CONTRIBUTION AGREEMENT

EXHIBIT 10.1

EXECUTION VERSION

CONTRIBUTION AGREEMENT

BY AND AMONG

VAUGHAN HOLDING COMPANY, LLC

EXCO OPERATING COMPANY, LP

and

BG US GATHERING COMPANY, LLC

EXECUTED ON August 5, 2009

EFFECTIVE DATE: January 1, 2009

TABLE OF CONTENTS

 

 

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TABLE OF CONTENTS

 

 

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TABLE OF CONTENTS

 

 

iii

TABLE OF CONTENTS

 

 

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TABLE OF CONTENTS

 

 

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LIST OF APPENDIXES, EXHIBITS AND SCHEDULES

Appendixes

 

 

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CONTRIBUTION AGREEMENT

THIS CONTRIBUTION AGREEMENT (as may be amended, restated, supplemented or otherwise modified from time to time, this “ Agreement ”) is entered into the 5 ^th day of August, 2009, among EXCO OPERATING COMPANY, LP , a Delaware limited partnership (“ EOC ”), VAUGHAN HOLDING COMPANY, LLC , a Texas limited liability company (“ Vaughan ” and collectively, with EOC, “ EXCO ”) and BG US GATHERING COMPANY, LLC , a Delaware limited liability company (“ BG ”). EXCO and BG may be referred to collectively as the “ Parties ” or individually as a “ Party ”.

Recitals

Affiliates of BG and EOC and Affiliates of EOC have entered into an arrangement for the joint exploration, development and operation of certain oil and gas properties located in the East Texas/North Louisiana Area under which an Affiliate of BG will acquire an undivided fifty percent (50%) interest in and to EOC’s and its Affiliate’s right, title and interest in such properties.

In connection with such transactions, BG has exercised its option to participate in the ownership and operation of midstream assets owned by certain Affiliates of EXCO, being TGG Pipeline, Ltd., a Texas limited partnership (“ TGG ”) and Talco Midstream Assets, Ltd., a Texas limited partnership (“ Talco ” and together with TGG, the “ Midstream Companies ”).

EOC owns the limited partner interests in each of the Midstream Companies and Vaughan owns the general partner interests in each of the Midstream Companies.

Vaughan has formed TGGT GP Holding, LLC, a Delaware limited liability company (“ GP Holding ”) and, prior to Closing, Vaughan intends to transfer the general partner interests in each of TGG and Talco to GP Holding. Immediately thereafter, Vaughan further intends to transfer the membership interests in GP Holding to EOC.

EOC has formed TGGT Holdings, LLC, a Delaware limited liability company (the “ Company ”) and at Closing EOC desires to contribute the membership interests of GP Holding and the limited partner interests in each of TGG and Talco to the Company on the terms and conditions hereinafter set forth.

BG desires to contribute a specified amount of cash to the Company on the terms and conditions hereinafter set forth and the Company desires to issue to BG a fifty percent (50%) membership interest in the Company on the terms and conditions hereinafter set forth.

NOW, THEREFORE, for and in consideration of the mutual promises contained herein, the benefits to be derived by each Party, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, EXCO and BG agree as follows:

 

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ARTICLE 1

DEFINITIONS AND INTERPRETATION

1.1 Defined Terms . In addition to the terms defined in the introductory paragraph and the Recitals of this Agreement, for purposes hereof, the capitalized terms used herein and not otherwise defined shall have the meanings set forth in Appendix I .

1.2 References and Rules of Construction . All references in this Agreement to Exhibits, Schedules, Appendices, Articles, Sections, subsections and other subdivisions refer to the corresponding Exhibits, Schedules, Appendices, Articles, Sections, subsections and other subdivisions of or to this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any Articles, Sections, subsections and other subdivisions of this Agreement are for convenience only, do not constitute any part of this Agreement, and shall be disregarded in construing the language hereof. The words “this Agreement,” “herein,” “hereby,” “hereunder” and “hereof,” and words of similar import, refer to this Agreement as a whole and not to any particular Article, Section, subsection or other subdivision unless expressly so limited. The words “this Article,” “this Section,” and “this subsection,” and words of similar import, refer only to Article, Section or subsection hereof in which such words occur. The word “including” (in its various forms) means including without limitation. All references to “$” or “dollars” shall be deemed references to United States dollars. Each accounting term not defined herein will have the meaning given to it under GAAP as interpreted as of the date of this Agreement. Pronouns in masculine, feminine or neuter genders shall be construed to state and include any other gender, and words, terms and titles (including terms defined herein) in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. Appendices, Exhibits and Schedules referred to herein are attached to and by this reference incorporated herein for all purposes.

ARTICLE 2

CONTRIBUTIONS AND ASSETS

2.1 Contributions . On the terms and conditions contained in this Agreement, as of the Closing:

(a) EOC shall transfer and assign the Limited Partner Interests and the GP Holding Equity Interest to the Company (collectively the “ Contributed Interests ”);

(b) BG shall contribute to the Company an amount equal to $249,000,000 to be paid in cash by BG to the Company (the “ Closing Cash Contribution ”), as adjusted pursuant to this Agreement, payable in United States currency by wire transfer in same day funds as and when provided in this Agreement; and

(c) in consideration of the Closing Cash Contribution, the Company shall issue to BG a fifty percent (50%) membership interest in the Company leaving EOC with a fifty percent (50%) membership interest in the Company.

