AMENDMENT
      NO. 3 TO

    RIGHTS
      AGREEMENT

    OF

    TXCO
      RESOURCES INC.

    (F/K/A
      THE EXPLORATION COMPANY OF DELAWARE, INC.)

    A
      Delaware corporation

     

    This
      Amendment No. 3 to Rights Agreement (the “Amendment”)
      is
      made and entered into as of the 3rd day of March, 2008, by and between TXCO
      Resources Inc. (f/k/a The Exploration Company of Delaware, Inc.), a Delaware
      corporation (the “Company”),
      and
      American Stock Transfer & Trust Company (the “Rights
      Agent”).
      This
      Amendment is intended to modify the Rights Agreement, dated June 29, 2000,
      between the Company and Fleet National Bank, as Rights Agent (the “Rights
      Agreement”).
      American Stock Transfer & Trust Company has succeeded to the rights and
      obligations of Fleet National Bank as Rights Agent under the Rights Agreement.
      Defined terms not otherwise defined in this Amendment shall have the meanings
      given to them in the Rights Agreement.

     

    RECITALS:

     

    A. Pursuant
      to the terms of that certain Securities Purchase Agreement (the “Purchase
      Agreement”)
      dated
      on or about February 28, 2008 by and among the Company and the investors listed
      on the Schedule of Buyers attached thereto (the “Buyers”),
      the
      Company is proposing to raise additional capital through the issuance and sale
      to the Buyers of convertible preferred stock of the Company, designated as
      Series E Convertible Preferred Stock (such issuance and sale, the “Preferred
      Stock Financing”)
      and to
      exchange of the Buyers shares of Series C Convertible Preferred Stock of the
      Company for shares of Series D Convertible Preferred Stock of the Company (such
      exchange, the “Exchange”
and
      together with the Preferred Stock Financing, the “Transaction”).

     

    B. As
      a
      condition to consummating the Transaction, the Company and its Board of
      Directors are required to take all necessary action in order to render
      inapplicable any control share acquisition, business combination, poison pill
      (including any distribution under a rights agreement) or other similar
      anti-takeover provision which is or could become applicable to any Buyer as
      a
      result of the transactions contemplated by the Purchase Agreement.

     

    C. The
      Board
      of Directors of the Company has determined that it is in the best interests
      of
      the Company to amend the Rights Agreement accordingly.

     

    In
      consideration of the foregoing, and of the covenants and agreements set forth
      below, the parties agree as follows:

     

    1. Section
      7(g) of the Rights Agreement is hereby amended to shall read in its entirety
      as
      follows:

     

    “(g) Notwithstanding
      anything in this Agreement to the contrary, (1) no investor purchasing or
      exchanging securities pursuant to that certain Securities Purchase Agreement,
      dated on or about February 28, 2008 (the “2008 Purchase Agreement”), by and
      among the Company and the investors listed on the Schedule of Buyers attached
      thereto, shall become an “Acquiring Person” solely as a result of the
      transactions contemplated by the 2008 Purchase Agreement or the Transaction
      Documents (as defined therein) and (2) no Rights shall be exercisable under
      this
      Agreement if the Company otherwise determines that such exercise would directly
      or indirectly violate, or otherwise conflict with, the Company’s obligations
      pursuant to the Transaction Documents.”

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      2.Miscellaneous.

    

     

    (a) Except
      as
      herein modified and amended, all the terms and conditions of the Rights
      Agreement shall remain in full force and effect.

     

    (b) This
      Amendment shall be governed by the laws of the State of Delaware, without regard
      to the choice of law or conflict of law principles thereof that direct the
      application of the laws of a different state.

     

    (c) This
      Amendment may be executed in one or more counterparts, all of which shall be
      considered one and the same agreement.

     

    *  *        *         *       *      
*

     

    
      
        
        

      

      
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    EXECUTED
      as of the date first above written.

    

      
        	 	
                TXCO
                  RESOURCES INC.

              	 
	
                 

              	
                a
                  Delaware corporation

              	 
	 	 	 
	
                 

              	
                By:

              	/s/
James
                E. Sigmon	 
	 	 	
                James
                  E. Sigmon, President

              	 
	 	 	 	 
	
                 

              	
                AMERICAN
                  STOCK TRANSFER & TRUST
                  COMPANY

              	 
	
                 

              	
                as
                  Rights Agent

              	 
	 	 	 	 
	
                 

              	
                By:

              	/s/
                Herbert J. Lemmer	 
	
                 

              	
                Name:

              	Herbert
                J.
                Lemmer	 
	
                 

              	
                Title:

              	Vice
                President	 


      

    

     

    
      
        
        

      

      
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