Document:

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                                                                    EXHIBIT 10.5
                                                                         WARRANT

      THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE HEREUNDER HAVE NOT
      BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
      APPLICABLE STATE SECURITIES LAWS AND MUST BE HELD INDEFINITELY UNLESS
      SUBSEQUENTLY REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
      LAWS OR DISPOSED OF PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION
      REQUIREMENTS

      THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE HEREUNDER HAVE NOT
      BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
      APPLICABLE STATE SECURITIES LAWS AND MUST BE HELD INDEFINITELY UNLESS
      SUBSEQUENTLY REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
      LAWS OR DISPOSED OF PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION
      REQUIREMENTS

                                     WARRANT

<TABLE>
<S>                     <C>
Corporation:            Commonwealth Energy Corporation, a California
                        corporation
Number of Shares:       100,000
Class of Stock:         Common Stock
Initial Exercise Price: $5.50 per share Issued as of. June 28, 2000
Expiration Date:        Ninety days after expiration of the Term of the Loan and
                        Security
</TABLE>

Agreement dated of even date herewith between the parties hereto

            FOR VALUE RECEIVED, the adequacy and receipt of which is hereby
acknowledged, COMMONWEALTH ENERGY CORPORATION, a California corporation, hereby
certifies that COAST BUSINESS CREDIT(R), a division of Southern Pacific Bank, a
California corporation, and its successors and assigns, are entitled to purchase
from the Company one hundred thousand (100,000) fully paid and nonassessable
shares of Common Stock of the Company at any time and from time to time on and
after the date hereof until 12:00 midnight California local time on the
ninetieth day after expiration of the Term of the Loan and Security Agreement
dated of even date herewith between the parties hereto at an exercise price of
FIVE DOLLARS AND FIFTY CENTS ($5.50) per share of Common Stock, on the terms and
conditions hereinafter set forth.

            The number of such shares of Common Stock and the Exercise Price are
subject to adjustment as provided in this warrant.

            1. Certain Definitions. As used in this Warrant, the following
terms have the following definitions:

            "Additional Shares of Common Stock" means all shares of Common Stock
issued or issuable by the Company after the date of this Warrant.

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            "Common Stock" means the Company's Common Stock, no par value per
share, and includes any common stock of the Company of any class or classes
resulting from any reclassification or reclassifications thereof which is not
limited to a fixed sum or percentage of par value in respect of the rights of
the holders thereof to participate in dividends and in the distribution of
assets upon the voluntary or involuntary liquidation, dissolution or winding up
of the Company.

            "Company" means Commonwealth Energy Corporation, a California
corporation.

            "Convertible Securities" means evidence of indebtedness, shares of
stock or other securities which are at any time directly or indirectly
convertible into or exchangeable for Additional Shares of Common Stock.

            "Current Market Price" of a share of Common Stock or any other
security as of a relevant date means: (i) the Fair Value thereof as determined
in accordance with clause (ii) of the definition of Fair Value with respect to
Common Stock or any other security that is not listed on a national securities
exchange or traded on the over-the-counter market or quoted on NASDAQ, and (ii)
the average of the daily closing prices for the ten (10) trading days before
such date (excluding any trades which are not bona fide arm's length
transactions) with respect to Common Stock or any other security that is listed
on a national securities exchange or traded on the over-the-counter market or
quoted on NASDAQ. The closing price for each day shall be (i) the last sale
price of shares of Common Stock or such other security, regular way, on such
date or, if no such sale takes place on such date, the average of the closing
bid and asked prices thereof on such date, in each case as officially reported
on the principal national securities exchange on which the same are then listed
or admitted to trading, or (ii) if no shares of Common Stock or if no securities
of the same class as such other security are then listed or admitted to trading
on any national securities exchange, the average of the reported closing bid and
asked prices thereof on such date in the over-the-counter market as shown by the
National Association of Securities Dealers automated quotation system or, if no
shares of Common Stock or if no securities of the same class as such other
security are then quoted in such system, as published by the National Quotation
Bureau, Incorporated or any similar successor organization, and in either case
as reported by any member firm of the New York Stock Exchange selected by
Warrantholders.

            "Exchange Act" means the Securities Exchange Act of 1934

            "Exercise Period" means the period commencing on the date hereof and
ending at 12:00 midnight California local time on the Expiration Date.

            "Exercise Price" means initially Five Dollars and Fifty Cents
($5.50) per share, subject to adjustment as provided in this Warrant.

            "Expiration Date" means ninety days after expiration of the Term of
the Loan and Security Agreement dated of even date herewith between the parties
hereto.

            "Fair Value" means: (i) with respect to a share of Common Stock or
any other security, the Current Market Price thereof, and (ii) with respect to
any other property, assets, business or entity, an amount determined in
accordance with the following procedure: The Company and the holders of the
Warrants and Warrant Shares, as applicable, shall use their best efforts to
mutually agree to a determination of Fair Value within ten (10) days of the date
of the event requiring that such a determination be made. If the Company and
such holders are unable to reach an agreement within said ten (10) day period,
the Company and such holders shall within ten (10) days of the expiration of the
ten (10) day period referred to above each retain a separate independent
investment banking firm (which firm shall not be the investment banking firm
regularly retained by the Company). If either the Company or such holders fails
to retain such an investment banking firm during such period, then the
independent investment banking firm

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retained by such holders or the Company, as the case may be, acting alone, shall
take the actions outlined below. Such firms shall determine (within thirty (30)
days of their being retained) the Fair Value of the security, property, assets,
business or entity, as the case may be, in question and deliver their opinion in
writing to the Company and to such holders. If such firms cannot jointly make
the determination, then, unless otherwise directed by agreement of the Company
and such holders, such firms, in their sole discretion, shall choose another
investment banking firm independent of the Company and such holders, which firm
shall make the determination and render an opinion as promptly as practicable.
In either case, the determination so made shall be conclusive and binding on the
Company and such holders. The fees and expenses of any such determination made
by any and all such investment banking firms shall be paid by the Company. If
there is more than one holder of Warrants, and/or Warrant Shares entitled to a
determination of Fair Value in any particular instance, each action to be taken
by a majority in interest of such holders and the action taken by such majority
(including as to any mutual agreement with the Company with respect to Fair
Value and as to any selection of investment banking firms) shall be binding upon
all such holders. In the case of a determination of the Fair Value per share of
Common Stock, the Company and such holders shall not take into consideration,
any premium for shares representing control of the Company, any discount for any
minority interest therein or any restrictions on transfer under applicable
federal and state securities laws or otherwise.

            "Indemnified Part" and "Indemnifying Party" have the same meanings
set fourth in Section 1l(e)(iii).

            "Registerable Stock" means: (i) all Warrant Shares which are
issuable to the Warrantholders pursuant to the Warrants, whether or not the
Warrants have in fact been exercised and whether or not such warrant Shares have
in fact been issued, (ii) all Warrant Shares acquired by the Warrantholders
pursuant to the Warrants, and (iii) any shares of Common Stock, whether or not
such shares of Common Stock have in fact been issued, and stock or other
securities of the Company issued upon conversion of, in a stock split or
reclassification of, or a stock dividend or other distribution on, or in
substitution or exchange for, or otherwise in connection with, such Warrant
Shares. For purposes of Section 11, a Warrantholder of record shall be treated
as the record holder of the related Warrant Shares and other securities pursuant
to the warrants.

            "Securities Act" means the Securities Act of 1933, as amended.

            "Warrant(s)" means this Warrant and any warrants issued in exchange
or replacement of this Warrant or upon transfer hereof.

            "Warrantholder(s)" means COAST BUSINESS CREDIT, a division of
Southern Pacific Bank, a California corporation, and its successors and assigns.

            "Warrant Shares" means shares of common stock issuable to
Warrantholders pursuant to the warrants.

            2. Exercise of Warrant. This Warrant may be exercised, in whole or
in part, at any time and from time to time during the Exercise Period by written
notice to the Company and upon payment to the Company of the Exercise Price
(subject to adjustment as provided herein) for the shares of Common Stock in
respect of which the warrant is exercised.

            3. Form of Payment of Exercise Price. Anything contained herein to
the contrary notwithstanding, at the option of the Warrantholders, the exercise
Price may be paid in any one or a combination of the following forms: (a) by
wire transfer to the Company, (b) by the Warrantholder's check to the Company,
(c) by the cancellation of any indebtedness owed by the Company and/or any
subsidiaries of the Company to the Warrantholder, and/or (d) by the surrender to
the Company of Warrants, Warrant Shares, Common Stock and/or other securities of
the Company and/or any subsidiaries of the Company having a Fair Value equal to
the Exercise Price.

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            4. Cashless Exercise/Conversion; Appreciation Right.

                  (a)   Cashless Exercise/Conversion.  In lieu of exercising
this Warrant as specified in Sections 2 and 3 above, the Warrantholders may from
time to time at the Warrantholders' option convert this Warrant, in whole or in
part, into a number of shares of Common Stock of the Company determined by
dividing (A) the aggregate Fair Value of such shares or other securities
otherwise issuable upon the exercise of this Warrant minus the aggregate
Exercise Price of such shares by (B) the Fair Value of one such share.

                  (b) Appreciation Right. In lieu of exercising, this Warrant as
specified in Sections 2 and 3 above, the Warrantholders may from time to time at
the Warrantholders' option require the Company to purchase this Warrant or any
portion hereof, for cash, at a price equal to the then Fair Value of the Common
Stock issuable upon exercise of this Warrant less the Exercise Price. Upon the
Warrantholders' exercise of this option, the Company shall promptly wire
transfer to the Warrantholders such amount in immediately available funds as is
required under this Section 4(b), but in no event later than five (5) business
days after the exercise of such option, in immediately available funds.

            5. Certificates for Warrant Shares: New Warrant. The Company agrees
that the Warrant Shares shall be deemed to have been issued to the
Warrantholders as the record owner of such Warrant Shares as of the close of
business on the date on which payment for such Warrant Shares has been made (or
deemed to be made by conversion) in accordance with the terms of this Warrant.
Certificates for the Warrant Shares shall be delivered to the Warrantholders
within a reasonable time, not exceeding five (5) days, after this Warrant has
been exercised or converted. A new Warrant representing the number of shares, if
any, with respect to which this Warrant remains exercisable also shall be issued
to the Warrantholders within such time so long as this Warrant has been
surrendered to the Company at the time of exercise.

            6. Adjustment of Exercise Price, Number of Shares and Nature of
Securities Issuable Upon Exercise of Warrants.

                  (a) Exercise Price: Adjustment of Number of Shares. The
Exercise Price shall be subject to adjustment from time to time as hereinafter
provided. Upon each adjustment of the Exercise Price, the Warrantholders shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, a number of shares determined by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.

                  (b) Adjustment of Exercise Price Upon Issuance of Common
Stock. If and whenever after the date hereof the Company shall issue or sell
Additional Shares of Common Stock without consideration or for a consideration
per share less the Current Market Price or the Exercise Price then in effect
immediately prior to the issuance or sale of such shares, then the Exercise
Price in effect immediately prior to such issuance or sale of such shares shall
be reduced to a number which shall be calculated by dividing (A) an amount equal
to the sum of (1) the number of shares of Common Stock outstanding immediately
prior to such issue or sale multiplied by the then existing Exercise Price plus
(2) the aggregate consideration, if any received by the Company upon issue or
sale, by (B) the total number of shares of Common Stock outstanding immediately
after such issue or sale.

                     No adjustment of the Exercise Price, however, shall be
made in an amount less than $.01 per share, but any such lesser adjustment shall
be carried forward and shall be made at the time and together with the next
subsequent adjustment which, together with any adjustments so carried forward,
shall amount to $10 per share or more.

                     The provisions of this Section 6(b) shall not apply to
any Additional Shares of Common Stock which are distributed to holders of Common
Stock pursuant to a stock split for which an adjustment is provided for under
Section 6(f).

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                  (c) Further Provisions for Adjustment of Exercise Price Upon
Issuance of Additional Shares of Common Stock and Convertible Securities. For
purposes of Section 6(b), the following, provisions shall also be applicable:

                     (i)   In case at any time on or after the date hereof,
the Company shall declare any dividend, or authorize any other distribution,
upon any stock of the Company of any class, payable in Additional Shares of
Common Stock or by the issuance of Convertible Securities, such declaration or
distribution shall be deemed to have been issued or sold (as of the record date)
without consideration and shall thereby cause an adjustment in the Exercise
Price as required by Section 6(b).

                     (ii)  (A)            In case at any time on or after the
date hereof, the Company shall in any manner issue or sell any Convertible
Securities, whether or not the rights to exchange or convert thereunder are
immediately exercisable, there shall be determined the price per share for which
Additional Shares of Common Stock are issuable upon the conversion or exchange
thereof, such determination to be made by dividing, (a) the total amount
received or receivable by the Company as consideration for the issue or sale of
such Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof by (b) the maximum aggregate number of Additional Shares of Common Stock
issuable upon conversion or exchange of all such Convertible Securities for such
minimum aggregate amount of additional consideration; and such issue or sale
shall be deemed to be an issue or sale for cash (as of the date of issue or sale
of such Convertible Securities) of such maximum number of Additional Shares of
Common Stock at the price per share so determined, and shall thereby cause an
adjustment in the Exercise Price, if such an adjustment is required by Section
6(b) hereof.

                           (B)            If such Convertible Securities
shall by their terms provide for an increase or increases, with the passage of
time, in the amount of additional consideration, if any, payable to the Company,
or in the rate of exchange upon the conversion or exchange thereof, the adjusted
Exercise Price shall, upon any such increase becoming effective, be increased to
such Exercise Price as would have been in effect had the adjustments made upon
the issuance of such Convertible Securities been made upon the basis of (and the
total consideration received therefor) (a) the issuance of the number of shares
of Common Stock theretofore actually delivered upon the exercise of such
Convertible Securities, (b) the issuance of all Common Stock, all Convertible
Securities and all rights and options to purchase Common Stock issued after-the
issuance of such Convertible securities, and (c) the original issuance at the
time of such change of any such Convertible Securities then still outstanding;
provided however, that any such increase or increases shall not exceed, in the
aggregate, the amount of the original reduction of the Exercise Price
attributable to the Convertible Securities.

                           (C)      If any rights of conversion or exchange
evidenced by such Convertible Securities shall expire without having been
exercised, the adjusted Exercise Price shall forthwith be readjusted to such
Exercise Price as would have been in effect had an adjustment with respect to
such Convertible Securities been made on the basis that the only Additional
Shares of Common Stock issued or sold were those issued upon the conversion or
exchange of such Convertible Securities, and that they were issued or sold for
the consideration actually received by the Company upon the exercise, plus the
consideration, if any, actually received by the Company for the granting, of
such Convertible Securities.

                     (iii)  (A)     In case at any time on or after the date
hereof, the Company shall in any manner grant or issue any rights or options to
subscribe for, purchase or otherwise acquire Additional Shares of Common Stock,
whether or not such rights or options are immediately exercisable, there shall
be determined the price per share for which Additional Shares of Common Stock
are issuable upon the exercise of such rights or options, such determination to
be made by dividing (a) the total amount, if any, received or receivable by the
Company as consideration for the granting of such rights or options, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon the exercise of such rights or options if the maximum number of
Additional Shares were issued pursuant to such rights or options for such
minimum aggregate amount of additional consideration, by (b) the maximum number
of Additional Shares of Common Stock of the Company issuable upon the exercise
of all such rights or options for such minimum aggregate amount of additional
consideration; and the granting

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of such rights or options shall be deemed to be an issue or sale for cash (as of
the date of the granting of such rights or options) of such maximum number of
Additional Shares of Common Stock at the price per share so determined, and
shall thereby cause an adjustment in the Exercise Price, if such an adjustment
is required by Section 6(b) hereof.

                           (B)            If such rights or options shall by
their terms provide for an increase or increases, with passage of time, in the
amount of additional consideration payable to the Company upon the exercise
thereof, the adjusted Exercise Price shall, upon any such increases becoming
effective, be increased to such Exercise Price as would have been in effect had
the adjustments made upon the issuance of such rights or options been made upon
the basis of (and the total consideration received therefor) (a) the issuance of
the number of shares of Common Stock theretofore actually delivered upon the
exercise of such rights or options, (b) the issuance of all Common Stock, all
rights and options and all Convertible Securities issued after the issuance of
such rights and options, and (c) the original issuance at the time of such
change of any such rights or options then still outstanding; provided, however,
that any such increase or increases in the Exercise Price shall not exceed, in
the aggregate, the amount of the original reduction of the Exercise Price
attributable to the grant of such rights or options.

                           (C)            If any such rights or options shall
expire without having been exercise, the adjusted Exercise Price shall forthwith
be readjusted to such Exercise Price as would have been in effect had an
adjustment with respect to such rights or options been made on the basis that
the only Additional Shares of Common Stock so issued or sold were those issued
or sold upon the exercise of such rights or options and that they were issued or
sold for the consideration actually received by the Company upon such exercise,
plus the consideration, if any, actually received by the Company for the
granting of such rights or options.

                     (iv)  (A)            In case at any time on or after the
date hereof, the Company shall grant any rights or options to subscribe for,
purchase or otherwise acquire Convertible Securities, there shall be determined
the price per share for which Additional Shares of Common Stock are issuable
upon the exchange or conversion of such Convertible Securities if such rights or
options were exercised, such determination to be made by dividing (a) the total
amount, if any, received or receivable by the Company as consideration for the
issuance of such rights or options, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the exercise of
such rights or options if the maximum number of Convertible Securities were
issued pursuant to such rights or options for such minimum aggregate amount of
additional consideration, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exchange or conversion of
such Convertible Securities if the maximum number of Additional Shares were
issued pursuant to such Convertible Securities for such minimum aggregate amount
of additional consideration, by (b) the maximum aggregate number of Additional
Shares of Common Stock issuable upon the exchange or conversion of the
Convertible Securities for such minimum aggregate amount of additional
consideration; and the issue or sale of such rights or options shall be deemed
to be an issue or sale for cash (as of the date of the granting of such rights
or options) of such maximum number of Additional Shares of Common Stock at the
price per share to be determined, and thereby shall cause an adjustment in the
Exercise Price, if such an adjustment is required by Section 6(b).

