Document:

exv10w5

 

Exhibit 10.5

NOTE

	 	 	 
	$200,000,000

	 	July 16, 2004

     FOR VALUE RECEIVED, the undersigned (the “Borrower”), hereby promises to
pay to the order of Comstock Resources, Inc., a Nevada corporation (the
“Lender”), on the Maturity Date (as defined in the Loan Agreement referred to
below) the principal amount of Two Hundred Million Dollars ($200,000,000), or
such lesser principal amount of Loans (as defined in such Loan Agreement) due
and payable by the Borrower to the Lender on the Maturity Date under that
certain Loan Agreement, dated as of July 16, 2004 (as amended, restated,
extended, supplemented or otherwise modified in writing from time to time, the
“Loan Agreement”; the terms defined therein being used herein as therein
defined), by and between COMSTOCK RESOURCES, INC., a Nevada corporation (the
“Lender”), and BOIS D’ARC ENERGY, LLC, a Nevada limited liability company (“BDA
Energy”), BOIS D’ARC PROPERTIES, LP, a Nevada limited partnership
(“Properties, LP”) and BOIS D’ARC OFFSHORE, LTD., a Texas limited partnership
(“BDA Offshore,” and together with BDA Energy and Properties, LP, the
“Borrower”).

     The Borrower promises to pay interest on the unpaid principal amount of
each Loan from the date of such Loan until such principal amount is paid in
full, at such interest rates, and at such times as are specified in the Loan
Agreement. All payments of principal and interest shall be made to the Lender
in Dollars in immediately available funds at the Lender’s principal executive
office. If any amount is not paid in full when due hereunder, such unpaid
amount shall bear interest, to be paid upon demand, from the due date thereof
until the date of actual payment (and before as well as after judgment)
computed at the per annum rate set forth in the Loan Agreement.

     This Note is the Note referred to in the Loan Agreement, is entitled to
the benefits thereof and is subject to optional and mandatory prepayment in
whole or in part as provided therein. This Note is also entitled to the
benefits of the Guarantees and is secured by certain collateral more
particularly described in the Security Documents. Upon the occurrence of one
or more of the Events of Default specified in the Loan Agreement, all amounts
then remaining unpaid on this Note shall become, or may be declared to be,
immediately due and payable all as provided in the Loan Agreement. Loans made
by the Lender shall be evidenced by one or more loan accounts or records
maintained by the Lender in the ordinary course of business. The Lender may
also attach schedules to this Note and endorse thereon the date, amount and
maturity of its Loans and payments with respect thereto.

     The Borrower, for itself, its successors and assigns, hereby waives
diligence, presentment, protest and demand and notice of protest, demand,
dishonor and non-payment of this Note.

 

 

Exhibit 10.5

     THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF TEXAS (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING
TO CONFLICTS OF LAW).

	 	 	 	 	 
	 	 	BOIS D’ARC ENERGY, LLC
	 
	 	 	 	 
	

	 		 	 /s/ WAYNE L. LAUFER
	

	 	 	 	

	

	 	Name:	 	 Wayne L. Laufer
	

	 	 	 	

	

	 	Title:	 	 Chief Executive Officer
	

	 	 	 	

	 
	 	 	 	 
	 	 	BOIS D’ARC PROPERTIES, LP
	 
	 	 	 	 
	

	 	By:
	 	Bois d’Arc Holdings, LLC,

its general partner
	 
	 	 	 	 
	

	 		 	 /s/ WAYNE L. LAUFER
	

	 	 	 	

	

	 	Name:	 	 Wayne L. Laufer
	

	 	 	 	

	

	 	Title:	 	 CEO of Bois d’Arc
Energy, LLC, Sole Member
	

	 	 	 	

	 
	 	 	 	 
	 	 	BOIS D’ARC OFFSHORE, LTD.
	 
	 	 	 	 
	

	 	By:
	 	Bois d’Arc Oil and Gas Company, LLC,

its general partner
	 
	 	 	 	 
	

	 		 	 /s/ WAYNE L. LAUFER
	

	 	 	 	

	

	 	Name:	 	 Wayne L. Laufer
	

	 	 	 	

	

	 	Title:	 	 CEO of Bois d’Arc
Energy, LLC, Sole Member
	

	 	 	 	

	 
	 	 	 	 
	 	 	Address for Notices:
	 
	 	 	 	 
	 	 	600 Travis, Suite 6275

Houston, Texas 77002
	 
	 	 	 	 
	

	 	Attn:	 	 GARY BLACKIE
	

	 	 	 	

	

	 	Facsimile:	 	 713-228-1759
	

	 	 	 	

	

	 	Email: 	 	 gblackie@boisdarcoffshorel.com
	

	 	 	 	

	 	 	 
	

	Pay to the order of Bank of
Montreal, Comstock
Resources,
Inc.

	 
	

	By	 /s/ ROLAND O. BURNS
	

	 	

	

	 	Roland O. Burns, Senior Vice
	

	 	President, Chief Financial Officer
	

	 	and Treasurerexv10w6

 

Exhibit 10.6

OPERATING AGREEMENT

OF BOIS D’ARC ENERGY, LLC

THE MEMBERSHIP INTERESTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY JURISDICTION. NO MEMBERSHIP
INTEREST MAY BE SOLD OR OFFERED FOR SALE (WITHIN THE MEANING OF ANY SECURITIES
LAW) UNLESS A REGISTRATION STATEMENT UNDER ALL APPLICABLE SECURITIES LAWS WITH
RESPECT TO THE INTEREST IS THEN IN EFFECT OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS IS THEN APPLICABLE TO THE INTEREST. A MEMBERSHIP
INTEREST ALSO MAY NOT BE TRANSFERRED OR ENCUMBERED UNLESS THE APPLICABLE
PROVISIONS OF THIS AGREEMENT AND THE TRANSFER RESTRICTION AGREEMENT ARE
SATISFIED.

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	I.	 	DEFINITIONS	 	 	1	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 1.1.	 	Definitions	 	 	1	 
	 
	 	 	 	 	 	 	 	 
	II.	 	NAME, PRINCIPAL OFFICE, REGISTERED OFFICES AND AGENTS, TERM, STATUS OF MEMBERS AND TAX STATUS	 	 	7	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 2.1.	 	Name of Company	 	 	7	 
	 
	 	Section 2.2.	 	Principal Office	 	 	8	 
	 
	 	Section 2.3.	 	Registered Offices and Agents	 	 	8	 
	 
	 	Section 2.4.	 	Term	 	 	8	 
	 
	 	Section 2.5.	 	Status of Members	 	 	8	 
	 
	 	Section 2.6.	 	Tax Status	 	 	8	 
	 
	 	 	 	 	 	 	 	 
	III.	 	CHARACTER OF BUSINESS	 	 	8	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 3.1.	 	Purpose of the Company	 	 	8	 
	 
	 	 	 	 	 	 	 	 
	IV.	 	FORMATION, FOREIGN REGISTRATION AND NO PARTNERSHIP	 	 	8	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 4.1.	 	Organization and Formation	 	 	8	 
	 
	 	Section 4.2.	 	Foreign Registration	 	 	8	 
	 
	 	Section 4.3.	 	No Partnership	 	 	8	 
	 
	 	 	 	 	 	 	 	 
	V.	 	CAPITAL CONTRIBUTIONS	 	 	8	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 5.1.	 	Initial Capital Contributions	 	 	8	 
	 
	 	Section 5.2.	 	Subsequent Capital Contributions	 	 	9	 
	 
	 	Section 5.3.	 	Return of Contributions	 	 	9	 
	 
	 	Section 5.4.	 	Advances by Members	 	 	9	 
	 
	 	 	 	 	 	 	 	 
	VI.	 	RIGHTS, POWERS AND OBLIGATIONS OF MEMBERS	 	 	9	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 6.1.	 	Members’ Fees	 	 	9	 
	 
	 	Section 6.2.	 	Duties of Members/Other Activities	 	 	9	 
	 
	 	Section 6.3.	 	Dealing with Related Persons.	 	 	10	 
	 
	 	Section 6.4.	 	Liability of Members	 	 	10	 
	 
	 	Section 6.5.	 	No Resignation	 	 	10	 
	 
	 	Section 6.6.	 	Power, Voting and Consent	 	 	10	 
	 
	 	 	 	 	 	 	 	 
	VII.	 	MEETINGS OF THE MEMBERS	 	 	11	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 7.1.	 	Annual Meeting	 	 	11	 
	 
	 	Section 7.2.	 	Special Meetings	 	 	11	 
	 
	 	Section 7.3.	 	Notice of Annual or Special Meeting	 	 	11	 

i

 

	 	 	 	 	 	 	 	 	 
	 
	 	Section 7.4.	 	Business at Special Meeting	 	 	11	 
	 
	 	Section 7.5.	 	Quorum of Members	 	 	12	 
	 
	 	Section 7.6.	 	Proxies	 	 	12	 
	 
	 	Section 7.7.	 	Action by Written Consent Without a Meeting and Telephonic Meetings	 	 	12	 
	 
	 	 	 	 	 	 	 	 
	VIII.	 	BOARD OF MANAGERS	 	 	13	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 8.1.	 	Powers	 	 	13	 
	 
	 	Section 8.2.	 	Number of Managers	 	 	13	 
	 
	 	Section 8.3.	 	Election and Term.	 	 	13	 
	 
	 	Section 8.4.	 	Resignation and Removal	 	 	13	 
	 
	 	Section 8.5.	 	Compensation of Managers	 	 	13	 
	 
	 	Section 8.6.	 	Chairman of the Board of Managers	 	 	13	 
	 
	 	Section 8.7.	 	Overriding Royalty Interest Incentive Plan; Long-term Incentive Plan	 	 	14	 
	 
	 	 	 	 	 	 	 	 
	IX.	 	MEETINGS OF THE BOARD OF MANAGERS	 	 	14	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 9.1.	 	Annual Meeting	 	 	14	 
	 
	 	Section 9.2.	 	Regular Meetings	 	 	14	 
	 
	 	Section 9.3.	 	Special Meetings	 	 	14	 
	 
	 	Section 9.4.	 	Location of and Business at Regular or Special Meeting	 	 	14	 
	 
	 	Section 9.5.	 	Quorum of Managers	 	 	14	 
	 
	 	Section 9.6.	 	Votes	 	 	14	 
	 
	 	Section 9.7.	 	Act of Managers’ Meeting	 	 	14	 
	 
	 	Section 9.8.	 	Action by Unanimous Written Consent
Without a Meeting and Telephonic Meetings	 	 	16	 
	 
	 	Section 9.9.	 	Committees	 	 	16	 
	 
	 	 	 	 	 	 	 	 
	X.	 	NOTICES	 	 	16	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 10.1.	 	Methods of Giving Notice	 	 	16	 
	 
	 	Section 10.2.	 	Waiver of Notice	 	 	16	 
	 
	 	Section 10.3.	 	Attendance as Waiver	 	 	17	 
	 
	 	 	 	 	 	 	 	 
	XI.	 	OFFICERS	 	 	17	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 11.1.	 	Officers	 	 	17	 
	 
	 	Section 11.2.	 	Election and Qualification	 	 	17	 
	 
	 	Section 11.3.	 	Salaries	 	 	17	 
	 
	 	Section 11.4.	 	Term, Removal and Vacancies	 	 	17	 
	 
	 	Section 11.5.	 	Chairman	 	 	17	 
	 
	 	Section 11.6.	 	Chief Executive Officer	 	 	17	 

ii

 

	 	 	 	 	 	 	 	 	 
	 
	 	Section 11.7.	 	President	 	 	17	 
	 
	 	Section 11.8.	 	Chief Financial Officer	 	 	18	 
	 
	 	Section 11.9.	 	Secretary	 	 	18	 
	 
	 	 	 	 	 	 	 	 
	XII.	 	INDEMNIFICATION	 	 	18	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 12.1.	 	Right to Indemnification	 	 	18	 
	 
	 	Section 12.2.	 	Advance of Expenses	 	 	19	 
	 
	 	Section 12.3.	 	Indemnification of Employees and Agents	 	 	19	 
	 
	 	Section 12.4.	 	Appearance as a Witness	 	 	19	 
	 
	 	Section 12.5.	 	Non-Exclusivity of Rights	 	 	19	 
	 
	 	Section 12.6.	 	Insurance	 	 	19	 
	 
	 	Section 12.7.	 	No Personal Liability	 	 	19	 
	 
	 	Section 12.8.	 	Interest in Transaction	 	 	20	 
	 
	 	Section 12.9.	 	Successors and Assigns	 	 	20	 
	 
	 	Section 12.10.	 	Savings Clause	 	 	20	 
	 
	 	Section 12.11.	 	Exculpation	 	 	20	 
	 
	 	 	 	 	 	 	 	 
	XIII.	 	ALLOCATIONS	 	 	21	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 13.1.	 	Consent to Allocations	 	 	21	 
	 
	 	Section 13.2.	 	Distributive Shares for Tax Purposes	 	 	21	 
	 
	 	Section 13.3.	 	Code Section 704(c)	 	 	24	 
	 
	 	Section 13.4.	 	Capital Accounts	 	 	24	 
	 
	 	Section 13.5.	 	Compliance with the Code	 	 	27	 
	 
	 	 	 	 	 	 	 	 
	XIV.	 	DISTRIBUTIONS	 	 	27	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 14.1.	 	Distribution of Operating Cash Flow.	 	 	27	 
	 
	 	Section 14.2.	 	Distribution of Net Proceeds of a Capital Transaction	 	 	27	 
	 
	 	Section 14.3.	 	Amount Withheld	 	 	28	 
	 
	 	 	 	 	 	 	 	 
	XV.	 	TRANSFER OF INTERESTS	 	 	28	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 15.1.	 	Transfer Restriction Agreement	 	 	28	 
	 
	 	Section 15.2.	 	Transfers of Interests and Admission of New Members	 	 	29	 
	 
	 	Section 15.3.	 	Securities Laws Restrictions	 	 	30	 
	 
	 	 	 	 	 	 	 	 
	XVI.	 	BOOKS OF ACCOUNT AND COMPANY RECORDS	 	 	30	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 16.1.	 	Books of Account	 	 	30	 
	 
	 	Section 16.2.	 	Inspection	 	 	30	 
	 
	 	Section 16.3.	 	Fiscal Year and Accounting Method	 	 	30	 
	 
	 	Section 16.4.	 	Financial Reports	 	 	30	 
	 
	 	Section 16.5.	 	Tax Returns	 	 	30	 
	 
	 	Section 16.6.	 	Tax Elections.	 	 	31	 
	 
	 	Section 16.7.	 	Tax Matters Partner	 	 	31	 
	 
	 	Section 16.8.	 	Bank Accounts	 	 	31	 
	 
	 	 	 	 	 	 	 	 
	XVII.	 	DISSOLUTION, WINDING UP AND DISTRIBUTION	 	 	31	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 17.1.	 	Events of Dissolution	 	 	31	 

iii

 

	 	 	 	 	 	 	 	 	 
	 
	 	Section 17.2.	 	Dissolution and Winding Up	 	 	32	 
	 
	 	Section 17.3.	 	Final Statement	 	 	32	 
	 
	 	Section 17.4.	 	Distribution In-Kind	 	 	32	 
	 
	 	Section 17.5.	 	Deemed Distribution and Recontribution	 	 	32	 
	 
	 	Section 17.6.	 	Financing Transaction	 	 	33	 
	 
	 	Section 17.7.	 	Failure to Complete Financing Transaction	 	 	33	 
	 
	 	 	 	 	 	 	 	 
	XVIII.	 	CERTIFICATES	 	 	34	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 18.1.	 	Form of Certificates	 	 	34	 
	 
	 	Section 18.2.	 	Terms of Certificates	 	 	34	 
	 
	 	Section 18.3.	 	Ownership of Certificates	 	 	35	 
	 
	 	Section 18.4.	 	Registration of Transfers; Exchanges	 	 	35	 
	 
	 	Section 18.5.	 	Mutilated, Lost or Stolen Certificates	 	 	35	 
	 
	 	 	 	 	 	 	 	 
	XIX.	 	MISCELLANEOUS	 	 	35	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 19.1.	 	Execution in Counterparts	 	 	35	 
	 
