<PAGE> 1
As filed with the Securities and Exchange Commission on April 1, 1998
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
EXCO RESOURCES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-1492779
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
<TABLE>
<S> <C>
5735 Pineland Drive, Suite 235 Douglas H. Miller
Dallas, Texas 75231 Chief Executive Officer
(214) 368-2084 5735 Pineland Drive, Suite 235
(Address, including zip code, and Dallas, Texas 75231
telephone number, including area code, Tel: (214) 368-2084
of Registrant's principal executive offices) Fax: (214) 368-2087
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
</TABLE>
----------
Copy to:
William L. Boeing
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Tel: (214) 651-5000
Fax: (214) 651-5940
----------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [ X ]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================================
PROPOSED
TITLE OF EACH CLASS OF PROPOSED MAXIMUM MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STOCK PURCHASE RIGHTS 5,089,000 -- -- -- (2)
FOR COMMON STOCK (1)
- ------------------------------------------------------------------------------------------------------------------------
COMMON STOCK, $.02 PAR 5,089,000 $6.00 (4) $30,534,000 $9,253.00
VALUE PER SHARE TOTAL (3)
========================================================================================================================
</TABLE>
(1) This Registration Statement relates to rights (the "Rights") to
purchase common stock, par value $.02 per share (the "Common Stock"),
of EXCO Resources, Inc. ("EXCO") which will be issued as a dividend to
holders of the Common Stock, and to the shares deliverable upon
exercise of the Rights (the "Rights Shares"). This Registration
Statement also relates to resales and reoffers of certain of these
Rights by holders thereof who may be deemed to be affiliates of EXCO.
(2) Since both the Rights and Rights Shares are being registered for
distribution under this Registration Statement, for purposes of Rule
457 there is no separate registration fee for the Rights.
(3) These shares of Common Stock are deliverable upon exercise of the
Rights. This Registration Statement also relates to resales and
reoffers of certain of these shares of Common Stock to be purchased by
certain holders of Rights who may be deemed to be affiliates of EXCO
upon exercise of their Rights.
(4) Estimated solely for the purpose of calculating the registration fee
in accordance with Rule 457(g) under the Securities Act of 1933.
----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
securities and exchange commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED APRIL 1, 1998.
PROSPECTUS
[EXCO LOGO] 5,089,000 SHARES
COMMON STOCK
----------
EXCO Resources, Inc. ("EXCO") is distributing to the holders of its
common stock, par value $.02 per share (the "Common Stock"), transferable
rights (the "Rights") to subscribe for and purchase an aggregate of 5,089,000
shares of EXCO's Common Stock, for a price of $______ per share (the
"Subscription Price"). Each holder of Common Stock of record as of
, 1998 is entitled to receive ten Rights for each share of Common Stock held as
of such date. One Right entitles the holder to purchase one share of Common
Stock. Each Right also carries the right to subscribe at the Subscription Price
for shares of Common Stock that are not otherwise purchased pursuant to the
exercise of Rights. The Rights will be evidenced by transferable certificates
(each, a "Subscription Certificate"). The distribution of the Rights and sale
of shares of Common Stock are referred to herein as the "Rights Offering."
With respect to the Rights Offering, _____________ has provided a standby
commitment (the "Standby Commitment") to purchase from EXCO all shares of
Common Stock not purchased pursuant to the exercise of the Rights, also at a
price of $______ per share. The Standby Commitment would be exercised
immediately following expiration of the Rights Offering. See "The Rights
Offering."
The Rights Offering, together with the Standby Commitment, are
intended to increase working capital and to retire indebtedness of EXCO. See
"Use of Proceeds."
The Rights will expire at 5:00 p.m., Dallas time, on ,
1998, unless extended by EXCO (such date and time, as it may be extended, the
"Expiration Date"), and thereafter will be void and of no effect. Shareholders
who do not exercise or sell their Rights prior to the Expiration Date will
relinquish the value inherent in the Rights. Accordingly, shareholders are
strongly urged to exercise or sell their Rights prior to the Expiration Date.
On December 19, 1997, Douglas H. Miller ("Mr. Miller") purchased from
certain holders of 413,423 shares of outstanding Common Stock at a price of
$3.00 per share ($6.00 per share equivalent after adjusting for the one for two
reverse stock split (the "Reverse Stock Split") approved by shareholders on
March 31, 1998) for an aggregate purchase price of approximately $1.24 million.
Upon Mr. Miller's purchase of those shares, three members of EXCO's five member
board of directors (the "Board") tendered their resignations and Mr. Miller was
appointed to EXCO's Board. On that same date, T.W. Eubank ("Mr. Eubank"), Mr.
Miller's nominee, was also appointed to the Board. On December 31, 1997, EXCO
sold 100,000 shares of Common Stock each to Mr. Eubank and Mr. Earl E. Ellis
("Mr. Ellis") for a cash price of $3.00 per share ($6.00 per share equivalent
after adjusting for the Reverse Stock Split) for aggregate gross proceeds of
$600,000. The net proceeds were used to repay certain outstanding accounts
payable and to provide additional working capital to EXCO. On March 31, 1998,
shareholders approved the expansion of membership on EXCO's Board. The
shareholders elected Mr. Miller, Mr. Eubank, J. Douglas Ramsey ("Dr. Ramsey"),
T. Boone Pickens ("Mr. Pickens"), Stephen F. Smith ("Mr. Smith"), Mr. Ellis and
J. Michael Muckleroy ("Mr. Muckleroy") to the Board. Certain changes to EXCO's
Restated Articles of Incorporation (the "Articles of Incorporation") were also
approved by the shareholders. See "Recent Developments."
The Common Stock is quoted on the OTC Bulletin Board (the "OTC") under
the symbol "EXCO." On March 30, 1998, the last reported sale price of the
Common Stock on the OTC was $6.50 per share as adjusted for the Reverse Stock
Split. It is anticipated that the Rights will trade on the OTC under the
symbol "EXCO RT" until the close of business on the last trading day preceding
the Expiration Date. EXCO intends to make application to list its Common Stock
on the Nasdaq National Market System following completion of the Rights
Offering. There can be no assurance that such application will be approved.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Subscription Underwriting Discounts Proceeds to
Price and Commission EXCO (1)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share of Common Stock . . $______ (2) N/A $______
- ------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . $________ N/A $______
- ------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------
(1) Before deducting expenses payable by EXCO with respect to the Rights
Offering, estimated at approximately $120,000.
(2) This represents the subscription price for purchase of a share of Common
Stock upon exercise of the Rights.
----------
, 1998
<PAGE> 3
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE
"EXCHANGE ACT"), WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY SUCH AS, "MAY," "BELIEVE," "EXPECT," "INTEND," "ANTICIPATE,"
"ESTIMATE" OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR
COMPARABLE TERMINOLOGY. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACT
INCLUDED IN THIS PROSPECTUS, INCLUDING WITHOUT LIMITATION, THE STATEMENTS UNDER
"PROSPECTUS SUMMARY," "RISK FACTORS," "UNAUDITED PRO FORMA FINANCIAL
INFORMATION," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- LIQUIDITY AND CAPITAL RESOURCES," "BUSINESS AND
PROPERTIES -- BUSINESS STRATEGY," "BUSINESS AND PROPERTIES -- OIL AND NATURAL
GAS RESERVES" AND "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS -- TAX
CONSEQUENCES TO HOLDERS OF RIGHTS" LOCATED ELSEWHERE HEREIN REGARDING EXCO'S
FINANCIAL POSITION AND LIQUIDITY, THE VOLUME OR DISCOUNTED PRESENT VALUE OF ITS
OIL AND NATURAL GAS RESERVES, ITS ABILITY TO SERVICE ITS INDEBTEDNESS, ITS
STRATEGIC PLANS INCLUDING ITS ABILITY TO LOCATE AND COMPLETE ACQUISITIONS OF
OIL AND NATURAL GAS ASSETS, AND OTHER MATTERS, ARE FORWARD-LOOKING STATEMENTS.
ALTHOUGH EXCO BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING
STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL
PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS WITH RESPECT TO ANY SUCH
FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM EXCO'S EXPECTATIONS
("CAUTIONARY STATEMENTS") ARE DISCLOSED IN THIS PROSPECTUS, INCLUDING, WITHOUT
LIMITATION, IN CONJUNCTION WITH THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS
PROSPECTUS. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS HEREIN INCLUDE, BUT ARE
NOT LIMITED TO, THE TIMING AND EXTENT OF CHANGES IN COMMODITY PRICES FOR OIL
AND NATURAL GAS, THE NEED TO DEVELOP AND REPLACE RESERVES, ENVIRONMENTAL RISKS,
DRILLING AND OPERATING RISKS, RISKS RELATED TO EXPLOITATION AND DEVELOPMENT,
UNCERTAINTIES ABOUT THE ESTIMATES OF RESERVES, COMPETITION, GOVERNMENT
REGULATION AND THE ABILITY OF EXCO TO MEET ITS STATED BUSINESS GOALS. ALL
SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO EXCO OR
PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE
CAUTIONARY STATEMENTS.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements (including the notes thereto)
appearing elsewhere in this Prospectus or incorporated by reference in this
Prospectus. Unless the context otherwise requires, the term "EXCO" means EXCO
Resources, Inc. and its subsidiary taken as a whole. Quantities stated as
equivalent oil reserves are based on a factor of six thousand cubic feet of
natural gas per barrel of oil. Except as otherwise indicated herein, each
reference herein to "on a pro forma basis" shall mean that the results for the
stated period or other information has been adjusted to reflect the
consummation of the Maverick County Acquisition (as defined herein). Unless
otherwise stated herein, all references to shares of Common Stock, par value
$.02 per share (the "Common Stock"), for periods prior to March 31, 1998, do
not take into account EXCO's Reverse Stock Split approved by shareholders on
March 31, 1998. Certain terms relating to the oil and natural gas business and
used herein are defined in the "Glossary of Selected Oil and Natural Gas Terms"
included elsewhere in this Prospectus.
THE COMPANY
EXCO is an independent oil and natural gas company that has been
engaged in the oil and natural gas business since 1955. EXCO's activities are
currently conducted primarily in Texas and Louisiana. Due to limited capital
resources and cash flow, in recent years EXCO's business activity has
decreased. At December 31, 1997, EXCO had 779,150 Boe of proved reserves, 93%
of which were natural gas, and owned leasehold interests in a total of 15,788
gross acres (3,744 net acres) of oil and natural gas properties, 49% of gross
acres (75% net) which were developed acres. EXCO held interests in 47 gross
(9.76 net) wells at December 31, 1997. On a pro forma basis at December 31,
1997, EXCO had an interest in 56 gross (16.76 net) wells and had estimated
Proved Reserves of 1,195,100 Boe with an estimated SEC PV-10 of $5.57 million.
Approximately 45% of these reserves were classified as Proved Developed
Producing Reserves. On a pro forma basis at December 31, 1997, EXCO's Proved
Reserves had an estimated Reserve Life of 18.5 years and were 94% natural gas.
EXCO currently serves as operator for approximately 32 wells. See "Business
and Properties -- Oil and Natural Gas Reserves" and "--Acreage."
On December 19, 1997, Mr. Miller acquired 413,423 (approximately 51%)
of EXCO's outstanding shares of Common Stock at $3.00 per share, from various
holders, including certain current and former officers and directors of EXCO.
At that time, three of EXCO's five directors resigned and Mr. Miller and Mr.
Eubank were elected to the Board of Directors. In addition, Mr. Miller was
elected Chairman of the Board and Chief Executive Officer and Mr. Eubank was
elected President, Treasurer and Chief Financial Officer. On December 31,
1997, Mr. Eubank and Mr. Ellis each acquired from EXCO 100,000 shares of Common
Stock for $3.00 per share. Also, on December 31, 1997, Mr. Eubank resigned as
Chief Financial Officer and Dr. Ramsey was appointed Chief Financial Officer
and Vice President of EXCO. Mr. Miller was formerly Chairman of the Board and
Chief Executive Officer of Coda Energy, Inc. ("Coda"). Mr. Eubank was formerly
President and a director of Coda and Mr. Ellis was formerly a director of Coda.
Dr. Ramsey was formerly Financial Planning Manager of Coda. With the proceeds
of the Rights Offering and a new credit facility arranged with NationsBank of
Texas, N.A. (the "Credit Facility"), the new management team intends to
commence an aggressive acquisition, development and exploitation program. In
executing this strategy, EXCO will focus on producing properties with
enhancement opportunities from activities such as infill drilling,
recompletions, repairs and equipment changes. EXCO will seek properties it can
operate, thus maintaining the maximum control of enhancement activities.
On February 11, 1998, EXCO acquired certain properties from Osborne
Oil Company and Gypsy Production Company and certain other sellers (the
"Maverick County Acquisition") in the Chittim/Barclay Ranch Properties located
in Maverick County, Texas (the "Maverick County Properties"). As of December
31, 1997, the Maverick County Properties were estimated to contain 415,975 Boe
of proved reserves, 98% of which were natural gas, and owned leasehold
interests in a total of 3,744 gross acres (3,123 net acres) of oil and natural
gas properties, 9.6% of gross acres which were developed acres. See "Recent
Developments -- Maverick County Acquisition."
2
<PAGE> 5
THE RIGHTS OFFERING
The Rights Offering is an integral part of EXCO's growth plan. The Rights
Offering is intended to recapitalize EXCO through the issuance of approximately
$____ million in Common Stock. The net proceeds of the Rights Offering along
with amounts borrowed under the Credit Facility will be used to fund the
expansion and diversification of EXCO's operations through the acquisition of
certain oil and natural gas producing properties and the further development and
exploitation of those properties. EXCO will issue and sell up to an aggregate
of approximately $_____ million of Common Stock to investors who subscribe to
purchase shares of Common Stock in the Rights Offering and through the exercise
of the Standby Commitment, if necessary. The Rights Offering will permit holders
of rights to purchase shares of Common Stock at $______ per share. The price
was determined by the Board of Directors after considering such factors as the
price paid by Messrs. Miller, Eubank and Ellis for the purchase of shares in
December 1997, future prospects, the industry in general and EXCO's position in
the industry, market valuations of the securities of companies engaged in
similar activities, the quality of the management team, and negotiations with
_____________ [Standby]. See "The Rights Offering."
The Rights Offering has the following components:
1. Basic Subscription Privilege. EXCO will distribute
transferable Rights to the record holders of its outstanding
Common Stock as of , 1998 (the "Record
Date"), at no cost to the holders. EXCO will distribute ten
Rights for each share of Common Stock held on the Record Date.
Each Right will entitle the holder to purchase one share of
Common Stock (the "Basic Subscription Privilege") at $______
per share.
2. Oversubscription Privilege. Each holder of Rights who
exercises in full the Basic Subscription Privilege may also
subscribe for additional Rights to acquire shares of Common
Stock available as a result of unexercised Rights (the
"Oversubscription Privilege"). In no event, however, may a
holder oversubscribe for more than 100% of the shares
purchased by the holder in the Basic Subscription Privilege.
If the number of shares available taking into account the
aforementioned restrictions are not sufficient to satisfy the
oversubscriptions, the available shares will be allocated pro
rata (subject to elimination of fractional shares) among the
holders of Rights who exercise the Oversubscription Privilege,
in proportion, not to the number of shares requested pursuant
to the Oversubscription Privilege, but to the number of shares
each beneficial holder has purchased pursuant to the Basic
Subscription Privilege; provided, however, that if such pro
rata allocation results in any holder being allocated a
greater number of shares than such holder subscribed for
pursuant to the exercise of such holder's Oversubscription
Privilege, then such holder will be allocated only such number
of shares as such holder subscribed for and the remaining
shares will be allocated among all other holders exercising
the Oversubscription Privilege.
3. __________ Standby Commitment. Pursuant to the Standby
Commitment, _________ will purchase additional shares of
Common Stock equal to the number of shares of Common Stock, if
any, not purchased in the Rights Offering (including
defaulted-upon exercises of rights covered by the
Oversubscription Privilege), at the same $______ per share
price at which Rights holders may subscribe to purchase shares
of Common Stock.
EFFECTS OF THE RIGHTS OFFERING
The net proceeds from the Rights Offering will enhance EXCO's ability to
compete in the oil and natural gas industry by injecting significant equity
capital into EXCO and improving its ability to attract additional capital. The
Rights Offering will allow EXCO to build its equity capital position which EXCO
believes it can leverage under its Credit Facility and to attract other forms of
debt or equity capital. A portion of the net proceeds will be used to repay
outstanding bank indebtedness incurred in connection with the Maverick County
Acquisition. Management believes all of these actions will enhance EXCO's
ability to pursue additional acquisition and development opportunities and to
carry out its business strategy.
3
<PAGE> 6
CONTROL OF EXCO
Upon purchasing the shares of EXCO's Common Stock on December 19,
1997, Mr. Miller held approximately 51% of EXCO's outstanding Common Stock. On
that date, three of EXCO's five directors resigned and Mr. Miller was nominated
and appointed to the Board. See "Management." Also, on December 19, 1997, Mr.
Miller nominated Mr. Eubank to the Board and Mr. Eubank was appointed a
director. David N. Fitzgerald and Charles W. Gleeson, then-existing directors,
remained on the Board until March 31, 1998, when the shareholders of EXCO
elected Messrs. Miller, Eubank, Ramsey, Pickens, Smith, Ellis and Muckleroy.
On December 31, 1997, EXCO sold 100,000 shares of its Common Stock to
each of Messrs. Eubank and Ellis (with each now holding approximately 10% of
EXCO's outstanding Common Stock). Mr. Miller currently holds approximately 41%
of the outstanding Common Stock. Messrs. Ellis, Eubank and Miller intend to
exercise an indeterminate number of their Rights pursuant to the Rights
Offering. Further, Messrs. Ellis, Eubank and Miller may assign an
indeterminate number of their Rights to other buyers, including transferring
Rights to ___________ [Standby Commitment]. See "Recent Developments -- Change
of Control."
CREDIT FACILITY
On February 11, 1998, EXCO entered into the Credit Facility with
NationsBank of Texas, N.A. The Credit Facility is for $50 million, subject to
borrowing base limitations.
The Credit Facility consists of a regular revolver which at March 30,
1998, had a borrowing base of $2.2 million. On March 30, 1998, approximately
$1.6 million was available to be borrowed under the Credit Facility. All
borrowings under the Credit Facility are secured by a first lien deed of trust
providing a security interest in tangible and intangible assets representing at
least 90% of the assessed present value of EXCO's oil and natural gas
properties.
EXCO's next borrowing base redetermination is scheduled for no later
than July 1, 1998, and semi-annually thereafter. EXCO may seek additional
borrowing capacity at that time for its development drilling program. However,
there is no assurance that the current development program will result in
increased collateral values or that such values will enable EXCO to borrow the
funds needed to continue the development program.
The Credit Facility contains a number of covenants affecting EXCO's
liquidity and capital resources, including restrictions on EXCO's ability to
incur indebtedness or pledge assets outside of the Credit Facility, EXCO's
maintenance of a minimum net worth and restrictions on the payment of dividends
on EXCO's capital stock. See "Description of Credit Facility."
BUSINESS STRATEGY
Following completion of the Rights Offering, EXCO intends to build
itself as a leading independent oil and natural gas exploitation and production
company by implementing the following business strategies:
o Growth. Achieve asset, revenue and cash flow growth as a
result of the acquisition and further development of other
producing oil and natural gas properties. EXCO believes there
are numerous opportunities to acquire additional energy assets
and to enhance the value of such assets through improved
operating practices and by aggressively developing reserve
potential.
o Acquire and Enhance Producing Oil and Natural Gas Properties.
EXCO intends to take advantage of opportunities that currently
exist in the United States to acquire producing oil and
natural gas properties. EXCO plans to continue to focus its
acquisition activities onshore in Texas, New Mexico, Oklahoma
and Louisiana in order to complement its existing properties
and operations; however, EXCO plans to review potential
acquisitions in other regions of the United States if they
represent a significant concentration of energy-related
assets.
4
<PAGE> 7
o Emphasize Exploitation and Development Activities. EXCO plans
to exploit its existing oil and natural gas properties and to
conduct development evaluation and drilling on its existing
and future oil and natural gas properties. EXCO intends to
concentrate on enhancement opportunities from activities such
as infill drilling, recompletions, repairs and equipment
changes.
o Corporate Efficiencies. Maximize corporate efficiencies
through the development and operation of a larger asset base
with the potential to limit increases in overhead in the
future.
o Capital Management. Maintain financial strength and
flexibility through effective management of debt and equity.
o Technology. EXCO intends to increase its exploitation efforts,
focusing on established geological trends where EXCO can
employ geological, geophysical and engineering expertise. EXCO
is considering the application of 3-D seismic and advanced
drilling technologies.
5
<PAGE> 8
SOURCES AND USES OF FUNDS
The total proceeds (assuming a $6.00 per share Subscription Price for
the purposes of this table) from the Rights Offering are estimated to be
approximately $30,534,000 (assuming all Rights are exercised). The following
table sets forth the proposed sources and uses of funds from the Rights
Offering. For a description of the Rights Offering, see "The Rights Offering."
See also "Use of Proceeds."
<TABLE>
<CAPTION>
Amounts
(in millions)
-------------
<S> <C>
SOURCES
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30.5
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30.5
USES
Repay indebtedness (1) . . . . . . . . . . . . . . . . . . . . . . . $ .7
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.7
Rights Offering expenses (2) . . . . . . . . . . . . . . . . . . . . .1
---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30.5
=========
</TABLE>
------------------------
(1) Includes repayment of approximately $600,000 outstanding
under EXCO's Credit Facility borrowed on February 11,
1998 as a result of the Maverick County Acquisition.
(2) Represents estimated expenses attributable to the Rights
Offering.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in connection with an investment in the Common Stock offered hereby,
including information regarding EXCO's capital structure and continuing losses,
the uncertainty of natural gas and oil prices and certain risks associated with
the Rights Offering.
----------
EXCO maintains its principal executive offices at 5735 Pineland Drive,
Suite 235, Dallas, Texas 75231, and its telephone number is (214) 368-2084.
6
<PAGE> 9
THE RIGHTS OFFERING
Rights . . . . . . . . . . . . . Each holder of Common Stock will receive ten
transferable Rights for each share of Common
Stock held of record by such holder at the
close of business on the Record Date. An
aggregate of 5,089,000 Rights will be
distributed pursuant to the Rights Offering.
Each Right will entitle the holder to
purchase one share of Common Stock. An
aggregate of 5,089,000 shares of Common
Stock will be sold assuming all Rights are
ultimately exercised under the Basic
Subscription Privilege, the Oversubscription
Privilege (if needed) and the Standby
Commitment (if needed). See "The Rights
Offering -- The Rights."
Basic Subscription Privilege . . Each Right will entitle the holder thereof
to receive, upon payment of the Subscription
Price, one share of Common Stock. See "The
Rights Offering -- Subscription Privileges
-- Basic Subscription Privilege."
Oversubscription Privilege . . . Each holder of Rights who exercises in full
such holder's Basic Subscription Privilege
may also subscribe at the Subscription Price
for additional Rights to acquire additional
shares of Common Stock available as a result
of unexercised Rights, if any. In no event,
however, may the holder of Rights
oversubscribe for more than 100% of the
shares purchased by the holder in the Basic
Subscription Privilege. If the number of
shares available taking into account the
aforementioned restrictions are not
sufficient to satisfy the oversubscriptions,
the available shares will be allocated pro
rata (subject to elimination of fractional
shares) among the holders of Rights who
exercise the Oversubscription Privilege, in
proportion, not to the number of shares
requested pursuant to the Oversubscription
Privilege, but to the number of shares each
beneficial holder has purchased pursuant to
the Basic Subscription Privilege; provided,
however, that if such pro rata allocation
results in any holder being allocated a
greater number of shares than such holder
subscribed for pursuant to the exercise of
such holder's oversubscription Privilege,
then such holder will be allocated only such
number of shares as such holder subscribed
for and the remaining shares will be
allocated among all other holders exercising
the Oversubscription Privilege. See "The
Rights Offering -- Subscription Privileges
-- Oversubscription Privilege."
Standby Commitment . . . . . . . ________ has agreed to purchase an
additional number of shares of Common Stock
equal to the number of shares of Common
Stock not purchased pursuant to the exercise
of Rights under the Basic Subscription
Privilege and the Oversubscription
Privilege, also at a price of $______ per
share. In addition, __________ may acquire
Rights from shareholders and exercise those
Rights separate and apart from the terms of
the Standby Commitment.
Subscription Price . . . . . . . $______ in cash per share of Common Stock.
7
<PAGE> 10
Expiration Date . . . . . . . . 5:00 p.m., Dallas time, , 1998 (subject
to extension by EXCO). Rights not exercised
prior to the Expiration Date will be void
and will no longer be exercisable by any
Rights holder.
Procedure for Exercising
Rights . . . . . . . . . . . The Basic Subscription Privilege and the
Oversubscription Privilege may be exercised
by properly completing and signing the
Subscription Certificate evidencing the
Rights and forwarding such Subscription
Certificate (or following the guaranteed
delivery procedures), together with payment
of the Subscription Price for each share of
Common Stock subscribed for pursuant to the
Basic Subscription Privilege and the
Oversubscription Privilege, to
_________________________________ _, as
subscription agent (the "Subscription
Agent"), on or prior to the Expiration Date.
If forwarding Subscription Certificates by
mail, it is recommended that insured,
registered mail be used. No interest will be
paid on funds delivered in payment of the
Subscription Price. The Instructions as to
use of EXCO Resources, Inc. Subscription
Certificates (the "Instructions")
accompanying the Subscription Certificates
should be read carefully and followed in
detail. See "The Rights Offering -- Exercise
of Rights."
NO REVOCATION . . . . . . . . . ONCE A HOLDER OF RIGHTS HAS EXERCISED THE
BASIC SUBSCRIPTION PRIVILEGE OR THE
OVERSUBSCRIPTION PRIVILEGE, SUCH EXERCISE
MAY NOT BE REVOKED. SEE "THE RIGHTS OFFERING
-- NO REVOCATION."
Transferability of Rights . . . The Rights are transferable, and it is
expected that they will trade on the OTC
until the close of business on the last OTC
trading day prior to the Expiration Date.
There can be no assurance, however, that a
market for the Rights will develop or, if a
market develops, that the market will remain
available throughout the period during which
Rights may be exercised, or as to the price
at which the Rights will trade. See "The
Rights Offering -- Method of Transferring
Rights."
Certain Federal Income Tax
Considerations . . . . . . . For United States federal income tax
purposes, Rights holders generally will not
recognize taxable income in connection with
the issuance to them or exercise by them of
Rights. Rights holders may incur gain or
loss upon the sale of the Rights or the
shares of Common Stock acquired upon
exercise of the Rights or upon the receipt
of dividends. See "Certain Federal Income
Tax Considerations."
Use of Proceeds . . . . . . . . The proceeds from the Rights Offering
(including exercise of the Standby
Commitment, if necessary) will be
approximately $__________ which will be used
by EXCO to repay indebtedness under the
Credit Facility and to provide additional
working capital and to pay fees and expenses
associated with this Rights Offering. See
"Use of Proceeds."
OTC Symbols . . . . . . . . . . The Common Stock is traded on the OTC under
the symbol "EXCO." It is anticipated that
the Rights and the Common Stock will trade
on the OTC under the symbol "EXCO RT."
8
<PAGE> 11
Common Stock . . . . . . . . . The terms of the Common Stock are described
under "Description of Capital Stock."
Listing . . . . . . . . . . . . EXCO intends to make application to list its
Common Stock on the Nasdaq National Market
System following completion of the Rights
Offering. There can be no assurance the
Common Stock will be accepted for listing.
9
<PAGE> 12
SUMMARY HISTORICAL FINANCIAL DATA
(In thousands, except per share data)
The following table presents selected historical financial data for
EXCO. The financial data should be read in conjunction with EXCO's financial
statements, the notes thereto and the other financial information, including
pro forma information, included elsewhere herein. In the opinion of management
of EXCO, the data presented reflect all adjustments considered necessary for a
fair presentation of the results for such periods. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the other financial information included elsewhere herein.
<TABLE>
<CAPTION>
Nine Month
Transition
Fiscal Year Ended Period Ended Fiscal Year Ended
March 31, December 31, December 31,
---------------- ------------ -----------------
1994(1) 1995(1) 1995(1) 1996(1) 1997
------- ------- ------------ ------- -----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil and natural gas .................. $ 715 $ 626 $ 560 $ 872 $ 670
Other ................................ 127 105 76 39 28
----- ----- ----- ------- -----
Total revenues .................... 842 731 636 911 698
Costs and expenses:
Oil and natural gas production ....... 459 403 333 429 322
General and administrative ........... 208 371 366 373 486
Depreciation, depletion and
amortization ......................... 80 81 92 114 84
Interest expenses .................... 5 4 5 18 11
Other (2) ............................ -- -- -- 303 --
----- ----- ----- ------- -----
Total expenses .................... 752 859 796 1,237 903
----- ----- ----- ------- -----
Income (loss) before income taxes ....... 90 (128) (160) (326) (205)
Income taxes ............................ -- -- -- -- --
----- ----- ----- ------- -----
Net income (loss) ....................... $ 90 $(128) $(160) $ (326) $(205)
===== ===== ===== ======= =====
Net income (loss) per share (3)(4) ...... $0.31 $(.39) $(.47) $ (.85) $(.51)
===== ===== ===== ======= =====
Weighted average common and common
equivalent shares outstanding (3) ....... 293 328 338 383 403
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
------------------- ---------------------------------
1994 1995 1995 1996 1997
------ ------ ------- ------- --------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Current assets . . . . . . . . . . . . $ 456 $ 577 $ 582 $ 373 $ 727
Oil and natural gas properties, net . 669 785 820 749 473
Total assets . . . . . . . . . . . . . 1,210 1,439 1,511 1,226 1,270
Current liabilities . . . . . . . . . 418 653 861 658 328
Long-term debt . . . . . . . . . . . . 19 16 40 36 15
Stockholders' equity . . . . . . . . . 773 770 610 532 927
</TABLE>
_________________
(1) The data for all prior years has been restated to reflect the change in
EXCO's method of accounting for oil and natural gas operations to the
full cost method of accounting. See Note 2 to EXCO's Financial
Statements. As a result of the change in the accounting method, net
income has been increased by $44,000 ($0.15 per share) for the year ended
March 31, 1994; the net loss for the year ended March 31, 1995, the nine
month period ended December 31, 1995 and the year ended December 31,
1996, has been decreased $40,000 ($0.12 per share), $184,000 ($0.54 per
share) and $3,000 ($0.01 per share), respectively.
(2) The $303,000 expense in fiscal 1996 represents the legal, accounting and
other expenses associated with the attempted acquisition by EXCO of
Taurus Energy Corp.
(3) Per share data has been restated to reflect the one for five reverse
stock split effective July 19, 1996 and the Reverse Stock Split effective
March 31, 1998. The adoption of Financial Accounting Standards Board No.
128, Earnings per Share, did not have a material impact on net income
(loss) per share amounts reported herein.
(4) EXCO has not declared nor paid any dividends during any of the periods
presented.
10
<PAGE> 13
SUMMARY RESERVE AND PRODUCTION DATA
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1997
--------- ---------
<S> <C> <C>
PRODUCTION DATA FOR THE YEAR ENDED:
Oil (Bbls) . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,150 14,453
Natural gas (Mcf) . . . . . . . . . . . . . . . . . . . . . . . 224,024 181,091
Barrel oil equivalents (Boe) . . . . . . . . . . . . . . . . . . 59,487 44,635
PROVED RESERVES AT YEAR END (1) (2):
Oil (Bbls) . . . . . . . . . . . . . . . . . . . . . . . . . . . 168,886 58,116
Natural gas (Mcf) . . . . . . . . . . . . . . . . . . . . . . . 4,761,691 4,326,205
Barrel oil equivalents (Boe) . . . . . . . . . . . . . . . . . . 962,501 779,150
Percentage Proved Developed . . . . . . . . . . . . . . . . . . 59.8% 57.3%
PRICES AT YEAR END (2):
Oil (per Bbl) . . . . . . . . . . . . . . . . . . . . . . . . . $ 24.29 $ 16.74
Natural gas (per Mcf) . . . . . . . . . . . . . . . . . . . . . 3.40 2.11
FUTURE NET CASH FLOWS AT YEAR END (thousands)(2):
Before tax . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,646 $ 6,985
Discounted at 10%, before tax . . . . . . . . . . . . . . . . . 8,319 4,028
Standardized Measures of Discounted Future Net Cash Flows (3) . 8,319 3,865
</TABLE>
--------------------
(1) As of December 31, 1996 and 1997, the proved oil and natural gas
reserves for substantially all of EXCO's properties were estimated by
independent petroleum engineering consultants. See "Business --
Reserves."
(2) Proved reserves and future net cash flows were estimated in accordance
with the Securities and Exchange Commission (the "Commission")
guidelines. Prices at December 31 in each of the years 1996 and 1997
were used in the calculation of proved reserves and future net cash
flows and were held constant through the periods of estimated
production, except as otherwise provided by contract, in accordance
with Commission guidelines. For limitations on the accuracy and
reliability of reserves and future net cash flow estimates, see "Risk
Factors -- Uncertainty of Estimates of Oil and Natural Gas Reserves."
(3) The Standardized Measure of Discounted Future Net Cash Flows prepared
by EXCO represents the present value (using an annual discount rate of
10%) of estimated future net revenues from the production of Proved
Reserves, after giving effect to income taxes. See Note 12 to EXCO's
Financial Statements herein for additional information regarding the
disclosure of the Standardized Measure of Discounted Future Net Cash
Flows.
11
<PAGE> 14
RISK FACTORS
Holders of Rights should consider carefully the following factors
relating to the business of EXCO and the Rights Offering, together with the
information and financial data set forth elsewhere in this Prospectus, prior to
making an investment decision.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT"), WHICH CAN BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS, "MAY," "BELIEVE," "EXPECT," "INTEND,"
"ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER
VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACT INCLUDED IN THIS PROSPECTUS, INCLUDING WITHOUT
LIMITATION, THE STATEMENTS UNDER "PROSPECTUS SUMMARY," "RISK FACTORS,"
"UNAUDITED PRO FORMA FINANCIAL INFORMATION," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- LIQUIDITY AND
CAPITAL RESOURCES," "BUSINESS AND PROPERTIES -- BUSINESS STRATEGY," "BUSINESS
AND PROPERTIES -- OIL AND NATURAL GAS RESERVES" AND "CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS -- TAX CONSEQUENCES TO HOLDERS OF RIGHTS" LOCATED ELSEWHERE
HEREIN REGARDING EXCO'S FINANCIAL POSITION AND LIQUIDITY, THE VOLUME OR
DISCOUNTED PRESENT VALUE OF ITS OIL AND NATURAL GAS RESERVES, ITS ABILITY TO
SERVICE ITS INDEBTEDNESS, ITS STRATEGIC PLANS INCLUDING ITS ABILITY TO LOCATE
AND COMPLETE ACQUISITIONS OF OIL AND NATURAL GAS ASSETS, AND OTHER MATTERS, ARE
FORWARD-LOOKING STATEMENTS. ALTHOUGH EXCO BELIEVES THAT THE EXPECTATIONS
REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO
ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT
FACTORS WITH RESPECT TO ANY SUCH FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM EXCO'S EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED IN THIS
PROSPECTUS, INCLUDING, WITHOUT LIMITATION, IN CONJUNCTION WITH THE
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS. IMPORTANT FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE
FORWARD-LOOKING STATEMENTS HEREIN INCLUDE, BUT ARE NOT LIMITED TO, THE TIMING
AND EXTENT OF CHANGES IN COMMODITY PRICES FOR OIL AND NATURAL GAS, THE NEED TO
DEVELOP AND REPLACE RESERVES, ENVIRONMENTAL RISKS, DRILLING AND OPERATING
RISKS, RISKS RELATED TO EXPLOITATION AND DEVELOPMENT, UNCERTAINTIES ABOUT THE
ESTIMATES OF RESERVES, COMPETITION, GOVERNMENT REGULATION AND THE ABILITY OF
EXCO TO MEET ITS STATED BUSINESS GOALS. ALL SUBSEQUENT WRITTEN AND ORAL
FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO EXCO OR PERSONS ACTING ON ITS BEHALF
ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
FINANCIAL RISKS
FUTURE DEBT SERVICE
EXCO has arranged the Credit Facility to provide an additional source
of capital to finance EXCO's acquisition, development and exploitation
strategy. EXCO's level of indebtedness in the future could have certain effects
on its future operations, including that (i) a substantial portion of EXCO's
cash flow from operations could be dedicated to the payment of interest and
principal on its indebtedness and will not be available for other purposes,
(ii) the covenants contained in the Credit Facility require EXCO to meet
certain financial tests and other restrictions, will limit its ability to
borrow additional funds, to grant liens and to dispose of assets and will
affect EXCO's flexibility in planning for and reacting to changes in its
business, including possible acquisition activities, and (iii) EXCO's ability
to obtain additional financing in the future for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes may be
impaired. The pledge of substantially all of EXCO's assets as collateral for
the Credit Facility will for the foreseeable future make it difficult for EXCO
to obtain financing on an unsecured basis or to obtain secured financing other
than certain "purchase money" indebtedness collateralized by the acquired
assets.
