Document:

Exhibit 10.2

 

EXECUTION
VERSION

 

PREFERRED STOCK PURCHASE AGREEMENT

 

BY AND AMONG

 

EXCO RESOURCES, INC.

 

AND

 

THE PURCHASERS NAMED HEREIN

 

Dated March 28, 2007

 

 

PREFERRED STOCK PURCHASE AGREEMENT

 

This PREFERRED STOCK PURCHASE AGREEMENT (this “Agreement”), is
entered into as of March 28, 2007, by and among EXCO Resources, Inc., a Texas
corporation (“EXCO”), and the Persons listed on Schedule A
attached hereto (each, a “Purchaser” and collectively, the “Purchasers”).

 

RECITALS

 

WHEREAS, prior to the execution of this Agreement, EXCO and certain of
its subsidiaries entered into a Purchase and Sale Agreement (the “Vernon
Acquisition Agreement”) with Anadarko Petroleum Corporation, a Delaware
corporation (“APC”), and Anadarko Gathering Company, a Delaware corporation
(“AGC” and, together with APC, “Anadarko”), dated December 22,
2006, pursuant to which EXCO and such subsidiaries agreed to purchase, and
Anadarko agreed to sell, certain oil and gas properties in Louisiana  (the “Vernon Acquisition”);

 

WHEREAS, in connection with its financing of the Vernon Acquisition,
EXCO desires to issue and sell, and the Purchasers desire to purchase, (a) an
aggregate of 39,008 shares (the “7.0% Preferred Shares”) of 7.0%
Preferred Stock in the series and amounts set forth on Schedule A
hereto, which 7.0% Preferred Shares will be convertible into shares of Common
Stock (the “Initial Conversion Shares”), and (b) an aggregate of 160,992
shares (the “Hybrid Preferred Shares” and together with the 7.0%
Preferred Shares, the “Purchased Shares”) of Hybrid Preferred Stock in
the series and amounts set forth on Schedule A hereto, which Hybrid
Preferred Shares will be convertible into shares of Common Stock after the NYSE
Approval Date (the “Subsequent Conversion Shares” and together with the
Initial Conversion Shares, the “Conversion Shares”); and

 

WHEREAS, EXCO has agreed to effect the registration under the
Securities Act of the resale of (a) the Conversion Shares, the Series A-1
Preferred Stock and, after the NYSE Approval Date, the Hybrid Preferred Shares
pursuant to the terms and conditions set forth in the registration rights
agreement in the form attached hereto as Exhibit C (the “7.0%
Preferred Registration Rights Agreement”), and (b) the Hybrid Preferred
Shares, pursuant to the terms and conditions set forth in the registration
rights agreement in the form attached hereto as Exhibit D (the “Hybrid
Preferred Registration Rights Agreement” and, together with the 7.0%
Preferred Registration Rights Agreement, the “Registration Rights Agreements”).

 

AGREEMENT

 

NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereby agree as
follows:

 

ARTICLE I

DEFINITIONS

 

Section 1.01           Definitions.
As used in this Agreement, and unless the context requires a different meaning,
the following terms have the meanings indicated:

 

1

 

“7.0% Preferred Statements of Designation” shall mean the Series
A-1 7.0% Preferred Statement of Designation, the Series A-2 7.0% Preferred
Statement of Designation, the Series B 7.0% Preferred Statement of Designation
and the Series C 7.0% Preferred Statement of Designation.

 

“7.0% Preferred Registration Rights Agreement” shall have the
meaning specified in the recitals.

 

“7.0% Preferred Shares” shall have the meaning set forth in the
recitals.

 

“7.0% Preferred Stock” shall mean the Series A-1 Preferred
Stock, Series A-2 Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock.

 

“8-K Filing” shall have the meaning specified in Section 5.04.

 

“Acceptance Date” shall have the meaning specified in Section
5.09(a)(iv).

 

“Affiliate” shall mean, with respect to a specified Person, any
other Person, directly or indirectly controlling, controlled by or under direct
or indirect common control with such specified Person. For purposes of this
definition, “control” (including, with correlative meanings, “controlling”,
“controlled by”, and “under common control with”) means the power to direct or
cause the direction of the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise.

 

“AGC” shall have the meaning specified in the recitals.

 

“Anadarko” shall have the meaning specified in the recitals.

 

“APC” shall have the meaning specified in the recitals.

 

“Ares” means, collectively, Ares Corporate Opportunities Fund,
L.P., Ares Corporate Opportunities Fund II, L.P., Ares Management LLC and any
other investment fund, whether now in existence or hereafter formed, which is
managed or controlled by Ares Management LLC or any of its affiliates (as such
term is defined in Rule 12b-2 of the Exchange Act), or of which Ares Management
LLC or any of its affiliates is an advisor.

 

“Articles of Incorporation” shall mean the Third Amended and
Restated Articles of Incorporation of EXCO, dated as of February 6, 2006.

 

“Board of Directors” shall have the meaning specified in Section
3.29.

 

“Business Day” shall mean any day other than a Saturday, Sunday,
or other day on which banking institutions are not required to be open in the
State of New York.

 

“Bylaws” shall mean the Bylaws of EXCO, as amended and restated
on February 4, 2006.

 

2

 

“Capital Stock” of any Person shall mean any and all shares,
interests (including partnership interests), rights to purchase, warrants,
options, participations or other equivalents of or interests in (however
designated) equity of such Person, including any Preference Stock, but
excluding any debt securities convertible into such equity.

 

“Closing” shall have the meaning specified in Section 2.03.

 

“Closing Date” shall have the meaning in Section 2.03.

 

“Commission” shall mean the United States Securities and
Exchange Commission.

 

“Common Stock” shall mean the common stock of EXCO, par value
$0.001 per share.

 

“Contract” shall have the meaning specified in Section 3.05.

 

“Conversion Shares” shall have the meaning specified in the
recitals.

 

“Convertible Securities” shall mean indebtedness or shares of
Capital Stock convertible into or exchangeable for Common Stock.

 

“Credit Facilities” means (a) the Resources Credit Facility and
(b) the EPOP Credit Facility.

 

“Eligible Purchaser” shall have the meaning specified in Section
5.09(a)(i).

 

“Eligible Shares” shall mean with respect to a Subsequent
Placement of Common Stock, Convertible Securities or Options at a price per
share or, if applicable, with an exercise, exchange or conversion price per
share, less than the lesser of $19.00 or the then-applicable Conversion Price
(as defined in the Statements of Designation), the 7.0% Preferred Shares and
the Hybrid Preferred Shares.

 

“Environmental Laws” shall have the meaning specified in Section
3.21.

 

“EPOP” shall mean EXCO Partners Operating Partnership, LP.

 

“EPOP Credit Facility” shall mean the Second Amended and
Restated Credit Agreement to be dated as of March 30, 2007, by and among EPOP,
certain of its Subsidiaries and JPMorgan Chase Bank, N.A., as Administrative
Agent.

 

“EPOP Indebtedness” shall have the meaning specified in Section
5.03.

 

“Equity Contribution Agreement” shall mean the Second Amended
and Restated Equity Contribution Agreement, dated October 13, 2006, among EXCO,
EPOP and JPMorgan Chase Bank, N.A., as Administrative Agent.

 

“ERISA” shall mean the Employee Retirement Income Security Act
of 1974, as amended, and the regulations and published interpretations
thereunder.

 

“Escrow” shall have the meaning specified in Section 2.01.

 

3

 

“Escrow Agent” shall have the meaning specified in the Escrow
Agreement.

 

“Escrow Agreement” shall have the meaning specified in Section
2.01.

 

“Escrow Release Date” shall have the meaning specified in Section
2.01.

 

“Exchange Act” shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission promulgated
thereunder.

 

“EXCO” shall have the meaning specified in the introductory
paragraph.

 

“EXCO Disclosure Schedules” shall have the meaning specified in Article
III.

 

“EXCO Material Adverse Effect” shall mean any change,
inaccuracy, effect, event, result, occurrence, condition or fact (each, an “Event”)
(whether foreseeable or not and whether covered by insurance or not) that has
had or would be reasonably likely to have, individually or in the aggregate
with any other Event or Events, a material adverse effect on (i) the ability of
EXCO to perform its obligations hereunder or under the other Transaction
Documents, (ii) the ownership, financial condition, capitalization, assets,
liabilities or results of operation of EXCO and its Subsidiaries, taken as a
whole, or (iii) a material impairment of the right of the Purchasers under, or
enforceability by the Purchasers of, the Transaction Documents; provided,
however, that an EXCO Material Adverse Effect shall not include (only in the
case of clause (ii) above) such material adverse effects to the extent
resulting from (a) general changes in oil and gas prices, (b) general changes
in industry conditions or markets, economic conditions or political conditions
so long as such conditions do not have a materially disproportionate effect on
EXCO and its Subsidiaries, (c) outbreak of hostilities or declaration of war
and (d) effects or changes that are cured without cost to the Purchasers or
EXCO or any of its Subsidiaries.

 

“Form 10-K” shall mean EXCO’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2006 filed with the Commission on March 19,
2007.

 

“Funding Date” shall have the meaning specified in Section
2.03.

 

“GAAP” shall mean generally accepted accounting principles in
the United States of America in effect from time to time.

 

“Governmental Authority” shall mean any governmental department,
commission, board, bureau, agency, court or other instrumentality, whether
foreign or domestic, of any country, nation, republic, federation or similar
entity or any state, county parish or municipality, jurisdiction or other political
subdivision thereof.

 

“Governmental Authorizations” shall have the meaning specified
in Section 3.16(b).

 

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

 

“HSR Purchaser” shall mean any Purchasers required to receive
clearance for the transactions contemplated by this Agreement under the HSR
Act.

 

4

 

“Hybrid Preferred Statements of Designation” shall mean the
Series A-1 Hybrid Preferred Statement of Designation and the Series A-2 Hybrid
Preferred Statement of Designation.

 

“Hybrid Preferred Registration Rights Agreement” shall have the
meaning specified in the recitals.

 

“Hybrid Preferred Shares” shall have the meaning specified in
the recitals.

 

“Hybrid Preferred Stock” shall mean the Series A-1 Hybrid
Preferred Stock and the Series A-2 Hybrid Preferred Stock.

 

“Indemnifying Party” shall have the meaning specified in Section 6.03.

 

“Initial Conversion Shares” shall have the meaning specified in
the recitals.

 

“Initial Securities” shall have the meaning specified in Section
5.09(a)(ii).

 

“Knowledge” shall mean with respect to EXCO and its
Subsidiaries, the actual knowledge of the Chief Executive Officer, President or
any Vice President of EXCO.

 

“Law” shall mean any federal, state, local or foreign order,
writ, injunction, judgment, settlement, award, decree, statute, law, rule or
regulation.

 

“Lien” shall mean any lien, charge, claim, security interest,
encumbrance, right of first refusal or other restriction.

 

“Major Purchaser” shall mean each Purchaser purchasing, together
with its Affiliates, the 7.0% Preferred Shares and Hybrid Preferred Shares in
an aggregate amount equal to or greater than $150,000,000 pursuant to this
Agreement.

 

“Material Contracts” shall have the meaning specified in Section
3.09.

 

“NYSE” shall mean the New York Stock Exchange, Inc.

 

“NYSE Approval Date” means the date on which the NYSE
Shareholder Approval is obtained.

 

“NYSE Approval Proposal” shall mean the proposal to approve (i)
the designations, preferences, limitations and relative rights set forth on
Annex III of the Hybrid Preferred Statements of Designation, including the
convertibility of the Hybrid Preferred Stock into Common Stock, (ii) the
issuance of all of the shares of Common Stock issuable upon the conversion of
the Hybrid Preferred Stock and (iii) the removal of the restriction on
adjustments to the conversion price of the 7.0% Preferred Stock as set forth in
Section 10 of the 7.0% Preferred Statements of Designation, each in accordance
with the rules of the NYSE or any other U.S. national securities exchange on
which the Common Stock is then listed.

 

5

 

“NYSE Shareholder Approval” shall mean the requisite approval of
the NYSE Approval Proposal, as required by the NYSE or any other U.S. national
securities exchange on which the Common Stock is then listed, by the holders of
the Capital Stock of the Company entitled to vote.

 

“Notice of Acceptance” shall have the meaning specified in Section
5.09(a)(i).

 

“Oaktree” means collectively, OCM Principal Opportunities Fund
IV, L.P., OCM EXCO Holdings, LLC and any other investment fund or account,
whether now in existence or hereafter formed, which is managed or controlled by
Oaktree Capital Management, LLC or any of its affiliates (as such term is
defined in Rule 12b-2 of the Exchange Act), or of which Oaktree Capital
Management, LLC or any of its affiliates is an advisor.

 

“Offer” shall have the meaning specified in Section
5.09(a)(i).

 

“Offered Securities” shall have the meaning specified in Section
5.09(a)(i).

 

“Options” shall mean rights, options or warrants to subscribe
for, purchase or otherwise acquire Common Stock or Convertible Securities.

 

“Parties” shall mean EXCO and each of the Purchasers.

 

“Permitted Business Investments” shall mean investments and
expenditures made in the in the ordinary course of, and of a nature that is or
shall have become customary in, the oil and gas business as means of actively
exploiting, exploring for, acquiring, developing, processing, gathering,
marketing or transporting oil, natural gas, other hydrocarbons and minerals
through agreements, transactions, interests or arrangements that permit one to
share risks or costs, comply with regulatory requirements regarding local
ownership or satisfy other objectives customarily achieved through the conduct
of the oil and gas business jointly with third parties, including (a) ownership
interests in oil, natural gas, other hydrocarbon and mineral properties or gathering,
transportation, processing, storage or related systems, and (b) entry into, and
investments and expenditures in the form of or pursuant to, operating
agreements, joint venture agreements, partnership agreements, working
interests, royalty interests, mineral leases, processing agreements, farm-in
agreements, farm-out agreements, contracts for the sale, transportation or
exchange of oil, natural gas, other hydrocarbons and minerals, production
sharing agreements, development agreements, area of mutual interest agreements,
unitization agreements, pooling arrangements, joint bidding agreements, service
contracts and other similar agreements with third parties.

