Document:

Exhibit 10.1

 

DATED

 

SCIENTIFIC GAMES CORPORATION

 

and

 

SCIENTIFIC GAMES INTERNATIONAL HOLDINGS
LIMITED

 

and

 

SCIENTIFIC GAMES
BETEILIGUNGSGESELLSCHAFT MBH

 

and

 

WALTER GRUBMUELLER

 

and

 

STEPHEN GEORGE FRATER

 

and

 

THE TRUSTEES OF WARERO PRIVATSTIFTUNG

 

and

 

JEFFERY FREDERICK NASH

 

AGREEMENT

 

for the sale and purchase of the

entire issued share capital of each of

Neomi Associates, Inc

and Research and Development GmbH

 

 

 

Berwin Leighton Paisner LLP

Adelaide House London Bridge London EC4R 9HA

tel +44 (0)20 7760 1000  fax +44 (0)20 7760 1111

 

 

CONTENTS

 

	
  1

  	
  Definitions and
  interpretation

  	
  1

  
	
  2

  	
  Agreement for sale

  	
  9

  
	
  3

  	
  Consideration

  	
  9

  
	
  4

  	
  Adjustments to
  Consideration

  	
  10

  
	
  5

  	
  Closing Accounts

  	
  11

  
	
  6

  	
  Closing

  	
  17

  
	
  7

  	
  Set-off

  	
  21

  
	
  8

  	
  Warranties and
  indemnities by the Sellers

  	
  21

  
	
  9

  	
  Warranties by the Buyers

  	
  27

  
	
  10

  	
  Assignment and succession

  	
  28

  
	
  11

  	
  Post-termination
  provisions

  	
  28

  
	
  12

  	
  Announcements

  	
  31

  
	
  13

  	
  Information and further
  assurance

  	
  31

  
	
  14

  	
  Remedies and Waiver

  	
  32

  
	
  15

  	
  Contracts (Rights of
  Third Parties) Act 1999

  	
  33

  
	
  16

  	
  Costs

  	
  33

  
	
  17

  	
  Termination

  	
  33

  
	
  18

  	
  Invalidity

  	
  33

  
	
  19

  	
  Counterparts

  	
  34

  
	
  20

  	
  Joint and several
  liability

  	
  34

  
	
  21

  	
  Communications

  	
  35

  
	
  22

  	
  Sellers’ Guarantee

  	
  36

  
	
  23

  	
  Buyers’ Guarantee

  	
  38

  
	
  24

  	
  Proper law and agent for
  process

  	
  39

  
	
  25

  	
  Entire Agreement

  	
  40

  
	
  26

  	
  Adjustment to Consideration

  	
  40

  
	
  27

  	
  Trustee Sellers

  	
  40

  
	
   

  	
   

  	
   

  
	
  SCHEDULE 1 Details of
  the Sellers and Buyers

  	
  42

  
	
  SCHEDULE 2
  Details of the Companies

  	
  43

  
	
  SCHEDULE 3 Warranties

  	
  47

  
	
  SCHEDULE 4 Taxation

  	
  94

  
	
  SCHEDULE 5 Seller
  protection provisions (clause 8)

  	
  107

  
	
  SCHEDULE 6 The Contingent
  Consideration

  	
  111

  
	
  SCHEDULE 7 Details of
  the System

  	
  119

  
	
  SCHEDULE 8 Closing
  Accounts Pro-forma of Closing Accounts

  	
  137

  
	
  SCHEDULE 9

  	
  139

  
	
  Part 1 The Properties

  	
  139

  
	
  Part 2 Schedule of Property Documents to be handed over

  	
  141

  
	
  SCHEDULE 10 IP
  Assignments

  	
  144

  

 

 

DATED

 

PARTIES 

 

	
  1

  	
   

  	
   

  	
   

  	
  SCIENTIFIC GAMES CORPORATION a
  company incorporated in Delaware whose office is 750 Lexington Avenue, 5th
  Floor, New York, NY 10022 (“SGC”);

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2

  	
   

  	
  Sellers

  	
   

  	
  the
  persons whose names and addresses are set out in column 1 of schedule 1;
  and

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3

  	
   

  	
  Buyers

  	
   

  	
  the
  persons whose names and addresses are set out in column 5 of schedule 1.

  

 

OPERATIVE PROVISIONS

 

1                 Definitions and interpretation

 

1.1              In this agreement, the
following definitions apply:

 

	
  Accounts

  	
   

  	
  the
  Management Accounts and the Audited Accounts;

  
	
   

  	
   

  	
   

  
	
  Adjustment Estimate

  	
   

  	
  (£20,821,750)
  (negative twenty million, eight hundred and twenty one thousand, seven
  hundred and fifty pounds sterling);

  
	
   

  	
   

  	
   

  
	
  Adjusted Net Assets

  	
   

  	
  the
  amount of the net assets of the Group as at 31 December 2005 less the amount
  of certain incurred liabilities (the nature of which liabilities are set out
  in the Closing Accounts) by the Group since 31 December 2005 up to the date
  of Closing as agreed or determined in accordance with clause 5 which, for the
  purposes of Closing, have been estimated as (£20,821,750) (negative twenty
  million, eight hundred and twenty one thousand, seven hundred and fifty
  pounds sterling);

  

 

	
  Associate

  	
   

  	
  (a)

  	
   

  	
  (in relation
  to an individual):

  

 

1

 

	
   

  	
   

  	
  (i)

  	
   

  	
  a relative,
  that is the individual’s issue, step-child, spouse, civil partner, brother,
  sister or parent;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (ii)

  	
   

  	
  a company
  which is, or may be, controlled (within the meaning given in s840 ICTA)
  by the individual or a relative (as defined in (i) above), or by two or more
  of them; and

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b)

  	
   

  	
  (in relation
  to a company) a subsidiary undertaking or parent undertaking of the company,
  and any other subsidiary undertaking of any parent undertaking of the
  company, “parent undertaking” and “subsidiary
  undertaking” having
  the same meanings as in s258 CA1985;

  

 

	
  Audited Accounts

  	
   

  	
  the
  audited balance sheets, as at 31 March 2004 and 31 March 2005, and the
  audited profit and loss accounts for the financial years ended on
  31 March 2004 and 31 March 2005 of Global Draw and the audited balance
  sheets as at 31 December 2004 and 31 December 2005 and the audited profit and
  loss accounts for the financial years ended on 31 December 2004 and 31
  December 2005 of Research and Development GmbH, including, in each case, the
  directors’ report and notes (“financial year”
  being determined in accordance with s223 CA1985);

  
	
   

  	
   

  	
   

  
	
  Business Day

  	
   

  	
  a day
  (other than a Saturday or Sunday) on which the clearing banks in the City of
  London are open for business;

  
	
   

  	
   

  	
   

  
	
  Buyers’ Accountants

  	
   

  	
  Deloitte
  & Touche LLP, Athene Place, 66 Shoe Lane, London EC4A 3BQ;

  
	
   

  	
   

  	
   

  
	
  Buyers’ Solicitors

  	
   

  	
  Berwin
  Leighton Paisner LLP, Adelaide House,

  

 

2

 

	
   

  	
   

  	
  London
  Bridge, London EC4R 9HA;

  
	
   

  	
   

  	
   

  
	
  CA1985

  	
   

  	
  Companies
  Act 1985;

  
	
   

  	
   

  	
   

  
	
  Closing

  	
   

  	
  completion
  of the purchase of the Shares in accordance with clause 6;

  
	
   

  	
   

  	
   

  
	
  Closing Accounts

  	
   

  	
  the
  accounts of the Group as at 31 December 2005 as prepared, adjusted and agreed
  or determined in accordance with clause 5;

  
	
   

  	
   

  	
   

  
	
  Companies

  	
   

  	
  Neomi,
  the Subsidiaries and Research and Development GmbH (details of each of which
  are set out in schedule 2) and references to “the Company” shall in the
  Warranties and, unless the context otherwise requires, elsewhere in this
  agreement be deemed to be a reference to each and all of such companies;

  
	
   

  	
   

  	
   

  
	
  Companies Acts

  	
   

  	
  CA1985,
  the former Companies Acts (within the meaning of s735(1) CA1985) and the
  Companies Act 1989;

  
	
   

  	
   

  	
   

  
	
  Consideration

  	
   

  	
  the
  consideration payable for the Shares as set out in clause 3.1;

  
	
   

  	
   

  	
   

  
	
  Consultancy Agreements

  	
   

  	
  means
  the consultancy agreement between the Guarantor and Scientific Games Holdings
  Limited and each of Claus Peter Paula and Werner Ettle and Scientific Games
  International Holdings Limited;

  
	
   

  	
   

  	
   

  
	
  Contingent Consideration

  	
   

  	
  has
  the meaning ascribed to it in clause 3.1.3;

  
	
   

  	
   

  	
   

  
	
  Deferred Tax

  	
   

  	
  has
  the meaning ascribed to it in schedule 4;

  
	
   

  	
   

  	
   

  
	
  Disclosure Documents

  	
   

  	
  means
  the documents annexed to the Disclosure Letter and listed in the schedules to
  the

  

 

3

 

	
   

  	
   

  	
  Disclosure
  Letter;

  
	
   

  	
   

  	
   

  
	
  Disclosure Letter

  	
   

  	
  the
  disclosure letter dated with the same date as this agreement from the Sellers
  to the Buyers relating to the Warranties;

  
	
   

  	
   

  	
   

  
	
  Employment Contracts

  	
   

  	
  the
  employment contracts to be entered into by each of Stephen Frater, Jeffery
  Nash, Lee Morton, Mark Wilkinson, Barry Stapely with Global Draw, Paul
  Jenkins with Pagoda, each of Thomas Eckersdorfer, Stefan Allmer and Beata
  Sadowska with Research and Development GmbH;

  
	
   

  	
   

  	
   

  
	
  Estimated Incurred Liabilities

  	
  (£23,913,593)
  (negative twenty three million, nine hundred and thirteen thousand, five
  hundred and ninety three pounds sterling) being the estimate of certain
  liabilities (the nature of which has been agreed by the Sellers and the
  Buyers) incurred since 31 December 2005 by the Group net of tax credit
  received or to be received under clause 5.2.4;

  
	
   

  	
   

  	
   

  
	
  Estimated Net Asset Value

  	
  £3,091,843
  (three million, ninety one thousand, eight hundred and forty three pounds
  sterling) being the estimate of the net assets of the Group as at 31 December
  2005;

  
	
   

  	
   

  	
   

  
	
  FOBTs

  	
   

  	
  fixed
  odds betting terminals;

  
	
   

  	
   

  	
   

  
	
  FRS

  	
   

  	
  a
  financial reporting standard issued or adopted by The Accounting Standards
  Board Limited;

  
	
   

  	
   

  	
   

  
	
  Global Draw

  	
   

  	
  Global
  Draw Limited;

  
	
   

  	
   

  	
   

  
	
  Group

  	
   

  	
  all
  the Companies (details of each of which are set out in schedule 2);

  
	
   

  	
   

  	
   

  
	
  Guarantor

  	
   

  	
  Walter
  Grubmueller, one of the Sellers;

  

 

4

 

	
  HMRC

  	
   

  	
  Her
  Majesty’s Revenue and Customs (which shall include its predecessors, the
  Inland Revenue and HM Customs and Excise);

  
	
   

  	
   

  	
   

  
	
  ICTA

  	
   

  	
  has
  the meaning ascribed to it in schedule 4;

  
	
   

  	
   

  	
   

  
	
  Initial Consideration

  	
   

  	
  the
  sum of the amounts set out in clauses 3.1.1 and 3.1.2;

  
	
   

  	
   

  	
   

  
	
  Intellectual Property Rights

  	
  all
  copyright and rights in the nature of copyright, database rights, design
  rights, patents, rights in inventions, supplementary protection certificates,
  petty patents, utility models, semi-conductor topography rights, plant
  variety rights, trade marks (including all goodwill in them) and domain
  names, registrations and applications for registration of any of the above,
  moral rights, know-how, confidential information, and any other intellectual
  or industrial property rights, whether now known or in the future arising,
  and whether subsisting in the United Kingdom or any other part of the world;

  
	
   

  	
   

  	
   

  
	
  IP Assignments

  	
   

  	
  the
  assignments of Intellectual Property Rights listed in schedule 10;

  
	
   

  	
   

  	
   

  
	
  Management Accounts

  	
   

  	
  the
  unaudited consolidated management accounts of the Group for the period from 1
  April 2005 to the Management Accounts Date;

  
	
   

  	
   

  	
   

  
	
  Management Accounts Date

  	
  31
  December 2005;

  
	
   

  	
   

  	
   

  
	
  Neomi

  	
   

  	
  Neomi
  Associates, Inc;

  
	
   

  	
   

  	
   

  
	
  Neomi Shares

  	
   

  	
  the
  entire issued share capital of Neomi, being 100 issued ordinary shares of $1
  each of the Company;

  

 

5

 

	
  Net Assets

  	
   

  	
  has
  the meaning given to it in clause 5.3;

  
	
   

  	
   

  	
   

  
	
  Omnibet

  	
   

  	
  Omnibet
  Limited;

  
	
   

  	
   

  	
   

  
	
  Pagoda

  	
   

  	
  Pagoda
  Leisure Limited;

  
	
   

  	
   

  	
   

  
	
  Pagoda Shares

  	
   

  	
  the
  10 issued ordinary shares of £1 each in Pagoda held by Stephen Frater;

  
	
   

  	
   

  	
   

  
	
  Pro-forma EBITDA model

  	
  the
  pro-forma EBITDA model signed by or on behalf of the Sellers and the Buyers
  for the purposes of identification;

  
	
   

  	
   

  	
   

  
	
  Properties

  	
   

  	
  the
  properties of the Group shortly described in Part 1 of schedule 9 and Property is a reference to one of them;

  
	
   

  	
   

  	
   

  
	
  Property Documents

  	
   

  	
  the
  lease agreements relating to Green Lane (London), 55 and 56 Elizabeth Gardens
  and Austrian office spaces;

  
	
   

  	
   

  	
   

  
	
  R&D Share

  	
   

  	
  the
  entire issued share capital of Research and Development GmbH, being one
  issued ordinary share of the Company;

  
	
   

  	
   

  	
   

  
	
  Scrivan

  	
   

  	
  Scrivan
  Properties Limited;

  
	
   

  	
   

  	
   

  
	
  SDLT

  	
   

  	
  has
  the meaning ascribed to it in Schedule 4;

  
	
   

  	
   

  	
   

  
	
  Sellers’ Accountants

  	
   

  	
  E C
  Brown & Batts, Delta House, 175-177 Borough High Street, London SE1 1XP;

  
	
   

  	
   

  	
   

  
	
  Sellers’ Solicitors

  	
   

  	
  Shearman
  & Sterling (London) LLP, 9 Appold Street, Broadgate West, London EC2A
  2AP;

  
	
   

  	
   

  	
   

  
	
  Service Agreements

  	
   

  	
  has
  the meaning ascribed to it in the Tax Deed;

  

 

6

 

	
  Shares

  	
   

  	
  the
  Neomi Shares, the Pagoda Shares and the R&D Share;

  
	
   

  	
   

  	
   

  
	
  SSAP

  	
   

  	
  a
  statement of standard accounting practice adopted by The Accounting Standards
  Board Limited;

  
	
   

  	
   

  	
   

  
	
  Subsidiaries

  	
   

  	
  the
  Subsidiary Undertakings of Neomi as at the date of this agreement, being
  Global Draw and Pagoda;

  
	
   

  	
   

  	
   

  
	
  Subsidiary Undertaking

  	
   

  	
  as
  defined in s258 CA1985;

  
	
   

  	
   

  	
   

  
	
  TCGA

  	
   

  	
  Taxation
  of Chargeable Gains Act 1992;

  
	
   

  	
   

  	
   

  
	
  Tax Deed

  	
   

  	
  a
  deed relating to Taxation;

  
	
   

  	
   

  	
   

  
	
  Taxation or Tax

  	
   

  	
  references
  to Taxation or Tax (including references which form part of a defined
  expression) are to Tax as defined in the Tax Deed;

  
	
   

  	
   

  	
   

  
	
  Trustee Sellers

  	
   

  	
  the
  trustees of Warero Privatstiftung, a trust, being Rodriguez de Grubmueller,
  Mag. Romana Prinz and Mag. Thomas Wladika;

  
	
   

  	
   

  	
   

  
	
  UK GAAP

  	
   

  	
  generally
  accepted accounting principles used to prepare financial statements of
  companies in the United Kingdom;

  
	
   

  	
   

  	
   

  
	
  US GAAP

  	
   

  	
  generally
  accepted accounting principles used to prepare financial statements of
  companies in the United States of America; and

  
	
   

  	
   

  	
   

  
	
  Warranties

  	
   

  	
  the
  warranties of the Sellers contained in schedules 3 and 4 of this agreement.

  

 

7

 

1.2              A reference to a
statutory provision includes a reference to:

 

1.2.1                    a statutory
amendment, consolidation or re-enactment made before the date of this
agreement;

 

1.2.2                    statutory
instruments or subordinate legislation or orders made under the statutory
provision before the date of this agreement; and

 

1.2.3                    statutory
provisions of which the statutory provision is an amendment, consolidation or re-enactment;

 

but
does not include a substituted provision.

 

1.3              References to a
statutory provision or to a legal or accounting principle applying in England
and Wales shall, where the context requires, be replaced by references to the
nearest corresponding provision or principle in the local jurisdiction and
references to a governmental, local governmental or administrative authority or
agency shall be replaced by references to the nearest equivalent governmental,
local governmental or administrative authority or agency in that jurisdiction.

 

1.4              Reference to:

 

1.4.1                    a person includes
a legal or natural person, partnership, trust, company, government or local
authority department or other body (whether corporate or unincorporate);

 

1.4.2                    a statutory or regulatory
body shall include its successors and any substituted body;

 

1.4.3                    an individual
includes, where appropriate, his personal representatives;

 

1.4.4                    the singular
includes the plural and vice versa; and

 

1.4.5                    one gender
includes all genders.

 

1.5              Unless otherwise stated,
a reference to a clause, sub-clause or schedule is a reference to a clause or
sub-clause of, or schedule to, this agreement and a reference to this agreement
includes its schedules.

 

1.6              Clause headings in this
agreement and in the schedules are for ease of reference only and do not affect
its construction.

 

8

 

1.7              In construing this
agreement the so-called ejusdem generis rule
does not apply and accordingly the interpretation of general words shall not be
restricted by words indicating a particular class or particular examples.

