UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (Date of earliest event reported):

June 1, 2010

 

 

EXCO RESOURCES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Texas   0-9204   74-1492779

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

12377 Merit Drive  

Suite 1700, LB 82

Dallas, Texas

  75251
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (214) 368-2084

(Former name or former address, if changed since last report): Not applicable

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨  

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨  

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨  

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨  

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Section 1 – Registrant’s Business and Operations

 

Item 1.01 Entry into a Material Definitive Agreement.

Joint Development Agreement

On June 1, 2010, EXCO Production Company (PA), LLC (“ EXCOPA ”) and EXCO Production Company (WV), LLC (“ EXCOWV ” and, together with EXCOPA, the “ EXCO Parties ”), each wholly-owned indirect subsidiaries of EXCO Resources, Inc. (“ EXCO ”), entered into a Joint Development Agreement (the “ Joint Development Agreement ”) with BG Production Company, (PA), LLC (“ BGPA ”) and BG Production Company, (PA), LLC (“ BGWV ” and, together with BGPA, the “ BG Parties ”), each wholly-owned indirect subsidiaries of BG Group plc (“ BG Group ”) and EXCO Resources (PA), LLC (“ OPCO ”), a jointly owned subsidiary of EXCO Holding (PA), Inc. (“ EXCO Holding ”) and BG US Production Company, LLC (“ BG ”). The Joint Development Agreement was executed in connection with the closing of that certain Membership Interest Transfer Agreement, dated as of May 9, 2010 (the “ Transfer Agreement ”), between EXCO Holding and BG. Under the Joint Development Agreement and pursuant to the terms thereof, the EXCO Parties, BG Parties and OPCO will jointly fund, develop and operate certain oil and natural gas properties and related assets located in the States of Kentucky, New York, Ohio, Pennsylvania, Tennessee, Virginia and West Virginia. A description of the material terms of the Joint Development Agreement can be found in item 1.01 of EXCO’s Form 8-K filed with the Securities and Exchange Commission (the “ Commission ”) on May 10, 2010.

The foregoing description of the Joint Development Agreement is not complete and is qualified in its entirety by the full text of the Joint Development Agreement, a copy of which is filed herewith as Exhibit 10.1 and incorporated herein by reference.

Amended and Restated OPCO LLC Agreement

On June 1, 2010, EXCO Holding, BG and OPCO entered into a second amended and restated limited liability company agreement (the “ OPCO LLC Agreement ”) of OPCO. The OPCO LLC Agreement was executed in connection with the closing of the Transfer Agreement. The OPCO LLC Agreement sets forth the rights and obligations of EXCO Holding and BG with respect to their ownership of OPCO. A description of the material terms of the OPCO LLC Agreement can be found in item 1.01 of EXCO’s Form 8-K filed with the Commission on May 10, 2010.

The foregoing description of the OPCO LLC Agreement is not complete and is qualified in its entirety by the full text of the OPCO LLC Agreement, a copy of which is filed herewith as Exhibit 10.2 and incorporated herein by reference.

Second Amended and Restated Midstream LLC Agreement

In connection with, and simultaneous to the closing of Transfer Agreement, EXCO Holding and BG have also agreed to enter into a second amended and restated limited liability company agreement of Appalachia Midstream, LLC (“ Midstream ”) (the “ Midstream LLC Agreement ”), which, among other things, sets forth the rights and obligations of EXCO Holding and BG (collectively, the “ Members ”) with respect to their ownership of Midstream.

Governance and management

The business and affairs of Midstream and its subsidiaries will generally be controlled by a board of managers (the “ Board ”), which will initially be composed of an equal number of representatives from EXCO and BG.

The Board has the authority to elect officers of Midstream, provided that, and subject to annual ratification by the Board, each officer shall serve a three year term. The President and General Manager will be the chief executive officer of Midstream and will be responsible for the day to day direction of Midstream and the implementation of decisions of the Board. Initially, the President and General Manager of Midstream will report to the President and General Manager of OPCO but this is subject to change in the event of certain specified events. If each of EXCO Holding and BG has at least a 25% member interest in Midstream, then EXCO Holding and BG shall jointly select the President and General Manager. However, if either EXCO Holding or BG undergoes a change in control (other than a change in control of its ultimate parent), then the other party shall have the exclusive right to nominate the President and General Manager for the next three years (with such right of nomination thereafter rotating amongst the Members every three years).

 

1


Development Work Program; Annual Work Program and Budget

Prior to the beginning of each year, the Board will approve and adopt a work program and budget for the upcoming calendar year (the “ Annual Work Program and Budget ”) and the business and operations of Midstream and its subsidiaries will be conducted in accordance with such Annual Work Program and Budget, subject to certain permitted overruns. The Members have agreed upon an Annual Work Program and Budget for the period from the date of execution of the Midstream LLC Agreement through December 31, 2010. The Board shall approve a 3-year capital development program for Midstream and its subsidiaries within 90 days of execution of the Midstream LLC Agreement (the “ Program ”). The Program may be amended at any time by the Board and the Board is required to amend and extend the Program on a rolling 2-year basis beginning in 2012.

If the Board is unable to approve an Annual Work Program and Budget for a relevant calendar year, then an Annual Work Program and Budget will automatically be deemed approved and will include:

 

   

the activities scheduled to be performed during the relevant year as set forth in the Program, if any, and associated costs reasonably required to implement such operations,

 

   

operating expenses equal to the amount of operating expenses expended in the previous year,

 

   

any multi-year expenditures previously approved by the Board that are attributable to the relevant year,

 

   

existing payment commitments to third parties under contracts to which Midstream or its subsidiaries are a party,

 

   

taxes payable by Midstream and its subsidiaries, and

 

   

payroll and benefits of all employees and charges to Midstream for secondees.

Contributions, distributions and capital accounts

Within 2 business days of the day upon which Midstream establishes a company bank account, Midstream will notify the Members and within 5 business days of such notice, each Member will make an initial capital contribution to Midstream.

After the closing, Members will be required to fund operations and business activities of Midstream and its subsidiaries as set forth in the Annual Work Program and Budget, but only to the extent that the cash reserves of Midstream are insufficient to fund such operations and business activities. To the extent that the cash reserves of Midstream exceed a certain agreed upon formula, Midstream will make distributions of any excess cash to the Members at the end of each calendar quarter. The Board has the authority to make distributions to the Members or to suspend distributions, at any time.

Profits and losses of Midstream, as well as tax allocations, shall be allocated among the Members based on each Member’s member interest. Additionally, Midstream will maintain capital accounts for each of the Members.

Default and reduction of member interest

Any Member that fails to pay in full any amounts owed under the terms of the Midstream LLC Agreement (including required capital contributions) shall be in default (a “ Defaulting Member ”). With certain limited exceptions, Defaulting Members shall have no right to, among other things:

 

   

with limited exceptions, elect to participate in proposals under the Midstream LLC Agreement,

 

   

vote on any matter under the Midstream LLC Agreement with respect to which approval from the Members is required (excluding amendments to the Midstream LLC Agreement),

 

   

call a meeting of the Board,

 

2


   

with limited exceptions, vote on most matters coming before the Board,

 

   

access data or information related to Midstream’s operations,

 

   

elect to participate in proposed New Business (defined below),

 

   

with certain exceptions, transfer or encumber its member interest,

 

   

withhold consent to transfer of another Member’s member interest or a change in control,

 

   

exercise certain preferential purchase rights, or participate in any Acquired Business (defined below).

 

   

elect to participate in the acquisition of any Midstream asset pursuant to the area of mutual interest provisions of the Midstream LLC Agreement.

From and after the later to occur of the 30 days following the time at which a Member becomes a Defaulting Member, a Defaulting Member will have no right to receive distributions from Midstream until such default is cured.

Additionally, if a Defaulting Member does not cure its default within 120 days after becoming a Defaulting Member, then any of the non-Defaulting Members may elect to reduce such Defaulting Member’s member interest based on an agreed upon formula. The reduction of a Defaulting Member’s member interest shall be treated as fully curing such Member’s default.

Transfer of member interests

From and after the closing under the Transfer Agreement until the third anniversary of such closing, no Member may transfer any part of its member interest to any non-affiliated person without the written consent of each other Member and any affiliate transferee may not transfer any part of such transferred member interest to any non-affiliated person or undergo a change in control (other than with respect to a change in control of its ultimate parent) without the written consent of each other Member. After this 3-year period, a Member may transfer all or any part of its member interest, provided that the transferee has the financial ability to perform its future payment obligations under the Midstream LLC Agreement and has the technical ability to participate in future operations. The Midstream LLC Agreement also contains other customary restrictions on the transfer of a Member’s member interest for a transaction of this nature.

Preferential purchase rights and change of control

The Members have a 60-day preferential purchase right in the event of a transfer of any other Member’s member interest or a change of control (other than the change in control of the ultimate parent company of a Member).

Acquired Business, New Business and Member Services

The Midstream LLC Agreement contains restrictions and limitations on midstream activities that the Members can conduct outside of Midstream and its subsidiaries in the AMI. Until January 1, 2020, if a Member directly or indirectly acquires or agrees to acquire certain midstream assets (the “ Acquired Business ”) in the States of New York, Pennsylvania and West Virginia (the “ AMI ”), the other Members have a right for a 60-day period to elect to acquire their member interest share of such Acquired Business on the same terms and conditions negotiated by the acquiring Member. If all non-acquiring Members elect to acquire an interest in the Acquired Business, then such Acquired Business will be held by Midstream or one of its subsidiaries. If less that all non-acquiring Members or no non-acquiring Members elect to acquire an interest in the Acquired Business, then the Midstream LLC Agreement sets forth the procedures which allow the Acquired Business to be owned and maintained outside of Midstream and its subsidiaries.

Until January 1, 2020, if a Member desires to commence certain midstream activities in the AMI that are not then included in any Annual Work Program and Budget, other than any Acquired Business (“ New Business ”), the other Members (the “ non-proposing Members ”) have a right for a 60-day period to participate in such New Business. If all non-proposing Members elect to participate in the New Business, then such New Business will be conducted by Midstream or its subsidiaries. If less that all non-proposing Members or no non-proposing Members elect to participate in the New Business, then the Midstream LLC Agreement sets forth the procedures which allow the New Business to be conducted, owned and maintained outside of Midstream and its subsidiaries.

 

3


In certain situations, Members have the right to require Midstream and its subsidiaries to provide certain transportation, gathering, treatment, processing or compression services to the Member at agreed upon rates and on agreed upon terms. Additionally, Members have the right to require Midstream and its subsidiaries to connect any assets and properties held by a Member outside of Midstream and its subsidiaries to Midstream’s and its subsidiaries’ gathering system and to require Midstream or one of its subsidiaries to provide certain construction and operating services to such Member, in each case, at rates and on terms agreed upon by the Members.

The foregoing description of the Midstream LLC Agreement is not complete and is qualified in its entirety by the full text of the Midstream LLC Agreement, a copy of which is filed herewith as Exhibit 10.3 and incorporated herein by reference.

Amendment to Transfer Agreement

On June 1, 2010, EXCO Holding and BG Production entered into a letter agreement (the “ Amendment ”) principally to delete a covenant under the Transfer Agreement that restricted the use of the proceeds to be received by EXCO Holding upon consummation of the Transfer Agreement. The Amendment is effective as of May 9, 2010. The foregoing description of the Amendment is not complete and is qualified in its entirety by the full text of the Amendment, a copy of which is filed herewith as Exhibit 10.4 and incorporated herein by reference.

Supplemental Indentures

On April 30, 2010, EXCO, EXCO Partners GP, LLC, EXCO GP Partners Old, LP, EXCO Partners OLP GP, LLC, EXCO Operating Company, LP, Vernon Gathering, LLC and Wilmington Trust Company, as trustee, executed a Ninth Supplemental Indenture (the “ Ninth Supplemental Indenture ”), pursuant to which EXCO Operating Company, LP and the other subsidiary parties thereto became subsidiary guarantors of EXCO’s 7  1 / 4 % Senior Notes due January 15, 2011 (the “ Senior Notes ”).

On May 9, 2010, EXCO, EXCO Holding and Wilmington Trust Company, as trustee, executed a Tenth Supplemental Indenture (the “ Tenth Supplemental Indenture ”), pursuant to which EXCO Holding became a subsidiary guarantor of the Senior Notes.

On May 28, 2010, EXCO, EXCOPA, EXCOWV, BGPA, BGWV, OPCO, Midstream, EXCO Resources (XA), LLC and Wilmington Trust Company, as trustee, executed an Eleventh Supplemental Indenture (the “ Eleventh Supplemental Indenture ”), pursuant to which EXCOPA, EXCOWV, BGPA, BGWV, OPCO, Midstream, EXCO Resources (XA), LLC each became subsidiary guarantors of the Senior Notes. At the closing of the Marcellus Transaction (described below), BGPA, BGWV, OPCO and Midstream were each released as subsidiary guarantors of the Senior Notes.

The foregoing descriptions of the Ninth Supplemental Indenture, the Tenth Supplemental Indenture and the Eleventh Supplemental Indenture are not complete and are qualified in their entirety by the full text of the Ninth Supplemental Indenture, the Tenth Supplemental Indenture and the Eleventh Supplemental Indenture, copies of which are filed herewith as Exhibits 10.5, 10.6 and 10.7 and incorporated herein by reference.

Credit Agreement

Pursuant to the terms of EXCO’s Credit Agreement, dated April 30, 2010, by and among EXCO, as borrower, certain of its subsidiaries, as guarantors, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent (the “ Credit Agreement ”), on June 1, 2010, EXCOPA, EXCOWV and EXCOXA each executed and delivered to the administrative agent separate Counterpart Agreements whereby, among other things, each of EXCOPA, EXCOWV and EXCOXA became guarantors under the terms of the Credit Agreement and granted to the administrative agent liens in certain of their respective assets to secure the obligations of EXCO under the Credit Agreement.

 

4


Section 2 – Financial Information

 

Item 2.01. Completion of Acquisition or Disposition of Assets.

Closing of Appalachia Upstream and Midstream Joint Development Transactions

On June 1, 2010, EXCO Holding and BG closed the transactions contemplated by the Transfer Agreement (the “ Marcellus Transaction ”). Under the Transfer Agreement, EXCO transferred to BG (a) 100% of the membership interests of BGPA and BGWV and (b) 50% of the membership interests of OPCO and Midstream (all such membership interests, collectively, the “ Subject Membership Interests ”) in exchange for $835.2 million in cash, subject to customary post-closing adjustments, for the Subject Membership Interests. The sale of the Subject Membership Interests is effective as of January 1, 2010. A description of the material terms of the Transfer Agreement can be found in item 1.01 of EXCO’s Form 8-K filed with the Commission on May 10, 2010.

The foregoing description of the Transfer Agreement is not complete and is qualified in its entirety by full text of the Transfer Agreement, a copy of which is filed herewith as Exhibit 10.8 and incorporated herein by reference.

Limited Guarantees

In connection with the Marcellus Transaction, the following guarantees were provided to support certain obligations of the parties:

 

   

at the time the Transfer Agreement was executed, BG Energy Holdings Limited, an affiliate of BG, provided a payment guarantee to EXCO Holding guaranteeing the payment obligations of BG under the Transfer Agreement and the payment obligations of BG with respect to certain carried costs under the Joint Development Agreement (the “ BG MITA Guarantee ”);

 

   

at the time the Transfer Agreement was executed, EXCO provided a performance guarantee to BG guaranteeing the obligations of EXCO Holding under the Transfer Agreement (the “ EXCO MITA Guarantee ”);

 

   

concurrently with the closing of the Marcellus Transaction, BG North America, LLC, an affiliate of BG, provided a payment guarantee (i) to EXCOPA, EXCOWV and OPCO guaranteeing the payment obligations of BGPA, BGWV and their affiliates under the JDA (excluding the carry obligation in the Joint Development Agreement) and (ii) to OPCO and EXCO Holding guaranteeing the payment obligations of BG and its affiliates under the OPCO LLC Agreement (the “ BG Marcellus Guarantee ”); and

 

   

concurrently with the closing of the Marcellus Transaction, EXCO provided a payment guarantee (i) to BGPA, BGWV and OPCO guaranteeing the payment obligations of EXCOPA, EXCOWV and their affiliates under the JDA and (ii) to OPCO and BG guaranteeing the payment obligations of EXCO Holding and its affiliates under the OPCO LLC Agreement (the “ EXCO Marcellus Guarantee ”).

The foregoing descriptions of the BG MITA Guarantee, the EXCO MITA Guarantee, the BG Marcellus Guarantee and the EXCO Marcellus Guarantee are not complete and are qualified in their entirety by the full text of the BG MITA Guarantee, the EXCO MITA Guarantee, the BG Marcellus Guarantee and the EXCO Marcellus Guarantee, copies of which are filed herewith as Exhibits 10.9, 10.10, 10.11 and 10.12 and incorporated herein by reference.

Use of Proceeds

The $835.2 million of cash proceeds received at the closing of the Marcellus Transaction were used to reduce the outstanding balance under EXCO’s credit facility, to fund EXCO’s share of an operating account for the Marcellus Transaction, to pay transaction costs and expenses and for other general corporate purposes. The borrowing base under EXCO’s credit facility was reduced from $1.3 billion to $1.2 billion as a result of the consummation of the Marcellus Transaction.

 

5


Section 7 – Regulation FD

 

Item 7.01 Regulation FD Disclosure

On June 1, 2010, EXCO issued a press release announcing, among other things, the signing of the Joint Development Agreement, the OPCO LLC Agreement and the Midstream LLC Agreement and the closing of the Marcellus Transaction, a copy of which is furnished as Exhibit 99.1.

In accordance with general instruction B.2 to Form 8-K, information contained in Exhibit 99.1 is being “furnished” and not “filed” with the Commission for purposes of Section 18 of the Securities Exchange Act of 1934, and such information shall not be deemed incorporated by reference in any filing under the Securities Act of 1933.

Section 9 – Financial Statements and Exhibits

 

Item 9.01 Financial Statements and Exhibits.

 

  (b) Pro Forma Financial Information.

The unaudited pro forma financial information of EXCO with respect to the Marcellus Transaction for the year ended December 31, 2009 and three months ended March 31, 2010 are included as Exhibit 99.2 hereto.

 

  (d) Exhibits.

 

10.1    Joint Development Agreement, dated as of June 1, 2010, by and among EXCO Production Company (PA), LLC, EXCO Production Company (WV), LLC, BG Production Company, (PA), LLC, BG Production Company, (WV), LLC and EXCO Resources (PA), LLC.

10.2

   Second Amended and Restated Limited Liability Company Agreement of EXCO Resources (PA), LLC, dated June 1, 2010, by and among EXCO Holding (PA), Inc., BG US Production Company, LLC and EXCO Resources (PA), LLC.

10.3

   Second Amended and Restated Limited Liability Company Agreement of Appalachia Midstream, LLC, dated June 1, 2010, by and among EXCO Holding (PA), Inc., BG US Production Company, LLC and Appalachia Midstream, LLC.

10.4

   Letter Agreement, dated June 1, 2010 and effective as of May 9, 2010, by and between EXCO Holding (PA), Inc. and BG US Production Company, LLC.

10.5

   Ninth Supplemental Indenture, dated April 30, 2010, by and among EXCO Resources, Inc., EXCO Partners GP, LLC, EXCO GP Partners Old, LP, EXCO Partners OLP GP, LLC, EXCO Operating Company, LP, Vernon Gathering, LLC and Wilmington Trust Company, as trustee.

10.6

   Tenth Supplemental Indenture, May 9, 2010, EXCO Resources, Inc., EXCO Holding (PA), Inc. and Wilmington Trust Company, as trustee.

10.7

   Eleventh Supplemental Indenture, May 28, 2010, EXCO Resources, Inc., EXCO Production Company (PA), LLC, EXCO Production Company (WV), LLC, BG Production Company (PA), LLC, BG Production Company (WV), LLC, EXCO Resources (PA), LLC, Appalachia Midstream, LLC, EXCO Resources (XA), LLC and Wilmington Trust Company, as trustee.

 

6


10.8    Membership Interest Transfer Agreement, dated as of May 9, 2010, between EXCO Holding (PA), Inc. and BG US Production Company, LLC.
10.9    Guaranty, dated May 9, 2010, by BG Energy Holdings Limited in favor of EXCO Holding (PA), Inc., EXCO Production Company (PA), LLC and EXCO Production Company (WV), LLC.
10.10    Guaranty, dated May 9, 2010, by EXCO Resources, Inc. in favor of BG US Production Company, LLC.
10.11    Guaranty, dated June 1, 2010, by BG North America, LLC in favor of (i) EXCO Production Company (PA), LLC, EXCO Production Company (WV), LLC and EXCO Resources (PA), LLC; and (ii) EXCO Resources (PA), LLC and EXCO Holding (PA), Inc.
10.12    Guaranty, dated June 1, 2010, by EXCO Resources, Inc., in favor of: (i) BG Production Company (PA), LLC, BG Production Company (WV), LLC and EXCO Resources (PA), LLC; and (ii) EXCO Resources (PA), LLC and BG US Production Company, LLC.
99.1    Press Release dated June 1, 2010.
99.2    Unaudited pro forma financial information of EXCO Resources, Inc. for the year ended December 31, 2009 and three months ended March 31, 2010.

 

7


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  EXCO RESOURCES, INC.
Date: June 7, 2010   By:  

/S/ J. DOUGLAS RAMSEY

    J. Douglas Ramsey, Ph.D.
    Vice President - Finance


EXHIBIT INDEX

 

Exhibit
Number

  

Description

10.1

   Joint Development Agreement, dated as of June 1, 2010, by and among EXCO Production Company (PA), LLC, EXCO Production Company (WV), LLC, BG Production Company, (PA), LLC, BG Production Company, (WV), LLC and EXCO Resources (PA), LLC.

10.2

   Second Amended and Restated Limited Liability Company Agreement of EXCO Resources (PA), LLC, dated June 1, 2010, by and among EXCO Holding (PA), Inc., BG US Production Company, LLC and EXCO Resources (PA), LLC.

10.3

   Second Amended and Restated Limited Liability Company Agreement of Appalachia Midstream, LLC, dated June 1, 2010, by and among EXCO Holding (PA), Inc., BG US Production Company, LLC and Appalachia Midstream, LLC.

10.4

   Letter Agreement, dated June 1, 2010 and effective as of May 9, 2010, by and between EXCO Holding (PA), Inc. and BG US Production Company, LLC.

10.5

   Ninth Supplemental Indenture, dated April 30, 2010, by and among EXCO Resources, Inc., EXCO Partners GP, LLC, EXCO GP Partners Old, LP, EXCO Partners OLP GP, LLC, EXCO Operating Company, LP, Vernon Gathering, LLC and Wilmington Trust Company, as trustee.

10.6

   Tenth Supplemental Indenture, May 9, 2010, EXCO Resources, Inc., EXCO Holding (PA), Inc. and Wilmington Trust Company, as trustee.

10.7

   Eleventh Supplemental Indenture, May 28, 2010, EXCO Resources, Inc., EXCO Production Company (PA), LLC, EXCO Production Company (WV), LLC, BG Production Company (PA), LLC, BG Production Company (WV), LLC, EXCO Resources (PA), LLC, Appalachia Midstream, LLC, EXCO Resources (XA), LLC and Wilmington Trust Company, as trustee.

10.8

   Membership Interest Transfer Agreement, dated as of May 9, 2010, between EXCO Holding (PA), Inc. and BG US Production Company, LLC.

10.9

   Guaranty, dated May 9, 2010, by BG Energy Holdings Limited in favor of EXCO Holding (PA), Inc., EXCO Production Company (PA), LLC and EXCO Production Company (WV), LLC.

10.10

   Guaranty, dated May 9, 2010, by EXCO Resources, Inc. in favor of BG US Production Company, LLC.

10.11

   Guaranty, dated June 1, 2010, by BG North America, LLC in favor of (i) EXCO Production Company (PA), LLC, EXCO Production Company (WV), LLC and EXCO Resources (PA), LLC; and (ii) EXCO Resources (PA), LLC and EXCO Holding (PA), Inc.

10.12

   Guaranty, dated June 1, 2010, by EXCO Resources, Inc., in favor of: (i) BG Production Company (PA), LLC, BG Production Company (WV), LLC and EXCO Resources (PA), LLC; and (ii) EXCO Resources (PA), LLC and BG US Production Company, LLC.

99.1

   Press Release dated June 1, 2010.

99.2

   Unaudited pro forma financial information of EXCO Resources, Inc. for the year ended December 31, 2009 and three months ended March 31, 2010.

Exhibit 10.1

EXECUTION VERSION

JOINT DEVELOPMENT AGREEMENT

BY AND AMONG

BG PRODUCTION COMPANY (PA), LLC

BG PRODUCTION COMPANY (WV), LLC

EXCO PRODUCTION COMPANY (PA), LLC

EXCO PRODUCTION COMPANY (WV), LLC

AND

EXCO RESOURCES (PA), LLC

DATED JUNE 1, 2010


TABLE OF CONTENTS

 

ARTICLE 1    DEFINITIONS; INTERPRETATION; JOINT ENTITIES

   1

Section 1.1

     Definitions    1

Section 1.2

     Interpretation    2

Section 1.3

     Entity Members and Joint Entities    2

ARTICLE 2     CERTAIN OBLIGATIONS

   2

Section 2.1

     Funding by the Company    2

Section 2.2

     Carry of Eligible Costs    3

Section 2.3

     Payment Procedure    4

Section 2.4

     Development Costs    6

Section 2.5

     Guarantees    7

ARTICLE 3    SCOPE; JDA INTERESTS AND PARTICIPATING INTERESTS; OPERATIONS

   7

Section 3.1

     Scope    7

Section 3.2

     JDA Interests and Participating Interests    7

Section 3.3

     Operating Agreements    8

Section 3.4

     Appointment and Removal of Party Operator    9

Section 3.5

     Joint Development Operator    12

Section 3.6

     Technical Services    16

Section 3.7

     Appalachian Overhead    16

ARTICLE 4    OPERATING COMMITTEE; DEVELOPMENT WORK PROGRAM; ANNUAL WORK PROGRAM AND BUDGETS

   17

Section 4.1

     Operating Committee    17

Section 4.2

     Development Work Program    24

Section 4.3

     Initial Annual Work Plan and Budgets    25

Section 4.4

     Subsequent Annual Work Plan and Budgets    25

Section 4.5

     Statements of Estimated Expenditures    31

Section 4.6

     AFEs    31

Section 4.7

     Area-Wide Operations    32

Section 4.8

     Third Party Operators    32

Section 4.9

     Participation by the Company    32

ARTICLE 5    DEFAULT

   33

Section 5.1

     Default    33

Section 5.2

     Certain Consequences of Default    34

Section 5.3

     Right to Costs of Enforcement    37

Section 5.4

     Cumulative and Additional Remedies    37

Section 5.5

     Remedies for Failure to Pay Carried Costs    37

ARTICLE 6    TRANSFERS

   38

Section 6.1

     Maintenance of Uniform Interest; Tag-Along Right; Minimum Participating Interest; Transfers by Defaulting Parties    38

Section 6.2

     Requirements for Transfer    40

 

i


Section 6.3

   Liability of Transferor/Transferee    41

Section 6.4

   Encumbrances by Parties    42

ARTICLE 7    CONSENT TO ASSIGNMENT

   42

Section 7.1

   Certain Transfers during Initial Three Year Period    42

Section 7.2

   Other Transfers    43

Section 7.3

   Additional Consent Requirements    43

Section 7.4

   Consents for Transfer of Joint Development or Party Operatorship    43

ARTICLE 8    PREFERENTIAL RIGHT TO PURCHASE; CHANGES IN EQUITY OWNERSHIP

   44

Section 8.1

   Preferential Right to Purchase    44

Section 8.2

   Changes in Equity Ownership    47

ARTICLE 9    AREA OF MUTUAL INTEREST; CERTAIN RENTALS; JOINT ENTITIES

   49

Section 9.1

   Creation of Area of Mutual Interest    49

Section 9.2

   Area of Mutual Interest Procedures    49

Section 9.3

   Payment of Certain Rentals    54

ARTICLE 10    TAXES

   55

Section 10.1

   Tax Partnership    55

Section 10.2

   Tax Information    56

Section 10.3

   Responsibility for Taxes    56

ARTICLE 11    TERM

   56

ARTICLE 12    RELATIONSHIP OF THE PARTIES

   57

ARTICLE 13    GOVERNING LAW; DISPUTE RESOLUTION; EXPERT PROCEEDINGS

   57

Section 13.1

   Governing Law    57

Section 13.2

   Dispute Resolution    57

Section 13.3

   Expert Proceedings    59

ARTICLE 14    MISCELLANEOUS

   60

Section 14.1

   Counterparts    60

Section 14.2

   Notices    60

Section 14.3

   Expenses    62

Section 14.4

   Waivers; Rights Cumulative    62

Section 14.5

   Entire Agreement; Conflicts    62

Section 14.6

   Amendment    63

Section 14.7

   Parties in Interest    63

Section 14.8

   Successors and Permitted Assigns    63

Section 14.9

   Confidentiality    63

Section 14.10

   Publicity    64

Section 14.11

   Preparation of Agreement    65

Section 14.12

   Conduct of the Parties; Business Principles    65

Section 14.13

   Severability    65

Section 14.14

   Non-Compensatory Damages    66

Section 14.15

   Excluded Assets    66

 

ii


APPENDICES AND EXHIBITS
Appendix I    Definitions
Exhibit “A”    Form of BG JDA Guaranty
Exhibit “B”    Form of Joint Development Operating Agreement
Exhibit “C”    [Intentionally Omitted]
Exhibit “D”    Development Work Program
Exhibit “E”    Calendar Year 2010 Annual Work Program and Budget
Exhibit “F”    Form of Assumption Agreement
Exhibit “G”    Tax Partnership Agreement
Exhibit “H”    Form of EXCO JDA Guaranty
Exhibit “I”    Form of Joint Entity Ratification
Exhibit “J”    Form of Power of Attorney for Acquisitions

 

iii


JOINT DEVELOPMENT AGREEMENT

THIS JOINT DEVELOPMENT AGREEMENT is signed this 1st day of June, 2010 (the “ Closing Date ”) by and among BG Production Company (PA), LLC, a limited liability company organized and existing under the Laws of Delaware (“ BGPA ”), BG Production Company (WV), LLC, a limited liability company organized and existing under the Laws of Delaware (“ BGWV ” and, together with BGPA and any other Affiliate of BGPA that becomes a Party to this Agreement, “ BG ”), EXCO Production Company (PA), LLC, a limited liability company organized and existing under the Laws of Delaware (“ EXCOPA ”), EXCO Production Company (WV), LLC, a limited liability company organized and existing under the Laws of Delaware (“ EXCOWV ” and, together with EXCOPA and any other Affiliate of EXCOPA that becomes a Party to this Agreement, “ EXCO ”), and EXCO Resources (PA), LLC, a limited liability company organized and existing under the Laws of Delaware (the “ Company ”). BG, EXCO and the Company shall sometimes be referred to herein together as the “ Parties ”, and individually as a “ Party ”. BG and EXCO shall sometimes be referred to herein together in their capacities as working interest owners in the Development Assets and owners (directly or through an Affiliate) of the Membership Interests of the Joint Entities as the “ Development Parties ”, and each individual grouping of Affiliates (BG or EXCO) as a “ Development Party ”.

RECITALS

WHEREAS, on the Closing Date, BG US Production Company, LLC, a limited liability company organized and existing under the Laws (as hereinafter defined) of Delaware (“ BG Parent ”), and EXCO Holding (PA), Inc., a corporation organized and existing under the Laws of Delaware (“ EXCO Parent ”), consummated certain transactions contemplated in the Transfer Agreement (as hereinafter defined), which transactions included the transfer to BG Parent by EXCO Parent of all of the outstanding membership interests of BGPA and BGWV and the purchase by BG Parent and sale by EXCO Parent of fifty percent (50%) of the outstanding membership interests of the Company; and

WHEREAS, the Development Parties desire to develop the Subject Oil and Gas Assets (as hereinafter defined) located in the Appalachian Area (as hereinafter defined) in a coordinated manner using the Company as operator; and

WHEREAS, the Parties now desire to set forth their respective rights and obligations with respect to all such arrangements.

NOW THEREFORE, IN CONSIDERATION OF THE MUTUAL AGREEMENTS HEREIN CONTAINED, THE PARTIES HEREBY AGREE AS FOLLOWS:

ARTICLE 1

DEFINITIONS; INTERPRETATION; JOINT ENTITIES

Section 1.1 Definitions . 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 herein shall have the meanings set forth in Appendix I.

 

1


Section 1.2 Interpretation . All references in this Agreement to Exhibits, Appendices, Articles, Sections, subsections and other subdivisions refer to the corresponding Exhibits, 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 and Exhibits referred to herein are attached to and by this reference incorporated herein for all purposes. References to any Law or agreement shall mean such Law or agreement as it may be amended from time to time. Each set of Development Parties that are Affiliates shall be considered a single Development Party for purposes of this Agreement except as otherwise expressly provided.

Section 1.3 Entity Members and Joint Entities . In the event that the Development Parties or their Affiliates acquire or have acquired a Joint Entity (other than the Company) by operation of Section 9.2 or otherwise, such Joint Entity, while not a party to this Agreement, and the Entity Members thereof (even if not a party to this Agreement), shall be bound hereby and have rights hereunder (to the extent provided herein), and, on the date that the Development Parties close their acquisition of such Joint Entity, each Development Party shall cause (a) its affiliated Entity Members of such Joint Entity to, and to cause such Joint Entity to, execute a ratification of this Agreement in a form substantially similar to Exhibit “I” attached hereto and (b) its affiliated Entity Members of such Joint Entity to cause such Joint Entity to execute a power of attorney substantially in the form of Exhibit “J” attached hereto. In the event that this Agreement is amended in accordance with Section 14.6, all then-existing Joint Entities (other than the Company), while not parties to this Agreement, and the Entity Members thereof (even if not a party to this Agreement), shall be bound by this Agreement as so amended without further action by any such Person.

ARTICLE 2

CERTAIN OBLIGATIONS

Section 2.1 Funding by the Company . The Development Parties shall cause their respective affiliated Entity Members of the Company to pay (according to such Entity Members’ respective Percentage Interests in the Company) Capital Contributions to the Company with respect to the Company’s share of the Development Costs for those Development Operations in which the Company is a Participating Party. All such payments shall be made in the same manner and at the same time as each Development Party and Entity Member pays its share of billings and requests for advances or Capital Contributions, as applicable, pursuant to Section 2.3.

 

2


Should a Development Party fail to cause its affiliated Entity Member(s) of the Company to pay any such amount when due, such Development Party shall be in default under the terms of Article 5, and each other Development Party shall be obligated to pay its share of such amount as required by Section 5.2(e).

Section 2.2 Carry of Eligible Costs .

 

  (a) From and after the Closing Date and until the Carry Termination Event, and notwithstanding the terms of any Applicable Operating Agreement to the contrary, (i) BG shall pay seventy-five and three hundred seventy-seven thousandths percent (75.377%) of EXCO’s or any EXCO Member’s share under each Applicable Operating Agreement of all Eligible Costs incurred in accordance with an approved Annual Work Program and Budget or pursuant to a Sole Risk Development Operation undertaken by EXCO or a Farmout Sole Risk Entity Operation undertaken by an EXCO Member or EXCO and (ii) with respect to each Joint Entity other than the Company, BG shall cause the BG Members to pay, without duplication of clause (i), seventy-five and three hundred seventy-seven thousandths percent (75.377%) of each EXCO Member’s Percentage Interest share of all Capital Contributions under the applicable Joint Entity Agreement with respect to such Joint Entity’s share under each Applicable Operating Agreement of Eligible Costs incurred (A) in accordance with an approved Annual Work Program and Budget or (B) pursuant to a Sole Risk Entity Operation undertaken by such Joint Entity on behalf of any EXCO Member (all such Eligible Costs that BG is obligated to pay or cause the BG Members to pay pursuant to this Section 2.2, “Carried Costs”). As used herein, “Carry Termination Event” means the time at which the aggregate amount of Carried Costs paid by BG and the BG Members equals the Carried Costs Obligation. Joint Development Operator shall maintain an accurate record of the Carried Costs paid by BG and the BG Members from time to time, and shall provide each Development Party with a monthly statement showing the Calendar Month and inception to date payments by BG and the BG Members.

 

  (b)

Until the Carry Termination Event, BG shall pay, and shall cause the BG Members to pay, all Carried Costs in the same manner and at the same time as each Development Party and Entity Member pays its share of billings or requests for advances or Capital Contributions pursuant to Section 2.3. BG may make any such payments on behalf of the BG Members as provided in Section 2.3(a). BG and each such BG Member shall be entitled to exercise (or, in the case of a Sole Risk Development Operation undertaken by EXCO, a Farmout Sole Risk Entity Operation undertaken by an EXCO Member or EXCO or a Sole Risk Entity Operation undertaken by any Joint Entity on behalf of any EXCO Member, cause EXCO or the EXCO Member to exercise on its behalf) all rights available to the parties under the Applicable Operating Agreements or applicable Joint Entity Agreements to contest charges and audit the accounts of the operator thereunder with respect to such payments. Any reimbursements for any Carried Costs paid by BG or any BG Members shall be paid by EXCO, the applicable EXCO Member, the applicable Joint Entity or the applicable reimbursing party to BG or

 

3


  such BG Member, as directed by BG, promptly after the determination thereof (and, to the extent reimbursable by a Person other than EXCO, an EXCO Member or a Joint Entity and paid to EXCO, such EXCO Member or such a Joint Entity, after receipt by EXCO, such EXCO Member or such Joint Entity of such amounts), provided that any amounts so reimbursed to BG or such BG Member shall be deducted from the calculation of the Carried Costs paid by BG and the BG Members for purposes of this Agreement, including the determination of the Carry Termination Event. In the event EXCO, an EXCO Member or a Joint Entity receives a credit in respect of Carried Costs paid by BG or any BG Member, at the request of BG, EXCO, such EXCO Member or such Joint Entity shall request that such credit be paid directly to BG or such BG Member, as directed by BG (and any such credit actually paid to BG or such BG Member shall be deducted from the calculation of Carried Costs paid by BG and the BG Members pursuant to this Agreement).

Section 2.3 Payment Procedure .

 

  (a) Each Development Party has initially paid, or has caused its affiliated Entity Members to pay, to Joint Development Operator the following sums with respect to Development Operations by wire transfer to the Joint Operations Account:

 

BG

   $ 54,020,000.00

EXCO

   $ 32,780,000.00

The Parties agree that the amounts deposited by the Development Parties and their respective affiliated Entity Members into the Joint Operations Account pursuant to this Section represent the BG Deposit and the EXCO Deposit for the three Calendar Months following the Closing Date, each as calculated on the Closing Date, plus the amount necessary to cover each Development Party’s and its affiliated Entity Members’ shares of Permitted Expenses for the remainder of the Calendar Month in which the Closing Date falls. On the first Business Day of each Calendar Month following the Closing Date, each Development Party shall, and shall cause each of its affiliated Entity Members to, deposit by wire transfer directly into the Joint Operations Account such Development Party’s and its affiliated Entity Members’ Additional Deposit as set forth in the Monthly Statement provided by Joint Development Operator pursuant to Section 2.3(f). Any Development Party may make such payments on behalf of its Affiliated Entity Members provided that the amounts to be credited to each Entity Member are designated at the time payment is made.

 

  (b) Except with respect to amounts deposited by any Entity Member for expenditures attributable to Farmout Sole Risk Entity Operations performed by such Entity Member, all amounts deposited into the Joint Operations Account by an Entity Member shall be deemed to be Capital Contributions of such Entity Member to its Joint Entity under the applicable Joint Entity Agreement. Each Joint Entity shall be deemed to have deposited into the Joint Operations Account, simultaneously with receipt from the applicable Entity Member, the deemed Capital Contributions of each of its Entity Members as payment for its share of Development Costs.

 

4


  (c) All money on deposit in the Joint Operations Account shall be held for the benefit of the Development Parties and the Joint Entities (and, if applicable, each Entity Member participating in a Farmout Sole Risk Entity Operation), with each Development Party and Joint Entity (and, if applicable, Entity Member, with respect to funds deposited in connection with a Farmout Sole Risk Entity Operation) deemed to have a share of such funds equal to the share of funds deposited by it or deemed deposited by it (including, in the case of EXCO or any EXCO Member, Carried Costs paid on its behalf by BG or any BG Member, other than those contributed as Capital Contributions to Joint Entities) into the Joint Operations Account less funds expended for its account for Development Costs, plus its share of interest earned on the balance from time to time in the Joint Operations Account. When amounts are withdrawn from the Joint Operations Account, they shall be debited to each Development Party or Joint Entity (or, if applicable, an Entity Member in connection with a Farmout Sole Risk Entity Operation) based upon its share of the Permitted Expenses or other amounts to be satisfied by the withdrawal. The Joint Development Operator may commingle other funds held by it, including Third Party Expense Funds, and the earnings thereon, in the Joint Operations Account.

 

  (d) The Joint Development Operator shall use amounts held in the Joint Operations Account for the benefit of each Development Party or Joint Entity (or, if applicable, an Entity Member in connection with a Farmout Sole Risk Entity Operation) as follows:

 

  (i) As necessary to pay any Permitted Expenses for the then-current Calendar Month attributable to such Development Party or Joint Entity (or, if applicable, an Entity Member in connection with a Farmout Sole Risk Entity Operation).

 

  (ii) Upon termination of this Agreement, any Development Party or Joint Entity (or, if applicable, an Entity Member in connection with a Farmout Sole Risk Entity Operation) shall be entitled to request the release of all remaining funds held for its benefit in the Joint Operations Account. Each Development Party and Joint Entity (or, if applicable, an Entity Member in connection with a Farmout Sole Risk Entity Operation) shall be entitled to that portion of the remaining funds in the Joint Operations Account it deposited or was deemed to have deposited, as applicable and as determined pursuant to Section 2.3(c). All distributions of funds shall be made to the banks and accounts designated by such Development Party, Joint Entity or Entity Member, as applicable.

 

5


Any Development Party, Joint Entity or Entity Member, as applicable, providing an instruction for release of funds pursuant to Section 2.3(d)(ii) shall provide a copy to each other Development Party and each Joint Entity simultaneously with providing such instruction to the Joint Development Operator, along with detailed, itemized information showing how the amounts requested in the applicable instruction were calculated.

 

  (e) Each Participating Party shall have the right to audit the Joint Development Operator’s and its Affiliates’ accounts with respect to Development Operations in which such Participating Party participates or is a non-consenting party on the same basis as is provided in Exhibit C to the Joint Development Operating Agreement. For the avoidance of doubt, this audit right shall extend to accounts maintained by the Joint Development Operator and its Affiliates with respect to the Joint Operations Account and other accounts maintained by the Joint Development Operator and its Affiliates with respect to Development Operations.

 

  (f) At least five (5) days prior to the end of each Calendar Month, Joint Development Operator shall reconcile (i) the Permitted Expenses paid by the Joint Development Operator since the date of the proceeding Monthly Statement against (ii) (A) any funds drawn from the Joint Operations Account on behalf of the Development Parties and/or the Joint Entities (and/or, if applicable, Entity Member in connection with a Farmout Sole Risk Entity Operation) during such period and (B) any joint interest billings, cash calls and other invoices sent to the Development Parties and the Joint Entities (and/or, if applicable, Entity Member in connection with a Farmout Sole Risk Entity Operation) with respect to such period and deliver to each Development Party and Joint Entity a statement setting forth such reconciliations (the “ Monthly Statement ”). Each Monthly Statement shall also include (1) a calculation of the Additional Deposit each Development Party and its affiliated Entity Members are required to deposit into the Joint Operations Account on the first day of the upcoming Calendar Month (after taking into account the reconciliation set forth above) and (2) a calculation of the Permitted Expenses for which each Development Party and/or Joint Entity (and/or, if applicable, Entity Member in connection with a Farmout Sole Risk Entity Operation) is expected to be responsible for during the upcoming Calendar Month, which calculation shall be based upon the Development Work Program and applicable Annual Work Program and Budget, previously issued AFEs, and the actual cash calls or statements issued pursuant to the Applicable Operating Agreements.

Section 2.4 Development Costs . Except as set forth in Section 2.2, each (a) Development Party shall (i) bear and pay its proportionate share of all Development Costs incurred from and after the Closing Date in accordance with, and subject to, the terms and conditions of this Agreement and the Applicable Operating Agreements, (ii) cause each of its affiliated Entity Members to bear and pay its proportionate share of all Capital Contributions to each Joint Entity with respect to Development Costs incurred by such Joint Entity from and after the Closing Date in accordance with, and subject to, the terms and conditions of this Agreement and the applicable Joint Entity Agreements, and (iii) cause each of its Entity Members participating in a Farmout Sole Risk Entity Operations to bear

 

6


and pay such Entity Member’s proportionate share of all Development Costs with respect to Farmout Sole Risk Entity Operations incurred from and after the Closing Date in accordance with, and subject to, the terms and conditions of this Agreement and the Applicable Operating Agreements, and (b) Joint Entity shall bear and pay its proportionate share of all Development Costs incurred from and after the Closing Date in accordance with, and subject to, the terms and conditions of this Agreement and the Applicable Operating Agreements.

Section 2.5 Guarantees . Simultaneously with the execution and delivery of this Agreement, (a) BG Guarantor has executed and delivered the BG JDA Guaranty and (b) EXCO Guarantor has executed and delivered the EXCO JDA Guaranty.

ARTICLE 3

SCOPE; JDA INTERESTS AND PARTICIPATING INTERESTS; OPERATIONS

Section 3.1 Scope . This Agreement shall govern the respective rights and obligations of the Development Parties with respect to the funding, development and operation of the Subject Oil and Gas Assets. This Agreement does not govern: (a) the funding, development or operation of any equipment, fixtures or other assets located downstream of the outlet flange of the relevant custody transfer meter (or, in the case of Hydrocarbon liquids, downstream of the outlet flange in the tanks) located on or in the vicinity of the Leases in the Subject Oil and Gas Assets; or (b) the marketing or sale of oil and gas products from the Subject Oil and Gas Assets, all of which are outside the scope of this Agreement.

Section 3.2 JDA Interests and Participating Interests .

 

  (a) As of the Closing Date, the JDA Interests of the Development Parties are as follows:

 

Party

   JDA Interest
(%)

BG

   50.000

EXCO

   50.000

 

  (b) As of the Closing Date, the Participating Interests of the Development Parties and the Company are as follows:

 

Party

   Participating
Interest (%)

BG

   49.7500

EXCO

   49.7500

Company

   00.5000

 

7


  (c) If a Development Party Transfers all or any undivided percentage of its Joint Development Interest pursuant to the provisions of this Agreement, the JDA Interests and the Participating Interests of the Development Parties shall be, if necessary, revised accordingly.

Section 3.3 Operating Agreements .

 

  (a) All Leases in the Appalachian Area: (i) in which only the Development Parties and/or Joint Entities hold interests as of the Closing Date and which are not subject to a Third Party Operating Agreement; (ii) in which the Development Parties and/or a Joint Entity hereafter acquires interests, in which no third party holds a working interest and which are not subject to a Third Party Operating Agreement at the time of such acquisition; or (iii) in which a Joint Entity that is hereafter acquired by the Development Parties holds interests as of the date that the applicable Joint Entity is acquired, in which no third party holds a working interest and which are not subject to a Third Party Operating Agreement upon such date, shall be deemed to be subject to and governed by an operating agreement in the form attached hereto as Exhibit “B”, subject to any modifications required by Section 3.4(g) (each a “ Joint Development Operating Agreement ”).

 

  (b) In addition, the Parties agree to use all commercially reasonable efforts to have the form attached hereto as Exhibit “B” adopted as the operative operating agreement by all working interest owners for any Leases in the Appalachian Area in which (i) the Development Parties and/or a Joint Entity, and (ii) other Persons hold working interests, but which are not presently subject to a Third Party Operating Agreement.

 

  (c) A separate Joint Development Operating Agreement shall be deemed to cover each drilling and production unit now or hereafter designated by the Joint Development Operator or a Party Operator, or by order or rule of a Governmental Authority having jurisdiction in the Appalachian Area for which the Development Parties and/or a Joint Entity (and/or, if applicable, an Entity Member in connection with a Farmout Sole Risk Entity Operation) holds the entirety of the working interest for such unit, provided that in the event any Person that is not a Development Party or a Joint Entity (and/or, if applicable, an Entity Member in connection with a Farmout Sole Risk Entity Operation) is to acquire a working interest in any such unit or this Agreement terminates, the Development Parties and/or Joint Entity (and/or Entity Member in connection with a Farmout Sole Risk Entity Operation), as applicable, holding a working interest in such unit, and Party Operator shall execute a Joint Development Operating Agreement for such unit (or, in the case of termination of this Agreement, all such units) prior to such acquisition or termination.

 

8


  (d) There shall be no retroactive adjustment of expenses incurred or revenues received with respect to any separate Joint Development Operating Agreement which is deemed to come into existence as a consequence of the designation of a new unit.

 

  (e) Each Joint Development Operating Agreement in which no third party participates and, as between the Parties only, each Joint Development Operating Agreement in which a third party participates, and each Third Party Operating Agreement, shall be subject to the provisions of Exhibit “G” hereto unless and until the applicability of such provisions to the Subject Oil and Gas Assets covered by such operating agreement terminates in accordance with the terms of Exhibit “G” or unless, pursuant to Section A.5 of the terms of Exhibit “G,” the Development Parties agree to the contrary with respect to a Joint Entity.

Section 3.4 Appointment and Removal of Party Operator .

 

  (a) Subject to Section 3.4(g), the Company is hereby designated and agrees to serve as the initial operator under each Joint Development Operating Agreement and to operate the Subject Oil and Gas Assets covered by such Joint Development Operating Agreement in accordance with the terms and conditions thereof, subject (in each case) to the terms of this Agreement. To the extent the Company serves as operator under any Third Party Operating Agreement, the Company is hereby retained as and agrees to serve as operator under such Third Party Operating Agreement and to operate the Subject Oil and Gas Assets covered by such Third Party Operating Agreement in accordance with the terms and conditions thereof, subject (in each case) to the terms of this Agreement. The designations set forth in this Section 3.4(a) are personal to the Company, as a consequence of the specific skills it holds with respect to shale operations, and operations in the Marcellus shale in particular. For the avoidance of doubt, a Party Operator shall conduct each Sole Risk Development Operation and Sole Risk Entity Operation conducted pursuant to a Joint Development Operating Agreement for which it is operator on behalf of all of the parties participating in such operation, unless otherwise agreed by such participating parties in accordance with the terms of such Joint Development Operating Agreement, and provided that in the event of a Sole Risk Entity Operation that is undertaken by any Joint Entity on behalf of any Entity Member or Entity Members under Section 4.1(i)(ii), the Entity Member or Entity Members causing the Joint Entity to conduct such operation shall make such determination on behalf of the Joint Entity. In the event an operator other than the Joint Development Operator is chosen for a Sole Risk Development Operation or Sole Risk Entity Operation, or the Joint Development Operator is removed as Party Operator under any Applicable Operating Agreement pursuant to this Section 3.4, the payment procedures in Section 2.3 shall not apply with respect to such Sole Risk Development Operation or Sole Risk Entity Operation or operations under such Applicable Operating Agreement, and the Participating Parties shall instead pay the applicable Development Costs (and, if applicable, Carried Costs) directly to such operator, in accordance with the terms of the Applicable Operating Agreement.

 

9


  (b) In addition to any provisions of a Joint Development Operating Agreement regarding the removal of the operator, a Party Operator may be removed as operator under any Joint Development Operating Agreement, or if any Person that is not a Development Party or a Joint Entity (or, if applicable, an Entity Member in connection with a Farmout Sole Risk Entity Operation) is party to such Joint Development Operating Agreement, then a Party Operator may be required to resign as operator under such Joint Development Operating Agreement by the affirmative vote of the Development Parties, the Joint Entities and the Entity Members that are parties to such Joint Development Operating Agreement, other than such Party Operator and its Affiliates, holding a majority of the working interest held by such parties under the Joint Development Operating Agreement, for good cause, provided that in the case of removal or a required resignation for good cause, such vote shall not be deemed effective until a written notice has been delivered to such Party Operator by another Development Party, Joint Entity or Entity Member that is a party to such Joint Development Operating Agreement detailing the alleged default and such Party Operator has failed to cure the default within thirty (30) days from its receipt of the notice or, if the default concerns an operation then being conducted, within forty-eight (48) hours of its receipt of the notice.

For purposes hereof, “good cause” shall mean not only gross negligence and willful misconduct, but also a material failure or inability of a Party Operator to perform its obligations under the relevant Joint Development Operating Agreement. As used herein, “gross negligence” and “willful misconduct” shall include material unlawful acts committed by an operator of which such operator had actual knowledge at the time in question. Notwithstanding anything to the contrary herein, if there is a dispute as to whether a condition resulting in good cause to remove a Party Operator has occurred, or whether such condition has been cured, such Party Operator shall continue to serve and discharge its duties in such capacity until the dispute has been resolved in accordance with Section 13.2.

Where a Joint Entity (other than the Joint Development Operator) is party to the Joint Development Operating Agreement, the Entity Member or Entity Members other than the Party Operator and Affiliates of the Party Operator shall make the determination as to whether a notice is delivered by the Joint Entity, and as to the vote of the Joint Entity, under this Section 3.4(b).

 

  (c) Upon the occurrence of a Material Event with respect to a Party Operator, it shall be deemed to have resigned as operator under each Joint Development Operating Agreement for which it serves as operator, or if any Person that is not a Development Party or a Joint Entity (or, if applicable, an Entity Member in connection with a Farmout Sole Risk Entity Operation) is party to such Joint Development Operating Agreement, then a Party Operator shall be required to resign as operator under such Joint Development Operating Agreement, without any action by the other Parties, except the selection of a successor pursuant to the terms and conditions of the relevant Joint Development Operating Agreement.

 

10


  (d) Following any resignation or removal of the Company as operator under any Applicable Operating Agreement, if any other Joint Entity holds working interests in the affected Leases, the Development Parties, any Joint Entities and any Entity Members that are party to the Applicable Operating Agreement shall vote for such other Joint Entity to serve as the successor operator under such Applicable Operating Agreement. If no other Joint Entity holds working interests in the affected Leases, and the Participating Parties are able to cause the Company to transfer its working interest in the affected Leases to another Joint Entity without loss of rights and to thereafter appoint the other Joint Entity as successor operator under the Applicable Operating Agreement, they shall do so, and the Company shall cooperate in such transfer. In the event the Participating Parties are unable to effectuate such transfer and appointment pursuant to the preceding sentence, the Participating Parties will mutually agree upon a successor Party Operator for such Applicable Operating Agreement and the standards of operation applicable thereto.

 

  (e) Any successor Party Operator must agree to adhere to the standards, principles, plan and management system, as amended from time to time, adopted by the Company pursuant to Section 2.13 of the Joint Entity Agreement for the Company, and shall also perform the obligations and be subject to the requirements set forth in Sections 2.15, 2.16, and 2.17 and Article 3 of the Joint Entity Agreement for the Company as of the date the Company ceases to be Party Operator, as if such obligations and requirements were set forth herein and specifically referenced such successor Party Operator, in each case to the extent relevant to duties performed by the Party Operator and subject to any modifications thereafter approved by the Operating Committee. In addition, if the Company ceases to be Party Operator, the terms of Section 2.18 of the Joint Entity Agreement for the Company shall be deemed to be incorporated herein by reference and shall apply as if the references to “Members” were references to “Development Parties”, the references to “Management Board” were references to “Operating Committee”, the references to the “Company” were references to the “Party Operator” and references to the Company participating were references to all Development Parties participating.

 

  (f) Each Party Operator shall conduct all operations in accordance with and subject to the terms of Article 4, Section 3.3 and this Section 3.4, in addition to any terms set forth in the relevant Applicable Operating Agreements.

 

  (g)

In the event that the Joint Entity or Joint Entities other than the Company would be the only parties to a Joint Development Operating Agreement, such Joint Entity or Joint Entities shall appoint the Company as the operator with respect to such Joint Development Operating Agreement; provided that any such Joint Development Operating Agreement shall be modified to permit the operator thereunder to not own any interests in the contract area covered thereby and such other modifications as reasonably necessary from the form set forth in Exhibit “B” hereto to account for the fact that the Company will not own any interests in such contract area and any other applicable difference, such modifications to be

 

11


  agreed to by the Operating Committee working in good faith. In the event that (i) one or more Joint Entities other than the Company are parties to a Third Party Operating Agreement or a Joint Development Operating Agreement to which a third party is a party, (ii) the Company is not a party to such Third Party Operating Agreement or Joint Development Operating Agreement, and (iii) a Joint Entity other than the Company is the operator of such Third Party Operating Agreement or Joint Development Operating Agreement at the time that such Joint Entity is acquired or subsequently becomes operator under such agreement, then such Joint Entity shall remain operator and, if permitted under the terms of the Applicable Operating Agreement, shall delegate operational responsibility to the Company as a Contract Operator through a contract operating agreement in a form to be approved by the Operating Committee working in good faith (a “ Contract Operating Agreement ”).

 

  (h) In the event an Entity Member undertakes a Farmout Sole Risk Entity Operation, and the applicable Joint Entity has been operating the relevant Oil and Gas Assets, then unless the Entity Member exercises its rights to replace the Party Operator for such Sole Risk Entity Operations pursuant to Section 3.4(a), the Entity Member, if permitted under the terms of the Applicable Operating Agreement, shall vote to cause the Joint Entity to remain the operator of the relevant Oil and Gas Assets following the farmout, or, if that is not possible, if permitted under the terms of the Applicable Operating Agreement, such Entity Member shall seek to become operator for such Farmout Sole Risk Entity Operation and delegate operational responsibility to the Company as a Contract Operator under a Contract Operating Agreement.

Section 3.5 Joint Development Operator .

 

  (a) The Company is hereby designated and agrees to serve as the initial Joint Development Operator in accordance with the terms and conditions of this Agreement. The designation set forth in this Section 3.5(a) is personal to the Company, as a consequence of the specific skills it holds with respect to shale operations, and operations in the Marcellus shale in particular.

 

  (b) Joint Development Operator may resign at any time by giving at least ninety (90) days’ prior written notice to the other Development Parties.

 

  (c) Joint Development Operator may be removed by the affirmative vote of the Development Parties, other than Joint Development Operator and its Affiliates, holding a majority of the JDA Interests held by such Development Parties, for good cause, provided that in the case of removal for good cause, such vote shall not be deemed effective until a written notice has been delivered to Joint Development Operator by another Party detailing the alleged default and Joint Development Operator has failed to cure the default within thirty (30) days from its receipt of the notice or, if the default concerns an operation then being conducted, within forty-eight (48) hours of its receipt of the notice.

 

12


For purposes hereof, “ good cause ” shall mean not only gross negligence or willful misconduct but also a material failure or inability to perform its obligations under this Agreement. Notwithstanding anything to the contrary herein, if there is a dispute as to whether a condition resulting in good cause to remove Joint Development Operator has occurred, or whether such condition has been cured, Joint Development Operator shall continue to serve and discharge its duties in such capacity until the dispute has been resolved in accordance with Section 13.2.

 

  (d) Upon the occurrence of a Material Event with respect to Joint Development Operator, it shall be deemed to have resigned without any action by the other Parties, except the selection of a successor pursuant to Section 3.5(e). If a petition for relief under the federal bankruptcy laws is filed by or against Joint Development Operator, and the removal of Joint Development Operator is prevented by the terms of the Bankruptcy Code or actions of the federal bankruptcy court, then, to the extent allowed by Law, the Operating Committee shall serve as Joint Development Operator until Joint Development Operator has elected to reject or assume this Agreement pursuant to the Bankruptcy Code, and an election to reject this Agreement by Joint Development Operator as a debtor in possession, or by a trustee in bankruptcy, shall be deemed a resignation as Joint Development Operator without any action by the other Parties, except the selection of a successor.

 

  (e) Following any resignation or removal of the Company as Joint Development Operator, the Development Parties shall seek to appoint another Joint Entity to become successor Joint Development Operator. Should the Development Parties fail to appoint another Joint Entity, a successor Joint Development Operator shall be selected by the Development Parties by the affirmative vote of Development Parties holding collectively at least seventy-five percent (75%) of the JDA Interests held by Development Parties and eligible to vote. If Joint Development Operator has been removed for cause or is deemed to have resigned or votes only to succeed itself, it and its Affiliates shall not be entitled to vote for the successor Joint Development Operator (but any non-Affiliate transferee of all or any part of the Joint Development Operator’s JDA Interest shall be entitled to vote for the successor Joint Development Operator). The Joint Development Operator’s resignation or removal shall not become effective until 7:00 o’clock am on the first day of the Calendar Month following the expiration of ninety (90) days after the giving of notice of resignation by the Joint Development Operator, the deemed resignation of the Joint Development Operator or action by the non-operators to remove Joint Development Operator, unless a successor Joint Development Operator has been selected and assumes the duties of Joint Development Operator at an earlier date.

 

  (f)

Any successor Joint Development Operator must agree to adhere to the standards, principles, plan and management system, as amended from time to time, adopted by the Company pursuant to Section 2.13 of the Joint Entity Agreement for the Company, and shall also perform the obligations and be subject to the

 

13


  requirements set forth in Sections 2.15, 2.16, 2.17 and Article 3 of the Joint Entity Agreement for the Company as of the date the Company ceases to be Joint Development Operator, as if such obligations and requirements were set forth herein and specifically referenced such successor Joint Operator, in each case to the extent relevant to duties performed by the Joint Development Operator and subject to any modifications thereafter approved by the Operating Committee. In addition, if the Company ceases to be Joint Development Operator, the terms of Section 2.18 of the Joint Entity Agreement for the Company shall be deemed to be incorporated herein by reference and shall apply to the extent relevant to the Joint Development Operator rather than a Party Operator as if the references to “Members” were references to “Development Parties”, the references to “Management Board” were references to “Operating Committee”, the references to the “Company” were references to the “Joint Development Operator” and references to the Company participating were references to all Development Parties participating.

 

  (g) Subject to the terms and conditions of this Agreement, in addition to those certain other duties and responsibilities expressly set forth herein, Joint Development Operator shall:

 

  (i) notwithstanding the terms of any Applicable Operating Agreement to the contrary, at the option of any Development Party or Joint Entity (or, if applicable, Entity Member in connection with a Farmout Sole Risk Entity Operation), pay such party’s share of: (A) rentals, shut-in well payments and minimum royalties required to be paid to lessees under the Leases included in the applicable Subject Oil and Gas Assets or Excluded Interests; (B) royalties, overriding royalties and other burdens required to be paid to lessees and holders of overriding royalties and other burdens on the Leases included in the applicable Subject Oil and Gas Assets or Excluded Interests; and (C) severance and other production taxes attributable to the Subject Oil and Gas Assets or Excluded Interests; provided that each applicable Development Party shall pay or advance (and, as applicable, cause its affiliated Entity Members to pay or advance) such amounts in accordance with Section 2.3;

 

  (ii) at the option of any Development Party or Joint Entity (or, if applicable, Entity Member in connection with a Farmout Sole Risk Entity Operation), pay such Development Party’s, Joint Entity’s or Entity Member’s, as applicable, share of joint interest billings and cash calls (including, in the case of BG, any BG Member and any Joint Entity, Carried Costs) from third party operators relating to wells in the Appalachian Area not operated by a Party Operator; provided that each applicable Development Party shall pay or advance (and, as applicable, cause its affiliated Entity Members to pay or advance) such amounts in accordance with Section 2.3;

 

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  (iii) notwithstanding the terms of any Applicable Operating Agreement to the contrary, at the option of any Development Party or Joint Entity (or, if applicable, Entity Member in connection with a Farmout Sole Risk Entity Operation), at such Development Party’s, Joint Entity’s or Entity Member’s, as applicable, expense, secure any title curative matters and pooling amendments or agreements required of such Development Party, Joint Entity or Entity Member, as applicable, under the Applicable Operating Agreement in connection with Leases or other rights to oil and gas included in the applicable Subject Oil and Gas Assets or Excluded Interests; provided that each applicable Development Party shall pay or advance (and, as applicable, cause its affiliated Entity Members to pay or advance) such amounts in accordance with Section 2.3; and

 

  (iv) prepare and provide on a monthly basis for each Development Party or Joint Entity the following financial and operating data, reports and notices listed below; prepared using the accrual basis of accounting and relating to such Development Party’s or Joint Entity’s interests in Development Operations and Subject Oil and Gas Assets (excluding Excluded Interests and any operations related thereto):

 

  (A) revenues from oil and natural gas sales;

 

  (B) Operating Expenses;

 

  (C) Company Overhead and Technical Services Costs;

 

  (D) Development Costs, with separate breakout for Acquisition costs;

 

  (E) sufficient management operating information to support the items listed above (including volumes of produced and sold oil and natural gas);

 

  (F) a report comparing actual costs, expenses, production, revenues, and other operating information, to the extent included in any Annual Work Program and Budget, against the amounts estimated by the Annual Work Program and Budget to have been incurred or realized to date; and

 

  (G) underlying financial statement records (at a minimum revenue, expenses and working capital balances, where such revenue, expenses and working capital relate to the operational assets covered by this Agreement), whether through accounting system interfaces or otherwise, to facilitate each Development Party’s preparation of consolidated financial statements in line with applicable GAAP of the Development Party (where applicable GAAP is the GAAP utilized by the Development Party).

 

  (h) The Parties authorize the Joint Development Operator to market all Hydrocarbons production from the Subject Oil and Gas Assets on behalf of each of them, provided that any Development Party may revoke this authorization with respect to any or all of its interest in the Development Assets for sales starting at the end of the Calendar Month next following thirty (30) days after delivery of notice to the Joint Development Operator.

 

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Section 3.6 Technical Services .

 

  (a) The Joint Development Operator or any Party Operator may request Technical Services from the Development Parties in connection with Development Operations pursuant to service contracts entered into with each Development Party. A Development Party providing such Technical Services shall be entitled to charge the Joint Development Operator or Party Operator for any Technical Services Costs incurred in connection therewith in accordance with the terms of such services contracts.

 

  (b) All Technical Services Costs chargeable with respect to Development Operations shall be chargeable to the applicable Joint Development Operator or Party Operator on a Calendar Month basis.

 

  (c) All employees and contract personnel of the Development Parties providing Technical Services to Development Operations that do not work solely on Development Operations shall record their time, and the time sheets of such employees and contract personnel shall identify the time spent providing Technical Services to Development Operations, and only that portion of their time spent providing Technical Services to Development Operations shall be chargeable as Technical Services Costs to the Development Parties and the Joint Entities. All such time sheets and related work records shall be subject to audit by the Company, and any Entity Member of the Company (other than the Development Party providing such time sheets and work records and its Affiliates) shall be entitled to cause the Company to exercise such audit rights. Notwithstanding the foregoing, from time to time the Development Parties and the Company may agree in writing upon an allocation of time for certain employees in lieu of requiring such employees to record their time.

Section 3.7 Appalachian Overhead .

 

  (a) The Development Parties and Joint Entities shall not be charged overhead under Article III of Exhibit C to any Joint Development Operating Agreement or any similar provision of any Third Party Operating Agreement in any Joint Development Operation where the Joint Development Operator or any Party Operator is the operator; in lieu of such charges, each Development Party shall pay its JDA Interest share of the Appalachian Overhead as part of its Additional Deposit in accordance with Section 2.3.

 

  (b)

Where the Joint Development Operator is the operator of any Sole Risk Development Operation or Sole Risk Entity Operation, the Participating Parties in any such Sole Risk Development Operation or Sole Risk Entity Operation shall pay all overhead amounts chargeable under Article III of Exhibit C to the Joint

 

16


  Development Operating Agreement (or any similar provision under any Third Party Operating Agreement) applicable to such Sole Risk Development Operation or Sole Risk Entity Operation in proportion to their respective Working Interests in such Sole Risk Development Operation or Sole Risk Entity Operation, as applicable.

 

  (c) If any Technical Services Costs or overhead chargeable under Article III of Exhibit C to any Joint Development Operating Agreement or any similar provision of any Third Party Operating Agreement are paid to the Joint Development Operator or any Party Operator by (i) any Participating Party in a Sole Risk Development Operation, (ii) any Development Party, Entity Member or Joint Entity undertaking a Sole Risk Entity Operation, or (iii) any Person other than a Development Party, Entity Member or Joint Entity, then any such amount received by Joint Development Operator or a Party Operator in connection therewith will be shared by the Development Parties in accordance with their respective JDA Interests (and Joint Development Operator or the Party Operator, as applicable, shall credit to each Development Party the proportionate share to which such Development Party is entitled with respect to such amount received by such Joint Development Operator or Party Operator).

ARTICLE 4

OPERATING COMMITTEE; DEVELOPMENT WORK PROGRAM;

ANNUAL WORK PROGRAM AND BUDGETS

Section 4.1 Operating Committee .

 

  (a) To facilitate the creation, approval and amendment of the Development Work Program and Annual Work Program and Budgets, and the approval of certain other matters set forth herein, there is hereby established an Operating Committee composed of representatives of each Development Party. Each Development Party shall appoint one (1) representative and one (1) alternate representative to serve on the Operating Committee, and shall appoint its initial representative and alternate representative by notice to the others on or prior to the first meeting of the Operating Committee. All actions of a Development Party taken with respect to the Operating Committee shall be taken through its representative or alternate representative.

 

  (b) Each Development Party shall have the right to change its representative and alternate at any time by giving notice of such change to the other Parties.

 

  (c) The Operating Committee shall have the powers and duties expressly ascribed to it in this Agreement.

 

  (d)

The representative of a Development Party, or in his absence his alternate representative, shall be authorized to represent and bind such Development Party with respect to any matter which is within the powers of the Operating Committee and is properly brought before the Operating Committee. Each such

 

17


  representative shall have a vote equal to the JDA Interest of the Development Party that appointed such representative. Each alternate representative shall be entitled to attend all Operating Committee meetings but shall have no vote at such meetings except in the absence of the representative for whom he is the alternate. In addition to the representative and alternate representative, each Development Party may also bring to any Operating Committee meetings such advisors as it may deem appropriate.

 

  (e) Joint Development Operator may call a meeting of the Operating Committee by giving notice to the Development Parties at least fifteen (15) days in advance of such meeting. Any Development Party may request a meeting of the Operating Committee by giving notice to the other Development Parties and Joint Development Operator, which notice shall include any proposals being proposed by such Development Party for consideration at the meeting (including appropriate supporting information not previously distributed to the Development Parties). Upon receiving such request, Joint Development Operator shall call such meeting for a date not less than fifteen (15) days nor more than twenty (20) days after receipt of the request.

 

  (f) The Operating Committee may establish such subcommittees as the Operating Committee may deem appropriate. The functions of such subcommittees shall be to serve in an advisory capacity only. Each Development Party shall have the right to appoint a representative to each subcommittee.

 

  (g) Each notice of a meeting of the Operating Committee as provided by Joint Development Operator shall contain: (i) the date, time and location of the meeting; (ii) an agenda of the matters and proposals to be considered and/or voted upon; and (iii) copies of all proposals to be considered at the meeting (including appropriate supporting information not previously distributed to the Development Parties). A Development Party, by notice to the other Development Parties and Joint Development Operator, which notice shall include any additional proposals being proposed by such Development Party to be considered at the meeting (including appropriate supporting information not previously distributed to the Development Parties), given not less than five (5) Business Days prior to a meeting, may add additional matters to the agenda for a meeting. On the request of a Development Party, and with the unanimous consent of all Development Parties, the Operating Committee may consider at a meeting a proposal not contained in such meeting agenda.

 

  (h) There shall be at least one (1) but not more than three (3) meetings of the Operating Committee per each Calendar Quarter unless all Development Parties agree in writing to the contrary. The restriction on number of meetings contained in this Section shall not restrict the number of proposals that may be submitted without a meeting pursuant to Section 4.1(m). Meetings of each subcommittee shall take place as often as the Operating Committee shall determine. All meetings of the Operating Committee and each subcommittee shall be held in the offices of Joint Development Operator, or elsewhere as the Operating Committee or such subcommittee may mutually decide.

 

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  (i) Except as provided otherwise in this Section 4.1(i) and in Section 5.2, all decisions, approvals and other actions of the Operating Committee on all proposals coming before it that are within its powers to approve or disapprove, shall be decided by the affirmative vote of Development Parties holding collectively at least seventy-five percent (75%) of the JDA Interests of the Development Parties entitled to vote on such proposals, provided that:

 

  (i) any Development Operation proposed to the Operating Committee to be conducted for the account of the Development Parties and the Company that is not approved by the Operating Committee and that may be proposed and conducted as a Sole Risk Development Operation under the terms of the Applicable Operating Agreement may be so proposed and conducted by any Development Party or Development Parties desiring to participate in such Development Operation and holding a Participating Interest of at least twenty-five percent (25%);

 

  (ii) any Development Operation proposed to the Operating Committee to be conducted for the account of a Joint Entity that is not approved by the Operating Committee and that may be proposed and conducted as a Sole Risk Entity Operation under the terms of the applicable Entity Agreement (and, if applicable, as a sole risk operation under the Applicable Operating Agreement) may be so proposed and conducted by any Entity Member or Entity Members desiring to participate in such Development Operation and holding a Percentage Interest in such Joint Entity of at least twenty-five percent (25%) as follows:

 

  (A)

if a farmout by the Joint Entity of the applicable Subject Oil and Gas Interests underlying the proposed Development Operation to the participating Entity Members or their affiliated Development Parties would not trigger any preferential purchase rights or material required consents to assignment that cannot be waived or otherwise obtained through the commercially reasonable efforts of the Joint Entity, then the Sole Risk Entity Operation will be performed by a farmout to such participating Entity Member or Entity Members or their affiliated Development Parties of one hundred percent (100%) of the Joint Entity’s Working Interest in the drilling unit agreed to by the Participating Parties for such Sole Risk Entity Operation (using the same principles as used for drilling units for Joint Development Operations), which farmout will (1) provide that the Joint Entity’s entire interest in the applicable drilling unit shall automatically revert to it effective as of 7:00 am on the day following the day upon which the Participating Parties recover out of the proceeds of the sale of the non-participating Entity Members’ indirect Percentage Interest

 

19


  share of the production to which the Joint Entity would have been entitled if it had not farmed-out, or market value thereof if such share is not sold (after deducting applicable ad valorem, production, severance, and excise taxes, royalty, overriding royalty and other interests not excepted by the applicable Joint Entity Agreement payable out of or measured by the production from the applicable well, and costs of gathering, compression, treating and marketing, in each case accruing with respect to such interest until it reverts) the total of (I) one hundred percent (100%) of the non-participating Entity Members’ indirect Percentage Interest share of the Joint Entity’s share of the cost of any newly acquired surface equipment beyond the wellhead connections (including but not limited to stock tanks, separators, treaters, pumping equipment and piping), plus 100% of the non-participating Entity Members’ indirect Percentage Interest share of the Joint Entity’s share of the cost of operation of the well commencing with first production and continuing until the Joint Entity’s relinquished interest shall revert to it, it being agreed that the Joint Entity’s share of such costs and equipment shall be that interest that would have been charged to such Joint Entity, had it not farmed-out, and (II) five hundred percent (500%) of the non-participating Entity Members’ indirect Percentage Interest share of (a) that portion of the costs and expenses of drilling, reworking, sidetracking, deepening, plugging back, testing, completing and recompleting, after deducting any cash contributions received from third parties, and of (b) that portion of the cost of newly acquired equipment in the well (to and including the wellhead connections), (in each case) which would have been chargeable to the Joint Entity if it had not farmed-out and (2) be subject to such other terms as are set forth in the applicable Joint Entity Agreement; or

 

  (B) if a farmout by the Joint Entity of the applicable Subject Oil and Gas Interests underlying the proposed Development Operation to the participating Entity Members or their affiliated Development Parties, as applicable, would trigger a preferential purchase right or a material required consent to assignment that cannot be waived or otherwise obtained through the commercially reasonable efforts of the Joint Entity, the Sole Risk Entity Operation will be performed by the Joint Entity on behalf of and for the sole risk and cost of such participating Entity Member or Entity Members on the terms set forth in the applicable Joint Entity Agreement; and

any Joint Entity whose Entity Members are contemplating a Sole Risk Entity Operation shall use its commercially reasonable efforts to obtain or have waived all material required consents to assignment affecting the Subject Oil and Gas Assets underlying such proposed Sole Risk Entity Operation; and

 

20


  (iii) any Area-Wide Operation proposed to the Operating Committee which is not approved by the Operating Committee may be conducted by those Development Parties desiring to participate in such Development Operation and holding a JDA Interest of at least twenty-five percent (25%) at their sole risk and expense.

Notwithstanding the preceding, any proposal to reduce the quantity of work to be conducted under the Development Work Program or any Annual Work Program and Budget (to the extent relating to any Development Operations included in any Development Work Program) with respect to any period prior to the Carry Termination Event shall also require the affirmative vote of EXCO. For the avoidance of doubt, the preceding sentence shall not prevent any Development Party or Development Parties from voting against an AFE in accordance with Section 4.6.

 

  (j) With respect to meetings of the Operating Committee and each subcommittee, Joint Development Operator’s duties shall include: (i) timely preparation and distribution of the agenda; (ii) organization and conduct of the meeting; and (iii) preparation of a written record or minutes of each meeting.

 

  (k) EXCO shall have the right to appoint the chairman of the Operating Committee and each subcommittee for an initial term ending at 11:59 pm on December 31, 2011, and each other Development Party holding at least a twenty-five percent (25%) JDA Interest shall in turn have a right to appoint such chairman and the chairman of each subcommittee for a subsequent one year term, in rotation, until each have appointed such positions once, and the annual rotation shall thereafter continue, beginning again with EXCO. For the avoidance of doubt, the chairman shall have no special casting or deciding vote on any matter presented to the Operating Committee. The chairman of the Operating Committee shall appoint a secretary who shall make a record of each proposal voted on and the results of such voting at each Operating Committee meeting. Each Development Party shall sign and be provided a copy of such record at the end of such meeting, and it shall be considered the final record of the decisions of the Operating Committee.

 

  (l) The secretary shall provide each Development Party with a copy of the minutes of each Operating Committee meeting within fifteen (15) Business Days after the end of the meeting. Each Development Party shall have fifteen (15) days after receipt of such minutes to give notice to the secretary of any objections to the minutes. A failure to give notice specifying objection to such minutes within said fifteen (15) day period shall be deemed to be approval of such minutes. In any event, the votes recorded under Section 4.1(j) shall take precedence over the minutes described above.

 

  (m)

In lieu of a meeting, any Development Party may submit any proposal that is within the Operating Committee’s powers to approve or disapprove to the Operating Committee for a vote by notice. The proposing Development Party or Development Parties shall notify Joint Development Operator with written

 

21


  materials describing the proposal and Joint Development Operator shall provide a copy of such proposal to each Development Party. Any such proposal by a proposing Development Party shall include with such proposal adequate documentation to enable the other Development Parties to make a decision. Each Development Party (including the proposing Development Party) shall communicate its vote on the proposal by notice to Joint Development Operator and the other Development Parties within fifteen (15) days after receipt of the proposal from the Joint Development Operator, unless such proposal, together with any other increases to an approved Annual Work Program and Budget for a Calendar Year, if accepted, would result in aggregate spending pursuant to such Annual Work Program and Budget of more than ten percent (10%) in excess of the original amount of the Annual Work Program and Budget approved pursuant to Section 4.4 (or, in the case of the Annual Work Program and Budget for Calendar Year 2010, attached hereto as Exhibit “E”) or, once amended to increase the amount of the Annual Work Program and Budget ten percent (10%) above the then existing amount in accordance with Section 4.4(g), the amended amount of the Annual Work Program and Budget, in which case each Development Party (including the proposing Development Party) shall communicate its vote on the proposal by notice to Joint Development Operator and the other Development Parties within sixty (60) days after receipt of the proposal from the Joint Development Operator. Any Development Party failing to communicate its vote in a timely manner shall be deemed to have voted against such proposal. Within five (5) Business Days following the expiration of the relevant time period, Joint Development Operator shall give each Development Party a confirmation notice stating the tabulation and results of the vote on such proposal.

 

  (n) All decisions taken by the Operating Committee pursuant to this Section 4.1 shall be conclusive and binding on all Parties and, where applicable, any Joint Entities.

 

  (o) All notices and communications required or permitted to be given under this Article 4 to the Development Parties or a Party Operator or the members of the Operating Committee shall be sufficient in all respects if given in writing and delivered personally, or sent by bonded overnight courier, or mailed by U.S. Express Mail or by certified or registered United States Mail with all postage fully prepaid, or sent by telex, facsimile transmission or by pdf via email (provided any such telex, facsimile or email transmission is confirmed either orally or by written confirmation), or sent by pdf via email, addressed to the appropriate Person at the address for such Person shown below or at such other address as such Party shall have theretofore designated by written notice delivered to the Party giving such notice:

 

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If to EXCO or any EXCO Member:

 

EXCO Holding (PA), Inc.
12377 Merit Drive, Suite 1700
Dallas, Texas 75251
Attention:    Harold L. Hickey
Telephone:    (214) 368-2084
Fax:    (214) 368-8754
E-mail:    hhickey@excoresources.com
With copies to:
EXCO Resources, Inc.
12377 Merit Drive, Suite 1700
Dallas, Texas 75251
Attention:    Stephen F. Smith
Telephone:    (214) 368-2084
Fax:    (214) 706-3409
Email:    ssmith@excoresources.com

If to BG or any BG Member:

 

BG US Production Company, LLC
5444 Westheimer, Suite 1200
Houston, Texas 77056
Attention:    Jon Harris
Telephone:    (713) 599-4000
Fax:    (713) 599-4250
E-mail:    Jon.Harris@bg-group.com
BG US Production Company, LLC
5444 Westheimer, Suite 1200
Houston, Texas 77056
Attention:    Bill Way
Telephone:    (713) 599-4000
Fax:    (713) 599-4250
E-mail:    Bill.Way@bg-group.com

 

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If to the Company or any Joint Entity:

 

EXCO Resources (PA), LLC
3000 Ericsson Dr., Suite 200
Warrendale, Pennsylvania 15086
Attention:    President and General Manager
Telephone:    (724) 720-2500
Fax:    (724) 720-2505
With a copy to:
Attention:    Vice President, Legal
Telephone:    (724) 720-2500
Fax:    (724) 720-2505

Any notice given in accordance herewith shall be deemed to have been given when delivered to the addressee in person, or by courier, or transmitted by facsimile transmission or email during normal business hours, or upon actual receipt by the addressee after such notice has either been delivered to an overnight courier or deposited in the United States Mail, as the case may be. The Parties may change the address, telephone numbers, facsimile numbers and email addresses to which such communications are to be addressed by giving written notice to the other Parties in the manner provided in this Section 4.1(o).

Section 4.2 Development Work Program .

 

  (a) The Operating Committee shall adopt, and modify from time to time, a multi-year work program for Development Operations (the “ Development Work Program ”) as follows:

 

  (i) The Operating Committee shall approve, within ninety (90) days after the Closing Date, a work program for Development Operations through Calendar Year 2013, similar in form to the draft attached hereto as Exhibit “D”. Such work program shall constitute the Development Work Program applicable through Calendar Year 2013 except as otherwise revised, amended or modified by the Operating Committee.

 

  (ii)

On or before August 15 of each Calendar Year, commencing in Calendar Year 2012, Joint Development Operator shall prepare and submit to the Operating Committee a revised Development Work Program setting forth the Development Operations to be carried out during the following two Calendar Years. Such proposed Development Work Program shall automatically include any Development Operations which were approved for such period as part of the prior Development Work Program unless the Operating Committee determines to the contrary. Within sixty (60) days after distribution of the proposed Development Work Program (or such later date as may agreed by the Operating Committee), the Operating

 

24


  Committee shall meet to consider, modify (if necessary) and approve or reject the proposed Development Work Program. If the Operating Committee does not approve any such Development Work Program on or prior to the first day of the following Calendar Year (for purposes of this Section 4.2(a)(ii), the “ current Calendar Year ”), then the Development Work Program for the then-current Calendar Year shall be the Development Work Program, if any, approved for the then-current Calendar Year in the preceding Calendar Year.

 

  (b) Except as otherwise agreed in writing by the Operating Committee, the Annual Work Program and Budget for each Calendar Year shall contain not less than those Development Operations to be performed during such Calendar Year as set forth in the Development Work Program.

Section 4.3 Initial Annual Work Plan and Budgets . The Annual Work Program and Budget for the remainder of Calendar Year 2010 is hereby approved by the Operating Committee and is attached hereto as Exhibit “E”.

Section 4.4 Subsequent Annual Work Plan and Budgets . For each Calendar Year during the term of this Agreement commencing with Calendar Year 2011, each Annual Work Program and Budget shall be adopted as follows:

 

  (a) On or before August 15 in the Calendar Year immediately preceding the relevant Calendar Year, Joint Development Operator shall prepare and submit to the Operating Committee a proposed Annual Work Program and Budget for such applicable Calendar Year. Each such proposed Annual Work Program and Budget shall contain at least the following:

 

  (i) all Development Operations that are to be conducted during such Calendar Year pursuant to the Development Work Program, except with the approval of the Operating Committee to the contrary;

 

  (ii) all lease maintenance costs and expenditures required under the terms of existing Leases or existing third party contracts held by Joint Development Operator for the benefit of Joint Development Operations (including each Development Party’s and Joint Entity’s share thereof), except with the approval of the Operating Committee to the contrary;

 

  (iii) subject to Section 4.4(c) below, costs for proposed joint Acquisitions on behalf of the Development Parties and Joint Entities during the Calendar Year, subject to the other terms hereof;

 

  (iv) an itemized estimate of the Appalachian Overhead and Operating Expenses for such Calendar Year (including each Development Party’s and Joint Entity’s share thereof);

 

25


  (v) itemized estimates of the Development Costs (including each Development Party’s and Joint Entity’s share thereof) for Joint Development Operations covered by the proposed Annual Work Program and Budget by budget category (including separate categories for Required Asset Upgrades and Standards Asset Upgrades) and allocated between Shallow Rights, Deep Rights, Outside AMI Rights and Area-Wide Operations, containing sufficient detail (to the extent available) to afford the ready identification of the nature, scope and duration of the activity in question;

 

  (vi) the number of wells to be drilled as part of the Joint Development Operations in each of the Shallow Rights, the Deep Rights and the Outside AMI Rights during such Calendar Year, the proposed locations of such wells (to the extent reasonably ascertainable at the time such Annual Work Program and Budget is proposed), and the estimated Development Costs (including each Development Party’s and Joint Entity’s share thereof) associated therewith;

 

  (vii) estimates of the schedule pursuant to which the Development Parties’ and Joint Entities’ share of Development Costs for Joint Development Operations included in the Annual Work Program and Budget are anticipated to be incurred by the Development Parties and the Joint Entities, as applicable; and

 

  (viii) any other information requested in writing by a Development Party that can reasonably be provided by the Joint Development Operator.

 

  (b) Itemized expenditures in an Annual Work Program and Budget may extend over more than one Calendar Year because such itemized expenditures represent activities or operations that require commitments in excess of one Calendar Year. Once itemized expenditures are approved, Joint Development Operator shall not be required to resubmit them for approval of the Operating Committee on an annual or other periodic basis, but instead all such items shall be automatically included in future Annual Work Program and Budgets as items which have already been approved.

 

  (c)

Itemized expenditures in an Annual Work Program and Budget may include acquisition costs for proposed joint Acquisitions of (i) a direct interest in any Undeveloped Lease in the AMI Area and (ii) other Oil and Gas Assets in which the Development Parties and/or a Joint Entity already own a Working Interest, on behalf of the Development Parties (and, if specifically approved by the Operating Committee, on behalf of a Joint Entity or Joint Entities) during the Calendar Year, provided that no such Acquisition (or series of related Acquisitions) may exceed five million dollars ($5,000,000) without the separate prior approval of each Development Party. To facilitate such Acquisitions, each Development Party and Joint Entity shall execute and deliver to Joint Development Operator a power of attorney substantially in the form of Exhibit “J” authorizing Joint Development Operator to make such Development Party’s and/or Joint Entity’s Working Interest share of such Acquisitions on its behalf in its name, provided that Joint

 

26


  Development Operator shall not be entitled to make representations (other than existence, qualification, power, due authorization, execution and delivery, enforceability and no conflicts representations) on behalf of any such Development Party and/or Joint Entity, or to grant any indemnity, or to incur any financial obligation in excess of such Development Party’s and/or Joint Entity’s Working Interest share of such five million dollar ($5,000,000) limit, on behalf of any such Development Party and/or Joint Entity. For the avoidance of doubt, the Company shall also participate, according to its Working Interest share, in any such Acquisition of any Undeveloped Lease or Oil and Gas Assets by all of the Development Parties. No such power of attorney shall be transferable to any successor or assign of the Joint Development Operator at the time issued and each such power of attorney shall automatically be revoked should the Joint Development Operator cease to be a Joint Entity.

 

  (d) The line item in the Annual Work Program and Budget for Standards Assets Upgrades shall automatically include any Standards Asset Upgrades deemed adopted for the applicable Calendar Year under Section 2.18 of the Joint Entity Agreement for the Company.

 

  (e)

Joint Development Operator shall regularly consult with the Operating Committee during the preparation of each proposed Annual Work Program and Budget. Following receipt of Joint Development Operator’s proposed Annual Work Program and Budget, each Development Party shall furnish to Joint Development Operator and the other Development Parties any comments, suggestions or proposed amendments it may have respecting the proposed Annual Work Program and Budget as soon as may be reasonably practicable, and Joint Development Operator shall consider and discuss such comments, suggestions and proposed amendments with the Operating Committee. Unless otherwise extended by the Operating Committee, within sixty (60) days after distribution of the proposed Annual Work Program and Budget for a Calendar Year, the Operating Committee and Joint Development Operator shall meet to consider, modify (if necessary) and approve or reject the proposed Annual Work Program and Budget. Subject to Section 4.4(f), approval of an Annual Work Program and Budget shall require the approval of the Operating Committee. Inclusion of an operation in an approved Annual Work Program and Budget or an approved amendment thereof shall, subject to the terms of Section 4.6: (i) bind all applicable Development Parties and Joint Entities to participate in such operation, and no Development Party or Joint Entity shall have the right to make any nonconsent election under an Applicable Operating Agreement with respect to such operation; and (ii) authorize Joint Development Operator or the applicable Party Operator to conduct such operation for the account of all of the applicable Development Parties and Joint Entities under the relevant Applicable Operating Agreement (provided that, to the extent any third parties are party to such Applicable Operating Agreement, Joint Development Operator shall propose such operation to such third parties in accordance with the terms of such Applicable Operating Agreement, though, for the avoidance of doubt, Joint Development Operator need not re-propose such operation to the Development Parties and Joint

 

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  Entities), subject to the budgetary provisions of such Annual Work Program and Budget and Sections 4.4(j), 4.4(k) and 4.7, without further authorization from the Operating Committee. Each Development Party and Joint Entity agrees to provide such notices, make such elections and take such actions as may reasonably be required under any Applicable Operating Agreement to implement this provision.

 

  (f) In the event that an Annual Work Program and Budget is not approved on or prior to the first day of the Calendar Year to which such Annual Work Program and Budget pertains (for purposes of this Section 4.4(f), the “ relevant Calendar Year ”), the Operating Committee shall be deemed to have approved an Annual Work Program and Budget for such relevant Calendar Year that includes the following: (i) the Development Operations scheduled to be performed during the relevant Calendar Year as set forth in the Development Work Program, if any, and associated Development Costs reasonably required to implement such Development Operations, but excluding costs for any Acquisitions; (ii) Operating Expenses equal to the product of the amount of Operating Expenses approved in the preceding Calendar Year’s Annual Work Program and Budget and the Operating Expense Multiplier for the relevant Calendar Year; (iii) Appalachian Overhead equal to the amount of Appalachian Overhead approved in the preceding Calendar Year’s Annual Work Program and Budget, with such adjustments as are necessary to reflect previously approved changes in staffing or facilities costs of the Company or Technical Services to be performed that will be implemented during the Calendar Year in question; (iv) those multi-year expenditures previously approved by the Development Parties pursuant to Section 4.4(b) that are attributable to the relevant Calendar Year; (v) existing payment commitments to third parties under Leases and contracts binding with respect to the Subject Oil and Gas Assets; and (vi) taxes payable with respect to the Subject Oil and Gas Assets by any operator under the terms of any Applicable Operating Agreement.

 

  (g) Any Development Party may propose to amend the Development Work Program or an Annual Work Program and Budget by notice to the Operating Committee and Joint Development Operator. Approval of any such amendment shall require the approval of the Operating Committee. Notwithstanding any provision of Section 4.1 to the contrary, each Development Party shall have sixty (60) days to consider any proposed amendment that would increase the estimated costs of the Development Work Program for any Calendar Year or any Annual Work Program and Budget by more than ten percent (10%). To the extent that such amendment is approved by the Operating Committee, the Development Work Program and relevant Annual Work Program and Budget shall, subject to any required approvals under any Applicable Operating Agreement, be deemed amended accordingly, provided that any such amendment shall not invalidate any commitment or expenditure already made by an operator under an Applicable Operating Agreement in accordance with any previous authorization given pursuant hereto. In addition to any amendment adopted as provided above, the Annual Work Program and Budget shall automatically be amended to include any Required Asset Upgrade that is deemed approved by the Company under the terms of the Company’s Joint Entity Agreement, without the need for Operating Committee approval.

 

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  (h) Notwithstanding anything to the contrary in this Section 4.4, any Development Party or Development Parties holding at least a twenty-five percent (25%) JDA Interest may propose to the Operating Committee Development Operations that are not included in the Development Work Program or a then-current approved Annual Work Program and Budget (a “ Non-Budgeted Operation ”). Any such Non-Budgeted Operation which receives sufficient votes in the Operating Committee to be adopted as an amendment to the Annual Work Program and Budget shall automatically be added to the Development Work Program and the applicable approved Annual Work Program and Budget(s) and shall cease to be a Non-Budgeted Operation. Any such Non-Budgeted Operation which receives insufficient votes in the Operating Committee (i) that may be undertaken as a Sole Risk Development Operation under the terms of the relevant Applicable Operating Agreement, (ii) that may be undertaken as a Sole Risk Entity Operation under the terms of the applicable Joint Entity Agreement (and, if applicable, as sole risk operation under the Applicable Operating Agreement) or (iii) that is an Area-Wide Operation may be proposed and conducted as a Sole Risk Development Operation or a Sole Risk Entity Operation, as applicable. Notwithstanding the preceding, if a Development Program is approved through Calendar Year 2013 pursuant to Section 4.2(a)(i), then until December 31, 2013, no Non-Budgeted Operation may be performed as a Sole Risk Development Operation or Sole Risk Entity Operation for the benefit of a Development Party or Entity Member if the sum of the estimated costs of conducting such Non-Budgeted Operation for the account of such Development Party or Entity Member, together with costs incurred or to be incurred by or for the account of such Development Party or Entity Member and its Affiliates with respect to other Sole Risk Development Operations and Sole Risk Entity Operations performed or to be performed in such Calendar Year, together with all Joint Development Operations performed or to be performed in such Calendar Year, exceeds one hundred twenty percent (120%) of the total amount of the approved Annual Work Program and Budget for such Calendar Year.

 

  (i)

Any Development Operation proposed by a third party pursuant to an Applicable Operating Agreement shall be subject to the terms and conditions of such Applicable Operating Agreement and shall be submitted by the Joint Development Operator for a vote of the Operating Committee prior to the response deadline in the Applicable Operating Agreement. Any such Development Operation which receives sufficient votes in the Operating Committee to be adopted as an amendment to the Annual Work Program and Budget shall automatically be added to the Development Work Program and the applicable approved Annual Work Program and Budget(s). Any such Development Operation related to Development Assets which receives insufficient votes in the Operating Committee that may be undertaken as a Sole Risk Development Operation under the terms of the relevant Applicable

 

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  Operating Agreement may be so proposed and conducted. Any such Development Operation related to Joint Entity Assets which receives insufficient votes of the Operating Committee that may be undertaken as a Sole Risk Entity Operation under the terms of the relevant Joint Entity Agreement (and, if applicable, as sole risk operation under the Applicable Operating Agreement) may be so proposed and conducted.

 

  (j) Approval by the Operating Committee of an Annual Work Program and Budget shall constitute the Operating Committee’s deemed approval for any Party Operator to expend up to ten percent (10%) in excess of the authorized amount applicable to its operations within each Annual Work Program and Budget category, not to exceed in the aggregate ten percent (10%) of the aggregate amount applicable to its operations in such Annual Work Program and Budget, less, in each case, any amounts included as line items for contingencies and overruns with respect to such operations in such category or Annual Work Program and Budget. Each Party Operator shall promptly notify the Operating Committee of any expenditure made by it in the exercise of its rights pursuant to this Section 4.4(j). The ten percent (10%) deemed approval levels set forth in this Section 4.4(j) shall be calculated with respect to the original amount of an Annual Work Program and Budget or, once amended, the amended amount of the Annual Work Program and Budget, provided that no expenditures incurred pursuant to Section 4.4(k) shall be deemed to be included in an approved Annual Work Program and Budget for purposes of calculating the ten percent (10%) deemed approvals pursuant to this Section 4.4(j), nor shall any such expenditures be considered to be amounts expended in excess of the authorized amount of any Annual Work Program and Budget for purposes of calculating the ten percent (10%) deemed approval levels.

 

  (k) Notwithstanding anything to the contrary in this Agreement, any Party Operator is expressly authorized to make expenditures and incur liabilities without prior authorization or approval when necessary or advisable, in such Party Operator’s good faith judgment, to deal with emergencies, including well blowouts, fires, oil spills, or any other similar event, which may endanger property, lives, or the environment. Each Party Operator shall as soon as practicable report to the Development Parties and any affected Joint Entity the nature of any such emergency which arises, the measures it intends to take in respect of such emergency and the estimated related expenditures.

 

  (l) To the extent reasonably within the control of any Party Operator or the other Development Parties or Joint Entities conducting or participating in any Joint Development Operation, the Joint Development Operation shall be conducted at the time prescribed in the applicable Annual Work Program and Budget.

 

  (m) For the avoidance of doubt, any reference in this Agreement to an approved Annual Work Program and Budget shall include an Annual Work Program and Budget that is deemed to have been approved by the Operating Committee, and shall incorporate all approved amendments thereto and all modifications to Annual Work Program and Budgets described herein that require no action on the part of the Parties.

 

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Section 4.5 Statements of Estimated Expenditures . Not later than twenty (20) days prior to the commencement of each Calendar Quarter during the term of this Agreement, Joint Development Operator shall provide the Development Parties and Joint Entities a statement of the estimated Development Costs to be incurred in such Calendar Quarter pursuant to this Agreement, including Development Costs associated with Joint Development Operations. Such statement shall be for informational purposes only, and, except as otherwise provided in Section 4.6, no approval of the Operating Committee shall be required for any of the Development Costs identified therein to the extent such Development Costs are included in an approved Annual Work Program and Budget, or are covered by Section 4.4(j).

Section 4.6 AFEs .

 

  (a) Prior to: (i) spudding any well as a Joint Development Operation, (ii) making any material expenditures or incurring any material commitments for work on any Wellbore Operation to be conducted as a Joint Development Operation that is estimated to cost in excess of five hundred thousand dollars ($500,000), or (iii) making any material expenditures or incurring any material commitments for work on any Area-Wide Operation to be conducted as a Joint Development Operation that is estimated to cost in excess of one million dollars ($1,000,000), the Party Operator or Joint Development Operator, as the case may be, shall submit for the approval of the Operating Committee an AFE. Where the necessary information is available, such AFE may be submitted and approved for designated wells and Wellbore Operations as part of the proposed Annual Work Program and Budget for a Calendar Year, in which case no separate subsequent AFE shall be required.

 

  (b) Each Development Party shall communicate an Operating Committee vote to approve or reject the AFE within fifteen (15) days following receipt of the AFE (or forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) in the event of a Wellbore Operation when a drilling rig is on location). Any Development Party failing to communicate its vote within the applicable time period shall be deemed to have voted against the AFE.

 

  (c)

If the Operating Committee approves an AFE for the operation within the applicable period, the Party Operator or Joint Development Operator shall be authorized to conduct the operation under the terms of this Agreement. If the Operating Committee fails to approve an AFE for the operation within the applicable time period, the operation shall be deemed rejected. The Party Operator or Joint Development Operator shall promptly notify the Development Parties and Joint Entities if the operation has been rejected, and, subject to Section 4.4(h), (i) with respect to a Development Operation related to Development Assets that may be undertaken as a Sole Risk Development Operation under the terms of the relevant Applicable Operating Agreement, any Development Party may thereafter conduct the operation as a Sole Risk Development Operation

 

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  under the terms of the Applicable Operating Agreement, and (ii), with respect to a Development Operation related to Joint Entity Assets that may be undertaken as a Sole Risk Entity Operation under the terms of the applicable Joint Entity Agreement (and, if applicable, as sole risk operation under the Applicable Operating Agreement), the applicable Entity Member(s) or their affiliated Development Parties may thereafter conduct the operation as a Sole Risk Entity Operation under the terms of the applicable Joint Entity Agreement.

 

  (d) For purposes of any Applicable Operating Agreement that contains a casing point election, approval of an AFE that includes the costs associated with completing a well shall be deemed to be an election to participate in the completion of such well pursuant to the relevant provisions of such Applicable Operating Agreement.

 

  (e) When an operation is approved for greater or lesser amounts than those provided for in the applicable line items of the approved Annual Work Program and Budget, the Annual Work Program and Budget shall be deemed to be revised and amended accordingly.

Section 4.7 Area-Wide Operations .

 

  (a) Joint Development Operator shall conduct Area-Wide Operations on behalf of the Development Parties (and, if specifically approved by the Operating Committee, a Joint Entity or Joint Entities) pursuant to the applicable approved Annual Work Program and Budget.

 

  (b) All costs and liabilities incurred in Area-Wide Operations shall be borne and paid, and all assets acquired in such operations owned, by the Participating Parties in proportion to the Participating Interests held by such Participating Parties and such amounts shall be billed to or advanced by, as the case may be, such Participating Party in accordance with Section 2.3.

 

  (c) Where a Joint Entity is not a participant in Area Wide Operations, the Joint Entity Assets held by that Joint Entity shall nonetheless be subject to any Area-Wide Operation that is approved by the Development Parties in accordance with this Agreement and any such Area-Wide Operation may be conducted on such Joint Entity Assets without the need for any consent by any applicable Joint Entity, subject to any required third party consents and applicable Law.

Section 4.8 Third Party Operators . For the avoidance of doubt, the Parties agree that the Development Work Program, Annual Work Program and Budget and other terms of Sections 4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 4.7 and 4.9 shall, though binding as between the Development Parties and the Joint Entities, not be binding upon any operator or non-operator that is not a Development Party or a Joint Entity.

Section 4.9 Participation by the Company . Except with respect to a Farmout Sole Risk Entity Operation, if a Development Party or Entity Member has voted in favor of any Development Operation in which the Company or other Joint Entity serving as Party Operator has a right to participate under the terms of the Applicable Operating Agreement, then the Company or such Joint Entity, as applicable, shall be deemed to have voted in favor of, and will participate in, such Development Operation.

 

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ARTICLE 5

DEFAULT

Section 5.1 Default .

 

  (a) Any Development Party and/or any of its affiliated Entity Members or other Affiliates that fails to pay in full when due any amounts owed and undisputed under the terms of this Agreement or any Associated Agreement (including any amount included in an approved Annual Work Program and Budget), which failure is not cured within fifteen (15) days of such Development Party’s receipt of a Default Notice, shall be in default under this Agreement and all Associated Agreements, and shall be referred to herein as a “ Defaulting Party ”. Each Affiliate of a Defaulting Party that is a Development Party, an Entity Member or a party to any other Associated Agreement shall also be a Defaulting Party. Joint Development Operator shall (or any Affected Party may) give notice of such default (a “ Default Notice ”) to the Defaulting Party(ies) and each of the other non-Defaulting Parties. Any Defaulting Party shall be considered in default for all purposes under all applicable Associated Agreements.

 

  (b) For purposes of this Article 5, “ Default Period ” means the period beginning fifteen (15) days from the date of receipt of a Default Notice by a Defaulting Party and its Credit Facility Secured Parties, if such Defaulting Party remains in default under Section 5.1(a), and ending when all of the Defaulting Party’s defaults have been remedied in full.

 

  (c) All amounts in default and not paid when due under this Agreement or any Associated Agreement shall bear interest at the Default Interest Rate from the due date to the date of payment.

 

  (d) For the avoidance of doubt (i) EXCO shall not be in default with respect to the payment of its share of Development Costs or any EXCO Member’s Percentage Interest share of Capital Contributions to a Joint Entity to the extent that BG or any BG Member is responsible for such Development Costs or Capital Contributions as required by Section 2.2 and BG fails to pay, or cause a BG Member to pay, as applicable, its Carried Costs when due, and (ii) in the event BG fails to pay, or cause a BG Member to pay, as applicable, its Carried Costs when due and BG and/or such BG Member has not exercised its rights under Section 5.1(e) with respect to such Carried Costs (if applicable), then BG and such BG Member, as applicable, shall be in default under this Agreement upon its receipt of a Default Notice and its failure to so cure such default as provided in Section 5.1(a). Except as set forth in Section 5.1(e), no default by EXCO under this Agreement shall affect BG’s obligation to pay, or cause a BG Member to pay, as applicable, the Carried Costs when due as required by Section 2.2.

 

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  (e) Notwithstanding anything to the contrary herein, at any time upon which EXCO is a Defaulting Party hereunder and prior to the Carry Termination Event, BG and the BG Members shall have the right but not the obligation to, upon notice to EXCO, make payments into the Joint Operations Account toward all or a portion of the Total Amount in Default of EXCO and its Affiliates and to set off such payments against their respective obligations to pay Carried Costs and, upon such payment and set off, such obligation to pay such Carried Costs (to the extent of the amount so paid and set off) shall be deemed satisfied.

Section 5.2 Certain Consequences of Default .

 

  (a) Notwithstanding any other provision in this Agreement or any Associated Agreement to the contrary, during the Default Period, a Defaulting Party shall be subject to all rights and remedies available to the Affected Parties under the relevant Applicable Operating Agreements, Joint Entity Agreements and other Associated Agreements and in addition, a Defaulting Party shall have no right to:

 

  (i) make or elect to participate in, directly or through an affiliated Entity Member, any proposal under this Agreement or any Applicable Operating Agreement;

 

  (ii) vote on any matter with respect to which approval is required under the express terms of this Agreement or any Associated Agreement (excluding any amendment or waiver of the terms of any such agreement);

 

  (iii) call any (A) Operating Committee or subcommittee meeting or (B) any meeting of the Management Board or any subcommittee of the Management Board;

 

  (iv) vote on any matter coming before the (A) Operating Committee or any subcommittee (except for any amendment to the Development Work Program pursuant to Section 4.1) or (B) the Management Board or any subcommittee of the Management Board (excluding any amendment of the applicable Joint Entity Agreement or waiver of the terms of such agreement);

 

  (v) access any data or information relating to any operation conducted under this Agreement or any Associated Agreement (except to the extent (i) that the Defaulting Party is Joint Development Operator or is a Party Operator, or (ii) such Defaulting Party or any of its Affiliates is providing services to a Joint Entity pursuant to a services agreement, and in either case such data is necessary for such Person to perform its responsibilities in such capacity);

 

  (vi)

Transfer all or any part of its interests in its Joint Development Interest or Encumber all or any part of its Joint Development Interest except in a case of (A) a Transfer (or a transfer pursuant to a Credit Facility Foreclosure) of a Joint Development Interest to a Person or Encumbrance in favor of a

 

34


  Person who simultaneously with such Transfer (or transfer) or Encumbrance satisfies in full the Total Amount in Default of such Defaulting Party and its Affiliates, or (B) a Credit Facility Encumbrance granted pursuant to a borrowing for which all or a portion of the proceeds thereof are used to pay the entire amount of the Total Amount in Default of such Defaulting Party and its Affiliates;

 

  (vii) withhold consent to any Transfer of all or an undivided portion of the Joint Development Interest (including a Material Interest), or a Change in Equity Ownership, of an Affected Party pursuant to this Agreement or the applicable Associated Agreement, or exercise its preferential purchase right provided for in this Agreement or the applicable Associated Agreement in the event of such a Transfer by an Affected Party or in the event of a Change in Equity Ownership of an Affected Party; or

 

  (viii) elect to acquire any portion of an Acquired Interest pursuant to Article 9.

 

  (b) In addition to the other remedies available to the Affected Parties under this Agreement and any other rights available to each Affected Party to recover its share of the Total Amount in Default, from and after the later to occur of the thirtieth (30th) day of the Default Period or the time upon which the Defaulting Party’s and its Affiliates’ collective balance in the Joint Operations Account is equal to zero (0), (i) a Defaulting Party shall have no right to receive its Entitlement from the Leases included in the Development Assets, and the Affected Parties shall have the right to collect such Entitlement and (b) a Defaulting Party shall have no right to receive distributions from any Joint Entity, and such distributions shall instead be made to the Affected Parties who are Entity Members of the relevant Joint Entity, in each case until the expiration of the Default Period. Amounts received by the Affected Parties from the sale of such Entitlement and from such distributions shall be applied toward the Total Amount in Default as provided in Section 5.2(f).

 

  (c) Furthermore, during the Default Period, the Defaulting Party shall be deemed to have approved, and shall join with the non-defaulting Development Party in taking, any actions approved by the non-defaulting Development Parties during the Default Period which cannot be conducted as Sole Risk Development Operations under the terms of any Applicable Operating Agreement or Sole Risk Entity Operations under the terms of any Joint Entity Agreement.

 

  (d) Any Default Notice shall include a statement of the amount of money that the Defaulting Party has failed to pay.

 

  (e)

The commencement of a Default Period shall not impair the Joint Development Operator’s right to use amounts held in the Joint Operations Account for the benefit of the Defaulting Party and its Affiliates for the purpose of paying Permitted Expenses for the account of such Defaulting Party and its Affiliates, and the Joint Development Operator shall continue to apply funds so held for this

 

35


  purpose until all funds held in the Joint Operations Account for the benefit of the Defaulting Party and its Affiliates have been exhausted. Upon the commencement and continuation of the Default Period, beginning on the first Business Day of the Calendar Month preceding the Calendar Month during which the amounts held in the Joint Operations Account for the benefit of the Defaulting Party and its Affiliates will no longer be sufficient to pay the Defaulting Party’s and its Affiliates’ shares of Permitted Expenses (other than, if applicable, Carried Costs), and monthly thereafter until sufficient funds have been restored to the Joint Operations Account for the benefit of the Defaulting Party and its Affiliates to pay the Defaulting Party’s and its Affiliates’ shares of the following Calendar Month’s Permitted Expenses, Joint Development Operator, or if Joint Development Operator or any Affiliate of Joint Development Operator is the Defaulting Party, any Affected Party or Affected Parties, shall send the non-defaulting Development Parties and non-defaulting Entity Members a statement of the sum of money that such parties are required to pay with respect to the Defaulting Party’s and its Affiliates’ share of Permitted Expenses for the following Calendar Month, and, except to the extent such amounts have been satisfied by (i) payments by BG and any BG Member pursuant to Section 5.1(e) or (ii) by amounts paid to restore the amounts held in the Joint Operations Account for the benefit of the Defaulting Party and its Affiliates pursuant to Section 5.2(f), the non-defaulting Development Parties or Entity Members shall pay such amount within fifteen (15) days following receipt of the statement in accordance with the terms of Section 2.3. If any non-defaulting Development Party or Entity Member fails to timely satisfy such obligations, such non-defaulting Development Party or Entity Member and its Affiliates shall thereupon be Defaulting Parties subject to the provisions of this Article 5. If all non-defaulting Development Parties or non-defaulting Entity Members, as applicable, fail to timely satisfy such obligations, the Development Parties or Entity Members shall be deemed to have unanimously determined not to make such expenditure and the Defaulting Party shall no longer be deemed to be in default with respect to such expenditure.

 

  (f)

All amounts collected with respect to a Defaulting Party and its Affiliates pursuant to Section 5.2(b), any other payments by or on behalf of a Defaulting Party or its Affiliates prior to satisfaction of the Total Amount in Default, and all amounts collected under any Joint Entity Agreement with respect to such Defaulting Party and its Affiliates shall, during the continuation of the default, be aggregated and applied to satisfy the Total Amount in Default with respect to such Defaulting Party and its Affiliates, ratably in proportion to the portion of the Total Amount in Default owed by each. Amounts received with respect to any component of the Total Amount in Default shall be paid first to the non-defaulting Development Parties or non-defaulting Entity Members, as applicable, in proportion to the amounts paid by each pursuant to Section 5.2(e) and (if applicable) under the applicable Joint Entity Agreement with respect to such component and second to restore the amount held in the Joint Operations Account for the benefit of the Defaulting Party and its Affiliates to the amount that would be required under Section 2.3. The non-defaulting Development Parties and

 

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  Entity Members shall be entitled to enforce any and all security available to them under the Applicable Operating Agreements, Joint Entity Agreements and other Associated Agreements with respect to such Defaulting Party’s and its Affiliates’ Total Amount in Default, regardless of the specific agreement or particular Affiliate to which any particular component of the Total Amount in Default relates. For any Joint Entity Agreement that provides for reduction of a defaulting Entity Member’s Membership Interest based upon Capital Contributions made by such Entity Member when compared to those made by all Entity Members, the non-defaulting Entity Members shall be entitled, at their option, to make the calculation using the aggregates of all payments made by the defaulting Entity Member and its Affiliates pursuant to this Agreement and of all payments made by all Entity Members and their Affiliates pursuant to this Agreement, in lieu of using Capital Contributions made under the Joint Entity Agreement alone.

Section 5.3 Right to Costs of Enforcement . Each Affected Party shall be entitled to recover from the Defaulting Party all reasonable attorneys’ fees and other reasonable costs sustained in the collection of amounts owed by the Defaulting Party.

Section 5.4 Cumulative and Additional Remedies . The rights and remedies granted to an Affected Party in this Article 5 shall be cumulative, not exclusive, and shall be in addition to any other rights and remedies that may be available to the Affected Party, at Law, in equity or otherwise. Each right and remedy available to an Affected Party may be exercised from time to time and so often and in such order as may be considered expedient by an Affected Party in its sole discretion.

Section 5.5 Remedies for Failure to Pay Carried Costs .

 

  (a) If BG or any BG Member becomes a Defaulting Party with respect to any Carried Costs, (a “ Carried Cost Default ”), then in addition to a Default Notice with respect thereto, EXCO will give notice of such Carried Cost Default (a “ Carried Cost Default Notice ”) to BG (and, if applicable, such BG Member). If BG fails to pay, or cause such BG Member to pay, such owed and undisputed Carried Costs within fifteen (15) days of BG’s (and, if applicable, such BG Member’s) receipt of a Carried Cost Default Notice, then, at the option of EXCO (exercisable at any time prior to the cure of such Carried Cost Default), which option shall be exercised by notice to BG (and, if applicable, such BG Member) (the “ Carried Cost Election Notice ” ), BG shall pay, or shall cause the BG Members to pay, to EXCO: (i) the Carried Cost Balance, plus (ii) interest on the past due portion of the Carried Cost Balance at the Default Interest Rate from the date of such non-payment of Carried Costs until such payment is made. Such payment of the Carried Cost Balance, plus applicable interest, shall be made within fifteen (15) days following BG’s and/or the BG Member’s receipt of the Carried Cost Election Notice.

 

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  (b) If EXCO elects to exercise its rights pursuant to this Section 5.5, BG and/or such BG Member shall be deemed to no longer be in default of its obligations to pay Carried Costs in accordance with the terms of Section 2.2 of this Agreement, and such obligation to pay Carried Costs shall be deemed to be fully satisfied and, at EXCO’s option (exercised by notice to BG within fifteen (15) days following BG’s and/or the BG Member’s receipt of the Carried Cost Election Notice), this Agreement shall terminate. EXCO shall be entitled to exercise any and all rights and remedies that may be available to EXCO to enforce its rights under this Section 5.5, whether set forth in this Agreement, the Applicable Operating Agreement, at Law, in equity (including specific performance of this Agreement) or otherwise.

ARTICLE 6

TRANSFERS

Section 6.1 Maintenance of Uniform Interest; Tag-Along Right; Minimum Participating Interest; Transfers by Defaulting Parties .

 

  (a) For the purpose of maintaining uniformity of ownership in the AMI Area as among the Development Parties, from and after the Closing Date, no Development Party shall, and each Development Party shall cause each of its affiliated Entity Members not to, Transfer any portion of its Joint Development Interest unless such Transfer covers (1) the entirety of such Development Party’s and its Affiliates’ (including its affiliated Entity Members’) Joint Development Interests, or an equal undivided percentage of all of such Development Party’s and its Affiliates’ Joint Development Interest, (2) a Material Interest or (3) an Other Interest. Furthermore, no Development Party shall undergo, or shall permit its affiliated Entity Members to undergo, a Change in Equity Ownership unless such Change in Equity Ownership covers the entirety of the Equity Ownership in such Development Party and its affiliated Entity Members or an equal undivided percentage of the Equity Ownership of each of the Development Party and its affiliated Entity Members. The requirement in this Section 6.1(a) is intended to ensure, among other things, that each Entity Member of the Company has an Affiliate that is a Development Party, and that each Development Party has an Affiliate that is an Entity Member of the Company.

 

  (i) Any Transfer by a Development Party or Entity Member of a Joint Development Interest (other than a Material Interest or Other Interest) shall also transfer a proportionate share of the Transferring Development Party’s and its Affiliates’ interests in this Agreement and all of the Associated Agreements other than Secondment Agreements.

 

  (ii) A Development Party or Entity Member may select which of its and its Affiliates’ interests in each Development Asset and Joint Entity comprise the Transferred undivided interest where interests in any such Development Asset or Joint Entity are owned by more than one Affiliate.

 

  (iii) Except in the case of a Development Party transferring all of its Joint Development Interest, no Transfer of its Joint Development Interest (other than a Material Interest or Other Interest) shall be made by a Development Party which results in the transferor or transferee holding a JDA Interest of less than ten percent (10%).

 

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  (iv) For the avoidance of doubt, nothing in this Section 6.1(a) shall prevent a Development Party from Transferring a Material Interest or an Other Interest in accordance with the terms and conditions of this Agreement.

 

  (b) In the event any Development Party (the “ Tag Offeror ”) proposes to Transfer its leasehold, working or mineral fee interest and obligations with respect to Outside AMI Rights (the “ Tag Assets ”) to a third party other than an Affiliate of such Tag Offeror (such Person, a “ Tag Transferee ”), it shall, once the final terms and conditions of such Transfer (the “ Tag-Along Transaction ”) have been fully negotiated, send an offer notice (a “ Tag Notice ”) to the Company and each other Development Party (each, a “ Tag Offeree ”) granting such Tag Offerees the opportunity to join in the Tag-Along Transaction on a pro rata basis in proportion to each Tag Offeree’s Participating Interest in the Tag Assets and on the same terms and conditions. A Tag-Along Transaction shall not provide the Tag Transferee with any Tag Right related to any leasehold, working or mineral fee interest and obligations with respect to any Development Assets inside of the AMI Area.

 

  (i) The Tag Notice shall disclose all the final terms and conditions of the Tag-Along Transaction (including the purchase price thereof expressed in U.S. dollars) and be accompanied by a copy of all instruments or relevant portions of instruments establishing such terms and conditions.

 

  (ii) Each Tag Offeree shall have the right (a “ Tag Right ”), exercisable by delivery of notice to the Tag Offeror at any time within ten (10) days after receipt of the Tag Notice, to sell pursuant to such Tag-Along Transaction and upon the terms and conditions set forth in the Tag Notice, up to such Tag Offeree’s pro rata portion of the Tag Assets; provided, however, that if the proposed Tag Transferee is unwilling to purchase all of the Tag Assets requested to be included by all exercising Tag Offerees and the Tag Assets held by the Tag Offeror subject to the Tag-Along Transaction, then each Tag Offeree shall have the right to sell pursuant to such Tag-Along Transaction, at the offer price and upon the terms and conditions set forth in the Tag Notice, a portion of such Tag Offeree’s Tag Assets as provided in the next succeeding sentence. If any Tag Offeree has exercised its Tag Right and the proposed Tag Transferee is unwilling to purchase all of the Tag Assets proposed to be transferred by the Tag Offeror and all exercising Tag Offerees (determined in accordance with the first sentence of this Section 6.1(b)(ii)) then the Tag Offeror and each exercising Tag Offeree shall reduce, on a pro rata basis based on their respective Participating Interests in such Tag Assets, the amount of such Tag Assets that each otherwise would have sold so as to permit the Tag Offeror and each exercising Tag Offeree to sell the portion of the Tag Assets (determined in accordance with such reduced Participating Interests) that the proposed Tag Transferee is willing to purchase (the “ Tag Purchased Assets ”).

 

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  (iii) The Tag Offerees and such Tag Offeror shall sell to the proposed Tag Transferee all the Tag Assets proposed to be Transferred by the Tag Offerees and such Tag Offeror, or at the option of the proposed Tag Transferee, the Tag Purchased Assets, upon the same terms and conditions, individually and in the aggregate (adjusted as necessary to reflect the Tag Purchased Assets), as those in the Tag-Along Transaction and the Tag Notice and at the time and place of the closing of the Tag-Along Transaction as provided for in the Tag Notice (subject to extension to the extent necessary to pursue any required regulatory approvals), or on such other terms and conditions and at such other time and place as the Tag Offerees, such Tag Offeror and the proposed Tag Transferee shall agree in writing.

