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Exhibit 10.31    
    

 
 

SUBSIDIARY GUARANTY    
    

        This
SUBSIDIARY GUARANTY (this "Guaranty") is made as of the 21st day of December, 2004, by Pinestone Resources, LLC, a Delaware limited
liability company (the "Subsidiary Guarantor") in favor of Bank One, NA, a national banking association having its principal office in Chicago, Illinois, in its capacity as agent (the "Agent") for the
Lenders under the Credit Agreement referred to below; 

W I T N E S S E T H:  

        WHEREAS, EXCO RESOURCES, INC., a Texas corporation (the "Company"), EXCO OPERATING, LP, a Delaware limited
partnership ("Operating"), NORTH COAST ENERGY, INC., a Delaware corporation ("North Coast"), NORTH COAST ENERGY EASTERN, INC., a Delaware corporation ("North Coast Eastern"; together
with Company, Operating and North Coast, the "Borrowers"), Agent and certain lenders from time to time party thereto (the "Lenders") are parties to that certain Third Amended and Restated Credit
Agreement dated as of January 27, 2004, pursuant to which the Lenders agreed to provide the Borrowers with certain credit facilities in the form described therein (as amended, the "Credit
Agreement"); 

        WHEREAS, it is a condition precedent to the Agent and the Lenders continued extension of credit under the Credit Agreement that the
Subsidiary Guarantor execute and deliver this Guaranty whereby the Subsidiary Guarantor shall guarantee the payment when due, subject to Section 9 hereof, of all Guaranteed Obligations, as
defined below; and 

        WHEREAS, in consideration of the financial and other support that the Borrowers have provided, and such financial and other support as the
Borrowers may in the future provide, to the Subsidiary Guarantor, and in order to induce the Lenders and the Agent to continue to extend credit under the Credit Agreement, and the Lenders and their
Affiliates to maintain and enter into one or more Rate Management Transactions with the Borrowers, and because the Subsidiary Guarantor has determined that executing this Guaranty is in its interest
and to its financial benefit, the Subsidiary Guarantor is willing to guarantee the obligations of the Borrowers under the Credit Agreement, any Note, any Rate Management Transaction, and the other
Loan Documents. 

        NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows: 

        SECTION
l.1.    Selected Terms Used Herein.    

        "Guaranteed
Obligations" is defined to mean (i) all indebtedness, obligations and liabilities of Borrowers to any Lender arising out of or pursuant to the provisions of the Credit
Agreement, the Notes and other Loan Documents, (ii) all indebtedness, obligations and liabilities of Borrowers to any Lender of any kind or character now existing or hereafter arising, whether
direct, indirect, related, unrelated, fixed, contingent, liquidated, unliquidated, joint, several or joint and several, and regardless of whether such indebtedness, obligations and liabilities may,
prior to their acquisition by any Lender, be or have been payable to or in favor of a third party and subsequently acquired by any Lender (it being contemplated that any Lender may make such
acquisitions from third parties), including without limitation all indebtedness, obligations and liabilities of Borrowers to any Lender now existing or hereafter arising by note, draft, acceptance,
guaranty, endorsement, letter of credit, assignment, purchase, overdraft, discount, indemnity agreement or otherwise, (iii) all accrued but unpaid interest on any of the indebtedness described
in (i) and (ii) above, (iv) all obligations of Borrowers to any Lender under any documents evidencing, securing, governing and/or pertaining to all or any part of the indebtedness
described in (i), (ii) and (iii) above, (v) all costs and expenses incurred by any Lender in 

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connection
with the collection and administration of all or any part of the indebtedness and obligations described in (i), (ii), (iii) and (iv) above or the protection or preservation
of, or realization upon, the collateral securing all or any part of such indebtedness and obligations, including without limitation all reasonable attorneys' fees, and (vi) all renewals,
extensions, modifications and rearrangements of the indebtedness and obligations described in (i), (ii), (iii), (iv) and (v) above. 

        "Rate
Management Obligations" means any and all obligations of any Borrower, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired
(including all renewals, extensions and modifications thereof and substitutions herefore), under (i) any and all Rate Management Transactions with Agent or a Lender or an Affiliate of Agent or
a Lender, and (ii) any and all cancellations, buy backs, reversals, terminations or assignments of any Rate Management Transactions. 

        SECTION
1.2.    Terms in Credit Agreement.    Other capitalized terms used herein but not defined herein shall have
the meaning set forth in the Credit Agreement. 

        SECTION
2.1.    Representations and Warranties.    The Subsidiary Guarantor represents and warrants (which
representations and warranties shall be deemed to have been renewed upon each Borrowing Date under the Credit Agreement) that: 

        (a)   It
is a corporation, partnership or limited liability company duly and properly incorporated or organized, as the case may be, validly existing and (to the extent such
concept applies to such entity) in good standing under the laws of its jurisdiction of incorporation or organization and has all requisite authority to conduct its business in each jurisdiction in
which its business is conducted. 

        (b)   It
has the power and authority and legal right to execute and deliver this Guaranty and to perform its obligations hereunder. The execution and delivery by it of this
Guaranty and the performance of its obligations hereunder have been duly authorized by proper corporate proceedings, and this Guaranty constitutes a legal, valid and binding obligation of the
Subsidiary Guarantor enforceable against it in accordance with its terms, except as enforceability may be limited by general principles of equity and bankruptcy, insolvency or similar laws affecting
the enforcement of creditors' rights generally. 