 

1.8              The expression “on an
after Tax basis” means, in relation to an indemnity, after taking into account,
in calculating the amount due in respect of such indemnity, the treatment for
the recipient’s Taxation purposes of the receipt of a payment pursuant to such
indemnity, to the intent that the recipient shall not be placed in any better
or worse position than it would have been had the liability giving rise to the
indemnity not arisen.

 

2                 Agreement for sale

 

2.1              The Sellers agree to
sell the Shares (with full title guarantee) free from encumbrances and the
Buyers agree to purchase or procure the purchase by an Associate of the Buyer
of the Shares with all rights attaching to them in each case in the amounts set
out opposite their respective names in schedule 1 and with effect from Closing.

 

2.2              The Sellers waive all
pre-emption rights and other rights of first refusal in relation to any of the
Shares, whether under the constitutional documents of the Companies or
otherwise.

 

3                 Consideration

 

3.1              The purchase
consideration for the Shares shall be the sum of the Initial Consideration and
the Contingent Consideration, calculated as follows:

 

3.1.1                    £105,442,466 (one hundred
and five million, four hundred and forty two thousand, four hundred and sixty
six pounds sterling); plus

 

3.1.2                    the Adjusted Net
Assets; plus

 

3.1.3                    such sum (if any)
as is payable in accordance with and subject to clause 3.3 (the “Contingent Consideration”).

 

3.2              That part of the Initial
Consideration set out in clause 6.6 shall be paid at Closing in cash.

 

3.3              The Contingent
Consideration shall be calculated and paid in accordance with the terms of
schedule 6.

 

9

 

3.4              The Buyers shall be
responsible for procuring the payment of the Consideration and the Sellers have
agreed that the Initial Consideration is to be shared between themselves in the
amounts and/or proportions set out opposite their respective names in schedule
1 or as the Sellers shall direct and that the Contingent Consideration is to be
paid only to the Guarantor.  Any payment
of an amount of Initial Consideration by a Buyer shall be made to the account
of the Sellers’ Solicitors with Barclays Bank PLC, 1 Churchill Place, London
E14 5HP, Sort Code 20-00-00, and account number 50751227, SWIFT: BARCGB22,
IBAN: GB39 BARC 2000 2000 7512 27 which shall constitute a discharge of the
Buyers’ obligation to pay such amount and the Buyers shall not be concerned as
to the application of the Consideration between the Sellers.  Any payment of an amount of Contingent
Consideration shall be made to the account of the Sellers’ Solicitors as
detailed above which shall constitute a discharge of the Buyers’ obligation to
pay such amount.

 

4                 Adjustments

 

4.1              If the amount of the
Adjusted Net Assets is a number below the Adjustment Estimate, the amount
payable under this agreement shall be reduced by the difference between the
Adjustment Estimate and the Adjusted Net Assets.

 

4.2              If the amount of the
Adjusted Net Assets is a number above the Adjustment Estimate, the amount
payable under this agreement shall be increased by the difference between the
Adjustment Estimate and the Adjusted Net Assets.

 

4.3              Subject to clause 4.6, the
Sellers are liable to pay the amount of any reduction resulting from clause 4.1
to the Buyers in cash (including interest on such sum which shall accrue at the
rate of 4.14 per cent. per annum calculated from the date of closing to the date
of payment) within 14 days after the Adjusted Net Assets have been agreed or
determined.

 

4.4              Subject to clause 4.6, the
Buyers are liable to pay the amount of any increase resulting from clause 4.2
to the Sellers in cash (including interest on such sum which shall accrue at
the rate of 4.14 per cent. per annum calculated from the date of closing to the
date of payment) within 14 days after the Adjusted Net Assets have been agreed
or determined provided that no increase shall be made in respect of any credit
for any corporation tax deduction in Global Draw in respect of the transfer of
Neomi Shares to Jeffery Nash and Stephen Frater until such corporation tax
deduction is available in Global Draw.

 

10

 

4.5              On agreement or
determination of the Closing Accounts pursuant to clause 5, the Buyers shall by
means of electronic funds transfer to the account of the Sellers’ Solicitors
(details of which are set out in clause 3.4) the sum of £5,000,000 being part
of the Initial Consideration not paid on closing.

 

4.6              Any payments due and
payable in accordance with clauses 4.1 or 4.2 (including any interest thereon
calculated pursuant to clauses 4.3 or 4.4) shall be added to or set off from the
amount set out in clause 4.5.

 

5                 Closing Accounts

 

5.1              The Closing Accounts
shall be prepared by employing the pro forma balance sheet set out in schedule
8 (an initial draft of which has been signed for the purposes of identification
by or on behalf of the parties to this agreement on the date of this agreement)
and in particular in accordance with the accounting principles, standards and
policies used in the preparation of:

 

5.1.1                    the latest Audited
Accounts or, to the extent that the same do not provide adequate guidance or
specific accounting treatments;

 

5.1.2                    the Management
Accounts;

 

in each case
to the extent consistent with UK GAAP and otherwise in accordance with UK GAAP.

 

5.2              The Closing Accounts
shall be prepared:

 

5.2.1                    to include all
known assets of the Group save for the following which shall not be regarded as
assets of the Group and which shall be excluded:

 

(a)                     any amounts
receivable from Scrivan unless such amounts are repaid by Scrivan prior to Closing;
and

 

(b)                     any amounts due
or owing from trade and other debtors as at 31 December 2005 which have not
been settled in full in cash; and

 

5.2.2                    to provide in full
for all liabilities of the Group including without limitation:

 

11

 

(a)                     the amounts paid
or agreed prior to the date of Closing to be paid to any employee or consultant
of the Group (including Stephen Frater, Barry Stapely and Jeffery Nash) by way
of bonus or exceptional pension contribution together with all costs incurred
by the Group in connection with the engagement of Jeffery Nash, other than in
respect of Jeffery Nash’s monthly retainers (except an amount of up to £12,000
in aggregate which will be assumed by the Buyer in respect of the monthly
retainers of Jeff Nash for each of January, February and March 2006) together
with any employer’s national insurance contribution payable by Global Draw in
respect of the transfer of the Neomi Shares pursuant to this agreement owned by
Stephen Frater and Jeffery Nash;

 

(b)                     any accounting,
legal or other costs, fees (including professional fees), expenses, commissions
or liabilities:

 

(i) incurred
or to be incurred by the Group in connection with this agreement or the entry
into or performance of the transactions or arrangements contemplated by it including
the costs of the preparation and determination of the Closing Accounts; or

 

(ii) incurred
or to be incurred by the Group and/or the Buyer or its Associates in relation
to the IP Assignments but only to the extent that such costs do not exceed the
sum of £25,000,

 

but excluding
(i) any costs incurred by a member of the Group to the extent that the Buyers
agree in writing that the costs relating to such matters need not be taken into
account in the Closing Accounts; or (ii) any costs relating to the closure of
the online sports betting business of Omnibet but only to the extent that such
costs do not exceed the sum of £100,000;

 

12

 

	
   

  	
  (c)

  	
  any sums which were due as rent but which have not
  been paid in respect of leases of the Properties (including service charge
  and insurance rents);

  
	
   

  	
   

  	
   

  
	
   

  	
  (d)

  	
  all borrowings, indebtedness in the nature of
  borrowings or any other interest-bearing liability (including without
  limitation sums payable under finance leases, hire purchase agreements or
  similar obligations), financing liabilities and Tax liabilities (including
  without limitation Deferred Tax);

  
	
   

  	
   

  	
   

  
	
   

  	
  (e)

  	
  all costs
  incurred prior to Closing or budgeted or reasonably likely to be incurred at
  any time in connection with

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (i)

  	
  the completion
  and fit out of the Group’s premises at Green Lane, London and the extension
  of the Group’s premises in Vienna, Austria;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (ii)

  	
  any costs
  relating to any dilapidations with regard to any of the Properties;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (iii)

  	
  all arrear
  rent in respect of the Properties up to and including 31 December 2005;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (iv)

  	
  any SDLT
  payable (including any fees, interest or penalties incurred in respect
  thereof);

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (v)

  	
  the
  commissioning of any plant and equipment (including the rear warehouse
  boiler);

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (vi)

  	
  repairs to
  any boundary feature (including fencing);

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (vii)

  	
  the
  remedying of any breach under current fire regulations and the obtaining of a
  current and valid fire certificate; and

  

 

 

13

 

	
   

  	
   

  	
  (viii)

  	
  the
  remedying of any breach under current building regulations and the obtaining
  of any necessary building regulation approval and building regulation
  completion certificate,

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  in the case
  of each of (iv) to (viii) above in connection with the Group’s premises at
  Green Lane, London;

  
	
   

  	
   

  	
   

  
	
   

  	
  (f)

  	
  the amount
  of any distributions or dividends (whether of cash or assets) made prior to
  Closing;

  
	
   

  	
   

  	
   

  
	
   

  	
  (g)

  	
  the amount
  of any payments made or costs or liabilities which prior to Closing are
  incurred or agreed to be incurred other than in the ordinary course of
  business other than in respect of the cessation of the Group’s business in
  Kosovo, Bosnia and Serbia;

  
	
   

  	
   

  	
   

  
	
   

  	
  (h)

  	
  any cost or
  liability suffered by a member of the Group or the Buyers or their Associates
  on account of a breach of the Warranties (as if the provisions of schedule 5
  did not apply) or the warranties of the Sellers contained in clause 8;

  
	
   

  	
   

  	
   

  
	
   

  	
  (i)

  	
  the amount
  of any reasonable payments, costs or liabilities incurred by a member of the
  Group or the Buyers in respect of acquiring or remedying any IP licences
  necessary to operate the business of the Group as at Closing;

  
	
   

  	
   

  	
   

  
	
   

  	
  (j)

  	
  £191,000
  representing the amount of withholding taxes incurred by the Group in respect
  of the transfer of IPRs from Cyberpark Middle East FZ-LLC to the Group;

  
	
   

  	
   

  	
   

  
	
   

  	
  (k)

  	
  £537,500 as
  at 31 December 2005 plus any further amount accrued thereon in respect of a
  payable from Global Draw to the Guarantor relating to his consultancy
  arrangements, together with any other amount owed by any member of the Group
  to the Guarantor;

  

 

14

 

(l)                                                             the amount of any reasonable payments, costs or liabilities incurred
by a member of the Group or the Buyers in respect of the preparation of the Tax
returns and associated correspondence for all accounting periods ending on or
before Closing;

 

5.2.3                    so as to give
credit for any capital introduced to the Group;

 

5.2.4                    so as to give
credit or debit for any Tax benefit or liability (as the case may be) actually
received or payable by any member of the Group in respect of any of the matters
set out in clauses 5.2.2 or 5.2.3.  To
the extent that credit has been given for a Tax benefit which is not
subsequently realised or retained by any of the Companies, the Sellers shall
pay to the Buyers an amount equal to the amount of the credit upon written
request by the Buyers;

 

5.2.5                    so that (subject
to clause 5.2.2(b)) the economic earnings of Omnibet from 1 January 2006 up to
and including Closing, shall accrue for the benefit of the Buyers;

 

5.2.6                    so that a loan
account (“Account”) for the benefit of the
Guarantor in the amount of £21,196,182 will be set off against a receivable due
to Scrivan of £5,438,550 to make a full and final payment of £15,707,632 by the
Group to the Guarantor in respect of the Account;

 

5.2.7                    so that, as at 31
December 2005, intercompany receivables and payables are offset and recorded in
the consolidation column within the consolidated accounts of the Group against
the relevant companies to which they apply; and

 

5.2.8                    so that from 1
January 2006 up to and including Closing, Group funding arrangements between
Omnibet and Jackpot Dream Limited will be settled in cash as part of the
Closing Accounts.

 

5.3              The balance sheet in the
Closing Accounts shall be presented in the form of the pro forma balance sheet
included in schedule 8 and the “Net Assets”
shall be the aggregate consolidated value of the current assets of the Group
minus the aggregate consolidated value of all liabilities of the Group as shown
on that balance sheet.

 

15

 

5.4              The Buyers shall procure
the preparation by the Buyers’ Accountants of a draft of the Closing Accounts
and a draft statement as to the Net Assets and the delivery of the drafts to
the Sellers or the Sellers’ Accountants within 105 days of Closing.  If so requested by the Buyers’ Accountants,
the Sellers shall and shall procure that the Sellers’ Accountants shall render
all necessary assistance in the preparation of the Closing Accounts.

 

5.5              The Sellers shall review
the drafts delivered by the Buyers’ Accountants under clause 5.4 and shall
instruct the Sellers’ Accountants to deliver to the Buyers and the Buyers’
Accountants, within 30 days of the delivery of the drafts a report setting out
any matters of disagreement with the drafts. In the absence of a report within
that period, the drafts shall be deemed to be agreed by both parties.  All the items in the drafts (if no report is
delivered within the applicable time limit) or (if a report is delivered) all
the items which are not specified in the report as being subject to
disagreement, shall be deemed to be agreed by the parties. In order to enable
the Sellers to review and consider the drafts, the Buyers will procure that all
books and records of the Group are made available to the Sellers and the
Sellers’ Accountants solely for that purpose.

 

5.6              The Buyer shall give to
the Sellers and their advisers, and shall procure that the Company gives all
such information and assistance, including access to premises and personnel
within the Buyers’ control and opportunity to examine and (at the Sellers’
expense) copy relevant documents and records of the Company which are within
the Buyers’ control, in each case for the purpose of evaluating the draft of
the Closing Accounts.

 

5.7              If, within 14 days of
the delivery to the Buyers of the report referred to in clause 5.5, there
remains an outstanding dispute with respect to the Closing Accounts or the
calculation of the Net Assets, the dispute shall be referred to a firm of
chartered accountants, nominated jointly by the Sellers and the Buyers or,
failing nomination within 14 days after request by either the Sellers or the
Buyers, nominated at the request of either party by the president of the
Institute of Chartered Accountants in England and Wales or any successor
institute.  The firm shall be instructed
to prepare as soon as practicable a determination of the Net Assets having
regard to the draft Closing Accounts and statement as to Net Assets and the
report referred to above. The firm shall act as experts and not as arbitrators
and their decision (in the absence of manifest error) shall be final and
binding on the parties.  Their fees shall
be payable by the Sellers and the Buyers in such proportions as the firm
determines.

 

16

 

6                 Closing

 

6.1              Closing shall take place
at the offices of the Buyers’ Solicitors immediately following execution of
this agreement.

 

6.2              The Sellers shall deliver
to the Buyers:

 

6.2.1                    completed and
signed transfers of the Shares, in favour of the relevant Buyer specified in
schedule 1, or as it directs, together with the relative share certificates;

 

6.2.2                    the Tax Deed
executed by the Sellers;

 

6.2.3                    duly executed
originals of:

 

6.2.3.1             the IP Assignments; and

 

6.2.3.2             the Consultancy Agreement executed by Walter Grubmueller and
Employment Contracts executed by Stephen Frater and Jeffery Nash and such other
Consultancy Agreements and Employment Contracts as shall have been executed by
the relevant individuals on or before the date of this document;

 

6.2.3.3             evidence to the satisfaction of the Buyers that Tote Bookmakers
Limited (“Tote”) has consented to the change of
control effected by this agreement;

 

6.2.3.4             completed and signed transfers of the entire issued share capital of
each of Jackpot Dream Limited, The Global Draw Kosova SH.p.k. and Omnibet to the
Guarantor;

 

6.2.3.5             the signed Audited Accounts for the financial year ended 31 March
2005;

 

6.2.3.6             evidence to the satisfaction of the Buyers of the termination of the
consultancy agreement between Dog and Bone Properties Limited, Global Draw and Jeffery
Nash;

 

6.2.3.7             the Property Documents; and

 

17

 

6.2.3.8             the contracts between
Pagoda and each of the seven bookmakers in relation to the greyhound business.

 

6.2.4                    resignations of
the directors and secretary of each Company other than Stephen Frater, executed
as a deed, each containing an acknowledgement that he has no claim in respect
of breach of contract, compensation for loss of office, redundancy or unfair
dismissal or on any other ground;

 

6.2.5                    the resignation of
the auditors of each Company confirming that they have no outstanding claims
and in the case of Global Draw and Pagoda only containing a statement under
s394(1) CA1985 that there are no such circumstances as are mentioned in that
section;

 

6.2.6                    a confirmation,
executed as a deed by each of the Sellers, that:

 

6.2.6.1               there are no subsisting guarantees, indemnities or similar
arrangements given by a Company in favour of that Seller or his Associates;

 

6.2.6.2               neither that Seller nor his Associates is indebted to a Company;

 

6.2.6.3               there are no amounts owing to that Seller or his Associates by a Company;

 

6.2.7                    a certified copy
of any power of attorney under which this agreement or any of the transfers or
other documents referred to in this clause 6.2 has been executed on behalf of
any Seller and evidence satisfactory to the Buyers of the authority of any
person signing on behalf of any corporate entity; and

 

6.2.8                    any other document
required by the relevant laws of regulations of the relevant Company to effect
the matters set out in this clause 6.

 

6.3              The Sellers shall
deliver or make available to the Buyers:

 

6.3.1                    the statutory
books or equivalent of the Companies (which shall be written up to but not
including the Closing), their certificates of incorporation and common seals or
equivalent (if any);

 

18

 

6.3.2                    deeds of release
and discharge (or undertakings to provide deeds of release and discharge in
terms satisfactory to the Buyers) in respect of all charges and guarantees
entered into by a Company duly executed by those entitled to the benefit of such
charges and guarantees together with Form 403a executed on behalf of each
Company in relation to any charges appearing on the register of charges of the
Company at Companies House (including, without limitation, the charge(s)
specified in schedule 2);

 

6.3.3                    the documents of
title relating to shares and other securities owned by each member of the
Group;

 

6.3.4                    statements of the
bank accounts of each Company to a date which is not more than two Business
Days before Closing together with a reconciliation statement to Closing of the
same, and the appropriate forms to amend, in such manner as the Buyers require,
the mandates given to the relevant bank (each form to be duly signed by the
mandate holders as at Closing);

 

6.3.5                    a legal opinion of
Morgan & Morgan in relation to Neomi;

 

6.3.6                    a legal opinion of
Morgan & Morgan in relation to Scrivan including its capacity to enter into
the Property Documents;

 

6.3.7                    a legal opinion of
RA Dr Helmut Grubmuller in relation to the Trustee Sellers;

 

6.3.8                    duly executed forms
SDLT 1 and 4 in relation to the lease at Green Lane; and

 

6.3.9                    the originals of
all titles deeds and documents, leases and licences in relation to the
Properties as set out in Part 2 of schedule 9.