 

  (c) No Defaulting Party may Transfer all or any part of its Joint Development Interest or any other Development Asset unless and until the Total Amount in Default is paid by such Defaulting Party or its transferee or any other Person on behalf of such Defaulting Party.

Section 6.2 Requirements for Transfer .

 

  (a) Any Transfer or Encumbrance of all or any portion of a Joint Development Interest (excluding any Material Interest or Other Interest) must expressly be made subject to this Agreement and, to the extent applicable, the Associated Agreements. Notwithstanding the foregoing, no Credit Facility Encumbrance shall be subject to the terms and conditions of this Agreement or any Associated Agreement, except that Credit Facility Encumbrances granted at or after the Closing Date (other than Credit Facility Encumbrances granted pursuant to the Existing EXCO Credit Facility) shall be subject to Section 3.4 (excluding Section 3.4(f)) and Article 8 of this Agreement and all Joint Development Operating Agreements.

 

  (b)

A transferee of any Transfer of a Joint Development Interest in the Development Assets shall have no rights under this Agreement or the Associated Agreements unless and until such transferee (i) provides the non-transferring Development Parties and Joint Development Operator executed counterparts of the instrument or instruments providing for such Transfer, (ii) expressly undertakes to be bound by the terms of this Agreement and the Associated Agreements through the execution and delivery of an instrument in substantially the form attached hereto as Exhibit “F” (the “ Assumption Agreement ”) and (iii) either (A) delivers (1) where EXCO is the transferor, a guarantee from a direct or indirect parent company of such transferee of comparable or better credit quality to the credit quality on the Closing Date of the guarantor for the Joint Development Interest being transferred or (2) where BG is the transferor, a guarantee from a direct or indirect parent company of such transferee that has a long-term credit rating from

 

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  Standard & Poor’s Ratings Group of not less than “BB-” or a long-term credit rating from Moody’s Investors Service, Inc. of not less than “Ba3”, in each case in favor of each of the other Parties in substantially the form of Exhibits “A” and “H” or (B) delivers written confirmation from the transferor that the guarantee furnished by the transferor with respect to the Joint Development Interest being transferred will remain in full force and effect with respect to that interest following the Transfer.

 

  (c) Any transferee of any Membership Interests in a Joint Entity shall have no rights under this Agreement or the Associated Agreements unless and until it complies with all conditions precedent of a Membership Interest transfer in the applicable Joint Entity Agreement.

 

  (d) Any Affiliate of a Development Party that is not a Development Party and that receives a Transfer of a Membership Interest in a Joint Entity other than the Company, must execute a ratification of this Agreement in a form substantially similar to Exhibit “I”.

Section 6.3 Liability of Transferor/Transferee . With respect to any Transfer of a Joint Development Interest (other than a Material Interest or Other Interest):

 

  (a) a transferring Party shall, notwithstanding such Transfer, be liable to the other Parties, including the Joint Development Operator, for its obligation to fund its share (as of the time of the Transfer) of (i) the Development Operations in which it is participating included in approved Annual Work Program and Budgets (including multi-year expenditures included in more than one Annual Work Program and Budget) as of the date of the Transfer and (ii) Sole Risk Development Operations in which such Development Party is participating;

 

  (b) a transferring Entity Member shall, notwithstanding such Transfer, be liable to its Joint Entity, the other Entity Members and Joint Development Operator for its obligation to fund its share (as of the time of the Transfer) of (i) Capital Contributions to its Joint Entities with respect to Development Operations in which such Joint Entities are participating included in approved Annual Work Program and Budgets (including multi-year expenditures included in more than one Annual Work Program and Budget) as of the date of the Transfer and (ii) Sole Risk Entity Operations in which such Entity Member is (directly, through an affiliated Development Party, or by participation of the Joint Entity on its behalf) participating;

 

  (c) each transferring Party and Entity Member shall also be liable for its share of all other obligations, in each case, accrued under this Agreement or any Associated Agreement (including, in the case of any Entity Member, its share of Capital Contributions required to fund its Joint Entity’s share of obligations accrued under an Applicable Operating Agreement entered into by the Joint Entity) on or prior to such Transfer;

 

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  (d) Upon compliance of its transferee with the terms of Section 6.2, each transferring Party and Entity Member (and, if a replacement guarantee complying with Section 6.2(b)(iii) is furnished, each guarantor of its obligations under this Agreement and any Associated Agreement) shall be released from any other obligations accruing after the date of the Transfer under this Agreement or any Associated Agreement with respect to the Joint Development Interest being Transferred and for which it is not liable under Section 6.3(a), (b) or (c) above, except in the case where the Transfer at issue is made to an Affiliate or where there is a Credit Facility Foreclosure on all or any part of a Party’s Joint Development Interest, in which cases the transferring Party or Party subject to the foreclosure, as applicable, shall remain primarily liable for all such obligations; and

 

  (e) for purposes of this Section 6.3, costs of plugging and abandoning wells and decommissioning facilities in which the transferring Party or an applicable Joint Entity has participated (or has paid a share of the costs under the preceding sentence) shall be considered to accrue at the time when applicable operator cash calls such amounts or the Parties or the Joint Entities are required to provide security for such amounts under the terms of this Agreement or the Associated Agreements, whichever is earlier.

Section 6.4 Encumbrances by Parties . Nothing contained in this Article 6 or in Articles 7 or 8 shall prevent a Party from Encumbering all or any undivided share of its Joint Development Interest or any other interest in the Development Assets to a third party after the Closing Date, provided that:

 

  (a) such Party shall remain liable for all obligations relating to such Joint Development Interest except as provided in Section 6.3; and

 

  (b) other than with respect to a Credit Facility Encumbrance, such Encumbrance shall be expressly subordinated to the rights of the other Parties under this Agreement, including any mortgage or security interest provided for herein or in the Associated Agreements, which subordination shall be expressly for the benefit of the other Parties.

ARTICLE 7

CONSENT TO ASSIGNMENT

Section 7.1 Certain Transfers during Initial Three Year Period . From and after the Closing Date and until the third anniversary of the Closing Date (such period, the “ Initial Three Year Period” ), no Development Party shall, and no Development Party shall permit any of its affiliated Entity Members to, Transfer all or any part of its Joint Development Interest (except an Other Interest) or undergo a Change in Equity Ownership without the prior written consent of each other Development Party, which consent may be withheld for any reason in the sole discretion of such other Development Party, provided that no such consent shall be required for any Transfer of all or any part of a Development Party’s or affiliated Entity Member’s Joint Development Interest to an Affiliate of such Development Party, provided that any subsequent

 

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Transfer of a Joint Development Interest (except an Other Interest) by such Affiliate of such Development Party to a Person that is not an Affiliate of such Development Party during the Initial Three Year Period shall require the prior written consent of the other Development Parties, which consent may be withheld for any reason in the sole discretion of such other Development Parties. Further, during the Initial Three Year Period, no Affiliate of a Development Party that has been Transferred a Joint Development Interest (unless limited to an Other Interest) may undergo a Change in Equity Ownership without the prior written consent of each other Development Party, which consent may be withheld for any reason in the sole discretion of such other Development Party.

Section 7.2 Other Transfers . A Development Party or its affiliated Entity Member shall be permitted to Transfer all or any part of its Joint Development Interest after the Initial Three Year Period, provided that a transferee must with its Affiliates have the financial ability to perform its future payment obligations hereunder and under the Associated Agreements and the technical ability to participate in the planning of future operations.

Section 7.3 Additional Consent Requirements . For the avoidance of doubt, any Transfer of a Joint Development Interest (except an Other Interest) shall also be subject to any restrictions on Transfer set forth in the Associated Agreements applicable thereto in addition to those set forth in this Agreement; provided that to the extent any such Associated Agreement contains a right to withhold consent to Transfer or a preferential purchase right in favor of another Development Party, as between the transferring Development Party and the other Development Parties that are parties to such Associated Agreement, any such consent right or preferential purchase right in such Associated Agreement shall not apply so long as this Agreement remains in effect; and, provided further that, to the extent any Joint Entity Agreement contains any right to withhold consent to Transfer or any preferential purchase right in favor of another Entity Member, as between the transferring Entity Member and the other Entity Members that are parties to such Joint Entity Agreement, any such consent right or preferential purchase right in such Joint Entity Agreement shall not apply so long as this Agreement remains in effect.

Section 7.4 Consents for Transfer of Joint Development or Party Operatorship . Except as may be expressly required by the terms of this Agreement, neither Joint Development Operator nor any Party Operator may transfer all or any part of its rights or obligations as Joint Development Operator hereunder or as Party Operator under any Applicable Operating Agreement without the prior written consent of each Development Party, which consent may be withheld for any reason in the sole discretion of such Development Party.

 

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ARTICLE 8

PREFERENTIAL RIGHT TO PURCHASE; CHANGES IN EQUITY OWNERSHIP

Section 8.1 Preferential Right to Purchase . Any Transfer of all or a portion of a Development Party’s or Entity Member’s Joint Development Interest, other than a Transfer thereof to a Wholly-Owned Affiliate or a Transfer of an Other Interest shall be subject to the following procedure.

 

  (a) Once the final terms and conditions of such Transfer have been fully negotiated and are binding upon the parties thereto, the transferring Development Party or Entity Member and all its Affiliates who are also proposing to Transfer shall jointly disclose all such final terms and conditions as are relevant to the acquisition of the Joint Development Interest (and, if applicable, the determination of the Cash Value of the Joint Development Interest) in a notice to the non-transferring Development Parties and Entity Members with Membership Interests in the applicable Joint Entity(ies), which notice shall be accompanied by a copy of all instruments or relevant portions of instruments establishing such terms and conditions. Each non-transferring Development Party and its affiliated Entity Members, as applicable, shall have the right to acquire the Joint Development Interest subject to such proposed Transfer from the transferring Development Party and Entity Member(s) on the terms and conditions described in Sections 8.1(c) and 8.1(d), as applicable, if, within sixty (60) days of the transferring Development Party’s or Entity Member’s notice, the non-transferring Development Party and its affiliated Entity Members deliver to the transferring Development Party or Entity Member a counter-notification that they accept such terms and conditions without reservations or conditions (subject to the other provisions of this Section 8.1, where applicable). If no non-transferring Development Party and its affiliated Entity Members deliver such counter-notification within such time, such Transfer to the proposed transferee may proceed without further notice, subject to the other provisions of this Agreement, under terms and conditions no more favorable to the transferee than those set forth in the notice to the non-transferring Development Parties and Entity Members, provided that such Transfer shall be concluded within one hundred twenty (120) days from the date of the notice. If such Transfer fails to be concluded within such period and the parties thereto desire thereafter to proceed with such proposed Transfer, the transferring Development Party and Entity Members shall be required to re-offer the Joint Development Interest subject to the Transfer to the non-transferring Development Parties and their affiliated Entity Members in accordance with the terms and conditions of this Section 8.1. No Development Party or Entity Member shall have a right under this Section 8.1 to acquire any asset other than a Joint Development Interest, nor shall a Development Party or Entity Member be required to acquire any asset other than a Joint Development Interest, regardless of whether other properties are included in the Transfer at issue.

 

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  (b) If more than one non-transferring Development Party and its affiliated Entity Members counter-notify that they intend to acquire the transferring Development Party’s and Entity Members’ Joint Development Interest that is subject to the proposed Transfer, then each such Development Party and its affiliated Entity Members shall acquire a proportion of the Joint Development Interest to be transferred equal to the ratio of its own Participating Interest or Percentage Interest, as applicable, to the total Participating Interests or Percentage Interests of all counter-notifying Development Parties or Entity Members, unless the counter-notifying Development Parties or Entity Members otherwise agree. In the event that a Person other than the Development Parties or their Affiliates validly exercises a preferential right to acquire all or a part of the transferring Development Party’s or Entity Member’s Joint Development Interest that is subject to the proposed Transfer, then the rights of the non-transferring Development Party or Entity Members shall be limited to the portion of the Joint Development Interest being transferred that is not acquired by such other Person.

 

  (c) In the event of a Cash Transfer that does not involve other properties as part of a wider transaction, each non-transferring Development Party or Entity Member shall have a right to acquire the Joint Development Interest subject to the proposed Transfer on the same final terms and conditions as were negotiated with the proposed transferee.

 

  (d) In the event of a Transfer of all or a portion of a Joint Development Interest that is not a Cash Transfer or involves other properties included in a wider transaction (package deal), the transferring Development Party or Entity Member shall include in its notification to the non-transferring Development Parties and Entity Members with Membership Interests in the applicable Joint Entity(ies) a statement of the proposed Cash Value of the Joint Development Interest subject to the proposed Transfer, and each non-transferring Development Party or Entity Member shall have a right to acquire such Joint Development Interest on the same final terms and conditions as were negotiated with the proposed transferee except that it shall pay the Cash Value in immediately available funds at the closing of the Transfer in lieu of the consideration payable in the third party offer, and the terms and conditions of the applicable instruments shall be modified as necessary to reflect the acquisition of a Joint Development Interest for cash. In the case of a package sale, the non-transferring Development Parties and Entity Members may not acquire the Joint Development Interest subject to the proposed package sale unless and until the completion of the wider transaction (as modified by the exclusion of properties subject to preemptive rights or excluded for other reasons) with the package sale transferee. If for any reason the package sale terminates without completion, the non-transferring Development Parties’ and Entity Members’ rights to acquire the Joint Development Interest subject to the proposed package sale shall also terminate.

 

  (e)

For purposes of Section 8.1(d), the Cash Value proposed by the transferring Development Party or Entity Member in its notice shall be conclusively deemed correct unless any non-transferring Development Party or Entity Member gives notice to the transferring Development Party or Entity Member within thirty (30) days of receipt of the transferring Development Party’s or Entity Member’s notice

 

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  stating that it does not agree with the statement of the Cash Value, stating the Cash Value it believes is correct, and providing any supporting information that it believes is helpful. In such event, the Development Parties or Entity Members, as applicable, shall have fifteen (15) days in which to attempt to negotiate an agreement on the applicable Cash Value. If no agreement has been reached by the end of such fifteen (15) day period, any affected Development Party or Entity Member shall be entitled to refer the matter to an independent expert as provided in Section 13.3 for determination of the Cash Value, provided that the transferring Development Party and Entity Members may elect to terminate the proposed Transfer, and any non-transferring Development Party and its affiliated Entity Members may elect to revoke their notice of intention to purchase, in either case by notice to the other Development Parties or Entity Members at any time prior to the time that the independent expert is retained pursuant to such provision. The Cash Value to be submitted to the independent expert by the transferring Development Party or Entity Member shall be the Cash Value provided by such Development Party or Entity Member in the notice provided to the non-transferring Development Parties and Entity Members pursuant to Section 8.1(d), and the Cash Value to be submitted to the independent expert by each non-transferring Development Party and its affiliated Entity Members shall be the Cash Value provided by such Development Party or its affiliated Entity Member in the notice provided to the transferring Development Party or Entity Member pursuant to this Section 8.1(e).

 

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  (f) In the event that any Person other than a Development Party or an Affiliate of a Development Party validly exercises after the Closing Date a preferential right to purchase with respect to any Development Assets in connection with the transactions conducted under the Transfer Agreement or in connection with any subsequent Transfer subject to this Agreement, any such Development Assets and all other remaining interests of the Development Parties and Joint Entities in the same Oil and Gas Assets shall, following the closing of such preferential right acquisition, be deemed to be Excluded Interests, and the Participating Parties in such Development Interests shall be entitled to exercise the rights with respect thereto that are set forth in Sections 3.5(g) and 9.2(h).

Section 8.2 Changes in Equity Ownership .

 

  (a) Any Change in Equity Ownership of a Development Party or an Entity Member shall be subject to the terms and conditions of this Section 8.2. For purposes of this Section 8.2, the term “ Acquired Party ” shall refer to each Development Party or Entity Member that is subject to a Change in Equity Ownership, “ Other Development Parties ” shall refer to, in the case of a Development Party that is subject to a Change in Equity Ownership, all other Development Parties not subject to the Change in Equity Ownership and, in the case of an Entity Member that is subject to Change in Equity Ownership, all other Entity Members that are not subject to the Change in Equity Ownership, and “ Acquiror ” shall refer to the third party proposing to acquire an equity interest in the Acquired Party in the Change in Equity Ownership.

 

  (b)

Once the final terms and conditions of a Change in Equity Ownership have been fully negotiated and are binding upon the parties thereto, all affiliated Acquired Parties shall disclose all such final terms and conditions as are relevant to the acquisition of such Acquired Parties’ Joint Development Interest and other interests in the Development Assets and the determination of the Cash Value of that Joint Development Interest and other interests in a notice to the Other Development Parties, which notice shall be accompanied by a copy of all instruments or relevant portions of instruments establishing such terms and conditions. Each Other Development Party shall have the right to acquire the Acquired Parties’ Joint Development Interests and other interests in the Development Assets on the terms and conditions described in Section 8.2(d) if, within sixty (60) days of the Acquired Parties’ notice, the Other Development Party delivers to the Acquired Party a counter-notification that it accepts such terms and conditions without reservations or conditions (subject to the other provisions of this Section 8.2, where applicable). If no Other Development Party delivers such counter-notification, the Change in Equity Ownership may proceed without further notice, subject to the other provisions of this Article 8, under terms and conditions no more favorable to the Acquiror than those set forth in the notice to the Other Development Parties, provided that the Change in Equity Ownership shall be concluded within one hundred twenty (120) days from the date of the notice. If the Change in Equity Ownership fails to be concluded within such period and the direct or indirect owners, as the case may be, of the

 

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Acquired Parties desire thereafter to proceed with such proposed Change in Equity Ownership, the Acquired Parties shall be required to re-offer the Joint Development Interest and other interests in the Development Assets subject to the Change in Equity Ownership to the Other Development Parties in accordance with the terms and conditions of this Section 8.2. No Other Development Party shall have a right under this Section 8.2 to acquire any asset other than a Joint Development Interest, nor shall any Other Development Party be required to acquire any asset other than a Joint Development Interest and other interests in the Development Assets, regardless of whether other properties are subject to the Change in Equity Ownership.

 

  (c) If more than one Other Development Party counter-notifies that it intends to acquire the Acquired Parties’ Joint Development Interest and other interests in the Development Assets that are subject to the proposed Change in Equity Ownership, then each such Other Development Party shall acquire a proportion of the Joint Development Interest subject to the Change in Equity Ownership equal, in the case of Development Assets, to the ratio of its own Participating Interest to the total Participating Interests of all counter-notifying Other Development Parties, and, in the case of Membership Interests in any Joint Entity, to the ratio of its own Percentage Interest to the total Percentage Interests of all counter-notifying Other Development Parties, unless the counter-notifying Other Development Parties otherwise agree.

 

  (d) The Acquired Party shall include in its notification to the Other Development Parties a statement of the proposed Cash Value of the Joint Development Interest subject to the proposed Change in Equity Ownership, and each Other Development Party shall have a right to acquire such Joint Development Interest and other interests in the Development Assets for the Cash Value, on the final terms and conditions negotiated with the Acquiror that are relevant to the acquisition of a Joint Development Interest and other interests in the Development Assets for cash. No Other Development Party may acquire the Acquired Parties’ Joint Development Interest and other interests in the Development Assets pursuant to this Section 8.2 unless and until completion of the Change in Equity Ownership. If for any reason the Change in Equity Ownership agreement terminates without completion, the Other Development Parties’ rights to acquire the Joint Development Interest and other interests in the Development Assets subject to the proposed Change in Equity Ownership shall also terminate.

 

  (e)

For purposes of Section 8.2(d), the Cash Value proposed by the Acquired Party in its notice shall be conclusively deemed correct unless any Other Development Party gives notice to the Acquired Parties within thirty (30) days of receipt of the Acquired Parties’ notice stating that it does not agree with the Acquired Parties’ statement of the Cash Value, stating the Cash Value it believes is correct, and providing any supporting information that it believes is helpful. In such event, the Development Parties shall have fifteen (15) days in which to attempt to negotiate an agreement on the applicable Cash Value. If no agreement has been reached by the end of such fifteen (15) day period, any affected Development Party shall be

 

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entitled to refer the matter to an independent expert as provided in Section 13.3 for determination of the Cash Value, provided that the Acquired Parties may elect to terminate the proposed Change in Equity Ownership, and any Other Development Party may elect to revoke its notice of intention to purchase, in either case by notice to the other Development Parties at any time prior to the time that the independent expert is retained pursuant to such provision. The Cash Value to be submitted to the independent expert by the Acquired Parties shall be the Cash Value provided by such Acquired Parties in the notice provided to the non-transferring Development Parties pursuant to Section 8.2(d), and the Cash Value to be submitted to the independent expert by each Other Development Party shall be the Cash Value provided by such Other Development Party in the notice provided to the Acquired Parties pursuant to this Section 8.2(e).

ARTICLE 9

AREA OF MUTUAL INTEREST; CERTAIN RENTALS; JOINT ENTITIES

Section 9.1 Creation of Area of Mutual Interest . The Development Parties agree that the AMI Area shall be an area of mutual interest.

Section 9.2 Area of Mutual Interest Procedures .

 

  (a)

If, during the period commencing on January 1, 2010 and ending on January 1, 2020, a Development Party or any Affiliate thereof (such Development Party, whether it or its Affiliate is the acquiror, an “ Acquiring Development Party ”) completes an Acquisition in the AMI Area or an Equity Acquisition relating to an entity holding Oil and Gas Assets in the AMI Area from a non-Affiliate (a “ Selling Party ”), the Acquiring Development Party shall provide written notice (an “ Offer Notice ”) to the other Development Parties (each, a “ Non-Acquiring Development Party ”), which notice shall disclose all final terms and conditions relevant to the Acquisition or Entity Acquisition and be accompanied by a copy of all instruments or relevant portions of instruments establishing such terms and conditions; provided that (i) where EXCO or any of its Affiliates is the Acquiring Development Party (A) it shall not be required to deliver any Offer Notice with respect to the Additional Interests, and the Additional Interests shall be subject to the provisions of the Transfer Agreement and not the provisions of this Article 9 and (B) it shall not be required to deliver any Offer Notice relating to any such Acquisition or Entity Acquisition by EXCO or any of its Affiliates occurring on or after the tenth day prior to the Closing Date up the Closing Date until five (5) Business Days after the Closing Date, and (ii) where BG or any of its Affiliates is the Acquiring Development Party, it shall not be required to deliver any Offer Notices relating to any Acquisition or Equity Acquisition by BG or any of its Affiliates occurring on or after January 1, 2010, but prior to the Closing Date until five (5) Business Days after the Closing Date. Subject to the rights of any third parties under any relevant Applicable Operating Agreement, each Non-Acquiring Development Party shall have the right (but not the obligation) to acquire its undivided Participating Interest share (the “ Offered Interest ”) in the Oil and Gas Assets (or, in the case of an Entity Acquisition, if the direct or indirect interests of

 

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  the acquired entity in Oil and Gas Assets in the AMI Area make up more than seventy-five percent (75%) of the total Cash Value of the interest acquired or to be acquired, at the option of the Non-Acquiring Development Parties, to be determined by a majority in interest based on their Participating Interests, the right (but not the obligation) to acquire its Offered Interest in the entity itself) (as applicable, the “ Acquired Interest ”) upon the same terms and conditions on which the Acquiring Development Party or its Affiliate acquired the Acquired Interest, and effective on the same date on which the Acquiring Development Party’s or its Affiliate’s Acquisition was effective, subject to the Non-Acquiring Development Party assuming its Participating Interest share of all duties and obligations with respect to the Acquired Interest and paying the Acquiring Development Party the Non-Acquiring Development Party’s Participating Interest share of any consideration paid by the Acquiring Development Party or its Affiliate (and, in the case of Acquired Interests including Leases, any lease broker costs incurred in acquiring such Leases). Notwithstanding anything to the contrary in the preceding sentence, in the event that one or more Non-Acquiring Development Parties elect not to acquire their Offered Interests, each Non-Acquiring Development Party’s Offered Interest shall be that portion of the Acquired Interest that such Non-Acquiring Development Party’s Participating Interest bears to the aggregate Participating Interests of the Acquiring Development Party and the Non-Acquiring Development Parties electing to participate in such Acquisition or Equity Acquisition of the Acquired Interest. An Acquiring Development Party shall use commercially reasonable efforts to assign a share of its or its Affiliate’s rights and obligations under the acquisition documents to the Non-Acquiring Development Parties, provided that the Acquiring Development Party shall not be required to pay cash or otherwise surrender value or incur any liability to the Selling Party to obtain such a right. Within fifteen (15) days of the delivery of an Offer Notice, the Acquiring Development Party shall provide the Non-Acquiring Development Parties with access to complete well files and all geological and geophysical, title, environmental, contract and other information about the applicable Oil and Gas Assets (and if applicable, the entity holding them) to which the Acquiring Development Party has access, and until the earlier of (i) the expiration of the sixty (60) day election period in Section 9.2(b) or (ii) an election by the Non-Acquiring Development Party to acquire its Offered Interest, the Acquiring Development Party shall notify each Non-Acquiring Development Party of any material developments (positive or adverse) that may occur with respect to the Offered Interest.

 

  (b)

Each Non-Acquiring Development Party shall have a period of sixty (60) days after receipt of the Offer Notice to notify the Acquiring Development Party in writing whether it elects to acquire its Offered Interest. Failure to give timely notice of such election shall be deemed an election not to acquire its Offered Interest. If a Non-Acquiring Development Party timely elects to acquire its Offered Interest, then the Acquiring Development Party and such Non-Acquiring Development Party shall, as promptly as commercially practicable, enter into agreements for the Transfer of the Non-Acquiring Development Party’s Offered Interest on substantially the same terms as provided in the agreements between

 

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  the Selling Party and the Acquiring Development Party or its Affiliate (with such changes as may be necessitated by the differences in parties, the transfer of only a Participating Interest share, the inclusion of lease broker costs to the extent required by Section 9.2(a), and, if applicable, the apportionment of rights from an Equity Acquisition or package deal or the payment of Cash Value in lieu of other consideration), provided that the Acquiring Development Party shall in no event have liability to the Non-Acquiring Development Party for representations, warranties or indemnities with respect to the Acquired Interest in excess of the Non-Acquiring Development Party’s Offered Interest share of amounts that the Acquiring Development Party or its Affiliate actually recovers under the third party acquisition agreement and related documents for the same matters. Subject to the foregoing, the Parties shall execute and deliver the applicable documents and take such other actions as shall be reasonably required to accomplish the transfer promptly after the Non-Acquiring Development Party’s exercise of its option, and the Non-Acquiring Development Party shall pay its Offered Interest share of any consideration paid by the Acquiring Development Party or its Affiliate, or the Cash Value in lieu thereof, as provided for herein; provided, however, that such execution and delivery of the mutually agreed instruments of transfer (in recordable form if applicable) by the Selling Party or Acquiring Development Party, as applicable, transferring ownership of the Offered Interest to such Non-Acquiring Development Party and payment of such consideration shall occur simultaneously and each such action shall be contingent upon the other. Should the Non-Acquiring Development Party fail to tender payment in full on the date due under the instruments of transfer, interest will accrue at the Default Interest Rate on the purchase price for the Offered Interests until such payment is made or, at the option of the Acquiring Development Party, to be exercised by notice to the Non-Acquiring Development Party prior to the cure of the default, the Non-Acquiring Development Party shall be deemed to have elected not to acquire its Offered Interest.

 

  (c) If the Acquired Interest arises out of a farmout agreement or similar agreement requiring the drilling of a well or the performance of other similar obligations (or is an interest in an entity that is subject to a similar obligation), the election by a Non-Acquiring Development Party to acquire its Offered Interest shall also constitute an election by such Non-Acquiring Development Party to join the Acquiring Development Party in all operations and obligations required to earn such Offered Interest (or, if the acquired interest is an interest in an entity, the applicable interest in such entity’s Oil and Gas Assets) under such an agreement and to bear its proportion of the cost thereof (including, if applicable, any Carried Costs relating thereto and such operations shall automatically be added to the Development Work Program and the relevant Annual Work Program and Budget). However, nothing in this Section 9.2(c) shall be construed to prevent any Development Party from electing not to join in a completion attempt of an earning or obligation well drilled under the terms of a farmout agreement or similar agreement if such Development Party (or the applicable entity) is not obligated to do so under the terms of such farmout agreement or similar agreement.

 

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  (d) In the event an Acquired Interest is not acquired pursuant to a Cash Transfer or is acquired with other properties included in a wider transaction (package deal) or, subject to the election by the Non-Acquiring Development Parties pursuant to Section 9.2(a), is an Entity Acquisition, the Acquiring Development Party shall include in its notification to the Non-Acquiring Development Parties a statement of the Cash Value of the Acquired Interest (excluding the drilling of wells or performance of other obligations included as part of the consideration), and each Non-Acquiring Development Party shall have a right to acquire its Offered Interest on the same final terms and conditions as were negotiated with the proposed transferor except that it shall pay the Cash Value in immediately available funds to the Acquiring Development Party at the time of its acquisition of the Offered Interest in lieu of the consideration (excluding the drilling of wells or performance of other obligations included as part of the consideration) payable in the third party offer, and the terms and conditions of the applicable instruments shall be modified to reflect the acquisition of the Offered Interest for cash. In the case of a package sale or an Entity Acquisition, the Non-Acquiring Development Parties may not acquire an interest in the Acquired Interest subject to the proposed package sale unless and until the completion of the wider transaction (as modified by the exclusion of properties subject to preemptive rights or excluded for other reasons) with the package sale or Entity Acquisition transferor. If for any reason the package sale or Entity Acquisition terminates without completion, the Non-Acquiring Development Parties’ rights to acquire the Acquired Interest subject to the proposed package sale shall also terminate.

 

  (e) For purposes of Section 9.2(d), the Cash Value proposed by the Acquiring Development Party in its notice shall be conclusively deemed correct unless any Non-Acquiring Development Party gives notice to the Acquiring Development Party within thirty (30) days of its receipt of the Offer Notice stating that it does not agree with the Acquiring Development Party’s statement of the Cash Value, stating the Cash Value (excluding the drilling of wells or performance of other obligations included as part of the consideration) it believes is correct, and providing any supporting information that it believes is helpful. In such event, the Development Parties shall have fifteen (15) days in which to attempt to negotiate an agreement on the applicable Cash Value. If no agreement has been reached by the end of such fifteen (15) day period, any affected Development Party shall be entitled to refer the matter to an independent expert as provided in Section 13.3 for determination of the Cash Value, provided that the Acquiring Development Party may elect to terminate the proposed Acquisition or Entity Acquisition of the Acquired Interest, and any Non-Acquiring Development Party may elect to revoke its notice of intention to purchase, in either case by notice to the other Development Parties at any time prior to the time that the independent expert is retained pursuant to such provision. The Cash Value to be submitted to the independent expert by the Acquiring Development Party shall be the Cash Value provided by such Acquiring Development Party in the notice provided to the Non-Acquiring Development Parties pursuant to Section 9.2(d), and the Cash Value to be submitted to the independent expert by each Non-Acquiring Development Party shall be the Cash Value provided by such Non-Acquiring Development Party in the notice provided to the Acquiring Development Party pursuant to this Section 9.2(e).

 

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  (f) If a Non-Acquiring Development Party elects not to acquire or fails to make a timely election to acquire the Offered Interest, such Non-Acquiring Development Party shall have no further rights whatsoever with regard to the Acquired Interest and such Acquired Interest shall be excluded for all purposes from this Agreement and the Associated Agreements and the provisions thereof, except that the Acquiring Development Party and any Non-Acquiring Development Parties who elect to acquire their Offered Interests shall be entitled to (i) elect to have the Joint Development Operator acquire a one-half of one percent (0.5%) interest in (if necessary to act on as operator thereof) and serve as Party Operator of the Acquired Interest pursuant to Section 9.2(h) and (ii) request that the Joint Development Operator perform those functions elected pursuant to Section 3.5(g) (such Acquired Interest, when so excluded, shall be an “ Excluded Interest ”).

 

  (g) Notwithstanding anything to the contrary herein, this Article 9 shall not be applicable to: (i) Transfers among a Development Party and its Wholly-Owned Affiliates; (ii) acquisitions of interests in any entity or entities directly or indirectly owning Oil and Gas Assets if the direct or indirect interest in Oil and Gas Assets makes up less than twenty-five percent (25%) of the total Cash Value of the interest acquired or to be acquired, (iii) Joint Acquisitions, (iv) any Excluded Assets, or (v) any transfer pursuant to any Farmout Sole Risk Entity Operation.

 

  (h)

If all Non-Acquiring Development Parties elect to acquire their Offered Interest in any Acquired Interest pursuant to this Section 9.2, then, unless the Acquiring Development Party and each Non-Acquiring Development Party have agreed to acquire their shares of the Acquired Interest in the form of equity interests in a Joint Entity, in which event Section 3.4(g) shall apply if applicable, the Parties shall be deemed to have determined that the Company or any other Joint Entity serving as Joint Development Operator shall acquire a one-half of one percent (0.5%) share of the Oil and Gas Assets within the Acquired Interest, and each Development Party’s undivided interest, including the Acquiring Development Party’s (or, if it has made an Entity Acquisition, its acquired entity’s) interest, in such Oil and Gas Assets shall be reduced by the proportion of such one-half of one percent (0.5%) share that its Participating Interest bears to the Participating Interests of all Development Parties. In the case of any Excluded Interest, the Participating Parties may, by an affirmative vote of seventy-five percent (75%) of the Participating Interests, determine that (i) if necessary in order for the Company or other Joint Entity serving as Joint Development Operator to act as operator or contract operator of any Oil and Gas Asset included in the Excluded Interests, the Company or any other Joint Entity serving as Joint Development Operator shall acquire a one-half of one percent (0.5%) share of such Oil and Gas Asset, and each Development Party’s undivided interest, including the Acquiring Development Party’s (or, if it has made an Entity Acquisition, its acquired entity’s) interest, in such Oil and Gas Asset shall be reduced by the proportion of

 

53


  such one-half of one percent (0.5%) share that its Participating Interest bears to the Participating Interests of all Development Parties and (ii) to the extent no third party is serving as operator of any Oil and Gas Assets included in the Excluded Interest, the Company or any other Joint Entity serving as Joint Development Operator shall operate such Oil and Gas Assets as Party Operator on the same basis as if all activities with respect to such Oil and Gas Assets were Sole Risk Development Operations by the Participating Parties and subject to the terms of Article 3.

 

  (i) The Development Parties shall use commercially reasonable efforts to cause the Joint Development Operator, and not a third party, to serve as operator of any Acquired Interest other than any Excluded Interest. With respect to Excluded Interests, if the Participating Parties elect for the Company or any other Joint Entity serving as Joint Development Operator to operate such Excluded Interests, then the Participating Parties shall use their commercially reasonable efforts to cause the Joint Development Operator to serve as operator or contract operator pursuant to Section 9.2(h) under a mutually agreeable operating agreement covering such Acquired Interests which includes provisions for the payment of fees to the Joint Development Operator to compensate it for acting as a operator thereunder.

 

  (j) The Development Parties agree to use good faith efforts to keep each other informed of any prospective Acquisitions or Entity Acquisitions being pursued by each Development Party or its Affiliates within the AMI Area prior to the time that an Offer Notice is required under Section 9.2(a). Such obligation shall be subject to confidentiality agreements entered into with third parties; provided that each Development Party shall use good faith efforts to (i) provide notice of the prospective opportunity prior to entering into any confidentiality agreement and (ii) have an exception included in such agreement allowing disclosure to the other Development Parties and their Affiliates subject to their execution of a substantially similar confidentiality agreement.

 

  (k) Each Development Party agrees to cause its Affiliates to comply with this Article 9.

Section 9.3 Payment of Certain Rentals . If, at any time within the period that is thirty (30) days prior to the expiration of any Lease included in the Subject Oil and Gas Assets, no approved Annual Work Program and Budget contemplates commencement of drilling operations or payment of delay rentals as may be necessary to maintain such Lease in existence, a Development Party with an interest in such Lease or an affiliated Entity Member holding an interest in the Joint Entity having an interest in such Lease shall have the right to pay such delay rental in order to maintain such Lease in existence (any Development Party or Joint Entity paying such delay rental, a “ Maintaining Party ”), and within ten (10) days of the payment of any such delay rental, shall provide notice of such payment (a “ Delay Rental Notice ”) to the other Parties (and, if applicable, the Joint Entity) with an interest in such Lease. Each other Development Party with an interest in such Lease shall have the right (but not the obligation) to reimburse the Maintaining Party that portion of such delay rental that its or its affiliated Entity

 

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Member’s direct or indirect working interest in the Lease bears to the aggregate direct or indirect working interest of all Development Parties and Entity Members in such Lease (or, if there are Releasing Parties, that portion of such delay rental that its direct or indirect working interest in such Lease bears to the aggregate direct or indirect working interests in such Lease of the Non-Releasing Parties) by notice to the other Parties (and, if applicable, the Joint Entity) with an interest in such Lease and reimbursement of the Maintaining Party within ten (10) days of its receipt of the Delay Rental Notice. Failure of a Development Party to so reimburse the Maintaining Party (any such entity, a “ Releasing Party ”) shall result in (i) in the case of a Development Asset, such Releasing Party being deemed to have Transferred its interest in the applicable Lease to the Maintaining Party and the Development Parties with an interest in such Lease paying a portion of such delay rental (all such entities, the “ Non-Releasing Parties ”) and (ii) in the case of a Joint Entity Asset, the Joint Entity being deemed to have Transferred its interest in the applicable Lease to the Non-Releasing Parties, in each case in the proportions that each such Non-Releasing Party’s direct or indirect working interests in such Lease bears to the aggregate direct or indirect working interests in such Lease of all such Non-Releasing Parties, effective as of the first day of the Calendar Month in which such delay rental is paid. A Releasing Party, and if the interest in the Lease is owned by a Joint Entity, the Joint Entity, shall, without delay following any request from any Non-Releasing Party, do any act required to be done by applicable Law or any applicable contract in order to Transfer an affected Lease to the Non-Releasing Parties, including obtaining all necessary consents and approvals, and shall execute any document and take such other actions as may be necessary in order to effect a prompt and valid Transfer. The Releasing Party or Joint Entity, as applicable, shall be obligated to promptly remove any Encumbrances which may exist on the affected Lease. In the event required consents and approvals are not timely obtained, the Releasing Party or Joint Entity, as applicable, shall hold the Transferred Lease in trust for the Non-Releasing Parties. Following any such Transfer, the Transferred Lease shall be deemed to be an Excluded Interest and the Non-Releasing Parties shall be entitled to exercise the rights with respect thereto that are set forth in Sections 3.5(g) and 9.2(h).

ARTICLE 10

TAXES

Section 10.1 Tax Partnership . The Development Parties intend and expect that the transactions contemplated by the Transfer Agreement, this Agreement and the Associated Agreements, taken together, will be treated, for purposes of federal income taxation and for purposes of certain state income tax laws that incorporate or follow federal income tax principles, as resulting in (a) the sale to BG Parent by EXCO Parent of fifty percent (50%) of the outstanding member interests in the Company and Appalachia Midstream, LLC, which, under Rev. Rul. 99-5, 1999-1 C.B. 434, is treated for federal income tax purposes as a sale by EXCO Parent of an undivided fifty percent (50%) interest in the assets of the Company and Appalachia Midstream, LLC, followed by the contribution by each of EXCO Parent and BG Parent of undivided fifty percent (50%) interests in such assets to newly formed partnerships corresponding in legal form to the Company and Appalachia Midstream, LLC; (b) the creation of a partnership (the “ Tax Partnership ”) in which BG Parent, EXCO Parent and the Company are treated as partners, with the Tax Partnership being treated for tax purposes as holding the Non-Operating Assets and engaging in all activities of the Development Parties with respect to the Non-Operating Assets, (c) a contribution by EXCO Parent of an undivided ninety nine and one

 

55


half percent (99.5%) interest in the Non-Operating Assets to the Tax Partnership and a commitment to fund the expenditures allocated to it under this Agreement in exchange for a forty nine and three fourths percent (49.75%) interest therein; (d) a contribution by the Company of an undivided one half of one percent (.5%) interest in the Non-Operating Assets to the Tax Partnership and a commitment to fund the expenditures allocated to it under this Agreement in exchange for a one half of one percent (.5%) interest therein; (e) a contribution of the Newco Consideration and a commitment to fund the expenditures allocated to it under this Agreement to the Tax Partnership by BG Parent in exchange for a forty-nine and three fourths percent (49.75%) interest therein, (f) a distribution to EXCO Parent of the Newco Consideration (i) as a reimbursement of EXCO Parent’s preformation expenditures with respect to the Non-Operating Assets within the meaning of Treasury Regulations Section 1.707-4(d) to the extent applicable and (ii) in a transaction subject to treatment under Section 707(a) of the Internal Revenue Code of 1986, as amended, and its implementing Treasury Regulations as in part a sale, and in part a contribution, of the Non-Operating Assets to the Tax Partnership to the extent that Treasury Regulations Section 1.707-4(d) is inapplicable, and (g) the realization by the Tax Partnership of all items of income or gain and the incurrence by the Tax Partnership of all items of cost or expense attributable to the ownership, operation or disposition of the Non-Operating Assets and other similar interests in oil and gas properties that may be acquired by the Party pursuant to Article 9, notwithstanding that such items are realized, paid or incurred by the Parties individually. The governing terms and conditions of the Tax Partnership are set forth in Exhibit “G” hereto.

Section 10.2 Tax Information . Joint Development Operator and each Party Operator shall provide each Development Party, in a timely manner and at each Development Party’s sole expense, with information with respect to Development Operations as such Development Party may reasonably request for preparation of its tax returns or responding to any audit or tax proceeding with respect to Asset Taxes.

Section 10.3 Responsibility for Taxes . Each Party shall be responsible for reporting and discharging its own tax measured by the income of the Party attributable to it from the Tax Partnership and the satisfaction of such Party’s share of all contract obligations under this Agreement and the Associated Agreements. Each Party shall protect, defend, and indemnify each other Party from and against any and all losses, costs, and liabilities arising from the indemnifying Party’s failure or refusal to report and discharge such taxes or satisfy such obligations.

ARTICLE 11

TERM

This Agreement shall terminate on January 1, 2020, unless earlier terminated pursuant to Section 5.5 or by the written agreement of all of the Parties; provided that (a) except as provided in Section 5.5 (in the event that this Agreement is terminated pursuant to such Section), the termination of this Agreement or any provision thereof shall not relieve any Party, Entity Member or Joint Entity from any expense, liability or other obligation or remedy therefor which has accrued or attached prior to the date of such termination, (b) except in connection with a termination of this Agreement pursuant to Section 5.5, as among BG and EXCO and any other Person who becomes a Development Party or Entity Member hereunder prior to the termination

 

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of this Agreement (but not as to any successor or assign or such Person following the termination of this Agreement) and any Joint Entity, the provisions of each of (i) Sections 3.5(f), 4.9 and 9.3, and (ii) Articles 8, 10, 12, 13 and 14, in each case to the extent applicable to such Person, shall survive such termination and remain in full force and effect with respect to each of those Leases in which more than one of such Persons jointly holds an interest or a Joint Entity holds an interest until only one such Person, and no Joint Entity, holds an interest in such Lease (unless earlier terminated by the written agreement of all of the Parties), and (c) the provisions of each of (i) Section 3.3 (other than Section 3.3(b)) and (ii) Exhibit “G” shall survive such termination and remain in full force and effect with respect to each of those Leases in which more than one of such Persons jointly holds an interest or a Joint Entity holds an interest until only one such Person, and no Joint Entity, holds an interest in such Lease (unless earlier terminated by the written agreement of all of the Parties).

ARTICLE 12

RELATIONSHIP OF THE PARTIES

The rights, duties, obligations and liabilities of the Parties under this Agreement shall be individual, not joint or collective. It is not the intention of the Parties to create, nor shall this Agreement be deemed or construed to create, a mining or other partnership (other than the Tax Partnership created pursuant to Section 10.1), joint venture or association or a trust. This Agreement shall not be deemed or construed to authorize any Party to act as an agent, servant or employee for any other Party for any purpose whatsoever except as explicitly set forth in this Agreement. In their relations with each other under this Agreement, the Parties shall not be considered fiduciaries except as expressly provided in the next to last sentence of Section 9.3.

ARTICLE 13

GOVERNING LAW; DISPUTE RESOLUTION; EXPERT PROCEEDINGS

Section 13.1 Governing Law . THIS AGREEMENT AND THE LEGAL RELATIONS AMONG THE PARTIES SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT REFER CONSTRUCTION OF SUCH PROVISIONS TO THE LAWS OF ANOTHER JURISDICTION. ALL OF THE PARTIES HERETO CONSENT TO THE EXERCISE OF JURISDICTION IN PERSONAM BY THE COURTS OF THE STATE OF TEXAS FOR ANY DISPUTE. EACH PARTY HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY DISPUTE.

Section 13.2 Dispute Resolution .

 

  (a) Except for matters that are expressly made subject to the dispute resolution procedures set forth in Section 13.3, any Dispute among the Parties shall be resolved through final and binding arbitration.

 

  (b) The arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the “ AAA ”) in effect at the time the arbitration of the Dispute is initiated (the “ AAA Rules ”).

 

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  (c) The arbitration shall be conducted by three (3) arbitrators and conducted in Dallas, Texas. Within thirty (30) days of any Party providing notice to the other Parties of a Dispute, if there are two Parties or two groups of Parties to a Dispute, each Party or group of Parties to such Dispute shall appoint one arbitrator, and the two (2) arbitrators so appointed shall select the third and presiding arbitrator within thirty (30) days following appointment of the second party-appointed arbitrator. If either Party or group of Parties fails to appoint an arbitrator within the permitted time period, then the missing arbitrator(s) shall be selected by the AAA as appointing authority in accordance with the AAA Rules. In the event that there are more than two (2) Parties or groups of Parties to an arbitration, the Parties to the arbitration shall endeavor to agree on the appointment of the three (3) arbitrators within thirty (30) days of the written request for arbitration. In the event the Parties cannot reach agreement on the selection of three (3) arbitrators within the time permitted, all arbitrators not yet appointed shall be appointed by the AAA in accordance with the AAA Rules. Any arbitrator appointed by the Party-appointed arbitrators or the AAA shall be a member of the Large, Complex Commercial Case Panel of the AAA or a member of the Center of Public Resources Panel of Distinguished Neutrals. All arbitrators shall be and remain at all times independent and impartial, and, once appointed, no arbitrator shall have any ex parte communications with any of the Parties concerning the arbitration or the underlying Dispute other than communications directly concerning the selection of the presiding arbitrator, when applicable. All arbitrators shall be qualified by education, training, or experience to resolve the Dispute. No arbitrator shall have been an employee or consultant to any Party or any of its Affiliates within the five (5) year period preceding the arbitration, or have any financial interest in the Dispute.

 

  (d) All decisions of the arbitral tribunal shall be made by majority vote. The award of the arbitral tribunal shall be final and binding, subject only to grounds and procedures for vacating or modifying the award under the Federal Arbitration Act. Judgment on the award may be entered and enforced by any court of competent jurisdiction hereunder.

 

  (e) Notwithstanding the agreement to arbitrate Disputes in this Section 13.2, any Party may apply to a court for interim measures pending appointment of the arbitration tribunal, including injunction, attachment, and conservation orders. The Parties agree that seeking and obtaining such court-ordered interim measures shall not waive the right to arbitration. Additionally, the arbitrators (or in an emergency the presiding arbitrator acting alone in the event one or more of the other arbitrators is unable to be involved in a timely fashion) may grant interim measures including injunctions, attachments, and conservation orders in appropriate circumstances, which measures may be immediately enforced by court order. Hearings on requests for interim measures may be held in person, by telephone or video conference, or by other means that permit the Parties to present evidence and arguments. The arbitrators may require any Party to provide appropriate security in connection with such measures.

 

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  (f) The arbitral tribunal is authorized to award costs, attorneys’ fees, and expert witness fees and to allocate them among the Parties. The award may include interest, at the Default Interest Rate, from the date of any default, breach, or other accrual of a claim until the arbitral award is paid in full. The arbitrators may not award indirect, consequential, special or punitive damages. Unless otherwise directed by the arbitral tribunal, each Party shall pay its own expenses in connection with the arbitration.

 

  (g) All negotiations, mediation, arbitration, and expert determinations relating to a Dispute (including a settlement resulting from negotiation or mediation, an arbitral award, documents exchanged or produced during a mediation or arbitration proceeding, and memorials, briefs or other documents prepared for the arbitration) are confidential and may not be disclosed by the Parties, their respective Affiliates and each of their respective employees, officers, directors, counsel, consultants, and expert witnesses, except to the extent necessary to enforce any settlement agreement, arbitration award, or expert determination, to enforce other rights of a Party, as required by law or regulation, or for a bona fide business purpose, such as disclosure to accountants, shareholders, or third-party purchasers, provided, however, that breach of this confidentiality provision shall not void any settlement, expert determination, or award.

 

  (h) Any papers, notices, or process necessary or proper for an arbitration hereunder, or any court action in connection with an arbitration or an award, may be served on a Party in the manner set forth in Section 14.2.

 

  (i) If the subject matter of any Dispute among the Parties arises from facts or issues materially related to the subject matter of a Dispute (as defined in the Joint Entity Agreement for any Joint Entity) among the Entity Members of the Joint Entity, then the two proceedings shall be consolidated into a single arbitration proceeding pursuant to the terms of this Agreement.

Section 13.3 Expert Proceedings . For any decision referred to an expert under this Agreement, the Parties hereby agree that such decision shall be conducted expeditiously by an expert selected unanimously by the Development Parties. The expert is not an arbitrator of the dispute and shall not be deemed to be acting in an arbitral capacity. The expert shall not (without the written consent of the Development Parties) be appointed to act as an arbitrator or as adviser to any Development Party arbitrated pursuant to Section 13.2, provided that nothing in this sentence shall preclude any Development Party from using the expert as a witness regarding the proper conduct of the expert procedure. The Development Party desiring an expert determination shall give the other Development Party written notice of the request for such determination. If the Development Parties are unable to agree upon an expert within ten (10) days after receipt of the notice of request for an expert determination, then, upon the request of any of the Development Parties, the AAA shall appoint such expert. The expert, once appointed, shall have no ex parte communications with the Development Parties concerning the expert determination or the underlying dispute. All communications between any Development Party and the expert shall be conducted in writing, with copies sent simultaneously to the other Development Party in the same manner, or at a meeting to which all Development Parties have

 

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been invited and of which such Development Parties have been provided at least five (5) Business Days notice. Within thirty (30) days after the expert’s acceptance of its appointment, the Development Parties shall provide the expert with a report containing their proposal for the resolution of the matter and the reasons therefor, accompanied by all relevant supporting information and data. Within sixty (60) days of receipt of the above-described materials and after receipt of additional information or data as may be required by the expert, the expert shall select the proposal which it finds more consistent with the terms of this Agreement. The expert may not propose alternate positions or award damages, interest or penalties to any Party with respect to any matter. The expert’s decision shall be final and binding on the Development Parties. Any Party that fails or refuses to honor the decision of an expert shall be in default under this Agreement.

ARTICLE 14

MISCELLANEOUS

Section 14.1 Counterparts . This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all of such counterparts shall constitute for all purposes one agreement. Any signature hereto delivered by a Party by facsimile transmission shall be deemed an original signature hereto.

Section 14.2 Notices . All notices and communications required or permitted to be given hereunder, excluding any notices under Article 4 hereof (which notices shall be governed by the provisions of Section 4.1(o) hereof), shall be sufficient in all respects if given in writing and delivered personally, or sent by bonded overnight courier, or mailed by U.S. Express Mail or by certified or registered United States Mail with all postage fully prepaid, or sent by telex or facsimile transmission (provided any such telex or facsimile transmission is confirmed either orally or by written confirmation), addressed to the appropriate Party at the address for such Party shown below or at such other address as such Party shall have theretofore designated by written notice delivered to the Party giving such notice:

If to EXCO:

 

  EXCO Holding (PA), Inc.
  12377 Merit Drive, Suite 1700
  Dallas, Texas 75251
  Attention:   Rick Hodges, Vice President of Land
  Telephone:   (214) 368-2084
  Fax:   (214) 706-3424

 

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with a copies to:
EXCO Resources, Inc.
12377 Merit Drive, Suite 1700
Dallas, Texas 75251
Attention:    William L. Boeing, Vice President,
   General Counsel, and Secretary
Telephone:    (214) 368-2084
Fax:    (214) 706-3409
and   
Vinson & Elkins L.L.P.
2500 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
Attention:    Stephen C. Szalkowski
Telephone:    (713) 758-2312
Fax:    (713) 615-5084

If to BG:

 

  BG US Production Company, LLC
  5444 Westheimer, Suite 1200
  Houston, Texas 77056
  Attention:    Jon Harris
  Telephone:    (713) 599-4000
  Fax:    (713) 599-4250
  with copies to:
  BG US Production Company, LLC
  5444 Westheimer, Suite 1200
  Houston, Texas 77056
  Attention:    Bill Way
  Telephone:    (713) 599-4000
  Fax:    (713) 599-4250
  and   
  BG US Production Company, LLC
  5444 Westheimer, Suite 1200
  Houston, Texas 77056
  Attention:    Chris Migura, Principal Counsel
  Telephone:    (713) 599-4000
  Fax:    (713) 599-4250

 

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If to the Company:

 

EXCO Resources (PA), LLC
3000 Ericsson Dr., Suite 200
Warrendale, Pennsylvania 15086
Attention:    President and General Manager
Telephone:    (724) 720-2500
Fax:    (724) 720-2505
With a copy to:
Attention:    Vice President, Legal
Telephone:    (724) 720-2500
Fax:    (724) 720-2505

Any notice given in accordance herewith (including any notice given to a Credit Facility Secured Party) shall be deemed to have been given when delivered to the addressee in person, or by courier, or transmitted by facsimile transmission during normal business hours, or upon actual receipt by the addressee after such notice has been deposited in the United States Mail, as the case may be. The Parties may change the address, telephone numbers, and facsimile numbers to which such communications are to be addressed by giving written notice to the other Parties in the manner provided in this Section 14.2. Notice given to a Development Party shall be deemed to be notice to its affiliated Entity Members for all purposes under this Agreement. Notice to any Joint Entity shall be accomplished by notice to each of its Entity Members.

Section 14.3 Expenses . Except as otherwise specifically provided, all fees, costs and expenses incurred by the Parties in negotiating this Agreement shall be paid by the Party incurring the same, including legal and accounting fees, costs and expenses.

Section 14.4 Waivers; Rights Cumulative . Any of the terms, covenants, or conditions hereof may be waived only by a written instrument executed by or on behalf of the Party waiving compliance. No course of dealing on the part of any Development Party, or their respective officers, employees, agents, or representatives, nor any failure by a Development Party to exercise any of its rights under this Agreement shall operate as a waiver thereof or affect in any way the right of such Party at a later time to enforce the performance of such provision. No waiver by any Party of any condition, or any breach of any term or covenant contained in this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of any breach of any other term or covenant. The rights of the Development Parties under this Agreement shall be cumulative, and the exercise or partial exercise of any such right shall not preclude the exercise of any other right.

Section 14.5 Entire Agreement; Conflicts . THIS AGREEMENT, THE EXHIBITS HERETO, THE TRANSFER AGREEMENT AND THE ASSOCIATED AGREEMENTS COLLECTIVELY CONSTITUTE THE ENTIRE AGREEMENT AMONG THE DEVELOPMENT PARTIES PERTAINING TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ALL PRIOR AGREEMENTS, UNDERSTANDINGS, NEGOTIATIONS, AND

 

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DISCUSSIONS, WHETHER ORAL OR WRITTEN, OF THE PARTIES PERTAINING TO THE SUBJECT MATTER OF THIS AGREEMENT. THERE ARE NO WARRANTIES, REPRESENTATIONS, OR OTHER AGREEMENTS AMONG THE PARTIES RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, AND NO DEVELOPMENT PARTY SHALL BE BOUND BY OR LIABLE FOR ANY ALLEGED REPRESENTATION, PROMISE, INDUCEMENT, OR STATEMENTS OF INTENTION NOT SO SET FORTH. IN THE EVENT OF A CONFLICT BETWEEN: (A) THE TERMS AND PROVISIONS OF THIS AGREEMENT AND THE TERMS AND PROVISIONS OF ANY EXHIBIT HERETO; OR (B) THE TERMS AND PROVISIONS OF THIS AGREEMENT AND THE TERMS AND PROVISIONS OF ANY ASSOCIATED AGREEMENT, THE TERMS AND PROVISIONS OF THIS AGREEMENT SHALL GOVERN AND CONTROL, PROVIDED, HOWEVER, THAT THE INCLUSION IN ANY OF THE EXHIBITS HERETO OR ANY ASSOCIATED AGREEMENT OF TERMS AND PROVISIONS NOT ADDRESSED IN THIS AGREEMENT SHALL NOT BE DEEMED A CONFLICT, AND ALL SUCH ADDITIONAL PROVISIONS SHALL BE GIVEN FULL FORCE AND EFFECT, SUBJECT TO THE PROVISIONS OF THIS SECTION 14.5.

Section 14.6 Amendment . This Agreement may be amended only by an instrument in writing executed by all of the Parties and expressly identified as an amendment or modification. The written approval of the Entity Members or the Joint Entities shall not be required to amend this Agreement.

Section 14.7 Parties in Interest . Nothing in this Agreement shall entitle any Person other than the Parties to any claim, cause of action, remedy or right of any kind, except that the Member Entity and Joint Entities shall be entitled to enforce, in accordance with Article 13, the rights expressly applicable to them.

Section 14.8 Successors and Permitted Assigns . This Agreement shall be binding upon and inure to the benefit of the Parties and their successors and permitted assigns.

Section 14.9 Confidentiality .

 

  (a) The Parties agree that all information related to Development Operations in which any Development Party or Joint Entity is participating shall be considered confidential, shall be kept confidential and shall not be disclosed during the term of this Agreement to any Person that is not a Party, except:

 

  (i) to an Affiliate of a Party;

 

  (ii) to the extent such information is required to be furnished in compliance with applicable Law, or pursuant to any legal proceedings or because of any order of any Governmental Authority binding upon a Party;

 

  (iii) to prospective or actual attorneys engaged by any Party where disclosure of such information is essential to such attorney’s work for such Party;

 

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  (iv) to prospective or actual contractors and consultants engaged by any Party where disclosure of such information is essential to such contractor’s or consultant’s work for such Party;

 

  (v) to a bona fide prospective transferee of a Party’s Joint Development Interest, a Material Interest or an Other Interest to the extent appropriate in order to allow the assessment of such Joint Development Interest, Material Interest or Other Interest (including a Person with whom a Party and/or its Affiliates are conducting bona fide negotiations directed toward a merger, consolidation or the sale of a majority of its or an Affiliate’s shares);

 

  (vi) to a bank or other financial institution to the extent appropriate to a Party arranging for funding;

 

  (vii) to the extent such information must be disclosed pursuant to any rules or requirements of any stock exchange having jurisdiction over such Party or its Affiliates; provided that if any Party desires to disclose information in an annual or periodic report to its or its Affiliates’ shareholders and to the public and such disclosure is not required pursuant to any rules or requirements of any stock exchange, then such Party shall comply with Section 14.10;

 

  (viii) to its respective employees for the purpose of conducting Development Operations, subject to each Party taking customary precautions to ensure such information is kept confidential; and

 

  (ix) any information which, through no fault of a Party, becomes a part of the public domain.

 

  (b) Disclosure as pursuant to Sections 14.9(a)(iv), (v) and (vi) shall not be made unless prior to such disclosure the disclosing Party has obtained a written undertaking from the recipient to keep the information strictly confidential for the term of this Agreement and to use the information for the sole purpose described in Sections 14.9(a)(iv), (v) and (vi), whichever is applicable, with respect to the disclosing Party.

Section 14.10 Publicity .

 

  (a) Without reasonable prior notice to the other Parties, no Party will issue, or permit any agent or Affiliate of it to issue, any press releases or otherwise make, or cause or permit any agent or Affiliate of it to make, any public statements with respect to this Agreement, the Associated Agreements or the activities contemplated hereby or thereby, except where such release or statement is deemed in good faith by the releasing Party to be required by Law or under the rules and regulations of a recognized stock exchange on which shares of such Party or any of its Affiliates are listed, and in any case, prior to making any such press release or public statement, the releasing Party shall provide a copy of the press release or public statement to the other Parties.

 

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  (b) Notwithstanding anything to the contrary in Section 14.9 or Section 14.10(a), any Party or Affiliate of a Party may disclose information regarding Development Operations in investor presentations, industry conference presentations or similar disclosures, provided that not less than twenty-four (24) hours, or forty-eight (48) hours, if practicable, excluding in each case Saturday and Sunday, prior to so disclosing any such information, the releasing Party shall provide a copy of the presentation or other disclosure document containing such information to the other Parties.

 

  (c) Notwithstanding anything to the contrary in Section 14.9 or Section 14.10(a), in the event of any emergency endangering property, lives or the environment, Joint Development Operator may issue such press releases or public announcements as it deems necessary in light of the circumstances and shall promptly provide each Party with a copy of any such press release or announcement.

Section 14.11 Preparation of Agreement . Both EXCO and BG and their respective counsel participated in the preparation of this Agreement. In the event of any ambiguity in this Agreement, no presumption shall arise based on the identity of the draftsman of this Agreement.

Section 14.12 Conduct of the Parties; Business Principles .

 

  (a) Each Party warrants that it and its Affiliates have not made, offered, or authorized and agrees that it will not make, offer, or authorize with respect to the matters which are the subject of this Agreement, any payment, gift, promise or other advantage, whether directly or through any other Person, to or for the use or benefit of any public official (being any person holding a legislative, administrative or judicial office, including any person employed by or acting on behalf of a public agency, a public enterprise or public international organization) or any political party or political party official or candidate for office, where such payment, gift, promise or advantage would violate any applicable Law.

 

  (b) Prior to the Closing Date, each Development Party provided the others with a copy of its business principles governing its general conduct of operations and business dealings, and each Development Party acknowledges receipt and awareness of the other Development Party’s business principles. Within one hundred twenty (120) days from the Closing Date, the Development Parties agree to use reasonable efforts to meet and agree a common set of general principles governing the conduct of operations under this Agreement.

Section 14.13 Severability . If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of Law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to any Party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

 

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Section 14.14 Non-Compensatory Damages . None of the Parties shall be entitled to recover from any other Party, or such Parties respective Affiliates, any indirect, consequential, punitive or exemplary damages or damages for lost profits of any kind arising under or in connection with this Agreement, the Associated Agreements or the transactions contemplated hereby or thereby, except to the extent any such Party suffers such damages (including costs of defense and reasonable attorney’s fees incurred in connection with defending of such damages) to a third party, which damages (including costs of defense and reasonable attorney’s fees incurred in connection with defending against such damages) shall not be excluded by this provision as to recovery hereunder. Subject to the preceding sentence, each Development Party, on behalf of itself and each of its Affiliates, waive any right to recover punitive, special, exemplary and consequential damages, including damages for lost profits, arising in connection with or with respect to this Agreement, the Associated Agreements or the transactions contemplated hereby and thereby.

Section 14.15 Excluded Assets . For the avoidance of doubt, no Excluded Asset shall be subject to the terms of this Agreement or any Joint Development Operating Agreement.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Parties have executed this Agreement by their duly authorized representatives on the Closing Date.

 

BG PRODUCTION COMPANY (PA), LLC
By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and Secretary
BG PRODUCTION COMPANY (WV), LLC
By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and Secretary
EXCO PRODUCTION COMPANY (PA), LLC
By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and Secretary
EXCO PRODUCTION COMPANY (WV), LLC
By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and Secretary
EXCO RESOURCES (PA), LLC
By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and Secretary


A TTACHED TO AND MADE PART OF THE J OINT D EVELOPMENT A GREEMENT BY AND AMONG BG P RODUCTION C OMPANY (PA), LLC, BG P RODUCTION C OMPANY (WV), LLC, EXCO P RODUCTION C OMPANY (PA), LLC, EXCO P RODUCTION C OMPANY (WV), LLC AND EXCO R ESOURCES (PA), LLC

APPENDIX I

DEFINITIONS

AAA ” has the meaning set forth in Section 13.2(b).

AAA Rules ” has the meaning set forth in Section 13.2(b).

Acquired Interest ” has the meaning set forth in Section 9.2(a).

Acquired Party ” has the meaning set forth in Section 8.2(a).

Acquiring Development Party ” has the meaning set forth in Section 9.2(a).

Acquiror ” has the meaning set forth in Section 8.2(a).

Acquisition ” means any lease, sublease, purchase, farmout, farmin or other acquisition of Oil and Gas Assets, but excluding any Equity Acquisition.

Additional Deposit ” means, with respect to each Development Party and Entity Member, an amount equal to the EXCO Deposit or the BG Deposit, as applicable, as determined by the Joint Development Operator for the first day of such Calendar Month, minus the estimated amount of Deposit Funds in the Joint Operations Account attributable to such Person (after taking into consideration the reconciliations provided for in Section 2.3(f)) as determined by the Joint Development Operator for the first day of such Calendar Month.

Additional Interests ” has the meaning set forth in the Transfer Agreement.

AFE ” means an authorization for expenditure.

Affected Party ” means any (a) non-defaulting Development Party who either operates or owns an interest in the Development Assets affected by a default by another Development Party and which is not itself in default (either under the terms of this Agreement or any Associated Agreement) and (b) any non-defaulting Entity Member that owns an interest in a Joint Entity affected by a default by another Entity Member of such Joint Entity and which is not itself in default (either under the terms of this Agreement or any Associated Agreement), in each case at the time in question.

Affiliate ” means, with respect to any Person, a Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such Person.

Agreement ” means this Amended and Restated Joint Development Agreement.

 

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AMI Area ” means the lands (and subsurface) included in the States of New York, Pennsylvania and West Virginia, provided that the AMI Area shall not include any Lease or other property that is an Excluded Asset.

Annual Work Program and Budget ” means, for any Calendar Year, the work program and budget for Joint Development Operations during such Calendar Year.

Appalachian Area ” means the lands (and subsurface) included in the States of Kentucky, New York, Ohio, Pennsylvania, Tennessee, Virginia and West Virginia, provided that the Appalachian Area shall not include any Lease or other property that is an Excluded Asset.

Appalachian Overhead ” means (a) all Technical Services Costs and (b) the Company Overhead.

Applicable BG Deposit Period ” means, with respect to the relevant Calendar Month, the period beginning on the first day of the succeeding Calendar Month and ending on the last day of the third Calendar Month following such succeeding Calendar Month.

Applicable EXCO Deposit Period ” means, with respect to any relevant Calendar Month, the period beginning on the first day of the succeeding Calendar Month and ending on the last day of the third Calendar Month following such succeeding Calendar Month.

Applicable Operating Agreements ” means, collectively, the Joint Development Operating Agreements and all Third Party Operating Agreements, and “ Applicable Operating Agreement ” means any of them.

Area-Wide Operation ” means a seismic or other geophysical data acquisition operation, or other similar operation, including geophysical surveys, microseismic monitoring and core sampling and analysis conducted by the Development Parties in accordance with this Agreement with respect to the Appalachian Area and covering areas subject to more than one Applicable Operating Agreement, or areas subject presently to no Applicable Operating Agreement.

Asset Taxes ” means ad valorem, property, excise, severance, production or similar taxes (including any interest, fine, penalty or additions to tax imposed by Governmental Authorities in connection with such taxes) based upon operation or ownership of the Non-Operating Assets or the production of hydrocarbons therefrom, but excluding, for the avoidance of doubt, income, capital gains and franchise taxes.

Associated Agreements ” means, collectively, the Applicable Operating Agreements, the Joint Entity Agreements, the Secondment Agreements and any other agreements entered into by all Development Parties or any Joint Entity with any third parties in furtherance of the conduct of Joint Development Operations, and “ Associated Agreement ” means any of them.

Assumption Agreement ” has the meaning set forth in Section 6.2(b).

 

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Bankruptcy Code ” means Title 11 of the United States Code.

BG ” has the meaning set forth in the Preamble.

BGPA ” has the meaning set forth in the Preamble.

BGWV ” has the meaning set forth in the Preamble.

BG Deposit ” means, as of any given time, an amount equal to (a) BG’s share, and each BG Member’s Percentage Interest share of any Joint Entity’s share, of the estimated amount of expenditures anticipated to be incurred in respect of Development Operations (other than Appalachian Overhead and Operating Expenses) during the Applicable BG Deposit Period, based upon the Development Work Program, the applicable Annual Work Program and Budget, previously issued AFEs and any Sole Risk Development Operation or Sole Risk Entity Operation in which BG or a BG Member participates; provided that, prior to the Carry Termination Event, BG’s share, and each BG Member’s share of any Joint Entity’s share, shall include the Estimated Carried Costs for such period, and (b) BG’s JDA Interest share of the estimated Appalachian Overhead and Operating Expenses for the Applicable BG Deposit Period.

BG Group Assets ” means, at any time, the interests of BG and its Affiliates in (a) BGPA and BGWV, (b) any Oil and Gas Assets, (c) any Membership Interests and (d) Appalachia Midstream LLC.

BG Guarantor ” means BG North America, LLC, a Delaware limited liability Company.

BG JDA Guaranty ” means the Guaranty made by BG Guarantor in favor of EXCO and any successors-in-interest in substantially the form of Exhibit “A”.

BG Member ” means the Entity Member of a Joint Entity that is BG or an Affiliate of BG.

BG Parent ” has the meaning set forth in the Recitals.

Business Day ” means a day (other than a Saturday or Sunday) on which commercial banks in Texas are generally open for business, provided that if Business Days are used to calculate periods in which a Party must make a payment hereunder, “ Business Day ” shall mean a day (other than a Saturday or Sunday) on which commercial banks in Texas and London are generally open for business.

Calendar Month ” means any of the months of the Gregorian calendar.

Calendar Quarter ” means a period of three (3) consecutive Calendar Months commencing on the first day of January, the first day of April, the first day of July and the first day of October in any Calendar Year.

 

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Calendar Year ” means a period of twelve (12) consecutive Calendar Months commencing on the first day of January and ending on the following 31st day of December, according to the Gregorian calendar.

Capital Contributions ” means, with respect to any Entity Member, amounts contributed, or to be contributed, by such Entity Member to a Joint Entity under the terms of the Joint Entity Agreement for such Joint Entity (subject to the terms of this Agreement).

Carried Cost Default ” has the meaning set forth in Section 5.5(a).

Carried Cost Default Notice ” has the meaning set forth in Section 5.5(a).

Carried Cost Election Notice ” has the meaning set forth in Section 5.5(a).

Carried Costs ” has the meaning set forth in Section 2.2.

Carried Costs Balance ” means, as of any time, the difference between the Carried Costs Obligation and the aggregate Carried Costs paid by BG and the BG Members as of such time.

Carried Costs Obligation ” means one hundred fifty million dollars ($150,000,000), as such amount may be decreased from time to time pursuant to Article XI and/or Article XII of the Transfer Agreement.

Carry Termination Event ” has the meaning set forth in Section 2.2.

Cash Transfer ” means any Transfer of any Joint Development Interest where the sole consideration (other than the assumption of obligations relating to the transferred Joint Development Interest) takes the form of cash, cash equivalents, promissory notes or retained interests (such as production payments) in the Joint Development Interest being transferred.

Cash Value ” means the market value (expressed in U.S. dollars) of all or a portion of a Joint Development Interest subject to the proposed Transfer or Change in Equity Ownership, based upon the amount that a willing buyer would pay a willing seller in an arm’s length transaction.

Change in Equity Ownership ” means any direct or indirect change in Equity Ownership of a Person (whether through merger, sale of shares or other equity interests, or otherwise), through a single transaction or series of related transactions, from one or more transferors to one or more transferees; provided, however, that for purposes hereof, a “Change in Equity Ownership” shall not include a change in Equity Ownership of a Person (a) resulting from a management-led buyout of the public share ownership of such Person and conversion of such Person to a privately-held company, (b) resulting in ongoing Equity Ownership by a Wholly-Owned Affiliate that is wholly-owned by the ultimate parent company of such Person, (c) created by a change in Equity Ownership of the ultimate parent company of such Person, or (d) for purposes of Article VII and Article VIII, resulting from a Credit Facility Foreclosure. For the avoidance of doubt, as of the

 

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Closing Date, the ultimate parent company of BG is BG Group plc, a public limited company organized and existing under the Laws of England and Wales, and the ultimate parent company of EXCO is EXCO Resources, Inc., a corporation organized and existing under the Laws of Texas.

Closing Date ” has the meaning set forth in the Preamble.

Company ” has the meaning set forth in the Preamble.

Company Overhead ” means (a) all costs of the Company pursuant to any Secondment Agreement, (b) all costs attributable to salaries, wages and benefits of the employees of the Company and (c) general corporate overhead costs of the Company, including taxes, insurance, financing costs and overhead costs attributable to its corporate and field offices (but only those located within the Appalachian Area).

Contract Operating Agreement ” has the meaning set forth in Section 3.4(g).

Contract Operator ” means the operator under any Contract Operating Agreement.

Control ” and its derivatives with respect to any Person means the possession, directly or indirectly, of the power to exercise or determine the voting of more than fifty percent (50%) of the voting rights in a corporation, and, in the case of any other type of entity, the right to exercise or determine the voting of more than fifty percent (50%) of the equity interests having voting rights, or otherwise to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise, provided that no Person shall be deemed to “Control” a Joint Entity unless such Person has the power to exercise or determine the voting of equity interests having voting rights sufficient to determine annual expenditures of such Joint Entity and to appoint and remove the officers of such Joint Entity.

Credit Facility Encumbrance ” means Encumbrances created pursuant to any material borrowing arrangement entered into by any Development Party and/or its Affiliates with a third party that is not an Affiliate of such Development Party or its Affiliates, as such arrangement may be amended, restated, amended and restated, modified, refinanced, supplemented or replaced from time to time. For the avoidance of doubt, as of the Closing Date, the only Credit Facility Encumbrances burdening the Joint Development Interests are those Encumbrances created pursuant to the Existing EXCO Credit Facility (provided that such Encumbrances shall not burden the BG Group Assets, the Operating Assets or any other assets of the Company, any assets of any other Joint Entity, or the Gathering Assets or any other assets of Appalachia Midstream LLC).

Credit Facility Foreclosure ” means any transfer or other disposition of (a) the interests of a Development Party and its Affiliates in the Joint Development Interests or (b) the Equity Ownership of a Development Party or its Affiliates pursuant to a Credit Facility Encumbrance and any related mortgages, pledge agreements, security agreements and other agreements evidencing such Credit Facility Encumbrances following the occurrence and continuation of a default or event of default under the borrowing arrangement secured thereby.

 

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Credit Facility Secured Party ” means any Person, other than an Affiliate of a Development Party, that is identified in a written notice to the Development Parties by such Person or a Development Party as the holder or beneficiary of a Credit Facility Encumbrance.

Deep Rights ” means (a) with respect to the Commonwealth of Pennsylvania, those subsurface depths that are below the base of (but excluding) the Haskill Sandstone Formation (Base of Elk Sequence) formation at a measured depth of 2,758’, as identified by the Litho Density Compensated Neutron Array Induction Temperature Log dated June 7, 2005 of the Seneca Resources operated Fee PGS SGL No. 44 (API 37-047-23649) located in Elk County, Pennsylvania, (b) with respect to the State of West Virginia, those subsurface depths that are below the base of (but excluding) the Brallier Formation (Base of Elk Sequence) formation at a measured depth of 6,612’, as identified by the Litho Density Compensated Neutron Array Induction Temperature Log dated October 8, 2008 of the EXCO – North Coast Energy, Inc. operated Wentz 4HS (API 47-001-02982) located in Barbour County, West Virginia and (c) with respect to the State of New York, those subsurface depths that are below the base of (but excluding) the Genesee Formation at a measured depth of 2,548’, as identified by the Density/Neutron, Gamma/Temperature Log dated May 6, 2005 of the Fortuna Energy, Inc. operated Cotton-Hanlon #1 well (API 31-107-23185) located in Tioga County, New York, recognizing that actual depths will vary across the AMI Area.

Deep Rights Gathering Assets ” means any gathering or pipeline system or related asset used to gather or transport gas produced from the Deep Rights of New York, Pennsylvania or West Virginia.

Default Interest Rate ” means the three month London Inter-Bank Offer Rate (as published in the “Money Rates” table of the Wall Street Journal , eastern edition) plus an additional five percentage points (5%) applicable on the first Business Day prior to the due date of payment and thereafter on the first Business Day of each succeeding Calendar Month (or, if such rate is contrary to any applicable usury Law, the maximum rate permitted by such applicable Law).

Default Notice ” has the meaning set forth in Section 5.1(a).

Default Period ” has the meaning set forth in Section 5.1(b).

Defaulting Party ” has the meaning set forth in Section 5.1(a).

Delay Rental Notice ” has the meaning set forth in Section 9.3.

Deposit Funds ” mean the money (along with interest accrued thereon) deposited or deemed deposited by the Development Parties, Entity Members (in connection with Farmout Sole Risk Entity Operations) and Joint Entities into and held in the Joint Operations Account (along with any interest accrued thereon).

 

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Development Assets ” means all right, title and interest of the Development Parties within the Appalachian Area in and to the Oil and Gas Assets in which all Development Parties hold an interest, whether held on, or acquired at or after the Closing Date.

Development Costs ” means costs and expenses incurred in the conduct of Development Operations, including capital costs, Operating Expenses and other costs and expenses.

Development Operation ” means any operation conducted pursuant to any Applicable Operating Agreement, an Area-Wide Operation conducted pursuant to this Agreement, or the activities represented by Appalachian Overhead.

Development Operations Contract ” means any contract (or confirm relating to any such contract) to which Joint Development Operator, any Party Operator or any Contract Operator is a party for which services thereunder are to be used primarily for the conduct of Development Operations.

Development Party ” and “ Development Parties ” have the meanings set forth in the Preamble, and following any Transfer in accordance with this Agreement (other than the Transfer of a Material Interest or Other Interest), the successor or assign of such Transferring Party.

Development Work Program ” has the meaning set forth in Section 4.2(a).

Dispute ” means any dispute, controversy, or claim (of any and every kind or type, whether based on contract, tort, statute, regulation, or otherwise) arising out of, relating to, or connected with this Agreement or Associated Agreement, or the transactions contemplated hereby or thereby, including but not limited to any dispute, controversy or claim concerning the existence, validity, interpretation, performance, breach, or termination of this Agreement or any Associated Agreement or the relationship of the Parties arising out of this Agreement or the Associated Agreements or the transactions contemplated hereby or thereby; provided that the term “Dispute” shall not include any disagreement among the Operating Committee with respect to decisions to be made by the Operating Committee.

Eligible Costs ” means all costs and expenses incurred in accordance with an Applicable Operating Agreement in conducting (a) Joint Development Operations with respect to the Deep Rights for the drilling, testing, completing, deepening, recompleting, sidetracking, reworking and plugging back of wells, the plugging and abandoning of dry holes or wells no longer capable of producing in paying quantities, and the equipping of wells for production, and (b) Sole Risk Development Operations or Sole Risk Entity Operations with respect to the Deep Rights conducted by EXCO or an EXCO Member or Sole Risk Entity Operations by a Joint Entity on behalf of an EXCO Member pursuant to Section 4.1(i) for the drilling, testing, completing, deepening, recompleting, sidetracking, reworking and plugging back of wells, the plugging and abandoning of any dry hole resulting from such operation or any such well no longer capable of production in paying quantities, and the equipping of such wells for production, in each case including costs of mobilizing and demobilizing drilling and workover rigs to and from the wellsite if not

 

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charged to another operation, and overhead charged under the Applicable Operating Agreement with respect to the costs specifically described above, provided that “Eligible Costs” shall not include liabilities, losses, claims and damages associated with such activities or otherwise, and related costs of investigation, litigation, arbitration, administrative proceedings, judgment, award and settlement (including court and arbitration costs and reasonable attorneys’ fees), to the extent attributable to actual or claimed personal injury, illness 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), environmental damage or contamination, other torts, breach of contract, violation of Law (or private rights of action under any Law), casualty or condemnation.

Encumbrance ” means a mortgage, lien, pledge, charge, or other encumbrance. “ Encumber ” and other derivatives shall be construed accordingly.

Entitlement ” means that quantity of oil and gas from the Development Assets for which a Development Party has the right to take delivery pursuant to the terms of any Applicable Operating Agreement, any other applicable agreement or applicable Law.

Entity Member ” means a Development Party or an Affiliate of a Development Party that owns a Membership Interest in an applicable Joint Entity.

Equity Acquisition ” means any acquisition or shares or other equity interests in an entity directly or indirectly owning Oil and Gas Assets, but excluding any lease, sublease, purchase, farmout, farmin or other similar acquisition.

Equity Ownership ” with respect to any Person means any shares or other equity rights and any other rights to, directly or indirectly, exercise or determine the voting of any percentage of the voting rights in a corporation, and, in the case of any other type of entity, to exercise or determine the voting of any percentage of the equity interests having voting rights.

Estimated Carried Costs ” means an amount equal to the estimated amount of Carried Costs to be paid by BG or any BG Member in respect to EXCO’s and any EXCO Member’s share, and each EXCO Member’s Percentage Interest share of Capital Contributions to pay any Joint Entity’s share (other than the Company’s share), of the estimated amount of expenditures anticipated to be incurred in respect of Development Operations (other than Operating Expenses and Appalachian Overhead) during the Applicable EXCO Deposit Period.

Excluded Asset ” has the meaning set forth in the Transfer Agreement.

Excluded Interest ” means Oil and Gas Assets that are deemed to be “Excluded Interests” pursuant to the terms of Section 8.1(f), 9.2(f) or 9.3.

EXCO ” has the meaning set forth in the Preamble.

EXCOPA ” has the meaning set forth in the Preamble.

 

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EXCOWV ” has the meaning set forth in the Preamble.

EXCO Deposit ” means, as of any given time, an amount equal to (a) EXCO’s share, and each EXCO Member’s Percentage Interest share of any Joint Entity’s share, of the estimated amount of expenditures anticipated to be incurred in respect of Development Operations (other than Appalachian Overhead and Operating Expenses) during the Applicable EXCO Deposit Period, based upon the Development Work Program, the applicable Annual Work Program and Budget, previously issued AFEs and any Sole Risk Development Operation or Sole Risk Entity Operation in which EXCO or any EXCO Member participates; provided that, prior to the Carry Termination Event, EXCO’s share, and each EXCO Member’s share of any Joint Entity’s share, shall exclude the Estimated Carried Costs for such period, and (b) EXCO’s JDA Interest share of the estimated Appalachian Overhead and Operating Expenses for the Applicable EXCO Deposit Period.

EXCO Guarantor ” means EXCO Resources, Inc., a Texas corporation.

EXCO JDA Guaranty ” means the Guaranty made by EXCO Guarantor in favor of BG and any successors-in-interest in substantially the form of Exhibit “H”.

EXCO Member ” means an Entity Member of a Joint Entity that is EXCO or an Affiliate of EXCO.

EXCO Parent ” has the meaning set forth in the Recitals.

Existing EXCO Credit Facility ” means the Credit Agreement, dated April 30, 2010, among EXCO Parent, as borrower, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, as the same may be amended, restated, amended and restated, modified or supplemented from time to time.

Farmout Sole Risk Entity Operation ” means a farmout from a Joint Entity to an Entity Member or its affiliated Development Parties where such Entity Member has elected to participate on a sole risk basis in a Development Operation as permitted under this Agreement.

GAAP ” means the generally accepted accounting principles in the United States of America, as promulgated or adopted by the Financial Accounting Standards Board and its predecessors and successors from time to time.

Gathering Assets ” has the meaning set forth in the Transfer Agreement.

Governmental Authority ” means any federal, state, local, municipal, tribal or other government; any governmental, regulatory or administrative agency, commission, body or other authority exercising or entitle to exercise any administrative, executive, judicial, legislative, regulatory or taxing authority or power; and any court or governmental tribunal, including any tribal authority having or asserting jurisdiction.

 

I-9


Hydrocarbons ” means oil and gas and other hydrocarbons produced or processed in association therewith (whether or not any such item is in liquid or gaseous form), or any combination thereof, and any minerals produced in association therewith.

Initial Three Year Period ” has the meaning set forth in Section 7.1.

JDA Interest ” means each Development Party’s undivided share of the aggregate rights and obligations of the Development Parties (other than with respect to Sole Risk Development Operations and Sole Risk Entity Operations) under the terms of this Agreement.

Joint Acquisition ” means any Oil and Gas Asset acquired by the Joint Development Operator as an Acquisition in the names of the Development Parties pursuant to an authorization in an Annual Work Program and Budget, as described in Section 4.4(c).

Joint Development Interest ” means, with respect to a Development Party, (a) all of such Development Party’s interest in the Development Assets located within the AMI Area, which shall include for the avoidance of doubt in Articles 6, 7 and 8 proposed Transfers of Material Interests and Other Interests unless otherwise indicated, and (b) any Membership Interest in a Joint Entity owned by the Development Party or an Affiliate of the Development Party.

Joint Development Operating Agreement ” has the meaning set forth in Section 3.3(a).

Joint Development Operations ” means Development Operations in which all Development Parties participate and/or in which a Joint Entity participates.

Joint Development Operator ” means the operator appointed pursuant to Section 3.5.

Joint Entity ” means any corporation, company, partnership, limited partnership, limited liability company, trust, estate, or any other entity in which each Development Party (or its Affiliates) owns an interest and which owns Oil and Gas Assets in the Appalachian Area, including for avoidance of doubt the Company, but excluding Appalachia Midstream, LLC.

Joint Entity Agreement ” means the organizational document of a Joint Entity that sets out the rights and obligations of the Entity Members with respect to the Joint Entity.

Joint Entity Assets ” means all right, title and interest of a Joint Entity within the Appalachian Area in and to the Oil and Gas Assets in which a Joint Entity holds an interest, whether held on, or acquired at or after the Closing Date.

Joint Operations Account ” means an account established by the Joint Development Operator into which payments of the Development Parties pursuant to Section 2.3 are to be deposited.

Laws ” means any constitution, decree, resolution, law, statute, act, ordinance, rule, directive, order, treaty, code or regulation and any injunction or final non-appealable judgment or any interpretation of the foregoing, as enacted, issued or promulgated by any Governmental Authority.

 

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Lease ” means any oil and gas lease, oil, gas and mineral lease or sublease, royalty, overriding royalty, production payment, net profits interest, mineral fee interest, carried interest, mineral servitude or other right to oil and gas in place.

Maintaining Party ” has the meaning set forth in Section 9.3.

Management Board ” means the governing body of any Joint Entity.

Material Event ” means, with respect to Joint Development Operator, that Joint Development Operator or any direct or indirect Controlling parent of Joint Development Operator: (a) is dissolved (other than pursuant to an internal reorganization in the ordinary course of business which does not result in a Change in Equity Ownership of such entity); (b) becomes insolvent or is unable to pay its debts or fails to pay or admits in writing its inability generally to pay its debts as they become due; (c) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (d) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (i) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation or (ii) is not dismissed, discharged, stayed or restrained in each case within thirty (30) days of the institution or presentation thereof; (e) has a resolution passed for its winding up, official management pursuant to an applicable statutory remedy or liquidation (other than pursuant to an internal reorganization in the ordinary course of business which does not result in a Change in Equity Ownership of such entity); (f) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or a substantial portion of its assets; (g) has a secured party take possession of all or a substantial portion of its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or a substantial portion of its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within thirty (30) days thereafter; or (h) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (a) through (g).

Material Interest ” means, with respect to any Development Party, any overriding royalty interest, production payment, net profits interest or similar non-possessory interest that is carved out of such Development Party’s mineral, working or leasehold interests constituting Joint Development Interests in the Development Assets, the Transfer of which interest would convey a material portion of the value of the Development Party’s Joint Development Interest in such Development Assets.

 

I-11


Membership Interest ” means the equity ownership interest in a Joint Entity held by an Entity Member.

Monthly Statement ” has the meaning set forth in Section 2.3(f).

Newco Consideration ” has the meaning set forth in the Transfer Agreement.

Non-Acquiring Development Party ” has the meaning set forth in Section 9.2(a).

Non-Budgeted Operation ” has the meaning set forth in Section 4.4(h).

Non-Operating Assets ” has the meaning set forth in the Transfer Agreement.

Non-Releasing Party ” has the meaning set forth in Section 9.3.

Offered Interest ” has the meaning set forth in Section 9.2(a).

Offer Notice ” has the meaning set forth in Section 9.2(a).

Oil and Gas Assets ” means all of the following, to the extent located within the Appalachian Area:

 

  (a) oil, gas and/or mineral leases, subleases, fee interests, fee mineral interests, mineral servitudes, royalties, overriding royalties, production payments, net profits interests, carried interests, reversionary interests and other interests in oil, gas and/or minerals in place (collectively, “ Oil and Gas Interests ”), the leasehold estates created by Oil and Gas Interests, lands covered by Oil and Gas Interests (“ Lands ”), and interests in any pooled acreage, communitized acreage or units arising on account of Oil and Gas Interests or Lands pooled, communitized or unitized into such units (“ Units ”);

 

  (b) oil and gas wells and injection wells located on Oil and Gas Interests, Lands or Units (“ Wells ”), and all Hydrocarbons produced therefrom or allocated thereto (Oil and Gas Interests, Lands, Units and Wells being collectively referred to hereinafter as “ Properties ”);

 

  (c) equipment, machinery, fixtures, and other real, immovable, personal, movable and mixed property primarily used or held for use in connection with Properties, including saltwater disposal wells, water sourcing and disposal facilities and systems, well equipment, casing, rods, tanks, boilers, buildings, tubing, pumps, motors, fixtures, machinery, compression equipment, flow lines, and separation facilities, structures, materials, and other items used or held for use in the operation thereof and located upstream of the outlet flange of the relevant custody transfer meter (or, in the case of Hydrocarbon liquids, upstream of the outlet flange in the tanks);

 

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  (d) surface fee interests, surface leases, easements, rights-of-way, permits, licenses, servitudes, and other surface rights;

 

  (e) water withdrawal and disposal and other permits, licenses, orders, approvals, variances, waivers, franchises, rights and other authorizations issued by any Governmental Authority;

 

  (f) Shallow Rights Gathering Assets;

 

  (g) contracts primarily relating to any of the other items identified in this definition;

 

  (h) imbalances at wellheads;

 

  (i) files, records, maps, information, and data, whether written or electronically stored, relating to any of the other items identified in this definition, including: (i) land and title records (including abstracts of title, title opinions, and title curative documents); (ii) contract files; (iii) correspondence; (iv) operations, environmental, production, and accounting records and (v) production, facility and well records and data (including logs and cores);

 

  (j) geophysical and other seismic and related technical data and information;

 

  (k) liens and security interests securing payment for the sale or other disposition of Hydrocarbons produced from or allocated to Properties; and

 

  (l) rights, claims and causes of action to the extent, and only to the extent, that such rights, claims or causes of action are associated with other items identified in this definition;

provided that “Oil and Gas Assets” shall not include any Deep Rights Gathering Assets.

Operating Assets ” has the meaning set forth in the Transfer Agreement.

Operating Committee ” means the committee created pursuant to Section 4.1.

Operating Expense Multiplier ” means, in the case of any Calendar Year (for purposes of this definition, the “ relevant Calendar Year ”), the amount obtained by dividing: (a) the number of active wells included in Joint Development Operations as of the end of the preceding Calendar Year, plus the number of wells anticipated to be drilled as Joint Development Operations in the relevant Calendar Year, minus the number of wells anticipated to be plugged and abandoned pursuant to Joint Development Operations in the first half of the relevant Calendar Year; by (b) the number of active wells included in Joint Development Operations as of the end of the preceding Calendar Year.

Operating Expenses ” means costs and expenses reasonably necessary to continue operating, maintaining and producing wells and related surface equipment included in the Subject Oil and Gas Assets in a manner consistent with past practices, industry standards and applicable Law.

 

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Other Development Parties ” has the meaning set forth in Section 8.2(a).

Other Interest ” means, with respect to any Development Party, any overriding royalty interest, production payment, net profits interest or similar non-possessory interest that is carved out of such Development Party’s mineral, working or leasehold interests constituting Joint Development Interests in the Development Assets, the Transfer of which interest would not convey a material portion of the value of the Development Party’s Joint Development Interest in such Development Assets.

Outside AMI Rights ” means the subsurface depths within the Appalachian Area that are not within the AMI Area.

Participating Interest ” means each Development Party’s, the Company’s and each other Joint Entity’s undivided share of the aggregate rights and obligations of the Development Parties, the Company and each other Joint Entity in any Development Operation (other than with respect to Sole Risk Development Operations or Sole Risk Entity Operations) under the terms of this Agreement and under the terms of each Applicable Operating Agreement and in any Area-Wide Operation under the terms of this Agreement.

Participating Party ” means with respect to any Development Operation, a Development Party or a Joint Entity (or, in connection with any Farmout Sole Risk Entity Operation, an Entity Member or its affiliated Development Party) that is participating in such Development Operation, and with respect to any Development Operations Contract, a Development Party or a Joint Entity (or, in connection with any Farmout Sole Risk Entity Operation, an Entity Member) that is responsible, whether directly or indirectly, for any amounts payable under such Development Operations Contract.

Party ” and “ Parties ” have the meanings set forth in the Preamble.

Party Operator” means the Company or any Joint Entity serving in the role of operator under any Applicable Operating Agreement, or as a Contract Operator or any Person mutually agreed to by the Development Parties pursuant to Section 3.4(d).

Percentage Interest ” means, with respect to each Entity Member, the percentage Membership Interest of such Entity Member in the applicable Joint Entity from time to time.

Permitted Expenses ” means (a) the funding of costs of (i) Joint Development Operations in which the Development Parties and/or Joint Entities participate, (ii) Sole Risk Development Operations by one or more Development Parties, and (iii) Sole Risk Entity Operations by or on behalf of any Entity Member or its affiliated Development Parties, in each case as authorized by the applicable Annual Work Program and Budget(s), the Applicable Operating Agreement or otherwise by the terms of this Agreement; and (b) to fund any other costs authorized to be charged to the applicable Development Party, Entity Member or Joint Entity for whose account the withdrawn funds were held under the terms of this Agreement.

 

I-14


Person ” means any individual, corporation, company, partnership, limited partnership, limited liability company, trust, estate, Governmental Authority or any other entity or organization.

Releasing Party ” has the meaning set forth in Section 9.3.

Required Asset Upgrade ” shall have the meaning given to that term in the Joint Entity Agreement for the Company.

Secondee ” means any employee of a Party seconded into the organization of Joint Development Operator through a Secondment Agreement, which employee shall not be considered an employee of a Development Party providing Technical Services under this Agreement.

Secondment Agreement ” has the meaning given such term in the Joint Entity Agreement of the Company.

Selling Party ” has the meaning set forth in Section 9.2(a).

Shallow Rights ” means those subsurface depths within the AMI Area that are above the Deep Rights.

Shallow Rights Gathering Assets ” means any gathering or pipeline system or related asset used to gather or transport gas produced in: (a) New York, Pennsylvania or West Virginia from subsurface depths that are above the Deep Rights; or (b) Kentucky, Ohio, Tennessee, or Virginia.

Sole Risk Development Operation ” means a Development Operation in which not all Development Parties entitled to a Working Interest in the applicable Development Operation participate. For the avoidance of doubt, a Development Operation in which no Development Parties own direct Working Interests is not eligible to be considered to be a Sole Risk Development Operation.

Sole Risk Entity Operation ” means a Development Operation (a) in which a Joint Entity is entitled to participate for a Working Interest share, (b) which requires approval of either the Entity Members of the Joint Entity or a management board or similar governance body action on their behalf under the terms of the applicable Joint Entity Agreement, (c) which is proposed for such approval and which fails to receive such approval and (d) in which an Entity Member or Entity Members elect to participate on a sole risk basis as permitted under this Agreement and the applicable Entity Agreement, either by a Farmout Sole Risk Entity Operation by or by causing the Joint Entity to participate in such operation for the sole account and at the sole risk of such Entity Member or Entity Members, as permitted pursuant to this Agreement.

 

I-15


Standards Asset Upgrade ” shall have the meaning given to that term in the Joint Entity Agreement for the Company.

Subject Oil and Gas Assets ” means all Development Assets, all Joint Entity Assets and any former Joint Entity Assets that are farmed out pursuant to a Farmout Sole Risk Entity Operation.

Tag Assets ” has the meaning set forth in Section 6.1(b).

Tag Notice ” has the meaning set forth in Section 6.1(b).

Tag Offeree ” has the meaning set forth in Section 6.1(b).

Tag Offeror ” has the meaning set forth in Section 6.1(b).

Tag Purchased Assets ” has the meaning set forth in Section 6.1(b).

Tag Right ” has the meaning set forth in Section 6.1(b).

Tag Transferee ” has the meaning set forth in Section 6.1(b).

Tag-Along Transaction “ has the meaning set forth in Section 6.1(b).

Tax Partnership ” has the meaning set forth in Section 10.1.

Technical Services ” means, subject to any further description in services agreements between the Company and each Development Party, (a) services providing specific engineering, geoscience, land, or other exploration, development and/or producing professional skills, such as those performed by engineers, geologists, geophysicists, landmen, and technicians, required to handle specific operating conditions and problems, and (b) human resources, tax, information technology, legal, HSSE and other administrative services (including those services performed outside of the Appalachian Area), in each case for the benefit of Development Operations; provided, however, Technical Services shall not include general corporate overhead activities, including senior management, provisions of office space, utilities, insurance, computers and office equipment, and similar items.

Technical Services Costs ” means (a) salaries, wages, mandatory government payroll burdens, benefits and personal expenses of employees of the Development Parties and their Affiliates providing Technical Services and (b) in the case of human resources, information technology and HSSE, costs associated with providing such services, but excluding general corporate overhead costs.

Third Party Expense Funds ” means, as of any given time, the balance of funds deposited by the Joint Development Operator into the Joint Operations Account with respect to the payment of any third party expenses after taking into consideration all amounts deposited by the Joint Development Operator into the Joint Operations Account with respect to such expenses and all payments made from the Joint Operations Account with respect to such expenses.

 

I-16


Third Party Operating Agreements ” means those operating agreements, other than the Joint Development Operating Agreement, to which Persons other than the Development Parties, the Joint Entities and Joint Development Operator are parties and which burden the Subject Oil and Gas Assets within the Appalachian Area.

Total Amount in Default ” means, as of any time, the following amounts: (a) the aggregate amounts that the Defaulting Party and any applicable Affiliate of a Defaulting Party have failed to pay under the terms of this Agreement and the Associated Agreements as of such time; and (b) any interest at the Default Interest Rate accrued on the amount under (a) from the date such amount is due by the Defaulting Party until paid in full by the Defaulting Party or any Affiliate of the Defaulting Party.

Transfer ” means any sale, assignment, or other disposition by a Development Party or an Entity Member of all or any part of its Joint Development Interest or any other interest in the Development Assets excluding (a) any disposition resulting from a direct or indirect Change in Equity Ownership of a Party, or a change in Equity Ownership created by a change in Equity Ownership of the ultimate parent company of such Party, (b) any disposition resulting from a Credit Facility Foreclosure, (c) any Encumbrance, and (d) any Farmout Sole Risk Entity Operation.

Transfer Agreement ” means that certain Membership Interest Transfer Agreement by and between EXCO Parent and BG Parent, dated as of May 9, 2010.

Treasury Regulations ” means the regulations promulgated by the United States Department of the Treasury pursuant to and in respect of provisions of the Internal Revenue Code of 1986, as amended. All references herein to sections of the Treasury Regulations shall include any corresponding provision or provisions of succeeding, similar, substitute, proposed or final Treasury Regulations.

Undeveloped Lease ” means any oil and gas lease, oil, gas and mineral lease or sublease, royalty, overriding royalty, production payment, net profits interest, mineral fee interest, carried interest, mineral servitude or other right to oil and gas in place (in each case) with respect to which no oil and gas development activities have taken place.

Wellbore Operation ” means, as such terms are defined or used in the Applicable Operating Agreement, the sidetracking, deepening, plugging back or recompleting of a wellbore.

Wholly-Owned Affiliate ” means, with respect to any Person, an Affiliate of such Person that is wholly owned, directly or indirectly, by the ultimate parent of such Person.

Working Interest ” means with respect to any Development Party or any Joint Entity and any Development Operation in which such Development Party or Joint Entity is participating, such Development Party’s or Joint Entity’s working interest (to the 8/8ths) in such Development Operation.

 

I-17

Exhibit 10.2

EXECUTION VERSION

SECOND AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

of

EXCO RESOURCES (PA), LLC

Dated as of June 1, 2010


TABLE OF CONTENTS

 

          Page

ARTICLE 1

   GENERAL PROVISIONS    2

1.1

   Definitions    2

1.2

   Formation as a Delaware Limited Liability Company    19

1.3

   Name; Registered Agent and Registered Office    19

1.4

   Term    19

1.5

   Purpose of the Company; Power    19

1.6

   Fiscal Year    19

1.7

   Title to Company Property    19

1.8

   Membership Interests Uncertificated    19

1.9

   Qualification in Other Jurisdictions    19

1.10

   Principal Office    20

1.11

   No State Law Partnership    20

ARTICLE 2

   MANAGEMENT    20

2.1

   Management under Direction of Management Board    20

2.2

   Unanimous Votes    20

2.3

   Seventy Five Percent Votes    22

2.4

   Number, Tenure and Qualification    25

2.5

   Voting Proxies; Quorum; Meetings of Management Board; No Fiduciary Duties    26

2.6

   Resignation of Board Members    31

2.7

   Removal of Board Members    31

2.8

   Vacancies    31

2.9

   Fees and Expenses of Board Members    31

2.10

   No Power of Members to Bind Company    32

2.11

   Delegation of Authority; Officers    32

2.12

   Provision of Services by the Members    35

2.13

   Standard of Conduct; Health, Safety, Security and the Environment    35

2.14

   Conflict of Interest Policy    36

2.15

   Certain Reports    37

2.16

   Contractor Requirements and Access Rights    38

2.17

   Insurance    39

 

-i-


TABLE OF CONTENTS

(continued)

 

          Page

2.18

   Asset Upgrades    40

ARTICLE 3

   CONTRACT AWARDS    41

3.1

   Contract Awards    41

3.2

   Annual Work Program and Budget    44

ARTICLE 4

   MEMBERS    47

4.1

   Member Information    47

4.2

   Opportunities; Activities of the Members    47

ARTICLE 5

   CAPITALIZATION    47

5.1

   No Withdrawal of Capital Accounts    47

5.2

   Initial Capital Contributions    47

5.3

   Additional Capital Contributions    47

5.4

   Statement of Estimated Expenditures    48

5.5

   Default: Failure to Fund Additional Capital Contributions    48

5.6

   Certain Consequences of Default    49

5.7

   No Interest on or Return of Capital    51

5.8

   Limitations upon Liability of Members    51

ARTICLE 6

   ALLOCATIONS OF PROFITS AND LOSS    51

6.1

   Allocations Generally    51

6.2

   Special Allocations    52

6.3

   Tax Allocations    53

ARTICLE 7

   DISTRIBUTIONS    55

7.1

   Declaration and Payment of Distributions    55

7.2

   Limitations on Distributions    55

7.3

   Amounts of Tax Paid or Withheld    56

7.4

   Distribution in Kind    56

7.5

   Delaware Act Limitations    56

ARTICLE 8

   INDEMNIFICATION    56

8.1

   No Liability of Members for Company Obligations    56

8.2

   Exculpation    56

8.3

   Indemnification    57

 

-ii-


TABLE OF CONTENTS

(continued)

 

          Page

8.4

   Expenses    58

8.5

   Insurance    58

8.6

   Primary Obligation    58

ARTICLE 9

   TRANSFERABILITY    59

9.1

   Transfer    59

9.2

   Conditions Precedent to a Membership Interest Transfer    60

9.3

   Applicability of Joint Development Agreement    61

9.4

   Right of First Refusal    61

9.5

   Admission as a Member    63

9.6

   Encumbrances    63

9.7

   Recordation Tax    63

9.8

   Resignation/Withdrawal    63

ARTICLE 10

   DISSOLUTION AND TERMINATION    63

10.1

   Dissolution    63

10.2

   Method of Liquidation    64

10.3

   Distribution in Kind    64

10.4

   Continued Liability for Capital Contributions    64

10.5

   Date of Dissolution    64

ARTICLE 11

   BOOKS; REPORTS TO MEMBERS; TAX MATTERS    64

11.1

   Books of Account; Records    64

11.2

   Financial Statements and Reports    65

11.3

   Tax Treatment of the Company    66

11.4

   Tax Matters Member    66

11.5

   Tax Returns and Elections    66

ARTICLE 12

   GOVERNING LAW; DISPUTE RESOLUTION    67

12.1

   Governing Law    67

12.2

   Dispute Resolution    67

12.3

   Expert Proceedings    69

ARTICLE 13

   MISCELLANEOUS    70

13.1

   Investment Representation    70

 

-iii-


TABLE OF CONTENTS

(continued)

 

          Page

13.2

   Counterparts    70

13.3

   Notices    70

13.4

   Expenses    72

13.5

   Waivers; Rights Cumulative    72

13.6

   Entire Agreement; Conflicts    72

13.7

   Amendments    73

13.8

   Parties in Interest    73

13.9

   Successors and Permitted Assigns    73

13.10

   Confidentiality    73

13.11

   Publicity    74

13.12

   Preparation of Agreement    74

13.13

   Conduct of the Parties; Business Principles    75

13.14

   Severability    75

13.15

   Non-Compensatory Damages    75

13.16

   Specific Performance; Injunctive Relief    76

13.17

   No Company Seal    76

13.18

   Interpretation    76

13.19

   Intellectual Property    76

13.20

   Further Assurances    77
EXHIBITS AND SCHEDULES:   
Exhibit “A”    Form of Secondment Agreement   
Exhibit “B”    Form of Services Agreement   
SCHEDULES:   

 

Schedule 2.17, Part 1    Company Insurance Information
Schedule 2.17, Part 2    Insurance Information relating to Insurance Maintained for Development Parties and Joint Entities
Schedule 4.1    Member Information
Schedule 13.13(b)    Business Principles

 

-iv-


SECOND AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

of

EXCO RESOURCES (PA), LLC

This Second Amended and Restated Limited Liability Company Agreement (this “ Agreement ”) of EXCO RESOURCES (PA), LLC, a Delaware limited liability company (the “ Company ”), is dated as of June 1, 2010 (the “ Closing Date ”), and is by and among the Company and the Members.

WITNESSETH:

RECITALS

 

1. On August 30, 1988, the Company was formed as North Coast Energy, Inc., a corporation organized and existing under the Laws of the State of Delaware pursuant to a certificate of incorporation filed with the Delaware Secretary of State. On June 24, 2008, the name of the Company was changed to EXCO – North Coast Energy, Inc. pursuant to a Certificate of Ownership and Merger filed with the Delaware Secretary of State. On November 23, 2009, the name of the Company was changed to EXCO Resources (PA), Inc. pursuant to a Certificate of Amendment filed with the Delaware Secretary of State.

 

2. On May 28, 2010, the Company was converted into a limited liability company organized and existing under the Laws of the State of Texas pursuant to the Certificates. Pursuant to such conversion, the name of the Company was changed to EXCO Resources (PA), LLC. EXCO Member, as the sole member of the Company, adopted a limited liability company agreement of the Company effective as of such date (the “ Original Agreement ”).

 

3. On May 28, 2010, the Company underwent a multi-survivor merger pursuant to Chapter 10 of the Texas Business Organizations Code, which multi-survivor merger was conducted in accordance with a plan of merger filed with the Texas Secretary of State. The Company was one of the surviving entities resulting from such multi-survivor merger. As a result of the multi-survivor merger, certain assets and liabilities of the Company were allocated and vested into other entities, and certain assets and liabilities of the Company remained with the Company.

 

4. On May 28, 2010, each of the surviving entities resulting from the multi-survivor merger described in the immediately preceding paragraph converted from a limited liability company organized and existing under the Laws of the State of Texas to a limited liability company organized and existing under the Laws of the State of Delaware pursuant to the Certificates.

 

5. On May 9, 2010, EXCO Member and BG Member executed that certain Transfer Agreement, pursuant to which, among other things, EXCO Member sold to BG Member fifty percent (50%) of the Membership Interests.

 

1


6. The Parties now desire to enter into this Agreement as an amendment and restatement of the Original Agreement in its entirety to reflect the agreement of the Company and the Members as set forth herein.

NOW THEREFORE, in consideration of the foregoing, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, effective as of the Closing Date, the Original Agreement is hereby amended and restated in its entirety to read as follows:

ARTICLE 1

GENERAL PROVISIONS

 

1.1 Definitions . For purposes of this Agreement, each of the following terms will have the meaning set forth below. For the avoidance of doubt, any of the following terms defined by reference to a term in another agreement that terminates prior to the termination of this Agreement shall, for purposes of this Agreement, continue to have the same meaning that such term had prior to the termination of such other agreement.

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

AAA ” has the meaning given to it in Section 12.2(b).

AAA Rules ” has the meaning given to it in Section 12.2(b).

Adjusted Capital Account Deficit ” of any Member means, as of any particular date, the deficit balance, if any, in such Member’s Capital Account as of such date, as determined in the manner provided in Section 5.1, adjusted as follows: (a) such Capital Account will be increased to reflect any amounts that such Member is obligated to restore to the Company under any provision of this Agreement or is deemed to be obligated to restore pursuant to Treasury Regulations Sections 1.704-2(g) and 1.704-2(i)(5); and (b) such Capital Account will be reduced to reflect any items described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).

Affected Member ” has the meaning given to it in Section 5.5(a).

Affiliate ” means, with respect to any Person, a Person that, directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such Person .

Affiliate Contract ” means any contract between the Company or any direct or indirect subsidiary of the Company, on the one hand, and any Member or Members or any Affiliate or Affiliates of Members, on the other hand.

Affiliated Member Group ” means any group of Members that are Affiliates of each other.

Agreement ” has the meaning given to it in the introductory paragraph.

 

2


Allocation Year ” means (a) the period commencing on January 1, 2010 and ending on December 31, 2010, (b) any subsequent twelve (12) month period commencing on January 1 and ending on December 31 or (c) any portion of the period described in clauses (i) or (ii) for which the Company is required to allocate Profit and Loss and other items of Company income, gain, loss or deduction pursuant to Article 6 hereof.

AMI Area ” means the lands (and subsurface) included in the States of New York, Pennsylvania and West Virginia, provided that the AMI Area shall not include any Lease or other Property that is an Excluded Asset.

Annual Financial Statements ” has the meaning given to it in Section 11.2(a).

Annual Work Program and Budget ” means (a) so long as the Joint Development Agreement is in effect, the “Annual Work Program and Budget” as defined in the Joint Development Agreement and (b) for any Calendar Year (or portion thereof) after the termination of the Joint Development Agreement, the work program and budget for operations to be conducted by the Company during such Calendar Year or portion thereof.

Appalachian Area ” means the lands (and subsurface) included in the States of Kentucky, New York, Ohio, Pennsylvania, Tennessee, Virginia and West Virginia, provided that the Appalachian Area shall not include any Lease or other property that is an Excluded Asset.

Appalachian Overhead ” means (a) all Technical Services Costs and (b) the Company Overhead.

Applicable Operating Agreement ” has the meaning given to it in the Joint Development Agreement.

Approved Reserves ” means: (a) a working capital reserve equal to projected expenditures during the following three (3) Calendar Months as reasonably projected by the President and General Manager of the Company, excluding those amounts to be funded through Capital Contributions pursuant to the first two sentences in Section 5.3(a); and (b) such other reserves for working capital, contingencies, replacements, expansions, acquisitions, or other expenditures of the Company as may be approved by the Members from time to time.

Area-Wide Operations ” has the meaning given to it in the Joint Development Agreement.

Asset Upgrade ” means, with respect to any physical Company Property, any physical enhancement or series of physical enhancements of or to any existing portion of such Company Property.

Associated Agreements ” has the meaning given to it in the Joint Development Agreement.

Bankruptcy ” of a Person means: (a) the filing by a Person of a voluntary petition seeking liquidation, reorganization, arrangement or readjustment, in any form, of its debts under the U.S. Bankruptcy Code (or corresponding provisions of future Laws) or any other insolvency

 

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Law, or a Person’s filing an answer consenting to or acquiescing in any such petition; (b) the making by a Person of any assignment for the benefit of its creditors or the admission by a Person of its inability to pay its debts as they mature; or (c) the expiration of sixty (60) days after the filing of an involuntary petition under the U.S. Bankruptcy Code (or corresponding provisions of future Laws) seeking an application for the appointment of a receiver for the assets of a Person, or an involuntary petition seeking liquidation, reorganization, arrangement or readjustment of its debts under any other insolvency Law, unless the same shall have been vacated, set aside or stayed within such sixty (60) day period.

BG Affiliate Group ” means the Affiliated Member Group that includes all Affiliates of BG Parent.

BG Member ” means BG US Production Company, LLC, a limited liability company organized and existing under the Laws of Delaware.

BG Parent ” means BG Group plc, a public limited company organized and existing under the Laws of England and Wales.

Board Member ” has the meaning given to it in Section 2.1.

Budgeted Acquisition ” means an acquisition by the Company of any Undeveloped Lease in the AMI Area and/or other Oil and Gas Assets in which the Development Parties and/or a Joint Entity already owns a working interest on behalf of the Company, the Development Parties and/or Joint Entities pursuant to an approved Annual Work Program and Budget.

Business ” means Upstream Activities conducted by the Company.

Business Day ” means a day (other than a Saturday or Sunday) on which commercial banks in Texas are generally open for business, provided that if Business Days are used to calculate periods in which a Member must make a payment hereunder, “Business Day” means a day (other than a Saturday or Sunday) on which commercial banks in Texas and London are generally open for business.

Calendar Month ” means any of the months of the Gregorian calendar.

Calendar Quarter ” means a period of three (3) consecutive Calendar Months commencing on the first day of January, the first day of April, the first day of July and the first day of October in any Calendar Year.

Calendar Year ” means a period of twelve (12) consecutive Calendar Months commencing on the first day of January and ending on the following 31st day of December, according to the Gregorian calendar.

 

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Capital Account ” means, with respect to any Member of the Company and its Membership Interest, the Capital Account maintained for such Member in accordance with the following provisions:

(a) To each Member’s Capital Account there shall be credited (i) the amount of money and the Tax Book Value of any Company Property transferred by such Member to the Company as a Capital Contribution, (ii) such Member’s distributive share of Profits and any items in the nature of income or gain which are specially allocated to such Member pursuant to this Agreement, (iii) such Member’s distributive share of Simulated Gain, and (iv) the amount of any Company liabilities assumed by such Member or that are secured by any Company Property distributed to such Member;

(b) To each Member’s Capital Account there shall be debited (i) the amount of money and the Tax Book Value of any Company Property distributed to such Member pursuant to any provision of this Agreement, (ii) such Member’s distributive share of Losses and any items of Loss or deduction which are specially allocated to such Member pursuant to this Agreement, (iii) such Member’s distributive share of Simulated Depletion and Simulated Loss, and (iv) the amount of any liabilities of such Member assumed by the Company or that are secured by any Company Property contributed by such Member to the Company;

(c) In the event a Membership Interest or portion thereof is Transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the Transferred Membership Interest or portion thereof;

(d) In determining the amount of any liability for purposes of subparagraphs (a) and (b) above, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations; and

(e) For purposes of computing allocation of Simulated Depletion, Simulated Gain and Simulated Loss to the Members’ Capital Accounts, the Simulated Basis of each Depletable Property of the Company will be allocated to the Members in proportion to their respective Percentage Interests.

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 Treasury Regulations. In the event the Tax Matters Member shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto, are computed in order to comply with such Treasury Regulations, the Tax Matters Member may make such modification. The Tax Matters Member also shall (A) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Members and the amount of capital reflected on the Company’s balance sheet, as computed for book purposes, in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(q), and (B) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Treasury Regulations Section 1.704-1(b). The Tax Matters Member shall provide all the Members with written notice of any such adjustments or modifications.

Capital Contribution ” means, with respect to a specified Member and its Membership Interest, the aggregate amount of money and the Tax Book Value of any property other than money contributed to the Company by such Member (net of any associated liabilities assumed by the Company or taken subject to by the Company) with respect to such Membership Interest.

 

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Carried Costs ” has the meaning given to it in the Joint Development Agreement.

Carry Termination Event ” has the meaning given to it in the Joint Development Agreement.

Cash Value ” means the Fair Market Value (expressed in U.S. dollars) of all or a portion of a Membership Interest subject to a proposed Transfer or Change in Control.

Certificates ” means, collectively, the Certificates of Conversion of the Company, and the Certificate of Formation of the Company, in each case, as amended, supplemented or restated from time to time, filed with the Secretary of State of the State of Delaware.

Change in Control ” means any direct or indirect change in Control of a Member (whether through merger, sale of shares or other equity interests, or otherwise), through a single transaction or series of related transactions, from one or more transferors to one or more transferees; provided, however, that for purposes hereof, a “ Change in Control ” shall not include a change in Control of a Member: (a) resulting from a management-led buyout of the public share ownership of such Member and conversion of such Member to a privately-held company, (b) resulting in ongoing control by a Wholly-Owned Affiliate of such Member, or (c) created by a change in Control of the ultimate parent company of such Member. For the avoidance of doubt, as of the date of this Agreement, the ultimate parent company of BG Member is BG Parent, and the ultimate parent company of EXCO Member is EXCO Parent.

Closing Date ” has the meaning given to it in the introductory paragraph of this Agreement.

Code ” means the Internal Revenue Code of 1986, as amended from time to time (including corresponding provisions of succeeding law).

Company ” has the meaning given to it in the introductory paragraph.

Company Contract ” means any contract entered into by the Company or to which the Company is a party.

Company Minimum Gain ” has the same meaning as “partnership minimum gain” set forth in Treasury Regulations Sections 1.704-2(b)(2) and 1.704-2(d).

Company Operating Expenses ” means costs and expenses reasonably necessary to continue operating and maintaining Company Property in a manner consistent with past practices, industry standards, the standards set forth in Section 2.13(a) and applicable Law.

Company Overhead ” means (a) all costs of the Company pursuant to any Secondment Agreement, (b) all costs attributable to salaries, wages and benefits of the employees of the Company and (c) general corporate overhead costs of the Company, including taxes, insurance, financing costs and overhead costs attributable to its corporate and field offices (but only those located within the Appalachian Area).

 

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Company Property ” means all real and personal property acquired by the Company, including cash, and any improvements thereto, and shall include both tangible and intangible property (including Company Technology).

Company Technology ” means any technology or intellectual property developed by the Company pursuant to the conduct of the Business.

Conflicted Member ” has the meaning given to it in Section 2.5(b).

Contract Operating Agreement ” has the meaning given to it in the Joint Development Agreement.

Contract Operator ” has the meaning given to it in the Joint Development Agreement.

Control ” and its derivatives with respect to any Person means the possession, directly or indirectly, of the power to exercise or determine the voting of more than fifty percent (50%) of the voting rights in a corporation, and, in the case of any other type of entity, the right to exercise or determine the voting of more than fifty percent (50%) of the equity interests having voting rights, or otherwise to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise.

Covered Person ” means, in each case, whether or not a Person continues to have the applicable status referred to in the following list: a Member; any Affiliate of a Member; a Board Member; any officer of the Company, whether or not such officer is an employee of the Company; any officer, director, member, manager, stockholder, partner, employee, representative or agent of any Member, or of any of their respective Affiliates; any employee or agent of the Company or its Affiliates; and any Tax Matters Member.

Credit Facility Encumbrance ” means Encumbrances created pursuant to any material borrowing arrangement entered into by any Member and/or its Affiliates with a third party that is not an Affiliate of such Member or its Affiliates, as such arrangement may be amended, restated, amended and restated, modified, refinanced, supplemented or replaced from time to time.

Credit Facility Foreclosure ” means any transfer or other disposition of interests of a Member and its Affiliates in the Membership Interests pursuant to a Credit Facility Encumbrance of such Member and any related mortgages, pledge agreements, security agreements and other agreements evidencing such Credit Facility Encumbrance following the occurrence and continuation of a default or event of default under the borrowing arrangement secured thereby.

Credit Facility Secured Party ” means any Person, other than an Affiliate of a Member, that is identified and whose notice information is provided (which notice information shall include such Credit Facility Secured Party’s name, street address, contact person, telephone number and fax number) in a written notice to the Company and each other Member by such Person or a Member as the holder or beneficiary of a Credit Facility Encumbrance with respect to a Member’s Membership Interests.

 

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Deep Rights ” means (a) with respect to the Commonwealth of Pennsylvania, those subsurface depths that are below the base of (but excluding) the Haskill Sandstone Formation (Base of Elk Sequence) formation at a measured depth of 2,758’, as identified by the Litho Density Compensated Neutron Array Induction Temperature Log dated June 7, 2005 of the Seneca Resources operated Fee PGS SGL No. 44 (API 37-047-23649) located in Elk County, Pennsylvania, (b) with respect to the State of West Virginia, those subsurface depths that are below the base of (but excluding) the Brallier Formation (Base of Elk Sequence) formation at a measured depth of 6,612’, as identified by the Litho Density Compensated Neutron Array Induction Temperature Log dated October 8, 2008 of the EXCO – North Coast Energy, Inc. operated Wentz 4HS (API 47-001-02982) located in Barbour County, West Virginia, and (c) with respect to the State of New York, those subsurface depths that are below the base of (but excluding) the Genesee Formation at a measured depth of 2,548’, as identified by the Density/Neutron, Gamma/Temperature Log dated May 6, 2005 of the Fortuna Energy, Inc. operated Cotton-Hanlon #1 well (API 31-107-23185) located in Tioga County, New York, recognizing that actual depths will vary across the AMI Area.