                           (B)            If such rights or options to
subscribe for or otherwise acquire Convertible Securities shall by their terms
provide for an increase or increases, with the passage of time, in the amount of
additional consideration payable to the Company upon the exercise, exchange or
conversion thereof, the adjusted Exercise Price shall, forthwith upon any such
increase becoming effective, be increased to such Exercise Price as would have
been in effect had the adjustments made upon the issuances of such rights or
options been made upon the basis of (and the total consideration received
therefor) (a) the issuance of the number of shares of Common Stock theretofore
actually delivered upon the exchange or conversion of such Convertible
Securities (b) the issuances of all Common Stock and all rights, options and
Convertible Securities issued after the issuance of such rights and options and
(c) the original issuances at the time of such change of any such rights,
options and Convertible Securities issued upon the exercise of such rights or
options which are then still outstanding; provided, however, that any

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such increase or increases shall not exceed, in the aggregate, the amount of the
original reduction of the Exercise Price attributable to the grant of such
rights or options.

                           (C)            If any such rights, options or
rights of conversion or exchange of such Convertible Securities shall expire
without having been exercised, exchanged or converted, the adjusted Exercise
Price shall forthwith be readjusted to such Exercise Price as would have been in
effect had an adjustment been made with respect to such rights, options or
rights of conversion or exchange of such Convertible Securities on the basis
that the only Additional Shares of Common Stock so issued or sold were those
issued or sold upon the exercise of such rights or options and exchange or
conversion of such Convertible Securities and that they were issued or sold for
the consideration actually received by the Company upon the exercise of such
rights and options and exchange or conversion of such Convertible Securities,
plus the consideration, if any, actually received by the Company for the
granting of such rights, options or Convertible Securities.

                     (v)   In any case where an adjustment has been made in
the Exercise Price upon the issuance of Convertible Securities or any right or
options to purchase Convertible Securities or any rights or options to purchase
Convertible Securities or Additional Shares of Common Stock pursuant to this
Section 6(c), no further adjustment shall be made at the time of the conversion
of any such Convertible Securities or at the time of the exercise of any such
rights or options.

                     (vi)  In case at any time on or after the issuance of
this Warrant any shares of Common Stock or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount of the
consideration other than cash payable to the Company shall be deemed to be the
Fair Value of such consideration. Whether or not the consideration so received
is cash, the amount thereof shall be determined after deducting therefrom any
expenses incurred or any underwriting commissions or concessions or discounts
paid or allowed by the Company in connection therewith.

                     (vii) In case at any time the Company shall fix a record
date of the holders of its Common Stock for the purpose of entitling them (a) to
receive a dividend or other distribution payable in Common Stock, Convertible
Securities or rights or options to purchase either thereof, or (b) to subscribe
for or purchase Common Stock, Convertible Securities or rights or options to
purchase either thereof, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common stock deemed, pursuant to this Section
6(c), to have been issued or sold upon the declaration of such dividend or the
making of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.

                     (viii)   The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common stock for the purposes of this Section
6(c).

                  (d) Reorganization, Reclassification, Consolidation, Merger or
Sale. If any capital reorganization or reclassification of the capital stock of
the Company, or any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive cash, stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provisions
shall be made whereby the Warrantholders shall thereafter have the right to
purchase and receive upon the basis and upon the terms and conditions specified
in this Warrant upon exercise of this Warrant and in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby, such cash, shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of Common Stock equal to the number of shares
of such Common Stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby, and in any such case appropriate
provision shall be made with respect to the rights and interest of the
Warrantholders to the end that the provisions hereof (including, without
limitation, provisions for adjustments of the Exercise Price and of the number
of shares purchasable and receivable upon the exercise of this Warrant) shall
thereafter be applicable, as

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nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof. The Company shall-not effect
any consolidation, merger or sale of all or substantially all of the assets of
the Company unless prior to or simultaneous with the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation, merger or purchase of such assets shall assume, by written
instrument executed and mailed or delivered to the Warrantholders, the
obligation to deliver to such Warrantholders such cash (or cash equivalent),
shares of stock, securities or assets as, in accordance with the foregoing
provisions, the Warrantholders may be entitled to receive and containing the
express assumption of such successor corporation of the due and punctual
performance and observance of each provision of this Warrant to be performed and
observed by the Company and of all liabilities and obligations of the Company
hereunder; provided, however, in the case of any consolidation or merger of the
Company with another corporation or the sale of all or substantially all of its
assets to another corporation effected in such a manner that the holders of
Common Stock shall be entitled to receive stock, securities or assets with
respect to or in exchange for Common Stock, then, at the election of each
Warrantholder, in lieu of receiving such stock, securities or assets, such
Warrantholder shall receive cash equal to the Fair Value of the Common Stock
issuable upon exercise of the Warrant, less the Exercise Price payable upon
exercise thereof.

               In case any Additional Shares of Common Stock or Convertible
Securities or any rights or options to purchase any Additional Shares of Common
Stock or Convertible Securities shall be issued in connection with any merger of
another corporation into the Company, the amount of consideration therefor shall
be deemed to be the Fair Value of such portion of the assets of such merged
corporation as the Board of Directors of the Company shall in good faith
determine to be attributable to such Additional Shares of Common Stock,
Convertible Securities or rights or options, as the case may be, and the
Exercise Price shall be adjusted in accordance with this Section 6(d).

                  (e) Company to Prevent Dilution. In case at any time or from
time to time conditions arise by reason of action taken by the Company which are
not adequately covered by the provisions of this Section 6, and which might
materially and adversely affect the exercise rights of the Warrantholders under
any provision of this Warrant, unless the adjustment necessary shall be agreed
upon by the Company and the Warrantholders, the Board of Directors of the
Company shall appoint a firm of independent certified public accountants of
recognized national standing (who have not been employed by the Company within
the last five years), acceptable to the Warrantholders, who at the Company's
expense shall give their opinion upon the adjustment, if any, on a basis
consistent with the standards established in the other provisions of this
Section 6, necessary with respect to the Exercise Price and the number of shares
purchasable upon exercise of the Warrants, so as to preserve, without dilution,
the exercise rights of the Warrantholders. Upon receipt of such opinion, such
Board of Directors shall forthwith make the adjustments described therein.

                  (f) Stock Splits and Reverse Splits. In case at any time the
Company shall subdivide its outstanding shares of Common Stock into a greater
number of shares, the Exercise price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Common
Stock purchasable pursuant to this Warrant immediately prior to such subdivision
shall be proportionately increased, and conversely, in case at any time the
Company shall combine it outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Common Stock purchasable upon the exercise of this Warrant immediately prior to
such combination shall be proportionately reduced.

                  (g) Dissolution, Liquidation and Wind-Up. In case the Company
shall, at any time prior to the expiration of this Warrant, dissolve, liquidate
or wind up its affairs, the Warrantholders shall be entitled, upon the exercise
of this Warrant, to receive in lieu of the shares of Common Stock of the Company
which such Warrantholders would have been entitled to receive, the same kind and
amount of assets as would have been issued, distributed or paid to such
Warrantholders upon any such dissolution, liquidation or winding up with respect
to such shares of Common Stock of the Company, had such Warrantholders been the
holders of record of the Warrant Shares receivable upon the exercise of this
Warrant on the record date for the determination of those persons entitled to
receive any such liquidating

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distribution. After such dissolution, liquidation or winding up which shall
result in any cash distribution in excess of the Exercise Price provided for by
this Warrant, the Warrantholders may, at each such Warrantholder's option,
exercise the same without making payment of the Exercise Price, and in such case
the Company shall, upon the distribution to said Warrantholders, consider that
said Exercise Price has been paid in full to it and in making settlement to said
Warrantholders, shall deduct from the amount payable to such Warrantholders an
amount equal to such Exercise Price.

                  (h) Noncash Consideration. In case any Additional Shares of
Common Stock or Convertible Securities or any rights or options to purchase any
Additional Shares of Common Stock or Convertible Securities shall be issued for
a consideration in a form other than cash, the amount of such consideration
shall be deemed to be fair Value thereof.

                  (i) Accountants' Certificate. In each case of an adjustment in
the number of shares of Common Stock or other stock, securities or property
receivable on the exercise of the Warrants, the Company at its expense shall
cause independent public accountants of recognized standing selected by the
Company and acceptable to the Warrantholders to compute such adjustment in
accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment and showing in detail the facts upon which such adjustment
is based, including a statement of (a) the consideration received or to be
received by the Company for any Additional Shares of Common Stock, rights
options or Convertible Securities issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock of each class outstanding or
deemed to be outstanding, (c) the adjusted Exercise Price and (d) the number of
shares issuable upon exercise of this Warrant. The Company will forthwith mail a
copy of each such certificate to each Warrantholder.

            7. Special Agreements of the Company.

                  (a) Reservation of Shares. The Company covenants and agrees
that all Warrant Shares will, upon issuance, be validly issued, fully paid and
nonassessable and free from all preemptive rights of any stockholder, and from
all taxes, liens and charges with respect to the issue thereof. The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved, a sufficient number of shares of Common Stock to
provide for the exercise of the rights represented by this Warrant. The Company
hereby covenants and agrees to take all such action as may be necessary to
assure that the par value per share of the Common Stock is at all times equal to
or less than the Exercise Price.

                  (b) Avoidance of Certain Actions. The Company will not, by
amendment of its Articles or Certificates of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, issue or sale of
securities or otherwise, avoid or take any action which would have the effect of
avoiding the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good faith assist
in carrying out all of the provisions of this Warrant and in taking all of such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholders against dilution or other impairment of their rights hereunder.

                  (c) Securing Governmental Approvals. If any shares of Common
Stock required to be reserved for the purposes of exercise of this Warrant
require registration with or approval of any governmental authority under any
federal law (other than the Securities Act) or under any state law before such
shares may be issued upon exercise of this Warrant, the company will, at its
expense, as expeditiously as possible, cause such shares to be duly registered
or approved, as the case may be.

                  (d)   Listing on Securities Exchanges: Registration.  If,
and so long as, any class of the Company's Common Stock shall be listed on
any national securities exchange (as defined in the Exchange Act), the
Company will, at its expense, obtain and maintain the approval for listing
upon official notice of issuance of all Warrant Shares and maintain the
listing of Warrant Shares after their issuance; and the Company will so list
on such national securities exchange, will register under the Exchange Act
(or any similar statute then in effect), and will maintain such listing of,
any other securities that at any time are

                                       9
<PAGE>   10
issuable upon exercise of this Warrant if and at the time any securities of the
same class shall be listed on such national securities exchange by the Company.

                  (e) Information Rights. So long as the Warrantholders hold
this Warrant and/or any of the Warrant Shares, the Company shall deliver to the
Warrantholders (i) promptly after mailing, copies of all communications to the
shareholders of the Company, (ii) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by the independent public accountants of recognized standing,
and (iii) within forty-five (45) days after the end of each of the first three
quarters of each fiscal year, the Company's quarterly, unaudited financial
statements.

                  (f) Restrictions on Public Sale by the Company. The Company
will not effect any public or private sale or distribution of its convertible
debt or equity securities, including a sale pursuant to Regulation D under the
Securities Act, during the ten (10) day period prior to, and during the ninety
(90) day period beginning on, the closing date of each underwritten offering by
the Company made pursuant to a registration statement filed pursuant to Sections
11(a) or 11(b); and the Company shall cause each holder of its privately
placed convertible debt or equity securities issued by it at any time on or
after the date of this Warrant to agree not to effect any public sale or
distribution of any such securities during such period, including a sale
pursuant to Rule 144 or Rule 144A under the Securities Act.

                  (g) Preemptive Rights. In the event the Company offers to the
Company's shareholders the right to purchase any securities of the Company, then
all shares of Common Stock issuable pursuant to the Warrants shall be deemed to
be issued and outstanding and held by the Warrantholders and the Warrantholders
shall be entitled to participate in such rights offering.

                  (h) Compliance with Law. The Company shall comply with all
applicable laws, rules and regulations of the United States and of all states,
municipalities and agencies and of any other jurisdiction applicable to the
Company and shall-do all things necessary to preserve, renew and keep in full
force and effect and in good standing its corporate existence and authority
necessary to. continue its business.

            8. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon exercise hereof, the Company
shall pay to the Warrantholder an amount in cash equal to such fraction
multiplied by the Current Market Value of one share of Common Stock.

            9. Notices of Stock Dividends, Subscriptions, Reclassifications,
Consolidations, Mergers, etc. If at any time: (i) the Company shall declare a
cash dividend (or an increase in the then existing dividend rate), or declare a
dividend on Common Stock payable otherwise than in cash out of its net earnings
after taxes for the prior fiscal year; or (ii) the Company shall authorize the
granting to the holders of Common Stock or rights to subscribe for or purchase
any shares of capital stock of any class or of any other rights; or (iii) there
shall be any capital reorganization, or reclassification, or redemption of the
capital stock of the Company, or consolidation or merger of the Company with, or
sale of all or substantially all of its assets to, another corporation or firm;
or (iv) there shall be a voluntary or involuntary dissolution, liquidation or
winding, up of the Company, then the Company shall give to the Warrantholders at
the addresses of such Warrantholders as shown on the books of the Company, at
least twenty (20) days prior to the applicable record date hereinafter
specified, a written notice summarizing such action or event and stating the
record date for any such dividend or rights (or, if a record date is not to be
selected, the date as of which the holders of Common Stock of record entitled to
such dividend or rights are to be determined), the date on which any such
reorganization, reclassification, consolidation, merger, sale of assets,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected the holders of common Stock of record shall be
entitled to effect any exchange of their shares of Common Stock for cash (or
cash equivalent), securities or other property deliverable upon any such
reorganization, reclassification, consolidation, merger, sale of assets,
dissolution, liquidation or winding up.

            10.   Registered Holder-, Transfer of Warrants or Warrant Shares.

                                       10
<PAGE>   11
                  (a) Maintenance of Registration Books; Ownership of this
Warrant. The Company shall keep at its principal office a register in which the
Company shall provide for the registration, transfer and exchange of this
Warrant. The Company shall not at any time, except upon the dissolution,
liquidation or winding-up of the Company, close such register so as to result in
preventing or delaying the exercise or transfer of this Warrant.

                  (b) Exchange and Replacement. This Warrant is exchangeable
upon surrender hereof by the registered holder to the Company at its principal
office for new Warrants of like tenor and date representing in the aggregate the
right to purchase the number of shares purchasable hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by said registered holder at the time of surrender. This Warrant and
all rights hereunder are transferable in whole or in part upon the books of the
Company by the registered holder hereof in person or by duly authorized
attorney, and new Warrants shall be made and delivered by the Company, of the
same tenor and date as this Warrant but registered in the name of the
transferee(s), upon surrender of this Warrant, duly endorsed, to said office of
the Company. Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will make
and deliver a new Warrant of like tenor, in lieu of this Warrant, without
requiring the posting of any bond or the giving, of any other security. This
Warrant shall be promptly canceled by the Company upon the surrender hereof in
connection with any exchange, or transfer or replacement. The Company shall pay
all expenses, taxes and other charges payable in connection with the
preparation, execution and delivery of Warrants pursuant to this Section 10.

                  (c) Warrants and Warrant Shares Not Registered. The holder of
this Warrant, by accepting this Warrant, represents and acknowledges that this
Warrant and the Warrant Shares are not being registered under the Securities Act
on the grounds that the issuance of this Warrant and the offering and sale of
such Warrant Shares are exempt from registration under Section 4(2) of the
Securities Act as not involving any public offering.

            11.   Registration.

                  (a) Required Registration. Whenever the Company shall receive
a written request therefor from any holder or holders of at least 10% of the
Registrable Stock, the Company shall promptly prepare and file a registration
statement under the Securities Act covering the Registrable Stock which is the
subject of such request and shall use its best efforts to cause such
registration statement to become effective as expeditiously as possible. Upon
the receipt of such request, the Company shall promptly give written notice to
all holders of Registrable Stock that such registration is to be effected. The
Company shall include in such registration statement such Registrable Stock for
which it has received written requests to register such shares by the holders
thereof within thirty (30) days after the effectiveness of the Company's written
notice to such other holders. Except as hereinafter expressly provided, without
the written consent of the holders of a majority of the shares of Registrable
Stock for which registration has been requested pursuant to this Section,
neither the Company nor any other holder of securities of the Company may
include securities in such registration.

