony Bahr shall be designated the tax matters member under Section 6231
of the Internal Revenue Code (in such capacity, the “Tax Matters Member”). The
Tax Matters Member may be removed and replaced by action of a Majority Interest
of the Members. The Tax Matters Member is authorized to take such actions and to
execute and file all statements and forms on behalf of the Company which may be
permitted or required by the applicable

 

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provisions of the Internal Revenue Code or Treasury Regulations issued
thereunder. The Tax Matters Member shall have full and exclusive power and
authority on behalf of the Company to represent the Company (at the Company’s
expense) in connection with all examinations of the Company’s affairs by tax
authorities, including resulting administrative and judicial proceedings, and to
expend Company funds for professional services and costs associated therewith.
The Tax Matters Member shall keep the Members informed as to the status of any
audit of the Company’s tax affairs, and shall take such action as may be
necessary to cause any Member so requesting to become a “notice partner” within
the meaning of Section 6223 of the Internal Revenue Code. Without first
obtaining the approval of a Majority Interest of the Members, the Tax Matters
Member shall not, with respect to Company tax matters: (i) enter into a
settlement agreement with respect to any tax matter which purports to bind
Members, (ii) intervene in any action pursuant to Internal Revenue Code Section
6226(b)(5), (iii) enter into an agreement extending the statute of limitations,
or (iv) file a petition pursuant to Internal Revenue Code Section 6226(a) or
6228. If an audit of any of the Company’s tax returns shall occur, the Tax
Matters Member shall not settle or otherwise compromise assertions of the
auditing agent which may be adverse to any Member as compared to the position
taken on the Company’s tax returns without the prior written consent of each
such affected Member.

(b) The Board may appoint and replace a Partnership Representative and authorize
the Partnership Representative to take any and all actions determined by the
Board and permissible under Section 6223 of the Amended Code and Treasury
Regulations thereunder. Pursuant to Section 11.2(d), the Board shall have the
authority to amend this Section 5.10 to give effect to the provisions of the
Bipartisan Budget Act and any Treasury Regulations or other administrative
pronouncements promulgated thereunder and each Member agrees to be bound by the
provisions of any such amendment.

Section 5.11. Section 83(b) Election. Each Member who acquires Incentive Units
and who is a United States person within the meaning of Internal Revenue Code
Section 7701(a)(30) may file a timely election under Internal Revenue Code
Section 83(b) with respect to such Incentive Units and consult with such
Member’s tax advisor to determine the tax consequences of such acquisition and
of filing an election under Internal Revenue Code Section 83(b). Each such
Member acknowledges that it is the sole responsibility of such Member, and not
the Company, to file the election under Internal Revenue Code Section 83(b) even
if such Member requests the Company or its representative to assist in making
such filing. In accordance with the applicable Treasury Regulations, each Member
who makes an election shall promptly provide a copy of such election to the
Company.

Section 5.12. Subsidiaries of the Company. The Board may determine to conduct
any Company operations indirectly through one or more subsidiaries.

Section 5.13. Tax Reimbursement. If Texas law requires the Company and NGP both
to participate in the filing of a Texas franchise tax combined group report, and
if NGP or its Affiliates pay the franchise tax liability due in connection with
such combined report, the parties agree that the Company shall promptly
reimburse NGP or its Affiliates for the franchise tax paid on behalf of the
Company as a combined group member. The franchise tax paid on behalf of the
Company shall be equal to the franchise tax that the Company would have paid if
it had computed its franchise tax liability for the report period on a separate
entity basis rather than as a

 

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member of the combined group. In such event, the parties agree that NGP and its
Affiliates shall be considered as paying such amount on behalf of the Company
and the Company shall deduct for federal income tax purposes one hundred percent
(100%) of the Texas franchise tax attributable to the Company; provided that in
the event that such deduction may not be properly taken by the Company, the
Company shall reimburse NGP and its Affiliates for the after-tax cost of such
payment of Texas franchise tax paid on the Company’s behalf.

ARTICLE VI

RIGHTS OF MEMBERS

Section 6.1. Rights of Members. Each of the Members shall have the right to:
(a) have the Company books and records (including those required under the Act)
kept at the principal United States office of the Company and at all reasonable
times to inspect and copy any of them at the sole expense of such Member;
(b) have on demand true and full information of all things affecting the Company
and a formal account of Company affairs whenever circumstances render it just
and reasonable; (c) have dissolution and winding up of the Company by decree of
court as provided for in the Act; and (d) exercise all rights of a Member under
the Act (except to the extent otherwise specifically provided herein).
Notwithstanding the foregoing, the Members shall not have the right to receive
data pertaining to the properties of the Company if the Company is subject to a
valid agreement prohibiting the distribution of such data or if the Board shall
otherwise determine that such data is Confidential Information.

Section 6.2. Limitations on Members. The Members, (in his or its capacity as a
Member) shall not: (a) be permitted to take part in the business or control of
the business or affairs of the Company; (b) have any voice in the management or
operation of any Company property; or (c) have the authority or power to act as
agent for or on behalf of the Company or any other Member, to do any act which
would be binding on the Company or any other Member, or to incur any
expenditures on behalf of or with respect to the Company. No Member (in his or
its capacity as a Member) shall hold out or represent to any third party that
the Members have any such power or right or that the Members are anything other
than “members” of the Company. The foregoing provision shall not be applicable
to a Member acting in his or its capacity as a member of the Board or an officer
of the Company.