Deep Rights Gathering Assets ” means any gathering or pipeline system or related asset used to gather or transport gas produced from the Deep Rights of New York, Pennsylvania or West Virginia.

Default Interest Rate ” means the three month London Inter-Bank Offer Rate (as published in the “Money Rates” table of the Wall Street Journal , eastern edition) plus an additional five percentage points (5%) applicable on the first Business Day prior to the due date of payment and thereafter on the first Business Day of each succeeding Calendar Month (or, if such rate is contrary to any applicable usury Law, the maximum rate permitted by such applicable Law).

Default Notice ” has the meaning given to it in Section 5.5(a).

Default Period ” has the meaning given to it in Section 5.5(b).

Defaulting Member ” has the meaning given to it in Section 5.5(a).

Delaware Act ” means the Delaware Limited Liability Company Act, Del. Code Ann. Tit. 6, §§18-101, et. seq., as amended from time to time (including corresponding provisions of succeeding law).

Depletable Property ” means each separate oil and gas property as defined in Code Section 614.

Depreciation ” means, for each Allocation Year, an amount equal to the depreciation, amortization, or other cost recovery deduction (other than depletion) allowable with respect to an asset for such Allocation Year for federal income tax purposes, except that (1) with respect to any depreciable or amortizable asset whose Tax Book Value differs from its adjusted tax basis for federal income tax purposes and which difference is being eliminated by use of the “remedial method” defined by Regulations Section 1.704-3(d), Depreciation for such Allocation Year shall be the amount of book basis recovered for such Allocation Year under the rules prescribed by Treasury Regulations Section 1.704-3(d)(2), and (2) with respect to any depreciable or

 

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amortizable asset whose Tax Book Value differs from its adjusted tax basis for federal income tax purposes at the beginning of such Allocation Year, Depreciation shall be an amount that bears the same ratio to such beginning Tax Book Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Allocation Year bears to such beginning adjusted tax basis; provided, however, that if the adjusted basis for federal income tax purposes of a depreciable or amortizable asset at the beginning of such Allocation Year is zero, Depreciation shall be determined with reference to such beginning Tax Book Value using any reasonable method selected by the Tax Matters Member.

Development Costs ” has the meaning given to it in the Joint Development Agreement.

Development Operation ” has the meaning given to it in the Joint Development Agreement.

Development Operations Contract ” has the meaning given to it in the Joint Development Agreement.

Development Party ” has the meaning given to it in the Joint Development Agreement.

Development Work Program ” has the meaning given to it in the Joint Development Agreement.

Dispute ” means any dispute, controversy, or claim (of any and every kind or type, whether based on contract, tort, statute, regulation, or otherwise) arising out of, relating to, or connected with this Agreement, or the transactions contemplated hereby, including but not limited to any dispute, controversy or claim concerning the existence, validity, interpretation, performance, breach, or termination of this Agreement or the relationship of the Parties arising out of this Agreement or the transactions contemplated hereby.

Dissolution Event ” has the meaning given to it in Section 10.1.

Election Notice ” has the meaning given to it in Section 9.4(b).

Emergency Expenditures ” means expenditures which are reasonably necessary to be expended in order to mitigate or remedy the endangerment of the health or safety of any Person or the environment.

Encumbrance ” means a mortgage, lien, pledge, charge or other encumbrance. “ Encumber ” and other derivatives shall be construed accordingly.

Enforcement Activities ” has the meaning given to it in Section 2.5(b).

Excluded Asset ” has the meaning given to it in the Transfer Agreement.

EXCO Affiliate Group ” means the Affiliated Member Group that includes all Affiliates of EXCO Parent.

 

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EXCO Member ” means EXCO Holding (PA), Inc., a corporation organized and existing under the Laws of Delaware.

EXCO Parent ” means EXCO Resources, Inc., a corporation organized and existing under the Laws of Texas.

Existing EXCO Credit Facility ” has the meaning given to it in the Joint Development Agreement.

Fair Market Value ” means with respect to the Company, or any asset or interest (as the case may be), the amount that would be received in an arms-length transaction between a willing buyer and a willing seller, under no compulsion, respectively, to buy or sell such property and each having knowledge of all the relevant facts and circumstances.

Fiscal Year ” has the meaning given to it in Section 1.6.

GAAP ” means the generally accepted accounting principles in the United States of America, as promulgated or adopted by the Financial Accounting Standards Board and its predecessors and successors from time to time.

Governmental Authority ” means any federal, state, local, municipal, tribal or other government; any governmental, regulatory or administrative agency, commission, body or other authority exercising or entitle to exercise any administrative, executive, judicial, legislative, regulatory or taxing authority or power; and any court or governmental tribunal, including any tribal authority having or asserting jurisdiction.

Group ” has the meaning given to it in Section 2.4(a).

HSSE Management System ” has the meaning given to it in Section 2.13(d).

HSSE Plan ” has the meaning given to it in Section 2.13(c).

HSSE Principles ” has the meaning given to it in 2.13(b).

Hydrocarbons ” means oil and gas and other hydrocarbons produced or processed in association therewith (whether or not any such item is in liquid or gaseous form), or any combination thereof, and any minerals produced in association therewith.

IDCs ” means “intangible drilling and development costs” described in Code Section 263(c).

Joint Development Agreement ” means the Joint Development Agreement dated [•], 2010, among BG Production Company (PA), LLC, BG Production Company (WV), LLC, EXCO Production Company (PA), LLC, EXCO Production Company (WV), LLC, and the Company, as the same may be amended, modified or supplemented from time to time.

Joint Development Operating Agreement ” has the meaning given to it in the Joint Development Agreement.

 

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Joint Development Operations ” means Development Operations in which all Development Parties participate and/or in which a Joint Entity participates.

Joint Development Operator ” has the meaning given to it in the Joint Development Agreement.

Joint Entity ” has the meaning given to it in the Joint Development Agreement.

Joint Operations Account ” has the meaning given to it in the Joint Development Agreement.

Law ” means any constitution, decree, resolution, law, statute, act ordinance, rule, directive, order, treaty, code or regulation and any injunction or final non-appealable judgment or any interpretation of the foregoing, as enacted, issued or promulgated by any Governmental Authority.

Leases ” has the meaning given to it in the Joint Development Agreement.

Management Board ” has the meaning given to it in Section 2.1.

Marketing Agreements ” means Hydrocarbons sales agreements between the Company and the Members and/or their Affiliates.

Member ” means, at any time, each Person who: (a) is an initial signatory to this Agreement, has been admitted to the Company as a Member in accordance with the Certificates and this Agreement, or is an assignee or transferee pursuant to a Credit Facility Encumbrance who has become a Member in accordance with this Agreement; and (b) has not ceased for any reason to be a Member.

Member Indemnitors ” has the meaning given to it in Section 8.6.

Member Minimum Gain ” means an amount, with respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Treasury Regulations Section 1.704-2(i) with respect to “partner minimum gain.”

Member Nonrecourse Debt ” has the same meaning as the term “partner nonrecourse debt” set forth in Treasury Regulations Section 1.704-2(b)(4).

Membership Interest ” means, with respect to a specified Member, such Member’s entire equity ownership interest in the Company, carrying all the associated rights and obligations under this Agreement and applicable Law, and all of the Members’ Membership Interest (collectively), the “ Membership Interests ”.

Monthly Financial Reports ” has the meaning given to it in Section 11.2(c).

Monthly Operating Reports ” has the meaning given to it in Section 11.2(d).

 

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Net Cash Flow ” means during any period the excess, if any, of (a) the sum of (i) the gross receipts of the Company (as determined in accordance with the cash receipts and disbursements method of accounting) during such period, but without regard to any amounts received by the Company on the sale or other disposition of all or substantially all of its assets, (ii) all amounts contributed to the Company during such period by any Member, (iii) all amounts received by the Company as loans during such period and (iv) any amounts released during such period by the Members from any Approved Reserve maintained by the Company, over (b) the sum of (i) all expenditures (as determined under the aforesaid method of accounting) and taxes of the Company paid during such period, (ii) all amounts applied during such period in payment of principal, interest or other charges in respect of any borrowing of the Company, and (iii) any amount added during such period as Approved Reserves.

Nonrecourse Liability ” has the meaning set forth in Treasury Regulations Section 1.704-2(b)(3).

Non-transferring Member ” has the meaning given to it in Section 9.4(a).

Offer Notice ” has the meaning given to it in Section 9.4(a).

Offered Interests ” has the meaning given to it in Section 9.4(a).

Oil and Gas Assets ” means all of the following, to the extent located within the Appalachian Area:

 

(a) oil, gas and/or mineral leases, subleases, fee interests, fee mineral interests, mineral servitudes, royalties, overriding royalties, production payments, net profits interests, carried interests, reversionary interests and other interests in oil, gas and/or minerals in place (collectively, “ Oil and Gas Interests ”), the leasehold estates created by Oil and Gas Interests, lands covered by Oil and Gas Interests (“ Lands ”), and interests in any pooled acreage, communitized acreage or units arising on account of Oil and Gas Interests or Lands pooled, communitized or unitized into such units (“ Units ”);

 

(b) oil and gas wells and injection wells located on Oil and Gas Interests, Lands or Units (“ Wells ”), and all Hydrocarbons produced therefrom or allocated thereto (Oil and Gas Interests, Lands, Units and Wells being collectively referred to hereinafter as “ Properties ”);

 

(c) equipment, machinery, fixtures, and other real, immovable, personal, movable and mixed property primarily used or held for use in connection with Properties, including saltwater disposal wells, water sourcing and disposal facilities and systems, well equipment, casing, rods, tanks, boilers, buildings, tubing, pumps, motors, fixtures, machinery, compression equipment, flow lines, and separation facilities, structures, materials, and other items used or held for use in the operation thereof and located upstream of the outlet flange of the relevant custody transfer meter (or, in the case of Hydrocarbon liquids, upstream of the outlet flange in the tanks);

 

(d) surface fee interests, surface leases, easements, rights-of-way, permits, licenses, servitudes, and other surface rights;

 

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(e) water withdrawal and disposal and other permits, licenses, orders, approvals, variances, waivers, franchises, rights and other authorizations issued by any Governmental Authority;

 

(f) Shallow Rights Gathering Assets;

 

(g) contracts primarily relating to any of the other items identified in this definition;

 

(h) imbalances at wellheads;

 

(i) files, records, maps, information, and data, whether written or electronically stored, relating to any of the other items identified in this definition, including: (i) land and title records (including abstracts of title, title opinions, and title curative documents); (ii) contract files; (iii) correspondence; (iv) operations, environmental, production, and accounting records and (v) production, facility and well records and data (including logs and cores);

 

(j) geophysical and other seismic and related technical data and information;

 

(k) liens and security interests securing payment for the sale or other disposition of Hydrocarbons produced from or allocated to Properties; and

 

(l) rights, claims and causes of action to the extent, and only to the extent, that such rights, claims or causes of action are associated with other items identified in this definition,

provided that “Oil and Gas Assets” shall not include any Deep Rights Gathering Assets.

Operating Assets ” shall mean the following assets to the extent necessary for the operation of the Subject Oil and Gas Assets or any other Oil and Gas Assets of the Company: (a) all surface fee interests, surface leases, easements, rights-of-way, permits, licenses, servitudes and other surface rights, (b) all water withdrawal and disposal and other permits, licenses, orders, approvals, variances, waivers, franchises, rights and other authorizations issued by any Governmental Authority, (c) the Warrendale, Pennsylvania regional office and all field offices, warehouses and yards (including any furniture, office equipment and other owned or leased real or immovable property relating thereto) and personal computers and associated peripherals and all radio and telephone equipment and licenses relating thereto, (d) all materials, equipment and inventory, (e) all trucks, cars, drilling/workover rigs located within the Appalachian Area and utilized by EXCO or its Affiliates in connection with the ownership or operation of the Assets, (f) any Company Contract, (g) all amounts attributable to royalty, overriding royalty and other burdens on production of Hydrocarbons from such assets held in suspense and any interest accrued in escrow accounts for such suspended funds, and (h) files, records, maps, information and data, whether written or electronically stored.

Operating Committee ” has the meaning given to it in the Joint Development Agreement.

Operating Expense Multiplier ” means, in the case of any Calendar Year (for purposes of this definition, the “ relevant Calendar Year ”), the amount obtained by dividing: (a) the number of active wells included in Joint Development Operations as of the end of the preceding Calendar

 

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Year, plus the number of wells anticipated to be drilled as Joint Development Operations in the relevant Calendar Year, minus the number of wells anticipated to be plugged and abandoned pursuant to Joint Development Operations in the first half of the relevant Calendar Year; by (b) the number of active wells included in Joint Development Operations as of the end of the preceding Calendar Year.

Other Material Company Contract ” means any material Company Contract that is not a Development Operations Contract or an Affiliate Contract.

Original Agreement ” has the meaning given to it in the Recitals.

Participating Member ” means with respect to any Development Operation, any Member: (a) that is a Development Party participating in such Development Operation; (b) that has an Affiliate that is a Development Party that is participating in such Development Operation; or (c) that holds membership interest in, or that has an Affiliate that holds membership in, a Joint Entity that is participating in such Development Operation (other than a Sole Risk Entity Operation in which such Member or Affiliate of such Member elected not to participate).

Participating Parties ” has the meaning given to it in the Joint Development Agreement.

Parties ” means, collectively, all of the Members and the Company, and “ Party ” means any of them.

Party Operator ” has the meaning given to it in the Joint Development Agreement.

Percentage Interest ” means, with respect to a specified Member or Affiliated Member Group, the percentage ownership interest of such Member or Affiliated Member Group in the equity of the Company from time to time.

Person ” means any individual, corporation, company, limited partnership, limited liability company, trust, estate, Governmental Authority or any other entity or organization.

President and General Manager ” means the individual whose rights, obligations and duties are described in Section 2.11(b)(ii).

Proceeding ” means any threatened, pending or completed action, suit, arbitration, appeal or other proceeding of any nature, whether civil, criminal, administrative or investigative, whether formal or informal.

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

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

 

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

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

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

(e) In lieu of the depreciation, amortization, and other cost recovery deductions in respect of depreciable or amortizable property taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Allocation Year, computed in accordance with the definition of “Depreciation”;

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

(g) Notwithstanding any other provision of this definition, any items that are specially allocated pursuant to Section 6.2 shall not be taken into account in computing Profits or Losses.

The amounts of the items of Company income, gain, loss, or deduction available to be specially allocated pursuant to Section 6.2 shall be determined by applying rules analogous to those set forth in subparagraphs (a) through (f) above.

Quarterly Financial Statements ” has the meaning given to it in Section 11.2(b).

Required Asset Upgrade ” means any Asset Upgrade: (i) necessary in order for the conduct of Business to comply with applicable Laws; or (ii) necessary in order for the Company to fulfill its required obligations under any material Company Contract.

Secondment Agreement ” means any secondment agreement entered into pursuant to Section 2.11(c).

 

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Shallow Rights Gathering Assets ” means any gathering or pipeline system or related asset used to gather or transport gas produced in: (a) New York, Pennsylvania or West Virginia from subsurface depths that are above the Deep Rights; or (b) Kentucky, Ohio, Tennessee, or Virginia.

Simulated Basis ” means the Tax Book Value of any Depletable Property and any indirect ownership of such property through an equity interest in an entity classified as a partnership or disregarded entity for federal income tax purposes.

Simulated Depletion ” means, for each Allocation Year, an amount equal to the simulated depletion allowable computed by the Company with respect to its Depletable Property (including any indirect ownership of such property through an equity interest in an entity classified as a partnership or disregarded entity for federal income tax purposes) pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(k)(2). For purposes of computing Simulated Depletion, the Company will apply the simulated cost depletion method under Treasury Regulations Section 1.704-1(b)(2)(iv)(k)(2). With respect to any Depletable Property whose Tax Book Value differs from its adjusted tax basis for federal income tax purposes at the beginning of an Allocation Year, Simulated Depletion will be that amount determined by applying the principles of Treasury Regulations Section 1.611-2(a)(i) as if the Tax Book Value was the adjusted basis upon which simulated cost depletion is computed under Treasury Regulations Section 1.704-1(b)(2)(iv)(k)(2).

Simulated Gain ” or “ Simulated Loss ” means the simulated gain or simulated loss computed by the Company with respect to its Depletable Properties (including any indirect ownership of such property through an equity interest in an entity classified as a partnership or disregarded entity for federal income tax purposes) pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(k)(2).

Sole Risk Entity Operation ” has the meaning given to it in the Joint Development Agreement.

Sole Risk Development Operation ” has the meaning given to it in the Joint Development Agreement.

Standards Asset Upgrade ” means any Asset Upgrade necessary to ensure that the Company will be able to comply with the standards identified in Section 2.13, including the HSSE Principles, the HSSE Plan or the HSSE Management System.

Subject Oil and Gas Assets ” has the meaning given to it in the Joint Development Agreement.

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

(a) The initial Tax Book Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset as agreed to by the Members;

 

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(b) The Tax Book Values of all items of Company Property shall be adjusted to equal their respective Fair Market Value (taking Code Section 7701(g) into account) as of the following times: (i) the acquisition of an additional Membership Interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution, (ii) the distribution by the Company to a Member of more than a de minimis amount of Company Property as consideration for a Membership Interest in the Company, and (iii) the liquidation of the Company within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g) (other than pursuant to Section 708(b)(1)(B) of the Code); provided that an adjustment described in clause (i) of this paragraph shall be made only if the Tax Matters Member reasonably determines that such adjustment is necessary to reflect the relative economic interests of the Members in the Company;

(c) The Tax Book Value of any item of Company Property distributed to any Member (other than as consideration for a Membership Interest in the Company as described in clause (ii) of subparagraph (b) above) shall be adjusted to equal the gross Fair Market Value (taking Code Section 7701(g) into account) of such item on the date of distribution; and

(d) The Tax Book Values of each item of Company Property shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Treasury Regulations Section 1.704 1(b)(2)(iv)(m) and subparagraph (f) of the definition of “Profits” and “Losses” or Section 6.2(g); provided, however, that Tax Book Values shall not be adjusted pursuant to this subparagraph (d) to the extent that an adjustment pursuant to subparagraph (b) is required in connection with a transaction that would otherwise result in an adjustment pursuant to this subparagraph (d).

(e) If the Tax Book Value of an asset has been determined or adjusted pursuant to subparagraph (a), (b), or (d), such Tax Book Value shall thereafter be adjusted by the Simulated Depletion or Depreciation taken into account with respect to such asset.

(f) This definition will not affect the book value of any asset for financial reporting purposes.

Tax Matters Member ” has the meaning given to it in Section 11.4.

Technical Services ” means, subject to any further description in services agreements between the Company and each Development Party, (a) services providing specific engineering, geoscience, land, or other exploration, development and/or producing professional skills, such as those performed by engineers, geologists, geophysicists, landmen, and technicians, required to handle specific operating conditions and problems, and (b) human resources, tax, information technology, legal, HSSE and other administrative services (including those services performed outside of the Appalachian Area), in each case for the benefit of Development Operations; provided, however, Technical Services shall not include general corporate overhead activities, including senior management, provisions of office space, utilities, insurance, computers and office equipment, and similar items.

 

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Technical Services Costs ” means (a) salaries, wages, mandatory government payroll burdens, benefits and personal expenses of employees of the Development Parties and their Affiliates providing Technical Services and (b) in the case of human resources, information technology and HSSE, costs associated with providing such services, but excluding general corporate overhead costs.

Total Amount in Default ” means, as of any time, the following amounts: (a) the amounts that the Defaulting Member has failed to pay under the terms of this Agreement as of such time; and (b) any interest at the Default Interest Rate accrued on the amount under (a) from the date such amount is due by the Defaulting Member until paid in full by the Defaulting Member.

Total Votes ” has the meaning given to it in Section 2.5(a).

Transfer ” means any sale, assignment, or other disposition by a Member of all or any part of its Membership Interest, excluding (a) any disposition resulting from a direct or indirect Change in Control of a Member, or a change in Control created by a change in Control of the ultimate parent company of such Party, (b) any disposition resulting from a Credit Facility Foreclosure and (c) any Encumbrance on any Membership Interest.

Transfer Agreement ” has the meaning given to it in the Joint Development Agreement.

Transferring Member ” has the meaning given to it in Section 9.4(a).

Treasury Regulations ” means the income tax regulations promulgated under the Code, as amended from time to time (including corresponding provisions of succeeding regulations).

Unaffiliated Participating Parties ” has the meaning given to it in Section 11.2(b).

Undeveloped Lease ” means any oil and gas lease, oil, gas and mineral lease or sublease, royalty, overriding royalty, production payment, net profits interest, mineral fee interest, carried interest, mineral servitude or other right to oil and gas in place (in each case) with respect to which no oil and gas development activities have taken place.

Upstream Activities ” means the ownership, operation, use, exploration, appraisal, development, production, maintenance and decommissioning of oil, gas and mineral interests, including leases, and Shallow Rights Gathering Assets, in the Appalachian Area, and the acquisition, disposition and financing thereof, and the performance of the responsibilities of the Company under the Joint Development Agreement and the Associated Agreements for so long as such agreements remain in effect. “Upstream Activities” shall not include (a) except with respect to the Shallow Rights Gathering Assets, the funding, development, ownership or operation of any equipment, fixtures, or other assets located downstream of the outlet flange of the custody transfer meter (or in the case of Hydrocarbon liquids, downstream of the outlet flange in the tanks) of any well, or (b) marketing or sale of Hydrocarbons products owned by or attributable to the Company (other than the marketing and sale of Hydrocarbons products owned by or attributable to the Company: (i) as contemplated in the Marketing Agreements; or (ii) that are jointly marketed or sold with Hydrocarbons products owned by or attributable to the Development Parties and/or Joint Entities by the Company in the performance of its responsibilities under the Joint Development Agreement).

 

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Wholly-Owned Affiliate ” means, with respect to any Person, an Affiliate of such Person that is wholly owned, directly or indirectly, by the ultimate parent of such Person.

 

1.2 Formation as a Delaware Limited Liability Company . The Company was converted into and formed as a Delaware limited liability company by execution and delivery of the Certificates to the Secretary of State of the State of Delaware on May 28, 2010.

 

1.3 Name; Registered Agent and Registered Office . The name of the Company is “EXCO Resources (PA), LLC”. The Company’s initial registered office in the State of Delaware shall be located at 1209 Orange Street, Wilmington, Delaware 19801. The registered agent at such address is The Corporation Trust Company. The Company’s registered agent and registered office may be changed from time to time pursuant to Section 2.3(l).

 

1.4 Term . The term of the Company commenced on the date the Certificates were filed with the Secretary of State of the State of Delaware and will continue until the Company is dissolved under Article 8.

 

1.5 Purpose of the Company; Power . The purpose of the Company shall be to engage in the Upstream Activities, and any other lawful activity that now or in the future may be necessary, convenient, incidental, or advisable to accomplish the foregoing purpose and that is not forbidden by Law in the jurisdictions in which the Company engages in such business or activities. The Company shall have all powers and privileges granted by the Delaware Act, any other Law, or by this Agreement, including incidental powers thereto, to the extent that such powers and privileges are necessary, customary, convenient or incidental to the attainment of the Company’s business and purpose as set forth in this Section 1.5.

 

1.6 Fiscal Year . The fiscal year of the Company will begin on January 1 and end on December 31 of each Calendar Year (the “ Fiscal Year ”).

 

1.7 Title to Company Property . All property owned by the Company will be deemed to be owned solely by the Company, and no Member individually will have any interest in such property. No Member and no successor or assign of any Member will have the right to have the property of the Company partitioned, or to file a complaint or institute any Proceeding at Law or in equity to have the property of the Company partitioned, and each Member, on behalf of itself and its successors and assigns, hereby irrevocably waives any such right.

 

1.8 Membership Interests Uncertificated . The Membership Interests held by each Member will be uncertificated.

 

1.9

Qualification in Other Jurisdictions . The Company’s officers shall cause the Company to be qualified, formed or registered to conduct business, and if applicable file for use of assumed or fictitious names, in any jurisdiction in which the Company transacts business. At the request of any Member, each Member shall execute, acknowledge,

 

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  swear to and deliver all certificates and other instruments conforming with this Agreement that are necessary or appropriate to qualify, continue and/or terminate the Company as a foreign limited liability company in all jurisdictions in which the Company may conduct business, provided that no Member shall be required to file any general consent to service of process or to qualify as a foreign corporation, limited liability company, partnership or other entity in any jurisdiction by virtue of the business conducted or to be conducted by the Company.

 

1.10 Principal Office . The Company’s principal office shall be located at 3000 Ericsson Dr., Suite 200, Warrendale, Pennsylvania 15086. The Management Board may change the Company’s principal office from time to time pursuant to Section 2.3(l), which need not be in Delaware. The Company may have such other places of business as the Management Board may designate.

 

1.11 No State Law Partnership . The Members intend that: (a) the Company not be a common law partnership or joint venture; and (b) the Company not create any agency or other relationship creating fiduciary or quasi-fiduciary duties of any Member to the Company or to any other Member, and this Agreement may not be construed to suggest otherwise. This Agreement shall not subject the Members to joint and several or vicarious liability or impose any duty, obligation or liability that would arise therefrom with respect to any or all of the Members or the Company.

ARTICLE 2

MANAGEMENT

 

2.1 Management under Direction of Management Board . Except as otherwise expressly provided in this Agreement or required under the Delaware Act, the business and affairs of the Company shall be managed by a board of managers (the “ Management Board ” and each member of the Management Board, a “ Board Member ”). The Management Board shall have full and complete authority, power, and discretion to manage and control the business, affairs, and properties of the Company and to make all decisions regarding those matters and to perform any and all other acts or activities customary or incidental to the management of the Company and the Business. Without limiting the generality of the foregoing and subject to the provisions of Sections 2.2 and 2.3, Management Board approval shall be required for all matters not expressly delegated by the Management Board to the officers of the Company, or to other authorized persons in accordance with Section 2.11. All actions of a Member with respect to the Management Board shall be taken through its Board Members.

 

2.2 Unanimous Votes . All matters identified in this Section 2.2 shall require the affirmative vote of Board Members representing one hundred percent (100%) of the Total Votes:

 

  (a) approval of voluntary reserves described in item (b) of the definition of “Approved Reserves”;

 

  (b) issuance of any guaranty by the Company;

 

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  (c) the voluntary grant of any lien or encumbrance on any Company Property other than under an approved Development Operations Contract or Other Material Company Contract;

 

  (d) approval of any decision to distribute Net Cash Flow less frequently than on a Calendar Quarter basis, or, except upon dissolution and winding up of the Company, to distribute any Company Property other than cash, or to distribute less than all Net Cash Flow pursuant to Section 7.1;

 

  (e) approval of any decision to dispose of Company Property that has a value in excess of five million dollars (US$5,000,000) in any transaction or series of related transactions;

 

  (f) any sale, merger, reorganization or consolidation of the Company or any decision to sell all or substantially all of the Company Property;

 

  (g) any voluntary dissolution, liquidation or winding up of the Company;

 

  (h) filing any documents to effect a Bankruptcy of the Company;

 

  (i) redeeming any Membership Interest in a manner that is not proportional to all outstanding Membership Interests;

 

  (j) any establishment of any subsidiary or any acquisition of any equity interests in another Person (other than investment of Company funds in publicly-traded securities);

 

  (k) confessing a judgment against the Company in connection with any threatened or pending legal action or settling any litigation or other proceeding in which the amount involved could reasonably be expected to exceed five hundred thousand dollars (US$500,000), in either case, relating to the Business;

 

  (l) the conversion of the Company to a different form of entity, changing the name of the Company or conducting the Business under a name other than the name set forth in Section 1.3, or moving the Company’s principal office from the location set forth in Section 1.10;

 

  (m) Company participation in any business or operations other than as provided in Section 1.5;

 

  (n) changing the method of accounting (other than in connection with a tax-related action or decision made by the Tax Matters Member pursuant to the authority granted herein) or outside auditors of the Company;

 

  (o) the voluntary amendment of the Certificates;

 

  (p) allowing any contribution to the capital of the Company by any Member in any form other than cash;

 

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  (q) the registration of any equity or debt securities of the Company under applicable United States federal or foreign securities Laws or any public offering of equity or debt securities of the Company;

 

  (r) entering into any agreement pursuant to which the Company would be prohibited or restricted from engaging in any lawful business or activity or competing with any Person in any geographic area;

 

  (s) except with respect to a Defaulting Member, distributing any cash or Company Property in a manner that is not proportional to all outstanding Membership Interests;

 

  (t) issuing or committing to issue any additional Membership Interests or other equity or debt securities of the Company or options to acquire any such securities;

 

  (u) any incurrence, assumption or guaranty of any indebtedness for borrowed money by the Company;

 

  (v) any loan of Company funds or assets to any Person (excluding for this purpose accounts receivable on normal commercial terms);

 

  (w) except for the rights and waivers set forth in Article 8, providing any indemnification rights to any Covered Person or waiving any claims against any Person;

 

  (x) any acquisition of Oil and Gas Assets (other than Operating Assets in the ordinary course of business) that are not part of a Budgeted Acquisition for consideration in excess of five hundred thousand dollars ($US500,000) in any transaction or series of related transactions;

 

  (y) upon dissolution and winding up of the Company, the sale of Oil and Gas Assets that would otherwise be distributed in kind and distribution of cash in lieu thereof;

 

  (z) approval of any cash call to the Members pursuant to Section 5.3 for expenditures that are not made pursuant to an Annual Work Program and Budget;

 

  (aa) making any election to resign as the Joint Development Operator under the Joint Development Agreement; and

 

  (bb) approval of any decision that the Company sell, assign or otherwise transfer its ownership interest in any Company Technology.

 

2.3 Seventy Five Percent Votes . All matters identified in this Section 2.3 shall require the affirmative vote of Board Members representing seventy five percent (75%) of the Total Votes, except for those matters identified in Sections 2.3(b) and 2.3(o), which shall require the affirmative vote of Board Members appointed by Members that are not the counterparty or Affiliates of the counterparty under the relevant contract representing seventy five percent (75%) of the Total Votes held by such Members:

 

  (a) execution of any Development Operations Contract to be entered into by the Company that requires the approval of the Management Board pursuant to Section 3.1, and any material amendment of or voluntary termination of any such Development Operations Contract (provided that approval of any matters described in Section 3.1(b) shall require the approval specifically set forth therein);

 

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  (b) execution of any Affiliate Contract (including any Marketing Agreement) to be entered into by the Company, and any material amendment of or voluntary termination of any such Affiliate Contract;

 

  (c) delegation of authority to the officers of the Company to enter into certain Company Contracts (including Hydrocarbons sales agreements), and delegation of authority to make Budgeted Acquisitions on behalf of the Development Parties using powers of attorney (the Management Board shall use commercially reasonable efforts to make such delegations within thirty (30) days of the Closing Date);

 

  (d) execution of any Other Material Company Contract (other than Hydrocarbons sales agreements) to be entered into by the Company, and any material amendment or voluntary subdivision of any such Other Material Company Contract (other than Hydrocarbons sales agreements);

 

  (e) approval of the final terms of any financing and security arrangements relating to the Business, including execution of any notes, bonds, indentures, loan agreements or other material agreements between the Company and lenders, and any amendment or voluntary termination of any such agreement;

 

  (f) creation of any new officer position, other than the positions specifically set forth in Section 2.11(b)(i), determination of the rights, powers, privileges and duties of any such new position, appointment of any Person to any such new position, and extinguishment of any such new position;

 

  (g) approval of the final terms of any settlement by the Company in respect of the Business of any claim or suit or series of related claims or suits for an amount, or institution of litigation by the Company against any Person, for an amount in excess of two hundred and fifty thousand dollars (US$250,000) (exclusive of legal fees);

 

  (h) except as may be required by Law, altering, amending or waiving the insurance requirements for the Company set forth on Schedule 2.17;

 

  (i) approval of any decision to distribute Net Cash Flow more frequently than on a Calendar Quarter basis;

 

  (j) approval of any decision to dispose of Company Property that has a value in excess of one million dollars (US$1,000,000) but not more than five million dollars (US$5,000,000) in any transaction or series of related transactions;

 

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  (k) removal of a secondee pursuant to Section 6.2(A)(3) of any Secondment Agreement (provided that Management Board approval shall not be required to remove a secondee that is not an officer of the Company and such non-officer secondees may be removed pursuant to Section 2.11(f));

 

  (l) replacement of the Company’s registered office or registered agent in Delaware;

 

  (m) approval of a place of business of the Company in addition to the principal office of the Company designated pursuant to Section 1.10;

 

  (n) terminating, amending or altering any of the Services Agreements or any confirmations thereunder;

 

  (o) requests for services by the Company under any Services Agreement, and the terms and conditions for the provision of such services;

 

  (p) approval of any Budgeted Acquisition for consideration in excess of five million dollars ($US5,000,000) in any transaction or series of related transactions;

 

  (q) approval of technical standards and guidelines developed pursuant to Section 2.13(a), the HSSE Principles, the HSSE Plan, the HSSE Management System, and any amendment or termination of any such items;

 

  (r) approval of the conflict of interest policy to be developed pursuant to Section 2.14, and any amendment or termination of such policy;

 

  (s) except as provided in Sections 2.11(b)(ii) and 2.11(b)(iii), appointing, ratifying, removing, establishing or modifying the rights, powers, privileges and duties of any officer of the Company or, except as provided in Section 11.4, the Tax Matter Member;

 

  (t) any establishment of any employee position at the Company;

 

  (u) opening any bank account for the Company or designating or changing any signatory on any such account;

 

  (v) initiating any legal action or arbitration by or on behalf of the Company: (i) in excess of one hundred thousand dollars ($US100,000); or (ii) against any Governmental Authority;

 

  (w) following termination of the Joint Development Agreement, approval of any Annual Work Program and Budget proposed pursuant to Section 3.2, and any amendment thereto;

 

  (x) any acquisition of Operating Assets for consideration in excess of five million dollars ($US5,000,000) in any transaction or series of related transactions;

 

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  (y) internal control programs for the Company established by the Vice President of Finance and Business Services;

 

  (z) approval of the priority as between Standards Asset Upgrades to be performed by the Development Parties and/or Joint Entities;

 

  (aa) so long as the Joint Development Agreement is in effect, the conduct of Standards Asset Upgrades pursuant to any Annual Work Program and Budget which would cause the aggregate costs incurred by the Development Parties and/or Joint Entities in respect of Standards Asset Upgrades during the relevant Calendar Year to exceed five million dollars (US$5,000,000), and following the expiration of the Joint Development Agreement, the conduct of Standards Asset Upgrades in any Calendar Year which would cause the aggregate costs incurred by the Company, Affiliates of the Members and/or Joint Entities in respect of Standards Asset Upgrades during such Calendar Year to exceed five million dollars (US$5,000,000);

 

  (bb) approval of principles and guidelines to be observed by Company officers when negotiating and executing Company Contracts that are Hydrocarbons sales agreements; and

 

  (cc) any other matter primarily relating to the Business or the Company Property not otherwise identified in Section 2.2 or this Section 2.3 which requires the approval of the Management Board pursuant to the terms of this Agreement.

In the event the Company forms or acquires any direct or indirect wholly or partially-owned subsidiary (excluding investments of Company funds in publicly-traded securities), any matter described in Sections 2.2 and 2.3 shall, if affecting the subsidiary, be subject to the same approvals set forth in such Sections 2.2 and 2.3. Notwithstanding anything to the contrary in Section 2.2 or in Section 2.3, other than as provided in Section 2.3(z), the Management Board shall be deemed to have approved any activities to be performed by the Company in connection with the performance of Required Asset Upgrades.

 

2.4 Number, Tenure and Qualification .

 

(a)

The Management Board shall consist of eight (8) Board Members. Each of BG Affiliate Group and EXCO Affiliate Group shall be entitled to appoint four (4) Board Members and three (3) alternate Board Members. Each of (i) the Board Members of the BG Affiliate Group and (ii) the Board Members of the EXCO Affiliate Group shall be referred to as a separate group (each a “ Group ”) such that the Management Board shall be comprised of at least two different Groups of Board Members. The Board Members appointed by a Member, or in any absence of such Board Member, any alternate appointed by such Member, shall be authorized to represent and bind such Member with respect to any matter which is within the powers of the Management Board and is properly brought before the Management Board. Each alternate Board Member shall be entitled to attend Management Board meetings. The Board Members and alternate Board Members may also bring to any Management Board meetings such advisors as they may

 

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deem appropriate. Each Affiliated Member Group shall appoint its initial Board Members and alternate Board Members by notice to the other Members on or prior to the first meeting of the Management Board or the first required vote of the Management Board. All actions of a Member with respect to a Management Board shall be taken through its Board Members or alternate Board Members.

 

(b) Each of BG Affiliate Group and EXCO Affiliate Group shall have the right to change any of its Board Members and its alternate Board Members at any time by giving notice of such change to the Company and the other Members.

 

(c) Any Board Member designated in accordance with this section shall be immediately removed from the Management Board at any time that the Affiliated Member Group that designated such Board Member ceases to own any Membership Interest.

 

(d) A Board Member need not be a resident of the State of Delaware. A Board Member shall hold office until the earlier of (i) the Board Member’s successor being duly appointed or (ii) such Board Member’s withdrawal, death, removal or resignation.

 

(e) A Person that serves as a Board Member shall not be required to be a Board Member as his sole and exclusive occupation, and a Board Member may have other business interests and may engage in other investments, occupations and activities in addition to those relating to the Company.

 

2.5 Voting Proxies; Quorum; Meetings of Management Board; No Fiduciary Duties .

 

(a) A Board Member may vote at a meeting by a written proxy executed by that Board Member and delivered to another Board Member. All decisions taken by the Management Board shall be conclusive and binding on all Members. Except as provided in Section 2.5(b), attendance (either in person, by remote communication pursuant to Section 2.5(l), or by proxy) of Board Members representing Members holding more than fifty percent (50%) of the Total Votes shall constitute a quorum for the transaction of Business at a meeting of the Management Board. The Board Members, collectively, shall have a total of 100 votes, as may be adjusted below (the “ Total Votes ”) to cast on any action of the Management Board, with (i) the Group of Board Members elected by the BG Affiliate Group being entitled to cast the number of votes equal to the product (rounded to the nearest tenth) of (x) the aggregate Percentage Interests of the members of the BG Affiliate Group and (y) 100, and (ii) the Group of Board Members elected by the EXCO Affiliate Group being entitled to cast the number of votes equal to the product (rounded to the nearest tenth) of (x) the aggregate Percentage Interests of the members of the EXCO Affiliate Group and (y) 100. If the calculation does not yield exactly 100 votes, then each Group of Board Members’ votes shall be rounded to the nearest 0.01. Any Board Member of a Group of Board Members may cast any or all votes entitled to be cast by that Group of Board Members. Except as otherwise expressly provided in this Agreement, any action or event relating to Business conducted at a Management Board meeting shall be deemed approved if such action or event receives the required Management Board approval at a meeting at which a quorum is present.

 

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(b) Notwithstanding anything to the contrary in this Agreement, any actions by the Company in connection with a breach, default, indemnity or other claim (or alleged breach, default, indemnity or other claim) by a Member or its Affiliate under an Affiliate Contract or other transaction with a Member or its Affiliate (such as a waiver of the breach or default, notice of breach or default or notice of termination for breach or default in accordance with the terms of the Affiliate Contract) or enforcement or exercise of any of the Company’s rights or remedies in respect to such breach, default, indemnity or other claim (or alleged breach, default, indemnity or other claim) or otherwise under such Affiliate Contract or in connection with such transaction (collectively, “ Enforcement Activities ”) shall be conducted by or under the direction of the Management Board, provided that any Board Member designated by a Member (a “ Conflicted Member ”) that is, or has an Affiliate (other than the Company) that is the counterparty under such Affiliate Contract or transaction, and the Conflicted Member shall not participate in any vote regarding such Enforcement Activities at any meeting of the Management Board, shall not be required to be present to constitute a quorum of such Management Board, and shall not be counted for purposes of determining whether such actions by the Company receive the minimum vote necessary to take such action; provided, further, that no officer or other agent of the Company that is also a present officer, director, member, manager, stockholder, partner, employee or other agent or Affiliate of a Conflicted Member or one of its Affiliates shall have any obligation to take or refrain from taking any action on behalf of the Company or be requested or required by the Company or Management Board to take or refrain from taking any action with respect to any Enforcement Activities including such Conflicted Member, except to provide information, documents and other related items reasonably requested by the Company or any Member in connection with such Enforcement Activities. Except with respect to such Person’s failure to provide information, documents or other related items requested by the Company or any Member in connection with such Enforcement Action and to provide testimony, give evidence and otherwise participate in any suit, litigation, arbitration or other dispute resolution proceeding involving the Conflicted Member, any such Person’s failure or refusal to take or refrain from taking any such action shall not constitute: (i) a breach of any duty, fiduciary or otherwise, owed by such Person to the Company; or (ii) fraud, bad faith or willful misconduct on the part of such Person. Any officer, director, manager, member, stockholder, partner, employee or other agent of a Member, or an Affiliate of such Member, other than a Conflicted Member, is authorized to take or refrain from taking any action on behalf of the Company associated with any Enforcement Activities described in the foregoing two sentences. In the event any Affiliate Contract provides for rights of audit, or any right to request information, any Member other than a Conflicted Member shall be entitled, without a vote, to require by notice to the Company and the other Members that the Company exercise such rights of audit or request information. For the avoidance of doubt, removal of a secondee under Section 6.2(A)(3) of a Secondment Agreement shall be an Enforcement Activity.

 

(c) The Management Board may establish such subcommittees as it may deem appropriate. The functions of such subcommittees shall be to serve in an advisory capacity only. Each Member shall have the right to appoint a representative to each subcommittee.

 

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(d) The President and General Manager may call a meeting of the Management Board by giving notice to the Members at least fifteen (15) days in advance of such meeting. Any Member may request a meeting of the Management Board by giving notice to the other Members and the President and General Manager, which notice shall include any proposals being proposed by such Member for consideration at the meeting (including appropriate supporting information not previously distributed to such Members). Upon receiving such request, the President and General Manager shall call such meeting for a date not less than fifteen (15) days nor more than twenty (20) days after receipt of the request.

 

(e) Each notice of a meeting of a Management Board as provided by the President and General Manager shall contain: (i) the date, time and location of the meeting; (ii) an agenda of the matters and proposals to be considered and/or voted upon; and (iii) copies of all proposals to be considered at the meeting (including appropriate supporting information not previously distributed to the Members). A Member, by notice to the other Members and the President and General Manager, which notice shall include any additional proposals being proposed by such Member to be considered at the meeting (including appropriate supporting information not previously distributed to the Members), given not less than five (5) Business Days prior to a meeting, may add additional matters to the agenda for a meeting. On the request of a Member, and with the unanimous consent of all other Members, the Management Board may consider at a meeting a proposal not contained in such meeting agenda.

 

(f) There shall be at least one (1) meeting of the Management Board per Calendar Quarter unless all Members agree in writing to the contrary. Meetings of each subcommittee shall take place as often as the Management Board shall determine. All meetings of the Management Board and each subcommittee shall be held in the principal offices of the Company, or elsewhere as the Management Board or such subcommittee may mutually decide, which alternate location may be within or outside the State of Delaware.

 

(g) With respect to meetings of the Management Board and each subcommittee, the President and General Manager’s duties shall include timely preparation and distribution of the agenda.

 

(h)

Until the first anniversary of the Closing Date, the chairman of the Management Board shall be a Board Member designated by the EXCO Member Group. Thereafter, the right to appoint the chairman of the Management Board shall be rotated on an annual basis among the Affiliated Member Groups, with such rotation proceeding in order of highest aggregate Membership Interests of such Affiliated Member Groups (and alphabetically among Affiliated Member Groups with identical aggregate Membership Interests), and with the Member named in the preceding sentence being excluded from the first round of rotation; provided however that (i) any Affiliated Member Group holding less than twenty-five percent (25%) of the aggregate Membership Interests of the Company shall not be included in the foregoing rotation and shall not have a right to appoint the chairman of the Management Board and (ii) any Affiliated Member Group that is created as the result of a Transfer of a Membership Interest shall be added to the end of the rotation at the time of such Transfer. Any Affiliated Member Group may waive its right

 

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  to appoint the chairman. For the avoidance of doubt, the chairman shall have no special casting or deciding vote on any matter presented to the Management Board. The chairman of the Management Board shall appoint a secretary who shall make a record of each proposal voted on and the results of such voting at such Management Board meeting. Each Board Member shall sign and be provided a copy of such record at the end of such meeting, and it shall be considered the final record of the decisions of such Management Board.

 

(i) The secretary of the Management Board shall provide each Member with a copy of the minutes of each Management Board meeting within fifteen (15) Business Days after the end of the meeting. Each such Member shall have fifteen (15) days after receipt of such minutes to give notice to the secretary of any objections to the minutes. A failure to give notice specifying objection to such minutes within said fifteen (15) day period shall be deemed to be approval of such minutes. In any event, the votes recorded under Section 2.5(h) shall take precedence over the minutes described above.

 

(j) In lieu of a meeting, any Member may submit any proposal that is within the powers of the Management Board to approve or disapprove to the Management Board for a vote by notice. The proposing Member shall notify the President and General Manager with written materials describing the proposal and the President and General Manager shall provide a copy of such proposal to each Member. Any such proposal by a proposing Member shall include with such proposal adequate documentation to enable the other Members to make a decision. Each Member (including the proposing Member) shall communicate its vote on the proposal by notice to the President and General Manager and the other Members within fifteen (15) days after receipt of the proposal from the President and General Manager. Any Member failing to communicate its vote in a timely manner shall be deemed to have voted against such proposal. Within five (5) Business Days following the expiration of the relevant time period, the President and General Manager shall give each Member a confirmation notice stating the tabulation and results of the vote on such proposal.

 

(k) From time to time, the Management Board may approve guidelines, standards or procedures regarding the implementation of the Business to be observed in the conduct of the Business by the Company.

 

(l) Board Members may participate in any meeting by means of conference telephone or similar remote 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.

 

(m) Attendance of a Board Member at any meeting of the Management Board (including by telephone or similar remote communication equipment) shall constitute a waiver of notice of such meeting, except where such Board Member attends the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not properly called or convened and notifies the other Board Members at such meeting of such purpose.

 

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(n) No Board Member, nor any Member appointing any such Board Member, shall owe any fiduciary duty to the Company, any other Member or Members as a group in connection with the activities of the Board Members or the Management Board, and no Board Member, nor any Member or Member(s) appointing any such Board Member, shall be obligated to act in the interests of the Company, any other Member or Members as a group. To the extent permitted by Law, the Board Members shall not be subject to any other or different standards (including fiduciary standards) imposed by this Agreement, any other agreement contemplated hereby or under the Delaware Act or any other Law or at equity.

 

(o) All notices and communications required or permitted to be given to the Board Members and the President and General Manager pursuant to this Article 2 shall be sufficient in all respects if given in writing and delivered personally, or sent by bonded overnight courier, or mailed by U.S. Express Mail or by certified or registered United States Mail with all postage fully prepaid, or sent by telex or facsimile transmission, or by pdf via e-mail (provided any such telex, facsimile or email transmission is confirmed either orally or by written confirmation), addressed to the appropriate Group at the address for such Group shown below or at such other address as such Member shall have theretofore designated by written notice delivered to the Member giving such notice:

If to the President and General Manager:

EXCO Resources (PA), LLC

3000 Ericsson Dr., Suite 200

Warrendale, Pennsylvania 15086

Attention: President and General Manager

Telephone: (724) 720-2500

Fax: (724) 720-2505

If to the EXCO Affiliate Group:

EXCO Holding (PA), Inc.

12377 Merit Drive, Suite 1700

Dallas, Texas 75251

Attention: Harold Hickey, Vice President and Chief Operating Officer

Telephone: (214) 368-2084

Fax: (214) 368-8754

With a copy to:

EXCO Resources, Inc.

12377 Merit Drive, Suite 1700

Dallas, Texas 75251

Attention: William L. Boeing, General Counsel

Telephone: (214) 368-2084

Fax: (214) 706-3409

 

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If to the BG Affiliate Group:

BG US Production Company, LLC

5444 Westheimer, Suite 1200

Houston, Texas 77056

Attention: Jon Harris

Telephone: (713) 599-4000

Fax: (713) 599-4250

BG US Production Company, LLC

5444 Westheimer, Suite 1200

Houston, Texas 77056

Attention: Chris Migura, Principal Counsel

Telephone: (713) 599-4000

Fax: (713) 599-4250

Any notice given in accordance herewith shall be deemed to have been given when delivered to the addressee in person or by courier, or transmitted by facsimile transmission or email during normal business hours, or upon actual receipt by the addressee after such notice has either been delivered to an overnight courier or deposited in the United States Mail, as the case may be. Each Group may change the address, telephone numbers, facsimile numbers and email addresses to which such communications are to be addressed by giving written notice to the other Parties in the manner provided in this Section 2.5(n).

 

2.6 Resignation of Board Members . A Board Member may resign from the position of Board Member at any time by giving written notice to the other Board Members. The resignation of a Board Member shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

 

2.7 Removal of Board Members . Subject to the automatic removal procedures set forth in Section 2.4(c), a Board Member may only be removed by the consent of the Affiliated Member Group then entitled to designate such Board Member in accordance with Section 2.4(a).

 

2.8 Vacancies . Any vacancy in the position of a Board Member that is created by the death, resignation or removal of a Board Member shall be filled only by consent of the Affiliated Member Group then entitled to designate such Board Member in accordance with Section 2.4(a). A Board Member elected to fill a vacancy shall hold office until a successor shall be elected and shall qualify, or until the Board Member’s earlier death, resignation or removal.

 

2.9 Fees and Expenses of Board Members . A Board Member shall not be entitled to any fees for serving as a Board Member. A Board Member shall be entitled to reimbursement for all reasonable, documented, out-of-pocket costs and expenses incurred by such Board Member in its capacity as a Board Member.

 

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2.10 No Power of Members to Bind Company . No Member shall have any power or authority to bind the Company in any way, to pledge the Company’s credit or to render it liable for any purpose.

 

2.11 Delegation of Authority; Officers .

 

(a)

 

  (i) The Management Board shall have the power to elect, delegate authority to, and remove such officers, employees, agents and representatives of the Company as the Management Board may from time to time deem appropriate; provided, however, that each officer appointee of the Company (other than those interim officers appointed as of the Closing Date) shall serve a three (3) year term commencing as of the date of the appointment of such officer, subject to each officer’s appointment being subject to an annual ratification vote by the Management Board. After any Management Board vote not to ratify the appointment of any officer, the Management Board shall, as soon as reasonably practicable thereafter, appoint a replacement officer, which replacement officer shall serve a three (3) year term (subject to annual ratification votes as described in this Section 2.11(a)(i)).

 

  (ii) As of the Closing Date, the Management Board has approved interim officers of the Company. The Management Board shall use commercially reasonable efforts to identify and create any other officer positions of the Company that it deems necessary or desirable, and elect all officers (including the officer positions being served by interim officers as of the Closing Date) of the Company that are to serve three (3) year terms (subject to annual ratification votes in accordance with Section 2.11(a)(i)) within 30 days of the Closing Date.

 

  (iii) Any delegation of authority to take any action must be approved in the same manner as would be required for the Management Board to approve such action directly. Any salaries paid by the Company to employees and agents of the Company shall be fixed by the Management Board in accordance with an approved Annual Work Program and Budget. All amounts to be reimbursed to the employer of any person seconded to the Company shall be as set forth in the form of the Secondment Agreement and shall be included in the applicable Annual Work Program and Budget.

 

(b)

 

  (i)

Officers. The Company shall have the following officers: President and General Manager; Vice President of Finance and Business Services; Vice President of Development and Engineering; Vice President of

 

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  Drilling; Vice President of Land; Vice President of Legal; Vice President of Marketing; Vice President of HSSE; and Vice President of Operations. Except as provided in Sections 2.11(b)(ii) and 2.11(b)(iii) below, such officers shall be selected by the Management Board pursuant to Section 2.3(s) and have the rights, powers, privileges and duties given to their respective offices by the Management Board pursuant to Section 2.3(s).

 

  (ii) President and General Manager. The President and General Manager shall be the chief executive officer of the Company responsible for the day to day direction of the Company and shall see that all decisions and resolutions of the Management Board are implemented. The President and General Manager shall be based in the Company’s principal office.

(A) If (1) the BG Affiliate Group possesses at least a twenty five percent (25%) Percentage Interest and (2) the EXCO Affiliate Group possesses at least a twenty five percent (25%) Percentage Interest, the BG Affiliate Group and EXCO Affiliate Group shall jointly identify and approve the individual to serve as the President and General Manager, who shall serve until the earlier of his resignation, removal or expiration of term.

(B) Upon a Change in Control of either the BG Affiliate Group or the EXCO Affiliate Group and provided that the Affiliated Member Group that has not suffered a Change in Control possesses at least a twenty-five percent (25%) Percentage Interest, such Affiliated Member Group shall, for a period of three (3) years after the Change in Control of such other Affiliated Member Group, have the exclusive right to nominate candidates for the position of President and General Manager to the Management Board for its approval for each subsequent term. Thereafter, each Affiliated Member Group that possesses at least a twenty-five percent (25%) Percentage Interest shall have the right to nominate candidates for the position of President and General Manager.

 

  (iii) Vice President of Finance and Business Services. The Vice President of Finance and Business Services shall be the officer of the Company responsible for the accounting, finance, information technology and certain procurement activities of the Company. Each Affiliated Member Group shall have the right to nominate candidates for the position of Vice President of Finance and Business Services to the Management Board for its approval; provided that the BG Affiliate Group shall have the sole right to nominate the candidates for the initial holder of the office of Vice President of Finance and Business Services to the Management Board for its approval. The Vice President of Finance and Business Services’ duties shall include:

(A) supervising and coordinating all accounting and finance activities of the Company;

 

33


(B) subject to Section 2.3(y), establishing and maintaining internal controls for the Company, including the Company’s contracts and procurement policy;

(C) creating the reports identified in Section 11.2 or, if applicable, working with the independent auditor of the Company to facilitate the creation of the reports identified in Section 11.2;

(D) analyzing the credit risk of each counterparty with whom the Company does business;

(E) procurement, coordination and oversight of services from the Members in accordance with the Services Agreement;

(F) assisting the President and General Manager with the preparation of each proposed Annual Work Program and Budget;

(G) maintaining the books and records of the Company, including those relating to commercial activities of the Company;

(H) within one hundred twenty (120) days following the Closing Date, reviewing the Company’s bribery and corruption control procedures and proposing to the Management Board any modifications or additional procedures considered necessary for the Company to have adequate procedures to prevent bribery and corruption; and

(I) such other rights, powers, privileges and duties as may be determined by the Management Board or delegated by the President and General Manager from time to time.

 

(c) Unless otherwise agreed by the Management Board, all officers of the Company shall be seconded to the Company by the Members pursuant to a secondment agreement substantially in the form of Exhibit “A” attached hereto. Simultaneously with the execution of this Agreement, each initial Member and the Company shall enter into a secondment agreement substantially in the form of Exhibit “A”. Each Affiliated Member Group with a Percentage Interest greater than twenty five percent (25%) shall have the right but not the obligation to second its or its Affiliates’ employees to the Company; provided, however, that the officers of the Company must be approved by the Management Board pursuant to Section 2.3(s) and all employees and secondees of the Company that are not officers must be approved by the President and General Manager in accordance with the Annual Work Program and Budget; provided that: (i) if the BG Affiliate Group possesses a Percentage Interest greater than twenty five percent (25%), the BG Affiliate Group shall have the right but not the obligation to second one or more of its or its Affiliates’ employees to the Company in each business and technical area of the Company; and (ii) if the EXCO Affiliate Group possesses a Percentage Interest greater than twenty five percent (25%), the EXCO Affiliate Group shall have the right but not the obligation to second one or more of its or its Affiliates’ employees to the Company in each business and technical area of the Company.

 

34


(d) Each Member shall use commercially reasonable efforts to cause its employees that are officers of the Company (including as secondees) to perform their respective duties in good faith, in accordance with this Agreement and in a manner such officers reasonably believe to be in or not opposed to the best interests of the Company, and with the care that an ordinarily prudent person in a similar position would use under similar circumstances. No Member shall be liable in damages to the Company or other Members for any action taken or not taken by such officer except intentional violations of criminal Law. The Company shall indemnify and hold harmless the officers and Board Members against liabilities to third parties in accordance with Article 8 below. Nothing in this Agreement is intended to alter, amend or waive each officer’s individual duty of loyalty to the Company.

 

(e) Any officer may resign at any time by prior written notice to the Management Board. Any officer shall be deemed to have resigned upon such officer’s death, or disability preventing performance of such officer’s duties.

 

(f) Subject to the related expenditures being included in an approved Annual Work Program and Budget, and only with the written approval of the President and General Manager, any officer of the Company that directly or indirectly supervises or will supervise such employee or secondee may hire and terminate employees that are not officers of the Company and second and terminate the secondment of individuals that are not officers of the Company in accordance with the applicable Secondment Agreement.

 

2.12 Provision of Services by the Members .

 

(a) On and effective as of the Closing Date, the Company shall enter into a Services Agreement with BG North America, LLC in substantially the form attached hereto as Exhibit “B”.

 

(b) On and effective as of the Closing Date, the Company shall enter into a Services Agreement with EXCO Resources, Inc. in substantially the form attached hereto as Exhibit “B”.

 

2.13 Standard of Conduct; Health, Safety, Security and the Environment .

 

(a)

The Business shall be conducted in compliance with the terms and conditions of: (i) all applicable Laws; (ii) those Leases upon which operations are conducted; (iii) all Applicable Operating Agreements; and (iv) once approved by the Management Board in accordance with Sections 2.13(b), 2.13(c) and 2.13(d), appropriate HSSE guidelines and principles. The Company shall conduct the Business as a reasonably prudent operator, in a good and workmanlike manner, with due diligence and dispatch, in accordance with good upstream and midstream industry practice and appropriate technical standards and guidelines issued by the American Petroleum Institute, the American Society of Mechanical Engineers and the American National Standards Institute, among others. Within twelve (12) months of signing this Agreement, the Company shall perform a gap analysis against a set of agreed technical standards for design, construction and operation

 

35


  of well and facilities within the Appalachian Area. These standards shall be submitted to the Management Board for its approval and shall include appropriate technical standards and guidelines (as mentioned above), including agreed exceptions, and shall adhere to HSSE guidelines and principles agreed upon pursuant to Sections 2.13(b), 2.13(c) and 2.13(d).

 

(b) Within sixty (60) days following the Closing Date, the Management Board shall use good faith efforts to develop HSSE principles to be observed in the conduct of the Business (the “ HSSE Principles ”) which at a minimum shall include: (i) the goals of preventing injuries and providing a healthy, safe and secure working environment; (ii) protection of the environment; (iii) the responsibility to seek continuous improvement in HSSE performance; and (iv) the principle that level of risk is the primary criterion for facilities design.

 

(c) Within one hundred twenty (120) days following the Closing Date, the Management Board shall use good faith efforts to develop an HSSE plan to be observed in the conduct of the Business (the “ HSSE Plan ”) which is consistent with the HSSE Principles and the relevant technical standards and codes of practice issued by American professional bodies, including the American Petroleum Institute, the American Society of Mechanical Engineers, the American National Standards Institute, and all applicable Laws.

 

(d) Within two (2) years following the Closing Date, the Management Board shall have used good faith efforts to develop and implement an HSSE management system to be observed in the conduct of the Business (an “ HSSE Management System ”) which addresses the HSSE risks specific to the conduct of all Business, and the management of controls to eliminate, reduce or mitigate HSSE risks.

 

(e) The Management Board shall use reasonable efforts to make the HSSE Principles, HSSE Plan and HSSE Management System consistent, to the extent practicable, with the principles, plan and management system adopted under the Joint Development Agreement among BG US Production Company, LLC, EXCO Operating Company, LP and EXCO Production Company, LP dated effective August 14, 2009.

 

(f) As promptly as practicable following the Closing Date, the Vice President of HSSE shall establish and, thereafter, shall manage, a program to track greenhouse gas emissions from Company Property.

 

(g) From time to time, the Management Board may amend the HSSE Principles, HSSE Plan, and the HSSE Management System, as the case may be, subject to the voting thresholds and procedures set forth herein.

 

2.14 Conflict of Interest Policy . Within sixty (60) days following the Closing Date, the Management Board shall use good faith efforts to develop a policy for the Company regarding required disclosure of conflicts of interest that any Member, Affiliate of a Member, and any officer, director or key employee of any Member, Affiliate of a Member may have with the interests of the Company.

 

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2.15 Certain Reports .

 

(a) The Company shall provide the following data and reports, as they are currently received, produced or compiled, for each Development Operation or other operation conducted by the Company to each Participating Member for such Development Operation or operation:

 

  (i) copies of all logs or surveys, including in digitally recorded format if such exists;

 

  (ii) daily drilling and production reports;

 

  (iii) copies of all tests and core data and analysis reports;

 

  (iv) final well recap reports;

 

  (v) copies of all plugging reports;

 

  (vi) as requested by a Participating Member from time to time and, except as prohibited by restrictions under third party contracts (which restrictions the Company shall use its reasonable efforts to have waived), copies of current geological and geophysical maps, seismic sections and shot point location maps;

 

  (vii) engineering studies, development schedules and annual progress reports on development projects;

 

  (viii) field and well performance reports, including reservoir studies and reserve estimates;

 

  (ix) copies of written notices provided by any third Person regarding violations or potential violations of applicable Law;

 

  (x) copies of all material reports provided to any Governmental Authority;

 

  (xi) upon written request of a Participating Member, copies of any material correspondence between such operator and any Governmental Authority;

 

  (xii) copies of all title opinions, including drill site title opinions and division order title opinions;

 

  (xiii) copies of all correspondence received by the Company in its capacity as a working interest owner under any joint operating agreement or other joint venture agreement, including, for the avoidance of doubt, copies of all election notices, AFEs and reports;

 

  (xiv) such other information as may be reasonably requested by a Participating Member; and

 

  (xv) such other reports as may be directed by the Management Board.

 

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(b) The Company shall, in the conduct of Development Operations and the Business:

 

  (i) report to the Members within 24 hours of the Vice President of HSSE receiving notice thereof, details of fatalities, lost time incidents, material environmental incidents and any other material incidents which (in each case) may present a reputational risk to the Company or any Member and also provide copies of any written notices received from Governmental Authorities or third parties with respect to such fatalities and incidents;

 

  (ii)

prepare an HSSE report to be submitted to the Members on the fifteenth (15 th ) day of April, July, October and January of each year in respect of the previous three (3) months, and monthly with respect to item (ii)(C) only, with content to be agreed by the Management Board but containing at a minimum:

(A) progress against the HSSE Plan applicable to such period;

(B) status of HSSE actions relating to HSSE audits;

(C) occupational safety indicators (e.g., fatalities and lost time incidents and frequency, recordable incidents and frequency and total man hours worked) of the Company (and as agreed to as part of the HSSE Plan, its contractors and subcontractors);

(D) known environmental incidents (e.g. leaks, spills, and cases of violations of environmental Laws and permits); and

(E) HSSE related claims.

 

(c) The Company shall promptly notify the Members of any third party written claim or suit arising from Development Operations or other operations of the Company of which the Company becomes aware for which the aggregate liability of the Development Parties and Joint Entities exceeds (or is reasonably expected to exceed) one hundred thousand dollars (US$100,000), and, upon request of any such Member from time to time, shall further provide, in a timely manner, the then current information regarding the progress and status of any such claims or suits.

 

2.16 Contractor Requirements and Access Rights . The Company shall:

 

(a) contractually require its contractors, subcontractors and suppliers of services to comply with all applicable Laws and all safety rules of the Company, and provide to its contractors and subcontractors copies of the HSSE Principles and HSSE Management System that are then in effect and use its commercially reasonable efforts to enforce such Persons’ compliance with such principles and system; and

 

(b)

with reasonable advance notice, permit Participating Members to have access during normal business hours (at their sole risk and expense, notwithstanding anything herein to the contrary) to operations, design phase activities, books and records, and

 

38


  representatives of the Company for the purpose of observing operations or conducting HSSE and asset integrity audits (provided that such Participating Members shall (i) minimize any disruption to the operations and business of the Company caused by such observation or audits, and (ii) adhere to all safety rules of such operator binding on Company personnel and the HSSE Principles and HSSE Management System then in effect while conducting such audits).

 

2.17 Insurance .

 

(a) Subject to the Management Board’s authority under Section 2.3(h), the Company shall maintain the insurance coverage set forth in Schedule 2.17, Part 1. Further, the Company shall also carry insurance for the benefit of the joint account of the Development Parties and the Joint Entities as outlined in Schedule 2.17, Part 2 attached hereto and made a part hereof. All such policies shall be carried with insurers maintaining a credit rating of at least “A-” by Standard & Poors or A.M. Best or “A3” by Moody’s. The Company shall provide copies of such policies to, in the case of insurance policies maintained for the benefit of the Company, to the Members, and in the case of insurance policies maintained for the benefit of the Development Parties and the Joint Entities, the Members covered by such policies, and to Members who have Affiliates that are Development Parties covered by such policies or who possess membership interests or an Affiliate who possess membership interests in any Joint Entity covered by such policies, upon request, and shall notify the affected Members if it has been unable to obtain or maintain any of such policies. Except for worker’s compensation policies, the Company shall arrange for the Development Parties and Joint Entities, according to their respective interests, to be named as additional insureds on the relevant policies, with waivers of subrogation in favor of all parties with respect to their interests under the Joint Development Agreement. The Company shall duly file any relevant claims and use commercially reasonable efforts to collect for the account of the relevant Development Parties and Joint Entities any proceeds under the relevant policies. The Company shall require all contractors and subcontractors engaged in work for Development Operations to comply with the workers compensation Laws of the state where the Development Operations are being conducted and to maintain such other insurance as the Management Board may require.

 

(b) The Company shall in respect of insurance obtained by contractors and subcontractors pursuant to Section 2.17(a): (i) if requested by any Participating Member, supply such Participating Member with evidence of the insurance that has been effected and is being maintained; and (ii) in connection with any Development Operations Contracts entered into on or after the Closing Date (excluding any written or oral confirmations, service orders or purchase orders entered into from or after the Closing Date under contracts existing as of the Closing Date), take all commercially reasonable steps to require that such contractors and subcontractors obtain from their insurers a waiver of subrogation in favor of the Company and each of the Development Parties and any Joint Entity that holds a working interest in the Leases served by the applicable Development Operations Contracts.

 

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2.18 Asset Upgrades .

 

  (a) Notwithstanding anything to the contrary in this Agreement, to the extent that the Company or any Member proposes that the Company conduct a Required Asset Upgrade, the Company shall participate in such Required Asset Upgrade regardless of whether less than all of the Members elected to have the Company participate in such Required Asset Upgrade, and the cost and expense of such Required Asset Upgrade shall be funded under the applicable Development Work Program and Annual Work Program and Budget.

 

  (b) So long as the Joint Development Agreement remains in effect, the Company or any Member may propose Standards Asset Upgrades as part of an Annual Work Program and Budget or an amendment to an Annual Work Program and Budget, and the Management Board shall approve and include in such Annual Work Program and Budget all such proposed Standards Asset Upgrades to the extent that the aggregate costs and expenses to be incurred by the Development Parties and/or Joint Entities with respect to such Standards Asset Upgrades during the relevant Calendar Year do not exceed five million dollars (US$5,000,000), and the costs and expenses associated with such Standards Asset Upgrades shall be reflected in such Annual Work Program and Budget as a separate line item. In the event the aggregate costs and expenses associated with proposed Standards Asset Upgrades for any Annual Work Program and Budget would exceed five million dollars (US$5,000,000), the Management Board shall determine the relative priority of the proposed Standards Asset Upgrades, and shall include in such Annual Work Program and Budget the proposed Standards Asset Upgrades costing, in the aggregate, up to five million dollars (US$5,000,000), that it determines to be of a higher priority. Unless otherwise agreed by the Management Board, any proposed Standards Asset Upgrades not included in an Annual Work Program and Budget shall be included in the following Calendar Year’s Annual Work Program and Budget (subject to limitations on associated costs and expenses set forth in this Section 2.18(b)).

 

  (c)

After the Joint Development Agreement is no longer in effect, the Company or any Member may propose Standards Asset Upgrades, and the Management Board shall approve and include in the applicable Annual Work Program and Budget all such proposed Standards Asset Upgrades to the extent that the aggregate costs and expenses to be incurred by the Company, the Affiliates of the Members and/or the Joint Entities with respect to Standards Asset Upgrades during the relevant Calendar Year do not exceed five million dollars (US$5,000,000), and the Company’s share of the costs and expenses associated with such Standards Asset Upgrades shall be reflected in such Annual Work Program and Budget as a separate line item. Each budgeted Standards Asset Upgrade shall be conducted pursuant to and in accordance with the terms of the relevant Applicable Operating Agreement. In the event the aggregate costs and expenses associated with proposed Standards Asset Upgrades to be incurred by the Company, the Affiliates of the Members and/or the Joint Entities during any Calendar Year would exceed five million dollars (US$5,000,000), the Management Board shall determine the relative priority of the proposed Standards Asset Upgrades, and shall conduct during the relevant Calendar Year the proposed Standards Asset Upgrades costing

 

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  the Company, the Affiliates of the Members and/or the Joint Entities, in the aggregate, up to five million dollars (US$5,000,000), that it determines to be of a higher priority. Unless otherwise agreed by the Management Board, any proposed Standards Asset Upgrades not conducted in a Calendar Year shall be included in the following Calendar Year’s Annual Work Program and Budget (subject to limitations on associated costs and expenses set forth in this Section 2.18(c)), and shall be conducted during such following Calendar Year.

 

  (d) If an Asset Upgrade is not a Required Asset Upgrade or a Standards Asset Upgrade included in an Annual Work Program and Budget, then the proposing Member with respect to such Asset Upgrade shall have the right to cause the Company to conduct such Asset Upgrade (and the Company shall own and be entitled to all benefits associated with such Asset Upgrade), even if less than all of the other non-proposing Members elect to have the Company participate in such Asset Upgrade, provided that the liabilities, costs and expenses of such Asset Upgrade and any ongoing or increased liabilities, costs and expenses associated therewith shall be solely borne by the proposing Member and such non-proposing Members and the Company shall have no obligation to pay any of the liabilities, costs and expenses of such Asset Upgrade or any ongoing or increased liabilities, costs and expenses associated therewith, the proposing Member and the non-proposing Members participating in any such Asset Upgrade responsible for the liabilities, costs and expenses of such Asset Upgrade shall have the exclusive right to use any increased capacity of pipelines or gathering systems constituting Company Property created by such Asset Upgrade, and the Company shall have no right to commit the use of any such increased capacity without the prior written consent of such Members.

 

  (e) In the event that there is any Dispute among the Members regarding whether an Asset Upgrade is or is not a Required Asset Upgrade or a Standards Asset Upgrade, such Dispute may be referred by any Member to an expert in accordance with Section 12.3.

ARTICLE 3

CONTRACT AWARDS

 

3.1 Contract Awards .

 

(a) Subject to Sections 3.1(b) and 3.1(c) of this Agreement and Section 4.7 of the Joint Development Agreement, the Company shall award each Development Operations Contract to the best qualified contractor considering cost, ability, availability and HSSE performance considerations (in each case, in the Company’s reasonable opinion), to perform the contract without the obligation to tender and without informing or seeking the approval of the Management Board. The procedure set forth in this Section 3.1 shall not apply to any contracts that have been awarded, or in respect of which invitations to tender have been issued, on or before the Closing Date, provided that the procedures set forth in this Section 3.1 shall apply to confirmations, service orders or purchase orders (whether written or oral) entered into on and after the Closing Date pursuant to existing master service agreements that were effective prior to the Closing Date.

 

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(b) Prior to entering into a Development Operations Contract with a Development Party or an Affiliate of a Development Party for which one or more other Development Parties (directly or indirectly through affiliated Entity Members of Joint Entities participating in such Development Operation) that are not Affiliates of such Development Operations Contract counterparty will be responsible for all or a portion of the costs and expenses payable thereunder (“ Unaffiliated Participating Parties ”), the Company shall be required to obtain the affirmative vote of the applicable Board Members of the Management Board pursuant to Section 2.3(b).

 

(c)

 

  (i) Notwithstanding the terms of any Applicable Operating Agreement to the contrary, from and after the Closing Date, prior to entering into a Development Operations Contract not specifically and expressly approved as part of an approved Annual Work Program and Budget that can reasonably be expected to result in aggregate payments to the counterparty of more than five million dollars (US$5,000,000) during any twelve (12) consecutive Calendar Month period, the Company shall present a copy of the proposed Development Operations Contract to the Members, together with the tender list and tender evaluation criteria used to secure such proposed Development Operations Contract, for approval by the Members, acting as the Management Board. Each Member shall notify the Company and the Management Board of its approval or rejection of such Development Operations Contract within fifteen (15) Business Days of its receipt of such materials. Failure of a Member to respond within such period shall be deemed an approval of such Development Operations Contract. The Company may only enter into such proposed Development Operations Contract to the extent that the Management Board approves such Development Operations Contract.

 

  (ii) From and after the Closing Date, prior to entering into a Development Operations Contract that can reasonably be expected to result in aggregate payments to the counterparty of more than one million dollars (US$1,000,000) during any twelve (12) consecutive Calendar Month period, commencing as of January 1 in any Calendar Year, except as provided in Section 3.1(c)(iii), the Company shall obtain proposals for such services from at least two (2) service providers. For the avoidance of doubt, a contract that automatically renews (is evergreen) on a month-to-month or other periodic basis that would meet the $1,000,000 threshold if it remained in effect for an entire twelve (12) consecutive Calendar Month period commencing as of January 1 in any Calendar Year shall be considered subject to the requirements of the preceding sentence.

 

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  (iii) If the Company desires to award a Development Operations Contract that would otherwise be subject to Section 3.1(c)(i) without tender of proposals from more than one service provider, whether because only one competent service provider can provide the contracted-for-service or otherwise, the Company may do so with the prior approval of the Management Board. The Company shall present a copy of the proposed Development Operations Contract to the Management Board. Each Board Member shall notify the Company, and the rest of the Management Board, of its approval or rejection of such Development Operations Contract within fifteen (15) Business Days of its receipt of such Development Operations Contract. Failure of a Board Member to respond within such period shall be deemed an approval of the award of such Development Operations Contract. The Company may only enter into a proposed Development Operations Contract that would otherwise be subject to Section 3.1(c)(i) without tender of proposals from more than one service provider if the Management Board approves such Development Operations Contract.

 

  (iv) To the extent that the Company enters into a Development Operations Contract for which the Company is not required to obtain proposals from at least two (2) service providers pursuant to Section 3.1(c)(i) and such Development Operations Contract can reasonably be expected to result in aggregate payment to the counterparty of more than one hundred thousand dollars (US$100,000), the Company shall keep a written record in its files that are subject to the audit provisions of Section 2.2 of the Joint Development Agreement and Exhibit “C” of the relevant Applicable Operating Agreement explaining why multiple bids were not obtained for such services.

 

  (v) In connection with the foregoing, the Company shall keep a written record in its files that are subject to the audit provisions of Section 2.2 of the Joint Development Agreement and Exhibit “C” of each Joint Development Operating Agreement that (A) in the event that the Development Operations Contract is awarded pursuant to Section 3.1(c)(i), includes the proposals obtained from the prospective service providers; or (B) in the event that the Development Operations Contract is awarded pursuant to Section 3.1(c)(iii), includes the notice to the Management Board and Management Board responses.

 

(d) Upon the reasonable written request of a Member, the Company shall provide such Member a copy of any written contract or contracts of a material nature that are utilized in connection with Joint Development Operations, Sole Risk Development Operations or Sole Risk Entity Operations in which such Member is a Participating Member, as well as other information that can reasonably be provided by the Company regarding the use and performance of any such contract or contracts, except to the extent the Company may be prohibited from making any such disclosure under the terms and conditions of such contract and is unable through commercially reasonable efforts to obtain consent for such disclosure.

 

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(e) To the extent any Development Operations Contract or Other Material Company Contract to be entered into by the Company addresses the right to hold, review and use any data and information, including seismic, geological, geophysical and other technical data and information, the Company shall use commercially reasonable efforts to cause such Development Operations Contract or Other Material Company Contract to permit Participating Members and their Wholly-Owned Affiliates to hold, review and use all such data and information.

 

3.2 Annual Work Program and Budget . For each Calendar Year, so long as the Joint Development Agreement is in effect, the Company shall prepare the Annual Work Program and Budget in accordance with the terms of the Joint Development Agreement and the Company shall be bound by the Annual Work Program and Budget approved pursuant to the terms of the Joint Development Agreement. For each Calendar Year (or partial Calendar Year) following the date upon which the Joint Development Agreement is terminated, an Annual Work Program and Budget shall be adopted as follows:

(a) On or before August 15 in the Calendar Year immediately preceding the relevant Calendar Year (or, following the termination of the Joint Development Agreement, as promptly as practicable), the President and General Manager shall prepare, or cause to be prepared, and submit to the Management Board a proposed Annual Work Program and Budget for such applicable Calendar Year. Each such proposed Annual Work Program and Budget shall contain at least the following:

(i) inclusion of expenditures required by the Company under the terms of any Company Contract during such Calendar Year, except with the approval of such Management Board to the contrary;

(ii) an itemized estimate of the Appalachian Overhead and Company Operating Expenses for such Calendar Year;

(iii) itemized estimates of the expenditures covered by the proposed Annual Work Program and Budget (including each Member’s share thereof) by budget category, containing sufficient detail (to the extent available) to afford the ready identification of the nature, scope and duration of the activity in question;

(iv) estimates of the schedule pursuant to which each Member’s share of expenses included in the Annual Work Program and Budget are anticipated to be incurred by the Company; and

(v) any other information requested in writing by a Member that can reasonably be provided by the Company.

(b) Itemized expenditures in an Annual Work Program and Budget may extend over more than one Calendar Year because such itemized expenditures represent activities or operations that require commitments in excess of one Calendar Year. Once itemized expenditures are approved by the Management Board, the President and General Manager shall not be required to resubmit them for approval of the Management Board on an annual or other periodic basis, but instead all such items shall be automatically included in future Annual Work Program and Budgets as items which have already been approved.

 

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(c) The President and General Manager shall regularly consult with the Management Board during the preparation of each proposed Annual Work Program and Budget. Following receipt of a proposed Annual Work Program and Budget, each Member shall furnish to the President and General Manager and Management Board any comments, suggestions or proposed amendments it may have respecting such proposed Annual Work Program and Budget as soon as may be reasonably practicable, and the President and General Manager shall consider and discuss such comments, suggestions and proposed amendments with such Management Board. Unless otherwise agreed by the Management Board, within sixty (60) days after distribution of each proposed Annual Work Program and Budget for a Calendar Year, the Management Board and the President and General Manager shall meet to consider, modify (if necessary) and approve or reject such proposed Annual Work Program and Budget. Subject to Section 3.2(d), approval of an Annual Work Program and Budget shall require the approval of the Management Board in accordance with Section 2.3.

(d) In the event an Annual Work Program and Budget is not approved on or prior to the first day of the Calendar Year to which such Annual Work Program and Budget pertains (for purposes of this Section 3.2(d), the “ relevant Calendar Year ”), the Management Board shall be deemed to have approved an Annual Work Program and Budget for the relevant Calendar Year that includes the following: (i) Company Operating Expenses equal to the product of the amount of Company Operating Expenses approved in the preceding Calendar Year’s Annual Work Program and Budget and the Operating Expense Multiplier for the relevant Calendar Year; (ii) Appalachian Overhead equal to the amount of Appalachian Overhead approved in the preceding Calendar Year’s Annual Work Program and Budget, with such adjustments as are necessary to reflect previously approved changes in staffing or facilities costs of the Company or Technical Services to be performed that will be implemented during the Calendar Year in question; (iii) those multi-year expenditures previously approved by the Management Board pursuant to previous Annual Work Program and Budget, that are attributable to the relevant Calendar Year; (iv) existing payment commitments to any Person under Company Contracts (including the Services Agreements) in such Calendar Year and other costs and expenses necessary to allow the Company to comply with their obligations under all Company Contracts (including the Services Agreements); (v) taxes payable by the Company; and (vi) to the extent not accounted for under clause (ii) above, payroll and benefits of all employees and all charges to the Company under the Secondment Agreements in respect of any Person seconded to the Company Group.

(e) Any Member may propose to amend an Annual Work Program and Budget by notice to the Management Board and the President and General Manager. Approval of any such amendment shall require the approval of the Management Board in accordance with Section 2.2(ee). Notwithstanding any provision of Section 2.5 to the contrary, each Member shall have sixty (60) days to consider any proposed amendment that would increase the estimated costs of any Annual Work Program and Budget by more than ten percent (10%). To the extent that such amendment is approved by the Management

 

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Board, the relevant Annual Work Program and Budget shall be deemed amended accordingly, provided that any such amendment shall not invalidate any commitment or expenditure already made by the Company in accordance with any previous authorization given pursuant hereto.

(f) Approval by the Management Board of an Annual Work Program and Budget shall constitute the Management Board’s deemed approval for the Company to expend up to ten percent (10%) in excess of the authorized amount for any category of the Annual Work Program and Budget, not to exceed in the aggregate ten percent (10%) of the aggregate amount applicable to the Annual Work Program and Budget, and less, in each case, any amounts included as line items for contingencies and overruns with respect to such operations in such category of the Annual Work Program and Budget. The President and General Manager shall promptly notify the Management Board of any expenditure made by the Company in the exercise of the rights pursuant to this Section 3.2(f). The ten percent (10%) deemed approval level set forth in this Section 3.2(f) shall be calculated with respect to the original amount of the Annual Work Program and Budget or, once amended, the amended amount of the Annual Work Program and Budget, provided that no expenditures incurred pursuant to Section 3.2(g) shall be deemed to be included in an approved Annual Work Program and Budget for purposes of calculating the ten percent (10%) deemed approval levels pursuant to this Section 3.2(f), nor shall any such expenditures be considered to be amounts expended in excess of the authorized amount of any Annual Work Program and Budget for purposes of calculating the ten percent (10%) deemed approval levels.

(g) Notwithstanding anything to the contrary in this Agreement, the President and General Manager is expressly authorized to cause the Company to make Emergency Expenditures and incur liabilities without prior authorization or approval when necessary or advisable, in the President and General Manager’s good faith judgment, to deal with emergencies, including explosions, fires, spills, or any other similar event, which may endanger property, lives, or the environment and it is impractical to get the Management Board approval for such expenditures and incurrence of such liabilities. The President and General Manager shall as soon as practicable report to the Management Board the nature of any such emergency which arises, the measures it intends to take in respect of such emergency and the estimated related expenditures.

(h) To the extent reasonably within the control of the President and General Manager, operations described in an Annual Work Program and Budget shall be conducted at the time prescribed in such Annual Work Program and Budget.

(i) For the avoidance of doubt, any reference in this Agreement to an approved Annual Work Program and Budget shall include an Annual Work Program and Budget is deemed to have been approved by the Management Board, and shall incorporate all approved amendments thereto and all modifications to the Annual Work Program and Budget described herein that require no action on the part of the Management Board or the Members.

 

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ARTICLE 4

MEMBERS

4.1 Member Information . Schedule 4.1 shows: (a) the name of each Member; (b) the aggregate amount of the Capital Contributions made by each Member; and (c) the Percentage Interest of each Member, each as of the date of this Agreement. If any of the information contained in Schedule 4.1 changes, the Members shall promptly cause: (i)  Schedule 4.1 to be amended and restated to reflect those changes and the date as of which those changes are to be effective; and (ii) a copy of the amended and restated schedule to be distributed to each Member, in which event the amended and restated schedule shall supersede the then existing schedule to this Agreement.

4.2 Opportunities; Activities of the Members . Subject to any other agreements between Members (or Affiliates of Members) and the Company, including the Joint Development Agreement, each Member acknowledges and agrees that the other Members and the Affiliates of the other Members may from time to time be interested, directly or indirectly, in various other businesses and undertakings separate and apart from the Company, including businesses and undertakings in direct competition with the Company, and neither the Company nor any other Member shall be entitled to notice thereof, or a right to participate therein, or any right to any profits from any such other businesses or undertakings. For the avoidance of doubt, following termination of the Joint Development Agreement, there will no longer be an area of mutual interest between the Members in the Appalachian Area.

ARTICLE 5

CAPITALIZATION

5.1 No Withdrawal of Capital Accounts . Except as otherwise expressly provided in this Agreement, a Member will not be entitled to withdraw any part of its Capital Account or to receive any distribution from the Company.

5.2 Initial Capital Contributions . As of the date of this Agreement, the aggregate Capital Contributions attributable to the Members and their Percentage Interests are as set forth next to their respective names on Schedule 4.1 . Except as provided in Section 5.3, no Member shall be required or authorized to make any other Capital Contribution.

5.3 Additional Capital Contributions .

 

(a)

The Members agree that the Company shall only use Capital Contributions to fund its share of any Development Costs under the Joint Development Agreement and not any of the Company’s revenues or receipts. So long as the Joint Development Agreement is in effect, each Member agrees to make, as Capital Contributions, those amounts required to be paid by such Member and/or such Member’s Percentage Interest share of amounts required to be paid by the Company to the Joint Operations Account pursuant to the terms of the Joint Development Agreement. In addition, to the extent that, at any time, the Company’s gross receipts are not anticipated to be sufficient to satisfy the estimated expenditures to be incurred in the succeeding Calendar Quarter (i) for expenditures outside of the approved Annual Work Program and Budget that are approved by the

 

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  Management Board or (ii) upon the termination of the Joint Development Agreement, pursuant to an approved Annual Work Program and Budget, the President and General Manager shall issue a Call Notice to each Member for an additional Capital Contribution in an amount equal to such Member’s Percentage Interest share of the difference between such estimated expenditures and anticipated gross receipts not more than thirty (30) days but not less than fifteen (15) days prior to the commencement of such Calendar Quarter. Further, the President and General Manager may issue Call Notices to the Members at any other time for their respective Percentage Interest share of other additional Capital Contributions to the extent that the Company’s anticipated gross receipts and other additional Capital Contributions made pursuant to this Section 5.3(a) are not anticipated to be sufficient to satisfy the Company’s estimated expenditures to be incurred during the current Calendar Quarter in accordance with this Agreement, provided that Call Notices may not be issued pursuant to this Section 5.3(a) for any estimated expenditures more than thirty (30) days in advance of such estimated expenditures. Proper adjustment shall be made in each Calendar Month between advances made hereunder and actual expenditures, to the end that each Member bears and pays its Percentage Interest share of expenditures, and no more. All calls for Capital Contributions shall be expressed in U.S. dollars and shall state the date on which payment is due and the bank(s) and account(s) to which payment is to be made. Each Call Notice shall specify in reasonable detail the purpose(s) for which such additional Capital Contribution(s) are required, and the amount of the Capital Contribution(s) to be made by each Member pursuant to such Call Notice. Each Member shall contribute any additional Capital Contribution within fifteen (15) Business Days of the date of delivery of the relevant Call Notice. If the approval of a call for additional Capital Contributions specifies the purpose for which those Capital Contributions are called, the Company shall use the proceeds of such additional Capital Contributions exclusively for the purpose specified in such approval.

 

(b) So long as the Joint Development Agreement is in effect, any payments required to be made by a Member under the Joint Development Agreement on behalf of it or the Company will be deemed to be a Capital Contribution to the Company by such Member and thereafter such amounts will be deemed to have been paid by the Company to the Joint Operations Account.

5.4 Statement of Estimated Expenditures . Not later than twenty (20) days prior to the commencement of each Calendar Quarter during the term of this Agreement, the Company shall provide the Members a statement of estimated costs to be incurred and estimated Capital Contributions to be called for in such Calendar Quarter. Such statement shall be for informational purposes only.

5.5 Default: Failure to Fund Additional Capital Contributions .

 

(a)

(i) Any Member that fails to pay in full when due any amounts owed and undisputed under the terms of this Agreement and (ii) during the effectiveness of the Joint Development Agreement, any Member or any Affiliate of a Member that fails to pay in full, or cause the payment in full, of any amounts owed and undisputed under the terms of the Joint Development Agreement or any Associated Agreement (as that term is defined in the Joint Development Agreement), and (in each case) such failure is not cured within

 

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  fifteen (15) days of such Member’s or its Affiliate’s receipt of a notice of default hereunder or notice of default under the Joint Development Agreement or Associated Agreement, as applicable, shall be in default under this Agreement, and shall be referred to herein as a “ Defaulting Member .” The Company shall, or any non-Defaulting Member (each, an “ Affected Member ”) may, give notice of such default to the Defaulting Member, and its Credit Facility Secured Party (if any) and each of the non-defaulting Members. Any such notice given under this Agreement or under the Joint Development Agreement or any Associated Agreement shall be considered a “ Default Notice ” for purposes of this Agreement.

 

(b) Default Period ” means the period beginning fifteen (15) days from the receipt of a Default Notice by (i) a Defaulting Member (or the defaulting Affiliate of such Member, as applicable) and (ii) its Credit Facility Secured Parties (if any), if such Defaulting Member and/or its Affiliate, as applicable, remains in default under Section 5.5(a), and ending when all of the Defaulting Member’s and its Affiliates’ defaults have been remedied in full.

 

(c) All amounts in default and not paid when due under this Agreement shall bear interest at the Default Interest Rate from the due date to the date of payment.

 

(d) So long as the Joint Development Agreement is in effect, (i) the terms of Section 5.1(c) of the Joint Development Agreement shall apply in lieu of Section 5.5(c) hereof, and (ii) the terms of Section 5.1(d) of the Joint Development Agreement shall apply with respect to the obligation of BG (as such term is defined in the Joint Development Agreement) to make additional Capital Contributions with respect to Carried Costs.

5.6 Certain Consequences of Default .

 

(a) Notwithstanding any other provision in this Agreement to the contrary (x) so long as the Joint Development Agreement is in effect, the provisions of Section 5.2 of the Joint Development Agreement shall apply in lieu of this Section 5.6, and (y) upon the termination of the Joint Development Agreement, during the Default Period, a Defaulting Member shall have no right to:

 

  (i) vote on any matter with respect to which Member approval is required under the express terms of this Agreement (excluding any amendment or waiver of the terms of this Agreement);

 

  (ii) call any Management Board or subcommittee meeting, or vote on any matter coming before the Management Board or any subcommittee;

 

  (iii) access any data or information relating to any operation conducted by the Company (except to the extent such Member or an Affiliate of such Member is providing Services to the Company pursuant to a Services Agreement, and such data or information is necessary for such Member or Affiliate to perform its responsibilities thereunder);

 

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  (iv) Transfer or Encumber all or any part of its Membership Interest except: (A) a Transfer, Encumbrance, or transfer pursuant to a Credit Facility Foreclosure of a Membership Interest or any part thereof in favor of a Person who simultaneously with such Transfer, Encumbrance or transfer satisfies in full the Total Amount in Default; or (B) a Credit Facility Encumbrance granted pursuant to a borrowing for which all or a portion of the proceeds thereof are used to pay the entire amount of the Total Amount in Default; or

 

  (v) withhold consent to any Transfer of all or any portion of the Membership Interest of an Affected Member pursuant to Section 9.4, or exercise any preferential purchase right provided for in Section 9.4 in the event of such a Transfer by an Affected Member or in the event of a Change in Control of an Affected Member.

 

(b) In addition to the other remedies available to the Company and the Affected Members under this Agreement and any other rights available to each Affected Member to recover its share of the Total Amount in Default, from and after the thirtieth (30th) day of the Default Period, a Defaulting Member shall have no right to receive distributions from the Company pursuant to Article 7 until the expiration of the Default Period, and such distributions shall instead be made to the Affected Members for advances made by such Affected Members on behalf of the Defaulting Member pursuant to Section 5.6(e), plus interest thereon as provided in Section 5.5(c). Amounts received towards the Total Amount in Default shall be deemed paid towards the oldest of each applicable type of expense (costs, interest or principal) first, and if there is more than one Affected Member, the distributions attributable to the Membership Interest of the Defaulting Member shall be shared among the Affected Members in the proportions that such Affected Members’ Percentage Interests bear to the aggregate Percentage Interests of such Affected Members.

 

(c) Any Default Notice shall include a statement of the amount of money that the Defaulting Member has failed to pay.

 

(d) If the Defaulting Member remedies its default in full before the Default Period commences, the Company shall promptly notify each Affected Member and such Defaulting Member’s Credit Facility Secured Party (if any) of such occurrence.

 

(e)

Upon the commencement of the Default Period, the Company shall send the Affected Members a statement of the sum of money that the Defaulting Member failed to pay and such Affected Members shall pay such amount within fifteen (15) days following receipt of the statement. Each such Affected Member shall be required to pay that portion of the amount that the Defaulting Member failed to furnish that such Affected Member’s Percentage Interest bears to the aggregate Percentage Interests of all Affected Members. During the effectiveness of the Joint Development Agreement, the application and distribution of amounts so collected shall be in accordance with the terms of the Joint Development Agreement. If any Affected Member fails to timely satisfy such obligations, such Affected Member shall thereupon be a Defaulting Member subject to

 

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  the provisions of Sections 5.5 and 5.6. If all Affected Members fail to timely satisfy such obligations, the Members shall be deemed to have unanimously determined not to make such expenditure and the Defaulting Member shall no longer be deemed to be in default with respect to such expenditure.

 

(f) During the Default Period, each Defaulting Member shall be deemed to have elected to approve any proposed Required Asset Upgrade.

5.7 No Interest on or Return of Capital . No Member will be entitled to interest on any Capital Contribution or Capital Account. Except as otherwise expressly provided in this Agreement, no Member will have the right to demand or receive the return of all or any part of any Capital Contribution, and no Member will be personally liable for the return of any Capital Contribution of the other Member.

5.8 Limitations upon Liability of Members . No Member shall be personally liable to the Company, to the other Members, to the creditors of the Company or to any other third party with respect to the losses, debts or liabilities of the Company for any amount in excess of the amount of such Member’s Capital Contribution which has not been returned to it as a distribution (including a distribution upon liquidation), plus any amount such Member is obligated to contribute pursuant to Section 5.3 but has not yet contributed and any obligation to return distributions pursuant to Section 7.2. For purposes of the preceding sentence, distributions to a Member will first be deemed a return of its Capital Contribution. No Member will at any time be liable or held accountable to the Company, to the other Members, to the creditors of the Company or to any other third party for or on account of any negative balance in its Capital Account. To the fullest extent permitted by the Delaware Act, but subject to Section 7.2, a Member will have no obligation to return any distributions received from the Company.

ARTICLE 6

ALLOCATIONS OF PROFITS AND LOSS

6.1 Allocations Generally . After and subject to the application of Sections 6.2 and 6.3, Profits and Losses for each Allocation Year shall be allocated among the Members as follows:

 

(a) Allocations Generally. Profits and Losses and Simulated Gain with respect to any Company Depletable Property for any Allocation Year shall be allocated to the Members in such a manner so that the Capital Account of each Member equals (as of the end of such Allocation Year and to the fullest extent possible) the amount that would be distributed to such Member if all properties of the Company, including cash, were sold for cash equal to their respective Tax Book Values, all liabilities allocable to such properties were then due and were satisfied according to their terms, all Minimum Gain Chargebacks and Member Minimum Gain Chargebacks required by Section 6.2 were made, and all obligations of Members to contribute additional capital to the Company were satisfied and all remaining proceeds from such sale were distributed pursuant to Section 7.1.

 

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(b) Stop Loss . Notwithstanding Section 6.1(a), no allocation of Losses will be made that would create or increase a Member’s Adjusted Capital Account Deficit.

6.2 Special Allocations .

 

(a) Minimum Gain Chargeback . Except as otherwise provided in Treasury Regulations Section 1.704-2(f), if there is a net decrease in Company Minimum Gain during any Allocation Year, each Member will be specially allocated items of Company income and gain for such Fiscal Year in an amount equal to such Member’s share of the net decrease in Company Minimum Gain. Allocations under the preceding sentence will be made in accordance with Treasury Regulations Section 1.704-2(f)(6). This Section 6.2(a) is intended to comply with the minimum gain chargeback requirement in Treasury Regulations Section 1.704-2(f) and will be interpreted consistently with that requirement.

 

(b) Member Minimum Gain Chargeback . Except as otherwise provided in Treasury Regulations Section 1.704-2(i)(4), if there is a net decrease in Member Minimum Gain attributable to Member Nonrecourse Debt during any Allocation Year, each Member who has a share of the Member Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Treasury Regulations Section 1.704-2(i)(5), will be specially allocated items of Company income and gain for that year (and, if necessary, subsequent years) equal to such Member’s share of the net decrease in Member Minimum Gain attributable to such Member Nonrecourse Debt, determined in a manner consistent with the provisions of Treasury Regulations Section 1.704-2(g)(2). Allocations under the previous sentence will be made in accordance with Treasury Regulations Section 1.704-2(i)(4). This Section 6.2(b) is intended to comply with the requirement in Treasury Regulations Section 1.704-2(i)(4) and will be interpreted consistently with that requirement.

 

(c) Qualified Income Offset . If any Member unexpectedly receives any adjustments, allocations or distributions described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or 1.704-1(b)(2)(ii)(d)(6), items of Company income and gain will be specially allocated to each such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the Adjusted Capital Account Deficit of such Member as quickly as possible, provided an allocation under this Section 6.2(c) may be made only if and to the extent such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Section 6.2 have been tentatively made as if this Section 6.2(c) were not in this Agreement.

 

(d) Gross Income Allocation . In the event any Member has an Adjusted Capital Account Deficit at the end of any Allocation Year, such Member will be specially allocated items of Company income and gain in the amount of such excess as quickly as possible; provided, however, an allocation under this Section 6.2(d) will be made only if and to the extent such Member would have an Adjusted Capital Account Deficit in excess of such sum after all allocations provided for in this Section 6.2 have been made as if Section 6.2(c) and this Section 6.2(d) were not in this Agreement.

 

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(e) Nonrecourse Deductions . “Nonrecourse deductions” (as that term is defined in Treasury Regulations Sections 1.704-2(b)(1) and (c)) for any Allocation Year or other period will be specially allocated to the Members in proportion to their respective Percentage Interests.

 

(f) Member Nonrecourse Deductions . Any Member “nonrecourse deductions” (as that term is defined in Treasury Regulations Section 1.704-2(i)) for any Allocation Year or other period will be specially allocated to the Member who bears the economic risk of loss with respect to the “partner nonrecourse debt” (as that term is defined in Treasury Regulations Section 1.704-2(b)(4)) to which such Member nonrecourse deductions are attributable, in accordance with Treasury Regulations Section 1.704-2(i)(1).

 

(g) Section 754 Adjustments . To the extent an adjustment to the adjusted tax basis of any asset of the Company under Code Section 734(b) or Code Section 743(b) is required, under Treasury Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to Capital Accounts will be treated as an item of gain (if the adjustment increases the basis of the Company asset) or loss (if the adjustment decreases such basis) and that gain or loss will be specially allocated to the Members in a manner consistent with the manner in which their Capital Accounts are required to be adjusted under that section of the Treasury Regulations.

 

(h) Simulated Depletion, Simulated Loss, and IDCs . Simulated Depletion, Simulated Loss, and IDCs with respect to each Depletable Property (including any indirect ownership of such property through an equity interest in an entity classified as a partnership or disregarded entity for federal income tax purposes) of the Company will be allocated in proportion to the manner in which the Simulated Basis of such Depletable Property is allocated among the Members pursuant to subparagraph (v) of the definition of “Capital Account.”

 

(i) For purposes of determining Income, Loss or any other items allocable to any period, Profit, Loss and any such other items will be determined on a daily, monthly or other basis, using any permissible method under Code Section 706 and the Treasury Regulations thereunder; provided, however, that Income or Loss described in clause (iii) or clause (iv) of the definition of “Profit” and “Loss” will be allocated only to those persons who held interests in the Company immediately before the event giving rise to such Profit or Loss.

6.3 Tax Allocations .

 

(a) Except as provided in this Section 6.3, each item of income, gain, loss and deduction of the Company for federal income tax purposes shall be allocated among the Members in the same manner as the corresponding items are allocated under Section 6.1 and Section 6.2.

 

(b)

When the Tax Book Value of a Company asset is different from its adjusted tax basis for income tax purposes, then, solely for federal, state and local income tax purposes, income, gain, loss, deduction and credit with respect to such asset, or tax basis with

 

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  respect to Depletable Property, (each, a “ Section 704(c) Asset ”) will be allocated among the Members to take this difference into account in accordance with the principles of Code Section 704(c), as set forth herein and in the Treasury Regulations thereunder and under Code Section 704(b). In the case of Depletable Property constituting a Section 704(c) Asset that is treated as contributed by a Member (the “ Contributing Member ”) to the Company, the adjusted tax basis of such Depletable Property as of the time of contribution shall be allocated to the Member other than the Contributing Member (the “ Noncontributing Member ”) in an amount equal to the lesser of (i) the Depletable Property’s adjusted tax basis and (ii) the Noncontributing Member’s Percentage Interest share of the Simulated Basis of the Depletable Property, and any remaining unallocated portion of the adjusted tax basis shall be allocated to the Contributing Member. In the case of any Depletable Property theretofore held by the Company that becomes a Section 704(c) Asset as a result of the adjustment of its Tax Book Value, the adjusted tax basis theretofore allocated to the Members shall be reallocated among the Members under similar principles adopted, subject to Section 2.1 hereof, by the Tax Matters Member. Except to the extent otherwise required by final Treasury Regulations, the calculation and allocations eliminating the differences between Tax Book Value and adjusted tax basis of any other Section 704(c) Assets will be made pursuant to the “Remedial Allocation Method” set forth in Treasury Regulations Section 1.704-3(d). For the avoidance of any doubt, it is the intention of the Members that allocations pursuant to this Section 6.3(b) be applied in a manner which enables the BG Member to realize the tax benefits in the same amount and at the same rate and character as if the BG Member had purchased its share of the Company’s assets on the Closing Date as an outright asset purchase.

 

(c) The deduction for depletion with respect to each Depletable Property and the gain or loss on the sale or other disposition by the Company of each Depletable Property shall, in accordance with Code Section 613A(c)(7)(D), be computed for federal income tax purposes separately by the Members rather than the Company. Each Member shall separately keep records of its share of the adjusted tax basis in each Depletable Property, adjust such share of the adjusted tax basis for any cost or percentage depletion allowable with respect to such property and use such adjusted tax basis in the computation of its cost depletion or in the computation of its gain or loss on the disposition of such property by the Company. Upon the request of the Company, each Member shall advise the Company of its adjusted tax basis in each Depletable Property and any depletion computed with respect thereto, both as computed in accordance with the provisions of this subsection. The Company may rely on such information and, if it is not provided by the Member, may make such reasonable assumptions as it shall determine with respect thereto.

 

(d) Except as provided in Section 6.3(a), for the purposes of the separate computation of gain or loss by each Member on the sale or disposition of each Depletable Property, the Company’s allocable share of the “amount realized” (as such term is defined in Code Section 1001(b)) from such sale or disposition shall be allocated for federal income tax purposes among the Members as follows:

 

  (i) first, to the extent such amount realized constitutes a recovery of the Simulated Basis of the property, to the Members in the same percentages as the depletable basis of such property was allocated to the Members pursuant to Section 6.3(b); and

 

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  (ii) the remainder of such amount realized, if any, shall be allocated among the Members in the same manner as the corresponding item is allocated under Section 6.1(a).

 

(e) Allocations pursuant to this Section 6.3 are solely for purposes of federal and applicable state taxes and will not be taken into account in computing any Member’s Capital Account.

 

(f) The Members agree to be bound by the provisions of this Article 6 in reporting their shares of the Company income, gain, loss and deduction for tax purposes.

ARTICLE 7

DISTRIBUTIONS

7.1 Declaration and Payment of Distributions . Except as provided in Section 8.2 regarding liquidating distributions, and subject to Section 5.6(b), Net Cash Flow for each Calendar Quarter will be calculated by the President and General Manager within thirty (30) days after the end of such Calendar Quarter and will be distributed to the Members within forty-five (45) days of the end of the Calendar Quarter in proportion to their respective Percentage Interests. Except as may expressly be provided otherwise in this Agreement, no Member shall have priority over any other Member, either as to the return of Capital Contributions or as to other distributions.

7.2 Limitations on Distributions .

 

(a) The Company shall not make a distribution to a Member to the extent that at the time of the distribution, after giving effect to the distribution, all liabilities of the Company, other than liabilities to Members on account of their Membership Interests and liabilities for which the recourse of creditors is limited to specific property of the Company, exceed the fair value of the assets of the Company, except that the fair value of property that is subject to a liability for which the recourse of creditors is limited shall be included in the assets of the Company only to the extent that the fair value of that property exceeds that liability.

 

(b) A Member who has received, in respect of any Fiscal Year of the Company, an aggregate amount of distributions in excess of the amount to which it was entitled under the terms of Section 7.1, or Article 10, shall forthwith return such excess to the Company. Any amount so repaid to the Company shall be distributed to the other Members to the extent that such other Members did not receive, in respect of such Fiscal Year, the full amount of distributions to which such Members were entitled under Section 7.1 or Article 10, as applicable.

 

(c) A Member who receives a distribution from the Company will have no liability under this Section 7.2, the Delaware Act or other applicable Law for the amount of the distribution after the expiration of three years from the date of the distribution unless a Proceeding to recover the distribution from such Member is commenced prior to the expiration of such three-year period and an adjudication of liability against such Member is made in the action.

 

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7.3 Amounts of Tax Paid or Withheld . All amounts paid or withheld pursuant to the Code or any provision of any state or local tax Law with respect to any Member will be treated as advances of amounts otherwise distributable to such Member pursuant to Section 7.1 for all purposes under this Agreement.

7.4 Distribution in Kind . Except as provided in Article 10 or by decision of the Management Board pursuant to Section 2.2(y), no Member, regardless of the nature of its Capital Contribution, will have a right to demand and receive any distribution in any form other than cash.

7.5 Delaware Act Limitations . Notwithstanding anything to the contrary in this Article 6, no distribution shall be made if such distribution would violate the Delaware Act.

ARTICLE 8

INDEMNIFICATION

 

8.1 No Liability of Members for Company Obligations .

 

(a) Except as otherwise provided by the Delaware Act, no Covered Person shall be obligated personally for any debt, obligation or liability of the Company solely by reason of being a Covered Person.

 

(b) Except as otherwise expressly required by Law, a Member, in its capacity as Member, shall have no liability in excess of: (i) the amount of its contributions to the Company; (ii) its share of any assets and undistributed profits of the Company; (iii) its obligation to make other payments expressly provided for in this Agreement; and (iv) the amount of any distributions wrongfully distributed to it. No Member shall have any responsibility to restore any negative balance in its Capital Account or to contribute to or in respect of the liabilities or obligations of the Company or to return distributions made by the Company, except as expressly provided herein or required by any non-waivable provision of the Delaware Act. The agreement set forth in the immediately preceding sentence shall be deemed to be a compromise with the consent of all of the Members for purposes of §18-502(b) of the Delaware Act. However, if any court of competent jurisdiction or properly constituted arbitration panel orders, holds or determines that, notwithstanding the provisions of this Agreement, any Member is obligated to restore any such negative balance, make any such contribution or make any such return, such obligation shall be the obligation of such Member and not of any other Person.

 

8.2 Exculpation .

 

(a)

No Covered Person shall be liable to the Company or any other Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Covered Person on behalf of the Company and in a manner reasonably believed to be within the scope of authority conferred on such Covered Person by this Agreement or

 

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  a delegation of authority in accordance with this Agreement, except that: (i) a Covered Person shall be liable for any such loss, damage or claim incurred by reason of such Covered Person’s fraud, bad faith, willful misconduct or gross negligence, (ii) a Covered Person that is not an officer or employee of a Member, Affiliate of a Member, the Company, or Affiliate of the Company, shall be liable for any such loss, damage, or claim incurred by reason of such Covered Person’s breach of this Agreement (other than Section 2.13) and (iii) a Covered Person that is an officer of the Company shall be liable for any such loss, damage, or claim incurred by reason of such Covered Person’s breach of his or her duty of loyalty to the Company, in each case, as established by a non-appealable court order, judgment, decree or decision or pursuant to a final and binding decision of an arbitration panel pursuant to Section 12.2.

 

(b) A Covered Person shall be fully protected in relying in good faith upon the records of the Company and upon such information, opinions, reports or statements presented to the Company by any Person as to matters the Covered Person reasonably believes are within such other Person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Company, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, Net Profits, Net Losses or Available Cash or any other facts pertinent to the existence and amount of Assets from which distributions to Members might properly be paid.

 

8.3 Indemnification . To the fullest extent permitted by applicable Law, the Company shall indemnify and hold harmless each Covered Person from and against all Claims arising from or related to any act or omission performed or omitted by such Covered Person on behalf of the Company and in a manner reasonably believed to be within the scope of authority conferred on such Covered Person by this Agreement or a delegation of authority in accordance with this Agreement, except that: (a) no Covered Person shall be entitled to be indemnified in respect of any Claim by reason of such Covered Person’s fraud, bad faith, willful misconduct or gross negligence; (b) no Covered Person that is not an officer or employee of a Member, Affiliate of a Member, the Company, or Affiliate of the Company shall be entitled to be indemnified in respect of any Claim by reason of such Covered Person’s breach of this Agreement (other than Section 2.13); and (c) no Covered Person that is an officer of the Company shall be entitled to be indemnified in respect of any Claim by reason of such Covered Person’s breach of his or her duty of loyalty to the Company, in each case, as established by a non-appealable court order, judgment, decree or decision or pursuant to a final and binding decision of an arbitration panel pursuant to Section 12.2. Any indemnity under this Section 8.3 shall be provided out of and to the extent of the Assets only (including the proceeds of any insurance policy obtained pursuant to Section 8.5), and no Covered Person shall have any personal liability on account thereof. Any amendment, modification or repeal of this Section 8.3 or any provision in this Section 8.3 shall be prospective only and shall not in any way affect the rights of any Covered Person under this Section 8.3 as in effect immediately prior to such amendment, modification or repeal with respect to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when claims relating to such matters may arise or be asserted.

 

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8.4 Expenses . To the fullest extent permitted by applicable Law, expenses (including legal fees) incurred by a Covered Person in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Company prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Company of an undertaking by or on behalf of the Covered Person to repay such amount if it shall be determined that the Covered Person is not entitled to be indemnified as authorized in Section 8.3.

 

8.5 Insurance .

 

(a) Subject to Section 2.3(h), the Company may purchase and maintain insurance, to the extent and in such amounts as the Management Board shall, in its sole discretion, deem reasonable, on behalf of Covered Persons and such other Persons as the Management Board shall determine, against any liability that may be asserted against or expenses that may be incurred by any such Person in connection with the Business or such indemnities, regardless of whether the Company would have the power to indemnify such Person against such liability under the provisions of this Agreement. Subject to Section 2.2(w), the Management Board and the Company may enter into indemnity contracts with Covered Persons and such other Persons as the Management Board shall determine and adopt written procedures pursuant to which arrangements are made for the advancement of expenses and the funding of obligations under Section 8.4 and containing such other procedures regarding indemnification as are appropriate.

 

(b) Notwithstanding anything else in this Agreement, the Company shall not be required to provide indemnification to any Covered Person for any Claim to the extent that such Claim is insured against by such Covered Person’s workers compensation insurance.

 

8.6

Primary Obligation . The Company hereby acknowledges that the Covered Persons may have certain rights to indemnification, advancement of expenses and/or insurance provided by Members and certain of their Affiliates (collectively, the “ Member Indemnitors ”). The Company hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to the Covered Persons under Sections 8.3 and 8.4 are primary and any obligation of the Member Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by the Covered Persons are secondary), (ii) that it shall be required to advance the full amount of expenses incurred by the Covered Persons and shall be liable for the full amount of all expenses, judgments, penalties, fines and amounts paid in settlement to the extent legally permitted and as required by the terms of Sections 8.3 and 8.4 of this Agreement (or any other agreement between the Company and the Covered Person), without regard to any rights the Covered Person may have against the Member Indemnitors, and (iii) that the Company irrevocably waives, relinquishes and releases the Member Indemnitors from any and all claims against the Member Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Member Indemnitors on behalf of a Covered Person with respect to any claim for which the Covered Person has sought indemnification from the Company pursuant to Sections 8.3 and 8.4 shall affect the foregoing and the Member Indemnitors shall have a right of contribution and/or be subrogated to the

 

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  extent of such advancement or payment to all of the rights of recovery of the Covered Person against the Company. The Company agrees that the Member Indemnitors who are not Members are express third party beneficiaries of the terms of this Section 8.6.

ARTICLE 9

TRANSFERABILITY

9.1 Transfer .

 

(a) Any Member may, subject to the other provisions set forth in this Agreement, and, so long as the Joint Development Agreement is in effect, subject to the terms of Section 6.1(a) of the Joint Development Agreement, Transfer all or any undivided share of its Membership Interest. Any attempted Transfer of all or a part of a Membership Interest other than in compliance with this Agreement shall be null and void and of no force or effect. Any Member who Transfers any Membership Interest or portion thereof shall promptly provide written notice thereof to the Company and all of the other Members.

 

(b) No Transfer may be made to an individual, and except in the case of a Member transferring all of its Membership Interest, no Transfer may be made which results in the transferor or transferee holding a Percentage Interest of less than ten percent (10%).

 

(c) A transferring Member shall, notwithstanding such Transfer, be liable to the Company and the other Members for its obligation to fund its Percentage Interest share (as of the time of the Transfer) of expenditure commitments and all other obligations, in each case, accrued under this Agreement on or prior to such Transfer, but shall be released from any other obligations thereafter accruing under this Agreement with respect to the Percentage Interest being Transferred, except in the case where the Transfer at issue is made to an Affiliate or where there is a Credit Facility Foreclosure on all or any part of a Member’s Membership Interest, in which cases the transferring Member or Member subject to the foreclosure, as applicable, shall remain primarily liable for all such obligations.

 

(d) In connection with any Transfer of a portion (but less than all) of its Membership Interest by any member of the EXCO Affiliate Group or BG Affiliate Group to a third party not affiliated with the EXCO Affiliate Group or the BG Affiliate Group, respectively, the EXCO Affiliate Group or the BG Affiliate Group, as applicable, shall assign such number of Total Votes equal to the product of (rounded to the nearest tenth) (x) the aggregate Percentage Interests being assigned and (y) 100. The transferor’s number of Total Votes shall be reduced by the number of Total Votes so transferred. The transferor and transferee shall, amongst themselves, determine how to allocate the appointment of the Board Members allocated to such transferor’s Group, provided that such allocation shall be made in a manner so that all of the Total Votes may be represented at any meeting of the Management Board.

 

(e) Any transferee of all of the Membership Interest of a Member shall be entitled to all of the Total Votes of its transferor, and shall be entitled to appoint all Board Member seats previously appointed by its transferor.

 

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9.2 Conditions Precedent to a Membership Interest Transfer . Each transferee of any Membership Interest or portion thereof shall be subject to the terms hereof, and, as a condition precedent to the Company recognizing such Transfer or transfer pursuant to a Credit Facility Foreclosure, each transferor must satisfy all the requirements set forth in Section 9.1 above and also meet the following conditions:

 

(a) Each transferee shall agree in writing to be subject to each of the terms of this Agreement by executing and delivering an assumption agreement in favor of the other Members in form reasonably acceptable to the transferee and the other Members.

 

(b) Each transferee shall execute and deliver to the Company a secondment agreement in substantially the form attached hereto as Exhibit “A” (unless such transferee or any Affiliate of such transferee is already party to a secondment agreement with the Company, or if such transferee and its Affiliates do not collectively possess a Percentage Interest greater than or equal to twenty five percent (25%)), and a services agreement in substantially the form attached hereto as Exhibit “B”.

 

(c) Except in the case of a Transfer involuntarily by operation of Law, the transferor and transferee shall execute and deliver to the Company such documents and instruments of conveyance as may be reasonably necessary or appropriate to effect such Transfer or transfer pursuant to a Credit Facility Foreclosure. In the case of a Transfer involuntarily by operation of Law, such Transfer shall be confirmed by presentation to the Company of legal evidence of such Transfer, in form and substance reasonably satisfactory to counsel to the Company. In all cases, the Company shall be reimbursed by the transferor and/or transferee for all reasonable costs and expenses that it incurs in connection with such Transfer or transfer pursuant to a Credit Facility Foreclosure.

 

(d) The transferor and transferee shall furnish the Company with the transferee’s taxpayer identification number, sufficient information to determine the transferee’s initial tax basis in the Membership Interest or portion thereof transferred, and any other information reasonably necessary to permit the Company to file all required federal and state tax returns and other legally required information statements or returns. Without limiting the generality of the foregoing, the Company shall not be required to make any distribution otherwise provided for in this Agreement with respect to any transferred Membership Interest until it has received such information.

 

(e) Unless otherwise agreed to by the Members, if a Member or any direct or indirect owner of a Member takes any action that causes the Company to be terminated within the meaning of Section 708(b)(1)(B) of the Code, such Member shall indemnify and hold harmless the other Members for any deferral of depreciation deductions allocable to the other Members as a result of the Code Section 708(b)(1)(B) termination, determined using an annual discount rate of ten percent (10%) and a deemed tax rate of forty percent (40%).

 

(f) Such Transfer or transfer pursuant to a Credit Facility Foreclosure shall be exempt from all applicable registration requirements and such Transfer or transfer pursuant to a Credit Facility Foreclosure may not violate any applicable Laws regulating the transfer of securities.

 

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(g) Such Transfer or transfer pursuant to a Credit Facility Foreclosure will not cause the Company to be deemed to be an “investment company” under the Investment Company Act of 1940.

9.3 Applicability of Joint Development Agreement . So long as the Joint Development Agreement is in effect, the terms of Articles 7 and 8 of the Joint Development Agreement shall apply in lieu of Section 9.4 hereof.

9.4 Right of First Refusal .

 

(a) Once the final terms and conditions of a Transfer of Membership Interest (the “ Offered Interests ”) to an unrelated third party or the Change in Control of a Member (in which event all of its Membership Interests will be deemed to be “Offered Interests”) have been fully negotiated and are binding on the parties thereto, the Transferring Member or Member subject to the Change in Control (the “ Transferring Member ”) shall first offer the Offered Interests to the other Members (the “ Non-transferring Members ”) by written notice specifying the price and other terms and conditions of the offer and accompanied by a copy of all instruments or relevant portions of instruments establishing such terms and conditions (that notice, an “ Offer Notice ”).

 

(b) Upon receipt of an Offer Notice, each Non-transferring Member will have a period of sixty (60) days within which to accept the Transferring Member’s offer to Transfer all the Offered Interests at the price and on the terms and conditions set forth in the Offer Notice. If the Non-Transferring Member elects to purchase the Offered Interests, it will deliver written notice thereof to the Transferring Member within such sixty (60)-day period (that notice, the “ Election Notice ”). If each Non-transferring Member rejects the Offer Notice or fails to timely deliver an Election Notice, the Transferring Member will be free to Transfer the Offered Interests to the unrelated third Person or undergo a Change in Control in exchange for consideration which is equal to or greater than the consideration set forth in the Offer Notice and on terms not materially more favorable to such Person than the terms offered to the Non-transferring Member, each as set forth in the Offer Notice; provided, however that any such Transfer or Change in Control must close within one hundred and twenty (120) days from the date the Non-transferring Member rejects the Offer Notice. If the Transfer or Change in Control is not closed with such period and the Transferring Member thereafter desires to proceed with such proposed Transfer or Change in Control, it shall be required to re-offer the Offered Interests to the Non-transferring Members in accordance with this Section 9.4. If more than one Non-transferring Member counter-notifies that it intends to acquire the Transferring Member’s Membership Interest that is subject to the proposed Transfer, then each such Member shall acquire a proportion of the Membership Interest equal to the ratio of its own Membership Interest to the total Membership Interests of all counter-notifying Members, unless the counter-notifying Members otherwise agree.

 

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(c) In the event of a Transfer that is not for cash consideration or involves other properties as part of a wider transaction (package deal) or in the event of a Change in Control, the Transferring Member shall include in its notification to the Non-transferring Members a statement of the proposed Cash Value of the Membership Interest or portion thereof subject to the proposed Transfer or Change in Control, and each Non-transferring Member shall have a right to acquire such Membership Interest or portion thereof for the Cash Value, on the final terms and conditions negotiated with the acquiring Person that are relevant to the acquisition of a Membership Interest or portion thereof for cash. No Non-transferring Member may acquire the Transferring Member’s Membership Interest or portion thereof pursuant to this Section 9.4 unless and until completion of any package deal or Change in Control which includes the Offered Interests. If for any reason the package deal or Change in Control agreement terminates without completion, the Non-transferring Members’ rights to acquire the Membership Interest or portion thereof subject to the proposed package deal or Change in Control shall also terminate. No Non-transferring Member shall have a right under this Section 9.4 to acquire any asset other than a Membership Interest or portion thereof, nor shall any Non-transferring Member be required to acquire any asset other than a Membership Interest or portion thereof, regardless of whether other properties are subject to the Transfer or Change in Control.

 

(d) For purposes of Section 9.4(c), the Cash Value proposed by the Transferring Member in its notice shall be conclusively deemed correct unless any Non-transferring Member gives notice to the Transferring Member within thirty (30) days of receipt of the Transferring Member’s notice stating that it does not agree with the Transferring Member’s statement of the Cash Value, stating the Cash Value it believes is correct, and providing any supporting information that it believes is helpful. In such event, the Members shall have fifteen (15) days in which to attempt to negotiate an agreement on the applicable Cash Value. If no agreement has been reached by the end of such fifteen (15) day period, any Member shall be entitled to refer the matter to an independent expert as provided in Section 12.3 for determination of the Cash Value, provided that the Transferring Member may elect to terminate the proposed Transfer or Change in Control, and any Non-transferring Member may elect to revoke its notice of intention to purchase, in either case by notice to the other Members at any time prior to the time that the independent expert is retained pursuant to such provision. The Cash Value to be submitted to the independent expert by the Transferring Member shall be the Cash Value provided by such Transferring Member in the notice provided to the Non-transferring Members pursuant to Section 9.4(c), and the Cash Value to be submitted to the independent expert by each Non-transferring Member shall be the Cash Value provided by such Non-transferring Member in the notice provided to the Transferring Member pursuant to this Section 9.4(d).

