Document:

EX-10.2

 

EXHIBIT 10.2

SECOND AMENDMENT

TO

LOAN AND SECURITY AGREEMENT

     This Second Amendment to Loan and Security Agreement (this “Amendment”) is made as of
October 30, 2007, by and among ABT HOLDING COMPANY (formerly ATHERSYS, INC.), a Delaware
corporation (“ABTH”), ADVANCED BIOTHERAPEUTICS, INC., a Delaware corporation
(“ABI,” and collectively with ABTH, the “Borrowers”), and VENTURE LENDING & LEASING
IV, INC. (“VLL4”), and COSTELLA KIRSCH IV, L.P. (“CK,” and collectively with VLL4,
the “Lenders”).

     A. Borrowers and Lenders are parties to that certain Loan and Security Agreement dated as of
November 2, 2004 (the “Loan and Security Agreement”), together with a Supplement (the
“Supplement”) thereto of even date therewith, as amended by an Amendment to Loan and
Security Agreement dated as of September 29, 2006 (as the same have been and may be amended from
time to time, referred to together as the “Loan Agreement”).

     B. Athersys, Inc. (formerly BTHC VI, Inc.), a Delaware corporation (“New Athersys”), entered
into a Guaranty Agreement with Lenders on June 12, 2007.

     C. Borrower and Lenders desire to amend the Loan Agreement on the terms and subject to the
conditions set forth herein.

     D. Except where the context otherwise requires, or unless this Amendment otherwise provides,
all capitalized terms used in this Amendment and not otherwise defined herein have the meanings
ascribed to them in Article 11 of the Loan and Security Agreement and in the Supplement.

     NOW, THEREFORE, in consideration of the mutual obligations in this Amendment and the Loan
Agreement, and for other good consideration, the receipt and sufficiency of which are acknowledged,
the parties agree as follows:

     1. Amendments to Supplement. Section 10 of Part 2 of the Supplement is hereby amended
and restated in its entirety as follows:

          10. Milestone Payments; Payments due upon Cumulative Equity Financing Event.

               (a) Milestone Payments. Upon the occurrence and simultaneous with the closing
of the Milestone Event, Borrowers shall be obligated to pay and shall tender to each
Lender its Pro Rata Share of Two Million Two Hundred Fifty Thousand Dollars
($2,250,000) (each, a “Milestone Payment”). Each Milestone Payment shall be
tendered to Lenders in cash.

               (b) Cumulative Equity Financing Payments. After the date

 

 

of this Amendment and such time as New Athersys has received cumulative gross
proceeds of at least Five Million Dollars ($5,000,000) (the “Cumulative Equity
Financing Threshold”) from the offer and sale of shares of New Athersys’ equity
securities (including equity securities and convertible debt securities, but
excluding stock issued upon exercise of any rights, warrants, options, or other
exercisable securities, stock issued upon conversion of convertible securities, and
the issuance of warrants or options to purchase equity securities) to one or more
financial or strategic investors (each such transaction being a “Cumulative
Equity Financing Event”), Borrowers shall be obligated to pay and shall tender
to each Lender its Pro Rata Share of an amount equal to ten percent (10%) of the
amount(s) New Athersys receives from each such Cumulative Equity Financing Event
that occurs after the Cumulative Equity Financing Threshold has been achieved (each,
a “Cumulative Equity Financing Payment”). Each Cumulative Equity Financing Payment
shall be tendered to Lenders in cash, except that ABTH may (subject to the 25%
limitation in the proviso below) elect, by written notice to Lenders at least 10
days prior to the closing of a Cumulative Equity Financing Event, to tender
to each Lender in lieu of cash that number of shares of common stock of New Athersys
having an aggregate value based on the per share offering price of New Athersys’
common stock in the Cumulative Equity Financing Event equal to the amount of
the applicable Cumulative Equity Financing Payment (in which case such shares shall be tendered no later than five days after the effective date of the
Cumulative Equity Financing Event, and such shares shall be subject to no
transfer restrictions (other than those imposed by federal and state securities
laws, except for any customary lock-up agreement that has also been executed by
executive officers of New Athersys and holders of 1% or more of New Athersys’ common
stock, not to exceed 180 days after the effective date of the Cumulative Equity
Financing Event (unless such period is extended to enable the underwriters to
comply with NASD Rule 2711(f)); provided, however, that notwithstanding such
election by ABTH, at least twenty-five percent (25%) of each Cumulative Equity
Financing Payment shall be paid by Borrowers in the form of cash. Borrowers and
Lenders acknowledge and agree that: (i) Lenders shall not be entitled to receive any
payments pursuant to this Section 10(b) until after such time as the Cumulative
Equity Financing Threshold has been achieved; and (ii) if any portion of the
proceeds New Athersys receives in a Cumulative Equity Financing Event is intended by
the investor(s) and New Athersys to be used by Borrowers for a Collaboration
Activity (hereinafter defined), then such portion of the proceeds shall not be
included in calculating the amount to which Lenders are entitled to receive pursuant
to this Section 10(b). As used herein, “Collaboration Activity” means, individually
and collectively, research, technology development and validation, clinical studies,
manufacturing, market planning, commercialization, product promotion, sales and
related activities directly related to a defined business arrangement between
Borrowers and a strategic investor

               (c) Effect of Payments. Any payments Lenders actually

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receive pursuant to Section 10(b) shall reduce on a dollar-for-dollar basis the
payments to which Lenders are entitled to receive pursuant to Section 10(a). By way
of illustration only, and for the avoidance of doubt as to the manner in which any
payments to which Lenders are entitled to receive pursuant to Section 10(a) and
Section 10(b) shall be calculated, the parties have set forth on Exhibit “A”
to this Amendment examples of the application of the provisions of this Section 10.
For the further avoidance of doubt, Lenders shall receive no more than $2,250,000 in
total, aggregate payments pursuant to Sections 10(a) and 10(b).

               (d) Survival. The Lenders’ right to receive payments pursuant to Section 10(a)
and Section 10(b) above shall survive the payment and satisfaction of all of
Borrowers’ other Obligations to Agent and Lenders; provided, however, that
after such other Obligations have been paid and satisfied in accordance with Section
8.9 of the Loan and Security Agreement, the security interest granted under Section
2.16(a) thereof shall terminate and all rights to the Collateral shall revert to
Borrowers. After such termination, Lenders rights to receive payments pursuant to
Section 10(a) and Section 10(b) shall constitute unsecured obligations of Borrowers.

     2. Effectiveness of Amendment; Continued Effect of Original Agreement.

          2.1 Continued Effect of Original Agreement. All provisions of the Loan Agreement and
other Loan Documents, except as modified by this Amendment, shall remain in full force and effect.
This Amendment shall not operate as a waiver of any condition or obligation imposed on the parties
under the Loan Agreement.

          2.2 Interpretation of Amendment. In the event of any conflict, inconsistency, or
incongruity between any provision of this Amendment and any provision of the Loan Documents, the
provisions of this Amendment shall govern and control.

          2.3 Conditions to Effectiveness. This Amendment shall not be effective until each of
the following conditions precedent has been fulfilled to the satisfaction of Lenders:

          (a) This Amendment
shall have been duly executed and delivered by the respective parties hereto and, shall be in full
force and effect and shall be in form and substance reasonably satisfactory to Lenders.

          (b) All action on the part of Borrowers necessary for the valid execution, delivery and performance by Borrowers of this Amendment shall have been duly and effectively taken and evidence
thereof shall have been provided to Agent or any Lender following its request.

          2.4 Borrowers’ Representations. Each Borrower hereby represents and warrants to
Lenders that: such Borrower has full corporate power and authority to execute and deliver this
Amendment and to perform the obligations of its part to be performed hereunder and under the Loan
Agreement as amended hereby; such Borrower has taken all necessary action,

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corporate or otherwise, to authorize the execution and delivery of this Amendment; no consent or
approval of any person, no waiver of any lien or similar right, and no consent, license, approval
or authorization of any governmental authority or agency is or will be required in connection with
the execution or delivery by such Borrower of this Amendment or the performance by such Borrower of
the Loan Documents as amended hereby; and this Amendment and the Loan Documents as amended hereby
are, or upon delivery thereof to Lenders will be, the legal, valid and binding obligations of such
Borrower, enforceable against such Borrower in accordance with their respective terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws
affecting creditors’ rights generally.

     3. Miscellaneous.

          3.1 Successors and Assigns. The terms and conditions of this Amendment shall inure to
the benefit of and be binding upon the respective successors and assigns of the parties.

          3.2 Governing Law. This Amendment shall be governed by and construed under the
internal laws of the State of California.

          3.3 Amendments and Waivers. Any term of this Amendment may be amended and the
observance of any term of this Amendment may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written consent of Borrowers and
Lenders.

          3.4 Severability. If one or more provisions of this Amendment are held to be
unenforceable under applicable law, such provision shall be excluded from this Amendment and the
balance of the Amendment shall be interpreted as if such provision were so excluded and shall be
enforceable in accordance with its terms.

          3.5 Entire Agreement. This Amendment and the Loan Documents and the exhibits and
schedules hereto and thereto constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and thereof.

          3.6 Fees and Costs. All reasonable legal fees and costs incurred by Lenders in
connection with the preparation, negotiation and execution of this Amendment shall be reimbursed by
Borrowers on demand.

          5.7 Counterparts. This Amendment may be executed in two or more counterparts, each of
which will be deemed an original, but all of which together will constitute one and the same
agreement.

[Remainder of this page intentionally left blank.]

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[Signature Page to Second Amendment to Loan Agreement]

     IN WITNESS WHEREOF, the parties have caused this Second Amendment to Loan and Security
Agreement to be duly executed as of the date and year first written above.

