Exhibit 10.14

THE SECURITIES EVIDENCED BY THIS COMPANY AGREEMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES ACT. NO TRANSFER OF ANY
SECURITIES MENTIONED HEREIN SHALL BE PERMITTED UNTIL SUCH SECURITIES HAVE BEEN
REGISTERED UNDER SUCH ACTS OR UNTIL, AMONG OTHER CONDITIONS CONTAINED IN THIS
COMPANY AGREEMENT, THE MEMBERS OF THE LIMITED LIABILITY COMPANY SHALL HAVE
RECEIVED A FAVORABLE OPINION FROM LEGAL COUNSEL ACCEPTABLE TO THE MEMBERS TO THE
EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER SUCH ACTS.

AMENDED AND RESTATED

COMPANY AGREEMENT

OF

BLACK ELK EMPLOYEE INCENTIVE, LLC

AUGUST 20, 2010

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AMENDED AND RESTATED

COMPANY AGREEMENT

OF

BLACK ELK EMPLOYEE INCENTIVE, LLC

The following is the Amended and Restated Company Agreement (“Agreement”) of
Black Elk Employee Incentive, LLC (the “Company”), a Texas limited liability
company. Each capitalized term herein is defined in this Agreement.

ARTICLE I

GENERAL

Section 1.1 Formation; Prior Agreement. The Company is a limited liability
company organized under the Act. The Company filed a Certificate of Formation in
the office of the Secretary of State of Texas on August 20, 2010. In connection
with the filing of the Certificate of Formation, the Members and Managers
adopted a Company Agreement of Black Elk Employee Incentive, LLC, dated as of
August 20, 2010 (the “Prior Agreement”). The Members and Managers now adopt this
Agreement, and their rights in connection with the Company’s regulation and
management shall be as provided for in this Agreement and, except as otherwise
expressly provided herein, the Act. The terms of this Agreement supersede and
replace in their entirety the terms of the Prior Agreement.

Section 1.2 Name. The Company’s name is “Black Elk Employee Incentive, LLC”. The
Company’s business shall be conducted under that name or any other name or names
the Managers may determine from time to time.

Section 1.3 Period of Duration. The Company’s existence commenced on the date
upon which the Certificate of Formation was filed in the office of the Secretary
of State of Texas. The period of duration of the Company is perpetual, unless it
is earlier dissolved in accordance with this Agreement.

Section 1.4 Registered Office and Registered Agent. The address of the Company’s
registered office in the State of Texas will be 11451 Katy Freeway, Suite 500,
Houston, Texas 77079, until such time as the Company changes its registered
office in accordance with the Act. The Company’s registered agent will be James
Hagemeier until such time as the Company changes its registered agent in
accordance with the Act. The Managers may change the Company’s registered office
or registered agent from time to time.

Section 1.5 Principal Office. The Company’s principal office in the United
States will be located at 11451 Katy Freeway, Suite 500, Houston, Texas 77079,
or such other place as the Managers determine from time to time.

Section 1.6 Qualification in Other Jurisdictions. The Managers shall cause the
Company to be qualified, formed or registered under limited liability company
acts, assumed or fictitious name statutes or similar laws in any jurisdiction in
which the Company transacts business and in which the Managers determine in
their sole discretion that such qualification, formation or registration is
necessary or appropriate. The Managers shall have the authority to

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execute, deliver and file such certificates and other instruments (and any
amendments or restatements thereof) as are necessary for the Company to be
qualified, formed or registered under limited liability company acts, assumed or
fictitious name statutes, or similar laws in any jurisdiction in which the
Company transacts business.

Section 1.7 Definitions. As used in this Agreement, the terms set forth below
shall have the following respective meanings:

“Act” means the Texas Business Organizations Code, as the same may be amended
from time to time (and any successor statute).

“Adjusted Capital Account” means, with respect to any Member, the balance in
such Member’s Capital Account as of the end of the relevant Fiscal Period, after
giving effect to the following adjustments:

(i) credit to such Capital Account any amount that the Member is obligated to
restore pursuant to Treasury regulations section 1.704-1(b)(2)(ii)(c) or is
deemed to be obligated to restore pursuant to Treasury regulations section
1.704-2(g)(1) or 1.704-2(i)(5); and

(ii) debit to such Capital Account the items described in Treasury regulations
section 1.704-1(b)(2)(ii)(d)(4), (5), and (6) that are attributable to such
Capital Account.

This definition of Adjusted Capital Account is intended to comply with the
provisions of Treasury regulations section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.

“Affiliate” means, with respect to any Person, any other Person that directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person. For purposes of this definition, the
term “control” means the power to direct the management and policies of a
Person, whether through the ownership of voting interests or securities of a
Person, by contract or otherwise (and the terms “controlling” and “controlled”
have correlative meanings).

“Allocation Regulations” has the meaning given to it in Section 4.1.

“Available Cash” means the Company’s cash on hand in excess of cash required to
meet the reasonable needs of the Company’s business, as determined by the
Managers.

“BEEOO” means Black Elk Energy Offshore Operations, LLC, a Texas limited
liability company.

“BEEOO Employee Incentive Plan” means the incentive plan adopted by BEEOO and
funded by income from the Class C Units, pursuant to which the Company may issue
Interests to employees of BEEOO.

 

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“BEEOO Operating Agreement” means that certain Second Amended and Restated
Limited Liability Company Operating Agreement of Black Elk Energy Offshore
Operations, LLC dated July 13, 2009, as amended by that certain First Amendment
to Second Amended and Restated Limited Liability Company Operating Agreement of
Black Elk Energy Offshore Operations, LLC dated August 19, 2010 and as may be
further amended from time to time.

“Book Property” means property of the Company that is properly reflected on the
books of the Company at a book value that differs from the adjusted tax basis of
such property within the meaning of Treasury regulations section
1.704-1(b)(2)(iv)(g).

“Book Liability Value” means, with respect to any liability of the Company
described in Treasury regulations section 1.752-7(b)(3)(i), the amount of cash
that a willing assignor would pay to a willing assignee to assume such liability
in an arm’s length transaction. The Book Liability Value of each liability of
the Company described in Treasury regulations section 1.752-7(b)(3)(i) shall be
adjusted at such times as provided in this Agreement for an adjustment to Book
Values.

“Book Value” means, with respect to any Company asset, the adjusted basis of
such asset for federal income tax purposes, except as follows:

(i) The initial Book Value of any Company asset contributed by a Member to the
Company shall be the gross Fair Market Value as of the date of such
contribution;

(ii) The initial Book Value of the Class C Units issued to the Company shall be
the gross Fair Market Value as of the date of such issuance, which, for the
avoidance of doubt, is hereby agreed to be zero;

(iii) The Book Value of each Company asset shall be adjusted to equal its
respective gross Fair Market Value, as of the following times: (a) the grant of
an Employee Interest to an employee of BEEOO in accordance with the BEEOO
Employee Incentive Plan; (b) the acquisition of an additional Management
Interest in the Company by any new or existing Member in exchange for more than
a de minimus Capital Contribution; (c) the distribution by the Company to a
Member of more than a de minimus amount of Company assets as consideration for
all or part of its Management Interests or Employee Interests unless the
Managers reasonably determine in good faith that such adjustment is not
necessary to reflect the relative economic interests of the Members in the
Company; and (d) the liquidation of the Company within the meaning of Treasury
regulations section 1.704-1(b)(2)(ii)(g);

(iv) The Book Value of a Company asset distributed to any Member shall be the
Fair Market Value of such Company asset as of the date of the distribution
thereof;

(v) The Book Value of each Company asset shall be increased or decreased, as the
case may be, to reflect any adjustments to the adjusted basis of

 

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such Company asset pursuant to section 734(b) or section 743(b) of the Code, but
only to the extent that such adjustments are taken into account in determining
Capital Account balances pursuant to Treasury regulations section
1.704-1(b)(2)(iv)(m); provided that Book Values shall not be adjusted pursuant
to this subparagraph (v) to the extent that an adjustment pursuant to
subparagraph (iii) above is made in conjunction with a transaction that would
otherwise result in an adjustment pursuant to this subparagraph (v);

(vi) The Book Value of a Company asset shall be adjusted to reflect depreciation
with respect to such asset; provided that, if the Book Value of a Company asset
has been determined or adjusted pursuant to subparagraphs (i), (iii) or
(v) above, such Book Value shall thereafter be adjusted to reflect the
depreciation taken into account with respect to such Company asset for purposes
of computing Net Profits and Net Losses; and

(vii) The Book Value of each Oil and Gas Property of the Company shall be
adjusted to reflect Simulated Depletion with respect to such property.

“Capital Account” has the meaning given to it in Section 4.1.

“Capital Contribution” means, with respect to any Member, the amount of cash or
other assets that such Member has contributed or is deemed to have contributed
to the Company in accordance with this Agreement.

“Certificate of Formation” means the certificate of formation of the Company as
in effect on the date hereof and any and all amendments thereto and restatements
thereof filed from time to time hereafter on behalf of the Company in the office
of the Secretary of State of Texas.