 

(e) The closing of the Transfer of the Offered Interests under this Section 9.3 will be held at any location agreed to by the Transferring Member and the Non-transferring Member and on a mutually acceptable date not more than 90 days after the Non-transferring Member delivers the Election Notice. At any closing under this Section 9.3, in consideration of receipt of the purchase price in immediately available funds, the Transferring Member shall Transfer to the Non-transferring Member all right, title and interest in and to the Offered Interests, free and clear of all Encumbrances, and, at the request of the Non-transferring Member, shall execute all other documents and take such other actions as may be reasonably necessary or desirable to effectuate the Transfer of the Offered Interests and to carry out the purposes of this Agreement.

 

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(f) Notwithstanding anything herein to the contrary, any direct or indirect Change in Control of a Member (whether through merger, sale of shares or other equity interests, or otherwise), through a single transaction or series of related transactions, from one or more transferors to one or more transferees, resulting from a Credit Facility Foreclosure pursuant to an Existing EXCO Credit Facility, shall not be subject to any of the provisions of this Section 9.4.

9.5 Admission as a Member . Upon compliance with all of the provisions of this Agreement regarding Transfers or transfers of Membership Interests pursuant to a Credit Facility Foreclosure, as applicable, (a) a transferee shall be deemed to be a Party hereto as if such transferee were the transferor and such transferee’s signature appeared on the signature pages of this Agreement, and shall be deemed to be a Member and (b) to the extent the transferor no longer holds a Membership Interest, such transferor shall thereafter cease to be a Member.

9.6 Encumbrances . Nothing contained in this Article 9 shall prevent a Member from Encumbering all or any undivided share of its Membership Interest to a third party, provided that such Member shall remain liable for all obligations relating to such Membership Interest except as provided in Section 9.1(c).

9.7 Recordation Tax . If any Transfer of a Membership Interest or portion thereof under this Article 9 results in the imposition of a state or local transfer, recordation or similar tax on transfers of economic interests (or any similar tax), the Member whose Transfer triggers such imposition will be responsible for the payment of such tax.

9.8 Resignation/Withdrawal . No Member may resign from or withdraw from the Company, other than by way of a Transfer (voluntary or involuntary) of all of its Membership Interest in accordance with the terms hereof, a transfer pursuant to a Credit Facility Foreclosure in accordance with the terms hereof, or as a consequence of the dissolution and liquidation of the Company.

ARTICLE 10

DISSOLUTION AND TERMINATION

10.1 Dissolution . The Company will be dissolved upon the occurrence of any of the following events (each, a “ Dissolution Event ”):

 

(a) by the affirmative vote of the Management Board pursuant to Section 2.2(f);

 

(b) upon the sale or other final disposition by the Company of all or substantially all of its assets and the collection of all amounts derived from such sale or disposition (including all amounts payable to the Company under any promissory notes or other evidences of indebtedness);

 

(c) at any time there are no Members;

 

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(d) upon the entry of a decree of judicial dissolution of the Company pursuant to Section 802 of the Delaware Act.

For the avoidance of doubt, the bankruptcy or dissolution of any Member or Affiliate 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, and upon the occurrence of any such event, the Company shall be continued without dissolution.

10.2 Method of Liquidation . Upon the occurrence of a Dissolution Event, the Company shall liquidate its assets in a manner that is consistent with avoiding undue loss and apply and distribute its assets in the following manner and in the following order of priority:

 

(a) to the payment of the debts and liabilities of the Company (other than debts and liabilities of the Company addressed in paragraph (b) below, but including the establishment of such reserves as the Members reasonably deem necessary to wind up the Company’s affairs and to provide for any contingent liabilities or obligations of the Company) and to the expenses of liquidation in the order of priority as provided by Law; then

 

(b) to the Members in accordance with Section 7.1.

10.3 Distribution in Kind . Upon dissolution of the Company, any Company Property other than Oil and Gas Assets will be preferentially sold or liquidated first to pay debts and liabilities described in Sections 10.2(a). If any Oil and Gas Assets remain to be distributed to the Members after satisfying the debts and liabilities described in Sections 10.2(a), each Member shall receive a pro rata undivided share in each such Oil and Gas Asset, in proportion to its respective Percentage Interest, unless the Members determine by a vote pursuant to Section 2.2(y) to sell any or all of such Oil and Gas Assets and distribute cash instead.

10.4 Continued Liability for Capital Contributions . The Management Board shall continue to have the right and power after dissolution to require additional Capital Contributions pursuant to Section 2.2(z).

10.5 Date of Dissolution . The Company will be terminated and dissolved when all of the Company’s assets have been applied and distributed in accordance with the provisions of Section 10.2. As promptly as practicable after the winding up of the Company has been completed, the President and General Manager on behalf of the Company shall cause the Certificate to be cancelled in accordance with the Delaware Act.

ARTICLE 11

BOOKS; REPORTS TO MEMBERS; TAX MATTERS

11.1 Books of Account; Records .

 

(a) True and accurate books of account and operating records for the Company shall be maintained at the principal office of the Company or such other location or locations as may be approved by the Management Board. Each Member will at all reasonable times have access to such books of account and operating records and will have the right, at such Member’s expense, to have such books of account audited by a firm of independent accountants selected by such Member.

 

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(b) Except as required by Article 6, the Company’s books of account shall be maintained, and its income, gains, losses, expenses, contributions and distributions and deductions shall be determined and accounted for in accordance with GAAP consistently applied.

11.2 Financial Statements and Reports . The Company shall prepare, and shall submit to the Members the following statements, reports and notices:

 

(a) Annual financial statements of the Company, consisting of a profit and loss statement, a balance sheet, a statement of cash flows and a statement of changes in the Members’ Capital Accounts, as of the end of and for the prior Fiscal Year, which shall be prepared in accordance with GAAP and audited by the Company’s independent certified public accountants, which shall be an internationally recognized accounting firm (the “ Annual Financial Statements ”). The Annual Financial Statements for a Fiscal Year shall be delivered to each Member within ninety (90) days after the end of such Fiscal Year.

 

(b) Unaudited quarterly financial statements of the Company, consisting of a profit and loss statement, a balance sheet, a statement of cash flows and a statement of changes in the Members’ Capital Accounts, as of the end of and for the prior Calendar Quarter, which shall be prepared in accordance with GAAP, except for normal year end adjustments and the absence of footnotes (the “ Quarterly Financial Statements ”). The Quarterly Financial Statements for a Calendar Quarter shall be delivered to each Member within sixty (60) days after the end of such Calendar Quarter.

 

(c) Monthly financial reports, which shall consist of a profit and loss statement, a balance sheet, a statement of cash flows and a statement of changes in the Members’ Capital Accounts, as of the end of and for the prior Calendar Month, which shall be prepared in accordance with GAAP, except for normal year end adjustments and the absence of footnotes (the “ Monthly Financial Reports ”). The Monthly Financial Reports for a Calendar Month shall be delivered within fifteen (15) days after the end of such Calendar Month.

 

(d) A monthly operating report containing a description of the Business during each Calendar Month (the “ Monthly Operating Reports ”). Each Monthly Operating Report should contain information and narratives describing the applicable assets’ performance during the relevant Calendar Month, including drilling and completion reports, average production volumes, Hydrocarbon sales information and any material Health, Safety, Security and Environmental incidents and such other information that may reasonably be required by any Member. The Monthly Operating Reports for a Calendar Month shall be delivered within fifteen (15) days after the end of such Calendar Month.

 

(e) Copies of all material information related to any pending or material threatened litigation or insurance claim affecting the Company.

 

(f) Copies of all material filings, disclosures, or reports submitted to any Governmental Authority affecting the Company.

 

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(g) A quarterly report summarizing all outstanding claims related to any litigation, arbitration, administrative proceeding or other dispute and any settlement or result of any litigation, arbitration, administrative proceeding or other dispute entered into or relating to the Company that occurred during the prior Calendar Quarter affecting the Company.

 

(h) Such other information as a Member may reasonably request regarding the Company.

11.3 Tax Treatment of the Company . It is the intent of the Members that the Company be treated as a partnership for U.S. federal income tax purposes. Neither the Company nor any Member shall make an election to be excluded from the application of the provisions of subchapter K of chapter 1 of subtitle A of the Code or any similar provisions of applicable state Law or to be classified as an association pursuant to Treasury Regulation Section 301.7701-3.

11.4 Tax Matters Member . Pursuant to Section 6231(a)(7)(A) of the Code, the Members hereby designate EXCO Holding (PA), Inc. as the Company’s “tax matters partner” (the “ Tax Matters Member ”). The Tax Matters Member shall give prompt written notice to each other Member of any and all notices it receives from the Internal Revenue Service concerning the Company. The Company shall reimburse the Tax Matters Member out of the Net Cash Flow for any expenses that the Tax Matters Member incurs in connection with its obligations as Tax Matters Member. The Tax Matters Member shall not agree to extend the statute of limitations with respect to partnership items of the Company without the consent of the other Members. No Member shall take any other action with respect to a partnership level audit item which would be binding on any other Member in computing its liability for taxes (or interest, penalties or additions to tax) without the consent of such other Member. The Tax Matters Member may be removed by notice to the Company from any Member whose Affiliated Member Group holds a Percentage Interest that is not less than twenty five percent (25%) at any time that the Tax Matter Member’s Affiliated Member Group holds a Percentage Interest that is less than twenty five percent (25%).

11.5 Tax Returns and Elections .

 

(a) The Tax Matters Member shall timely prepare, or cause to be prepared, at the expense of the Company, for each Allocation Year, federal, state and local tax returns required to be filed with respect to the Company. Each Member shall furnish to the Company and the Tax Matters Member all pertinent information in its possession relating to the Company’s operations that is necessary to enable the tax returns to be timely prepared and filed. Not less than sixty (60) days prior to the due date (as extended) of the federal income tax return or any state or local income tax return with respect to the Company, the return proposed by the Tax Matters Member to be filed by the Company shall be furnished to the Members for review and approval. In addition, not more than ten (10) days after the date on which the Company files its federal income tax return or any state or local income tax return, a copy of the return so filed shall be furnished to the Members.

 

(b)

The Company, at its expense, shall cause to be delivered to each Member within the time period provided by applicable Law an Internal Revenue Service Form K-1 or a good faith estimate of the amounts to be included on such Internal Revenue Service Form K-1 for such Member and such other information as shall be necessary for the preparation and

 

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  timely filing by the Members of their federal, state and local income and other tax returns. The Tax Matters Member shall deliver estimates at least 15 days prior to the due date for an estimated tax payment required under Section 6655 of the Code for a U.S. corporation whose taxable year ends December 31; provided that all Members taking their share of production in kind shall have provided to the Tax Matters Member, at least seven (7) Business Days prior to such 15 day period, the relevant revenue information relating to such production in kind for the period.

 

(c) Upon request of the Management Board, the Tax Matters Member may make or revoke an election in accordance with Section 754 of the Code, so as to adjust the basis of any Company Property in the case of a distribution of property, within the meaning of Section 734 of the Code, and in the case of a Transfer of Membership Interests, within the meaning of Section 743 of the Code.

ARTICLE 12

GOVERNING LAW; DISPUTE RESOLUTION

12.1 Governing Law . THIS AGREEMENT AND THE LEGAL RELATIONS AMONG THE PARTIES SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT REFER CONSTRUCTION OF SUCH PROVISIONS TO THE LAWS OF ANOTHER JURISDICTION. ALL OF THE PARTIES HERETO CONSENT TO THE EXERCISE OF JURISDICTION IN PERSONAM BY THE COURTS OF THE STATE OF TEXAS FOR ANY DISPUTE. EACH PARTY HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY DISPUTE.

12.2 Dispute Resolution .

 

(a) Except for matters that are expressly made subject to the dispute resolution procedures set forth in Section 12.3, any Dispute among the Parties shall be resolved through final and binding arbitration.

 

(b) The arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the “ AAA ”) in effect at the time the arbitration of the Dispute is initiated (the “ AAA Rules ”).

 

(c)

The arbitration shall be conducted by three (3) arbitrators and conducted in Dallas, Texas. Within thirty (30) days of any Party providing notice to the other Parties of a Dispute, if there are two Parties or two groups of Parties to a Dispute, each Party or group of Parties to such Dispute shall appoint one arbitrator, and the two (2) arbitrators so appointed shall select the third and presiding arbitrator within thirty (30) days following appointment of the second Party-appointed arbitrator. If either Party or group of Parties fails to appoint an arbitrator within the permitted time period, then the missing arbitrator(s) shall be selected by the AAA as appointing authority in accordance with the AAA Rules. In the event that there are more than two (2) Parties or groups of Parties to an arbitration, the Parties to the arbitration shall endeavor to agree on the appointment of the three (3)

 

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  arbitrators within thirty (30) days of the written request for arbitration. In the event the Parties cannot reach agreement on the selection of three (3) arbitrators within the time permitted, all arbitrators not yet appointed shall be appointed by the AAA in accordance with the AAA Rules. Any arbitrator appointed by the Party-appointed arbitrators or the AAA shall be a member of the Large, Complex Commercial Case Panel of the AAA or a member of the Center of Public Resources Panel of Distinguished Neutrals. All arbitrators shall be and remain at all times independent and impartial, and, once appointed, no arbitrator shall have any ex parte communications with any of the Parties concerning the arbitration or the underlying Dispute other than communications directly concerning the selection of the presiding arbitrator, when applicable. All arbitrators shall be qualified by education, training, or experience to resolve the Dispute. No arbitrator shall have been an employee or consultant to any Party or any of its Affiliates within the five (5) year period preceding the arbitration, or have any financial interest in the Dispute.

 

(d) All decisions of the arbitral tribunal shall be made by majority vote. The award of the arbitral tribunal shall be final and binding, subject only to grounds and procedures for vacating or modifying the award under the Federal Arbitration Act. Judgment on the award may be entered and enforced by any court of competent jurisdiction hereunder.

 

(e) Notwithstanding the agreement to arbitrate Disputes in this Section 12.2, any Party may apply to a court for interim measures pending appointment of the arbitration tribunal, including injunction, attachment, and conservation orders. The Parties agree that seeking and obtaining such court-ordered interim measures shall not waive the right to arbitration. Additionally, the arbitrators (or in an emergency the presiding arbitrator acting alone in the event one or more of the other arbitrators is unable to be involved in a timely fashion) may grant interim measures including injunctions, attachments, and conservation orders in appropriate circumstances, which measures may be immediately enforced by court order. Hearings on requests for interim measures may be held in person, by telephone or video conference, or by other means that permit the Parties to present evidence and arguments. The arbitrators may require any Party to provide appropriate security in connection with such measures.

 

(f) The arbitral tribunal is authorized to award costs, attorneys’ fees, and expert witness fees and to allocate them among the Parties. The award may include interest, at the Default Interest Rate, from the date of any default, breach, or other accrual of a claim until the arbitral award is paid in full. The arbitrators may not award indirect, consequential, special or punitive damages. Unless otherwise directed by the arbitral tribunal, each Party shall pay its own expenses in connection with the arbitration.

 

(g)

All negotiations, mediation, arbitration, and expert determinations relating to a Dispute (including a settlement resulting from negotiation or mediation, an arbitral award, documents exchanged or produced during a mediation or arbitration proceeding, and memorials, briefs or other documents prepared for the arbitration) are confidential and may not be disclosed by the Parties, their respective Affiliates and each of their respective employees, officers, directors, counsel, consultants, and expert witnesses, except to the extent necessary to enforce any settlement agreement, arbitration award, or expert

 

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  determination, to enforce other rights of a Party, as required by law or regulation, or for a bona fide business purpose, such as disclosure to accountants, shareholders, or third-Party purchasers, provided, however, that breach of this confidentiality provision shall not void any settlement, expert determination, or award.

 

(h) Any papers, notices, or process necessary or proper for an arbitration hereunder, or any court action in connection with an arbitration or an award, may be served on a Party in the manner set forth in Section 13.3.

 

(i) If the subject matter of any Dispute among the Parties arises from facts or issues materially related to the subject matter of a Dispute (as defined in the Joint Development Agreement) among the parties to the Joint Development Agreement, then the two proceedings shall be consolidated into a single arbitration proceeding pursuant to the terms of the Joint Development Agreement.

12.3 Expert Proceedings . For any decision referred to an expert under this Agreement, the Parties hereby agree that such decision shall be conducted expeditiously by an expert selected unanimously by the Members. The expert is not an arbitrator of the dispute and shall not be deemed to be acting in an arbitral capacity. The expert shall not (without the written consent of the Members) be appointed to act as an arbitrator or as adviser to any Member in connection with any Dispute arbitrated pursuant to Section 12.2, provided that nothing in this sentence shall preclude any Member from using the expert as a witness regarding the proper conduct of the expert procedure. The Member desiring an expert determination shall give the other Members written notice of the request for such determination. If the Members are unable to agree upon an expert within ten (10) days after receipt of the written notice of request for an expert determination, then, upon the request of any of the Members, the AAA shall appoint such expert. The expert, once appointed, shall have no ex parte communications with the Members concerning the expert determination or the underlying dispute. All communications between any Member and the expert shall be conducted in writing, with copies sent simultaneously to the other Members participating in the expert proceeding in the same manner, or at a meeting to which representatives of all Members participating in the expert proceeding have been invited and of which such Members have been provided at least five (5) Business Days notice. Within thirty (30) days after the expert’s acceptance of its appointment, each Member or Affiliated Member Group, as applicable, shall provide the expert with a report containing its proposal for the resolution of the matter and the reasons therefor, accompanied by all relevant supporting information and data. Within sixty (60) days of receipt of the above-described materials and after receipt of additional information or data as may be required by the expert, the expert shall select the proposal which it finds more consistent with the terms of this Agreement. The expert may not propose alternate positions or award damages, interest or penalties to any Members with respect to any matter. The expert’s decision shall be final and binding on the Members. Any Member that fails or refuses to honor the decision of an expert shall be in default under this Agreement.

 

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ARTICLE 13

MISCELLANEOUS

13.1 Investment Representation . Each Member represents and warrants to the Company and the other Member that in connection with the purchase or other acquisition of such Member’s Membership Interest, such Member: (a) is financially able to bear all the risks of holding its Membership Interest for an indefinite period of time; (b) has sufficient knowledge and experience in financial and business matters to be able to evaluate the merits and risks of, and otherwise make an informed investment decision with respect to, its Membership Interest; (c) understands that its Membership Interest has not been registered under the 1933 Act or the securities Law of any jurisdiction in reliance upon its Membership Interest either not being a “security” under those Laws or its issuance being exempted from registration under those Laws; and (d) has acquired its Membership Interest for that Member’s own account with the intention of holding it for investment and without any intention of participating directly or indirectly in any redistribution or resale of any portion of the interest in violation of the 1933 Act or any other applicable Law. Each Member hereby further represents and warrants that its decision to invest in the Company is its decision alone and the other Member has no responsibility or liability whatsoever on account of such investment decision or, except as set forth in this Agreement, any of the consequences thereof.

13.2 Counterparts . This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all of such counterparts shall constitute for all purposes one agreement. Any signature hereto delivered by a Party by facsimile transmission shall be deemed an original signature hereto.

13.3 Notices . All notices and communications required or permitted to be given hereunder shall be sufficient in all respects if given in writing and delivered personally, or sent by bonded overnight courier, or mailed by U.S. Express Mail or by certified or registered United States Mail with all postage fully prepaid, or sent by telex or facsimile transmission (provided any such telex or facsimile transmission is confirmed either orally or by written confirmation), addressed to the appropriate Party at the address for such Party shown below or at such other address as such Party shall have theretofore designated by written notice delivered to the Party giving such notice:

If to the Company:

EXCO Resources (PA), LLC

3000 Ericsson Dr., Suite 200

Warrendale, Pennsylvania 15086

  Attention:  President and General Manager
  Telephone:  (724) 720-2500
  Fax:  (724) 720-2505

 

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If to EXCO:

EXCO Holding (PA), Inc.

12377 Merit Drive, Suite 1700

Dallas, Texas 75251

  Attention:  Harold Hickey, Vice President and

Chief Operating Officer

  Telephone:  (214) 368-2084
  Fax:  (214) 368-8754

with copies to:

EXCO Resources, Inc.

12377 Merit Drive, Suite 1700

Dallas, Texas 75251

  Attention:  William L. Boeing, Vice President,

General Counsel, and Secretary

  Telephone:  (214) 368-2084
  Fax:  (214) 706-3409

and

Vinson & Elkins L.L.P.

2500 First City Tower

1001 Fannin Street

Houston, Texas 77002-6760

  Attention:  Roxanne T. Almaraz
  Telephone:  (713) 758-3621
  Fax:  (713) 615-5621

If to BG:

BG US Production Company, LLC

5444 Westheimer, Suite 1200

Houston, Texas 77056

  Attention:  Jon Harris
  Telephone:  (713) 599-4000
  Fax:  (713) 599-4250

with copies to:

BG US Production Company, LLC

5444 Westheimer, Suite 1200

Houston, Texas 77056

  Attention:  Bill Way
  Telephone:  (713) 599-4000
  Fax:  (713) 599-4250

 

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and

BG US Production Company, LLC

5444 Westheimer, Suite 1200

Houston, Texas 77056

  Attention:  Chris Migura, Principal Counsel
  Telephone:  (713) 599-4000
  Fax:  (713) 599-4250

Any notice given in accordance herewith shall be deemed to have been given when delivered to the addressee in person, or by courier, or transmitted by facsimile transmission during normal business hours, or upon actual receipt by the addressee after such notice has been deposited in the United States Mail, as the case may be. Any notice given to a Credit Facility Secured Party in accordance with the notice information supplied with respect to such Credit Facility Secured Party shall be deemed to have been given when delivered to the addressee in person, or by courier, or transmitted by facsimile transmission during normal business hours, or upon actual receipt by the addressee after such notice has been deposited in the United States Mail, as the case may be. The Parties may change the address, telephone numbers, and facsimile numbers to which such communications are to be addressed by giving written notice to the other Parties in the manner provided in this Section 13.3.

13.4 Expenses . Except as otherwise specifically provided, all fees, costs and expenses incurred by the Parties in negotiating this Agreement shall be paid by the Party incurring the same, including legal and accounting fees, costs and expenses.

13.5 Waivers; Rights Cumulative . Any of the terms, covenants, or conditions hereof may be waived only by a written instrument executed by or on behalf of the Party waiving compliance. No course of dealing on the part of any Party, or its respective officers, employees, agents, or representatives, nor any failure by a Party to exercise any of its rights under this Agreement shall operate as a waiver thereof or affect in any way the right of such Party at a later time to enforce the performance of such provision. No waiver by any Party of any condition, or any breach of any term or covenant contained in this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of any breach of any other term or covenant. The rights of the Parties under this Agreement shall be cumulative, and the exercise or partial exercise of any such right shall not preclude the exercise of any other right.

13.6 Entire Agreement; Conflicts . This Agreement, the Transfer Agreement, the Joint Development Agreement and the Associated Agreements constitute the entire agreement among the Parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations, and discussions, whether oral or written, of the Parties pertaining to the subject matter of this Agreement. There are no warranties, representations, or other agreements among the Parties relating to the subject matter of this Agreement except as

 

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specifically set forth in this Agreement, and no Party shall be bound by or liable for any alleged representation, promise, inducement, or statements of intention not so set forth. If there is a conflict between the terms and provisions of this Agreement and the terms and provisions of the Certificates, the terms and provisions of this Agreement will control.

13.7 Amendments . This Agreement may be amended or modified from time to time only by a written instrument executed by all of the Members or as reasonably necessary to reflect a Transfer permitted under Article 9 or a transfer pursuant to a Credit Facility Foreclosure.

13.8 Parties in Interest . Except for the rights provided in Article 8 to certain indemnified Persons, nothing in this Agreement shall entitle any Person other than the Parties to any claim, cause of action, remedy or right of any kind. Any Dispute regarding the rights of any indemnified Person pursuant to Article 8 must be through arbitration pursuant to Section 12.2.

13.9 Successors and Permitted Assigns . This Agreement shall be binding upon and inure to the benefit of the Parties and their successors and permitted assigns.

13.10 Confidentiality .

 

(a) The Parties agree that all information related to the business of the Company shall be considered confidential, shall be kept confidential and shall not be disclosed during the term of this Agreement to any Person that is not a Party, except:

 

  (i) to an Affiliate of a Member;

 

  (ii) to the extent such information is required to be furnished in compliance with applicable Law, or pursuant to any legal proceedings or because of any order of any Governmental Authority binding upon a Party;

 

  (iii) to prospective or actual attorneys engaged by any Party where disclosure of such information is essential to such attorney’s work for such Party;

 

  (iv) to prospective or actual contractors and consultants engaged by any Party where disclosure of such information is essential to such contractor’s or consultant’s work for such Party;

 

  (v) to a bona fide prospective transferee of a Member’s Membership Interest to the extent appropriate in order to allow the assessment of such Membership Interest (including a Person with whom a Member and/or its Affiliates are conducting bona fide negotiations directed toward a merger, consolidation or the sale of a majority of its or an Affiliate’s shares);

 

  (vi) to a bank or other financial institution to the extent appropriate to a Party arranging for funding;

 

  (vii)

to the extent such information must be disclosed pursuant to any rules or requirements of any stock exchange having jurisdiction over such Party or its Affiliates; provided that if any Party desires to disclose information in

 

73


  an annual or periodic report to its or its Affiliates’ shareholders and to the public and such disclosure is not required pursuant to any rules or requirements of any stock exchange, then such Party shall comply with Section 13.11;

 

  (viii) to its respective employees, subject to each Party taking customary precautions to ensure such information is kept confidential; and

 

  (ix) any information which, through no fault of a Party, becomes a part of the public domain.

 

(b) Disclosure as pursuant to Sections 13.10(a)(iv), (v) and (vi) shall not be made unless prior to such disclosure the disclosing Party has obtained a written undertaking from the recipient to keep the information strictly confidential for the term of this Agreement and to use the information for the sole purpose described in Sections 13.10(a)(iv), (v) and (vi), whichever is applicable, with respect to the disclosing Party.

13.11 Publicity .

 

(a) Without reasonable prior notice to the other Parties, no Member, nor the Company, will issue, or permit any agent or Affiliate of it to issue, any press releases or otherwise make, or cause or permit any agent or Affiliate of it to make, any public statements with respect to this Agreement or the activities contemplated hereby, except where such release or statement is deemed in good faith by the releasing Party to be required by Law or under the rules and regulations of a recognized stock exchange on which shares of such Party or any of its Affiliates are listed, and in any case, prior to making any such press release or public statement, the releasing Party shall provide a copy of the press release or public statement to the other Parties.

 

(b) Notwithstanding anything to the contrary in Section 13.10 or Section 13.11(a), any Member or Affiliate of a Member may disclose information regarding the business of the Company in investor presentations, industry conference presentations or similar disclosures, provided that not less than twenty four (24) hours, or when reasonably practicable, forty eight (48) hours, exclusive of Saturdays and Sundays, prior to so disclosing any such information, the releasing Member shall provide a copy of the presentation or other disclosure document containing such information to the other Parties.

 

(c) Notwithstanding anything to the contrary in Section 13.10 or Section 13.11(a), in the event of any emergency endangering property, lives or the environment, the Company may issue such press releases or public announcements as it deems necessary in light of the circumstances and shall promptly provide each Member with a copy of any such press release or announcement.

13.12 Preparation of Agreement . All of the Company, the Members and their respective counsels participated in the preparation of this Agreement. In the event of any ambiguity in this Agreement, no presumption shall arise based on the identity of the draftsman of this Agreement.

 

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13.13 Conduct of the Parties; Business Principles .

 

(a) The Company and each Member warrants that it and its Affiliates and its and their representatives have not made, offered, authorized or received, and agrees that it and its Affiliates and its and their representatives will not make, offer, authorize or receive, with respect to the matters which are the subject of this Agreement, any payment, gift, promise or other advantage, whether directly or through any other Person, to or for the use or benefit of any Person, including any public person (being any person holding a legislative, administrative or judicial office, including any person employed by or acting on behalf of a public agency, a public enterprise or public international organization or any political party or political party official or candidate for office), where such payment, gift, promise or advantage would violate any applicable Law or, in the case of a public person, such payment, gift, promise or advantage is made to influence the timing of routine governmental action which the public person is bound to perform, even if not a violation of applicable Law.

 

(b) Prior to the date of this Agreement, each Member provided the others with a copy of its business principles governing its general conduct of operations and business dealings, and each Member acknowledges receipt and awareness of the other Members’ business principles. The Members agree that the common set of business principles set forth on Schedule 13.13(a) shall govern the conduct of operations and business dealings of the Company.

13.14 Severability . If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of Law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to any Party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

13.15 Non-Compensatory Damages . None of the Parties shall be entitled to recover from any other Party, or such Party’s respective Affiliates, any indirect, consequential, punitive or exemplary damages or damages for lost profits of any kind arising under or in connection with this Agreement or the transactions contemplated hereby, except to the extent any such Party suffers such damages (including costs of defense and reasonable attorney’s fees incurred in connection with defending of such damages) to a third party, which damages (including costs of defense and reasonable attorney’s fees incurred in connection with defending against such damages) shall not be excluded by this provision as to recovery hereunder. Subject to the preceding sentence, each Party, on behalf of itself and each of its Affiliates, waives any right to recover punitive, special, exemplary and consequential damages, including damages for lost profits, arising in connection with or with respect to this Agreement or the transactions contemplated hereby.

 

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13.16 Specific Performance; Injunctive Relief . The Company and the Members would be damaged irreparably and would have no adequate remedy at Law if any provision of this Agreement is not performed in accordance with its specific terms. Accordingly, the Company and each Member is entitled to injunctive relief to prevent or remedy breaches of this Agreement and to enforce specifically the terms and provisions hereof, without having to prove the inadequacy of any remedy that may be available at Law or being required to post bond or other security.

13.17 No Company Seal . The Company will not have a seal, and no agreement, instrument or other document executed on behalf of the Company that would otherwise be valid and binding on the Company will be invalid or non-binding on the Company solely because no seal is affixed to it.

13.18 Interpretation . All references in this Agreement to Schedules, Articles, Sections, subsections and other subdivisions refer to the corresponding Schedules, 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 and Exhibits referred to herein are attached to and by this reference incorporated herein for all purposes. References to any Law or agreement shall mean such Law or agreement as it may be amended from time to time.

13.19 Intellectual Property .

 

  (a) All intellectual property rights in Company Technology, including any patents and copyrights, shall be owned by the Company unless otherwise agreed by the Management Board pursuant to Section 2.2(bb), and the Company shall have the exclusive right to license Company Technology to third Persons.

 

  (b)

Notwithstanding Section 13.19(a), each Member and its Affiliates shall have a royalty-free irrevocable, non-exclusive and non-transferable license to use all Company Technology in its own operations (including joint venture projects in which such Member or its Affiliates have an ownership or equity interest) without the approval of the Company. Any Member or its Affiliates may disclose such Company Technology to its or its Affiliates’ joint venturers in any joint venture project in which they participate, for purposes of that venture only, provided that

 

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  each joint venturer to whom Company Technology is to be disclosed must first agree in writing to keep such Company Technology confidential in accordance with the standards set forth in Section 13.10 and acknowledge in writing that such Company Technology is the property of the Company and may not be used by such joint venturer in any other project.

13.20 Further Assurances . Each Member agrees to execute such further documents, instruments and other agreements as may be reasonably requested by the other Members or as reasonably necessary to carry out and implement the intent of this Agreement.

[The remainder of this page has been intentionally left blank.]

 

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IN WITNESS WHEREOF, the Parties have executed this Agreement by their duly authorized representatives on and as of the date first written above.

 

COMPANY:
EXCO RESOURCES (PA), LLC
By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and Secretary
MEMBERS:
EXCO HOLDING (PA), INC.
By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and Secretary
BG US PRODUCTION COMPANY, LLC
By:  

/s/ JON HARRIS

Name:   Jon Harris
Title:   Vice President

Exhibit 10.3

Execution Version

SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY

AGREEMENT

OF

APPALACHIA MIDSTREAM, LLC

DATED JUNE 1, 2010


TABLE OF CONTENTS

 

ARTICLE 1 ORGANIZATION; REPRESENTATIONS AND WARRANTIES    2
    Section 1.1    Formation    2
    Section 1.2    Name    2
    Section 1.3    Term    2
    Section 1.4    Registered Agent    2
    Section 1.5    Principal Office    2
    Section 1.6    Business and Purpose; Power    2
    Section 1.7    Qualifications in Other Jurisdictions    3
    Section 1.8    No State Law Partnership    3
    Section 1.9    Other Business Pursuits    3
    Section 1.10    Representations and Warranties of Members    3
ARTICLE 2 INTENTIONALLY OMITTED    6
ARTICLE 3 CAPITALIZATION    6
    Section 3.1    Initial Contributions    6
    Section 3.2    Additional Contributions    6
    Section 3.3    Additional Contributions Procedures    6
    Section 3.4    Member Loans    7
    Section 3.5    Failure to Fund Additional Contributions or Member Loans    8
    Section 3.6    Certain Consequences of Default    8
    Section 3.7    Extended Default    10
    Section 3.8    Capital Accounts    12
    Section 3.9    No Interest on or Return of Capital Contributions    13
ARTICLE 4 ALLOCATIONS AND DISTRIBUTIONS    13
    Section 4.1    Allocations of Net Profits and Net Losses    13
    Section 4.2    Special Allocations    14
    Section 4.3    Curative Allocations    16
    Section 4.4    Tax Allocations    16
    Section 4.5    Other Allocation Provisions    17
    Section 4.6    Distributions    17
    Section 4.7    Limitations Upon Distributions    18
ARTICLE 5 MANAGEMENT OF THE COMPANY    18
    Section 5.1    Management under Direction of Management Board    18
    Section 5.2    Number, Tenure and Qualification    23
    Section 5.3    Voting Proxies; Quorum; Meetings of Management Board; No Fiduciary Duties    24
    Section 5.4    Resignation of Board Members    30
    Section 5.5    Removal of Board Members    30
    Section 5.6    Vacancies    30
    Section 5.7    Fees and Expenses of Board Members    31
    Section 5.8    No Power of Members to Bind Company    31

 

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   Section 5.9    Delegation of Authority; Officers    31
   Section 5.10    Provision of Services by the Members    40
   Section 5.11    Standard of Conduct; Health, Safety, Security and the Environment    40
   Section 5.12    Certain Reports    41
   Section 5.13    Insurance Requirements    43
ARTICLE 6 ANNUAL WORK PROGRAM AND BUDGETS; CONTRACT AWARDS    43
   Section 6.1    Development Work Program; Initial Work Program and Budget    43
   Section 6.2    Subsequent Work Program and Budgets    44
   Section 6.3    Statement of Estimated Expenditures    47
   Section 6.4    Company Group O&M Contract Awards    48
ARTICLE 7 INDEMNIFICATION    50
   Section 7.1    No Liability of Members for Company Obligations    50
   Section 7.2    Exculpation    50
   Section 7.3    Indemnification    51
   Section 7.4    Expenses    52
   Section 7.5    Insurance    52
   Section 7.6    Primary Obligation    52
ARTICLE 8 BOOKS AND RECORDS; ACCOUNTS    53
   Section 8.1    Books and Records    53
   Section 8.2    Availability of Books and Records    53
   Section 8.3    Audits    53
   Section 8.4    Financial Statements and Reports    54
   Section 8.5    Accounting Method    56
   Section 8.6    Bank Accounts; Investments    56
   Section 8.7    Fiscal Year of the Company    56
ARTICLE 9 TAX MATTERS    56
   Section 9.1    Tax Treatment of the Company    56
   Section 9.2    Tax Matters Partner    56
   Section 9.3    Tax Returns and Elections    57
   Section 9.4    Tax Terminations    57
ARTICLE 10 TRANSFERS OF MEMBER INTERESTS; ADMISSION OF NEW MEMBERS    58
   Section 10.1    Transfer of Member Interests    58
   Section 10.2    Conditions Precedent to a Member Interest Transfer    59
   Section 10.3    Encumbrances by Members    60
   Section 10.4    Admission of Persons as New Members    60
   Section 10.5    Recordation Tax    60
ARTICLE 11 CONSENTS TO ASSIGNMENT    60
   Section 11.1    Certain Transfers during Initial Three Year Period    60
   Section 11.2    Other Transfers    61

 

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ARTICLE 12 PREFERENTIAL PURCHASE RIGHTS; CHANGES IN CONTROL    61
  Section 12.1    Preferential Purchase Rights    61
  Section 12.2    Changes in Control    63
ARTICLE 13 ACQUIRED BUSINESS; NEW BUSINESS; ASSET UPGRADES    65
  Section 13.1    Acquired Business    65
  Section 13.2    Member Requested Services    69
  Section 13.3    New Business    70
  Section 13.4    Asset Upgrades    73
  Section 13.5    Contract Operating Agreements; Certain Gathering Agreements    73
ARTICLE 14 DISSOLUTION; WINDING UP AND TERMINATION    74
  Section 14.1    Causes of Dissolution, Winding Up and Termination    74
  Section 14.2    Notice of Dissolution    75
  Section 14.3    Liquidation    75
  Section 14.4    Termination    75
  Section 14.5    No Obligation to Restore Capital Accounts    75
  Section 14.6    Distributions in Kind    75
ARTICLE 15 GOVERNING LAW; DISPUTE RESOLUTION    76
  Section 15.1    Governing Law    76
  Section 15.2    Dispute Resolution    76
  Section 15.3    Expert Proceedings    78
ARTICLE 16 MISCELLANEOUS    79
  Section 16.1    Counterparts    79
  Section 16.2    Notices    79
  Section 16.3    Expenses    80
  Section 16.4    Waivers; Rights Cumulative    80
  Section 16.5    Entire Agreement; Conflicts    81
  Section 16.6    Amendment    81
  Section 16.7    Parties in Interest    81
  Section 16.8    Successors and Permitted Assigns    81
  Section 16.9    Confidentiality    81
  Section 16.10    Publicity    82
  Section 16.11    Preparation of Agreement    83
  Section 16.12    Conduct of the Parties; Business Principles    83
  Section 16.13    Severability    84
  Section 16.14    Non-Compensatory Damages    84
  Section 16.15    Waiver of Partition of Company Property    84
  Section 16.16    Interpretation    84
  Section 16.17    Intellectual Property    85
  Section 16.18    Certain Post Closing Actions    85

 

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APPENDICES
Appendix I    Definitions
EXHIBITS   
Exhibit “A”    Member Interests
Exhibit “B”    Certificate of Formation
Exhibit “C”    Form of Secondment Agreement
Exhibit “D-1”    Form of BG Member Services Agreement
Exhibit “D-2”    Form of EXCO Member Services Agreement
Exhibit “D-3”    Form of Operator Services Agreement
Exhibit “E-1”    Development Work Program
Exhibit “E-2”    Calendar Year 2010 Annual Work Program and Budget
Exhibit “F”    Form of Assumption Agreement
Exhibit “G”    Form of Services Agreement
Exhibit “H”    Form of Member Gathering Agreement
Exhibit “I”    Form of Contract Operating Agreement
Exhibit “J”    Form of Third Party Gathering Agreement
Exhibit “K”    Form of Interconnect Agreement

 

SCHEDULES   
Schedule 5.13    Company Group Members’ Insurance Requirements
Schedule 13.2(a)    Marcellus Fairway
Schedule 16.12(b)    Business Principles

 

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SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT

THIS SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this “ Agreement ”) of Appalachia Midstream, LLC, a limited liability company organized and existing under the Laws of Delaware (the “ Company ”), is made this 1st day of June, 2010 (the “ Closing Date ”) by and among the Company and each of the Persons (as hereinafter defined) listed on Exhibit “A” attached hereto and made a part hereof. Capitalized terms used herein and not otherwise defined shall have the meanings given such terms in Appendix 1 attached hereto.

WITNESSETH:

RECITALS

 

1. On May 9, 2010, EXCO Member and BG Member entered into the Transfer Agreement which contemplated, among other things, the transfer by EXCO Member to BG Member of one-half (1/2) of the member interest of a limited liability company organized and existing under the Laws of Delaware whose assets comprised certain interests of EXCO Member and its Affiliates in gathering systems, pipelines and treatment and processing facilities used to gather, transport, treat and process gas produced from or attributable to the Deep Rights in the AMI Area.

 

2. To effect the transactions contemplated by the Transfer Agreement, on May 28, 2010, EXCO Resources (PA), LLC and EXCO Resources (WV), LLC, limited liability companies organized and existing under the Laws of the State of Texas, underwent a multi-survivor merger pursuant to Chapter 10 of the Texas Business Organizations Code, which multi-survivor merger was conducted in accordance with a plan of merger filed with the Secretary of State of the State of Texas. As a result of the multi-survivor merger, the Company was formed as a limited liability company organized and existing under the Laws of the State of Texas, and was allocated certain of EXCO Member’s and its Affiliates’ interests in permits, rights of way, contract rights, gathering systems, pipelines and treatment and processing facilities used to gather, transport, treat and process gas produced from or attributable to the Deep Rights in the AMI Area. EXCO Member, as the sole Member of the Company, adopted a limited liability company agreement of the Company effective as of such date. On May 28, 2010, the Company was converted into a limited liability company organized and existing under the Laws of the State of Delaware pursuant to the Certificates and EXCO Member adopted an amended and restated limited liability company agreement of the Company effective following such conversion (the “ Original Agreement ”).

 

4. On the Closing Date, pursuant to the Transfer Agreement, EXCO Member transferred to BG Member fifty percent (50%) of the Member Interests.

 

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5. The Parties desire to enter into this Agreement as an amendment and restatement of the Original Agreement in its entirety to reflect the agreement of the Company and the Members as set forth herein.

NOW THEREFORE, in consideration of the foregoing, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, effective as of the Closing Date, the Original Agreement is hereby amended and restated in its entirety to read as follows:

ARTICLE 1

ORGANIZATION; REPRESENTATIONS AND WARRANTIES

Section 1.1 Formation . The Company was initially formed as a Texas limited liability company and was converted into a Delaware limited liability company by execution and delivery of the Certificates to the Secretary of State of the State of Delaware on May 28, 2010. Copies of the Certificates are attached hereto as Exhibit “B”.

Section 1.2 Name . The name of the Company is “Appalachia Midstream, LLC” and all business of the Company shall be conducted under such name or under any other name approved by the Management Board pursuant to Section 5.1(b)(xi).

Section 1.3 Term . The Company shall continue until dissolved in accordance with the provisions of the Delaware Act and this Agreement. No other event will cause the Company to dissolve.

Section 1.4 Registered Agent . The Company’s initial registered office in the State of Delaware shall be located at 1209 Orange Street, Wilmington, Delaware 19801. The registered agent at such address is The Corporation Trust Company. The Management Board may change the Company’s registered agent and registered office in the State of Delaware from time to time pursuant to Section 5.1(c)(xiv).

Section 1.5 Principal Office . The Company’s principal office shall be located at 3000 Ericsson Dr., Suite 200, Warrendale, Pennsylvania 15086. The Management Board may change the Company’s principal office from time to time pursuant to Section 5.1(b)(xi), which need not be in Delaware. The Company may have such other places of business as the Management Board may designate.

Section 1.6 Business and Purpose; Power . The business and purpose of the Company shall be to engage in Midstream Activities, and to engage in any other lawful act or activity that now or in the future may be necessary, convenient, incidental, or advisable to accomplish the foregoing purpose and that is not forbidden by Law in the jurisdictions in which the Company engages in such business or activities. The Company shall have all powers and privileges granted by the Delaware Act, any other Law, or by this Agreement, including incidental powers thereto, to the extent that such powers and privileges are necessary, customary, convenient or incidental to the attainment of the Company’s business and purpose as set forth in this Section 1.6.

 

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Section 1.7 Qualifications in Other Jurisdictions . The Company’s officers shall cause the Company to be qualified, formed or registered under assumed or fictitious name or similar Laws in any jurisdiction in which the Company transacts business. The Company’s officers shall execute, deliver and file any certificates (and any amendments and/or restatements thereof) necessary or appropriate for the Company to qualify and continue to do business in a jurisdiction in which the Company may wish to conduct business. At the request of the Management Board, each Member shall execute, acknowledge, swear to and deliver all certificates and other instruments conforming with this Agreement that are necessary or appropriate to qualify, continue and terminate the Company as a foreign limited liability company in all such jurisdictions in which the Company may conduct business, provided that no Member shall be required to file any general consent to service of process or to qualify as a foreign corporation, limited liability company, partnership or other entity in any jurisdiction in which it is not already so qualified.

Section 1.8 No State Law Partnership . The Members intend that: (a) the Company not be a common law partnership or joint venture; and (b) the Company not create any agency or other relationship creating fiduciary or quasi-fiduciary duties of any Member to the Company or to any other Member, and this Agreement may not be construed to suggest otherwise. This Agreement shall not subject the Members to joint and several or vicarious liability or impose any duty, obligation or liability that would arise therefrom with respect to any or all of the Members or the Company.

Section 1.9 Other Business Pursuits . Each Member acknowledges and agrees that the other Members and the Affiliates of the other Members may from time to time be interested, directly or indirectly, in various other businesses and undertakings separate and apart from the Company, including businesses and undertakings in direct competition with the Company, and except as otherwise provided in Article 13, neither the Company nor any other Member shall be entitled to notice thereof, or a right to participate therein, or any right to any profits from any such other businesses or undertakings.

Section 1.10 Representations and Warranties of Members .

(a) Each Member hereby represents and warrants to the Company and the other Members as follows:

(i) Independent Evaluation . It is sophisticated in the evaluation, purchase, ownership and operation of oil and gas properties and related facilities. In making its decision to enter into this Agreement and to consummate the transaction contemplated herein, it, except to the extent of the other Member’s express representations and warranties in this Section 1.10, (A) has relied or shall rely solely on its own independent investigation and evaluation of the Company and its assets and the advice of its own legal, tax, economic, environmental, engineering, geological and geophysical advisors and the express provisions of this Agreement and not on any comments, statements, projections or other materials made

 

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or given by any representatives or consultants or advisors engaged by any other Member, and (B) has satisfied or shall satisfy itself through its own due diligence as to the environmental and physical condition of and contractual arrangements and other matters affecting the Company or its assets.

(ii) Accredited Investor . It is an “accredited investor,” as such term is defined in Regulation D of the Securities Act of 1933, as amended, and is acquiring its Member Interest for its own account and not with a view to a sale or distribution thereof in violation of the Securities Act of 1933, as amended, and the rules and regulations thereunder, any applicable state blue sky Laws or any other applicable securities Laws.

(iii) Unregistered Member Interest . It understands and acknowledges that its Member Interest has not been registered under the Securities Act or under any state securities Laws and further understands and acknowledges that its representations and warranties contained in this Section 1.10 are being relied upon by the Company and the other Members as the basis for the exemption from the registration requirements of the Securities Act and under all applicable state securities Laws. It further acknowledges that the Company will not and has no obligation to recognize any Transfer of a Member Interest to any Person unless and until the provisions of Articles 10, 11 and 12 have been fully satisfied.

(iv) Organization; Existence . Such Member is duly formed, validly existing and in good standing under the Laws of the state of its formation. Such Member has all requisite power and authority to own and operate its property and to carry on its business as now conducted. Such Member is duly licensed or qualified to do business as a foreign limited partnership or limited liability company or other legal entity, 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 on such Member.

(v) Authorization . Such Member has full power and authority to enter into and perform this Agreement and the Associated Agreements to which it is a party and the transactions contemplated herein and therein. The execution, delivery, and performance by such Member of this Agreement have been and when executed and delivered the Associated Agreements 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 Member. This Agreement is, and the Associated Agreements to which such Member is a party when executed and delivered by such Member will be, the valid and binding obligation of such Member and enforceable against such Member 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).

 

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(vi) No Conflicts . The execution, delivery, and performance by such Member of this Agreement and the Associated Agreements 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 such Member, (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 material contract, note, bond, mortgage, indenture, license, or other material agreement to which any such Member is a party or by which such Member may be bound or (C) violate any Law applicable to such Member, 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 on such Member.

(vii) Claims and Litigation . There is no written claim for breach of contract, tort or violation of Law or investigation of which such Member 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 such Member’s knowledge, threatened in writing against such Member, or to which such Member is a party, that would have a material adverse effect upon the ability of such Member to perform its obligations under this Agreement.

(viii) Bankruptcy . There are no bankruptcy, reorganization or receivership proceedings pending, being contemplated by or, to such Member’s knowledge, threatened against such Member or any of its Affiliates that have a direct or indirect ownership interest in such Member (including its ultimate parent company), and neither the Member nor any such Affiliate is insolvent or generally not paying its debts as they become due.

(ix) No FERC Regulation . Neither such Member nor its Affiliates are subject to the Standards of Conduct of the Federal Energy Regulatory Commission (“ FERC ”) contained in 18 C.F.R. Part 358, as such regulations may be amended from time to time (“ Standards of Conduct ”).

(b) Each Member agrees to indemnify and hold harmless the Company Group Members and the other Members, from any liability, loss, cost, damage and expense (including the costs of litigation, arbitration and reasonable attorneys’ fees) arising out of or resulting from the breach of any representation, warranty or covenant of such Member set forth in this Section 1.10.

 

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ARTICLE 2

INTENTIONALLY OMITTED

ARTICLE 3

CAPITALIZATION

Section 3.1 Initial Contributions . Within two (2) Business Days of the day upon which the Company establishes a Company bank account, the Company shall notify the Members of such occurrence, and within five (5) Business Days of its receipt of such notice, each Member shall make those contributions to the Company set forth in Exhibit “A” (the “ Initial Contributions ”). As a result of its agreement to make its Initial Contribution, each Member shall have the Member Interest set forth opposite such Member’s name on Exhibit “A”.

Section 3.2 Additional Contributions .

(a) Each Member shall be required to fund its Member Interest share of all costs and expenses included in each approved Annual Work Program and Budget and Emergency Expenditures.

(b) Notwithstanding anything to the contrary in this Section 3.2 or Section 3.3, unless otherwise decided by the Management Board, the Company shall pay expenditures authorized by this Agreement incurred by any Company Group Member out of gross receipts received by the Company Group Members.

(c) The Company shall use (and cause the Company Group Members to use) the proceeds of all additional contributions made by the Member pursuant to this Section 3.2 and Section 3.3 exclusively for the purposes contemplated by the Call Notice to which such additional contributions relate.

Section 3.3 Additional Contributions Procedures .

(a) To the extent that, at any time, the Company Group Members’ gross receipts are not anticipated to be sufficient to satisfy their estimated expenditures to be incurred in the succeeding Calendar Quarter pursuant to an approved Annual Work Program and Budget, the President and General Manager shall issue Call Notices to the Members for additional contributions in an amount equal to the difference between such estimated expenditures and anticipated gross receipts not more than thirty (30) days but not less than fifteen (15) days prior to the commencement of such Calendar Quarter.

(b) Further, the President and General Manager may issue Call Notices to the Members at any other time for other additional contributions to the extent that the Company Group Members’ anticipated gross receipts and other additional contributions made pursuant to Section 3.3(a) are not anticipated to be sufficient

 

6


to satisfy the Company Group Members’ estimated expenditures to be incurred during the current Calendar Quarter in accordance with this Agreement, provided that Call Notices may not be issued pursuant to this Section 3.3(b) for any estimated expenditures more than thirty (30) days in advance of such estimated expenditures.

(c) Proper adjustment shall be made in each Calendar Month between advances made hereunder and actual expenditures, to the end that each Member bears and pays its allocable share of expenditures, and no more. All calls for capital contributions shall be expressed in U.S. dollars and shall state the date on which payment is due and the bank(s) and account(s) to which payment is to be made. Each Call Notice shall specify in reasonable detail the purpose(s) for which such additional contribution(s) are required, and the amount of the contribution(s) to be made by each Member pursuant to such Call Notice.

(d) Each Member shall contribute any additional contribution within fifteen (15) Business Days of the date of delivery of the relevant Call Notice.

Section 3.4 Member Loans .

(a) At the election of Management Board pursuant to Section 5.1(b)(xvi), capital requirements for the Members may be funded with Member Loans.

(b) All Member Loans shall be made upon the terms approved by the Management Board pursuant to Section 5.1(b)(xvi), which terms shall include the amounts of such Member Loans, the schedule for advancing such Member Loans, the schedule of repayment of such Member Loans, rates of interest (if any) payable on such Member Loans and all other terms deemed necessary by such Management Board (provided that the terms set forth in this Agreement shall be included). The terms of the Member Loans made by each Member pursuant to the same decision of a Management Board shall be identical except as to the amount. All Member Loans shall be represented by written notes setting forth those terms.

(c) Each Member shall provide to the Company a percentage of each Member Loan equal to such Member’s Member Interest.

(d) All Member Loans shall rank pari passu in all respects without preference or priority over one another.

(e) Member Loans shall be repaid only out of Available Cash.

(f) Unless otherwise agreed by the Management Board, payment of all required Member Loans shall be made by wire transfer of immediately available funds in U.S. dollars without set-off or deduction for bank charges.

 

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(g) Upon notice from the President and General Manager or any other Member, each Member shall be required to return any payment received with respect to any Member Loan to the extent: (i) such payment was made in error; (ii) the amount paid to the Member was greater than the amount to which the Member was actually entitled; or (iii) applicable Law requires the return of such payment. Each Member shall return any such payment to the Company not later than ten (10) days after receipt of such notice requiring such return.

(h) In the event that the Company is dissolved and wound up, all Member Loans shall be contributed to the capital of the Company upon the dissolution of the Company, and shall not be considered liabilities of the Company for purposes of winding up. This Section 3.4(h) shall not, however, affect any outstanding liabilities by any Member to make Member Loans to the Company.

(i) Unless otherwise required by the Code, any Member Loan shall be treated as a loan by the Member to the Company for United States federal income tax purposes.

Section 3.5 Failure to Fund Additional Contributions or Member Loans .

(a) Any Member that fails to pay in full when due any amounts owed and undisputed under the terms of this Agreement (including failure to pay the full amount of such Member’s Member Interest share of any Member Loan when due) and such failure is not cured within fifteen (15) days of such Member’s receipt of a Default Notice shall be in default under this Agreement, and shall be referred to herein as a “ Defaulting Member ”. The Company shall (or any Affected Member may) give notice of such default (a “ Default Notice ”) to the Defaulting Member, and its Credit Facility Secured Party (if any) and each of the non-defaulting Members.

(b) “ Default Period ” means the period beginning fifteen (15) days from the date of a Member’s and its Credit Facility Secured Party’s (if any) receipt of a Default Notice if such Member remains in default under Section 3.5(a), and ending when all of the Defaulting Member’s defaults have been remedied in full.

(c) All amounts in default and not paid when due under this Agreement shall bear interest at the Default Interest Rate from the due date to the date of payment.

Section 3.6 Certain Consequences of Default .

(a) Notwithstanding any other provision in this Agreement to the contrary, during the Default Period, a Defaulting Member shall have no right to:

(i) except for Required Asset Upgrades, make or elect to participate in any proposal under this Agreement;

 

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(ii) vote on any matter with respect to which Member approval is required under the express terms of this Agreement (excluding any amendment or waiver of the terms of this Agreement);

(iii) call any Management Board or subcommittee meeting;

(iv) except for votes by the Board Members of such Defaulting Member under Section 5.1(c)(i) that pertain to Development Work Programs, vote on any matter coming before the Management Board or any subcommittee;

(v) access any data or information relating to any operation conducted by the Company (except to the extent such Member or an Affiliate of such Member is providing Services to the Company Group Members pursuant to a Services Agreement, and such data or information is necessary for such Member or Affiliate to perform its responsibilities thereunder);

(vi) elect to participate in any proposed New Business (other than a Required Asset Upgrade) under Section 13.3;

(vii) Transfer or Encumber or transfer pursuant to a Credit Facility Foreclosure all or any part of its Member Interest except: (A) a Transfer, Encumbrance, or transfer pursuant to a Credit Facility Foreclosure of Member Interest or any portion thereof in favor of a Person who simultaneously with such Transfer or Encumbrance satisfies in full the Total Amount in Default; or (B) a Credit Facility Encumbrance granted pursuant to a borrowing for which all of the proceeds thereof are used to pay the entire amount of the Total Amount in Default;

(viii) withhold consent to any Transfer of all or an undivided portion of the Member Interest, or a Change in Control, of a non-defaulting Member pursuant to Article 11, or exercise its preferential purchase right provided for in Section 12.1 in the event of such a Transfer by a non-defaulting Member, or in Section 12.2 in the event of a Change in Control of a non-defaulting Member; or

(ix) elect to participate in the acquisition of any Acquired Business pursuant to Section 13.1.

(b) In addition to the other remedies available to the Company and the Affected Members under this Agreement and any other rights available to each Affected Member to recover its share of the Total Amount in Default, from and after the thirtieth (30th) day of the Default Period, a Defaulting Member shall have no right to receive distributions from the Company pursuant to Section 4.6 until the expiration of the Default Period, and such distributions shall instead (to the extent applicable) be made to the Affected Members for advances made by such Affected Members on behalf of the Defaulting Member pursuant to

 

9


Section 3.6(e), plus interest thereon as provided in Section 3.5(c). Amounts received towards the Total Amount in Default shall be deemed paid towards the oldest of each applicable type of expense (costs, interest or principal) first. If there is more than one Affected Member, the distributions attributable to the Member Interests of the Defaulting Member shall be shared among the Affected Members in the proportions that such Affected Members’ Member Interests bear to the aggregate Member Interests of such Affected Members.

(c) Any Default Notice shall include a statement of the amount of money that the Defaulting Member has failed to pay.

(d) If the Defaulting Member remedies its default in full before the Default Period commences, the Company shall promptly notify each non-defaulting Member and such Defaulting Member’s Credit Facility Secured Party (if any) of such occurrence.

(e) Upon the commencement of the Default Period, the Company shall send the non-defaulting Members a statement of the sum of money that the Defaulting Member failed to pay and such non-defaulting Members shall pay such amount within fifteen (15) days following receipt of the statement. Each such non-defaulting Member shall be required to pay that portion of the amount that the Defaulting Member failed to furnish that such non-defaulting Member’s Member Interest bears to the aggregate Member Interests of all non-defaulting Members. If any non-defaulting Member fails to timely satisfy such obligations, such non-defaulting Member shall thereupon be a Defaulting Member subject to the provisions of Sections 3.5, 3.6 and 3.7. If all non-defaulting Members fail to timely satisfy such obligations, the Members shall be deemed to have unanimously determined not to make such expenditure and the Defaulting Member shall no longer be deemed to be in default with respect to such expenditure.

(f) During the Default Period, the Company shall not be obligated or required to (i) except for Member Requested Services, Required Asset Upgrades and Article 13 Contracts, participate in any proposed New Business and each Defaulting Member shall be deemed to have elected not to participate in any such proposed New Business under Section 13.3 or (ii) acquire any Acquired Business and each Defaulting Member shall be deemed to have elected not to acquire any such proposed Acquired Business under Section 13.1.

Section 3.7 Extended Default .

(a) In addition to the other remedies available to the Affected Members under this Article 3 and any other rights available to each Affected Member to recover its share of the Total Amount in Default, in the event a Defaulting Member fails to completely remedy its default after the one hundred twentieth (120th) day of the Default Period, any Affected Member may elect to reduce the Member Interest of the Defaulting Member by written notice to the

 

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Company (an “ Interest Reduction Notice ”, and the date of delivery of the Interest Reduction Notice, the “ Interest Reduction Notice Delivery Date ”) and the other Members in accordance with the following formula:

 

 

AMI DM   =

 

CC DM

  
    CC T   

 

where:        
AMI DM    =      the adjusted Member Interest of the Defaulting Member as of the Interest Reduction Notice Delivery Date (in percent)
CC DM    =      the aggregate capital contributions made to the Company by the Defaulting Member as of the Interest Reduction Notice Delivery Date (in US dollars) (excluding capital contributions made to the Company pursuant to an Asset Upgrade in which less than all Members participate)
CC T    =      the aggregate capital contributions made to the Company by all Members as of the Interest Reduction Notice Delivery Date (in US dollars) (excluding capital contributions made to the Company pursuant to an Asset Upgrade in which less than all Members participate)

(b) The amount by which the Defaulting Member’s Member Interest is reduced pursuant to Section 3.7(a) shall be referred to as the “ Reduced Member Interest ”. Within ten (10) Business Days of the Interest Reduction Notice Delivery Date, each Affected Member shall provide written notice to the Company and the other Affected Members whether it elects to take a portion of the Reduced Member Interest (provided that the Affected Member that provided the Interest Reduction Notice shall be required to take a portion of the Reduced Member Interest, or if no other Affected Members elect to take a portion of the Reduced Member Interest, all of the Reduced Member Interest). Failure of an Affected Member other than the Affected Member that provided the Interest Reduction Notice to so notify the Company and the other Affected Members within such period shall be deemed an election by such Affected Member not to take a portion of the Reduced Member Interest. Unless otherwise agreed by the Affected Members taking a portion of the Reduced Member Interest, each such Affected Member shall be entitled to take that portion of the Reduced Member Interest that such Affected Member’s Member Interest bears to the total Member Interests of the Affected Members electing to take a portion of the Reduced Member Interest.

(c) Immediately following the elections of the Affected Members in Section 3.7(b), the Company shall cause the Member Interests to be revised to reflect the adjustments described in such Section, effective as of the Interest Reduction Notice Delivery Date. Each Member hereby pledges and assigns to the Company and grants to the Company a continuing security interest for the benefit

 

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of the other Members in and to all of such Member’s Member Interest for purposes of enforcement of the remedies described in this Section 3.7. Notwithstanding the foregoing, but subject to Section 10.3(b), the security interests created for the benefit of the Company under this Section 3.7(c) are and will be, in all respects, subordinate to the liens and security interests created pursuant to a Credit Facility Encumbrance regardless of the time of execution of the instruments creating such liens and/or security interests and/or the filing of such liens and security interests in the applicable county or parish or other governmental office. The Company and each Member shall execute any instruments requested by any Credit Facility Secured Party reasonably necessary to reflect the subordination of any liens or security interests created for the benefit of the Company under this Section 3.7(c) to the liens and security interests created pursuant to such Credit Facility Encumbrance (subject always to the rights of Company and the other Members set forth in Section 10.3(b)).

(d) The reduction of a Defaulting Member’s Member Interest pursuant to Section 3.7(a) shall be deemed to be full satisfaction to such Defaulting Member’s Total Amount in Default.

Section 3.8 Capital Accounts . “ Capital Account ” means, with respect to any Member, an account that is maintained for such Member and which, as of any given date, has a balance calculated as follows:

(a) the aggregate amount of cash that has been contributed to the capital of the Company as of such date by or on behalf of such Member; plus

(b) the Gross Asset Value of any property other than cash that has been contributed to the capital of the Company as of such date by such Member and the amount of liabilities assumed by any such Member under Section 752 of the Code and the Treasury Regulations or which are secured by any Assets distributed to such Member; plus

(c) the aggregate amount of the Net Profits that has been allocated to such Member as of such date pursuant to the provisions of Section 4.1 or Section 14.3 or any items of income or gain which are specially allocated to such Member pursuant to Section 4.2 or 4.3 or other positive adjustments required by the Treasury Regulations and which have not been previously taken into account in determining such Member’s Capital Account; minus

(d) the aggregate amount of the Net Losses that have been allocated to such Member as of such date pursuant to Section 4.1 or Section 14.3 and the amount of any item of expense, deduction or loss which is specially allocated to such Member pursuant to Section 4.2 or Section 4.3 or other negative adjustments required by the Treasury Regulations and which have not been previously taken into account in determining such Member’s Capital Account; and minus

 

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(e) the aggregate amount of cash and the Gross Asset Value of all Assets that has been distributed to or on behalf of such Member and the amount of any liabilities of such Member assumed by the Company under Section 752 of the Code and the Treasury Regulations or which are secured by any property contributed by such Member to the Company, and any other negative adjustments required by the Treasury Regulations and which have not been previously taken into account in determining such Member’s Capital Account.

(f) In the event a Member Interest or portion thereof is Transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the Transferred Member Interest or portion thereof; and

(g) In determining the amount of any liability for purposes of subparagraphs (a) and (b) above, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Treasury Regulations.

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 Treasury Regulations. In the event the Tax Member shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto are computed in order to comply with such Treasury Regulations, the Tax Member may make such modification. The Tax Member also shall (A) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Members and the amount of capital reflected on the Company’s balance sheet, as computed for book purposes, in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(q), and (B) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Treasury Regulations Section 1.704-1(b). The Tax Member shall provide all the Members with written notice of any such adjustments or modifications.

Section 3.9 No Interest on or Return of Capital Contributions . No Member shall be entitled to interest on its contributions to the Company or to a return thereof, except as otherwise specifically provided for in this Agreement.

ARTICLE 4

ALLOCATIONS AND DISTRIBUTIONS

Section 4.1 Allocations of Net Profits and Net Losses . After giving effect to the special allocations set forth in Sections 4.2 and 4.3, Net Profits and Net Losses for any Fiscal Year shall be allocated among the Members as follows:

(a) Net Profits and Net Losses for any Fiscal Year shall be allocated to the Members in such a manner so that the Capital Account of each Member equals (as of the end of such Fiscal Year and to the fullest extent possible) the amount that would be distributed to such Member if all properties of the

 

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Company, including cash, were sold for cash equal to their respective Gross Asset Values, all liabilities allocable to such properties were then due and were satisfied according to their terms, all Minimum Gain Chargebacks and Member Nonrecourse Debt Minimum Gain Chargebacks required by Section 4.2(a) and (b) were made, and all obligations of Members to contribute additional capital to the Company were satisfied and all remaining proceeds from such sale were distributed pursuant to Section 4.6(b).

Section 4.2 Special Allocations . The following special allocations shall be made in the following order:

(a) Minimum Gain Chargeback . To the extent required by Section 1.704-2(f) of the Treasury Regulations, if there is a net decrease in “partnership minimum gain” (within the meaning of Section 1.704-2(b)(2) of the Treasury Regulations) in a Fiscal Year, then each Member shall be specially allocated items of income and gain (including gross income) arising during that Fiscal Year (and, if necessary, subsequent Fiscal Years), before any other allocation of Net Profits or Net Losses, equal to such Member’s share of the net decrease in partnership minimum gain. The items to be so allocated shall be determined in accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Treasury Regulations. If in any Fiscal Year that has such a net decrease, if the minimum gain chargeback requirement would cause a distortion in the economic arrangement among the Members and it is not expected that the Company will have sufficient other income to correct that distortion, the Tax Member may in its reasonable discretion seek to have the Internal Revenue Service waive the minimum gain chargeback requirement in accordance with Section 1.704-2(f)(4) of the Treasury Regulations. This Section 4.2(a) is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(f) of the Treasury Regulations and shall be interpreted consistently therewith.

(b) Member Nonrecourse Debt Minimum Gain Chargeback . If there is a net decrease in “partner nonrecourse debt minimum gain” (within the meaning of Section 1.704 2(i)(4) of the Treasury Regulations) in any Fiscal Year, then each Member who has a share of the “partner nonrecourse debt minimum gain” as of the beginning of the Fiscal Year shall be specially allocated items of income and gain arising during that Fiscal Year (and if necessary subsequent Fiscal Years) to the extent required by Section 1.704-2(i)(4) of the Treasury Regulations. The items to be so allocated shall be determined in accordance with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Treasury Regulations. A Member shall not be subject to this provision to the extent that an exception is provided by Section 1.704-2(i)(4) of the Treasury Regulations and any administrative guidance issued by the Internal Revenue Service with respect thereto. Any “partner nonrecourse debt minimum gain” allocated pursuant to this provision shall consist of first, gains recognized from the disposition of Assets subject to “partner nonrecourse debt” (within the meaning of Section 1.704-2(b)(4) of the Treasury Regulations), and, second, if necessary, a pro rata portion of the Company’s other items of income or gain (including gross income) for that Fiscal Year (and if necessary subsequent Fiscal Years). This Section 4.2(b) is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(i)(4) of the Treasury Regulations and shall be interpreted consistently therewith.

 

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(c) Qualified Income Offset . In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Section 1.704-1(b)(2)(ii)(d)(4), Section 1.704-1(b)(2)(ii)(d)(5) or Section 1.704-1(b)(2)(ii)(d)(6) of the Treasury Regulations, which creates a negative Adjusted Capital Account Balance for its Capital Account, then items of Company income and gain (consisting of a pro rata portion of each item of Company income, including gross income, and gain for such year and, if necessary, for subsequent years) from Business conducted by the Company shall be specially allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the negative Adjusted Capital Account Balance so created as quickly as possible, provided that an allocation pursuant to this Section 4.2(c) shall be made if and only to the extent that such Member would have a negative Adjusted Capital Account Balance after all other allocations provided for in this Article 4 have been tentatively made as if this Section 4.2(c) were not in the Agreement. It is the intent that this Section 4.2(c) be interpreted to comply with the alternate test for economic effect set forth in Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations.

(d) Nonrecourse Deductions . If there are any “nonrecourse deductions” (within the meaning of Sections 1.704-2(b)(1) and 1.704-2(c) of the Treasury Regulations) in a Fiscal Year, then each Member shall be allocated its Member Interest share of such nonrecourse deductions.

(e) Member Nonrecourse Deductions . If there are any “partner nonrecourse deductions” (within the meaning of Section 1.704-2(i)(1) of the Treasury Regulations) in a Fiscal Year, then such deductions will be allocated to the Member who bears the economic risk of loss for the “partner nonrecourse liability” (within the meaning of Section 1.704-2(b)(4) of the Treasury Regulations) to which the deductions are attributable.

(f) Special Loss Allocation . The Net Losses allocated pursuant to Section 4.1(a) hereof shall not exceed the maximum amount of Net Losses, losses or deduction that can be so allocated without causing any Member to have a negative Adjusted Capital Account Balance at the end of any Fiscal Year. If some, but not all, of the Members would have negative Adjusted Capital Account Balance as a consequence of such allocations, the limitation set forth in the preceding sentence shall be applied on a Member-by-Member basis so as to allocate the maximum permissible Net Losses and items of loss and deduction to each Member under Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations. All Net Losses in excess of the limitation set forth in this Section 4.2(f) shall be allocated to the Members in proportion to their respective positive Adjusted Capital Account Balances, if any, and thereafter to the Members in accordance with their interests as determined by the Tax Member in its reasonable discretion.

 

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If any Member would have a negative Adjusted Capital Account Balance at the end of any Fiscal Year, the Capital Account of such Member shall be specially credited with items of Company income (including gross income) and gain from Business conducted by the Company in the amount of such excess as quickly as possible.

(g) Section 754 Adjustments . To the extent an adjustment to the adjusted tax basis of any asset of the Company under Code Section 734(b) or Code Section 743(b) is required, under Treasury Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to Capital Accounts will be treated as an item of gain (if the adjustment increases the basis of the Company asset) or loss (if the adjustment decreases such basis) and that gain or loss will be specially allocated to the Members in a manner consistent with the manner in which their Capital Accounts are required to be adjusted under that section of the Treasury Regulations.

Section 4.3 Curative Allocations . The allocations (the “ Regulatory Allocations ”) set forth in Section 4.2 are intended to comply with certain requirements of Sections 1.704-1(b) and 1.704-2(b) of the Treasury Regulations. Notwithstanding any other provisions of this Agreement other than the Regulatory Allocations, the Regulatory Allocations shall be taken into account in allocating Net Profits or Net Losses or other items of income, gain, loss and deduction among the Members so that, to the extent possible, the net amount of such allocations of other items and the Regulatory Allocations to each Member shall be equal to the net amount that would have been allocated to such Member if the Regulatory Allocations had not been part of this Agreement. The Tax Member shall determine, with respect to each Fiscal Year, how to apply the provisions of this Section 4.3 in whatever manner is likely to minimize the economic distortions that might otherwise result from the Regulatory Allocations.

Section 4.4 Tax Allocations . Except as otherwise provided in this Section 4.4, for income tax purposes, the income, gain, loss, deduction or credit (or any item thereof) for each Fiscal Year shall be allocated to and among the Members, in the manner that the correlative “book” item is allocated pursuant to Sections 4.1 and 4.2. Notwithstanding any other provision of this Agreement to the contrary, any income, gain, loss or deduction recognized by the Company for income tax purposes in any Fiscal Year with respect to all or any part of an Asset that is required to be allocated among the Members in accordance with Section 704(c) of the Code and the Treasury Regulations so as to take into account the variation, if any, between the adjusted tax basis of such Asset and the initial Gross Asset Value of such Asset at the time of its contribution, or following the adjustment to the Gross Asset Value of an Asset pursuant to this Agreement, shall be allocated to the Members in the manner so required. Unless otherwise approved by the Management Board, the Company shall elect to use the “Remedial Method” pursuant to Section 1.704-3(d) of the Treasury Regulations, in a manner which enables the BG Member to realize the tax benefits in the same amount and at the same rate and character as if the BG Member had purchased its share of the Company’s assets on the Closing Date as an outright asset purchase. The income tax allocations made pursuant to this Section 4.4 shall not be reflected in any Member’s Capital Account.

 

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Section 4.5 Other Allocation Provisions . The Members agree to be bound by the provisions of this Article 4 in reporting their shares of the Company income, gain, loss and deduction for tax purposes. For purposes of determining Net Profits, Net Losses or any other items allocable to any period, Net Profits, Net Losses and any such other items will be determined on a daily, monthly or other basis, using any permissible method under Code Section 706 and the Treasury Regulations thereunder; provided, however, that Net Profits or Net Losses described in clause (c) of the definition of “Net Profits” and “Net Losses” will be allocated only to those Persons who held interests in the Company immediately before the event giving rise to such Income or Loss.

Section 4.6 Distributions .

(a) Available Cash . Available Cash shall be determined by the Management Board on a Calendar Quarter basis, effective at the end of each Calendar Quarter, within thirty (30) days after the end of each such Calendar Quarter. Subject to the remaining provisions of this Article 4 and any preferential or disproportionate distributions to the extent expressly provided for in this Agreement, and other than upon a liquidation of the Company pursuant to Section 14.3, the Company shall distribute the Available Cash for a Calendar Quarter to the Members within forty five (45) days following the end of each Calendar Quarter.

(b) Distributions . Subject to the other provisions of this Agreement, all Available Cash shall be distributed to the Members of record in proportion to their relative Member Interests.

(c) Withholding . All amounts withheld pursuant to the Code or any provision of any foreign, state or local tax law or treaty with respect to any payment, distribution or allocation to the Company or the Members shall be treated as amounts distributed to the Members pursuant to this Section 4.6 for all purposes of this Agreement. The Management Board is authorized to withhold from distributions, or with respect to allocations, to the Members and to pay over to any Governmental Authority any amounts required to be so withheld pursuant to the Code or any provision of any other federal, foreign, state or local Law and shall allocate such amounts to those Members with respect to which such amounts were withheld.

(d) Tax Distributions .

(i) Each Member shall be entitled to receive, on the date which is two (2) Business Days prior to each date on which estimated income tax payments are required to be made by a corporate calendar year taxpayer and each due date for the income tax return of a corporate calendar year taxpayer (each a “ Tax Distribution Date ”), cumulative cash distributions

 

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(each, a “ Tax Distribution ”) in an amount equal to such Member’s Assumed Tax Liability, if any. The “ Assumed Tax Liability ” of each Member means an amount equal to the excess, if any of: (A) the product of (i) forty percent (40%) and (ii) the cumulative amount of net taxable income allocated by the Company to such Member as of such Tax Distribution Date, over (B) all previous distributions made to such Member pursuant to this Section 4.6.

(ii) Distributions under this Section shall be treated as an advance distribution under and shall offset future distributions that such Member would otherwise be entitled to receive pursuant to the other provisions of this Section 4.6 or, if not previously offset, Section 14.3.

(iii) If on a Tax Distribution Date there is not sufficient Available Cash for the Company to distribute to each Member the full amount of such Member’s Assumed Tax Liability, distributions pursuant to this Section 4.6(d) shall be made to the Members to the extent of the Available Cash in proportion to each Member’s Assumed Tax Liability.

Section 4.7 Limitations Upon Distributions . Notwithstanding anything to the contrary in Section 4.6, no distribution shall be made if such distribution would violate the Delaware Act.

ARTICLE 5

MANAGEMENT OF THE COMPANY

Section 5.1 Management under Direction of Management Board .

(a) Except as otherwise expressly provided in this Agreement or required under the Delaware Act, the business and affairs of the Company shall be managed by a board of managers (the “ Management Board ” and each member of the Management Board, a “ Board Member ”). The Management Board shall have full and complete authority, power, and discretion to manage and control the business, affairs, and properties of the Company and to make all decisions regarding those matters and to perform any and all other acts or activities customary or incidental to the management of the Company and the Business. Without limiting the generality of the foregoing and subject to the provisions of Sections 5.1(b) and 5.1(c), Management Board approval shall be required for all matters not expressly delegated by the Management Board to the officers of the Company, or to other authorized persons in accordance with Section 5.9. All actions of a Member with respect to the Management Board shall be taken through its Board Members.

(b) All matters identified in this Section 5.1(b) shall require the affirmative vote of Board Members representing one hundred percent (100%) of the Total Votes:

(i) approval of voluntary reserves outside of the reserve levels provided in the definition of Available Cash for purposes of calculating Available Cash;

 

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(ii) issuance of any guaranty by any Company Group Member;

(iii) the voluntary grant of any lien or encumbrance on any Asset other than under an approved Company Group O&M Contract or any Company Group Commercial Contract;

(iv) approval of any decision to distribute Available Cash less frequently than on a Calendar Quarter basis, or, except upon dissolution and winding up of the Company, to distribute any Assets other than cash, or to distribute less than all Available Cash pursuant to Section 4.6;

(v) approval of any decision to dispose of Assets that have a value in excess of five million dollars (US$5,000,000) in any transaction or series of related transactions;

(vi) any sale, merger, reorganization or consolidation of any Company Group Member, or any decision to sell all or substantially all of the Assets of any Company Group Member;

(vii) any voluntary dissolution, liquidation or winding up of any Company Group Member;

(viii) filing any documents to effect a Bankruptcy of any Company Group Member;

(ix) redeeming any Member Interest in a manner that is not proportional to all outstanding Member Interests;

(x) confessing a judgment against any Company Group Member in connection with any threatened or pending legal action or settling any litigation or other proceeding in which the amount involved could reasonably be expected to exceed five hundred thousand dollars (US$500,000), in either case, relating to Business;

(xi) the conversion of any Company Group Member to a different form of entity or to a different jurisdiction of domicile, changing the name of any Company Group Member or conducting Business under a name other than the current names of the Subsidiaries or, with respect to the Company, the name set forth in Section 1.2, or moving the Company’s principal office from the location set forth in Section 1.5;

(xii) any Company Group Member’s participation in any business or operations other than as provided in Section 1.6;

 

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(xiii) changing the method of accounting (other than in connection with a tax-related action or decision made by the Tax Member pursuant to the authority granted herein) or outside auditors of the Company;

(xiv) the voluntary amendment of any of the Certificates;

(xv) allowing any contribution to the capital of the Company by any Member in any form other than cash;

(xvi) any decision that Member Loans be utilized to fund additional Member Interest capital requirements rather than cash contributions, and the terms of such Member Loans;

(xvii) the registration of any equity or debt securities of any Company Group Member under applicable United States federal or foreign securities Laws or any public offering of equity or debt securities of any Company Group Member;

(xviii) any agreement pursuant to which any Company Group Member would be prohibited or restricted from engaging in any lawful business or activity or competing with any Person in any geographic area;

(xix) [Intentionally Deleted];

(xx) any action by any Company Group Member that would subject any Company Group Member to the Standards of Conduct;

(xxi) except with respect to a Defaulting Member, distributing any cash or Assets of any Company Group Member in a manner that is not proportional to all outstanding Member Interests;

(xxii) issuing or committing to issue any additional Member Interests or other equity or debt securities of any Company Group Member or options to acquire any such securities;

(xxiii) causing any Company Group Member to acquire any Acquired Business or engage in any New Business (other than Asset Upgrades);

(xxiv) any incurrence, assumption or guaranty of any indebtedness for borrowed money by any Company Group Member;

(xxv) except for the rights and waivers set forth in Article 7, providing any indemnification rights to any Covered Person or waiving any claims against any Person;

 

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(xxvi) any establishment of any subsidiary or any acquisition of any equity interests in another Person (other than investment of Company Group Member funds in publicly-traded securities);

(xxvii) approval of any decision that any Company Group Member sell, assign or otherwise transfer its ownership interest in any Company Technology; and

(xxviii) any loan of Company Group Member funds or assets to any Person (excluding for this purpose accounts receivable on normal commercial terms).

(c) All matters identified in this Section 5.1(c) shall require the affirmative vote of Board Members representing seventy five percent (75%) of the Total Votes, except for those matters identified in Sections 5.1(c)(v) and (xviii), which shall require the affirmative vote of Board Members appointed by Members that are not the counterparty or Affiliates of the counterparty under the relevant contract representing seventy five percent (75%) of the Total Votes held by such Members:

(i) approval of any Annual Work Program and Budget or Development Work Program, and any amendment thereto;

(ii) delegation of authority to the officers of the Company to enter into certain Company Group Commercial Contracts (the Management Board shall use commercially reasonable efforts to make such delegations within thirty (30) days of the Closing Date);

(iii) execution of any Other Material Company Group Contract to be entered into by any Company Group Member, and any material amendment of or voluntary termination of any such Other Material Company Group Contract;

(iv) execution of any Company Group O&M Contract to be entered into by any Company Group Member that requires the approval of the Management Board pursuant to Section 6.4, and any material amendment of or voluntary termination of any such Company Group O&M Contract (provided that approval of any matters described in Section 6.4(b) shall require the approval specifically set forth therein);

(v) execution of any Affiliate Contract to be entered into by any Company Group Member, and any material amendment of or voluntary termination of any such Affiliate Contract;

(vi) approval of the final terms of any financing and security arrangements relating to the Business, including execution of any notes, bonds, indentures, loan agreements or other material agreements between any Company Group Member and lenders, and any amendment or voluntary termination of any such agreement;

 

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(vii) creation of any new office, other than the officers specifically set forth in Section 5.9(b), determination of the rights, powers, privileges and duties of such new office, appointment of any Person to any such new office, and termination of any such new office;

(viii) approval of the final terms of any settlement by any Company Group Member in respect of the Business of any claim or suit or series of related claims or suits for an amount, or initiation of any legal action or arbitration by or on behalf of any Company Group Member: (A) for an amount in excess of one hundred thousand dollars (US$100,000); or (B) against any Governmental Authority;

(ix) except as may be required by Law, altering, amending or waiving the insurance requirements for the Company Group Members set forth on Schedule 5.13;

(x) approval of any decision to distribute Available Cash more frequently than on a Calendar Quarter basis;

(xi) approval of any decision to dispose of Assets that have a value in excess of one million dollars (US$1,000,000) but not more than five million dollars (US$5,000,000) in any transaction or series of related transactions;

(xii) appointment of any officer of any Company Group Member in accordance with Section 5.9(a), removal of any officer of any Company Group Member (other than a seconded officer, which is addressed in Section 5.1(c)(xix) below), removal of the Tax Member and appointment of any successor Tax Member;

(xiii) any election to use the remedial allocation method for any Assets pursuant to Section 4.4;

(xiv) replacement of the Company’s registered office or registered agent in Delaware;

(xv) decisions regarding the Assumed Tax liability of any Member pursuant to Section 4.6(d), or the amount of withholdings from distributions pursuant to Section 4.7;

(xvi) approval of a place of business of the Company in addition to the principal office of the Company designated pursuant to Section 1.5;

(xvii) terminating, amending or altering any of the Services Agreements;

 

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(xviii) requests for services by the Company Group Members under any Services Agreement, and the terms and conditions for the provision of such services;

(xix) removal of a secondee pursuant to Section 6.2(A)(4) of any Secondment Agreement (provided that Management Board approval shall not be required to remove a secondee that is not an officer of the Company and such non-officer secondees may be removed pursuant to Section 5.9(g));

(xx) internal control programs for the Company Group Members established by the Vice President of Finance and Business Services;

(xxi) opening any bank account for any Company Group Member or designating or changing any signatory on any such account; and

(xxii) any other matter primarily relating to the Business or the Assets not otherwise identified in Section 5.1(b) or this Section 5.1(c) which requires the approval of the Management Board pursuant to the terms of this Agreement.

(d) Notwithstanding anything to the contrary herein, the Management Board shall be deemed to have approved any activities to be performed by the Company Group Members in connection with the performance of Member Requested Services or Asset Upgrades and execution and performance of Article 13 Contracts.

(e) All decisions taken by the Management Board pursuant to this Section 5.1 shall be conclusive and binding on all Members.

Section 5.2 Number, Tenure and Qualification .

(a) The Management Board shall consist of eight (8) Board Members. Each of BG Affiliate Group and EXCO Affiliate Group shall be entitled to appoint four (4) Board Members and three (3) alternate Board Members. Each of (i) the Board Members of the BG Affiliate Group and (ii) the Board Members of the EXCO Affiliate Group shall be referred to as a separate group (each a “ Group ”) such that the Management Board shall be comprised of at least two different Groups of Board Members. The Board Members appointed by a Member, or in any absence of such Board Member, any alternate appointed by such Member, shall be authorized to represent and bind such Member with respect to any matter which is within the powers of the Management Board and is properly brought before the Management Board. Each alternate Board Member shall be entitled to attend Management Board meetings. The Board Members and alternate Board Members may also bring to any Management Board meetings such advisors as they may deem appropriate. Each Affiliated Member Group

 

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shall appoint its initial Board Members and alternate Board Members by notice to the other Members on or prior to the first meeting of the Management Board or the first required vote of the Management Board. All actions of a Member with respect to a Management Board shall be taken through its Board Members or alternate Board Members.

(b) Each of BG Affiliate Group and EXCO Affiliate Group shall have the right to change any of its Board Members and its alternate Board Members at any time by giving notice of such change to the Company and the other Members.

(c) Any Board Member designated in accordance with this section shall be immediately removed from the Management Board at any time that the Affiliated Member Group that designated such Board Member ceases to own any Member Interest.

(d) A Board Member need not be a resident of the State of Delaware. A Board Member shall hold office until the Board Member’s successor shall be duly elected and shall qualify or until the earlier of such Board Member’s withdrawal, death, removal or resignation.

(e) A Person that serves as a Board Member shall not be required to be a Board Member as his sole and exclusive occupation, and a Board Member may have other business interests and may engage in other investments, occupations and activities in addition to those relating to the Company.

Section 5.3 Voting Proxies; Quorum; Meetings of Management Board; No Fiduciary Duties .

(a) A Board Member may vote at a meeting by a written proxy executed by that Board Member and delivered to another Board Member. Except as provided in Section 5.3(b), attendance (either in person, by remote communication pursuant to Section 5.3(l), or by proxy) of Board Members representing Members holding more than fifty percent (50%) of the Total Votes shall constitute a quorum for the transaction of Business at a meeting of the Management Board. The Board Members, collectively, shall have a total of 100 votes, as may be adjusted below (the “ Total Votes ”) to cast on any action of the Management Board, with (i) the Group of Board Members elected by the BG Affiliate Group being entitled to cast the number of votes equal to the product (rounded to the nearest tenth) of (x) a fraction the numerator of which is number of the aggregate Member Interests of the members of the BG Affiliate Group and the denominator which is the sum of all Members’ Member Interests and (y) 100, and (ii) the Group of Board Members elected by the EXCO Affiliate Group being entitled to cast the number of votes equal to the product (rounded to the nearest tenth) of (x) a fraction the numerator of which is the number of the aggregate Member Interests of the members of the EXCO Affiliate Group and the denominator which is the sum of all Members’ Member Interests and (y) 100. If the calculation does not yield exactly 100 votes, then each Group of Board

 

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Members’ votes shall be rounded to the nearest 0.01. Any Board Member of a Group of Board Members may cast any or all votes entitled to be cast by that Group of Board Members. Except as otherwise expressly provided in this Agreement, any action or event relating to Business conducted at a Management Board meeting shall be deemed approved if such action or event receives the required Management Board approval at a meeting at which a quorum is present.

(b) Notwithstanding anything to the contrary in this Agreement, any actions by any Company Group Member in connection with a breach, default or indemnity or other claims (or alleged breach, default, indemnity or other claims) by a Member or its Affiliate under an Affiliate Contract or other transaction with a Member or its Affiliate (such as a waiver of the breach or default, notice of breach or event of default or notice of termination for breach or default in accordance with the terms of the Affiliate Contract) or enforcement or exercise of any of the applicable Company Group Member’s rights or remedies in respect to such breach, default or indemnity or other claim (or alleged breach, default, indemnity or other claim) or otherwise under such Affiliate Contract or in connection with such transaction (collectively, “ Enforcement Activities ”) shall be conducted by or under the direction of the Management Board, provided that any Board Member designated by a Member (a “ Conflicted Member ”) that is, or has an Affiliate (other than the Company) that is the counterparty under such Affiliate Contract or to such transaction shall not participate in any vote regarding such Enforcement Activities at any meeting of such Management Board, shall not be required to be present to constitute a quorum of such Management Board and shall not be counted for purposes of determining whether such actions by the applicable Company Group Member receive the minimum vote necessary to take such action; provided, further, that no officer or other agent of the Company that is also a present officer, director, member, manager, stockholder, partner, employee or other agent or Affiliate of a Conflicted Member or one of its Affiliates shall have any obligation to take or refrain from taking any action on behalf of any Company Group Member or be requested or required by any Company Group Member or Management Board to take or refrain from taking any action with respect to any Enforcement Activities including such Conflicted Member, except to provide information, documents and other related items reasonably requested by any Company Group Member or any Member in connection with such Enforcement Activities. Except with respect to such Person’s failure to provide information, documents or other related items requested by such Company Group Member in connection with such Enforcement Action and to provide testimony, give evidence and otherwise participate in any suit, litigation, arbitration or other dispute resolution proceeding involving the Conflicted Member, any such Person’s failure or refusal to take or refrain from taking any such action shall not constitute: (i) a breach of any duty, fiduciary or otherwise, owed by such Person to the Company; or (ii) fraud, bad faith or willful misconduct on the part of such Person. Any officer, director, manager, member, stockholder, partner, employee or other agent of a Member, or an Affiliate of such Member, is authorized to take or refrain from taking any action on behalf of the Company associated with any Enforcement Activities described in the foregoing two sentences. For the avoidance of doubt, removal of a secondee under Section 6.2 (other than removal of a secondee pursuant to Section 6.2(A)(4)) of any Secondment Agreement shall be an Enforcement Activity.

 

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(c) The Management Board may establish such subcommittees as it may deem appropriate. The functions of such subcommittees shall be to serve in an advisory capacity only. Each Member shall have the right to appoint a representative to each subcommittee.

(d) The President and General Manager may call a meeting of the Management Board by giving notice to the Members at least fifteen (15) days in advance of such meeting. Any Member may request a meeting of the Management Board by giving notice to the other Members and the President and General Manager, which notice shall include any proposals being proposed by such Member for consideration at the meeting (including appropriate supporting information not previously distributed to such Members). Upon receiving such request, the President and General Manager shall call such meeting for a date not less than fifteen (15) days nor more than twenty (20) days after receipt of the request.

(e) Each notice of a meeting of a Management Board as provided by the President and General Manager shall contain: (i) the date, time and location of the meeting; (ii) an agenda of the matters and proposals to be considered and/or voted upon; and (iii) copies of all proposals to be considered at the meeting (including appropriate supporting information not previously distributed to the Members). A Member, by notice to the other Members and the President and General Manager, which notice shall include any additional proposals being proposed by such Member to be considered at the meeting (including appropriate supporting information not previously distributed to the Members), given not less than five (5) Business Days prior to a meeting, may add additional matters to the agenda for a meeting. On the request of a Member, and with the unanimous consent of all other Members, the Management Board may consider at a meeting a proposal not contained in such meeting agenda.

(f) There shall be at least one (1) meeting of the Management Board per Calendar Quarter unless all Members agree in writing to the contrary. Meetings of each subcommittee shall take place as often as the Management Board shall determine. All meetings of the Management Board and each subcommittee shall be held in the principal offices of the Company, or elsewhere as the Management Board or such subcommittee may mutually decide, which alternate location may be within or outside the State of Delaware.

(g) With respect to meetings of the Management Board and each subcommittee, the President and General Manager’s duties shall include timely preparation and distribution of the agenda.

 

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(h) Until the first anniversary of the Closing Date, the chairman of the Management Board shall be a Board Member designated by the EXCO Affiliate Group. Thereafter, the right to appoint the chairman of the Management Board shall be rotated on an annual basis among the Affiliated Member Groups, with such rotation proceeding in order of highest aggregate Member Interests of such Affiliated Member Groups (and alphabetically among Affiliated Member Groups with identical aggregate Member Interests), and with the Member named in the preceding sentence being excluded from the first round of rotation; provided however that (i) any Affiliated Member Group holding less than twenty-five percent (25%) of the aggregate Member Interests of the Company shall not be included in the foregoing rotation and shall not have a right to appoint the chairman of the Management Board and (ii) any Affiliated Member Group that is created as the result of a Transfer of a Member Interest shall be added to the end of the rotation at the time of such Transfer. Any Affiliated Member Group may waive its right to appoint the chairman. For the avoidance of doubt, the chairman shall have no special casting or deciding vote on any matter presented to the Management Board. The chairman of the Management Board shall appoint a secretary who shall make a record of each proposal voted on and the results of such voting at such Management Board meeting. Each Board Member shall sign and be provided a copy of such record at the end of such meeting, and it shall be considered the final record of the decisions of such Management Board.

(i) The secretary of the Management Board shall provide each Member with a copy of the minutes of each Management Board meeting within fifteen (15) Business Days after the end of the meeting. Each such Member shall have fifteen (15) days after receipt of such minutes to give notice to the secretary of any objections to the minutes. A failure to give notice specifying objection to such minutes within said fifteen (15) day period shall be deemed to be approval of such minutes. In any event, the votes recorded under Section 5.3(h) shall take precedence over the minutes described above.

(j) In lieu of a meeting, any Member may submit any proposal that is within the powers of the Management Board to approve or disapprove to the Management Board for a vote by notice. The proposing Member shall notify the President and General Manager with written materials describing the proposal and the President and General Manager shall provide a copy of such proposal to each Member. Any such proposal by a proposing Member shall include with such proposal adequate documentation to enable the other Members to make a decision. Each Member (including the proposing Member) shall communicate its vote on the proposal by notice to the President and General Manager and the other Members within fifteen (15) days after receipt of the proposal from the President and General Manager, unless such proposal, together with any other increases to an approved Annual Work Program and Budget for a Calendar Year, if accepted, would result in aggregate spending pursuant to such Annual Work Program and Budget of more than ten percent (10%) in excess of the original amount of the Annual Work Program and Budget approved pursuant to Section 6.2 (or, in the case of the Annual Work Program and Budget for Calendar Year 2010, attached

 

27


hereto as Exhibit “E-2”) or, once amended to increase the amount of the Annual Work Program and Budget ten percent (10%) above the then existing amount in accordance with Section 6.2(e), the amended amount of the Annual Work Program and Budget, in which case each Member (including the proposing Member) shall communicate its vote on the proposal by notice to the President and General Manager and the other Members within sixty (60) days after receipt of the proposal from the President and General Manager. Any Member failing to communicate its vote in a timely manner shall be deemed to have voted against such proposal. Within five (5) Business Days following the expiration of the relevant time period, the President and General Manager shall give each Member a confirmation notice stating the tabulation and results of the vote on such proposal.

(k) From time to time, the Management Board may approve guidelines, standards or procedures regarding the implementation of Business to be observed in the conduct of Business by the Company Group Members.

(l) Board Members may participate in any meeting by means of conference telephone or similar remote 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.

(m) Attendance of a Board Member at any meeting of the Management Board (including by telephone or similar remote communication equipment) shall constitute a waiver of notice of such meeting, except where such Board Member attends the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not properly called or convened and notifies the other Board Members at such meeting of such purpose.

(n) No Board Member, nor any Member appointing any such Board Member, shall owe any fiduciary duty to the Company, any other Member or Members as a group in connection with the activities of the Board Members or the Management Board, and no Board Member, nor any Member or Member(s) appointing any such Board Member, shall be obligated to act in the interests of the Company, any other Member or Members as a group. To the extent permitted by Law, the Board Members shall not be subject to any other or different standards (including fiduciary standards) imposed by this Agreement, any other agreement contemplated hereby or under the Delaware Act or any other Law or at equity.

(o) All notices and communications required or permitted to be given to the Board Members and the President and General Manager pursuant to this Article 5 shall be sufficient in all respects if given in writing and delivered personally, or sent by bonded overnight courier, or mailed by U.S. Express Mail or by certified or registered United States Mail with all postage fully prepaid, or sent by telex or facsimile

 

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transmission (provided any such telex or facsimile transmission is confirmed either orally or by written confirmation), or sent by pdf via e-mail, addressed to the appropriate Member at the address for such Member shown below or at such other address as such Member shall have theretofore designated by written notice delivered to the Member giving such notice:

If to the President and General Manager:

Appalachia Midstream, LLC

3000 Ericsson Dr., Suite 200

Warrendale, Pennsylvania 15086

Attention: President and General Manager

Telephone: (724) 720-2500

Fax: (724) 720-2505

If to the EXCO Affiliate Group:

EXCO Holding (PA), Inc.

12377 Merit Drive, Suite 1700

Dallas, Texas 75251

Attention: Harold Hickey

Telephone: (214) 368-2084

Fax: (214) 368-8754

E-mail: hhickey@excoresources.com

With copies to:

EXCO Resources, Inc.

12377 Merit Drive, Suite 1700

Dallas, Texas 75251

Attention: Stephen F. Smith

Telephone: (214) 368-2084

Fax: (214) 706-3409

E-mail: ssmith@excoresources.com

EXCO Resources, Inc.

12377 Merit Drive, Suite 1700

Dallas, Texas 75251

Attention: William L. Boeing

Telephone: (214) 368-2084

Fax: (214) 706-3409

E-mail: lboeing@excoresources.com

 

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If to the BG Affiliate Group:

BG US Production Company, LLC

5444 Westheimer, Suite 1200

Houston, Texas 77056

Attention: Jon Harris

Telephone: (713) 599-4000

Fax: (713) 599-4250

E-mail: Jon.Harris@bg-group.com

With a copy to:

BG US Production Company, LLC

5444 Westheimer, Suite 1200

Houston, Texas 77056

Attention: Bill Way

Telephone: (713) 599-4000

Fax: (713) 599-4250

E-mail: Bill.Way@bg-group.com

Any notice given in accordance herewith shall be deemed to have been given when delivered to the addressee in person, or by courier, or transmitted by facsimile transmission or email during normal business hours, or upon actual receipt by the addressee after such notice has either been delivered to an overnight courier or deposited in the United States Mail, as the case may be. The Members may change the address, telephone numbers, facsimile numbers and email addresses to which such communications are to be addressed by giving written notice to the other Parties in the manner provided in this Section 5.3(o).

Section 5.4 Resignation of Board Members . A Board Member may resign from the position of Board Member at any time by giving written notice to the other Board Members. The resignation of a Board Member shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 5.5 Removal of Board Members . Subject to the automatic removal procedures set forth in Section 5.2(c), a Board Member may only be removed by the consent of the Affiliated Member Group then entitled to designate such Board Member in accordance with Section 5.2(a).

Section 5.6 Vacancies . Any vacancy in the position of a Board Member that is created by the death, resignation or removal of a Board Member shall be filled only by consent of the Affiliated Member Group then entitled to designate such Board Member in accordance with Section 5.2(a). A Board Member elected to fill a vacancy shall hold office until a successor shall be elected and shall qualify, or until the Board Member’s earlier death, resignation or removal.

 

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Section 5.7 Fees and Expenses of Board Members . A Board Member shall not be entitled to any fees for serving as a Board Member. A Board Member shall be entitled to reimbursement for all reasonable out-of-pocket costs and expenses incurred by such Board Member in its capacity as a Board Member.

Section 5.8 No Power of Members to Bind Company . No Member shall have any power or authority to bind the Company in any way, to pledge the Company’s credit or to render it liable for any purpose.

Section 5.9 Delegation of Authority; Officers .

(a)

(i) The Management Board shall have the power to elect, delegate authority to, and remove such officers, employees, agents and representatives of the Company and the other Company Group Members as the Management Board may from time to time deem appropriate; provided, however, that each officer appointee of such Person (other than those interim officers appointed as of the Closing Date) shall serve a three (3) year term commencing as of the date of the appointment of such officer, subject to each officer’s appointment being subject to an annual ratification vote by the Management Board. After any Management Board vote not to ratify the appointment of any officer, the Management Board shall, as soon as reasonably practicable thereafter, appoint a replacement officer, which replacement officer shall serve a three (3) year term (subject to annual ratification votes as described in this Section 5.9(a)(i)).

(ii) As of the Closing Date, the Management Board has appointed certain Persons to serve as interim officers of the Company by written resolution. The Management Board shall use commercially reasonable efforts to identify and create any other officer positions of the Company that it deems necessary or desirable, and elect all officers (including the officer positions being served by interim officers as of the Closing Date) of the Company that are to serve three (3) year terms (subject to annual ratification votes in accordance with Section 5.9(a)(i)) within 30 days of the Closing Date.

(iii) Any delegation of authority to take any action must be approved in the same manner as would be required for the Management Board to approve such action directly. Any salaries paid by the Company to employees and agents of the Company shall be fixed by the Management Board in accordance with an approved Annual Work Program and Budget. All amounts to be reimbursed to the employer of any person seconded to any Company Group Member shall be as set forth in the form of the Secondment Agreement and shall be included in the applicable Annual Work Program and Budgets.

 

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(b) The Company’s officers as of the Closing Date shall be as follows:

(i) President and General Manager. The President and General Manager shall be the chief executive officer of the Company responsible for the day to day direction of the Company, shall see that all decisions and resolutions of the Management Board are implemented, and, until such time as the percentage of member interests owned by EXCO Member and its Affiliates in Operator is not equal to the percentage of Member Interests owned by the EXCO Affiliate Group, the percentage of member interests owned by BG Member and its Affiliates in Operator is not equal to the percentage of Member Interests owned by the BG Affiliate Group, or otherwise decided by the Management Board, shall report to the president and general manager of Operator. The President and General Manager shall be based in the Company’s principal office. If (A) the BG Affiliate Group possesses at least a twenty five percent (25%) Member Interest and (B) the EXCO Affiliate Group possesses at least a twenty five percent (25%) Member Interest, the BG Affiliate Group and the EXCO Affiliate Group shall jointly identify and approve the individual to serve as the President and General Manager, who shall serve until the earlier of his resignation, removal or expiration of term. Upon a Change in Control of either the BG Affiliate Group or the EXCO Affiliate Group and provided that the Affiliated Member Group that has not suffered a Change in Control possesses at least a twenty-five percent (25%) Member Interest, such Affiliated Member Group shall, for a period of three (3) years after the Change in Control of such other Affiliated Member Group, have the exclusive right to nominate candidates for the position of President and General Manager to the Management Board for its approval for each subsequent term. Thereafter, each Affiliated Member Group that possesses at least a twenty-five percent (25%) Member Interest shall have the right to nominate candidates for the position of President and General Manager. The President and General Manager’s rights, powers, privileges and duties shall include:

 

  (A) making calls for additional capital contributions and Member Loans pursuant to Sections 3.2 and 3.4;

 

  (B) preparing proposed Annual Work Program and Budgets, and implementing each approved Annual Work Program and Budget, subject to the other terms of this Agreement;

 

  (C) as the representative of the Company, directing the Subsidiaries to take actions, or refrain from acting, in accordance with the determinations of the appropriate Member Interests in accordance with the terms of this Agreement;

 

32


  (D) those duties set forth in Section 5.3 with respect to Management Board and subcommittee meetings;

 

  (E) supervising and coordinating the activities of the other officers and managers of the Company Group Members;

 

  (F) administering the day-to-day corporate affairs of the Company, including coordinating with the Member service providers under the Services Agreements with respect to the day-to-day provision of services under such agreements; and

 

  (G) such other rights, powers, privileges and duties as may be determined by the Management Board from time to time.

(ii) Vice President of Commercial Operations and Business Development. The Vice President of Commercial Operations and Business Development shall be the officer of the Company responsible for the commercial and business development activities of the Company. The Vice President of Commercial Operations and Business Development shall be based in the Company’s principal office or such other location as the Management Board may determine. Each Affiliated Member Group shall have the right to nominate candidates for the position of Vice President of Commercial Operations and Business Development to the Management Board for its approval. The Vice President of Commercial Operations and Business Development’ rights, powers, privileges and duties shall include:

 

  (A) supervising and coordinating all business development activities of the Company Group Members, including land department, gas control/SCADA and the balancing of all midstream systems, and negotiation of Company Group Commercial Contracts pertaining to gas transportation and gathering, as well as ensuring that all Company Group projects are completed in a timely manner;

 

  (B) managing the relationships of the Company Group Members with all Governmental Authorities;

 

  (C) assisting the President and General Manager with the preparation of that portion of each proposed Annual Work Program and Budget relating to the commercial activities to be performed pursuant to such proposed Annual Work Program and Budget; and

 

33


  (D) such other rights, powers, privileges and duties as may be determined by the Management Board or delegated by the President and General Manager from time to time.

(iii) Vice President of Engineering and Construction. The Vice President of Engineering and Construction shall be the officer of the Company responsible for the engineering and construction activities of the Company. The Vice President of Engineering and Construction shall be based in the Company’s principal office. Each Affiliated Member Group shall have the right to nominate candidates for the position of Vice President of Engineering and Construction to the Management Board for its approval. The Vice President of Engineering and Construction’s rights, powers, privileges and duties shall include:

 

  (A) supervising and coordinating all project engineering activities of the Company;

 

  (B) overseeing all construction activities of the Company;

 

  (C) supervising and administering all document control functions associated with construction activities of the Company Group Members;

 

  (D) assisting the President and General Manager with the preparation of that portion of each proposed Annual Work Program and Budget relating to the engineering and construction activities to be performed pursuant to such proposed Annual Work Program and Budget;

 

  (E) upon the elimination of the office of Vice President of Asset Integrity pursuant to Section 5.9(b)(vii)(B), those rights, powers, privileges and duties of the Vice President of Asset Integrity as of such time; and

 

  (F) such other rights, powers, privileges and duties as may be determined by the Management Board or delegated by the President and General Manager from time to time.

 

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(iv) Vice President of Operations and Maintenance. The Vice President of Operations and Maintenance shall be the officer of the Company responsible for the operations and maintenance activities of the Company. The Vice President of Operations and Maintenance shall be based in the Company’s principal office. Each Affiliated Member Group shall have the right to nominate candidates for the position of Vice President of Operations and Maintenance to the Management Board for its approval. The Vice President of Operations and Maintenance’s rights, powers, privileges and duties shall include:

 

  (A) supervising and coordinating all operations and maintenance activities of the Company Group Members, including all associated field and control room activities;

 

  (B) supervising all procurement and contracting activities of the Company Group Members, in accordance with the policies and procedures of the Company approved by the Management Board and in the absence of such approved policies and procedures, in accordance with policies and procedures approved by the President and General Manager;

 

  (C) supervising all product quality and measurement activities of the Company Group Members;

 

  (D) assisting the President and General Manager with the preparation of that portion of each proposed Annual Work Program and Budget relating to the operations and maintenance activities to be performed pursuant to such proposed Annual Work Program and Budget; and

 

  (E) such other rights, powers, privileges and duties as may be determined by the Management Board or delegated by the President and General Manager from time to time.

(v) Vice President of HSSE. The Vice President of HSSE shall be the officer of the Company responsible for the HSSE activities of the Company. The Vice President of HSSE shall be based in the Company’s principal office. Each Affiliated Member Group shall have the right to nominate candidates for the position of Vice President of HSSE to the Management Board for its approval. The Vice President of HSSE’s rights, powers, privileges and duties shall include:

 

  (A) supervising and coordinating all regulatory compliance activities of the Company Group Members;

 

35


  (B) managing compliance of each Company Group Members with the HSSE Principles, the HSSE Plan and the HSSE Management System;

 

  (C) establishing and managing a program to track greenhouse gas emissions from the Assets;

 

  (D) assisting the President and General Manager with the preparation of that portion of each proposed Annual Work Program and Budget relating to the HSSE activities to be performed pursuant to such proposed Annual Work Program and Budget; and

 

  (E) such other rights, powers, privileges and duties as may be determined by the Management Board or delegated by the President and General Manager from time to time.

(vi) Vice President of Finance and Business Services. The Vice President of Finance and Business Services shall be the officer of the Company responsible for the accounting, finance, human resources, legal, information technology and procurement activities of the Company. The Vice President of Finance and Business Services shall be based in the Company’s principal office. Any Affiliated Member Group shall have the right to nominate candidates for the position of Vice President of Finance and Business Services to the Management Board for its approval. The Vice President of Finance and Business Services’s rights, powers, privileges and duties shall include:

 

  (A) supervising and coordinating all accounting and finance activities of the Company Group Members;

 

  (B) establishing and maintaining internal controls for each Company Group Member;

 

  (C) creating the reports identified in Section 8.4 or, if applicable, working with the independent auditor of the Company to facilitate the creation of the reports identified in Section 8.4;

 

  (D) analyzing the credit risk of each counterparty with whom a Company Group Member does business;

 

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  (E) supporting the Vice President of Operations and Maintenance in all procurement and contracting activities of the Company Group Members;

 

  (F) supervising and coordinating all human resources activities of the Company Group Members;

 

  (G) procurement of services from the Members in accordance with the Services Agreements, including legal and information technology services;

 

  (H) assisting the President and General Manager with the preparation of that portion of each proposed Annual Work Program and Budget relating to the accounting and finance activities to be performed pursuant to such proposed Annual Work Program and Budget;

 

  (I) maintaining the books and records of each Company Group Member, including those relating to commercial activities of each Company Group Member;

 

  (J) within one hundred twenty (120) days following the Closing Date, reviewing the Company’s bribery and corruption control procedures and proposing to the Management Board any modifications or additional procedures considered necessary for the Company to have adequate procedures to prevent bribery and corruption;

 

  (K) coordinating and overseeing the services provided under the Services Agreements; and

 

  (L) such other rights, powers, privileges and duties as may be determined by the Management Board or delegated by the President and General Manager from time to time.

(vii) Vice President of Asset Integrity.

 

  (A)

The Vice President of Asset Integrity shall be the officer of the Company responsible for the development and ongoing monitoring of systems to manage the physical assets of the Company to ensure that their operational performance and profitability is as intended (with respect to selection, maintenance, inspection, modification and renewal).

 

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  The Vice President of Asset Integrity shall be based in the Company’s principal office. Each Affiliated Member Group shall have the right to nominate candidates for the position of Vice President of Asset Integrity to the Management Board for its approval. The Vice President of Asset Integrity’s rights, powers, privileges and duties shall include:

 

  (1) conducting the gap analysis provided for in Section 5.11(a);

 

  (2) working with the Vice President of Engineering and Construction and the Vice President of Operations and Maintenance, develop and submit to the Management Board the appropriate technical standards for the design, construction and operation of Midstream Assets;

 

  (3) based upon the gap analysis and agreed technical standards, conducting a risk assessment to prioritize the actions and budgets necessary to close any gaps;

 

  (4) developing ongoing inspection, testing and condition monitoring plans with a system to capture all related data, records and reports;

 

  (5) providing auditing and compliance assurance;

 

  (6) establishing and, thereafter, managing a program to track greenhouse gas emissions from the Assets; and

 

  (7) such other rights, powers, privileges and duties as may be determined by the Management Board or delegated by the President and General Manager from time to time.

 

  (B)

Notwithstanding anything to the contrary herein, on the third (3rd) anniversary of the appointment of the first Vice President of Asset Integrity, the office of Vice President of Asset Integrity shall be eliminated, provided that all rights, powers, privileges and duties of the Vice President of Asset Integrity as of the time of the elimination of such

 

38


  office shall become the rights, powers, privileges and duties of the Vice President of Engineering and Construction (in addition to those rights, powers, privileges and duties then held by the Vice President of Engineering and Construction).

(c) Unless otherwise agreed by the Management Board, all officers of the Company shall be seconded to the Company by the Members pursuant to a secondment agreement substantially in the form of Exhibit “C” attached hereto. Simultaneously with the execution of this Agreement, each initial Member and the Company shall enter into a secondment agreement substantially in the form of Exhibit “C”. Each Affiliated Member Group with a Member Interest greater than twenty five percent (25%) shall have the right but not the obligation to second its or its Affiliates’ employees to the Company; provided, however, that the officers of the Company must be approved by the Management Board pursuant to Section 5.1(c) and all employees and secondees of the Company that are not officers must be approved by the President and General Manager in accordance with the Annual Work Program and Budget; provided that: (i) if the BG Affiliate Group possesses a Member Interest greater than twenty five percent (25%), the BG Affiliate Group shall have the right but not the obligation to second one or more of its or its Affiliates’ employees to the Company in each business and technical area of the Company; and (ii) if the EXCO Affiliate Group possesses a Member Interest greater than twenty five percent (25%), the EXCO Affiliate Group shall have the right but not the obligation to second one or more of its or its Affiliates’ employees to the Company in each business and technical area of the Company.

(d) Each Member shall use commercially reasonable efforts to cause its employees that are officers of any of the Company Group Members (including as secondees) to perform their respective duties in good faith, in accordance with this Agreement and in a manner such officers reasonably believe to be in or not opposed to the best interests of the Company Group Members, and with the care that an ordinarily prudent person in a similar position would use under similar circumstances. No Member shall be liable in damages to the Company Group Members or other Members for any action taken or not taken by such officer. The Company shall indemnify and hold harmless the officers and Board Members against liabilities to Third Parties in accordance with Section 7.2 below. Nothing in this Agreement is intended to alter, amend or waive each officer’s individual duty of loyalty to the Company Group Members.

(e) Any officer may resign at any time by prior written notice to the Management Board. Any officer shall be deemed to have resigned upon such officer’s death, or disability preventing performance of such officer’s duties.

(f) None of the officers of the Company shall be “managers” of the Company under Section 18-401 of the Delaware Act.

 

39


(g) Subject to the related expenditures being included in an approved Annual Work Program and Budget (including any overruns permitted by Section 6.2(f)) and only with the written approval of the President and General Manager, any officer of the Company that directly or indirectly supervises or will supervise such employee or secondee may hire and terminate employees that are not officers of the Company or another Company Group Member and second and terminate the secondment of individuals that are not officers of the Company or another Company Group Member in accordance with the applicable Secondment Agreement.

Section 5.10 Provision of Services by the Members .

(a) On and effective as of the Closing Date, the Company shall enter into a Services Agreement with BG North America, LLC in substantially the form attached hereto as Exhibit “D-1”.

(b) On and effective as of the Closing Date, the Company shall enter into a Services Agreement with EXCO Resources, Inc. in substantially the form attached hereto as Exhibit “D-2”.

(c) On and effective as of the Closing Date, the Company shall enter into a Services Agreement with Operator in substantially the form attached hereto as Exhibit “D-3”.

Section 5.11 Standard of Conduct; Health, Safety, Security and the Environment .

(a) All Business shall be conducted in compliance with the terms and conditions of: (i) all applicable Laws; and (ii) once approved by the Management Board in accordance with Sections 5.11(b), (c) and (d), appropriate HSSE guidelines and principles. The Company shall conduct, and cause each other Company Group Member to conduct, the Business as a reasonably prudent operator, in a good and workmanlike manner, with due diligence and dispatch, in accordance with good midstream industry practice and appropriate technical standards and guidelines issued by the American Petroleum Institute, the American Society of Mechanical Engineers, the United States Department of Transportation and the American National Standards Institute, among others. Within twelve (12) months of signing this Agreement, the Company shall perform a gap analysis against a set of agreed technical standards for design, construction and operation of Midstream Assets. These standards shall be submitted to the Management Board for its approval and shall include appropriate technical standards and guidelines (as mentioned above), including agreed exceptions, and shall adhere to HSSE guidelines and principles agreed upon pursuant to Sections 5.11(b), (c) and (d).

 

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(b) Within thirty (30) days following the Closing Date, the Management Board shall use good faith efforts to develop HSSE principles to be observed in the conduct of all Business (the “ HSSE Principles ”) which at a minimum include: (i) the goals of preventing injuries and providing a healthy, safe and secure working environment; (ii) protection of the environment; (iii) the responsibility to seek continuous improvement in HSSE performance; and (iv) the principle that level of risk is the primary criterion for facilities design.

(c) Within one hundred twenty (120) days following the Closing Date, the Management Board shall use good faith efforts to develop an HSSE plan to be observed in the conduct of all Business (the “ HSSE Plan ”) which is consistent with the HSSE Principles and the relevant technical standards and codes of practice issued by American professional bodies, including the American Petroleum Institute, the American Society of Mechanical Engineers, the American National Standards Institute, and all applicable Laws.

(d) Within two (2) years following the Closing Date, the Management Board shall have used good faith efforts to develop and implement an HSSE management system to be observed in the conduct all Business (an “ HSSE Management System ”) which addresses the HSSE risks specific to the conduct of all Business, and the management of controls to eliminate, reduce or mitigate HSSE risks.

(e) Within sixty (60) days following the Closing Date, the Management Board shall use good faith efforts to develop a policy for the Company Group Members regarding required disclosure of conflicts of interest that any Member, Affiliate of a Member, Company Group Member, and any officer, director or key employee of any Member, Affiliate of a Member or Company Group Member may have with the interests of any of the Company Group Members.

Section 5.12 Certain Reports .

(a) The Company shall provide the following data and reports, as they are currently produced or compiled, to each Member:

(i) as requested by a Member from time to time, copies of current gathering system maps;

(ii) engineering studies, development schedules and annual progress reports on development projects;

(iii) field performance reports;

(iv) copies of written notices provided by any third Person regarding violations or potential violations of applicable Law;

(v) copies of all material reports provided to any Governmental Authority;

 

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(vi) upon written request of a Member, copies of any material correspondence between any of the Company Group Members and any Governmental Authority;

(vii) annual asset integrity plans and progress against said plan;

(viii) infrastructure project plans and monthly project progress reports when in progress through completion;

(ix) such other information as may be reasonably requested by a Member; and

(x) such other reports as may be directed by the Management Board.

(b) The Company shall, in the conduct of Business:

(i) report to the Members within 24 hours of the Vice President of HSSE receiving notice thereof, details of fatalities, lost time incidents, material environmental incidents and any other material incidents which (in each case) may present a reputational risk to any Company Group Member or Member and also provide copies of any written notices received from Governmental Authorities or Third Parties with respect to such fatalities and incidents;

(ii) prepare an HSSE report to be submitted to the Members on the fifteenth (15 th ) day of April, July, October and January of each year in respect of the previous three (3) months, and monthly with respect to item (ii)(C) only, with content to be agreed by the Management Board but containing at a minimum:

 

  (A) progress against the HSSE Plan applicable to such period;

 

  (B) status of HSSE actions relating to HSSE audits;

 

  (C) occupational safety indicators (e.g., fatalities and lost time incidents and frequency, recordable incidents and frequency and total man hours worked) of the Company Group Members (and as agreed to as part of the HSSE Plan in accordance with Section 5.11(c), its contractors and subcontractors);

 

  (D) known environmental incidents (e.g., leaks, spills, and cases of violations of environmental Laws and permits); and

 

  (E) HSSE related claims.

 

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(iii) contractually require its contractors, subcontractors and suppliers of services to comply with all applicable Laws and all safety rules of the Company Group Members, and provide to its contractors and subcontractors copies of the HSSE Principles and HSSE Management System generated pursuant to Section 5.11(b) and (d) that are then in effect and use its commercially reasonable efforts to enforce such Persons’ compliance with such principles and system; and

(iv) with reasonable advance notice, permit the Members to have access during normal business hours (at their sole risk and expense, notwithstanding anything herein to the contrary) to operations, design phase activities, books and records, and representatives of the Company Group Members for the purpose of observing operations or conducting HSSE and asset integrity audits (provided that such Members shall (A) minimize any disruption to the operations and business of the Company Group Members caused by such observation or audits, and (B) adhere to all safety rules of such operator binding on Company Group Member personnel and the HSSE Principles and HSSE Management System then in effect while conducting such audits).

(c) The Company shall promptly notify the Members of any Third Party written claim or suit arising from Business of which the Company becomes aware that exceeds (or is reasonably expected to exceed) one hundred thousand dollars ($100,000), and, upon request of any such Member from time to time, shall further provide, in a timely manner, the then current information regarding the progress and status of any such claims or suits.

Section 5.13 Insurance Requirements . Subject to the Management Board’s authority under Section 5.1(c)(ix), the Company Group Members shall maintain the insurance coverage set forth on Schedule 5.13. For the avoidance of doubt, a Member may obtain such additional insurance as it deems advisable for its own account at its own expense provided such insurance does not prejudice any insurance arranged by the Company Group Members.

ARTICLE 6

ANNUAL WORK PROGRAM AND BUDGETS; CONTRACT AWARDS

Section 6.1 Development Work Program; Initial Work Program and Budget .

(a) The Management Board shall adopt, and modify from time to time, a multi-year work program for Midstream Activities to be conducted by the Company Group Members (the “ Development Work Program ”) as follows:

(i) The Management Board shall approve, within (90) days after the Closing Date, a work program for Development Operations

 

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through Calendar Year 2013, similar in form to the draft attached hereto as Exhibit “E-1”. Such work program shall constitute the Development Work Program applicable through Calendar Year 2013 except as otherwise revised, amended or modified by the Management Board.