Section 6.3. Liability of Members. No Member shall be liable for the debts,
liabilities, contracts or other obligations of the Company except (a) as
otherwise provided in the Act and (b) as expressly provided in this Agreement.

Section 6.4. Withdrawal and Return of Capital Contributions. No Member shall be
entitled to (a) withdraw from the Company except upon the assignment by such
Member of all of its Company Interest in accordance with Article IX, or (b) the
return of its Capital Contributions except to the extent, if any, that
distributions made pursuant to the express terms of this Agreement may be
considered as such by law or upon dissolution and liquidation of the Company,
and then only to the extent expressly provided for in this Agreement and as
permitted by law.

 

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Section 6.5. Voting Rights. Except as otherwise expressly provided herein, to
the extent that the vote of the Members may be required hereunder, the act of a
Majority Interest of the Members shall be an act of the Members. Notwithstanding
anything in this Agreement to the contrary, with respect to any Company
Interests held by any Member who is an Employee, such Company Interests shall be
non-voting if and when such Person’s status as an Employee is terminated for any
reason or without reason, including by termination, resignation, death or
disability.

ARTICLE VII

BOOKS, REPORTS, MEETINGS AND CONFIDENTIALITY

Section 7.1. Capital Accounts, Books and Records.

(a) The Company shall keep books of account for the Company in accordance with
the terms of this Agreement. Such books shall be maintained at the principal
office of the Company.

(b) An individual capital account (the “Capital Account”) shall be maintained by
the Company for each Member as provided below:

(i) The Capital Account of each Member shall, except as otherwise provided
herein, be increased by (A) the amount of cash and the fair market value of any
property contributed to the Company by such Member (net of the Gross Liability
Value of any Obligations secured by such contributed property that the Company
is considered to assume or take subject to under Section 752 of the Internal
Revenue Code), (B) such Member’s share of the Net Profits of the Company and
special allocations of income or gain under Section 4.2, and (C) the Gross
Liability Value of any Obligations assumed (or deemed assumed) by a Member from
the Company that would not otherwise be taken into account under Section
7.1(b)(i)(D), and shall be decreased by (D) such Member’s share of the Net
Losses of the Company and special allocations of deduction or loss under
Section 4.2 and by the amount of cash or the fair market value of any property
distributed to such Member (net of the Gross Liability Value of any Obligations
secured by such distributed property that such Member is considered to assume or
take subject to under Section 752 of the Internal Revenue Code or would be
considered to have assumed or taken subject to for purposes of Section 752 of
the Internal Revenue Code if such Obligation were a liability for purposes of
Section 752 of the Internal Revenue Code) and (E) the Gross Liability Value of
any Obligations assumed (or deemed assumed) by the Company from a Member that
would not otherwise be taken into account under Section 7.1(b)(i)(A)). The
Capital Accounts shall also be increased or decreased (I) to reflect a
revaluation of Company property and Obligations pursuant to paragraphs (b) and
(f) of the definition of Carrying Value and (II) upon the exercise of any
noncompensatory warrant pursuant to the requirements of Treasury Regulation
Sections 1.704-1(b)(2)(iv)(d)(4) and 1.704-1(b)(2)(iv)(s).

(ii) Any adjustments of basis of Company property provided for under Sections
734 and 743 of the Internal Revenue Code and comparable provisions of state law
(resulting from an election under Section 754 of the Internal Revenue Code or
comparable provisions of state law) shall not affect the Capital Accounts of the
Members (unless otherwise required by applicable Treasury Regulations), and the
Members’ Capital Accounts shall be debited or credited pursuant to the terms of
this Section 7.1 as if no such election had been made.

 

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(iii) Capital Accounts shall be adjusted, in a manner consistent with this
Section 7.1, to reflect any adjustments in items of Company income, gain, loss
or deduction (including Simulated Depletion, Simulated Gain and Simulated Loss)
that result from amended returns filed by the Company or pursuant to an
agreement by the Company with the Internal Revenue Service or a final court
decision.