	 	 	 	 	 
	 	BORROWERS:

ABT HOLDING COMPANY

 	 
	 	By:  	/s/ Gil Van Bokkelen
 	 
	 	Name:    Gil Van Bokkelen 	 
	 	Title: Chief Executive Officer 	 
	 

	 	 	 	 	 
	 	ADVANCED BIOTHERAPEUTICS, INC.

 	 
	 	By:  	
/s/ William O. Lehmann, Jr.
 	 
	 	Name:    William O. Lehmann, Jr.  	 
	 	Title:  President 	 
	 

	 	 	 	 	 
	 	LENDERS:

VENTURE LENDING & LEASING IV, INC., as a

Lender and in its capacity as Agent

 	 
	 	By:  	/s/ Jay L. Cohan
 	 
	 	Name:    Jay L. Cohan 	 
	 	Title: Vice President 	 
	 

	 	 	 	 	 
	 	COSTELLA KIRSCH IV, L.P.,

as a Lender

 	 
	 	By:  	/s/ William Kirsch
 	 
	 	Name:     William Kirsch 	 
	 	Title:  General Partner 	 
	 

	 	 	 	 	 
	 	ACKNOWLEDGED BY, AS GUARANTOR:

ATHERSYS, INC.

 	 
	 	By:  	/s/ Gil Van Bokkelen
 	 
	 	Name:    Gil Van Bokkelen 	 
	 	Title: Chief Executive Officer 	 

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Exhibit “A”

Illustrations of Payments to be made to Lenders pursuant to Section 10 of Part 2 of the Supplement

Example A:

After the Cumulative Equity Financing Threshold has been satisfied, Company X invests $10,000,000
in New Athersys by purchasing convertible subordinated notes (this transaction constitutes a
“Cumulative Equity Financing Event” for purposes of Section 10(b) of Part 2 of the
Supplement1). New Athersys agrees with Company X to fund all pre-clinical and
manufacturing activity to get to the phase I trial, which constitutes a Collaboration Activity. New
Athersys develops a budget with Company X regarding these efforts, with estimated costs of
approximately $5,000,000. There is no requirement that the other $5,000,000 be used in connection
with such Collaboration Activity, i.e. New Athersys can use the proceeds for any corporate purpose
even if this purpose is outside of collaboration. For purposes of Section 10(b), the amount to
which Lenders are entitled to receive is calculated as follows:

$10,000,000 — $5,000,000 (to be used for Collaboration Activity) = $5,000,000;

$5,000,000 * 10% = $500,000, which represents the aggregate amount payable by Borrowers to Lenders
pursuant to Section 10(b); and

such amount, i.e., $500,000, would offset the Milestone Payment (due under Section 10(a)), and
result in remaining Milestone Payment being reduced to $1,750,000 ($2,250,000 (due pursuant to
Section 10(a)) minus $500,000 (paid pursuant to Section 10(b)).

Example B:

After the Cumulative Equity Financing Threshold has been satisfied, New Athersys consummates a
transaction in which they receive an equity investment in the amount of $10,000,000, plus an
additional $5,000,000 of sponsored research to fund a Collaborative Activity. The $10,000,000
portion of such investment would be used to calculate the amount due to Lenders under Section 10(b)
as follows:

$10,000,000 * 10% = $1,000,000, which represents the aggregate amount payable by Borrowers to
Lenders pursuant to Section 10(b); and

 

			
	1	 	All references to “Sections” in this Exhibit A refer to
Section 10 of Part 2 of the Supplement.

 

 

such amount, i.e., $1,000,000, would offset the Milestone Payment (due under Section 10(a)), and
result in remaining Milestone Payment being reduced to $1,250,000 ($2,250,000 (due pursuant to
Section 10(a)) minus $1,000,000 (paid pursuant to Section 10(b)).

Example C:

If a strategic investor (e.g., GE Healthcare) made an investment in New Athersys calling it a
“strategic investment,” but there was no bona fide Collaboration Activity intended in connection
with such investment, the entire amount New Athersys received in this Cumulative Equity Financing
Event would be included for purposes of calculating the amounts payable by Borrowers to Lenders
under Section 10(b).

2EX-10.18

 

Exhibit 10.18

AMENDED AND RESTATED

OPERATING AGREEMENT

OF

KYKUIT RESOURCES, LLC

     THIS AMENDED AND RESTATED OPERATING AGREEMENT (the “Agreement”) is entered into as of this
24th day of October, 2007, by and between the undersigned Members of KYKUIT RESOURCES,
LLC, an Ohio Limited Liability Company (the “Company”). This Agreement supercedes and replaces all
the terms and conditions of the Operating Agreement of the Company entered into on May 8, 2007.

SECTION 1

DEFINITIONS

     For purposes of this Agreement, unless the context clearly indicates otherwise, (i) all of the
capitalized words in this Agreement shall have the meanings set forth in the Appendix attached
hereto, and (ii) all non-capitalized words defined in the Act shall have the meaning set forth
therein.

SECTION 2

FORMATION

     2.1 Name. The name of the Company shall be KYKUIT RESOURCES, LLC. The Company may do
business under that name and under any other name or names upon which the Managing Member desires.

     2.2 Organization. The Members are hereby organized and authorized for the formation
of the Company as an Ohio Limited Liability Company pursuant to the provisions of the Act and have
filed Organization/Registration of Limited Liability Company with the Ohio Secretary of State, in
the form attached hereto as Exhibit “A”.

     2.3 Purpose. The purpose for which this Company is formed is to own and operate a
portion of the mineral leasehold estate in a prospect known as “The Missouri Breaks”
located in Fergus County, State of Montana (the “Prospect”), as well as to engage in any lawful
activity reasonably related thereto for which a limited liability company may be formed under the
laws of the State of Ohio, including but not limited to constructing and maintaining the Pipeline
System, and to do any and all things reasonably determined by the Managing Member to be necessary,
desirable, or incidental to the foregoing purpose. A copy of the Purchase and Sale Agreement
evidencing the purchase of a portion of the Prospect by Great Plaines Exploration, LLC is attached
hereto as Exhibit “B” and incorporated herein by this reference. That Purchase and Sale
Agreement shall be assigned by Great Plains Exploration, LLC to and assumed by the Company prior to
the Closing Date set forth in the Purchase and Sale Agreement.

     2.4 Members. The names, present mailing addresses, and Unit Ownership of the Members
are set forth either in Exhibit “C”, attached hereto. Any Person executing a Joinder
Agreement in the form prescribed by the Company and who complies with the provisions of this
Agreement, including Section 9.2 hereof, and the Law, shall also become a Member, in which
case, Exhibit “C” shall be amended to reflect the new Member(s). All references in this
Agreement to “Units” or “Unit Ownership” or “proportion to Unit Ownership” or “Membership Interest”
shall refer to the allocation of Unit Ownership reflected in the column of Exhibit “C”
entitled “Actual Unit Ownership” and/or “Actual Percentage of Unit Ownership”. Kykuit Resources,
LLC intends on entering into a Joint Venture Agreement with Hemus, Ltd. (“Hemus”) whereby Hemus has
the right to participate in the ownership, operation and development of the Prospect on a 25%
basis. The 2 columns of Exhibit “C” entitled “Effective Unit Ownership for Hemus
Participating Wells” and “Percentage of Unit Ownership for Hemus Participating Wells” reflect the
effective ownership of each Member for those operations of the Company in which Hemus opts to
participate on a 25% basis.

     2.5 Statutory Agent. The name and address of the Company’s Statutory Agent in the
State of Ohio shall be Gregory Osborne, 8500 Station Street, Suite 345, Mentor, Ohio, 44060. The
Managing Member may, from time to time, change the Agent by filing appropriate documents with the
Ohio Secretary of State. If the registered agent ceases to act as such for any reason the Managing
Member shall promptly designate a replacement Agent. The Managing Member shall promptly file with
the Ohio Secretary of State the documents required by the Act with

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respect to any change of the registered Agent or his/her address. If the Managing Member shall
fail to designate a replacement registered agent or if the Managing Member or the Agent fail to
file the appropriate notice of a change of agent or his/her address, any Member may designate a
replacement Agent or file a notice of change of agent or his/her address.

     2.6 Principal Office. The principal office of the Company shall be located at 8500
Station Street, Suite 345, Mentor, Ohio, 44060.

     2.7 Title to Property. Title to all property contributed to or otherwise acquired by
the Company shall be held in the name of the Company.

     2.8 Term. The term of the Company shall begin upon the date of filing of the Articles
of Organization with the Ohio Secretary of State (the “Commencement Date”) and shall continue in
existence for a term ending December 31, 2099 unless its existence is sooner terminated pursuant to
Section 10 of this Agreement.

     2.9 No State Law Partnership. The Members intend that the Company not be a
partnership (including without limitation, a Limited Partnership), or joint venture, and that no
Member be a partner or joint venturer of any other Member for any purpose other than Federal and
State tax purposes and that this Agreement not be construed or interpreted to suggest otherwise.

SECTION 3

MEMBERS

     3.1 Liability of Members. No Member shall be liable as such for the debts,
obligations, or liabilities of the Company, including any liability under a judgment decree or
order of a court. The failure of the Company to observe any formalities or requirements relating
to the exercise of its powers or management of its business or affairs under this Agreement or the
Act shall not be grounds for imposing personal liability on the Members for liabilities of the
Company.