EXCO's ability to meet any future debt service obligations will be
dependent upon EXCO's future performance, which will be subject to oil and
natural gas prices, EXCO's level of production, general economic conditions and
to financial, business and other factors affecting the operations of EXCO, many
of which are beyond
12
<PAGE> 15
its control. There can be no assurance that EXCO's future performance will not
be adversely affected by such changes in oil and natural gas prices and/or
production nor by such economic conditions and/or financial, business and other
factors. In addition, there can be no assurance that EXCO's business will
generate sufficient cash flow from operations or that future bank credit will
be available in an amount sufficient to enable EXCO to service its indebtedness
or make necessary expenditures. In such event, EXCO would be required to obtain
such financing from the sale of equity securities or other debt financing.
There can be no assurance that any such financing will be available on terms
acceptable to EXCO. Should sufficient capital not be available, EXCO may not be
able to continue to implement its business strategy. See "Management's
Discussion and Analysis of Financial Position and Results of Operations --
Liquidity and Capital Resources."
HISTORY OF LOSSES
EXCO had net losses of $160,000, $326,000 and $205,000, the nine
months ended December 31, 1995 and the years ended December 31, 1996 and 1997,
respectively. See "Unaudited Pro Forma Financial Information." EXCO may
continue to incur net losses and, to the extent that natural gas and crude oil
prices are low, such losses may be substantial. See "-- Business and Industry
Risks -- Effects of Changing Prices."
RIGHTS OFFERING RISKS
MARKET CONSIDERATIONS
The Subscription Price was determined by the Board of EXCO and may not
reflect the actual or fair value of EXCO or the Common Stock. The price was
determined after considering such factors as the price paid by Messrs. Miller,
Eubank and Ellis for the purchase of their shares in December 1997 after taking
into account the Reverse Stock Split, future prospects, the industry in general
and EXCO's position in the industry, market valuations of the securities of
companies engaged in similar activities, the quality of the management team and
negotiations with _______ [standby]. At the time the Subscription Price for the
Rights Offering was determined, such price represented a ___% discount to the
market price for EXCO's Common Stock. There is currently no public market for
the Rights. Although the Rights will be listed for trading on the OTC, there can
be no assurance that an active public market will develop or be sustained for
the Rights, that the market price of the Common Stock will not decline during
the subscription period or that, following the issuance and exercise of the
Rights, a subscribing Rights holder will be able to sell shares of Common Stock
purchased in the Rights Offering at a price equal to or greater than the
Subscription Price. The market price of the Common Stock could be subject to
significant fluctuations in response to EXCO's operating results and other
factors, including the size of the public float of the Common Stock (which will
depend in part on the percentage of the Rights that are exercised pursuant to
the Rights Offering).
The effect of the discount on the market price for the Rights may
increase the trading values for the Rights relative to what those trading
values might be if such discount were not present. However, due to the inherent
value of the Rights, the market price for EXCO's Common Stock may decrease by
an amount that approximates the value of the Rights when the Rights are
distributed and begin to trade as a separate security.
IRREVOCABILITY OF SUBSCRIPTIONS
The election to exercise Rights is irrevocable. Until certificates
representing shares of Common Stock are delivered, subscribing Rights holders
may not be able to sell such shares. Certificates representing shares of Common
Stock purchased in the Rights Offering will be delivered by mail as soon as
practicable following the Expiration Date. No interest will be paid to Rights
holders on funds delivered to the Subscription Agent pursuant to the exercise
of Rights pending delivery of such certificates and return of any excess funds
not applied to the purchase of shares.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Holders of Common Stock should recognize no income or gain for federal
income tax purposes upon the receipt, exercise or lapse of the Rights.
Nevertheless, the federal income tax treatment of the distribution of Rights to
holders of Common Stock and any subsequent exercise or lapse of such Rights is
subject to some uncertainty with respect to the characterization of the
distribution of the Rights under the Internal Revenue Code of 1986, as amended.
13
<PAGE> 16
See "Certain Federal Income Tax Considerations" for a more detailed discussion
of the federal income tax consequences resulting from the purchase, ownership
and disposition of Rights.
BUSINESS AND INDUSTRY RISKS
NEED FOR ADDITIONAL FINANCING FOR GROWTH
The growth of EXCO's business will require substantial capital on a
continuing basis. There is no assurance that any such required additional funds
would be available on satisfactory terms and conditions, if at all. There is
also no assurance that EXCO will not pursue, from time to time, opportunities
to acquire oil and natural gas properties and businesses that may utilize the
capital currently expected to be available for its present operations. The
amount and timing of EXCO's future capital requirements, if any, will depend
upon a number of factors, including drilling costs, transportation costs,
equipment costs, marketing expenses, staffing levels and competitive
conditions, and any purchases or dispositions of assets, many of which are not
within EXCO's control. Failure to obtain any required additional financing
could materially adversely affect the growth, cash flow and earnings of EXCO.
In addition, EXCO's pursuit of additional capital could result in the
incurrence of additional debt or potentially dilutive issuances of additional
equity securities. See "Management's Discussion and Analysis of Financial
Position on Results of Operations -- Liquidity and Capital Resources."
CONCENTRATION OF PRODUCTION
EXCO's existing proved oil and natural gas reserves and its production
therefrom are highly concentrated in a small number of wells. Accordingly, to
the extent that EXCO experiences any operating difficulties in connection with
such wells or that the estimated proved reserves attributable thereto are less
than those that are currently estimated to exist, EXCO could be adversely
affected.
GEOGRAPHIC RESTRICTIONS
Pursuant to the non-competition provisions of Mr. Miller's employment
agreement with Coda, Mr. Miller, and as a result EXCO, is prohibited for a
period of one year beginning November 26, 1997 from acquiring or seeking to
acquire any rights or interest in any of sixteen properties in which Coda has
an existing interest or which it was studying at November 26, 1997. This
restriction also extends to two oil and natural gas companies. Some of these
locations are in areas in which EXCO might have an interest and generally
represent the types of properties EXCO would be interested in acquiring. The
non-competition restrictions may adversely effect, at least in the short term,
EXCO's ability to execute its growth strategy.
INABILITY TO DEVELOP ADDITIONAL RESERVES
EXCO's future success as an oil and natural gas producer, as is
generally the case in the industry, depends upon its ability to find, develop
and acquire additional oil and natural gas reserves that are economically
recoverable. Except to the extent that EXCO conducts successful development
activities or acquires properties containing proved reserves, EXCO's proved
reserves will generally decline as reserves are produced. There can be no
assurance that EXCO will be able to locate additional reserves or that EXCO
will drill economically productive wells or acquire properties containing
proved reserves. See "Business and Properties -- Acreage" and "-- Drilling
Activities."
ACQUISITION RISKS
EXCO's business strategy includes focused acquisitions of producing
oil and natural gas properties. Any such future acquisitions will require an
assessment of the recoverable reserves, future oil and natural gas prices,
operating costs, potential environmental and other liabilities and other
similar factors. It generally is not feasible to review in detail every
individual property involved in an acquisition. Ordinarily, review efforts are
focused on the higher- valued properties. However, even a detailed review of
all properties and records may not reveal existing or potential problems; nor
will it permit EXCO to become sufficiently familiar with the properties to
assess fully their deficiencies and capabilities. Inspections are not always
performed on every well, and potential problems, such as
14
<PAGE> 17
mechanical integrity of equipment and environmental conditions that may require
significant remedial expenditures, are not necessarily observable even when an
inspection is undertaken. Even if problems are identified, the seller may be
unwilling or unable to provide effective contractual protection against all or
part of such problems. There can be no assurance that oil and natural gas
properties acquired by EXCO will be successfully integrated into EXCO's
operations or will achieve desired profitability objectives.
DRILLING RISKS
EXCO's drilling involves numerous risks, including the risk that no
commercially productive natural gas or oil reservoirs will be encountered. EXCO
must incur significant expenditures for the identification and acquisition of
properties and for the drilling and completion of wells. The cost of drilling,
completing and operating wells is often uncertain, and drilling operations may
be curtailed, delayed or canceled as a result of a variety of factors,
including unexpected drilling conditions, pressure or irregularities in
formations, equipment failures or accidents, weather conditions and shortages
or delays in the delivery of equipment. In addition, any use by EXCO of
3-dimensional seismic and other advanced technology requires greater
pre-drilling expenditures than traditional drilling strategies. There can be no
assurance as to the success of EXCO's future drilling activities.
UNCERTAINTY OF ESTIMATES OF OIL AND NATURAL GAS RESERVES
Numerous uncertainties are inherent in estimating quantities of proved
oil and natural gas reserves, including many factors beyond the control of
EXCO. This Prospectus contains an estimate of EXCO's proved oil and natural gas
reserves and the estimated future net cash flows and revenue therefrom based
upon reports of EXCO's independent petroleum engineers. Such reports rely upon
various assumptions, including assumptions required by the Commission, as to
constant oil and natural gas prices, drilling and operating expenses, capital
expenditures, taxes and availability of funds and such reports should not be
construed as the current market value of the estimated proved reserves. The
process of estimating oil and natural gas reserves is complex, requiring
significant decisions and assumptions in the evaluation of available
geological, engineering and economic data for each reservoir. As a result, such
estimates are inherently an imprecise evaluation of reserve quantities and the
future net revenue therefrom. Actual future production, revenue, taxes,
development expenditures, operating expenses and quantities of recoverable oil
and natural gas reserves may vary substantially from those assumed in the
estimate. Any significant variance in these assumptions could materially affect
the estimated quantity and value of reserves set forth in this Prospectus. In
addition, EXCO's reserves may be subject to downward or upward revision, based
upon production history, results of future exploitation and development,
prevailing oil and natural gas prices and other factors. See "Business and
Properties -- Oil and Natural Gas Reserves."
GEOGRAPHIC CONCENTRATION OF OPERATIONS
Virtually all of EXCO's current operations are located in Texas and
Louisiana. Because of this concentration, any regional events that increase
costs or competition, reduce availability of equipment or supplies, reduce
demand or limit production will impact EXCO more adversely than if EXCO was
geographically diversified.
CERTAIN INDUSTRY AND MARKETING RISKS
EXCO's operations are subject to the risks and uncertainties
associated with drilling for, producing and transporting of oil and natural
gas. EXCO's future ability to market its natural gas and oil production will
depend upon the availability and capacity of natural gas gathering systems and
pipelines and other transportation facilities. Federal and state regulation of
oil and natural gas production and transportation, general economic conditions,
changes in supply and in demand all could materially adversely affect EXCO's
ability to market its oil and natural gas production. See "Business and
Properties -- Products, Markets and Revenues" and "-- Regulation."
15
<PAGE> 18
EFFECTS OF CHANGING PRICES
The future financial condition and results of operations of EXCO
depend upon the prices it receives for its oil, natural gas and the costs of
acquiring, developing and producing oil and natural gas. Oil and natural gas
prices have historically been volatile and are subject to fluctuations in
response to changes in supply, market uncertainty and a variety of additional
factors that are also beyond EXCO's control. These factors include, without
limitation, the level of domestic production, the availability of imported oil
and natural gas, actions taken by foreign oil and natural gas producing
nations, the availability of transportation systems with adequate capacity, the
availability of competitive fuels, fluctuating and seasonal demand for natural
gas, conservation and the extent of governmental regulation of production,
weather, foreign and domestic government relations, the price of domestic and
imported oil and natural gas, and the overall economic environment. A
substantial or extended decline in oil and/or natural gas prices could have a
material adverse effect on EXCO's estimated value of its natural gas and oil
reserves, and on its financial position, results of operations and access to
capital. EXCO's ability to maintain or increase its borrowing capacity, to
repay current or future indebtedness and to obtain additional capital on
attractive terms is substantially dependent upon oil and natural gas prices.
See "Business and Properties -- Products, Markets and Revenues."
EXCO uses the full cost method of accounting for its investment in oil
and natural gas properties. Under the full cost method of accounting, all
costs of acquisition, exploration and development of oil and natural gas
reserves are capitalized into a "full cost pool" as incurred, and properties in
the pool are depleted and charged to operations using the unit-of-production
method based on the ratio of current production to total proved oil and natural
gas reserves. To the extent that such capitalized costs (net of accumulated
depreciation, depletion and amortization) less deferred taxes exceed the SEC
PV-10 of estimated future net cash flow from proved reserves of oil and natural
gas, and the lower of cost or fair value of unproved properties after income
tax effects, such excess costs are charged against earnings. Once incurred, a
write-down of oil and natural gas properties is not reversible at a later date
even if oil or natural gas prices increase.
OPERATING HAZARDS AND UNINSURED RISKS
EXCO's operations are subject to the risks inherent in the oil and
natural gas industry, including the risks of fire, explosions, blow-outs, pipe
failure, abnormally pressured formations and environmental accidents such as
oil spills, gas leaks, ruptures or discharges of toxic gases, brine or well
fluids into the environment (including groundwater contamination). The
occurrence of any of these risks could result in substantial losses to EXCO due
to injury or loss of life, severe damage to or destruction of property, natural
resources and equipment, pollution or other environmental damage, clean-up
responsibilities, regulatory investigation and penalties and suspension of
operations. In accordance with customary industry practice, EXCO maintains
insurance against some, but not all, of the risks described above. There can be
no assurance that any insurance maintained by EXCO will be adequate to cover
any such losses or liabilities. Further, EXCO cannot predict the continued
availability of insurance, or availability at commercially acceptable premium
levels. EXCO does not carry business interruption insurance. Losses and
liabilities arising from uninsured or under-insured events could have a
material adverse effect on the financial condition and operations of EXCO. From
time to time, due primarily to contract terms, pipeline interruptions or
weather conditions, the producing wells in which EXCO owns an interest have
been subject to production curtailments. The curtailments range from production
being partially restricted to wells being completely shut-in. The duration of
curtailments varies from a few days to several months. In most cases EXCO is
provided only limited notice as to when production will be curtailed and the
duration of such curtailments. EXCO is not currently experiencing any material
curtailment on its production.
SUBSTANTIAL COMPETITION
The oil and natural gas industry is highly competitive and there are
many other companies engaged in the oil and natural gas business. EXCO is
likely to encounter substantial competition from major oil companies, other
independent oil and natural gas concerns and individual producers and operators
in acquiring oil and natural gas properties suitable for exploitation and
development. Many of the companies with which EXCO competes have substantially
greater financial, technical and other resources and may have greater
experience in the oil and natural
16
<PAGE> 19
gas business than EXCO. Therefore, competitors may be able to pay more for
desirable leases and to evaluate, bid for and purchase a greater number of
properties or prospects than the financial or personnel resources of EXCO will
permit. See "Business and Properties -- Competition."
MARKET FOR COMMON STOCK
EXCO cannot ensure that an active trading market for the Common Stock
on the OTC or any other market will develop or be sustained subsequent to the
offering made hereby. After completion of the offering made hereby, the market
for the Common Stock may be influenced by many factors, including the depth and
liquidity of the market for the Common Stock, investor perceptions of EXCO and
general economic and other similar conditions. EXCO intends to make application
to list its Common Stock on the Nasdaq National Market System following
completion of the Rights Offering. There can be no assurance the Common Stock
will be approved for listing.
VOLATILITY OF STOCK PRICE
The market price for shares of the Common Stock has varied
significantly and may be volatile depending on news announcements or changes in
general market conditions. In particular, news announcements, quarterly results
of operations, competitive developments, litigation or governmental regulatory
action impacting EXCO may adversely affect the Common Stock price. In addition,
because the number of shares of Common Stock held by the public is relatively
small, the sale of a substantial number of shares of the Common Stock in a
short period of time could adversely affect the market price of the Common
Stock. See "Price Range of Common Stock and Dividend Policy."
DIVIDEND POLICY
EXCO has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends on its Common Stock in the foreseeable future.
The Common Stock is not a suitable investment for persons requiring current
income. See "Price Range of Common Stock and Dividend Policy."
ANTI-TAKEOVER EFFECT OF ARTICLES OF INCORPORATION AND POSSIBLE
ISSUANCES OF PREFERRED STOCK
Certain provisions of the Articles of Incorporation may delay, defer
or prevent a tender offer or takeover attempt that a shareholder might consider
to be in such shareholder's best interest, including attempts that might result
in a premium over the market price for the stock held by shareholders. The
Articles of Incorporation permit the Board to issue up to 10,000,000 shares of
preferred stock and to establish by resolution one or more series of preferred
stock and to establish the powers, designations, preferences and relative,
participating, optional or other special rights of each series of preferred
stock. The preferred stock could be issued on terms that are unfavorable to the
holders of Common Stock, including the grant of superior voting rights, the
grant of preferences in favor of preferred shareholders in the payment of
dividends and upon liquidation of EXCO and the designation of conversion rights
that entitle holders of preferred stock to convert their shares into Common
Stock on terms that are dilutive. The issuance of preferred stock could make a
takeover or change in control of EXCO more difficult. EXCO however does not
intend to use the provisions of the Articles of Incorporation to delay, defer
or prevent a tender offer or takeover attempt.
DEPENDENCE UPON KEY PERSONNEL
EXCO is substantially dependent upon two key individuals within its
management, Mr. Miller and Mr. Eubank. The loss of the services of either one
of these individuals could have a material adverse impact upon EXCO. See
"Management."
17
<PAGE> 20
GOVERNMENTAL REGULATION
GENERAL
EXCO's operations are affected from time to time in varying degrees by
political developments and federal and state laws and regulations. In
particular, oil and natural gas production, operations and economics are or
have been affected by price controls, taxes and other laws relating to the oil
and natural gas industry, by changes in such laws and by changes in
administrative regulations. EXCO cannot predict how existing laws and
regulations may be interpreted by enforcement agencies or court rulings,
whether additional laws and regulations will be adopted, or the effect such
changes may have on its business or financial condition. Matters subject to
regulation include discharge permits for drilling operations, drilling and
abandonment bonds or other financial responsibility requirements, reports
concerning operations, the spacing of wells, unitization and pooling of
properties, and taxation. There can be no assurance that new laws or
regulations, or modifications of or new interpretations of existing laws and
regulations, will not increase substantially the cost of compliance or
otherwise adversely affect EXCO's oil and natural gas operations and financial
condition or that material indemnity claims will not arise against EXCO with
respect to properties acquired by or from EXCO. See "Business and Properties --
Regulation."
ENVIRONMENTAL
EXCO's operations are subject to numerous laws and regulations
governing the discharge of materials into the environment or otherwise relating
to environmental protection. These laws and regulations require the acquisition
of a permit before drilling commences, restrict the types, quantities and
concentration of various substances that can be released into the environment
in connection with drilling and production activities, limit or prohibit
drilling activities on certain lands lying within wilderness, wetlands and
other protected areas, and impose substantial liabilities for pollution which
might result from EXCO's operations. Moreover, the recent trend toward stricter
standards in environmental legislation and regulation is likely to continue.
For instance, legislation has been proposed in Congress from time to time that
would reclassify certain crude oil and natural gas exploitation and production
wastes as "hazardous wastes" which would make the reclassified wastes subject
to much more stringent handling, disposal and clean-up requirements. If such
legislation were to be enacted, it could have a significant impact on the
operating costs of EXCO, as well as the oil and natural gas industry in
general. Initiatives to further regulate the disposal of crude oil and natural
gas wastes are also pending in certain states, and these various initiatives
could have a similar impact on EXCO. EXCO could incur substantial costs to
comply with environmental laws and regulations. In addition to compliance
costs, government entities and other third parties may assert substantial
liabilities against owners and operators of oil and natural gas properties for
oil spills, discharge of hazardous materials, remediation and clean-up costs
and other environmental damages, including damages caused by previous property
owners. As a result, substantial liabilities to third parties or governmental
entities may be incurred, the payment of which could reduce or eliminate the
funds available for project investment or result in loss of EXCO's properties.
Although EXCO maintains insurance coverage it considers to be customary in the
industry, it is not fully insured against certain of these risks, either
because such insurance is not available or because of high premium costs.
Accordingly, EXCO may be subject to liability or may lose substantial portions
of properties due to hazards that cannot be insured against or have not been
insured against due to prohibitive premium costs or for other reasons. The
imposition of any such liabilities on EXCO could have a material adverse effect
on EXCO's financial condition and results of operations.
The Oil Pollution Act of 1990 ("OPA") imposes a variety of regulations
on "responsible parties" related to the prevention of oil spills. The
implementation of new, or the modification of existing, environmental laws or
regulations, including regulations promulgated pursuant to the Oil Pollution
Act of 1990, could have a material adverse impact on EXCO. While EXCO does not
anticipate incurring material costs in connection with environmental compliance
and remediation, it cannot guarantee that material costs will not be incurred.
See "Business and Properties -- Regulation."
18
<PAGE> 21
RECENT DEVELOPMENTS
CHANGE OF CONTROL
On December 19, 1997, Mr. Miller purchased (the "Purchase") 413,423
shares of Common Stock. Upon completion of the Purchase, Mr. Miller became the
beneficial owner of approximately 51% of the Common Stock of EXCO.
The Purchase was effected pursuant to the terms of a Stock Option
Agreement first dated December 8, 1997 among Mr. Miller, on the one hand, and
Richard D. Collins, Dave Fitzgerald, Inc., David N. Fitzgerald, Francis C.
Fitzgerald, W.R. Granberry, Glenn L. Seitz, Suzanne F. Bobo, J.A. Dinger, John
A. Schlensker, Donald C. Thomas, Jr. and R. Scott Collins (collectively, the
"Sellers"), on the other (the "Option Agreement"). The Sellers included members
of EXCO's management and certain affiliates. On December 18, 1997, Mr. Miller
exercised his option to purchase the shares. On December 19, 1997, Mr. Miller
executed a Stock Purchase Agreement among Mr. Miller, on the one hand, and
certain Sellers, on the other (the "Purchase Agreement"). Pursuant to the terms
of the Option Agreement and the Purchase Agreement, the Purchase was
consummated December 19, 1997. In connection with the Purchase, Mr. Miller paid
the Sellers an aggregate of approximately $1,240,269 in cash from personal
funds. The consideration paid by Mr. Miller in connection with the Purchase was
determined by arms' length negotiations between Mr. Miller and the Sellers.
In addition, on December 19, 1997, the Board of Directors of EXCO held
a meeting at which time the resignations of various officers and directors of
EXCO were tendered and accepted. The Board appointed Mr. Miller as a Director
and then elected him Chairman and Chief Executive Officer of EXCO. The Board
also appointed Mr. Eubank to the Board of Directors and elected him President,
Treasurer and Chief Financial Officer of EXCO. Mr. Dave N. Fitzgerald resigned
as Chairman of the Board of EXCO, Mr. Charles W. Gleeson resigned as President
and Chief Executive Officer of EXCO, Mr. Glenn L. Seitz resigned as a Director
and Treasurer of EXCO, Mr. Richard D. Collins resigned as a Director and
Secretary of EXCO and Mr. W.R. Granberry resigned as a Director of EXCO. Mr.
Richard E. Miller was elected Secretary of EXCO. Messrs. Fitzgerald and
Gleeson remained as Directors of EXCO.
On December 31, 1997, EXCO issued, in a private placement, 100,000
shares of Common Stock to Mr. Eubank for an aggregate purchase price of
$300,000, or $3.00 per share ($6.00 per share equivalent after adjusting for
the Reverse Stock Split). In addition, on that same date EXCO issued, in a
private placement, 100,000 shares to Mr. Ellis for an aggregate purchase price
of $300,000, or $3.00 per share ($6.00 per share equivalent after adjusting
for the Reverse Stock Split). All of the shares so issued are deemed
"restricted" shares under the Federal securities laws. The $600,000 aggregate
gross purchase consideration will be used as general corporate working capital
by EXCO. As of December 31, 1997, EXCO had outstanding 1,005,300 shares of
Common Stock.
On December 31, 1997, Mr. Eubank resigned as Chief Financial Officer
and Dr. Ramsey was appointed Chief Financial Officer and Vice President of
EXCO.
MAVERICK COUNTY ACQUISITION
EXCO is seeking to grow and diversify its operations through the
acquisition of certain energy assets including producing properties. On January
22, 1998, EXCO entered into a letter of intent to acquire the Maverick County
Properties. On February 11, 1998, EXCO consummated a purchase and sale
agreement for the Maverick County Properties. The purchase price for the
Maverick County Properties was $760,200.
On December 31, 1997, the Maverick County Properties were estimated to
contain 415,975 Boe of proved reserves, 98% of which were natural gas, and
owned leasehold interests in a total of 3,744 gross acres (3,123 net acres) of
oil and natural gas properties, 9.6% of gross acres which were developed acres.
The Maverick County Properties include 9 gross productive wells (7.0 net
productive wells) with current net daily production of approximately .7 Bbls of
oil and 333 Mcf of natural gas per day, and 2 gross (1.87 net) non-producing
wells which may require recompletions, workovers or abandonment. At the
present time, 2 gross (1.15 net) development wells are planned to be drilled on
these properties. The Maverick County Properties include 360 gross (280 net)
developed
19
<PAGE> 22
acres and 3,384 gross (2,843 net) undeveloped acres. Based on independent
engineer estimates as of January 1, 1998, the Maverick County Properties are
estimated to contain 8,011 Bbls of oil and 2,447,785 Mcf of natural gas of
proved reserves. Approximately 66% of the estimated proved reserves of the
Maverick County Properties are classified as developed. The acquisition also
includes an 86.9% interest in a natural gas gathering system and an 88%
interest in a natural gas treating facility, both of which were operated by
Osborne Oil Company. See "Business and Properties of EXCO -- Oil and Natural
Gas Reserves" and "-- Acreage."
CREDIT FACILITY
On February 11, 1998, EXCO entered into the Credit Facility with
NationsBank of Texas, N.A. The Credit Facility is for $50 million, subject to
borrowing base limitations. The Credit Facility consists of a regular revolver
which at March 30, 1998, had a borrowing base of $2.2 million. On March 30,
1998 approximately $1.6 million was available to be borrowed under the Credit
Facility. A portion of the borrowing base is available for the issuance of
letters of credit. All borrowings under the Credit Facility are secured by a
first lien deed of trust providing a security interest in tangible and
intangible assets representing at least 90% of the assessed present value of
EXCO's oil and natural gas properties. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
ANNUAL MEETING OF SHAREHOLDERS
On March 31, 1998 EXCO held its Annual Meeting of Shareholders (the
"Meeting"). Several Board proposals, including two amendments to the Restated
Articles of Incorporation, were approved by the shareholders at the Meeting.
BOARD OF DIRECTORS
At the Meeting, the shareholders considered and approved the Board's
proposal to amend the Restated Articles of Incorporation to allow the Board to
fix the number of directors by resolution. At the Meeting, the shareholders
elected Messrs. Miller, Eubank, Ramsey, Pickens, Smith, Ellis and Muckleroy as
directors.
REVERSE STOCK SPLIT
At the Meeting, the shareholders considered and approved an amendment
to the Restated Articles of Incorporation to effect a one for two reverse stock
split, to maintain the number of authorized shares of Common Stock at
25,000,000 and to double the par value of the Common Stock from $0.01 to $0.02
per share. EXCO effected the Reverse Stock Split effective March 31, 1998.
1998 STOCK OPTION PLAN
At the Meeting, the shareholders approved the EXCO Resources, Inc.
1998 Stock Option Plan (the "1998 Stock Option Plan") effective as of March 13,
1998.
Under the 1998 Stock Option Plan, any EXCO employee (including an
employee who is also a director or an officer), consultants or directors may
receive incentive compensation based on criteria established by the Board of
Directors. Options to purchase up to 500,000 shares (as adjusted for the
Reverse Stock Split) may be granted under the 1998 Stock Option Plan.
20
<PAGE> 23
USE OF PROCEEDS
The total proceeds (assuming a $6.00 per share Subscription Price for
the purposes of this table) from the Rights Offering are estimated to be
approximately $30,534,000 (assuming all Rights are exercised). The following
table sets forth the proposed sources and uses of funds from the Rights
Offering. For a description of the Rights Offering, see "The Rights Offering."
<TABLE>
<CAPTION>
Amounts
---------
(in millions)
<S> <C>
SOURCES
Common Stock . . . . . . . . . . . . . . . . $ 30.5
Total . . . . . . . . . . . . . . . $ 30.5
USES
Repay indebtedness(1) . . . . . . . . . . . . $ .7
Working capital . . . . . . . . . . . . . . . 29.7
Rights Offerings expenses(2) . . . . . . . . .1
---------
Total . . . . . . . . . . . . . . . $ 30.5
=========
</TABLE>
-------------------------
(1) Includes repayment of approximately $600,000 outstanding under
EXCO's Credit Facility borrowed on February 11, 1998 as a result
of the Maverick County Acquisition.
(2) Represents estimated expenses attributable to the Rights
Offering.
21
<PAGE> 24
CAPITALIZATION
The following table sets forth the capitalization of EXCO (assuming a
$6.00 per share Subscription Price for the purposes of this table) (i) as of
December 31, 1997 and (ii) on a pro forma basis as of December 31, 1997 to give
effect to the Maverick County Acquisition and to the sale of 5,089,000 shares
of Common Stock in the Rights Offering and the application of the net proceeds
therefrom as if such transactions had occurred on December 31, 1997. See "Use
of Proceeds," "Unaudited Pro Forma Condensed Financial Statements" and notes
thereto and EXCO's historical Financial Statements and notes thereto appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
December 31, 1997
-----------------------
Actual Pro Forma
---------- -----------
(In thousands,
except per share data)
<S> <C> <C>
Long-term debt, less current maturities (1) . . . . . . . . . . . . . . . . . $ 15 $ 615
STOCKHOLDERS' EQUITY:
Common Stock, $.02 par value; 25,000,000 shares authorized;
502,650 shares issued and outstanding; 5,597,900 shares pro forma (2) . . 10 112
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 917 31,273
Retained earnings (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
---------- -----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . 927 31,385
---------- -----------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . $ 942 $ 32,000
========== ===========
</TABLE>
-------------------------
(1) See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources"
for additional information relating to the Credit Facility.
(2) Historical and pro forma information has been adjusted to give
effect to the Reverse Stock Split effected as of March 31, 1998.
Excludes an aggregate of 1,000,000 shares of Common Stock that
are reserved for issuance under EXCO's 1998 Stock Option Plan.
(3) Effective December 31, 1997, EXCO effected a
quasi-reorganization to eliminate its accumulated deficit. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Quasi-Reorganization."
DILUTION
The net tangible book value of the Common Stock as of December 31,
1997, was $927,000 or $1.84 per share. Net tangible book value per share
represents total tangible assets less total liabilities, divided by the number
of shares of Common Stock outstanding, on a fully diluted basis excluding stock
options. After giving effect to the consummation of the Rights Offering
(assuming a $6.00 per share Subscription Price for the purposes of this table)
and the application of the net proceeds therefrom, the net tangible book value
of EXCO as of December 31, 1997, would have been approximately $31,385,000, or
$5.60 per share (before giving effect to the cash buy-back of fractional
shares). This represents an immediate increase in net tangible book value of
$3.76 per share with respect to shares outstanding prior to the Rights Offering
and an immediate dilution of $(1.44) per share with respect to shares purchased
upon the exercise of Rights, as illustrated in the following table:
<TABLE>
<S> <C>
Subscription Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6.00
Net tangible book value per share at December 31, 1997 . . . . . . . . . . . 1.84
--------
Increase per share attributable to Rights Offering . . . . . . . . . . . . . 4.16
Pro forma net tangible book value per share after the consummation
of the Rights Offering and application of net proceeds therefrom . . . . . 5.60
Dilution per share purchased upon the exercise of Rights . . . . . . . . . . (1.44)(1)
</TABLE>
-------------------------
(1) Does not take into account shares acquired or held other than
upon the exercise of Rights.
22
<PAGE> 25
To the extent a shareholder sells or otherwise does not exercise such
shareholder's Rights, such shareholder's proportionate interest in EXCO's net
assets, earnings and voting power will be decreased. A shareholder selling
Rights may or may not be compensated for such dilution.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
TRADING PRICES
EXCO's Common Stock is currently quoted on the OTC under the symbol
"EXCO," but there is limited trading in the Common Stock. The following table
sets forth the high and low bid prices by calendar quarter from January 1, 1995
through March 30, 1998, based upon quotations periodically published on the
OTC. The price quotations below have been adjusted to estimate the effect of
the one for five reverse stock split of the Common Stock in the case of
quotations for periods prior to July 19, 1996, the effective date of the stock
split. Additionally, the price quotations below have been adjusted to estimate
the effect of the Reverse Stock Split of the Common Stock in the case of
quotations for periods prior to March 31, 1998, the effective date of the
Reverse Stock Split. All price quotations present prices between dealers,
without retail mark-ups, mark-downs or commissions and may not represent actual
transactions.
<TABLE>
<CAPTION>
COMMON STOCK
-------------------
High Low
------- ---------
<S> <C> <C>
1998
First Quarter (through March 30, 1998) $ 7.00 $ 6.00
1997
Fourth Quarter . . . . . . . . . . . . . . . . . $ 6.26 $ 5.50
Third Quarter . . . . . . . . . . . . . . . . . 5.76 5.50
Second Quarter . . . . . . . . . . . . . . . . . 5.76 5.50
First Quarter . . . . . . . . . . . . . . . . . 7.00 5.50
1996
Fourth Quarter . . . . . . . . . . . . . . . . . $ 5.50 $ 5.50
Third Quarter . . . . . . . . . . . . . . . . . 5.50 4.00
Second Quarter . . . . . . . . . . . . . . . . . 5.00 3.12
First Quarter . . . . . . . . . . . . . . . . . 5.00 3.12
1995
Fourth Quarter . . . . . . . . . . . . . . . . . $ 5.00 $ 3.12
Third Quarter . . . . . . . . . . . . . . . . . 5.00 2.50
Second Quarter . . . . . . . . . . . . . . . . . 6.26 2.50
First Quarter . . . . . . . . . . . . . . . . . 6.26 3.76
</TABLE>
On March 17, 1998, there were 1,017,800 shares of Common Stock, par
value $.01 per share, outstanding. At such date, there were approximately 1,700
record holders of Common Stock. On March 31, 1998, after effecting the Reverse
Stock Split without taking into account the cash purchase of any resulting
fractional shares, there were 508,900 shares of Common Stock outstanding.
DIVIDEND POLICY
EXCO has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends on its Common Stock in the foreseeable future.
EXCO anticipates that any income generated in the foreseeable future will be
retained for the development and expansion of its business. Future dividend
policy is subject to the discretion of the Board and will depend upon a number
of factors, including future earnings, debt service, capital requirements,
restrictions in EXCO's credit agreement, business conditions, the financial
condition of EXCO and other factors that the Board deems relevant.
