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

 
 
 
AMENDED AND RESTATED
 
LIMITED LIABILITY COMPANY
 
AGREEMENT
 
OF
 
IGNIS BARNETT SHALE, LLC
(A Delaware Limited Liability Company)
 
November 15, 2006
 
 

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THE INTERESTS OF IGNIS BARNETT SHALE, LLC HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), THE SECURITIES LAWS
OF ANY STATE OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON EXEMPTIONS
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. SUCH
INTERESTS MUST BE ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE OFFERED FOR SALE,
PLEDGED, HYPOTHECATED, SOLD, ASSIGNED, OR TRANSFERRED AT ANY TIME EXCEPT IN
COMPLIANCE WITH (A) THE SECURITIES ACT, ANY APPLICABLE STATE SECURITIES LAWS,
AND ANY OTHER APPLICABLE SECURITIES LAWS; AND (B) THE TERMS AND CONDITIONS OF
THIS LIMITED LIABILITY COMPANY AGREEMENT. SUCH INTERESTS MAY NOT BE TRANSFERRED
OF RECORD EXCEPT IN COMPLIANCE WITH SUCH LAWS AND THIS LIMITED LIABILITY COMPANY
AGREEMENT. THEREFORE, PURCHASERS OF SUCH INTERESTS WILL BE REQUIRED TO BEAR THE
RISK OF THEIR INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
 

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LIMITED LIABILITY COMPANY AGREEMENT
OF
IGNIS BARNETT SHALE, LLC

 
TABLE OF CONTENTS
 

   
Page
ARTICLE I GENERAL
1.1
Formation, Continuation, Amendment, and Restatement
1
1.2
Name
2
1.3
Principal Office
2
1.4
Registered Agent and Office
2
1.5
Term
2
1.6
Purpose
2
1.7
Company Property
2
1.8
Tax Treatment
2
ARTICLE II CERTAIN DEFINITIONS AND REFERENCES
2.1
Certain Defined Terms
3
2.2
References and Titles
3
2.3
Standard of Care
3
ARTICLE III MEMBERS
3.1
Members
3
3.2
Admission of New Members
3
3.3
No Liability of Members
3
3.4
Actions by the Members
3
3.5
Other Activities of the Class A Members
4
ARTICLE IV MANAGEMENT AND VOTING
4.1
A Manager
4
4.2
The Plan
5
4.3
Financing and Hedging
6
4.4
Delegation to the B Manager
6
4.5
Class B Member Approvals
7
4.6
Exculpation and Indemnification
8
4.7
Insurance
10
ARTICLE V CAPITALIZATION
5.1
Commitments and Capital Contributions
10
5.2
Capital Contributions
11
5.3
Return of Unused Capital Contributions
11
5.4
Return of Capital Contributions
11
ARTICLE VI INVESTMENTS AND ACTIVITIES; OTHER FUNDS
6.1
The PSA
11
6.2
Other Activities
12
6.3
Confidential Technology Information
12
ARTICLE VII DISTRIBUTIONS, ALLOCATIONS, AND TAX MATTERS
7.1
Distributions
13

 
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7.2
Restrictions on Distributions
14
7.3
Capital Accounts
14
7.4
Allocations to Capital Accounts
15
7.5
Tax Allocations
17
7.6
Determinations under Article VII
18
7.7
Restoration of Negative Capital Accounts
18
7.8
Withholding
18
7.9
Tax Elections
19
7.10
Tax Matters Partner
19
ARTICLE VIII FEES AND EXPENSES
8.1
Company Expenses and Reimbursement
19
ARTICLE IX CERTAIN MEMBER MATTERS
9.1
Rights of the Members
20
9.2
Limitations on Members
20
9.3
Liability of Members
20
9.4
Agreements of the Members
20
9.5
Representations and Warranties of all Members
20
9.6
Additional Representations and Warranties of the Class B Member
22
9.7
Anti-Money Laundering Provisions
22
ARTICLE X COVENANTS
10.1
Conduct of Business
23
10.2
Notices
24
10.3
Further Assurances
24
ARTICLE XI TRANSFERS OF INTERESTS AND WITHDRAWALS
11.1
General Transfer Provisions
24
11.2
Tag-Along Rights
25
11.3
Drag-Along Rights
27
11.4
Assignee’s Rights
27
11.5
Withdrawal by a Member
27
11.6
Removal of the Class B Member for Cause or Death, Disability, or Voluntary
Termination
27
ARTICLE XII BOOKS, RECORDS, REPORTS, BANK ACCOUNTS
12.1
Books and Records
29
12.2
Reports and Opinions
29
12.3
Tax Returns; Tax Matters Partner
30
12.4
Bank Accounts
30
ARTICLE XIII DISSOLUTION, LIQUIDATION, AND TERMINATION
13.1
Dissolution
30
13.2
Winding-Up
30
13.3
Distributions in Cash or in Kind or a Winding-Up
31
13.4
Time for Liquidation
31
13.5
Cancellation of Certificate
31
ARTICLE XIV RIGHT OF FIRST OFFER
ARTICLE XV AMI ACTIVITIES
15.1
Acreage Purchase Limitation
32
15.2
AMI Right of First Offer
32

 
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15.3
Pursuit of Opportunity
32
15.4
Reimbursement of Expenses
33
ARTICLE XVI MISCELLANEOUS
16.1
Notices
33
16.2
Amendments
33
16.3
Entire Agreement
33
16.4
No Waiver
33
16.5
Applicable Law; Submission to Jurisdiction
33
16.6
Successors and Assigns
34
16.7
Exhibits, etc.
34
16.8
Survival of Representations and Warranties
34
16.9
No Third-Party Benefit
34
16.10
Filings
34
16.11
WAIVER OF TRIAL BY JURY
34
16.12
Arbitration of Disputes
34
16.13
Remedies
36
16.14
Use of Silver Point Name
36
16.15
Severability
36
16.16
Press Releases
36

 
EXHIBITS

Exhibit A - Defined Terms
Exhibit B - Member Commitments and Percentage Interests
Exhibit C - Services Agreement

APPENDICES

Appendix A
 
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AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
 
OF
 
IGNIS BARNETT SHALE, LLC
 
(A Delaware Limited Liability Company)

THIS LIMITED LIABILITY COMPANY AGREEMENT (as amended, restated, or modified,
this “Agreement”) OF IGNIS BARNETT SHALE, LLC (the “Company”) is made and
entered into this 15th day of November, 2006, by and between Ignis Petroleum
Group, Inc., a Nevada corporation (“Ignis” and also the “Class B Member”), SPC
Ignis Inc., a Delaware corporation, SPC Ignis (Onshore) LLC, a Delaware limited
liability company, and SPC Ignis (Finance) LLC, a Delaware limited liability
company (each a “Class A Member”) (each of Ignis and the Class A Members, a
“Member” and jointly the “Members”). In consideration of the mutual covenants
and agreements contained herein, the parties hereto agree as follows:

WHEREAS, the Company was formed as a Texas limited liability company by the
filing of a Certificate of Formation (the “Texas Certificate”) with the
Secretary of State of the State of Texas on August 29, 2006 (the “Formation
Date”), and the execution of that certain Limited Liability Company Agreement of
the Company, dated as of August 29, 2006 (the “Original Agreement”); and

WHEREAS, the Company has entered into that certain Purchase and Sale Agreement
with W.B. Osborn Oil & Gas Operations, Ltd., d/b/a W.B. Osborn Oil & Gas
Operations (“WBO”) and St. Jo Pipeline, Limited, both Texas limited
partnerships, dated as of September 27, 2006 (as amended, the “PSA”);

WHEREAS, the Company converted to a limited liability company under the laws of
the State of Delaware by filing a Certificate of Conversion and Certificate of
Formation with the Secretary of State of the State of Delaware on November 13,
2006;

WHEREAS, prior to the execution and delivery of this Agreement and the admission
of the Class A Members as members pursuant hereto, the Class B Member is, and
always has been the sole member of the Company;

WHEREAS, the Class B Member desires to admit the Class A Members as a Members of
the Company; and

WHEREAS, the Members desire to amend and restate the Original Agreement in its
entirety.
 
NOW, THEREFORE, in consideration of these premises, it is hereby agreed as
follows:

ARTICLE I
GENERAL
 
1.1    Formation, Continuation, Amendment, and Restatement. The Members hereby
agree to continue the Company as a limited liability company pursuant to the Act
upon the terms and subject to the conditions set forth in this Agreement. This
Agreement amends and restates in its entirety and supersedes the Original
Agreement, effective as of the date hereof. The Members agree that the Company
shall be governed by the terms and conditions set forth in this Agreement and,
except as provided herein, the Act.

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1.2    Name. The name of the Company shall be “Ignis Barnett Shale, LLC.”
Subject to all applicable laws, the business of the Company shall be conducted
in the name of the Company unless otherwise required under the laws of some
jurisdiction in which the Company does business, in which instance the business
of the Company in such jurisdiction may be conducted under such other name or
names (except the names of the Class A Members or any Affiliate thereof or the
name of the Class B Member or any Affiliate thereof) as the A Manager shall
determine in its sole discretion to be necessary as long as it does not affect
adversely the limited liability of the Members hereunder or jeopardize in any
manner the title to or ownership of any of the assets of the Company or result
in liability to the Company it would otherwise not have had. The A Manager shall
cause to be filed on behalf of the Company qualification or such assumed or
fictitious name certificate or certificates or similar instruments as may from
time to time be required by law.

1.3    Principal Office. The principal office and place of business of the
Company and its street address shall be 100 Crescent Court, 7th Floor, Dallas,
Texas 75201. The A Manager, at any time and from time to time, may change the
location of the Company’s principal office and place of business and may
establish such additional place or places of business of the Company as the A
Manager shall determine to be necessary or desirable; provided, however, the
location is in Texas and notice thereof is given concurrently to the Members.

 
1.4    Registered Agent and Office. The registered office of the Company in
Delaware is 1209 Orange Street, Wilmington, Delaware 19801, New Castle County,
and the registered agent for service of process on the Company in Delaware is
Corporation Trust Company. The registered office of the Company in Texas is 100
Crescent Court, 7th Floor, Dallas, Texas 75201, and the registered agent for
service of process on the Company in Texas is Michael P. Piazza. The A Manager,
at any time and from time to time, may change the Company’s registered offices
or registered agents or both by complying with the applicable provisions of the
Act or other applicable law and by giving concurrent notice thereof to all
Members and may establish, appoint, and change additional registered offices and
registered agents of the Company in such other states as the A Manager shall
determine to be necessary or desirable.

1.5    Term. The Company was formed on the Formation Date and shall continue
until terminated following dissolution in accordance with Section 13.1.

1.6    Purpose. Subject to the other provisions of this Agreement, the business
of the Company shall be: (a) exploring, developing, operating, investing in,
acquiring, expanding, selling, managing, and financing, directly or indirectly,
oil and gas properties, including those properties held by the Company as of the
date hereof and properties acquired after the date hereof, and any gas pipeline
gathering system related to such properties, (b) the development, acquisition,
and improvement of technology, know-how, trade secrets, and other intellectual
property and rights therein relating to or used or useful in connection with the
Project (including any horizontal drilling techniques acquired, developed, or
improved in connection with the Project), and (c) taking all such other actions
incidental to any of the foregoing as may be necessary or desirable and in which
a Delaware limited liability company may legally engage.

1.7    Company Property. No real or other property of the Company shall be
deemed to be owned by any Member individually, but shall be owned by and title
shall be vested solely in the Company.

1.8    Tax Treatment. Unless otherwise determined by the A Manager, the Company
shall be treated as a partnership for U.S. federal income tax purposes (as well
as for any analogous state or local tax purposes), and the A Manager shall cause
the Company to timely make any and all necessary elections and filings for the
Company to be treated as a partnership for U.S. federal income tax purposes (as
well as for any analogous state or local tax purposes).

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ARTICLE II
CERTAIN DEFINITIONS AND REFERENCES
 
2.1    Certain Defined Terms. When used in this Agreement, certain capitalized
terms shall have the respective meanings assigned to them on Exhibit A.
 
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, shall not constitute part of such
subdivisions, and shall be disregarded in construing the language contained in
such subdivisions. The words “this Agreement,” “this instrument,” “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. Words in the singular form shall be construed to include the plural and
vice versa, unless the context otherwise requires. Examples shall not be
construed to limit, expressly or by implication, the matter they illustrate. No
consideration shall be given to the fact or presumption that one party had a
greater or lesser hand in drafting this Agreement. All references herein to “$”
or “dollars” shall refer to U.S. Dollars. The word “includes” and its variants
mean including, without limitation. The phrase “the date of this Agreement” or
“the date hereof” shall mean November 15, 2006.

2.3    Standard of Care. Whenever in this Agreement any Person is permitted or
required to make a decision (a) in its “sole and absolute discretion,” “sole
discretion,” “discretion,” or under a grant of similar authority or latitude,
such Person shall be entitled to consider such interests and factors as it
desires, including its own interests, and such Person shall not have any duty or
obligation to give any consideration to any interest of or factors affecting any
other Person, or (b) in its “good faith” or under another express standard, such
Person shall act under such express standard and shall not be subject to any
other or different standard imposed by this Agreement or other applicable law.

ARTICLE III
MEMBERS

3.1    Members. The name, address, Commitment, Capital Contributions, and class
of interest of the Members are set forth on Exhibit B hereto, which shall be
amended from time to time to reflect the admission of new Members, additional
Capital Contributions of Members, or the Transfer of Interests of any Member.

3.2    Admission of New Members. No Person shall be admitted as a Member of the
Company other than as set forth in Article XI of this Agreement.

3.3    No Liability of Members. All debts, obligations, and liabilities of the
Company, whether arising in contract, tort, or otherwise shall be solely the
debts, obligations, and liabilities of the Company, and no Member shall be
obligated personally for any such debt, obligations, or liability of the Company
solely by reason of being a Member.

3.4    Actions by the Members.

(a)    No Member (acting in its capacity as such) shall have any authority to
bind the Company to any third party with respect to any matter. Meetings of
Members may be called by the Managers upon at least five (5) days’ prior written
notice of the time and place of such meeting. For any meeting of Members, the
presence in person or by proxy of all of the Members at the time of the action
taken constitutes a quorum for the transaction of business.
 
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(b)    The Members may vote, approve a matter, or take any action by the vote of
the Members at a meeting, in person or by proxy, or without a meeting by written
consent. Any action required or permitted to be taken at any meeting of the
Members may be taken without a meeting if Members holding Interests sufficient
to approve the action pursuant to the terms of this Agreement consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Members. In no instance where action is authorized by written
consent shall a meeting of Members be called or notice be given; however, a copy
of the action taken by written consent shall be sent promptly to all Members and
filed with the records of the Company.

3.5    Other Activities of the Class A Members.

(a)    Notwithstanding anything in this Agreement to the contrary, the Class A
Members and any of their Affiliates may engage independently or with others, for
their own accounts and for the accounts of others, in other business ventures
and activities of every nature and description whether such ventures are
competitive with the business of the Company or any other Member or otherwise;
provided, however, (a) that Daniel Bardes and Spencer Wells, both employees of
Silver Point, shall not directly engage in any business ventures or activities
that relate to gas pipeline gathering systems in the AMI with competitors of the
Company while employed by Silver Point, and (b) this Section 3.5 will not
relieve the Class A Members of their obligations under Section 6.3. Neither the
Company nor any Member shall have any rights or obligations by virtue of this
Agreement in and to such independent ventures and activities or the income or
profits derived therefrom, and neither the Class A Members nor any of their
Affiliates shall be under any obligation to refer any opportunities,
investments, ventures, or the like to the Company, the Class B Member, or the B
Manager.

(b)    Prior to the occurrence of an event in Section 13.1, Silver Point shall
not sell short the common stock of Ignis.

