10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number: 000-51757

REGENCY ENERGY PARTNERS LP

(Exact name of registrant as specified in its charter)

DELAWARE	16-1731691
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2001 BRYAN STREET, SUITE 3700 DALLAS, TX	75201
(Address of principal executive offices)	(Zip Code)

(214) 750-1771

(Registrant’s telephone number, including area code)

NONE

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ¨  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer, accelerated filer and small reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

The issuer had 119,618,704 common units outstanding as of August 2, 2010.

Introductory Statement

References in this report to the “Partnership,” “we,” “our,” “us” and similar terms, when used in an historical context, refer to Regency Energy Partners LP, and to Regency Gas Services LLC, all the outstanding member interests of which were contributed to the Partnership on February 3, 2006, and its subsidiaries. When used in the present tense or prospectively, these terms refer to the Partnership and its subsidiaries. We use the following definitions in this quarterly report on Form 10-Q:

Name	Definition or Description
Bcf/d	One billion cubic feet per day
EFS Haynesville	EFS Haynesville, LLC, a 100 percent owned subsidiary of GECC
Enterprise GP	Enterprise GP Holdings, LP
ETC II	ETC Midcontinent Express Pipeline II L.L.C., a 100 percent owned subsidiary of ETP
ETC III	ETC Midcontinent Express Pipeline III L.L.C., a 100 percent owned subsidiary of ETP
ETE	Energy Transfer Equity, L.P.
ETE GP	ETE GP Acquirer LLC
ETP	Energy Transfer Partners, L.P.
FASB	Financial Accounting Standards Board
FERC	Federal Energy Regulatory Commission
Finance Corp.	Regency Energy Finance Corp., a 100 percent owned subsidiary of the Partnership
GAAP	Accounting principles generally accepted in the United States
GE	General Electric Company
GECC	General Electric Capital Corporation, an indirect wholly owned subsidiary of GE
GE EFS	General Electric Energy Financial Services, a unit of GECC, combined with Regency GP Acquirer LP and Regency LP Acquirer LP
General Partner	Regency GP LP, the general partner of the Partnership, or Regency GP LLC, the general partner of Regency GP LP, which effectively manages the business and affairs of the Partnership through Regency Employees Management LLC
GP Seller	Regency GP Acquirer, L.P.
HPC	RIGS Haynesville Partnership Co., a general partnership that owns 100 percent of RIG
LIBOR	London Interbank Offered Rate
LTIP	Long-Term Incentive Plan
MEP	Midcontinent Express Pipeline LLC
MMbtu/d	One million BTUs per day
MMcf	One million cubic feet
MMcf/d	One million cubic feet per day
NGPA	Natural Gas Policy Act of 1978
NYMEX	New York Mercantile Exchange
Partnership	Regency Energy Partners LP
Regency Midcon	Regency Midcontenent Express LLC, a 100 percent owned subsidiary of the Partnership
RFS	Regency Field Services LLC, a wholly-owned subsidiary of the Partnership
RGS	Regency Gas Services LP, a wholly-owned subsidiary of the Partnership
RIG	Regency Intrastate Gas LP, a wholly-owned subsidiary of HPC, which was converted from Regency Intrastate Gas LLC upon HPC formation
RIGS	Regency Intrastate Gas System
SEC	Securities and Exchange Commission
WTI	West Texas Intermediate Crude

Page | 2

Cautionary Statement about Forward-Looking Statements

Certain matters discussed in this report include “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. Statements using words such as “anticipate,” “believe,” “intend,” “project,” “plan,” “expect,” “continue,” “estimate,” “goal,” “forecast,” “may” or similar expressions help identify forward-looking statements. Although we believe our forward-looking statements are based on reasonable assumptions and current expectations and projections about future events, we cannot give assurances that such expectations will prove to be correct. Forward-looking statements are subject to a variety of risks, uncertainties and assumptions including, without limitation, the following:

• volatility in the price of oil, natural gas, and natural gas liquids;

• declines in the credit markets and the availability of credit for us as well as for producers connected to our pipelines and our gathering and processing facilities, and for customers of our contract compression business;

• the level of creditworthiness of, and performance by, our counterparties and customers;

• our ability to access capital to fund organic growth projects and acquisitions, including our ability to obtain debt and equity financing on satisfactory terms;

• our use of derivative financial instruments to hedge commodity and interest rate risks;

• the amount of collateral required to be posted from time-to-time in our transactions;

• changes in commodity prices, interest rates, and demand for our services;

• changes in laws and regulations impacting the midstream sector of the natural gas industry (including those that relate to climate change and environmental protection);

• weather and other natural phenomena;

• industry changes including the impact of consolidations and changes in competition;

• regulation of transportation rates on our natural gas pipelines;

• our ability to obtain indemnification for environmental cleanup liabilities and to clean up any hazardous material release on satisfactory terms;

• our ability to obtain required approvals for construction or modernization of our facilities and the timing of production from such facilities; and

• the effect of accounting pronouncements issued periodically by accounting standard setting boards.

If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may differ materially from those anticipated, estimated, projected or expected.

Other factors that could cause our actual results to differ from our projected results are discussed in Item 1A of our December 31, 2009 Annual Report on Form 10-K.

Each forward-looking statement speaks only as of the date of the particular statement and we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Page | 3

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

As disclosed in Note 1, on May 26, 2010 GP Seller sold all of the outstanding membership interests of the Partnership’s General Partner to ETE, effecting a change in control of the Partnership. In connection with this transaction, the Partnership’s assets and liabilities were required to be adjusted to fair value at the acquisition date by application of “push-down” accounting. As a result, the Partnership’s unaudited condensed consolidated financial statements and certain footnote disclosures are presented in two distinct periods to indicate the application of two different bases of accounting between the periods presented: (1) the period prior to the acquisition date (May 26, 2010), identified as “Predecessor” and (2) the period from May 26, 2010 forward, identified as “Successor”.

Page | 4

Regency Energy Partners LP

Condensed Consolidated Balance Sheets

(in thousands except unit data)

	Successor			Predecessor
	June 30, 2010			December 31, 2009
	(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	4,296		$	9,827
Restricted cash		1,011			1,511
Trade accounts receivable, net of allowance of $475 and $1,130		22,801			30,433
Accrued revenues		76,272			95,240
Related party receivables		33,444			6,222
Derivative assets		19,833			24,987
Other current assets		8,420			10,556
Total current assets		166,077			178,776
Property, Plant and Equipment:
Gathering and transmission systems		488,336			465,959
Compression equipment		785,685			823,060
Gas plants and buildings		131,537			159,596
Other property, plant and equipment		101,046			162,433
Construction-in-progress		125,528			95,547
Total property, plant and equipment		1,632,132			1,706,595
Less accumulated depreciation		(8,740	)		(250,160	)
Property, plant and equipment, net		1,623,392			1,456,435
Other Assets:
Investment in unconsolidated subsidiaries		1,369,921			453,120
Long-term derivative assets		1,241			207
Other, net of accumulated amortization of debt issuance costs of $564 and $10,743		34,206			19,468
Total other assets		1,405,368			472,795
Intangible Assets and Goodwill:
Intangible assets, net of accumulated amortization of $2,159 and $33,929		666,781			197,294
Goodwill		733,674			228,114
Total intangible assets and goodwill		1,400,455			425,408
TOTAL ASSETS	$	4,595,292		$	2,533,414
LIABILITIES & PARTNERS’ CAPITAL AND NONCONTROLLING INTEREST
Current Liabilities:
Trade accounts payable	$	43,513		$	44,912
Accrued cost of gas and liquids		75,619			76,657
Related party payables		4,417			2,312
Deferred revenues, including related party amounts of $0 and $338		11,244			11,292
Derivative liabilities		3,576			12,256
Escrow payable		1,011			1,511
Other current liabilities, including related party amounts of $630 and $0		14,985			12,368
Total current liabilities		154,365			161,308
Long-term derivative liabilities		52,609			48,903
Other long-term liabilities		14,249			14,183
Long-term debt, net		1,276,640			1,014,299
Commitments and contingencies
Series A convertible redeemable preferred units, redemption amount of $83,891 and $83,891		70,850			51,711
Partners’ Capital and Noncontrolling Interest:
Common units (120,676,002 and 94,243,886 units authorized; 119,614,719 and 93,188,353 units issued and outstanding at June 30, 2010 and December 31, 2009)		2,659,907			1,211,605
General partner interest		335,193			19,249
Accumulated other comprehensive loss		—			(1,994	)
Noncontrolling interest		31,479			14,150
Total partners’ capital and noncontrolling interest		3,026,579			1,243,010
TOTAL LIABILITIES AND PARTNERS’ CAPITAL AND NONCONTROLLING INTEREST	$	4,595,292		$	2,533,414

See accompanying notes to condensed consolidated financial statements

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Regency Energy Partners LP

Condensed Consolidated Statements of Operations

Unaudited

(in thousands except unit data and per unit data)

	Successor			Predecessor
	Period from  Acquisition (May 26, 2010) to June 30, 2010			Period from April  1, 2010 to May 25, 2010			Three Months Ended June 30, 2009
REVENUES
Gas sales, including related party amounts of $447, $0, and $0	$	48,103		$	89,170		$	106,897
NGL sales including related party amounts of $18,054, $0, and $0		28,766			69,033			57,676
Gathering, transportation and other fees, including related party amounts of $2,086, $3,680, and $2,239		22,884			45,733			69,231
Net realized and unrealized (loss) gain from derivatives		(130	)		223			12,515
Other		3,357			7,336			7,223
Total revenues		102,980			211,495			253,542
OPERATING COSTS AND EXPENSES
Cost of sales, including related party amounts of $2,281, $3,198, and $1,453		74,081			147,262			157,347
Operation and maintenance		11,942			21,430			31,974
General and administrative, including related party amounts of $833, $0, and $0		7,104			21,809			14,127
Loss on asset sales, net		10			19			651
Depreciation and amortization		10,995			18,609			26,236
Total operating costs and expenses		104,132			209,129			230,335
OPERATING (LOSS) INCOME		(1,152	)		2,366			23,207
Income from unconsolidated subsidiaries		8,121			7,959			1,587
Interest expense, net		(8,109	)		(14,114	)		(19,568	)
Other income and deductions, net		(3,510	)		(624	)		214
(LOSS) INCOME BEFORE INCOME TAXES		(4,650	)		(4,413	)		5,440
Income tax expense (benefit)		245			83			(515	)
NET (LOSS) INCOME	$	(4,895	)	$	(4,496	)	$	5,955
Net income attributable to noncontrolling interest		(29	)		(244	)		(65	)
NET (LOSS) INCOME ATTRIBUTABLE TO REGENCY ENERGY PARTNERS LP	$	(4,924	)	$	(4,740	)	$	5,890
Amounts attributable to Series A convertible redeemable preferred units		668			1,335			—
General partner’s interest, including IDR		803			—			741
Amount allocated to non-vested common units		—			—			(137	)
Limited partners’ interest	$	(6,395	)	$	(6,075	)	$	5,286
Basic and Diluted (loss) earnings per unit:
Amount allocated to common units	$	(6,395	)	$	(6,075	)	$	5,286
Weighted average number of common units outstanding		119,600,652			92,832,219			80,550,149
Basic (loss) income per common unit	$	(0.05	)	$	(0.07	)	$	0.07
Diluted (loss) income per common unit	$	(0.05	)	$	(0.07	)	$	0.06
Distributions paid per unit	$	0.445		$	—		$	0.445

See accompanying notes to condensed consolidated financial statements

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Regency Energy Partners LP

Condensed Consolidated Statements of Operations

Unaudited

(in thousands except unit data and per unit data)

	Successor			Predecessor
	Period from Acquisition (May 26, 2010) to June 30, 2010			Period from January 1, 2010 to May 25, 2010			Six Months Ended June 30, 2009
REVENUES
Gas sales, including related party amounts of $447, $0, and $0	$	48,103		$	232,063		$	254,793
NGL sales including related party amounts of $18,054, $0, and $0		28,766			166,362			107,261
Gathering, transportation and other fees, including related party amounts of $2,086, $12,200 and $3,376		22,884			116,061			142,079
Net realized and unrealized (loss) gain from derivatives		(130	)		(716	)		26,970
Other		3,357			15,477			12,417
Total revenues		102,980			529,247			543,520
OPERATING COSTS AND EXPENSES
Cost of sales, including related party amounts of $2,281, $6,564 and $1,700		74,081			371,871			339,875
Operation and maintenance		11,942			53,841			68,016
General and administrative, including related party amounts of $833, $0, and $0		7,104			37,212			29,205
Loss (gain) on asset sales, net		10			303			(133,280	)
Depreciation and amortization		10,995			46,084			54,125
Total operating costs and expenses		104,132			509,311			357,941
OPERATING (LOSS) INCOME		(1,152	)		19,936			185,579
Income from unconsolidated subsidiaries		8,121			15,872			1,923
Interest expense, net		(8,109	)		(36,459	)		(33,795	)
Other income and deductions, net		(3,510	)		(3,891	)		256
(LOSS) INCOME BEFORE INCOME TAXES		(4,650	)		(4,542	)		153,963
Income tax expense (benefit)		245			404			(416	)
NET (LOSS) INCOME	$	(4,895	)	$	(4,946	)	$	154,379
Net income attributable to noncontrolling interest		(29	)		(406	)		(100	)
NET (LOSS) INCOME ATTRIBUTABLE TO REGENCY ENERGY PARTNERS LP	$	(4,924	)	$	(5,352	)	$	154,279
Amounts attributable to Series A convertible redeemable preferred units		668			3,336			—
General partner’s interest, including IDR		803			662			4,274
Amount allocated to non-vested common units		—			(79	)		1,217
Beneficial conversion feature for Class D common units		—			—			820
Limited partners’ interest	$	(6,395	)	$	(9,271	)	$	147,968
Basic and Diluted (loss) earnings per unit:
Amount allocated to common units	$	(6,395	)	$	(9,271	)	$	147,968
Weighted average number of common units outstanding		119,600,652			92,788,319			78,920,074
Basic (loss) income per common unit	$	(0.05	)	$	(0.10	)	$	1.87
Diluted (loss) income per common unit	$	(0.05	)	$	(0.10	)	$	1.85
Distributions paid per unit	$	0.445		$	0.445		$	0.89
Amount allocated to Class D common units	$	—		$	—		$	820
Total number of Class D common units outstanding		—			—			7,276,506
Income per Class D common unit due to beneficial conversion feature	$	—		$	—		$	0.11
Distributions paid per unit	$	—		$	—		$	—

See accompanying notes to condensed consolidated financial statements

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Regency Energy Partners LP

Condensed Consolidated Statements of Comprehensive (Loss) Income

Unaudited

(in thousands)

	Three Months Ended June 30, 2010 and 2009
	Successor			Predecessor
	Period from Acquisition (May 26, 2010) to June 30, 2010			Period from April 1, 2010 to May 25, 2010			Three Months Ended June 30, 2009
Net (loss) income	$	(4,895	)	$	(4,496	)	$	5,955
Net hedging amounts reclassified to earnings		—			(512	)		(13,644	)
Net change in fair value of cash flow hedges		—			8,649			(14,622	)
Comprehensive (loss) income	$	(4,895	)	$	3,641		$	(22,311	)
Comprehensive income attributable to noncontrolling interest		29			244			65
Comprehensive (loss) income attributable to Regency Energy Partners LP	$	(4,924	)	$	3,397		$	(22,376	)
	Six Months Ended June 30, 2010 and 2009
	Successor			Predecessor
	Period from Acquisition (May 26, 2010) to June 30, 2010			Period from January 1, 2010 to May 25, 2010			Six Months Ended June 30, 2009
Net (loss) income	$	(4,895	)	$	(4,946	)	$	154,379
Net hedging amounts reclassified to earnings		—			2,145			(27,894	)
Net change in fair value of cash flow hedges		—			18,486			(9,242	)
Comprehensive (loss) income	$	(4,895	)	$	15,685		$	117,243
Comprehensive income attributable to noncontrolling interest		29			406			100
Comprehensive (loss) income attributable to Regency Energy Partners LP	$	(4,924	)	$	15,279		$	117,143

See accompanying notes to condensed consolidated financial statements

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Regency Energy Partners LP

Condensed Consolidated Statements of Cash Flows

Unaudited

(in thousands)

	Successor			Predecessor
	Period from Acquisition (May 26, 2010) to June 30, 2010			Period from January 1, 2010 to May 25, 2010			Six Months Ended June 30, 2009
OPERATING ACTIVITIES
Net (loss) income	$	(4,895	)	$	(4,946	)	$	154,379
Adjustments to reconcile net (loss) income to net cash flows provided by (used in) operating activities:
Depreciation and amortization, including debt issuance cost amortization		11,330			49,363			56,750
Write-off of debt issuance costs		—			1,780			—
Income from unconsolidated subsidiaries		(8,121	)		(15,872	)		(1,923	)
Derivative valuation changes		6,921			12,004			(6,293	)
Loss (gain) on asset sales, net		10			303			(133,280	)
Unit-based compensation expenses		137			12,070			2,750
Cash flow changes in current assets and liabilities:
Trade accounts receivable, accrued revenues, and related party receivables		13,843			(11,272	)		38,073
Other current assets		585			2,516			3,728
Trade accounts payable, accrued cost of gas and liquids, related party payables and deferred revenues		(15,460	)		8,649			(39,185	)
Other current liabilities		(20,497	)		22,614			(7,396	)
Distributions received from unconsolidated subsidiaries		—			12,446			1,900
Other assets and liabilities		(60	)		(234	)		(232	)
Net cash flows (used in) provided by operating activities		(16,207	)		89,421			69,271
INVESTING ACTIVITIES
Capital expenditures		(20,875	)		(63,787	)		(119,185	)
Capital contribution to unconsolidated subsidiaries		(38,922	)		(20,210	)		—
Acquisitions, net of cash received		12,848			(75,114	)		—
Proceeds from asset sales		14			10,661			83,182
Net cash flows (used in) investing activities		(46,935	)		(148,450	)		(36,003	)
FINANCING ACTIVITIES
Net borrowings (repayments) under revolving credit facility		37,000			199,008			(177,249	)
Proceeds from issuance of senior notes, net of discount		—			—			236,240
Debt issuance costs		(132	)		(15,728	)		(11,939	)
Partner contributions		7,436			—			—
Partner distributions		—			(86,078	)		(71,644	)
Acquisition of assets between entities under common control in excess of historical cost		—			(16,973	)		—
Distributions to noncontrolling interest		—			(1,135	)		—
Proceeds from option exercises		150			120			—
Equity issuance costs		—			(89	)		—
Distributions to redeemable convertible preferred units		—			(1,945	)		—
Tax withholding on unit-based vesting		—			(4,994	)		—
Net cash flows provided by (used in) financing activities		44,454			72,186			(24,592	)
Net change in cash and cash equivalents		(18,688	)		13,157			8,676
Cash and cash equivalents at beginning of period		22,984			9,827			599
Cash and cash equivalents at end of period	$	4,296		$	22,984		$	9,275
Supplemental cash flow information:
Non-cash capital expenditures	$	16,159		$	18,051		$	9,480
Issuance of common units for an acquisition		584,436			—			—
Deemed contribution from acquisition of assets between entities under common control		17,152			—			—
Release of escrow payable from restricted cash		—			500			—
Contribution of fixed assets, goodwill and working capital to HPC		—			—			263,921
Contribution receivable		12,288			—			—

See accompanying notes to condensed consolidated financial statements

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Regency Energy Partners LP

Condensed Consolidated Statements of Partners’ Capital and Noncontrolling Interest

Unaudited

(in thousands except unit data)

	Regency Energy Partners LP
	Units
	Common	Common Unitholders			General Partner Interest			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest			Total
Predecessor
Balance - December 31, 2009	93,188,353	$	1,211,605		$	19,249		$	(1,994	)	$	14,150		$	1,243,010
Issuance of common units under LTIP, net of forfeitures and tax withholding	152,075		(4,994	)		—			—			—			(4,994	)
Issuance of common units, net of costs	—		(89	)		—			—			—			(89	)
Exercise of common unit options	—		120			—			—			—			120
Unit-based compensation expenses	—		12,070			—			—			—			12,070
Accrued distributions to phantom units	—		(473	)		—			—			—			(473	)
Acquisition of assets between entities under common control in excess of historical cost	—		—			(16,973	)		—			—			(16,973	)
Partner distributions	—		(84,504	)		(1,574	)		—			—			(86,078	)
Distributions to noncontrolling interest	—		—			—			—			(1,135	)		(1,135	)
Net (loss) income	—		(6,014	)		662			—			406			(4,946	)
Distributions to Series A convertible redeemable preferred units	—		(1,906	)		(39	)		—			—			(1,945	)
Accretion of Series A convertible redeemable preferred units	—		(55	)		—			—			—			(55	)
Net cash flow hedge amounts reclassified to earnings	—		—			—			2,145			—			2,145
Net change in fair value of cash flow hedges	—		—			—			18,486			—			18,486
Balance - May 25, 2010	93,340,428	$	1,125,760		$	1,325		$	18,637		$	13,421		$	1,159,143

	Regency Energy Partners LP
	Units
	Common	Common Unitholders			General Partner Interest		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interest		Total
Successor
Balance - May 26, 2010	93,340,428	$	2,073,532		$	304,950	$	—	$	31,450	$	2,409,932
Issuance of common units, net of costs	26,266,791		584,436			—		—		—		584,436
Exercise of common unit options	7,500		150			—		—		—		150
Unit-based compensation expenses	—		137			—		—		—		137
Acquisition of assets between entities under common control below historical cost	—		—			17,152		—		—		17,152
Partner contributions	—		7,436			12,288		—		—		19,724
Net (loss) income	—		(5,727	)		803		—		29		(4,895	)
Accretion of Series A convertible redeemable preferred units	—		(57	)		—		—		—		(57	)
Balance - June 30, 2010	119,614,719	$	2,659,907		$	335,193	$	—	$	31,479	$	3,026,579

See accompanying notes to condensed consolidated financial statements

Page | 10

Regency Energy Partners LP

Notes to Unaudited Condensed Consolidated Financial Statements

1. Organization and Summary of Significant Accounting Policies

Organization. The unaudited condensed consolidated financial statements presented herein contain the results of Regency Energy Partners LP (the “Partnership”) and its subsidiaries. The Partnership and its subsidiaries are engaged in the business of gathering, processing and transporting of natural gas and NGLs as well as providing contract compression services.

Basis of Presentation. On May 26, 2010, GP Seller completed the sale of all of the outstanding membership interests of the General Partner pursuant to a Purchase Agreement (the “Purchase Agreement”) among itself, ETE and ETE GP (the “ETE Acquisition”). Prior to the closing of the Purchase Agreement, GP Seller, an affiliate of GE EFS, owned all the outstanding limited partners’ interests in the General Partner, which is the sole general partner of the Partnership, and the entire member’s interest in the Managing General Partner, which is the sole general partner of the General Partner and, by virtue of that position, controlled the Partnership. Control of the Partnership transferred from GE EFS to ETE as a result of the ETE Acquisition. In connection with this transaction, the Partnership’s assets and liabilities were required to be adjusted to fair value on the closing date (May 26, 2010) by application of “push-down” accounting (the “Push-down Adjustments”). Total enterprise value of the Partnership as of May 26, 2010 was $3,783,680,000, giving effect to the transaction and the associated Push-down Adjustments, which is calculated below:

	(in thousands)
Fair value of limited partners interest, based on the number of outstanding
Partnership common units and the trading price on May 26, 2010	$	2,073,532
Fair value of consideration paid for general partner interest		304,950
Noncontrolling interest		31,450
Series A convertible redeemable preferred units		70,793
Fair value of long-term debt		1,239,863
Other long-term liabilities		63,092
Enterprise value	$	3,783,680

The Partnership has developed the preliminary amount of the fair value of its assets and liabilities. Management is reviewing the valuation and confirming results to determine the final purchase price allocation. The Partnership allocated the enterprise value to the following assets and liabilities based on their respective estimated fair values as of May 26, 2010:

	At May 26, 2010
	(in thousands)
Working capital	$	(3,286	)
Gathering and transmission systems		487,792
Compression equipment		779,634
Gas plants and buildings		131,537
Other property, plant and equipment		100,267
Construction-in-progress		114,146
Other long-term assets		36,839
Investment in unconsolidated subsidiary		734,137
Intangible assets		668,940
Goodwill		733,674
	$	3,783,680

Due to the Push-down Adjustments, the Partnership’s unaudited condensed consolidated financial statements and certain footnote disclosures are presented in two distinct periods to indicate the application of two different bases of accounting between the periods presented: (1) the period prior to the acquisition date (May 26, 2010), identified as “Predecessor” and (2) the period from May 26, 2010 forward, identified as “Successor”.

The unaudited financial information included in this Form 10-Q has been prepared on the same basis as the audited consolidated financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2009. In the opinion

Page | 11

Regency Energy Partners LP

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

of the Partnership’s management, such financial information reflects all adjustments necessary for a fair presentation of the financial position and the results of operations for such interim periods in accordance with GAAP. All inter-company items and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been omitted pursuant to the rules and regulations of the SEC.

Use of Estimates. The unaudited condensed consolidated financial statements have been prepared in conformity with GAAP and, of necessity, include the use of estimates and assumptions by management. Actual results could differ from these estimates.

Intangible Assets. Intangible assets, net consist of the following.

Predecessor	Contracts			Customer Relations			Trade Names			Permits and Licenses			Total
							(in thousands)
Balance at December 31, 2009	$	126,332		$	35,362		$	30,508		$	5,092		$	197,294
Amortization		(3,322	)		(817	)		(975	)		(214	)		(5,328	)
Balance at May 25, 2010	$	123,010		$	34,545		$	29,533		$	4,878		$	191,966
Successor	Customer Relations			Trade Names			Total
				(in thousands)
Balance at May 26, 2010	$	604,840		$	64,100		$	668,940
Amortization		(1,905	)		(254	)		(2,159	)
Balance at June 30, 2010	$	602,935		$	63,846		$	666,781

As of June 30, 2010, customer relations and trade names are amortized over 30 and 20 years, respectively. The expected amortization of the intangible assets for each of the five succeeding years is as follows.

Year ending December 31,	Total
	(in thousands)
2010 (remaining)	$	11,606
2011		23,211
2012		23,211
2013		23,211
2014		23,211

Recently Issued Accounting Standards. In June 2009, the FASB issued guidance that significantly changed the consolidation model for variable interest entities. The guidance is effective for annual reporting periods that begin after November 15, 2009, and for interim periods within that first annual reporting period. The Partnership determined that this guidance had no impact on its financial position, results of operations or cash flows upon adoption on January 1, 2010.

In January 2010, the FASB issued guidance requiring improved disclosure of transfers in and out of Levels 1 and 2 for an entity’s fair value measurements, such requirement becoming effective for interim and annual periods beginning after December 15, 2009. Further, additional disclosure of activities such as purchases, sales, issuances and settlements of items relying on Level 3 inputs will be required, such requirements becoming effective for interim and annual periods beginning after December 15, 2010. The Partnership determined that this guidance with respect to Levels 1, 2 and 3 had no impact on its financial position, results of operations or cash flows upon adoption.

In February 2010, the FASB clarified the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements. The Partnership evaluated the impact of this update on its accounting for embedded derivatives and determined that it had no impact on its financial position, results of operations or cash flows.

2. (Loss) Income per Limited Partner Unit

On September 2, 2009, the Partnership issued 4,371,586 Series A Convertible Redeemable Preferred Units (“Series A Preferred Units”). The Series A Preferred Units receive fixed quarterly cash distributions of $0.445 per unit beginning with the quarter ending March 31, 2010. Distributions for the quarters ended September 30, 2009 and December 31, 2009 were accrued, effectively increasing the conversion value of the Series A Preferred Units. Distributions are cumulative, and must be paid before any distributions to the general partner and common unitholders. For the purpose of calculating income per limited partner unit, any form of distributions, whether paid or not, as well as the accretion of the Series A Preferred Units, are treated as a reduction in net income (loss) available to the general partner and limited partner interests.

The following table provides a reconciliation of the numerator and denominator of the basic and diluted earnings per common unit computations for the three and six months ended June 30, 2010 and 2009.

Page | 12

Regency Energy Partners LP

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

	Three Months Ended June 30, 2010 and 2009
	Successor							Predecessor
	Period from Acquisition (May 26, 2010)  to June 30, 2010							Period from April 1, 2010 to Disposition (May 25, 2010)							Three Months Ended June 30, 2009
	Loss (Numerator)			Units (Denominator)	Per-Unit Amount			Loss (Numerator)			Units (Denominator)	Per-Unit Amount			Income (Numerator)			Units (Denominator)	Per-Unit Amount
	(in thousands except unit and per unit data)							(in thousands except unit and per unit data)
Basic (Loss) Earnings per Unit
Limited partners’ interests	$	(6,395	)	119,600,652	$	(0.05	)	$	(6,075	)	92,832,219	$	(0.07	)	$	5,286		80,550,149	$	0.07
Effect of Dilutive Securities
Restricted (non-vested) common units		—		—					—		—					(137	)	621,337
Diluted (Loss) Earnings per Unit	$	(6,395	)	119,600,652	$	(0.05	)	$	(6,075	)	92,832,219	$	(0.07	)	$	5,149		81,171,486	$	0.06
	Six Months Ended June 30, 2010 and 2009
	Successor							Predecessor
	Period from Acquisition (May 26, 2010) to June 30, 2010							Period from January 1, 2010 to Disposition (May 25, 2010)							Six Months Ended June 30, 2009
	Loss (Numerator)			Units (Denominator)	Per-Unit Amount			Income (Numerator)			Units (Denominator)	Per-Unit Amount			Income (Numerator)			Units (Denominator)	Per-Unit Amount
	(in thousands except unit and per unit data)							(in thousands except unit and per unit data)
Basic (Loss) Earnings per Unit
Limited partners’ interest	$	(6,395	)	119,600,652	$	(0.05	)	$	(9,271	)	92,788,319	$	(0.10	)	$	147,968		78,920,074	$	1.87
Effect of Dilutive Securities
Restricted (non-vested) common units		—		—					—		—					1,217		652,740
Class D common units		—		—					—		—					820		1,608,068
Diluted (Loss) Earnings per Unit	$	(6,395	)	119,600,652	$	(0.05	)	$	(9,271	)	92,788,319	$	(0.10	)	$	150,005		81,180,882	$	1.85

The following table shows the weighted average outstanding amount of securities that could potentially dilute earnings per unit in the future that were not included in the computation of diluted earnings per unit because to do so would have been antidilutive.

	Successor	Predecessor
	Period from Acquisition (May 26, 2010) to June 30, 2010	Period from April 1, 2010 to Disposition (May 25, 2010)	Three Months Ended June 30, 2009	Period from January 1, 2010 to Disposition (May 25, 2010)	Six Months Ended June 30, 2009
Restricted (non-vested) common units	—	356,954	—	396,918	—
Phantom units *	322,750	351,345	332,860	369,346	332,860
Common unit options	290,150	290,150	372,768	298,400	376,518
Convertible redeemable preferred units	4,584,192	4,584,192	—	4,584,192	—

* Amount disclosed assumes maximum conversion rate for market condition awards.

3. Acquisitions

On April 30, 2010, the Partnership purchased an additional 6.99 percent general partner interest in HPC from EFS Haynesville, bringing its total general partner interest in HPC to 49.99 percent. The purchase price of $92,087,000 was funded by borrowings under the Partnership’s revolving credit facility. Because this transaction occurred between two entities under common control, partners’ capital was decreased by $16,973,000, which represented a deemed distribution of the excess purchase price over EFS Haynesville’s carrying amount of $75,114,000.

On May 26, 2010, the Partnership purchased a 49.9 percent interest in MEP from ETE. The Partnership issued 26,266,791 common units to ETE, valued at $584,436,000, and received a working capital adjustment of $12,848,000 from ETE that was recorded as an adjustment to investment in unconsolidated subsidiaries. Because this transaction occurred between two entities under common control, partners’ capital was increased by $17,152,000, which represented a deemed contribution of the excess carrying amount of ETE’s investment of $588,740,000 over the purchase price. MEP is a 500 mile natural gas pipeline system that extends from the southeast corner of Oklahoma, across northeast Texas, northern Louisiana, central Mississippi and into Alabama. In June 2010, the Partnership made an additional capital contribution of $38,922,000 to MEP.

The following unaudited pro forma financial information has been prepared as if the transactions involving the purchase of 6.99 percent general partner interest in HPC, purchase of the 49.9 percent interest in MEP, together with the Push-down Adjustments described in Note 1 occurred as of the beginning of the earliest period presented. Such unaudited pro forma financial information does not purport to be indicative of the results of operations that would have been achieved if the transactions to which the Partnership is giving pro forma effect actually occurred on the dates referred to above or the results of operations that may be expected in the future.

Page | 13

Regency Energy Partners LP

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

	Pro Forma Results for the
	Period from April 1, 2010 to May 25, 2010			Three Months Ended June 30, 2009			Period from January 1, 2010 to May 25, 2010			Six Months Ended June 30, 2009
	(in thousands except unit and per unit data)
Total revenues	$	211,495		$	253,542		$	529,247		$	531,547
Net (loss) income attributable to Regency Energy Partners LP	$	(4,361	)	$	(2,581	)	$	(6,108	)	$	133,911
Amounts attributable to Series A convertible redeemable preferred units		1,335			—			3,336			—
General partner’s interest, including IDR		801			773			1,641			4,270
Amount allocated to non-vested common units		—			(196	)		(80	)		711
Beneficial conversion feature for Class D common units		—			—			—			820
Limited partners’ interest	$	(6,497	)	$	(3,158	)	$	(11,005	)	$	128,110
Basic and Diluted earnings (loss) per unit:
Amount allocated to common units	$	(6,497	)	$	(3,158	)	$	(11,005	)	$	128,110
Weighted average number of common units outstanding		119,099,010			106,816,940			119,055,110			105,186,865
Basic (loss) income per common unit	$	(0.05	)	$	(0.03	)	$	(0.09	)	$	1.22
Diluted (loss) income per common unit	$	(0.05	)	$	(0.03	)	$	(0.09	)	$	1.21
Distributions paid per unit	$	0.445		$	0.445		$	0.445		$	0.890
Amount allocated to Class D common units	$	—		$	—		$	—		$	820
Total number of Class D common units outstanding		—			—			—			7,276,506
Income per Class D common unit due to beneficial conversion feature	$	—		$	—		$	—		$	0.11
Distributions per unit	$	—		$	—		$	—		$	—

4. Investment in Unconsolidated Subsidiaries

Investment in HPC. HPC was established in March 2009 and as of June 30, 2010, the Partnership owns 49.99 percent interest in HPC. Following table summarizes the changes in the Partnership’s investment in HPC.

	Successor		Predecessor
	Period from Acquisition (May 26, 2010) to June 30, 2010		Period from April 1, 2010 to Disposition (May 25, 2010)		Three Months Ended June 30, 2009		Period from January 1, 2010 to Disposition (May 25, 2010)		Six Months Ended June 30, 2009
	(in thousands)		(in thousands)
Contributions to HPC	$	—	$	20,210	$	—	$	20,210	$	400,000
Distributions received from HPC		—		8,920		1,900		12,446		1,900
Partnership’s share of HPC’s net income		4,460		7,959		1,587		15,872		1,923

As discussed in Note 1, the Partnership’s investment in HPC was adjusted to its fair value on May 26, 2010 and the excess fair value over net book value was comprised of two components: (1) $143,757,000 was attributed to HPC’s long-lived assets and is being amortized as a reduction of income from unconsolidated subsidiaries over the useful lives of the respective assets, which vary from 15 to 30 years, and (2) $38,510,000 could not be attributed to a specific asset and therefore will not be amortized in future periods. For the period from May 26, 2010 to June 30, 2010, the Partnership recorded $365,000 as a reduction of income from unconsolidated subsidiaries due to the amortization of the excess fair value of long-lived assets.

The summarized financial information of HPC is disclosed below.

Page | 14

Regency Energy Partners LP

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

RIGS Haynesville Partnership Co.

Condensed Consolidated Balance Sheets

(in thousands)

	June 30, 2010		December 31, 2009
	(Unaudited)
ASSETS
Total current assets	$	48,383	$	39,239
Restricted cash, non-current		43,314		33,595
Property, plant and equipment, net		888,542		861,570
Total other assets		149,065		149,755
TOTAL ASSETS	$	1,129,304	$	1,084,159
LIABILITIES & PARTNERS’ CAPITAL
Total current liabilities	$	17,273	$	30,967
Partners’ capital		1,112,031		1,053,192
TOTAL LIABILITIES & PARTNERS’ CAPITAL	$	1,129,304	$	1,084,159

RIGS Haynesville Partnership Co.

Condensed Consolidated Income Statements

(in thousands)

						For the Six Months Ended June 30, 2010			From Inception (March 18, 2009) to June 30, 2009
	For the Three Months Ended June 30,
	2010			2009
	(Unaudited)					(Unaudited)
Total revenues	$	44,375		$	11,707	$	79,564		$	13,533
Total operating costs and expenses		18,425			8,038		35,148			9,084
OPERATING INCOME		25,950			3,669		44,416			4,449
Interest expense		(99	)		—		(201	)		—
Other income and deductions, net		20			508		59			612
NET INCOME	$	25,871		$	4,177	$	44,274		$	5,061

Investment in MEP. On May 26, 2010, the Partnership purchased a 49.9 interest in the MEP from ETE. In June 2010, the Partnership made an additional capital contribution of $38,922,000 to MEP. During the period from May 26, 2010 to June 30, 2010, the Partnership recognized $4,026,000 in income from unconsolidated subsidiaries for its ownership interest.

The summarized financial information of MEP is disclosed below.

Midcontinent Express Pipeline LLC

Condensed Balance Sheet

(in thousands)

	June 30, 2010
	(Unaudited)
ASSETS
Total current assets	$	32,987
Property, plant and equipment, net		2,225,383
Total other assets		5,588
TOTAL ASSETS	$	2,263,958
LIABILITIES & PARTNERS’ CAPITAL
Total current liabilities	$	92,795
Long-term debt		800,000
Partners’ capital		1,371,163
TOTAL LIABILITIES & PARTNERS’ CAPITAL	$	2,263,958

Page | 15

Regency Energy Partners LP

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

Midcontinent Express Pipeline LLC

Condensed Income Statement

(in thousands)

	Month Ended June 30, 2010
	(Unaudited)
Total revenues	$	21,269
Total operating costs and expenses		9,770
OPERATING INCOME		11,499
Interest expense, net		(3,431	)
NET INCOME	$	8,068

5. Derivative Instruments

Policies. The Partnership has established comprehensive risk management policies and procedures to monitor and manage the market risks associated with commodity prices, counterparty credit, and interest rates. The General Partner is responsible for delegation of transaction authority levels, and the Risk Management Committee of the General Partner is responsible for the overall management of these risks, including monitoring exposure limits. The Risk Management Committee receives regular briefings on exposures and overall risk management in the context of market activities.

Commodity Price Risk. The Partnership is a net seller of NGLs, condensate and natural gas as a result of its gathering and processing operation. The prices of these commodities are impacted by changes in the supply and demand as well as market focus. Both the Partnership’s profitability and cash flow are affected by the inherent volatility of these commodities which could adversely affect its ability to make distributions to its unitholders. The Partnership manages this commodity price exposure through an integrated strategy that includes management of its contract portfolio, matching sales prices of commodities with purchases, optimization of its portfolio by monitoring basis and other price differentials in operating areas, and the use of derivative contracts. In some cases, the Partnership may not be able to match pricing terms or to cover its risk to price exposure with financial hedges, and it may be exposed to commodity price risk. Speculative positions with derivative contracts are prohibited under the Partnership’s policies.

On May 26, 2010, all of the Partnership’s outstanding commodity swaps that were previously accounted for as cash flow hedges were de-designated and are currently accounted for under the mark-to-market method of accounting.

The Partnership executes natural gas, NGLs’ and WTI trades on a periodic basis to hedge its anticipated equity exposure. Subsequent to June 30, 2010, the Partnership has executed additional NGL swaps to hedge its 2011 and 2012 price exposure.

The Partnership has executed swap contracts settled against NGLs (ethane, propane, butane and natural gasoline), condensate and natural gas market prices for expected equity exposure in the approximate percentages set forth.

	As of June 30, 2010						As of August 8, 2010
	2010		2011		2012		2010		2011		2012
NGLs	87	%	52	%	0	%	87	%	67	%	6	%
Condensate	96	%	74	%	7	%	96	%	74	%	7	%
Natural gas	74	%	42	%	0	%	74	%	42	%	0	%

Interest Rate Risk. The Partnership is exposed to variable interest rate risk as a result of borrowings under its revolving credit facility. As of June 30, 2010, the Partnership had $655,650,000 of outstanding borrowings exposed to variable interest rate risk. The Partnership’s $300,000,000 interest rate swaps expired in March 2010. In April 2010, the Partnership entered into additional two-year interest rate swaps related to $250,000,000 of borrowings under its revolving credit facility, effectively locking the base rate, exclusive of applicable margins, for these borrowings at 1.325 percent through April 2012.

Credit Risk. The Partnership’s resale of natural gas exposes it to credit risk, as the margin on any sale is generally a very small percentage of the total sales price. Therefore, a credit loss can be very large relative to overall profitability on these transactions. The Partnership attempts to ensure that it issues credit only to credit-worthy counterparties and that in appropriate circumstances extension of credit is backed by adequate collateral such as a letter of credit or parental guarantee.

The Partnership is exposed to credit risk from its derivative counterparties. The Partnership does not require collateral from these counterparties. The Partnership deals primarily with financial institutions when entering into financial derivatives. The Partnership has entered into Master International Swap Dealers Association (“ISDA”) Agreements that allow for netting of swap contract

Page | 16

Regency Energy Partners LP

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

receivables and payables in the event of default by either party. If the Partnership’s counterparties fail to perform under existing swap contracts, the Partnership’s maximum loss would be $21,346,000, which would be reduced by $2,824,000 due to the netting feature. The Partnership has elected to present assets and liabilities under Master ISDA Agreements gross on the condensed consolidated balance sheets.

Embedded Derivatives. The Series A Preferred Units contain embedded derivatives which are required to be bifurcated and accounted for separately, such as the holders’ conversion option and the Partnership’s call option. These embedded derivatives are accounted for using mark-to-market accounting. The Partnership does not expect the embedded derivatives to affect its cash flows.

The Partnership’s derivative assets and liabilities, including credit risk adjustment, as of June 30, 2010 and December 31, 2009 are detailed below.

	Assets				Liabilities
	June 30, 2010 (unaudited)		December 31, 2009		June 30, 2010 (unaudited)		December 31, 2009
	(in thousands)
Derivatives designated as cash flow hedges
Current amounts
Interest rate contracts	$	—	$	—	$	—	$	1,064
Commodity contracts		—		9,521		—		11,161
Long-term amounts
Commodity contracts		—		207		—		931
Total cash flow hedging instruments		—		9,728		—		13,156
Derivatives not designated as cash flow hedges
Current amounts
Commodity contracts		19,833		15,466		2,052		31
Interest rate contracts		—		—		1,524		—
Long-term amounts
Commodity contracts		1,241		—		15		3,378
Interest rate contracts		—		—		355
Embedded derivatives in Series A Preferred Units		—		—		52,239		44,594
Total derivatives not designated as cash flow hedges		21,074		15,466		56,185		48,003
Total derivatives	$	21,074	$	25,194	$	56,185	$	61,159

The following tables detail the effect of the Partnership’s derivative assets and liabilities in the consolidated statement of operations for the period presented.

Page | 17

Regency Energy Partners LP

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

For the Three Months Ended June 30, 2010 and 2009

		Successor		Predecessor
		Period from May 26, 2010 through June 30, 2010		Period from April 1, 2010 through May 25, 2010		For the Three Months Ended June 30, 2009
		(in thousands)		(in thousands)
		Change in Value Recognized in OCI on Derivatives (Effective Portion)
Derivatives in cash flow hedging relationships:
Commodity derivatives		—		7,428		(13,946	)
Interest rate swap derivatives		—		—		(676	)
		—		7,428		(14,622	)
		Amount of Gain/(Loss) Reclassified from  AOCI into Income (Effective Portion)
	Location of Gain (Loss) Recognized in Income
Derivatives in cash flow hedging relationships:
Commodity derivatives	Revenues	—		(709	)	15,546
Interest rate swap derivatives	Interest expense	—		—		(1,515	)
		—		(709	)	14,031
		Amount of Gain/(Loss) Recognized in Income on Ineffective Portion
	Location of Gain (Loss) Recognized in Income
Derivatives in cash flow hedging relationships:
Commodity derivatives	Revenues	—		(301	)	1,616
Interest rate swap derivatives	Interest expense	—		—		—
		—		(301	)	1,616
		Amount of Gain/(Loss) from  Dedesignation Amortized from AOCI into Income
	Location of Gain (Loss) Recognized in Income
Derivatives not designated in a hedging relationship:
Commodity derivatives	Revenues	—		1,221		(387	)
Interest rate swap derivatives	Interest expense	—		—		—
		—		1,221		(387	)
		Amount of Gain/(Loss) Recognized in Income on Derivatives
	Location of Gain (Loss) Recognized in Income
Derivatives not designated in a hedging relationship:
Commodity derivatives	Revenues	(824	)	12		(5,690	)
Interest rate swap derivatives	Interest expense	(1,715	)	(824	)	—
Embedded derivative	Other income & deductions	(3,606	)	(654	)	—
		(6,145	)	(1,466	)	(5,690	)

Page | 18

Regency Energy Partners LP

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

For the Six Months Ended June 30, 2010 and 2009

		Successor		Predecessor
		Period from May 26, 2010 through June 30, 2010		Period from January 1, 2010 through May 25, 2010		For the Six Months Ended June 30, 2009
		(in thousands)				(in thousands)
		Change in Value Recognized in OCI on Derivatives (Effective Portion)
Derivatives in cash flow hedging relationships:
Commodity derivatives		—		14,371		(7,728	)
Interest rate swap derivatives		—		—		(1,514	)
		—		14,371		(9,242	)
		Amount of Gain/(Loss) Reclassified from AOCI into Income (Effective Portion)
	Location of Gain (Loss) Recognized in Income
Derivatives in cash flow hedging relationships:
Commodity derivatives	Revenues	—		(5,200	)	32,065
Interest rate swap derivatives	Interest expense	—		(1,060	)	(2,987	)
		—		(6,260	)	29,078
		Amount of Gain/(Loss) Recognized in Income on Ineffective Portion
	Location of Gain (Loss) Recognized in Income
Derivatives in cash flow hedging relationships:
Commodity derivatives	Revenues	—		(799	)	2,231
Interest rate swap derivatives	Interest expense	—		—		—
		—		(799	)	2,231
		Amount of Gain/(Loss) from Dedesignation Amortized from AOCI into Income
	Location of Gain (Loss) Recognized in Income
Derivatives not designated in a hedging relationship:
Commodity derivatives	Revenues	—		4,115		(1,184	)
Interest rate swap derivatives	Interest expense	—		—		—
		—		4,115		(1,184	)
		Amount of Gain/(Loss) Recognized in Income on Derivatives
	Location of Gain (Loss) Recognized in Income
Derivatives not designated in a hedging relationship:
Commodity derivatives	Revenues	(824	)	1,247		(7,092	)
Interest rate swap derivatives	Interest expense	(1,715	)	(824	)	—
Embedded derivative	Other income & deductions	(3,606	)	(4,039	)	—
		(6,145	)	(3,616	)	(7,092	)

6. Long-term Debt

The following table provides information on the Partnership’s long-term debt.

	June 30, 2010			December 31, 2009
	(in thousands)
Senior notes	$	620,990		$	594,657
Revolving loans		655,650			419,642
Total		1,276,640			1,014,299
Less: current portion		—			—
Long-term debt	$	1,276,640		$	1,014,299
Availability under revolving credit facility:
Total credit facility limit	$	900,000		$	900,000
Unfunded commitments		—			(10,675	)
Revolving loans		(655,650	)		(419,642	)
Letters of credit		(17,032	)		(16,257	)
Total available	$	227,318		$	453,426

Long-term debt maturities as of June 30, 2010 for each of the next five years are as follows:

Page | 19

Regency Energy Partners LP

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

Year Ending December 31,	Amount
	(in thousands)
2010	$	—
2011		—
2012		—
2013		357,500
2014		655,650
Thereafter		250,000
Total	$	1,263,150

The outstanding balance of revolving debt under the revolving credit facility bears interest at LIBOR plus a margin or Alternate Base Rate (equivalent to the U.S prime rate lending rate) plus a margin or a combination of both. The senior notes pay fixed interest rates and the weighted average coupon rate is 8.787 percent. The weighted average interest rates for the revolving loans and senior notes, including interest rate swap settlements, commitment fees, and amortization of debt issuance costs were 5.74 percent during the period from May 26, 2010 to June 30, 2010, 7.98 percent during the period from April 1, 2010 to May 25, 2010, 6.69 percent during the three months ended June 30, 2009, 7.98 percent during the period from January 1, 2010 to May 25, 2010 and 5.94 percent during the six months ended June 30, 2009.

Senior Notes. The senior notes are jointly and severally guaranteed by all of the Partnership’s current consolidated subsidiaries, other than Finance Corp., and by certain of its future subsidiaries. The senior notes and the guarantees are unsecured and rank equally with all of the Partnership’s and the guarantors’ existing and future unsubordinated obligations. The senior notes and the guarantees will be senior in right of payment to any of the Partnership’s and the guarantors’ future obligations that are, by their terms, expressly subordinated in right of payment to the notes and the guarantees. The senior notes and the guarantees will be effectively subordinated to the Partnership’s and the guarantors’ secured obligations, including the Partnership’s credit facility and the Series A Preferred Units, to the extent of the value of the assets securing such obligations. As of June 30, 2010, the Partnership was in compliance with each of the financial covenants required under the terms of the senior notes.

Finance Corp. has no operations and will not have revenues other than as may be incidental as co-issuer of the senior notes. Since the Partnership has no independent operations, the guarantees are fully unconditional and joint and several of its subsidiaries, except certain wholly owned subsidiaries, the Partnership has not included condensed consolidated financial information of guarantors of the senior notes.

Upon a change in control, each holder of the Partnership’s senior notes may, at its option, require the Partnership to purchase all or a portion of its notes at a purchase price of 101 percent plus accrued interest and liquidated damages, if any. Subsequent to the ETE Acquisition, no noteholder has exercised this option.

As disclosed in Note 1, the Partnership’s long-term debt was adjusted to fair value on May 26, 2010. The fair value of the senior notes was adjusted based on quoted market prices. The re-measurement of the senior notes due 2013 and 2016 resulted in premium of $7,150,000 and $6,563,000, respectively.

The unamortized premium or discount on the Partnership’s senior notes as of June 30, 2010 and December 31, 2009 are as follows.

Page | 20

Regency Energy Partners LP

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

	Successor		Predecessor
	June 30, 2010		December 31, 2009
	(in thousands)
Senior Notes Due 2013
Principal amount	$	357,500	$	357,500
add:
Unamortized premium		6,998		—
Carrying value	$	364,498	$	357,500
Senior Notes Due 2016
Principal amount	$	250,000	$	250,000
add/ deduct:
Unamortized premium (discount)		6,492		(12,843	)
Carrying value	$	256,492	$	237,157

Revolving Credit Facility. On March 4, 2010, RGS executed the Fifth Amended and Restated Credit Agreement (the “new credit agreement”), to be effective as of March 4, 2010. The material differences between the Fourth Amended and Restated Credit Agreement (the “previous credit agreement”) and the new credit agreement include:

• extension of the maturity date to June 15, 2014 from August 15, 2011, subject to the following contingency:

• if the Partnership’s 8.375 percent senior notes due December 15, 2013 have not been refinanced or paid off by June 15, 2013, then the maturity date of the revolving credit facility will be June 15, 2013;

• an increase in the amount of allowed investments in HPC to $250,000,000 from $135,000,000;

• the addition of an allowance for joint venture investments (other than HPC) of up to $75,000,000, provided that (i) distributed cash and net income from joint ventures under this basket shall be excluded from consolidated net income and (ii) equity interests in joint ventures created under this basket shall be pledged as collateral;

• the modification of financial covenants to give credit for projected EBITDA associated with certain future material HPC projects on a percentage of completion basis, provided that such amount, together with adjustments related to the Haynesville Expansion Project and other material projects, does not exceed 20 percent of consolidated EBITDA (as defined in the new credit agreement) through March 31, 2010, and 15 percent thereafter;

• an increase in the annual general asset sales permitted from $20,000,000 annually to five percent of consolidated net tangible assets (as defined in the new credit agreement) annually.