23
<PAGE> 26
THE RIGHTS OFFERING
THE RIGHTS
EXCO is distributing transferable Rights to the record holders of its
outstanding Common Stock as of the Record Date, at no cost to such record
holders. EXCO will distribute ten Rights for each share of Common Stock held on
the Record Date. One Right will entitle the holder to purchase one share of
Common Stock. The Rights will be evidenced by transferable Subscription
Certificates.
No Subscription Certificate may be divided in such a way as to permit
the holder of such Certificate to receive a greater number of Rights than the
number to which such Subscription Certificate entitles its holder, except that
a depository, bank, trust company or securities broker or dealer holding shares
of Common Stock on the Record Date for more than one beneficial owner may, upon
proper showing to the Subscription Agent, exchange its Subscription Certificate
to obtain a Subscription Certificate for the number of Rights to which all such
beneficial owners in the aggregate would have been entitled had each been a
record holder of Common Stock on the Record Date.
SUBSCRIPTION PRIVILEGES
BASIC SUBSCRIPTION PRIVILEGE
Each Right will entitle the holder thereof to receive, upon payment of
the Subscription Price, one share of Common Stock. Certificates representing
shares of Common Stock purchased pursuant to the Basic Subscription Privilege
will be delivered to subscribers as soon as practicable after the Expiration
Date, irrespective of whether the Subscription Privilege is exercised
immediately prior to the Expiration Date or earlier.
OVERSUBSCRIPTION PRIVILEGE
Subject to the allocation described below, each Right also carries the
right to subscribe for additional Rights to acquire additional shares of Common
Stock at the Subscription Price not subscribed for through the exercise of the
Basic Subscription Privilege by other Rights holders (the "Excess Shares").
Only Rights holders who exercise the Basic Subscription Privilege in full will
be entitled to exercise the Oversubscription Privilege.
In no event, however, may the holder oversubscribe for more than 100%
of the shares purchased by the holder in the Basic Subscription Privilege. If
the number of shares available taking into account the aforementioned
restrictions are not sufficient to satisfy the oversubscriptions, the available
shares will be allocated pro rata (subject to elimination of fractional shares)
among the holders of Rights who exercise the Oversubscription Privilege, in
proportion, not to the number of shares requested pursuant to the
Oversubscription Privilege, but to the number of shares each beneficial holder
has purchased pursuant to the Basic Subscription Privilege; provided, however,
that if such pro rata allocation results in any holder being allocated a
greater number of shares than such holder subscribed for pursuant to the
exercise of such holder's Oversubscription Privilege, then such holder will be
allocated only such number of shares as such holder subscribed for and the
remaining shares will be allocated among all other holders exercising the
Oversubscription Privilege.
Holders desiring to exercise their Oversubscription Privilege should
indicate in the space provided on their Subscription Certificate the number of
additional shares they would like to subscribe for. As soon as practicable
following the Expiration Date, EXCO will determine the number of shares of
Common Stock that may be purchased pursuant to the Oversubscription Privilege.
Holders must tender with their Subscription Certificate the full amount due on
exercise of their Oversubscription Privilege for that number of shares they
have so subscribed for (in addition to the payment due on the Basic
Subscription Privilege).
Certificates representing Excess Shares purchased pursuant to the
Oversubscription Privilege will be delivered to subscribers as soon as
practicable after the Expiration Date and after all prorations and adjustments
contemplated by the terms of the Rights Offering have been effected. EXCO will
also repay, without interest,
24
<PAGE> 27
subscribing holders for any overpayment on the amount determined to be due with
respect to such subscriber's Oversubscription Privilege.
Banks, brokers and other nominee holders of Rights who exercise the
Basic Subscription Privilege and the Oversubscription Privilege on behalf of
beneficial owners of Rights will be required to certify to the Subscription
Agent and EXCO, in connection with the exercise of the Oversubscription
Privilege, as to the aggregate number of Rights that have been exercised and
the number of shares of Common Stock that are being subscribed for pursuant to
the Oversubscription Privilege by each beneficial owner of Rights on whose
behalf such nominee holder is acting.
EXPIRATION DATE
The Rights will expire at 5:00 p.m., Dallas time, on ________, 1998,
unless extended by EXCO. After the Expiration Date, unexercised Rights will be
null and void. EXCO will not be obligated to honor any purported exercise of
Rights received by the Subscription Agent after the Expiration Date, regardless
of when the documents relating to such exercise were sent, except pursuant to
the Guaranteed Delivery Procedures described below.
DETERMINATION OF SUBSCRIPTION PRICE
The Subscription Price was determined by EXCO and its Board of
Directors. The Subscription Price was determined after considering such
factors as the price paid by Messrs. Miller, Eubank and Ellis for the purchase
of their shares in December 1997 after taking into account the Reverse Stock
Split, future prospects, the industry in general and EXCO's position in the
industry, market valuations of the securities of companies engaged in similar
activities, the quality of the management team and negotiations with
____________ [Standby]. The Subscription Price should not be considered an
indication of the actual value of EXCO or its Common Stock. There can be no
assurance that the market price of the Common Stock will not decline during the
subscription period or that, following the issuance of the Rights and of the
Common Stock upon exercise of Rights, a subscribing Rights holder will be able
to sell shares of Common Stock purchased in the Rights Offering at a price
equal to or greater than the Subscription Price.
At the time the Subscription Price for the Rights Offering was
determined, such price represented a ___% discount to the market price for
EXCO's Common Stock. The market price for EXCO's Common Stock is expected to
decrease by an amount that approximates the value of the Rights when the Rights
are distributed and begin to trade as a separate security.
EXERCISE OF RIGHTS
Rights may be exercised by delivery to the Subscription Agent, on or
prior to the Expiration Date, of the properly completed and duly executed
Subscription Certificate evidencing such Rights (together with any required
signature guarantees), accompanied by payment in full of the Subscription Price
for each share of Common Stock subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription Privilege (except as permitted
pursuant to clause (iii) of the next sentence). Such payment in full must be
made by (i) check or bank draft drawn upon a United States bank or a postal,
telegraphic or express money order payable to "________________________, as
Subscription Agent"; or (ii) wire transfer of funds to the account maintained
by the Subscription Agent for such purpose at ____________________, Account No.
_________, ABA No. __________; or (iii) in such other manner as EXCO may
approve in writing in the case of persons acquiring an aggregate number of
shares of Common Stock totaling $_________ or more, provided that in such case
the full amount of such Subscription Price is received by the Subscription
Agent in currently available funds within one OTC trading day prior to the
Expiration Date (the payment method under (iii) being an "Approved Payment
Method"). Payment of the Subscription Price will be deemed to have been
received by the Subscription Agent only upon (a) clearance of any uncertified
check, (b) receipt by the Subscription Agent of any certified check or bank
draft drawn upon a U.S. bank or of any postal, telegraphic or express money
order, (c) receipt of good funds in the Subscription Agent's account designated
above or (d) receipt of funds by the Subscription Agent through an Approved
Payment Method. PLEASE NOTE THAT FUNDS PAID BY UNCERTIFIED PERSONAL CHECK MAY
TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR. ACCORDINGLY, HOLDERS WHO WISH TO
PAY THE SUBSCRIPTION PRICE BY MEANS OF
25
<PAGE> 28
UNCERTIFIED PERSONAL CHECK ARE URGED TO MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF
THE EXPIRATION DATE TO ENSURE THAT SUCH PAYMENT IS RECEIVED AND CLEARS BY SUCH
DATE, AND ARE URGED TO CONSIDER PAYMENT BY MEANS OF CERTIFIED OR CASHIER'S
CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
Subscription Certificates and payment of the Subscription Price should
be delivered to the address set forth below under "-- Subscription Agent."
If a Rights holder wishes to exercise Rights, but time will not permit
such holder to cause the Subscription Certificate(s) evidencing such Rights to
reach the Subscription Agent on or prior to the Expiration Date, such Rights
may nevertheless be exercised if all of the following conditions (the
"Guaranteed Delivery Procedures") are met:
(i) such holder has caused payment in full of the
Subscription Price for each share of Common Stock being subscribed for
pursuant to the Basic Subscription Privilege and the Oversubscription
Privilege to be received (in the manner set forth above) by the
Subscription Agent on or prior to the Expiration Date;
(ii) the Subscription Agent receives, on or prior to the
Expiration Date, a notice of guaranteed delivery (a "Notice of
Guaranteed Delivery"), substantially in the form provided with the
Instructions distributed with the Subscription Certificates, from a
member firm of a registered national securities exchange or a member
of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office or correspondent in
the United States, stating the name of the exercising Rights holder,
the number of Rights represented by the Subscription Certificate(s)
held by such exercising holder, the number of shares of Common Stock
being subscribed for pursuant to the Basic Subscription Privilege and
the number of shares, if any, being subscribed for pursuant to the
Oversubscription Privilege, and guaranteeing the delivery to the
Subscription Agent of any Subscription Certificate(s) evidencing such
Rights within three OTC trading days following the date of the Notice
of Guaranteed Delivery; and
(iii) the properly completed and duly executed Subscription
Certificate(s), including any required signature guarantees,
evidencing the Rights being exercised is received by the Subscription
Agent within three OTC trading days following the date of the Notice
of Guaranteed Delivery relating thereto. The Notice of Guaranteed
Delivery may be delivered to the Subscription Agent in the same manner
as Subscription Certificates at the addresses set forth below, or may
be transmitted to the Subscription Agent by facsimile transmission
(facsimile no. ____________). Additional copies of the form of Notice
of Guaranteed Delivery are available upon request from
________________________.
Unless a Subscription Certificate (i) provides that the shares of
Common Stock to be issued pursuant to the exercise of Rights represented
thereby are to be delivered to the record holder of such Rights or (ii) is
submitted for the account of a member firm of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc.,
or a commercial bank or trust company having an office or correspondent in the
United States, signatures on such Subscription Certificate must be guaranteed
by an eligible guarantor institution ("Eligible Guarantor Institution") as
defined in Rule 17Ad-15 of the Exchange Act, subject to the standards and
procedures adopted by the Subscription Agent.
Funds received in payment of the Subscription Price for Excess Shares
subscribed for pursuant to the Oversubscription Privilege will be held in a
segregated account pending issuance of such Excess Shares. If a Rights holder
exercising the Oversubscription Privilege is allocated less than all of the
Excess Shares that such holder wished to subscribe for pursuant to the
Oversubscription Privilege, the excess funds paid by such holder in respect of
the Subscription Price for shares not issued will be returned by mail without
interest or deduction as soon as practicable after the Expiration Date.
A holder who holds shares of Common Stock for the account of others,
such as a broker, a trustee or a depositary for securities, should notify the
respective beneficial owners of such shares as soon as possible to ascertain
such beneficial owners' intentions and to obtain instructions with respect to
the Rights beneficially owned by them.
26
<PAGE> 29
Beneficial owners of Common Stock or Rights held through such a holder of
record should contact the holder and request the holder to effect transactions
in accordance with the beneficial owner's instructions.
If either the number of Rights being exercised is not specified on a
Subscription Certificate, or the payment delivered is not sufficient to pay the
full aggregate Subscription Price for all shares of Common Stock stated to be
subscribed for, the Rights holder will be deemed to have exercised the maximum
number of Rights that could be exercised for the amount of the payment
delivered by such Rights holder. If the payment delivered by the Rights holder
exceeds the aggregate Subscription Price for the number of Rights evidenced by
the Subscription Certificate(s) delivered by such Rights holder, the payment
will be applied, until depleted, to subscribe for shares of Common Stock in the
following order: (i) to subscribe for the number of shares, if any, of Common
Stock indicated on the Subscription Certificate(s) pursuant to the Basic
Subscription Privilege; (ii) to subscribe for shares of Common Stock until the
Basic Subscription Privilege has been fully exercised with respect to all of
the Rights represented by the Subscription Certificate; and (iii) to subscribe
for additional shares of Common Stock pursuant to the Oversubscription
Privilege (subject to any applicable proration). Any excess payment remaining
after the foregoing allocation will be returned to the Rights holder as soon as
practicable by mail, without interest or deduction.
The Instructions accompanying the Subscription Certificates should be
read carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO
EXCO.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK
OF THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH
CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO
ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO THE
EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE
BUSINESS DAYS TO CLEAR, RIGHTS HOLDERS ARE STRONGLY URGED TO PAY, OR ARRANGE
FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE
TRANSFER OF FUNDS.
All questions concerning the timeliness, validity, form and
eligibility of any exercise of Rights will be determined by EXCO, whose
determinations will be final and binding. EXCO, in its sole discretion, may
waive any defect or irregularity, or permit a defect or irregularity to be
corrected within such time as it may determine, or reject the purported
exercise of any Right by reason of any defect or irregularity in such exercise.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as EXCO determines in
its sole discretion. Neither EXCO nor the Subscription Agent will be under any
duty to give notification of any defect or irregularity in connection with the
submission of Subscription Certificates or incur any liability for failure to
give such notification.
Any questions or requests for assistance concerning the method of
exercising Rights or requests for additional copies of this Prospectus, the
Instructions or the Notice of Guaranteed Delivery should be directed to:
Dr. J. Douglas Ramsey
Vice President and Chief Financial Officer
EXCO Resources, Inc.
5735 Pineland Dr., Suite 235
Dallas, TX 75231
(214) 368-2084
27
<PAGE> 30
NO REVOCATION
AFTER A HOLDER OF RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION
PRIVILEGE OR THE OVERSUBSCRIPTION PRIVILEGE, SUCH EXERCISE MAY NOT BE REVOKED
BY SUCH RIGHTS HOLDER.
METHOD OF TRANSFERRING RIGHTS
Rights may be purchased or sold through usual investment channels,
including banks and brokers. It is anticipated that the Rights will be traded
on the OTC until the close of business on the last OTC trading day preceding
the Expiration Date.
The Rights evidenced by a single Subscription Certificate may be
transferred in whole by endorsing the Subscription Certificate for transfer in
accordance with the Instructions. A portion of the Rights evidenced by a single
Subscription Certificate (but not fractional Rights) may be transferred by
delivering to the Subscription Agent a Subscription Certificate properly
endorsed for transfer, with instructions to register such portion of the Rights
evidenced thereby in the name of the transferee (and to issue a new
Subscription Certificate to the transferee evidencing such transferred Rights).
In such event, a new Subscription Certificate evidencing the balance of the
Rights will be issued to the Rights holder or, if the holder so instructs, to
an additional transferee.
Rights holders wishing to transfer all or a portion of their Rights
(but not fractional Rights) should allow a sufficient amount of time prior to
the Expiration Date for (i) the transfer instructions to be received and
processed by the Subscription Agent, (ii) a new Subscription Certificate to be
issued and transmitted to the transferee or transferees with respect to
transferred Rights, and to the transferor with respect to retained Rights, if
any, and (iii) the Rights evidenced by such new Subscription Certificates to be
exercised or sold by the recipients thereof. Neither EXCO nor the Subscription
Agent shall have any liability to a transferee or transferor of Rights if
Subscription Certificates are not received in time for exercise or sale prior
to the Expiration Date.
Except for the fees charged by the Subscription Agent (which will be
paid by EXCO as described herein), all commissions, fees and other expenses
(including brokerage commissions and transfer taxes) incurred in connection
with the purchase, sale or exercise of Rights will be for the account of the
transferor of the Rights, and none of such commissions, fees or expenses will
be paid by EXCO or the Subscription Agent.
PROCEDURES FOR BOOK ENTRY TRANSFER FACILITY PARTICIPANTS
EXCO anticipates that the Rights will be eligible for transfer
through, and that the exercise of the Basic Subscription Privilege may be
effected through, the facilities of Depository Trust Company ("DTC"). Rights
exercised through DTC are referred to herein as "DTC Exercised Rights." The
holder of a DTC Exercised Right may exercise the Oversubscription Privilege in
respect of such DTC Exercised Right by properly executing and delivering to the
Subscription Agent on or prior to the Expiration Date, a DTC Participant
Oversubscription Exercise Form, together with payment of the appropriate
Subscription Price for the number of shares of Common Stock for which the
Oversubscription Privilege is to be exercised. Copies of the DTC Participant
Oversubscription Exercise Form may be obtained from _________________________.
28
<PAGE> 31
SUBSCRIPTION AGENT
EXCO has appointed _______________________________________ as
Subscription Agent for the Rights Offering. The Subscription Agent's address,
which is the address to which the Subscription Certificates and payment of the
Subscription Price should be delivered, as well as the address to which Notice
of Guaranteed Delivery must be delivered, is:
__________________________________
__________________________________
__________________________________
The Subscription Agent's telephone number is ____________ and its
facsimile number is ___________.
EXCO will pay the fees and expenses of the Subscription Agent (which
are estimated will aggregate $_________), and has also agreed to indemnify the
Subscription Agent from any liability which it may incur in connection with the
Rights Offering.
29
<PAGE> 32
SELECTED HISTORICAL FINANCIAL DATA
The following table presents selected historical financial data for
EXCO. The financial data should be read in conjunction with EXCO's financial
statements, the notes thereto and the other financial information, including
pro forma information, included elsewhere herein. In the opinion of management
of EXCO, the data presented reflect all adjustments considered necessary for a
fair presentation of the results for such periods. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations of EXCO" and the
other financial information included elsewhere herein.
<TABLE>
<CAPTION>
Nine Month
Transition
Fiscal Year Ended Period Ended Fiscal Year Ended
March 31, December 31, December 31,
---------------- ------------ ------------------
1994(1) 1995(1) 1995(1) 1996(1) 1997
------ ------ ------------ -------- ------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil and natural gas ................. $715 $ 626 $ 560 $ 872 $ 670
Other ............................... 127 105 76 39 28
----- ----- ----- ------- -----
Total revenues ................... 842 731 636 911 698
Costs and expenses:
Oil and natural gas production ...... 459 403 333 429 322
General and administrative .......... 208 371 366 373 486
Depreciation, depletion and
amortization ........................... 80 81 92 114 84
Interest expenses ................... 5 4 5 18 11
Other (2) ........................... -- -- -- 303 --
----- ----- ----- ------- -----
Total expenses ................... 752 859 796 1,237 903
----- ----- ----- ------- -----
Income (loss) before income taxes ...... 90 (128) (160) (326) (205)
Income taxes ........................... -- -- -- -- --
----- ----- ----- ------- -----
Net income (loss) ...................... $ 90 $(128) $(160) $ (326) $(205)
===== ===== ===== ======= =====
Net income (loss) per share (3)(4) ..... $0.31 $(.39) $(.47) $ (.85) $(.51)
===== ===== ===== ======= =====
Weighted average common and common
equivalent shares outstanding (3) ...... 293 328 338 383 403
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
----------------- ------------------------------
1994 1995 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets . . . . . . . . . . . . $ 456 $ 577 $ 582 $ 373 $ 727
Oil and natural gas properties, net . 669 785 820 749 473
Total assets . . . . . . . . . . . . . 1,210 1,439 1,511 1,226 1,270
Current liabilities . . . . . . . . . 418 653 861 658 328
Long-term debt . . . . . . . . . . . . 19 16 40 36 15
Stockholders' equity . . . . . . . . . 773 770 610 532 927
</TABLE>
- -----------------
(1) The data for all prior years has been restated to reflect the change in
EXCO's method of accounting for oil and natural gas operations to the
full cost method of accounting. See Note 2 to EXCO's Financial
Statements. As a result of the change in the accounting method, net
income has been increased by $44,000 ($0.15 per share) for the year ended
March 31, 1994; the net loss for the year ended March 31, 1995, the nine
month period ended December 31, 1995 and the year ended December 31,
1996, has been decreased $40,000 ($0.12 per share), $184,000 ($0.54 per
share) and $3,000 ($0.01 per share), respectively.
(2) The $303,000 expense in fiscal 1996 represents the legal, accounting and
other expenses associated with the attempted acquisition by EXCO of
Taurus Energy Corp.
(3) Per share data has been restated to reflect the one for five reverse
stock split effective July 19, 1996 and the Reverse Stock Split effective
March 31, 1998. The adoption of Financial Accounting Standards Board No.
128, Earnings per Share, did not have a material impact on net income
(loss) per share amounts reported herein.
(4) EXCO has not declared nor paid any dividends during any of the periods
presented.
30
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1997
Revenues. Oil and natural gas sales decreased $202,000, or 23%, to
$670,000 for the fiscal year ended December 31, 1997 from $872,000 for the
fiscal year ended December 31, 1996. The decrease was due primarily to the
sale during 1997 of certain non-strategic oil and natural gas properties which
lead to decreased production volumes. Oil and natural gas prices for 1997 were
4% lower and 14% higher, respectively, than such prices in 1996. Oil and
natural gas sales volumes for 1997 decreased 35% and 19%, respectively, from
1996 as a result of property sales and the continued depletion of existing
properties.
Other income for the fiscal year ended December 31, 1997 was $38,000
as compared to $39,000 for the fiscal year ended December 31, 1996. This
income primarily includes well supervision fees and interest income. Prior
years have been restated to reflect a change in classification of fees from
overhead charges billed to working interest owners, including EXCO. These
overhead charges have previously been recorded as management fee revenue and
are now recorded as a reduction in general and administrative expenses.
Costs and Expenses. EXCO's costs and expenses decreased $334,000, or
27%, to $903,000 for the fiscal year ended December 31, 1997 from $1,237,000
for the fiscal year ended December 31, 1996. This decrease was due primarily
to expenses of $303,000 incurred in 1996 in connection with EXCO's attempted
acquisition of Taurus Energy Corp. Oil and natural gas production costs
decreased $107,000 to $322,000 for 1997 from $429,000 in 1996 as a result of
the property sales, and general and administrative expenses increased $113,000
to $486,000 in 1997 from $373,000 in 1996 due to various increases in office
expenses and a reduction in billed salary reimbursement as a result of the
disposition of a certain oil property.
In 1997, EXCO changed its method of accounting for oil and natural gas
properties from successful efforts to the full cost method of accounting.
Prior years have been restated to reflect this change in accounting method as
though EXCO had been using the full cost method for all periods being compared.
Effective December 31, 1997, EXCO effected a quasi-reorganization through the
application of $8,799,000 of its additional paid-in capital account to
eliminate its accumulated deficit.
Net Income (Loss). Net loss for the fiscal year ended December 31,
1997 was $205,000, or $.51 per share, compared to a loss of $326,000, or $.85
per share, for the fiscal year ended December 31, 1996. This $121,000 decrease
was primarily the result of a decrease in revenues being partially offset by a
decrease in expenses as more fully described above.
COMPARISON OF NINE MONTH TRANSITION PERIOD ENDED DECEMBER 31, 1995 AND THE
FISCAL YEAR ENDED DECEMBER 31, 1996
Comparative Periods. On February 13, 1996, EXCO changed its fiscal
year end from March 31 to December 31. As a result, the following comparison
is between the fiscal year ended December 31, 1996 and the nine month
transition period ended December 31, 1995.
Revenues. Oil and natural gas sales increased $312,000, or 56%, to
$872,000 for the fiscal year ended December 31, 1996 from $560,000 for the nine
month transition period ended December 31, 1995. The increase in oil and
natural gas sales was primarily attributable to higher oil and natural gas
prices in fiscal 1996 as well as increased production volumes. Oil and natural
gas prices for the fiscal year ended December 31, 1996, were 24% higher and 34%
higher, respectively, than such prices in the nine month transition period
ended December 31, 1995. Oil and natural gas production for the fiscal year
ended December 31, 1996, increased 16% and 24%, respectively, from the nine
month transition period ended December 31, 1995. These increases were
primarily attributable to the
31
<PAGE> 34
production from several successful workovers and newly completed wells
overshadowing the continued depletion of existing properties.
Management fees and other income decreased $37,000, or 49%, to $39,000
for the fiscal year ended December 31, 1996 from $76,000 in the nine month
transition period ended December 31, 1995. Management fees and other income
primarily include well supervision fees and interest income. The decrease was
due primarily to a lower level of operated drilling and maintenance activities.
Costs and Expenses. EXCO's costs and expenses increased $441,000, or
55%,to $1,237,000 for the fiscal year ended December 31, 1996 from $796,000 for
the nine month transition period ended December 31, 1995. This increase was
due primarily to the costs, including financing and acquisition costs, incurred
in connection with the abandonment of EXCO's proposed acquisition of Taurus
Energy Corp.
Net Income (Loss). Net loss for the fiscal year ended December 31,
1996 was $326,000, or $.85 per share, compared to a loss of $160,000, or $.47
per share, for the nine month transition period ended December 31, 1995. This
$166,000 decrease was primarily the result of an increase in revenues being
partially offset by an increase in expenses as more fully described above.
QUASI-REORGANIZATION
Effective December 31, 1997, EXCO effected a quasi-reorganization
through the application of $8,799,000 of its additional paid-in capital account
to eliminate its accumulated deficit. EXCO's Board of Directors decided to
effect a quasi-reorganization given the change in management in December 1997,
the infusion of new equity capital in December 1997 and an expected increase in
acquisition, exploitation and development activities. Based on these factors
and establishment of a strategic growth plan, EXCO's Board of Directors and
management felt that the reflection of prior losses on EXCO's balance sheet
would not be meaningful in presenting the financial position of EXCO. EXCO's
accumulated deficit was primarily related to past operations and properties
that have been disposed of; the accumulated deficit was not, in management's
view, reflective of EXCO's current financial condition. The historical
carrying values of EXCO's assets and liabilities of EXCO were not adjusted in
connection with the quasi-reorganization.
CHANGE IN METHOD OF ACCOUNTING FOR OIL AND NATURAL GAS OPERATIONS
In the fourth quarter of 1997, EXCO changed from the successful
efforts method to the full cost method of accounting for its oil and natural
gas operations. All prior year's financial statements presented herein have
been restated to reflect the change.
During the past ten years, EXCO has incurred minimal exploration and
acquisition costs, has liquidated substantially all its properties and
completed "out of court" debt restructurings. Recently there was a change in
control of ownership of EXCO and new management was appointed. New management
views EXCO as a new company and believes the past operations are insignificant
and not relevant to EXCO's future plans.
New management believes that the change in accounting for oil and
natural gas properties is to a preferable method because the full cost method
will more appropriately reflect EXCO's future operations which will result from
the significant management changes at EXCO. Further, new management does not
believe that the use of the successful efforts method of accounting is
appropriate for a small to medium size acquisition, development and
exploitation company.
32
<PAGE> 35
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
EXCO's working capital on December 31, 1997 was $399,000 compared to a
negative $285,000 on December 31, 1996. This $684,000 increase in working
capital resulted primarily from the sale of Common Stock to two individuals in
1997 for net proceeds of $600,000. In addition, EXCO sold certain
non-strategic oil and natural gas properties in 1997 in order to generate
working capital. EXCO's working capital on December 31, 1996 was a negative
$285,000 compared to a negative $279,000 on December 31, 1995. This $6,000
decrease in working capital resulted from the utilization of EXCO funds for the
costs associated with the attempted acquisition of Taurus Energy Corp. being
partially offset by the capital received upon the exercise of a stock option to
purchase 120,000 shares of Common Stock by a director of EXCO during the first
quarter of 1996. The option exercise resulted in $225,000 in cash for EXCO.
This addition to working capital was utilized primarily to pay off EXCO's
short-term note payable in the second quarter of 1996.
LONG-TERM DEBT
On December 31, 1997, EXCO had long-term debt (excluding current
maturities) of $15,000. EXCO's $150,000 note payable on December 31, 1996 was
paid in full in the second quarter of 1997 through the proceeds received from
the sale of an oil and natural gas property. This note payable amount had been
borrowed from a bank to fund the costs associated with the attempted
acquisition of Taurus Energy Corp.
SALE OF EQUITY
On December 31, 1997, Messrs. Eubank and Ellis purchased 200,000
shares (100,000 shares each) of EXCO's Common Stock, par value $.01 per share,
for $3.00 per share, thus generating $600,000 in cash for EXCO. These proceeds
will be primarily used for working capital and general corporate purposes.
NEW CREDIT FACILITY
On February 11, 1998, EXCO entered into the Credit Facility. The
Credit Facility provides for borrowings up to $50 million, subject to borrowing
base limitations.
The Credit Facility consists of a regular revolver which on February
13, 1998, had a borrowing base of $2.2 million. On February 13, 1998,
approximately $1.6 million was available to be borrowed under the Credit
Facility. A portion of the borrowing base is available for the issuance of
letters of credit. All borrowings under the Credit Facility are secured by a
first lien deed of trust providing a security interest in tangible and
intangible assets representing at least 90% of the assessed present value of
EXCO's oil and natural gas properties.
The Credit Facility provides that if EXCO's aggregate outstanding
indebtedness is less than $5,000,000, advances will bear interest at 1.5% over
the appropriate LIBOR rate. If the aggregate outstanding indebtedness is
greater than $5,000,000, then advances will bear interest at 1.0% over LIBOR if
the borrowing base usage is less than 50%, 1.25% over LIBOR if the borrowing
base usage is between 50-70%, 1.5% over LIBOR if the borrowing base usage is
between 70-90%, and 1.75% over LIBOR if the borrowing base usage exceeds 90%.
The Credit Facility also permits EXCO to repay and reborrow amounts under the
Credit Facility without any penalty, thereby allowing EXCO the flexibility to
utilize any available cash to reduce its outstanding indebtedness and thus, its
costs of borrowed funds.
Under the terms of the Credit Facility, EXCO must not permit its
Current Ratio (as defined) of Consolidated Current Assets (as defined) to its
Consolidated Current Liabilities (as defined) to be less than 1.0 to 1.0 at any
time. Furthermore, EXCO must not permit its Consolidated Tangible Net Worth
(as defined) to be less than $500,000 at any time between February 11, 1998 and
March 31, 1999. In addition, by March 31, 1999, EXCO's Consolidated Tangible
Net Worth must increase by 50% of EXCO's Consolidated Net Income (as defined)
for the fiscal quarter
33
<PAGE> 36
then ended and for every fiscal quarter thereafter must increase by 50% of
EXCO's Consolidated Net Income for the fiscal quarter then ended.
No principal amortization shall be required during the Credit Facility
period as long as the aggregate principal balance does not exceed the borrowing
base then in effect. However, if a borrowing base deficiency exists after
giving effect to the redetermination, then EXCO must either (a) eliminate such
borrowing base deficiency by making a single mandatory prepayment of principal
on the revolving loan in an amount equal to the entire amount of such borrowing
base deficiency on the first monthly date following the date on which such
borrowing base deficiency is determined to exist, (b) eliminate such deficiency
by making 6 consecutive mandatory prepayments of principal on the revolving
loan each of which shall be in the amount of one sixth (1/6th) of the amount of
such borrowing base deficiency commencing on the first monthly date following
the date on which such borrowing base deficiency is determined to exist and
continuing on each monthly date thereafter, or (c) eliminate such borrowing
base deficiency by submitting additional mineral interests to banks on the
first monthly date following the date on which such borrowing base deficiency
is determined to exist for evaluation as borrowing base properties which banks,
in their sole discretion, determine have a value sufficient to increase the
borrowing base by at least the amount of the borrowing base deficiency. If by
the first scheduled borrowing base redetermination EXCO has not realized a
minimum of $10.0 million in additional cash equity, then, beginning July 20,
1998 and on the twentieth day of each month thereafter, EXCO will be required
to amortize the then outstanding debt balance by applying 75% of the previous
month's net revenues to the Credit Facility. The Credit Facility matures on
February 11, 2000.
EXCO's next borrowing base redetermination is scheduled for no later
than July 1, 1998, and semi-annually thereafter. EXCO may seek additional
borrowing capacity at that time for its development drilling program. However,
there is no assurance that the current development program will result in
increased collateral values or that such values will enable EXCO to borrow the
funds needed to continue the program.
The Credit Facility contains a number of covenants affecting EXCO's
liquidity and capital resources, including restrictions on EXCO's ability to
incur indebtedness at any time in an amount exceeding $100,000 or to pledge
assets outside of the Credit Facility, EXCO's maintenance of a minimum net
worth and restrictions on the payment of dividends on EXCO's capital stock.
NEED TO RAISE ADDITIONAL CAPITAL
The growth of EXCO's business will require substantial capital on a
continuing basis. There is no assurance that any such required additional
funds would be available on satisfactory terms and conditions, if at all.
There is also no assurance that EXCO will not pursue, from time to time,
opportunities to acquire oil and natural gas properties and businesses that may
utilize the capital currently expected to be available for its present
operations. The amount and timing of EXCO's future capital requirements, if
any, will depend upon a number of factors, including drilling costs,
transportation costs, equipment costs, marketing expenses, staffing levels and
competitive conditions, and any purchases or dispositions of assets, many of
which are not within EXCO's control. Failure to obtain any required additional
financing could materially affect the growth, cash flow and earnings of EXCO.
In addition, EXCO's pursuit of additional capital could result in the
incurrence of additional debt or potentially dilutive issuances of additional
equity securities.
INFLATION AND CHANGING PRICES
The impact of inflation, as always, is difficult to assess. In 1997
and through the first quarter of 1998, EXCO has experienced a weakness in
prices received for its oil and natural gas production. EXCO cannot anticipate
whether the present level of inflation will remain, however, a sudden increase
in inflation and/or an increase in operating costs or drilling costs coupled
with a continuation of low oil prices could have an adverse effect on the
operations of EXCO.
34
<PAGE> 37
YEAR 2000 COMPLIANCE
EXCO's management has conducted a review of its information systems
and related data-processing activities to assess its exposure to the Year 2000
issue. As a result, EXCO recently purchased an oil and natural gas based
software system which is Year 2000 compliant. The Year 2000 compliant version
of this software is in use at other oil and natural gas companies currently.
EXCO expects this software to be installed and operational on or before May 31,
1998.
EXCO currently uses Year 2000 compliant engineering evaluation
software for acquisition analysis, as well as internal engineering
applications. EXCO's spreadsheet and word processing software is also Year
2000 compliant.
EXCO has potential Year 2000 exposure with regard to its third party
relationships and services including its bank and bank accounts, payroll
processing which is outsourced and other vendor and/or service providers who
utilize computers. Though EXCO has no control over Year 2000 compliance
implementation by these parties, EXCO has inquired and been assured that all of
EXCO's service providers are currently or will be Year 2000 compliant.
35
<PAGE> 38
BUSINESS AND PROPERTIES
GENERAL
EXCO is an independent oil and natural gas company that has been
engaged in the oil and natural gas business since 1955. EXCO's activities are
currently conducted primarily in Texas and Louisiana. Due to limited capital
resources and cash flow, in recent years EXCO's business activity has
decreased. At December 31, 1997, EXCO had 779,150 Boe of proved reserves, 93%
of which were natural gas, and owned leasehold interests in a total of 15,788
gross acres (3,744 net acres) of oil and natural gas properties, 49% of gross
acres (75% net) which were developed acres. EXCO held interests in 47 gross
(9.76 net) wells at December 31, 1997. On a pro forma basis at December 31,
1997, EXCO had an interest in 56 gross (16.76 net) wells and had estimated
Proved Reserves of 1,195,100 Boe with an estimated SEC PV-10 of $5.57 million.
Approximately 45% of these reserves were classified as Proved Developed
Producing Reserves. On a pro forma basis at December 31, 1997, EXCO's Proved
Reserves had an estimated Reserve Life of 18.5 years and were 94% natural gas.
EXCO currently serves as operator for approximately 32 wells. See "Business
and Properties -- Oil and Natural Gas Reserves" and "--Acreage."
On December 19, 1997, Mr. Miller acquired 413,423 (approximately 51%)
of EXCO's outstanding shares of Common Stock at $3.00 per share, from various
holders, including certain current and former officers and directors of EXCO.
At that time, three of EXCO's five directors resigned and Mr. Miller and Mr.
