<PAGE> 1
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
AUGUST 13, 1998
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
EXCO RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
STATE OF TEXAS 0-9204 74-1492779
(STATE OF INCORPORATION) (COMMISSION FILE NO.) (IRS EMPLOYER
IDENTIFICATION NO.)
5735 PINELAND DRIVE
SUITE 235
DALLAS, TEXAS 75231
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 368-2084
===============================================================================
<PAGE> 2
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
On August 12, 1998, at 5:00 p.m. Dallas, Texas time, the EXCO Resources, Inc.
("EXCO") rights offering to existing shareholders (the "Rights Offering")
expired. On August 13, 1998, pursuant to standby purchase agreements, Ares
Management, L.P. ("Ares") and Oaktree Capital Management, LLC ("Oaktree")
purchased an aggregate of 2,112,491 shares (collectively, the "Purchase") of
EXCO's common stock, par value $.02 per share (the "Common Stock"), not
purchased by existing shareholders in the Rights Offering. Prior to the Rights
Offering, control of EXCO effectively rested in the hands of three directors,
Douglas H. Miller ("Mr. Miller"), who owned 34.8% of EXCO's voting securities
prior to the Rights Offering, T.W. Eubank ("Mr. Eubank"), who owned 8.4% of
EXCO's voting securities prior to the Rights Offering, and Earl E. Ellis ("Mr.
Ellis"), who owned 8.4% of EXCO's voting securities prior to the Rights
Offering. The Rights Offering and the Purchase resulted in an effective change
of control of EXCO as the share ownership of EXCO's management was diluted. Mr.
Miller currently owns approximately 6.2% of EXCO's voting securities (including
shares purchased pursuant to the Rights Offering). Mr. Eubank currently owns
approximately .9% of EXCO's voting securities (including shares purchased
pursuant to the Rights Offering). Mr. Ellis currently owns approximately 1.5% of
EXCO's voting securities (including shares purchased pursuant to the Rights
Offering).
Pursuant to a standby purchase agreement Ares purchased 1,112,491 shares of
Common Stock. Ares currently owns approximately 17% of EXCO's voting
securities. Oaktree purchased 1,000,000 shares of Common Stock pursuant to a
standby purchase agreement. Oaktree currently owns approximately 15.3% of EXCO's
voting securities.
Furthermore, as a condition to the Purchase, EXCO granted both Ares and Oaktree
the right to nominate one person to serve on the Board of Directors of EXCO. On
August 18, 1998, EXCO's Board of Directors was expanded from seven to nine
members and two nominees were elected to the Board of Directors to fill the
newly created positions. Messrs. Jeff M. Moore ("Mr. Moore") and Jeffrey D.
Benjamin ("Mr. Benjamin"), representatives of Ares and Oaktree, respectively,
will serve as new directors of EXCO.
Mr. Moore is a founding principal of Ares. Prior to founding Ares, Mr. Moore was
a limited partner of Apollo Advisors, L.P. and Lion Advisors, L.P. which are
general partners of Apollo Investment Fund, L.P. and AIF II, L.P. respectively.
From 1990 until joining Apollo, Mr. Moore was Vice President-Investment
Management at First Executive Corporation where he was responsible for the
management of a diversified fixed income portfolio.
Since May 1998, Mr. Benjamin has been Co-Chief Executive Officer of Libra
Investment, Inc., an investment banking firm. From May 1996 to May 1998, Mr.
Benjamin was Managing Director at UBS Securities LLC, a securities investment
firm. From January 1996 to May 1996, Mr. Benjamin was a Managing Director at
Bankers Trust Company, a financial services company. From 1992 to January 1996,
Mr. Benjamin was an officer of Apollo Capital Management, Inc. and Lion Capital
Management, Inc., which act as general partners to Apollo Advisors, L.P. and
Lion Advisors, L.P., respectively. Mr. Benjamin is also a director of
Multigraphics, Inc., which provides equipment, supplies and service to the
worldwide graphics markets.
- 2 -
<PAGE> 3
The Rights Offering (including the Purchase) resulted in the sale of 5,943,360
shares of the Company's Common Stock at $6.00 per share for total gross proceeds
to the Company in the amount of approximately $35.7 million (net $35.5 million).
There are 6,537,696 shares of Common Stock outstanding as of August 13, 1998. To
the extent EXCO raised proceeds from the Rights Offering, EXCO intends to first
repay its indebtedness and then fund the Gladstone Merger, as defined in the
EXCO registration statement. Any excess proceeds will be initially invested in
short term, interest bearing debt obligations of the federal government or
investment grade corporate borrowers and certificates of deposit and similar
federally insured obligations. EXCO intends to use a majority of the remaining
net proceeds of the Rights Offering to fund future acquisitions consistent with
its business strategy including: the direct purchase of working and royalty
interests in developed and undeveloped oil and gas properties, interests in gas
gathering pipelines and systems, interests in oil field service equipment, and
interests in refineries. The acquisitions may include the purchase of debt and
equity securities in companies which own any or all of the assets listed above.