	 	Section 19.2.	 	Address and Notice	 	 	35	 
	 
	 	Section 19.3.	 	Partition	 	 	35	 
	 
	 	Section 19.4.	 	Further Assurances	 	 	35	 
	 
	 	Section 19.5.	 	Titles and Captions	 	 	36	 
	 
	 	Section 19.6.	 	Number and Gender of Pronouns	 	 	36	 
	 
	 	Section 19.7.	 	Entire Agreement	 	 	36	 
	 
	 	Section 19.8.	 	Amendment and Power of Attorney	 	 	36	 
	 
	 	Section 19.9.	 	Exhibits and Schedules	 	 	36	 
	 
	 	Section 19.10.	 	Agreement Binding	 	 	36	 
	 
	 	Section 19.11.	 	Waiver	 	 	36	 
	 
	 	Section 19.12.	 	Remedies	 	 	36	 
	 
	 	Section 19.13.	 	GOVERNING LAW	 	 	37	 
	 
	 	Section 19.14.	 	DISPUTE RESOLUTION.	 	 	37	 
	 
	 	Section 19.15.	 	WAIVER	 	 	39	 
	 
	 	Section 19.16.	 	U.S. Dollars	 	 	39	 
	 
	 	Section 19.17.	 	Confidentiality	 	 	39	 
	 
	 	 	 	 	 	 	 	 
	Exhibit A — Form of Overriding Royalty Interest Incentive Plan	 	 	 	 
	Exhibit B — Form of Long-term Incentive Plan	 	 	 	 
	Exhibit C — Form of Transfer Restriction Agreement	 	 	 	 
	Exhibit D — Form of Plan of Conversion of Bois d’Arc Energy, LLC	 	 	 	 
	Exhibit E — Form of Certificates	 	 	 	 

iv

 

OPERATING AGREEMENT

OF BOIS D’ARC ENERGY, LLC

     This Operating Agreement of Bois d’Arc Energy, LLC dated as of July 16,
2004 (the “Effective Date”), is entered into by and among those Persons
executing this Agreement as evidenced by the signature pages attached hereto.
Each of such Persons is a “Member” and, collectively, they are sometimes
referred to as the “Members.”

W I T N E S S E T H

     WHEREAS, effective June 17, 2004, the Articles of Organization (the
“Articles”) have been filed in the office of the Secretary of State of Nevada
for the formation of Bois d’Arc Energy, LLC, a Nevada limited liability company
(the “Company”);

     NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree to form the
Company upon the terms and conditions set forth herein:

I. DEFINITIONS

     Section 1.1. Definitions. The following terms shall have the following
meanings when used in this Agreement:

     “AAA” shall have the meaning set forth in Section 19.14 hereof.

     “Act” shall mean the Nevada Limited Liability Company Act (Nev. Rev. Stat.
§ 86.011, et seq.) and any successor statute, as amended from time to time.

     “Actual Depletion Deductions” shall mean with respect to any Member, such
Member’s actual depletion allowance with respect to such Member’s share of
production from the oil and gas properties owned by the Company or its
subsidiaries; provided that, for purposes of this Agreement and computing a
Member’s Capital Account, such Member’s Actual Depletion Deductions with
respect to any single oil or gas property shall not exceed the adjusted basis
of such oil or gas property allocated to such Member (or its predecessor in
interest) pursuant to Code Section 613A(c)(7)(D). If the Board of Managers
elects to use Actual Depletion Deductions pursuant to Section
1.704-1(b)(2)(iv)(k) of the Treasury Regulations, each Member shall notify the
Company of the amount of its Actual Depletion Deductions within ninety (90)
days of the end of each Fiscal Year.

     “Actual Gains or Actual Losses” means with respect to any Member (i) the
excess, if any, of such Member’s share of the total amount realized from the
disposition of any oil or gas property over such Member’s remaining adjusted
tax basis in such property or (ii) the excess, if any, of such Member’s
remaining adjusted tax basis in such property over such Member’s share of the
total amount realized from the disposition of such property. A Member’s share
of the total

 

 

amount realized from the disposition of an oil or gas property shall be
determined pursuant to Treasury Regulations Section 1.704-1(b)(4)(v).

     “Affiliate” shall mean, with respect to any Person, (i) any Person
directly or indirectly controlling, controlled by or under common control with
such Person, (ii) any Person owning or controlling ten percent (10%) or more of
the outstanding voting interests of such Person, (iii) any officer, director,
member, manager or general partner of such Person, or (iv) any Person who is an
officer, director, general partner, trustee, member, manager or holder of ten
percent (10%) or more of the voting interests of any Person described in
clauses (i) through (iii) of this sentence.

     “Affiliate Transfer” shall have the meaning assigned that term in the
Transfer Restriction Agreement.

     “Agreement” shall mean this Operating Agreement of Bois d’Arc Energy, LLC.

     “Appointed Managers” shall have the meaning set forth in Section 8.3(a)
hereof.

     “Appointing Group” shall mean either the Comstock Member or the Bois d’Arc
Members.

     “Articles” shall have the meaning set forth in the recitals to this
Agreement.

     “Blackie” shall mean Gary W. Blackie.

     “Board of Managers” shall mean the Board of Managers for the Company as
established and operated pursuant to this Agreement.

     “Bois d’Arc Members” shall mean those Members designated as Bois d’Arc
Members on Schedule A.

     “Book Value” shall mean with respect to any asset, the asset’s adjusted
basis for federal income tax purposes, except as follows:

     (i) the initial Book Value of any asset contributed (or deemed
contributed, including as a result of the constructive termination of the
Company pursuant to Code Section 708(b)(1)(B)) to the Company shall be such
asset’s gross fair market value at the time of such contribution;

     (ii) the Book Value of all Company assets shall be adjusted to equal their
respective gross fair market values at the times specified in Treasury
Regulations under Section 704(b) of the Code if required by the Code or the
Treasury Regulations or if the Company so elects if not required; and

     (iii) if the Book Value of an asset has been determined pursuant to clause
(i) or (ii), such Book Value shall thereafter be adjusted in the same manner as
would the asset’s adjusted basis for federal income tax purposes, except that
depreciation deductions shall be computed in accordance with subparagraph (iv)
of the definition of Net Profit and Net Loss.

 

 

The Book Value of assets contributed to the Company pursuant to the
Contribution Agreement shall be those values set forth on Schedules 1.1 and 1.2
of the Contribution Agreement.

     “Business Day” shall mean any day other than Saturday or Sunday or any
other day upon which banks in Houston, Texas are permitted or required by law
to close.

     “Capital Account” shall have the meaning set forth in Section 13.4 hereof.

     “Capital Contributions” shall mean the Initial Capital Contributions,
Subsequent Capital Contributions, and any amount paid by a Member upon the
exercise of an option on Class A Units and Class B Units.

     “Capital Transaction” means the sale, exchange or other disposition of all
or any portion of the property of the Company other than in the ordinary course
of business of the Company. Capital Transactions include the financing or
refinancing of Company property which creates excess funds not needed for the
operation of the Company’s business and which funds, in the opinion of the
Board of Managers, are available for distribution to the Members.

     “Class A Unit” shall mean an Ownership Interest in the Company that
represents an interest in the capital of the Company (the return of which
capital shall receive priority upon a Capital Transaction or liquidation of the
Company pursuant to the provisions in Section 14.2(a) and Section 17.2) but no
interest in the profits of the Company, with respect to which the Ownership
Percentage is zero (0), and having the approval rights set forth in Section
6.6.

     “Class B Unit” shall mean an Ownership Interest in the Company that
represents an interest in the capital and profits of the Company (the return of
which capital shall receive priority upon a Capital Transaction or liquidation
of the Company pursuant to the provisions of Section 14.2(a) and Section 17.2),
and having no voting, approval, disapproval, or any other decision-making
rights except as required under the Act.

     “Class C Unit” shall mean an Ownership Interest in the Company that upon
issuance represents an interest only in the profits of the Company, and having
no voting, approval, disapproval, or any other decision-making rights except as
required under the Act.

     “Code” shall mean the Internal Revenue Code of 1986, as amended, or its
successor.

     “Company” shall mean the limited liability company formed by this
Agreement.

     “Company Minimum Gain” shall mean the amount computed under Treasury
Regulations Section 1.704-2(d)(1) with respect to the Company’s nonrecourse
liabilities as determined under Treasury Regulations Section 1.752-1(a)(2).

     “Company Nonrecourse Deductions” shall mean any loss, deduction, or Code
Section 705(a)(2)(B) expenditure (or item thereof) that is attributable to
nonrecourse liabilities (as defined in Treasury Regulations Section
1.752-1(a)(2)) of the Company and characterized as “nonrecourse deductions”
pursuant to Treasury Regulations Section 1.704-2(b)(1) and Section 1.704-2(c).

 

 

     “Comstock Member” shall mean Comstock Offshore, LLC.

     “Contribution Agreement” shall mean that certain Contribution Agreement
dated as of July 16, 2004 by and among the Company, the Bois d’Arc Members, the
Comstock Member, and other parties thereto.

     “Covered Person” shall have the meaning set forth in Section 12.1 hereof.

     “CRI” shall mean Comstock Resources, Inc.

     “Depletable Property” means interests in oil, gas or other minerals
eligible for depletion under Code Section 613 or 613A.

     “Disabling Conduct” shall mean (i) conduct that is outside the scope of
conduct permitted in this Agreement or is in breach of any Governance Agreement
or any other agreement between the Company and the Person whose conduct is in
question if such conduct continues for thirty (30) days (or breach is not cured
within thirty (30) days) after such Person has been given written notice
thereof by the Board of Managers or (ii) conduct that constitutes fraud,
willful misconduct, bad faith or gross negligence.

     “Effective Date” shall have the meaning set forth in the preamble to this
Agreement.

     “Employment Agreements” mean the Employment Agreements of even date
herewith between the Company and each of Blackie and Laufer.

     “Event of Dissolution” shall have the meaning set forth in Section 17.1
hereof.

     “Familial Transfer” shall have the meaning assigned that term in the
Transfer Restriction Agreement.

     “Financing Transaction” shall mean any financing transaction including an
initial public offering, or issuance of equity or debt generating net proceeds
sufficient to repay all amounts outstanding under the Revolving Note.

     “Fiscal Year” shall mean the fiscal year of the Company as set forth in
Section 16.3 hereof.

     “Governance Agreements” shall mean this Agreement and the Transfer
Restriction Agreement.

     “Gross Income” shall mean for each Fiscal Year or other period, an amount
equal to the Company’s gross income as determined for federal income tax
purposes for such Fiscal Year or period but computed with the adjustments
specified in subparagraphs (i) and (iii) of the definition of Net Profit and
Net Loss.

     “Initial Capital Contributions” shall have the meaning set forth in
Section 5.1.

     “Laufer” shall mean Wayne L. Laufer.

 

 

     “Loan Agreement” shall mean the Loan Agreement of even date herewith
between the Company and CRI.

     “Loan Documents” shall mean the Loan Agreement, the Revolving Note, the
Security Documents and all other documents and instruments contemplated
thereby.

     “Managers” shall mean the Appointed Managers and “Manager” shall mean an
Appointed Manager.

     “Member” or “Members” shall mean one or more of those Persons executing
this Agreement as a member of the Company and any assignee of all or any part
of their respective interests in the Company who is admitted to the Company as
a Member in conformity with the provisions of this Agreement and the Transfer
Restriction Agreement.

     “Member Nonrecourse Debt” shall mean any nonrecourse debt of the Company
which meets the requirements of “partner nonrecourse debt” set forth in
Treasury Regulations Section 1.704-2(b)(4).

     “Member Nonrecourse Debt Minimum Gain” shall mean the partner nonrecourse
debt minimum gain attributable to “partner nonrecourse debt” as determined
under Treasury Regulations Section 1.704-2(i)(3).

     “Member Nonrecourse Deductions” shall mean any loss, deduction, or Code
Section 705(a)(2)(B) expenditure, or item thereof, that is attributable to a
Member Nonrecourse Debt, as determined by Treasury Regulations Section
1.704-2(i)(2).

     “Net Proceeds of a Capital Transaction” means the net proceeds received by
the Company in connection with a Capital Transaction after payment of all costs
and expenses incurred by the Company in connection with such Capital
Transaction, including, without limitation, brokers’ commissions, loan fees,
other closing costs, the cost of any alteration, improvement, restoration or
repair of Company assets necessitated by or incurred in connection with such
Capital Transaction, any reserves determined by the Board of Managers and the
payment of any loans that should be appropriately paid, as determined by the
Board of Managers.

     “Net Profit” and “Net Loss” shall mean for each Fiscal Year or other
period, an amount equal to the Company’s taxable income or loss for such Fiscal
Year or other period, determined in accordance with Code Section 703(a) (for
this purpose, all items of income, gain, loss or deduction required to be
stated separately pursuant to Code Section 703(a)(1) shall be included in
taxable income or loss) with the following adjustments:

     (i) any income of the Company that is exempt from federal income tax
or not otherwise taken into account in computing Net Profit or Net Loss
shall be added to such taxable income or loss;

     (ii) any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures under
Code Section 704(b), and not

 

 

otherwise taken into account in computing Net Profit or Net Loss,
shall be subtracted from such taxable income or loss;

     (iii) gain or loss resulting from any disposition of Company
property with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Book Value of
such property rather than its adjusted tax basis;

     (iv) in lieu of the depletion, depreciation, amortization and other
cost recovery deductions taken into account in computing taxable income
or loss, there shall be taken into account depreciation, amortization or
other cost recovery deductions on the assets’ respective Book Values for
such Fiscal Year or other period determined in accordance with Treasury
Regulations Section 1.704-1(b)(2)(iv)(g);

     (v) the amount of any Gross Income allocated to the Members pursuant
to Sections 13.2(d), 13.2(e), 13.2(f), 13.2(j), 13.2(k), 13.2(l) and
13.2(m) shall not be included as income or revenue; and

     (vi) any amount allocated to the Members pursuant to Sections
13.2(h), 13.2(i), 13.2(j), 13.2(k) and 13.2(l) shall not be included as a
loss, deduction or Code Section 705(a)(2)(B) expenditure.

     “Operating Cash Flow” means all cash funds generated from the operation of
the business of the Company on hand or on deposit from time to time after (i)
payment of all operating expenses payable as of the date in question, (ii)
provision for payment of all outstanding and unpaid Company obligations due and
payable as of the date in question or within sixty (60) days thereafter and
(iii) the establishment of such reasonable reserves as the Board of Managers
deems appropriate for the operating needs of the Company. Operating Cash Flow
shall not include or reflect any proceeds received or expenses incurred in
connection with a Capital Transaction.

     “Ownership Interest” shall mean the interest in the Company held by a
Member.

     “Ownership Percentage” shall mean the percentages for the Members set
forth on Schedule A attached hereto until adjusted in accordance with this
Agreement.

     “Person” shall mean an individual person, partnership, limited
partnership, limited liability company, trust, corporation or other entity or
organization.

     “Prime Rate” means the fluctuating rate per annum as in effect from time
to time equal to the rate of interest announced publicly by Citibank, N.A, in
New York, New York as its base rate.

     “Revolving Note” shall mean that certain revolving note executed by the
Company in favor of CRI in the maximum principal amount of $200,000,000, which
note will be subject to the terms of the Loan Agreement and secured by the
Security Documents.