     3.2 Meetings of Members. The Members shall meet annually at such time as shall be
determined by resolution of the Members, commencing with the year 2007, for the purpose of
transacting such business as may come before the meeting; provided, however, the failure to hold an
annual meeting shall not be grounds for dissolution of the Company. Special meetings of the
Members, for any purpose or purposes, may be called by any Member, so long as notice is sent to
each Member as specified in Section 3.3 herein. The Members may designate any place, either within
or outside the State of Ohio, as the place of the annual meeting or special meeting of the Members.
If no designation is made the place of the meeting shall be the principal office of the Company.
Members may participate in any annual meeting or special meeting through the use of any means of
communication by which all of the Members may simultaneously hear each other during the meeting. A
Member participating in a meeting by this means is deemed to be present in person at the meeting.

     3.3 Notice and Record Date of Meetings. Except as otherwise provided herein, written
notice stating the place, day and hour of a meeting and the purpose or purposes for which the
meeting is called shall be delivered at least fifteen (15) days but not more than ninety (90) days
before the date of the meeting, either personally, by certified or registered mail, postage
prepaid, or by facsimile or electronic mail to each Member. If mailed, such notice shall be deemed
to be delivered two (2) business days after being deposited in the United States mail, addressed to
the Member at his/her address as it appears on the books of the Company, with postage thereon
prepaid. If sent by facsimile or electronic mail, such notice shall be deemed to be delivered on
the date of delivery indicated on the facsimile or electronic mail delivery confirmation record.
Members may waive prior notice by attending the meeting or by executing a written waiver of notice
before or after the meeting. The date on which notice of the meeting is mailed shall be the record
date for determining Members entitled to notice of and/or to Vote at any meeting of the Members.

     3.4 Quorum. The Members owning at least fifty-one percent (51%) of the Units of the
Company represented in person or by proxy, shall constitute a quorum at any meeting of Members. A
Person disclosing a conflict at any meeting of the Members shall nonetheless be counted for
purposes of determining whether a quorum of the Members exists at such meeting.

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     3.5 Voting. The Members shall have one (1) Vote for each Unit owned by them with
respect to any matters relating to the affairs of the Company for which the Member is entitled to
Vote. A Member may Vote in person or by a proxy executed in writing by the Member or by a duly
authorized attorney-in-fact. Such proxy shall be filed with the Member acting as Chairman of the
meeting, before or at the time of the meeting. No proxy shall be valid after eleven (11) months
from the date of its execution, unless otherwise provided in the proxy.

     3.6 Action by Members Without a Meeting. Any action required or permitted to be taken
at a meeting of Members may be taken without a meeting if the action is evidenced by one (1) or
more written consents describing the action taken, signed by the Members approving such action and
delivered to the custodian of the Company’s records for filing with the Company records. Any
action taken hereunder is effective when the Members have signed the consent, unless the consent
specifies a different effective date. A copy of any action taken by written consent of the Members
pursuant to this Section, along with any documents relevant and material thereto, shall be provided
to all of the Members within two (2) calendar days of the effective date thereof. The record date
for determining Members entitled to take action without a meeting shall be the date the first
Member signs a written consent.

SECTION 4

MANAGEMENT

     4.1 Management. The Members may from time to time, by a Vote of all Members pursuant
to Section 4.2, designate one (1) or more Member(s) to act as Managing Member(s) of the Company.
Any Member designated as a Managing Member hereunder shall serve until removed by unanimous Vote of
all Members, or until such person shall die, resign, cease to be a Member in the Company, or
otherwise become unable to act or to continue to act as a Managing Member. The Members hereby
designate John D. Oil and Gas Company (“JDO”) to act as Managing Member hereunder. Except as
otherwise set forth in Section 4.2 below, all Company business decisions shall be made by the
Managing Member acting on behalf of the Company, provided, however, that the Managing Member may
delegate certain decision making authority to other Members, or non-members in its sole and
absolute discretion. Such delegation shall not limit in any way, however, the Managing
Member’s fiduciary duties to the Members. In the event that JDO ceases to be Managing Member
of the Company for any reason, a substitute Managing Member shall be elected by a Vote of the
Members pursuant to Section 4.2 below.

     4.2 Voting by Members. All decisions made by the Managing Member shall be made in
good faith and shall be final and binding upon the Company. To the maximum extent provided by Ohio
law, the decisions of the Managing Member shall be deemed to satisfy the standards of conduct set
forth in Section 1705.09 of the Act. Any matter submitted to a Vote of the Members or requiring
approval of the Members shall be deemed to be passed if approved by the Members holding fifty-one
percent (51%) or more of the Units then held by all Members. Notwithstanding the foregoing, no
Member or Managing Member shall be permitted to take any of the following actions on behalf of the
Company without the approval of a majority of the Members, which approval shall not be unreasonably
withheld and shall be predicated upon reasonable business judgment:

	 	(i)	 	amending the Company’s Operating Agreement or other governing
documents;
	 
	 	(ii)	 	altering or changing the rights, privileges, preferences or
limitations of the Membership Interests;
	 
	 	(iii)	 	creating or issuing a senior class or series of membership
interests of the Company;
	 
	 	(iv)	 	increasing or decreasing the number of Managers;
	 
	 	(v)	 	merging or consolidating with another business or company;
	 
	 	(vi)	 	directly or indirectly adopting any plan or arrangement for the
bankruptcy, reorganization, dissolution or liquidation of the Company,
including the method of distribution thereunder;

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	 	(vii)	 	selling, transferring, exchanging or otherwise disposing of
all or substantially all of the Company’s assets;
	 
	 	(viii)	 	borrowing money or incur an obligation in excess of Five Hundred Thousand
Dollars ($500,000.00);
	 
	 	(ix)	 	authorizing, approving or entering into any agreement to act as
a primary obligor, or to serve as a guarantor, surety or co-obligor with
respect to the indebtedness of any other party, or to borrow money from
third-party lenders;
	 
	 	(x)	 	disposing of the goodwill of the Company; and/or
	 
	 	(xi)	 	doing any other act that would make it impossible to carry on
the ordinary business of the Company.

     4.3 Compensation. The Members may elect, by a Vote of the Members pursuant to
Section 4.2 hereof, to pay the Managing Member(s) and/or the Officers an annual salary. The amount
of any such salary shall be approved by a Vote of the Members pursuant to Section 4.2 hereof.

     4.4 Other Business Interests of Members. Unless otherwise agreed in writing, Members
shall be permitted to engage in any other business, trade, or employment while serving as a Member
and/or Managing Member of the Company.

     4.5 Officers. The Managing Member may appoint one or more individuals who are
affiliates of Members to act as officers of the Company which may include (a) a President, (b)
one or more Vice Presidents; (c) a Secretary and/or one or more Assistant Secretaries; and (d) a
Treasurer and/or one or more Assistant Treasurers. Any two (2) or more offices may be held by the
same individual. Each officer shall hold his or her office for the term for which he or she was
appointed, or until such officer first dies, resigns, is unable to serve, or is removed by the
Managing Member, in the sole discretion of the Managing Member. Except as otherwise provided
herein, any officers appointed hereunder shall have no rights or powers with respect to the Company
above or beyond the rights granted and allocated herein by virtue of such officer being an
affiliate of a Member or a Managing Member of the Company. In the event that the Managing
Member determines not to appoint officers from time to time, then such decision shall not affect
the existence of the Company. The Managing Member may delegate a portion of its day-to-day
management responsibilities to any such officers or to any other Members, as determined by the
Managing Member from time to time. Such delegation shall not limit in any way, however,
the Managing Member’s fiduciary duties to the Members. The Members shall establish
such rules and procedures relating to meetings and notices of meetings as they deem
necessary or appropriate. All officers appointed by the Managing Member must be individuals
who are affiliates of Members of the Company.

     4.6 Reliance on Acts of Members or Officers. No financial institution or any other
Person, firm or corporation dealing with the Company shall be required to ascertain whether the
Managing Member or any officer is acting in accordance with this Agreement but such financial
institution or such other Person, firm or corporation shall be protected in relying solely upon the
deed, transfer or assurance of, and the execution of such instrument or instruments by the Managing
Member or such officer.

     4.7 Special Approval of Certain Transactions. Notwithstanding any other provision of
this Agreement to the contrary, inasmuch as the purpose of the Company is limited to developing and
exploiting the Prospect, constructing the Pipeline System and actions reasonably related thereto,
any amendment to Section 2.3, “Purpose,” of this Agreement, or any agreement or action by the
Company inconsistent with Section 2.3, “Purpose,” of this Agreement shall be void and not binding
on the Company, its assets or its Members unless such specific agreement (and all of the terms and
conditions thereof) or specific action has, prior to entering into such agreement or taking any
such action, been expressly approved in writing by Energy West Resources, Inc.

SECTION 5

CONTRIBUTIONS, COMMITMENTS AND LOANS

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     5.1 Capital Contributions.

	 	(a)	 	Member Capital Contributions. Each Member agrees to
make contributions to the capital of the company in cash from time to time
payable in United States Dollars, as follows:

	 	(i)	 	Initial Capital Contributions. Each
Member has previously contributed to the Company, as such Member’s
Initial Capital Contribution, the amounts described in Exhibit
“C” attached hereto;
	 
	 	(ii)	 	Additional Capital Contributions.
Within thirty (30) days after a Payment Notice from the Managing
Member, each Member shall contribute to the Company Additional
Capital Contributions in an amount equal to its pro rata share of
anticipated Operating Expenses as determined by the Managing Member in
its sole discretion. The foregoing and any other provisions of
this Agreement notwithstanding, Member Energy West Resources, Inc.
(“EWST”) shall have no obligation to make any Additional Capital
Contributions after the date of this Amended and Restated Operating
Agreement in excess of $2,279,100, (the “EWST Cap”) (unless EWST Board
of Directors in its discretion authorizes Additional Capital
Contributions in excess of the EWST Cap) and EWST’s failure to make
Additional Capital Contribution in excess of the EWST Cap will not
result in EWST becoming a Defaulting Member and EWST’s action in not so
providing Additional Capital Contribution in excess of EWST Cap shall
not constitute an EWST Capital Deficiency or Payment Deficiency, all as
defined below, and the provision of Section 5.2 shall not apply to EWST
in such case but, rather, EWST shall continue to be designated a
non-defaulting Member in good standing.1 In such
case EWST, as a non-defaulting Member who has elected not to make an
Additional Capital Contribution, shall be diluted on a pro rata basis
and the ownership interest of any other non-defaulting Member who makes
an Additional Capital Contribution shall increase in proportion to that
Member’s Additional Capital Contribution.
	 