The Partnership treated the amendment of the credit facility as a modification of an existing revolving credit agreement and, therefore, wrote off debt issuance costs of $1,780,000 to interest expense, net in the period from January 1, 2010 to May 25, 2010. In addition, the Partnership paid and capitalized $15,861,000 of loan fees which will be amortized over the remaining term of the credit facility.

On May 26, 2010, the Partnership entered into the first amendment to its Fifth Amended and Restated Credit Agreement. The amendment, among other things,

• amends the definition of “Consolidated EBITDA” and “Consolidated Net Income” to include MEP;

• amends the definition of “Joint Venture” in the credit agreement to include MEP;

• amends the definition of “Permitted Acquisition” in the agreement to clarify that the initial investment in MEP is a permitted acquisition;

• amends the definition of “Permitted Holder” to include to include ETE as a party that may hold the equity interest in the Managing General Partner without triggering an event of default under the credit agreement;

• allows for the pledge of the equity interest in MEP as a collateral indirectly, through the direct pledge of equity interest in Regency Midcon;

• permits certain investments in MEP by the Partnership and its affiliates;

• requires that the Partnership and its subsidiaries maintain a senior consolidated secured leverage ratio not to exceed 3 to 1.

Page | 21

Regency Energy Partners LP

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

The new credit agreement and the guarantees are senior to the Partnership’s and the guarantors’ secured obligations, including the Series A Preferred Units, to the extent of the value of the assets securing such obligations. As of June 30, 2010, the Partnership was in compliance with each of the financial covenants required under the term of the credit agreement.

7. Commitments and Contingencies

Legal. The Partnership is involved in various claims and lawsuits incidental to its business. These claims and lawsuits in the aggregate are not expected to have a material adverse effect on the Partnership’s business, financial condition, results of operations or cash flows.

Escrow Payable. At June 30, 2010, $1,011,000 remained in escrow pending the completion by El Paso of environmental remediation projects pursuant to the purchase and sale agreement (“El Paso PSA”) related to assets in north Louisiana and the mid-continent area and a subsequent 2008 settlement agreement between the Partnership and El Paso. In the El Paso PSA, El Paso indemnified Regency Gas Services LLC, now known as Regency Gas Services LP, against losses arising from pre-closing and known environmental liabilities subject to a limit of $84,000,000 and certain deductible limits. Upon completion of a Phase II environmental study, the Partnership notified El Paso of remediation obligations amounting to $1,800,000 with respect to known environmental matters and $3,600,000 with respect to pre-closing environmental liabilities. This escrow amount will be further reduced under a specified schedule as El Paso completes its cleanup obligations and the remainder will be released upon completion. In connection with this matter, $500,000 was released on May 6, 2010.

Environmental. A Phase I environmental study was performed on certain assets located in west Texas in connection with the pre-acquisition due diligence process in 2004. Most of the identified environmental contamination had either been remediated or was being remediated by the previous owners or operators of the properties. The aggregate potential environmental remediation costs at specific locations were estimated to range from $1,900,000 to $3,100,000. No governmental agency has required the Partnership to undertake these remediation efforts. Management believes that the likelihood that it will be liable for any significant potential remediation liabilities identified in the study is remote. Separately, the Partnership acquired an environmental pollution liability insurance policy in connection with the acquisition to cover any undetected or unknown pollution discovered in the future. The policy covers clean-up costs and damages to third parties, and has a 10-year term (expiring 2014) with a $10,000,000 limit subject to certain deductibles. No claims have been made against the Partnership or under the policy.

Keyes Litigation. In August 2008, Keyes Helium Company, LLC (“Keyes”) filed suit against Regency Gas Services LP, the Partnership, the General Partner and various other subsidiaries. Keyes entered into an output contract with the Partnership’s predecessor-in-interest in 1996 under which it purchased all of the helium produced at the Lakin, Kansas processing plant. In September 2004, the Partnership decided to shut down its Lakin plant and contract with a third party for the processing of volumes processed at Lakin; as a result, the Partnership no longer delivered any helium to Keyes. In its suit, Keyes alleges it is entitled to damages for the costs of covering its purchases of helium. On May 7, 2010, the jury rendered a verdict in favor of Regency. No damages were awarded to the Plaintiffs. Plaintiffs have appealed the verdict. The hearing on appeal will take place sometime in 2011.

Kansas State Severance Tax. In August 2008, a customer began remitting severance tax to the state of Kansas based on the value of condensate purchased from one of the Partnership’s Mid-Continent gathering fields and deducting the tax from its payments to the Partnership. The Kansas Department of Revenue advised the customer that it was appropriate to remit such taxes and withhold the taxes from its payments to the Partnership, absent an order or legal opinion from the Kansas Department of Revenue stating otherwise. The Partnership has requested a determination from the Kansas Department of Revenue regarding the matter since severance taxes were already paid on the gas from which the condensate is collected and no additional tax is due. The Kansas Department of Revenue has advised the Partnership that a portion of its condensate sales in Kansas is subject to severance tax; therefore the Partnership will be subject to additional taxes on future condensate sales. The Partnership may also be subject to additional taxes, interest and possible penalties for past condensate sales.

Remediation of Groundwater Contamination at Calhoun and Dubach Plants. Regency Field Services LLC (“RFS”) currently owns the Dubach and Calhoun gas processing plants in north Louisiana (the “Plants”). The Plants each have groundwater contamination as result of historical operations. At the time that RFS acquired the Plants from El Paso Field Services LP (“El Paso”), Kerr-McGee Corporation (“Kerr-McGee”) was performing remediation of the groundwater contamination, because the Plants were once owned by Kerr-McGee and when Kerr-McGee sold the Plants to a predecessor of El Paso in 1988, Kerr-McGee retained liability for any environmental contamination at the Plants. In 2005, Kerr-McGee created and spun off Tronox and Tronox allegedly assumed certain of Kerr-McGee’s environmental remediation obligations (including its obligation to perform remediation at the Plants) prior to the acquisition of Kerr-McGee by Anadarko Petroleum Corporation. In January 2009, Tronox filed for Chapter 11 bankruptcy protection. RFS filed a claim in the bankruptcy proceeding relating to the environmental remediation work at the Plants. Tronox has thus far

continued its remediation efforts at the Plants. Tronox filed a reorganization plan on July 7, 2010. The plan calls for the creation of a trust to fund environmental clean-up at the various sites where Tronox has an obligation. Tronox must file the Environmental Claims Settlement Agreement, which will set forth the amount of trust funds allocated to each site, 14 days prior to the confirmation hearing, the date for which has not yet been set.

Page | 22

Regency Energy Partners LP

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

8. Series A Convertible Redeemable Preferred Units

On September 2, 2009, the Partnership issued 4,371,586 Series A Preferred Units. As of March 31, 2010, the Series A Preferred Units were convertible to 4,584,192 common units, and if outstanding, are mandatorily redeemable on September 2, 2029 for $80,000,000 plus all accrued but unpaid distributions thereon. The Series A Preferred Units receive fixed quarterly cash distributions of $0.445 per unit beginning with the quarter ending March 31, 2010, if outstanding on the record dates of the Partnership’s common units distributions. Effective as of March 2, 2010, holders can elect to convert Series A Preferred Units to common units at any time in accordance with the partnership agreement.

Upon a change in control, each unitholder may, at its option, require the Partnership to purchase the Series A Preferred Units for an amount equal to 101 percent of the total of the face value of the Series A Preferred Units plus all accrued but unpaid distribution thereon. Subsequent to the ETE Acquisition, no unitholder has exercised this option.

As disclosed in Note 1, the Partnership’s Series A Preferred Units were adjusted to fair value of $70,793,000 on May 26, 2010. The following table provides a reconciliation of the beginning and ending balances of the Series A Preferred Units for the six months ended June 30, 2010.

	For the Six Months Ended June 30, 2010,
	Units	Amount
		(in thousands)
Beginning balance as of January 1, 2010	4,371,586	$	51,711
Accretion to redemption value from January 1, 2010 to May 25, 2010	—		55
Balance as of May 25, 2010	4,371,586		51,766
Fair value adjustment	—		19,027
Balance as of May 26, 2010	4,371,586		70,793
Accretion to redemption value from May 26, 2010 to June 30, 2010	—		57
Ending balance as of June 30, 2010	4,371,586	$	70,850	*

* This amount will be accreted to $80,000,000 plus any accrued and unpaid distributions by deducting amounts from partners’ capital over the 19.25 remaining years.

9. Related Party Transactions

The employees operating the assets of the Partnership and its subsidiaries and all those providing staff or support services are employees of the General Partner. Pursuant to the Partnership Agreement, the General Partner receives a monthly reimbursement for all direct and indirect expenses incurred on behalf of the Partnership. Reimbursements of $5,660,000, $10,370,000, $31,065,000, $8,591,000 and $16,209,000, were recorded in the Partnership’s financial statements during the periods from May 26, 2010 to June 30, 2010, from April 1, 2010 to May 25, 2010, from January 1, 2010 to May 25, 2010 and for the three and six months ended June 30, 2009, respectively, as operating expenses or general and administrative expenses, as appropriate.

In conjunction with distributions by the Partnership to its limited and general partner interests, GE EFS received cash distributions of $13,114,000, $2,603,000, $26,241,000 and $12,181,000 during the period from April 1, 2010 to May 25, 2010, the three months ended June 30, 2009, the period from January 1, 2010 to May 25, 2010 and the six months ended June 30, 2009, respectively.

Under a Master Services Agreement with HPC, the Partnership operates and provides all employees and services for the operation and management of HPC. Under this agreement, the Partnership receives $1,400,000 monthly as a partial reimbursement of its general and administrative costs. The amount is recorded as fee revenue in the Partnership’s corporate and other segment. The Partnership also incurs expenditures on behalf of HPC and these amounts are billed to HPC on a monthly basis. For the periods from May 26, 2010 to June 30, 2010, from April 1, 2010 to May 25, 2010, from January 1, 2010 to May 25, 2010, and the three and six months ended June 30, 2009, the related party general and administrative expenses reimbursed to the Partnership were $1,400,000, $2,800,000, $6,933,000, $1,500,000, and $1,726,000, respectively.

On May 26, 2010, the Partnership received $7,436,000 from ETE, which represents the portion of the estimated amount of the Partnership’s common unit distribution to be paid to ETE for the period of time those units were not outstanding (April 1, 2010 to May 25, 2010).

As of June 30, 2010, the Partnership has a related party receivable of $12,288,000 from ETE for an additional capital contribution, which was received on August 6, 2010.

Page | 23

Regency Energy Partners LP

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

On May 26, 2010, the Partnership entered into a services agreement with ETE and ETE Services Company, LLC (“Services Co.”), a subsidiary of ETE. Under the services agreement, Services Co. will perform certain general and administrative services to the Partnership. The Partnership will pay Services Co’s direct expenses for these services, plus an annual fee of $10,000,000, and will receive the benefit of any cost savings recognized for these services. The services agreement has a five year term, subject to earlier termination rights in the event of a change in control, the failure to achieve certain cost savings for the Partnership or upon an event of default.

As disclosed in Note 3, the Partnership’s acquisition of additional 6.99 percent partner’s interest in HPC from GE EFS, and the 49.9 percent interest in MEP from ETE are related party transactions.

The Partnership’s contract compression segment provides contract compression services to HPC and records revenue in gathering, transportation and other fees on the statement of operation. The Partnership also receives transportation services from HPC and records the cost as cost of sales.

Enterprise GP holds a non-controlling equity interest in ETE’s general partner and a limited partnership interest in ETE, therefore is considered a related party along with any of its subsidiaries. The Partnership, in the ordinary course of business, sells natural gas and NGLs to the subsidiaries of Enterprise GP and records the revenue in gas sales and NGL sales. The Partnership also incurs NGL processing fees with subsidiaries of Enterprise GP and records the cost to cost of sales.

As of June 30, 2010, the Partnership’s related party receivables and related party payables included $18,501,000 and $422,000, respectively, from and to subsidiaries of Enterprise GP.

10. Segment Information

In 2009, the Partnership’s management realigned the composition of its segments. Accordingly, the Partnership has restated the items of segment information for earlier periods to reflect this new alignment.

The Partnership has four reportable segments: (a) gathering and processing, (b) transportation, (c) contract compression and (d) corporate and others. Gathering and processing involves collecting raw natural gas from producer wells and transporting it to treating plants where water and other impurities such as hydrogen sulfide and carbon dioxide are removed. Treated gas is then processed to remove the natural gas liquids. The treated and processed natural gas is then transported to market separately from the natural gas liquids. Revenues and the associated cost of sales from the gathering and processing segment directly expose the Partnership to commodity price risk, which is managed through derivative contracts and other measures. The Partnership aggregates the results of its gathering and processing activities across five geographic regions into a single reporting segment. The Partnership, through its producer services function, primarily purchases natural gas from producers at gathering systems and plants connected to its pipeline systems and sells this gas at downstream outlets.

The transportation segment consists of the Partnership’s 49.99 percent interest in HPC, which we operate, and the 49.9 percent interest in MEP. Prior periods have been restated to reflect the Partnership’s then wholly-owned subsidiary of Regency Intrastate Gas LLC as the exclusive reporting unit within this segment. The transportation segment uses pipelines to transport natural gas from receipt points on its system to interconnections with other pipelines, storage facilities or end-use markets. RIG performs transportation services for shipping customers under firm or interruptible arrangements. In either case, revenues are primarily fee based and involve minimal direct exposure to commodity price fluctuations. The north Louisiana intrastate pipeline operated by this segment serves the Partnership’s gathering and processing facilities in the same area and those transactions create a portion of the intersegment revenues shown in the table below.

The contract compression segment provides customers with turn-key natural gas compression services to maximize their natural gas and crude oil production, throughput, and cash flow. The Partnership’s integrated solutions include a comprehensive assessment of a customer’s natural gas contract compression needs and the design and installation of a compression system that addresses those particular needs. The Partnership is responsible for the installation and on-going operation, service, and repair of its compression units, which are modified as necessary to adapt to customers’ changing operating conditions. The contract compression segment also provides services to certain operations in the gathering and processing segment, creating a portion of the intersegment revenues shown in the table below.

The corporate and others segment comprises regulated entities and the Partnership’s corporate offices. Revenues in this segment include the collection of the partial reimbursement of general and administrative costs from HPC.

Management evaluates the performance of each segment and makes capital allocation decisions through the separate consideration of segment margin and operation and maintenance expenses. Segment margin, for the gathering and processing and for the transportation segments, is defined as total revenues, including service fees, less cost of sales. In the contract compression segment, segment margin is defined as revenues minus direct costs, which primarily consist of compressor repairs. Management believes segment margin is an important measure because it directly relates to volume, commodity price changes and revenues generating

Page | 24

Regency Energy Partners LP

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

horsepower. Operation and maintenance expenses are a separate measure used by management to evaluate performance of field operations. Direct labor, insurance, property taxes, repair and maintenance, utilities and contract services comprise the most significant portion of operation and maintenance expenses. These expenses fluctuate depending on the activities performed during a specific period. The Partnership does not deduct operation and maintenance expenses from total revenues in calculating segment margin because management separately evaluates commodity volume and price changes in segment margin.

Results for each period, together with amounts related to balance sheets for each segment, are shown below.

	Gathering and Processing			Transportation			Contract Compression		Corporate and  Others			Eliminations			Total
	(in thousands)
External Revenues
Period from May 26, 2010 to June 30, 2010	$	90,147		$	—		$	12,053	$	780		$	—		$	102,980
Period from April 1, 2010 to May 25, 2010		183,582			—			23,992		3,921			—			211,495
For the three months ended June 30, 2009		209,939			1,531			39,011		3,061			—			253,542
Period from January 1, 2010 to May 25, 2010		460,423			—			58,971		9,853			—			529,247
For the six months ended June 30, 2009		453,093			9,075			77,499		3,853			—			543,520
Intersegment Revenues
Period from May 26, 2010 to June 30, 2010		—			—			1,999		22			(2,021	)		—
Period from April 1, 2010 to May 25, 2010		—			—			3,794		53			(3,847	)		—
For the three months ended June 30, 2009		(6,745	)		(128	)		975		40			5,858			—
Period from January 1, 2010 to May 25, 2010		—			—			9,126		91			(9,217	)		—
For the six months ended June 30, 2009		(8,755	)		4,936			1,785		144			1,890			—
Cost of Sales
Period from May 26, 2010 to June 30, 2010		73,311			—			1,564		(772	)		(22	)		74,081
Period from April 1, 2010 to May 25, 2010		144,768			—			2,460		87			(53	)		147,262
For the three months ended June 30, 2009		144,816			1,243			4,186		269			6,833			157,347
Period from January 1, 2010 to May 25, 2010		366,900			—			5,741		(679	)		(91	)		371,871
For the six months ended June 30, 2009		327,284			2,297			6,504		116			3,674			339,875
Segment Margin
Period from May 26, 2010 to June 30, 2010		16,836			—			12,488		1,574			(1,999	)		28,899
Period from April 1, 2010 to May 25, 2010		38,814			—			25,326		3,887			(3,794	)		64,233
For the three months ended June 30, 2009		58,378			160			35,800		2,832			(975	)		96,195
Period from January 1, 2010 to May 25, 2010		93,523			—			62,356		10,623			(9,126	)		157,376
For the six months ended June 30, 2009		117,054			11,714			72,780		3,881			(1,784	)		203,645
Operation and Maintenance
Period from May 26, 2010 to June 30, 2010		8,814			—			4,924		203			(1,999	)		11,942
Period from April 1, 2010 to May 25, 2010		15,400			—			9,698		126			(3,794	)		21,430
For the three months ended June 30, 2009		22,044			(174	)		11,487		(181	)		(1,202	)		31,974
Period from January 1, 2010 to May 25, 2010		39,161			—			23,476		327			(9,123	)		53,841
For the six months ended June 30, 2009		44,349			2,112			24,028		132			(2,605	)		68,016
Depreciation and Amortization
Period from May 26, 2010 to June 30, 2010		7,413			—			3,323		259						10,995
Period from April 1, 2010 to May 25, 2010		11,576			—			6,353		680			—			18,609
For the three months ended June 30, 2009		16,413			—			8,955		868			—			26,236
Period from January 1, 2010 to May 25, 2010		28,864			—			15,560		1,660			—			46,084
For the six months ended June 30, 2009		33,134			2,448			16,982		1,561			—			54,125
Income from Unconsolidated Subsidiaries
Period from May 26, 2010 to June 30, 2010		—			8,121			—		—						8,121
Period from April 1, 2010 to May 25, 2010		—			7,959			—		—			—			7,959
For the three months ended June 30, 2009		—			1,587			—		—			—			1,587
Period from January 1, 2010 to May 25, 2010		—			15,872			—		—						15,872
For the six months ended June 30, 2009		—			1,923			—		—			—			1,923
Assets
June 30, 2010		1,751,253			1,369,921			1,362,549		111,569			—			4,595,292
December 31, 2009		1,046,619			453,120			926,213		107,462			—			2,533,414
Investment in Unconsolidated Subsidiaries
June 30, 2010		—			1,369,921			—		—			—			1,369,921
December 31, 2009		—			453,120			—		—			—			453,120
Goodwill
June 30, 2010		286,634			—			447,040		—			—			733,674
December 31, 2009		63,232			—			164,882		—			—			228,114
Expenditures for Long-Lived Assets
Period from May 26, 2010 to June 30, 2010		15,300			—			5,208		367			—			20,875
Period from January 1, 2010 to May 25, 2010		43,666			—			18,418		1,703						63,787
For the six months ended June 30, 2009		44,639			22,367			50,959		1,220			—			119,185

The table below provides a reconciliation of total segment margin to net income (loss) from continuing operations.

Page | 25

Regency Energy Partners LP

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

	Successor			Predecessor
	Period from Acquisition (May 26, 2010) to June 30, 2010			Period from April 1, 2010 to Disposition (May 25, 2010)			Three Months Ended June 30, 2009			Period from January 1, 2010 to Disposition (May 25, 2010)			Six Months Ended June 30, 2009
	(in thousands)			(in thousands)
Net (loss) income attributable to Regency Energy Partners LP	$	(4,924	)	$	(4,740	)	$	5,890		$	(5,352	)	$	154,279
Add (deduct):
Operation and maintenance		11,942			21,430			31,974			53,841			68,016
General and administrative		7,104			21,809			14,127			37,212			29,205
Loss (gain) on asset sales, net		10			19			651			303			(133,280	)
Depreciation and amortization		10,995			18,609			26,236			46,084			54,125
Income from unconsolidated subsidiaries		(8,121	)		(7,959	)		(1,587	)		(15,872	)		(1,923	)
Interest expense, net		8,109			14,114			19,568			36,459			33,795
Other income and deductions, net		3,510			624			(214	)		3,891			(256	)
Income tax expense (benefit)		245			83			(515	)		404			(416	)
Net income attributable to the noncontrolling interest		29			244			65			406			100
Total segment margin	$	28,899		$	64,233		$	96,195		$	157,376		$	203,645

11. Equity-Based Compensation

The Partnership’s LTIP for its employees, directors and consultants authorizes grants up to 2,865,584 common units. Because control changed from GE EFS to ETE, all then outstanding LTIP, exclusive of the May 7, 2010 phantom unit grant described below, vested during the predecessor period and the Partnership recorded a one-time general and administrative charge of $9,893,000 as a result of the vesting of these units on May 25, 2010. LTIP compensation expense of $137,000, $10,431,000, $12,070,000, $1,561,000 and $2,750,000 is recorded in general and administrative expense in the statement of operations for the periods from May 26, 2010 to June 30, 2010, April 1, 2010 to May 25, 2010 and January 1, 2010 to May 25, 2010, and for the three and six months ended June 30, 2009, respectively.

Common Unit Option and Restricted (Non-Vested) Units.

The common unit options activity for the six months ended June 30, 2010 is as follows.

Common Unit Options	Units		Weighted Average Exercise Price		Weighted Average Contractual Term (Years)	Aggregate Intrinsic Value *(in thousands)
Outstanding at the beginning of period	306,651		$	21.50
Granted	—			—
Exercised	(13,500	)		20.00
Forfeited or expired	(3,001	)		23.73
Outstanding at end of period	290,150			21.57	5.8	833
Exercisable at the end of the period	290,150					833

* Intrinsic value equals the closing market price of a unit less the option strike price, multiplied by the number of unit options outstanding as of the end of the period presented, unit options with an exercise price greater than the end of the period closing market price are excluded.

During the six months ended June 30, 2010, the Partnership received $270,000 in proceeds from the exercise of unit options.

The restricted (non-vested) common unit activity for the six months ended June 30, 2010 is as follows.

			Weighted Average Grant Date
Restricted (Non-Vested) Common Units	Units		Fair Value
Outstanding at the beginning of the period	464,009		$	28.36
Granted	—			—
Vested	(444,759	)		28.19
Forfeited or expired	(19,250	)		32.35
Outstanding at the end of period	—			—

Phantom Units. The Partnership’s phantom units are in substance two grants composed of (1) service condition grants with graded vesting over three years; and (2) market condition grants with cliff vesting based upon the Partnership’s relative ranking in total unitholder return among 20 peer companies, as disclosed in Item 11 of the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2009. As control changed from GE EFS to ETE, all outstanding phantom units, exclusive of the May 7, 2010 grant described below, vested. The service condition grants vested at a rate of 100 percent and the market condition grants vested at a rate of 150 percent pursuant to the terms of the award.

Page | 26

Regency Energy Partners LP

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

The Partnership awarded 247,500 phantom units to senior management and certain key employees on May 7, 2010. These phantom units include a provision that will accelerate vesting (1) upon a change in control and (2) within 12 months of a change in control, if termination without “Cause” (as defined) or resignation for “Good Reason” (as defined) occurs, the phantom units will vest. The Partnership expects to recognize $3,187,000 of compensation expense related to non-vested phantom units over a period of 2.8 years.

The following table presents phantom unit activity for the six months ended June 30, 2010.

Phantom Units	Units		Weighted Average  Grant Date Fair Value
Outstanding at the beginning of the period	301,700		$	8.63
Service condition grants	108,500			20.76
Market condition grants	148,500			11.89
Vested service condition	(138,313	)		13.97
Vested market condition	(168,420	)*		4.65
Forfeited service condition	(6,467	)		19.30
Forfeited market condition	(10,500	)		10.20
Total outstanding at end of period	235,000			16.31

* Upon the change in control, these awards converted into 252,630 common units.

12. Fair Value Measures

The fair value measurement provisions establish a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations. The three levels of inputs are defined as follows:

• Level 1 - unadjusted quoted prices for identical assets or liabilities in active accessible markets;

• Level 2 - inputs that are observable in the marketplace other than those classified as Level 1; and

• Level 3 - inputs that are unobservable in the marketplace and significant to the valuation.

Entities are encouraged to maximize the use of observable inputs and minimize the use of unobservable inputs. If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation.

Derivatives. The Partnership’s financial assets and liabilities measured at fair value on a recurring basis are derivatives related to commodity swaps and embedded derivatives in the Series A Preferred Units. Derivatives related to commodity swaps are valued using discounted cash flow techniques. These techniques incorporate Level 1 and Level 2 inputs such as future interest rates and commodity prices. These market inputs are utilized in the discounted cash flow calculation considering the instrument’s term, notional amount, discount rate and credit risk and are classified as Level 2 in the hierarchy. Derivatives related to Series A Preferred Units are valued using a binomial lattice model. The market inputs utilized in the model include credit spread, probabilities of the occurrence of certain events, common unit price, dividend yield, and expected volatility, and are classified as Level 3 in the hierarchy. The change in fair value of the derivatives related to Series A Preferred Units is recorded in other income and deductions, net within the statement of operations.

The following table presents the Partnership’s derivative assets and liabilities measured at fair value on a recurring basis.

	Fair Value Measurement at June 30, 2010				Fair Value Measurement at December 31, 2009
	Fair Value Total	Quoted Prices in Active Markets (Level 1)	Significant Observable Inputs (Level 2)	Unobservable Inputs (Level  3)	Fair Value Total	Quoted Prices in Active Markets (Level 1)	Significant Observable Inputs (Level 2)	Unobservable Inputs (Level 3)
	(in thousands)
Assets
Commodity Derivatives:
Natural Gas	3,125	—	3,125	—	602	—	602	—
Natural Gas Liquids	12,222	—	12,222	—	15,484	—	15,484	—
Condensate	5,727	—	5,727	—	9,108	—	9,108	—
Total Assets	21,074	—	21,074	—	25,194	—	25,194	—
Liabilities
Interest rate swaps	1,877	—	1,877	—	1,064	—	1,064	—
Commodity Derivatives:		—		—		—		—
Natural Gas	15	—	15	—	51	—	51	—
Natural Gas Liquids	2,025	—	2,025	—	15,034	—	15,034	—
Condensate	29	—	29	—	416	—	416	—
Series A Preferred Units	52,239	—	—	52,239	44,594	—	—	44,594
Total Liabilities	56,185	—	3,946	52,239	61,159	—	16,565	44,594

Page | 27

Regency Energy Partners LP

Notes to Unaudited Condensed Consolidated Financial Statements—(Continued)

The following table presents the changes in Level 3 derivatives measured on a recurring basis for the six months ended June 30, 2010.

	Derivatives related to Series A Preferred Units
	(in thousands)
Beginning Balance- December 31, 2009	$	44,594
Net unrealized losses included in other income and deductions, net		4,039
Ending Balance- May 25, 2010		48,633
Net unrealized losses included in other income and deductions, net		3,606
Ending Balance- June 30, 2010	$	52,239

The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value due to their short-term maturities. Restricted cash and related escrow payable approximates fair value due to the relatively short-term settlement period of the escrow payable. Long-term debt, other than the senior notes, is comprised of borrowings which incur interest under a floating interest rate structure. Accordingly, the carrying value approximates fair value. The estimated fair values of the senior notes due 2013 and 2016, based on third party market value quotations as of June 30, 2010, were $369,119,000 and $265,000,000, respectively.

13. Subsequent Events

On July 27, 2010, the Partnership declared a distribution of $0.445 per outstanding common unit and Series A Preferred Unit, including units equivalent to the General Partner’s two percent interest in the Partnership, and a distribution with respect to incentive distribution rights of approximately $915,000, payable on August 13, 2010, to unitholders of record at the close of business on August 6, 2010.

On July 15, 2010, the Partnership sold its gathering and processing assets located in east Texas to an affiliate of Tristream Energy LLC for approximately $70,000,000. The Partnership plans to use the proceeds from the sale of the assets to fund future capital expenditures.

On August 6, 2010, the Partnership agreed to acquire Zephyr Gas Services, LLC, a field services company for approximately $185,000,000.

Page | 28

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion analyzes our financial condition and results of operations. You should read the following discussion of our financial condition and results of operations in conjunction with our historical consolidated financial statements and notes included elsewhere in this document.

OVERVIEW. We are a growth-oriented publicly-traded Delaware limited partnership, engaged in the gathering, processing, contract compression and transportation of natural gas and NGLs. We provide these services through systems located in Louisiana, Texas, Arkansas, Pennsylvania, Mississippi, Alabama, and the mid-continent region of the United States, which includes Kansas, Colorado, and Oklahoma.

RECENT DEVELOPMENTS

HPC Purchase. On April 30, 2010, we purchased 76,989 units representing general partner interests in HPC for an aggregate purchase price of $92,087,000 from EFS Haynesville, an affiliate of GECC and us. This purchase was funded using our revolving credit facility and it increased our ownership percentage in HPC from 43 percent to 49.99 percent. The Partnership and EFS Haynesville also entered into a Voting Agreement which grants the Partnership the right to vote the general partner interest in HPC retained by EFS Haynesville.

ETE Acquisition. On May 26, 2010, GP Seller completed the sale of all of the outstanding membership interests of the General Partner pursuant to a Purchase Agreement (the “Purchase Agreement”) among itself, ETE and ETE GP. Prior to the closing of the transactions under the Purchase Agreement, GP Seller, an affiliate of GE EFS, owned all the outstanding limited partners’ interests in the General Partner, which is the sole general partner of the Partnership, and the entire member’s interest in the Managing General Partner, which is the sole general partner of the General Partner and by virtue of that position controlled us. As a result of this transaction, control of us transferred from GE EFS to ETE. In connection with this transaction, our assets and liabilities were required to be adjusted to fair value on the closing date (May 26, 2010) by application of “push-down” accounting.

MEP Purchase. On May 26, 2010, we, Regency Midcon and ETE entered into the Contribution Agreement, pursuant to which ETE agreed to contribute to the Partnership (through Regency Midcon) 100 percent of the membership interests in ETC III and the option to purchase all of the outstanding membership interests in ETC II (0.1 percent ownership of members’ interest in MEP), that is exercisable one year and one day following the closing. In return, we issued 26,266,791 of our common units, valued at approximately $600,000,000 based on a 10-day volume weighted average closing price of our common units as of May 4, 2010, to ETE in a private placement, relying on Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”). ETE paid $12,848,000 in cash to us as an estimated purchase price adjustment. The consideration is subject to further post-closing adjustment. Following completion of these transactions, we indirectly own 49.9 percent of MEP and have an option to acquire an indirect 0.1 percent interest in MEP (as described above) that is exercisable on May 27, 2011. An affiliate of Kinder Morgan Energy Partners, L.P. continues to own the other 50 percent interest in MEP and acts as the operator of MEP. In June 2010, we made an additional capital contribution of $38,922,000 to MEP.

Services Agreement. On May 26, 2010, we entered into the Services Agreement with ETE and ETE Services Company, LLC (“Services Co.”). Under the Services Agreement, Services Co. will perform certain general and administrative services to be agreed upon by the parties. We will pay Services Co.’s direct expenses for the provision of these services, plus an annual fee of $10,000,000, and we will receive the benefit of any cost savings recognized for these services. The Services Agreement has a five-year term, subject to earlier termination rights in the event of a change of control of a party, the failure to achieve certain costs savings for the benefit of us or upon an event of default.

Logansport Expansion. We completed Phase I and Phase II expansions of the Logansport Gathering System located in the Haynesville Shale in north Louisiana in August. The expansions add an incremental 485 MMcf/d of gathering capacity. The total gathering capacity of the Logansport Gathering System is now approximately 710 MMcf/d.

HPC. On June 24, 2010, the FERC approved a settlement establishing RIG’s maximum rates for NGPA Section 311 transportation services for the period commencing February 1, 2010. Under the settlement, which applies to RIG’s interstate shippers, RIG is not required to make any refunds to shippers, and it is authorized to implement maximum rates that are higher than RIG’s previously effective maximum rates. In addition, RIG was authorized to increase its maximum fuel retention rates upon the installation of additional compression on RIGS. Consistent with FERC policy, RIG is required to justify its current rates or propose new rates on or before February 1, 2015.

On May 20, 2010, the FERC issued Order No. 735, which revises the contract reporting requirements for intrastate natural gas pipelines that provide interstate transportation services pursuant to Section 311 of the NGPA. The order principally modifies the existing annual reporting requirements by requiring expanded information to be filed publicly on a quarterly basis. The new reporting requirements will increase administration costs for RIG and require the disclosure of customer-specific information, including rate information that was previously not public for intrastate pipelines.

Page | 29

Our total project costs for both the Haynesville and Red River Expansion Projects were completed nearly $60,000,000 under budget for a total of approximately $641,000,000.

Gulf States. FERC has initiated an audit of Gulf States’ compliance with certain requirements for the posting of information. FERC routinely conducts such audits of regulated companies, and Gulf States will correct its postings to the extent required.

East Texas. On July 15, 2010, we sold our gathering and processing assets located in east Texas to an affiliate of Tristream Energy LLC for approximately $70,000,000. We plan to use the proceeds from the sale of the assets to fund future capital expenditures.

Zephyr Acquisition. On August 6, 2010, we agreed to acquire Zephyr Gas Services, LLC, a field services company for approximately $185,000,000.

OUR OPERATIONS. We divide our operations into four business segments:

• Gathering and Processing: We provide “wellhead-to-market” services to producers of natural gas, which include transporting raw natural gas from the wellhead through gathering systems, processing raw natural gas to separate NGLs from the raw natural gas and selling or delivering the pipeline-quality natural gas and NGLs to various markets and pipeline systems;

• Transportation: We own and operate a 49.99 percent interest in HPC which, through RIGS, delivers natural gas from northwest Louisiana to markets as well as downstream pipelines in northeast Louisiana through a 450 mile intrastate pipeline system. We also own a 49.9 percent in MEP which has a 500 mile natural gas pipeline that extends from the southeast corner of Oklahoma, across northeast Texas, northern Louisiana, central Mississippi and into Alabama.

• Contract Compression: We provide turn-key natural gas compression services whereby we guarantee our customers 98 percent mechanical availability of our compression units for land installations and 96 percent mechanical availability for over-water installations; and

• Corporate and Others: We own and operate an interstate pipeline that consists of 10 miles of pipeline that extends from Harrison County, Texas to Caddo Parish, Louisiana. This pipeline has a FERC certified capacity of 150 MMcf/d.

HOW WE EVALUATE OUR OPERATIONS. Our management uses a variety of financial and operational measurements to analyze our performance. We view these measures as important tools for evaluating the success of our operations and review these measurements on a monthly basis for consistency and trend analysis. These measures include volumes, segment margin, total segment margin, adjusted segment margin, adjusted total segment margin, operating and maintenance expenses, EBITDA, and adjusted EBITDA on a segment and company-wide basis.

Volumes We must continually obtain new supplies of natural gas to maintain or increase throughput volumes on our gathering and processing systems. Our ability to maintain existing supplies of natural gas and obtain new supplies is affected by (i) the level of workovers or recompletions of existing connected wells and successful drilling activity in areas currently dedicated to our gathering and processing systems, (ii) our ability to compete for volumes from successful new wells in other areas and (iii) our ability to obtain natural gas that has been released from other commitments. We routinely monitor producer activity in the areas served by our gathering and processing systems to pursue new supply opportunities.

Segment Margin and Total Segment Margin. We define segment margin, generally, as revenues minus cost of sales. We calculate our Gathering and Processing segment margin and Corporate and Others segment margin as our revenues generated from operations minus the cost of natural gas and NGLs purchased and other cost of sales, including third-party transportation and processing fees.

Prior to our contribution of RIGS to HPC, we calculated our Transportation segment margin as revenues generated by fee income as well as, in those instances in which we purchased and sold gas for our account, gas sales revenues minus the cost of natural gas that we purchased and transported. After our contribution of RIGS to HPC, we do not record segment margin for the Transportation segment because we record our ownership percentage of the net income in HPC as income from unconsolidated subsidiaries. In addition, we record our ownership percentage of the net income in MEP as income from unconsolidated subsidiaries

We calculate our Contract Compression segment margin as our revenues generated from our contract compression operations minus the direct costs, primarily compressor unit repairs, associated with those revenues.

We calculate total segment margin as the total of segment margin of our four segments, less the intersegment elimination.

Adjusted Segment Margin and Adjusted Total Segment Margin. We define adjusted segment margin as segment margin adjusted for non-cash gains (losses) from commodity derivatives. We define adjusted total segment margin as total segment margin adjusted for non-cash gains (losses) from commodity derivatives. Our adjusted total segment margin equals the sum of our operating segments’ adjusted segment margins or segment margins, including intersegment eliminations. Adjusted segment margin and adjusted total segment margin are included as supplemental disclosures because they are primary performance measures used by management as they represent the results of product purchases and sales, a key component of our operations.

Page | 30

Revenue Generating Horsepower. Revenue generating horsepower is the primary driver for revenue growth in our contract compression segment, and it is also the primary measure for evaluating our operational efficiency. Revenue generating horsepower is our total available horsepower less horsepower under contract that is not generating revenue and idle horsepower.

Operation and Maintenance Expense. Operation and maintenance expense is a separate measure that we use to evaluate operating performance of field operations. Direct labor, insurance, property taxes, repair and maintenance, utilities and contract services comprise the most significant portion of our operating and maintenance expense. These expenses are largely independent of the volumes through our systems but fluctuate depending on the activities performed during a specific period. We do not deduct operation and maintenance expenses from total revenues in calculating segment margin because we separately evaluate commodity volume and price changes in segment margin.

EBITDA and Adjusted EBITDA. We define EBITDA as net income (loss) plus interest expense, provision for income taxes and depreciation and amortization expense. We define adjusted EBITDA as EBITDA plus or minus the following:

• non-cash loss (gain) from commodity and embedded derivatives;

• non-cash unit based compensation;

• loss (gain) on asset sales, net;

• loss on debt refinancing;

• other (income) expense, net, and

• the Partnership’s interest in adjusted EBITDA from unconsolidated subsidiaries less income from unconsolidated subsidiaries.

These measures are used as supplemental measures by our management and by external users of our financial statements such as investors, banks, research analysts and others, to assess:

• financial performance of our assets without regard to financing methods, capital structure or historical cost basis;

• the ability of our assets to generate cash sufficient to pay interest costs, support our indebtedness and make cash distributions to our unitholders and General Partner;

• our operating performance and return on capital as compared to those of other companies in the midstream energy sector, without regard to financing or capital structure; and

• the viability of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities.

Neither EBITDA nor adjusted EBITDA should be considered as an alternative to, or more meaningful than, net income, operating income, cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP. EBITDA is the starting point in determining cash available for distribution, which is an important non-GAAP financial measure for a publicly traded partnership. The Partnership added non-cash unit based compensation as a reconciling item from EBITDA to adjusted EBITDA to conform the Partnership’s calculation of adjusted EBITDA with ETE’s. The following table presents a reconciliation of EBITDA and adjusted EBITDA to net cash flows provided by operating activities and to net (loss) income.

Page | 31

	Combined Six Months Ended June 30, 2010
	Successor			Predecessor
	Period from Acquisition (May 26, 2010) to June 30, 2010			Period from January 1, 2010 to May 25, 2010			Total			Six Months Ended June 30, 2009
	(in thousands)
Reconciliation of “Adjusted EBITDA” to net cash flows provided by (used in) operating activities and to net (loss) income
Net cash flows provided by (used in) operating activities	$	(16,207	)	$	89,421		$	73,214		$	69,271
Add (deduct):
Depreciation and amortization, including debt issuance cost amortization		(11,330	)		(49,363	)		(60,693	)		(56,750	)
Write-off of debt issuance costs		—			(1,780	)		(1,780	)		—
Income from unconsolidated subsidiaries		8,121			15,872			23,993			1,923
Derivative valuation change		(6,921	)		(12,004	)		(18,925	)		6,293
(Loss) gain on assets sales, net		(10	)		(303	)		(313	)		133,280
Unit based compensation expenses		(137	)		(12,070	)		(12,207	)		(2,750	)
Changes in current assets and liabilities
Trade accounts receivable, accrued revenues and related party receivables		(13,843	)		11,272			(2,571	)		(38,073	)
Other current assets		(585	)		(2,516	)		(3,101	)		(3,728	)
Trade accounts payable, accrued cost of gas and liquids, related party payables, and deferred revenues		15,460			(8,649	)		6,811			39,185
Other current liabilities		20,497			(22,614	)		(2,117	)		7,396
Distribution less than earnings of unconsolidated subsidiaries, net		—			(12,446	)		(12,446	)		(1,900	)
Other assets and liabilities		60			234			294			232
Net (loss) income		(4,895	)		(4,946	)		(9,841	)		154,379
Add (deduct):
Interest expense, net		8,109			36,459			44,568			33,795
Depreciation and amortization		10,995			46,084			57,079			54,125
Income tax expense (benefit)		245			404			649			(416	)
EBITDA		14,454			78,001			92,455			241,883
Add (deduct):
Non-cash loss (gain) from commodity and embedded derivatives		5,856			11,189			17,045			(6,293	)
Non-cash unit based compensation		113			11,925			12,038			2,623
Loss (gain) on assets sales, net		10			303			313			(133,280	)
Income from unconsolidated subsidiaries		(8,121	)		(15,872	)		(23,993	)		(1,923	)
Partnership’s ownership interest in HPC’s adjusted EBITDA		5,824			21,184			27,008			3,871
Partnership’s ownership interest in MEP’s adjusted EBITDA		8,424			—			8,424			—
Other expense, net		191			2,064			2,255			826
Adjusted EBITDA	$	26,751		$	108,794		$	135,545		$	107,707
The following table presents a reconciliation of adjusted total segment margin to net (loss) income.
	Combined Six Months Ended June 30, 2010
	Successor			Predecessor
	Period from Acquisition (May 26, 2010) to June 30, 2010			Period from January 1, 2010 to May 25, 2010			Total			Six Months Ended June 30, 2009
	(in thousands)
Reconciliation of “Adjusted total segment margin” to net (loss) income
Net (loss) income	$	(4,895	)	$	(4,946	)	$	(9,841	)	$	154,379
Add (deduct):
Operation and maintenance		11,942			53,841			65,783			68,016
General and administrative		7,104			37,212			44,316			29,205
Loss (gain) on assets sales, net		10			303			313			(133,280	)
Depreciation and amortization		10,995			46,084			57,079			54,125
Income from unconsolidated subsidiaries		(8,121	)		(15,872	)		(23,993	)		(1,923	)
Interest expense, net		8,109			36,459			44,568			33,795
Other income and deductions, net		3,510			3,891			7,401			(256	)
Income tax expense (benefit)		245			404			649			(416	)
Total segment margin		28,899			157,376			186,275			203,645
Add (deduct):
Non-cash loss (gain) from commodity derivatives		2,250			7,150			9,400			(6,293	)
Adjusted total segment margin	$	31,149		$	164,526		$	195,675		$	197,352

Cash Distributions. On July 27, 2010, the Partnership declared a distribution of $0.445 per outstanding common unit and Series A Preferred Unit, including units equivalent to the General Partner’s two percent interest in the Partnership, and a distribution with respect to incentive distribution rights of approximately $915,000, payable on August 13, 2010, to unitholders of record at the close of business on August 6, 2010.

Page | 32

RESULTS OF OPERATIONS

Partnership

Combined Three Months Ended June 30, 2010 vs. Three Months Ended June 30, 2009

	Combined Three Months Ended June 30, 2010
	Successor			Predecessor
	Period from Acquisition (May 26, 2010) to June 30,  2010			Period from April 1, 2010 to May 25, 2010			Total			Three Months Ended June 30, 2009			Change			Percent
	(in thousands except percentages and volume data)
Total revenues	$	102,980		$	211,495		$	314,475		$	253,542		$	60,933		24	%
Cost of sales		74,081			147,262			221,343			157,347			63,996		41
Total segment margin (1)		28,899			64,233			93,132			96,195			(3,063	)	3
Operation and maintenance		11,942			21,430			33,372			31,974			1,398		4
General and administrative		7,104			21,809			28,913			14,127			14,786		105
Loss on asset sales, net		10			19			29			651			(622	)	96
Depreciation and amortization		10,995			18,609			29,604			26,236			3,368		13
Operating (loss) income		(1,152	)		2,366			1,214			23,207			(21,993	)	95
Income from unconsolidated subsidiaries		8,121			7,959			16,080			1,587			14,493		913
Interest expense, net		(8,109	)		(14,114	)		(22,223	)		(19,568	)		(2,655	)	14
Other income and deductions, net		(3,510	)		(624	)		(4,134	)		214			(4,348	)	2,032
(Loss) income before income taxes		(4,650	)		(4,413	)		(9,063	)		5,440			(14,503	)	267
Income tax expense		245			83			328			(515	)		843		164
Net (loss) income		(4,895	)		(4,496	)		(9,391	)		5,955			(15,346	)	258
Net income attributable to the noncontrolling interest		(29	)		(244	)		(273	)		(65	)		(208	)	320
Net (loss) income attributable to Regency Energy Partners LP	$	(4,924	)	$	(4,740	)	$	(9,664	)	$	5,890		$	(15,554	)	264	%
Gathering and processing segment margin	$	16,836		$	38,814		$	55,650		$	58,378		$	(2,728	)	5	%
Add (deduct):
Non-cash loss (gain) from commodity derivatives		2,250			3,344			5,594			(2,728	)		8,322		305
Adjusted gathering and processing segment margin		19,086			42,158			61,244			55,650			5,594		10
Transportation segment margin		—			—			—			160			(160	)	100
Contract compression segment margin		12,488			25,326			37,814			35,800			2,014		6
Corporate and others segment margin		1,574			3,887			5,461			2,832			2,629		93
Inter-segment eliminations		(1,999	)		(3,794	)		(5,793	)		(975	)		(4,818	)	494
Adjusted total segment margin	$	31,149		$	67,577		$	98,726		$	93,467		$	5,259		6	%
Throughput (MMBtu/d) (2)								1,032,377			984,718			47,659		5	%

(1) For a reconciliation of segment margin to the most directly comparable financial measure calculated and presented in accordance with GAAP, please see reconciliation provided above.

(2) Throughput includes total volumes processed through our gathering and processing systems.

The table below contains key segment performance indicators related to our discussion of our results of operations.

	Three Months Ended June 30,
	2010		2009			Change			Percent
	(in thousands except percentages and volume data)
Gathering and Processing Segment
Financial data:
Adjusted segment margin (1)	$	61,244	$	55,650		$	5,594		10	%
Operation and maintenance (2)		24,214		22,044			2,170		10
Operating data:
Throughput (MMBtu/d)		1,032,377		984,718			47,659		5
NGL gross production (Bbls/d)		28,390		22,024			6,366		29
Transportation Segment
Financial data:
Segment margin (1)	$	—	$	160		$	(160	)	100	%
Operation and maintenance (2)		—		(174	)		174		100
Operating data:
Throughput (MMBtu/d)		—		—			—		—
Contract Compression
Financial data:
Segment margin (1)	$	37,814	$	35,800		$	2,014		6	%
Operation and maintenance (2)		14,622		11,487			3,135		27
Operating data:
Revenue generating horsepower (3)		790,494		767,060			23,434		3	%
Average horsepower per revenue generating compression unit		853		846			7		—
Corporate and Others
Financial data:
Segment margin (1)	$	5,461	$	2,832		$	2,629		93	%
Operation and maintenance (2)		329		(181	)		510		282

(1) Combined adjusted segment margin for our segments differs from consolidated adjusted total segment margin due to intersegment eliminations.

Page | 33

(2) Combined operation and maintenance expense varies from consolidated operation and maintenance expense due to intersegment eliminations.

(3) Revenue generating horsepower is our total available horsepower less horsepower under contract that is not generating revenue and idle horsepower.

In addition to the revenue generating horsepower and compression units owned and operated by the Contract Compression segment disclosed below, the Contract Compression segment operates 140,299 horsepower owned by the Gathering and Processing segment as of June 30, 2010. The Contract Compression segment also operates 37,985 horsepower owned by HPC as of June 30, 2010.

	Three Months Ended June 30, 2010
Horsepower Range	Revenue Generating Horsepower	Percentage of Revenue Generating Horsepower		Number of Units
0-499	71,983	9	%	384
500-999	73,361	9	%	119
1,000+	645,150	82	%	424
	790,494	100	%	927
	Three Months Ended March 31, 2010
Horsepower Range	Revenue Generating Horsepower	Percentage  of Revenue Generating Horsepower		Number of Units
0-499	68,022	9	%	360
500-999	70,912	9	%	115
1,000+	620,770	82	%	410
	759,704	100	%	885

Net (Loss) Income Attributable to Regency Energy Partners LP. Net loss attributable to Regency Energy Partners LP was $9,664,000 in the three months ended June 30, 2010, compared to the net income of $5,890,000 in the three months ended June 30, 2009. The major components of this change were as follows:

• $14,786,000 increase in general and administrative expenses primarily due to vesting of outstanding restricted and phantom units upon a change in control of our General Partner;

• $4,348,000 decrease in other income and deductions, net which primarily relate to the non-cash value change associated with the embedded derivative related to the Series A Preferred Units;

• $3,368,000 increase in depreciation and amortization expense related to various organic growth projects completed since June 30, 2009 and additional depreciation and amortization expense related to the fair value adjustment of the Partnership’s long-lived assets;

• $2,655,000 increase in interest expense primarily due to the issuance of $250,000,000 of 9.375 percent senior notes due 2016 in May 2009 at a higher interest rate as compared to our credit facility interest rate; which was offset by;

• $14,493,000 increased income from unconsolidated subsidiaries primarily from the Haynesville Expansion Project and the Red River Lateral, which were in operation for the full quarter in 2010, the Partnership’s increased interest in HPC from 38 percent in the second quarter of 2009 to 49.99 percent in the second quarter of 2010 and the acquisition of a 49.9 percent partner’s interest in MEP in June 2010.

Adjusted Total Segment Margin. Adjusted total segment margin increased to $98,726,000 in the three months ended June 30, 2010 from $93,467,000 in the three months ended June 30, 2009.

Adjusted Gathering and Processing segment margin increased to $61,244,000 for the three months ended June 30, 2010 from $55,650,000 for the three months ended June 30, 2009, primarily due to higher realized commodity prices and the increased volumes in south Texas associated with the Eagle Ford Shale development.

Contract Compression segment margin increased to $37,814,000 in the three months ended June 30, 2010 from $35,800,000 in the three months ended June 30, 2009. The increase is primarily attributable to the increased revenue generating horsepower and additional contract compression services provided to the Gathering and Processing segment. The inter-segment revenue is eliminated upon consolidation.

Page | 34

Corporate and Others segment margin increased to $5,461,000 in the three months ended June 30, 2010 from $2,832,000 in the three months ended June 30, 2009. The increase is primarily attributable to an increase in management fees received from HPC for general and administrative expenses.

Inter-segment eliminations increased to $5,793,000 in the three months ended June 30, 2010 from $975,000 in the three months ended June 30, 2009. The increase is primarily due to the increased inter-segment transactions between the Gathering and Processing and the Contract Compression segments.

Operation and Maintenance. Operation and maintenance expense increased to $33,372,000 in the three months ended June 30, 2010 from $31,974,000 during the three months ended June 30, 2009. The increase was primarily due to the following:

• $1,150,000 increase in lube oil in our Contract Compression segment; and

• $334,000 increase in property taxes on various organic growth projects completed since June 30, 2009.

General and Administrative. General and administrative expense increased to $28,913,000 in the three months ended June 30, 2010 from $14,127,000 during the three months ended June 30, 2009. The increase was primarily due to the following:

• $9,007,000 increase in unit based compensation primarily related to the vesting of outstanding restricted and phantom units upon a change in control of our General Partner;

• $2,307,000 increase in transaction costs primarily related to the acquisition of our General Partner by ETE, our acquisition of 49.9 percent interest in MEP and our purchase of an additional 6.99 percent interest in HPC;

• $1,453,000 increase in labor costs primarily from increased bonus accrual in 2010;

• $1,241,000 increase in professional fees primarily related to legal, tax, and due diligence;

• $833,000 increase in related party general and administrative expenses for the services agreement with Services Co.

Depreciation and Amortization. Depreciation and amortization expense increased to $29,604,000 in the three months ended June 30, 2010 from $26,236,000 in the three months ended June 30, 2009, this increase is due to various organic growth projects completed since June 30, 2009 and the additional depreciation and amortization expense incurred related to the fair value adjustment of the Partnership’s long-lived assets.