Eubank were elected to the Board of Directors. In addition, Mr. Miller was
elected Chairman of the Board and Chief Executive Officer and Mr. Eubank was
elected President, Treasurer and Chief Financial Officer. On December 31,
1997, Mr. Eubank and Mr. Ellis each acquired from EXCO 100,000 shares of Common
Stock at $3.00 per share. Also, on December 31, 1997, Mr. Eubank resigned as
Chief Financial Officer and Dr. Ramsey was appointed Chief Financial Officer of
EXCO. Mr. Miller was formerly Chairman of the Board and Chief Executive
Officer of Coda. Mr. Eubank was formerly President and a director of Coda and
Mr. Ellis was formerly a director of Coda. Dr. Ramsey was formerly Financial
Planning Manager. With the proceeds of the Rights Offering and the Credit
Facility, the new management team intends to commence an aggressive
acquisition, development and exploitation program. In executing this strategy,
EXCO will focus on producing properties with enhancement opportunities from
activities such as infill drilling, recompletions, repairs and equipment
changes. EXCO will seek properties it can operate, thus maintaining the maximum
control of enhancement activities. EXCO intends to generate drilling prospects
internally and acquire prospects from independent geologists and geophysicists
and other oil and natural gas operators.
BUSINESS STRATEGY
Following the Rights Offering, EXCO's business strategy will be to
enhance shareholder value through increases in revenues, earnings and operating
cash flow achieved through expansion and diversification of its energy
operations. EXCO intends to pursue a strategy of asset, revenue and cash flow
growth through acquisitions and development and exploitation of proved oil and
natural gas properties. EXCO believes there are numerous opportunities to
acquire additional energy assets and to enhance the value of such assets.
EXCO's current management successfully executed this strategy while at Coda.
EXCO will pursue its strategy of asset, revenue and cash flow growth in the
following primary areas:
o Growth. Achieve asset, revenue and cash flow growth as a
result of the acquisition and further development of other
producing oil and natural gas properties. EXCO believes there
are numerous opportunities to acquire additional energy assets
and to enhance the value of such assets through improved
operating practices and by aggressively developing reserve
potential.
o Acquire and Enhance Producing Oil and Natural Gas Properties.
EXCO intends to take advantage of opportunities that currently
exist in the United States to acquire producing oil and
natural gas properties. EXCO plans to continue to focus its
acquisition activities onshore in Texas, New Mexico, Oklahoma
and Louisiana to complement its existing properties and
operations; however, EXCO plans to review potential
acquisitions in other geographical regions of the United
States if
36
<PAGE> 39
they represent a significant concentration of energy-related
assets. EXCO will target producing properties that management
believes have additional development and exploitation
potential.
o Emphasize Exploitation and Development Activities. EXCO plans
to exploit its existing oil and natural gas properties and to
conduct development evaluation and drilling on its existing
and future oil and natural gas properties. EXCO intends to
concentrate on enhancement opportunities from activities such
as infill drilling, recompletions, repairs and equipment
changes.
o Corporate Efficiencies. EXCO intends to develop and operate a
larger asset base with less than proportionate increases in
its overhead, which will enable EXCO to achieve and maintain a
competitive cost structure.
o Capital Management. EXCO is committed to maintaining financial
strength and flexibility to position itself to pursue
opportunities for business expansion and acquisitions and to
permit EXCO to adapt to down cycles in the energy industry.
EXCO believes that effective management of its debt and equity
are key to achieving this objective.
o Technology. EXCO is increasing its exploitation efforts,
focusing on established geological trends where EXCO can
employ geological, geophysical and engineering expertise. EXCO
is considering the application of 3-D seismic and advanced
drilling technologies.
EXPLOITATION AND DEVELOPMENT ACTIVITIES
Historically, EXCO has financed its exploitation and development
expenditures primarily through cash flow from operations, bank borrowings,
equity capital from private sales of stock and promoted funds from industry
partners. With respect to its acquisition activities, EXCO intends to shift its
emphasis to larger scale acquisitions of producing properties with additional
development and exploitation potential. Initially, EXCO plans to use a
combination of debt and equity financing to fund these larger acquisitions.
EXCO made exploitation and development expenditures of $108,000,
$17,000 and $74,000 during the nine month transition period ended December 31,
1995, the fiscal year ended December 31, 1996 and the fiscal year ended
December 31, 1997, respectively. EXCO made net lease acquisition expenditures
of $4,000, $1,000 and $2,000 during the nine month transition period ended
December 31, 1995, the fiscal year ended December 31, 1996 and the fiscal year
ended December 31, 1997, respectively. EXCO's ability to continue to fund its
exploitation and development activities depends upon cash flow and its ability
to secure the necessary financing for such activities.
OPERATING ACTIVITIES
Where possible, EXCO prefers to act as operator of the oil and natural
gas properties and prospects in which it owns an interest. The operator of an
oil and natural gas property supervises production, maintains production
records, employs field personnel and performs other functions required in the
production and administration of such property. The fees for such services
customarily vary from well to well, depending on the nature, depth and location
of the well being operated. Generally, the operator of an oil and natural gas
prospect is determined by such factors as the size of the working interest held
by a participant in the prospect, a participant's knowledge and experience in
the geological area in which the prospect is located and geographical
considerations. On December 31, 1997, EXCO was the operator of 24 gross (7.92
net) wells, which represented approximately 51.1% of the gross wells and 81.1%
of the net wells in which EXCO had an interest at such date. The remainder of
the wells in which EXCO had an interest at such date are operated by third
party operators. The wells that EXCO operates are located in Texas and
Louisiana. Although EXCO elects to operate and manage most of its properties
and drilling activities, its wells are drilled by independent drilling
contractors.
37
<PAGE> 40
OIL AND NATURAL GAS PROPERTIES
The following table sets forth the fields in which EXCO has its
principal oil and natural gas properties, and certain information as of
December 31, 1997 with respect to each of such fields.
<TABLE>
<CAPTION>
Fiscal Year Ended
December 31, 1997
Wells Proved Reserves Percentage Net Production
------------------- ----------------------- of ---------------------
Oil Gas Equivalent Oil Gas
Gross Net (Bbls) (Mcf) Reserves (Bbls) (Mcf)
----- ----- ------ --------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Logansport, Louisiana .... 2 .96 4,204 2,198,183 47.6% 211 26,316
Nine Mile Draw, Texas .... 1 .61 -- 1,714,619 36.7 -- 68,992
Southern Pine Field, Texas 1 .12 -- 152,453 3.3 -- 15,165
Other .................... 43 8.07 53,912 260,950 12.4 14,242 70,618
---- ----- ------ --------- ----- ------ -------
Total ........... 47 9.76 58,116 4,326,205 100.0% 14,453 181,091
==== ===== ====== ========= ===== ====== =======
</TABLE>
LOGANSPORT FIELD
In 1995, EXCO acquired an additional 48% working interest in, and
became the operator of, an existing natural gas well (the "Acquired Well") in
the Logansport field located in DeSoto Parish, Louisiana. As a result of
acquisitions, EXCO owns a 51% working interest in the Acquired Well and related
acreage. The Logansport field produces from a series of low permeability
reservoirs with long life natural gas reserves. EXCO's reserves are produced
in the Hosston (Travis Peak) and Pettit formations from depths between 6,000
and 7,200 feet. The field is developed with 640 and 320 acre spacing, and
wells in the field are expected to have a production life exceeding 30 years.
NINE MILE DRAW FIELD
The Nine Mile Draw field is located in Reeves County, Texas, and
production is derived from a low permeability fractured limestone formation.
Presently, EXCO operates 1 gross (.61 net) well in the Fusselman formation,
which produces from depths between 13,700 and 14,400 feet and is estimated to
have a remaining reserve life of approximately 20 years.
SOUTHERN PINE FIELD
EXCO owns a nonoperated interest in 1 gross (.12 net) well in Cherokee
County, Texas. Production is derived from the Travis Peak formation, which has
estimated net reserves of approximately 152,453 Mcf of natural gas. Reserve
estimates indicate that as of December 31, 1997 the SEC PV-10 value
attributable to EXCO's interest was approximately $130,615.
TITLE TO PROPERTIES
As is common industry practice, little or no investigation of title is
made at the time of acquisition of undeveloped properties, other than a
preliminary review of local mineral records. Title investigations are made, and
in most cases, a title opinion of local counsel is obtained before commencement
of drilling operations. EXCO believes that the methods it utilizes for
investigating title prior to the acquisition of any properties are consistent
with practices customary in the oil and natural gas industry and that such
practices are adequately designed to enable EXCO to acquire good title to such
properties. Some title risks, however, cannot be avoided, despite the use of
customary industry practices.
EXCO's properties are generally subject to customary royalty and
overriding royalty interests, liens incident to operating agreements, liens for
current taxes and other burdens and minor encumbrances, easements and
restrictions, and may be mortgaged to secure indebtedness of EXCO. EXCO
believes that none of these burdens either materially detract from the value of
such properties or materially interfere with their use in the operation of
EXCO's business. Substantially all of EXCO's properties are pledged as
collateral under the Credit Facility.
38
<PAGE> 41
OIL AND NATURAL GAS RESERVES
All reserves are evaluated at contract temperature and pressure which
can affect the measurement of natural gas reserves. Operating costs,
development costs and certain production-related and ad valorem taxes were
deducted in arriving at the estimated future net cash flows. No provisions were
made for income taxes. The following estimates set forth reserves considered to
be economically recoverable under normal operating methods and existing
conditions at the prices and operating costs prevailing at the dates indicated
above. The estimates of the SEC PV-10 from future net cash flows differ from
the standardized measure of discounted future net cash flows set forth in the
notes to the Financial Statements of EXCO, which is calculated after provision
for future income taxes. There can be no assurance that these estimates are
accurate predictions of future net cash flows from oil and natural gas reserves
or their present value.
Proved Reserves are estimates of oil and natural gas to be recovered
in the future. Reservoir engineering is a subjective process of estimating the
sizes of underground accumulations of oil and natural gas that cannot be
measured in an exact way. The accuracy of any reserve estimates is a function
of the quality of available data and of engineering and geological
interpretation and judgment. Reserve reports of other engineers might differ
from the reports contained herein. Results of drilling, testing and production
subsequent to the date of the estimate may justify revision of such estimate.
Future prices received for the sale of oil and natural gas may be different
from those used in preparing these reports. The amounts and timing of future
operating and development costs may also differ from those used. Accordingly,
reserve estimates are often different from the quantities of oil and natural
gas that are ultimately recovered. See "Risk Factors -- Uncertainty of
Estimates of Reserves and Future Net Cash Flows."
On December 31, 1997, EXCO's oil and natural gas reserves included
direct working interests in 47 wells in the states of Texas, Louisiana, North
Dakota, Kansas and Oklahoma, as well as overriding royalties in an additional 9
wells in Texas. EXCO has no reserves offshore or outside of the United States.
On December 31, 1997, approximately 61% of the present value of the estimated
future net revenues attributable to EXCO's properties were attributable to
proved developed reserves and approximately 39% was attributable to proved
undeveloped reserves. In addition, approximately 7.5% of the proved reserves
were attributable to oil and approximately 92.5% were attributable to natural
gas, on a Boe basis.
The following table summarizes EXCO's proved reserves on December 31,
1997, and was prepared in accordance with the rules and regulations of the
Commission:
<TABLE>
<CAPTION>
PROVED RESERVES
On December 31, 1997
<S> <C>
Oil and Liquids (Bbls)
Proved Developed Producing . . . . . . . . . . . . . 55,167
Proved Behind Pipe . . . . . . . . . . . . . . . . . 1,489
---------
Total Proved Developed . . . . . . . . . . . 56,656
Proved Undeveloped . . . . . . . . . . . . . . . . . 1,460
---------
Total . . . . . . . . . . . . . . . . . . . . 58,116
=========
Natural Gas (Mcf)
Proved Developed Producing . . . . . . . . . . . . . 1,241,054
Proved Behind Pipe . . . . . . . . . . . . . . . . . 1,099,730
---------
Total Proved Developed . . . . . . . . . . . 2,340,784
Proved Undeveloped . . . . . . . . . . . . . . . . . 1,985,421
---------
Total . . . . . . . . . . . . . . . . . . . . 4,326,205
=========
</TABLE>
A significant portion of the value of the proved nonproducing reserves
are in the Logansport and the Nine Mile Draw fields. There are risks associated
with recovery of reserves in the nonproducing category. In addition, EXCO must
incur certain costs and undertake certain risks associated with drilling and
workover operations to recover these reserves.
39
<PAGE> 42
The reserve estimates presented as of December 31, 1997 have been
prepared by Lee Keeling and Associates, Inc., independent petroleum engineers,
Tulsa, Oklahoma, and are a part of their report on EXCO's oil and natural gas
properties. Estimates of oil and natural gas reserves are, of necessity,
projections based on engineering data and, thus, are forward-looking in nature.
However, because of the uncertainties inherent in the interpretation of such
data, EXCO cannot ensure that the reserves set forth herein will ultimately be
realized and the actual results could differ materially. See Note 11 to EXCO's
Financial Statements herein for additional information regarding EXCO's oil and
natural gas reserves, including the present value of future net revenues.
Previous reserve estimates as of March 31, 1995 reported herein were prepared
by Milmac Operating Company, independent petroleum engineers, Lubbock, Texas.
Previous reserve estimates as of December 31, 1995 and December 31, 1996
reported herein were prepared by Lee Keeling and Associates, Inc.
RESERVES REPORTED TO OTHER AGENCIES
Estimates of oil and natural gas reserves have not been filed with or
included in reports to any federal authority or agency other than the
Commission.
PRODUCTION
The following table summarizes for the periods indicated, EXCO's
revenues, net production of oil (including condensate) and natural gas sold,
the average sales price per unit of oil (Bbl) and natural gas (Mcf) and costs
and expenses associated with the production of oil and natural gas:
<TABLE>
<CAPTION>
Nine Months Ended Fiscal Year Ended Fiscal Year Ended
December 31, 1995 December 31, 1996 December 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Sales:
Oil and Condensate:
Revenue ................................ $ 305,569 $ 452,229 $ 282,642
Production sold (Bbls) ................. 18,526 22,150 14,453
Average sales price per Bbl ............ 16.49 20.42 19.56
Natural Gas:
Revenue ................................ 254,275 419,719 387,334
Production sold (Mcf) .................. 181,121 224,024 181,091
Average sales price per Mcf ............ 1.40 1.87 2.14
Costs and Expenses:
Production costs per Boe ............... 6.84 7.21 7.21
Depreciation, depletion and
amortization per Boe ................. 1.54 1.46 1.41
</TABLE>
Total oil and natural gas reserves for the fiscal year ended December
31, 1997 decreased 23% from the prior fiscal year primarily due to decreases in
production volumes resulting from the sale in 1997 of certain properties and
the normal depletion of producing wells. The average sales price per barrel of
oil decreased $.86, or 4%, and the average sale price per Mcf of natural gas
increased $.27, or 14%, from such prices for fiscal year end December 31, 1996.
Total oil and natural gas revenues for the fiscal year ended December
31, 1996 increased 56% from the nine month transition period ended December 31,
1995 due to both an increase in oil and natural gas prices and an increase in
production volumes, resulting largely from the 3 month longer time period of
fiscal 1996. The average sales price per barrel of oil increased $3.93, or
24%, and the average sales price per Mcf of natural gas increased $.47, or 34%,
from such prices for the nine month transition period ended December 31, 1995.
EXCO's net production reported in the preceding table only includes
production that is owned by EXCO and produced to its oil and natural gas
interest, less royalties. Oil production for the fiscal year ended December
31, 1997 was 35% lower and natural gas production was 19% lower than for the
fiscal year ended December 31, 1996. Oil production for the fiscal year ended
December 31, 1996 was 16% higher and natural gas production was 24% higher than
the nine month transition period ended December 31, 1995. On a Boe basis total
production for
40
<PAGE> 43
the fiscal year ended December 31, 1996 decreased 25% from the fiscal year
ended December 31, 1996 and total production for the fiscal year ended December
31, 1996 increased 22% from the nine month transition period ended December 31,
1995.
PRODUCTIVE WELLS
The following table sets forth EXCO's interest in productive wells
(producing wells and wells capable of production) on December 31, 1997. The
total gross oil and natural gas wells does not include any multiple
completions. On December 31, 1997, EXCO did not own an interest in any well
that was being completed.
<TABLE>
<CAPTION>
Gross Wells Net Wells
----------------------------------------------------
(Oil) (Gas) (Total) (Oil) (Gas) (Total)
----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Kansas . . . . . . . . . . . . . . . . . . . . . 0 1 1 0 .08 .08
Louisiana . . . . . . . . . . . . . . . . . . . . 0 2 2 0 .96 .96
North Dakota . . . . . . . . . . . . . . . . . . 2 0 2 .07 0 .07
Oklahoma . . . . . . . . . . . . . . . . . . . . 1 1 2 .02 .02 .04
Texas . . . . . . . . . . . . . . . . . . . . . . 25 15 40 3.16 5.45 8.61
Total . . . . . . . . . . . . . . . . . . . . . . 28 19 47 3.25 6.51 9.76
</TABLE>
DRILLING ACTIVITIES
With respect to its drilling operations, EXCO plans to concentrate on
lower risk, development-type properties, generally consisting of drilling to
reservoirs from which production is or formerly was being obtained. The
drilling of development wells is subject to the normal risk of dry holes, or a
failure to produce oil and natural gas in commercial quantities. The degree of
risk varies depending, among other things, on the distance between the well and
the nearest producing well, other available geological information and the
geological features of the area. In the past, EXCO has drilled higher risk,
exploratory-type wells, primarily in geological basins with relatively high
levels of drilling density and where adequate subsurface information in the
form of well logs and seismic data was generally available to evaluate
potential hydrocarbon accumulations. All drilling activities are subject to the
risk of encountering unusual or unexpected formations and pressures and other
conditions that may result in financial losses or liabilities to third parties
or governmental entities, many of which may not be covered by insurance. The
number and type of wells drilled by EXCO will vary depending on the amount of
funds available for drilling, the cost of each well, the size of the fractional
working interests acquired by EXCO in each well and the estimated recoverable
reserves attributable to each well.
<TABLE>
<CAPTION>
EXPLORATORY WELLS
-----------------------------------------------------------------------
Gross Net
-------------------------------- --------------------------------
Productive Dry Total Productive Dry Total
-------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nine Month Transition Period Ended
December 31, 1995 . . . . . . . . -- 2 2 .00 .13 .13
Year Ended December 31, 1996 . . . -- -- -- .00 .00 .00
Year Ended December 31, 1997 . . . -- -- -- .00 .00 .00
</TABLE>
41
<PAGE> 44
<TABLE>
<CAPTION>
DEVELOPMENT WELLS
---------------------------------------------------------------------
Gross Net
-------------------------------- ------------------------------
Productive Dry Total Productive Dry Total
-------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nine Month Transition Period Ended
December 31, 1995 . . . . . . . . 1 -- 1 .11 .00 .11
Year Ended December 31, 1996 . . . -- -- -- .00 .00 .00
Year Ended December 31, 1997 . . . 1 -- 1 .12 .00 .12
</TABLE>
The number of wells drilled refers to the number of wells (holes)
completed at any time during the fiscal year, regardless of when drilling was
initiated. All drilling activities referenced in the above tables were
conducted in the State of Texas. As of March 9, 1998, EXCO has committed to
participate in the drilling of one development well in Maverick County, Texas.
Drilling of this well has commenced as of March 1998.
ACREAGE
The following table sets forth EXCO's interest in developed acreage
and undeveloped acreage on December 31, 1997:
<TABLE>
<CAPTION>
Developed Acreage Undeveloped Acreage
------------------- -------------------
Gross Net Gross Net
----- ----- ----- ---
<S> <C> <C> <C> <C>
Kansas . . . . . . . . . . . . . . . . . 160 12 640 50
Louisiana . . . . . . . . . . . . . . . . 1,280 616 0 0
North Dakota . . . . . . . . . . . . . . 472 15 320 8
Oklahoma . . . . . . . . . . . . . . . . 320 5 0 0
Texas . . . . . . . . . . . . . . . . . . 5,535 2,169 7,061 869
----- ----- ----- ---
Total . . . . . . . . . . . . . 7,767 2,817 8,021 927
</TABLE>
The primary terms of the oil and natural gas leases covering the
majority of EXCO's undeveloped acreage expire at various dates, generally
ranging from 1 to 5 years. EXCO can retain its interest in undeveloped acreage
by drilling activity that establishes commercial reserves sufficient to
maintain the lease. Certain of EXCO's undeveloped acreage in Texas is being
"held by production," for which expiration will not occur until production
ceases from all wells on the particular leases.
SALES OF PRODUCING PROPERTIES AND UNDEVELOPED ACREAGE
EXCO evaluates properties on an ongoing basis to determine the
economic viability of the property and whether such property enhances the
objectives of EXCO. During the course of normal business, EXCO may dispose of
producing properties and undeveloped acreage if EXCO believes that such
disposition is in its best interests.
In the fiscal year ended December 31, 1997, EXCO sold its interest in
3 major groups of producing oil properties in Texas and Illinois for a total of
$270,000 which reduced the full cost pool accordingly. In the fiscal year
ended December 31, 1996, EXCO exchanged its interest in 4 non-operated
producing wells for an interest in each of the 4 operated producing wells. In
the nine month transition period ended December 31, 1995, EXCO sold a portion
of its interest in an undeveloped lease, which reduced EXCO's basis in the
lease by $28,000.
PRODUCTS, MARKETS AND REVENUES
Oil and natural gas are the principal products currently produced by
EXCO. EXCO does not refine or process the oil and natural gas that it
produces. EXCO sells the oil it produces under short-term contracts at market
prices in the areas in which the producing properties are located, generally at
F.O.B. field prices posted by the principal purchase of oil in such areas.
42
<PAGE> 45
Natural gas produced from EXCO's properties is sold under both
short-term and long-term contracts to transmission and utility companies that
have pipelines in the vicinity of the producing properties or that will
construct pipelines to such properties. The contracts are of a type common
within the industry, and a separate contract is usually negotiated for each
property. Typically, EXCO's sales contracts are made for terms ranging from
day-to-day up to 6 months.
The availability of a ready market for oil and natural gas and the
prices of oil and natural gas are dependent upon a number of factors that are
beyond the control of EXCO. These factors include, among other things, the
level of domestic production and economic activity generally, the availability
of imported oil and natural gas, actions taken by foreign oil producing
nations, the availability of natural gas pipelines with adequate capacity and
other transportation facilities, the availability and marketing of other
competitive fuels, fluctuating and seasonal demand for oil, natural gas and
refined products and the extent of governmental regulation and taxation (under
both present and future legislation) of the production, refining,
transportation, pricing, use and allocation of oil, natural gas, refined
products and substitute fuels. Accordingly, in view of the many uncertainties
affecting the supply and demand for oil, natural gas and refined petroleum
products, it is not possible to predict accurately the prices or marketability
of the oil and natural gas from any producing well in which EXCO has or may
acquire an interest.
Oil prices have been subject to significant fluctuations over the past
decade. Levels of production maintained by the Organization of Petroleum
Exporting Companies ("OPEC") member nations and other major oil producing
countries are expected to continue to be a major determinant of oil price
movements in the future. As a result, future oil price movements cannot be
predicted with any certainty. Similarly, during the past several years, the
market price for natural gas has been subject to significant fluctuations on a
monthly basis, as well as from year to year. These frequent changes in the
market price make it impossible for EXCO to predict natural gas price movements
with any certainty.
EXCO cannot provide assurance that it will be able to market all oil
or natural gas that EXCO produces or, if such oil or natural gas can be
marketed, that favorable price and contractual terms can be negotiated.
Changes in oil and natural gas prices may significantly affect the revenues and
cash flow of EXCO and the value of its oil and natural gas properties.
Further, significant declines in the prices of oil and natural gas may have a
material adverse effect on the business and financial condition of EXCO. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
In certain areas in which EXCO engaged in oil and natural gas
production activities, the supply of oil and natural gas available for delivery
from time to time exceeds the demand. During such times, companies purchasing
oil and natural gas in such areas reduce the amount of oil and natural gas that
they will purchase or "take." If buyers cannot be readily located for newly
discovered oil and natural gas reserves, newly completed oil and natural gas
wells may be shut-in for various periods of time. As a result, the over-supply
of oil and natural gas in certain areas may cause EXCO to experience "take"
problems or may adversely affect EXCO's ability to obtain contracts to market
oil and natural gas discovered in wells in which EXCO owns an interest.
The following table sets forth the amount of EXCO's oil sales, natural
gas sales and the percent of oil and natural gas sales to total revenues for
the periods indicated:
<TABLE>
<CAPTION>
Percent of
Oil and Gas Sales to
Total Revenues
--------------------
Total Oil and
Period Ended Oil Sales Gas Sales Gas Sales Oil Gas
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nine Month Transition Period December 31, 1995 . . $306,000 $254,000 $560,000 48% 40%
Year Ended December 31, 1996 . . . . . . . . . . . 452,000 420,000 872,000 50% 46%
Year Ended December 31, 1997 . . . . . . . . . . . 283,000 387,000 670,000 41% 55%
</TABLE>
43
<PAGE> 46
In February 1996, EXCO changed its fiscal year from a March 31 year
end to a December 31 year end, resulting in a short year of 9 months for the
transition period ended December 31, 1995. The comparability of most of the
year to year comparisons in this report is affected by the fact that the nine
month transition period ended December 31, 1995 is 3 months shorter than the
full fiscal years ended December 31, 1996 and December 31, 1997.
DELIVERY COMMITMENTS
EXCO is not presently obligated to provide a fixed and determinable
quantity of oil or natural gas under any existing contract or agreement.
CUSTOMERS
During the fiscal year ended December 31, 1997, sales of oil and
natural gas to three purchasers, Scurlock Permian Corporation, Delhi Gas
Pipeline Corporation and Aurora Natural Gas, L.L.C., accounted for 22%, 19%,
and 14%, respectively, of EXCO's total revenues. During the fiscal year ended
December 31, 1996, sales of oil and natural gas to two purchasers, Scurlock
Permian Corporation and Delhi Gas Marketing Corp., accounted for 26% and 15%,
respectively, of EXCO's total revenues. During the nine month period ended
December 31, 1995, sales of oil and natural gas to three purchasers, Scurlock
Permian Corporation, Delhi Gas Marketing Corp. and Pride Pipeline Company,
accounted for 20%, 13% and 10%, respectively, of EXCO's total revenues.
Although the loss of any one of EXCO's oil and natural gas purchasers could
temporarily cease or delay EXCO's production and sale of its oil and natural
gas in the purchasers' particular service area, EXCO believes it would be able,
under current economic circumstances, to contract with other purchasers for its
oil and natural gas production.
REGULATION
GENERAL
EXCO's operations are affected from time to time in varying degrees by
political developments and federal and state laws and regulations. In
particular, oil and natural gas production operations and economics are or have
been affected by price control, tax and other laws relating to the oil and
natural gas industry, by changes in such laws and by changing administrative
regulations. There are currently no price controls on oil, condensate or NGLs.
To the extent price controls remain applicable after the enactment of the
Natural Gas Wellhead Decontrol Act of 1989, EXCO is of the opinion that such
controls will not have a significant impact on the prices received by EXCO for
natural gas produced in the near future.
Legislation affecting the oil and natural gas industry is under
constant review for amendment or expansion, frequently increasing the
regulatory burden. Also, numerous departments and agencies, both federal and
state, are authorized by statute to issue and have issued rules and regulations
binding on the oil and natural gas industry and its individual members,
compliance with which is often difficult and costly and certain of which carry
substantial penalties for the failure to comply. EXCO cannot predict how
existing regulations may be interpreted by enforcement agencies or the courts,
nor whether amendments or additional regulations will be adopted, nor what
effect such interpretations and changes may have on EXCO's business or
financial condition.
NATURAL GAS REGULATION
Historically, interstate pipeline companies generally acted as
wholesale merchants by purchasing natural gas from producers and reselling the
natural gas to local distribution companies and large end users. Commencing in
late 1985, the FERC issued a series of orders that have had a major impact on
interstate natural gas pipeline operations, services, and rates, and thus have
significantly altered the marketing and price of natural gas. The FERC's key
rule making action, Order No. 636 ("Order 636"), issued in April 1992, required
each interstate pipeline to, among other things, "unbundle" its traditional
bundled sales services and create and make available on an open and
nondiscriminatory basis numerous constituent services (such as gathering
services, storage services, firm and interruptible transportation services, and
standby sales and natural gas balancing services), and to adopt a new rate
making methodology to determine appropriate rates for those services. To the
extent the pipeline company or its sales
44
<PAGE> 47
affiliate makes natural gas sales as a merchant in the future, it does so
pursuant to private contracts in direct competition with all other sellers,
such as EXCO; however, pipeline companies and their affiliates were not
required to remain "merchants" of natural gas, and most of the interstate
pipeline companies have become "transporters only." In subsequent orders, the
FERC largely affirmed the major features of Order 636 and denied a stay of the
implementation of the new rules pending judicial review. By the end of 1994,
the FERC had concluded the Order 636 restructuring proceedings, and, in
general, accepted rate filings implementing Order 636 on every major interstate
pipeline. However, even through the implementation of Order 636 on individual
interstate pipelines is essentially complete, many of the individual pipeline
restructuring proceedings, as well as Order 636 itself and the regulations
promulgated thereunder, are subject to pending appellate review and could
possibly be changed as a result of future court orders. EXCO cannot predict
whether the FERC's orders will be affirmed on appeal or what the effects will
be on its business.
In recent years the FERC also has pursued a number of other important
policy initiatives which could significantly affect the marketing of natural
gas. Some of the more notable of these regulatory initiatives include (i) a
series of orders in individual pipeline proceedings articulating a policy of
generally approving the voluntary divestiture of interstate pipeline owned
gathering facilities by interstate pipelines to their affiliates (the so-called
"spin down" of previously regulated gathering facilities to the pipeline's
nonregulated affiliate), (ii) the completion of a rule making involving the
regulation of pipelines with marketing affiliates under Order No. 497, (iii)
the FERC's ongoing efforts to promulgate standards for pipeline electronic
bulletin boards and electronic data exchange, (iv) a generic inquiry into the
pricing of interstate pipeline capacity, (v) efforts to refine the FERC's
regulations controlling operation of the secondary market for released pipeline
capacity, and (vi) a policy statement regarding market based rates and other
non-cost-based rates for interstate pipeline transmission and storage capacity.
Several of these initiatives are intended to enhance competition in natural gas
markets, although some, such as "spin downs," may have the adverse effect of
increasing the cost of doing business on some in the industry as a result of
the monopolization of those facilities by their new, unregulated owners. The
FERC has attempted to address some of these concerns in its orders authorizing
such "spin downs," but it remains to be seen what effect these activities will
have on access to markets and the cost to do business. As to all of these
recent FERC initiatives, the ongoing, or in some instances, preliminary
evolving nature of these regulatory initiatives makes it impossible at this
time to predict their ultimate impact on EXCO's business.
EXCO owns, directly or indirectly, certain natural gas facilities that
it believes meet the traditional tests the FERC has used to establish a
company's status as a gatherer not subject to FERC jurisdiction under the
Natural Gas Act of 1938 (the "NGA"). Moreover, recent orders of the FERC have
been more liberal in their reliance upon or use of the traditional tests, such
that in many instances, what was once classified as "transmission" may now be
classified as "gathering." EXCO transports its own natural gas through these
facilities. EXCO also transports certain of its natural gas through gathering
facilities owned by others, including interstate pipelines. With respect to
item (i) in the preceding paragraph, on May 27, 1994, the FERC issued orders in
the context of the "spin off" or "spin down" of interstate pipeline owned
gathering facilities. A "spin off" is a FERC approved sale of such facilities
to a non-affiliate. A "spin down" is the transfer by the interstate pipeline of
its gathering facilities to an affiliate. A number of spin offs and spin downs
have been approved by the FERC and implemented. The FERC held that it retains
jurisdiction over gathering provided by interstate pipelines, but that it
generally does not have jurisdiction over pipeline gathering affiliates, except
in the event of affiliate abuse (such as actions by the affiliate undermining
open and nondiscriminatory access to the interstate pipeline). These orders
require nondiscriminatory access for all sources of supply, prohibit the tying
of pipeline transportation service to any service provided by the pipeline's
gathering affiliate, and require the new gathering company to submit a
"default" contract if a satisfactory contract cannot be mutually agreed upon by
the interstate pipeline and its existing customers. Several petitions for
rehearing of the FERC's May 27, 1994, orders were filed. On November 30, 1994,
the FERC issued a series of rehearing orders largely affirming the May 27,
1994, orders. The FERC clarified that "default" contracts are intended to serve
only as a transition mechanism to prevent arbitrary termination of gathering
service to existing customers. Also, the FERC now requires interstate pipelines
to not only seek authority under Section 7(b) of the NGA to abandon
certificated facilities, but also to seek authority under Section 4 of the NGA
to terminate service from both certificated and uncertificated facilities. On
December 31, 1994, an appeal was filed with the U.S. Court of Appeals for the
D.C. Circuit to overturn three of the FERC's November 30, 1994, orders. EXCO
cannot predict what the ultimate effect
45
<PAGE> 48
of the FERC's orders pertaining to gathering will have on its production and
marketing, or whether the Appellate Court will affirm the FERC's orders on
these matters.
FEDERAL TAXATION
The federal government is continually proposing tax initiatives that
may affect the oil and natural gas industry, including EXCO. Due to the
preliminary nature of these proposals, EXCO is unable to determine what effect,
if any, the proposals would have on product demand or EXCO's results of
operations.
STATE REGULATION
The various states in which EXCO conducts activities regulate the
drilling, operation and production of oil and natural gas wells, such as the
method of developing new fields, spacing of wells, the prevention and clean-up
of pollution, and maximum daily production allowables based on market demand
and conservation considerations.
ENVIRONMENTAL REGULATION
EXCO's exploration, development and production of oil and natural gas,
including its operation of saltwater injection and disposal wells, are subject
to various federal, state and local environmental laws and regulations. Such
laws and regulations can increase the costs of planning, designing, installing
and operating oil and natural gas wells. EXCO's domestic activities are
subject to a variety of environmental laws and regulations, including, but not
limited to, the OPA, the Clean Water Act ("CWA"), the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), the Resource
Conservation and Recovery Act ("RCRA"), the Clean Air Act ("CAA") and the Safe
Drinking Water Act ("SDWA"), as well as state regulations promulgated under
comparable state statutes. EXCO also is subject to regulations governing the
handling, transportation, storage and disposal of naturally occurring
radioactive materials that are found in its oil and natural gas operations.
Civil and criminal fines and penalties may be imposed for non- compliance with
these environmental laws and regulations. Additionally, these laws and
regulations require the acquisition of permits or other governmental
authorizations before undertaking certain activities, limit or prohibit other
activities because of protected areas or species and impose substantial
liabilities for cleanup of pollution.
Under the OPA, a release of oil into water or other areas designated
by the statue could result in EXCO being held responsible for the costs of
remediating such a release, certain OPA specified damages and natural resource
damages. The extent of that liability could be extensive, as set forth in the
statute, depending on the nature of the release. A release of oil in harmful
quantities or other materials into water or other specified areas could also
result in EXCO being held responsible under the CWA for the cost of
remediation, and civil and criminal fines and penalties.
CERCLA and comparable state statutes, also known as "Superfund" laws,
can impose joint and several and retroactive liability, without regard to fault
or the legality of the original conduct, on certain classes of persons for the
release of a "hazardous substance" into the environment. In practice, cleanup
costs are usually allocated among various responsible parties. Potentially
liable parties include site owners or operators, past owners or operators under
certain conditions and entities that arrange for the disposal or treatment of,
or transport hazardous substances found at the site. Although CERCLA, as
amended, currently exempts petroleum, including, but not limited to, crude oil,
natural gas and natural gas liquids from the definition of hazardous substance,
EXCO's operations may involve the use or handling of other materials that may
be classified as hazardous substances under CERCLA. Furthermore, there can be
no assurance that the exemption will be preserved in future amendments of the
act, if any.
RCRA and comparable state and local requirements impose standards for
the management, including treatment, storage and disposal of both hazardous and
nonhazardous solid wastes. EXCO generates hazardous and nonhazardous solid
waste in connection with its routine operations. From time to time, proposals
have been made that would reclassify certain oil and natural gas wastes,
including wastes generated during pipeline, drilling and production operations,
as "hazardous wastes" under RCRA which would make such solid wastes subject to
must more stringent handling, transportation, storage, disposal and clean-up
requirements. This development could have
46
<PAGE> 49
a significant impact on EXCO's operating costs. While state laws vary on this
issue, state initiatives to further regulate oil and natural gas wastes could
have a similar impact.