 

“Person” shall mean any individual, corporation, general
partnership, limited partnership, limited liability partnership, joint venture,
association, joint-stock company, trust, limited liability company,
unincorporated organization or government or any agency or political
subdivision thereof.

 

“Post-Approval Reserve Amount” shall have the meaning specified
in Section 5.02(b).

 

“Pre-Approval Reserve Amount” shall have the meaning specified
in Section 5.02(a).

 

6

 

“Preference Stock” as applied to the Capital Stock of any
Person, shall mean Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends or distributions, or as to
the distribution of assets upon any voluntary or involuntary liquidation or
dissolution of such Person, over shares of Capital Stock of any other class of
such Person.

 

“Preferred Stock” shall mean the 7.0% Preferred Stock and the
Hybrid Preferred Stock.

 

“Prohibited Transaction” shall have the meaning specified in Section
4.09.

 

“Proxy Statement” shall have the meaning specified in Section
5.06.

 

“Purchase Price” shall have the meaning specified in Section
2.01.

 

“Purchased Shares” shall have the meaning specified in the
recitals.

 

“Purchaser Indemnified Parties” shall have the meaning specified
in Section 6.01.

 

“Purchasers” shall have the meaning specified in the preamble.

 

“Refused Securities” shall have the meaning specified in Section
5.09(a)(iii).

 

“Registration Rights Agreements” shall have the meaning
specified in the recitals.

 

“Representatives” of any Person shall mean the officers,
directors, employees, agents and other representatives of such Person.

 

“Reserve Reports” shall have the meaning specified in Section
3.28.

 

“Resources Credit Facility” means the Amended and Restated
Credit Agreement, dated as of March 17, 2006, as amended, by and among the
Company, certain of its Subsidiaries, the lenders defined therein, JPMorgan
Chase Bank, N.A., as Administrative Agent, and J.P. Morgan Securities Inc., as
Sole Bookrunner and Lead Arranger.

 

“SEC Filings” shall have the meaning specified in Section
3.06.

 

“Second Notice of Acceptance” shall have the meaning specified
in Section 5.09(a)(iii).

 

“Second Offer” shall have the meaning specified in Section
5.09(a)(iii).

 

“Securities Act” shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the Commission promulgated
thereunder.

 

“Series A-1 Hybrid Preferred Statement of Designation” shall
mean the Statement of Designation for the Series A-1 Hybrid Preferred Stock
attached hereto as Exhibit B-1.

 

“Series A-1 Hybrid Preferred Stock” shall mean the series of
preferred stock, par value $0.001 per share, of EXCO designated as the “Series
A-1 Hybrid Preferred Stock” having the rights and privileges set forth in the
Series A-1 Hybrid Preferred Statement of Designation.

 

7

 

“Series A-1 7.0% Preferred Statement of Designation” shall mean
the Statement of Designation for the Series A-1 Preferred Stock attached hereto
as Exhibit A-1.

 

“Series A-1 Preferred Stock” shall mean the series of preferred
stock, par value $0.001 per share, of EXCO designated as the “Series A-1 7.0%
Cumulative Convertible Perpetual Preferred Stock” having the rights and
privileges set forth in the Series A-1 7.0% Preferred Statement of Designation.

 

“Series A-2 7.0% Preferred Statement of Designation” shall mean
the Statement of Designation for the Series A-2 Preferred Stock attached hereto
as Exhibit A-2.

 

“Series A-2 Hybrid Preferred Statement of Designation” shall
mean the Statement of Designation for the Series A-2 Hybrid Preferred Stock
attached hereto as Exhibit B-2.

 

“Series A-2 Hybrid Preferred Stock” shall mean the series of
preferred stock, par value $0.001 per share, of EXCO designated as the “Series
A-2 Hybrid Preferred Stock” having the rights and privileges set forth in the
Series A-2 Hybrid Preferred Statement of Designation.

 

“Series A-2 Preferred Stock” shall mean the series of preferred
stock, par value $0.001 per share, of EXCO designated as the “Series A-2 7.0%
Cumulative Convertible Perpetual Preferred Stock” having the rights and
privileges set forth in the Series A-2 7.0% Preferred Statement of Designation.

 

“Series B 7.0% Preferred Statement of Designation” shall mean
the Statement of Designation for the Series B Preferred Stock attached hereto
as Exhibit A-3.

 

“Series B Preferred Stock” shall mean the series of preferred
stock, par value $0.001 per share, of EXCO designated as the “Series B 7.0 %
Cumulative Convertible Perpetual Preferred Stock” having the rights and
privileges set forth in the Series B 7.0% Preferred Statement of Designation.

 

“Series C 7.0% Preferred Statement of Designation” shall mean
the Statement of Designation for the Series C Preferred Stock attached hereto
as Exhibit A-4.

 

“Series C Preferred Stock” shall mean the series of preferred
stock, par value $0.001 per share, of EXCO designated as the “Series C 7.0%
Cumulative Convertible Perpetual Preferred Stock” having the rights and
privileges set forth in the Series C 7.0% Preferred Statement of Designation.

 

“Shareholder Meeting” shall mean the annual or special meeting
of the holders of Common Stock to be called by EXCO for the purpose of
obtaining the NYSE Shareholder Approval.

 

“Shares” shall mean the Purchased Shares and the Conversion
Shares.

 

“Significant Subsidiary” shall mean any Subsidiary that would be
considered a “Significant Subsidiary” of EXCO within the meaning of Rule 1-02
under Regulation S-X promulgated by the Commission.

 

8

 

“Statements of Designation” shall mean the 7.0% Preferred
Statements of Designation and the Hybrid Preferred Statements of Designation.

 

“Subsequent Conversion Shares” shall have the meaning specified
in the recitals.

 

“Subsequent Placement” shall mean an offering or sale of, or the
grant of any Option to purchase, any debt or equity securities (or equity
equivalents) of EXCO or the announcement of any such offer, sale or option
grant; provided that “securities” shall have the meaning set forth in Section
2(1) of the Securities Act.

 

“Subsidiary” shall mean, with respect to any Person, (i) any
corporation, association, partnership or other business entity of which more
than 50% of the total voting power of shares ordinarily entitled to vote in the
election of directors or other members of the governing body of such Person
(other than solely by reason of a contingency) is at the time owned or
controlled, directly or indirectly, by (a) such Person, (b) such Person and one
or more Subsidiaries of such Person or (c) one or more Subsidiaries of such
Person, (ii) a partnership or limited liability company of which such Person or
one of its Subsidiaries is the general partner or managing member, as
applicable, or (iii) any other Person in which such Person has the power to
elect or direct the election of a majority of the directors or other governing
body of such Person.

 

“Survival Period” shall have the meaning specified in Section
7.03(b).

 

“Transaction Documents” shall mean, collectively, this
Agreement, the Registration Rights Agreements, the Escrow Agreement and any and
all other agreements or instruments executed and delivered by the Parties
hereunder or thereunder, or any amendments, supplements, continuations or
modifications thereto.

 

“Transfer” shall mean a transfer, sale, assignment, pledge,
hypothecation or other disposition, whether directly or indirectly.

 

“Transfer Notice” shall have the meaning specified in Section
5.01(a).

 

“Triggering Date” means the earliest of (i) the date of the
first shareholder meeting of EXCO at which the NYSE Approval Proposal is
submitted for shareholder approval and is not approved and adopted by the
requisite vote of the shareholders of EXCO, (ii) the date that is 30 days
following an adjournment of the first shareholder meeting of EXCO called for the
purpose of submitting the NYSE Approval Proposal for shareholder approval and
(iii) March 31, 2008.

 

“Vernon Acquisition” shall have the meaning specified in the
recitals.

 

“Vernon Acquisition Agreement” shall have the meaning specified
in the recitals.

 

“Vernon Acquisition Related Documents” shall mean the Vernon
Acquisition Agreement and the EPOP Credit Facility.

 

Section 1.02           Accounting
Procedures and Interpretation. Unless otherwise specified in this
Agreement, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters under this Agreement shall be
made, and all financial statements 

 

9

 

and
certificates and reports as to financial matters required to be furnished to
the Purchasers under this Agreement shall be prepared, in accordance with GAAP
applied on a consistent basis during the periods involved (except, in the case
of unaudited statements, as permitted by Form 10-Q promulgated by the
Commission) and in compliance as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the Commission with respect thereto.

 

ARTICLE II

SALE AND PURCHASE

 

Section 2.01           Sale and
Purchase. Subject to the terms and conditions of this Agreement and the
Escrow Agreement, EXCO hereby agrees to sell to each Purchaser, and each
Purchaser hereby agrees to purchase from EXCO, the number and series of
Purchased Shares set forth opposite such Purchaser’s name on Schedule A
to this Agreement, and each Purchaser agrees to pay EXCO the purchase price set
forth opposite such Purchaser’s name on Schedule A to this Agreement
(with respect to a particular Purchaser, its “Purchase Price”). The
Parties agree that the certificates representing the Purchased Shares and the
Purchase Price will be held in escrow (the “Escrow”) by the Escrow Agent
and shall be invested and released (the date of such release, the “Escrow
Release Date”) in accordance with the express provisions of the Escrow
Agreement attached to this Agreement as Exhibit H (the “Escrow
Agreement”).

 

Section 2.02           Consideration.
The amount per share for each 7.0% Preferred Share and Hybrid Preferred Share
that each Purchaser will pay to EXCO to purchase its Purchased Shares shall be
$10,000.00.

 

Section 2.03           Closing.
The funding of the Escrow pursuant to this Agreement shall take place at the
offices of Vinson & Elkins L.L.P., 2001 Ross Avenue, Suite 3700, Dallas,
Texas  75201 on the date hereof (the “Funding
Date”). The closing of the purchase and sale of the Purchased Shares
pursuant to this Agreement, subject to the terms and conditions of the Escrow
Agreement (the “Closing”), shall take place at the offices of Fulbright
& Jaworski, 2200 Ross Avenue, Suite 2800, Dallas, Texas 75201, on the
Escrow Release Date (the “Closing Date”).

 

Section 2.04           EXCO
Deliveries. Concurrently with the execution and delivery of this Agreement
and subject to the terms and conditions of this Agreement, EXCO has delivered,
or caused to be delivered, to each Purchaser:

 

(a)           the Registration
Rights Agreements, duly executed by EXCO;

 

(b)           the Escrow Agreement
duly executed by EXCO and the Escrow Agent;

 

(c)           a certificate
evidencing the incorporation and good standing, or the equivalent thereof, of
EXCO and each of its Significant Subsidiaries, issued by the applicable
Governmental Authority of the jurisdiction of its organization;

 

(d)           a side letter of
even date herewith regarding the nomination of Ares and Oaktree designees as
directors, in the form attached as Exhibit G; and

 

10

 

(e)           one or more
management rights agreements as may be reasonably requested by any Purchaser so
that such Purchaser’s acquisition of securities pursuant to this Agreement will
qualify as a “venture capital investment” for purposes of the regulations
issued by the United States Department of Labor at Section 2510.3-101 of Part
2510 of Chapter XXV, Title 29 of the United States Code of Federal Regulations.

 

Additionally,
EXCO has delivered, or caused to be delivered, to the Escrow Agent certificates
representing the Purchased Shares (bearing the legend(s) set forth in Section
5.01(b) and meeting the requirements of the Articles of Incorporation and
the applicable Statement of Designation), free and clear of any Liens.

 

Section 2.05           Purchaser
Deliveries. Concurrently with the execution and delivery of this Agreement
and subject to the terms and conditions of this Agreement, the Purchasers have
delivered, or caused to be delivered, to EXCO:

 

(a)           the Registration
Rights Agreements, duly executed by each Purchaser; and

 

(b)           the Escrow
Agreement, duly executed by each Purchaser.

 

Additionally,
the Purchasers have delivered, or caused to be delivered, to the Escrow Agent
payment of the aggregate Purchase Price by wire transfer(s) of immediately
available funds to the account designated in the Escrow Agreement.

 

Section 2.06           Closing
Deliveries. At the Closing, EXCO shall deliver, or cause to be delivered,
to each Purchaser:

 

(a)           an opinion addressed
to the Purchasers from Vinson & Elkins L.L.P., legal counsel to EXCO,
dated as of the Closing Date, in the form attached to this Agreement as Exhibit E;

 

(b)           an opinion addressed
to the Purchasers from William L. Boeing, Vice President and General Counsel of
EXCO, dated as of the Closing Date, in the form attached to this Agreement as Exhibit F;

 

(c)           copies of the
Statements of Designation filed on or prior to the date of this Agreement and
certified by the Secretary of State of the State of Texas; and

 

(d)           a certificate
executed by the Secretary or an Assistant Secretary of EXCO and dated as of the
Closing Date, in form and substance reasonably acceptable to the Purchasers,
attaching copies of and certifying as to (i) the resolutions adopted by the
Board of Directors of EXCO authorizing the consummation of the transactions
contemplated by the Transaction Documents and (ii) the Articles of
Incorporation of EXCO in effect at the Closing.

 

Section 2.07           Independent
Nature of Purchasers’ Obligations and Rights. The obligations of each
Purchaser under any Transaction Document are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be responsible in
any way for the performance of the obligations of any other Purchaser under any
Transaction Document. The failure or waiver of performance under any
Transaction Document by any Purchaser shall not 

 

11

 

excuse
performance by any other Purchaser. Nothing contained herein or in any other
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association,
a joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement or out
of the other Transaction Documents to which it is a party, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF EXCO

 

EXCO represents and warrants to each of the Purchasers, on and as of
the date of this Agreement (in each case as qualified by matters reflected in
the disclosure schedules dated as of the date of this Agreement and delivered
by EXCO to the Purchasers on or prior to the date of this Agreement (the “EXCO
Disclosure Schedules”)), as follows:

 

Section 3.01           Organization,
Good Standing and Authority. Each of EXCO and its Subsidiaries (a) is an
entity duly organized, validly existing and in good standing (to the extent
such concept exists in the applicable jurisdiction) under the laws of the
jurisdiction of its organization and (b) is duly qualified to do business as a
foreign entity in each jurisdiction in which it conducts business, except where
the failure to so qualify would not reasonably be expected to have an EXCO
Material Adverse Effect. Each of EXCO and its Subsidiaries has all requisite
corporate power and authority to own its properties and to carry on its
business as currently conducted.