Interest Expense, Net. Interest expense, net increased to $22,223,000 in the three months ended June 30, 2010 from $19,568,000 in the three months ended in June 30, 2009. The increase is primarily attributable to the issuance of $250,000,000 of 9.375 percent senior notes due 2016 in May 2009 at a higher interest rate as compared to our credit facility interest rate.

Other Income and Deductions, net. Other income and deductions, net decreased to an expense of $4,134,000 in the three months ended June 30, 2010 from an income of $214,000 during the three months ended June 30, 2009. This increase is primarily attributable to the non-cash value change in the embedded derivatives related to the Series A Preferred Units.

Page | 35

Combined Six Months Ended June 30, 2010 vs. Six Months Ended June 30, 2009

	Combined Six Months Ended June 30, 2010
	Successor			Predecessor
	Period from Acquisition (May 26, 2010) to June 30, 2010			Period from January 1, 2010 to May 25, 2010			Total			Six Months Ended June 30, 2009			Change			Percent
	(in thousands except percentages and volume data)
Total revenues	$	102,980		$	529,247		$	632,227		$	543,520		$	88,707		16	%
Cost of sales		74,081			371,871			445,952			339,875			106,077		31
Total segment margin (1)		28,899			157,376			186,275			203,645			(17,370	)	9
Operation and maintenance		11,942			53,841			65,783			68,016			(2,233	)	3
General and administrative		7,104			37,212			44,316			29,205			15,111		52
Loss (gain) on asset sales, net		10			303			313			(133,280	)		133,593		100
Depreciation and amortization		10,995			46,084			57,079			54,125			2,954		5
Operating (loss) income		(1,152	)		19,936			18,784			185,579			(166,795	)	90
Income from unconsolidated subsidiaries		8,121			15,872			23,993			1,923			22,070		1,148
Interest expense, net		(8,109	)		(36,459	)		(44,568	)		(33,795	)		(10,773	)	32
Other income and deductions, net		(3,510	)		(3,891	)		(7,401	)		256			(7,657	)	2,991
(Loss) income before income taxes		(4,650	)		(4,542	)		(9,192	)		153,963			(163,155	)	106
Income tax expense		245			404			649			(416	)		1,065		256
Net (loss) income		(4,895	)		(4,946	)		(9,841	)		154,379			(164,220	)	106
Net income attributable to the noncontrolling interest		(29	)		(406	)		(435	)		(100	)		(335	)	335
Net (loss) income attributable to Regency Energy Partners LP	$	(4,924	)	$	(5,352	)	$	(10,276	)	$	154,279		$	(164,555	)	107	%
Gathering and processing segment margin	$	16,836		$	93,523		$	110,359		$	117,054		$	(6,695	)	6	%
Add (deduct):
Non-cash loss (gain) from commodity derivatives		2,250			7,150			9,400			(6,293	)		15,693		249
Adjusted gathering and processing segment margin		19,086			100,673			119,759			110,761			8,998		8
Transportation segment margin		—			—			—			11,714			(11,714	)	100
Contract compression segment margin		12,488			62,356			74,844			72,780			2,064		3
Corporate and others segment margin		1,574			10,623			12,197			3,881			8,316		214
Inter-segment eliminations		(1,999	)		(9,126	)		(11,125	)		(1,784	)		(9,341	)	524
Adjusted total segment margin	$	31,149		$	164,526		$	195,675		$	197,352		$	(1,677	)	1	%
Throughput (MMBtu/d) (2)								1,030,770			1,011,563			19,207		2	%

(1) For a reconciliation of segment margin to the most directly comparable financial measure calculated and presented in accordance with GAAP, please see the reconciliation above.

(2) Throughput includes total volumes processed through our gathering and processing and transportation systems.

The table below contains key segment performance indicators related to our discussion of our results of operations.

	Six Months Ended June 30,
	2010		2009		Change			Percent
	(in thousands except percentages and volume data)
Gathering and Processing Segment
Financial data:
Adjusted segment margin (1)	$	119,759	$	110,761	$	8,998		8	%
Operation and maintenance (2)		47,975		44,349		3,626		8
Operating data:
Throughput (MMBtu/d)		1,030,770		1,011,563		19,207		2
NGL gross production (Bbls/d)		27,073		21,903		5,170		24
Transportation Segment
Financial data:
Segment margin (1)	$	—	$	11,714	$	(11,714	)	100	%
Operation and maintenance (2)		—		2,112		(2,112	)	100
Operating data:
Throughput (MMBtu/d)		—		777,832		(777,832	)	100
Contract Compression
Financial data:
Segment margin (1)	$	74,844	$	72,780	$	2,064		3	%
Operation and maintenance (2)		28,400		24,028		4,372		18
Operating data:
Revenue generating horsepower (3)		790,494		767,060		23,434		3	%
Average horsepower per revenue generating compression unit		853		846		7		—
Corporate and Others
Financial data:
Segment margin (1)	$	12,197	$	3,881	$	8,316		214	%
Operation and maintenance (2)		530		132		398		302

(1) Combined adjusted segment margin for our segments differs from consolidated adjusted total segment margin due to intersegment eliminations.

Page | 36

(2) Combined operation and maintenance expense varies from consolidated operation and maintenance expense due to intersegment eliminations.

(3) Revenue generating horsepower is our total available horsepower less horsepower under contract that is not generating revenue and idle horsepower.

Net (Loss) Income Attributable to Regency Energy Partners LP. Net loss attributable to Regency Energy Partners LP was $10,276,000 in the six months ended June 30, 2010, compared to the net income of $154,279,000 in the six months ended June 30, 2009. The major components of this change were as follows:

• $133,593,000 decrease in gain on asset sales, net primarily due to the absence of gain associated with the contribution of RIGS to HPC;

• $17,370,000 decrease in segment margin primarily due to the contribution of RIGS to HPC;

• $15,111,000 increase in general and administrative expenses primarily due to costs incurred from the change in control from GE EFS to ETE;

• $10,773,000 increase in interest expense, net primarily due to the issuance of $250,000,000 of 9.375 percent senior notes due 2016 in May 2009 at a higher interest rate as compared to our credit facility interest rate;

• $7,657,000 decrease in other income and deductions, net which primarily relate to the non-cash value change associated with the embedded derivative related to the Series A Preferred Units issued; which was offset by,

• $22,070,000 increased income from unconsolidated subsidiaries primarily from the Haynesville Expansion Project and the Red River Lateral (which were in operation during the six month period in 2010), the Partnership’s increased interest in HPC from 38 percent in 2009 to an average of 45 percent in 2010 and the acquisition of a 49.9 percent interest in MEP in May 2010.

Adjusted Total Segment Margin. Adjusted total segment margin decreased to $195,675,000 in the six months ended June 30, 2010 from $197,352,000 in the six months ended June 30, 2009.

Adjusted Gathering and Processing segment margin increased to $119,759,000 for the six months ended June 30, 2010 from $110,761,000 for the six months ended June 30, 2009 primarily due to higher realized commodity prices and the increased volumes in south Texas associated with the Eagle Ford Shale development.

We contributed RIGS to HPC on March 17, 2009. As a result, there was no Transportation segment margin for the six months ended June 30, 2010.

Contract Compression segment margin increased to $74,844,000 in the six months ended June 30, 2010 from $72,780,000 in the six months ended June 30, 2009. The increase is primarily attributable to the increased revenue generating horsepower and additional contract compression services provided to the Gathering and Processing segment. The inter-segment revenue is eliminated upon consolidation.

Corporate and Others segment margin increased to $12,197,000 in the six months ended June 30, 2010 from $3,881,000 in the six months ended June 30, 2009. The increase is primarily attributable to an increase in management fees from HPC for general and administrative expenses.

Inter-segment eliminations increased to $11,125,000 in the six months ended June 30, 2010 from $1,784,000 in the six months ended June 30, 2009. The increase is due to the increased inter-segment transactions between the Gathering and Processing and the Contract Compression segments.

Operation and Maintenance. Operation and maintenance expense decreased to $65,783,000 in the six months ended June 30, 2010 from $68,016,000 during the six months ended June 30, 2009. The decrease was primarily due to the absence of RIGS’ operation and maintenance expenses in 2010.

General and Administrative. General and administrative expense increased to $44,316,000 in the six months ended June 30, 2010 from $29,205,000 during the six months ended June 30, 2009. The increase was primarily due to the following:

• $9,458,000 increase in unit based compensation primarily related to the vesting of outstanding restricted and phantom units upon a change in control of our General Partner;

• $1,793,000 increase in transaction costs primarily related to the acquisition of our General Partner by ETE, our acquisition of 49.9 percent interest in MEP and our purchase of an additional 6.99 percent interest in HPC;

• $1,846,000 increase in labor costs primarily from increased bonus accrual in 2010;

• $857,000 increase in professional fees primarily related to legal and tax; and

• $833,000 increase in related party general and administrative expenses for the services agreement with Services Co.

Page | 37

Gain on Sale of Asset, net. Gain on sale of asset, net decreased due to the absence in 2010 of the gain associated with the contribution of RIGS to HPC on March 17, 2009.

Depreciation and Amortization. Depreciation and amortization expense increased to $57,079,000 in the six months ended June 30, 2010 from $54,125,000 in the six months ended June 30, 2009, this increase is due to completion of various organic growth projects since June 30, 2009 and the additional depreciation and amortization expense incurred related to the fair value adjustment of the Partnership’s long-lived assets as a result of push-down accounting described above.

Interest Expense, Net. Interest expense, net increased to $44,568,000 in the six months ended June 30, 2010 from $33,795,000 in the six months ended in June 30, 2009. The increase is primarily attributable to the issuance of $250,000,000 of 9.375 percent senior notes due 2016 in May 2009 at a higher interest rate as compared to our credit facility interest rate, plus a $1,780,000 write-off of loan fees upon the execution of the fifth amendment of our revolving credit facility.

Other Income and Deductions, net. Other income and deductions, net decreased to an expense of $7,401,000 in the six months ended June 30, 2010 from an income of $256,000 during the six months ended June 30, 2009. This increase is primarily attributable to the non-cash value change in the embedded derivatives related to the Series A Preferred Units.

HPC

Although we own a 49.99 percent interest in HPC, the following management discussion and analysis is for 100 percent of HPC’s consolidated results of operations. For comparative purposes only, we have combined the results of operations of RIG from January 1, 2009 to March 17, 2009, with the results of operations of HPC for the six months ended June 30, 2009.

Three Months Ended June 30, 2010 vs. June 30, 2009

The table below contains key HPC performance indicators related to our discussion of the results of its operations.

	Three Months Ended June 30,
	2010			2009			Change			Percent
	(in thousands except percentages and volume data)
Revenues	$	44,375		$	12,625		$	31,750		251	%
Cost of sales		478			(178	)		656		369
Segment margin		43,897			12,803			31,094		243
Operation and maintenance		5,189			2,670			2,519		94
General and administrative		4,658			1,675			2,983		178
Loss on sale of asset, net		—			129			(129	)	100
Depreciation and amortization		8,100			4,443			3,657		82
Operating income		25,950			3,886			22,064		568
Interest expense		(99	)		—			(99	)	100
Other income and deductions, net		20			509			(489	)	96
Net income	$	25,871		$	4,395		$	21,476		489	%
Throughput (MMbtu/d)		1,155,692			745,178			410,514		55	%

The following provides a reconciliation of segment margin and adjusted segment margin to net income.

	Three Months Ended June 30,
	2010			2009
	(in thousands)
Net income	$	25,871		$	4,395
Add (deduct):
Operation and maintenance		5,189			2,670
General and administrative		4,658			1,675
Loss on sale of asset, net		—			129
Depreciation and amortization		8,100			4,443
Interest expense		99			—
Other income and deductions, net		(20	)		(509	)
Segment margin and adjusted segment margin	$	43,897		$	12,803

Page | 38

Net income increased to $25,871,000 in the three months ended June 30, 2010 from $4,395,000 in the three months ended June 30, 2009. The increase in net income was primarily attributable to the following:

• $31,094,000 increase in segment margin since the Haynesville Expansion Project and Red River Lateral were placed in service on January 27, 2010;

• $3,657,000 increase in depreciation and amortization expenses primarily due to the additional depreciation from the Haynesville Expansion Project and the Red River Lateral;

• $2,983,000 increase in general and administrative expenses primarily due to the management fees paid to the Partnership; and

• $2,519,000 increase in operation and maintenance expenses primarily related to increased ad valorem taxes.

HPC’s adjusted EBITDA for the three months ended June 30, 2010 and 2009 are presented below.

	Three Months Ended June 30,
	2010		2009
	(in thousands)
Net income	$	25,871	$	4,395
Add (deduct):
Depreciation and amortization		8,100		4,443
Interest expense		99		—
EBITDA	$	34,070	$	8,838
Add (deduct):
Other expense, net		12		—
Adjusted EBITDA	$	34,082	$	8,838

Six Months Ended June 30, 2010 vs. June 30, 2009

The table below contains key HPC performance indicators related to our discussion of the results of its operations.

	Six Months Ended June 30,
	2010			2009		Change			Percent
	(in thousands except percentages and volume data)
Revenues	$	79,564		$	26,780	$	52,784		197	%
Cost of sales		1,788			421		1,367		325
Segment margin		77,776			26,359		51,417		195
Operation and maintenance		9,963			5,281		4,682		89
General and administrative		8,976			1,923		7,053		367
Loss on sale of asset, net		—			129		(129	)	100
Depreciation and amortization		14,421			7,560		6,861		91
Operating income		44,416			11,466		32,950		287
Interest expense		(201	)		—		(201	)	100
Other income and deductions, net		59			613		(554	)	90
Net income	$	44,274			12,079	$	32,195		267	%
Throughput (MMbtu/d)		1,019,913			777,832		242,081		31	%

The following provides a reconciliation of segment margin and adjusted segment margin to net income.

	Six Months Ended June 30,
	2010			2009
	(in thousands)
Net income	$	44,274		$	12,079
Add (deduct):
Operation and maintenance		9,963			5,281
General and administrative		8,976			1,923
Loss on sale of asset, net		—			129
Depreciation and amortization		14,421			7,560
Interest expense		201			—
Other income and deductions, net		(59	)		(613	)
Segment margin and adjusted segment margin	$	77,776		$	26,359

Net income increased to $44,274,000 in the six months ended June 30, 2010 from $12,079,000 in the six months ended June 30, 2009. The increase in net income was primarily attributable to the following:

• $51,417,000 increase in segment margin since the Haynesville Expansion Project and Red River Lateral were placed in service on January 27, 2010;

Page | 39

• $6,861,000 increase in depreciation and amortization expenses primarily due to the additional depreciation from the Haynesville Expansion Project and the Red River Lateral;

• $7,053,000 increase in general and administrative expenses primarily due to the management fees paid to the Partnership; and

• $4,682,000 increase in operation and maintenance expenses primarily related to increased ad valorem taxes.

HPC’s adjusted EBITDA for the six months ended June 30, 2010 and 2009 are presented below.

	Six Months Ended June 30,
	2010		2009
	(in thousands)
Net income	$	44,274	$	12,079
Add (deduct):
Depreciation and amortization		14,421		7,560
Interest expense		201		—
EBITDA and adjusted EBITDA	$	58,896	$	19,639
Add (deduct):
Other expense, net		12		—
Adjusted EBITDA	$	58,908	$	19,639

Cash Distributions. On January 7, 2010, the HPC management committee paid a distribution of $8,200,000, of which the Partnership received its pro-rata share of $3,526,000. On April 30, 2010, the HPC management committee paid a distribution of $24,235,000, of which the Partnership received its pro-rata share of $8,920,000. On July 30, 2010, the HPC management committee paid a distribution of $34,252,000, of which the Partnership received its pro-rata share of $14,919,000.

MEP

We purchased a 49.9 percent interest in MEP from ETE on May 26, 2010. For the period from May 26, 2010 to June 30, 2010, we recorded $4,026,000 in income from unconsolidated subsidiaries, which represents our share of MEP’s net income for the same period. MEP has system capacity of 1,832,500 Dth per day in Zone 1 and 1,200,000 Dth per day in Zone 2. Both zones are fully subscribed to firm transportation customers.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In addition to the information set forth in this report, further information regarding the Partnership’s critical accounting policies and estimates is included in Item 7 of the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2009.

See Item 1, Note 1 - Organization and Summary of Significant Accounting Policies of this Form 10-Q for the description of our push-down accounting, together with the description of recently issued accounting standards.

OTHER MATTERS

Information regarding the Partnership’s commitments and contingencies is included in Note 7 - Commitments and Contingencies to the condensed consolidated financial statements included in Item 1 of this report.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

We expect our sources of liquidity to include:

• cash generated from operations;

• borrowing under our credit facility;

• distributions received from unconsolidated subsidiaries;

• asset sales;

• debt offerings; and

• issuance of additional partnership units.

We are increasing our projected 2010 organic growth capital expenditures from the original budget of $180 million to $245 million. The increase is primarily due to an increase of $35 million related to additional growth in our Contract Compression segment and an increase of $30 million in our Gathering and Processing segment. Our approximately $245 million of projected 2010 organic growth capital expenditures includes approximately $178 million for the Gathering and Processing segment, mostly in north Louisiana and south Texas, $59 million for the Contract Compression segment, and $8 million related to the Corporate and Others segment. We may further revise the timing of these projects as necessary to adapt to existing economic conditions.

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In addition, we expect to invest $20,210,000 in HPC in 2010 and $85,828,000 relating to MEP. As of June 30, 2010, $20,210,000 and $38,922,000 have been contributed to HPC and MEP, respectively.

Working Capital Surplus. Working capital is the amount by which current assets exceed current liabilities and is a measure of our ability to pay our obligations as they become due. When we incur growth capital expenditures, we may experience working capital deficits as we fund construction expenditures out of working capital until they are permanently financed. Our working capital is also influenced by current derivative assets and liabilities due to fair value changes in our derivative positions being reflected on our balance sheet. These derivative assets and liabilities represent our expectations for the settlement of derivative rights and obligations over the next 12 months, and should be viewed differently from trade accounts receivable and accounts payable, which settle over a shorter span of time. When our derivative positions are settled, we expect an offsetting physical transaction, and, as a result, we do not expect derivative assets and liabilities to affect our ability to pay expenditures and obligations as they come due. Our contract compression segment records deferred revenue as a current liability. The deferred revenue represents billings in advance of services performed. As the revenues associated with the deferred revenue are earned, the liability is reduced.

Our working capital decreased to $11,712,000 at June 30, 2010 from $17,468,000 at December 31, 2009, a decrease of $5,756. This decrease was primarily due to the following factors:

• decrease in cash and cash equivalents of $5,531,000;

• an increase in other current liabilities of $2,617,000 primarily due to increase in accrued interest related to borrowing under our revolving credit facility;

• a decrease in other current assets of $2,136,000 primarily due to the amortization of the prepaid insurance; and were offset by

• a net increase in derivative assets and liabilities of $3,526,000; and

• a net increase of $1,002,000 in net receivables and payables.

Cash Flows from Operating Activities. Net cash flows provided by operating activities increased to $73,214,000 in the six months ended June 30, 2010 from $69,271,000 during the same period in 2009. The increase in cash flows from operating activities is primarily due to improved cash management as well as cost saving measures.

Cash Flows from Investing Activities. Net cash flows used in investing activities increased to $195,385,000 in the six months ended June 30, 2010 from $36,003,000 in the six months ended June 30, 2009. The increase in attributable to following:

• a $72,507,000 decrease in proceeds from sale of assets;

• a $62,266,000 increase in acquisition related expenditures primarily attributable to the purchase of additional 6.99 percent interest in HPC;

• contributions to unconsolidated subsidiaries of $59,132,000 in the six months ended June 30, 2010; and were offset by

• a decrease in capital expenditures of $34,523,000.

Growth Capital Expenditures. Growth capital expenditures are capital expenditures made to acquire additional assets to increase our business, to expand and upgrade existing systems and facilities or to construct or acquire similar systems or facilities or to maintain existing system volumes and related cash flows. In the six months ended June 30, 2010, we incurred $77,271,000 of growth capital expenditures, exclusive of growth capital expenditure for HPC. Growth capital expenditures for the six months ended June 30, 2010 relates to $54,911,000 for organic growth projects in our gathering and processing segment, primarily the Logansport Expansion and $22,360,000 for the fabrication of new compressor packages for our contract compression segment.

Maintenance Capital Expenditures. Maintenance capital expenditures are capital expenditures made to replace partially or fully depreciated assets or to maintain the existing operating capacity of our assets and extend their useful lives. In the six months ended June 30, 2010, we incurred $7,858,000 of maintenance capital expenditures.

Cash Flows from Financing Activities. Net cash flows provided by financing activities increased to $116,640,000 in the six months ended June 30, 2010 from net cash flows used in financing activities of $24,592,000 in the six months ended June 30, 2009. The increase is primarily due to increased borrowing under our revolving credit facility of $413,257,000 and was partially offset by $236,240,000 related to the absence in 2010 of proceeds from issuance of senior notes.

Credit Ratings. Our credit ratings as of June 30, 2010 are provided below.

Page | 41

	Moody’s	Standard & Poor’s
Regency Energy Partners LP
Outlook	Positive	Stable
Senior notes due 2013	B1	B+
Senior notes due 2016	B1	B+
Corporate rating/total debt	Ba3	BB-

Revolving Credit Facility. On March 4, 2010, RGS executed the Fifth Amended and Restated Credit Agreement (the “new credit agreement”), to be effective as of March 4, 2010. The material differences between the Fourth Amended and Restated Credit Agreement (the “previous credit agreement”) and the new credit agreement include:

• extension of the maturity date to June 15, 2014 from August 15, 2011, subject to the following contingency:

• If the Partnership’s 8.375 percent senior notes due December 15, 2013 have not been refinanced or paid off by June 15, 2013, then the maturity date of the revolving credit facility will be June 15, 2013;

• an increase in the amount of allowed investments in HPC to $250,000,000 from $135,000,000;

• the addition of an allowance for joint venture investments (other than HPC) of up to $75,000,000, provided that (i) distributed cash and net income from joint ventures under this basket shall be excluded from consolidated net income and (ii) equity interests in joint ventures created under this basket shall be pledged as collateral;

• the modification of financial covenants to give credit for projected EBITDA associated with certain future material HPC projects on a percentage of completion basis, provided that such amount, together with adjustments related to the Haynesville Expansion Project and other material projects, does not exceed 20 percent of consolidated EBITDA (as defined in the new credit agreement) through March 31, 2010, and 15 percent thereafter;

• an increase in the annual general asset sales permitted from $20,000,000 annually to five percent of consolidated net tangible assets (as defined in the new credit agreement) annually.

On May 26, 2010, the Partnership entered into the first amendment to its Fifth Amended and Restated Credit Agreement, the amendment among other things,

• amends the definition of “Consolidated EBITDA” and “Consolidated Net Income” to include MEP;

• amends the definition of “Joint Venture” in the credit agreement to include MEP;

• amends the definition of “Permitted Acquisition” in the agreement to clarify that the initial investment in MEP is a permitted acquisition;

• amends the definition of “Permitted Holder” to include to include ETE as a party that may hold the equity interest in the Managing General Partner without triggering an event of default under the credit agreement;

• allows for the pledge of the equity interest in MEP as a collateral indirectly, through the direct pledge of equity interest in Regency Midcon;

• permits certain investments in MEP by the Partnership and its affiliates;

• requires that the Partnership and its subsidiaries maintain a senior consolidated secured leverage ratio not to exceed 3 to 1.

Contractual Obligations. The following table summarizes our contractual cash obligations for long-term debt and contractual purchase obligations as of June 30, 2010.

	Payment Period
Contractual Cash Obligations	Total		2010		2011-2012		2013-2014		Thereafter
	(in thousands)
Long-term debt (including interest) (1)	$	1,625,191	$	41,976	$	166,410	$	1,131,649	$	285,156
Capital leases		9,148		279		858		910		7,101
Operating leases		24,172		1,905		7,227		5,065		9,975
Purchase obligations		8,891		8,891		—		—		—
Distributions and Redemption of Series A Preferred Units (2)		233,681		3,891		15,562		15,562		198,666
Related party cash obligations (3)		242,000		52,000		20,000		20,000		150,000
Total (4) (5)	$	2,143,083	$	108,942	$	210,057	$	1,173,186	$	650,898

(1) Assumes a constant LIBOR interest rate of 1.17 percent plus the applicable margin (3 percent as of June 30, 2010) for our revolving credit facility. The principal of our two issues of outstanding senior notes ($357,500,000 and $250,000,000) bears fixed interest rate of 8.375 and 9.375 percent, respectively.

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(2) Assumes the convertible Redeemable Preferred Units are redeemed for cash on September 2, 2029.

(3) Related party cash obligation consists of an annual general and administrative fee of $10,000,000 to ETE pursuant to a service agreement and capital contribution pledge of $47,000,000 to MEP in 2010. For ease, general and administrative service is assumed to be paid through 2029.

(4) Excludes physical and financial purchases of natural gas, NGLs and other commodities due to the nature of both the price and volume components of such purchases, which vary on a daily or monthly basis. Additionally, we do not have contractual commitments for fixed price and/or fixed quantities of any material amounts.

(5) Excludes deferred tax liabilities of $6,785,000 as the amount payable by period can not be reasonably estimated.

Item 3. Quantitative and Qualitative Disclosure about Market Risk

Commodity Price Risk. We are a net seller of NGL, condensate and natural gas as a result of our gathering and processing operations. The prices of these commodities are impacted by changes in supply and demand as well as market uncertainty. Our profitability and cash flow are affected by the inherent volatility of these commodities, which could adversely affect our ability to make distributions to our unitholders. We manage this commodity price exposure through an integrated strategy that includes management of our contract portfolio, matching sales prices of commodities with purchases, optimization of our portfolio by monitoring basis and other price differentials in operating areas, and the use of derivative contracts. In some cases, we may not be able to match pricing terms or to cover our risk to price exposure with financial hedges, and we may be exposed to commodity price risk. It is our policy not to take any speculative positions with derivative contracts.

We execute natural gas, NGLs’ and WTI trades on a periodic basis to hedge our anticipated equity exposure. Subsequent to June 30, 2010, we have executed additional NGL swaps to hedge our 2011 and 2012 price exposure.

We have executed swap contracts settled against condensate, ethane, propane, butane, natural gas, and natural gasoline market prices. We continually monitor our hedging and contract portfolio and expect to continue to adjust our hedge positions as conditions warrant. We have hedged expected equity exposure to declines in prices for NGLs, condensate and natural gas volumes produced for our account in the approximate percentages set for below:

	As of June 30, 2010						As of July 20, 2010
	2010		2011		2012		2010		2011		2012
NGLs	87	%	52	%	0	%	87	%	67	%	6	%
Condensate	96	%	74	%	7	%	96	%	74	%	7	%
Natural gas	74	%	42	%	0	%	74	%	42	%	0	%

The following table sets forth certain information regarding our hedges for natural gas, NGLs, and WTI, outstanding at June 30, 2010. The relevant index price that we pay is the monthly average of the daily closing price for deliveries of commodities into Mont Belvieu, Texas, as reported by the Oil Price Information Service (OPIS). The relevant index price for natural gas is NYMEX on the pricing dates as defined by the swap contracts. The relevant index for WTI is the monthly average of the daily price of WTI as reported by the NYMEX. The fair value of our outstanding trades is determined using a discounted cash flow model based on third party prices and readily available market information. Price risk sensitivities were calculated by assuming a theoretical 10 percent change, increase or decrease, in prices regardless of term or historical relationships between the contractual price of the instrument and the underlying commodity price. Interest rate sensitivity assumes a 100 basis point increase or decrease in LIBOR yield curve. The price sensitivity results are presented in absolute terms.

Period	Underlying	Notional Volume/ Amount		We Pay		We Receive Weighted Average Price		Fair Value Asset/(Liability)			Effect of Hypothetical 10% change
								(in thousands)
July 2010-December 2011	Ethane		637 (MBbls)	Index		$	0.54 ($/gallon)	$	2,138		1,230
July 2010-December 2011	Propane		395 (MBbls)	Index			1.20 ($/gallon)		3,612		2,784
July 2010-December 2010	Iso Butane		46 (MBbls)	Index			1.79 ($/gallon)		684		665
July 2010-December 2011	Normal Butane		214 (MBbls)	Index			1.51 ($/gallon)		1,534		1,871
July 2010-December 2011	Natural Gasoline		150 (MBbls)	Index			2.01 ($/gallon)		2,229		1,772
July 2010-March 2012	West Texas Intermediate Crude		323 (MBbls)	Index			96.43 ($/Bbl)		5,698		2,530
July 2010-December 2011	Natural gas		3,297,000 (MMBtu)	Index			6.06 ($/MMBtu)		3,110		2,095
July 2010-April 2012	Interest Rate Swap	$	250,000,000	1.325	%		Three Month LIBOR		(1,877	)	6,531
							Total Fair Value	$	17,128

Item 4. Controls and Procedures

Disclosure controls. At the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer of our General Partner, of the effectiveness of the design and operation of our disclosure controls and procedures (as such terms are defined in Rule 13a–15(e) and 15d–15(e) of the Exchange Act). Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer of our managing general partner, concluded that our disclosure controls and procedures were effective as of June 30, 2010 to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is properly recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Internal control over financial reporting. There have been no changes in the Partnership’s internal controls over financial reporting that have materially affected, or are reasonably likely to affect, the Partnership’s internal controls over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

The information required for this item is provided in Note 6, Commitments and Contingencies, included in the notes to the unaudited condensed consolidated financial statements included under Part I, Item 1, which information is incorporated by reference into this item.

Item 1A. Risk Factors

You should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2009, which could materially affect our business, financial condition or future results. The risks discussed in our Annual Report on Form 10-K are not the only risks facing our Partnership.

We own an equity interest in HPC and in MEP, but we do not exercise control over either of them.

We own a 49.99 percent general partner interest in HPC, and we have the right to appoint one member of the four member management committee. We also have the right to vote the 0.01 percent ownership interest retained by GE EFS. Each member has a vote equal to the sharing ratio of the partner that appointed such member. Accordingly, we do not exercise control over HPC. In addition, HPC’s partnership agreement contains standard supermajority voting provisions and also requires that the following actions, among other things, be approved by at least 75 percent of the members of the management committee: a merger or consolidation of the joint venture, the sale of all or substantially all of the assets of the joint venture, a determination to raise additional capital, determining the amount of available cash, causing the joint venture to terminate the master services agreement, approval of any budget and entry into material contracts.

We have a 49.9 percent non-operated ownership interest in MEP, and we have the right to appoint one member to the board of directors. An affiliate of Kinder Morgan Energy Partners, L.P. owns a 50 percent interest in MEP thus has the sole right to appoint the officers of MEP and to make other operating decisions. Accordingly, we do not exercise control over MEP. In addition, MEP’s limited liability company agreement provides that 65 percent of the membership interest constitutes a quorum. Most matters require a majority vote, but the following actions, among other things, require the approval of at least 80 percent of the membership interest: the sale of any assets outside the ordinary course of business or with a fair market value in excess of $5,000,000, a merger, consolidation or liquidation, modifying or terminating any agreement with a member, issuing, selling or repurchasing membership interests, incurring or refinancing indebtedness in excess of $25,000,000 and filing or settling any litigation or arbitration that involves claims or settlements in excess of $5,000,000.

Our general partner is owned by ETE, which also owns the general partner of Energy Transfer Partners, L.P. This may result in conflicts of interest.

ETE owns our general partner and as a result controls us. ETE also owns the general partner of Energy Transfer Partners, L.P., or ETP, a publicly traded partnership with which we compete in the natural gas gathering, processing and transportation business. The directors and officers of our general partner and its affiliates have fiduciary duties to manage our general partner in a manner that is beneficial to ETE, its sole owner. At the same time, our general partner has fiduciary duties to manage us in a manner that is beneficial to our unitholders. Therefore, our general partner’s duties to us may conflict with the duties of its officers and directors to its sole owner. As a result of these conflicts of interest, our general partner may favor its own interest or those of ETE ETP, or their owners or affiliates over the interest of our unitholders.

Such conflicts may arise from, among others, the following:

• Decisions by our general partner regarding the amount and timing of our cash expenditures, borrowings and issuances of additional limited partnership units or other securities can affect the amount of incentive compensation payments we make to the parent company of our general partner;

• ETE and ETP and their affiliates may engage in substantial competition with us;

• Neither our partnership agreement nor any other agreement requires ETE or its affiliates, including ETP, to pursue a business strategy that favors us. The directors and officers of the general partners of ETE and ETP have a fiduciary duty to make decisions in the best interest of their members, limited partners and unitholders, which may be contrary to our best interests

• Our general partner is allowed to take into account the interests of other parties, such as ETE and ETP and their affiliates, which has the effect of limiting its fiduciary duties to our unitholders.

• Some of the directors and officers of ETE who provide advice to us also may devote significant time to the business of ETE and ETP and their affiliates and will be compensated by them for their services.

• Our partnership agreement limits the liability and reduces the fiduciary duties of our general partner, while also restricting the remedies available tour unitholders for actions that, without these limitations, might constitute breaches of fiduciary duty.

• Our general partner determines the amount and timing of asset purchases and sales and other acquisitions, operating expenditures, capital expenditures, borrowings, repayments of debt, issuances of equity and debt securities and cash reserves, each of which can effect the amount of cash available for distribution to our unitholders.

• Our general partner determines which costs, including allocated overhead costs and costs under the services agreement we have entered into with and affiliate of ETE, incurred by it and its affiliates are reimbursable by us.

• Our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered on terms that are fair and reasonable to us or entering into additional contractual arrangements, such as the services agreement we have with an affiliate of ETE, with any of these entities on our behalf.

Specifically, certain conflicts may arise as a result of our pursuing acquisitions or development opportunities that may also be advantageous to ETP. Although any material transaction between us and ETP must be approved by our conflicts committee, consisting of three independent directors, if we are limited in our ability to pursue such opportunities or if ETP is allowed access to our information concerning such opportunities, we may not realize any or all of the commercial value of such opportunities and our business, results of operations and the amount of our distributions to our unitholders may be adversely affected. Although we, ETE and ETP have adopted a policy to address these conflicts and to limit the commercially sensitive information that we furnish to ETE, ETP and their affiliates, we cannot assure that such conflicts may not occur.

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Proposed TCEQ Rule.

TCEQ has proposed a new Section 352 Oil and Gas Permit by Rule (“PBR”), which is applicable to gas pipeline facilities and provides an authorization for activities that produce more than a de minimis level of emissions, but too little emissions for other permitting options, if the conditions of PBR are met. If adopted, our compliance with the conditions in the proposed PBR may result in substantial increases in our capital expenditures and operating costs.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The information required for this item is provided in Part I, Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 6. Exhibits

The exhibits below are filed as a part of this report:

Exhibit 4.5 – Registration Rights Agreement dated May 26, 2010 by and between Energy Transfer Equity, L.P. and Regency Energy Partners LP (Incorporated by reference to Exhibit 4.1 to our Form 8-K dated May 28, 2010).

Exhibit 4.6 – Registration Rights Agreement dated May 26, 2010 by and between Regency LP Acquirer LP and Regency Energy Partners LP (Incorporated by reference to Exhibit 4.2 to our Form 8-K dated May 28, 2010).

Exhibit 4.7 – Investor Rights Agreement dated as of May 26, 2010 by and among Regency LP Acquirer LP, Regency GP LP and Regency GP LLC (Incorporated by reference to Exhibit 4.3 to our Form 8-K dated May 28, 2010).

Exhibit 10.35 – Fifth Amended and Restated Credit Agreement, dated March 4, 2010 (Incorporated by reference to Exhibit 10.1 to our Form 8-K dated March 4, 2010).

Exhibit 10.36 – Amendment Agreement to the Fifth Amended and Restated Credit Agreement, dated March 4, 2010 (Incorporated by reference to Exhibit 10.2 to our Form 8-K dated March 4, 2010).

Exhibit 10.37 – Assignment and Assumption Agreement, dated April 30, 2010, by and between EFS Haynesville, LLC and Regency Haynesville Intrastate Gas LLC (Incorporated by reference to Exhibit 10.1 to our Form 8-K dated April 30, 2010).

Exhibit 10.38 – Voting Agreement, dated April 30, 2010, by and between EFS Haynesville, LLC and Regency Haynesville Intrastate Gas LLC (Incorporated by reference to Exhibit 10.2 to our Form 8-K dated April 30, 2010).

Exhibit 10.39 – First Amendment to Second Amended and Restated General Partnership Agreement of RIGS Haynesville Partnership Co. dated as of March 9, 2010 (Filed as Exhibit 10.39 to our Form 10-Q dated May 7, 2010)

Exhibit 10.40 – Contribution Agreement, dated May 10, 2010, by and among Energy Transfer Equity, L.P., Regency Energy Partners LP and Regency Midcontinent Express LLC (Incorporated by reference to Exhibit 10.1 to our Form 8-K dated May 11, 2010).

Exhibit 10.41 – Form of Grant of Phantom Units – Service Vesting (Incorporated by reference to Exhibit 10.2 to our Form 8-K dated May 11, 2010).

Exhibit 10.42 – Form of Grant of Phantom Units – Performance Vesting (Incorporated by reference to Exhibit 10.3 to our Form 8-K dated May 11, 2010).

Exhibit 10.43 – Amendment Agreement No. 1 to Fifth Amended and Restated Credit Agreement (Incorporated by reference to Exhibit 10.1 to our Form 8-K dated May 28, 2010).

Exhibit 10.44 – Services Agreement dated May 26, 2010 by and among ETE Services Company, LLC, Energy Transfer Equity, L.P. and Regency Energy Partners LP. (Incorporated by reference to Exhibit 10.2 to our Form 8-K dated May 28, 2010).

Exhibit 10.45 – Purchase and Sale Agreement by and among Regency Field Services LLC, Tristream East Texas, LLC and Tristream Energy, LLC dated July 15, 2010

Exhibit 10.46 – Merger Agreement by and among Zephyr Gas Management, LLC, Zephyr Gas Services, LP, Regency Gas Services LP, and Regency Zephyr LLC, dated August 6, 2010.

Exhibit 12.1 – Computation of Ratio of Earnings to Fixed Charges

Exhibit 31.1 – Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

Exhibit 31.2 – Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

Exhibit 32.1 – Section 1350 Certifications of Chief Executive Officer

Exhibit 32.2 – Section 1350 Certifications of Chief Financial Officer

Pursuant to the applicable SEC rules, the Partnership will file, no later than 30 days after the date of the filing of this Quarterly Report, an amendment to this Quarterly Report that will contain, in XBRL (eXtensible Business Reporting Language) format, the Partnership’s unaudited condensed consolidated financial statements included in this Quarterly Report.

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SIGNATURE

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 thereunto duly authorized.

	REGENCY ENERGY PARTNERS LP By: Regency GP LP, its general partner By: Regency GP LLC, its general partner
Date: August 8, 2010	/s/    LAWRENCE B. CONNORS
	Lawrence B. Connors Senior Vice President and Chief Accounting Officer (Duly Authorized Officer)

EX-10.45

Exhibit 10.45

Execution Version

PURCHASE AND SALE AGREEMENT

by and among

REGENCY FIELD SERVICES LLC (“Seller”),

TRISTREAM EAST TEXAS, LLC (“Buyer”)

and

TRISTREAM ENERGY, LLC

July 15, 2010

TABLE OF CONTENTS

1.	Description of Seller Property to be Sold	1
2.	Excluded Property	3
3.	Purchase and Sale	4
4.	Purchase Price and Closing Matters	4
5.	Disclaimer of Warranties	16
6.	Depreciation, Damage or Condemnation	18
7.	Seller Indemnification	19
8.	Buyer Indemnification	22
9.	Seller’s Representations and Warranties	23
10.	Buyer’s and Tristream’s Representations and Warranties.	30
11.	Seller Marks	33
12.	Books and Records	33
13.	Taxes	33
14.	Termination of Agreement	34
15.	Access	35
16.	Confidentiality	36
17.	Waiver; Remedies Cumulative	38
18.	Severability	39
19.	Construction	39
20.	Binding Agreement/Assignability	39
21.	Entire Agreement	39
22.	Cooperation	39
23.	Notices	39
24.	Counterparts and Conflicts	40

(i)

25.	Employee Matters	40
26.	Seller Easements	42
27.	FCC Filing	43
28.	Schedules	43
29.	Miscellaneous Provisions	44

(ii)

List of Exhibits and Schedules

Exhibits:
Exhibit A-1	Description of Seller Pipeline and Plant Facilities
Exhibit A-2	Vehicles
Exhibit B-1	Seller Easements
Exhibit B-2	Seller Easements Requiring Consent
Exhibit B-3	Fee Properties
Exhibit C	Assumed Contracts
Exhibit D	Permits
Exhibit E	Escrow Agreement
Exhibit F	Conveyance of Pipeline Property
Exhibit G	Special Warranty Deed and Bill of Sale
Exhibit H	Assignments of Easements and Rights-of-Way
Exhibit I	Transition Services Agreement
Exhibit J	Transferred Employee Waiver
Schedules:
Schedule 2(m)	Excluded Storage Vessels
Schedule 4(g)(ii)(A)(1)	CDM Fees
Schedule 9(b)	No Conflict
Schedule 9(e)	Exceptions to Representations and Warranties in Section 9(e)
Schedule 9(j)	Taxes
Schedule 9(k)	Pipeline Status
Schedule 9(m)(i)	Liens on Fee Property to be Released on or Before the Closing
Schedule 9(m)(ii)	Liens on Personal Property to be Released on or Before the Closing
Schedule 9(m)(iv)	Exceptions to Real Property Interests
Schedule 9(m)(v)	Condition of Property
Schedule 9(n)	Potential Employees
Schedule 9(o)	Employee Benefits
Schedule 9(q)	Subsequent Events
Schedule 9(r)(i)	Unaudited Statement of Revenue and Expenses of the Eustace System
Schedule 9(r)(ii)	Summary Historical Residue Sales
Schedule 10(d)	Buyer’s Consents
Schedule 25(a)	Seller Severance Benefits
Schedule 25(e)	Employee 401(k) Loan Balances

(iii)

PURCHASE AND SALE AGREEMENT

This PURCHASE AND SALE AGREEMENT (this “Agreement”), dated this 15^{t h} day of July, 2010, is by and among Regency Field Services LLC, a Delaware limited liability company (“Seller”), having a place of business at 2001 Bryan Street, Suite 3700, Dallas, TX 75201, Tristream Energy, LLC, a Delaware limited liability company (“Tristream”), and Tristream East Texas, LLC, a Delaware limited liability company (“Buyer”) and a wholly-owned subsidiary of Tristream, both having a place of business at 14090 Southwest Freeway, Suite 460, Sugar Land, Texas 77478. The term “Agreement,” when used herein, includes the exhibits and schedules attached hereto. Seller, Tristream and Buyer are sometimes referred to herein individually as a “Party” and collectively as the “Parties.”

Recitals:

WHEREAS, Buyer desires to purchase from Seller, and Seller desires to sell to Buyer, all of Seller’s right, title, and interest in and to certain pipeline assets, plants and facilities generally known as the “Eustace System” together with the contracts related thereto;

NOW, THEREFORE, the Parties, in consideration of the mutual promises contained in this Agreement, state and agree as follows:

Agreements:

1. Description of Seller Property to be Sold. The “Seller Property” is defined in this Agreement as all of Seller’s right, title and interest in and to the assets, properties, rights, licenses and contracts, of every kind and description, whether real, personal or mixed, tangible or intangible, owned, held or used by Seller exclusively in the operation of the Eustace System, other than the Excluded Property described in Section 2, which Seller Property is comprised of the following:

(a) the gathering lines, residue lines and other pipelines owned by Seller and comprising the Eustace System, which are described in Exhibit A-1, together with the fixtures, appurtenances, pumps, tanks, valves, fittings, meters and meter stations, cathodic protection ground beds and similar devices, anodes, rectifiers, transformers, dehydrators, expanders, heaters, heat exchangers, chillers, separators, coolers, cooling towers, tanks, storage facilities, generators, spare parts and other equipment comprising or otherwise exclusively related to the ownership, maintenance, or operation of such pipelines (collectively, the “Seller Pipeline”);

(b) the processing facilities, treating units, dehydration units, amine treating systems, condensate storage tanks, compressor stations, field offices, control buildings, injection and disposal wells, radios, radio towers and antennas, and other associated facilities which are part of, and owned, held or used by Seller exclusively in the operation of, the Eustace System, and which are listed on Exhibit A-1 (collectively, the “Plant Facilities”);

(c) the vehicles listed on Exhibit A-2 and the personal property owned, held or used by Seller exclusively in the operation of the Eustace System, including all machinery, equipment, tools, SCADA system materials and equipment, office equipment, telephone equipment, computer equipment and hardware, software, furniture, and supplies (collectively, the “Personal Property”);

(d) all natural gas, condensate, natural gas liquids, other hydrocarbons and sulfur owned by Seller and located in the Eustace System as of the Closing Date, including the natural gas used as line-pack;

(e) the rights-of-way, easements, surface use agreements, permits, licenses, leases, leasehold interests and other similar rights for the use of the surface or subsurface estate owned or held by Seller and exclusively related to the ownership or operation of the Eustace System and Seller Pipeline which are listed in Exhibit B-1 (collectively, the “Seller Easements”), of which the Real Property Agreements listed on Exhibit B-2 require consent;

(f) the fee properties owned by Seller and exclusively related to the Eustace System as listed in Exhibit B-3 (the “Fee Properties”);

(g) the gathering, treating and processing agreements, transportation agreements, water disposal agreements, compressor agreements, construction and operating agreements, sales, purchase, exchange and marketing agreements, master services agreements, lease agreements pertaining to personal property, rights under warranties made by suppliers of products, materials or equipment and other contracts and agreements to which Seller is a party that relate exclusively to the Eustace System and/or to the gas and other hydrocarbons transported through, treated or processed by the Plant Facilities that are listed on Exhibit C (the “Assumed Contracts”);

(h) to the extent assignable to Buyer, all governmental permits, licenses, orders, authorizations and related instruments or rights exclusively related to the ownership, operation or use of the Eustace System (collectively, the “Permits”) and which are listed and described on Exhibit D;

(i) all files, documents, records, correspondence, studies, surveys, reports and other data in the actual possession or control of Seller primarily relating to the ownership, operation or use of any of the above-described Seller Property, including all land and title records, engineering, environmental and operational records, technical records (including designs, manuals, specifications and other data used in connection with the operation of the Eustace System), gathering and processing records, division order and right-of-way files, contract files, accounting, business and marketing files, and all other information related primarily to any of the Seller Property, regardless of whether in paper or electronic media (collectively, the “Records”); provided, however, Records shall not include the following: (1) all of Seller’s internal appraisals and interpretive data related to the Seller Property, (2) all attorney-client privileged information and attorney work product of Seller, (3) Seller’s corporate, financial, employee and general tax records that do not relate primarily to the Seller Property, and (4) all accounting files that do not relate primarily to the Seller Property; and

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(j) the benefit of all prepaids, deferred costs, deposits, advances, credits and expenses that have been prepaid by Seller to the extent relating exclusively to the Seller Property, including lease and rental payments.

2. Excluded Property. The “Excluded Property” is defined as the following rights and interests:

(a) all of Seller’s cash, cash equivalents, securities, bank accounts and all records relating thereto relating to the Seller Property with respect to periods prior to the Calculation Date (as defined below);

(b) all receivables relating to periods prior to the Calculation Date, including manufacturers’ warranty receivables, notes, accounts receivables, trade account receivables and insurance proceeds receivables;

(c) claims against insurance companies for losses occurring prior to the Closing Date to the extent the damaged Seller Property is repaired prior to the Closing Date;

(d) all personnel records and other records required by law to remain in Seller’s possession;

(e) all limited liability company records, minutes, and records of meetings, and income tax records;

(f) all claims for refund of taxes and other governmental charges of whatever nature with respect to any such taxes or charges relating to the Seller Property paid or to be paid by Seller with respect to a period, or portions thereof, ending prior to the Calculation Date;

(g) any contract that is not an Assumed Contract (collectively, “Excluded Contracts”);

(h) all documents and instruments of Seller that may be protected by an attorney-client privilege or other attorney work product;

(i) all data that cannot be disclosed to Buyer as a result of confidentiality arrangements under agreements with third parties;

(j) documents prepared or received by Seller with respect to (i) lists of prospective purchasers for such transactions compiled by Seller, (ii) bids submitted by other prospective purchasers of the Seller Property, (iii) analyses by Seller of any bids submitted by any prospective purchaser, (iv) correspondence between or among Seller, its respective representatives, and any prospective purchaser other than Buyer and (v) correspondence between Seller or any of its respective representatives with respect to any of the bids, the prospective purchasers, or the transactions contemplated in this Agreement;

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(k) all rights in connection with assets of any employee benefit plans;

(l) any logos, emblems, signs, trademarks, trade names, or service marks, including, but not limited to, the Seller Marks (as defined in Section 11 below);

(m) the storage vessels listed on Schedule 2(m); and

(n) rights, title, interests in and to properties and assets that are not Seller Property or not relating to the Eustace System.

3. Purchase and Sale. Buyer hereby agrees to purchase, on a going concern basis from Seller, and Seller hereby agrees to sell, grant, transfer, convey, and assign to Buyer, free and clear of all liens, security interests, claims, purchase rights or other encumbrances (except Permitted Encumbrances) the Seller Property in accordance with and subject to the terms and conditions set forth in this Agreement.

4. Purchase Price and Closing Matters.

(a) Purchase Price. The purchase price payable by Buyer at the Closing for the Seller Property shall be Seventy Million One Hundred Eighty Thousand Dollars ($70,180,000) (the “Base Purchase Price”), subject to adjustment as provided in Section 4(g) below (the Base Purchase Price, as such may be adjusted prior to Closing, being referred to herein as the “Closing Purchase Price”). Following Closing, the Parties shall agree on a final calculation of the Closing Purchase Price (the “Final Purchase Price”) pursuant to Section 4(g). On or before the Closing, Buyer shall deliver, or cause to be delivered, to Seller’s designated bank account a wire transfer of immediately available funds (inclusive of the Equity Contribution to be released from escrow, if applicable, pursuant to Section 4(c)(iv)) in the amount of the Closing Purchase Price.

(b) Liabilities.

(i) As part of the consideration for the sale of the Seller Property by Seller to Buyer but without limitation of the Seller’s indemnification obligations in Section 7 below, at the Closing, Buyer will assume and agree to duly and timely pay, perform and discharge, pursuant to the Conveyance of Pipeline Property (as defined in Section 4(h)(i) below), the following liabilities and obligations (the “Assumed Liabilities”):

(A) the obligations, liabilities and commitments of Seller under the Assumed Contracts, Real Property Agreements (as herein defined) and the Permits included in the Seller Property to the extent the obligations, liabilities or commitments (1) are not required to be performed prior to the Closing Date or do not arise out of or relate to a failure to perform, breach or other violation thereof that occurred prior to the Closing Date, and (2) accrue and relate to the operations of the Seller Property from and after the Closing Date;

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(B) the liability of Seller with respect to Imbalances (as herein defined) in the measurement and delivery of natural gas, condensate, natural gas liquids, other hydrocarbons and sulfur, to the extent such Imbalance is included in the calculation of the Closing Purchase Price; and

(C) any liabilities or obligations arising out of or related to Buyer’s ownership and operation of the Seller Property from and after the Closing Date.

(ii) Notwithstanding any provision in this Agreement to the contrary, Buyer is assuming only the Assumed Liabilities and is not assuming any other liability or obligation of the Seller or its affiliates which shall remain the liabilities and obligations of the Seller (the “Excluded Liabilities”).

(c) Pre-Closing Matters.