 

6.4              The Sellers shall
procure that a board meeting of each Company is held at which:

 

6.4.1                    such persons as
the Buyers nominate are appointed additional directors;

 

6.4.2                    the transfers
referred to in sub-clause 6.2.1 are approved (subject to stamping);

 

19

 

6.4.3                    the resignations
referred to in sub-clauses 6.2.4 and 6.2.5 are submitted and accepted.

 

6.5              The Buyers shall deliver
to the Sellers:

 

6.5.1                    the Tax Deed
executed by the Buyers; and

 

6.5.2                    a copy of the
minutes of duly held meetings of the directors of the Scientific Games
International Holdings Limited authorising the execution of this Agreement.

 

6.6              Upon completion of the
matters referred to in clauses 6.2 to 6.5, the Buyers shall pay by means of
electronic funds transfer to the account of the Sellers’ Solicitors (details of
which are set out in clause 3.4) the sum of £79,620,716 (seventy nine million, six
hundred and twenty thousand, seven hundred and sixteen pounds sterling) being
the aggregate of:

 

(i)                       the sum payable pursuant to clause 3.1.1;

 

(ii)                      the Adjustment Estimate; and

 

(iii)                     negative £5,000,000.

 

6.7              The Buyers shall not be
obliged to complete the purchase of any of the Shares unless the purchase of
all the Shares is completed in accordance with this agreement.

 

6.8              The Buyers may waive the
requirements contained in clauses 6.2 to 6.5 either unconditionally or subject
to the condition that any of the Sellers give, on Closing, a written indemnity
or undertaking to the Buyers in such form as the Buyers require.

 

6.9              If any of the transactions
set out in clauses 6.2 to 6.5 does not take place as provided, the Buyers may
without prejudice to their other remedies:

 

6.9.1                    defer Closing for
up to 20 days, provided that such deferral may occur only once;

 

6.9.2                    proceed to Closing
as far as practicable (without limiting its rights under this agreement); or

 

6.9.3                    either immediately
or following the deferral (if the transactions have still not taken place)
rescind this agreement.

 

20

 

6.10            The Sellers hereby
undertake to the Buyers to procure that such of the Consultancy Agreements and
Employment Agreements as are not delivered on Closing are duly executed by the
relevant individuals promptly after the date of this agreement, and in any
event within thirty days following Closing.

 

7                 Set-off

 

7.1               If a Buyer, the Company
or any Associate of a Buyer or the Company makes a claim for breach of or a
payment under this agreement or under the Tax Deed or any other agreement
entered into in connection with this agreement, the Buyer, Company or Associate
of the Buyer or the Company (as the case may be) may retain the aggregate
amount claimed against the Contingent Consideration pending settlement of the
claim.  The amount so retained may be
set-off in or towards satisfaction of the claim without affecting the other
remedies of the Buyers for the purpose of recovering amounts due to them from
the Sellers.

 

8                 Warranties and indemnities by the Sellers

 

8.1              Subject to the
provisions of schedule 5, the Sellers warrant to the Buyers that:

 

8.1.1                    the statements in
schedule 3 are accurate; and

 

8.1.2                    the statements in
schedule 4 are accurate.

 

8.2              The Sellers warrant to
the Buyers that:

 

8.2.1                    each Seller has
the power to enter into and perform this agreement and the Tax Deed which
constitute, or when executed will constitute, binding obligations on each of
them in accordance with their respective terms and each of them shall comply
with such terms;

 

8.2.2                    the share capitals
of the Companies as set out in schedule 2 constitute the whole of the allotted
and issued share capitals of the Companies, are fully paid up and have been
duly authorised and validly issued and no share capital of any Company is
subject to any encumbrance, warrant, options, calls or other rights calling for
the purchase of shares or interest therein;

 

8.2.3                    each relevant
Company is the sole legal and beneficial owner or is licensee of all
Intellectual Property Rights in, or relating to use of, the games set out in
schedule 7, and the Disclosure Letter sets out material particulars of all
licences to or from the Company (other

 

21

 

than between
the Companies) in respect of such Intellectual Property Rights;

 

8.2.4                    schedule 7 lists all games which are used in the conduct of the Company’s
business;

 

8.2.5                    the Shares are
owned by the Sellers free from encumbrances, warrants, options, calls or other
rights calling for the purchase of any of the Shares and the Sellers will be
entitled to transfer the ownership of the Shares to the Buyers on the terms of
this agreement without the consent of a third party;

 

8.2.6                    the Company has
never had any Subsidiary Undertakings other than Krullind Limited (company no.
1206185), Greatmark Limited (company no. 3064024), Jackpot Dream Limited
(company no. 4324743), Omnibet Limited (company no. C36732) and The Global Draw
Kosova SH.p.k. (company no. 70308488) and the other members of the Group as set
out in schedule 2;

 

8.2.7                    the information in
schedule 2 is accurate;

 

8.2.8                    the Company has no
borrowings, indebtedness in the nature of borrowings or any interest-bearing or
financing liability including but not limited to sums payable under finance
leases, hire purchase agreements or similar obligations;

 

8.2.9                    neither the
Company nor any of its representatives has corruptly or illegally offered or
given, and no person has otherwise corruptly or illegally offered or given on
behalf of the Company, anything of value to:

 

8.2.9.1               any official of a
governmental body, any political party or official thereof or any candidate for
political office;

 

8.2.9.2               any member of any
governmental body; or

 

8.2.9.3               any other person,

 

in any such
case while knowing, or having reason to know, that all or a portion of such
money or thing of value may be offered, given or promised, directly or
indirectly, to any official or employee of a 

 

22

 

governmental
body or candidate for political office, in each case for the purpose of the
following:

 

8.2.9.4             influencing any action or decision of such person, in his or her
official capacity, including a decision to fail to perform his or her official
function;

 

8.2.9.5             inducing such person to use his or her influence with any
governmental body to affect or influence any act or decision of such
governmental body to assist the Company in obtaining or retaining business for,
or with, any governmental body; or

 

8.2.9.6             where such payment would constitute a bribe, kickback or illegal or
improper payment to assist the Company in obtaining or retaining business for,
or with, or directing business to, any person.

 

8.2.10                  there have been no
false or fictitious entries made in the books or records of the Company
relating to any illegal payment or secret or unrecorded fund and the Company
has neither established nor maintained a secret or unrecorded fund;

 

8.2.11                  no equity interests
in either the Sellers or the Company have been issued in exchange for the
provision of any official benefit of the type set forth in sub-clauses 8.2.9.4
to 8.2.9.6 above;

 

8.2.12                  appropriate
safeguards have been implemented by the Company, including firewall and
customer acceptance procedures, to ensure that no wager is processed by
the Company from a jurisdiction which prohibits wagering or the transmission of
wagering information to the Company;

 

8.2.13                  so far as the
Sellers are aware, the business operations of the Sellers and the Company do
not by their nature and actual operation lend themselves to the laundering of
money in violation of any applicable law (including any United States
anti-money laundering statute or regulation); and

 

8.2.14                  the online sports
betting business carried on by Omnibet has been discontinued prior to the date
of this agreement.

 

23

 

8.3              The Warranties shall be
qualified by reference to and are given subject to any information fairly
disclosed by the Disclosure Letter but no matter shall be treated as having
been fairly disclosed unless the Disclosure Letter includes sufficient details
of the relevant matter, event or circumstance to enable the Buyers reasonably
to evaluate the purpose and effect of the disclosure including the likely
associated cost or liability where possible.

 

8.4              Each of the Warranties
is without prejudice to the other Warranties and, except where expressly stated
otherwise, no clause governs or limits the extent or application of the other
clauses.

 

8.5              None of the information
supplied by the Company, its officers, employees or its professional advisers
to the Sellers, or their representatives or advisers, in connection with the
Warranties and the contents of the Disclosure Letter, or otherwise in relation
to the business or affairs of the Company, shall be deemed a representation to
the Sellers as to its accuracy, and the Sellers shall not without the Buyers’
prior written consent make a claim against the Company, its officers, employees
or professional advisers in respect of such information. Nothing in this clause
8.5 shall prevent the Sellers from making or pursuing a claim or action in
relation to fraud or dishonesty.

 

8.6              The Sellers undertake to
the Buyers (for each of them and as trustees for the Company) to indemnify them
and the Company against:

 

8.6.1                    diminution in the
value of the assets of any Company, and payments necessarily made or required
to be made by a Buyer or a Company, as a result of or in connection with a
breach of the warranties (including those warranties set out in schedules 3 and
4 of this agreement) which are contained in this agreement or required to put
the Companies in the position in which it would have been had there been no
breach of such warranties;

 

8.6.2                    any costs, claims,
losses, actions, proceedings or Tax suffered by the Buyers or the Company in
connection with:

 

8.6.2.1               any corporate
reorganisation or transfer of shares or assets (including without limitation
any transfer of shares or assets between members of the Group or by the
Guarantor including (but without limitation) any transfer of shares or assets
in Jackpot Dream Limited,

 

24

 

The Global Draw Kosova SH.p.k or Omnibet) prior to
Closing but only to the extent that the same result directly from such
corporate reorganisation or transfer; or

 

8.6.2.2         the Global Draw Limited Retirement Benefits Scheme (the “SSAS”) apart from any contributions paid to the SSAS with
the express agreement of any member of the Group making the payment; or

 

8.6.2.3         the indemnities given pursuant to (i) an agreement for the sale of a
telephone and credit betting business carried on by Krullind Limited (“Krullind”) between Krullind and Pagoda; (ii) an agreement
for the sale of the entire issued share capital of Krullind between, among
others, Neomi and Ladbrokes Limited (“Ladbrokes”)
(the “Krullind SPA”); and (iii) an agreement
for the sale of the entire issued share capital of Greatmark Limited between
Neomi and Ladbrokes (the “Greatmark SPA”);
or

 

8.6.2.4         the warranties given pursuant to the Krullind SPA; or

 

8.6.2.5         any matter arising in connection with the online sports betting
business carried on by Omnibet referred to in clause 5.2.2(b); or

 

8.6.2.6         any actual, threatened or pending application or enforcement of those provisions of the
agreements or arrangements between any member of the Group and each of Coral
Racing Limited and Tote relating to:

 

(a)           the retention of the
Guarantor and/or Stephen Frater in a key managerial role within the Group
(provided such indemnity shall not apply in circumstances where the relevant
person ceases to retain such a key managerial role for any reason proven to be
wholly outside of such person’s control); or

 

25

 

(b)           the right of first refusal
and/or obligation of any member of the Group to offer new products or services to
Tote and/or any exclusivity arrangements between any member of the Group and
Coral Racing Limited;

 

8.6.2.7         and any costs and expenses
incurred by Global Draw relating to building works at Green Lane, London; and

 

8.6.3                    the costs and
expenses reasonably incurred by the Buyers or the Company as a result of a
breach referred to in clause 8.6.1 or circumstance contemplated in clause 8.6.2.

 

8.7              The indemnity in clause 8.6
is given on an after Tax basis and is without prejudice to any other rights of
the Buyers in relation to the breach or circumstance.

 

8.8              If the Buyers become
aware that any claim has been made against any member of the Group by a third
party after Closing which is likely to result in the Buyers being entitled to
make a claim against the Sellers in respect of a breach of clause 8.6.2 or for
a breach of Warranty except to the extent that such matters are dealt with in
the Tax Deed:

 

8.8.1                    the Buyers shall
give notice of such claim to the Sellers as soon as reasonably practicable and
shall procure that the relevant member of the Group shall give the Sellers all
reasonable facilities to investigate any such claim including access to books
and records of the member of the Group which are within the Buyers’ control.  Failure to give such notice as soon as
reasonably practicable shall not prevent the Buyers from making the relevant
claim, but the Sellers shall not be liable to the Buyer in respect of such
claim to the extent that the amount of it is increased, or is not reduced, as a
result of such failure;

 

8.8.2                    the Buyers shall
not make (and shall procure that no member of the Group shall make) any
admission of liability, agreement or compromise with any person, body or
authority in relation to that third party claim without prior consultation with
the Sellers;

 

8.8.3                    the Buyers shall
cause the relevant member of the Group to take such action as the Sellers shall
reasonably request to avoid, resist, dispute, appeal, defend or compromise any
such claim (subject to the

 

26

 

relevant
member of the Group being entitled to employ its own legal advisers and being
indemnified and secured to its reasonable satisfaction by the Sellers against
all losses, costs, damages and expenses, including those of its legal advisers,
incurred in connection with such claim) save that it shall be deemed to be
unreasonable for the Buyers to be obliged to take any action which would in the
reasonable opinion of the Buyers be materially prejudicial to the bona fide
commercial interests of any member of the Group; and

 

8.8.4                    the Buyers shall
cause the relevant member of the Group to consult as fully as is reasonably
practicable with the Sellers as regards the conduct of any proceedings arising
out of such claim.

 

8.9              Where any statement is
qualified by the expression ‘so far as the Sellers are aware’ or ‘to the best
of the Sellers’ knowledge, information or belief’ or similar expression, the
Sellers shall be deemed to be aware of all matters of which they are or would
have been aware having made all reasonable enquiries of Graeme Coombes, Lee
Morton, Reema Bart Bhonot, Mark Wilkinson, Barry Stapely, Paul Jenkins, Claus
Peter Paula, Werner Ettle, Thomas Eckersdorfer, Stefan Allmer and Beata
Sadowska, together with the Sellers’ Accountants, in each case as at the date
of this Agreement.

 

8.10            A release, waiver,
compromise or other arrangement which the Buyers agree to or make in relation
to one of the Sellers in connection with this agreement or the Tax Deed shall
not affect the rights of the Buyers as regards the other Sellers.

 

8.11            The aggregate liability of
the Sellers in respect of all claims under this agreement or the Tax Deed shall
not exceed a sum equal to the Consideration.

 

9                 Warranties by the Buyers

 

                   The Buyers warrant to the Sellers that:

 

9.1              the respective Buyers
are validly existing companies and duly incorporated under the laws of their
respective jurisdiction;

 

9.2              the respective Buyers
have the legal right and full power and authority to enter into and perform
this agreement;

 

9.3              the Agreement will, when
executed, constitute valid and binding obligations on the Buyers in accordance
with their respective terms; and

 

27

 

9.4              the Buyers have taken
all corporate action required by them to authorise entry and performance if
their respective obligations under this agreement.

 

10               Assignment and succession

 

10.1            This agreement is personal
to the parties to it. Accordingly, save as provided in clause 10.2, none of the
parties hereto may, without the prior written consent of the other parties
hereto, assign, hold on trust or otherwise transfer the benefit of all or any
of the other’s obligation under this agreement, or any benefit arising under or
out of this agreement.

 

10.2            The respective Buyers
shall be entitled to assign their rights under this agreement and the Tax Deed
to the sources financing the transaction, or to Associates of the Buyers,
provided that the assignee shall not be entitled to receive any greater amount
from the Sellers in exercising its rights under this agreement or the Tax Deed
than that to which the Buyers would have been entitled in the absence of any
such assignment and provided further that, where the assignment is to an
Associate, where any such Associate will cease to be an Associate of the
Buyers, the Buyers shall procure that, before it so ceases to be an Associate,
the assignee shall assign the rights back to the Buyers or to another Associate
of the Buyers.  Without limitation to the
foregoing, any bank, financial institution or person (or any administrative
receiver appointed by any of the foregoing or any other person appointed to
enforce any such security to whom rights are assigned) may charge or assign
such rights on, for the purpose of or in connection with, any enforcement of
the security under such finance arrangements.

 

10.3            This agreement binds each
party’s successors and permitted assigns and personal representatives (as the
case may be).

 

11               Post-termination provisions

 

11.1            To assure to the Buyers
the full benefit of the business and goodwill of the Company, each of the
Sellers undertakes by way of further consideration for the obligations of the
Buyers under this agreement, as separate and independent agreements, that each
Seller will not without the Buyers’ prior written consent:

 

11.1.1                  disclose to another
person, or itself or himself use for any purpose, and shall use all reasonable
endeavours to prevent the publication or disclosure of, information concerning
the businesses, accounts or finances of the Company, or its clients’ or
customers’ transactions or affairs, of which he has knowledge; or

 

28

 

11.1.2                  for three years
after Closing, in relation to a business which is substantially the same as or
in competition with a business of the Company, either on his own account or for
another person, for the purpose of obtaining business, orders or custom, directly
or indirectly, solicit, interfere with or endeavour to entice away from the
Company a person who, to its or his knowledge, is, or has during the one year
preceding Closing has been, a client or customer of or supplier to or in the
habit of dealing with any Company and with whom the relevant Seller has had
contact or dealings; or

 

11.1.3                  for three years
after Closing, in relation to a business which is substantially the same as or
in competition with a business of the Company in which the Seller was involved,
either on its or his own account or for another person, directly or indirectly,
supply goods or services to a person who, to its or his knowledge, at the time
of Closing has, or has during the one year preceding Closing been, a client or
customer of or supplier to or in the habit of dealing with any Company and with
whom the relevant Seller has had contact or dealings; or

 

11.1.4                  for three years
after Closing, in relation to a business which is substantially the same as or
in competition with a business of the Company in which it or he was involved,
either on its or his own account or for another person, directly or indirectly,
offer employment to or employ or offer or conclude any contract for services
with any employee of the Company earning over £45,000 per annum who has during
the one year preceding Closing been employed by a Company and with whom the
relevant Seller has had contact or dealings; or

 

11.1.5                  for three years
after Closing, either alone or jointly with, or as principal, director, manager,
consultant, agent for or employee of, another person, directly or indirectly
carry on or be engaged, concerned or interested in:

 

	
  11.1.5.1

  	
  another
  business similar to a business carried on by any Company and with which the
  relevant Seller has been involved; or

  

 

29

 

11.1.5.2                                    without prejudice to the generality of the foregoing, any business
relating to the design,  development, manufacture or supply of any of the
following:

 

(a)           FOBTs, jackpot machines or
amusement with prize terminals;

 

(b)           other forms of gaming
machines that can or could be purchased by UK betting shops;

 

(c)           monitor game systems,
terminals, games and services;

 

(d)           fixed odds sports betting
systems, terminals, games and services to such operators;

 

(e)           online lottery systems,
terminals, games and services;

 

(f)            video lottery systems,
terminals, games and services; or

 

(g)           betting or gaming machine
terminals, systems, games and services (including online gaming or remote
access gaming via the internet or any other form of remote communication)
whether such betting or gaming consists of chance, skill or a mixture of chance
and skill; or

 

11.1.6                  for three years
after Closing, directly or indirectly carry on a business activity under a name
which is the same as, or similar to, the name of any Company or a name used for
business purposes by any Company; or

 

11.1.7                  at any time after
Closing, maliciously make adverse comments acting in bad faith in relation to
any Buyer, the Companies or their respective businesses or employees.