 

Section 3.02           Authorization;
Enforceability. EXCO has all requisite power and authority, and has taken
all requisite action on the part of EXCO, its officers, directors and
shareholders, to authorize (a) the execution and delivery of this Agreement and
the other Transaction Documents to which it is a party and the performance of
all obligations of EXCO hereunder or thereunder, (b) the adoption and filing of
the Statements of Designation and the performance of all obligations of EXCO
thereunder, and (c)  the issuance
(or reservation for issuance) of the Purchased Shares, the Initial Conversion
Shares and, subject to the receipt of the NYSE Shareholder Approval, the
Subsequent Conversion Shares, all in accordance with the terms of this
Agreement. This Agreement and each of the other Transaction Documents to which
EXCO is a party has been duly and validly executed and delivered by EXCO and,
assuming the due authorization, execution and delivery by the other parties
hereto and thereto, constitutes the legal, valid and binding obligation of
EXCO, enforceable against EXCO in accordance with its terms, except as may be
limited by (x) applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to or affecting creditors’ rights generally and (y) general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity). Each of the Vernon Acquisition Related Documents has been,
or will be prior to the closing of the Vernon Acquisition, duly and validly
executed and delivered by EXCO, any of its Subsidiaries party thereto and, to
EXCO’s Knowledge, each of the other parties thereto and (a) assuming the due
authorization, execution and delivery by the other parties thereto,
constitutes, or will constitute, 

 

12

 

the
legal, valid and binding obligation of EXCO and any such Subsidiary party
thereto, enforceable against EXCO and any such Subsidiary in accordance with
its terms, and (b) to EXCO’s Knowledge, constitutes, or will constitute, the
legal, valid and binding obligation of each of the other parties thereto,
enforceable against such parties in accordance with its terms, in each case,  except as may be limited by (x) applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors’
rights generally and (y) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).

 

Section 3.03           Capitalization.

 

(a)           As of the date
hereof, the authorized capital stock of EXCO consists of 250,000,000 shares of
Common Stock and 10,000,000 shares of preferred stock, of which 200,000 shares
have been designated Series A-1 Preferred Stock, 200,000 shares have been
designated Series A-2 Preferred Stock, 200,000 shares have been designated
Series B Preferred Stock, 200,000 shares have been designated Series C
Preferred Stock, 200,000 shares have been designated Series A-1 Hybrid
Preferred Stock and 200,000 shares have been designated Series A-2 Hybrid
Preferred Stock. As of the close of business on the Business Day prior to the
date of this Agreement, (i) 104,237,565 shares of Common Stock were issued, all
of which shares were outstanding and none of which shares were held in the
treasury of EXCO, (ii) no shares of preferred stock were issued and outstanding
and (iii) 9,766,524 shares of Common Stock were reserved for issuance pursuant
to EXCO option plans and equity incentive programs as described in the SEC
Filings. On a pro forma basis, as of the Closing Date (assuming that the
Purchased Shares have been issued as set forth on Schedule A hereto and
that no Options have been exercised since the close of business on the Business
Day prior to the date of this Agreement), (1) 104,237,565 shares of Common
Stock will be issued, all of which shares will be outstanding and none of which
shares will be held in the treasury of EXCO, (2)  23,408 shares of Series A-1 Preferred Stock
will be issued and outstanding, (3)  975
shares of Series A-2 Preferred Stock will be issued and outstanding, (4)  11,700 shares of Series B Preferred Stock
will be issued and outstanding, (5) 
2,925 shares of Series C Preferred Stock will be issued and outstanding,
(6)  149,441 shares of Series A-1 Hybrid
Preferred Stock will be issued and outstanding, (7) 11,551 shares of Series A-2
Hybrid Preferred Stock will be issued and outstanding, and (8) 9,766,524 shares
of Common Stock will be reserved for issuance pursuant to EXCO option plans and
equity incentive programs as described in the SEC filings. The issued and
outstanding shares of Common Stock have been duly authorized and validly
issued, are fully paid and nonassessable, were issued in material compliance
with applicable state and federal securities law and were not issued in
violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities.

 

(b)           Except as disclosed
in the SEC Filings filed prior to the date of this Agreement, EXCO and its
Subsidiaries do not have outstanding (i) any options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any shares
of its Capital Stock or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its Capital Stock that have not
otherwise been reserved as described in Section 3.03(a) or (ii) any
bonds, debentures, notes or other obligations the holders of which have the
right to vote (or which are convertible into or exercisable for securities
having the right to vote) with the 

 

13

 

shareholders
of EXCO or any such Subsidiary on any matter submitted to shareholders or a separate
class of holders of Capital Stock.

 

(c)           Except as disclosed
in Section 3.03 of the EXCO Disclosure Schedules, there are no
outstanding contractual obligations of EXCO or any of its Subsidiaries to
provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any Subsidiary or any other Person, other than
guarantees by EXCO of any indebtedness or other obligations of any of its
wholly owned Subsidiaries. EXCO or one of its wholly owned Subsidiaries has the
unrestricted right to vote, and, subject to limitations imposed by applicable
law and the EPOP Credit Facility, to receive dividends and distributions on,
all capital securities of its Subsidiaries that are beneficially owned by EXCO
or its other Subsidiaries.

 

(d)           A true and complete
list of each of EXCO’s Subsidiaries, together with the jurisdiction of
incorporation of each such Subsidiary and the percentage of the outstanding
capital stock or other equity interests of each such Subsidiary owned by EXCO
and each of its other Subsidiaries, is set forth in Section 3.03 of the
EXCO Disclosure Schedules. EXCO does not directly or indirectly own any equity
interest, or any interest convertible into or exchangeable or exercisable for
any equity interest in, any Person except for those Subsidiaries listed on Section
3.03 of the EXCO Disclosure Schedules and Permitted Business Investments.
With respect to each Subsidiary, (i) all the issued and outstanding shares of
such Subsidiary’s capital stock have been duly authorized and validly issued,
are fully paid and nonassessable, were issued in material compliance with
applicable state and federal securities law and were not issued in violation of
or subject to any preemptive rights or other rights to subscribe for or purchase
securities, and (ii) there are no outstanding options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any of such
Subsidiary’s capital stock or equity interests or obligations convertible into,
or any contracts or commitments to issue or sell, shares of such Subsidiary’s
capital stock or equity interests. The issuance and sale of the Purchased
Shares hereunder will not obligate EXCO to issue shares of Common Stock or
other securities to any other Person (other than the Purchasers) and will not
result in the adjustment of the exercise, conversion, exchange or reset price
of any outstanding security.

 

(e)           EXCO does not have
outstanding shareholder purchase rights or “poison pill” or any similar
arrangement in effect giving any Person the right to purchase any equity
interest in EXCO upon the occurrence of certain events.

 

(f)            Except as provided
in (i) that certain First Amended and Restated Registration Rights Agreement,
dated as of December 30, 2005, by and among EXCO and the other Persons party
thereto, and (ii) the Registration Rights Agreements, EXCO is not under any
obligation to register under the Securities Act any of its securities or any
securities issuable upon exercise or conversion of its securities nor is EXCO
obligated to register or qualify any such securities under any applicable state
securities or blue sky laws.

 

Section 3.04           Valid
Issuance. The 7.0% Preferred Shares and the Hybrid Preferred Shares have
been duly and validly authorized and, when issued and paid for pursuant to this
Agreement and the Escrow Agreement, shall be validly issued, fully paid and
nonassessable, shall be free and clear of all Liens (other than those created
by the Purchasers), except for restrictions on transfer set forth in the
Transaction Documents or imposed by applicable 

 

14

 

securities
laws, and shall be entitled to all rights, preferences and privileges described
in the applicable Statement of Designation. The Conversion Shares, upon
conversion of the 7.0% Preferred Shares and/or the Hybrid Preferred Shares,
shall be duly and validly authorized, validly issued, fully paid and
nonassessable, shall be free and clear of all Liens (other than those created
by the Purchasers), except for restrictions on transfer set forth in the
Transaction Documents or imposed by applicable securities laws.

 

Section 3.05           No
Conflicts. The execution, delivery and performance by EXCO of this
Agreement and the other Transaction Documents and the Vernon Acquisition
Related Documents to which it or any of its Subsidiaries is a party, and the
consummation of the transactions contemplated hereby and thereby, including the
issuance of the Purchased Shares and Conversion Shares by EXCO, do not, and
will not, (a) conflict in any material respect with, or result in a
material violation of, any provision of any Law applicable to EXCO or any of
its Subsidiaries, (b) conflict with or result in a violation of any
provision of the Articles of Incorporation or Bylaws of EXCO or the comparable
organizational documents of any of its Subsidiaries or (c) conflict in any
material respect with, result in a material violation or breach of, or
constitute (with or without due notice or lapse of time or both) a material
default (or give rise to any right of termination, cancellation or
acceleration) under or result in the creation of any material Lien on any
property or asset of EXCO or its Subsidiaries (other than Liens permitted under
the EPOP Credit Facility) or in any obligation by EXCO or its Subsidiaries to
purchase or redeem, or offer to purchase or redeem, any Capital Stock or other
securities of EXCO or its Subsidiaries, under any note, bond, mortgage,
indenture or any contract, agreement, lease, license, instrument or other
obligation (each, whether written or oral, a “Contract”)  to which EXCO or any of its Subsidiaries
is a party or by which EXCO or any of its Subsidiaries or any of their
respective properties may be bound. Except as set forth in Section 3.05
of the EXCO Disclosure Schedules, there are no consents, waivers and approvals
under any material Contracts required to be obtained by EXCO or any of its
Subsidiaries in connection with their entering into this Agreement or any other
Transaction Document or Vernon Acquisition Related Document to which EXCO or
any such Subsidiary is a party or the consummation of the transactions
contemplated hereby or thereby.

 

Section 3.06           Approvals.
The execution and delivery by EXCO of this Agreement and the other Transaction
Documents to which it is a party do not, and the performance of its obligations
hereunder and thereunder and the consummation of the transactions contemplated
hereby and thereby by EXCO will not, require any consent, approval,
authorization or permit of, or registration or filing with or notification to,
any Governmental Authority, except (a) approvals required by the Commission in
connection with EXCO’s obligations under the Registration Rights Agreements and
the Proxy Statement, (b) the filing and approval of subsequent listing
applications with the NYSE, (c) the filing of Current Reports on Form 8-K as
required by the Exchange Act, (e) the filing of a Form D under Regulation D
under the Securities Act and any filings required under state securities laws,
(f) in respect of any HSR Purchasers, the pre-merger notification requirements
of the HSR Act and (g) any such consent, approval, authorization, registration,
filing or notification for which the failure to obtain or make would not
reasonably be expected to have an EXCO Material Adverse Effect.

 

15

 

Section 3.07           EXCO SEC
Filings; Financial Statements.

 

(a)           EXCO has filed with
the Commission all forms, registration statements, reports, schedules and
statements and other documents (including exhibits thereto) required to be
filed by it under the Exchange Act, including pursuant to Section 13(a) or
15(d) of the Exchange Act, since February 8, 2006 (such forms, reports,
schedules, statements and other documents, in each case, as amended,
supplemented or superseded, together with the Form 10-K and any documents filed
during such period by EXCO with the Commission on a voluntary basis on Form
8-K, in each case, together with any other information incorporated therein, being
hereinafter referred to as the “SEC Filings”) on a timely basis or has
received a valid extension of such time of filing and has filed such SEC
Filings prior to the expiration of any such extension. The SEC Filings at the
time filed (except to the extent corrected by a subsequently filed SEC Filing
filed prior to the date of this Agreement) (i) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading and
(ii) complied in all material respects with all applicable requirements of
the Exchange Act.

 

(b)           The consolidated
financial statements of EXCO and its consolidated Subsidiaries (including, in
each case, any related notes thereto) contained in the SEC Filings complied as
to form in all material respects with applicable accounting requirements and
with the published rules and regulations of the Commission with respect thereto,
were prepared in accordance with GAAP applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes thereto or, in
the case of the unaudited statements, as permitted by Form 10-Q or the Exchange
Act), and fairly presented the consolidated financial position of EXCO and its
consolidated Subsidiaries in all material respects as at the respective dates
thereof and the consolidated results of operations and cash flows of EXCO and
its consolidated Subsidiaries for the periods indicated (subject, in the case
of the unaudited interim financial statements, to normal audit adjustments).

 

Section 3.08           No
Undisclosed Liabilities. There are no material liabilities or obligations
of EXCO or any of its Subsidiaries of any kind, whether accrued, contingent,
absolute, determinable, known or unknown or otherwise, other than liabilities
and obligations (i) reflected or disclosed in the Form 10-K (including the
consolidated financial statements included therein), (ii) incurred pursuant to
this Agreement and the other Transaction Documents and the transactions
contemplated hereby and thereby and (iii) incurred in the ordinary course of
business consistent with past practice after December 31, 2006 and prior to the
date hereof.

 

Section 3.09           Contracts.
The documents filed with or incorporated by reference in the Form 10-K and the
SEC Filings filed with the Commission after the Form 10-K through the date
hereof, and the Transaction Documents, the Vernon Acquisition Related Documents
and any documents to be entered into in connection with the Vernon Acquisition
prior to the closing of the Vernon Acquisition, comprise all of the agreements
to which EXCO or any of its Subsidiaries is subject  (or will be subject in connection with the
closing of the Vernon Acquisition) that are of a type that would be required to
be included as an exhibit to a Registration Statement on Form S-1 pursuant to
the Securities Act, if such a registration statement were filed by EXCO on the
date hereof (collectively, the “Material Contracts”). 

