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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

Filed by the Registrant ý
Filed by a Party other than the Registrant o
Check the appropriate box:
o		Preliminary Proxy Statement
o		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
ý		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to §240.14a-12

EXCO RESOURCES, INC.
(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):
ý	No fee required.
o	Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
	(1)	Title of each class of securities to which transaction applies:
	(2)	Aggregate number of securities to which transaction applies:
	(3)	Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
	(4)	Proposed maximum aggregate value of transaction:
	(5)	Total fee paid:
o	Fee paid previously with preliminary materials.
o	Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
	(1)	Amount Previously Paid:
	(2)	Form, Schedule or Registration Statement No.:
	(3)	Filing Party:
	(4)	Date Filed:

EXCO Resources, Inc.

Notice of 2007
Annual Meeting
of Shareholders
and Proxy Statement

Please Complete, Sign, Date
And Return Your Proxy Promptly

Thursday, August 30, 2007
10:00 a.m. local time
Westin Park Central
12720 Merit Drive
Salon ABC
Dallas, Texas 75251

EXCO Resources, Inc.
12377 Merit Drive • Suite 1700
Dallas, Texas 75251
(214) 368-2084 • Fax (214) 368-2087

July 16, 2007

Dear EXCO Shareholder:

You are cordially invited to attend the Annual Meeting of Shareholders of EXCO Resources, Inc. The meeting will be held at 10:00 a.m. local time on Thursday, August 30, 2007, at the Westin Park Central, 12720 Merit Drive, Salon ABC, Dallas, Texas 75251. Your Board of Directors and management look forward to greeting those of you able to attend in person.

•: You will find enclosed a Notice of Meeting that identifies the proposals to be presented for your action.
•: You will find enclosed the 2006 Annual Report, which includes our financial statements.

Your vote is important. The Board of Directors appreciates and encourages shareholder participation in the company's affairs. Whether or not you can attend the meeting, please read the proxy statement carefully, then sign, date and return the enclosed proxy promptly in the envelope provided, so that your shares will be represented at the meeting.

On behalf of the Board of Directors, thank you for your cooperation and continued support.

		Sincerely,

		Douglas H. Miller Chairman of the Board and Chief Executive Officer

EXCO RESOURCES, INC.
12377 Merit Drive • Suite 1700
Dallas, Texas 75251
(214) 368-2084 • Fax (214) 368-2087

Notice of Annual Meeting of Shareholders

To Be Held August 30, 2007

The 2007 Annual Meeting of Shareholders of EXCO Resources, Inc., a Texas corporation ("EXCO" or the "Company"), will be held at 10:00 a.m. local time on Thursday, August 30, 2007 at the Westin Park Central, 12720 Merit Drive, Salon ABC, Dallas, Texas 75251 for the following purposes:

(1): to elect seven directors to the Board of Directors, each for a one-year term;
(2): to consider and vote upon a proposal to approve (i) the designations, preferences, limitations and relative rights set forth on Annex III of the Statements of Designation of our Series A-1 and Series A-2 Hybrid Preferred Stock, including the convertibility of the Hybrid Preferred Stock into shares of our common stock, par value $0.001 per share; (ii) the issuance of shares of our common stock upon the conversion of such shares of Hybrid Preferred Stock; and (iii) the removal of the restrictions on conversion price adjustments for our Series A-1, Series A-2, Series B and Series C 7.0% Cumulative Convertible Perpetual Preferred Stock set forth in Section 10 of the Statement of Designation for each such series of 7.0% Cumulative Convertible Perpetual Preferred Stock;
(3): if the shareholders do not approve proposal 2 above, to consider and vote upon a proposal to remove the restrictions on conversion price adjustments for our Series A-1, Series A-2, Series B and Series C 7.0% Cumulative Convertible Perpetual Preferred Stock set forth in Section 10 of the Statement of Designation for each such series of 7.0% Cumulative Convertible Perpetual Preferred Stock;
(4): to consider and vote upon a proposal to amend the EXCO Resources, Inc. 2005 Long-Term Incentive Plan to increase the total number of shares of common stock authorized for issuance under such plan by 10,000,000 shares;
(5): to consider and vote upon an amendment to EXCO's Third Amended and Restated Articles of Incorporation to increase the total number of shares of authorized capital stock from 260,000,000 to 360,000,000, 350,000,000 shares of which will be common stock, par value $0.001 per share, and 10,000,000 shares of which will be preferred stock, par value $0.001 per share;
(6): to ratify the appointment of KPMG LLP as our independent registered public accounting firm; and
(7): to transact such other business as may arise that can properly be conducted at the meeting or any adjournment or postponement thereof.

The Board of Directors has fixed the close of business on Friday, July 13, 2007 as the record date (the "Record Date") for the determination of shareholders entitled to notice of and to vote at the Annual Meeting or any adjournment(s) or postponement(s) thereof. Only shareholders of record at the close of business on the Record Date are entitled to notice of and to vote at the Annual Meeting. The stock transfer books will not be closed. A list of shareholders entitled to vote at the Annual Meeting will be available for examination at the offices of the Company for the 10 calendar days prior to the meeting.

Your participation in the Company's affairs is important. Officers of the Company will be present to respond to questions from shareholders.

YOUR VOTE IS IMPORTANT. TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING, PLEASE VOTE IN ONE OF THESE WAYS:

•: USE THE TOLL-FREE NUMBER shown on your proxy card;
•: VISIT THE WEBSITE noted on your proxy card to vote via the Internet;
•: MARK, SIGN, DATE AND PROMPTLY RETURN the enclosed proxy card in the postage-paid envelope; OR
•: VOTE IN PERSON by appearing at the annual meeting and submitting a ballot at the meeting.

SHAREHOLDERS WHO ATTEND THE MEETING MAY REVOKE THEIR PROXIES AND VOTE IN PERSON IF THEY DESIRE.

If you have any questions, or need assistance in voting your proxy, please call our proxy solicitor, D.F. King & Co., Inc. toll-free at (888) 567-1626.

		By Order of the Board of Directors,
		William L. Boeing Vice President, General Counsel and Secretary
Dallas, Texas July 16, 2007

TABLE OF CONTENTS

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
ELECTION OF DIRECTORS
	Common Stock Directors and Nominees
	Preferred Stock Director Designees
	Board Committees and Meetings
	Lead Director
	Report of the Audit Committee
	Director Compensation
	Corporate Governance
	Executive Officers
	Other Officers of Our Company
	Compensation Discussion and Analysis
	Compensation of Executive Officers
	Compensation Committee Report on Executive Compensation
	Compensation Committee Interlocks and Insider Participation
	Equity Compensation Plan Information
	Section 16(a) Beneficial Ownership Reporting Compliance
	Transactions with Related Persons
APPROVAL OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS SET FORTH ON ANNEX III OF THE STATEMENTS OF DESIGNATION OF OUR HYBRID PREFERRED STOCK, THE ISSUANCE OF COMMON STOCK UPON CONVERSION OF SUCH SHARES OF HYBRID PREFERRED STOCK AND THE REMOVAL OF THE RESTRICTIONS ON CONVERSION PRICE ADJUSTMENTS FOR THE CONVERTIBLE PREFERRED STOCK
	Overview
	Need for Shareholder Approval
	Impact on the Company's Capitalization
	Consequences to the Company and the Holders of its Common Stock
	Principal Terms of the Convertible Preferred Stock
	Principal Terms of the Hybrid Preferred Stock
	Principal Differences Between the Hybrid Preferred Stock prior to and after Shareholder Approval of the Full NYSE Proposal
	Board Recommendation
	Reasons for the Board Recommendation
	Vote Required
APPROVAL OF THE REMOVAL OF THE RESTRICTIONS ON CONVERSION PRICE ADJUSTMENTS FOR THE CONVERTIBLE PREFERRED STOCK
	Overview
	Board Recommendation
	Reasons for Board Recommendation
	Vote Required
AMENDMENT OF 2005 LONG-TERM INCENTIVE PLAN
	Summary of Proposed Amendment
	Summary of the Incentive Plan Terms
	Burn Rate
	Federal Income Tax Consequences of Awards
	Plan Benefits
	Vote Required

AMENDMENT TO THIRD AMENDED AND RESTATED ARTICLES OF INCORPORATION TO INCREASE AUTHORIZED COMMON STOCK
	Background
	Purpose
	Effect on Existing Shareholders
	Possible Anti-Takeover Effects
	The Amendment
	Vote Required
APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
	Fees
OTHER BUSINESS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
	Principal Shareholders
	Executive Officers and Directors
DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS
ANNUAL REPORT AND FINANCIAL STATEMENTS; DOCUMENTS INCORPORATED BY REFERENCE

EXCO RESOURCES, INC.
12377 MERIT DRIVE • SUITE 1700
DALLAS, TEXAS 75251
(214) 368-2084 • FAX (214) 368-2087

PROXY STATEMENT

FOR

ANNUAL MEETING OF SHAREHOLDERS

To Be Held Thursday, August 30, 2007

Unless the context requires otherwise, references in this proxy statement to "EXCO," "we," "us," "our" and the "Company" are to EXCO Resources, Inc., its consolidated subsidiaries and EXCO Holdings Inc. ("EXCO Holdings"), our former parent company, which was acquired by and into which EXCO Holdings II, Inc. ("Holdings II") merged in October 2005. On February 14, 2006, EXCO Holdings merged with and into EXCO Resources, Inc. References to "EXCO Resources" are to EXCO Resources, Inc. Unless the context otherwise requires, references to the "shareholders" are to the holders of our voting securities, which currently consist of our common stock, par value $0.001 per share ("Common Stock"), and as to certain matters to be voted upon, our Series A-1, Series B and Series C 7.0% Cumulative Convertible Perpetual Preferred Stock.

The accompanying proxy is solicited by the Board of Directors on behalf of EXCO Resources, Inc., a Texas corporation, to be voted at the 2007 Annual Meeting of Shareholders of the Company (the "Annual Meeting") to be held on Thursday, August 30, 2007, at the time and place and for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders (the "Notice") and at any adjournment(s) or postponement(s) thereof. This proxy statement and accompanying form of proxy are being mailed on or about July 18, 2007. The Company's Annual Report to Shareholders covering the Company's fiscal year ended December 31, 2006 is enclosed herewith, but does not form any part of the materials for solicitation of proxies. Although this proxy statement is being mailed to all shareholders, this solicitation is being made by the Company pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, only with respect to the holders of our Common Stock.

The executive offices of the Company are located at, and the mailing address of the Company is, 12377 Merit Drive, Suite 1700, Dallas, Texas 75251.

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING

What is a proxy?

A proxy is another person that you legally designate to vote your stock. If you designate someone as your proxy in a written document, that document is also called a proxy or a proxy card.

What is a proxy statement?

It is a document that regulations of the Securities and Exchange Commission (the "SEC") require that we give to you when we ask you to sign a proxy card to vote your stock at the Annual Meeting.

What is the purpose of the Annual Meeting?

At our Annual Meeting, shareholders will act upon the matters outlined in the Notice, including the following matters, which will be voted upon solely by the holders of our Common Stock: (1) the election of seven directors to the Board of Directors, each for a one-year term (these seven directors

are referred to as the "Common Stock Directors"); (2) a proposal to approve (i) the designations, preferences, limitations and relative rights set forth on Annex III of the Statements of Designation of our Series A-1 and Series A-2 Hybrid Preferred Stock (together, the "Hybrid Preferred Stock"), including the convertibility of the Hybrid Preferred Stock into shares of our Common Stock, (ii) the issuance of shares of Common Stock upon the conversion of such shares of Hybrid Preferred Stock, and (iii) the removal of the restrictions on conversion price adjustments for our Series A-1, Series A-2, Series B and Series C 7.0% Cumulative Convertible Perpetual Preferred Stock (these series are collectively referred to as the "Convertible Preferred Stock," except that with respect to voting, the term "Convertible Preferred Stock" shall be deemed to refer only to the Series A-1, Series B and Series C Convertible Preferred Stock, which are the only series of Convertible Preferred Stock with voting rights and the only series currently outstanding, and the Hybrid Preferred Stock and the Convertible Preferred Stock are collectively referred to as the "Preferred Stock") set forth in Section 10 of the Statement of Designation for each series of Convertible Preferred Stock (this proposal is referred to as the "Full NYSE Proposal"); and (3) if the shareholders do not approve the Full NYSE Proposal, a proposal to remove the restrictions on conversion price adjustments for our Convertible Preferred Stock set forth in Section 10 of the Statement of Designation for each series of Convertible Preferred Stock (this proposal is referred to as the "Limited NYSE Proposal"), and the following matters, which will be voted upon by the holders of our Common Stock and Convertible Preferred Stock: (1) a proposal to amend the EXCO Resources, Inc. 2005 Long-Term Incentive Plan (the "Incentive Plan") to increase the total number of shares of Common Stock authorized for issuance under such plan by 10,000,000 shares (this proposal is referred to as the "Incentive Plan Amendment Proposal"); (2) an amendment to EXCO's Third Amended and Restated Articles of Incorporation to increase the total number of shares of authorized capital stock from 260,000,000 to 360,000,000, 350,000,000 shares of which will be common stock, par value $0.001 per share, and 10,000,000 shares of which will be preferred stock, par value $0.001 per share (this proposal is referred to as the "Charter Amendment Proposal"); (3) ratification of the appointment of KPMG LLP as our independent registered public accounting firm (this proposal is referred to as the "Ratification of KPMG"); and (4) transaction of such other business as may arise that can properly be conducted at the Annual Meeting or any adjournment or postponement thereof. Also, management will report on the Company's performance during the last fiscal year and respond to questions from shareholders.

What is "householding" and how does it affect me?

With respect to eligible shareholders who share a single address, we are sending only one proxy statement to that address unless we received instructions to the contrary from any shareholder at that address. This practice, known as "householding," is designed to reduce our printing and postage costs. However, if a shareholder of record residing at such address wishes to receive a separate proxy statement in the future, he or she may contact EXCO Resources, Inc., 12377 Merit Drive, Suite 1700, Dallas, Texas 75251, Attn: Secretary or by calling (214) 368-2084 and asking for investor relations. Eligible shareholders of record receiving multiple copies of our proxy statement can request householding by contacting us in the same manner. Shareholders who own shares through a bank, broker or other nominee can request householding by contacting the nominee.

We hereby undertake to deliver promptly, upon written request, a copy of the proxy statement to a shareholder at a shared address to which a single copy of the document was delivered. Requests should be directed to the address set forth above.

As of July 1, 2007, SEC rules permit companies to send you a notice that proxy information is available on the Internet, instead of mailing you a complete set of materials. In the future, the Company may choose to distribute proxy information in this manner.

What should I do if I receive more than one set of voting materials?

Despite our efforts related to householding, you may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. Similarly, if you are a shareholder of record and hold shares in a brokerage account, you will receive a proxy card and a voting instruction card. Also, if you own shares of Common Stock and shares of Convertible Preferred Stock, you will receive a proxy card to vote your shares of Common Stock and a different proxy card to vote your shares of Convertible Preferred Stock. Please complete, sign, date and return each proxy card and voting instruction card that you receive to ensure that all your shares are voted.

What is the record date and what does it mean?

The record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting is the close of business on July 13, 2007 (the "Record Date"). The Record Date is established by the Board of Directors as required by Texas law. On the Record Date, 104,387,720 shares of Common Stock and 39,008 shares of Convertible Preferred Stock were issued and outstanding.

Who is entitled to vote at the Annual Meeting?

Subject to the limitations set forth below, holders of Common Stock and holders of Convertible Preferred Stock at the close of business on the Record Date may vote at the Annual Meeting. The shares of Hybrid Preferred Stock are non-voting and, therefore, holders of Hybrid Preferred Stock may not vote at the Annual Meeting.

What are the voting rights of the holders of Common Stock and Convertible Preferred Stock?

Each holder of Common Stock is entitled to one vote per common share on all matters to be acted upon at the Annual Meeting. Each holder of Convertible Preferred Stock is entitled to approximately 526.3 votes per preferred share on (i) the Incentive Plan Amendment Proposal, (ii) the Charter Amendment Proposal and (iii) the Ratification of KPMG as set forth on the accompanying Notice. Holders of Convertible Preferred Stock do not have the right to vote to approve the Full NYSE Proposal or the Limited NYSE Proposal. Therefore, if such proposals do not receive a majority of the votes cast by holders of shares of Common Stock, such proposals will not be approved. Neither the Company's Third Amended and Restated Articles of Incorporation, as amended, nor its Amended and Restated Bylaws, as amended, allow for cumulative voting rights.

The holders of Convertible Preferred Stock do not have the right to vote with the holders of Common Stock to elect the Common Stock Directors at the Annual Meeting. Instead, the holders of Convertible Preferred Stock are entitled to designate and elect four members of the Board of Directors (the "Preferred Stock Director Designees"), two of whom were appointed to the Board of Directors on March 30, 2007, one of whom is anticipated to be elected by such holders following the Annual Meeting and one of whom will be elected at a later date.

The presence, in person or by proxy, of the holders of a majority of the voting power of the issued and outstanding shares of Common Stock and Convertible Preferred Stock entitled to vote at the Annual Meeting is necessary to constitute a quorum to transact business. If a quorum is not present or represented at the Annual Meeting, the shareholders entitled to vote thereat, present in person or by proxy, may adjourn the Annual Meeting from time to time without notice or other announcement until a quorum is present or represented.

As of the Record Date, holders of Common Stock held 83.6% of the general voting power, and holders of the Convertible Preferred Stock held the remaining 16.4% of the general voting power. General voting power refers to all securities of the Company entitled to vote at the Annual Meeting. With respect to an individual proposal, voting power refers to all securities of the Company entitled to vote on the proposal.

What is the difference between a shareholder of record and a "street name" holder?

If your shares are registered directly in your name with Continental Stock Transfer & Trust Company, the Company's stock transfer agent, you are considered the shareholder of record with respect to those shares. The proxy statement, annual report and proxy card have been sent directly to you by the Company.

If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of these shares, and your shares are held in "street name." The proxy statement, annual report and proxy card have been forwarded to you by your broker, bank or nominee who is considered, with respect to those shares, the shareholder of record. As the beneficial owner, you have the right to direct your broker, bank or nominee how to vote your shares by using the voting instructions included in the mailing or by following their instructions for voting by telephone or the Internet.

What is a broker non-vote?

Under the rules of the New York Stock Exchange ("NYSE"), brokers who hold shares on behalf of their customers have the authority to vote on certain proposals when they have not received instructions from beneficial owners. A broker non-vote occurs when a broker holding shares for a beneficial owner does not vote on a particular proposal because the broker does not have discretionary voting power with respect to that item and has not received voting instructions from the beneficial owner. Your broker has discretionary authority to vote your shares in the election of directors and the Ratification of KPMG. Your broker is not empowered to vote your shares on the proposals to approve the Full NYSE Proposal, the Limited NYSE Proposal, the Incentive Plan Amendment Proposal and the Charter Amendment Proposal in the absence of specific instructions from you.