                  (b) Incidental Registration. Each time the Company shall
determine to file a registration statement under the Securities Act (other than
on Form S-8 or Form SD-4) in connection with the proposed offer and sale for
money of any of its securities by it or by any of its security holders. the
Company will give written notice of its determination to all holders of
Registrable Stock. Upon the written request of a holder of any Registrable
Stock, the Company will cause such Registrable Stock, the holders of which have
so requested registration thereof, to be included in such registration
statement, all to the extent requisite to permit the sale or other disposition
by the prospective seller or sellers of the Registrable Stock to be so
registered in accordance with the terms of the proposed offering. If the
registration statement is to cover an underwritten distribution, the Company
shall use its best efforts to cause the Registrable Stock requested for
inclusion pursuant to this Section 11 (b) to be included in the underwriting on
the same terms and conditions as the securities otherwise being sold through the
underwriters. If, in the good faith judgment of the managing underwriter of such
public offering, the inclusion of all of the Registrable Stock requested to be
registered would materially and adversely affect the successful marketing of the
other

                                       11
<PAGE>   12
shares proposed to be offered, then the amount of the Registrable Stock to be
included in the offering shall be reduced and the Registrable Stock and the
other shares to be offered shall participate in such offering as follows: the
shares to be sold by the Company, the Registrable Stock to be included in such
offering and the other shares of Common Stock to be included in such offering
shall each be reduced pro rata in proportion to the number of shares of Common
Stock proposed to be included in such offering by each holder of such shares and
by the Company,

                  (c) Registration Procedures. If and whenever the Company is
required by the provisions of Section 11(a) or 11(b) to effect the registration
of Registrable Stock under the Securities Act, the Company will, at its expense,
as expeditiously as possible:

                     (i)   In accordance with the Securities Act and the
rules and regulations of the Commission, prepare and file with the commission a
registration statement on the form of registration statement appropriate with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective until the securities covered by such
registration statement have been sold, and prepare and file with the Commission
such amendments to such registration statement and supplements to the prospectus
contained therein as may be necessary to keep - such registration statement
effective and such registration statement and prospectus accurate and complete
until the securities covered by such registration statement have been sold;

                     (ii)  If the offering is to be underwritten, in whole or
in part, enter into a written underwriting agreement with the holders of the
Registrable Stock participating in such offering and the underwriter in form and
substance reasonably satisfactory to the managing underwriter of the public
offering and the holders of the Registrable Stock participating in such
offering;

                     (iii) Furnish to the holders of securities participating
in such registration and to the underwriters of the securities being registered
such reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such underwriters and
holders may reasonably request in order to facilitate the public offering of
such securities;

                     (iv)  Use its best efforts to register or qualify the
securities covered by such registration statement under such state securities or
blue sky laws of such jurisdictions as such participating holders and
underwriters may reasonably request;

                     (v)   Notify the holders participating in such
registration, promptly after it shall receive notice thereof, of the date and
time when such registration statement and each post-effective amendment thereto
has become effective or a supplement to any prospectus forming a part of such
registration statement has been filed;

                     (vi)  Notify such holders promptly of any request by the
Commission for the amending or supplementing of such registration statement
or prospectus or for additional information;

                     (vii) Prepare and file with the Commission, promptly
upon the request of any such holders, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel for such
holders, is required under the Securities Act or the rules and regulations
thereunder in connection with the distribution of the Registrable Stock by such
holders;

                     (viii)   Prepare and promptly file with the Commission,
and promptly notify such holders of the filing of, such amendments or
supplements to such registration statement or prospectus as may be necessary to
correct any statements or omissions if, at the time when a prospectus relating
to such securities is required to be delivered under the Securities Act, any
event has occurred as the result of which any such prospectus or any other
prospectus as then in effect may include an untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading;

                                       12
<PAGE>   13
                     (ix)  In case any of such holders or any underwriter for
any such holders is required to deliver a prospectus at a time when the
prospectus then in circulation is not in compliance with the Securities Act or
the rules and regulations of the Commission, prepare promptly upon request such
amendments or supplements to such registration statement and such prospectus as
may be necessary in order for such prospectus to comply with the requirements of
the Securities Act and such rules and regulations;

                     (x)   Advise such holders, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the Commission suspending the effectiveness of such registration statement or
the initiation or threatening of any proceeding for that purpose and promptly
use its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued;

                     (xi)  If requested by the managing underwriter or
underwriters or a holder of Registrable Stock being sold in connection with an
underwritten offering, immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and the
holders of a majority of the Registrable Stock being sold agree should be
included therein relating, to the plan of distribution with respect to such
Registrable Stock, including information with respect to the Registrable Stock
being sold to such underwriters, the purchase price being paid therefor by such
underwriters and with respect to any other tens of the underwritten (or best
efforts underwritten) offering of the Registrable Stock to be sold in such
offering; and make all required filings of such prospectus supplement or
post-effective amendment as soon as notified of the matters to be incorporated
in such prospectus supplement or post-effective amendment;

                     (xii) Cooperate with the selling holders of Registrable
Stock and the managing underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Stock to be
sold and not bearing any restrictive legends; and enable such Registrable Stock
to be in such denominations and registered in such names as the managing
underwriters may request at least two business days prior to any sale of
Registrable Securities to the under-writers;

                     (xiii)   Prepare a prospectus supplement or
post-effective amendment to the registration statement or the related prospectus
or any document incorporated therein by reference or file any other required
documents so that, as thereafter delivered to the purchasers of the Registrable
Stock, the prospectus will not contain an untrue statement of material fact or
omit to state any material fact necessary to make the statements therein not
misleading;

                     (xiv) Enter into such agreements (including an
underwriting agreement) and take all such other actions in connection therewith
in order to expedite or facilitate the disposition of such Registrable
Securities and in such connection, whether or not an underwriting agreement is
entered into and whether or not the registration is an underwritten
registration:

                           (A)            make such representations and
warranties to the holders of such Registrable Stock and the underwriters, if
any, in form, substance and scope as are customarily made by issuers to
underwriters in primary underwritten offerings;

                           (B)            If an underwriting agreement is
entered into, the same shall set forth in full the indemnification provisions
and procedures of Section 11(e) hereof with respect to all parties to be
indemnified pursuant to said Section; and

                           (C)            The Company shall deliver such
documents and certificates as may be requested by the holders of the majority of
the Registrable Stock being sold and the managing underwriters, if any, to
evidence compliance with the terms of this Section 11 (c) and with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company.

                                       13
<PAGE>   14
The above shall be done at each closing under such underwriting or similar
agreement or as and to the extent required thereunder;

                     (xv)  Make available for inspection by a representative
of the holders of a majority of the Registrable Stock, any underwriter
participating in any disposition pursuant to a registration statement, and any
attorney or accountant retained by the sellers or underwriter, all financial and
other records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors and employees to supply all information
reasonably requested by any such representative, underwriter, attorney or
accountant in connection with the preparation of the registration statement;
provided, that any records, information or documents that are designated by the
Company in writing as confidential shall be kept confidential by such persons
unless disclosure of such records, information or documents is required by court
or administrative order;

                     (xvi) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally available
to the Company's security holders, earning statements satisfying the provisions
of Section 11 (a) of the Securities Act, no later ' than forty-five (45) days
after the end of any twelve (12) month period (or ninety (90) days, if such a
period is a fiscal year) (i) commencing at the end of any fiscal quarter in
which Registrable Stock is sold to underwriters in an underwritten offering, or,
if not sold to underwriters in such an offering, (ii) beginning with the first
month of the Company's first fiscal quarter commencing after the effective date
of a registration statement;

                     (xvii)   Not file any amendment or supplement to such
registration statement or prospectus to which a majority in interest of such
holders has objected on the grounds that such amendment or supplement does not
comply in all material respects with the requirements of the Securities Act or
the rules and regulations thereunder, after having been furnished with a copy
thereof at least five (5) business days prior to the filing thereof, provided,
however, that the failure of such holders or their counsel to review or object
to any amendment or supplement to such registration statement or prospectus
shall not affect the rights of such holders or any controlling person or persons
thereof or any underwriter or underwriters therefor under Section I I (e)
hereof; and

                     (xviii)  At the request of any such holder (i) furnish
to such holder on the effective date of the registration statement or , if such
registration includes an underwritten public offering, at the closing provided
for in the underwriting agreement, an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, addressed to the
underwriters, if any, and to the holder or holders making such request, covering
such matters with respect to the registration statement, the prospectus and each
amendment or supplement thereto, proceedings under state and federal securities
laws, other matters relating to the Company, the securities being registered and
the offer and sale of such securities as are customarily the subject of opinions
of issuer's counsel provided to underwriters in underwritten public offerings,
and such opinion of counsel shall additionally cover such legal and factual
matters with respect to the registration as such requesting holder or holders
may reasonably request, and (ii) use its best effort to furnish to such holder
letters dated each such effective date and such closing date, from the
independent certified public accountants of the Company, addressed to the
underwriters, if any, and to the holder or holders making such request, stating
that they are independent certified public accountants within the meaning, of
the Securities act and dealing with such matters as the underwriters may
request, or, if the offering is not underwritten, that in the opinion of such
accountants the financial statements and other financial data of the Company
included in the registration statement or the prospectus or any amendment or
supplement thereto comply in all material respects with the applicable
accounting requirements of the Securities Act, and additionally covering such
other financial matters, including information as to the period ending
immediately prior to the date of such letter with respect to the registration
statement and prospectus, as such requesting holder or holders may reasonably
request.

                  (d) Expenses of Registration. All expenses incident to the
Company's performance of or compliance with this Warrant, including, without
limitation, the following shall be borne by the Company, regardless of whether
the registration statement becomes effective:

                                       14
<PAGE>   15
                     (i)   All registration and filing fees (including those
with respect to filings required to be made with the National Association of
Securities Dealers, Inc.);

                     (ii)  Fees and expenses of compliance with all
securities or blue sky laws (including fees and disbursements of counsel for the
underwriters or selling holders in connection with blue sky qualifications of
the Registerable Stock and in determination of their eligibility for investment
under the laws of such jurisdictions as the managing underwriters or holders of
a majority of the Registerable Stock being sold may designate);

                     (iii) Printing, messenger, telephone and delivery
expenses;

                     (iv)  Fees and disbursements of counsel for the Company,
the underwriters and for the sellers of the Registerable Stock as hereinafter
provided;

                     (v)   Fees and disbursements of all independent
certified public accountants of the Company (including the expenses of any
special audit and "comfort" letters required by or incident to such
performance);

                     (vi)  Fees and disbursements of underwriters (excluding
discounts, commissions or fees of underwriters, selling brokers, dealer managers
or similar securities industry professionals relating to the distribution of the
Registerable Stock or legal expenses of any person other than the Company and
the selling holders); and

                     (vii) Fees and expenses of other person retained by the
Company.

            The Company will, in any event, pay its internal expenses (including
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the securities to
be registered on each securities exchange on which similar securities issued by
the Company are then listed, rating agency fees and the fees and expenses of any
person, including special experts, retained by the Company.

            In connection with the registration statement required hereunder,
the Company will reimburse the holders of Registerable Stock being registered
pursuant to the registration statement for the reasonable fees and disbursements
of not more than one counsel (or more than one counsel if conflict exists among
such selling holders in the exercise of the reasonable judgment of counsel for
the selling holders and counsel for the Company) chosen by the holders of a
majority of such Registerable Stock.

                  (e)   Indemnification.

                     (i)   The Company hereby agrees to indemnify each of the
holders of Registrable Stock in connection with a registration of any of the
securities purchased upon exercise of the Warrants against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, preliminary or final prospectus, or
other document incident to any registration, qualification or compliance (or in
any related registration statement, notification or the like) or any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of any rule or regulation promulgated under the
Securities Act applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration, qualification
or compliance, and to reimburse holders of Registrable Stock (including officers
and directors of the same and controlling persons) for any legal and other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, provided, however that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage or liability arises out of or is based on any untrue statement or
omission based

                                       15
<PAGE>   16
upon written information furnished to the Company by Warrantholders in an
instrument duly executed by Warrantholders and stated to be specifically for use
therein.

                     (ii)  The Warrantholders severally and not jointly agree
to indemnify the Company and its officers and directors and each person, if any,
who controls any thereof within the meaning of Section 15 of the Securities Act
and their respective successors against all claims, losses damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement of a material fact contained in any prospectus, offering
circular or other document incident to any registration, qualification or
compliance relating to securities purchased pursuant to the Warrants (or in any
related registration statement, notification or the like) or any omission (or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading and will reimburse
the Company and each other person indemnified pursuant to this subsection (ii)
for any legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss damage, liability or action;
provided, however, that this subsection (ii) shall apply only if (and only to
the extent that) such statement or omission was made in reliance upon
information (including, without limitation, written negative responses to
inquiries) furnished to the Company by an instrument duly executed by
Warrantholders and stated to be specifically for use in such prospectus, or
other document (or related registration statement, notification or the like) or
any amendment or supplement thereto.

                     (iii) Each party entitled to indemnification hereunder
(the "Indemnified party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party (at such Indemnifying Party's expense) to assume
the defense of any claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense of such claim
or litigation, shall be satisfactory to the Indemnified Party, and the
Indemnified Party may participate in such defense at such party's expense, and
provided, further, that the omission by any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 11 (e) except to the extent that the omission results in a
failure of actual notice to the Indemnifying Party and such Indemnifying party
is materially damaged solely as a result of the failure to give notice. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect in respect to such claim or
litigation.

                     (iv)  If the indemnification provided for in this
Section 11(e) is unavailable or insufficient to hold harmless an Indemnified
Party in respect of any losses, claims, damages, liabilities, expenses or
actions in respect thereof referred to herein, then the Indemnifying Party shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, liabilities, expenses or actions in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand, and the Indemnified Party on the other, in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities, expenses or actions as well as any other relevant equitable
considerations, including the failure to give the notice required hereunder. The
relative fault of the Indemnifying Party and the Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact relates to information supplied by the
Indemnifying Party or the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Warrantholders agree that it would
not be just and equitable if contributions pursuant to this Section 11(e) were
determined by pro rata allocation or by any other method of allocation which did
not take account of the equitable considerations referred to above. The amount
paid or payable to an Indemnified Party as a result of the losses, claims,
damages, liabilities or actions in respect thereof, referred to above, shall be
deemed to include any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any such action
or claim. Notwithstanding the contribution provisions of this Section 11(e), in
no event shall the amount contributed by any seller of Registrable Stock exceed
the aggregate net offering proceeds received by such seller from the sale of
Registrable Stock to-which such contribution or indemnification claim relates.
No person guilty of

                                       16
<PAGE>   17
fraudulent misrepresentation (within the meaning of Section 11 (f) of the
Securities Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation.

                     (v)   The indemnification required by this Section I I
(e) shall be made by periodic payments during the course of the investigation or
defense, as and when the bills are received or expenses incurred. Anything
contained herein to the contrary notwithstanding, the liability of any holder of
Registrable Stock under this Section 11 (e) shall not exceed the amount of the
net proceeds actually received by such holder from the sale of its Registrable
Stock pursuant to the registration, qualification, notification or compliance in
respect of which such liability arose.

                  (f) Reporting Requirements Under Exchange Act. The Company
shall maintain the registration of its Common Stock under Section 12 of the
Exchange Act and shall keep effective such registration and shall timely file
such information, documents and reports as the Commission may require or
prescribe under Section 13 of the Exchange Act, or other-wise. From and after
the effective date of the first registration statement filed by the Company
under the Securities act, the Company shall (whether or not it shall then be
required to do so) timely file such information, documents and reports as the
Commission may require or prescribe under Section 13 or 15(d) (whichever is
applicable) of the Exchange Act. Immediately upon becoming subject to the
reporting requirements of either Section 13 or 15 (d) of the Exchange Act, the
Company shall forthwith upon request furnish any holder of Registrable Stock (i)
a written statement by the Company that it has complied with such reporting
requirements, (ii) a copy of the most recent annual or quarterly report of the
Company, and (iii) such other reports and documents filed by the Company with
the Commission as such holder may reasonably request in availing itself of an
exemption for the sale of Registrable Stock without registration under the
Securities Act. The Company acknowledges and agrees that the purpose of the
requirements contained in this Section 11(f) is to enable any such holder to
comply with the current public information requirement contained in Rule 144
under the Securities Act should such holder ever wish to dispose of any of the
securities of the Company acquired by it without registration under the
Securities Act in reliance upon Rule 144 (or any other similar exemptive
provision). In addition, the Company shall take such other measures and file
such other information, documents and reports as shall hereafter be required by
the Commission as a condition to the availability of Rule 144 and Rule 144A
under the Securities Act (or any similar exemptive provision hereafter in
effect).

                  (g) Stockholder Information. The Company may require each
holder of Registrable Stock as to which any registration is to be effected
pursuant to this Section 11 to furnish the Company such information with respect
to such holder and the distribution of such Registrable Stock as shall be
required by law or by the Commission in connection therewith.

            12.   Representation and Warranties.  The Company hereby
represents and warrants to and covenants with each Warrantholder, and each
holder of Warrant Shares that:

                  (a) Organization and Capitalization of the Company. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of California. As of the date hereof, the authorized
capital of the Company consists of __________ shares of Common Stock and
__________ shares of Preferred Stock, of which __________ shares of Common Stock
and __________ shares of Preferred Stock are issued and outstanding. The Company
has, and at all time during the Exercise Period will have, reserved for issuance
pursuant to the Warrants that number of shares of Common Stock that are issuable
pursuant to the Warrants. No unissued shares of Common Stock are reserved for
any purpose other than for issuance upon the exercise of the Warrants. As of the
date hereof, the Company has not issued or agreed to issue any stock purchase
rights, options, convertible securities, warrants (other than this Warrant) or
any other securities or indebtedness convertible into shares of Common Stock,
and there are no preemptive rights in effect with respect to the issuance of any
shares of Common Stock. All the outstanding shares of Common Stock and Preferred
Stock have been validly issued without violation of any preemptive or similar
rights, are fully paid and nonassessible and have been issued in compliance with
all federal and applicable state securities laws.

                  (b) Authority. The Company has full corporate power and
authority to execute and deliver this Warrant, to issue the shares of Common
Stock issuable upon exercise of this Warrant, and

                                       17
<PAGE>   18
to perform all of its obligations hereunder, and the execution, delivery and
performance hereof has been duly authorized by all necessary corporate action on
its part. This Warrant has been duly executed on behalf of the Company and
constitutes the legal, valid and binding obligation of the Company enforceable
in accordance with its term.

                  (c) No Legal Bar. Neither the execution, delivery or
performance of this Warrant nor the issuance of shares of Common Stock issuable
upon exercise of this Warrant will (a) conflict with or result in a violation of
the Certificate of Incorporation or By-Laws of the Company, (b) conflict with or
result in a violation of any law, statute, regulation, order or decree
applicable to the Company or any affiliate, (c) require any consent or
authorization or filing with, or other act by or in respect of any governmental
authority or (d) result in a breach of, constitute a default under or
constitute an event creating rights of acceleration, termination or cancellation
under any mortgage, lease, contract, franchise, instrument or other agreement to
which the Company is a party or by which it is bound.

                  (d) Validity of Shares. When issued upon the exercise of this
Warrant as contemplated herein, the shares of Common stock so issued will have
been validly issued and will be fully paid and nonassessable. On the date
hereof, the par value of the Common Stock is less than the Exercise Price per
share of Common Stock.

            13. Continuing Validity. A holder of Warrant Shares shall continue
to be entitled to all rights to which a Warrantholder is entitled pursuant to
the provisions of this Warrant except such rights as by their terms apply solely
to a Warrantholder, notwithstanding the fact that this Warrant has been
exercised or the period of exercisability has expired. The Company will, at any
time upon the request of the holder of the Warrant Shares, acknowledge in
writing, in form reasonably satisfactory to such holder, the Company's
continuing obligation to afford such holder all rights to which such holder
shall continue to be entitled in accordance with the provisions of this Warrant;
provide, however, that if such holder shall fail to make any such request, such
failure shall not affect the continuing obligation of the Company to afford to
such holder all such rights.

            14.   Miscellaneous Provisions.

                  (a) Notice of Expiration. The Company shall give written
notice to the Warrantholders specifically advising them of the Expiration Date
and of their right to exercise the warrants not more than one hundred eighty
(180) days and not less than ninety (90) days before the Expiration Date. If
such written notice is not so given, the Expiration Date shall automatically be
extended until (90) days after the date that the Company gives the
Warrantholders such written notice.