ARTICLE IV
MANAGEMENT AND VOTING

4.1    A Manager. Except as expressly set forth herein, the Company and its
affairs will be managed, operated, and controlled by or under the direction of
the A Manager. Without limiting the generality of the foregoing, subject to
Section 4.5, the A Manager shall have exclusive power and authority to authorize
and direct, and to prohibit, without limitation:

(a)    the approval of the annual budget of the Company and the incurrence of
any expenditures that would cause any line item in the annual budget to be
exceeded by more than 10% or cause the annual budget to be exceeded in the
aggregate by more than 5%;

(b)    any cash or non-cash distributions;

(c)    any modification or expansion of the Plan or the Company’s objectives,
purposes, activities, or strategy;

(d)    any related party transactions;

(e)    the establishment or creation of a class of interests other than Class A
Interests or Class B Interests, or issuance of any additional interests or
options or rights to acquire any additional Interests in the Company to any
third party or the acceptance by the Company of any additional capital
contributions in variation from the Plan or budget;
 
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(f)     any reduction in the amount of any reserves for liabilities;

(g)    entering into, amending, or terminating any contract or agreement outside
of any budget or exercising or waiving any material right under any contract or
agreement;

(h)    entering into any third-party consulting or services agreement or any
material agreement, notwithstanding that each such agreement may have been
contemplated by the budget;

(i)     borrowing money, acting as a guarantor, encumbering any assets, or
otherwise becoming directly or indirectly liable with respect to any
indebtedness;

(j)     the sale of any material asset(s) of the Company;

(k)    the Company becoming a party to a merger, exchange, or consolidation or
similar transaction;

(l)     taking any material action under any operating agreements to which the
Company is a party or to which any of its assets are subject (the “Operating
Agreements”);

(m)   the amendment or termination of any of the Operating Agreements;

(n)    making decisions relating to the management and monitoring of any
Operating Agreement, including quarterly budget approvals and risk management
policies and decisions under any Operating Agreement;

(o)    making any tax or legal decisions, including initiating, responding to,
or settling any litigation or other proceeding;

(p)    the redemption or repurchase of any Interests in the Company;

(q)    the amendment or modification of any provision of this Agreement;

(r)     the dissolution, liquidation, or winding up of the Company;

(s)    the purchase of any insurance policy;

(t)     the approval of any regulatory filings required of the Company under
applicable law or required by any governmental authority; and

(u)    the removal of the B Manager.

4.2    The Plan. Within thirty (30) days of the execution of this Agreement, the
B Manager shall prepare a detailed operating plan and forecast for the Project,
which shall include a detailed (i.e., broken down by line items and nature of
cost) month-by-month budget, basic pro forma financial projections, and a
description of the proposed operations (including, without limitation, the
number of wells to be drilled, the location of each well, the commencement date
and expected completion date for the drilling of each well, the estimated costs
of drilling of each well and other ancillary costs, and the estimated initial
flow rates) (the “Plan”) and present such Plan to the A Manager for its review
and approval. The B Manager shall make itself available to the A Manager to
discuss and review the Plan and shall provide such support and other
documentation or explanation as the A Manager may reasonably request. The B
Manager shall make any modifications to the Plan as are requested by the A
Manager. The B Manager shall update the Plan semi-annually to take into
consideration any developments (including, without limitation, any change in any
scheduled items under the PSA or the Operating Agreements), change in
circumstances, including any requests under the Operating Agreements, and shall
present the Plan, as revised, to the A Manager for review, modification, and
approval at least 30 days prior to January 1 and July 1 of each calendar year;
provided, however, that, in the event of any material development affecting the
Plan or any element thereof at any time during a year, the B Manager shall
provide a revised Plan or relevant element thereof to the A Manager for review
and approval as soon as reasonably practicable after the occurrence of such
development.
 
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4.3    Financing and Hedging. Notwithstanding anything in this Agreement to the
contrary, the A Manager shall have the exclusive power to cause the Company to
enter into, modify, or terminate any bank and other financing agreements,
instruments, or other arrangements, including any working capital facility, or
any agreements, arrangements, or programs designed to hedge the financial
exposure of the Company; provided, however, that the A Manager shall consult
with the B Manager prior to the taking of any such action.

4.4    Delegation to the B Manager.

(a)    Initially, the A Manager delegates to the B Manager, and the B Manager
accepts the delegation of the duties and responsibilities set forth in this
Section 4.4, subject to the removal of such delegation at the A Manager’s
discretion. The B Manager shall:

(i)     manage the day-to-day operations of the Company, which shall include the
power and duties to do the following:

(A)   administer the Project in accordance with the Plan (as approved by and
incorporating the wishes of the A Manager) and approved annual budgets and
operating plans;

(B)    develop and implement risk management policies;

(C)    implement financial controls and reporting necessary for the management
of the Project and the working capital facility; and

(D)   provide administration and recordkeeping for the Company (including
causing to be prepared audited financial statements by the Company’s auditors,
the preparation and filing of the Company’s tax returns, etc.).

(ii)    monitor WBO and any other operator under the Operating Agreements to
ensure compliance with the Operating Agreements and any and all laws and
regulations applicable to the Project and the Properties, as that term is
defined in the PSA;

(iii)   present to the A Manager on a timely basis any decisions to be made or
opportunities available to the Company under the Operating Agreements, together
with the B Manager’s recommendation with respect to each such decision or
opportunity, and implement such decisions and proceed with such opportunities
only in accordance with the standards and directions provided by the A Manager;

(iv)   take all actions necessary and desirable to maximize the value of the
Project and the Company;

(v)    implement, administer, and enforce strategies to optimize the Project and
the Company;
 
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(vi)   develop, perfect, improve, and protect horizontal drilling techniques,
technology, know-how, trade secrets, and other intellectual property, acquired,
developed, or improved in connection with the Project in order to maximize the
value of the Project and exploit the assets of the Company;

(vii)          cooperate with WBO in developing, perfecting, improving, and
protecting horizontal drilling techniques and other related and ancillary
intellectual property;

(viii)         develop and implement strategies to assess and pursue
opportunities to enhance the Project;

(ix)   provide experienced personnel to manage the Company and to manage and
develop and exploit the Project and the Company’s Intellectual Property Rights
at the expense of the Class B Member, except as otherwise provided in the
Services Agreement, dated as of the date hereof, between Ignis and the Company
attached hereto as Exhibit C (the “Services Agreement”); and

(x)            make all necessary regulatory filings required of the Company
under applicable law or required by any governmental authority; provided that
all such filings shall be delivered to the A Manager for approval prior to such
filing.

(b)    When the B Manager is acting or refraining from taking any action on
behalf of the Company pursuant to the duties and responsibilities delegated in
this Section 4.4 it shall act in accordance with the following:

(i)     exercise all due care and diligence in carrying out its duties and
obligations under this Agreement;

(ii)    comply with all applicable laws and regulations;

(iii)   refrain from taking any action which could reasonably be expected to
have a detrimental effect on the business of the Company or on the business or
reputation of Silver Point or which could reasonably be expected to have an
adverse tax or regulatory effect on the business of the Company or on the
business or reputation of Silver Point (and shall not fail to take an action
where such failure could reasonably be expected to have any such detrimental or
adverse effect; and

(iv)   conduct its and the Company’s business honestly, in good faith, in the
best interests of the Company, in compliance with the best practices customary
in the industry, use its commercially reasonable best efforts to preserve intact
the Company’s business organizations and relationships with third parties, and
keep available the services of its present officers and employees.

4.5    Class B Member Approvals. The consent of the B Member shall be required
for the following:

(a)    except as permitted in Section 4.5(b), the amendment or modification of
any provision of this Agreement in a manner that would adversely affect the
legal rights of the Class B Member;

(b)    the establishment or creation of a class of interests other than the
Interests to be held by the Class A Member or the Class B Member or the issuance
of any additional interests or options or rights to acquire any additional
interests in the Company to any third party, or the acceptance by the Company of
any additional capital contributions, in each case, if such actions would
adversely affect the Interests held by the Class B Member disproportionately
more than the Interests held by the Class A Members;
 
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(c)    any transaction between the Company and Silver Point or any of its
Affiliates, other than on such terms and conditions that are at least as
favorable to the Company as would be expected to be obtained in an arm’s length
transaction;

(d)    any change in the primary business purpose of the Company; and

(e)    the redemption or the repurchase by the Company of any Interests other
than on a pro rata basis.

4.6    Exculpation and Indemnification.

(a)    Company Liabilities.

(1)    None of the Covered Persons (as defined below) shall be liable,
responsible, or accountable to the Company or to any of the Members, in damages
or otherwise, for any error of judgment, for any mistake of fact or of law, or
for any other act or thing which it may do or refrain from doing in connection
with the operations, business, and affairs of the Company, except to the extent
that any such damages are determined by an arbitral tribunal of competent
jurisdiction to have been caused by such Covered Person’s intentional
misconduct, gross negligence, fraud, bad faith, material breach of this
Agreement (except in the case of clauses (iv), (v), (vi), and (vii) of Section
4.4(a), which shall require a willful and material breach of this Agreement), or
knowing violation of law.

(ii)    None of the Covered Persons shall have any liability for the return of
any Member’s Capital Contributions. All liabilities of the Company, including
indemnity obligations under Section 4.6(b), shall be liabilities of the Company
as an entity, and shall be paid or satisfied from Company assets. No liability
of the Company will be payable, in whole or in part, by any Member in its
capacity as a Member.

(iii)   Each of the Managers may exercise any of the powers granted to it by
this Agreement and perform any of the duties imposed upon it hereunder either
directly or by or through its agents.

(b)    Indemnity.

(i)    To the fullest extent permitted by law, the Company shall indemnify and
hold harmless each Member, each Manager, and the respective officers, directors,
shareholders, managers, members, employees, agents, subsidiaries, and assigns of
each Member or Manager (each, a “Covered Person”), from and against any and all
losses, claims, demands, liabilities, expenses, judgments, fines, settlements,
and other amounts arising from any and all claims, demands, actions, suits, or
proceedings civil, criminal, administrative, or investigative (each a “Claim”),
in which the Covered Person may be involved, or threatened to be involved, as a
party or otherwise, that relates to or arises out of the Company or its
property, business, or affairs; provided, however, that a Covered Person shall
not be entitled to indemnification under this Section 4.6(b) with respect to (A)
any Claim in which it ultimately is determined by an arbitral tribunal of
competent jurisdiction to have been caused by the Covered Person’s fraud,
intentional misconduct, bad faith, gross negligence, or material breach of this
Agreement (except in the case of clauses (iv), (v), (vi), and (vii) of Section
4.4(a), which shall require a willful and material breach of this Agreement), or
knowing violation of law, (B) any Claim initiated by a Covered Person unless
that Claim (or part thereof) was brought to enforce that Covered Person’s rights
to indemnification under this Section 4.6(b), or (C) any Claim by the Company or
any Member against a Member or that Member’s officers, directors, shareholders,
managers, members, employees, agents, subsidiaries, and assigns unless the
Covered Person is found not to be liable for such Claim by an arbitral tribunal
of competent jurisdiction.
 
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(ii)    The Company shall pay in advance of the final disposition of any Claim
for which a Covered Person is or may be entitled to indemnification under this
Section 4.6(b) (other than those described in Section 4.6(b)(i)(C)) expenses
incurred by that Covered Person in defending that Claim; provided that the
Covered Person delivers to the Company an undertaking by or on behalf of that
Covered Person to repay amounts so advanced if it ultimately is determined that
the Covered Person is not entitled indemnification under this Section 4.6(b).

(iii)   Notices of Claims, etc. Promptly after receipt by a Covered Person of
notice of the commencement of any proceeding, such Covered Person shall, if a
claim for indemnification in respect thereof is to be made against the Company,
give written notice to the Company of the commencement of such proceeding,
provided that the failure of any Covered Person to give such notice as provided
herein shall not relieve the Company of its obligations under this
Section 4.6(b), except to the extent the Company is actually prejudiced by such
failure to give such notice. If any such proceeding is brought against a Covered
Person (other than a derivative suit in right of the Company), the Company will
be entitled to participate in and to assume, at its expense, the defense thereof
to the extent the Company may wish, with counsel reasonably satisfactory to such
Covered Person. After notice from the Company to such Covered Person of the
Company’s election to assume the defense of such proceeding, the Company will
not be liable for expenses subsequently incurred by such Covered Person in
connection with the defense thereof, provided the Company diligently pursues
such defense. The Company will not consent to entry of any judgment or enter
into any settlement of such proceeding that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Covered Person of a
release from all liability in respect to such proceeding and the related claim.

(iv)   Survival of Protection. The provisions of this Section 4.6(b) shall
continue to afford protection to each Covered Person regardless of whether such
Covered Person remains in the position or capacity pursuant to which such
Covered Person became entitled to indemnification under this Section 4.6(b), and
no amendment to this Agreement shall reduce or restrict the extent to which
these indemnification provisions apply to actions taken or omissions made prior
to the date of such amendment.

(v)    Rights Cumulative. The right of any Covered Person to the indemnification
provided herein shall be cumulative with, and in addition to, any and all rights
to which such Covered Person may otherwise be entitled by contract or as a
matter of law or equity and shall extend to such Covered Person’s successors,
assigns, heirs, and legal representatives. Notwithstanding anything else
contained in this Agreement, the indemnity obligations of the Company under this
Section 4.6(b) shall:

(A)   be in addition to any liability that the Company may otherwise have;

(B)   extend upon the same terms and conditions to the officers, directors,
members, managers, employees, Affiliates, stockholders, owners, agents, and
representatives of each Covered Person;
 
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(C)    be binding upon and inure to the benefit of any successors, assigns,
heirs, and personal representatives of such Covered Person and any such Persons;
and

(D)    be limited to the sum of the assets of the Company.

(c)    Other Source of Recovery. The A Manager shall cause the Company to use
its commercially reasonable efforts to obtain the funds needed to satisfy its
indemnification obligations under Section 4.6(b) from Persons other than the
Members (for example, out of Company assets or pursuant to insurance policies or
Company indemnification arrangements) before causing the Company to make
payments pursuant to Section 4.6(b). Notwithstanding the foregoing, nothing in
this Section 4.6(c) shall prohibit the A Manager from causing the Company to
make such payments if the A Manager determines, in its reasonable discretion,
that the Company is not likely to obtain sufficient funds from such other
sources in a timely fashion, or that attempting to obtain such funds would be
futile, commercially unreasonable, or not in the best interests of the Company
(for example, nothing in this Section 4.6(c) shall require the A Manager to
cause the Company to sell any assets outside the ordinary course of business
before such time as the A Manager shall determine is advisable).

(d)    Limitation by Law. If any Covered Person or the Company itself is subject
to any federal or state law, rule, or regulation which restricts the extent to
which any Person may be exonerated or indemnified by the Company, the
exoneration provisions set forth in Section 4.6(a) and the indemnification
provisions set forth in Section 4.6(b) shall be deemed to be amended,
automatically and without further action by the Managers, to the minimum extent
necessary to conform to such restrictions.

(e)    Arbitration. It is a condition to any Covered Person’s enforcement of
indemnification under this Section 4.6 that it submits to arbitration under
Section 16.12 with respect to any issue regarding its entitlement to
indemnification.

4.7    Insurance. Subject to the approval of the A Manager, the B Manager shall
cause the Company, at the Company’s expense, to obtain (and maintain during the
entire term of the Company), insurance coverage in such amounts, with provisions
for such deductible amounts, and for such purposes, as the A Manager shall
determine. Such policies may in the A Manager’s discretion include coverage to
protect the Company and any Covered Person against any expense, liability, or
loss, whether or not the Company would have the power to indemnify such Covered
Person against such expense, liability, or loss under this Agreement or the Act.
The Company shall include the Members, the Managers, and their respective
Affiliates as additional insureds on any policies otherwise carried by the
Company. The policies shall, in all instances, require that any notice of
cancellation or notice of proposed cancellation shall be sent to all Members.

ARTICLE V
CAPITALIZATION

5.1    Commitments and Capital Contributions.

(a)    The Class A Members shall make contributions of capital to the Company
(“Capital Contributions”) to fund the Purchase Price (as that term is defined in
the PSA) at such times and in such amounts as provided for in the PSA and shall
make any additional Capital Contributions as and in the amounts provided in any
Plan or budget, as approved by the A Manager in accordance with Section 4.2. The
Capital Contributions of the Class A Members, as increased by the out-of-pocket
costs incurred by the Class A Members in entering into this Agreement, shall be
referred to as the “Aggregate Capital Contributions” of the Class A Members.
 
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(b)    The Class B Member’s Commitments shall be zero, and the Class B Member
shall have no obligation or liability to make any Capital Contributions.

5.2    Capital Contributions. The Capital Contributions shall be paid in
separate Drawdowns, at such times as shall be determined by the B Manager,
subject to the provisions of Section 5.1 and the following additional terms and
conditions:

(a)    Timing of Drawdown Notices; Use of Drawdowns. The B Manager shall provide
the Class A Members with a notice of each Drawdown (a “Drawdown Notice”) at
least 10 Business Days prior to the date on which such Drawdown is due and
payable to the Company (the “Funding Date”).