(i) From the date hereof until the Closing, Seller shall (A) operate the Seller Property in the ordinary course of business consistent with past practices, (B) use its commercially reasonable efforts to preserve intact its relationships with third parties (including suppliers, customers, and governmental authorities), in each case in all material respects, (C) comply in all material respects with all of the rules, regulations, laws, statutes and orders of the appropriate regulatory agencies that are applicable to the operation of the Seller Property, and (D) pay all taxes with respect to the Seller Property that become due and payable prior to the Closing Date. Without limiting the generality of the foregoing, without the prior written consent of Buyer, which consent shall not be unreasonably withheld, conditioned or delayed, and except as provided below, from the date hereof until the Closing, Seller shall not: (1) make any material change in the conduct of the business related to the Seller Property or sell, lease, or otherwise dispose of any part of the Seller Property, except any part of the Seller Property having an aggregate value not exceeding fifty thousand dollars (US $50,000), provided, however, that if the Closing is delayed by Buyer pursuant to clause (i) of Section 14(g), the aggregate value shall be increased to one hundred thousand dollars (US $100,000); (2) create or allow any lien, security interest or other encumbrance on any part of the Seller Property except for Permitted Encumbrances; (3) make, or commit to make, any capital improvements to the Seller Property which could reasonably be anticipated to require future capital expenditures by Seller or Buyer in an aggregate cost in excess of fifty thousand dollars (US $50,000); (4) amend in any material respect or otherwise terminate any material Assumed Contract or material Real Estate Agreement; or (5) materially increase the compensation or benefits payable to any Potential Employee (as herein defined) or enter into or amend any employment, severance or special pay arrangement or agreement with any Potential Employee except (x) as required by applicable law, (y) as required by existing contractual arrangements, or (z) pursuant to existing compensation policies or arrangements consistent with past practice. From and after the date hereof until the Closing, Seller may, notwithstanding the provisions of clause (3) above, make any capital improvements to the Seller Property if reasonably necessary under emergency circumstances, and the cost thereof shall be taken into consideration for the adjustment of the Base Purchase Price pursuant to Section 4(g) below. Seller shall notify Buyer as soon thereafter as reasonably practicable.

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(ii) Until the earlier of the Closing or the termination of this Agreement pursuant to Section 14, neither Seller, its partners, members or shareholders, nor their respective officers, directors, managers, employees, representatives, agents or advisors shall do any of the following, directly or indirectly, with any third party (other than Buyer regarding the transactions contemplated by this Agreement): (A) discuss, negotiate, authorize, participate in, propose or enter into, any transaction involving a disposition of the Seller Property (any such transaction, an “Acquisition Transaction”); (B) facilitate, encourage, solicit or initiate discussions, negotiations or submissions of proposals or offers from any third party in respect of an Acquisition Transaction; or (C) furnish or cause to be furnished to any third party any information concerning the Seller Property or Seller in connection with an Acquisition Transaction.

(iii) Buyer and Tristream shall use their commercially reasonable efforts to obtain the financing under that certain commitment letter dated May 10, 2010 with Amegy Bank National Association required to effect the transactions contemplated by this Agreement. If any portion of the funds to be provided by Amegy Bank National Association under such commitment letter becomes unavailable, regardless of the reason therefor, Buyer shall, upon learning thereof, promptly so advise Seller and Buyer and Tristream shall use their commercially reasonable efforts to obtain alternative financing from other sources. For purposes of this Agreement, “Lender” shall refer to Amegy Bank National Association or any successor lender obtained by Buyer pursuant to the preceding sentence and “Commitment” shall refer to the above-described commitment letter with Amegy Bank National Association or any commitment letter received from any successor lender.

(iv) Unless the Closing (as herein defined) shall occur concurrently with the execution of this Agreement, the members and other equity providers of Tristream shall, concurrently with the execution of this Agreement, deliver $35,300,000 in cash (the “Equity Contribution”) to Amegy Bank National Association, as escrow agent (“Escrow Agent”) to be held in an interest-bearing account in accordance with the terms and provisions of that certain Escrow Agreement dated of even date hereof among Tristream, Buyer, Haddington Energy Partners III LP and Escrow Agent, in the form attached hereto as Exhibit E, which form shall not be amended, modified or terminated (other than a termination in accordance with the terms of the Escrow Agreement) without Seller’s prior consent. The Equity Contribution shall be distributed to Seller and credited to the Closing Purchase Price at Closing, or if this Agreement is terminated for any reason, the Equity Contribution shall be distributed to Haddington Energy Partners III LP.

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(d) Closing. The closing of the transactions contemplated by this Agreement (“Closing”) shall occur on July 15, 2010, provided all of the conditions precedent set forth in Section (e) and Section (f) (other than the conditions which, by their nature, are to be satisfied at Closing) have been satisfied, or if permissible, waived, or at such other place, time and date as is agreed to in writing by the Parties (the “Closing Date”) in the offices of Seller. The Closing will be deemed effective as of 12:01 a.m., Central Time, on July 15, 2010 (the “Effective Time”).

(e) Conditions of Seller’s Obligation to Close. The obligations of Seller to consummate the transactions contemplated hereby shall be subject to the satisfaction or waiver at or prior to Closing of all the following conditions:

(i) (A) Each of the representations and warranties of Buyer and Tristream made in this Agreement (other than those in Sections 10(a) and 10(c)), will be true and correct as of the date of this Agreement (except to the extent such representations and warranties speak to an earlier date, in which case, as of such earlier date) and as of the Closing (as if made anew at and as of the Closing, except to the extent such representations speak to an earlier date, in which case, as of such earlier date), with only such failures to be so true and correct as have not had, and could not reasonably be expected to have, a Material Adverse Effect on Buyer, (B) each of the representations and warranties of Buyer and Tristream made in Sections 10(a) and 10(c) shall be true and correct in all material respects as of the date of this Agreement and as of the Closing (as if made anew at and as of the Closing), and (C) Buyer and Tristream shall have performed or complied in all material respects with all of the covenants and agreements required by this Agreement to be performed or complied with by Buyer or Tristream on or before the Closing (provided that for purposes of determining whether the condition set forth in clause (C) of this sentence has been satisfied, all “Material Adverse Effect” and other materiality qualifiers contained in such covenants and agreements shall be disregarded); and

(ii) Buyer shall not have exercised any right it may have hereunder to terminate this Agreement;

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(iii) any waiting periods (or any extension thereof) applicable to the transactions contemplated hereby under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), shall have expired or been terminated (“HSR Approval”);

(iv) no injunction or other order shall have been issued by a court of competent jurisdiction preventing the consummation of the transactions contemplated hereby;

(v) Buyer and Tristream shall have each delivered to Seller a certificate to the effect that the respective conditions specified in Section 4(e)(i) have been satisfied in all respects; and

(vi) Seller shall have received from Buyer and Tristream all agreements, instruments and documents that are required by the terms of this Agreement to be executed or delivered to Seller, prior to or in connection with the Closing, including those specified in Section 4(h).

For purposes of this Agreement, “Material Adverse Effect” means any effect, event, development or change, (a) which, individually or in the aggregate with all effects, events, developments or changes has, or could reasonably be expected to have, a material adverse effect on the business, assets, liabilities, properties, results of operations or financial condition of Buyer, Tristream and/or the Seller Property, as applicable, or (b) which prevents Buyer, Tristream or Seller, as applicable, from executing and performing, or has an adverse effect on the ability of Buyer, Tristream or Seller to execute and perform, their respective obligations under this Agreement or the other agreements contemplated hereby or to consummate the transactions contemplated hereby and thereby in accordance with the terms hereof and thereof, excluding any such result or consequence resulting from or related to (1) changes in general economic, political or business conditions which affect Buyer, Tristream or the Seller Property, as applicable, except any such change that affects Buyer, Tristream or the Seller Property, as applicable, in a disproportionate manner compared to similarly situated participants in the industries in which Buyer, Tristream or the Seller Property, as applicable, operates; (2) conditions affecting the oil and gas industry or oil and gas services industry generally, except any such change that affects Buyer, Tristream or the Seller Property, as applicable, in a disproportionate manner compared to similarly situated participants in the industries in which Buyer, Tristream or the Seller Property, as applicable, operates; (3) any change in law or in accounting rules, except any such change that affects Buyer, Tristream or the Seller Property, as applicable, in a disproportionate manner compared to similarly situated participants in the industries in which Buyer, Tristream or the Seller Property, as applicable, operates; (4) any act of terrorism, war (declared or undeclared) or other military action, riot, revolution, fires, strikes, flood, sabotage or epidemics; or (5) conditions or effects that have been demonstrated by Buyer, Tristream or Seller, as applicable, as resulting from the announcement of the existence of this Agreement.

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(f) Conditions of Buyer’s Obligation to Close. The obligations of Buyer to consummate the transactions contemplated hereby shall be subject to the satisfaction or waiver at or prior to Closing of all the following conditions:

(i) (A) Each of the representations and warranties of Seller made in this Agreement (other than those in Sections 9(a), 9(c) and 9(m) (as to title only)), without giving effect to any amendments or supplements to such representations and warranties under Section 29, will be true and correct as of the date of this Agreement (except to the extent such representations and warranties speak to an earlier date, in which case, as of such earlier date) and as of the Closing (as if made anew at and as of the Closing, except to the extent such representations speak to an earlier date, in which case, as of such earlier date), with only such failures to be so true and correct as have not had, and could not reasonably be expected to have, a Material Adverse Effect on Seller and/or the Seller Property, (B) each of the representations and warranties of Seller made in Sections 9(a), 9(c) and 9(m) (as to title only), without giving effect to any amendments or supplements to such representations and warranties under Section 29, shall be true and correct in all material respects as of the date of this Agreement and as of the Closing (as if made anew at and as of the Closing), and (C) Seller shall have performed or complied in all material respects with all of the covenants and agreements required by this Agreement to be performed or complied with by Seller on or before the Closing (provided that for purposes of determining whether the condition set forth in clause (C) of this sentence has been satisfied, all “Material Adverse Effect” and other materiality qualifiers contained in such covenants and agreements shall be disregarded);

(ii) Seller shall not have exercised any right it may have hereunder to terminate this Agreement;

(iii) HSR Approval shall have expired or been terminated;

(iv) no injunction or other order shall have been issued by a court of competent jurisdiction preventing the consummation of the transactions contemplated hereby;

(v) Seller shall have delivered to Buyer and Tristream a certificate to the effect that the conditions specified in Section 4(f)(i) have been satisfied in all respects;

(vi) Seller shall have used commercially reasonable efforts to obtain the Consents and, in the event any such Consent is obtained, shall have provided evidence of such Consent in form and substance reasonably satisfactory to Buyer;

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(vii) Buyer shall have received from Seller all agreements, instruments and documents that are required by the terms of this Agreement to be executed or delivered to Buyer, prior to or in connection with the Closing, including those specified in Section 4(h);

(viii) no Material Adverse Effect with respect to the Seller Property shall have occurred; and

(ix) Buyer’s Lender is ready, willing and able, assuming Buyer and Tristream have exercised the efforts prescribed in Section 4(c)(iii), to fund the Commitment for debt financing in the full amount of the Commitment on the terms and conditions substantially consistent with the terms of the Commitment.

“Person” means any natural person, corporation, limited partnership, general partnership, limited liability company, joint stock company, joint venture, association, company, estate, trust, bank trust company, land trust, business trust, or other organization, whether or not a legal entity, custodian, trustee-executor, administrator, nominee or entity in a representative capacity and any governmental authority.

(g) Allocation of Revenues and Expenses; Adjustments to Purchase Price.

(i) All revenues, proceeds, and other monies allocable under generally accepted accounting principles in the United States in effect from time to time, applied on a consistent basis (“GAAP”) to the ownership or operation of the Seller Property for the period prior to the Calculation Date shall be for the benefit of Seller, and the amount of all revenues, proceeds, and other monies allocable under GAAP to the ownership or operation of the Seller Property from and after the Calculation Date shall be for the benefit of the Buyer. All expenditures and accounts payable allocable under GAAP to the Seller Property for the period of time prior to the Calculation Date shall be borne by Seller and all expenditures and accounts payable allocable under GAAP to the Seller Property relating to the period of time from and after the Calculation Date shall be borne by Buyer. For purposes of this Agreement, “Calculation Date” means 12:01 a.m., Central Time, on June 1, 2010.

(ii) The Base Purchase Price shall be adjusted at Closing to reflect adjustments set forth in this Section 4(g), such adjustments to be reflected in the Preliminary Settlement Statement (as hereinafter defined). The Base Purchase Price shall be adjusted as follows:

(A) Upward by the following:

(1) The amount of all expenditures, including capital expenditures and emergency capital expenditures, paid by Seller prior to the Closing Date to non-affiliated third parties and to CDM Resource Management LLC (“CDM”), consistent with the fees described on Schedule 4(g)(ii)(A)(1), in connection with the ownership, operation or maintenance of the Seller Property on or after the Calculation Date to the extent such expenditures and the fees payable to CDM are allocable under GAAP to the period from and after the Calculation Date; and

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(2) The amount by which any Imbalances owed by one or more third parties to Seller (the “Imbalance Receivables”) exceeds any Imbalances owed by Seller to one or more third parties (the “Imbalance Payables”) as of the Calculation Date. For purposes of this Section 4(g), an “Imbalance” means natural gas, condensate, natural gas liquids, other hydrocarbons and/or sulfur imbalances between Seller and any third party relating to or arising out of the operation of the Seller Property that exist at the Calculation Date.

(B) Downward by the following:

(1) The amount of all proceeds and revenues relating to the Seller Property received by Seller to the extent such proceeds and revenues are allocable under GAAP to the period from and after the Calculation Date;

(2) The amount by which any Imbalance Payables exceeds any Imbalance Receivables as of the Calculation Date; and

(3) The amount of all accrued paid time-off due to any Transferred Employees as of the Calculation Date which is assumed by Buyer as set forth in Section 25(b) below.

(iii) Not later than three (3) Business Days before the Closing Date, Seller shall prepare and deliver to Buyer a written statement (the “Preliminary Settlement Statement”) setting forth the adjustments to the Base Purchase Price and the calculation, in reasonable detail, of the Closing Purchase Price. Prior to delivery of the Preliminary Settlement Statement, Seller shall consult with Buyer as to the contents thereof and shall negotiate with Buyer in good faith as to any modifications that Buyer proposes to make to the Preliminary Settlement Statement. The Closing Purchase Price payable at the Closing will be the amount set forth in the Preliminary Settlement Statement.

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(iv) Within ninety (90) days after the Closing, Seller shall deliver to Buyer a written statement (the “Post-Closing Settlement Statement”) setting forth in reasonable detail any changes to the Preliminary Settlement Statement, each adjustment or payment that was not finally determined as of the Closing Date, the calculation of such adjustments and a proposed Final Purchase Price. Seller shall provide reasonable supporting documentation with the Post-Closing Settlement Statement. Buyer shall have thirty (30) days after Buyer’s receipt of the Post-Closing Settlement Statement to object to any amounts contained therein by delivering a dispute notice (“Buyer’s Dispute Notice”) to Seller indicating any amounts disputed by Buyer contained in the Post-Closing Settlement Statement, and Seller and Buyer shall use good faith efforts to agree on any such disputed amounts. If Buyer does not deliver a Buyer’s Dispute Notice by such date, Buyer shall be deemed to have accepted the Post-Closing Settlement Statement and the calculation of the Final Purchase Price, and Buyer or Seller, as applicable, shall pay the other Party the amount owed to such other Party as determined in the Post-Closing Settlement Statement. If Buyer and Seller are unable to agree on any such disputed amounts within ten (10) days after Buyer’s delivery of Buyer’s Dispute Notice, then each Party shall deliver to Deloitte Touche LLP (or if such firm is unwilling or unable to serve, another nationally recognized accounting firm mutually agreed on by the Parties; the accounting firm ultimately chosen, the “Accountants”) the Preliminary Settlement Statement, Post-Closing Settlement Statement, Buyer Dispute Notice and such work papers and other reports and information relating to the disputed matter(s) as the Accountants may request and shall be afforded the opportunity to discuss the disputed matter(s) with the Accountants. If such dispute is submitted to the Accountants and a value has been assigned by both Buyer and Seller to any disputed amount that remains in dispute, then the Parties shall instruct the Accountants not to assign a value to such disputed item that is greater than the greatest value for such disputed amount claimed by either Party or less than the smallest value for such disputed amount claimed by either Party. The Accountants shall have thirty (30) days to carry out a review and prepare a written statement of their determination regarding the disputed matter(s) (including a statement regarding the Accountants’ determination of the prevailing Party in any such disputed matter) which determination shall be final and binding upon the Parties. Any fees and expenses of the Accountants incurred in resolving the disputed matter(s) shall be borne fifty percent (50%) by Buyer and fifty percent (50%) by Seller. Following the resolution of any such dispute by the Parties or by the Accountants, Buyer or Seller, as applicable, shall pay the other Party the amount owed to such other Party as determined by the Parties or the Accountants, as applicable.

(v) Any post-Closing payments made under this Section 4(g) shall be made by means of a wire transfer of immediately available funds to a bank account designated by the Party receiving the funds within ten (10) days of the date upon which an agreement is reached or the Final Purchase Price is otherwise established as herein provided. If, after Seller’s Post-Closing Settlement Statement is delivered to Buyer, an invoice or other evidence of an obligation is received which under the terms of this Section 4(g) is partially the obligation of Seller and partially the obligation of Buyer, then the Parties shall consult each other and each Party shall pay its portion of such obligation to the other Party within fifteen (15) days from the determination of the portion of the obligation due from each Party. Any disputes between the Parties with respect to such invoice, or allocation of responsibility thereof, shall be handled with the same dispute resolution procedure set forth in Section 4(g)(iv) above.

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(vi) For a period of twenty-four (24) months after the Closing Date, to the extent a Party receives revenues that are not attributable to, or pays expenditures that are not required to be borne by, such Party in accordance with this Section 4(g) and such amount is not taken into consideration in the determination of the Closing Purchase Price or Final Purchase Price in accordance with this Section 4(g), (A) such Party will pay over any such revenues to the other Party and (B) the other Party will reimburse such Party for any expenditures paid.

(vii) The Closing Purchase Price shall be allocated to the Seller Property for tax and financial accounting purposes by the Parties on or before the Closing Date. Once the Final Purchase Price is determined, Seller and Buyer agree that the allocation will be adjusted promptly with respect to the Seller Property in a manner that is consistent with the differences between the Closing Purchase Price and the Final Purchase Price and the items of Seller Property to which such differences relate. Seller and Buyer agree: (A) to report the federal, state and local income and other tax consequences of the transactions contemplated hereby, and in particular to report the information required by Section 1060(b) of the Internal Revenue Code of 1986, as amended (the “Code”), and to jointly prepare their respective Forms 8594 in a manner consistent with such allocation; and (B) without the consent of the other Party, not to take any position inconsistent therewith upon examination of any tax return, in any refund claim, in any litigation, investigation or otherwise, except as provided by law or any final determination of any issue relating to such allocation under Code Section 1313 or otherwise. Seller and Buyer agree that each will furnish the other a copy of its Form 8594 proposed to be filed with the Internal Revenue Service by such Party or any affiliate thereof not less than ten (10) days prior to the filing of such form with the Internal Revenue Service.

(h) Closing Documents.

(i) Prior to or at Closing, Buyer and Seller shall execute and deliver to the other Party counterparts of: (A) Conveyance of Pipeline Property pertaining to the Seller Property (other than the Fee Properties) in the form attached to this Agreement as Exhibit F; (B) a Special Warranty Deed and Bill of Sale pertaining to the Fee Properties in the form attached to this Agreement as Exhibit G; (C) one or more Assignments of Easements and Rights-of-Way pertaining to the Seller Easements in the form attached to this Agreement as Exhibit H; (D) a Transition Services Agreement which shall provide for a period of services through October 31, 2010 (the “Transition Period”) in substantially the form attached to this Agreement as Exhibit I; and (E) such other forms, documents, and instruments as may be reasonably necessary to transfer to Buyer all of Seller’s right, title, and interest in and to the Seller Property, subject to the terms of this Agreement (collectively, the “Seller Ancillary Documents”).

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(ii) In addition to the deliveries required by Section 4(h)(i), at the Closing, Seller shall deliver to Buyer:

(A) a certificate of good standing, existence, or similar document with respect to Seller issued by the appropriate governmental authority of the jurisdiction of its formation as of a date not more than thirty (30) days prior to the Closing Date;

(B) a certificate of the Secretary of Seller dated the Closing Date: (1) setting forth the resolutions of the member of Seller authorizing the execution and delivery by Seller of this Agreement, the Seller Ancillary Documents and the consummation by Seller of the transactions contemplated hereby, and certifying such resolutions were duly adopted and have not been rescinded or amended as of the Closing Date and (2) attesting as to the incumbency and signature of each officer of Seller who will execute this Agreement or any Seller Ancillary Documents; and

(C) (1) evidence reasonably satisfactory to Buyer of the release and discharge of all liens and encumbrances securing any indebtedness with respect to the Seller Property or (2) executed payoff letters, in form and substance reasonably satisfactory to Buyer, relating to the release and discharge of all liens and encumbrances securing any indebtedness with respect to the Seller Property, and in either case duly executed instruments of release, partial release or termination, as applicable, in a form acceptable for filing in the appropriate public offices.

(iii) In addition to the deliveries required by Section 4(h)(i), at the Closing, Buyer shall deliver to Seller:

(A) a certificate of good standing, existence, or similar document with respect to Buyer issued by the appropriate governmental authority of the jurisdiction of its formation as of a date not more than thirty (30) days prior to the Closing Date; and

(B) a certificate of the Secretary of Buyer dated the Closing Date: (1) setting forth the resolutions of the board of managers of Buyer authorizing the execution and delivery by Buyer of this Agreement, the Seller Ancillary Documents and the consummation by Buyer of the transactions contemplated hereby, and certifying such resolutions were duly adopted and have not been rescinded or amended as of the Closing Date and (2) attesting as to the incumbency and signature of each officer of Buyer who will execute this Agreement or any Seller Ancillary Documents.

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(iv) In addition to the deliveries required by Section 4(h)(i), at the Closing, Tristream shall deliver to Seller:

(A) a certificate of good standing, existence, or similar document with respect to Tristream issued by the appropriate governmental authority of the jurisdiction of its formation as of a date not more than thirty (30) days prior to the Closing Date; and

(B) a certificate of the Secretary of Tristream dated the Closing Date: (1) setting forth the resolutions of the board of managers of Tristream authorizing the execution and delivery by Tristream of this Agreement, the Seller Ancillary Documents and the consummation by Tristream of the transactions contemplated hereby, and certifying such resolutions were duly adopted and have not been rescinded or amended as of the Closing Date and (2) attesting as to the incumbency and signature of each officer of Tristream who will execute this Agreement or any Seller Ancillary Documents.

(v) Prior to Closing, Seller shall furnish to Buyer an affidavit stating Seller’s taxpayer identification number and that Seller is not a “foreign person” as provided in Section 1445(b)(2) of the Code.

(i) Third Party Consents. Seller shall use commercially reasonable efforts to obtain any consents of third parties which are required to be obtained for the assignment of the Seller Property to Buyer (the “Consents”) prior to the Closing. This obligation shall continue after the Closing with respect to any Consents that are not obtained prior to the Closing. After the Closing and prior to obtaining the Consents, any of the Seller Properties that are not otherwise assignable or transferable, other than Excluded Contracts (each a “Non-Assigned Asset”), shall, at the option of Buyer, be deemed to be held by Seller until such Non-Assigned Asset can be assigned (the “Holding Period”). During the Holding Period, Seller shall grant to Buyer an exclusive right and license to use each such Non-Assigned Asset and provide Buyer with the economic benefits and risks of ownership of the Non-Assigned Assets, the intent of the Parties being to provide Buyer, to the extent the same can be reasonably done, with the same access and ability to utilize such Non-Assigned Assets as if such Non-Assigned Assets had been included within the Seller Property. To the extent that Buyer is provided the benefits (if any) of any such Non-Assigned Asset (whether from Seller or otherwise), (i) Buyer shall perform for the benefit of any third party the obligations of Seller arising from and after the Closing thereunder or in connection therewith and (ii) Buyer shall pay, perform and discharge, and Buyer and Tristream shall indemnify Seller against and hold Seller harmless from, all Losses of Seller relating to such performance or failure to perform; provided, however, that such indemnity shall not include any claims arising from Seller’s failure to obtain any required Consent. Upon receipt of the Consent related to a Non-Assigned Asset, such Non-Assigned Asset shall automatically be deemed to be part of the Seller Property without the need for any further action on the part of the Parties or any other Person and without the payment of any additional consideration, provided that, Seller and Buyer will take or cause to be taken such further action (including the execution and delivery of such further instruments and documents) with respect to the Non-Assigned Asset as the other Party reasonably may request, all without further consideration. Buyer shall cooperate in good faith with Seller in connection with the pursuit of the Consents. Buyer shall pay all reasonable and customary fees to any third party for the purpose of obtaining any Consent and all reasonable and customary costs and expenses of any third party resulting from the process of obtaining such Consents.

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5. Disclaimer of Warranties.

(a) Condition of Seller Property. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, SELLER DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE CONDITION OF THE SELLER PROPERTY, INCLUDING ANY WARRANTY OF MERCHANTABILITY AND WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, WHETHER ARISING BY OPERATION OF LAW OR OTHERWISE. EXCEPT FOR THE EXPRESS REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS AGREEMENT, BUYER SHALL ACCEPT THE SELLER PROPERTY IN AN “AS IS, WHERE IS” CONDITION, WITH ALL FAULTS OR DEFECTS, BOTH PATENT AND LATENT. BUYER AND TRISTREAM HAVE MADE OR SHALL MAKE PRIOR TO CLOSING SUCH INSPECTIONS AS BUYER AND TRISTREAM DEEM APPROPRIATE; PROVIDED THAT ANY SUCH INSPECTION SHALL NOT RELIEVE SELLER FROM ANY REPRESENTATION, WARRANTY OR INDEMNIFICATION CONTAINED IN THIS AGREEMENT. EXCEPT FOR ANY REPRESENTATIONS OR WARRANTIES OF SELLER EXPRESSLY SET FORTH IN THIS AGREEMENT, AND THE SELLER’S INDEMNIFICATION OBLIGATIONS WITH RESPECT THERETO, BUYER AND TRISTREAM RELEASE SELLER FROM ANY AND ALL LIABILITY FOR LATENT AND PATENT FAULTS OR DEFECTS IN, OR RELATED TO, THE SELLER PROPERTY, REGARDLESS OF HOW SUCH FAULTS WERE CAUSED OR CREATED (BY SELLER’S NEGLIGENCE, ACTIONS, OMISSIONS OR FAULT, OR OTHERWISE). Notwithstanding the foregoing, Seller will warrant title to the Seller Property against claims arising by, through, or under Seller, but not otherwise, and that the Seller Property is free and clear of all liens, security interests, and other encumbrances, except for Permitted Encumbrances, as defined herein. “Permitted Encumbrances” means (i) liens, security interests and other encumbrances for taxes or governmental assessments not yet due and payable; (ii) such liens, imperfections in title, charges, easements, restrictions, encumbrances or other matters that are due to zoning or subdivision laws or regulations (A) that do not materially and adversely affect the specific Seller Property to which they relate for the use to which they are put or the ability to transfer, assign, pledge, mortgage or otherwise hypothecate any such Seller Property and (B) which are of a nature that would be reasonably acceptable to a prudent operator of assets and facilities related to the gathering, treating, processing, and transportation of natural gas and natural gas liquids of a type similar to the Seller Property; (iii) mechanics’, carriers’, workers’, repairers’, landlords’, and other similar liens arising or incurred in the ordinary course of business for amounts that are not delinquent and would not, or would not reasonably be expected to, in the aggregate, have a Material Adverse Effect on the Seller Property; and (iv) such other liens, imperfections in title, charges, easements, restrictions, encumbrances or other matters (A) that do not materially and adversely affect (x) the Seller Property, or the operations thereof, as a whole, (y) the ability to transfer, assign, pledge, mortgage or otherwise hypothecate any material components of the Seller Property, or (z) the ability of Buyer to own, operate and maintain the Seller Property after Closing in the ordinary course of business consistent with Seller’s past practices and (B) which are of a nature that would be reasonably acceptable to a prudent operator of assets and facilities related to the gathering, treating, processing, and transportation of natural gas and natural gas liquids of a type similar to the Seller Property.

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(b) Evaluation/Investigation. Buyer and Tristream acknowledge that Buyer is purchasing the Seller Property without relying upon any representations or warranties by Seller concerning the condition of the Seller Property except for the express representations and warranties provided in this Agreement. In making the decision to enter into the transactions contemplated by this Agreement, Buyer and Tristream have relied and will rely solely upon their independent investigation to determine the status of the Seller Property, the representations and warranties of Seller made in this Agreement, and the covenants and undertakings of Seller in this Agreement.

(c) NORM, Wastes and Other Substances. Buyer and Tristream acknowledge that the Seller Property has been used for the transportation, treating and processing of oil and gas and that there may be petroleum, produced water, wastes, or other substances or materials located in, on or under the Seller Property or associated with the Seller Property. Equipment and sites included in the Seller Property may contain asbestos, naturally occurring radioactive materials (“NORM”) or other Constituents of Concern. “Constituent of Concern” means any substance defined as a hazardous substance, hazardous waste, hazardous material, pollutant or contaminant by any Environmental Law, any petroleum hydrocarbon and any degradation product of a petroleum hydrocarbon, friable asbestos, or PCBs, the handling, storage, treatment or exposure of or to which is subject to regulation under any Environmental Law. NORM may affix or attach itself to the inside of wells, materials, and equipment as scale, or in other forms. The materials and equipment included in the Seller Property may contain NORM and other wastes or Constituents of Concern. NORM containing material and/or other wastes or Constituents of Concern may have come in contact with various environmental media, including without limitation, 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 Constituents of Concern from the Seller Property. This Section 5(c) does not relieve or release Seller from any representation, warranty, covenant, obligation, indemnification, or other express commitment contained in this Agreement by Seller regarding compliance with Environmental Laws and the presence or release of any Constituents of Concern.

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6. Depreciation, Damage or Condemnation.

(a) Subject to Seller’s obligations under Section 4(c)(i)(A), Buyer shall be responsible for all risk of loss with respect to, and any depreciation or change in the condition of, the Seller Property from the Calculation Date until Closing due to ordinary wear and tear.

(b) Prior to Closing, if any portion of the Seller Property is destroyed by fire or other casualty or is taken in condemnation or under right of eminent domain (“Casualty Loss”), Seller shall promptly, and in any event no later than one (1) Business Day prior to the Closing, notify Buyer in writing of such Casualty Loss including such information as is reasonably available (the “Casualty Statement”).

(c) Upon a Casualty Loss, Seller and Buyer shall have the right to terminate this Agreement as herein provided. If following any Casualty Loss Seller elects to terminate this Agreement pursuant to this Section 6, then Seller shall notify Buyer thereof in the Casualty Statement. If, and only if, Seller does not elect to terminate this Agreement pursuant to this Section 6, it shall notify Buyer thereof in the Casualty Statement and the Buyer shall have a period of ten (10) Business Days following the receipt of the Casualty Statement to notify Seller, in writing, if the Buyer elects to proceed with the Closing or to terminate this Agreement. At all times following the Casualty Loss, Seller shall grant Buyer reasonable access to the site of the Casualty Loss in accordance with the provisions of Section 15(b) to allow Buyer to evaluate the extent of the Casualty Loss.

(d) In the event either Buyer or Seller elects to terminate this Agreement pursuant to Section 6(c) above, Seller shall retain the Seller Property, be responsible for the repair or replacement of any damage caused by the Casualty Loss and be entitled to retain all insurance proceeds payable as a result of such Casualty Loss.`

(e) In the event neither Seller nor Buyer elects to terminate this Agreement pursuant to Section 6(c) above, Buyer will, subject to satisfaction or waiver of the conditions set forth in Section 4(f), purchase the Seller Property at the Closing with no reduction in the Purchase Price; provided, however, Seller will assign to Buyer the right to receive all insurance proceeds payable as a result of such Casualty Loss.

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7. Seller Indemnification.

(a) Definitions Relating to Indemnification Generally.

(i) Certain Defined Terms. As used in this Agreement, the term “Buyer Indemnitees” means Buyer, Tristream and their affiliates, and each of their respective officers, directors, managers, members, partners, shareholders, representatives, agents, employees, consultants, attorneys, successors, transferees and permitted assignees. As used in this Agreement, the term “Seller Indemnitees” means Seller and its affiliates, and each of their respective officers, directors, managers, members, partners, shareholders, representatives, agents, employees, consultants, attorneys, successors, transferees and permitted assignees.

(ii) Notice and Defense, Survival of Indemnity Obligations. If any claim, loss or costs for which a Party (an “Indemnifying Party”) would be liable to the other Party under Section 7(b) or Section 8(a) (an “Indemnified Party”) is asserted against or sought to be collected from an Indemnified Party by a third party, the Indemnified Party shall with reasonable promptness notify the Indemnifying Party of such claim or demand, but the failure so to notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligations under Section 7(b) or Section 8(a), except to the extent the Indemnifying Party demonstrates that the defense of such claim or demand is prejudiced thereby. The Indemnifying Party shall have thirty (30) days from receipt of the above notice from the Indemnified Party (the “Notice Period”) to notify the Indemnified Party whether or not the Indemnifying Party desires, at the Indemnifying Party’s sole cost and expense, to defend the Indemnified Party against such claim or demand; provided, that the Indemnified Party is hereby authorized prior to and during the Notice Period 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 not prejudicial to the Indemnifying Party. If the Indemnifying Party elects to assume the defense of such claim or demand, (A) no compromise or settlement thereof may be effected by the Indemnifying Party without the Indemnified Party’s written consent (which consent shall not be unreasonably withheld, conditioned or delayed) unless the claimant delivers a written full and absolute release of any and all claims against the Indemnified Party and its affiliates related to such claim or demand and unless the sole relief provided is monetary damages that are paid in full by the Indemnifying Party and (B) the Indemnified Party shall have no liability with respect to any compromise or settlement thereof effected without its written consent (which shall not be unreasonably withheld, conditioned or delayed). If the Indemnifying Party does not elect to assume the defense of such claim or demand, the Indemnified Party may assume the defense of any such claim or demand with counsel of its own choice and if it is determined that the claim or demand was a matter for which the Indemnifying Party is required to provide indemnification under this Agreement, the Indemnifying Party will bear the reasonable costs and expenses of such defense; provided, however, that the Indemnified Party may not enter into any compromise or settlement of such claim or demand if indemnification is to be sought hereunder, without the Indemnifying Party’s consent (which consent shall not be unreasonably withheld, conditioned or delayed). The Indemnifying Party may participate in, but not control, any defense or settlement controlled by the Indemnified Party pursuant to this Section 7(a)(ii), and the Indemnifying Party shall bear its own costs and expenses with respect to such participation. Except as otherwise provided below, the representations and warranties made by Seller in Section 9 hereof, and Seller’s obligations to indemnify the Buyer Indemnitees pursuant to Section 7(b)(i), shall survive Closing for a period of twelve (12) months after the Closing Date. The representations and warranties of Seller in Sections 9(a), 9(c), and 9(g) and 9(m)(ii) (as to title to personal property only), and Seller’s obligation to indemnify the Buyer Indemnitees pursuant to Section 7(b)(i) with respect thereto, shall survive the Closing indefinitely. The representations and warranties of Seller contained in Section 9(j), and Seller’s obligation to indemnify the Buyer Indemnitees pursuant to Section 7(b)(i) with respect thereto, shall survive the Closing for the period of the applicable statute of limitations (plus any extension or waivers thereof). The representations and warranties of Seller contained in Section 9(l), and Seller’s obligation to indemnify the Buyer Indemnitees pursuant to Section 7(b)(i) with respect thereto, shall survive for a period of eighteen (18) months following the Closing. All covenants and agreements contained herein which by their terms do not contemplate performance after the Closing and the indemnification obligations with respect thereto, shall survive for a period of six (6) months following the Closing. All covenants and agreements contained herein that by their terms are to be performed in whole or in part subsequent to the Closing and the indemnification obligations with respect thereto, shall survive the Closing in accordance with their terms; provided, that any such covenant or agreement which does not have an express duration shall survive the Closing for a period of twelve (12) months. Seller’s indemnification obligations pursuant to Section 7(b)(iii) shall survive the Closing for a period of twelve (12) months after the Closing Date. The period of time a representation or warranty or covenant or agreement survives the Closing pursuant to this Section 7(a)(ii) shall be the “Survival Period” with respect to such representation or warranty or covenant or agreement. In the event notice of any claim for indemnification under this Agreement shall have been asserted in writing within the applicable Survival Period and such claim has not been finally resolved by the expiration of such Survival Period, the representations or warranties or covenants or agreements that are the subject of such claim shall survive, but only to the extent of the underlying facts of the claim (so long as the facts or circumstances alleged to give rise to such claim have been specified in reasonable detail and are not based on speculative facts, circumstances or other events) as made prior to the expiration of the Survival Period, until such claim is finally resolved. For purposes of determining whether there has been a breach of any representation or warranty contained in this Agreement giving rise to a claim for indemnification under Section 7(b)(i) or Section 8(a)(i), all qualifications and exceptions in the representations and warranties of the Parties contained in this Agreement relating to materiality or words of similar meaning (including “Material Adverse Effect”) or any qualification or requirement that a matter be or not be “reasonably expected to occur” or words of similar meaning should be disregarded.

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(iii) Any indemnification payment made pursuant to this Agreement shall be net of any insurance proceeds realized by and paid to the Indemnified Party in respect of such claim, and the amount of any Loss shall take into account any tax benefits attributable to the circumstance or event giving rise to such Loss.

(iv) THE INDEMNIFICATION PROVISIONS PROVIDED FOR IN THIS AGREEMENT SHALL BE APPLICABLE WHETHER OR NOT THE LOSSES IN QUESTION AROSE OR RESULTED SOLELY OR IN PART FROM THE SOLE, ACTIVE, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF LAW OF OR BY ANY INDEMNIFIED PARTY. BUYER AND SELLER ACKNOWLEDGE THAT THIS STATEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE RULE AND IS CONSPICUOUS.

(b) Indemnification by Seller. From and after the Closing Date, Seller agrees to indemnify, defend and hold harmless the Buyer Indemnitees from and against any and all Losses (as herein defined) resulting from, arising out of, imposed upon, or incurred by any Buyer Indemnitee in connection with:

(i) any breach of any representation or warranty of Seller set forth in Section 9 of this Agreement or the certificate delivered by Seller pursuant to Section 4(h)(ii)(B);

(ii) any breach of any covenant or agreement of Seller contained in this Agreement; and

(iii) the Excluded Property.

For purposes of this Agreement, “Losses” shall mean all losses, costs, charges, expenses (including interest and penalties due and payable with respect thereto, and reasonable attorney’s fees and other professional fees and expenses in connection with any claim, action or proceeding), obligations, liabilities, settlement payments, awards, judgments, fines, penalties, assessments, deficiencies, demands, claims, causes of action, actions or proceedings.

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(c) Buyer and Tristream each acknowledge and agree that, other than with respect to claims for fraud by Seller, claims for equitable or injunctive relief relating to any breach of a covenant or obligation to be performed by Seller after the Closing Date, and the rights of the Parties set forth in Section 16, the indemnification provisions of Seller set forth in Section 7(b) shall be the sole and exclusive rights and remedies of Buyer, Tristream and any Buyer Indemnitee after Closing against Seller arising out of or with respect to this Agreement and the transactions contemplated hereby or any Losses of any kind or nature incurred by Buyer, Tristream or any Buyer Indemnitee relating to or arising out of the Seller Property. Buyer and Tristream further acknowledge and agree that only Seller is obligated to perform under this Agreement and the indemnification obligations hereunder, and that Buyer and Tristream shall have no recourse against Seller’s parent companies, subsidiaries and affiliates, or any of Seller’s or their respective officers, directors, managers, members, partners, shareholders, representatives, agents, employees, consultants, attorneys, successors, transferees and permitted assigns for obligations hereunder. WITHOUT LIMITING THE PRIOR SENTENCE, EFFECTIVE UPON THE CLOSING, BUYER AND TRISTREAM SHALL IRREVOCABLY AND UNCONDITIONALLY WAIVE, RELEASE, AND DISCHARGE SELLER AND ITS AFFILIATES FROM, AND COVENANT NOT TO SUE THE SELLER INDEMNITEES UPON, ANY PAST, PRESENT OR FUTURE CLAIM OR CAUSE OF ACTION, WHETHER PURSUANT TO COMMON OR STATUTORY LAW OR OTHERWISE, THAT RELATES IN ANY MANNER TO ANY BREACH BY SELLER OF THIS AGREEMENT, OR ANY LOSSES OF ANY KIND OR NATURE INCURRED BY BUYER, TRISTREAM OR ANY BUYER INDEMNITEE RELATING TO OR ARISING OUT OF THE SELLER PROPERTY, EXCEPT FOR BUYER’S AND TRISTREAM’S RIGHTS OF INDEMNIFICATION SET FORTH IN SECTION 7(b); PROVIDED THAT THIS SENTENCE AND ANY LIMITATION CONTAINED IN THIS SECTION 7(c) SHALL NOT APPLY WITH RESPECT TO (i) CLAIMS FOR FRAUD BY SELLER AND (ii) CLAIMS FOR EQUITABLE OR INJUNCTIVE RELIEF RELATING TO ANY BREACH OF ANY COVENANT OR OBLIGATION OF SELLER TO BE PERFORMED AFTER THE CLOSING DATE.

(d) Notwithstanding anything to the contrary in this Agreement, (i) Seller shall have no obligation or liability under Section 7(b)(i) of this Agreement to the Buyer Indemnitees for any Losses arising under Section 7(b)(i) as a result of a breach of a representation or warranty unless the aggregate of all such Losses exceeds two percent (2%) of the Final Purchase Price (“Aggregate Deductible”), and in such event, Seller’s obligation and liability with respect thereto shall be applicable only to the extent that such Losses exceed the Aggregate Deductible, and (ii) Seller shall have no obligation or liability under Section 7(b) of this Agreement to the Buyer Indemnitees for Losses in excess of five percent (5%) of the Final Purchase Price in the aggregate. The Aggregate Deductible and the limitation of liability set forth in clause (ii) of the preceding sentence shall not apply to any Losses and claims for indemnification arising under Section 7(b)(ii) or Section 7(b)(iii).

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8. Buyer Indemnification.

(a) Indemnification by Buyer. From and after the Closing Date, Buyer and Tristream agree to jointly and severally indemnify, defend and hold harmless the Seller Indemnitees from and against any and all Losses resulting from, arising out of, imposed upon or incurred by any Seller Indemnitee in connection with:

(i) any breach of any representation or warranty of Buyer or Tristream set forth in Section 10 of this Agreement, the certificate delivered by Buyer pursuant to Section 4(h)(iii)(B) or the certificate delivered by Tristream pursuant to Section 4(h)(iv)(B);

(ii) any breach of any covenant or agreement of Buyer or Tristream contained in this Agreement; and

(iii) the Assumed Liabilities.

(b) Seller acknowledges and agrees that, other than with respect to claims for fraud by Buyer or Tristream, claims for equitable or injunctive relief relating to any breach of a covenant or obligation to be performed by Buyer or Tristream after the Closing Date, and the rights of the Parties set forth in Section 16, the indemnification provisions of Buyer and Tristream set forth in Section 8(a) shall be the sole and exclusive rights and remedies of Seller and any Seller Indemnitee after Closing against Buyer or Tristream arising out of or with respect to this Agreement and the transactions contemplated hereby or any Losses of any kind or nature incurred by Seller or any Seller Indemnitee relating to or arising out of the Seller Property. Seller further acknowledges and agrees that only Buyer and Tristream are obligated to perform under this Agreement and the indemnification obligations hereunder, and that Seller shall have no recourse against, Buyer’s or Tristream’s respective officers, directors, managers, members, partners, shareholders, representatives, agents, employees, consultants, attorneys, successors, transferees and permitted assigns for obligations hereunder. WITHOUT LIMITING THE PRIOR SENTENCE, EFFECTIVE UPON THE CLOSING, SELLER IRREVOCABLY AND UNCONDITIONALLY WAIVES, RELEASES, AND DISCHARGES BUYER AND TRISTREAM AND THEIR AFFILIATES FROM, AND COVENANTS NOT TO SUE THE BUYER INDEMNITEES UPON, ANY PAST, PRESENT OR FUTURE CLAIM OR CAUSE OF ACTION, WHETHER PURSUANT TO COMMON OR STATUTORY LAW OR OTHERWISE, THAT RELATES IN ANY MANNER TO ANY BREACH BY BUYER OR TRISTREAM OF THIS AGREEMENT, OR ANY LOSSES OF ANY KIND OR NATURE INCURRED BY SELLER OR ANY SELLER INDEMNITEE RELATING TO OR ARISING OUT OF THE SELLER PROPERTY, EXCEPT FOR SELLER’S RIGHTS OF INDEMNIFICATION SET FORTH IN SECTION 8(a); PROVIDED THAT THIS SENTENCE AND ANY LIMITATION CONTAINED IN THIS SECTION 8(b) SHALL NOT APPLY WITH RESPECT TO (i) CLAIMS FOR FRAUD BY BUYER OR TRISTREAM, AND (ii) CLAIMS FOR EQUITABLE OR INJUNCTIVE RELIEF RELATING TO ANY BREACH OF A COVENANT OR OBLIGATION TO BE PERFORMED BY BUYER OR TRISTREAM AFTER THE CLOSING DATE.

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9. Seller’s Representations and Warranties. As of the date hereof and as of the Closing Date (unless a specific date is set forth in such representation or warranty, in which case such representation or warranty must be true and correct as of such specific date), Seller hereby represents and warrants to Buyer or Tristream as follows.

(a) Organization. Seller is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Delaware, and is duly qualified to do business and in good standing in Texas, possessing the authority to conduct its business as it is now being conducted.

(b) No Conflict. Except as set forth on Schedule 9(b), the execution of this Agreement and the Seller Ancillary Documents and the consummation by Seller of the transactions contemplated hereunder and thereunder will not: (i) violate or conflict with any provision of its limited liability company agreement, or other governing documents; (ii) result in the breach of any term or condition of, or constitute (with or without the giving of notice or passage of time or both) a default under, or give rise (with or without the giving of notice or the passage of time or both) to any right of termination, cancellation, modification or acceleration of any obligation under, any agreement or instrument to which Seller is a party or by which Seller or any Seller Property is otherwise bound; (iii) result in the creation of any lien or encumbrance on the Seller Property; or (iv) violate or conflict with any judgment, decree, order, permit, law, rule, or regulation applicable to Seller or the Seller Property, except, in the instance of clause (ii), for any such breach, default, violation, termination, cancellation, modification or acceleration which does not have, or could not reasonably be expected to have a Material Adverse Effect on the Seller Property.

(c) Authorization. Seller has the requisite limited liability company power and authority to execute and deliver this Agreement and the Seller Ancillary Documents and to perform its obligations hereunder and thereunder. Assuming the due authorization, execution and delivery by the other parties thereto, this Agreement has been duly executed by Seller and constitutes, and the Seller Ancillary Documents and any other documents executed and delivered at Closing will constitute, a legal, valid, and binding obligation of Seller enforceable against Seller in accordance with its terms, except to the extent (i) such enforcement may be limited by applicable bankruptcy, insolvency, or similar laws affecting creditors’ rights, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceedings therefore may be brought.

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(d) Consents. Except as indicated on Exhibit B-2 or Exhibit C, or as would not have a Material Adverse Effect on the Seller Property, no Consent, approval, order, waiver or authorization of or by, or filing with, any other Person or entity is required to be made or obtained by Seller in connection with the execution, delivery, performance, or enforceability of this Agreement or the consummation of the transactions provided for in this Agreement. No preferential rights exist in third parties to purchase all or part of the Seller Property.

(e) Assumed Contracts. Set forth on Exhibit C is a complete and accurate list of the following contracts, agreements or arrangements to which Seller is a party and which relate to the Seller Property or by which any of the Seller Property are bound: (i) all gathering agreements, transportation agreements, construction and operating agreements, processing agreements, and all other instruments relating to the Seller Property and the purchase, transportation by pipeline, gas processing, marketing, sale and supply of natural gas and other hydrocarbons; (ii) any contract or agreement related to the Seller Property (A) for capital expenditures involving obligations aggregating in excess of $50,000, (B) under which personal property is leased by Seller and which are not cancellable by either party thereto without penalty upon notice of sixty (60) days or less or pursuant to which rentals exceed $50,000 per annum or $100,000 during the term of such lease, or (C) involving the performance of services or the delivery of goods by or to Seller that do not terminate or are not terminable by Seller upon notice of sixty (60) days or less or which involves an obligation on Seller’s part in excess of $50,000 per annum or $100,000 during the term of such agreement; (iii) any contract or agreement under which Seller has created, incurred, assumed or guaranteed any indebtedness for borrowed money or any capitalized lease obligation related to or affecting the Seller Property; (iv) any contract or agreement concerning confidentiality or noncompetition relating to the Seller Property; or (v) any employment contract or agreement with respect to any of the Potential Employees (as herein defined) and any plan, contract or arrangement providing for compensation to any Potential Employee. Seller has made available to Buyer a correct and complete copy of each Assumed Contract. Except as set forth in Exhibit C, Seller is not in breach or default under and is in material compliance with all Assumed Contracts, and no event has occurred which with notice or lapse of time or both would constitute a breach or default by Seller, or permit termination, modification, or acceleration, under any Assumed Contract. Except as set forth in Schedule 9(e) and to Seller’s Knowledge, no other party is in breach or default, and no event has occurred which with notice or lapse of time or both would constitute a breach or default by any such other party, or permit termination, modification or acceleration under any Assumed Contract. All Assumed Contracts are in full force and effect, are valid and enforceable against Seller in accordance with their terms, subject to the effect of any applicable bankruptcy, insolvency or similar laws affecting creditors’ rights generally and subject, as to enforceability, to the effect of general principles of equity. Seller has not waived any material rights under any Assumed Contract. For purposes of this Agreement, “Seller’s Knowledge” means the actual knowledge of Chris Rozzell, Steven Meisel, David T. Miller and Troy Sturrock, without the requirement of further investigation.

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(f) Litigation. There are no claims, actions, suits, proceedings, or investigations pending or, to Seller’s Knowledge, threatened (i) against Seller with respect to and affecting the Seller Property, or (ii) against Seller which would have a Material Adverse Effect on Seller. Seller is not, as it relates to the Seller Property, subject to any continuing court or administrative order, writ, injunction, or decree of any court or federal, state, municipal, or other governmental department, commission, board, agency or instrumentality (other than general regulation and general regulatory orders).

(g) Brokers. Seller is not a party to, or in any way obligated under, any contract or other agreement for the payment of any broker’s or finder’s fee in connection with the origin, negotiation, execution, or performance of this Agreement or the transactions contemplated hereby.

(h) Title to Assets. At the Closing, Seller will transfer the Seller Property to Buyer free and clear of all liens, security interests and other encumbrances, other than Permitted Encumbrances.

(i) Compliance with Laws. Seller operates and maintains, and has operated and maintained, the Seller Property in compliance in all material respects with all applicable local, state, and federal laws, including, without limitation, all statutes, rules, regulations, ordinances, orders and permits. Seller has not received any written communication from any Person that alleges that the Seller Property may not be in compliance, in any material respect, with any law, statute, rule, regulation, ordinance, order or permit. Notwithstanding the forgoing, no representation or warranty is made under this Section 9(i) in respect of any (i) matters relating to Environmental Laws and Environmental Permits or the environmental condition of any of the Seller Property which are addressed exclusively in Section 9(l) and (ii) matters relating to taxes, which are addressed exclusively in Section 9(j).

(j) Taxes. Except as shown on Schedule 9(j), and subject to Section 13(a), (i) all ad valorem, property, sales, severance, employee, payroll withholding, income, franchise, margin and other taxes, and all other governmental charges, penalties, interest, and fines that relate to the ownership and operation of the Seller Property and that are due and payable prior to the Closing have been properly paid before becoming delinquent; and (ii) all returns and reports with respect to such matters have been timely filed and all such returns and reports were complete and correct in all material respects and properly reflected all material facts regarding the income, business assets, operations, status and other matters of Seller; and (iii) no such returns are currently subject of an audit by any taxing authority, in each case except as would not have a Material Adverse Effect. This Section 9(j) shall constitute the sole and exclusive representations and warranties of Seller for matters relating to taxes of Seller or with respect to the Seller Property.

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(k) Pipeline Status. Except as set forth on Schedule 9(k), Seller does not own or operate any part of the Seller Property in a manner which would (i) subject Seller or any part of the Seller Property to jurisdiction of the Federal Energy Regulatory Commission or (ii) cause Seller to be treated as a “gas utility” or “utility” under any of the laws, rules, or regulations of the State of Texas.