EXCO also intends to fund other general corporate working capital requirements
including oil and natural gas leasing activity, drilling and workover projects
and other exploitation and development activities.
<TABLE>
<CAPTION>
AMOUNTS
--------------
(in millions)
<S> <C>
SOURCES
$ 35.7
Common Stock......................................................................................... -------------
$ 35.7
Total .............................................................................. =============
USES
Gladstone Merger..................................................................................... $ 1.4
Repay indebtedness(1) ............................................................................... 5.7
Working capital ..................................................................................... .5
Future acquisitions ................................................................................. 21.4
Development drilling and recompletions .............................................................. 6.5
Rights Offerings expenses(2) ........................................................................ .2
-------------
Total .............................................................................. $ 35.7
=============
</TABLE>
- -----------------------
(1) Includes repayment of approximately $5.7 million outstanding under EXCO's
Credit Facility including $600,000 borrowed on February 11, 1998 as a
result of the Maverick County Acquisition, $900,000 borrowed on May 8,
1998 as a result of the Jacobi-Johnson Acquisition, and $3.5 million
borrowed in June 1998 to fund the Dawson County Acquisition, all as
defined in the registration statement.
(2) Represents estimated expenses attributable to the Rights Offering.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Required.
Not applicable.
- 3 -
<PAGE> 4
(b) Pro Forma Financial Information.
Not applicable.
(c) Exhibits.
(1) Standby Purchase Commitment dated July 16, 1998
between EXCO Resources, Inc. on the one hand and Ares
Management, L.P. on behalf of Ares Leveraged
Investment Fund, L.P. on the other hand.
(2) Standby Purchase Commitment dated July 16, 1998
between EXCO Resources, Inc. on the one hand and
Oaktree Capital Management, LLC on behalf of OCM
Principal Opportunities Fund, L.P. on the other hand.
- 4 -
<PAGE> 5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EXCO RESOURCES, INC.
By: /s/ J. DOUGLAS RAMSEY
--------------------------------
Name: J. Douglas Ramsey
Title: Chief Financial Officer
Dated: August 25, 1998
- 5 -
<PAGE> 6
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
(1) Standby Purchase Commitment dated July 16, 1998 between EXCO Resources,
Inc. on the one hand and Ares Management, L.P. on behalf of Ares
Leveraged Investment Fund, L.P. on the other hand.
(2) Standby Purchase Commitment dated July 16, 1998 between EXCO Resources,
Inc. on the one hand and Oaktree Capital Management, LLC on behalf
of OCM Principal Opportunities Fund, L.P. on the other hand.
</TABLE>
<PAGE> 1
EXHIBIT 1
July 16, 1998
Ares Management, L.P.
1999 Avenue of the Stars
Suite 1900
Los Angeles, California 90067
Attn: Jeff Moore
Re: Standby Purchase Commitment
Gentlemen:
EXCO Resources, Inc., a Texas corporation (the "Company"), hereby
confirms its agreement with Ares Management, L.P., on behalf of Ares Leveraged
Investment Fund, L.P. (the "Purchaser") as follows:
1. Offering of Rights to Purchase Common Stock. As described in that
certain Prospectus (herein so called) of the Company, dated July 16, 1998, the
Company distributed (the "Rights Offering") to all of its recordholders of
Common Stock, par value $0.02 per share (the "Common Stock"), the right (each a
"Right" and collectively, the "Rights") to purchase authorized but unissued
shares of Common Stock at an exercise price of $6.00 per share (the "Exercise
Price"). The shares of Common Stock which are issuable upon exercise of the
Rights are herein called the "Rights Shares." All unexercised Rights will expire
at the close of business on August 12, 1998 (the "Expiration Date").
One of the components of the Rights Offering is a standby commitment
(the "Standby Commitment") to exercise any Rights which have not been exercised
at or prior to the close of business on the Expiration Date. Subject to the
terms and conditions hereinafter set forth, Purchaser hereby assumes the Standby
Commitment and agrees to exercise any and all Rights which would otherwise
expire unexercised on the Expiration Date (up to a maximum of 2 million Rights)
at a price equal to the Exercise Price. The shares of Common Stock purchased
pursuant to the Standby Commitment are hereinafter referred to as the "Standby
Shares."