(b)    Contents of Drawdown Notices. Each Drawdown Notice shall include (i) a
brief description of the transaction or purpose for which such Capital
Contribution is required, (ii) the aggregate amount of Capital Contributions,
(iii) the Funding Date, (iv) wire transfer or other remittance instructions, and
(v) such other information with respect to the Drawdown as the B Manager shall
determine is appropriate or the Class A Members shall request.

(c)    Payment of Drawdown. The Class A Members shall pay to the Company the
Capital Contribution specified in the relevant Drawdown Notice, as the same may
be revised pursuant to this Section 5.2, by wire transfer in immediately
available funds in U.S. dollars to the account specified therein; provided,
however, that the aggregate amounts required to be contributed by the Class A
Members to the Company shall not exceed the amounts provided for in the first
sentence of Section 5.1(a).

(d)    No Third-Party Beneficiary. The provisions of this Section 5.2 are
intended solely to benefit the Company and the Members (and their Affiliates and
Covered Persons, where applicable) and, except as provided in Section 4.6 (with
respect to Covered Persons), or as otherwise specifically agreed with any third
party, shall not be construed as conferring any benefit upon any creditor of the
Company (and no such creditor shall be a third-party beneficiary of this
Agreement), and no Member shall have any duty or obligation to any creditor of
the Company to make any contributions to the capital of the Company pursuant to
this Section 5.2 or to cause the B Manager to deliver to any Member a Drawdown
Notice.

5.3    Return of Unused Capital Contributions. If the Company receives Capital
Contributions in excess of the Company’s actual requirements, the B Manager
shall cause the Company to return the excess portion of such Capital
Contributions to the Class A Members within 10 Business Days after the funding
of such Capital Contributions to the Company, and the Commitments of the Class A
Members shall be restored by such amount. Any funds returned to the Members
pursuant to this Section 5.3 shall not be treated as Capital Contributions, nor
shall the return of such funds be treated as a Company distribution for purposes
of Section 7.1.

5.4    Return of Capital Contributions. No interest shall accrue on any Capital
Contributions and no Member shall have the right to withdraw or be repaid any
Capital Contributions by that Member except as provided in Sections 5.3, and no
Member shall be liable for the return of any other Member’s Capital
Contributions. 

ARTICLE VI
INVESTMENTS AND ACTIVITIES; OTHER FUNDS

6.1    The PSA. The B Manager shall cooperate with the A Manager to cause the
Company to participate in and carry out the obligations of the PSA.
 
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6.2    Other Activities.

(a)    Class B Member and Technology.

(i)     The Class B Member hereby assigns, transfers, and conveys to the Company
all Intellectual Property Rights. The Class B Member hereby covenants that it
shall cause each of its Affiliates to assign, transfer, and convey all
Intellectual Property Rights.

(ii)    Any Class B Improvements shall be made for the benefit of the Company,
and the Class B Member shall, and shall cause its Affiliates to, assign to the
Company exclusively throughout the world all right, title, and interest (choate
or inchoate) to the Class B Improvements during the term of this Agreement and
thereafter.

(iii)   The Class B Member agrees, and shall cause its Affiliates, to assist the
Company in every legal way to evidence, record, and perfect the assignment,
transfer, and conveyance of any Intellectual Property Rights and Class B
Improvements to the Company and to apply for and obtain recordation of and from
time to time enforce, maintain, and defend the assigned rights. If the Company
is unable for any reason whatsoever to secure the Class B Member’s (or its
Affiliate’s) signature to any document it is entitled to under this Section 6.2,
the Class B Member hereby irrevocably designates and appoints the Company and
its duly authorized officers and agents, as its agents and attorneys-in-fact
with full power of substitution to act for and on its behalf and in its stead,
to execute and file any such document or documents and to do all other lawfully
permitted acts to further the purposes of the foregoing with the same legal
force and effect as if executed by the Class B Member.

(iv)   The Class B Member represents that the Intellectual Property Rights
transferred to the Company pursuant to Section 6.2(a)(i) represent all right,
title, and interest of the Class B Member and each of its Affiliates in and to
intellectual property rights of any nature in and to the Technology.

(b)    The B Manager shall undertake to license and exploit the Technology and
exploit the Intellectual Property Rights of the Company. The B Manager shall
present to the A Manager, for its review and approval, any agreement relating to
the licensing and exploitation of the Intellectual Property Rights and shall
modify any such agreement as requested by the A Manager.

(c)    All Intellectual Property Rights of the Company shall be the property of
the Company and not the property of any Member.

6.3    Confidential Technology Information. During the term of this Agreement
and thereafter, each Member shall treat the Technology and the Company
Intellectual Property Rights and all information, data, reports, and other
records relating to the Technology (collectively, the “Confidential Technology
Information”), regardless of origin, as confidential information of the Company.
No Member shall disclose or use such Confidential Technology Information without
the A Manager’s and the Class B Member’s prior written consent. Nothing in this
Agreement shall limit the right of the Company, or the A Manager on behalf of
and in furtherance of the purposes of the Company, to use or disclose any
Confidential Technology Information to any third party, provided that any
disclosure shall be subject to compliance with Section 6.3(d) below.

(a)    Confidential Business Information. During the term of this Agreement and
thereafter, each Member shall treat this Agreement and all proprietary business
information designated as confidential, or which ought to be considered as
confidential from its nature or from the circumstances surrounding its
disclosure, that it receives from another party or the Company (collectively,
the “Confidential Business Information”) as confidential information of the
other party or the Company, as the case may be, and shall not disclose or use
such information without the other party’s (or the Company’s, as the case may
be) prior written consent. Any such permitted disclosure shall be subject to
compliance with Section 6.3(d) below.
 
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(b)    General Exceptions. Nothing in this Agreement shall prevent the use or
disclosure by the recipient of any Confidential Technology Information or
Confidential Business Information that:

(1)    the recipient can document is or has become generally available (through
no fault of recipient) for disclosure to, and use by, the public without any
charge, license, or restriction;

(ii)    the recipient is permitted to use or disclose pursuant to a written
agreement between the recipient and the providing party; or

(ii)    the recipient is required by law, regulation, or order to disclose,
provided that the recipient shall notify the disclosing party of such law,
regulation, or order and shall cooperate with the disclosing party in
endeavoring to obtain confidential treatment for any Confidential Technology
Information or Confidential Business Information required to be disclosed,
including, without limitation, making any court or regulatory filings reasonably
requested by the disclosing party.

(c)    Additional Confidential Business Information Exceptions. In addition to
the general exceptions listed above, nothing in this Agreement shall prevent the
use or disclosure by the recipient of any Confidential Business Information
that:

(i)     the recipient can document was already in its possession free of any
obligation of confidence at the time of communication;

(ii)    the recipient can document was independently developed by the recipient;
or

(iii)   the recipient can document was provided by a third party that itself was
not in breach of any confidentiality obligation.

(d)    Nondisclosure Procedures. Each party shall develop and implement such
procedures as may be required to prevent the inadvertent or negligent disclosure
to third parties of Confidential Technology Information or another party’s
Confidential Business Information, as applicable, by its employees, including,
but not limited to, requiring each of its employees having access to the
Confidential Technology Information or Confidential Business Information under
this Agreement to enter into a confidentiality agreement no less restrictive
than the terms of this Section 6.3. In the event that Confidential Technology
Information or Confidential Business Information of another party is authorized
to be disclosed to a third party, the disclosing party shall ensure that any
third party being granted access to any confidential information enters into a
confidentiality agreement no less restrictive than the terms of this Section
6.3.

ARTICLE VII
DISTRIBUTIONS, ALLOCATIONS, AND TAX MATTERS

7.1    Distributions.

(a)    Subject to the approval of the A Manager, distributable cash from
operations shall be distributed to the Members periodically. Cash distributions
to the Members (whether from operations or a sale of all or any portion of the
Company’s assets) shall be made in accordance with the following:
 
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(i)     To the Class A Members pro rata until the Class A Members have received
an amount equal to their Aggregate Capital Contributions; then

(ii)    100% to the Class A Members pro rata until they have received an amount
representing a rate of return equal to 12%, compounded annually, on the
Aggregate Capital Contributions of the Class A Members calculated from the date
of contribution using the XIRR Function defined in Microsoft Excel; then

(iii)   100% to the Class B Member until the amount distributed to the Class B
Member under this clause (iii) equals 12.5% of all amounts distributed pursuant
to clauses (ii) and (iii); then

(iv)   87.5% to the Class A Members pro rata and 12.5% to the Class B Member
until the amount distributed to the Class A Members represents a return equal to
20%, compounded annually, on the Aggregate Capital Contributions of the Class A
Members calculated from the date of contribution using the XIRR Function defined
in Microsoft Excel; then

(v)    100% to the Class B Member until the amount distributed to the Class B
Member under clauses (iii), (iv), and (v) equals 20% of all amounts distributed
pursuant to clauses (ii), (iii), (iv), and (v); then

(vi)   80% to the Class A Members pro rata and 20% to the Class B Member until
the amount distributed to the Class A Members represents a return equal to 30%,
compounded annually, on Aggregate Capital Contributions of the Class A Members
calculated from the date of contribution using the XIRR Function defined in
Microsoft Excel; then

(vii)          100% to the Class B Member until the amount distributed to the
Class B Member under clauses (iii), (iv), (v), (vi), and (vii) equals 25% of all
amounts distributed pursuant to clauses (ii), (iii), (iv), (v), (vi), and (vii);
then

(viii)         75% to the Class A Members pro rata and 25% to the Class B Member
until the amount distributed to the Class A Members represents a return equal to
60%, compounded annually, on the Aggregate Capital Contributions of the Class A
Members calculated from the date of contribution using the XIRR Function defined
in Microsoft Excel; then

(ix)    50% to the Class A Members pro rata and 50% to the Class B Member.
 
For these purposes, the calculation of the return received by the Class A
Members shall be made prior to reduction for any taxes imposed on the Class A
Members.

7.2    Restrictions on Distributions. The provisions of this Article VII to the
contrary notwithstanding, no distribution shall be made (a) if such distribution
would violate any contract or agreement to which the Company is then a party or
any applicable law, rule, regulation, order, or directive of any governmental
authority then applicable to the Company, (b) to the extent that the A Manager,
in its sole discretion, determines that any amount otherwise distributable
should be retained by the Company to pay, or to establish a reserve for the
payment of, any liability or obligation of the Company, whether liquidated,
fixed, contingent, or otherwise, or (c) to the extent that the A Manager, in its
sole discretion, determines that the cash available to the Company is
insufficient to permit such distribution.

7.3    Capital Accounts. A capital account (a “Capital Account”) shall be
established and maintained for each Member to which shall be credited the
Capital Contributions made by such Member and such Member’s allocable share of
Net Income (and items thereof), and Simulated Gain, and from which shall be
deducted distributions to such Member of cash or other property and such
Member’s allocable share of Net Loss (and items thereof), Simulated Depletion,
and Simulated Losses. To the extent not provided for in the preceding sentence,
the Capital Accounts of the Member shall be adjusted and maintained in
accordance with Treasury Regulations Section 1.704-1(b).
 
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7.4    Allocations to Capital Accounts.

(a)    Net Income and Net Loss. Except as provided in this Section 7.4(c), Net
Loss (and items thereof) shall be allocated in a manner such that the Capital
Account of each Member, immediately after giving effect to such allocation, is,
as nearly as possible, equal (proportionately) to the amount of the
distributions that would be made to such Member pursuant to Section 7.1, if (i)
the Company were dissolved and terminated; (ii) its affairs were wound up and
each Company asset was sold for cash equal to its Book Value; (iii) all Company
liabilities were satisfied (limited with respect to each nonrecourse liability
to the Book Value of the assets securing such liability); and (iv) the net
assets of the Company were distributed in accordance with Section 7.1 to the
Members immediately after giving effect to such allocation.

(b)    Net Income and Simulated Gain. Except as provided in Section 7.4(c), Net
Income (and items thereof) and Simulated Gain shall be allocated (i) first to
the Members in proportion to and in an amount equal to the allocation of Net
Loss under Section 7.4(a) and Simulated Depletion and Simulated Loss under
Section 7.(d) until the aggregate amount of Net Income and Simulated Gain
allocated under this clause (i) equals the aggregate amount of Net Loss
allocated under Section 7.4(a) and Simulated Depletion and Simulated Loss
allocated under Section 7.4(d), and (ii) second in a manner such that the
Capital Account of each Member, immediately after giving effect to such
allocation, is, as nearly as possible, equal (proportionately) to the amount of
the distributions that would be made to such Member pursuant to Section 7.1, if
(A) the Company were dissolved and terminated, (B) its affairs were wound up and
each Company asset was sold for cash equal to its Book Value, (C) all Company
liabilities were satisfied (limited with respect to each nonrecourse liability
to the Book Value of the assets securing such liability), and (D) the net assets
of the Company were distributed in accordance with Section 7.1 to the Members
immediately after giving effect to such allocation.

(c)    Allocations Relating to Last Fiscal Year. Except as otherwise provided
elsewhere in this Agreement, if upon the dissolution and termination of the
Company pursuant to Article XIII and after all other allocations provided for in
Section 7.4 have been tentatively made as if this Section 7.4(c) were not in
this Agreement, a distribution to the Members under Article XIII would be
different from a distribution to the Members under Section 7.1, then Net Income
(and items thereof) and Simulated Gain and Net Loss (and items thereof),
Simulated Loss, and Simulated Depletion for the Fiscal Year in which the Company
dissolves and terminates pursuant to Article XIII shall be allocated among the
Members in a manner such that the Capital Account of each Member, immediately
after giving effect to such allocation, is, as nearly as possible, equal
(proportionately) to the amount of the distributions that would be made to such
Member during such last Fiscal Year pursuant to Section 7.1. At the request of
the A Manager, the B Manager shall apply the principles of this Section 7.4(c)
to any Fiscal Year preceding the Fiscal Year in which the Company dissolves and
terminates (including through application of Section 761(e) of the Code) if
delaying application of the principles of this Section 7.4(c) would likely
result in distributions under Article XIII that are materially different from
distributions under Section 7.1 in the Fiscal Year in which the Company
dissolves and terminates, provided that the terms of any application of such
principles shall be approved by the A Manager.

(d)    Simulated Basis, Simulated Depletion, and Simulated Loss. The Simulated
Basis in each oil and gas property owned by the Company on the date of this
Agreement and any Simulated Depletion or Simulated Loss calculated with respect
thereto shall be allocated among the Members in proportion to their Capital
Percentages as in effect on the date of this Agreement, or in the case of
properties acquired by the Company after the date of this Agreement, in
proportion to their Capital Percentages at the time of acquisition of such
property. For purposes of this Section 7.4(d), “Capital Percentage” means for
each Member, a percentage of the Book Value of the oil and gas properties owned
by the Company equal to the percentage calculated by dividing such Member’s
Capital Contribution by the total Capital Contributions of all Members.
 
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(e)    Allocations in Special Circumstances. The following special allocations
shall be made in the following order:

(i)     Member Minimum Gain Chargeback. Notwithstanding any other provision of
this ARTICLE VII, if there is a net decrease in Company minimum gain (as defined
in Treasury Regulations Section 1.704-2(b)(2) and (d)) during any Fiscal Year,
the Members shall be specially allocated items of Company income and gain for
such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal
to the portion of such Member’s share of the net decrease in Company minimum
gain, determined in accordance with Treasury Regulations Section 1.704-2(f) and
(g). This Section 7.3(c)(i) is intended to comply with the minimum gain
chargeback requirement in such section of the Treasury Regulations and shall be
interpreted consistently therewith.

(ii)    Minimum Gain Chargeback. Notwithstanding any other provision of this
ARTICLE VII, if there is a net decrease in Member nonrecourse debt minimum gain
attributable to a Member nonrecourse debt (as defined in Treasury Regulations
Section 1.704-2(i)) during any Fiscal Year, each Member shall be specially
allocated items of Company income and gain for such Fiscal Year (and, if
necessary, subsequent Fiscal Years) in an amount equal to the portion of such
Member’s share of the net decrease in Member nonrecourse debt minimum gain
attributable to such Member’s nonrecourse debt, determined in accordance with
Treasury Regulations Section 1.704-2(i). This Section 7.3(c)(ii) is intended to
comply with the minimum gain chargeback requirement in such section of the
Treasury Regulations and shall be interpreted consistently therewith.