	 	(iii)	 	At the time that the Company has completed the
drilling of ten (10) wells, the Managing Member shall provide EWST with
financial projections for the Company in order for EWST to evaluate its
continued participation as a Member of the Company. In the event that
EWST determines in its reasonable discretion that there is not a
reasonable likelihood that it will receive a reasonable return on its
investment, EWST may deliver written notice to the Managing Member at
that time that it no longer desires to participate as a active Member
of the Company (the “Non-Participation Notice”), in which case EWST
shall have no further obligation to make any Additional Capital
Contributions after the date of the Non-Participation Notice and EWST’s
failure to make Additional Capital Contribution after that time shall
not result in EWST being a Defaulting Member and shall not constitute
an EWST Capital Deficiency or Payment Deficiency, all as defined
below, and the provision of Section 5.2 shall not apply to EWST in such
case but, rather, EWST shall continue to be designated a non-defaulting
Member in good standing. In such case EWST, as a non-defaulting Member
who has elected not to make an Additional Capital Contribution, shall

 

			
	1	 	EWST’s capital contribution in connection with the
Company shall be capped at a total of $3,000,000.00. EWST has previously paid
its Initial Capital Contribution in the amount of $133,500, its first
Additional Capital Contribution in the amount of $587,400, and a second
Additional Capital Contribution in the amount of $40,050, for a total
contribution to date of $760,950. Consequently, subject to Section
5.1(a)(iii), EWST’s obligation to make Additional Capital Contributions from
and after the date of this Amended and Restated Operating Agreement is
$2,239,050 ($3,000,000 less $760,950), unless EWST’s Board of Director’s
authorizes Additional Capital Contributions in excess of the EWST Cap or unless
EWST delivers a Non-Participation Notice pursuant to Section 5.1(a)(iii).

5

 

be diluted on a pro rata basis and the ownership interest of any
other non-defaulting Member who makes an Additional Capital
Contribution shall increase in proportion to that Member’s Additional
Capital Contribution.

	 	(b)	 	Funding Mechanics. The amount of each Capital
Contribution shall be specified by the Company in a written Payment Notice
delivered to each member at least thirty (30) days prior to the date on
which the amount is due. Capital Contributions shall be made by
wire transfer or immediately available funds to the account specified in the
respective Payment Notice or by such other method as the Managing
Member specifies in such Payment Notice.

     5.2 Defaulting Member. The following provisions are subject to the terms of
Section 5.1 hereof.

	 	(a)	 	Default. If any Member fails to make, when due, any
portion of a Capital Contribution required to be contributed by such Member
pursuant to this Agreement or to make any other payment required to be made by
it hereunder when required to be made, then the Company shall promptly provide
written notice of such failure to such Member. If such Member fails to make
such Capital Contribution (a “Capital Deficiency”) or such other payment (the
“Payment Deficiency”) within ten (10) business days after receipt of such
notice, then, for so long as such Member fails to make such Capital
Contribution or such other payment, such Member shall be deemed a “Defaulting
Member” and, in addition to the other remedies provided in this Agreement, the
remedies set forth below shall apply. Election of any one or more of the
following remedies shall not preclude the subsequent use of any other remedy
specified below or otherwise available to a non-defaulting party.
	 
	 	(b)	 	Suspension of Rights. The Managing Member may upon
written notice to the Defaulting Member suspend all of the Defaulting Member’s
rights granted by this Agreement until the default is cured, without prejudice
to the right of the non-defaulting Members to continue to enforce the
obligations of the Defaulting Member previously accrued or thereafter accruing
under this Agreement. The rights of the Defaulting Member that may be
suspended hereunder at the election of the Managing Member shall include
without limitation, the right to receive information as to any operation of the
Company during the period of such default, the right to Vote on any matter, and
the right to receive distribution pursuant to this Agreement.
	 
	 	(c)	 	Suit for Damages. The Company may sue the Defaulting
Member to collect any Capital Deficiency or Payment Deficiency, plus interest
accruing thereon from the date of default until the date of collection at the
Default Rate. Nothing herein shall prevent any Member or the Company from
suing any Defaulting Member to collect consequential damages accruing to such
Member or the Company as a result of the default.
	 
	 	(d)	 	Dilution. The Managing Member may upon written notice
to all Members, give each non-defaulting Member the right to contribute (or
cause the Company to contribute) his/her pro rata share of the Capital
Deficiency as additional Capital Contribution to the Company. If one or more
non-defaulting Members elect not to make the additional Capital Contribution,
the remaining Members (other than the Defaulting Member) shall be given the
opportunity to make an additional Capital Contribution in an amount equal to
his/her pro rata share of the shortfall. In the event that the Managing Member
exercises the right under this Section 5.2(d), then at the election of the
Managing Member, either (1) the Defaulting Member’s ownership interest in the
Company shall be diluted on a pro rata basis, and the ownership interest of any
non-defaulting Member who makes an Additional Capital Contribution
shall increase in proportion to that Member’s Additional Capital Contribution,
or (2) the Defaulting Member’s ownership interest in the Company shall not be
diluted, but instead the Defaulting Member shall forego its right to receive
any distributions from the Company until such time as the distributions that
the Defaulting Member would have been entitled to receive but for the default
equal three

6

 

	 	 	 	hundred percent (300%) of Capital Deficiency, and the non-defaulting Members
who make additional Capital Contributions shall be entitled to receive three
hundred percent (300%) of the amount of his/her additional Capital
Contribution.

	 	(e)	 	Costs and Attorneys’ Fees. In the event any party
brings legal proceedings to enforce any financial obligation of a Member
hereunder, the prevailing Member in such action shall be entitled to recover
all court costs, costs of collection, and reasonable attorneys’ fees, which the
lien provided for herein shall also secure.
	 
	 	(f)	 	Rights Cumulative. No right, power or remedy conferred
upon the Managing Member or the Company in this Section 5.2 shall be exclusive,
and each such right, power or remedy shall be cumulative and in addition to
every other right, power or remedy whether conferred in this Section 5.2 or now
or hereafter at law or in equity or by statute or otherwise. No course of
dealing between the Managing Member and any Defaulting Member and no delay in
exercising any right, power or remedy conferred in this Section 5.2 or now or
hereafter existing at law or in equity or by statute or otherwise shall operate
as a waiver or otherwise prejudice any such right, power or remedy.
	 
	 	(g)	 	Lien on Units. Each Member grants to the other Members
a lien upon his/her Units to secure performance of each Member’s payment
obligations hereunder.

     5.3 Public Offering. Section 5.2 shall not apply to any Public Offering by the
Company. Should the Company elect to make a Public Offering of its securities each Member shall be
entitled to purchase additional Units or any other security issued by the Company on the open
market and no Member shall have any so-called preemptive rights with respect to such Public
Offering.

     5.4 No Interest on Capital Contributions. Members shall not be paid interest on their
Capital Contributions.

     5.5 Return of Capital Contributions. Except as otherwise provided in this Agreement,
no Member shall have the right to receive the return of any Capital Contribution.

     5.6 Capital Accounts. A separate Capital Account shall be maintained for each Member.

     5.7 Loans by Members. Any Member may, at any time, make or cause a loan to be made to
the Company in any amount on those terms upon which the Company and the Member agree.

SECTION 6

ALLOCATIONS AND DISTRIBUTIONS

OF PROFITS AND LOSSES

     6.1 Allocations of Profits. Except as may be required by Ohio law or by Section
1.704-1(b)(2)(iv)(f)(4) of the Regulations, all items of income and gain of the Company shall be
allocated among the Members in accordance with and in proportion to Actual Unit Ownership.

     6.2 Allocation of Losses. Except as may be required by Ohio law or by Section
1.704-1(b)(2)(iv)(f)(4) of the Regulations, all items of loss, deduction and credit of the Company
shall be allocated among the Members in accordance with and in proportion to Actual Unit Ownership

     6.3 Distribution of Cash Flow. Distributions may be declared from time to time by the
Members pursuant to Section 4.2 hereof, provided, however, that the Managing Manager shall
automatically cause the Company to distribute, on or before April 15 of each year, the amount
required to pay each Member’s estimated federal, state, and local tax liability arising from the
profits of the Company, which shall be calculated at forty percent (40%) of the Company’s profits
and shall be made in accordance with Actual Unit Ownership except that Distribution in anticipation
of a Dissolution Event or subsequent to a Dissolution Event shall be made as provided in Section
10.2 hereof.

7

 

     6.4 Allocation and Distribution to New Members and Assignees. If Units are
transferred or if additional Units are issued during any Fiscal Year, Profits and Losses for the
Fiscal Year shall be allocated in accordance with Section 706(d) of the Code, using any conventions
permitted by law and selected by a Vote of the Members pursuant to Section 4.2 hereof. All
Distributions on or before the date of a Transfer shall be made to the transferor, and all
Distributions thereafter shall be made to the transferee. If a Transfer does not comply with the
provisions of Section 8 of this Agreement, then any Distribution shall be allocated to the Person
who attempted to make the Transfer.

SECTION 7

TAXES

     7.1 Method of Accounting For Tax Purposes. The records of the Company shall be
maintained on the accrual method of accounting for federal income tax purposes.