(ii) On or before August 15 of each Calendar Year, commencing in Calendar Year 2012, the President and General Manager shall prepare, or cause to be prepared, and submit to the Management Board a revised Development Work Program setting forth the Development Operations to be carried out during the following two Calendar Years. Such proposed Development Work Program shall automatically include any Midstream Activities which were approved for such period as part of the prior Development Work Program unless the Management Board determines to the contrary. Unless otherwise agreed by the Management Board, within sixty (60) days after distribution of the proposed Development Work Program (or such later date as may agreed by the Management Board), the Management Board shall meet to consider, modify (if necessary) and approve or reject the proposed Development Work Program. Approval of the Development Work Program shall require the approval of the Management Board in accordance with Section 5.1(c)(i). If the Management Board does not approve any such Development Work Program on or prior to the first day of the following Calendar Year (for purposes of this Section 6.1(a)(ii), the “ current Calendar Year ”), then that portion of Development Work Program for the previous Calendar Year pertaining to operating expenses and multi-year expenditures previously approved by the Management Board for the current Calendar Year shall be the Development Work Program, if any, approved for the current Calendar Year in the preceding Calendar Year.

(b) The Annual Work Program and Budget for the remainder of Calendar Year 2010 is attached hereto as Exhibit “E-2”. The Management Board is hereby deemed to have approved the Annual Work Program and Budget for the remainder of Calendar Year 2010.

Section 6.2 Subsequent Work Program and Budgets . For each Calendar Year during the term of this Agreement commencing with Calendar Year 2011, an Annual Work Program and Budget shall be adopted as follows:

(a) On or before August 15 in the Calendar Year immediately preceding the relevant Calendar Year, the President and General Manager shall prepare, or cause to be prepared, and submit to the Management Board a proposed Annual Work Program and Budget for such applicable Calendar Year. Each such proposed Annual Work Program and Budget shall contain at least the following:

(i) inclusion of expenditures required by any Company Group Member under the terms of any Company Group Contract during such Calendar Year, except with the approval of such Management Board to the contrary;

 

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(ii) itemized estimates of the expenditures covered by the proposed Annual Work Program and Budget (including each Member’s share thereof) by budget category, containing sufficient detail (to the extent available) to afford the ready identification of the nature, scope and duration of the activity in question;

(iii) estimates of the schedule pursuant to which each Member’s share of expenses included in the Annual Work Program and Budget are anticipated to be incurred by the Company; and

(iv) any other information requested in writing by a Member that can reasonably be provided by the Company.

(b) Itemized expenditures in an Annual Work Program and Budget may extend over more than one Calendar Year because such itemized expenditures represent activities or operations that require commitments in excess of one Calendar Year. Once itemized expenditures are approved, the President and General Manager shall not be required to resubmit them for approval of the applicable Management Board on an annual or other periodic basis, but instead all such items shall be automatically included in future Annual Work Program and Budgets as items which have already been approved.

(c) The President and General Manager shall regularly consult with the Management Board during the preparation of each proposed Annual Work Program and Budget. Following receipt of a proposed Annual Work Program and Budget, each Member shall furnish to the President and Management Board any comments, suggestions or proposed amendments it may have respecting such proposed Annual Work Program and Budget as soon as may be reasonably practicable, and the President and General Manager shall consider and discuss such comments, suggestions and proposed amendments with such Management Board. Unless otherwise agreed by the Management Board, within sixty (60) days after distribution of each proposed Annual Work Program and Budget for a Calendar Year, the Management Board and the President and General Manager shall meet to consider, modify (if necessary) and approve or reject such proposed Annual Work Program and Budget. Subject to Section 6.2(d), approval of an Annual Work Program and Budget shall require the approval of the Management Board in accordance with Section 5.1(c).

(d) In the event an Annual Work Program and Budget is not approved on or prior to the first day of the Calendar Year to which such Annual Work Program and Budget pertains (for purposes of this Section 6.2(d), the “ relevant Calendar Year ”), the Management Board shall be deemed to have approved an Annual Work Program and Budget for the relevant Calendar Year that includes the following: (i) the Midstream Activities scheduled to be performed during the

 

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relevant Calendar Year as set forth in the Development Work Program, if any, and associated costs reasonably required to implement such Midstream Activities; (ii) Operating Expenses equal to the amount of Operating Expenses actually expended in connection with the Business in the previous Calendar Year; (iii) those multi-year expenditures previously approved by the Management Board pursuant to Section 6.2(b), that are attributable to the relevant Calendar Year; (iv) existing payment commitments to any Person under Company Group Contracts (including the Services Agreements) in such Calendar Year and other costs and expenses necessary to allow the Company Group Members to comply with their obligations under all Company Group Contracts (including the Services Agreements); (v) taxes payable by the Company Group Members; and (vi) payroll and benefits of all employees and all charges to the Company under the Secondment Agreements in respect of any Person seconded to any Company Group Member.

(e) Any Member may propose to amend the Development Work Program or an Annual Work Program and Budget by notice to the Management Board and the President and General Manager. Approval of any such amendment shall require the approval of the Management Board in accordance with Section 5.1(c)(i). Notwithstanding any provision of Section 5.3 to the contrary, each Member shall have sixty (60) days to consider any proposed amendment that would increase the estimated costs of the Development Work Program for any Calendar Year or any Annual Work Program and Budget by more than ten percent (10%). To the extent that such amendment is approved by the Management Board, the Development Work Program and the relevant Annual Work Program and Budget shall be deemed amended accordingly, provided that any such amendment shall not invalidate any commitment or expenditure already made by any Company Group Member in accordance with any previous authorization given pursuant hereto.

(f) Approval by the Management Board of an Annual Work Program and Budget shall constitute the Management Board’s deemed approval for the Company Group Members to expend up to ten percent (10%) in excess of the authorized amount for any category of the Annual Work Program and Budget, not to exceed in the aggregate ten percent (10%) of the aggregate amount applicable to the Annual Work Program and Budget, and less, in each case, any amounts included as line items for contingencies and overruns with respect to such operations in such category of the Annual Work Program and Budget. The President and General Manager shall promptly notify the Management Board of any expenditure made by the Company Group Members in the exercise of the rights pursuant to this Section 6.2(f). The ten percent (10%) deemed approval level set forth in this Section 6.2(f) shall be calculated with respect to the original amount of the Annual Work Program and Budget or, once amended, the amended amount of the Annual Work Program and Budget, provided that no expenditures incurred pursuant to Section 6.2(g) shall be deemed to be included in an approved Annual Work Program and Budget for purposes of calculating the ten percent (10%) deemed approval levels pursuant to this Section 6.2(f), nor shall any such expenditures be considered to be amounts expended in excess of the authorized amount of any Annual Work Program and Budget for purposes of calculating the ten percent (10%) deemed approval levels.

 

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(g) Notwithstanding anything to the contrary in this Agreement, the President and General Manager is expressly authorized to cause a Company Group Member to make Emergency Expenditures and incur liabilities without prior authorization or approval when necessary or advisable, in the President and General Manager’s good faith judgment, to deal with emergencies, including explosions, fires, spills, or any other similar event, which may endanger property, lives, or the environment and it is impractical to get the Management Board approval for such expenditures and incurrence of such liabilities. The President and General Manager shall as soon as practicable report to the Management Board the nature of any such emergency which arises, the measures it intends to take in respect of such emergency and the estimated related expenditures.

(h) To the extent reasonably within the control of the President and General Manager, operations described in an Annual Work Program and Budget shall be conducted at the time prescribed in such Annual Work Program and Budget.

(i) For the avoidance of doubt, any reference in this Agreement to an approved Annual Work Program and Budget or Development Work Program shall include an Annual Work Program and Budget or Development Work Program, as applicable, that is deemed to have been approved by the Management Board, and shall incorporate all approved amendments thereto and all modifications to the Annual Work Program and Budget or Development Work Program, as applicable, described herein that require no action on the part of the Management Board or the Members.

(j) Notwithstanding anything to the contrary in this Section 6.2, the Annual Work Program and Budget for each Calendar Year shall contain not less than the Business to be performed during such Calendar Year as set forth in the Development Work Program.

Section 6.3 Statement of Estimated Expenditures . Not later than twenty (20) days prior to the commencement of each Calendar Quarter during the term of this Agreement, the Company shall provide the Members a statement of the estimated costs to be incurred in such Calendar Quarter. Such statement shall be for informational purposes only, and, no approval of the Management Board shall be required for any of the costs identified therein to the extent such costs are included in an approved Annual Work Program and Budget.

 

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Section 6.4 Company Group O&M Contract Awards .

(a) Subject to Sections 6.4(b) and (c), the Company shall award each Company Group O&M Contract to the best qualified contractor considering cost, ability, availability and HSSE performance considerations (in the Company’s reasonable opinion), to perform the contract without the obligation to tender, and without informing or seeking the approval of the Management Board. The procedures set forth in this Section 6.4 shall not apply to any contracts that have been awarded, or in respect of which invitations to tender have been issued, on or before the Closing Date, provided that the procedures set forth in this Section 6.4 shall apply to confirmations, service orders or purchase orders (whether written or oral) entered into on and after the Closing Date pursuant to existing master service agreements that were effective prior to the Closing Date.

(b) Affiliate Contracts . Prior to entering into any Company Group O&M Contract between a Company Group Member and a Member or an Affiliate of a Member, the Company shall be required to obtain the affirmative vote of the applicable Board Members of the Management Board pursuant to Section 5.1(c)(v).

(c)

(i) From and after the Closing Date, prior to entering into a Company Group O&M Contract not specifically and expressly approved as part of an approved Annual Work Program and Budget that can reasonably be expected to result in aggregate payments to the counterparty of more than five million dollars (US$5,000,000) during any twelve (12) consecutive Calendar Month period, the Company shall present a copy of the proposed Company Group O&M Contract to the Members, together with the tender list and tender evaluation criteria used to secure such proposed Company Group O&M Contract, for approval by the Members, acting as the Management Board. Each Member shall notify the Company and the Management Board of its approval or rejection of such Company Group O&M Contract within fifteen (15) Business Days of its receipt of such materials. Failure of a Member to respond within such period shall be deemed an approval of such Company Group O&M Contract. The Company may only enter into such proposed Company Group O&M Contract to the extent that the Management Board approves such Company Group O&M Contract.

(ii) From and after the Closing Date, prior to entering into a Company Group O&M Contract that can reasonably be expected to result in aggregate payments to the counterparty of more than one million dollars (US$1,000,000) during any twelve (12) consecutive Calendar Month period, commencing as of January 1 in any Calendar Year, except as provided in Section 6.4(c)(iii), a Company Group Member shall obtain proposals for such services from at least two (2) service providers. For the avoidance of doubt, a contract that automatically renews (is evergreen) on

 

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a month-to-month or other periodic basis that would meet the one million dollars (US$1,000,000) threshold if it remained in effect for an entire twelve (12) consecutive Calendar Month period commencing as of January 1 in any Calendar Year shall be considered subject to the requirements of the preceding sentence.

(iii) If any Company Group Member desires to award a Company Group O&M Contract that would otherwise be subject to Section 6.4(c)(i) without tender of proposals from more than one service provider, whether because only one competent service provider can provide the contracted-for-service or otherwise, such Company Group Member may do so only with the prior approval of the Management Board pursuant to Section 5.1(c)(iv). The Company Group Member shall present a copy of the proposed Company Group O&M Contract to the Management Board. Each Board Member shall notify the Company, and the rest of the Management Board, of its approval or rejection of such Company Group O&M Contract within fifteen (15) Business Days of its receipt of such Company Group O&M Contract. Failure of a Board Member to respond within such period shall be deemed an approval of the award of such Company Group O&M Contract. A Company Group Member may only enter into a proposed Company Group O&M Contract that would otherwise be subject to Section 6.4(c)(i) without tender of proposals from more than one service provider if the Management Board approves such Company Group O&M Contract.

(iv) To the extent that a Company Group Member enters into a Company Group O&M Contract for which the Company is not required to obtain proposals from at least two (2) service providers pursuant to Section 6.4(c)(i) and such Company Group O&M Contract can reasonably be expected to result in aggregate payment to the counterparty of more than one hundred thousand dollars (US$100,000), the Company shall keep a written record in its files that are subject to the audit provisions of Section 8.3 explaining why multiple bids were not obtained for such services.

(v) In connection with the foregoing, the Company shall keep a written record in its files that are subject to the audit provisions of Section 8.3 that (A) in the event that the Company Group O&M Contract is awarded pursuant to Section 6.4(c)(i), includes the proposals obtained from the prospective service providers; or (B) in the event that the Company Group O&M Contract is awarded pursuant to Section 6.4(c)(iii), includes the notice to the Management Board and the Management Board responses.

 

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(d) Upon the reasonable written request of a Member, the Company shall provide such Member a copy of any Company Group O&M Contract of a material nature that is utilized in connection with Business of the Company, as well as other information that can reasonably be provided by the Company regarding the use and performance of such Company Group O&M Contract, except to the extent the Company may be prohibited from making any such disclosure under the terms and conditions of such contract and is unable through commercially reasonable efforts to obtain consent for such disclosure.

ARTICLE 7

INDEMNIFICATION

Section 7.1 No Liability of Members for Company Obligations .

(a) Except as otherwise provided by the Delaware Act, no Covered Person shall be obligated personally for any debt, obligation or liability of the Company or other Company Group Members solely by reason of being a Covered Person.

(b) Except as otherwise expressly required by Law, a Member, in its capacity as Member, shall have no liability in excess of: (i) the amount of its contributions to the Company; (ii) its share of any assets and undistributed profits of the Company; (iii) its obligation to make other payments expressly provided for in this Agreement; and (iv) the amount of any distributions wrongfully distributed to it. No Member shall have any responsibility to restore any negative balance in its Capital Account or to contribute to or in respect of the liabilities or obligations of the Company or any other Company Group Member or to return distributions made by the Company, except as expressly provided herein or required by any non-waivable provision of the Delaware Act. The agreement set forth in the immediately preceding sentence shall be deemed to be a compromise with the consent of all of the Members for purposes of §18-502(b) of the Delaware Act. However, if any court of competent jurisdiction or properly constituted arbitration panel orders, holds or determines that, notwithstanding the provisions of this Agreement, any Member is obligated to restore any such negative balance, make any such contribution or make any such return, such obligation shall be the obligation of such Member and not of any other Person.

Section 7.2 Exculpation .

(a) No Covered Person shall be liable to any Company Group Member or any other Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Covered Person on behalf of the Company Group Members and in a manner reasonably believed to be within the scope of authority conferred on such Covered Person by this Agreement or a delegation of authority in accordance with this Agreement, except that (i) a Covered Person shall be liable for any such loss, damage or claim incurred by reason of such Covered Person’s fraud, bad faith, willful misconduct or gross negligence, (ii) a Covered Person that is not an officer or employee of a Member, Affiliate of a Member, Company Group Member, or Affiliate of a Company

 

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Group Member, shall be liable for any such loss, damage, or claim incurred by reason of such Covered Person’s breach of this Agreement (other than Section 5.11) and (iii) a Covered Person that is an officer of a Company Group Member shall be liable for any such loss, damage, or claim incurred by reason of such Covered Person’s breach of his or her duty of loyalty to such Company Group Member, in each case, as established by a non-appealable court order, judgment, decree or decision or pursuant to a final and binding decision of an arbitration panel pursuant to Section 15.2.

(b) A Covered Person shall be fully protected in relying in good faith upon the records of the Company Group Members and upon such information, opinions, reports or statements presented to the Company Group Members by any Person as to matters the Covered Person reasonably believes are within such other Person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Company Group Members, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, Net Profits, Net Losses or Available Cash or any other facts pertinent to the existence and amount of Assets from which distributions to Members might properly be paid.

Section 7.3 Indemnification . To the fullest extent permitted by applicable Law, the Company and the other Company Group Members shall indemnify and hold harmless each Covered Person from and against all Claims arising from or related to any act or omission performed or omitted by such Covered Person on behalf of the Company Group Members and in a manner reasonably believed to be within the scope of authority conferred on such Covered Person by this Agreement or a delegation of authority in accordance with this Agreement, except that: (a) no Covered Person shall be entitled to be indemnified in respect of any Claim by reason of such Covered Person’s fraud, bad faith, willful misconduct or gross negligence; (b) no Covered Person that is not an officer or employee of a Member, Affiliate of a Member, Company Group Member, or Affiliate of a Company Group Member shall be entitled to be indemnified in respect of any Claim by reason of such Covered Person’s breach of this Agreement (other than Section 5.11); and (c) no Covered Person that is an officer of a Company Group Member shall be entitled to be indemnified in respect of any Claim by reason of such Covered Person’s breach of his or her duty of loyalty to such Company Group Member, in each case, as established by a non-appealable court order, judgment, decree or decision or pursuant to a final and binding decision of an arbitration panel pursuant to Section 15.2. Any indemnity under this Section 7.3 shall be provided out of and to the extent of the Assets only (including the proceeds of any insurance policy obtained pursuant to Section 7.5), and no Covered Person shall have any personal liability on account thereof. Any amendment, modification or repeal of this Section 7.3 or any provision in this Section 7.3 shall be prospective only and shall not in any way affect the rights of any Covered Person under this Section 7.3 as in effect immediately prior to such amendment, modification or repeal with respect to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when claims relating to such matters may arise or be asserted.

 

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Section 7.4 Expenses . To the fullest extent permitted by applicable Law, expenses (including legal fees) incurred by a Covered Person in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Company prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Company of an undertaking by or on behalf of the Covered Person to repay such amount if it shall be determined that the Covered Person is not entitled to be indemnified as authorized in Section 7.3.

Section 7.5 Insurance .

(a) Subject to Section 5.1(c)(ix), the Company Group Members may purchase and maintain insurance, to the extent and in such amounts as the Management Board shall, in its sole discretion, deem reasonable, on behalf of Covered Persons and such other Persons as the Management Board shall determine, against any liability that may be asserted against or expenses that may be incurred by any such Person in connection with the activities of the Company Group Members or such indemnities, regardless of whether the Company would have the power to indemnify such Person against such liability under the provisions of this Agreement. Subject to Section 5.1(b)(xxv), the Management Board and the Company Group Members may enter into indemnity contracts with Covered Persons and such other Persons as the Management Board shall determine and adopt written procedures pursuant to which arrangements are made for the advancement of expenses and the funding of obligations under Section 7.4 and containing such other procedures regarding indemnification as are appropriate.

(b) Notwithstanding anything else in this Agreement, no Company Group Member shall be required to provide indemnification to any Covered Person for any Claim to the extent that such Claim is insured against by such Covered Person’s workers compensation insurance.

Section 7.6 Primary Obligation . The Company hereby acknowledges that the Covered Persons may have certain rights to indemnification, advancement of expenses and/or insurance provided by Members and certain of their Affiliates (collectively, the “ Member Indemnitors ”). The Company hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to the Covered Persons under Sections 7.3 and 7.4 are primary and any obligation of the Member Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by the Covered Persons are secondary), (ii) that it shall be required to advance the full amount of expenses incurred by the Covered Persons and shall be liable for the full amount of all expenses, judgments, penalties, fines and amounts paid in settlement to the extent legally permitted and as required by the terms of Sections 7.3 and 7.4 of this Agreement (or any other agreement between the Company and the Covered Person), without regard to any rights the Covered Person may have against the Member Indemnitors, and (iii) that the Company irrevocably waives, relinquishes and releases the Member Indemnitors from any and all claims against the Member Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or

 

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payment by the Member Indemnitors on behalf of a Covered Person with respect to any claim for which the Covered Person has sought indemnification from the Company pursuant to Sections 7.3 and 7.4 shall affect the foregoing and the Member Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of the Covered Person against the Company. The Company agrees that the Member Indemnitors who are not Members are express third party beneficiaries of the terms of this Section 7.6.

ARTICLE 8

BOOKS AND RECORDS; ACCOUNTS

Section 8.1 Books and Records . At all times during the term of this Agreement, the Management Board shall keep (or cause to be kept) true and complete books of account for the Company Group Members. Such books shall reflect all Company Group Members transactions in accordance with GAAP.

Section 8.2 Availability of Books and Records . All of the books of account referred to in Section 8.1, together with an executed copy of this Agreement and the Certificate, and any amendments thereto (and all such other books and records as may be required by the Delaware Act), shall at all times be maintained at the principal office of the Company as set forth in Section 1.5. Such books and records, and any other books and records maintained by the Company Group Members, upon reasonable notice to the Management Board, shall be open to the inspection and examination of the Members or their representatives during normal business hours at the principal office (or other applicable office) of the Company.

Section 8.3 Audits .

(a) The Members shall have the right to audit costs charged to any Company Group Member’s accounts and other accounting records maintained for any Company Group Member under this Agreement.

(b) Upon not less than sixty (60) days’ prior written notice to the Company, any Member shall have the right to audit each Company Group Member’s books and records for any Calendar Year within the twenty four (24) month period following the end of such Calendar Year. Each Member must provide the Company a written notice of any claims for all discrepancies disclosed by said audit within such twenty four (24) month period. The cost of each such audit shall be borne by the Member(s) requesting the audit. Any such audit shall be conducted in a manner designed to result in a minimum of inconvenience and disruption to the operations of the Company Group Members. Where there are two (2) or more Members requesting an audit covering the same Calendar Year, such Members shall make every reasonable effort to conduct joint or simultaneous audits. Unless otherwise mutually agreed, any audit shall be conducted at the principal office of the Company.

 

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(c) The Member requesting an audit may request information prior to the commencement of the audit, and the Company shall, to the extent available, provide the information requested as soon as practical in order to facilitate the forthcoming audit. The Company will, to the extent practicable, provide the information in electronic format or hard copy within thirty (30) days after the written request. The information requested shall be limited to that normally used for pre-audit work.

(d) Any information obtained by a Member in connection with the conduct of an audit (whether related solely to the Company Group Members or otherwise) shall be subject to the confidentiality provisions of this Agreement.

(e) At the conclusion of each audit, the Members shall endeavor to settle outstanding matters expeditiously. To this end, the Member(s) requesting the audit will make a reasonable effort to prepare and distribute a written report to the Company and the other Members as soon as reasonably practicable and in any event within ninety (90) days after the conclusion of each audit. The report shall include all claims arising from such audit together with comments pertinent to the operation of the accounts and records. The Company shall make a reasonable effort to reply to the report in writing as soon as possible and in any event no later than ninety (90) days after delivery of the report.

(f) All adjustments resulting from an audit agreed between the Company and the Member(s) requesting an audit shall be reflected promptly in the Company’s books and records and reported to the Members. If any dispute shall arise in connection with an audit, it shall be reported to and discussed by the Management Board within sixty (60) days. If no settlement can be reached by the parties to the dispute within one hundred twenty (120) days after report to the Management Board, and, unless otherwise agreed by the parties to the dispute, the provisions of Section 15.2 shall apply.

Section 8.4 Financial Statements and Reports . The Company shall prepare, and shall submit to the Members the following statements, reports and notices.

(a) Commencing at the end of the Fiscal Year of 2011, annual financial statements of the Company Group, consisting of a profit and loss statement, a balance sheet, a statement of cash flows and a statement of changes in the Members’ Capital Accounts, as of the end of and for the prior Fiscal Year, which shall be prepared in accordance with GAAP and audited by the Company’s independent certified public accountants, which shall be an internationally recognized accounting firm (the “ Annual Financial Statements ”). The Annual Financial Statements for a Fiscal Year shall be delivered to each Member within ninety (90) days after the end of such Fiscal Year.

 

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(b) Unaudited quarterly financial statements of the Company Group Members, consisting of a profit and loss statement, a balance sheet, changes in membership capital, and a statement of cash flows, as of the end of and for the prior Calendar Quarter, which shall be prepared in accordance with GAAP, except for normal year end adjustments and the absence of footnotes (the “ Quarterly Financial Statements ”). The Quarterly Financial Statements for a Calendar Quarter shall be delivered to each Member within sixty (60) days after the end of such Calendar Quarter.

(c) Monthly financial reports, which shall consist of a profit and loss statement, a balance sheet, changes in membership capital, a statement of cash flows as of the end of and for the prior Calendar Month, and year-to-date setting forth the actual results for the periods presented together with a comparison to the respective amounts in the approved Annual Work Program and Budget. The financial statements shall be prepared in accordance with GAAP except for normal year end adjustments and the absence of footnotes and shall contain a narrative describing the variances to the approved Annual Work Program and Budget (the “ Monthly Financial Reports ”). The Monthly Financial Reports for a Calendar Month shall be delivered within fifteen (15) days after the end of such Calendar Month.

(d) A monthly operating report containing a description of the Company’s Business during each Calendar Month, including physical Asset operations and maintenance (the “ Monthly Operating Reports ”). Each Monthly Operating Report should contain information and narratives describing the applicable Assets’ performance during the relevant Calendar Month, including average throughput volumes, current makeup of shippers and their respective rates, HSSE incidents and such other information that may reasonably be required by any Member. The Monthly Operating Reports for a Calendar Month shall be delivered within fifteen (15) days after the end of such Calendar Month.

(e) A forecast of the Net Profits and cash distributions to the Members for the remainder of the Fiscal Year and, with respect to the fourth Calendar Quarter of the then current Fiscal Year, a forecast of the Net Profits and cash distributions to be made to the Members in the first Calendar Quarter of the following Fiscal Year (the “ Quarterly Forecasts ”). The Quarterly Forecasts shall be delivered within forty-five (45) days after the end of each Calendar Quarter.

(f) An estimate of taxable income for the Company and the amounts allocable to each Member for each Fiscal Year (the “ Tax Estimate Report ”). The Tax Estimate Report shall be delivered within forty-five (45) days after the end of the Fiscal Year.

(g) Copies of all material information related to any pending or material threatened litigation or insurance claim affecting the Company.

(h) Copies of: (i) the approved Annual Work Program and Budget in effect from time to time, within thirty (30) days after the approval thereof in accordance with Section 6.2(c); and (ii) any amended Annual Work Program and Budget within thirty (30) days of such Annual Work Program and Budget is amended.

 

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(i) Copies of all material filings, disclosures, or reports submitted to any Governmental Authority affecting the Company.

(j) A quarterly report summarizing all outstanding claims related to any litigation, arbitration, administrative proceeding or other dispute and any settlement or result of any litigation, arbitration, administrative proceeding or other dispute entered into or relating to the Company that occurred during the prior Calendar Quarter affecting the Company.

(k) Such other information as a Member may reasonably request regarding the Company.

Section 8.5 Accounting Method . For both financial and tax reporting purposes and for purposes of determining Net Profits and Net Losses, the books and records of the Company shall be kept utilizing the accrual method of accounting in accordance with GAAP, shall reflect all Company transactions, and shall be appropriate and adequate for the Business.

Section 8.6 Bank Accounts; Investments . The Management Board shall establish one or more bank accounts in the name of the Company into which all Company funds shall be deposited.

Section 8.7 Fiscal Year of the Company . The Company shall adopt the Calendar Year as its Fiscal Year.

ARTICLE 9

TAX MATTERS

Section 9.1 Tax Treatment of the Company . It is the intent of the Members that the Company be treated as a partnership for U.S. federal income tax purposes. Neither the Company nor any Member shall make an election to be excluded from the application of the provisions of subchapter K of chapter 1 of subtitle A of the Code or any similar provisions of applicable state Law or to be classified as an association pursuant to Treasury Regulation Section 301.7701-3.

Section 9.2 Tax Matters Partner . The Members hereby designate EXCO Member as the initial “tax matters partner” as such term is defined in Section 6231(a)(7)(A) of the Code (the “ Tax Member ”). The Tax Member shall give prompt written notice to each other Member of any and all notices it receives from the Internal Revenue Service concerning the Company. The Company shall reimburse the Tax Member out of the Available Cash for any expenses that the Tax Member incurs in connection with its obligations as Tax Member. The Tax Member shall not agree to extend the statute of limitations with respect to partnership items of the Company without the consent of the other Members. No Member shall take any other action with respect to a partnership level audit item which would be binding on any other Member in computing its liability for taxes (or interest, penalties or additions to tax) without the consent of such other Member.

 

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Section 9.3 Tax Returns and Elections .

(a) The Tax Member shall prepare, or cause to be prepared, at the expense of the Company, for each Fiscal Year (or part thereof), federal, state and local tax returns required to be filed with respect to the Company. Each Member shall furnish to the Company and the Tax Member all pertinent information in its possession relating to the Company’s operations that is necessary to enable the tax returns to be timely prepared and filed. Not less than sixty (60) days prior to the due date (as extended) of the federal income tax return or any state income tax return with respect to the Company, the return proposed by the Tax Member to be filed by the Company shall be furnished to the Members for review and approval. In addition, not more than ten (10) days after the date on which the Company files its federal income tax return or any state income tax return, a copy of the return so filed shall be furnished to the Members.

(b) The Company, at its expense, shall cause to be delivered to each Member within the time period provided by applicable Law an Internal Revenue Service Form K-1 or a good faith estimate of the amounts to be included on such Internal Revenue Service Form K-1 for such Member and such other information as shall be necessary (including a statement for that year of each Member’s share of Net Profits, Net Losses and other items allocated to such Member) for the preparation and timely filing by the Members of their federal, state and local income and other tax returns. The Tax Member shall deliver estimates of Net Profits and Net Losses of the Company at least 15 days prior to the due date for an estimated tax payment required under Section 6655 of the Code for a U.S. corporation whose taxable year ends December 31.

(c) The Management Board may make or revoke an election in accordance with Section 754 of the Code, so as to adjust the basis of any Assets in the case of a distribution of property, within the meaning of Section 734 of the Code, and in the case of a Transfer of Member Interests, within the meaning of Section 743 of the Code.

Section 9.4 Tax Terminations . If a Member or any direct or indirect owner of a Member takes any action that causes the Company to be terminated within the meaning of Section 708(b)(1)(B) of the Code, such Member shall indemnify and hold harmless the other Members for any deferral of depreciation deductions allocable to the other Members as a result of the Code Section 708(b)(1)(B) termination, determined using an annual discount rate of ten percent (10%) and a deemed tax rate of forty percent (40%).

 

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ARTICLE 10

TRANSFERS OF MEMBER INTERESTS; ADMISSION OF NEW MEMBERS

Section 10.1 Transfer of Member Interests .

(a) Any Member may, subject to the other provisions set forth in this Agreement, Transfer all or any undivided share of its Member Interest. Any attempted Transfer of all or a part of a Member Interest other than in compliance with this Agreement shall be null and void and of no force or effect. Any Member who Transfers any Member Interest or portion thereof shall promptly provide written notice thereof to the Company and all of the other Members.

(b) No Transfer may be made to an individual, and except in the case of a Member transferring all of its Member Interest, no Transfer may be made which results in the transferor or the transferee holding a Member Interest of less than ten percent (10%).

(c) A transferring Member shall, notwithstanding the Transfer, be liable to the Company and the other Members for its obligation to fund its Member Interest share (as of the time of the Transfer) of Member Interests included in the Transfer of the activities included in each approved Annual Work Program and Budget (including multi-year expenditures included in more than one Annual Work Program and Budget), and for all other obligations, in each case, accrued under this Agreement or any Associated Agreement on or prior to the Transfer, but shall be released from any other obligations thereafter accruing under this Agreement or such Associated Agreement with respect to the Member Interest being Transferred, except in the case where the Transfer at issue is made to an Affiliate or where there is a Credit Facility Foreclosure on all or any part of a Member’s Member Interest, in which cases the transferring Member or Member subject to the foreclosure, as applicable, shall remain primarily liable for all such obligations.

(d) In connection with any Transfer of a portion (but less than all) of its Member Interest by any member of the EXCO Affiliate Group or the BG Affiliate Group to a Third Party not affiliated with the EXCO Affiliate Group or the BG Affiliate Group, respectively, the EXCO Affiliate Group or the BG Affiliate Group, as applicable, shall assign such number of Total Votes equal to the product of (rounded to the nearest tenth) (x) a fraction the numerator of which is the number of aggregate Member Interests being assigned and the denominator of which is the sum of all Members’ Member Interests and (y) 100. The transferor’s number of Total Votes shall be reduced by the number of Total Votes so transferred. The transferor and transferee shall, amongst themselves, determine how to allocate the appointment of the Board Members allocated to such transferor’s Group, provided that such allocation shall be made in a manner so that all of the Total Votes may be represented at any meeting of the Management Board.

(e) Any transferee of all of the Member Interest of a Member shall be entitled to all of the Total Votes of its transferor, and shall be entitled to appoint all Board Member seats previously appointed by its transferor.

 

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Section 10.2 Conditions Precedent to a Member Interest Transfer . Each transferee of any Member Interest or portion thereof shall continue to be subject to the terms hereof, and, as a condition precedent to the Company recognizing such Transfer or transfer pursuant to a Credit Facility Foreclosure, each transferor must satisfy all the requirements (including the proportionate Transfer of its funding obligations), and not violate any of the Transfer restrictions set forth in Section 10.1 above, and each Transfer shall meet the following conditions:

(a) Each transferee shall agree in writing to be subject to each of the terms of this Agreement by executing and delivering an assumption agreement substantially in the form attached hereto as Exhibit “F” (an “ Assumption Agreement ”).

(b) Each transferee shall execute and deliver to the Company a secondment agreement in substantially the form attached hereto as Exhibit “C” (unless such transferee or any Affiliate of such transferee is already party to a secondment agreement with the Company, or if such transferee and its Affiliates do not collectively possess a Member Interest greater than twenty five percent (25%)), and a services agreement in substantially the form attached hereto as Exhibit “G”.

(c) Except in the case of a Transfer involuntarily by operation of Law, the transferor and transferee shall execute and deliver to the Company such documents and instruments of conveyance as may be reasonably necessary or appropriate to effect such Transfer or transfer pursuant to a Credit Facility Foreclosure. In the case of a Transfer involuntarily by operation of Law, the Transfer shall be confirmed by presentation to the Company of legal evidence of such Transfer, in form and substance reasonably satisfactory to counsel to the Company. In all cases, the Company shall be reimbursed by the transferor and/or transferee for all reasonable costs and expenses that it incurs in connection with such Transfer or transfer pursuant to a Credit Facility Foreclosure.

(d) The transferor and transferee shall furnish the Company with the transferee’s taxpayer identification number, sufficient information to determine the transferee’s initial tax basis in the Member Interest or portion thereof transferred, and any other information reasonably necessary to permit the Company to file all required federal and state tax returns and other legally required information statements or returns. Without limiting the generality of the foregoing, the Company shall not be required to make any distribution otherwise provided for in this Agreement with respect to any transferred Member Interest until it has received such information.

(e) Such Transfer or transfer pursuant to a Credit Facility Foreclosure shall be exempt from all applicable registration requirements and such Transfer may not violate any applicable Laws regulating the transfer of securities.

 

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(f) Such Transfer or transfer pursuant to a Credit Facility Foreclosure will not cause the Company to be deemed to be an “investment company” under the Investment Company Act of 1940.

Section 10.3 Encumbrances by Members . Nothing contained in this Article 10 or in Article 11 or 12 shall prevent a Member from Encumbering all or any undivided share of its Member Interest to a Third Party after the Closing Date, provided that:

(a) such Member shall remain liable for all obligations relating to such Member Interest except as provided in Section 10.1(c); and

(b) such Encumbrance (including Credit Facility Encumbrances) shall be expressly subject to the rights of the Company and the Members to reduce a Member’s Member Interest pursuant to Section 3.7, and the Member granting such Encumbrance shall cause the beneficiaries of such Encumbrances to execute any instruments requested by Company or any Member necessary to reflect the rights of Company and such Members set forth in this Section 10.3(b).

Section 10.4 Admission of Persons as New Members . Upon compliance with all of the provisions of this Agreement regarding Transfers or transfers of Member Interests pursuant to a Credit Facility Foreclosure, as applicable, (a) a transferee shall be deemed to be a Party hereto as if such transferee were the transferor and such transferee’s signature appeared on the signature pages of this Agreement, and shall be deemed to be a Member and (b) to the extent the transferor no longer holds a Member Interest, such transferor shall thereafter cease to be a Member.

Section 10.5 Recordation Tax . If any Transfer of a Member Interest or portion thereof under this Agreement results in the imposition of a state or local transfer, recordation or similar tax on transfers of economic interests (or any similar tax), the Member whose Transfer triggers such imposition will be responsible for the payment of such tax.

ARTICLE 11

CONSENTS TO ASSIGNMENT

Section 11.1 Certain Transfers during Initial Three Year Period . From and after the Closing Date and until the third anniversary of the Closing Date (the “ Initial Three Year Period ”), no Member shall be permitted to Transfer all or any part of its Member Interest or undergo a Change in Control without the prior written consent of each other Member, which consent may be withheld for any reason in the sole discretion of such other Member, provided that no such consent shall be required for any Transfer of a Member Interest to any Affiliate of such Member, provided that any subsequent Transfer of a Member Interest by such Affiliate of such Member to a Person that is not an Affiliate of such Member during the Initial Three Year Period shall require the prior written consent of the other Members, which consent may be withheld for any reason in

 

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the sole discretion of such other Members. Further, during the Initial Three Year Period, no Affiliate of a Member that has been transferred a Member Interest may undergo a Change in Control without the prior written consent of each other Member, which consent may be withheld for any reason in the sole discretion of such other Member.

Section 11.2 Other Transfers . A Member shall be permitted to Transfer all or any part of its Member Interest after the Initial Three Year Period, provided that a transferee must have the financial ability to perform its future payment obligations hereunder and the technical ability to participate in the planning of future operations.

ARTICLE 12

PREFERENTIAL PURCHASE RIGHTS; CHANGES IN CONTROL

Section 12.1 Preferential Purchase Rights . Any Transfer of all or a portion of a Member’s Member Interest, other than a Transfer to a Wholly-Owned Affiliate, shall be subject to the following procedure.

(a) Once the final terms and conditions of a Transfer have been fully negotiated and are binding on the parties thereto, the transferring Member shall disclose all such final terms and conditions as are relevant to the sale of the Member Interest (and, if applicable, the determination of the Cash Value of the Member Interest) in a notice to the non-transferring Members, which notice shall be accompanied by a copy of all instruments or relevant portions of instruments establishing such terms and conditions. Each non-transferring Member shall have the right to acquire the Member Interest subject to the proposed Transfer from the transferring Member on the terms and conditions described in Sections 12.1(c) and 12.1(d), as applicable, if, within sixty (60) days of the transferring Member’s notice, the non-transferring Member delivers to the transferring Member a counter-notification that it accepts such terms and conditions without reservations or conditions (subject to the other provisions of this Section 12.1, where applicable). If no non-transferring Member delivers such counter-notification within such time, such Transfer to the proposed transferee may proceed without further notice, subject to the other provisions of this Agreement, under terms and conditions no more favorable to the transferee than those set forth in the notice to the non-transferring Members, provided that such Transfer shall be concluded within one hundred twenty (120) days from the date of the notice. If such Transfer fails to be concluded within such period and the parties thereto desire thereafter to proceed with such proposed Transfer, the transferring Member shall be required to re-offer the Member Interest subject to the Transfer to the non-transferring Members in accordance with the terms and conditions of this Section 12.1. No Member shall have a right under this Section 12.1 to acquire any asset other than a Member Interest, nor shall a Member be required to acquire any asset other than a Member Interest, regardless of whether other properties are included in the Transfer at issue.

 

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(b) If more than one non-transferring Member counter-notifies that it intends to acquire the transferring Member’s Member Interest that is subject to the proposed Transfer, then each such Member shall acquire a proportion of the Member Interest equal to the ratio of its own Member Interest to the total Member Interests of all counter-notifying Members, unless the counter-notifying Members otherwise agree.

(c) In the event of a Cash Transfer that does not involve other properties as part of a wider transaction, each non-transferring Member shall have a right to acquire the Member Interest subject to the proposed Transfer on the same final terms and conditions as were negotiated with the proposed transferee.

(d) In the event of a Transfer that is not a Cash Transfer or involves other properties included in a wider transaction (package deal), the transferring Member shall include in its notification to the non-transferring Members a statement of the proposed Cash Value of the Member Interest or portion thereof subject to the proposed Transfer, and each non-transferring Member shall have a right to acquire such Member Interest or portion thereof, on the same final terms and conditions as were negotiated with the proposed transferee except that it shall pay the Cash Value in immediately available funds at the closing of the Transfer in lieu of the consideration payable in the Third Party offer, and the terms and conditions of the applicable instruments shall be modified as necessary to reflect the acquisition of a Member Interest or portion thereof for cash. In the case of a package sale, the non-transferring Members may not acquire the Member Interest or portion thereof subject to the proposed package sale unless and until the completion of the wider transaction (as modified by the exclusion of properties subject to preemptive rights or excluded for other reasons) with the package sale transferee. If for any reason the package sale terminates without completion, the non-transferring Members’ rights to acquire the Member Interest or portion thereof subject to the proposed package sale shall also terminate.

(e) For purposes of Section 12.1(d), the Cash Value proposed by the transferring Member in its notice shall be conclusively deemed correct unless any non-transferring Member gives notice to the transferring Member within thirty (30) days of receipt of the transferring Member’s notice stating that it does not agree with the transferring Member’s statement of the Cash Value, stating the Cash Value it believes is correct, and providing any supporting information that it believes is helpful. In such event, the Members shall have fifteen (15) days in which to attempt to negotiate an agreement on the applicable Cash Value. If no agreement has been reached by the end of such fifteen (15) day period, any affected Member shall be entitled to refer the matter to an independent expert as provided in Section 15.3 for determination of the Cash Value, provided that the transferring Member may elect to terminate the proposed Transfer, and any non-transferring Member may elect to revoke its notice of intention to purchase, in either case by notice to the other Members at any time prior to the time that the independent expert is retained pursuant to such provision. The Cash Value to be submitted to the independent expert by the transferring Member shall be the Cash Value provided by such Member in the notice provided to the non-transferring Members pursuant to Section 12.1(d), and the Cash Value to be submitted to the independent expert by each non-transferring Member shall be the Cash Value provided by such Member in the notice provided to the transferring Member pursuant to this Section 12.1(e).

 

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Section 12.2 Changes in Control .

(a) Any Change in Control of a Member shall be subject to the terms and conditions of this Section 12.2. For purposes of this Section 12.2, the term “ Acquired Member ” shall refer to the Member that is subject to a Change in Control, “ Other Members ” shall refer to all other Members not subject to the Change in Control, and “ Acquiror ” shall refer to the Third Party proposing to acquire Control of the Acquired Member in the Change in Control.

(b) Once the final terms and conditions of a Change in Control have been fully negotiated and are binding on the parties thereto, the Acquired Member shall disclose all such final terms and conditions as are relevant to the acquisition of such Acquired Member’s Member Interest and the determination of the Cash Value of that Member Interest in a notice to the Other Members, which notice shall be accompanied by a copy of all instruments or relevant portions of instruments establishing such terms and conditions. Each Other Member shall have the right to acquire the Acquired Member’s Member Interest, on the terms and conditions described in Section 12.2(d) if, within sixty (60) days of the Acquired Member’s notice, the Other Member delivers to the Acquired Member a counter-notification that it accepts such terms and conditions without reservations or conditions (subject to the other provisions of this Section 12.2, where applicable). If no Other Member delivers such counter-notification, the Change in Control may proceed without further notice, subject to the other provisions of this Agreement regarding Changes in Control, under terms and conditions no more favorable to the Acquiror than those set forth in the notice to the Other Members, provided that the Change in Control shall be concluded within one hundred twenty (120) days from the date of the notice. If the Change in Control fails to be concluded within such period and the direct or indirect owners, as the case may be, of the Acquired Member desire thereafter to proceed with such proposed Change in Control, the Acquired Member shall be required to re-offer the Member Interest subject to the Change in Control to the Other Members in accordance with the terms and conditions of this Section 12.2. No Other Member shall have a right under this Section 12.2 to acquire any asset other than a Member Interest, nor shall any Other Member be required to acquire any asset other than a Member Interest, regardless of whether other properties are subject to the Change in Control.

(c) If more than one Other Member counter-notifies that it intends to acquire the Acquired Member’s Member Interest that is subject to the proposed Change in Control, then each such Other Member shall acquire a proportion of the Acquired Member’s Member Interest equal to the ratio of its own Member Interest to the total Member Interests of all counter-notifying Other Members, unless the counter-notifying Other Members otherwise agree.

 

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(d) The Acquired Member shall include in its notification to the Other Members a statement of the proposed Cash Value of the Member Interest subject to the proposed Change in Control, and each Other Member shall have a right to acquire such Member Interest for the Cash Value, on the final terms and conditions negotiated with the Acquiror that are relevant to the acquisition of a Member Interest for cash. No Other Member may acquire the Acquired Member’s Member Interest pursuant to this Section 12.2 unless and until completion of the Change in Control. If for any reason the Change in Control agreement terminates without completion, the Other Members’ rights to acquire the Member Interest subject to the proposed Change in Control shall also terminate.

(e) For purposes of Section 12.2(d), the Cash Value proposed by the Acquired Member in its notice shall be conclusively deemed correct unless any Other Member gives notice to the Acquired Member within thirty (30) days of receipt of the Acquired Member’s notice stating that it does not agree with the Acquired Member’s statement of the Cash Value, stating the Cash Value it believes is correct, and providing any supporting information that it believes is helpful. In such event, the Members shall have fifteen (15) days in which to attempt to negotiate an agreement on the applicable Cash Value. If no agreement has been reached by the end of such fifteen (15) day period, any affected Member shall be entitled to refer the matter to an independent expert as provided in Section 15.3 for determination of the Cash Value, provided that the Acquired Member may elect to terminate the proposed Change in Control, and any Other Member may elect to revoke its notice of intention to purchase, in either case by notice to the other Members at any time prior to the time that the independent expert is retained pursuant to such provision. The Cash Value to be submitted to the independent expert by the Acquired Member shall be the Cash Value provided by such Acquired Member in the notice provided to the Other Members pursuant to Section 12.2(d), and the Cash Value to be submitted to the independent expert by each Other Member shall be the Cash Value provided by such Other Member in the notice provided to the Acquired Member pursuant to this Section 12.2(e).

(f) Notwithstanding anything herein to the contrary, any direct or indirect Change in Control of a Member (whether through merger, sale of shares or other equity interests, or otherwise), through a single transaction or series of related transactions, from one or more transferors to one or more transferees, resulting from a Credit Facility Foreclosure pursuant to an Existing EXCO Credit Facility, shall not be subject to any of the provisions of this Section 12.2.

 

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ARTICLE 13

ACQUIRED BUSINESS; NEW BUSINESS; ASSET UPGRADES

Section 13.1 Acquired Business .

(a) Subject to Section 13.1(h), if, during the period commencing on the Closing Date and ending on January 1, 2020, a Member or any Affiliate thereof (such Member, whether it or its Affiliate is the acquiror, an “ Acquiring Member ”) directly or indirectly acquires or agrees to acquire any interest from a non-Affiliate (a “ Selling Party ”) in any Midstream Asset (such Midstream Asset, the “ Acquired Business ”), whether by lease or sublease, purchase, acquisition of shares or other equity interests in an entity directly or indirectly owning the Acquired Business or otherwise, the Acquiring Member shall provide written notice of such acquisition (an “ Offer Notice ”) to the Company and the other Members (each such other Member, a “ Non-Acquiring Member ”), which notice shall be accompanied by a copy of all instruments or relevant portions of instruments relating to such acquisition. Subject to this Section 13.1, each Non-Acquiring Member shall have the right (but not the obligation) to acquire its Member Interest share of the Acquired Business (such interest, as may be adjusted pursuant to the following sentence, the “ Offered Interest ”) upon the same terms and conditions on which the Acquiring Member or its Affiliate acquired the Acquired Business, subject to assuming its Member Interest share of all duties and obligations with respect to the Acquired Business and paying the Acquiring Member its Member Interest share of any consideration paid by the Acquiring Member or its Affiliate with respect to such Acquired Business. Each Non-Acquiring Member shall have a period of sixty (60) days after receipt of the Offer Notice to notify the Company and the Acquiring Member in writing whether it elects to acquire its Offered Interest (the “ Option Period ”) pursuant to this Section 13.1. Failure to give timely notice of such election shall be deemed an election not to acquire the Offered Interest.

(b) If all Non-Acquiring Members elect to acquire an interest in the Acquired Business, the Acquiring Member shall use commercially reasonable efforts to assign its or its Affiliate’s rights and obligations under the acquisition documents to the Company or other Company Group Member (as applicable), provided that the Acquiring Member shall not be required to pay cash or otherwise surrender value or incur any liability to the Selling Party to obtain such a right. If the Acquiring Member is unable to assign such rights and obligations under the acquisition documents to the Company or other Company Group Member (as applicable), then the Acquiring Member and the Company or other Company Group Member (as applicable) shall enter into agreements for the Transfer of the Acquired Business on substantially the same terms as provided in the agreements between the Selling Party and the Acquiring Member (with such changes as may be necessitated by the differences in parties, the Transfer of only an Offered Interest and, if applicable, the apportionment of rights from a package deal or the payment of Cash Value in lieu of other consideration), provided that the Acquiring Member shall in no event have liability to the Company or other Company Group Member (as applicable) for representations, warranties or indemnities with respect to the Acquired Business in excess of amounts that the Acquiring Member or its Affiliate actually recovers under the third party acquisition agreement and related documents for the same matters. The Company or other Company Group Member (as applicable) and the Acquiring Member shall execute and deliver the applicable documents and take such other actions as shall be reasonably required to accomplish the Transfer promptly after the

 

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Non-Acquiring Members’ exercise of their option. Additionally, in the case of a Cash Transfer, the consideration payable by the Company or other Company Group Member in respect of the Acquired Business, or in the case of an Acquired Business not acquired pursuant to a Cash Transfer or that is acquired with other properties included in a wider transaction (package deal), the Cash Value of the Acquired Business, shall be deemed to be added to the applicable Development Work Program and Annual Work Program and Budget, and the Members shall use commercially reasonable efforts to agree to an additional amendment to such Development Work Program and Annual Work Program and Budget to include those amounts necessary to operate and maintain such Acquired Business during the applicable Calendar Year within thirty (30) days of the acquisition of such Acquired Business by the Company.

(c) If all Non-Acquiring Members do not elect, or fail to make a timely election, to acquire an interest in the Acquired Business, the Acquiring Member shall be permitted to hold such Acquired Business at its sole risk, cost and expense outside of the Company and the Company Group Members and, except as provided in Section 13.3, the Non-Acquiring Members shall have no further rights whatsoever with regard to the Acquired Business.

(d) If less than all Non-Acquiring Members elect to acquire an interest in the Acquired Business, upon the termination of the Option Period, the Acquiring Member and the Non-Acquiring Members that elect to acquire an interest in the Acquired Business (the “ Electing Members ”) shall be permitted to hold such Acquired Business at their sole risk, cost and expense outside of the Company and the Non-Acquiring Members that do not elect, or fail to make a timely election, to acquire an interest in the Acquired Business and, except as provided in Section 13.3, the Company Group Members shall have no further rights whatsoever with regard to the Acquired Business. The Acquiring Member shall use commercially reasonable efforts to assign its or its Affiliate’s rights and obligations under the acquisition documents with respect to each Electing Member’s Offered Interest (which shall include such Electing Member’s proportionate share of the Offered Interest of any Non-Acquiring Member who did not elect, or failed to make a timely election, to acquire such Offered Interest) to each Electing Member, provided that the Acquiring Member shall not be required to pay cash or otherwise surrender value or incur any liability to the Selling Party to obtain such a right. If the Acquiring Member is unable to assign such rights and obligations under the acquisition documents to the Electing Members, then the Acquiring Member and the Electing Members shall enter into agreements for the Transfer of the Offered Interests on substantially the same terms as provided in the agreements between the Selling Party and the Acquiring Member (with such changes as may be necessitated by the differences in parties, the Transfer of only an Offered Interest and, if applicable, the apportionment of rights from a package deal or the payment of Cash Value in lieu of other consideration), provided that the Acquiring Member shall in no event have liability to any Electing Member for representations, warranties or indemnities with respect to each Electing Member’s Offered Interest in excess of amounts that

 

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the Acquiring Member or its Affiliate actually recovers under the third party acquisition agreement and related documents for the same matters. The Electing Members and the Acquiring Member shall execute and deliver the applicable documents and take such other actions as shall be reasonably required to accomplish the Transfer promptly after the Electing Members’ exercise of their option.

(e) In the event the Acquired Business is not acquired pursuant to a Cash Transfer or is acquired with other properties included in a wider transaction (package deal), the Acquiring Member shall include in its notification to the Company and the Non-Acquiring Members a statement of the Cash Value of the Acquired Business, and each Non-Acquiring Member (or the Company, as applicable) shall have a right to acquire its Offered Interest on the same final terms and conditions as were negotiated with the proposed transferor except that it shall pay the Cash Value in immediately available funds to the Acquiring Member at the time of its acquisition of the Offered Interest in lieu of the consideration payable in the Third Party offer, and the terms and conditions of the applicable instruments shall be modified to reflect the acquisition of the Offered Interest for cash. In the case of a package sale, the Non-Acquiring Members (or the Company, as applicable) may not acquire an interest in the Acquired Business subject to the proposed package sale unless and until the completion of the wider transaction (as modified by the exclusion of properties subject to preemptive rights or excluded for other reasons) with the package sale transferor. If for any reason the package sale terminates without completion, the Non-Acquiring Members’ (or the Company’s, as applicable) rights to acquire the Acquired Business subject to the proposed package sale shall also terminate.

(f) For purposes of Section 13.1(e), the Cash Value proposed by the Acquiring Member in its notice shall be conclusively deemed correct unless any Non-Acquiring Member gives notice to the Acquiring Member within thirty (30) days of its receipt of the Offer Notice stating that it does not agree with the Acquiring Member’s statement of the Cash Value, stating the Cash Value it believes is correct, and providing any supporting information that it believes is helpful. In such event, the Members shall have fifteen (15) days in which to attempt to negotiate an agreement on the applicable Cash Value. If no agreement has been reached by the end of such fifteen (15) day period, any affected Member shall be entitled to refer the matter to an independent expert as provided in Section 15.3 for determination of the Cash Value, provided that the Acquiring Member may elect to terminate the proposed acquisition of the Acquired Business, and any Non-Acquiring Member may elect to revoke its notice of election to acquire its Offered Interest, in either case by notice to the other Members at any time prior to the time that the independent expert is retained pursuant to such provision. The Cash Value to be submitted to the independent expert by the Acquiring Member shall be the Cash Value provided by such Acquiring Member in the notice provided to the Non-Acquiring Members pursuant to Section 13.1(a), and the Cash Value to be submitted to the independent expert by each Non-Acquiring Member shall be the Cash Value provided by such Non-Acquiring Member in the notice provided to the Acquiring Member pursuant to this Section 13.1(f).

 

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(g) If for any reason any Acquired Business fails to be acquired within one hundred twenty (120) days after delivery of the Offer Notice or will be acquired on terms and conditions more favorable to the acquirors than was originally proposed to the Non-Acquiring Members, and any Member thereafter desires to acquire such Acquired Business, such Member shall be required to re-offer the Acquired Business in accordance with the terms and conditions of this Section 13.1.

(h) Notwithstanding anything to the contrary herein, this Section 13.1 shall not be applicable to any of the following:

(i) any Acquired Business to the extent consisting of a Transfer between a Member and its Affiliates;

(ii) any Acquired Business to the extent consisting of an acquisition of interests in any entity or entities directly or indirectly owning Midstream Assets if the direct or indirect interest in such Midstream Assets makes up less than twenty-five percent (25%) of the total Cash Value of the interest acquired or to be acquired; or

(iii) any Acquired Business to the extent consisting of acquisitions of Midstream Assets that are part of a package sale, which package includes upstream assets that are subject to Article 9 of the Joint Development Agreement, for which no party to the Joint Development Agreement that is either a Member, an Affiliate of a Member or a Joint Entity other than Operator in which a Member or an Affiliate of a Member owns an interest elects to participate in the acquisition of such upstream assets.

(i) Notwithstanding anything to the contrary herein, if any Acquired Business consists of an acquisition of Midstream Assets that are part of a package sale, which package includes upstream assets that are subject to Article 9 of the Joint Development Agreement, no Member that is (or with an Affiliate that is) party to the Joint Development Agreement that elected not to participate in the acquisition of such upstream assets associated with such Midstream Assets, other than any such Member that participated or whose Affiliate participated indirectly in the acquisition of such upstream assets through a Joint Entity other than Operator, shall be a Non-Acquiring Member under this Article 13. If there are no Non-Acquiring Members with respect to such Acquired Business, such Acquired Business shall not be subject to this Section 13.1.

(j) Each Member agrees to cause its Affiliates to comply with this Section 13.1.

 

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Section 13.2 Member Requested Services .

(a) If any Member with at least a twenty five percent (25%) Member Interest (a “ Requesting Member ”) requests transportation, gathering, treatment, processing or compression services from the Company Group Members for hydrocarbons produced from any well within the Marcellus Fairway in which such Requesting Member and its Affiliates, or if there is more than one Requesting Member with respect to such request, such Requesting Members and their Affiliates, hold, in the aggregate, at least a 20% working interest in such well or is the operator of such well (“ Member Requested Services ”), the Company shall cause the Company Group Members to provide such services in accordance with the terms of this Section 13.2. Any request for Member Requested Services by Requesting Members shall be made by notice to the Company and the other Members. Such notice shall identify the Requesting Members and shall provide reasonable detail regarding the Member Requested Services, including the services so requested, the date upon which such Member Requested Services are requested to commence, the location(s) at which such Member Requested Services are to be provided, the estimated volumes of hydrocarbons requiring such Member Requested Services, the estimated period of time for which such Member Requested Services will be necessary, and any other information reasonably relevant to such request. The Requesting Member shall provide any other information regarding the Member Requested Services reasonably requested by the Company or any other Member. A Requesting Member shall have the right but not the obligation to utilize Member Requested Services to service hydrocarbons produced by, attributable to or for the account of Third Parties to the extent that such hydrocarbons were produced from the same well as the hydrocarbons of such Requesting Member (or its applicable Affiliate) receiving such Member Requested Services.

(b) If a Requesting Member is party to a gathering agreement with the applicable Company Group Member at the time of the request for Member Requested Services, the Member Requested Services shall be provided under such gathering agreement. If a Requesting Member is not party to a gathering agreement with the applicable Company Group Member(s) addressing Member Requested Services, within thirty (30) days of the delivery of a request for Member Requested Services, the applicable Company Group Member(s) and the Requesting Members or the applicable Affiliates of such Members shall enter into a gathering agreement in substantially the form attached hereto as Exhibit “H” (a “ Member Gathering Agreement ”). To the extent that the Assets do not have the capacity available to provide the Member Requested Services, the Company shall cause the Company Group Members to undertake such Asset Upgrades or Asset Expansions as may be necessary to provide all of the Member Requested Services. All such necessary Asset Upgrades and Asset Expansions shall be undertaken by the Company Group Members as soon as reasonably practicable, and the costs and expenses of implementing such Asset Upgrades and Asset Expansions shall be deemed to be included in the applicable Annual Work Program and Budgets and Development Work Programs.

 

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(c) Unless otherwise agreed to by all of the Members, Member Requested Services will be provided to a Requesting Member (i) at a rate not greater than that being charged by the Company Group Members to Members, Affiliates of Members or Third Parties for similar services in the Marcellus Fairway (taking into consideration the geographic proximity of the services to the existing Assets, the timing and nature of the services being provided and any other considerations normally used by the Company Group Members when determining such rates) at any time during the provision of such Member Requested Services or, (ii) in the event that no Company Group Member is providing similar services to Members, Affiliates of Members or Third Parties at such time, at a rate not greater than the market rate for such services in the Marcellus Fairway (taking into consideration the geographic proximity of the services to the assets of the service provider, the timing and nature of the services being provided and any other considerations normally used by the Company Group Members when determining such rates). If the Company and the Requesting Member cannot agree on a rate within forty five (45) days of the delivery of the request for such Member Requested Service, such Dispute may be referred by either the Company or the Requesting Member to an expert in accordance with Section 15.3, and the rate determined by the expert shall be the rate chargeable for such Member Requested Service.

(d) Members shall only be entitled to make requests for Member Requested Services until January 1, 2020, provided that the Company Group Members shall continue to provide all Member Requested Services requested prior to such date for so long as such Member Requested Services may be required, even after such date.

(e) Notwithstanding anything to the contrary in this Section 13.2, no Company Group Member shall be obligated to take any action under this Section 13.2 that would subject any Company Group Member to the Standards of Conduct.

Section 13.3 New Business .

(a) Subject to Section 13.3(f), during the period commencing on the Closing Date and ending on January 1, 2020, prior to commencing any New Business, a Member or any Affiliate thereof (such Member, whether it or its Affiliate is the proposer, a “ Proposing Member ”) must first propose such New Business by notice to the Company and the other Members (each such other Member, a “ Non-Proposing Member ”). For the avoidance of doubt: (i) acquisition of Acquired Business shall not be New Business subject to the terms and conditions of this Section 13.3, but shall instead be subject to the terms and conditions of Section 13.1; and (ii) Member Requested Services shall not be New Business subject to the terms and conditions of this Section 13.3, but shall instead be subject to the terms and conditions of Section 13.2. Each Non-Proposing Member shall have the right (but not the obligation) to participate in the New Business pursuant to this Section 13.3. Any such proposal shall contain a

 

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reasonably detailed explanation of the proposed New Business, including a good faith estimate of the costs and expenses of implementing, operating and maintaining such proposed New Business, the revenues to be derived therefrom, the timetable for implementing such proposed New Business (which shall include an estimated commencement date for such New Business that shall be not more than 12 months from the date such New Business is proposed), and the effect of such proposed New Business on the existing Business and Assets. The Non-Proposing Members shall have sixty (60) days from receipt of the proposal to decide whether they desire to participate in such proposed New Business (such sixty (60) day period, the “ Initial Election Period ”) pursuant to this Section 13.3. Failure of a Non-Proposing Member to give timely notice of its election within the Initial Election Period shall be deemed an election by such Non-Proposing Member not to participate in such proposed New Business.

(b) If all Non-Proposing Members elect to participate in any proposed New Business, such New Business shall be conducted by the Company or other Company Group Member (as applicable) in accordance with this Agreement and such New Business and the costs thereof set forth in the proposal of such New Business shall be deemed to be added to the applicable Development Work Program and Annual Work Program and Budget.

(c) If all Non-Proposing Members elect not to participate in or fail to make a timely election to participate in any proposed New Business (other than Asset Upgrades), the Proposing Member shall be permitted to conduct such New Business at its sole risk, cost and expense outside of the Company in a manner and on a timeline substantially as set forth in the Proposing Member’s notice to the Company and the Non-Proposing Members and the Company Group Members shall have no further rights whatsoever with regard to such New Business (other than Asset Upgrades (which are addressed in Section 13.4), and except any rights of the Company Group Members provided in any of the Article 13 Contracts entered into by the Company Group Members with respect to such New Business pursuant to Section 13.5).

(d) If less than all Non-Proposing Members elect to participate in any proposed New Business, upon the termination of the Initial Election Period, the Proposing Member and the Non-Proposing Members that elected to participate in such New Business (“ Interested Non-Proposing Members ”) shall be permitted to conduct such New Business (other than Asset Upgrades) at their sole risk, cost and expense outside of the Company in a manner and on a timeline substantially as set forth in the Proposing Member’s notice to the Company and the Non-Proposing Members and in accordance with the New Business Annual Work Program and Budget as provided below. The Proposing Member and the Interested Non-Proposing Members shall use reasonable efforts to agree on an annual work program and budget for the Calendar Year(s) in which such proposed New Business is to be commenced (such annual work program and budget, a “ New Business Annual Work Program and Budget ”), within sixty (60) days of the expiration of the Initial Election Period. If the Proposing Member and the

 

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Interested Non-Proposing Members have not agreed to the New Business Annual Work Program and Budget(s) within sixty (60) days of the expiration of the Initial Election Period, the Proposing Member shall prepare and distribute to the Interested Non-Proposing Members proposed final New Business Annual Work Program and Budget(s) for such proposed New Business within thirty (30) days of the expiration of such sixty (60) day period. Each Interested Non-Proposing Member shall then have sixty (60) days from receipt of the proposed final New Business Annual Work Program and Budget(s) to decide whether it elects to participate in such proposed New Business in the manner described in such New Business Annual Work Program and Budget(s). Failure of an Interested Non-Proposing Member to give timely notice of its election within such sixty (60) day period shall be deemed an election not to participate in such proposed New Business. The Proposing Member and each Interested Non-Proposing Member that agreed or approved the New Business Annual Work Program and Budget(s) for such New Business shall be referred to herein as “ Participating Members ” with respect to such New Business. Unless the Participating Members otherwise agree, each Participating Member’s interest in the New Business shall be that portion of the New Business that such Participating Member’s Member Interest bears to the Member Interests of all of the Participating Members.

(e) If for any reason (i) any New Business fails to be commenced on the later of (A) one hundred twenty (120) days after the day upon which the New Business was to be commenced as set forth in the proposal to the Non-Proposing Members or (B) sixty (60) days after the day upon which such New Business is to be commenced in accordance with the New Business Annual Work Program and Budget for such New Business agreed pursuant to Section 13.3(d) or (ii) the development or operation of such New Business will be materially different than that which was originally set forth in the proposal to the Non-Proposing Members, and any Member thereafter desires to proceed with such New Business, such Member shall be required to re-propose the New Business in accordance with the terms and conditions of this Section 13.3.

(f) Notwithstanding anything to the contrary herein, this Section 13.3 shall not be applicable to any New Business to the extent consisting of a Transfer between a Member and its Affiliates.

(g) Each Member agrees to cause its Affiliates to comply with this Section 13.3.

(h) For the avoidance of doubt, buying and selling of gas and condensate by a Member or any Affiliate of a Member may be conducted by such Member or Affiliate of such Member without the obligation to offer the Company and other Members the opportunity to participate in such activity pursuant to this Section 13.3.

 

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Section 13.4 Asset Upgrades . Notwithstanding anything to the contrary in Section 13.3, to the extent that any proposed New Business is a Required Asset Upgrade, the Company Group Members shall participate in such Required Asset Upgrade regardless of whether less than all of the Members elected to have the applicable Company Group Member participate in such New Business pursuant to Section 13.3. If a proposed New Business is an Asset Upgrade that is not a Required Asset Upgrade, then the Proposing Member with respect to such Asset Upgrade shall have the right to cause the applicable Company Group Member to conduct such Asset Upgrade (which Company Group Member shall own and be entitled to all benefits associated with such Asset Upgrade), even if less than all of the other Non-Proposing Members elect to have such Company Group Member participate in such Asset Upgrade, provided that the liabilities, costs and expenses of such Asset Upgrade and any ongoing or increased liabilities, costs and expenses associated therewith shall be solely borne by the Proposing Member and such Non-Proposing Members and the Company Group Members shall have no obligation to pay any of the liabilities, costs and expenses of such Asset Upgrade or any ongoing or increased liabilities, costs and expenses associated therewith, the Proposing Member and the Non-Proposing Members participating in any such Asset Upgrade responsible for the liabilities, costs and expenses of such Asset Upgrade shall have the exclusive right to use any increased capacity of the Assets created by such Asset Upgrade, and the Company shall have no right to commit the use of any such increased capacity without the prior written consent of such Members. In the event that there is any Dispute among the Members regarding whether an Asset Upgrade is or is not a Required Asset Upgrade, such Dispute may be referred by any Member to an expert in accordance with Section 15.3. Notwithstanding anything to the contrary in this Section 13.4, no Company Group Member shall be obligated to take any action under this Section 13.4 that would subject any Company Group Member to the Standards of Conduct.

Section 13.5 Contract Operating Agreements; Certain Gathering Agreements .

(a) In the event any Member with at least a twenty five percent (25%) Member Interest desires a Company Group Member to construct or operate any Midstream Asset or New Business held by such Member or its Affiliates outside of the Company Group Members pursuant to Section 13.3, such Member may make such a request to the Company in writing (which request shall identify the relevant assets to be operated, as well as the specific Midstream Activities, other than any marketing activities, to be provided by the applicable Company Group Member with respect to such assets), and within thirty (30) days of such request, the applicable Company Group Member(s) and such Member and its applicable Affiliates shall enter into a contract operating agreement regarding such construction or operations in substantially the form attached hereto as Exhibit “I”.

(b) In the event a Member with at least a twenty five percent (25%) Member Interest or any of its Affiliates desires to tie-in any Midstream Asset (including Acquired Business or New Business in which it or its Affiliates hold an interest) held outside the Company to the Assets and to receive gathering, compression, treatment or processing services for hydrocarbons transported through such Midstream Assets or related to such New Business, such Member may make such a request to the Company in writing, describing the facilities to be

 

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tied in and the location of the tie-in, and within thirty (30) days of such request, the Company and such Member or the applicable Affiliate shall enter into an interconnect agreement in substantially the form attached hereto as Exhibit “K”, and such Member or the applicable Affiliate or any Third Party shipper proposed to receive the services, as applicable, shall enter into a gathering agreement or gathering agreements in substantially the form attached hereto as, if some or all of such services are to be provided to a Member or an Affiliate of Member by a Company Group Member, Exhibit “H”, and/or if some or all of such services are to be provided to a Third Party by a Company Group Member, Exhibit “J”, provided that the Company Group Members shall only have the obligation to provide those services for which capacity exists at the time of the request, or to the extent the necessary capacity is added as part of the Member’s New Business proposal at or before the time the services are to commence.

(c) Notwithstanding anything to the contrary in this Section 13.5, no Company Group Member shall be obligated to take any action under this Section 13.5 that would subject any Company Group Member to the Standards of Conduct.

ARTICLE 14

DISSOLUTION; WINDING UP AND TERMINATION

Section 14.1 Causes of Dissolution, Winding Up and Termination .

(a) The Company shall be dissolved only upon the occurrence of one or more of the following events:

(i) a dissolution of the Company is unanimously approved by the Management Board pursuant to Section 5.1(b);

(ii) the sale or other final disposition by the Company of all or substantially all of the Assets and the collection of all amounts derived from such sale or disposition (including all amounts payable to the Company under any promissory notes or other evidences of indebtedness);

(iii) the entry of a decree of judicial dissolution under the Delaware Act; or

(iv) any other event which must cause the dissolution under the Delaware Act.

(b) For the avoidance of doubt, the bankruptcy or dissolution of any Member or Affiliate 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, and upon the occurrence of any such event, the Company shall be continued without dissolution.

 

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Section 14.2 Notice of Dissolution . Upon the dissolution of the Company, the Management Board shall promptly notify the Members of such dissolution.

Section 14.3 Liquidation .

(a) Liquidating Trustee; Liquidating Distributions . Upon dissolution of the Company, the Management Board (in such capacity, the “ Liquidating Trustee ”) shall carry out the winding up of the Company and shall immediately commence to wind up such affairs; provided, however, that a reasonable time shall be allowed for the orderly liquidation of the Assets and the satisfaction of liabilities to creditors so as to enable the Members to minimize the normal losses attendant upon a liquidation. The proceeds of liquidation shall be applied first to payment of all expenses and debts of the Company and setting up of such reserves as the Management Board reasonably deems necessary to wind up the Company’s affairs and to provide for any contingent liabilities or obligations of the Company. Any remaining proceeds shall be distributed to the Members in accordance with Section 4.6(b).

Section 14.4 Termination . The Company shall terminate when all of the Assets, after payment of or due provision for all debts, liabilities and obligations of the Company, shall have been distributed to the Members in the manner provided for in this Article 14 and the Certificates shall have been canceled, or such other documents required under the Delaware Act to be executed and filed with the Secretary of State of the State of Delaware have been so executed and filed, in the manner required by the Delaware Act.

Section 14.5 No Obligation to Restore Capital Accounts . In the event any Member has a deficit balance in any of its Capital Accounts at the time of the Company’s dissolution, it shall not be required to restore such account to a positive balance or otherwise make any payments to the Company or its creditors or other Third Parties in respect of such deficiency.

Section 14.6 Distributions in Kind . If any Assets are be distributed in kind, such Assets shall be distributed to the Member(s) as tenants-in-common in the same proportions as such Member(s) would have been entitled to cash distributions if: (a) such Assets had been sold for cash by the Company at the fair market value of such Assets (taking the Gross Asset Value definition herein and Code Section 7701(g) into account) on the date of distribution; (b) any unrealized income, gain, loss and deduction inherent in such property (that has not been reflected in the Capital Accounts previously) that would be realized by the Company from such sale were allocated among the Member(s) as Net Profits or Net Losses in accordance with this Agreement; and (c) the cash proceeds were distributed to such Member(s) in accordance with Section 4.7. The Capital Accounts of such Member(s) shall be increased by the amount of any unrealized income or gain inherent in such property or decreased by the amount of any loss or deduction inherent in such property that would be allocable to them, and shall be reduced by the fair market value of the assets distributed to them under the preceding sentence. Notwithstanding the foregoing, the Members shall have the right to assign their interest to such in-kind distribution to any Person.

 

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ARTICLE 15

GOVERNING LAW; DISPUTE RESOLUTION

Section 15.1 Governing Law . THIS AGREEMENT AND THE LEGAL RELATIONS AMONG THE PARTIES SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT REFER CONSTRUCTION OF SUCH PROVISIONS TO THE LAWS OF ANOTHER JURISDICTION. ALL OF THE PARTIES HERETO CONSENT TO THE EXERCISE OF JURISDICTION IN PERSONAM BY THE COURTS OF THE STATE OF TEXAS FOR ANY DISPUTE. EACH PARTY HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY DISPUTE.

Section 15.2 Dispute Resolution .

(a) Except for matters that are expressly made subject to the dispute resolution procedures set forth in Section 15.3, any Dispute among the Parties shall be resolved through final and binding arbitration.

(b) The arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the “ AAA ”) in effect at the time the arbitration of the Dispute is initiated (the “ AAA Rules ”).

(c) The arbitration shall be conducted by 3 arbitrators and conducted in Dallas, Texas. Within 30 days of any Party providing notice to the other Parties of a Dispute, if there are two Parties or two groups of Parties to a Dispute, each Party or group of Parties to such Dispute shall appoint one arbitrator, and the 2 arbitrators so appointed shall select the third and presiding arbitrator within 30 days following appointment of the second party-appointed arbitrator. If either Party or group of Parties fails to appoint an arbitrator within the permitted time period, then the missing arbitrator(s) shall be selected by the AAA as appointing authority in accordance with the AAA Rules. In the event that there are more than two Parties or groups of Parties to an arbitration, the Parties to the arbitration shall endeavor to agree on the appointment of the three (3) arbitrators within thirty (30) days of the written request for arbitration. In the event the Parties cannot reach agreement on the selection of three (3) arbitrators within the time permitted, all arbitrators not yet appointed shall be appointed by the AAA in accordance with the AAA Rules. Any arbitrator appointed by the Party-appointed arbitrators or the AAA shall be a member of the Large, Complex Commercial Case Panel of the AAA or a member of the Center of Public Resources Panel of

 

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Distinguished Neutrals. All arbitrators shall be and remain at all times independent and impartial, and, once appointed, no arbitrator shall have any ex parte communications with any of the Parties concerning the arbitration or the underlying Dispute other than communications directly concerning the selection of the presiding arbitrator, when applicable. All arbitrators shall be qualified by education, training, or experience to resolve the Dispute. No arbitrator shall have been an employee or consultant to any Party or any of its Affiliates within the five (5) year period preceding the arbitration, or have any financial interest in the Dispute.

(d) All decisions of the arbitral tribunal shall be made by majority vote. The award of the arbitral tribunal shall be final and binding, subject only to grounds and procedures for vacating or modifying the award under the Federal Arbitration Act. Judgment on the award may be entered and enforced by any court of competent jurisdiction hereunder.

(e) Notwithstanding the agreement to arbitrate Disputes in this Section 15.2, any Party may apply to a court for interim measures pending appointment of the arbitration tribunal, including injunction, attachment, and conservation orders. The Parties agree that seeking and obtaining such court-ordered interim measures shall not waive the right to arbitration. Additionally, the arbitrators (or in an emergency the presiding arbitrator acting alone in the event one or more of the other arbitrators is unable to be involved in a timely fashion) may grant interim measures including injunctions, attachments, and conservation orders in appropriate circumstances, which measures may be immediately enforced by court order. Hearings on requests for interim measures may be held in person, by telephone or video conference, or by other means that permit the Parties to present evidence and arguments. The arbitrators may require any Party to provide appropriate security in connection with such measures.

(f) The arbitral tribunal is authorized to award costs, attorneys’ fees, and expert witness fees and to allocate them among the Parties. The award may include interest, at the Default Interest Rate, from the date of any default, breach, or other accrual of a claim until the arbitral award is paid in full. The arbitrators may not award indirect, consequential, special or punitive damages. Unless otherwise directed by the arbitral tribunal, each Party shall pay its own expenses in connection with the arbitration.

(g) All negotiations, mediation, arbitration, and expert determinations relating to a Dispute (including a settlement resulting from negotiation or mediation, an arbitral award, documents exchanged or produced during a mediation or arbitration proceeding, and memorials, briefs or other documents prepared for the arbitration) are confidential and may not be disclosed by the Parties, their respective Affiliates and each of their respective employees, officers,

 

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directors, counsel, consultants, and expert witnesses, except to the extent necessary to enforce any settlement agreement, arbitration award, or expert determination, to enforce other rights of a Party, as required by law or regulation, or for a bona fide business purpose, such as disclosure to accountants, shareholders, or third-party purchasers, provided, however, that breach of this confidentiality provision shall not void any settlement, expert determination, or award.

(h) Any papers, notices, or process necessary or proper for an arbitration hereunder, or any court action in connection with an arbitration or an award, may be served on a Party in the manner set forth in Section 15.2.

Section 15.3 Expert Proceedings . For any decision referred to an expert under this Agreement, the Parties hereby agree that such decision shall be conducted expeditiously by an expert selected unanimously by the Members. The expert is not an arbitrator of the dispute and shall not be deemed to be acting in an arbitral capacity. The expert shall not (without the written consent of the Members) be appointed to act as an arbitrator or as adviser to any Member arbitrated pursuant to Section 15.2, provided that nothing in this sentence shall preclude any Member from using the expert as a witness regarding the proper conduct of the expert procedure. The Member desiring an expert determination shall give the other Members written notice of the request for such determination. If the Members are unable to agree upon an expert within ten (10) days after receipt of the written notice of request for an expert determination, then, upon the request of any of the Members, the AAA shall appoint such expert. The expert, once appointed, shall have no ex parte communications with the Members concerning the expert determination or the underlying dispute. All communications between any Member and the expert shall be conducted in writing, with copies sent simultaneously to the other Members participating in the expert proceeding in the same manner, or at a meeting to which representatives of all Members participating in the expert proceeding have been invited and of which such Members have been provided at least five (5) Business Days notice. Within thirty (30) days after the expert’s acceptance of its appointment, the Members shall provide the expert with a report containing their proposal for the resolution of the matter and the reasons therefor, accompanied by all relevant supporting information and data. Within sixty (60) days of receipt of the above-described materials and after receipt of additional information or data as may be required by the expert, the expert shall select the proposal which it finds more consistent with the terms of this Agreement. The expert may not propose alternate positions or award damages, interest or penalties to any Members with respect to any matter. The expert’s decision shall be final and binding on the Members. Any Member that fails or refuses to honor the decision of an expert shall be in default under this Agreement.

 

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ARTICLE 16

MISCELLANEOUS

Section 16.1 Counterparts . This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all of such counterparts shall constitute for all purposes one agreement. Any signature hereto delivered by a Party by facsimile transmission shall be deemed an original signature hereto.

Section 16.2 Notices . All notices and communications required or permitted to be given hereunder (excluding notices sent to Board Members pursuant to Article 5, which notices shall be governed by Section 5.3(o) hereof) shall be sufficient in all respects if given in writing and delivered personally, or sent by bonded overnight courier, or mailed by U.S. Express Mail or by certified or registered United States Mail with all postage fully prepaid, or sent by telex or facsimile transmission (provided any such telex or facsimile transmission is confirmed either orally or by written confirmation), addressed to the appropriate Party at the address for such Party shown below or at such other address as such Party shall have theretofore designated by written notice delivered to the Party giving such notice:

 

If to the Company:   Appalachia Midstream, LLC
  3000 Ericsson Dr., Suite 200
  Warrendale, Pennsylvania 15086
  Attention: President and General Manager
  Telephone: (724) 720-2500
  Fax: (724) 720-2505
If to BG Member:   BG US Production Company, LLC
  5444 Westheimer, Suite 1200
  Houston, Texas 77056
  Attention: Jon Harris
  Telephone: (713) 599-4000
  Fax: (713) 599-4250
  with a copy to:
  BG US Production Company, LLC
  5444 Westheimer, Suite 1200
  Houston, Texas 77056
  Attention: Bill Way
  Telephone: (713) 599-4000
  Fax: (713) 599-4250
  with a copy to:
  BG US Production Company, LLC
  5444 Westheimer, Suite 1200
  Houston, Texas 77056
  Attention: Chris Migura, Principal Counsel
  Telephone: (713) 599-4000
  Fax: (713) 599-4250

 

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If to EXCO Member:   EXCO Holding (PA), Inc.
  12377 Merit Drive, Suite 1700
  Dallas, Texas 75251
  Attention: Harold Hickey
  Telephone: (214) 368-2084
  Fax: (214) 368-8754
  E-mail: hhickey@excoresources.com
  with a copy to:
  EXCO Resources, Inc.
  12377 Merit Drive, Suite 1700
  Dallas, Texas 75251
  Attention: William L. Boeing, General Counsel
  Telephone: (214) 368-2084
  Facsimile: (214) 706-3409

Any notice given in accordance herewith shall be deemed to have been given when delivered to the addressee in person, or by courier, or transmitted by facsimile transmission during normal business hours, or upon actual receipt by the addressee after such notice has either been delivered to an overnight courier or deposited in the United States Mail, as the case may be. Any notice given to a Credit Facility Secured Party in accordance with the notice information supplied with respect to such Credit Facility Secured Party shall be deemed to have been given when delivered to the addressee in person, or by courier, or transmitted by facsimile transmission during normal business hours, or upon actual receipt by the addressee after such notice has been deposited in the United States Mail, as the case may be. The Parties may change the address, telephone numbers, and facsimile numbers to which such communications are to be addressed by giving written notice to the other Parties in the manner provided in this Section 16.2.

Section 16.3 Expenses . Except as otherwise specifically provided, all fees, costs and expenses incurred by the Parties in negotiating this Agreement shall be paid by the Party incurring the same, including legal and accounting fees, costs and expenses.

Section 16.4 Waivers; Rights Cumulative . Any of the terms, covenants, or conditions hereof may be waived only by a written instrument executed by or on behalf of the Party waiving compliance. No course of dealing on the part of any Party, or its respective officers, employees, agents, or representatives, nor any failure by a Party to exercise any of its rights under this Agreement shall operate as a waiver thereof or affect in any way the right of such Party at a later time to enforce the performance of such provision. No waiver by any Party of any condition, or any breach of any term or covenant contained in this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of any breach of any other term or covenant. The rights of the Parties under this Agreement shall be cumulative, and the exercise or partial exercise of any such right shall not preclude the exercise of any other right.

 

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Section 16.5 Entire Agreement; Conflicts . THIS AGREEMENT, THE EXHIBITS HERETO, THE ASSOCIATED AGREEMENTS AND THE TRANSFER AGREEMENT COLLECTIVELY CONSTITUTE THE ENTIRE AGREEMENT AMONG THE PARTIES PERTAINING TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ALL PRIOR AGREEMENTS, UNDERSTANDINGS, NEGOTIATIONS, AND DISCUSSIONS, WHETHER ORAL OR WRITTEN, OF THE PARTIES PERTAINING TO THE SUBJECT MATTER OF THIS AGREEMENT. THERE ARE NO WARRANTIES, REPRESENTATIONS, OR OTHER AGREEMENTS AMONG THE PARTIES RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, AND NO PARTY SHALL BE BOUND BY OR LIABLE FOR ANY ALLEGED REPRESENTATION, PROMISE, INDUCEMENT, OR STATEMENTS OF INTENTION NOT SO SET FORTH. IN THE EVENT OF A CONFLICT BETWEEN: (A) THE TERMS AND PROVISIONS OF THIS AGREEMENT AND THE TERMS AND PROVISIONS OF ANY EXHIBIT HERETO; OR (B) THE TERMS AND PROVISIONS OF THIS AGREEMENT AND THE TERMS AND PROVISIONS OF ANY ASSOCIATED AGREEMENT, THE TERMS AND PROVISIONS OF THIS AGREEMENT SHALL GOVERN AND CONTROL, PROVIDED, HOWEVER, THAT THE INCLUSION IN ANY OF THE EXHIBITS HERETO OR ANY ASSOCIATED AGREEMENT OF TERMS AND PROVISIONS NOT ADDRESSED IN THIS AGREEMENT SHALL NOT BE DEEMED A CONFLICT, AND ALL SUCH ADDITIONAL PROVISIONS SHALL BE GIVEN FULL FORCE AND EFFECT, SUBJECT TO THE PROVISIONS OF THIS SECTION 16.5.

Section 16.6 Amendment . This Agreement may be amended only by an instrument in writing executed by all of the Parties and expressly identified as an amendment or modification or as reasonably necessary to reflect a Transfer permitted under Article 10 or a transfer pursuant to a Credit Facility Foreclosure.

Section 16.7 Parties in Interest . Except for Section 7.6, nothing in this Agreement shall entitle any Person other than the Parties to any claim, cause of action, remedy or right of any kind.

Section 16.8 Successors and Permitted Assigns . This Agreement shall be binding upon and inure to the benefit of the Parties and their successors and permitted assigns.

Section 16.9 Confidentiality .

(a) The Parties agree that all information related to Business shall be considered confidential, shall be kept confidential and shall not be disclosed during the term of this Agreement to any Person that is not a Party, except:

(i) to an Affiliate of a Member;

(ii) to the extent such information is required to be furnished in compliance with applicable Law, or pursuant to any legal proceedings or because of any order of any Governmental Authority binding upon a Party;

 

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(iii) to prospective or actual attorneys engaged by any Party where disclosure of such information is essential to such attorney’s work for such Party;

(iv) to prospective or actual contractors and consultants engaged by any Party where disclosure of such information is essential to such contractor’s or consultant’s work for such Party;

(v) to a bona fide prospective transferee of a Member’s Member Interest to the extent appropriate in order to allow the assessment of such Member Interest (including a Person with whom a Member and/or its Affiliates are conducting bona fide negotiations directed toward a merger, consolidation or the sale of a majority of its or an Affiliate’s shares);

(vi) to a bank or other financial institution to the extent appropriate to a Party arranging for funding;

(vii) to the extent such information must be disclosed pursuant to any rules or requirements of any stock exchange having jurisdiction over such Party or its Affiliates; provided that if any Party desires to disclose information in an annual or periodic report to its or its Affiliates’ shareholders and to the public and such disclosure is not required pursuant to any rules or requirements of any stock exchange, then such Party shall comply with Section 16.10;

(viii) to its respective employees, subject to each Party taking customary precautions to ensure such information is kept confidential; and

(ix) any information which, through no fault of a Party, becomes a part of the public domain.

(b) Disclosure as pursuant to Sections 16.9(a)(iv), (v) and (vi) shall not be made unless prior to such disclosure the disclosing Party has obtained a written undertaking from the recipient to keep the information strictly confidential for the term of this Agreement and to use the information for the sole purpose described in Sections 16.9(a)(iv), (v) and (vi), whichever is applicable, with respect to the disclosing Party.

Section 16.10 Publicity .

(a) Without reasonable prior notice to the other Parties, no Party will issue, or permit any agent or Affiliate of it to issue, any press releases or otherwise make, or cause any agent or Affiliate of it to make, any public statements with respect to this Agreement, the Associated Agreements or the

 

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activities contemplated hereby or thereby, except where such release or statement is deemed in good faith by the releasing Party to be required by Law or under the rules and regulations of a recognized stock exchange on which shares of such Party or any of its Affiliates are listed, and in any case, prior to making any such press release or public statement, the releasing Party shall provide a copy of the press release or public statement to the other Parties.

(b) Notwithstanding anything to the contrary in Section 16.9 or Section 16.10(a), any Member or Affiliate of a Member may disclose information regarding Business in investor presentations, industry conference presentations or similar disclosures, provided that not less than twenty four (24) hours prior to so disclosing any such information, the releasing Member shall provide a copy of the presentation or other disclosure document containing such information to the other Parties.

(c) Notwithstanding anything to the contrary in Section 16.9 or Section 16.10(a), in the event of any emergency endangering property, lives or the environment, the Company may issue such press releases or public announcements as it deems necessary in light of the circumstances and shall promptly provide each Member with a copy of any such press release or announcement.

Section 16.11 Preparation of Agreement . All of the Company, the Members and their respective counsels participated in the preparation of this Agreement. In the event of any ambiguity in this Agreement, no presumption shall arise based on the identity of the draftsman of this Agreement.

Section 16.12 Conduct of the Parties; Business Principles .

(a) Each Party warrants that it and its Affiliates have not made, offered, or authorized and agrees that it will not make, offer, or authorize with respect to the matters which are the subject of this Agreement, any payment, gift, promise or other advantage, whether directly or through any other Person, to or for the use or benefit of any public official (being any person holding a legislative, administrative or judicial office, including any person employed by or acting on behalf of a public agency, a public enterprise or public international organization) or any political party or political party official or candidate for office, where such payment, gift, promise or advantage would violate any applicable Law.

(b) Prior to the Closing Date, each Member provided the others with a copy of its business principles governing its general conduct of operations and business dealings, and each Member acknowledges receipt and awareness of the other Members’ business principles. The common set of general principles for the Company governing the conduct of the Business is attached hereto as Schedule 16.12(b).

 

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Section 16.13 Severability . If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of Law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to any Party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

Section 16.14 Non-Compensatory Damages . None of the Parties shall be entitled to recover from any other Party, or such Party’s respective Affiliates, any indirect, consequential, punitive or exemplary damages or damages for lost profits of any kind arising under or in connection with this Agreement, the Associated Agreements or the transactions contemplated hereby or thereby, except to the extent any such Party suffers such damages (including costs of defense and reasonable attorney’s fees incurred in connection with defending of such damages) to a Third Party, which damages (including costs of defense and reasonable attorney’s fees incurred in connection with defending against such damages) shall not be excluded by this provision as to recovery hereunder. Subject to the preceding sentence, each Party, on behalf of itself and each of its Affiliates, waives any right to recover punitive, special, exemplary and consequential damages, including damages for lost profits, arising in connection with or with respect to this Agreement, the Associated Agreements or the transactions contemplated hereby or thereby.

Section 16.15 Waiver of Partition of Company Property . Each Member hereby irrevocably waives during the term of the Company any right that it may have to maintain any action for partition with respect to any Assets.

Section 16.16 Interpretation . All references in this Agreement to Exhibits, Appendices, Articles, Sections, subsections and other subdivisions refer to the corresponding Exhibits, 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 and Exhibits referred to herein are attached to and by this reference incorporated herein for all purposes. References to any Law or agreement shall mean such Law or agreement as it may be amended from time to time.

 

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Section 16.17 Intellectual Property .

(a) All intellectual property rights in Company Technology, including any patents and copyrights, shall be owned by the Company Group Members unless otherwise agreed by the Management Board pursuant to Section 5.1(b)(xxvii), and the Company Group Members shall have the exclusive right to license Company Technology to third Persons.

(b) Notwithstanding Section 16.17(a), each Member and its Affiliates shall have a royalty-free irrevocable, non-exclusive and non-transferable license to use all Company Technology in its own operations (including joint venture projects in which such Member or its Affiliates have an ownership or equity interest) without the approval of the Company Group Members. Any Member or its Affiliates may disclose such Company Technology to its or its Affiliates’ joint venturers in any joint venture project in which they participate, for purposes of that venture only, provided that each joint venturer to whom Company Technology is to be disclosed must first agree in writing to keep such Company Technology confidential in accordance with the standards set forth in Section 16.9 and acknowledge in writing that such Company Technology is the property of the Company Group Members and may not be used by such joint venturer in any other project.

Section 16.18 Certain Post Closing Actions . The BG Member and the EXCO Member shall use reasonable efforts to agree, and shall each cause the Company to use reasonable efforts to agree, upon the forms of gathering agreements to be attached hereto as Exhibits “H” and “J”, the form of contract operating agreement to be attached hereto as Exhibit “I”, and the form of interconnect agreement to be attached hereto as Exhibit “K”, in each case, within ninety (90) days after the Closing Date. When the Members and Company agree upon the final forms of such Exhibits, such Exhibits shall be deemed to be attached to and made a part of this Agreement as though such Exhibits were a part of this Agreement on and as of the Closing Date. Until such time as the Company enters into gathering agreements with the Members or Affiliates of the Members, the Company shall provide the Members and their Affiliates transportation, gathering, treatment, processing and/or compression services on commercially reasonable market terms.

[The remainder of this page has been intentionally left blank.]

 

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IN WITNESS WHEREOF, the Parties have executed this Agreement by their duly authorized representatives on and as of the Closing Date.

 

APPALACHIA MIDSTREAM, LLC
By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and Secretary
BG US PRODUCTION COMPANY, LLC
By:  

/s/ JON HARRIS

Name:   Jon Harris
Title:   Vice President
EXCO HOLDING (PA), INC.
By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and Secretary

 


A TTACHED TO AND MADE PART OF THE A MENDED AND R ESTATED L IMITED L IABILITY C OMPANY

A GREEMENT OF A PPALACHIA M IDSTREAM , LLC

APPENDIX I

DEFINITIONS

AAA ” has the meaning set forth in Section 15.2(b)

AAA Rules ” has the meaning set forth in Section 15.2(b).

Acquired Business ” has the meaning set forth in Section 13.1(a).

Acquired Member ” has the meaning set forth in Section 12.2(a).

Acquiring Member ” has the meaning set forth in Section 13.1(a).

Acquiror ” has the meaning set forth in Section 12.2(a).

Adjusted Capital Account Balance ” means with respect to any Member, the balance in such Member’s Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments:

(a) credit to such Capital Account any amounts which such Member is obligated to restore, because of a promissory note to the Company or otherwise pursuant to Section 1.704-1(b)(2)(ii)(c) of the Treasury Regulations, or is deemed to be obligated to restore pursuant to the penultimate sentence in each of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Treasury Regulations, after taking into account thereunder any changes during such year in “partnership minimum gain” (within the meaning of Section 1.704-2(b) of the Treasury Regulations) and in “partner nonrecourse debt minimum gain” (within the meaning of Section 1.704-2(i) of the Treasury Regulations); and

(b) debit to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4); 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of the Treasury Regulations.

This definition of Adjusted Capital Account Balance is intended to comply with the “alternative economic effect” test of Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations and shall be interpreted consistently therewith.

Affected Member ” means any non-defaulting Member in connection with a situation where a Defaulting Member has failed to pay an amount owed under the terms of this Agreement at the time in question.

Affiliate ” means, with respect to any Person, a Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such Person.

Affiliate Contract ” means any contract between a Company Group Member and any Member or Affiliate of a Member.

 

Appendix I-1


Affiliated Member Group ” means any group of Members that are Affiliates of each other.

Agreement ” has the meaning set forth in the Preamble.

AMI Area ” means the lands (and subsurface) included in the States of New York, Pennsylvania and West Virginia, provided that the AMI Area shall not include any Lease or other property that is an Excluded Asset.

Annual Financial Statements ” has the meaning set forth in Section 8.4(a).

Annual Work Program and Budget ” means, for any Calendar Year, the work program and budget for Business during such Calendar Year.

Article 13 Contract ” means any contract entered into by any Company Group Member pursuant to Section 13.2(b), 13.5(a) or 13.5(b).

Asset Expansion ” means the construction, installation and commissioning of any new Asset.

Asset Upgrade ” means, with respect to any physical Asset, any physical enhancement or series of physical enhancements, including any such physical enhancements that would increase the throughput capacity (including by adding additional compression), of or to any existing portion of such Asset.

Assets ” means the Company Group Members’ right, title and interest from time to time in all items of economic value owned or leased by any of the Company Group Members, including real property, equipment and other tangible personal property, and contracts, data and records, and other intangible personal property.

Associated Agreements ” means, collectively all agreements entered into by all Members and any Third Parties in furtherance of the conduct of the Business, and “ Associated Agreement ” means any of them.

Assumed Tax Liability ” has the meaning set forth in Section 4.6(d)(i).

Assumption Agreement ” has the meaning set forth in Section 10.2(a).

Available Cash ” means, as of any time, all cash and cash equivalents of the Company on hand as of such time less the amount of cash reserves equal to the forthcoming three (3) full Calendar Months of expenditures as authorized in that portion of the then-current approved Annual Work Program and Budget, provided that, if as of any time, there is not an approved Annual Work Program and Budget, “ Available Cash ” means the amount of cash reserves equal to the expenditures authorized in the most recently approved Annual Work Program and Budget for the last three (3) full Calendar Months of such Annual Work Program and Budget.

 

Appendix I-2


Bankruptcy ” of a Person means: (a) the filing by a Person of a voluntary petition seeking liquidation, reorganization, arrangement or readjustment, in any form, of its debts under the U.S. Bankruptcy Code (or corresponding provisions of future Laws) or any other insolvency Law, or a Person’s filing an answer consenting to or acquiescing in any such petition; (b) the making by a Person of any assignment for the benefit of its creditors or the admission by a Person of its inability to pay its debts as they mature; or (c) the expiration of sixty (60) days after the filing of an involuntary petition under the U.S. Bankruptcy Code (or corresponding provisions of future Laws) seeking an application for the appointment of a receiver for the assets of a Person, or an involuntary petition seeking liquidation, reorganization, arrangement or readjustment of its debts under any other insolvency Law, unless the same shall have been vacated, set aside or stayed within such sixty (60) day period.

BG Affiliate Group ” means the Affiliated Member Group that includes BG Member or any Affiliate of BG Member.

BG Member ” means BG US Production Company, LLC, a limited liability company organized and existing under the Laws of Delaware.

Board Member ” has the meaning set forth in Section 5.1(a).

Business ” means Midstream Activities conducted by any of the Company Group Members.

Business Day ” means a day (other than a Saturday or Sunday) on which commercial banks in Texas are generally open for business, provided that if Business Days are used to calculate periods in which a Member must make a payment hereunder, “ Business Day ” means a day (other than a Saturday or Sunday) on which commercial banks in Texas and London are generally open for business.

Calendar Month ” means any of the months of the Gregorian calendar.

Calendar Quarter ” means a period of three (3) consecutive Calendar Months commencing on the first day of January, the first day of April, the first day of July and the first day of October in any Calendar Year.

Calendar Year ” means a period of twelve (12) consecutive Calendar Months commencing on the first day of January and ending on the following 31st day of December, according to the Gregorian calendar.

Call Notice ” means any call notice issued by the President and General Manager to fund additional contributions required pursuant to Section 3.2.

Capital Account ” has the meaning set forth in Section 3.8.

Cash Transfer ” means any Transfer of Member Interest where the sole consideration (other than the assumption of obligations relating to the transferred Member Interest) takes the form of cash, cash equivalents, promissory notes or retained interests (such as production payments) in the Member Interest being transferred.

 

Appendix I-3


Cash Value ” means the market value (expressed in U.S. dollars) of all or a portion of a Member Interest subject to the proposed Transfer or Change in Control, based upon the amount that a willing buyer would pay a willing seller in an arm’s length transaction.

Certificates ” means, collectively, the Certificate of Conversion of the Company, and the Certificate of Formation of the Company, in each case, as amended, supplemented or restated from time to time, filed with the Secretary of State of the State of Delaware.

Change in Control ” means any direct or indirect change in Control of a Member (whether through merger, sale of shares or other equity interests, or otherwise), through a single transaction or series of related transactions, from one or more transferors to one or more transferees; provided, however, that for purposes hereof, a “ Change in Control ” shall not include a change in Control of a Member: (a) resulting from a management-lead buyout of the public share ownership of such Member and conversion of such Member to a privately-held company, (b) resulting in ongoing control by a Wholly-Owned Affiliate that is wholly-owned by the ultimate parent company of such Member, or (c) created by a change in Control of the ultimate parent company of such Member. For the avoidance of doubt, as of the Closing Date, the ultimate parent company of BG Member is BG Group plc, a public limited company organized and existing under the Laws of England and Wales, and the ultimate parent company of EXCO Member is EXCO Resources, Inc., a corporation organized and existing under the Laws of Texas.

Claims ” mean any and all claims, causes of actions, payments, charges, judgments, assessments, liabilities, losses, damages, penalties, fines or costs and expenses, including any reasonable fees of attorneys, experts, consultants, accountants and other representatives and legal or other expenses incurred in connection therewith and including liabilities, costs, losses and damages for personal injury, illness or death, property damage, contract claims, torts or otherwise.

Closing Date ” has the meaning set forth in the Preamble.

Code ” means the Internal Revenue Code of 1986, as amended, and any successor statute.

Company ” has the meaning set forth in the Preamble.

Company Group Commercial Contract ” means any contract entered into by a Company Group Member pursuant to which a Company Group Member will provide transportation, gathering, treatment, processing or compression services to a Third Party, or any contract pursuant to which a Company Group Member will purchase or sell gas, liquids or other hydrocarbons. For the avoidance of doubt, no Article 13 Contract shall be a Company Group Commercial Contract.

Company Group Contract ” means any contract entered into by a Company Group Member or to which a Company Group Member is a party.

 

Appendix I-4


Company Group Members ” means, together, the Company and all Subsidiaries, and “ Company Group Member ” means any of them.

Company Group O&M Contract ” means any contract entered into by a Company Group Member pursuant to which services, supplies, materials or equipment will be provided to a Company Group Member by a contractor, supplier or other vendor, provided that the Services Agreements shall not be Company Group O&M Contracts.

Company Technology ” means any technology or intellectual property developed by any Company Group Member pursuant to the conduct of the Business.

Conflicted Member ” has the meaning set forth in Section 5.3(b).

Control ” and its derivatives with respect to any Person means the possession, directly or indirectly, of the power to exercise or determine the voting of more than fifty percent (50%) of the voting rights in a corporation, and, in the case of any other type of entity, the right to exercise or determine the voting of more than fifty percent (50%) of the equity interests having voting rights, or otherwise to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise.

Covered Person ” means, in each case, whether or not a Person continues to have the applicable status referred to in the following list: a Member; any Affiliate of a Member; a Board Member; any officer of any Company Group Member, whether or not such officer is an employee of any Company Group Member; any officer, director, member, manager, stockholder, partner, employee, representative or agent of any Member, or of any of their respective Affiliates; any employee or agent of any Company Group Member or its Affiliates; and any Tax Member.

Credit Facility Encumbrance ” means Encumbrances created pursuant to any material borrowing arrangement entered into by any Member and/or its Affiliates with a Third Party that is not an Affiliate of such Member or its Affiliates, as such arrangement may be amended, modified, supplemented or replaced from time to time.

Credit Facility Foreclosure ” means any transfer or other disposition of interests of a Member and its Affiliates in the Member Interests pursuant to a Credit Facility Encumbrance of such Member and any related mortgages, pledge agreements, security agreements and other agreements evidencing such Credit Facility Encumbrance following the occurrence and continuation of a default or event of default under the borrowing arrangement secured thereby.

Credit Facility Secured Party ” means any Third Party of which the Company and the other Members have been notified in writing by either a Member or such Third Party that such Third Party has rights with respect to a Member’s Member Interest under any Credit Facility Encumbrance.

current Calendar Year ” has the meaning set forth in Section 6.1(a)(ii).

 

Appendix I-5


Deep Rights ” means (a) with respect to the Commonwealth of Pennsylvania, those subsurface depths that are below the base of (but excluding) the Haskill Sandstone Formation (Base of Elk Sequence) formation at a measured depth of 2,758’, as identified by the Litho Density Compensated Neutron Array Induction Temperature Log dated June 7, 2005 of the Seneca Resources operated Fee PGS SGL No. 44 (API 37-047-23649) located in Elk County, Pennsylvania, (b) with respect to the State of West Virginia, those subsurface depths that are below the base of (but excluding) the Brallier Formation (Base of Elk Sequence) formation at a measured depth of 6,612’, as identified by the Litho Density Compensated Neutron Array Induction Temperature Log dated October 8, 2008 of the EXCO – North Coast Energy, Inc. operated Wentz 4HS (API 47-001-02982) located in Barbour County, West Virginia and (c) with respect to the State of New York, those subsurface depths that are below the base of (but excluding) the Genesee Formation at a measured depth of 2,548’, as identified by the Density/Neutron, Gamma/Temperature Log dated May 6, 2005 of the Fortuna Energy, Inc. operated Cotton-Hanlon #1 well (API 31-107-23185) located in Tioga County, New York, recognizing that actual depths will vary across the AMI Area.

Default Interest Rate ” means the three month London Inter-Bank Offer Rate (as published in the “Money Rates” table of the Wall Street Journal , eastern edition) plus an additional five percentage points (5.00%) applicable on the first Business Day prior to the due date of payment and thereafter on the first Business Day of each succeeding Calendar Month (or, if such rate is contrary to any applicable usury Law, the maximum rate permitted by such applicable Law).

Default Notice ” has the meaning set forth in Section 3.5(a).

Default Period ” has the meaning set forth in Section 3.5(b).

Defaulting Member ” has the meaning set forth in Section 3.5(a).

Delaware Act ” means the Delaware Limited Liability Company Act, Del. Code Ann. Tit. 6, §§18-101, et. seq .

Depreciation ” means, for each Fiscal Year or other period, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an Asset for federal income tax purposes for such year or other period, except that if the Gross Asset Value of an Asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, except as required by Section 1.704-3(d) of the Treasury Regulations, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis; provided, however, that if the federal income tax depreciation, amortization, or other cost recovery deduction for such year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Tax Member. Notwithstanding the foregoing, because the Company is required to use the remedial method pursuant to Section 1.704-3(d) of the Treasury Regulations with respect to one or more of the

 

Appendix I-6


Company Group Member’s Assets, Depreciation with respect to such Assets shall not be determined in accordance with the preceding sentence of this definition, but shall instead be determined in a manner consistent with tax capital accounting principles and consistent with the treatment of such assets under the remedial method, as prescribed by Treasury Regulations Section 1.704-3(d).

Development Work Program ” has the meaning set forth in Section 6.1(a).

Dispute ” means any dispute, controversy, or claim (of any and every kind or type, whether based on contract, tort, statute, regulation, or otherwise) arising out of, relating to, or connected with this Agreement, or the transactions contemplated hereby, including any dispute, controversy or claim concerning the existence, validity, interpretation, performance, breach, or termination of this Agreement or the relationship of the Parties arising out of this Agreement or the transactions contemplated hereby.

Electing Members ” has the meaning set forth in Section 13.1(d).

Emergency Expenditures ” means expenditures which are reasonably necessary to be expended in order to mitigate or remedy the endangerment of the health or safety of any Person or the environment.

Encumbrance ” means a mortgage, lien, pledge, charge or other encumbrance. “ Encumber ” and other derivatives shall be construed accordingly.

Enforcement Activities ” has the meaning set forth in Section 5.3(b).

Excluded Asset ” has the meaning given to it in the Transfer Agreement.

EXCO Affiliate Group ” means the Affiliated Member Group which includes EXCO Member or any Affiliate of EXCO Member.

EXCO Member ” means EXCO Holding (PA), Inc., a corporation organized and existing under the Laws of Delaware.

Existing EXCO Credit Facility ” means the Credit Agreement, dated April 30, 2010, among EXCO Member, as borrower, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, as the same may be amended, restated, amended and restated, modified or supplemented from time to time.

FERC ” has the meaning set forth in Section 1.10(a)(ix).

Fiscal Year ” means the Company’s taxable year.

GAAP ” means United States generally accepted accounting principles.

Governmental Authority ” means any federal, state, local, municipal, tribal or other government; any governmental, regulatory or administrative agency, commission, body or other authority exercising or entitle to exercise any administrative, executive, judicial, legislative, regulatory or taxing authority or power; and any court or governmental tribunal, including any tribal authority having or asserting jurisdiction.

 

Appendix I-7


Gross Asset Value ” means with respect to any Asset, the Asset’s adjusted basis for federal income tax purposes, except as follows:

(a) the initial Gross Asset Value of any non-cash Asset contributed by a Member to the Company shall be the gross fair market value of such Asset on the date of contribution, as mutually agreed by the Members;

(b) the Gross Asset Values of all Assets shall be adjusted to equal their respective gross fair market values (taking into account Section 7701(g) of the Code), as reasonably determined by the Tax Member at each of the following times:

(i) the acquisition of an additional Member Interest in the Company by any new or existing Member in connection with a contribution of cash or property other than a de minimis amount (within the meaning of Section 1.704-1(b)(2)(iv)(f) of the Treasury Regulations);

(ii) the distribution by the Company to a Member of more than a de minimis amount of Company Group Member property as consideration for a Member Interest in the Company (within the meaning of Section 1.704-1(b)(2)(iv)(f) of the Treasury Regulations);

(iii) the grant of a Member Interest in the Company (other than a de minimis Member Interest) as consideration for the provision of services to or for the benefit of the Company Group Members by any new or existing Member (within the meaning of Section 1.704-1(b)(2)(iv)(f) of the Treasury Regulations); and

(iv) the liquidation of the Company within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Treasury Regulations;

provided, however, that the adjustments pursuant to clauses (i), (ii) and (iii) above shall be made only if the Tax Member reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company;

(c) the Gross Asset Value of any non-cash Asset distributed to any Member shall be the gross fair market value of such non-cash Asset on the date of distribution as reasonably determined by the Tax Member;

(d) the Gross Asset Values of Assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such Assets pursuant to Sections 734(b) or 743(b) of the Code, but only to the extent that such adjustments are taken into account in determining the Capital Accounts pursuant to Section 1.704-1(b)(2)(iv)(m) of the Treasury Regulations, and subsection (g)

 

Appendix I-8


under the definition of Net Profits and Net Losses below; provided, however, that Gross Asset Values shall not be adjusted pursuant to this subsection to the extent that the Tax Member reasonably determines that an adjustment pursuant to subsection (b) of this definition is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subsection; and

(e) if the Gross Asset Value of an Asset has been determined or adjusted pursuant to clause (a), (b) or (d) of this definition, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Net Profits and Net Losses.

Group ” has the meaning set forth in Section 5.2(a).

HSSE ” means Health, Safety, Security and Environmental.

HSSE Management System ” has the meaning set forth in Section 5.11(d).

HSSE Plan ” has the meaning set forth in Section 5.11(c).

HSSE Principles ” has the meaning set forth in Section 5.11(b).

Interest Reduction Notice ” has the meaning set forth in Section 3.7(a).

Interest Reduction Notice Delivery Date ” has the meaning set forth in Section 3.7(a).

Interested Non-Proposing Members ” has the meaning set forth in Section 13.3(d).

Initial Contributions ” has the meaning set forth in Section 3.1.

Initial Election Period ” has the meaning set forth in Section 13.3(a).

Initial Three Year Period ” has the meaning set forth in Section 11.1.

Joint Development Agreement ” means that certain Joint Development Agreement by and among BG Production Company (PA), LLC, BG Production Company (WV), LLC, EXCO Production Company (PA), LLC, EXCO Production Company (WV), LLC, and EXCO Resources (PA), LLC, dated as of the Closing Date.

Joint Entity ” has the meaning given to it in the Joint Development Agreement.

Laws ” means any constitution, decree, resolution, law, statute, act, ordinance, rule, directive, order, treaty, code or regulation and any injunction or final non-appealable judgment or any interpretation of the foregoing, as enacted, issued or promulgated by any Governmental Authority.

Lease ” means any oil and gas lease, oil, gas and mineral lease or sublease, royalty, overriding royalty, production payment, net profits interest, mineral fee interest, carried interest, mineral servitude or other right to oil and gas in place.

 

Appendix I-9


Liquidating Trustee ” has the meaning set forth in Section 14.3(a).

Management Board ” means the board created pursuant to Section 5.1(a).

Marcellus Fairway ” means the counties identified in Schedule 13.2(a).

Member ” means, at any time, each Person who: (a) is an initial signatory to this Agreement, has been admitted to the Company as Member in accordance with the Certificates and this Agreement, or is an assignee or a transferee pursuant to a Credit Facility Foreclosure who has become a Member in accordance with this Agreement; and (b) has not ceased for any reason to be a Member.

Member Indemnitor ” has the meaning set forth in Section 7.6.

Member Interest ” means the entire right, title and interest of a Member in the Company at any particular time to any and all voting rights, distributions, and other benefits to which such Member may be entitled as provided in this Agreement, together with the obligations of such Member to comply with all the terms and provisions of this Agreement. All of the Members’ Member Interests are referred to collectively as the “ Member Interests .” Such interest(s) shall be expressed as a percentage.

Member Loan ” means a loan made by a Member to the Company pursuant to Section 3.4.

Member Gathering Agreement ” has the meaning set forth in Section 13.2(b).

Member Requested Services ” has the meaning set forth in Section 13.2(a).

Midstream Activities ” means the ownership, operation, maintenance, expansion, construction, commissioning and decommissioning of, and acquisition of, gathering systems, pipelines and treatment and processing facilities in the AMI Area other than Shallow Rights Gathering Assets, 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.

Midstream Asset ” means any gathering system, pipeline, processing or treatment facility, or related asset, other than any Shallow Rights Gathering Assets, located in the AMI Area.

Monthly Financial Reports ” has the meaning set forth in Section 8.4(c).

Monthly Operating Reports ” has the meaning set forth in Section 8.4(d).

Net Profits ” or “ Net Losses ” means, for any Fiscal Year, an amount equal to the Company’s taxable income or taxable loss for such Fiscal Year, as determined under Section 703(a) of the Code (including all items required to be separately stated under Section 703(a)(1) of the Code) and Section 1.703-1 of the Treasury Regulations, but with the following adjustments:

(a) any tax-exempt income, as described in Section 705(a)(1)(B) of the Code, realized by the Company and not otherwise taken into account in this subsection shall be added to such taxable income or taxable loss;

 

Appendix I-10


(b) any expenditures of the Company described in Section 705(a)(2)(B) of the Code for such Fiscal Year or treated as being so described in Section 1.704-1(b)(2)(iv)(i) of the Treasury Regulations and not otherwise taken into account in this subsection shall be subtracted from such taxable income or taxable loss;

(c) in the event the Gross Asset Value of any Asset is adjusted pursuant to clauses (b) or (c) of the definition of “Gross Asset Value,” the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Net Profit or Net Loss;

(d) any item of income, gain, loss or deduction that is required to be specially allocated to a Member under this Agreement, including Section 4.2, 4.3 or 4.4, shall not be taken into account in computing such taxable income or taxable loss;

(e) the amount of any gain or loss required to be recognized by the Company during such Fiscal Year by reason of a sale or other disposition of any Asset, shall be computed as if the Company’s adjusted basis in such Asset for income tax purposes were equal to the Gross Asset Value of the Asset disposed of, notwithstanding that the adjusted tax basis of such Asset differs from its Gross Asset Value;

(f) in lieu of depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for the Fiscal Year or other applicable period; and

(g) to the extent an adjustment to the adjusted tax basis of any Asset pursuant to Section 734(b) or Section 743(b) of the Code is required pursuant to Section 1.704-1(b)(2)(iv)(m) of the Treasury Regulations in determining Capital Accounts, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the Asset and shall be taken into account for purposes of computing such taxable income or taxable loss.

If the Company’s taxable income or taxable loss for such Fiscal Year, as adjusted in the manner provided above in clauses (a) through (g) above, is (i) a positive amount, such amount shall be the Net Profits for such Fiscal Year or (ii) a negative amount, such amount shall be the Net Losses for such Fiscal Year.

New Business ” means any Midstream Activity that is not then included in any Annual Work Program and Budget, other than any Acquired Business, any Member Requested Services, any buying and selling of gas and condensate or any activity contemplated in any Article 13 Contract.

 

Appendix I-11


New Business Annual Work Program and Budget ” has the meaning set forth in Section 13.3(d).

Non-Acquiring Member ” has the meaning set forth in Section 13.1(a).

Non-Proposing Member ” has the meaning set forth in Section 13.3(a).

Offer Notice ” has the meaning set forth in Section 13.1(a).

Offered Interest ” has the meaning set forth in Section 13.1(a).

Operating Expenses ” means costs and expenses reasonably necessary to continue operating and maintaining the Assets in a manner consistent with past practices, industry standards, the standards set forth in Section 5.11 and applicable Law.

Operator ” means EXCO Resources (PA), LLC, a limited liability company organized under the Laws of Delaware.

Option Period ” has the meaning set forth in Section 13.1(a).

Original Agreement ” has the meaning set forth in the Recitals.

Other Material Company Group Contract ” means (a) any Company Group Commercial Contract not authorized Section 5.1(c)(ii)); and (b) any material Company Group Contract that is not a Company Group Commercial Contract, Company Group O&M Contract, an Affiliate Contract or an Article 13 Contract.

Other Members ” has the meaning set forth in Section 12.2(a).

Participating Member ” has the meaning set forth in Section 13.3(d).

Parties ” means, collectively, all of the Members and the Company, and “ Party ” means any of them.

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

President and General Manager ” means the manager whose rights, obligations and duties are described in Section 5.9(b)(i).

Proposing Member ” has the meaning set forth in Section 13.3(a).

Quarterly Financial Statements ” has the meaning set forth in Section 8.4(b).

Quarterly Forecasts ” has the meaning set forth in Section 8.4(e).

 

Appendix I-12


Reduced Member Interest ” has the meaning set forth in Section 3.7(b).

Regulatory Allocations ” has the meaning set forth in Section 4.3.

relevant Calendar Year ” has the meaning set forth in Section 6.2(d).

Requesting Members ” has the meaning set forth in Section 13.2(a).

Required Asset Upgrade ” means any Asset Upgrade that is necessary: (i) in order for the conduct of Business to comply with applicable Laws; (ii) to ensure that the Company Group Members will be able to comply with the standards identified in Section 5.11, including the HSSE Principles, the HSSE Plan or the HSSE Management System; or (iii) in order for the Company Group Members to fulfill their required obligations under any material Company Group Commercial Contract.

Secondment Agreement ” means each Secondment Agreement entered into by the Members and the Company as of the Closing Date in the form of Exhibit “C” attached hereto.

Securities Act ” means the Securities Act of 1933 and the rules and regulations promulgated thereunder.

Selling Party ” has the meaning set forth in Section 13.1(a).

Services Agreements ” means the agreements entered into by the Company on the Closing Date pursuant to Section 5.10, and the agreements entered into by the Company pursuant to Section 10.2(b) and “ Services Agreement ” means any of them.

Shallow Rights Gathering Assets ” means any gathering or pipeline system or related asset primarily used to gather or transport gas produced in: (a) New York, Pennsylvania or West Virginia from subsurface depths that are above the Deep Rights; or (b) Kentucky, Ohio, Tennessee, or Virginia.

Standards of Conduct ” has the meaning set forth in Section 1.10(a)(ix)

Subsidiary ” means any Person that is wholly-owned, directly or indirectly, by the Company.

Tax Distribution ” has the meaning set forth in Section 4.6(d)(i).

Tax Distribution Date ” has the meaning set forth in Section 4.6(d)(i).

Tax Estimate Report ” has the meaning set forth in Section 8.4(f).

Tax Member ” has the meaning set forth in Section 9.2.

TGGT ” means TGGT Holdings, LLC, a limited liability company organized and existing under the Laws of Delaware.

 

Appendix I-13


Third Party ” means any Person that is not a Member or an Affiliate of a Member.

Total Amount in Default ” means, as of any time, and with respect to any Defaulting Member, the following amounts: (a) the amounts that the Defaulting Member has failed to pay under the terms of this Agreement; and (b) any interest at the Default Interest Rate accrued on the amount under (a) from the date this amount is due by the Defaulting Member until paid in full by the Defaulting Member.

Total Votes ” has the meaning set forth in Section 5.3(a).

Transfer ” means any sale, assignment, or other disposition by a Member of all or any part of its Member Interest excluding (a) any disposition resulting from a direct or indirect Change in Control of a Member, or a change in Control created by a change in Control of the ultimate parent company of such Member, (b) any disposition resulting from a Credit Facility Foreclosure, and (c) any Encumbrance on any Member Interest.

Transfer Agreement ” means that certain Membership Interest Transfer Agreement by and between EXCO Member and BG Member, dated as of May 9, 2010.

Treasury Regulations ” means the regulations promulgated by the United States Department of the Treasury pursuant to and in respect of provisions of the Internal Revenue Code of 1986, as amended. All references herein to sections of the Treasury Regulations shall include any corresponding provision or provisions of succeeding, similar, substitute, proposed or final Treasury Regulations.

Vice President of Finance and Business Services ” means the vice president whose rights, obligations and duties are described in Section 5.9(b)(vi).

Vice President of Asset Integrity ” means the manager whose rights, obligations and duties are described in Section 5.9(b)(vii).

Vice President of Commercial Operations and Business Development ” means the vice president whose rights, obligations and duties are described in Section 5.9(b)(ii).

Vice President of Engineering and Construction ” means the vice president whose rights, obligations and duties are described in Section 5.9(b)(iii).

Vice President of HSSE ” means the vice president whose rights, obligations and duties are described in Section 5.9(b)(v).

Vice President of Operations and Maintenance ” means the vice president whose rights, obligations and duties are described in Section 5.9(b)(iv).

Wholly-Owned Affiliate ” means, with respect to any Party, an Affiliate of such Party that is wholly owned, directly or indirectly by the ultimate parent of such Party.

 

Appendix I-14

Exhibit 10.4

EXCO H OLDING (PA), I NC .