 

11.2            The Sellers agree that the
covenants and undertakings contained in clause 11.1 are reasonable and are
entered into for the purpose of protecting the goodwill, confidential
information and trade connections
of the business of the Company.  

 

30

 

Accordingly
the benefit of the covenants and undertakings may be assigned by the Buyers and
their successors in title without the consent of the Sellers.

 

11.3            Each undertaking contained
in clause 11.1 shall be construed as a separate undertaking.  If one or more of them is held to be against
the public interest or unlawful or an unreasonable restraint of trade, the
remaining undertakings shall continue to bind the Sellers.

 

12               Announcements

 

Except as
required by law or the rules of any recognised stock exchange or regulatory
body, no announcement or statement shall be made in relation to this agreement
or another of the parties to this agreement, except for the announcement or
otherwise as specifically agreed between the parties.  An announcement by the Sellers shall, to the
extent legally permissible, in any event be issued only after prior
consultation with the Buyers.

 

13               Information and further assurance

 

13.1            Except as required by law,
any regulatory body or governmental authority, the Sellers and the Buyers shall
keep confidential this agreement and its terms and conditions and shall not
disclose the same to any third party without the prior written consent of the
other party.

 

13.2            The Sellers shall use all
reasonable endeavours to procure that the Buyers, their respective agents,
representatives, accountants and solicitors are given promptly on request prior
to Closing all such facilities, information and access to books and records
regarding the business, assets, liabilities, contracts and affairs of the
Companies, and of the documents of title, other evidence of ownership of its
assets as the Buyers may require.

 

13.3            Following Closing the
Sellers shall maintain, preserve and safeguard their own books and records
(including those books and records relating to finance and operations)
regarding transactions and arrangements with the Companies and shall procure
that the Buyers and their agents and representatives are given full access to
such books and records for the period of seven years following the date of
Closing.

 

13.4            The Sellers will at the
Buyers’ expense and following a request by the Buyers:

 

13.4.1                  execute any document
and do any thing; and

 

31

 

13.4.2                  use reasonable
endeavours to procure that a third party executes any document and does any
thing,

 

reasonably necessary to give the Buyers the full
benefit of this agreement and to perfect the transaction intended to be
effected pursuant to this agreement (including all registrations or filings
necessary or desirable to give effect to the share transfers set out at clause 6.2.3.4
above) and for the purpose of vesting in the Buyers the full benefit of the
assets, rights and benefits intended to be transferred to the Buyers under this
agreement including, for the avoidance of doubt, any Intellectual Property
Rights used in the conduct of the business of the Group.

 

14               Remedies and Waiver

 

14.1            The rights of the Buyers in
respect of a breach of this agreement or any agreement entered into pursuant
hereto or in connection herewith (including for the avoidance of doubt, the Tax
Deed) shall not be affected by Closing, by any investigation made by them or on
their behalf into the affairs of the Company, by their rescinding, or failing
to rescind, this agreement or any agreement entered into pursuant hereto or in
connection with (including for the avoidance of doubt, the Tax Deed), or
failing to exercise, or delaying in exercising, a right or remedy, or by
anything else, except a specific authorised written waiver or release.  A single or partial exercise of a right or
remedy provided by this agreement or any agreement entered into pursuant hereto
or in connection herewith (including for the avoidance of doubt, the Tax Deed)
or by law does not prevent its further exercise or the exercise of another
right or remedy.

 

14.2            No delay or omissions by
any party to this agreement in exercising any right, power or remedy provided
by law or under this agreement or any other documents referred to in it shall
affect the right, power or remedy or operate as a waiver thereof.

 

14.3            Waiver by the Buyers of a
breach of a term of this agreement or any agreement entered into pursuant
hereto (including for the avoidance of doubt, the Tax Deed), or of a default
under the same, does not constitute a waiver of another breach or default nor
affect the other terms of such agreement.

 

14.4            The rights and remedies
provided in this agreement or any agreement entered into pursuant hereto, or in
connection herewith (including, for the avoidance of doubt,

 

32

 

the Tax
Deed) are cumulative and not exclusive of any other rights or remedies pursuant
thereto.

 

14.5            The Buyers shall only be
entitled to recover once in respect of the same loss under this agreement, the
Service Agreements and the Tax Deed.

 

15               Contracts (Rights of Third Parties) Act 1999

 

15.1            Save in respect of Tote
and then only as set out in clause 23, it is not intended that a third party
should have the right to enforce a provision of this agreement pursuant to the
Contracts (Rights of Third Parties) Act 1999.

 

15.2            The parties may rescind or
vary this agreement without the consent of a third party to whom an express
right to enforce any of its terms has been provided.

 

16               Costs

 

16.1            Expenses incurred by or on behalf of the parties, including the fees
of agents and advisers employed in connection with the negotiation, preparation
or execution of this agreement, shall be borne by the party who incurred the
liability and none of such expenses shall be payable by the Company unless and
to the extent such expenses and fees have been specifically provided for in the
Closing Accounts.

 

16.2            The Buyers shall bear all stamp duty and other documentary or
transaction duties and any other transfer taxes arising as a result or in
consequence of this agreement or of its implementation.

 

17               Termination

 

17.1            The provisions of clauses 12, 13.1 and 24 and
any other provisions which expressly or by implication are necessary for the
enforcement or interpretation of this agreement shall survive termination.

 

18               Invalidity

 

18.1            Subject to clauses 18.2 and 18.3, if a provision of this agreement
is held to be illegal or unenforceable, in whole or in part, under an enactment
or rule of law, it shall to that extent be deemed not to form part of this
agreement and the enforceability of the remainder of this agreement shall not
be affected.

 

18.2            If a provision of this agreement is, or but for this clause would
be, held to be illegal or unenforceable, in whole or part, but would be legal
and enforceable if the period

 

33

 

of
application or geographical application were reduced or if part of the
provision were deleted, the provision shall apply with the minimum modification
necessary to make it legal and enforceable.

 

18.3            If a provision of this
agreement is held to be illegal or unenforceable, in whole or in part, and
clause 18.2 cannot be used to make it legal and enforceable, the Buyers may
require the Sellers to enter into a new agreement or deed under which the
Sellers undertake in the terms of the original provision, but subject to such
amendments as the Buyers specify in order to make the provision legal and
enforceable.  The Sellers will not be
obliged to enter into a new agreement or deed that would increase their
liability beyond that contained in this agreement, had all its provisions been
legal and enforceable.

 

19               Counterparts

 

19.1            This agreement may be
executed in a number of counterparts and by the parties on different
counterparts, but shall not be effective until each party has executed at least
one counterpart.

 

19.2            Each counterpart, when
executed, shall be an original, but all the counterparts together constitute
the same document.

 

20               Joint and several liability

 

20.1            Subject to the provisions
of sub-clause 20.2, the respective obligations entered into in this agreement
and the Tax Deed by the Sellers and the Buyers are entered into jointly and
severally.

 

20.2            The liability of each of Stephen
Frater and Jeffery Nash under this agreement and the Tax Deed shall be several
only and shall be limited to the amount received by each of them respectively under
this agreement.

 

20.3            The Buyers may wholly or
partly release or compromise, or grant time or other indulgence in respect of,
the liability of one of the Sellers without affecting its rights against the
other Seller or any other person.

 

20.4            The Sellers may wholly or
partly release or compromise, or grant time or other indulgence in respect of,
the liability of one of the Buyers without affecting its rights against the
other Buyer or any other person.

 

34

 

21               Communications

 

21.1            All communications between
the parties with respect to this agreement shall be in writing and shall:

 

21.1.1                  be delivered by
hand, or sent by first class prepaid post (or airmail if sent outside Great
Britain) to, the address of the addressee as set out in this agreement or to
another address in Europe or the United States which the addressee notifies for
the purpose of this clause; or

 

21.1.2                  be sent by fax to
the fax number stated below or as notified for the purpose of this clause.

 

21.2            In the absence of evidence
of earlier receipt, communications shall be deemed to have been received as
follows:

 

21.2.1                  (if sent by post
within Great Britain) two Business Days after posting;

 

21.2.2                  (if sent by post
outside Great Britain) five Business Days after posting;

 

21.2.3                  (if delivered by
hand) on the day of delivery, if delivered at least two hours before the close
of business hours on a Business Day, and otherwise on the next Business Day;

 

21.2.4                  (if sent by
fax)  at the time of transmission, if
received at least two hours before the close of business hours on a Business
Day, and otherwise on the next Business Day.

 

21.3            For the purposes of this
clause 21, “business hours” means between the hours
of 10.00 and 18.00 inclusive, London time.

 

21.4            In proving service it
shall be sufficient to prove that personal delivery was made, or that the
envelope containing the notice was properly addressed and stamped and placed in
the post or that the fax transmission was transmitted to the specified number
and a confirmatory transmission report received.

 

21.5            A communication to the
Sellers which is delivered or sent in accordance with clause 21.1 to the
Guarantor, or to the Sellers’ Solicitors (or such other professional adviser as
is notified by the Sellers to the Buyers), shall be deemed to have been sent to
each Seller.  Communications addressed to
the Buyers shall be marked for the attention of Marty Schloss and Ira
Raphaelson.

 

35

 

21.6            Until the Buyers have
received notice in writing of the grant of probate of the will or letters of
administration of the estate of any of the Guarantor, Stephen Frater or Jeffery
Nash a communication given in accordance with clause 21.1 shall be as effective
as if that person were still living.

 

21.7            The fax numbers referred
to in clause 21.1 are:

 

for the Sellers:                   +44 207939 9972

 

for the Buyers:                  001-212-754-2372

 

21.8            Any approval, consent,
expression of opinion, direction or the like which may be given by the Buyers
under this agreement may be given by any director from time to time of
Scientific Games International Holdings Limited for and on behalf of all the
Buyers and, if given by such director, shall be deemed to have been given on
behalf of all the Buyers.

 

21.9            Any approval, consent,
expression of opinion, direction or the like which may be given by the Sellers
under this agreement may be given by the Guarantor for and on behalf of both of
all of the Sellers and, if given by the Guarantor, shall be deemed to have been
given on behalf of all of the Sellers.

 

22               Sellers’ Guarantee

 

22.1            In consideration of the
entry of the Buyers into this agreement, the Guarantor irrevocably and unconditionally as primary obligor
undertakes and guarantees to the Buyers on demand the performance by the
Sellers and all counterparties to any document to be executed in favour of, or
with, the Buyers or a member of the Group in connection with this agreement and
relating to shares of any of the Companies, or intellectual property rights or
the Properties (the “Obligors”) of
all their obligations under this agreement or the other documents to be
executed in connection with it, including, without limitation, the due and
punctual payment of all sums now or subsequently payable by the Obligors to the
Buyers under this agreement or the other documents to be executed in connection
with it.

 

22.2            The Guarantor shall
indemnify the Buyers on demand against losses and expenses which the Buyers
suffer by reason of a default by the Obligors in the performance of its obligations
under this agreement or the other documents to be executed in connection with
it and compensate the Buyers for all resulting loss and damage.

 

36

 

22.3            If an Obligor defaults in
the performance of its obligations under this agreement or the other documents
to be executed in connection with it, the Guarantor shall on demand perform (or
procure the performance of) that obligation, so that the same benefits shall be
conferred on the Buyers as it would have received if the Obligor had duly
performed that obligation.

 

22.4            The obligations and
liabilities of the Guarantor in this clause are continuing obligations and
liabilities which shall remain in force until the obligations of the Obligors
under this agreement and the other documents to be executed in connection with
it have been performed.

 

22.5            The obligations of the
Guarantor under this clause shall not be affected by anything which, but for
this clause, might operate to release or otherwise exonerate it from or affect
its obligations.  In particular (but
without limitation) none of the following shall affect the obligations of the
Guarantor:

 

22.5.1                  time, indulgence,
waiver or consent given at any time to an Obligor or another person;

 

22.5.2                  a compromise or
release of or abstention from perfecting or enforcing any rights or remedies
against an Obligor or another person;

 

22.5.3                  a legal limitation,
disability, incapacity or other circumstances relating to an Obligor or another
person;

 

22.5.4                  an amendment to or
variation of the terms of this agreement or another document referred to in
this agreement;

 

22.5.5                  an irregularity,
unenforceability or invalidity of the obligations of a party to this agreement;
and

 

22.5.6                  the dissolution,
amalgamation, reconstruction or insolvency of an Obligor.

 

22.6            The obligations and
liabilities contained in this clause may be enforced without the Buyers first
taking any action against an Obligor.

 

22.7            The Buyers may make one or
more demands under this clause.

 

37

 

23               Buyers’ Guarantee

 

23.1            SGC unconditionally and
irrevocably undertakes and guarantees to the Sellers on demand the performance
by the Buyers and all Subsidiary Undertakings of SGC under any document to be
executed in favour of, or with, the Sellers or a member of the Group in
connection with this agreement and relating to shares of any of the Companies,
or intellectual property rights or the Properties of all their obligations
under this agreement or the other documents to be executed in connection with
it, including, without limitation, the due and punctual payment of all sums now
or subsequently payable by the Buyers to the Sellers under this agreement or
the other documents to be executed in connection with it.

 

23.2            SGC unconditionally and
irrevocably undertakes and guarantees to Tote on demand the performance by and
obligations of Global Draw under a letter agreement dated 21 July 2005 between
Tote and Global Draw (as amended or varied from time to time) (the “Tote Contract”) including, without limitation, the due and
punctual payment of all sums now or subsequently payable by Global Draw to Tote
under the Tote Contract.

 

23.3            SGC shall indemnify the
Sellers on demand against losses and expenses which the Sellers suffer by
reason of a default by the Buyers in the performance of any of their
obligations under this agreement or the other documents to be executed in
connection with it (or a default by Global Draw in its obligations under the
Tote Contract) and compensate the Sellers (or Tote, as the case may be) for all
resulting loss and damage.

 

23.4            If a Buyer defaults in the
performance of its obligations under this agreement or the other documents to
be executed in connection with it (or if Global Draw defaults under the Tote
Contract), SGC shall on demand perform (or procure the performance of) that
obligation, so that the same benefits shall be conferred on the Sellers (or
Tote) as it would have received if the Buyers (or Global Draw) had duly
performed that obligation.

 

23.5            The obligations and
liabilities of SGC in this clause are continuing obligations and liabilities
which shall remain in force until the obligations of the Buyers (or Tote) under
this agreement and the other documents to be executed in connection with it (or
the Tote Contract) have been performed.

 

23.6            The obligations of SGC
under this clause shall not be affected by anything which, but for this clause,
might operate to release or otherwise exonerate it from or affect

 

38

 

its
obligations.  In particular (but without
limitation) none of the following shall affect the obligations of the SGC:

 

23.6.1                  time, indulgence,
waiver or consent given at any time to a Buyer or another person;

 

23.6.2                  a compromise or
release of or abstention from perfecting or enforcing any rights or remedies
against a Buyer or another person;

 

23.6.3                  a legal limitation,
disability, incapacity or other circumstances relating to a Buyer or another
person;

 

23.6.4                  an amendment to or
variation of the terms of this agreement or another document referred to in
this agreement or the Tote Contract;

 

23.6.5                  an irregularity,
unenforceability or invalidity of the obligations of a party to this agreement
or the Tote Contract; and

 

23.6.6                  the dissolution,
amalgamation, reconstruction or insolvency of a Buyer (or Global Draw, in the
case of the Tote Contract).

 

23.7            The obligations and
liabilities contained in this clause may be enforced without the Sellers first
taking any action against a Buyer or Tote taking any action against Global Draw.

 

23.8            The Sellers (or Tote, in
the case of the Tote Contract) may make one or more demands under this clause.

 

24               Proper law and agent for process

 

24.1            This agreement shall be
governed by and construed in accordance with English law and the parties submit
any dispute which may arise out of, under, or in connection with this Agreement
to the non-exclusive jurisdiction of the English courts.

 

24.2            The Sellers shall at all
times maintain in England an agent for service of process and any other
documents in any proceedings in connection with this agreement.  Any claim form, judgment or other notice of
legal process shall be sufficiently served on the Sellers if delivered to such
agent at its address for the time being. 
The Sellers irrevocably undertake not to revoke the authority of the
above agent and, if, for any reason, the Buyers request the Sellers to do so it
shall promptly appoint another such agent with an address in England and advise
the Buyers.  If, following such a

 

39

 

request,
the Sellers fail to appoint another agent, the Buyers shall be entitled to
appoint one on behalf of the Sellers at the expense of the Sellers.

 

25               Entire Agreement

 

25.1            This agreement, the Tax
Deed and the Disclosure Letter set out the entire agreement between the parties
to this agreement and those documents in respect of the transactions
contemplated by this agreement to the exclusion of any terms implied by law
which may be excluded by contract and supersedes any previous written or oral
agreement between the parties in relation to the matters dealt with in this
agreement.

 

25.2            The Buyers and Sellers
each acknowledge that they have not been induced into this agreement by any
representation, warranty or undertaking not expressly incorporated into it.

 

25.3            So far as permitted by
law, and except in the case of fraud, each party agrees and acknowledges that
its only right and remedy in relation to any warranty, representation or
undertaking given in connection with this agreement shall be for breach of the
terms of this agreement to the exclusion of all other rights or remedies
(including those in tort or arising under statutes).

 

26               Adjustment to Consideration

 

Any
payments by any of the Sellers to any of the Buyers, or any of the Buyers to
any of the Sellers, in each case either under this agreement or an agreement
entered into pursuant hereto, or in connection herewith (including, for the
avoidance of doubt, the Tax Deed), shall be treated, to the extent possible, as
an adjustment to the consideration for the sale of the Shares under this
agreement.

 

27               Trustee Sellers

 

27.1            Each of the Trustee
Sellers undertakes:

 

27.1.1                  not to retire as a
trustee of Warero Privatstiftung without ensuring that, following that
retirement, at least two trustees remain; and

 

27.1.2                  not to agree to the
appointment of a new or additional trustee of Warero Privatstiftung unless the
new or additional trustee has executed a deed in favour of the Buyers, in such
form as is acceptable to the Buyers, to be bound by the provisions of this
agreement and the Tax Deed subsequently to be performed or 

 

40

 

observed
and relating to the Trustee Sellers, as if he had been named as a Trustee
Seller in this agreement and the Tax Deed.