 

 

     “Security Documents” shall mean the security agreements, deeds of trust,
mortgages, pledges, guarantees, financing statements, continuation statements
and other agreements or instruments delivered by the Company and its
Subsidiaries in favor of CRI to secure the indebtedness under the Loan
Agreement and the Revolving Note.

     “Services Agreement” shall have the meaning set forth in Section 6.3(b).

     “Simulated Depletion Deductions” means the simulated depletion allowance
computed by the Company with respect to its oil and gas properties pursuant to
Section 1.704-1(b)(2)(iv)(k)(2) of the Treasury Regulations. In computing such
amounts, the Board of Managers shall have complete and absolute discretion to
make any and all permissible elections.

     “Simulated Gains” or “Simulated Losses” means the simulated gains or
simulated losses computed by the Company with respect to its oil and gas
properties pursuant to Section 1.704-1(b)(2)(iv)(k)(2) of the Treasury
Regulations. In computing such simulated gains or losses, the Board of
Managers shall have complete and absolute discretion to make any and all
permissible elections.

     “Subsequent Capital Contributions” shall have the meaning set forth in
Section 5.2.

     “Subsidiary” shall mean with respect to a Person a corporation,
partnership, joint venture, limited liability company or other business entity
of which a majority of the shares of securities or other interests having
ordinary voting power for the election of directors or other governing body are
at the time beneficially owned, or the management of which is otherwise
controlled, directly or indirectly, through one or more intermediaries or both,
by such Person.

     “Tax Matters Partner” shall have the meaning set forth in Section 16.7
hereof.

     “Transfer Restriction Agreement” shall mean the Transfer Restriction
Agreement of even date herewith by and among the Company and the Members.

     “Treasury Regulations” shall mean the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).

     “Units” shall mean Class A Units, Class B Units or Class C Units.

     “Unreturned Equity” shall mean the Capital Contributions of a Member
holding Class A Units and Class B Units less any distributions to such Member
pursuant to Section 14.2(a).

II. NAME, PRINCIPAL OFFICE, REGISTERED OFFICES AND AGENTS,

TERM, STATUS OF MEMBERS AND TAX STATUS

     Section 2.1. Name of Company. The name of the Company is Bois d’Arc
Energy, LLC.

 

 

     Section 2.2. Principal Office. The location of the principal office of
the Company where records are to be kept or made available shall be 600 Travis,
Suite 6275, Houston, Texas 77022. The principal office of the Company may be
changed by the Board of Managers.

     Section 2.3. Registered Offices and Agents. The location of the
registered office of the Company in the State of Nevada shall be c/o National
Registered Agents Inc. of NV, 1000 East Williams Street, Carson City, Nevada
89701. The Board of Managers shall establish such other registered offices and
appoint such other registered agents as it deems necessary or appropriate for
the business of the Company. The registered offices and agents of the Company
may be changed from time to time by the Board of Managers.

     Section 2.4. Term. The Company shall have perpetual existence unless an
Event of Dissolution (as defined in Section 17.1 hereof) shall occur prior to
such time and the Company is not continued as hereinafter provided.

     Section 2.5. Status of Members. Upon the Effective Date the Members shall
constitute all of the members of the Company.

     Section 2.6. Tax Status. The Company shall be operated such that it will
be classified as a “partnership” for federal and, as determined by the Board of
Managers, state income tax purposes.

III. CHARACTER OF BUSINESS

     Section 3.1. Purpose of the Company. The business and purpose of the
Company shall be to conduct and engage in any activities that are permitted
under the provisions of the Act.

IV. FORMATION, FOREIGN REGISTRATION AND NO PARTNERSHIP

     Section 4.1. Organization and Formation. The Company was organized as a
Nevada limited liability company by the filing of the Articles under and
pursuant to the Act with the Secretary of State of the State of Nevada on June
17, 2004. The Company was formed effective July 16, 2004.

     Section 4.2. Foreign Registration. The Company shall register to conduct
business in such states and jurisdictions as the Board of Managers deems
appropriate.

     Section 4.3. No 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
with regard to the activities of the Company for any purposes other than
federal and, if applicable, state tax purposes, and this Agreement may not be
construed to suggest otherwise.

V. CAPITAL CONTRIBUTIONS

     Section 5.1. Initial Capital Contributions. Upon the execution of this
Agreement, each Member shall make initial capital contributions as provided in
the Contribution Agreement in

 

 

exchange for such number of Class A Units and Class B Units (collectively
the “Initial Capital Contributions”) as provided on Schedule A.

     Section 5.2. Subsequent Capital Contributions. If the Board of Managers
determines that additional capital is needed by the Company as provided in
Section 9.7, the Board of Managers shall provide written notice to all Members
holding Class B Units of the need for such additional capital and each of such
Members shall make a contribution (collectively the “Subsequent Capital
Contributions”) to the Company equal to the product of (i) a fraction the
numerator of which is the Ownership Percentage of such Member attributable to
the Member’s Class B Units and the denominator of which is the sum of all the
Ownership Percentages of the Members holding Class B Units attributable to
their Class B Units and (ii) the total additional capital required by the
Company as set forth in the above notice. Each of the Members shall make such
Subsequent Capital Contribution within ten (10) days of the above notice. If
any Member fails to make such Subsequent Capital Contribution (“Defaulting
Member”), any other Member may make such contribution on behalf of such
Defaulting Member, which shall be considered a loan to such Defaulting Member
secured by a security interest in such Defaulting Member’s Ownership Interest
and any distributions that would otherwise be made to the Defaulting Member
shall be paid to the Member making such loan until such loan has been paid in
full plus interest at the Prime Rate. Any such distribution shall be treated
as made to the Defaulting Member and then paid by the Defaulting Member in
repayment of the loan. The Members holding Class A Units and/or Class C Units
shall have no obligation to make any Subsequent Capital Contribution to the
Company in respect of such Units.

     Section 5.3. Return of Contributions. Except as specifically required in
this Agreement, a Member is not entitled to the return of any part of its
capital contributions or to be paid interest in respect of either its Capital
Account or its capital contributions, an unrepaid capital contribution is not a
liability of the Company or of any Member and a Member is not required to
contribute or to lend any cash or property to the Company.

     Section 5.4. Advances by Members. If the Company does not have sufficient
cash to pay its obligations, any Member(s) may agree, but shall not be
required, to advance all or part of the needed funds to or on behalf of the
Company if approval of the Board of Managers pursuant to Section 9.7 is
obtained. An advance described in this Section 5.4 constitutes a loan from the
Member to the Company, bears interest at the Prime Rate from the date of the
advance until the date of repayment, and is not a capital contribution.

VI. RIGHTS, POWERS AND OBLIGATIONS OF MEMBERS

     Section 6.1. Members’ Fees. Except as otherwise provided in Section 6.3
hereof, the Members shall not be paid any fees or other compensation whatsoever
for services, whether ordinary or extraordinary, foreseen or unforeseen,
rendered to or for the benefit of the Company. Nothing contained in this
Section 6.1 is intended to affect the Ownership Interest or Ownership
Percentage of any Member or the amount that may be payable to any Member by
reason of its interest in the Company.

     Section 6.2. Duties of Members/Other Activities. The relationship
existing pursuant to this Agreement shall not prohibit any Manager, any Member
or any Person which is a member,

 

 

manager, officer, director, parent, Subsidiary or Affiliate of a Member or
Manager, or any Person in which a Member, a Manager or the members, managers,
officers, directors, parent, subsidiaries or Affiliates of a Member or Manager
may have an interest, from engaging in any other business, investment or
profession. Neither the Company nor any of the Members shall have any rights
by virtue of this Agreement in or to any of such businesses, professions or
investments, or in or to any income or profit derived therefrom.

     Section 6.3. Dealing with Related Persons.

     (a) Subject to the provisions of Section 9.7 hereof, the Company may
employ or retain a Member, a Manager or an Affiliate of a Member or
Manager to render or perform a service, may contract to buy property or
services from or sell property or services to a Member, a Manager or any
such Affiliate, and may otherwise deal with such Member, Manager or any
such Affiliate; provided, however, that if the Company employs, retains
or contracts with a Member, Manager or an Affiliate thereof, the charges
made for services rendered and materials furnished by such Member,
Manager or Affiliate shall be a reasonable amount comparable to the
amount that would have been charged by others in the same line of
business and not so related, and such relationship and charges shall be
promptly disclosed in writing to the other Members.

     (b) Effective as of the Effective Date, the Company will enter into
a services agreement with CRI pursuant to which CRI will provide
accounting, financial reporting, human resources and certain other
services to the Company (“Services Agreement”).

     (c) CRI will advance funds to the Company pursuant to the terms of
the Revolving Note. The indebtedness under the Revolving Note will be
subject to the Loan Agreement and secured by the Security Documents.

     (d) Effective as of the Effective Date, the Company will enter into
Employment Agreements.

     Section 6.4. Liability of Members. No Member shall be liable,
responsible, or accountable in damages or otherwise to any other Member or the
Company for any act performed by it except with respect to Disabling Conduct.

     Section 6.5. No Resignation. Except for assignments, sales or other
transfers of a Member’s entire Ownership Interest made in compliance with the
Transfer Restriction Agreement and Article XV hereof, no Member shall have the
right to resign or withdraw as a Member of the Company prior to the dissolution
and winding up of the Company, without approval of the Board of Managers. Any
Member who resigns or withdraws as a Member of the Company in violation of the
foregoing provision, or who has resigned or withdrawn as a Member of the
Company in a manner not expressly permitted herein, shall be liable to the
Company and the Members for any damages sustained by reason of such resignation
or withdrawal. This Section 6.5 shall not affect any right a Member may have
to resign from its position as a Manager, officer or employee of the Company.

     Section 6.6. Power, Voting and Consent. Notwithstanding the fact that the
Company is to be managed by its Board of Managers pursuant to Section 8.1
hereof, the Members holding

 

 

Class A Units shall, with respect to such Class A Units, have the right
and obligation to vote on the following matters and any other matters requiring
Member vote or consent pursuant to the Act or submitted by the Managers to the
holders of Class A Units for a vote:

     (a) Any amendment of this Agreement;

     (b) Any merger, combination, conversion, consolidation,
restructuring, reorganization, recapitalization or any other major
transaction involving the structure, ownership or voting of the Company
(or any Subsidiary of the Company) including the conversion contemplated
by Section 17.6; and

     (c) The sale, lease or other disposition of all or substantially all
of the assets of the Company (or any Subsidiary of the Company) other
than in the ordinary course of business.

Any such matter shall be approved if holders of at least 75% of the outstanding
Class A Units vote in favor or consent to such matter. The Members hereby
delegate to the Board of Managers all other decisions relating to the Company.

Notwithstanding any provision in this Agreement to the contrary, no Member
shall have voting, approval, disapproval, or any other decision-making right
with respect to Class B Units or Class C Units held by the Member except to the
extent provided by the Act. No Member has the authority to bind the Company
unless the Member is expressly granted such authority by the Board of Managers
by a vote pursuant to Section 9.7.

VII. MEETINGS OF THE MEMBERS

     Section 7.1. Annual Meeting. An annual meeting of the Members shall be
held on the date of each year determined by the Board of Managers. The annual
meeting shall be held at the Company’s principal office or such other location
agreed to by all the Members. At such meeting the Members may transact such
business as properly may be brought before the meeting and that is within the
scope of the permitted decisions specified in Section 6.6 hereof.

     Section 7.2. Special Meetings. Special meetings of the Members may be
called by the Chairman of the Board of Managers, the Board of Managers or any
group of Members that hold an aggregate Ownership Percentage of at least 20%.

     Section 7.3. Notice of Annual or Special Meeting. Written or printed
notice stating the location, day and hour of the meeting and, in case of a
special meeting, the general purpose or purposes for which the meeting is
called, shall be delivered in accordance with Article X not less than ten (10)
days before the date of the meeting, either personally or by telefax
communication (which shall be deemed given at the time the sender receives
confirmation of delivery), by or at the direction of the Chairman of the Board
of Managers, the Secretary, or the Members calling the meeting, to each Member.

     Section 7.4. Business at Special Meeting. The business transacted at any
special meeting of the Members shall be limited to such business that is within
the scope of the permitted decisions specified in Section 6.6 hereof and that
is stated in the notice thereof, and no

 

 

unrelated business shall be conducted at such special meeting beyond the
general scope identified in the notice unless all Members, whether such Member
is present or not, agree in writing to consider and vote upon addition
unrelated business.

     Section 7.5. Quorum of Members. Unless otherwise provided by applicable
law, the Articles, or this Agreement, the presence of 75% of the Members based
on Class A Units and represented in person or by proxy, shall constitute a
quorum at a meeting of the Members. The Members present at a duly organized
meeting may continue to transact business until adjournment, and the departure
of any Member from the meeting prior to adjournment of the meeting or the
refusal of any Member to vote shall not affect the presence of a quorum at the
meeting.

     Section 7.6. Proxies. At any meeting of the Members, each Member having
the right to vote shall be entitled to vote either in person or by proxy
executed in writing by the Member or by his duly authorized attorney-in-fact.
Proxies shall be valid until revoked or superseded by a subsequently dated
proxy. Except as provided in Section 17.6(a) and except in connection with any
pledge or grant by the Comstock Member of a security interest in its Units
pursuant to Section 3.3 of the Transfer Restriction Agreement, each proxy shall
be revocable whether or not coupled with an interest unless made irrevocable by
law.

     Section 7.7. Action by Written Consent Without a Meeting and Telephonic
Meetings. Any action required or permitted by applicable law, the Articles, or
this Agreement to be taken at a meeting of the Members may be taken without a
meeting, without prior notice, and without a vote, if a consent in writing,
setting forth the action so taken, is signed by Members having not less than
the minimum number of votes that would be necessary to take such action at a
meeting at which Members entitled to vote on the action were present and
voting. Every written consent must bear the date of signature of each Member
who signs the consent. No written consent shall be effective to take the
action that is the subject of the consent unless, within sixty (60) days after
the date of the earliest dated consent delivered to the Company in the manner
required by this Section 7.7, a consent or consents signed by Members having
not less than the minimum number of votes that would be necessary to take the
action that is the subject of the consent are delivered to the Company by
delivery to its registered office, its principal place of business, or an
officer or agent of the Company having custody of the books in which
proceedings of meetings of Members are recorded. Delivery shall be by hand or
certified or registered mail, return receipt requested or confirmed telefax
communication. Delivery to the Company’s principal place of business shall be
addressed to the Board of Managers of the Company. Prompt notice of the taking
of any action by Members without a meeting by less than unanimous written
consent shall be given by the Company to those Members who did not consent in
writing to the action. With prior Member Consent, Members may participate in
and hold a meeting of the Members by conference telephone or similar
communications equipment by means of which all Persons participating in the
meeting can hear each other, and participation in such a meeting shall
constitute presence in person at such meeting, except where a Person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.

 

 

VIII. BOARD OF MANAGERS

     Section 8.1. Powers. The business and affairs of the Company shall be
managed by or under the direction of its Board of Managers, which may exercise
all such powers of the Company and do all such lawful acts and things as are
not by non-waivable provisions of the Act or by the Articles or by this
Agreement directed or required to be exercised and done by the Members. No
individual Manager has the authority to bind the Company unless the Manager is
granted such authority by the Board of Managers.

     Section 8.2. Number of Managers. The Board of Managers shall consist of
four (4) Managers.

     Section 8.3. Election and Term.

     (a) Initial Managers. The Comstock Member shall appoint two (2)
Managers and the Bois d’Arc Members shall collectively appoint two (2)
Managers (each Manager, an “Appointed Manager” and collectively, the
“Appointed Managers”). The initial Appointed Managers shall be as set
forth on Schedule B.