                  (b) Governing Law, Venue and Waiver of Jury Trial. This
Warrant shall be deemed to have been made in the State of California and the
validity this warrant, the construction, interpretation, and enforcement
thereof, and the rights of the parties thereto shall be determined under,
governed by, and construed in accordance with the internal laws of the State of
California, without regard to principles of conflicts of law. The parties agree
that all actions or proceedings arising in connection with this Warrant shall be
tried and litigated only in the state or federal courts located in the County of
Los Angeles, State of California or, at the sole option of a Warrantholder, in
any other court in which a Warrantholder shall initiate legal or equitable
proceedings and which has the subject matter jurisdiction over the matter in
controversy. The Warrantholders and the Company each waive the right to trial by
jury and any right each may have to assert the doctrine of forum non conveniens
or to object to the extent any proceeding is brought in accordance with this
Section 14(b). Service of process, sufficient for personal jurisdiction in any
action against the Company, may be made by registered or certified mail, return
receipt requested, to its address indicated in Section 14(c).

                  (c) Notices. All notices hereunder shall be in writing and
shall be deemed to have been given five (5) days after being mailed by certified
mail, addressed to the address below stated of the party to which notice is
given, or to such changed address as such party may have fixed by notice:

                                       18
<PAGE>   19
To the Company:         Commonwealth Energy Corp.
                        15901 Red Hill, Ste. 100
                        Tustin, CA 92870
                        Attention: John A. Barthrop, Esq.

To the Warrantholders
or holder of Warrant
Shares:                 Coast Business Credit
                        a division of Southern Pacific Bank
                        12121 Wilshire Boulevard
                        Suite 1400
                        Los Angeles, California 90025
                        Attention: Portfolio Manager

With a copy (which
shall not constitute
notice to:              Law Offices of Clay Lorinsky
                        12424 Wilshire Blvd.
                        Suite 1200
                        Los Angeles, California 90025

provided, however, that any notice of change of address shall be effective only
upon receipt.

                  (d) Successors and Assigns. This Warrant shall be binding upon
and inure to the benefit of the Company, the Warrantholders and the holders of
warrant Shares and the successors, assigns and transferees of the Company, the
Warrantholders and the holders of Warrant Shares.

                  (e) Attorneys' Fees. The Company agrees to pay, on demand, all
attorneys' fees (including attorneys' fees incurred pursuant to proceedings
arising under the Bankruptcy Code) and all other costs and expenses which may be
incurred by the Warrantholders and the holders of Warrant Shares in connection
with any amendment to this Warrant and/or in connection with the enforcement of
this Warrant, whether or not suit is brought.

                  (f) Entire Agreement: Amendments and Waivers. This Warrant
sets forth the entire understanding of the parties with respect to the
transactions contemplated hereby. The failure of any party to seek redress for
the violation or to insist upon the strict performance of any term of this
Warrant shall not constitute a waiver of such term and such party shall be
entitled to enforce such term without regard to such forbearance. This Warrant
may be amended, the Company may take any action herein prohibited or omit to
take any action herein required to be performed by it, and any breach of or
compliance with any covenant, agreement, warranty or representation may be
waived, only if the Company has obtained the written consent or written waiver
of the majority in interest of the Warrantholders, and then such consent or
waiver shall be effective only in the specific instance and for the specific
purpose for which given.

                  (g) Severability. If any term of this Warrant as applied to
any person or to any circumstance is prohibited, void, invalid or unenforceable
in any jurisdiction, such term shall, as to such jurisdiction, be ineffective to
the extent of such prohibition or invalidity without in any way affecting any
other term of this Warrant or affecting the validity or enforceablity of this
Warrant or of such provision in any other jurisdiction.

                  (h)   Headings.  The headings in this Warrant are inserted
only for convenience of reference and shall not be used in the construction
of any of its terms.

                                       19
<PAGE>   20
      IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officers effective as of the date first set forth above.

COMMONWEALTH ENERGY CORPORATION

By:  /s/ James L. Oliver
     ----------------------------------
Name:   James L. Oliver
Title:  Chief Financial Officer

And by: /s/ John A. Barthrop
        -------------------------------
Name:   John Barthrop
Title:  Secretary

                            Signature page to Warrant

                                       20<PAGE>   1

                                                                    EXHIBIT 10.6
                                             LIMITED LIABILITY COMPANY AGREEMENT

                       LIMITED LIABILITY COMPANY AGREEMENT

                                       OF

                           SUMMIT ENERGY VENTURES, LLC
<PAGE>   2
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                 PAGE
                                                                                                                 ----
<S>                                                                                                              <C>
Article 1.  DEFINED TERMS...................................................................................       1

Article 2.  FORMATION.......................................................................................       5

Section 2.1       Formation of the Company..................................................................       5
Section 2.2       Filings ..................................................................................       5
Section 2.3       Name, Registered Office and Agent, Principal Place of Business............................       5
Section 2.4       Purpose of Company........................................................................       6
Section 2.5       Term .....................................................................................       6

Article 3.  MEMBERSHIP; DISPOSITION OF iNTERESTS; CAPITAL CONTRIBUTIONS.....................................       6

Section 3.1       Members ..................................................................................       6
Section 3.2       Liability to Third Parties................................................................       6
Section 3.3       Access to Information.....................................................................       6
Section 3.4       Capital Contributions.....................................................................       6
Section 3.5       Allocation of Interests; Right of First Refusal to Make Additional Capital Contributions..       7
Section 3.6       Return of Capital, No Interest on Capital.................................................       7
Section 3.7       Limited Liability of Members..............................................................       8
Section 3.8       Capital Accounts..........................................................................       8

Article 4.  INVESTMENT MANAGER; INVESTMENT COMMITTEE........................................................       8

Section 4.1       Appointment of Investment Manager; Responsibilities.......................................       8
Section 4.2       Retention or Employment of Other Persons After Approval of Investment.....................       9
Section 4.3       Management Fee; Expenses..................................................................       9
Section 4.4       Investment Committee......................................................................      10
Section 4.5       Company Funds.............................................................................      10
Section 4.6       Other Activities and Competition..........................................................      10
Section 4.7       Duty of Care and Loyalty; Investment Manager's Liability..................................      11
Section 4.8       Indemnification...........................................................................      11
Section 4.9       Application of Fees.......................................................................      12

Article 5.  POWERS, RIGHTS AND DUTIES OF THE MEMBERS........................................................      12

Section 5.1       Limitations...............................................................................      12
Section 5.2       Right of First Offer......................................................................      12

Article 6.  DISTRIBUTIONS...................................................................................      13

Section 6.1       Distributions.............................................................................      13
Section 6.2       Tax Liability Distributions...............................................................      13
Section 6.3       Distributions in Kind.....................................................................      14
Section 6.4       The Right to Withhold.....................................................................      14
Section 6.5       Sale of Investments or the Company........................................................      14

Article 7.  ALLOCATIONS.....................................................................................      14

Section 7.1       General ..................................................................................      14
Section 7.2       Allocation of Net Income and Net Loss.....................................................      14
Section 7.3       Allocations Upon Final Liquidation........................................................      15
Section 7.4       Additional Allocation Provisions..........................................................      15

Article 8.  BOOKS AND RECORDS; ACCOUNTING; TAX ELECTIONS....................................................      16

Section 8.1       Company Books.............................................................................      16
</TABLE>

                                        i
<PAGE>   3
<TABLE>
<S>                                                                                                              <C>
Section 8.2       Delivery of Records; Inspection...........................................................      16
Section 8.3       Reports and Tax Information...............................................................      17
Section 8.4       Company Tax Elections; Tax Controversies..................................................      17
Section 8.5       Accounting and Fiscal Year................................................................      17
Section 8.6       Confidentiality of Information............................................................      17

Article 9.  TRANSFERS, ENCUMBRANCES AND REDEMPTIONS OF MEMBERSHIP INTERESTS.................................      17

Section 9.1       Transfers ................................................................................      17
Section 9.2       Encumbrances..............................................................................      17
Section 9.3       Regulatory Prohibition....................................................................      18

Article 10.  WITHDRAWN, REMOVED, ADDITIONAL AND SUBSTITUTE MEMBERS..........................................      18

Section 10.1      Admissions, Withdrawals and Removals......................................................      18
Section 10.2      Substitute Members........................................................................      18
Section 10.3      Additional Members........................................................................      18
Section 10.4      Withdrawal of Certain Members.............................................................      18
Section 10.5      Conversion of Membership Interest.........................................................      18
Section 10.6      Resignation, Removal, Incapacity Of The Investment Manager................................      18

Article 11.  DISSOLUTION AND WINDING UP.....................................................................      19

Section 11.1      Dissolution and Distribution of Company Assets............................................      19
Section 11.2      Dissolving Events.........................................................................      19
Section 11.3      Wind-up, Liquidation and Final Distribution of Proceeds...................................      19
Section 11.4      No Restoration of Deficit Capital Account Balances........................................      20

Article 12.  MISCELLANEOUS..................................................................................      20

Section 12.1      Amendment.................................................................................      20
Section 12.2      Meetings..................................................................................      20
Section 12.3      No Assignments; Binding Effect............................................................      20
Section 12.4      Further Assurances........................................................................      20
Section 12.5      Notices...................................................................................      20
Section 12.6      Waivers...................................................................................      21
Section 12.7      Preservation of Intent....................................................................      21
Section 12.8      Entire Agreement..........................................................................      21
Section 12.9      Certain Rules of Construction.............................................................      21
Section 12.10     Counterparts .............................................................................      21
Section 12.11     Governing Law.............................................................................      21
Section 12.12     Binding Arbitration.......................................................................      21
Section 12.13     Waiver of Partition.......................................................................      22
</TABLE>

                                       ii
<PAGE>   4
SCHEDULE A        Names, Addresses, and Percentage Interests of the Members

SCHEDULE B        Form of Contribution Agreement

                                      iii
<PAGE>   5
                       LIMITED LIABILITY COMPANY AGREEMENT
                                       OF
                           SUMMIT ENERGY VENTURES, LLC

         THIS LIMITED LIABILITY COMPANY AGREEMENT (this "Agreement") of Summit
Energy Ventures, LLC is made and entered into as of __________, 2001 (the
"Agreement Date"), by and among those Persons identified as the "Members" and
that Person identified as the "Investment Manager" herein on the counterpart
signature pages to this Agreement.

                            ARTICLE 1. DEFINED TERMS

         "AAA" is defined in Section 12.12.

         "Accounting Period" means any period that begins on the Agreement Date
or at the opening of business on the day following the end of a previous
Accounting Period and ends at the close of business on the earliest of the next
Adjustment Date, the end of a Fiscal Year and the date on which the Company is
terminated.

         "Act" means the Delaware Limited Liability Company Act, 6 Del.
C. Sections 18-101, et seq., as previously or hereafter amended.

         "Additional Member" means any Person that has been admitted to the
Company as a Member pursuant to Section 10.3 by virtue of such Person receiving
its Membership Interest from the Company and not from another Member or any
Assignee.

         "Adjusted Capital Account Deficit" means, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
the relevant Fiscal Year, after giving effect to the following adjustments:

                  (i) decrease such deficit by (a) the amount, if any, which
      such Member is obligated to contribute upon liquidation of such Member's
      Interest, and (b) any amounts which such Member is deemed to be obligated
      to restore pursuant to Treasury Regulation Section 1.704-1(b)(2)(ii)(c) or
      the penultimate sentence of each of Treasury Regulation Sections
      1.704-2(i)(5) and 1.704-2(g)(1); and

                  (ii) increase such deficit by such Member's share of the items
      described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) and
      (6).

The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Treasury Regulation Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith.

         "Adjustment Date" means (i) each date on which an existing or
Additional Member contributes cash or property (other than a de minimis amount)
to the Company as consideration for an interest in the Company, (ii) each date
on which the Company distributes cash or property to a Member (other than a de
minimis amount) in consideration for an interest in the Company, (iii) the
liquidation of the Company and (iv) any other date reasonably believed by the
Investment Manager to be appropriate so as to properly reflect the economic
relationship among the Members.

         "Affiliate(s)" means, with reference to a specified Person(s):

                  (i) a Person that, directly or indirectly, through one or more
      intermediaries, has control of, is controlled by or is under common
      control with, the specified Person;

                                       1
<PAGE>   6
                  (ii) any Person that is an officer, director, general partner,
      managing member or trustee of, or serves in a similar capacity with
      respect to, the specified Person, or for which the specified Person is an
      officer, director, general partner, managing member or trustee, or serves
      in a similar capacity; or

                  (iii) any member of the Immediate Family of the specified
      Person. "Agreement" is defined in the Preamble.

         "Agreement Date" is defined in the Preamble.

         "Assignee" means any Person to which a Member or another Assignee has
Transferred all or any part of its Economic Interest in accordance with Section
9.1, but which has not been admitted as a Substitute Member pursuant to Section
10.2.

         "Bankruptcy" means the occurrence of any one or more of those events
set forth in Section 18-304 of the Act.

         "Book Value" means, with respect to (a) any Company asset as of any
date, such Company asset's adjusted basis for Federal income tax purposes as of
such date, except as follows: (i) the initial Book Value of a Company asset
contributed by a Member to the Company shall be the Value of such Company asset
on the date of such contribution; (ii) on each Adjustment Date, the Book Value
of each Company asset shall be adjusted to equal its Value on such Adjustment
Date, and (iii) if the Book Value of a Company asset has been determined under
clause (i) or (ii) above, such Book Value shall thereafter be adjusted by the
depreciation, cost recovery and amortization attributable to such Company asset
assuming that the adjusted basis of such Company asset was equal to its Book
Value determined under the methodology described in Treasury Regulation Section
1.704-1(b)(2)(iv)(g)(3).

         "Business Day" means any weekday excluding any legal holiday observed
pursuant to United States federal or Washington or California state law or
regulation.

         "Capital Account(s)" is defined in Section 3.10.

         "Capital Commitment" means, when referring to a dollar amount, or
amount committed by a Member or prospective Member for investment pursuant to
the terms of this Agreement.

         "Capital Contributions" of any Member means the total amount of money
and the initial fair market value of any property (determined net of any
liabilities secured by such property that the Company is considered to assume,
or take subject to, and determined consistently with Section 752(c) of the Code
and without regard to Section 7701(g) of the Code) contributed to the Company by
such Member in accordance with this Agreement. The initial fair market value of
any property contributed to the Company as an initial Capital Contribution of a
Member shall be determined by the Investment Manager and shall be adjusted as
provided in Section 3.3(c).

         "Cash Available for Distribution" means, as of any time of
determination, an amount equal to the sum of the excess, if any, of (i) the sum
of (A) all cash receipts received by the Company since the date of the
immediately prior distribution to the Members pursuant to Section 6.1 or, if the
Company has made no such prior distribution, since the Agreement Date, and (B)
any reduction, since such date, in the amount of Reserves (as determined by the
Investment Manager) set aside over (ii) the sum of (A) all expenses paid by the
Company since such date and (B) any increases in the amount of Reserves (as
determined by the Investment Manager) set aside.

         "Certificate" means any and all of a Certificate of Formation of the
Company, and any duly authorized, executed and filed amendments or restatements
thereof, which are filed in the office of the Secretary of State of the State of
Delaware.

         "CEC" means Commonwealth Energy Corporation, a California corporation.

                                       2
<PAGE>   7
         "Code" means the Internal Revenue Code of 1986, as previously or
hereafter amended.

         "Common Member" means any holder of a Common Member Interest.

         "Common Member Interest" means a Membership Interest identified as a
Common Member Interest on Schedule A.

         "Company" means the limited liability company formed pursuant to this
Agreement under the name Summit Energy Ventures, LLC.

         "Company Minimum Gain" has the meaning set forth in Treasury Regulation
Sections 1.704-2(b)(2) and 1.704-2(d)(1) for the phrase "partnership minimum
gain."

         "Economic Interest" means a Person's right to share in the Net Income,
Net Losses, or similar items of, and to receive distributions from, the Company,
but does not include any other rights of a Member including, without limitation,
the right to vote or to participate in the management of the Company, or, except
as specifically provided in this Agreement or required under the Act, any right
to information concerning the business and affairs of the Company.

         "Effective Date" is defined in Section 12.5.

         "Encumbrance" means a pledge, alienation, mortgage, hypothecation,
encumbrance or similar collateral assignment by any other means, whether for
value or no value and whether voluntary or involuntary (including, without
limitation, by operation of law or by judgment, levy, attachment, garnishment,
bankruptcy or other legal or equitable proceedings). The term "Encumber" shall
have a correlative meaning.

         "Fiscal Year" is defined in Section 8.5.

         "Flow-Through Entity" is defined in Section 9.3(a)(iv).

         "Immediate Family" means an individual Person's current spouse,
parents, grandparents, siblings, children, children's spouses, grandchildren or
grandchildren's spouses or any trusts or estates exclusively for the benefit of
any of the foregoing.

         "Incapacity" means the entry of an order of incompetence or of
insanity, or the Bankruptcy, death, Disability, dissolution or termination
(other than by merger or consolidation) of any Person. "Incapacitated" shall
have a correlative meaning.

         "Indemnitees" is defined in Section 4.8(a).

         "Investment" means any investment recommended by the Investment Manager
and/or approved by the Investment Committee subject the following parameters,
unless so waived by the Investment Committee:

                  (a) no Investment or successor of Investments in any single
      company or group of related companies may exceed $10,000,000 (ten million
      dollars); or

                  (b) no Investment may be made in any company with less than
      two years of operating history and one year of positive net income.

         "Investment Committee" means the investment committee of the Company
established pursuant to Section 4.4.

         "Investment Manager" means NPM, or any successor investment manager of
the Company.

         "Management Fee" means the fees paid to the Investment Manager pursuant
to Section 4.3.

                                       3
<PAGE>   8
         "Member Minimum Gain" means minimum gain attributable to a Member
Nonrecourse Debt determined in accordance with Treasury Regulation Section
1.704-2(i) with respect to "partner minimum gain."

         "Member Nonrecourse Debt" has the meaning set forth in Treasury
Regulation Section 1.704-2(b)(4) for the phrase "partner nonrecourse debt."

         "Member Nonrecourse Deductions" has the meaning set forth in Treasury
Regulation Section 1.704-2(i) for the phrase "partner nonrecourse deductions."