How do I vote my shares?

If you are a record holder, you may vote your Common Stock or Convertible Preferred Stock at the Annual Meeting in person or by proxy. To vote in person, you must attend the Annual Meeting, and obtain and submit a ballot. The ballot will be provided at the meeting. To vote by proxy, you must do one of the following:

•: USE THE TOLL-FREE NUMBER shown on your proxy card;
•: VISIT THE WEBSITE shown on your proxy card to vote via the Internet;
•: MARK, SIGN, DATE AND PROMPTLY RETURN the enclosed proxy card in the postage-paid envelope; OR
•: VOTE IN PERSON by appearing at the Annual Meeting and submitting a ballot at the meeting.

The telephone and Internet voting procedures are designed to authenticate shareholders' identities, to allow you to vote your shares and to confirm that your instructions have been properly recorded. Please refer to your proxy card or the information forwarded by your bank, broker or other nominee to see which options are available to you. The proxy card is fairly simple to complete, with specific instructions right on the card. By completing and submitting it, you will direct the designated persons

(known as "proxies") to vote your Common Stock or Convertible Preferred Stock at the Annual Meeting in accordance with your instructions. The Board of Directors has appointed Douglas H. Miller, Stephen F. Smith, J. Douglas Ramsey, Ph.D. and William L. Boeing to serve as the proxies for the Annual Meeting.

Your proxy card will be valid only if you sign, date and return it before the Annual Meeting. If you complete all of the proxy card except the voting instructions, then the designated proxies will vote your shares "for" the election of the nominated directors, and "for" the other proposals. We do not anticipate that any nominee for election to the Board of Directors will be unable to serve or that any other matters will come before the meeting, but if a nominee is unable to serve, or if any other matters properly come before the meeting, then the designated proxies will vote your shares in accordance with applicable law and their judgment.

If you hold your shares in "street name," in addition to the proxy solicitation materials we have provided to the street name holder, the street name holder should provide to you the street name holder's own request for voting instructions. By completing the voting instruction card, you may direct your street name holder how to vote your shares. Alternatively, if you want to vote your street name shares at the Annual Meeting, you must contact your broker directly in order to obtain a proxy issued to you by your nominee holder. Note that a broker letter that identifies you as a shareholder is not the same as a nominee-issued proxy. If you fail to bring a nominee-issued proxy to the Annual Meeting, you will not be able to vote your nominee-held shares at the Annual Meeting.

If you are a Company employee participating in a Company 401(k) plan, then you may be receiving this material because of the Common Stock held for you in the applicable plan. In that case, you may use the enclosed proxy card to instruct the plan trustees how to vote those shares. The trustees will vote the shares in accordance with your instructions and the terms of the applicable plan.

The plan trustees may vote the shares held for you even if you do not direct them how to vote. The trustees will vote any shares for which they do not receive instructions in the same proportion as they vote the shares for which they receive instructions.

Are votes confidential? Who counts the votes?

The votes of all shareholders will be held in confidence from directors, officers and employees of the Company except: (a) as necessary to meet applicable legal requirements and to assert or defend claims for or against the Company; (b) in case of a contested proxy solicitation; (c) if a shareholder makes a written comment on the proxy card or otherwise communicates his or her vote to management; or (d) to allow the independent inspectors of election to certify the results of the vote.

An automated system administered by the Company's transfer agent tabulates the votes. Each proposal is tabulated separately.

Can I vote my shares in person at the Annual Meeting?

Yes. If you are a shareholder of record, you may vote your shares at the meeting by completing a ballot at the meeting.

However, if you are a "street name" holder, you may vote your shares in person only if you obtain a legal proxy from your broker or nominee giving you the right to vote the shares.

Even if you currently plan to attend the meeting, we recommend that you also submit your proxy as described above so that your vote will be counted if you later decide not to attend the meeting.

What are my choices when voting?

In the election of directors, holders of Common Stock may vote for all Common Stock Director nominees or may withhold their votes as to one or more Common Stock Director nominees. Pursuant to the Statements of Designation of the Convertible Preferred Stock, the holders of the Convertible Preferred Stock are entitled to designate and elect four members of the Board of Directors, two of whom were appointed to the Board of Directors on March 30, 2007, one of whom is anticipated to be elected by such holders following the Annual Meeting and one of whom will be elected at a later date. In the future, if the shareholders approve the Full NYSE Proposal, the Convertible Preferred Stock and Series A-1 Hybrid Preferred Stock holders will elect the Preferred Stock Director Designees.

For each of the other proposals, holders of Common Stock may vote for the proposal, against the proposal, or abstain from voting on the proposal. Holders of Convertible Preferred Stock may vote for the proposal, against the proposal, or abstain from voting on the following proposals: (i) the Incentive Plan Amendment Proposal; (ii) the Charter Amendment Proposal; and (iii) the Ratification of KPMG.

What are the Board's recommendations on how I should vote my shares?

The Board recommends that you vote your shares as follows:

Proposal 1—FOR the election of each nominee for director.

Proposal 2—FOR the Full NYSE Proposal.

Proposal 3—FOR the Limited NYSE Proposal.

Proposal 4—FOR the Incentive Plan Amendment Proposal.

Proposal 5—FOR the Charter Amendment Proposal.

Proposal 6—FOR the Ratification of KPMG.

What if I do not specify how I want my shares voted?

If you do not specify on your proxy card (or when giving your proxy by telephone or over the Internet) how you want to vote your shares, we will vote them, and such shares will be voted in the following manner:

Proposal 1—FOR the election of each nominee for director.

Proposal 2—FOR the Full NYSE Proposal.

Proposal 3—FOR the Limited NYSE Proposal.

Proposal 4—FOR the Incentive Plan Amendment Proposal.

Proposal 5—FOR the Charter Amendment Proposal.

Proposal 6—FOR the Ratification of KPMG.

Can I change my vote?

Yes. You may revoke your proxy at any time by any of the following means:

•: Attending the Annual Meeting and voting in person. Your attendance at the Annual Meeting will not by itself revoke a proxy; you must vote your shares at the meeting to revoke your proxy.
•: Completing and submitting a new valid proxy bearing a later date by Internet, telephone or mail.

•: Giving written notice of revocation to the Company addressed to William L. Boeing, Vice President, General Counsel and Secretary, at the Company's address above before noon on August 29, 2007.

What percentage of the vote is required to approve the election of each nominee for director?

Assuming the presence of a quorum, the seven Common Stock Directors who receive the most votes from the holders of the shares of our Common Stock for their election will be elected, i.e., the affirmative vote of the holders of a plurality of the shares of Common Stock voting at the Annual Meeting is required for the election of the Common Stock Directors. However, pursuant to an amendment to the Company's Corporate Governance Guidelines adopted on November 8, 2006, if a director nominee in an uncontested election receives a greater number of votes "withheld" than votes "for" his election, the nominee shall promptly tender his resignation to the Board of Directors. The Board's nominating and corporate governance committee, or alternatively the independent directors of the Board of Directors (which will specifically exclude any director who is required to offer his own resignation), shall recommend to the Board of Directors whether to accept the resignation offer. The Board of Directors will consider and act on the recommendation and will publicly disclose the Board's decision with regard to any resignation offered under these circumstances, including, if applicable, the reasons for rejecting the offered resignation.

Pursuant to the Statements of Designation for the Convertible Preferred Stock, the holders of the Convertible Preferred Stock are entitled to designate and elect four members of the Board of Directors. Vincent J. Cebula and Jeffrey S. Serota were appointed to the Board of Directors on March 30, 2007 as Preferred Stock Director Designees. Rajath Shourie will be elected by the holders of the Convertible Preferred Stock pursuant to the Statements of Designation promptly following the Annual Meeting. The remaining Preferred Stock Director Designee is anticipated to be elected at a later date.

What percentage of the vote is required to approve the Full NYSE Proposal?

The approval of the Full NYSE Proposal will require the affirmative vote of the holders of a majority of the votes cast by holders of shares of Common Stock on the proposal, provided that the total votes cast on the proposal represent over 50% of the voting power of all shares of Common Stock outstanding. Abstentions are counted as "present" for purposes of determining the number of votes cast on this proposal and will have the same effect as a vote against this proposal. Broker non-votes are not counted as "present" for purposes of determining the number of votes cast on this proposal, and therefore will have no effect on the outcome of the vote on this proposal, other than with respect to the requirement that the votes cast represent over 50% of the voting power of all shares of Common Stock. Although holders of Convertible Preferred Stock generally vote on an as-converted basis with holders of Common Stock, holders of Convertible Preferred Stock do not have the right to vote on this proposal. The shares of Hybrid Preferred Stock are non-voting and, therefore, holders of Hybrid Preferred Stock do not have the right to vote on this proposal. Therefore, if the proposal does not receive a majority of the votes cast by holders of shares of Common Stock, it will not be approved.

Why am I being asked to vote on the Full NYSE Proposal?

Under NYSE rules, shareholder approval is required to issue Common Stock, or securities convertible into or exercisable for Common Stock, if (i) such Common Stock has, or will have upon issuance, 20.0% or more of the voting power outstanding before the issuance, (ii) the number of shares of Common Stock to be issued is, or will be upon issuance, equal to 20.0% or more of the number of shares of Common Stock outstanding before the issuance, (iii) such Common Stock, or securities convertible into or exercisable for Common Stock, will be issued to a director, officer or substantial security holder of the Company and such securities exceed a threshold of either one percent or, if issued to a substantial security holder who is not a director or officer at a price that is not less than the book and market value of the Common Stock, five percent of the number of shares of Common Stock or the voting power outstanding before the issuance or (iv) such issuance will result in a change of control of the Company.

The 39,008 shares of Convertible Preferred Stock and 160,992 shares of Hybrid Preferred Stock were issued, in part, to fund the purchase of all or substantially all of the oil and natural gas properties and related assets, including derivative financial instruments in respect of a significant portion of estimated production for 2007, 2008 and 2009, of Anadarko Petroleum Corporation and Anadarko Gathering Company in the Vernon and Ansley Fields located in Jackson Parish, Louisiana (the "Vernon Acquisition") and to repay certain outstanding indebtedness.

Absent the NYSE rules described above, we would have issued 200,000 shares of Convertible Preferred Stock to fund the Vernon Acquisition and to repay certain outstanding indebtedness. As a result of the limited time period to fund the Vernon Acquisition and the time required to organize a special meeting of shareholders, we were unable to hold a special meeting of our shareholders to approve the issuance of 200,000 shares of Convertible Preferred Stock before raising the funds necessary to complete the Vernon Acquisition. Therefore, in the interim, we issued 39,008 shares of Convertible Preferred Stock which by their terms were convertible into 19.7% of the number of shares of Common Stock outstanding and the voting power outstanding, in each case, before the Preferred Stock issuance and 160,992 shares of Hybrid Preferred Stock which are not currently convertible into Common Stock and which do not have voting rights. We also agreed with the purchasers of Preferred Stock to seek shareholder approval of the Full NYSE Proposal at the 2007 Annual Meeting of Shareholders.

How will the Full NYSE Proposal impact the Company's capitalization?

The exact number of shares of Common Stock into which the Convertible Preferred Stock and the Hybrid Preferred Stock may ultimately be converted will vary over time upon the occurrence of any events that result in certain anti-dilutive adjustments to the conversion price and upon the accrual of any dividends that the Company elects not to pay in cash. Moreover, the exact number of shares of Common Stock into which the Convertible Preferred Stock and the Hybrid Preferred Stock will be convertible is also subject to proportional adjustment for stock splits, stock dividends, recapitalizations and the like. If all of the shares of Convertible Preferred Stock and the Hybrid Preferred Stock were to be converted (assuming a conversion price of $19.00 per share, the elimination of fractional shares based on current holders of record of Preferred Stock and approval of the Full NYSE Proposal), then the holders thereof would receive 105,263,082 shares of Common Stock, which would represent 50.2% of the number of shares of Common Stock outstanding and the outstanding voting power as of the Record Date.

Are there any negative consequences to the Company and the holders of Common Stock if the Company's shareholders do not approve the Full NYSE Proposal?

If shareholder approval of the Full NYSE Proposal is not obtained prior to September 26, 2007, the Hybrid Preferred Stock will remain outstanding and the 11.0% per annum dividend rate on the Hybrid Preferred Stock will be increased by 0.50% per annum for the first 90-day period thereafter and by an additional rate of 0.50% per annum for each subsequent 90-day period thereafter, up to a maximum rate of 18.0% per annum until shareholder approval of the Full NYSE Proposal is obtained. In addition, the Hybrid Preferred Stock will continue to have certain unfavorable terms described in "Approval of the Designations, Preferences, Limitations and Relative Rights Set Forth on Annex III of the Statements of Designation of Our Hybrid Preferred Stock, the Issuance of Common Stock upon Conversion of Such Shares of Hybrid Preferred Stock and the Removal of the Restrictions on Conversion Price Adjustments for the Convertible Preferred Stock (Proposal 2)—Principal Terms of the Hybrid Preferred Stock," including restrictive covenants on our right to incur additional indebtedness, the requirement for the Company to repurchase the shares following certain asset dispositions and a mandatory redemption by the Company on April 18, 2011 at 125% of the liquidation preference plus accumulated dividends. In addition, unless the Limited NYSE Proposal is approved, the restrictions on the conversion price adjustments for the Convertible Preferred Stock will remain in effect and will require the Company to issue cash or additional shares of Hybrid Preferred Stock in payment of any Adjustment Amount (defined as the amount by which the conversion price would have been adjusted if the restrictions in Section 10 of the Statements of Designation for the Convertible Preferred Stock were not applicable) resulting from an Adjustment Event. An Adjustment Event is defined as one of the following events: (i) the issuance of stock, convertible securities or options at a price below the then-current conversion price, (ii) the issuance of options to holders of Common Stock at less than the current market price, (iii) a dividend or distribution to holders of Common Stock in excess of $0.06 per share in any quarter or (iv) an equity tender offer or share repurchase by the Company at a price in excess of the current market price.

What percentage of the vote is required to approve the Limited NYSE Proposal?

The approval of the Limited NYSE Proposal will require the affirmative vote of the holders of a majority of the votes cast by holders of shares of Common Stock on the proposal, provided that the total votes cast on the proposal represent over 50% of the voting power of all shares of Common Stock outstanding. Abstentions are counted as "present" for purposes of determining the number of votes cast on this proposal and will have the same effect as a vote against this proposal. Broker non-votes are not counted as "present" for purposes of determining the number of votes cast on this proposal, and therefore will have no effect on the outcome of the vote on this proposal, other than with respect to the requirement that the votes cast represent over 50% of the voting power of all shares of Common Stock. Although holders of Convertible Preferred Stock generally vote on an as-converted basis with holders of Common Stock, holders of Convertible Preferred Stock do not have the right to vote on this proposal. The shares of Hybrid Preferred Stock are non-voting and, therefore, holders of Hybrid Preferred Stock do not have the right to vote on this proposal. Therefore, if the proposal does not receive a majority of the votes cast by holders of shares of Common Stock, it will not be approved.

Why am I being asked to vote on the Limited NYSE Proposal?

adjustment to the conversion price that would otherwise result from an Adjustment Event, the Company will pay an amount per share of Convertible Preferred Stock equal to the Adjustment Amount. The Company may pay the Adjustment Amount at its option in either cash or whole shares of Hybrid Preferred Stock. If the shareholders approve the Full NYSE Proposal or the Limited NYSE Proposal, then an Adjustment Event would adjust the number of shares of Common Stock into which the Convertible Preferred Stock is convertible as well as the voting power of the Convertible Preferred Stock. We also agreed with the purchasers of the Preferred Stock to seek shareholder approval of the Limited NYSE Proposal at the 2007 Annual Meeting of Shareholders.

What if the shareholders approve the Limited NYSE Proposal and not the Full NYSE Proposal?

You are being asked to approve the Limited NYSE Proposal to approve removal of the restrictions on the conversion price adjustments for the Convertible Preferred Stock contained in Section 10 of the Statement of Designation for each series of Convertible Preferred Stock only if you do not otherwise elect to approve the Full NYSE Proposal. If shareholder approval of the Full NYSE Proposal is not obtained prior to September 26, 2007, the Hybrid Preferred Stock will remain outstanding and will continue to have certain unfavorable terms described in "—Are there any negative consequences to the Company and the holders of Common Stock if the Company's shareholders do not approve the Full NYSE Proposal?" and "Approval of the Designations, Preferences, Limitations and Relative Rights Set Forth on Annex III of the Statements of Designation of Our Hybrid Preferred Stock, the Issuance of Common Stock upon Conversion of Such Shares of Hybrid Preferred Stock and the Removal of the Restrictions on Conversion Price Adjustments for the Convertible Preferred Stock (Proposal 2)—Principal Terms of the Hybrid Preferred Stock."

What percentage of the vote is required to approve the Incentive Plan Amendment Proposal?

The approval of the Incentive Plan Amendment Proposal will require the affirmative vote of the holders of a majority of votes cast by holders of Common Stock and Convertible Preferred Stock on the proposal, provided that the total votes cast on the proposal represent over 50% of the voting power of all of the shares of Common Stock and Convertible Preferred Stock outstanding and entitled to vote on the subject matter at the Annual Meeting. Abstentions are counted as "present" for purposes of determining the number of votes cast on this proposal and will have the same effect as a vote against this proposal. Broker non-votes are not counted as "present" for purposes of determining the number of votes cast on this proposal, and therefore will have no effect on the outcome of the vote on this proposal, other than with respect to the requirement that the votes cast represent over 50% of the voting power of all shares of Common Stock.

Why am I being asked to vote on the Incentive Plan Amendment Proposal?

The Company believes that the Incentive Plan is important in attracting and retaining employees in a competitive labor market, which is essential to the Company's long-term growth and success. The Board of Directors approved the increased number of shares authorized for issuance under the Incentive Plan based, in part, on increases and possible increases, through any exercises of Convertible Preferred Stock in the number of fully-diluted shares of Common Stock outstanding and on a belief that the number of shares currently available under the Incentive Plan does not give the Company sufficient authority and flexibility to adequately provide for future incentives. In addition, we have substantially increased our employee headcount since the Incentive Plan was first adopted in September 2005 and have granted a significant number of options to all of our new employees.

How many additional shares are being authorized for issuance under the Incentive Plan?

If the shareholders approve the Incentive Plan Amendment Proposal, the number of shares authorized under the plan will be increased by 10,000,000 shares to a new total of 20,000,000 shares.

What percentage of the vote is required to approve the Charter Amendment Proposal?

The Charter Amendment Proposal requires the affirmative vote of the holders of at least two-thirds of the shares of (i) Common Stock outstanding and entitled to vote thereon, voting as a separate class, and (ii) Common Stock and Convertible Preferred Stock outstanding and entitled to vote thereon, voting together as a single class.

Why am I being asked to vote on the Charter Amendment Proposal?