        (c)   Neither
the execution and delivery by it of this Guaranty, nor the consummation of the transactions herein contemplated, nor compliance with the provisions hereof will
violate (i) any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on it or any of its subsidiaries or (ii) its articles or certificate of incorporation,
partnership agreement, certificate of partnership, articles or certificate of organization, by-laws, or operating or other management agreement, as the case may be, or (iii) the
provisions of any indenture, instrument or agreement to which it or any of its subsidiaries is a party or is subject, or by which it, or its property, real or personal, is bound, or conflict with or
constitute a default thereunder, or result in, or require, the creation or imposition of any Lien in, of or on the Property of the Subsidiary Guarantor or a subsidiary thereof pursuant to the terms of
any such indenture, instrument or agreement. No order, consent, adjudication, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, or other
action in respect of any governmental or public body or authority, or any subdivision thereof, which has not been obtained by it or any of its subsidiaries, is required to be obtained by it or any of
its subsidiaries in connection with the execution and delivery of this Guaranty or the performance by it of its obligations hereunder or the legality, validity, binding effect or enforceability of
this Guaranty. 

        SECTION
2.2.     Covenants.    The Subsidiary Guarantor covenants that, so long as any Lender has any Commitment
outstanding under the Credit Agreement, any Rate Management Transaction remains in effect or any of the Guaranteed Obligations shall remain unpaid, that it will, and, if necessary, will 

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enable
the Borrowers to, fully comply with the covenants and agreements set forth in the Credit Agreement. 

        SECTION
3.    The Guaranty.    Subject to Section 9 hereof, the Subsidiary Guarantor hereby absolutely and
unconditionally guarantees, as primary obligor and not as surety, the full and punctual payment (whether at stated maturity, upon acceleration or early termination or otherwise, and at all times
thereafter) and performance of the Guaranteed Obligations and the Rate Management Obligations, including without limitation any such Guaranteed Obligations or Rate Management Obligations incurred or
accrued during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, whether or not allowed or allowable in such proceeding. Upon failure by the Borrowers to pay
punctually any such amount, the Subsidiary Guarantor agrees that it shall forthwith on demand pay to the Agent for the benefit of the Lenders and, if applicable, their Affiliates, the amount not so
paid at the place and in the manner specified in the Credit Agreement, any Note, any Rate Management Transaction or the relevant Loan Document, as the case may be. This Guaranty is a guaranty of
payment and not of collection. The Subsidiary Guarantor waives any right to require the Lender to sue any Borrower, any other guarantor, or any other person obligated for all or any part of the
Guaranteed Obligations, or otherwise to enforce its payment against any collateral securing all or any part of the Guaranteed Obligations. 

        SECTION
4.    Guaranty Unconditional.    Subject to Section 9 hereof, the obligations of the Subsidiary
Guarantor hereunder shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by: 

        (a)   any
extension, renewal, settlement, compromise, waiver or release in respect of any of the Guaranteed Obligations, by operation of law or otherwise, or any obligation of
any other guarantor of any of the Guaranteed Obligations, or any default, failure or delay, willful or otherwise, in the payment or performance of the Guaranteed Obligations; 

        (b)   any
modification or amendment of or supplement to or restatement of the Credit Agreement, any Note, any Rate Management Transaction or any other Loan Document; 

        (c)   any
release, nonperfection or invalidity of any direct or indirect security for any obligation of the Borrowers under the Credit Agreement, any Note, any Security
Instrument, any Rate Management Transaction, any other Loan Document, or any obligations of any other guarantor of any of the Guaranteed Obligations, or any action or failure to act by the Agent, any
Lender or any Affiliate of
any Lender with respect to any collateral securing all or any part of the Guaranteed Obligations or the Rate Management Transactions; 

        (d)   any
change in the corporate existence, structure or ownership of any Borrower or any other guarantor of any of the Guaranteed Obligations, or any insolvency, bankruptcy,
reorganization or other similar proceeding affecting any Borrower, or any other guarantor of the Guaranteed Obligations, or its assets or any resulting release or discharge of any obligation of any
Borrower, or any other guarantor of any of the Guaranteed Obligations or the Rate Management Transactions; 

        (e)   the
existence of any claim, setoff or other rights which the Subsidiary Guarantor may have at any time against any Borrower, any other guarantor of any of the Guaranteed
Obligations, the Agent, any Lender or any other Person, whether in connection herewith or any unrelated transactions; 

        (f)    any
invalidity or unenforceability relating to or against any Borrower, or any other guarantor of any of the Guaranteed Obligations, for any reason related to the Credit
Agreement, any Rate Management Transaction, any other Loan Document, or any provision of applicable law or regulation purporting to prohibit the payment by any Borrower, or any other guarantor of the
Guaranteed Obligations, of the principal of or interest on any Note or any other amount payable 

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by
the Borrowers under the Credit Agreement, any Note, any Rate Management Transaction or any other Loan Document; or 

        (g)   any
other act or omission to act or delay of any kind by any Borrower, any other guarantor of the Guaranteed Obligations, the Agent, any Lender or any other Person or
any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of the Subsidiary Guarantor's obligations hereunder. 