 

41

 

Signed by the duly authorised representatives of the
parties on the date of this agreement

 

	
  Signed as a
  deed by

  Scientific Games Corporation

  acting by:

  	
   

  	
  )

  )

  )

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signed
  as a deed by Scientific Games

  International Holdings Limited acting by

  Martin Schloss and Ian Bergell:

  	
   

  	
  )

  )

  )

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Director/Secretary

  
	
   

  	
   

  	
   

  
	
  Signed as a
  deed by

  Scientific Games Beteiligungsgesellschaft

  GmbH acting by Martin Schloss:

  	
   

  	
  )

  )

  )

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signed as a
  deed by Walter Grubmueller

  in the presence of:

  	
   

  	
  )

  )

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Witness’s
  Signature:

  	
   

  	
  )

  
	
   

  	
   

  	
  )

  
	
  Witness’s
  name (in capitals)

  	
   

  	
  )

  
	
   

  	
   

  	
  )

  
	
  Witness’s
  address

  	
   

  	
  )

  
	
   

  	
   

  	
   

  
	
  Signed as a
  deed by Stephen George Frater

  in the
  presence of:

  	
   

  	
   

  )

  
	
   

  	
   

  	
  )

  
	
   

  	
   

  	
   

  
	
  Witness’s
  Signature:

  	
   

  	
  )

  
	
   

  	
   

  	
  )

  
	
  Witness’s
  name (in capitals)

  	
   

  	
  )

  
	
   

  	
   

  	
  )

  
	
  Witness’s
  address

  	
   

  	
  )

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signed as a
  deed by Jeffery Frederick Nash

  in the
  presence of:

  	
   

  	
  )

  )

  
				

 

 

	
  Witness’s
  Signature:

  	
   

  	
  )

  
	
   

  	
   

  	
  )

  
	
  Witness’s name
  (in capitals)

  	
   

  	
  )

  
	
   

  	
   

  	
  )

  
	
  Witness’s
  address

  	
   

  	
  )

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signed
  as a deed by

  	
   

  	
  )

  
	
  Warero
  Privatstiftung, acting by:

  	
   

  	
  )

  
	
   

  	
   

  	
  )

  
	
  Rodriguez de Grubmueller,

  	
   

  	
  )

  
	
   

  	
   

  	
  )

  
	
  Mag. Romana Prinz and

  	
   

  	
  )

  
	
   

  	
   

  	
  )

  
	
  Mag.
  Thomas Wladika

  	
   

  	
  )Exhibit 10.1

 

LIMITED LIABILITY COMPANY INTEREST IN THE
COMPANY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE OR OTHER JURISDICTION. WITHOUT
SUCH REGISTRATION, SUCH MEMBERSHIP INTERESTS MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED, EXCEPT UPON DELIVERY TO THE COMPANY OF
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED FOR SUCH TRANSFER OR THE SUBMISSION TO THE COMPANY OF SUCH OTHER EVIDENCE
AS MAY BE SATISFACTORY TO THE COMPANY TO THE EFFECT THAT ANY SUCH TRANSFER
SHALL NOT BE IN VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE SECURITIES OR BLUE SKY LAWS OF ANY STATE OR OTHER JURISDICTION. IN
ADDITION, ANY TRANSFER OF MEMBERSHIP INTERESTS REQUIRES THE PRIOR WRITTEN
CONSENT OF THE COMPANY AND IS SUBJECT TO OTHER RESTRICTIONS PURSUANT TO THIS
AGREEMENT.

 

LIMITED
LIABILITY COMPANY AGREEMENT

 

OF

 

LARCLAY GP,
LLC

 

(a Texas limited liability company)

 

 

Table of Contents

 

	
   

  	
   

  	
  Page No.

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE 1

  	
   

  
	
   

  	
  DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  1.1

  	
  Certain Definitions

  	
  1

  
	
  1.2

  	
  Construction

  	
  7

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE 2

  	
   

  
	
   

  	
  ORGANIZATIONAL
  AND OTHER MATTERS

  	
   

  
	
   

  	
   

  	
   

  
	
  2.1

  	
  Formation

  	
  7

  
	
  2.2

  	
  Name

  	
  7

  
	
  2.3

  	
  Limited Liability

  	
  7

  
	
  2.4

  	
  Registered Office; Registered Agent; Other
  Offices

  	
  8

  
	
  2.5

  	
  Principal Place of Business

  	
  8

  
	
  2.6

  	
  Term

  	
  8

  
	
  2.7

  	
  Foreign Qualification

  	
  8

  
	
  2.8

  	
  Fiscal Year

  	
  8

  
	
  2.9

  	
  No State-Law Partnership

  	
  8

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE 3

  	
   

  
	
   

  	
  PURPOSE AND
  POWERS

  	
   

  
	
   

  	
   

  	
   

  
	
  3.1

  	
  Purpose of the Company

  	
  8

  
	
  3.2

  	
  Powers of the Company

  	
  9

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE 4

  	
   

  
	
   

  	
  MEMBERS;
  REPRESENTATIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  4.1

  	
  Member Information

  	
  9

  
	
  4.2

  	
  Representations, Warranties and Covenants

  	
  9

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE 5

  	
   

  
	
   

  	
  MANAGEMENT
  OF THE COMPANY

  	
   

  
	
   

  	
   

  	
   

  
	
  5.1

  	
  Management

  	
  10

  
	
  5.2

  	
  Board of Managers

  	
  10

  
	
  5.3

  	
  Matters Requiring Approval of the Members

  	
  11

  
	
  5.4

  	
  Certain Agreements and Covenants of the
  Members

  	
  12

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE 6

  	
   

  
	
   

  	
  OFFICERS

  	
   

  
	
   

  	
   

  	
   

  
	
  6.1

  	
  Powers

  	
  13

  
	
  6.2

  	
  Election and Term

  	
  13

  
	
  6.3

  	
  Compensation

  	
  13

  
	
  6.4

  	
  Removal

  	
  13

  
	
  6.5

  	
  Resignation

  	
  13

  
				

 

i

 

	
   

  	
  ARTICLE 7

  	
   

  
	
   

  	
  BOOKS AND
  RECORDS

  	
   

  
	
   

  	
   

  	
   

  
	
  7.1

  	
  Books, Records and Tax Information

  	
  13

  
	
  7.2

  	
  Tax Elections

  	
  14

  
	
  7.3

  	
  Tax Matters Member

  	
  14

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE 8

  	
   

  
	
   

  	
  CAPITAL
  CONTRIBUTIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  8.1

  	
  Capital Contributions of Members

  	
  14

  
	
  8.2

  	
  Further Contributions

  	
  14

  
	
  8.3

  	
  Return of Capital

  	
  14

  
	
  8.4

  	
  Capital Accounts.

  	
  14

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE 9

  	
   

  
	
   

  	
  ALLOCATIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  9.1

  	
  Allocations of Profits and Losses

  	
  15

  
	
  9.2

  	
  Regulatory Allocations

  	
  16

  
	
  9.3

  	
  Curative Allocations

  	
  17

  
	
  9.4

  	
  Income Tax Allocations

  	
  17

  
	
  9.5

  	
  Other Allocation Rules

  	
  18

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE 10

  	
   

  
	
   

  	
  DISTRIBUTIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  10.1

  	
  Distributions

  	
  18

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE 11

  	
   

  
	
   

  	
  MEETINGS OF
  MEMBERS

  	
   

  
	
   

  	
   

  	
   

  
	
  11.1

  	
  Meetings

  	
  19

  
	
  11.2

  	
  Place of Meetings

  	
  19

  
	
  11.3

  	
  Notice of Meetings

  	
  19

  
	
  11.4

  	
  Record Date

  	
  19

  
	
  11.5

  	
  Quorum

  	
  19

  
	
  11.6

  	
  Manner of Acting

  	
  19

  
	
  11.7

  	
  Action by Members Without a Meeting; Telephone
  Conference

  	
  19

  
	
  11.8

  	
  Waiver of Notice

  	
  20

  
	
  11.9

  	
  Conduct of Meetings

  	
  20

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE 12

  	
   

  
	
   

  	
  INDEMNIFICATION

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE 13

  	
   

  
	
   

  	
  RESTRICTIONS
  ON TRANSFERS OF MEMBERSHIP INTERESTS

  	
   

  
	
   

  	
   

  	
   

  
	
  13.1

  	
  Restrictions on Transfer

  	
  21

  
	
  13.2

  	
  Right of First Refusal on Transfer of
  Membership Interests.

  	
  22

  
	
  13.3

  	
  Rights of Transferees

  	
  23

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE 14

  	
   

  
	
   

  	
  DISSOLUTION
  AND LIQUIDATION

  	
   

  
	
   

  	
   

  	
   

  
	
  14.1

  	
  Dissolution

  	
  23

  
	
  14.2

  	
  Effect of Dissolution

  	
  23

  
				

 

ii

 

	
  14.3

  	
  Liquidation Upon Dissolution

  	
  24

  
	
  14.4

  	
  Winding Up and Certificate of Cancellation

  	
  24

  
	
  14.5

  	
  Non-Solicitation of Employees

  	
  24

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE 15

  	
   

  
	
   

  	
  GENERAL
  PROVISIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  15.1

  	
  Confidentiality

  	
  24

  
	
  15.2

  	
  Offset

  	
  25

  
	
  15.3

  	
  Notices

  	
  25

  
	
  15.4

  	
  Entire Agreement

  	
  25

  
	
  15.5

  	
  Effect of Waiver or Consent

  	
  25

  
	
  15.6

  	
  Amendment or Modification.

  	
  26

  
	
  15.7

  	
  Binding Effect

  	
  26

  
	
  15.8

  	
  Governing Law; Severability

  	
  26

  
	
  15.9

  	
  Further Assurances

  	
  26

  
	
  15.10

  	
  Waiver of Certain Rights

  	
  26

  
	
  15.11

  	
  Successors and Assigns

  	
  26

  
	
  15.12

  	
  Counterparts

  	
  26

  
	
   

  	
   

  	
   

  
	
  Exhibit A: 

  	
  Schedule of Members and Membership
  Interests

  	
   

  
					

 

iii

 

LIMITED
LIABILITY COMPANY AGREEMENT

OF

LARCLAY GP, LLC

 

This Limited Liability
Company Agreement (this “Agreement”) of
Larclay GP, LLC, a Texas limited liability company (the “Company”),
is entered into on April 21, 2006 by the members named on Exhibit A hereto (collectively, the “Members”).

 

Recitals:

 

The Members desire to form the
Company for the purposes set forth herein.

 

Accordingly, the Members
hereby agree as follows:

 

ARTICLE 1

DEFINITIONS

 

1.1                               Certain Definitions. As used in this Agreement, the following
terms have the following meanings:

 

“Adjusted
Capital Account” means
the Capital Account maintained for each Member, (a) increased by any
amounts that such Member is obligated to restore or is treated as obligated to
restore under Treasury Regulation Sections 1.704-1(b)(2)(ii)(c), 1.704-2(g)(1) and 1.704-2(i)(5)),
and (b) decreased by any amounts described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6) with respect
to such Member.

 

“Affiliate”
means, when used with reference to a specified Person, (a) any Person
directly or indirectly owning, controlling or holding power to vote 25% or more
of the outstanding voting securities of the specified Person, (b) any
Person 25% or more of whose outstanding voting securities are directly or
indirectly owned, controlled or held with power to vote by the specified
Person, (c) any Person directly or indirectly controlling, controlled by
or under common control with the specified Person, (d) if the specified
Person is a corporation, any officer or director of the specified Person or of
any corporation directly or indirectly controlling that specified Person, (e) if
the specified Person is a partnership, any general partner or if the general
partner is a partnership, the general partners of that partnership, and (f) if
the specified Person is an individual, such individual’s spouse and natural and
adoptive lineal descendants and trusts for the benefit of any such Persons. For
purposes of this definition, the ability through share ownership or contractual
arrangement to elect or cause the election of a majority of the board of
directors of a corporation shall constitute “control.”

 

“Agreement” means this Limited Liability
Company Agreement, as amended or restated from time to time.

 

“Board of Managers” has the meaning set
forth in Section 5.1 of this Agreement.

 

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

 

1

 

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

 

(b)                                 The
Book Values of all properties shall be adjusted to equal their respective Fair
Market Values in connection with (i) the acquisition of an additional
interest in the Company by any new or existing Member in exchange for more than
a de minimis Capital Contribution to the Company or in exchange for the
performance of services to or for the benefit of the Company, (ii) the
distribution by the Company to a Member of more than a de minimis amount
of property as consideration for an interest in the Company, or (iii) the
liquidation of the Company within the meaning of Treasury Regulation Section 1.704-1(b)(2)(ii)(g)(1) (other than pursuant to Section 708(b)(1)(B) of
the Code); provided that
adjustments pursuant to clauses (i) and (ii) above shall be made
only if the Board of Managers reasonably determines that such adjustments are
necessary or appropriate to reflect the relative economic interests of the
Members in the Company;

 

(c)                                  The
Book Value of property distributed to a Member shall be the Fair Market Value
of such property as of the date of such distribution;

 

(d)                                 The
Book Value of all property shall be increased (or decreased) to reflect any
adjustments to the adjusted basis of such property pursuant to Code Section 734(b) or
Code Section 743(b), but only to the extent that such adjustments are
taken into account in determining Capital Accounts pursuant to Treasury
Regulation Section 1.704-1(b)(2)(iv)(m)
and clause (f) of the definition of Profits and Losses; and

 

(e)                                  If
the Book Value of property has been determined or adjusted pursuant to
clauses  (b) or (d) hereof,
such Book Value shall thereafter be adjusted by the Depreciation taken into
account with respect to such property for purposes of computing Profits and
Losses and other items allocated pursuant to Article 9.

 

“Business Day”
means any day except a Saturday, Sunday or other day on which commercial banks
in Texas are authorized by law to be closed.

 

“Capital Account” has the meaning set forth
in Section 8.4 of this Agreement.

 

“Capital
Contribution” has the meaning set forth in Section 8.1
of this Agreement.

 

“Certificate” has the meaning set forth in Section 2.1
of this Agreement.

 

“Change of Control of Lariat” means, in a
single transaction or a series of related transactions, (i) a merger,
consolidation, recapitalization, reorganization, business combination or
similar transaction involving Lariat in which the owners of the outstanding
capital stock or equity securities of Lariat immediately prior to such
transaction do not own capital stock or equity securities of Lariat
representing a majority of the outstanding voting power (based on the right
directly or indirectly, through a parent company or otherwise, to elect
directors generally) of Lariat or the surviving or consolidating entity
immediately following such transaction, or (ii) the sale, lease, exchange,
transfer or other disposition, directly or indirectly, of all or substantially
all of the assets of Lariat.

 

2

 

“Code”
means the Internal Revenue Code of 1986, as amended.

 

“Confidential Information” has the meaning
set forth in Section 15.1 of this Agreement.

 

“Curative Allocations” means the allocations
pursuant to Section 9.3 of this Agreement.

 

“CWEI” means Clayton Williams Energy, Inc.,
a Delaware corporation, and any successor entity.

 

“CWEI Manager” has the meaning set forth in Section 5.2
of the Agreement.

 

“Depreciation” means,
for each Fiscal Year or other period, an amount equal to the depreciation,
amortization or other cost recovery deduction allowable for federal income tax
purposes with respect to property for such Fiscal Year or other period, except
that (A) with respect to any property the Book Value of which differs from
its adjusted tax basis for federal income tax purposes and which difference is
being eliminated by use of the “remedial method” pursuant to Treasury
Regulation Section 1.704-3(d), Depreciation for such taxable year shall be
the amount of book basis recovered for such Fiscal Year or other period under
the rules prescribed by Treasury Regulation Section 1.704-3(d)(2),
and (B) with respect to any other property the Book Value of which differs
from its adjusted tax basis at the beginning of such Fiscal Year or other
period, Depreciation shall be an amount which bears the same ratio to such
beginning Book Value as the federal income tax depreciation, amortization, or
other cost recovery deduction for such Fiscal Year or other period bears to
such beginning adjusted tax basis; provided
that if the adjusted tax basis of any property at the beginning of such Fiscal
Year or other period is zero, Depreciation with respect to such property shall
be determined with reference to such beginning value using any reasonable
method selected by the Tax Matters Member.

 

“Distributable
Property” means the excess of cash and property on hand over the
amount that the Board of Managers determines is required to be retained as a
reasonable reserve to meet any liabilities or proposed expenditures of the
Company which are accrued or reasonably foreseeable or that is reasonably
necessary to be retained.

 

“Drilling Rigs” means the drilling rigs and
related equipment, including, without limitation, transportation equipment,
acquired by the Partnership as contemplated in the Partnership Agreement.

 

“Economic
Risk of Loss” has the
meaning set forth in Treasury Regulation Section 1.752-2(a).

 

“Fair Market Value”
of any property means the fair market value of such property as determined (i) by
an appraiser of recognized standing selected by the Board of Managers, or (ii) at
the election of the Board of Managers, good faith by the Board of Managers,
which determination shall be conclusive for all purposes and shall be made
within 15 days of any event that requires a determination of Fair Market Value.

 

“Financing
Obligation” means the aggregate amount of obligations incurred by
the Partnership under the Loan Facility.

 

3

 

“Fiscal Year” has the meaning set forth in Section 2.8
of this Agreement.

 

“GAAP Capital Account” has the meaning set
forth in Section 8.5 of this Agreement.

 

“Lariat” means Lariat Services, Inc., a
Texas corporation, and any successor entity.

 

“Lariat
Manager” has the meaning set forth in Section 5.2
of the Agreement

 

“Letter Agreement” means the letter
agreement dated October 20, 2005, as amended, by and between CWEI and
Lariat.

 

“Limited Liability Company Law” means the
Texas Limited Liability Company Law (Chapter 101, and to the extent applicable
to limited liability companies, the provisions of Title 1 of the Texas Business
Organizations Code), as amended from time to time.

 

“Loan
Documents” has the meaning given to such term in the Loan Facility.

 

“Loan
Facility” means that certain Term Loan and Security Agreement, to be
entered into on or about April 21, 2006, between the Partnership and Merrill Lynch Capital, a division of
Merrill Lynch Business Financial Services Inc., a corporation organized and
existing under the laws of the State of Delaware, as agent for the Lenders defined
therein, as amended, restated, modified, renewed, refunded, replaced or
refinanced in whole or in part from time to time.