(iv) The allocation of basis prescribed by Section 613A(c)(7)(D) of the Internal
Revenue Code and provided for in Section 4.3(b) and each Member’s separately
computed depletion deductions shall not reduce such Member’s Capital Account,
but such Member’s Capital Account shall be decreased by its allocable share of
Simulated Depletion. The Simulated Basis of each oil and gas property shall be
allocated to each Member in accordance with such Member’s Capital Interest
Percentage as of the time such oil and gas property is acquired by the Company
(and any additions to such Simulated Basis resulting from expenditures required
to be capitalized in such Simulated Basis shall be allocated among the Members
in a manner designed to cause the Members’ proportionate shares of such
Simulated Basis to be in accordance with their Capital Interest Percentages as
determined at the time of any such additions), and shall be reallocated among
the Members in accordance with the Members’ Capital Interest Percentages as
determined immediately following the occurrence of an event giving rise to an
adjustment to the Carrying Values of the Company’s oil and gas properties
pursuant to clause (b) of the definition of Carrying Value. Simulated Depletion
with respect to each separate oil and gas property shall be allocated to the
Members in proportion to their respective shares of the Simulated Basis in the
related property. No Member’s Capital Account shall be decreased, however, by
Simulated Depletion deductions attributable to any oil and gas property to the
extent such deductions exceed such Member’s allocable share of the Company’s
remaining Simulated Basis in such property. Any Simulated Gain shall be
allocated to the Members and shall increase their respective Capital Accounts in
the same manner as an equal amount of gain would have been allocated pursuant to
Section 4.1. Any Simulated Loss shall be allocated to the Members and shall
reduce their respective Capital Accounts in the same percentages as the basis of
the property sold was allocated up to an amount equal to each Member’s share of
the Company’s Simulated Basis in such property at the time of such sale.

(v) It is the intention of the Members that the Capital Accounts of each Member
be kept in the manner required under Treasury Regulation Section
1.704-1(b)(2)(iv). To the extent any additional adjustment to the Capital
Accounts is required by such regulation, the Board is hereby authorized to make
such adjustment after notice to the Members.

(vi) In accordance with the provisions of Treasury Regulation Section
1.704-1(b)(2)(iv)(f), upon a Member’s contribution to the Company of cash or
properties in exchange for a Company Interest, the Capital Accounts of all
Members and the Carrying Values of all Company properties and Obligations shall,
immediately prior to such issuance, be adjusted upward or downward to reflect
any Unrealized Gain or Unrealized Loss attributable to the Company properties
and Obligations, as if such Unrealized Gain or Unrealized Loss had been
recognized immediately prior to such contribution and had been allocated to the
Members at such time pursuant to Section 4.1 and Section 4.2.

 

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(vii) Any Person who acquires a Company Interest directly from a Member, or
whose Company Interest shall be increased by means of a Transfer to it of all or
part of the Company Interest of another Member, shall have a Capital Account
(including a credit for all Capital Contributions made by such Member
Transferring such Company Interest) which includes the Capital Account balance
of the Company Interest or portion thereof so acquired or Transferred.

Section 7.2. Bank Accounts. The Board shall cause one or more Company accounts
to be maintained in a bank (or banks) which is a member of the Federal Deposit
Insurance Corporation or some other financial institution, which accounts shall
be used for the payment of the expenditures incurred by the Company in
connection with the business of the Company, and in which shall be deposited any
and all receipts of the Company. The Board shall determine the number of and the
Persons who will be authorized as signatories on each such bank account. The
Company may invest the Company funds in such money market accounts or other
investments as the Board shall determine to be of high quality.

Section 7.3. Reports. The Company shall provide each Capital Member with copies
of such financial reports as shall be reasonably requested from time to time by
such Members and any such other reports and financial information as the Board
shall determine from time to time, including periodic consolidated financial
statements for the Company and its subsidiaries (including income statements,
balance sheets and cash flow statements) and copies of all engineering reserve
reports and other financial reports that the Company or its subsidiaries
provides to any financial institution that provides debt or equity financing to
the Company or its subsidiaries; provided that any information provided to
Members pursuant to this Section 7.3 shall be deemed Confidential Information.

Section 7.4. Meetings of Members. The Board may hold meetings of the Members
from time to time to inform and consult with the Members concerning the
Company’s assets and such other matters as the Board deems appropriate, provided
that nothing in this Section 7.4 shall require the Board to hold any such
meetings. Such meetings shall be held at such times and places, as often and in
such manner as shall be determined by the Board. The Board at its election may
separately inform and consult with the Members for the above purposes without
the necessity of calling and/or holding a meeting of the Members.
Notwithstanding the foregoing provisions of this Section 7.4, the Members shall
not be permitted to take part in the business or control of the business of the
Company; it being the intention of the parties that the involvement of the
Members as contemplated in this Section 7.4 is for the purpose of informing the
Members with respect to various Company matters, explaining any information
furnished to the Members in connection therewith, answering any questions the
Members may have with respect thereto and receiving any ideas or suggestions the
Members may have with respect thereto; it being the further intention of the
parties that the Board shall have full and exclusive power and authority on
behalf of the Company to acquire, manage, control and administer the assets,
business and affairs of the Company in accordance with Section 5.1 and the other
applicable provisions of this Agreement.

 

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Section 7.5. Confidentiality. No Member shall use, publish, disseminate or
otherwise disclose, directly or indirectly, any Confidential Information that
should come into the possession of such Member for other than a proper Company
purpose. No Member shall disclose any such Confidential Information except as
expressly authorized by this Agreement or by the Board, or as required by law or
governmental or regulatory authority. Each Member shall instruct all Affiliates
(including their representatives, agents and counsel) to comply with this
Section 7.5. If a Member is required by law or court order to disclose
information that would otherwise be Confidential Information under this
Agreement, such Member shall immediately notify the Company of such notice and
provide the Company the opportunity to resist such disclosure by appropriate
proceedings. The terms of this Section 7.5 shall survive with respect to each
Member until the earlier to occur of (a) the date following one year from the
date of the liquidation of the Company and (b) the date following two years from
the date of termination or Transfer of such Member’s Company Interest.