12377 Merit Drive, Suite 1700

Dallas, Texas 75251

June 1, 2010

BG US Production Company, LLC

5444 Westheimer. Suite 1200

Houston, Texas 77056

Attention: Jon Harris Asset General Manager

RE: First Amendment to Purchase and Sale Agreement

Dear Sirs:

Reference is made to that certain Membership Interest Transfer Agreement by and between EXCO Holding (PA), Inc. (“ EXCO ”), and BG US Production Company, LLC (“ BG ”), dated as of May 9, 2010 (the “ MITA ”). In consideration of the mutual promises contained herein and in the MITA and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer hereby agree to amend the MITA as follows:

 

  1. In Article III of the MITA, Section 3.10 shall be deleted in its entirety.

 

  2. In Appendix 1 of the MITA, the definition of “Operating Assets” shall be revised to read as follows:

Operating Assets ” shall mean all of EXCO PA’s and EXCO WV’s (and, immediately prior to Closing, Operator’s) right, title and interest in and to (a) all surface fee interests, surface leases, easements, rights-of-way, permits, licenses, servitudes and other surface rights held by any such Person (or, immediately prior to Closing, Operator) in its capacity as operator of, instead of owner of an interest in, any Non-Operating Asset, (b) all water withdrawal and disposal and other permits, licenses, orders, approvals, variances, waivers, franchises, rights and other authorizations issued by any Governmental Authority held by any such Person (or, immediately prior to Closing, Operator) in its capacity as operator of, instead of owner of an interest in, any Non-Operating Asset, (c) the Warrendale, Pennsylvania regional office and all field offices, warehouses and yards (including any furniture, office equipment and other owned or leased real or immovable property relating thereto) and personal computers and associated peripherals and all radio and telephone equipment and licenses relating thereto, (d) all materials, equipment and inventory held by such Person (or, immediately prior to Closing, Operator) in its capacity as operator of, instead of owner in an interest in, any Non-Operating Asset, (e) all trucks, cars, drilling/workover rigs located with the Appalachian Area and utilized by EXCO or its Affiliates in connection with the ownership or operation of the Non-Operating Assets, (f) any Applicable Contract held by any such Person (or, immediately prior to Closing, Operator) in its capacity as operator of, instead of owner of an interest in, any Non-Operating Asset, (g) all amounts attributable to royalty, overriding royalty and other burdens on production of Hydrocarbons from the Non-Operating Assets held in suspense


by any such Person (or, immediately prior to Closing, Operator) as of Closing, or any interest accrued in escrow accounts for such suspended funds, (h) all Midstream Contracts, and (i) copies of any files, records, maps, information and data, whether written or electronically stored, held by any such Person (or, immediately prior to Closing, Operator), in its capacity as operator of, instead of an owner of, any Non-Operating Asset.

 

  3. In Appendix I, the definition of “EXCO Indemnity Cut-Off Date” is added to such Appendix in the appropriate alphabetical order to read as follows:

EXCO Indemnity Cut-Off Date ” shall mean, with respect to each indemnity by EXCO contained in Section 13.1, the date on which such indemnity terminates pursuant to Section 13.7(b) .

 

  4. The Parties acknowledge and agree that, notwithstanding anything in the MITA to the contrary, the agreements with Seismic Exchange, Inc. dated August 2, 2005 and July 21, 2003, respectively, and listed in Schedule 4.4, Part 2 of the MITA shall be Excluded Assets under the MITA. The Parties further acknowledge and agree that (i) no consent is required with respect to the agreement with Seismic Exchange, Inc. (“ SEI ”) dated April 26, 2000 listed in Schedule 4.4, Part 2 of the MITA, and (ii) the agreement with SEI dated May 5, 2008 is hereby deleted from Schedule 4.4, Part 2 of the MITA.

Except as modified by this letter, the MITA remains in full force and effect.

Capitalized terms used in this letter but not otherwise defined in this letter shall have the meaning given to such terms in the MITA. The terms of Sections 15.15 and 15.16 of the MITA are incorporated by reference as if set out in full herein. This letter may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all of such counterparts shall constitute for all purposes one agreement. Any signature hereto delivered by a Party by facsimile transmission shall be deemed an original signature hereto.

[ Signature Page Follows ]

 

2


If this letter correctly sets forth our understanding, please execute and return one copy to the undersigned at the address provided in the MITA. This letter was executed as of the date first set forth above but shall be effective as of May 9, 2010.

 

Very truly yours,

EXCO HOLDING (PA), INC.

By:

 

/s/ WILLIAM L. BOEING

 

William L. Boeing, Vice President and

Secretary

Agreed and accepted on June 1, 2010, effective as of May 9, 2010

 

BG US PRODUCTION COMPANY, LLC
By:  

/s/ JON HARRIS

  Jon Harris, Vice President

cc:

BG North America, LLC

5444 Westheimer, Suite 1775

Houston, Texas 77056

Attention: Chris Migura

Morgan, Lewis & Bockius LLP

1000 Louisiana, Suite 4200

Houston, Texas 77002

Attention: David F. Asmus

EXCO Resources, Inc.

12377 Merit Drive, Suite 1700

Dallas, Texas 75251

Attention: William L. Boeing Vice President, General Counsel

 And Secretary

Vinson & Elkins L.L.P.

2500 First City Tower

1001 Fannin Street

Houston, Texas 77002-6760

Attention: Stephen C. Szalkowski

 

Exhibit 10.5

NINTH SUPPLEMENTAL INDENTURE

THIS NINTH SUPPLEMENTAL INDENTURE, dated as of April 30, 2010 (this “ Ninth Supplemental Indenture ”), is by and among EXCO Resources, Inc., a Texas corporation (the “ Issuer ”), EXCO Partners GP, LLC, a Delaware limited liability company, EXCO GP Partners Old, LP, a Delaware limited partnership, EXCO Partners OLP GP, LLC, a Delaware limited liability company, EXCO Operating Company, LP, a Delaware limited partnership, and Vernon Gathering, LLC, a Delaware limited liability company (collectively, the “ Guarantors” ), and Wilmington Trust Company, as trustee (the “ Trustee ”).

W I T N E S S E T H

WHEREAS, the Issuer, the Subsidiary Guarantors and the Trustee are parties to an Indenture dated as of January 20, 2004, as supplemented by the First Supplemental Indenture dated as of January 27, 2004, the Second Supplemental Indenture dated as of December 21, 2004, the Third Supplemental Indenture dated as of February 14, 2006, the Fourth Supplemental Indenture dated as of May 4, 2006, the Fifth Supplemental Indenture dated as of May 3, 2007, the Sixth Supplemental Indenture dated as of February 12, 2008, the Seventh Supplemental Indenture dated as of June 30, 2008 and the Eighth Supplemental Indenture dated as of December 31, 2008 (collectively, the “ Indenture ”), providing for the issuance of the Issuer’s 7  1 / 4 % Senior Notes Due 2011 (the “ Securities ”);

WHEREAS, the Issuer has designated each of the Guarantors as a Restricted Subsidiary under the Indenture;

WHEREAS, the Issuer is required to cause each of the Guarantors to execute and deliver to the Trustee a supplemental indenture pursuant to which such Guarantor shall unconditionally and irrevocably guarantee the Issuer’s obligations with respect to the Securities on the terms set forth in the Indenture; and

WHEREAS, pursuant to Section 9.01 and 9.06 of the Indenture, the Issuer, the Guarantors and the Trustee are authorized to execute and deliver this Ninth Supplemental Indenture.

NOW, THEREFORE, for and in consideration of the foregoing premises, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows:

1. Capitalized Terms . Initially capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

2. Agreement to Become Guarantor. Each of the Guarantors hereby unconditionally and irrevocably guarantees the Issuer’s obligations under the Securities and the Indenture on the terms and subject to the conditions set forth in Article 10 of the Indenture and agrees to be bound by all other provisions of the Indenture and the Securities applicable to a “Subsidiary Guarantor” therein.


3. Ratification of Indenture; Supplemental Indenture Part of Indenture . Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Ninth Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Securities heretofore or hereafter authenticated and delivered shall be bound hereby.

4. Notices . For purposes of Section 14.02 of the Indenture, the address for notices to the Guarantors shall be:

EXCO Partners GP, LLC

EXCO GP Partners Old, LP

EXCO Partners OLP GP, LLC

EXCO Operating Company, LP

Vernon Gathering, LLC

c/o EXCO Resources, Inc.

12377 Merit Drive, Suite 1700

Dallas, TX 75251

5. Governing Law . This Ninth Supplemental Indenture shall be governed by, and construed in accordance with, the laws of the State of New York.

6. Counterparts . The parties may sign any number of copies of this Ninth Supplemental Indenture. Each signed copy shall be an original, but all of them together shall represent the same agreement.

7. Effect of Headings. The section headings herein are for convenience only and shall not affect the construction hereof.

8. The Trustee . The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Ninth Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Issuer and the Guarantors.

 

- 2 -


IN WITNESS WHEREOF, the parties hereto have caused this Ninth Supplemental Indenture to be duly executed, all as of the date first above written.

 

  EXCO RESOURCES, INC.
           By:  

/s/ STEPHEN F. SMITH

  Name:   Stephen F. Smith
  Title:   Vice Chairman, President and Chief Financial Officer
  EXCO PARTNERS GP, LLC, as Guarantor
  By:  

/s/ WILLIAM L. BOEING

  Name:   William L. Boeing
  Title:   Vice President and General Counsel
  EXCO GP PARTNERS OLD, LP, as Guarantor
  By:   EXCO PARTNERS GP, LLC, its general partner
  By:  

/s/ WILLIAM L. BOEING

  Name:   William L. Boeing
  Title:   Vice President and General Counsel
  EXCO PARTNERS OLP GP, LLC, as Guarantor
  By:  

/s/ WILLIAM L. BOEING

  Name:   William L. Boeing
  Title:   Vice President and General Counsel
  EXCO OPERATING COMPANY, LP, as Guarantor
          By:   EXCO PARTNERS OLP GP, LLC, its general partner
  By:  

/s/ WILLIAM L. BOEING

  Name:   William L. Boeing
  Title:   Vice President and General Counsel
  VERNON GATHERING, LLC, as Guarantor
  By:  

/s/ WILLIAM L. BOEING

  Name:   William L. Boeing
  Title:   Vice President and General Counsel

 


          WILMINGTON TRUST COMPANY, as  Trustee
           By:  

/s/ W. THOMAS MORRIS, II

  Name:   W. Thomas Morris, II
  Title:   Vice President

 

Exhibit 10.6

TENTH SUPPLEMENTAL INDENTURE

THIS TENTH SUPPLEMENTAL INDENTURE, dated as of May 7, 2010 (this “ Tenth Supplemental Indenture ”), is by and among EXCO Resources, Inc., a Texas corporation (the “ Issuer ”), EXCO Holding (PA), Inc., a Delaware corporation (the “ Guarantor” ), and Wilmington Trust Company, as trustee (the “ Trustee ”).

W I T N E S S E T H

WHEREAS, the Issuer, the Subsidiary Guarantors (as defined therein) and the Trustee are parties to an Indenture dated as of January 20, 2004, as supplemented by the First Supplemental Indenture dated as of January 27, 2004, the Second Supplemental Indenture dated as of December 21, 2004, the Third Supplemental Indenture dated as of February 14, 2006, the Fourth Supplemental Indenture dated as of May 4, 2006, the Fifth Supplemental Indenture dated as of May 3, 2007, the Sixth Supplemental Indenture dated as of February 12, 2008, the Seventh Supplemental Indenture dated as of June 30, 2008, the Eighth Supplemental Indenture dated as of December 31, 2008, and the Ninth Supplemental Indenture dated as of April 30, 2010 (collectively, the “ Indenture ”), providing for the issuance of the Issuer’s 7  1 / 4 % Senior Notes Due 2011 (the “ Securities ”);

WHEREAS, the Issuer formed the Guarantor and owns directly or indirectly all of the equity interests in the Guarantor;

WHEREAS, the Issuer is required to cause the Guarantor to execute and deliver to the Trustee a supplemental indenture pursuant to which such Guarantor shall unconditionally and irrevocably guarantee the Issuer’s obligations with respect to the Securities on the terms set forth in the Indenture; and

WHEREAS, pursuant to Section 9.01 of the Indenture, the Issuer and the Trustee are authorized to execute and deliver this Tenth Supplemental Indenture.

NOW, THEREFORE, for and in consideration of the foregoing premises, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows:

1. Capitalized Terms . Initially capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

2. Agreement to Become Guarantor. The Guarantor hereby unconditionally and irrevocably guarantees the Issuer’s obligations under the Securities and the Indenture on the terms and subject to the conditions set forth in Article 10 of the Indenture and agrees to be bound by all other provisions of the Indenture and the Securities applicable to a “Subsidiary Guarantor” therein.

3. Ratification of Indenture; Supplemental Indenture Part of Indenture . Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Tenth Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Securities heretofore or hereafter authenticated and delivered shall be bound hereby.


4. Notices . For purposes of Section 14.02 of the Indenture, the address for notices to the Guarantor shall be:

EXCO Holding (PA), Inc.

c/o EXCO Resources, Inc.

12377 Merit Drive, Suite 1700

Dallas, TX 75251

5. Governing Law . This Tenth Supplemental Indenture shall be governed by, and construed in accordance with, the laws of the State of New York.

6. Counterparts . The parties may sign any number of copies of this Tenth Supplemental Indenture. Each signed copy shall be an original, but all of them together shall represent the same agreement.

7. Effect of Headings. The section headings herein are for convenience only and shall not affect the construction hereof.

8. The Trustee . The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Tenth Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Issuer and the Guarantor.

 

Page 2


IN WITNESS WHEREOF, the parties hereto have caused this Tenth Supplemental Indenture to be duly executed, all as of the date first above written.

 

EXCO RESOURCES, INC.
By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and Secretary
EXCO HOLDING (PA), INC.,
as Guarantor
By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and Secretary
WILMINGTON TRUST COMPANY,
as Trustee
By:  

/s/ W. THOMAS MORRIS, II

Name:   W. Thomas Morris, II
Title:   Vice President

Exhibit 10.7

ELEVENTH SUPPLEMENTAL INDENTURE

THIS ELEVENTH SUPPLEMENTAL INDENTURE, dated as of May 28, 2010 (this “ Eleventh Supplemental Indenture ”), is by and among EXCO Resources, Inc., a Texas corporation (the “ Issuer ”), EXCO Resources (PA), LLC, a Delaware limited liability company (f/k/a EXCO Resources (PA), LLC, a Texas limited liability company) (“ EXCO PA ”), EXCO Production Company (WV), LLC, a Delaware limited liability company (f/k/a EXCO Resources (WV), LLC, a Texas limited liability company and f/k/a EXCO Production Company (WV), LLC, a Texas limited liability company) (“ EXCO WV ” and together with EXCO PA, the “ Surviving Guarantors ”), BG Production Company (PA), LLC, a Delaware limited liability company (f/k/a BG Natural Gas Production Company (PA), LLC, a Texas limited liability company), BG Production Company (WV), LLC, a Delaware limited liability company (f/k/a BG Natural Gas Production Company (WV), LLC, a Texas limited liability company), EXCO Production Company (PA), LLC, a Delaware limited liability company (f/k/a EXCO Production Company (PA), LLC, a Texas limited liability company), Appalachia Midstream, LLC, a Delaware limited liability company (f/k/a Appalachia Midstream, LLC, a Texas limited liability company), and EXCO Resources (XA), LLC, a Delaware limited liability company (f/k/a EXCO Resources (XA), LLC, a Texas limited liability company) (each a “ New Guarantor ”; each of the New Guarantors, EXCO PA and EXCO WV are collectively referred to herein as “ Guarantors ”), and Wilmington Trust Company, as trustee (the “ Trustee ”).

W I T N E S S E T H

WHEREAS, the Issuer, the Subsidiary Guarantors (as defined therein) and the Trustee are parties to an Indenture dated as of January 20, 2004, as supplemented by the First Supplemental Indenture dated as of January 27, 2004, the Second Supplemental Indenture dated as of December 21, 2004, the Third Supplemental Indenture dated as of February 14, 2006, the Fourth Supplemental Indenture dated as of May 4, 2006, the Fifth Supplemental Indenture dated as of May 3, 2007, the Sixth Supplemental Indenture dated as of February 12, 2008, the Seventh Supplemental Indenture dated as of June 30, 2008, the Eighth Supplemental Indenture dated as of December 31, 2008, the Ninth Supplemental Indenture dated as of April 30, 2010, and the Tenth Supplemental Indenture dated as of May 7, 2010 (collectively, the “ Indenture ”), providing for the issuance of the Issuer’s 7  1 / 4 % Senior Notes Due 2011 (the “ Securities ”);

WHEREAS, as of May 28, 2010, EXCO PA, a Restricted Subsidiary and a Subsidiary Guarantor under the Indenture, has merged with EXCO WV, a Restricted Subsidiary and a Subsidiary Guarantor under the Indenture (the “ Merger ”), with each of EXCO PA and EXCO WV being surviving entities, and in addition, with each of the New Guarantors being newly formed surviving entities in the Merger;

WHEREAS, pursuant to Section 5.01(b) of the Indenture, the Guarantors are required to execute and deliver to the Trustee a supplemental indenture pursuant to which EXCO WV, EXCO PA and each New Guarantor shall unconditionally and irrevocably guarantee the Issuer’s obligations with respect to the Securities on the terms set forth in the Indenture; and

WHEREAS, pursuant to Section 9.01 and 9.06 of the Indenture, the Issuer, the Guarantors and the Trustee are authorized to execute and deliver this Eleventh Supplemental Indenture.


NOW, THEREFORE, for and in consideration of the foregoing premises, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows:

1. Capitalized Terms . Initially capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

2. Agreement to Assume Obligations of Subsidiary Guarantor. Each Guarantor hereby unconditionally and irrevocably guarantees the Issuer’s obligations under the Securities and the Indenture on the terms and subject to the conditions set forth in Article 10 of the Indenture and agrees to be bound by all other provisions of the Indenture and the Securities applicable to a “Subsidiary Guarantor” therein.

3. Ratification of Indenture; Supplemental Indenture Part of Indenture . Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Eleventh Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Securities heretofore or hereafter authenticated and delivered shall be bound hereby.

4. Notices . For purposes of Section 14.02 of the Indenture, the address for notices to each Guarantor shall be as follows:

EXCO Resources (PA), LLC

EXCO Production Company (WV), LLC

BG Production Company (PA), LLC

BG Production Company (WV), LLC

EXCO Production Company (PA), LLC

Appalachia Midstream, LLC

EXCO Resources (XA), LLC

c/o EXCO Resources, Inc.

12377 Merit Drive, Suite 1700

Dallas, TX 75251

5. Governing Law . This Eleventh Supplemental Indenture shall be governed by, and construed in accordance with, the laws of the State of New York.

6. Counterparts . The parties may sign any number of copies of this Eleventh Supplemental Indenture. Each signed copy shall be an original, but all of them together shall represent the same agreement.

7. Effect of Headings. The section headings herein are for convenience only and shall not affect the construction hereof.

8. The Trustee . The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Eleventh Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Issuer and the Guarantors.

 

Page 2


IN WITNESS WHEREOF, the parties hereto have caused this Eleventh Supplemental Indenture to be duly executed, all as of the date first above written.

 

EXCO RESOURCES, INC.
By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and General Counsel

EXCO RESOURCES (PA), LLC,

as a Subsidiary Guarantor

By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and General Counsel

EXCO PRODUCTION COMPANY (WV), LLC,

as a Subsidiary Guarantor

By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and General Counsel

BG PRODUCTION COMPANY (PA), LLC,

as a Subsidiary Guarantor

By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and General Counsel

BG PRODUCTION COMPANY (WV), LLC,

as a Subsidiary Guarantor

By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and General Counsel

EXCO PRODUCTION COMPANY (PA), LLC,

as a Subsidiary Guarantor

By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and General Counsel


APPALACHIA MIDSTREAM, LLC,

as a Subsidiary Guarantor

By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and General Counsel

EXCO RESOURCES (XA), LLC,

as a Subsidiary Guarantor

By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and General Counsel

WILMINGTON TRUST COMPANY,

as Trustee

By:  

/s/ W. THOMAS MORRIS, II

Name:   W. Thomas Morris, II
Title:   Vice President

Exhibit 10.8

EXECUTION VERSION

MEMBERSHIP INTEREST TRANSFER AGREEMENT

BY AND BETWEEN

EXCO HOLDING (PA), INC.

and

BG US PRODUCTION COMPANY, LLC

EXECUTED ON MAY 9, 2010


TABLE OF CONTENTS

 

              Page
ARTICLE I DEFINITIONS AND INTERPRETATION    2
  1.1    Defined Terms    2
  1.2    References and Rules of Construction    2
ARTICLE II TRANSFER AND ACQUISITION    2
  2.1    Transfer and Acquisition    2
  2.2    Excluded Assets    2
  2.3    Guarantees    3
ARTICLE III CONSIDERATION    3
  3.1    Consideration    3
  3.2    Deposit    3
  3.3    Adjustments to Closing Cash Consideration    4
  3.4    Adjustment Methodology    6
  3.5    Preliminary Settlement Statement    6
  3.6    Final Settlement Statement    6
  3.7    Disputes    7
  3.8    Adjustment for Final Settlement Statement    8
  3.9    Allocated Values    8
  3.10    Use of Proceeds    8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF EXCO    8
  4.1    Organization, Existence.    8
  4.2    Authorization    9
  4.3    No Conflicts    9
  4.4    Consents    10
  4.5    Bankruptcy    10
  4.6    Foreign Person    10
  4.7    Claims and Litigation    10
  4.8    Material Contracts    10
  4.9    No Violation of Laws    13
  4.10    Preferential Rights    13
  4.11    Royalties, Etc    13

 

i


 

4.12

   Payout Status    13
 

4.13

   Imbalances    13
 

4.14

   Current Commitments    13
 

4.15

   Environmental    13
 

4.16

   Taxes    14
 

4.17

   Brokers Fees    15
 

4.18

   Drilling Obligations    15
 

4.19

   Advance Payments    15
 

4.20

   Plugging and Abandonment    15
 

4.21

   Partnerships    16
 

4.22

   Permits    16
 

4.23

   Subject Interests Complete    16
 

4.24

   No Material Adverse Change    16
 

4.25

   Nonconsent    16
 

4.26

   Capitalization    17
 

4.27

   No Subsidiaries    17
 

4.28

   Financial Statements    17
 

4.29

   Employees    18
 

4.30

   Loans and Guarantees    20
 

4.31

   Bank Accounts and Powers of Attorney    20
 

4.32

   Unrelated Activities    20
 

4.33

   Certain Regulation    20
 

4.34

   Payments under Rights of Way    21
 

4.35

   Abandonment    21
 

4.36

   Insurance    21
 

4.37

   Bonds and Credit Support    21
 

4.38

   Suspense    22
ARTICLE V BG’S REPRESENTATIONS AND WARRANTIES    22
 

5.1

   Organization; Existence    22
 

5.2

   Authorization    22
 

5.3

   No Conflicts    22
 

5.4

   Consents    22
 

5.5

   Bankruptcy    23

 

ii


   5.6    Claims and Litigation    23
   5.7    Financing    23
   5.8    Independent Evaluation    23
   5.9    Broker’s Fees    23
   5.10    Accredited Investor    23
   5.11    Oil & Gas Interests    23
ARTICLE VI CERTAIN AGREEMENTS    24
   6.1    Conduct of Business    24
   6.2    Conduct of the EXCO Subs    26
   6.3    Governmental Bonds    27
   6.4    Notifications    27
   6.5    HSR Act    27
   6.6    Amendment to Schedules    28
   6.7    Additional Interests    28
   6.8    Negotiation of Ancillary Agreements and Development Plans and Budgets    29
   6.9    Reorganization    29
   6.10    Intercompany Indebtedness    30
   6.11    Interim Operator Officers    30
   6.12    Bank Accounts    30
   6.13    Intentionally Omitted    30
   6.14    Notice of Material Events    31
   6.15    Certain Records    31
   6.16    Material and Equipment Inventory    31
ARTICLE VII BG’S CONDITIONS TO CLOSING    31
   7.1    Representations    31
   7.2    Performance    31
   7.3    No Legal Proceedings    31
   7.4    Environmental Defects    31
   7.5    HSR Act    32
   7.6    Consent and Waivers    32
   7.7    Closing Deliverables    32
   7.8    No Material Event    32
   7.9    No Material Adverse Effect    32

 

iii


  7.10    Ancillary Agreements; Calendar Year 2010 Annual Work Program and Budget    32
  7.11    Encumbrances    32
ARTICLE VIII EXCO’S CONDITIONS TO CLOSING    32
  8.1    Representations    32
  8.2    Performance    33
  8.3    No Legal Proceedings    33
  8.4    Environmental Defects    33
  8.5    HSR Act    33
  8.6    Consent and Waivers    33
  8.7    Closing Deliverables    33
  8.8    No Material Event    33
  8.9    Ancillary Agreements; Calendar Year 2010 Annual Work Program and Budget    33
ARTICLE IX CLOSING    34
  9.1    Date of Closing    34
  9.2    Place of Closing    34
  9.3    Closing Obligations    34
  9.4    Records    36
ARTICLE X ACCESS / DISCLAIMERS    36
  10.1    Access    36
  10.2    Confidentiality    37
  10.3    Disclaimers    38
ARTICLE XI TITLE MATTERS; CASUALTIES; TRANSFER RESTRICTIONS    39
  11.1    General Disclaimer of Title Warranties and Representations    39
  11.2    Notice of Title Defects; Defect Adjustments    39
  11.3    Casualty or Condemnation Loss    45
  11.4    Preferential Purchase Rights and Consents to Assign    46
ARTICLE XII ENVIRONMENTAL MATTERS    48
  12.1    Environmental Defects    48
  12.2    NORM, Wastes and Other Substances    52
ARTICLE XIII ASSUMPTION; SURVIVAL; INDEMNIFICATION    53
  13.1    Indemnities of EXCO    53

 

iv


  13.2    Indemnities of BG    54
  13.3    Limitation on Liability    54
  13.4    Express Negligence    55
  13.5    Exclusive Remedy    55
  13.6    Indemnification Procedures    56
  13.7    Survival    58
  13.8    Non-Compensatory Damages    58
  13.9    Cooperation by BG Concerning Retained Litigation    58
  13.10    Exclusion of Certain Matters    59
ARTICLE XIV TERMINATION, DEFAULT AND REMEDIES    59
  14.1    Right of Termination    59
  14.2    Failure to Close and Remedies    59
  14.3    Effect of Termination    59
  14.4    Return of Documentation and Confidentiality    60
ARTICLE XV MISCELLANEOUS    60
  15.1    Exhibits, Schedules and Appendices    60
  15.2    Expenses and Taxes    60
  15.3    Tax Treatment    61
  15.4    Allocation of Consideration for Tax Purposes    62
  15.5    Assignment    62
  15.6    Preparation of Agreement    62
  15.7    Publicity    63
  15.8    Notices    63
  15.9    Further Cooperation    64
  15.10    Filings, Notices and Certain Governmental Approvals    65
  15.11    Entire Agreement; Conflicts    65
  15.12    Parties in Interest    65
  15.13    Amendment    66
  15.14    Waiver; Rights Cumulative    66
  15.15    Governing Law; Jurisdiction; Venue; Jury Waiver    66
  15.16    Arbitration    66
  15.17    Severability    68
  15.18    Counterparts    68

 

v


LIST OF APPENDIXES, EXHIBITS AND SCHEDULES

 

Appendixes

Appendix I

  —      Definitions
Exhibits     

Exhibit A

  —      Leases

Exhibit A-1

  —      Net Acre Allocation

Exhibit B

  —      Wells/Allocated Values

Exhibit C

  —      Form of Assignment of Membership Interests

Exhibit D

  —      Excluded Assets

Exhibit E

  —      Form of Joint Development Agreement

Exhibit F

  —      Form of Operator LLC Agreement

Exhibit G

  —      Form of Reorganization Plan of Merger

Exhibit H

  —      Gathering Assets

Exhibit I-1

  —      Illustrative Calculation of Effective Time Working Capital

Exhibit I-2

  —      Illustrative Calculation of Excluded Asset Working Capital

Exhibit J-1

  —      Form of BG MITA/JDA Carry Guaranty

Exhibit J-2

  —      Form of EXCO MITA Guaranty

Exhibit K-1

  —      Form of BG LLC Agreement/JDA Guaranty

Exhibit K-2

  —      Form of EXCO LLC Agreement/JDA Guaranty

 

Schedules

Schedule 3.1

     Closing Cash Consideration among Transaction Components

Schedule 3.3(a)(i)

  —      Capital Contributions; Intercompany Loans

Schedule 3.3(b)(i)

  —      Certain Distributions, Dividends and Other Payments

Schedule 4.3

  —      No-Conflicts

Schedule 4.4, Part 1

  —      Consents

Schedule 4.4, Part 2

  —      Certain Consents

Schedule 4.7, Part 1

  —      Litigation

Schedule 4.7, Part 2

  —      Certain Litigation

Schedule 4.8, Part 1

  —      Material Contracts

Schedule 4.8, Part 2

  —      Certain Applicable Contracts

Schedule 4.9

  —      Violation of Laws

Schedule 4.10, Part 1

  —      Preferential Rights

Schedule 4.10, Part 2

  —      Certain Preferential Rights

Schedule 4.12

  —      Payout Balances

Schedule 4.13

  —      Imbalances

Schedule 4.14

  —      Current Commitments

Schedule 4.15

  —      Environmental

Schedule 4.16

  —      Asset Taxes

Schedule 4.20

  —      Plugging and Abandonment Obligations

Schedule 4.21

  —      Partnerships

Schedule 4.24

  —      No Material Adverse Change

 

vi


Schedule 4.26   —      Capitalization
Schedule 4.28, Part 1   —      Unaudited Financials
Schedule 4.28, Part 2   —      Pro Forma Financials
Schedule 4.29   —      Pre-2008 Employee Benefits Issues
Schedule 4.30   —      Loans and Guarantees
Schedule 4.31   —      Bank Accounts and Powers of Attorney
Schedule 4.36   —      Insurance Policies
Schedule 4.37   —      Bonds and Credit Support
Schedule 4.38   —      Suspense
Schedule 6.1   —      Conduct of Business
Schedule 6.2   —      Conduct of the EXCO Subs
Schedule 6.7   —      Additional Interests

 

vii


MEMBERSHIP INTEREST TRANSFER AGREEMENT

THIS MEMBERSHIP INTEREST TRANSFER AGREEMENT (as may be amended, restated, supplemented or otherwise modified from time to time, this “ Agreement ”) is entered into the 9 th day of May, 2010 (the “ Execution Date ”), between EXCO HOLDING (PA), INC. , a Delaware corporation (“ EXCO ”), and BG US PRODUCTION COMPANY, LLC , a Delaware limited liability company (“ BG ”). BG and EXCO may be referred to collectively as the “ Parties ” or individually as a “ Party ”.

RECITALS

WHEREAS , EXCO’s direct and indirect subsidiaries, EXCO Resources (PA), Inc., a Delaware corporation (“ EXCO PA ”), and EXCO Resources (WV), Inc., a Delaware corporation (“ EXCO WV ”), as of the date hereof, own certain oil and gas properties in the States of Pennsylvania, Kentucky, Tennessee, Virginia and West Virginia (collectively the “ Subject Area ”); and

WHEREAS , EXCO PA and EXCO WV and certain of their successors in interest desire to enter into an arrangement for the joint exploration, development and operation of such properties located in the Subject Area and other oil and gas properties located in the Appalachian Area (as hereinafter defined) that are hereinafter acquired by the Parties or their Affiliates; and

WHEREAS , in order to structure the transaction so that EXCO Resources, Inc., a Texas corporation (“ EXCO Parent ”), can satisfy its lenders and for other business purposes, EXCO shall undertake the Reorganization (as hereinafter defined); and

WHEREAS , following the Reorganization, (a) EXCO will transfer to BG, and BG will acquire from EXCO 100% of all of the membership interests in (i) BG Production Company (PA), LLC, a Delaware limited liability company (“ Newco PA ” and such membership interests, the “ Newco PA Interests ”), and (ii) BG Production Company (WV), LLC, a Delaware limited liability company (“ Newco WV ” and such membership interests, the “ Newco WV Interests ”), which entities shall hold an undivided 49.75% of all of the Non-Operating Assets (as hereinafter defined) formerly owned by EXCO PA and EXCO WV, respectively, and (b) EXCO will sell to BG, and BG will purchase from EXCO, 50% of the membership interests in (i) EXCO Resources (PA), LLC, a Delaware limited liability company (“ Operator ”, and such 50% of such membership interests, the “ Operator Membership Interests ”), which entity shall hold an undivided 0.5% of the Non-Operating Assets and all of the Operating Assets (as hereinafter defined) formerly owned by each of EXCO PA and EXCO WV, and (ii) Appalachia Midstream, LLC, a Delaware limited liability company (“ Midstream LLC ”, and such 50% of such membership interests, the “ Midstream Membership Interests ”), which entity shall hold all of the Gathering Assets (as hereinafter defined) formerly owned by EXCO PA and EXCO WV; and

WHEREAS , (a) the transfer and acquisition of the Newco PA Interests and the Newco WV Interests (collectively, the “ Newco Membership Interests ”) and the purchase and sale of the Operator Membership Interests and the Midstream Membership Interests (all of such membership interests transferred to BG hereunder, collectively, the “ Subject Membership Interests ”), and (b) the Parties’ agreement regarding the joint exploration and development of the Assets (as hereinafter defined) will be consummated on the terms and conditions set forth in this Agreement.

 

1


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:

ARTICLE I

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 II

TRANSFER AND ACQUISITION

2.1 Transfer and Acquisition . Subject to the terms and conditions of this Agreement, EXCO agrees to transfer, and BG agrees to acquire, the Subject Membership Interests in accordance with, and subject to, the terms hereof.

2.2 Excluded Assets . In accordance with the Reorganization, (a) EXCO shall cause EXCO PA to convey the membership interests of Black Bear to EXCO and (b) the Excluded Assets (other than the assets and membership interests of Black Bear, and the Deferred Interests which shall be treated in the Reorganization in the manner described in Section 6.9(a) ) shall be placed in and allocated to EXCO XA. Each of EXCO and EXCO XA shall be entitled to retain the Excluded Assets received by it pursuant to the transactions contemplated by this Agreement.

 

2


2.3 Guarantees . Within two (2) Business Days of the execution and delivery of this Agreement, (a) BG shall cause BG Parent to execute and deliver a guaranty to EXCO in substantially the form of the guaranty attached hereto as Exhibit J-1 and (b) EXCO shall cause EXCO Parent to execute and deliver a guaranty to BG in substantially the form of the guaranty attached hereto as Exhibit J-2 .

ARTICLE III

CONSIDERATION

3.1 Consideration . The aggregate consideration for (a) the transfer by EXCO of the Newco Membership Interests and the dedication by EXCO of its interests in the Reorganized Subs to the Joint Development Agreement and the creation of the AMI Rights and the Preferential Rights as contemplated therein, (b) the sale by EXCO of the Operator Membership Interests, and (c) the sale by EXCO of the Midstream Membership Interests (collectively, the “ Transaction Components ”) shall be an aggregate amount equal to $800,000,000 to be paid in cash at Closing by BG to EXCO (the “ Closing Cash Consideration” ), 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. The portions of the Closing Cash Consideration allocable to the transaction in clause (a) above (the “ Newco Consideration ”), that allocable to the transaction referenced in clause (b) above (the “ Operator Consideration ”) and that allocable to the transaction referenced in clause (c) above (the “ Midstream Consideration ”) shall be the amounts set forth on Schedule 3.1 hereto, and each adjustment to the Closing Cash Consideration made pursuant to the provisions of this Agreement shall be apportioned as an adjustment to the Newco Consideration, the Operator Consideration and/or the Midstream Consideration based upon the Transaction Component(s) to which the adjustment relates.

3.2 Deposit.

(a) Within 2 Business Days following the execution of this Agreement (the “ Deposit Date ”), 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 $47,500,000 (such amount, together with any interest actually earned thereon, the “ Deposit ”). If Closing occurs, the Deposit shall be applied toward the Closing Cash Consideration 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, 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, 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 and seek the rights and remedies set forth in Section 14.3 .

 

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 3.2(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 .

3.3 Adjustments to Closing Cash Consideration . All adjustments to the Closing Cash Consideration shall be made (y) in accordance with the terms of this Agreement and, to the extent not inconsistent with this Agreement, in accordance with GAAP as consistently applied by EXCO in the preparation of the Illustrative Calculation of Effective Time Working Capital on Exhibit I-1 and, with respect to any items not reflected in such illustrative calculation, in the preparation of the Unaudited Financials and the Pro Forma Financials and (z) without duplication. The Closing Cash Consideration shall be adjusted as follows, and the resulting amount shall be herein called the “ Adjusted Closing Cash Consideration ”:

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

(i) 50% of the aggregate amount of: (A) the capital contributions and intercompany loans (including contributions or loans used to acquire the Additional Interests) made by EXCO or any of its Affiliates (other than any EXCO Sub) to any EXCO Sub after the Effective Time and through and including March 31, 2010 set forth on Schedule 3.3(a)(i) attached hereto; (B) any capital contributions or intercompany loans (including contributions or loans used to acquire the Additional Interests) made by EXCO or any of its Affiliates (other than any EXCO Sub) to any EXCO Sub after March 31, 2010 and prior to the Closing (EXCO’s good faith estimate of the aggregate amount of all such capital contributions and intercompany loans that will be made during such period is set forth on Schedule 3.3(a)(i) ); and (C) for each Calendar Month between the Effective Time up to Closing (including prorated amounts for any incomplete Calendar Months during such period), an amount equal to $550,000 per Calendar Month for Technical Services in lieu of all other overhead or other charges by EXCO or any of its Affiliates (other than the EXCO Subs) to any EXCO Sub;

(ii) 50% of the amount, if any, by which the Effective Time Working Capital exceeds zero;

(iii) 50% of the amount, if any, by which the Excluded Asset Working Capital which is not distributed, dividended or otherwise transferred out of the EXCO Subs exceeds zero;

(iv) subject always to Section 11.2(e)(ii) , Title Benefit Amounts (provided that no adjustment shall be made to the Closing Cash Consideration in respect of Title Benefits for purposes of determining the Adjusted Closing Cash Consideration to be paid by BG at Closing, and all such adjustments shall instead be accounted for in the Final Cash Price pursuant to Section 3.6 );

 

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(v) 50% of all revenue received as cash or cash equivalents but not distributed by the EXCO Subs between the Effective Time and the Closing relating to the Excluded Assets; and

(vi) 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 Consideration.

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

(i) except with respect to the distribution of the Excluded Assets or any income or proceeds from the transfer of Excluded Assets, 50% of the aggregate amount of all dividends, distributions and/or repayments of intercompany loans and/or share purchases, repurchases or redemptions and/or any other payments (in each case) made by any EXCO Sub to EXCO or any of its Affiliates (other than any EXCO Sub) and any other amounts payable to an EXCO Sub but received and retained by EXCO or any other Affiliate of the EXCO Subs from and after the Effective Time and prior to the Closing, excluding the adjustments described in Section 3.3(a)(i)(C) (all such dividends, distributions and/or repayments of intercompany loans and/or share purchases, repurchases or redemptions made between the Effective Time and through and including March 31, 2010 are set forth on Schedule 3.3(b)(i) attached hereto);

(ii) 50% of the amount, if any, by which zero exceeds the Effective Time Working Capital;

(iii) 50% of the amount, if any, by which zero exceeds the Excluded Asset Working Capital which is not distributed, dividended or otherwise transferred out of the EXCO Subs;

(iv) if the Parties make the election under Section 11.2(d)(i) with respect to a Title Defect, the Title Defect Amount with respect to such Title Defect, provided that no adjustment shall be made to the Closing Cash Consideration in respect of Title Defects for purposes of determining the Adjusted Closing Cash Consideration to be paid by BG at Closing, and all such adjustments shall instead be accounted for in the Final Cash Price pursuant to Section 3.6 ;

(v) if the Parties make the election under Section 12.1(c)(i)(A) or Section 12.1(c)(ii)(A) with respect to an Environmental Defect, the Remediation Amount with respect to such Environmental Defect;

(vi) an amount determined pursuant to Section 11.2(d)(ii) , Section 11.4(b) , Section 11.4(d) , or Section 12.1(c)(i)(C) for any Subject Interests excluded from the transaction contemplated hereby pursuant to such Sections;

(vii) 50% of all costs and expenses incurred by the EXCO Subs between the Effective Time and the Closing relating to the Excluded Assets or the litigation identified on Schedule 4.7, Part 1 ;

 

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(viii) the aggregate value of all Rejected Interests (provided that such amount shall be paid by EXCO in accordance with Section 6.7(b) );

(ix) all Third Party costs and expenses incurred by the EXCO Subs between the Effective Time and the Closing in connection with: (A) curing Title Defects and remediating Environmental Defects; and (B) curing title defects and environmental defects on that portion of the affected Assets that are not Subject Interests;

(x) 50% of the aggregate amount of Indebtedness of EXCO or any EXCO Affiliate to a Third Party paid by any EXCO Sub between the Effective Time up to the Closing;

(xi) 50% of the costs and expenses incurred by the EXCO Subs between the day that is nine (9) days prior to Closing and the Closing for the acquisition of additional Leases in the AMI Area; and

(xii) 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 Consideration.

3.4 Adjustment Methodology . When available, actual figures will be used for the adjustments to the Closing Cash Consideration at the Closing. To the extent actual figures are not available, estimates will be used subject to final adjustments in accordance with Section 3.6 .

3.5 Preliminary Settlement Statement . Not less than five 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 Consideration, 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(c) . Within three 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, or if BG does not deliver such a written report, BG shall be deemed to have accepted such Preliminary Settlement Statement. During such 3 Business Day period, EXCO shall provide to BG any supporting documentation or information relating to the Preliminary Settlement Statement reasonably requested by BG as soon as reasonably practicable. The Preliminary Settlement Statement, as agreed upon by the Parties, will be used to adjust the Closing Cash Consideration at Closing, without limitation to BG’s right to challenge any adjustments to the Closing Cash Consideration as provided in Sections 3.6 through 3.8 below. 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 Consideration at Closing.

3.6 Final Settlement Statement . A final settlement statement (the “ Final Settlement Statement ”) will be prepared by EXCO that takes into account all final adjustments made to the Closing Cash Consideration pursuant to Section 3.3 and shows the resulting final Closing Cash

 

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Consideration (the “ Final Cash Price ”), and delivered to BG: (a) if, at the Title Defect Claim Date, there are no disputes regarding Title Defects, Title Defect Amounts, Title Benefits or Title Benefit Amounts, and there are no Title Defects that EXCO elects to cure pursuant to Section 11.2(c) , within five days after the Title Defect Claim Date; (b) if EXCO elects to cure a Title Defect pursuant to Section 11.2(c) , and at the Title Defect Remedy Date, there are no remaining disputes regarding Title Defects, Title Defect Amounts, Title Benefits or Title Benefit Amounts, within five days after the Title Defect Remedy Date; or (c) if neither condition in items (a) and (b) above are satisfied, within five days after the day that is 35 days after the Title Defect Claim Date. The Parties shall cause the Operator to assist EXCO in connection with the preparation of the Final Settlement Statement. The Final Settlement Statement shall set forth the actual proration of the amounts required by this Agreement. EXCO shall, at BG’s request, supply 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 Price set forth in the Final Settlement Statement is mutually agreed upon by EXCO and BG, the Final Settlement Statement and the Final Cash Price shall be final and binding on the Parties.

3.7 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 Deloitte & Touche 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 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, the Parties shall request another nationally recognized accounting firm to serve as Accounting Arbitrator. Should such selected firm 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 (the “ AAA ”). 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.

 

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3.8 Adjustment for Final Settlement Statement . Any difference in the Adjusted Closing Cash Consideration as paid at Closing pursuant to the Preliminary Settlement Statement and the Final Cash Price as determined pursuant to Section 3.6 and, if applicable, Section 3.7 , shall be paid, together with interest from the Closing Date to the date of payment at a rate equal to the one month London Inter-Bank Offer Rate for U.S. dollar deposits (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), by the owing Party within 10 days of final determination hereunder to the owed Party. All amounts paid pursuant to this Section 3.8 shall be delivered in United States currency by wire transfer of immediately available funds to the account specified in writing by the relevant Party.

3.9 Allocated Values . The “ Allocated Value ” for any Subject Interest equals the portion of the unadjusted Closing Cash Consideration allocated to such Subject Interest on Exhibit B or, with respect to any Lease, the applicable Net Acre Allocation, (a) adjusted on a Property by Property basis by the adjustments provided in Sections 3.3(a)(iv), 3.3(b)(iv), 3.3(b)(v) and 3.3(b)(vi) and (b) on a pro rata basis by the adjustments provided in Section 3.3 , other than Sections 3.3(a)(iv), 3.3(b)(iv), 3.3(b)(v) and 3.3(b)(vi) , provided that, for purposes of calculating adjustments to the Closing Cash Consideration and sending notices to preferential right holders as provided herein, the “Allocated Value” shall be the unadjusted Closing Cash Consideration allocated to each Subject Interest in Exhibit B or, with respect to any Lease listed on Exhibit A , the applicable Net Acre Allocation. The “Allocated Value” for each Subject Interest shall be, to the extent appropriate, used in allocating the Closing Cash Consideration for purposes of Section 15.4 .

3.10 Use of Proceeds . EXCO agrees that until October 1, 2010, it shall not make any dividend or distribution of any of such Adjusted Closing Cash Consideration to its shareholders other than in connection with dividends or distributions made by EXCO in the ordinary course of business consistent with its past practices (excluding past practices to make dividends and distributions subsequent to and in respect of asset dispositions by EXCO and its Affiliates).

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF EXCO

EXCO represents and warrants to BG as follows:

4.1 Organization, Existence.

(a) EXCO is a corporation, duly organized and validly existing under the laws of the State of Texas. EXCO has all requisite power and authority to own and operate its property and to carry on its business as now conducted. EXCO is duly licensed or qualified to do business as a foreign corporation 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.

 

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(b) As of the date hereof, EXCO PA is a corporation, duly organized and validly existing under the laws of the State of Delaware. As of the date hereof, EXCO PA has all requisite power and authority to own and operate its property and to carry on its business as now conducted. As of the date hereof, EXCO PA is duly licensed or qualified to do business as a foreign corporation 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.

(c) As of the date hereof, EXCO WV is a corporation, duly organized and validly existing under the laws of the State of Delaware. As of the date hereof, EXCO WV has all requisite power and authority to own and operate its property and to carry on its business as now conducted. As of the date hereof, EXCO WV is duly licensed or qualified to do business as a foreign corporation 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.

(d) Following the Reorganization and immediately prior to Closing, each of the Reorganized Entities will (i) be a limited liability company, duly formed and validly existing under the laws of the State of Delaware and (ii) have requisite power and authority to own and operate its property and to carry on its business as now conducted.

4.2 Authorization . EXCO 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 EXCO 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 action on the part of EXCO. This Agreement is, and the Transaction Documents to which EXCO or any Affiliate of EXCO is a party when executed and delivered by EXCO or such Affiliate will be, the valid and binding obligation of EXCO or such Affiliate and enforceable against EXCO or such Affiliate 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 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, (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 Lease, Applicable Contract, note, bond, mortgage, indenture, license or other material agreement to which EXCO or any EXCO Sub is a party or by which EXCO, any EXCO Sub or the Subject Interests 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 EXCO Sub or any of the Subject Interests, 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.

 

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4.4 Consents . Except (a) for Customary Post-Closing Consents, (b) under Contracts that are terminable upon not greater than 60 days notice without payment of any fee, (c) requirements under the HSR Act and (d) preferential purchase rights, (i)  Schedule 4.4, Part 1 contains a list of all consents that are applicable to transfers of the Assets and (ii)  Schedule 4.4, Part 2 contains a list of all such consents applicable to the Assets that contain specific language regarding the applicability of such consent to transactions resulting in a change of Control or a merger transaction.

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 . EXCO (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.

4.7 Claims and Litigation . Except as set forth in Schedule 4.7, Part 1 and Schedule 4.7, Part 2 , there is no written claim for breach of contract, tort or violation of Law, or investigation of which EXCO or any EXCO Sub 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 or any EXCO Sub with respect to its ownership or operation of the Subject Interests or that, as of the date hereof, would have a material adverse effect upon the ability of EXCO to consummate the transactions contemplated by this Agreement.

4.8 Material Contracts .

(a) Schedule 4.8, Part 1 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 the EXCO Subs (in the aggregate) 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 the EXCO Subs (in the aggregate) 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;

 

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(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 EXCO Sub is the lessor or the lessee of real, immovable, personal or movable property which lease (A) cannot be terminated by any EXCO Sub 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 EXCO Sub conducts business, including area of mutual interest Contracts;

(vii) any Applicable Contract with any Affiliate of EXCO (other than with any EXCO Sub) which will be binding on BG, Midstream LLC, any Newco or the Operator after the Closing Date other than the Joint Development Operating Agreement, the Joint Development Agreement, the Operator LLC Agreement or the Midstream LLC Agreement;

(viii) any Applicable Contract that contains calls on, or options to purchase, quantities of Hydrocarbon production, other than pursuant to currently effective Hydrocarbon purchase and sale contracts or Lease clauses giving the lessor thereunder the right to take or purchase house gas, barn gas or similar immaterial quantities of gas;

(ix) any Applicable Contract where the primary purpose thereof was to indemnify another Person;

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

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

(xii) any Applicable Contract that constitutes a joint operating agreement;

(xiii) any Applicable Contract that is a seismic or other geophysical acquisition agreement or license;

(xiv) any Applicable Contract regarding the voting of equity interests of any EXCO Sub, distributions from any EXCO Sub or the issue, transfer, redemption or repurchase of equity interests of any EXCO Sub (other than this Agreement); and

(xv) any Applicable Contract regarding the employment of any Person by any EXCO Sub or the establishment, amendment or termination of any Employee Benefits Plan with respect to any EXCO Sub.

 

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(b) The Material Contracts are in full force and effect as to each EXCO Sub that is a party thereto and, to EXCO’s Knowledge, each counterparty thereto (excluding any Material Contract that terminates as a result of expiration of its existing term). Except as set forth on Schedule 4.8, Part 1 , there exist no material defaults under the Material Contracts by any EXCO Sub that is a party thereto 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, Part 1 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 any EXCO Sub that is a party thereto 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. No EXCO Sub 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 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 EXCO Sub conducts business, including area of mutual interest Contracts;

(ii) any Applicable Contract that contains “tag along” or similar rights allowing a Third Party to participate in future sales of any of the Subject Interests;

(iii) any Applicable Contract that contains any calls on, or options to purchase, material quantities of Hydrocarbon production, other than pursuant to currently effective Hydrocarbon purchase and sale contracts;

(iv) any Applicable Contract with any Affiliate of EXCO (other than with any EXCO Sub) which will be binding on BG, Midstream LLC, any Newco or the Operator after the Closing Date other than the Joint Development Operating Agreement, the Joint Development Agreement, the Operator LLC Agreement or the Midstream LLC Agreement;

(v) any Applicable Contract regarding the voting of equity interests of any EXCO Sub, distributions from any EXCO Sub or the issue, transfer, redemption or repurchase of equity interests of any EXCO Sub (other than this Agreement);

(vi) any Applicable Contract regarding the employment of any Person by any EXCO Sub or the establishment, amendment or termination of any Employee Benefits Plan with respect to any EXCO Sub; or

(vii) any Applicable Contract that provides that the operator under such Applicable Contract is subject to removal or replacement upon a change of Control with respect to or a merger involving such operator or any of its Affiliates.

 

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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 EXCO Sub of any applicable Laws with respect to the ownership and operation of the 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 Assets. This Section 4.9 does not include any matters with respect to Environmental Laws, such matters being addressed exclusively in Section 4.15 .

4.10 Preferential Rights . Schedule 4.10 Part 1 sets forth all preferential rights to purchase that are applicable to the Assets. Schedule 4.10 Part 2 sets forth all such preferential rights to purchase applicable to the Assets that contain specific language regarding the applicability of such preferential right to transactions resulting in a change of Control or a merger transaction.

4.11 Royalties, Etc . Except for such items that are being held in suspense as permitted pursuant to applicable Law, each EXCO Sub has paid in all material respects all royalties, overriding royalties and other burdens on production due by such Person with respect the Subject Interests.

4.12 Payout Status . To EXCO’s Knowledge, Schedule 4.12 contains a list of the status of any “payout” balance, as of the date set forth on such Schedule, for the Wells subject to a reversion or other adjustment at some level of cost recovery or payout (or passage of time or other event other than termination of a Lease by its terms).

4.13 Imbalances . Schedule 4.13 sets forth all Imbalances associated with the Assets as of the Effective Time.

4.14 Current Commitments . Schedule 4.14 sets forth, as of the date of this Agreement, all authorities for expenditures or other current commitments (“ AFE’s ”) relating to the Subject Interests to drill or rework Wells, build gathering systems or for other capital expenditures that in each case will be binding upon BG, any Newco, Midstream LLC, the Operator or the Subject Interests after Closing, for which all of the activities anticipated in such AFE’s have not been completed by the date of this Agreement, provided that the Parties acknowledge that no AFE to fund the acquisition of additional Leases shall be binding on any Newco, Midstream LLC or the Operator, and any such acquisition shall be subject to the terms and conditions of Section 6.7 , or Article 9 of the Joint Development Agreement, as applicable.

4.15 Environmental .

(a) With respect to the Subject Interests, no EXCO Sub has entered into, and no such Person 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 Interests and that require any remediation or other change in the present conditions of any of the Subject Interests.

 

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(b) Except as set forth in Schedule 4.15 , as of the date of this Agreement no EXCO Sub 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 Interests that: (i) interferes with or prevents compliance by such Person or the 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 such Person 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 each EXCO Sub’s ownership or operation of the Properties, which are in any of such Person’s possession, have been made available to BG.

(d) Except as set forth on Schedule 4.15 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 Assets and no material obligations to remediate conditions upon the Subject Interests under applicable Environmental Law (and no such obligation would arise as a result of notice or lapse of time or both).

4.16 Taxes . Except as disclosed in Schedule 4.16 :

(a) all Taxes payable by each EXCO Sub with respect to its business or Subject Interests that have become due and payable have been properly paid;

(b) all returns with respect to Taxes that are required to be filed by any EXCO Sub or by the owner of the Subject Interests have been duly and timely filed and each such return is true, correct and complete in all material respects;

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

(d) no audit, litigation or other proceeding with respect to Taxes has been commenced or is presently pending with respect to the EXCO Subs or Subject Interests;

(e) there are no agreements, waivers or other arrangements providing for an extension of time with respect to the assessment or collection of any material Tax against any EXCO Sub;

(f) there are no liens for Taxes (including any interest, fine, penalty or additions to Tax imposed by a Governmental Authority in connection with such Taxes) on the Subject Interests other than statutory liens for current Taxes not yet due; and

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

 

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(h) none of the EXCO Subs is a party to any Tax sharing agreement;

(i) there are no Taxes owing by any Person other than any of the EXCO Subs for which any of the EXCO Subs 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;

(j) in all states imposing a state entity-level income Tax in which an EXCO Sub does business, such EXCO Sub is treated for such purposes in a manner consistent with the treatment of such EXCO Sub for federal income Tax purposes;

(k) none of the EXCO Subs 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 any EXCO Sub could be held liable; and

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

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

4.18 Drilling Obligations . Except to the extent of those obligations previously fulfilled by an EXCO Sub or its predecessors, none of the Leases or any Applicable Contract contain express provisions obligating any EXCO Sub to drill any wells on the Properties (other than provisions requiring optional drilling as a condition of maintaining or earning all or a portion of a presently non-producing Lease). As of the Execution Date, the EXCO Subs are and have been in compliance with all continuous drilling obligations provided for in the Leases.

4.19 Advance Payments . No EXCO Sub is obligated by virtue of any take or pay payment, advance payment or other similar payment (other than royalties, overriding royalties and similar arrangements reflected with respect to the Net Revenue Interests for the Wells set forth in Exhibit B and gas balancing arrangements), to deliver Hydrocarbons, or proceeds from the sale thereof, attributable to the Subject Interests at some future time without receiving payment therefor at or after the time of delivery.

4.20 Plugging and Abandonment .

(a) Except as set forth on Schedule 4.20 , there are no Wells that constitute a part of the Assets (i) in respect of which any EXCO Sub has received an order from any Governmental Authority requiring that such Wells be plugged and abandoned; or (ii) that are neither in use for purposes of production or injection, nor suspended or temporarily abandoned in accordance with applicable Law, that have not been plugged and abandoned in accordance with applicable Law.

 

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(b) To EXCO’s Knowledge, all Wells have been drilled and completed within the limits permitted by all applicable Leases, the Applicable Contracts and pooling or unit orders.

(c) To EXCO’s Knowledge, no Well is subject to penalties on allowables after the Effective Time because of overproduction.

4.21 Partnerships . Except as set forth on Schedule 4.21 , none of the EXCO Subs’ interests in the Subject Interests are subject to tax partnership reporting for federal income Tax purposes. Schedule 4.21 sets forth all of such Persons’ interest in the Properties that are deemed by agreement or applicable Law to be held by a partnership for federal Tax purposes, and, to the extent any of the Properties 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 Properties being conveyed under this Agreement.

4.22 Permits . Except as affected by the Reorganization, each EXCO Sub possesses all material permits, licenses, orders, approvals, variances, waivers, franchises, rights and other authorizations required to be obtained from any Governmental Authority for conducting its business with respect to the Assets as presently conducted (the “ Permits ”) and there are no material uncured violations of the terms and provisions of such Permits. To EXCO’s Knowledge, any Third Parties which operate any of the Assets possess all material Permits required to be obtained from any Governmental Authority for conducting their business with respect to the Assets and there are no material uncured violations of the terms and provisions of such Permits. With respect to each such Permit, no EXCO Sub has received written notice from any Governmental Authority of any violations of such Permit that remains uncured.

4.23 Subject Interests Complete . The Subject Interests include a 50% undivided share in 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 Properties and the disposal of Hydrocarbons therefrom, excluding the following: (a) all Excluded Assets, and (b) general corporate assets and services not specifically acquired or held for use with the Subject Interests.

4.24 No Material Adverse Change . Except as set forth in Schedule 4.24 , since the Effective Date up to the Execution Date, there has been no:

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

(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 then been in effect.

4.25 Nonconsent . As of the Execution Date, no operations are currently being conducted on the Properties with respect to which all of the EXCO Subs’ rights relinquished in connection with such operations have not yet reverted to them.

 

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4.26 Capitalization . Except as set forth in Schedule 4.26 :

(a) EXCO has furnished to BG true and complete copies of the organizational documents and governing agreements of each EXCO Sub, each as in effect on the date hereof;

(b) except for Encumbrances granted pursuant to the EXCO Debt Instruments, (i) as of the date hereof, EXCO holds of record and beneficially all the issued and outstanding equity interests of EXCO PA, free and clear of all Encumbrances; and (ii) as of the date hereof, EXCO PA holds of record and beneficially all the issued and outstanding equity interests of EXCO WV, free and clear of all Encumbrances;

(c) following the Reorganization and immediately prior to Closing, EXCO will hold of record, beneficially all of the Subject Membership Interests and all of the membership interests of the Reorganized Subs, free and clear of all Encumbrances except Encumbrances granted pursuant to the EXCO Debt Instruments that will remain in place following Closing on such membership interests other than the Subject Membership Interests;

(d) the issued and outstanding equity interests of each EXCO Sub are duly authorized, validly issued and outstanding, fully paid and not issued in violation of any preemptive rights, and following the Reorganization, the Subject Membership Interests will be duly authorized and validly issued and outstanding and will not have been issued in violation of any preemptive rights;

(e) other than pursuant to this Agreement, none the EXCO Subs 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; and

(f) other than pursuant to this Agreement, there are no shareholder agreements, voting agreements, management agreements, proxies or other similar agreements or understandings, whether written or oral, with respect to any equity interest in any EXCO Sub.

4.27 No Subsidiaries . Except for EXCO WV and Black Bear, prior to the Reorganization, EXCO PA has no subsidiaries or any direct or indirect equity interest in any Person. EXCO WV has no subsidiaries or any direct or indirect equity interest in any Person. Subject to the Reorganization and immediately prior to Closing, none of Newco PA, Newco WV, Operator or Midstream LLC shall have any subsidiaries or any direct or indirect equity interest in any Person.

4.28 Financial Statements .

(a) Attached hereto as Schedule 4.28, Part 1 are an unaudited consolidating balance sheet as of December 31, 2009, an unaudited consolidating income statement of EXCO PA and EXCO WV for the 12 month period ended December 31, 2009, an unaudited consolidating balance sheet as of March 31, 2010 and an unaudited consolidating income statement of EXCO PA and EXCO WV for the three month period ended March 31, 2010 (collectively, the “ Unaudited Financials ”). Attached hereto as Schedule 4.28, Part 2 are a pro

 

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forma unaudited consolidating balance sheet as of December 31, 2009, a pro forma unaudited consolidating income statement of EXCO PA and EXCO WV for the 12 month period ended December 31, 2009, a pro forma unaudited consolidating balance sheet as of March 31, 2010 and a pro forma unaudited consolidating income statement of EXCO PA and EXCO WV for the three month period ended March 31, 2010, in each case, with pro forma adjustments to reflect (i) the EnerVest Transaction and any other Excluded Assets as if it had occurred or been excluded on January 1, 2009, (ii) elimination of goodwill through intercompany accounts with EXCO and EXCO Parent, and (iii) capitalization as permanent equity of intercompany account balances with EXCO and EXCO Parent (collectively, the “ Pro Forma Financials ”).

(b) Based upon information of which EXCO is aware as of the date hereof and subject to the matters set forth in Schedule 4.28, Parts 1 and 2:

(i) the Unaudited Financials fairly present the consolidating financial condition and the consolidating results of operations of EXCO PA and EXCO WV, in the case of each balance sheet included in the Unaudited Financials, as of the date of such balance sheet, and in the case of each income statement included in the Unaudited Financials, for the period covered by such income statement, in each case in accordance with GAAP, consistently applied and subject to the absence of footnotes; and

(ii) the Pro Forma Financials fairly present the consolidating financial condition and the consolidating results of operations of EXCO PA and EXCO WV subject to the pro forma adjustments identified in Sections 4.28(a)(i), (ii)  and (iii) , in the case of each balance sheet included in the Pro Forma Financials, as of the date of such balance sheet, and in the case of each income statement included in the Pro Forma Financials, for the period covered by such income statement, in each case consistent with past practices normally utilized by EXCO in connection with the preparation of other financial statements of EXCO and its Affiliates (except that the Pro Forma Financials may not necessarily be in accordance with GAAP).

4.29 Employees .

(a) January 1, 2008 and Thereafter . None of the EXCO Subs has, or since January 1, 2008 has had, any employees. Since January 1, 2008, no such Person has 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.

(b) Pre-January 1, 2008 . Schedule 4.29 provides a list of all Employee Benefit Plans which were sponsored, maintained or contributed to by any of the EXCO Subs for the benefit of the Employees, directors, former directors, or any agents, consultants, or similar representatives providing services to or for the EXCO Subs or any Affiliate within the last six years prior to Closing.

(i) True, correct and complete copies of each of the Employee Benefit Plans, related trusts, insurance or group annuity contracts and each other funding or financing arrangement relating to any Employee Benefit Plan, including all amendments thereto, have been made available to BG. There has also been made available to BG, with respect to each

 

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Employee Benefit Plan required to file such report and to furnish such description, the Form 5500 for the last three years proceeding January 1, 2008 and the summary plan description. True, correct and complete copies of all Employee Benefit Plan administration agreements have also been made available to BG. Except as otherwise set forth on Schedule 4.29 , each Employee Benefit Plan intended to be “qualified” within the meaning of Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service (“ IRS ”) or has an application pending for such determination from the IRS with respect to those provisions for which the remedial amendment period under Section 401(b) of the Code has not expired, or is a prototype or other preapproved plan covered by the prototype or other preapproved plan sponsor’s favorable opinion letter, and, nothing has occurred which has resulted or is likely to result in the revocation of such favorable determination or opinion letter or which requires or could require action under the compliance resolution programs of the IRS to preserve such qualification.

(ii) Except as otherwise set forth on Schedule 4.29 , (A) each Employee Benefit Plan has been administered in material compliance with its terms, the applicable provisions of ERISA, the Code and all other applicable Laws; (B) all required reports, descriptions and disclosures have been filed or distributed appropriately with respect to each Employee Benefit Plan, and the requirements of Part 6 of Subtitle B of Title I of ERISA and of Section 4980B of the Code have been met to the extent applicable; (C) there are no actions, suits or claims pending (other than routine claims for benefits) or, to the Knowledge of EXCO, threatened against, or with respect to, any of the Employee Benefit Plans or their assets; (D) as to any Employee Benefit Plan intended to be qualified under section 401 of the Code, there has been no termination or partial termination of the Plan within the meaning of section 411(d)(3) of the Code; (E) no act, omission or transaction has occurred which would result in imposition on any of the EXCO Subs of (1) breach of fiduciary duty liability damages under section 409 of ERISA, (2) a civil penalty assessed pursuant to subsections (c), (i) or (l) of section 502 of ERISA (3) a tax imposed pursuant to Chapter 43 of Subtitle D of the Code; or (4) liability for a prohibited transactions, as set forth in Section 406 of ERISA and Section 4975 of the Code (F) there is no matter pending (other than routine qualification determination filings) with respect to any of the Employee Benefit Plans before the IRS or the Department of Labor; (G) all contributions (including all employer contributions and employee salary reduction contributions) and/or premiums that are due and owing have been paid to each Employee Benefit Plan (or related trust) or accrued, as appropriate; (H) no Employee Benefit Plan is a “defined benefit plan” within the meaning of Section 414(j) of the Code; and (I) no Employee Benefit Plan sponsored, maintained or contributed to during the six (6) years prior to Closing (1) is subject to Section 302 of ERISA, Section 412 of the Code or Title IV of ERISA, (2) is a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA, or (3) has two or more contributing sponsors, at least two of whom are not under common control, within the meaning of Section 4063 of ERISA.

(iii) Except as otherwise set forth in Schedule 4.29 , no Employee Benefit Plan provides that payments pursuant to such Employee Benefit Plan may be made in securities of any of the EXCO Subs or any Affiliate, nor does any trust maintained pursuant to any Employee Benefit Plan hold any securities of the EXCO Subs or any Affiliate.

 

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(iv) To the Knowledge of the Company, each individual that rendered services to the EXCO Subs who was classified as having the status of: (A) an independent contractor or other non-employee status or (B) an exempt or non-exempt employee, was properly so classified for all purposes, including taxation and tax reporting, and eligibility to participate in any Employee Benefit Plan.

(v) Except as otherwise set forth in Schedule 4.29 , no Employee Benefit Plan sponsored by the EXCO Subs within the six years prior to Closing will result in residual liability to the EXCO Subs or any Affiliate.

4.30 Loans and Guarantees . Except as set forth on Schedule 4.30 , upon the Closing, none of Midstream LLC, the Newcos or the Operator will have any Indebtedness from or to any other Person, and no guarantees for the benefit of any Person.

4.31 Bank Accounts and Powers of Attorney . Schedule 4.31 sets forth a complete list of all bank accounts and investment accounts maintained by Midstream LLC, each Newco and Operator, along with a list of Persons authorized to sign with respect to such accounts. Schedule 4.31 also sets forth a list of all valid powers of attorney issued by Midstream LLC, any Newco or Operator that remain in effect.

4.32 Unrelated Activities . None of the EXCO Subs has engaged in any business other than the ownership, development, operation, maintenance, expansion, construction, commissioning and decommissioning of, and acquisition of, oil and gas properties and related assets, gathering systems, pipelines and treatment and processing facilities, 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, in each case, with respect to the Appalachian Area.

4.33 Certain Regulation .

(a) No EXCO Sub: (i) is a “natural gas company” engaged in the transportation of natural gas in interstate commerce under the Natural Gas Act of 1938, as amended; (ii) has operated, or provided services, using any of the Subject Interests or Excluded Assets, in a manner that subjects it or any EXCO Sub, any third-party operator of the Subject Interests or any future owner of the Subject Interests to the jurisdiction of, or regulation by, the Federal Energy Regulatory Commission (A) as a natural gas company under the Natural Gas Act of 1938 (other than pursuant to a certificate of limited jurisdiction as described in (vii) below), (B) as a common carrier pipeline under the Interstate Commerce Act, or (C) as an intrastate pipeline under the Natural Gas Policy Act of 1978; (iii) is an intrastate pipeline regulated by the Federal Energy Regulatory Commission under section 311 of the Natural Gas Policy Act of 1978; (iv) is a public utility subject to regulatory jurisdiction of any state public utility commission; (v) is an intrastate pipeline subject to the regulatory jurisdiction of any state public utility commission; (vi) is a gathering company subject to the regulatory jurisdiction of any state public utility commission; or (vii) holds any general or limited jurisdiction certificate of public convenience and necessity issued by the Federal Energy Regulatory Commission other than a blanket sale for resale certificate issued by operation of law or a blanket certificate issued to permit participation in capacity release transactions.

 

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(b) No EXCO Sub is the subject of any public or, to the Knowledge of EXCO, non-public investigation by the Federal Energy Regulatory Commission, the United States Commodity Futures Trading Commission or the Federal Trade Commission relating directly or indirectly to the Subject Interests or to services provided through the Subject Interests.

(c) No EXCO Sub is the subject of any pending or, to the Knowledge of EXCO, threatened complaint proceeding before the Federal Energy Regulatory Commission relating to the Subject Interests or to services provided through the Subject Interests.

(d) All EXCO Subs shall at the time of Closing be in full compliance with the reporting requirements of FERC Order No. 720, to the extent applicable to the Subject Interests or to services provided through the Subject Interests.

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

4.35 Abandonment .

(a) Except as set forth on Schedule 4.35 , there are no pipelines or gathering facilities that constitute part of the Subject Interests (i) in respect of which EXCO or any EXCO Sub has received a written order from any Governmental Authority requiring that such pipelines or gathering facilities be abandoned or (ii) that are not in use or that have been temporarily abandoned.

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

4.36 Insurance . Schedule 4.36 lists each material insurance policy maintained by EXCO and its Affiliates (including the EXCO Subs) that relate or provide coverage to the EXCO Subs or the Assets (the “ Policies ”). All of the Policies are in full force and effect as to EXCO and its Affiliates, and, to the Knowledge of EXCO, as to Third Parties, all premiums due thereunder have been paid, and each of EXCO and its Affiliates (including the EXCO Subs) is in material compliance with respect to its obligations under all such Policies. Except as set forth on Schedule 4.36 , there are no claims pending with respect to any such Policies and none of EXCO or its Affiliates (including the EXCO Subs) has received (a) any written notice of cancellation of any such Policy or refusal of coverage thereunder, (b) any written notice that any issuer of such Policy has filed for protection under applicable bankruptcy or other insolvency Laws or is otherwise in the process of liquidating or has been liquidated, or (c) any other written indication that such Policies are no longer in full force and effect or that the issuer of any such Policy is no longer willing or able to perform its obligations thereunder.

4.37 Bonds and Credit Support . Schedule 4.37 lists all bonds, letters of credit and other similar credit support instruments maintained by EXCO and its Affiliates (including the EXCO Subs) with respect to the Assets.

 

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4.38 Suspense . Schedule 4.38 lists all funds held in suspense (including funds held in suspense for unleased interests) by the EXCO Subs on the Execution Date that are attributable to the Assets, a description of the source of such funds and the reason they are being held in suspense, and, if known, the name or names of the Persons claiming such funds or to whom such funds are owed.

ARTICLE V

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.

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 or any Affiliate of BG is a party when executed and delivered by BG or such Affiliate will be, the valid and binding obligation of BG or such Affiliate and enforceable against BG or such Affiliate 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 Parties make the necessary HSR Act filings and otherwise comply with the HSR Act, violate any Law applicable to BG or any of its property, 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 upon the ability of BG to consummate the transactions contemplated by this Agreement.

5.4 Consents . There are no consents or other restrictions on merger or change in Control, including, but not limited to, requirements for consents from Third Parties to any merger or change in Control (in each case) that would be applicable in connection with the consummation of the transactions contemplated by this Agreement by BG and are not also required of EXCO.

 

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5.5 Bankruptcy . There are no bankruptcy, reorganization or receivership proceedings pending, being contemplated by or, to BG’s knowledge, threatened against BG or BG Parent, and neither BG nor BG’s Parent is insolvent or generally not paying its debts as they become due.

5.6 Claims and Litigation . There is no written claims for breach of contract, tort or violation of Law or investigation of which BG 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 BG’s knowledge, threatened in writing against BG, or to which BG is a party, that would have a material adverse effect upon the ability of BG to consummate the transactions contemplated by this Agreement.

5.7 Financing . BG has, or as of the Closing Date shall have, sufficient funds with which to pay the Closing Cash Consideration and consummate the transactions contemplated by this Agreement and following Closing BG will have sufficient funds to pay and meet its obligations under the Joint Development Agreement as and when called for under that Agreement.

5.8 Independent Evaluation . BG is sophisticated in the evaluation, purchase, ownership and operation of oil and gas properties and related facilities and the ownership of equity interests in entities engaging in such ownership and operation. In making its decision to enter into this Agreement and to consummate the transactions contemplated herein, BG, except to the extent of EXCO’s express representations and warranties in Article IV hereof, in the Assignment or in the certificate delivered by EXCO at Closing pursuant to Section 9.3(j) , (a) has relied or shall rely solely on its own independent investigation and evaluation of the Subject Interests, and the Subject Membership Interests and the advice of its own legal, Tax, economic, environmental, engineering, geological and geophysical advisors and the express provisions of this Agreement and not on any comments, statements, projections or other materials made or given by any representatives or consultants or advisors engaged by EXCO, and (b) has satisfied or shall satisfy itself through its own due diligence as to the environmental and physical condition of and contractual arrangements and other matters affecting the Subject Interests and the Subject Membership Interests.

5.9 Broker’s Fees . BG has incurred no liability, contingent or otherwise, for brokers’ or finders’ fees relating to the transactions contemplated by this Agreement or the Transaction Documents for which EXCO or EXCO’s Affiliates shall have any responsibility.

5.10 Accredited Investor . BG is an “accredited investor,” as such term is defined in Regulation D of the Securities Act of 1933, as amended, and will acquire the Subject Membership Interests for its own account and not with a view to a sale or distribution thereof in violation of the Securities Act of 1933, as amended, and the rules and regulations thereunder, any applicable state blue sky Laws or any other applicable securities Laws.

5.11 Oil & Gas Interests . Other than as contemplated by this Agreement and the Transaction Documents, as of the date of this Agreement, BG and its Affiliates have no interests in any, nor have they entered into any contracts or agreements to acquire any, oil, gas and/or mineral leases, subleases, fee mineral interests, royalties, overriding royalties, production payments, net profits interests, carried interests, reversionary interests and other interests in oil, gas and/or minerals in place in the Appalachian Area.

 

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ARTICLE VI

CERTAIN AGREEMENTS

6.1 Conduct of Business . Except (1) as set forth in Schedule 6.1 ; (2) as expressly contemplated by this Agreement; (3) in connection with the Reorganization as expressly contemplated by this Agreement and the Reorganization Plan of Merger; or (4) as expressly consented to in writing by BG, EXCO agrees that from and after the date hereof until Closing, EXCO will or will cause the EXCO Subs to:

(a) maintain, and if one of such Person is the operator thereof, to operate, the Subject Interests in a good and workmanlike manner, consistent with past practice, and in accordance with the Applicable Contracts and applicable Laws in all material respects;

(b) maintain the books of account and records relating to the Subject Interests in the usual, regular and ordinary manner, in accordance with GAAP and the usual accounting practices of each such Person;

(c) give written notice to BG as soon as is practicable (but within 5 Business Days) of any written notice received or given by any such Person with respect to (i) any alleged material breach of any Lease or Material Contract, (ii) any action to alter, terminate, rescind or procure a judicial reformation of any Lease or Material Contract or (iii) notice in writing of any new claim for damages or any new investigation, suit, action or litigation with respect to the Assets;

(d) except for (i) emergency operations related to well blowouts, fires, oil spills or other events that endanger property, lives or the environment, or (ii) operations required under presently existing AFE’s described on Schedule 4.14 , not propose or commence any operations on the Subject Interests anticipated to cost (as to such Persons’ interests in the Subject Interests) in excess of $500,000 per operation or $5,000,000 in the aggregate; provided that with respect to emergency operations, EXCO shall notify BG of said emergency as soon as reasonably practicable, and provided further that with respect to AFE’s in excess of $500,000 net to such Persons’ interests in the Subject Interests, EXCO shall forward same to BG as soon as reasonably practicable following receipt thereof and BG shall review and respond to same in writing to EXCO within 5 Business Days of its receipt thereof (or within such lesser time as is required under the terms of the applicable Third Party agreement and stated in EXCO’s notice, but in no event less than 24 hours after receipt) and if BG does not approve or reject any such AFE within such time period, BG shall be deemed to have responded to same in the same manner as EXCO (or its Affiliate) elects to vote;

(e) not enter into an Applicable Contract that if entered into prior to the Execution Date would be required to be listed in a Schedule attached to this Agreement (including, for the avoidance of doubt, any agreement pertaining to the Snowshoe JV), and not amend, waive any material right under or terminate (other than by failing to renew an existing term), or permit any of its Affiliates to amend, waive any material right under or terminate (other

 

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than by failing to renew an existing term), an Applicable Contract that is listed in a Schedule attached to this Agreement or that if entered into prior to the date of this Agreement would be required to be listed in a Schedule attached to this Agreement (either before the action proposed to be taken or as a result of the action proposed to be taken);

(f) not transfer, sell, mortgage, pledge, encumber or dispose of (or permit any Affiliates to do any of the foregoing) any portion of the Subject Interests other than the sale and/or disposal of Hydrocarbons in the ordinary course of business and sales of equipment that is no longer necessary in the operation of the Subject Interests or for which replacement equipment of equal or greater value has been obtained;

(g) maintain insurance coverage on the Assets in the amounts and types currently in force;

(h) not grant or create any preferential right to purchase, right of first opportunity or other transfer restriction or requirement with respect to the Subject Interests;

(i) use commercially reasonable efforts to maintain in full force and effect all (i) Leases, except where any such interest terminates pursuant to its existing term, and (ii), all material Rights of Way and, subject to the Reorganization, all material Permits held by it and issued by any Governmental Authority with respect to the Properties, (in each case) except where any such Right of Way or Permit terminates pursuant to its existing terms or where a reasonably prudent operator would not maintain the same;

(j) give prompt written notice to BG of any material damage to or destruction of any of the Assets;

(k) implement or adopt (i) any material change in its accounting methods or principles or the application thereof (including depreciation lives) except as may be required by GAAP or (ii) any material change in its Tax methods or principles or the application thereof (including depreciation lives) except as may be required by Law; and

(l) not agree, whether in writing or otherwise, to do any of the things EXCO has agreed not to do in this Section 6.1 ;

provided that, in the case of operations described in Section 6.1(d) which are undertaken to avoid any penalty provision of any applicable agreement or are proposed by Third Parties relating to drilling, sidetracking, deepening, reworking or other similar operations with respect to an existing or prospective well, if BG rejects the proposal within the time period permitted under Section 6.1(d) (but in no event shall such period be longer than 5 Business Days from BG’s receipt thereof), EXCO, EXCO PA, EXCO WV and/or a Reorganized Sub may commit to the operation, in which case the operation shall be deemed to be a “Sole Risk Development Operation” in which BG is not participating under the terms of the Joint Development Agreement and no costs and expenses thereof, and no proceeds therefrom, shall be reflected in the adjustments pursuant to Article III . BG acknowledges that the EXCO Subs own undivided interests in certain of the Assets with respect to which they are not the operator, and BG agrees that the acts or omissions of the other working interests owners (including the operators) who are not any of such Persons or Affiliates of such Persons and which none of such Persons or its

 

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Affiliates have the contractual right to control shall not constitute a breach of the provisions of this Section 6.1 , nor shall any action required by a vote of working interest owners constitute such a breach so long as each such Person has voted its interest in a manner that complies with the provisions of this Section 6.1 .

6.2 Conduct of the EXCO Subs . Except as set forth on Schedule 6.2 , in connection with the Reorganization or as expressly consented to in writing by BG, EXCO agrees that from and after the date hereof until Closing, EXCO will not permit the EXCO Subs to:

(a) amend any such Person’s limited liability company agreement, agreement of limited partnership or equivalent governing documents;

(b) except as contemplated by the Reorganization, merge, reorganize, consolidate, convert to another form of entity, change its jurisdiction of organization, name or principal office, file for bankruptcy, dissolve or liquidate;

(c) issue, transfer or redeem or otherwise acquire any of its own equity interests, or issue any subscription, option, warrant or right with respect to its equity interests, or any securities convertible or exchangeable for such equity interests, or declare or pay any dividend or other distribution or payment to EXCO or any of its Affiliates, other than dividends and distributions of cash (which shall be accounted for in the adjustments to the Closing Cash Consideration) and the Excluded Assets; provided, that the EXCO Subs shall be expressly permitted to repay all intercompany loans with EXCO or any of its Affiliates (other than any EXCO Sub) (which repayments shall be accounted for in the adjustments to the Closing Cash Consideration) and to continue paying EXCO and its Affiliates for goods acquired from them and services rendered by them in the ordinary course of business consistent with past practice and not in excess of the average commercial rates prevailing in the area, including but not limited to payment of employees and other costs pursuant to the Services Agreement, but excluding any such payments or other costs in respect of general corporate overhead costs or those functions specifically identified as overhead in Exhibit “C” to the Joint Development Operating Agreement.

(d) incur, assume or guaranty any Indebtedness other than (i) advances from EXCO or any of its Affiliates that will be eliminated prior to Closing pursuant to Section 6.10, (ii) any presently existing guaranty that was issued in connection with the EXCO Debt Instruments and which will terminate at or prior to Closing, and (iii) any guaranty that is not binding on the Newcos, Operator or Midstream LLC or their assets after the Closing;

(e) lend money to any Person (other than to any other EXCO Sub) or make an equity investment in any Person;

(f) make any change in its method of accounting or accounting practice or policy, other than changes required by GAAP;

(g) acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of, or in any other manner, any business or business entity;

 

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(h) enter into any capital lease (other than, where relevant, renewals of existing Rights of Way);

(i) execute any consent to extend any statute of limitations with respect to Taxes or any extension of time with respect to any Tax assessment or collection or any due date for the filing of any Tax return, or make any change to such Person’s fiscal year or Tax elections, or any Tax methods or principles or settle any issue with respect to any Tax audit or assessment;

(j) employ any Person;

(k) initiate or settle any legal action (other than any settlement of any legal action set forth on Schedule 4.7, Part 1 or Schedule 4.7, Part 2 ) or arbitration;

(l) enter into any non-arm’s length transaction; or

(m) agree, whether in writing or otherwise, to do any of the things EXCO has agreed not to permit in this Section 6.2 .

6.3 Governmental Bonds . BG acknowledges that none of the bonds, letters of credit and guarantees, if any, posted by EXCO or its Affiliates (other than any EXCO Sub) with Governmental Authorities and relating to the Subject Interests are transferable in connection with the transactions contemplated hereby. As soon as practicable following the Reorganization, the Parties shall cause Operator to post bonds or other security required to be posted by Operator as the operator of the Subject Interests with any applicable Governmental Authorities meeting the requirements of such authorities to own the Subject Interests.

6.4 Notifications . If either EXCO or BG obtains actual knowledge that the other Party apparently has breached a representation, warranty, covenant or other agreement under this Agreement, that Party shall promptly inform the other Party of such potential breach so that it may attempt to remedy or cure such breach prior to Closing. Notwithstanding the foregoing, this Section shall not apply to breach of the Parties’ obligations at Closing and shall not operate to delay Closing. If any of EXCO’s or BG’s representations or warranties is untrue, or EXCO’s or BG’s covenants or agreements have not been performed or observed, but such breach or failure is cured to the reasonable satisfaction of the other Party by Closing (or, if Closing does not occur, by the Termination Date), then such breach or failure shall be deemed not to have occurred for all purposes of this Agreement. Notwithstanding the other terms of this Section 6.4 , the other provisions of this Agreement and the various documents and agreements to be executed and delivered pursuant hereto relating to representations, warranties, indemnities and agreements of EXCO or BG shall not be altered or modified by BG’s or EXCO’s knowledge of any event, or failure to provide notice of the same, or BG’s or EXCO’s review of any documents or other matters.

6.5 HSR Act . Within 10 Business Days following the execution by BG and EXCO of this Agreement, BG and EXCO will, to the extent necessary, each prepare and simultaneously file with the DOJ and the FTC the notification and report form required for the transactions contemplated by this Agreement by the HSR Act, and request early termination of the waiting period thereunder. BG and EXCO agree to respond promptly to any inquiries from the DOJ or the FTC concerning such filings and to comply in all material respects with the filing

 

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requirements of the HSR Act. BG and EXCO shall cooperate with each other and, subject to the terms of the Confidentiality Agreement, shall promptly furnish all information to the other Party that is necessary in connection with BG’s and EXCO’s compliance with the HSR Act. BG and EXCO shall keep each other fully advised with respect to any requests from or communications with the DOJ or FTC concerning such filings and shall consult with each other with respect to all responses thereto. Each of EXCO and BG shall use its reasonable efforts to take all actions reasonably necessary and appropriate in connection with any HSR Act filing to consummate the transactions consummated hereby. All filing fees incurred in connection with the filings made pursuant to this Section 6.5 shall be borne one-half by EXCO and one-half by BG.

6.6 Amendment to Schedules . As of the Closing Date, all Schedules to Article IV may be deemed amended and supplemented by EXCO to include reference to any matter (a) relating to EXCO or the Subject Interests which first arises or occurs after the date of this Agreement and does not result from a breach by EXCO of any provision of Article IV , or this Article VI or (b) which results in an adjustment to the Closing Cash Consideration pursuant to Section 3.3 as a result of the removal under the terms of this Agreement of any Subject Interest from the transactions contemplated by this Agreement.

6.7 Additional Interests . The Parties acknowledge that the EXCO Subs will be acquiring additional Leases in the AMI Area from and after the Effective Time up to (and including) 10 days before the Closing Date (all such Leases actually acquired by EXCO Subs during such period, the “ Additional Interests ”).

(a) All Additional Interests acquired up to (and including) 10 Business Days prior to the Execution Date and the amounts paid by the EXCO Subs for such Additional Interests are set forth on Schedule 6.7 . At or prior to Closing, EXCO will amend Schedule 6.7 to reflect all Additional Interests acquired between the Execution Date and the date that is ten days before the Closing and the amounts paid for such Additional Interests. For all purposes of this Agreement, except to the extent it becomes a Rejected Interest, all Additional Interests shall be treated upon Closing as if they had been acquired by the applicable EXCO Sub prior to the Reorganization and will be treated as Subject Non-Operating Assets, Operating Assets, Gathering Assets and/or other assets, as applicable, of the EXCO Subs. EXCO will use its commercially reasonable efforts to assign a share of its rights and obligations under the acquisition documents related to each Additional Interest to BG; provided that EXCO shall not be required to pay cash or otherwise surrender value or incur any liability to obtain any such assignment.

(b) BG will have the right, up to 60 days following the Closing, to reject the acquisition of any Additional Interest (any such rejected Additional Interest, a “ Rejected Interest ”). Any such election by BG shall be communicated to EXCO by written notice (each, a “ Rejection Notice ”). The Adjusted Closing Cash Consideration shall account for any Rejected Interests that are the subject of a Rejection Notice delivered to EXCO not less than seven (7) Business Days prior to the Closing as provided in Section 3.3(b)(viii) . In the case of any Rejection Notice delivered after the day that is seven (7) Business Days prior to the Closing, promptly following any such rejection (but in any event, after the Closing), the applicable Newco shall convey, and EXCO and BG shall cause Operator to convey, the applicable Rejected Interests to EXCO pursuant to an assignment with a special warranty of

 

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title against claims by, through or under the applicable assignor or its Affiliates, but not otherwise, and upon EXCO’s receipt of such assignments, EXCO shall pay BG the amount paid for the applicable Rejected Interests as set forth on Schedule 6.7 . The Parties agree to take any and all measures necessary to effectuate any such conveyances of Rejected Interests requested by BG in a timely delivered Rejection Notice.

6.8 Negotiation of Ancillary Agreements and Development Plans and Budgets . Each of EXCO and BG shall use its reasonable efforts to complete negotiation of and agree in writing upon the form of the Ancillary Agreements and the forms of the Development Plans and Budgets to be attached as Exhibits to the Joint Development Agreement.

6.9 Reorganization

(a) Prior to Closing and pursuant to documents in forms approved by BG (which approval will not be unreasonably withheld, conditioned or delayed), EXCO will cause (in the order specified) (i) EXCO PA to distribute to its parent, EXCO, all of the equity interests in EXCO WV and Black Bear, (ii) EXCO WV to convert into a Texas limited liability company named “EXCO Resources (WV), LLC”, (iii) EXCO PA to convert into a Texas limited liability company named “EXCO Resources (PA), LLC”, (iv) EXCO Resources (PA), LLC and EXCO Resources (WV), LLC to conduct a multi-survivor merger pursuant to Section 10.01 et seq of the TBOC and the Reorganization Plan of Merger with the resulting survivors of such merger being the following wholly owned subsidiaries of EXCO: (A) a newly formed entity, EXCO Production Company (PA), LLC, a Texas limited liability company that will own an undivided 49.75% of the Non-Operating Assets and 100% of the Deferred Interests formerly owned by EXCO PA (and the Liabilities associated with such Assets and Deferred Interests whether arising before, on or after the Effective Time, subject to EXCO’s indemnities hereunder), (B) a newly formed entity, BG Production Company (PA), LLC, a Texas limited liability company that will own an undivided 49.75% of the Non-Operating Assets formerly owned by EXCO PA (and the Liabilities associated with such Assets whether arising before, on or after the Effective Time, subject to EXCO’s indemnities hereunder), (C) EXCO Production Company (WV), LLC, a Texas limited liability company (formerly known as EXCO Resources (WV), Inc. prior to the Reorganization) that will own an undivided 49.75% of the Non-Operating Assets and 100% of the Deferred Interests formerly owned by EXCO WV (and the Liabilities associated with such Assets and Deferred Interests whether arising before, on or after the Effective Time, subject to EXCO’s indemnities hereunder), (D) a newly formed entity, BG Production Company (WV), LLC, a Texas limited liability company that will own an undivided 49.75% of the Non-Operating Assets formerly owned by EXCO WV (and the Liabilities associated with such Assets whether arising before, on or after the Effective Time, subject to EXCO’s indemnities hereunder), (E) EXCO Resources (PA), LLC, a Texas limited liability company (formerly known as EXCO Resources (PA), Inc. prior to the Reorganization) that will own and retain (1) an undivided 0.5% of the Non-Operating Assets formerly owned by each of EXCO PA and EXCO WV (and the Liabilities associated with such Assets whether arising before, on or after the Effective Time, subject to EXCO’s indemnities hereunder) and (2) 100% of the Operating Assets formerly owned by EXCO PA and EXCO WV (and the Liabilities associated with such Assets whether arising before, on or after the Effective Time, subject to EXCO’s indemnities hereunder), (F) a newly formed entity, Appalachia Midstream, LLC, a Texas limited liability company that will own 100% of the Gathering Assets (and the Liabilities associated with such

 

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Assets whether arising before, on or after the Effective Time, subject to EXCO’s indemnities hereunder), and (G) a newly formed entity, EXCO Resources (XA), LLC, a Texas limited liability company that will own 100% of the Excluded Assets other than the assets and membership interests of Black Bear and the Deferred Interests (and the Liabilities associated with the Excluded Assets, other than the assets and membership interests of Black Bear and the Deferred Interests, whether arising before, on or after the Effective Time, subject to EXCO’s indemnities hereunder); and (v) each of EXCO Production Company (PA), LLC, EXCO Production Company (WV), LLC, BG Production Company (PA), LLC, BG Production Company (WV), LLC, EXCO Resources (PA), LLC, Appalachia Midstream, LLC and EXCO Resources (XA), LLC to convert into a Delaware limited liability company with the same name;

(b) All certificates to be filed with Governmental Authorities in connection with the Reorganization, and all corporate minutes, resolutions, certificates and other similar instruments of EXCO PA, EXCO WV, BG Production Company (PA), LLC, BG Production Company (WV), LLC, Operator, Midstream LLC and EXCO XA to be approved or executed in connection with the Reorganization, shall be subject to the prior written approval of BG, which approval shall not be unreasonably withheld or delayed.

(c) EXCO shall cause each of the steps of the Reorganization to be undertaken in accordance with the Laws of the states applicable to such step.

(d) From and after the Reorganization, the Parties shall use their reasonable efforts to cause each of the Reorganized Entities to become qualified to do business in all jurisdictions where the Assets owned by such entity are located as soon as practicable.

6.10 Intercompany Indebtedness . At or prior to Closing, EXCO and its Affiliates shall settle, and shall cause the EXCO Subs to capitalize, all Indebtedness for borrowed money between EXCO or any of its other Affiliates (other than any EXCO Sub) and any EXCO Sub, so that as of Closing, no EXCO Sub shall have any Indebtedness for borrowed money to EXCO or any of its Affiliates other than to another EXCO Sub. At or prior to Closing, all other Indebtedness between EXCO or any of its other Affiliates (other than any EXCO Sub) to or from any EXCO Sub shall be settled by cash payment to or from EXCO or the applicable Affiliate of EXCO. Any cash payments pursuant to this Section shall generate an adjustment to the Closing Cash Consideration as described in Sections 3.3(a)(i) and 3.3(b)(i) .

6.11 Interim Operator Officers . At or prior to Closing, BG and EXCO shall agree upon and appoint a full roster of interim officers for the Operator.

6.12 Bank Accounts . Upon Closing, EXCO shall take all action necessary to remove existing signatories from the bank accounts and investment accounts of the Operator and to replace such signatories, in each case effective at Closing, with individuals agreed by EXCO and BG at least seven (7) days prior to the Closing Date.

6.13 [Intentionally Omitted]

 

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6.14 Notice of Material Events . From and after the Execution Date until the Closing, EXCO shall promptly notify BG of the occurrence of any material damage, destruction or loss to the Assets or any Material Adverse Effect.

6.15 Certain Records . At or prior to Reorganization, EXCO and EXCO’s Affiliates (other than the EXCO Subs) shall assign to the EXCO Subs, free and clear of liens, encumbrances, obligations or defects (but subject to the terms and conditions of the documents creating such data and other information), title to any geophysical or geological data and interpretative maps and other information derived therefrom relating to the Assets to the extent that such information is assignable to the EXCO Subs without further payment to a third-party licensor.

6.16 Material and Equipment Inventory . Prior to Closing, EXCO shall provide to BG a list of all material inventory of materials and equipment included in the Assets, other than office equipment, wells and gathering assets.

ARTICLE VII

BG’S CONDITIONS TO CLOSING

The obligations of BG to consummate the transactions provided for herein are subject, at the option of BG, to the fulfillment on or prior to the Closing of each of the following conditions:

7.1 Representations . The representations and warranties of EXCO set forth in Article IV shall be true and correct in all material respects (other than those representations and warranties of EXCO that are qualified by materiality, which shall be true and correct in all respects) as of the date of this Agreement and as of the Closing Date as though made on and as of such date (other than representations and warranties that refer to a specified date, which need only be true and correct on and as of such specified date).

7.2 Performance . EXCO shall have materially performed or complied with all obligations, agreements, and covenants contained in this Agreement as to which performance or compliance by EXCO is required prior to or at the Closing Date, including performance of the Reorganization.

7.3 No Legal Proceedings . No material suit, action or other proceeding instituted by a Third Party shall be pending before any Governmental Authority or arbitrator seeking to restrain, prohibit, enjoin or declare illegal, or seeking substantial damages in connection with, the transactions contemplated by this Agreement. No order, award or judgment shall have been issued by any Governmental Authority or arbitrator to restrain, prohibit, enjoin or declare illegal, or awarding substantial damages in connection with, the transactions contemplated by this Agreement.

7.4 Environmental Defects . The sum of all Remediation Amounts for Environmental Defects determined pursuant to Section 12.1(c)(i)(A) and the sum of all Closing Cash Consideration adjustments determined pursuant to Section 12.1(c)(i)(C), shall be less than $95,000,000.

 

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7.5 HSR Act . Any waiting period applicable to the consummation of the transaction contemplated hereby under the HSR Act shall have lapsed or terminated (by early termination or otherwise).

7.6 Consent and Waivers . All consents and approvals, other than those under the HSR Act, required from Governmental Authorities (excluding Customary Post Closing Consents), and all consents and approvals required from other Persons listed on Schedule 4.4 , Part 2 for the consummation of the transactions contemplated by this Agreement shall have been granted, and all preferential purchase rights listed on Schedule 4.10 , Part 2 shall have been exercised, waived, expired without exercise or, in the case of a right of first opportunity or similar right, resulted in an offer which was properly rejected by EXCO.

7.7 Closing Deliverables . EXCO shall have delivered (or be ready, willing and able to deliver at Closing) to BG the documents and other items required to be delivered by EXCO under Section 9.3 , including the documents required under Section 9.3(o).

7.8 No Material Event . No Material Event with respect to EXCO or its Affiliates shall have occurred and be continuing and no material default by EXCO or its Affiliates under any EXCO Debt Instrument (including any payment default or default under any debt to equity financial covenant or other financial ratio) or acceleration of debt under any EXCO Debt Instrument shall have occurred and be continuing.

7.9 No Material Adverse Effect . No Material Adverse Effect shall have occurred since the date of this Agreement.

7.10 Ancillary Agreements; Calendar Year 2010 Annual Work Program and Budget . All Ancillary Agreements and the form of Exhibit E to be attached to the Joint Development Agreement (the Calendar Year 2010 Annual Work Program and Budget) shall have been agreed upon by the Parties in writing in form satisfactory to BG, in its discretion.

7.11 Encumbrances . All Encumbrances on the Subject Membership Interests, and all liens created in connection with the EXCO Debt Instruments on the Subject Non-Operating Assets, Operating Assets, Gathering Assets or other assets to be owned by the Newcos, the Operator and Midstream LLC shall be fully released at Closing by form of release acceptable to BG.

ARTICLE VIII

EXCO’S CONDITIONS TO CLOSING

The obligations of EXCO to consummate the transactions provided for herein are subject, at the option of EXCO, to the fulfillment on or prior to the Closing of each of the following conditions:

8.1 Representations . The representations and warranties of BG set forth in Article V shall be true and correct in all material respects (other than those representations and warranties of BG that are qualified by materiality, which shall be true and correct in all respects) as of the date of this Agreement and as of the Closing Date as though made on and as of such date (other than representations and warranties that refer to a specified date, which need only be true and correct on and as of such specified date).

 

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8.2 Performance . BG shall have materially performed or complied with all obligations, agreements, and covenants contained in this Agreement as to which performance or compliance by BG is required prior to or at the Closing Date.

8.3 No Legal Proceedings . No material suit, action or other proceeding instituted by a Third Party shall be pending before any Governmental Authority or arbitrator seeking to restrain, prohibit, enjoin or declare illegal, or seeking substantial damages in connection with, the transactions contemplated by this Agreement. No order, award or judgment shall have been issued by any Governmental Authority or arbitrator to restrain, prohibit, enjoin or declare illegal, or awarding substantial damages in connection with, the transactions contemplated by this Agreement.

8.4 Environmental Defects . The sum of all Remediation Amounts for Environmental Defects determined pursuant to Section 12.1(c)(i)(A) and the sum of all Closing Cash Consideration adjustments determined pursuant to Section 12.1(c)(i)(C), shall be less than $95,000,000.

8.5 HSR Act . Any waiting period applicable to the consummation of the transactions contemplated hereby under the HSR Act shall have lapsed or terminated (by early termination or otherwise).

8.6 Consent and Waivers . All consents and approvals, other than those under the HSR Act, required from Governmental Authorities (excluding Customary Post Closing Consents), and all consents and approvals required from other Persons listed in Schedule 4.4 , Part 2 , for the consummation of the transactions contemplated by this Agreement shall have been granted, and all preferential purchase rights, rights of first opportunity and similar rights with respect to such transactions shall have been exercised, waived, expired without exercise or, in the case of a right of first opportunity or similar right, resulted in an offer which was properly rejected by EXCO.

8.7 Closing Deliverables . BG shall have delivered (or be ready, willing and able to deliver at Closing) to EXCO the documents and other items required to be delivered by BG under Section   9.3 .

8.8 No Material Event . No Material Event with respect to BG or BG Parent shall have occurred and be continuing and no material default by BG or BG Parent under any BG Debt Instrument (including any payment default or default under any debt to equity financial covenant or other financial ratio) or acceleration of debt under any BG Debt Instrument shall have occurred and be continuing.

8.9 Ancillary Agreements; Calendar Year 2010 Annual Work Program and Budget . All Ancillary Agreements and the form of Exhibit E to be attached to the Joint Development Agreement (the Calendar Year 2010 Annual Work Program and Budget) shall have been agreed upon by the Parties in writing in form satisfactory to EXCO, in its discretion.

 

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ARTICLE IX

CLOSING

9.1 Date of Closing . Subject to the terms and conditions stated in this Agreement, the sale by EXCO and the purchase by BG of the Subject Membership Interests pursuant to this Agreement (collectively, the “ Closing ”) shall occur on June 1, 2010, or if all conditions to Closing in Articles VII or VIII have not yet been satisfied or waived by that date, as soon thereafter as such conditions have been satisfied or waived, or such other date as BG and EXCO may agree upon in writing. The date of the Closing shall be the “ Closing Date ”.

9.2 Place of Closing . The Closing shall be held at the offices of Vinson & Elkins LLP, Suite 3700, 2001 Ross Avenue, Dallas, Texas 75201 or such other location as BG and EXCO may agree upon in writing.

9.3 Closing Obligations . At the Closing, the following documents shall be delivered and the following events shall occur, the execution of each document and the occurrence of each event being a condition precedent to the others and each being deemed to have occurred simultaneously with the others:

(a) EXCO and BG shall execute, acknowledge and deliver the Assignment;

(b) EXCO and BG shall execute and deliver an acknowledgement of the Preliminary Settlement Statement;

(c) BG shall deliver to EXCO to the accounts designated in the Preliminary Settlement Statement, by direct bank or wire transfer in same day funds, the Adjusted Closing Cash Consideration, less the amount of the Deposit, and BG and EXCO shall deliver instructions to the Escrow Agent authorizing the release of the Deposit to EXCO pursuant to the terms of the Escrow Agreement;

(d) EXCO shall deliver on forms reasonably acceptable to the Parties transfer orders or letters in lieu thereof directing all purchasers of production to make payment to the Reorganized Entities (other than Midstream LLC) of the proceeds attributable to production from the Non-Operating Assets from and after the Effective Time, for delivery by such Persons to the purchasers of production;

(e) EXCO shall deliver an executed statement described in Treasury Regulation § 1.1445-2(b)(2);

(f) EXCO shall cause the Reorganized Subs, BG shall cause the Newcos, and each of EXCO and BG shall cause the Operator, to execute and deliver the Joint Development Agreement;

(g) EXCO and BG shall, and shall cause Operator to, execute and deliver the Operator LLC Agreement.

(h) EXCO and BG shall, and shall cause Midstream LLC to, execute and deliver the Midstream LLC Agreement, and the other Ancillary Agreements;

 

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(i) BG shall execute and deliver a certificate from an officer of BG certifying on behalf of BG that the conditions set forth in Section 8.1 and Section 8.2 have been fulfilled by BG;

(j) EXCO shall execute and deliver a certificate from an officer of EXCO certifying on behalf of EXCO that the conditions set forth in Section 7.1 and Section 7.2 have been fulfilled by EXCO;

(k) BG shall deliver a certificate duly executed by the secretary or any assistant secretary of BG, dated as of the Closing, (i) attaching, and certifying on behalf of BG as complete and correct, copies of (A) the certificate of formation and limited liability company agreement of BG, each as in effect as of the Closing, and (B) the resolutions of the members of BG authorizing the execution, delivery and performance by BG of this Agreement and the transactions contemplated hereby and (ii) certifying on behalf of BG the incumbency of each officer of BG executing this Agreement or any document delivered in connection with the Closing;

(l) EXCO shall deliver a certificate duly executed by the secretary or any assistant secretary of EXCO, dated as of the Closing, (i) attaching, and certifying on behalf of EXCO as complete and correct, copies of (A) the certificate of incorporation and the bylaws of EXCO, each as in effect as of the Closing, and (B) the resolutions of the board of directors of EXCO, authorizing the execution, delivery and performance by EXCO of this Agreement and the transactions contemplated hereby, and (ii) certifying on behalf of EXCO the incumbency of each officer of EXCO executing this Agreement or any document delivered in connection with the Closing;

(m) EXCO shall deliver a recordable release of any pledges, trusts, mortgages, financing statements, fixture filings and security agreements made by EXCO or its Affiliates affecting the Subject Membership Interests, Subject Non-Operating Assets, Operating Assets, Gathering Assets or other assets to be owned by the Newcos, the Operator and Midstream LLC and relating to the EXCO Debt Instruments;

(n) EXCO shall have delivered to BG the resignations of all of the managers and officers and terminations of all outstanding powers of attorney of the Newcos, Operator and Midstream LLC, effective upon the consummation of the Closing, unless EXCO and BG otherwise agree in writing;

(o) EXCO and BG shall execute and deliver, and/or cause their applicable Affiliates to execute and deliver, a tax partnership agreement in substantially the form of the tax partnership agreement attached to the Joint Development Agreement as Exhibit “G” thereto; and

(p) BG shall cause BG North America, LLC to execute and deliver to EXCO a guaranty in substantially the form of the guaranty attached hereto as Exhibit K-1 , and EXCO shall cause EXCO Parent to execute and deliver to BG a guaranty in substantially the form of the guaranty attached hereto as Exhibit K-2 ; and

 

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(q) EXCO and BG shall execute and deliver any other Transaction Documents and other agreements, instruments and documents which are required by other terms of this Agreement to be executed and/or delivered at the Closing.

9.4 Records . In addition to the obligations set forth under Section   9.3 above, 30 days following the Closing, EXCO shall deliver to BG possession of the Records.

ARTICLE X

ACCESS / DISCLAIMERS

10.1 Access .

(a) From and after the date hereof and up to and including the Closing Date (or earlier termination of this Agreement), but subject to the other provisions of this Section 10.1 and obtaining any required consents of Third Parties, including Third Party operators of the Assets (with respect to which consents EXCO shall use commercially reasonable efforts to obtain), EXCO shall afford to BG and its officers, employees, agents, accountants, attorneys, investment bankers, consultants and other authorized representatives (“ BG’s Representatives ”) full access, during normal business hours, to the Assets and all Records and other documents in EXCO’s or any of its Affiliates’ possession relating primarily to the Assets or the EXCO Subs. EXCO shall also make available to BG and BG’s Representatives, upon reasonable notice during normal business hours, EXCO’s personnel knowledgeable with respect to the Assets or the EXCO Subs in order that BG may make such diligence investigation as BG considers necessary or appropriate. All investigations and due diligence conducted by BG or any BG’s Representative shall be conducted at BG’s sole cost, risk and expense and any conclusions made from any examination done by BG or any BG’s Representative shall result from BG’s own independent review and judgment. BG shall coordinate its access rights and physical inspections of the Assets or the EXCO Subs with EXCO to reasonably minimize any inconvenience to or interruption of the conduct of business by EXCO. BG shall, and shall cause all BG’s Representatives to, abide by EXCO’s and any applicable Third Party operator’s safety rules, regulations and operating policies of which they are informed while conducting its due diligence evaluation of the Assets including any environmental or other inspection or assessment of the Assets.

(b) Before conducting any sampling, boring, drilling or other invasive investigation activities (“ Invasive Activities ”) on or with respect to any of the Properties, BG shall furnish EXCO with a written description of the proposed scope of the Invasive Activities to be conducted, including a description of the activities to be conducted and a description of the approximate location and expected timing of such activities. If any of the proposed Invasive Activities may unreasonably interfere with normal operation of the Properties, EXCO may request an appropriate modification of the proposed Invasive Activity. Any Invasive Activities shall be conducted by a reputable environmental consulting or engineering firm, approved in advance by EXCO (such approval not to be unreasonably withheld or delayed) and, once approved, such environmental consulting or engineering firm shall be deemed to be a “BG’s Representative.” EXCO hereby approves AECOM and DNV as environmental consulting firms that may conduct such Invasive Activities, and each of AECOM and DNV is hereby deemed to be a “BG’s Representative.” BG, AECOM or DNV shall obtain all permits necessary to conduct

 

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any such Invasive Activities from any applicable Governmental Authorities, provided that upon request, EXCO shall provide BG, AECOM or DNV with assistance (at no cost or liability to EXCO) reasonably requested by BG, AECOM or DNV that may be necessary to secure such permits. EXCO shall have the right, at its option and expense, to split any samples collected from the Properties with BG.

(c) BG hereby defends, indemnifies and holds harmless each of the operators of the Assets and EXCO Indemnified Parties from and against any and all Liabilities attributable to personal injury, death or physical property damage, or violation of EXCO’s or its Affiliates’ or any Third Party operator’s rules, regulations or operating policies of which BG or BG’s Representative associated with the Liabilities had been informed, arising out of, resulting from or relating to any field visit, environmental property assessment or other due diligence activity conducted by BG or any BG’s Representative with respect to the Assets or the EXCO Subs (whether prior to or after the execution hereof), EVEN IF SUCH LIABILITIES ARISE OUT OF OR RESULT FROM, SOLELY OR IN PART, THE SOLE, ACTIVE, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF LAW OF OR BY A MEMBER OF EXCO INDEMNIFIED PARTIES, EXCEPTING ONLY LIABILITIES ACTUALLY RESULTING ON THE ACCOUNT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF A MEMBER OF EXCO INDEMNIFIED PARTIES .

(d) BG agrees to review the report prepared by AECOM or DNV with respect to certain of the Assets and to disclose to EXCO such portions thereof as BG deems reasonably appropriate to support any claims for Environmental Defects, or otherwise deems reasonably appropriate, and which BG does not believe in good faith need to remain privileged. Neither BG by its delivery of said documents nor EXCO by its receipt of said documents or otherwise shall be deemed to have made any representation or warranty, expressed, implied or statutory, as to the condition to the Assets or to the accuracy of said documents or the information contained therein.

(e) Upon completion of BG’s due diligence, BG shall at its sole cost and expense and without any cost or expense to EXCO or its Affiliates, (i) repair all physical damage done to the Assets in connection with BG’s due diligence, (ii) restore the Assets to the approximate same or better physical condition than it was prior to commencement of BG’s due diligence and (iii) remove all equipment, tools or other property brought onto the Assets in connection with BG’s due diligence. Any disturbance to the Assets (including the real property associated with such Assets) resulting from BG’s due diligence will be promptly corrected by BG.

10.2 Confidentiality . BG acknowledges that, pursuant to its right of access to the Records or the Assets, BG will become privy to confidential and other information of EXCO and that such confidential information shall be held confidential by BG and BG’s Representatives in accordance with the terms of the Confidentiality Agreement. If the Closing should occur, the foregoing confidentiality restriction on BG, including the Confidentiality Agreement, shall terminate (except as to (a) any Assets that are excluded from the transactions contemplated hereby pursuant to the provisions of this Agreement, and (b) the Excluded Assets).

 

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10.3 Disclaimers .

(a) EXCEPT AS AND TO THE EXTENT EXPRESSLY SET FORTH IN THIS AGREEMENT OR THE CERTIFICATE OF EXCO TO BE DELIVERED AT CLOSING PURSUANT TO SECTION 9.3(j) , (I) EXCO MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS, STATUTORY OR IMPLIED, AND (II) EXCO EXPRESSLY DISCLAIMS ALL LIABILITY AND RESPONSIBILITY FOR ANY REPRESENTATION, WARRANTY, STATEMENT OR INFORMATION MADE OR COMMUNICATED (ORALLY OR IN WRITING) TO BG OR ANY OF ITS AFFILIATES, EMPLOYEES, AGENTS, CONSULTANTS OR REPRESENTATIVES (INCLUDING, WITHOUT LIMITATION, ANY OPINION, INFORMATION, PROJECTION OR ADVICE THAT MAY HAVE BEEN PROVIDED TO BG BY ANY OFFICER, DIRECTOR, EMPLOYEE, AGENT, CONSULTANT, REPRESENTATIVE OR ADVISOR OF EXCO OR ANY OF ITS AFFILIATES).

(b) EXCEPT AS EXPRESSLY SET FORTH IN ARTICLE IV OF THIS AGREEMENT OR THE CERTIFICATE OF EXCO TO BE DELIVERED AT CLOSING PURSUANT TO SECTION 9.3(j) AND WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCO EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS, STATUTORY OR IMPLIED, AS TO (I) TITLE TO ANY OF THE ASSETS, (II) THE CONTENTS, CHARACTER OR NATURE OF ANY REPORT OF ANY PETROLEUM ENGINEERING CONSULTANT, OR ANY ENGINEERING, GEOLOGICAL OR SEISMIC DATA OR INTERPRETATION, RELATING TO THE ASSETS, (III) THE QUANTITY, QUALITY OR RECOVERABILITY OF HYDROCARBONS IN OR FROM THE ASSETS, (IV) ANY ESTIMATES OF THE VALUE OF THE ASSETS OR FUTURE REVENUES GENERATED BY THE ASSETS, (V) THE PRODUCTION OF HYDROCARBONS FROM THE ASSETS, (VI) THE MAINTENANCE, REPAIR, CONDITION, QUALITY, SUITABILITY, DESIGN OR MARKETABILITY OF THE ASSETS, (VII) THE CONTENT, CHARACTER OR NATURE OF ANY INFORMATION MEMORANDUM, REPORTS, BROCHURES, CHARTS OR STATEMENTS PREPARED BY EXCO OR THIRD PARTIES WITH RESPECT TO THE ASSETS, (VIII) ANY OTHER MATERIALS OR INFORMATION THAT MAY HAVE BEEN MADE AVAILABLE TO BG OR ITS AFFILIATES, OR ITS OR THEIR EMPLOYEES, AGENTS, CONSULTANTS, REPRESENTATIVES OR ADVISORS IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY DISCUSSION OR PRESENTATION RELATING THERETO AND (IX) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT. EXCEPT AS EXPRESSLY REPRESENTED OTHERWISE IN ARTICLE IV OF THIS AGREEMENT OR THE CERTIFICATE OF EXCO TO BE DELIVERED AT CLOSING PURSUANT TO SECTION 9.3(j) , EXCO FURTHER DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS, STATUTORY OR IMPLIED, OF MERCHANTABILITY, FREEDOM FROM LATENT VICES OR DEFECTS, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OF ANY ASSETS, RIGHTS OF A PURCHASER UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION OR RETURN OF THE PURCHASE PRICE OR CONSIDERATION, IT BEING EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES HERETO THAT BG, THROUGH ITS ACQUISITION OF THE SUBJECT

 

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MEMBERSHIP INTERESTS, SHALL BE DEEMED TO BE OBTAINING THE SUBJECT INTERESTS IN THEIR PRESENT STATUS, CONDITION AND STATE OF REPAIR, “AS IS” AND “WHERE IS” WITH ALL FAULTS OR DEFECTS (KNOWN OR UNKNOWN, LATENT, DISCOVERABLE OR UNDISCOVERABLE), AND THAT BG HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS BG DEEMS APPROPRIATE.

(c) OTHER THAN THOSE REPRESENTATIONS SET FORTH IN SECTION 4.15 AND AS REPEATED IN THE CERTIFICATE OF EXCO TO BE DELIVERED AT CLOSING PURSUANT TO SECTION 9.3(j) , EXCO HAS NOT AND WILL NOT MAKE ANY REPRESENTATION OR WARRANTY REGARDING ANY MATTER OR CIRCUMSTANCE RELATING TO ENVIRONMENTAL LAWS, THE RELEASE OF MATERIALS INTO THE ENVIRONMENT OR THE PROTECTION OF HUMAN HEALTH, SAFETY, NATURAL RESOURCES OR THE ENVIRONMENT, OR ANY OTHER ENVIRONMENTAL CONDITION OF THE ASSETS, AND NOTHING IN THIS AGREEMENT OR OTHERWISE SHALL BE CONSTRUED AS SUCH A REPRESENTATION OR WARRANTY, AND SUBJECT TO BG’S RIGHTS UNDER SECTION 12.1 , BG, THROUGH ITS ACQUISITION OF THE SUBJECT MEMBERSHIP INTERESTS, SHALL BE DEEMED TO BE OBTAINING THE SUBJECT INTERESTS “AS IS” AND “WHERE IS” WITH ALL FAULTS FOR PURPOSES OF THEIR ENVIRONMENTAL CONDITION AND THAT BG HAS MADE OR CAUSED TO BE MADE SUCH ENVIRONMENTAL INSPECTIONS AS BG DEEMS APPROPRIATE.

(d) EXCO and BG agree that, to the extent required by applicable law to be effective, the disclaimers of certain representations and warranties contained in this Section 10.3 are “conspicuous” disclaimers for the purpose of any applicable Law.

ARTICLE XI

TITLE MATTERS; CASUALTIES; TRANSFER RESTRICTIONS

11.1 General Disclaimer of Title Warranties and Representations . Without limiting BG’s remedies for Title Defects set forth in this Article XI , EXCO makes no warranty or representation, express, implied, statutory or otherwise, with respect to EXCO’s title to any of the Assets and BG hereby acknowledges and agrees that BG’s sole remedy for any defect of title, including any Title Defect, with respect to any of the Subject Interests (a) on or before the Title Defect Claim Date, shall be as set forth in Section 11.2 and (b) without duplication, from and after the Title Defect Claim Date, shall be under Section 13.1(b) relating to a breach by EXCO of Section 6.1(f) or Section 6.1(h) .

11.2 Notice of Title Defects; Defect Adjustments .

(a) Title Defect Notices . On or before the Title Defect Claim Date, BG may deliver claim notices to EXCO meeting the requirements of this Section 11.2(a) (collectively the “ Title Defect Notices ” and individually a “ Title Defect Notice ”) setting forth any matters which, in BG’s reasonable opinion, constitute Title Defects and which BG intends to assert as a Title Defect pursuant to this Article XI . For all purposes of this Agreement and notwithstanding anything herein to the contrary, BG shall be deemed to have waived, and EXCO shall have no liability for, any Title Defect which BG fails to assert as a Title Defect by a Title Defect Notice

 

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received by EXCO on or before the Title Defect Claim Date, provided that any breach of Section 4.7 or Section 4.25 which could also be a Title Defect may be resolved pursuant to Article XIII , or as a Title Defect pursuant to this Article XI , but not both, and, provided further, that any breach of Section 4.4 or Section 4.10 shall be resolved only pursuant to such Section and may not be asserted as a Title Defect. To be effective, each Title Defect Notice shall be in writing, and shall include (i) a description of the alleged Title Defect(s), (ii) the Warranty Wells or Leases affected by the Title Defect (each a “ Title Defect Property ”), (iii) the Allocated Value and Allocated Carry of the Subject Interest in each Title Defect Property, (iv) supporting documents available to BG reasonably necessary for EXCO to verify the existence of the alleged Title Defect(s), and (v) the amount by which BG reasonably believes the Allocated Value and Allocated Carry of the Subject Interest in each Title Defect Property is reduced by the alleged Title Defect(s) and the computations upon which BG’s belief is based. To give EXCO an opportunity to commence reviewing and curing Title Defects, BG agrees to use reasonable efforts to give EXCO, during the period prior to the Title Defect Claim Date, periodic written notices of all Title Defects discovered by BG since the last such interim notice, which interim notices may be preliminary in nature and supplemented prior to the expiration of the Title Defect Claim Date, provided that failure to provide preliminary notice of a Title Defect shall not prejudice BG’s right to assert such Title Defect hereunder. BG shall also on or before the Title Defect Claim Date furnish EXCO with written notice of any Title Benefit which is reported by any of BG’s or any of its Affiliate’s employees, title attorneys, landmen or other title examiners to the BG employee directly responsible for undertaking and supervising BG’s title diligence activities hereunder while conducting BG’s due diligence with respect to the Assets prior to the Title Defect Claim Date.

(b) Title Benefit Notices . In addition to any Title Benefits reported by BG pursuant to Section 11.2(a) , EXCO shall have the right, but not the obligation, to deliver to BG on or before the Title Defect Claim Date a notice setting forth any additional matters which, in EXCO’s reasonable opinion, constitute Title Benefits and which EXCO intends to assert as Title Benefits pursuant to this Article XI (each, a “ Title Benefit Notice ”). To be effective, each Title Benefit Notice shall be in writing, and shall include (i) a description of the Title Benefit, (ii) the Warranty Wells or Leases affected by the Title Benefit, (iii) supporting documents available to EXCO reasonably necessary for BG to verify the existence of the alleged Title Benefit and (iv) the amount by which EXCO reasonably believes the Allocated Value and Allocated Carry of the Subject Interest in each affected Lease is increased by the alleged Title Benefit and the computations upon which EXCO’s belief is based. Other than Title Benefits which BG is required to report to EXCO pursuant to Section 11.2(a) , EXCO shall be deemed to have waived all Title Benefits of which it has not given notice on or before the Title Defect Claim Date.

(c) EXCO’s Right to Cure . EXCO shall have the right, but not the obligation, to attempt, at its sole cost, to cure at any time prior to the Title Defect Remedy Date (the “ Title Cure Period ”), any Title Defects of which it has been advised by BG.