 

“Manager” has the meaning set forth in Section 5.1
of this Agreement.

 

“Master Drilling Agreement” means the
Drilling Contract for Multiple Rigs to be entered into on or about April 21,
2006 by and between the Partnership and CWEI, as amended from time to time.

 

“Member
Nonrecourse Debt” has
the meaning assigned to the term “partner nonrecourse debt” in Treasury
Regulation Section 1.704-2(b)(4).

 

“Member
Nonrecourse Debt Minimum Gain” has
the meaning assigned to the term “partner nonrecourse debt minimum gain” set
forth in Treasury Regulation Section 1.704-2(i)(2).

 

“Member
Nonrecourse Deduction” has
the meaning assigned to the term “partner nonrecourse deduction” in Treasury
Regulation Section 1.704-2(i)(1).

 

“Members” has the meaning set forth in the
preamble of this Agreement.

 

“Membership Interest” means the interests of
a Member in the Company as determined under this Agreement and the Limited
Liability Company Law. The Membership Interest of each Member as of the date of
this Agreement, expressed as a percentage based on the Membership Interest held
by such Member as a percentage of the total Membership Interests held by all Members,
is set forth on Exhibit A, as such Exhibit A may be
amended from time to time as necessary to reflect additional Capital
Contributions or upon the admittance of additional Members.

 

4

 

“Minimum Gain” has the meaning assigned to that term in Treasury Regulation Section 1.704-2(d).

 

“Nonrecourse
Deduction” has the
meaning assigned to that term in Treasury Regulation Section 1.704-2(b)(1).

 

“Nonrecourse
Liability” has the
meaning assigned to that term in Treasury Regulation Section 1.752-1(a)(2).

 

“Notice”
has the meaning set forth in Section 13.2 of this Agreement.

 

“Operating Agreement” means the Operating
Agreement to be entered into on or about April 21, 2006 by and between the
Partnership and Lariat, providing, among other things, for Lariat to act as the
sole operator of the Drilling Rigs, as amended, restated, modified, renewed,
extended or replaced from time to time.

 

“Ownership Percentage” means, with respect
to a Member, the percentage ownership of the Company of such Member equal to a
percentage obtained by dividing (i) the Membership Interests held by such
Member by (ii) the total Membership Interests held by all Members.

 

“Partner” means a partner in the
Partnership.

 

“Partnership”
means Larclay, L.P., a Texas limited partnership.

 

“Partnership
Agreement” means the Agreement of Limited Partnership of the
Partnership dated April 21, 2006, as amended from time to time.

 

“Partnership
Property” means the Drilling Rigs and all other property of any character,
tangible or intangible, real, personal or mixed, now or hereafter owned, held
or acquired by the Partnership.

 

“Partnership
Interests” means partnership interests in the Partnership.

 

“Permitted Transfer” means any of the
following Transfers:  (i) a Transfer
by a Member (A) to any Affiliate of such Member or (B) to an entity
owned by or organized for the benefit of the shareholders, officers, directors,
employees, Affiliates or beneficiaries of such Member, as applicable; and (ii) a
Member pledge by a Member of Membership Interests owned or held by such Member
to secure payment of bona fide indebtedness owing by such Member; provided,
that such Member retains the power to vote the Membership Interests so pledged
until such time as the pledgee shall have realized on the pledge; and, provided
further, that the provisions of Section 13.2 shall be
applicable to the transfer of such Membership Interests upon exercise of such
pledge and after such exercise.

 

“Permitted Transferee” means a transferee of
Membership Interests in a Permitted Transfer.

 

“Person”
means any individual, partnership, corporation, limited liability company,
trust or other entity.

 

5

 

“Principal Office” has the meaning set forth
in Section 2.5 of this Agreement.

 

“Proceeding” means any threatened, pending,
or completed action, suit, or proceeding, whether civil, criminal,
administrative, arbitrative, or investigative, any appeal in such an action,
suit, or proceeding, and any inquiry or investigation that could lead to such
an action, suit, or proceeding.

 

“Profits”
or “Losses” means, for
each Fiscal Year or other period, an amount equal to the Company’s taxable
income or loss for such taxable year or other period, determined in accordance
with Code Section 703(a) (for this purpose, all items of income,
gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall
be included in taxable income or loss), with the following adjustments (without
duplication):

 

(a)                                  Any
income of the Company that is exempt from federal income tax and not otherwise
taken into account in computing Profits and Losses pursuant to this definition
of “Profits” and “Losses” shall be added to such taxable income or loss;

 

(b)                                 Any
expenditures of the Company described in Code Section 705(a)(2)(B) or
treated as Code Section 705(a)(2)(B) expenditures pursuant to
Treasury Regulation Section 1.704-1(b)(2)(iv)(i), and not otherwise taken
into account in computing Profits or Losses pursuant to this definition of “Profits”
and “Losses” shall be subtracted from such taxable income or loss;

 

(c)                                  In
the event the Book Value of any asset is adjusted pursuant to clause (b) or
clause (c) of the definition of Book Value, the amount of such adjustment shall
be treated as an item of gain (if the adjustment increases the Book Value of
the asset) or an item of loss (if the adjustment decreases the Book Value of
the asset) from the disposition of such asset and shall be taken into account
for purposes of computing Profits or Losses;

 

(d)                                 Gain
or loss resulting from any disposition of property with respect to which gain
or loss is recognized for federal income tax purposes shall be computed by
reference to the Book Value of the property disposed of, notwithstanding that
the adjusted tax basis of such property differs from its Book Value;

 

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

 

(f)                                    To
the extent an adjustment to the adjusted tax basis of any asset pursuant to
Code Section 734(b) is required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining
Capital Account balances as a result of a distribution other than in
liquidation of a Member’s interest in the Company, the amount of such
adjustment shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or an item of loss (if the adjustment decreases such basis)
from the disposition of such asset and shall be taken into account for purposes
of computing Profits or Losses; and

 

(g)                                 Any
items that are allocated pursuant to the Regulatory Allocations or the Curative
Allocations shall not be taken into account in computing Profits and Losses.

 

6

 

“Regulatory Allocations” means the
allocations pursuant to Section 9.2 of this Agreement.

 

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

 

“Selling
Member” has the meaning set forth in Section 13.2 of
this Agreement.

 

“Tax Matters Member” has the meaning
assigned to the term “tax matters partner” in Section 6231(a)(7) of
the Code.

 

“Transfer”
means any sale, transfer, assignment, exchange, pledge, encumbrance,
hypothecation, gift or other disposition of a Membership Interest in whole or
in part, or any rights or benefits to which a holder of a Membership Interest may be
entitled as provided in this Agreement or the Limited Liability Company Law,
including, without limitation, the right to receive distributions in cash or in
kind.

 

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

 

“Unreturned Capital Contribution Balance” of
a Member at any time means the excess, if any, of (i) the cumulative
amount of Capital Contributions made by such Member to the Company as of such
time over (ii) the cumulative amount of distributions made by the Company
to such Member pursuant to Section 10.1(a) as of such time.

 

1.2                               Construction.
Whenever the context requires, the gender of all words used in this Agreement
includes the masculine, feminine and neuter. All references to Articles and
Sections refer to articles and sections of this Agreement, and all references
to exhibits are to Exhibits attached to this Agreement, each of which is made a
part of this Agreement for all purposes.

 

ARTICLE 2

ORGANIZATIONAL AND OTHER MATTERS

 

2.1                               Formation.
The Members have formed the Company pursuant to and in accordance with the
provisions of the Limited Liability Company Law. The Members have filed, on
behalf of the Company, a Certificate of Formation (the “Certificate”) conforming to the Limited
Liability Company Law in the office of the Secretary of State of the State of
Texas.

 

2.2                               Name. The name of the Company is “Larclay GP, LLC” and
the business of the Company shall be conducted under that name, or under any
other name adopted by the Board of Managers in accordance with the Limited
Liability Company Law.

 

2.3                               Limited
Liability. Except as otherwise provided by the Limited Liability
Company Law, the debts, obligations and liabilities of the Company, whether
arising in contract, tort or otherwise, shall be the debts, obligations and
liabilities solely of the Company, and a 

 

7

 

Member shall not be obligated personally for any of such debts,
obligations or liabilities solely by reason of being a Member.

 

2.4                               Registered
Office; Registered Agent; Other Offices. The registered office of the
Company required by the Limited Liability Company Law to be maintained in the
State of Texas shall be the office named in the Certificate or such other
office as the Board of Managers may designate from time to time in the
manner provided by law. The registered agent of the Company in the State of
Texas shall be the initial registered agent designated in the Certificate or
such other Person or Persons as the Board of Managers may designate from
time to time in the manner provided by law.

 

2.5                               Principal
Place of Business. The principal place of business of the Company shall
be the place designated by the Board of Managers (the “Principal Office”). The Principal Office
initially shall be located at 701 South Taylor, Suite 426, Amarillo, Texas
79101. The location of the Principal Office may be changed by the Board of
Managers.

 

2.6                               Term.
The period of duration for the Company shall be perpetual, unless the Company
is earlier dissolved in accordance with either the provisions of this Agreement
or the Limited Liability Company Law.

 

2.7                               Foreign
Qualification. Prior to the Company’s conducting business in any
jurisdiction other than Texas, the Board of Managers shall cause the Company to
comply, to the extent procedures are available and those matters are reasonably
within the control of the Board of Managers, with all requirements necessary to
qualify the Company as a foreign limited liability company in that jurisdiction.
At the request of the Board of Managers, each Member shall execute,
acknowledge, swear to and deliver all certificates and other instruments
conforming with this Agreement that are necessary or appropriate to qualify,
continue and terminate the Company as a foreign limited liability company in
all such jurisdictions in which the Company may conduct business.

 

2.8                               Fiscal
Year. The fiscal year of the Company (the “Fiscal Year”) shall end on December 31
of each calendar year unless, for United States federal income tax purposes,
another fiscal year is required. The Company shall have the same fiscal year
for United States federal income tax purposes and for accounting purposes.

 

2.9                               No
State-Law Partnership. The Company shall not be a partnership
(including without limitation a limited partnership) or a joint venture, and no
Member shall be a partner or joint venturer of any other Member, for any reason
other than for United States federal income and state tax purposes, and no
provision of this Agreement shall be construed otherwise.

 

ARTICLE 3

PURPOSE AND POWERS

 

3.1                               Purpose
of the Company. The purpose of the Company is to act as the sole
general partner of the Partnership and to carry on any lawful business or
activity in furtherance of such purpose as permitted by the Limited Liability
Company Law.

 

8

 

3.2                               Powers
of the Company. The Company shall have the power to do any and all acts
reasonably necessary, appropriate, proper, advisable, incidental or convenient
to or for the furtherance of the purpose and business described herein and for
the protection and benefit of the Company and the Partnership.

 

ARTICLE 4

MEMBERS; REPRESENTATIONS

 

4.1                               Member
Information. The identity of the Members and the number of Membership
Interests held by each Member are reflected on Exhibit A attached
hereto, which shall be amended as necessary to reflect any changes in such
information. The term “Members” shall not include any Person who has ceased to
be a member of the Company.

 

4.2                               Representations,
Warranties and Covenants. Each Member represents, warrants, covenants
and agrees that the following statements are true and correct as of the date
hereof and shall be true and correct at all times that such Member is a Member:

 

(a)                                  such
Member is duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which the nature of its business or the ownership or leasing of its properties
makes such qualification necessary;

 

(b)                                 such
Member has full power and authority to execute and deliver this Agreement and
each other agreement to be entered into by such Member pursuant to this
Agreement and to perform its obligations hereunder and thereunder, and all
actions by the board of directors and stockholders of such Member necessary for
the due authorization, execution, delivery and performance by such Member of
this Agreement and such other agreements have been duly taken and have not been
revoked, rescinded or modified;

 

(c)                                  such
Member has duly executed and delivered this Agreement and each other agreement
to be entered into by such Member pursuant to this Agreement, and this
Agreement constitutes and each such other agreement shall constitute the legal,
valid and binding obligation of such Member enforceable against such Member in
accordance with its terms, except as limited by bankruptcy, insolvency or
similar laws of general application and by the effect of general principles of equity,
regardless of whether considered at law or in equity; and

 

(d)                                 the
execution, delivery and performance of this Agreement and each other agreement
to be entered into by such Member pursuant to this Agreement by such Member
does not and will not (i) conflict with, or result in a breach, default or
violation of (A) the organizational documents of such Member, (B) any
contract or agreement to which such Member is a party or is otherwise subject
or (C) any law, order, judgment, decree, writ, injunction or arbitral
award to which such Member is subject; or (ii) require any consent,
approval or authorization from, filing or registration with, or notice to, any
governmental authority or other person, unless such requirement has already
been satisfied.

 

9

 

ARTICLE 5

MANAGEMENT OF THE COMPANY

 

5.1                               Management.
The business and affairs of the Company shall be managed by or under the
direction of a board of managers (the “Board”
or “Board of Managers,” and each
such manager, a “Manager”), and,
subject to the limitations set forth in this Section 5.3, the Board
of Managers shall have full, exclusive and complete authority and discretion in
the management and control of the administration, affairs and operations of the
Company.

 

5.2                               Board
of Managers.

 

(a)                                  Board Representation.
Each Member shall vote at any regular or special meeting of Members or in any
written consent executed in lieu of such a meeting of Members and shall take
all other actions necessary to elect a Board of Managers comprising four
Managers as designated as follows:

 

(i)                                     two Managers
designated by CWEI (the “CWEI Managers”),
for so long as CWEI is a Member, who initially shall be Michael L. Pollard and
John F. Kennedy; and

 

(ii)                                  two Managers
designated by Lariat (the “Lariat Managers”),
for so long as Lariat is a Member, who initially shall be Michael W. Burnett
and Henry McElroy.

 

(b)                                 In
order to effectuate the provisions of this Article 5 when any
action or vote is required to be taken by a Member pursuant to this Agreement,
such Member shall use commercially reasonable efforts to call, or cause the
appropriate officers and managers of the Company to call, a special or annual
meeting of Members of the Company, as the case may be, or execute or cause
to be executed a written consent in writing in lieu of any such meetings. Any
action by the Company, as the General Partner of the Partnership, causing a
Required Advance to be made by the Partners relating to (i) a repair or
maintenance obligation of the Partnership involving an amount greater than
$50,000, or (ii) any capital expenditure of the Partnership, shall require
the prior approval of the Board.

 

(c)                                  Vacancies; Removal. In
the event of any vacancy in the Board of Managers, each Member agrees to vote
and to otherwise use all commercially reasonable efforts to fill such vacancy
so that the Board of Managers will include managers designated as provided in Section 5.2(a).
Each Member agrees to vote all membership interests or other voting interests
owned or controlled by such Member for the removal of a Manager whenever (but
only whenever) there shall be presented to the Board of Managers the written
direction that such Manager be removed, signed by CWEI, in the case of a CWEI
Manager, or signed by Lariat, in the case of a Lariat Manager.

 

(d)                                 Meetings; Quorum. Unless
waived in writing by each Member, the Company shall hold quarterly meetings of
the Board of Managers in March, June, September, and December of each
calendar year, commencing in June 2006. The presence of all members of the
Board of Managers at a meeting shall be required to constitute a quorum for the
transaction 

 

10

 

of business. The vote or consent of a
majority of the Managers shall be the act of the Board of Managers.

 

(e)                                  Special Meetings. A
special meeting of the Board of Managers may be called at any time at the
request of two Managers.

 

(f)                                    Notice. Written
notice stating the time, date and place of the meeting and the purpose or
purposes for which the meeting is called shall be delivered not less than
twenty-four (24) hours prior to the date of the meeting, either personally, by
facsimile, by U.S. mail or by electronic mail to each Manager.

 

(g)                                 Action Without a Meeting; Telephone
Conference. Any action required or permitted to be taken at a
meeting of the Board of Manager may be taken without a meeting if a
written consent or consents stating the action to be taken is signed by all of
the Managers. Each such consent shall be included in the minutes of the Board
of Managers or filed with the Company records. The Board of Managers may hold
and participate in a meeting by means of conference telephone or similar
communications equipment by means of which all Managers participating in the
meeting can hear each other, and participation in such meeting shall constitute
attendance and presence in person at such meeting, except where a Manager
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.

 

(h)                                 Committees. The Board
of Managers may establish one or more committees of the Board of Managers
and may delegate by resolution to such committees the authority of the
Board of Managers; provided that the delegation of authority to a committee
shall not relieve the Board of Managers of any responsibility imposed by the
Limited Liability Company Law.

 

(i)                                     Indemnification Agreements.
The Company shall enter into an indemnification agreement in a form approved
by the Board of Managers with each Manager who is elected or appointed to the
Board of Managers from time to time.

 

5.3                               Matters
Requiring Approval of the Members. Notwithstanding any other provision
of this Agreement, including, without limitation, Section 5.1, the
Members shall possess the full and exclusive decision making authority and
discretion to manage and direct the Company with respect to the following
actions and such actions may only be taken by the Company upon the
approval of both Members (each, a “Member Decision”):

 

(a)                                  causing
or permitting the sale, lease, assignment, transfer, exchange, or other
disposition of all or substantially all of the assets of the Company or the
Partnership, or consummating any merger, consolidation, recapitalization,
reorganization, business combination or similar transaction involving the
Company or Partnership;

 

(b)                                 causing
or permitting any dissolution, liquidation, or winding up of the Company or the
Partnership; provided, that the Members shall not vote to dissolve the
Partnership at any time prior to payment of 50% of the Financing Obligation by
the Partnership;

 

11

 

(c)                                  causing
or permitting the sale, lease, exchange, assignment, transfer or disposition by
the Partnership of any Drilling Rig (other than pursuant to the Loan
Documents);

 

(d)                                 directing,
designing and implementing a plan of dissolution (“Plan of Dissolution”) in connection with a liquidation,
dissolution or winding up of the affairs of the Company or the Partnership, as
applicable, that contains provisions relating to the distribution of property
to the Members and Partners, respectively, or otherwise determining the amounts
of any in-kind distribution of Partnership Property by the Partnership to the
Partners;

 

(e)                                  causing
or permitting the Company or the Partnership to incur, create, assume, become
or be liable in any manner with respect to, or permit to exist any indebtedness
for borrowed money (including, without limitation, capitalized leases) or for
the deferred purchase price for the acquisition of property, that could give
rise to liability of either Member or recourse against any Member (other than
pursuant to the Loan Documents);

 

(f)                                    amending,
modifying, renewing, extending, or waiving compliance with any provision of,
this Agreement, the Partnership Agreement, any of the Loan Documents, or the
Master Drilling Agreement; and

 

(g)                                 receiving
any loan or credit from the Agent or the Lenders (as such terms are defined in
the Loan Facility) in excess of the amounts set forth in the Loan Facility.