2.2 Subject Assets . “ Subject Assets ” means the interests described below in and to the following assets and properties (less and except (i) the Excluded Assets and (ii) any other assets excluded pursuant to the terms of Sections 11.4(b) or 12.1(b)(ii)) :

(a) the gas gathering and pipeline systems and related facilities described on Exhibit A-1 (the “ Systems ”);

 

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(b) all right, title and interest of the Midstream Companies in and to all equipment, machinery, fixtures, and other real, immovable, personal, movable and mixed property primarily used or held for use in connection with the Systems and located at and downstream of the outlet flange of the relevant custody transfer meter, including, without limitation, pipelines, tubing, pumps, valves, meters, motors, fixtures, machinery, compression equipment, scrubbers, dehydration units, tanks, traps, cathodic protection units, SCADA and similar control equipment, processing and separation facilities, structures, materials, and other items used or held for use in the operation thereof (the “ Personal Property ”);

(c) all surface fee interests, surface leases, easements, rights-of-way, permits, licenses, servitudes, and other surface rights described in Exhibit A-2 and all right, title and interest of the Midstream Companies in and to all other surface fee interests, surface leases, easements, rights-of-way, permits, licenses, servitudes, and other surface rights appurtenant to, and primarily used or held for use in connection with, the Systems (such properties, the “ Rights-of-Way ”);

(d) all right, title and interest of the Midstream Companies in and to all permits, licenses, orders, approvals, variances, waivers, franchises, rights and other authorizations issued by any Governmental Authority relating to the Systems;

(e) all right, title and interest of the Midstream Companies in and to all Applicable Contracts;

(f) all right, title and interest of the Midstream Companies in and to all Imbalances; and

(g) all right, title and interest of the Midstream Companies in and to all files, records, maps, information, and data, whether written or electronically stored, including: (A) land and title records (including abstracts of title, title opinions, and title curative documents); (B) contract files; (C) correspondence; and (D) operations, environmental, production, and accounting records, but excluding any of the foregoing items that are Excluded Assets (“ Records ”).

2.3 Excluded Assets . The Subject Assets shall not include the Excluded Assets and the Excluded Assets shall be distributed by the Midstream Companies to EXCO prior to the Closing.

2.4 Revenues and Expenses.

(a) Except to the extent otherwise taken into account in connection with adjustments to the Closing Cash Contribution under Article 3 , EXCO shall be entitled to all of the rights of ownership attributable to the Midstream Companies (including, without limitation, the right to all gas purchased for resale, drip fees, compression fees, transportation fees, gathering fees and other proceeds) and shall be responsible for all Operating Expenses (and entitled to any refunds with respect thereto), in each case for any period of time prior to the

 

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Effective Time as if EXCO held the Subject Assets directly. Except to the extent otherwise taken into account in connection with adjustments to the Closing Cash Contribution under Article 3 , and subject to the occurrence of the Closing, the Midstream Companies shall be entitled to all of the rights of ownership attributable to the Midstream Companies (including, without limitation, the right to all gas purchased for resale, drip fees, compression fees, transportation fees, gathering fees and other proceeds), and shall be responsible for all Operating Expenses (and entitled to any refunds with respect thereto), in each case for the period of time from and after the Effective Time. All Operating Expenses in each case that are: (i) incurred with respect to operations conducted or production delivered to the Systems prior to the Effective Time shall be paid by or allocated to EXCO and (ii) incurred with respect to operations conducted or production delivered to the Systems from and after the Effective Time shall be paid by or allocated to the Midstream Companies.

(b) Each Midstream Company will pay to EXCO any and all revenues and other proceeds attributable to the rights of ownership of the Subject Assets received after Closing by such Midstream Company (to the extent not accounted for in the Preliminary Settlement Statement or the Final Settlement Statement) that are attributable to the Subject Assets prior to the Effective Time. Subject to the occurrence of Closing, EXCO will pay to the Midstream Companies any and all revenues and other proceeds attributable to the rights of ownership of the Subject Assets received after Closing by EXCO (to the extent not accounted for in the Preliminary Settlement Statement or the Final Settlement Statement) that are attributable to the Subject Assets on and after the Effective Time. The Party responsible for the payment of amounts received shall reimburse the other Party within 5 Business Days after the end of the month in which such amounts were received by the Party responsible for payment and, to the extent paid, such amounts shall not be taken into account for purposes of the Final Settlement Statement. Notwithstanding the foregoing, this Section 2.4(b) shall not apply to amounts received prior to Closing if such amounts are included, in whole or in part, in the Preliminary Settlement Statement. Such amounts (to the extent the same differ from estimates in the Preliminary Settlement Statement) will not be accounted for in the Final Settlement Statement to the extent accounted for by the Parties pursuant to this Section 2.4(b) prior to the date of the Final Settlement Statement.

(c) EXCO will reimburse each Midstream Company for any and all Operating Expenses that are paid after Closing by such Midstream Company (to the extent not accounted for the Preliminary Settlement Statement or the Final Settlement Statement) and that are attributable to the Subject Assets prior to the Effective Time. The Midstream Companies will reimburse EXCO for any and all Operating Expenses that are paid after Closing by EXCO (to the extent not accounted for the Preliminary Settlement Statement or the Final Settlement Statement) and that are attributable to the Subject Assets prior to the Effective Time. The Party responsible for the payment of such costs and expenses shall reimburse the other Party within 5 Business Days after the end of the month in which the applicable invoice and proof of payment of such invoice were received by the Party responsible for payment and, to the extent paid, such amounts shall not be taken into account for purposes of the Final Settlement Statement. Notwithstanding the foregoing, this Section 2.4(c) shall not apply to amounts paid prior to Closing if such amounts are included, in whole or in part, in the Preliminary Settlement Statement. Such amounts (to the extent the same differ from the estimates in the Preliminary Settlement Statement) will not be accounted for in the Final Settlement Statement to the extent accounted for by the Parties pursuant to this Section 2.4(c) prior to the date of the Final Settlement Statement.

 

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(d) Each of EXCO and the Midstream Companies shall be permitted to offset any Operating Expenses owed by it to the other pursuant to this Section 2.4 against revenues owing by the other to it pursuant to this Section 2.4 , but not otherwise, provided a detailed description of all such Operating Expenses and revenues and showing the calculation of the net amount is provided with the applicable payment or statement.

(e) After Closing, each of EXCO and the Midstream Companies shall be entitled to participate in all audits of Operating Expenses for which it is entirely or in part responsible under the terms of this Section 2.4 .

2.5 Guaranty . Simultaneously with the execution and delivery of this Agreement, BG has executed and delivered the BG Parent Guaranty.

ARTICLE 3

DEPOSIT

3.1 Deposit .

(a) Within 1 Business Day following the execution of this Agreement, BG will deposit by wire transfer in same day funds with Escrow Agent, to be held in escrow pursuant to the Escrow Agreement, an amount equal to $12,450,000 (such amount, together with any interest actually earned thereon, the “ Deposit ”). The Deposit shall be applied toward the Closing Cash Contribution at the Closing.