     (b) Term. Each Appointed Manager shall serve until the earlier of
his death, resignation or removal from office which may be with or
without cause by the Appointing Group that appointed such Manager. In
the event of a vacancy on the Board of Managers, then the Appointing
Group that appointed the Appointed Manager whose failure to continue to
serve as a Manager has created the vacancy shall fill such vacancy by
delivery of written notice to the Company and each Member designating a
replacement Manager to fill such vacancy. Upon receipt of such written
notice by the Company, the replacement Appointed Manager shall be
appointed as a Manager hereunder. Managers need not be residents of the
State of Nevada or Members of the Company.

     (c) Appointing Group. Actions by an Appointing Group to remove or
replace a Manager shall be by a majority vote among the Member(s) of such
Appointing Group holding Class A Units determined in accordance with
Class A Units.

     Section 8.4. Resignation and Removal. Any Manager may resign at any time
upon giving written notice to the Company. Any Appointed Manager may be
removed only by his Appointing Group in accordance with Section 8.3.

     Section 8.5. Compensation of Managers. The Managers may be paid their
expenses of attendance at each meeting of the Board of Managers; however,
Managers shall not receive any compensation for serving as a Manager or as a
member of any committee of the Board of Managers, except pursuant to the
Company’s Long-term Incentive Plan adopted in accordance with Section 8.7(b).
This provision shall not preclude any Manager from serving as an officer of the
Company or in any other capacity and receiving compensation therefor.

     Section 8.6. Chairman of the Board of Managers. One Manager shall serve
as Chairman of the Board of Managers. The Chairman of the Board of Managers
shall preside at all meetings of the Board of Managers and shall have such
other powers and duties as usually

 

 

pertain to such position or as may be delegated to him by the Board of
Managers. The Chairman of the Board of Managers shall serve as such until the
earlier of his death, resignation or removal from office by the Board of
Managers. The initial Chairman of the Board of Managers shall be M. Jay
Allison. Any subsequent Chairman of the Board of Managers shall be determined
by majority vote of the Board of Managers; provided, however, that any such
Chairman of the Board of Managers shall not, in such capacity, be an officer of
the Company.

     Section 8.7. Overriding Royalty Interest Incentive Plan; Long-term
Incentive Plan.

     (a) The Board of Managers is authorized to establish an Overriding
Royalty Interest Incentive Plan in substantially the form attached hereto
as Exhibit A.

     (b) The Board of Managers shall establish a Long-term Incentive Plan
in substantially the form attached hereto as Exhibit B.

IX. MEETINGS OF THE BOARD OF MANAGERS

     Section 9.1. Annual Meeting. An annual meeting of the Board of Managers
shall be held immediately following the annual meeting of the Members, and no
notice of such meeting shall be necessary in order legally to constitute the
meeting, provided a quorum shall be present.

     Section 9.2. Regular Meetings. The Board of Managers shall schedule
regular meetings of the Board of Managers at such intervals as the Board of
Managers shall determine to be appropriate.

     Section 9.3. Special Meetings. Upon not less than twenty-four (24) hours
prior written notice, special meetings of the Board of Managers may be called
by any two Managers.

     Section 9.4. Location of and Business at Regular or Special Meeting.
Meetings of the Board of Managers shall be held at the principal office of the
Company, or at such other place or places as shall be agreed upon by the Board
of Managers. Neither the business to be transacted at, nor the purpose of, any
regular meeting of the Board of Managers need be specified. The business to be
transacted at, and the general purpose of any special meeting shall be
identified in the notice or waiver of notice of such meeting. No business
other than that so identified shall be conducted by the Board of Managers at
such special meeting beyond the general scope of the business and purpose
identified in the notice and waiver unless 75% of Managers agree in writing to
conduct such additional business.

     Section 9.5. Quorum of Managers. Four Managers shall constitute a quorum
for the transaction of business by the Board of Managers.

     Section 9.6. Votes. Each Manager on the Board of Managers shall have one
vote. Managers shall not have the authority to permit voting by proxy.

     Section 9.7. Act of Managers’ Meeting. The act of a majority of the total
number of Managers, at a meeting at which a quorum is present, shall be the act
of the Board of Managers, unless the act of a greater number is required by
law, the Articles, or this Agreement. Tie votes

 

 

do not constitute a majority. Notwithstanding the foregoing, the
following actions shall require the consent of all four of the Managers:

     (a) Any Financing Transaction;

     (b) A call for Subsequent Capital Contributions pursuant to Section
5.2;

     (c) The issuance of any additional Units or any other voting or
equity security of the Company (or any Subsidiary of the Company) or the
issuance of any rights, warrants, options, convertible securities or
indebtedness, exchangeable securities or indebtedness or other rights,
exercisable for or convertible or exchangeable into Units or such other
equity security of the Company (or any Subsidiary of the Company), in
each case other than pursuant to Section 8.7;

     (d) The direct or indirect redemption, purchase or other acquisition
of any membership interest or other equity security of the Company (or
any Subsidiary of the Company);

     (e) Any amendment of this Agreement (which shall also require the
vote or consent of the Members in accordance with Section 6.6(a));

     (f) Any merger, combination, conversion, consolidation,
restructuring, reorganization, recapitalization or any other major
transaction involving the structure, ownership or voting of the Company
(or any Subsidiary of the Company) (which shall also require the vote or
consent of the Members in accordance with Section 6.6(b));

     (g) The sale, lease or other disposition of all or substantially all
of the assets of the Company (or any Subsidiary of the Company) other
than in the ordinary course of business (which shall also require the
vote or consent of the Members in accordance with Section 6.6(c));

     (h) Any acquisition by the Company (or any Subsidiary of the
Company) of the equity ownership or all or a substantial portion of the
assets of any other entity;

     (i) The filing by the Company (or any Subsidiary of the Company) of
a petition under federal bankruptcy laws or any other insolvency law, or
the admission in writing by the Company (or any Subsidiary of the
Company) of its insolvency or general inability to pay its debts as they
become due;

     (j) Any election to dissolve the Company (or any Subsidiary of the
Company) except as provided in Section 17.7;

     (k) Except for the Loan Documents, the Services Agreement and the
Employment Agreements, any transaction or entering into any agreement
between the Company (or any Subsidiary of the Company) and a Member or
Manager or an Affiliate of a Member or Manager;

 

 

     (l) Any action or decision that is inconsistent with the purposes of
the Company as set forth in Section 3.1 hereof;

     (m) The submission to a vote of the Members of any other matter which does not under the Act or this Agreement require the approval of
the Members;

     (n) The resignation or withdrawal of a Member from the Company pursuant to Section 6.5; and

     (o) Any Tax Distributions (but not Tax Loans) pursuant to Section 14.1.

     Section 9.8. Action by Unanimous Written Consent Without a Meeting and
Telephonic Meetings. Any action required or permitted to be taken at a meeting
of the Board of Managers or committee thereof under the provisions of any
applicable law, the Articles, or this Agreement may be taken without a meeting
if a consent in writing setting forth the action so taken is signed by all
members of the Board of Managers. Such consent shall have the same force and
effect as a unanimous vote of the Board of Managers or committee thereof.
Managers may elect to participate in any meeting of the Board of Managers and
meetings of the Board of Managers may be held by conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in such a meeting shall
constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.

     Section 9.9. Committees. The Board of Managers, by resolution adopted by
a majority of the full Board of Managers, may designate one or more committees
from among the Managers, each of which, to the extent provided in such
resolution or in this Agreement, shall have and may exercise all the authority
of the Board of Managers, subject to the limitations imposed by applicable law,
the Articles, and this Agreement.

X. NOTICES

     Section 10.1. Methods of Giving Notice. Whenever any notice is required
to be given to any Member or Manager under the provisions of any applicable
law, the Articles, or this Agreement, it shall be given in writing and
delivered personally or delivered by facsimile communication (“telefax”) (or,
with the approval of all such Members or Managers, via telephone or electronic
mail) to such Member or Manager at such address (and at such member facsimile)
as appears on the books of the Company, and such notice shall be deemed to be
given at the time the recipient actually receives the notice in the case of
personal delivery, when the sender receives electronic confirmation of delivery
with respect to any notice given by facsimile communication, when the sender
actually speaks to the recipient in the case of telephonic notice or when the
recipient reads the message in the case of electronic mail.

     Section 10.2. Waiver of Notice. Whenever any notice is required to be
given to any Member or Manager under the provisions of any applicable law, the
Articles, or this Agreement, a waiver thereof in writing signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.

 

 

     Section 10.3. Attendance as Waiver. Attendance of a Member or Manager at
a meeting shall constitute a waiver of notice of such meeting, except where a
Member or Manager attends a meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business on the ground
that the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, a meeting need be specified in any
written waiver unless required by any applicable law, the Articles, or this
Agreement.

XI. OFFICERS

     Section 11.1. Officers. The Board of Managers may appoint officers of the
Company as provided in this Agreement. The officers of the Company shall
initially consist of a Chairman (who initially shall be M. Jay Allison), a
Chief Executive Officer (who initially shall be Laufer), a President (who
initially shall be Blackie), a Chief Financial Officer (who initially shall be
Roland O. Burns), and a Secretary (who initially shall be Roland O. Burns) to
serve at the pleasure of the Board of Managers and who shall hold their offices
for such terms and shall exercise such power and perform such duties as shall
be determined from time to time by the Board of Managers. The Board of
Managers may appoint such additional officers with such duties as the Board of
Managers shall determine.

     Section 11.2. Election and Qualification. The Board of Managers shall
choose the Chief Executive Officer, the President, the Chief Financial Officer,
the Secretary and such other officers as the Board of Managers shall determine
and such officers shall continue to hold their offices until their death,
resignation or removal.

     Section 11.3. Salaries. Any officer appointed by the Board of Managers
shall receive such compensation in such person’s capacity as an appointed
officer of the Company as the Board of Managers shall determine.

     Section 11.4. Term, Removal and Vacancies. Each officer of the Company
shall hold office until his successor is chosen and qualified or until his
death, resignation, or removal. Any officer may resign at any time upon giving
written notice to the Company. Any officer may be removed by the Board of
Managers, with or without cause, but such removal shall be without prejudice to
the contract or other legal rights, if any, of the person so removed. Election
or appointment of an officer shall not of itself create contract rights. Any
vacancy occurring in any office of the Company by death, resignation, removal
or otherwise shall be filled by the Board of Managers.

     Section 11.5. Chairman. The Chairman shall have such powers and duties as
are set forth in Section 8.6.

     Section 11.6. Chief Executive Officer. The Chief Executive Officer shall
have general powers of oversight, supervision and management of the business
and affairs of the Company, and shall see that all orders and resolutions of
the Board of Managers are carried into effect. The Chief Executive Officer
shall have such other powers and duties as usually pertain to such office or as
may be delegated by the Board of Managers.

     Section 11.7. President. The President shall have such general powers of
oversight, supervision and management of the business and officers of the
Company as are not delegated to

 

 

the Chief Executive Officer and such other powers and duties as usually
pertain to such office or as the Board of Managers shall prescribe.

     Section 11.8. Chief Financial Officer. The Chief Financial Officer shall
have the charge of the funds and the financial condition of the Company and
shall have such other powers and duties as usually pertain to such office or as
the Board of Managers shall prescribe or as the Chief Executive Officer shall
delegate.

     Section 11.9. Secretary. The Secretary shall act as the secretary of the
Board of Managers and shall have such other powers and duties as usually
pertain to such office or as the Board of Managers shall prescribe or as the
Chief Executive Officer shall delegate.

XII. INDEMNIFICATION

     Section 12.1. Right to Indemnification. Subject to the limitations and
conditions set forth in this Article XII, each Person who was or is made a
party or is threatened to be made a party to or is involved in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative (a “Proceeding”), or any appeal in
such a Proceeding or any inquiry or investigation that could lead to such a
Proceeding, by reason of the fact that he or she, or a Person of whom he or she
is the legal representative, is or was a Member, Manager or officer of the
Company or while a Member, Manager or officer of the Company is or was serving
at the request of the Company as a partner, director, officer, manager, member,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic limited liability company, corporation,
partnership, joint venture, sole proprietorship, trust, employee benefit plan
or other enterprise (a “Covered Person”), shall be indemnified by the Company
to the fullest extent permitted by the Act, as the same exists or may be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Company to provide broader indemnification rights than
said law permitted the Company to provide prior to such amendment) against
judgments, penalties (including excise and similar taxes and punitive damages),
fines, settlements and reasonable expenses (including, without limitation,
attorneys’ fees) actually incurred by such Person in connection with such
Proceeding, and indemnification under this Section 12.1 shall continue as to a
Person who has ceased to serve in the capacity that initially entitled such
Person to indemnity under this Section. Such actions covered by such
indemnification shall include those brought by a Member or the Company. The
rights granted pursuant to this Article XII shall be deemed contract rights,
and no amendment, modification or repeal of this Article XII shall have the
effect of limiting or denying any such rights with respect to actions taken or
Proceedings arising prior to any such amendment, modification or repeal. IT IS
EXPRESSLY ACKNOWLEDGED THAT THE INDEMNIFICATION PROVIDED IN THIS ARTICLE XII
COULD INVOLVE INDEMNIFICATION FOR NEGLIGENCE OR UNDER THEORIES OF STRICT
LIABILITY; provided, however, that notwithstanding the foregoing or any other
provision of this Agreement, the Company shall not provide indemnification to
any Person in respect of any Disabling Conduct. The negative disposition of
any Proceeding by judgment, order, settlement, conviction or upon a plea of
nolo contendere, or its equivalent, shall not, of itself, create a presumption
that the Covered Person acted in a manner contrary to the standard set forth in
this Section.

 

 

     Section 12.2. Advance of Expenses. The right to indemnification conferred
in this Article XII shall include the right to be paid or reimbursed by the
Company the reasonable expenses incurred by a Person of the type entitled to be
indemnified under Section 12.1 or 12.3 who was, is or is threatened to be made
a named defendant or respondent in a Proceeding in advance of the final
disposition of the Proceeding and without any determination as to the Person’s
ultimate entitlement to indemnification; provided, however, that the payment of
such expenses incurred by any such Person in advance of the final disposition
of a Proceeding shall be made only upon the delivery to the Company of a
written affirmation by such Person of his good faith belief that he has met the
standard of conduct necessary for indemnification under Section 12.1 or 12.3
and a written undertaking, by or on behalf of such Person, to repay all amounts
so advanced if it shall ultimately be determined that such indemnified Person
is not entitled to be indemnified under Section 12.1 or 12.3.

     Section 12.3. Indemnification of Employees and Agents. The Company may
indemnify and advance expenses to any employee or agent of the Company to the
same extent permitted under Section 12.1 for Covered Persons. In addition, the
Company may (by a resolution of the Members) indemnify and advance expenses to
any Person whether or not he is an employee or agent of the Company but who is
or was serving at the request of the Company as a member, manager, director,
officer, partner, venturer, proprietor, trustee, employee, agent or similar
functionary of another foreign or domestic limited liability company,
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise against any liability asserted against him and
incurred by him in such a capacity or arising out of his status as such a
Person, to the same extent permitted under Section 12.1 for Covered Persons.

     Section 12.4. Appearance as a Witness. Notwithstanding any other
provision of this Article XII the Company may pay or reimburse expenses
incurred by a Member, Manager, officer, employee or agent in connection with
his appearance as a witness or other participation in a Proceeding at a time
when he is not a named defendant or respondent in the Proceeding.

     Section 12.5. Non-Exclusivity of Rights. The right to indemnification and
the advancement and payment of expenses conferred in this Article XII shall not
be exclusive of any other right a Person indemnified pursuant to this Article
XII may have or may acquire under any law (common or statutory), any provision
of the Articles or this Agreement, a vote of Members or Managers or otherwise.