The proposed increase in the authorized Common Stock has been recommended by the Board of Directors to ensure that an adequate number of shares of Common Stock are available for future use. The Board believes that the proposed increase will make available a sufficient number of authorized shares of Common Stock for future issuances, including financings, corporate mergers and acquisitions, use in employee benefit plans, stock splits, stock dividends or other corporate purposes. The availability of additional shares of Common Stock will provide the Company with greater flexibility in taking any of these actions and would allow it to issue shares of its Common Stock or securities convertible into Common Stock without the delay or expense of obtaining shareholder approval, except to the extent required by state law or the requirements of the NYSE or any other applicable exchange or quotation system for particular transactions.

Does the Board have any present plans, arrangements, commitments or understanding with respect to the issuance of any of the additional shares of Common Stock?

No. We have no present plans, arrangements, commitments or understanding with respect to the issuance of any of the additional shares of Common Stock that would be authorized by adoption of the amendment.

What percentage of the vote is required to approve the Ratification of KPMG?

The affirmative vote of the holders of a majority of the shares of Common Stock and Convertible Preferred Stock present, in person or by proxy, and entitled to vote on the subject matter at the Annual Meeting is required to ratify the appointment of KPMG LLP as the Company's independent registered public accounting firm.

How are votes withheld, abstentions and broker non-votes treated?

Abstentions or votes withheld are included in the determination of the number of shares present for determining a quorum for all proposals. Votes withheld will have no effect with respect to the election of directors except that if a director nominee in an uncontested election receives a greater number of votes "withheld" than votes "for" his election, the nominee shall be required to tender his resignation to the Board of Directors for consideration in accordance with the Company's majority voting policy which is described under "—What percentage of the vote is required to approve the election of each nominee for director?" and "Election of Directors (Proposal 1)." Abstentions will have the same effect as a vote against the Full NYSE Proposal, the Limited NYSE Proposal, the Incentive Plan Amendment Proposal, the Charter Amendment Proposal and the Ratification of KPMG.

Broker non-votes are included in the determination of the number of shares present for determining a quorum, other than for purposes of approving the Full NYSE Proposal, the Limited NYSE Proposal and the Incentive Plan Amendment. Broker non-votes will have no effect on the election of directors and the Ratification of KPMG. Broker non-votes will have no effect on the approval of the Full NYSE Proposal, the Limited NYSE Proposal and the Incentive Plan Amendment Proposal other than with respect to the requirement that the votes cast represent over 50% of the voting power of all shares of Common Stock. Broker non-votes will have the same effect as a vote against the Charter Amendment Proposal.

Do the holders of Common Stock or Preferred Stock have any appraisal rights with respect to any of the matters to be voted on at the Annual Meeting?

No. None of the holders of Common Stock or Preferred Stock have any appraisal rights with respect to the matters to be voted on at the Annual Meeting.

Who are the proxy solicitors, what are the solicitation expenses and who pays the cost of this proxy solicitation?

Our Board of Directors is asking for your proxy and we will pay all of the costs of asking for shareholder proxies. We have hired D.F. King & Co., Inc. ("D.F. King") to help us send out the proxy materials and to ask for proxies. In connection with its retention by us, D.F. King has agreed to provide consulting and analytic services and provide solicitation services with respect to banks, brokers, institutional investors and individual shareholders. D.F. King's fee for these services is $10,000, plus reimbursement of reasonable out-of-pocket expenses, including telephone calls and to indemnify D.F. King against certain liabilities and expenses, including liabilities under the federal securities laws. We can ask for proxies through the mail or personally by telephone or the Internet. We will also reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding solicitation material to the beneficial owners of Common Stock. We may use officers and regular employees of the Company to ask for proxies, as described below.

Is this proxy statement the only way that proxies are being solicited?

No. In addition to the solicitation of proxies by use of the mail, officers and regular employees of the Company may solicit the return of proxies, either by mail, telephone, telecopy, e-mail or through personal contact. These officers and employees will not be additionally compensated but will be reimbursed for out-of-pocket expenses. Brokerage houses and other custodians, nominees and fiduciaries, in connection with shares of the Common Stock registered in their names, will be requested to forward solicitation material to the beneficial owners of shares of Common Stock.

Are there any other matters to be acted upon at the Annual Meeting?

Management does not intend to present any business at the Annual Meeting for a vote other than the matters set forth in the Notice and has no information that others will do so. If other matters requiring a vote of the shareholders properly come before the Annual Meeting, it is the intention of the persons named in the accompanying form of proxy to vote the shares represented by the proxies held by them in accordance with applicable law and their judgment on such matters.

Where can I find voting results?

The Company will publish the voting results in its Quarterly Report on Form 10-Q for the third quarter of 2007, which it will file with the SEC in November 2007.

Who can help answer my questions?

The information provided above in this "Question and Answer" format is for your convenience only and is merely a summary of the information contained in this proxy statement. We urge you to carefully read this entire proxy statement, including the attached appendices and the documents we refer to in this proxy statement. If you have any questions, or need additional material, please feel free to call our proxy solicitor, D.F. King & Co., Inc., toll-free at (888) 567-1626.

ELECTION OF DIRECTORS
(Proposal 1)

Seven directors are to be elected at the Annual Meeting. The current size of the Board of Directors of the Company is nine and it is anticipated to be increased to eleven prior to the Annual Meeting. The Board of Directors has nominated seven directors to be elected by the holders of Common Stock (the "Common Stock Director Nominees"). Vincent J. Cebula and Jeffrey S. Serota were appointed to the Board of Directors on March 30, 2007 as Preferred Stock Director Designees. Rajath Shourie is anticipated to be elected by the holders of the Convertible Preferred Stock pursuant to the Statements of Designation promptly following the Annual Meeting. The remaining Preferred Stock Director Designee is anticipated to be elected at a later date. Set forth below are the seven Common Stock Director Nominees to be elected by the holders of Common Stock, to serve until the Annual Meeting of Shareholders in 2008 or until their respective successors have been duly elected and qualified and three of the Preferred Stock Director Designees that will serve until their respective successors have been duly elected and qualified pursuant to the Statements of Designation. Holders of Common Stock will be unable to vote the proxies held by them for more than seven persons.

To be elected as a director, each Common Stock Director Nominee must receive a plurality of the votes cast by the Common Stock holders entitled to vote for the election of directors. However, pursuant to the Company's Corporate Governance Guidelines, in an uncontested election of directors, any Common Stock Director Nominee who has a greater number of votes "withheld" from his election than votes "for" such election (a "Majority Withheld Vote") is required to promptly tender his resignation following certification of the shareholder vote. The nominating and corporate governance committee will recommend to the Board of Directors whether to accept such resignation; however, if each member of the nominating and corporate governance committee received a Majority Withheld Vote at the same election, then the independent directors who did not receive a Majority Withheld Vote shall appoint a committee amongst themselves and recommend to the Board of Directors whether to accept such resignation. The Board of Directors will act upon such recommendation within 90 days following certification of the shareholder vote and will promptly disclose its decision whether to accept the director's resignation offer (and, if applicable, the reasons for rejecting the resignation offer) in a press release. Should any Common Stock Director Nominee become unable or unwilling to accept nomination or election, the proxy holders may vote the proxies for the election, in his or her stead, of any other person the Board of Directors may nominate or designate. Each Common Stock Director Nominee has expressed his intention to serve the entire term for which election is sought.

Common Stock Directors and Nominees

The following table and text set forth the name, age and positions of each Common Stock Director and Common Stock Director Nominee:

Name	Age	Position
Douglas H. Miller	59	Chairman and Chief Executive Officer
Stephen F. Smith	66	Vice Chairman and President
Jeffrey D. Benjamin(1)(2)(3)	45	Director
Earl E. Ellis(1)(2)(3)	66	Director
Robert H. Niehaus(1)(2)(3)	51	Director
Boone Pickens	79	Director
Robert L. Stillwell(2)(3)	70	Director

(1): Member of the audit committee.
(2): Member of the compensation committee.

(3): Member of the nominating and corporate governance committee.

The Common Stock Director Nominees for election to the Board of Directors at the Annual Meeting are as follows:

Douglas H. Miller became the Chairman of our Board of Directors and our Chief Executive Officer in December 1997. Mr. Miller was Chairman of the Board of Directors and Chief Executive Officer of Coda Energy, Inc., or Coda, an independent oil and natural gas company, from October 1989 until November 1997 and served as a director of Coda from 1987 until November 1997.

Stephen F. Smith joined us in June 2004 as Vice Chairman of our Board of Directors and was appointed President and Secretary in October 2005. He served as our Secretary until April 2006. Prior to joining us, Mr. Smith was co-founder and Executive Vice President of Sandefer Oil and Gas, Inc., an independent oil and gas exploration and production company, from January 1980 to June 2004. Mr. Smith was one of our directors from March 1998 to July 2003. Prior to 1980, Mr. Smith was an Audit Partner with Arthur Andersen LLP.

Jeffrey D. Benjamin became one of our directors in October 2005 and was previously one of our directors from August 1998 through July 2003 and a director of our parent holding company from July 2003 through its merger into us. Mr. Benjamin has been a Senior Advisor to Apollo Management, LP since September 2002. He had previously been a Managing Director of Libra Securities LLC, an investment banking firm, from January 2002 to September 2002 and served as Co-Chief Executive Officer of Libra Securities from January 1999 to December 2001. Mr. Benjamin is also a director of Dade Behring Holdings Inc., NTL Incorporated and Goodman Global, Inc.

Earl E. Ellis became one of our directors in October 2005 and was previously one of our directors from March 1998 through July 2003. Mr. Ellis has served as chairman and chief executive officer of Whole Harvest Products, formerly Carolina Soy Products, a soy based product manufacturing company since September 2003. Mr. Ellis has also been a private investor since 2001. He served as a Director of Coda from 1992 until 1996. Mr. Ellis served as a managing partner of Benjamin Jacobson & Sons, LLC, specialists on the New York Stock Exchange. He had been associated with Benjamin Jacobson & Sons, LLC from 1977 to 2001.

Robert H. Niehaus became one of our directors in November 2004 and was a director of our parent holding company from July 2003 through its merger into us. Mr. Niehaus is the Chairman and Managing Partner of Greenhill Capital Partners, LLC, a private equity investment firm, and a Managing Director of Greenhill & Co., LLC. Prior to joining Greenhill in January 2000 to start its private equity business, Mr. Niehaus was a Managing Director in Morgan Stanley's private equity investment department from 1990 to 1999. Mr. Niehaus is a director of the American Italian Pasta Company, Global Signal Inc., Heartland Payment Systems, Inc. and several private companies.

Boone Pickens became one of our directors in October 2005 and was previously one of our directors from March 1998 through July 2003. Mr. Pickens has served as the Chairman and CEO of BP Capital LP since September 1996 and Mesa Water, Inc. since August 2000 and is a board member of Clean Energy Fuels Corp. BP Capital LP or affiliates is the general partner and an investment advisor of private funds investing in energy commodities (BP Capital Energy Fund) and publicly-traded energy equities (BP Capital Equity Fund and its offshore counterpart). Clean Energy Fuels Corp. is the largest provider of natural gas (CNG and LNG) and related services in North America. He was the founder of Mesa Petroleum Co., an independent oil and natural gas exploration and production company. He served as CEO and Chairman of the Board of Mesa from its inception until his departure in 1996. See "—Transactions with Related Persons—TXOK acquisition" for a description of certain related party transactions involving Mr. Pickens.

Robert L. Stillwell became one of our directors in October 2005. Mr. Stillwell has served as the General Counsel of BP Capital LP, Mesa Water, Inc. and affiliated companies engaged in the

petroleum business since 2001. Mr. Stillwell was a lawyer and Senior Partner at Baker Botts LLP in Houston, Texas from 1969 to 2001. He also served as a director of Mesa Petroleum Co. and Pioneer Natural Resources Company from 1969 to 2001.

Preferred Stock Director Designees

The biographies of the three Preferred Stock Director Designees are set forth below. Vincent J. Cebula and Jeffrey S. Serota were appointed to the Board of Directors on March 30, 2007 as Preferred Stock Director Designees. We anticipate that the holders of Convertible Preferred Stock will elect Rajath Shourie as a Preferred Stock Director Designee by written consent promptly following the Annual Meeting, to serve until his respective successor has been duly elected and qualified pursuant to the Statements of Designation.

The following table and text set forth the name, age and positions of the two Preferred Stock Director Designees who are currently serving on our Board of Directors and the one Preferred Stock Director Designee anticipated to be elected promptly following the Annual Meeting:

Name	Age	Position
Vincent J. Cebula	43	Director
Jeffrey S. Serota	41	Director
Rajath Shourie	33	Director

The remaining Preferred Stock Director Designee is anticipated to be elected at a later date.

Vincent J. Cebula became one of our directors on March 30, 2007. Mr. Cebula previously served as a director of EXCO Resources and EXCO Holdings from July 2003 until October 2005. For the past five years, Mr. Cebula has been a Managing Director of Oaktree Capital Management, L.P. and its predecessor (collectively, "Oaktree"). Mr. Cebula is a director of Cherokee International Corporation, a designer and manufacturer of custom and standard power supplies.

Jeffrey S. Serota became one of our directors on March 30, 2007. Mr. Serota previously served as a director of EXCO Resources and EXCO Holdings from July 2003 until October 2005. For the past five years, Mr. Serota has been a Managing Director of Ares Management, LLC and its related entities.

Rajath Shourie is a Managing Director at Oaktree in the distressed debt group. He joined Oaktree in August 2002 after having spent two years at Goldman, Sachs & Co. in the Principal Investment Area. Prior thereto, he was a management consultant at McKinsey & Company, from 1995 to 1998.

All of the current Common Stock Director Nominees and two of the four Preferred Stock Director Nominees, Messrs. Cebula and Serota, are currently serving on our Board of Directors. There are no family relationships between any of our directors, Common Stock Director Nominees, Preferred Stock Director Nominees or executive officers.

Mr. Cebula was designated by certain funds managed by Oaktree (collectively, the "Oaktree Funds") which beneficially own 8.5% of our Common Stock (including shares issuable upon conversion of our Series B Convertible Preferred Stock), all 11,700 shares of our outstanding Series B Convertible Preferred Stock and 48,300 shares of our Series A-1 Hybrid Preferred Stock. Pursuant to the Statement of Designation of the Series B Convertible Preferred Stock, the holders of a majority of Series B Convertible Preferred Stock have the right to elect one director to serve on our Board of Directors for so long as the Oaktree Funds beneficially own an aggregate of at least 10,000 shares of our Series B Convertible Preferred Stock, Series A-1 Hybrid Preferred Stock and/or Series A-2 Hybrid Preferred Stock. We have also entered into a letter agreement with the Oaktree Funds pursuant to which we agreed to cause an individual designated by the Oaktree Funds to be nominated to serve on our Board of Directors following such time as (i) the Oaktree Funds cease to have the right to elect a director to serve on our Board of Directors pursuant to the Statement of Designation for the Series B Convertible

Preferred Stock and (ii) less than 25% of the shares of Convertible Preferred Stock and Hybrid Preferred Stock originally issued on March 30, 2007 remain outstanding, for so long as the Oaktree Funds own at least 10,000,000 shares of our Common Stock (including, for this purpose, shares of Common Stock into which any Preferred Stock then held by the Oaktree Funds is convertible).

Mr. Serota was designated by Ares Management LLC (together with its affiliates, "Ares") which beneficially owns 7.6% of our Common Stock (including shares issuable upon conversion of our Series C Convertible Preferred Stock), all 2,925 shares of our outstanding Series C Convertible Preferred Stock and 12,075 shares of our Series A-1 Hybrid Preferred Stock. Pursuant to the Statement of Designation of the Series C Convertible Preferred Stock, the holders of a majority of the Series C Convertible Preferred Stock have the right to elect one director to serve on our Board of Directors for so long as Ares beneficially owns an aggregate of at least 10,000 shares of our Series C Convertible Preferred Stock, Series A-1 Hybrid Preferred Stock and/or Series A-2 Hybrid Preferred Stock. We have also entered into a letter agreement with Ares pursuant to which we agreed to cause an individual designated by Ares to be nominated to serve on our Board of Directors following such time as (i) Ares ceases to have the right to elect a director to serve on our Board of Directors pursuant to the Statement of Designation for the Series C Convertible Preferred Stock and (ii) less than 25% of the shares of Convertible Preferred Stock and Hybrid Preferred Stock originally issued on March 30, 2007 remain outstanding, for so long as Ares owns at least 10,000,000 shares of our Common Stock (including, for this purpose, shares of Common Stock into which any Preferred Stock then held by Ares is convertible).

Pursuant to the Statements of Designation of the Series A-1, Series B and Series C Convertible Preferred Stock, for so long as there is outstanding a number of shares of Convertible Preferred Stock and Hybrid Preferred Stock that is equal to 25% or more of such shares originally issued on March 30, 2007, collectively referred to herein as the initial preferred shares, the holders of at least 60% of the then-outstanding shares of the Series A-1, Series B and Series C Convertible Preferred Stock have the right to elect four directors to serve on our Board of Directors; provided that the right to elect those four directors is to be reduced by the number of directors that may then be elected by the Series B and Series C Convertible Preferred Stock. If less than 25% but 10% or more of the initial preferred shares are outstanding, the number of directors that may be elected by the Series A-1, Series B and Series C Convertible Preferred Stock will decrease to two, which number is to be further reduced by the number of directors that may then be elected by the Series B and Series C Convertible Preferred Stock. If less than 10% of the initial preferred shares are outstanding, the holders of Series A-1, Series B and Series C Convertible Preferred Stock will not have the right to elect any preferred directors. Accordingly, the holders of at least 60% of the outstanding shares of the Series A-1, Series B and Series C Convertible Preferred Stock currently have the right to elect two additional Preferred Stock directors and have indicated to us their intention to elect Mr. Shourie to one of such positions promptly following the Annual Meeting. The remaining Preferred Stock Director Designee is anticipated to be elected at a later date.

THE BOARD OF DIRECTORS RECOMMENDS THAT
SHAREHOLDERS VOTE FOR EACH COMMON STOCK DIRECTOR NOMINEE
FOR THE BOARD OF DIRECTORS.

Board Committees and Meetings

Our Board of Directors has an audit committee, a compensation committee, and a nominating and corporate governance committee.

Audit Committee. The audit committee of our Board of Directors recommends the appointment of our independent registered public accountants, reviews our internal accounting procedures and

financial statements and consults with and reviews the services provided by our independent registered public accountants, including the results and scope of their audit. The audit committee is currently comprised of Messrs. Benjamin (chair), Ellis and Niehaus, each of whom are independent, within the meaning of applicable SEC and NYSE rules. Mr. Benjamin has been designated as an audit committee financial expert, as currently defined under the SEC rules implementing the Sarbanes-Oxley Act of 2002. See "—Corporate Governance—Director Independence." We believe that the composition and functioning of our audit committee complies with all applicable requirements of the Sarbanes-Oxley Act of 2002, as well as NYSE and SEC rules and regulations. The audit committee held a total of 11 meetings during the fiscal year ended December 31, 2006.