“Class C Units” means the Class C membership units in BEEOO issued to the
Company by BEEOO pursuant to Section 24 of that certain First Amendment to
Second Amended and Restated Limited Liability Company Operating Agreement of
Black Elk Energy Offshore Operations, LLC dated August 19, 2010.

“Code” means the Internal Revenue Code of 1986 and any successor statute, as
amended from time to time.

“Confidential Information” means any proprietary or confidential information of
or relating to the Company, including, but not limited to, any business
information, intellectual property, trade secrets or other information relating
to the businesses, products, services, customers, assets or liabilities of the
Company, except for any information that is generally available to the public
(otherwise than through a breach by the party disclosing the same of its
obligations under this Agreement).

“Covered Person” means any Member or Manager of the Company and, to the extent
provided by resolution of the Members, any other employee or agent of the
Company or any of its Affiliates.

 

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“Defendants” has the meaning given to it in Section 13.7.

“Employee Interest” means a membership interest in the Company granted pursuant
to the BEEOO Employee Incentive Plan. An Employee Interest is intended to be a
“profits interest” (within the meaning of IRS Revenue Procedure 93-27, 1993-2 CB
343, as clarified by IRS Revenue Procedure 2001-43, 2001-2 CB 191). The
percentage interest in Net Profit and Net Loss of the Company will be specified
in each respective Employee Interest. Employee Interests shall not be entitled
to vote on matters submitted to a vote of the Members. Employee Interests may
not be Transferred.

“Employee Member” means an employee of BEEOO who has been granted an Employee
Interest and currently holds such Employee Interest in good standing.

“Fair Market Value” means the fair market value of the asset in question, as
determined in the good faith judgment of the Managers; provided, however, that
if the Managers are unable to determine the fair market value of the asset, the
Managers shall select a qualified independent accounting firm, who shall make
such determination.

“Fiscal Event” means (i) the date of the Company’s formation under the Act,
(ii) the last day of a Fiscal Year, (iii) the date of the issuance or redemption
of any Interests or (iv) any other event designated by the Managers in their
reasonable discretion.

“Fiscal Period” means any period between two consecutive Fiscal Events. Each
Fiscal Year consists of one or more Fiscal Periods.

“Fiscal Year” of the Company shall mean the period commencing on January 1 and
ending on December 31 of each year, except as may otherwise be required by the
Code or the Treasury regulations; provided, however, that (i) the Company’s
first Fiscal Year shall be the period from and including the date on which the
Company is formed under the Act to and including the immediately following
December 31 and (ii) the final Fiscal Year of the Company shall end on the date
on which the winding up of the Company is completed.

“Interest” means a percentage of membership interest in the Company, either as
an Employee Interest or as a Management Interest, as set forth herein,
including, but not limited to, (i) the right to allocations of profits and
losses of the Company, howsoever limited; (ii) the right to receive
distributions from the Company, howsoever limited; and (iii) in the case of
Management Interests only, the right to vote on matters submitted to a vote of
the Management Members. The total percentage of Employee Interests and
Management Interests, collectively, shall equal one hundred percent (100%).

“Liquidating Trustees” has the meaning given to it in Section 10.3.

“Management Interest” means a membership interest in the Company that is a
“capital interest” (as defined in IRS Revenue Procedure 93-27, 1993-2 CB 343).
The percentage interest in Net Profit or Net Loss of the Company for all
outstanding Management Interests, in the aggregate, is equal to one hundred
percent (100%), less the sum of all interests in Net Profit or Net Loss of all
outstanding Employee Interests. Management Interests shall be the only Interests
entitled to vote on matters submitted to a vote of the Members.

 

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“Management Member” means Black Elk Management, LLC, its successors and assigns,
and any Member granted a Management Interest as provided in Section 5.1(c).

“Manager” means any Person elected to serve as a manager of the Company in
accordance with this Agreement (but not any Person who has ceased to be a
Manager). The names of the initial Managers are set forth in Section 8.1.

“Member” or “Members” means, initially, those Persons whose names are set forth
in Section 3.1 hereof, and any other Person admitted as a Management Member or
an Employee Member of the Company pursuant to the express terms hereof and who
has agreed to enter into and be bound by this Agreement (but not any Person who
has ceased to be a Member).

“Net Profit” or “Net Loss” means the income or loss of the Company for “book” or
“capital account” purposes under Treasury regulations section 1.704-1(b)(2)(iv).
In particular, but without limitation, for each Fiscal Period, “Net Profit” or
“Net Loss” shall mean the Company’s taxable income or loss for such Fiscal
Period, determined in accordance with section 703(a) of the Code (it being
understood that for this purpose, all items of income, gain, loss or deduction
required to be stated separately pursuant to section 703(a)(1) of the Code shall
be included in such taxable income or loss), with the following modifications:

(i) the rules in Section 4.1(e) shall be given effect; and

(ii) any item of income, gain, loss or deduction that is specially allocated to
a Member shall not be taken into account in computing Net Profit or Net Loss.

“Oil and Gas Property” means each separate oil and gas property (as defined in
section 614 of the Code) owned directly by the Company or indirectly by the
Company through its ownership of the Class C Units.

“Person” means an individual, or a corporation, limited liability company,
partnership (whether general or limited), joint venture, trust, unincorporated
organization, joint stock company, association, or other entity, or any
government, or any agency or subdivision thereof.

“Plaintiff” has the meaning given to it in Section 13.7.

“Prior Agreement” has the meaning given to it in Section 1.1.

“Proceeding” has the meaning given to it in Section 11.3(a).

 

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“Required Vote” means a vote of two-thirds (2/3rds) of the issued and
outstanding Management Interests that are entitled to vote, except as otherwise
required under the Act.

“Simulated Basis” means, with respect to any Oil and Gas Property, the Book
Value of such Oil and Gas Property, as adjusted to reflect (a) additions to
basis and (b) deductions for Simulated Depletion.

“Simulated Depletion” means a depletion allowance computed for each year with
respect to each Oil and Gas Property, using the cost depletion method, subject,
however, to the requirements set forth in Treasury regulations section
1.704-1(b)(2)(iv)(k), and determined as necessary by reference to the Simulated
Basis of the Oil and Gas Property.

“Simulated Gains” or “Simulated Losses” means, respectively, the simulated gains
or losses computed by the Company with respect to each Oil and Gas Property
pursuant to Treasury regulations section 1.704-1(b)(2)(iv)(k)(2) and by
reference to its Simulated Basis.

“Tax Distributions” has the meaning given to it in Section 4.4(b).

“Tax Matters Member” has the meaning given to it in Section 9.5.

“Transfer” means, with respect to an Interest, a sale, assignment, transfer or
exchange of, the grant of a mortgage, pledge, security interest or other
encumbrance on or with respect to, or any other disposition of such Interest
(including, without limitation, by operation of law, such as death, divorce or
foreclosure).

Section 1.8 Interpretation.

(a) The headings and subheadings in this Agreement are included for convenience
of reference only and are in no way intended to describe, interpret, define,
extend or limit the scope or meaning of this Agreement or any provision hereof.

(b) Nouns, pronouns and verbs used in this Agreement shall be construed as
masculine, feminine, neuter, singular or plural, as the context requires.

(c) Unless the context otherwise requires, all references herein to “Articles,”
“Sections,” “paragraphs” and “subparagraphs” shall refer to provisions of this
Agreement.

ARTICLE II

PURPOSES AND POWERS

Section 2.1 Purpose. The purpose of the Company shall be to conduct and transact
any and all lawful business which may be conducted and transacted by a limited
liability company created pursuant to the Act; and such purpose may be
accomplished by taking any action which is permitted under the Act. In
particular, the purposes of the Company shall include, without limitation, the
holding of the Class C Units.

 

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Section 2.2 Powers. The Company shall have all such powers provided by
Section 2.101 of the Act as are necessary or appropriate to carry out the
Company’s purposes, subject to any limitations thereon as set forth in the
Certificate of Formation.

ARTICLE III

CAPITAL CONTRIBUTIONS AND INTERESTS

Section 3.1 Capital Contributions.

(a) Each Member has made the initial Capital Contributions in cash and shall
receive the Interest set forth opposite that Member’s name below.

 

Name of Member

   Initial
Interest     Capital
Contribution  

Black Elk Management, LLC

     100.00 %    $ 1,000.00   

11451 Katy Freeway, Suite 500

     Management    

Houston, Texas 77079

     Interest     

(b) No Member shall be obligated to make any further Capital Contributions to
the Company for any reason whatsoever.

Section 3.2 Nature of Interests. An Interest is personal property. A Member has
no rights in respect of or interest in specific property of the Company.

Section 3.3 No Return of Capital Contributions. Except as expressly provided
herein, a Member shall not be entitled to the return of any part of its Capital
Contributions or to be paid any interest, salary or drawing in respect of its
Capital Contributions. A Capital Contribution which has not been repaid is not a
liability of any Member.

Section 3.4 Loans from Members. Loans by a Member to the Company shall not be
considered Capital Contributions.

ARTICLE IV

ALLOCATIONS AND DISTRIBUTIONS

Section 4.1 Capital Accounts.