        SECTION
5.    Discharge Only Upon Payment In Full: Reinstatement In Certain Circumstances.    The Subsidiary
Guarantor's obligations hereunder shall remain in full force and effect until all Guaranteed Obligations shall have been indefeasibly paid in full, the Commitments under the Credit Agreement shall
have terminated or expired and all Rate Management Transactions have terminated or expired. If at any time any payment of the principal of or interest on any Note or any other amount payable by the
Borrowers or any other party under the Credit Agreement, any Rate Management Transaction or any other Loan Document is rescinded or must be otherwise restored or returned upon the insolvency,
bankruptcy or reorganization of any Borrower or otherwise, the Subsidiary Guarantor's obligations hereunder with respect to such payment shall be reinstated as though such payment had been due but not
made at such time. 

        SECTION
6.    Waivers.    The Subsidiary Guarantor irrevocably waives acceptance hereof, presentment, demand, protest
and, to the fullest extent permitted by law, any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against any Borrower, any other guarantor
of any of the Guaranteed Obligations, or any other Person. 

        SECTION
7.    Subrogation.    The Subsidiary Guarantor hereby agrees not to assert any right, claim or cause of
action, including, without limitation, a claim for subrogation, reimbursement, indemnification or otherwise, against any Borrower arising out of or by reason of this Guaranty or the obligations
hereunder, including, without limitation, the payment or securing or purchasing of any of the Guaranteed Obligations by the Subsidiary Guarantor unless and until the Guaranteed Obligations are
indefeasibly paid in full, any commitment to lend under the Credit Agreement and any other Loan Documents is terminated and all Rate Management Transactions have terminated or expired. 

        SECTION
8.    Stay of Acceleration.    If acceleration of the time for payment of any of the Guaranteed Obligations is
stayed upon the insolvency, bankruptcy or reorganization of any Borrower, all such amounts otherwise subject to acceleration under the terms of the Credit Agreement, any Note, any Rate Management
Transaction or any other Loan Document shall nonetheless be payable by the Subsidiary Guarantor hereunder forthwith on demand by the Agent made at the request of the Required Lenders. 

        SECTION
9.    Limitation on Obligations.    

        (a)   The
provisions of this Guaranty are severable, and in any action or proceeding involving any state corporate law, or any state, federal or foreign bankruptcy,
insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of the Subsidiary Guarantor under this Guaranty would otherwise be held or determined to be
avoidable, invalid or unenforceable on account of the amount of the Subsidiary Guarantor's liability under this Guaranty, then, notwithstanding any other provision of this Guaranty to the contrary,
the amount of such liability shall, without any further action by the Subsidiary Guarantor, the Agent or any Lender, be automatically limited and reduced to the highest amount that is valid and
enforceable as determined in such action or proceeding (such highest amount determined hereunder being the Subsidiary Guarantor's "Maximum Liability"). This Section 9(a) with respect to the
Maximum Liability of the Subsidiary Guarantor is intended solely to preserve the rights of the Agent hereunder to the maximum extent not subject to avoidance under applicable law, and neither the
Subsidiary Guarantor nor any other person or entity shall have any right or claim under this 

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Section 9(a)
with respect to the Maximum Liability, except to the extent necessary so that the obligations of the Subsidiary Guarantor hereunder shall not be rendered voidable under applicable
law. 

        (b)   The
Subsidiary Guarantor agrees that the Guaranteed Obligations may at any time and from time to time exceed the Maximum Liability of the Subsidiary Guarantor, and may
exceed the aggregate Maximum Liability of all other Subsidiary Guarantors, without impairing this Guaranty or affecting the rights and remedies of the Agent hereunder. Nothing in this
Section 9(b) shall be construed to increase any Subsidiary Guarantor's obligations hereunder beyond its Maximum Liability. 

        (c)   In
the event any Subsidiary Guarantor (a "Paying Subsidiary Guarantor") shall make any payment or payments under this Guaranty or shall suffer any loss as a result of
any realization upon any collateral granted by it to secure its obligations under this Guaranty, each other Subsidiary Guarantor (each a "Non-Paying Subsidiary Guarantor") shall contribute
to such Paying Subsidiary Guarantor an amount equal to such Non-Paying Subsidiary Guarantor's "Pro Rata Share" of such payment or payments made, or losses suffered, by such Paying
Subsidiary Guarantor. For the purposes hereof, each Non-Paying Subsidiary Guarantor's "Pro Rata Share" with respect to any such payment or loss by a Paying Subsidiary Guarantor shall be
determined as of the date on which such payment or loss was made by reference to the ratio of (i) such Non-Paying Subsidiary Guarantor's Maximum Liability as of such date (without
giving effect to any right to receive, or obligation to make, any contribution hereunder) or, if such Non-Paying Subsidiary Guarantor's Maximum Liability has not been determined, the
aggregate amount of all monies received by such Non-Paying Subsidiary Guarantor from the Borrowers after the date hereof (whether by loan, capital infusion or by other means) to
(ii) the aggregate Maximum Liability of all Subsidiary Guarantors hereunder (including such Paying Subsidiary Guarantor) as of such date (without giving effect to any right to receive, or
obligation to make, any contribution hereunder), or to the extent that a Maximum Liability has not been determined for any Subsidiary Guarantors, the aggregate amount of all monies received by such
Subsidiary Guarantors from the Borrowers after the date hereof (whether by loan, capital infusion or by other means). Nothing in this Section 9(c) shall affect any Subsidiary Guarantor's
several liability for the entire amount of the Guaranteed Obligations (up to such Subsidiary Guarantor's Maximum Liability). The Subsidiary Guarantor covenants and agrees that its right to receive any
contribution under this Guaranty from a Non-Paying Subsidiary Guarantor shall be subordinate and junior in right of payment to all the Guaranteed Obligations. The provisions of this
Section 9(c) are for the benefit of both the Agent and the Subsidiary Guarantor and may be enforced by any one, or more, or all of them in accordance with the terms hereof. 