2. Representations and Warranties of the Company. The Company
represents, warrants and agrees that:
(a) The Company is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith has timely filed documents (the
"Exchange Act Documents") with the Securities and Exchange Commission
(the "Commission") since December 1, 1997. At the time such Exchange
Act Documents were filed with the Commission, they complied in all
material respects with the requirements of the Exchange Act and the
rules and regulations of the Commission thereunder (the "Rules and
Regulations"), and did not include an
<PAGE> 2
July 16, 1998
Page 2
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 the light of the circumstances under which they
were made, not misleading, and any Exchange Act Documents hereafter
filed will, when they are filed with the Commission, comply in all
material respects with the requirements of the Exchange Act and the
Rules and Regulations, and will not include an untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they are made, not misleading.
(b) Since the date of the Company's most recent Exchange Act
Document, there is no material fact, circumstance or event with respect
to the Company or any of its subsidiaries that has had or may be
expected to have a material adverse effect on the business, properties,
condition (financial or other) or results of operations of the Company
and its subsidiaries taken as a whole.
(c) The issued and outstanding shares of Common Stock of the
Company and the shares of Common Stock issuable upon exercise of the
Rights have been duly authorized. The issued and outstanding shares of
Common Stock of the Company are validly issued and outstanding, fully
paid and non-assessable, with no personal liability attaching to the
ownership thereof. There are no issued or outstanding shares of
Preferred Stock, par value $0.01 per share, of the Company. There is
not any preemptive or other right to subscribe for or to purchase, or
any lien, charge, encumbrance, restriction on voting or transfer of, or
any other claim of any third party on, any issued and outstanding
shares of Common Stock or the Rights Shares, pursuant to the Company's
corporate charter or by-laws or any agreement or other instrument to
which the Company is a party or by which the Company may be bound. The
capitalization of the Company as of the date hereof and the anticipated
capitalization of the Company after the completion of the Rights
offering are set forth in the Capitalization section of the Prospectus.
(d) The Standby Shares will, when issued and sold to the
Purchaser as contemplated hereby, be validly authorized, issued and
outstanding, fully paid and non-assessable with no personal liability
attaching to the ownership thereof and will conform to the description
of the Common Stock contained in the Exchange Act Documents.
(e) Each Right is convertible into one share of Common Stock.
(f) As of the close of business on the second business day
preceding the date hereof, there were 594,336 shares of Common Stock
outstanding; the exercise of all the Rights has been duly authorized by
the Company.
(g) This Agreement has been duly authorized, executed and
delivered by the Company, constitutes the valid and binding agreement
of the Company and is enforceable against the Company in accordance
with its terms. No further approval or authorization of the
shareholders or the Board of Directors of the Company or any other
entity will be required for the issuance and sale of Common Stock
referred to in subparagraph (d) above. Neither such issuance nor the
consummation of any other
<PAGE> 3
July 16, 1998
Page 3
transactions herein contemplated will result in a breach by the Company
of any terms of, or constitute a default under, any other agreement or
undertaking of the Company, which breach or default might be expected
to have a material adverse effect on such Common Stock, the Company or
the transactions contemplated herein. Other than as contemplated
herein, no person has the right to require the Company or any
subsidiary of the Company to register any capital stock for offering
and sale under the Securities Act of 1933, as amended (the "SECURITIES
ACT").
(h) The Company and its subsidiary each have been duly
incorporated and each is a validly existing corporation in good
standing under the laws of its jurisdiction of incorporation and is
duly qualified and in good standing in each jurisdiction in which its
ownership of property or the conduct of its business requires such
qualification (except where the failure to so qualify would not have a
material adverse effect upon the Company and its subsidiary taken as a
whole). The Company and its subsidiary each have the corporate power
and authority and holds all valid permits and other required
authorizations from governmental authorities necessary to carry on
business as now conducted and as to be conducted on the Delivery Date
(as hereinafter defined) except such permits and authorizations that
are not singly or in the aggregate, material to the Company and its
subsidiary taken as a whole; neither entity has received any notice
relating to the revocation or modification of any such permits or
authorizations that are singly or in the aggregate material to the
Company and its subsidiary taken as a whole.
(i) Except as described in the Exchange Act Documents, there
is no action, suit or proceeding pending before any court, arbitrator
or governmental body, nor, to the knowledge of the Company, is any such
action threatened, which (i) might affect the consummation of the
transactions contemplated by this Agreement, (ii) is required to be
disclosed under the Exchange Act or the Rules and Regulations or, in
the case of any threatened action, would be required to be so disclosed
if such action were pending or (iii) would be likely to result in any
material adverse change in the financial position, results of
operations or business of the Company and its subsidiaries taken as a
whole.
3. Representations and Warranties of Purchaser. The Purchaser
represents and warrants that it is purchasing the Standby Shares for its own
account and not with any intention of selling or transferring the Standby Shares
in violation of the Securities Act, subject, nevertheless, to the understanding
that the disposition of Purchaser's property shall at all times be and remain
within Purchaser's control.