 

16

 

Neither
the Company nor any of its Subsidiaries is in material breach or violation of
or in material default in the performance or observance of any term or
provision of and no event has occurred which, with lapse of time or action by a
third party, would result in a material default of the Company or any of
its  Subsidiaries under any Material
Contract to which it is a party and (iii) to the Knowledge of EXCO, no other
party thereto is in material breach or violation of or in material default in
the performance or observance of any term or provision of and no event has
occurred which, with lapse of time or action by a third party, would result in
a material default of any other party thereto under any Material Contract.

 

Section 3.10           Absence
of Certain Changes. Except as disclosed in the SEC Filings filed prior to
the date of this Agreement, since December 31, 2006, (a) EXCO and each of its
Subsidiaries have conducted their respective businesses in the ordinary course,
consistent with past practice, and (b) there has not been (i) any EXCO Material
Adverse Effect, (ii) any declaration, setting aside or payment of any dividend
or other distribution (whether in cash, stock or property) with respect to any
of EXCO’s outstanding securities other than regular dividend payments, (iii)
any change in accounting methods, principles or practices by EXCO or any of its
Subsidiaries materially affecting its assets or liabilities, except insofar as
may have been required by Law or by a change in applicable GAAP, (iv) any
sales, pledges, dispositions, transfers, leases, licenses, guarantees or
encumbrances of any material property or assets of EXCO or any of its
Subsidiaries, (v) any material acquisition (including, without limitation, by
merger, consolidation, or acquisition of stock or assets or any other business
combination) by EXCO or any of its Subsidiaries of any corporation,
partnership, other business organization or any division thereof, (vi) any
incurrence by EXCO or any of its Subsidiaries of indebtedness for borrowed
money which, individually or together with all such other indebtedness, exceeds
$75.0 million, (vii) grants of any security interest in any material assets of
EXCO or any of its Subsidiaries, (viii) any capital expenditure or purchase of
fixed assets by EXCO or any of its Subsidiaries other than in the ordinary
course of business consistent with past practice or in accordance with EXCO’s
capital expenditure budget as approved by EXCO’s Board of Directors, (ix) any
change by EXCO or any of its Subsidiaries of any material election in respect
of taxes, any adoption or change by EXCO or any of its Subsidiaries of any
material accounting method in respect of taxes or settlement or compromise by
EXCO or any of its Subsidiaries of any material claim, notice, audit report or
assessment in respect of taxes, (x) any pre-payment of any long-term debt or
payment, discharge or satisfaction of any claims, liabilities or obligations (absolute,
accrued, contingent or otherwise) by EXCO or any of its Subsidiaries, except
for such payments, discharges or satisfaction of claims as were made or
effected in the ordinary course of business consistent with past practice, or
(x) any write up, write down or write off of the book value of any material
assets, or a material amount of any other assets, of EXCO or any of its
Subsidiaries, other than as required by GAAP.

 

Section 3.11           Reporting
Company; Form S-3. EXCO is, and will be immediately after the consummation
of the transaction contemplated by this Agreement and the other Transaction
Documents and the Vernon Acquisition Related Documents, eligible to register
the Shares for resale by the Purchasers on a registration statement on Form S-3
under the Securities Act.

 

Section 3.12           Litigation.
Except as disclosed in the SEC Filings filed prior to the date of this
Agreement, there is no material claim, action, suit, inquiry, judicial or
administrative proceeding or arbitration pending or, to the Knowledge of EXCO,
threatened against EXCO, any 

 

17

 

of
its Subsidiaries or any of their respective assets by or before any arbitrator
or Governmental Authority, nor are there any material reviews or investigations
relating to EXCO, any of its Subsidiaries or any of their respective assets
pending, or to the Knowledge of EXCO, threatened by or before any arbitrator or
Governmental Authority.

 

Section 3.13           Investment
Company Status. EXCO is not, and immediately after receipt of the aggregate
Purchase Price will not be, an “investment company” or an entity “controlled”
by an “investment company” within the meaning of the Investment Company Act of
1940, as amended.

 

Section 3.14           Certain
Fees. Other than the advisory fee to be paid to Goldman Sachs & Co., no
fees or commissions will be payable by EXCO to brokers, finders or investment
bankers with respect to the sale of any of the Purchased Shares or the
consummation of the transactions contemplated by this Agreement.

 

Section 3.15           Compliance
with NYSE Continued Listing Requirements. EXCO’s Common Stock is currently
listed on the NYSE. EXCO is currently in compliance in all material respects
with applicable continued listing requirements of the NYSE, and EXCO has not
received any notice of, nor to the Knowledge of EXCO is there any basis for,
the delisting of the Common Stock from the NYSE.

 

Section 3.16           Compliance
with Laws.

 

(a)           Except as set forth
in the SEC Filings filed prior to the date of this Agreement, neither EXCO nor
any of its Subsidiaries is or has been in conflict in any material respect
with, or in material default or violation of, any Law applicable to EXCO or any
of its Subsidiaries or by which any of their respective properties is bound.

 

(b)           (i) Each of EXCO and
its Subsidiaries has obtained and is maintaining all material federal, state
and local governmental licenses, permits, franchises, orders, exemptions,
variances, waivers, authorizations, certificates, consents, rights, privileges
and applications therefor that are presently necessary or required for the
ownership and operation of its respective business as currently conducted (the
“Governmental Authorizations”), (ii) each of EXCO and its Subsidiaries
have conducted its respective business in all material respects in accordance
with the conditions and provisions of such Governmental Authorizations, and
(iii) no notice of any material violation of any Governmental Authorization has
been received by EXCO or any of its Subsidiaries, and no material claims,
actions, suits, inquiries or other proceedings are pending or, to EXCO’s
Knowledge, threatened that could result in any material modification,
revocation, termination or suspension of any such Governmental Authorizations
or which would require any corrective or remediation action by EXCO or any of
its Subsidiaries.

 

Section 3.17           Offering.
Assuming the accuracy of the representations and warranties of the Purchasers
contained in this Agreement, the sale and issuance of the Purchased Shares
pursuant to this Agreement is exempt from the registration requirements of the
Securities Act.

 

Section 3.18           No
Directed Selling Efforts or General Solicitation. Neither EXCO nor any
Person acting on EXCO’s behalf has sold or offered to sell or solicited any
offer to buy the Purchased Shares by means of any form of general solicitation
or advertising. Neither EXCO 

 

18

 

nor
any of its Affiliates nor any Person acting on EXCO’s behalf has, directly or
indirectly, at any time within the past six months, made any offer or sale of
any security or solicitation of any offer to buy any security under
circumstances that would (a) eliminate the availability of the exemption from
registration under Regulation D under the Securities Act in connection with the
offer and sale of the Purchased Shares as contemplated hereby or (b) cause the
offering of the Purchased Shares pursuant to the Transaction Documents to be
integrated with prior offerings by EXCO for purposes of any applicable Law, including,
without limitation, under the rules and regulations of the NYSE.

 

Section 3.19           Property;
Title to Assets. EXCO and each of its Subsidiaries has good and defensible
title to all of its real and personal property reflected as owned by it in the
SEC Filings, free and clear of all Liens except (a) those, if any, reflected in
the SEC Filings filed prior to the date of this Agreement or (b) those that,
individually or in the aggregate, are not otherwise material. EXCO and each of
its Subsidiaries holds its leased real and personal properties under valid and
binding leases, with such exceptions as are not materially significant in
relation to the business of EXCO and its Subsidiaries taken as a whole. EXCO
and each of its Subsidiaries has good and defensible title in fee simple to, or
has valid rights to lease or otherwise use, all items of real or personal
property currently being used in its respective business that are necessary to
its operations as currently conducted, except as are not materially significant
in relation to the business of EXCO and it Subsidiaries taken as a whole.

 

Section 3.20           Taxes.
EXCO and each of its Subsidiaries has timely filed all federal, state and
material foreign income and franchise tax returns that it was required to file,
or has obtained an extension of time within which to file such tax returns as
allowed by applicable Law. EXCO and each of its Subsidiaries has paid or
accrued all material taxes shown as due on such returns or extensions for
payment have been properly obtained or such taxes are being timely and properly
contested, and neither EXCO nor any of its Subsidiaries has Knowledge of a
material tax deficiency that has been or might be asserted or threatened
against it.

 

Section 3.21           Environmental
Matters. Except as disclosed in the SEC Filings filed prior to the date of
this Agreement, EXCO and each of its Subsidiaries (a) is in material compliance
with all applicable Laws of any Governmental Authority relating to the use,
disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, “Environmental Laws”), (b) have not
generated, manufactured, treated, stored or disposed of any hazardous substances
on any owned or operated (or previously owned or operated) real property,
except in material compliance with all Environmental Laws, (c) are not liable
in any material respect for any off-site disposal or contamination pursuant to
any Environmental Laws and (d) are not subject to any pending material claim
relating to any Environmental Laws, and there is no pending or, to EXCO’s
Knowledge, threatened investigation that might lead to such a claim.

 

Section 3.22           ERISA.
Except as set forth in the SEC Filings filed prior to the date of this
Agreement, neither EXCO nor any of its Subsidiaries maintains or contributes
to, or has any obligation under, any employee benefit plan (as defined in
ERISA) maintained by EXCO for employees of EXCO or any of its Affiliates. EXCO
and each of its Subsidiaries is in compliance in all material respects with the
presently applicable provisions of ERISA.

 

19

 

Section 3.23                                Employee
Matters. There are no strikes, labor disputes or union organization
activities pending or, to EXCO’s Knowledge, threatened between it and its
employees (or between any of its Subsidiaries and such Subsidiary’s employees).
No employees of EXCO or its Subsidiaries belong to any union or collective
bargaining unit. EXCO is in compliance in all material respects with all
applicable federal and state equal opportunity and other laws related to
employment. The transactions contemplated by this Agreement and the other
Transaction Documents and the Vernon Acquisition Related Documents will not
entitle any employee, officer or director of EXCO or its Subsidiaries to any
amount (whether in cash or property) that would be received under any employee
benefit plan or employment contract, or increase the amount of or accelerate
the time of payment of vesting thereof.

 

Section 3.24                                Insurance.
EXCO and each of its Subsidiaries maintains insurance of the types and in the
amounts that EXCO reasonably believes is adequate for their businesses (taking
into account the cost and availability of such insurance), including, but not
limited to, insurance covering all real and personal property owned and leased
by EXCO and each of its Subsidiaries against theft, damage, destruction, acts
of vandalism and all other risks customarily insured against by similarly
situated companies, all of which insurance is in full force and effect as of
the date of this Agreement and will continue to be in effect upon consummation of
the transactions contemplated by this Agreement and the other Transaction
Documents and the Vernon Acquisition Related Documents.

 

Section 3.25                                Internal
Accounting Controls. Except as disclosed in the SEC filings filed prior to
the date of this Agreement, EXCO maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (a) transactions are
executed in accordance with management’s general or specific authorizations,
(b) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (c) access to assets is permitted only in
accordance with management’s general or specific authorization and (d) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.

 

Section 3.26                                Disclosure
Controls. Except as disclosed in the SEC filings filed prior to the date of
this Agreement, EXCO and each of its Subsidiaries maintain an effective system
of “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the
Exchange Act) that is designed to ensure that information required to be
disclosed by EXCO in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the Commission’s rules and forms, including controls and procedures designed
to ensure that such information is accumulated and communicated to EXCO’s
management as appropriate to allow timely decisions regarding required
disclosure. EXCO and each of its Subsidiaries have carried out evaluations of
the effectiveness of their disclosure controls and procedures as required by
Rule 13a-15 of the Exchange Act.

 

Section 3.27                                Sarbanes-Oxley
Act. EXCO is in material compliance with the applicable requirements of the
Sarbanes-Oxley Act of 2002 and the applicable rules and regulations promulgated
by the Commission thereunder in effect as of the date of this Agreement.

 

20

 

Section 3.28                                Oil
and Gas Interests. The oil and gas reserve estimates of EXCO and its
consolidated Subsidiaries as of December 31, 2006 contained in the Form 10-K
are derived from reports  (the “Reserve
Reports”) that have been prepared by, or have been audited by, Lee Keeling
and Associates, Inc., as set forth therein and such estimates fairly reflect
the oil and gas reserves of EXCO and its consolidated Subsidiaries at the dates
indicated therein and are in accordance, in all material respects, with
Commission guidelines applied on a consistent basis throughout the periods
involved. Except for changes generally affecting the oil and gas industry, the
sale of the Wattenberg Field, Colorado properties in January 2007 as disclosed
in the Form 10-K, and any production or any natural decline in production since
the date of the Reserve Reports, there has been no material change with respect
to the matters set forth in or otherwise addressed by such Reserve Reports or
the reserve estimates included in the Form 10-K.

 

Section 3.29                                Board
Approval. The board of directors of EXCO (the “Board of Directors”),
at a meeting duly called and held, has taken unanimous action to (a) duly and
validly approve and take all corporate action required to be taken by the Board
of Directors to authorize the issuance and sale to the Purchasers of the
Shares, the terms of the 7.0% Preferred Stock and the Hybrid Preferred Stock
and the consummation of the transactions contemplated hereby and (b) resolve
that the issuance and sale to the Purchasers of the Shares is advisable and in
the best interests of EXCO and its shareholders.

 

Section 3.30                                Acknowledgment
Regarding Purchasers’ Purchase of EXCO Securities. EXCO acknowledges and
agrees that the Purchasers are acting solely in the capacity of arm’s length
purchasers with respect to this Agreement and the other Transaction Documents
and the transactions contemplated hereby and thereby. EXCO further acknowledges
that the Purchasers are not acting as financial advisors or fiduciaries of EXCO
(or in any similar capacity) with respect to this Agreement and the other
Transaction Documents and the transactions contemplated hereby and thereby and
any advice given by Purchasers or any of their respective representatives or
agents in connection with this Agreement or the other Transaction Documents and
the transactions contemplated hereby and thereby is merely incidental to the
Purchasers’ purchase of the Purchased Shares. EXCO further represents to the
Purchasers that EXCO’s decision to enter into this Agreement and the other
Transaction Documents has been based solely on the independent evaluation of
the transactions contemplated hereby and thereby by EXCO and its
representatives.