         "Members" means those Persons owning Membership Interests and
identified as such on the books and records of the Company, as well as any
Additional Members and Substitute Members. Reference to a "Member" shall refer
to any one or more of the Members, as the context may require.

         "Membership Interest" or "Interest" means the entire ownership interest
of a Member in the Company at any particular time, including without limitation,
the Member's Economic Interest, any and all rights to vote and otherwise
participate in the Company's affairs, and the rights to any and all benefits to
which a Member may be entitled as provided in this Agreement, together with the
obligations of such Member to comply with all of the terms and provisions of
this Agreement.

         "Net Income" and/or "Net Loss", respectively, for any Accounting Period
means the income or loss of the Company for such Accounting Period as determined
in accordance with the method of accounting followed by the Company for Federal
income tax purposes, including, for all purposes, any income exempt from tax and
any expenditures of the Company which are described in Code section
705(a)(2)(B); provided, however, that in determining Net Income and Net Loss and
every item entering into the computation thereof, solely for the purpose of
adjusting the Capital Accounts of the Members (and not for tax purposes), (i)
any income, gain, loss or deduction attributable to the taxable disposition of
any Company asset shall be computed as if the adjusted basis of such Company
asset on the date of such disposition equaled its Book Value as of such date,
(ii) if any Company asset is distributed in kind to a Member, the difference
between its Value and its Book Value at the time of such distribution shall be
treated as gain or loss, (iii) as to any Company asset held by the Company on an
Adjustment Date, the difference between such Company asset's Book Value on such
Adjustment Date and its Book Value immediately prior to such Adjustment Date
shall be treated as gain or loss, as appropriate, and (iv) any depreciation,
cost recovery and amortization as to any Company asset shall be computed by
assuming that the adjusted basis of such Company asset equaled its Book Value
determined under the methodology described in Treasury Regulation Section
1.704-1(b)(2)(iv)(g)(3); and provided, further, that any item (computed with the
adjustments in the preceding proviso) allocated under Section 7.4 shall be
excluded from the computation of Net Income and Net Loss.

         "Nonrecourse Deductions" means deductions as described in Treasury
Regulation Section 1.704-2(b)(1).

         "NPM" means Northwest Power Management, Inc., a Washington corporation.

         "Percentage Interest(s)" as of any date means 40% as to CEC, 40% as to
NPM and 20% as to such persons or persons are as is to be determined by the
Investment Manager pursuant to Section 3.5.

         "Permitted Transferee" with respect to a Member, means any Affiliate of
such Member or any other Members.

         "Person" means and includes an individual, a corporation, a
partnership, a limited liability company, a joint venture, a trust, an
unincorporated organization and a government or any department or agency
thereof, or any entity similar to any of the foregoing.

         "Preferred Member" means a holder of a Preferred Member Interest.

         "Preferred Member Interest" means a Membership Interest identified as a
Preferred Member Interest on Schedule A.

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<PAGE>   9
         "Preferred Return" means a return of 10%, compounded annually.

         "Regulatory Allocations" is defined in Section 7.4(a)(v).

         "Reserves" means funds set aside or amounts allocated to reserves that
shall be maintained in amounts deemed sufficient by the Investment Manager for
working capital, to pay taxes, insurance, debt service and other costs or
expenses incident to the conduct of business by the Company as contemplated
hereunder and other contingent liabilities.

         "Responsible Party" is defined in Section 4.8(f).

         "Substitute Member" means any Assignee that has been admitted to the
Company as a Member pursuant to Section 10.2 by virtue of such Assignee's
receiving all or a portion of a Membership Interest from another Member or its
Assignee, and not pursuant to Section 10.3.

         "Tax Liability Distribution" is defined in Section 6.2.

         "Transfer" and "Transferred" mean, with respect to any Membership
Interest, a sale, conveyance, exchange, assignment, pledge, encumbrance, gift,
bequest, hypothecation or other transfer or disposition by any other means,
whether for value or no value and whether voluntary or involuntary (including,
without limitation, by realization upon any Encumbrance or by operation of law
or by judgment, levy, attachment, garnishment, bankruptcy or other legal or
equitable proceedings) or an agreement to do any of the foregoing.

         "Treasury Regulation" means a Treasury Regulation promulgated under the
Code.

         "Value" of any asset of the Company, as the case may be, as of any
date, means the fair market value of such asset, as the case may be, as of such
date, as determined by the Investment Manager in good faith and following
receipt of a fairness opinion or other valuation performed by a nationally
recognized investment bank or appraisal firm if the value of such assets exceeds
$1,000,000 (one million).

                              ARTICLE 2. FORMATION

         Section 2.1 Formation of the Company. The Company was formed as a
limited liability company under the Act by the filing of the Certificate with
the Office of the Secretary of State of the State of Delaware on ________, 2001.

         Section 2.2 Filings. The Investment Manager shall have the authority to
conduct all filing, recording, publishing and other acts necessary or
appropriate for compliance with all requirements for operation of the Company as
a limited liability company under this Agreement and the Act and under all other
laws of the State of Delaware and such other jurisdictions in which the Company
determines that it may conduct business.

         Section 2.3 Name, Registered Office and Agent, Principal Place of
Business. The name of the Company is Summit Energy Ventures, LLC, as such name
may be modified from time to time by the Investment Manager as it may deem
advisable. The Investment Manager shall promptly provide written notice to each
Member of any change in the name of the Company. The Company's registered office
in the State of Delaware and its registered agent for service of process on the
Company in the State of Delaware at such registered office shall be as set forth
in the Company's most recently filed Certificate. The Company's principal place
of business currently is 700 Fifth Ave., Suite 6100, Seattle, WA 98104, and
thereafter at such other place or places as the Investment Manager may from time
to time designate. The Company may maintain offices and places of business at
such other place or places within or outside the State of Delaware as the
Investment Manager deems advisable.

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<PAGE>   10
         Section 2.4 Purpose of Company. Subject to the limitations on the
activities of the Company set forth in this Agreement, the purpose and business
of the Company shall be the conduct of any business or activity that may be
conducted by a limited liability company organized pursuant to the Act,
including without limitation (a) to purchase, acquire, sell, transfer, or
otherwise dispose of ownership interests, for the benefit of CEC, in energy or
energy-related companies that are synergistic to CEC's business; (b) to take
advantage of the expertise of NPM, and its Manager Steven Z. Strasser, in
managing investment portfolios; (c) to hold title to and beneficial ownership of
energy or energy-related companies; and, (d) except as otherwise limited herein,
to enter into, make and perform all contracts and other undertakings, and engage
in all activities and transactions, as necessary or advisable to the carrying
out of the foregoing purposes and businesses of the Company.

         Section 2.5 Term. The Company commenced as of the date that the
Certificate was filed with the Office of the Delaware Secretary of State, and
shall continue to exist for a five year period unless terminated earlier
pursuant to this Agreement, except that such term may be extended by the
Investment Manager and the Investment Committee for up to two additional
one-year periods at their mutual discretion; provided, however, that if no
Investments are acquired by the Company within 18 months of the Agreement Date
then the Investment Committee may terminate this Agreement by giving the
Investment Manager 30 days prior written notice of its intent to terminate this
Agreement.

     ARTICLE 3. MEMBERSHIP; DISPOSITION OF INTERESTS; CAPITAL CONTRIBUTIONS

         Section 3.1 Members. Effective as of the Agreement Date, there are
hereby created two classes of Membership Interests in the Company. Such classes
of Membership Interests shall be designated as Common Member Interests and
Preferred Member Interests, and each such item shall have the respective rights
accorded it under this Agreement. The names, addresses, Capital Commitment,
Capital Contributions, Percentage Interests of the Members are set forth on
Schedule A hereto, which shall be amended from time to time to reflect the
admission of Additional Members and Substitute Members pursuant to this
Agreement, as well as to reflect any changes in the Members' respective Capital
Commitments, Capital Contributions, and Percentage Interests pursuant to the
terms of this Agreement.

         Section 3.2 Liability to Third Parties. No Member shall be liable for
the debts, obligations or liabilities of the Company.

         Section 3.3 Access to Information. Each Member shall be entitled to
receive any information from the Company that it may reasonably request
concerning the Company; provided, however, that this Section 3.3 shall not
obligate the Company or any Member to create any information that does not
already exist at the time of such request (other than to convert existing
information from one medium to another, such as providing a printout of
information that is stored in a computer database). Each Member shall also have
the right, upon reasonable notice, and at all reasonable times during usual
business hours to inspect the assets of the Company and to audit, examine and
make copies of the books of account and other records of the Company. Such right
may be exercised through any agent or employee of such Member designated in
writing by it or by an independent public accountant, attorney or other
consultant so designated. The Company shall bear all costs and expenses incurred
in any inspection, examination or audit made on such Member's behalf.

         Section 3.4 Capital Contributions. Effective as the Agreement Date, CEC
and NPM are admitted to the Company as Common Members. On the Agreement Date,
CEC and the Company shall execute a Contribution Agreement in the form attached
hereto pursuant to which CEC shall make a Capital Contribution of $15,000,000
(fifteen million) and a Capital Commitment of $10,000,000 (ten million), which
shall be delivered in two traunches of $5,000,000 (five million) each. CEC
agrees that it shall convert the first half of the Capital Commitment into a
Capital Contribution at such time as the Investment Manager provides written
notice to CEC that 75% (seventy-five percent) of the Capital Contribution made
as of the Agreement Date has been invested in

                                       6
<PAGE>   11
accordance with the terms of the LLC Agreement. CEC agrees that it shall convert
the second half of the Capital Commitment into a Capital Contribution at such
time as the Investment Manager provides written notice to CEC that 75%
(seventy-five percent) of the first half of the Capital Commitment has been
invested in accordance with the terms of the LLC Agreement.

         Section 3.5 Allocation of Interests; Right of First Refusal to Make
Additional Capital Contributions. The Investment Manager may allocate a 20%
Percentage Interest to such person or persons as it shall determine; provided,
however, that if such Percentage Interest has not been allocated by the time the
Company files its first income tax return, then the Percentage Interest shall be
divided equally between CEC and the Investment Manager. In addition, subject to
the provisions of Section 12.1 hereof, the Investment Manager may amend the
provisions of this Agreement to create a class or series of interests for the
purpose of accepting additional Capital Contributions from time to time with the
approval of the Investment Committee and upon such terms and conditions as
agreed by the Investment Manager and the Investment Committee. No Member shall
have any obligation to make any additional Capital Contributions; provided,
however, that CEC shall have a right of first refusal to make an additional
Capital Contribution on the same terms and conditions offered to any prospective
Member as follows:

                  (a) Right of First Refusal Notification. In the event that the
Investment Manager desires to cause the Company to issue Membership Interests to
any Person (other than CEC), the Investment Manager agrees that it will notify
(the "Right of First Refusal Notification") CEC in writing of its intention to
do so, specifying the nature of the Interests proposed to be issued (the
"Offered Interests"), the name of the person or persons to whom the Company
proposes to issue the Offered Interests, and the amount of Capital Commitments
that will be required in connection with the issuance of such Interests (the
"Minimum Price"). The Right of First Refusal Notification shall contain an
affirmation by the Investment Manager that he has a reasonable expectation of
being able to issue the Interests at the Minimum Price and to such Person or
Person, and shall recite the basis for such expectation. The Right of First
Refusal Notification shall offer to issue to CEC the Offered Interests, free and
clear of any liens or encumbrances in favor of third persons, at the Minimum
Price and on such other terms and conditions, if any, not less favorable to CEC
as those proposed to be offered to such other Person or Persons. In the event
all or any part of the consideration shall consist of other than cash, the
Minimum Price shall mean the fair market value of such consideration.

                  (b) Exercise of Right of First Refusal. In the event that CEC
elects to purchase or acquire all of the Offered Interests, written notice of
such election shall be delivered to the Investment Manager no later than fifteen
(15) days following receipt of the Right of First Refusal Notification by CEC,
and such notice shall, when taken in conjunction with the Right of First Refusal
Notification, be deemed to constitute a valid and legally binding purchase and
sale agreement.

                  (c) Closing. The closing of a purchase and sale of Offered
Interests pursuant to this Section 3.5 shall take place at the principal
executive offices of the Company on the thirtieth (30th) day following the
expiration of the period within which the offer to purchase could have been
accepted (unless another time is mutually agreed upon by the parties).

                  (1) (d) Option. CEC is hereby granted an option to purchase
any of the Investments acquired by the Company at any time during the term of
this Agreement on such terms and conditions as are mutually agreeable to the
Investment Manager and CEC; provided however, that CEC shall have the right to
credit any balance in its Capital Account against the purchase price of the
Investment. If the Investment Manager and CEC are unable to reach agreement on
the fair market value of such Investment, then the Investment Manager shall
obtain a valuation of the Investment from a nationally recognized investment
bank or appraisal firm which firm shall be approved by the Investment Committee;
provided, however, that the valuation of the Investment shall be the projected
value of the Investment at the termination of this agreement; without regard to
any extended term.

         Section 3.6 Return of Capital, No Interest on Capital. Except as
expressly provided in this Agreement: (a) no Member or Assignee shall demand or
be entitled to the return of any or all of its Capital

                                       7
<PAGE>   12
Contribution or Capital Account and (b) no Member or Assignee shall withdraw any
portion of its Capital Contribution or receive any distributions from the
Company as a return of capital on account of such Capital Contribution.

         Section 3.7 Limited Liability of Members. Notwithstanding anything to
the contrary contained in this Agreement, and except as otherwise required by
applicable law, the liability of a Member for any losses of the Company in no
event shall exceed, in the aggregate, the amount of its Capital Contribution
invested in the Company.

         Section 3.8 Capital Accounts. There shall be established for each
Member on the books of the Company a capital account (the "Capital Account") in
compliance with Treasury Regulation Sections 1.704-1(b) or 1.704-2, as amended.
Subject to the preceding sentence, each Member's Capital Account shall initially
be equal to the amount of cash and the fair market value of any property
contributed by a Member to the Company (net of liabilities secured by such
contributed property that the Company is treated as assuming or taking subject
to pursuant to the provisions of Section 752 of the Code) and, throughout the
term of the Agreement, the Capital Account shall be (i) increased by the amount
of income and gain allocated to such Capital Account and the amount of any cash
and the fair market value of any property contributed by a Member to the Company
(net of liabilities secured by such contributed property that the Company is
treated as assuming or taking subject to pursuant to the provisions of Section
752 of the Code) and (ii) decreased by the amount of losses and deductions
allocated to such Capital Account and the amount of any cash and the fair market
value of any property distributed to a Member by the Company in accordance with
Section 3.5 or otherwise (net of liabilities secured by such distributed
property that the Member is treated as assuming or taking subject to pursuant to
the provisions of Section 752 of the Code).

              ARTICLE 4. INVESTMENT MANAGER; INVESTMENT COMMITTEE

         Section 4.1 Appointment of Investment Manager; Responsibilities.

                  (a) Appointment of Investment Manager. NPM is hereby appointed
the Investment Manager and NPM agrees to assume the responsibilities of the
Investment Manager. Upon resignation of the Investment Manager or removal due to
Incapacity, fraud or willful misconduct on the part of the Investment Manager, a
successor investment manager shall be appointed by the Investment Committee.
Upon the resignation or removal of an Investment Manager, a Value shall be
placed on the Investment Manager's Membership Interest which Value shall be paid
to the Investment Manager on the liquidation of the Investments; provided,
however, that if the Value of the Company shall have depreciated since the date
the Investment Manager resigned or was removed, then the Value of the Investment
Manager's Membership Interests shall be reduced pro-rata to the reduction of the
Value of the Company. On the date the Investment Manager either resigns or is
removed, the Investment Manager's Membership Interest shall automatically be
converted to an Economic Interest only.

                  (b) Investment Management Services. The Investment Manager
shall have the powers and duties granted to the Investment Manager pursuant to
the terms of this Agreement, including without the authority and responsibility
to (i) advise the Company with respect to the acquisition, management, financing
and disposition of Investments, (ii) monitor the Company's Investments, (iii)
represent the Company in its respective day-to-day dealings with Persons with
whom the Company interacts with respect to the business and operations of the
Company (including without limitation accountants, attorneys, custodians,
insurers and banks) and (iv) monitor and supervise the performance of all
parties who have contracts to perform services for the Company (collectively,
the "Investment Management Services"). The Investment Manager shall have the
sole power and authority to bind the Company, except and to the extent that such
power is limited pursuant to Section 4.1(d) hereof.

                  (c) Administrative Services. The Investment Manager shall (i)
provide accounting services (but not auditing work), (ii) prepare and deliver
reports to the Company, (iii) coordinate investor related services for the
Company, (iv) prepare and disseminate financial statements of the Company, (v)
coordinate the tax

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<PAGE>   13
returns of the Company, (vi) maintain the books and records of the Company,
(vii) select and administer brokerage, bank or custodial accounts for the
Company and (viii) perform other similar functions as the Company and the
Investment Manager may agree upon (collectively, the "Administrative Services").

                  (d) Limits on Manager's Powers. Notwithstanding anything in
this Agreement to the contrary, the Investment Manager shall not cause or permit
the Company to:

                     (i) Purchase or otherwise acquire any Investment without
      the approval of the Investment Committee required pursuant to Section 4.4
      hereof;

                     (ii) possess Company property, or assign Company property,
      for other than a Company purpose;

                     (iii) admit a Person as a Member, except as provided in
      this Agreement;

                     (iv) make any loans to the Investment Manager or its
      Affiliates or any of their respective officers, directors or employees; or

                     (v) transfer any funds for the acquisition of an Investment
      without the written approval of the Investment Committee.

                  (e) Delegation of Authority of the Company. The Company hereby
delegates to the Investment Manager all powers, duties and responsibilities with
regard to the Investment Management Services and the Administrative Services and
hereby appoints the Investment Manager as the Company's attorney in fact with
full authority in the Company's name to perform such services.

                  (f) Subcontracting. The Investment Manager may contract with
other persons or entities to provide any or all of the foregoing Investment
Management Services and Administrative Services, with the cost to be borne by
the Investment Manager; provided that any delegation of such rights or duties
shall not release the Investment Manager from its obligations hereunder and the
Investment Manager shall remain responsible hereunder for all acts and omissions
of such contractor as if such acts or omissions were those of the Investment
Manager.

                  (g) Bank Accounts. The Investment Manager shall establish bank
accounts in the name of the Company and shall deposit therein the Capital
Investments of the Company; provided, however, that the Investment Committee
shall have the right to approve any bank selected by the Investment Manager.