4. Purchase, Delivery and Payment of Conversion Shares. Purchaser
agrees to purchase from the Company the Standby Shares at a purchase price equal
to the aggregate applicable Exercise Price of the Standby Shares.
Delivery of and payment for the Standby Shares shall be made at the
offices of Haynes and Boone, LLP, 901 Main Street, Suite 3100, Dallas, Texas, at
9:00 a.m., Dallas time, on August 11, 1998, or on such later date (but not later
than three business days after the Expiration Date) as may be specified by
written notice from the Purchaser to the Company given not more than two
business days prior to the Expiration Date (such
<PAGE> 4
July 16, 1998
Page 4
delivery and payment date being the "Delivery Date"). The date and time for such
delivery and payment are herein sometimes referred to as the Delivery Date. On
the Delivery Date, the Company shall deliver to the Purchaser certificates for
the Standby Shares against payment of the purchase price therefor by wire
transfer to an account designated by the Company to the Purchaser at least one
business day prior to the Delivery Date. Such certificates shall be registered
in such name or names and in such number of shares of Common Stock as the
Purchaser shall request in writing not less than two full business days prior to
the Delivery Date. For purposes of expediting the checking and packaging of the
certificates to be so delivered, the Company shall make such certificates
available for inspection by the Purchaser in Dallas, Texas, not later than 5:00
p.m., Dallas time, on the business day prior to the Delivery Date.
5. Further Agreements of the Company. The Company agrees:
(a) To timely file all documents, and any amendments of
previously filed documents, required to be filed by it pursuant to
Section 13, 14 or 15(d) of the Exchange Act;
(b) To direct the Transfer Agent to advise you daily of the
number of Rights exercised for Common Stock on the preceding day;
(c) To take no action the effect of which would be to require
an adjustment in the exercise price of the shares of Common Stock from
the present price set above;
(d) As soon as practicable after the completion of the Rights
Offering and Purchaser's purchase of the Standby Shares pursuant to
this agreement, the Company will take all necessary actions (including
solicitation of consent from shareholders, if necessary) to increase
the number of directors of the Company's board of directors such that
the Purchaser may designate one additional director to serve on the
board (the "Purchaser's Designee"), which designation shall be
reasonably acceptable to the Company. As long as the Purchaser owns at
least ten percent (10%) of the Company's issued and outstanding common
stock, the Purchaser shall have the right to nominate the Purchaser's
Designee to the Company's board of directors.
6. Conditions of the Purchaser's Obligations. The obligations of the
Purchaser hereunder are subject to the accuracy in all material respects, when
made and on the Delivery Date, of the representations and warranties of the
Company contained herein, to performance by the Company of its obligations
hereunder and to each of the following additional terms and conditions:
(a) The legality and sufficiency of the exercise of the Rights
for shares of Common Stock, the validity and form of the certificates
representing the Common Stock deliverable to the Purchaser hereunder,
all corporate proceedings and other legal matters incident to the
foregoing and to the authorization, form and validity of this Agreement
and all other legal matters relating to this Agreement and the
transactions contemplated hereby shall be reasonably satisfactory in
all material respects to purchaser and its counsel and the Company
shall have furnished to such counsel
<PAGE> 5
July 16, 1998
Page 5
all documents and information that such counsel shall reasonably
request to enable them to pass upon such matters.
(b) The number of unexercised Rights which are subject to
the Standby Commitment shall be no less than
1,000,000 shares and no greater than 2,000,000
shares.
(c) The Company shall have furnished such additional
documents and certificates as the Purchaser or its
counsel may reasonably request.
(d) The Purchaser shall have no obligation to purchase
any of the Standby Shares unless and until:
(i) Douglas H. Miller purchases a minimum of 250,000
shares pursuant to the Rights he receives in the
Rights Offering; and
(ii) At least 3,000,000 shares are purchased pursuant
to the Rights Offering.
(e) On the Delivery Date, the Company shall have
furnished to the Purchaser a certificate dated the
Delivery Date, signed by the Company's counsel, to
the effect that the signer of such certificate has
examined the Exchange Act Documents and that, in his
opinion, (i) as of the date of the Exchange Act
Documents, the statements made in the Exchange Act
Documents were true and correct, and none of the
Exchange Act Documents omits to state a material fact
required to be stated therein or necessary in order
to make the statements therein not misleading in
light of the circumstances under which they were
made, (ii) since the date of the Exchange Act
Documents no event has occurred which should have
been set forth in an amendment of or supplement to
the Exchange Act Documents but which has not been so
set forth, (iii) neither the Company nor any of its
subsidiaries has any material contingent obligation
which is not disclosed in the Exchange Act Documents
and (iv) the representations and warranties of the
Company herein are true and correct as of the
Delivery Date, the Company has complied with all its
agreements contained herein and the conditions on its
part to be fulfilled set forth herein have been
fulfilled.