 

Section 3.31                                Manipulation
of Price. EXCO has not, and to its Knowledge no Person acting on its behalf
has, in violation of applicable securities Laws, (a) taken, directly or
indirectly, any action designed to cause or to result in the stabilization or
manipulation of the price of any security of EXCO or (b) sold, bid for,
purchased, or paid any compensation for soliciting purchases of, any Common
Stock.

 

Section 3.32                                Vernon
Acquisition. The representations and warranties by EXCO and its
Subsidiaries party thereto and, to its Knowledge, the other parties to the
Vernon Acquisition Agreement are true and correct in all material respects
(other than those representations and warranties that are qualified by
materiality, which are true and correct in all respects). EXCO and its
Subsidiaries have, and to EXCO’s Knowledge the other parties thereto have,
complied in all material respects with all of their respective covenants and
other agreements in the Vernon Acquisition Agreement. Except as contemplated by
that certain First Amendment to Purchase

 

21

 

and Sale Agreement and Assignment of Partial Interest in Purchase and
Sale Agreement, to be executed immediately prior to the closing of the Vernon
Acquisition, neither the Vernon Acquisition Agreement nor any related documents
or agreements have been amended, modified or supplemented in any material
respect, and none of the conditions to the closing of the Vernon Acquisition in
any such document or agreement has been waived. Without limiting the foregoing,
EXCO is not aware of any facts, events or circumstances which, individually or
in the aggregate, currently or with the passage of time, could reasonably be
expected to prevent or materially delay the consummation of the Vernon
Acquisition.

 

Section 3.33                                Borrowing
Base. Immediately after giving effect to the borrowing under the Credit
Facilities on the Closing Date, EXCO shall have immediate availability for
borrowing under the Resources Credit Facility of at least $440,000,000 and the
EPOP Credit Facility of at least $200,000,000.

 

Section 3.34                                Equity
Contribution Agreement. Upon the application of the proceeds from the sale
of the Purchased Shares as set forth in Section 5.03, EXCO will have no
further contribution obligations to EPOP under the Equity Contribution
Agreement and such agreement will be terminated.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER

 

Each
Purchaser, severally and not jointly, represents and warrants to EXCO (solely
with respect to itself), on and as of the date of this Agreement, as follows:

 

Section 4.01                                Organization,
Good Standing and Authority. Such Purchaser is an entity duly organized,
validly existing and in good standing (to the extent such concept exists in the
applicable jurisdiction) under the laws of its respective jurisdiction of
organization and has all requisite power and authority to enter into this
Agreement and each other Transaction Document to which it is a party and to
consummate the transactions contemplated hereby and thereby and otherwise
perform its obligations hereunder and thereunder.

 

Section 4.02                                Authorization;
Enforceability. Such Purchaser has all requisite power and authority, and
has taken all requisite action on the part of such Purchaser, its respective
officers, directors and shareholders, to authorize (a) the execution and
delivery of this Agreement and the other Transaction Documents to which it is a
party and the performance of all obligations of such Purchaser hereunder or thereunder
and (b) the delivery of the Purchase Price. This Agreement and each other
Transaction Document to which such Purchaser is a party has been duly and
validly executed and delivered by such Purchaser and, assuming the due
authorization, execution and delivery by EXCO, constitutes the legal, valid and
binding obligation of each such Purchaser, enforceable against each Purchaser
in accordance with its terms, except as may be limited by (i) applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors’
rights generally and (ii) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).

 

22

 

Section 4.03                                No
Conflicts. The execution, delivery and performance by such Purchaser of
this Agreement and the other Transaction Documents to which it is a party and
the consummation of the transactions contemplated hereby and thereby, including
the purchase of Purchased Shares by such Purchaser, do not, and will not,
(a) conflict with or result in a violation of any provision of any Law
applicable to such Purchaser, (b) conflict with or result in a violation
of any provision of the organizational documents of such Purchaser, or
(c) conflict with, result in a violation or breach of or constitute (with
or without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under any Contract to which
such Purchaser or any of its properties is a party or by which such Purchaser
or any of its properties may be bound.

 

Section 4.04                                Investment.
Such Purchaser is acquiring the Purchased Shares in the ordinary course of
business for its own account for investment and not with a view to distributing
the Purchased Shares (including any shares issuable upon the conversion of such
Purchased Shares) or any part thereof, and such Purchaser has no present
intention of selling or granting any participation in or otherwise distributing
the same in any transaction in violation of the securities laws of the United
States of America, any State or any other Governmental Authority, without
prejudice, however, to such Purchaser’s right at all times, subject to Section
5.01, to sell or otherwise dispose of all or any part of the Purchased
Shares (including any shares issuable upon the conversion of such Purchased
Shares) under a registration statement under the Securities Act and applicable
state securities laws or under an exemption from such registration available
thereunder (including, without limitation, if available, Rule 144
promulgated under the Securities Act).

 

Section 4.05                                Nature
of Purchaser. Such Purchaser (i) is an “accredited investor” within
the meaning of Rule 501 of Regulation D under the Securities Act and
(ii) by reason of its business and financial experience has such
knowledge, sophistication and experience in business and financial matters so
as to be capable of evaluating the merits and risks of the prospective
investment in the Purchased Shares, is able to bear the economic risk of such
investment and would be able to afford a complete loss of such investment.

 

Section 4.06                                Receipt
of Information. Such Purchaser has had an opportunity to receive and review
all information related to EXCO requested by it and to ask questions of and
receive answers from EXCO regarding EXCO, its business and the terms and
conditions of the offerings of the Preferred Stock (although the Purchaser and
EXCO each acknowledges that neither such discussions nor any other due
diligence investigation conducted by the Purchaser or any of its
Representatives modifies, amends or affects EXCO’s representations and
warranties contained in Article III hereof or limits the ability of the
Purchaser to rely thereon). Such Purchaser acknowledges that it has had access
to the SEC Filings filed prior to the date of this Agreement and has been
provided a reasonable opportunity to ask questions of and receive answers from
Representatives of EXCO regarding such matters. Such Purchaser has, in
connection with its decision to purchase the Purchased Shares, not relied on
any information provided by EXCO other than the SEC Filings filed prior to the
date hereof and the representations and warranties of EXCO contained herein and
in the other Transaction Documents.

 

Section 4.07                                Restricted
Securities. Such Purchaser understands that the Purchased Shares are being
offered and sold to it in reliance upon specific exemptions from the
registration

 

23

 

requirements of the Securities Act and state securities laws and that
EXCO is relying upon the truth and accuracy of, and the Purchaser’s compliance
with, the representations, warranties, agreements, acknowledgments and
understandings of the Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of the Purchaser to acquire
the Purchased Shares. Such Purchaser understands that the Purchased Shares it
is purchasing (and any securities issued upon conversion thereof or as
dividends thereon) are “restricted securities” under the federal securities
laws inasmuch as they are being acquired from EXCO in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may not be Transferred without registration under the
Securities Act or pursuant to an exemption therefrom. In this connection,
Purchaser represents that it is knowledgeable with respect to Rule 144 of
the Commission promulgated under the Securities Act and that such Purchaser
shall not Transfer the Shares except in compliance with Section 5.01.

 

Section 4.08                                Certain
Fees. No fees or commissions will be payable by such Purchaser to brokers,
finders or investment bankers with respect to the sale of any of the Purchased
Shares or the consummation of the transaction contemplated by this Agreement.

 

Section 4.09                                Prohibited
Transactions. During the thirty (30) days prior to the date of this
Agreement, no Purchaser nor any Affiliate of such Purchaser that has or shares
discretion relating to such Purchaser’s investments or trading or information
concerning such Purchaser’s investments, including in respect of the Common
Stock has, directly or indirectly, effected or agreed to effect any short sale,
whether or not against the box, established any “put equivalent position” (as
defined in Rule 16a-1(h) under the Exchange Act) with respect to the Common
Stock, granted any other right other than the pledge of securities contemplated
by Section 5.01(b) (including, without limitation, any put or call
option) with respect to the Common Stock or otherwise sought to hedge its
position in the Preferred Stock or Common Stock (each, a “Prohibited Transaction”).

 

ARTICLE V

COVENANTS

 

Section 5.01                                Transfer
Restrictions.

 

(a)                                  The Purchasers may
Transfer Shares only pursuant to an effective registration statement under the
Securities Act or an available exemption from the registration requirements of
the Securities Act and in compliance with any applicable state securities laws
and this Section 5.01. Prior to any Transfer or attempted Transfer of
any Shares other than Transfers (i) pursuant to an effective registration
statement, (ii) pursuant to Rule 144(k) under the Securities Act, (iii) to EXCO
or (iv) to Affiliates of the Transferring holder, the holder of such Shares
shall give five (5) Business Days’ prior written notice (a “Transfer Notice”)
to EXCO of such holder’s intention to effect such Transfer and describing the
manner of the proposed Transfer. A Transfer Notice shall not be required to be
delivered in connection with a Transfer of Shares in any hedging transaction
that does not violate the restrictions in Section 5.11 or result in a
Transfer of record ownership of any Shares. In connection with any Transfer of
Shares other than pursuant to an effective registration statement, pursuant to
Rule 144(k) under the Securities Act, to EXCO, to Affiliates of the
Transferring Holder, or in any hedging transaction that does not violate Section
5.11 or result in a Transfer of record ownership of such

 

24

 

Shares, EXCO may require the transferor to provide to EXCO an  opinion of counsel selected by the
transferor, the form and substance of which opinion shall be reasonably
satisfactory to EXCO, to the effect that such transfer does not require
registration under the Securities Act. EXCO hereby consents to and agrees to
register on the books of EXCO and with its transfer agent any Transfer of
Shares that is made in accordance with this Section 5.01. Other than
Transfers pursuant to an effective registration statement under the Securities
Act, to EXCO or pursuant to Rule 144(k) under the Securities Act, each holder
Transferring Shares will cause any proposed transferee of such Shares or any
interest therein held by it to agree in writing to take and hold such Shares
subject to the provisions and upon the conditions specified in this Section
5.01 of this Agreement and to be bound by the terms of, and entitled to the
rights under, this Agreement as if a party hereto.

 

(b)                                 Notwithstanding the
foregoing, EXCO acknowledges and agrees that the Purchased Shares may be
pledged by a Purchaser or any direct or indirect transferee thereof in
connection with a bona fide margin agreement or other loan or financing
arrangement that is secured by such securities. The pledge of the Shares shall
not be deemed to be a Transfer of such securities hereunder, and no Purchaser
effecting a pledge of such securities shall be required to provide EXCO with
any notice thereof or otherwise make any delivery to EXCO pursuant to this
Agreement or any other Transaction Document, unless otherwise required by
applicable Law. EXCO hereby agrees to execute and deliver such documentation as
a pledgee of the Shares may reasonably request in connection with a pledge of
such securities to such pledgee by a Purchaser.

 

(c)                                  Legends. Each
certificate representing Shares shall bear the following two legends each in the
following form with such additions thereto or changes therein as EXCO may be
advised by counsel are required by Law or necessary to give full effect to this
Agreement:

 

“[NEITHER] THESE SECURITIES [NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE] HAVE [NOT] BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN
REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.”

 

“THESE
SECURITIES [AND THE SECURITIES INTO WHICH THESE
SECURITIES ARE CONVERTIBLE] ARE SUBJECT TO A PREFERRED STOCK
PURCHASE AGREEMENT DATED AS OF MARCH 28, 2007 AMONG THE COMPANY AND THE
PURCHASERS NAMED THEREIN, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION OF THESE SECURITIES MAY BE MADE EXCEPT IN ACCORDANCE WITH THE
PROVISIONS OF SECTION 5.01 OF SUCH PREFERRED STOCK PURCHASE AGREEMENT.
THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE

 

25

 

OF THIS
CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF  SECTION 5.01 OF SUCH PREFERRED STOCK PURCHASE
AGREEMENT AS IF A PARTY THERETO. THE COMPANY WILL FURNISH A COPY OF SUCH PREFERRED
STOCK PURCHASE AGREEMENT TO THE RECORD HOLDER OF THE CERTIFICATE WITHOUT CHARGE
ON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS OR
REGISTERED OFFICE.”

 

Section 5.02                                Reservation
of Common Stock.

 

(a)                                  From the date of this
Agreement until the date of the NYSE Shareholder Approval, EXCO shall authorize
and reserve for issuance to the Purchasers, free from any preemptive rights, a
number of shares of Common Stock (the “Pre-Approval Reserve Amount”)
equal to one hundred percent (100%) of the number of Initial Conversion Shares
issuable upon the conversion of all of the 7.0% Preferred Shares issued at the
Closing. Such calculations shall be made without regard to any limitation on
such conversion that may otherwise exist.

 

(b)                                 Beginning on the date
of the NYSE Shareholder Approval, EXCO shall authorize and reserve for
issuance, free from any preemptive rights, a number of shares of Common Stock
(the “Post-Approval Reserve Amount”) equal to one hundred and ten
percent  (110%) of the of the sum of (i)
the number of Initial Conversion Shares issuable upon conversion of all the
7.0% Preferred Shares outstanding from time to time and (ii) the number of
Subsequent Conversion Shares issuable upon the conversion of all the Hybrid
Preferred Shares outstanding from time to time. Such calculations shall be made
without regard to any limitation on such conversion that may otherwise exist.

 

(c)                                  In the event that the
authorized number of shares of Common Stock is insufficient to cover the
Pre-Approval Reserve Amount or the Post-Approval Reserve Amount, as the case
may be, at any time, EXCO shall take such action (including holding a meeting
of its shareholders) as is necessary to increase the authorized number of
shares of Common Stock to an amount sufficient to cover the Pre-Approval
Reserve Amount or the Post-Approval Reserve Amount, as the case may be.