ARTICLE VIII

DISSOLUTION, LIQUIDATION AND TERMINATION

Section 8.1. Dissolution. The Company shall be dissolved upon the occurrence of
any of the following:

(a) The seventh anniversary of the date of this Agreement;

(b) The sale, disposition or termination of all or substantially all of the
property then owned by the Company; or

(c) The consent in writing of the Board of Managers.

Section 8.2. Winding Down. From and after the sixth anniversary of the Company’s
formation, unless the Capital Members otherwise mutually agree or unless the
Company has previously been dissolved, the Members shall cooperate in the
marketing and sale of all or substantially all of the assets or outstanding
Company Interests, or any other similar transaction to potentially interested
third parties, such that the Company can be formally liquidated prior to the end
of its stated term.

Section 8.3. Liquidation and Termination. Upon dissolution of the Company, the
Board or, if the Board so desires, a Person selected by the Board, shall act as
liquidator or shall appoint one or more liquidators who shall have full
authority to wind up the affairs of the Company and make final distribution as
provided herein. The liquidator shall continue to operate the Company properties
with all of the power and authority of the Board. The steps to be accomplished
by the liquidator are as follows:

(a) As promptly as possible after dissolution and again after final liquidation,
the liquidator, if requested by any Member, shall cause a proper accounting to
be made by the Company’s independent accountants of the Company’s assets,
liabilities and operations through the last day of the month in which the
dissolution occurs or the final liquidation is completed, as appropriate.

 

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(b) The liquidator shall pay all of the debts and liabilities of the Company
(including all expenses incurred in liquidation) or otherwise make adequate
provision therefor (including the establishment of a cash escrow fund for
contingent liabilities in such amount and for such term as the liquidator may
reasonably determine). After making payment or provision for all debts and
liabilities of the Company, the liquidator shall sell all properties and assets
of the Company for cash as promptly as is consistent with obtaining the best
price therefor; provided, however, that upon the consent of a Majority Interest
of the Members, the liquidator may distribute such properties in kind. All Net
Profit, Net Loss, Simulated Gain and Simulated Loss (or other items of income,
gain loss or deduction allocable under Section 4.2) realized on such sales shall
be allocated to the Members as provided in this Agreement, and the Capital
Accounts of the Members shall be adjusted accordingly. In the event of a
distribution of properties in kind, the liquidator shall first adjust the
Capital Accounts of the Members by the amount of any Net Profit, Net Loss,
Simulated Gain and Simulated Loss (or other items of income, gain loss or
deduction allocable under Section 4.2) that would have been recognized by the
Members if such properties had been sold at then fair market values. The
liquidator shall then distribute the proceeds of such sales or such properties
to the Members in the manner provided in Section 4.4(a). If the foregoing
distributions to the Members do not equal the Member’s respective positive
Capital Account balances as determined after giving effect to the foregoing
adjustments and to all adjustments attributable to allocations of Net Profit,
Net Loss, Simulated Gain and Simulated Loss realized by the Company during the
taxable year in question and all adjustments attributable to contributions and
distributions of money and property effected prior to such distribution, then,
the allocations of Net Profit, Net Loss, Simulated Gain and Simulated Loss
provided for in this Agreement shall be adjusted, to the least extent necessary,
to produce a Capital Account balance for each Member which corresponds to the
amount of the distribution to such Member. Each Member shall have the right to
designate another Person to receive any property which otherwise would be
distributed in kind to that Member pursuant to this Section 8.3.

(c) Except as expressly provided herein, the liquidator shall comply with any
applicable requirements of the Act and all other applicable laws pertaining to
the winding up of the affairs of the Company and the final distribution of its
assets.

(d) Notwithstanding any provision in this Agreement to the contrary, no Member
shall be obligated to restore a deficit balance in its Capital Account at any
time.

The distribution of cash and/or property to the Members in accordance with the
provisions of this Section 8.3 shall constitute a complete return to the Members
of their Capital Contributions and a complete distribution to the Members of
their Company Interest and all Company property.

ARTICLE IX

ASSIGNMENTS OF COMPANY INTERESTS

Section 9.1. Assignments of Company Interests.

(a) No Member’s Company Interest or rights therein shall be Transferred, or made
subject to an Indirect Transfer, in whole or in part, without the prior written
consent of the Board; provided, however, that any Member may assign its Company
Interest without obtaining such consent pursuant to (i) an Excluded Affiliate
Transfer or (ii) a Transfer that is otherwise

 

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permitted pursuant to the Voting and Transfer Restriction Agreement. Any attempt
by a Member to assign its Company Interest in violation of the immediately
preceding sentence shall be void ab initio. If an interest in a Unit or other
Company Interest is required by law to be Transferred to a spouse of a holder
thereof pursuant to an order of a court of competent jurisdiction in a divorce
proceeding (notwithstanding the foregoing provisions of this Section 9.1(a)),
then such holder shall nevertheless retain all rights with respect to such
interest and any interest of such spouse shall be subject to such rights of such
holder. In addition, if it is determined that the holder will be required to pay
any taxes attributable to such interest of the spouse in the Company, then any
tax liability of such holder that is attributable to such spouse’s interest
shall be taken into account, and shall reduce such spouse’s interest in the
Company; in no event shall the Company be required to provide any financial,
valuation or other information regarding the Company or any of its subsidiaries
or Affiliates or any of their respective assets to the spouse or former spouse
of such holder.