        SECTION
10.    Application of Payments.    All payments received by the Agent hereunder shall be applied by the Agent
to payment of the Guaranteed Obligations in the following order unless a court of competent jurisdiction shall otherwise direct: 

        (a)   FIRST,
to payment of all costs and expenses of the Agent incurred in connection with the collection and enforcement of the Guaranteed Obligations or of any security
interest granted to the Agent in connection with any collateral securing the Guaranteed Obligations; 

        (b)   SECOND,
to payment of that portion of the Guaranteed Obligations constituting accrued and unpaid interest and fees, pro rata among the Lenders and their Affiliates in
accordance with the amount of such accrued and unpaid interest and fees owing to each of them; 

        (c)   THIRD,
to payment of the principal of the Guaranteed Obligations and the net early termination payments and any other Rate Management Obligations then due and unpaid
from the Borrowers to any of the Lenders or their Affiliates, pro rata among the Lenders and their 

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Affiliates
in accordance with the amount of such principal and such net early termination payments and other Rate Management Obligations then due and unpaid owing to each of them; and 

        (d)   FOURTH,
to payment of any Guaranteed Obligations (other than those listed above) pro rata among those parties to whom such Guaranteed Obligations are due in accordance
with the amounts owing to each of them. 

        SECTION
11.    Notices.    All notices, requests and other communications to any party hereunder shall be given or
made by telecopier or other writing and telecopied, or mailed or delivered to the intended recipient at its address or telecopier number set forth on the signature pages hereof or such other address
or telecopy number as such party may hereafter specify for such purpose by notice to the Agent in accordance with the provisions of this Section 11. Except as otherwise provided in this
Guaranty, all such communications shall be deemed to have been duly given when transmitted by telecopier, or personally delivered or, in the case of a mailed notice sent by certified mail
return-receipt requested, on the date set forth on the receipt (provided, that any refusal to accept any such notice shall be deemed to be notice thereof as of the time of any such refusal), in each
case given or addressed as aforesaid. 

        SECTION
12.    No Waivers.    No failure or delay by the Agent or any Lenders in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies provided in this Guaranty, the Credit Agreement, any Note, any Rate Management Transaction and the other Loan Documents shall be cumulative and not exclusive of any
rights or remedies provided by law. 

        SECTION
13.    No Duty to Advise.    The Subsidiary Guarantor assumes all responsibility for being and keeping itself
informed of each Borrower's financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and the nature, scope and extent of the
risks that the Subsidiary Guarantor assumes and incurs under this Guaranty, and agrees that neither the Agent nor any Lender has any duty to advise the Subsidiary Guarantor of information known to it
regarding those circumstances or risks. 

        SECTION
14.    Successors and Assigns.    This Guaranty is for the benefit of the Agent and the Lenders and their
respective successors and permitted assigns and in the event of an assignment of any amounts payable under the Credit Agreement, any Note, any Rate Management Transaction, or the other Loan
Documents, the rights hereunder, to the extent applicable to the indebtedness so assigned, shall be transferred with such indebtedness. This Guaranty shall be binding upon each of the Subsidiary
Guarantor and its respective successors and permitted assigns. 

        SECTION
15.    Changes in Writing.    Neither this Guaranty nor any provision hereof may be changed, waived,
discharged or terminated orally, but only in writing signed by each of the Subsidiary Guarantor and the Agent with the consent of the Required Lenders. 

        SECTION
16.    Costs of Enforcement.    The Subsidiary Guarantor agrees to pay all costs and expenses including,
without limitation, all court costs and attorneys' fees and expenses paid or incurred by the Agent or any Lender or any Affiliate of any Lender in endeavoring to collect all or any part of the
Guaranteed Obligations from, or in prosecuting any action against, any Borrower, the Subsidiary Guarantor or any other guarantor of all or any part of the Guaranteed Obligations. 

        SECTION
17.    GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.    THIS GUARANTY SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. THE SUBSIDIARY GUARANTOR HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT
OF TEXAS AND OF ANY TEXAS STATE COURT SITTING IN DALLAS, TEXAS AND FOR PURPOSES OF ALL 

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LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS GUARANTY (INCLUDING, WITHOUT LIMITATION, ANY OF THE OTHER LOAN DOCUMENTS) OR THE TRANSACTIONS CONTEMPLATED HEREBY. THE SUBSIDIARY GUARANTOR
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH ANY OF THEM MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY
CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE SUBSIDIARY GUARANTOR, THE AGENT AND EACH LENDER ACCEPTING THIS GUARANTY, HEREBY IRREVOCABLY WAIVES
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY. 