     7.2 Tax Matters Member. The Managing Member shall be designated as the “tax matters
member” of the Company pursuant to Section 6231(a)(7) of the Code. The Managing Member shall take
such actions as are necessary to cause each other Member and Assignee to become a “notice partner”
within the meaning of Section 6223 of the Code.

SECTION 8

TRANSFERS OF UNITS AND WITHDRAWALS OF MEMBERS

     8.1 Permitted Transfers. Any Member may, during his/her lifetime, transfer all or any
part of his/her Membership Interest to a trust for the benefit of said Member or his/her spouse, or
his lineal descendants (hereinafter all said transferees shall be referred to as the “Permitted
Transferee(s)”). In such a case, the Permitted Transferee(s) shall receive and hold such
Membership Interest subject to all of the restrictions, terms, and conditions of this Agreement,
and there shall be no further transfer of such Shares except: (i) to the transferor; or (ii) in
accordance with the terms and conditions of this Agreement. A Member shall give the Company prior
written notice at least thirty (30) days in advance of any transfer of his/her Membership Interest
to a Permitted Transferee.

     8.2 Transfer or Sale of Units. Except for Permitted Transfers, no Member shall
Transfer all or any portion or any interest in his/her Units except in compliance with this
Agreement and unless the following conditions (the “Conditions of Transfer”) are satisfied:

(i) The Transfer will not require registration of the Units under any federal or
state securities laws;

(ii) The transferee delivers to the Company a written instrument agreeing to be
bound by the terms of this Agreement;

(iii) The Transfer will not result in the termination of the Company pursuant to
Code Section 708, or otherwise;

(iv) The Transfer will not result in the Company being subject to the Investment
Company Act of 1940, as amended;

(v) The transferor or the transferee delivers the following information to the
Company: (i) the transferee’s taxpayer identification number; and (ii) the
transferee’s initial tax basis in the transferred Membership Interest; and

(vi) The transferor complies with provisions set forth in Section 8.3 hereof.

     If the Conditions of Transfer are satisfied, then a Member may Transfer all or any portion of
that persons Units; provided, however, and except otherwise provided for in Section 8.3(f), the
transferee of the Units shall hold the Units as an unadmitted Assignee and shall have no right to:
(i) become a Member; (ii) exercise any Membership

8

 

Rights other than those specifically pertaining to ownership of a Membership Interest; or (iii) act
as an agent of the Company.

     8.3 Right of First Refusal.

(a) If a Member (the “Transferor”) receives a bona fide offer (the
“Transferee Offer”) from any other Person (the “Transferee”) to purchase all
or any portion of or any interest or rights in the Member’s Units (the
“Transferor’s Interest”), then prior to any Transfer the Transferor shall
give written notice to all other Members containing each of the following:

          (i) The Transferee’s identity;

          (ii) A true and complete copy of the Transferee’s Offer; and

          (iii) The Transferor’s Offer (the “Offer”) to sell the
Transferor’s Units to all other Members other than the Transferor
(individually, a “Remaining Member,” and collectively, the “Remaining
Members”) for a total price equal to the price set forth in the
Transferee’s Offer (the “Transfer Purchase Price”), which shall be
payable on the terms of payment set forth in the Transferee’s Offer,
subject to the provisions of this Section.

	 	(b)	 	The Offer shall be and remain irrevocable for a period ending
at 11:59 p.m. local time at the Company’s principal office on the thirtieth
(30th) day following the date the Transfer Notice is given by the
Transferor to the Remaining Member(s) (the “Offer Period”). At any time during
the Offer Period, a Remaining Member may accept the Offer by notifying the
Transferor in writing (the “Acceptance Notice”) that the Remaining Member
intends to purchase all, but not less than all, of the Transferor’s Interest.
If two (2) or more Remaining Members desire to accept the Offer, then, in the
absence of an Agreement between or among them, each such Remaining Member shall
purchase the Transferor’s Interest in the proportion that his/her respective
percentage of Unit Ownership bears to the total percentages of all of the
Remaining Members who desire to accept the offer. If any Remaining Member(s)
accepts the Offer, then the Acceptance Notice shall fix a closing date (the
“Transfer Closing Date”) for the purchase, which date shall not be earlier than
ten (10) or more than ninety (90) days after the expiration of the Offer.
	 
	 	(c)	 	If any Remaining Member accepts the Offer, then the Transfer
Purchase Price shall be paid on the Transfer Closing Date, in accordance with
the payment terms set forth in the Transferee Offer unless otherwise agreed by
the parties involved in the transaction.

(d) If no Remaining Member accepts the Offer within the time and in the
manner specified in this Section, then the Transferor may, for a period of
sixty (60) days after the expiration of the Offer Period (the “Free Transfer
Period”), Transfer the Transferor’s Interest to the Transferee, for the same
or greater price and on the same terms and conditions as set forth in the
Transfer Notice. The Transfer shall be subject, however, to the conditions
of Transfer set forth in Section 8.2 hereof. If the Transferor does not
Transfer the Transferor’s Interest within the Free Transfer Period, then the
Transferor’s right to Transfer the Transferor’s Interest pursuant to this
Section, shall cease and terminate.

(e) Any Transfer by the Transferor after the last day of the Free Transfer
Period or without strict compliance with the terms, provisions, and
conditions of this Section and other terms, provisions, conditions of this
Agreement, shall be null and void and of no force or effect.

9

 

(f) Notwithstanding, anything contained in Section 8.2 to the contrary, if
(i) the Transferor gives the Transferee the right to become a Member in the
Company; and (ii) the Remaining Members holding fifty-one percent (51%) or
more of the Units then being held by all Remaining Members agree in writing
to the Transferee becoming a Member, which consent may be withheld by the
Remaining Members at their sole and unreviewable discretion, with or without
cause; and (iii) the Transferee executes and delivers such documents as the
Remaining Members and the Company may require to make the Transferee a party
to this Agreement; and (iv) the Transfer to the Transferee otherwise
strictly complies with the terms, provision, and conditions of this Section
and other terms, provisions, and conditions of this Agreement, including,
but without limitation, the Conditions of Transfer, then the Transferee
shall become and the Remaining Members shall admit, the Transferee as a
Member of the Company. Any Person who becomes a Member as a result of an
assignment of a Membership Interest shall assume all of the obligations of
the assignor, including liabilities unknown to the assignee at the time the
assignee became a Member.

     (g) Each Member hereby acknowledges the reasonableness of the
prohibition contained in this Section 8.3 in view of the purpose of the
Company and the relationship of the Members. The Transfer of any Membership
Right or Membership Interest in violation of the prohibition contained in
Section 8.3 hereof shall be deemed invalid, null and void, and of no force
or effect. Any Person to whom a Membership Right is attempted to be
transferred in violation of this Section shall not be entitled to vote on
matters coming before the Members, participate in the management of the
Company, act as an agent of the Company, receive Distributions from the
Company, or have any other rights in or with respect to the Membership
Right.

     8.4 Requirements for Effectiveness of Transfer. As a condition to recognizing the
effectiveness of any proposed Transfer of Units, the Remaining Members may require the Transferor
and/or the proposed Transferee, to execute instruments of transfer, assignment and assumption and
other documents, and to perform all other acts which the Remaining Members may deem necessary or
desirable to:

	 	(a)	 	Preserve the Company’s status under the laws of each
jurisdiction in which the Company is qualified, organized or does business
after the Transfer;
	 
	 	(b)	 	Maintain the Company’s classification as a partnership for
federal income tax purposes; and
	 
	 	(c)	 	Assure compliance with any applicable state and federal laws
including securities laws and regulations.

     8.5 Withdrawal of a Member. No Member shall have the right or power to withdraw as a
Member of the Company without the unanimous prior written approval of the non-withdrawing Members
and, if such approval is obtained, the optional buy-out provisions contained in Section 10.3 shall
apply.

SECTION 9

ASSIGNMENTS AND ADDITIONAL MEMBERS

     9.1 Assignment of Units. Except as otherwise provided herein, a Member may not assign
the Member’s Interest in the Company. Any Person who becomes an unadmitted Assignee by operation
of this Agreement shall not become a Member of the Company and shall have no right to: (i) become a
Member; (ii) exercise any Membership Rights other than those specifically pertaining to ownership
of a Membership Interest; or (iii) act as an agent of the Company, except as otherwise provided in
Section 8.3(f) herein.

     9.2 Additional Members. Upon written approval of the Members holding fifty-one
percent (51%) or more of the Units then held by all Members, the Company may make a Person a Member
by the Company issuing

10

 

Units for such consideration as the Members determine. In such event, (i) Exhibit “C” to
this Agreement shall be amended to reflect the issuance of Additional Units; (ii) the new Members
shall execute such documents as shall be required to reflect their acquisition of Units in the
Company and their agreement to be bound by the terms of the Articles and this Agreement, and (iii)
the Membership Interest of all existing Members shall be diluted proportionally.
Notwithstanding the provisions of this Section 9, all Members shall be given the first option to
purchase the Additional Units on a pro-rata basis before such Additional Units are offered to any
other Persons.

SECTION 10

DISASSOCIATION OF A MEMBER

     10.1 Disassociation. A Person ceases to be a Member upon the happening of any of the
following events:

	 	(i)	 	The withdrawal of the Member;

(ii) A Member becoming a Bankrupt Member;

(iii) In the case of a Member who is acting as a Member by virtue of being a trustee
of a trust, the termination of the trust (but not merely the substitution of a new
trustee);

(iv) In the case of a Member that is an organization other than a corporation, the
dissolution and commencement of winding up of the organization;

(v) In the case of a Member that is a corporation, the filing of a certificate of
dissolution, or its equivalent, for the corporation or the revocation of its charter
if not reinstated within ninety (90) days; or

	 	(vi)	 	In the case of a Member who is a natural person, the adjudication of
incompetency or death of the Member.