(b) Unless an assignee of a Company Interest becomes a substituted Member in
accordance with the provisions set forth below, such assignee shall not be
entitled to any of the rights granted to a Member hereunder, other than the
right to receive allocations of income, gains, losses, deductions, credits and
similar items and distributions to which the assignor would otherwise be
entitled, to the extent such items are assigned.

(c) An assignee of a Company Interest shall become a substituted Member entitled
to all of the rights of a Member if, and only if, (i) the assignor gives the
assignee such right, (ii) the Board consents in writing to such substitution,
the granting or denying of which shall be in the Board’s sole discretion,
(iii) the assignee executes and delivers such instruments, in form and substance
satisfactory to the Board, as the Board may deem necessary or desirable to
effect such substitution and to confirm the agreement of the assignee to be
bound by all of the terms and provisions of this Agreement, and (iv) if the
Board so requires, the assignee reimburses the Company for any costs incurred by
the Company in connection with such assignment and substitution. Upon the
satisfaction of such requirements, such assignee shall be admitted as of such
date as shall be provided for in any document evidencing such assignment as a
substituted Member of the Company.

(d) The Company and the Board shall be entitled to treat the record Member of
any Company Interest as the absolute Member thereof in all respects and shall
incur no liability for distributions of cash or other property made in good
faith to such Member until such time as a written assignment of such Company
Interest that complies with the terms of this Agreement has been received by the
Board.

ARTICLE X

REPRESENTATIONS AND WARRANTIES

Section 10.1. Representations and Warranties. Each Member acknowledges and
agrees that its Company Interest is being purchased for such Member’s own
account as part of a private offering, exempt from registration under the
Securities Act and all applicable state securities or blue sky laws, for
investment only and not with a view to the distribution nor other sale thereof
and that an exemption from registration under the Securities Act or any
applicable state securities

 

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laws under the Securities Act or any applicable state securities laws may not be
available if the Company Interest is acquired by such Member with a view to
resale or distribution thereof under any conditions or circumstances as would
constitute a distribution of such Company Interest within the meaning and
purview of the Securities Act or the applicable state securities laws.
Accordingly, each Member represents and warrants to the Company and all other
interested parties that:

(a) Such Member has sufficient financial resources to continue such Member’s
investment in the Company for an indefinite period and understands that (i) such
Member is acquiring an interest in the Company without being furnished any
offering literature or prospectus, and (ii) the acquisition of such Member’s
Company Interest by such Member has not been reviewed by the United States
Securities and Exchange Commission or by any administrative agency charged with
the administration of the securities or “blue sky” laws of any state.

(b) Such Member acknowledges that the Company Interest being acquired by such
Member was not offered to such Member by means of publicly disseminated
advertisements or sales literature, nor is such Member aware of any offers made
to other Persons by such means.

(c) Such Member is familiar with Regulation D promulgated under the Securities
Act, and such Member is an “accredited investor” as defined in Rule 501(a) of
such Regulation D.

(d) Such Member has adequate means of providing for its current needs and
contingencies and can afford a complete loss of its investment in the Company.

(e) It is such Member’s intention to acquire and hold its Company Interest
solely for its private investment and for its own account and with no view or
intention to Transfer such Company Interest (or any portion thereof) in
violation of applicable law or this Agreement.

(f) Such Member has no contract, undertaking, agreement, or arrangement with any
Person to sell or otherwise Transfer to any Person, or to have any Person sell
on behalf of such Member, its Company Interest (or any portion thereof), and
such Member is not engaged in and does not plan to engage within the foreseeable
future in any discussion with any Person relative to the sale or any Transfer of
its Company Interest (or any portion thereof), except pursuant to an Excluded
Affiliate Transfer.

(g) Such Member is not aware of any occurrence, event, or circumstance upon the
happening of which such Member intends to attempt to Transfer its Company
Interest (or any portion thereof), and such Member does not have any present
intention of Transferring its Company Interest (or any portion thereof) after
the lapse of any particular period of time, except pursuant to an Excluded
Affiliate Transfer.

(h) Such Member, by making other investments of a similar nature and/or by
reason of his/its business and financial experience or the business and
financial experience of those Persons it has retained to advise such Member with
respect to its investment in the Company, is a sophisticated investor who has
the capacity to protect its own interest in investments of this nature, so as to
be capable of evaluating the merits and risks of an investment in the Company
Interest.

 

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(i) Such Member has had all documents, records, books and due diligence
materials pertaining to this investment made available to such Member and such
Member’s accountants and advisors; such Member has also had an opportunity to
ask questions of and receive answers from the Company concerning this
investment; and such Member has all of the information deemed by such Member to
be necessary or appropriate to evaluate the investment and the risks and merits
thereof and to make an informed decision concerning such Member’s investment in
the Company Interest.