 

Section 5.03                                Use
of Proceeds. EXCO shall use the proceeds from the sale of the Purchased
Shares to (a) finance the Vernon Acquisition and (b) repay indebtedness in
connection with the Senior Term Credit Agreement, dated October 2, 2006 with
JPMorgan Chase Bank, N.A. and EPOP and the cash common equity contribution to
EPOP in connection with that certain Equity Contribution Agreement, dated
October 2, 2006 (the “EPOP Indebtedness”). EXCO shall use any proceeds
remaining after such uses for general corporate and working capital purposes,
including the repayment of indebtedness under the Resources Credit Facility, as
it may be amended from time to time.

 

Section 5.04                                Disclosure
of Information. EXCO shall, on or before 8:30 a.m., New York, New York
time, on the first trading day following the closing of the Vernon Acquisition,
issue a press release disclosing the transactions contemplated hereby. Within
four (4) Business

 

26

 

Days of the execution and delivery of this Agreement, EXCO shall file a
Current Report on Form 8-K with the Commission (the “8-K Filing”)
describing the terms of the transactions contemplated by the Transaction Documents
and including as exhibits to such Current Report on Form 8-K the Transaction
Documents, as required by the Exchange Act. Thereafter, EXCO shall timely file
any filings and notices required by the Commission or applicable Law with
respect to the transactions contemplated hereby. EXCO shall not, and shall
cause each of its respective officers, directors, employees and agents not to,
provide any Purchaser with any material nonpublic information regarding EXCO
from and after the issuance of the above referenced press release without the
express written consent of such Purchaser. Prior to the completion of the
Vernon Acquisition, no Purchaser shall issue any public release or
announcements concerning the Vernon Acquisition or the transactions
contemplated hereby without the prior consent and approval of EXCO. Except as
may be required by applicable Law or the rules and regulations of the
Commission or the NYSE (in which case prior written notice of such inclusion
shall, to the extent practicable, be provided to such Purchaser), EXCO shall
not include the name of any Purchaser in any press release with respect to the
transactions set forth in the Transaction Documents without the prior written
consent and approval of such Purchaser.

 

Section 5.05                                Listing.

 

(a)                                  EXCO shall (i) use
its best efforts to include all of the Initial Conversion Shares issuable upon
conversion of the 7.0% Preferred Shares for listing on the NYSE if the Common
Stock is then listed on the NYSE or, if the Common Stock is not then listed on the
NYSE, on the primary national securities exchange or automated quotation system
on which the Common Stock is then listed or authorized for quotation  and (ii) promptly following the date of the NYSE
Shareholder Approval, use its best efforts to include all of the Subsequent
Conversion Shares issuable upon conversion of the Hybrid Preferred Shares for
listing on the NYSE if the Common Stock is then listed on the NYSE or, if the
Common Stock is not then listed on the NYSE, on the primary national securities
exchange or automated quotation system on which the Common Stock is then listed
or authorized for quotation.

 

(b)                                 EXCO shall promptly
following September 26, 2007 use its best efforts to include all of the Hybrid
Preferred Shares then outstanding for listing on the NYSE if the Common Stock
is then listed on the NYSE or, if the Common Stock is not then listed on the
NYSE, on the primary national securities exchange or automated quotation system
on which the Common Stock is then listed or authorized for quotation.

 

(c)                                  EXCO shall promptly
following March 30, 2011, use its best efforts to include all of the 7.0%
Preferred Shares and, if after the NYSE Approval Date, all of the shares of
Hybrid Preferred Stock (if not then listed) then outstanding for listing on the
NYSE if the Common Stock is then listed on the NYSE or, if the Common Stock is
not then listed on the NYSE, on the primary national securities exchange or
automated quotation system on which the Common Stock is then listed or
authorized for quotation.

 

Section 5.06                                Proxy
Statement.

 

(a)                                  As promptly as
practicable after execution of this Agreement, EXCO shall, in consultation with
the Major Purchasers, prepare, and EXCO shall file with the Commission,
preliminary proxy materials in compliance with Section 14 of the Exchange Act

 

27

 

(the “Proxy Statement”). As promptly as practicable after
comments, if any, are received from the Commission thereon and after the
furnishing by the Company and the Major Purchasers of all information required
to be contained therein, the Company shall, in consultation with the Major
Purchasers, prepare and the Company shall file any required amendments, if any,
with the Commission. The Company shall notify the Major Purchasers promptly of
the receipt of any comments from the Commission or its staff and of any request
by the Commission or its staff for amendments or supplements to the Proxy
Statement or for additional information and shall consult with the Major
Purchasers regarding, and supply the Major Purchasers with copies of, all
correspondence between the Company or any of its representatives, on the one
hand, and the Commission or its staff, on the other hand, with respect to the
Proxy Statement. Prior to filing or mailing any proposed amendment of or
supplement to the Proxy Statement, the Company shall provide the Major
Purchasers a reasonable opportunity to review and comment on such document. The
Company shall use its best efforts to have the Proxy Statement cleared by the
Commission and shall thereafter mail to the shareholders of EXCO Common Stock
as promptly as possible the Proxy Statement and all other proxy materials for
the Shareholder Meeting.

 

(b)                                 EXCO hereby covenants
and agrees that (i) the Proxy Statement will, when filed, comply as to form in
all material respects with the applicable requirements of the Exchange Act and
(ii) none of the information included or incorporated by reference in the Proxy
Statement will, at the date it is first mailed to the shareholders of EXCO
Common Stock or at the time of the Shareholder Meeting or at the time of any
amendment or supplement thereof, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.

 

Section 5.07                                Shareholder
Approval; Meeting of Shareholders. EXCO shall take, in accordance with
applicable Law and its Articles of Incorporation and Bylaws, all action
necessary to convene the Shareholder Meeting as promptly as practicable but no
later than September 26, 2007 to submit for approval by the requisite vote of
the shareholders of EXCO the NYSE Approval Proposal. In connection with each
meeting of shareholders at which the NYSE Approval Proposal is submitted for a
vote of the shareholders of EXCO, to the fullest extent permitted by applicable
Law, (i) the Board of Directors shall recommend that its shareholders vote in
favor of the NYSE Approval Proposal and (ii) neither the Board of Directors nor
any committee thereof shall withdraw or modify, or propose or resolve to
withdraw or modify in a manner adverse to the holders of the 7.0% Preferred
Stock and/or the Hybrid Preferred Stock, the recommendation of the Board of
Directors that the shareholders of EXCO Common Stock vote in favor of the NYSE
Approval Proposal; provided, that at any time prior to obtaining such
shareholder approval the Board of Directors may withdraw such recommendation if
such Board of Directors determines in good faith (after consultation with
outside counsel) that failure to take such action violates its fiduciary duties
under applicable Law. EXCO shall take all lawful action to solicit from the
shareholders proxies in favor of the NYSE Approval Proposal and take all other
action necessary or advisable to secure the vote or consent of the shareholders
that are required by the rules of the NYSE and applicable Law, including, if
necessary or appropriate, adjourning the Shareholder Meeting to solicit
additional proxies. Following the Triggering Date, EXCO shall not be permitted
to resubmit the NYSE Approval Proposal, except as permitted by the Statements
of Designation.

 

28

 

Section 5.08                                Form
D and Blue Sky. EXCO agrees to file a Form D with respect to the Purchased
Shares as required under Regulation D. EXCO has, prior to the date of this
Agreement, taken all action to obtain an exemption for or to qualify the
Purchased Shares for sale to the Purchasers pursuant to this Agreement under
applicable securities or “blue sky” laws of the states of the United States (or
to obtain an exemption from such qualification). EXCO shall make all filings
and reports relating to the offer and sale of the Purchased Shares required
under applicable securities or “blue sky” laws of the states of the United
States following the Closing Date.

 

Section 5.09                                Subsequent
Placements.

 

(a)                                  Prior to any
Subsequent Placement:

 

(i)                                     EXCO shall deliver
to each holder of Eligible Shares (an “Eligible Purchaser”) a written
notice (the “Offer”) of any proposed Subsequent Placement, which Offer
shall (A) identify and describe the securities to be offered (the “Offered
Securities”), (B) describe the price and other terms upon which the Offered
Securities are to be offered (including the aggregate number or amount of the
Offered Securities to be offered), (C) offer to issue and sell the Offered
Securities to each Eligible Purchaser, and (D) identify an address to which an
Eligible Purchaser may transmit a notice to EXCO setting forth the portion of
the Offered Securities that such Eligible Purchaser elects to purchase (the “Notice
of Acceptance”).

 

(ii)                                  To accept an Offer,
in whole or in part, an Eligible Purchaser must promptly (and in any event not
later than the close of business on the tenth (10th) Business Day after the day
on which the Offer is received by such Eligible Purchaser) deliver a Notice of
Acceptance to EXCO. In the event EXCO timely receives Notices of Acceptance for
an aggregate number or amount of Offered Securities in excess of the number or
amount of Offered Securities to be included in the Subsequent Placement, each
Eligible Purchaser who timely returned its Notice of Acceptance shall be
entitled to purchase up to the number or amount of such Offered Securities (the
“Initial Securities”) equal to the number or amount of Offered
Securities multiplied by a fraction, (A) the numerator of which shall be the
aggregate liquidation preference of all Eligible Shares then held by such
Eligible Purchaser and (B) the denominator of which shall be the sum of the
aggregate liquidation preference of all Eligible Shares held by all Eligible
Purchasers who timely delivered a Notice of Acceptance.

 

(iii)                               In the event EXCO timely
receives Notices of Acceptance for an aggregate number or amount of Offered
Securities less than the number or amount of Offered Securities to be included
in the Subsequent Placement, EXCO shall deliver to each Eligible Purchaser who
timely delivered a Notice of Acceptance pursuant to Section 5.09(a)(ii)
a written notice (the “Second Offer”), which Second Offer shall (A) set
forth the number or amount of Offered Securities not purchased by the Eligible
Purchasers pursuant to Section 5.09(a)(ii) (the “Refused Securities”),
(B) offer to issue and sell the Refused Securities to each such Eligible
Purchaser, and (C) identify an address to which such Eligible Purchaser may
transmit a notice to EXCO setting forth the portion of the Refused Securities
that such Eligible Purchaser elects to purchase (the “Second Notice of
Acceptance”).

 

29

 

(iv)                              To accept a Second Offer,
in whole or in part, an Eligible Purchaser must promptly (and in any event not
later than the close of business on the fifth (5th) Business Day after the day
on which the Second Offer is received by such Eligible Purchaser (the “Acceptance
Date”)) deliver a Second Notice of Acceptance. In the event EXCO timely
receives Second Notices of Acceptance for an aggregate number or amount of
Refused Securities in excess of the number or amount of Refused Securities,
each Eligible Purchaser who timely returned its Second Notice of Acceptance
shall be entitled to purchase, in addition to such Eligible Purchaser’s Initial
Securities, the number or amount of such Refused Securities  equal to the number or amount of Refused
Securities which such Eligible Purchaser has elected to purchase multiplied by
a fraction, (A) the numerator of which is the aggregate liquidation preference
of all Eligible Shares then held by such Purchaser and (B) the denominator of
which is the sum of the aggregate liquidation preference of all Eligible Shares
held by all Purchasers participating in the purchase of the Refused Securities.

 

(v)                                 If the Eligible
Purchasers do not timely elect to acquire all of the Offered Securities on the
terms set forth in the Offer, then EXCO shall have 120 days from the Acceptance
Date to enter into a definitive purchase agreement to sell the Offered Securities
to a third party at a price not less than the price specified in the Offer and
otherwise on terms and conditions that are not materially less favorable to
EXCO than those set forth in the Offer.

 

(vi)                              Any purchase by the
Eligible Purchasers of the Offered Securities is subject in all cases to the
preparation, execution and delivery by EXCO and the Eligible Purchasers of a
definitive purchase agreement relating to such Offered Securities reasonably
satisfactory in form and substance to EXCO and the Eligible Purchasers;
provided that EXCO and the Eligible Purchasers will use their good faith
efforts to negotiate and execute such agreement within 30 days from the
Acceptance Date.

 

(b)                                 The restrictions
contained in Section 5.09(a) shall not apply to (i) equity securities
issued (A) in connection with any issuance of shares or grant of options to
employees, officers, directors or consultants of EXCO or any of its
Subsidiaries pursuant to a stock option plan or other incentive stock plan duly
adopted by the Board of Directors, (B) in connection with the exercise or
conversion of any convertible securities, options or warrants issued and
outstanding as of the date hereof or any Purchased Shares, or (C) in connection
with a bona fide acquisition of another company, the primary purpose of which
is not to raise cash or (ii) debt incurred under any credit facility, including
any syndicated facility, or term loans or notes offered, made or sold in the
credit markets.

 

(c)                                  The rights of an
Eligible Purchaser set forth in this Section 5.09 may not be assigned or
transferred by any Purchaser, including any transferee of any Shares of a
Purchaser, other than to an Affiliate of such Purchaser.

 

Section 5.10                                Designation
of Directors. Concurrently with the Closing, the board of directors of EXCO
shall take action to increase the size of the board of directors by two, and
shall elect Jeffrey Serota and Vincent J. Cebula  as
members of the board of directors as permitted by EXCO’s Bylaws.

 

30

 

Section 5.11                                Prohibited
Transactions. With respect to each particular security the issuance of
which is contemplated by this Agreement, prior to the earlier to occur of the
first anniversary of this Agreement or the effective date of a registration
statement with respect to such security, the Purchasers shall not engage,
directly or indirectly, in a Prohibited Transaction.

 

Section 5.12                                Consents,
Approvals and Filings. Each of the HSR Purchasers and the Company shall use
its commercially reasonable efforts, to make an appropriate filing of a
Notification and Report Form pursuant to the HSR Act with respect to the
transactions contemplated hereby as promptly as practicable and in any event
within ten Business Days after the date hereof and any other required
submissions under the HSR Act, in each case with respect to the transactions
contemplated hereby, and to take all other actions necessary to cause the
expiration or termination of the applicable waiting periods under the HSR Act
as soon as practicable. EXCO shall pay all fees under the HSR Act relating to
the transactions contemplated by this Agreement.