Because oil and natural gas exploration and production, and possibly
other activities, have been conducted at some of EXCO's properties by previous
owners and operators, materials from these operations remain on some of the
properties and in some instances require remediation. In addition, EXCO has
agreed to indemnify Sellers of producing properties from whom EXCO has acquired
reserves against certain liabilities for environmental claims associated with
such properties. While EXCO does not believe the costs to be incurred by EXCO
for compliance and remediating previously or currently owned or operated
properties will be material, there can be no guarantee that such costs will not
result in material expenditures.
Additionally, in the course of EXCO's routine oil and natural gas
operations, surface spills and leaks, including casing leaks, of oil or other
materials occur, and EXCO incurs costs for waste handling and environmental
compliance. Moreover, EXCO is able to control directly the operations of only
those wells for which it acts as the operator. Notwithstanding EXCO's lack of
control over wells owned by EXCO but operated by others, the failure of the
operator to comply with applicable environmental regulations may, in certain
circumstances, be attributable to EXCO.
It is not anticipated that EXCO will be required in the near future to
expend amounts that are material in relation to its total capital expenditures
program by reason of environmental laws and regulations, but inasmuch as such
laws and regulations are frequently changed, EXCO is unable to predict the
ultimate cost of compliance. There can be no assurance that more stringent laws
and regulations protecting the environment will not be adopted or that EXCO
will not otherwise incur material expenses in connection with environmental
laws and regulations in the future. See "Risk Factors -- Governmental
Regulation."
OTHER PROPOSED LEGISLATION
In the past, Congress has been very active in the area of natural gas
regulation. Legislative proposals are pending in various states which, if
enacted, could significantly affect the petroleum industry. EXCO cannot predict
which proposals, if any, may actually be enacted by Congress or any of the
state legislatures, and what impact, if any, such proposals may have on EXCO's
operations.
COMPETITION
The oil and natural gas industry is highly competitive. EXCO
encounters strong competition from other independent operators and from major
oil companies in acquiring properties in contracting for drilling equipment and
in securing trained personnel. Many of these competitors have financial
resources and staffs substantially larger than those available to EXCO.
Exploitation for and production of oil and natural gas is also
affected by competition for drilling rigs and the availability of tubular goods
and certain other equipment. While the oil and natural gas industry has
experienced shortages of drilling rigs and equipment, pipe and personnel in the
past, EXCO is not presently experiencing any shortages and does not foresee any
such shortages in the near future. EXCO is unable to predict how long current
market conditions will continue.
Competition for attractive oil and natural gas producing properties,
undeveloped leases and drilling rights is also strong, and EXCO cannot provide
assurance that it will be able to compete satisfactorily in the acquisition of
such properties. Many major oil companies have publicly indicated their
decisions to concentrate on overseas activities and have been actively
marketing certain of their existing producing properties for sale to
independent producers. There can be no assurance that EXCO will be successful
in acquiring any such properties.
47
<PAGE> 50
EMPLOYEES
As of March 31, 1997, EXCO employed twelve persons of which one was
involved in field operations and eleven were engaged in office and
administrative activities. None of EXCO's employees are represented by unions
or covered by collective bargaining agreements. To date, EXCO has not
experienced any strikes or work stoppages due to labor problems and considers
its relations with its employees to be good. EXCO also utilizes the services of
independent consultants on a contract basis.
LEGAL PROCEEDINGS
EXCO is not presently party to, nor is any of its property the subject
of, any material pending legal proceedings other than routine litigation
incidental to EXCO's business.
48
<PAGE> 51
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MILLER SHARE PURCHASE TRANSACTION
On December 19, 1997, Mr. Miller purchased (the "Purchase") 413,423
shares of Common Stock of EXCO, par value $.01 per share, for $3.00 per share.
Upon completion of the Purchase, Mr. Miller was at that date the beneficial
owner of approximately 51% of the Common Stock of EXCO.
The Purchase was effected pursuant to the terms of a Stock Option
Agreement first dated December 8, 1997 among Mr. Miller, on the one hand, and
Richard D. Collins, Dave Fitzgerald, Inc., David N. Fitzgerald, Francis C.
Fitzgerald, W.R. Granberry, Glenn L. Seitz, Suzanne F. Bobo, J.A. Dinger, John
A. Schlensker, Donald C. Thomas, Jr. and R. Scott Collins (collectively, the
"Sellers"), on the other (the "Option Agreement"). The Sellers included
directors of EXCO and members of EXCO's management and certain affiliates.
On December 18, 1997, Mr. Miller exercised his option to purchase the
shares. On December 19, 1997, Mr. Miller executed a Stock Purchase Agreement
among Mr. Miller, on the one hand, and certain Sellers, on the other (the
"Purchase Agreement"). Pursuant to the terms of the Option Agreement and the
Purchase Agreement, the Purchase was consummated December 19, 1997. In
connection with the Purchase, Mr. Miller paid the Sellers an aggregate of
approximately $1,240,269 in cash from personal funds. The consideration paid
by Mr. Miller in connection with the Purchase was determined by arms' length
negotiations between Mr. Miller and the Sellers.
In addition, on December 19, 1997, the Board of Directors of EXCO held
a meeting at which time the resignations of various officers and directors of
EXCO were tendered and accepted. The Board appointed Mr. Miller as a Director
and then elected him Chairman and Chief Executive Officer of EXCO. The Board
also appointed Mr. Eubank to the Board of Directors and elected him President,
Treasurer and Chief Financial Officer of EXCO. Mr. David N. Fitzgerald
resigned as Chairman of the Board of EXCO, Mr. Gleeson resigned as President
and Chief Executive Officer of EXCO, Mr. Glenn L. Seitz resigned as a Director
and Treasurer of EXCO, Mr. Richard D. Collins resigned as a Director and
Secretary of EXCO and Mr. W.R. Granberry resigned as a Director of EXCO.
Richard E. Miller was elected Secretary of EXCO. Messrs. Fitzgerald and Gleeson
remained as Directors of EXCO.
On December 31, 1997, Mr. Eubank resigned as Chief Financial Officer
and Dr. Ramsey was appointed Chief Financial Officer and Vice President of
EXCO.
PRIVATE PLACEMENT
On December 31, 1997, EXCO issued, in a private placement conducted
pursuant to Section 4(2) of the Securities Act of 1933, 100,000 shares of
Common Stock, par value $.01 per share, to Mr. Eubank for an aggregate purchase
price of $300,000, or $3.00 per share. In addition, on that same date EXCO
issued, in a private placement, 100,000 shares to Mr. Ellis for an aggregate
purchase price of $300,000, or $3.00 per share. The purchase price for these
shares were based on the purchase price paid by Mr. Miller for his shares in
the Purchase. All of the shares so issued are deemed "restricted" shares under
the Federal securities laws. The $600,000 aggregate gross purchase
consideration will be used as general corporate working capital by EXCO.
RICHARD D. COLLINS
The Board of Directors authorized a payment of $23,736 to Richard D.
Collins, a former director of EXCO, for expenses related to attempting to
locate acquisition candidates for EXCO and consulting services rendered during
1997 to EXCO.
MAVERICK COUNTY, TEXAS ACQUISITION
Effective January 1, 1998, EXCO acquired interests in 9 gross (7.0
net) producing natural gas wells, 2 gross (1.87 net) nonproducing wells, 360
gross (280 net) developed acres and 3,384 gross (2,843 net) undeveloped acres
in Maverick County, Texas (the "Acquisition"). The Acquisition included a
majority of the working interest and
49
<PAGE> 52
operator status for all but one of such wells. All of the wells produce from
the Glen Rose formation at depths between 5,000 and 5,900 feet. EXCO has
identified at least two potential development well locations, one of which
commenced drilling in March 1998. The estimated cost to EXCO for its 48.75%
before payout (43.875% after payout) interest in such well is $219,000.
Reserve estimates indicate that the SEC PV-10, attributable to EXCO's interest
in the current wells and two development wells is approximately $1.5 million.
All of the estimated reserves are classified as proved reserves, with 66%
attributable to Proved Developed Producing reserves and 34% attributable to
proved undeveloped reserves. Richard E. Miller, General Counsel, General Land
Manager and Secretary of EXCO was one of the selling parties in the Acquisition
and received the sum of $29,440 for his interest as a seller. In the sale to
EXCO, Richard E. Miller retained an overriding royalty interest of less than 1%
in two of the producing wells purchased and a 17.5% working interest in the
development well which is scheduled for drilling in March 1998. The sellers in
the Acquisition, including Richard E. Miller, retained an interest in future
drilling on certain of the acquired acreage, including the second of the two
development wells referred to above. The retained interest of the sellers was
equal to one-third of the interest they owned at the time of the sale. The
reserve estimates set forth above fully reflect and do not include the
interests retained by the sellers, including Richard E. Miller. In connection
with the Acquisition, Richard E. Miller also received a 3% finder's fee in the
amount of $22,806 for his role in bringing the Acquisition to EXCO's attention.
J. MICHAEL MUCKLEROY
During the fiscal year ended December 31, 1997, Mr. Muckleroy, a
director nominee, owned the following working interests in the following wells
operated by EXCO: the Wilbanks #1 (4.18%); the McGarraugh 1-139 (2%); the
Perkins #4 (6%); the Mitchell #1 (11.7%); the Mitchell #2 (18%); and the Coats
#5 (11%). Mr. Muckleroy received approximately $2,700 per month as a result of
his working interests in wells operated by EXCO. On March 5, 1998 the Board of
Directors issued 12,500 shares of Common Stock, par value $.01 per share, to
Mr. Muckleroy in exchange for his working interest in the aforementioned wells.
DAVID N. FITZGERALD
Mr. Fitzgerald, a current director, owns working interests in the
following wells operated by EXCO: the Perkins #4 (2%); the Mitchell #1 (2.3%);
the Mitchell #2 (3%); and the Coats #5 (2%). Mr. Fitzgerald currently receives
approximately $685 per month as a result of his working interests in wells
operated by EXCO.
GLENN L. SEITZ
Mr. Seitz, a director of EXCO until December 19, 1997, owns working
interests in the following wells operated by EXCO: the Perkins #4 (.5%); the
Mitchell #1 (.5%); the Mitchell #2 (.5%); and the Coats #5 (.5%). Mr. Seitz
receives approximately $96 per month as a result of his working interests in
wells operated by EXCO.
INDEMNIFICATION ARRANGEMENTS
EXCO has authority under Articles 2.02(A)(16) and 2.02-1 of the Texas
Business Corporation Act to indemnify its officers and directors to the extent
provided for in such statute.
Article VI of EXCO's Restated Bylaws provides that EXCO shall
indemnify each of its directors and officers, its former directors and officers
and agents of EXCO against expenses actually and reasonably incurred by him or
her in connection with the defense of any action, suit or proceeding, civil or
criminal, in which such person is made a party by reason of being or having
been such director or officer, except in situations where he or she shall be
adjudged in such action, suit or proceeding to be liable for negligence or
misconduct in the performance of his or her duty to EXCO. In the event of a
criminal conviction (whether based on a plea of guilty or nolo contendere or
its equivalent, or after trial), such conviction shall not be deemed an
adjudication of liability for negligence or misconduct in the performance of
duty to EXCO if such director or officer acted in good faith in what he or she
considered to be the best interest of EXCO and without reasonable cause to
believe that his or her actions were illegal. In absence of an adjudication
which expressly absolves the director or officer of liability to EXCO or its
shareholders for negligence or misconduct, or in the event of a settlement, the
right to indemnification of a director
50
<PAGE> 53
or officer shall be conditioned upon prior resolution adopted by two-thirds of
the disinterested members of the Board or by independent counsel.
EXCO intends to obtain and maintain insurance against liabilities
incurred by its officers and directors in defense of actions to which they are
made parties by reason of their positions as officers and directors.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 is permitted for directors, officers or persons
controlling the Registrant pursuant to the foregoing provisions, the Registrant
has been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
DESCRIPTION OF CAPITAL STOCK
EXCO's authorized capital stock consists of (i) 25,000,000 shares of
Common Stock and (ii) 10,000,000 shares of Preferred Stock. Upon consummation
of the Rights Offering and assuming all Rights are exercised, 5,597,900 shares
of Common Stock and no shares of Preferred Stock will be outstanding (before
adjustments for fractional shares). The following summary of EXCO's capital
stock does not purport to be complete and is subject to, and qualified in its
entirety by, the Articles of Incorporation. On March 31, 1998, EXCO consummated
a Reverse Stock Split. See "Recent Developments."
COMMON STOCK
EXCO is authorized to issue 25,000,000 shares of Common Stock, par
value $.02 per share. At April ___, 1998, the record date for the Rights
Offering, there were 508,900 shares of Common Stock issued and outstanding held
by approximately 1,700 shareholders of record. All shares of Common Stock have
equal voting rights on the basis of one vote per share on matters to be voted
on by the shareholders. Cumulative voting for the election of directors is not
permitted. The vote or concurrence of two-thirds of the outstanding voting
shares of Common Stock is required for any amendments to the Articles of
Incorporation, or for the approval of any merger or consolidation, any
distributions in partial liquidation of EXCO, any sale, lease, exchange or
other disposition not in the ordinary course of business of all, or
substantially all, of the property or assets of EXCO or the dissolution of
EXCO.
Shareholders of Common Stock are entitled to receive dividends if,
when and as declared by the Board out of funds legally available therefor.
Shares of Common Stock have no preemptive, conversion, sinking fund, redemption
or similar provisions. In the event of liquidation of EXCO, shareholders of
Common Stock are entitled to share on a pro rata basis in the distribution of
EXCO's assets, if any, after the payment of liabilities and the liquidation
preference, if any, on any preferred stock then outstanding. All outstanding
shares of Common Stock are, and the shares of Common Stock being issued and
sold by EXCO in the offering made hereby, will be, when issued and paid for,
fully paid and nonassessable.
A total of 1,000,000 shares of Common Stock have been reserved for
issuance under EXCO's 1998 Stock Option Plan of which, as of March 31, 1998,
1,000,000 shares remain available for grants of stock options.
PREFERRED STOCK
EXCO is authorized to issue 10,000,000 shares of Preferred Stock. The
Preferred Stock may be issued in series, and shares of each series shall have
such rights and preferences as shall be fixed by the Board in the resolution or
resolutions authorizing the issuance of that particular series. In designating
any series of Preferred Stock the Board has authority, without further action
by the holders of Common Stock, to fix the number of shares constituting that
series and to fix the dividends rights, dividend rate, conversion rights,
rights and terms of redemption (including any sinking fund provisions), and the
liquidation preferences of that series of Preferred Stock. The issuance of
Preferred Stock could adversely affect the voting power of holders of Common
Stock and the likelihood that such holders will receive dividend payments and
payments upon liquidation and could have the effect of
51
<PAGE> 54
delaying, deferring or preventing a change in control of EXCO. EXCO has no
present plans to issue any shares of Preferred Stock.
LIMITATIONS ON LIABILITY
As authorized by Article 1301-7.06 of the Texas Miscellaneous
Corporation Laws Act (the "TMCLA"), the Articles of Incorporation provide that
to the fullest extent, now or hereafter permitted by Texas law, EXCO's
directors will have no personal liability to EXCO or its shareholders for
monetary damages for breach or alleged breach of the directors' duty of care.
This provision in the Articles of Incorporation will not eliminate directors'
liability resulting from suits by third parties, and does not affect EXCO or
its shareholders' ability to obtain equitable remedies such as an injunction or
a rescission of an agreement or transaction deemed improper. Furthermore, each
director will continue to be subject to liability for (1) a breach of a
director's duty of loyalty to EXCO or its shareholders, (2) an act or omission
not in good faith or that involves intentional misconduct or a knowing
violation of the law, (3) a transaction from which a director received an
improper benefit, whether or not the benefit resulted from an action taken
within the scope of the director's office, (4) an act or omission for which the
liability of a director is expressly provided for by statute, or (5) an act
related to an unlawful share repurchase or payment of a dividend.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a general discussion of certain anticipated federal
income tax consequences of the Rights Offering. This discussion is based on the
provisions of the Code, the Treasury Regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all as in effect as of the
date hereof and all of which are subject to change (possibly on a retroactive
basis). This discussion does not purport to deal with all aspects of federal
income taxation that may be relevant to a particular holder of Rights in light
of such holder's personal investment circumstances nor does this discussion
address special tax implications which may be applicable to certain types of
holders of Rights subject to special treatment under the Code (including,
without limitation, financial institutions, broker-dealers, regulated
investment companies, life insurance companies, tax-exempt organizations,
foreign corporations and non-resident aliens). Moreover, the discussion is
limited to those who will hold the Rights and any Common Stock acquired upon
the exercise of Rights, as capital assets (generally, property held for
investment) within the meaning of Section 1221 of the Code. No consideration of
any aspects of state, local or foreign taxation is included herein. EXCO has
not sought, nor does it intend to seek, any rulings from the IRS relating to
the tax issues addressed herein, and such issues may be subject to substantial
uncertainty resulting from the lack of definitive judicial or administrative
authority and interpretations applicable thereto.
EACH EXISTING HOLDER OF COMMON STOCK AND EACH PROSPECTIVE PURCHASER OF
RIGHTS IS URGED TO CONSULT SUCH PERSON'S OWN TAX ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE RIGHTS OFFERING WITH RESPECT TO SUCH PERSON'S OWN
PARTICULAR TAX SITUATION, INCLUDING THE APPLICATION AND EFFECT OF THE CODE, AS
WELL AS STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
TAX CONSEQUENCES TO HOLDERS OF RIGHTS
ISSUANCE OF RIGHTS TO EXISTING SHAREHOLDER
Existing law is not clear as to whether the distribution of Rights to
holders of Common Stock ("Existing Shareholders") would be characterized as a
distribution under Section 305(a) of the Code ("Section 305(a) Distribution")
or, alternatively, as a distribution under Sections 301 and 305(b) of the Code
("Section 301 Distribution"). EXCO intends to take the position that the Rights
distribution is properly characterized as a Section 305(a) Distribution.
Assuming that the Rights distribution is properly characterized as a Section
305(a) Distribution, the distribution would be nontaxable without regard to
EXCO's earnings and profits. If the Rights distribution were
52
<PAGE> 55
treated as a Section 301 Distribution, and provided that EXCO does not have
positive net earnings during fiscal 1998, the value of the Rights distributed
would be treated as a nontaxable reduction in the Existing Shareholder's basis
in his Common Stock, and the balance (if any) in excess of such adjusted basis
would be taxed as capital gain.
BASIS OF RIGHTS
If, as expected, the Rights distribution is properly characterized as
a Section 305(a) Distribution, then, except as provided in the following
sentence, the tax basis of Rights received by an Existing Shareholder in the
Rights distribution would be zero. If, however, (i) the Rights distribution
constitutes a Section 305(a) Distribution and (ii) either the Rights have a
value (on the date of distribution of the Rights) equal to or greater than 15%
of the value of the shares of Common Stock with respect to which the Rights are
distributed or the Existing Shareholder elects to apply the rule described in
this sentence, then upon exercise or transfer (but not upon lapse) of the
Rights, the Existing Shareholder would reallocate his tax basis in his Common
Stock between the Rights and the Common Stock based on the relative fair market
values of each. If the Rights distribution were treated as a Section 301
Distribution, an Existing Shareholder would have a tax basis in the Rights
equal to (and, assuming that EXCO does not have positive net earnings during
fiscal 1998, the Existing Shareholder's basis in his Common Stock would be
reduced by) an amount equal to the fair market value of the Rights on the date
of the Rights distribution. Persons who acquire Rights by purchase will have a
tax basis in the Rights equal to the purchase price paid therefor.
HOLDING PERIOD OF RIGHTS
If, as expected, the Rights distribution is treated as a Section
305(a) Distribution, an Existing Shareholder will have a holding period in the
Rights that includes the holding period of the shares of Common Stock to which
the Rights distribution relates. If the Rights distribution were treated as a
Section 301 Distribution, the Existing Shareholder would have a holding period
in the Rights that begins on the day following the date of distribution of the
Rights. A holder who acquires Rights by purchase will have a holding period in
the Rights that begins on the date of purchase.
EXERCISE OR SALE OF RIGHTS
A holder of Rights will not be taxed upon exercise of the Rights. The
holder's tax basis in the shares of Common Stock received upon exercise will
equal (i) his basis in the Rights, plus (ii) the exercise price paid for the
Common Stock. The holder's holding period in the Common Stock will begin on the
day following the date of exercise of the Rights. Upon a sale of the Rights, a
holder of Rights will realize capital gain or loss equal to the difference
between the amount received (if any) for the Rights and his tax basis in the
Rights (determined as described in "-- Basis of Rights," above).
LAPSE OF RIGHTS
A holder of Rights who allows Rights to lapse would have a capital
loss equal to his basis (determined as described in "-- Basis of Rights,"
above), if any, in the Rights that lapsed. If the Rights distribution is
treated as a Section 305(a) Distribution, an Existing Shareholder who allows a
Right to lapse will have no basis in the Right and, thus, would realize no
capital loss.
SALE OR CASH REDEMPTION OF COMMON STOCK
Upon a sale or cash redemption of shares of Common Stock, a holder who
acquired Rights by purchase and, if (as expected) EXCO has no net earnings
during fiscal 1998, an Existing Shareholder, will generally recognize capital
gain or loss in an amount equal to the difference between the amount received
in the sale or redemption and the holder's tax basis (determined as described
in "-- Exercise or Sale of Rights," above) in the shares redeemed.
53
<PAGE> 56
LEGAL MATTERS
Certain legal matters in connection with the securities offered hereby
will be passed upon for EXCO by Haynes and Boone, LLP, Dallas, Texas.
EXPERTS
The financial statements of EXCO Resources, Inc. at December 31, 1997
and for the year then ended and incorporated elsewhere in the Prospectus and
the Registration Statement have been audited by Ernst & Young, LLP, independent
auditors, as set forth in their report and are included in reliance upon such
report given the authority of such firm as experts in accounting and auditing.
The financial statements of EXCO Resources, Inc. at December 31, 1996
and 1995, and for the year ended December 31, 1996 and the nine months ended
December 31, 1995 included and incorporated by reference in this Prospectus and
elsewhere in the Registration Statement, to the extent and for the periods
indicated in their report, have been audited by Belew Averitt, LLP, independent
auditors, as set forth in their report thereon, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The reserve estimates presented as of December 31, 1995, 1996 and 1997
and with respect to the Maverick County Properties have been prepared by Lee
Keeling and Associates, Inc., independent petroleum engineers, Tulsa, Oklahoma,
and are a part of their reports on EXCO's oil and natural gas properties.
Previous reserve estimates as of March 31, 1995 reported herein were prepared
by Milmac Operating Company, independent petroleum engineers, Lubbock, Texas.
ADDITIONAL INFORMATION
EXCO has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act with respect to the
securities offered by this Prospectus. This Prospectus constitutes a part of
the Registration Statement and does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted from
this Prospectus as permitted by the rules and regulations of the Commission.
Statements made in this Prospectus regarding the contents of any contract,
agreement or other document are not necessarily complete. With respect to each
contract, agreement or other document filed with the Commission as an exhibit
to the Registration Statement, reference is made to the exhibit for further
information regarding the contents thereof, and each such statement is
qualified in its entirety by such reference. For further information regarding
EXCO and the securities offered hereby, reference is made to the Registration
Statement, including the exhibits and schedules thereto.
The Registration Statement, including the exhibits and schedules
thereto, is available for inspection at, and copies of such materials may be
obtained at prescribed rates from, the public reference facilities maintained
by the Commission at its principal offices located at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at its regional offices located
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661 and Seven World Trade Center, 13th Floor, New York, New York 10048. The
Commission maintains a website that contains reports, proxy and information
statements and other information regarding issuers that file electronically
with the Commission (http://www.sec.gov).
54
<PAGE> 57
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated by reference in this Prospectus, and subject in each case
to information contained in this Prospectus, are the following documents filed
by EXCO with the Commission pursuant to the Exchange Act: (i) EXCO's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997; (ii) EXCO's
Current Report on Form 8-K dated January 14, 1998; (iii) EXCO's Current Report
on Form 8-K dated February 25, 1998; and (iv) EXCO's Proxy Statement dated
March 17, 1998.
Each document filed by EXCO pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the Rights Offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part of this Prospectus from the date
of filing of such document. Any statement contained in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statements as modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
EXCO will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon the written or
oral request of such person, a copy of any and all of the documents
incorporated by reference herein (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference in such documents).
Such request should be directed to Attention: Richard E. Miller, General
Counsel and Secretary, 5735 Pineland Drive, Suite 235, Dallas, Texas 75231,
telephone: (214) 368-2084.
55
<PAGE> 58
GLOSSARY OF SELECTED OIL AND NATURAL GAS TERMS
The following are abbreviations and definitions of certain terms
commonly used in the oil and natural gas industry and this Prospectus.
"BBL." One stock tank barrel, or 42 U.S. gallons liquid volume, used
herein in reference to crude oil or other liquid hydrocarbons.
"BEHIND-PIPE." Hydrocarbons in a potentially producing horizon
penetrated by a well bore the production of which has been postponed pending
the production of hydrocarbons from another formation penetrated by the well
bore. These hydrocarbons are classified as proved but nonproducing reserves.
"BOE." Barrel of oil equivalent (converting six Mcf of natural gas to
one Bbl of oil).
"COMPLETED WELL." The completion of a well or a completed well refers
to the installation of permanent equipment for the production of oil or natural
gas, or in the case of a dry hole, the reporting of abandonment to the
appropriate agency.
"DEVELOPED ACREAGE." Acreage spaced or assignable to productive wells.
"DEVELOPMENT WELL." A well drilled within the proven boundaries of an
oil or natural gas reservoir with the intention of completing the stratigraphic
horizon known to be productive.
"DRY HOLE." An exploratory or development well found to be incapable
of producing either oil and natural gas in sufficient economic quantities to
justify completion of a well.
"EXPLORATORY WELL." A well drilled within no proven boundaries of an
oil or natural gas reservoir.
"GROSS ACRE." An acre in which a working interest is owned.
"GROSS WELL(S)." A gross well is a well in which a working interest is
owned. The number of gross wells is the total number of wells in which working
interests are owned.
"INFILL DRILLING." Drilling of a well between known producing wells to
better exploit the reservoir.
"MCF." One thousand cubic feet of natural gas.
"MCFE." One thousand cubic feet of natural gas equivalent (converting
one Bbl of oil to six Mcf of natural gas).
"NET ACRE(S)." A net acre is deemed to exist when the sum of
fractional ownership working interests in gross acres equals one. The total of
net acres is the sum of the fractional working interests owned in gross acres
expressed as whole numbers and percentages thereof.
"NET WELL(S)." A net well is deemed to exist when the sum of the
fractional ownership working interests in gross wells equals one. The number of
net wells is the sum of the fractional working interests owned in gross wells
expressed as whole numbers and percentages thereof.
"OVERRIDING ROYALTY INTEREST." An interest in an oil and/or natural
gas property entitling the owner to a share of oil and natural gas production
free of costs of production.
"PRESENT VALUE OF ESTIMATED FUTURE NET REVENUES." The present value of
estimated future net revenues is an estimate of future net revenues from a
property at its acquisition date, at December 31, 1997, or as otherwise
indicated, after deducting production and ad valorem taxes, future capital
costs and operating expenses, but before
56
<PAGE> 59
deducting federal income taxes. The future net revenues have been discounted at
an annual rate of 10% to determine their "present value." The present value is
shown to indicate the effect of time on the value of the net revenue stream and
should not be construed as being the fair market value of the properties.
Estimates have been made using constant oil and natural gas prices and
operating costs at the acquisition date, at December 31, 1997, or as otherwise
indicated. EXCO believes that the present value of estimated future net
revenues before income taxes, while not in accordance with generally accepted
accounting principles, is an important financial measure used by investors and
independent oil and natural gas producers for evaluating the relative
significance of oil and natural gas properties and acquisitions.
"PRODUCING WELL," "PRODUCTION WELL" OR "PRODUCTIVE WELL." A well that
is producing oil or natural gas or that is capable of production.
"PROVED BEHIND-PIPE." Proved reserves that are currently behind the
pipe of an existing well that are expected to be productive due to the wells
log characteristics and the analogous production of other wells in the
immediate vicinity.
"PROVED DEVELOPED RESERVES." Proved developed reserves are those
quantities of oil, natural gas and NGLs that, upon analysis of geological and
engineering data, are expected with reasonable certainty to be recoverable in
the future from known oil and natural gas reservoirs under existing economic
and operating conditions. This classification includes: (a) proved developed
producing reserves, which are those expected to be recovered from currently
producing zones under continuation of present operating methods; and (b) proved
developed nonproducing reserves, which consist of (i) reserves from wells that
have been completed and tested but are not yet producing due to lack of market
or minor completion problems that are expected to be corrected, and (ii)
reserves currently behind the pipe in existing wells which are expected to be
productive due to both the well log characteristics and analogous production in
the immediate vicinity of the well.
"PROVED NONPRODUCING RESERVES." Proved nonproducing reserves include
proved behind-pipe reserves and proved undeveloped reserves.
"PROVED RESERVES." The estimated quantities of crude oil, natural gas
and NGLs which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under
existing economic and operating conditions.
"PROVED UNDEVELOPED RESERVES." Proved reserves that may be expected to
be recovered from existing wells that will require a relatively major
expenditure to develop or from undrilled acreage adjacent to productive units
that are reasonably certain of production when drilled.
"SEC PV-10." The discounted future net cash flows for proved oil and
natural gas reserves computed on the same basis as the Standarized Measure, but
without deducting income taxes, which is not in accordance with generally
accepted accounting principles. SEC PV-10 is an important financial measure
for evaluating the relative significance of oil and natural gas properties and
acquisitions, but should not be construed as an alternative to the Standardized
Measure (as determined in accordance with generally accepted accounting
principles).
"UNDEVELOPED ACREAGE." As defined by the Commission, undeveloped
acreage is considered to be lease acreage on which wells have not been drilled
or completed to a point that would permit the production of commercial
quantities of oil and natural gas regardless of whether such acreage contains
proved reserves.
"WORKING INTEREST." The operating interest that gives the owner the
right to drill, produce and conduct operating activities on the property and to
a share of production, subject to all royalties, overriding royalties and other
burdens and to all costs of exploitation, development and operations and all
risks in connection herewith.
57
<PAGE> 60
EXCO RESOURCES, INC.
FINANCIAL STATEMENTS
Nine Months Ended December 31, 1995
and Years Ended December 31, 1996 and 1997
CONTENTS
<TABLE>
<S> <C>
Audited Financial Statements
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Statements of Changes in Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . F-7
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
Pro Forma Combined Condensed Financial Statements (unaudited)
Pro Forma Combined Condensed Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . F-18
Pro Forma Combined Condensed Statement of Operations . . . . . . . . . . . . . . . . . . . . . F-19
Notes to Unaudited Pro Forma Combined Condensed Financial Statements . . . . . . . . . . . . . F-20
Financial Statements of Business Acquired
Maverick County Properties:
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-23
Statements of Operating Revenues and Direct Operating Expenses . . . . . . . . . . . . . . . . F-24
Notes to Statements of Operating Revenues and Direct Operating Expenses . . . . . . . . . . . F-25
</TABLE>
F-1
<PAGE> 61
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
EXCO Resources, Inc.
We have audited the accompanying balance sheet of EXCO Resources, Inc., as of
December 31, 1997, and the related statements of operations, cash flows, and
changes in stockholders' equity for the year then ended. These financial
statements are the responsibility of EXCO's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of EXCO Resources, Inc., at
December 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
As explained in Note 2 to the financial statements, EXCO Resources, Inc. has
given retroactive effect to the change in accounting for oil and natural gas
properties from the successful efforts method to the full cost method.
/S/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Dallas, Texas
February 11, 1998 , except for
the second paragraph of Note 10,
as to which the date is March 31, 1998
F-2
<PAGE> 62
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
EXCO Resources, Inc.
We have audited the accompanying balance sheet of EXCO Resources, Inc. as of
December 31, 1996, and the related statements of operations, cash flows and
changes in stockholders' equity for the nine months ended December 31, 1995 and
year ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of EXCO Resources, Inc. as of
December 31, 1996, and the results of its operations and its cash flows for the
nine months ended December 31, 1995 and year ended December 31, 1996, in
conformity with generally accepted accounting principles.
As explained in Note 2 to the financial statements, EXCO Resources, Inc. has
given retroactive effect to the change in accounting for all oil and gas
properties from the successful efforts method to the full cost method.
/S/ BELEW AVERITT LLP
BELEW AVERITT LLP
Dallas, Texas
March 13, 1997, except Note 2, as to
which the date is February 11, 1998
and Note 10, second paragraph, as to
which the date is March 31, 1998.
F-3
<PAGE> 63
EXCO RESOURCES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1997
--------- -------
(In thousands, except per share amounts)
<S> <C> <C>
ASSETS:
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 46 $ 496
Accounts receivables:
Oil and natural gas sales . . . . . . . . . . . . . . . . . . . 155 71
Joint interest . . . . . . . . . . . . . . . . . . . . . . . . . 171 155
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 5
--------- -------
Total current assets . . . . . . . . . . . . . . . . . . . . 373 727
Oil and natural gas properties (full cost accounting method):
Undeveloped oil and natural gas properties . . . . . . . . . . . . . 55 36
Proved developed oil and natural gas properties . . . . . . . . . . 5,997 4,267
--------- -------
6,052 4,303
Allowance for depreciation, depletion, and amortization . . . . . . (5,303) (3,830)
--------- -------
Oil and natural gas properties, net . . . . . . . . . . . . . . . . 749 473
Office and field equipment, net . . . . . . . . . . . . . . . . . . 104 70
--------- -------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $ 1,226 $ 1,270
========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 352 $ 262
Joint interest prepayments . . . . . . . . . . . . . . . . . . . . . 31 --
Revenues and royalties payable . . . . . . . . . . . . . . . . . . . 95 50
Note payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 --
Current maturities of long-term debt . . . . . . . . . . . . . . . 30 16
--------- -------
Total current liabilities . . . . . . . . . . . . . . . . . 658 328
Long-term debt, less current maturities . . . . . . . . . . . . . . . . 36 15
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 10,000,000
Outstanding shares - None . . . . . . . . . . . . . . . . . . . -- --
Common stock, $.02 par value:
Authorized shares - 25,000,000 . . . . . . . . . . . . . . . . .
Issued and outstanding shares - 402,650 and 502,650,
at December 31, 1996 and 1997, respectively . . . . . . . . . . 8 10
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 9,118 917
Retained earnings (deficit), as adjusted for quasi-reorganization
at December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . (8,594) --
--------- -------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . 532 927
--------- -------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . $ 1,226 $ 1,270
========= =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 64
EXCO RESOURCES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months
ended Year ended
December 31, December 31,
-------------------------------
1995 1996 1997
------- ------- ------
(In thousands, except per share amounts)
<S> <C> <C> <C>
REVENUES:
Oil and natural gas ...................................... $ 560 $ 872 $ 670
Other income ............................................. 76 39 38
Gain (loss) on disposition of property and equipment ..... -- -- (10)
----- ------- -----
Total revenues ................................... 636 911 698
COST AND EXPENSES:
Oil and natural gas production ........................... 333 429 322
Depreciation, depletion and amortization ................. 92 114 84
General and administrative ............................... 366 373 486
Abandoned acquisition .................................... -- 303 --
Interest ................................................. 5 18 11
----- ------- -----
Total cost and expenses .......................... 796 1,237 903
----- ------- -----
Income (loss) before income taxes ............................. (160) (326) (205)
Income tax expense (benefit) .................................. -- -- --
Net income (loss) ............................................. $(160) $ (326) $(205)
===== ======= =====
Basic and diluted earnings per share .......................... $(.47) $ (.85) $(.51)
===== ======= =====
Weighted average number of common and
common equivalent shares outstanding ........................ 338 383 403
===== ======= =====
</TABLE>
See accompanying notes.