(a) The Company shall maintain in its books and records a separate capital
account (“Capital Account”) for each Member in such a manner so as to correspond
with the requirements of Treasury regulations under section 704(b) of the Code
(the “Allocation Regulations”). Without limiting the foregoing, each Member’s
Capital Account shall be increased by (i) the amount of Capital Contribution
made by such Member to the Company and (ii) allocations of Net Profit and other
items of income or gain to such Member under Section 4.2, and shall be decreased
by (iii) the amount of distributions (not including any guaranteed payment under
section 707(c) of the Code) made to such Member by the Company and
(iv) allocations of Net Loss and other items of deduction or loss to such Member
under Section 4.2.

 

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(b) The manner in which the Capital Accounts are to be maintained pursuant to
this Section 4.1 is intended to comply with the requirements of section 704 of
the Code and the Allocation Regulations, and the provisions of this Agreement
regarding the maintenance of Capital Accounts shall be interpreted and applied
consistently herewith. If, in the reasonable opinion of the Managers, the manner
in which the Capital Accounts are to be maintained pursuant to the provisions of
this Section 4.1 should be modified in order to comply with the requirements of
section 704 of the Code and the Allocation Regulations, then, notwithstanding
anything to the contrary contained in this Section 4.1, the Managers may alter
the method in which the Capital Accounts are maintained, and the Managers shall
have the right, upon notice in writing to the Members, to amend this Agreement
without action by the Managers or the Members to reflect any such change in the
manner in which the Capital Accounts are maintained; provided that, if any such
modification would adversely affect any Member, then no such modification shall
be effective without the prior written consent of such Member.

(c) The Company shall increase or decrease the Capital Accounts of the Members
to reflect a revaluation of the assets of the Company to their respective Fair
Market Values in connection with (i) a contribution of money or other property
(other than a de minimus amount) to the capital of the Company by a new or
existing Member as consideration for an interest in the Company, (ii) the grant
of Employee Interests (other than a de minimus interest) to one or more
employees of BEEOO for services to or for the benefit of that company, (iii) a
distribution of money or other property (other than a de minimus amount) by the
Company to a retiring or continuing Member as consideration for an interest in
the Company, (iv) a liquidation of the Company, all in accordance with Treasury
regulations section 1.704-1(b)(2)(iv)(f).

(d) To the extent permitted by law, if any Member has a Capital Account deficit
(after giving effect to all contributions, distributions and allocations for all
taxable years, including the year during which such liquidation occurs), such
Member shall have no obligation to make any contribution to the capital of the
Company with respect to such Capital Account deficit, and such Capital Account
deficit shall not be considered a debt owed to the Company or to any other
person for any purpose whatsoever. Accordingly, if a Member to whom an
allocation is made is not obligated to restore a deficit balance in his Capital
Account to the Company, or is obligated to restore only a limited dollar amount
of such deficit balance, this Agreement shall be deemed to contain a “qualified
income offset” as that term is used in Treasury regulations section
1.704-1(b)(2)(ii)(d) and the rules provided for in that regulations section
shall be applicable to all such allocations and the maintenance of Capital
Accounts for the Members.

(e) For purposes of maintaining the Capital Accounts, items of income, gain,
loss and deduction shall be determined in accordance with the determination of
taxable income of the Company under section 703(a) of the Code, with the
following modifications:

(i) income, gain or loss from, and cost recovery, amortization or depreciation
deductions with respect to, Book Property shall be computed by reference to the
value of such property as set forth on the books of the Company, all in
accordance with the principles of Treasury regulations section
1.704-1(b)(2)(iv)(g), notwithstanding that the adjusted tax basis of such
property differs from such value;

 

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(ii) any income of the Company that is exempt from federal income tax shall be
added to such taxable income or loss;

(iii) any expenditures of the Company that are described in section 705(a)(2)(B)
of the Code or treated as section 705(a)(2)(B) expenditures pursuant to Treasury
regulations section 1.704-1(b)(2)(iv)(i) shall be subtracted from such taxable
income or loss;

(iv) in the event that the value of any Company property is adjusted pursuant to
Treasury regulations section 1.704-1(b)(2)(iv)(e) or section
1.704-1(b)(2)(iv)(f), the amount of such adjustment shall be taken into account
as gain or loss (as the case may be) from the disposition of such property;

(v) to the extent (and only to the extent) that an adjustment to the adjusted
tax basis of any Company asset pursuant to section 732, section 734 or section
743 of the Code is required to be taken into account in determining Capital
Accounts pursuant to Treasury regulations section 1.704-1(b)(2)(iv)(m), the
amount of such adjustment shall be treated as an item of gain or loss (as the
case may be);

(vi) Simulated Depletion, Simulated Gains, and Simulated Losses shall be
computed in lieu of depletion and gains and losses with respect to each Oil and
Gas Property of the Company; and

(vii) In the event the Book Liability Value of any liability of the Company
described in Treasury regulations section 1.752-7(b)(3)(i) is adjusted as
required by this Agreement, the amount of such adjustment shall be treated as an
item of loss (if the adjustment increases the Book Liability Value of such
liability of the Company) or an item of gain (if the adjustment decreases the
Book Liability Value of such liability of the Company).

Section 4.2 Allocations of Net Profit and Net Loss.

(a) The Company’s Net Profit and Net Loss shall be allocated among the Employee
Members and Management Members as follows:

(i) A portion of Net Profit for each Fiscal Period equal to the Net Profit for
such Fiscal Period multiplied by the sum of the percentage interests in Net
Profit and Net Loss held by the Employee Interests shall be allocated to the
Employee Members in proportion to the percentage interests of the Employee
Interests held by each Employee Member.

(ii) Net Profit remaining after the allocation of a portion of Net Profit to
Employee Members as provided for in Section 4.2(a)(i) shall be allocated to the
Management Members in proportion to the percentage interests of the Management
Interests held by each Management Member.

 

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(iii) Net Loss first shall be allocated to Members with positive capital account
balances in proportion to the positive capital account balances of such Members
until no Member has a positive capital account balance. Any amount of Net Loss
remaining after such allocation shall be allocated to the Management Members in
proportion to their percentage interests in Net Profit.

(b) Prior to making the allocations under Section 4.2(a), the allocations set
forth below shall be made in the order set forth below. The amount of items of
income, gain, loss and deduction available for allocations under the following
rules shall be determined by applying the rules set forth in Section 4.1(e).

(i) If there is a net decrease in the Company’s minimum gain (as defined in
Treasury regulations section 1.704-2(d)) during a Fiscal Period of the Company,
then items of income and gain for such Fiscal Period (and, if necessary, for
subsequent periods) shall be allocated to the Members in the manner and to the
extent required by Treasury regulations section 1.704-2(f). This clause is
intended to constitute a “minimum gain chargeback” as provided by Treasury
regulations section 1.704-2(f), and this clause shall be construed accordingly.

(ii) Any partner nonrecourse deduction (within the meaning of Treasury
regulations section 1.704-2(i)(2)) shall be allocated in the manner specified in
Treasury regulations section 1.704-2(i)(l), and, subject to the exceptions set
forth in Treasury regulations section 1.704-2(i)(4), if there is a net decrease
in partner nonrecourse debt minimum gain (within the meaning of Treasury
regulations sections 1.704-2(i)(2) and 1.704-2(i)(3)) during a Fiscal Period of
the Company attributable to a partner nonrecourse debt (within the meaning of
Treasury regulations section 1.704-2(b)(4)), then each Member with a share of
partner nonrecourse debt minimum gain attributable to such partner nonrecourse
debt, determined in accordance with Treasury regulations section 1.704-2(i)(5),
shall be specially allocated items of income and gain for such period (and, if
necessary, for subsequent periods) in an amount equal to such Member’s share of
the net decrease in partner nonrecourse debt minimum gain for such period
attributable to such partner nonrecourse debt (which share of such net decrease
shall be determined under Treasury regulations section 1.704-2(i)(4) and
1.704-2(g)(2)). This clause is intended to constitute a “chargeback of partner
nonrecourse debt minimum gain” as provided by Treasury regulations section
1.704-2(i)(4), and this clause shall be construed accordingly.

(iii) If a Member unexpectedly receives any adjustment, allocation or
distribution described in Treasury regulations section 1.704-1(b)(2)(ii)(d)(4),
(5) or (6), items of Company income and gain (consisting of a pro rata portion
of each item of Company income, including gross income, and gain) shall be
specially allocated to such Member in the manner required by Treasury
regulations section 1.704-1(b)(2)(ii)(d) to eliminate, to the extent required by
such regulation, the deficit in the Adjusted Capital Account of such Member as
quickly as possible; provided that an allocation pursuant to this
Section 4.2(b)(iii) shall be made only if and to the extent that such Member
would have a deficit balance in

 

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its Adjusted Capital Account after all other allocations provided for in this
Article IV have been tentatively made as if this Section 4.2(b)(iii) were not in
this Agreement. This clause is intended to constitute a “qualified income
offset” as provided by Treasury regulations section 1.704-1(b)(2)(ii)(d), and
this clause shall be construed accordingly.

(iv) Simulated Depletion for each Oil and Gas Property shall be allocated among
the Members in the same ratio in which they were allocated adjusted tax basis in
that Oil and Gas Property under Section 4.3(c).