 

Section 5.13                                Further
Assurances. EXCO agrees to execute and deliver, and cause each of its
Subsidiaries to execute and deliver, and each Purchaser agrees to execute and
deliver, such other documents, certificates, agreements and other writings and
to take such other actions as may be necessary or desirable in order to
consummate or implement expeditiously the transactions contemplated by this
Agreement or the other Transaction Documents.

 

ARTICLE VI

INDEMNIFICATION, COSTS AND EXPENSES

 

Section 6.01                                Indemnification
by EXCO. EXCO agrees to indemnify each Purchaser and its officers,
directors, partners, managers, members, affiliates, employees and agents, and
each Person who controls any of the foregoing (within the meaning of Section 15
of the Securities Act and Section 20 of the Exchange Act) and the officers,
directors, partners managers, members, affiliates, employees and agents of each
controlling person (collectively, “Purchaser Indemnified Parties”) from,
and hold each of them harmless against, any and all losses, claims,
liabilities, damages and expenses of any kind or nature whatsoever, including,
without limitation, the reasonable fees and disbursements of counsel and all
other reasonable expenses incurred (and as incurred) in connection with
prosecuting, investigating, defending or preparing to defend any action, suit,
proceeding (including any investigation, litigation or inquiry), demand or
cause of action that may be incurred by them or asserted against or involve any
of them as a result of, arising out of, or in any way related to (x) the breach
of any of the representations, warranties or covenants of EXCO contained herein
or any inaccuracy in the Officer’s Certificate delivered in accordance with the
Escrow Agreement, (y) their participation or involvement in the transactions
contemplated hereby except to the extent resulting from their breach of this
Agreement or (z) claims by third parties relating to the Transaction Documents,
the Vernon Acquisition Related Documents, the use of proceeds from the purchase
and sale of securities hereunder of from any incurrence of indebtedness under
the EPOP Credit Facility, or any transaction or any claim, litigation,
investigation or proceeding relating to any of the foregoing, whether or not
any Purchaser Indemnified Party is or is threatened to be made a party thereto,
and will promptly, upon demand, pay or otherwise reimburse a Purchaser Indemnified
Party for all such amounts as incurred; provided, in the
case of clause (x) only, that such claim

 

31

 

for indemnification relating to a breach of a representation or
warranty is made prior to the expiration of such representation or warranty.

 

Section 6.02                                Certain
Limitations on Indemnification. The rights and remedies of any party in
respect of any inaccuracy or breach of any representation, warranty, covenant
or agreement shall in no way be limited by the fact that the act, omission,
occurrence or other state of facts or circumstances upon which any claim of any
such inaccuracy or breach is based may also be the subject matter of any other
representation, warranty, covenant or agreement as to which there is no
inaccuracy or breach. The representations, warranties and covenants of EXCO and
Purchasers’ rights to indemnification with respect thereto shall not be
affected or deemed waived by reason of any investigation made by or on behalf
of Purchasers (including by any of their respective advisors, consultants or
representatives) or by reason of the fact that any Purchaser or any of such
advisors, consultants or representatives knew or should have known that any
such representation or warranty is, was or might be inaccurate.

 

Section 6.03                                Indemnification
Procedure. Promptly after any Purchaser Indemnified Party has received
notice of any indemnifiable claim hereunder, or the commencement of any action
or proceeding by a third party, which the Purchaser Indemnified Party believes
in good faith is an indemnifiable claim under this Agreement, the Purchaser
Indemnified Party shall give the indemnifying party hereunder (the “Indemnifying
Party”) written notice of such claim describing in reasonable detail the
claim, the amount of the claim (if known and quantifiable) and the basis for
the claim, in each case as such information is reasonably available to such
Purchaser Indemnified Party; provided that the failure to so notify an
Indemnifying Party shall not relieve the Indemnifying Party of its indemnity
obligations under this Agreement except to the extent (and only to the extent
that) the Indemnifying Party has been materially  prejudiced by such failure. Any Indemnifying
Party shall be entitled to participate in the defense of any third-party
action, lawsuit, proceeding, investigation or other claim giving rise to a
Purchaser  Indemnified Party’s claim for
indemnification at such Indemnifying Party’s expense, and at its option
(subject to the limitations set forth below) shall be entitled to assume the
defense of such claim by appointing counsel reasonably acceptable to the
Purchaser Indemnified Party to be the lead counsel in connection with such
defense; provided that the Indemnifying Party shall acknowledge without
qualifications its indemnification obligations as provided in this Article VI
and accept the defense thereof; and provided further that:

 

(a)                                  the Purchaser
Indemnified Party shall be entitled to participate in the defense of such claim
and to employ counsel of its choice for such purpose; provided that the
fees and expenses of such separate counsel shall be borne by the Purchaser
Indemnified Party;

 

(b)                                 the Indemnifying Party
shall not be entitled to assume control of such defense and shall pay the fees and
expenses of counsel retained by the Purchaser Indemnified Party if (i)
reputable counsel reasonably acceptable to both the Purchaser Indemnified Party
and the Indemnifying Party has advised the Indemnifying Party and the Purchaser
Indemnified Party in writing that a reasonable likelihood exists of a conflict
of interest between the Indemnifying Party and the Purchaser Indemnified Party
or (ii) upon petition by the Purchaser Indemnified Party, the appropriate court
rules that the Indemnifying Party failed or is failing to vigorously prosecute
or defend;

 

32

 

(c)                                  if the Indemnifying
Party shall control the defense of any such claim, the Indemnifying Party shall
obtain the prior written consent of the Purchaser Indemnified Party before
entering into any settlement of a claim or ceasing to defend such claim if,
pursuant to or as a result of such settlement or cessation, (i) injunctive or
other equitable relief will be imposed against the Purchaser Indemnified Party
or (ii) such settlement does not expressly and 
unconditionally release the Purchaser Indemnified Party from all
liabilities and obligations with respect to such claim, without prejudice;

 

(d)                                 if the
Indemnifying Party shall control the defense of any such claim, the
Indemnifying Party shall keep the Purchaser Indemnified Party reasonably
informed of the progress of any such defense, compromise or settlement; and

 

(e)                                  if the
Indemnifying Party shall control or assume the defense of any such claim and thereafter
an appropriate court rules that the Indemnifying Party failed or is failing to
vigorously prosecute or defend any such claim, or if the Indemnifying Party
withdraws from such defense, the Purchaser Indemnified Party shall have the
right to undertake the defense or settlement thereof, at the Indemnifying Party’s
expense, and if the Purchaser Indemnified Party assumes the defense of any such
claim pursuant to this Section 6.03(e) and proposes to settle such claim
prior to a final judgment thereon or to forego appeal with respect thereto,
then the Purchaser Indemnified Party shall give the Indemnifying Party prompt
written notice thereof and the Indemnifying Party shall be responsible for
amounts paid to the extent covered by Section 6.01.

 

ARTICLE VII

MISCELLANEOUS

 

Section 7.01                                Interpretation.
Article, Section, Schedule and Exhibit references are to this Agreement,
unless otherwise specified. All references to instruments, documents,
contracts, and agreements are references to such instruments, documents,
contracts and agreements as the same may be amended, supplemented and otherwise
modified from time to time, unless otherwise specified. The word “including”
shall mean “including, without limitation.” 
The Transaction Documents and the Statements of Designation have been
reviewed and negotiated by sophisticated parties with access to legal counsel
and shall not be construed against the drafter.

 

Section 7.02                                Severability.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by virtue of any applicable Law, or due to any
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner so that the transaction contemplated hereby are fulfilled to the extent
possible.

 

Section 7.03                                Survival
of Provisions. The representations and warranties set forth in Sections
3.01, 3.02, 3.03, 3.04, 4.01, 4.02, 4.04,
4.05, 4.06 and 4.07 shall survive the execution

 

33

 

and delivery of this Agreement indefinitely, and the other
representations and warranties set forth in this Agreement shall survive for a
period of eighteen (18) months following the execution and delivery of this
Agreement regardless of any investigation made by or on behalf of EXCO or any
Purchaser (the “Survival Period”). The covenants made in this Agreement
or any other Transaction Document shall survive the closing of the transactions
described herein and remain operative and in full force and effect regardless
of acceptance of any of the Purchased Shares and payment therefor and repayment,
conversion, exercise or repurchase thereof. The obligations to indemnify and
hold harmless a party hereto in respect of a breach of a representation or
warranty shall terminate after the Survival Period; provided, however, that
such obligations to indemnify and hold harmless shall not terminate with
respect to any item as to which a Purchaser 
Indemnified Party shall have, prior to the expiration of the Survival
Period, previously made a claim to the Indemnifying Party in accordance with Article
VI. All indemnification obligations of EXCO and the Purchasers and the
provisions of Article VI shall remain operative and in full force and
effect unless such obligations are expressly terminated in a writing
referencing that individual Section, regardless of any purported general
termination of this Agreement.

 

Section 7.04                                Amendments
and Waivers. The provisions of this Agreement may not be amended, modified
or supplemented, and waivers or consents to departures from the provisions
hereof may not be given, except by the written consent of EXCO and the holders
of record of at least 60% in number of then outstanding shares of Preferred
Stock; provided, however, that, notwithstanding the foregoing, any amendment or
modification of or supplement to this Agreement which would materially and
adversely affect any Purchaser in a manner that is disproportionate to the
other Purchasers will be binding upon and enforceable against such Purchaser
only with its prior written consent. Each holder of record of Shares
outstanding at the time of any such amendment, modification, supplement, waiver
or consent or thereafter shall be bound by any such amendment, modification,
supplement, waiver or consent effected pursuant to this Section 7.04,
whether or not any notice, writing or marking indicating such amendment,
modification, supplement, waiver or consent appears on the Shares or is
delivered to such holder. Any amendment, supplement or modification of or to
any provision of this Agreement, any waiver or any provision of this Agreement,
and any consent to any departure from the terms of any provision of this
Agreement shall be effective only in the specific instance and for the specific
purpose for which made or given. No failure or delay on the part of any party
in exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
right, power or remedy. The remedies provided for herein are cumulative and are
not exclusive of any remedies that may be available to a party at law or in
equity or otherwise.

 

Section 7.05                                Binding
Effect; Assignment. This Agreement shall be binding upon EXCO, each
Purchaser and their respective successors and permitted assigns. Except as
expressly provided in this Agreement, this Agreement shall not be construed so
as to confer any right or benefit upon any Person other than the Parties and
their respective successors and permitted assigns. EXCO shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of each Purchaser. Any Purchaser may assign its rights under this
Agreement to any Person to whom such Purchaser transfers Shares in compliance
with Section 5.01.

 

34

 

Section 7.06                                Notices.
All notices and other communications provided for or permitted hereunder shall
be made in writing and shall be given by registered or certified mail, return
receipt requested, telecopy, air courier guaranteeing overnight delivery or
personal delivery to the following addresses:

 

(a)                                  If
to EXCO:

 

EXCO Resources, Inc.

12377 Merit Drive, Suite 1700

Dallas, Texas 
75251

Attention: 
General Counsel

Telephone: 
(214) 368-2084

Facsimile: 
(214) 706-3409

 

with a copy to:

 

Vinson & Elkins L.L.P.

2001 Ross Avenue, Suite 3700

Dallas, Texas 
75201

Attention: 
Jeffrey A. Chapman

Telephone: 
(214) 220-7797

Facsimile: 
(214) 999-7797

 

(b)                                 If to a Purchaser, to
the address of such Purchaser set forth on the Schedule A hereto;

 

or to such
other address as EXCO or such Purchaser may designate in writing. All notices
and communications shall be deemed to have been duly given: at the time
delivered by hand, if personally delivered; upon actual receipt if sent by
certified mail, return receipt requested, or regular mail, if mailed; when
receipt acknowledged, if sent via facsimile; and upon actual receipt when
delivered by an air courier guaranteeing overnight delivery.

 

Section 7.07                                Removal
of Legend. EXCO shall remove the legends described in Section 5.01(c)
of this Agreement from the certificates evidencing a Purchaser’s Shares, at the
request of a Purchaser who submits to EXCO such certificates, together with an
opinion of counsel to the effect that such legend is no longer required under
the Securities Act or applicable state securities laws, as the case may be,
unless EXCO, with the advice of counsel, determines that opinion is incorrect.

 

Section 7.08                                Entire
Agreement. This Agreement, the Statements of Designation and the other
Transaction Documents are intended by the Parties as a final expression of
their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the Parties hereto in respect of the subject
matter contained herein, superseding all prior agreements and understandings
among the Parties with respect to such subject matter.

 

35

 

Section 7.09                                Governing
Law. This Agreement will be governed by, and construed in accordance with,
the laws of the State of New York without regard to principles of conflicts of
laws.

 

Section 7.10                                Submission
to Jurisdiction. The parties to this Agreement (a) irrevocably submit to
the exclusive jurisdiction of any state or federal courts located in New York
County, New York in connection with any disputes arising out of or relating to
this Agreement and (b) waive any claim of improper venue or any claim that
those courts are an inconvenient forum. The parties to this Agreement agree
that mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 7.06 or in such other
manner as may be permitted by applicable Laws, shall be valid and sufficient
service thereof.

 

Section 7.11                                Counterparts.
This Agreement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which counterparts, when so
executed and delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute one and the same Agreement.

 

Section 7.12                                Headings.
The headings in this Agreement are for convenience of reference only and shall
not limit or otherwise affect the meaning hereof.

 

Section 7.13                                Expenses.
The Parties shall pay their own costs and expenses in connection with the
transactions contemplated by this Agreement, except that EXCO shall pay all
filing fees incurred by the Parties under the HSR Act and the reasonable fees
and expenses of Paul, Weiss, Rifkind, Wharton & Garrison LLP and Latham
& Watkins LLP. EXCO shall also reimburse the Purchasers for their
reasonable and documented due diligence expenses incurred in connection with
the transactions contemplated hereby (but not the fees and expenses of legal counsel
except as set forth in the immediately preceding sentence), provided, that any request for such
expense reimbursement by the Purchasers be accompanied by a detailed invoice
for such amount. If any action at law or equity is necessary to enforce or interpret
the terms of the Transaction Documents, the prevailing party shall be entitled
to reasonable attorney’s fees, costs and necessary disbursements in addition to
any other relief to which such party may be entitled.