     10.2 Rights of Disassociating Member. In the event any Member disassociates prior to
the dissolution and winding up of the Company, the disassociated Person shall have no right to
compel a liquidation of his/her Units and, except as otherwise provided in Section 10.3 hereof,
shall thereafter hold Units as an unadmitted Assignee.

     10.3
Optional Buy Out in the Event of the Disassociation of a Member Pursuant to
Section 10.1(i) through (v).

	 	(a)	 	In the event of the Disassociation of a Member pursuant to
Section 10.1(i), (ii), (iii), (iv) or (v), then, notwithstanding anything
contained herein to the contrary, the Disassociating Member shall be deemed to
have offered for sale (the “Buy Out Offer”) to the other Members (individually,
a “Remaining Member” and collectively, “Remaining Members”), or at the
Remaining Member’s election, to the Company, all of the Units owned of record
and beneficially by the Disassociating Member before the event causing the
Disassociation (the “Disassociating Member’s Interest”).
	 
	 	(b)	 	The Buy Out Offer shall be and remain irrevocable for a period
ending on the thirtieth (30th) day following the date the Remaining
Members elect to continue the Company (the “Buy Out Offer Period”). At any
time during the Buy Out Offer Period, a Remaining Member may accept the Buy Out
Offer by notifying the Disassociating Member in writing (the “Buy Out
Acceptance”) that the Remaining Member intends to purchase all, but not less
than all, of the Disassociating Member’s Units. If two (2) or more Remaining
Members desire to accept the Buy Out Offer, then, in the absence of an
agreement between or among them, each such Remaining Member shall purchase the
Disassociating Member’s Units in the proportion that his/her respective
Percentage of

11

 

	 	 	 	Unit Ownership bears to the total Percentages of all of the Remaining
Members who desire to accept the Buy Out Offer. Alternatively, the
Remaining Members may by a Vote of the Members elect to cause the Company to
purchase the Disassociating Member’s Units. If any Remaining Member or the
Company accepts the Buy Out Offer, then the Buy Out Acceptance shall fix a
closing date (the “Buy Out Closing Date”) for the purchase, which date shall
not be earlier than ten (10) or later than ninety (90) days after the date
that the Buy Out Purchase Price (hereinafter defined) is determined.

	 	(c)	 	If any Remaining Member accepts the Buy Out Offer, then the
Purchase Price for such sale shall be determined pursuant to Section 10.4
hereof (the “Buy Out Purchase Price”). The Buy Out Purchase Price shall be
paid in accordance with an unsecured promissory note(s) which shall: (i) be
dated as of the Buy Out Closing Date; (ii) provide for payment of the Buy Out
Purchase Price in thirty-six (36) equal monthly installments over a three (3)
year period, (iii) bear interest at a rate of six percent (6%) per annum, which
interest shall be payable monthly at the time installments of principal are due
and payable; and (iv) be subordinated to the Company’s payment obligations to
third party lenders. The Disassociated Member agrees to execute such
subordination agreements as the Company’s third party lenders may request.
	 
	 	(d)	 	If no Remaining Member accepts the Buy Out Offer, then the
Disassociating Member, upon expiration of the Buy Out Offer Period, shall
thereafter be treated as an unadmitted Assignee.

     10.4 Buy Out Purchase Price. If, within thirty (30) days after the acceptance of the
Buy Out Offer, the Manager and the Disassociating Member cannot agree on the amount of the Buy Out
Purchase Price, then the Manager and the Disassociating Member shall jointly appoint an independent
Appraiser, investment advisor or investment banking firm with reasonable experience in the oil and
gas industry to determine the value the Company as of the last day of the fiscal year prior to the
date of the Disassociation. The fees and other costs of the independent Appraiser, investment,
advisor or investment banking firm shall be shared equally by both parties.

     10.5 Disassociation Pursuant to Section 10.1(vi). In the event of a Disassociation of
a Member pursuant to Section 10.1(vi), that Member’s Units shall pass to the Member’s estate and to
his/her heirs, all of which shall be treated as an unadmitted Assignee, and the optional buy out
rights set forth in Section 10.3 shall not apply.

SECTION 11

DISSOLUTION AND WINDING UP

     11.1 Dissolution. The Company shall be dissolved and its affairs wound up, upon the
happening of any of the following events:

	 	(i)	 	When the period fixed for its duration in Section 2.8 has expired;
	 
	 	(ii)	 	Upon the unanimous Vote of the Members; or
	 
	 	(iii)	 	Upon entry of a decree of judicial dissolution.

     11.2 Procedure for Winding Up and Dissolution. If the Company is dissolved, the
remaining Members shall wind up its affairs. On winding up of the Company, the assets of the
Company shall be distributed, first, to creditors of the Company, in satisfaction of the
liabilities of the Company, then to the Interest Holders in accordance with positive Capital
Account balances taking into account all Capital Account adjustments for the Company’s taxable year
in which the liquidation occurs, and thereafter to Members in proportion to their respective Actual
Unit Ownership.

     11.3 Articles of Cancellation. If the Company is dissolved, the Members shall
promptly file a Certificate of Dissolution with the Ohio Secretary of State. If there are no
Remaining Members, the Certificate shall be filed by the last Person to be a Member; if there are
no Remaining Members, or a Person who last was a Member, the Certificate shall be filed by the
legal or personal representatives of the Person who last was a Member.

12

 

SECTION 12

ACCOUNTING, RECORDS AND BANK ACCOUNTS

     12.1 Records to be Maintained. The Company shall maintain the following records at
its principal office or at such other locations as the Manager(s) deem necessary and desirable:

(i) A current list of the full names, in alphabetical order, and last known business
or residence address of each Member;

(ii) Copies of the Articles, all amendments thereto, and executed copies of any
powers of attorney pursuant to which the Articles or the amendments have been
executed;

(iii) Copies of this Agreement, all amendments hereto, and executed copies of any
powers of attorney pursuant to which this Agreement and such amendments have been
executed;

(iv) Copies of the Company’s federal, state, and local income tax returns and
reports, for the three (3) most recent years;

(v) Copies of any financial statements of the Company for the three (3) most recent
years; and

(vi) Any other agreements or documents required by the Act or this Agreement.

     12.2 Accounts. The Company shall maintain at its principal office books and records,
kept in accordance with generally accepted accounting principles. Each Member shall have the right
to inspect and copy any books and records of the Company during normal business hours. The
Managing Member shall provide each Member with (i) copies of the Company’s financial statements
within sixty (60) days of the end of each fiscal quarter and (ii) an estimate of the Company’s
required expenditures for the next fiscal quarter, as reasonably estimated by the Managing Member,
at least thirty (30) days prior to the start of the upcoming fiscal quarter.

     12.3 Bank Accounts. All funds of the Company shall be deposited in a bank account or
accounts opened in the Company’s name. The Manager shall determine the institution or institutions
at which the accounts will be opened and maintained, the types of accounts, and the Persons who
will have authority with respect to the accounts and the funds therein.

     12.4 Annual Accounting Period. The annual accounting period for the Company shall be
its taxable year. The Company’s taxable year shall be selected by the Members, subject to the
requirements and limitations of the Code.

SECTION 13

LIABILITY AND INDEMNIFICATION

     13.1 General. A Member shall not be liable, responsible, or accountable, in damages
or otherwise, to any other Member or to the Company for any act performed by the Member with
respect to Company matters, except for fraud, gross negligence, or breach of this Agreement. The
Company shall indemnify its Members, and only by a Vote of the Members cause to indemnify its
employees and agents, to the extent permitted by the Act or other applicable Ohio laws. The
indemnification provided in this Section shall not be deemed exclusive of, or in any way to limit
any other rights to which any Person seeking indemnification may be or may become entitled as a
matter of law, by the Articles of Organization, agreements, insurance, a Vote of Members, or
otherwise, with respect to action in his/her official capacity, and shall continue to a Person who
has ceased to be a Member, officer, or agent, and shall inure to the benefit of their heirs,
executors, and administrators of such a Person. Any Member who personally guarantees any
obligation of the Company or any obligation of the Company to a third party lender (a “Guaranteeing
Member”) shall be entitled to pro rata indemnification from the other Members and from the Company
in the event that the Guaranteeing Member pays the obligation of the Company.

13

 

SECTION 14

REPRESENTATIONS AND WARRANTIES

     14.1 General. As of the date hereof, each Member for the benefit of each other Member
and the Company, hereby makes each of the representations and warranties applicable to such Member
as set forth in this Section 14, and such warranties and representations shall survive the
execution and delivery of this Agreement.

     14.2 Investment Purposes. Each Member hereby represents and covenants as follows:

	 	(a)	 	This Agreement constitutes the legal, valid, and binding
obligation of such Member.
	 
	 	(b)	 	Neither the execution, delivery or performance of this
Agreement or the consummation of the transactions contemplated hereby (i) will
conflict with, violate or result in a breach of any of the terms, conditions or
provisions of any law, regulation, order, writ, injunction, decree,
determination or award of any court, any governmental department, board, agency
or instrumentality, domestic or foreign, or any arbitrator, applicable to such
Member or any of such Member’s affiliates; (ii) will conflict with, violate,
result in a breach of, or constitute a default under any of the terms,
conditions or provisions of any material agreement or instrument to which such
Member or any of that Member’s affiliates is a party or by which such affiliate
is or may be bound or to which any of its material properties or assets is
subject; (iii) will conflict with, violate, result in a breach or constitute a
default under (whether with notice or lapse of time or both), accelerate or
permit the acceleration of the performance required by, give to others any
material interests or rights or require any consent, authorization or approval
under any indenture, mortgage, lease agreement or instrument to which such
Member or any such Member’s affiliates is a party or by which such Member or
any of such affiliates is or may be bound; or (iv) will result in the creation
or imposition of any lien upon any of the material properties or assets of such
Member or any of such Member’s affiliates.
	 