(d) Remedies for Title Defects . With respect to any Title Defect that has not been waived in writing by BG, or cured on or before the Title Defect Remedy Date, subject to EXCO’s right to dispute the existence of such Title Defect and/or the Title Defect Amount or Title Carry Reduction Amount asserted with respect thereto and subject to the applicable Individual Title Defect Threshold and the Title Deductible (except with respect to Title Defects relating to Pineton Warranty Wells and/or Pineton Leases), the Parties shall mutually elect to:

(i) subject to the applicable Individual Title Defect Threshold and the Title Deductible (except with respect to Title Defects relating to Pineton Warranty Wells and/or Pineton Leases), make a payment from EXCO to BG in an amount equal to the Title Defect Amount of such Title Defect, and reduce the Carried Cost Obligation by an amount equal to the Title Carry Reduction Amount for such Title Defect;

 

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(ii) have the applicable Newco and the Operator reassign to EXCO, with special warranty of title against claims by, through or under such Person, but not otherwise, the Title Defect Property that is subject to such Title Defect, together with all associated Assets, and, concurrently therewith, EXCO shall pay to BG an amount equal to the Allocated Value of the Subject Interest attributable to such Title Defect Property and the Carried Cost Obligation shall be reduced by an amount equal to the Title Carry Reduction Amount attributable to such Title Defect Property and such property and assets shall become Excluded Assets hereunder; or

(iii) have EXCO indemnify BG with respect to such Title Defect by an indemnity in form and substance satisfactory to BG.

In the event that the Parties do not agree in writing by the Title Defect Remedy Date on an election of alternative (i), (ii) or (iii) above with respect to any Title Defect, they shall be deemed to have elected alternative (i), provided that if the existence of a Title Defect or the Title Defect Amount asserted with respect thereto is disputed, no payment shall be made until the dispute is resolved pursuant to Section 11.2(j) .

(e) Remedies for Title Benefits .

(i) In the case of each Title Benefit, the aggregate Title Defect Amounts attributable to all uncured Title Defects shall be reduced by an amount equal to the Title Benefit Amount of such Title Benefit and the aggregate Title Carry Reduction Amounts attributable to all uncured Title Defects shall be reduced by an amount equal to the Title Carry Increase Amount for such Title Benefit .

(ii) Notwithstanding anything to the contrary, (A) in no event shall there be any adjustments to the Final Cash Price or reductions to the aggregate Title Defect Amount or increases in the Carried Cost Obligation for any individual Title Benefit for a Warranty Well for which the Title Benefit Amount does not exceed $25,000, or for any individual Title Benefit for a Lease for which the Title Benefit Amount does not exceed $10,000 (in either case, the applicable “ Individual Title Benefit Threshold ”), (B) in no event shall there be any adjustments to the Final Cash Price or reductions to the aggregate Title Defect Amount or increases in the Carried Cost Obligation unless the sum of the Title Benefit Amounts of all Title Benefits in excess of the applicable Individual Title Benefit Threshold exceeds $9,500,000 and (C) in no event shall there be any adjustments to the Final Cash Price or reductions to the aggregate Title Defect Amount to the extent the aggregate of such Title Benefit Amounts in excess of the applicable Individual Title Benefit Threshold exceed the aggregate Title Defect Amounts and (D) in no event shall there be any increases in the Carried Cost Obligation (I)

 

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unless there is an adjustment for the related Title Benefit Amount, and then only in the same proportion as an adjustment is made for the related Title Benefit Amount or (II) to the extent the aggregate of Title Carry Increase Amounts related to Title Benefit Amounts in excess of the Individual Title Benefit Threshold exceed the aggregate Title Carry Reduction Amounts. The Parties agree that if the same Title Benefit affects more than one Lease, then the Title Benefit Amounts for each Lease affected by such Title Benefit shall be aggregated for the purposes of determining whether the applicable Individual Title Benefit Threshold has been met with respect to such Title Benefit.

(f) Exclusive Remedy . Except for BG’s rights under Section 13.1(a) relating to a breach by EXCO of Sections 4.7 or 4.25 which could also be a Title Defect and under Section 13.1(b) relating to a breach by EXCO of Section 6.1(f) or 6.1(h) , the provisions of Section 11.2(d) shall be the exclusive right and remedy of BG with respect to the failure of the EXCO Subs to have Defensible Title with respect to any Asset.

(g) Title Defect Amount . The Title Defect Amount resulting from a Title Defect shall be the amount by which the Allocated Value of the Subject Interest attributed to the affected Title Defect Property is reduced as a result of the existence of such Title Defect and shall be determined in accordance with the following terms and conditions:

(i) if BG and EXCO agree on the Title Defect Amount, then that amount shall be the Title Defect Amount;

(ii) if the Title Defect is an Encumbrance that is undisputed and liquidated in amount, then the Title Defect Amount shall be the amount necessary to be paid to remove the Title Defect from the Title Defect Property;

(iii) if the Title Defect represents a discrepancy between (A) the Net Revenue Interest for any Title Defect Property and (B) the Net Revenue Interest stated in Exhibit B ( or, with respect to a Lease in Exhibit A , the Net Revenue Interest determined by subtracting the royalties, overriding royalties and other burdens shown on Exhibit A for such Lease from 100%) and the Working Interest is not reduced proportionately, then the Title Defect Amount shall be the product of the Allocated Value of the Subject Interest attributed to such Title Defect Property multiplied by a fraction, the numerator of which is the Net Revenue Interest decrease and the denominator of which is the Net Revenue Interest stated in Exhibit B ( or, with respect to a Lease in Exhibit A , the Net Revenue Interest determined by subtracting the royalties, overriding royalties and other burdens shown on Exhibit A for such Lease from 100%);

(iv) if the Title Defect represents a discrepancy between (A) the Net Acres for any Title Defect Property and (B) the Net Acres for such Title Defect Property stated in Exhibit A , then the Title Defect Amount shall be the product obtained by multiplying the positive difference between such Net Acres amounts by the Net Acre Allocation applicable to such Title Defect Property;

(v) if the Title Defect represents an obligation or Encumbrance upon or other defect in title to the Title Defect Property of a type not described above, the Title Defect Amount shall be determined by taking into account the Allocated Value of the Subject Interest

 

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attributed to the Title Defect Property, the portion of the Title Defect Property affected by the Title Defect, the legal effect of the Title Defect, the potential economic effect of the Title Defect over the life of the Title Defect Property, the values placed upon the Title Defect by BG and EXCO and such other reasonable factors as are necessary to make a proper evaluation; provided, however, that if such Title Defect is reasonably capable of being cured, the Title Defect Amount shall not be greater than the lesser of (A) the reasonable cost and expense of curing such Title Defect and (B) the Allocated Value of the Subject Interest attributable to the Title Defect Property;

(vi) the Title Defect Amount with respect to a Title Defect Property shall be determined without duplication of any costs or losses included in another Title Defect Amount pertaining to such Title Defect Property hereunder; and

(vii) notwithstanding anything to the contrary in this Article XI , the aggregate Title Defect Amounts attributable to the effects of all Title Defects upon any Title Defect Property shall not exceed the Allocated Value of the Subject Interest attributable to such Title Defect Property.

The Title Carry Reduction Amount resulting from a Title Defect shall equal the same percentage of the Allocated Carry for each affected Lease that the Title Defect Amount bears to the Allocated Value of such Lease. Notwithstanding anything to the contrary in this Article XI , the aggregate Title Carry Reduction Amounts attributable to the effects of all Title Defects upon any Title Defect Property shall not exceed the Allocated Carry of the Conveyed Interest attributable to such Title Defect Property.

(h) Title Benefit Amount . The Title Benefit Amount resulting from a Title Benefit shall be determined in accordance with the following methodology, terms and conditions:

(i) if BG and EXCO agree on the Title Benefit Amount, then that amount shall be the Title Benefit Amount; and

(ii) if the Title Benefit represents a discrepancy between (A) the Net Revenue Interest for any Warranty Well or Lease and (B) the Net Revenue Interest stated in Exhibit B ( or, with respect to a Lease in Exhibit A , the Net Revenue Interest determined by subtracting the royalties, overriding royalties and other burdens shown on Exhibit A for such Lease from 100%) and the Working Interest is not increased proportionately, then the Title Benefit Amount shall be the product of the Allocated Value of the Subject Interest attributable to the affected Warranty Well or Lease multiplied by a fraction, the numerator of which is the Net Revenue Interest increase and the denominator of which is the Net Revenue Interest stated in Exhibit B (or, with respect to a Lease in Exhibit A , the Net Revenue Interest determined by subtracting the royalties, overriding royalties and other burdens shown on Exhibit A for such Lease from 100%); provided that if the Net Revenue Interest increase does not affect the Warranty Well or Lease throughout the entire life of the Warranty Well or Lease, the Title Benefit Amount determined under this Section 11.2(h) shall be reduced to take into account the applicable time period only; and

 

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(iii) If the Title Benefit represents a discrepancy between (A) the Net Acres for any Lease and (B) the Net Acres for such Lease stated in Exhibit A , then the Title Benefit Amount shall be the product obtained by multiplying the positive difference between such Net Acres amounts by the Net Acre Allocation applicable to such Lease.

The Title Carry Increase Amount resulting from a Title Benefit shall equal the same percentage of the Allocated Carry for each affected Lease that the Title Benefit Amount bears to the Allocated Value of such Lease.

(i) Title Deductibles . Notwithstanding anything to the contrary herein, but subject to the following sentence, (i) in no event shall there be any adjustments to the Final Cash Price or other remedies provided by EXCO (including Section 11.2(d) ) or reductions in the Carried Cost Obligation for any individual Title Defect for a Warranty Well for which the Title Defect Amount does not exceed $25,000, or for any individual Title Defect for a Lease for which the Title Defect Amount does not exceed $10,000 (in either case, the applicable “ Individual Title Defect Threshold ”), (ii) in no event shall there be any adjustments to the Final Cash Price or other remedies provided by EXCO (for any Title Defect that exceeds the applicable Individual Title Defect Threshold) pursuant to Section 11.2(d)(i) unless (A) the sum of the Title Defect Amounts of all such Title Defects that exceed the applicable Individual Title Defect Threshold, in the aggregate, excluding any Title Defect Amounts attributable to Title Defects cured by EXCO, Title Defect Properties distributed to, and retained by, EXCO pursuant to Section 11.2(d)(ii) or Title Defect Properties for which EXCO indemnifies BG pursuant to Section 11.2(d)(iii) exceeds (B) the Title Deductible, after which point BG shall be entitled to such remedies only with respect to aggregate Title Defect Amounts in excess of such Title Deductible, and (iii) in no event shall there be any decreases in the Carried Cost Obligation unless there is an adjustment for the related Title Defect Amount, and then only in the same proportion as an adjustment is made for the related Title Defect Amount. BG shall be entitled to adjustments to the Final Cash Price, other remedies provided by EXCO (including Section 11.2(d) ) and/or reductions in the Carried Cost Obligation for each Title Defect relating to Pineton Warranty Wells and/or Pineton Leases without regard to whether the Title Defect Amount for such Title Defect satisfies the Individual Title Defect Threshold, and without regard to whether the Title Deductible has been satisfied. The Parties agree that if the same Title Defect affects more than one Lease, then the Title Defect Amounts for each Lease affected by such Title Defect shall be aggregated for the purposes of determining whether the applicable Individual Title Defect Threshold has been met with respect to such Title Defect. If the Parties elect to have any Title Defect Property distributed to, and retained by, EXCO pursuant to Section 11.2(d)(ii) , then the Final Cash Price shall be reduced by the Allocated Value of the Subject Interest attributable to such Title Defect Property, the Carried Cost Obligation shall be reduced by the Allocated Carry of the Subject Interest attributable to such Title Defect Property and the Title Defect Amount relating to such Subject Interest will not be counted towards the Title Deductible.

(j) Title Dispute Resolution . EXCO and BG shall attempt to agree on all disputes relating to Title Defects, Title Benefits, and the Title Defect Amounts, Title Carry Reduction Amounts, Title Benefit Amounts and Title Carry Increase Amounts relating thereto prior to the Title Remedy Date. If EXCO and BG are unable to agree by such date, such disputes shall be exclusively and finally resolved pursuant to this Section 11.2(j) . There shall be a single

 

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arbitrator, who shall be a title attorney with at least 10 years experience in oil and gas titles involving properties in the regional area in which the Title Defect Properties are located, as selected by mutual agreement of BG and EXCO within 15 days after the end of the applicable Title Cure Period, and absent such agreement, by the Dallas office of the AAA (the “ Title Arbitrator ”). The Title Arbitrator shall not have worked as an employee or outside counsel for any Party or its Affiliates during the 5 year period preceding the arbitration or have any financial interest in the dispute. The arbitration proceeding shall be held in Dallas, Texas and shall be conducted in accordance with the Commercial Arbitration Rules of the AAA, to the extent such rules do not conflict with the terms of this Section. The Title Arbitrator’s determination shall be made within 20 days after submission of the matters in dispute and shall be final and binding upon both Parties, without right of appeal. In making his determination, the Title Arbitrator shall be bound by the rules set forth in Sections 11.2(g) and 11.2(h) and, subject to the foregoing, may consider such other matters as in the opinion of the Title Arbitrator are necessary to make a proper determination. The Title Arbitrator, however, may not award BG a greater Title Defect Amount or Title Carry Reduction Amount than the Title Defect Amount or Title Carry Reduction Amount claimed by BG in its applicable Title Defect Notice nor a lower Title Defect Amount or Title Carry Reduction Amount than the Title Defect Amount or Title Carry Reduction Amount proposed by EXCO in its response to such Title Defect Notice and may not award EXCO a greater Title Benefit Amount or Title Carry Increase Amount than the Title Benefit Amount or Title Carry Increase Amount claimed by EXCO in its applicable Title Benefit Notice nor a lower Title Benefit Amount or Title Carry Increase Amount than the Title Benefit Amount or Title Carry Increase Amount proposed by BG in its response to such Title Benefit Notice. The Title Arbitrator shall act as an expert for the limited purpose of determining the specific disputed Title Defect, Title Benefit, Title Defect Amounts, Title Carry Reduction Amounts, Title Benefit Amounts and/or Title Carry Increase Amounts submitted by either Party and may not award damages, interest or penalties to either Party with respect to any matter. EXCO and BG shall each bear its own legal fees and other costs of presenting its case. Each of EXCO and BG shall bear one-half of the costs and expenses of the Title Arbitrator. To the extent that the award of the Title Arbitrator with respect to any Title Defect Amount or any Title Benefit Amount is not taken into account as an adjustment to the Final Cash Price pursuant to Section 3.6 and the applicable Party would otherwise be entitled to an adjustment under the provisions of this Section 11.2, then within 10 days after the Title Arbitrator delivers written notice to BG and EXCO of his award with respect to such Title Defect Amount or such Title Benefit Amount, (A) BG shall pay to EXCO the amount, if any, so awarded by the Title Arbitrator to EXCO and (B) EXCO shall pay to BG the amount, if any, so awarded by the Title Arbitrator to BG.

11.3 Casualty or Condemnation Loss.

(a) Notwithstanding anything herein to the contrary, from and after the Effective Time if Closing occurs, with respect to the Subject Interests, Midstream LLC, Newcos and the Operator shall assume all risk of loss with respect to production of Hydrocarbons through normal depletion (including watering out of any well, collapsed casing or sand infiltration of any well) and the depreciation of personal property due to ordinary wear and tear, in each case, and BG shall not assert such matters as any casualty losses or Title Defects hereunder.

 

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(b) If, after the date of this Agreement but prior to the Closing Date, any portion of the Assets is damaged or destroyed by fire or other casualty or is taken in condemnation or under right of eminent domain, then BG shall not as a result be excused from Closing and EXCO shall elect by written notice to BG prior to Closing either (i) to cause the Assets affected by such casualty or taking to be repaired or restored to at least its condition prior to such casualty or taking, at EXCO’s sole cost, as promptly as reasonably practicable (which work may extend after the Closing Date) or (ii) to indemnify the Newcos, Operator and Midstream LLC, as applicable, through a document to be delivered at Closing reasonably acceptable to EXCO and BG against any costs or expenses that any of the Newcos, Operator or Midstream LLC reasonably incurs to repair or restore any Assets affected by such casualty or taking. In each case, EXCO and its Affiliates shall retain all rights to insurance, condemnation awards and other claims against Third Parties with respect to the casualty or taking except to the extent the Parties otherwise agree in writing.

(c) If any action for condemnation or taking under right of eminent domain is pending or threatened with respect to any Asset or portion thereof after the date of this Agreement, but no taking of such Asset or portion thereof occurs prior to the Closing Date, BG shall nevertheless be required to close and EXCO, at Closing, shall assign, transfer and set over to the Newcos, Operator and Midstream LLC or subrogate such Persons to all of EXCO’s and its Affiliates’ right, title and interest (if any) in such condemnation or eminent domain action, including any future awards therein, to the extent (and only to the extent) attributable to the Subject Interests threatened to be taken, except that EXCO and its Affiliates shall reserve and retain (and the Newcos, Operator and Midstream LLC shall assign to EXCO) all rights, titles, interests and claims against Third Parties for the recovery of EXCO’s and its Affiliates’ costs and expenses incurred prior to the Closing in defending or asserting rights in such action with respect to the Subject Interests.

11.4 Preferential Purchase Rights and Consents to Assign .

(a) Within three Business Days after the Execution Date, the Parties will jointly decide the applicability of any preferential purchase right to the transactions contemplated hereby and, EXCO, within 10 days after the date of this Agreement, shall send to the holder of each such right a notice, in material compliance with the contractual provisions applicable to such right requesting a waiver of such right. For the avoidance of doubt, if the Parties are not able to come to agreement regarding the applicability of a specific preferential purchase right to the transactions contemplated hereby, such preferential purchase right shall be considered applicable and EXCO will send a notice to the holder of such right pursuant to the terms of this Section 11.4 . In addition, within three Business Days after the Execution Date, the Parties will jointly decide the applicability of any right to consent to assignment pertaining to the Subject Interests and the transactions contemplated hereby and, EXCO, within 10 days after the date of this Agreement, shall send to each holder of such an applicable consent right a notice, in material compliance with the contractual provisions applicable to such right, seeking such holder’s consent to the transactions contemplated hereby. For the avoidance of doubt, if the Parties are not able to come to agreement regarding the applicability of a specific right to consent to assignment pertaining to the Subject Interests and the transactions contemplated hereby, such consent right shall be considered applicable and EXCO will send a notice to the holder of such right pursuant to the terms of this Section 11.4 . Any preferential purchase right must be

 

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exercised subject to all terms and conditions set forth in this Agreement, including the successful closing of this Agreement pursuant to Article IX and the obligation to bear the Allocated Carry for such Subject Interest based upon the terms of the Joint Development Agreement. The consideration payable under this Agreement for any particular Subject Interest for purposes of preferential purchase right notices shall be the Allocated Value of such Subject Interest. EXCO shall use commercially reasonable efforts to cause such waivers of preferential purchase rights (or exercise thereof) and consents to assignment to be obtained and delivered prior to Closing, provided that EXCO shall not be required to make payments or undertake obligations to or for the benefit of the holders of such rights in order to obtain the required waivers and consents.

(b) If, prior to the Closing, any holder of a preferential purchase right notifies EXCO that it intends to consummate the purchase of the Subject Interest to which its preferential purchase right applies, then the Subject Interest shall be excluded from the Subject Interests to the extent of the interest affected by the preferential purchase right, such Subject Interest shall be distributed to EXCO, the Closing Cash Consideration shall be reduced by the Allocated Value of the relevant Subject Interest and the Carried Cost Obligation shall be reduced by the Allocated Carry for the relevant Subject Interest (and such Subject Interest shall be considered an Excluded Asset for purposes of the other adjustments in Section 3.3 ). EXCO shall be entitled to all proceeds paid by a Person exercising a preferential purchase right prior to the Closing. If such holder of such preferential purchase right thereafter fails to consummate the purchase of the Subject Interest covered by such right, then EXCO shall so notify BG, and BG shall purchase on or before 10 days following receipt of such notice, subject to BG’s satisfaction that such preferential purchase right has been waived or the time for exercising such right has expired, such Subject Interest from EXCO, under the terms of this Agreement for a price equal to the portion of the Closing Cash Consideration previously allocated to it, as adjusted pursuant to Section 3.3 and the Carried Cost Obligation shall be increased by the amount of the previous reduction for the Allocated Carry for the relevant Subject Interest.

(c) All Subject Interests for which preferential purchase rights have been waived, or as to which the period to exercise such right has expired prior to the Closing, shall be retained by Midstream LLC, the Newcos and/or the Operator, as applicable, at the Closing pursuant to the provisions of this Agreement. If, for any reason, any preferential purchase right burdening a Subject Interest is validly exercised after the Closing, BG shall cause the Newcos, and BG and EXCO shall cause Operator and Midstream LLC, to convey the relevant Subject Interest to the holder of such preferential purchase right in accordance with the terms thereof, BG shall be entitled to the proceeds paid by the holder of such preferential purchase right with respect to such Subject Interest, and the Carried Cost Obligation shall be reduced by the Allocated Carry for such Subject Interest.

(d) If (i) EXCO fails to obtain a consent set forth in Schedule 4.4, Part 2 prior to the Closing and the failure to obtain such consent would cause (A) the indirect assignment of the Subject Interest affected thereby to BG to be void or (B) the termination of a Lease under the express terms thereof or (ii) a consent requested by EXCO is denied in writing and in either case, (iii) the consent is not a consent of a Governmental Authority or a material consent required from any other Person as a condition to Closing under Section 7.6 , or BG has waived in writing the requirement with respect to such consent under Section 7.6 , then that portion of such Subject Interest shall be excluded from the Subject Interests to be conveyed to BG, such Subject Interest

 

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shall be distributed to EXCO, the Closing Cash Consideration shall be reduced by the Allocated Value of that portion of such Subject Interest and the Carried Cost Obligation shall be reduced by the Allocated Carry of that portion of such Subject Interest. In the event that such required consent (with respect to a Subject Interest excluded pursuant to this Section 11.4(d) ) that was not obtained prior to Closing is obtained following Closing then within 10 days after such consent is obtained, BG shall cause either Newco, Operator or Midstream LLC, as applicable, to purchase such Subject Interest that was so excluded, pay to EXCO the amount by which the Closing Cash Consideration was reduced with respect to such Subject Interest or portion thereof, the Carried Cost Obligation shall be increased by the amount of the previous reduction for the Allocated Carry and EXCO shall assign to such Person such Subject Interest or portion thereof pursuant to an assignment with a special warranty of title against claims by, through or under EXCO and its Affiliates, but not otherwise.

(e) If (i) EXCO fails to obtain a consent set forth in Schedule 4.4, Part 2 prior to the Closing and the failure to obtain such consent would not cause (A) the indirect assignment of the Subject Interest affected thereby to BG to be void or (B) the termination of a Lease under the express terms thereof, and (ii) the consent is not denied in writing and (iii) the consent is not a consent of a Governmental Authority or a material consent required from any other Person as a condition to Closing under Section 7.6 , or BG has waived in writing the requirement with respect to such consent under Section 7.6 , then the portion of the Subject Interest subject to such failed consent shall be retained by Midstream LLC, the Newcos and/or the Operator, as applicable, at Closing as part of the Subject Interests and BG shall have no claim against, and EXCO shall have no Liability for, the failure to obtain such consent; provided that if the affected Subject Interest subject to such requirement is a Well or Lease, then BG may elect prior to Closing to treat the unsatisfied consent requirement affecting such Well or Lease as a Title Defect (provided that such Title Defect shall not be subject to the Individual Title Defect Threshold or the Title Deductible) and receive the appropriate adjustment to the Final Cash Price in accordance with Section 11.2 .

ARTICLE XII

ENVIRONMENTAL MATTERS

12.1 Environmental Defects .

(a) Assertions of Environmental Defects . BG must deliver claim notices to EXCO meeting the requirements of this Section 12.1(a) (collectively the “ Environmental Defect Notices ” and individually an “ Environmental Defect Notice ”) on or before the applicable Environmental Defect Claim Date setting forth any matters which, in BG’s reasonable opinion, constitute Environmental Defects and which BG intends to assert as Environmental Defects pursuant to this Section 12.1 . For all purposes of this Agreement but subject to BG’s remedy for a breach of EXCO’s representation contained in Section 4.15 and BG’s rights under Section 13.1 , BG shall be deemed to have waived any Environmental Defect which BG fails to assert as an Environmental Defect by an Environmental Defect Notice received by EXCO on or before the final Environmental Defect Claim Date. Notwithstanding anything to the contrary herein, if environmental diligence conducted by BG or its designees (including AECOM or DNV) shows reasonable evidence that a material portion of the Properties upon which environmental diligence was conducted is subject to an Environmental Defect that could potentially be a systemic

 

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Environmental Defect affecting other Properties (a “ Potential Systemic Environmental Defect ”), BG shall have the right, which right shall be exercised (if at all) by notice to EXCO at any time prior to the occurrence of the Post-Closing Environmental Defect Claim Date, to extend the Post-Closing Environmental Defect Claim Date by 60 days in respect of Environmental Defects asserted by BG on other Properties that are substantially similar to the Potential Systemic Environmental Defect. To be effective, each Environmental Defect Notice shall be in writing and shall include (i) a description of the matter constituting the alleged Environmental Defect, (ii) a description of each Asset (or portion thereof) that is affected by the alleged Environmental Defect, (iii) supporting documents available to BG reasonably necessary for EXCO to verify the existence of the alleged Environmental Defect, and (iv) a calculation of the Remediation Amount (itemized in reasonable detail) that BG asserts is attributable to such alleged Environmental Defect. BG’s calculation of the Remediation Amount included in the Environmental Defect Notice must describe in reasonable detail the Remediation proposed for the Environmental Condition that gives rise to the asserted Environmental Defect and identify all assumptions used by BG in calculating the Remediation Amount, including the standards that BG asserts must be met to comply with Environmental Laws. BG shall use its good faith efforts to inform EXCO of any Environmental Defect relating to the Assets of which BG obtains knowledge prior to Closing through the environmental diligence conducted by BG or its designees (including AECOM or DNV) or otherwise. EXCO shall have the right, but not the obligation, to cure any properly claimed Pre-Closing Environmental Defect on or before Closing.

(b) EXCO’s Right to Cure . EXCO shall have the right, but not the obligation, to attempt, at its sole cost, to cure at any time prior to (i) Closing, in the case of any Pre-Closing Environmental Defects , and (ii) the Post-Closing Environmental Defect Remedy Date, in the case of any Post-Closing Environmental Defects (the “ Environmental Cure Period ”), any Environmental Defects of which it has been advised by BG.

(c) Remedies for Environmental Defects .

(i) In the event that any Pre-Closing Environmental Defect timely asserted by BG in accordance with Section 12.1(a) is not waived in writing by BG or cured on or before Closing, then, subject to EXCO’s right to dispute the existence of a Environmental Defect and/or the Remediation Amount asserted with respect thereto, the Parties shall mutually elect to:

(A) subject to the Individual Environmental Threshold and the Environmental Deductible, reduce the Closing Cash Consideration by the Remediation Amount;

(B) to the extent attributable to the Subject Interests, have EXCO assume responsibility for the Remediation of such Environmental Defect and indemnify and hold harmless the BG Indemnified Parties from and against all Liabilities associated with such Environmental Defect and Remediation by an indemnity in form and substance satisfactory to BG;

(C) have the entirety of the Asset, or, at the option of BG, that portion of such Asset pertaining to the Shallow Rights, that is subject to such Environmental Defect, together with all associated Assets, distributed to, and retained by EXCO in which event the Closing Cash Consideration shall be reduced by an amount equal to the Allocated Value of the affected Subject Interest and the Carried Cost Obligation shall be reduced by an amount equal to the Allocated Carry for the affected Subject Interest; or

 

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(D) to the extent attributable to the Subject Interests, have EXCO indemnify and hold harmless the BG Indemnified Parties from and against all Liabilities associated with such Environmental Defect by an indemnity in form and substance reasonably satisfactory to BG.

In the event the Parties do not agree in writing by Closing on an election of alternative (A), (B), (C) or (D) above with respect to any Pre-Closing Environmental Defect, they shall be deemed to have elected alternative (A), provided that if the existence of the Pre-Closing Environmental Defect or the Remediation Amount is disputed, no reduction shall be made in the Closing Cash Consideration pursuant to Section 3.3(b)(v) at Closing and instead such adjustment, if any, shall be made as part of the final settlement pursuant to Section 3.6 , or if not yet then resolved, thereafter. If the Parties elect the option set forth in clause (A) above, then from and after the Closing, BG and its Affiliates (other than Midstream LLC and Operator) shall be responsible and pay for 50% of the costs and expenses attributable to the Remediation of the applicable Pre-Closing Environmental Defect (net to the interest of the EXCO Subs in the underlying properties prior to the Closing) and 50% of all Liabilities (net to the interest of the EXCO Subs in the underlying properties prior to the Closing) with respect thereto. If the Parties elect the option set forth in clause (B) above, EXCO shall implement such Remediation in a manner which is consistent with the requirements of Environmental Laws in a timely fashion for the type of Remediation that EXCO elects to undertake. EXCO will be deemed to have adequately completed the Remediation required in the immediately preceding sentence (1) upon receipt of a certificate or approval from the applicable Governmental Authority that the Remediation has been implemented to the extent necessary to comply with existing regulatory requirements or (2) upon receipt of a certificate from a licensed professional engineer reasonably acceptable to BG that the Remediation has been implemented to the extent necessary to comply with existing regulatory requirements.

(ii) With respect to any Post-Closing Environmental Defect that has not been waived in writing by BG, or cured on or before the Post-Closing Environmental Defect Remedy Date, subject to EXCO’s right to dispute the existence of such Environmental Defect and/or the Remediation Amount asserted with respect thereto and subject to the Individual Environmental Defect Threshold and the Environmental Deductible, the Parties shall mutually elect to:

(A) subject to the Individual Environmental Defect Threshold and the Environmental Deductible, make a payment from EXCO to BG in an amount equal to the Remediation Amount of such Environmental Defect;

(B) have the applicable Newco reassign to EXCO, with special warranty of title against claims by, through or under BG, but not otherwise, the Subject Interests, or, at the option of BG, that portion of the Subject Interests pertaining to the Shallow Rights, that are subject to such Environmental Defect, and the Operator reassign to EXCO, with special warranty of title against claims by, through or under Operator, but not otherwise, the Assets, or, at the option of BG, that portion of the Assets pertaining to the Shallow Rights, that are subject

 

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to such Environmental Defect, in each case, together with all associated Assets, and, concurrently therewith, EXCO shall pay to BG an amount equal to the Allocated Value of the applicable Subject Interests, the Carried Cost Obligation shall be reduced by an amount equal to the Allocated Carry for the applicable Subject Interests and such property and assets shall become Excluded Assets hereunder; or

(C) have EXCO indemnify BG with respect to such Environmental Defect by an indemnity in form and substance satisfactory to BG.

In the event that the Parties do not agree in writing by the Post-Closing Environmental Defect Remedy Date on an election of alternative (A), (B) or (C) above with respect to any Post-Closing Environmental Defect, they shall be deemed to have elected alternative (B); provided that if the existence of a Post-Closing Environmental Defect or the Remediation Amount asserted with respect thereto is disputed, no reassignment shall be made until the dispute is resolved pursuant to Section 12.1(f) .

(d) Exclusive Remedy . Subject to BG’s remedy for a breach of EXCO’s representation contained in Section   4.15 and BG’s rights under Section 13.1 , Section 12.1(c) shall be the exclusive right and remedy of BG with respect to any Environmental Defect. No matter claimed as an Environmental Defect pursuant to this Article XII may also be claimed as a breach of Section 4.15 .

(e) Environmental Deductibles . Notwithstanding anything to the contrary, (i) in no event shall there be any adjustments to the Closing Cash Consideration or other remedies provided by EXCO for any individual Environmental Defect for which the Remediation Amount does not exceed $25,000 (“ Individual Environmental Threshold ”), and (ii) in no event shall there be any adjustments to the Closing Cash Consideration or other remedies provided by EXCO for any Environmental Defect for which the Remediation Amount exceeds the Individual Environmental Threshold pursuant to Section 12.1(c)(i)(A) or Section 12.1(c)(ii)(A) unless (A) the sum of the Remediation Amounts of all such Environmental Defects that exceed the Individual Environmental Threshold, in the aggregate, excluding any Remediation Amounts attributable to Subject Interests that are subject to Environmental Defects which EXCO: (1) assumes pursuant to Section 12.1(C)(i)(B) ; (2) retains pursuant to Section 12.1(c)(i)(C) ; (3) is conveyed pursuant to Section 12.1(c)(ii)(B) ; and (4) indemnifies BG pursuant to Section 12.1(c)(i)(D) or Section 12.1(c)(ii)(C) and any Environmental Defects cured by EXCO, (B) exceeds the Environmental Deductible, after which point BG shall be entitled to adjustments to the Closing Cash Consideration only with respect to aggregate Remediation Amounts in excess of such Environmental Deductible. If the Parties elect to have any Subject Interests related to any Environmental Defect distributed to, and retained by, EXCO, then pursuant to Section 12.1(c)(i)(C) , the Closing Cash Consideration shall be reduced by the Allocated Value of such retained Subject Interests, the Carried Cost Obligation shall be reduced by the Allocated Carry for such retained Subject Interests and the Remediation Amount for the Environmental Defect relating to such retained Subject Interests will not be counted towards the Environmental Deductible. The Parties agree that if the same Environmental Defect affects more than one Asset, then the Environmental Defect Amounts for each Asset affected by such Environmental Defect shall be aggregated for the purposes of determining whether the Individual Environmental Defect Threshold has been met with respect to such Environmental Defect.

 

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(f) Environmental Dispute Resolution . EXCO and BG shall attempt to agree on all disputes (i) relating to Pre-Closing Environmental Defects, the Remediation Amounts relating thereto prior to Closing or (ii) relating to Post-Closing Environmental Defects, the Remediation Amounts relating thereto prior to the Post-Closing Title Remedy Date. If EXCO and BG are unable to agree by such date, the Environmental Defects and/or Remediation Amounts in dispute shall be exclusively and finally resolved by arbitration pursuant to this Section 12.1(f) . There shall be a single arbitrator, who shall be an environmental attorney with at least 10 years experience in environmental matters involving oil and gas producing properties in the regional area in which the affected Subject Interests are located, as selected by mutual agreement of BG and EXCO within 15 days after the end of the applicable Environmental Cure Period, and absent such agreement, by the Dallas office of the AAA (the “ Environmental Arbitrator ”). The arbitration proceeding shall be held in Dallas, Texas and shall be conducted in accordance with the Commercial Arbitration Rules of the AAA, to the extent such rules do not conflict with the terms of this Section. The Environmental Arbitrator shall not have worked as an employee or outside counsel for any Party or its Affiliates during the 5 year period preceding the arbitration or have any financial interest in the dispute. The Environmental Arbitrator’s determination shall be made within 20 days after submission of the matters in dispute and shall be final and binding upon both Parties, without right of appeal. In making his determination, the Environmental Arbitrator shall be bound by the rules set forth in this Section 12.1 and, subject to the foregoing, may consider such other matters as in the opinion of the Environmental Arbitrator are necessary or helpful to make a proper determination. The Environmental Arbitrator, however, may not award BG a greater Remediation Amount than the Remediation Amount claimed by BG in its applicable Environmental Defect Notice nor a lower Remediation Amount than the Remediation Amount proposed by EXCO in its response to such Environmental Defect Notice. The Environmental Arbitrator shall act as an expert for the limited purpose of determining the specific disputed Environmental Defects and/or Remediation Amounts submitted by either Party and may not award damages, interest or penalties to either Party with respect to any matter. EXCO and BG shall each bear its own legal fees and other costs of presenting its case. Each of EXCO and BG shall bear one-half of the costs and expenses of the Environmental Arbitrator. To the extent that the award of the Environmental Arbitrator with respect to any Remediation Amount is not taken into account as an adjustment to the Closing Cash Consideration pursuant to Section 3.5 or Section 3.6 and the applicable Party would otherwise be entitled to an adjustment under the provisions of this Section 12.1 , then within 10 days after the Environmental Arbitrator delivers written notice to BG and EXCO of his award with respect to a Remediation Amount, and subject to this Section 12.1 , (i) BG shall pay to EXCO the amount, if any, so awarded by the Environmental Arbitrator to EXCO and (ii) EXCO shall pay to BG the amount, if any, so awarded by the Environmental Arbitrator to BG. Nothing herein shall operate to cause the Closing to be delayed on account of any arbitration hereunder and to the extent any adjustments are not agreed upon by the Parties as of the Closing, the Closing Cash Consideration shall not be adjusted therefor as of the Closing and subsequent adjustments thereto, if any, will be made pursuant to Section 3.6 , Section 3.7 or this Section 12.1.

12.2 NORM, Wastes and Other Substances . BG acknowledges that the Subject Interests have been used for exploration, development and production of oil and gas and that there may be petroleum, produced water, wastes or other substances or materials located in, on or under the Subject Interests or associated with the Subject Interests. Equipment and sites included in the Subject Interests may contain asbestos, NORM or other Hazardous Substances.

 

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NORM may affix or attach itself to the inside of wells, materials, and equipment as scale, or in other forms. The wells, materials, and equipment located on the Subject Interests or included in the Subject Interests may contain NORM and other wastes or Hazardous Substances. NORM containing material and/or other wastes or Hazardous Substances may have come in contact with various environmental media, including water, soils or sediment. Special procedures may be required for the assessment, remediation, removal, transportation or disposal of environmental media, wastes, asbestos, NORM and other Hazardous Substances from the Subject Interests. This Section shall not limit BG’s remedies under the other terms of this Agreement.

ARTICLE XIII

ASSUMPTION; SURVIVAL; INDEMNIFICATION

13.1 Indemnities of EXCO . Effective as of the Closing, subject to the limitations set forth in Section 13.3 and otherwise in this Article XIII , EXCO is responsible for, shall pay on a current basis and hereby defends, indemnifies and holds harmless BG and its Affiliates (including the Newcos), Operator and Midstream LLC, and all of its and their respective equity holders, partners and members (excluding, in each case, equity holders, partners or members solely by virtue of holding publicly traded shares, units or other interests), and directors, officers, managers, employees, agents and representatives (collectively, “ BG Indemnified Parties ”) from and against any and all Liabilities, arising from, based upon, related to or associated with:

(a) any breach by EXCO of its representations or warranties contained in Article IV ;

(b) any breach by EXCO of its covenants and agreements under this Agreement other than under Article XIV ;

(c) (i) the ownership, use or operation of the Excluded Assets or any other assets distributed to, and retained by, EXCO (or its Affiliates (other than the EXCO Subs) or any Third Party) pursuant to the terms hereof, (ii) the actions, suits or proceedings, if any, set forth on Schedule 4.7, Part 1 , or (iii) EXCO’s indirect undivided 50% share of the Liabilities arising from, based upon, related to or associated with the actions, suits or proceedings set forth on Schedule 4.7, Part 2 incurred from and after the Closing;

(d) any claim for personal injury or death relating to the Subject Interests and occurring prior to the Closing Date to the extent arising out of or attributable to the period of EXCO’s or its Affiliates’ (including the EXCO Subs’) ownership of the Subject Interests prior to the Closing Date;

(e) the disposal or transportation of any Hazardous Substances from Subject Interests operated by any EXCO Sub attributable to the period of EXCO’s or its Affiliates’ ownership of the Subject Interests and prior to Closing, to any location not on the Assets or lands pooled or unitized therewith in violation of any Environmental Law;

(f) any payments for royalties or overriding royalties attributable to sales of Hydrocarbons produced from the Subject Interests prior to the Effective Time;

 

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(g) any Liability of any EXCO Sub for gross negligence or willful misconduct solely in connection with its operation, prior to the Closing, of any of the Subject Interests in its capacity as operator thereof (and not as a joint tenant is the properties comprising the Subject Interests);

(h) any ERISA Liability, Income Tax Liability or Franchise Tax Liability (in each case) attributable to the period on or prior to the Closing;

(i) any Hedge Contract; or

(j) attributable to wells on the Properties that were permanently abandoned prior to the Effective Time.

13.2 Indemnities of BG . Effective as of the Closing, BG and its successors and assigns shall assume, be responsible for, shall pay on a current basis and hereby defends, indemnifies, holds harmless and forever releases EXCO and its Affiliates, and all of their respective equity holders, partners and members (excluding, in each case, equity holders, partners or members solely by virtue of holding publicly traded shares, units or other interests), and directors, officers, managers, employees, agents and representatives (collectively, “ EXCO Indemnified Parties ”) from and against any and all Liabilities arising from, based upon, related to or associated with:

(a) any breach by BG of its representations or warranties contained in Article V ;

(b) any breach by BG of its covenants and agreements under this Agreement other than under Article XIV ; and

(c) BG’s indirect undivided 50% share of the fees of attorneys, experts, consultants, accountants and other professional representatives and court costs arising from, based upon, related to or associated with the actions, suits or proceedings set forth on Schedule 4.7, Part 2 incurred from and after the Closing;

but excepting (in each case) Liabilities against which EXCO is required to indemnify BG under Section 13.1 at the time that the Claim Notice is presented by the EXCO Indemnified Party to BG.

13.3 Limitation on Liability .

(a) EXCO shall not have any liability for any indemnification under this Agreement unless (i) the individual amount of any Liability for which a Claim Notice is delivered by BG to EXCO under this Article XIII and for which EXCO is liable exceeds $25,000, and (ii) the aggregate amount of all Liabilities for which EXCO is liable under this Agreement after the application of the provisions of clause (i) above exceeds $14,250,000 and then only to the extent such damages or costs exceed $14,250,000; provided that EXCO’s indemnities under Sections 13.1(c) through (j) , EXCO’s indemnities in Section 13.1(b) for breaches of Articles II, III, IX, XI, XII and XV and Sections 6.1, 6.2 ,6.10, 6.12 and 6.15 , EXCO’s indemnities under Section 13.1(a) for breaches of representations in Sections 4.1 , 4.2, 4.26 and 4.30 , shall not be

 

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limited by this Section   13.3(a) . For purposes of determining whether there has been a breach of any of EXCO’s representations and warranties for which BG is entitled to indemnification under Section 13.1(a) , any dollar or materiality qualifiers in EXCO’s representations or warranties (except for EXCO’s representations and warranties under Section 4.8(a) ) shall be disregarded.

(b) Notwithstanding anything to the contrary contained in this Agreement, EXCO shall not be required to indemnify BG for aggregate Liabilities under Sections 13.1(a) and 13.1(b) in excess of $332,500,000, provided that EXCO’s indemnities in Section 13.1(b) for breaches of Articles II , III , IX and XV and Sections 6.1, 6.2, 6.10, 6.12 and 6.15 , and EXCO’s indemnities under Section 13.1(a) for breaches of representations in Sections 4.1 , 4.2, 4.26 and 4.30, shall not be limited by this Section 13.3(b) .

(c) The amount of Liability for which an Indemnified Party is entitled to indemnity under this Article XIII shall be reduced by the amount of insurance proceeds realized by the Indemnified Party or its Affiliates with respect to such Liability (net of any collection costs, and excluding the proceeds of any insurance policy issued or underwritten by the Indemnified Party or its Affiliates).

13.4 Express Negligence . EXCEPT AS OTHERWISE PROVIDED IN SECTION 10.1(c) , THE INDEMNIFICATION, RELEASE, WAIVER AND LIMITATION OF LIABILITY PROVISIONS PROVIDED FOR IN THIS AGREEMENT SHALL BE APPLICABLE WHETHER OR NOT THE LIABILITIES, LOSSES, COSTS, EXPENSES AND DAMAGES IN QUESTION AROSE OR RESULTED SOLELY OR IN PART FROM THE GROSS, SOLE, ACTIVE, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF LAW OF OR BY ANY INDEMNIFIED PARTY. BG AND EXCO ACKNOWLEDGE THAT THIS STATEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE RULE AND IS CONSPICUOUS.

13.5 Exclusive Remedy . Notwithstanding anything to the contrary contained in this Agreement, from and after Closing, Sections 10.1(c) , 13.1 and 13.2 contains the Parties’ exclusive remedy against each other with respect to breaches of the representations, warranties, covenants and agreements of the Parties contained in Article IV , Article V and Article VI and the affirmations of such representations, warranties, covenants and agreements contained in the certificate delivered by each Party at Closing pursuant to Section 9.3(i) or 9.3(j) , as applicable. Except for (a) the remedies contained in this Article XIII , (b) any other remedies available to the Parties at Law or in equity for breaches of provisions of this Agreement other than Article IV , Article V and Article VI and (c) the remedies available at Law or in equity in connection with any other document delivered by a Party in connection with the consummation of the transactions contemplated hereby (other than the certificates delivered by the Parties pursuant to Sections 9.3(i) or 9.3(j) ), from and after Closing, EXCO and BG each releases, remises and forever discharges the other and its Affiliates and Operator and Midstream LLC and all such Persons’ equity holders, partners, members, officers, directors, employees, agents, advisors and representatives from any and all Liabilities in Law or in equity, known or unknown, which such Parties might now or subsequently may have, based on, relating to or arising out of this Agreement or the consummation of the transactions contemplated hereby. Except for the remedies contained in (i)  Sections 10.1(c) , 13.1 and 13.2 , (ii) any other remedies available at Law or in equity for breaches of the provisions of this Agreement other than Article IV , Article V

 

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and Article VI and (iii) the remedies available at Law or in equity in connection with any other document delivered by a Party in connection with the transactions contemplated hereby or the Assignment, Joint Development Agreement or Joint Development Operating Agreement, but excluding the certificates delivered by the Parties pursuant to Sections 9.3(i) or 9.3(j) , effective as of Closing, each Party, on its own behalf and on behalf of its Affiliates, hereby releases, remises and forever discharges the other Party and its Affiliates and Operator and Midstream LLC and all such Persons’ equity holders, partners, members, directors, officers, employees, agents and representatives from any and all Liabilities in Law or in equity, known or unknown, which such Persons might now or subsequently may have, based on, relating to or arising out of the ownership, use or operation of the Subject Interests prior to the Closing, or the condition, quality, status or nature of the Subject Interests prior to the Closing, including rights to contribution under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, breaches of statutory or implied warranties, nuisance or other tort actions, rights to punitive damages, common law rights of contribution, and rights under insurance maintained by either Party or any of its Affiliates.

13.6 Indemnification Procedures . All claims for indemnification under Sections 10.1(c) , 13.1 and 13.2 shall be asserted and resolved as follows:

(a) For purposes of this Article XIII , the term “ Indemnifying Party ” when used in connection with particular Liabilities shall mean the Party having an obligation to indemnify another Party or Person(s) with respect to such Liabilities pursuant to this Article XIII , and the term “ Indemnified Party ” when used in connection with particular Liabilities shall mean the Party or Person(s) having the right to be indemnified with respect to such Liabilities by a Party pursuant to this Article XIII .

(b) To make claim for indemnification under Sections 10.1(c) , 13.1 or 13.2 , an Indemnified Party shall notify the Indemnifying Party of its claim under this Section 13.6 , including the specific details of and specific basis under this Agreement for its claim (the “ Claim Notice ”). In the event that the claim for indemnification is based upon a claim by a Third Party against the Indemnified Party (a “ Claim ”), the Indemnified Party shall provide its Claim Notice promptly after the Indemnified Party has actual knowledge of the Claim and shall enclose a copy of all papers (if any) served with respect to the Claim; provided that the failure of any Indemnified Party to give notice of a Claim as provided in this Section   13.6 shall not relieve the Indemnifying Party of its obligations under Sections 10.1(c) , 13.1 or 13.2 (as applicable) except to the extent such failure results in insufficient time being available to permit the Indemnifying Party to effectively defend against the Claim or otherwise materially prejudices the Indemnifying Party’s ability to defend against the claim. In the event that the claim for indemnification is based upon an inaccuracy or breach of a representation, warranty, covenant or agreement, the Claim Notice shall specify the representation, warranty, covenant or agreement that was inaccurate or breached.

(c) In the case of a claim for indemnification based upon a Claim, the Indemnifying Party shall have 30 days from its receipt of the Claim Notice to notify the Indemnified Party whether it admits or denies its obligation to defend the Indemnified Party against such Claim at the sole cost and expense of the Indemnifying Party. The Indemnified Party is authorized, prior to and during such 30 day period, at the expense of the Indemnifying Party, to file any motion, answer or other pleading that it shall deem necessary or appropriate to protect its interests or those of the Indemnifying Party and that is not prejudicial to the Indemnifying Party.

 

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(d) If the Indemnifying Party admits its obligation to indemnify a Claim, it shall have the right and obligation to diligently defend, at its sole cost and expense, the Claim. The Indemnifying Party shall have full control of such defense and proceedings, including any compromise or settlement thereof. If requested by the Indemnifying Party, the Indemnified Party agrees to cooperate in contesting any Claim which the Indemnifying Party elects to contest. The Indemnified Party may participate in, but not control, at its own expense, any defense or settlement of any Claim controlled by the Indemnifying Party pursuant to this Section 13.6(d) (provided, however, that the Indemnified Party shall not be required to bring any counterclaim or cross-complaint against any Person). An Indemnifying Party shall not, without the written consent of the Indemnified Party, (i) settle any Claim or consent to the entry of any judgment with respect thereto which does not result in a final resolution of the Indemnified Party’s Liability in respect of such Claim (including, in the case of a settlement, an unconditional written release of the Indemnified Party from all Liability in respect of such Claim) or (ii) settle any Claim or consent to the entry of any judgment with respect thereto in any manner that may materially and adversely affect the Indemnified Party (other than as a result of money damages covered by the indemnity).

(e) If the Indemnifying Party does not admit its obligation to indemnify and bear all expenses associated with a Claim or admits its obligation to indemnify and bear all expenses associated with a Claim but fails to diligently prosecute or settle the Claim, then the Indemnified Party shall have the right to defend against the Claim at the sole cost and expense of the Indemnifying Party, with counsel of the Indemnified Party’s choosing, subject to the right of the Indemnifying Party to admit its obligation to indemnify and bear all expenses associated with a Claim and assume the defense of the Claim at any time prior to settlement or final determination thereof. If the Indemnifying Party has not yet admitted its obligation to indemnify and bear all expenses associated with a Claim, the Indemnified Party shall send written notice to the Indemnifying Party of any proposed settlement and the Indemnifying Party shall have the option for 10 days following receipt of such notice to (i) admit in writing its obligation to indemnify and bear all expenses associated with a Claim and (ii) if such obligation is so admitted, reject, in its reasonable judgment, the proposed settlement. If the Indemnified Person settles any Claim without the written consent of the Indemnifying Party after the Indemnifying Party has timely admitted its obligation in writing and assumed the defense of a Claim, the Indemnified Party shall be deemed to have waived any right to indemnity therefor.

(f) In the case of a claim for indemnification not based upon a Claim, the Indemnifying Party shall have 30 days from its receipt of the Claim Notice to (i) cure the Liabilities complained of, (ii) admit its obligation to indemnify for and bear all expenses associated with such Liability or (iii) dispute the claim for such Liabilities. If the Indemnifying Party does not notify the Indemnified Party within such 30 day period that it has cured the Liabilities or that it disputes the claim for such Liabilities, the amount of such Liabilities shall conclusively be deemed a liability of the Indemnifying Party hereunder.

 

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13.7 Survival .

(a) The representations and warranties of the Parties in Articles IV and V (other than the representations and warranties in Sections 4.1, 4.2, 4.6, 4.16 , 4.17 , 4.20(a) , 4.26, 5.7 , 5.8 and 5.9 ) and the covenants and agreements of the Parties in Sections 6.1 , 6.3 , 6.4 and 9.4 shall survive the Closing for a period of 18 months. The representations and warranties of EXCO in Sections 4.6 and 4.16 shall survive the Closing for the applicable statute of limitations. Subject to the foregoing and as set forth in Section 13.7(b) , the remainder of this Agreement (including, without limitation, Sections   4.1, 4.2, 4.17 , 4.20(a) , 4.26, 5.7 , 5.8 and 5.9 ) shall survive the Closing without time limit. Representations, warranties, covenants and agreements shall be of no further force and effect after the date of their expiration, provided that there shall be no termination of any bona fide claim asserted pursuant to this Agreement with respect to such a representation, warranty, covenant or agreement prior to its expiration date.

(b) The indemnities in Sections 13.1(a), 13.1(b) , 13.2(a) and 13.2(b) shall terminate as of the termination date of each respective representation, warranty, covenant or agreement that is subject to indemnification. EXCO’s indemnities set forth in Sections 13.1(d) and 13.1(f) shall survive the Closing for a period of 18 months. EXCO’s indemnities set forth in Sections 13.1(c), 13.1(e), 13.1(g) , 13.1(h), 13.1(i) and 13.1(j), and BG’s indemnities set forth in Section 13.2(c) shall survive the Closing without time limit. Notwithstanding the foregoing, there shall be no termination of any bona fide claim asserted pursuant the indemnities in Sections 13.1(a) through 13.1(j) or Section 13.2(a) through 13.2(c) prior to the date of termination for such indemnity.

13.8 Non-Compensatory Damages . None of the BG Indemnified Parties nor EXCO Indemnified Parties shall be entitled to recover from EXCO or BG, or their respective Affiliates, any indirect, consequential, punitive or exemplary damages or damages for lost profits of any kind arising under or in connection with this Agreement or the transactions contemplated hereby, except to the extent any such Party suffers such damages (including costs of defense and reasonable attorney’s fees incurred in connection with defending of such damages) to a Third Party, which damages (including costs of defense and reasonable attorney’s fees incurred in connection with defending against such damages) shall not be excluded by this provision as to recovery hereunder. Subject to the preceding sentence, BG, on behalf of each of the BG Indemnified Parties, and EXCO, on behalf of each of EXCO Indemnified Parties, waive any right to recover punitive, special, exemplary and consequential damages, including damages for lost profits, arising in connection with or with respect to this Agreement or the transactions contemplated hereby. This section shall not restrict any Party’s right to obtain specific performance or other equitable remedies by way of injunction pursuant to Section 14.2 .

13.9 Cooperation by BG Concerning Retained Litigation . BG agrees to use reasonable efforts to cooperate with EXCO in connection with EXCO’s defense and other actions relating to or arising out of the litigation and claims set forth on Schedule 4.7, Part 1 and Schedule 4.7, Part 2 (provided, however, that BG shall not be required to bring any claim, counterclaim or cross-complaint against any Person).

 

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13.10 Exclusion of Certain Matters . Notwithstanding anything to the contrary elsewhere in this Agreement, (a) claims for Title Defects asserted under Article XI and Environmental Defects asserted under Article XII shall be handled exclusively under those Articles and Article III and shall not be subject to this Article XIII and (b) claims with respect to the termination of this Agreement prior to Closing shall be handled exclusively under Section  3.2 and Article XIV and shall not be subject to this Article XIII (other than Section 13.8 which shall apply in all respects).

ARTICLE XIV

TERMINATION, DEFAULT AND REMEDIES

14.1 Right of Termination . This Agreement and the transactions contemplated herein may be terminated at any time at or prior to Closing:

(a) by EXCO or BG if the Closing shall not have occurred on or before July 1, 2010 (the “ Termination Date ”);

(b) by EXCO or BG upon mutual written consent; or

(c) by EXCO, if EXCO, BG and Escrow Agent have entered into the Escrow Agreement but BG fails to deposit the Deposit with the Escrow Agent by the Deposit Date pursuant to Section 3.2 ;

provided, however, that no Party shall have the right to terminate this Agreement pursuant to Section 14.1(a) above if such Party or its Affiliates willfully failed to perform or observe in any material respect its covenants and agreements hereunder.

14.2 Failure to Close and Remedies . Without prejudice to other rights and remedies that may be available to the non-breaching Party, the Parties agree that in the event Closing does not occur by the Termination Date as a result of the willful breach by a Party of any of its covenants or agreements hereunder in any material respect, the other Party shall be entitled, at its option, in lieu of terminating this Agreement, to enforce specific performance and other equitable remedies by way of injunction. Each Party agrees to waive any requirement for the posting of a bond in connection with any such equitable relief in favor of the other Party.

14.3 Effect of Termination . If the obligation to close the transactions contemplated by this Agreement is terminated pursuant to any provision of Section 14.1 hereof, then, except for the provisions of Sections 1.1, 1.2 , 3.2, 4.17, 5.9, 10.1(c), 10.1(e) , 10.2 , 10.3 , 13.8, this Section 14.3, 14.4 and Article XV (other than Sections 15.2(b), 15.2(c) , 15.3 , 15.7, 15.9, and 15.10 ), this Agreement shall forthwith become void and the Parties shall have no liability or obligation hereunder except and to the extent such termination results from the willful breach by a Party of any of its covenants or agreements hereunder; provided that if EXCO is entitled to retain the Deposit as liquidated damages pursuant to Section 3.2 , and elects to retain the Deposit pursuant to Section 3.2 , then such retention shall constitute full and complete satisfaction of any and all damages and remedies EXCO may have against BG under this Agreement for claims and actions arising at or prior to the termination of this Agreement except for EXCO’s remedies under Sections 5.9, 10.1(c), 10.1(e), 10.2 and 14.4 ; and provided further that, except as stated above, in the case of willful breach by either Party, the other Party shall be entitled to all remedies available at Law or in equity and shall be entitled to recover court costs and attorneys’ fees in addition to any other relief to which such Party may be entitled.

 

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14.4 Return of Documentation and Confidentiality . Upon termination of this Agreement, BG shall destroy or return to EXCO all title, engineering, geological and geophysical data, environmental assessments and/or reports, maps and other information furnished by EXCO to BG or prepared by or on behalf of BG in connection with its due diligence investigation of the Subject Interests and an officer of BG shall certify as to the return or destruction of such material to EXCO in writing, provided that BG shall be entitled to retain in its corporate records a copy of board papers, reports to management and other documentation prepared in connection with its decision to enter into the transaction, the conduct thereof and the termination thereof, so long as it maintains the confidentiality thereof in accordance with the Confidentiality Agreement.

ARTICLE XV

MISCELLANEOUS

15.1 Exhibits, Schedules and Appendices . All of the Exhibits, Schedules and Appendices referred to in this Agreement are hereby incorporated into this Agreement by reference and constitute a part of this Agreement. Each Party and its counsel have received a complete set of Exhibits, Schedules and Appendices prior to and as of the execution of this Agreement.

15.2 Expenses and Taxes .

(a) Except as otherwise specifically provided, all fees, costs and expenses incurred by BG or EXCO in negotiating this Agreement or in consummating the transactions contemplated by this Agreement shall be paid by the Party incurring the same, including legal and accounting fees, costs and expenses.

(b) All required documentary, filing and recording fees and expenses in connection with the filing and recording of the assignments, conveyances or other instruments required to evidence title to the Assets in a Reorganized Entity shall be allocated to such Reorganized Entity and borne by BG or EXCO, as applicable, in proportion to their ownership interests in such Reorganized Entity after completing the transactions described in this Agreement. EXCO shall assume responsibility for, and shall bear and pay, all federal income Taxes, state income Taxes, and other similar Taxes (including any applicable interest or penalties) incurred or imposed (i) with respect to the transactions described in this Agreement and (ii) with respect to the EXCO Subs, for all periods (or portions thereof) ending on or prior to the Closing Date. BG shall assume responsibility for, and shall bear and pay, all state sales and use Taxes (including any applicable interest or penalties) incurred or imposed with respect to the transfer of Assets to a Reorganized Entity to the extent of its ownership interests in such Reorganized Entity after completing the transactions described in this Agreement. EXCO shall assume responsibility for, and shall bear and pay, all Asset Taxes assessed with respect to the ownership and operation of the Subject Interests for (A) any period ending prior to the Effective Time and (B) any Straddle Period multiplied by a fraction, the numerator of which is the number of days in the Straddle Period ending immediately prior to the Effective Time and the denominator of which is the number of days in the entire Straddle Period. All Asset Taxes with respect to the ownership or operation of the Subject Interests arising on or after the Effective Time (including all Straddle Period Taxes not apportioned to EXCO in the preceding sentence)

 

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shall be allocated to and borne by BG and EXCO in accordance with their proportionate direct and indirect ownership of the Assets as determined after the transactions contemplated by this Agreement have been completed. Upon determination of the actual amount of Asset Taxes, EXCO shall pay to BG to the extent not taken into account in the Final Settlement Statement any additional amount necessary to equal EXCO’s share of the Asset Taxes.

(c) EXCO shall prepare and timely file any Tax returns of EXCO PA and EXCO WV that are required to be filed for any period that ends on or before the Closing Date and shall pay any Taxes required to be paid with respect to such Tax Returns. In addition, EXCO shall timely file any return with respect to Asset Taxes due after the Effective Time and on or before the Closing Date (a “ Pre-Closing Asset Tax Return ”) and shall pay any Asset Taxes shown due and owing on such Pre-Closing Asset Tax Return, subject to EXCO’s right of reimbursement for any Asset Taxes for which BG is responsible under Section 15.2(b) . Within 15 days prior to filing, EXCO shall deliver to BG a draft of any such Pre-Closing Asset Tax Return for BG’s review and approval (which approval will not be unreasonably withheld or delayed).

15.3 Tax Treatment .

(a) The Parties intend and expect that the transactions contemplated by this Agreement and the Joint Development Agreement, taken together, will be treated, for purposes of federal income taxation and for purposes of certain state income Tax laws that incorporate or follow federal income Tax principles, as resulting in (a) the sale to BG by EXCO of 50% of the outstanding membership interests in Operator and Midstream LLC, which, under Rev. Rul 99-5, 1999-1 C.B. 434, is treated for federal tax purposes as a sale by EXCO of an undivided 50% interest in the assets of Operator and Midstream LLC, followed by the contribution by each of EXCO and BG of undivided 50% interests in such assets to newly formed partnerships corresponding in legal form to Operator and Midstream LLC; (b) the creation of a partnership (the “ Tax Partnership ”) in which the Reorganized Subs, Newcos and Operator are treated as partners, with the Tax Partnership being treated for Tax purposes as holding the Non-Operating Assets and engaging in all activities of the Parties with respect to the Non-Operating Assets and other similar interests in oil and gas properties that may be acquired by the Parties pursuant to the Joint Development Agreement, (c) a contribution to the Tax Partnership by EXCO of 99.5% of the Non-Operating Assets and a commitment to fund the costs allocable to it under the Joint Development Agreement in exchange for a 49.75% interest therein; (d) a contribution to the Tax Partnership by Operator of 0.5% of the Non-Operating Assets and a commitment to fund the costs allocable to it under the Joint Development Agreement in exchange for a 0.5% interest therein; (e) a contribution to the Tax Partnership of the Newco Consideration, as adjusted, and a commitment to fund the costs allocable to it under the Joint Development Agreement to the Tax Partnership by BG in exchange for a 49.75% interest therein; (f) a distribution to EXCO of the Newco Consideration, as adjusted (i) as a reimbursement of EXCO’s “preformation expenditures” with respect to the Non-Operating Assets referred to in clause (c) above, as such term is used in Treasury Regulations Section 1.707-4(d), to the extent applicable, and (ii) in a transaction subject to treatment under Section 707(a) of the Code and its implementing Treasury Regulations as in part a sale, and in part a contribution, of such Non-Operating Assets to the Tax Partnership to the extent Treasury Regulations Section 1.707-4(d) is inapplicable; and (g) the realization by the Tax Partnership of all items of income or gain and the incurrence by the Tax

 

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Partnership of all items of costs or expenses attributable to the ownership, operation or disposition of the Non-Operating Assets and other similar interests in oil and gas properties that may be acquired by the Parties pursuant to the Joint Development Agreement, notwithstanding that such items are realized, paid or incurred by the Parties individually, all as set forth in the Tax Partnership Agreement attached as Exhibit “G” to the Joint Development Agreement.

(b) The Parties further intend and expect that the Tax Partnership Agreement will use the remedial allocation method under Treasury Regulations Section 1.704-3(d) in order to enable BG to realize tax benefits in the same amount and at the same rate and character as if BG had purchased its share of Tax Partnership’s assets as an outright asset purchase outside of a tax partnership arrangement.

15.4 Allocation of Consideration for Tax Purposes . EXCO and BG agree that the Closing Cash Consideration, as adjusted, shall be allocated among the Transaction Components, and within each Transaction Component to the costs covered thereby that are treated for federal Tax purposed, in whole or in part, as being the subject of a sale transaction (collectively, the “ Allocable Amounts ”). The initial draft of such allocations shall be prepared in a manner consistent with the Allocated Values by EXCO and shall be provided to BG concurrently with the delivery of the Final Settlement Statement. EXCO and BG shall then cooperate to prepare a final schedule of the Allocable Amounts, which shall also be materially consistent with the Allocated Values (as adjusted, the “ Allocation Schedule ”). The Allocation Schedule shall be updated to reflect any adjustments to Allocable Amounts. The allocation of the Allocable Amounts shall be reflected on completed Internal Revenue Service Forms 8594 (Asset Acquisition Statement under Section 1060), which Forms will be timely filed separately by EXCO and BG (and/or the Tax Partnership, as appropriate) with the Internal Revenue Service pursuant to the requirements of Section 1060(b) of the Code. Each Party agrees not to (and to cause the Tax Partnership not to) take any position inconsistent with the allocations set forth in the Allocation Schedule unless required by applicable Law or with the consent of the other Party. The Parties further agree that the allocations set forth on the Allocation Schedule will represent reasonable estimates of the fair market values of the assets described therein. In the event that EXCO and BG cannot agree on a mutually satisfactory Allocation Schedule within 30 days of the finalization of the Final Settlement Statement pursuant to Section 3.6 , such dispute shall be resolved in a manner similar to that described in Section 3.7 .

15.5 Assignment . This Agreement may not be assigned by any Party, in whole or in part, without the prior written consent of the other Parties, provided that BG shall be entitled to assign its rights and delegate performance of its obligations to another direct or indirect wholly-owned Affiliate of BG’s ultimate parent company by written notice to EXCO at least 5 Business Days prior to Closing. No assignment hereunder by any Party shall relieve such Party or its guarantor, if any, of any obligations and responsibilities hereunder or under any related guaranty.

15.6 Preparation of Agreement . Both EXCO and BG and their respective counsel participated in the preparation of this Agreement. In the event of any ambiguity in this Agreement, no presumption shall arise based on the identity of the draftsman of this Agreement.

 

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15.7 Publicity . Until after Closing, without reasonable prior notice to the other Party, no Party will issue, or permit any agent or Affiliate of it to issue, any press releases or otherwise make, or cause any agent or Affiliate of it to make, any public statements with respect to this Agreement and the transactions contemplated hereby, except where such release or statement is deemed in good faith by the releasing Party to be required by Law or under the rules and regulations of a national stock exchange on which the shares of such Party or any of its Affiliates are listed. In each case to which such exception applies, prior to making such press release or public statement, the releasing Party will provide a copy of such press release or public statement to the other Party.

15.8 Notices . All notices and communications required or permitted to be given hereunder shall be in writing and shall be delivered personally, or sent by bonded overnight courier, or mailed by U.S. Express Mail or by certified or registered United States Mail with all postage fully prepaid, or sent by telex or facsimile transmission (provided any such telex or facsimile transmission is confirmed either orally or by written confirmation), addressed to the appropriate Party at the address for such Party shown below or at such other address as such Party shall have theretofore designated by written notice delivered to the Party giving such notice:

If to EXCO:

EXCO Holding (PA), Inc.

12377 Merit Drive, Suite 1700

Dallas, Texas 75251

Attention: Rick Hodges, Vice President of Land

Telephone: (214) 368-2084

Fax: (214) 706-3424

With a copy to:

EXCO Resources, Inc.

12377 Merit Drive, Suite 1700

Dallas, Texas 75251

Attention: William L. Boeing, Vice President, General Counsel, and Secretary

Telephone: (214) 368-2084

Fax: (214) 706-3409

With a copy to:

Vinson & Elkins L.L.P.

2500 First City Tower

1001 Fannin Street

Houston, Texas 77002-6760

Attention: Stephen C. Szalkowski

Telephone: (713) 758-2312

Fax: (713) 615-5084

 

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If to BG:

BG US Production Company, LLC

5444 Westheimer, Suite 1200

Houston, Texas 77056

Attention: Jon Harris, Asset General Manager

Telephone: (713) 599-4000

Fax: (713) 599-4002

With a copy to:

BG North America, LLC

5444 Westheimer, Suite 1775

Houston, Texas 77056

Attention: Chris Migura

Telephone: (713) 599-3826

Fax: (713) 403-3781

With a copy to:

Morgan Lewis & Bockius LLP

1000 Louisiana, Suite 4200

Houston, Texas 77002

Attention: David F. Asmus

Telephone: (713) 890-5718

Fax: (713) 890-5001

Any notice given in accordance herewith shall be deemed to have been given when delivered to the addressee in person, or by courier, or transmitted by facsimile transmission during normal business hours, or upon actual receipt by the addressee after such notice has either been delivered to an overnight courier or deposited in the United States Mail, as the case may be. The Parties may change the address, telephone numbers and facsimile numbers to which such communications are to be addressed by giving written notice to the other Parties in the manner provided in this Section 15.8 .

15.9 Further Cooperation . After the Closing, BG and EXCO shall execute and deliver, or shall cause to be executed and delivered from time to time, such further instruments of conveyance and transfer, and shall take such other actions as any Party may reasonably request, to convey and deliver the Subject Interests to BG, to perfect BG’s title thereto, to accomplish the orderly transfer of the Subject Interests to BG in the manner contemplated by this Agreement, to effectuate the Reorganization in the manner contemplated in the Reorganization Plan of Merger (including transferring to the applicable Person interests in any Assets inadvertently omitted or transferred incorrectly during such Reorganization as may be required) and to accomplish the transactions contemplated by this Agreement. If any Party receives monies belonging to the other Party, such amount shall immediately be paid over to the proper Party. If an invoice or other evidence of an obligation is received by a Party, which is partially an obligation of both EXCO and BG, then the Parties shall consult with each other, and each shall promptly pay its

 

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portion of such obligation to the obligee. Prior to Closing, EXCO shall use its commercially reasonable efforts to obtain all consents burdening EXCO or the Subject Interests that are required to permit the assignment of the Subject Interests by EXCO to BG and the consummation by EXCO of the transactions contemplated hereby; provided, however, EXCO shall not be required to incur any Liability or pay any money in order to be in compliance with the foregoing covenant.

15.10 Filings, Notices and Certain Governmental Approvals . Promptly after Closing the Parties shall jointly (a) pursue obtaining all Customary Post-Closing Consents from all applicable Governmental Authorities and all other consents and approvals that may be reasonably required in connection with the in connection with the transactions contemplated hereby, that shall not have been obtained prior to Closing, (b) file any documents necessary to change the name of the Operator to “EXCO Resources (PA), LLC”, (c) pursue filing with all applicable Governmental Authorities the Reorganization Certificate of Merger as necessary in order to obtain all Permits necessary for the continued operation of the Operating Assets and the Non-Operating Assets and (d) file the Reorganization Certificate of Merger and any other certificate required by any Governmental Authority in connection with the Reorganization in all counties where the Assets are located. All costs of the foregoing shall be borne in equal shares by the Parties.

15.11 Entire Agreement; Conflicts . THIS AGREEMENT, THE EXHIBITS HERETO, THE TRANSACTION DOCUMENTS AND THE CONFIDENTIALITY AGREEMENT COLLECTIVELY CONSTITUTE THE ENTIRE AGREEMENT AMONG EXCO AND BG PERTAINING TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ALL PRIOR AGREEMENTS, UNDERSTANDINGS, NEGOTIATIONS, AND DISCUSSIONS, WHETHER ORAL OR WRITTEN, OF THE PARTIES PERTAINING TO THE SUBJECT MATTER HEREOF. THERE ARE NO WARRANTIES, REPRESENTATIONS, OR OTHER AGREEMENTS AMONG THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, AND NEITHER EXCO NOR BG SHALL BE BOUND BY OR LIABLE FOR ANY ALLEGED REPRESENTATION, PROMISE, INDUCEMENT, OR STATEMENTS OF INTENTION NOT SO SET FORTH. IN THE EVENT OF A CONFLICT BETWEEN THE TERMS AND PROVISIONS OF THIS AGREEMENT AND THE TERMS AND PROVISIONS OF ANY EXHIBIT HERETO, THE TERMS AND PROVISIONS OF THIS AGREEMENT SHALL GOVERN AND CONTROL; PROVIDED, HOWEVER, THAT THE INCLUSION IN ANY OF THE EXHIBITS HERETO OF TERMS AND PROVISIONS NOT ADDRESSED IN THIS AGREEMENT SHALL NOT BE DEEMED A CONFLICT, AND ALL SUCH ADDITIONAL PROVISIONS SHALL BE GIVEN FULL FORCE AND EFFECT, SUBJECT TO THE PROVISIONS OF THIS SECTION 15.11 .

15.12 Parties in Interest . Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the Parties, or their respective related Indemnified Parties hereunder any rights, remedies, obligations or liabilities under or by reason of this Agreement; provided that only a Party will have the right to enforce the provisions of this Agreement on its own behalf or on behalf of any of its related Indemnified Parties (but shall not be obligated to do so).

 

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15.13 Amendment . This Agreement may be amended only by an instrument in writing executed by the Parties against whom enforcement is sought.

15.14 Waiver ; Rights Cumulative . Any of the terms, covenants, representations, warranties, or conditions hereof may be waived only by a written instrument executed by or on behalf of the Party waiving compliance. No course of dealing on the part of EXCO or BG, or their respective officers, employees, agents, or representatives, nor any failure by EXCO or BG to exercise any of its rights under this Agreement shall operate as a waiver thereof or affect in any way the right of such Party at a later time to enforce the performance of such provision. No waiver by any Party of any condition, or any breach of any term, covenant, representation, or warranty contained in this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of any breach of any other term, covenant, representation, or warranty. The rights of EXCO and BG under this Agreement shall be cumulative, and the exercise or partial exercise of any such right shall not preclude the exercise of any other right.

15.15 Governing Law; Jurisdiction; Venue; Jury Waiver . THIS AGREEMENT AND THE LEGAL RELATIONS AMONG THE PARTIES SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT REFER CONSTRUCTION OF SUCH PROVISIONS TO THE LAWS OF ANOTHER JURISDICTION. SUBJECT TO SECTION 15.16 , ALL OF THE PARTIES HERETO CONSENT TO THE EXERCISE OF JURISDICTION IN PERSONAM BY THE COURTS OF THE STATE OF TEXAS FOR ANY DISPUTE. EACH PARTY HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY DISPUTE.

15.16 Arbitration .

(a) Except for matters that are subject to the dispute resolution procedures set forth in Sections 3.7, 11.2(j) and 12.1(f) and for the matters set forth in Section 10.2 , any Dispute among the Parties shall be resolved through final and binding arbitration.

(b) The arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the AAA in effect at the time the arbitration of the Dispute is initiated (the “ AAA Rules ”).

(c) The arbitration shall be conducted by 3 arbitrators and conducted in Dallas, Texas. Within 30 days of either Party providing notice to the other Party of a Dispute, each of BG and EXCO shall appoint one arbitrator, and the 2 arbitrators so appointed shall select the third and presiding arbitrator within 30 days following appointment of the second party-appointed arbitrator. If either Party fails to appoint an arbitrator within the permitted time period or if the Party-appointed arbitrators fail to appoint the presiding arbitrator within the permitted time period, then the missing arbitrator(s) shall be selected by the AAA as appointing authority in accordance with the AAA Rules. Any arbitrator appointed by the Party-appointed arbitrators or the AAA shall be a member of the Large, Complex Commercial Case Panel of the AAA or a member of the Center of Public Resources Panel of Distinguished Neutrals. All arbitrators shall

 

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be and remain at all times independent and impartial, and, once appointed, no arbitrator shall have any ex parte communications with any of the Parties concerning the arbitration or the underlying Dispute other than communications directly concerning the selection of the presiding arbitrator, when applicable. All arbitrators shall be qualified by education, training, or experience to resolve the Dispute. No arbitrator shall have been an employee or consultant to any Party or any of its Affiliates within the 5 year period preceding the arbitration, or have any financial interest in the Dispute.

(d) All decisions of the arbitral tribunal shall be made by majority vote. The award of the arbitral tribunal shall be final and binding, subject only to grounds and procedures for vacating or modifying the award under the Federal Arbitration Act. Judgment on the award may be entered and enforced by any court of competent jurisdiction hereunder.

(e) Notwithstanding the agreement to arbitrate Disputes in this Section 15.16 , any Party may apply to a court for interim measures pending appointment of the arbitration tribunal, including injunction, attachment, and conservation orders. The Parties agree that seeking and obtaining such court-ordered interim measures shall not waive the right to arbitration. Additionally, the arbitrators (or in an emergency the presiding arbitrator acting alone in the event one or more of the other arbitrators is unable to be involved in a timely fashion) may grant interim measures including injunctions, attachments, and conservation orders in appropriate circumstances, which measures may be immediately enforced by court order. Hearings on requests for interim measures may be held in person, by telephone or video conference, or by other means that permit the Parties to present evidence and arguments. The arbitrators may require any Party to provide appropriate security in connection with such measures.

(f) The arbitral tribunal is authorized to award costs, attorneys’ fees, and expert witness fees and to allocate them among the Parties. The award may include interest, at a rate equal to the one month London Inter-Bank Offer Rate for U.S. dollar deposits (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), from the date of any default, breach, or other accrual of a claim until the arbitral award is paid in full. The arbitrators may not award indirect, consequential, special or punitive damages. Unless otherwise directed by the arbitral tribunal, each Party shall pay its own expenses in connection with the arbitration.

(g) All negotiations, mediation, arbitration, and expert determinations relating to a Dispute (including a settlement resulting from negotiation or mediation, an arbitral award, documents exchanged or produced during a mediation or arbitration proceeding, and memorials, briefs or other documents prepared for the arbitration) are confidential and may not be disclosed by the Parties, their respective Affiliates and each of their respective employees, officers, directors, counsel, consultants, and expert witnesses, except to the extent necessary to enforce any settlement agreement, arbitration award, or expert determination, to enforce other rights of a Party, as required by law or regulation, or for a bona fide business purpose, such as disclosure to accountants, shareholders, or third-party purchasers; provided, however, that breach of this confidentiality provision shall not void any settlement, expert determination, or award.

 

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(h) Any papers, notices, or process necessary or proper for an arbitration hereunder, or any court action in connection with an arbitration or an award, may be served on a Party in the manner set forth in Section 15.8 .

15.17 Severability . If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to any Party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

15.18 Counterparts . This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all of such counterparts shall constitute for all purposes one agreement. Any signature hereto delivered by a Party by facsimile transmission shall be deemed an original signature hereto.

[THE NEXT SUCCEEDING PAGE IS THE EXECUTION PAGE]

 

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IN WITNESS WHEREOF, EXCO and BG have executed this Agreement on the date first above written.

 

EXCO :
EXCO HOLDING (PA), INC.
By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and Secretary
BG :  
BG US PRODUCTION COMPANY, LLC
By:  

/s/ JON HARRIS

Name:   Jon Harris
Title:   Vice President


APPENDIX I

Definitions

AAA ” shall have the meaning set forth in Section 3.7 .

AAA Rules ” shall have the meaning set forth in Section 15.16(b) .

Accounting Arbitrator ” shall have the meaning set forth in Section 3.7 .

Additional Interests ” shall have the meaning set forth in Section 6.7 .

Adjusted Closing Cash Consideration ” shall have the meaning set forth in Section 3.3 .

AECOM ” shall mean AECOM Technology Corporation and its Affiliates.

AFE ” shall have the meaning set forth in Section 4.14 .

Affiliate ” shall mean, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such Person. For avoidance of doubt, prior to Closing the Reorganized Entities and EXCO XA shall be considered Affiliates of EXCO and, after Closing: (a) the Newcos shall be considered Affiliates of BG, (b) the Reorganized Subs and EXCO XA shall be considered Affiliates of EXCO and (c) Midstream LLC and the Operator shall be considered Affiliates of each of EXCO and BG.

Agreement ” shall have the meaning set forth in the first paragraph herein.

Allocable Amounts ” shall have the meaning set forth in Section 15.4 .

Allocated Carry ” shall mean with respect to any Lease entitling EXCO to the Net Acres set forth on Exhibit A-1 , the Allocated Carry, if any, set forth for such Lease on Exhibit A-1 .

“Allocated Value” shall, with respect to any Subject Interest, have the meaning set forth in Section 3.9 .

Allocation Schedule ” shall have the meaning set forth in Section 15.4 .

AMI Area ” shall mean the States of New York, Pennsylvania and West Virginia, provided that the AMI Area shall not include any Lease or other property that is an Excluded Asset.

AMI Rights ” shall mean those rights described in Sections 9.1 and 9.2 of the Joint Development Agreement.

Ancillary Agreements ” shall mean the Midstream LLC Agreement and any other documents delivered pursuant thereto.

 

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Appalachian Area ” shall mean the lands (and subsurface) included in the States of Kentucky, New York, Ohio, Pennsylvania, Tennessee, Virginia and West Virginia, provided that the Appalachian Area shall not include any Lease or other property that is an Excluded Asset.

Applicable Contracts ” shall mean all Contracts to which any EXCO Sub is a party or in which it otherwise holds an interest that will be binding on Midstream LLC, any of the Newcos or the Operator after the Effective Time, including, without limitation, farmin and farmout agreements; bottomhole agreements; crude oil, condensate, and natural gas purchase and sale, gathering, transportation and marketing agreements; hydrocarbon storage agreements; acreage contribution agreements; operating agreements; balancing agreements; pooling declarations or agreements; unitization agreements; processing agreements; crossing agreements and other similar contracts and agreements.

Applicable Operating Agreement ” shall have the meaning set forth in the Joint Development Agreement.

Area A ” shall have the meaning set forth in Exhibit A-1.

Area B ” shall have the meaning set forth in Exhibit A-1.

Area C ” shall have the meaning set forth in Exhibit A-1 .

Asset Taxes ” shall mean ad valorem, property, excise, severance, production or similar Taxes (including any interest, fine, penalty or additions to Tax imposed by a Governmental Authority in connection with such Taxes) based upon operation or ownership of the Assets or the production of Hydrocarbons therefrom but excluding, for the avoidance of doubt, income, capital gains or franchise Taxes.

Assets ” shall mean collectively the Gathering Assets, Operating Assets and the Non-Operating Assets.

Assignment ” shall mean the Assignment of Membership Interests from EXCO to BG, pertaining to the Subject Membership Interests, substantially in the form attached to this Agreement as Exhibit C .

BG ” shall have the meaning set forth in the first paragraph herein.

BG Debt Instrument ” shall mean (a) any agreement for borrowed money of BG or BG Parent and (b) any guarantee by BG or BG Parent of another Person’s payment obligations.

BG Indemnified Parties ” shall have the meaning set forth in Section 13.1 .

BG Parent ” shall mean BG Energy Holdings Limited.

BG Parent Guaranty ” shall mean the Guaranty made by BG Parent in favor of EXCO dated as of the date hereof.

BG’s Representatives ” shall have the meaning set forth in Section 10.1(a) .

 

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Black Bear ” shall mean Black Bear Gathering, LLC, a Delaware limited liability company.

Business Day ” shall mean a day (other than a Saturday or Sunday) on which commercial banks in Texas are generally open for business, provided that if Business Days are used to calculate periods in which a Party must make a payment hereunder, “Business Day” shall mean any day, other than Saturday or Sunday, on which banking institutions in Dallas, Texas and London, England are generally open for business.

Calendar Month ” shall mean any of the months of the Gregorian calendar.

Carried Cost Obligation ” shall have the meaning given such term in the Joint Development Agreement.

Claim ” shall have the meaning set forth in Section 13.6(b) .

Claim Notice ” shall have the meaning set forth in Section 13.6(b) .

Closing ” shall have the meaning set forth in Section 9.1 .

Closing Cash Consideration ” shall have the meaning set forth in Section 3.1 .

Closing Date ” shall have the meaning set forth in Section 9.1 .

Code ” shall mean the Internal Revenue Code of 1986, as amended.

Confidentiality Agreement ” shall mean that certain Confidentiality Agreement between BG and EXCO Parent dated July 17, 2009.

Contract ” shall mean any written or oral contract, agreement, agreement regarding indebtedness, lease, mortgage, license agreement, purchase order, commitment, letter of credit or any other legally binding arrangement, excluding, however, any Lease, easement, right-of-way, permit or other instrument (other than acquisition or similar sales or purchase agreements) creating or evidencing an interest in the Subject Interests that constitute real or immovable property.

Control ” and its derivatives shall mean, with respect to any Person, the possession, directly or indirectly, of the power to exercise or determine the voting of more than 50% of the voting shares in a corporation, and in the case of any other type of entity, the right to exercise or determine the voting of more than 50% of the equity interests having voting rights, or otherwise to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise.

Customary Post Closing Consents ” shall mean the consents and approvals from Governmental Authorities for the indirect assignment of the Subject Interests to BG that are customarily obtained after transactions similar to the transactions covered hereby.

Debt Instrument ” shall have the meaning set forth in Section 4.8(a)(iv) .

 

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Deep Rights ” shall mean (a) with respect to the Commonwealth of Pennsylvania, those subsurface depths that are below the base of (but excluding) the Haskill Sandstone Formation (Base of Elk Sequence) formation at a measured depth of 2,758’, as identified by the Litho Density Compensated Neutron Array Induction Temperature Log dated June 7, 2005 of the Seneca Resources operated Fee PGS SGL No. 44 (API 37-047-23649) located in Elk County, Pennsylvania, (b) with respect to the State of West Virginia, those subsurface depths that are below the base of (but excluding) the Brallier Formation (Base of Elk Sequence) formation at a measured depth of 6,612’, as identified by the Litho Density Compensated Neutron Array Induction Temperature Log dated October 8, 2008 of the EXCO – North Coast Energy, Inc. operated Wentz 4HS (API 47-001-02982) located in Barbour County, West Virginia, and (c) with respect to the State of New York, those subsurface depths that are below the base of (but excluding) the Genesee Formation at a measured depth of 2,548’, as identified by the Density/Neutron, Gamma/Temperature Log dated May 6, 2005 of the Fortuna Energy, Inc. operated Cotton-Hanlon #1 well (API 31-107-23185) located in Tioga County, New York, recognizing that actual depths will vary across the AMI Area.

Defensible Title ” shall mean such title of the EXCO Subs with respect to the Subject Interests that:

(a) with respect to each Warranty Well shown in Exhibit B (but limited to any currently producing intervals and, with respect to any Future Well, if set forth in Exhibit B , the specified formation or reservoir set forth in such Exhibit), entitles such Persons to receive not less than the Net Revenue Interest shown in Exhibit B for such Warranty Well throughout the duration of the productive life of such Warranty Well, except for (i) decreases in connection with those operations proposed from and after the date of this Agreement in which such Persons may elect to be a non-consenting co-owner to the extent permitted pursuant to Section 6.1 , (ii) decreases resulting from the establishment or amendment from and after the date of this Agreement of pools or units, (iii) decreases required to allow other working interest owners to make up past underproduction or pipelines to make up past under deliveries, and (iv) as otherwise stated in Exhibit B ;

(b) with respect to each Warranty Well shown in Exhibit B (but limited to any currently producing intervals and, with respect to any Future Well, if set forth in Exhibit B , the specified formation or reservoir set forth in such Exhibit) obligates such Persons to bear a Working Interest for such Warranty Well not greater than the Working Interest shown in Exhibit B for such Warranty Well without increase throughout the productive life of such Warranty Well, except (i) increases resulting from contribution requirements with respect to defaults by co-owners from and after the date hereof under applicable operating agreements, (ii) increases to the extent that they are accompanied by a proportionate increase in such Persons’ Net Revenue Interest, and (iii) as otherwise stated in Exhibit B , as applicable;

(c) with respect to each Lease entitles such Persons to the Net Acres set forth in Exhibit A with respect to such Lease and is subject to only those royalties, overriding royalties and other burdens on production set forth for such Lease in Exhibit A ; and

(d) is free and clear of all Encumbrances, other than Permitted Encumbrances.

 

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Deferred Interests ” means all additional Leases in the AMI Area acquired by the EXCO Subs between (and including) the day that is nine (9) Business Days prior to Closing and the Closing.

Deposit ” shall have the meaning set forth in Section 3.2(a) .

Deposit Date ” shall have the meaning set forth in Section 3.2(a) .

Development Plans and Budgets ” shall mean the 2010 Annual Work Program and Budget and the initial Development Plan (as such terms are used in the Joint Development Agreement).

Dispute ” shall mean any dispute, controversy or claim (of any and every kind or type, whether based on contract, tort, statute, regulation or otherwise) arising out of, relating to or connected with this Agreement, or the transactions contemplated hereby, including but not limited to any dispute, controversy or claim concerning the existence, validity, interpretation, performance, breach or termination of this Agreement or the relationship of the Parties arising out of this Agreement or the transactions contemplated hereby.

Dispute Notice ” shall have the meaning set forth in Section 3.6 .

DNV ” means Det Norske Veritas (USA), Inc.

DOJ ” shall mean the Department of Justice.

Effective Time ” shall mean 12:01 a.m. (Central Time) on January 1, 2010.

Effective Time Working Capital ” shall mean, as of the Effective Time, current assets minus current liabilities of the EXCO Subs, on a consolidated basis, as determined in accordance with this Agreement and GAAP, as adjusted to exclude (a) accrued current and deferred Taxes (whether assets or liabilities), (b) the current portion of any Hedge Contract assets or Liabilities attributable to any Hedge Contract, (c) the current portion of any Indebtedness, including Indebtedness to or from Affiliates of the EXCO Subs, and (d) any and all activities associated with the Excluded Assets. Attached hereto as Exhibit I-1 is an illustrative calculation of Effective Time Working Capital. For the avoidance of doubt, “Effective Time Working Capital” includes Imbalances as of the Effective Time.

Employees ” shall mean all employees of EXCO or any of its Affiliates (now or in the past), but only with respect to their period of employment (or their hiring or termination of employment) by EXCO or any such Affiliate.

Employee Benefit Plans ” shall mean any employee pension benefit plan, as defined in Section 3(2) of ERISA, any employee welfare benefit plan as defined in Section 3(1) of ERISA, any plans that would be employee pension benefit plans or employee welfare benefit plans if they were subject to ERISA, such as any stock bonus, stock option, stock purchase, stock appreciation rights, phantom stock or other stock plan, deferred compensation plan and any bonus or incentive compensation plan.

 

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Encumbrance ” shall mean any lien, mortgage, security interest, defect, irregularity, pledge, charge or encumbrance.

EnerVest Transaction ” shall mean the sale of certain assets and properties as described in the Purchase and Sale Agreement dated September 29, 2009 between EXCO – North Coast Energy, Inc. and EV Energy Partners, L.P., along with certain other institutional partnerships.

Environmental Arbitrator ” shall have the meaning set forth in Section 12.1(f) .

Environmental Condition ” shall mean (a) a condition with respect to the air, soil, subsurface, surface waters, ground waters and/or sediments that causes an Asset (or the EXCO Subs with respect to an Asset) not to be in compliance with any Environmental Law or (b) the existence with respect to an Asset, or the operation thereof, of any environmental pollution, contamination, degradation, damage or injury caused by, related to an Asset for which remedial or corrective action is presently required (or if known, would be presently required) under Environmental Laws.

Environmental Cure Period ” shall have the meaning set forth in Section 12.1(b) .

Environmental Deductible ” shall mean $9,500,000.

Environmental Defect ” shall mean any Post-Closing Environmental Defect or Pre-Closing Environmental Defect.

Environmental Defect Claim Date ” shall mean (a) with respect to any Pre-Closing Environmental Defect, the Pre-Closing Environmental Defect Claim Date, and (b) with respect to any Post-Closing Environmental Defect, the Post-Closing Environmental Defect Claim Date.

Environmental Defect Notice ” shall have the meaning set forth in Section 12.1(a) .

Environmental Laws ” shall mean all applicable federal, state and local Laws in effect as of the date of this Agreement, including common law, relating to the protection of the public health, safety, welfare and the environment, including, without limitation, those laws relating to the storage, handling, and use of chemicals and other Hazardous Substances, those relating to the generation, processing, treatment, storage, transportation, disposal or other management thereof. For the avoidance of doubt, the term “ Environmental Laws ” does not include good or desirable operating practices or standards that may be employed or adopted by other oil and gas well operators or recommended by a Governmental Authority that are not required under any applicable federal, state or local Law in effect as of the date of this Agreement, including common law.

ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended.

ERISA Liability ” shall mean any Liability attributable to or arising out of (a) EXCO’s or its Affiliates’ employment relationship with the Employees prior to Closing, (b) EXCO’s or its Affiliates’ Employee Benefit Plans applicable to the Employees, and (c) EXCO’s or its Affiliates’ responsibilities under ERISA respecting Employee Benefit Plans applicable to the Employees.

 

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Escrow Agent ” shall mean JPMorgan Chase Bank, National Association.

Escrow Agreement ” shall mean an Escrow Agreement entered into as of the date hereof, by and among BG, EXCO and the Escrow Agent.

Excluded Assets ” shall mean (a) all of EXCO’s corporate minute books and corporate financial records that relate to EXCO’s business generally (including the ownership of the EXCO Subs and the operation of the Subject Interests); (b) all rights and interests of EXCO (i) under any policy or agreement of insurance, (ii) under any bond or (iii) to any insurance or condemnation proceeds or awards arising, in each case, from acts, omissions or events, or damage to or destruction of property prior to the Closing Date; (c) all claims of EXCO and its Affiliates for refunds of or loss carry forwards with respect to income or franchise Taxes or (ii) any Taxes attributable to the Excluded Assets; (d) all of EXCO’s proprietary computer software (to the extent not in use in the Appalachian Area), patents, trade secrets, copyrights, names, trademarks, logos and other intellectual property (excluding for the avoidance of doubt, geophysical data and other data relating to the Properties); (e) all documents and instruments of EXCO or its Affiliates that may be protected by an attorney-client privilege with respect to any litigation set forth in Schedule 4.7, Part 1 or Schedule 4.7, Part 2 ; (f) all data and Contracts that cannot be disclosed to BG as a result of confidentiality arrangements under agreements with Third Parties (provided that EXCO uses its commercially reasonable efforts to obtain a waiver of any such confidentiality restriction); (g) all geophysical and other seismic and related technical data and information relating to the Properties or other Subject Interests to the extent that such geophysical and other seismic and related technical data and information cannot be retained by the EXCO Subs following consummation of the transactions contemplated hereby without payment of a fee or other penalty which BG has not separately agreed in writing to pay; (h) documents prepared or received by EXCO or Affiliates with respect to (i) lists of prospective purchasers for such transactions compiled by EXCO or Affiliates, (ii) bids submitted by other prospective purchasers of the Assets or any other interest in the Properties or the EXCO Subs, (iii) analyses by EXCO or Affiliates of any bids submitted by any prospective purchaser, (iv) correspondence between or among EXCO, its respective representatives, and any prospective purchaser other than BG and (v) correspondence between EXCO or any of its respective representatives or Affiliates with respect to any of the bids, the prospective purchasers, or the transactions contemplated in this Agreement; (i) all Hedge Contracts; (j) all assets and properties located in the State of Ohio and all associated assets relating thereto, including all proceeds with respect to the sale thereof, including the sale of Hydrocarbons therefrom; (k) the Reassigned Properties; (l) all of the membership interest and assets of Black Bear and EXCO XA; (m) proceeds attributable to the EnerVest Transaction; (n) the properties described in Exhibit D and all associated assets relating thereto; (o) all Rejected Interests; (p) unless and until BG or any of its Affiliates acquires any interest therein pursuant to the Joint Development Agreement, each Deferred Interest; and (q) any claims made under the indemnity agreements identified on Schedule 4.30 , whether before or after the Closing, to the extent relating to the assets identified in items (a) through (p) above, provided that, for the avoidance of doubt, Excluded Assets shall not include any cash or cash equivalents for which the Closing Cash Consideration is adjusted pursuant to Section 3.3(a)(v) .

 

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Excluded Asset Working Capital ” shall mean, as of 11:59 p.m., Central Time on the day immediately prior to the Closing Date, current assets (excluding cash and cash equivalents) minus current liabilities (in each case) associated with the Excluded Assets as determined in accordance with this Agreement and GAAP. Attached hereto as Exhibit I-2 is an illustrative calculation of Excluded Asset Working Capital.

EXCO ” shall have the meaning set forth in the first paragraph herein.

EXCO Debt Instruments ” shall mean the (a) Credit Agreement, dated April 30, 2010, among EXCO Parent, as borrower, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, as the same may be amended, restated, amended and restated, modified or supplemented from time to time, and (b) Indenture, dated as of January 20, 2004, among EXCO Parent, the subsidiary guarantors named therein, Wilmington Trust Company, as trustee, and the other lenders named therein, as the same may be amended, supplemented or modified from time to time.

EXCO Indemnified Parties ” shall have the meaning set forth in Section 13.2 .

EXCO PA ” shall have the meaning set forth in the Recitals.

EXCO Parent ” shall have the meaning set forth in the Recitals.

EXCO Parent Guaranty ” shall mean the Guaranty made by EXCO Parent in favor of BG dated as of the date hereof.

EXCO Subs ” shall mean (a) prior to the Reorganization, EXCO PA and EXCO WV, and (b) from and after the Reorganization, the Reorganized Entities.

EXCO WV ” shall have the meaning set forth in the Recitals.

EXCO XA ” shall mean EXCO Resources (XA), LLC, a Delaware limited liability company.

Execution Date ” shall have the meaning set forth in the first paragraph herein.

Final Cash Price ” shall have the meaning set forth in Section 3.6 .

Final Settlement Statement ” shall have the meaning set forth in Section 3.6 .

Franchise Tax Liability ” shall mean any Tax imposed by a state on EXCO’s or any of its Affiliate’s gross or net income and/or capital for the privilege of engaging in business in that state for any period or portion thereof ending on or before the Closing Date.

FTC ” shall mean the Federal Trade Commission.

Future Location ” shall mean each location identified on the maps provided to BG by EXCO for a future completion or for a well to be drilled in the future, subject to any restriction to a formation set forth on such maps or on Exhibit A with respect to such location.

 

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Future Well ” shall mean an existing well with behind pipe potential at a Future Location or a well to be drilled in the future at a Future Location, in each case that is identified on Exhibit A as a well other than a well designated as “PDP” on such Exhibit.

GAAP ” shall mean generally accepted accounting principles in the United States.

Gathering Assets ” shall mean the gas gathering and pipeline systems and related facilities described on Exhibit H .

Governmental Authority ” shall mean any federal, state, local, municipal, tribal or other government; any governmental, regulatory or administrative agency, commission, body or other authority exercising or entitle to exercise any administrative, executive, judicial, legislative, regulatory or taxing authority or power; and any court or governmental tribunal, including any tribal authority having or asserting jurisdiction.

Hazardous Substances ” shall mean (any pollutants, contaminants, toxics or hazardous or extremely hazardous substances, materials, wastes, constituents, compounds or chemicals that are regulated by, or may form the basis of liability under, any Environmental Laws, including NORM and other substances referenced in Section 12.2 .

Hedge Contract ” shall mean any Contract to which EXCO or any of its Affiliates is a party with respect to any swap, forward, future or derivative transaction or option or similar agreement, whether exchange traded, “over-the-counter” or otherwise, involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions.

HSR Act ” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

Hydrocarbons ” shall mean oil and gas and other hydrocarbons produced or processed in association therewith (whether or not any such item is in liquid or gaseous form), or any combination thereof, and any minerals produced in association therewith.

Imbalance ” shall mean any imbalance at the wellhead between the amount of Hydrocarbons produced from a Well and allocated to the interests of the EXCO Subs therein and the shares of production from the relevant Well to which the EXCO Subs were entitled, or at the pipeline flange between the amount of Hydrocarbons nominated by or allocated to the EXCO Subs and the Hydrocarbons actually delivered on behalf of the EXCO Subs at that point.

Income Tax Liability ” shall mean any Liability of EXCO or any of its Affiliates attributable to any federal, state or local income Tax measured by or imposed on the net income of EXCO or any of its Affiliates for any period or portion thereof ending on or before the Closing Date.

Indebtedness ” shall mean, with respect to any Person, without duplication, (a) all obligations of such Person for borrowed money (including all accrued and unpaid interest and all prepayment penalties or premiums), (b) all obligations of such Person evidenced by debentures,

 

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notes or similar debt instruments (including all accrued and unpaid interest and all prepayment penalties or premiums) or reimbursement agreements in respect thereof, (c) all obligations of such Person under capitalized leases, (d) all obligations of others secured by any Lien on property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, (e) all letters of credit issued for the account of such Person, (f) all obligations of such Person under conditional sale, title retention or similar arrangements or other obligations to pay in respect of the balance deferred and unpaid of the purchase price of any property, (g) all obligations in respect of currency, commodity or interest rate swap, hedge or similar protection devices, and (h) all guarantees of or by such Person of any of the items described in clauses (a)-(h) hereof. Indebtedness shall include the current portion of Indebtedness.

Indemnified Party ” shall have the meaning set forth in Section 13.6(a) .

Indemnifying Party ” shall have the meaning set forth in Section 13.6(a) .

Individual Environmental Threshold ” shall have the meaning set forth in Section 12.1(e) .

Individual Title Benefit Threshold ” shall have the meaning set forth Section 11.2(e)(iii) .

Individual Title Defect Threshold ” shall have the meaning set forth in Section 11.2(i) .

Interim Period ” shall mean that period of time commencing with the Effective Time and ending at 7:00 a.m. (Central Time) on the Closing Date.

Invasive Activities ” shall have the meaning set forth in Section 10.1(b) .

IRS ” shall have the meaning set forth in Section 4.29(b)(i) .

Joint Development Agreement ” shall mean the Joint Development Agreement among the Reorganized Entities (other than Midstream LLC) and the Operator, providing for the joint development of the Assets and properties in which such parties jointly own undivided interests within the Appalachian Area from and after Closing, substantially in the form of attached hereto as Exhibit E .

Joint Development Operating Agreement ” shall mean the Joint Development Operating Agreement among the Reorganized Entities (other than Midstream LLC) and the Operator, providing for the joint operation of the Assets and other properties within the Appalachian Area jointly acquired by such parties from and after Closing, substantially in the form of attached as Exhibit B to the Joint Development Agreement.

Knowledge ” shall mean with respect to EXCO, the actual Knowledge of the following Persons: Douglas H. Miller, Stephen F. Smith, Harold L. Hickey, Richard L. Hodges, Sherry Hodges, Stephen E. Puckett, Sr., Joe D. Ford, Marcia Simpson, William L. Boeing, Justin Clarke, Mark Wilson, Paul Rudnicki, Andrew Springer, John Jacobi, Wendy Straatmann, Dave Wozniak, John Johnston, Joel Heiser, Robert Gessner, Frank Rotunda and Dan Kortum.

 

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Law ” shall mean any applicable statute, law, rule, regulation, ordinance, order, code, ruling, writ, injunction, decree or other official act of or by any Governmental Authority.

Lands ” shall have the meaning set forth in the definition of “Subject Non-Operating Assets”.

Leases ” shall have the meaning set forth in the definition of “Subject Non-Operating Assets”.

Liabilities ” shall mean any and all claims, causes of actions, payments, charges, judgments, assessments, liabilities, losses, damages, penalties, fines or costs and expenses, including any reasonable fees of attorneys, experts, consultants, accountants, and other professional representatives and legal or other expenses incurred in connection therewith and including liabilities, costs, losses and damages for personal injury, illness or death, property damage, contract claims, torts or otherwise.

Material Adverse Effect ” shall mean any change, inaccuracy, effect, event, result, occurrence, condition or fact (for the purposes of this definition, each, an “event”) (whether foreseeable or not and whether covered by insurance or not) that has had or would be reasonably likely to have, individually or in the aggregate with any other event or events, a material adverse effect on the ownership, use, operation or value of the Assets, taken as a whole; provided, however, that Material Adverse Effect shall not include such material adverse effects resulting from (a) general changes in oil and gas prices; (b) general changes in industry, economic or political conditions or markets; (c) changes in conditions or developments generally applicable to the oil and gas industry, in any area or areas where the Assets are located; (d) acts of God, including hurricanes and storms; (e) acts or failures to act of Governmental Authorities; (f) civil unrest or similar disorder, terrorist acts or changes in Laws; (g) effects or changes that are cured or no longer exist by the earlier of the Closing and the termination of this Agreement pursuant to Section 14.1(a) , without cost to BG; and (h) changes resulting from the announcement of the transactions contemplated hereby or the performance of the covenants set forth in Article VI hereof.

Material Contracts ” shall have the meaning set forth in Section 4.8(a) .

Material Event ” shall mean (a) with respect to EXCO, that EXCO and (b) with respect to BG, that BG or any direct or indirect parent of BG: (i) is dissolved (other than pursuant to an internal reorganization the ordinary course of business which does not result in a change in Control of such entity); (ii) becomes insolvent or is unable to pay its debts or fails to pay or admits in writing its inability generally to pay its debts as they become due; (iii) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (iv) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (A) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation or (B) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (v) has a resolution passed for

 

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its winding up, official management pursuant to an applicable statutory remedy or liquidation (other than pursuant to an internal reorganization in the ordinary course of business which does not result in a change in Control of such entity); (vi) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or a substantial portion of its assets; (vii) has a secured party take possession of all or a substantial portion of its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or a substantial portion of its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 30 days thereafter; or (viii) causes or is subject to any event with respect to it which, under the applicable Laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (i) through (vii).

Midstream Consideration ” shall have the meaning set forth in Section 3.1 .

Midstream Contracts ” means all treatment, gathering, processing, storage, transportation, marketing and sale contracts identified on Schedule 4.8, Part 1 .

Midstream LLC ” shall have the meaning set forth in the Recitals.

Midstream LLC Agreement ” shall mean the Amended and Restated Liability Company Agreement of Midstream LLC to be mutually agreed upon and entered into by EXCO, BG and Midstream LLC at Closing.

Midstream Membership Interests ” shall have the meaning set forth in the Recitals.

Net Acre ” shall mean, as computed separately with respect to each Lease, (a) the number of gross acres in the lands covered by such Lease, multiplied by (b) the undivided percentage interest in oil, gas and other minerals covered by such Lease in such lands, multiplied by (c) the EXCO Subs’ Working Interest in such Lease, provided that if items (b) and/or (c) vary as to different areas of such lands (including depths) covered by such Lease, a separate calculation shall be done for each such area as if it were a separate Lease.

Net Acre Allocation ” shall have the meaning set forth in Exhibit A-1 .

Net Revenue Interest ” shall mean, with respect to any Well or Lease, shall mean the interest in and to all Hydrocarbons produced, saved and sold from or allocated to such Well or Lease, after giving effect to all royalties, overriding royalties, production payments, carried interests, net profits interests, reversionary interests and other burdens upon, measured by or payable out of production therefrom.

Newco Consideration ” shall have the meaning set forth in Section 3.1 .

Newco Membership Interests ” shall have the meaning set forth in the Recitals.

Newco PA ” shall have the meaning set forth in the Recitals.

Newco PA Interests ” shall have the meaning set forth in the Recitals.

 

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Newcos ” shall mean, collectively, Newco PA and Newco WV.

Newco WV ” shall have the meaning set forth in the Recitals.

Newco WV Interests ” shall have the meaning set forth in the Recitals.

Non-Operating Assets ” shall mean, excluding the Operating Assets, the Gathering Assets and the Excluded Assets, 100% of EXCO PA’s and EXCO WV’s (and, immediately following the Reorganization, the Reorganized Entities’ (other than Midstream LLC) right, title and interest in and to the assets and properties listed in clauses (a) through (b) in the definition of “Subject Non-Operating Assets” without considering the limitation to a 50% interest in such definition.

NORM ” shall mean naturally occurring radioactive material.

Operating Assets ” shall mean all of EXCO PA’s and EXCO WV’s (and, immediately prior to Closing, Operator’s) right, title and interest in and to (a) all surface fee interests, surface leases, easements, rights-of-way, permits, licenses, servitudes and other surface rights held by any such Person (or, immediately prior to Closing, Operator) in its capacity as operator of, instead of owner of an interest in, any Asset, (b) all water withdrawal and disposal and other permits, licenses, orders, approvals, variances, waivers, franchises, rights and other authorizations issued by any Governmental Authority held by any such Person (or, immediately prior to Closing, Operator) in its capacity as operator of, instead of owner of an interest in, any Asset, (c) the Warrendale, Pennsylvania regional office and all field offices, warehouses and yards (including any furniture, office equipment and other owned or leased real or immovable property relating thereto) and personal computers and associated peripherals and all radio and telephone equipment and licenses relating thereto, (d) all materials, equipment and inventory held by such Person (or, immediately prior to Closing, Operator) in its capacity as operator of, instead of owner in an interest in, any Subject Interest), (e) all trucks, cars, drilling/workover rigs located with the Appalachian Area and utilized by EXCO or its Affiliates in connection with the ownership or operation of the Assets, (f) any Applicable Contract held by any such Person (or, immediately prior to Closing, Operator) in its capacity as operator of, instead of owner of an interest in, any Asset, (g) all amounts attributable to royalty, overriding royalty and other burdens on production of Hydrocarbons from the Assets held in suspense by any such Person (or, immediately prior to Closing, Operator) as of Closing, or any interest accrued in escrow accounts for such suspended funds, (h) all Midstream Contracts, and (i) copies of any files, records, maps, information and data, whether written or electronically stored, held by any such Person (or, immediately prior to Closing, Operator), in its capacity as operator of, instead of an owner of, any Subject Interest, but excluding any of the foregoing items that are Excluded Assets.

Operator ” shall have the meaning set forth in the Recitals.

Operator Consideration ” shall have the meaning set forth in Section 3.1 .

Operator LLC Agreement ” shall mean the Amended and Restated LLC Agreement to be entered into by BG, EXCO and the Operator at Closing, substantially in the form of Exhibit F

Operator Membership Interests ” shall have the meaning set forth in the Recitals.

 

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Party ” and “ Parties ” shall have the meaning given such terms in the first paragraph herein.

Permits ” shall have the meaning set forth in Section 4.22 .

Permitted Encumbrances ” shall mean:

(a) lessor’s royalties, non-participating royalties, overriding royalties, reversionary interests and similar burdens upon, measured by or payable out of production if the net cumulative effect of such burdens does not (i) operate to reduce the Net Revenue Interest of the EXCO Subs in any Warranty Well to an amount less than the Net Revenue Interest set forth on Exhibit B for such Warranty Well, (ii) obligate the EXCO Subs to bear a Working Interest for such Warranty Well in any amount greater than the Working Interest set forth on Exhibit B for such Warranty Well (unless the Net Revenue Interest for such Warranty Well is greater than the Net Revenue Interest set forth on Exhibit B in the same proportion as any increase in such Working Interest), (iii) increase the royalty, overriding royalty and other burdens on production for any Lease to an amount greater than that set forth in Exhibit A for such Lease, or (iv) reduce the Net Acres for any Lease to an amount less than the Net Acres set forth in Exhibit A for such Lease;

(b) preferential rights to purchase and required Third Party consents to assignments and similar transfer restrictions;

(c) liens for Taxes or assessments not yet due or delinquent;

(d) Customary Post-Closing Consents;

(e) conventional rights of reassignment upon final intention to abandon or release the Assets, or any of them;

(f) such Title Defects as BG may waive in writing or is deemed to have waived pursuant to the terms of this Agreement;

(g) all applicable Laws, and rights reserved to or vested in any Governmental Authority (i) to control or regulate any Asset in any manner; (ii) by the terms of any right, power, franchise, grant, license or permit, or by any provision of Law, to terminate such right, power, franchise grant, license or permit or to purchase, condemn, expropriate or recapture or to designate a purchaser of any of the Assets; (iii) to use such property in a manner which does not materially impair the use of such property for the purposes for which it is currently owned and operated and (iv) to enforce any obligations or duties affecting the Assets to any Governmental Authority, with respect to any franchise, grant, license or permit;

(h) rights of a common owner of any interest in rights-of-way or easements currently held by any EXCO Sub and such common owner as tenants in common or through common ownership to the extent that the same does not materially impair the use or operation of the Assets as currently used and operated;

 

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(i) easements, conditions, covenants, restrictions, servitudes, permits, rights-of-way, surface leases and other rights in the Assets for the purpose of surface operations, roads, alleys, highways, railways, pipelines, transmission lines, transportation lines, distribution lines, power lines, telephone lines, and removal of timber, grazing, logging operations, canals, ditches, reservoirs and other like purposes, or for the joint or common use of real estate, rights-of-way, facilities and equipment, (in each case) that do not (i) materially impair the use, ownership or operation of the Assets (as currently owned and operated), (ii) reduce the Net Revenue Interest of the EXCO Subs in any Warranty Well to an amount less than the Net Revenue Interest set forth on Exhibit B for such Warranty Well, (iii) obligate the EXCO Subs to bear a Working Interest for such Warranty Well in any amount greater than the Working Interest set forth on Exhibit B for such Warranty Well (unless the Net Revenue Interest for such Warranty Well is greater than the Net Revenue Interest set forth on Exhibit B in the same proportion as any increase in such Working Interest) (iv) increase the royalty, overriding royalty and other burdens on production for any Lease to an amount greater than that set forth in Exhibit A for such Lease, or (v) reduce the Net Acres for any Lease to an amount less than the Net Acres set forth in Exhibit A for any Lease;

(j) zoning and planning ordinances and municipal regulations;

(k) vendors, carriers, warehousemen’s, repairmen’s, mechanics, workmen’s, materialmen’s, construction or other like liens arising by operation of Law in the ordinary course of business or incident to the construction or improvement of any property in respect of obligations which are not yet due;

(l) liens created under leases and/or operating agreements or by operation of Law in respect of obligations that are not yet due;

(m) any encumbrance affecting the Subject Interests which is discharged by EXCO at or prior to Closing;

(n) any Contracts, restrictions or exclusions set forth on Exhibit A and all litigation referenced in Schedule 4.7, Part 1 or Schedule 4.7, Part 2 ;

(o) any Applicable Contracts if the net cumulative effect of such burdens does not (i) operate to reduce the Net Revenue Interest of the EXCO Subs in any Warranty Well to an amount less than the Net Revenue Interest set forth on Exhibit B for such Warranty Well, (ii) obligate the EXCO Subs to bear a Working Interest for such Warranty Well in any amount greater than the Working Interest set forth on Exhibit B for such Warranty Well (unless the Net Revenue Interest for such Warranty Well is greater than the Net Revenue Interest set forth on Exhibit B in the same proportion as any increase in such Working Interest), (iii) increase the royalty, overriding royalty and other burdens on production for any Lease to an amount greater than that set forth in Exhibit A for such Lease, or (iv) reduce the Net Acres for any Lease to an amount less than the Net Acres set forth in Exhibit A for such Lease; and

 

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(p) the Leases and all other liens, charges, encumbrances, Contracts (including the Applicable Contracts), agreements, instruments, obligations, defects and irregularities affecting the Assets that (in each case) do not (i) materially impair the use, ownership or operation of the Assets (as currently owned and operated), (ii) operate to reduce the Net Revenue Interest of the EXCO Subs in any Warranty Well to an amount less than the Net Revenue Interest set forth on Exhibit B for such Warranty Well, (iii) obligate the EXCO Subs to bear a Working Interest for such Warranty Well in any amount greater than the Working Interest set forth on Exhibit B for such Warranty Well (unless the Net Revenue Interest for such Warranty Well is greater than the Net Revenue Interest set forth on Exhibit B in the same proportion as any increase in such Working Interest), (iv) increase the royalty, overriding royalty and other burdens on production for any Lease to an amount greater than that set forth in Exhibit A for such Lease, or (v) reduce the Net Acres for any Lease to an amount less than the Net Acres set forth in Exhibit A for such Lease.

Person ” shall mean any individual, firm, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, Governmental Authority or any other entity.

Personal Property ” shall have the meaning set forth in the definition of “Subject Non-Operating Assets”.

Pineton Lease ” means any Lease identified on Exhibit A as being within the Pineton/Indiana Development Area.

Pineton Warranty Well ” means any Warranty Well identified on Exhibit B which is included within the interests being disputed in the litigation described in Schedule 4.7, Part 2.

Policies ” shall have the meaning set forth in Section 4.36.

Post-Closing Environmental Defect ” shall mean an Environmental Condition with respect to a Subject Interest that is not set forth in Schedule 4.15 and that is timely asserted by Buyer in accordance with Section 12.1(a) on or prior to the Post-Closing Environmental Defect Claim Date but after the Pre-Closing Environmental Defect Claim Date.

Post-Closing Environmental Defect Claim Date ” shall mean on or before 5:00 p.m. (Central Time) on the day that is 30 days after the Closing Date.

Post-Closing Environmental Defect Remedy Date ” shall mean on or before 5:00 p.m. (Central Time) on the day that is 45 days after the Closing Date.

Potential Systemic Environmental Defect ” shall have the meaning set forth in Section 12.1(a) .

Pre-Closing Asset Tax Return ” shall have the meaning set forth in Section 15.2(c) .

Pre-Closing Environmental Defect ” shall mean an Environmental Condition with respect to a Subject Interest that is not set forth in Schedule 4.15 that is timely asserted by Buyer on or before the Pre-Closing Environmental Defect Claim Date.

Pre-Closing Environmental Defect Claim Date ” shall mean on or before 5:00 p.m. (Central Time) on May 13, 2010.

 

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Preferential Rights ” shall mean those rights described in Sections 8.1 and 8.2 of the Joint Development Agreement.

Preliminary Settlement Statement ” shall have the meaning set forth in Section 3.5 .

Pro Forma Financials ” shall have the meaning set forth in Section 4.28(a) .

Property ” or “ Properties ” shall have the meaning set forth in the definition of “Subject Non-Operating Assets”.

Reassigned Properties ” shall mean those Title Defect Properties distributed to, and retained by, EXCO pursuant to Section 11.2(d)(i)(B) or reassigned to EXCO pursuant to Section 11.2(d)(ii)(B) .

Records ” shall have the meaning set forth in the definition of “Subject Non-Operating Assets”.

Rejected Interest ” shall have the meaning set forth in Section 6.7(b) .

Rejection Notice ” shall have the meaning set forth in Section 6.7(b) .

Remediation ” shall mean, with respect to an Environmental Condition, the implementation and completion of any remedial, removal, response, construction, closure, disposal or other corrective actions required under Environmental Laws to correct or remove such Environmental Condition.

Remediation Amount ” shall mean, with respect to an Environmental Condition, 50% of the present value as of the Closing Date of the cost (net to the EXCO Subs’ interest prior to the consummation of the transactions contemplated by this Agreement) of the most cost effective Remediation of such Environmental Condition that is reasonably available and all Liabilities (net to the EXCO Subs’ interest prior to the consummation of the transactions contemplated by this Agreement) with respect thereto.

Reorganization ” shall mean the actions taken pursuant to Section 6.9(a) .

Reorganization Certificate of Merger ” shall mean the Certificate of Merger entered into pursuant to the multi-survivor merger referenced in Section 6.9(a)(iv) .

Reorganization Plan of Merger ” shall mean the Plan of Merger between EXCO PA and EXCO WV for the multi-survivor merger referenced in Section 6.9(a)(iv) , substantially in the form of Exhibit G .

Reorganized Entities ” shall mean, collectively, the following companies resulting pursuant to the Reorganization: each Reorganized Sub, Midstream LLC, Operator and each Newco, and each individually, a “ Reorganized Entity ”.

 

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Reorganized Subs ” shall mean, collectively, EXCO Production Company (PA), LLC and EXCO Production Company (WV), LLC, each a Delaware limited liability company, and each individually, a “ Reorganized Sub ”.

Rights of Way ” shall have the meaning set forth in the definition of “Subject Non-Operating Assets”.

Shallow Rights ” shall mean (a) with respect to the Commonwealth of Pennsylvania, those subsurface depths that are above the base of (and including) the Haskill Sandstone Formation (Base of Elk Sequence) formation at a measured depth of 2,758’, as identified by the Litho Density Compensated Neutron Array Induction Temperature Log dated June 7, 2005 of the Seneca Resources operated Fee PGS SGL No. 44 (API 37-047-23649) located in Elk County, Pennsylvania, (b) with respect to the State of West Virginia, those subsurface depths that are above the base of (and including) the Brallier Formation (Base of Elk Sequence) formation at a measured depth of 6,612’, as identified by the Litho Density Compensated Neutron Array Induction Temperature Log dated October 8, 2008 of the EXCO – North Coast Energy, Inc. operated Wentz 4HS (API 47-001-02982) located in Barbour County, West Virginia, and (c) with respect to the State of New York, those subsurface depths that are above the base of (and including) the Genesee Formation at a measured depth of 2,548’, as identified by the Density/Neutron, Gamma/Temperature Log dated May 6, 2005 of the Fortuna Energy, Inc. operated Cotton-Hanlon #1 well (API 31-107-23185) located in Tioga County, New York, recognizing that actual depths will vary across the AMI Area.

Snowshoe JV ” shall mean that certain contemplated joint venture by and between Black Bear and certain of its Affiliates with Superior Appalachian Pipeline, LLC regarding the development, ownership and operation of certain intrastate pipeline systems in Pennsylvania.

Straddle Period ” shall mean any Tax period beginning before and ending on or after the Effective Time.

Subject Area ” shall have the meaning set forth in the Recitals.

Subject Gathering Assets ” shall mean an undivided 50% of all of EXCO WV’s and EXCO PA’s right, title and interest in and to the Gathering Assets.

Subject Interests ” shall mean the Subject Gathering Assets, the Subject Operating Assets and the Subject Non-Operating Assets, which assets shall be held by Midstream LLC, the Newcos and Operator following the Reorganization.

Subject Leases ” shall have the meaning set forth in the definition of the “Subject Non-Operating Assets”.

Subject Membership Interests ” shall have the meaning set forth in the Recitals.