The audit committee operates under a formal charter adopted by the Board of Directors that governs its duties and conduct. Copies of the charter can be obtained free of charge from the Company's web site at www.excoresources.com.

Compensation Committee. The compensation committee of our Board of Directors reviews and recommends to our Board of Directors the compensation and benefits for all of our executive officers, administers our stock plans, and establishes and reviews general policies relating to compensation and benefits for our employees. The compensation committee is currently comprised of Messrs. Stillwell (chair), Benjamin, Ellis, Niehaus, Serota and Cebula, each of whom are independent within the meaning of applicable NYSE rules. Messrs. Serota and Cebula were appointed to the compensation committee on May 15, 2007. During 2006, each member of the compensation committee, except Mr. Stillwell, was a "non-employee director" as defined in Rule 16b-3 under the Securities Exchange Act of 1934. Mr. Stillwell did not qualify as a non-employee director during the 2006 fiscal year. For the 2007 fiscal year, Messrs. Stillwell, Ellis and Benjamin qualify as non-employee directors, but Messrs. Niehaus, Serota and Cebula do not. Each member of the compensation committee is also an "outside director" as defined for purposes of 162(m) of the Internal Revenue Code of 1986, as amended. See "—Director Independence." We believe that the composition and functioning of our compensation committee complies with all applicable requirements of the Sarbanes-Oxley Act of 2002, as well as NYSE and SEC rules and regulations. The compensation committee held four meetings during the fiscal year ended December 31, 2006.

The compensation committee operates under a formal charter adopted by the Board of Directors that governs its duties and conduct. Copies of the charter can be obtained free of charge from the Company's web site at www.excoresources.com.

Nominating and Corporate Governance Committee. The nominating and corporate governance committee of our Board of Directors is responsible for:

•: reviewing the appropriate size, function and needs of the Board of Directors;
•: developing the Board's policy regarding tenure and retirement of directors;
•: establishing criteria for evaluating and selecting new members of the Board, subject to Board approval thereof;
•: identifying and recommending to the Board for approval individuals qualified to become members of the Board of Directors, consistent with criteria established by the committee and by the Board;
•: overseeing the evaluation of management and the Board; and
•: monitoring and making recommendations to the Board on matters relating to corporate governance.

The nominating and corporate governance committee currently consists of Messrs. Cebula (chair), Benjamin, Ellis, Stillwell, Niehaus and Serota, each of whom is independent within the meaning of applicable NYSE rules. Messrs. Serota and Cebula were appointed to the nominating and corporate governance committee on May 15, 2007. We believe that the composition and functioning of our nominating and governance committee complies with all applicable requirements of the Sarbanes-Oxley Act of 2002, as well as NYSE and SEC rules and regulations. See "—Director Independence." The nominating and corporate governance committee held three meetings during the fiscal year ended December 31, 2006.

The specific responsibilities and functions of the nominating and corporate governance committee are delineated in the nominating and corporate governance committee charter. Copies of the charter can be obtained free of charge from the Company's web site at www.excoresources.com.

The Board of Directors held 11 meetings during the fiscal year ended December 31, 2006. During 2006, each director attended 75% or more of the meetings of the Board of Directors and the meetings held by all committees of the Board on which such director served. We do not have a Board policy on director attendance at the Company's Annual Meeting of Shareholders. The Company did not hold an Annual Meeting of Shareholders in 2006.

Lead Director

The independent members of our Board of Directors have selected Mr. Stillwell to act as a lead director. The lead director chairs the executive sessions of the non-employee and independent directors, consults with the chairman of the Board concerning the agenda for Board meetings and performs such other duties as the independent directors might designate.

Report of the Audit Committee

The following is the report of the audit committee with respect to the Company's audited financial statements for the fiscal year ended December 31, 2006, which includes the consolidated balance sheets of the Company as of December 31, 2005 and December 31, 2006, and the related consolidated statements of income and comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2006, and the notes thereto. The information contained in this report shall not be deemed to be "soliciting material" or to be "filed with the SEC" or subject to the liabilities of Section 18 of the Exchange Act nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates it by reference in such filing.

Review and Discussions with Management.

The audit committee has reviewed and discussed the Company's audited financial statements with management.

Review and Discussions with Independent Registered Public Accounting Firm.

Pursuant to the terms of the audit committee's charter, the audit committee meets as often as it determines, but no less than once per fiscal quarter. The audit committee has discussed with KPMG LLP the matters required to be discussed by Statement on Auditing Standards (No. 61), as amended, "Communication with audit committees" that includes, among other items, matters related to the conduct and the results of the audit of the Company's financial statements.

The audit committee has also received written disclosures and the letter from KPMG LLP required by Independent Standards Board Standard No. 1 (that relates to the independent registered

public accounting firm's independence from the Company and its related entities) and has discussed with KPMG LLP their independence from the Company. The audit committee has also reviewed and discussed the selection, application and disclosure of the critical accounting policies of the Company with KPMG LLP.

Based on the review and discussions referred to above, the audit committee recommended to the Company's Board of Directors that the Company's audited financial statements be included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

		AUDIT COMMITTEE
		Jeffrey D. Benjamin, Chairman Earl E. Ellis Robert H. Niehaus

Director Compensation

The following table provides compensation information for the one year period ended December 31, 2006 for each non-employee member of our Board of Directors:

2006 FISCAL YEAR DIRECTOR COMPENSATION TABLE

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)
Jeffrey D. Benjamin	85,000	—	—	—	—	—	85,000
Earl E. Ellis	45,000	—	—	—	—	—	45,000
Robert H. Niehaus	40,000	—	—	—	—	—	40,000
Boone Pickens	25,000	—	—	—	—	—	25,000
Robert L. Stillwell	40,000	—	—	—	—	—	40,000

Cash Compensation. Our non-employee directors are paid a retainer of $25,000 per year. The chair of each committee is paid an additional $10,000 per year, other than the chair of the audit committee who is paid an additional $50,000 per year. Each other committee member is paid an additional $5,000 per year. We pay no additional remuneration to our employees serving as directors. All directors, including our employee directors, are reimbursed for reasonable out-of-pocket expenses incurred in connection with their attendance at meetings of the Board of Directors and committee meetings. We anticipate that cash compensation to directors in fiscal 2007 will be the same as that described above.

At its November 8, 2006 meeting, the Board of Directors adopted the 2007 Director Plan of EXCO Resources, Inc. (as amended, we refer to this plan as the "Payment Plan"). The Payment Plan permits the non-employee directors who receive fees for their service on the Board of Directors and its committees to make an annual election to receive their fees (i) entirely in cash, (ii) 50% in cash and 50% in our Common Stock, or (iii) entirely in our Common Stock. Due to certain regulatory reasons, Mr. Pickens will be paid in cash. Messrs. Cebula and Serota will receive cash for their service during 2007. All of our other non-employee directors have elected to receive their fees for service during 2007 entirely in our Common Stock. All director fees are paid on a quarterly basis. Payments in the form of our Common Stock are issued as of the payment date, which is the first business day following the end of the fiscal quarter, at the closing price of our Common Stock on the NYSE on that date.

The Payment Plan also permits non-employee directors to defer the payment of his or her director fees (employee directors do not receive fees in their capacity as directors), beginning with director fees earned in 2007. Directors may defer the payment of director fees, whether payable in the form of cash or our Common Stock, to (i) a specified date, (ii) his or her termination of service, (iii) the occurrence of a change of control, or (iv) the earlier of two or more of those events. This deferral is qualified to satisfy the requirements of Section 409A of the Internal Revenue Code of 1986.

The Payment Plan also provides that upon the appointment or election to the Board of Directors of a new director, the new director will receive an automatic one-time grant of an option to purchase 50,000 shares of our Common Stock, in addition to the other fees they will earn as a director. The grant date will be the date of appointment or election and the exercise price will be set at the closing price of our Common Stock on the NYSE on such date. The option will have a term of ten years, with 25% of the shares subject to the option (12,500 shares) vesting immediately and the balance vesting in equal proportions on the next three anniversary dates. No shares will vest, and such shares will be forfeited, in any fiscal year in which the director attends less than 75% of the Board of Directors meetings held for that fiscal year. In the event a director ceases to serve for any reason, the unvested shares subject to the option shall be forfeited. However, this option will be subject to acceleration upon a change of control as defined under the Incentive Plan. All shares issuable under the Payment Plan, including pursuant to any option granted thereunder, shall be deemed issued under the terms of the Incentive Plan.

Corporate Governance

The Company, with the oversight of the Board of Directors and its committees, operates within a comprehensive plan of corporate governance for the purpose of defining independence, assigning responsibilities, setting high standards of professional and personal conduct and assuring compliance with such responsibilities and standards. The Company regularly monitors developments in the area of corporate governance.

Director Independence

The standards relied upon by the Board of Directors in affirmatively determining whether a director is "independent" in compliance with the rules of the NYSE are comprised, in part, of those objective standards set forth in NYSE rules. In addition, no director will qualify as "independent" unless the Board affirmatively determines that the director has no material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with us). The following commercial or charitable relationships, although not exclusive, will not be considered to be material relationships that would impair a director's independence: (a) the director is an executive officer or owns beneficially or of record more than a ten percent equity interest of another company that does business with us or its subsidiaries and the annual sales to, or purchases from, us or our subsidiaries are less than five percent of the annual revenues of the company he or she serves as an executive officer of; (b) the director is an executive officer or owns beneficially or of record more than a ten percent equity interest of another company which is indebted to us or our subsidiaries, or to which we or our subsidiaries are indebted, and the total amount of either company's indebtedness to the other is less than five percent of the total consolidated assets of the company he or she serves as an executive officer of; and (c) the director serves as an officer, director or trustee of a charitable organization, and our discretionary charitable contributions to the organization are less than five percent of that organization's total annual charitable receipts. Any automatic matching by us of employee charitable contributions will not be included in the amount of our contributions for this purpose.

The Board of Directors, in applying the above-referenced standards, has affirmatively determined that our current "independent" directors are: Jeffrey D. Benjamin, Vincent J. Cebula, Earl E. Ellis,

Robert H. Niehaus, Jeffrey S. Serota and Robert L. Stillwell. The Board also believes that Rajath Shourie, once elected, will be an independent director. As part of the Board's process in making such determination, each such director provided written assurances that (a) all of the above-cited objective criteria for independence are satisfied and (b) he has no other "material relationship" with us that could interfere with his ability to exercise independent judgment.

In addition to the transactions, relationships and arrangements described under the heading "—Transactions with Related Persons," in determining that the directors above are "independent," the Board considered the relationships described below.

Robert L. Stillwell's son worked for us as a financial analyst from 2002 to 2005. In 2005, Mr. Stillwell's son received a payment of over $60,000 for stock options he held of EXCO Holdings. This does not disqualify Mr. Stillwell from being deemed independent for NYSE purposes under the objective criteria. However, for 2006, this relationship disqualified him from being a "non-employee" director under Rule 16b-3. He is qualified to be a "non-employee" director in 2007. In addition, Mr. Stillwell is not independent for purposes of serving on our audit committee under Rule 10A-3(a)(3) because he is employed by BP Capital LP, an entity owned by Mr. Boone Pickens. BP Capital LP is likely an affiliate of us by virtue of the two entities being under common control. The Board has determined that none of the above relationships interfere with Mr. Stillwell's ability to exercise independent judgment.

Jeffrey D. Benjamin holds a working interest in certain wells managed by Woolsey Petroleum in which we also hold a working interest. We do not operate these wells, and we and Mr. Benjamin are not parties to a common agreement. Furthermore, Mr. Benjamin's annual distributions from such wells during each of the last three fiscal years is not a material amount. Additionally, Mr. Benjamin is a non-employee, senior advisor to Apollo Management, LP ("Apollo"). An entity affiliated with Apollo, Apollo Investment Corporation, purchased 975 shares of Series A-1 Convertible Preferred Stock and 4,025 shares of Series A-1 Hybrid Preferred Stock shares for $50.0 million in the private placement described under "—Transactions with Related Persons—Private placement of Preferred Stock." These interests do not disqualify Mr. Benjamin from being deemed independent for NYSE purposes under the objective criteria and the Board of Directors has determined that these interests do not interfere with his ability to exercise independent judgment.

Earl E. Ellis serves as an executive officer and is a significant stockholder of a company in which Messrs. Miller and Smith were directors until November 2, 2005. We sought guidance from the NYSE regarding a potential disqualification from independence based upon these relationships. Given that Mr. Ellis received no compensation for his service as an executive officer and that Messrs. Miller and Smith were not on the compensation committee of the private company, we were told that Mr. Ellis could be deemed to be independent for NYSE purposes. Effective November 2, 2005, Messrs. Miller and Smith resigned from the board of the private company to avoid any possible future conflicts. Messrs. Miller and Smith also own equity interests in this same company, but their interests represent less than 5% of the total equity ownership. The Board determined that these relationships do not interfere with Mr. Ellis's ability to exercise his independent judgment.

Independent Director Meetings

The Company's independent directors held one formal meeting independent from management during fiscal 2006. As lead director, Mr. Stillwell acted as Chairman at the meeting of the independent directors.

Director Nomination Policy

The Company has a standing nominating and corporate governance committee consisting entirely of independent directors. Each Common Stock Director Nominee was recommended to the Board by the nominating and corporate governance committee for selection.

Although we have no formal policy regarding shareholder nominees, the nominating and corporate governance committee will consider all proposed nominees for the Board of Directors, including those put forward by shareholders. In making its recommendations to the Board of Directors, the nominating and corporate governance committee considers, at a minimum, a candidate's qualification as "independent" under the various standards applicable to the Board and each of its committees, as well as a candidate's depth of experience and availability, the balance of the business interest and experience of the incumbent or nominated directors, and the need for any required expertise on the Board or one of its committees. With respect to incumbent members of the Board, the Committee shall also consider the performance of the incumbent director. Candidates may come to the attention of the nominating and corporate governance committee from current Board members, stockholders, officers or other sources, and the committee reviews all candidates in the same manner regardless of the source of the recommendation.

Mr. Cebula was designated by the Oaktree Funds, which beneficially own 8.5% of our Common Stock (including shares issuable upon conversion of our Series B Convertible Preferred Stock), all 11,700 shares of our outstanding Series B Convertible Preferred Stock and 48,300 shares of our Series A-1 Hybrid Preferred Stock. Pursuant to the Statement of Designation of the Series B Convertible Preferred Stock, the holders of a majority of Series B Convertible Preferred Stock have the right to elect one director to serve on our Board of Directors for so long as the Oaktree Funds beneficially own an aggregate of at least 10,000 shares of our Series B Convertible Preferred Stock, Series A-1 Hybrid Preferred Stock and/or Series A-2 Hybrid Preferred Stock. We have also entered into a letter agreement with the Oaktree Funds pursuant to which we agreed to cause an individual designated by the Oaktree Funds to be nominated to serve on our Board of Directors following such time as (i) the Oaktree Funds cease to have the right to elect a director to serve on our Board of Directors pursuant to the Statement of Designation for the Series B Convertible Preferred Stock and (ii) less than 25% of the shares of Convertible Preferred Stock and Hybrid Preferred Stock originally issued on March 30, 2007 remain outstanding, for so long as the Oaktree Funds own at least 10,000,000 shares of our Common Stock (including, for this purpose, shares of Common Stock into which any Preferred Stock then held by the Oaktree Funds is convertible).

Mr. Serota was designated by Ares, which beneficially owns 7.6% of our Common Stock (including shares issuable upon conversion of our Series C Convertible Preferred Stock), all 2,925 shares of our outstanding Series C Convertible Preferred Stock and 12,075 shares of our Series A-1 Hybrid Preferred Stock. Pursuant to the Statement of Designation of the Series C Convertible Preferred Stock, the holders of a majority of the Series C Convertible Preferred Stock have the right to elect one director to serve on our Board of Directors for so long as Ares beneficially owns an aggregate of at least 10,000 shares of our Series C Convertible Preferred Stock, Series A-1 Hybrid Preferred Stock and/or Series A-2 Hybrid Preferred Stock. We have also entered into a letter agreement with Ares pursuant to which we agreed to cause an individual designated by Ares to be nominated to serve on our Board of Directors following such time as (i) Ares ceases to have the right to elect a director to serve on our Board of Directors pursuant to the Statement of Designation for the Series C Convertible Preferred Stock and (ii) less than 25% of the shares of Convertible Preferred Stock and Hybrid Preferred Stock originally issued on March 30, 2007 remain outstanding, for so long as Ares owns at least 10,000,000 shares of our Common Stock (including, for this purpose, shares of Common Stock into which any Preferred Stock then held by Ares is convertible).

Pursuant to the Statements of Designation of the Series A-1, Series B and Series C Convertible Preferred Stock, for so long as there is outstanding a number of shares of Convertible Preferred Stock and Hybrid Preferred Stock that is equal to 25% or more of such shares currently outstanding, collectively referred to herein as the initial preferred shares, the holders of at least 60% of the then-outstanding shares of the Series A-1, Series B and Series C Convertible Preferred Stock have the right to elect four directors to serve on our Board of Directors; provided that the right to elect those four directors is to be reduced by the number of directors that may then be elected by the Series B and Series C Convertible Preferred Stock. If less than 25% but 10% or more of the initial preferred shares are outstanding, the number of directors that may be elected by the Series A-1, Series B and Series C Convertible Preferred Stock will decrease to two, which number is to be further reduced by the number of directors that may then be elected by the Series B and Series C Convertible Preferred Stock. If less than 10% of the initial preferred shares are outstanding, the holders of Series A-1 Convertible Preferred Stock, as a group, will not have the right to elect any preferred directors. Accordingly, the holders of at least 60% of the outstanding shares of the Series A-1, Series B and Series C Convertible Preferred Stock currently have the right to elect two additional Preferred Stock directors. These holders have not yet exercised their right to elect the two additional Preferred Stock directors, but Mr. Shourie has been nominated for one of those positions to be elected promptly following the Annual Meeting. The remaining Preferred Stock director is anticipated to be elected at a later date.

Codes of Business Conduct and Ethics

We have adopted Corporate Governance Guidelines, a Code of Business Conduct and Ethics, and a Code of Ethics for the Chief Executive Officer and Senior Financial Officers. Copies of the codes can be obtained free of charge from our web site, www.excoresources.com, or by contacting us at the address appearing on the first page of this proxy statement to the attention of Secretary or by telephone at (214) 368-2084. We intend to post any amendments to, or waivers from, our Code of Ethics that apply to our chief executive officer or senior financial officers on our web site at www.excoresources.com.

Personal Loans to Executive Officers and Directors

The Company complies with and will operate in a manner consistent with enacted legislation prohibiting extensions of credit in the form of a personal loan to or for its directors and executive officers.

Communication with the Board of Directors

Any shareholder who desires to make his or her concerns known to an individual director, a committee of the Board of Directors or the entire Board of Directors may do so by mail to: Board of Directors of EXCO Resources, Inc. at 12377 Merit Dr., Suite 1700, Dallas, Texas 75251. The Company's Secretary shall forward all shareholder communications, other than communications that are not properly directed or are frivolous, to the director, specific committee, non-management director or directors, or the entire Board, as requested in the communications.