(l) Environmental Matters. To Seller’s Knowledge (i) the Seller Property and Seller’s ownership and operation thereof is in compliance in all material respects with Environmental Laws; (ii) all Authorizations (including Environmental Permits), if any, required to be obtained or filed by or complied with by Seller under any Environmental Law in connection with its ownership, use or operation of the Seller Property have been obtained or filed for and are listed on Exhibit D, and Seller is in material compliance with the terms and conditions of all such Authorizations; (iii) there is no pending or threatened claim, action, investigation, proceeding, liability, cost or obligation relating to the Seller Property alleging violations of Environmental Laws or Environmental Permits, or alleging remediation or removal obligations under applicable Environmental Laws; (iv) Seller has not caused or allowed the generation, use, treatment, transportation, recycling, reclamation, handling, manufacture, storage, or disposal of, or the exposure of any Person or property to, any Constituent of Concern at, on or from the Seller Property, except in material compliance with all applicable Environmental Laws; (v) there has been no Release of any Constituent of Concern at, on, from, or underlying any of the Seller Property in violation of applicable Environmental Laws or in any concentration or location that requires investigation or remediation or other response action under Environmental Laws; (vi) none of the off-site locations where Constituents of Concern from any of the Seller Property have been stored, treated, recycled, disposed of, or Released is subject to any investigation or remedial obligation or other response action requirement under Environmental Laws; and (vii) Seller has provided Buyer with copies of all material environmental studies, audits and assessments prepared by or in the possession of Seller with respect to any of the Seller Property. Seller has made available to Buyer complete and correct copies of all Environmental Permits currently held by Seller with respect to the operation of the Seller Property as presently conducted and such Environmental Permits are in full force and effect, except as would not have a Material Adverse Effect on the Seller Property. “Environmental Laws” means all laws, statutes, ordinances, rules, regulations, decrees or orders of any governmental authority or body governing or relating to pollution or protection of human health and safety (including worker health and safety) or the environment (including ambient air, surface water, ground water, land surface or subsurface strata, and natural resources), including: (i) those providing liability in connection with or imposing cleanup, investigatory, removal, remediation or regulatory compliance obligations relative to any Release or threatened Release of Constituents of Concern; and (ii) those otherwise relating to any environmental aspect of the manufacture, processing, distribution, use, treatment, storage, disposal, emission, discharge, transport or handling of Constituents of Concern or oil and gas exploration, production, gathering and processing wastes. “Authorization” means any franchise, permit (including Environmental Permit), license, authorization, order, certificate, registration, variance, settlement, compliance plan or other consent or approval granted by any governmental authority under any law, statute, rule or regulation, including any Environmental Law. “Environmental Permits” means permits required under Environmental Laws. “Release” means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing of Constituents of Concern into or upon the environment. This Section 9(l) shall constitute the sole and exclusive representations and warranties of Seller for matters relating to Environmental Laws and Environmental Permits or the environmental condition of any of the Seller Property.

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(m) Title, Status and Sufficiency of Seller Property.

(i) Exhibit B-3 sets forth a list of each parcel of real property relating to the Eustace System in which Seller has a fee ownership interest. Seller owns and has good and marketable title to the Fee Properties free and clear of all liens and encumbrances, other than Permitted Encumbrances and the liens identified in Schedule 9(m)(i), which will be released on or before the Closing (with respect to the liens identified in Schedule 9(m)(i)).

(ii) Seller owns and has good and marketable title to all material personal property that is used in connection with the operation of the Eustace System, including all material portions of the Seller Property, in each case free and clear of all liens and encumbrances, other than Permitted Encumbrances and liens identified in Schedule 9(m)(ii), which will be released on or before the Closing (with respect to the liens identified in Schedule 9(m)(ii)).

(iii) Exhibit B-1 sets forth a list of each Seller Easement and also contains a complete list of all agreements and instruments evidencing the Seller Easements (the “Real Property Agreements”). Each Real Property Agreement is in full force and effect in accordance with its terms, and there have been no material modifications or amendments thereof not made available to Buyer. All payments due thereunder prior to the date of this Agreement have been paid, and all payments due thereunder prior to the Closing Date will be paid by Seller on or before the Closing Date. Seller is not in breach of or in default under, nor has any event occurred which, with or without giving of notice or the passage of time or both, would constitute a default by Seller under any Real Property Agreement except as in each case could not reasonably be expected to have a Material Adverse Effect on the Seller Property, and Seller has not received any written notice from any other party to any Real Property Agreement alleging such breach or default. To Seller’s Knowledge, no other party to any Real Property Agreement is in breach of or default thereunder, nor has any assertion been made by Seller of any such breach or defaults.

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(iv) Except as set forth in Schedule 9(m)(iv) and as provided in Section 26 or as would not reasonably be expected to have a Material Adverse Effect on the Seller Property, all of the continuous length of the Seller Pipeline is covered by the Real Property Agreements and Fee Properties, and the Real Property Agreements purport to be from the owners of the land covered thereby and purport to grant to Seller (or its predecessors in title) the right to construct, operate and maintain the Eustace System in, over, under, and across such land, provided that certain licenses and permits from railroads, utilities and from the State of Texas or local governmental authorities may not be recorded.

(v) Except for the Excluded Property, the Seller Property constitutes all of the real and personal properties, or interests (including leasehold interests) therein, owned, used or held for use by Seller exclusively in the operation of the Eustace System and are sufficient for the continued conduct of the business related thereto after the Closing in substantially the same manner as conducted by Seller prior to the Closing. To Seller’s Knowledge, Seller has not withheld pursuant to Section 2(i), any data or information material to the ongoing operation of the Seller Property. Except as set forth in Schedule 9(m)(v), the Seller Property is in good operating condition and repair, normal wear and tear excepted.

(n) Labor and Employment. Schedule 9(n) contains a list of all Potential Employees (as defined herein) that operate, maintain or work at the Seller Property, years of service with Seller or its affiliates, current salary, wages and benefits including accrued vacation time, bonuses and other compensation items. There are no employment agreements or non-compete agreements between Seller, or any of its affiliates, and any of the Potential Employees. No labor union represents any of the Potential Employees and no collective bargaining is currently being negotiated by Seller, or any of its affiliates, with respect to the Potential Employees. With respect to the Potential Employees, Seller and its affiliates are each in compliance, in all material respects, with all applicable federal and state laws, rules and regulations respecting employment and employment practices, terms and conditions of employment, wages and hours, immigration, and non-discrimination. There is no charge pending or, to Seller’s Knowledge, threatened against Seller, or any of its affiliates, with respect to the Potential Employees alleging unlawful discrimination in employment practices before any court or agency and there is no charge of or proceeding with regard to any unfair labor practice or other violation of any employment law, statute, rule or regulation against Seller with respect to the Potential Employees pending before any court or agency.

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(o) Employee Benefits.

(i) Each employee benefit plan or program (and the associated trust or funding source, if any) maintained for the benefit of the current or former employees of Seller, or its affiliates, engaged in the operation of the Seller Property or with respect to which Seller or any of its affiliates, has or may have any actual or contingent liability or with respect to which the Seller Property is or may become subject to any claim or lien (collectively, the “Employee Plans”) has been and is currently documented, funded, operated and maintained in material compliance with all applicable laws and regulations and the requirements of each such Employee Plan. Each Employee Plan that is intended to be qualified or tax exempt under Section 401(a) of the Internal Revenue Code of 1986, as amended, and any regulations thereunder (the “Code”) or other applicable law has received and is currently subject to and in compliance with an effective applicable favorable determination letter or other comparable document from the applicable governmental authority.

(ii) Except as disclosed in Schedule 9(o), full payment has been made of all amounts that are required under the terms of each Employee Plan to be paid as contributions, remittances and premiums with respect to all periods prior to and including the last day of the most recent fiscal year of such Employee Plan ended on or before the date of this Agreement and all periods thereafter prior to the Closing Date, and no accumulated funding deficiency or liquidity shortfall has been incurred with respect to any such Employee Plan, whether or not waived. Neither Seller nor any of its affiliates is required to provide security to an Employee Plan under Section 401(a)(29) of the Code or any other law. No “reportable event” (as defined in Section 4043 of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and for which the 30 day notice requirement has not been waived) has occurred with respect to an Employee Plan within the last six years.

(iii) Neither Seller nor any entity, trade or business (whether or not incorporated) which is treated under Section 414(b), (c), (m) or (o) of the Code as a single employer with Seller has any liability or obligation, and to Seller’s Knowledge, there are no facts or circumstances that might give rise to any liability or obligation, and the transactions contemplated hereby will not result in any liability or obligation, (A) for the termination, partial termination of or withdrawal from any Employee Plan under applicable law, (B) for any lien imposed under Section 302(f) of ERISA, Section 412(n) of the Code or other applicable law, (C) for any interest payments required under Section 302(e) of ERISA, Section 412(m) of the Code or other applicable law, (D) for any excise tax imposed by Section 4971 of the Code or other applicable law, (E) for any minimum funding contributions under Section 302(c)(11) of ERISA, Section 412(c)(11) of the Code or other applicable law, (F) for withdrawal from any Multiemployer Plan under Section 4201 of ERISA, or (G) a tax or penalty imposed under Section 4975 of the Code, Section 502(l) of ERISA or a violation of Section 406 of ERISA.

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(iv) Seller and its affiliates have, at all times, complied, and currently comply, in all material respects with the applicable continuation requirements for its welfare benefit plans under the Consolidated Omnibus Budget Reconciliation Act of 1986 (“COBRA”) and other applicable laws.

(p) FCC Licenses. Exhibit D sets forth a true and complete list of all Federal Communications Commission (the “FCC”) Licenses held by Seller and any of Seller’s affiliates used in the operation of the Seller Property (the “Seller FCC Licenses”); and Seller has made available to Buyer a true and correct copy of each Seller FCC License. Each Seller FCC License is validly issued and in full force and effect, and there is no action or proceeding pending before the FCC, or to Seller’s Knowledge, threatened, with respect to any Seller FCC License. No application with respect to any Seller FCC License is currently pending with the FCC.

(q) Subsequent Events. Except as set forth on Schedule 9(q) since May 31, 2010, (1) there has not been any Material Adverse Effect upon the Seller Property; and (2) the Seller Property has been operated in all material respects only in the ordinary course of business.

(r) Financial and Operational Information.

(i) Schedule 9(r)(i) contains copies of the unaudited statement of revenues and expenses of the Eustace System as of and for the fiscal year ended December 31, 2009, and as of and for the five month period ended May 31, 2010 (collectively, “Financial Information”). The Financial Information has been prepared on a consistent basis (except as may be noted therein) and presents fairly, in all material respects, the revenues and direct operating expenses of the Eustace System as of the dates set forth therein, except that the Financial Information does not include footnotes that would be required by GAAP.

(ii) Schedule 9(r)(ii) sets forth summary historical residue natural gas sales, condensate sales, natural gas liquid sales, other hydrocarbon sales and sulfur sales from the Seller Property for the periods January 1, 2009 through May 31, 2010. To Seller’s Knowledge as of the Closing Date, such data and information is correct and complete in all material respects with respect to such periods.

10. Buyer’s and Tristream’s Representations and Warranties. As of the date hereof and as of the Closing Date (unless a specific date is set forth in such representation or warranty, in which case such representation or warranty must be true and correct as of such specific date), Buyer and Tristream jointly and severally hereby represent and warrant to Seller as follows.

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(a) Organization.

(i) Buyer is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Delaware and possesses the authority to conduct its business as it is now being conducted.

(ii) Tristream is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Delaware and possesses the authority to conduct its business as it is now being conducted.

(iii) Tristream is the record and beneficial owner of all of the issued and outstanding membership interests of Buyer.

(b) No Conflict. The execution of this Agreement and the Seller Ancillary Documents and the consummation by Buyer and Tristream of the transactions contemplated hereunder and under the Seller Ancillary Documents will not: (i) violate or conflict with any provision of their respective governing documents; (ii) result in the breach of any term or condition of, or terminate or constitute a default or cause the acceleration of any obligation under, any agreement or instrument to which Buyer or Tristream is a party or is otherwise bound; or (iii) subject to necessary filings with the Texas Railroad Commission, violate or conflict with any applicable judgment, decree, order, permit, law, rule, or regulation.

(c) Authorization. Buyer and Tristream each has all requisite limited liability company power and authority to enter into and, subject to necessary filings with the Texas Railroad Commission, perform all obligations under this Agreement and the Seller Ancillary Documents. Assuming the due authorization, execution and delivery by the Seller, this Agreement has been duly executed by Buyer and Tristream and constitutes, and the Seller Ancillary Documents and any other agreement or document executed and delivered by Buyer and/or Tristream hereunder will constitute, a legal, valid, binding obligation of Buyer and Tristream enforceable against Buyer and Tristream (as applicable) in accordance with its terms, except to the extent (i) such enforcement may be limited by applicable bankruptcy, insolvency, or similar laws affecting creditors’ rights, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceedings therefore may be brought.

(d) Consents. Except as provided in Schedule 10(d) or as would not have a Material Adverse Effect on Buyer, no consent approval, order, waiver or authorization of or by, or filing with, any other Person or entity is required to be made or obtained by Buyer or Tristream in connection with the execution, delivery, performance, or enforceability of this Agreement or the consummation of the transactions provided for in this Agreement.

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(e) Brokers. Seller does not and shall not directly or indirectly have any responsibility, liability or expense, as a result of any contract or other agreement of Buyer or Tristream, for the payment of any broker’s or finder’s fee in connection with the origination, negotiation, execution, or performance of this Agreement or the transactions contemplated hereby.

(f) Litigation. There are no claims, actions, suits, proceedings, or investigations pending or, to the actual knowledge of Kendall A. Purgason, Anthony B. Catalano and J. Michael Urban, threatened against Buyer or Tristream. Neither Buyer nor Tristream is subject to any continuing court or administrative order, writ, injunction, or decree of any court or federal, state, municipal, or other governmental department, commission, board, agency or instrumentality (other than general regulation and general regulatory orders).

(g) Expert Status. Buyer and Tristream acknowledge that the Seller Property consists of pipeline assets that are used in connection with transporting natural gas and other petroleum products and may contain residual amounts thereof or other hazardous substances. Buyer and Tristream each certifies that it is an expert in handling such products and the transportation thereof. Buyer and Tristream each further represents and warrants that it has completed its due diligence, and other evaluations and assessments necessary for it to evaluate the risks involved in the transportation of such products. The foregoing representation by Buyer and Tristream shall not in any manner relieve or release Seller from any representation or warranty contained in this Agreement and Buyer’s and Tristream’s right to indemnification based upon the representations and warranties of Seller will not be affected by any such investigation by Buyer or Tristream.

(h) HSR Act. As of the Closing Date, Tristream “controls” Buyer (within the meaning of 16 C.F.R. § 801.1(b)). As of the Closing Date, no “person” or “entity” (as such terms are defined in 16 C.F.R. § 801.1(a)(1) and 16 C.F.R. § 801.1(a)(2)) “controls” Tristream (within the meaning of 16 C.F.R. § 801.1(b)). As of the Closing Date, Tristream is its own “ultimate parent entity” (as defined in 16 C.F.R. § 801.1(a)(3)). As of the Closing Date, Tristream does not satisfy the size-of-person test set forth in Section 15 U.S.C. § 18a(a)(2)(B)(ii). The aggregate dollar value of assets acquired by Buyer pursuant to this Agreement and any other acquisitions made by Buyer and/or Tristream that are required to be aggregated therewith pursuant to the rules promulgated under the HSR Act does not exceed $253.7 million. Buyer has thus concluded, on the basis of a good faith analysis, that the filing of a Premerger Notification Report Form under the HSR Act with respect to the transactions contemplated by this Agreement is not required by Buyer.

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11. Seller Marks. Neither Buyer nor Tristream shall obtain any right, title, interest, license or any other right whatsoever to use the word “Regency” or any trademarks containing or comprising the foregoing, or any trademark confusingly similar thereto or dilutive thereof (collectively, the “Seller Marks”). From and after the Closing, each of Buyer and Tristream agree that it shall (a) cease using the Seller Marks in any manner, directly or indirectly, except for such limited uses as cannot be promptly terminated (e.g., signage), and to cease such limited usage of the Seller Marks as promptly as possible after the Closing and in any event within sixty (60) days following the Closing Date and (b) remove, strike over or otherwise obliterate all Seller Marks from all Seller Property and all other materials owned, possessed or used by Seller or its affiliates, except those Seller Property that the general public does not see (i.e., marks on a pipeline where there is no public access). The Parties agree, because damages would be an inadequate remedy, that Seller shall be entitled to seek specific performance and injunctive relief as remedies for any breach thereof in addition to other remedies available at law or in equity. This covenant shall survive indefinitely without limitation as to time.

12. Books and Records.

(a) Records. Subject to the provisions of Section 16, Seller and its respective affiliates may retain a copy of any or all of the Records relating to the use or ownership of Seller Property before the Closing Date.

(b) Delivery and Retention of Records. On or before October 31, 2010 (or the termination of any Transition Services Agreement), Seller will make available to Buyer for delivery all Records. Buyer and Tristream shall preserve and keep a copy of all Records that relate to the use or ownership of Seller Property before the Closing Date in Buyer’s or Tristream’s possession for a period of at least five (5) years after the Closing Date. For a period of one (1) year after the expiration of such five-year period, before Buyer or Tristream shall dispose of any such Records, Buyer and Tristream shall give Seller at least ninety (90) days’ prior notice to such effect, and Seller shall be given an opportunity, at its cost and expense, to remove and retain all or any part of such Records as Seller may select. If Seller does not remove the Records within such ninety (90) day period, Buyer and Tristream may dispose of such Records. Buyer and Tristream shall provide to Seller, at no cost or expense to Seller, reasonable access to the Records that relate to the use or ownership of Seller Property before the Closing Date as remain in Buyer’s or Tristream’s possession and reasonable access to employees of Buyer and Tristream in connection with matters relating to the Seller Property before the Closing Date and any disputes relating to this Agreement; provided that such access will not be construed to require the disclosure of any Records that would cause the waiver of any attorney-client, work product or like privilege.

13. Taxes.

(a) Property Taxes. Seller and Buyer shall mutually agree at Closing to a proration of property taxes in respect of the Seller Property for the tax year in which Closing occurs based on the most recent property tax information available. If such agreed upon amount differs more than twenty percent (20%) from actual property taxes payable for such year, upon request by either Party, the other Party shall pay, or, if already paid by the overpaying Party, reimburse such requesting Party for, the difference between the agreed upon proration and the actual calculated prorated share of such taxes.

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(b) Other Taxes. Seller shall be responsible for all transfer taxes and charges (including sales taxes), and related interest or penalties, associated with the purchase and sale of the Seller Property.

(c) Exemption. The purchase and sale of the Seller Property is intended to qualify as an “occasional sale” exempt from Texas state and local sales taxes. The Parties shall each take such actions and execute and deliver such documents, certificates, and agreements as necessary to maintain such exemptions from sales taxes on the tangible assets.

14. Termination of Agreement. By written notice given prior to the Closing Date, this Agreement may be terminated as follows:

(a) by Buyer and Tristream at any time if there has been a breach or inaccuracy of Seller’s representations and warranties in this Agreement (without giving effect to any amendment or supplement to such representations and warranties under Section 29) or a failure by Seller to perform its covenants and agreements contained in this Agreement, that has prevented the satisfaction of, or would result on the Closing Date of the failure of, any condition to the obligations of Buyer set forth in Section 4(f), provided that if such breach is of a character that it is capable of being cured, such breach has not been cured by Seller within five (5) Business Days after written notice thereof from Buyer;

(b) by Seller at any time if there has been a breach or inaccuracy of Buyer’s or Tristream’s representations and warranties in this Agreement or a failure by Buyer or Tristream to perform their respective covenants and agreements contained in this Agreement, that has prevented the satisfaction of, or would result on the Closing Date of the failure of, any condition to the obligations of Seller set forth in Section 4(e), provided that if such breach is of a character that it is capable of being cured, such breach has not been cured by Buyer within five (5) Business Days after written notice thereof from Seller;

(c) by Buyer if any condition precedent set out in Section 4(f) has not been satisfied as of the fourteenth (14th) day after HSR Approval has occurred, or if satisfaction of such a condition by such date is or becomes impossible (other than through the failure of Buyer to comply with its obligations under this Agreement), and Buyer has not waived such condition on or before such date;

(d) by Seller if any condition precedent set forth in Section 4(e) has not been satisfied as of the fourteenth (14th) day after HSR Approval has occurred, or if satisfaction of such condition by such date is or becomes impossible (other than through the failure of Seller to comply with its obligations under this Agreement), and Seller has not waived such condition on or before such date;

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(e) by mutual consent of the Parties as evidenced in writing signed by each of Buyer, Tristream and Seller;

(f) by any Party if a final, non-appealable order, decree, ruling or injunction (other than a temporary restraining order) has been issued or any other action permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement has been taken;

(g) by any Party if the Closing Date has not occurred on or before July 31, 2010, or such later date as the Parties may agree upon; provided, however, that (i) either Buyer and Tristream or Seller may, at its sole discretion, extend such date on one or more occasions for an aggregate period not to exceed thirty (30) days if all of the conditions to the consummation of the transactions contemplated by this Agreement are satisfied or capable of then being satisfied, and the sole reason that such transactions have not consummated by such date is that the conditions set forth in Sections 4(e)(iii) and 4(f)(iii) have not been satisfied, and (ii) this right to terminate shall not be available to any Party if its breach of or failure to perform under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date;

(h) by Seller or Buyer pursuant to the provisions of Section 6; or

(i) by Seller in the event Buyer’s Lender, for any reason, fails to fund the Commitment for debt financing in the full amount of the Commitment.

If this Agreement is terminated under this Section 14, all further obligations of the Parties under this Agreement will terminate without further liability or obligation of any Party to the other Parties hereunder; provided, however, nothing herein shall (a) prejudice the ability of the non-breaching Party from (i) seeking damages from the breaching Party for any actual fraud involving a knowing and intentional misrepresentation or omission of a material fact or willful or intentional breach of this Agreement, including attorneys’ fees, or (ii) pursuing any equitable rights or remedies or (b) relieve any Party to this Agreement of liability for any breach of Section 15(b) or Section 16 of this Agreement occurring prior to any termination, or for breach of any provision of this Agreement that specifically survives termination hereunder. The Confidentiality Agreement shall not be affected by a termination of this Agreement. For the avoidance of doubt, the Parties agree that if this Agreement is terminated by Seller pursuant to Section 14(i) above, such termination shall not be considered to be a termination as a result of any breach of this Agreement by Buyer and/or Tristream, on the one hand, or Seller, on the other hand, and neither Seller nor Buyer and/or Tristream shall have any right to seek any damages from Buyer or Tristream, on the one hand, or Seller, on the other hand, as applicable, as a result of such termination.

15. Access.

(a) Records. From and after the date hereof until Closing, Seller will make the Records available to Buyer and Tristream and their representatives for inspection and review during normal business hours at Seller’s offices or in a secure electronic data room in order to permit Buyer and Tristream to perform their due diligence review. Seller shall furnish to Buyer and Tristream all Records as they may reasonably request. Buyer and Tristream may inspect the Records and such additional information only to the extent such inspection does not violate any contractual commitment of Seller to any third party; provided, however, that Seller shall use commercially reasonable efforts, without the expenditure of funds, to obtain the consent of any such third party to the disclosure of such information.

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(b) Seller Property. Seller grants Buyer and Tristream access to the Seller Property and to Seller’s personnel who provide services related to the Seller Property during reasonable business hours, so Buyer and Tristream may conduct, at their sole risk and expense, their due diligence review including on-site inspections and environmental assessments of the Seller Property; provided that neither Buyer nor Tristream may conduct any sampling, testing or other invasive analyses of the Seller Property without the prior written consent of Seller which Seller may grant or deny in its sole discretion. If Buyer, Tristream or their agents prepares an environmental assessment of any Seller Property, Buyer or Tristream shall immediately furnish copies thereof to Seller and shall otherwise keep such assessment confidential and not share any information obtained through such assessment with any governmental authority or third party. In connection with any on-site inspections, Buyer and Tristream (i) shall not interfere with the normal operation of the Seller Property, (ii) shall comply with Seller’s reasonable requirements for access to the Seller Property and (iii) represent that each is adequately insured. In the event that the Closing does not occur for any reason, Buyer and Tristream shall destroy all remaining copies of such assessments. Buyer and Tristream waive, and release Seller from, and shall indemnify Seller (and its directors, officers, shareholders, members, employees, agents and representatives) against, all Losses, including without limitation, personal injury, death and/or property damage, arising from Buyer’s or Tristream’s activities on the Seller Property, except to the extent such liabilities or damages are caused by Seller’s gross negligence or willful misconduct or pre-existing condition of the Seller Property. The provisions of this section shall survive termination of this Agreement.

16. Confidentiality.

(a) The terms of this Section 16 are in addition to, and are not intended to replace, that certain Confidentiality Agreement, dated as of February 22, 2010, by and between Tristream and Seller (the “Confidentiality Agreement”). All nonpublic data and information, whether written or oral, obtained from Seller in connection with the transaction contemplated by this Agreement, whether before or after the execution of this Agreement, and data and non-privileged information generated by Tristream or Buyer in connection with the transaction, including pursuant to the access granted to it under Section 15 of this Agreement (collectively, the “Information”), is deemed by the Parties to be confidential and proprietary to Seller. Until the Closing (and for a period of two (2) years if Closing should not occur for any reason), except as required by law, Buyer and Tristream, and their respective managers, directors, officers, employees, agents and representatives will hold in strict confidence the terms of this Agreement and all Information, except any Information which:

(i) at the time of disclosure to Tristream or Buyer by Seller was available to Tristream or Buyer on a nonconfidential basis;

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(ii) after disclosure to Tristream or Buyer by Seller becomes part of the public domain by publication or otherwise, except by breach of this commitment by Tristream or Buyer;

(iii) Tristream or Buyer can establish by competent proof was rightfully in its possession at the time of disclosure to Tristream or Buyer by Seller;

(iv) Tristream or Buyer rightfully receives from third parties who, to the knowledge of Tristream or Buyer, are not bound by a confidentiality obligation to Seller;

(v) is disclosed to Tristream’s or Buyer’s consultants, investors and lenders and those engaged by Tristream or Buyer to operate the Seller Property who similarly agree in writing to protect the confidentiality of such Information and agree to use such Information only for their due diligence evaluation of the Seller Property;

(vi) is developed independently by Tristream or Buyer, provided that the person or persons developing the data will not have had access to the Information; or

(vii) is required to be disclosed under applicable securities laws or the rules and regulations of any applicable securities exchange.

(b) If Closing does not occur for any reason, Tristream and Buyer will:

(i) upon request by Seller, return to Seller all copies of the Information in their possession or control;

(ii) not utilize or permit the utilization of the Information to compete with Seller; and

(iii) destroy any and all notes, reports, studies, data or analyses based on or generated when incorporating or analyzing the Information or exercising the access provided in Section 15.

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(c) Following the Closing Date and for a period of two (2) years following the Closing Date, Seller will not, and will cause each of its or its affiliates’ officers, directors, managers, consultants, employees and advisors not to, directly or indirectly, (i) use or disclose, reveal, divulge or communicate to any Person, any Eustace System Information (as defined below) other than: (x) to authorized officers, directors, consultants, employees and advisors of Seller or its affiliates that have a reasonable need to know and that agree to maintain the confidentiality of the Eustace System Information in accordance with this Agreement and (y) as reasonably required, to exercise any rights or obligations or in connection with any dispute under this Agreement or (ii) use or otherwise exploit any Eustace System Information for its own benefit or for the benefit of anyone other than Buyer. Seller will not have any obligation to keep confidential any Eustace System Information if and to the extent disclosure thereof is specifically required by law; provided, however, that in the event disclosure is required by law, Seller shall, to the extent reasonably possible, provide Buyer with prompt notice of such requirement prior to making any disclosure so that Buyer may seek an appropriate protective order. For purposes of this Section 16(c), “Eustace System Information” shall mean any confidential information that applies to the Seller Property, including, to the extent applicable, customers, customer lists, products, prices, fees, costs, trade secrets, plans, suppliers, competitors, markets or other specialized information or proprietary matters. “Eustace System Information” does not include, and there shall be no obligation hereunder with respect to, information that (i) is generally available to the public on the Closing Date or (ii) becomes generally available to the public other than as a result of a disclosure by Seller not otherwise permissible under this Agreement.

(d) Each Party agrees that it will not have an adequate remedy at law if any other Party violates any of the terms of this Section 16. In such event, the Parties agree that the non-breaching Party will have the right, in addition to any other rights it may have, to obtain injunctive relief to restrain any breach or threatened breach of the terms of Section 16, and to obtain specific enforcement of such terms.

(e) Notwithstanding the foregoing obligation of confidentiality, Seller may disclose, without Buyer’s or Tristream’s consent, the terms of this Agreement to the holders of the Consents set forth on Exhibit C, to the extent necessary in order to obtain such Consents.

(f) Effective immediately upon the Closing, Seller shall assign to the Buyer all rights under any confidentiality and/or nondisclosure agreements entered into in connection with any attempt by Seller to market or sell the Seller Property that is assignable without consent. From and after the Closing, upon Buyer’s written request and at Buyer’s sole cost, Seller will reasonably cooperate with Buyer to enforce any agreements with other Persons that are not assignable without consent with respect to the confidentiality and nondisclosure of the Eustace System Information.

17. Waiver; Remedies Cumulative. The rights and remedies of the Parties to this Agreement are cumulative and not alternative. No waiver by any Party of any breach or default of any of the terms and conditions contained in this Agreement shall be construed as a waiver of any subsequent breach or default whether of a like or different character.

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18. Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.

19. Construction. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. “Section” refers to the corresponding Section of this Agreement unless otherwise specified herein.

20. Binding Agreement/Assignability. No Party shall assign any of its rights or obligations under this Agreement without the prior written consent of the other Parties, and any attempt to do so will be null and void, except that a Party may assign its rights to an affiliate without such consent. Subject to the foregoing, this Agreement shall be binding and inure to the benefit of Seller, Buyer and Tristream and their successors and permitted assigns. No assignment of this Agreement or a Party’s rights or obligations hereunder without obtaining the prior written consent of the other Parties shall excuse, terminate, or otherwise affect the obligations of the assigning Party to the other Parties hereunder.

21. Entire Agreement. This Agreement and all exhibits and schedules attached hereto and the Confidentiality Agreement constitute the entire agreement and understanding of the Parties with respect to the subject matter hereof, and supersedes all other prior and contemporaneous agreements, whether written or oral, between the Parties. This Agreement may not be modified or amended except by an instrument signed by all of the Parties.

22. Cooperation. After the Closing, the Parties shall, from time to time and without further consideration, execute and deliver such instruments of transfer, conveyance, and assignment, in addition to those specifically delivered under this Agreement, and take such other action, as reasonably necessary, to more effectively transfer, convey, and assign to and vest in each Party all rights contemplated herein.

23. Notices. All notices required under this Agreement shall be deemed made when in writing and personally delivered, received by overnight mail, received by facsimile, or received by certified or registered mail, return receipt requested, to the following addresses:

Seller:	Regency Field Services LLC 2001 Bryan Street, Suite 3700 Dallas, TX 75201
	Attention: Legal Department
Buyer and Tristream:	Tristream Energy, LLC 14090 Southwest Freeway, Suite 460 Sugar Land, Texas 77478
	Attention: Kendall A. Purgason

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24. Counterparts and Conflicts. This Purchase and Sale Agreement and all exhibits and schedules attached hereto shall, in their entirety constitute the Agreement of the parties. In the event of a conflict between a provision contained within this Purchase and Sale Agreement and a provision contained within any exhibits or schedules attached hereto, the provision in this Purchase and Sale Agreement shall control.

25. Employee Matters.

(a) From and after the date hereof, Buyer shall have the opportunity to meet with the employees of Seller or its affiliates who work at, operate and/or maintain the Seller Property and listed on Schedule 9(n) (the “Potential Employees”) to discuss potential employment opportunities with Buyer in connection with the Seller Property, and Buyer may make offers to any or all of the Potential Employees. If the Closing shall occur concurrently with the execution of this Agreement, Buyer shall promptly make offers of employment to any or all of the Potential Employees following the Closing. All Potential Employees who are offered employment and who accept employment with Buyer and execute and deliver the Employee Release (as herein defined) are referred to as “Transferred Employees”. All Transferred Employees will become employees of Buyer effective as of 12:01 a.m. on the Closing Date. Potential Employees who do not accept Buyer’s offer of employment and/or who do not execute and deliver the Employee Release as required by Buyer (an “Excluded Employee”) will not be considered as a Transferred Employee. The offers of employment to the selected Potential Employees shall (i) remain open for acceptance until the later to occur of (A) 12:01 a.m. on the Closing Date, or (B) the expiration of two (2) days after such offer is made, (ii) provide base compensation at a rate substantially similar to such Transferred Employee’s base compensation rate immediately prior to the Closing and benefits substantially similar to the benefits provided to similarly situated employees of Buyer, (iii) provide that Buyer will pay severance to Transferred Employees that are terminated without cause within the six (6) month period immediately following the Closing Date consistent with Buyer’s then-existing policies for other similarly situated employees, (iv) to the extent permitted under applicable laws and the terms of any plan maintained by Buyer, provide that such Transferred Employees will be eligible to participate in Buyer’s employee benefit plans and to take into account for purposes of eligibility, vesting and for purposes of severance, vacation and sick leave benefit accrual under any Buyer benefit plan, the length of service of such Transferred Employee with Seller prior to the Closing Date, and (v) be conditioned upon the Employee’s execution and delivery of the Employee Release. Prior to Closing (or if Closing shall occur concurrently with the execution of this Agreement, promptly following the Closing Date), Buyer shall provide to Seller (i) a list of all Transferred Employees who have timely accepted the offer of employment, and (ii) a detailed summary of the offers made to each Potential Employee (including each Transferred Employee), which summary shall include, to the extent applicable, the base salary, the bonus structure and benefits, including, without limitation, defined contributions plans, insurance, severance pay, paid time off, vacation entitlement, service awards and long and short term disability. Without limiting or otherwise affecting Seller’s responsibility for Excluded Liabilities, Buyer shall not assume any of Seller’s employee benefit plans or programs and, except as set forth in Section 25(b) below, Buyer shall have no liability or obligation with respect to the Transferred Employees and any such employee benefit plans or programs provided by Seller. Seller has or will provide to Buyer copies of job descriptions and salary ranges for the Potential Employees. Seller shall comply with all applicable laws, statutes, rules and regulations in connection with the termination of the Transferred Employees as of the Closing Date including, without limitation, the Worker Adjustment and Retraining Notification Act. Buyer shall, upon five (5) business days notice, reimburse Seller for any and all severance costs or expenses, consistent with the policies or arrangements disclosed on Schedule 25(a), associated with Potential Employees who are not, other than for good reason (such as immigration status, failure to pass any drug test or refusal to execute and deliver an Employee Release), offered employment by Buyer in connection with the Closing. Except as set forth in the preceding sentence or Section 25(b) below, Seller shall be responsible for the payment of any and all unpaid salary, wages, retention bonuses or other amounts due Seller’s employees who are entitled to such benefits through the Closing Date. This Agreement (including the provisions of this Section) is a covenant between Buyer and Seller and shall not, in any manner, (i) create any contractual right of employment for any employee of Seller or (ii) prevent, restrict, or limit Buyer, following the Closing, from modifying or terminating any of its benefit plans, programs or policies from time to time as it may deem appropriate.

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(b) Buyer and Seller agree that with respect to any Potential Employee who accepts employment with Buyer as a Transferred Employee effective as of the Closing Date and to the extent such amount is included as an adjustment to the Base Purchase Price under Section 4(g), Buyer shall assume all accrued paid time off of such Transferred Employee in connection with Buyer’s employment of such Transferred Employee on or after the Closing Date. Buyer shall cooperate with Seller and use commercially reasonable efforts to obtain, in connection with Buyer’s employment of each Transferred Employee, a release (the “Employee Release”) of any and all claims to payments of vacation pay from Seller in the form of Exhibit J attached hereto.

(c) For a period of two (2) years following the Closing Date, Seller will not, directly or indirectly, hire or attempt to hire or retain any Transferred Employee or otherwise induce any such Transferred Employee to terminate his or her employment or agency with Buyer; provided, however, that the foregoing provisions shall not prevent Seller from hiring or retaining or attempting to hire or retain (i) any such person who responds to an advertisement or other general solicitation for employment not targeted to the Transferred Employees or (ii) any Transferred Employee terminated by Buyer.

(d) Buyer and Seller agree that during the period commencing on the Closing Date and ending on October 31, 2010, for each Transferred Employee who elects to enroll in continuation coverage under Seller’s group health plan as permitted by COBRA, Buyer may elect to pay all such COBRA premiums through delivery of a direct payment to Seller on behalf of each such Transferred Employee. Buyer shall deliver the first set of COBRA premiums within five (5) business days immediately following the date upon which the plan administrator of the Seller’s group health plan notifies Buyer of the name of each Transferred Employee and other qualified beneficiary electing coverage, the date of such election for continuation coverage, the amount of the premium owed for each such Transferred Employee and other qualified beneficiary, and the period such initial premium covers. Buyer shall deliver each future set of COBRA premiums, if any, on the last business day of the calendar month immediately preceding the month during which such coverage will be provided.

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(e) Seller shall, in connection with the Closing, cause the Regency 401(k) Plan to fully vest the individual accounts for each Transferred Employee as of the Closing Date. Buyer shall, within ninety (90) days following the Closing Date, establish a new 401(k) plan (the “Buyer 401(k) Plan”) and will cause that plan to accept tax-free rollovers of “eligible rollover distributions” within the meaning of Section 402(c) of the Code. Within ten (10) business days immediately following the Closing Date, Buyer shall , upon the request of any individual listed on Schedule 25(e), make a loan to such individual in the amount set forth on Schedule 25(e), to enable such individual to repay participant loans under the Regency 401(k) Plan. Buyer’s obligation to make any such loan shall be conditioned upon such individual executing a promissory note and such other documentation as reasonably required by Buyer.

(f) With respect to each Transferred Employee who has been approved to receive a truck allowance from Seller prior to the Closing Date, Buyer shall, for a period of not less than one (1) year following the Closing Date, provide a truck allowance to such Transferred Employee in the same amount as that provided by Seller prior to the Closing Date; provided, however, that Buyer shall not be required to provide, or may otherwise terminate, such allowance if: (i) the Transferred Employee receiving such allowance consents to the termination or modification of any such allowance, (ii) the employment of such Transferred Employee is terminated or (iii) Buyer determines, due to the condition of such vehicle, that it is no longer economically practical to use the vehicle in connection with the operations of the Seller Property.

26. Rights-of-Way. From and after the Closing, Seller shall, at Seller’s expense, use commercially reasonable efforts to acquire on behalf of Buyer any additional rights-of-way required for the operation of the pipeline running from the Fletcher Compressor Station to the Holland Blockvalve, such additional rights-of-way being located in the following abstracts in Wood County, Texas: P. Dillsworth, A-150; I. Simpson, A-519; S. Hatfield, A-316; and S. McDonald, A-392 (the “Fletcher Line”). Buyer agrees to promptly execute all right-of-way documents tendered by Seller to the extent that such documents are in a form and substance consistent with Seller’s historical practice related to right-of-way acquisition for the Fletcher Line. In addition, consistent with Section 4(i) above, Seller shall solicit Consents to assignment from any landowner to the extent such Consents are required and notify landowners of assignment to the extent that Consent is not required. Buyer shall pay all reasonable and customary fees to any landowner or third party relating to, and all reasonable and customary costs and expenses associated with obtaining any Consents.

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27. Louis Dreyfus Energy Services LP Agreement. Seller is a party to that certain Natural Gas Liquids Purchase Agreement dated October 1 2008 (the “LDES Agreement”) with Louis Dreyfus Energy Services LP (“LDES”) pursuant to which Seller is committed to sell natural gas liquids from the Seller Property. Following the Closing, Seller shall cooperate with Buyer in either obtaining a partial assignment of the LDES Agreement to Buyer or establishing an acceptable arrangement to provide Buyer with the economic benefits of the LDES Agreement, including, without limitation, rights to any linefill pursuant to the LDES Agreement. In the event the LDES Agreement is not partially assigned to Buyer, Seller agrees (a) that upon written request of Buyer, Seller shall cause the LDES Agreement to be terminated with respect to the Seller Property upon the expiration of the initial term or any month-to-month extension thereof, and (b) that if Seller intends to terminate the LDES Agreement with respect to any other originating facility covered thereby, Seller will give Buyer written notice thereof not less than thirty (30) days prior to Seller’s delivery of any notice of termination to LDES.

28. FCC Filing. Promptly following the execution of this Agreement, Buyer and Seller shall file or cause to be filed with the FCC all appropriate applications with respect to the transfer of control to Buyer of the Seller FCC Licenses (the “FCC Transfer Applications”). The FCC Transfer Applications and any supplemental information furnished in connection therewith shall be in substantial compliance with the FCC rules and regulations or be responsive to a request of the FCC. Buyer and Seller shall furnish to each other such necessary information and reasonable assistance as the other may reasonably require in connection with the preparation, filing and prosecution of the FCC Transfer Applications. Buyer and Seller shall bear their own expenses in connection with the preparation, filing and prosecution of the FCC Transfer Applications. Buyer and Seller shall each use their commercially reasonable efforts to prosecute the FCC Transfer Applications and shall furnish to the FCC any documents, materials or other information reasonably requested by the FCC. If the FCC Transfer Applications shall not have been approved by final order of the FCC to the extent necessary to permit the transfer of the Seller FCC Licenses to Buyer at Closing, then upon such FCC Transfer Applications being so approved, Seller shall transfer and assign the Seller FCC Licenses to Buyer.

29. Schedules.

(a) Unless the context otherwise requires, all capitalized terms used in the Schedules shall have the respective meanings assigned in this Agreement. No disclosure in the Schedules relating to any possible breach or violation of any agreement or law shall be construed as an admission or indication that any such breach or violation exists or has actually occurred. The inclusion of any information in the Schedules shall not be deemed to be an admission or acknowledgment by Seller, in and of itself, that such information is material to or outside the ordinary course of the business or required to be disclosed on the Schedules. Each disclosure in the Schedules shall be deemed to qualify other representations and warranties of Seller notwithstanding the lack of a specific cross-reference where the relevance of such disclosure to such other representation and warranty is reasonably apparent or if the fact or item or its contents are reasonably related to such other representation or warranty.

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(b) Seller may by written notice to Buyer and Tristream revise or supplement the Schedules at any time prior to the Closing Date to reflect information that either (i) existed on the date hereof and should have been included on one or more items of the Schedules but was not, or (ii) came into existence after the date hereof and would have been required to be disclosed on one or more items of the Schedules if such information was in existence on the date of this Agreement. Buyer and Tristream shall have five (5) Business Days to review such supplement or amendment and the Closing Date shall be postponed as necessary for Buyer and Tristream to do so. No such supplement or amendment will affect the rights and obligations of Buyer and Tristream under Section 4(f)(i) or Section 14 of this Agreement at any time prior to the Closing, but if the Closing occurs, any such supplement or amendment of any Schedule will be effective to cure and correct for all purposes (including, but not limited to indemnification obligations set forth in Section 7 of this Agreement) any breach of any representation, warranty, covenant or agreement that would otherwise have existed by reason of Seller not having made such amendment or supplement.

30. Miscellaneous Provisions.

(a) Expenses. Subject to the specific provisions in this Agreement, each of the Parties hereto shall pay all costs and expenses of its performance of and compliance with this Agreement, and shall pay the fees and expenses incurred with its own legal counsel and other advisors in connection with negotiating, investigating and closing this transaction. This provision in no way acts to disallow the collection of costs and expenses expressly permitted by another Section of this Agreement.

(b) Governing Law/Consent to Jurisdiction. This Agreement shall be construed in accordance with and governed by the laws of the State of Texas, without regard to its conflict of laws provisions. The Parties further agree that any legal action or proceeding with respect to this Agreement or any document relating hereto may be brought only in a federal or state court of competent jurisdiction in Dallas, Texas. Each Party hereby irrevocably waives any objection, including, but not limited to, any objection to the laying of venue or based on the grounds of forum non-convenience, which it may now or hereafter have to the bringing of such action or proceeding in any such respective jurisdiction.

(c) Time. With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence. If the time for performance of any obligation set forth in this Agreement falls on a Saturday, Sunday or legal holiday in the State of Texas, compliance with such obligation on the next Business Day following such Saturday, Sunday or legal holiday shall be deemed acceptable. For purposes of this Agreement, a “Business Day” is any day other than a Saturday, Sunday or legal holiday in the State of Texas.

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(d) Execution of Agreement. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. The exchange of copies of this Agreement and signature pages by facsimile transmission or by electronic mail in “portable document format” shall constitute effective execution and delivery of this Agreement for all purposes. Signatures transmitted by facsimile or by electronic mail in “portable document format” shall be deemed to be their original signatures for all intents and purposes.

(e) Public Statements. Seller, Buyer and Tristream agree to consult with, and obtain the approval of (which approval will not be unreasonably withheld, conditioned or delayed), each other prior to issuing any press release or otherwise making any public statement with respect to the transactions contemplated hereby, and shall not issue any such press release or make any such public statement prior to such consultation and approval, except as may be required by law or the rules and regulations of any applicable stock exchange.

[Signature Page Follows]

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IN WITNESS WHEREOF, the Parties have executed this Agreement through their authorized representatives as of the date first above written.

Seller:
REGENCY FIELD SERVICE, LLC
By:	Regency Gas Services LP, its sole member
By:	Regency OLP GP LLC, its general partner
By:
	Byron R. Kelley, President
Tristream:
TRISTREAM ENERGY, LLC
By:
	Kendall A. Purgason, President
Buyer:
TRISTREAM EAST TEXAS, LLC
By:
	Kendall A. Purgason, President

EX-10.46

Exhibit 10.46

Execution Version

MERGER AGREEMENT

by and among

Zephyr Gas Management, LLC,

Zephyr Gas Services, LP,

Regency Gas Services LP,

and

Regency Zephyr LLC

Dated as of August 6, 2010

TABLE OF CONTENTS

			Page
ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION			1
	1.1	Definitions	1
	1.2	Rules of Construction	14
ARTICLE II TERMS OF THE MERGER			15
	2.1	The Merger	15
	2.2	Effects of the Merger	15
	2.3	Effective Time of the Merger	15
	2.4	Reserved	15
	2.5	Reserved	15
	2.6	Effect of the Merger on the Membership Interests and the Units	16
	2.7	Procedures	18
	2.8	Closing Payments	18
	2.9	Merger Consideration Adjustment	19
	2.10	Closing Date	23
ARTICLE III REPRESENTATIONS AND WARRANTIES RELATED TO THE COMPANIES			23
	3.1	Organization	23
	3.2	Authority	23
	3.3	Capitalization	24
	3.4	Interests in Other Entities	25
	3.5	No Conflict; Consents	25
	3.6	Litigation	25
	3.7	Financial Statements	25
	3.8	Absence of Certain Changes	26
	3.9	Taxes	26
	3.10	Contracts	27
	3.11	Intellectual Property	29
	3.12	Employee Benefit Plans	29
	3.13	Environmental Matters	30
	3.14	Compliance with Laws; Permits	31
	3.15	Insurance	31
	3.16	Labor Relations	31
	3.17	Title to Properties and Related Matters	31
	3.18	Brokers’ Fees	32
	3.19	Company Guaranties	32
	3.20	Related Party Transactions	32
	3.21	Disclaimer of Additional and Implied Warranties	32
ARTICLE IV REPRESENTATIONS AND WARRANTIES RELATING TO BUYER			32
	4.1	Organization of Buyer Party	33

i

	4.2	Authorization; Enforceability	33
	4.3	No Conflict; Consents	33
	4.4	Litigation	34
	4.5	Brokers’ Fees	34
	4.6	Financial Ability	34
ARTICLE V COVENANTS			34
	5.1	Conduct of Business	34
	5.2	Access	37
	5.3	Third-Party Approvals	38
	5.4	Regulatory Filings	38
	5.5	Books and Records	40
	5.6	Permits	41
	5.7	Director and Officer Indemnification	41
	5.8	Public Statements	42
	5.9	Updating Certain Disclosures; Revising Disclosure Schedule	42
	5.10	Exclusivity	43
	5.11	Employee Matters	43
	5.12	Notices and Consents.	43
	5.13	Payoff Letters and Release	43
	5.14	Owner Representative	43
	5.15	Contract Compliance	44
ARTICLE VI TAX MATTERS			44
	6.1	Responsibility for Filing Tax Returns, Payment of Taxes	44
	6.2	Responsibility for Tax Audits and Contests	45
	6.3	Cooperation on Tax Matters	45
	6.4	Amended Tax Returns	45
	6.5	Tax Refunds	45
	6.6	Transfer Taxes	45
	6.7	Merger Consideration Allocation	46
	6.8	Disputes over Tax Provisions	46
ARTICLE VII CONDITIONS TO CLOSING			46
	7.1	Conditions to Obligations of the Buyer Parties	46
	7.2	Conditions to the Obligations of the Companies	48
	7.3	Conditions to the Obligations of Each Party	49
	7.4	Casualty Loss	50
	7.5	Deliveries at the Closing	50
ARTICLE VIII INDEMNIFICATION			51
	8.1	Survival	51
	8.2	Indemnification	52
	8.3	Limitations on Liability	53
	8.4	Procedures	56
	8.5	Characterization of Payments	58
	8.6	Losses	58

ii

ARTICLE IX TERMINATION			58
	9.1	Termination	58
	9.2	Effect of Termination.	59
ARTICLE X MISCELLANEOUS			60
	10.1	Notices	60
	10.2	Assignment	61
	10.3	Further Assurances	61
	10.4	Rights of Third Parties	61
	10.5	Expenses	61
	10.6	Counterparts	61
	10.7	Entire Agreement	62
	10.8	Disclosure Schedule	62
	10.9	Amendments	62
	10.10	Severability	62
	10.11	Governing Law; Jury Waiver	62
	10.12	Owner Representative	63
	10.13	Specific Performance	65

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LIST OF EXHIBITS

Exhibit 2.3	Form of Certificates of Merger
Exhibit 2.7(a)	Form of Letter of Transmittal
Exhibit 2.7(b)	Form of Paying Agent Agreement
Exhibit 2.8	Form of Escrow Agreement
Exhibit 2.9(a)	Balance Sheet Date Net Working Capital
Exhibit 2.9(b)	Net Income Amount Example
Exhibit 7.1(j)	Form of Release
Exhibit 7.1(k)	Form of Non-Competition Agreement
Exhibit 7.1 (n)	Net Merger Consideration Payment Schedule

LIST OF SCHEDULES

Schedule 1.1(a)	Knowledge
Schedule 1.1(b)	Permitted Liens
Schedule 1.1(c)	Approved Capital Expenditures
Schedule 3.3(a)	Capitalization of Zephyr Services
Schedule 3.3(b)	Capitalization of Zephyr Management
Schedule 3.5	No Conflict; Consents
Schedule 3.7	Financial Statements
Schedule 3.8	Absence of Certain Changes
Schedule 3.9	Taxes
Schedule 3.10(a)	Material Contracts
Schedule 3.10(d)	Contracts
Schedule 3.11	Intellectual Property
Schedule 3.12	Employee Benefit Plans
Schedule 3.13	Environmental Matters

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Schedule 3.14	Compliance with Laws; Permits
Schedule 3.15	Insurance
Schedule 3.17(a)	Leased Real Property
Schedule 3.17(b)	Liens
Schedule 3.19	Company Guaranties
Schedule 3.20	Related Party Transactions
Schedule 5.1	Conduct of Business
Schedule 7.1(f)	Required Consents

v

MERGER AGREEMENT

THIS MERGER AGREEMENT, dated as of August 6, 2010 (this “Agreement”), is entered into by and among Regency Gas Services LP, a Delaware limited partnership (the “Buyer”), Regency Zephyr LLC, a Delaware limited liability company (the “Merger Sub”), Zephyr Gas Management, LLC, a Texas limited liability company (“Zephyr Management”), and Zephyr Gas Services, LP, a Texas limited partnership (“Zephyr Services”). Individually, each of the Buyer, Merger Sub, Zephyr Management and Zephyr Services is a “Party” and, collectively, they are the “Parties.”

RECITALS

WHEREAS, Zephyr Management is the general partner of Zephyr Services;

WHEREAS, the Merger Sub is a wholly owned subsidiary of the Buyer;

WHEREAS, the managers of Zephyr Management (the “Managers”), the members of Zephyr Management (the “Members”) and the holders of Units (as defined in the Partnership Agreement) of Zephyr Services (the “Unit Holders”) have (i) determined that it is in the best interest of Zephyr Management, the Members, Zephyr Services and the Unit Holders, and declared it advisable, to enter into this Agreement providing for the merger of Zephyr Management and Zephyr Services with and into the Merger Sub, in accordance with the TBOC and the DLLCA, upon the terms and subject to the conditions set forth herein and (ii) approved the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, in accordance with the TBOC and the DLLCA, upon the terms and conditions contained herein;

WHEREAS, the general partner of the Buyer and the member of the Merger Sub have (i) unanimously approved this Agreement and declared it advisable for Buyer and Merger Sub to enter into this Agreement, and (ii) unanimously approved the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, including the Merger, in accordance with the TBOC and DLLCA, upon the terms and conditions contained herein; and

WHEREAS, the Buyer, the Merger Sub and the Companies desire to make certain representations, warranties, covenants and agreements in connection with the Merger and to prescribe certain conditions with respect to the consummation of the transaction contemplated by this Agreement.