(b) If the transactions contemplated by this Agreement are not consummated on or before the Termination Date because of: the willful breach by BG of any of its covenants or agreements hereunder in any material respect, including BG’s covenants under Section 9.3 (other than as a result of EXCO’s breach of this Agreement), then, in such event, EXCO shall have the option to (i) terminate this Agreement and receive the Deposit (and the Parties shall instruct the Escrow Agent to release the Deposit to EXCO pursuant to the terms of the Escrow Agreement) as liquidated damages and EXCO’s sole and exclusive remedy (other than EXCO’s remedy for breaches by BG of Sections 5.9, 6.6, 10.1(c) and (e), 10.2 and 14.4 ) free of any claims by BG thereto, (ii) seek the rights and remedies set forth in Section 14.2 or (iii) terminate this Agreement, instruct the Escrow Agent to release the Deposit to BG pursuant to the terms of the Escrow Agreement, pay the Deposit to BG by wire transfer of immediately available funds, and seek the rights and remedies set forth in Sections 14.2 and 14.3.

(c) If this Agreement is terminated by the mutual written agreement of BG and EXCO, or if the Closing does not occur on or before the Termination Date for any reason other than as set forth in Section 3.1(b) , then BG shall be entitled to the delivery of the Deposit, free of any claims by EXCO with respect thereto and BG and EXCO shall instruct the Escrow Agent to release the Deposit to BG pursuant to the terms of the Escrow Agreement. BG and EXCO shall thereupon have the rights and obligations set forth in Sections 14.2 and 14.3 .

 

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3.2 Adjustments to Closing Cash Contribution . All adjustments to the Closing Cash Contribution shall be made (y) in accordance with the terms of this Agreement and, to the extent not inconsistent with this Agreement, in accordance with US generally accepted accounting principles as consistently applied in the oil and gas industry and (z) without duplication. The Closing Cash Contribution shall be adjusted as follows, and the resulting amount shall be herein called the “ Adjusted Closing Cash Contribution ”.

(a) The Closing Cash Contribution shall be adjusted upward by the following amounts (without duplication):

(i) an amount equal to 50% of all Operating Expenses and other costs and expenses paid by any Midstream Company that are attributable to the Subject Assets during the Interim Period, whether paid before or after the Effective Time, including (A) bond and insurance premiums paid by or on behalf of any Midstream Company during the Interim Period, (B) payments under Rights-of-Way, and (C) other rental payments, but excluding (x) any amounts deducted under Section 3(b)(i) below and (y) any amounts attributable to personal injury or death, property damage (other than damage to structures, fences, irrigation systems and other fixtures, crops, livestock and other personal property in the ordinary course of business), torts, breach of contract (other than failure to make payments under the terms of a contract) or violation of Law (or private rights of action under any Law);

(ii) an amount equal to 50% of all Operating Expenses and other costs and expenses paid by any Midstream Company that are attributable to periods of time prior to the Effective Time and relate to the Haynesville Header System and certain horizontal well connections all as are described in Schedule 3.2(a)(ii) ;

(iii) the amount of all Asset Taxes, if any, prorated to the Company in accordance with Section 15.2 but payable by EXCO;

(iv) to the extent that any Midstream Company has overdelivered, or received underdeliveries of, any Hydrocarbons as of the Effective Time as shown with respect to the net Imbalances set forth in Schedule 4.12 , as complete and final settlement of all Imbalances (subject to BG’s remedies for a breach of EXCO’s representation set forth in Section   4.12 and subject to Section 3.8 ), the sum of $162,750 which is an amount equal to the product of (A) 81,375 MMBtu times (B) $4.00 times (C) 50%; and

(v) any other amount provided for elsewhere in this Agreement or otherwise agreed upon in writing by EXCO and BG as an upward adjustment to the Closing Cash Contributions.

(b) The Closing Cash Contribution shall be adjusted downward by the following amounts (without duplication):

(i) an amount equal to: (A) 50% of all proceeds received by the Midstream Companies attributable to the Subject Assets during the Interim Period net of expenses (other than Operating Expenses) paid by any Midstream Company directly incurred in earning or receiving such proceeds, and any sales, excise or similar taxes or fees payable or incurred in connection therewith not reimbursed to any Midstream Company by a Third Party

 

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purchaser, and (B) 50% of any net other proceeds received by any Midstream Company from sales of equipment, materials or other real or personal property, and payments made for waivers or modifications of Applicable Contracts, or in lieu of other performance thereof, or as a result of the breach thereof, in each case attributable to the Subject Assets during the Interim Period;

(ii) if the Parties make the election under Section 12.1(b)(i) with respect to an Environmental Defect, the Remediation Amount with respect to such Environmental Defect if the Remediation Amount has been determined prior to Closing;

(iii) an amount determined pursuant to Section 11.4(b) , Section 11.4(d) or Section 12.1(b)(iii) for any Subject Assets excluded from the transaction contemplated hereby pursuant to such Sections;

(iv) the amount of all Asset Taxes, if any, prorated to EXCO in accordance with Section 15.2 but payable by the Company;

(v) to the extent that any Midstream Company has underdelivered, or received overdeliveries of, any Hydrocarbons as of the Effective Time as shown with respect to the net Imbalances set forth in Schedule 4.12 , as complete and final settlement of all Imbalances (subject to BG’s remedies for a breach of EXCO’s representation set forth in Section 4.12 and subject to Section 3.8 ), the sum of $90,014 which is an amount equal to the product of (A) 45,007 MMBtu times (B) $4.00 times (C) 50%; and

(vi) any other amount provided for elsewhere in this Agreement or otherwise agreed upon in writing by EXCO and BG as a downward adjustment to the Closing Cash Contribution.

3.3 Adjustment Methodology . When available, actual figures will be used for the adjustments to the Closing Cash Contribution at the Closing. To the extent actual figures are not available, estimates will be used subject to final adjustments in accordance with Section 3.5 .

3.4 Preliminary Settlement Statement . Not less than 5 Business Days prior to the Closing, EXCO shall prepare and submit to BG for review, using the best information available to EXCO, a draft settlement statement (the “ Preliminary Settlement Statement ”) that shall set forth the Adjusted Closing Cash Contribution, reflecting each adjustment made in accordance with this Agreement as of the date of preparation of such Preliminary Settlement Statement and the calculation of the adjustments used to determine such amount, together with the designation of EXCO’s accounts for the wire transfers of funds as set forth in Section 9.3(d) . Within 3 Business Days of receipt of the Preliminary Settlement Statement, BG will deliver to EXCO a written report containing all changes with the explanation therefor that BG proposes to be made to the Preliminary Settlement Statement. The Preliminary Settlement Statement, as agreed upon by the Parties, will be used to adjust the Closing Cash Contribution at Closing. If the Parties cannot agree on the Preliminary Settlement Statement prior to the Closing, the Preliminary Settlement Statement as presented by EXCO will be used to adjust the Closing Cash Contribution at Closing.