(v) Simulated Loss upon the sale, exchange, distribution, abandonment or other
disposition of an Oil and Gas Property shall be allocated to the Members in
proportion to the Members’ allocable shares under Section 4.3(d) of the total
amount realized from the disposition of such property that represents recovery
of the Company’s Simulated Basis in such Property. Simulated Gains up the sale,
exchange, distribution, abandonment or disposition of an Oil and Gas Property
shall be allocated as part of the allocation of Net Profit and Net Loss pursuant
to Section 4.2(a).

(vi) If any amount is allocated pursuant to clauses (i), (ii), (iii), (iv) or
(v) of this Section 4.2(b), then notwithstanding anything to the contrary in
this Agreement (but subject to the provisions of clauses (i), (ii), (iii),
(iv) and (v) of this Section 4.2(b)), income, gain, deduction and loss, or items
thereof, thereafter shall be allocated in such manner and to such extent as may
be necessary so that, after such allocation, the respective balances of the
Members’ Capital Accounts as nearly as possible shall equal the balances that
would have been obtained if the amount allocated pursuant to clauses (i), (ii),
(iii), (iv) or (v) and the amount allocated pursuant to this clause (vi) instead
had been allocated under the provisions of this Agreement without giving effect
to the provisions of clauses (i), (ii), (iii), (iv) or (v) or this clause (vi).

(vii) The allocations set forth in this Agreement are intended to comply with
the requirements of sections 704(b) and 704(c) of the Code and the Allocation
Regulations and shall be interpreted and applied in a manner consistent
therewith. If, in the reasonable opinion of the Managers, the allocations of
income, gain, deduction and loss set forth herein do not (A) comply with the
cited Code provisions and the Allocation Regulations or (B) comply with any
other provision of the Code or the Treasury regulations, then, notwithstanding
anything to the contrary contained herein, such allocations shall, upon notice
in writing to the other Members, be modified to satisfy such provisions of the
Code and the Allocation Regulations, provided that any such modification shall
not alter materially the economic arrangement among the Members.

Section 4.3 Allocations of Taxable Income and Loss.

(a) Except as provided in this Section 4.3, the taxable income or loss of the
Company (and items thereof) for any Fiscal Period shall be allocated among the

 

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Members in proportion to and in the same manner as Net Profit, Net Loss and
separate items of income, gain, loss and deduction (excluding items for which
there are no related tax items) are allocated among the Members for Capital
Account purposes pursuant to the provisions of Section 4.2. Except as otherwise
provided in this Section 4.3, the allocable share of a Member for tax purposes
in each specified item of income, gain, deduction and loss of the Company
comprising Net Profit, Net Loss or an item allocated pursuant to Section 4.2
shall be the same as such Member’s allocable share of Net Profit, Net Loss or
the corresponding item for such Fiscal Period.

(b) In accordance with sections 704(b) and 704(c) of the Code and applicable
Treasury regulations, including Treasury regulations section 1.704-1(b)(4)(i),
items of income, gain, deduction and loss with respect to any Book Property of
the Company shall, solely for tax purposes, be allocated among the Members so as
to take into account any variation between the adjusted basis of the Book
Property to the Company for federal income tax purposes and its Book Value. In
making allocations pursuant to this Section 4.3(b), the Managers are authorized
to apply such methods as they determine to be appropriate.

(c) The deduction for depletion with respect to each separate Oil and Gas
Property shall be computed for federal income tax purposes separately by the
Members rather than the Company in accordance with section 613A(c)(7)(D) of the
Code. For purposes of such computation, except as required under section 704(c)
of the Code as administered by the Company under Section 4.3(b) with respect to
any Oil and Gas Property the Book Value of which differs from its adjusted basis
for federal income tax purposes, the adjusted basis of an Oil and Gas Property
shall be allocated to the Members in proportion to their respective percentage
interests in Net Profits and Net Losses as of the time the property is acquired
by the Company.

(d) Each Member shall separately keep records of such Member’s share of the
adjusted basis in each separate Oil and Gas Property, adjust such share of the
adjusted basis for any cost or percentage depletion allowable with respect to
such Oil and Gas Property and use such adjusted basis in the computation of such
Member’s cost depletion or in the computation of its gain or loss on the
disposition of such Oil and Gas Property by the Company or by BEEOO. It is the
intent of the Company to comply with Treasury regulations section
1.613A-3(e)(3)(iii)(B). Consistent with Treasury regulations section
1.613A-3(e)(3)(iii), each Member agrees to furnish to the Company, within thirty
(30) days of receipt of written request by the Company, a written statement that
clearly and accurately states the amount of that Member’s adjusted basis and
depletion deductions with respect to each existing Oil and Gas Property. For the
purposes of the separate computation of gain or loss by each Member on the
taxable disposition of each separate Oil and Gas Property, the amount realized
(as that term is defined under section 1001 of the Code) from such disposition
shall be allocated (i) first, except as otherwise required by Section 4.3(b), to
the Members in an amount equal to the Simulated Basis in such Oil and Gas
Property in the same proportions as the aggregate adjusted tax basis of such Oil
and Gas Property was allocated to the Members under Section 4.3(c), (ii) second,
any remaining amount realized shall be allocated to the Members with respect to
an Oil and Gas Property contributed to the Company by a Member, in a manner
consistent with

 

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Section 4.3(b) and (iii) third, any remaining amount realized shall be allocated
to the Members consistent with the allocation of the Simulated Gains therefrom
under Section 4.2(a). If any Member shall fail to maintain the records
contemplated in this Section 4.3(d), or if there is a discrepancy in any
Member’s records, the Managers, acting in their reasonable discretion, shall
have the right to review such records and adjust such records accordingly.

(e) The amount of any gain from the sale or other taxable disposition of assets
of the Company or of BEEOO allocated to a Member for federal income tax purposes
pursuant to the above provisions shall be deemed to be ordinary recapture income
to the extent that such Member has been allocated or has claimed any deduction
directly or indirectly giving rise to the treatment of such gain as recapture
income under section 1245, section 1254 or any other recapture provision of the
Code.

(f) The items of income, gain, deduction and loss for tax purposes allocated to
the Members pursuant to this Section 4.3 shall not be reflected in the Members’
Capital Accounts.

(g) Pursuant to Treasury regulations section 1.752-3(a)(3), the Members hereby
agree to allocate excess nonrecourse liabilities of the Company in accordance
with their respective interests in the Company as reasonably determined by the
Managers in good faith.

Section 4.4 Distributions.

(a) The Managers shall have the sole discretion regarding the amounts and timing
of distributions to Members, in each case subject to the retention and
establishment of reserves of, or payment to, third parties of such funds as it
deems necessary with respect to the reasonable business needs of the Company,
which shall include the payment or making of provision for the payment when due
of the Company’s obligations.

(b) Notwithstanding Section 4.4(a), the Company shall distribute a portion of
Available Cash to its Members quarterly in an amount sufficient to cause each
Member to receive a distribution equal to the highest marginal federal income
tax rate applicable to individuals multiplied by its respective share of the net
taxable income of the Company reduced by prior losses (and computed without
taking into account any special allocations of income pursuant to section 704(c)
of the Code), with payments with respect to the first, second, third, and fourth
quarters of each calendar year to be made on or before April 12, June 12, and
September 12 of such calendar year and January 12 of the following calendar
year, respectively, and with the amounts distributed based upon the Tax Matters
Member’s estimate of the Company’s taxable income for the current period and
with distributions for subsequent periods being adjusted based upon actual
results; provided that it is understood that any Member may waive its right to
receive distributions under this Section 4.4(b); provided, further, that
distributions under this Section 4.4(b) shall be taken into account as advances
against amounts to be distributed to the Members receiving such distributions
(and shall be credited against future distributions to such Members) (such
distributions herein referred to as “Tax Distributions”).

 

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(c) The Company may, from time to time, make distributions to the Members in
cash or in kind in proportion to their percentage interests in Net Profits. For
purposes of maintaining the Capital Accounts, when property of the Company is
distributed in kind: (i) the Company shall treat such property as if it had been
sold for its Fair Market Value on the date of distribution; (ii) any difference
between such Fair Market Value and the Company’s prior Book Value in such
property for Capital Account purposes shall constitute an item of gain or loss,
as the case may be, for the Fiscal Period that includes the date of distribution
and shall be allocated to the Capital Accounts of the Members pursuant to
Section 4.2; and (iii) each Member’s Capital Account shall be reduced by the
Fair Market Value on the date of distribution of the property distributed to
such Member (net of any liabilities secured by such distributed property that
such Member is considered to have assumed or to have taken subject to).

Section 4.5 Limitation on Distributions. Notwithstanding any provision to the
contrary contained in this Agreement, the Company shall not make a distribution
to a Member to the extent that such distribution is not permitted under the
terms of Section 101.206 of the Act.

ARTICLE V

MEMBERS

Section 5.1 Admission of Members.

(a) Each of the initial Members of the Company has been admitted to the Company
as a Member effective upon the filing of the Certificate of Formation.