 

Section 7.14                                No
Duty to Other Purchasers. Each Purchaser acknowledges that it has not
relied on any other Purchaser, and that no other Purchaser (or any Affiliate or
representative thereof) has acted as a financial advisor or fiduciary of such
Purchaser (or in any similar capacity) and has no duty to such Purchaser with
respect to this Agreement and the other Transaction Documents and the
transactions contemplated hereby and thereby. Each Purchaser confirms with each
other Purchaser that each Purchaser has conducted its own due diligence in
connection with its investment in the Shares and the transactions contemplated
by this Agreement and the other Transaction Documents and the other Purchasers
may therefore have information different from, or additional to, the
information possessed by such Purchaser. In addition, although certain of the
other Purchasers may have shared information received by them (including
information contained in third party reports prepared for such other
Purchasers) with such Purchaser, no representation or warranty is being made
with respect to such information by any such Purchaser or any such third party.
Nothing in this Section 7.14 is meant to limit any duty, obligation or
liability EXCO may have to any Purchaser under this Agreement or otherwise.

 

36

 

Section 7.15                                Counsel
to Purchasers. Each Purchaser acknowledges and agrees that Paul, Weiss,
Rifkind, Wharton & Garrison LLP has acted as counsel only to Oaktree
Capital Management LLC and its related entities and Latham & Watkins LLP
has acted as counsel solely to Ares Management LLC and its related entities in
connection with the execution and delivery of this Agreement and the other
Transaction Documents, and the consummation of the transactions contemplated hereby
and thereby. Neither Paul, Weiss, Rifkind, Wharton & Garrison LLP nor
Latham & Watkins LLP has represented any other Purchaser with respect
thereto and owes no duties to any other Purchaser in connection with such
transactions.

 

Section 7.16                                Disclosure
Schedules. Each reference contained herein to the EXCO Disclosure Schedules
qualifies the referenced representation and warranty to the extent specified
therein and such other representations and warranties contained herein
(regardless of whether or not such representation or warranty contains an
express reference to the EXCO Disclosure Schedules) to the extent a matter in
the EXCO Disclosure Schedules is disclosed in such a way as to make its
relevance to the information called for by such other representation or
warranty readily apparent on its face. Certain information set forth in the
EXCO Disclosure Schedules is included solely for informational purposes, is not
an admission of materiality with respect to the matters covered by the
information, and may not be required to be disclosed pursuant to this
Agreement.

 

[Signature Page Follows]

 

37

 

IN WITNESS
WHEREOF, the Parties hereto execute this Agreement, effective as of the date
first above written.

 

	
   

  	
  EXCO
  RESOURCES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ J.
  Douglas Ramsey, Ph.D.

  	
   

  
	
   

  	
  Name:

  	
  J. Douglas
  Ramsey, Ph.D.

  
	
   

  	
  Title:

  	
  Vice
  President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  *See
  attached schedule of Purchasers

  

 

SIGNATURE PAGE

PREFERRED STOCK PURCHASE AGREEMENT

 

 

SCHEDULE
OF PURCHASERS

 

OCM PRINCIPAL
OPPORTUNITIES FUND IV, L.P.

OCM EXCO
HOLDINGS, LLC

ARES CORPORATE
OPPORTUNITIES FUND, L.P.

ACOF EXCO,
L.P.

ACOF EXCO 892
INVESTORS, L.P.

ARES CORPORATE
OPPORTUNITIES FUND II, L.P

ARES EXCO,
L.P.

ARES EXCO 892
INVESTORS, L.P.

GREENHILL
CAPITAL PARTNERS II, L.P.

GREENHILL
CAPITAL PARTNERS (CAYMAN) II, L.P.

GREENHILL
CAPITAL PARTNERS (EXECUTIVES) II, LP.

GREENHILL
CAPITAL PARTNERS (EMPLOYEES) II, LP.

FARALLON
CAPITAL PARTNERS, L.P.

FARALLON
CAPITAL INSTITUTIONAL PARTNERS, L.P.

FARALLON CAPITAL
INSTITUTIONAL PARTNERS II. L.P.

FARALLON
CAPITAL INSTITUTIONAL PARTNERS III, L.P.

TINICUM
PARTNERS, L.P.

FIDELITY
ADVISOR SERIES II: FIDELITY ADVISOR HIGH INCOME ADVANTAGE

PENSION INVESTMENT COMMITTEE OF GENERAL MOTORS FOR GENERAL

MOTORS EMPLOYEES DOMESTIC GROUP PENSION TRUST

FIDELITY ADVISOR SERIES I: 
FIDELITY ADVISOR LEVERAGED COMPANY

STOCK FUND

FIDELITY
SECURITIES FUND:  FIDELITY LEVERAGED
COMPANY STOCK FUND

FIDELITY
FINANCIAL TRUST:  FIDELITY CONVERTIBLE
SECURITIES FUND

CREDIT SUISSE
SECURITIES (USA) LLC

BEAR, STEARNS
& CO. INC.

LB I GROUP
INC.

THIRD POINT
PARTNERS LP

THIRD POINT
PARTNERS QUALIFIED LP

THIRD POINT
OFFSHORE FUND, LTD.

THIRD POINT
ULTRA LTD.

OHSF
FINANCING, LTD.

OHSF FINANCING
II, LTD.

OAK HILL
CREDIT OPPORTUNITIES FINANCING, LTD.

OAK HILL
CREDIT ALPHA FINANCE I, L.P.

OAK HILL
CREDIT ALPHA FINANCE I (OFFSHORE), LTD.

LERNER
ENTERPRISES, L.P.

AMERICAN
GENERAL LIFE INSURANCE COMPANY

AMERICAN
INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK

AIG LIFE
INSURANCE COMPANY

THE UNITED
STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK

THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY

 

 

AMERICAN
INTERNATIONAL GROUP, INC. RETIREMENT PLAN

SUNAMERICA
INCOME FUNDS –SUNAMERICA STRATEGIC BOND FUND

SEASON SERIES
TRUST – STRATEGIC FIXED INCOME PORTFOLIO

SUNAMERICA
INCOME FUNDS –SUNAMERICA HIGH YIELD BOND FUND

VALIC COMPANY
II – STRATEGIC BOND FUND

VALIC COMPANY
II – HIGH YIELD BOND FUND

SUNAMERICA
SERIES TRUST – HIGH YIELD BOND PORTFOLIO

CYRUS
OPPORTUNITIES MASTER FUND II, LTD.

CYRUS SHORT
CREDIT MASTER FUND, LTD.

CRS FUND, LTD.

KINGS ROAD
INVESTMENT LTD.

STRATEGIC
CO-INVESTMENT PARTNERS,   L.P.

PARTNERS GROUP
ACCESS 12, L.P.

STOCKWELL
FUND, L.P.

AIG ANNUITY
INSURANCE COMPANY

MERIT LIFE
INSURANCE CO.

AIG LIFE
INSURANCE COMPANY

AMERICAN
INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK

AMERICAN
GENERAL ASSURANCE COMPANY

AMERICAN
GENERAL LIFE INSURANCE COMPANY

BARCLAYS BANK
PLC

SILVER POINT
CAPITAL OFFSHORE FUND, LTD

SILVER POINT
CAPITAL  FUND, L.P.

SPCP GROUP
III, LLC

APOLLO
INVESTMENT CORPORATION

BLACKROCK GLOBAL
SERIES HIGH YIELD BOND FUND

BLACKROCK
FUNDS – HIGH YIELD BOND PORTFOLIO

MET INVESTORS
ADVISORY L.L.C.

BLACKROCK HIGH
INCOME FUND OF BLACKROCK BOND FUND, INC.

BLACKROCK HIGH
INCOME PORTFOLIO

BLACKROCK HIGH
INCOME V.I. FUND

MLIIF US
DOLLAR HIGH YIELD BOND FUND

MANAGED
ACCOUNT SERIES; HIGH                               INCOME
PORTFOLIO

MULTI-STRATEGY
FIXED INCOME ALPHA MASTER SERIES TRUST

MAGNETITE
ASSET INVESTORS III, L.L.C.

THE GALAXITE
MASTER UNIT TRUST

BLACKROCK
FINANCIAL MANAGEMENT,

SOLELY IN ITS
CAPACITY AS

INVESTMENT ADVISOR OF THE

OBSIDIAN MASTER FUND, A SUB-TRUST

OF THE OBSIDIAN MASTER SERIES TRUST

BLACKROCK
CORPORATE HIGH YIELD FUND, INC.

BLACKROCK
CORPORATE HIGH YIELD FUND III, INC.

BLACKROCK
CORPORATE HIGH YIELD FUND V, INC.

BLACKROCK
CORPORATE HIGH YIELD FUND VI, INC.

 

 

MERRILL LYNCH GLOBAL INVESTMENT SERIES: INCOME STRATEGIES

PORTFOLIO

BLACKROCK DEBT
STRATEGIES FUND, INC.

BLACKROCK
DIVERSIFIED INCOME STRATEGIES FUND, INC.Exhibit 10.3

 

EXCO
Resources, Inc.

12377
Merit Drive, Suite 1700, LB 82

Dallas, TX 75251

 

March 28, 2007

 

OCM Principal Opportunities Fund IV, L.P.

OCM EXCO Holdings, LLC

c/o Oaktree Capital Management, LLC

333 South Grand Avenue, 28th Floor

Los Angeles, CA 90071

 

Re:                               Nomination
of Designee to the Board of Directors

 

Ladies and Gentlemen:

 

Reference is made to that
certain Preferred Stock Purchase Agreement (the “Purchase Agreement”),
dated as of the date hereof, by and among EXCO Resources, Inc. (“EXCO”) and
the Purchasers named therein.  All
capitalized terms used but not otherwise defined herein shall have the
respective meanings set forth in the Purchase Agreement.  For purposes of this letter, “Oaktree”
means, collectively, OCM Principal Opportunities Fund IV, L.P. (“POF IV”),
OCM EXCO Holdings, LLC (“Holdings”) and any other investment fund or
account, whether now in existence or hereafter formed, which is managed or
controlled by Oaktree Capital Management, LLC (“OCM”) or any of its
affiliates (as such term is defined in Rule 12b-2 of the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder),
or of which OCM or any of its affiliates is an advisor.

 

This is the letter
referred to in Section 2.04(d) of the Purchase Agreement.  EXCO hereby agrees, subject to the fiduciary
duties of its board of directors, for the benefit of POF IV and Holdings that following
such time when (i) Oaktree ceases to have the right to elect a director to
serve on the Board of Directors pursuant to Section 5(c) of the Series B
7.0% Preferred Statement of Designation and (ii) there ceases to be 25% or more
of the Initial Preferred Shares (as defined in the Statements of Designation) outstanding,
EXCO shall cause an individual designated by POF IV (or its designee) to be
nominated for election to serve on the Board of Directors at any annual meeting
of the shareholders or special meeting held to elect directors, for so long as
Oaktree beneficially owns an aggregate of at least 10,000,000 shares of Common
Stock (including, without limitation, Common Stock issuable upon conversion or
exchange of Convertible Securities), subject to adjustment to reflect stock
dividends, stock splits, stock combinations and other similar events occurring
after the date hereof.  In no respect
shall this letter obligate EXCO or its directors to recommend that its
shareholders elect such individual or impair their power and ability to
recommend that its shareholders not elect such individual.

 

 

This letter is being
executed in connection with the Purchase Agreement, and Sections 7.01, 7.02,
7.06, 7.08 and 7.10 of the Purchase Agreement are incorporated by reference
herein.  This letter shall be governed
by, and construed in accordance with, the laws of the State of Texas without
regard to principles of conflicts of law. 
The terms of this letter may not be amended, modified or supplemented,
and waivers or consents to departures from the terms hereof may not be given,
except by the written consent of all of the parties hereto.  This letter may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts together shall constitute one
and the same instrument.

 

[Signature Page Follows]

 

2

 

If the foregoing
accurately sets forth our understanding, please acknowledge by signing in the
space provided below.

 

	
   

  	
  Sincerely,

  
	
   

  	
   

  
	
   

  	
  EXCO RESOURCES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ J. Douglas Ramsey, Ph.D.

  	
   

  
	
   

  	
   

  	
  Name: J. Douglas Ramsey, Ph.D.

  
	
   

  	
   

  	
  Title: Vice President and Chief Financial

  Officer

  

 

SIGNATURE PAGE

SIDE LETTER

 

 

Agreed to and accepted

as of the date set forth above

 

OCM PRINCIPAL OPPORTUNITIES FUND IV, L.P.

 

	
  By:

  	
  OCM Principal Opportunities Fund IV GP, L.P.

  	
   

  
	
  Its:

  	
  General Partner

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  OCM Principal Opportunities Fund IV GP
  Ltd.

  	
   

  
	
  Its:

  	
  General Partner

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  Oaktree Capital Management, LLC

  	
   

  
	
  Its:

  	
  Sole Director

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Vincent J. Cebula

  	
   

  	
   

  
	
   

  	
  Name: Vincent J. Cebula

  	
   

  
	
   

  	
  Title:   Managing Director

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald N. Beck

  	
   

  	
   

  
	
   

  	
  Name: Ronald N. Beck

  	
   

  
	
   

  	
  Title:   Managing Director

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  OCM EXCO HOLDINGS, LLC

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  Oaktree Capital Management, LLC

  	
   

  
	
  Its:

  	
  Manager

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kenneth Liang

  	
   

  	
   

  
	
   

  	
  Name: Kenneth Liang

  	
   

  
	
   

  	
  Title:   Managing Director

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Lisa Arakaki 

  	
   

  	
   

  
	
   

  	
  Name: Lisa Arakaki

  	
   

  
	
   

  	
  Title:   Senior
  Vice President, Legal

  	
   

  
								

 

SIGNATURE PAGE

SIDE LETTER

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