 

5.4                               Certain
Agreements and Covenants of the Members. Each Member agrees to vote and
take any and all actions necessary with respect to approval of Member Decisions
to effectuate the agreements of the Members set forth in this Section 5.4.

 

(a)                                  The
Members shall cause the Company to dissolve the Partnership in accordance with
the dissolution provisions and procedures set forth in the Partnership
Agreement:

 

(i)                                     at the election of
any Member any time following payment of 50% of the Financing Obligation; or

 

(ii)                                  at the election of
CWEI at any time following a Change of Control of Lariat.

 

(b)                                 Upon
the dissolution of the Partnership, the Members will cause the Company, in its
capacity as general partner of the Partnership, to liquidate and distribute the
Partnership Property in kind to the Partners to the fullest extent practicable.
The Members agree to negotiate in good faith in designing and implementing a
Plan of Dissolution such that the in-kind distribution of Partnership Property
results in each Partner receiving, as nearly as practicable, Partnership
Property having equivalent value.

 

(c)                                  Pursuant
to the terms of the Operating Agreement and the Master Drilling Agreement, CWEI
shall have the preferential right to contract for and utilize the Drilling Rigs
in the course of CWEI’s Oil and Gas Business (the “Drilling Program”) on properties owned by CWEI, properties
operated by CWEI and properties on which CWEI has an opportunity to commit and
deploy a Drilling Rig in exchange for an interest in a well or lease. If at any
time 

 

12

 

CWEI declines to utilize a Drilling Rig in
its Drilling Program (an “Idle Drilling Rig”),
the Members will cause the Company, on behalf of the Partnership, to either (i) retain
the Idle Drilling Rig for use in contract drilling operations for third
parties, (ii) offer the Idle Drilling Rig for sale to Lariat at a price
agreed upon by the Members, or (iii) offer the Idle Drilling Rig for sale
to an unaffiliated third party.

 

ARTICLE 6

OFFICERS

 

6.1                               Powers.
Subject to the authority of the Board of Managers, the day-to-day management
and control of the Company, and its business and affairs, shall be conducted or
exercised by, or under the direction and authority of, the officers of the
Company. The Company may have such officers who hold such offices,
including but not limited to those set forth in this Section 6.1,
as may be determined from time to time by the Board of Managers.

 

6.2                               Election
and Term. At the last meeting of each calendar year, the Board of
Managers shall elect a President and a Secretary, and such other officers as
the Board of Managers may determine, who may include a Chairman of
the Board of Managers, one or more vice presidents, a treasurer, a controller
and one or more assistant treasurers and assistant secretaries. The Board of
Managers may elect officers at such additional times as it deems advisable.
Each officer shall serve a one year term unless re-elected at the last annual
meeting of the Board of Managers of the year following his election, or until
his earlier resignation or removal.

 

6.3                               Compensation.
Except for any fees, salaries, or compensation expressly set forth in this
Agreement or in an employment agreement approved by the Board of Managers, no
fees, salaries or compensation shall be paid to the officers without the
affirmative consent of the Board of Managers or in accordance with compensation
or reimbursement policies adopted by the Board of Managers.

 

6.4                               Removal.
The Board of Managers may remove any officer at any time, with or without
cause, but no such removal shall affect the contract rights, if any, of the
individual so removed.

 

6.5                               Resignation.
An officer may resign at any time by delivering written notice to the
Company. A resignation is effective without acceptance when the notice is
delivered to the Company, unless the notice specifies a later effective date.

 

ARTICLE 7

BOOKS AND RECORDS

 

7.1                               Books,
Records and Tax Information. The Company shall keep and maintain proper
and complete books and records of accounts, taxes, financial information and
all matters pertaining to the Company. The Company shall cause to be prepared
and filed all necessary federal, state and local income tax returns for the
Company, including making the elections described herein and shall cause an
Internal Revenue Service Schedule K-1 or any successor 

 

13

 

form to be prepared and delivered in a timely manner to the
Members. Each Member shall furnish to the Officers all pertinent information in
its possession relating to Operations that is necessary to enable the Company’s
tax returns to be prepared and filed.

 

7.2                               Tax
Elections. The Company shall make the following elections on the
appropriate tax returns:

 

(a)                                  to
adopt the calendar year as the Company’s Fiscal Year;

 

(b)                                 to
adopt an appropriate federal income tax method of accounting and to keep the
Company’s books and records on such income tax method; and

 

(c)                                  any
other election the Board of Managers may deem appropriate and in the best
interests of the Company.

 

7.3                               Tax
Matters Member. Pursuant to Code Section 6231(a)(7), the Tax
Matters Member of the Company shall be CWEI. The Tax Matters Member may be
changed only upon the approval of the Members and in accordance with the Code
and the applicable Treasury Regulations.

 

ARTICLE 8

CAPITAL CONTRIBUTIONS

 

8.1                               Capital
Contributions of Members. On the Effective Date, each Member shall
contribute to the Company, in cash, the amounts set forth opposite such Member’s
name under the heading “Capital Contribution” on Exhibit A hereto
(a “Capital Contribution”).

 

8.2                               Further
Contributions. No Member shall be obligated to make any additional
capital contributions to the Company. The Members may, by unanimous written
consent, agree to make additional Capital Contributions to the Company;
provided, that in no event shall additional capital contributions be permitted
if following such additional Capital Contribution either Member owns greater
than 50% of the outstanding Membership Interests.

 

8.3                               Return
of Capital. No interest shall accrue on Capital Contributions and no
Member shall have the right to withdraw or be repaid any capital from the
Company.

 

8.4                               Capital Accounts.

 

(a)                                  Solely
for federal and state income tax purposes, a separate capital account (a “Capital Account”) will be maintained for
each Member. Each Member’s Capital Account will be increased by:  (i) the amount of money contributed by
such Member to the Company; (ii) the Fair Market Value of property
contributed by such Member to the Company (net of liabilities secured by such
contributed property that the Company is considered to assume or take subject
to under Section 752 of the Code); and (iii) allocations to such
Member of Profits and other items of income or gain pursuant to the Regulatory
Allocations or the Curative Allocations. Each Member’s Capital Account will be
decreased by:  (A) the amount of
money distributed to such Member by the Company; (B) the Fair Market Value
of property distributed to such Member by the Company (net of liabilities
secured by such distributed property that such 

 

14

 

Member is considered to assume or take
subject to under Section 752 of the Code); and (iv) allocations to
the account of such Member of Net Losses and other items of loss or deduction
pursuant to the Regulatory Allocations or the Curative Allocations.

 

(b)                                 In
the event of a Transfer of Membership Interests, the Capital Account of the
transferor shall become the Capital Account of the transferee to the extent it
relates to the transferred Membership Interests in accordance with Section 1.704-l(b)(2)(iv) of
the Treasury Regulations.

 

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

 

(d)                                 Except
as otherwise required in the Limited Liability Company Law, no Member shall
have any liability to restore all or any portion of a deficit balance in such
Member’s Capital Account.

 

8.5                               GAAP Capital Accounts.
In addition to the Capital Account established and maintained solely for
federal and state income tax purposes pursuant to Section 8.4, the
Company shall establish and maintain a capital account for each Member,
pursuant to generally accepted accounting principles (a “GAAP Capital Account”). Profits and Losses
for each Fiscal Year or other period shall be allocated among the GAAP Capital
Accounts in accordance with generally accepted accounting principles

 

ARTICLE 9

ALLOCATIONS

 

9.1                               Allocations
of Profits and Losses. Subject to Section 9.2, Profits and
Losses for each Fiscal Year or other period shall be allocated among the
Members, solely for federal and state income tax purposes, in the following
order and priority:

 

(a)                                  Profits
shall be allocated as follows:

 

(i)                                     First,
to the Members in proportion to the deficit balances  (if any) in their Capital Accounts, in an
amount necessary to eliminate any deficits in the Members’ Capital Accounts and
restore such Capital Accounts balances to zero;

 

(ii)                                  Next,
to the Members, to the greatest extent possible, an amount required to cause
the positive Capital Account balances of each of the Members to be in the same
proportion as the Members’ respective Ownership Percentages; and

 

15

 

(iii)                               Thereafter,
to the Members pro rata in proportion to their respective Ownership
Percentages.

 

(b)                                 Losses
shall be allocated as follows:

 

(i)                                     First,
to the Members, to the greatest extent possible, an amount required to cause
the positive Capital Account balances of each of the Members to be in the same
proportion as are the Members’ respective Ownership Percentages;

 

(ii)                                  Next,
to the Members in proportion to the respective Capital Account balances of the
Members until the Capital Account balance of each Member shall have been
reduced to zero (0); and

 

(iii)                               Thereafter,
to the Members pro rata in proportion to their respective Ownership
Percentages.

 

9.2                               Regulatory
Allocations. Solely for federal and state income tax purposes, the
following allocations shall be made in the following order:

 

(a)                                  Nonrecourse
Deductions shall be allocated to the Members in accordance with their
respective Ownership Percentages.

 

(b)                                 Member
Nonrecourse Deductions attributable to Member Nonrecourse Debt shall be
allocated to the Members bearing the Economic Risk of Loss for such Member
Nonrecourse Debt as determined under Treasury Regulation Section 1.704-2(b)(4).
If more than one Member bears the Economic Risk of Loss for such Member
Nonrecourse Debt, the Member Nonrecourse Deductions attributable to such Member
Nonrecourse Debt shall be allocated among the Members according to the ratio in
which they bear the Economic Risk of Loss. This Section 9.2(b) is
intended to comply with the provisions of Treasury Regulation Section 1.704-2(i) and
shall be interpreted consistently therewith.

 

(c)                                  Notwithstanding
any other provision hereof to the contrary, if there is a net decrease in
Minimum Gain for a taxable year (or if there was a net decrease in Minimum Gain
for a prior taxable year and the Company did not have sufficient amounts of
income and gain during prior years to allocate among the Members under this Section 9.2(c)),
items of income and gain shall be allocated to each Member in an amount equal
to such Member’s share of the net decrease in such Minimum Gain (as determined
pursuant to Treasury Regulation Section 1.704-2(g)(2)). This Section 9.2(c) is
intended to constitute a minimum gain chargeback under Treasury Regulation Section 1.704-2(f) and
shall be interpreted consistently therewith.

 

(d)                                 Notwithstanding
any provision hereof to the contrary except Section 9.2(c) (dealing
with Minimum Gain), if there is a net decrease in Member Nonrecourse Debt
Minimum Gain for a taxable year (or if there was a net decrease in Member
Nonrecourse Debt Minimum Gain for a prior taxable year and the Company did not
have sufficient amounts of income and gain during prior years to allocate among
the Members under this Section 9.2(d), items of income and gain
shall be allocated to each Member in an amount equal to such Member’s share of
the net decrease in Member Nonrecourse Debt Minimum Gain (as determined
pursuant to Treasury Regulation Section 1.704-2(i)(4)). This Section 9.2(d) is
intended to constitute a 

 

16

 

partner nonrecourse debt minimum gain
chargeback under Treasury Regulation Section 1.704-2(i)(4) and shall
be interpreted consistently therewith.

 

(e)                                  Notwithstanding
any provision hereof to the contrary except Section 9.2(c) and
Section 9.2(d) (dealing with Minimum Gain and Member
Nonrecourse Debt Minimum Gain), a Member who unexpectedly receives an
adjustment, allocation or distribution described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) shall be
allocated items of income and gain (consisting of a pro rata portion of each
item of income, including gross income, and gain for the taxable year) in an
amount and manner sufficient to eliminate any deficit balance in such Member’s
Adjusted Capital Account as quickly as possible. This Section 9.2(e) is
intended to constitute a qualified income offset under Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and
shall be interpreted consistently therewith.

 

(f)                                    In
the event that any Member has a negative Adjusted Capital Account at the end of
any taxable year, such Member shall be allocated items of Company income and
gain in the amount of such deficit as quickly as possible; provided,
that an allocation pursuant to this Section 9.2(f) shall be made
only if and to the extent that such Member would have a negative Adjusted
Capital Account after all other allocations provided for in this Article 9
have been tentatively made as if Section 9.2(e) and this Section 9.2(f) were
not in this Agreement.

 

(g)                                 To
the extent an adjustment to the adjusted tax basis of any Company properties
pursuant to Code Section 734(b) or Code Section 743(b) is
required pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4) to be taken into account in
determining Capital Accounts as the result of a distribution to any Member in
complete liquidation of such Member’s Membership Interests, the amount of such
adjustment to Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be allocated to the Members
in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(m)(2) if such Section applies,
or to the Member to whom such distribution was made if Treasury Regulation Section 1.704-1(b)(2)(iv)(m)(4) applies.

 

9.3                               Curative
Allocations. The Regulatory Allocations are intended to comply with
certain requirements of Treasury Regulations Sections 1.704-1(b) and 1.704-2.
The Regulatory Allocations may affect the results which would be
inconsistent with the manner in which the Members intend to divide Company
distributions. Accordingly, the Board of Managers is authorized to divide other
allocations of Profits, Losses, and other items among the Members, to the
extent that they exist, so that the net amount of the Regulatory Allocations
and the Curative Allocations to each Member is zero. The Board of Managers will
have discretion to accomplish this result in any reasonable manner that is
consistent with Code Section 704 and the related Treasury Regulations.

 

9.4                               Income
Tax Allocations. All items of income, gain, loss and deduction for
Federal income tax purposes shall be allocated in the same manner as the
corresponding item of Profits and Losses is allocated, except as otherwise
provided in this Section 9.4.

 

(a)                                  In
accordance with Code Section 704(c) and the applicable Treasury
Regulations thereunder, income, gain, loss, and deduction with respect to any
property 

 

17

 

contributed to the Company shall, solely for
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 initial Book Value. In the event the Book
Value of any property is adjusted pursuant to clause (b) or (d) of
the definition of Book Value, subsequent allocations of income, gain, loss, and
deduction with respect to such property shall take account of any variation
between the adjusted basis of such property for federal income tax purposes and
its Book Value in the same manner as under Code Section 704(c) and
the applicable Regulations thereunder.

 

(b)                                 Any
(i) recapture of depreciation, depletion, intangible drilling costs or any
other item of deduction shall be allocated, in accordance with Treasury
Regulations Sections 1.1245-1(e) and 1.1254-5, to the Members who received
the benefit of such deductions (taking into account the effect of remedial
allocations), and (ii) recapture of credits shall be allocated to the
Members in accordance with applicable law.

 

(c)                                  Allocations
pursuant to this Section 9.4 are solely for purposes of federal,
state, and local taxes and shall not affect, or in any way be taken into
account in computing, any Member’s Capital Account or share of Profits, Losses,
other items or distributions pursuant to any provision of this Agreement.

 

9.5                               Other
Allocation Rules.

 

(a)                                  All
items of income, gain, loss, deduction and credit allocable to an interest in
the Company that may have been transferred shall be allocated between the
transferor and the transferee based on the portion of the calendar year during
which each was recognized as the owner of such interest, without regard to the
results of Company operations during any particular portion of that calendar
year and without regard to whether cash distributions were made to the
transferor or the transferee during that calendar year; provided, however, that
this allocation must be made in accordance with a method permissible under Code
Section 706 and the regulations thereunder.

 

(b)                                 The
Members’ proportionate shares of the “excess nonrecourse liabilities” of the
Company, within the meaning of Treasury Regulation Section 1.752-3(a)(3),
shall be determined in accordance with their Percentage Interests.

 

ARTICLE 10

DISTRIBUTIONS

 

10.1                        Distributions.
Subject to Section 14.3, all Distributable Property of the Company
and any or all other property of the Company shall be distributed at such time
or times (if any) as the Board of Managers determines in its sole discretion to
the Members in the following order and priority:

 

(a)                                  First,
to the Members to the extent of and in proportion to the Unreturned Capital
Contribution Balance of each Member until the Unreturned Capital Contribution
Balance of each Member has been reduced to zero; and

 

18

 

(b)                                 Thereafter,
to the Members pro rata in proportion to the respective Ownership Percentage.

 

ARTICLE 11

MEETINGS OF MEMBERS

 

11.1                        Meetings.
Annual meetings of Members may, but need not, be held. Any annual meeting of
Members shall be held at such time and on such date as the Board of Managers may designate
for the purpose of election of the Board of Managers and transacting such other
business as may properly come before the meeting. Special meetings of the
Members, for any purpose or purposes may be called by the Board of
Managers, or any Member.

 

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

 

11.3                        Notice of
Meetings. Written notice stating the time, date and place of the
meeting and the purpose or purposes for which the meeting is called shall be
delivered not less than three (3) days prior to the date of the meeting,
either personally or by mail, by or at the direction of the Board of Managers
or Member calling the meeting, to each Member entitled to vote at such meeting.

 

11.4                        Record
Date. For the purpose of determining Members entitled to notice of or
to vote at any meeting of Members or any adjournment thereof, or Members entitled
to receive payment of any distribution, or in order to make a determination of
Members for any other purpose, the date on which notice of the meeting is
mailed or the date on which the resolution declaring such distribution is
adopted, as the case may be, shall be the record date for such
determination of Members.

 

11.5                        Quorum.
The presence of all Members represented in person or by proxy shall constitute
a quorum at any meeting of Members. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally noticed.

 

11.6                        Manner of
Acting. The unanimous vote of the Members holding Membership Interests
shall be the act of the Members, unless otherwise permitted or required by the
Limited Liability Company Law, by the Certificate, or by this Agreement.

 

11.7                        Action by Members Without a Meeting; Telephone Conference

 

(a)                                  Any
action required or permitted to be taken at a meeting of Members may be
taken without a meeting if a written consent or consents stating the action to
be taken is signed by all of the Members. Each such consent shall be included
in the minutes of the Members or filed with the Company records.

 

(b)                                 Members
may hold and participate in a meeting by means of conference telephone or
similar communications equipment by means of which all Persons participating in

 

19

 

the meeting can hear each other, and
participation 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.

 

11.8                        Waiver of
Notice. When any notice is required to be given to any Member, a waiver
thereof in writing signed by the Person entitled to such notice, whether
before, or after the time of the meeting.

 

11.9                        Conduct of
Meetings. All meetings of the Members shall be presided over by the
chairman of the meeting, who shall be a Manager or Officer designated by the
Board of Managers. The chairman of any meeting of Members shall determine the
order of business and the procedure at the meeting, including such regulation
of the manner of voting and the conduct of discussion as seem to him in order.