F-5
<PAGE> 65
EXCO RESOURCES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months
ended Year ended
December 31, December 31,
-------------------------------
1995 1996 1997
------- ------- ------
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ................................................... $(160) $(326) $(205)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation, depletion and amortization ....................... 92 114 84
Stock compensation expense ..................................... -- 23 --
Loss (gain) on disposition and abandonment of
property and equipment ....................................... 36 2 10
Effect of changes in:
Accounts receivable ........................................ 71 34 100
Other current assets ....................................... -- -- (4)
Accounts payable and other current liabilities: ............ (1) (155) (166)
----- ----- ----
Net cash provided by (used in) operating activities ................. 38 (308) (181)
INVESTING ACTIVITIES:
Additions to property and equipment ................................. (183) (27) (100)
Proceeds from disposition of property and equipment ................. 39 3 304
----- ----- ----
Net cash provided by (used in) investing activities ................. (144) (24) 204
FINANCING ACTIVITIES:
Proceeds from note payable and long-term debt ....................... 300 150 --
Payments on long-term debt .......................................... (119) (18) (23)
Payments on note payable ............................................ -- (200) (150)
Proceeds from issuance of common stock .............................. -- 225 600
----- ----- ----
Net cash provided by financing activities ........................... 181 157 427
----- ----- ----
Net increase (decrease) in cash ..................................... 75 (175) 450
Cash at beginning of year ........................................... 146 221 46
----- ----- ----
Cash at end of year ................................................. $ 221 $ 46 $ 496
===== ===== ====
SUPPLEMENTAL CASH FLOWS INFORMATION:
Interest paid ....................................................... $ 5 $ 18 $ 11
===== ===== ====
Income taxes paid ................................................... $ -- $ -- $ --
===== ===== ====
</TABLE>
See accompanying notes.
F-6
<PAGE> 66
EXCO RESOURCES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
-----------------
Additional Retained Total
Number of Paid-In Earnings Stockholder's
Shares Amount Capital (Deficit) Equity
--------- -------- --------- ----------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance on March 31, 1995 .................. 338 $ 7 $ 8,871 $(8,108) $ 770
Net loss .............................. -- -- -- (160) (160)
----- ----- ------- ------- -----
Balance on December 31, 1995 ............... 338 7 8,871 (8,268) 610
Shares issued upon exercise
of stock options .................... 60 1 224 -- 225
Common stock issued ................... 5 -- 23 -- 23
Net loss .............................. -- -- -- (326) (326)
----- ----- ------- ------- -----
Balance on December 31, 1996 ............... 403 8 9,118 (8,594) 532
Common stock issued ................... 100 2 598 -- 600
Net loss .............................. -- -- -- (205) (205)
Adjustment for quasi-reorganization
as of December 31, 1997 .............. -- -- (8,799) 8,799 --
----- ----- ------- ------- -----
Balance on December 31, 1997 ............... 503 $10 $ 917 $ -- $ 927
===== ===== ======= ======= =====
</TABLE>
See accompanying notes.
F-7
<PAGE> 67
EXCO RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
EXCO, a Texas corporation, was formed in 1955. EXCO's operations consist
primarily of acquiring interests in producing oil and natural gas properties
located in the continental United States. EXCO also acts as the operator on
certain of these properties and receives overhead reimbursement fees as a
result.
On December 19, 1997, a new stockholder (the "Buyer") took control of EXCO and
its management under an option agreement, and a separate stock purchase
agreement between the Buyer and certain shareholders of EXCO (the "Sellers"),
whereby the Buyer purchased certain outstanding common stock from the Sellers.
QUASI-REORGANIZATION
Effective December 31, 1997, EXCO effected a quasi-reorganization through the
application of $8,799,000 of its additional paid-in capital account to
eliminate its accumulated deficit. EXCO's Board of Directors decided to effect
a quasi-reorganization given the change in management, the infusion of new
equity capital and an increase in activities. EXCO's accumulated deficit was
primarily related to past operations and properties that have been disposed of.
The historical carrying values of the assets and liabilities of EXCO were not
adjusted in connection with the quasi- reorganization.
YEAR-END CHANGE
On February 13, 1996, EXCO changed its fiscal year-end from March 31 to
December 31 effective December 31, 1995.
MANAGEMENT ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, EXCO is required to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses
during the reporting period. Actual results may differ from management's
estimates.
CASH EQUIVALENTS
EXCO considers all highly liquid investments with maturities of 3 months or
less when purchased to be cash equivalents.
CONCENTRATION OF CREDIT RISK AND ACCOUNTS RECEIVABLE
Financial instruments that potentially subject EXCO to concentration of credit
risk consist principally of cash and trade receivables. EXCO places its cash
with high credit quality financial institutions. EXCO sells oil and natural
gas to various customers. In addition, EXCO participates with other parties in
the drilling, completion, and operation of oil and natural gas wells.
Substantially all of EXCO's accounts receivable are due from either purchasers
of oil, natural gas, or natural gas liquids or participants in oil and natural
gas wells for which EXCO serves as the operator. Generally, operators of oil
and natural gas properties have the right to offset future revenues against
unpaid charges related to operated wells. Oil and natural gas sales are
generally unsecured. Credit losses are provided for in the financial statements
and have been within management's expectations. The allowance for doubtful
accounts receivable aggregated $20,000 and $18,000 at December 31, 1996 and
1997, respectively.
F-8
<PAGE> 68
EXCO RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
OIL AND NATURAL GAS PROPERTIES
Oil and natural gas properties are recorded at cost using the full cost method
of accounting, as prescribed by the Securities and Exchange Commission (the
"SEC"). Under the full cost method, all costs associated with the acquisition,
exploration or development of oil and natural gas properties are capitalized as
part of the full cost pool.
Depreciation, depletion, and amortization of evaluated oil and natural gas
properties are provided using the unit-of- production method based on total
proved reserves, as determined by independent petroleum reservoir engineers.
Sales, dispositions, and other oil and natural gas property retirements are
accounted for as adjustments to the full cost pool, with no recognition of gain
or loss unless such disposition would significantly alter the amortization
rate.
OVERHEAD REIMBURSEMENT FEES
Fees from overhead charges billed to working interest owners, including EXCO,
of $115,000, $138,000, and $136,000 for the nine months ended December 31,
1995, and for the years ended December 31, 1996 and 1997, respectively, have
been classified as a reduction of general and administrative expenses in the
accompanying statements of operations. For the nine months ended December 31,
1995 and the year ended December 31, 1996, these amounts were previously shown
as revenues.
INCOME TAXES
Deferred income taxes are accounted for using the liability method in
accounting for income taxes.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement No. 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated, to conform to the Statement 128
requirements. The effect of the adoption of Statement No. 128 did not have a
material impact.
REVERSE STOCK SPLIT
At EXCO's 1996 Annual Meeting of Shareholders (the "1996 Annual Meeting"), the
shareholders of EXCO approved an amendment to EXCO's Articles of Incorporation
(the "Articles of Incorporation"), authorizing a one-for-five reverse stock
split of EXCO's common stock, which became effective July 19, 1996. All share
and per share numbers contained herein have been retroactively adjusted to
record the effects of the reverse stock split. (See Note 10).
PREFERRED STOCK
At the 1996 Annual Meeting, the shareholders also authorized the issuance of up
to 10,000,000 shares of preferred stock, $.01 par value per share (the
"Preferred Stock"), that the Board of Directors may issue from time to time in
one or more series. With respect to each series of Preferred Stock, the
amendment authorizes the Board to fix and determine by resolution the number of
shares of each series, the designation thereof and all rights and preferences
F-9
<PAGE> 69
EXCO RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
including voting, dividend, conversion, redemption and liquidation rights. The
Board of Directors deemed it in the best interest of EXCO to provide for
corporate planning and to have shares available for future equity financings
through issuance to the general public, future acquisitions, stock dividends or
splits or for other corporate purposes for which the issuance of preferred
shares may be advisable.
2. CHANGE IN METHOD OF ACCOUNTING FOR OIL AND NATURAL GAS OPERATIONS
In the fourth quarter of 1997, EXCO changed from the successful efforts method
to the full cost method of accounting for its oil and natural gas operations.
All prior year's financial statements presented herein have been restated to
reflect the change.
During the past ten years, EXCO has incurred minimal exploration and
acquisition costs, has liquidated substantially all its properties and
completed "out of court" debt restructurings. Recently there was a change in
control of ownership of EXCO and new management was appointed. New management
views EXCO as a new company and believes the past operations are insignificant
and not relevant to EXCO's future plans.
New management believes that the change in accounting for oil and natural gas
properties is to a preferable method because the full cost method will more
appropriately reflect EXCO's future operations which will result from the
significant management changes at EXCO. Further, new management does not
believe that the use of the successful efforts method of accounting is
appropriate for a small to medium size acquisition, development and
exploitation company.
The financial statements have been restated to apply the new accounting method
retroactively. The effect of the accounting change on the results of
operations for the nine months ended December 31, 1995 and the year ended
December 31, 1996 are as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
Nine Months ended Year ended
December 31, 1995 December 31, 1996
----------------- -----------------
<S> <C> <C>
STATEMENTS OF OPERATIONS:
Net loss as previously reported ................................................ $(344) $(329)
Adjustment for effect of a change in accounting principle
that is applied retroactively ............................................. 184 3
----- -----
Net loss as adjusted ........................................................... $(160) $(326)
===== =====
PER SHARE AMOUNTS:
Net loss as previously reported ................................................ (1.02) (.85)
Adjustment for effect of a change in accounting principle
that is applied retroactively ............................................. .55 --
----- -----
Net loss as adjusted ........................................................... $(.47) $(.85)
===== =====
Common shares used in per share calculation .................................... 338 383
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY:
Balance at beginning of period as previously reported .......................... $ 974
Add adjustment to retained earning (deficit) for the cumulative
effect on prior years of applying retroactively the full cost method ....... (204)
-----
Balance at beginning of period, as adjusted .................................... 770 610
Net loss ....................................................................... (160) (326)
Shares issued upon exercise of stock options ................................... -- 225
Common stock issued ............................................................ -- 23
----- -----
Balance at end of year ......................................................... $ 610 $ 532
===== =====
</TABLE>
F-10
<PAGE> 70
EXCO RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
3. LONG-TERM DEBT
Long-term debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
------- ------
<S> <C> <C>
Notes payable . . . . . . . . . . . . . . . . . . . . . . . $ 66 $ 31
Less current maturities . . . . . . . . . . . . . . . . . . (30) (16)
------- ------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . $ 36 $ 15
======= ======
</TABLE>
NATIONSBANK CREDIT AGREEMENT
On February 11, 1998, EXCO entered into a credit agreement with NationsBank of
Texas, N.A., ("NationsBank") (the "Credit Agreement"). The Credit Agreement has
a notional amount to $50 million, subject to borrowing base limitations, based
on the value of EXCO's oil and gas properties, as determined by the lenders
from time to time. Under the Credit Agreement, EXCO is required to pay a fee
equal to .25% on any accepted increase in the borrowing base in excess of the
previously determined borrowing base and a commitment fee of .30% to .425%
based on the ratio of outstanding credit to the borrowing base. The maturity
date of the Credit Agreement is February 11, 2000.
The Credit Agreement provides that if EXCO's outstanding credit is less than $5
million, then EXCO's interest rate would be LIBOR plus 1.5%. If EXCO's
outstanding credit is greater than $5 million, then the Credit Agreement
provides that EXCO's interest rate would range from NationsBank's prime rate to
LIBOR plus between 1% and 1.75% based on the ratio of outstanding credit to the
borrowing base.
There are no scheduled principal payments due on the Credit Agreement until
maturity. However, the borrowing base will be redetermined on or around April 1
and October 1 of each year. A borrowing base deficiency is created in the event
that the outstanding loan balances exceed the borrowing base, as determined by
the lenders in their sole discretion. Upon such event the borrowing base
deficiency must be repaid by (i) mandatory reductions of the deficiency over a
period of not more than 6 months; (ii) making a lump sum payment equal to the
deficiency; or (iii) providing additional collateral acceptable to lenders in
their sole discretion sufficient to increase the borrowing base and eliminate
the deficiency.
Borrowings under the Credit Agreement are secured by first and prior liens
covering 90% of the recognized value of all proved mineral interests owned by
EXCO. The Credit Agreement contains various restrictive covenants, including
limitations on the granting of liens, restrictions on the issuance of
additional debt, requirements to maintain a net worth of at least $.5 million
and to maintain a current ratio of not less than 1.0 to 1.0, and currently
prohibits the payment of dividends on EXCO's capital stock.
4. INCOME TAXES
At December 31, 1997, EXCO has net operating loss carryforwards ("NOLs") for
income tax purposes that expire beginning in 1998. Utilization of the NOLs is
significantly restricted because of a change in ownership, as defined by the
Tax Reform Act of 1986, of EXCO, which occurred December 19, 1997, as described
in Note 1. EXCO estimates that approximately $1.9 million of the NOLs will
become available in the future at the rate of approximately $127,000 per year
through 2012. EXCO also has available statutory depletion carryforwards of
approximately $927,000. For financial reporting purposes, a valuation
allowance has been recognized to offset the deferred tax assets related to
carryforwards prior to EXCO's quasi-reorganization. When realized, the tax
benefit for those carryforwards will be credited to additional paid- in
capital.
F-11
<PAGE> 71
EXCO RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of EXCO's deferred tax liabilities and assets are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
------ ----
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Book basis of oil and natural gas properties in excess of tax basis . . . . . . $ 136 $ 189
------ -----
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . 136 189
DEFERRED TAX ASSETS:
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . 2,375 649
Credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 36
Statutory depletion carryforwards . . . . . . . . . . . . . . . . . . . . . . . 315 315
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 6
Valuation allowance for deferred tax assets . . . . . . . . . . . . . . . . . . (2,683) (817)
------ -----
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 189
Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ --
====== =====
</TABLE>
The following is a reconciliation, stated as a percentage of pretax income
(loss) taxable at the corporate level, of the U.S. statutory federal income tax
rate to EXCO's effective tax rate:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory rate . . . . . . . . . 34% 34% 34%
Adjustments to the valuation allowance . . . (34)% (34)% (34)%
---- ---- ----
Effective tax rate -- -- --
==== ==== ====
</TABLE>
5. COMMON STOCK OPTIONS
EXCO applies Accounting Principles Board Opinion 25 in accounting for its fixed
and performance-based stock compensation plans and disclosure requirements of
SFAS 123. Accordingly, no compensation costs have been recognized for either
of the plans.
During the nine month period ended December 31, 1995, EXCO issued 120,000
options to purchase EXCO Common Stock at $1.875 per share. These options were
exercised in 1996. In December 1997, as part of the change in control
described in Note 1, all outstanding options under EXCO's stock option plan and
directors option plan were canceled.
6. RELATED PARTY TRANSACTIONS
In the past, certain directors of EXCO, and the companies with which they are
affiliated, participated in oil and natural gas joint ventures with EXCO upon
the same terms and conditions as unrelated parties. In addition, EXCO had
purchased certain oil and natural gas prospects as well as drilling services
and oil field supplies and services in the normal course of business from
companies in which certain directors have financial interest. No significant
purchases were made during the nine month period ended December 31, 1995, and
the years ended December 31, 1996 and 1997.
F-12
<PAGE> 72
EXCO RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
7. COMMITMENTS AND CONTINGENCIES
EXCO leased office space under an operating lease that expired in November,
1996. Rent expense was approximately $32,000, $41,000 and $63,000 for the nine
months ended December 31, 1995, and the years ended December 31, 1996 and 1997,
respectively. As of December 31, 1997, EXCO moved its offices to a new
location under an operating lease that expires in December, 1999. The rent
under the new lease is $6,440 per month plus a CPI increase in year two.
EXCO had entered into an employment agreement with Mr. Charles Gleeson for the
position of President and Chief Executive Officer of EXCO. The agreement
provided for a minimum annual salary, adjusted for incentives, as determined by
the Board of Directors for the period June 1, 1996 through June 1, 1999. EXCO
had thought to terminate the employment agreement if EXCO was unsuccessful in
raising a minimum of $9,000,000 in a registered public offering. Mr. Gleeson's
employment agreement was terminated in December 1997, as a result of the change
in control described in Note 1.
8. ENVIRONMENTAL REGULATION
Various Federal, state and local laws and regulations covering discharge of
materials into the environment, or otherwise relating to the protection of the
environment, may affect EXCO's operations and costs of oil and natural gas
exploitation, development and production operations. It is not anticipated
that EXCO will be required in the near future to expend amounts material in
relation to its total capital expenditure program by reason of environmental
laws and regulations. Because such laws and regulations are constantly being
changed, EXCO is unable to predict the conditions and other factors, over which
EXCO does not exercise control, that may give rise to environment liabilities.
9. ABANDONED ACQUISITION
In September 1996, EXCO entered into a stock purchase agreement to acquire
Taurus Energy Corp. ("Taurus"), a processor and marketer of natural gas. In
addition, EXCO initiated a public stock offering to raise the $35,000,000
necessary to complete the acquisition.
In connection with these activities, EXCO incurred and capitalized
approximately $303,000 of legal, accounting and other costs. In the fourth
quarter of 1996, EXCO recognized the abandonment of the proposed Taurus
acquisition and canceled its planned public offering. As a result, EXCO
expensed the costs associated with these actions.
10. SUBSEQUENT EVENTS
In addition to the financing agreement described in Note 3, on February 11,
1998, EXCO acquired from Osborne Oil Company, Gypsy Production Company, and
other working interest owners, certain oil and natural gas properties in
Maverick County, Texas (the "Maverick County Properties"). The Maverick County
Properties include 9 gross (7.0 net) producing wells and 2 gross (1.87 net)
non-producing wells which may require recompletions, workovers or abandonment.
The Maverick County Properties include 360 gross (280 net) developed acres and
3,384 gross (2,843 net) undeveloped acres. The purchase price consisted of
cash of approximately $760,200. Operating revenues for the acquired properties
for 1997 were $279,000.
F-13
<PAGE> 73
EXCO RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
At EXCO's 1997 Annual Meeting of Shareholders held on March 31, 1998, the
shareholders of EXCO approved an amendment to EXCO's Articles of Incorporation
(the "Articles of Incorporation"), authorizing a one for two reverse stock
split of EXCO's common stock, which became effective March 31, 1998. All share
and per share numbers contained herein have been retroactively adjusted to
record the effects of the reverse stock split.
11. OIL AND NATURAL GAS PRODUCING ACTIVITIES
The results of operations from EXCO's oil and natural gas producing activities
are as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------ --------------------
1995 1996 1997
----- ----- ------
<S> <C> <C> <C>
Oil and natural gas sales . . . . . . . . . . $ 560 $ 872 $ 670
Production costs . . . . . . . . . . . . . . (333) (429) (322)
Depreciation, depletion and amortization . . (75) (87) (63)
Income tax expense . . . . . . . . . . . . . -- -- --
----- ----- ------
$ 152 $ 356 $ 285
----- ----- ------
</TABLE>
Costs incurred in oil and natural gas producing activities are as follows (in
thousands, except per equivalent barrel amounts):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------ --------------------
1995 1996 1997
----- ----- ------
<S> <C> <C> <C>
Property acquisition costs . . . . . . . . . . . $ 56 $ 2 $ 2
Development costs . . . . . . . . . . . . . . . . 71 17 74
Exploration costs . . . . . . . . . . . . . . . . 37 -- --
Production costs . . . . . . . . . . . . . . . . 333 429 322
Depreciation, depletion and amortization
per equivalent barrel . . . . . . . . . . . 1.54 1.46 1.41
</TABLE>
All of EXCO's oil and natural gas revenues are from proved developed properties
located in the United States.
EXCO's oil and natural gas production is sold to various purchasers. During the
nine months ended December 31, 1995, sales of oil and natural gas to 3
purchasers accounted for 20%, 13% and 10% of consolidated gross revenues,
respectively. During the year ended December 31, 1996, sales of oil and natural
gas to 2 purchasers accounted for 26% and 15% of consolidated gross revenues,
respectively. During the year ended December 31, 1997, sales of oil and natural
gas to 3 purchasers accounted for 22%, 19% and 14% of consolidated gross
revenues, respectively. Management believes that the loss of these purchasers
would not have a material impact on EXCO's consolidated financial condition or
results of operations.
In an effort to reduce the effects of the volatility of the price of crude oil
and natural gas on EXCO's operations, management has adopted a policy of
hedging oil and natural gas prices whenever such prices are in excess of the
prices anticipated in EXCO's operating budget and profit plan through the use
of commodity futures, options, and
F-14
<PAGE> 74
EXCO RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
swap agreements. Hedging transactions require the approval of the Board of
Directors. There were no outstanding contracts at December 31, 1997.
12. SUPPLEMENTAL OIL AND NATURAL GAS RESERVE AND STANDARDIZED MEASURE
INFORMATION (UNAUDITED)
EXCO retains independent engineering firms to provide annual year-end estimates
of EXCO's future net recoverable oil, natural gas, and natural gas liquids
reserves. Estimated proved net recoverable reserves as shown below include only
those quantities that can be expected to be commercially recoverable at prices
and costs in effect at the balance sheet dates under existing regulatory
practices and with conventional equipment and operating methods. Proved
developed reserves represent only those reserves to be recovered through
existing wells. Proved undeveloped reserves include those reserves expected to
be recovered from new wells on undrilled acreage or from existing wells on
which a relatively major expenditure is required for recompletion.
ESTIMATED QUANTITIES OF PROVED RESERVES
<TABLE>
<CAPTION>
OIL (BBL) GAS (MCF) BOE*
--------- --------- ----
(In thousands)
<S> <C> <C> <C>
MARCH 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . 237 2,851 712
Purchase of reserves in place . . . . . . . . . . . . . . 8 2,152 367
New discoveries and extensions . . . . . . . . . . . . . . 13 118 32
Revisions of previous estimates . . . . . . . . . . . . . (91) 16 (88)
Production . . . . . . . . . . . . . . . . . . . . . . . . (19) (180) (49)
Sales of reserves in place . . . . . . . . . . . . . . . . -- -- --
----- ------ -----
DECEMBER 31, 1995 . . . . . . . . . . . . . . . . . . . . . . 148 4,957 974
Purchase of reserves in place . . . . . . . . . . . . . . 2 263 46
New discoveries and extensions . . . . . . . . . . . . . . 3 -- 3
Revisions of previous estimates . . . . . . . . . . . . . 63 (222) 26
Production . . . . . . . . . . . . . . . . . . . . . . . . (22) (224) (59)
Sales of reserves in place . . . . . . . . . . . . . . . . (25) (12) (27)
----- ------ -----
DECEMBER 31, 1996 . . . . . . . . . . . . . . . . . . . . . . 169 4,762 963
Purchase of reserves in place . . . . . . . . . . . . . . -- -- --
New discoveries and extensions . . . . . . . . . . . . . . -- -- --
Revisions of previous estimates . . . . . . . . . . . . . (16) (255) (59)
Production . . . . . . . . . . . . . . . . . . . . . . . . (14) (181) (44)
Sales of reserves in place . . . . . . . . . . . . . . . . (81) -- (81)
----- ------ -----
DECEMBER 31, 1997 . . . . . . . . . . . . . . . . . . . . . . 58 4,326 779
===== ====== =====
</TABLE>
ESTIMATED QUANTITIES OF PROVED DEVELOPED RESERVES
<TABLE>
<CAPTION>
OIL (BBL) GAS (MCF) BOE*
--------- --------- ----
(In thousands)
<S> <C> <C> <C>
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . 141 2,818 611
December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . 162 2,483 576
December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . 57 2,341 447
</TABLE>
* Boe - Barrels of oil equivalent calculated by converting 6 Mcf of natural
gas to 1 Bbl of oil.
F-15
<PAGE> 75
EXCO RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
The following is a summary of a standardized measure of discounted net cash
flows related to EXCO's proved oil, natural gas, and natural gas liquids
reserves. The information presented is based on a valuation of proved reserves
using discounted cash flows based on year-end prices, costs, and economic
conditions and a 10% discount rate. The additions to proved reserves from new
discoveries and extensions could vary significantly from year to year;
additionally, the impact of changes to reflect current prices and costs of
reserves proved in prior years could also be significant. Accordingly, the
information presented below should not be viewed as an estimate of the fair
value of EXCO's oil and natural gas properties, nor should it be considered
indicative of any trends.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
<TABLE>
<CAPTION>
December 31,
1996 1997
------- -------
(In thousands)
<S> <C> <C>
Future cash inflows . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,296 $10,115
Future production and development costs . . . . . . . . . . . . . . . . . 5,650 3,130
------- -------
Future net cash flows before income taxes . . . . . . . . . . . . . . . . 14,646 6,985
Discount of future net cash flows at 10% per annum . . . . . . . . . . . 6,327 2,957
------- -------
Discounted future net cash flows before income taxes . . . . . . . . . . 8,319 4,028
Future income taxes, net of discount at 10% per annum . . . . . . . . . . -- 163
------- -------
Discounted future net cash flows after income taxes . . . . . . . . . . . $ 8,319 $ 3,865
======= =======
</TABLE>
During recent years, there have been significant fluctuations in the prices
paid for crude oil in the world markets. This situation has had a
destabilizing effect on crude oil's posted prices in the United States,
including the posted prices paid by purchasers of EXCO's crude oil. The
weighted average prices of oil and natural gas at December 31, 1996 and 1997,
used in the above table, were $24.29 and $16.74 per Bbl, respectively, and
$3.40 and $2.11 per Mcf, respectively.
The following are the principal sources of change in the standardized measure
of discounted future net cash flows:
CHANGES IN STANDARDIZED MEASURE
<TABLE>
<CAPTION>
Nine Months
ended Year ended
December 31, December 31,
------------ ------------
1995 1996 1997
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Sales and transfers of oil and natural gas produced, net of
production costs .................................................... $ (227) $ (443) $ (348)
Net changes in prices and production costs .......................... 136 3,980 (3,398)
Extensions and discoveries, net of future development and
production costs .................................................... 194 47 --
Development costs during the period ................................. -- -- 45
Revisions of previous quantity estimates ............................ (887) 319 (845)
Sales of reserves in place .......................................... -- (131) (577)
Purchases of reserves in place ...................................... 1,437 142 --
Accretion of discount before income taxes ........................... 234 400 832
Net change in income taxes .......................................... -- -- (163)
------- ------- -------
Net change .......................................................... $ 887 $ 4,314 $(4,454)
======= ======= =======
</TABLE>
F-16
<PAGE> 76
EXCO RESOURCES, INC.
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
On February 11, 1998, EXCO acquired from Osborne Oil Company, Gypsy Production
Company, and other working interest owners, certain oil and natural gas
properties in Maverick County, Texas (the "Maverick County Properties"). The
Maverick County Properties include 9 gross (7.0 net) producing wells, 2 gross
(1.87 net) non-producing wells which may require recompletions, workovers or
abandonment. The Maverick County Properties include 360 gross (280 net)
developed acres and 3,384 gross (2,843 net) undeveloped acres. The purchase
price consisted of cash of approximately $760,200.
The acquisition was funded through borrowings made under EXCO's credit facility
with NationsBank (the "Borrowings"), and cash from working capital.
The accompanying pro forma combined condensed financial statements are based on
the historical financial statements of EXCO for the year ended December 31,
1997, included elsewhere herein. The pro forma combined condensed financial
statements are also based, in part, on the historical statements of operating
revenues and direct operating expenses of the Maverick County Properties. Such
statements of operating revenues and direct operating expenses are included
elsewhere herein.
The Pro Forma Combined Condensed Balance Sheet as of December 31, 1997, assumes
the acquisition of the Maverick County Properties and the Borrowings had been
consummated on that date. The Pro Forma Combined Condensed Statement of
Operations for the year ended December 31, 1997, has been prepared assuming the
acquisition of the Maverick County Properties and the Borrowings had been
consummated on January 1, 1997.
The pro forma adjustments are based upon available information and assumptions
that management of EXCO believes are reasonable. The pro forma combined
condensed financial statements do not purport to represent the financial
position or results of operations of EXCO which would have occurred had such
transactions been consummated on the dates indicated or EXCO's financial
position or results of operations for any future date or period. These pro
forma combined condensed financial statements and notes thereto should be read
in conjunction with the historical financial statements and notes thereto
described above.
F-17
<PAGE> 77
EXCO RESOURCES, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
EXCO PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS COMBINED
---------- ----------- ---------
(In thousands, except per share data)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . $ 496 $ 600 (1) $ 336
(760) (2)
Accounts receivable and other assets . . . . . . . . 231 -- 231
------- ------ ------
Total current assets . . . . . . . . . . . . . 727 (160) 567
Net property and equipment . . . . . . . . . . . . . . 543 760 (2) 1,303
------- ------ ------
$ 1,270 $ 600 $1,870
======= ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities . . . . . . $ 312 $ -- $ 312
Current maturities of long-term debt . . . . . . . . 16 -- 16
------- ------ ------
Total current liabilities . . . . . . . . . . . 328 328
Long-term debt, less current maturities . . . . . . . . 15 600 (1) 615
------- ------ ------
Total liabilities . . . . . . . . . . . . . . . . . . . 343 600 943
------- ------ ------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value . . . . . . . . . . -- -- --
Common stock, $.02 par value . . . . . . . . . . . 10 -- 10
Additional paid-in capital . . . . . . . . . . . . 917 -- 917
Retained earnings . . . . . . . . . . . . . . . . . -- -- --
------- ------ ------
Total stockholders' equity . . . . . . . . . . 927 -- 927
------- ------ ------
$ 1,270 $ 600 $1,870
======= ====== ======
Shares of Common Stock outstanding 503 -- 503
======= ====== ======
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
F-18
<PAGE> 78
EXCO RESOURCES, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Maverick
County
EXCO Properties Pro Forma Pro Forma
Historical Historical Adjustments Combined
---------- ---------- ----------- --------
(In thousands)
<S> <C> <C> <C> <C>
REVENUES:
Oil and natural gas ............................. $ 670 $ 279 $ -- $ 949
Other ........................................... 28 -- -- 28
----- ----- ----- -----
698 279 -- 977
EXPENSES:
Oil and natural gas production .................. 322 170 -- 492
Depletion, depreciation and amortization ........ 84 -- 56 (3) 140
General and administrative ...................... 486 -- -- 486
Interest and other .............................. 11 -- 44 (4) 55
----- ----- ----- -----
Income (loss) before income taxes ............... $(205) $ 109 $(100) $(196)
===== ===== ===== =====
Basic and diluted EPS ........................... $(.51) $(.49)
===== ===== ===== =====
Weighted average number of common and common
equivalent shares outstanding ................ 403 -- -- 403
===== ===== ===== =====
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
F-19
<PAGE> 79
EXCO RESOURCES, INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
A. PRO FORMA ADJUSTMENTS FOR THE ACQUISITION OF THE MAVERICK COUNTY
PROPERTIES
The accompanying Pro Forma Combined Condensed Balance Sheet has been prepared
as if the acquisition of the Maverick County Properties and the Borrowings had
been consummated on December 31, 1997, and reflects the following adjustments:
(1) To record EXCO's borrowing of $600,000 under the NationsBank credit
facility.
(2) To record the acquisition of the Maverick County Properties in
exchange for consideration of approximately $760,200 in cash.
The accompanying Pro Forma Combined Condensed Statement of Operations has been
prepared as if the acquisition of the Maverick County Properties and the
Borrowings had been consummated on January 1, 1997 and reflects the following
adjustments:
(3) To record incremental depletion expense as a result of the acquisition
of the Maverick County Properties.
(4) To record interest expense on the Borrowings, based on a 7.30%
interest rate. An increase of 1/8 of 1% in the interest rate would
increase annual interest expense on the borrowings by $750.
F-20
<PAGE> 80
EXCO RESOURCES, INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
B. PRO FORMA COMBINED SUPPLEMENTAL OIL AND NATURAL GAS RESERVE AND
STANDARDIZED MEASURE INFORMATION
RESERVE QUANTITY INFORMATION
The following table presents EXCO's estimate of the pro forma combined proved
oil and natural gas reserves of EXCO after giving effect to the acquisition of
the Maverick County Properties, as of December 31, 1997. All reserves are
located in the United States. EXCO emphasizes that reserve estimates are
inherently imprecise and that estimates of new discoveries are more imprecise
than those of producing oil and natural gas properties. Accordingly, the
estimates are expected to change as future information becomes available. The
estimates have been prepared by independent petroleum reservoir engineers.
<TABLE>
<CAPTION>
OIL (BBLS) GAS (MCF) BOE*
------ --------- ---------
<S> <C> <C> <C>
Proved reserves . . . . . . . . . . . . . . . . . . . . 66,126 6,773,990 1,195,124
====== ========= =========
Proved developed reserves . . . . . . . . . . . . . . . 56,656 3,987,494 721,238
====== ========= =========
</TABLE>
* Boe - Barrels of oil equivalent calculated by converting 6 Mcf of natural
gas to 1 Bbl of oil.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND NATURAL GAS RESERVES
The Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Oil and Natural Gas Reserves ("Standardized Measure") is a disclosure
requirement under Statement of Financial Accounting Standards No. 69.
The Standardized Measure does not purport to be, nor should it be interpreted
to present, the fair value of EXCO's oil and natural gas reserves. An estimate
of fair value would also take into account, among other things, the recovery of
reserves not presently classified as proved, the value of unproved properties,
and consideration of expected future economic and operating conditions.
Under the Standardized Measure, future cash flows are estimated by applying
year-end prices, adjusted for fixed and determinable escalations, to the
estimated future production of year-end proved reserves. Future cash inflows
are reduced by estimated future production costs, based on period-end costs,
and projected future development costs to determine pre-tax cash inflows.
Future income taxes are computed by applying the statutory rate (based on the
current tax law adjusted for permanent differences and tax credits) to the
excess of pre-tax net cash flows over EXCO's income tax basis of its oil and
natural gas properties. Future net cash flows are discounted using a 10%
annual discount rate to arrive at the Standardized Measure.
The pro forma Standardized Measure of discounted future net cash flows relating
to EXCO's proved oil and natural gas reserves at December 31, 1997, follows (in
thousands):
<TABLE>
<S> <C>
Future cash inflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,812
Future production and development costs . . . . . . . . . . . . . . . . . . . . . . . . . 5,363
----------
Future net cash flows before income taxes . . . . . . . . . . . . . . . . . . . . . . . . 9,449
Discount of future net cash flows at 10% per annum . . . . . . . . . . . . . . . . . . . 3,874
----------
Discounted future net cash flows before income taxes . . . . . . . . . . . . . . . . . . 5,575
Future income taxes, net of discount at 10% per annum . . . . . . . . . . . . . . . . . . 329
----------
Pro forma discounted future net cash flows after income taxes . . . . . . . . . . . . . . $ 5,246
==========
</TABLE>
F-21
<PAGE> 81
EXCO RESOURCES, INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
The future cash flows shown above include amounts attributable to proved
undeveloped reserves requiring approximately $1,054,172 of future development
costs. If these reserves are not developed, the standardized measure of
discounted future net cash flows as of December 31, 1997, shown above would be
reduced significantly.
Estimates of economically recoverable oil and natural gas reserves and of
future net revenues are based upon a number of variable factors and
assumptions, all of which are to some degree speculative and may vary
considerably from actual results. Therefore, actual production, revenues,
taxes, development and operating expenditures may not occur as estimated. The
reserve data are estimates only, are subject to many uncertainties and are
based on data gained from production histories and on assumptions as to
geologic formations and other matters. Actual quantities of oil and natural
gas may differ materially from the amounts estimated.
The weighted average prices of oil and natural gas at December 31, 1997, used
in the calculation of the pro forma Standardized Measure were $16.77 barrel and
$2.02 per Mcf, respectively.
F-22
<PAGE> 82
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
EXCO Resources, Inc.
We have audited the accompanying statements of operating revenues and direct
operating expenses of the Maverick County Properties (as defined in Note 1 to
the accompanying statements) for the years ended December 31, 1996 and 1997.