        SECTION
18.    Taxes. Etc.    All payments required to be made by the Subsidiary Guarantor hereunder shall be made
without setoff or counterclaim and free and clear of and without deduction or withholding for or on account of, any present or future taxes, levies, imposts, duties or other charges of whatsoever
nature imposed by any government or any political or taxing authority thereof (but excluding income and franchise taxes), provided, however, that if the Subsidiary Guarantor is required by law to make
such deduction or withholding, the Subsidiary Guarantor shall forthwith (i) pay to the Agent or any Lender, as applicable, such additional amount as results in the net amount received by the
Agent or any Lender, as applicable, equaling the full amount which would have been received by the Agent or
any Lender, as applicable, had no such deduction or withholding been made, (ii) pay the full amount deducted to the relevant authority in accordance with applicable law, and
(iii) furnish to the Agent or any Lender, as applicable, certified copies of official receipts evidencing payment of such withholding taxes within 30 days after such payment is made. 

        SECTION
19.    Setoff.    Without limiting the rights of the Agent or the Lenders under applicable law, if all or any
part of the Guaranteed Obligations is then due, whether pursuant to the occurrence of a Default or Event of Default or otherwise, then the Subsidiary Guarantor authorizes the Agent and the Lenders to
apply any sums standing to the credit of the Subsidiary Guarantor with the Agent or any Lender or any Lending Installation of the Agent or any Lender toward the payment of the Guaranteed Obligations. 

        SECTION
20.    Grant of Security Interest in Operating Accounts.    The Subsidiary Guarantor hereby grants a security
interest to Lenders in and to their Operating Accounts and all checks, drafts and other items now or hereafter received by any Lender for deposit therein. 

SIGNATURE PAGES FOLLOW  

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        IN WITNESS WHEREOF, the Subsidiary Guarantor has caused this Guaranty to be duly executed, under seal, by its authorized officer as of the day and year first
above written. 

	

 	
 	
SUBSIDIARY GUARANTOR:
	

 	
 	
PINESTONE RESOURCES, LLC
 a Delaware limited liability company
	

 	
 	

 	

 
	 	 	By:	/s/ J. Douglas Ramsey

	 	 	Name:	J. Douglas Ramsey
	 	 	Title:	Vice President & Chief Financial Officer
	

 	
 	
Address for Notices:

c/o EXCO RESOURCES, INC.

12377 Merit Drive, Suite 1700

Dallas, Texas 75251

Facsimile No. 214/368-2087

Attn: Douglas H. Miller

Chief Executive Officer

and

Attn: J. Douglas Ramsey,

Chief Financial Officer

8

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Exhibit 10.31

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Exhibit 10.12  

 
 

AGREEMENT    
    

        THIS AGREEMENT ("Agreement") made as of the 1st day of July, 2004, by and between FIRST PENN BANK, a Pennsylvania-chartered commercial bank (the
"Bank"), and [FRANK] BORELLI, an individual (the "Executive"). 

 
 

WITNESSETH    
    

        WHEREAS, the Bank and the Executive desire to enter into an agreement regarding, among other things, the employment of the Executive by the Bank, all as
hereinafter set forth. 

 
 

AGREEMENT:    
    

        NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, agree as follows: 

        1.    Employment.    The Bank hereby employs the Executive, and the Executive hereby accepts employment with the Bank,
on the terms and conditions set forth in this Agreement. 

        2.    Duties of Executive.    The Executive shall perform and discharge well and faithfully such duties as an
executive officer of the Bank as may be assigned to the Executive from time to time by the Board of Directors of the Bank (the "Board") and which are consistent with his title(s). The Executive shall
be employed as Chief Operating Officer of the Bank and shall hold such other titles as may be given to him from time to time by the Board. In such capacity(ies), he shall report directly and solely to
the Audit Committee of the Board. 

        3.    Term of Employment.    The Executive's employment under this Agreement shall be for a period (the "Employment
Period") commencing upon the date of this Agreement and ending at the end of the term of this Agreement pursuant to Section 14, unless his employment is sooner terminated in accordance with
Section 5 or one of the following provisions: 

        (a)    Termination for Cause.    The Executive's employment under this Agreement may be terminated at any time during
the Employment Period for "Cause" (as herein defined), by action of the Board, upon giving notice of such termination to the Executive at least 15 days prior to the date upon which such
termination shall take effect (or, in the case of Clause (v), 15 days after the expiration of the 30-day period referenced therein). As used in this Agreement, "Cause" means
any of the following events: 

        (i)    the
Executive is convicted of, or pleads nolo contendere to, a crime classified as a felony within the relevant
jurisdiction; 

        (ii)   the
Executive willfully breaches his fiduciary duty involving personal profit, or engages in an act of personal dishonesty, in the performance of his duties; 

        (iii)  a
court of competent jurisdiction makes a determination that the Executive is incompetent by reason of the fact that he is unable to manage his own affairs by reason
of insanity or feeble mindedness; 

        (iv)  the
Executive willfully fails to follow the lawful instructions, with respect to material matters, of the Board after the Executive's receipt of written notice of such
instructions, other than a failure resulting from the Executive's incapacity because of physical or mental illness; or 

        (v)   the
Board determines that the Executive's work performance is significantly below that expected of him, given his background and experience, by the Audit Committee of
the Board, and the Executive fails to cure such unacceptable performance within 30 days following the giving of written notice to him by such Audit Committee. 