	 	(c)	 	Any registration, declaration or filing with, or consent,
approval, license, permit or other authorization or order by, any governmental
or regulatory authority, domestic or foreign, that is required in connection
with the valid execution, delivery, acceptance and performance by such Member
of this Agreement or the consummation by such Member of any transaction
contemplated hereby has been completed, made or obtained on or before the
effective date of this Agreement.
	 
	 	(d)	 	The Member acknowledges and agrees that: (i) the interest in
the Company hereunder is not registered under the Securities Act of 1933, as
amended, or any state securities laws, and is being issued in reliance upon
federal and state exemptions for transactions not involving any public
offering; (ii) the Membership interests being acquired are subject to
restrictions on transferability and resale and may not be transferred or sold
except as permitted by this Agreement and under the Securities Act of 1993, as
amended, and the applicable state securities laws pursuant to registration or
exception therefrom; (iii) the Member is acquiring said Membership Interest
solely for his/her own account for investment purposes and not with a view to
the distribution thereof; (iv) the Member has either consulted with its own
investment advisor, attorney or accountant about the investment and the
proposed purchase of the Membership Interest and its suitability, or chosen not
to do so, despite the recommendation of that course of action by the Managing
Member, and understands the risk of and other considerations relating got the
purchase of the Membership Interest; (v) the Member is knowledgeable and
experience with respect to financial, tax and business aspects of the ownership
of the Membership Interest and of

14

 

	 	 	 	the business contemplated by the Company, and is capable of evaluating the
risks and merits of purchasing said Membership Interest and is further
knowledgeable in making a decision to proceed with this investment and has
not relied upon any representations, warranties or agreements other than
those set forth in this Agreement, if any; (vi) the Member can bear the
economic risk of the proposed investment in the Company for an indefinite
period of time, and could afford to suffer the complete loss thereof; (vii)
each Member acknowledges that the Company has no operating history, that the
Membership Interest involves a substantial degree of risk of loss and that
there is no assurance of any income for each Member’s investment and that
any federal and/or state income tax benefits which may be available to a
Member may be lost through the adoption of new laws or regulations, to
changes of existing laws, and to changes to the interpretation of existing
laws and regulations; and (viii) each Member is a sophisticated and
accredited investor within the meaning of Rule 501(a) of the Regulations
promulgated under the Securities Act of 1933, as amended, with knowledge and
experience in business and financial matters.

SECTION 15

MISCELLANEOUS PROVISIONS

     15.1 Confidentiality. No Member shall disclose any confidential or proprietary
information or trade secrets of the Company (including, without limitation, the identity of the
Company’s clients or suppliers, or the prices at which the Company purchases products or services)
to any unauthorized third parties or use any such information to the detriment of the Company.

SECTION 16

GENERAL PROVISIONS

     16.1 Entire Agreement. This Agreement and the Articles represent the entire agreement
among the Members. It supersedes all prior written and oral statements, including any prior
representations, statements, conditions, or warranties. This Agreement may only be amended by a
written instrument approved pursuant to Section 4.2(i) hereof. Oral agreements which purport to
amend this Agreement shall not be enforceable.

     16.2 Assurances. Each Member shall execute all such certificates and other documents
and shall do all such filing, recording, publishing, and other acts required to comply with the Act
and with all other laws or for the formation and operation of the Company and to comply with any
laws, rules, and regulations relating to the acquisition, operation, or holding of the property of
the Company.

     16.3 Rights of Creditors and Third Parties under this Agreement. This Agreement is
entered into among the Members for the exclusive benefit of the Company, its Members, and their
successors and assignees. This Agreement is expressly not intended for the benefit of any creditor
of the Company or any other Person. Except and only to the extent provided by applicable statute,
no creditor or third party shall have any rights under this Agreement or any Agreement between the
Company and any Member with respect to any Capital Contribution or otherwise.

     16.4 Notices. Except as otherwise provided herein, any notice, demand, consent,
election, offer, approval, request, or other communication (“Notice(s)”) required or permitted by
this Agreement shall be in writing and delivered personally, sent by certified or registered mail,
postage prepaid, or by facsimile or electronic mail. A Notice shall be addressed to a Member at
the Member’s address as it appears on the records of the Company. Notice to the Company shall be
given to its principal office or personally delivered to the custodian of the Company’s records.
Notice sent by mail will be deemed given two (2) business days after being deposited in the United
States Mail. Notice sent by facsimile or electronic mail shall be deemed to be delivered on the
date of delivery indicated on the facsimile or electronic mail delivery confirmation record. Any
Member may designate, by a Notice to the Company, substitute addresses or addressees for Notices,
and Notices shall be directed to those substitute addresses or addressees thereafter.

15

 

     16.5 Specific Performance. The Members recognize that irreparable injury will result
from a breach of any provision of this Agreement and that money damages will be inadequate to fully
remedy the injury. Accordingly, in the event of a breach or threatened breach of one or more of
the provisions of this Agreement, any Member who may be injured, in addition to any other remedies
which may be available to that party, shall be entitled to one or more preliminary or permanent
orders (i) restraining and enjoining any act which would constitute a breach, or (ii) compelling
the performance of any obligation which, if not performed, would constitute a breach.

     16.6 Applicable Law. The laws of the State of Ohio, including the Act, shall govern
the validity of this Agreement, the construction of its terms, and the interpretation of the rights
and duties of the parties hereto.

     16.7 Section Titles. The headings herein are inserted as a matter of convenience only
and do not define, limit or describe the scope of this Agreement or the intent of the provisions
hereof.

     16.8 Binding Provisions. This Agreement is binding upon, and inures to the benefit
of, the parties hereto and their respective heirs, legatees, executors, administrators, personal
and legal representatives, successors, and permitted assigns.

     16.9 Terms. Common nouns and pronouns shall be deemed to refer to the masculine,
feminine, neuter, singular, and plural, as the identity of the Person may in the context require.

     16.10 Severability. Each provision of this Agreement shall be considered severable;
and if, for any reason, any provision or provisions herein are determined to be invalid and
contrary to any existing or future law, such invalidity shall not impair the operation of or affect
those portions of this Agreement which are valid.

     16.11 Conflicts of Interest. A Member, including, without limitation, the Managing
Member, or an officer of the Company (an “Interested Person”) shall not be disqualified from
dealing or contracting with the Company as a vendor, purchaser, employee, agent or otherwise,
provided that (i) the terms and conditions of any transaction between the Company and an Interested
Person shall be substantially similar to what is being charged in the open marketplace for the
goods and services being provided, and (ii) the nature of the transaction between the Company and
the Interested Person is disclosed to all Members. No transaction, contract or act of the Company (
an “Interested Transaction”) shall be void or voidable or in any way affected or invalidated by
reason of the fact that any Interested Person or any firm of which any Interested Person is a
shareholder, director, member, manager or trustee, or any trust of which any Interested Person is
trustee or beneficiary, is in any way interested in the transaction, contract or act, provided that
the requirements of both subsections (i) and (ii) above are satisfied. So long as the Interested
Transaction complies with the foregoing sentence of this Section, then no Interested Person shall
be accountable or responsible to the Company for, or in any respect to, any transaction, contract
or act of the Company in which he is interested for any gains or profits directly or indirectly
realized by him, her or it therefrom. The foregoing shall apply without regard to whether the
approval requirements set forth in Section 1705.31 of the Act have been satisfied. Without limiting
or qualifying the foregoing, if in any judicial or other inquiry, suit, cause or proceeding, the
question of whether an Interested Person has acted in good faith is material, then notwithstanding
any statute or rule of law or equity to the contrary, his, her or its good faith shall be presumed
in the absence of proof to the contrary by clear and convincing evidence.

     16.12 Counterparts. This Agreement may be executed simultaneously in two (2) or more
counterparts, each of which shall be deemed an original and all of which, when taken together,
constitute one and the same documents. The signature of any party to any counterpart shall be
deemed a signature to, and may be appended to, any other counterpart.

     16.13 Representation. The Members of this Agreement acknowledge and agree that the
Company’s counsel, Dworken & Bernstein Co., L.P.A. and Jodi Tomaszewski and Melvyn E. Resnick
(collectively the “Attorneys”) prepared this Agreement on behalf of and in the course of the
Attorneys representation of the Company and that:

	 	(a)	 	The Members have been advised by the Attorneys that a conflict
of interest exists among their individual interest;

16

 

	 	(b)	 	The Members have been advised by the Attorneys to seek the
advice of independent legal counsel;
	 
	 	(c)	 	The Members have had an opportunity to seek the advice of
independent legal counsel;
	 
	 	(d)	 	The Members have received no representations from the attorneys
about the tax consequences of this Agreement;
	 
	 	(e)	 	The Members have been advised by the Attorneys that this
Agreement may have tax consequences;
	 
	 	(f)	 	The Members have been advised by the Attorneys to seek the
advice of independent tax counsel; and
	 
	 	(g)	 	The Members have had the opportunity to seek the advice of
independent tax counsel.

SIGNATURES ON FOLLOWING PAGE

17

 

     IN WITNESS WHEREOF, this Amended and Restated Operating Agreement has been executed as of this
date first above written.