Any communications to the Company from one of the Company's officers or directors will not be considered "shareholder communications." Communications to the Company from one of the Company's employees or agents will only be considered "shareholder communications" if they are made solely in such employee's or agent's capacity as a shareholder. Any shareholder proposal submitted pursuant to Rule 14a-8 promulgated under the Securities Exchange Act of 1934 will not be viewed as "shareholder communications."

Executive Officers

The following table sets forth certain information with respect to our executive officers, other than Messrs. Douglas H. Miller and Stephen F. Smith, whose information is set forth above under the caption "—Common Stock Directors and Nominees."

Name	Age	Position
J. Douglas Ramsey, Ph.D.	47	Vice President, Chief Financial Officer and Treasurer
Harold L. Hickey	51	Vice President and Chief Operating Officer
William L. Boeing	52	Vice President, General Counsel and Secretary
Mark E. Wilson	48	Vice President, Chief Accounting Officer and Controller

J. Douglas Ramsey, Ph.D., became our Chief Financial Officer and a Vice President in December 1997. Dr. Ramsey was one of our directors from March 1998 until October 5, 2005. From March 1992 to December 1997, Dr. Ramsey worked for Coda Energy, Inc. as Financial Analyst and Assistant to the President and then as Financial Planning Manager. Dr. Ramsey also taught finance at Southern Methodist University in their undergraduate and professional MBA programs.

Harold L. Hickey became our Vice President and Chief Operating Officer in October 2005. Prior to then and beginning in January 2004, Mr. Hickey served as President of our wholly-owned subsidiary, North Coast Energy, Inc. Mr. Hickey was our Production and Asset Manager from February 2001 to January 2004. From April 2000 until he joined us, Mr. Hickey was Chief Operating Officer of Inca Natural Resources Group, L.P., an independent oil and natural gas exploration company. Prior to that, Mr. Hickey worked at Mobil Oil Corporation from 1979 to March 2000.

William L. Boeing became our Vice President, General Counsel and Secretary in April 2006. From October 1980 to March 2006, Mr. Boeing was initially an associate and later a partner at our outside law firm, Haynes and Boone, LLP, in Dallas, Texas.

Mark E. Wilson became our Controller and one of our Vice Presidents in August 2005. Mr. Wilson then became our Chief Accounting Officer in November 2006. He began his career in 1980 with Diamond Shamrock Corporation. Since that time, he has served in Controller roles with Maxus Energy Corporation, Snyder Oil Corporation and Repsol-YPF International. From 1993 to 1997, Mr. Wilson held managerial positions with Coopers & Lybrands' Utility Industry Consulting practice. From September 2000 until August 2005, Mr. Wilson served as Vice President and Controller and Chief Financial Officer of Epoch Holding Corporation, a publicly traded investment management and advisory firm and registered investment adviser.

Other Officers of Our Company

Michael R. Chambers Sr., age 51, became our Vice President of Operations in February 2007. Prior to joining EXCO Resources, Mr. Chambers was the Operations General Manager for Anadarko's Eastern Region Operations from August 2006 to February 2007 and Rockies Production Manager from August 2000 to August 2006. Mr. Chambers joined Anadarko in January 2000. Mr. Chambers worked at Mobil Oil Corporation from 1979 to January 2000.

Charles R. Evans, age 53, joined us in February 1998, became one of our Vice Presidents in March 1998 and was our Chief Operating Officer from December 2000 until October 2005. He currently serves as one of our Vice Presidents and as General Manager of our Midcontinent Division. After working for Sun Oil Co., he joined TXO Production Corp. in 1979 and was appointed Vice President of Engineering and Evaluation in 1989. In 1990, he was named Vice President of Engineering and Project Development for Delhi Gas Pipeline Corporation, a natural gas gathering, processing and marketing company. Mr. Evans served as Director-Environmental Affairs and Safety for Delhi until December 1997.

Richard L. Hodges, age 55, became one of our Vice Presidents in October 2000. He began his career with Texaco, Inc. and has served in various land management capacities with several independent oil and gas companies during the past 27 years. He served as Vice President of Land for Central Resources, Inc. until we acquired the Central properties in September 2000.

John D. Jacobi, age 53, became one of our Vice Presidents in February 1999. In 1991, he co-founded Jacobi-Johnson Energy, Inc., an independent oil and natural gas producer, and served as its President until January 1997. He served as the Vice President and Treasurer of Jacobi-Johnson from January 1997 until May 8, 1998, when the company was sold to us.

Daniel A. Johnson, age 55, became one of our Vice Presidents in February 1999. In 1991, he co-founded Jacobi-Johnson Energy, Inc., an independent oil and natural gas producer. He served as its President from January 1997 until the company was sold to us on May 8, 1998.

Stephen E. Puckett, age 49, became our Vice President of Reservoir Engineering in December 2006. Mr. Puckett was our Manager of Engineering and Operations from April 2000 until December 2006. From January 1998 until April 2000 he served as a petroleum engineering consultant for Petra Resources, Inc. From March 1993 until January 1998 he worked for Enserch Exploration, Inc. as a reservoir engineer. From May 1981 until January 1993 he was employed by Oryx Energy Company as an operations engineer and reservoir engineer. He is a registered professional engineer in Texas and a member of the Society of Petroleum Engineers.

Paul B. Rudnicki, age 29, became our Vice President of Financial Planning and Analysis in August 2006. From July 2003 until August 2006, Mr. Rudnicki served as Financial Planning Manager. Mr. Rudnicki was a Financial Analyst and Assistant to the CFO from June 2000 to July 2003.

Compensation Discussion and Analysis

Overview of Compensation Program

The compensation committee of our Board of Directors has responsibility for establishing, implementing and continually monitoring adherence with our compensation philosophy. The compensation committee reviews and recommends to our Board of Directors the compensation and benefits for our executive officers, administers our stock plans and assists with the establishment of general policies relating to compensation and benefits for all of our employees. The compensation committee ensures that the total compensation paid to our officers is fair, reasonable and competitive. Generally, the types of compensation and benefits provided to our executive officers are similar to those provided to our other officers and employees. We do not have compensation plans that are solely for executive officers.

Throughout this proxy statement, the individuals who served as our chief executive officer and chief financial officer during fiscal 2006, as well as the other individuals included in the Summary Compensation Table, are referred to as "Named Executive Officers."

Compensation Philosophy and Objectives

We believe that the most effective compensation program is one that is designed to reward all employees, not just executives, for the achievement of our short-term and long-term strategic goals. As a result, our compensation philosophy is to provide all employees with both cash and stock-based incentives that foster the continued growth and overall success of our Company and encourage employees to maximize shareholder value. Under this philosophy, all of our employees, from the most senior executives of our organization to entry level, have aligned interests.

When establishing total compensation for Named Executive Officers, our compensation committee has the following objectives:

•: to attract, retain and motivate highly qualified and experienced individuals;
•: to ensure that a significant portion of their total compensation is "at risk" in the form of equity compensation; and
•: to offer competitive compensation packages that are consistent with our core values.

Role of Executive Officers in Compensation Decisions

Prior to our initial public offering, or IPO, in February of 2006, our Board of Directors, with input from our chief executive officer, president and chief financial officer, approved the compensation packages for our executive officers. After the IPO, our Board of Directors delegated authority to the compensation committee to make all compensation decisions for our executive officers and approve all grants of equity awards to our executive officers.

The compensation committee annually reviews the performance of our chief executive officer and our president. Our chief executive officer and our president annually review the performance of each other executive officer. The conclusions reached and recommendations based on these reviews, including with respect to salary adjustments and annual bonus award amounts, are presented to the compensation committee. The compensation committee can exercise its discretion in modifying any recommended adjustments or awards to our executives.

Setting Executive Compensation

Based on the foregoing objectives, the compensation committee structured our annual and long-term incentive-based cash and non-cash executive compensation to motivate executives to achieve our business goals and reward the executives for achieving those goals. In September 2006, we engaged an outside consulting firm to conduct an annual review of our total compensation program for our Named Executive Officers as well as for other key executives. This consulting firm provided the compensation committee with relevant market data and alternatives to consider when making compensation decisions for our executive officers.

In making compensation decisions, the compensation committee compares each element of total compensation against a peer group of publicly-traded oil and natural gas companies with similar operations and revenue. The peer group consists of companies against which the compensation committee believes we compete for talent and for shareholder investment.

We compete with many larger companies for top executive-level talent. As a result, the compensation committee generally sets cash compensation for executive officers at or near the median percentile of compensation paid to similarly situated executives of the companies comprising the peer group. Variations to this objective may occur as dictated by the experience level of the individual and market factors. These objectives recognize the compensation committee's expectation that, over the long term, we will continue to generate shareholder returns in excess of the average of our peer group.

A significant percentage of total compensation is allocated to equity incentives as a result of the philosophy mentioned above. There is no pre-established policy or target for the allocation between either cash and non-cash or short-term and long-term incentive compensation for our executive officers. Rather, the compensation committee relies on each committee member's knowledge and experience as well as information provided by management and an outside consulting firm to determine the appropriate level and mix of compensation. Income from equity incentive compensation is realized only as a result of the successful performance of our company over time.

Executive Compensation Components

For the fiscal year ended December 31, 2006, the principal components of compensation for Named Executive Officers were:

•: base salary;
•: cash bonus;
•: long-term incentive compensation;
•: retirement and other benefits; and
•: perquisites and other personal benefits.

Base Salary

We provide Named Executive Officers with a base salary to compensate them for services rendered during the fiscal year. Base salary ranges for Named Executive Officers are determined for each executive based on position and responsibility by using market and other data. Base salary ranges are designed so that salary opportunities for a given position will be at or above the 50% percentile of the base salary of our peer group.

During its review of base salaries for executives, the compensation committee primarily considers:

•: market data provided by our outside consultants;
•: internal review of the executive's compensation, both individually and relative to other officers; and
•: individual performance of the executive.

Executive salary levels are typically considered annually. Merit based increases to salaries of executive officers are based on the compensation committee's assessment of each individual's performance.

In accordance with the philosophy, objectives and procedures set forth in this Compensation Discussion and Analysis, our compensation committee reviewed the annual base salaries for our Named Executive Officers and established the following 2007 base salaries effective April 1, 2007 for our Named Executive Officers:

•: Douglas H. Miller—$800,000
•: Stephen F. Smith—$600,000
•: William L. Boeing—$400,000
•: J. Douglas Ramsey, Ph.D.—$350,000
•: Harold L. Hickey—$350,000

Cash Bonus

Although we do not have a formal cash bonus plan, we have historically paid year-end cash bonuses in the range of 10% to 20% of each employee's annual base salary. Consistent with our compensation philosophy, all employees, from the most senior executives of our organization to entry level, have historically received the same percentage level bonuses, pro-rated for any partial period of service, as those received by our Named Executive Officers. Exceptions are made from time to time, including in 2006, to provide additional cash bonuses to certain employees who are not Named Executive Officers and who make extraordinary contributions to our success. In 2006, we paid cash

bonuses to each employee and each Named Executive Officer in an amount equal to 20% of their respective annual base salary, subject to some merit based exceptions for certain employees that are not Named Executive Officers. The payment of any cash bonus to Named Executive Officers must be approved by our compensation committee, whose determination is based on the overall success of our company. Each of the Named Executive Officers received the following cash bonus payments in December 2006 for fiscal 2006 performance.

Name	2006 Cash Bonus
Douglas H. Miller	$	120,000
Stephen F. Smith	$	80,000
J. Douglas Ramsey, Ph.D.	$	60,000
Harold L. Hickey	$	60,000
William L. Boeing	$	52,500

Long-Term Incentive Compensation

2005 Long-Term Incentive Plan. In many cases, incentives granted under the EXCO Resources, Inc. 2005 Long-Term Incentive Plan comprise the largest portion of our Named Executive Officers' total compensation package. This incentive plan was originally adopted by the Holdings II Board of Directors and approved by Holdings II stockholders in September 2005 and ultimately assumed by us in connection with our IPO. A total of 10,000,000 shares of our Common Stock have been authorized for issuance under the incentive plan. The stated purpose of this plan is to provide financial incentives to selected employees and to promote our long-term growth and financial success by:

•: attracting and retaining employees of outstanding ability;
•: strengthening our capability to develop, maintain and direct a competent management team;
•: providing an effective means for selected employees to acquire an ownership interest in us;
•: motivating key employees to achieve long-range performance goals and objectives; and
•: providing incentive compensation competitive with other similar companies.

Our compensation committee administers the incentive plan and the awards granted under the incentive plan. Awards under the incentive plan can consist of incentive stock options, non-qualified stock options, restricted stock, stock appreciation rights and other awards. However, in accordance with our compensation philosophy, we have historically only used stock options as incentives for our employees. An important objective of our long-term incentive compensation is to strengthen the relationship between the long-term value of our stock price and the potential financial gain for employees. Stock options provide all employees with the opportunity to purchase our Common Stock at a price fixed on the grant date regardless of the future market price.

Pursuant to the terms of the stock option agreements that we entered into with our option holders, the stock options granted:

•: are vested as to 25% of the shares subject to the option on the date of grant and will vest an additional 25% on each of the next three anniversaries of the date of grant;
•: expire on the tenth anniversary of the date of grant, or sooner under some circumstances; and
•: become fully vested and exercisable, subject to their early termination as provided in the option agreements, immediately prior to a change of control of us.

A stock option becomes valuable only if our Common Stock price increases above the option exercise price and the holder of the option remains employed during the period required for the option

to "vest," thus providing an incentive for an option holder to remain our employee. In addition, stock options link a portion of an employee's compensation to shareholders' interests by providing an incentive to increase the market price of our stock.

Currently, all new employees are awarded stock options on the first business day of the month following an employee's hire date and after that only when stock option bonuses are paid, if approved by our compensation committee. Historically, we have awarded stock option bonuses to our employees in December. Consistent with our compensation philosophy, these stock option bonuses are granted at the same ratable percentage for all employees, including Named Executive Officers, based on each employee's annual base salary. In December 2006, we granted stock option bonuses to our employees, including Named Executive Officers, such that each employee received an option for that number of shares equal to 10% of such employee's annual base salary earned during the year, pro rata for any partial year of service. Options are awarded at the NYSE's closing price of our Common Stock on the date of the grant. The compensation committee has never granted options with an exercise price that is less than the closing price of our Common Stock on the grant date, nor has it granted options which are priced on a date other than the grant date.

The exercise prices of the stock options granted to our Named Executive Officers during fiscal year 2006 are shown in the "2006 Fiscal Year Grants of Plan-Based Awards" table contained in "—Compensation of Executive Officers." Additional information on these grants, including the number of shares subject to each grant, also is shown in the "2006 Fiscal Year Grants of Plan-Based Awards" table. Previous awards and grants, whether vested or unvested, have no impact on the current year's awards and grants unless otherwise determined by our compensation committee.

Founders Shares. On October 3, 2005, prior to our IPO, Holdings II acquired all the capital stock of EXCO Holdings and subsequently merged into EXCO Holdings pursuant to the terms of an equity buyout, or Equity Buyout. Upon its formation in September 2005, Holdings II issued 3,333,330 shares of Common Stock to its founders, which only included members of our management and certain other employees at the time of issuance, for $0.01 per share. This group of founders included all but one of our Named Executive Officers, including Mr. Douglas H. Miller, who purchased 1,655,000 shares, Mr. Stephen F. Smith, who purchased 333,330 shares, Dr. J. Douglas Ramsey, who purchased 166,670 shares (these shares were issued to a limited partnership in which Dr. Ramsey owns a 97.2% limited partnership interest), and Mr. Harold L. Hickey, who purchased 166,670 shares. Each of these Named Executive Officers and many of our employees also exchanged shares of EXCO Holdings common stock for Holdings II common stock or purchased additional shares of Holdings II common stock for cash in the Equity Buyout. This issuance of shares to the founders of Holdings II was part of our compensation philosophy to encourage our key employees to maximize shareholder value by ensuring that a significant portion of their total compensation was "at risk" in the form of equity compensation.

Retirement and Other Benefit Plans

401(k) Plans. All of our employees are eligible to participate in a 401(k) plan, either the EXCO Resources, Inc. Employees Savings Trust or the North Coast Energy, Inc. Employees' Profit Sharing Trust and Plan. We match up to 100% of employee contributions to the 401(k) plans based on years of service with us. In addition, our employees may select our Common Stock as an investment option under the 401(k) plans, up to a maximum of 50% of their contribution.

Severance Plan. The Second Amended and Restated Severance Plan, or the Severance Plan, is applicable to all of our employees in the event of a change of control. The Severance Plan provides for the payment of severance equal to one year of an employee's base salary in the event the employee's employment is terminated or there is an adverse change in the employee's job or compensation within six months following a change of control, as defined in the Severance Plan.

Other Benefits Plans. We offer a variety of health and benefit programs to all employees, including medical, dental, vision, life insurance and disability insurance. Our Named Executive Officers are generally eligible to participate in these employee benefit plans on the same basis as the rest of our employees.

Perquisites and Other Personal Benefits

We provide two of our Named Executive Officers with perquisites and other personal benefits that the compensation committee believes are reasonable and consistent with our overall compensation program. Mr. Douglas H. Miller's administrative assistant spends approximately 5% of her time on Mr. Miller's personal matters. Mr. Stephen F. Smith is a resident of Houston, Texas. We provide a corporate apartment for Mr. Smith in Dallas, Texas and we reimburse all of his business commuting expenses for travel between Houston and Dallas. Beginning April 1, 2007, Mr. Smith has been personally paying for the apartment in Dallas and his business commuting expenses. On limited occasions, executives authorized to use a chartered aircraft for business travel are allowed to bring family members or guests along on the trip. Since we reimburse for use of the aircraft only for business travel and we pay for the aircraft based on the flight hours regardless of the passenger load, there is no incremental direct operating cost to us for the additional passengers. The compensation committee periodically reviews the levels of perquisites and other personal benefits provided to Named Executive Officers.

Attributed costs of the personal benefits described above for the Named Executive Officers for the fiscal year ended December 31, 2006, are included in the Summary Compensation Table under the heading "All Other Compensation."

Tax and Accounting Implications

Deductibility of Executive Compensation

As part of its role, the compensation committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Internal Revenue Code, which provides that we may not deduct compensation of more than $1,000,000 that is paid to certain individuals. We believe that compensation paid under our incentive plans is generally fully deductible for federal income tax purposes. However, in the future, the compensation committee may approve compensation that will not meet these requirements in order to ensure competitive levels of total compensation for our executive officers.

Nonqualified Deferred Compensation

On October 22, 2004, the American Jobs Creation Act of 2004 was signed into law, changing the tax rules applicable to nonqualified deferred compensation arrangements. While the final regulations have not yet become effective, we believe we are operating in good faith compliance with the statutory provisions which were effective January 1, 2005.