 

If
the Executive's employment is terminated under the provisions of this Section 3(a), then all rights of the Executive under Section 4 shall cease as of the effective date of such
termination and any benefits payable to the Executive shall be determined in accordance with the retirement and insurance programs of the Bank then in effect. 

        (b)    Termination Without Cause.    The Executive's employment under this Agreement may be terminated at any time
during the Employment Period without "Cause" (as defined in Section 3(a)), by action of the Board, upon giving notice of such termination to the Executive at least 30 days prior to the
date upon which such termination shall take effect. If the Executive's employment is terminated under the provisions of this Section 3(b), then the Executive shall be entitled to receive the
compensation set forth in Section 6 in lieu of Section 4. 

        (c)    Retirement; Death.    If the Executive retires or dies, the Executive's employment under this Agreement shall
be deemed terminated as of the date of the Executive's retirement or death, and all rights of the Executive under Section 4 shall cease as of the date of such termination and any benefits
payable to the Executive shall be determined in accordance with the retirement and insurance programs of the Bank then in effect. 

        (d)    Incapacity.    If the Executive is incapacitated by accident, sickness, or otherwise so as to render the
Executive mentally or physically incapable of performing the services required of the Executive under Section 2 for a continuous period of six months, then, upon the expiration of such period
or at any time thereafter, by action of the Board, the Executive's employment under this Agreement may be terminated immediately upon giving the Executive notice to that effect. If the Executive's
employment is terminated under the provisions of this Section 3(d), then all rights of the Executive under Section 4 shall cease as of the last business day of the week in which such
termination occurs and any benefits payable to the Executive shall be determined in accordance with the retirement and insurance programs of the Bank then in effect. 

        4.    Employment Period Compensation.    

        (a)    Salary.    For services performed by the Executive under this Agreement, the Executive shall initially be paid
a salary during the Employment Period, at the rate of $190,000 per year, payable at the same times as salaries are payable to other executive employees of the Bank. The Bank, upon recommendation of
the Audit Committee, may from time to time increase the Executive's salary (but in no event more than 6% annually on January 1, 2005), and any and all such increases shall be deemed to
constitute amendments to this Section 4(a) to reflect the increased amounts, effective as of the dates established for such increases by the Board in the resolutions authorizing such increases. 

        (b)    Bonus.    For services performed by the Executive under this Agreement, the Bank, upon recommendation of the
Audit Committee, may pay the Executive an annual bonus (pursuant to a plan or otherwise), if any, in its sole discretion; provided, however, that any such bonus shall not exceed
20% of the Executive's base salary for the year to which such bonus relates. The payment of any such bonuses shall not reduce or otherwise affect any other obligation of the Bank to the Executive
provided for in this Agreement. 

        (c)    Other Benefits.    The Bank will provide the Executive, during the Employment Period, with insurance, vacation,
pension, and other fringe benefits, in the aggregate not less favorable than those received by executives of the Bank of his stature, as such benefits exist on the date hereof (including, without
limitation, periodic reimbursement for the personal and business use of an automobile at the rate of $800 per month). 

        (d)    Salary Deferral.    The Executive may request that the payment of any portion of his base salary for any year
be deferred. Such request must be made in writing to the Bank before the beginning of such calendar year and must include the period of deferral requested by the 

2

 

Executive
(the "Deferral Period"). If the Board approves such request, the Executive shall be entitled to receive, at such time as is specified following the close of the Deferral Period, the deferred
portion of his base salary plus interest, which interest shall be computed by reference to an annual interest rate determined each year by the Board. Any salary which is deferred as described herein
shall be credited to an account on the books of the Bank established in the name of the Executive. However, this account shall not be funded, and the Bank shall not be deemed to be a trustee for the
Executive with respect to any deferred salary. The liability of the Bank to the Executive hereunder will be that of a debtor pursuant to such contractual obligations as are created by this Agreement.
No liability which arise under this Section 4(d) shall be deemed to be secured by any pledge or other encumbrance on any property of the Bank. The Bank shall not be required to segregate any
funds representing such deferred salary, and nothing herein shall be construed as providing for such segregation. 

        5.    Resignation of the Executive for Good Reason.    

        (a)   Following
the occurrence of a Change in Control (as defined below),the Executive may resign for Good Reason at any time during the Employment Period, as hereinafter set
forth. As used in this Agreement, "Good Reason" means any of the following: 

        (i)    any
material adverse change in the Executive's responsibilities or authority as outlined in Section 2 which is inconsistent with the Executive's status as Chief
Operating Officer of the Bank; 

        (ii)   any
reduction in title; 

        (iii)  any
reassignment of the Executive to a principal place of employment which is more than 50 miles from the Bank's principal executive office on the date of this
Agreement; 

        (iv)  any
reduction in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time; 

        (v)   any
failure by the Bank to provide the Executive with the benefits substantially similar to those described in Section 4(c), unless such failure is part of a
reduction or elimination of benefits applicable in each case to all or substantially all of the participant employees; or 

        (vi)  any
material breach of this Agreement on the part of the Bank. 