(iii)   Qualified Income Offset. In the event any Member unexpectedly receives
any adjustments, allocations, or distributions described in Treasury Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Company income and gain
shall be specially allocated to each such Member in an amount and manner
sufficient to eliminate, to the extent required by the Treasury Regulations, the
deficit, if any, in such Member’s Capital Account (as determined under Treasury
Regulations Section 1.704-1 and after crediting such Capital Account for any
amounts that such Member is obligated to restore or is deemed to restore
pursuant to Treasury Regulations Section 1.704-2) as quickly as possible;
provided that an allocation pursuant to this Section 7.3(f)(iii) shall be made
only if and to the extent that such Member would have such Capital Account
deficit after all other allocations provided for in Section 7.3 have been
tentatively made as if this Section 7.3(f)(iii) were not in this Agreement. This
Section 7.3(f)(iii) is intended to comply with the qualified income offset
provisions in Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.

(iv)   Gross Income Allocation. In the event any Member has a deficit balance in
such Member’s Capital Account (as determined after crediting such Capital
Account for any amounts that such Member is obligated to restore or is deemed
obligated to restore pursuant to Treasury Regulations Section 1.704-2), items of
Company income and gain shall be specially allocated to such Member in an amount
and manner sufficient to eliminate such deficit (as so determined) of such
Member’s Capital Account as quickly as possible; provided that an allocation
pursuant to this Section 7.4(f)(iv) shall be made only if and to the extent that
such Member would have such Capital Account deficit (as so determined) after all
other allocations provided for in Section 7.4 (other than Section 7.4(f)(iii))
have been tentatively made as if this Section 7.4(f)(iv) were not in this
Agreement.
 
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(v)    Loss Allocation Limitation. No allocation of Net Loss (or items thereof)
Member shall be made to any Member to the extent that such allocation would
create or increase a deficit in such Member’s Capital Account (as determined
after debiting such Capital Account for the items described in Treasury
Regulations Section 1.704-1(b)(2)(ii)(d)(4),(5) and (6) and crediting such
Capital Account for any amounts that such Member is obligated to restore or is
deemed obligated to restore pursuant to Treasury Regulations Section 1.704-2).

(f)     Transfer of or Change in Interests. The Managers are authorized to adopt
any convention or combination of conventions likely to be upheld for federal
income tax purposes regarding the allocation and/or special allocation of items
of Company income, gain, loss, deduction, and expense with respect to a newly
issued Interest, a transferred Interest and a redeemed Interest. A transferee of
an Interest in the Company shall succeed to the Capital Account of the
transferor Member to the extent it relates to the transferred Interest.

(g)    Syndication and Organization Expenses. Syndication and organization
expenses (as defined in Section 709(a) of the Code) for any Fiscal Year shall be
allocated to the Capital Accounts of the Members so that, as nearly as possible,
the cumulative amount of such expenses allocated with respect to such Member
corresponds to the amount paid by such Member.

7.5    Tax Allocations.

(a)    General Rules. Except as otherwise provided in Section 7.5(b), for each
fiscal period, items of Company income, gain, loss, deduction, and expense shall
be allocated, for federal, state, and local income tax purposes, among the
Members in the same manner as the Net Income (and items thereof) or Net Loss
(and items thereof) of which such items are components were allocated pursuant
to Section 7.4.

(b)    Section 613A(c)(7)(D) of the Code. The deduction for depletion with
respect to each separate oil and gas property (as defined in Section 614 of the
Code) shall in accordance with Section 613A(c)(7)(D) of the Code be computed
separately by the Members rather than the Company. For such purpose, the
adjusted tax basis of each such property shall be allocated among the Members in
the same manner in which the Simulated Basis of such property is allocated. Each
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 gain or loss on the disposition of such property by the
Company.

(c)    Section 704(c) of the Code. Income, gains, losses, and deductions with
respect to any property (other than cash) contributed or deemed contributed to
the capital of the Company shall, solely for income tax purposes, be allocated
among the Members so as to take account of any variation between the adjusted
basis of such property to the Company for federal income tax purposes and its
Fair Market Value at the time of the contribution or deemed contribution in
accordance with Section 704(c) of the Code and the Treasury Regulations
promulgated thereunder. Such allocations shall be made in such manner and
utilizing such permissible tax elections as determined in the discretion of the
A Manager.

If there is a revaluation of Company property pursuant to the definition of Book
Value, subsequent allocations of income, gains, losses or deductions with
respect to such property shall be allocated among the Members so as to take
account of any variation between the adjusted tax basis of such property to the
Company for federal income tax purposes and its Fair Market Value in accordance
with Section 704(c) of the Code and the Treasury Regulations promulgated
thereunder. Such allocations shall be made in such manner and utilizing such
permissible tax elections as determined in the discretion of the A Manager.

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(d)    Capital Accounts Not Affected. Allocations pursuant to this Section 7.5
are solely for federal, state, and local tax purposes and shall not affect, or
in any way be taken into account in computing, any Member’s Capital Account or
allocable share of Net Income (or items thereof) or Net Loss (or items thereof).

(e)    Tax Allocations Binding. The Members acknowledge that they are aware of
the tax consequences of the allocations made by this Section 7.5 and hereby
agree to be bound by the provisions of this Section 7.5 in reporting their
respective shares of items of Company income, gain, loss, deduction, and
expense.

7.6    Determinations under Article VII. All matters concerning the computation
of Capital Accounts, the allocation of items of Company income, gain, loss,
deduction, and expense for all purposes of this Agreement and the adoption of
any accounting procedures not expressly provided for by the terms of this
Agreement shall be determined by the B Manager and subject to the approval of
the A Manager, in the sole discretion of the A Manager. Such determinations
shall be final and conclusive as to all the Members. Without in any way limiting
the scope of the foregoing, if and to the extent that, for income tax purposes,
any item of income, gain, loss, deduction, or expense of any Member or the
Company is constructively attributed to, respectively, the Company or any
Member, or any contribution to or distribution by the Company or any payment by
any Member or the Company is recharacterized, the B Manager shall specially
allocate items of Company income, gain, loss, deduction, and expense and/or make
correlative adjustments to the Capital Accounts of the Members in a manner so
that the net amount of income, gain, loss, deduction, and expense realized by
each relevant party (after taking into account such special allocations) and the
net Capital Account balances of the Members (after taking into account such
special allocations and adjustments) shall, as nearly as possible, be equal,
respectively, to the amount of income, gain, loss, deduction, and expense that
would have been realized by each relevant party and the Capital Account balances
of the Members that would have existed if such attribution and/or
recharacterization and the application of this sentence of this Section 7.6 had
not occurred. Notwithstanding anything expressed or implied to the contrary in
this Agreement, in the event the A Manager shall determine, in its discretion,
that it is prudent for the B Manager to modify the manner in which the Capital
Accounts, or any debits or credits thereto, are computed in order to effectuate
the intended economic sharing arrangement of the Members, the B Manager shall
make such modification.

7.7    Restoration of Negative Capital Accounts. Except as otherwise required by
law, no Member shall have any obligation to the Company or the other Members or
to any other Person, including creditors of the Company, to restore any negative
balance in its Capital Account.

7.8    Withholding. Notwithstanding any other provision of this Agreement, the B
Manager is authorized to take any action that it determines to be necessary or
appropriate to cause the Company to comply with any foreign or United States
federal, state, or local withholding or deduction, requirement with respect to
any allocation, payment, or distribution by the Company to any Member or other
Person and shall inform the A Manager of such action. All amounts so withheld,
and, in the manner determined by the B Manager in its discretion, amounts
withheld with respect to any allocation, payment, or distribution by any Person
to the Company, shall be treated as distributions to the applicable Members
under the applicable provisions of this Agreement. If any such withholding
requirement with respect to any Member exceeds the amount distributable to such
Member under the applicable provision of this Agreement, or if any such
withholding requirement was not satisfied with respect to any amount previously
allocated or distributed to such Member, such Member and any successor or
assignee with respect to such Member’s Interest hereby indemnifies and agrees to
hold harmless the Managers and the Company for such excess amount or such
withholding requirement, as the case may be.

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7.9    Tax Elections. The A Manager on behalf of the Company shall make the
following elections:

(a)    to elect the accrual method of accounting;

(b)    to elect to treat all organizational and start-up costs of the Company as
deferred expenses amortizable over 180 months under Code Section 709;

(c)    the calendar year as the Company’s fiscal year if permitted by applicable
law;

(d)    in accordance with Sections 734, 743, and 754 of the Code and applicable
Treasury Regulations and comparable state law provisions, to adjust basis in the
event any Interest, or any portion thereof, is transferred in accordance with
this Agreement or any Company property is distributed to any Member; and

(e)    to elect, in accordance with Section 263(c) of the Code and applicable
regulations and comparable state law provisions, to deduct as an expense all
intangible drilling and development costs with respect to productive and
non-productive wells and the preparation of wells for the production of oil and
gas.

In addition, the B Manager, on behalf of the company, shall make any election
with respect to such other federal, state, and local tax matters as the A
Manager shall request, from time to time.

7.10          Tax Matters Partner. The B Manager shall be designated the “Tax
Matters Partner” under Code Section 6231 and shall promptly notify the Members
if any tax return or report of the Company is audited or if any adjustments are
proposed by any governmental body. The B Manager shall not make any decision or
take any action as Tax Matters Partner without the consent of the A Manager. In
addition, the B Manager shall promptly furnish to the Members all notices
concerning administrative or judicial proceedings relating to federal income tax
matters as required under the Code. During the pendency of any such
administrative or judicial proceeding, the B Manager shall furnish to the
Members periodic reports, not less often than monthly, concerning the status of
any such proceeding. The B Manager shall keep the A Manager informed of any such
proceeding and shall take such action with respect thereto solely with the
consent of the A Manager and, if requested by the A Manager, at the direction of
the A Manager. The A Manager shall be entitled to participate in any such
proceedings.

ARTICLE VIII
FEES AND EXPENSES

8.1    Company Expenses and Reimbursement.

(a)    The Company will bear all Company Expenses and shall reimburse the
Members for any Company Expenses that they fund. Notwithstanding the foregoing,
if a Member is reimbursed for any Company Expenses under an Operating Agreement,
the Services Agreement, or any other similar agreement with the Company, it may
not again seek reimbursement under this Section 8.1 for such expenses.

(b)    Except as provided in the Services Agreement, if any Member, or any of
its employees, officers, or directors or any Affiliate of any of the foregoing
receives any break-up fees, director’s fees, consulting or advisory fees,
operating fees, topping fees, commitment fees, success fees, development fees,
or other fees or remuneration, in each case, related to the Project or the
licensing, or other fees related to any of the Company’s Intellectual Property
Rights, such fees shall be remitted to the Company, except to the extent
otherwise agreed by the Managers.
 
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ARTICLE IX
CERTAIN MEMBER MATTERS

9.1    Rights of the Members. In addition to the other rights specifically set
forth herein or by non-waivable provisions of applicable law, each Member shall
have the right to: (a) have the Company books and records kept at the principal
office of the Company and at all reasonable times to inspect any of them and
(b) exercise all rights of a member under the Act (except to the extent
otherwise specifically provided for herein).

9.2    Limitations on Members. No Member shall have the authority or power in
its capacity as a Member 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 Manager shall hold out or represent to any third party that any
Member has any such right or power in its capacity as a Member.

9.3    Liability of Members. No Member shall be liable for the debts,
liabilities, contracts, or other obligations of the Company, and no Member shall
be required to make any loans to the Company.

9.4    Agreements of the Members. Each Member hereby agrees as follows:

(a)    Further Cooperation. It will promptly execute all certificates and other
instruments as shall be reasonably necessary for the Company 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 all other jurisdictions where the
Company shall propose to conduct business.

(b)    Tax Position. It will not adopt any position on its federal income tax
returns as filed or amended which relate to the Company, or on any request for
administrative adjustment, that is inconsistent with the Company’s Form 1065,
Schedule K-1 as filed with the Internal Revenue Service.

(c)    Liens. No Member may, grant a lien or otherwise pledge, hypothecate, or
grant a security interest or other encumbrance on any or all of its Interest.

9.5    Representations and Warranties of all Members. Each Member represents and
warrants to the Company and every other Member that:

(a)    If it is not a natural person, it is an entity duly formed, validly
existing, and (if applicable) in good standing in the jurisdiction of its
formation and has all power and authority to own its Interests and to enter into
and perform its obligations under this Agreement, and its execution, delivery,
and performance of this Agreement has been duly authorized by all necessary
action of its board of directors or other governing authority and its equity
owners to the extent required.

(b)    It has duly executed this Agreement, and this Agreement constitutes its
valid and binding obligation, enforceable in accordance with its terms.

(c)    Its execution and delivery of this Agreement and its performance of this
Agreement do not, and will not, (i) if it is not an individual, violate or
conflict with any provision of its constituent documents, (ii) violate
applicable law, (iii) result in a material violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation, or acceleration) under, any note, bond,
indenture, lien, mortgage, lease, permit, guaranty, or other agreement,
instrument, or obligation to which it or any of its Affiliates is a party or by
which any of their respective properties may be bound, or (iv) require any
material consent, approval, authorization, or permission of, or filing with or
notification to, any governmental authority or any other Person.

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(d)    It is acquiring its Interests solely for investment for its own account
and not for distribution or sale to others in connection with any distribution
or public offering.

(e)    It understands and acknowledges that the Interests are being issued
pursuant to exemptions from registration under the Securities Act and exemptions
from qualification under the securities laws of certain states for transactions
not involving any public offering, and that the Company is relying on the
representations and warranties included herein.

(f)     It understands that there will not be any public market for the
Interests and that it must bear the economic risk of an investment in the
Company for an indefinite period of time because (i) its Interests have not been
registered under the Securities Act or any applicable state securities laws and
(ii) it may Transfer, in whole or in part, its Interests only in accordance with
this Agreement and then only if its Interests are subsequently registered in
accordance with the provisions of the Securities Act and applicable state
securities laws, unless registration is not required.

(g)    It understands that the Company is not obligated to register the
Interests for resale under the Securities Act or any applicable state securities
laws.

(h)    It is a “qualified institutional buyer” within the meaning of rule 144A
of the Securities and Exchange Commission or an “accredited investor” within the
meaning of Regulation D of the Securities and Exchange Commission and is able to
bear the economic risk of such an investment in the Company for an indefinite
period of time, and it has no need for liquidity of this investment, and it
could bear a complete loss of this investment. If it is either a “qualified
purchaser” within the meaning of the Investment Company Act of 1940 or is an
entity formed and is being utilized primarily for the purpose of making an
investment in the Company, each of the shareholders, partners, members, or other
holders of equity or beneficial interests in such member is such a qualified
purchaser.

(i)     It has the knowledge and sophistication to evaluate the risks of
investing in the Company. It has conducted its own investigation and due
diligence into the Company and is satisfied that its investment in the Company
is appropriate. It understands and agrees that none of the other Members or
their Affiliates, or the Company, has made or will make any representation or
warranty with respect to the worthiness, terms, value, or any other aspect of
the Company or the Interests, and it explicitly disclaims any warranty, express
or implied, with respect to such matters. In addition, it specifically
acknowledges, represents, and warrants that, except to the extent set forth in
this Agreement, it is not relying on any other Member or its Affiliates (i) for
its investigation or due diligence concerning, or evaluation of, the Company or
any related transaction or (ii) with respect to tax and other economic
considerations involved in an investment in the Company.

(j)     No portion of the assets being used by it to purchase and hold its
Interests constitute assets of a plan within the meaning of Section 3(32) of
Employee Retirement Income Security Act of 1974.

(k)    No broker, investment banker, financial advisor, or other Person is
entitled to any broker’s, finder’s, financial advisor’s, or other similar fee or
commission in connection with the Company based upon arrangements made by or on
behalf of that Member for which the Company, the other Members, or any of their
respective Affiliates may be liable.
 
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(l)     It has been advised to consult with its attorney regarding all legal and
other matters concerning an investment in the Company, including the tax
consequences of participating in the Company, and such Member will look solely
to, and rely upon, its own advisors with respect to the legal, financial, and
tax consequences of this investment.

9.6    Additional Representations and Warranties of the Class B Member. The
Class B Member represents and warrants to the Company and the Class A Members
that:

(a)    (i) the copies of documents and instruments that the Class B Member
provided to the Class A Members or their representatives prior to the date of
this Agreement relating to the Project and other activities of the Class B
Member and the Company conform to the originals and, in the case of agreements,
include all amendments and modifications to them; and (ii) all other information
that the Class B Member provided to the Class A Members or their representatives
prior to the date of this Agreement relating to the Project and other activities
of the Class B Member is true and correct in all material respects and, taken as
a whole, does not omit any information required to make the factual statements
in those materials not misleading in any material respect; provided, however,
that (A) in the case of projections, such projections were prepared in good
faith based on reasonable estimates and assumptions and (B) in the case of
materials furnished by third parties, the statement in this Section 9.6 is
correct to the best of the knowledge of the Class B Member and its Affiliates
after due inquiry.