Accounting for Stock-Based Compensation

Holdings II adopted the provisions of Statement of Financial Accounting Standards No. 123(R)—"Share Based Payments" ("SFAS No. 123(R)") upon its formation in August 2005. Upon closing of the merger of Holdings II with and into EXCO Holdings, we adopted SFAS No. 123(R).

Compensation of Executive Officers

The total compensation paid for the 2006 fiscal year to the Chief Executive Officer, Mr. Douglas H. Miller, Chief Financial Officer, Mr. J. Douglas Ramsey, Ph.D., and the other three

most highly paid executive officers who received cash compensation in excess of $100,000 for the fiscal year ended December 31, 2006 is set forth below in the following Summary Compensation Table:

2006 FISCAL YEAR SUMMARY COMPENSATION TABLE

Name and Principal Position	Year	Salary ($)	Bonus ($)	Stock Awards ($)	Option Awards ($)(1)		Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)(2)(3)		Total ($)
Douglas H. Miller Chairman and Chief Executive Officer	2006	600,000	120,000	—	1,055,116		—	—	20,000		1,795,116
Stephen F. Smith Vice Chairman and President	2006	400,000	80,000	—	274,043		—	—	43,191	(4)	797,234
J. Douglas Ramsey, Ph.D. Vice President, Chief Financial Officer and Treasurer	2006	300,000	60,000	—	136,783		—	—	15,000		511,783
Harold L. Hickey Vice President and Chief Operating Officer	2006	300,000	60,000	—	136,783		—	—	16,000		512,783
William L. Boeing(5) Vice President, General Counsel and Secretary	2006	262,500	52,500	—	910,827	(6)	—	—	—		1,225,827

(1): Reflects the dollar amount expensed for financial statement reporting for the year ended December 31, 2006 in accordance with SFAS No. 123(R), with the exception that the amount shown on the Summary Compensation Table assumes no forfeitures. Share-based compensation expense consists of stock options granted in and prior to 2006. Assumptions used in the calculation of these amounts are included in "Note 2. Summary of significant accounting policies—stock options" and "Note 14. Stock transactions" to our audited financial statements for the fiscal year ended December 31, 2006 included in our Annual Report on Form 10-K filed with the SEC on March 19, 2007.
(2): The amounts shown in this column reflect, for each Named Executive Officer, matching contributions allocated by us to each of the Named Executive Officers pursuant to the EXCO Resources, Inc. Employees Savings Trust as follows: Mr. Miller—$20,000; Mr. Smith—$4,000; Mr. Ramsey—$15,000; and Mr. Hickey—$16,000. Mr. Boeing was not eligible for a matching contribution in 2006. He will be eligible for an initial matching contribution in 2007. We maintain suites at the American Airlines Center in Dallas, Texas and at the Rangers Ballpark in Arlington, Texas for sporting events and other entertainment purposes. We have not included any amounts related to the suites as a perquisite because tickets to the suites are available to all of our employees on a non-discriminatory basis, with business entertainment purposes having priority as to use. We also did not include any amounts related to the use by Mr. Miller of his administrative assistant for personal matters because the incremental cost to us of the estimated 5% of Mr. Miller's administrative assistant's time spent on his personal matters, together with the value of any other perquisites received by Mr. Miller, is less than $10,000.
(3): Mr. Miller owns an aircraft through DHM Aviation, LLC. During 2006, we reimbursed DHM Aviation for our corporate use of the aircraft. We have not included any amounts related to the aircraft as a perquisite because all travel that is reimbursed by us is restricted to travel that is integrally and directly related to performing the executive's job and the amounts paid to DHM Aviation are below the market rate for the charter of similar aircraft. On limited occasions, employees authorized to use the aircraft for business travel are allowed to bring family members or guests along on the trip provided they have the prior approval of our president and our chief financial officer. Since we reimburse for use of the aircraft only for business travel and we pay for the aircraft based on the flight hours regardless of the passenger load, there is no incremental direct operating cost to us for the additional passengers. See "—Transactions with Related Persons—Corporate use of personal aircraft" for additional information on amounts paid to DHM Aviation.
(4): Mr. Smith is a resident of Houston, Texas. We provide a corporate apartment for Mr. Smith in Dallas, Texas and we reimburse all of his business commuting expenses for travel between Houston and Dallas. During 2006, we paid an aggregate of $32,121 to Mr. Smith for the corporate apartment and $7,070 for commuting expenses. Beginning April 1, 2007, Mr. Smith has been personally paying for the apartment in Dallas and his business commuting expenses.
(5): Mr. Boeing joined us as Vice President, General Counsel and Secretary in April 2006. Mr. Boeing's yearly salary is $350,000. The salary and cash bonus amounts for 2006 reflect his partial year of service. Prior to joining us, Mr. Boeing was a partner at Haynes and Boone, LLP. See "—Transactions with Related Persons—Haynes and Boone, LLP" for information regarding our relationship with Haynes and Boone.

(6): Includes $875,343 for 500,000 option shares granted to Mr. Boeing when he joined us as Vice President, General Counsel and Secretary in April 2006 and $35,484 for 26,200 option shares granted in conjunction with our year-end 10% option bonus grant made to all company employees, which represent the amounts recognized for each of these awards for financial statement reporting purposes with respect to the fiscal year in accordance with SFAS No. 123(R).

See "—Compensation Discussion and Analysis—Executive Compensation Components—Base Salary" for a discussion of the 2007 base salaries of our Named Executive Officers.

Equity Incentive Awards

The following table sets forth information regarding the plan-based awards under the EXCO Resources, Inc. 2005 Long-Term Incentive Plan granted to each Named Executive Officer during the fiscal year ended December 31, 2006:

2006 FISCAL YEAR GRANTS OF PLAN-BASED AWARDS

		Estimated Future Payouts Under Non-Equity Incentive Plan Awards			Estimated Future Payouts Under Equity Incentive Plan Awards			All Other Stock Awards: Number of Shares of Stock	All Other Option Awards: Number of Securities Underlying		Exercise or Base Price of Option Awards		Grant Date Fair Value of Stock and Option
Name	Grant Date	Threshold ($)	Target ($)	Maximum ($)	Threshold (#)	Target (#)	Maximum (#)	or Units (#)	Options (#)		($ / Share)		Awards ($)
Douglas H. Miller Chairman and Chief Executive Officer	12/1/2006	—	—	—	—	—	—	—	60,000	(1)	$	14.62	$	300,600
Stephen F. Smith Vice Chairman and President	12/1/2006	—	—	—	—	—	—	—	40,000	(1)	$	14.62	$	200,400
J. Douglas Ramsey, Ph.D. Vice President, Chief Financial Officer and Treasurer	12/1/2006	—	—	—	—	—	—	—	30,000	(1)	$	14.62	$	150,300
Harold L. Hickey Vice President and Chief Operating Officer	12/1/2006	—	—	—	—	—	—	—	30,000	(1)	$	14.62	$	150,300
William L. Boeing Vice President, General Counsel and Secretary	4/5/2006 12/1/2006	— —	— —	— —	— —	— —	— —	— —	500,000 26,200	(2) (1)	$ $	12.36 14.62	$ $	2,015,000 131,262

(1): This grant was made in conjunction with our year-end 10% option bonus grant made to all company employees. See "—Compensation Discussion and Analysis—2006 Executive Compensation Components—Long-Term Incentive Compensation—2005 Long-Term Incentive Plan" for a discussion of this option bonus grant.
(2): The 500,000 option shares were granted to Mr. Boeing when he joined us as Vice President, General Counsel and Secretary in April 2006.
(3): The amounts included in the "Grant Date Fair Value of Stock and Option Awards" column represent the grant date fair value of the awards computed in accordance with SFAS No. 123(R). Assumptions used in the calculation of these amounts are included in "Note 2. Summary of significant accounting policies—stock options" and "Note 14. Stock transactions" to our audited financial statements for the fiscal year ended December 31, 2006 included in our Annual Report on Form 10-K filed with the SEC on March 19, 2007.

The following table sets forth information regarding the outstanding equity awards held by our Named Executive Officers as of December 31, 2006:

2006 FISCAL YEAR OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

	Option Awards						Stock Awards
			Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options							Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
	Number of Securities Underlying Unexercised Options (#)	Number of Securities Underlying Unexercised Options (#)						Market Value of Shares or Units of Stock That Have Not Vested	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
							Number of Shares or Units of Stock That Have Not Vested
				Option Exercise Price
						Option Expiration
Name						Option Expiration
Name	Exercisable	Unexercisable	(#)	($)		Date	(#)	($)	(#)	($)
Douglas H. Miller Chairman and Chief Executive Officer	852,500 15,000	852,500 45,000	— —	$ $	7.50 14.62	10/5/2015 12/1/2016	— —	— —	— —	— —
Stephen F. Smith Vice Chairman and President	191,650 10,000	191,650 30,000	— —	$ $	7.50 14.62	10/5/2015 12/1/2016	— —	— —	— —	— —
J. Douglas Ramsey, Ph.D. Vice President, Chief Financial Officer and Treasurer	83,350 7,500	83,350 22,500	— —	$ $	7.50 14.62	10/5/2015 12/1/2016	— —	— —	— —	— —
Harold L. Hickey Vice President and Chief Operating Officer	83,350 7,500	83,350 22,500	— —	$ $	7.50 14.62	10/5/2015 12/1/2016	— —	— —	— —	— —
William L. Boeing Vice President, General Counsel and Secretary	125,000 6,550	375,000 19,650	— —	$ $	12.36 14.62	4/5/2016 12/1/2016	— —	— —	— —	— —

None of our Named Executive Officers exercised any stock options during 2006. As a result, we have not included a table showing 2006 option exercises.

Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans

We do not provide any nonqualified defined contribution or other deferred compensation plans for our Named Executive Officers.

Potential Payments Upon Termination or Change-in-Control

On November 8, 2006, the Board of Directors approved the Second Amended and Restated EXCO Resources, Inc. Severance Plan, which we refer to as the "Severance Plan." The Severance Plan provides for the payment of severance in the event the employee's employment is terminated or there is an adverse change in the employee's job or compensation, as more specifically described in the Severance Plan, within six months following a change of control of EXCO. The plan is administered by our compensation committee, which has the sole discretion to determine whether an employee's termination of employment is eligible for payment of severance. All of our regular, full-time employees are eligible to participate in and receive benefits under the Severance Plan.

A change of control is defined as the occurrence of any of the following: (i) we are merged or consolidated into or with another entity, and as a result less than a majority of the combined voting power of the surviving entity is held by the holders of our voting stock prior to the merger; (ii) we sell or otherwise transfer all or substantially all of our assets to any person or entity if less than a majority of the combined voting power of such person or entity immediately after such sale or transfer is held by the holders of our voting stock prior to such sale or transfer; (iii) any person is or becomes the beneficial owner, directly or indirectly, of more than 50% of our total voting power; (iv) individuals who on the effective date of the Severance Plan constituted our Board of Directors and their successors that are appointed by the Board of Directors, cease for any reason to constitute a majority of the Board of Directors; or (v) the adoption of a plan relating to the liquidation or dissolution of us. The definition of "change of control" specifically excludes an event in which any subsidiary of EXCO is spun off by means of a rights offering to EXCO's shareholders or an underwritten public offering, or

any combination thereof, even where less than a majority of the voting equity ownership is retained by EXCO.

Severance payment will be made only if the employee fully executes a release form with the plan administrator, to release and forever discharge us from any and all liability which the employee may have against us as a result of employment with or subsequent termination from us. Severance payment is equal to one year of an employee's base salary, offset by any other severance pay or other income replacement, to be paid in cash in a lump sum within fourteen days following receipt by us of an executed release form.

Mr. Boeing's offer letter related to his employment with us included a reference to a severance arrangement for him with the details to be mutually agreed upon at a later time. Mr. Boeing subsequently relinquished any rights to severance under such letter, other than in accordance with the terms of the Severance Plan. Mr. Boeing is still eligible to participate in the Severance Plan.

The following tables show, as of December 31, 2006, potential payments to our Named Executive Officers for various scenarios involving a change of control, death or disability, using, where applicable, the closing price of our Common Stock of $16.91 (as reported on the NYSE as of December 29, 2006). The footnotes listed below the tables apply to all of the tables in this section.

Douglas H. Miller
Chairman and Chief Executive Officer

Executive Benefits and Payments Upon Termination	Termination for Cause or Misconduct Within Six Months After a Change of Control ($)	Termination Not for Cause or Misconduct Within Six Months After a Change of Control ($)(1)	Change of Control (No Termination) ($)	Death ($)	Disability ($)
Compensation
Severance(2)	—	600,000	—	—	—
Long-term Equity Incentives—Stock Options(3)	8,125,075	8,125,075	8,125,075	8,125,075	8,125,075

Total	8,125,075	8,725,075	8,125,075	8,125,075	8,125,075

Stephen F. Smith
Vice Chairman and President

Executive Benefits and Payments Upon Termination	Termination for Cause or Misconduct Within Six Months After a Change of Control ($)	Termination Not for Cause or Misconduct Within Six Months After a Change of Control ($)(1)	Change of Control (No Termination) ($)	Death ($)	Disability ($)
Compensation
Severance(2)	—	400,000	—	—	—
Long-term Equity Incentives—Stock Options(3)	1,872,127	1,872,127	1,872,127	1,872,127	1,872,127

Total	1,872,127	2,272,127	1,872,127	1,872,127	1,872,127

J. Douglas Ramsey, Ph.D.
Vice President, Chief Financial Officer and Treasurer

Executive Benefits and Payments Upon Termination	Termination for Cause or Misconduct Within Six Months After a Change of Control ($)	Termination Not for Cause or Misconduct Within Six Months After a Change of Control ($)(1)	Change of Control (No Termination) ($)	Death ($)	Disability ($)
Compensation
Severance(2)	—	300,000	—	—	—
Long-term Equity Incentives—Stock Options(3)	835,849	835,849	835,849	835,849	835,849

Total	835,849	1,135,849	835,849	835,849	835,849

Harold L. Hickey
Vice President and Chief Operating Officer

Executive Benefits and Payments Upon Termination	Termination for Cause or Misconduct Within Six Months After a Change of Control ($)	Termination Not for Cause or Misconduct Within Six Months After a Change of Control ($)(1)	Change of Control (No Termination) ($)	Death ($)	Disability ($)
Compensation
Severance(2)	—	300,000	—	—	—
Long-term Equity Incentives—Stock Options(3)	835,849	835,849	835,849	835,849	835,849

Total	835,849	1,135,849	835,849	835,849	835,849

William L. Boeing
Vice President, General Counsel and Secretary

Executive Benefits and Payments Upon Termination	Termination for Cause or Misconduct Within Six Months After a Change of Control ($)	Termination Not for Cause or Misconduct Within Six Months After a Change of Control ($)(1)	Change of Control (No Termination) ($)	Death ($)	Disability ($)
Compensation
Severance(2)	—	350,000	—	—	—
Long-term Equity Incentives—Stock Options(3)	1,751,249	1,751,249	1,751,249	1,751,249	1,751,249

Total	1,751,249	2,101,249	1,751,249	1,751,249	1,751,249

(1): The officer shall not be eligible to receive a severance payment if either (i) he receives a comparable offer of employment from any other operation of EXCO or any of its affiliate organizations, regardless of whether he accepts such offer or (ii) he receives and accepts a transfer of employment to any other operation of EXCO or any of its affiliate organizations.
(2): Assumes a payment equal to 100% of the officer's annual base salary.
(3): Pursuant to the terms of each stock option award, all options become fully vested automatically upon a change of control or upon the death or the total and permanent disability of the officer.

Compensation Committee Report on Executive Compensation

Our compensation committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the compensation committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

The foregoing report is provided by the following directors, who constitute the compensation committee.

		COMPENSATION COMMITTEE
		Robert L. Stillwell, Chairman Jeffrey D. Benjamin Earl E. Ellis Robert H. Niehaus

Compensation Committee Interlocks and Insider Participation

During the fiscal year ended December 31, 2006, the compensation committee was comprised of Messrs. Stillwell (chair), Benjamin, Ellis and Niehaus.

No member of our compensation committee is or has been an officer or employee of us or any of our subsidiaries or had any relationship requiring disclosure pursuant to Item 404 of Regulation S-K during the fiscal year ended December 31, 2006. None of our executive officers served as a director or member of the compensation committee (or other board committee performing similar functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served on our compensation committee or as one of our directors.

Equity Compensation Plan Information

The following table provides certain information as of December 31, 2006 with respect to our equity compensation plans under which our equity securities are authorized for issuance:

	(a)	(b)		(c)
Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants, and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders	8,267,373	$	10.32	1,574,475
Equity compensation plans not approved by security holders	Not applicable		Not applicable	Not applicable

Total	8,267,373	$	10.32	1,574,475

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes of ownership with the SEC. Our officers, directors and 10% shareholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms so filed. Based solely on review of copies of such forms received, we believe that, during the last fiscal year, all filing requirements under Section 16(a)

applicable to our officers, directors and 10% shareholders were timely met, except for the following: one Form 4 filed by each of Messrs. Miller, Smith, Ramsey and Hickey, related to the purchase of our Common Stock through our 401(k) plan.

Transactions with Related Persons

TXOK acquisition

On September 27, 2005, BP EXCO Holdings LP acquired 150,000 shares of preferred stock of TXOK Acquisition, Inc. ("TXOK"), an affiliate of EXCO Holdings, for $150.0 million to partially fund our acquisition of ONEOK Energy Resources Company and ONEOK Energy Resources Holdings, L.L.C. Mr. Boone Pickens, one of our directors, is the controlling member of BP EXCO Holdings GP, LLC, the general partner of BP EXCO Holdings LP. In connection with the sale of the TXOK preferred stock, each of TXOK and EXCO Holdings agreed, if the proceeds of an initial public offering of its or its subsidiary's capital stock were not sufficient to redeem all of the TXOK preferred stock, to use its reasonable best efforts to redeem all of the TXOK preferred stock with available cash and borrowings under its credit facilities. On February 14, 2006, TXOK redeemed the TXOK preferred stock for $158.7 million in cash. In addition, the Company issued 388,889 shares of its common stock, or redemption shares, to an entity controlled by Mr. Pickens, as the redemption premium under the terms of the Amended and Restated Certificate of Incorporation of TXOK. The redemption shares were issued at a price of $12.00 per share in accordance with the redemption terms. Mr. Pickens holds over 98% of the partnership interests in BP EXCO Holdings LP. The terms of the TXOK preferred stock were negotiated on terms believed to be fair to EXCO Holdings in order to arrange interim equity financing pending completion of the IPO. The redemption shares were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act and Regulation D promulgated thereunder. As a result of the redemption of the TXOK preferred stock, TXOK became a wholly-owned subsidiary of the Company.