7. Notices. The Company shall be entitled to act and rely upon any
request, consent, notice or agreement given or made by the Purchaser. Any notice
to the Purchaser shall be sufficient if given in writing by telecopy, overnight
courier service or personal delivery addressed to Ares Management, L.P., on
behalf of Ares Leveraged Investment Fund, L.P. (telecopy (310) 210-4170),
attention of Jeff Moore; and any notice to the Company shall be sufficient if
given in writing by telecopy, overnight courier service or personal delivery
addressed to the Company at EXCO Resources, Inc., 5735 Pineland Drive, Suite 235
(telecopy (214) 368-2087), attention of Douglas H. Miller.
<PAGE> 6
July 16, 1998
Page 6
8. Effective Date of Termination. This Agreement may not be terminated
except by the written agreement of the Purchaser and the Company.
If the Company shall fail to deliver the Standby Shares to the
Purchaser for any reason permitted under this Agreement or if the Purchaser
shall decline to purchase the Standby Shares for any reason permitted under this
Agreement, the Company shall reimburse the Purchaser for the reasonable fees and
expenses of its counsel incurred in connection with this Agreement and the
proposed purchase of the Standby Shares, and upon demand the Company shall pay
the full amount thereof to the Purchaser; provided, however, that if this
Agreement is terminated by notice from the Purchaser pursuant to the second
sentence of the prior paragraph, the Company shall not be obligated to reimburse
the Purchaser on account of these expenses. The Company shall not be liable to
the Purchaser under any circumstances for damages on account of the loss of
anticipated profits from the sale of Standby Shares. In any event, the Company
shall pay its own expenses.
9. Persons Entitled to Benefit of Agreement. This Agreement shall inure
to the benefit of and be binding upon the Purchaser, the Company and their
respective successors. This Agreement and the terms and provisions hereof are
for the sole benefit of only those persons, except that (a) the representations,
warranties, and agreements of the Company contained in this Agreement shall also
be deemed to be for the benefit of the person or persons, if any, who control
the Purchaser within the meaning of the Securities Act. Nothing in this
Agreement is intended or shall be construed to give any person other than the
persons mentioned in the preceding two sentences any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision contained
herein.
10. Certain Definitions. For purposes of this Agreement, (a) "business
day" means any day on which the New York Stock Exchange is open for trading and
"close of business" means 5:00 p.m., Dallas time, (b) "subsidiary" has the
meaning set forth in Rule 405 of the rules and regulations promulgated under the
Securities Act.
11. Governing Law; Counterparts. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. This Agreement
may be executed in one or more counterparts and, if executed in more than one
counterpart, the executed counterparts shall together constitute a single
instrument.
<PAGE> 7
July 16, 1998
Page 7
If the foregoing correctly sets forth the agreement between
the Company and the Purchaser, please indicate your acceptance in the space
provided for that purpose below.
Very truly yours,
EXCO RESOURCES, INC.
By: /s/ DOUGLAS H. MILLER
--------------------------------------------
Name: Douglas H. Miller
Title: Chairman and Chief Executive Officer
Accepted and agreed to this 21st, day of July, 1998.
Ares Management, L.P. on behalf of
Ares Leveraged Investment Fund
By: /s/ JEFF MOORE
-----------------------------------------
Name: Jeff Moore
Title: Principal
<PAGE> 1
EXHIBIT 2
July 16, 1998
OCM Principal Opportunities Fund, L.P.
c/o Oaktree Capital Management, LLC
550 South Hope Street
Suite 2200
Los Angeles, California 90071
Re: Standby Purchase Commitment
Gentlemen:
EXCO Resources, Inc., a Texas corporation (the "Company"), hereby
confirms its agreement with Oaktree Capital Management, LLC, on behalf of OCM
Principal Opportunities Fund, L.P. (the "Purchaser") as follows:
1. Offering of Rights to Purchase Common Stock. As described in that
certain Prospectus (herein so called) of the Company, dated July 16, 1998, the
Company distributed (the "Rights Offering") to all of its recordholders of
Common Stock, par value $0.02 per share (the "Common Stock"), the right (each a
"Right" and collectively, the "Rights") to purchase authorized but unissued
shares of Common Stock at an exercise price of $6.00 per share (the "Exercise
Price"). The shares of Common Stock which are issuable upon exercise of the
Rights are herein called the "Rights Shares." All unexercised Rights will expire
at the close of business 45 days after the effective date of the Rights Offering
(the "Expiration Date").