(b)    It has not breached, nor has it caused the Company to breach any
provision of the PSA or any agreement attached to or incorporated into the PSA
between the Execution Date (as that term is defined in the PSA), and the date of
this Agreement.

(c)    Since the Formation Date the Company has not conducted any business other
than the entering into the PSA and those agreements attached to or incorporated
into the PSA.

9.7    Anti-Money Laundering Provisions.

(a)    Each Member hereby agrees to use its reasonable best efforts to ensure
that:

(i)     none of the monies that such Member contributes to the Company shall be
derived from, or related to, any activity that is deemed criminal under United
States law; and

(ii)    no contribution or payment by such Member to the Company, to the extent
such contribution or payment is within such Member’s control, shall cause the
Company, or the Members, or the Managers to be in violation of the United States
Bank Secrecy Act, the United States Money Laundering Control Act of 1986, or the
United States International Money Laundering Abatement and Anti-Terrorist
Financing Act of 2001, in each case, such statute as amended to date and any
successor statute thereto and including all regulations promulgated thereunder
(the “Anti-Money Laundering Laws”).

(b)    Each Member: (i) shall promptly notify the Managers if, to the knowledge
of such Member, such Member has made a contribution to the Company of money
derived from, or related to, any activity that is deemed criminal under United
States law or that could cause the Company or any Member to be in violation of
the Anti-Money Laundering Laws; (ii) shall provide the Managers, promptly upon
receipt of a Manager’s written request therefor, with any additional information
regarding such Member, but not its beneficial owner(s), that the Managers
reasonably deem necessary or advisable in order to determine or ensure
compliance with all applicable laws, regulations, and administrative
pronouncements concerning money laundering and other criminal activities; and
(iii) understands and agrees that if, at any time, such Member has made a
contribution to the Company of money derived from, or related to, any activity
that is deemed criminal under United States law or that could cause the Company
or any Member or its Affiliates to be in violation of the Anti-Money Laundering
Laws, or if otherwise required by any applicable law or regulation related to
money laundering or other criminal activities, the Member may take appropriate
actions to ensure that the Company and the other Members and their Affiliates
are in compliance with all such applicable laws, regulations, and
pronouncements.
 
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(c)    Each Member acknowledges and agrees that (i) the Company, with the
approval of the Managers, may release confidential information regarding such
Member to governmental authorities if the Managers determine that releasing such
information is reasonably required in light of the Anti-Money Laundering Laws,
and (ii) the Managers, without the consent of any Member and notwithstanding any
other provision of this Agreement, may amend any provision of this Agreement in
order to effectuate the intent of this Section 9.7(c), provided that the
Managers provide each Member with notice of such amendment.

ARTICLE X
COVENANTS

10.1          Conduct of Business. During the period from the date hereof to the
Closing Date except (i) as contemplated by this Agreement, (ii) as required by
applicable law or the PSA, or (iii) with the consent of the A Manager, the B
Manager shall conduct its business and cause the Company to conduct its business
honestly, in good faith, in the best interests of the Company, in compliance
with the best practices customary in the industry and to use its commercially
reasonable best efforts to preserve intact its business organizations and
relationships with third parties and to keep available the services of their
present officers and employees. Without limiting the generality of the
foregoing, during the period from the date hereof to the Closing Date, the B
Manager shall cause the Company not to:

(a)    adopt or propose any change in its respective certificates of
incorporation, bylaws, or other constitutional documents, except for changes
which would not have an adverse impact on the Class A Members or the Company;

(b)    acquire, sell, transfer, lease, or otherwise dispose of any assets of the
Company;

(c)    make any material change in any financial reporting or accounting policy
or accounting practice regarding itself or the Company, other than such changes
required by law or GAAP;

(d)    incur, except in the ordinary course of business consistent with past
practices, any encumbrance on any assets of the Company;

(e)    cause the Company to issue or sell any new debt securities, incur any
long-term indebtedness, or enter into any new credit facility;

(f)     merge or consolidate with any other Person or acquire any other Person
or a business, division, or product line of any other Person; or

(g)    agree or commit to do any of the foregoing.
 
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10.2          Notices. The Class B Member agrees to forward to the A Manager
within two days of receipt any notice it receives between the date of this
Agreement and the Closing Date that is related to the Project, the PSA, or any
agreement attached to or incorporated into the PSA.

10.3          Further Assurances. Each of the Members agrees to use its
reasonable best efforts before and after the Closing Date to take or cause to be
taken all action, to do or cause to be done, and to assist and cooperate with
the other parties hereto in doing, all things necessary, proper, or advisable
under applicable laws to consummate and make effective, in the most expeditious
manner practicable, the transactions contemplated by this Agreement, including,
but not limited to, (a) the satisfaction of the conditions precedent to the
obligations of any of the parties hereto; and (b) the execution and delivery of
such instruments, and the taking of such other actions, as the other parties
hereto may reasonably require in order to carry out the intent of this
Agreement.

ARTICLE XI

TRANSFERS OF INTERESTS AND WITHDRAWALS

11.1          General Transfer Provisions.

(a)    Class A Member Transfer. Any Class A Member shall be entitled to transfer
all or a portion of its Interests in the Company at any time.

(b)    Class B Member Transfer. The Class B Member shall not be entitled to
transfer its Interests in the Company without the consent of the A Manager which
consent may be withheld for any reason whatsoever or for no reason.

(c)    In General. Notwithstanding any other provision of this Agreement, no
Member may Transfer in any manner whatsoever all or any part of its Interest
unless (i) such Member has fully complied with the provisions of this ARTICLE XI
for the Transfer, (ii) after giving effect thereto, such Transfer would not
cause the Company to be classified as other than a partnership for U.S. federal
income tax purposes, and (iii) such Transfer would not result in a violation of
applicable law, including U.S. federal or state securities laws, or any term or
condition of this Agreement. Any purported Transfer by a Member or any Assignee
that is not in compliance with this Agreement is hereby declared to be null and
void and of no force or effect whatsoever.

(d)    Substitute Members. No transferee of a Member’s Interest who is not
already a Member shall become a substitute member of the Company in place of the
transferor unless and until:

(i)     Such Transfer is in compliance with the terms of this ARTICLE XI;

(ii)    the transferee has executed an instrument in form and substance
reasonably satisfactory to the A Manager accepting and adopting, and agreeing to
be bound by, the terms and provisions of the Certificate and this Agreement; and

(iii)           the transferee has caused to be paid all reasonable expenses of
the Company in connection with the admission of the transferee as a substitute
member of the Company.

Upon satisfaction of all the foregoing conditions with respect to a particular
transferee, the Company shall cause its books and records to reflect the
admission of the transferee as a substitute member of the Company. If an
Interest is transferred to an existing Member, the Company will adjust its books
and records to reflect the Interest so transferred.
 
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(e)    Effect of Admission as a Substitute Member. A transferee who has become a
substitute member of the Company has all the rights, powers, and benefits of,
and is subject to the obligations, restrictions, and liabilities of the
transferor Member under, the Certificate, this Agreement, and the Act. Upon
admission of a transferee as a substitute member of the Company, the transferor
of the Interest so held by the substitute member of the Company shall cease to
be a Member of the Company; provided, however, that the transferor of the
Membership Interest shall continue to be bound by the provisions of Section 6.3
for a period of two years following such transfer.

(f)     Consent. Each Member hereby agrees that upon satisfaction of the terms
and conditions of Section 11.1(d) with respect to any proposed Transfer, the
transferee may be admitted as a Member without any further action by a Member
hereunder.

(g)    Additional Members. Any Person acquiring Interests from the Company in
accordance with the terms of this Agreement may become an additional member of
the Company for such consideration and on such terms, provided that such
additional member of the Company complies with all the requirements of a
transferee under Section 11.1(d).

11.2          Tag-Along Rights. All rights provided for in this Section 11.2
shall be subject to any rights granted or established under the PSA and any
agreements attached to or incorporated into the PSA.

(a)    Rights to Participate in Transfer. If the Class A Members (the
“Transferring Class A Members”) propose to sell in one transaction or a series
of related transactions, Class A Interests representing more than 50% of the
then-outstanding Class A Interests, other than any sale to an Affiliate of the
Class A Members, and Section 11.3 of this Agreement does not apply (such
proposed sale herein referred to as a “Tag-Along Transfer”), then the Class B
Member (the “Tag-Along Member”) shall have the option to participate in such
sale as set forth in this Section 11.2.

(b)    In the event of a proposed Tag-Along Transfer:

(i)     The Transferring Class A Members shall provide the Tag-Along Member with
a written notice of the terms and conditions of such proposed Tag-Along Transfer
( the “Tag-Along Notice”), at least ten (10) Business Days prior to the
consummation of such proposed Tag-Along Transfer and offer the Tag-Along Member
the opportunity to participate in such Tag-Along Transfer on the terms and
conditions set forth in this Section 11.2.

(ii)    If the proposed purchaser is willing to increase its offer price to take
into account any Class B Interests proposed to be sold by the Tag-Along Member
pursuant to this Section 11.2, the Tag-Along Member shall have the option to
sell its Pro Rata Portion (as defined below) of its Class B Interests at a price
equal to the amount that would be distributed with respect to such Pro Rata
Portion of its Class B Interests upon a hypothetical liquidation of the Company
based on the valuation of the Company implied by the consideration to be paid
for such Class A Interests in such Tag-Along Transfer (with respect to each
Class B Interest, the “Class B Purchase Price”) and otherwise on the same terms
as the Class A Interest proposed to be sold by the Transferring Class A Members
in such Tag-Along Transfer in accordance with the terms set forth in this
Section 11.2. The “Pro-Rata Portion” of the Tag-Along Member’s Class B Interest
shall be the percentage designated by the Tag-Along Member; provided, however,
in no event shall the Pro-Rata Portion exceed the product of (x) such Tag-Along
Member’s Class B Interest and (y) a fraction, the numerator of which is the
percentage of Class A Interests proposed to be Transferred by the Transferring
Class A Members in such Tag-Along Transfer and the denominator of which is the
total percentage of Class A Interests beneficially owned by the Transferring
Class A Members immediately prior to Transferring such Class A Interests.
 
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(iii)   If the proposed purchaser is not willing to increase its offer price to
take into account the additional Class B Interests it will also receive in such
Tag-Along Transfer, then each of the Transferring Class A Members and the
Tag-Along Member shall receive that amount consisting of the product of (x) the
amount the proposed purchaser is willing to pay and (y) a fraction, the
numerator of which is the amount each such Member would have received if the
purchaser had increased its offer price as contemplated in Section 11.2(b)(ii)
above and the denominator of which is the aggregate amount that all the Members
would have received if the purchaser had increased its offer price as
contemplated in Section 11.2(b)(ii). The percentage of its Interests that each
of the Transferring Class A Members and the Tag-Along Member sell will thus be
proportionately reduced in accordance with this Section 11.2(b)(iii) such that
each will sell that percentage which is a fraction, the numerator of which is
the amount such Member would have received under Section 11.2(b)(ii) and the
denominator of which is the amount the proposed purchaser would pay under
Section 11.2(b)(ii).

(c)    The Tag-Along Notice shall identify the proposed transferee, the
aggregate amount of all Class A Interests to be sold by the Transferring Class A
Members in the Tag-Along Transfer, the Pro Rata Portion of the Tag-Along
Member’s Class B Interest which such Tag-Along Member shall be entitled to
Transfer in such Tag-Along Transfer, the Class B Purchase Price, to whom the
Tag-Along Response Notice should be given, and all other material terms and
conditions of the proposed Tag-Along Transfer. From the date of the Tag-Along
Notice, the Tag-Along Member shall have the right (a “Tag-Along Right”),
exercisable by written notice (the “Tag-Along Response Notice”) given to the
Person identified in the Tag-Along Notice within ten (10) Business Days from the
date of the Tag-Along Notice (the “Tag-Along Response Notice Period”), to
request that the Transferring Class A Members participating in such Tag-Along
Transfer include in the proposed Transfer the Class B Interests held by the
Tag-Along Member (up to its Pro Rata Portion) as is specified in such Tag-Along
Response Notice at the same price and on the same terms and conditions set forth
in the Tag Along Notice.

(d)    Delivery of a Tag-Along Response Notice by the Tag-Along Member to the
Person identified in the Tag-Along Notice pursuant to Section 11.2(b) shall
constitute an irrevocable election by such Tag-Along Member to sell the
Interests beneficially owned by it as is specified in such Tag-Along Response
Notice in such Tag-Along Transfer. If, at the end of a one hundred and eighty
(180) day period after such delivery, the Tag-Along Transfer has not been
consummated on substantially the same terms and conditions set forth in the
Tag-Along Notice, all restrictions on Transfers of Interests contained in this
Agreement or otherwise applicable at such time with respect to Interests owned
by the Tag-Along Member shall continue to be in effect.

(e)    If, at the termination of the Tag-Along Response Notice Period, the
Tag-Along Member shall not have exercised its Tag-Along Right by providing the
Person identified in the Tag-Along Notice with a Tag-Along Response Notice, the
Tag-Along Member shall be deemed to have waived its Tag-Along Right with respect
to Transferring its Interest pursuant to such Tag-Along Transfer.

(f)     The Person identified in the Tag-Along Notice may sell, on behalf of the
Transferring Class A Members and the Tag-Along Member, if such Member exercises
its Tag-Along Right pursuant to this Section 11.2, the Interests entitled to be
Transferred in the Tag-Along Transfer on the terms and conditions set forth in
the Tag-Along Notice within ninety (90) days of the date on which Tag-Along
Rights shall have been waived or exercised.
 
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(g)    The Class A Members shall not consummate any proposed Tag-Along Transfer
without compliance with this Section 11.2, and the Company shall not recognize
or give effect to any purported Tag-Along Transfer of any Interests not made in
compliance with this Section 11.2.

(h)    To the extent there is to be granted any indemnification or other
post-closing liability assumed in connection with a Tag-Along Transfer, the
selling Members shall do so severally and not jointly.

11.3          Drag-Along Rights. All rights provided for in this Section 11.3
shall be subject to any rights granted or established under the PSA and any
agreements attached to or incorporated into the PSA.

(a)    If the Class A Members propose to Transfer all of their Interests to any
Person and intend to exercise their right under this Section 11.3 (the
“Drag-Along Rights”) to include all Class B Interests in the Transfer (a
“Drag-Along Transfer”), then the Class A Members will promptly provide the Class
B Member written notice (a “Drag-Along Transfer Notice”) of such proposed
Drag-Along Transfer (a “Proposed Drag-Along Transfer”) and all of the terms of
the Proposed Drag-Along Transfer as of the date of such Drag-Along Transfer
Notice. The Class A Members shall not consummate any Proposed Drag-Along
Transfer without compliance with this Section 11.3, and the Company shall not
recognize or give effect to any purported Drag-Along Transfer of any Interests
not made in compliance with this Section 11.3.

(b)    Interests subject to a Drag-Along Transfer Notice will be included in a
proposed Drag-Along Transfer pursuant hereto on the same terms and subject to
the same conditions applicable to the Interests which the Class A Members
propose to Transfer in the proposed Drag-Along Transfer. Such terms and
conditions shall be determined in the sole discretion of the Class A Members.

(c)    The proceeds of any sale pursuant to this Section 11.3 shall be
apportioned in accordance with Section 7.1.

(d)    To the extent there is to be granted any indemnification or other post
closing liability assumed in connection with a Drag-Along Transfer, the selling
Members shall do so severally and not jointly.
 
11.4          Assignee’s Rights.

(a)    An Assignee shall not be entitled to any of the rights (including voting
rights) granted to a Member hereunder or under the Act, other than the right to
receive the share of distributions and any other items attributable to a
Member’s Interest to which its assignor would otherwise be entitled.

(b)    Any Member that Transfers all of its Interest in compliance with the
provisions of this Agreement shall cease to be a Member.

11.5          Withdrawal by a Member. No Member shall be entitled to
(a) withdraw from the Company, except upon the Transfer by the Member of all of
its Interest and the substitution of that Member’s assignee as a Member of the
Company in accordance with this ARTICLE XI, or (b) the return of its Capital
Contributions, except to the extent expressly provided for in this Agreement.