(b) From time to time, upon the request of BEEOO acting in accordance with the
terms of the BEEOO Employee Incentive Plan, the Company will issue Employee
Interests to employees of BEEOO.

(c) The Company may not issue new or additional Management Interests in the
Company without the consent of a Required Vote. Any Person to whom an Employee
Interest or Management Interest is issued by the Company after the date hereof
pursuant to this Section 5.1(c) shall be admitted to the Company as an Employee
Member or Management Member, as the case may be, upon compliance with the
applicable requirements set forth herein.

Section 5.2 No Resignation or Withdrawal by Management Members. No Management
Member shall be entitled to resign or withdraw from the Company, except with the
consent of a Required Vote.

Section 5.3 Withdrawal by Employee Members. Unless the Managers, in their sole
discretion, determine otherwise, the termination of any Employee Member’s
employment at BEEOO (for any reason or no reason at all) shall constitute such
Employee Member’s withdrawal from the Company. Unless the Managers, in their
sole discretion, determine otherwise, an Employee Member withdrawing pursuant to
this Section 5.3 shall not be entitled to any outstanding balance in his or her
Capital Account or to any other rights or interests in connection with its
Employee Interest.

 

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ARTICLE VI

MEETINGS OF MEMBERS

Section 6.1 Place of Meetings. Meetings of Members shall be held at such places,
either inside or outside the State of Texas, as may be designated by the
Managers and stated in the notice of the meeting. Members may also participate
in and hold a meeting by means of conference telephone or similar communications
equipment by means of which all Members participating in the meeting can hear
each other, and participation in such meeting shall constitute attendance and
presence in person at such meeting.

Section 6.2 Annual Meeting. Annual meetings of the Members shall be held on such
date and at such time as shall be designated by the Managers or by a Required
Vote, at which meeting the Members shall transact such business as may be
properly brought before the meeting.

Section 6.3 Special Meetings. Special meetings of the Members may be called by
written request of a Required Vote or by a Manager. Only business within the
purpose or purposes described in the notice of meeting delivered to the Members
in accordance with this Article may be conducted at a special meeting of the
Members.

Section 6.4 Notice of Meeting. Written or printed notice of all meetings of the
Members stating the place, date and time of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called, shall
be delivered no fewer than ten (10) days and no more than sixty (60) days prior
to the date of the meeting to each Management Member entitled to vote at such
meeting.

Section 6.5 Record Dates. For the purpose of determining Members entitled to
notice of, or Management Members entitled to vote at, any meeting of Members or
any adjournment thereof, the Company may fix in advance a record date. In
addition, whenever action by the Management Members is proposed to be taken by
consent in writing without a meeting of Management Members, the Company may fix
a record date for the purpose of determining the Management Members entitled to
consent to that action, which record date shall be within ten (10) days after
such action is proposed. If no record date has been fixed for the purpose of
determining the Management Members entitled to consent in writing to any action,
such record date shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Company.

Section 6.6 Quorum. The presence, in person or by proxy, of the holders of a
Required Vote shall constitute a quorum for the purpose of considering any
matter at a meeting of the Members. If a meeting of the Members cannot be
organized because a quorum will not be present or represented, the Management
Members entitled to vote, present in person or represented by proxy, shall have
the power to adjourn the meeting from time to time until a quorum will be
present or represented. When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and place thereof
are announced at

 

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the meeting at which the adjournment is taken. At the adjourned meeting at which
a quorum will be present or represented, the Members may transact any business
which might have been transacted at the original meeting.

Section 6.7 Voting. Each holder of a Management Interest entitled to vote shall
have one vote for each one percent of such Management Interest held, prorated
for fractions thereof, on each matter submitted to a vote of the Management
Members. For example, a Management Member with a five percent (5%) Management
Interest entitled to vote shall receive five (5) votes. Unless otherwise
expressly stated in this Agreement or required by the Act, a Required Vote is
needed to approve any matter brought to a vote of the Management Members.

Section 6.8 Conduct of Meetings of Members. At each meeting of the Members, the
Managers shall preside over the meeting. The Managers may appoint a person to
keep the minutes of the meeting. The Managers may adopt such rules and
regulations as they determine are reasonably necessary or appropriate in
connection with the organization and conduct of any meeting of the Members.

Section 6.9 Proxies. Each Management Member entitled to vote at a meeting of the
Members may authorize another person or persons to act for him or her by proxy
with respect to any Management Interests owned by such Member, but no such proxy
shall be voted or acted upon after three (3) years from its date, unless the
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if the proxy states that it is irrevocable and if, and only as long as, the
proxy is coupled with an interest sufficient in law to support an irrevocable
power. A proxy may be made irrevocable regardless of the nature or type of
interest with which the proxy is coupled.

Section 6.10 Written Consent. Any action required or permitted to be taken at
any annual or special meeting of Members may be taken without a meeting, without
prior notice, and without a vote, if a consent or consents in writing, setting
forth the action so taken, is signed by the holder or holders of all the
requisite Management Interests needed to approve or ratify the action that is
the subject of the consent.

ARTICLE VII

TRANSFER OR ISSUANCE OF INTERESTS

Section 7.1 No Transfer of Interests. No Employee Member or Management Member
may Transfer its Employee Interest or Management Interest, as the case may be,
except with the consent of a Required Vote.

Section 7.2 Issuance of Interests. The Company may not issue new or additional
Interests in the Company without the consent required in Section 5.1. No
Employee Member or Management Member shall have any preemptive or preferential
right to receive, purchase or subscribe to new or additional Employee Interests
or Management Interests, as the case may be.

 

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ARTICLE VIII

MANAGEMENT OF THE COMPANY

Section 8.1 Managers. The powers of the Company shall be exercised by or under
the authority of, and the business and affairs of the Company shall be managed
under the direction of, the Managers; and all decisions regarding any matter set
forth herein or otherwise relating to or arising out of the business of the
Company shall be made by the Managers. The following individuals are hereby
appointed as the two (2) initial Managers:

 

John Hoffman    James Hagemeier 11451 Katy Freeway, Suite 500    11451 Katy
Freeway, Suite 500 Houston, Texas 77079    Houston, Texas 77079

Section 8.2 Appointment and Removal of Managers. The number of Managers may be
increased or decreased at any time either by a Required Vote or by a unanimous
vote of the existing Managers. A Manager may be removed only by a Required Vote.
Any vacancy in the Manager position may be filled by appointment by a Required
Vote.

Section 8.3 Authority of Managers.

(a) The Managers shall be the principal executive officers of the Company, shall
supervise and control all of the day-to-day business of the Company and shall
send all required notices to Members.

(b) Each Manager, acting unilaterally, shall have authority to transact all
business of the Company. The Managers shall consider the interests of the
creditors of the Company in connection with all actions taken by or on behalf of
the Company.

Section 8.4 Meetings.

(a) Meetings of the Managers may be held at such place or places as shall be
determined from time to time by resolution of the Managers; provided, however,
the Managers shall endeavor to meet at least once annually. At all meetings of
the Managers, business shall be transacted in such order as shall from time to
time be determined by resolution of the Managers. Attendance of a Manager at a
meeting shall constitute a waiver of notice of such meeting, except where a
Manager attends a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.

(b) Regular meetings of the Managers shall be held at such times and places as
shall be designated from time to time by resolution of the Managers. Ten
(10) days notice of such regular meetings shall be required to be provided to
each Manager.

(c) Special meetings of the Managers may be called by any Manager on at least
three (3) days written notice to each other Manager. Such notice need not state
the purpose or purposes of, nor the business to be transacted at, such meeting,
except as may otherwise be required by law or provided for in this Agreement.

 

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Section 8.5 Action by Written Consent or Telephone Conference. Any action
permitted or required by the Act, the Certificate of Formation or this Agreement
to be taken at a meeting of the Managers or any committee designated by the
Managers may be taken without a meeting if a consent in writing, setting forth
the action to be taken, is signed by a sufficient number of Managers which would
be necessary to take such action at an actual meeting of the Managers. Such
consent shall have the same force and effect as a vote at a meeting and may be
stated as such in any document or instrument filed with the Secretary of State
of Texas, and the execution of such consent shall constitute attendance or
presence in person at a meeting of the Managers or any such committee, as the
case may be. Subject to the requirements of the Act, the Certificate of
Formation or this Agreement for notices of meetings, unless otherwise restricted
by the Certificate of Formation, Managers or members of any committee designated
by the Managers, may participate in and hold a meeting of the Managers or any
committee of Managers, as the case may be, by means of a conference telephone or
similar communications equipment by means of which all Persons participating in
the meeting can hear each other, and participating in such meeting shall
constitute attendance and presence in person at such meeting, except where a
Person participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.

Section 8.6 Delegation. Each Manager may delegate some or all of his duties and
powers to other Persons; provided, however, a Manager who delegates his duties
or powers shall remain subject to the standard of conduct for a manager of a
limited liability company in the State of Texas.

Section 8.7 Reimbursement of Expenses. The Managers, and Persons to whom some or
all of a Manager’s duties and powers are delegated, shall be entitled to receive
reimbursement for their reasonable and direct expenses incurred in the formation
of the Company, the operation of the Company and the management of the Company’s
assets.