	 	 	 	 	 
	 	 	 
	/s/ Gregory J. Osborne
 	 	 
	John D. Oil and Gas Company 	 	 
	By:  Gregory J. Osborne

Its:   President and Chief Operating Officer 	 	 
	 

	 	 	 	 	 
	 	 	 
	/s/ David A. Cerotzke
 	 	 
	Energy West Resources, Inc. 	 	 
	By:  David A. Cerotzke

Its:   Vice Chairman 	 	 
	 

	 	 	 	 	 
	 	 	 
	/s/ Sam Petros
 	 	 
	Sam Petros, Managing Member of
Petros Development Co. LLC 	 	 
	 

	 	 	 	 	 
	 	 	 
	/s/ Richard M. Osborne
 	 	 
	Richard M. Osborne, Trustee U/T/A 1-13-95 	 	 
	 	 	 
	 

	 	 	 	 	 
	 	 	 
	/s/ Steven A. Calabrese
 	 	 
	CCAG Limited Partnership 	 	 
	By:  TGF Corporation

Its:  General Partner

By: Steven A. Calabrese, President of TGF Corporation 	 	 
	 

	 	 	 	 	 
	 	 	 
	/s/ Steve A. Calabrese
 	 	 
	R.C. Enterprises & Development, LLC 	 	 
	By:  Steve A. Calabrese

Its:  General Partner 	 	 

18

 

	 	 	 	 	 

APPENDIX

     “Act” means the Ohio Limited Liability Company Act, Ohio Revised Code Chapter 1705, as amended
from time to time.

     “Agreement” means this Operating Agreement as amended from time to time.

     “Articles” means the Articles of Organization of the Company as properly adopted and amended
from time to time by the Members and filed with the Ohio Secretary of State.

     “Assignee” means an assignee of Units who is not a Member at the time of the assignment and is
not admitted thereafter as a Member.

     “Bankrupt Member” means a Member who: (i) has become the subject of a decree or order for
relief under any bankruptcy, insolvency or similar law affecting creditors’ rights now existing or
hereafter in effect; or (ii) has initiated, whether in an original proceeding or by way of answer
in any state insolvency or receivership proceeding, an action for liquidation, arrangement,
composition, readjustment, dissolution, or similar relief.

     “Capital Account” means the amount of cash and fair market value of services or property (net
of any liabilities secured by contributed property that the Company is considered to assume or take
subject to under Section 752 of the Code) that a member or Assignee has contributed to the Company
as Capital Contributions pursuant to Section 5 hereof, adjusted as follows:

(i) The Capital Account shall be increased by all Profits allocated to such Person
pursuant to Section 6 hereof.

(ii) The Capital Account shall be decreased by (a) the amount of cash and the fair
market value of all property distributed to such Person by the Company (net of
liabilities securing such distributed property that such Person is considered to
assume or take subject to under Section 752 of the Code), and (b) all Losses
allocated to such Person pursuant to Section 6 hereof.

(iii) The Capital Account shall be credited in the case of an increase or debited in
the case of a decrease to reflect such Person’s allocable share of any adjustment to
the adjusted basis of Company assets pursuant to Section 734(b) of the Code to the
extent provided by Section 1.704-1(b)(2)(iv)(m) of the Regulations.

(iv) The Capital Account shall be adjusted in any other manner required by Section
1.704-1(b)(2)(iv) of the Regulations or otherwise, in order to be deemed properly
maintained for federal income tax purposes.

(v) Capital Accounts shall not bear interest.

(vi) The Transferee of Units shall succeed to the Capital Account attributable to
the Units transferred.

     “Capital Contribution” means any contribution of cash, property or services to the Company
made by or on behalf of a Member or Assignee pursuant to Section 5 hereof.

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

     “Company” means the limited liability company organized pursuant to the Articles and this
Agreement, and any successor limited liability company.

     “Default Rate” means the maximum amount of interest allowed to be charged under the law of the
State of Ohio.

i

 

     “Distribution” means a transfer of cash or property to a Member or Assignee on account of
Units as described in Section 6 hereof.

     “Disassociation” means any action which causes a Person to cease being a Member as described
in Section 9 hereof.

     “Dissolution Event” means an event, the occurrence of which will result in the dissolution of
the Company under Section 9.1 hereof.

     “Fiscal Year” means the taxable year of the Company.

     “Interest Holder” means any Person who holds an interest in the Company, whether as a Member
or an unadmitted Assignee of a Member.

     “Member” means any Person who has signed this Agreement as a Member or who is hereafter
admitted as a Member of the Company pursuant to this Agreement.

     “Membership Interest” means an Interest Holder’s share of the Profits and Losses of, and the
right to receive Distributions from, the Company.

     “Membership Rights means all the rights of a Member in the Company, including a Member’s: (i)
Membership Interest, and (ii) the rights granted to the Member under this Agreement or under the
Act.

     “Operating Expenses” means all expenses relating to the operation of the Company, including
but not limited to the following:

	 	(i)	 	all expenses relating to managing and controlling the business
and affairs of the Company;
	 
	 	(ii)	 	all administrative expenses of the Company, including the cost
of the preparation of the annual audit, financial and tax returns and tax
reports required for Members or the Company, cash management expenses and
routine legal and accounting expenses;
	 
	 	(iii)	 	all costs and expenses incurred in originating, investigating,
selecting, negotiating, acquiring, structuring, financing, operating,
monitoring, disposing of or abandoning the Prospect or transactions that, if
consummated, would be part of the Prospect;
	 
	 	(iv)	 	all third-party expenses in connection with the Prospect,
including any financing, legal, accounting, management and consulting fees or
expenses as well as any administrative expenses of the Prospect;
	 
	 	(v)	 	all premiums, deductibles and other costs associated with
obtaining and maintaining any insurance coverage with respect to the business
and activities of the Company;
	 
	 	(vi)	 	interest on and fees and expenses arising out of all borrowings
made by the Company, including the arranging thereof;
	 
	 	(vii)	 	costs of any litigation, director and/or officer liability or
other insurance and indemnification or extraordinary expense or liability
relating to the affairs of the Company;
	 
	 	(viii)	 	expenses of liquidating the Company;

ii

 

	 	(ix)	 	registration expenses and any taxes, fees or other governmental
charges levied against the Company and all expenses incurred in connection with
any tax audit, investigation, settlement or review of the Company;
	 
	 	(x)	 	expenses of any meetings of the Member; and
	 
	 	(xi)	 	expenses in connection with the formation and organization of
the Company and any related entities, including any related legal and
accounting fees.

     “Past Due Rate” means the maximum non-usurious rate of interest permitted by applicable law.

     “Payment Notice” means a written notice requiring Capital Contributions to the Company, which
notice shall (a) specify the amount required from the Member; (b) specify the purpose for which the
Capital Contribution is required to be made; and (c) the date by which the Capital Contribution
must be paid.

     “Percentage” means, as to a Member, the percentage set forth after the Member’s name on
Exhibit “C”, as amended from time to time, and as to an Interest Holder or unadmitted

     Assignee who is not a Member, the Percentage of the Member whose Membership Interest has been
acquired by such Interest Holder, to the extent the Interest Holder has succeeded to that Member’s
Membership Interest.

     “Person” means and includes an individual, corporation, partnership, association, limited
liability company, trust, estate or other entity.

     “Pipeline System” shall mean the pipeline system that will be developed and constructed for
purpose of gathering and transporting gas within and from the Prospect to market.

     “Profit” and “Loss” means, for each taxable year of the Company (or other period for which
Profit or Loss must be computed), the Company’s taxable income or loss determined in accordance
with Code Section 703(a), with the following adjustments:

(i) All items of income, gain, loss, deduction, or credit required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in computing taxable
income or loss;

(ii) Any tax-exempt income of the Company, not otherwise taken into account in
computing Profit or Loss, shall be included in computing taxable income or loss;

(iii) Any expenditures of the Company described in Code Section 705(a)(2)(B) [or
treated as such pursuant to Regulation Section 1.704-1(b)(2)(iv)(i)] and not
otherwise taken into account in computing Profit or Loss, shall be subtracted from
taxable income or loss;

(iv) Gain or loss resulting from any taxable disposition of Company property shall
be computed by reference to the adjusted book value of the property disposed of,
notwithstanding the fact that the adjusted book value differs from the adjusted
basis of the property for federal income tax purposes;

(v) In lieu of the depreciation, amortization, or cost recovery deduction allowable
in computing taxable income or loss, there shall be taken into account the
depreciation computed based upon the adjusted book value of the asset; and

(vi) Notwithstanding any other provision of this definition, any items which are
specifically allocated pursuant to Section 6 hereof shall not be taken into account
in computing Profit or Loss.

     “Regulations” except where the context indicates otherwise, means the permanent, temporary,
proposed, or proposed and temporary regulations of Department of the Treasury under the Code as
such regulations may be changed from time to time.

iii

 

     “Transfer” means, when used as a noun, any voluntary sale, hypothecation, pledge, assignment,
attachment or other transfer, and, when used as a verb, means voluntarily to sell, hypothecate,
pledge, assign, or otherwise transfer.

     “Unit” means a fractional share of the membership interest of a Member or an Assignee in the
Company, the numerator of which is one (1) and the denominator of which is the total number of
Units outstanding from time to time. As of the date of this Agreement, the Company has 100 Units
outstanding, as reflected in Exhibit “C” attached hereto, which shall be amended in the
event that the Company issues additional Units or acquires any outstanding Units.

     “Vote” means each Member’s voting rights as provided for in Section 4 hereof. Unless stated
otherwise, any matter submitted to a Vote of the Members or requiring approval of the Members shall
be deemed to have passed if approved by the Members holding fifty-one percent (51%) or more of the
Units then held by all Members.

iv

 

EXHIBIT “A”

Organization/Registration of Limited Liability Company

EXHIBIT “B”

Purchase and Sale Agreement

EXHIBIT “C”

Membership Percentages and Contributions

5

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