These statements are the responsibility of EXCO's management. Our
responsibility is to express an opinion on these statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the statements of operating revenues
and direct operating expenses are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statements of operating revenues and direct operating
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The accompanying statements of operating revenues and direct operating expenses
were prepared for the purpose of complying with the rules and regulations of
the Securities and Exchange Commission and are not intended to be a complete
presentation of revenues and expenses of the Maverick County Properties.
In our opinion, the statements of operating revenues and direct operating
expenses referred to above present fairly, in all material respects, the
operating revenues and direct operating expenses of Maverick County Properties
for the years ended December 31, 1996 and 1997 in conformity with generally
accepted accounting principles.
/S/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Dallas, Texas
February 11, 1998
F-23
<PAGE> 83
MAVERICK COUNTY PROPERTIES
NOTES TO STATEMENTS OF OPERATING REVENUES
AND DIRECT OPERATING EXPENSES
STATEMENTS OF OPERATING REVENUES AND DIRECT OPERATING EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1997
--------- ---------
(In thousands)
<S> <C> <C>
Oil and natural gas sales . . . . . . . . . . . . . . . . . . . . . . . . . $ 397 $ 279
Direct operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . 206 170
--------- ---------
Excess of revenues over direct operating expenses . . . . . . . . . . . . . $ 191 $ 109
========= =========
</TABLE>
See accompanying notes to statements of operating revenues and direct operating
expenses.
F-24
<PAGE> 84
MAVERICK COUNTY PROPERTIES
NOTES TO STATEMENTS OF OPERATING REVENUES
AND DIRECT OPERATING EXPENSES
1. BASIS OF PRESENTATION
On February 11, 1998, EXCO acquired from Osborne Oil Company, Gypsy Production
Company, and other working interest owners, certain oil and natural gas
properties in Maverick County, Texas (the "Maverick County Properties"). The
Maverick County Properties include 9 gross (7.0 net) producing wells and 2
gross (1.87 net) non-producing wells which may require recompletions, workovers
or abandonment. The Maverick County Properties include 360 gross (280 net)
developed acres and 3,384 gross (2,843 net) undeveloped acres. The purchase
price consisted of cash of approximately $760,200.
The acquisition was funded through borrowings made under EXCO's credit facility
with NationsBank, and cash from working capital.
The accompanying financial statements present the operating revenues and direct
operating expenses of the Maverick County Properties. The operating revenues
and direct operating expenses presented herein relate only to the interests in
the producing oil and natural gas properties acquired and do not represent all
of the oil and natural gas operations of the sellers. Direct operating
expenses include the actual costs of maintaining the producing properties and
their production, but do not include charges for depletion, depreciation, and
amortization; federal and state income taxes; interest; or general and
administrative expenses. Presentation of complete historical financial
statements for the years ended December 31, 1996 and 1997 is not practicable
because the Maverick County Properties were not accounted for as a separate
entity; and therefore, such statements are not available. The operating
revenues and direct operating expenses for the periods presented may not be
representative of future operations.
Revenues in the accompanying statements of operating revenues and direct
operating expenses are recognized on the sales method. Direct operating
expenses are recognized on an accrual basis.
2. SUPPLEMENTAL OIL AND NATURAL GAS RESERVE AND STANDARDIZED MEASURE
INFORMATION
RESERVE QUANTITY INFORMATION
The following table presents EXCO's estimate of the proved oil and natural gas
reserves of the Maverick County Properties, all of which are located in the
United States, as of December 31, 1997. EXCO emphasizes that reserve estimates
are inherently imprecise and that estimates of new discoveries are more
imprecise than those of producing oil and natural gas properties. Accordingly,
the estimates are expected to change as future information becomes available.
The estimates have been prepared by independent petroleum reservoir engineers.
<TABLE>
<CAPTION>
OIL (BBLS) GAS (MCF) BOE*
----- --------- -------
<S> <C> <C> <C>
Proved reserves . . . . . . . . . . . . . . . 8,011 2,447,785 415,975
===== ========= =======
Proved developed reserves . . . . . . . . . . 0 1,646,710 274,452
===== ========= =======
</TABLE>
* Boe - Barrels of oil equivalent calculated by converting 6 Mcf of
natural gas to 1 Bbl of oil.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES
The Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Oil and Gas Reserves ("Standardized Measure") is a disclosure requirement under
Statement of Financial Accounting Standards No. 69.
F-25
<PAGE> 85
MAVERICK COUNTY PROPERTIES
NOTES TO STATEMENTS OF OPERATING REVENUES
AND DIRECT OPERATING EXPENSES
The Standardized Measure does not purport to be, nor should it be interpreted
to present, the fair value of the oil and natural gas reserves of the Maverick
County Properties. An estimate of fair value would also take into account,
among other things, the recovery of reserves not presently classified as
proved, the value of unproved properties, and consideration of expected future
economic and operating conditions.
Under the Standardized Measure, future cash flows are estimated by applying
year-end prices, adjusted for fixed and determinable escalations, to the
estimated future production of year-end proved reserves. Future cash flows are
reduced by estimated future production costs, based on period-end costs, and
projected future development costs to determine net cash inflows. The Maverick
County Properties are not a separate tax paying entity. Accordingly, the
Standardized Measure for the Maverick County Properties is presented before
deduction of income taxes. Future net cash flows are discounted using a 10%
annual discount rate to arrive at the Standardized Measure.
The Standardized Measure of discounted future net cash flows relating to proved
oil and natural gas reserves of the Maverick County Properties at December 31,
1997 follows (in thousands):
<TABLE>
<S> <C>
Future cash inflows ......................................................................... $4,697
Future production and development costs ..................................................... 2,232
------
Future net cash flows before income taxes ................................................... 2,465
Discount of future net cash flows at 10% per annum .......................................... 918
------
Discounted future net cash flows before income taxes ........................................ 1,547
Future income taxes, net of discount at 10% per annum ....................................... 173
------
Pro forma discounted future net cash flows after income taxes ............................... $1,374
======
</TABLE>
Estimates of economically recoverable oil and natural gas reserves and of
future net revenues are based upon a number of variable factors and
assumptions, all of which are to some degree speculative and may vary
considerably from actual results. Therefore, actual production, revenues,
taxes, development and operating expenditures may not occur as estimated. The
reserve data are estimates only, are subject to many uncertainties and are
based on data gained from production histories and on assumptions as to
geologic formations and other matters. Actual quantities of natural gas and
oil may differ materially from the amounts estimated.
The weighted average prices of oil and natural gas at December 31, 1997 used in
the calculation of the Standardized Measure were $17.00 per barrel and $1.86
per Mcf, respectively.
F-26
<PAGE> 86
================================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, IN CONNECTION WITH THIS OFFERING COVERED BY THIS PROSPECTUS.
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY EXCO OR ANY AGENT OR UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY,
RIGHTS, PREFERRED STOCK OR COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF EXCO SINCE THE DATE
HEREOF.
----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Disclosure Regarding Forward-looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Price Range of Common Stock and Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
The Rights Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Business and Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Certain Federal Income Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Incorporation of Certain Documents by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Glossary of Selected Oil and Natural Gas Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
EXCO Resources, Inc. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
5,089,000 SHARES
[Logo]
EXCO RESOURCES, INC.
RIGHTS TO
PURCHASE SHARES OF
COMMON STOCK
----------
PROSPECTUS
================================================================================
<PAGE> 87
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemization of all expenses (subject to future
contingencies) incurred or to be incurred by the Registrant in connection with
the issuance and distribution of the securities being offered. All items below
are estimates other than the Securities and Exchange Commission fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee ............. $ 9,253
Printing and engraving expenses ................................. 12,500
Accounting fees and expenses .................................... 15,000
Engineer fees and expenses ...................................... 2,000
Blue Sky fees and expenses ...................................... 5,000
Legal fees and expenses ......................................... 40,000
Subscription Agent fees and expenses............................. 30,000
Miscellaneous ................................................... 4,247
Total ....................... $120,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
EXCO has authority under Articles 2.02(A)(16) and 2.02-1 of the Texas
Business Corporation Act to indemnify its officers and directors to the extent
provided for in such statute.
Article VI of EXCO's Restated Bylaws provides that EXCO shall
indemnify each of its directors and officers, its former directors and officers
and agents of EXCO against expenses actually and reasonably incurred by him or
her in connection with the defense of any action, suit or proceeding, civil or
criminal, in which such person is made a party by reason of being or having
been such director or officer, except in situations where he or she shall be
adjudged in such action, suit or proceeding to be liable for negligence or
misconduct in the performance of his or her duty to EXCO. In the event of a
criminal conviction (whether based on a plea of guilty or nolo contendere or
its equivalent, or after trial), such conviction shall not be deemed an
adjudication of liability for negligence or misconduct in the performance of
duty to EXCO if such director or officer acted in good faith in what he or she
considered to be the best interest of EXCO and without reasonable cause to
believe that his or her actions were illegal. In absence of an adjudication
which expressly absolves the director or officer of liability to EXCO or its
shareholders for negligence or misconduct, or in the event of a settlement, the
right to indemnification of a director or officer shall be conditioned upon
prior resolution adopted by two-thirds of the disinterested members of the
Board or by independent counsel.
EXCO intends to obtain and maintain insurance against any liability
incurred by its officers and directors in defense of any actions to which they
are made parties by reason of their positions as officers and directors.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the Registrant pursuant to the foregoing provisions, the Registrant
has been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
II-1
<PAGE> 88
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibits. The exhibits listed below are filed as part of or
incorporated by reference in this Registration Statement. Where such filing is
made by incorporation by reference to a previously filed report, such report is
identified in parentheses. See the Index of Exhibits included with the exhibits
filed as part of this Registration Statement.
<TABLE>
<CAPTION>
NUMBER Description
- ------ -----------
<S> <C>
4.1*** Restated Articles of Incorporation of EXCO (filed herewith)
4.2*** Restated Bylaws of EXCO (filed herewith)
4.3*** Specimen Stock Certificate for the Common Stock of EXCO
4.4* Form of Letter to Stockholders
4.5* Form of Subscription Certificate
4.6* Form of Instruction as to Use of Subscription Certificates
4.7* Form of Letter to Brokers
4.8* Form of Letter to Clients
4.9* Form of Notice of Guaranteed Delivery
4.10* Form of Guidelines to Form W-9
4.11* Form of DTC Participant Oversubscription Exercise Form
4.12* Form of Nominee Holder Certificate
5.1*** Opinion of Haynes and Boone LLP (including the consent of such firm )
regarding the legality of securities being offered
10.1** Credit Agreement among EXCO Resources, Inc., as borrower, and NationsBank of
Texas, N.A., as agent, and financial institutions listed on Schedule I,
dated February 11, 1998
10.2** Purchase and Sale Agreement among EXCO Resources, Inc. and Osborne Oil
Company, et al., dated January 27, 1998 (Exhibit 4.1)
23.1 Consent of Haynes and Boone LLP (included as part of its opinion to be filed
as Exhibit 5.1)
23.2* Consent of Belew Averitt LLP, independent auditors
23.3* Consent of Ernst & Young LLP, independent auditors
23.4* Consent of Milmac Operating Company, independent petroleum engineers
23.5* Consent of Lee Keeling and Associates, Inc., independent petroleum engineers
25.1* Power of Attorney of officers and directors of EXCO (included on signature page
hereto)
27.1* Financial Data Schedule
</TABLE>
__________________________
* Filed herewith.
** Filed as an Exhibit to EXCO's Form 8-K dated February 25, 1998.
*** To be filed by amendment
II-2
<PAGE> 89
Financial Statement Schedules
All schedules and historical financial information are omitted because
they are not applicable or the required information is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
1. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the Registrant's Restated Articles of
Incorporation or otherwise, the Registrant has been advised that in the opinion
of the Commission such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
2. The undersigned registrant hereby undertakes that:
To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the information
set forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration
Statement;
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
provided, however, that paragraphs (i) and (ii) will not apply if the
information required to be included in a post- effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this Registration Statement.
For the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
It will remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE> 90
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Commission such
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will , unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
For purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as a part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the Registration
Statement as of the time it was declared effective. For the purpose of
determining any liability under the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-4
<PAGE> 91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on April 1, 1998.
EXCO RESOURCES, INC.
By: /s/ DOUGLAS H. MILLER
--------------------------------------
Douglas H. Miller
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and
directors of EXCO Resources, Inc., a Texas corporation, which is filing a
Registration Statement on Form S-3 with the Commission, Washington, D.C. 20549
under the provisions of the Securities Act of 1933, as amended (the "Securities
Act"), hereby constitute and appoint Douglas H. Miller, T.W. Eubank and
Richard E. Miller, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign such Registration
Statement and any or all amendments, including post-effective amendments, to
the Registration Statement, including a Prospectus or an amended Prospectus
therein and in any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act and all
other documents in connection therewith to be filed with the Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact as agents or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on April 1, 1998.
<TABLE>
<S> <C>
/s/ DOUGLAS H. MILLER Chairman, Chief Executive Officer
--------------------------------------
Douglas H. Miller
/s/ T.W. EUBANK President, Treasurer, Director
--------------------------------------
T. W. Eubank
/s/ J. DOUGLAS RAMSEY Chief Financial Officer, Vice President, Director
-------------------------------------- (Principal Financial and Accounting Officer)
J. Douglas Ramsey
/s/ T. BOONE PICKENS Director
--------------------------------------
T. Boone Pickens
/s/ STEPHEN F. SMITH Director
--------------------------------------
Stephen F. Smith
/s/ EARL E. ELLIS Director
--------------------------------------
Earl E. Ellis
/s/ J. MICHAEL MUCKLEROY Director
--------------------------------------
J. Michael Muckleroy
</TABLE>
II-5
<PAGE> 92
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER Description
- ------ -----------
<S> <C>
4.1*** Restated Articles of Incorporation of EXCO
4.2*** Restated Bylaws of EXCO
4.3*** Specimen Stock Certificate for the Common Stock of EXCO
4.4* Form of Letter to Stockholders
4.5* Form of Subscription Certificate
4.6* Form of Instruction as to Use of Subscription Certificates
4.7* Form of Letter to Brokers
4.8* Form of Letter to Clients
4.9* Form of Notice of Guaranteed Delivery
4.10* Form of Guidelines to Form W-9
4.11* Form of DTC Participant Oversubscription Exercise Form
4.12* Form of Nominee Holder Certificate
5.1*** Opinion of Haynes and Boone LLP (including the consent of such firm )
regarding the legality of securities being offered
10.1** Credit Agreement among EXCO Resources, Inc., as borrower, and NationsBank of
Texas, N.A., as agent, and financial institutions listed on Schedule I,
dated February 11, 1998
10.2** Purchase and Sale Agreement among EXCO Resources, Inc. and Osborne Oil
Company, et al., dated January 27, 1998 (Exhibit 4.1)
23.1 Consent of Haynes and Boone LLP (included as part of its opinion to be filed
as Exhibit 5.1)
23.2* Consent of Belew Averitt LLP, independent auditors
23.3* Consent of Ernst & Young LLP, independent auditors
23.4* Consent of Milmac Operating Company, independent petroleum engineers
23.5* Consent of Lee Keeling and Associates, Inc., independent petroleum engineers
25.1* Power of Attorney of officers and directors of EXCO (included on signature page
hereto)
27.1* Financial Data Schedule
</TABLE>
- -------------------
* Filed herewith.
** Filed as an Exhibit to EXCO's Form 8-K dated February 25, 1998.
*** To be filed by amendent
II-6
<PAGE> 1
EXHIBIT 4.4
[EXCO LOGO]
5735 Pineland Drive
Suite 235
Dallas, Texas 75231
_____________, 1998
Dear Shareholder:
You will find enclosed the Prospectus and other materials relating to
the rights offering by EXCO Resources, Inc. ("EXCO").
We request you to carefully review the Prospectus which describes how
you may participate in the rights offering. As indicated in the Prospectus,
there is a limited period of time, up to and including the Expiration Date,
during which you will be able to either purchase additional shares or sell your
transferable rights.
SUMMARY OF THE TERMS OF THE OFFERING
- You will receive ten transferable rights for each share of
EXCO Common Stock you owned on the Record Date (__________,
1998).
- You may purchase one share of Common Stock for each right you
receive at the Subscription Price of $____ per share.
- Holders of rights who have fully exercised the rights issued
to them may subscribe for additional shares up to 100% of
their basic subscription through the Oversubscription
Privilege. If the number of shares purchased in such
oversubscriptions exceed 5,089,000 shares when added to the
number of shares purchased pursuant to the basic subscription,
shares will be allocated to those shareholders who
oversubscribe, based upon the number of shares such holders
subscribed for pursuant to the basic subscription privilege,
as more fully described in the Prospectus.
- The rights offering expires at 5:00 p.m. Dallas time on
_____________, 1998.
If your shares are held in your name, a Subscription Certificate is
enclosed. If your shares are held in the name of your bank or broker, you must
contact your bank or broker if you wish to participate in this offering.
The rights will trade on the OTC Bulletin Board. Please decide if you
would like to (a) subscribe for additional shares, or (b) sell your rights.
You are encouraged to subscribe for additional shares or sell your
rights because those shareholders who do not take any action will experience a
dilution in the value of their shares of EXCO Common Stock and a reduction in
their proportionate interest in EXCO.
On behalf of the Board of Directors, we thank you for your support and
confidence and look forward to continuing to serve you.
Sincerely,
DOUGLAS H. MILLER
Chairman and Chief Executive Officer
If you have any questions concerning the rights offering, please feel
free to contact Richard E. Miller, Secretary and General Counsel, at (214)
368-2084.
<PAGE> 1
EXHIBIT 4.5
FORM OF SUBSCRIPTION CERTIFICATE
CONTROL NUMBER [0000] EXCO RESOURCES, INC. SUBSCRIPTION CERTIFICATE
SUBSCRIPTION CERTIFICATE
FOR SHARES OF COMMON STOCK
VOID IF NOT EXERCISED AT OR BEFORE
5:00 P.M. (DALLAS TIME) _____________, 1998, THE EXPIRATION DATE
EXPIRATION DATE _____________, 1998
THIS SUBSCRIPTION CERTIFICATE IS TRANSFERABLE
AND MAY BE DIVIDED AT THE OFFICE OF THE SUBSCRIPTION AGENT
[ ] SHARES
SUBSCRIPTION PRICE U.S.$____ PER SHARE
OF COMMON STOCK
THIS SUBSCRIPTION CERTIFICATE MAY BE USED
TO SUBSCRIBE FOR SHARES OR MAY BE ASSIGNED
OR SOLD, FULL INSTRUCTIONS APPEAR ON THE BACK
OF THIS SUBSCRIPTION CERTIFICATE.
REGISTERED OWNER [OWNER] CUSIP
[0000000000] [**NUMBER OF RIGHTS**] ---------------------
The registered owner of this Subscription Certificate, named above, or
assignee, is entitled to the number of Rights to subscribe for shares of Common
Stock, par value $.02 per share (the "Common Stock"), of EXCO Resources, Inc.
("EXCO") shown above, in the ratio of one share of Common Stock for each Right,
pursuant to the Basic Subscription Right and upon the terms and conditions and
at the price for each Share of Common Stock specified in the Company's
Prospectus dated _____________, 1998.
If you subscribe for fewer than all the shares represented by his Subscription
Certificate, the Subscription Agent will issue a new Subscription Certificate
representing the balance of the unsubscribed Rights, provided that the
Subscription Agent has received your Subscription Certificate and payment prior
to 5:00 p.m., Dallas time, on ______________, 1998. No new Subscription
Certificate will be issued after such date.
IMPORTANT: Complete appropriate form on the reverse side.
DATE: _________________, 1998
EXCO RESOURCES, INC.
- ---------------------------------- ------------------------------------
Secretary Chairman and Chief Executive Officer
LOGO
[seal]
<PAGE> 2
PLEASE FILL IN ALL APPLICABLE INFORMATION
<TABLE>
<S> <C> <C> <C> <C>
TO: Subscription Agent Expiration Date: ____________, 1998
----------------------------------
----------------------------------
A. Basic Subscription Privilege ___________ x $____ = $________
(No. of Shares) (Subscription Price)
B. Oversubscription Privilege ____________(1) x $____ = $_______(2)
(No. of Shares) (Subscription Price)
C. Amount of Check Enclosed (or TOTAL = $_______
amount in notice of guaranteed
delivery) payable to EXCO
Resources Inc.
D. Transfer Rights as set forth in
Section 2. (Holder needs to
complete Section 2). [ ]
</TABLE>
__________________________
(1) This amount cannot exceed the number of shares under "A. Basic
Subscription Privilege."
(2) The Oversubscription Privilege can be exercised by a holder of Rights
only if the Rights held by him are exercised to the fullest extent
possible.
________________________________________________________________________________
SECTION 1. TO SUBSCRIBE: I hereby irrevocably subscribe for the number of
shares of Common Stock for the price indicated as the total of A and B hereon
upon the terms and conditions specified in the Prospectus related hereto,
receipt of which is acknowledged. I hereby agree that if I fail to pay for the
Shares of Common Stock for which I have subscribed, EXCO may exercise any of
the remedies set forth in the Prospectus.
___________________________________________________
___________________________________________________
Signature of Subscriber(s)
___________________________________________________
Address for delivery of Shares
If permanent change of address, check here [ ]
Please give your telephone number: ( ) _________________________
Tax I.D. Number or Social Security Number: ___________________
________________________________________________________________________________
<PAGE> 3
SECTION 2. TO TRANSFER RIGHTS (except pursuant to D and E above). For
value received, ____________ of the Rights represented by the Subscription
Certificate are assigned to:
_______________________________________________
(Print Full Name of Assignee)
_______________________________________________
(Print Full Address of Assignee)
_______________________________________________
_______________________________________________
Signature(s) of Assignor(s)
IMPORTANT: The signature(s) must correspond in every particular, without
alteration, with the name(s) as printed on the face of this
Subscription Certificate.
YOUR SIGNATURE MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION AS
DEFINED IN RULE 17AD-15 OF THE SECURITIES EXCHANGE ACT OF 1934.
Signature: ______________________________
(Name of Bank or Firm)
Guaranteed By: ______________________________
(Signature of Officer and Title)
PROCEEDS FROM THE SALE OF RIGHTS MAY BE SUBJECT TO WITHHOLDING OF U.S.
TAXES UNLESS THE SELLER'S CERTIFIED U.S. TAXPAYER IDENTIFICATION NUMBER (OR
CERTIFICATE REGARDING FOREIGN STATUS) IS ON FILE WITH THE SUBSCRIPTION AGENT
AND THE SELLER IS NOT OTHERWISE SUBJECT TO U.S. BACKUP WITHHOLDING.
<PAGE> 1
EXHIBIT 4.6
FORM OF INSTRUCTIONS FOR SUBSCRIPTION CERTIFICATES
INSTRUCTIONS AS TO USE OF EXCO RESOURCES, INC.
SUBSCRIPTION CERTIFICATES
CONSULT EXCO RESOURCES, INC., YOUR BANK
OR BROKER AS TO ANY QUESTIONS
The following instructions relate to a rights offering (the "Rights
Offering") by EXCO Resources, Inc., a Texas corporation ("EXCO"), to the
holders of its Common Stock, par value $.02 per share ("Common Stock"), as
described in EXCO's Prospectus dated _______________ , 1998, (the
"Prospectus"). Holders of record of Common Stock at the close of business on
__________, 1998 (the "Record Date") are receiving ten transferable
subscription rights (the "Rights") for each share of Common Stock held by them
as of the close of business on the Record Date. An aggregate of approximately
5,089,000 Rights exercisable to purchase an aggregate of approximately
5,089,000 shares (the "Rights Shares") of the Common Stock of EXCO are being
distributed in connection with the Rights Offering. Each Right is exercisable,
upon payment of $____ in cash (the "Subscription Price"), to purchase one share
of Common Stock (the "Basic Subscription Privilege"). In addition, subject to
the allocation described below, each Right also carries the right to subscribe
at the Subscription Price for additional shares of Common Stock available as a
result of unexercised Rights, if any (the "Oversubscription Privilege"), up to
the maximum amount offered by EXCO as described in the Prospectus. Rights
Shares will be available for purchase pursuant to the Oversubscription
Privilege only to the extent that all the Rights Shares are not subscribed for
through the exercise of the Basic Subscription Privilege by the Expiration Date
(as defined below). If the Rights Shares so available taking into account the
restrictions in the prospectus (the "Excess Shares") are not sufficient to
satisfy all subscriptions pursuant to the Oversubscription Privilege, the
available Excess Shares will be allocated pro rata (subject to the elimination
of fractional shares) among the holders of Rights who exercise the
Oversubscription Privilege, in proportion, not to the number of shares
requested pursuant to the Oversubscription Privilege, but to the number of
shares each beneficial holder has purchased pursuant to the Basic Subscription
Privilege; provided, however, that if such pro rata allocation results in any
holder being allocated a greater number of Excess Shares than such holder
subscribed for pursuant to the exercise of such holder's Oversubscription
Privilege, then such holder will be allocated only such number of Excess Shares
as such holder subscribed for and the remaining Excess Shares will be allocated
among all other holders exercising the Oversubscription Privilege. See "The
Rights Offering -- Subscription Privileges" in the Prospectus.
No fractional Rights or cash in lieu thereof will be issued or paid.
The number of Rights distributed to each record holder has been rounded up to
the nearest whole number in order to avoid issuing fractional Rights.
The Rights will expire at 5:00 p.m., Dallas time, on _____________,
1998, unless extended by EXCO (as it may be extended, the "Expiration Date").
The Rights are expected to be traded on the OTC Bulletin Board (the "OTC")
until close of business on the last OTC trading day preceding the Expiration
Date.
The number of Rights to which you are entitled is printed on the face
of your Subscription Certificate. You should indicate your wishes with regard
to the exercise or transfer of your Rights by completing the appropriate form
or forms on the back of your Subscription Certificate and returning the
Subscription Certificate to the Subscription Agent in the envelope provided.
YOUR SUBSCRIPTION CERTIFICATES MUST BE RECEIVED BY THE SUBSCRIPTION
AGENT, OR GUARANTEED DELIVERY REQUIREMENTS WITH RESPECT TO YOUR SUBSCRIPTION
CERTIFICATES MUST BE COMPLIED WITH, AND PAYMENT OF THE SUBSCRIPTION PRICE FOR
ALL RIGHTS EXERCISED INCLUDING OVERSUBSCRIPTION SHARES, INCLUDING FINAL
CLEARANCE OF ANY CHECKS, MUST BE RECEIVED BY THE SUBSCRIPTION AGENT, ON OR
BEFORE THE EXPIRATION DATE. ONCE A HOLDER OF RIGHTS HAS EXERCISED THE BASIC
SUBSCRIPTION PRIVILEGE AND/OR THE OVERSUBSCRIPTION PRIVILEGE, SUCH EXERCISE MAY
NOT BE REVOKED.
<PAGE> 2
1. SUBSCRIPTION PRIVILEGES.
To exercise Rights, complete Section 1 of the Subscription Certificate
and send your properly completed and executed Subscription Certificate,
together with payment in full of the Subscription Price for each Rights Share
subscribed for pursuant to the Basic Subscription Privilege and the
Oversubscription Privilege, to the Subscription Agent. All payments must be
made in United States dollars by (i) check or bank draft drawn upon a United
States bank or postal, telegraphic or express money order payable to
"__________________________, as Subscription Agent"; or (ii) wire transfer of
funds to the account maintained by the Subscription Agent for such purpose at
__________________________, Account No. ____________, ABA No. __________; or
(iii) in the case of persons acquiring Rights Shares at an aggregate
Subscription Price of $1.5 million or more, an Approved Payment Method as
defined in the Prospectus. Payments will be deemed to have been received by the
Subscription Agent only upon the (a) clearance of any uncertified check, (b)
receipt by the Subscription Agent of any certified check or bank draft drawn
upon a United States bank or postal, telegraphic or express money order, (c)
the receipt of good funds in the Subscription Agent's account designated above,
or (d) receipt of funds by the Subscription Agent through an Approved Payment
Method. IF PAYING BY UNCERTIFIED PERSONAL CHECK, PLEASE NOTE THAT THE FUNDS
PAID THEREBY MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR. ACCORDINGLY,
HOLDERS OF RIGHTS WHO WISH TO PAY THE SUBSCRIPTION PRICE BY MEANS OF
UNCERTIFIED PERSONAL CHECK ARE URGED TO MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF
THE EXPIRATION DATE TO ENSURE THAT SUCH PAYMENT IS RECEIVED AND CLEARS BY SUCH
DATE, AND ARE URGED TO CONSIDER PAYMENT BY MEANS OF CERTIFIED OR CASHIER'S
CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS. You may also transfer your
Subscription Certificate to your bank or broker in accordance with the
procedures specified in Instruction 3(a) below, make arrangements for the
delivery of funds on your behalf and request such bank or broker to exercise
the Rights represented by such Subscription Certificate on your behalf.
Alternatively, you may cause a written guarantee substantially in the form
available from the Subscription Agent (the "Notice of Guaranteed Delivery")
from a member firm of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc. or a commercial bank or
trust company having an office or correspondent in the United States, to be
received by the Subscription Agent on or prior to the Expiration Date
guaranteeing delivery of your properly completed and executed Subscription
Certificate within three OTC trading days following the date of the Notice of
Guaranteed Delivery. If this procedure is followed, your Subscription
Certificates must be received by the Subscription Agent within three OTC
trading days of the Notice of Guaranteed Delivery. Additional copies of the
Notice of Guaranteed Delivery may be obtained upon request from the
Subscription Agent at the address, or by calling the telephone number,
indicated below.
Banks, brokers and other nominee holders of Rights who exercise the
Basic Subscription Privilege and the Oversubscription Privilege on behalf of
beneficial owners of Rights will be required to certify to the Subscription
Agent and EXCO (by delivery to the Subscription Agent of a Nominee Holder
Certificate substantially in the form available from the Subscription Agent),
as to the aggregate number of Rights that have been exercised, and the number
of Rights Shares that are being subscribed for pursuant to the Oversubscription
Privilege, by each beneficial owner of Rights (including such nominee itself)
on whose behalf such nominee holder is acting. In the event a Nominee Holder
Certification is not delivered in respect of a Subscription Certificate, the
Subscription Agent shall for all purposes (including for purposes of any
allocation in connection with the Oversubscription Privilege) be entitled to
assume that such certificate is exercised on behalf of a single beneficial
owner. If more Excess Shares are subscribed for pursuant to the
Oversubscription Privilege than are available for sale, Excess Shares will be
allocated, as described above, among beneficial owners exercising the
Oversubscription Privilege in proportion to such owners' exercise of Rights
pursuant to the Basic Subscription Privilege with a restriction that in the
oversubscription no holder may receive a number of shares in excess of 100% of
the number of shares subscribed to by the holder pursuant to the Basic
Subscription Privilege.
<PAGE> 3
The address and telecopier numbers of the Subscription Agent
are as follows:
<TABLE>
<S> <C>
If by Mail: If by Hand:
- ---------------------------------- ----------------------------------
- ---------------------------------- ----------------------------------
- ---------------------------------- ----------------------------------
- ---------------------------------- ----------------------------------
Attention: Corporate Stock Transfer Dept. Attention: Corporate Stock Transfer Dept.
Telephone: (___)
----------
Facsimile: (___)
----------
If by Overnight Courier:
----------------------------
----------------------------
----------------------------
----------------------------
----------------------------
</TABLE>
If you exercise less than all of the Rights evidenced by your
Subscription Certificate by so indicating in Section 1 of your Subscription
Certificate, the Subscription Agent either (i) will issue to you a new
Subscription Certificate evidencing the unexercised Rights or (ii) if you so
indicate in Section 2 of your Subscription Certificate, will transfer the
unexercised Rights in accordance with your instructions. However, if you choose
to have a new Subscription Certificate sent to you or to a transferee, you or
such transferee may not receive any such new Subscription Certificate in
sufficient time to permit sale or exercise of the Rights evidenced thereby. If
you have not indicated the number of Rights being exercised, or if the dollar
amount you have forwarded is not sufficient (subject to the second sentence of
Section 1 above) to purchase (or exceeds the amount necessary to purchase) the
number of shares subscribed for, you will be deemed to have exercised the Basic
Subscription Privilege with respect to the maximum number of whole Rights which
may be exercised for the Subscription Price payment delivered by you, and, to
the extent that the Subscription Price payment delivered by you exceeds the
product of the Subscription Price multiplied by the number of Rights evidenced
by the Subscription Certificates delivered by you (such excess being the
"Subscription Excess"), you will be deemed to have exercised your
Oversubscription Privilege to purchase, to the extent available, that number of
whole shares of Common Stock equal to the quotient obtained by dividing the
Subscription Excess by the Subscription Price.
2. DELIVERY OF STOCK CERTIFICATES, ETC.
The following deliveries and payments will be made to the address
shown on the face of your Subscription Certificate unless you provide
instructions to the contrary in Section 1 of your Subscription Certificate.
(a) Basic Subscription Privilege. As soon as practicable
after the valid exercise of Rights and the Expiration Date, the
Subscription Agent will mail to each exercising Rights holder
certificates representing shares of Common Stock purchased pursuant to
the Basic Subscription Privilege.
(b) Oversubscription Privilege. As soon as practicable
after the Expiration Date and after all prorations and adjustments
contemplated by the terms of the Rights Offering have been effected,
the Subscription Agent will mail to each Rights holder who validly
exercises the Oversubscription Privilege the number of shares
allocated to such Rights holder pursuant to the Oversubscription
Privilege. See "The Rights Offering -- Subscription Privileges --
Oversubscription Privilege" in the Prospectus.
<PAGE> 4
(c) Excess Payments. As soon as practicable after the
Expiration Date and after all prorations and adjustments contemplated
by the terms of the Rights Offering have been effected, the
Subscription Agent will mail to each Rights holder who exercises the
Oversubscription Privilege any excess funds received (without interest
or deduction) in payment of the Exercise Price for Excess Shares that
are subscribed for by such Rights holder but not allocated to such
Rights holder pursuant to the Oversubscription Privilege.
3. TO SELL OR TRANSFER RIGHTS.
(a) Sale of Rights Through a Bank or Broker. To sell all
Rights evidenced by a Subscription Certificate through your bank or
broker, so indicate in Section 1 of your Subscription Certificate and
deliver your properly completed and executed Subscription Certificate
to your bank or broker. If Section 1 of your Subscription Certificate
is completed without designating a transferee, the Subscription Agent
may thereafter treat the bearer of the Subscription Certificate as the
absolute owner of all of the Rights evidenced by such Subscription
Certificate for all purposes, and the Subscription Agent shall not be
affected by any notice to the contrary. Because your bank or broker
cannot issue Subscription Certificates, if you wish to sell less than
all of the Rights evidenced by a Subscription Certificate, either you
or your bank or broker must instruct the Subscription Agent as to the
action to be taken with respect to the Rights not sold, or you or your
bank or broker must first have your Subscription Certificate divided
into Subscription Certificates of appropriate denominations by
following the procedures set forth in Instruction 4 below. The
Subscription Certificates evidencing the number of Rights you intend
to sell can then be transferred by your bank or broker in accordance
with the instructions in this Instruction 3(a).
(b) Transfer of Rights to a Designated Transferee. To
transfer all of your Rights to a transferee other than a bank or
broker, you must complete Section 2 of your Subscription Certificate
in its entirety, execute the Subscription Certificate and have your
signature guaranteed by an Eligible Guarantor Institution (as defined
in Rule 17Ad-15 of the Securities Exchange Act of 1934), subject to
the standards and procedures adopted by the Subscription Agent. A
Subscription Certificate that has been properly transferred in its
entirety may be exercised by a new holder without having a new
Subscription Certificate issued. In order to exercise, or otherwise
take action with respect to, such a transferred Subscription
Certificate, the new holder should deliver the Subscription
Certificate, together with payment of the applicable Subscription
Price (with respect to the exercise of both the Basic Subscription
Privilege and the Oversubscription Privilege) and complete separate
instructions signed by the new holder, to the Subscription Agent in
ample time to permit the Subscription Agent to take the desired
action. Because only the Subscription Agent can issue Subscription
Certificates, if you wish to transfer less than all of the Rights
evidenced by your Subscription Certificate to a designated transferee,
you must instruct the Subscription Agent as to the action to be taken
with respect to the Rights not sold or transferred, or you must divide
your Subscription Certificate into Subscription Certificates of
appropriate smaller denominations by following the procedures set
forth in Instruction 4 below. The Subscription Certificate evidencing
the number of Rights you intend to transfer can then be transferred by
following the procedures set forth in this Instruction 3(b).