 

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3.5 Final Settlement Statement . A final settlement statement (the “ Final Settlement Statement ”) will be prepared by EXCO, based on actual income and expenses during the Interim Period and which takes into account all final adjustments made to the Closing Cash Contribution and shows the resulting final Closing Cash Contribution (the “ Final Cash Amount ”), and is delivered to BG on or before 120 days after Closing. The Final Settlement Statement shall set forth the actual proration of the amounts required by this Agreement. EXCO shall, at BG’s request, supply all reasonable documentation in its or its Affiliates’ possession available to support the actual revenue, expenses and other items for which adjustments are made. As soon as practicable, and in any event within 45 days after receipt of the Final Settlement Statement, BG shall return a written report containing any proposed changes to the Final Settlement Statement and an explanation of any such changes and the reasons therefor (the “ Dispute Notice ”). If the Final Cash Amount set forth in the Final Settlement Statement is mutually agreed upon by EXCO and BG, the Final Settlement Statement and the Final Cash Amount, shall be final and binding on the Parties.

3.6 Disputes . If EXCO and BG are unable to resolve the matters addressed in the Dispute Notice, each of BG and EXCO shall within 14 Business Days after the delivery of such Dispute Notice, summarize its position with regard to such dispute in a written document and submit such summaries to Ernst & Young LLP in Dallas, Texas, or such other Person as may be selected pursuant to this Section (the “ Accounting Arbitrator ”), together with the Dispute Notice, the Final Settlement Statement and any other documentation such Party may desire to submit. The Accounting Arbitrator shall also be furnished with a copy of this Agreement. Should Ernst & Young LLP fail or refuse to agree to serve as Accounting Arbitrator within 20 days after receipt of a written request from any Party to serve, the Parties shall request Deloitte & Touche LLP to serve as Accounting Arbitrator. Should Deloitte & Touche LLP fail or refuse to agree to serve as Accounting Arbitrator within 20 days after receipt of a written request from any Party to serve, and should the Parties fail to agree in writing on another replacement Accounting Arbitrator within 10 days after the end of that 20 day period, or should no replacement Accounting Arbitrator agree to serve within 60 days after the original written request pursuant to this Section, the Accounting Arbitrator shall be appointed by the Dallas office of the American Arbitration Association. Within 20 Business Days after receiving the Parties’ respective submissions, the Accounting Arbitrator shall render a decision choosing either EXCO’s position or BG’s position with respect to each matter addressed in any Dispute Notice, whichever is most accurate based on the terms of this Agreement and the materials described above. Any decision rendered by the Accounting Arbitrator pursuant hereto shall be final, conclusive and binding on EXCO and BG and will be enforceable against any of the Parties in any court of competent jurisdiction. The Accounting Arbitrator shall act as an expert for the limited purpose of determining the specific disputed aspects of the Final Settlement Statement submitted by any Party and may not award damages, interest, or penalties to any Party with respect to any matter. The costs of such Accounting Arbitrator shall be borne one-half by BG and one-half by EXCO.

3.7 Adjustment for Final Settlement Statement. Subject to adjustments for revenues and expenses paid by the Parties pursuant to Section 2.4(b) and 2.4(c) , any difference in the Adjusted Closing Cash Contribution as paid at Closing pursuant to the Preliminary Settlement Statement and the Final Cash Amount as determined pursuant to Section 3.5 and, if applicable, Section 3.6 , shall, if the Adjusted Closing Cash Consideration exceeds the Final Cash Amount, be contributed to the Company by EXCO or, if the Adjusted Closing Cash Consideration is less than the Final Cash Amount, be contributed to the Company by BG, in each case together with interest from the Closing Date to the date of payment at a rate equal to the one month London

 

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Inter-Bank Offer Rate (as published in the Wall Street Journal) plus an additional 2.5 percentage points (or, if such rate is contrary to any applicable usury Law, the maximum rate permitted by such applicable Law), within 10 days of final determination hereunder and the Parties shall cause the Company to promptly make a distribution of such amount to the other Party. All amounts paid pursuant to this Section   3.7 shall be delivered in United States currency by wire transfer of immediately available funds to the account specified in writing by the relevant Party.

3.8 Allocation for Imbalances at Closing . If, prior to Closing, BG or EXCO discovers an error in the Imbalances set forth in Schedule 4.12 , then the Closing Cash Contribution shall be further adjusted at Closing pursuant to Section 3.2(a)(iv) or Section 3.2(b)(v) , as applicable, and Schedule 4.12 will be deemed amended immediately prior to the Closing to reflect the Imbalances for which the Closing Cash Contribution is so adjusted.

3.9 Maintenance of Value .

(a) EXCO shall receive at Closing pursuant to the special distribution described in Section 4.5(e) of the Limited Liability Company Agreement in excess of $200 million from the Adjusted Closing Cash Contribution. EOC agrees that until December 31, 2011, it will maintain a minimum of $200 million of such consideration (the “ Minimum Consideration ”) in EOC and shall not dividend or otherwise distribute any of such Minimum Consideration to any of EOC’s Affiliates, or use any of such Minimum Consideration to repay debt to any of EOC’s Affiliates or to satisfy any obligation on behalf of any of EOC’s Affiliates, other than (in each case) EOC’s own direct or indirect wholly-owned subsidiaries; provided, however, EOC may use all or any portion of such Minimum Consideration to (i) pay expenses or costs in connection with EOC’s general corporate purposes, (ii) keep such amounts as cash or cash equivalents and make other short-term investments of such amounts, (iii) acquire properties or other assets, (iv) make capital expenditures, including the payment of any costs of New Business or Acquired Business (as each such term is defined in the Limited Liability Company Agreement), (v) make capital contributions to the Company, (vi) satisfy the debt described in clause (a) of the definition of “EXCO Debt Instruments” by making a payment to reduce the outstanding principal and interest thereunder to the extent such payment is made because of a mandatory reduction of the borrowing base under such EXCO Debt Instrument in connection with the contribution of the Contributed Interests to the Company as part of the transactions contemplated by this Agreement and (vii) satisfy the debt described in clause (b) of the definition of “EXCO Debt Instruments” by paying off the outstanding principal and interest under such EXCO Debt Instrument and all of such uses shall be considered maintenance of such consideration in EOC as required pursuant to foregoing. To the extent that EOC or its direct or indirect wholly-owned subsidiaries uses all or any portion of such Minimum Consideration for the purposes set forth in clause (i), (iii), (iv), (v) (vi)  or (vii) , the amount required to be maintained by EOC as Minimum Consideration shall be decreased by the amount of such usage, and, in the event the amount required to be maintained by EOC as Minimum Consideration is reduced to zero, then this Section 3.9(a) shall thereafter terminate and be of no further force and effect, subject, however, to Section 3.9(b) .