(j) Such Member has a close business association with the Company or certain of
its Affiliates, thereby making the Member a well-informed investor for purposes
of this investment.

(k) Such Member is aware of the following:

(i) The Company is newly organized and has no financial or operating history
and, further, such Member’s investment in the Company is speculative and
involves a high degree of risk of loss by the Member of its entire investment,
with no assurance of any income from such investment;

(ii) No federal or state agency has made any finding or determination as to the
fairness of the investment, or any recommendation or endorsement, of such
investment;

(iii) There are substantial restrictions on the Transferability of the Company
Interest of such Member, there will be no public market for the Company Interest
and, accordingly, it may not be possible for such Member readily to liquidate
its investment in the Company in case of emergency; and

(iv) Any federal or state income tax benefits which may be available to such
Member may be lost through changes to existing laws and regulations or in the
interpretation of existing laws and regulations; such Member in making this
investment is relying, if at all, solely upon the advice of its own tax advisors
with respect to the tax aspects of an investments in the Company.

(l) Such Member further covenants and agrees that (i) its Company Interest will
not be resold unless the provisions set forth in Article IX above are complied
with, and (ii) such Member shall have no right to require registration of its
Company Interest under the Securities Act or applicable state securities laws,
and, in view of the nature of the Company and its business, such registration is
neither contemplated nor likely.

(m) Such Member understands that a legend indicating that the Company Interest
has not been registered under applicable federal and state securities laws and
referring to the restrictions on transferability and sale of the Company
Interest may be placed on any certificate(s) or other document delivered to such
Member or any substitute therefore and any transfer agent of the Company or its
affiliates may be instructed to require compliance therewith.

 

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(n) Such Member confirms that such Member has been advised to consult with such
Member’s own attorney regarding legal matters concerning the Company and to
consult with independent tax advisors regarding the tax consequences of
investing in the Company.

(o) Such Member acknowledges that such Member understands the meaning and the
legal consequences of the representations, warranties, covenants and
certifications set forth in this Article X and that the Company has relied and
will rely upon such representations, warranties, covenants and certifications.

ARTICLE XI

MISCELLANEOUS

Section 11.1. Notices. All notices, elections, demands or other communications
required or permitted to be made or given pursuant to this Agreement shall be in
writing and shall be considered as properly given or made on the date of actual
delivery if given by (a) personal delivery, (b) United States mail,
(c) expedited overnight delivery service with proof of delivery, or (d) via
facsimile with confirmation of delivery, addressed to the respective
addressee(s). Any Member may change its address by giving notice in writing to
the other Members of its new address.

Section 11.2. Amendment.

(a) In addition to the right of the Board to amend this Agreement as provided
below, and except as otherwise provided below, any change, modification, or
amendment to this Agreement shall be effective if made by an instrument in
writing that has been duly approved by the Board and a Majority Interest of the
Members.

(b) Notwithstanding Section 11.2(a):

(i) with respect to any change, modification, supplement, restatement, waiver or
amendment to this Agreement that would (A) increase the liability or duties of
any of the Members, (B) change the contributions required of any of the Members,
(C) cause the Company to be taxed as a corporation, or (D) otherwise result in
any disproportionate and material adverse consequences for any Member, such
change, modification, supplement, restatement, waiver or amendment shall not be
binding on such Member unless contained in a written instrument duly executed by
such Member;

(ii) with respect to any change, modification, supplement, restatement, waiver
or amendment that would alter or change the rights, obligations, powers or
preferences of one or more Capital Members in a disproportionate and adverse
manner, other than in a de minimis respect, compared to other Capital Members,
such change, modification, supplement, restatement, waiver or amendment shall
also require the prior written consent of Capital Members holding a majority of
the Company Interests so disproportionately and adversely affected; and

 

44

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(iii) with respect to any change, modification, supplement, restatement, waiver
or amendment to this Agreement that would alter or change the rights,
obligations, powers or preferences of one or more Members in their capacity as a
holder of Incentive Units in a disproportionate and adverse manner, other than
in a de minimis respect, compared to any other class or series of Company
Interests (including Company Interests held by Capital Members), such change,
modification, supplement, restatement, waiver or amendment shall also require
the prior written consent of Members holding at least a majority of the
outstanding Incentive Units;

provided, however, that any amendment which is made to facilitate a merger or
consolidation of the Company with any other entity, to convert the Company into
another entity, or to cause the Company to participate in an exchange of
interests or some type of business combination with any other entity, shall
require the approval only of the Board and a Majority Interest of the Capital
Members, if each of the material terms and provisions of such merger,
consolidation, conversion, exchange or combination provides for equal and/or
proportionate treatment of each of the Members.

(c) With respect to any change, modification, or amendment to this Agreement
that would change the name of the Company, admit new or substituted Members in
accordance with the terms of Article IX, or any other change, modification or
amendment that does not adversely affect the Members in any disproportionate and
material respect, and any change, modification or amendment which the Board
determines is necessary or advisable to ensure that the Company is not and will
not be treated as an association taxable as a corporation for federal income tax
purposes or to conform with changes in applicable tax law (provided such changes
do not have a material adverse effect on the Members), such change,
modification, or amendment may be contained in a written instrument executed
solely by the Board; provided that the Board notifies the Members of such
change, modification, or amendment.