4. TO HAVE A SUBSCRIPTION CERTIFICATE DIVIDED INTO SMALLER DENOMINATIONS.
To have a Subscription Certificate divided into smaller denominations,
send your Subscription Certificate, together with complete separate
instructions (including specification of the denominations into which you wish
your Rights to be divided) signed by you, to the Subscription Agent, allowing a
sufficient amount of time for new Subscription Certificates to be issued and
returned so that they can be used prior to the Expiration Date. Alternatively,
you may ask a bank or broker to effect such actions on your behalf. Your
signature must be guaranteed by an Eligible Guarantor Institution if any of the
new Subscription Certificates are to be issued in a name other than that in
which the old Subscription Certificate was issued. Subscription Certificates
may not be divided into fractional Rights, and any instruction to do so will be
rejected. As a result of delays in the mail, the time of the transmittal, the
necessary processing time and other factors, you or your transferee may not
receive such new Subscription Certificates in time to enable the Rights holder
to complete a sale or exercise by the Expiration Date. Neither EXCO nor the
Subscription Agent will be liable to either a transferor or transferee for any
such delays.
<PAGE> 5
5. EXECUTION.
(a) Execution by Registered Holder. The signature on the
Subscription Certificate must correspond with the name of the
registered holder exactly as it appears on the face of the
Subscription Certificate without any alteration or change whatsoever.
Persons who sign the Subscription Certificate in a representative or
other fiduciary capacity must indicate their capacity when signing
and, unless waived by the Subscription Agent in its sole and absolute
discretion, must present to the Subscription Agent satisfactory
evidence of their authority so to act.
(b) Execution by Person Other than Registered Holder. If
the Subscription Certificate is executed by a person other than the
holder named on the face of the Subscription Certificate, proper
evidence of authority of the person executing the Subscription
Certificate must accompany the same unless the Subscription Agent, in
its discretion, dispenses with proof of authority.
(c) Signature Guarantees. Your signature must be
guaranteed by an Eligible Guarantor Institution if you wish to
transfer your Rights, as specified in Instruction 3(b) above, to a
transferee other than a bank or broker, if you wish a new Subscription
Certificate or Certificates to be issued in a name other than that in
which the old Subscription Certificate was issued, as specified in
Instruction 4 above, or if you specify special payment or delivery
instructions pursuant to Section 2 of your Subscription Certificate.
6. METHOD OF DELIVERY.
The method of delivery of Subscription Certificates and payment of the
Exercise Price to the Subscription Agent will be at the election and risk of
the Rights holder. If sent by mail, it is recommended that they be sent by
registered mail, properly insured, with return receipt requested, and that a
sufficient number of days be allowed to ensure delivery to the Subscription
Agent and the clearance of any checks sent in payment of the Exercise Price
prior to the Expiration Date.
7. SPECIAL PROVISIONS RELATING TO THE DELIVERY OF RIGHTS THROUGH
DEPOSITORY FACILITY PARTICIPANTS.
In the case of holders of Rights that are held of record through The
Depository Trust Company, Midwest Securities Trust Company, Philadelphia
Depository Trust Company or any other depository (each a "Depository"),
exercises of the Basic Subscription Privilege and the Oversubscription
Privilege may be effected by instructing the Depository to transfer Rights
(such Rights, "Depository Rights") from the Depository account of such holder
to the Depository account of the Subscription Agent, together with payment of
the Subscription Price for each Underlying Share subscribed for pursuant to the
Basic Subscription Privilege and the Oversubscription Privilege.
8. SUBSTITUTE FORM W-9.
Each Rights holder who elects to exercise Rights must provide the
Subscription Agent with a correct Taxpayer Identification Number ("TIN") on
Substitute Form W-9, substantially in the form provided with these
instructions. A copy of Substitute Form W-9 may be obtained upon request from
the Subscription Agent at the address indicated above. Failure to provide the
information on the form may subject such holder to a $50.00 penalty and to 31%
back-up federal income tax withholding with respect to dividends that may be
paid by EXCO on shares of Common Stock purchased upon the exercise of Rights
and any payments that may be remitted to Rights holders by the Subscription
Agent in respect of Rights sold on such holders' behalf by the Subscription
Agent.
<PAGE> 1
EXHIBIT 4.7
FORM OF LETTER TO BROKERS
5,089,000 SHARES OF COMMON STOCK
OFFERED PURSUANT TO RIGHTS DISTRIBUTED TO
SHAREHOLDERS OF EXCO RESOURCES, INC.
To: Securities Dealers, Commercial Banks,
Trust Companies and Other Nominees:
This letter is being distributed to securities dealers, commercial
banks, trust companies and other nominees in connection with the offering by
EXCO Resources, Inc. ("EXCO") of an aggregate of approximately 5,089,000 shares
of Common Stock, par value $.02 per share ("Common Stock"), of EXCO, at a
subscription price of $____ per share of Common Stock (the "Subscription
Price"), pursuant to the exercise of transferable rights (the "Rights")
initially distributed to all holders of record of shares of EXCO's Common
Stock, as of the close of business on __________, 1998 (the "Record Date").
Each Right also carries the right to "oversubscribe" at the Subscription Price
for shares of Common Stock that are not otherwise purchased pursuant to the
exercise of Rights. The Rights are described in the enclosed Prospectus and
evidenced by a Subscription Certificate registered in your name or the name of
your nominee.
Each beneficial owner of shares of Common Stock registered in your
name or the name of your nominee is entitled to ten Rights for each share of
Common Stock owned by such beneficial owner.
We are asking you to contact your clients for whom you hold shares of
Common Stock registered in your name or in the name of your nominee to obtain
instructions with respect to the Rights.
Enclosed are copies of the following documents:
1. The Prospectus;
2. A Letter from EXCO to shareholders;
3. A Letter from brokers to clients;
4 A form of Notice of Guaranteed Delivery for Subscription
Certificates issued by EXCO Resources, Inc.;
5. A return envelope addressed to _____________________________,
as Subscription Agent;
6. A DTC Participation Oversubscription Exercise Form ; and
7. A Nominee Holder Certification
Your prompt action is requested. The Rights will expire at 5:00 P.M.,
Dallas time, on ________, 1998, unless extended by EXCO (as it may be extended,
the "Expiration Date").
To exercise Rights, properly completed and executed Subscription
Certificates and payment in full for all Rights exercised must be delivered to
the Subscription Agent as indicated in the Prospectus prior to the Expiration
Date, unless the guaranteed delivery procedures described in the Prospectus are
followed.
Additional copies of the enclosed materials may be obtained from EXCO
Resources, Inc. at 5735 Pineland Drive, Suite 235, Dallas, Texas 75231 and at
(214) 368-2084.
Very truly yours,
EXCO RESOURCES, INC.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON
AS AN AGENT OF EXCO RESOURCES, INC., THE SUBSCRIPTION AGENT OR ANY OTHER PERSON
MAKING OR DEEMED TO BE MAKING OFFERS OF THE COMMON STOCK ISSUABLE UPON VALID
EXERCISE OF THE RIGHTS, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY
STATEMENTS ON BEHALF OF ANY OF THEM WITH RESPECT TO THE OFFERING EXCEPT FOR
STATEMENTS MADE IN THE PROSPECTUS.
<PAGE> 1
EXHIBIT 4.8
FORM OF LETTER TO CLIENTS
RIGHTS OFFERING FOR SHARES OF COMMON STOCK
OF
EXCO RESOURCES, INC.
________________, 1998
To Our Clients:
We are enclosing for your consideration a Prospectus dated __________,
1998 describing the issuance to shareholders of record as of the close of
business on __________, 1998 of transferable rights ("Rights") to purchase at
the subscription price shares of Common Stock ("Common Stock") of EXCO
RESOURCES, INC. ("EXCO").
Your attention is directed to the following:
- Shareholders will receive ten transferable Rights for each
share of Common Stock of EXCO held as of the close of
business on the Record Date. No fractional rights or cash in
lieu thereof will be paid, and the number of Rights
distributed to each holder of Common Stock will be rounded up
to the nearest whole number of Rights.
- Rights will be admitted for trading on the OTC Bulletin Board,
on which EXCO's Common Stock is traded. Assuming a market
exists, Rights may be purchased or sold through normal
brokerage channels or sold through the Subscription Agent up
to the last trading day prior to the Expiration Date,
____________, 1998, as more fully described in the Prospectus.
- Basic Subscription Privilege: One Right will entitle the
holder to purchase one share of Common Stock of EXCO at the
subscription price of $____ per share.
- Oversubscription Privilege: Any holder of Rights who fully
exercises all Rights held by him is entitled to subscribe at
the subscription price for shares that were not otherwise
subscribed for during the basic subscription. However, if such
oversubscriptions exceed the number of shares available, the
shares available will be allocated among those who
oversubscribed based on the number of shares subscribed for by
such holder pursuant to the basic subscription privilege, as
more fully described in the Prospectus.
- The expiration date of the rights offering is 5:00 p.m. Dallas
time, on ___________, 1998, unless extended by EXCO.
Since we are the holder of record of the shares of Common Stock of
EXCO held in your Account, we have received your transferable Rights. We will
exercise or sell your Rights only in accordance with your instructions. IF YOU
DO NOT GIVE US YOUR INSTRUCTIONS, YOUR RIGHTS WILL BECOME VALUELESS AFTER THE
EXPIRATION DATE.
Please forward your instructions to us immediately by completing the
form on the reverse side. Your Rights will expire at 5:00 p.m. Dallas time,
_____________, 1998, unless the rights offering is extended by EXCO.
<PAGE> 2
LETTER OF INSTRUCTIONS
To My Bank or Broker:
The undersigned acknowledges receipt of the Prospectus relating to the
rights offering by EXCO Resources, Inc. This letter instructs you to either
exercise or sell the Rights, as indicated below, which you hold for the account
of the undersigned upon the terms and conditions set forth in the Prospectus.
(1) BASIC SUBSCRIPTION PRIVILEGE
- SELL _________ Rights (if no number is specified, all rights
will be sold)
- EXERCISE _________ Rights to purchase shares of Common Stock
of EXCO Resources, Inc. at the subscription price. (One Right
is required for the purchase of each share of Common Stock)
I am enclosing a check for $_______ (equal to the number of
shares to be purchased times the subscription price).
(2) OVERSUBSCRIPTION PRIVILEGE (available only to those who have fully
exercised their Rights in the basic subscription privilege)
- PURCHASE _________ shares of additional Common Stock of EXCO
Resources, Inc. at the subscription price, subject to
availability as described in the Prospectus.
I have enclosed a check for $________ equal to the number of
shares to be purchased pursuant to the oversubscription
privilege times the subscription price. I understand that if I
am not allocated the full amount of shares for which I have
subscribed pursuant to the oversubscription privilege above,
any excess payment will be refunded to me by you (without
interest or deduction).
<TABLE>
<S> <C>
DATED:
-------------------------------------------- -------------------------------------------------------------
-------------------------------------------------------------
Signature(s)
-------------------------------------------------------------
Account Number
-------------------------------------------------------------
Please type or print name
</TABLE>
<PAGE> 1
EXHIBIT 4.9
FORM OF NOTICE OF GUARANTEED DELIVERY
NOTICE OF GUARANTEED DELIVERY FOR SHARES OF
COMMON STOCK OF EXCO RESOURCES, INC.
SUBSCRIBED FOR UNDER THE BASIC SUBSCRIPTION PRIVILEGE
AND THE OVERSUBSCRIPTION PRIVILEGE
As set forth in the Prospectus under "The Rights Offering -- Exercise
of Rights," this form or one substantially equivalent hereto may be used as a
means of effecting subscription and payment for all shares of EXCO Resources,
Inc.'s Common Stock. Such form may be delivered by hand or sent by telex,
facsimile transmission, overnight courier or mail to the Subscription Agent.
The Subscription Agent is:
___________________________________________________
Attention: Corporate Stock Transfer Department
<TABLE>
<S> <C> <C>
By Mail By Facsimile By Hand
---------------------- -------------- ---------------------
---------------------- ---------------------
</TABLE>
Confirm by telephone to:
--------------------------
By Overnight Courier:
Corporate Stock Transfer Department
--------------------------
--------------------------
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF
INSTRUCTIONS VIA A TELECOPY FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE,
DOES NOT CONSTITUTE A VALID DELIVERY
Prior to 5:00 p.m., Dallas time, on the Expiration Date, the member
firm of a registered national securities exchange or member of the National
Association of Securities Dealers, Inc., or commercial bank or trust company
which completes this form must communicate the guarantee, the name of the
exercising Rights holder, the number of Rights represented by the Subscription
Certificate(s) held by such exercising holder and the number of shares
subscribed for (under both the Basic Subscription Privilege and the
Oversubscription Privilege) to the Subscription Agent and must deliver this
Notice of Guaranteed Delivery, together with payment in full for all subscribed
shares, guaranteeing delivery of a properly completed and signed copy of the
Subscription Certificate to the Subscription Agent. Failure to do so will
result in a forfeiture of the Rights.
<PAGE> 2
GUARANTEE
The undersigned, a member firm of a registered national securities
exchange or member of the National Association of Securities Dealers, Inc., or
a commercial bank or trust company having an office or correspondent in the
United States, guarantees delivery to the Subscription Agent by the close of
business on the third New York Stock Exchange trading day following the date
hereof, of a properly completed and duly executed Subscription Certificate and
evidencing the Rights being exercised as indicated herein.
Number of Rights to be delivered: __________________
<TABLE>
<S> <C>
Method of delivery (circle one) A. Through DTC*
B. Direct to Subscription Agent
- ------------------------------------------- ---------------------------------------------------------
Number of Shares Subscribed for Pursuant to Number of Shares Subscribed for Pursuant to
Basic Subscription Privilege Oversubscription Privilege
- ------------------------------------------- ---------------------------------------------------------
Name of Firm Authorized Signature
- ------------------------------------------- ---------------------------------------------------------
Address Title
- ------------------------------------------- ---------------------------------------------------------
Zip Code Name (Please Type or Print)
- ------------------------------------------- ---------------------------------------------------------
Contact Name Phone Number
</TABLE>
* IF THE RIGHTS ARE DELIVERED THROUGH DTC, A REPRESENTATIVE OF
____________________ _____________________ WILL PHONE YOU WITH A PROTECT
IDENTIFICATION NUMBER, WHICH NEEDS TO BE RELATED BY YOU TO DTC.
<PAGE> 1
EXHIBIT 4.10
FORM OF GUIDELINES TO FORM W-9
IMPORTANT TAX INFORMATION
Under the federal income tax law, (i) dividend payments that may be
made by EXCO Resources, Inc. ("EXCO") on shares of Common Stock issued upon the
exercise of Rights and (ii) payments that may be remitted by the Subscription
Agent to Rights holders in respect of Rights sold on such holders' behalf by
the Subscription Agent, may be subject to backup withholding. Generally, such
payments will be subject to backup withholding unless (a) the holder is exempt
from backup withholding or (b) the holder furnishes the payer with his correct
tax identification number and certifies that the number provided is correct
and, in the case of backup withholding on dividend payments, the holder further
certifies that such holder is not subject to backup withholding due to prior
underreporting of interest or dividend income. Each Rights holder who either
exercises Rights or requests the Subscription Agent to sell Rights and wishes
to avoid backup withholding must provide the Subscription Agent (as EXCO's
agent, in respect of exercised Rights, and as payer with respect to Rights sold
by the Subscription Agent) with such Rights holder's correct taxpayer
identification number (or with a certification that such Rights holder is
awaiting a taxpayer identification number) and with a certification that such
Rights holder is not subject to backup withholding, by completing Substitute
Form W-9 below.
Exempt Rights holders (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. In general, in order for a foreign individual to
qualify as an exempt recipient, the Rights holder must submit a statement,
signed under the penalties of perjury, attesting to that individual's exempt
status. The form of such statements can be obtained from the Subscription
Agent. Exempt Rights holders, while not required to file, should file
Substitute Form W-9 to avoid possible erroneous backup withholding. See the
enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional instructions.
If backup withholding applies, EXCO or the Subscription Agent, as the
case may be, will be required to withhold 31% of any such payments made to the
Rights holder. Backup withholding is not an additional tax. Rather, persons
subject to backup withholding are entitled to credit the amount of tax withheld
against their actual tax liability. If withholding results in an overpayment of
taxes, a refund may be obtained.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments remitted by the Subscription
Agent with respect to Rights sold, the Rights holder is required to notify the
Subscription Agent of his correct taxpayer identification number by completing
the form below certifying that the taxpayer identification number provided on
Substitute Form W-9 is correct (or that such Rights holder is awaiting a
taxpayer identification number). To prevent backup withholding on dividend
payments, the Rights holder must, in addition, certify on Substitute Form W-9
that he is not subject to backup withholding due to prior underreporting of
interest or dividend income.
WHAT NUMBER TO GIVE THE SUBSCRIPTION AGENT
The Rights holder is required to give the Subscription Agent the
taxpayer identification number of the record owner of the Rights. If such
record owner is an individual, the taxpayer identification number is his social
security number. If the Rights are held in more than one name or are not in the
name of the actual owner, consult the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional guidelines
on which number to report. If the Subscription Agent is not provided with the
correct taxpayer identification number in connection with such payments, the
Rights holder may be subject to a $50 penalty imposed by the Internal Revenue
Service.
<PAGE> 2
PAYER'S NAME: _________________________________
<TABLE>
<S> <C> <C>
______________________________________________
Name (If joint names, see attached guidelines)
______________________________________________
Business name (Sole proprietors, see attached guidelines)
______________________________________________
Please check appropriate box:
[ ] Individual/Sole proprietor [ ] Corporation [ ] Partnership [ ] Other
______________________________________________
Address (number, street, and apt. or suite no.)
______________________________________________
City, state, and ZIP code
</TABLE>
____________________________
<TABLE>
<S> <C> <C>
SUBSTITUTE Social Security Number
PART I -- TAXPAYER IDENTIFICATION NUMBER
Form W-9 Enter your taxpayer identification number ____________________________
Department of the Treasury in the appropriate box. For most Employer Identification Number
Internal Revenue Service individuals, this is your social security
number. If you do not have a number, see
How to Obtain a "TIN" in the enclosed
Guidelines.
Note: If the account is in more than
one name, see the chart in enclosed
Guidelines to determine what number to
give.
</TABLE>
PART III -- CERTIFICATION -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding because (a) I have not been
notified by the Internal Revenue Service ("IRS") that I am subject to
backup withholding as a result of a failure to report all interest or
dividends, or (b) the IRS has notified me that I am no longer subject
to backup withholding.
Certification Guidelines -- You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after
being notified by the IRS that you are subject to backup withholding you
received another notification from the IRS that you are no longer subject to
backup withholding, do not cross out item (2).
________________________________________________________________________________
SIGNATURE ________________________________________ DATE
________________, 1998
NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31%
OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
<PAGE> 3
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
SPECIFIC INSTRUCTIONS
NAME
If you are an individual, you must generally enter the name shown on your
social security card. However, if you have changed your last name, for
instance, due to marriage, without informing the Social Security Administration
of the name change, please enter your first name, the last name shown on your
social security card, and your new last name. If you are a sole proprietor, you
must enter your individual name. (Enter either your Social Security Number or
Employer Identification Number in Part I.) You may also enter your business
name or "doing business as" name on the business name line. Enter your name as
shown on your social security card and business name as it was used to apply
for your Employer Identification Number on Form SS-4.
PART I -- TAXPAYER IDENTIFICATION NUMBER (TIN)
You must enter your TIN in the appropriate box. If you are a sole proprietor,
you may enter your Social Security Number or Employer Identification Number.
Also see the chart under "Guidelines for Determining Proper Identification
Number to Give to Payer," below, for further clarification of name and TIN
combinations. If you do not have a TIN, follow the instructions under "How To
Obtain a TIN" below.
PART II -- FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING
Individuals (including sole proprietors) are not exempt from backup
withholding. Corporations are exempt from backup withholding for certain
payments, such as interest and dividends. For a complete list of exempt payees,
see "Payees Exempt from Backup Withholding" below.
If you are exempt from backup withholding, you should still complete this form
to avoid possible erroneous backup withholding. Enter your complete TIN in Part
I, write "Exempt" in Part II, and sign and date the form. If you are a
nonresident alien or a foreign entity not subject to backup withholding, give
the payer a completed Form W-8, Certificate of Foreign Status.
PART III -- CERTIFICATION
For a joint account, only the person whose TIN is shown in Part I should sign.
1. INTEREST, DIVIDENDS, AND PAYMENTS OF PROCEEDS RECEIVED BY OR THROUGH A
BROKER. You must sign the certification or backup withholding will
apply with respect to any dividend or interest payments that you
receive. If you are subject to backup withholding and you are merely
providing your correct TIN to the payer, you must cross out item 2 in
the certification before signing the form.
2. OTHER PAYMENTS. You must give your correct TIN, but you do not have to
sign the certification unless you have been notified of an incorrect
TIN. Other payments include payments made in the course of the payer's
trade or business for rents, royalties to a nonemployee for services
(including attorney and accounting fees), and payments to certain
fishing boat crew members.
PRIVACY ACT NOTICE
Section 6109 requires you to give your correct TIN to persons who must file
information returns with the IRS to report interest, dividends, and certain
other income paid to you, mortgage interest you paid, the acquisition or
abandonment of secured property, cancellation of debt, or contributions you
made to an IRA. The IRS uses the numbers for identification purposes and to
help verify the accuracy of your tax return. You must provide your TIN whether
or not you are required to file a tax return. Payers must generally withhold
31% of taxable interest, dividend, and certain other payments to a payee who
does not give a TIN to a payer. Certain penalties may also apply.
<PAGE> 4
GUIDELINES FOR DETERMINING PROPER IDENTIFICATION NUMBER TO GIVE TO PAYER.
Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<S> <C> <C>
GIVE THE SOCIAL SECURITY NUMBER
FOR THIS TYPE OF ACCOUNT: OF _________________________________
1. An individual's account The individual account
2. Two or more individuals (joint account) The actual owner of the account or, if combined
funds, any one of the individuals(1)
3. Husband and wife (joint account) The actual owner of the account or, if joint
funds, either person(1)
4. Custodian account of a minor (Uniform Gift to The minor(2)
Minors Act)
5. Adult or minor (joint account) The adult or, if the minor is the only
contributor, the minor(1)
6. Account in the name of guardian or committee The ward, minor, or incompetent person(3)
for a designated ward, minor, or incompetent
person
7.a The usual revocable savings trust account The grantor-trustee(1)
(grantor is also trustee)
7.b So-called trust account that is not a legal or The actual owner(1)
valid trust under State law
8. Sole proprietorship account The owner(4)
9. A valid trust, estate, or pension Legal entity (do not furnish the identifying
number of the personal representative or
trustee unless the legal entity itself it not
designated in the account title) (5)
10. Corporate account The corporation
11. Religious, charitable, or educational The organization
organization account
12. Partnership account held in the name of the The partnership
business
13. Association, club, or other tax-exempt The organization
organization
14. A broker or registered nominee The broker or nominee
15. Account with the Department of Agriculture in The public entity
the name of a public entity (such as a State or
local government, school district, or prison)
that receives agricultural program payments
- ------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security
number.
(3) Circle the ward's, minor's or incompetent person's name and furnish
such person's social security number.
(4) Show the name of the owner. You may use either the owner's social
security number or employer identification number.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number
will be considered to be that of the first name listed.
<PAGE> 5
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
HOW TO OBTAIN A TIN
If you don't have a taxpayer identification number, apply for one immediately.
To apply, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local post
office of the Social Security Administration or the Internal Revenue Service.
If you do not have a TIN, write "Applied For" in the space for the TIN in Part
I, sign and date the form, and give it to the payer. Generally, you will then
have 60 days to get a TIN and give it to the payer. If the payer does not
receive your TIN within 60 days, backup withholding, if applicable, will begin
and continue until you furnish your TIN.
NOTE: Writing "Applied For" on the form means that you have already applied for
a TIN or that you intend to apply for one soon. As soon as you receive your
TIN, complete another Form W-9, include your TIN, sign and date the form, and
send it to the payer.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments of
interest, dividends and gross proceeds from a sale or other disposition include
the following:
- - A corporation.
- - A financial institution.
- - An organization exempt from tax under section 501(a), or an individual
retirement account, or a custodial account under Section 403(b)(7).
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United States,
or any subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government,
or any agency or instrumentality thereof.
- - An international organization or any agency, or instrumentality
thereof.
- - A registered dealer in securities or commodities registered in the
U.S.
- - A real estate investment trust.
- - A common trust fund operated by a bank under section 584(a).
- - An entity registered at all times under the Investment Act of 1940.
- - A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- - Payments to nonresident aliens subject to withholding under section
1441.
- - Payments to partnerships not engaged in a trade or business in the
U.S. and which have at least one nonresident partner.
<PAGE> 6
- - Payments of patronage dividends where a trade or business in the U.S.
and which have at least one nonresident partner.
- - Payments of patronage dividends where the amount received is not paid
in money.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
- - Payments to an exempt charitable remainder trust, or a non-exempt
trust described in section 45957(a)(1).
Payments of interest not generally subject to backup withholding include the
following:
- - Payments of interest on obligations issued by individuals. Note: You
may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you
have not provided your correct taxpayer identification number to the
payer.
- - Payments of tax-exempt interest (including exempt interest dividends
under section 852).
- - Payments described in section 6049(b)(5) to nonresident aliens.
- - Payments on tax-free covenant bonds under section 1451.
- - Payments to an exempt charitable remainder trust, or a non-exempt
trust described in section 45957(a)(1).
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS,
ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and gross proceeds from a sale
or other disposition effectuated by or through a broker that are not subject to
information reporting are also not subject to backup withholding. For details,
see the regulations under sections 6041, 6041A(a), 6044, and 6050A.
PENALTIES
(3) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you
fail to furnish your taxpayer identification number to a payer, you
are subject to a penalty of $50 for each such failure unless your
failure is due to reasonable cause and not to willful neglect.
(4) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS. If you fail
to include any portion of an includible payment for interest,
dividends, or patronage dividends in gross income, such failure will
be treated as being due to negligence and will be subject to a penalty
of 20% on any portion of an under-payment attributable to that failure
unless there is clear and convincing evidence to the contrary.
(5) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If
you make a false statement with no reasonable basis which results in
no imposition of backup withholding, you are subject to a penalty of
$500.
(6) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Falsifying certifications
or affirmations may subject you to criminal penalties including fines
and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE> 1
EXHIBIT 4.11
FORM OF DTC PARTICIPANT OVERSUBSCRIPTION FORM
EXCO RESOURCES, INC.
RIGHTS OFFERING
DTC PARTICIPANT OVERSUBSCRIPTION FORM
THIS FORM IS TO BE USED ONLY BY DEPOSITORY TRUST COMPANY PARTICIPANTS TO
EXERCISE THE OVERSUBSCRIPTION PRIVILEGE IN RESPECT OF RIGHTS WITH RESPECT TO
WHICH THE BASIC SUBSCRIPTION PRIVILEGE WAS EXERCISED AND DELIVERED THROUGH THE
FACILITIES OF THE DEPOSITORY TRUST COMPANY. ALL OTHER EXERCISES OF
OVERSUBSCRIPTION PRIVILEGES MUST BE EFFECTED BY THE DELIVERY OF THE
SUBSCRIPTION FORMS.
_____________________
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE PROSPECTUS
OF EXCO RESOURCES, INC. ("EXCO") DATED ________________, 1998 (THE
"PROSPECTUS") AND ARE INCORPORATED HEREIN BY REFERENCE. COPIES OF THE
PROSPECTUS ARE AVAILABLE UPON REQUEST FROM EXCO AND THE SUBSCRIPTION AGENT.
_____________________
VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY 5:00
P.M., DALLAS TIME, ON ________________, 1998 (THE "EXPIRATION DATE").
_____________________
1. The undersigned hereby certifies to EXCO and the Subscription
Agent that it is a participant in The Depository Trust Company ("DTC") and that
it has either (i) exercised the Basic Subscription Privilege in respect of
Rights and delivered such exercised Rights to the Subscription Agent by means
of transfer to the DTC account of the Subscription Agent or (ii) delivered to
the Subscription Agent a Notice of Guaranteed Delivery in respect of the
exercise of the Basic Subscription Privilege and will deliver the Rights called
for in such Notice of Guaranteed Delivery to the Subscription Agent by means of
transfer to such DTC account of the Subscription Agent. The undersigned hereby
certifies to EXCO and the Subscription Agent that it owned __________ Shares of
Common Stock on _______________, 1998 (the "Record Date").
2. The undersigned hereby exercises the Oversubscription
Privilege to purchase, to the extent available, _________
shares of Common Stock and certifies to EXCO and the
Subscription Agent that such Oversubscription Privilege is
being exercised for the account or accounts of persons (which
may include the undersigned) on whose behalf all Basic
Subscription Privilege Rights have been exercised.
3. The undersigned understands that payment of the Subscription
Price of $____ per share for each share of Common Stock
subscribed for pursuant to the Oversubscription Privilege must
be received by the Subscription Agent at or before 5:00 p.m.
Dallas time on the Expiration Date and represents that such
payment, in the aggregate amount of $_________ either (check
appropriate box):
[ ] has been or is being delivered to the Subscription Agent
pursuant to the Notice of Guaranteed Delivery referred to
above
or
<PAGE> 2
[ ] is being delivered to the Subscription Agent herewith
or
[ ] has been delivered separately to the Subscription Agent;
and, in the case of funds not delivered pursuant to a Notice of Guaranteed
Delivery, is or was delivered in the manner set forth below (check appropriate
box and complete information relating thereto):
[ ] uncertified check
[ ] certified check
[ ] bank draft
___________________________________________
Basic Subscription Confirmation Number
___________________________________________
DTC Participant
___________________________________________
Name of DTC Participant
By: _______________________________________
Name:
Title:
Contact Name: _____________________________
Phone Number: _____________________________
Dated: ________________, 1998
<PAGE> 1
EXHIBIT 4.12
FORM OF NOMINEE HOLDER CERTIFICATE
NOMINEE HOLDER CERTIFICATION AND REQUEST FOR ADDITIONAL RIGHTS
To the Subscription Agent:
The undersigned hereby certifies that it is a broker-dealer registered with
the Securities and Exchange Commission, a commercial bank or trust company, a
securities depository or participant therein, or a nominee therefor, holding of
record __________ shares of Common Stock, par value $.02 per share ("Common
Stock"), of EXCO Resources, Inc. ("EXCO") on behalf of __________ beneficial
owners as of the close of business on ______________, 1998 (the "Record Date")
for the offering by EXCO of an aggregate of approximately 5,089,000 shares of
Common Stock pursuant to transferable subscription rights (the "Rights") being
distributed to record holders of shares of Common Stock, all as described in
EXCO's Prospectus dated _____________, 1998 (the "Prospectus"), a copy of which
the undersigned has received. As stated in the Prospectus, ten Rights are being
distributed for each share of Common Stock held of record as of the close of
business on the Record Date, and any fractional Right will be rounded up to the
nearest whole number. The undersigned further certifies that ________
beneficial owners on whose behalf it held, as of the close of business on the
Record Date, an aggregate of _______ shares of Common Stock registered in the
name of the undersigned are each entitled to an additional Right in accordance
with the policy stated in the Prospectus that any fractional Right to which a
beneficial owner would otherwise be entitled should be rounded up to the
nearest whole number. Accordingly, the undersigned requests that, upon
surrender of its Subscription Certificate evidencing _________ Rights, a
Subscription Certificate evidencing __________ Rights (including _________
additional Rights in lieu of fractional Rights) be issued. The undersigned
further certifies that each such beneficial owner is a bona fide beneficial
owner of shares of Common Stock, that such beneficial ownership is reflected on
the undersigned's records and that all shares of Common Stock which, to the
undersigned's knowledge, are beneficially owned by any such beneficial owner
through the undersigned have been aggregated in calculating the foregoing. The
undersigned agrees to provide EXCO or its designee with such additional
information as EXCO deems necessary to verify the foregoing.
-------------------------------------------------
Name of Record Holder
By:
---------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Address:
------------------------------------
Telephone Number:
---------------------------
Date: _______________, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report in the Registration Statement (Form S-3) and related
Prospectus of EXCO Resources, Inc. for the registration of 5,089,000 shares of
its common stock to be filed with the Securities and Exchange Commission on
April 1, 1998, and to the incorporation by reference therein of our report
dated March 13, 1997, except Note 2, as to which the date is February 11, 1998
and Note 10, second paragraph, as to which the date is March 31, 1998, with
respect to the financial statements of EXCO Resources, Inc. in its Annual
Report (Form 10-K) for the year ended December 31, 1997 filed with the
Securities and Exchange Commission.
Belew Averitt LLP
Dallas, Texas
April 1, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports in the Registration Statement (Form S-3) and related
Prospectus of EXCO Resources, Inc. for the registration of 5,089,000 shares of
its common stock to be filed with the Securities and Exchange Commission on
April 1, 1998, and to the incorporation by reference therein of our reports
dated February 11, 1998 (except for the second paragraph of Note 10 for which
the date is March 31, 1998), with respect to the financial statements of EXCO
Resources, Inc. and to the incorporation by references therein of our report
dated February 11, 1998 with respect to the statements of operating revenues
and direct operating expenses of the Maverick County Properties in its Annual
Report (Form 10-K) for the year ended December 31, 1997 filed with the
Securities and Exchange Commission.
Ernst & Young LLP
Dallas, Texas
April 1, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to (i) the use in the Prospectus (the Prospectus)
constituting a part of the Registration Statement on Form S-3 filed by EXCO
Resources, Inc., a Texas corporation (the "Company"), under the Securities Act
of 1933, of information contained in our reserve report relating to the oil and
gas reserves and revenue, as of March 31, 1995 of certain interests of the
Company and the information derived from such letters, (ii) all references to
such report letters and/or to this firm in such Prospectus, and further consent
to our being named as an expert therein, and (iii) the incorporation of this
consent in any Registration Statement filed for the same offering pursuant to
Rule 462(b) under the Act.
MILMAC OPERATING COMPANY
By: /s/ JAMES A. MCAULEY
----------------------------------
James A. McAuley, President
Dallas, Texas
March 31, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to (i) the use in the Prospectus (the Prospectus)
constituting a part of the Registration Statement on Form S-3 filed by EXCO
Resources, Inc., a Texas corporation (the "Company"), under the Securities Act
of 1933, of information contained in our reserve reports relating to the oil
and gas reserves and revenue, as of December 31, 1995, December 31, 1996 and
December 31, 1997, of certain interests of the Company and the information
derived from such letters (ii) all references to such report letters and/or to
this firm in such Prospectus, and further consent to our being named as an
expert therein, and (iii) the incorporation of this consent in any Registration
Statement filed for the same offering pursuant to Rule 462(b) under the Act.
LEE KEELING AND ASSOCIATES, INC.
By: /s/ KENNETH RENBERG
----------------------------------
Kenneth Renberg, Vice President
Dallas, Texas
March 31, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 496,000
<SECURITIES> 0
<RECEIVABLES> 226,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 727,000
<PP&E> 4,303,000
<DEPRECIATION> 3,830,000
<TOTAL-ASSETS> 1,270,000
<CURRENT-LIABILITIES> 328,000
<BONDS> 0
0
0
<COMMON> 10,000
<OTHER-SE> 917,000
<TOTAL-LIABILITY-AND-EQUITY> 1,270,000
<SALES> 670,000
<TOTAL-REVENUES> 698,000
<CGS> 0
<TOTAL-COSTS> 903,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,000
<INCOME-PRETAX> (205,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (205,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (205,000)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
</TABLE>