One of the components of the Rights Offering is a standby commitment (the
"Standby Commitment") to exercise any Rights which have not been exercised at or
prior to the close of business on the Expiration Date. By agreement dated July
16, 1998 (the "Standby Agreement"), Ares Management, L.P., on behalf of Ares
Leveraged Investment Fund, L.P. ("Ares") agreed to assume the Standby Commitment
for a minimum of one million shares and a maximum of two million shares. It is
anticipated that there will be additional unexercised Rights which Purchaser
desires to acquire and exercise pursuant to the Standby Commitment. Subject to
the terms and conditions hereinafter set forth, Purchaser hereby assumes a
portion of the Standby Commitment and agrees to exercise one million (1,000,000)
Rights which would otherwise expire unexercised on the Expiration Date at a
price equal to the Exercise Price. The shares of Common Stock purchased pursuant
to this Agreement are hereinafter referred to as the "OCM Standby Shares."
2. Representations and Warranties of the Company. The Company represents,
warrants and agrees that:
(a) The Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
in accordance therewith has
<PAGE> 2
July 16,1998
Page 2
timely filed documents (the "Exchange Act Documents") with the Securities
and Exchange Commission (the "Commission") since December 1, 1997. At the
time such Exchange Act Documents were filed with the Commission, they
complied in all material respects with the requirements of the Exchange
Act and the rules and regulations of the Commission thereunder (the
"Rules and Regulations"), and did not include an 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 the
light of the circumstances under which they were made, not misleading,
and any Exchange Act Documents hereafter filed will, when they are filed
with the Commission, comply in all material respects with the
requirements of the Exchange Act and the Rules and Regulations, and will
not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading.
(b) Since the date of the Company's most recent Exchange Act
Document, there is no material fact, circumstance or event with respect
to the Company or any of its subsidiaries that has had or may be expected
to have a material adverse effect on the business, properties, condition
(financial or other) or results of operations of the Company and its
subsidiaries taken as a whole.
(c) The issued and outstanding shares of Common Stock of the
Company and the shares of Common Stock issuable upon exercise of the
Rights have been duly authorized. The issued and outstanding shares of
Common Stock of the Company are validly issued and outstanding, fully
paid and non-assessable, with no personal liability attaching to the
ownership thereof. There are no issued or outstanding shares of Preferred
Stock, par value $0.01 per share, of the Company. There is not any
preemptive or other right to subscribe for or to purchase, or any lien,
charge, encumbrance, restriction on voting or transfer of, or any other
claim of any third party on, any issued and outstanding shares of Common
Stock or the Rights Shares, pursuant to the Company's corporate charter
or by-laws or any agreement or other instrument to which the Company is a
party or by which the Company may be bound. The capitalization of the
Company as of the date hereof and the anticipated capitalization of the
Company after the completion of the Rights Offering are set forth in the
Capitalization section of the Prospectus.
(d) The OCM Standby Shares will, when issued and sold to the
Purchaser as contemplated hereby, be validly authorized, issued and
outstanding, fully paid and non-assessable with no personal liability
attaching to the ownership thereof and will conform to the description of
the Common Stock contained in the Exchange Act Documents.
(e) Each Right is convertible into one share of Common Stock.
(f) As of the close of business on the second business day
preceding the date hereof, there were 594,336 shares of Common Stock
outstanding; the exercise of all the Rights has been duly authorized by
the Company.
<PAGE> 3
July 16,1998
Page 3
(g) This Agreement has been duly authorized, executed and
delivered by the Company, constitutes the valid and binding agreement of
the Company and is enforceable against the Company in accordance with its
terms. No further approval or authorization of the shareholders or the
Board of Directors of the Company or any other entity will be required
for the issuance and sale of Common Stock referred to in subparagraph (d)
above. Neither such issuance nor the consummation of any other
transactions herein contemplated will result in a breach by the Company
of any terms of, or constitute a default under, any other agreement or
undertaking of the Company, which breach or default might be expected to
have a material adverse effect on such Common Stock, the Company or the
transactions contemplated herein. Other than as contemplated herein, no
person has the right to require the Company or any subsidiary of the
Company to register any capital stock for offering and sale under the
Securities Act of 1933, as amended (the "SECURITIES ACT").
(h) The Company and its subsidiary each have been duly
incorporated and each is a validly existing corporation in good standing
under the laws of its jurisdiction of incorporation and is duly qualified
and in good standing in each jurisdiction in which its ownership of
property or the conduct of its business requires such qualification
(except where the failure to so qualify would not have a material adverse
effect upon the Company and its subsidiary taken as a whole). The Company
and its subsidiary each have the corporate power and authority and holds
all valid permits and other required authorizations from governmental
authorities necessary to carry on business as now conducted and as to be
conducted on the Delivery Date (as hereinafter defined) except such
permits and authorizations that are not singly or in the aggregate,
material to the Company and its subsidiary taken as a whole; neither
entity has received any notice relating to the revocation or modification
of any such permits or authorizations that are singly or in the aggregate
material to the Company and its subsidiary taken as a whole.