Section 8.8 Appointment of Officers. The Managers may, from time to time as they
deem advisable and by a unanimous vote of the Managers, appoint officers of the
Company in accordance with Section 3.103 of the Act and assign in writing titles
to any such Person. Unless the Managers decide otherwise, the assignment of a
title constitutes the delegation to such Person of the authorities and duties
that are normally associated with that office as defined in Section 1.002 of the
Act. Any delegation or appointment pursuant to this Section may be revoked at
any time by a unanimous vote of the Managers.

Section 8.9 Certain Limitations. Notwithstanding any provision hereof to the
contrary, neither the Managers nor any Member shall have the authority to, and
the Managers and Members hereby covenant and agree that they shall not, cause or
permit any of the following actions to occur without the unanimous consent of
the Management Members:

(a) amendment of the Certificate of Formation of the Company, or any restatement
of the Certificate of Formation that includes an amendment thereto; provided,
however, that the Managers may change the registered agent or registered office
of the Company from time to time in their sole discretion;

(b) a merger or consolidation of the Company with or into any other Person;

 

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(c) a conversion of the Company;

(d) a sale of all or substantially all of the assets of the Company;

(e) any transaction, agreement or action on behalf of the Company that is
unrelated to its purposes as set forth herein; or

(f) the authorization of any act that would make it impossible to carry on the
ordinary business of the Company.

Section 8.10 Filing Bankruptcy Proceedings. The unanimous vote of the Managers
is required to file, or consent to the filing of, a bankruptcy or insolvency
petition or to otherwise institute insolvency proceedings. This Section 8.10 is
also subject to the provisions of the Certificate of Formation regarding
bankruptcy or insolvency, if any.

Section 8.11 Interested Transactions.

(a) No contract or transaction between the Company and one or more of its
Members or Managers, or between the Company and any other Person in which one or
more of its Members or Managers are managers, directors or officers or have a
financial interest, shall be void or voidable solely because the Member or
Manager is present at or participates in the meeting of the Members that
authorizes the contract or transaction, or solely because such Member’s or
Manager’s votes are counted for such purpose if:

(i) the material facts as to the relationship or interest and as to the contract
or transaction are disclosed or are known to the Managers, and the contract or
transaction is specifically approved in good faith by the Managers; or

(ii) the contract or transaction is fair as to the Company as of the time it is
authorized, approved or ratified by the Managers.

(b) Common or interested Members may be counted in determining the presence of a
quorum at a meeting of the Members.

(c) Notwithstanding the foregoing, nothing in this Agreement shall require a
meeting of the Members to approve of any such contract or transaction. The
Managers may approve any such contract or transaction that meets the
requirements set forth in this Section.

Section 8.12 Outside Activities.

(a) (i) No Member or Manager shall be expressly or impliedly prevented by virtue
of this Agreement or the relationships created hereby from engaging in other
activities or business ventures of any kind or character whatsoever; and
(ii) all of the pre-existing businesses of the Members and/or Managers shall be
able to continue unimpaired and free from any obligations hereunder.

 

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(b) Notwithstanding anything to the contrary set forth in this Agreement, any
Member or Manager may, in his or its sole discretion, separately engage in any
business or activity of any sort, whether alone or with any other Person(s),
(i) without being deemed to have violated any “corporate opportunity doctrine,”
“business opportunity doctrine,” or similar doctrine of any sort, (ii) without
being deemed to have violated any duty or obligation to the Company or the
Members, including, without limitation, any fiduciary duty or duty of loyalty,
(iii) without giving the Company or any Member any notice of or right to
participate in such business or activity, and (iv) without incurring any
liability or obligation of any sort to the Company or its Members as a result of
such business or activity.

(c) Any Member or Manager may have other businesses and/or activities which
consume a major portion of the time which such Member or Manager devotes to
business and/or professional matters. No Member or Manager of the Company shall
be required to participate in the affairs of the Company or manage the Company,
as applicable, as his primary or exclusive function, and any Member or Manager
of the Company may engage in any number of other businesses and/or activities
separate from those related to the Company, without being deemed to have
violated any duty or obligation to the Company of any sort, and without
incurring or creating any liability or obligation of any sort to the Company,
its Members or others. Each Member and Manager is required to devote to the
business and/or affairs of the Company only such time and attention as such
Member or Manager, in his or its sole discretion, shall deem to be necessary,
appropriate or desirable.

Section 8.13 Reliance by Third Parties. Notwithstanding any provision hereof to
the contrary, no lender, purchaser or other Person shall be required to verify
any representation by a Manager as to the extent of the interest in the
properties and assets of the Company that such Manager is entitled to encumber,
sell or otherwise use. Any such lender, purchaser or other Person shall be
entitled to rely exclusively on the representations of such Manager as to its
authority to enter into such financing or sale arrangements or other agreements
and shall be entitled to deal with such Manager, without the joinder of any
other Person, as if it were the sole party in interest therein, both legally and
beneficially.

ARTICLE IX

BOOKS, RECORDS AND INFORMATION; FINANCIAL MATTERS

Section 9.1 Books and Records. At all times until the winding up and termination
of the Company, the Company shall maintain separate books of account which show
a true and accurate record of all costs and expenses incurred, all charges made,
all credits made and received and all income derived in connection with the
conduct of the business of the Company in accordance with this Agreement. In
addition, the Company shall keep and maintain in its principal office all the
information required to be kept and maintained in accordance with Sections 3.151
and 101.501 of the Act and shall make such information available to any Member
requesting the same within five (5) days after receipt by the Company of a
written request provided in such sections of the Act.

 

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Section 9.2 Title to Company Assets. All real and personal property, including
but not limited to cash proceeds received by the Managers or Members in
conjunction with their transaction of business on behalf of the Company and the
Class C Units, shall be delivered to, acquired and held by the Company in its
name. If any Manager or Member receives such cash proceeds or Class C Units,
such Manager or Member shall promptly deliver those proceeds or Class C Units to
the Company.

Section 9.3 Financial Statements and Tax Returns. With respect to each Fiscal
Year of the Company, the Company shall cause to be prepared and submitted to
each Member no later than ninety (90) days after the end of such Fiscal Year:
(i) a consolidated balance sheet of the Company as of the end of such Fiscal
Year; and (ii) consolidated statements of income, Members’ Capital Accounts, and
cash flows for such Fiscal Year. Such financial statements need not be audited
by an independent accountant for the Company. The Company also shall cause to be
prepared and timely filed with the appropriate tax authorities all required
federal, state, and local tax returns and statements for the Company, and shall
provide copies of all such returns and statements to the Members.

Section 9.4 Other Information. The Company shall use commercially reasonable
efforts to cause to be delivered to any Member such other information as such
Member may reasonably request for the purpose of enabling such Member to comply
in a timely manner with any reporting or filing requirements imposed by any
statute, rule, regulation or otherwise by any governmental agency or authority.

Section 9.5 Tax Matters. The Company shall be classified as a disregarded entity
until the admission of at least one additional Member who is not classified as a
disregarded entity. Thereafter, the Company shall be classified as a partnership
for U.S. federal income tax purposes. No Member shall take any action to elect a
different classification. Until the Company is classified as a partnership for
U.S. federal income tax purposes, no provision in this Agreement applicable to
partnerships for U.S. federal income tax purposes shall be effective. If and
when the Company is classified as a partnership for U.S. federal income tax
purposes, Black Elk Management, LLC shall be the “Tax Matters Member,” as
provided for in section 6231(a)(7) of the Code and Treasury regulations section
301.6231(a)(7)-1, unless the Managers designate some other Member.

ARTICLE X

WINDING UP, LIQUIDATION AND TERMINATION

Section 10.1 Winding Up. Subject to Section 8.9, the Company’s affairs shall be
wound up upon the occurrence of any of the following events:

(a) the adoption of a resolution by a Required Vote providing that the Company
will be wound up as of the date specified therein; provided however, that no
such resolution may be adopted prior to the time that BEEOO either (i) sells or
otherwise disposes of all or substantially all of its assets in one transaction
or a series of related transactions, (ii) enters into a merger, consolidation,
reorganization or other business combination or transaction, or (iii) dissolves
and winds up its affairs pursuant to Article 15 of the BEEOO Operating
Agreement; or

 

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(b) the entry of a judicial decree requiring the winding up and termination
under Section 11.314 of the Act.

Section 10.2 No Winding Up In Certain Circumstances. The Company shall not wind
up, liquidate or terminate upon the death, bankruptcy, insolvency, winding up,
liquidation, termination, resignation, removal or incapacity of any Member.