(b) Notwithstanding Section 3.9(a) , should a portion of the consideration be used to pay off amounts owing pursuant to the EXCO Debt Instruments and (i) the payment does not satisfy the requirements of Section 3.9(a)(vi) or (vii) , then additional amounts thereafter

 

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borrowed under such EXCO Debt Instruments, up to the amount previously repaid that did not satisfy the requirements of Section 3.9(a)(vi) or (vii) , shall again be subject to the restrictions in Section 3.9(a) or (ii) the debt represented in the EXCO Debt Instruments be consolidated with other debt from any of EOC’s Affiliates (other than its own direct or indirect wholly-owed subsidiaries) or be replaced by a new credit arrangement providing for indebtedness of both EOC and one or more of its Affiliates (other than its own direct or indirect wholly-owed subsidiaries), EOC shall provide BG and the Company with a payment guarantee of EOC’s obligations for additional contributions under Article 3 of the Limited Liability Company Agreement from EOC’s ultimate parent entity (presently EXCO Resources, Inc.) in a form substantially similar to the BG Parent Guaranty Agreement, provided that such guaranty shall terminate at the same time that the Joint Development Agreement (as that term is defined in the Purchase and Sale Agreement) terminates, and the restrictions on use of consideration in Section 3.9(a) shall thereafter terminate and be of no further effect. If BG in the future enters into any agreement for borrowed money or security arrangements that are in whole or in part for the benefit of BG’s Affiliates (other than its own direct or indirect wholly-owed subsidiaries) as borrowers, BG shall provide EOC and the Company with a payment guarantee of BG’s obligations for additional contributions under Article 3 of the Limited Liability Company Agreement from BG’s ultimate parent entity (for this purpose, presently BG Energy Holdings Limited) in a form substantially similar to the BG Parent Guaranty Agreement, provided that such guaranty shall terminate at the same time that the Joint Development Agreement (as that term is defined in the Purchase and Sale Agreement) terminates.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF EXCO

EXCO represents and warrants to BG as follows:

4.1 Organization, Existence . EOC is a limited partnership duly formed and validly existing under the Laws of the State of Delaware. Vaughan is a limited liability company duly formed and validly existing under the Laws of the State of Texas. GP Holding is a limited liability company duly formed and validly existing under the Laws of the State of Delaware. The Company is a limited liability company duly formed and validly existing under the Laws of the State of Delaware. Talco is a limited partnership duly formed and validly existing under the Laws of the State of Texas. TGG is a limited partnership duly formed and validly existing under the Laws of the State of Texas. EXCO and each of the Contributed Companies have all requisite power and authority to own and operate its property and to carry on its business as now conducted. EXCO and each of the Contributed Companies is duly licensed or qualified to do business as a foreign limited partnership or limited liability company, as applicable, and is in good standing in all jurisdictions in which such qualification is required by Law, except where the failure to qualify or be in good standing would not have a Material Adverse Effect.

4.2 Authorization . EXCO and each of the Contributed Companies have full power and authority to enter into and perform this Agreement and the Transaction Documents to which it is a party and the transactions contemplated herein and therein. The execution, delivery, and performance by EXCO and each of the Contributed Companies (if applicable) of this Agreement

 

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have been and at Closing the Transaction Documents to which it is a party will have been duly and validly authorized and approved by all necessary partnership or company action, as applicable, on the part of such Person. This Agreement is, and the Transaction Documents to which EXCO or any Contributed Company is a party when executed and delivered by such Person will be, the valid and binding obligation of such Person and enforceable against such Person in accordance with their respective terms, subject to the effects of bankruptcy, insolvency, reorganization, moratorium, and similar Laws affecting the rights of creditors generally, as well as to principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at Law).

4.3 No Conflicts . Except as disclosed in Schedule 4.3 and assuming the receipt of all consents and the waiver of all preferential purchase rights applicable to the transactions contemplated hereby, the execution, delivery, and performance by EXCO and each Contributed Company of this Agreement and the Transaction Documents to which it is a party and the consummation of the transactions contemplated herein and therein does not and will not (a) conflict with or result in a breach of any provisions of the organizational documents or other governing documents of EXCO or any Contributed Company, (b) except for Permitted Encumbrances, result in a default or the creation of any Encumbrance or give rise to any right of termination, cancellation, or acceleration under any of the terms, conditions, or provisions of any Applicable Contract, note, bond, mortgage, indenture, license, or other material agreement to which any EXCO or any Contributed Company is a party or by which any EXCO, any Contributed Company or the Subject Assets may be bound or (c) assuming the Parties make the necessary HSR Act filings and otherwise comply with the HSR Act, violate any Law applicable to EXCO, any Contributed Company or any of the Subject Assets, except in the case of clauses (b) and (c) where such default, Encumbrance, termination, cancellation, acceleration or violation would not, individually or in the aggregate, have a Material Adverse Effect.

4.4 Consents . Except (a) as set forth in Schedule 4.4 , (b) for Customary Post-Closing Consents, (c) under Contracts that are terminable upon not greater than 60 days notice without payment of any fee, (d) requirements under the HSR Act and (e) preferential purchase rights set forth in Schedule 4.10 , there are no consents or other restrictions on assignment, including, but not limited to, requirements for consents from Third Parties to any assignment (in each case) that would be applicable in connection with the transfer of the general partner interests in the Midstream Companies to GP Holding, the transfer of the membership interests in GP Holding to EOC, the transfer of the Contributed Interests to the Company, and/or the transfer of a 50% membership interest in the Company to BG, all as contemplated under this Agreement, or the consummation of the other transactions contemplated by this Agreement by EXCO or any Contributed Company.