TXOK also entered into a credit facility with an initial borrowing base of $325.0 million, and a second lien term loan facility of $200.0 million to fund the ONEOK acquisition. Approximately $308.8 million was drawn at the closing of the ONEOK acquisition. Neither EXCO Holdings nor EXCO Resources were an obligor or guarantor with respect to these financings; however, EXCO Holdings pledged its stock in TXOK as collateral security for payment of the TXOK credit facility and the TXOK term loan. On February 14, 2006, in connection with our IPO, the Company advanced TXOK $158.8 million to redeem its preferred stock and TXOK became a wholly-owned subsidiary.

Effective October 15, 2005, the Company entered into an intercompany agreement with TXOK to manage TXOK's business affairs. Prior to the IPO and the redemption of the TXOK preferred stock, Mr. Pickens controlled TXOK through BP EXCO Holdings LP's ownership of the TXOK preferred stock. The agreement provides that we will provide TXOK with general management, treasury, finance, legal, audit, tax, information technology, and payroll and benefit administration services. TXOK has agreed to reimburse us on a monthly basis for the total amount of compensation, taxes and benefits we provide to employees providing services to TXOK. TXOK has also agreed to pay us $25,000 per month for the additional services we provide, as well as reimbursement of all costs directly related to the operations of TXOK.

Equity Buyout

On October 3, 2005, Holdings II acquired all the capital stock of EXCO Holdings and subsequently merged into EXCO Holdings. Upon its formation, Holdings II issued 3,333,330 shares of common stock to its founders for $0.01 per share. This group of founders included Mr. Douglas H. Miller, who purchased 1,655,000 shares, Mr. Stephen F. Smith, who purchased 333,330 shares, Dr. J. Douglas Ramsey, who purchased 166,670 shares (these shares were issued to a limited partnership in

which Dr. Ramsey owns a 97.2% limited partnership interest), and Mr. Harold L. Hickey, who purchased 166,670 shares, as well as a number of our employees. Each of these persons and many of our employees also exchanged shares of EXCO Holdings common stock for Holdings II common stock or purchased additional shares of Holdings II common stock for cash pursuant to the terms of two stock purchase agreements.

Registration rights agreement

Overview. Each stockholder of Holdings II on October 3, 2005 entered into a registration rights agreement with Holdings II. These stockholders include Douglas H. Miller, Stephen F. Smith, J. Douglas Ramsey, Ph.D., Harold L. Hickey, Jeffrey D. Benjamin, Earl E. Ellis, Robert H. Niehaus, Boone Pickens and Robert L. Stillwell. The registration rights agreement was amended and restated pursuant to the terms and conditions of the First Amended and Restated Registration Rights Agreement, or the registration rights agreement. As a result of the merger of Holdings II with and into EXCO Holdings and upon consummation of the merger of EXCO Holdings into us, the registration rights agreement was assumed by us. The registration rights agreement entitles the EXCO Holdings stockholders to certain rights with respect to the registration of shares of our Common Stock for resale under the Securities Act.

Registrations. Pursuant to the registration rights agreement, after the IPO, all holders of unregistered shares of our Common Stock who are subject to the registration rights agreement can require us to register their shares in certain circumstances. In addition, at any time that we file a registration statement registering other shares, the holders of shares subject to the registration rights agreement can require that we include their shares in such registration statement, subject to certain exceptions.

At any time on or after 180 days after the completion of the IPO, any holder of unregistered shares of our Common Stock who is party to the registration rights agreement may request that we register up to one-third of the holder's registrable securities in a resale registration statement. At any time on or after 365 days after the completion of the IPO, any holder of registrable securities may again require us to register up to an additional one-third of the holder's registrable securities initially covered by the registration rights agreement in the same manner as the initial resale registration was made. A similar demand right will be invocable by any holder with respect to its remaining registrable securities commencing 540 days after completion of the IPO. Upon any such request for registration, we would then be required to give notice of the requested registration to all other holders of registrable securities to allow such other holders to register up to one-third of their registrable securities on the same registration statement. We may request in writing that J.P. Morgan Securities Inc. (or the lead underwriter and sole stabilization agent of the IPO, if other than J.P. Morgan Securities Inc.) waive the registration waiting periods and registration volume limitations on resale registrations described in this paragraph. Upon or without such a request, J.P. Morgan Securities Inc. (or such other underwriter), in its sole discretion and based upon its evaluation of market conditions, the historical trading activity and liquidity of our common shares and other considerations it deems relevant, may waive continued application of the registration waiting periods and registration volume limitations described in this paragraph.

If EXCO Holdings (or, after the merger of EXCO Holdings into us, we) at any time or from time to time proposes to register any of its securities under the Securities Act of 1933, as amended (the "Securities Act") other than in an initial public offering or registrations on Form S-4 or Form S-8, then all holders, or all former holders, of EXCO Holdings registrable securities, if such shares have not been previously registered, will be entitled to piggyback registration rights, allowing them to have their shares included in the registration. These piggyback registrations are subject to delay or termination of the registration in certain circumstances.

Postponements and limitations. Under certain circumstances, we may postpone a registration if our Board of Directors determines in good faith that effecting such a registration or continuing the disposition of Common Stock would have a material adverse effect on us, or would not be in our best interests. Furthermore, the underwriters of the registration may, subject to certain limitations, limit the number of shares included in the registration.

Founders Common Stock. The registration rights agreement provides, until the third anniversary of the registration rights agreement, that the holders of our Common Stock representing common stock of Holdings II issued prior to the Equity Buyout, or the founders, may only sell their Common Stock pursuant to an effective registration statement covering the resale of such founder's shares and may not sell their shares pursuant to Rule 144 or any other exemption from registration or otherwise.

Amendments and waivers. The provisions of the registration rights agreement may not be amended, terminated or waived without the written consent of us, of holders of a majority of the shares then held by the outside investors and holders of a majority of the shares then held by the management investors.

Holdback arrangements. Upon entering into the registration rights agreement, each holder of registrable securities agrees that, at the request of the sole or lead managing underwriter in an underwritten offering, it will not make any short sale of, loan, grant any option for the purchase of or effect any public sale or distribution, including a sale pursuant to Rule 144 under the Securities Act, of any registrable securities during the five days prior to, and the time period (up to 90 days) requested by the underwriter following an underwritten offering. The holders of registrable securities will be subject to these restrictions for 180 days following the effective date of the registration statement filed with respect to the IPO.

On January 17, 2007, our registration statement covering one-third of the shares that were subject to the registration rights agreement was declared effective by the SEC. On January 11, 2007, J.P. Morgan Securities Inc. and EXCO executed a waiver letter that allows selling shareholders to request that we register for resale the remaining two-thirds of their shares at any time after February 14, 2007. On February 15, 2007, we received a request from one of our shareholders to register the remaining two-thirds of his shares in accordance with the registration rights agreement. We filed a registration statement that covers all the shares subject to the registration rights agreement on April 25, 2007. This registration statement was automatically effective upon filing.

Corporate use of personal aircraft

We periodically charter, for company business, a jet aircraft from DHM Aviation, LLC, a company owned by Douglas H. Miller, our chairman and chief executive officer. The Board of Directors has adopted a written policy covering the use of this aircraft. We believe that prudent use of a chartered private airplane by our senior management while on company business can promote efficient use of management time. Such usage can allow for unfettered, confidential communications among management during the course of the flight and minimize airport commuting and waiting time, thereby promoting maximum use of management time for company business. However, we restrict the use of the aircraft to priority company business being conducted by senior management in a manner that is cost effective to us and our shareholders. As a result, reimbursed use of the aircraft is restricted to travel that is integrally and directly related to performing senior management's jobs. Such use must be approved in advance by our President and Chief Financial Officer. We maintain a detailed written log of such usage specifying the personnel (and others, if any) that fly on the aircraft, the travel dates and destination(s), and the company business being conducted. In addition, the log contains a detail of all charges paid or reimbursed by us with supporting written documentation.

At least annually, and more frequently if requested by the audit committee or our Director of Internal Audit, our Director of Internal Audit surveys fixed base operators and other charter operators located at Dallas Love Field, Dallas, Texas to ascertain hourly flight rates for aircraft of comparable size and equipment in relation to DHM Aviation, LLC's aircraft. This survey also ascertains other charges (including fuel surcharges) invoiced by such charter operators as well as out-of-pocket reimbursement policies. Such survey is supplied to the audit committee in order for the audit committee to establish an hourly rate and other charges we shall pay for the upcoming calendar year for the use of the aircraft. The present hourly rate paid by EXCO to DHM Aviation, LLC is less than market rate for similar aircraft. In addition, DHM Aviation, LLC is reimbursed for customary out-of-pocket catering expenses invoiced for a flight and any reimbursement of out-of-pocket expenses incurred by the pilots.

We reimburse DHM Aviation, LLC at a rate of $3,600 per hour, including fuel surcharges, for use of the aircraft, plus expenses related to catering, crew meals and accommodations. During 2006, we reimbursed DHM Aviation, LLC in the amount of $532,253 for use of the aircraft.

Intercompany promissory note

On October 7, 2005, EXCO Resources agreed to provide a revolving line of credit for the benefit of its parent, EXCO Holdings, in an aggregate principal amount not to exceed $10.0 million. This indebtedness was evidenced by an intercompany promissory note, which bears interest at 7.0% per annum and matures on October 7, 2007. In conjunction with the closing of our IPO on February 14, 2006, EXCO Holdings was merged with and into EXCO Resources. As a result, the intercompany promissory note was repaid in full and terminated.

American Airlines Center suite

We maintain a suite at the American Airlines Center in Dallas, Texas. We share the suite with and are reimbursed for 50% of our expenses relative to the suite by an entity affiliated with Boone Pickens, one of our directors, pursuant to an arrangement entered into in 2006 between us and such entity. During the year ended December 31, 2006, we paid a total of $350,000 to maintain the suite for a one year lease from August 2006 to August 2007, of which $175,000 was reimbursed by the entity affiliated with Mr. Pickens.

Private placement of Preferred Stock

On March 30, 2007, we completed a private placement (the "Private Placement") of an aggregate of 39,008 shares of Convertible Preferred Stock for $390.0 million and 160,992 shares of Hybrid Preferred Stock for $1.61 billion to accredited investors. In the Private Placement, we issued and sold 23,408 shares of Series A-1 Preferred Stock, 975 shares of Series A-2 Convertible Preferred Stock, 11,700 shares of Series B Convertible Preferred Stock, 2,925 shares of Series C Convertible Preferred Stock, 149,441 shares of Series A-1 Hybrid Preferred Stock and 11,551 shares of Series A-2 Hybrid Preferred Stock. The purchase price for each share of all series of Preferred Stock was $10,000 (which equaled the liquidation preference per share on March 30, 2007). The issuance and sale of the shares in the Private Placement was exempt from registration under the Securities Act pursuant to Section 4(2) thereof and Regulation D promulgated thereunder.

The $2.0 billion in cash proceeds from the Private Placement were used to make a $1.67 billion contribution to EXCO Partners, LP to fund the acquisition of substantially all of the oil and natural gas properties, acreage and related assets, including hedges in respect of a significant portion of estimated production for 2007, 2008 and 2009, of Anadarko Petroleum Corporation and Anadarko Gathering Company in the Vernon and Ansley Fields located in Jackson Parish, Louisiana, to repay $262.5 million

of indebtedness at EXCO Partners, LP, and, when combined with surplus cash, to reduce our outstanding revolving credit facility by $352.0 million and to pay offering expenses.

Several related parties participated in the transaction:

•: Entities affiliated with Ares purchased 2,925 shares of Series C Convertible Preferred Stock and 12,075 shares of Series A-1 Hybrid Preferred Stock for $150.0 million. Prior to the Private Placement, Ares beneficially owned approximately 6.3% of our outstanding Common Stock. The Private Placement increased Ares' beneficial ownership of our Common Stock to approximately 7.6% (or 12.9% if the shareholders approve the Full NYSE Proposal). Jeffrey S. Serota, one of our directors, is a Managing Director of Ares. Mr. Serota was designated to our Board of Directors by Ares pursuant to the terms of the Series C Convertible Preferred Stock, as more fully described in "—Preferred Stock Director Designees."
•: The Oaktree Funds purchased 11,700 shares of Series B Convertible Preferred Stock and 48,300 shares of Series A-1 Hybrid Preferred Stock for $600.0 million. Prior to the Private Placement, the Oaktree Funds beneficially owned approximately 3.1% of our outstanding Common Stock. The Private Placement increased the Oaktree Funds' beneficial ownership of our Common Stock to approximately 8.5% (or 25.6% if the shareholders approve the Full NYSE Proposal). Vincent J. Cebula, one of our directors, is a Managing Director of Oaktree. Mr. Cebula was designated to our Board of Directors by the Oaktree Funds pursuant to the terms of the Series B Convertible Preferred Stock, as more fully described in "—Preferred Stock Director Designees." Additionally, Mr. Shourie, a Managing Director of Oaktree, is anticipated to be elected as a Preferred Stock Director Designee.
•: Entities affiliated with Greenhill Capital Partners, LLC purchased 1,463 shares of Series A-1 Convertible Preferred Stock and 6,037 shares of Series A-1 Hybrid Preferred Stock for $75.0 million. Prior to the Private Placement, Greenhill beneficially owned approximately 2.3% of our outstanding Common Stock. The Private Placement increased Greenhill's beneficial ownership of our Common Stock to approximately 3.0% (or 5.8% if the shareholders approve the Full NYSE Proposal). Robert H. Niehaus, one of our directors, is a Senior Member of GCP 2000, LLC and Managing Director of Greenhill Capital Partners, LLC, which control the general partners of Greenhill Capital Partners, L.P. and its affiliated investment funds.
•: Entities affiliated with FMR Corp. purchased 1,952 shares of Series A-1 Convertible Preferred Stock and 8,048 shares of Series A-1 Hybrid Preferred Stock for $100.0 million. Prior to the Private Placement, FMR Corp. beneficially owned approximately 7.0% of our outstanding Common Stock. The Private Placement, together with additional purchases of Common Stock made by FMR Corp. prior to the Record Date increased FMR Corp.'s beneficial ownership of our Common Stock to approximately 8.8% (or 12.4% if the shareholders approve the Full NYSE Proposal).

In connection with the Private Placement, we entered into the following agreements:

Preferred Stock Purchase Agreement

On March 28, 2007, we entered into a Preferred Stock Purchase Agreement, which we refer to as the "Stock Purchase Agreement," with the investors in the Private Placement, pursuant to which we issued and sold to the investors (a) an aggregate of $390.0 million of shares of our Series A-1 Convertible Preferred Stock, Series A-2 Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C Convertible Preferred Stock and (b) an aggregate of $1.61 billion of shares of our Series A-1 Hybrid Preferred Stock and Series A-2 Hybrid Preferred Stock. The Stock Purchase Agreement included representations, warranties, covenants and indemnities customary for a transaction of this type. We covenanted to seek the approval of our common shareholders of the Full NYSE Proposal or, alternatively, the Limited NYSE Proposal. We agreed to prepare and distribute proxy

materials as promptly as possible to solicit proxies for approval of the Full NYSE Proposal, or, alternatively, the Limited NYSE Proposal and to hold a meeting of shareholders no later than September 26, 2007, to vote upon the Full NYSE Proposal, or, alternatively, the Limited NYSE Proposal. We also granted holders of the Convertible Preferred Stock and Hybrid Preferred Stock a right of first offer with respect to any subsequent issuances of shares by us of Common Stock (or other securities convertible into or exchangeable for Common Stock) at a price per share less than the then-effective conversion price of the Convertible Preferred Stock and, after approval of the Full NYSE Proposal, the Hybrid Preferred Stock, subject to customary exceptions.

Registration Rights Agreements

In connection with the Stock Purchase Agreement, on March 28, 2007, we entered into a Registration Rights Agreement with the investors, which we refer to as the 7.0% Registration Rights Agreement, with respect to the registration of the resale of the shares of Common Stock underlying the Convertible Preferred Stock and the Hybrid Preferred Stock, the shares of Series A-1 Convertible Preferred Stock and, after the shareholder approval of the Full NYSE Proposal, the shares of Series A-1 Hybrid Preferred Stock that were issued and sold pursuant to the Stock Purchase Agreement. The 7.0% Registration Rights Agreement contains customary terms and conditions for a transaction of this type. We have agreed to file with the SEC, not later than September 26, 2007, a registration statement to register the offer and sale of the common shares issuable upon conversion of the Convertible Preferred Stock or, if shareholder approval of the Full NYSE Proposal is obtained, the Hybrid Preferred Stock and to use our best efforts to have the registration statement declared effective by March 24, 2008. If any shares of Convertible Preferred Stock and, if shareholder approval of the Full NYSE Proposal is obtained, the Hybrid Preferred Stock are outstanding on March 30, 2011, we have agreed to file a registration statement with the SEC by June 28, 2011 registering such shares for resale and to use our best efforts to have such registration statement declared effective by September 26, 2011. If we are unable to meet the deadlines described above, or if a registration statement ceases to remain effective or if we restrict sales under a registration statement under certain "blackout provisions" for longer than the contractually permitted period, we must pay liquidated damages at a rate of 0.50% per annum of the liquidation preference of such shares for the first 90 days and thereafter for each subsequent 90-day period at an additional rate of 0.25% up to a maximum of 2.00% per annum during any default period. We have also agreed to indemnify holders against certain liabilities under the Securities Act in respect of any such resale registration.

In connection with the Stock Purchase Agreement, on March 28, 2007, we also entered into a Registration Rights Agreement with the investors, which we refer to as the Hybrid Registration Rights Agreement, with respect to the registration of the resale of the shares of Series A-1 Hybrid Preferred Stock that were issued and sold pursuant to the Stock Purchase Agreement. If we have not obtained approval of the Full NYSE Proposal by September 26, 2007, we have agreed to file a registration statement with the SEC by December 24, 2007, covering the resale prior to the shareholder approval of the Full NYSE Proposal of shares of Series A-1 Hybrid Preferred Stock and to use our best efforts to have the registration statement declared effective by March 24, 2008. The Hybrid Registration Right Agreement contains liquidated damages payment provisions similar to the 7.0% Registration Rights Agreement and similar indemnification obligations.

Director Nomination Letter Agreements

In connection with the Stock Purchase Agreement, we entered into a letter agreement, dated March 28, 2007, with the Oaktree Funds pursuant to which we agreed to cause an individual designated by the Oaktree Funds to be nominated to serve on our Board of Directors following such time as (i) the Oaktree Funds cease to have the right to elect a director to serve on our Board of Directors pursuant to the Statement of Designation for the Series B Convertible Preferred Stock and (ii) less than 25% of the shares of Convertible Preferred Stock and Hybrid Preferred Stock originally issued on March 30, 2007 remain outstanding, and for so long as the Oaktree Funds own at least 10,000,000 shares of our Common Stock (including, for this purpose, shares of Common Stock into which any Preferred Stock then held by the Oaktree Funds is convertible).