(d) With respect to any change, modification, or amendment to this Agreement
which the Board determines is necessary or advisable to comply with or
administer in an equitable manner the provisions of the Bipartisan Budget Act
and any Treasury Regulations or other administrative pronouncements promulgated
thereunder in any manner determined by the Board, such change, modification, or
amendment may be contained in a written instrument executed solely by the Board;
provided that the Board notifies the Members of such change, modification, or
amendment.

Section 11.3. Partition. Each of the Members hereby irrevocably waives for the
term of the Company any right that such Member may have to maintain any action
for partition with respect to the Company property.

Section 11.4. Entire Agreement. This Agreement and the other documents
contemplated hereby constitute the full and complete agreement of the parties
hereto with respect to the subject matter hereof.

Section 11.5. Severability. Every provision in this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity of the
remainder of this Agreement.

 

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Section 11.6. No Waiver. The failure of any Member to insist upon strict
performance of a covenant hereunder or of any obligation hereunder, irrespective
of the length of time for which such failure continues, shall not constitute a
waiver of such Member’s right to demand strict compliance in the future. No
consent or waiver, express or implied, to or of any breach or default in the
performance of any obligation hereunder shall constitute a consent or waiver to
or of any other breach or default in the performance of the same or any other
obligation hereunder.

Section 11.7. Applicable Law. This Agreement and the rights and obligations of
the parties hereunder shall be governed by and interpreted, construed and
enforced in accordance with the internal laws of the State of Delaware, without
regard to rules or principles of conflicts of law requiring the application of
the law of another State.

Section 11.8. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns; provided, however, that no Member may
Transfer all or any part of its rights or Company Interest or any interest under
this Agreement except in accordance with Article IX.

Section 11.9. Arbitration. Any dispute arising out of or relating to this
Agreement, the Transaction Documents, or the Company, including claims sounding
in contract, tort, statutory or otherwise (a “Dispute”), shall be settled
exclusively and finally by arbitration in accordance with this Section 11.9.

(a) Rules and Procedures. Such arbitration shall be administered by
JAMS/Endispute, Inc., a Delaware corporation and national dispute resolution
company (“JAMS”), pursuant to (i) the JAMS Streamlined Arbitration Rules and
Procedures, if the amount in controversy is $250,000 or less, or (ii) the JAMS
Comprehensive Arbitration Rules and Procedures, if the amount in controversy
exceeds $250,000 (each, as applicable, the “Rules”). The making, validity,
construction, and interpretation of this Section 11.9, and all procedural
aspects of the arbitration conducted pursuant hereto, shall be decided by the
arbitrator(s). For purposes of this Section 11.9, “amount in controversy” means
the stated amount of the claim, not including interest or attorneys’ fees, plus
the stated amount of any counterclaim, not including interest or attorneys’
fees. If the claim or counterclaim seeks a form of relief other than damages,
such as injunctive or declaratory relief, it shall be treated as if the amount
in controversy exceeds $250,000, unless all parties to the Dispute otherwise
agree.

(b) Discovery. Discovery shall be allowed only to the extent permitted by the
Rules.

(c) Time and Place. All arbitration proceedings hereunder shall be conducted in
Dallas, Texas or such other location as all parties to the Dispute may agree.
Unless good cause is shown or all parties to the Dispute otherwise agree, the
hearing on the merits shall be conducted within 180 days of the initiation of
the arbitration, if the arbitration is being conducted under the Streamlined
Arbitration Rules, or within 270 days of the initiation of the arbitration, if
the arbitration is being conducted under the Comprehensive Arbitration Rules.
However, it shall not be a basis to challenge the outcome or result of the
arbitration proceeding that it was not conducted within the specified timeframe,
nor shall the failure to conduct the hearing within the specified timeframe in
any way waive the right to arbitration as provided for herein.

 

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(d) Arbitrators.

(i) If the amount in controversy is $250,000 or less, the arbitration shall be
before a single arbitrator selected by JAMS in accordance with the Rules.

(ii) If the amount in controversy is more than $250,000, the arbitration shall
be before a panel of three arbitrators, selected in accordance with this
paragraph. The party initiating the arbitration shall designate, with its
initial filing, its choice of arbitrator. Within 30 days of the notice of
initiation of the arbitration procedure, the opposing party to the Dispute shall
select one arbitrator. If any party to the Dispute shall fail to select an
arbitrator within the required time, JAMS shall appoint an arbitrator for that
party. In the event that the Dispute involves three or more parties, JAMS shall
determine the parties’ alignment pursuant to Rule 15 and each “side” shall have
the right to appoint one arbitrator as provided above. The two arbitrators so
selected shall select a third arbitrator, failing agreement on which, the third
arbitrator shall be selected in accordance with JAMS Rule 15. Notwithstanding
that each party may select an arbitrator, all arbitrators (whether selected by
the parties, JAMS or otherwise) shall be independent and shall disclose any
relationship that he or she may have with any party to the Dispute at the time
of their respective appointment. All arbitrators shall be subject to challenge
for cause under JAMS Rule 15. In the event that any party-selected arbitrator is
struck for cause, JAMS shall appoint the replacement arbitrator.