11.6          Removal of the Class B Member for Cause or Death, Disability, or
Voluntary Termination.
 
(a)    Removal for Cause. Subject to the provisions hereof, the A Manager may
remove the Class B Member for Cause at any time upon notice to the Class B
Member or in the event of the Bankruptcy of the Class B Member. The A Manager
shall give written notice to the Class B Member of such removal. Upon the
removal of the Class B Member as a Member of the Company, the Class B Member
shall forfeit its Interest in the Company without the payment of any
consideration in respect thereof and shall be entitled to no further
distributions with respect to its Interest; provided, however, if the Class B
Member is removed for Cause as provided in Section 11.6(c)(i)(B), the Class B
Member shall be entitled to a distribution equal to the amount it would have
received if the A Manager had elected to make a distribution pursuant to Section
7.1 on the date the Class A Member gave written notice of removal as provided in
this Section 11.6(a). Following removal for Cause as provided in this Section
11.6(a), the Class B Member shall have no further rights against the Company or
any of its Members or Managers or any Affiliates of any of the foregoing.
 
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(b)    Removal for Death, Disability. or Voluntary Termination. Upon the
occurrence of Death, Disability, or Voluntary Termination, the A Manager may
elect to reduce the Interest of the Class B Member in the Company upon notice to
the Class B Member; provided, however, the A Manager shall discuss the
possibility of a suitable replacement for such Person with the Class B Member,
and the A Manager shall not unreasonably refuse such replacement. If the A
Manager makes an election to reduce the Interest of the Class B Member, the
amounts distributable to the Class B Member pursuant to Section 7.1 shall be
reduced as set forth in Appendix A.

(c)    “Cause” and “Death, Disability, or Voluntary Termination” Defined. As
used in this Agreement, “Cause” shall mean the occurrence of any of the
following by any of Michael Piazza, Eric Hanlon, Fred Stein, or their
replacements, the Class B Member, the B Manager (as long as the B Manager is
Ignis or one of its Affiliates), any of their officers, or any employee of or
independent contractor/consultant to Ignis or any of its Affiliates whose
aggregate cash and non-cash compensation from Ignis or any of its Affiliates
exceeds $150,000 per year: (i) the conviction or the entry of a nolo contendere
plea by any of the foregoing with respect to a felony, crime of moral turpitude,
or a criminal violation of any federal, state, or foreign securities laws;
provided, however, that if such conviction or plea relates to activities that
are unrelated to the Company or its business, such conviction or plea shall not
constitute “Cause” unless the A Manager determines in good faith that such
conviction or the particular circumstances relating thereto could reasonably be
expected to result in (A) harm to the Company or the A Members or any of their
Affiliates or (B) harm to the reputation of the Company or the A Members or any
of their Affiliates or employees; (ii) the commission by any of the foregoing of
fraud, bad faith, willful or intentional misconduct, or gross negligence in the
performance of its duties and obligations hereunder (or, in the case of officers
and directors, the duties and obligations of the Class B Member or the B
Manager); (iii) a material breach by any of the foregoing in the performance or
observation of any other material agreement, covenant, term, condition, or
obligation hereunder (except in the case of clauses (iv), (v), (vi), and (vii)
of Section 4.4(a), which shall require a willful and material breach of this
Agreement); (iv) the Transfer or attempted Transfer by the Class B Member of its
Interest in violation of this Agreement; (v) the termination of employment of
Michael Piazza or, in the case of Fred Stein, the independent
contractor/consultant relationship (unless replaced by an employment
relationship) or employment with the Class B Member, other than as a result of
Death, Disability, or Voluntary Termination, or (vi) the termination of the
independent contractor/consultant relationship of Eric Hanlon (whether directly
or through Lifestyles Integration, Inc., (provided that a majority of the equity
interests in Lifestyles Integration, Inc. are owned by Eric Hanlon and his
spouse) unless replaced with an employment relationship) or employment with the
Class B Member, other than as a result of Death, Disability, or Voluntary
Termination of Eric Hanlon. As used in this Agreement, “Death, Disability, or
Voluntary Termination” shall mean (a) the occurrence of the death of Michael
Piazza, Eric Hanlon, or Fred Stein; (b) the termination of employment of Michael
Piazza or, in the case of Fred Stein, employment or the independent
contractor/consultant relationship, with the Class B Member (whether initiated
by such Person or not) at a time that such Person is subject to a Disability (as
defined herein); (c) the termination of employment or the independent
contractor/consultant relationship of Eric Hanlon (whether directly or through
Lifestyles Integration, Inc. (provided that a majority of the equity interests
in Lifestyles Integration, Inc. are owned by Eric Hanlon and his spouse)) with
the Class B Member (whether initiated by such Person or not) at a time that such
Person is subject to a Disability; (d) the voluntary termination of employment
of Michael Piazza or, in the case of Fred Stein, the independent
contractor/consultant relationship (unless replaced by an employment
relationship) or employment with the Class B Member; or (e) the voluntary
termination of the independent contractor/consultant relationship with Eric
Hanlon (whether directly or through Lifestyles Integration, Inc., (provided that
a majority of the equity interests in Lifestyles Integration, Inc. are owned by
Eric Hanlon and his spouse) unless replaced by an employment relationship) or
employment with the Class B Member.
 
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ARTICLE XII
BOOKS, RECORDS, REPORTS, BANK ACCOUNTS

12.1          Books and Records. Except as may otherwise be required by this
Agreement, the B Manager shall keep books of account in accordance with GAAP and
in accordance with the terms of this Agreement. Such books shall be maintained
at the principal office of the Company and shall be maintained for review by the
Members and their representatives at their respective expense during the term of
the Company and for a period of four years thereafter. The calendar year shall
be selected as the accounting year of the Company, and the books of account
shall be maintained on an accrual basis. Upon request, the B Manager shall
supply to the Members information reasonably requested regarding the Company or
its activities. During ordinary business hours, the Members and their authorized
agents and representatives shall have reasonable access to all books, records,
and materials in the Company’s offices regarding the Company and its activities.

12.2          Reports and Opinions. The B Manager shall deliver to the Members,
the following financial statements, reports, legal opinions, and other
information at the times indicated below:

(a)    Accounting Reports.

(i)     Unless otherwise directed by the A Manager, within 120 days after the
end of each Fiscal Year, the B Manager shall cause the Company’s independent
certified public accountants to prepare and deliver to each Member an audited
financial report for such Fiscal Year, prepared in accordance with GAAP, setting
forth: (A) a statement of assets, liabilities, and members’ equity of the
Company as of the end of such Fiscal Year, (B) a statement of earnings for such
Fiscal Year; and (C) a statement of cash flows for such Fiscal Year, and any
other information which the Class B Manager shall deem necessary, desirable, or
appropriate, together with a statement of each Member’s Capital Account. The
independent certified public accountants for the Company shall be a firm of
independent certified public accountants selected by the A Manager.

(ii)    Unless otherwise directed by the A Manager, within 45 days after the end
of each of the Company’s Fiscal Quarters in each Fiscal Year, the B Manager
shall cause to be prepared and delivered to each Member an unaudited financial
report for such Fiscal Quarter, prepared in accordance with GAAP, setting forth:
(A) a statement of assets, liabilities, and members’ equity of the Company as of
the end of such Fiscal Quarter, (B) a statement of earnings for such Fiscal
Quarter, and (C) a statement of cash flows for such Fiscal Quarter, together
with a statement of each Member’s Capital Account.

(b)    Other Reports and Opinions.

(i)     Annual tax reporting information, as set forth in Section 12.3.
 
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(ii)    Unless otherwise directed by the A Manager, within 5 Business Days
following receipt of WBO’s monthly accounting under the Operating Agreements,
the B Manager shall cause to be prepared and delivered to each Member a report
for such month, setting forth: (A) a statement of cash flows for such month,
together with a statement of each Member’s Capital Account, (B) a description of
any deviations or variation of the monthly activity from the Plan or the budget
for such month, (C) a description of any unanticipated developments for such
month, (D) any other material information, and (E) any other information
requested by the A Manager.

(iii)   Such other reports and financial statements as the A Manager may require
from time to time.

12.3          Tax Returns; Tax Matters Partner. The Class B Manager shall cause
to be prepared and shall timely file all federal, state, and local income and
other tax returns and reports as may be required as a result of the business of
the Company. The B Manager shall use its commercially reasonable efforts to
(a) provide the Members a good faith estimate of the Members’ allocable shares
of taxable income, loss, gain, and credits on or before April 1 of each year,
(b) provide to each Member a copy of the federal income tax return it intends to
file on or before June 15 of each year, and (c) furnish to each Member its
Schedule K-1 to Form 1065 on or before June 15 of each year, and (d) file the
Company’s federal income tax return on or before June 15 of each year; provided,
however, in no event shall the B Manager deliver the information set forth in
this Section 12.3 later than August 1 of each year.

12.4          Bank Accounts. The B Manager shall maintain one or more accounts
in the name of the Company in one or more banks, which accounts shall be used
for the payment of 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. All amounts shall be and shall remain the property of the Company
and shall be received, held, and disbursed by the B Manager only for the
purposes specified in this Agreement. The A Manager shall receive copies of any
statements received by the Company with respect to any accounts maintained by
the Company. There shall not be deposited in any of such accounts any funds
other than funds belonging to the Company, and no other funds shall in any way
be commingled with such funds.

ARTICLE XIII
DISSOLUTION, LIQUIDATION, AND TERMINATION

13.1          Dissolution. The Company shall be dissolved upon the occurrence of
any of the following (each, an “Event of Dissolution”):

(a)    determination by the Class A Members to dissolve the Company;

(b)    the sale or other disposition of all or substantially all of the
Company’s assets unless otherwise determined by the A Manager; or

(c)    the entry of a judicial order dissolving the Company.

13.2          Winding-Up. Upon the occurrence of an Event of Dissolution, the
Company shall be dissolved and wound-up. In connection with the dissolution and
winding-up of the Company, a liquidator or other representative (the
“Liquidation Representative”) appointed by the Managers shall proceed with the
sale or liquidation of all of the assets of the Company (including the
conversion to cash or cash equivalents of its notes or accounts receivable) and
shall apply and distribute the proceeds of such sale or liquidation in the
following order of priority, unless otherwise required by mandatory provisions
of applicable law:

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(a)    first, to pay (or to make provision for payment) in satisfaction of all
obligations of the Company for all expenses of such liquidation;

(b)    second, to pay (or to make provision for the payment of) all creditors of
the Company (including Members who are creditors of the Company) in the order of
priority provided by law or otherwise, in satisfaction of all debts,
liabilities, or obligations of the Company due such creditors;

(c)    third, to the establishment of any reserve which the Liquidation
Representative may deem reasonably necessary for any contingent or unforeseen
liabilities or obligations of the Company (such reserve may be paid over by the
Liquidation Representative to an escrow agent acceptable to the Liquidation
Representative, to be held for disbursement in payment of any of the
aforementioned liabilities and, at the expiration of such period as shall be
deemed advisable by the Liquidation Representative for distribution of the
balance in the manner hereinafter provided in this Section 13.2); and

(d)    fourth, after the payment (or the provision for payment) of all debts,
liabilities, and obligations of the Company in accordance with each of the
clauses above, to the Members or their legal representatives in accordance with
the positive balances in their respective Capital Accounts, after taking into
account all adjustments to Capital Accounts for all periods, no later than the
end of the Fiscal Year in which the Event of Dissolution occurs or, if later,
within ninety (90) days after the date of the liquidation of the Company.

13.3          Distributions in Cash or in Kind or a Winding-Up. Upon
dissolution, the Liquidation Representative may in its sole and absolute
discretion (a) liquidate all or a portion of the Company assets and apply the
proceeds of such liquidation in the manner set forth in Section 13.2 and/or (b)
hire independent appraisers to appraise the value of Company assets not sold or
otherwise disposed of (the cost of such appraisal to be considered a Company
Expense) or determine the Book Value of such assets, and allocate any unrealized
gain or loss determined by such appraisal to the Members respective Capital
Accounts as though the properties in question had been sold on the date of
distribution and, after giving effect to any such adjustment, distribute said
assets in the manner set forth in Section 13.2; provided that the Liquidation
Representative shall in good faith attempt to liquidate sufficient Company
assets to satisfy in cash the debts and liabilities described in Section 13.2.

If a Member shall, upon the advice of counsel, determine that there is a
reasonable likelihood that any distribution in kind of an asset would cause such
Member to be in violation of any law, regulation, or order, such Member and the
Liquidation Representative shall each use its reasonable best efforts to make
alternative arrangements for the sale or transfer into an escrow account of any
such distribution on mutually agreeable terms.

13.4          Time for Liquidation. A reasonable amount of time shall be allowed
for the orderly liquidation of the assets of the Company and the discharge of
liabilities to creditors so as to enable the Liquidation Representative to
minimize the losses attendant upon such liquidation.

13.5          Cancellation of Certificate. Upon the completion of the
distribution of Company assets as provided herein, the Company shall be
terminated, and the Liquidation Representative (or the Members if necessary)
shall cause the cancellation of the Certificate of the Company and shall take
such other actions as may be necessary to terminate the Company.
 
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ARTICLE XIV
RIGHTS OF FIRST OFFER

Subject to any prior obligations of the Class B Member to Cornell Capital
Partners, LP, for two years following the date of this Agreement, the Class B
Member and its Affiliates shall not sell any Security or enter into any
financing arrangement, whether it be for debt or equity (including, without
limitation, any hybrid or derivative of either debt or equity), without first
submitting a written offer of such Security or financing arrangement to Silver
Point. If Silver Point declines such offer in writing, the Class B Member and/or
its Affiliates, as the case may be, may enter into such sale of Securities or
financing arrangement if, but only if, on terms no less favorable to the Class B
Member than the terms declined by Silver Point.

ARTICLE XV
AMI ACTIVITIES

15.1          Acreage Purchase Limitation. The Class B Member shall not, and it
shall cause each of its Affiliates not to, directly or indirectly, engage in or
become Financially Interested in any Person that engages directly or indirectly
in a Restricted Business in the portion of the AMI defined in the Operating
Agreement attached to the PSA (the “AMI”) until the Company has satisfied all
additional acreage purchase obligations under the PSA.

15.2          AMI Right of First Offer. After the Company has satisfied all
additional acreage purchase obligations under the PSA, the Class B Member shall
not, and it shall cause each of its Affiliates not to, directly or indirectly,
engage in or become Financially Interested in any Person that engages directly
or indirectly in a Restricted Business in the AMI, unless the Class B Member
first notifies the A Manager in writing of such opportunity and offers (or
causes such Affiliate to offer) the Company in writing such opportunity to
engage in or become Financially Interested in such Restricted Business on the
terms and conditions available to the Class B Member.

15.3          Pursuit of Opportunity. As soon as practicable, but in any event,
within 15 days after receipt of such notification pursuant to Section 15.2, the
A Manager shall notify the Class B Member that either (a) the A Manager has
determined to cause the Company to pursue such opportunity or (b) the A Manager
has determined not to cause the Company to pursue such opportunity. If the A
Manager notifies the Class B Member that it has determined not to cause the
Company to pursue such opportunity, or if having provided the notice
contemplated in clause (a) of the preceding sentence, the Company ceases to
actively pursue such opportunity, the Class B Member or its Affiliate shall be
free to engage in such Restricted Business or become Financially Interested in
such Person, provided, however, that during the 18-month period after the
Company has satisfied all additional acreage purchase obligations under the PSA,
the Class B Member shall not, and it shall cause each of its Affiliates not to,
directly or indirectly, engage in such Restricted Business or become Financially
Interested in such Person unless the A Manager and the Class B Member reach a
mutually acceptable agreement that would protect the interests of the Company
and enable the Class B Member or its Affiliate to pursue such opportunity
independently or in concert with others without adversely affecting the Company
(in the judgment of the A Manager), provided that in no event shall the A
Manager be required to consent to the Class B Member or its Affiliate pursuing
such opportunity. If the A Manager determines to cause the Company to pursue any
opportunity offered to the Company pursuant to Section 15.2, the Class B Member
shall have the right to co-invest up to 50% of the aggregate capital necessary
for all such opportunities and any related drilling and development costs
associated with all such opportunities up to an aggregate cap of $10,000,000 on
terms to be agreed upon between the A Manager and the Class B Member.
 
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15.4          Reimbursement of Expenses. The Class B Member may seek
reimbursement from the A Manager for any origination expenses or due diligence
expenses incurred in the furtherance of any additional acreage purchases
pursuant to Section 15.2; provided that such reimbursement shall not be
unreasonably withheld or delayed.