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

ARTICLE I

DEFINITIONS AND RULES OF CONSTRUCTION

1.1 Definitions. As used herein, the following terms shall have the following meanings:

“Accountants” has the meaning provided such term in Section 2.9(c)(iv).

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“Affiliate” means, with respect to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with, such specified Person through one or more intermediaries or otherwise. For the purposes of this definition, “control” means, where used with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have correlative meanings.

“Agreed Rate” means (a) the annual rate of interest published by The Wall Street Journal as one-month LIBOR on the Business Day that interest begins to accrue under Section 2.9(d) plus (b) 250 basis points per annum, such rate to change each month on the monthly anniversary of such Business Day based on the quotation of one month LIBOR in The Wall Street Journal on the latest day on or prior to such anniversary that The Wall Street Journal is published.

“Agreement” has the meaning provided such term in the preamble to this Agreement.

“Allocation” has the meaning provided such term in Section 6.7.

“Ancillary Agreements” mean the Certificates of Merger, the Escrow Agreement, the Paying Agent Agreement, the Releases and any other agreement executed at or prior to Closing pursuant hereto.

“Approved Capital Expenditures” means the capital expenditures by the Companies that are either (i) listed on Schedule 1.1(c) or (ii) approved by the Buyer in advance in writing (both the project and the amounts to be spent with respect thereto).

“Audited Financial Statements” has the meaning provided such term in Section 3.7.

“Balance Sheet Date” has the meaning provided such term in Section 3.7.

“Balance Sheet Date Net Working Capital” has the meaning provided such term in Section 2.9(a).

“Basket” has the meaning provided such term in Section 8.3(a)(ii).

“Business Day” means any day that is not a Saturday, Sunday or legal holiday in the State of Texas and that is not otherwise a federal holiday in the United States.

“Buyer” has the meaning provided such term in the preamble to this Agreement.

“Buyer Indemnified Parties” has the meaning provided such term in Section 8.2(a).

“Buyer Material Adverse Effect” means any circumstance, change or effect that materially impedes the ability of the Buyer Parties to complete the transactions contemplated herein.

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“Buyer Parties” means the Buyer and the Merger Sub.

“Casualty Loss” has the meaning provided such term in Section 7.4.

“Ceiling” has the meaning provided such term in Section 8.3(a)(iii).

“CERCLA” means the Federal Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. § 9601 et seq.

“Certificates of Merger” has the meaning provided such term in Section 2.3.

“Change of Control Amounts” means any bonus, retention bonus, consent or other fee, compensation (including the estimated costs of benefits required to be provided), accelerated payment, vesting or funding (through a grantor trust or otherwise) of compensation or benefits or other similar payments (including the employee’s portion of any Medicare, Social Security or unemployment Taxes in respect of such payments) that a Company upon Closing, to the extent not paid as of 11:59 p.m. on the day prior to the Closing Date, will become obligated to pay (other than Expenses, Severance Obligations and Merger Consideration) to any employee of a Company or any officer, director or manager of a Company as a result of the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements, regardless of whether such amounts are payable at or after Closing.

“Claim Notice” has the meaning provided such term in Section 8.4(a).

“Closing” has the meaning provided such term in Section 2.9.

“Closing Date” has the meaning provided such term in Section 2.9.

“Closing Payment Amount” means (a) $185,000,000 plus (b) (i) the Estimated Net Working Capital Excess, if any, and the (ii) Estimated Reimbursable Amount, if any, minus (c) (i) the Escrow Amount, (ii) the Owner Representative Reserve, (iii) the Estimated Net Working Capital Deficiency, if any, (iv) the Estimated Net Income Amount, (v) the Change of Control Amounts, if any, (vi) the Severance Obligations, if any, (vii) the Excess Casualty Loss, if any, and (viii) the Expenses and the Debt Payoff Amount set forth in the Estimated Closing Statement.

“Closing Statement” has the meaning provided such term in Section 2.9(c)(i).

“Closing Statement Submission Deadline” has the meaning provided such term in Section 2.9(c)(iv).

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

“Company” shall mean Zephyr Management or Zephyr Services and “Companies” shall mean Zephyr Management and Zephyr Services.

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“Company Guaranties” means those guaranties, letters of credit, bonds, sureties and other forms of credit support or assurances provided by the Zephyr Owners or their Affiliates in support of obligations of any Company.

“Company Indemnified Party” has the meaning provide such term in Section 5.7(a).

“Company Material Adverse Effect” means any circumstance, change or effect (whether short term or long term, or whether or not foreseeable as of the date of this Agreement) that (a) has had, has, or is reasonably expected to have a material adverse effect on or to the business, operations (including results of operation), assets, liabilities or financial condition of the Companies taken as a whole, or (b) that materially impedes the ability of the Companies to complete the transactions contemplated herein; provided, however, a Company Material Adverse Effect shall exclude any circumstance, change or effect resulting or arising from: (i) any change in general economic conditions in the industries or markets in which the Companies operate that does not materially disproportionately affect the business, operations (including results of operation), assets, liabilities or financial condition of the Companies taken as a whole as compared to other similarly situated Persons in the industries in which the Companies operate; (ii) seasonal reductions in revenues and/or earnings of the Companies in the ordinary course of its business consistent with past practice; (iii) any adverse change, event or effect on the global, national or regional energy industry as a whole, including those impacting energy prices or the value of oil and gas assets, which does not materially disproportionately affect the Companies taken as a whole as compared to other similarly situated Persons in the industries in which the Companies operate; (iv) the bankruptcy insolvency or other financial distress of any of the Companies’ customers or suppliers; (v) national or international political conditions, including any engagement in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack, which do not materially disproportionately affect the Companies taken as a whole as compared to other similarly situated Persons in the industries in which the Companies operate; (vi) changes in Law, GAAP, or the interpretation thereof, which do not materially disproportionately affect the Companies taken as a whole; (vii) the entry into or announcement of this Agreement, actions contemplated by this Agreement, or the consummation of the transactions contemplated hereby; (viii) matters that will be reflected in the calculation of Effective Time Net Working Capital; (ix) the loss of any employee of any Company or (x) acts of God.

“Confidentiality Agreement” means the Letter Agreement, dated May 28, 2010, by and between Regency Energy Partners LP and Zephyr Services.

“Constituent of Concern” any substance defined as a hazardous substance, hazardous waste, hazardous material, pollutant or contaminant, or similar phrase by any Environmental Law, any petroleum hydrocarbon or fraction thereof, asbestos, or PCBs, or any other substance as to which the handling, storage, treatment or exposure of or to is regulated under any Environmental Law.

“Continuing Claim” has the meaning provided such term in Section 8.1(c).

“Contract” means any agreement, lease, license or contract, or other legally binding commitment, whether written or oral, but excluding Plans.

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“Credit Agreement” means the Credit Agreement dated May 24, 2010, by and among Zephyr Gas Services, LP, the Lender parties thereto and Capital One National Association, as Syndication Agent and Administrative Agent, as amended.

“D&O Tail Amount” has the meaning provided in Section 5.7(d).

“De Minimis Loss Amount” has the meaning provide such term in Section 8.3(a)(i).

“Debt Payoff Amount” means the amount of all unpaid Third-Party Debt as of the Closing Date, including principal, accrued and unpaid interest, breakage costs and prepayment fees or penalties or change in control payments that will be incurred in connection with the payment and discharge of such Third-Party Debt as contemplated by this Agreement.

“Debt Payoff Letter” means a payoff letter, in form and substance reasonably satisfactory to Buyer, from each lender of Third-Party Debt setting forth (i) the aggregate amount, including interest, breakage costs, prepayment penalties, and other fees, required to be paid to satisfy fully all Third-Party Debt owed to such lender and (ii) wire transfer instructions for such lender. Each Debt Payoff Letter shall provide for the release and termination of all Liens, recourse and other obligations associated with the Third-Party Debt that is the subject of such Debt Payoff Letter upon receipt of the amount specified in such Debt Payoff Letter to be paid on the Closing Date.

“Direct Claim” has the meaning provided such term in Section 8.4(d).

“Disclosure Schedule” means the schedules attached hereto.

“DLLCA” means the Delaware Limited Liability Company Act.

“Dollars” and “$” mean the lawful currency of the United States.

“Effective Time” has the meaning provided such term in Section 2.3.

“Effective Time Net Working Capital” has the meaning provided such term in Section 2.9(c)(i).

“Entity” means any corporation (including any non-profit corporation), general partnership, limited partnership, limited liability company, joint venture, joint stock association, estate, trust, or other entity having legal capacity, other than a Governmental Authority.

“Environmental Law” means all applicable Laws of any Governmental Authority relating to the protection of human health or the environment, including: (a) all requirements pertaining to reporting, management, licensing, permitting, investigation, and remediation of emissions, discharges, releases, or threatened releases of a Constituent of Concern; and (b) all limitations, restrictions, conditions, standards, prohibitions, obligations, and timetables contained therein or in any Order issued to any Company thereunder. The term “Environmental Law” includes, without limitation, CERCLA, the Federal Water Pollution Control Act (which includes the Federal Clean Water Act), the Federal Clean Air Act, the Federal Solid Waste Disposal Act (which includes the Resource Conservation and Recovery Act), the Federal Toxic Substances Control Act, and the Federal Insecticide, Fungicide and Rodenticide Act, each as amended as of

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the date hereof, any regulations promulgated pursuant thereto, and any state or local counterparts, but shall not include the Occupational Health and Safety Act or other Laws relating to worker protection.

“Environmental Permits” all permits, licenses, authorizations, certificates and approvals of Governmental Authorities relating to or required by Environmental Laws and necessary for or held in connection with the conduct of the businesses of each Company.

“Escrow Account” has the meaning provide such term in Section 2.8(a)(i).

“Escrow Agent” means JPMorgan Chase Bank, National Association.

“Escrow Agreement” means that certain Escrow Agreement, by and among the Escrow Agent, the Owner Representative and the Buyer Parties, substantially in the form attached hereto as Exhibit 2.8.

“Escrow Amount” has the meaning provided such term in Section 2.8(a)(i).

“Estimated Adjustment Amount” means the Estimated Working Capital Adjustment Amount plus the Estimated Reimbursable Amount less the sum of (x) the Expenses as set forth on the Estimated Closing Statement, (y) the Debt Payoff Amount as set forth on the Estimated Closing Statement and (z) the Estimated Net Income Amount.

“Estimated Closing Statement” has the meaning provided such term in Section 2.9(b).

“Estimated Effective Time Net Working Capital” has the meaning provided such term in Section 2.9(b).

“Estimated Net Income Amount” has the meaning provided such term in Section 2.9(b).

“Estimated Net Working Capital Adjustment Amount” means the Estimated Net Working Capital Excess or Estimated Net Working Capital Deficiency, as applicable.

“Estimated Net Working Capital Deficiency” has the meaning provided such term in Section 2.9(b).

“Estimated Net Working Capital Excess” has the meaning provided such term in Section 2.9(b).

“Estimated Reimbursable Amount” has the meaning provided such term in Section 2.9(b).

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“ERISA Affiliates” means either of the Companies or any trade or business, whether or not incorporated, that together with either of the Companies, would be considered a single employer under Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA.

“Excess Casualty Loss” has the meaning provided such term in Section 7.4.

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“Expenses” means to the extent existing at 11:59 p.m. on the Closing Date, the aggregate amount of unpaid Transaction Expenses and other similar unpaid amounts that have been or are expected to be incurred by a Company on or prior to the Closing Date arising from the provision of services through the Closing for the Owner Representative, the Zephyr Owners, a Company, any officers, directors or managers of a Company, the Owner Representative or the Zephyr Owners in connection with the preparation, negotiation and execution of this Agreement and the other Transaction Documents and the consummation of this Agreement and the transactions contemplated hereby, including the following: (i) the fees and disbursements of, or other similar amounts charged by, counsel to the Owner Representative, the Zephyr Owners, the Companies or any officers, directors or managers of a Company, the Owner Representative or the Zephyr Owners, (ii) the fees and expenses of, or other similar amounts charged by, any accountants, agents, financial advisors, consultants and experts employed by the Owner Representative, the Zephyr Owners and/or the Companies, (iii) the out of pocket expenses, if any, of the Owner Representative, the Zephyr Owners and/or the Companies or any officers, directors or managers of the Owner Representative, the Zephyr Owners and/or the Companies incurred in such capacity, in each case to the extent a liability of or to be incurred by a Company.

“Final Adjustment Amount” means the Working Capital Adjustment Amount plus the Reimbursable Amount less the sum of (x) the Expenses, (y) the Debt Payoff Amount and (z) the Net Income Amount all as based on the Closing Statement as finally determined pursuant to Section 2.9(d).

“Financial Statements” has the meaning provided such term in Section 3.7.

“FTC” means the Federal Trade Commission.

“GAAP” means generally accepted accounting principles of the United States, consistently applied.

“Governmental Authority” means any federal, state, municipal, local or similar governmental authority, regulatory or administrative agency, court or arbitral body.

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

“HSR Approval” means (i) the receipt of authorizations required or (ii) the expiration of all applicable waiting periods (and any extensions thereof), under the HSR Act.

“Indebtedness” means, without duplication, (i) any Indebtedness for Borrowed Money of a Company, (ii) any obligations of a Company evidenced by any note, bond, debenture or other debt security, (iii) any obligations of a Company for or on account of capitalized leases, (iv) any obligations of a Person other than a Company secured by a Lien against any assets of a Company, (v) any obligations of a Company for the reimbursement of letters of credit, bankers’ acceptance or similar credit transactions, (vi) any obligations of a Company under any currency, commodity or interest rate swap, hedge or similar protection device, (vii) any obligations of the types described in clauses (i) through (vi) above of any Person other than a Company, the payment of which is guaranteed, directly or indirectly, by a Company.

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“Indebtedness for Borrowed Money” means all obligations to any Person for borrowed money, including (a) any obligation to reimburse any bank or other Person in respect of amounts paid or payable under a standby letter of credit, (b) any guaranty with respect to indebtedness for borrowed money of another Person and (c) with respect to Zephyr Services, all obligations arising in connection with the Credit Agreement.

“Indemnified Party” has the meaning provided such term in Section 8.4(a).

“Indemnifying Party” has the meaning provided such term in Section 8.4(a).

“Individual Claim” has the meaning provided such term in Section 8.2(a)(ii).

“Individual Indemnity Limit” has the meaning set forth in Section 8.3(a)(iv).

“Intellectual Property” means intellectual property rights, statutory or common law, worldwide, including (a) trademarks, service marks, trade dress, slogans, logos and all goodwill associated therewith, and any applications or registrations for any of the foregoing; (b) copyrights and any applications or registrations for any of the foregoing; and (c) patents, all confidential know-how, trade secrets and similar proprietary rights in confidential inventions, discoveries, improvements, processes, techniques, devices, methods, patterns, formulae, specifications, and any applications or registrations for any of the foregoing.

“IRS” means Internal Revenue Service of the United States.

“Justice Department” means the United States Department of Justice.

“Knowledge of the Buyer Parties” means the actual knowledge of Christofer Rozzell, Steven Meisel and Frances Kilborne, without requirement of investigation or inquiry.

“Knowledge of the Companies” or the “Companies’ Knowledge” means the actual knowledge of the individuals listed on Schedule 1.1(a), without requirement of investigation or inquiry.

“Law” means any applicable statute, law, rule, regulation, ordinance, or Order of a Governmental Authority, in each case as in effect on and as interpreted on the date of this Agreement or on and as of the Closing Date, as applicable, unless the context otherwise clearly requires a different date, in which case on and as of such date.

“Leased Real Property” has the meaning provided such term in Section 3.17(a).

“Leases” has the meaning provided such term in Section 3.17(a).

“Letter of Transmittal” has the meaning provided such term in Section 2.7(a).

“Liability” means any liability (whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, or due or to become due).

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“Lien(s)” means any liens, charges, pledges, mortgages, deeds of trust, hypothecations, security interests or preferential purchase rights.

“Losses” has the meaning provided such term in Section 8.2(a).

“Managers” has the meaning provide such term in the recitals.

“Material Contracts” has the meaning provided such term in Section 3.10(a).

“Members” has the meaning provided such term in the recitals.

“Membership Interest” has the meaning provided such term the Zephyr Management LLC Agreement.

“Merger” has the meaning provided such term in Section 2.1.

“Merger Consideration” means the Closing Payment Amount, as adjusted pursuant to Section 2.9.

“Merger Consideration Deficit” has the meaning provided such term in Section 2.9(d).

“Merger Consideration Surplus” has the meaning provided such term in Section 2.9(d).

“Merger Sub” has the meaning provided such term in the preamble to this Agreement.

“Net Income Amount” means net income, plus depreciation, in each case determined in accordance with GAAP (as applied on a basis consistent with past practice and the preparation of the Audited Financial Statements), in substantially the manner set forth on Exhibit 2.9(b), with respect to the period beginning on July 1, 2010 and ending on the Effective Time, and without giving effect to the transactions contemplated hereby.

“Net Merger Consideration Payment Schedule” is the schedule attached hereto as Exhibit 7.1(n).

“Net Working Capital” means, as of any given date, an amount (which may be positive or negative) equal to the total current assets of the Companies as of such date minus the total current liabilities of the Companies as of such date, in each case determined in accordance with GAAP (as applied on a basis consistent with past practice and the preparation of the Audited Financial Statements) and without giving effect to the transactions contemplated hereby; provided, however, that (a) current assets shall not include Tax assets, cash or cash equivalents and (b) current liabilities shall not include (i) Expenses, (ii) the Debt Payoff Amount, (iii) deferred Tax liabilities, (iv) Change of Control Amounts, (v) Severance Obligations or (vi) any liabilities or payables relating to an Approved Capital Expenditure.

“Non-Competition Agreement” means a non-competition agreement in substantially the form attached hereto as Exhibit 7.1(k), which Non-Competition Agreements with respect to (a) Glen Wind and (b) Carlos Rodriguez are being executed and delivered concurrently with the signing of this Agreement, but to be effective as of the Closing.

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“Non-Escrow Indemnity Claims” means any and all claims for indemnification brought by a Buyer Indemnified Party pursuant to Sections 8.2(a)(ii).

“Objection Notice” has the meaning provided such term in Section 2.9(c)(iii).

“Order” means any order, judgment, injunction, ruling, determination, decision, opinion, sentence, subpoena, writ or award issued, made, entered or rendered by any arbitrator, court, administrative agency or other Governmental Authority with jurisdiction.

“Organizational Documents” means any charter, certificate of incorporation, articles of association, partnership agreements, limited liability company agreements, bylaws, operating agreement or similar formation or governing documents and instruments.

“Owner Indemnified Parties” has the meaning provided such term in Section 8.2(b).

“Owner Materials” has the meaning provided such term in Section 2.7(a).

“Owner Representative” means the Person appointed as the Owner Representative as contemplated by Section 10.12.

“Owner Representative Reserve” has the meaning provided such term in Section 10.12(b).

“Party” and “Parties” has the meaning provided in the preamble to this Agreement.

“Partnership Agreement” means that certain Amended and Restated Agreement of Limited Partnership of Zephyr Gas Services, LP, as amended.

“Paying Agent” means JPMorgan Chase Bank, National Association.

“Paying Agent Agreement” means the Payment Agent Agreement to be entered into concurrently with the execution of this Agreement, by and between the Owner Representative, the Paying Agent, and the Buyer Parties, substantially in the form attached hereto as Exhibit 2.7(b).

“Payoff Letters” means a payoff letter or invoice, in form and substance reasonably satisfactory to Owner Representative and Buyer, from each Person to whom Expenses are owed, setting forth the aggregate amount required to be paid to fully satisfy such obligation(s) and wire transfer instructions for such payee.

“Permits” means authorizations, licenses, permits or certificates issued by Governmental Authorities.

“Permitted Liens” means (a) Liens for Taxes being contested in good faith by appropriate proceedings or for current Taxes not yet due and payable, (b) statutory Liens (including materialmen’s, warehousemen’s, mechanic’s, repairmen’s, landlord’s, and other similar Liens) arising by operation of Law in the ordinary course of business securing payments or obligations being contested in good faith by appropriate proceedings or not yet delinquent for which

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adequate reserves have been established on the books and records of the Companies, (c) Liens of public record in the real property records in the jurisdiction in which the Companies’ assets to which they relate are located and which do not materially interfere with the operation of the business of the Companies, (d) the rights of third parties under any Material Contracts and that have been fully disclosed to the Buyer Parties on the appropriate schedule to this Agreement, (e) Liens entered into in the ordinary course of business consistent with past practice that do not secure the payment of Indebtedness for Borrowed Money and that do not materially and adversely affect the ability of either Company to conduct its business, (f) Liens created by Buyer, or its successors and assigns, (g) Liens that would not, individually or in the aggregate, reasonably be expected to materially and adversely affect the value, marketability or continued use (consistent with historical use thereof) of the assets subject thereto, (h) Liens which are or will be released at or prior to the Closing Date and are listed on Schedule 1.1(b) and (i) other Liens listed on Schedule 1.1(b).

“Person” means any individual, Governmental Authority or Entity of any kind.

“Plans” has the meaning provided such term in Section 3.12(a).

“Pre-Closing Tax Period” means any Tax period ending on or before the Closing Date.

“Pre-Closing Tax Returns” has the meaning provided such term in Section 6.1(a).

“Proceeding” means any action, suit, litigation, arbitration, lawsuit, claim, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding and any informal proceeding), prosecution, contests, hearing, inquiry, inquest, audit, examination, investigation, challenge, controversy or dispute, brought, conducted or heard by or before, or otherwise involving, any Governmental Authority or any arbitrator.

“Reasonable Efforts” means efforts in accordance with reasonable commercial practice.

“Regulatory Approvals” means any and all approvals and authorizations of a Governmental Authority required to permit Buyer to use any of the assets of the Companies, or any Permits with respect thereto, after Closing.

“Reimbursable Amount” means the aggregate amount (if any) of cash paid by the Companies from July 1, 2010 through the Closing Date for the Approved Capital Expenditures.

“Release” shall mean the Releases in substantially the form attached hereto as Exhibit 7.1(j), which Releases with respect to (a) Glen Wind and (b) Carlos Rodriguez are being executed and delivered concurrently with the signing of this Agreement, but to be effective as of the Closing.

“Representatives” means a Person’s directors, officers, employees, agents or advisors (including, without limitation, attorneys, accountants, consultants, bankers, financial advisors and any representatives of those advisors).

“Review Period” has the meaning provided such term in Section 5.9(a).

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“Schedule Update” has the meaning provided such term in Section 5.7(a).

“Series A Unit”, “Series A-1 Unit”, “Series B Unit”, “Series B-1 Unit”, “Series C Unit”, “Series C-1 Unit”, “Series D Unit”, “Series D-1 Unit”, “Series E Unit” and “Series E-1 Unit” have the meanings set forth in the Partnership Agreement.

“Severance Obligations” means any severance payment or similar obligation of a Company to any director, officer, manager or employee of a Company, or any other consultant, independent contractor or other service provider employed or engaged by a Company pursuant to any contract or agreement with such Person existing as of or prior to the Closing that would arise from the termination (including termination with or without cause and voluntary termination) of the position, office, employment or engagement of such Person upon or at any time after Closing, or that exists as of the Closing as a result of any such termination prior to Closing, including any severance, bonus, or tax indemnification obligations or other similar payments and the Companies’ portion of any Medicaid, Social Security or unemployment Taxes in respect of such payments. but excluding salary, accrued bonus, accrued vacation and other compensation and benefits through the date of any such termination, and further excluding any payment or other obligation pursuant to Law.

“Straddle Period” means any Tax period beginning on or before and ending after the Closing Date.

“Straddle Tax Returns” has the meaning provided such term in Section 6.1(b).

“Submission” has the meaning provided such term in Section 2.9(c)(iv).

“Surviving Company” has the meaning provided such term in Section 2.1.

“Tax Returns” means any report, return, election, document, estimated tax filing, declaration, claim for refund, information returns, or other filing relating to Taxes provided to any Governmental Authority including any schedules or attachments thereto and any amendment thereof.

“Tax” or “Taxes” means (a) all taxes, assessments, charges, duties, fees, levies, unclaimed property and escheat obligations and other similar charges imposed by a Governmental Authority, including all income, franchise, profits, margins, capital gains, capital stock, gross receipts, alternative or add on minimum sales, use, transfer, service, occupation, ad valorem, value added, real or personal property, environmental, excise, severance, estimated, payroll, employment, social security, unemployment, disability or withholding taxes, or other charge of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not; and (b) any liability for the payment of any amounts of the type described in clause (a) as a result of being a member of an affiliated, consolidated, combined or unitary group of which a Company is or was a member on or prior to the Closing Date by reason of Treasury Regulations Section 1.1502-6(a) or any similar foreign, state or local law; and (c) any liability for the payment of any amounts of the type described in clause (a) or (b) as a result of the operation of law or any express or implied obligation to indemnify any other Person.

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“TBOC” has the meaning the Texas Business Organizations Code, as may be amended from time to time.

“Termination Date” has the meaning provided such term in Section 9.1(3).

“Third-Party Claim” has the meaning provided such term in Section 8.4(a).

“Third-Party Debt” means all (a) outstanding Indebtedness for Borrowed Money of any Company from any Person other than the other Company and (b) outstanding Indebtedness of any Person other than a Company that is secured by a Lien on any assets of a Company or guaranteed by a Company.

“Title Representations” means the representations and warranties made by the Companies in Section 3.3 hereof and the representations and warranties made by the Zephyr Owners in the Letters of Transmittal regarding title to the Membership Interests and Units in the Companies.

“Transaction Expenses” shall mean any and all third party fees and expenses incurred by the Companies in connection with the preparation, negotiation and execution of this Agreement, the Ancillary Agreements, the Merger and the other transactions contemplated hereby, including any fees and expenses of legal counsel, financial advisors, investment bankers, the Paying Agent, the Escrow Agent, brokers, strategic consultants, tax consultants, outsourced operations, service providers, accountants and auditors.

“Unit” has the meaning provide such term in the Partnership Agreement.

“Unit Holder” has the meaning provide such term in the recitals.

“United States” means United States of America.

“Working Capital Adjustment Amount” shall mean the Working Capital Surplus, expressed as a positive number, or the Working Capital Deficit, expressed as a negative number, as reflected in the Closing Statement.

“Working Capital Deficit” shall mean the amount, if any, by which the Net Working Capital as reflected on the Closing Statement is less than the Balance Sheet Date Net Working Capital.

“Working Capital Surplus” shall mean the amount, if any, by which the Net Working Capital as reflected on the Closing Statement exceeds the Balance Sheet Date Net Working Capital.

“Zephyr Management” has the meaning provided such term in the preamble of this Agreement.

“Zephyr Management LLC Agreement” means that certain Amended and Restated Company Agreement of Zephyr Gas Management, LLC, as amended.

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“Zephyr Owner” means a Member or Unit Holder and “Zephyr Owners” collectively, means the Members and the Unit Holders.

“Zephyr Owner Percentage” shall be the applicable percentages set forth on the Net Merger Consideration Payment Schedule as the “Zephyr Owner Percentage” for each Zephyr Owner.

“Zephyr Owner Taxes” means any and all Taxes imposed on the Companies or for which the Companies may otherwise be liable (a) for any Pre Closing Tax Period and for the portion of any Straddle Period ending on the Closing Date (determined in accordance with Section 6.1(b)); (b) resulting from a breach of the representations and warranties set forth in Section 6.1(b) (determined without regard to any materiality or knowledge qualifiers or any scheduled items) or covenants set forth in Section 6.1; (c) as a result of a Company being a member of any consolidated group on or prior to the Closing Date by reason of Treasury Regulations Section 1.1502-6(a) or any similar foreign, state or local law; (d) of any other Person for which a Company is or has been liable as a transferee or successor, by contract or otherwise; or (e) that are social security, medicare, unemployment or other employment or withholding Taxes owed as a result of any payments made pursuant to this Agreement; provided, that no such Tax will constitute a Zephyr Owner Tax to the extent such Tax was included as a current liability in the determination of Effective Time Net Working Capital.

“Zephyr Services” has the meaning provided such term in the preamble to this Agreement.

1.2 Rules of Construction.

(a) All article, section, schedule and exhibit references used in this Agreement are to articles and sections of, and schedules and exhibits to, this Agreement unless otherwise specified. The schedules and exhibits attached to this Agreement constitute a part of this Agreement and are incorporated herein for all purposes.

(b) If a term is defined as one part of speech (such as a noun), it shall have a corresponding meaning when used as another part of speech (such as a verb). Terms defined in the singular have the corresponding meanings in the plural, and vice versa. Unless the context of this Agreement clearly requires otherwise, words importing the masculine gender shall include the feminine and neutral genders and vice versa. The term “includes” or “including” shall mean “including without limitation.” The words “hereof,” “hereto,” “hereby,” “herein,” “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular section or article in which such words appear.

(c) The Parties acknowledge that each Party and its attorney(s) have reviewed this Agreement and that any rule of construction to the effect that any ambiguities are to be resolved against the drafting Party, or any similar rule operating against the drafter of an agreement, shall not be applicable to the construction or interpretation of this Agreement.

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(d) The captions in this Agreement are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement.

(e) All references to currency herein shall be to, and all payments required hereunder shall be paid in, Dollars.

(f) All accounting terms used herein and not expressly defined herein shall have the meanings given to them under GAAP.

ARTICLE II

TERMS OF THE MERGER

2.1 The Merger. Upon the terms and subject to the conditions of this Agreement, at the Effective Time, Zephyr Management and Zephyr Services shall merge with and into the Merger Sub in accordance with the applicable provisions of the TBOC and the DLLCA (the “Merger”). Following the Effective Time, the separate existence of Zephyr Management and Zephyr Services shall cease and the Merger Sub shall be the surviving Entity in the Merger (the “Surviving Company”) and shall continue its existence under the Laws of the State of Delaware.

2.2 Effects of the Merger. As of the Effective Time, (a) the certificate of formation of the Merger Sub, as in effect immediately prior to the Effective Time, shall be the certificate of formation of the Surviving Company unless and until thereafter amended and (b) the limited liability company agreement of the Merger Sub, as in effect immediately prior to the Effective Time, shall be the limited liability company agreement of the Surviving Company unless and until thereafter amended. Subject to the foregoing, any additional effects of the Merger shall be as provided for by applicable Laws.

2.3 Effective Time of the Merger. Subject to the provisions of this Agreement, on the Closing Date, the Certificates of Merger in substantially the forms attached hereto as Exhibit 2.3 (the “Certificates of Merger”), shall be executed by and filed with the Secretary of State of the States of Texas and Delaware. The Parties shall make all such other filings or recordings in connection with the Merger when and as required under the TBOC, the DLLCA or other applicable Laws. The Merger shall become effective at the time the Certificates of Merger are duly filed with the Secretary of State of the State of Texas in accordance with the TBOC and the Secretary of State of the State of Delaware in accordance with the DLLCA, or at such later time or date as the Buyer Parties and the Companies shall agree and as shall be set forth in the applicable Certificate of Merger (the “Effective Time”). At the Effective Time, the effect of the Merger shall be as provided in the Certificates of Merger and the applicable provisions of the TBOC and the DLLCA.

2.4 Reserved.

2.5 Reserved.

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2.6 Effect of the Merger on the Membership Interests and the Units. At the Effective Time, by virtue of the Merger and without any action on the part of any Member or Unit Holder:

(a) Series A Units. Each Series A Unit that is issued and outstanding immediately prior to the Effective Time shall be canceled and extinguished and shall be converted automatically into and become a right to receive, subject to and in accordance with the procedures set forth in Section 2.7 and otherwise subject to Section 2.8 and Section 2.9, at the times specified herein, an amount equal to the Zephyr Services Series A Per Unit Merger Consideration, as set forth on the Net Merger Consideration Payment Schedule.

(b) Series A-1 Units. Each Series A-1 Unit that is issued and outstanding immediately prior to the Effective Time shall be canceled and extinguished and shall be converted automatically into and become a right to receive, subject to and in accordance with the procedures set forth in Section 2.7 and otherwise subject to Section 2.8 and Section 2.9, at the times specified herein, an amount equal to the Zephyr Services Series A-1 Per Unit Merger Consideration, as set forth on the Net Merger Consideration Payment Schedule.

(c) Series B Units. Each Series B Unit that is issued and outstanding immediately prior to the Effective Time shall be canceled and extinguished and shall be converted automatically into and become a right to receive, subject to Section 2.7 and otherwise subject to Section 2.8 and Section 2.9, at the times specified herein, an amount equal to the Zephyr Services Series B Per Unit Merger Consideration, as set forth on the Net Merger Consideration Payment Schedule.

(d) Series B-1 Units. Each Series B-1 Unit that is issued and outstanding immediately prior to the Effective Time shall be canceled and extinguished and shall be converted automatically into and become a right to receive, subject to and in accordance with the procedures set forth in Section 2.7 and otherwise subject to Section 2.8 and Section 2.9, at the times specified herein, an amount equal to the Zephyr Services Series B-1 Per Unit Merger Consideration, as set forth on the Net Merger Consideration Payment Schedule.

(e) Series C Units. Each Series C Unit that is issued and outstanding immediately prior to the Effective Time shall be canceled and extinguished and shall be converted automatically into and become a right to receive, subject to and in accordance with the procedures set forth in Section 2.7 and otherwise subject to Section 2.8 and Section 2.9, at the times specified herein, an amount equal to the Zephyr Services Series C Per Unit Merger Consideration, as set forth on the Net Merger Consideration Payment Schedule.

(f) Series C-1 Units. Each Series C-1 Unit that is issued and outstanding immediately prior to the Effective Time shall be canceled and extinguished and shall be converted automatically into and become a right to receive, subject to and in accordance with the procedures set forth in Section 2.7 and otherwise subject to Section 2.8 and Section 2.9, at the times specified herein, an amount equal to the Zephyr Services Series C-1 Per Unit Merger Consideration, as set forth on the Net Merger Consideration Payment Schedule.

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(g) Series D Units. Each Series D Unit that is issued and outstanding immediately prior to the Effective Time shall be canceled and extinguished and shall be converted automatically into and become a right to receive, subject to and in accordance with the procedures set forth in Section 2.7 and otherwise subject to Section 2.8 and Section 2.9, at the times specified herein, an amount equal to the Zephyr Services Series D Per Unit Merger Consideration, as set forth on the Net Merger Consideration Payment Schedule.

(h) Series D-1 Units. Each Series D-1 Unit that is issued and outstanding immediately prior to the Effective Time shall be canceled and extinguished and shall be converted automatically into and become a right to receive, subject to and in accordance with the procedures set forth in Section 2.7 and otherwise subject to Section 2.8 and Section 2.9, at the times specified herein, an amount equal to the Zephyr Services Series D-1 Per Unit Merger Consideration, as set forth on the Net Merger Consideration Payment Schedule.

(i) Series E Units. Each Series E Unit that is issued and outstanding immediately prior to the Effective Time shall be canceled and extinguished and shall be converted automatically into and become a right to receive, subject to and in accordance with the procedures set forth in Section 2.7 and otherwise subject to Section 2.8 and Section 2.9, at the times specified herein, an amount equal to the Zephyr Services Series E Per Unit Merger Consideration, as set forth on the Net Merger Consideration Payment Schedule.

(j) Series E-1 Units. Each Series E-1 Unit that is issued and outstanding immediately prior to the Effective Time shall be canceled and extinguished and shall be converted automatically into and become a right to receive, subject to and in accordance with the procedures set forth in Section 2.7 and otherwise subject to Section 2.8 and Section 2.9, at the times specified herein, an amount equal to the Zephyr Services Series E-1 Per Unit Merger Consideration, as set forth on the Net Merger Consideration Payment Schedule.

(k) Membership Interests. Each Membership Interest that is issued and outstanding immediately prior to the Effective Time shall be canceled and extinguished and shall be converted automatically into and become a right to receive, subject to and in accordance with the procedures set forth in Section 2.7 and otherwise subject to Section 2.8 and Section 2.9, at the times specified herein, an amount equal to Zephyr Management Per Membership Interest Percentage Merger Consideration, as set forth on the Net Merger Consideration Payment Schedule.

(l) The Parties agree to treat the sale of the Membership Interests and Units by the Zephyr Owners for U.S. federal income tax purposes as a sale in 2010 of the Membership Interests and Units by the Zephyr Owners and a purchase in 2010 of all of the assets of the Companies by the Buyer (as described in Situation 2 of Revenue Ruling

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99-6, 1999-1 C.B. 432). The existence of each of the Companies as a partnership for U.S. federal income tax purposes shall terminate as of the Closing Date. The Parties hereby agree that the cash received by the Zephyr Owners for the assignment, sale or transfer of his, her or its Membership Interests or Units to the Buyer, shall be treated as a sale of such Zephyr Owner’s Membership Interests or Units for cash. If, contrary to the forgoing, the Parties hereto are required to treat the assignment, sale or transfer of the Membership Interests and Units as a merger or consolidation of the Companies with and into Buyer pursuant to Section 708(b)(2)(A) of the Code, then the Parties intend that: (i) such merger or consolidation shall be treated in the manner set forth in the Treasury Regulations Section 1.708-1(c)(3)(i); (ii) this Agreement is intended to and shall constitute an election to treat such assignment, sale or transfer as a sale of Membership Interests and Units by the Zephyr Owners to the extent of cash received pursuant to Treasury Regulations Section 1.708-1(c)(4); and (iii) to the extent of cash received by any Zephyr Owner, to treat such Zephyr Owner as selling their respective Membership Interests and Units for cash pursuant to Treasury Regulations Section 1.708-1(c)(4) and Example 5 of the Treasury Regulations Section 1.708-1(c)(5).

2.7 Procedures.

(a) Upon the delivery to the Paying Agent by each Zephyr Owner of a duly completed and executed Letter of Transmittal in the form attached hereto as Exhibit 2.7(a) (each, a “Letter of Transmittal”), including all documents required pursuant thereto (collectively with the Letter of Transmittal, the “Owner Materials”), such Zephyr Owner shall be entitled to receive, at the times specified herein, in exchange therefor the amount(s) set forth in Section 2.8 and Section 2.9, as applicable, payable by the Paying Agent in accordance with the Paying Agent Agreement. The amounts paid pursuant to this Section 2.7 and the Paying Agent Agreement shall be deemed to be full payment and satisfaction of all rights pertaining to the Units and Membership Interests represented by such Owner Materials, except for any rights of the Zephyr Owners as set forth in this Agreement or the Ancillary Agreements. Until the Owner Materials are delivered to the Paying Agent as contemplated by this Section 2.7(a), each such Unit and Membership Interest shall be deemed at any time after the Effective Time to represent only the right to receive the amount set forth in Section 2.8, as applicable.

(b) As of the Effective Time, the books of the Companies shall be closed and thereafter there shall be no transfers of any Units or Membership Interests of the Companies, as applicable.

2.8 Closing Payments.

(a) Buyer Payments. At the Closing, the Buyer shall make the following payments:

(i) an amount equal to $27,750,000.00 (the “Escrow Amount”), to be deposited in an account (the “Escrow Account”) with the Escrow Agent;

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(ii) an amount equal to $250,000, to be deposited in an account with the Escrow Agent to serve as the Owner Representative Reserve;

(iii) an amount equal to the Closing Payment Amount to be deposited with the Paying Agent for disbursement among the Members and Unit Holders pursuant to the Net Merger Consideration Payment Schedule and the Paying Agent Agreement; provided that upon delivery of such payment by the Buyer to the Paying Agent, the Buyer’s obligation to pay the Closing Payment Amount to the Members and the Unit Holders at Closing shall be fully satisfied;

(iv) to the Owner Representative the D&O Tail Amount;

(v) to the extent unpaid, to each holder of any Third-Party Debt the amounts specified in the Debt Payoff Letters;

(vi) to the extent unpaid, to the payees of any Expenses in the amounts specified in the Payoff Letters less, to the extent applicable, Medicaid, Social Security, income tax, unemployment tax and other amounts required to be withheld; and

(vii) an amount of $684,044 representing excess cash as of the Balance Sheet Date to be deposited with the Paying Agent.

(b) Form of Payments. All payments to be made by the Buyer pursuant to Section 2.8(a) shall be made 100% in cash in immediately available funds.

(c) Escrow Account. The Escrow Agent will hold the Escrow Amount delivered pursuant to Section 2.8(a) in the Escrow Account, with such amount to be held and disbursed pursuant to the provisions of the Escrow Agreement.

(d) Withholding. Buyer shall be entitled to deduct and withhold from any amounts otherwise payable to any Person pursuant to this Agreement any such amounts required to be deducted and withheld with respect to payment under any provision of Tax law. If the Buyer withholds any such amounts, such amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which the Buyer made such deduction or withholding.

2.9 Merger Consideration Adjustment.

(a) Balance Sheet Date Net Working Capital. The “Balance Sheet Date Net Working Capital” means $(5,878,475.00) (which is a negative number and includes the Net Working Capital calculated as of the Balance Sheet Date plus an agreed upon amount of $1,500,000), as calculated in the manner set forth on Exhibit 2.9(a).

(b) Estimates. At least 5 Business Days prior to Closing, the Companies shall prepare in good faith and deliver to the Buyer a statement (the “Estimated Closing Statement”), setting forth (i) Expenses, the Debt Payoff Amount and a reasonably detailed determination of the Companies’ good faith estimation of (A) the Net Working

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Capital as of the Effective Time plus an agreed upon amount of $1,500,000 (the “Estimated Effective Time Net Working Capital”) calculated in the same manner as the calculation of the Balance Sheet Date Net Working Capital set forth on Exhibit 2.9(a), (B) the Net Income Amount (the “Estimated Net Income Amount”) calculated in the same manner as the calculation on Exhibit 2.9(b) and (C) the Reimbursable Amount (the “Estimated Reimbursable Amount”), together with reasonably detailed supporting information, (ii) based on such Estimated Effective Time Net Working Capital, the Estimated Net Working Capital Adjustment Amount and (iii) the Companies’ calculation of the Closing Payment Amount. If the Estimated Effective Time Net Working Capital is less than the Balance Sheet Date Net Working Capital, the amount equal to such difference is the “Estimated Net Working Capital Deficiency.” If the Estimated Effective Time Net Working Capital is greater than the Balance Sheet Date Net Working Capital, the amount equal to such difference is the “Estimated Net Working Capital Excess.” The Expenses and the Debt Payoff Amount to be set forth on the Estimated Closing Statement shall be based on amounts set forth in the Payoff Letters and Debt Payoff Letters, or, to the extent a Payoff Letter or Debt Payoff Letter has not been provided for any Expense or Third-Party Debt, the Companies’ good faith estimate of such amount, and in each case, shall be subject to final determination in the preparation of the Closing Statement. If the Buyer has any questions or disagreements regarding the Estimated Closing Statement, the Buyer shall contact the Owner Representative at least 2 Business Days prior to the Closing Date, and in such case the Owner Representative and the Buyer shall in good faith attempt to resolve any questions or disagreements. If the Owner Representative and the Buyer agree on changes to the Companies’ proposed Estimated Closing Statement (including the Expenses, the Debt Payoff Amount, the calculation of the Estimated Effective Time Net Working Capital, the Estimated Net Working Capital Adjustment Amount, the Estimated Net Income Amount, the Estimated Reimbursable Amount, or the Closing Payment Amount set forth therein) based on such discussions, then the Closing Payment Amount to be paid at Closing shall be determined by giving effect to such changes (and the Estimated Closing Statement, as so adjusted, shall be deemed to be the Estimated Closing Statement for all purposes herein). If the Owner Representative and the Buyer do not agree on changes to such amounts, then the Closing Payment Amount to be paid at Closing shall be determined based on the amounts set forth in the Estimated Closing Statement initially delivered by the Companies. In either such case, appropriate adjustments to the Merger Consideration shall be made after the Closing pursuant to Sections 2.9(c) and 2.9(d).

(c) Post-Closing Merger Consideration Reconciliation.

(i) As soon as reasonably practicable following the Closing Date, but in no event later than 60 days after the Closing Date, the Buyer Parties shall prepare in good faith and deliver to the Owner Representative a statement (the “Closing Statement”), setting forth (A) Expenses, the Debt Payoff Amount and a reasonably detailed proposed final calculation of (1) the Net Working Capital as of the Effective Time (“Effective Time Net Working Capital”) calculated in the same manner as the calculation of the Balance Sheet Date Net Working Capital set forth on Exhibit 2.9(a), (2) the Net Income Amount calculated in the same manner as the calculation on Exhibit 2.9(b) and (3) the Reimbursable Amount,

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together with reasonably detailed supporting information, (B) based on such Effective Time Net Working Capital, the Working Capital Adjustment Amount and (C) based on such amounts, the Merger Consideration Surplus or the Merger Consideration Deficit.

(ii) From and after the delivery of the Closing Statement, the Buyer Parties shall provide the Owner Representative and its Representatives reasonable access to the records and employees of the Buyer Parties and their Affiliates and shall cause the employees of the Buyer Parties and their Affiliates to cooperate in all reasonable respects with the Owner Representative in connection with its review of such work papers and other documents and information relating to the calculation of Expenses, the Debt Payoff Amount, the Reimbursable Amount, the Effective Time Net Working Capital and the Net Income Amount, as the Owner Representative shall reasonably request and that are available to the Buyer Parties and their Affiliates.

(iii) Within 30 days after the Owner Representative’s receipt of the Closing Statement, the Owner Representative shall notify the Buyer if the Owner Representative disagrees with the Closing Statement, which notice shall set forth in reasonable detail the particulars of such disagreement (the “Objection Notice”). If the Owner Representative provides a notice of agreement or does not deliver to the Buyer an Objection Notice within such 30-day period, then the Owner Representative shall be deemed to have accepted the calculations and the amounts set forth in the Closing Statement delivered by the Buyer, which shall then be final, binding and conclusive for all purposes hereunder. If any such Objection Notice is timely delivered, then the Owner Representative and the Buyer shall each endeavor in good faith for a period of 30 days thereafter to resolve any disagreements with respect to the calculations in the Closing Statement.

(iv) If, at the end of the 30-day resolution period, the Owner Representative and the Buyer are unable to resolve any disagreement between them with respect to the preparation of the Closing Statement, then each such Party shall deliver simultaneously to PricewaterhouseCoopers (or if such firm is unwilling or unable to serve, another nationally recognized accounting firm mutually agreed on by such Parties, the accounting firm ultimately chosen, the “Accountants”) the Objection Notice, the Closing Statement and any engagement, indemnity and other agreements as the Accountants may require as a condition to such engagement (each a “Submission”) within 5 days of retaining the Accountants (the “Closing Statement Submission Deadline”). Such Parties shall instruct the Accountants to deliver to the Parties a written determination (such determination to include a worksheet setting forth all material calculations used in arriving at such determination and to be based solely on information provided to the Accountants by the Parties, or their respective Affiliates) of, and the Accountants’ engagement shall be limited to the resolution of, disputed amounts set forth in the Closing Statement that have been identified by the Owner Representative in the Objection Notice, which resolution shall be in

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accordance with this Agreement, and no other matter relating to the Closing Statement shall be subject to determination by the Accountants except to the extent affected by resolution of the disputed amounts. In resolving any disputed item, the Accountants shall not assign a value to any item greater than the greatest value for such item claimed by the Buyer or the Owner Representative or less than the smallest value for such item claimed by the Buyer or the Owner Representative. Such Parties shall cooperate diligently with any reasonable request of the Accountants in an effort to resolve any disputed matter as soon as reasonably possible after the Accountants are engaged. If possible, the decision of the Accountants shall be made within 20 days after the Closing Statement Submission Deadline. The fees and expenses of the Accountants shall be allocated by the Accountants between the Buyer Parties, on the one hand, and the Zephyr Owners, on the other hand, and in accordance with their Zephyr Owner Percentage (which the Owner Representative must first pay out of the Owner Representative Reserve, to the extent available), so that the aggregate amount of such fees and expenses paid by the Zephyr Owners bears the same proportion to the total fees and expenses as the aggregate dollar amount of items unsuccessfully disputed by the Owner Representative, if any (as determined by the Accountants), bears to the total dollar amount of items in dispute, and the Buyer Parties shall pay the remainder of such fees and expenses, if any. The determination of the Accountants shall be final, binding and conclusive for all purposes hereunder, absent manifest error or fraud.

(d) True-Up Payment. If the Final Adjustment Amount is less than the Estimated Adjustment Amount (the amount of such shortfall, if any, the “Merger Consideration Deficit”), the Owner Representative and Buyer Parties shall, within 5 Business Days after the final determination of the Closing Statement, promptly deliver joint instructions to the Escrow Agent, instructing the Escrow Agent to (i) pay to Buyer from the Escrow Account, in cash by wire transfer of immediately available funds to an account designated by Buyer, an amount equal to the Merger Consideration Deficit and (ii) pay to an account or accounts designated by the Owner Representative in cash by wire transfer of immediately available funds, an amount equal to $9,250,000.00 less the Merger Consideration Deficit (if such difference is a positive number). If the Final Adjustment Amount is more than the Estimated Adjustment Amount (the amount of such excess, the “Merger Consideration Surplus”), (i) Buyer shall, within 5 Business Days after the final determination of the Closing Statement, promptly pay to an account or accounts designated by the Owner Representative in cash by wire transfer of immediately available funds, an amount equal to the Merger Consideration Surplus and (ii) Owner Representative and Buyer Parties shall, within 5 Business Days after the final determination of the Closing Statement, promptly deliver joint instructions to the Escrow Agent, instructing the Escrow Agent to pay to an account or accounts designated by the Owner Representative from the Escrow Account, in cash by wire transfer of immediately available funds, an amount equal to $9,250,000.00. Any payment due either Buyer or the Owner Representative under this Section 2.9(d) shall accrue interest at an annual rate equal to the Agreed Rate, which interest shall begin to accrue on the Closing Date and end on the date such payment is made.

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(e) No Duplicative Effect. The provisions of this Section 2.9 shall apply in such a manner so as not to give the components and calculations duplicative effect to any item of adjustment and, the Parties covenant and agree that no amount shall be (or is intended to be) included, in whole or in part (either as an increase or reduction) more than once in the calculations of (including any component of) Net Working Capital or any other calculated amount pursuant to this Agreement if the effect of such additional inclusion (either as an increase or reduction) would be to cause such amount to be overstated or understated for purposes of such calculation.

2.10 Closing Date. The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of Locke Lord Bissell & Liddell LLP, at 10:00 a.m., Houston, Texas time no later than five (5) Business Days after all conditions precedent set forth in Sections 7.1, 7.2 and 7.3 shall have been satisfied or waived (other than those conditions precedent that by their nature are to be satisfied at Closing) or at such other date and time as the Parties may agree. The date on which the Closing shall occur is referred to herein as the “Closing Date”.

ARTICLE III

REPRESENTATIONS AND WARRANTIES RELATED TO THE COMPANIES

The Companies, jointly and severally, represent and warrant to the Buyer Parties that the statements contained in this Article III are true and correct as of the date hereof, except in all cases as set forth in the Disclosure Schedule.

3.1 Organization. Each Company (a) is duly formed, validly existing and in good standing (if applicable) under the Laws of the State of Texas and (b) has the requisite limited partnership or limited liability company power and authority (as applicable) to own, lease and operate its properties and to carry on its business as now being conducted. Each Company is duly qualified to do business in each jurisdiction in which the ownership or operation of its assets or the character of its activities is such as to require it to be so qualified, except where failure to be so qualified would not reasonably be expected to have a Company Material Adverse Effect. The Companies have made available to the Buyer Parties true copies of all existing Organizational Documents of the Companies.

3.2 Authority. Each Company has all requisite limited partnership or limited liability company power and authority (as applicable) to execute and deliver this Agreement and each Ancillary Agreement to which it is or shall be a party, and to perform all obligations to be performed by it hereunder and thereunder. The execution and delivery of this Agreement and each Ancillary Agreement to which it is or shall be a party, and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized and approved by all requisite action on the part of each Company and no other limited liability company or limited partnership proceeding (as applicable) on the part of the Companies is necessary to authorize this Agreement or any Ancillary Agreement to which it is or shall be a party. This Agreement and each Ancillary Agreement to which it is or shall be a party have been duly and validly executed and delivered by each Company, and assuming due execution and delivery of each of the other Parties hereto and thereto, this Agreement and each Ancillary Agreement to which it is or shall be a party constitute valid and binding obligations of each

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Company, enforceable against each Company in accordance with their terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar Laws affecting creditors’ rights generally and subject, as to enforceability, to general principles of equity. The Companies have delivered to the Buyer true and complete copies of the resolutions duly adopted by the managers of Zephyr Management, the Members and the Unit Holders authorizing and approving the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby.