        (b)   At
the option of the Executive, exercisable by the Executive within 90 days after the occurrence of the event constituting Good Reason, the Executive may resign
from employment under this Agreement by a notice in writing (the "Notice of Termination") delivered to the Bank and the provisions of Section 6 shall thereupon apply in lieu of
Section 4. 

        6.    Rights in Event of Termination of Employment.    Except as otherwise provided herein, in the event that the
Executive resigns from employment for Good Reason by delivery of a Notice of Termination to the Bank or the Executive's employment is terminated by the Bank without Cause pursuant to
Section 3(b) (and so long as the Executive is not terminated pursuant to Section 3(c) or (d)), the Executive shall be entitled to receive the amounts and benefits set forth in this
Section 6 in lieu of Section 4. 

        (a)   During
the then remaining Employment Period, the Executive shall be paid his then base salary in such installments and on such dates as executive officers of the Bank
are paid. 

        (b)   During
the then remaining Employment Period, the Executive shall continue to be provided with all life and medical insurance benefits in effect with respect to the
Executive during the year prior to his termination of employment, or, if the Bank cannot provide such benefits because the Executive is no longer an employee, a dollar amount equal to the
tax-effected cost, 

3

 

determined
by using the highest marginal relevant tax rates, to the Executive of obtaining such benefits (or substantially similar benefits). The right of the Executive under this subsection shall
terminate at such time as he may secure substantially similar benefits, at no cost to him, through employment or otherwise. 

        (c)   In
the event that the amounts and benefits payable under this Agreement, when added to other amounts and benefits which may become payable to the Executive by the Bank,
and any affiliated company, are such that he would otherwise become subject to the excise tax provisions of Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the
amounts payable or provided hereunder shall be reduced to such extent as will avoid application of such Code section. Subject to the limitation of the preceding sentence, the Executive shall be
entitled to select which payments and benefits shall be reduced hereunder (or under any other plan, benefit or arrangement that provides for the payment of potential parachute payments under Code
Section 280G) and the manner of such reduction. All calculations required to be made under this subsection shall be made by the independent public accountants of the Bank's parent company,
subject to the right of Executive's representative to review the same. The parties recognize that the actual implementation of the provisions of this subsection are complex and agree to deal with each
other in good faith to resolve any questions or disagreements arising hereunder. 

        7.    Arbitration.    The Bank and the Executive recognize that in the event a dispute should arise between them
concerning the interpretation or implementation of this Agreement, lengthy and expensive litigation will not afford a practical resolution of the issues within a reasonable period of time.
Consequently, each party agrees that all disputes, disagreements and questions of interpretation concerning this Agreement are to be submitted for resolution to the American Arbitration Association
("Association") in Philadelphia, Pennsylvania. The Bank or the Executive may initiate an arbitration proceeding at any time by giving notice to the others in accordance with the relevant rules of the
Association. The Association shall designate a single arbitrator to conduct the proceeding, but the Bank and the Executive may, as a matter of right, require the substitution of a different arbitrator
chosen by the Association. Each such right of substitution may be exercised only once. The arbitrator shall not be bound by the rules of evidence and procedure of the courts of the Commonwealth of
Pennsylvania but shall be bound by the substantive law applicable to this Agreement. The decision of the arbitrator, absent fraud, duress, incompetence or gross and obvious error of fact, shall be
final and binding upon the parties and shall be enforceable in courts of proper jurisdiction. Following written notice of a request for arbitration, the Bank and the Executive shall be entitled to an
injunction restraining all further proceedings in any pending or subsequently filed litigation concerning this Agreement. 

        8.    Legal Expenses.    If the Executive obtains a judgment or settlement which enforces a right or benefit under
this Agreement, the Bank shall pay to the Executive all reasonable legal fees and expenses incurred by the Executive in good faith in connection with the entire dispute. 

        9.    Notices.    Any notice required or permitted to be given under this Agreement shall, to be effective hereunder,
(a) be given to the Bank, in the case of notices given by the Executive, and (b) be given by the Bank, in the case of notices given to the Executive. Any such notice shall be deemed
properly given if in writing and if mailed by express, registered or certified mail, postage prepaid with return receipt requested, to the last known residence of the Executive, in the case of notices
to the Executive, and to the principal executive office of the Bank, in the case of notices to the Bank. 

        10.    Waiver.    No provision of this Agreement may be modified, waived, or discharged unless such waiver,
modification, or discharge is agreed to in writing and signed by the Executive and a duly authorized executive officer of the Bank. No waiver by any party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. 

4

 

        11.    Assignment.    This Agreement shall not be assignable by any party hereto, except by the Bank to any successor
in interest to the business of the Bank. 

        12.    Entire Agreement.    This Agreement contains the entire agreement of the parties relating to the subject matter
of this Agreement and supersedes any prior agreement of the parties. 

        13.    Successors, Binding Agreement.    

        (a)   The
Bank will require any direct successor (whether by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the
Bank to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Bank would be required to perform it if no such succession had taken place. Failure by
the Bank to obtain such assumption and agreement prior to the effectiveness of any such direct succession shall constitute a material breach of this Agreement. As used in this Agreement, the "Bank"
shall mean the Bank as hereinbefore defined and any direct successor to the business and/or assets of the Bank, as aforesaid, which assumes and agrees to perform this Agreement by operation of law or
otherwise. 