         Section 4.2 Retention or Employment of Other Persons After Approval of
Investment. All expenses and fees associated with the due diligence, evaluation
and closing of the transaction (including, without limitation, the retention or
employment of accountants, attorneys and consultants, reasonable travel and
entertainment (collectively, the "Transaction Expenses")) shall be paid by the
Company; provided, however, that the Investment Manger may not employ any
Persons that are shareholders or Affiliates of the Investment Manager unless
either (a) the Person is in the business of providing such services and the cost
is comparable to what is generally offered by third parties; or (b) the services
are being provided on terms that are no less favorable to the Company than could
be obtained from an unrelated third party in an arms-length transaction.

         Section 4.3 Management Fee; Expenses.

                  (a) The Company shall pay to the Investment Manager, as
compensation for its performance of the Investment Management Services and the
Administrative Services an annual fee equal to three percent (3%) of the book
value of the Investments averaged on an annual basis. The Management fee shall
be paid in two semi-annual payments of $375,000 payable on January 8 and July 8
of each calendar year; provided, however, that the Management Fee shall be
pro-rated for any partial period. At the end of each calendar year, the

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<PAGE>   14
actual Management Fee shall be calculated and a payment shall be made by the
Investment Manager to the Company for any overpayment of Management Fees or by
the Company to the Investment Manager for any underpayment of Management Fees.
Such payment shall be due and payable on January 8 of each calendar year.

                  (b) Except for expenses to be paid by the Investment Manager
pursuant to Section 4.3(c), the Company shall pay all expenses incurred in
connection with the operation of the Company, including without limitation,
Management Fees, Transaction Expenses with respect to each Investment evaluated
or acquired by the Company, indemnification expenses of the Company pursuant to
Section 4.8 and legal and accounting expenses of the Company.

                  (c) The Investment Manager shall pay, and the Company will not
be obligated to pay, the Investment Manager's administrative costs related to
providing the Investment Management Services and the Administrative Expenses,
including: salaries and fringe benefits of professional, administrative,
clerical, bookkeeping, secretarial and other personnel of the Investment
Manager; rent, office equipment, fire and theft insurance, heat, light,
cleaning, power, water and other utilities of any office space maintained by the
Investment Manager on its own behalf or on behalf of the Company; stationery,
postage, office supplies for the Investment Manager and the Company; secretarial
services; travel and entertainment; telephone (local and long distance);
publications and subscriptions; data processing; printing, publishing and
distributing financial reports; and any other overhead type expenses; provided,
however, the Company shall reimburse the Investment Manager and its Affiliates
for the reasonable costs of providing tax and accounting services to the
Company, including maintaining financial books and records, calculating the
value of Company Assets and preparing tax returns.

         Section 4.4 Investment Committee. The Investment Committee shall be
comprised of three members appointed by CEC; provided, however, that no officer
of director of CEC with an equity interest in the Company may be appointed as a
member on the Investment Committee. The Investment Committee shall have the
authority to approve or disapprove any recommendation by the Investment Manager
to purchase or otherwise acquire or make an Investment. The Company may not
purchase or otherwise acquire or make any Investment without the prior approval
of the Investment Committee as described in this Section 4.4. All actions
required of the Investment Committee shall be taken by a majority vote of the
members of the Investment Committee held at a meeting of the Investment
Committee no earlier than 2 business days following delivery of written notice
of such meeting of specifying the time, place and agenda for such meeting or by
written consent of all members of the Investment Committee.

         Section 4.5 Company Funds. Company funds shall be held in the name of
the Company and shall not be commingled with those of any other Person. Company
funds shall be used by the Investment Manager only for the business of the
Company.

         Section 4.6 Other Activities and Competition.

                  (a) The Investment Manager agrees that it shall devote such
business and professional time to the Company and its purposes and objectives as
shall be reasonably necessary in the opinion of the Investment Manager to
achieve the objectives of the Company.

                  (b) Except as set forth in Section 4.6(c), the Investment
Manager, its Affiliates and agents, members, officers, directors and employees
of the Investment Manager and its Affiliates may engage in or possess any
interests in business ventures and may engage in other activities of every kind
and description independently or with others in addition to those relating to
the Company. Each Member authorizes, consents to and approves of such present
and future activities by such Persons. Except as set forth in this Agreement,
neither the Company nor any Member shall have any right by virtue of this
Agreement in or to other ventures or activities of the Investment Manager, its
members or their Affiliates or to the income or proceeds derived therefrom.

                                       10
<PAGE>   15
                  (c) Notwithstanding anything to the contrary in Section
4.6(b), neither the Investment Manager, its shareholders, directors, officers or
members nor its or their Affiliates shall, without the consent of the Investment
Committee, directly or indirectly create, manage or sponsor another partnership
or investment fund with investment objectives similar to the Company, until the
earlier of the date on which at least seventy-five percent (75%) of the Capital
Contribution of the Preferred Members have been invested or committed to be
invested; provided, however, that if such an entity is created, the Investment
Manager and its Affiliates shall first allocate investment opportunities
entirely to the Company until such time that ninety percent (90%) of the Capital
Contribution of the Preferred Members have been invested or committed to be
invested.

                  (d) In the event that the Investment Committee rejects a
recommendation by the Investment Manager to acquire an Investment, then any
Member, except CEC, may acquire the Investment; provided, however, that the
Member acquires such Investment on the same terms and conditions offered to the
Company. In the event that the terms and conditions offered to the Member are
more favorable than those offered to the Company, then the Member shall
automatically grant the Company a right of first offer to acquire the Investment
on the same terms and conditions offered the Member pursuant to the procedure
established in Section 5.2.

         Section 4.7 Duty of Care and Loyalty; Investment Manager's Liability.

                  (a) The Investment Manager shall discharge its duties under
this Agreement solely in the interest of the Members and the Company, and shall
do so with the care, skill, prudence and diligence under the circumstances then
prevailing that a prudent person acting in a like capacity and familiar with
such matters would use in the conduct of an enterprise of a like character and
with like aims. The Investment Manager shall not deal with the income or assets
of the Company in the Investment Manager's own interest or for its own account.

                  (b) To the extent permitted by applicable law, neither the
Investment Manager, nor any of its Affiliates, directors, officers, employees,
shareholders, members, assigns, representatives or agents, shall be liable,
responsible or accountable in damages or otherwise to the Company or any Member
for any loss, liability, damage, settlement cost, or other expense (including
reasonable attorneys' fees) incurred by reason of any act or omission or any
such alleged act or omission performed or omitted by such Person (including
those in connection with representation on behalf of the Company on creditors'
committees in bankruptcy proceedings or serving on boards of directors or the
equivalent thereof for companies or other entities in the Company's portfolio)
if such Person acted in good faith and in a manner it reasonably believed to be
in, or not opposed to, the best interests of the Company, and if there has been
no final adjudication in binding arbitration in the manner provided in Section
4.7(b) determining such Person has acted with gross negligence or willful
misconduct with respect to such act or omission.

         Section 4.8 Indemnification.

                  (a) To the extent permitted by applicable law, the Investment
Manager, and any of its Affiliates, directors, officers, employees,
shareholders, members, assigns, representatives or agents (each such person
being an "Indemnitee") shall be held harmless and be indemnified by the Company
for any liability, loss (including amounts paid in settlement), damages or
expenses (including reasonable attorneys' fees) suffered by virtue of any acts
or omissions or alleged acts or omissions arising out of such Indemnitee's
activities in connection with representation of the Company on creditors'
committees in bankruptcy proceedings or serving on boards of directors or the
equivalent thereof for companies or other entities in the Company's portfolio)
if such Person acted in good faith and in a manner it reasonably believed to be
in, or not opposed to, the best interests of the Company, and if there has been
no final adjudication determining such Indemnitee has acted with gross
negligence or willful misconduct with respect to such acts or omissions. The
termination of any action, suit or proceeding by judgment, order or settlement
shall not, of itself, create a presumption that a Person did not act in good
faith and in a manner reasonably believed to be in, or not opposed to, the best
interests of the Company.

                  (b) In the event that any Indemnitee believes it is entitled
to indemnification hereunder by virtue of any amount paid as described in
subsection (a) of this Section 4.8, the Investment Manager or such Indemnitee
shall give notice of such payment, and the circumstances giving rise thereto, to
the Members prior

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<PAGE>   16
to receipt of indemnification hereunder and, if within 45 days of such notice
CEC objects to such indemnification, the Indemnitee's entitlement thereto shall
be referred by CEC and the Indemnitee to binding arbitration. Pending the result
of such arbitration, the amounts sought by the Indemnitee as indemnification
shall be held by the Company in trust for the parties determined to be entitled
thereto in the course of such arbitration. If CEC fails to object to the
indemnification within the aforementioned 45-day period, the Indemnitee shall be
entitled to such indemnification and shall conclusively be deemed to have
satisfied the standards set forth in subsection (a) of this Section 4.8. In the
event of any arbitration pursuant to this subsection (b) of Section 4.8, CEC
shall, within 30 days of its decision to object to indemnification, select one
arbitrator and the Indemnitee shall, within the same period, select a second
arbitrator. The two arbitrators thus selected shall, within 15 days of their
selection, select a third arbitrator. In the event any arbitrator required to be
selected pursuant to the preceding sentences is not selected within the time
periods therein set forth, either CEC or the Indemnitee may apply to any court
having jurisdiction over CEC and the Indemnitee and such court shall be
empowered to select any arbitrator not so selected. The arbitrators shall be
limited to determining whether the Indemnitee (i) acted with gross negligence or
willful misconduct and (ii) is entitled to indemnification under the standards
set forth in subsection (a) of this Section 4.8. Any arbitration hereunder shall
be conducted in accordance with the rules of the American Arbitration
Association then prevailing, and the decision of the arbitrators shall be final
and binding on all the Members and on the Indemnitee. The costs of the
arbitration (other than fees and expenses of counsel, which shall be the
responsibility of the parties retaining such counsel) shall be borne equally by
the parties thereto; provided, however, that in the event that it is determined
in such arbitration that the Indemnitee is entitled to indemnification, the
Indemnitee shall also be entitled to indemnification for its share of such costs
and for the fees and expenses of its counsel. If for any reason the provisions
of this subsection (b) are held to be unavailable or unenforceable, then any
determination which must be made under this Agreement in binding arbitration may
be made by any court of competent jurisdiction.

         (c) Any indemnification provided hereunder shall be satisfied out of
Company assets as an expense of the Company.

         Section 4.9 Application of Fees. With respect to each Investment all
(a) origination fees received in connection with the acquisition of such
Investment; (b) monitoring fees and directors' fees paid by portfolio companies
in which the Company holds an Investment; and (c) "break-up" or similar fees
paid for a failed transaction shall be shared equally by the Investment Manager
and the Company.

               ARTICLE 5. POWERS, RIGHTS AND DUTIES OF THE MEMBERS

         Section 5.1 Limitations. Except as expressly required by the Act or as
expressly provided in this Agreement, the Members in their capacity as members
of the Company shall not participate in the management or control of the
Company's business nor shall they transact any business for the Company, nor
shall they have the power to act for or bind the Company, or otherwise vote on
any matter affecting the Company or its business, said powers being vested
solely and exclusively in the Investment Manager and the Persons, if any, to
whom the Investment Manager delegates such powers in accordance with the
provisions of this Agreement.

         Section 5.2 Right of First Offer.

                  (a) Transfer Notice. If at any time the Investment Manager
proposes to dispose of any Investment to one or more third parties, whether by
sale, assignment, (a "Transfer"), then the Investment Manager shall give CEC
written notice of its intention to make the Transfer (the "Transfer Notice"),
which Transfer Notice shall include (i) a description of the Investment to be
transferred, (ii) a statement of its bona fide intention to transfer the
Investment and (iii) the consideration and the material terms and conditions
upon which the proposed Transfer is to be made. The Transfer Notice shall also
include a copy of any written proposal, term sheet or letter of intent or other
agreement relating to the proposed Transfer.

                  (b) CEC's Option. CEC shall have an option for a period of
twenty (20) business days from receipt of the Transfer Notice to elect to
purchase the Investment at the same price and subject to the

                                       12

<PAGE>   17

same terms and conditions as described in the Transfer Notice. CEC may exercise
such purchase option and, thereby, purchase the Investment by notifying the
Investment Manager in writing before expiration of such twenty (20) business day
period that it wishes to purchase the Investment. During such twenty (20)
business day period the Investment Manager shall provide CEC with all
information reasonably requested by CEC with respect to the Investment,
including such financial, accounting, engineering, intellectual property, legal
and operational diligence materials as CEC may reasonably request regarding such
Investment. In addition, the Investment Manager shall use its best efforts to
make management personnel of the Investment available for due diligence
interviews by CEC. To the extent required by the Investment, CEC shall enter
into confidentiality agreements that are customary in form, substance and scope
for similarly sized mergers and acquisitions in the same industry as the
Investment. If CEC gives the Investment Manager notice that it desires to
purchase the Investment, then payment for the Investment shall be by wire
transfer, against delivery of the Investment to be purchased at a place agreed
upon between the parties and at the time of the scheduled closing therefor,
which shall be no later than forty-five (45) business days after CEC's receipt
of the Transfer Notice, subject to extension of such period for any period
necessary to receive required regulatory approvals. In the event that CEC does
not exercise its option hereunder with respect to any Investment, the Company
may transfer such Investment on terms that are fair to the Company and are no
less favorable to the Company than the terms set forth in the Transfer Notice.
Any such Transfer shall be consummated no later than 120 days following delivery
of the Transfer Notice.

                            ARTICLE 6. DISTRIBUTIONS

         Section 6.1 Distributions. Subject to the provisions of Sections 6.2,
6.3, and 6.4 and the sole discretion of the Investment Manager, Cash Available
for Distribution, if any, shall be distributed to the Members as follows:

                  (a) First, one hundred percent (100%) to the Preferred Members
in proportion to their Capital Contributions until the cumulative amount
distributed to the Preferred Members pursuant to this Section 6.1(a) is equal to
the Preferred Return on the Preferred Members' outstanding Capital Contributions
(computed from the date or dates the Capital Contributions were made and taking
into account the date of distributions of Capital Contributions pursuant to
Section 6.1(b) and the date of distributions of Preferred Returns pursuant to
this Section 6.1(a)); and

                  (b) Second, one hundred percent (100%) to the Preferred
Members' Capital Contributions until the cumulative amount distributed to the
Preferred Members pursuant to this Section 6.1(b) is equal to all Capital
Contributions made by the Preferred Members; and

                  (c) Third, any remaining amount to the Members in proportion
to the Members' Percentage Interests.

         Section 6.2 Tax Liability Distributions. Prior to the distribution of
cash, if any, pursuant to Section 6.1, the Company shall make a cash
distribution to the Members to the extent of Cash Available for Distribution in
amounts intended to enable the Members to discharge their United States federal,
state and local income tax liabilities arising from the allocations made
pursuant to Article 7 (a "Tax Liability Distribution"). The amount of any such
Tax Liability Distribution shall be determined by the Investment Manager based
on (a) the highest effective combined United States Federal, state and local
income tax rate applicable to any Member, and taking into account the
deductibility of state and local income taxes for United States federal income
tax purposes, and (b) the amounts so allocated pursuant to Article 7 to each
Member, and otherwise based on such reasonable assumptions as the Investment
Manager determines in good faith to be appropriate. Tax Liability Distributions
shall be made to each Member pro rata in accordance with such Member's relative
allocation of the corresponding item(s) of gain or income, and shall be treated
as advances of, and shall as soon as possible be recouped solely from,
distributions otherwise to be received by such Member under this Agreement,
provided, that in no event shall such Member otherwise be required to
recontribute or otherwise return or repay any such Tax Liability Distribution.
Any amount distributed to the Members pursuant to Section 6.1 with respect to a
Fiscal Year shall reduce the amount distributable to such Member as a Tax
Liability Distribution for such Fiscal Year.

                                       13
<PAGE>   18

                  Section 6.3 Distributions in Kind. No right is given to any
Member to demand and receive property other than cash. The Investment Manager
may determine, in its sole and absolute discretion, to make a distribution in
kind of Company assets to the Members, which may be in registered securities,
and such assets shall be distributed in such a fashion as to ensure that the
fair market value thereof is distributed and allocated in accordance with this
Article 6 and Article 7 and Article 11 hereof.

         Section 6.4 The Right to Withhold. The Company shall withhold from any
distribution such amounts as are required to be withheld by the laws of any
taxing jurisdiction. Such withheld amounts shall be treated as amounts
distributed to the respective Members on whose account the withholding was
imposed.

         Section 6.5 Sale of Investments or the Company. The parties acknowledge
that the Investment Manager is empowered to unilaterally cause the sale of one
or more of the Investments (other than any third party interests therein (i.e.,
those held by Persons not affiliated with the Company)) and all or any portion
of the Company. Upon any such sale of one or more Investments, the Investment
Manager shall distribute the sales proceeds in accordance with this Agreement.

                             ARTICLE 7. ALLOCATIONS

         Section 7.1 General. Net Income and Net Loss of the Company shall be
determined and allocated with respect to each Accounting Period of the Company
as of the end of such Accounting Period. Subject to the other provisions of this
Article 7, an allocation to a Member of a share of Net Income or Net Loss shall
be treated as an allocation of the same share of each item of income, gain, loss
or deduction that is taken into account in computing Net Income or Net Loss.

         Section 7.2 Allocation of Net Income and Net Loss. Except as provided
in Sections 7.3 and 7.4, the Company's Net Income or Net Loss and each item of
income, gain, loss and deduction entering into the computation thereof, for each
Accounting Period shall be allocated to the Members as follows:

                  (a) Net Income for such Accounting Period shall be allocated
as follows:

                      (i) first, an amount of Net Income equal to the excess of
          (x) all Net Loss previously allocated to the Members pursuant to
          Section 7.2(b)(iii) over (y) all Net Income previously allocated to
          the Members pursuant to this Section 7.2(a)(i), shall be allocated to
          the Members in proportion to each Member's share of such excess of (x)
          over (y);

                      (ii) second, an amount of Net Income equal to the excess
          of (x) the sum of (A) all Net Loss previously allocated to the Members
          pursuant to Section 7.2(b)(ii) and (B) an amount equal to the
          aggregate preferred return distributable to the Members pursuant to
          Section 6.1(a) as of the date of allocation for such Accounting Period
          and all prior Accounting Periods (whether or not such Preferred Return
          has in fact been distributed) over (y) all Net Income previously
          allocated to the Members pursuant to this Section 7.2(a)(ii), shall be
          allocated to the Members in proportion to each Member's share of such
          excess of (x) over (y); and

                      (iii) third, any remaining Net Income shall be allocated
          to the Common Members in accordance with their Percentage Interests.