3.3 Capitalization.

(a) The issued and outstanding equity interests of Zephyr Services consist solely of the Units set forth on Schedule 3.3(a). All issued and outstanding Units are owned of record by each of the Unit Holders and in the respective amounts set forth opposite the names of such Unit Holders on Schedule 3.3(a), or at Closing by Entities controlled by such respective Unit Holder. All Units are duly authorized, validly issued, fully paid and non-assessable. All prior offerings and issuances of Units have been made in accordance, in all material respects, with applicable securities Laws and no Units or other securities of Zephyr Services have been issued in violation of any preemptive or other preferential rights of subscription or purchase of any Person.

(b) The issued and outstanding equity interests of Zephyr Management consist solely of Membership Interests set forth on Schedule 3.3(b). All issued and outstanding Membership Interests are owned of record by each of the Members and in the respective amounts set forth opposite the names of such Members on Schedule 3.3(b), or at Closing by Entities controlled by such respective Member. All Membership Interests are duly authorized, validly issued, fully paid and non-assessable. All prior offerings and issuances of Membership Interests have been made in accordance, in all material respects, with applicable securities Laws and no Membership Interests or other securities of Zephyr Management have been issued in violation of any preemptive or other preferential rights of subscription or purchase of any Person.

(c) Except as set forth in the Zephyr Management LLC Agreement or the Partnership Agreement, there are, and on the Closing Date after giving effect to the transactions contemplated by this Agreement there will be, no outstanding obligations, options, warrants, rights, calls, commitments, conversion rights, plans or other agreements of any character to which either Company is a party or by which it is otherwise bound that provide for the issuance, delivery, sale, purchase, redemption or acquisition of Units or Membership Interests, as applicable, or any other equity interests in either Company, or obligating either Company to grant, extend or enter into any such option, warrant, right, call, commitment, conversion right, plan or agreement, or permit any Person to share or participate in any of the profits, revenues or sales of either Company. Except as set forth in the Zephyr Management LLC Agreement or the Partnership Agreement, there are no preemptive rights, rights of first refusal or first offer, option grants or exercise rights, voting or veto rights, change of control or similar rights, anti-dilution protections or other rights that any equity holder, officer, employee or director of either is (or would be) entitled to invoke as a result of the transactions contemplated by this Agreement or otherwise.

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3.4 Interests in Other Entities. Except for Zephyr Management’s general partner interest in Zephyr Services, neither Company (a) owns, of record or beneficially, any shares of voting equity or any other equity securities of any Person or (b) has any other ownership or equity interest, of record or beneficially, in any Person.

3.5 No Conflict; Consents. Except as set forth on Schedule 3.5, the execution and delivery of this Agreement and the Ancillary Agreements by the Companies and the consummation of the transactions contemplated hereby and thereby by the Companies do not and will not:

(a) violate or conflict with any Law applicable to the Companies or require any filing with, consent, approval or authorization of, or notice to, any Governmental Authority (except for the HSR Act filings addressed by Section 5.4(b));

(b) violate, conflict with or result in any breach of any Organizational Document of the Companies;

(c) require any filing with, or obtaining any permit, consent or approval of, or the giving of any notice to, any Person (except for the HSR Act filings addressed by Section 5.4(b)); or

(d) (i) violate, conflict with or result in any breach of any Material Contract to which either Company is a party or by which either Company may be bound, (ii) result in the termination of any such Material Contract, (iii) result in the creation of any Lien (other than a Permitted Lien) under any Material Contract or (iv) constitute an event that, after notice or lapse of time or both, would result in any such violation, conflict, breach or termination or creation of a Lien (other than a Permitted Lien),

except with respect to Sections 3.5(a), (c) and (d), as would not reasonably be expected to have a Company Material Adverse Effect.

3.6 Litigation. Neither Company is subject to any Order and there are no Proceedings pending or, to the Knowledge of the Companies, threatened in writing against either Company, nor are there any reviews or investigations relating to either Company pending or, to the Knowledge of the Companies, threatened in writing by or before any arbitrator or any Governmental Authority.

3.7 Financial Statements. Schedule 3.7 sets forth true and complete copies of (a) the audited consolidated balance sheet of Zephyr Services as of, and for the years ended, December 31, 2009, 2008 and 2007, together with the related audited consolidated statements of income, changes in the equity holders’ capital and cash flow for the period then ended and all related footnotes (the “Audited Financial Statements”) and (b) the unaudited consolidated balance sheets of Zephyr Services as of June 30, 2010 (the “Balance Sheet Date”), and the related unaudited consolidated statements of income, changes in the equity holders’ capital and cash flow for the six (6) month period then ended, collectively, the “Financial Statements”). The Financial Statements, together with the notes thereto, present fairly, in all material respects, the financial position and results of operations of Zephyr Services for the periods ended on such dates, and have been prepared in accordance with GAAP and contain all notes required by

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GAAP, except for normal year-end adjustments and the absence of footnotes with respect to the Financial Statements described in clause (b) of this Section 3.7. Except as set forth on Schedule 3.7, as of the date of this Agreement there is no material liability, contingent or otherwise, of either Company that is not reflected or reserved against in the Financial Statements, other than (a) liabilities that would not be required to be presented in unaudited interim financial statements (or disclosed in the notes thereto) prepared in conformity with GAAP and that are not and would not reasonably be expected to be, individually or in the aggregate, material to the Companies taken as a whole; (b) liabilities under this Agreement; (c) liabilities for fees and expenses incurred in connection with the transactions contemplated by this Agreement and the Ancillary Agreements; or (d) liabilities incurred since the date of the Financial Statements in the ordinary course of business consistent with past practices of the Companies that are not material to the financial condition or operating results of either Company.

3.8 Absence of Certain Changes. Except as disclosed on Schedule 3.8, from the Balance Sheet Date until the date of this Agreement, (a) there has not been any Company Material Adverse Effect, and (b) the business of the Companies has been conducted, in all material respects, in the ordinary course of business consistent with past practices of the Companies. Without limiting the foregoing, except as set forth on Schedule 3.8, there has not occurred between the Balance Sheet Date and the date hereof:

(a) any physical damage, destruction or other casualty loss (whether or not covered by insurance) affecting any of the assets or properties of any Company in an amount exceeding $100,000 individually or $500,000 in the aggregate;

(b) any incurrence of a Lien (other than a Permitted Lien) on any of the assets or properties of any Company;

(c) any (i) amendment of the Organizational Documents of any Company, (ii) recapitalization, reorganization, liquidation or dissolution of any Company or (iii) merger or other business combination involving any Company;

(d) any sale or transfer by either Company of any material piece of equipment, personal property or other asset used in connection with the operation or maintenance of the Company’s business; or

(e) any commencement or termination by any Company of any line of business.

3.9 Taxes. Except as set forth on Schedule 3.9, (a) all Tax Returns required to be filed by or with respect to the Companies have been duly filed and each such Tax Return is true, correct and complete in all material respects, (b) all Taxes owed by the Companies or for which the Companies may be liable which are or have become due have been paid in full or adequately reserved against and taken into account in the Working Capital Adjustment Amount, (c) there are no Liens, other than Permitted Liens, on any of the assets of the Companies that arose in connection with any failure (or alleged failure) to pay any Tax, (d) all Tax withholding and deposit requirements imposed on or with respect to the Companies have been satisfied in full in all respects, (e) there is no claim pending by any Governmental Authority in connection with any

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Tax owing by the Companies, and no assessment, deficiency, or adjustment has been asserted, proposed or, to the Knowledge of the Companies, threatened, with respect to any Taxes or Tax Returns of or with respect to the Companies, (f) no written notification has been received by any of the Companies that any Tax Returns are under audit or examination by any Governmental Authority, (g) there are no agreements or waivers currently in effect that provide for an extension of time with respect to the filing of any Tax Return of the Companies or the assessment or collection of any Tax from the Companies, (h) no Company is a party to any Tax allocation or sharing arrangement, other than the Partnership Agreement, the Zephyr Management LLC Agreement, and any other partnership, limited liability company, joint venture or other operating agreement of an Entity in which a Company holds an ownership interest, (i) except for Zephyr Management’s equity interest in Zephyr Services, none of the property of the Companies is held in an arrangement that is classified as a partnership for U.S. federal Tax purposes and the Companies do not own any interest in any other entity the income of which is or could be required to be included in the income of the Companies, (j) no Company has any liability for the Taxes of any Person under Treasury Regulations Section 1.1502-6 (or any corresponding provisions of state, local or foreign Tax law), or as a transferee or successor, or by contract or otherwise, (k) no claim has been made by any Governmental Authority in a jurisdiction where the Companies do not file a Tax Return that a Company is or may be subject to taxation in that jurisdiction, (l) each of the Companies is currently treated, and has been treated since formation, as a partnership for federal income tax purposes and has not made an election to be treated as an association taxable as a corporation for federal income tax purposes, (m) no power of attorney that is currently in force has been granted with respect to any matter relating to Taxes that could affect the Companies, (n) all of the property of the Companies that is subject to property Tax has been properly listed and described on the property tax rolls of the appropriate taxing jurisdiction for all periods prior to the Closing and no portion of the property of the Companies constitutes omitted property for property tax purposes, (o) each of the Zephyr Owners is a U.S. person as defined in Section 7701(a)(30) of the Code, and (p) less than fifty percent of the value of the gross assets of each Company consists of U.S. real property interests for purposes of Treasury Regulations Section 1.1445-11T(d)(2)(i).

The representations and warranties of this Section 3.9 are the sole representations and warranties of the Companies with respect to Tax matters.

3.10 Contracts.

(a) Schedule 3.10(a) contains a true and complete listing of the following Contracts in effect on the date of this Agreement and to which any Company is a party (each Contract that is required to be listed on Schedule 3.10(a), together with any other Contract that would have been required to be disclosed on Schedule 3.10(a) being a “Material Contract”):

(i) except for any intercompany Indebtedness that will be cancelled prior to Closing, each Contract for Indebtedness for Borrowed Money;

(ii) each Contract that individually involves revenues to the Companies in excess of $100,000 for the year-to-date period ended on the Balance Sheet Date;

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(iii) each Contract involving a remaining commitment by any Company to undertake capital expenditures with respect to its business in excess of $100,000;

(iv) each Contract for the lease of personal property involving aggregate payments in excess of $50,000 in any calendar year ending after the date hereof;

(v) each Contract that provides for a limit on the ability of any Company to engage or compete in any line of business or with any Person or in any geographic area during any period of time after the Closing;

(vi) any partnership or joint venture agreement covering any assets of either Company or other Contract involving a sharing of profits, losses, costs or liabilities by either Company with any other Person;

(vii) each Contract with any director, officer or employee of either Company;

(viii) any security agreement, mortgage or other agreement creating a Lien (other than Permitted Liens);

(ix) each Contract with the top 5 customers by revenues received by the Companies for the year ended December 31, 2009, and to the extent different from the foregoing Contracts, each Contract with the top 5 customers by revenues received by the Company for the 6 month period ended June 30, 2010;

(x) each Contract with the top 5 suppliers and fabricators by payments made by the Companies for the year ended December 31, 2009, and to the extent different from the foregoing Contracts, each Contract with the top 5 suppliers and fabricators by payments made by the Companies for the 6 month period ended June 30, 2010; and

(xi) except for Contracts of the nature described in clauses (i) through (x) above, each Contract involving aggregate payments by or to any Company in excess of $100,000 in such calendar year ending after the date hereof that cannot be terminated by the Company upon 60 days or less notice without payment penalty.

(b) True and complete copies of all Material Contracts (including all amendments thereto) have been made available to the Buyer Parties.

(c) Each Material Contract (other than such Material Contracts with respect to which all performance and payment obligations have been fully performed or otherwise discharged by all parties thereto prior to the Closing) (i) is in full force and effect and (ii) represents the legal, valid and binding obligation of the Company that is a party thereto and, to the Knowledge of the Companies, represents the legal, valid and binding obligation of the other parties thereto, in each case enforceable in accordance with its

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terms. Neither the Companies nor, to the Knowledge of the Companies, any other party is in material breach of any Material Contract, neither Company has received any written notice of termination or breach of any Material Contract and to the Companies’ Knowledge, neither Company has received oral notice of any breach or violation of any Material Contract or termination or intention to terminate any Material Contract. Each Company has complied in all material respects with the terms of each Material Contract to which it is a party and has performed all of its material obligations thereunder. To the Companies’ Knowledge, there has not occurred any event that (with the lapse of time or the giving of notice or both) would constitute a default under any Material Contract by either Company or would provide any party to any Material Contract with a right (with or without notice or the lapse of time or both) to terminate, amend or modify such Material Contract or be entitled to any material payment under such Material Contract.

(d) To the Companies’ Knowledge, Schedule 3.10(d) contains a true and complete listing of each Contract (other than the Material Contracts or Contracts that have terminated or expired) to which any Company is a party. True and complete copies of all Contracts (including all amendments thereto) other than the Material Contracts have been provided to the Buyer Parties.

3.11 Intellectual Property. Schedule 3.11 lists all registered Intellectual Property of the Companies owned by either Company. Each Company (a) owns, licenses or otherwise has the valid right to use all Intellectual Property that is currently used in the operation of such Company’s business, and to the Knowledge of the Companies, the use of such Intellectual Property by the Surviving Company in substantially the same manner following the Closing will not infringe upon the rights of any third party, and (b) has taken reasonable measures to protect the proprietary nature of each item of such Intellectual Property, and to maintain in confidence all trade secrets and confidential information that it owns or uses, in each case except as would not reasonably be expected to result in a Company Material Adverse Effect. No third party has delivered a written notice, or to the Companies’ Knowledge oral notice, to the Companies asserting a claim that any Company is infringing on the Intellectual Property of such third party and, to the Knowledge of the Companies, no third party is infringing on the Intellectual Property owned or exclusively licensed by any Company.

3.12 Employee Benefit Plans.

(a) Schedule 3.12 sets forth a list of all material employee benefit plans (as defined in Section 3(3) of ERISA), and all other material compensation (including, without limitation, salary, equity-based, profit-sharing, stock ownership, incentive, deferred, bonus, performance, vacation or paid time off, holiday compensation or other similar compensation) or benefit (including, without limitation, retirement, savings, health or welfare, hospitalization, insurance, disability, other fringe benefit or similar benefit) plans, programs, arrangements, contracts or schemes, written, statutory or contractual, with respect to which the any Company or ERISA Affiliate has any obligation or material liability to contribute or that are maintained, contributed to or sponsored by any Company or any ERISA Affiliate for the benefit of any current or former employee, officer or director of any Company or any ERISA Affiliate, but excluding, however, any plan or arrangement maintained by a Governmental Authority to

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which a Company or any ERISA Affiliate is contributing to, or within the six years immediately prior to the Closing was required to contribute to, pursuant to applicable Law (collectively, the “Plans”).

(b) None of the Plans (i) is a plan that is or has ever been subject to Title IV of ERISA, Section 302 of ERISA or Section 412 of the Code, (ii) is a “multiemployer plan” as defined in Section 3(37) of ERISA, (iii) is a plan maintained in connection with a trust described in Section 501(c)(9) of the Code, (iv) provides for the payment of separation, severance, termination, change in control or similar-type benefits to any person or (v) provides for or promises retiree medical or life insurance benefits to any current or former employee, officer or director of a Company or any ERISA Affiliate, except to the extent required by Law.

(c) Each Plan is in compliance in all material respects with all applicable Laws, and the Companies and all ERISA Affiliates have satisfied all of their statutory, regulatory, financial and contractual obligations with respect to each such Plan, in each case except where the failure to do so would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. No Proceeding is pending or, to the Knowledge of the Companies, threatened with respect to any Plan (other than claims for benefits in the ordinary course of business).

(d) There has been no prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to any Plan.

The representations and warranties of this Section 3.12 are the sole representations and warranties of the Companies with respect to employee benefit plans.

3.13 Environmental Matters. Except as set forth on Schedule 3.13:

(a) The Companies are and have been in material compliance with all Environmental Laws, which compliance includes the possession and maintenance of, and compliance with, all Environmental Permits;

(b) The Companies are not subject to any outstanding Order from any Governmental Authority under any Environmental Laws requiring remediation of any Constituents of Concern or the payment of any fine or penalty, and none of the Companies has received any notice of alleged or potential liability for the disposal, management, or handling of any Constituent of Concern; and

(c) No Company is subject to any pending or, to the Knowledge of the Companies, threatened Proceeding alleging noncompliance or liability under any Environmental Law.

The representations and warranties of this Section 3.13 are the sole representations and warranties of the Companies with respect to environmental matters.

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3.14 Compliance with Laws; Permits. Except as set forth on Schedule 3.14:

(a) The Companies are in material compliance with all applicable Laws.

(b) The Companies possess all material Permits necessary for them to own their assets and operate their business as currently conducted. To the Knowledge of the Companies, (i) all such Permits are in full force and effect, (ii) the Company holding such Permits is in compliance with all material obligations with respect thereto and (iii) there are no Proceedings pending or threatened before any Governmental Authority that seek the revocation, cancellation, suspension or adverse modification thereof.

(c) Notwithstanding any provision in this Section 3.14 (or any other provision of this Agreement) to the contrary, Section 3.9 (Taxes), Section 3.12 (Employee Benefit Plans) and Section 3.13 (Environmental Matters), shall be the exclusive representations and warranties with respect to Tax, employee benefits and environmental matters, respectively, and no other representations or warranties are made with respect to such matters, including without limitation pursuant to this Section 3.14.

3.15 Insurance. Schedule 3.15 contains a true, correct and complete list of all policies of property, fire and casualty, product liability, workers’ compensation, title, general liability, fiduciary liability, directors’ and officers’ liability, malpractice liability, theft and other forms of insurance held by the Companies. Each of the insurance policies set forth on Schedule 3.15 is in full force and effect, all premiums due and payable thereon have been paid and no written notice of cancellation or termination has been received by either Company with respect thereto. There are no outstanding claims under any such insurance policies and, to the Companies’ Knowledge, no event has occurred, and no circumstance or condition exists, that has given rise to or serves as the basis for or (with or without notice or lapse of time) reasonably would be expected to give rise to or serve as the basis for any such claim under any such policy. Neither Company has received any written or, to the Companies’ Knowledge, oral notice from any insurer or reinsurer of any reservation of rights with respect to pending or paid claims. Neither Company is a party to any Contract, and the insurance policies listed on Schedule 3.15 do not contain any provision, that would affect the rights of either Company under such insurance policies upon or as a result of the consummation of the transactions contemplated by this Agreement.

3.16 Labor Relations. As of the date of this Agreement, no Company is (a) a party to any collective bargaining agreement or other labor union contract applicable to persons employed by such Company and, to the Knowledge of the Companies, there are no organizational campaigns, petitions or other unionization activities focusing on persons employed by a Company that seek recognition of a collective bargaining unit, or (b) subject to any strikes, material slowdowns or material work stoppages pending or, to the Knowledge of the Companies, threatened between a Company on one hand and any group of its respective employees on the other hand.

3.17 Title to Properties and Related Matters.

(a) Real Property. The Companies do not own real property. Schedule 3.17(a) of the Disclosure Schedule describes all of the real property leasehold interests of the

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Companies (the “Leased Real Property”). The Companies have delivered or made available to the Buyer true and complete copies of any leases related to the Leased Real Property, including all amendments thereto (the “Leases”). The Leases are legal, valid and binding obligations of the applicable Company that is a party thereto. Each of the Leases is unmodified and in full force and effect and the Companies have not delivered or received any written notice of termination thereunder. The Companies hold by valid leaseholds, easements or similar agreements, rights of use or access sufficient to enable the Companies to conduct their business as currently conducted without material interference.

(b) Personal Property. Each Company is the sole and exclusive owner of or has a valid leasehold interest in all material personal property that is necessary for the ownership and operation of its business as currently conducted. Such personal property of the Companies is in sufficiently good operating condition (except for ordinary wear and tear) to allow the business of the Companies to be operated in the ordinary course of business consistent with past practices of the Companies. As of the date of this Agreement, all of the material assets of the Companies are free and clear of all Liens except for Permitted Liens or those Liens set forth on Schedule 3.17(b). There are no preferential rights, rights to purchase, rights of first refusal, rights of first offer or similar rights relating to any of the tangible property of the Companies.

3.18 Brokers’ Fees. Except for Barclays Capital Inc., no broker, finder, investment banker or other Person is entitled to any brokerage fee, finders’ fee or other commission in connection with the transactions contemplated by this Agreement based upon arrangements made by the Companies or any of their Affiliates.

3.19 Company Guaranties. Schedule 3.19 describes all Company Guaranties posted by the Zephyr Owners, their Affiliates or third parties in connection with the businesses of the Companies.

3.20 Related Party Transactions. Schedule 3.20 describes all material services provided to either Company by an Affiliate of either Company. Except as set forth on Schedule 3.20, there are no written Contracts, or to the Companies’ Knowledge, oral Contracts, to which either Company is a party, in which any manager, officer, director, employee or Affiliate of either Company has a financial interest (other than compensation arrangements disclosed on Schedule 3.12).

3.21 Disclaimer of Additional and Implied Warranties. The Companies are making no representations or warranties, express or implied, of any nature whatsoever except as specifically set forth in this Article III.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES RELATING TO BUYER

Each Buyer Party, jointly and severally, represents and warrants to the Companies and the Zephyr Owners that the statements contained in this Article IV are true and correct as of the date hereof.

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4.1 Organization of Buyer Party. Each Buyer Party is (a) a limited partnership or limited liability company (as applicable), duly formed, validly existing and in good standing under the laws of Delaware and (b) has the requisite limited partnership or limited liability company power and authority (as applicable) to own, lease and operate its properties and to carry on its business as now being conducted. Each Buyer Party is duly qualified to do business in each jurisdiction in which the ownership or operation of its assets or the character of its activities is such as to require it to be so qualified, except where failure to be so qualified would not reasonably be expected to have a Buyer Material Adverse Effect. The Buyer Parties have made available to the Companies true copies of all existing Organizational Documents of the Buyer Parties.

4.2 Authorization; Enforceability. Each Buyer Party has all requisite limited partnership or limited liability company (as applicable) power and authority to execute and deliver this Agreement and each Ancillary Agreement to which it is or shall be a party, and to perform all obligations to be performed by it hereunder and thereunder. The execution and delivery of this Agreement and each Ancillary Agreement to which it is or shall be a party, and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized and approved by all requisite action on the part of each Buyer Party, and no other limited partnership or limited liability company (as applicable) proceeding on the part of any Buyer Party is necessary to authorize this Agreement or any Ancillary Agreement to which it is or shall be a party. This Agreement and each Ancillary Agreement to which it is or shall be a party have been duly and validly executed and delivered by each Buyer Party, and assuming due execution and delivery of each of the other parties hereto and thereto, this Agreement and each Ancillary Agreement to which it is or shall be a party constitute a valid and binding obligation of each Buyer Party, enforceable against Buyer in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar Laws affecting creditors’ rights generally and subject, as to enforceability, to general principles of equity.

4.3 No Conflict; Consents. The execution and delivery of this Agreement and the Ancillary Agreements by the Buyer Parties and the consummation of the transactions contemplated hereby and thereby by the Buyer Parties do not and will not:

(a) violate or conflict with any Law applicable to any Buyer Party or require any filing with, consent, approval or authorization of, or, notice to, any Governmental Authority (except for the HSR Act filings addressed by Section 5.4(b);

(b) violate, conflict with or result in any breach of any Organizational Document of the Buyer Parties; or

(c) require any filing with, or obtaining any permit, consent or approval of, or the giving of any notice to, any Person.

except with respect to Sections 4.3(a) and (c), as would not reasonably be expected to have a Buyer Material Adverse Effect.

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4.4 Litigation. Neither Buyer Party is subject to any Order and there are no Proceedings pending or, to the Knowledge of the Buyer Parties, threatened in writing against any Buyer Party, nor are there any reviews or investigations relating to any Buyer Party pending or, to the Knowledge of the Buyer Parties, threatened in writing by or before any arbitrator or any Governmental Authority.

4.5 Brokers’ Fees. No broker, finder, investment banker or other Person is entitled to any brokerage fee, finders’ fee or other commission in connection with the transactions contemplated by this Agreement based upon arrangements made by the Buyer Parties or any of their Affiliates.

4.6 Financial Ability. The Buyer Parties have, through a combination of cash on hand and funds readily and unconditionally available under existing lines of credit, funds sufficient to fund the Merger Consideration.

ARTICLE V

COVENANTS

5.1 Conduct of Business.

(a) From the date of this Agreement through the Closing, except: (i) as set forth in Schedule 5.1, (ii) as provided in the Material Contracts, (iii) as required by Law or Order, or (iv) as specifically contemplated by this Agreement, unless Buyer shall otherwise consent in writing (which consent shall not be unreasonably withheld or delayed), the Companies shall:

(i) operate their business and maintain their assets in the ordinary course and in accordance with their past operating and maintenance practices;

(ii) preserve substantially intact their business organizations, and use Reasonable Efforts to (A) maintain their rights, privileges and immunities and to maintain their relationships with their customers and suppliers and (B) retain the services of the employees it would otherwise retain in the ordinary course of business consistent with past practice;

(iii) use Reasonable Efforts to maintain and to keep their properties and assets in good working order, repair and condition, ordinary wear and tear excepted;

(iv) use Reasonable Efforts to keep in full force and effect insurance applicable to their assets and operations comparable in amount and scope of coverage to that currently maintained; and

(v) (A) keep and maintain accurate (in all material respects) books, records and accounts; (B) pay or accrue all Taxes, assessments and other governmental charges imposed upon any of their assets or with respect to their business or income when due and before any penalty or interest accrues thereon, except for any Taxes the validity of which is being contested in good faith by

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appropriate legal Proceedings and for which adequate reserves have been set aside; (C) accrue and pay when due and payable all wages and other compensation incurred with respect to all employees and independent contractors of and consultants to the Companies; (D) comply in all material respects with the requirements of all applicable Laws and all actions and requirements of any Governmental Authority necessary in the operation of its business; and (E) comply and use Reasonable Efforts to enforce the provisions of all Material Contracts.

(b) Without limiting the generality or effect of Section 5.1(a), prior to the Closing, except (i) as set forth in Schedule 5.1, (ii) as provided in the Material Contracts, (iii) as required by Law or Order, or (iv) as specifically contemplated by this Agreement, from the date of this Agreement until the Closing Date, unless Buyer shall otherwise consent in writing (which consent shall not be unreasonably withheld or delayed), the Companies shall not:

(i) amend their Organizational Documents;

(ii) liquidate, dissolve, recapitalize or otherwise wind up their business, or adopt a plan or resolution to liquidate, dissolve, recapitalize or otherwise wind up their business;

(iii) (A) grant or increase in any material respect, any bonus, salary, severance, termination or other compensation or benefits or other enhancement to the terms or conditions of employment to any of its employees, or (B) adopt, enter into or amend in any material respect any Plan;

(iv) change their accounting methods, policies or practices; change any Tax election or make any new Tax election, except as required by Law; make any settlement of or compromise any Tax liability; surrender any right to claim a refund of Taxes; consent to any extension or waiver of the limitation period applicable to any Tax claim or assessment;

(v) sell, assign, transfer, or otherwise dispose of any material assets;

(vi) except with respect to the Approved Capital Expenditures, make or commit to make any capital expenditure in excess of $100,000 individually or $500,000 in the aggregate, other than reasonable capital expenditures in connection with any emergency or force majeure events affecting a Company;

(vii) merge or consolidate with, or purchase substantially all of the assets or business of, or equity interests in, or make an investment in any Person (other than extensions of credit to customers in the ordinary course of business);

(viii) issue, sell or otherwise dispose of, or grant any Lien on any equity interests, notes, bonds or other securities of any Company (except for intercompany loans between the Companies) or any option, warrant or right to acquire same;

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(ix) (A) redeem, purchase or acquire, or offer to purchase or acquire, any of the outstanding equity interests of any Company or (B) split, combine or reclassify any of the equity interests of any Company or (C) declare, set aside or pay any dividend or other distribution in respect of its equity interests;

(x) acquire, directly or indirectly, (A) whether by merger or consolidation, by purchasing an equity interest or otherwise, any business or division of any Person or (B) any material assets or properties other than the acquisition of assets from suppliers or vendors in the ordinary course of business;

(xi) grant, create, assume or incur any Lien (except for Permitted Liens) with respect to any of its respective assets;

(xii) incur or guarantee any additional Indebtedness, except for intercompany loans among the Companies, or issue or sell any debt securities or warrants or rights to acquire any debt securities or guaranty any debt securities of others;

(xiii) (A) amend, modify, waive or assign any rights or obligations under or otherwise change in any material respect any Material Contract, (B) terminate any Material Contract before the expiration of the term thereof, other than to the extent any such Material Contract terminates pursuant to its terms in the ordinary course of business, or (C) enter into any Contract with any Affiliate of the Companies;

(xiv) enter into or assume any Contract that would constitute a Material Contract, other than Contracts entered into in the ordinary course of business consistent with past practice subject to Section 5.15;

(xv) (A) employ any common law employees of the Companies, other than (i) the employees employed as of the date of this Agreement and replacements for, and on substantially similar terms as, any such employees whose employment is terminated after the date of this Agreement and (ii) employees with an individual annual salary of less than $75,000, (B) enter into or otherwise become obligated to make payments under or with respect to, (1) any equity based, performance, profit-sharing, incentive or deferred compensation plan or arrangement or other fringe benefit plan, (2) any consulting, employment, severance, bonus, termination, change in control or similar Contract with any Person or (3) any amendment, augmentation or extension of any such plan or Contract, or any amendment, augmentation or extension of any Plan, except as required by Law or as is immaterial in amount and authorized pursuant to existing terms of such plans, arrangements or Contracts, (C) grant, pay, or otherwise become liable for or obligated to pay, any severance obligation, change of control amounts, bonus or increase in compensation or benefits to, or forgive any Indebtedness of, any director, officer, manager or employee or any former independent contractor, consultant or agent of any Company; or (D) make any loan to, or enter into any other transaction with, any of its directors, officers, managers or employees;

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(xvi) waive any claims or rights pertaining to the business of the Companies other than claims which are immaterial in amount and consequence to the business of the Companies; or

(xvii) agree, whether in writing or otherwise, to do any of the foregoing.

5.2 Access.

(a) From the date hereof through the Closing, the Companies shall afford to the Buyer Parties and their authorized Representatives reasonable access, during normal business hours and in such manner as not to unreasonably interfere with normal operation of the business, to the properties, books, contracts, records and appropriate officers and employees of the Companies and shall furnish such Buyer Parties and their authorized Representatives with all financial and operating data and other information concerning the affairs of the Companies as the Buyer Parties and such Representatives may reasonably request. The Companies shall have the right to have a Representative present at all times during any such inspections, interviews and examinations. Additionally, the Buyer Parties shall hold in confidence all such information on the terms and subject to the conditions contained in the Confidentiality Agreement. No investigations or inspections by any Buyer Party or their authorized Representative will reduce or otherwise affect the obligation or liability of the Companies with respect to any express representations, warranties, covenants or agreements made herein or in any instrument, agreement or document executed and delivered in connection with this Agreement. Notwithstanding the foregoing, the Buyer Parties shall have no right of access to, and the Companies shall have no obligation to provide to the Buyer Parties, information relating to (i) bids received from others in connection with the transactions contemplated by this Agreement (or similar transactions) and information and analyses (including financial analyses) relating to such bids; (ii) any information the disclosure of which would jeopardize any privilege available to the Companies or any of their Affiliates relating to such information or would cause a Company or any of the Companies’ Affiliates to breach a confidentiality obligation; or (iii) any information the disclosure of which would result in a violation of Law or an Order. Further, the Buyer Parties shall have no right to perform or conduct any environmental sampling or other invasive environmental investigating on or about any property, real or personal of any Company, without the Companies’ prior written consent, which the Companies may grant, condition or withhold in their sole discretion.

(b) Other than as a result of the gross negligence or willful misconduct of the Companies or their Representatives, the Buyer Parties shall release, indemnify, defend and hold harmless the Owner Indemnified Parties and their Representatives, effective as of and from the date hereof, from and against any Losses arising directly or indirectly from or relating in any manner whatsoever to any site visits or inspections of the assets or properties of any Company pursuant to this Section 5.2. THE INDEMNIFICATION PROVISIONS IN THIS SECTION 5.2 SHALL BE ENFORCEABLE REGARDLESS

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OF WHETHER ANY PERSON (INCLUDING THE PERSON FROM WHOM INDEMNIFICATION IS SOUGHT) ALLEGES OR PROVES THE SOLE, CONCURRENT, CONTRIBUTORY OR COMPARATIVE NEGLIGENCE OF THE PERSON SEEKING INDEMNIFICATION OR THE SOLE OR CONCURRENT STRICT LIABILITY IMPOSED UPON THE PERSON SEEKING INDEMNIFICATION OTHER THAN AS A RESULT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH PERSON.

5.3 Third-Party Approvals. The Buyer and the Companies shall (and shall each cause their respective Affiliates to) use Reasonable Efforts to obtain all material consents and approvals of third parties (other than Regulatory Approvals covered by Section 5.4) that any of Buyer, the Companies or their respective Affiliates are required to obtain in order to consummate the transactions contemplated hereby.

5.4 Regulatory Filings.

(a) From the date of this Agreement until the Closing, each of the Buyer Parties and Companies shall, and shall cause their respective Affiliates to, use its Reasonable Efforts to obtain the Regulatory Approvals (other than the Regulatory Approval required under the HSR Act, which is covered by Section 5.4(b)), and the Parties agree to cooperate fully with each other and with all Governmental Authorities to obtain the Regulatory Approvals at the earliest practicable date, and shall: (i) make or cause to be made the filings required of such party or any of its Affiliates under any Laws with respect to the transactions contemplated by this Agreement and to pay any fees due of it in connection with such filings, as promptly as is reasonably practicable, (ii) cooperate with the other Party and furnish all information in such Party’s possession that is necessary in connection with such other Party’s filings, (iii) promptly inform the other Party of any communication from or to, and any proposed understanding or agreement with, any Governmental Authority in respect of such filings, (iv) consult and cooperate with the other Party in connection with any analyses, appearances, presentations, memoranda, briefs, arguments and opinions made or submitted by or on behalf of any Party in connection with all meetings, actions and proceedings with Governmental Authorities relating to such filings, (v) comply, as promptly as is reasonably practicable, with any requests received by such Party or any of its Affiliates under any other Laws for additional information, documents or other materials, (vi) use Reasonable Efforts to resolve any objections as may be asserted by any Governmental Authority with respect to the transactions contemplated by this Agreement, and (vii) use Reasonable Efforts to contest and resist any action or proceeding instituted (or threatened in writing to be instituted) by any Governmental Authority challenging the transactions contemplated by this Agreement as in violation of any Law. If a Party intends to participate in any meeting with any Governmental Authority with respect to such filings, it shall give the other Party reasonable prior notice of such meeting. Any filing fees made in connection with the actions contemplated by this Section 5.4(a) shall be borne equally by the Buyer, on one hand, and by the Zephyr Owners, on the other hand. The provisions set forth in Section 5.4(b) of this Agreement shall govern to the extent of any conflict with this Section 5.4(a).

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(b) HSR Act Filings.

(i) As soon as practicable after the date hereof and in any event within ten (10) Business Days following the date of the Agreement, the Companies and the Buyer Parties each shall file a Notification and Report Form and such other filings as required under the HSR Act with the FTC and the Justice Department concerning the transactions contemplated by this Agreement.

(ii) The Companies and the Buyer Parties shall furnish to each other such necessary information and reasonable assistance as the other may reasonably request in connection with the preparation of any further necessary filings or submissions under the provisions of the HSR Act. The Companies and the Buyer Parties shall consult and cooperate with one another, and consider in good faith the views of one another, in connection with any analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals made or submitted by or on behalf of any Party hereto in connection with proceedings under or relating to the HSR Act or any other federal or state antitrust or fair trade Law. Except as prohibited by Law, the Companies and the Buyer Parties shall (A) promptly notify the other Party of any communication to that Party from the FTC, the Justice Department, any State Attorney General or any other Governmental Authority and, subject to applicable Laws, permit the other Party to review in advance any proposed written communication to any of the foregoing, (B) not agree to participate in any substantive meeting or discussion with any Governmental Authority in respect of any filings, investigation or inquiry concerning this Agreement, any related document or the transactions contemplated hereby and thereby unless it consults with the other Party in advance (and such Party will give the other Party a summary of such meeting or discussion promptly thereafter); and (C) supply to each other copies of all correspondence, filings or written communications (and memoranda setting forth the substance thereof) by such Party or its Affiliates with any Governmental Authority or staff members thereof, with respect to the transactions contemplated by this Agreement.

(iii) The Buyer and the Companies each agree, and shall cause their respective Affiliates, to cooperate and to take any and all actions necessary to obtain any governmental clearances required for Closing with respect to the HSR Act or any other federal or state antitrust or fair trade Law, including early termination of the waiting period under the HSR Act and any applicable state antitrust or fair trade Law. The Buyer Parties and the Companies also each agree to take any and all actions to the extent necessary to obtain the approval of any Governmental Authority with jurisdiction with respect to the HSR Act or any other federal or state antitrust or fair trade Law regarding the transactions contemplated by this Agreement.

(iv) The Buyer shall pay when due the initial filing fee and any other applicable fees required under the HSR Act, and the Companies shall reimburse the Buyer for one-half of such amount paid by the Buyer within two (2) Business Days following such payment.

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(v) Notwithstanding anything herein to the contrary, nothing in this Agreement shall require the Buyer Parties or any of its Affiliates to dispose of any of its assets or to limit its freedom of action with respect to any of its businesses, or to consent to any disposition of its assets or limits on its freedom of action with respect to any of its businesses, whether prior to or after the Closing Date, or to commit or agree to any of the foregoing, in order to obtain any consents, approvals, permits or authorizations or to remove any impediments to the transactions contemplated by this Agreement relating to antitrust Laws or to avoid the entry of, or to effect the dissolution of, any injunction, temporary restraining order or other order in any Proceeding relating to the HSR Act or other antitrust, competition, premerger, notification or trade-regulation law, regulation or order. In addition, notwithstanding anything to the contrary herein, nothing in this Section 5.4 shall require any of the Parties to disclose to the other Parties confidential information about third parties in connection with seeking approvals from Governmental Authorities to the extent that such disclosures would constitute violations of Contractual obligations or legal duties, provided that this sentence shall not permit any Party to fail to disclose any information required to be filed with a Governmental Authority by this Agreement.

(vi) Subject to Section 5.4(b)(v), if any action or Proceeding is instituted (or threatened), challenging the transaction contemplated by this Agreement as violative of any Laws, or if any decree, judgment, injunction or other order is entered, enforced or attempted to be entered or enforced, by a court or other Governmental Authority, which decree, judgment, injunction or other order would make the transactions contemplated by this Agreement illegal or would otherwise prohibit, prevent, restrict, impair or delay consummation of the transactions contemplated hereby, each of the Buyer Parties and the Companies shall use Reasonable Efforts to contest and resist any such action or proceeding and to have vacated, lifted, reversed, or overturned any such decree, judgment, injunction or other order, whether temporary, preliminary, or permanent, that is in effect and that prohibits, prevents or restricts consummation of the transaction contemplated by this Agreement and to have such decree, judgment, injunction or other order repealed, rescinded or made inapplicable so as to permit consummation of the transactions contemplated by this Agreement.

5.5 Books and Records. From and after the Closing:

(a) The Owner Representative shall deliver to the Buyer Parties, but may retain a copy of any or all of the data room materials and other books and records relating to the business or operations of the Companies on or before the Closing Date.

(b) The Buyer Parties shall preserve and keep a copy of all books and records relating to the business or operations of the Companies on or before the Closing Date in the Buyer Parties’ possession in accordance with the Buyer Parties’ standard document

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retention procedures and applicable Law, but for a period of not less than five (5) years. During the period of time in which the Buyer Parties are obligated to preserve such books and records, the Buyer Parties shall allow the Owner Representative, at no charge or fee to the Owner Representative, full access to such books and records as remain in the Buyer Parties’ possession and full access to the properties and employees of the Buyer Parties and the Affiliates in connection with matters relating to the business or operations of the Companies on or before the Closing Date and any disputes relating to this Agreement. After the period of time in which the Buyer Parties are obligated to preserve such books and records, before the Buyer Parties shall dispose of any such books and records, the Buyer Parties shall give the Owner Representative at least 90 days’ prior notice to such effect, and the Owner Representative shall be given an opportunity, at their cost and expense, to remove and retain all or any part of such books and records as the Owner Representative may select.

5.6 Permits. The Buyer Parties shall provide all notices and otherwise take all actions required to transfer or reissue any Permits, including those required under Environmental Laws, as a result of or in furtherance of the transactions contemplated by this Agreement. The Companies shall use Reasonable Efforts to cooperate with the Buyer Parties to provide information necessary to apply for such Permits.

5.7 Director and Officer Indemnification.

(a) The Buyer and the Merger Sub agree that all rights to exculpation, indemnification and advancement of expenses now existing in favor of the current or former managers or officers of the Companies (as provided in the Organizational Documents of the Companies), and each of the foregoing who served as a director or officer, member, trustee or fiduciary of another corporation, partnership, joint venture, trust, pension or other employee benefit plan or enterprise at the request of a Company, in their capacities as such and not as stockholders and/or equity holders of the Companies or otherwise (each, together with such person’s heirs, executors or administrators, a “Company Indemnified Party”), as the case may be, shall survive the Merger and shall continue in full force and effect with respect to all losses, claims, damages, liabilities, fees, expenses, judgments and fines arising in whole or in part out of actions or omissions in such person’s capacity as such occurring at or prior to the Effective Time.

(b) The rights of each Company Indemnified Party (and any other individuals entitled to indemnification or similar rights under Section 5.7(a)) hereunder shall be in addition to, and not in limitation of, any other rights such Company Indemnified Party (and any other individuals entitled to indemnification or similar rights under Section 5.7(a)) may have under the Organizational Documents of the Companies, any other indemnification arrangement, the TBOC or otherwise. The provisions of this Section 5.7 shall survive the consummation of the Merger and expressly are intended to benefit, and are enforceable by, each Company Indemnified Party (and any other individuals entitled to indemnification or similar rights under Section 5.7(a)).

(c) In the event the Buyer Parties or any of their respective successors or assigns (i) consolidates with or merges into any other Person and shall not be the

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continuing or surviving corporation or entity in such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any Person, then, and in either such case, proper provision shall be made so that the successors and assigns of the Buyer Parties, shall assume the obligations set forth in this Section 5.7.

(d) At the Closing, in addition to the Merger Consideration, Buyer shall pay to the Owner Representative in cash by wire transfer of immediately available funds to an account designated by the Owner Representative, an amount not to exceed $75,000.00 (the “D&O Tail Amount”), which the Owner Representative shall use to purchase up to a six (6) year tail policy to the directors and officers insurance policy of the Companies in effect immediately prior to the Closing. The Buyer shall exercise Reasonable Efforts to provide the Owner Representative with any assistance reasonably requested in order for the Owner Representative to purchase such a tail policy.

5.8 Public Statements. The Companies and Buyer agree that, from the date hereof through the Closing Date, this Agreement and its terms shall be kept confidential and no public release or announcement concerning the transactions contemplated by this Agreement shall be issued or made by any Party without the prior consent of the other Parties (which consent shall not be unreasonably withheld), except (a) as such disclosure, release or announcement may be required (i) by Law or the rules or regulations of any United States or foreign securities exchange, in which case the Party required to make the disclosure, release or announcement shall allow the other Party reasonable time to comment on such disclosure, release or announcement in advance of such issuance, or (ii) in connection with any filing under the HSR Act (if applicable), (b) that Companies may make such an announcement to the Companies’ employees and (c) that the Parties may disclose the terms of this Agreement to their respective accountants and other Representatives as necessary in connection with the ordinary conduct of their respective businesses (as long as such Persons are advised that they must keep the terms of this Agreement confidential). Notwithstanding the foregoing, Owner Representative and the Buyer Parties shall cooperate to prepare joint press releases to be issued on the Closing Date.

5.9 Updating Certain Disclosures; Revising Disclosure Schedule.

(a) The Companies shall provide the Buyer Parties with prompt written notice of (i) the occurrence, or failure to occur, of any event of which the Companies have Knowledge that causes or would be reasonably likely to cause any representation or warranty of the Companies contained in this Agreement or in the Ancillary Agreements to be untrue or inaccurate in any material respect at any time from the date of this Agreement to the Closing determined as if such representation or warranty were made at such time, (ii) the failure of either Company to comply with or satisfy in any material respect any covenant to be complied with by it hereunder, or (iii) any written notice or other written communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement. Except as provided below, no such notification shall affect the representations or warranties of the Parties or the conditions to their respective obligations hereunder. Furthermore, the Companies may, by delivering written notice to the Buyer Parties, revise or supplement the Disclosure Schedule at any time prior to the Closing Date to either (i) reflected information that existed on the date hereof and should have been

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included on one ore more items of the Disclosure Schedule but was not, or (ii) reflect information that came into existence after the date hereof and would have been required to be disclosed on one or more items of the Disclosure Schedule if such information was in existence on the date of this Agreement (each, a “Schedule Update”); provided that in no event shall the Companies provide any such notice after the tenth Business Day prior to the Termination Date. The Buyer Parties shall have 10 Business Days to review each Schedule Update and the Closing Date shall be postponed as necessary for Buyer to do so (the “Review Period”). No Schedule Update will affect the rights of Buyer under Sections 8.2 or 9.1(b) of this Agreement; provided, however, that if any Schedule Update, together with all other prior Schedule Updates, gives the Buyer Parties a right to terminate the Agreement pursuant to Section 9.1(b), and the Buyer does not give the Companies written notice that it intends to terminate the Agreement within the Review Period (or if the cure period referenced in Section 9.1(b) is applicable, within five (5) days of the expiration of the cure period referenced in Section 9.1(b)), the Buyer Parties waive their right to terminate the Agreement for matters related to such Schedule Update.

(b) The Disclosure Schedules will be deemed to be updated with, and will include, such Schedule Update, but the Zephyr Owners will have indemnification obligations, if any, pursuant to Article VIII as if such Schedule Update did not occur.

5.10 Exclusivity. Prior to the Closing Date, Companies and their respective Affiliates will not and will cause each of their respective employees, officers and agents not to, directly or indirectly, (a) solicit, initiate, entertain or encourage the submission of any proposal or offer from any Person relating to the direct or indirect acquisition of the equity interests of the Companies, the assets of the Companies, or any material portion thereof, or (b) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any Person to do or seek any of the foregoing.

5.11 Employee Matters. Prior to the Closing, the Companies shall pay, in their discretion, accrued bonus amounts to their employees through the Closing Date.

5.12 Notices and Consents. The Companies will use Reasonable Efforts (including the payment of commercially reasonable costs) to obtain, prior to Closing, any consent required to be obtained prior to Closing with respect to the Merger and the Buyer Parties shall use Reasonable Efforts in cooperating with the Companies in obtaining such consents.

5.13 Payoff Letters and Release. Within five (5) Business Days prior to the Closing Date, each Company shall use its Reasonable Efforts to cause each payee of Third Party Debt and Expenses, as the case may be, to deliver a Debt Payoff Letter or an Payoff Letter to the Companies, copies of which shall be promptly delivered to the Buyer. Each Company shall use its Reasonable Efforts to cause Glen Wind and Carlos Rodriguez to reaffirm the Release provided by such individuals in connection with the execution of this Agreement.

5.14 Owner Representative. The Companies shall use their Reasonable Efforts to cause the Zephyr Owners to appoint the Owner Representative within twenty (20) days of the date hereof.

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5.15 Contract Compliance. From the date hereof through the Closing, each of the Companies shall use its Reasonable Efforts to cause each Contract that either Company enters into, assumes or amends during such period to be in a form that would allow the Companies to earn “qualifying income” within the meaning of Section 7704(d) of the Code, and shall use its Reasonable Efforts to include therein contractual language proposed by the Buyer specifically relating thereto.

ARTICLE VI

TAX MATTERS

6.1 Responsibility for Filing Tax Returns, Payment of Taxes.

(a) Pre-Closing Tax Returns. The Owner Representative shall prepare all Tax Returns required to be filed by or with respect to each Company for a Pre-Closing Tax Period (“Pre-Closing Tax Returns”). For the avoidance of doubt, the Owner Representative shall cause to be prepared and timely filed the federal income Tax Returns for the Companies on IRS Form 1065 and all corresponding state income Tax Returns for the period that ends on the Closing Date. The Pre-Closing Tax Returns shall be prepared on a basis consistent with past practice except to the extent otherwise required by applicable Law. Not later than twenty (20) days prior to the due date for filing any such Tax Return, the Owner Representative shall deliver a copy of such Tax Return, together with all supporting documentation and workpapers, to Buyer for its review and reasonable comment. The Buyer will cause such Tax Return (as revised to incorporate Buyer’s reasonable comments) to be timely filed and will provide a copy to the Owner Representative. Not later than five (5) days prior to the due date for payment of Taxes with respect to any Pre-Closing Tax Return, the Zephyr Owners shall pay to the Buyer the amount of any Zephyr Owner Taxes with respect to such Tax Return.

(b) Straddle Period Tax Returns. Buyer shall prepare or cause to be prepared all Tax Returns of the Companies for all Straddle Periods (“Straddle Tax Returns”). Such Tax Returns shall be prepared on a basis consistent with past practice except to the extent otherwise required by applicable Law. Buyer shall file, or cause to be filed, all Straddle Tax Returns. Buyer shall provide a copy of each Straddle Tax Return, together with all supporting documentation and workpapers, to the Owner Representative at least twenty (20) days before the due date for such Tax Return. Prior to the filing of any Straddle Tax Return, Buyer shall make any revisions or adjustments reasonably requested by the Zephyr Owners. Not later than five (5) days prior to the due date for payment of Taxes with respect to any Straddle Tax Return, the Zephyr Owners shall pay to the Buyer the amount of any Zephyr Owner Taxes with respect to such Tax Return for the amounts owed by the Zephyr Owners as calculated in the following sentence. Liability for Taxes attributable to a Straddle Period shall be apportioned between Buyer and Zephyr Owners as follows: (i) property and similar ad valorem Taxes shall be apportioned to the Zephyr Owners for the period up to and including the Closing Date and to the Buyer for the period after the Closing Date on a ratable daily basis; and (ii) all other Taxes shall be apportioned between Buyer and Zephyr Owners based on an interim closing of the books of each of the Companies as of the Closing Date. For this purpose, any margin or franchise Tax paid or payable with respect to the Companies shall be allocated to the

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taxable period during which the income, receipts, operations, assets or capital comprising the base of such Tax is measured, regardless of whether the right to do business for another taxable period is obtained by the payment of such Tax.

6.2 Responsibility for Tax Audits and Contests. The Zephyr Owners shall control any audit or contest with respect to any Taxes for a Pre-Closing Tax Period; provided, however, that the Party with the greater potential Tax liability shall control any audit or contest with respect to a Straddle Period; provided further, that the Party so in control of an audit or contest with respect to a Straddle Period shall allow the other Party to participate at such other Party’s cost and expense. The Party in control of an audit or controversy shall keep the other Party informed of the status of the audit or controversy (including providing copies of correspondence and pleadings). Neither Buyer nor the Zephyr Owners shall settle any audit or contest in a way that would adversely affect the other Party without the other Party’s written consent, which the other Party shall not unreasonably withhold.

6.3 Cooperation on Tax Matters. The Buyer, the Zephyr Owners and the Owner Representative shall cooperate fully as and to the extent reasonably requested by another Party, in connection with the filing of Tax Returns and any audit or contest with respect to Taxes imposed on or with respect to the assets, operations or activities of the Companies. Such cooperation shall include the retention and (upon the other party’s request) the provision of records and information which are reasonably relevant to any such Tax Return or audit or contest. The Owner Representative further agrees, upon request, to use commercially reasonable efforts to obtain any certificate or other document from any Governmental Authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed on the Buyer or the Companies (including, but not limited to, with respect to the transactions contemplated hereby).

6.4 Amended Tax Returns. Unless required by applicable Law or as set forth below, Buyer agrees not to amend any of the Companies’ previously filed Tax Returns without Zephyr Owners’ prior consent if such amended Tax Return or settlement would increase (other than a de minimis amount) the amount of Zephyr Owner Taxes. Notwithstanding the above, Buyer may file or cause to be filed an amended Tax Return even if not required by applicable Law without the consent of the Zephyr Owners, provided that any additional Taxes resulting therefrom will not be deemed to constitute Zephyr Owner Taxes.

6.5 Tax Refunds. The Zephyr Owners shall be entitled to any refund of Taxes paid with respect to Taxes for a Pre-Closing Tax Period. Buyer shall be entitled to all other refunds except that refunds for a Straddle Period shall be apportioned between the Buyer and the Zephyr Owners in accordance with the principles set forth in Section 6.1(b). If a Party receives a refund to which the other Party is entitled, the Party receiving the refund shall pay it to the Party entitled to the refund within twenty (20) Business Days after receipt, net of any costs or expenses incurred by such party or its Affiliates in procuring such refund.