     Section 12.6. Insurance. The Company may purchase and maintain insurance,
to the extent and in such amounts as the Board of Managers shall, in its sole
discretion, deem reasonable, to protect itself, the Company and/or any Covered
Persons or other Persons indemnifiable under the provisions of this Article XII
against any expense, liability or loss, whether or not the Company would have
the power to indemnify such Person against such expenses, liability or loss
under this Article XII.

     Section 12.7. No Personal Liability. In no event may any Covered Person
subject the Members to personal liability by reason of any indemnification of
an Covered Person under this Agreement or otherwise.

 

 

     Section 12.8. Interest in Transaction. A Covered Person shall not be
denied indemnification in whole or in part under this Article XII because the
Covered Person had an interest in the transaction with respect to which the
indemnification applies if the transaction is otherwise permitted by the terms
of the Governance Agreements.

     Section 12.9. Successors and Assigns. The provisions of this Article XII
are for the benefit of the Covered Persons and their heirs, successors,
assigns, administrators and personal representatives and shall not be deemed to
be for the benefit of any other Persons. The provisions of this Section 12.9
shall not be amended in any way that would diminish the rights of Covered
Persons under this Article XII without the approval of the Members.

     Section 12.10. Savings Clause. If all or any portion of this Article XII
shall be invalidated on any ground by any court of competent jurisdiction, then
the Company shall nevertheless indemnify and hold harmless any Person
indemnified pursuant to this Article XII as to costs, charges and expenses
(including attorneys’ fees), judgments, fines and amounts paid in settlement
with respect to any action, suit or proceeding, whether civil, criminal,
administrative or investigative, to the fullest extent permitted by any
applicable portion of this Article XII that shall not have been invalidated
and, subject to this Article XII, to the fullest extent permitted by applicable
law.

     Section 12.11. Exculpation. The following exculpatory provisions shall
apply to this Agreement:

     (a) General. Notwithstanding any other terms of this Agreement,
whether express or implied, or obligation or duty at law or in equity, no
Covered Person nor any officer, employee, representative or agent of the
Company or its Affiliates shall be liable to the Company or any Member
for any act or omission (in relation to the Company, this Agreement, any
related document or any transaction or investment contemplated hereby or
thereby) taken or omitted in good faith by such Person and in the
reasonable belief that such act or omission is in or is not contrary to
the best interests of the Company and is within the scope of authority
granted to such Person by this Agreement or the other Governance
Agreement except in the following circumstances: (i) such act or
omission constitutes Disabling Conduct or (ii) with respect to liability
that may arise under any other agreement, such act or omission
constitutes a breach of that agreement.

     (b) Reliance. A Covered Person or other officer, employee,
representative or agent of the Company may rely and shall incur no
liability in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
consent, order, bond, debenture, paper, document, signature or writing
reasonably believed by it to be genuine, and may rely on a certificate
signed by an officer of any Person in order to ascertain any fact with
respect to such Person or within such Person’s knowledge and may rely on
an opinion of counsel selected by such Covered Person or other officer,
employee, representative or agent of the Company with respect to legal
matters unless such Covered Person acts in bad faith.

 

 

XIII. ALLOCATIONS

     Section 13.1. Consent to Allocations. Each Member as a condition of
becoming a Member expressly consents to the following allocations as set forth
in this Article XIII.

     Section 13.2. Distributive Shares for Tax Purposes. There shall be
allocated to each Member for federal income tax purposes a separate
distributive share of all Company income, gain, loss, deduction and credit as
follows:

     (a) Except as otherwise provided in this Article XIII, Net Profit,
if any, of the Company (and each item thereof) for each Fiscal Year or
other period shall be allocated among the Members as follows:

     (i) First, to the Members holding Class B Units and the
Members holding Class C Units until the cumulative Net Profit
allocated pursuant to this Section 13.2(a)(i) equals the Net Loss
allocated to such Members pursuant to Section 13.2(b)(iii);

     (ii) Second, to the Members holding Class A Units and Class B
Units until the cumulative Net Profit allocated pursuant to this
Section 13.2(a)(ii) equals the Net Loss allocated to such Members
pursuant to Section 13.2(b)(ii); and

     (iii) Third, to the Members holding Class B Units and the
Members holding Class C Units pro rata in accordance with their
Ownership Percentages; provided, however, the allocation of Net
Profit to the Members holding Class C Units shall be reduced by any
reduction in their distributions pursuant to the second proviso
contained in Section 14.2 and the allocation of Net Profit to the
Members holding Class B Units shall be increased accordingly.

     (b) Except as otherwise provided in this Article XIII, Net Loss, if
any, of the Company (and each item thereof) for each Fiscal Year or other
period shall be allocated to the Members as follows:

     (i) First, to the Members holding Class B Units and the
Members holding Class C Units until the Net Loss allocated pursuant
to this Section 13.2(b)(i) equals the Net Profit allocated to such
Members pursuant to Section 13.2(a)(iii);

     (ii) Second, to the Members holding Class A Units and Class B
Units until the cumulative Net Loss allocated pursuant to this
Section 13.2(b)(ii) equals the amounts of their Unreturned Equity;
and

     (iii) Third, to the Members holding Class B Units and the
Members holding Class C Units pro rata in accordance with their
Ownership Percentages.

     (c) The provisions of this Agreement relating to the allocation of
Gross Income, Net Profit and Net Loss are intended to comply with the
Treasury Regulations

 

 

under Section 704(b) of the Code and shall be interpreted and
applied in a manner consistent with such Treasury Regulations.

     (d) Notwithstanding any other provision of this Agreement to the
contrary, if in any Fiscal Year or other period there is a net decrease
in the amount of the Company Minimum Gain, then each Member shall first
be allocated items of Gross Income for such year (and, if necessary,
subsequent years) in an amount equal to such Member’s share of the net
decrease in such minimum gain during such year (as determined under
Treasury Regulations Section 1.704-2(g)(2)); provided, however, if there
is insufficient Gross Income in a year to make the allocation specified
above for all Members for such year, the Gross Income shall be allocated
among the Members in proportion to the respective amounts they would have
been allocated above had there been an unlimited amount of Gross Income
for such year.

     (e) Notwithstanding any other provision of this Agreement to the
contrary other than Section 13.2(d), if in any year there is a net
decrease in the amount of the Member Nonrecourse Debt Minimum Gain, then
each Member shall first be allocated items of Gross Income for such year
(and, if necessary, subsequent years) in an amount equal to such Member’s
share of the net decrease in such minimum gain during such year (as
determined under Treasury Regulations Section 1.704-2(i)(4)); provided,
however, if there is insufficient Gross Income in a Fiscal Year to make
the allocation specified above for all Members for such year, the Gross
Income shall be allocated among the Members in proportion to the
respective amounts they would have been allocated had there been an
unlimited amount of Gross Income for such Fiscal Year.

     (f) Notwithstanding any other provision of this Agreement to the
contrary (except Sections 13.2(d) and 13.2(e) which shall be applied
first), if in any Fiscal Year or other period a Member unexpectedly
receives an adjustment, allocation or distribution described in Treasury
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Gross
Income shall first be allocated to Members with negative Capital Account
balances (adjusted in accordance with Section 13.4(e)), in proportion to
such negative balances, until such balances are increased to zero.

     (g) Notwithstanding the provisions of Section 13.2(b), Net Loss (or
items thereof) shall not be allocated to a Member if such allocation
would cause or increase a negative balance in such Member’s Capital
Account (adjusted in accordance with Section 13.4(e)) and shall be
reallocated to the other Members, subject to the limitations of this
Section 13.2(g).

     (h) Any Member Nonrecourse Deductions shall be allocated to the
Member who bears the economic risk of loss with respect to the Member
Nonrecourse Debt to which such deductions are attributable.

     (i) Company Nonrecourse Deductions shall be allocated to the Members
pro rata in accordance with their Ownership Percentages.

 

 

     (j) In the event that any Gross Income, Net Loss (or items thereof)
or deductions are allocated pursuant to Sections 13.2(d) through 13.2(i),
subsequent Gross Income, Net Profit or Net Loss (or items thereof) will
first be allocated (subject to Sections 13.2(d) through 13.2(i)) to the
Members in a manner which will result in each Member having a Capital
Account balance equal to that which would have resulted had the original
allocation of Gross Income, Net Loss (or items thereof) or deductions
pursuant to Sections 13.2(d) through 13.2(i) not occurred; provided,
however, no allocations pursuant to this Section 13.2(j), which are
intended to offset allocations pursuant to Section 13.2(h) and Section
13.2(i), shall be made prior to the Fiscal Year during which there is a
net decrease in Member Nonrecourse Debt Minimum Gain or Company Minimum
Gain, and then only to the extent necessary to avoid any potential
economic distortions caused by such net decrease in Member Nonrecourse
Debt Minimum Gain or Company Minimum Gain, and no such allocation
pursuant to this Section 13.2(j) shall be made to the extent that the
Board of Managers reasonably determines that it is likely to duplicate a
subsequent mandatory allocation pursuant to Section 13.2(d) or Section
13.2(e).

     (k) Unless the Board of Managers elects to adjust Capital Accounts
to reflect Actual Depletion Deductions pursuant to Section
1.704-1(b)(2)(iv)(k)(3) of the Treasury Regulations, the portion of the
total amount realized by the Company upon the taxable disposition of a
Depletable Property that represents recovery of its simulated adjusted
tax basis therein will be allocated to the Members in the same proportion
as the aggregate adjusted tax basis of such property was allocated to
such Members (or their predecessors in interest). If the Board of
Managers elects to use Actual Depletion Deductions pursuant to Section
1.704-1(b)(2)(iv)(k)(3) of the Treasury Regulations, the portion of the
total amount realized by the Company upon a taxable disposition of such
property that equals the Members’ aggregate remaining adjusted basis
therein will be allocated to the Members in proportion to their
respective remaining adjusted tax bases in such property. Any amount
realized in excess of the above amounts shall be allocated among the
Members in accordance with their Ownership Percentages.

     (l) Notwithstanding the other provisions of this Section 13.2 (other
than 13.2(d), (e), (f), (g), (h), (i) and (j)), the Net Profit or Net
Loss (and, if necessary, Gross Income and items included in Net Profit
and Net Loss) of the Company for the taxable year of liquidation of the
Company shall be allocated to the extent possible, in a manner such that
the Capital Accounts of the Members prior to the liquidating
distributions pursuant to Section 17.2 or Section 17.7 will to the
maximum extent possible, be in the same amounts as the distributions to
be made pursuant to the Members in accordance with Section 17.2 or
Section 17.7.

     (m) If an interest in the Company is transferred, the Gross Income,
Net Profit or Net Loss allocable to the holder of such Company interest
for the then Fiscal Year shall be allocated proportionately between the
assignor and the assignee based on the number of calendar days during
such Fiscal Year for which each party was the owner of the transferred
interest in the Company or upon some other reasonable method.

 

 

     Section 13.3. Code Section 704(c). In accordance with Code Section 704(c)
and the Treasury Regulations thereunder, depletion, depreciation, amortization,
income, gain and loss, as determined for tax purposes, with respect to any
property whose Book Value differs from its adjusted basis for federal income
tax purposes shall, for tax purposes, be allocated among the Members so as to
take account of any variation between the adjusted basis of such property to
the Company for federal income tax purposes and its Book Value. Such
allocations shall be made in accordance with the following principles:

     (a) In general, the Company shall utilize such method to eliminate
book-tax disparities attributable to a contributed property or adjusted
property as shall be determined by the Board of Managers.

     (b) The Company shall account for book-tax differences with respect
to contributed oil and gas properties under the principles set forth in
this paragraph, unless the Board of Managers determines that another
method more accurately accounts for book-tax disparities with respect to
such properties or is required to comply with Treasury Regulations or
rulings or other guidance issued by the Internal Revenue Service
subsequent to the formation of the Company. Under Code Section
613A(c)(7)(D), tax depletion on oil and gas property held by the Company
shall be computed separately by each Member with respect to its Class B
Units based on the Member’s share of the Company’s adjusted basis in the
depletable properties. Gain or loss on the disposition of a depletable
property shall be computed separately by each Member with respect to its
Class B Units based on its share of the Company’s amount realized and
adjusted tax basis in the property. The adjusted tax basis of each oil
and gas property contributed to the Company shall be allocated to the
Member that contributed such property. All depletion deductions with
respect to such oil and gas property shall be allocated to such Member
with respect to its Class B Units. Gain or loss on the disposition of
such property shall be allocated to the contributing Member with respect
to its Class B Units to the extent of any remaining pre-contribution gain
or loss.

Allocations pursuant to this Section 13.3 are solely for purposes of federal,
state, and local taxes and shall not affect, or in any way be taken into
account in computing, any Member’s Capital Account or share of Net Profit, Net
Loss, other items, or distributions pursuant to any provision of this
Agreement.

     Section 13.4. Capital Accounts. A separate capital account (“Capital
Account”) shall be maintained for each Member, as follows:

     (a) There shall be credited to each Member’s Capital Account the
amount of any cash actually contributed by such Member to the capital of
the Company (or deemed contributed pursuant to Treasury Regulations
Section 1.704-1(b)(2)(iv)(c)), the fair market value of any property
contributed by such Member to the capital of the Company (net of any
liabilities secured by such property that the Company is considered to
assume or to take subject to under Code Section 752), such Member’s share
of the Gross Income and Net Profit (and all items thereof) of the
Company, and such Member’s share of Simulated Gain or, if the Board of
Managers elects to use Actual Depletion Deductions pursuant to Section
1.704-1(b)(2)(iv)(k)(3) of the Treasury Regulations, such Member’s

 

 

Actual Gains. There shall be charged against each Member’s Capital
Account the amount of all cash distributed to such Member by the Company
(or deemed distributed pursuant to Treasury Regulations Section
1.704-1(b) (2) (iv) (c)), the fair market value of any property
distributed to such Member by the Company (net of any liability secured
by such property that the Member is considered to assume or take subject
to under Code Section 752), such Member’s share of the Net Loss (and all
items thereof) of the Company, and either such Member’s distributive
share of Simulated Losses and Simulated Depletion Deductions or, if the
Board of Managers elects to use Actual Depletion Deductions pursuant to
Section 1.704-1(b)(2)(iv)(k)(3) of the Treasury Regulations, such
Member’s Actual Losses and Actual Depletion Deductions.

     (b) If the Company at any time distributes any of its assets in-kind
to any Member, the Capital Account of each Member shall be adjusted to
account for that Member’s allocable share (as determined under this
Article XIII) of the Net Profit or Net Loss that would have been realized
by the Company had it sold the assets that were distributed at their
respective fair market values immediately prior to their distribution,
but only to the extent not previously reflected in the Members’ Capital
Accounts.

     (c) Any adjustments to the tax basis (or Book Value) of Company
property under Code Sections 732, 734 or 743 will be reflected as
adjustments to the Capital Accounts of the Members, only in the manner
and to the extent provided in Treasury Regulations Section
1.704-1(b)(2)(iv)(m).

     (d) Upon the decision of the Board of Managers, the Capital Accounts
of the Members shall be adjusted to reflect a revaluation of Company
property to its fair market value on the date of adjustment upon the
occurrence of any of the following events:

     (i) An increase in any new or existing Member’s Ownership
Interest resulting from the contribution of money or property by
such Member to the Company,

     (ii) Any reduction in a Member’s Ownership Interest resulting
from a distribution to such Member in redemption of all or part of
its Ownership Interest, unless such distribution is pro rata to all
Members in accordance with their respective Ownership Interests,
and

     (iii) Whenever otherwise allowed under Treasury Regulations
Section 1.704-1(b)(2)(iv)(f).

     The adjustments to Capital Accounts shall reflect the manner in
which the unrealized Net Profit or Net Loss inherent in the property
would be allocated if there were a disposition of the Company’s property
at its fair market value on the date of adjustment.