ARTICLE XVI
MISCELLANEOUS

16.1          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 if given by
(a) personal delivery, (b) overnight delivery service with proof of delivery,
(c) facsimile (provided that such facsimile is confirmed), or (d) electronic
transmission if acknowledgement thereof is received by the sender. When in this
Agreement it is provided that a time period shall commence when a notice is
received, such time period shall commence (x) upon actual receipt by the
addressee if by personal delivery or overnight delivery service, (y) at the time
of the confirmation of receipt, if by facsimile, or (z) upon telephone
confirmation by the sender that an addressee has received an electronic
transmission. Each Member’s address for notices and other communications
hereunder shall be that set forth opposite such Member’s signature hereto. A
Member may change its address by giving notice in writing to the other Members
of its new address.

16.2          Amendments. Except as otherwise provided herein, this Agreement
may be amended, or any provision hereof waived, only with the written consent of
each Member.

16.3          Entire Agreement. This Agreement constitutes the complete and
exclusive statement of the agreement between and among the Members and replaces
and supersedes all prior agreements. Except as otherwise provided herein, this
Agreement supersedes all written and oral statements, and no representation,
statement, condition, or warranty not contained in this Agreement shall be
binding on the Members or have any force or effect whatsoever. No Member has
rendered any services to or on behalf of any other Member or the Company, and no
Member shall have any rights with respect to any services that might be alleged
to have been rendered prior to the date hereof.

16.4          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 be a waiver of
that 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.

16.5          Applicable Law; Submission to Jurisdiction. THIS AGREEMENT AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND
INTERPRETED, CONSTRUED, AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE WITHOUT GIVING EFFECT TO ITS CONFLICT OF LAWS RULES. EACH MEMBER
IRREVOCABLY CONSENTS AND AGREES THAT (a) ANY ACTION BROUGHT TO COMPEL
ARBITRATION OR IN AID OF ARBITRATION IN ACCORDANCE WITH THE TERMS OF THIS
AGREEMENT, (b) ANY ACTION CONFIRMING AND ENTERING JUDGMENT UPON ANY ARBITRATION
AWARD, AND (c) ANY ACTION FOR TEMPORARY INJUNCTIVE RELIEF TO MAINTAIN THE STATUS
QUO OR PREVENT IRREPARABLE HARM, MAY BE BROUGHT IN THE STATE AND FEDERAL COURTS
OF THE STATE OF DELAWARE, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH
MEMBER HEREBY SUBMITS TO AND ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND APPELLATE COURTS THEREOF. EACH MEMBER FURTHER IRREVOCABLY CONSENTS TO
THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH
ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY CERTIFIED OR REGISTERED
MAIL RETURN RECEIPT REQUESTED OR BY RECEIPTED COURIER SERVICE IN THE MANNER SET
FORTH IN SECTION 16.1
 
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16.6          Successors and Assigns. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.

16.7          Exhibits, etc. All of Exhibits, Schedules, Annexes, and Appendices
attached hereto are incorporated herein by reference and made a part hereof for
all purposes, and references to this Agreement shall also include such Exhibits
unless the context in which used shall otherwise require.

16.8          Survival of Representations and Warranties. All representations,
warranties, and covenants made by any party to this Agreement or any other
document contemplated thereby or hereby shall be considered to have been relied
upon by the other parties hereto and shall survive the execution and delivery of
this Agreement or such other document, regardless of any investigation made by
or on behalf of any such party.

16.9          No Third-Party Benefit. Except for the rights of the Covered
Persons provided in this Agreement, nothing in this Agreement, either express or
implied, is intended to or shall confer upon any Person other than the parties
hereto, and their respective successors and permitted assigns, any rights,
benefits, or remedies of any nature whatsoever under or by reason of this
Agreement.

16.10        Filings. Prior to conducting any business in any jurisdiction, the
Class B Manager shall to the full extent necessary to establish limited
liability for the Members under the laws of such jurisdiction and otherwise to
comply with the laws of that jurisdiction, cause the Company to comply with all
requirements for the registration or qualification of the Company to conduct
business as a limited liability Company in that jurisdiction. Thereafter, the
Class B Manager shall cause the Company to continue to comply with all such
requirements and all other requirements necessary to maintain the limited
liability of the Members in each jurisdiction where the Company does business.

16.11        WAIVER OF TRIAL BY JURY. EACH PARTY HERETO HEREBY IRREVOCABLY
WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM,
ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY MATTER ARISING
HEREUNDER.

16.12        Arbitration of Disputes.

(a)    Requirement to Arbitrate. Any disagreement, dispute, controversy, or
claim arising out of or relating to this Agreement or the interpretation of any
terms provided herein or any arrangements relating hereto or contemplated herein
or the breach, termination, or invalidity of any provision herein shall be
settled exclusively and finally by arbitration. It is specifically understood
and agreed that any disagreement, dispute, or controversy which cannot be
resolved between the parties, including, without limitation, any matter relating
to the interpretation of this Agreement, shall be arbitrated irrespective of the
magnitude or the amount in controversy thereof or whether such disagreement,
dispute, or controversy would otherwise be considered justifiable or ripe for
resolution.
 
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(b)    Arbitration Rules. The arbitration shall be conducted in accordance with
the Commercial Arbitration Rules (the “Arbitration Rules”) of the American
Arbitration Association (the “AAA”), except as those Arbitration Rules conflict
with the provisions of this Section 16.12, in which event the provisions of this
section shall control.

(c)    The Arbitrators.

(i)     The arbitration shall be conducted before a tribunal composed of
three arbitrators.

(ii)    Each party to the dispute shall appoint an arbitrator, obtain its
appointee’s acceptance of such appointment, and deliver written notification of
such appointment and acceptance to the other party within 30 days after delivery
of the response (as defined in and in accordance with the Arbitration Rules).

(iii)   The two arbitrators appointed by the parties shall jointly appoint the
third arbitrator, obtain the appointee’s acceptance of such appointment, and
notify the parties in writing of such appointment and acceptance within 30 days
after their appointment and acceptance. The third arbitrator shall serve as the
chairperson of the tribunal.

(iv)   If the appointment and acceptance of any appointed arbitrator appointed
by a party or the chairperson are not timely effected, then, upon the joint
request of the parties or the request of either of them, the AAA shall appoint
the arbitrator or the chairperson, as the case may be, and obtain acceptance of
such appointment.

(v)    Each arbitrator appointed pursuant to Section 16.12(c)(ii) shall be
admitted either to the Bar of the State of New York or the Bar of the State of
Texas and shall have been a partner of either a Texas-headquartered law firm
with at least 500 lawyers or a New York-headquartered law firm with at least 500
lawyers and shall have expertise in the field of corporate transactions
(including mergers and acquisitions and investment funds); provided, however,
such arbitrator shall not have been a partner at Akin Gump Strauss Hauer & Feld
LLP. The third arbitrator, who shall serve as the chairperson of the tribunal
pursuant to Section 16.12(c)(iii), shall be admitted to the Bar of the State of
Delaware and shall have been a partner at a nationally recognized Delaware law
firm and shall have expertise in the field of corporate transactions (including
mergers and acquisitions and investment funds).

(vi)   The parties intend that each of the arbitrators be independent and
impartial. To this end, each arbitrator shall disclose to the parties and to the
other members of the tribunal, any professional, familial, or social
relationships, present or past, with any party or counsel. In the event that
either party believes that any arbitrator is not independent and impartial, such
party may apply for the removal of such arbitrator. Such application shall be
made (a) if the arbitrator being challenged is the chairperson or if no
chairperson is then in office, to the AAA, and (b) in any other case, to the
chairperson. The AAA or the chairperson, as the case may be, shall reach and
render a decision in writing regarding such application, which decision shall be
final. If such decision includes a finding that the challenged arbitrator is not
independent and impartial, such arbitrator shall automatically be removed from
the tribunal. The vacancy arising from such removal shall be filled by the party
who was originally entitled to appoint such arbitrator or, in the case of the
chairperson, by the other arbitrators (or if they are unable to agree, by the
President of the AAA).
 
35

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(d)    Fees and Expenses of Arbitration, Including Attorney̓ s Fees. Each party
shall bear its own attorney’s fees and expenses.

(e)    Limitation on Award. The arbitrators shall not be permitted to award
punitive damages.

(f)     Location of Arbitration. The arbitration shall be conducted in
Wilmington, Delaware or in such other city in the United States of America as
the parties to the dispute may designate by mutual written consent.

(g)    Evidentiary Matters. At any oral hearing of evidence in connection with
the arbitration, each party thereto or its legal counsel shall have the right to
examine its witnesses and to cross-examine the witnesses of any opposing party.
No evidence of any witness shall be presented in any form unless the opposing
party or parties shall have the opportunity to cross-examine such witness,
except as the parties to the dispute otherwise agree in writing or except under
extraordinary circumstances where the interests of justice require a different
procedure. The question of whether the interests of justice so require shall be
determined by the arbitrators.

(h)    Finality of Award. Any decision or award of the arbitral tribunal shall
be final and binding upon the parties to the arbitration proceeding. The parties
hereto hereby waive to the extent permitted by law any rights to appeal or to
seek review of such award by any court or tribunal. The parties also agree that
judgment upon such award may be entered in any court of competent jurisdiction.

16.13        Remedies. Any remedies provided for in this Agreement shall be
cumulative in nature and shall be in addition to any other remedies whatsoever
(whether by operation of law, equity, contract, or otherwise) which any party
may otherwise have.

16.14        Use of Silver Point Name. Without the prior written consent of the
A Manager, which consent may be withheld in its sole discretion, none of the
other Members or their respective Affiliates will use or otherwise disclose
(whether orally or in writing) the name “Silver Point” or any variation thereof.
For the avoidance of doubt, the foregoing shall not restrict use of the name
“Silver Point” that is required to be disclosed by applicable law, regulatory
body, legal process, or court order, provided the party proposing such
disclosure gives the A Manager notice of any such required disclosure and a
reasonable opportunity to contest the requirement for disclosure.

16.15        Severability. In case any one or more of the provisions contained
herein for any reason shall be held to be invalid, illegal, or unenforceable in
any respect, such invalidity, illegality, or unenforceability shall not affect
any other provision of this Agreement, but this Agreement shall be construed as
if such invalid, illegal, or unenforceable provision or provisions had never
been contained herein.

16.16        Press Releases. The Class B Member may not make any public
announcements regarding this Agreement or the Company or its business to the
financial community, the press, or the general public, except as required by
applicable law; provided, however, the Class B Member may consult with and
obtain prior approval of the A Manager, which approval, if given, shall be
provided in a timely manner, before issuing such a press release or other public
announcement with respect to this Agreement and may issue a press release or
make a public announcement following such consultation and approval. The Class A
Members may, at any time, make any public announcement regarding this Agreement
or the Company or its business to the financial community, the press, or the
general public; provided it shall consult with the Class B Member prior to such
announcement.
 
36

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Remainder of Page Intentionally Left Blank.

Signature Page Follows.
 
37

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

   
CLASS A MEMBERS:
                 
SPC IGNIS INC.
     
A Delaware corporation
                 
By:
SP Ignis Offshore, Ltd.
     
By:
             
Name:
         
Title:
                   
ADDRESS FOR NOTICE PURPOSES:
     
c/o Silver Point Capital, L.P.
     
2 Greenwich Plaza
     
Greenwich, CT 06830
                             
SPC IGNIS (ONSHORE) LLC
     
A Delaware limited liability company
                 
By:
           
Name:
         
Title:
                   
ADDRESS FOR NOTICE PURPOSES:
     
c/o Silver Point Capital, L.P.
     
2 Greenwich Plaza
     
Greenwich, CT 06830
                             
SPC IGNIS (FINANCE) LLC
     
A Delaware limited liability company
                 
By:
           
Name:
         
Title:
                   
ADDRESS FOR NOTICE PURPOSES:
     
c/o Silver Point Capital, L.P.
     
2 Greenwich Plaza
     
Greenwich, CT 06830
 

 

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

 

   
CLASS B MEMBER:
                 
IGNIS PETROLEUM GROUP, INC.
                 
By:
           
Name:
         
Title:
                   
ADDRESS FOR NOTICE PURPOSES:
     
100 Crescent Court, 7th Floor
     
Dallas, Texas 75201
     
Attn: Michael P. Piazza, President
 

 

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

EXHIBIT A

Defined Terms

“AAA” means the American Arbitration Association.

“Act” means the Delaware Limited Liability Company Act, as amended from time to
time, or any successor statute or statutes thereto.

“Affiliate” means, with respect to any Person, (a) any Person directly or
indirectly owning, controlling, or holding with power to vote 10% or more of the
outstanding voting securities of that Person, (b) any Person 10% or more of
whose outstanding voting securities are directly or indirectly owned,
controlled, or held with power to vote by that Person, (c) any Person directly
or indirectly controlling, controlled by, or under common control with that
Person, and (d) any officer, director, partner, member, or manager of any Person
described in subsections (a), (b), or (c) of this paragraph, and the term
“control” shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management, activities, or policies of any
Person whether through the ownership of voting securities, by contract,
employment, or otherwise.

“Aggregate Capital Contribution” has the meaning provided in Section 5.1(a).

“Agreement” has the meaning provided in the introduction hereto.

“A Manager” means Silver point Capital, L.P. or, in the event of the resignation
of Silver Point Capital, L.P., a Person selected by a majority of the Class A
Members.

“Anti-Money Laundering Laws” has the meaning provided in Section 9.7.

“Arbitration Rules” has the meaning provided in Section 16.12.

“Assignee” means the transferee of all or any portion of a Member’s Interest.

“Bankruptcy” means, for any Member, the taking by such Member or the acquiescing
by such Member in the taking of an action seeking relief under, or advantage of,
an applicable debtor relief, liquidation, receivership, conservatorship,
bankruptcy, moratorium, rearrangement, insolvency, reorganization, or similar
law affecting the rights or remedies of creditors generally, as in effect from
time to time.

“Bankruptcy Code” means Title 11 of the United States Code entitled
“Bankruptcy,” as the same may be hereafter amended from time to time, and any
successor statute or statutes thereto.

“B Manager” means the Class B Member.

“Book Value” means with respect to any Company asset, the asset’s adjusted basis
for federal income tax purposes, except that the Book Values of all Company
assets shall be adjusted to equal their respective Fair Market Values, in
accordance with the rules set forth in Section 1.704-1(b)(2)(iv)(f) of the
Treasury Regulations, except as otherwise provided herein, immediately prior to:
(a) the date of the acquisition of any additional Interest by any new or
existing Member in exchange for more than a de minimis Capital Contribution; (b)
the date of the actual distribution of more than a de minimis amount of Company
property (other than a pro rata distribution) to a Member; or (c) the date of
the actual liquidation of the Company within the meaning of Section
1.704-1(b)(2)(ii)(g) of the Treasury Regulations; provided that adjustments
pursuant to clauses (a) and (b) above shall be made only if the A Manager
determines in its sole discretion that such adjustments are necessary or
appropriate to reflect the relative economic interests of the Members. The Book
Value of any Company asset distributed to any Member shall be adjusted
immediately prior to such distribution to equal its Fair Market Value.
 
A-1

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“Business Day” means a day that is not a Saturday, Sunday, or a day on which
banks in New York, New York are authorized or required by law to close.

“Capital Account” has the meaning provided in Section 7.3.

“Capital Contributions” has the meaning provided in Section 5.1(a).

“Capital Percentage” has the meaning provided in Section 7.4(d).

“Cause” has the meaning provided in Section 11.6(c).

“Claim” has the meaning provided in Section 4.6(b)(i).

“Class A Interest” means the Interest of the Class A Members.

“Class A Member” has the meaning provided in the introduction hereto.

“Class B Interest” means the Interest of the Class B Member.

“Class B Improvements” means all forms of Intellectual Property Rights that
originate with or are acquired by the Class B Member (or its Affiliates)
(whether directly or pursuant to cost sharing or other similar agreements or
arrangements) based upon, derived from, guided by, selected using, tested with,
using, employing, including, practicing, exploiting, enabled by or otherwise
relating to, in any manner whatsoever, the Technology.

“Class B Member” has the meaning provided in the introduction hereto.

“Class B Purchase Price” has the meaning provided in Section 11.2(b)(ii).

“Closing Date” means the Closing Date as that term is defined in the PSA.

“Code” means the Internal Revenue Code of 1986 and any successor statute or
statutes.

“Commitment” means, with respect to each Member, the amount set forth opposite
such Member’s name on Exhibit B in the column entitled “Commitment.”

“Company” has the meaning provided in the introduction.