                 (b)  Net Loss for such Accounting Period shall be allocated as
follows:

                      (i) first, an amount of Net Loss equal to the excess of
          (x) all Net Income previously

                                       14
<PAGE>   19
allocated to the Members pursuant to Section 7.2(a)(iii) over (y) all Net Loss
previously allocated to the Members pursuant to this Section 7.2(b)(i) shall be
allocated to the Members in proportion to each Member's share of such excess of
(x) over (y);

                      (ii) second, an amount of Net Loss equal to the excess of
          (x) all Net Income previously allocated to the Members pursuant to
          Section 7.2(a)(ii) over (y) all Net Loss previously allocated to the
          Members pursuant to this Section 7.2(b)(ii) shall be allocated to the
          Members in proportion to each Member's share of such excess of (x)
          over (y);

                      (iii) any remaining Net Loss shall be allocated to the
          Members in proportion to their Capital Contributions.

                 Section 7.3 Allocations Upon Final Liquidation. Notwithstanding
Section 7.2, but subject to Section 7.4, all Net Income or Net Loss (or
individual items of either) recognized in the year in which the Company is
liquidated shall be allocated to the Members in a manner so that, to the extent
possible, the ending Capital Account balances of each of the Members as
increased by such Member's share of Company Minimum Gain and Member Minimum Gain
shall be equal to the amount of distributions that each such Member would be
entitled to receive upon the liquidation of the Company pursuant to Section
11.3.

                 Section 7.4 Additional Allocation Provisions. Notwithstanding
the foregoing provisions of this Article 7:

                         (a) Regulatory Allocations.

                             (i) If there is a net decrease in (1) Company
          Minimum Gain or (2) Member Minimum Gain during any Fiscal Year, the
          Members shall be allocated items of Company income and gain for such
          year (and, if necessary, for subsequent years) in accordance with
          Treasury Regulation Section 1.704-2(f) or Section 1.704-2(i)(4), as
          applicable. It is intended that this Section 7.4(a)(i) qualify and be
          construed as a "minimum gain chargeback" and a "chargeback of partner
          nonrecourse debt minimum gain" within the meaning of such regulations,
          which shall be controlling in the event of a conflict between such
          regulations and this Section 7.4(a)(i).

                             (ii) Any Nonrecourse Deductions for any Fiscal Year
          shall be allocated to the Members in proportion to their Capital
          Contributions. Any Member Nonrecourse Deductions for any Fiscal Year
          shall be specially allocated to the Member(s) who bears the economic
          risk of loss (within the meaning of Treasury Regulation 1.702-2) with
          respect to the Member Nonrecourse Debt to which such Member
          Nonrecourse Deductions are attributable, in accordance with Treasury
          Regulation Section 1.704-2(i).

                             (iii) If any Member unexpectedly receives an
          adjustment, allocation or distribution described in Treasury
          Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of
          Company income and gain shall be allocated, in accordance with
          Treasury Regulation Section 1.704-1(b)(2)(ii)(d), to the Member in an
          amount and manner sufficient to eliminate, to the extent required by
          such Regulation, the Adjusted Capital Account Deficit of the Member as
          quickly as possible. It is intended that this Section 7.4(a)(iii)
          qualify and be construed as a "qualified income offset" within the
          meaning of Treasury Regulation 1.704-1(b)(2)(ii)(d), which shall be
          controlling in the event of a conflict between such Regulation and
          this Section 7.4(a)(iii).

                             (iv) If, and only to the extent, any allocation of
          Net Loss would cause or increase an Adjusted Capital Account Deficit
          as to any Member, such allocation of Net Loss shall be reallocated
          among the other Members in accordance with their respective Percentage
          Interests, subject to the limitations of this Section 7.4(a)(iv).

                                       15
<PAGE>   20

                             (v) The allocations set forth in Sections
          7.4(a)(i), (ii), (iii) and (iv) (the "Regulatory Allocations") are
          intended to comply with certain regulatory requirements, including the
          requirements of Treasury Regulation Sections 1.704-1(b) and 1.704-2.
          Notwithstanding the provisions of Section 7.1, the Regulatory
          Allocations shall be taken into account in allocating other items of
          income, gain, loss and deduction among the Members so that, to the
          extent possible, the net amount of such allocations of other items and
          the Regulatory Allocations to each Member shall be equal to the net
          amount that would have been allocated to each such Member if the
          Regulatory Allocations had not occurred.

                 (b) For any Fiscal Year during which any part of a Membership
Interest or Economic Interest is Transferred by a Member (or by an Assignee or
successor in interest to a Member), the portion of the Net Income and Net Loss
of the Company that is allocable in respect of such Transferred interest shall
be apportioned between the assignor and the assignee of such interest under any
method allowed pursuant to Section 706 of the Code and the applicable Treasury
Regulations as determined by the Investment Manager.

                 (c) In the event that the Code or any Treasury Regulations
promulgated thereunder require allocations of items of income, gain, loss,
deduction or credit different from those set forth in this Agreement, upon the
advice of the Company's counsel or accountants, the Investment Manager is hereby
authorized to make new allocations in reliance upon the Code, the Treasury
Regulations and such advice of the Company's counsel or accountants, such new
allocations shall be deemed to be made pursuant to any fiduciary obligation of
the Investment Manager to the Company and the Members, and no such new
allocation shall give rise to any claim or cause of action by any Member.

                 (d) For income tax purposes, all items of Company income, gain,
loss, deduction and any other allocations shall be divided among the Members in
the same proportions as they share its correlative item of "book" income, gain,
loss or deduction pursuant to this Article 7; provided, that, income, gain, loss
and deduction with respect to property whose Book Value differs from its
adjusted basis for Federal income tax purposes shall be shared among the Members
for federal and state income tax purposes so as to take into account the
variation, if any, between the basis of the property to the Company and its Book
Value in accordance with Code Section 704(c) and Treasury Regulations 1.704-3,
using any method provided by such Treasury Regulations as chosen by the
Investment Manager.

                 (e) A Member's proportional share of the Company's "excess
nonrecourse liabilities" within the meaning of Treasury Regulation Section
1.752-3(a)(3) at any time shall be its proportional share of the aggregate
Capital Contributions to the Company at such time.

            ARTICLE 8. BOOKS AND RECORDS; ACCOUNTING; TAX ELECTIONS

         Section 8.1 Company Books. The Investment Manager shall cause to be
kept at the principal place of business of the Company, or at such other
location as the Investment Manager shall reasonably deem appropriate, full and
proper ledgers, other books of account, and records of all receipts and
disbursements, other financial activities and the internal affairs of the
Company for each Fiscal Year of the term of the Company.

         Section 8.2 Delivery of Records; Inspection. Upon the reasonable
written request of any Member for any purpose reasonably related to such
Member's Membership Interest, the Investment Manager, subject to such reasonable
standards as may be established from time to time by the Investment Manager,
shall deliver to such requesting Member (or, to the extent so directed, to its
agent or attorney) a copy of the following information:

                 (a) unaudited quarterly financial reports and audited annual
financial reports, which shall include an income statement for the period
covered by such statements, a balance sheet as of the last day of such period, a
statement of Members' equity, and a management discussion and analysis of the
financial condition of the Company and all supporting calculations and
information for such reports;

                                       16
<PAGE>   21

                 (b) promptly after becoming available, a copy of the Company's
federal, state and local income or information tax returns for the year;

                 (c) a current list of the name and last known business,
residence or mailing address of each Member;

                 (d) true and full information regarding the status of the
business and financial condition of the Company; and

                 (e) a copy of this Agreement, as amended, and the Certificate,
together with executed copies of any written powers of attorney pursuant to
which this Agreement, as amended, and the Certificate have been executed.

                  Members (personally or through an authorized representative)
may, for purposes reasonably related to their Membership Interests, inspect and
copy (at their own cost and expense) the books and records of the Company at all
reasonable business hours.

         Section 8.3 Reports and Tax Information. The Investment Manager shall,
at the expense of the Company, send to each Member (and/or Assignee), within
ninety (90) days after the end of each tax year (or as soon as reasonably
practicable thereafter), the information necessary for such Member (and/or
Assignee) to complete its federal, state and local income tax or information
returns.

         Section 8.4 Company Tax Elections; Tax Controversies. The Investment
Manager shall have the right to make all elections for the Company provided for
in the Code, including, but not limited to, the elections provided for in
Section 754 of the Code. The Investment Manager is hereby designated as the "Tax
Matters Partner" pursuant to the requirements of Section 6231(a)(7) of the Code,
and in such capacity, shall represent the Company, at the Company's expense, in
any disputes, controversies or proceedings with the Internal Revenue Service.

         Section 8.5 Accounting and Fiscal Year. Subject to Code Section 448,
the books of the Company shall be kept on such method of accounting for tax and
financial reporting purposes as may be determined by the Investment Manager. The
fiscal year (the "Fiscal Year") of the Company shall be the calendar year.

         Section 8.6 Confidentiality of Information. Each party hereto agrees
that the provisions of this Agreement, all understandings, agreements and other
arrangements between and among the parties, and all other non-public information
received from or otherwise relating to the Company, shall be confidential, and
shall not be disclosed or otherwise released to any other Person (other than
another party hereto), without the written consent of the Investment Manager.
Accordingly, each party hereto shall, and shall cause its agents and attorneys
to, hold in confidence all such information.

                     ARTICLE 9. TRANSFERS, ENCUMBRANCES AND
                       REDEMPTIONS OF MEMBERSHIP INTERESTS

         Section 9.1 Transfers. No Member, and no Assignee, may Transfer all or
any portion of its Membership Interest to any Person without the prior written
consent of the Investment Manager.

         Section 9.2 Encumbrances. No Member or Assignee may Encumber all or any
portion of its Membership or Economic Interest (or any beneficial interest
therein) unless the Investment Manager consents in writing thereto, which
consents may be given or withheld, or made subject to such conditions as are
determined by

                                       17
<PAGE>   22

the Investment Manager, in the Investment Manager's sole and absolute
discretion. Any purported Encumbrance which is not in accordance with this
Agreement shall be null and void.

         Section 9.3 Regulatory Prohibition. No Member shall take or permit any
action to be taken with respect to itself (including, without limitation, any
change in its shareholders or partners, as applicable) that would subject the
Company to be regulated under the Investment Company Act of 1940, the Investment
Advisors Act of 1940 or the Employee Retirement Income Security Act of 1974,
each as amended (but, for the sake of clarity, it is recognized that nothing in
this Section 9.3 shall prohibit the Company from engaging in business activities
that would cause it to be subject, and therefore subjecting itself, to such
regulation).

       ARTICLE 10. WITHDRAWN, REMOVED, ADDITIONAL AND SUBSTITUTE MEMBERS

         Section 10.1 Admissions, Withdrawals and Removals. No Person shall be
admitted to the Company as a Member except in accordance with Section 10.2 or
Section 10.3. Except as provided in Section 10.4, no Member shall be entitled to
withdraw from the Company prior to dissolution of the Company without the
written consent of the Investment Manager, which consent may be given or
withheld in the Investment Manager's sole and absolute discretion. Any purported
admission, withdrawal or removal which is not in accordance with this Agreement
shall be null and void.

         Section 10.2 Substitute Members. No Assignee shall become a Member of
the Company by virtue of such Assignee's receiving all or a portion of any
interest in the Company from a Member or another Assignee without the consent of
the Investment Manager, which consent may be given or withheld, or made subject
to such condition(s), as the Investment Manager deems appropriate, in its sole
and absolute discretion.

         Section 10.3 Additional Members. After all Common Member Interests have
been allocated under this Agreement, the Investment Manager may admit an
Additional Member with the approval of the Investment Committee and on such
terms as the Investment Manager and Investment Committee agree. The Agreement
shall be amended to reflect such terms.

         Section 10.4 Withdrawal of Certain Members.

                 (a) Transfer of Entire Interest. If a Member has transferred
all its Membership Interests to one or more Assignees in accordance with the
terms of this Agreement, then such Member shall be deemed to have withdrawn from
the Company (without any additional action required to be taken by such Member)
when all of such Assignees have been admitted as Members in accordance with
Section 10.3 hereof.

         Section 10.5 Conversion of Membership Interest. Upon the Incapacity of
a Member, such incapacitated Member's Membership Interest shall automatically be
converted to an Economic Interest only, and such Incapacitated Member (or its
executor, administrator, trustee, receiver or beneficiary, as applicable) shall
thereafter be deemed an Assignee for all purposes hereunder, with the same
Economic Interest as was held by such incapacitated Member prior to its
Incapacity, but without any other rights of a Member, unless such Assignee is
admitted as a Substitute Member pursuant to Section 10.2.

         Section 10.6 Resignation, Removal, Incapacity Of The Investment
Manager.

                 (a) The Investment Manager may be removed as investment manager
without its consent only by reason of the Investment Manager's (1) fraud or
willful misconduct or (2) gross negligence in the operations of the Company that
has a material adverse effect on the business or properties of the Company, or
(3)

                                       18
<PAGE>   23
the Investment Manager, or Mr. Steven Strasser, the President of Investment
Manager, has become Incapacitated; if, in each case, the Investment Committee
votes for such removal. Immediately prior to the effective date of such removal,
a successor Investment Manager may be appointed to continue the business of the
Company upon the majority vote of the Investment Committee.

                 (b) If the Investment Committee removes the Investment Manager
in accordance with subsection (a) of this Section 10.6, notice of removal
specifying the effective date of removal shall be served on the Investment
Manager either by certified or by registered mail, return receipt requested, or
by personal service.

                 Any successor Investment Manager appointed by the Investment
Committee to replace the Investment Manager pursuant to this Section 10.5 shall,
beginning on the date of admission to the Company, have the same rights and
obligations under this Agreement as the replaced Investment Manager would have
had subsequent to such date if the replaced Investment Manager had continued to
act as Investment Manager.

                     ARTICLE 11. DISSOLUTION AND WINDING UP

         Section 11.1 Dissolution and Distribution of Company Assets. Except as
may be permitted in accordance with this Agreement, no Member shall have the
right to, and each Member hereby agrees that it shall not, seek to dissolve or
cause the dissolution of the Company or to seek to cause a partial or whole
distribution or sale of Company assets whether by court action or otherwise, it
being agreed that any actual or attempted dissolution, distribution or sale
would cause a substantial hardship to the Company and the remaining Members.

         Section 11.2 Dissolving Events. Notwithstanding the Act, the Company
shall be dissolved only upon the earlier to occur of one of the following
events:

                 (a) upon the expiration of the Term of this Agreement Company
pursuant to Section 2.5; or

                 (b) upon the sale of all or substantially all of the assets of
the Company.

                  The dissolution of the Company by any action not specifically
set forth above shall be a dissolution in breach and in contravention of this
Agreement.

         Section 11.3 Wind-up, Liquidation and Final Distribution of Proceeds.
Upon the dissolution of the Company pursuant to this Article 11, the Company
shall thereafter engage in no further business other than that which is
necessary to wind-up the business and the Investment Manager shall liquidate all
Company assets and allocate (pursuant to Article 6 hereof) all income, gain,
loss and deductions resulting therefrom. The cash proceeds from the liquidation
of Company assets then shall then be applied or distributed by the Company in
the following order:

                 (a) first, to the creditors of the Company (including, without
limitation, to Members who are creditors to the extent permitted by law) in
satisfaction of liabilities of the Company other than liabilities for
distributions to Members pursuant to Section 18-606 of the Act; and to the
setting up of any reserves for contingencies which the Investment Manager may
consider necessary;

                 (b) second, to Members and former Members in satisfaction of
liabilities, if any, for distributions pursuant to Section 18-606 of the Act,
and to the setting up of any reserves therefor; and

                 (c) third, in the event of a liquidation and dissolution of the
Company to the Members as provided in Section 6.1.

                  Notwithstanding the foregoing, in the event that the
Investment Manager determines that an immediate sale of all or any portion of
the Company's assets would cause undue loss to the Members, the

                                       19
<PAGE>   24
Investment Manager, in order to avoid such loss to the extent not then
prohibited by the Act, may either defer liquidation of and withhold from
distribution for a reasonable time any assets of the Company except those
necessary to satisfy the Company's debts and obligations, or distribute the
assets to the Members in kind. Any amounts owed to a Member pursuant to this
Section 11.3 shall be reduced by any amounts which any such Member owes to the
Company and/or any other Member (including, without limitation, as a result of
any such Member's breach and/or contravention of this Agreement). The foregoing
shall not limit any other rights or remedies of the Members.

         Section 11.4 No Restoration of Deficit Capital Account Balances. If any
Member has a deficit balance in its Capital Account (after giving effect to all
contributions, distributions and allocations for all taxable years, including
the year during which the liquidation occurs), then such Member shall have no
obligation to make any Capital Contribution with respect to such deficit, and
such deficit shall not be considered a debt owed to the Company or to any other
Person for any purpose whatsoever.

                           ARTICLE 12. MISCELLANEOUS

         Section 12.1 Amendment. The written consent of the Investment Committee
shall be required to amend or waive any provision of this Agreement, which
consents may be given, withheld or made subject to such conditions as are
determined by each such Investment Committee member in its sole and absolute
discretion. Notwithstanding the foregoing sentence, without the consent of the
Member to be adversely affected, this Agreement shall not be amended so as to
materially and adversely affect the interest of any Member in Net Income, Net
Loss or distributions except as otherwise expressly provided elsewhere in this
Agreement.

         Section 12.2 Meetings. At any time, and from time to time, the
Investment Manager may, but shall not be required to, call meetings of the
Members. All provisions governing, or otherwise relating to, the holding of
meetings of the Members, shall from time to time be established by the
Investment Manager.

         Section 12.3 No Assignments; Binding Effect. This Agreement shall not
be assigned or otherwise transferred (by operation of law or otherwise) by any
Member except as is otherwise permitted in Article 4, Article 8 and Article 9.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their heirs, executors, administrators, successors, legal
representatives and assigns permitted in accordance with this Agreement and the
Act.