     (e) For purposes of Sections 13.2(d) through 13.2(i) a Member’s
Capital Account shall be reduced by the net adjustments, allocations and
distributions described in Treasury Regulations Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6) which, as of the end of the
Company’s taxable year are reasonably expected to be made to such Member,
and

 

 

shall be increased by the sum of (i) any amount which the Member is
required to restore to the Company upon liquidation of its Ownership
Interest in the Company (or which is so treated pursuant to Treasury
Regulations Section 1.704-1(b)(2)(ii)(c)) pursuant to the terms of this
Agreement or under state law, (ii) the Member’s share (as determined
under Treasury Regulations Section 1.704-2(g)(1)) of Company Minimum
Gain, (iii) the Member’s share (as determined under Treasury Regulations
Section 1.704-2(i)(5)) of Member Nonrecourse Debt Minimum Gain and (iv)
the Member’s share (as determined under Section 752 of the Code) of any
recourse indebtedness of the Company to the extent that such indebtedness
could not be repaid out of the Company’s assets if all of the Company’s
assets were sold at their respective Book Values as of the end of the
Fiscal Year or other period and the proceeds from the sales were used to
pay the Company’s liabilities. For the purposes of clause (iv) above,
the amounts computed pursuant to clause (i) above for each Member shall
be considered to be proceeds from the sale of the assets of the Company
to the extent such amounts would be available to satisfy (directly or
indirectly) the indebtedness specified in clause (iv).

     (f) For purposes of computing the Members’ Capital Accounts,
Simulated Depletion Deductions and Simulated Losses shall be allocated
among the Members in the same proportions as they (or their predecessors
in interest) were allocated the basis of Company oil and gas properties
pursuant to Code Section 613A(c)(7)(D), the Treasury Regulations
thereunder, and Section 1.704-1(b)(4)(v) of the Treasury Regulations.
Simulated Gains shall be allocated among the Members in accordance with
their Ownership Percentages, subject however to Section 13.2(l). In
accordance with Code Section 613A(c)(7)(D) and the Treasury Regulations
thereunder and Section 1.704-1(b)(4)(v) of the Treasury Regulations, the
adjusted basis of all oil and gas properties shall be shared by the
Members in proportion to the Ownership Percentages; provided, however,
that in the case of the Company’s share of the basis of oil and gas
properties contributed or deemed to be contributed by the Members to the
Company pursuant to the Contribution Agreement, the adjusted basis of
such oil and gas properties shall be allocated among the Members in
amounts equal to their respective shares of such basis in the properties
so contributed.

     (g) Notwithstanding anything in this Agreement to the contrary
(including, without limitation, Section 13.4(d)), upon the exercise of
any option to purchase Class B Units, the Members’ Capital Accounts shall
be adjusted immediately after the exercise of the option to reflect a
revaluation of the Company’s assets to their fair market values on the
date of adjustment.

     (h) It is the intention of the Members that the Capital Accounts of
the Company be maintained strictly in accordance with the Capital Account
maintenance requirements of Treasury Regulations Section 1.704-1(b). The
foregoing provisions and the other provisions of this Agreement relating
to the maintenance of Capital Accounts are intended to comply with
Treasury Regulations Section 1.704-1(b), and shall be interpreted and
applied in a manner consistent with such regulations and any amendment or
successor provision thereto. The Members agree to make any appropriate
modifications if events might otherwise cause this Agreement not to
comply with Treasury Regulations Section 1.704-1(b).

 

 

     (i) A deficit in a Member’s Capital Account shall not be considered
an asset of the Company, and no Member shall be obligated to restore or
otherwise be responsible for a deficit or negative balance in such
Member’s Capital Account.

     Section 13.5. Compliance with the Code. It is intended that the tax
allocations in this Article XIII effect an allocation for federal income tax
purposes in a manner consistent with Sections 704 and 706 of the Code and
comply with any limitations or restrictions therein. The Board of Managers
shall have complete discretion to make the allocations pursuant to this Article
XIII and the allocations and adjustments to Capital Accounts in any manner
consistent with Sections 704 and 706 of the Code. The Board of Managers, in
its sole discretion, may determine whether payments to Members, other than
those distributions pursuant to Article XIV, shall be treated by the Company as
payments governed by Section 707(c) of the Code. The Board of Managers shall
have complete discretion to make such allocations and adjustments to Capital
Accounts as shall be required to comply with such Section.

XIV. DISTRIBUTIONS

     Section 14.1. Distribution of Operating Cash Flow.

     (a) Except as provided in Article XVII, Operating Cash Flow, if any,
shall be distributed to the Members holding Class B Units and the Members
holding Class C Units pro rata in accordance with their Ownership
Percentages at such time or times as determined by the Board of Managers;
provided, however, in no event shall any distribution of Operating Cash
Flow (other than pursuant to Section 14.1(b)) be made to the Members
until the Revolving Note and all Member advances made pursuant to Section
5.4 are repaid in full.

     (b) At a minimum, provided that funds are available therefor,
Operating Cash Flow shall be distributed in an amount sufficient to pay
the federal income tax liability of the Members attributable to any Net
Profit allocated to such Members pursuant to this Agreement based on the
highest marginal federal individual tax rate in effect at the time of
such allocation (“Tax Distributions”), unless such Tax Distributions are
prohibited by law or any restrictions contained in agreements to which
the Company or CRI is a party. If the Board of Managers determines that
the Company cannot make Tax Distributions because of restrictions under
such agreements, the Company shall make loans to the Members in the
amount of such distributions (“Tax Loans”) which loans shall provide for
interest at such rate as shall be determined by the Board of Managers.
Tax Distributions or Tax Loans shall be made quarterly or on another
basis in a manner reasonably determined by the Board of Managers to
enable the Members to satisfy both estimated and final tax payment
requirements. The amount of any Tax Distributions or Tax Loans made to a
Member pursuant to this Section 14.1(b) shall be deducted or repaid from
the amount of any future distributions that would otherwise be made to
such Member pursuant to this Section 14.1, Section 14.2 or Article XVII.

     Section 14.2. Distribution of Net Proceeds of a Capital Transaction.
Except as provided in Article XVII, Net Proceeds of a Capital Transaction shall
be distributed at such times as shall be determined by the Board of Managers to
the Members as follows:

 

 

     (a) First, to the Members holding Class A Units and Class B Units in
proportion to and to extent of their Unreturned Equity; and

     (b) Second, to the Members holding Class B Units and the Members
holding Class C Units pro rata in accordance with their Ownership
Percentages;

provided, however, in no event shall any distribution of Net Proceeds of a
Capital Transaction be made to the Members until the Revolving Note is repaid
in full in cash and provided, further, however in no event shall the
distributions to the Members holding Class C Units exceed one half of the
distribution to the holders to Class B Units on a per unit basis and such
excess shall be distributed to the holders of the Class B Units pro rata in
accordance with their Ownership Percentage.

     Section 14.3. Amount Withheld. Notwithstanding any other provision of
this Agreement to the contrary, the Board of Managers is authorized to take any
action that it determines to be necessary or appropriate to cause the Company
to comply with any withholding or other payment requirements established under
the Code or any other federal, state or local law including, without
limitation, pursuant to Sections 1441, 1442, 1445 and 1446 of the Code. To the
extent that the Company is required to pay to any governmental authority any
amount resulting from either the allocation of income or gain or a distribution
to any Member (including, without limitation, by reason of Sections 1441, 1442,
1445 or 1446 of the Code), the amount so paid shall be treated as a
distribution of cash to the Member and any future distributions to which such
Member is entitled shall be reduced to the extent of any amount treated as a
distribution pursuant to this Section 14.3. The Capital Account of the Member
for which amounts are paid over to a governmental authority pursuant to this
Section 14.3 shall be decreased by such amount paid over to the governmental
authority. A Member who has had amounts paid over to a governmental authority
pursuant to this Section 14.3 shall be entitled to receive any refund of any
such tax, penalty, interest or other amount received by the Company on account
of amounts paid on behalf of the Member pursuant to this Section 14.3;
provided, however, that the amount due such Member shall be reduced by any
expenses of the Company incurred in connection with the payment or refund of
such tax, penalty, interest or other amount. The Company shall have no duty or
obligation to seek to obtain or collect any refund or expend any amount to
reduce the amount of any withholding, penalty, interest or other amount
otherwise payable to any governmental authority; provided, however, upon
request by a Member, the Company shall take reasonable steps to cooperate with
the Member on a refund request provided that the Company is reimbursed by the
Member for the Company’s costs and expenses arising from such cooperation. If
at any time a Member’s interest in the Company is transferred or assigned, the
proposed assignee shall certify to non-foreign status prior to the transfer or
assignment of the interest. Such certifications shall be made on a form to be
provided by the Board of Managers. Each Member shall notify the Company if it
becomes either a “Foreign Person”, as defined in Code Section 1445, or a
“Foreign Partner”, as defined in Code Section 1446, within thirty (30) calendar
days of such change.

XV. TRANSFER OF INTERESTS

     Section 15.1. Transfer Restriction Agreement. Each Member as of the date
of this Agreement is also a party to the Transfer Restriction Agreement. As a
condition to being

 

 

admitted as a Member, any other Person must become a party to the Transfer
Restriction Agreement, in accordance with the procedures set forth therein.
The Transfer Restriction Agreement, a copy of which is attached hereto as
Exhibit C, is incorporated by reference in this Agreement as if fully set forth
herein and forms a part of this Agreement.

     Section 15.2. Transfers of Interests and Admission of New Members. No
Member may assign, sell or otherwise transfer by operation of law or otherwise,
any of its right, title or interest or any portion thereof in the Company
unless such Member shall first comply with the provisions of the Transfer
Restriction Agreement applicable to the proposed assignment, sale or transfer.
In the event of foreclosure of the Comstock Member’s Ownership Interest in
connection with a pledge or grant of such interest pursuant to Section 3.3 of
the Transfer Restriction Agreement, the foreclosing party shall be substituted
for the Comstock Member automatically upon such foreclosure without the consent
of the Members, and shall have all the rights of the Comstock Member under this
Agreement. In the event an Affiliate Transfer or a Familial Transfer results
in the entirety of a Member’s Ownership Interest in the Company being
transferred, then such transferee shall be substituted for that Member
automatically upon such transfer without the consent of the Members, and shall
have all the rights of such Member under this Agreement. In the event of an
Affiliate Transfer or a Familial Transfer of the entirety of a Member’s
Ownership Interest divided between or among more than one transferee, only one
such transferee may become a substituted Member and the remainder of such
transferees shall be treated as and have the rights of assignees under the Act.
The transferor shall designate in a written notice to the Company and to each
other Member which such transferee shall become the substituted Member, and
such designated transferee shall be substituted for the transferor Member
automatically upon such transfer without the consent of the Members with
respect to the Ownership Interest transferred to such transferee, and shall
have all the rights of such transferring Member under this Agreement. In the
event of an Affiliate Transfer or a Familial Transfer of less than the entirety
of a Member’s Ownership Interest, such transferee shall not be a substituted
Member; but the transferring Member shall remain a Member and retain all rights
as a Member under this Agreement. Any other transferee of a Member’s Ownership
Interest in the Company shall be admitted to the Company as a substituted
Member only if (i) the assignment, sale or other transfer pursuant to which the
transferee acquired such Ownership Interest was effected in accordance with the
Transfer Restriction Agreement and (ii) “Holder Consent” (as defined in the
Transfer Restriction Agreement) of such assignment, sale or other transfer has
been obtained. If such a transferee is not admitted as a substituted Member
under this Article XV, it shall have none of the powers of a Member hereunder
but shall, subject to the further provisions hereof, have only such rights of
an assignee under the Act as are consistent with this Agreement. Such assignee
shall have no voting rights or consent rights (and shall have no power to
remove or replace Managers pursuant to Section 8.3(c)) or any other power to
participate in the management of the Company, but shall be subject to the
provisions of the Transfer Restriction Agreement including, without limitation,
the obligations under Articles II, IV and V thereof, but shall not be entitled
to exercise the rights of a party thereto, including, without limitation, under
Article III or VI thereof. In the event of any permitted transfer of an
interest in the Company pursuant to this Article XV and the Transfer
Restriction Agreement, the interest so transferred shall remain subject to all
terms and provisions of this Agreement and the Transfer Restriction Agreement,
and the transferee shall be deemed, by accepting the interest so transferred,
to have assumed all the liabilities and unperformed obligations, under this
Agreement, the Transfer Restriction Agreement or otherwise, which are
appurtenant to the

 

 

interest so transferred; shall hold such interest subject to all
unperformed obligations of the transferor Member hereunder and under the
Transfer Restriction Agreement; and shall agree in writing to the foregoing if
requested by the Board of Managers or the Members and shall join in and be
bound by the terms of this Agreement. No assignment shall relieve the assignor
from its obligations prior to this Agreement or the Transfer Restriction
Agreement, except that if the transferee is admitted as a Member, the assignor
shall be relieved of obligations hereunder and under the Transfer Restriction
Agreement accruing after the admission of the transferee as a Member.

     Section 15.3. Securities Laws Restrictions. Notwithstanding any other
provision of this Article XV, no transfer of an interest in the Company may be
made if the transfer would violate federal or state securities laws.

XVI. BOOKS OF ACCOUNT AND COMPANY RECORDS

     Section 16.1. Books of Account. At all times during the continuance of
the Company, the Managers shall keep or cause to be kept, full and true books
of account in which shall be entered fully and accurately all transactions of
the Company.

     Section 16.2. Inspection. All of the books of account of the Company,
together with an executed copy of this Agreement and any amendments hereto,
shall at all times be maintained at the principal office of the Company and
shall be open to the inspection and examination of the Members or their
representatives. Any Member may, at any time and from time to time, at its own
expense, cause an audit of the books of the Company to be made by a certified
public accountant or other person designated by such Member.

     Section 16.3. Fiscal Year and Accounting Method. The fiscal year of the
Company shall end on December 31 in each year, and the books of the Company
shall be kept on an accrual method of accounting by the Board of Managers.

     Section 16.4. Financial Reports. For each Fiscal Year during the term
hereof, the Board of Managers shall deliver to all the Members, as soon as
reasonably practicable after the expiration of such Fiscal Year, an audited
financial report of the Company, including a balance sheet, profit and loss
statement, and a statement showing distributions to the Members and the
allocation among the Members of taxable income, gains, losses, deductions and
credits of the Company. In addition, the Board of Managers shall cause to be
delivered to all the Members monthly unaudited statements of profit and loss
prepared on an accrual basis, such statements to reflect profit and loss on
both a monthly and year-to-date basis. Each such monthly statement shall be so
delivered within thirty (30) days after the end of the month to which the
statement pertains. An accounting of all items of receipt, income, profit,
cost, expense and loss shall also be prepared made by the Board of Managers
upon the dissolution of the Company.

     Section 16.5. Tax Returns. The Company shall cause all income tax returns
to be prepared or reviewed in compliance with this Agreement (in particular the
tax allocations in Article XIII hereof) by such firm of independent certified
public accountants as shall be selected by the Board of Managers, shall cause
such tax returns to be timely filed with the appropriate authorities and shall
cause copies thereof and all related matters needed by any Member for the

 

 

preparation of its tax returns to be promptly delivered to all Members.
Copies of such tax returns shall be kept at the principal office of the Company
and shall be available for inspection by any Member during normal business
hours. The income tax documentation to be generated hereunder shall include
any additional information reasonably requested by a Member for the preparation
of its return.

     Section 16.6. Tax Elections.

     (a) In the event of a transfer of all or part of an interest of a
Member authorized by this Agreement, the Company shall, upon the request
of the transferee, elect pursuant to Section 754 of the Code to adjust
the basis of Company property, and any basis adjustment relating to such
transfer, whether made under Section 754 of the Code or otherwise, shall
be allocated solely to the transferee; provided, however, that each
transferee shall pay the additional bookkeeping and accounting costs
which result from the basis adjustment pertaining to such transferee.
Each of the Members shall supply to the Company upon request the
information necessary properly to give effect to such election.