(i) Except as described in the Exchange Act Documents, there is
no action, suit or proceeding pending before any court, arbitrator or
governmental body, nor, to the knowledge of the Company, is any such
action threatened, which (i) might affect the consummation of the
transactions contemplated by this Agreement, (ii) is required to be
disclosed under the Exchange Act or the Rules and Regulations or, in the
case of any threatened action, would be required to be so disclosed if
such action were pending or (iii) would be likely to result in any
material adverse change in the financial position, results of operations
or business of the Company and its subsidiaries taken as a whole.
3. Representations and Warranties of Purchaser. The Purchaser represents
and warrants that it is purchasing the OCM Standby Shares for its own account
and not with any intention of selling or transferring the OCM Standby Shares in
violation of the Securities Act, subject, nevertheless, to the understanding
that the disposition of Purchaser's property shall at all times be and remain
within Purchaser's control.
<PAGE> 4
July 16,1998
Page 4
4. Purchase, Delivery and Payment of Conversion Shares. Purchaser agrees
to purchase from the Company the OCM Standby Shares at a purchase price equal to
the aggregate applicable Exercise Price of the OCM Standby Shares.
Delivery and payment of the OCM Standby Shares shall be made at the
offices of Haynes and Boone, LLP, 901 Main Street, Suite 3100, Dallas, Texas, at
9:00 a.m., Dallas time, on August 11, 1998, or on such later date (but not later
than three business days after the Expiration Date) as may be specified by
written notice from the Purchaser to the Company given not more than two
business days prior to the Expiration Date (such delivery and payment date being
the "Delivery Date"). The date and time for such delivery and payment are herein
sometimes referred to as the Delivery Date. On the Delivery Date, the Company
shall deliver to the Purchaser certificates for the OCM Standby Shares against
payment of the purchase price therefor by wire transfer to an account designated
by the Company to the Purchaser at least one business day prior to the Delivery
Date. Such certificates shall be registered in such name or names and in such
number of shares of Common Stock as the Purchaser shall request in writing not
less than two full business days prior to the Delivery Date. For purposes of
expediting the checking and packaging of the certificates to be so delivered,
the Company shall make such certificates available for inspection by the
Purchaser in Dallas, Texas, not later than 5:00 p.m., Dallas time, on the
business day prior to the Delivery Date.
5. Further Agreements of the Company. The Company agrees:
(a) To timely file all documents, and any amendments of
previously filed documents, required to be filed by it pursuant to
Section 13, 14 or 15(d) of the Exchange Act;
(b) To direct the Transfer Agent to advise you daily of the
number of Rights exercised for Common Stock on the preceding day;
(c) To take no action the effect of which would be to require an
adjustment in the Exercise Price of the shares of Common Stock from the
present price set above;
(d) As soon as practicable after the completion of the Rights
Offering and Purchaser's purchase of the OCM Standby Shares pursuant to
this Agreement, the Company will take all necessary actions (including
solicitation of consent from shareholders, if necessary) to increase the
number of directors of the Company's board of directors such that the
Purchaser may designate one additional director to serve on the board
(the "Purchaser's Designee"), which designation shall be reasonably
acceptable to the Company. As long as the Purchaser owns at least ten
percent (10%) of the Company's issued and outstanding Common Stock, the
Purchaser shall have the right to nominate the Purchaser's Designee to
the Company's board of directors.
<PAGE> 5
July 16,1998
Page 5
6. Conditions of the Purchaser's Obligations. The obligations of the
Purchaser hereunder are subject to the accuracy in all material respects, when
made and on the Delivery Date, of the representations and warranties of the
Company contained herein, to performance by the Company of its obligations
hereunder and to each of the following additional terms and conditions:
(a) The legality and sufficiency of the exercise of the Rights for
shares of Common Stock, the validity and form of the certificates
representing the Common Stock deliverable to the Purchaser hereunder, all
corporate proceedings and other legal matters incident to the foregoing and
to the authorization, form and validity of this Agreement and all other
legal matters relating to this Agreement and the transactions contemplated
hereby shall be reasonably satisfactory in all material respects to the
Purchaser and its counsel and the Company shall have furnished to such
counsel all documents and information that such counsel shall reasonably
request to enable them to pass upon such matters.
(b) The number of unexercised Rights which are subject to this
Agreement shall be no less than 1,000,000 shares.
(c) The Company shall have furnished such additional documents and
certificates as the Purchaser or its counsel may reasonably
request.