4.5 Bankruptcy . There are no bankruptcy, reorganization or receivership proceedings pending, being contemplated by or, to EXCO’s Knowledge, threatened against EXCO or its Affiliates, and neither EXCO nor any of its Affiliates is insolvent or generally not paying its debts as they become due.

4.6 Foreign Person and Tax Status . Each of EOC, Vaughan, (prior to Closing) GP Holding, (prior to Closing) the Midstream Companies and (prior to Closing) the Company is an entity disregarded from EXCO Resources, Inc. for federal income tax purposes. EXCO Resources, Inc. (a) is not a “foreign person” within the meaning of Section 1445 of the Code and (b) is not an entity disregarded as separate from any other Person within the meaning of Section 301.7701-3(a) of the Treasury Regulations.

 

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4.7 Claims and Litigation . Except as set forth in Schedule 4.7 , there is no written claim for breach of contract, tort or violation of Law, or investigation of which EXCO has received written notice, or any suit, action or litigation, by any Person, and no legal, administrative or arbitration proceedings, (in each case) pending, or to EXCO’s Knowledge, threatened in writing against EXCO with respect to the Contributed Companies or Subject Assets, or against any Contributed Company, or that, as of the date hereof, would have a material adverse effect upon the ability of EXCO or any Contributed Company to consummate the transactions contemplated by this Agreement.

4.8 Material Contracts .

(a) Schedule 4.8 sets forth all Applicable Contracts of the type described below (collectively, the “ Material Contracts ”):

(i) any Applicable Contract that can reasonably be expected to result in aggregate payments by any Contributed Company of more than $250,000 during the current or any subsequent fiscal year or $1,000,000 in the aggregate over the term of such Applicable Contract (in each case, based solely on the terms thereof and current quantities, if applicable, without regard to any expected increase in quantities or revenues);

(ii) any Applicable Contract that can reasonably be expected to result in aggregate revenues to any Contributed Company of more than $250,000 during the current or any subsequent fiscal year or $1,000,000 in the aggregate over the term of such Applicable Contract (in each case, based solely on the terms thereof and current quantities, if applicable, without regard to any expected increase in quantities or revenues);

(iii) any Hydrocarbon purchase and sale, gathering, transportation, processing or similar Contract unless terminable by each party without penalty on 60 days or less notice;

(iv) any Applicable Contract that is an indenture, mortgage, loan, credit or sale-leaseback, guaranty of any obligation, bonds, letters of credit or similar financial Contract (a “ Debt Instrument ”);

(v) any Applicable Contract that constitutes a lease under which any Contributed Company is the lessor or the lessee of real, immovable, personal or movable property which lease (A) cannot be terminated by any Contributed Company without penalty upon 60 days or less notice and (B) involves an annual base rental of more than $250,000;

(vi) any Applicable Contract that constitutes a non-competition agreement or any agreement that purports to restrict, limit or prohibit the manner in which, or the locations in which, any Contributed Company conducts business, including area of mutual interest Contracts;

 

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(vii) any Applicable Contract with EXCO or any Affiliate of EXCO (other than a Contributed Company) which will be binding on any Contributed Company after the Closing Date and will not be terminable by such Person within 30 days or less notice;

(viii) any Applicable Contract where the primary purpose thereof was to indemnify a Third Party;

(ix) any executory Applicable Contract that constitutes a pending purchase and sale agreement or other Contract providing for the purchase, sale or earning of any material asset;

(x) any Applicable Contract that constitutes a partnership agreement, joint venture agreement or similar Contract (in each case, other than a tax partnership); and

(xi) any Applicable Contract that constitutes a pipeline or facility operating agreement with respect to all or any part of the Systems.

(b) The Material Contracts are in full force and effect as to EXCO or the Contributed Company that is a party thereto and to EXCO’s Knowledge each counterparty (excluding any Material Contract that terminates as a result of expiration of its existing term). Except as set forth on Schedule 4.8 , there exist no material defaults under the Material Contracts by EXCO or any Contributed Company or, to EXCO’s Knowledge, by any other Person that is a party to such Material Contracts. Except as set forth on Schedule 4.8 and except for such matters that would not, individually or in the aggregate, have a Material Adverse Effect, no event has occurred that with notice or lapse of time or both would constitute any default under any such Material Contract by EXCO or any Contributed Company or, to EXCO’s Knowledge, by any other Person who is a party to such Material Contract. Prior to the execution of this Agreement, EXCO has made available to BG true and complete copies of each Material Contract and all amendments thereto. Neither EXCO nor any Contributed Company has received or given any unresolved written notice of default, amendment, waiver, price redetermination, market out, curtailment or termination with respect to any Material Contract.

(c) Except as set forth on Schedule 4.8, Part 2 , the Applicable Contracts do not include:

(i) any non-competition agreements or agreements that purport to restrict, limit or prohibit the manner in which, or the locations in which, any Contributed Company conducts business, including area of mutual interest Contracts;

(ii) any “tag-along” or similar rights allowing a third party to participate in future sales of any of the Subject Assets or any interest in the Contributed Companies; or

(iii) any Contracts with Affiliates of EXCO (other than another Contributed Company) which will remain in effect at the Closing.

 

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4.9 No Violation of Laws . Except as set forth on Schedule 4.9 , (a) there is no uncured violation by any Contributed Company of any applicable Laws, or by EXCO of any applicable Laws with respect to the ownership or operation of the Contributed Companies or the Subject Assets, except where such violations, individually or in the aggregate, would not have a Material Adverse Effect, or (b) to EXCO’s Knowledge, there is no uncured material violation by any other Person of any applicable Laws with respect to the ownership and operation of the Subject Assets. This Section 4.9 does not include any matters with respect to Environmental Laws, such matters being addressed exclusively in Section 4.14 .

4.10 Preferential Rights . Except as set forth in Schedule 4.10 , there are no preferential rights to purchase that are applicable to the transactions contemplated hereby.