6.6 Transfer Taxes. All state or local transfer, sales, use, stamp, registration or other similar Taxes resulting from the transactions contemplated by this Agreement, together with any interest, penalties or additions thereto, shall be borne equally by Buyer and the Zephyr Owners.

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6.7 Merger Consideration Allocation. At least five (5) days prior to the Closing, the Owner Representative shall deliver a proposed Allocation (as defined below) to the Buyer. The Owner Representative and Buyer shall thereafter use their best efforts to agree on the Allocation. The Merger Consideration (together with the liabilities of the Companies assumed by the Buyer) shall be allocated among the assets of the Companies subject to any applicable Code sections and Treasury regulations (and any similar provision of state, local or foreign Law, as appropriate) (the “Allocation”). The Zephyr Owners and Buyer shall report the transactions contemplated hereby on all Tax Returns, including, but not limited to Form 8594, as applicable, in a manner consistent with the Allocation. If the Merger Consideration is subsequently adjusted for any reason such that an adjustment to the Allocation is needed in order for such Allocation to comply with this Section 6.7, the Owner Representative shall prepare such adjustment to the Allocation which adjustment shall be submitted to Buyer, and the Owner Representative and Buyer shall use their best efforts to agree on the final adjustment within thirty (30) days after the determination of the adjusted Merger Consideration. Buyer and its Affiliates shall timely and properly prepare, execute, file, and deliver all such documents, forms, and other information as the Owner Representative may reasonably request in preparing any required adjustment to the Allocation. If, contrary to the intent of the parties hereto as expressed in this Section 6.7, any Taxing authority makes or proposes an allocation different from the Allocation determined under this Section 6.7, the Owner Representative and Buyer shall cooperate with each other in good faith to contest such Taxing authority’s allocation (or proposed allocation), provided, however, that, after consultation with the party (or parties) adversely affected by such allocation (or proposed allocation), the other party (or parties) hereto may file such protective claims or Tax Returns as may be reasonably required to protect its (or their) interests.

6.8 Disputes over Tax Provisions. The Accountants shall resolve any dispute between Buyer and the Zephyr Owners over the calculation of Taxes and under this Article VI substantially in the manner described in Section 2.9(c)(iv).

ARTICLE VII

CONDITIONS TO CLOSING

7.1 Conditions to Obligations of the Buyer Parties. The obligation of the Buyer Parties to consummate the transactions contemplated by this Agreement is subject to the satisfaction of the following conditions, any one or more of which may be waived in writing by the Buyer Parties:

(a) Representations, Warranties and Covenants of Companies. (i) Each of the representations and warranties of the Companies made in this Agreement (A) that are qualified by materiality or Company Material Adverse Effect shall be true and correct as of the date of this Agreement and as of the Closing (as if made anew at and as of the Closing, unless a specific date is set forth in such representation or warranty, in which case such representation or warranty must be true and correct as of such specific date) and (B) that are not qualified by materiality or Company Material Adverse Effect shall be true and correct in all material respects as of the date of this Agreement and as of the Closing (as if made anew at and as of the Closing, unless a specific date is set forth in such representation or warranty, in which case such representation or warranty must be true and correct as of such specific date); (iii) each Company shall have performed or

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complied in all material respects with all of the covenants, agreements and obligations required by this Agreement to be performed or complied with by each Company on or before the Closing; and (iv) the Companies shall have delivered to Buyer a certificate, dated the Closing Date, certifying that the conditions specified in this Section 7.1(a) have been fulfilled;

(b) Ancillary Agreements. The Buyer shall have received the Escrow Agreement and Paying Agent Agreement, duly executed and delivered by the parties thereto;

(c) Secretary’s Certificate. The Buyer Parties shall have received a certificate, dated the Closing Date and executed by the Secretary of the Zephyr Management, certifying the incumbency and signatures of the officers of the Zephyr Management authorized to act on behalf of the Zephyr Management and Zephyr Services in connection with the transactions contemplated hereby and attaching and certifying as true and complete copies of (i) the resolutions duly adopted by the managers of Zephyr Management authorizing and approving the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and (ii) the Companies’ Organizational Documents, all as may have been amended up through the Closing Date;

(d) Certificates of Status. The Buyer Parties shall have received certificates of good standing (if applicable) with respect to the Companies from the Secretary of State of Texas, in each case dated as of a date not more than ten (10) days prior to the Closing Date;

(e) Certificate of Value of Gross Assets Constituting U.S. Real Property Interests. The Buyer Parties shall have received from each of the Companies a certificate in accordance with Treasury Regulations Section 1.1445-11T(d)(2)(i) stating that less than fifty percent of the value of the gross assets of such Company consists of U.S. real property interests;

(f) Consents. All consents, authorizations and approvals set forth on Schedule 7.1(f) have been obtained and delivered to the Buyer Parties;

(g) Escrow Agent. All documents, instruments, certificates or other items required to be delivered to the Escrow Agent in connection with the Escrow Agreement shall have been delivered;

(h) Reaffirmation of Releases. The Buyer Parties shall have received the reaffirmation of the Releases of Glen Wind and Carlos Rodriguez.

(i) Company Material Adverse Effect. No Company Material Adverse Effect shall have occurred since the Balance Sheet Date, and the Companies shall have delivered to Buyer a certificate, dated the Closing Date, certifying that the condition specified in this Section 7.1(i) has been fulfilled;

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(j) Zephyr Owner Documents. The Buyer Parties shall have received from each Zephyr Owner (i) an executed Letter of Transmittal and (ii) an executed Internal Revenue Service Form W-9;

(k) Releases. The Buyer Parties shall have received executed Releases, in substantially the form attached hereto as Exhibit 7.1(j), from (i) all of the officers of Zephyr Services and the officers and managers of Zephyr Management, and (ii) Zephyr Owners holding at least ninety percent (90%) of the Membership Interests in Zephyr Management;

(l) Non-Competition Agreements. Each of the Non-Competition Agreements entered into with Glen Wind and Carlos Rodriguez shall be in full force and effect as of the Closing Date. The Buyer Parties shall have received an executed Non-Competition Agreement, effective as of Closing, from each of Lance Perryman, Wesley McGuffin and John K. Thompson;

(m) Owner Representative. The Buyer Parties shall have received written evidence, reasonably satisfactory to the Buyer Parties, that an Owner Representative has been appointed by the Zephyr Owners and that the Owner Representative has affirmed and agreed to perform all of the obligations of the Owner Representative under this Agreement;

(n) Net Merger Consideration Payment Schedule. The Buyer Parties shall have received the Net Merger Consideration Payment Schedule (which will be attached hereto as Exhibit 7.1(n) at Closing), and shall be entitled to rely on such Net Merger Consideration Payment Schedule with respect to the payment of the Merger Consideration; and

(o) Other Deliveries. All documents, instruments, certificates or other items required to be delivered pursuant to Section 7.5(a) shall have been delivered.

7.2 Conditions to the Obligations of the Companies. The obligation of the Companies to consummate the transactions contemplated by this Agreement is subject to the satisfaction of the following conditions, any one or more of which may be waived in writing by the Companies:

(a) Representations, Warranties and Covenants of the Buyer Parties. (i) Each of the representations and warranties of the Buyer Parties made in this Agreement (A) that are qualified by materiality or Buyer Material Adverse Effect will be true and correct in all respects as of the date of this Agreement and as of the Closing (as if made anew at and as of the Closing, unless a specific date is set forth in such representation or warranty, in which case such representation or warranty must be true and correct as of such specific date), and (B) that are not qualified by materiality or Buyer Material Adverse Effect shall be true and correct in all material respects as of the date of this Agreement and as of the Closing (as if made anew at and as of the Closing, unless a specific date is set forth in such representation or warranty, in which case such representation or warranty must be true and correct as of such specific date); (ii) each

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Buyer shall have performed or complied in all material respects with all of the covenants, agreements and obligations required by this Agreement to be performed or complied with by the Buyer Parties on or before the Closing; and (iii) the Buyer Parties shall have delivered to the Companies a certificate, dated the Closing Date, certifying that the conditions specified in this Section 7.2(a) have been fulfilled;

(b) Closing Payment Amount. The Buyer Parties shall have delivered the payments required pursuant to Section 2.8(a) in accordance with Section 2.8(a);

(c) Ancillary Agreements. The Companies shall have received the Escrow Agreement and Paying Agent Agreement, duly executed and delivered by the parties thereto;

(d) Secretary’s Certificate. The Companies shall have received a certificate, dated the Closing Date and executed by the Secretaries of the Buyer Parties, certifying the incumbency and signatures of the officers of the Buyer Parties authorized to act on behalf of the Buyer Parties in connection with the transactions contemplated hereby and attaching and certifying as true and complete copies of (i) the resolutions duly adopted by the member or managers, as applicable, of the Buyer Parties authorizing and approving the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and (ii) the Buyer Parties’ Organizational Documents, all as may have been amended up through the Closing Date;

(e) Certificates of Status. The Companies shall have received certificates of good standing with respect to the Buyer Parties from the Secretary of State of the State of Delaware, in each case dated as of a date not more than ten (10) days prior to the Closing Date;

(f) Release of Company Guaranties. The Zephyr Owners and/or their Affiliates, as applicable, shall have received from the respective beneficiary, in form and substance reasonably satisfactory to the Owner Representative, written releases from any liability or obligation, whether arising before, on or after the Closing Date, under any Company Guaranty in effect as of the Closing and listed on Schedule 3.19.

(g) Consents. All consents, authorizations and approvals set forth on Schedule 7.1 have been obtained and delivered to the Companies;

(h) Escrow Agent. All documents, instruments, certificates or other items required to be delivered to the Escrow Agent in connection with the Escrow Agreement shall have been delivered; and

(i) Other Deliveries. All other documents, instruments, certificates or other items required to be delivered pursuant to Section 7.5(b) shall have been delivered.

7.3 Conditions to the Obligations of Each Party. The obligations of the Companies and the Buyer Parties to consummate the transactions contemplated by this Agreement are subject to the satisfaction of the following conditions, any one or more of which may be waived in writing signed by the Companies and the Buyer Parties.

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(a) No Injunction, Etc. No provision of any applicable Law and no Order will be in effect that will prohibit or restrict the consummation of the Closing;

(b) No Proceedings. No Proceeding challenging this Agreement or the transactions contemplated hereby or seeking to prohibit, alter, prevent or materially delay the Closing or seeking Losses from the Buyer Parties, Owner Representative, Unit Holders, Members or the Companies incident to this Agreement or the transactions contemplated hereby, will have been instituted by any Person before any Governmental Authority and be pending; and

(c) HSR Approval. HSR Approval shall have been obtained.

7.4 Casualty Loss. If, prior to Closing, any of the material assets of the Companies are damaged or destroyed by fire or other casualty or are taken or threatened to be taken in condemnation or under the right of eminent domain (“Casualty Loss”) and the estimated cost to repair or replace, as applicable, such asset(s) (with equipment of similar utility) as reasonably agreed to by the Companies and the Buyer Parties in good faith exceeds the aggregate proceeds actually received by the Companies under any indemnity, bond, insurance policy or similar recovery right with respect to such Casualty Loss (the amount of such estimated cost in excess of proceeds received, the “Excess Casualty Loss”), then the Merger Consideration shall be reduced by the amount of such Excess Casualty Loss; provided, however, (a) if the estimated cost to repair or replace, as applicable, such asset(s) (with equipment of similar utility) as reasonably agreed to by the Companies and the Buyer Parties in good faith, in the aggregate with respect to all assets, exceeds $15,000,000, then, at the Buyer Parties’ option, the Buyer Parties may elect to terminate this Agreement and (b) if the Merger Consideration is reduced by the Excess Casualty Loss with respect to a Casualty Loss and the Buyer Parties or any of the Companies shall receive after the Closing any additional proceeds with respect to such Casualty Loss under any indemnity, bond, insurance policy or similar recovery right with respect to such Casualty Loss, such proceeds, up to the amount by which the Merger Consideration was reduced, shall be delivered by the Buyer Parties to an account designated by the Owner Representative within five (5) Business Days of receipt thereof. If the Excess Casualty Loss exceeds $4,000,000, the Companies may elect to terminate this Agreement without any liability unless the Buyer Parties agree to reduce the Merger Consideration with respect to such Casualty Loss by only $4,000,000 rather than the full amount of the Excess Casualty Loss and waive any right to receive or recover from the Companies any additional amount in respect thereof. This Section 7.4 shall be the sole and exclusive remedy of the Buyer Parties with respect to a Casualty Loss occurring between the date of the execution of this Agreement and the Closing Date.

7.5 Deliveries at the Closing.

(a) Deliveries of the Companies. At Closing, the Companies shall deliver or cause to be delivered to the Buyer Parties each of the following:

(i) a certificate of each Company, dated as of the Closing Date, certifying as to the matters set forth in Sections 7.1(a) and 7.1(i);

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(ii) a counterpart of the Escrow Agreement duly executed by the Owner Representative, with an original counterpart also delivered to the Escrow Agent;

(iii) an original copy of the Paying Agent Agreement duly executed by the Owner Representative and the Paying Agent; and

(iv) any other documents or agreements contemplated hereby to be delivered in connection with the Closing.

(b) Buyer Parties’ Deliveries. At Closing, the Buyer Parties shall deliver or cause to be delivered each of the following:

(i) to the Escrow Agent, a counterpart of the Escrow Agreement duly executed by the Buyer Parties; and

(ii) to the Companies:

(A) a certificate of the Buyer Parties, dated as of the Closing Date certifying as to the matters set forth in Section 7.2(a);

(B) an executed counterpart of the Escrow Agreement duly executed by the Buyer Parties; and

(iii) any other documents or agreements contemplated hereby to be delivered in connection with the Closing.

ARTICLE VIII

INDEMNIFICATION

8.1 Survival.

(a) The representations and warranties contained in this Agreement shall survive beyond the Closing as follows:

(i) other than the Title Representations, each of the representations and warranties set forth in Article III and Article IV (and the certificate to be delivered pursuant to Section 7.1(a) and Section 7.2(a) to the extent related to such representations and warranties) and each of the other representations and warranties made by a Zephyr Owner in a Letter of Transmittal shall survive beyond the Closing until the eighteen (18) month anniversary of the Closing Date; and

(ii) the Title Representations shall survive beyond the Closing until 30 days after the expiration of all applicable statutes of limitations.

(b) The covenants and agreements of the Parties contained in this Agreement, to the extent that, by their terms, they are to be performed prior to or on the Closing Date,

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shall terminate 60 days after the Closing Date, or, to the extent they are to be performed after the Closing, shall terminate in accordance with their terms or, if earlier, 60 days following the expiration of all applicable statutes of limitations applicable to any claim for Losses with respect to such covenant or agreement.

(c) Notwithstanding the foregoing, any representation, warranty, covenant or agreement in respect of which indemnity may be sought under this Agreement will survive the time at which it would otherwise terminate pursuant to the preceding provisions if written notice of the inaccuracy or breach thereof giving rise to such right of indemnity has been given to the Party against whom such indemnification may be sought prior to such time; provided that such right of indemnity shall continue to survive and shall remain a basis for indemnification hereunder only until the related claim for indemnification is resolved or disposed of in accordance with the terms of this Article VIII (any such claim, a “Continuing Claim”).

8.2 Indemnification.

(a) From and after the Closing, subject to the limitations set forth in this Article VIII, the Zephyr Owners will jointly and severally (except for Individual Claims as provided in Section 8.2(a)(ii), which shall be several and not joint subject to Section 8.2(c)) indemnify, defend and hold harmless the Buyer Parties and their officers, members, directors, partners, managers, employees and Affiliates (the “Buyer Indemnified Parties”) against any and all claims, demands, causes of action, Liabilities, damages, judgments, losses, costs and expenses (including reasonable attorneys’ and consultants’ fees and expenses) (“Losses”) incurred or suffered as a result of, relating to or arising out of:

(i) any inaccuracy or breach of any representation or warranty made by the Companies in this Agreement (other than any representation or warranty made by the Companies in Section 3.3 or Section 3.9 of this Agreement or any closing certificate delivered pursuant to Section 7.1(a) as it relates to such representations and warranties);

(ii) the inaccuracy or breach of a representation or warranty made by a Zephyr Owner in a Letter of Transmittal (only with respect to representations and warranties regarding title to the Units and Membership Interests and authority of such Zephyr Owner (an “Individual Claim”)) and the inaccuracy or breach of any representation or warranty made by the Companies in Section 3.3 of this Agreement or any closing certificate delivered pursuant to Section 7.1(a) solely to the extent it relates to such representations and warranties;

(iii) the breach or non-performance of any covenant or agreement made or to be performed by the Companies pursuant to this Agreement or any closing certificate delivered pursuant to Section 7.1(a);

(iv) the Merger Consideration Deficit, if any;

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(v) any Third-Party Debt, Expenses, Change of Control Amounts and Severance Obligations that do not result in a reduction in the Merger Consideration pursuant to Section 2.8 or Section 2.9; and

(vi) any and all Zephyr Owner Taxes.

(b) From and after the Closing, the Buyer Parties will jointly and severally indemnify, defend and hold harmless the Zephyr Owners and their officers, members, directors, partners, managers, employees and Affiliates (the “Owner Indemnified Parties”) against any and all Losses incurred or suffered as a result of, relating to or arising out of:

(i) the inaccuracy or breach of any representation or warranty made by the Buyer Parties in this Agreement or any closing certificate delivered pursuant to Section 7.2(a), to the extent such a representation or warranty survives the Closing;

(ii) the breach or non-performance of any covenant or agreement made or to be performed by any Buyer Parties pursuant to this Agreement or any closing certificate delivered pursuant to Section 7.2(a); and

(iii) except to the extent the Zephyr Owners are required to indemnify the Buyer Indemnified Parties pursuant to Section 8.2(a), the ownership and operation of the assets and properties of the Companies after the Effective Time.

(c) The indemnification obligations of a Zephyr Owner with respect to an Individual Claim will be joint and several with the indemnification obligations of all other Zephyr Owners to the extent of any Losses incurred solely to the extent that there are funds remaining in the Escrow Account to cover such Losses. To the extent that there are insufficient funds remaining in the Escrow Account to cover such Losses, the indemnification obligations of each Zephyr Owner with respect to such Individual Claim shall be several and not joint solely to the extent of any Losses incurred in excess of the amount remaining in the Escrow Account.

8.3 Limitations on Liability.

(a) Notwithstanding anything herein to the contrary, the Zephyr Owners’ obligations pursuant to Section 8.2(a) are subject to the following additional limitations:

(i) the Buyer Indemnified Parties shall not be entitled to recover under Section 8.2(a)(i) for any individual item or series of related items arising out of the same or similar set of facts or circumstances where the Losses relating thereto for which the Zephyr Owners would otherwise be required to indemnify are less than $25,000 (each, a “De Minimis Loss Amount”) and no De Minimis Loss Amounts shall be included in the calculation of the Basket;

(ii) the Buyer Indemnified Parties shall not be entitled to recover under Section 8.2(a)(i), until the aggregate Losses which the Buyer Indemnified Parties

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have incurred under Section 8.2(a)(i), exceeds $1,850,000.00 (the “Basket”), at which point the Buyer Indemnified Parties will be entitled to Losses in excess of the Basket up to the Ceiling;

(iii) the Buyer Indemnified Parties shall not be entitled to recover under Sections 8.2(a)(i), 8.2(a)(iii), 8.2(a)(iv), 8.2(a)(v) and 8.2(a)(vi) for Losses in excess of the amount in the Escrow Account (the “Ceiling”);

(iv) with respect to Non-Escrow Indemnity Claims, a Buyer Indemnified Party shall not be entitled to recover from any Zephyr Owner in excess of an amount equal to the applicable Zephyr Owner Percentage multiplied by the amount of Losses incurred with respect to such claims (the “Individual Indemnity Limit”); provided this Individual Indemnity Limit shall not prevent a Buyer Indemnified Party from recovering the full amount of any indemnification claim from the Escrow Account irrespective of the Zephyr Owner Percentage of any Zephyr Owner; and

(v) in no event shall a Buyer Indemnified Party be entitled to recover from a Zephyr Owner in excess of the Merger Consideration actually received by such Zephyr Owner (taking into account any distributions from the Escrow Account for Individual Claims with respect to such Zephyr Owner).

(b) Waiver of Consequential Damages. With respect to any and all Losses for which indemnification may be available hereunder, no Indemnifying Parties shall have any liability for any consequential, indirect, punitive, exemplary, and special damages with respect to any claim for which an Indemnifying Party may have liability pursuant to this Agreement; provided, however, that this waiver shall not apply to the extent such consequential, indirect, punitive, exemplary or special damages are (i) awarded in a Proceeding brought or asserted by a third party against an Indemnified Party, or (ii) actually paid by an Indemnified Party to a third party.

(c) ESCROW AMOUNT. EXCEPT WITH RESPECT TO NON-ESCROW INDEMNITY CLAIMS, THE AMOUNT IN THE ESCROW ACCOUNT SHALL BE THE SOLE RECOURSE FOR ANY PAYMENT REQUIRED TO BE MADE BY THE ZEPHYR OWNERS TO ANY BUYER INDEMNIFIED PARTY PURSUANT TO THIS AGREEMENT. EXCEPT WITH RESPECT TO NON-ESCROW INDEMNITY CLAIMS, THE AMOUNT IN THE ESCROW ACCOUNT SHALL BE THE MAXIMUM AMOUNT OF LOSSES RECOVERABLE BY ANY BUYER INDEMNIFIED PARTY PURSUANT TO THIS AGREEMENT. SUBJECT TO THE LIMITATIONS SET FORTH IN SECTIONS 8.3(a)(iv) and 8.3(a)(v), IF A CLAIM FOR INDEMNIFICATION IS BROUGHT BY A BUYER INDEMNIFIED PARTY WITH RESPECT TO A NON-ESCROW INDEMNITY CLAIM, THE BUYER INDEMNIFIED PARTY MAY FIRST RECOVER THE LOSSES INCURRED WITH RESPECT TO SUCH CLAIM FROM THE ESCROW ACCOUNT IN ACCORDANCE WITH THE ESCROW AGREEMENT TO THE EXTENT OF AMOUNTS AVAILABLE IN THE ESCROW ACCOUNT, AND THEREAFTER SHALL BE ENTITLED TO RECOVER ANY LOSSES WITH RESPECT TO A NON-ESCROW INDEMNITY CLAIM NOT RECOVERED FROM THE ESCROW ACCOUNT FROM THE APPLICABLE ZEPHYR OWNER.

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(d) Exclusive Remedy and Release. Other than with respect to claims for fraud, the indemnification and remedies set forth in this Article VIII shall, from and after the Closing, constitute the sole and exclusive remedies of the Parties with respect to any breach of representation or warranty or non-performance, partial or total, of any covenant or agreement (except for the covenants contained in Section 2.9(d), Section 5.2(b), Section 5.5, Section 5.7, and Article VI) contained in this Agreement; provided that nothing in this Section 8.3 shall prevent either Party from seeking injunctive or equitable relief, including, but not limited to, specific performance.

(e) Disclaimer. EACH BUYER PARTY HEREBY ACKNOWLEDGES AND AGREES THAT, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN ARTICLE III AND IN THE CERTIFICATE(S) TO BE DELIVERED PURSUANT TO SECTION 7.1(a), AND THE REPRESENTATIONS AND WARRANTIES OF THE ZEPHYR OWNERS IN THE LETTERS OF TRANSMITTAL, THERE ARE NO REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO ANY MATTER RELATING TO THE COMPANIES, THE UNITS, THE MEMBERSHIP INTERESTS, THE PHYSICAL CONDITION OF ANY OF THE ASSETS OF THE COMPANIES, THE ENVIRONMENTAL CONDITION OR OTHER MATTERS RELATING TO THE PHYSICAL CONDITION OR USE OF ANY ASSETS OF THE COMPANIES, THE VALUE OF THE ASSETS OF THE COMPANIES (OR ANY PORTION THEREOF), THE MERCHANTABILITY OR FITNESS OF THE PERSONAL PROPERTY OR ANY OTHER PORTION OF THE ASSETS OF THE COMPANIES FOR ANY PARTICULAR PURPOSE AND ANY STATEMENTS OR INFORMATION CONTAINED IN THE ANY OTHER MATERIALS FURNISHED OR STATEMENTS MADE BY THE COMPANIES OR THEIR REPRESENTATIVES (INCLUDING, WITHOUT LIMITATION, ANY PROJECTIONS, ESTIMATES OR BUDGETS DELIVERED TO OR MADE AVAILABLE TO BUYER OF FUTURE REVENUES, FUTURE RESULTS OF OPERATIONS, FUTURE CASH FLOWS OR FUTURE FINANCIAL CONDITION OF THE COMPANIES, OR ANY OTHER INFORMATION MADE AVAILABLE TO THE BUYER PARTIES OR THEIR REPRESENTATIVES AT ANY TIME IN ANY AND ALL “DATA ROOMS,” MANAGEMENT PRESENTATIONS, CONFIDENTIAL INFORMATION MEMORANDA, BREAK-OUT SESSIONS, OR RESPONSES TO QUESTIONS SUBMITTED BY THE BUYER PARTIES OR THEIR REPRESENTATIVES). WITHOUT IN ANY WAY LIMITING THE FOREGOING, THE COMPANIES HEREBY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, AS TO TITLE AND AS TO MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, WITH RESPECT TO ANY PORTION OF THE ASSETS OF THE COMPANIES, THE UNITS OR THE MEMBERSHIP INTERESTS, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN ARTICLE III AND IN THE CERTIFICATE(S) TO BE DELIVERED PURSUANT TO SECTION 7.1(a), AND THE REPRESENTATIONS AND WARRANTIES OF THE ZEPHYR OWNERS IN THE LETTERS OF TRANSMITTAL.

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(f) THE COMPANIES HEREBY ACKNOWLEDGE AND AGREE THAT, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN ARTICLE IV AND IN THE CERTIFICATE(S) TO BE DELIVERED PURSUANT TO SECTION 7.2(A), THERE ARE NO REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO ANY MATTER RELATING TO THE BUYER PARTIES MADE BY THE BUYER PARTIES OR THEIR REPRESENTATIVES.

(g) Buyer is not entitled to indemnification under this Article VIII in respect of the calculation of the Final Adjustment Amount, or matters reflected in the calculation thereof, except to the extent that a value used in the calculation of Final Adjustment Amount is inaccurate because of the failure of a representation or warranty made by Companies in this Agreement to be true and correct as of the Closing. If the Buyer Parties are entitled to indemnification due to the exception set forth in the previous sentence, the Buyer Parties’ claim shall be limited to the amount that exceeds the inaccurate value reflected in the calculation of the Final Adjustment Amount, and is subject to the limitations on indemnification hereunder, including without limitation the Basket and Ceiling; provided that if any difference between the Estimated Adjustment Amount and the Final Adjustment Amount is the direct result of such a failure, Buyer shall not be entitled to indemnification for such failure under this Article VIII.

8.4 Procedures. Claims for indemnification under this Agreement shall be asserted and resolved as follows:

(a) If any Person who or which is entitled to seek indemnification under Section 8.2 (an “Indemnified Party”) receives notice of the assertion or commencement of any claim asserted against an Indemnified Party by a third party (“Third-Party Claim”) in respect of any matter that is subject to indemnification under Section 8.2, the Indemnified Party shall promptly (i) notify the Party(ies) obligated to indemnify (the “Indemnifying Party”) of the Third-Party Claim and (ii) transmit to the Indemnifying Party a written notice (“Claim Notice”) describing in reasonable detail the nature of the Third-Party Claim, a copy of all papers served with respect to such claim (if any), the Indemnified Party’s best estimate of the amount of Losses attributable to the Third-Party Claim and the basis of the Indemnified Party’s request for indemnification under this Agreement. Failure to timely provide such Claim Notice shall not affect the right of the Indemnified Party’s indemnification hereunder, except to the extent the Indemnifying Party is prejudiced by such delay or omission.

(b) The Indemnifying Party shall have the right to defend the Indemnified Party against such Third-Party Claim at the Indemnifying Party’s sole cost and expense. If the Indemnifying Party notifies the Indemnified Party that the Indemnifying Party elects to assume the defense of the Third-Party Claim (such election to be without prejudice to the right of the Indemnifying Party to dispute whether such claim is an indemnifiable Loss under this Article VIII), then the Indemnifying Party shall have the right to defend such Third-Party Claim with counsel selected by the Indemnifying Party (who shall be reasonably satisfactory to the Indemnified Party), by all appropriate proceedings, to a final conclusion or settlement at the discretion of the Indemnifying

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Party in accordance with this Section 8.4(b). The Indemnifying Party shall have full control of such defense and proceedings, including any compromise or settlement thereof; provided that the Indemnifying Party shall not enter into any settlement agreement without the written consent of the Indemnified Party (which consent shall not be unreasonably withheld, conditioned or delayed); provided further, that such consent shall not be required if (i) the settlement agreement contains a complete and unconditional general release by the third party asserting the claim to all Indemnified Parties affected by the claim, (ii) the settlement agreement does not contain any sanction or restriction upon the conduct of any business by, and does not contain an injunction or other equitable relief upon, the Indemnified Party or its Affiliates. Notwithstanding the foregoing, the Indemnified Party shall have the right to employ separate counsel to represent the Indemnified Party if the Indemnified Party is advised by outside counsel reasonably satisfactory to the Indemnifying Party that a conflict of interest exists that requires the Indemnified Party to be represented by separate counsel under the applicable rules of professional responsibility or if the court in which such Third-Party Claim is pending determines that a conflict of interest exists such that the Indemnifying Party’s counsel is prohibited by such court or otherwise unable to represent the Indemnified Party with respect to such Third-Party Claim or if there is one or more defenses that could be asserted by the Indemnified Party that could not be asserted by the Indemnifying Party or the Indemnifying Party’s counsel (on the Indemnified Party’s behalf), and, in the event the Indemnified Party has the right to employ separate counsel for the reasons set forth in this sentence, the reasonable expenses and fees of such separate counsel shall be paid by the Indemnifying Party. If requested by the Indemnifying Party, the Indemnified Party agrees, at the sole cost and expense of the Indemnifying Party, to cooperate with the Indemnifying Party and its counsel in contesting any Third-Party Claim which the Indemnifying Party elects to contest, including the making of any related counterclaim against the Person asserting the Third-Party Claim or any cross complaint against any Person. The Indemnified Party may participate in, but not control, any defense or settlement of any Third-Party Claim controlled by the Indemnifying Party pursuant to this Section 8.4(b), and the Indemnified Party shall bear its own costs and expenses with respect to such participation.

(c) Unless and until the Indemnifying Party notifies the Indemnified Party that the Indemnifying Party elects to defend the Indemnified Party pursuant to Section 8.4(b), the Indemnified Party shall have the right to defend, and be reimbursed for its reasonable cost and expense (but only if the Indemnified Party is actually entitled to indemnification hereunder) in regard to the Third-Party Claim with counsel selected by the Indemnified Party (who shall be reasonably satisfactory to the Indemnifying Party), by all appropriate proceedings, which proceedings shall be prosecuted diligently by the Indemnified Party. In such circumstances, the Indemnified Party shall defend any such Third-Party Claim in good faith and have full control of such defense and proceedings; provided, however, that the Indemnified Party may not enter into any compromise or settlement of such Third-Party Claim if indemnification is to be sought hereunder, without the Indemnifying Party’s consent (which consent shall not be unreasonably withheld, conditioned or delayed). The Indemnifying Party may participate in, but not control, any defense or settlement controlled by the Indemnified Party pursuant to this Section 8.4(c), and the Indemnifying Party shall bear its own costs and expenses with respect to such participation.

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(d) Any claim by an Indemnified Party on account of Losses that does not result from a Third-Party Claim (a “Direct Claim”) will be asserted by giving the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than 30 days after the Indemnified Party becomes aware of such Direct Claim. Such notice by the Indemnified Party will describe the Direct Claim in reasonable detail, will include copies of all available material written evidence thereof and will indicate the estimated amount, if reasonably practicable, of Losses that have been or may be sustained by the Indemnified Party. The Indemnifying Party will have a period of five (5) Business Days within which to respond in writing to such Direct Claim. If the Indemnifying Party does not so respond within such period, the Indemnifying Party will be deemed to have rejected such claim, in which event the Indemnified Party will be free to pursue such remedies as may be available to the Indemnified Party subject to the provisions of this Agreement.

(e) Any indemnification payment made pursuant to this Agreement shall be net of any insurance proceeds realized by and paid to the Indemnified Party in respect of such claim.

8.5 Characterization of Payments. For all applicable income Tax purposes, the parties agree to treat (and will cause each of their respective Affiliates to treat) any indemnification payment under this Article VIII as an adjustment to the Merger Consideration.

8.6 Losses. Notwithstanding anything to the contrary in this Agreement, for purposes of determining whether a breach has occurred and the amount of Losses suffered by any Buyer Indemnified Party, upon a breach of any representation or warranty of the Companies or a Zephyr Owner, each representation and warranty set forth in Article III (other than in any defined terms such as “Material Contract”), shall be read without regard to and without giving effect to any “material,” “materiality,” Material Adverse Effect or similar qualifications that may be contained in any such representation or warranty.

ARTICLE IX

TERMINATION

9.1 Termination. At any time prior to the Closing, this Agreement may be terminated and the transactions contemplated hereby abandoned:

(a) by the mutual consent of the Buyer Parties and Companies as evidenced in writing signed by each of the Buyer Parties and the Companies;

(b) by the Buyer by written notice to the Companies, if there has been a breach by any Company of any representation, warranty or covenant contained in this Agreement (except where such breach would not reasonably be expected to have a Company Material Adverse Effect) that has prevented the satisfaction of any condition to the obligations of the Buyer Parties at the Closing and, if such breach is of a character that it is capable of being cured, such breach has not been cured by the Companies within

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20 days after written notice thereof from the Buyer Parties; provided, however, if such breach is capable of being cured but is not capable of being cured within such 20 day period, it shall be sufficient for the Companies to commence the cure within such 20 day period and use Reasonable Efforts to continue to cure;

(c) by the Companies by written notice to the Buyer Parties, if there has been a breach by any Buyer Party of any representation, warranty or covenant contained in this Agreement (except where such breach would not reasonably be expected to have a Buyer Material Adverse Effect) that has prevented the satisfaction of any condition to the obligations of the Companies at the Closing and, if such breach is of a character that it is capable of being cured, such breach has not been cured by the Buyer Parties within 20 days after written notice thereof from the Companies; provided, however, if such breach is capable of being cured but is not capable of being cured within such 20 day period, it shall be sufficient for the Buyer Parties to commence the cure within such 20 day period and use Reasonable Efforts to continue to cure, except that this additional cure period shall not apply to a breach regarding the failure or inability of a Buyer Party to pay any portion Merger Consideration or a breach of the representation set forth in Section 4.6;

(d) by either the Buyer Parties or the Companies by written notice to the other, if any Governmental Authority having competent jurisdiction has issued a final, non-appealable Order, decree, ruling or injunction (other than a temporary restraining order) or taken any other action permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such other action shall have become final and non-appealable; provided, however, that no Party may terminate this Agreement pursuant to the terms of this Section 9.1(d) if such Party has not first complied with its obligations under Section 5.4;

(e) by either the Buyer Parties or the Companies by written notice to the other, if the transactions contemplated hereby have not been consummated by 90 days from the date of this Agreement (the “Termination Date”), provided, that neither the Buyer Parties nor the Companies will be entitled to terminate this Agreement pursuant to this Section 9.1(e) if such Person’s breach of this Agreement has prevented the consummation of the transactions contemplated by this Agreement; or

(f) by the Buyer Parties or the Companies by written notice to the other as provided in Section 7.4 with respect to a Casualty Loss.

9.2 Effect of Termination. If this Agreement is terminated under Section 9.1, all further obligations of the Parties under this Agreement will terminate without further liability or obligation of either Party to the other Parties hereunder; provided, however, that no Party will be released from liability hereunder if this Agreement is terminated and the transactions abandoned by reason of (a) failure of such Party to have performed its material obligations under this Agreement or (b) any material misrepresentation made by such Party of any matter set forth in this Agreement. Nothing in this Section 9.2 will relieve any Party to this Agreement of liability for breach of this Agreement occurring prior to any termination, or for breach of any provision of this Agreement that specifically survives termination hereunder. The Confidentiality Agreement shall not be affected by a termination of this Agreement.

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ARTICLE X

MISCELLANEOUS

10.1 Notices. All notices, requests, demands and other communications that are required or may be given pursuant to the terms of this Agreement shall be in writing and shall be delivered personally, sent by facsimile transmission, delivered by a recognized overnight courier or express mail service for next Business Day delivery (and requiring proof or delivery or receipt) or posted in the United States mail by registered or certified mail, with postage pre-paid, return receipt requested, and shall be deemed given when so delivered personally, sent by facsimile transmission with electronic confirmation of receipt, the next day after delivered to such overnight courier or express mail service or three (3) Business Days after the date of mailing, as follows:

(a) If to Buyer, to:

Regency Gas Services LP

2001 Bryan Street, Suite 3700

Dallas, Texas 75201

Fax: (214) 840-5155

Attention: Chief Legal Officer

with a copy to:

Vinson & Elkins LLP

2001 Ross Avenue, Suite 3700

Dallas, Texas 75201

Fax: (214) 999-7781

Attention: Rodney L. Moore

(b) If to Companies or, prior to Closing to:

Zephyr Gas Services, LP

10880 Alcott Drive

Houston, Texas 77043

Fax: (713) 722-2854

Attention: Glen Wind

with a copy to:

Locke Lord Bissell & Liddell, LLP

600 Travis Street, Suite 2800

Houston, Texas 77002

Fax: (713) 223-3717

Attention: H. William Swanstrom, Esq.

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(c) If to the Owner Representative to:

10880 Alcott Drive

Houston, Texas 77043

Fax: (713) 722-2854

Attention: Glen Wind

with a copy to:

Locke Lord Bissell & Liddell, LLP

600 Travis Street, Suite 2800

Houston, Texas 77002

Fax: (713) 223-3717

Attention: H. William Swanstrom, Esq.

or to such other address or addresses as the Parties may from time to time designate in writing.

10.2 Assignment. No Party shall assign this Agreement or any part hereof without the prior written consent of the other Parties. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the Parties and their respective permitted successors and assigns.

10.3 Further Assurances. Each party to this Agreement hereby covenants and agrees, without the necessity of any further consideration, to execute and deliver any and all such further documents and take any and all such other actions as may be necessary or appropriate to carry out the intent and purposes of this Agreement and to consummate the transactions contemplated herein.

10.4 Rights of Third Parties. Except for the provisions of Article VIII and Section 5.7, which are intended to be enforceable by the Persons respectively referred to therein, nothing expressed or implied in this Agreement is intended or shall be construed to confer upon or give any Person, other than the Parties, any right or remedies under or by reason of this Agreement.

10.5 Expenses. Except as otherwise expressly provided herein, each Party shall bear its own expenses incurred in connection with this Agreement and the transactions contemplated hereby whether or not such transactions shall be consummated, including all fees of its legal counsel, financial advisers and accountants. The Companies shall either pay the Transaction Expenses prior to or at Closing or the Transaction Expenses will be deducted from the Closing Payment Amount and paid by the Buyer or the Companies, as applicable, in accordance with Section 2.8(a).

10.6 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Any facsimile copies hereof or signature hereon shall, for all purposes, be deemed originals.

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10.7 Entire Agreement. This Agreement (together with the Disclosure Schedule and exhibits to this Agreement and the other agreements contemplated herein), the Escrow Agreement, the Paying Agent Agreement and the Confidentiality Agreement constitute the entire agreement among the Parties with respect to the subject matter hereof, and supersedes any other agreements, whether written or oral, that may have been made or entered into by or among any of the Parties or any of their respective Affiliates relating to the transactions contemplated hereby.

10.8 Disclosure Schedule. Unless the context otherwise requires, all capitalized terms used in the Disclosure Schedule shall have the respective meanings assigned in this Agreement. Certain information set forth in the Disclosure Schedule is included solely for informational purposes and may not be required to be disclosed pursuant to this Agreement. No reference to or disclosure of any item or other matter in the Disclosure Schedule shall be construed as an admission or indication that such item or other matter is material or that such item or other matter is required to be referred to or disclosed in the Disclosure Schedule. No disclosure in the Disclosure Schedule relating to any possible breach or violation of any agreement or Law shall be construed as an admission or indication that any such breach or violation exists or has actually occurred. The inclusion of any information in the Disclosure Schedule shall not be deemed to be an admission or acknowledgment by the Companies, in and of itself, that such information is material to or outside the ordinary course of the business or required to be disclosed on the Disclosure Schedule. Each disclosure in the Disclosure Schedule shall be deemed to qualify all representations and warranties of the Companies notwithstanding the lack of a specific cross-reference and any information disclosed in the Disclosure Schedule shall be deemed to be disclosed for all purposes of this Agreement where the relevance of such matter is or should be reasonably apparent.

10.9 Amendments. This Agreement may be amended or modified in whole or in part, and terms and conditions may be waived, only by a duly authorized agreement in writing which makes reference to this Agreement executed by each Party.

10.10 Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement shall remain in full force and effect. The Parties further agree that if any provision contained herein is, to any extent, held invalid or unenforceable in any respect under the Laws governing this Agreement, they shall take any actions necessary to render the remaining provisions of this Agreement valid and enforceable to the fullest extent permitted by Law and, to the extent necessary, shall amend or otherwise modify this Agreement to replace any provision contained herein that is held invalid or unenforceable with a valid and enforceable provision giving effect to the intent of the Parties to the greatest extent legally permissible.

10.11 Governing Law; Jury Waiver.

(a) This Agreement and any disputes arising out of or connected to this Agreement shall be governed and construed in accordance with the Laws of the State of Texas, without regard to the Laws that might be applicable under conflicts of laws principles.

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(b) The Parties agree that the appropriate, exclusive and convenient forum for any disputes between any of the Parties hereto arising out of this Agreement or the transactions contemplated hereby shall be in any state or federal court in Houston, Texas, and each of the Parties hereto irrevocably submits to the jurisdiction of such courts solely in respect of any legal proceeding arising out of or related to this Agreement. The Parties further agree that the Parties shall not bring suit with respect to any disputes arising out of this Agreement or the transactions contemplated hereby in any court or jurisdiction other than the above specified courts. The Parties further agree, to the extent permitted by Law, that a final and nonappealable judgment against a Party in any action or proceeding contemplated above shall be conclusive and may be enforced in any other jurisdiction within or outside the United States by suit on the judgment, a certified or exemplified copy of which shall be conclusive evidence of the fact and amount of such judgment. Except to the extent that a different determination or finding is mandated due to the applicable Law being that of a different jurisdiction, the Parties agree that all judicial determinations or findings by a state or federal court in Houston, Texas with respect to any matter under this Agreement shall be binding.

(c) THE PARTIES HERETO AGREE THAT THEY HEREBY IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION TO ENFORCE OR INTERPRET THE PROVISIONS OF THIS AGREEMENT.

10.12 Owner Representative.

(a) The Owner Representative, after appointment by the Zephyr Owners, shall serve as their attorney-in-fact and agent to the Zephyr Owners and their successors in their name, place and stead in connection with the authority granted to such Owner Representative pursuant to this Section 10.12.

(b) After appointment by the Zephyr Owners, the Owner Representative will act as the sole point of contact between the Buyer Parties and the Zephyr Owners, to take any and all actions required or permitted to be taken by the Owner Representative under or in connection with this Agreement and to do all things and execute any and all documents which may be necessary, convenient or appropriate to facilitate the consummation of the transactions contemplated by this Agreement, and for the following additional purposes: (A) to give and receive notices and communications to or from the Buyer Parties relating to this Agreement and the Ancillary Agreements and the other transactions contemplated by this Agreement and the Ancillary Agreements; (B) to execute and deliver the Paying Agent Agreement at the Closing, to give and receive notices and communications to or from the Paying Agent in matters relating to the Paying Agent Agreement, and to otherwise perform the Owner Representative’s obligations as set forth in the Paying Agent Agreement; (C) to act on such Zephyr Owner’s behalf with respect to the matters set forth in Section 2.9, in accordance with the terms and provisions of Section 2.9, including giving and receiving all notices and communications to be given or received with respect to the matters set forth in Section 2.9; (D) to authorize deliveries to the Buyer Parties of cash from the Escrow Account in satisfaction of claims for indemnification pursuant to Article VIII, Section 2.9 or otherwise pursuant to this Agreement; (E) to authorize deliveries to the Zephyr Owners of cash from the Escrow

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Account once such funds are eligible for distribution therefrom; (F) to establish a reserve in the amount of $250,000.00 from the Merger Consideration with respect to the Zephyr Owners based upon their respective Zephyr Owner Percentage, to fund potential expenses of the Owner Representative in carrying out its authorized duties hereunder (the “Owner Representative Reserve”); (G) on behalf of the Zephyr Owners, to initiate or to refrain from initiating or to dispute or to refrain from disputing any indemnity or other claim under this Agreement and the Ancillary Agreements, as the Owner Representative, in its reasonable discretion, determines to be necessary or desirable; (H) on behalf of the Zephyr Owners, to negotiate, compromise and resolve any dispute which may arise under this Agreement or the Ancillary Agreements, as the Owner Representative, in its reasonable discretion, determines to be necessary or desirable; (I) on behalf of the Zephyr Owners, to exercise or refrain from exercising remedies available under this Agreement and the Ancillary Agreements and to sign any release or other document with respect to such dispute or remedy, as the Owner Representative, in its reasonable discretion, determines to be necessary or desirable; (J) to consent or agree to any amendment to this Agreement or the Ancillary Agreements, as the Owner Representative, in its reasonable discretion, determines to be necessary or desirable; (K) to execute and deliver waivers and consents in connection with this Agreement and the Ancillary Agreements as the Owner Representative, in its reasonable discretion, determines to be necessary or desirable; and (L) to take all actions necessary or appropriate in the reasonable discretion of the Owner Representative for the accomplishment of the foregoing, in each case without having to seek or obtain the consent of any Zephyr Owner, and (ii) agrees to be bound by all agreements and determinations made by and documents executed and delivered by the Owner Representative pursuant to the authority granted to it hereunder. The Owner Representative shall have no duties or responsibilities except those expressly set forth in this Agreement and the Letter of Transmittal.

(c) After appointment by the Zephyr Owners, the Owner Representative will be authorized to act on a Zephyr Owners behalf, notwithstanding any dispute or disagreement between any Zephyr Owner and the Owner Representative, and each Indemnified Party and any other Person shall be entitled to rely on any and all actions taken by the Owner Representative under this Agreement without any liability to, or obligation to inquire of, any of the Zephyr Owners. Any notice or communication given or received by, and any decision, action, failure to act within a designated period of time, agreement, consent, settlement, resolution or instruction of, the Owner Representative that is within the scope of the Owner Representative’s authority under this Section 10.12 shall constitute a notice or communication to or by, or a decision, action, failure to act within a designated period of time, agreement, consent, settlement, resolution or instruction of all the Zephyr Owners and shall be final, binding and conclusive upon each such Zephyr Owner. Each Indemnified Party and any other Person shall be entitled to rely upon any such notice, communication, decision, action, failure to act within a designated period of time, agreement, consent, settlement, resolution or instruction as being a notice or communication to or by, or a decision, action, failure to act within a designated period of time, agreement, consent, settlement, resolution or instruction of, each and every such Zephyr Owner.

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(d) The Owner Representative may resign at any time upon written notice to the Buyer Parties and by providing the Buyer Parties with the name of the successor Owner Representative as designated by action of the Zephyr Owners who hold a majority of the Zephyr Owner Percentage. If for any reason no successor has been appointed pursuant to the foregoing within sixty (60) days, then the Buyer Parties shall have the right to appoint a successor (which successor shall be independent of the Buyer Parties and their Affiliates).

(e) The authorizations of the Owner Representative shall be effective until its rights and obligations under this Agreement terminate by virtue of the termination of any and all obligations of the Owner Representative and the Buyer under this Agreement.

(f) The Buyer Parties shall be entitled to deal exclusively with, and rely upon the authority of, the Owner Representative to act as the agent of the Zephyr Owners.

10.13 Specific Performance. The Parties recognize that in the event that the Companies or the Owner Representative should refuse to perform under the provisions of this Agreement, monetary damages alone will not be adequate. The Buyer Parties shall therefore be entitled to seek, in addition to any other remedies which may be available, including money damages, and without requirement by the Zephyr Owners or the Buyer Parties to post bond or prove actual damages have resulted or would result in the absence thereof, to obtain specific performance of the terms of this Agreement. In the event of any action to enforce this Agreement specifically, the Companies and the Owner Representative hereby waive the defense that there is an adequate remedy at law.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF this Agreement has been duly executed and delivered by each of the Parties as of the date first above written.

COMPANIES:
ZEPHYR GAS MANAGEMENT, LLC
By:
Name:
Title:
ZEPHYR GAS SERVICES, LP
By:
Name:
Title:
BUYER PARTIES:
REGENCY GAS SERVICES LP
By:	REGENCY OLP GP LLC, its general partner
	By:
	Name:
	Title:
REGENCY ZEPHYR LLC
By:	REGENCY GAS SERVICES LP, its sole member
By:	REGENCY OLP GP LLC, its general partner
	By:
	Name:
	Title:

SIGNATURE PAGE TO

MERGER AGREEMENT

EX-12.1

Exhibit 12.1

Regency Energy Partners LP

Ratio of Earnings to Fixed Charges

(in thousands, except for ratio amounts)

(Unaudited)

	Successor			Predecessor
	Period from Acquisition (May 26, 2010) to June 30, 2010			Period from April 1, 2010 to May 25, 2010			Three Months Ended June 30, 2009		Period from January 1, 2010 to May 25, 2010			Six Months Ended June 30, 2009
Earnings:
Pre-tax income (loss) from continuing operations	$	(4,650	)	$	(4,413	)	$	5,440		(4,542	)		153,963
Add:
Interest expense		8,109			14,114			19,568		36,459			33,795
Portion of rent under long-term operating leases representative of an interest factor		65			125			299		323			654
Amortization of capitalized interest		39			79			103		193			195
(Less) add:
Non-cash income from unconsolidated subsidiaries		(8,121	)		961			313		(3,426	)		(23	)
Total earnings available for fixed charges	$	(4,558	)	$	10,866		$	25,723	$	29,007		$	188,584
Fixed Charges:
Interest expense		8,109			14,114			19,568		36,459			33,795
Portion of rent under long-term operating leases representative of an interest factor		65			125			299		323			654
Capitalized interest		377			479			261		880			1,136
Total fixed charges	$	8,551		$	14,718		$	20,128	$	37,662		$	35,585
Ratio of earnings to fixed charges (x times) (1)		—			—			1.28		—			5.3
(1) Earnings were insufficient to cover fixed charges by:	$	13,109		$	3,852		$	—	$	8,656		$	—

EX-31.1

Exhibit 31.1

I, Byron R. Kelley, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Regency Energy Partners LP;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities and Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2010	/s/ Byron R. Kelley
	Byron R. Kelley President and Chief Executive Officer of Regency GP LLC, general partner of Regency GP LP, general partner of Regency Energy Partners LP

EX-31.2

Exhibit 31.2

I, Stephen L. Arata, certify that:

1. I have reviewed this quarterly report on Form 10-QK of Regency Energy Partners LP;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities and Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2010	/s/ Stephen L. Arata
	Stephen L. Arata Executive Vice President and Chief Financial Officer of Regency GP LLC, general partner of Regency GP LP, general partner of Regency Energy Partners LP

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE

OFFICER OF REGENCY ENERGY PARTNERS LP

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying quarterly report on Form 10-Q for the three months ended June 30, 2010 and filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Byron R. Kelley, Chief Executive Officer of Regency GP LLC, the general partner of Regency GP LP, the general partner of Regency Energy Partners LP (the “Partnership”), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

Date: August 8, 2010	/s/ Byron R. Kelley
	Byron R. Kelley President and Chief Executive Officer of Regency GP LLC, general partner of Regency GP LP, general partner of Regency Energy Partners LP

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL

OFFICER OF REGENCY ENERGY PARTNERS LP

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying quarterly report on Form 10-Q for the three months ended June 30, 2010 and filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen L. Arata, Executive Vice President and Chief Financial Officer of Regency GP LLC, the general partner of Regency GP LP, the general partner of Regency Energy Partners LP (the “Partnership”), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

Date: August 8, 2010	/s/ Stephen L. Arata
	Stephen L. Arata Executive Vice President and Chief Financial Officer of Regency GP LLC, general partner of Regency GP LP, general partner of Regency Energy Partners LP