(d) The Purchaser shall have no obligation to purchase any OCM
Standby Shares unless and until:
(i) Douglas H. Miller purchases a minimum of 250,000 shares
pursuant to the Rights he receives in the Rights Offering;
and
(ii) At least 2,000,000 shares are purchased pursuant to the
Rights Offering (inclusive of shares purchased by Douglas
H. Miller, but exclusive of shares purchased by Ares).
(iii) Ares shall have purchased at least one million (1,000,000)
shares pursuant to the terms of the Standby Agreement and
any additional shares required to be purchased by Ares
thereunder.
(e) On the Delivery Date, the Company shall have furnished to the
Purchaser a certificate dated the Delivery Date, signed by the
Company's counsel, to the effect that the signer of such
certificate has examined the Exchange Act Documents and that, in
his opinion, (i) as of the date of the Exchange Act Documents,
the statements made in the Exchange Act Documents were true and
correct, and none of the Exchange Act Documents omits to state a
material fact required to be stated therein or necessary in order
to make the statements therein not misleading in light of the
circumstances under which
<PAGE> 6
July 16,1998
Page 6
they were made, (ii) since the date of the Exchange Act Documents
no event has occurred which should have been set forth in an
amendment of or supplement to the Exchange Act Documents but
which has not been so set forth, (iii) neither the Company nor
any of its subsidiaries has any material contingent obligation
which is not disclosed in the Exchange Act Documents and (iv) the
representations and warranties of the Company herein are true and
correct as of the Delivery Date, the Company has complied with
all its agreements contained herein and the conditions on its
part to be fulfilled set forth herein have been fulfilled.
7. Notices. The Company shall be entitled to act and rely upon any
request, consent, notice or agreement given or made by the Purchaser. Any notice
to the Purchaser shall be sufficient if given in writing by telecopy, overnight
courier service or personal delivery addressed to Oaktree Capital Management,
LLC, on behalf of OCM Principal Opportunities Fund, L.P. (telecopy (213)
694-1593), attention of Vincent J. Cebula; and any notice to the Company shall
be sufficient if given in writing by telecopy, overnight courier service or
personal delivery addressed to the Company at EXCO Resources, Inc., 5735
Pineland Drive, Suite 235 (telecopy (214) 368-2087), attention of Douglas H.
Miller.
8. Effective Date of Termination. This Agreement may not be terminated
except by the written agreement of the Purchaser and the Company.
If the Company shall fail to deliver the OCM Standby Shares to the
Purchaser for any reason permitted under this Agreement or if the Purchaser
shall decline to purchase the OCM Standby Shares for any reason permitted under
this Agreement, the Company shall reimburse the Purchaser for the reasonable
fees and expenses of its counsel incurred in connection with this Agreement and
the proposed purchase of the OCM Standby Shares, and upon demand the Company
shall pay the full amount thereof to the Purchaser. The Company shall not be
liable to the Purchaser under any circumstances for damages on account of the
loss of anticipated profits from the sale of OCM Standby Shares. In any event,
the Company shall pay its own expenses.
9. Persons Entitled to Benefit of Agreement. This Agreement shall inure
to the benefit of and be binding upon the Purchaser, the Company and their
respective successors. This Agreement and the terms and provisions hereof are
for the sole benefit of only those persons, except that the representations,
warranties and agreements of the Company contained in this Agreement shall also
be deemed to be for the benefit of the person or persons, if any, who control
the Purchaser within the meaning of the Securities Act. Nothing in this
Agreement is intended or shall be construed to give any person other than the
persons mentioned in the preceding two sentences any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision contained
herein.
10. Certain Definitions. For purposes of this Agreement, (a) "business
day" means any day on which the New York Stock Exchange is open for trading and
"close of business" means
<PAGE> 7
July 16,1998
Page 7
5:00 p.m., Dallas time, and (b) "subsidiary" has the meaning set forth in Rule
405 of the rules and regulations promulgated under the Securities Act.
11. Governing Law; Counterparts. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. This Agreement
may be executed in one or more counterparts and, if executed in more than one
counterpart, the executed counterparts shall together constitute a single
instrument.
<PAGE> 8
July 16, 1998
Page 8
If the foregoing correctly sets forth the agreement between the
Company and the Purchaser, please indicate your acceptance in the space provided
for that purpose below.
Very truly yours,
EXCO RESOURCES, INC.
By: /s/ DOUGLAS H. MILLER
------------------------------------
Douglas H. Miller
Chairman and Chief Executive Officer
Accepted and agreed to this 16th,
day of July, 1998.
OCM Principal Opportunities Fund, L.P.
By: Oaktree Capital Management, LLC
its General Partner
By: /s/ STEPHEN A. KAPLAN
------------------------------------
Stephen A. Kaplan
Principal
By: /s/ VINCENT J. CEBULA
---------------------------------
Vincent J. Cebula
Managing Director