(e) Waiver of Certain Damages. Notwithstanding any other provision in this
Agreement to the contrary, the Company and the Members expressly agree that the
arbitrators shall have absolutely no authority to award consequential,
incidental, special, treble, exemplary or punitive damages of any type under any
circumstances regardless of whether such damages may be available under Delaware
law, or any other laws, or under the Federal Arbitration Act or the Rules,
unless such damages are a part of a third party claim for which a Member is
entitled to indemnification hereunder.

(f) Limitations on Arbitrators. The arbitrators shall have authority to
interpret and apply the terms and conditions of this Agreement and to order any
remedy allowed by this Agreement, including specific performance of the
Agreement, but may not change any term or condition of this Agreement, deprive
any Member of a remedy expressly provided hereunder, or provide any right or
remedy that has been excluded hereunder.

(g) Form of Award. The arbitration award shall conform with the Rules, but also
contain a certification by the arbitrators that, except as permitted by Section
11.9(e), the award does not include any consequential, incidental, special,
treble, exemplary or punitive damages.

(h) Fees and Awards. The fees and expenses of the arbitrator(s) shall be borne
equally by each side to the Dispute, but the decision of the arbitrator(s) may
include such award of the arbitrators’ expenses and of other costs to the
prevailing side as the arbitrators may determine. In addition, the prevailing
party shall be entitled to an award of its attorneys’ fees and interest.

(i) Binding Nature. The decision and award shall be binding upon all of the
parties to the Dispute and final and nonappealable to the maximum extent
permitted by law, and judgment thereon may be entered in a court of competent
jurisdiction and enforced by any party to the Dispute as a final judgment of
such court.

 

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Section 11.10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which shall
constitute but one and the same document.

*    *    *    *

[Signature Pages of Company, Members and Managers Attached]

 

48

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.

 

COMPANY:

WILDHORSE INVESTMENT HOLDINGS, LLC,

a Delaware limited liability company

By:  

/s/ Anthony Bahr

Name:   Anthony Bahr Title:   Authorized Person MANAGERS:

/s/ Scott Gieselman

Scott Gieselman

/s/ David W. Hayes

David W. Hayes

/s/ Tony R. Weber

Tony R. Weber

/s/ Anthony Bahr

Anthony Bahr

/s/ Jay Graham

Jay Graham

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

MEMBERS: NGP X US HOLDINGS, L.P. By:   NGP X Holdings GP, L.L.C.   Its General
Partner By:  

/s/ Tony R. Weber

  Tony R. Weber             , Authorized Person

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

MEMBERS:

[Signature pages appended.]

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

JJE HOLDINGS, LP By:  

/s/ Steve Eckerman

Name: Steve Eckerman Title: Manager

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

H2E HOLDINGS, LP By:  

/s/ Paul R. Eschete

Name: Paul R. Eschete Title: Manager

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

SVH HOLDINGS, LP By:  

/s/ Steve Habachy

Name: Steve Habachy Title: Manager

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

HOWTH INVESTMENTS, LP By:

/s/ Terence Lynch

Name:   Terence Lynch Title:   Manager of Howth Investments LLC, its   general
partner

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

GARY SMITH

/s/ Gary Smith

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

JAY GRAHAM

/s/ Jay Graham

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

MIKE SHERWOOD

/s/ Mike Sherwood

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

PAUL ESCHETE

/s/ Paul Eschete

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

STEVE ECKERMAN

/s/ Steve Eckerman

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

STEVE HABACHY

/s/ Steve Habachy

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

TERENCE LYNCH

/s/ Terence Lynch

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

RANDAL GARRETT

/s/ Randal Garrett

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

JOHN NABORS

/s/ John Nabors

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

MATTHEW VAN WIE

/s/ Matthew Van Wie

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

MATTHEW AVERILL

/s/ Matthew Averill

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

COURTNEY DAMM

/s/ Courtney Damm

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

HERBERT COLE

/s/ Herbert Cole

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

LUIS MIER

/s/ Luis Mier

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

BYRON BARNES

/s/ Byron Barnes

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

JACOB RODGERS

/s/ Jacob Rodgers

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

NEAL HAMILTON

/s/ Neal Hamilton

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

AMIR RADFAR

/s/ Amir Radfar

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

MARK HICKS

/s/ Mark Hicks

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

JOSHUA SIGLER

/s/ Josh Sigler

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

--------------------------------------------------------------------------------

JEREMY HAFEMANN

/s/ Jeremy Hafemann

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

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SETH IRELAND

/s/ Seth Ireland

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE

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RACHEL COLEY

/s/ Rachel Coley

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

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CHRIS HENN

/s/ Chris Henn

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

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MICHAEL WELLS

/s/ Michael Wells

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

WILDHORSE INVESTMENT HOLDINGS, LLC

SIGNATURE PAGE