 

ARTICLE 12

INDEMNIFICATION

 

The Company shall
indemnify any person who was, is, or is threatened to be made a party to a
Proceeding by reason of the fact that he or she (a) is or was a Member,
Manager or officer of the Company or (b) while a Member, Manager or
officer of the Company, is or was serving at the request of the Company as a
Manager, director, officer, partner, venturer, proprietor, trustee, employee,
agent, or similar functionary of another foreign or domestic limited liability
company, corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan, or other enterprise, to the fullest extent permitted
under the Limited Liability Company Law, as amended from time to time. Such
right shall be a contract right and as such shall run to the benefit of any
Member or Manager of the Company or any officer who is elected and accepts the
position of an officer of the Company or elects to continue to serve as an
officer of the Company while this Article 12 is in effect. Any
amendment, modification or repeal of this Article 12 shall be
prospective only and shall not limit the rights of any such Member, Manager or
officer of the Company or the obligations of the Company with respect to any
claim arising from or related to the services of such Member, Manager or
officer in any of the foregoing capacities prior to any such amendment,
modification or repeal of this Article 12. Such right shall include
the right to be paid in advance or reimbursed by the Company for expenses
incurred in investigating or defending any such proceeding in advance of its
final disposition to the maximum extent permitted under the Limited Liability
Company Law, as amended from time to time. If a claim for indemnification or
advancement of expenses hereunder is not paid in full by the Company within 60
days after a written claim has been received by the Company, the claimant may at
any time thereafter bring suit against the Company to recover the unpaid amount
of the claim, and if successful in whole or in part, the claimant shall also be
entitled to be paid the expenses of prosecuting such claim. It shall be a
defense to any such action that such indemnification or advancement of costs of
defense is not permitted under the Limited Liability Company Law, but the
burden of proving such defense shall be on the Company. Neither the failure of
the Company (including its officers, independent legal counsel, or 

 

20

 

Members) to have
made its determination prior to the commencement of such action that
indemnification of, or advancement of costs of defense to, the claimant is
permissible in the circumstances nor an actual determination by the Company
(including its officers, independent legal counsel, or Members) that such
indemnification or advancement is not permissible shall be a defense to the
action or create a presumption that such indemnification or advancement is not
permissible. In the event of the death of any person having a right of
indemnification under the foregoing provisions, such right shall inure to the
benefit of his or her heirs, executors, administrators and personal
representatives. The rights conferred above shall not be exclusive of any other
right that any person may have or hereafter acquire under any statute,
resolution of the Members, agreement, or otherwise.

 

ARTICLE 13

RESTRICTIONS ON TRANSFERS OF MEMBERSHIP INTERESTS

 

13.1                        Restrictions
on Transfer  A Member may Transfer
its Membership Interest, in whole or in part, only if:

 

(a)                                  except to the extent
such opinion is waived in whole or in part by the Board of Managers, in
its sole discretion, the Company obtains an opinion of counsel of the Company
or an opinion of counsel for such transferor satisfactory to the Board of
Managers to the effect that (i) the Transfer may be made without
registration under the Securities Act; (ii) such Transfer complies with
applicable state securities and blue sky laws; (iii) such Transfer will
not subject the Company to registration as an “investment company” or election
as a “business development company” under the Investment Company Act, or
subject the Board of Managers or the Company to registration as an “investment
adviser” under the Investment Advisers Act of 1940, as amended; and (iv) such
Transfer will not cause the dissolution of the Company or lead to the
classification of the Company as an association taxable as a corporation for
federal income tax purposes;

 

(b)                                 the transferee furnishes
to the Company a written confirmation, in form and substance satisfactory
to the Board of Managers and the Company’s counsel, executed by the transferee
making each of the representations and agreements of a Member contained in this
Agreement and agreeing to be bound by the terms and provisions hereof;

 

(c)                                  after giving effect
to such Transfer, less than 50% of the aggregate interests in Company profits
and capital will have been sold or exchanged (within the meaning of Code Section 708)
within the preceding 12-month period and the Transfer will not otherwise cause
a termination of the Company for tax purposes;

 

(d)                                 except in the case of
a transfer by a Member to a Permitted Transferee, in which case no consent
shall be required (provided that the Transfer meets the other requirements of
this Section 13.1 and that admission of the transferee as an
additional or substituted Member remains at the sole discretion of the Board of
Managers), the Board of Managers gives its written consent to such Transfer,
(the Board of Managers may consent to the Transfer without consenting to
the admission of the transferee as an additional or substituted Member);

 

(e)                                  the Selling Member
(defined below) has complied with the provisions of Section 13.2;

 

(f)                                    the transferee has
paid all costs and expenses incurred by the Company in connection with such
Transfer; and

 

21

 

(g)                                 the Board of Managers
has not determined, in its sole discretion, that such Transfer will either
cause the Company to be characterized as a “publicly traded partnership” or
will materially increase the risk that the Company will be so characterized. For
purposes of this paragraph the phrase “publicly traded partnership” shall have
the meanings set forth in Section 7704(b) and 469(k) of the Code. In
particular and without limiting the foregoing, no Transfer shall be permitted,
given effect or otherwise recognized, and such Transfer (or purported Transfer)
shall be void ab initio, if at the time of such Transfer interests in the
Company are traded on an “established securities market” (within the meaning of
Treasury Regulation Section 1.7704-1(b)) or are “readily tradeable on a
secondary market or the equivalent thereof” (within the meaning of Treasury
Regulation Section 1.7704-1(c)).

 

If and when all the foregoing conditions to Transfer are satisfied and
the Board of Managers consents to the admission of the transferee as a Member,
which consent may be withheld in the sole discretion of the Board of
Managers, the transferee shall become an additional or substituted Member as to
the Interest or part thereof so transferred. In accordance with the
Limited Liability Company Law, such transferee, if admitted to the Company,
will have the rights and powers and will be subject to the restrictions and
liabilities of a Member under this Agreement and under the Membership Law. For
purposes of this Agreement the transferee shall be treated as (i) having
made previous Capital Contributions to the Company equal to the previous Capital
Contributions by the Selling Member that correspond to the Interest or part thereof
Transferred and (ii) having an Unreturned Capital Contribution Balance
equal to the Unreturned Capital Contribution Balance of the Selling Member that
correspond to the Interest or part thereof Transferred. Regardless of
whether such substitution actually occurs, however, the Selling Member whose
Interest or part thereof is Transferred, voluntarily or involuntarily,
shall be and remain obligated for the performance and payment of any and all
obligations incurred, if any, by such Selling Member prior to the date of such
Transfer. All costs incurred in connection with any proposed Transfer,
including without limitation fees and disbursements for counsel to the Company
or the Board of Managers, shall be borne by the Member proposing such Transfer.

 

13.2                        Right of First Refusal on Transfer of Membership Interests.

 

(a)                                  Whenever
and as often as any Member or Permitted Transferee desires to Transfer any
Membership Interests pursuant to a bona fide written offer to purchase such
Membership Interests, such Member (the “Selling
Member”) shall give written notice (the “Notice”) to the other Member (the “Offeree”) to such effect, enclosing a copy of such offer and
specifying the Membership Interests that the Selling Member desires to
transfer, the name of the person or persons to whom the Selling Member desires
to make such sale and the consideration for the Membership Interests that has
been offered in connection with such offer. Upon receipt of the Notice, the
Offeree initially shall have the first right and option to purchase the
Membership Interests proposed to be transferred for cash at the purchase price
specified in the Notice, exercisable for 20 business days after receipt of the
Notice. Failure of the Offeree to respond to such Notice within such 20-day
period shall be deemed to constitute a notification to the Selling Member of
the Offeree’s decision not to exercise the first right and option to purchase
such Membership Interests under this Section 13.2. In the event
such consideration includes 

 

22

 

non-cash consideration, the dollar value of
such non-cash consideration shall be its fair market value, as determined by
the Board of Managers.

 

(b)                                 The
Offeree may exercise its right and option to purchase such Membership
Interests by giving written notice of exercise to the Selling Member within
such 10-day period, specifying the date (not later than five business days
after the date of such notice) upon which payment of the purchase price for the
Membership Interests shall be made. The Selling Member shall deliver to the
Offeree’s principal office, on or before the payment date specified in such
notice, document(s) effectuating the transfer of the Membership Interests being
purchased by the Offeree, against payment of the purchase price therefor by the
Offeree in immediately available funds.

 

(c)                                  If
all the Membership Interests proposed to be transferred are not purchased by
the Offeree in accordance with this paragraph, the Selling Member shall not be
required to sell any of the Membership Interests proposed to be transferred to
the Offeree, and during the 30-day period commencing on the expiration of the
rights and options provided for in this paragraph, may sell all (but not
less than all) of such Membership Interests to the transferee named in the
Notice for consideration equal to or greater than the consideration specified
in the Notice.

 

(d)                                 No
Transfer of any Membership Interests otherwise permitted by this Section 13.2
(including Permitted Transfers) shall be made unless simultaneously with such
transfer of Membership Interests to a transferee, the Selling Member transfers
to such transferee an equal number of Partnership Interests owned by such
Selling Member.

 

(e)                                  The
provisions of this Section 13.2 shall not apply to any Permitted
Transfer by a Member or Permitted Transferee.

 

13.3                        Rights of
Transferees. Unless and until any assignee, transferee, legal
representative or successor in interest of a Member becomes a substituted
Member in accordance with Section 13.1, its status and rights shall
be limited to the rights of an assignee of a limited liability interest under Section 101.109
of the Limited Liability Company Law.

 

ARTICLE 14

DISSOLUTION AND LIQUIDATION

 

14.1                        Dissolution.
The Company shall be dissolved upon the vote of the Members in accordance with Section 5.3
or upon the occurrence of any dissolution event specified in the Limited
Liability Company Law.

 

14.2                        Effect of
Dissolution. Upon dissolution, the Company shall cease carrying on its
business but shall not terminate until the winding up of the affairs of the
Company is completed, the assets of the Company shall have been distributed as
provided below and a certificate of cancellation of the Company under the
Limited Liability Company Law has
been filed with the Secretary of State of the State of Delaware.

 

23

 

14.3                        Liquidation
Upon Dissolution. Upon the dissolution of the Company, sole and plenary
authority to effectuate the liquidation of the assets of the Company shall be
vested in the Board of Managers, who shall have full power and authority to
sell, assign and encumber any and all of the Company’s assets and to wind up
and liquidate the affairs of the Company in an orderly and business-like manner.
The proceeds of liquidation of the assets of the Company distributable upon a
dissolution and winding up of the Company shall be applied in the following
order of priority:

 

(i)                                     first,
to the creditors of the Company, including creditors who are Members, in the
order of priority provided by law, in satisfaction of all liabilities and
obligations of the Company (of any nature whatsoever, including, without
limitation, fixed or contingent, matured or unmatured, legal or equitable,
secured or unsecured), whether by payment or the making of reasonable provision
for payment thereof; and

 

(ii)                                  thereafter,
to the Members in accordance with Article 10.

 

14.4                        Winding Up
and Certificate of Cancellation. The winding up of the Company shall be
completed when all of its debts, liabilities, and obligations have been paid
and discharged or reasonably adequate provision therefor has been made, and all
of the remaining property and assets of the Company have been distributed to
the Members. Upon the completion of the winding up of the Company, a
certificate of cancellation of the Company shall be filed with the Secretary of
State of the State of Delaware.

 

14.5                        Non-Solicitation
of Employees. Each Member agrees that if the Partnership makes a
distribution of Drilling Rigs to the Partners upon a dissolution of the
Partnership and winding up of the Company, the drilling crew then associated
with each Drilling Rig shall thereafter be employed by the Member to whom the
Drilling Rig was so distributed. Additionally, each Member agrees that it will
not solicit the employees of the other Member upon any such dissolution of the
Partnership.

 

ARTICLE 15

GENERAL PROVISIONS

 

15.1                        Confidentiality.
For purposes of this Agreement, “Confidential
Information” means all information of or pertaining to a Member (the
“Disclosing Member”), the
Partnership or the Company (together, the “Larclay
Entities”) acquired or obtained by the other Member (the “Receiving Member”) while the Receiving
Member owns or holds an ownership interest in any Larclay Entity, other than (i) information
that is now in, or hereafter enters, the public domain through no action of the
Receiving Member in violation of the terms of this Agreement, (ii) information
that the Receiving Member can demonstrate was not acquired or obtained by the
Receiving Member directly or indirectly from the Disclosing Member or any
Larclay Entity or (iii) information disclosed to the Receiving Member by
the Disclosing Member or any Larclay Entity to others on an unrestricted,
non-confidential basis. The Receiving Member shall use Confidential Information
solely in connection with the business of the Larclay Entities and not for any
other purpose or in any other manner. The Disclosing Member should disclose 

 

24

 

Confidential Information only to those of its directors, officers,
employees, attorneys, agents, representatives and advisors (collectively, the “Representatives”) who have a need to have
access to such Confidential Information for the purposes of assisting and
advising the Receiving Member in connection with the ownership and holding of
interests in the Larclay Entities and in performing its obligations and exercising
its rights and privileges as contemplated in this Agreement. The Disclosing
Member shall inform its Representatives of the confidential nature of the
Confidential Information and of the terms of this Section 15.1 and,
in any event, the Receiving Member shall be responsible for any use or
disclosure of Confidential Information by any of its Representatives.
Notwithstanding the foregoing, the Receiving Member may disclose
Confidential Information to the extent (but only to the extent) disclosure is
required by applicable law, including, without limitation, federal or state
securities laws. Each Member acknowledges that the release of Confidential
Information may be damaging to the Disclosing Member or to the Larclay
Entities or persons with which they do business and that a breach of the
provisions of this Section 15.1 may cause irreparable injury
to the Disclosing Member or the Larclay Entities for which monetary damages are
inadequate, difficult to compute, or both. Accordingly, the Parties agree that
the provisions of this Section 15.1 may be enforced by
specific performance.

 

15.2                        Offset.
Any amounts owed by a Member to the Company may be deducted from any
payments or distributions required to be made by the Company hereunder.

 

15.3                        Notices.
All notices, requests or consents required or permitted to be given under this
Agreement must be in writing and shall be considered as properly given if
mailed by first class United States mail, postage paid, and registered or
certified with return receipt requested, or if delivered to the recipient in
person, by courier or by facsimile transmission. Notices, requests and consents
shall be sent to a Member at the address shown on its Signature Page for
Members. A Member may change its address by giving written notice to the
General Member. Any notice, request or consent to the Company shall be sent to
the Company at its principal place of business, to the attention of the Chief
Executive Officer.

 

15.4                        Entire
Agreement. This Agreement constitutes the entire agreement of the
Members relating to the Company and supersedes all prior contracts or
agreements with respect to the Company or between the Members, whether oral or
written, including without limitation, the Letter Agreement.

 

15.5                        Effect
of Waiver or Consent. A waiver or consent, express or implied, to or of
any breach or default by any Member in the performance by that Member of its
obligations with respect to the Company is not a consent or waiver to or of any
other breach or default in the performance by that Member of the same or any
other obligations of that Member with respect to the Company. Failure on the part of
a Member to complain of any act of any Member or to declare any Member in
default with respect to the Company, irrespective of how long that failure continues,
does not constitute a waiver by that Member of its rights with respect to that
default until the applicable statute of limitations period has run.

 

25

 

15.6                        Amendment or Modification.

 

(a)                                  Except
as otherwise provided in this Section 15.6, any amendment to this
Agreement must be proposed by the Members and approved in writing by the
Members to be effective.

 

(b)                                 The
Company may amend this Agreement without the consent of any Member (i) to
remove or correct any inconsistency, ambiguity or error contained herein,
provided that such amendment does not materially and adversely affect the
Members or (ii) to reflect any Transfer of Membership Interests pursuant
to Article 13.

 

15.7                        Binding
Effect. Subject to the restrictions on Transfers set forth in this
Agreement, this Agreement is binding on and inures to the benefit of the
Members and their respective successors and assigns.

 

15.8                        Governing
Law; Severability. THIS AGREEMENT IS GOVERNED BY AND SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAW OF THE STATE OF TEXAS, EXCLUDING ANY CONFLICT OF
LAWS RULE OR PRINCIPLE THAT MIGHT REFER THE GOVERNANCE OR THE CONSTRUCTION
OF THIS AGREEMENT TO THE LAW OF ANOTHER JURISDICTION. If any provision of this
Agreement or its application to any Person or circumstance is held invalid or
unenforceable to any extent, the remainder of this Agreement and the
application of that provision to other Persons or circumstances is not affected
and that provision shall be enforced to the fullest extent permitted by law.

 

15.9                        Further
Assurances. In connection with this Agreement and the transactions
contemplated by it, each Member shall execute and deliver any additional
documents and instruments and perform any additional acts that may be
necessary or appropriate to effectuate and perform the provisions of this
Agreement and those transactions.

 

15.10                 Waiver
of Certain Rights. Each Member irrevocably waives any right it may have
to maintain any action for partition of the property of the Company.

 

15.11                 Successors
and Assigns. Except as otherwise specifically provided herein, this
Agreement shall be binding upon and inure to the benefit of the Members and
their respective successors and permitted assigns.

 

15.12                 Counterparts.
This Agreement may be executed in any number of counterparts (including by
facsimile transmission) with the same effect as if all signing parties had
signed the same document. All counterparts shall be construed together and
constitute the same instrument.

 

[THE
REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]

 

26

 

IN WITNESS WHEREOF, the
undersigned have entered into this Agreement as of the date first written
above.

 

	
   

  	
  MEMBERS:

  
	
   

  	
   

  
	
   

  	
  CLAYTON WILLIAMS ENERGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mel G.
  Riggs

  
	
   

  	
   

  	
  Mel G. Riggs

  
	
   

  	
   

  	
  Senior Vice President and Chief Financial

  
	
   

  	
   

  	
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  LARIAT SERVICES, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ N.
  Malone Mitchell

  
	
   

  	
  Name:

  	
  N. Malone
  Mitchell

  
	
   

  	
  Title:

  	
  President

  
				

 

 

Exhibit A

 

Schedule of
Members:

 

	
  Name

  	
   

  	
  Capital

  Contribution

  	
   

  	
  Membership Interests

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Clayton
  Williams Energy, Inc.

  	
   

  	
  $

  	
  5,000

  	
   

  	
  50

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Lariat
  Services, Inc.

  	
   

  	
  $

  	
  5,000

  	
   

  	
  50

  	
  %

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