“Company Expenses” means all bona fide costs and expenses relating to the
Company’s activities, to the extent included in the approved Plan, including
(a) reasonable Organizational Expenses of the Company and reasonable legal,
auditing, consulting, and accounting expenses associated with the preparation of
and amendments to this Agreement, the Company’s financial statements, reports to
Members, tax returns, and IRS Form K-1s; (b)  meetings of the Members;
(c) reasonable expenses of the Managers; (d)  premiums for liability insurance
to protect the Company, the Managers, and the Members, and in each case, any of
their respective partners, members, managers, stockholders, officers, directors,
employees, agents, or Affiliates in connection with activities of the Company;
(e) reasonable expenses associated with the management or operation of the
Project, including those incurred or payable under the PSA or the Operating
Agreements; (f) any taxes and other governmental charges, fees, and duties
payable by the Company; (g) all reasonable expenses incurred in connection with
any litigation, claim, arbitration, or other proceeding involving the Company
(including the cost of any investigation and preparation) and the amount of any
judgment or settlement paid in connection therewith; (h) all principal,
interest, fees, expenses, and other amounts payable in respect of or in
connection with borrowings, financings, or derivate transactions approved in
accordance with the terms of this Agreement; (i) expenses to wind-up and
liquidate the Company; (j) reasonable travel and entertainment expenses related
to the on-going management of the Project; and (k) all direct and indirect
costs, expenses, and liabilities incurred in connection with the acquisition,
ownership, and disposition of the Project; provided, however, Company Expenses
shall not include overhead, administrative, salary, or other related expenses of
the Class B Member.
 
A-2

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“Confidential Business Information” has the meaning provided in Section 6.3(a).

“Confidential Technology Information” has the meaning provided in Section 6.3.

“Copyrights” shall mean all U.S. and foreign registered and unregistered
copyrighted or copyrightable works, all applications, registrations, and
renewals in connection therewith, and all rights in or with respect to the
foregoing to the extent any of the foregoing relate to the Technology,
including, without limitation, the copyrights in the Works of Authorship.

“Covered Person” has the meaning provided in Section 4.6(b).

“Death, Disability, or Voluntary Termination” has the meaning provided in
Section 11.6.

“Disability” means a physical or mental incapacity that prevents the Person in
question from performing the essential functions of his position, with
reasonable accommodation, for a period of six consecutive months as documented
by a licensed healthcare professional selected by the A Manager to determine, at
the A Manager’s expense, whether a Disability exists. In addition, the Class B
Member may submit to the A Manager documentation of Disability from a licensed
healthcare professional of its choice. In the event that the medical opinions of
such licensed healthcare professionals conflict, such licensed healthcare
professionals shall appoint a third licensed healthcare professional to examine
the Person in question, and the opinion of such third licensed healthcare
professional shall be dispositive.

“Drawdown Notice” has the meaning provided in Section 5.2(a).

“Drawdowns” means the Capital Contributions provided for in Section 5.1 and
pursuant to the procedures set forth in Section 5.2 from time to time by the
Members pursuant to Drawdown Notices.

“Drag-Along Rights” has the meaning provided in Section 11.3(a).

“Drag-Along Transfer” has the meaning provided in Section 11.3(a).

“Drag-Along Transfer Notice” has the meaning provided in Section 11.3(a).

“Event of Dissolution” means any event set forth in Section 13.1.

“Execution Date” means the Execution Date as that term is defined in the PSA.

“Fair Market Value” means (a) as to any Securities which are listed or admitted
to trading on any national securities exchange on any trading day, the amount
equal to (i) the last sale price of such Securities, regular way, on such date
or, if no such sale takes place on such date, the average of the closing bid and
asked prices thereof on such date, in each case as officially reported on the
principal national securities exchange on which such Securities are then listed
or admitted to trading, or (ii) if such Securities are not then listed or
admitted to trading on any national securities exchange but are reported through
the automated quotation system of a registered securities association, the last
trading price of such Securities on such date, or if there shall have been no
trading on such date, the average of the closing bid and asked prices of such
Securities on such date as shown by such automated quotation system, and (b) as
to any other property on any date, the fair market value of such property on
such date as determined in good faith by the A Manager.

A-3

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

“Financially Interested” means interested financially as a principal, employee,
partner, shareholder, agent, manager, owner, advisor, consultant, lender, or
guarantor; provided, however, a Person will not be deemed Financially Interested
solely by reason of owning less than 1% of the common stock of a publicly traded
company with a market capitalization in excess of $1,000,000,000.

“Fiscal Quarter” means (a) the period commencing on the Closing Date and ending
on December 31, 2006, and (b) any subsequent three-month period commencing on
the first day of each of January, April, July, and October and ending on the
last day of the next of March, June, September, and December; provided, however,
the last Fiscal Quarter shall end on the date on which all Company property is
distributed pursuant to Section 13.2 and the Certificate has been canceled
pursuant to the Act.

“Fiscal Year” means (a) the period commencing on the Closing Date and ending on
December 31, 2006, and (b) any subsequent period commencing on January 1st and
ending on the earlier to occur of (i) the following December 31st, or (ii) the
date on which all Company property is distributed pursuant to Section 13.2 and
the Certificate has been canceled pursuant to the Act.

“Formation Date” has the meaning provided in the introduction hereto.

“Funding Date” has the meaning provided in Section 5.2(a).

“GAAP” means those generally accepted accounting principles and practices
consistently applied that are recognized in the United States of America as such
by the Financial Accounting Standards Board (or any generally recognized
successor thereto).

“Ignis” has the meaning provided in the introduction hereto.

“Intellectual Property Rights” shall mean, as to any Person, any and all of the
following that are (a) related to the Technology and (b) owned by such Person:
patents (including, but not limited to, existing patent and pending patent
applications, improvement patents, patents of addition, as well as divisions,
reissues, contributions, and extensions of any of the foregoing), inventions,
disclosures, Copyrights, Trademarks, Know How, trade secrets, designs, and other
intellectual property rights (whether registered or unregistered, and all
applications for the same), as well as all contract rights related thereto.

“Interest” means a Member’s entire ownership interest in the Company and all
rights and liabilities associated therewith, at any particular time, including
the right of each Member to any and all benefits to which a Member may be
entitled as provided in this Agreement and the rights to distributions
(liquidating or otherwise) and allocations as provided in this Agreement.

“Investment Company Act” means the Investment Company Act of 1940, as amended.
 
A-4

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“Know-How” shall mean any and all know-how, technical information, proprietary
ideas, concepts, methods, processes, inventions (whether patentable or not),
improvements, experience, data (including without limitation, drawings,
specifications, computer programs, abandoned and expired patents, and
documentation) or other information, and all rights in or to any of the
foregoing presently available or generated during the term of this Agreement
relating to the Technology.

“Liquidation Representative” has the meaning provided in Section 13.2.

“Manager” means the A Manager or the B Manager and “Managers” means the A
Manager and the B Manager.

“Member” has the meaning provided in the introduction hereto.

“Net Income and Net Loss” means for each Fiscal Year or other period, the
taxable income or loss of the Company, or particular items thereof, determined
in accordance with the accounting method used by the Company for federal income
tax purposes with the following adjustments: (a) all items of income, gain,
loss, deduction, or expense specially allocated pursuant to this Agreement
(including Section 5.3) shall not be taken into account in computing such
taxable income or loss; (b) any income of the Company that is exempt from
federal income taxation and not otherwise taken into account in computing Net
Income and Net Loss shall be added to such taxable income or loss; (c) if the
Book Value of any asset differs from its adjusted tax basis for federal income
tax purposes, any gain or loss resulting from a disposition of such asset shall
be calculated with reference to such Book Value; (d) upon an adjustment to the
Book Value of any asset pursuant to the definition of Book Value, the amount of
the adjustment shall be included as gain or loss in computing such taxable
income or loss; (e) if the Book Value of any asset differs from its adjusted tax
basis for federal income tax purposes the amount of depreciation, amortization,
or cost recovery deductions with respect to such asset for purposes of
determining Net Income and Net Loss shall be an amount which bears the same
ratio to such Book Value as the federal income tax depreciation, amortization,
or other cost recovery deductions bears to such adjusted tax basis (provided
that if the federal income tax depreciation, amortization, or other cost
recovery deduction is zero, the B Manager may use any (subject to the approval
of the A Manager reasonable method for purposes of determining depreciation,
amortization, or other cost recovery deductions in calculating Net Income and
Net Loss); and (f) except for items in (a) above, any expenditures of the
Company not deductible in computing taxable income or loss, not properly
capitalizable, and not otherwise taken into account in computing Net Income and
Net Loss pursuant to this definition, shall be treated as deductible items.

“Operating Agreements” has the meaning provided in Section 4.1(l).

“Organizational Expenses” means reasonable legal, auditing, consulting, and
accounting expenses of the Company associated with the formation of the Company.

“Original Agreement” has the meaning provided in the introduction hereto.

“Person” means an individual, an estate, a corporation, a company, a
partnership, a limited partnership, a limited liability company, an association,
a joint stock company, a trust, or other legal entity.

“Plan” has the meaning provided in Section 4.2.

“Project” means owning, holding, managing, operating, and producing and
disposing of oil, gas and other hydrocarbons from the oil and gas leases and
other interests subject to the PSA or otherwise acquired by the Company,
exercising the Company’s rights and performing its obligations under the PSA,
and matters incidental to those activities, including operation of the gas
pipeline gathering system acquired pursuant to the PSA.
 
A-5

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“Proposed Drag-Along Transfer” has the meaning provided in Section 11.3(a).

“Pro Rata Portion” has the meaning provided in Section 11.2(b)(ii).

“PSA” has the meaning provided in the introduction hereto.

“Purchase Price” has the meaning provided in Section 5.1(a).

“Remaining Commitment” means, as to any Member on any date, an amount equal to
the positive excess, if any, of (a) such Member’s Commitment, over (b) the
aggregate amount of all Capital Contributions made by such Member to the Company
in accordance with this Agreement, including Sections 5.1, 5.2 and 5.3, as
adjusted from time to time pursuant to Sections 5.4 and 7.4(h).

“Restricted Business” means (i) the exploration, exploitation or production of
any natural resource deposits, or (ii) any activities related or incidental
thereto.

“Securities” means any (a) privately or publicly issued capital stock, bonds,
notes, debentures, commercial paper, bank acceptances, trade acceptances, trust
receipts and other obligations, chooses in action, partnership or limited
liability company interests, instruments or evidences of indebtedness commonly
referred to as securities, warrants, options, including puts and calls or any
combination thereof and the writing of such options, and (b) claims or other
causes of action, matured or unmatured, contingent or otherwise, of creditors
and/or equity holders of any Person against such Person, including “claims” and
“interests”, in each case as defined under the Bankruptcy Code, and all rights
and options relating to the foregoing.

“Securities Act” means the Securities Act of 1933, as amended.

“Services Agreement” has the meaning provided in Section 4.4(a)(ix).

“Silver Point” means Silver Point Capital, L.P. or any of its Affiliates.

“Simulated Basis” shall mean the Book Value of any oil and gas property (as
defined in Section 614 of the Code) as adjusted from time to time for Simulated
Depletion.

“Simulated Depletion” shall mean, with respect to each oil and gas property, a
depletion allowance computed in accordance with federal income tax principles
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 Book 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 or
other disposition of an oil or gas property over the Book Value of such
property. If the Book Value of any property the sale of which would result in
Simulated Gain is adjusted as provided in this Agreement, the amount of such
adjustment shall be taken into account as gain from the disposition of such
property for purposes of computing Simulated Gain.

“Simulated Loss” shall mean the excess of the Book Value of an oil or gas
property over the amount realized from the sale or other disposition of such
property. If the Book Value of any property the sale of which would result in
Simulated Loss is adjusted as provided in this Agreement, the amount of such
adjustment shall be taken into account as loss from the disposition of such
property for purposes of computing Simulated Loss.

A-6

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“Tag-Along Member” has the meaning provided in Section 11.2.

“Tag-Along Notice” has the meaning provided in Section 11.2.

“Tag-Along Response Notice” has the meaning provided in Section 11.2.

“Tag-Along Response Notice Period” has the meaning provided in Section 11.2.

“Tag-Along Right” has the meaning provided in Section 11.2.

“Tag-Along Transfer” has the meaning provided in Section 11.2.

“Texas Certificate” has the meaning provided in the introduction hereto.

“Technology” means any technology that is acquired, developed, or improved in
connection with the Project and any horizontal drilling technology acquired,
developed, or improved in connection with the Project.

“Trademarks” shall mean U.S., state and foreign trademarks, service marks,
logos, slogans, trade dress, traded names, and other designations of origin used
in connection with the Technology, including all goodwill associated therewith
and symbolized thereby, any common law rights, registrations and applications to
register the foregoing, and all rights in or with respect to any of the
foregoing.

“Transfer” means, with respect to an Interest, a sale, exchange, transfer,
assignment, hypothecation, mortgage, pledge, or other disposition, granting of a
security interest in, encumbering, or permitting any encumbrance of, the
Interest in question.

“Transferring Class A Members” has the meaning provided in Section 11.2.

“Treasury Regulations” means the Income Tax Regulations promulgated under the
Code, as the same may be hereafter amended from time to time.

“WBO” has the meaning provided in the introduction hereto.

“Works of Authorship” shall mean all works of authorship reduced to tangible
form describing or relating to the Technology.

A-7

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EXHIBIT B

Member Commitments
 
Member
Commitment
Initial
Capital
Contributions
Interest
Percentage
       
Class A Members
             
SPC Ignis Inc.
     
c/o Silver Point Capital, L.P.
$9,784,934.17
$7,600,039.80
37.5%
2 Greenwich Plaza
     
Greenwich, CT 06830
             
SPC Ignis (Onshore) LLC
     
c/o Silver Point Capital, L.P.
$9,784,934.17
$7,600,039.80
37.5%
2 Greenwich Plaza
     
Greenwich, CT 06830
             
SPC Ignis (Finance) LLC
     
c/o Silver Point Capital, L.P.
$6,523,289.45
$5,066,693.19
25%
2 Greenwich Plaza
     
Greenwich, CT 06830
             
Class B Member
             
Ignis Petroleum Group, Inc.
     
100 Crescent Court, 7th Floor
$0.00
$0.00
0%
Dallas, TX 75201
     
Attn: Michael P. Piazza, President
             
Total
$26,093,157.79
$20,266,772.79
100%

 
B-1

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EXHIBIT C

Services Agreement

C-1

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APPENDIX A

Mike Piazza - If Mike Piazza is removed pursuant to Section 11.6(b),
distributions to the Class B Member shall be thereafter reduced as follows:

(i)     If prior to the 1 year anniversary of this Agreement, by 25%

(ii)    If after the 1 year anniversary but before the 2 year anniversary of
this Agreement, by 20%

(iii)   If after the 2 year anniversary but before the 3 year anniversary of
this Agreement, by 15%

(iv)   If after the 3 year anniversary of this Agreement, by 5%
 

Eric Hanlon - If Eric Hanlon is removed pursuant to Section 11.6(b),
distributions to the Class B Member shall be thereafter reduced as follows:

(i)     If prior to the 1 year anniversary of this Agreement, by 20%

(ii)    If after the 1 year anniversary but before the 2 year anniversary of
this Agreement, by 15%

(iii)   If after the 2 year anniversary but before the 3 year anniversary of
this Agreement, by 10%

(iv)   If after the 3 year anniversary of this Agreement, by 5%
 

Fred Stein - If Fred Stein is removed pursuant to Section 11.6(b), distributions
to the Class B Member shall be thereafter reduced as follows:

(i)     If prior to the 1 year anniversary of this Agreement, by 30%

(ii)    If after the 1 year anniversary but before the 2 year anniversary of
this Agreement, by 25%

(iii)   If after the 2 year anniversary but before the 3 year anniversary of
this Agreement, by 20%

(iv)   If after the 3 year anniversary of this Agreement, by 5%

Provided, however, if Fred Stein retires from Ignis after the 3 year anniversary
of this Agreement, such retirement shall be considered a Disability, but there
shall be no subsequent reduction in distributions to the Class B Member due to
such retirement.
 

Reductions Cumulative - All reductions provided for in this Appendix A shall be
cumulative.

Example 1 - If Mike Piazza and Eric Hanlon are both removed pursuant to Section
11.6(b) prior to the 1 year anniversary of this Agreement, distributions to the
Class B Member shall be thereafter reduced by 45%.

Example 2 - If Eric Hanlon is removed pursuant to Section 11.6(b) after the 1
year anniversary but before the 2 year anniversary of this Agreement,
distributions to the Class B Member shall be thereafter reduced by 15%, and if
thereafter Fred Stein is removed pursuant to Section 11.6(b) after the 2 year
anniversary but before the 3 year anniversary of this Agreement, there shall be
a subsequent reduction of an additional 20% aggregating to a combined reduction
of 35%.
 
 
Appendix A-1

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