4.11 Payments under Rights-of-Way . Except for such items that are being held in suspense as permitted pursuant to applicable Law, the Midstream Companies have paid in all material respects all rentals and other periodic payments under the Rights-of-Way that are due by EXCO or its Affiliates.

4.12 Imbalances . Schedule 4.12 sets forth all Imbalances associated with the Subject Assets as of the Effective Time.

4.13 Current Commitments . Schedule 4.13 sets forth, as of the date of this Agreement, all authorities for expenditures or other current commitments (“ AFE’s ”) relating to the Subject Assets or for other capital expenditures that in each case will be binding upon any of the Contributed Companies or the Subject Assets after Closing, for which all of the activities anticipated in such AFE’s have not been completed by the date of this Agreement.

4.14 Environmental .

(a) With respect to the Subject Assets, neither EXCO nor any Contributed Company has entered into, or is subject to, any agreements, consents, orders, decrees, judgments, license or permit conditions, or other directives of any Governmental Authority in existence as of the date of this Agreement based on any Environmental Laws that relate to the future use of any of the Subject Assets and that require any remediation or other change in the present conditions of any of the Subject Assets.

(b) Except as set forth in Schedule 4.14 , as of the date of this Agreement neither EXCO nor any Contributed Company has received written notice from any Person of any release, disposal, event, condition, circumstance, activity, practice or incident concerning any land, facility, asset or property included in the Subject Assets that: (i) interferes with or prevents compliance by any Contributed Company or the Subject Assets with any Environmental Law or the terms of any permits, licenses, orders, approvals, variances, waivers, franchises, rights or other authorizations issued pursuant thereto; or (ii) gives rise to or results in any common law or other liability of any Contributed Company to any Person which, in the case of either clause (i) or (ii) hereof, would have a Material Adverse Effect.

(c) To EXCO’s Knowledge, all material reports, studies, written notices from environmental Governmental Authorities, tests, analyses, and other documents specifically addressing environmental matters related to the ownership or operation of the Subject Assets, which are in EXCO’s or its Affiliates’ possession, have been made available to BG.

 

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(d) Except as set forth in Schedule 4.14 and except for any matters that BG has claimed as Environmental Defects pursuant to Section 12.1(a) , to EXCO’s Knowledge, there are no material uncured violations of any applicable Environmental Laws with respect to the Contributed Companies or the Subject Assets and no material obligations to remediate conditions by the Contributed Companies upon the Subject Assets under applicable Environmental Law (and no such obligation would arise as a result of notice or lapse of time or both).

4.15 Taxes . Except as disclosed in Schedule 4.15 :

(a) all Asset Taxes that have become due and payable have been properly paid;

(b) all returns with respect to Asset Taxes that are required to be filed by the owner of the Assets have been filed;

(c) no Contributed Company has received written notice of any pending claim against it (which remains outstanding) from any applicable Governmental Authority for assessment of Asset Taxes and, to EXCO’s Knowledge, no such claim has been threatened;

(d) no audit, litigation or other proceeding with respect to Asset Taxes has been commenced or is presently pending;

(e) there are no liens for Taxes on the Subject Assets or the Contributed Interests other than statutory liens for current Taxes not yet due;

(f) all amounts required in the operation of the business to be withheld by or with respect to any of the Contributed Companies and paid to Governmental Authorities for Taxes have been collected or withheld and to the extent required, paid to the proper Governmental Authorities;

(g) none of the Contributed Companies is a party to any Tax sharing agreement;

(h) there are no Taxes of any Person other than any of the Contributed Companies for which any of the Contributed Companies could be held liable after the Closing under Treasury Regulations Section 1.1361-4(a)(6), 1.1502-6, 301.7701-2(c)(2)(iii) or similar principles;

(i) in all states imposing a state entity-level income Tax in which any of the Contributed Companies do business, each of the Contributed Companies is treated for such purposes in a manner consistent with the treatment of the entity for federal income tax purposes;

(j) none of the Contributed Companies has (i) participated in any listed transaction or any other reportable transaction within the meaning of Treasury Regulations Section 1.6011-4, (ii) engaged in any transaction that gives rise to a registration obligation under Section 6111 of the Code or a list maintenance obligation under Section 6112 of the Code, or (iii) taken any position on a Tax return that could give rise to a substantial underpayment of Tax under Section 6662 of the Code or any similar provision of state or local Law for which a Contributed Company could be held liable; and

 

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(k) none of the Subject Assets is subject to Section 197(f)(9) of the Code.

4.16 Brokers Fees . Neither EXCO nor any Contributed Company has incurred liability, contingent or otherwise, for brokers’ or finders’ fees relating to the transactions contemplated by this Agreement or the Transaction Documents for which any Contributed Company, BG or any Affiliate of BG shall have any responsibility.

4.17 Abandonment .

(a) Except as set forth on Schedule 4.17 , there are no pipelines or gathering facilities that constitute part of the Subject Assets (i) in respect of which EXCO or any Contributed Company has received an order from any Governmental Authority requiring that such pipelines or gathering facilities be abandoned, or (ii) that are neither in use nor temporarily abandoned in accordance with applicable Law that have not been abandoned in accordance with applicable Law.

(b) To EXCO’s Knowledge, all pipelines are within the limits permitted by all applicable Rights-of-Way and Applicable Contracts.

4.18 Partnerships . Except as set forth on Schedule 4.18 , none of the Midstream Companies’ interests in the Subject Assets is subject to tax partnership reporting for federal income tax purposes. Schedule 4.18 sets forth all of EXCO’s and EXCO’s Affiliates’ interest in the Subject Assets that are deemed by agreement or applicable Law to be held by a partnership or association for federal tax purposes, and, to the extent any of the Subject Assets are deemed by agreement or applicable Law to be held by a partnership for federal tax purposes, each such partnership has or shall have in effect an election under Section 754 of the Code that will apply with respect to such portion of the Subject Assets.

4.19 Permits . Each Contributed Company possess all material permits, licenses, orders, approvals, variances, waivers, franchises, rights, and other authorizations (“ Permits ”), required to be obtained from any Governmental Authority for conducting its business as presently conducted and there are no material uncured violations of the terms and provisions of such authorizations. With respect to each such Permit, neither EXCO nor any Contributed Company has received written notice from any Governmental Authority of any violations of such permits that remains uncured.