Section 10.3 Liquidation. Upon an event requiring a winding up of the Company,
the Company shall continue solely for the purposes of winding up its business
and affairs as soon as reasonably practicable. Promptly after the occurrence of
an event requiring a winding up of the Company, the Managers shall unanimously
designate (or, upon the death, resignation, removal or incapacity of the
Managers, a Required Vote shall designate) one or more Persons (the “Liquidating
Trustees”), which may include one or more Managers or Members, to accomplish the
winding up of the business and affairs of the Company. Upon their designation,
the Liquidating Trustees shall immediately commence to wind up the affairs of
the Company in accordance with the provisions of this Agreement and the Act. In
winding up the business and affairs of the Company, the Liquidating Trustees may
take any and all actions that they determine in their sole discretion to be in
the best interests of the Members, including, but not limited to, any actions
relating to (i) causing written notice by registered or certified mail of the
Company’s intention to dissolve to be mailed to each known creditor of and
claimant against the Company, (ii) the payment, settlement or compromise of
existing claims against the Company, (iii) the making of reasonable provisions
for payment of contingent claims against the Company, (iv) the sale or
disposition of the properties and assets of the Company, and (v) the
establishment of a liquidating trust for the sole purpose of liquidating and
distributing the assets of the Company transferred to it, and any other
activities that are necessary to, and consistent with, that purpose. It is
expressly understood and agreed that a reasonable time shall be allowed for the
orderly liquidation of the assets of the Company and the satisfaction of claims
against the Company so as to enable the Liquidating Trustees to minimize the
losses that may result from a liquidation.

Section 10.4 Application of Company Assets. In winding up the business and
affairs of the Company, the assets of the Company shall be paid and distributed
as follows:

(a) first, to creditors, including (to the extent otherwise permitted by law)
Members who are creditors, in satisfaction of liabilities of the Company (other
than for distributions), whether by payment or by establishment of reserves;

(b) second, to the Members and former Members in satisfaction of the Company’s
liability for distributions; and

(c) third, to the Members in accordance with their respective Capital Account
balances.

Section 10.5 Certificate of Termination; Termination. Upon the completion of the
winding up of the business and affairs of the Company, when all liabilities and
obligations of the Company have been paid or discharged, or adequate provision
has been made therefor (or, in case the property and assets of the Company are
not sufficient to satisfy and discharge all of its

 

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liabilities and obligations, then when all the property and assets have been
applied so far as they shall go to the just and equitable payment of its
liabilities and obligations) and all the remaining property and assets of the
Company have been distributed to the Members in accordance with their respective
rights and interests set forth in Section 10.4, a certificate of termination
shall be executed on behalf of the Company by a Manager or Management Member
designated by the Liquidating Trustees, which certificate of termination shall
comply with the requirements of Section 11.101 of the Act, and the Liquidating
Trustees shall cause such certificate of termination to be filed in the office
of the Secretary of State of Texas and shall take such other actions as they may
determine are necessary or appropriate to terminate the Company. The existence
of the Company shall terminate (except to the extent expressly provided in
Chapter 11 of the Act) when a certificate of termination with respect to the
Company has been issued by the Secretary of State of Texas.

Section 10.6 Claims of the Members. The Members shall look solely to the
property and assets of the Company for the return of the amounts of their
Capital Accounts, and if the property and assets of the Company remaining after
payment of or due provision for all liabilities to creditors are insufficient to
return the amounts of such Capital Accounts, the Members shall have no recourse
against the Company, the Managers or any other Member.

ARTICLE XI

LIABILITY AND INDEMNIFICATION

Section 11.1 No Liability for Company Debts. The debts, liabilities and
obligations of the Company, whether arising in contract, tort or otherwise,
shall be solely the debts, liabilities and obligations of the Company, and no
Member or Manager shall be liable for any such debts, liabilities or
obligations, including any debts, liabilities and obligations under a judgment,
decree or order of a court against the Company.

Section 11.2 Good Faith Actions; Exculpation. To the fullest extent permitted by
the Act and with the express agreement that all permissive provisions of the Act
shall be mandatory for the purposes hereof, no Covered Person shall be liable to
the Company or any Member (or Affiliate of a Member) as a result of or in
connection with any actions or omissions with respect to the Company on the part
of such Covered Person in his or her capacity as such based on any claim of
breach of fiduciary duty, to the extent that such Covered Person (i) conducted
himself or herself in good faith and (ii) reasonably believed that his or her
conduct was in the best interests of the Company, REGARDLESS OF THE NEGLIGENCE,
GROSS NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF SUCH COVERED PERSON. In
addition, no Covered Person shall be liable to the Company or any Member (or
Affiliate of a Member) for actions taken by such Covered Person in such Covered
Person’s capacity as such which would be consistent with the duty of loyalty and
care applicable to a member of the board of directors of a Texas corporation.

Section 11.3 Indemnification.

(a) TO THE FULLEST EXTENT ALLOWED BY THE ACT, THE COMPANY SHALL INDEMNIFY AND
HOLD HARMLESS EACH COVERED PERSON FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS,

 

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DAMAGES, LIABILITIES, JUDGMENTS, PENALTIES, FINES, SETTLEMENTS, AND EXPENSES OF
ANY NATURE (INCLUDING, WITHOUT LIMITATION, TAXES, PENALTIES, AND INTEREST AND
REASONABLE ATTORNEYS’ FEES AND COURT COSTS) ACTUALLY INCURRED BY SUCH COVERED
PERSON IN CONNECTION WITH ANY THREATENED, PENDING OR COMPLETED CLAIM, DEMAND,
ACTION, SUIT OR PROCEEDING, WHETHER CIVIL, CRIMINAL, ADMINISTRATIVE, ARBITRATIVE
OR INVESTIGATIVE, ANY APPEAL THEREOF AND ANY INQUIRY OR INVESTIGATION RELATING
THERETO (ANY SUCH CLAIM, DEMAND, ACTION, SUIT, PROCEEDING, APPEAL, INQUIRY OR
INVESTIGATION BEING HEREINAFTER REFERRED TO AS A “PROCEEDING”), IN WHICH SUCH
COVERED PERSON WAS, IS OR IS THREATENED TO BE MADE A NAMED DEFENDANT OR
RESPONDENT AS A RESULT OF OR BASED UPON HIS OR HER STATUS AS A COVERED PERSON OR
ANY ACTION OR OMISSION TAKEN IN HIS OR HER CAPACITY AS SUCH, REGARDLESS OF
WHETHER ANY OF SAID LOSSES, CLAIMS, DAMAGES, LIABILITIES, JUDGMENTS, PENALTIES,
FINES, SETTLEMENTS OR EXPENSES RESULTED FROM THE NEGLIGENCE, GROSS NEGLIGENCE,
STRICT LIABILITY OR OTHER FAULT (BUT NOT THE WILLFUL MISCONDUCT) OF SUCH COVERED
PERSON.

(b) A Covered Person’s entitlement to indemnification, advancement or
reimbursement of reasonable expenses (including court costs and attorneys’
fees), and whether the requirements for indemnification of a Covered Person
pursuant to this Section have been satisfied, shall be determined in accordance
with the provisions of Chapter 8 of the Act.

(c) Any indemnification or advancement of expenses under this Section shall be
satisfied solely out of the property and assets of the Company. In no event may
a Covered Person subject any Member or Manager to personal liability by reason
of this Section.

(d) The indemnification and advancement of expenses provided for in this Section
shall be in addition to any other rights to which a Covered Person may be
entitled pursuant to any contract or agreement or any approval of the Members or
as a matter of law, whether with respect to an action of a Covered Person in his
or her capacity as such or in any other capacity, and shall continue as to a
Covered Person who has ceased to serve in such capacity and shall inure to the
benefit of the heirs, successors, assigns and administrators of a Covered
Person.

(e) To the fullest extent permitted by law, a Covered Person shall not be denied
indemnification or advancement of expenses under this Section solely on the
grounds that such Covered Person had an interest in the transaction with respect
to which the indemnification applies if the transaction is one otherwise
permitted to be carried out by the terms of this Agreement.

 

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(f) The Company may, but shall not be obligated to, purchase and maintain
insurance or another arrangement on behalf of any Covered Person against any
liability arising out of his or her status as such, whether or not the Company
would have the power to indemnify him against that liability under this Section.

(g) The agreements contained in this Section shall survive any winding up or
termination of the Company.

ARTICLE XII

CONFIDENTIALITY; MEMBER REPRESENTATIONS

Section 12.1 Confidentiality.

(a) Each Member and Manager agrees that he, she or it shall not use, publish,
disseminate, distribute or otherwise disclose all or any portion of the
Confidential Information without the prior written approval of the Company.

(b) In the event that a Member or Manager receives either a request to disclose
any Confidential Information under the terms of a subpoena or order issued by a
court or other governmental authority or advice of legal counsel that disclosure
is required under applicable law, such Member or Manager agrees that, prior to
disclosing any Confidential Information, that Member or Manager shall do the
following:

(i) immediately notify the Company of the existence and terms of, and the
circumstances attendant to, such request or advice;

(ii) consult with the Company as to the advisability of taking legally available
steps to resist or narrow any such request or to otherwise eliminate the need
for such disclosure; and

(iii) if disclosure is required, cooperate with the Company to obtain a
protective order or other reliable assurance that confidential treatment shall
be accorded to such portion of the Confidential Information as is required to be
disclosed.