 

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Subject Non-Operating Assets ” shall mean the following, less and except the Operating Assets, the Gathering Assets and the Excluded Assets:

(a) an undivided 50% of all of EXCO PA’s and EXCO WV’s right, title and interest in and to all of such Persons’ assets and properties, including the following assets and properties:

(i) the oil, gas and/or mineral leases, subleases, fee interests, fee mineral interests, royalties, overriding royalties, production payments, net profits interests, carried interests, reversionary interests and other interests in oil, gas and/or minerals in place (collectively, the “ Leases ”) more particularly described in Exhibit A and all other Oil and Gas Interests located in the Appalachian Area (such 50% of such Persons’ interests in all such Oil and Gas Interests being referred to collectively as the “ Subject Leases ”), together with any and all other rights, titles, and interests of such Persons in and to (A) the leasehold estates created by the Leases, (B) the lands covered by the Leases (such 50% of such Persons’ interests in such lands, the “ Lands ”), and (C) the interests in any pooled acreage, communitized acreage or units arising on account of the Leases or Lands having been pooled, communitized or unitized into such units (such 50% of such Persons’ interests in such units, the “ Units ”);

(ii) all oil and gas wells and injection wells located on the Leases, the Lands or the Units (such wells, collectively and including, without limitation, the wells set forth on Exhibit B , the “ Wells ” and such 50% of such Persons interests in such Wells, the “ Subject Wells ”), and all Hydrocarbons produced therefrom or allocated thereto (the Subject Leases, the Lands, the Units and the Subject Wells being collectively referred to hereinafter as the “ Properties ”); and

(iii) all equipment, machinery, fixtures and other real, immovable, personal, movable and mixed property primarily used or held for use in connection with the Properties or the other Subject Non-Operating Assets described above, including, without limitation, saltwater disposal wells, water sourcing and disposal facilities and systems, well equipment, casing, rods, tanks, boilers, buildings, tubing, pumps, motors, fixtures, machinery, compression equipment, flow lines and separation facilities, structures, materials, and other items used or held for use in the operation thereof and located upstream of the outlet flange of the relevant custody transfer meter (or, in the case of Hydrocarbon liquids, upstream of the outlet flange in the tanks) (such 50% of such Persons’ interest in such properties, the “ Personal Property ”);

(iv) (A) to the extent not held in such Person’s capacity as operator of any of the Properties or Personal Property, all surface fee interests, surface leases, easements, rights-of-way, permits, licenses and other surface rights to the extent and only to the extent that such interests, assets and rights are associated with the Properties or Personal Property and (B) to the extent held in such Person’s capacity as operator of any of the Properties or Personal Property, a beneficial interest in and to all surface fee interests, surface leases, easements, rights-of-way, permits, licenses and other surface rights to the extent and only to the extent that such interests, assets and rights are associated with the Properties or Personal Property (such interests, the “ Rights of Way ”);

 

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(b) all of EXCO PA’s and EXCO WV’s right, title and interest in and to the following assets and properties to the extent and only to the extent that such assets and properties are associated with the Properties, the Personal Property or the Rights of Way:

(i) the beneficial interest in all water withdrawal and disposal and other permits, licenses, orders, approvals, variances, waivers, franchises, rights and other authorizations issued by any Governmental Authority;

(ii) all Applicable Contracts other than Midstream Contracts;

(iii) all Imbalances;

(iv) copies of any 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; (D) operations, environmental, production and accounting records and (E) production, facility and well records and data (including logs and cores), but excluding any of the foregoing items that are Excluded Assets (“ Records ”);

(v) to the extent maintainable by Newco PA, Newco WV and/or Operator following the Reorganization (with consent, if applicable) without payment of fees or other penalties, all geophysical and other seismic and related technical data and information;

(vi) all liens and security interests securing payment for the sale or other disposition of Hydrocarbons produced from or allocated to the Properties, including security interests granted under any Applicable Law, but only to the extent that such liens and security interests relate to the period from and after the Effective Time; and

(vii) all rights, claims and causes of action to the extent and only to the extent that such rights, claims or causes of action are associated with the Subject Interests described in clauses (a), (b) or (c) above as of the Closing Date and (i) relate to the period from and after the Effective Time or (ii) relate to the period prior to the Effective Time and are not asserted by EXCO in writing to BG or the applicable Third Party on or before the applicable EXCO Indemnity Cut-off Date, and in any case excluding Tax claims and loss carry forwards, provided that, at BG’s request, EXCO shall use its reasonable efforts to enforce, for the benefit of BG, at BG’s cost and expense, any right, claim or cause of action that would otherwise be transferred hereunder but is not assignable.

Subject Operating Assets ” shall mean an undivided 50% of all of EXCO PA’s and EXCO WV’s (and immediately prior to Closing, Operator’s) right, title and interest in and to the Operating Assets.

Subject Well ” shall have the meaning set forth in the definition of “Subject Non-Operating Assets”.

Tax Partnership ” shall have the meaning set forth in Section 15.3 .

Taxes ” shall mean any and all federal, state, local, foreign and other taxes or other assessments, including, without limitation, all net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, profit share, license, lease, service, service use, value added, withholding, payroll, employment, excise, estimated severance, stamp, occupation, premium, property, windfall profit or other taxes of any kind whatsoever, together with any interests, penalties, additions to tax, fines or other additional amounts imposed thereon or related thereto, and the term “ Tax ” means any one of the foregoing Taxes.

 

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TBOC ” shall mean the Texas Business Organizations Code.

Technical Services ” shall have the meaning set forth in the Joint Development Agreement.

Termination Date ” shall have the meaning set forth in Section 14.1(a) .

Third Party ” shall mean any Person other than a Party to this Agreement or an Affiliate of a Party to this Agreement.

Title Arbitrator ” shall have the meaning set forth in Section 11.2(j) .

Title Benefit ” shall mean any right, circumstance or condition that operates to (a) increase the Net Revenue Interest of the EXCO Subs in any Warranty Well above that shown for such Warranty Well in Exhibit B to the extent the same does not cause a greater than proportionate increase in Working Interest of the EXCO Subs therein above that shown in Exhibit B, (b) increase the Net Acres of the EXCO Subs in any Lease to greater than that shown therefor in Exhibit A or (c) reduce the royalty and overriding royalty burdens on the EXCO Subs’ interest in any Lease to less than that shown therefor in Exhibit A .

Title Benefit Amount ” shall mean the increase in the Allocated Value for the Subject Interest attributed to the affected Warranty Well or Lease caused by such Title Benefit, as determined pursuant to Section 11.2(e).

Title Benefit Notice ” shall have the meaning set forth in Section 11.2(b) .

“Title Carry Increase Amount” shall mean the amount by which the Allocated Carry for any Lease is increased pursuant to Section 11.2(h).

“Title Carry Reduction Amount” shall mean the amount by which the Allocated Carry for any Lease is reduced pursuant to Section 11.2(g)).

Title Cure Period ” shall have the meaning set forth in Section 11.2(c) .

Title Deductible ” shall mean $9,500,000.

Title Defect ” shall mean any lien, charge, Encumbrance, defect or other matter that causes the EXCO Subs not to have Defensible Title in and to the Subject Interests as of the Effective Time and the Closing; provided that the following shall not be considered Title Defects:

(a) defects in the chain of title consisting of the failure to recite marital status in a document or omissions of successions of heirship or estate proceedings, unless BG provides affirmative evidence that such failure or omission could reasonably be expected to result in another Person’s superior claim of title to the relevant Asset;

 

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(b) defects arising out of lack of survey, unless a survey is expressly required by applicable Laws;

(c) defects arising out of lack of corporate or other entity authorization in the public records unless BG provides affirmative evidence that causes BG to reasonably believe such corporate or other entity action may not have been authorized and could reasonably be expected to result in another Person’s superior claim of title to the relevant Asset;

(d) defects based on a gap in any EXCO Sub’s or such Person’s chain of title in the state’s records as to state Leases, or in the county records as to other Leases, unless such gap is affirmatively shown to exist in such records by an abstract of title, title opinion or landman’s title chain or runsheet, which documents shall be included in a Title Defect Notice;

(e) defects that have been cured by applicable Laws of limitations or prescription;

(f) in the case of a Future Well, any permits, easements, rights-of-way, unit designations or production and drilling units not yet obtained, formed or created; and

(g) any Encumbrance or loss of title to which BG has consented in writing.

Title Defect Amount ” shall mean the amount of a Title Defect as determined pursuant to Section 11.2(g) or 11.2(j) .

Title Defect Claim Date ” shall mean on or before 5:00 p.m. (Central Time) on the day that is 180 days after the Closing Date.

Title Defect Remedy Date ” shall mean on or before 5:00 p.m. (Central Time) on the day that is 195 days after the Closing Date.

Title Defect Notice ” shall have the meaning set forth in Section 11.2(a) .

Title Defect Property ” shall have the meaning set forth in Section 11.2(a) .

Transaction Components ” shall have the meaning set forth in Section 3.1 .

Transaction Documents ” shall mean those documents executed pursuant to or in connection with this Agreement.

Treasury Regulations ” shall mean the regulations promulgated by the United States Department of the Treasury pursuant to and in respect of provisions of the Code. All references herein to sections of the Treasury Regulations shall include any corresponding provision or provisions of succeeding, similar, substitute, proposed or final Treasury Regulations.

Units ” shall have the meaning set forth in the definition of “Subject Non-Operating Assets”.

Unaudited Financials ” shall have the meaning set forth in Section 4.28 .

 

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Warranty Wells ” shall mean a Well or a Future Well, as the context requires.

Wells ” shall have the meaning set forth in the definition of “Subject Non-Operating Assets”.

Working Interest ” shall mean, with respect to any Well or Lease, shall mean the interest in and to such Well or Lease that is burdened with the obligation to bear and pay costs and expenses of maintenance, development and operations on or in connection with such Well or Lease, but without regard to the effect of any royalties, overriding royalties, production payments, net profits interests and other similar burdens upon, measured by or payable out of production therefrom.

 

I-23

Exhibit 10.9

Execution Version

GUARANTY

THIS GUARANTY (this “ Guaranty ”) is made as of the 9th day of May, 2010 by BG Energy Holdings Limited, a company incorporated under the Laws of England and Wales (the “ Guarantor ”), in favor of EXCO Holding (PA), Inc., a corporation incorporated under the Laws of Delaware (“ EXCO Holding ”), EXCO Production Company (PA), LLC, a limited liability company incorporated under the Laws of Delaware (“ EXCO PA ”), and EXCO Production Company (WV), LLC, a limited liability company incorporated under the Laws of Delaware (“ EXCO WV ” and, together with EXCO Holding and EXCO PA, “ EXCO ”). Guarantor and EXCO Holding are referred to herein individually as a “ Party ” and collectively as the “ Parties ”.

RECITALS

WHEREAS, EXCO Holding and BG US Production Company, LLC, a limited liability company incorporated under the Laws of Delaware (“ BGPC ”), and certain of their Affiliates desire to enter into an arrangement for the joint exploration, development and operation of certain oil and gas properties located in the states of Kentucky, New York, Ohio, Pennsylvania, Tennessee, Virginia and West Virginia, and in connection therewith, EXCO and BGPC have entered into a Membership Interest Transfer Agreement dated of even date herewith (as hereafter amended, supplemented or modified, the “ MITA ”) and, upon the consummation of the transactions contemplated by the MITA, BG Production Company (PA), LLC, a limited liability company incorporated under the Laws of Delaware (“ BG PA ”) , BG Production Company (WV), LLC, a limited liability company incorporated under the Laws of Delaware (“ BG WV ”), EXCO PA, EXCO WV and EXCO Resources (PA), LLC, a limited liability company incorporated under the Laws of Delaware (“ Operator LLC ”) shall enter into a Joint Development Agreement (as hereafter amended, supplemented or modified, the “ JDA ” and, together with the MITA, the “ Definitive Agreements ”); and

WHEREAS, as a material inducement to EXCO to enter into the Definitive Agreements with BGPC, BG PA and BG WV, Guarantor has agreed to provide a guaranty of certain obligations of BGPC, BG PA and BG WV under the Definitive Agreements.

AGREEMENT

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

Section 1. Guaranty of Payment . Guarantor hereby absolutely, unconditionally and irrevocably guarantees to EXCO and its successors, permitted transferees and permitted assigns the punctual and complete payment when due of all payment obligations of BGPC, or any of its Affiliates (collectively, the “ Subject Persons ”) under the MITA (collectively, the “ MITA Obligations ”), and the carry obligation of BG PA and BG WV described in Section 2.2 of the JDA (the “ Carry Obligation ”, and together with the MITA Obligations, and any increases, extensions, or rearrangements of such obligations, collectively, the “ Guaranteed Obligations ”). The guaranty set forth in this Section 1 is a continuing guaranty of payment and not a guaranty of collection.


Section 2. Primary Liability of Guarantor . Guarantor shall be liable for the payment of the Guaranteed Obligations, as set forth in this Guaranty, as a primary obligor, and not as a mere surety.

In the event of default by any Subject Person in payment of the Guaranteed Obligations, or any part thereof, when such payment becomes due, Guarantor shall, on demand and without further notice of nonpayment, or any other notice whatsoever, pay the amount due thereon to EXCO, and it shall not be necessary for EXCO, in order to enforce such payment by Guarantor, to institute any suit or pursue or exhaust any rights or remedies against any Subject Person or others liable for such payment, or to join any Subject Person for the payment of the Guaranteed Obligations or any part thereof in any action to enforce this Guaranty, or to resort to any other means of obtaining payment of the Guaranteed Obligations.

Suit may be brought or demand may be made against any Subject Person or Guarantor or against any one or more of them, separately or together, without impairing the rights of EXCO against either.

Section 3. Certain Agreements and Waivers by Guarantor . Guarantor hereby agrees that EXCO’s rights or remedies and all of Guarantor’s obligations under the terms of this Guaranty shall remain in full force and effect and shall not be released, diminished, impaired, reduced or affected by, or deemed to be satisfied by, nor shall Guarantor be exonerated, discharged or released (by virtue of any Law, arrangement or relationship) by, any one or more of the following events, actions, facts, or circumstances, and the liability of Guarantor under this Guaranty shall be absolute and unconditional irrespective of:

 

  (a) the taking or accepting of any other security or guaranty for, or right of recourse with respect to, any or all of the Guaranteed Obligations;

 

  (b) whether express or by operation of any Law or otherwise, any complete or partial release of any Subject Person or any other party liable, directly or indirectly, for the payment of any or all of the Guaranteed Obligations, or any limitation, discharge, cessation or partial release of the liability of Guarantor hereunder (other than discharge or release under the express provisions of this Guarantee, including by virtue of satisfaction of Guaranteed Obligations, under the express terms of the MITA and JDA, or by agreement of EXCO);

 

  (c) the bankruptcy, insolvency, dissolution, liquidation, termination, receivership, reorganization, merger, consolidation, change of form, structure or ownership, sale of all assets, or lack of corporate, partnership or other power of any Subject Person or any other party at any time liable for the payment of any or all of the Guaranteed Obligations;

 

  (d)

either with or without notice to or consent of Guarantor, any renewal, extension, modification, amendment, supplement, subordination or rearrangement of the terms of any or all of the Guaranteed Obligations, including material alterations of the terms of payment or any other terms thereof, or any waiver, termination, or release of, or consent to departure from, the Definitive Agreements or any

 

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  adjustment, indulgence, forbearance, or compromise that may be granted from time to time by EXCO to any Subject Person, Guarantor, and/or any other Person at any time liable for the payment of any or all of the Guaranteed Obligations;

 

  (e) any neglect, lack of diligence, delay, omission, failure, or refusal of EXCO to take or prosecute (or in taking or prosecuting) any action for the collection of any of the Guaranteed Obligations;

 

  (f) if for any reason EXCO is required to refund any payment by any Subject Person or any other party liable for the payment of any or all of the Guaranteed Obligations or pay the amount thereof to someone else;

 

  (g) the existence of any claim, set-off, or other right that Guarantor may at any time have against any Subject Person, EXCO, or any other Person, whether or not arising in connection with this Guaranty or any of the Definitive Agreements;

 

  (h) any order, ruling or plan of reorganization emanating from proceedings under Title 11 of the United States Code with respect to any Subject Person or any other Person, including any extension, reduction, composition, or other alteration of the Guaranteed Obligations, whether or not consented to by EXCO;

 

  (i) any absence of any notice to, or knowledge by, Guarantor, of the existence or occurrence of any of the matters or events set forth in the foregoing subsections (a) through (h);

 

  (j) the failure to provide any notices or demands, whether of presentment, protest, dishonor or otherwise, other than (i) any notices and demands expressly set forth herein, and (ii) such notices or demands as may be required by applicable Law which cannot be waived; or

 

  (k) any other circumstance that might otherwise constitute a defense available to, or a discharge of, a guarantor (except discharge or defenses under the express provisions of this Guarantee, including by virtue of satisfaction of Guaranteed Obligations, under the express terms of the MITA and JDA, or by other agreement of EXCO).

In the event any payment by any Subject Person or any other Person to EXCO in respect of the Guaranteed Obligations is held to constitute a preference, fraudulent transfer or other voidable payment under any bankruptcy, insolvency or similar Law, or if for any other reason, EXCO is required to refund such payment or pay the amount thereof to any other party, such payment by such Subject Person or such other Person to EXCO shall not constitute a release of Guarantor from any liability hereunder, and this Guaranty shall continue to be effective or shall be reinstated (notwithstanding any prior release, surrender or discharge by EXCO of this Guaranty or of Guarantor), as the case may be, with respect to, and this Guaranty shall apply to, any and all amounts so refunded by EXCO or paid by EXCO to another Person (which amounts shall constitute part of the Guaranteed Obligations), and any interest paid by EXCO and any attorneys’ fees, costs and expenses paid or incurred by EXCO in connection with any such event.

 

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In addition to the other matters set forth in this Section 3 , until all Guaranteed Obligations have been paid in full, Guarantor hereby agrees not to assert any claim of subrogation with respect to the Guaranteed Obligations, or any right of contribution, reimbursement, indemnification or other rights of recovery against the Subject Persons in respect of the Guaranteed Obligations, provided that nothing herein shall prevent transfers of funds between the Subject Persons and Guarantor in the ordinary course of business. If any amount shall be paid to Guarantor in violation of the preceding sentence, such amount shall be held in trust for the benefit of EXCO and immediately turned over to EXCO, with any necessary endorsement, to be applied to the Guaranteed Obligations.

Guarantor agrees that, as between Guarantor and EXCO as of any time, the Guaranteed Obligations accrued as of such time may be declared to be forthwith due and payable for purposes of Section 1 notwithstanding any stay, injunction or other prohibition preventing such declaration as against any Subject Person and that, in the event of such declaration, such Guaranteed Obligations (whether or not due and payable by Subject Person) shall forthwith become due and payable by Guarantor for purposes of Section 1 .

Each failure by any Subject Person to pay any Guaranteed Obligations shall give rise to a separate cause of action herewith, and separate suits may be brought hereunder as each cause of action arises.

Section 4. Representations and Warranties of Guarantor . Guarantor represents and warrants to EXCO as follows:

 

  (a) Organization . Guarantor is a company incorporated under the Laws of England and Wales and has all requisite corporate power and authority to carry on its business as is now being conducted except for such failures which would not, individually or in the aggregate, have a material adverse effect on the ability of Guarantor to discharge its obligations under this Guaranty (a “ Guarantor Material Adverse Effect ”).

 

  (b) Authority Relative to this Guaranty . Guarantor has all necessary corporate power and authority to execute and deliver this Guaranty and to perform its obligations hereunder. The execution and delivery by Guarantor of this Guaranty and performance by Guarantor of its obligations hereunder have been duly and validly authorized by all necessary corporate action on the part of Guarantor.

 

  (c) Enforceability . This Guaranty constitutes a valid and binding agreement of Guarantor, enforceable against Guarantor in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, reorganization, moratorium and other similar Laws of general application with respect to creditors and (ii) general principles of equity.

 

  (d) Consents and Approvals; No Violation .

(i) Neither the execution and delivery of this Guaranty by Guarantor nor performance by Guarantor of its obligations hereunder will (A) conflict with or result in any breach of any provision of the organizational or governing

 

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  documents or instruments of Guarantor, (B) result in a default (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, agreement, lease or other instrument or obligation to which Guarantor or any of its Affiliates is party or by which any of their respective assets may be bound or (C) violate any Law applicable to Guarantor, or any of its assets, except in case of clauses (B) and (C), for such failure to obtain a necessary consent, defaults and violations, which would not, individually or in the aggregate, have a Guarantor Material Adverse Effect.

(ii) No declaration, filing or registration with, or notice to, or authorization, consent or approval of any Person or Governmental Authority is necessary for performance by Guarantor of its obligations hereunder, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not obtained or made would not, individually or in the aggregate, have a Guarantor Material Adverse Effect.

 

  (e) Taxes . Any payments made under this Guaranty by Parent to any Subject Person shall not be subject to any deduction or withholding whatsoever, including for any and all present and future taxes.

Section 5. Assignment . This Guaranty may not be assigned by any Party, EXCO PA or EXCO WV, in whole or in part, without the prior written consent of the Parties, EXCO PA and EXCO WV.

Section 6. Notices . All notices and communications required or permitted to be given hereunder shall be in writing and shall be delivered personally, or sent by bonded overnight courier, or mailed by U.S. Express Mail or by certified or registered United States Mail with all postage fully prepaid, or sent by telex or facsimile transmission (provided any such telex or facsimile transmission is confirmed either orally or by written confirmation), addressed to the appropriate Party, EXCO PA or EXCO WV at the address for such Person shown below or at such other address as such Person shall have theretofore designated by written notice delivered to the Person giving such notice:

If to Guarantor:

BG Energy Holdings Limited

100 Thames Valley Park Drive

Reading

Berkshire, RG6 1PT

England

Attention: General Counsel

Telephone: 011 44 (0) 118 929 2590

Fax: 011 44 (0) 118 929 3491

 

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With a copy to:

BG North America, LLC

5444 Westheimer, Suite 1775

Houston, Texas 77056

Attention: Chris Migura

Telephone: (713) 599-3826

Fax: (713) 599-4250

With a copy to:

Morgan, Lewis & Bockius LLP

1000 Louisiana Street, Suite 4000

Houston, Texas 77002

Attention: David F. Asmus

Telephone: (713) 890-5718

Fax: (713) 599-4250

If to EXCO:

EXCO Holding (PA), Inc.

12377 Merit Drive, Suite 1700

Dallas, Texas 75251

Attention: Rick Hodges, Vice President of Land

Telephone: (214) 368-2084

Fax: (214) 706-3424

With a copy to:

EXCO Resources, Inc.

12377 Merit Drive, Suite 1700

Dallas, Texas 75251

Attention: William L. Boeing, Vice President, General Counsel,

and Secretary

Telephone: (214) 368-2084

Fax: (214) 706-3409

With a copy to:

Vinson & Elkins L.L.P.

1001 Fannin Street, Suite 2500

Houston, Texas 77002-6760

Attention: Stephen C. Szalkowski

Telephone: (713) 758-2312

Fax: (713) 615-5084

 

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Any notice given in accordance herewith shall be deemed to have been given when delivered to the addressee in person, or by courier, or transmitted by facsimile transmission during normal business hours, or upon actual receipt by the addressee after such notice has either been delivered to an overnight courier or deposited in the United States Mail, as the case may be. EXCO and Guarantor may change the address, telephone numbers, and facsimile numbers to which such communications are to be addressed by giving written notice to the Parties, EXCO PA and EXCO WV in the manner provided in this Section 6 .

Section 7. Further Cooperation . Guarantor at Guarantor’s expense will promptly execute and deliver to EXCO upon EXCO’s request all such other and further documents, agreements, and instruments in compliance with or accomplishment of the agreements of Guarantor under this Guaranty.

Section 8. Entire Agreement . THIS GUARANTY CONSTITUTES THE ENTIRE AGREEMENT BETWEEN GUARANTOR AND EXCO PERTAINING TO THE SUBJECT MATTER HEREOF AND SUPERSEDES ALL PRIOR AGREEMENTS, UNDERSTANDINGS, NEGOTIATIONS, AND DISCUSSIONS, WHETHER ORAL OR WRITTEN, OF EXCO AND GUARANTOR PERTAINING TO THE SUBJECT MATTER HEREOF. THERE ARE NO WARRANTIES, REPRESENTATIONS, OR OTHER AGREEMENTS BETWEEN GUARANTOR OR EXCO RELATING TO THE SUBJECT MATTER HEREOF EXCEPT AS SPECIFICALLY SET FORTH IN THIS GUARANTY OR THE DEFINITIVE AGREEMENTS, AND NEITHER GUARANTOR NOR EXCO SHALL BE BOUND BY OR LIABLE FOR ANY ALLEGED REPRESENTATION, PROMISE, INDUCEMENT, OR STATEMENTS OF INTENTION NOT SO SET FORTH.

Section 9. Parties in Interest . Notwithstanding anything contained in this Guaranty to the contrary, nothing in this Guaranty, expressed or implied, is intended to confer on any Person other than the Parties, EXCO PA and EXCO WV any rights, remedies, obligations or liabilities under or by reason of this Guaranty.

Section 10. Amendment . This Guaranty may be amended only by an instrument in writing executed by the Parties (or EXCO PA or EXCO WV, as applicable) against whom enforcement is sought.

Section 11. Waiver: Rights Cumulative . Any of the terms, covenants, representations, warranties, or conditions hereof may be waived only by a written instrument executed by or on behalf of the Party (or EXCO PA or EXCO WV, as applicable) waiving compliance. No course of dealing on the part of Guarantor or EXCO, or their respective officers, employees, agents, or representatives, nor any failure by Guarantor or EXCO to exercise any of their rights under this Guaranty shall operate as a waiver thereof or affect in any way the right of such Person at a later time to enforce the performance of such provision. No waiver by any Party (or EXCO PA or EXCO WV, as applicable) of any condition, or any breach of any term, covenant, representation, or warranty contained in this Guaranty, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of any breach of any other term, covenant, representation, or warranty. The rights of Guarantor and EXCO under this Guaranty shall be cumulative, and the exercise or partial exercise of any such right shall not preclude the exercise of any other right.

 

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Section 12. Governing Law; Jury Waiver . THIS GUARANTY AND THE LEGAL RELATIONS AMONG EXCO AND GUARANTOR SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT REFER CONSTRUCTION OF SUCH PROVISIONS TO THE LAWS OF ANOTHER JURISDICTION. SUBJECT TO SECTION 13 , EXCO AND GUARANTOR CONSENT TO THE EXERCISE OF JURISDICTION IN PERSONAM BY THE COURTS OF THE STATE OF TEXAS FOR ANY DISPUTE. EXCO AND GUARANTOR EACH WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY DISPUTE.

Section 13. Arbitration . Any dispute among the Parties, EXCO PA and EXCO WV with respect to this Guaranty shall be resolved through final and binding arbitration in accordance with the arbitration procedures set out in Section 15.16 of the MITA, which shall apply mutatis mutandis to any such dispute. Any papers, notices, or process necessary or proper for an arbitration hereunder, or any court action in connection with an arbitration or an award, may be served on a Party (or EXCO PA or EXCO WV, as applicable) in the manner set forth in Section 6 above.

Section 14. Payments . All sums payable under this Guaranty shall be paid within fifteen (15) Business Days after EXCO’s demand for payment is received, in immediately available funds in lawful money of the United States of America that at the time of payment is legal tender for the payment of public and private debts.

Section 15. Severability . If any term or other provision of this Guaranty is invalid, illegal, or incapable of being enforced by any rule of Law or public policy, all other conditions and provisions of this Guaranty shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to any Party (or EXCO PA or EXCO WV, as applicable). Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, EXCO and Guarantor shall negotiate in good faith to modify this Guaranty so as to effect the original intent of EXCO and Guarantor as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

Section 16. Counterparts . This Guaranty may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all of such counterparts shall constitute for all purposes one agreement. Any signature hereto delivered by a Party by facsimile transmission or by e-mail of a PDF file shall be deemed an original signature hereto, provided that any facsimile or e-mail transmission of a signature page delivered by a Party shall be followed promptly by an original signature page.

Section 17. Scope . Subject only to Section 3 , this Guaranty creates for Guarantor no more rights and imposes on Guarantor no more obligations and duties with respect to the payment of the Guaranteed Obligations than Guarantor would have if it had executed the Definitive Agreements in the place of BGPC, BG PA or BG WV.

 

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Section 18. EXCO PA and EXCO WV . EXCO Holding will cause each of EXCO PA and EXCO WV to be bound by the terms of this Guaranty and to perform any and all obligations each such Person may have under this Guaranty.

Section 19. References and Rules of Construction . Unless otherwise indicated, capitalized terms used but not otherwise defined herein and defined in the MITA shall have the meanings given such terms in the MITA. All references in this Guaranty to Sections, subsections and other subdivisions refer to the corresponding Sections, subsections and other subdivisions of or to this Guaranty unless expressly provided otherwise. Titles appearing at the beginning of any Sections, subsections and other subdivisions of this Guaranty are for convenience only, do not constitute any part of this Guaranty, and shall be disregarded in construing the language hereof. The words “this Guaranty,” “herein,” “hereby,” “hereunder” and “hereof,” and words of similar import, refer to this Guaranty as a whole and not to any particular Section, subsection or other subdivision unless expressly so limited. The words “this Section,” and “this subsection,” and words of similar import, refer only to the 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 Guaranty. 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.

[Signature Pages Follow]

 

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IN WITNESS WHEREOF, the Parties have duly executed this Guaranty as of the day and year first above set forth.

 

GUARANTOR:

BG ENERGY HOLDINGS LIMITED

By:  

/s/ MARTIN HOUSTON

Name:   Martin Houston
Title:   Director
EXCO:

EXCO HOLDING (PA), INC.

By:  

/s/ DOUGLAS H. MILLER

Name:   Douglas H. Miller
Title:   Chief Executive Officer

Exhibit 10.10

Execution Version

PERFORMANCE GUARANTY

THIS PERFORMANCE GUARANTY (this “ Guaranty ”) is made as of the 9 th day of May, 2010 by EXCO Resources, Inc., a corporation incorporated under the Laws of Texas (the “ Guarantor ”), in favor of BG US Production Company, LLC, a limited liability company formed under the Laws of Delaware (“ BG ”). Guarantor and BG are referred to herein individually as a “ Party ” and collectively as the “ Parties ”.

RECITALS

WHEREAS, BG and EXCO Holding (PA), Inc., a corporation incorporated under the Laws of Delaware (“ EXCO ”) desire to enter into an arrangement for the joint exploration, development and operation of certain oil and gas properties located in the States of Kentucky, New York, Ohio, Pennsylvania, Tennessee, Virginia and West Virginia, and in connection therewith, EXCO and BG have entered into a Membership Interest Transfer Agreement dated of even date herewith (as hereafter amended, supplemented or modified, the “ MITA ”); and

WHEREAS, as a material inducement to BG to enter into the MITA with EXCO, Guarantor has agreed to provide a guaranty of certain obligations of EXCO under the MITA.

AGREEMENT

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

Section 1. Guaranty . Guarantor hereby absolutely, unconditionally and irrevocably guarantees to BG and its successors, permitted transferees and permitted assigns the full performance when due of all obligations of EXCO or any of its Affiliates (collectively, the “ Subject Persons ”) under the terms of the MITA (collectively, with any increases, extensions, or rearrangements of such obligations, the “ Guaranteed Obligations ”). The guaranty set forth in this Section 1 is a continuing guaranty of performance and payment and not a guaranty of collection.

Section 2. Primary Liability of Guarantor . Guarantor shall be liable for the payment of the Guaranteed Obligations, as set forth in this Guaranty, as a primary obligor, and not as a mere surety.

In the event of default by any Subject Person in the performance of the Guaranteed Obligations, or any part thereof, when performance becomes due, Guarantor shall, on demand and without further notice of nonperformance, or any other notice whatsoever, perform, or, at its election, immediately cause the performance of such Guaranteed Obligation, and it shall not be necessary for BG, in order to enforce such performance by Guarantor, to institute any

 

1


suit or pursue or exhaust any rights or remedies against any Subject Person or others liable for such performance, or to join any Subject Person for the performance of the Guaranteed Obligations or any part thereof in any action to enforce this Guaranty, or to resort to any other means of obtaining performance of the Guaranteed Obligations.

Suit may be brought or demand may be made against any Subject Person or Guarantor or against any one or more of them, separately or together, without impairing the rights of BG against either.

Section 3. Certain Agreements and Waivers by Guarantor . Guarantor hereby agrees that BG’s rights or remedies and all of Guarantor’s obligations under the terms of this Guaranty shall remain in full force and effect and shall not be released, diminished, impaired, reduced or affected by, or deemed to be satisfied by, nor shall Guarantor be exonerated, discharged or released (by virtue of any Law, arrangement or relationship) by, any one or more of the following events, actions, facts, or circumstances, and the liability of Guarantor under this Guaranty shall be absolute and unconditional irrespective of:

 

  (a) the taking or accepting of any other security or guaranty for, or right of recourse with respect to, any or all of the Guaranteed Obligations;

 

  (b) whether express or by operation of any Law or otherwise, any complete or partial release of any Subject Person or any other party liable, directly or indirectly, for the performance of any or all of the Guaranteed Obligations, or any limitation, discharge, cessation or partial release of the liability of Guarantor hereunder (other than discharge or release under the express provisions of this Guarantee, including by virtue of satisfaction of Guaranteed Obligations, under the express terms of the MITA, or by agreement of BG), or;

 

  (c) the bankruptcy, insolvency, dissolution, liquidation, termination, receivership, reorganization, merger, consolidation, change of form, structure or ownership, sale of all assets, or lack of corporate, partnership or other power of any Subject Person or any other party at any time liable for the performance of any or all of the Guaranteed Obligations;

 

  (d) either with or without notice to or consent of Guarantor, any renewal, extension, modification, amendment, supplement, subordination or rearrangement of the terms of any or all of the Guaranteed Obligations, including material alterations of the terms of performance or any other terms thereof, or any waiver, termination, or release of, or consent to departure from, the MITA or any adjustment, indulgence, forbearance, or compromise that may be granted from time to time by BG to any Subject Person, Guarantor, and/or any other Person at any time liable for the performance of any or all of the Guaranteed Obligations;

 

  (e) any neglect, lack of diligence, delay, omission, failure, or refusal of BG to take or prosecute (or in taking or prosecuting) any action for the collection of any of the Guaranteed Obligations;

 

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  (f) if for any reason BG is required to refund any payment by any Subject Person or any other party liable for the performance of any or all of the Guaranteed Obligations or pay the amount thereof to someone else;

 

  (g) the existence of any claim, set-off, or other right that Guarantor may at any time have against any Subject Person, BG, or any other Person, whether or not arising in connection with this Guaranty or the MITA;

 

  (h) any order, ruling or plan of reorganization emanating from proceedings under Title 11 of the United States Code with respect to any Subject Person or any other Person, including any extension, reduction, composition, or other alteration of the Guaranteed Obligations, whether or not consented to by BG;

 

  (i) any absence of any notice to, or knowledge by, Guarantor, of the existence or occurrence of any of the matters or events set forth in the foregoing subsections (a) through (h);

 

  (j) the failure to provide any notices or demands, whether of presentment, protest, dishonor or otherwise, other than (i) any notices and demands expressly set forth herein, and (ii) such notices or demands as may be required by applicable Law which cannot be waived; or

 

  (k) any other circumstance that might otherwise constitute a defense available to, or a discharge of, a guarantor (except discharge or defenses under the express provisions of this Guarantee, including by virtue of satisfaction of Guaranteed Obligations, under the express terms of the MITA, or by other agreement of BG).

In the event any performance by any Subject Person or any other Person to BG in respect of the Guaranteed Obligations is held to constitute a preference, fraudulent transfer or other voidable performance under any bankruptcy, insolvency or similar Law, or if for any other reason, BG is required to refund any payment or pay the amount thereof to any other party, such performance by such Subject Person or such other Person to BG shall not constitute a release of Guarantor from any liability hereunder, and this Guaranty shall continue to be effective or shall be reinstated (notwithstanding any prior release, surrender or discharge by BG of this Guaranty or of Guarantor), as the case may be, with respect to, and this Guaranty shall apply to, any and all amounts so refunded by BG or paid by BG to another Person (which amounts shall constitute part of the Guaranteed Obligations), and any interest paid by BG and any attorneys’ fees, costs and expenses paid or incurred by BG in connection with any such event.

 

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In addition to the other matters set forth in this Section 3 , until all Guaranteed Obligations have been performed in full, Guarantor hereby agrees not to assert any claim of subrogation with respect to the Guaranteed Obligations, or any right of contribution, reimbursement, indemnification or other rights of recovery against the Subject Persons in respect of the Guaranteed Obligations, provided that nothing herein shall prevent transfers of funds between the Subject Persons and Guarantor in the ordinary course of business. If any amount shall be paid to Guarantor in violation of the preceding sentence, such amount shall be held in trust for the benefit of BG and immediately turned over to BG, with any necessary endorsement, to be applied to the Guaranteed Obligations.

Guarantor agrees that, as between Guarantor and BG as of any time, the Guaranteed Obligations accrued as of such time may be declared to be due for purposes of Section 1 notwithstanding any stay, injunction or other prohibition preventing such declaration as against any Subject Person and that, in the event of such declaration, such Guaranteed Obligations (whether or not due by any Subject Person) shall forthwith become due by Guarantor for purposes of Section 1 .

Each failure by any Subject Person to perform any Guaranteed Obligations shall give rise to a separate cause of action herewith, and separate suits may be brought hereunder as each cause of action arises.

Section 4. Representations and Warranties of Guarantor . Guarantor represents and warrants to BG as follows:

 

  (a) Organization . Guarantor is a corporation incorporated under the Laws of Texas and has all requisite corporate power and authority to carry on its business as is now being conducted except for such failures which would not, individually or in the aggregate, have a material adverse effect on the ability of Guarantor to discharge its obligations under this Guaranty (a “ Guarantor Material Adverse Effect ”).

 

  (b) Authority Relative to this Guaranty . Guarantor has all necessary corporate power and authority to execute and deliver this Guaranty and to perform its obligations hereunder. The execution and delivery by Guarantor of this Guaranty and performance by Guarantor of its obligations hereunder have been duly and validly authorized by all necessary corporate action on the part of Guarantor.

 

  (c) Enforceability . This Guaranty constitutes a valid and binding agreement of Guarantor, enforceable against Guarantor in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, reorganization, moratorium and other similar Laws of general application with respect to creditors and (ii) general principles of equity.

 

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  (d) Consents and Approvals; No Violation .

(i) Neither the execution and delivery of this Guaranty by Guarantor nor performance by Guarantor of its obligations hereunder will (A) conflict with or result in any breach of any provision of the organizational or governing documents or instruments of Guarantor, (B) result in a default (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, agreement, lease or other instrument or obligation to which Guarantor or any of its Affiliates is party or by which any of their respective assets may be bound or (C) violate any Law applicable to Guarantor, or any of its assets, except in case of clauses (B) and (C), for such failure to obtain a necessary consent, defaults and violations, which would not, individually or in the aggregate, have a Guarantor Material Adverse Effect.

(ii) No declaration, filing or registration with, or notice to, or authorization, consent or approval of any Person or Governmental Authority is necessary for performance by Guarantor of its obligations hereunder, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not obtained or made would not, individually or in the aggregate, have a Guarantor Material Adverse Effect.

 

  (e) Taxes . Any payments made under this Guaranty by Parent in the performance of any Guaranteed Obligation to any Subject Person shall not be subject to any deduction or withholding whatsoever, including for any and all present and future taxes.

Section 5. Assignment . This Guaranty may not be assigned by any Party, in whole or in part, without the prior written consent of the other Parties.

 

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Section 6. Notices . All notices and communications required or permitted to be given hereunder shall be in writing and shall be delivered personally, or sent by bonded overnight courier, or mailed by U.S. Express Mail or by certified or registered United States Mail with all postage fully prepaid, or sent by telex or facsimile transmission (provided any such telex or facsimile transmission is confirmed either orally or by written confirmation), addressed to the appropriate Party at the address for such Party shown below or at such other address as such Party shall have theretofore designated by written notice delivered to the Party giving such notice:

If to Guarantor :

EXCO Resources, Inc.

12377 Merit Drive, Suite 1700

Dallas, Texas 75251

Attention: Rick Hodges, Vice President of Land

Telephone: (214) 368-2084

Fax: (214) 706-3424

With a copy to:

EXCO Resources, Inc.

12377 Merit Drive, Suite 1700

Dallas, Texas 75251

Attention: William L. Boeing, Vice President, General Counsel,

and Secretary

Telephone: (214) 368-2084

Fax: (214) 706-3409

With a copy to:

Vinson & Elkins L.L.P.

1001 Fannin Street, Suite 2500

Houston, Texas 77002-6760

Attention: Stephen C. Szalkowski

Telephone: (713) 758-2312

Fax: (713) 615-5084

If to BG :

BG US Production Company, LLC

5444 Westheimer, Suite 1775

Houston, Texas 77056

Attention: Jon Harris, Asset General Manager

Telephone: (713) 599-4000

Fax: (713) 599-4002

 

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With a copy to:

BG North America, LLC

5444 Westheimer, Suite 1775

Houston, Texas 77056

Attention: Chris Migura

Telephone: (713) 599-3826

Fax: (713) 403-3781

With a copy to:

Morgan, Lewis & Bockius

1000 Louisiana Street, Suite 4200

Houston, Texas 77002

Attention: David F. Asmus

Telephone: (713) 890-5718

Fax: (713) 890-5001

Any notice given in accordance herewith shall be deemed to have been given when delivered to the addressee in person, or by courier, or transmitted by facsimile transmission during normal business hours, or upon actual receipt by the addressee after such notice has either been delivered to an overnight courier or deposited in the United States Mail, as the case may be. The Parties may change the address, telephone numbers, and facsimile numbers to which such communications are to be addressed by giving written notice to the other Parties in the manner provided in this Section 6 .

Section 7. Further Cooperation . Guarantor at Guarantor’s expense will promptly execute and deliver to BG upon BG’s request all such other and further documents, agreements, and instruments in compliance with or accomplishment of the agreements of Guarantor under this Guaranty.

Section 8. Entire Agreement . THIS GUARANTY CONSTITUTES THE ENTIRE AGREEMENT BETWEEN GUARANTOR AND BG PERTAINING TO THE SUBJECT MATTER HEREOF AND SUPERSEDES ALL PRIOR AGREEMENTS, UNDERSTANDINGS, NEGOTIATIONS, AND DISCUSSIONS, WHETHER ORAL OR WRITTEN, OF THE PARTIES PERTAINING TO THE SUBJECT MATTER HEREOF. THERE ARE NO WARRANTIES, REPRESENTATIONS, OR OTHER AGREEMENTS BETWEEN GUARANTOR OR BG RELATING TO THE SUBJECT MATTER HEREOF EXCEPT AS SPECIFICALLY SET FORTH IN THIS GUARANTY OR THE MITA, AND NEITHER GUARANTOR NOR BG SHALL BE BOUND BY OR LIABLE FOR ANY ALLEGED REPRESENTATION, PROMISE, INDUCEMENT, OR STATEMENTS OF INTENTION NOT SO SET FORTH.

 

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Section 9. Parties in Interest . Notwithstanding anything contained in this Guaranty to the contrary, nothing in this Guaranty, expressed or implied, is intended to confer on any Person other than the Parties any rights, remedies, obligations or liabilities under or by reason of this Guaranty.

Section 10. Amendment . This Guaranty may be amended only by an instrument in writing executed by the Parties against whom enforcement is sought.

Section 11. Waiver; Rights Cumulative . Any of the terms, covenants, representations, warranties, or conditions hereof may be waived only by a written instrument executed by or on behalf of the Party waiving compliance. No course of dealing on the part of Guarantor or BG, or their respective officers, employees, agents, or representatives, nor any failure by Guarantor or BG to exercise any of their rights under this Guaranty shall operate as a waiver thereof or affect in any way the right of such Party at a later time to enforce the performance of such provision. No waiver by any Party of any condition, or any breach of any term, covenant, representation, or warranty contained in this Guaranty, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of any breach of any other term, covenant, representation, or warranty. The rights of Guarantor and BG under this Guaranty shall be cumulative, and the exercise or partial exercise of any such right shall not preclude the exercise of any other right.

Section 12. Governing Law; Jury Waiver . THIS GUARANTY AND THE LEGAL RELATIONS AMONG THE PARTIES SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT REFER CONSTRUCTION OF SUCH PROVISIONS TO THE LAWS OF ANOTHER JURISDICTION. SUBJECT TO SECTION 13 , ALL OF THE PARTIES HERETO CONSENT TO THE EXERCISE OF JURISDICTION IN PERSONAM BY THE COURTS OF THE STATE OF TEXAS FOR ANY DISPUTE. EACH PARTY HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY DISPUTE.

Section 13. Arbitration . Any dispute among the Parties with respect to this Guaranty shall be resolved through final and binding arbitration in accordance with the arbitration procedures set out in Section 15.16 of the MITA, which shall apply mutatis mutandis to any such dispute. Any papers, notices, or process necessary or proper for an arbitration hereunder, or any court action in connection with an arbitration or an award, may be served on a Party in the manner set forth in Section 6 above.

Section 14. Payments . All sums payable as Guaranteed Obligations under this Guaranty shall be paid within fifteen (15) Business Days after BG’s demand for payment is received, in immediately available funds in lawful money of the United States of America that at the time of payment is legal tender for the payment of public and private debts.

 

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Section 15. S everability . If any term or other provision of this Guaranty is invalid, illegal, or incapable of being enforced by any rule of Law or public policy, all other conditions and provisions of this Guaranty shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to any Party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the Parties shall negotiate in good faith to modify this Guaranty so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

Section 16. Counterparts . This Guaranty may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all of such counterparts shall constitute for all purposes one agreement. Any signature hereto delivered by a Party by facsimile transmission or by e-mail of a PDF file shall be deemed an original signature hereto, provided that any facsimile or e-mail transmission of a signature page delivered by a Party shall be followed promptly by an original signature page.

Section 17. Scope . Subject only to Section 3 , this Guaranty creates for Guarantor no more rights and imposes on Guarantor no more obligations and duties with respect to the performance of the Guaranteed Obligations than Guarantor would have if it had executed the MITA in the place of EXCO.

Section 18. References and Rules of Construction . Unless otherwise indicated, capitalized terms used but not otherwise defined herein and defined in the MITA shall have the meanings given such terms in the MITA. All references in this Guaranty to Sections, subsections and other subdivisions refer to the corresponding Sections, subsections and other subdivisions of or to this Guaranty unless expressly provided otherwise. Titles appearing at the beginning of any Sections, subsections and other subdivisions of this Guaranty are for convenience only, do not constitute any part of this Guaranty, and shall be disregarded in construing the language hereof. The words “this Guaranty,” “herein,” “hereby,” “hereunder” and “hereof,” and words of similar import, refer to this Guaranty as a whole and not to any particular Section, subsection or other subdivision unless expressly so limited. The words “this Section,” and “this subsection,” and words of similar import, refer only to the 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 Guaranty. 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.

[Signature Pages Follow]

 

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IN WITNESS WHEREOF , the Parties have duly executed this Guaranty as of the day and year first above set forth.

 

GUARANTOR:
EXCO RESOURCES, INC.
By:  

/s/ DOUGLAS H. MILLER

Name:   Douglas H. Miller
Title:   Chief Executive Officer
BG:
BG US PRODUCTION COMPANY, LLC
By:  

/s/ MARTIN HOUSTON

Name:   Martin Houston
Title:   President

Exhibit 10.11

EXECUTION VERSION

GUARANTY

THIS GUARANTY (this “ Guaranty ”) is made as of the 1st day of June, 2010 by BG North America, LLC, a limited liability company organized under the Laws of Delaware (the “ Guarantor ”), in favor of: (i) EXCO Production Company (PA), LLC, a limited liability company organized under the Laws of Delaware (“ EXCO PA ”), EXCO Production Company (WV), LLC, a limited liability company organized under the Laws of Delaware (“ EXCO WV ”), and EXCO Resources (PA), LLC, a limited liability company organized under the Laws of Delaware (“ Company ”, and together with EXCO PA and EXCO WV collectively, the “ JDA Beneficiaries ”); and (ii) Company and EXCO Holding (PA), Inc., a corporation incorporated under the Laws of Delaware (“ EXCO Holding ”, and together with Company, collectively, the “ LLC Beneficiaries ”, the LLC Beneficiaries together with the JDA Beneficiaries, collectively, the “ Beneficiaries ”, and any of them, a “ Beneficiary ”). Guarantor and the Beneficiaries are referred to herein individually as a “ Party ” and collectively as the “ Parties ”.

RECITALS

WHEREAS, BG Production Company (PA), LLC, a limited liability company organized under the Laws of Delaware (“ BG PA ”), BG Production Company (WV), LLC, a limited liability company organized under the Laws of Delaware (“ BG WV ”), and the JDA Beneficiaries have entered into that certain Joint Development Agreement dated of even date herewith (as hereafter amended, supplemented or modified, the “ JDA ”); and

WHEREAS, BG US Production Company, LLC, a limited liability company organized under the Laws of Delaware (“ BGPC ”), and the LLC Beneficiaries have entered into that certain Amended and Restated LLC Agreement of Company dated of even date herewith (as hereafter amended, supplemented or modified, the “ LLC Agreement ” and, together with the JDA, the “ Definitive Agreements ”); and

WHEREAS, as a material inducement to the JDA Beneficiaries to enter into the JDA with BG PA and BG WV, Guarantor has agreed to provide a guaranty of certain obligations of BG PA and BG WV under the JDA, and as a material inducement to the LLC Beneficiaries to enter into the LLC Agreement with BGPC, Guarantor has agreed to provide a guaranty of certain obligations of BGPC under the LLC Agreement.

AGREEMENT

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

Section 1. Guaranty of Payment .

 

  (a)

Guarantor hereby absolutely, unconditionally and irrevocably guarantees to the JDA Beneficiaries and their successors, permitted transferees and

 

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  permitted assigns the punctual and complete payment when due of all payment obligations of BG PA, BG WV, or any of their Affiliates (collectively, the “ JDA Subject Persons ”) under the JDA, excluding the carry obligation described in Section 2.2 (and any increases, extensions, or rearrangements of such obligations, subject to such exclusion, collectively, the “ JDA Obligations ”).

 

  (b) Guarantor hereby absolutely, unconditionally and irrevocably guarantees to the LLC Beneficiaries and their successors, permitted transferees and permitted assigns the punctual and complete payment when due of all payment obligations of BGPC or any its Affiliates (collectively, the “ LLC Subject Persons ”, and together with the JDA Subject Persons, the “ Subject Persons ”) under the LLC Agreement (and any increases, extensions, or rearrangements of such obligations, collectively, the “ LLC Obligations ” and, together with the JDA Obligations, the “ Guaranteed Obligations ”).

 

  (c) The guaranty set forth in this Section 1 is a continuing guaranty of payment and not a guaranty of collection.

Section 2. Primary Liability of Guarantor . Guarantor shall be liable for the payment of the Guaranteed Obligations, as set forth in this Guaranty, as a primary obligor, and not as a mere surety.

In the event of default by any Subject Person in payment of any Guaranteed Obligation, or any part thereof, when such payment becomes due, Guarantor shall, on demand and without further notice of nonpayment, or any other notice whatsoever, pay the amount due thereon to the applicable Beneficiary, and it shall not be necessary for a Beneficiary, in order to enforce such payment by Guarantor, to institute any suit or pursue or exhaust any rights or remedies against any Subject Person or others liable for such payment, or to join any Subject Person for the payment of the Guaranteed Obligations or any part thereof in any action to enforce this Guaranty, or to resort to any other means of obtaining payment of the Guaranteed Obligations.

Suit may be brought or demand may be made against any Subject Person or Guarantor or against any one or more of them, separately or together, without impairing the rights of the Beneficiaries against either.

Section 3. Certain Agreements and Waivers by Guarantor . Guarantor hereby agrees that the Beneficiaries’ rights or remedies and all of Guarantor’s obligations under the terms of this Guaranty shall remain in full force and effect and shall not be released, diminished, impaired, reduced or affected by, or deemed to be satisfied by, nor shall Guarantor be exonerated, discharged or released (by virtue of any Law, arrangement or relationship) by, any one or more of the following events, actions, facts, or circumstances, and the liability of Guarantor under this Guaranty shall be absolute and unconditional irrespective of:

 

  (a) the taking or accepting of any other security or guaranty for, or right of recourse with respect to, any or all of the Guaranteed Obligations;

 

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  (b) whether express or by operation of any Law or otherwise, any complete or partial release of any Subject Person or any other party liable, directly or indirectly, for the payment of any or all of the Guaranteed Obligations, or any limitation, discharge, cessation or partial release of the liability of Guarantor hereunder (other than discharge or release under the express provisions of this Guaranty, including by virtue of satisfaction of the Guaranteed Obligations, under the express terms of the Definitive Agreements or by agreement of Beneficiaries);

 

  (c) the bankruptcy, insolvency, dissolution, liquidation, termination, receivership, reorganization, merger, consolidation, change of form, structure or ownership, sale of all assets, or lack of corporate, partnership or other power of any Subject Person or any other party at any time liable for the payment of any or all of the Guaranteed Obligations;

 

  (d) either with or without notice to or consent of Guarantor, any renewal, extension, modification, amendment, supplement, subordination or rearrangement of the terms of any or all of the Guaranteed Obligations, including material alterations of the terms of payment or any other terms thereof, or any waiver, termination, or release of, or consent to departure from, the Definitive Agreements or any adjustment, indulgence, forbearance, or compromise that may be granted from time to time by a Beneficiary to any Subject Person, Guarantor, and/or any other Person at any time liable for the payment of any or all of the Guaranteed Obligations;

 

  (e) any neglect, lack of diligence, delay, omission, failure, or refusal of a Beneficiary to take or prosecute (or in taking or prosecuting) any action for the collection of any of the Guaranteed Obligations;

 

  (f) if for any reason a Beneficiary is required to refund any payment by any Subject Person or any other party liable for the payment of any or all of the Guaranteed Obligations or pay the amount thereof to someone else;

 

  (g) the existence of any claim, set-off, or other right that Guarantor may at any time have against any Subject Person, Beneficiary, or any other Person, whether or not arising in connection with this Guaranty or the Definitive Agreements;

 

  (h) any order, ruling or plan of reorganization emanating from proceedings under Title 11 of the United States Code with respect to any Subject Person or any other Person, including any extension, reduction, composition, or other alteration of the Guaranteed Obligations, whether or not consented to by a Beneficiary;

 

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  (i) any absence of any notice to, or knowledge by, Guarantor, of the existence or occurrence of any of the matters or events set forth in the foregoing subsections (a) through (h); or

 

  (j) the failure to provide any notices or demands, whether of presentment, protest, dishonor or otherwise, other than (i) any notices and demands expressly set forth herein, and (ii) such notices or demands as may be required by applicable Law which cannot be waived.

In the event any payment by any Subject Person or any other Person to a Beneficiary in respect of the Guaranteed Obligations is held to constitute a preference, fraudulent transfer or other voidable payment under any bankruptcy, insolvency or similar Law, or if for any other reason, a Beneficiary is required to refund such payment or pay the amount thereof to any other party, such payment by such Subject Person or such other Person to such Beneficiary shall not constitute a release of Guarantor from any liability hereunder, and this Guaranty shall continue to be effective or shall be reinstated (notwithstanding any prior release, surrender or discharge by Beneficiaries of this Guaranty or of Guarantor), as the case may be, with respect to, and this Guaranty shall apply to, any and all amounts so refunded by such Beneficiary or paid by such Beneficiary to another Person (which amounts shall constitute part of the Guaranteed Obligations), and any interest paid by such Beneficiary and any attorneys’ fees, costs and expenses paid or incurred by such Beneficiary in connection with any such event.

In addition to the other matters set forth in this Section 3 , until all Guaranteed Obligations have been paid in full, Guarantor hereby agrees not to assert any claim of subrogation with respect to the Guaranteed Obligations, or any right of contribution, reimbursement, indemnification or other rights of recovery against the Subject Persons in respect of the Guaranteed Obligations, provided that nothing herein shall prevent transfers of funds between the Subject Persons and Guarantor in the ordinary course of business. If any amount shall be paid to Guarantor in violation of the preceding sentence, such amount shall be held in trust for the benefit of Beneficiaries and immediately turned over to Beneficiaries, with any necessary endorsement, to be applied to the Guaranteed Obligations.

Guarantor agrees that, as between Guarantor and Beneficiaries as of any time, the Guaranteed Obligations accrued as of such time may be declared to be forthwith due and payable for purposes of Section 1 notwithstanding any stay, injunction or other prohibition preventing such declaration as against any Subject Person and that, in the event of such declaration, such Guaranteed Obligations (whether or not due and payable by Subject Person) shall forthwith become due and payable by Guarantor for purposes of Section 1.

Each failure by any Subject Person to pay any Guaranteed Obligations shall give rise to a separate cause of action herewith, and separate suits may be brought hereunder as each cause of action arises.

 

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Section 4. Representations and Warranties of Guarantor . Guarantor represents and warrants to Beneficiaries as follows:

 

  (a) Organization . Guarantor is a limited liability company organized under the Laws of Delaware and has all requisite corporate power and authority to carry on its business as is now being conducted except for such failures which would not, individually or in the aggregate, have a material adverse effect on the ability of Guarantor to discharge its obligations under this Guaranty (a “ Guarantor Material Adverse Effect ”).

 

  (b) Authority Relative to this Guaranty . Guarantor has all necessary corporate power and authority to execute and deliver this Guaranty and to perform its obligations hereunder. The execution and delivery by Guarantor of this Guaranty and performance by Guarantor of its obligations hereunder have been duly and validly authorized by all necessary corporate action on the part of Guarantor.

 

  (c) Enforceability . This Guaranty constitutes a valid and binding agreement of Guarantor, enforceable against Guarantor in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, reorganization, moratorium and other similar Laws of general application with respect to creditors and (ii) general principles of equity.

 

  (d) Consents and Approvals; No Violation .

(i) Neither the execution and delivery of this Guaranty by Guarantor nor performance by Guarantor of its obligations hereunder will (x) conflict with or result in any breach of any provision of the organizational or governing documents or instruments of Guarantor, (y) result in a default (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, agreement, lease or other instrument or obligation to which Guarantor or any of its Affiliates is party or by which any of their respective assets may be bound or (z) violate any Law applicable to Guarantor, or any of its assets, except in case of clauses (y) and (z), for such failure to obtain a necessary consent, defaults and violations, which would not, individually or in the aggregate, have a Guarantor Material Adverse Effect.

(ii) No declaration, filing or registration with, or notice to, or authorization, consent or approval of, any Person or Governmental Authority is necessary for performance by Guarantor of its obligations hereunder, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not obtained or made would not, individually or in the aggregate, have a Guarantor Material Adverse Effect.

 

  (e) Taxes . Any payments made under this Guaranty by Parent to any Subject Person shall not be subject to any deduction or withholding whatsoever, including for any and all present and future taxes.

 

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Section 5. Assignment . This Guaranty may not be assigned by any Party, in whole or in part, without the prior written consent of the other Parties.

Section 6. Notices . All notices and communications required or permitted to be given hereunder shall be in writing and shall be delivered personally, or sent by bonded overnight courier, or mailed by U.S. Express Mail or by certified or registered United States Mail with all postage fully prepaid, or sent by telex or facsimile transmission (provided any such telex or facsimile transmission is confirmed either orally or by written confirmation), addressed to the appropriate Party at the address for such Party shown below or at such other address as such Party shall have theretofore designated by written notice delivered to the Party giving such notice:

If to Guarantor :

BG North America, LLC

5444 Westheimer, Suite 1200

Houston, Texas 77056

Attention: Jon Harris, Asset General Manager

Telephone: (713) 599-4000

Fax: (713) 599-4250

With copies to:

BG North America, LLC

5444 Westheimer, Suite 1200

Houston, Texas 77056

Attention: Chris Migura

Telephone: (713) 599-4000

Fax: (713) 599-4250

and

BG North America, LLC

5444 Westheimer, Suite 1200

Houston, Texas 77056

Attention: Chief Counsel

Telephone: (713) 599-4000

Fax: (713) 599-4250

 

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With a copy to:

Morgan, Lewis & Bockius LLP

1000 Louisiana Street, Suite 4200

Houston, Texas 77002

Attention: David F. Asmus

Telephone: (713) 890-5718

Fax: (713) 890-5001

If to EXCO PA, EXCO WV or Holding :

EXCO Holding (PA), Inc.

12377 Merit Drive, Suite 1700

Dallas, Texas 75251

Attention: Harold Hickey, Vice President and Chief Operating Officer

Telephone: (214) 368-2084

Fax: (214) 368-8754

With a copy to:

EXCO Resources, Inc.

12377 Merit Drive, Suite 1700

Dallas, Texas 75251

Attention: William L. Boeing, Vice President, General Counsel and Secretary

Telephone: (214) 368-2084

Fax: (214) 706-3409

and

Vinson & Elkins L.L.P.

2500 First City Tower

1001 Fannin Street

Houston, Texas 77002-6760

Attention: Roxanne T. Almaraz

Telephone: (713) 758-3621

Fax: (713) 615 5621

If to the Company :

EXCO Resources (PA), LLC

3000 Ericsson Dr., Suite 200

Warrendale, Pennsylvania 15086

Attention: President and General Manager

Telephone: (724) 720-2500

Fax: (724) 720-2505

 

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With a copy to:

Attention: Vice President, Legal

Telephone: (724) 720-2500

Fax: (724) 720-2505

Any notice given in accordance herewith shall be deemed to have been given when delivered to the addressee in person, or by courier, or transmitted by facsimile transmission during normal business hours, or upon actual receipt by the addressee after such notice has either been delivered to an overnight courier or deposited in the United States Mail, as the case may be. The Parties may change the address, telephone numbers, and facsimile numbers to which such communications are to be addressed by giving written notice to the other Parties in the manner provided in this Section 6.

Section 7. Further Cooperation . Guarantor at Guarantor’s expense will promptly execute and deliver to a Beneficiary upon such Beneficiary’s request all such other and further documents, agreements, and instruments in compliance with or accomplishment of the agreements of Guarantor under this Guaranty.

Section 8. Entire Agreement . THIS GUARANTY CONSTITUTES THE ENTIRE AGREEMENT BETWEEN GUARANTOR AND BENEFICIARIES PERTAINING TO THE SUBJECT MATTER HEREOF AND SUPERSEDES ALL PRIOR AGREEMENTS, UNDERSTANDINGS, NEGOTIATIONS, AND DISCUSSIONS, WHETHER ORAL OR WRITTEN, OF THE PARTIES PERTAINING TO THE SUBJECT MATTER HEREOF. THERE ARE NO WARRANTIES, REPRESENTATIONS, OR OTHER AGREEMENTS BETWEEN GUARANTOR AND BENEFICIARIES RELATING TO THE SUBJECT MATTER HEREOF EXCEPT AS SPECIFICALLY SET FORTH IN THIS GUARANTY, AND NEITHER GUARANTOR NOR BENEFICIARIES SHALL BE BOUND BY OR LIABLE FOR ANY ALLEGED REPRESENTATION, PROMISE, INDUCEMENT, OR STATEMENTS OF INTENTION NOT SO SET FORTH.

Section 9. Parties in Interest . Notwithstanding anything contained in this Guaranty to the contrary, nothing in this Guaranty, expressed or implied, is intended to confer on any Person other than the Parties any rights, remedies, obligations or liabilities under or by reason of this Guaranty.

Section 10. Amendment . This Guaranty may be amended only by an instrument in writing executed by the Parties against whom enforcement is sought.

 

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Section 11. Waiver; Rights Cumulative . Any of the terms, covenants, representations, warranties, or conditions hereof may be waived only by a written instrument executed by or on behalf of the Party waiving compliance. No course of dealing on the part of Guarantor or Beneficiaries, or their respective officers, employees, agents, or representatives, nor any failure by Guarantor or Beneficiaries to exercise any of their rights under this Guaranty shall operate as a waiver thereof or affect in any way the right of such Party at a later time to enforce the performance of such provision. No waiver by any Party of any condition, or any breach of any term, covenant, representation, or warranty contained in this Guaranty, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of any breach of any other term, covenant, representation, or warranty. The rights of Guarantor and Beneficiaries under this Guaranty shall be cumulative, and the exercise or partial exercise of any such right shall not preclude the exercise of any other right.

Section 12. Governing Law; Venue; Jury Waiver . THIS GUARANTY AND THE LEGAL RELATIONS AMONG THE PARTIES SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT REFER CONSTRUCTION OF SUCH PROVISIONS TO THE LAWS OF ANOTHER JURISDICTION. SUBJECT TO SECTION 13, ALL OF THE PARTIES HERETO CONSENT TO THE EXERCISE OF JURISDICTION IN PERSONAM BY THE COURTS OF THE STATE OF TEXAS FOR ANY DISPUTE. EACH PARTY HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY DISPUTE.

Section 13. Arbitration . Any dispute among the Parties with respect to this Guaranty shall be resolved through final and binding arbitration in accordance with the arbitration procedures set out in Section 12.2 of the LLC Agreement, which shall apply mutatis mutandis to any such dispute; provided that any papers, notices, or process necessary or proper for an arbitration hereunder, or any court action in connection with an arbitration or award, may be served on a Party in the manner set forth in Section 6 above.

Section 14. Payments . All sums payable under this Guaranty shall be paid within fifteen (15) Business Days after a Beneficiary’s demand for payment is received, in immediately available funds in lawful money of the United States of America that at the time of payment is legal tender for the payment of public and private debts.

Section 15. S everability . If any term or other provision of this Guaranty is invalid, illegal, or incapable of being enforced by any rule of Law or public policy, all other conditions and provisions of this Guaranty shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to any Party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the Parties shall negotiate in good faith to modify this Guaranty so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

 

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Section 16. Counterparts . This Guaranty may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all of such counterparts shall constitute for all purposes one agreement. Any signature hereto delivered by a Party by facsimile transmission or by e-mail of a PDF file shall be deemed an original signature hereto, provided that any facsimile or e-mail transmission of a signature page delivered by a Party shall be followed promptly by an original signature page.

Section 17. Scope . Subject only to Section 3 , this Guaranty creates for Guarantor no more rights and imposes on Guarantor no more obligations and duties with respect to the payment of: (a) the JDA Obligations than Guarantor would have if it had executed the JDA in the place of EXCO PA and EXCO WV; or (b) the LLC Obligations than Guarantor would have if it had executed the LLC Agreement in the place of Holding.

Section 18. Term of Guaranty . This Guaranty shall continue in effect:

 

  (a) as to those provisions pertaining to the JDA Obligations, until the date upon which the JDA Obligations have been satisfied, upon which event, notwithstanding anything herein to the contrary, this Guaranty, and all of Guarantor’s obligations hereunder, to the extent pertaining to the JDA Obligations shall immediately and automatically terminate and expire; and

 

  (b) as to those provisions pertaining to the LLC Obligations, until the date upon which the LLC Obligations have been satisfied, upon which event, notwithstanding anything herein to the contrary, this Guaranty, and all of Guarantor’s obligations hereunder, to the extent pertaining to the LLC Obligations shall immediately and automatically terminate and expire;

provided, however, that: (i) in the event of a transfer of an interest in the Joint Development Agreement by BG PA and/or BG WV, Guarantor’s obligations hereunder pertaining to the JDA Obligations being transferred shall immediately and automatically terminate and expire if a direct or indirect parent company of the transferee with a long-term credit rating from Standard & Poor’s Ratings Group of not less than “BB-” or a long-term credit rating from Moody’s Investors Service, Inc. of not less than “Ba3” provides the JDA Beneficiaries a guaranty of the transferred JDA Obligations in substantially the form of this Guaranty (to the extent pertaining to the JDA Obligations), and (ii) in the event of a transfer of an interest in the LLC Agreement by BGPC, Guarantor’s obligations hereunder pertaining to the LLC Obligations being transferred shall immediately and automatically terminate and expire if a direct or indirect parent company of the transferee with a long-term credit rating from Standard & Poor’s Ratings Group of not less than “BB-” or a long-term credit rating from Moody’s Investors Service, Inc. of not less than “Ba3” provides the LLC Beneficiaries a guaranty of the transferred LLC Obligations in substantially the form of this Guaranty (to the extent pertaining to the LLC Obligations).

 

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Section 19. References and Rules of Construction . Unless otherwise indicated, capitalized terms used but not defined herein shall have the meanings given such terms in the LLC Agreement. All references in this Guaranty to Sections, subsections and other subdivisions refer to the corresponding Sections, subsections and other subdivisions of or to this Guaranty unless expressly provided otherwise. Titles appearing at the beginning of any Sections, subsections and other subdivisions of this Guaranty are for convenience only, do not constitute any part of this Guaranty, and shall be disregarded in construing the language hereof. The words “this Guaranty,” “herein,” “hereby,” “hereunder” and “hereof,” and words of similar import, refer to this Guaranty as a whole and not to any particular Section, subsection or other subdivision unless expressly so limited. The words “this Section,” and “this subsection,” and words of similar import, refer only to the 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 Guaranty. 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.

[Signature Page Follows]

 

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IN WITNESS WHEREOF , the Parties have duly executed this Guaranty as of the day and year first above set forth.

 

GUARANTOR:
BG NORTH AMERICA, LLC
By:  

/s/ MICHAEL R. MOTT

Name:   Michael R. Mott
Title:   Vice President
BENEFICIARIES:
EXCO HOLDING (PA), INC.
By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and Secretary
EXCO RESOURCES (PA), LLC
By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and Secretary
EXCO PRODUCTION COMPANY (PA), LLC
By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and Secretary
EXCO PRODUCTION COMPANY (WV), LLC
By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and Secretary

Exhibit 10.12

Execution Version

GUARANTY

THIS GUARANTY (this “ Guaranty ”) is made as of the 1st day of June, 2010 by EXCO Resources, Inc., a corporation incorporated under the Laws of Texas (the “ Guarantor ”), in favor of: (i) BG Production Company (PA), LLC, a limited liability company organized under the Laws of Delaware (“ BG PA ”), BG Production Company (WV), LLC, a limited liability company organized under the Laws of Delaware (“ BG WV ”), and EXCO Resources (PA), LLC, a limited liability company organized under the Laws of Delaware (“ Company ”, and together with BG PA and BG WV collectively, the “ JDA Beneficiaries ”); and (ii) Company and BG US Production Company, LLC, a limited liability company organized under the Laws of Delaware (“ BGPC ”, and together with Company, collectively, the “ LLC Beneficiaries ”, the LLC Beneficiaries together with the JDA Beneficiaries, collectively, the “ Beneficiaries ”, and any of them, a “ Beneficiary ”). Guarantor and the Beneficiaries are referred to herein individually as a “ Party ” and collectively as the “ Parties ”.

RECITALS

WHEREAS, EXCO Production Company (PA), LLC, a limited liability company organized under the Laws of Delaware (“ EXCO WV ”), EXCO Production Company (WV), LLC, a limited liability company organized under the Laws of Delaware (“ EXCO WV ”), and the JDA Beneficiaries have entered into that certain Joint Development Agreement dated of even date herewith (as hereafter amended, supplemented or modified, the “ JDA ”); and

WHEREAS, EXCO Holding (PA), Inc., a corporation incorporated under the Laws of Delaware (“ Holding ”), and the LLC Beneficiaries have entered into that certain Amended and Restated LLC Agreement of Company dated of even date herewith (as hereafter amended, supplemented or modified, the “ LLC Agreement ” and, together with the JDA, the “ Definitive Agreements ”); and

WHEREAS, as a material inducement to the JDA Beneficiaries to enter into the JDA with EXCO PA and EXCO WV, Guarantor has agreed to provide a guaranty of certain obligations of EXCO PA and EXCO WV under the JDA, and as a material inducement to the LLC Beneficiaries to enter into the LLC Agreement with Holding, Guarantor has agreed to provide a guaranty of certain obligations of Holding under the LLC Agreement.

 

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AGREEMENT

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

Section 1. Guaranty of Payment .

 

  (a) Guarantor hereby absolutely, unconditionally and irrevocably guarantees to the JDA Beneficiaries and their successors, permitted transferees and permitted assigns the punctual and complete payment when due of all payment obligations of EXCO PA, EXCO WV, or any of their Affiliates (collectively, the “ JDA Subject Persons ”) under the JDA (and any increases, extensions, or rearrangements of such obligations, collectively, the “ JDA Obligations ”).

 

  (b) Guarantor hereby absolutely, unconditionally and irrevocably guarantees to the LLC Beneficiaries and their successors, permitted transferees and permitted assigns the punctual and complete payment when due of all payment obligations of Holding or any its Affiliates (collectively, the “ LLC Subject Persons ”, and together with the JDA Subject Persons, the “ Subject Persons ”) under the LLC Agreement (and any increases, extensions, or rearrangements of such obligations, collectively, the “ LLC Obligations ” and, together with the JDA Obligations, the “ Guaranteed Obligations ”).

 

  (c) The guaranty set forth in this Section 1 is a continuing guaranty of payment and not a guaranty of collection.

Section 2. Primary Liability of Guarantor . Guarantor shall be liable for the payment of the Guaranteed Obligations, as set forth in this Guaranty, as a primary obligor, and not as a mere surety.

In the event of default by any Subject Person in payment of any Guaranteed Obligation, or any part thereof, when such payment becomes due, Guarantor shall, on demand and without further notice of nonpayment, or any other notice whatsoever, pay the amount due thereon to the applicable Beneficiary, and it shall not be necessary for a Beneficiary, in order to enforce such payment by Guarantor, to institute any suit or pursue or exhaust any rights or remedies against any Subject Person or others liable for such payment, or to join any Subject Person for the payment of the Guaranteed Obligations or any part thereof in any action to enforce this Guaranty, or to resort to any other means of obtaining payment of the Guaranteed Obligations.

Suit may be brought or demand may be made against any Subject Person or Guarantor or against any one or more of them, separately or together, without impairing the rights of the Beneficiaries against either.

Section 3. Certain Agreements and Waivers by Guarantor . Guarantor hereby agrees that the Beneficiaries’ rights or remedies and all of Guarantor’s obligations under the terms of this Guaranty shall remain in full force and effect and shall not be released, diminished, impaired, reduced or affected by, or deemed to be satisfied by, nor shall Guarantor be exonerated, discharged or released (by virtue of any Law, arrangement or relationship) by, any one or more of the following events, actions, facts, or circumstances, and the liability of Guarantor under this Guaranty shall be absolute and unconditional irrespective of:

 

  (a) the taking or accepting of any other security or guaranty for, or right of recourse with respect to, any or all of the Guaranteed Obligations;

 

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  (b) whether express or by operation of any Law or otherwise, any complete or partial release of any Subject Person or any other party liable, directly or indirectly, for the payment of any or all of the Guaranteed Obligations, or any limitation, discharge, cessation or partial release of the liability of Guarantor hereunder (other than discharge or release under the express provisions of this Guaranty, including by virtue of satisfaction of the Guaranteed Obligations, under the express terms of the Definitive Agreements or by agreement of Beneficiaries);

 

  (c) the bankruptcy, insolvency, dissolution, liquidation, termination, receivership, reorganization, merger, consolidation, change of form, structure or ownership, sale of all assets, or lack of corporate, partnership or other power of any Subject Person or any other party at any time liable for the payment of any or all of the Guaranteed Obligations;

 

  (d) either with or without notice to or consent of Guarantor, any renewal, extension, modification, amendment, supplement, subordination or rearrangement of the terms of any or all of the Guaranteed Obligations, including material alterations of the terms of payment or any other terms thereof, or any waiver, termination, or release of, or consent to departure from, the Definitive Agreements or any adjustment, indulgence, forbearance, or compromise that may be granted from time to time by a Beneficiary to any Subject Person, Guarantor, and/or any other Person at any time liable for the payment of any or all of the Guaranteed Obligations;

 

  (e) any neglect, lack of diligence, delay, omission, failure, or refusal of a Beneficiary to take or prosecute (or in taking or prosecuting) any action for the collection of any of the Guaranteed Obligations;

 

  (f) if for any reason a Beneficiary is required to refund any payment by any Subject Person or any other party liable for the payment of any or all of the Guaranteed Obligations or pay the amount thereof to someone else;

 

  (g) the existence of any claim, set-off, or other right that Guarantor may at any time have against any Subject Person, Beneficiary, or any other Person, whether or not arising in connection with this Guaranty or the Definitive Agreements;

 

  (h) any order, ruling or plan of reorganization emanating from proceedings under Title 11 of the United States Code with respect to any Subject Person or any other Person, including any extension, reduction, composition, or other alteration of the Guaranteed Obligations, whether or not consented to by a Beneficiary;

 

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  (i) any absence of any notice to, or knowledge by, Guarantor, of the existence or occurrence of any of the matters or events set forth in the foregoing subsections (a) through (h); or

 

  (j) the failure to provide any notices or demands, whether of presentment, protest, dishonor or otherwise, other than (i) any notices and demands expressly set forth herein, and (ii) such notices or demands as may be required by applicable Law which cannot be waived.

In the event any payment by any Subject Person or any other Person to a Beneficiary in respect of the Guaranteed Obligations is held to constitute a preference, fraudulent transfer or other voidable payment under any bankruptcy, insolvency or similar Law, or if for any other reason, a Beneficiary is required to refund such payment or pay the amount thereof to any other party, such payment by such Subject Person or such other Person to such Beneficiary shall not constitute a release of Guarantor from any liability hereunder, and this Guaranty shall continue to be effective or shall be reinstated (notwithstanding any prior release, surrender or discharge by Beneficiaries of this Guaranty or of Guarantor), as the case may be, with respect to, and this Guaranty shall apply to, any and all amounts so refunded by such Beneficiary or paid by such Beneficiary to another Person (which amounts shall constitute part of the Guaranteed Obligations), and any interest paid by such Beneficiary and any attorneys’ fees, costs and expenses paid or incurred by such Beneficiary in connection with any such event.

In addition to the other matters set forth in this Section 3 , until all Guaranteed Obligations have been paid in full, Guarantor hereby agrees not to assert any claim of subrogation with respect to the Guaranteed Obligations, or any right of contribution, reimbursement, indemnification or other rights of recovery against the Subject Persons in respect of the Guaranteed Obligations, provided that nothing herein shall prevent transfers of funds between the Subject Persons and Guarantor in the ordinary course of business. If any amount shall be paid to Guarantor in violation of the preceding sentence, such amount shall be held in trust for the benefit of Beneficiaries and immediately turned over to Beneficiaries, with any necessary endorsement, to be applied to the Guaranteed Obligations.

Guarantor agrees that, as between Guarantor and Beneficiaries as of any time, the Guaranteed Obligations accrued as of such time may be declared to be forthwith due and payable for purposes of Section 1 notwithstanding any stay, injunction or other prohibition preventing such declaration as against any Subject Person and that, in the event of such declaration, such Guaranteed Obligations (whether or not due and payable by Subject Person) shall forthwith become due and payable by Guarantor for purposes of Section 1.

Each failure by any Subject Person to pay any Guaranteed Obligations shall give rise to a separate cause of action herewith, and separate suits may be brought hereunder as each cause of action arises.

 

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Section 4. Representations and Warranties of Guarantor . Guarantor represents and warrants to Beneficiaries as follows:

 

  (a) Organization . Guarantor is a limited liability company organized under the Laws of Delaware and has all requisite corporate power and authority to carry on its business as is now being conducted except for such failures which would not, individually or in the aggregate, have a material adverse effect on the ability of Guarantor to discharge its obligations under this Guaranty (a “ Guarantor Material Adverse Effect ”).

 

  (b) Authority Relative to this Guaranty . Guarantor has all necessary corporate power and authority to execute and deliver this Guaranty and to perform its obligations hereunder. The execution and delivery by Guarantor of this Guaranty and performance by Guarantor of its obligations hereunder have been duly and validly authorized by all necessary corporate action on the part of Guarantor.

 

  (c) Enforceability . This Guaranty constitutes a valid and binding agreement of Guarantor, enforceable against Guarantor in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, reorganization, moratorium and other similar Laws of general application with respect to creditors and (ii) general principles of equity.

 

  (d) Consents and Approvals; No Violation .

(i) Neither the execution and delivery of this Guaranty by Guarantor nor performance by Guarantor of its obligations hereunder will (x) conflict with or result in any breach of any provision of the organizational or governing documents or instruments of Guarantor, (y) result in a default (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, agreement, lease or other instrument or obligation to which Guarantor or any of its Affiliates is party or by which any of their respective assets may be bound or (z) violate any Law applicable to Guarantor, or any of its assets, except in case of clauses (y) and (z), for such failure to obtain a necessary consent, defaults and violations, which would not, individually or in the aggregate, have a Guarantor Material Adverse Effect.

(ii) No declaration, filing or registration with, or notice to, or authorization, consent or approval of, any Person or Governmental Authority is necessary for performance by Guarantor of its obligations hereunder, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not obtained or made would not, individually or in the aggregate, have a Guarantor Material Adverse Effect.

 

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  (e) Taxes . Any payments made under this Guaranty by Parent to any Subject Person shall not be subject to any deduction or withholding whatsoever, including for any and all present and future taxes.

Section 5. Assignment . This Guaranty may not be assigned by any Party, in whole or in part, without the prior written consent of the other Parties.

Section 6. Notices . All notices and communications required or permitted to be given hereunder shall be in writing and shall be delivered personally, or sent by bonded overnight courier, or mailed by U.S. Express Mail or by certified or registered United States Mail with all postage fully prepaid, or sent by telex or facsimile transmission (provided any such telex or facsimile transmission is confirmed either orally or by written confirmation), addressed to the appropriate Party at the address for such Party shown below or at such other address as such Party shall have theretofore designated by written notice delivered to the Party giving such notice:

If to Guarantor :

EXCO Resources, Inc.

12377 Merit Drive, Suite 1700

Dallas, Texas 75251

Attention: Rick Hodges, Vice President of Land

Telephone: (214) 368-2084

Fax: (214) 706-3424

With a copy to:

EXCO Resources, Inc.

12377 Merit Drive, Suite 1700

Dallas, Texas 75251

Attention: William L. Boeing, Vice President, General Counsel,

and Secretary

Telephone: (214) 368-2084

Fax: (214) 706-3409

With a copy to:

Vinson & Elkins L.L.P.

1001 Fannin Street, Suite 2500

Houston, Texas 77002-6760

Attention: Stephen C. Szalkowski

Telephone: (713) 758-2312

Fax: (713) 615-5084

 

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If to BG PA, BG WV or BGPC :

BG US Production Company, LLC

5444 Westheimer, Suite 1775

Houston, Texas 77056

Attention: Jon Harris, Asset General Manager

Telephone: (713) 599-4000

Fax: (713) 599-4002

With a copy to:

BG North America, LLC

5444 Westheimer, Suite 1775

Houston, Texas 77056

Attention: Chris Migura

Telephone: (713) 599-3826

Fax: (713) 403-3781

With a copy to:

Morgan, Lewis & Bockius LLP

1000 Louisiana Street, Suite 4200

Houston, Texas 77002

Attention: David F. Asmus

Telephone: (713) 890-5718

Fax: (713) 890-5001

If to the Company :

EXCO Resources (PA), LLC

3000 Ericsson Dr., Suite 200

Warrendale, Pennsylvania 15086

Attention: President and General Manager

Telephone: (724) 720-2500

Fax: (724) 720-2505

With a copy to:

Attention: Vice President, Legal

Telephone: (724) 720-2500

Fax: (724) 720-2505

Any notice given in accordance herewith shall be deemed to have been given when delivered to the addressee in person, or by courier, or transmitted by facsimile transmission during normal business hours, or upon actual receipt by the addressee after such notice has either been delivered to an overnight courier or deposited in the United States Mail, as the case may be. The Parties may change the address, telephone numbers, and facsimile numbers to which such communications are to be addressed by giving written notice to the other Parties in the manner provided in this Section 6.

 

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Section 7. Further Cooperation . Guarantor at Guarantor’s expense will promptly execute and deliver to a Beneficiary upon such Beneficiary’s request all such other and further documents, agreements, and instruments in compliance with or accomplishment of the agreements of Guarantor under this Guaranty.

Section 8. Entire Agreement . THIS GUARANTY CONSTITUTES THE ENTIRE AGREEMENT BETWEEN GUARANTOR AND BENEFICIARIES PERTAINING TO THE SUBJECT MATTER HEREOF AND SUPERSEDES ALL PRIOR AGREEMENTS, UNDERSTANDINGS, NEGOTIATIONS, AND DISCUSSIONS, WHETHER ORAL OR WRITTEN, OF THE PARTIES PERTAINING TO THE SUBJECT MATTER HEREOF. THERE ARE NO WARRANTIES, REPRESENTATIONS, OR OTHER AGREEMENTS BETWEEN GUARANTOR AND BENEFICIARIES RELATING TO THE SUBJECT MATTER HEREOF EXCEPT AS SPECIFICALLY SET FORTH IN THIS GUARANTY, AND NEITHER GUARANTOR NOR BENEFICIARIES SHALL BE BOUND BY OR LIABLE FOR ANY ALLEGED REPRESENTATION, PROMISE, INDUCEMENT, OR STATEMENTS OF INTENTION NOT SO SET FORTH.

Section 9. Parties in Interest . Notwithstanding anything contained in this Guaranty to the contrary, nothing in this Guaranty, expressed or implied, is intended to confer on any Person other than the Parties any rights, remedies, obligations or liabilities under or by reason of this Guaranty.

Section 10. Amendment . This Guaranty may be amended only by an instrument in writing executed by the Parties against whom enforcement is sought.

Section 11. Waiver; Rights Cumulative . Any of the terms, covenants, representations, warranties, or conditions hereof may be waived only by a written instrument executed by or on behalf of the Party waiving compliance. No course of dealing on the part of Guarantor or Beneficiaries, or their respective officers, employees, agents, or representatives, nor any failure by Guarantor or Beneficiaries to exercise any of their rights under this Guaranty shall operate as a waiver thereof or affect in any way the right of such Party at a later time to enforce the performance of such provision. No waiver by any Party of any condition, or any breach of any term, covenant, representation, or warranty contained in this Guaranty, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of any breach of any other term, covenant, representation, or warranty. The rights of Guarantor and Beneficiaries under this Guaranty shall be cumulative, and the exercise or partial exercise of any such right shall not preclude the exercise of any other right.

 

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Section 12. Governing Law; Venue; Jury Waiver . THIS GUARANTY AND THE LEGAL RELATIONS AMONG THE PARTIES SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT REFER CONSTRUCTION OF SUCH PROVISIONS TO THE LAWS OF ANOTHER JURISDICTION. SUBJECT TO SECTION 13, ALL OF THE PARTIES HERETO CONSENT TO THE EXERCISE OF JURISDICTION IN PERSONAM BY THE COURTS OF THE STATE OF TEXAS FOR ANY DISPUTE. EACH PARTY HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY DISPUTE.

Section 13. Arbitration . Any dispute among the Parties with respect to this Guaranty shall be resolved through final and binding arbitration in accordance with the arbitration procedures set out in Section 12.2 of the LLC Agreement, which shall apply mutatis mutandis to any such dispute; provided that any papers, notices, or process necessary or proper for an arbitration hereunder, or any court action in connection with an arbitration or award, may be served on a Party in the manner set forth in Section 6 above.

Section 14. Payments . All sums payable under this Guaranty shall be paid within fifteen (15) Business Days after a Beneficiary’s demand for payment is received, in immediately available funds in lawful money of the United States of America that at the time of payment is legal tender for the payment of public and private debts.

Section 15. S everability . If any term or other provision of this Guaranty is invalid, illegal, or incapable of being enforced by any rule of Law or public policy, all other conditions and provisions of this Guaranty shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to any Party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the Parties shall negotiate in good faith to modify this Guaranty so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

Section 16. Counterparts . This Guaranty may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all of such counterparts shall constitute for all purposes one agreement. Any signature hereto delivered by a Party by facsimile transmission or by e-mail of a PDF file shall be deemed an original signature hereto, provided that any facsimile or e-mail transmission of a signature page delivered by a Party shall be followed promptly by an original signature page.

Section 17. Scope . Subject only to Section 3 , this Guaranty creates for Guarantor no more rights and imposes on Guarantor no more obligations and duties with respect to the payment of: (a) the JDA Obligations than Guarantor would have if it had executed the JDA in the place of BG PA and BG WV; or (b) the LLC Obligations than Guarantor would have if it had executed the LLC Agreement in the place of BGPC.

 

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Section 18. Term of Guaranty . This Guaranty shall continue in effect:

 

  (a) as to those provisions pertaining to the JDA Obligations, until the date upon which the JDA Obligations have been satisfied, upon which event, notwithstanding anything herein to the contrary, this Guaranty, and all of Guarantor’s obligations hereunder, to the extent pertaining to the JDA Obligations shall immediately and automatically terminate and expire; and

 

  (b) as to those provisions pertaining to the LLC Obligations, until the date upon which the LLC Obligations have been satisfied, upon which event, notwithstanding anything herein to the contrary, this Guaranty, and all of Guarantor’s obligations hereunder, to the extent pertaining to the LLC Obligations shall immediately and automatically terminate and expire;

provided, however, that: (i) in the event of a transfer of an interest in the Joint Development Agreement by EXCO PA and/or EXCO WV, Guarantor’s obligations hereunder pertaining to the JDA Obligations being transferred shall immediately and automatically terminate and expire if a direct or indirect parent company of the transferee with a comparable or better credit quality to the credit quality of Guarantor on the Closing Date provides the JDA Beneficiaries a guaranty of the transferred JDA Obligations in substantially the form of this Guaranty (to the extent pertaining to the JDA Obligations), and (ii) in the event of a transfer of an interest in the LLC Agreement by Holding, Guarantor’s obligations hereunder pertaining to the LLC Obligations being transferred shall immediately and automatically terminate and expire if a direct or indirect parent company of the transferee with a comparable or better credit quality to the credit quality of Guarantor on the Closing Date provides the LLC Beneficiaries a guaranty of the transferred LLC Obligations in substantially the form of this Guaranty (to the extent pertaining to the LLC Obligations).

Section 19. References and Rules of Construction . Unless otherwise indicated, capitalized terms used but not defined herein shall have the meanings given such terms in the LLC Agreement. All references in this Guaranty to Sections, subsections and other subdivisions refer to the corresponding Sections, subsections and other subdivisions of or to this Guaranty unless expressly provided otherwise. Titles appearing at the beginning of any Sections, subsections and other subdivisions of this Guaranty are for convenience only, do not constitute any part of this Guaranty, and shall be disregarded in construing the language hereof. The words “this Guaranty,” “herein,” “hereby,” “hereunder” and “hereof,” and words of similar import, refer to this Guaranty as a whole and not to any particular Section, subsection or other subdivision unless expressly so limited. The words “this Section,” and “this subsection,” and words of similar import, refer only to the 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 Guaranty. 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.

[Signature Page Follows]

 

10


IN WITNESS WHEREOF , the Parties have duly executed this Guaranty as of the day and year first above set forth.

 

GUARANTOR:
EXCO RESOURCES, INC.
By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and Secretary
BENEFICIARIES:
BG US PRODUCTION COMPANY, LLC
By:  

/s/ JON HARRIS

Name:   Jon Harris
Title:   Vice President
BG PRODUCTION COMPANY (PA), LLC
By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and Secretary
BG PRODUCTION COMPANY (WV), LLC
By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and Secretary
EXCO RESOURCES (PA), LLC
By:  

/s/ WILLIAM L. BOEING

Name:   William L. Boeing
Title:   Vice President and Secretary

Exhibit 99.1

 

LOGO     

EXCO Resources, Inc.

12377 Merit Drive, Suite 1700, Dallas, Texas 75251

(214) 368-2084    FAX (972) 367-3559

EXCO RESOURCES, INC. CLOSES APPALACHIAN JOINT VENTURE

DALLAS, TEXAS, June 1, 2010…EXCO Resources, Inc. (NYSE:XCO) (“EXCO”) today announced that it closed its Appalachian joint venture (“JV”) with BG Group plc (LSE:BG.L) (“BG Group”). The total purchase price paid by BG Group to EXCO at the closing was $835.2 million, which is subject to customary post-closing purchase price adjustments.

Cash proceeds received at the closing were used to reduce the outstanding balance under EXCO’s credit facility, to fund EXCO’s share of an operating account for the JV, to pay transaction costs and expenses and for other general corporate purposes. The borrowing base under EXCO’s credit facility was reduced from $1.3 billion to $1.2 billion as a result of the consummation of this transaction.

EXCO was advised by Goldman, Sachs & Co. in this transaction.

EXCO Resources, Inc. is an oil and natural gas exploration, exploitation, development and production company headquartered in Dallas, Texas with principal operations in East Texas, North Louisiana, Appalachia, and West Texas.

Additional information about EXCO Resources, Inc. may be obtained by contacting EXCO’s Chairman, Douglas H. Miller, or its President, Stephen F. Smith, at EXCO’s headquarters, 12377 Merit Drive, Suite 1700, Dallas, TX 75251, telephone number (214) 368-2084, or by visiting EXCO’s website at www.excoresources.com . EXCO’s SEC filings and press releases can be found under the Investor Relations tab.

###

This release may contain forward-looking statements relating to future financial results, business expectations and business transactions. Business plans may change as circumstances warrant. Actual results may differ materially from those predicted as a result of factors over which EXCO has no control. Such factors include, but are not limited to: estimates of reserves, commodity price changes, regulatory changes and general economic conditions. These risk factors and additional information are included in EXCO’s reports on file with the Securities and Exchange Commission. EXCO undertakes no obligation to publicly update or revise any forward-looking statements.

Exhibit 99.2

EXCO Resources, Inc.

Pro forma financial information and footnotes

as of and for the three months ended March 31, 2010

and the year ended December 31, 2009

EXCO Resources, Inc., or EXCO, a Texas corporation, is an independent oil and natural gas company engaged in the exploration, development and production of onshore oil and natural gas properties located in the continental United States. In addition to our oil and natural gas producing operations, we hold a 50% equity interest in a midstream joint venture, which owns and operates pipeline and gathering systems in East Texas and North Louisiana. Our oil and natural gas assets in East Texas and North Louisiana are owned by our subsidiary, EXCO Operating Company, LP and its subsidiaries and together they are collectively referred to as EXCO Operating. Our operations are focused in key North American oil and natural gas areas including East Texas/North Louisiana, Appalachia and West Texas. Unless the context requires otherwise, references to “we”, “us”, and “our” are to EXCO.

On June 1, 2010, EXCO closed a transaction which resulted in the sale of a 50% undivided interest in substantially all of EXCO’s Appalachian oil and natural gas proved and unproved properties and related assets, or the JV Area, to a wholly-owned affiliate of BG Group, plc, or BG Group, for cash consideration of approximately $835.2 million, including closing adjustments, or the BG Appalachia Transaction. In conjunction with the sale, EXCO and BG Group entered into a Joint Development Agreement, or JDA, with respect to the JV Area. The effective date of the transaction is January 1, 2010. EXCO and BG Group will each own a 50% interest in an operating company, EXCO Resources (PA), LLC, or OPCO, which will operate the properties, subject to oversight from a management board having equal representation from EXCO and BG Group. In addition, certain midstream assets owned by EXCO were transferred to a newly formed, jointly owned entity, Appalachia Midstream, LLC, through which EXCO and BG Group will pursue the construction and expansion of gathering systems, pipeline systems and treating and processing facilities for anticipated future production from the Marcellus Shale.

In addition to the cash consideration received at closing, BG Group agreed to fund $150.0 million of capital costs attributable to EXCO’s 50% interest equal to 75% of EXCO’s working interest for each deep rights well (primarily the Marcellus Shale Play) until the $150.0 commitment has been satisfied. As of March 31, 2010, the JV Area included approximately 654,000 net acres, of which approximately 186,000 net acres, most of which are held by shallow production, are prospective for the Marcellus Shale development. Proved oil and natural gas reserves at March 31, 2010 sold to BG Group in the sale transaction, based on SEC pricing, were approximately 132 Bcfe with average production of approximately 17.5 Mmcfe per day. EXCO and BG Group will share equally in any future additional leasehold and asset acquisition opportunities in the JV Area.

During 2009, EXCO closed several significant divestiture transactions of oil and natural gas properties, undeveloped acreage and midstream assets as summarized below. All of these taken together are referred to as the 2009 Divestiture Transactions.

 

   

On August 11, 2009, EXCO completed the sale of oil and natural gas properties to Encore Operating, L.P., or Encore, pursuant to two separate purchase and sale agreements for aggregate cash proceeds of approximately $352.0 million, including closing adjustments. The oil and natural gas properties sold included (i) all of EXCO’s interests in its Gladewater area and Overton field in Gregg, Upshur and Smith counties in East Texas, or the East Texas Properties, and (ii) certain oil and natural gas properties in the Mid-Continent region of Oklahoma, Kansas and the Texas Panhandle, or the Mid-Continent Sale, collectively the Encore Transactions.

 

   

On August 14, 2009, EXCO closed two separate transactions with BG Group involving the sale of an undivided 50% interest in an area of mutual interest, or AMI, in certain oil and natural gas properties in East Texas and North Louisiana, or the BG Upstream Transaction, and a 50% interest in certain of its midstream operations, or the BG Midstream Transaction, for aggregate cash proceeds of approximately $983.0 million, including closing adjustments.

 

   

BG Upstream Transaction : Pursuant to the terms of the BG Upstream Transaction, EXCO sold an undivided 50% interest in its producing and non-producing assets in the AMI, which encompassed most of EXCO’s holdings in East Texas and North Louisiana, excluding the Vernon Field in Jackson Parish, Louisiana, the Redland Field in Bossier and Webster Parishes, Louisiana and the Gladewater area and Overton field in East Texas. EXCO serves as operator of the BG Upstream Transaction. Consideration for the sale included cash at closing of approximately $713.8 million, including closing adjustments.

In addition to the cash received at closing, BG Group agreed to fund $400.0 million of capital costs of the Haynesville/Bossier shale development attributable to EXCO’s 50% interest. Such funding is based on payment by BG Group of 75% of EXCO’s share of drilling and completion costs of each qualified deep rights well, as defined in the agreement, until the $400.0 million commitment has been satisfied. EXCO will fund the remaining 25% of its share, representing 12.5% of total deep rights drilling and completion costs. EXCO and BG Group each receive their 50% share of revenues and pay their 50% share of operating costs from production. In addition, EXCO and BG Group share equally in future leasehold and asset acquisition opportunities within the AMI.

 

1


   

BG Midstream Transaction: In conjunction with the BG Midstream Transaction, EXCO contributed its TGG Pipeline, Ltd., or TGG, and Talco Midstream Assets, Ltd., or Talco, subsidiaries to TGGT Holdings, LLC, or TGGT, a newly formed entity, in exchange for membership units in TGGT. On August 14, 2009, EXCO sold 50% of its membership units in TGGT to BG US Gathering Company, LLC, or BG Gathering, for cash consideration of approximately $269.2 million, including closing adjustments. TGGT will operate as a 50/50 joint venture with neither EXCO nor BG Gathering having control over the management of, or a controlling beneficial economic interest in, the operations of TGGT. EXCO will use the equity method of accounting to account for its investment in TGGT

 

   

On November 10, 2009, EXCO completed the sale of all of its remaining Mid-Continent oil and natural gas properties and related assets to Sheridan Holdings, LLC, or Sheridan, for net cash proceeds of $531.4 million, including proceeds from execution of preferential rights, or the Sheridan Transaction, after closing adjustments.

 

   

On November 24, 2009, EXCO completed the sale of substantially all of its shallow oil and natural gas properties and related assets located in Ohio and certain Northwest Pennsylvania producing assets to EV Energy Partners, LP along with certain institutional partnerships managed by EnerVest, Ltd., or EnerVest (the EnerVest Transaction), for net cash proceeds of $129.7 million, after customary closing adjustments. Subsequent to March 31, 2010, we received post closing proceeds of approximately $11.7 million.

Unaudited pro forma financial information

The unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only and do not purport to be indicative of the combined results of operations that would have actually occurred had the above described transactions occurred on the indicated dates or that may be achieved in the future. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with EXCO’s Form 10-K for the year ended December 31, 2009, filed on February 24, 2010, and Form 10-Q for the three months ended March 31, 2010, filed on May 5, 2010. Management believes that the assumptions used in these unaudited pro forma financial statements provide a reasonable basis for presenting the effect of these transactions.

Pro forma balance sheet

The following unaudited pro forma condensed consolidated balance sheet is based on the historical unaudited condensed consolidated balance sheet of EXCO as of March 31, 2010. The pro forma condensed consolidated balance sheet gives effect to the BG Appalachia Transaction as of it had occurred on March 31, 2010.

 

2


EXCO Resources, Inc

Unaudited pro forma consolidated balance sheet

As of March 31, 2010

 

     Historical     Pro forma adjustments     Pro forma  
     EXCO
Resources, Inc
    BG Appalachia
Transaction
    EXCO
Resources, Inc.
 

(amounts in thousands)

                  

Assets

      

Current assets:

      

Cash and cash equivalents

   $ 47,804      $ 835,200  (a)    $ 95,223   
       (33,000 )(a)   
       7,762  (b)   
       (762,543 )(d)   

Restricted cash

     69,988          69,988   

Accounts receivable

     197,491        (12,769 )(b)      184,722   

Derivative financial instruments

     142,474          142,474   

Inventory

     14,580        (2,295 )(b)      12,285   

Other current assets

     7,869        (633 )(b)      40,236   
       33,000  (a)   
                        

Total current assets

     480,206        64,722        544,928   
                        

Investment in TGGT Holdings, LLC

     261,576          261,576   

Investment in EXCO Resources (PA), LLC

       9,840  (b)      5,557   
       1,275  (b)   
       (5,558 )(b)   

Oil and natural gas properties (full cost accounting method):

      

Unproved oil and natural gas properties

     381,961        (126,686 )(a)      255,275   

Proved oil and natural gas properties

     1,989,923        (72,457 )(a)      1,917,466   

Accumulated depletion

     (1,166,623     —          (1,166,623
                        

Oil and natural gas properties, net

     1,205,261        (199,143     1,006,118   
                        

Gas gathering assets

     182,633        (21,999 )(a)      160,539   
       (95 )(b)   

Accumulated depreciation and amortization

     (25,023     2,918  (a)      (22,105
                        

Gas gathering assets, net

     157,610        (19,176     138,434   
                        

Office and field equipment, net

     30,381        (7,866 )(b)      22,515   

Derivative financial instruments

     45,767        —          45,767   

Deferred financing costs, net

     6,758        (626 )(a)      6,132   

Goodwill

     269,656        (53,900 )(c)      215,756   

Other assets

     10,384        (919 )(b)      9,465   
                        

Total assets

   $ 2,467,599        (211,351   $ 2,256,248   
                        

Liabilities and shareholders’ equity

      

Current liabilities:

      

Accounts payable and accrued liabilities

   $ 192,816      $ (15,636 )(b)    $ 180,534   
       3,354  (a)   

Derivative financial instruments

     368        —          368   

Current maturities of debt

     447,779          447,779   

Other current liabilities

     1,110        —          1,110   
                        

Total current liabilities

     642,073        (12,282     629,791   

Long-term debt, net of current maturities

     762,543        (762,543 )(d)      —     

Asset retirement obligations and other long term liabilities

     65,056        (18,653 )(a)      46,403   

Other long term liabilities

     13,298          13,298   

Derivative financial instruments

     5,908        —          5,908   

Deferred income taxes

     —          —          —     

Common stock

     212        —          212   

Paid-in capital

     3,115,167        —          3,115,167   

Accumulated earnings (deficit)

     (2,136,658     631,649  (a)      (1,554,531
       (53,900 )(c)   
       4,378  (b)   
                        

Total shareholders’ equity

     978,721        582,127        1,560,848   
                        

Total liabilities and shareholders’ equity

   $ 2,467,599      $ (211,351   $ 2,256,248   
                        

See accompanying notes

 

3


EXCO Resources, Inc.

Notes to pro forma condensed consolidated balance sheet

As of March 31, 2010

(Unaudited)

 

  (a) Pro forma adjustment to reflect the closing of the BG Appalachia Transaction for aggregate cash proceeds of $835.2 million, after preliminary closing adjustments. Although full cost rules generally do not provide for gain or loss recognition in connection with a sale, abandonment or other disposition of oil and natural gas properties, the rules do provide for such recognition if failure to recognize a gain or loss would result in a significant alteration in the post-transaction depletion rate. We have concluded that, absent gain recognition on the BG Appalachia Transaction, a significant alteration in our depletion rate would result and, accordingly, we have recognized gain on this sale transaction. The pro forma adjustments reflect:

 

   

the receipt of cash proceeds from the sale of 50% of EXCO’s interest in its Appalachia proved and unproved oil and natural gas properties and related assets;

 

   

funding of EXCO’s share of working capital for OPCO of $33.0 million with proceeds from the sale;

 

   

application of sales proceeds to EXCO’s unamortized cost of Appalachia unproved oil and natural gas properties, which results in a reduction of EXCO’s carrying value to zero;

 

   

application of sales proceeds to eliminate allocated capitalized full cost pool costs attributable to proved properties sold;

 

   

elimination of 50% of our Appalachia asset retirement obligations as of March 31, 2010;

 

   

write-off deferred financing costs applicable to the borrowing base reductions to EXCO’s credit agreement as a result of the BG Appalachia Transaction;

 

   

charges for estimated legal costs and transaction advisory fees incurred in conjunction with the BG Appalachia Transaction;

 

   

application of sales proceeds to eliminate of 50% of EXCO’s carrying value of gas gathering assets included in the BG Appalachia Transaction;

 

   

recognition of gain on the sale transaction as follows:

 

(dollars in thousands)

      

Cash proceeds from sale of 50% interest in EXCO Appalachia, LLC

   $ 835,200   

Allocation of proceeds to unproved oil and natural gas properties

     (126,686 )(1) 

Allocated capitalized full cost pool costs attributable to 50% in proved properties sold

     (72,457 )(2) 

Elimination of 50% of ARO liabilities attributable to Appalachia proved properties

     18,653   

Write-off of deferred financing costs applicable to the credit facility adjustment

     (626

Legal expenses and advisory fees incurred

     (3,354

Application of proceeds at carrying cost to 50% of gas gathering assets (net of $2,918 accumulated depreciation retired)

     (19,081
        

Gain on sale of 50% of Appalachia assets before elimination of goodwill

   $ 631,649 (3) 
        

 

  (1) Allocation to unproved properties represents elimination of 100% of the unamortized costs attributable to to unproved properties in the Appalachia region. The remaining proceeds were allocated to the proved properties and other net assets in the BG Appalachia Transaction.
  (2) Allocation of capitalized costs attributable to the sold properties was computed using the estimated fair value of the divested proved properties in the BG Appalachia Transaction relative to the estimated total fair value of EXCO’s proved properties as of March 31, 2010.
  (3) No net federal income taxes will result from the gain as any income taxes will be applied to existing net operating losses and offset previously recognized deferred income tax valuation allowances.

 

4


  (b) Pro forma entries to:

 

   

recognize initial capitalization of OPCO, representing a 0.5% interest in the JV Area and all working capital and certain other non-oil and gas assets of EXCO Appalachian subsidiaries;

 

   

reflect sale of 50% of the membership interests of OPCO to BG Group as part of the BG Appalachia Transaction; and

 

   

adjust the gain on the BG Appalachia Transaction for the transfer of 50% of the membership interests in OPCO to BG Group.

 

  (c) Pro forma adjustment to proportionately reduce goodwill attributable to the BG Appalachia Transaction based on the relative fair values of the net assets sold to estimated total fair value of EXCO’s oil and natural gas properties as of March 31, 2010.

 

  (d)

Pro forma adjustment to reflect use of the cash proceeds from the BG Appalachia Transaction to reduce the outstanding balance of the EXCO Resources credit agreement as of March 31, 2010. The adjusted pro forma debt does not include subsequent borrowings in May 2010 to fund an acquisition of undeveloped acreage in the Haynesville shale area. Actual debt under our credit agreement as of June 3, 2010 is $237.5 million. Our consolidated debt, including our 7   1 / 4 % senior notes due January 15, 2011 is $682.2 million as of June 3, 2010.

Unaudited pro forma statements of operations

The following unaudited condensed consolidated pro forma financial information presents statements of operations for the year ended December 31, 2009 and the three months ended March 31, 2010. The pro forma statement of operations for the year ended December 31, 2009 is based on the audited consolidated statement of operations for EXCO for the year ended December 31, 2009, and the unaudited revenues and direct operating costs related to the BG Appalachia Transaction and the 2009 Divestiture Transactions for the year ended December 31, 2009. The unaudited condensed consolidated pro forma statement of operations for the three months ended March 31, 2010 is based on EXCO’s unaudited consolidated statement of operations for the three months ended March 31, 2010 and the unaudited revenues and direct operating costs related to the BG Appalachia Transaction for the three months ended March 31, 2010. The pro forma financial information gives effect to the BG Appalachia Transaction and the 2009 Divestiture Transactions as if each transaction had occurred on January 1, 2009.

 

5


EXCO Resources, Inc.

Unaudited pro forma consolidated statement of operations

Year ended December 31, 2009

 

     Historical     Pro forma
adjustments
          Pro forma
adjustments
       

(in thousands)

   EXCO
Resources, Inc.
    Combined
adjustments for 2009
Divestitures
    Pro forma EXCO
Resources, Inc.
before BG
Appalachia
Transaction
    BG Appalachia
Transaction
    Pro forma
EXCO
Resources, Inc.
consolidated
 

Revenues:

          

Oil and natural gas revenues

   $ 550,505      $ (198,994 )(e)    $ 351,511      $ (30,804 )(l)    $ 320,707   

Midstream

     35,330        (35,330 )(f)      —          —          —     
                                        

Total revenues

     585,835        (234,324     351,511        (30,804     320,707   
                                        

Costs and expenses:

          

Oil and natural gas production

     177,629        (60,958 )(e)      116,671        (12,416 )(l)      104,255   

Midstream operating expenses

     35,580        (35,580 )(f)      —          —          —     

Gathering and transportation

     18,960        (2,873 )(e)      19,227        (1,363 )(l)      17,864   
       3,140  (f)          —     

Depreciation, depletion and amortization

     221,438        (65,637 )(g)      150,397        (10,806 )(g)      139,591   
       (5,404 )(f)          —     

Write-down of oil and natural gas properties

     1,293,579        (517,000 )(h)      776,579        (92,400 )(m)      684,179   

Gain on divestitures and other operating items

     (676,434     —          (676,434     (2,538 )(l)      (678,972

Accretion of discount on asset retirement obligations

     7,132        (2,636 )(i)      4,496        (1,186 )(n)      3,310   

General and administrative

     99,177        —          99,177        (3,300 )(o)      95,877   
                                        

Total costs and expenses

     1,177,061        (686,948     490,113        (124,009     366,104   
                                        

Operating income (loss)

     (591,226     452,624        (138,602     93,205        (45,397

Other income (expense):

          

Interest expense

     (147,161     90,507  (j)      (56,654     20,023  (p)      (36,631

Equity in income of TGGT Holdings, LLC

     (69     4,984  (f)      4,915        —          4,915   

Gain on derivative financial instruments

     232,025        —          232,025        —          232,025   

Other income

     126        —          126        —          126   
                                        

Total other income (expense)

     84,921        95,491        180,412        20,023        200,435   
                                        

Income (loss) before income taxes

     (506,305     548,115        41,810        113,228        155,038   

Income tax expense (benefit)

     (9,501     —    (k)      (9,501     —    (k)      (9,501
                                        

Net income (loss)

   $ (496,804   $ 548,115      $ 51,311      $ 113,228      $ 164,539   
                                        

Pro forma basic net loss per share

   $ (2.35         $ 0.78   
                      

Pro forma diluted net loss per share

   $ (2.35         $ 0.78   
                      

Weighted average shares outstanding, basic (in thousands)

     211,266              211,266   
                      

Weighted average shares outstanding, diluted (in thousands)

     211,266              211,266   
                      

See accompanying notes.

 

6


EXCO Resources, Inc.

Unaudited pro forma consolidated statement of operations

Three months ended March 31, 2010

 

     Historical           Pro forma  

(in thousands)

   EXCO
Resources, Inc.
consolidated
    BG Appalachia
Transaction
    EXCO
Resources, Inc.
consolidated
 

Revenues:

      

Oil and natural gas revenues

   $ 130,994      $ (9,376 )(q)    $ 121,618   
                        

Costs and expenses:

      

Oil and natural gas production

     27,058        (2,778 )(q)      24,280   

Gathering and transportation

     11,113        (218 )(q)      10,895   

Depreciation, depletion and amortization

     38,818        (1,831 )(r)      36,987   

Accretion of discount on asset retirement obligations

     1,089        (286 )(s)      803   

General and administrative

     26,419        (825 )(t)      25,594   

Other operating expense (income)

     (407     139  (q)      (268
                        

Total costs and expenses

     104,090        (5,799     98,291   
                        

Operating income (loss)

     26,904        (3,577     23,327   

Other income (expense):

      

Interest expense

     (10,634     4,896  (u)      (5,738

Equity in income of TGGT Holdings, LLC

     89        —          89   

Gain on derivative financial instruments

     99,149        —          99,149   

Other income

     60        —          60   
                        

Total other income (expense)

     88,664        4,896        93,560   
                        

Income before income taxes

     115,568        1,319        116,887   

Income tax expense (benefit)

     —          —          —     
                        

Net income

   $ 115,568      $ 1,319      $ 116,887   
                        

Pro forma basic net loss per share

   $ 0.54        $ 0.55   
                  

Pro forma diluted net loss per share

   $ 0.54        $ 0.54   
                  

Weighted average shares outstanding, basic (in thousands)

     212,086          212,086   
                  

Weighted average shares outstanding, diluted (in thousands)

     215,666          215,666   
                  

See accompanying notes.

EXCO Resources, Inc.

Notes to pro forma condensed consolidated statements of operations

Year ended December 31, 2009 and

Three months ended March 31, 2010

(Unaudited)

 

  (e) Pro forma adjustments to eliminate oil and natural gas revenues and direct operating costs for the year ended December 31, 2009 with respect to the 2009 Divestiture Transactions, which closed on various dates during 2009.

 

  (f) Pro forma adjustments to eliminate operations related to the BG Midstream Transaction and to restate the midstream business segment to the equity method of accounting for our 50% investment in the BG Midstream Transaction for the year ended December 31, 2009. EXCO’s retained midstream revenues and expenses (Vernon Field gathering systems) are reclassified to gathering and transportation to reflect elimination of EXCO’s midstream business segment.

 

  (g) Pro forma entry to adjust depreciation, depletion and amortization for the year ended December 31, 2009 to reflect the 2009 Divestiture Transactions and the BG Appalachia Transaction as if each divestiture transaction had occurred on January 1, 2009. The pro forma amortization reflects proportionate reductions in capitalized costs resulting from the divestiture transactions and the impact of full cost ceiling test write-downs in the write-down period.

 

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(amounts in thousands, except rate amounts)

   March 31, 2009     December 31, 2009  

Amortizable pro forma full cost pool

   $ 1,920,102      $ 1,160,904 (1) 
                

Pro forma proved reserves as of January 1 and April 1, 2009, respectively

     903,176 (2)      883,388 (2) 
                

Pro forma amortization rate per Mcfe

   $ 2.126      $ 1.314   

Pro forma production for applicable periods

     19,788 (3)      59,363 (3) 
                

Pro forma full cost period amortization for applicable periods

   $ 42,069      $ 78,003   
                

Total pro forma amortization for the year ended December 31, 2009

     $ 120,072   

Amount of depletion historically recorded

       (196,515
          

Pro forma adjustment 2009 Divestiture Transactions and BG Appalachia Transaction

     $ (76,443
          

2009 Depletion adjustment attributable to 2009 Divestiture Transactions

     $ (65,637

2009 Depletion adjustment attributable to BG Appalachia Transaction

       (10,806
          

Total for year ended December 31, 2009

     $ (76,443
          

 

  (1) Includes amortizable full cost pool for the periods specified plus proportionate increases to the full cost pool for ceiling test write-downs not attributable to sold properties and pro forma reductions to the full cost pool for sold properties.
  (2) Excludes proved reserves as of January 1, 2009 attributable to the 2009 Divestiture Transactions and the BG Appalachia Transaction.
  (3) Excludes production for the year ended December 31, 2009 attributable to the 2009 Divestiture Transactions and the BG Appalachia Transaction.

 

  (h) Pro forma adjustment to reflect proportionate elimination of write-down of oil and natural gas properties resulting from full cost pool ceiling limitation tests during the three months ended March 31, 2009 attributable to the 2009 Divestiture Transactions.

 

  (i) Pro forma adjustment to reduce accretion of discount on asset retirement obligations for the year ended December 31, 2009 attributable to the 2009 Divestiture Transactions.

 

  (j) Pro forma adjustments to eliminate interest expense and amortization of deferred financing costs for the year ended December 31, 2009 as a result of reduction in outstanding balances and certain contractual modifications under EXCO’s various credit agreements using cash proceeds received from the 2009 Divestiture Transactions as summarized in the following table.

 

(dollar amounts in thousands)

   EXCO Resources
Credit Agreement
    EXCO Operating
Credit Agreement
    Term Credit
Agreement
    Total

Pro forma payments on outstanding debt balances in connection with the following transactions:

        

Encore Transactions

   $ 200,000      $ 157,000        $ 357,000

BG Upstream Transaction

     —          427,000      $ 259,000        686,000

BG Midstream Transaction

     —          139,000        41,000        180,000

Sheridan Transaction

     415,000        —          —          415,000

EnerVest Transaction

     114,950        —          —          114,950
                              

Debt retirements from 2009 Divestiture Transactions

   $ 729,950      $ 723,000      $ 300,000      $ 1,752,950
                              

Unweighted average interest rate during period (1)

     2.566     2.645     10.000  
                          

Interest expense reduction for year ended December 31, 2009 (2)

   $ 15,064      $ 12,102      $ 19,753      $ 46,919

Elimination of amortization of deferred financing costs attributable to pro forma debt reductions (2)

     3,834        2,000        37,754        43,588
                              

Total interest credit adjustment

   $ 18,898      $ 14,102      $ 57,507      $ 90,507
                              

 

  (1) Represents the average daily interest rate in effect under the facilities for the 2009 year.
  (2) Pro forma interest expense and deferred financing cost amortization and write-off are computed from January 1, 2009 up to the various dates of each divestiture and subsequent payments on outstanding debt.

 

  (k) No pro forma adjustment for income taxes is required for the year ended December 31, 2009 due to utilization of accumulated net operating losses, reduction of valuation allowances and elimination of deferred tax liabilities attributable to goodwill associated with the 2009 Divestiture Transactions.

 

  (l) Pro forma adjustments to eliminate oil and natural gas revenues, direct operating costs and other operating items for the year ended December 31, 2009 with respect to the BG Appalachia Transaction.

 

  (m) Pro forma adjustment to reflect proportionate elimination of write-downs of oil and natural gas properties resulting from full cost ceiling limitation tests for the three months ended March 31, 2009, attributable to the BG Appalachia Transaction.

 

  (n) Pro forma adjustment to reduce accretion of discount on asset retirement obligations for the year ended December 31, 2009 attributable to the BG Appalachia Transaction.

 

  (o) Pro forma entry to adjust general and administrative costs in the Appalachia area for the year ended December 31, 2009 for agreed upon monthly technical services of $275,000 per month to be billed by EXCO to the jointly-owned operating company, which will be accounted for by EXCO using the equity method of accounting.

 

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  (p) Pro forma adjustment to reflect reduction in interest expense of $19.6 million based on an average annual interest rate of 2.566%, amortization of deferred financing costs of $0.4 million for the year ended December 31, 2009 and pro forma reductions in outstanding debt of $762.5 million using proceeds from the BG Appalachia Transaction.

 

  (q) Pro forma adjustment to eliminate oil and natural gas revenues, direct operating costs and other operating items for the three months ended March 31, 2010 with respect to the BG Appalachia Transaction.

 

  (r) Pro forma entry to adjust depreciation, depletion and amortization for the three months ended March 31, 2010 to reflect the sale of oil and natural gas properties included in the BG Appalachia Transaction as if the transaction had occurred on January 1, 2009. The pro forma amortization reflects a proportionate reduction in capitalized costs resulting from the sale.

 

(amounts in thousands, except rate amounts)

   Three months
ended
March 31, 2010
 

Amortizable pro forma full cost pool at March 31, 2010

   $ 1,400,290   
        

Pro forma proved reserves as of January 1, 2010

     964,313 (1) 
        

Pro forma amortization rate per Mcfe

   $ 1.452   

Pro forma production for three months ended March 31, 2010

     22,169 (2) 
        

Pro forma full cost period amortization for the three months ended March 31, 2010

     32,189   

Amount of depletion historically recorded

     (34,020
        

Pro forma adjustment for BG Appalachia Transaction for the three months ended March 31, 2010

   $ (1,831
        

 

  (1) Excludes proved reserves as of January 1, 2010 attributable the BG Appalachia Transaction.
  (2) Excludes production for the three months ended March 31, 2010 attributable to the BG Appalachia Transaction.

 

  (s) Pro forma adjustment to reduce accretion of discount on asset retirement obligations for the three months ended March 31, 2010 attributable to the BG Appalachia Transaction.

 

  (t) Pro forma entry to adjust general and administrative costs in the Appalachia area for the three months ended March 31, 2010 for agreed upon monthly technical services of $275,000 per month to be billed by EXCO to the Operator LLC, which will by accounted for by EXCO using the equity method of accounting.

 

  (u) Pro forma adjustment to reflect reduction in interest expense of $4.8 million and related amortization of deferred financing costs of $0.1 million for the three months ended March 31, 2010 to reflect pro forma reduction in outstanding debt of $762.5 million and contractual modifications in connection with the BG Appalachia Transaction under the EXCO Resources Credit Agreement based on an average annual interest rate of 2.57% using proceeds received in the BG Appalachia Transaction.

 

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