     (b) All other federal income tax elections required or permitted to
be made by the Company shall be made in such manner as may be agreed upon
by the Board of Managers. No Member shall take any action or refuse to
take any action which would cause the Company to forfeit the benefits of
any tax election previously made or agreed to be made.

     Section 16.7. Tax Matters Partner. Comstock Offshore, LLC is hereby
designated as the “Tax Matters Partner” of the Company within the meaning of
Section 6231(a)(7) of the Code and shall have the power to manage and control,
on behalf of the Company, any administrative proceeding at the Company level
with the Internal Revenue Service relating to the determination of any item of
Company income, gain, loss, deduction, or credit for federal income tax
purposes. The Tax Matters Partner shall comply with all statutory provisions
of the Code applicable to a “tax matters partner” and shall, without
limitation, within thirty (30) calendar days of the receipt of any notice from
the Internal Revenue Service in any administrative proceeding at the Company
level relating to the determination of any Company item of income, gain, loss,
deduction, or credit, mail a copy of such notice to each Member.

     Section 16.8. Bank Accounts. The funds of the Company shall be deposited
in the name of the Company in such bank accounts and with such signatories as
shall be selected by the Board of Managers. All deposits, including security
deposits, funds required to be escrowed and other funds not currently
distributable or needed in the operation of the Company business shall, to the
extent permitted by law, be deposited in such interest-bearing bank accounts or
invested in such financial instruments (including, without limitation, hedge
contracts and commodity contracts) as shall be approved by the Board of
Managers.

XVII. DISSOLUTION, WINDING UP AND DISTRIBUTION

     Section 17.1. Events of Dissolution. The Company shall be dissolved upon
the occurrence of any of the following events (an “Event of Dissolution”):

 

 

     (a) upon an election by the Board of Managers to dissolve the
Company;

     (b) the sale of substantially all of the assets of the Company;

     (c) as provided in Section 17.7; or

     (d) upon the entry of a decree of judicial dissolution of the
Company under Section 86.495 of the Act.

The death, retirement, resignation, expulsion, bankruptcy or dissolution of any
Member or the occurrence of any other event that terminates the continued
membership of any Member shall not cause the Company to be dissolved or its
affairs to be wound up.

     Section 17.2. Dissolution and Winding Up. Notwithstanding any other
provision of this Agreement, upon the dissolution of the Company, the Board of
Managers (which term, for purposes of this Section 17.2 and Section 17.4 shall
include the respective trustee, receiver or successor, if any, of either or
both thereof) shall have the responsibility for expeditiously dissolving and
liquidating the Company. They shall promptly proceed to wind up the affairs of
the Company and, after payment (or making provision for payment) of liabilities
owing to creditors, shall set up such reserves as they deem reasonably
necessary or appropriate for any contingent or unforeseen liabilities or
obligations of the Company. Said reserves may be paid over to a bank or an
attorney-at-law, to be held in escrow for the purpose of paying any such
contingent or unforeseen liabilities or obligations. After paying such
liabilities and setting up such reserves, the Board shall cause the remaining
net assets of the Company to be paid or distributed to the Members or their
assigns in accordance with the provisions of Section 14.2. At the expiration
of such period as the Board of Managers may deem advisable, any remaining
reserves shall be paid or distributed to the Members or their assigns in the
same manner as the preceding sentence. No Member shall receive any additional
compensation for any services performed pursuant to this Article XVII.

     Section 17.3. Final Statement. Upon the dissolution of the Company, a
final certified statement of its assets and liabilities shall be prepared by
the Company’s certified public accountants and furnished to the Members within
ninety (90) days after such dissolution.

     Section 17.4. Distribution In-Kind. If all the Members agree that it
shall be impractical to liquidate part or all the assets of the Company, then
assets which they agree are not suitable for liquidation may be distributed to
the Members in-kind, subject to the order of priority set forth in Section 17.2
hereof and, further, subject to such conditions relating to the management and
disposition of the assets distributed as the Board of Managers deems reasonable
and equitable. If Company assets are to be distributed in-kind, then prior to
any such distribution, the Capital Accounts of the Members shall be adjusted to
reflect the manner in which the unrealized taxable income, gain, loss and
deduction inherent in such property (to the extent that such items have not
been previously reflected in the Capital Accounts) would be allocated among the
Members if there were a taxable disposition of such property on the date of its
distribution for its then fair market value determined mutually by the Members.

     Section 17.5. Deemed Distribution and Recontribution. Notwithstanding any
other provision of this Article XVII, in the event the Company is liquidated
within the meaning of

 

 

Regulations Section 1.704-1(b)(2)(ii)(g) but no Event of Dissolution has
occurred, the assets of the Company shall not be liquidated, the Company’s
liabilities shall not be paid or discharged, and the Company’s affairs shall
not be wound up. Instead, the Company shall be deemed to have contributed its
assets in-kind to a new limited liability company, which shall be deemed to
have assumed and taken all Company assets subject to all Company liabilities.
Immediately thereafter, the Company shall be deemed to have liquidated and
distributed the interests in the new limited liability company in-kind to the
Members.

     Section 17.6. Financing Transaction. If the Board of Managers approves a
Financing Transaction and in connection with such Financing Transaction it is
necessary or appropriate (as determined by the Board of Managers) to convert to
a “C” corporation under Nevada law:

     (a) Each Member hereby appoints M. Jay Allison and Laufer, and each
of them, the lawful attorneys and proxies of such Member, each with
several powers of substitution, to at any time vote all Class A Units,
Class B Units and Class C Units held by such Member, with all of the
powers such Member would possess if voting personally, in favor of
approval and adoption of the Plan of Conversion of the Company, in
substantially the form attached hereto as Exhibit D, with such changes
therein as the executing person may approve, and the transactions
contemplated thereby, including but not limited, to the adoption of the
Articles of Incorporation of the converted corporation in substantially
the form attached thereto as Exhibit A, with such changes as the
executing person may approve. Such proxy is coupled with an interest and
is irrevocable.

     (b) The Company shall purchase and the Members holding Class A Units
shall sell to the Company all outstanding Class A Units for $1.00 per
Class A Unit. The Class B Units and Class C Units shall be converted
into shares of the converted corporation and allocated among the Members
pursuant to the provisions of Schedule C.

     (c) Upon such conversion the resulting corporation shall have nine
(9) directors, five of which shall be elected or appointed by the
Comstock Member and four of which will be elected or appointed by the
Bois d’Arc Members.

     Section 17.7. Failure to Complete Financing Transaction. If the Company
does not consummate a Financing Transaction by December 1, 2004 (or such later
date as shall be determined by a unanimous vote of the Board of Managers), the
following actions shall be taken:

     (a) First, the Company shall purchase and the Comstock Member shall
sell to the Company for a total purchase price of $1.00 per Class A Unit
the minimum number of Class A Units held by the Comstock Member that will
result in the Comstock Member owning less than fifty percent (50%) of the
total outstanding Class A Units outstanding; and

     (b) Then the Company shall be dissolved and liquidated in the
following manner:

     (i) to the extent possible, each asset of the Company that was
contributed to the Company by a Member shall be distributed in-kind
to such Member free and clear of any liens or encumbrances placed
on the asset by the Company;

 

 

     (ii) each Member shall repay any debt that the Company assumed
from such Member pursuant to the Contribution Agreement;

     (iii) each Member that received cash from the Company pursuant
to the Contribution Agreement shall contribute such cash to the
Company;

     (iv) each Member holding Class C Units shall be required to
sell to the Company all such Class C Units for a total purchase
price of one dollar ($1), and any outstanding options to acquire
Class B Units shall be cancelled without payment of consideration
to the holders thereof; and

     (v) the Company shall endeavor to put the Members in a
position as near as possible to the same economic position that the
Members would have been in if the Members had never formed the
Company and instead had continued to own their respective
properties individually, and the Company shall make such
distributions of cash and such allocations of taxable income, gain,
loss and expense as shall be reasonably required to accomplish the
foregoing.

In accordance with (i) above, and without limitation thereof, all
interests in Bois d’Arc Offshore, Ltd. and Bois d’Arc Oil & Gas Company,
LLC shall be distributed in-kind to Blackie and Laufer in the same
percentages as they owned such entities prior to the formation of the
Company. Such distribution shall include the exclusive right to such
entities’ names. In making the determination pursuant to (v) above the
Company shall allocate revenue and expenses during the period of the
Company’s existence to the properties contributed by the Members and to
the extent any revenue and expenses cannot be allocated to such
properties the Company shall allocate such revenue and expenses in
accordance with the Ownership Percentages.

     (c) The Exploration Agreement dated as of July 31, 2001 among CRI
Comstock Member, Bois d’Arc Resources, Ltd., Bois d’Arc Offshore, Ltd,
Blackie and Laufer and any joint operating agreements relating to the oil
and gas properties that were contributed to the Company pursuant to the
Contribution Agreement and that were terminated upon such contribution
shall be reinstated upon the dissolution and liquidation of the Company.

XVIII. CERTIFICATES

     Section 18.1. Form of Certificates. The ownership of the Company shall be
evidenced by certificates (collectively, “Certificates,” and each individually,
a “Certificate”). Each Certificate shall be substantially in the form set
forth in Exhibit “E.”

     Section 18.2. Terms of Certificates. Each Certificate shall be dated the
date of its issuance and shall specify the interest in the Company of the
holder thereof. The Chief Financial Officer hereby is authorized, empowered
and directed, for and on behalf of the Company, to

 

 

execute and deliver a Certificate to each Member admitted to the Company
pursuant to this Agreement.

     Section 18.3. Ownership of Certificates. The Company may deem and treat
the person in whose name any Certificate shall have been registered by the
Company as the absolute owner and holder of such Certificate for the purpose of
receiving payment of all amounts payable by the Company with respect to such
Certificate and for all other purposes.

     Section 18.4. Registration of Transfers; Exchanges. The Company shall
maintain at its office a register for the purpose of registering transfers and
exchanges of Certificates. A holder of a Certificate intending to transfer any
or all of the Certificates held by such holder to a new holder shall surrender
such Certificate or Certificates to the Company at the Company’s offices,
together with a written request from the holder surrendering such Certificate
or Certificates for the issuance of a new Certificate or Certificates, in the
same aggregate original face amount and dated the same date or dates as the
Certificate or Certificates surrendered.

     Section 18.5. Mutilated, Lost or Stolen Certificates. If any Certificate
shall become mutilated, destroyed, lost or stolen, the Company shall, upon the
written request of the holder of such Certificate, execute and deliver in
replacement thereof a new Certificate, dated the same date as the Certificate
so mutilated, destroyed, lost or stolen. If the Certificate being replaced has
become mutilated, such Certificate shall be surrendered to the Company and
cancelled. If the Certificate being replaced has been destroyed, lost or
stolen, the holder of such Certificate shall furnish to the Company (a) such
security or indemnity as may be required by the Board of Managers to save the
Company harmless and (b) evidence satisfactory to the Board of Managers of the
destruction, loss or theft of such Certificate and of the ownership thereof.

XIX. MISCELLANEOUS

     Section 19.1. Execution in Counterparts. This Agreement may be executed
in counterparts, all of which taken together shall be deemed one original.

     Section 19.2. Address and Notice. The address of each Member for all
purposes shall be as set forth on Schedule A or such other address or addresses
of which any Member shall have given the other Members notice. Any notice
shall be in accordance with Section 10.1.

     Section 19.3. Partition. The Members hereby agree that no Member shall
have the right while this Agreement remains in effect to have the assets of the
Company partitioned, or to file a complaint or institute any proceeding at law
or in equity to have any Company asset partitioned, and each Member hereby
waives any such right. It is the intention of the Members that during the term
of this Agreement, the rights of the Members as among themselves shall be
governed by the terms of this Agreement.

     Section 19.4. Further Assurances. Each Member hereby covenants and agrees
to execute and deliver such instruments as may be reasonably requested by any
other Member to convey any interest or to take any other action required or
permitted under this Agreement.

 

 

     Section 19.5. Titles and Captions. All article, section, or subsection
titles or captions contained in this Agreement or the table of contents hereof
are for convenience only and shall not be deemed part of the context of this
Agreement.

     Section 19.6. Number and Gender of Pronouns. All pronouns and any
variations thereof shall be deemed to refer to the masculine, feminine, neuter,
singular or plural as the identity of the Person or Persons may require.

     Section 19.7. Entire Agreement. This Agreement contains the entire
understanding between and among the Members and supersedes any prior
understandings and agreements between and among them respecting the subject
matter of this Agreement.

     Section 19.8. Amendment and Power of Attorney. This Agreement may be
amended or modified only by approval of the Board of Managers pursuant to
Section 9.7 and the consent of the Members pursuant to Section 6.6. Each
Member other than the Comstock Member, by its execution of this Agreement,
hereby makes, constitutes and appoints the Chief Executive Officer as its true
and lawful agent and attorney-in-fact, with full power of substitution and full
power and authority in its name, place and stead to make, execute, sign, and
acknowledge all instruments that the Chief Executive Officer deems appropriate
to reflect any amendment or modification of this Agreement or to comply with
the provisions of Section 17.6 or 17.7. The power of attorney granted by this
Section 19.8 shall be considered coupled with an interest and shall survive any
disability of a Member.

     Section 19.9. Exhibits and Schedules. All exhibits and schedules referred
to herein are attached hereto and made a part hereof for all purposes.

     Section 19.10. Agreement Binding. This Agreement shall be binding upon
the heirs, executors, administrators, successors, and assigns of the Members.

     Section 19.11. Waiver. No failure by any Member to insist upon the strict
performance of any covenant, duty, agreement, or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute a waiver of any such breach or any other covenant, agreement, term,
or condition. Any Member by the issuance of written notice may, but shall be
under no obligation to, waive any of its rights or any conditions to its
obligations hereunder, or any duty, obligation or covenant of any other Member.
No waiver shall affect or alter the remainder of this Agreement but each and
every covenant, agreement, term, and condition of this Agreement shall continue
in full force and effect with respect to any other then existing or subsequent
breach thereof.

     Section 19.12. Remedies. The rights and remedies of the Members set forth
in this Agreement shall not be mutually exclusive or exclusive of any right,
power or privilege provided by law or in equity or otherwise and the exercise
of one or more of the provisions hereof shall not preclude the exercise of any
other provisions hereof or of any legal, equitable or other right. Each of the
Members confirms that damages at law may be an inadequate remedy for a breach
or threatened breach of any provision hereof. The respective rights and
obligations hereunder shall be enforceable by specific performance, injunction,
or other equitable remedy, but nothing herein contained is intended to, or
shall limit or affect any rights at law or by statute or otherwise of any

 

 

Member aggrieved as against another Member for a breach or threatened
breach of any provision hereof, it being the intention of this section to make
clear the agreement of the Members that the respective rights and obligations
of the Members hereunder shall be enforceable in equity as well as at law or
otherwise.

     Section 19.13. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED,
ENFORCED, AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEVADA (WITHOUT
REGARD TO ITS CHOICE OF LAW PRINCIPLES).

     Section 19.14. DISPUTE RESOLUTION.