         Section 12.4 Further Assurances. Each of the parties hereto does hereby
covenant and agree on behalf of itself, its successors and its assigns, without
further consideration, to prepare, execute, acknowledge, file, record, publish
and deliver such other instruments, documents and statements, and to take such
other action, as may be required by law or reasonably necessary to effectively
carry out the purposes of this Agreement.

         Section 12.5 Notices. Any notice, approval, consent, payment, demand or
communication required or permitted to be given to any Member or Assignee under
this Agreement shall be in writing and shall be deemed to have been duly given
or made: (i) if delivered personally by courier or otherwise, then as of the
date delivered (the "Effective Date") or if delivery is refused, then as of the
date presented (also an "Effective Date"); (ii) if sent or mailed by Federal
Express, Express Mail or other overnight mail service to the Company at its
principal office address or to any Member or Assignee at its address appearing
in the current records of the Company, then as of the first Business Day after
the date so mailed (also an "Effective Date"); (iii) if sent or mailed by
certified U.S. Mail, return receipt requested, to the Company at its principal
office address or to any Member or Assignee at its address appearing in the
current records of the Company, then as of the third Business Day after the date
so mailed (also an "Effective Date"); or (iv) if sent by facsimile to the
Company at its facsimile telephone number or to any Member or Assignee at its
facsimile telephone appearing in the current records of the Company, then either
(x) as of

                                       20
<PAGE>   25

the date on which the appropriate electronic confirmation of receipt is received
by the sending party at or before 5:00 p.m. (receiver's time) on any Business
Day or (y) as of the next Business Day if the time of the appropriate electronic
confirmation of receipt is received by the sending party after 5:00 p.m.
(receiver's time) (both also an "Effective Date"). All notices to the Company
shall be sent to the Investment Manager at the address or facsimile number
maintained by the Company with respect to such member. The address to which
notices to the Company shall be sent may be changed by the Company from time to
time by written notice to the Members.

         Section 12.6 Waivers. No waiver by any Member of any default with
respect to any provision, condition or requirement hereof shall be deemed to be
a waiver of any other provision, condition or requirement hereof; nor shall any
delay or omission of any Member to exercise any right hereunder in any manner
impair the exercise of any such right accruing to it hereafter.

         Section 12.7 Preservation of Intent. If any provision of this Agreement
is determined by an arbitrator or any court having jurisdiction to be illegal or
in conflict with any laws of any state or jurisdiction, then the Members agree
that such provision shall be modified to the extent legally possible so that the
intent of this Agreement may be legally carried out. If any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect or for any reason, then
the validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
or affected, it being intended that all of the Members' rights and privileges
shall be enforceable to the fullest extent permitted by law.

         Section 12.8 Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
fully supersedes any and all prior or contemporaneous agreements or
understandings between the parties hereto pertaining to the subject matter
hereof.

         Section 12.9 Certain Rules of Construction. Any ambiguities shall be
resolved without reference to which party may have drafted this Agreement. All
Article or Section titles or other captions in this Agreement are for
convenience only, and they shall not be deemed part of this Agreement and in no
way define, limit, extend or describe the scope or intent of any provisions
hereof. Unless the context otherwise requires: (i) a term has the meaning
assigned to it; (ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles;
(iii) "or" is not exclusive; (iv) words in the singular include the plural, and
words in the plural include the singular; (v) provisions apply to successive
events and transactions; (vi) "herein," "hereof" and other words of similar
import refer to this Agreement as a whole and not to any particular Article,
Section or other subdivision; (vii) all references to "clauses," "Sections" or
"Articles" refer to clauses, Sections or Articles of this Agreement; and (viii)
any pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms.

         Section 12.10 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.

         Section 12.11 Governing Law. This Agreement, including its existence,
validity, construction, and operating effect, and the rights of each of the
parties hereto, shall be governed by and construed in accordance with the laws
of the State of Delaware without regard to any otherwise governing principles of
conflicts of law.

         Section 12.12 Binding Arbitration. Any dispute arising under this
Agreement shall be settled by arbitration administered by the American
Arbitration Association ("AAA") under its Commercial Arbitration Rules, and
judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Application of the Commercial Arbitration Rules
shall be subject to the following:

                                       21
<PAGE>   26

                  There shall be a single neutral arbitrator selected as
follows: Within twenty (20) days after the AAA serves the confirmation of notice
of filing of the arbitration demand, the parties shall agree on the appointment
of a single neutral arbitrator and so notify the AAA. If the parties fail to
agree on the appointment of a single neutral arbitrator within that time period,
and have not otherwise mutually agreed to extend that time period, then the AAA
shall make the appointment. Any arbitrator appointed by the parties or AAA shall
be a former state appellate court judge (i.e., a judge of the California Supreme
Court or the California Court of Appeal) or a former federal court judge.

         Section 12.13 Waiver of Partition. The Members hereby agree that the
Company assets are not and will not be suitable for partition. Accordingly, each
of the Members hereby irrevocably waives any and all rights (if any) that such
Member may have to maintain any action for partition of any of such assets.

                                       22
<PAGE>   27

                  IN WITNESS WHEREOF, the undersigned Member has caused this
Limited Liability Company Agreement of Summit Energy Ventures, LLC to be duly
executed as of the date first above written.

Approved as to form and content this 29th day   COMMONWEALTH ENERGY CORPORATION
of June, 2001

By:  /s/ Bradley L. Gates                        By:/s/ Ian B. Carter
     --------------------                           ------------------
     Bradley L. Gates                               Name: Ian B. Carter
     Chairman, Legal Committee of the               Title:   Chairman and CEO
     Board of Directors of Commonwealth
     Energy Corporation

                                        Address for Notices:
                                        -------------------

                                        15901 Red Hill Ave.
                                        Suite 100
                                        Tustin, CA 92780

                                       23
<PAGE>   28

                  IN WITNESS WHEREOF, the undersigned Investment Manager has
caused this Limited Liability Company Agreement of Summit Energy Ventures, LLC
to be duly executed as of the date first above written.

                        NORTHWEST POWER MANAGEMENT INC.

                        /s/ Steven Z. Strasser
                        --------------------------------------------
                        By:  Steven Z. Strasser
                        Its:  President

                        Address for Notices:       700 5th Ave.
                                                   Suite 6100
                                                   Seattle, WA 98104

<PAGE>   29

                  IN WITNESS WHEREOF, the undersigned Member has caused this
Limited Liability Company Agreement of Summit Energy Ventures, LLC to be duly
executed as of the date first above written.

                               STEVEN Z. STRASSER

                               /s/ Steven Z. Strasser
                               --------------------------------------------

                               Address for Notices:       700 5th Ave.
                                                          Suite 6100
                                                          Seattle, WA 98104

                                       1

<PAGE>   30

                                                                      SCHEDULE A

                   Names, Addresses and Percentage Interests,
                                 of the Members

Name:                               Commonwealth Energy Corporation
Address:                            15901 Red Hill Ave., Tustin, CA 92780
Percentage Interest:                Forty (40) percent
Preferred Member Interest           One Hundred (100) percent

Name:                               Steven Z. Strasser
Address:                            700 5th Ave., Suite 6100, Seattle, WA 98104
Percentage Interest:                Forty (40) percent

                                       2
<PAGE>   31

                                                                      SCHEDULE B

                     FORM OF CAPITAL CONTRIBUTION AGREEMENT

                  This CAPITAL CONTRIBUTION AGREEMENT (this "Agreement") dated
as of _____________, 2001 (the "Effective Date") is entered into between
Commonwealth Energy Corporation, a California corporation ("CEC") and Summit
Energy Ventures, LLC, a Delaware limited liability company (the "Company"). Each
of CEC and the Company is referred to, individually, as a "Party" and,
collectively, the "Parties."

                                    RECITALS

                 WHEREAS, CEC and Northwest Power Management, Inc. entered into
the Limited Liability Company Agreement dated as of ____________, 2001 (the "LLC
Agreement");

                  WHEREAS, the Parties desire to enter into this Agreement to
set forth their agreement regarding, inter alia, certain capital contributions
to be made to the Company; and

                  NOW, THEREFORE, in consideration of the promises herein
contained and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the Parties agree as follows:

                 1. Capital Contribution. CEC hereby makes a cash capital
contribution to the Company in an amount equal to $15,000,000 (the "Capital
Contribution") and a commitment to make an additional cash capital contribution
to the Company in an amount equal to $10,000,000 (the "Capital Commitment"),
which shall be delivered in two traunches of $5,000,000 (five million) each.

                 2. Payment. Upon the Effective Date, CEC shall make (or cause
to be made) the Capital Contribution in Dollars in cash or such other
immediately available funds and in one lump sum by direct deposit into a bank
account for the Company for application by the Manager in accordance with the
LLC Agreement.

                 3. Capital Commitment. CEC agrees that it shall convert the
first half of the Capital Commitment into a Capital Contribution at such time as
the Investment Manager provides written notice to CEC that 75% (seventy-five
percent) of the Capital Contribution made as of the Effective Date has been
invested in accordance with the terms of the LLC Agreement. CEC agrees that it
shall convert the second half of the Capital Commitment into a Capital
Contribution at such time as the Investment Manager provides written notice to
CEC that 75% (seventy-five percent) of the first half of the Capital Commitment
has been invested in accordance with the terms of the LLC Agreement.

                 4. Issuance of Membership Interests. Upon receipt of the
Capital Contribution, CEC shall own all Preferred Membership Interests of the
Company and shall own forty (40) percent of the Common Member Interests of the
Company.

                 5. Representations and Warranties. Each Party hereby represents
and warrants to the other that (a) it has the necessary corporate power and
authority to enter into this Agreement, and that this Agreement has been duly
authorized and executed, and constitutes its valid, legal and binding
obligation, enforceable against it in accordance with its terms and (b) no
notices to, or consent, authorization or approval of, filing with, or further
action by, any person, entity, or governmental authority is required for its due
execution and delivery of this Agreement or for this Agreement's effectiveness.

                                       3
<PAGE>   32

                 6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED IN SUCH STATE, WITHOUT GIVING EFFECT TO
CONFLICT OF LAWS PROVISIONS.

                 7. SUBMISSION TO JURISDICTION; WAIVERS. EACH PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY: SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY
LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION
DOCUMENT, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF,
TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF
CALIFORNIA, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE CENTRAL DISTRICT
OF CALIFORNIA, AND APPELLATE COURTS FROM ANY THEREOF;

                  CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN
                  SUCH COURTS, AND WAIVES ANY OBJECTION THAT IT MAY NOW OR
                  HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING
                  IN ANY SUCH COURT OR THAT ANY SUCH ACTION OR PROCEEDING WAS
                  BROUGHT IN ANY INCONVENIENT COURT AND AGREES NOT TO PLEAD OR
                  CLAIM THE SAME;

                  AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
                  PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY
                  REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR
                  FORM OF MAIL), POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS
                  SET FORTH BELOW ITS NAME ON THE SIGNATURE PAGES TO THIS
                  AGREEMENT OR ANY SUCH OTHER ADDRESS OF WHICH THE OTHER PARTIES
                  SHALL HAVE BEEN NOTIFIED IN WRITING; AND

                  AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
                  THE SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
                  SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.

                 8. Waiver. In no event, whether as a result of breach of
contract, tort liability (including negligence), strict liability, or otherwise,
shall any Party be liable to any other Party for special, punitive, incidental,
indirect, exemplary or consequential damages of any nature whatsoever, including
loss of profits or revenues.

                 9. No Third Parties Benefited. This Agreement is for the
purpose of setting forth certain rights and obligations of the Parties and no
other person shall have any rights hereunder or by reason hereof as a third
party beneficiary or otherwise.

                 10. Further Assurances. Each Party agrees to execute,
acknowledge and deliver to the other any documents, and to take any actions,
reasonably required by any other Party to confirm or effect the matters set
forth herein, or otherwise to carry out the purposes of this Agreement.

                 11. Miscellaneous. This Agreement embodies the entire agreement
and understanding of the Parties and supersedes all prior or contemporaneous
agreements and understandings (whether verbal or written) relating to the
subject matter hereof. The headings contained in this Agreement are included
solely for convenience and are not intended to affect the interpretation of this
Agreement. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same agreement.

                                       4
<PAGE>   33

                  IN WITNESS WHEREOF, the Parties have executed this Capital
Contribution Agreement as of the date first above written.

                                 SUMMIT ENERGY VENTURES, LLC,
                                 a Delaware limited liability company

                                 By:  NORTHWEST MANAGEMENT INC.
                                       Its Manager

                                 By:  ____________________________

                                 Name:

                                 Address for Notices:

                                 Attention:
                                 Telephone:  206-624-9921
                                 Facsimile:  206-624-9928

                                       5
<PAGE>   34

Approved as to form and content this 29th day    COMMONWEALTH ENERGY CORPORATION
of June, 2001

By:  ________________________                 By:   ________________________
     Bradley L. Gates                         Name:
     Chairman, Legal Committee of the         Title:
     Board of Directors of Commonwealth
     Energy Corporation                       Address for Notices:
                                              --------------------

                                              15901 Red Hill Ave.
                                              Suite 100
                                              Tustin, CA 92780

                                       6
<PAGE>   35

                                 FIRST AMENDMENT
                                     TO THE
                       LIMITED LIABILITY COMPANY AGREEMENT
                                       OF
                           SUMMIT ENERGY VENTURES, LLC

                  This First Amendment, dated as of August __, 2001 (this
"Amendment") to the Limited Liability Company Agreement dated as of June 29,
2001 (the "LLC Agreement"), by and among Northwest Power Management Inc., a
Washington corporation, in its capacity as Investment Manager, Steven Z.
Strasser, an individual, in his capacity as member, and Commonwealth Energy
Corporation, a California corporation, in its capacity as member, of Summit
Energy Ventures, L.L.C. Capitalized terms not defined herein shall have the
meaning ascribed to them in the LLC Agreement.

                              W I T N E S S E T H:

                  WHEREAS, Section 12.1 of the LLC Agreement requires the
consent of the Members so affected before the LLC Agreement may be amended; and

                  WHEREAS, the Members desire to amend the LLC Agreement;

                  NOW, THEREFORE, in accordance with the terms of the LLC
Agreement, the LLC Agreement is hereby amended as follows:

         1        Amendment.

         (a)      Section 2.4 is deleted in its entirety and replaced with the
                  following:

                  "Section 2.4. Purpose of Company. Subject to the limitations
on the activities of the Company set forth in this Agreement, the purpose and
business of the Company shall be the conduct of any business or activity that
may be conducted by a limited liability company organized pursuant to the Act,
including without limitation (a) to purchase, acquire, sell, transfer, or
otherwise dispose of ownership interests, for the benefit of CEC, in energy or
energy-related companies that are synergistic to CEC's business; (b) to take
advantage of the expertise of NPM, and its Manager Steven Z. Strasser, in
managing investment portfolios; (c) to hold title to and beneficial ownership of
energy or energy-related companies; and, (d) except as otherwise limited herein,
to enter into, make and perform all contracts and other undertakings, and engage
in all activities and transactions, as necessary or advisable to the carrying
out of the foregoing purposes and businesses of the Company."

         (b) Section 3.5, the following proviso is added at the end of the first
sentence:

             "; provided, however, that if such Percentage Interest has not been
allocated by the time the Company disposes of an Investment, then the Percentage
Interest shall be divided equally between CEC and the Investment Manager."

         (c) Section 3.5(d), the following proviso is added at the end of the
first sentence:

                  "; provided, however, that CEC shall have the right to credit
any balance in its Capital Account against the purchase price of the
Investment."

         (d) Section 3.8, the following is inserted before the parenthetical in
the last sentence and after the words "by the company" in the same sentence:

             "in accordance with Section 3.5 or otherwise"

         (e) Section 4.1(d)(v) is added and reads as follows:

                                       1
<PAGE>   36

            "(v) transfer any funds for the acquisition of an Investment without
         the written approval of the Investment Committee."

         (f) Section 4.1(g) is added and reads as follows:

             "(g) Bank Accounts. The Investment Manager shall establish bank
accounts in the name of the Company and shall deposit therein the Capital
Investments of the Company; provided, however, that the Investment Committee
shall have the right to approve any bank selected by the Investment Manager."

         (g) Section 4.3(a) is deleted in its entirety and replaced with the
following:

             "(a) The Company shall pay to the Investment Manager, as
compensation for its performance of the Investment Management Services and the
Administrative Services an annual fee equal to three percent (3%) of the Capital
Contributions delivered to the Company. The Management fee shall be paid upon
receipt by the Company of the Capital Contribution and shall be paid thereafter
on each anniversary date of the Capital Contribution. Upon termination of this
LLC Agreement, any Management fees paid during the calendar year but not earned
by the Manager shall be returned to the Company based on multiplying each
Management fee payment times the quotient where the numerator equals the days
remaining in the calendar year and the denominator equals 365."

         2. Survival of LLC Agreement. Except as otherwise amended in this
Amendment, the LLC Agreement shall remain in full force and effect. Any
reference to the LLC Agreement shall hereafter be understood as a reference to
the LLC Agreement as amended by this Amendment.

         3. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to a contract
executed and performed in such state without giving effect to the conflicts of
laws principles thereof.

                                       2
<PAGE>   37

                  IN WITNESS WHEREOF, the undersigned Member has caused this
Amendment to Limited Liability Company Agreement of Summit Energy Ventures, LLC
to be duly executed as of the date first above written.

                       COMMONWEALTH ENERGY CORPORATION

                       By: /s/ Ian B. Carter
                           ____________________________________
                           Name:  Ian B. Carter
                           Title: Chairman and CEO

                                       1
<PAGE>   38

                  IN WITNESS WHEREOF, the undersigned Investment Manager has
caused this Amendment to Limited Liability Company Agreement of Summit Energy
Ventures, LLC to be duly executed as of the date first above written.

                               NORTHWEST POWER MANAGEMENT INC.

                               /s/ Steven Z. Strasser
                               _________________________________
                               By: Steven Z. Strasser

                               Its: President
<PAGE>   39

                  IN WITNESS WHEREOF, the undersigned Member has caused this
Amendment to Limited Liability Company Agreement of Summit Energy Ventures, LLC
to be duly executed as of the date first above written.

                               STEVEN Z. STRASSER

                               /s/ Steven Z. Strasser
                               _________________________________

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