        (b)   This
Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, and surviving spouse (if
any). If the Executive should die while any amount or benefit would be payable or provided to the Executive under this Agreement if the Executive had continued to live, all such amounts and benefits
(but only to the extent the provision of such benefits would be relevant to the recipient) shall be paid or provided in accordance with the terms of this Agreement to the Executive's surviving spouse,
or, if there is no such person, to the Executive's estate. 

        14.    Termination.    

        (a)   Unless
the Executive's employment is terminated pursuant to the provisions of Section 3 or Section 5, the term of this Agreement shall be for a
three-year period commencing on the date of this Agreement and ending on June 30, 2007. Commencing July 1, 2005, this Agreement shall be automatically renewed on
July 1st of each year (the "Annual Renewal Date") for a period ending three years from each Annual Renewal Date unless either party shall give written notice of nonrenewal to the other party at
least 60 days prior to an Annual Renewal Date; provided, however, that, in the event of the occurrence of a Change in Control, the renewal provisions of this section shall immediately terminate
and the then remaining Employment Period shall continue until its then scheduled expiration date. 

        (b)   For
purposes of this Agreement, the term "Change in Control" shall mean the occurrence of any of the following: 

        (i)    (A)
the execution of an agreement providing for a merger, consolidation, or division involving the Bank or its parent company, (B) the execution of an agreement
providing for a sale, exchange, transfer, or other disposition of substantially all of the assets of the Bank or its parent company, or (C) the execution of an agreement providing for a
purchase by Bank or its parent company of substantially all of the assets of another entity, unless (x) such merger, consolidation, division, sale, exchange, transfer, purchase or disposition
is approved in advance by 662/3% or more of the members of the Board who are not interested in the transaction and (y) a majority of the members of the Board of Directors of the
legal entity resulting from or existing after any such transaction are former members of the Board or the board of directors of the Bank's parent company; 

        (ii)   a
"person" or "group" (within the meaning of Section 13(d) of the Securities Exchange Act of 1934) becomes the "beneficial owner" (within the meaning of
Section 13(d) 

5

 

of
the Securities Exchange Act of 1934) of 20% or more of the outstanding shares of common stock of the Bank's parent company; 

        (iii)  at
any time during any period of two consecutive years, individuals who at the beginning of such period constitute the Board cease to constitute a majority of such
Board (unless the election or nomination of each new director of the Board was approved by a vote of at least 51% of the directors who were directors at the beginning of such period); or 

        (iv)  any
other transaction similar in effect to any of the foregoing and designated as a change in control by the Board. 

        15.    Indemnification of Executive.    

        (a)   The
Bank shall indemnify the Executive against any action brought against him by reason of the fact that he serves or had served as an officer of the Bank for
(i) reasonable costs and expenses, including reasonable attorneys fees, actually paid or incurred by the Executive in connection with proceedings relating to the defense or settlement of such
action, (ii) any amount for which he becomes liable by reason of any judgment in such action, and (iii) reasonable costs and expenses, including reasonable attorney fees, actually paid
or incurred by the Executive in any action to enforce his rights under this section, if the Executive obtains a final judgment in his favor in such action. Notwithstanding the foregoing, the
indemnification provided for herein shall be made to the Executive only if (i) the final judgment on the merits is in the Executive's favor, or (ii) in case of (1) a settlement,
(2) a final judgment against the Executive, or (3) a final judgment in the Executive's favor, other than on the merits, if a majority of the disinterested directors of the Bank
determines that he was acting in good faith in the scope of his employment or authority as he could reasonably have perceived it under the circumstances and for a purpose he reasonably believed under
the circumstances was in the best interest of the Bank or its affiliated companies. 

        (b)   In
addition, the Executive shall be indemnified by the Bank to the fullest extent provided under its Articles of Incorporation (or Charter) and Bylaws. 

        (c)   For
purposes of this section, the following terms shall have the meanings set forth below: 

        (i)    "Action"
means any action, suit or other judicial or administrative proceeding, or threatened proceeding, whether civil, criminal, or otherwise, including any appeal or
other proceeding for review. 

        (ii)   "Final
Judgment" means a judgment, decree, or order which is appealable and as to which the period for appeal has expired and no appeal has been taken. 

        (iii)  "Settlement"
includes the entry of a judgment by consent or by confession or upon a plea of guilty or of nolo
contendere. 

        16.    Severability.    The invalidity or unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 

        17.    Applicable Law.    This Agreement shall be governed by and construed in accordance with the domestic internal
laws (but not the law of conflict of laws) of the Commonwealth of Pennsylvania. 

        18.    Headings.    The headings of the several sections and subsections of this Agreement are for convenience only
and shall not control or affect the meaning or construction or limit the scope or intent of any of the provisions of this Agreement. 

        19.    Effective Date.    This Agreement shall become effective immediately upon its execution and delivery by the
parties hereto. 

        20.    Tax Withholding.    All payments made and benefits provided hereunder shall be subject to such federal, state
and local tax withholding as may be required by law. 

6

 

        IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. 

	 	 	FIRST PENN BANK
	

 	
 	

By	
 	

 
	 	 	 	 	
 Chairman

	 	 	Attest:	 	 
	 	 	 	 	
 Secretary

("Bank")

	Witness:	 	 
	 	 	 
	
	 	
 [Frank] Borelli
	 	 	("Executive")

7

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