Section 12.2 Representations, Warranties and Covenants of the Management
Members. Each Management Member hereby represents, warrants and covenants as
follows:

(a) By reason of the business and financial experience of the Management Member,
together with the experience of any advisors retained, the Management Member has
such knowledge, sophistication and experience in business and financial matters
so as to be capable of evaluating the merits and risks of the prospective
investment, and is able to bear the economic risk of such investment and, at the
present time, is able to afford a complete loss of such investment, and has had
the opportunity to ask questions of, and receive answers from, the Company
concerning the terms and conditions of the offering of the Management Interests,
and to discuss the Company’s business, management and financial affairs with its
management and to obtain from the Company any additional information about the
Company that the Management Member may have desired. The Management Member is
satisfied with the answers so received and the additional information so
obtained.

 

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(b) Such Management Member has full power and authority to execute and deliver
this Agreement and to carry out his, her or its obligations hereunder in
accordance with the terms hereof, without the consent, concurrence or joinder or
any other Person. This Agreement constitutes a legal, valid and binding
obligation of such Management Member, enforceable against him, her or it in
accordance with the terms hereof.

(c) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby do not and will not
constitute a breach of any term or provision of, or a default under:

(i) any outstanding indenture, mortgage, loan agreement or other contract or
agreement to which such Management Member is a party or by which his, her or its
properties are bound; or

(ii) any statute, law, rule or regulation, order, writ, judgment or decree
applicable to such Management Member or his, her or its properties.

(d) Each Management Member will obtain and maintain any consent, license,
approval or authorization of any governmental body, authority, bureau or agency
required on the part of such Management Member in connection with the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby.

Section 12.3 Representations, Warranties and Covenants of the Employee Members.
Each Employee Member hereby represents, warrants and covenants as follows:

(a) Each Employee Member who receives a grant of an Employee Interest pursuant
to the BEEOO Employee Incentive Plan understands that such Employee Interest has
been granted as an incentive for continuing employment with BEEOO but that such
grant is not an assurance of continued employment at BEEOO. Further, each
Employee Member understands that if he or she leaves the employment of BEEOO for
any reason or no reason at all, he or she must withdraw as a Member of the
Company and will not be entitled to any outstanding Capital Account balance,
unless the Managers, in their sole discretion, allow otherwise. Each Employee
Member who receives such a grant of an Employee Interest has had the
opportunity, prior to becoming a Member, to ask questions of, and receive
answers from, the Company concerning the terms and conditions of the grant of
the Employee Interest, and to discuss the Company’s business, management and
financial affairs with its management and to obtain from the Company any
additional information about the Company that the Employee Member may have
desired. The Employee Member is satisfied with the answers so received and the
additional information so obtained.

(b) Such Employee Member has full power and authority to execute and deliver
this Agreement and to carry out his or her obligations hereunder in accordance
with the terms hereof, without the consent, concurrence or joinder or any other
Person. This Agreement constitutes a legal, valid and binding obligation of such
Employee Member, enforceable against him or her in accordance with the terms
hereof.

 

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(c) The execution, delivery and performance of this Agreement do not and will
not constitute a breach of any term or provision of, or a default under:

(i) any outstanding indenture, mortgage, loan agreement or other contract or
agreement to which such Employee Member is a party or by which his, her or its
properties are bound; or

(ii) any statute, law, rule or regulation, order, writ, judgment or decree
applicable to such Employee Member or his or her properties.

Section 12.4 Reaffirmation of Representations, Warranties and Covenants.
Notwithstanding anything to the contrary contained in this Agreement, no Person
shall be admitted as a Member unless the Managers shall have received, in form
and content satisfactory to them, the written agreement of such Person agreeing
to be bound by the terms of this Agreement, adopting this Agreement and setting
forth the notice address of such Person. Such written agreement must include the
written representation and warranty of such Person that the representations,
warranties and covenants in Section 12.2 or Section 12.3, as applicable, are
true and correct with respect to such Person as of the date of admission.

ARTICLE XIII

MISCELLANEOUS

Section 13.1 Notices. All notices and other communications under or in
connection with this Agreement shall be in writing and shall be delivered (i) in
the case of notices or other communications to the Company, to its principal
office address and (ii) in the case of notices or other communications to a
Member, to his or her address provided to the Company. All notices and other
communications that are addressed as provided in or pursuant to this Section
shall be deemed to be given upon receipt, if hand delivered or delivered by
overnight courier, or upon deposit of such notice in registered or certified
mail, return receipt requested, or facsimile.

Section 13.2 Waiver. Compliance with any provision of this Agreement may be
waived only if such waiver is approved in writing by the Managers and each
Member entitled to the benefits of the provisions being waived. No failure to
exercise any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
granted hereunder.

Section 13.3 Entire Agreement. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
prior written or oral agreements and understandings and all contemporaneous oral
agreements and understandings among the parties or any of them with respect to
the subject matter hereof.

Section 13.4 Parties in Interest; Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns (it being understood and agreed that, except as
expressly provided herein, nothing contained in this Agreement is intended to
confer any rights, benefits or remedies of any kind or character on any other
Person under or by reason of this Agreement).

 

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Section 13.5 Third Parties. Nothing in this Agreement, whether express or
implied, shall be construed to give any Person other than the Managers, the
Members or the Company any legal or beneficial or other equitable right, remedy
or claim under or in respect of this Agreement, any covenant, condition,
provision or agreement contained herein or the property of the Company.

Section 13.6 Governing Law. This Agreement shall be governed by and construed
and interpreted in accordance with the laws of the State of Texas, without
regard to any principles of conflicts of law that would result in the
application of the laws of any other jurisdiction.

Section 13.7 Dispute Resolution. The Members hereby agree that prior to the
institution of any arbitration or litigation proceedings among the parties over
a provision of this Agreement, the party seeking to resolve the dispute (the
“Plaintiff”) shall submit such claim to nonbinding mediation, which shall be
held in Harris County, Texas. The Plaintiff shall notify in writing the other
parties against whom such mediation is sought (the “Defendants”) and shall
describe the nature of such claim, the provision of this Agreement which is
alleged to have been breached or violated by the Defendants, and the material
facts surrounding such claim. If the parties are unable to agree on a mediator,
the Plaintiff and the Defendants shall each appoint one mediator within thirty
(30) days of the date of the foregoing described notice. Within thirty (30) days
of appointment, such mediators shall appoint a third mediator. Each party
appointing a mediator shall bear all cost and expenses associated with such
mediator, and the costs and expenses associated with the third mediator (or the
first mediator if one is agreed upon) shall be borne equally by the parties.
Within thirty (30) days of the appointment of the foregoing described
mediator(s), the Plaintiff and Defendants shall hold a mediation hearing before
such mediator(s) at such time and place as the Plaintiff and Defendants may
agree. At such mediation hearing, the Alternative Dispute Resolutions provisions
of the Texas Civil Practice & Remedies Code shall apply.

Section 13.8 Amendment. This Agreement may be amended only by a written
instrument executed by all of the Management Members, except that no alteration,
amendment or repeal of any provision of this Agreement that would adversely
affect the Employee Members’ rights to allocations or distributions (as provided
in Article IV of this Agreement) shall be effective unless and until a majority
of the Employee Members consent to such alteration, amendment or repeal.

Section 13.9 Severability. In the event that any provision contained in this
Agreement shall be held to be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of any such provision in every other
respect and the validity, legality and enforceability of the remaining
provisions contained in this Agreement shall not be in any way impaired thereby.
Furthermore, in lieu of such invalid, illegal or unenforceable provision, there
shall be deemed added automatically as a part of this Agreement a provision as
similar in terms to such invalid, illegal or unenforceable provision as may be
possible and as may be valid, legal and enforceable.

 

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Section 13.10 Further Assurances. The Members and Managers shall execute and
deliver such further instruments and do such further acts and things as may be
required to carry out the intent and purposes of this Agreement. Each Member and
Manager shall execute all such certificates and other documents and shall do all
such filing, recording, publishing, and other acts as the Managers deem
appropriate to comply with the requirements of law for the formation and
operation of the Company and to comply with any laws, rules, and regulations
relating to the acquisition, operation, or holding of the property of the
Company.

Section 13.11 Counterparts; Electronic Transmission. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original
instrument, but all of such counterparts together shall constitute one and the
same instrument. This Agreement may be executed by a party’s signature
transmitted by electronic means, including by facsimile or e-mail (“Electronic
Means”), and copies of this Agreement executed and delivered by Electronic Means
shall have the same force and effect as copies hereof executed and delivered
with original signatures. All parties hereto may rely upon signatures
transmitted by Electronic Means as if such signatures were originals. Any party
executing and delivering this Agreement by Electronic Means shall promptly
thereafter deliver a counterpart signature page of this Agreement containing
said party’s original signature. All parties hereto agree that a signature page
transmitted by Electronic Means may be introduced into evidence in any
proceeding arising out of or related to this Agreement as if it were an original
signature page.

[Signature Page Follows]

 

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EXECUTED on March 2, 2011, by the undersigned to be effective the 20th day of
August, 2010.

 

Black Elk Management, LLC, a Texas limited liability company By:  

/s/ John Hoffman

  John Hoffman, Manager By:  

/s/ James Hagemeier

  James Hagemeier, Manager “MEMBERS”

/s/ John Hoffman

  John Hoffman  

/s/ James Hagemeier

  James Hagemeier   “MANAGERS”

 

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