4.20 Subject Assets Complete . The Subject Assets and other assets held by the Contributed Companies include all equipment, material, Contracts, data and records and other property primarily used or primarily held for use by EXCO or any of its Affiliates in connection with the ownership and use of the Systems, excluding the following: (a) all Excluded Assets, (b) all assets covered by the Purchase and Sale Agreement, and (c) general corporate services and assets not specifically acquired or held for use in connection with the Subject Assets.

4.21 No Material Adverse Change . Except as set forth on Schedule 4.21 , since the Effective Date up to the date of this Agreement there has been no:

(a) material damage, destruction or loss to the Subject Assets;

 

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(b) Material Adverse Effect; or

(c) action that would have required the consent of BG under Section 6.1(b), (f) or (i), had those Sections been in effect.

4.22 Capitalization .

(a) EXCO has furnished to BG true and complete copies of the limited liability company agreement, agreement of limited partnership and other organizational documents of each Contributed Company, each as in effect on the date hereof.

(b) EOC holds of record and beneficially all Limited Partner Interests, free and clear of all Encumbrances. Prior to the transfers contemplated by Section 6.7 , Vaughan holds of record and beneficially all General Partner Interests, free and clear of all Encumbrances. Following the transfers contemplated by Section 6.7 , GP Holding will hold of record and beneficially all General Partner Interests, free and clear of all Encumbrances. The General Partner Interests and the Limited Partner Interests represent all of the issued and outstanding equity interests in TGG and Talco.

(c) Prior to the transfers contemplated by Section 6.7 , Vaughan holds of record and beneficially all the equity interest of GP Holding free and clear of all Encumbrances. EOC holds of record and beneficially all equity interests of the Company and after the transfers contemplated by Section 6.7 , GP Holding, (in each case) free and clear of all Encumbrances.

(d) The General Partner Interests, the Limited Partner Interests and the equity interests of GP Holding and the Company are duly authorized and validly issued and outstanding and have not been issued in violation of any preemptive rights. Other than pursuant to this Agreement, none of TGG, Talco, GP Holding or the Company has any outstanding convertible security, call, preemptive right, option, warrant, purchase right or other contract or commitment that would, directly or indirectly, require such entity to sell, issue or otherwise dispose of any equity interest of such entity and none of such Persons has granted any right to any distribution, carried interest, economic interest, preferred return or other right similar to the rights enjoyed by or accruing to a holder of equity interests with respect to such Person. There are no shareholder agreements, voting agreements, management agreements, proxies or other similar agreements or understandings, whether written or oral, with respect to TGG, Talco, GP Holding or the Company.

(e) Each of GP Holding and the Company currently has no assets or liabilities.

(f) As of the Effective Time, none of the assets of the Midstream Companies were held as cash or in short-term investments.

4.23 No Subsidiaries . Neither TGG nor Talco has any subsidiaries or any direct or indirect equity interest in any Person.

 

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4.24 Balance Sheets . EXCO has delivered to BG: unaudited consolidated balance sheets and income statements of each of TGG and Talco as of (a) December 31, 2008 and for the 12 month period then ended and (b) June 30, 2009 for the three month period then ended. Based upon information of which EXCO is aware as of the date hereof and subject to the matters set forth in Schedule 4.24 , such balance sheets and income statements fairly present the financial condition and the results of operations of TGG and Talco, as applicable, as of the respective dates of and for the periods referred to in such balance sheets and income statements, all in accordance with GAAP, consistently applied and subject to normal recurring year-end adjustments and the absence of notes with respect to the June 30, 2009 statements presented.

4.25 Employees . None of the Contributed Companies has, or since January 1, 2003 has had, any employees. At no time has any of the Contributed Companies participated in or contributed to, or had any obligation to participate in or contribute to, any employee benefit plan or arrangement maintained or supported by multiple employers, and there is no pending claim for withdrawal liability under such a plan or arrangement.

4.26 Loans and Guarantees . Except as set forth on Schedule 4.26 , the Contributed Companies have no loans for borrowed money from, and no guarantees for the benefit of, any person other than another Contributed Company.

4.27 Bank Accounts and Powers of Attorney . Schedule 4.27 sets forth a complete list of all bank accounts and investment accounts maintained by each Contributed Company, along with a list of persons authorized to sign with respect to such accounts. Schedule 4.27 also sets forth a list of all valid powers of attorney issued by any Contributed Company which remain in effect.

4.28 Unrelated Activities . No Contributed Company has engaged in any business other than the ownership, operation, maintenance, expansion, construction, commissioning and decommissioning of, and acquisition of, gathering systems, pipelines and treatment and processing facilities in the East Texas/North Louisiana Area, marketing of capacity on such gathering systems, buying and selling gas and condensate in connection therewith, and the provision of compression services in connection therewith.

4.29 Title to Subject Assets . The Midstream Companies hold title to the Subject Assets free of any Title Defects.

ARTICLE 5

BG’S REPRESENTATIONS AND WARRANTIES

BG represents and warrants to EXCO the following:

5.1 Organization; Existence . BG is a limited liability company, duly formed, validly existing and in good standing under the laws of the state of its formation and has all requisite power and authority to own and operate its property and to carry on its business as now conducted.

 

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5.2 Authorization . BG has full power and authority to enter into and perform this Agreement and the Transaction Documents to which it is a party and the transactions contemplated herein and therein. The execution, delivery, and performance by BG of this Agreement have been and at Closing the Transaction Documents to which it is a party will have been duly and validly authorized and approved by all necessary limited liability company action on the part of BG. This Agreement is, and the Transaction Documents to which BG is a party when executed and delivered by BG will be, the valid and binding obligation of BG and enforceable against BG in accordance with their respective terms, subject to the effects of bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting the rights of creditors generally, as well as to principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at Law).

5.3 No Conflicts . The execution, delivery, and performance by BG of this Agreement and the Transaction Documents to which it is a party and the consummation of the transactions contemplated herein and therein will not (a) conflict with or result in a breach of any provisions of the organizational or other governing documents of BG, (b) result in a default or the creation of any Encumbrance or give rise to any right of termination, cancellation, or acceleration under any of the terms, conditions, or provisions of any note, bond, mortgage, indenture, license, or other material agreement to which BG is a party or by which BG or any of its property may be bound or (c) assuming the Part