     (a) NEGOTIATION. THE MEMBERS SHALL ATTEMPT TO RESOLVE ANY DISPUTE
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TERMINATION, BREACH,
OR VALIDITY OF THIS AGREEMENT, PROMPTLY BY GOOD FAITH NEGOTIATION AMONG
REPRESENTATIVES WHO HAVE AUTHORITY TO RESOLVE THE CONTROVERSY. ANY
MEMBER MAY GIVE THE OTHER MEMBERS WRITTEN NOTICE OF ANY DISPUTE NOT
RESOLVED IN THE NORMAL COURSE OF BUSINESS. WITHIN 10 DAYS AFTER DELIVERY
OF THE NOTICE, THE RECEIVING MEMBER SHALL SUBMIT TO THE OTHERS A WRITTEN
RESPONSE. THE NOTICE AND THE RESPONSE SHALL INCLUDE (A) A STATEMENT OF
THE MEMBER’S CONCERNS AND PERSPECTIVES ON THE ISSUES IN DISPUTE, (B) A
SUMMARY OF SUPPORTING FACTS AND CIRCUMSTANCES AND (C) THE IDENTITY OF THE
REPRESENTATIVE WHO WILL REPRESENT THAT MEMBER AND OF ANY OTHER PERSON WHO
WILL ACCOMPANY THE REPRESENTATIVE. WITHIN 15 DAYS AFTER DELIVERY OF THE
ORIGINAL NOTICE, THE REPRESENTATIVES OF THE MEMBERS SHALL MEET AT A
MUTUALLY ACCEPTABLE TIME AND PLACE, AND THEREAFTER AS OFTEN AS THEY
REASONABLY DEEM NECESSARY, TO ATTEMPT TO RESOLVE THE DISPUTE. ALL
NEGOTIATIONS PURSUANT TO THIS CLAUSE AND CLAUSE (b) BELOW ARE
CONFIDENTIAL AND SHALL BE TREATED AS COMPROMISE AND SETTLEMENT
NEGOTIATIONS FOR PURPOSES OF APPLICABLE RULES OF EVIDENCE.

     (b) MEDIATION. IF A DISPUTE IS NOT RESOLVED BY DISCUSSION BETWEEN
OR AMONG MEMBERS, ANY MEMBER MAY BY NOTICE TO THE OTHER MEMBERS WITH WHOM
SUCH DISPUTE EXISTS REQUIRE MEDIATION OF THE DISPUTE, WHICH NOTICE SHALL
IDENTIFY THE NAMES OF NO FEWER THAN THREE (3) POTENTIAL MEDIATORS. EACH
MEMBER AMONG WHOM THE DISPUTE EXISTS AGREES TO PARTICIPATE IN MEDIATION
OF THE DISPUTE AND WILL IN GOOD FAITH ATTEMPT TO AGREE UPON A MEDIATOR.
IF THE PARTIES ARE UNABLE TO AGREE UPON A MEDIATOR WITHIN FIFTEEN (15)
DAYS AFTER SUCH NOTICE OR IF SUCH DISPUTE SHALL NOT HAVE BEEN RESOLVED BY
MEDIATION WITHIN THIRTY (30) DAYS AFTER SUCH NOTICE, THEN ANY SUCH MEMBER
MAY FILE FOR ARBITRATION PURSUANT TO SUBSECTION (c) BELOW. ALL EXPENSES
OF THE MEDIATOR SHALL BE EQUALLY SHARED BY THE MEMBERS AMONG WHOM THE
DISPUTE EXISTS.

 

 

	 	(c)	 	BINDING ARBITRATION.

     (i) ANY DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR THE BREACH, TERMINATION, OR VALIDITY OF THE AGREEMENT WHICH HAS
NOT BEEN RESOLVED BY MEDIATION WITHIN 30 DAYS OF THE INITIATION OF
SUCH PROCEDURE, OR WHICH HAS NOT BEEN RESOLVED PRIOR TO THE
TERMINATION OF MEDIATION, SHALL BE RESOLVED BY ARBITRATION IN
ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN
ARBITRATION ASSOCIATION (“AAA”) IN EFFECT ON THE DATE OF THIS
AGREEMENT. IF A PARTY TO A DISPUTE FAILS TO PARTICIPATE IN
MEDIATION, THE OTHERS MAY INITIATE ARBITRATION BEFORE EXPIRATION OF
THE ABOVE PERIOD. IF THE AMOUNT OF THE CLAIM ASSERTED BY THE
CLAIMANT IN THE ARBITRATION EXCEEDS $1,000,000, THE MEMBERS AGREE
THAT THE AMERICAN ARBITRATION ASSOCIATION OPTIONAL PROCEDURES FOR
LARGE, COMPLEX COMMERCIAL DISPUTES WILL BE APPLIED TO THE DISPUTE.

     (ii) THE PARTIES TO THE DISPUTE SHALL MUTUALLY AGREE UPON A
SOLE ARBITRATOR, WHICH NEED NOT BE AN ARBITRATOR SUGGESTED BY OR
ASSOCIATED WITH THE AAA (BUT SUCH ARBITRATOR SHALL NONETHELESS
APPLY THE AAA ARBITRATION RULES AS SET FORTH IN (i) ABOVE). IF THE
PARTIES TO THE DISPUTE ARE UNABLE TO AGREE UPON AN ARBITRATOR, THE
PARTIES SHALL REQUEST THAT AAA SUGGEST A PANEL OF THREE INDEPENDENT
AND IMPARTIAL ARBITRATORS, EACH OF WHOM SHALL BE KNOWLEDGEABLE WITH
RESPECT TO THE SUBJECT MATTER OF THE DISPUTE. ARBITRATION SHALL BE
BEFORE ONE OF THESE THREE ARBITRATORS IF THE DISPUTING PARTIES CAN
AGREE ON THE SELECTION OF ONE OF THEM AS THE SOLE ARBITRATOR. IF
NOT, ARBITRATION SHALL BE BEFORE ALL THREE.

     (iii) THE PLACE OF ARBITRATION SHALL BE HOUSTON, TEXAS.

     (iv) THE ARBITRATOR(S) ARE NOT EMPOWERED TO AWARD DAMAGES IN
EXCESS OF COMPENSATORY DAMAGES.

     (v) THE ARBITRATOR(S) SHALL HAVE THE EXCLUSIVE AUTHORITY TO
DETERMINE AND AWARD COSTS OF ARBITRATION AND THE COSTS INCURRED BY
EACH PARTY FOR ITS ATTORNEYS, ADVISORS AND CONSULTANTS.

     (vi) THE AWARD RENDERED BY THE ARBITRATORS SHALL BE IN WRITING
AND SHALL INCLUDE A STATEMENT OF THE

 

 

FACTUAL BASES AND THE LEGAL CONCLUSIONS RELIED UPON BY THE
ARBITRATORS IN MAKING SUCH AWARD. THE ARBITRATORS SHALL DECIDE THE
DISPUTE IN COMPLIANCE WITH THE APPLICABLE SUBSTANTIVE LAW AND
CONSISTENT WITH THE PROVISIONS OF THE AGREEMENT, INCLUDING LIMITS
ON DAMAGES. THE AWARD RENDERED BY THE ARBITRATOR(S) SHALL BE FINAL
AND BINDING, AND JUDGMENT UPON THE AWARD MAY BE ENTERED BY ANY
COURT HAVING JURISDICTION THEREOF.

     (vii) ALL MATTERS RELATING TO THE ENFORCEABILITY OF THIS
ARBITRATION AGREEMENT AND ANY AWARD RENDERED PURSUANT TO THIS
AGREEMENT SHALL BE GOVERNED BY THE FEDERAL ARBITRATION ACT, 9
U.S.C. § 1-16. THE ARBITRATOR(S) SHALL APPLY THE SUBSTANTIVE LAW
OF THE STATE OF NEVADA, EXCLUSIVE OF ANY CONFLICT OF LAW RULES.

     (viii) EACH MEMBER IS REQUIRED TO CONTINUE TO PERFORM ITS
OBLIGATIONS UNDER THIS AGREEMENT PENDING FINAL RESOLUTION OF ANY
DISPUTE ARISING OUT OF OR RELATING TO THIS CONTRACT, UNLESS TO DO
SO WOULD BE IMPOSSIBLE OR IMPRACTICABLE UNDER THE CIRCUMSTANCES.

     (ix) NOTHING IN THIS SECTION 19.14 SHALL LIMIT THE MEMBERS’
RIGHTS TO OBTAIN PROVISIONAL, ANCILLARY OR EQUITABLE RELIEF FROM A
COURT OF COMPETENT JURISDICTION.

     (d) SETTLEMENT. NOTHING CONTAINED HEREIN SHALL PREVENT THE PARTIES
FROM SETTLING ANY DISPUTE BY MUTUAL AGREEMENT AT ANY TIME.

     Section 19.15. WAIVER. EACH MEMBER WAIVES ANY RIGHT THAT THE MEMBER MAY
HAVE TO COMMENCE ANY ACTION IN ANY COURT WITH RESPECT TO ANY DISPUTE AMONG THE
MEMBERS RELATING TO OR ARISING UNDER THIS AGREEMENT OR THE RIGHTS OR
OBLIGATIONS OF ANY MEMBER HEREUNDER, OTHER THAN AN ACTION BROUGHT TO ENFORCE
THE ARBITRATION PROVISIONS OF SECTION 19.14 HEREOF. THE MEMBERS AGREE THAT ANY
SUCH ACTION SHALL BE BROUGHT (AND VENUE FOR ANY SUCH ACTION SHALL BE
APPROPRIATE) IN HOUSTON, TEXAS.

     Section 19.16. U.S. Dollars. Any reference in this Agreement to
“dollars,” “funds” or “sums” or any amounts denoted with a “$” shall be
references to United States dollars.

     Section 19.17. Confidentiality. All disclosures of trade secrets,
know-how, financial information or other confidential information made by the
Company to any Member or made by any Member under or in connection with this
Agreement, shall be received and maintained in confidence by the recipient
during the term hereof and for three (3) years after dissolution of the

 

 

Company
and each Member shall treat all such trade secrets, know-how, financial
information or other confidential information as confidential except:

     (a) as to the Persons directly responsible for the performance of
the obligations of this Agreement and for the effective operation of the
Company;

     (b) as to the professional advisors of the Members and the Company;

     (c) as to such disclosures to customers of the Company as are
necessary for the effective carrying on of business by the Company;

     (d) as to such information as is required by law to be disclosed by
a Member or the Company; and

     (e) as to such information as is or may fall within the public
domain otherwise than in violation of the provisions of this Section
19.17.

     IN WITNESS WHEREOF, the undersigned parties have executed this Operating
Agreement as of the Effective Date.

[Following are the signature pages.]

 

 

	 	 	 	 	 	 	 
	

	 	Holders	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	COMSTOCK OFFSHORE, LLC
	 
	 	 	 	 	 	 
	

	 	 	 		 	 /s/ ROLAND O. BURNS
	

	 	 	 	 	 	
 
	

	 	 	 	Name:	 	 Roland O. Burns
	

	 	 	 	 	 	
 
	

	 	 	 	Title:	 	 Senior Vice President
	

	 	 	 	 	 	
 

 

	 	 	 	 	 	 	 
	 	 	BOIS D’ARC RESOURCES, LTD.
	 
	 	 	 	 	 	 
	 	 	By:	 	Bois d’Arc Interests, LLC,
	 	 	 	 	General Partner
	 
	

	 	 	 	By:	 	/s/ WAYNE L. LAUFER
	

	 	 	 	 	 	
 
	

	 	 	 	 	 	Wayne L. Laufer, Manager
	 
	

	 	 	 	By:	 	/s/ GARY W. BLACKIE
	

	 	 	 	 	 	
 
	

	 	 	 	 	 	Gary W. Blackie, Manager

 

	 	 	 
	

	 	/s/ M. JAY ALLISON
	

	 	

	

	 	M. JAY ALLISON

 

	 	 	 
	

	 	/s/ ROLAND O. BURNS

	

	 	ROLAND O. BURNS

 

	 	 	 
	

	 	/s/ WAYNE L. LAUFER

	

	 	WAYNE L. LAUFER

 

	 	 	 
	

	 	/s/ GAYLE LAUFER

	

	 	GAYLE LAUFER

 

	 	 	 
	

	 	/s/ GARY W. BLACKIE

	

	 	GARY W. BLACKIE

 

	 	 	 	 	 	 	 
	 	 	HARO INVESTMENTS LLC
	 
	 	 	 	 	 	 
	
	 	 	 	By:	 	/s/ WAYNE L. LAUFER 
	

	 	 	 	 	 	
 
	

	 	 	 	Its:	 	Sole Member
	
	 	 	 	 	 	
 
	 	 	 
	 	 	BETS WEST INTERESTS, L.P.
	 
	 	 	 	 	 	 
	
	 	 	 		 	/s/ SALLY L. BLACKIE
	
	 	 	 	 	 	
 
	
	 	 	 	Title:	 	President
	
	 	 	 	 	 	
 
	 	 	 
	 	 	CADE OIL INVESTMENTS,
INC.
	 
	 	 	 	 	 	 
	
	 	 	 		 	/s/ WILLIAM W. CADE
	
	 	 	 	 	 	
 
	
	 	 	 	Title:	 	President
	
	 	 	 	 	 	
 
	 
	 	 	 	 	 	 

 

	 	 	 	 	 	 	 
	
	 	 	 		 	/s/ GEORGE FENTON
	
	 	 	 	 	 	
 
	 
	 	 	 	 	 	 
	
	 	 	 		 	/s/ JOCELYN FENTON
	
	 	 	 	 	 	
 
	 
	 	 	 	 	 	 
	
	 	 	 		 	/s/ CHIALING YOUNG
	
	 	 	 	 	 	
 
	 
	 	 	 	 	 	 
	
	 	 	 		 	/s/ D. MICHAEL HARRIS
	
	 	 	 	 	 	
 
	 
	 	 	 	 	 	 
	
	 	 	 		 	/s/ WILLIAM HOLMAN
	
	 	 	 	 	 	
 
	 	 	 

 

	 	 	 	 	 	 	 
	 	 	JAY PETROLEUM OF LA, LLC
	 
	 	 	 	 	 	 
	
	 	 	 		 	/s/ WILLIAM C. LANGFORD
	
	 	 	 	 	 	
 
	
	 	 	 	Title:	 	Managing Partner
	
	 	 	 	 	 	
 
	 
	 	 	 	 	 	 
	
	 	 	 		 	/s/ STEVE KNECHT
	
	 	 	 	 	 	
 
	 
	 	 	 	 	 	 
	
	 	 	 		 	/s/ GREGORY T. MARTIN
	
	 	 	 	 	 	
 
	 
	 	 	 	 	 	 
	
	 	 	 		 	/s/ KERRY W. STEIN
	
	 	 	 	 	 	
 
	 
	 	 	 	 	 	 
	 	 	 
	 	 	PEGASUS ENERGY, LLC
	 
	 	 	 	 	 	 
	
	 	 	 		 	/s/ NICHOLAS J. ARTHUR
	
	 	 	 	 	 	
 
	
	 	 	 	Title:	 	Manager 

 

CONSENT AND AGREEMENT OF SPOUSE

     I, the undersigned, certify that:

     (1) I am the spouse of the individual who signed the foregoing
Operating Agreement of Bois d’Arc Energy, LLC (the “Agreement”).

     (2) I have read and approve all of the terms, conditions, and provisions
of the Agreement and agree to be bound by all of the terms, conditions, and
provisions thereof.

     IN WITNESS WHEREOF, I have executed this consent and agreement on the date
indicated.

	 	 	 	 	 	 	 	 	 
	Date:
	 	July 18, 2004	/s/ KAROL KAYE HARRISON
	 	 	
 	 	 	 	
 
	

	 	 	 	 	 	 	 	 
	Date:
	 	July 19, 2004	 	 	 	/s/ REBECCA S. HOLMAN
	 	 	
 	 	 	 	
 
	

	 	 	 	 	 	 	 	 
	Date:
	 	July 20, 2004	 	 	 	/s/ SANDRA H. KNECHT
	 	 	
 	 	 	 	
 
	

	 	 	 	 	 	 	 	 
	Date:
	 	July 21, 2004	 	 	 	/s/ BARBARA ROSE MARTIN
	 	 	
 	 	 	 	
 
	

	 	 	 	 	 	 	 	 
	Date:
	 	July 20, 2004	 	 	 	/s/ ANGELA M. STEIN

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