In connection with the Stock Purchase Agreement, we also entered into a letter agreement, dated March 28, 2007, with certain investors affiliated with Ares pursuant to which we agreed to cause an individual designated by Ares to be nominated to serve on our Board of Directors following such time as (i) Ares ceases to have the right to elect a director to serve on our Board of Directors pursuant to the Statement of Designation for the Series C Convertible Preferred Stock and (ii) less than 25% of the shares of Convertible Preferred Stock and Hybrid Preferred Stock originally issued on March 30, 2007 remain outstanding, for so long as Ares owns at least 10,000,000 shares of our Common Stock (including, for this purpose, shares of Common Stock into which any Preferred Stock then held by Ares is convertible).

The terms of each class and series of Preferred Stock issued in the Private Placement are described below:

Convertible Preferred Stock

Series A-1 Convertible Preferred Stock. The Series A-1 Convertible Preferred Stock has an initial liquidation preference equal to $10,000 per share and is convertible into our Common Stock at a price of $19.00 per share, as may be adjusted in accordance with the terms of the Series A-1 Convertible Preferred Stock. We may force the conversion of the Series A-1 Convertible Preferred Stock at any time if our Common Stock trades for 20 days within a period of 30 consecutive days at a price above 175% of the then effective conversion price ($33.25 per share at the current conversion price of $19.00 per share) at any time during the 24 months after issuance, above 150% of the then effective conversion price ($28.50 per share at the current conversion price of $19.00 per share) thereafter through the 48^th month after issuance and above 125% of the then effective conversion price ($23.75 per share at the current conversion price of $19.00 per share) at any time thereafter. Cash dividends will accrue at the rate of 7.0% per annum prior to March 30, 2013 and at the rate of 9.0% thereafter. In lieu of paying cash dividends, we may, under certain circumstances prior to March 30, 2013, pay a dividend at a rate of 9.0% per annum by adding the dividend to the liquidation preference of the shares of Series A-1 Convertible Preferred Stock. Upon the occurrence of a change of control, holders of the Series A-1 Convertible Preferred Stock may require us to repurchase their shares for cash at the liquidation preference plus accumulated dividends. Holders of the Series A-1 Convertible Preferred Stock have the right to vote with the holders of Common Stock, the other holders of Convertible Preferred Stock and, if shareholder approval of the Full NYSE Proposal is obtained, the holders of Hybrid Preferred Stock, together as a single class, on all matters submitted to the shareholders of the Company, except the election of directors and the Full NYSE Proposal or the Limited NYSE Proposal, on an as-converted basis. Holders of the Series A-1, Series B and Series C Convertible Preferred Stock and, if shareholder approval of the Full NYSE Proposal is obtained, the Series A-1 Hybrid Preferred Stock, have the right to separately elect up to four directors, referred to as the "preferred stock directors," subject to the rights of the Series B Convertible Preferred Stock and Series C Convertible Preferred Stock to vote as separate classes to each elect one of such preferred stock directors. In addition, upon the occurrence of specified defaults in the Statements of Designation for the Convertible Preferred Stock and the Hybrid Preferred Stock, the holders of the Convertible Preferred Stock and Hybrid Preferred Stock, voting together as a class, have the right to elect four additional directors, referred to as the "default directors," until such default is cured.

Series A-2 Convertible Preferred Stock. The Series A-2 Convertible Preferred Stock has substantially the same rights as the Series A-1 Convertible Preferred Stock, except that holders of Series A-2 Convertible Preferred Stock do not have the right to elect directors (other than the default directors) and do not have registration rights under the 7.0% Registration Rights Agreement. Shares of Series A-2 Convertible Preferred Stock automatically convert into shares of Series A-1 Convertible Preferred Stock when the holder thereof has provided us with a certificate certifying that either no filing is required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the

"HSR Act"), with respect to such holder's acquisition of the shares of Series A-1 Convertible Preferred Stock or the waiting period applicable to such holder under the HSR Act has expired.

Series B Convertible Preferred Stock. The Series B Convertible Preferred Stock was issued to the Oaktree Funds and has substantially the same rights as the Series A-1 Convertible Preferred Stock, except that the holders of Series B Convertible Preferred Stock have the right to designate one of the preferred stock directors and do not have registration rights under the 7.0% Registration Rights Agreement. The Series B Convertible Preferred Stock is convertible into Series A-1 Convertible Preferred Stock at any time at the election of the holder and will automatically convert into Series A-1 Convertible Preferred Stock when the Oaktree Funds cease to own an aggregate of 10,000 shares of Series B Convertible Preferred Stock and/or Hybrid Preferred Stock.

Series C Convertible Preferred Stock. The Series C Convertible Preferred Stock was issued to Ares and has substantially the same rights as the Series A-1 Convertible Preferred Stock, except that the holders of Series C Convertible Preferred Stock have the right to designate one of the preferred stock directors and do not have registration rights under the 7.0% Registration Rights Agreement. The Series C Convertible Preferred Stock is convertible into Series A-1 Convertible Preferred Stock at any time at the election of the holder and will automatically convert into Series A-1 Convertible Preferred Stock when Ares ceases to own an aggregate of 10,000 shares of Series C Convertible Preferred Stock and/or Hybrid Preferred Stock.

Hybrid Preferred Stock

Initially the Hybrid Preferred Stock is not convertible into Common Stock. If shareholder approval of the Full NYSE Proposal is obtained in accordance with the rules and regulations of the NYSE, then the terms of the Series A-1 Hybrid Preferred Stock and the Series A-2 Hybrid Preferred Stock will transform into the same designations, preferences, limitations and relative voting rights as the Series A-1 Convertible Preferred Stock and the Series A-2 Convertible Preferred Stock, respectively, including the dividend rights and the right to convert into Common Stock. We agreed in the Stock Purchase Agreement to seek approval of the Full NYSE Proposal or, alternatively, the Limited NYSE Proposal.

Series A-1 Hybrid Preferred Stock. Prior to shareholder approval of the Full NYSE Proposal, dividends will accrue on the Series A-1 Hybrid Preferred Stock at a rate of 11.0% per annum and are payable in cash. If shareholder approval of the Full NYSE Proposal has not been obtained by September 26, 2007, the annual dividend rate will increase by 0.50% per quarter (up to a maximum rate of 18% per annum) until shareholder approval of the Full NYSE Proposal has been obtained. Prior to the earlier of September 26, 2007 and the date that shareholder approval of the Full NYSE Proposal is obtained, the Series A-1 Hybrid Preferred Stock may be redeemed only with the consent of the holders of the Hybrid Preferred Stock at a redemption price equal to 100% of the liquidation preference plus accrued dividends. After September 26, 2007 and prior to shareholder approval of the Full NYSE Proposal, the Series A-1 Hybrid Preferred Stock is redeemable at our option at any time, and must be redeemed on April 18, 2011, for cash at 125% of the liquidation premium plus accrued dividends. Upon the occurrence of a change of control, holders of the Series A-1 Hybrid Preferred Stock may require us to repurchase their shares for cash at 101% of the liquidation preference plus accrued dividends. In addition, upon the occurrence of specified defaults in the Statements of Designation for the Hybrid Preferred Stock, the holders of the Convertible Preferred Stock and Hybrid Preferred Stock, voting together as a class, have the right to elect four default directors until such default is cured. In addition, prior to shareholder approval of the Full NYSE Proposal, the Series A-1 Hybrid Preferred Stock contains covenants restricting our incurrence of additional indebtedness and requiring us to repurchase the shares following certain asset dispositions.

Series A-2 Hybrid Preferred Stock. The Series A-2 Hybrid Preferred Stock has substantially the same rights as the Series A-1 Hybrid Preferred Stock, except that holders of Series A-2 Hybrid Preferred Stock have no registration rights. Shares of Series A-2 Hybrid Preferred Stock automatically convert into shares of Series A-1 Hybrid Preferred Stock when the holder thereof has provided us with a certificate certifying that either no filing is required under the HSR Act with respect to such holder's acquisition of the shares of Series A-1 Hybrid Preferred Stock or the waiting period applicable to such holder under the HSR Act has expired.

Haynes and Boone, LLP

William L. Boeing, our Vice President, General Counsel and Secretary, was a partner at Haynes and Boone, LLP, which serves as our outside corporate counsel, before he joined us on April 1, 2006. From January 1, 2006 to March 31, 2006, we paid legal fees of approximately $780,000 to Haynes and Boone, LLP. Mr. Boeing's interest in such fees was less than $10,000.

In accordance with our audit committee charter, our audit committee is responsible for reviewing and approving the terms and conditions of all related party transactions. Any material financial transaction with any director, executive officer, nominee or holder of five percent or more of our securities, or immediate family member of any of the foregoing, would need to be approved by our audit committee prior to our entering into such transaction.

The audit committee did not review and approve the sharing of the suite at the American Airlines Center with Boone Pickens, as the sharing of the suite was viewed as a simple expense sharing arrangement where costs and use were split evenly between the Company and Mr. Pickens. In addition, while the Private Placement was not approved by the audit committee independently (firms associated with two of the three members of the audit committee participated in the Private Placement), it was approved by the entire Board of Directors, including a majority of the disinterested directors, and the relationships with and participation by all related parties was discussed.

APPROVAL OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE
RIGHTS SET FORTH ON ANNEX III OF THE STATEMENTS OF DESIGNATION OF OUR
HYBRID PREFERRED STOCK, THE ISSUANCE OF COMMON STOCK UPON
CONVERSION OF SUCH SHARES OF HYBRID PREFERRED STOCK AND THE REMOVAL
OF THE RESTRICTIONS ON CONVERSION PRICE ADJUSTMENTS FOR THE
CONVERTIBLE PREFERRED STOCK
(Proposal 2)

Overview

On March 30, 2007, the Company issued 160,992 shares of Hybrid Preferred Stock and 39,008 shares of Convertible Preferred Stock to several investors in a private placement (the "Private Placement") for aggregate gross proceeds of $2.0 billion. The net proceeds of the Private Placement were used to fund the net closing purchase price (net of contractual adjustments and an earnest money deposit of $80.0 million) of approximately $1.4 billion for the acquisition on March 30, 2007 of substantially all of the oil and natural gas properties, acreage and related assets, including hedges in respect of a significant portion of estimated production for 2007, 2008 and 2009, of Anadarko Petroleum Corporation and Anadarko Gathering Company in the Vernon and Ansley Fields located in Jackson Parish, Louisiana (the "Vernon Acquisition") and to repay certain outstanding indebtedness.

The Convertible Preferred Stock is convertible into shares of our Common Stock at an initial conversion price of $19.00 per share. The Hybrid Preferred Stock is not currently convertible into shares of our Common Stock. Under the NYSE rules, shareholder approval is required to issue Common Stock, or securities convertible into or exercisable for Common Stock, if (i) such Common Stock has, or will have upon issuance, 20.0% or more of the voting power outstanding before the issuance, (ii) the number of shares of Common Stock to be issued is, or will be upon issuance, equal to 20.0% or more of the number of shares of Common Stock outstanding before the issuance, (iii) such Common Stock, or securities convertible into or exercisable for Common Stock, will be issued to a director, officer or substantial security holder of the Company and such securities exceed either a threshold of one percent or, if issued to a substantial security holder who is not a director or officer at a price that is not less than the book and market value of the Common Stock, five percent of the number of shares of Common Stock or the voting power outstanding before the issuance or (iv) such issuance will result in a change of control of the Company.

Absent the NYSE rules, we would have issued 200,000 shares of Convertible Preferred Stock to fund the Vernon Acquisition and to repay certain outstanding indebtedness. As a result of the limited time period to fund the Vernon Acquisition and the time required to organize a special meeting of shareholders and solicit proxies in compliance with the SEC rules, we were unable to hold a special meeting of our shareholders to approve the issuance of 200,000 shares of Convertible Preferred Stock prior to the Vernon Acquisition. Therefore, in the interim, we issued (i) 39,008 shares of Convertible Preferred Stock, consisting of 23,408 shares of Series A-1 Convertible Preferred Stock, 975 shares of Series A-2 Convertible Preferred Stock (all of which have since been converted to Series A-1 Convertible Preferred Stock), 11,700 shares of Series B Convertible Preferred Stock and 2,925 shares of Series C Convertible Preferred Stock (collectively, the "Convertible Preferred Stock"), which shares by their terms were convertible into 19.7% of the number of shares of Common Stock outstanding and the voting power outstanding, in each case, before the Preferred Stock issuance and (ii) 160,992 shares of Hybrid Preferred Stock, consisting of 149,441 shares of Series A-1 Hybrid Preferred Stock and 11,551 shares of Series A-2 Hybrid Preferred Stock (collectively, the "Hybrid Preferred Stock"), which shares are not currently convertible into Common Stock and which do not have voting rights. Upon shareholder approval of the Full NYSE Proposal, the designations, preferences, limitations and relative voting rights of the Series A-1 Hybrid Preferred Stock and Series A-2 Hybrid Preferred Stock will become identical to the designations, preferences, limitations and relative voting rights of the Series A-1 Convertible Preferred Stock and the Series A-2 Convertible Preferred Stock, respectively,

including the right to dividends and the right to convert into an aggregate of 84,732,595 shares of our Common Stock representing 81.3% of the number of shares of Common Stock outstanding before the Preferred Stock issuance (at an initial conversion price of $19.00 per share and assuming the elimination of fractional shares based on current holders of record of the Preferred Stock). The terms of the Hybrid Preferred Stock following shareholder approval of the Full NYSE Proposal are contained in Annex III of the Statement of Designation for each series of the Hybrid Preferred Stock (the "Annex III Terms").

We agreed to seek shareholder approval of the Full NYSE Proposal at the 2007 Annual Meeting of Shareholders. Accordingly, you are being asked to approve the Full NYSE Proposal to approve the Annex III Terms for the Hybrid Preferred Stock, the issuance of shares of Common Stock upon conversion of the Hybrid Preferred Stock and the removal of the restrictions on the conversion price adjustments for the Convertible Preferred Stock contained in Section 10 of the Statement of Designation for each series of Convertible Preferred Stock.

The Board of Directors has determined that the Full NYSE Proposal is in the best interests of the Company and its shareholders. As a result, the Board has unanimously approved the Full NYSE Proposal and recommends a vote by the shareholders for approval of these actions. If the Full NYSE Proposal is not approved, the terms of the Hybrid Preferred Stock will be more costly to us and the Hybrid Preferred Stock will have other terms which are less favorable to us than those of the Convertible Preferred Stock, as described below under "—Consequences to the Company and the Holders of its Common Stock" and "—Reasons for the Board Recommendation."

Need for Shareholder Approval

Under applicable Texas law and our Third Amended and Restated Articles of Incorporation, we are not required to obtain shareholder approval for the issuance of Common Stock or securities convertible into or exercisable for Common Stock. However, the outstanding shares of Common Stock are listed on the NYSE and the shareholder approval policy of the NYSE requires us to obtain shareholder approval of the issuance of shares of Common Stock or securities convertible into or exercisable for Common Stock under certain circumstances.

The rules of the NYSE generally require the approval of shares representing a majority of the votes cast, provided that the total votes cast on the proposal represent over 50% of the voting power of all shares of Common Stock outstanding, for the issuance of shares of Common Stock or securities convertible into or exercisable for Common Stock under certain circumstances, including the following:

•: except as set forth below, shareholder approval is required prior to the issuance of Common Stock, or of securities convertible into or exercisable for Common Stock, in any transaction or series of related transactions, to a director, officer or "substantial security holder," which the NYSE defines as a holder of five percent or more of the number of shares of Common Stock or voting power outstanding (each, a "Related Party") of the Company if the number of shares of Common Stock to be issued, or if the number of shares of Common Stock into which the securities may be convertible or exercisable, exceeds either one percent of the number of shares of Common Stock or one percent of the voting power outstanding before the issuance (we refer to this as the "1% Test");
•: the 1% threshold described above is increased such that shareholder approval is only required if the number of shares of Common Stock into which the securities to be issued may be convertible or exercisable exceeds either five percent of the number of shares of Common Stock or five percent of the voting power outstanding before the issuance in any transaction or series of related transactions if (i) the Related Party involved in the transaction is classified as a Related Party solely because such person is a substantial security holder and (ii) the issuance

relates to a sale of stock for cash at a price that is not less than the book and market value of the Common Stock (we refer to this as the "5% Test");

•: shareholder approval is required prior to the issuance of Common Stock, or of securities convertible into or exercisable for Common Stock, in any transaction or series of related transactions if: (1) the Common Stock has, or will have upon issuance, voting power equal to or in excess of 20 percent of the voting power outstanding before the issuance of such stock or of securities convertible into or exercisable for Common Stock; or (2) the number of shares of Common Stock to be issued is, or will be upon issuance, equal to or in excess of 20 percent of the number of shares of Common Stock outstanding before the issuance of the Common Stock or of securities convertible into or exercisable for Common Stock (we refer to this as the "20% Test"); and
•: shareholder approval is required prior to an issuance that will result in a change of control of the Company (we refer to this as the "Change of Control Test").

Absent the NYSE rules, we would have issued 200,000 shares of Convertible Preferred Stock to fund the Vernon Acquisition and to repay certain indebtedness. However, the issuance of 200,000 shares of Convertible Preferred Stock would have involved the issuance of securities convertible into more than 20 percent of the currently outstanding Common Stock as described below under "—20% Test," the issuance of securities convertible into more than one percent of our Common Stock to parties affiliated with certain of our directors and who are substantial security holders as described below under "—Sales to Related Parties," and potentially a change of control of the Company under applicable NYSE rules as described below under "—Change of Control." Therefore, the rules of the NYSE would have required shareholder approval prior to such issuance. As a result of the limited time period to fund the Vernon Acquisition, we were unable to hold a special meeting of our shareholders to approve the issuance of 200,000 shares of Convertible Preferred Stock before raising the funds necessary for the Vernon Acquisition. Therefore, in the interim, we issued (i) 39,008 shares of Convertible Preferred Stock which by their terms were convertible into 19.7% of the number of shares of Common Stock outstanding and the voting power outstanding, in each case, before the Preferred Stock issuance and (ii) 160,992 shares of Hybrid Preferred Stock which are not convertible into Common Stock and which do not have voting rights.

20% Test

The issuance of 200,000 shares of Convertible Preferred Stock on March 30, 2007 would have resulted in the issuance of securities convertible into approximately 105,263,157 shares of Common Stock, or 101.0% of the number of shares of Common Stock outstanding and voting power outstanding, in each case, immediately before the Preferred Stock issuance (at an initial conversion price of $19.00 per share). Such issuance would have violated the 20% Test. Therefore, as described above, we issued 39,008 shares of Convertible Preferred Stock, which by their terms were convertible into 19.7% of the number of shares of Common Stock outstanding and voting power outstanding, in each case, immediately before the Preferred Stock issuance, and 160,992 shares of Hybrid Preferred Stock, which is not convertible into Common Stock and which does not have voting rights.

If shareholder approval of the Full NYSE Proposal is obtained, the shares of Hybrid Preferred Stock will be convertible (at an initial conversion price of $19.00 per share and assuming the elimination of fractional shares based on current holders of record of the Preferred Stock) into 84,732,595 shares of Common Stock, which shares equal (i) 81.2% of the number of shares of Common Stock outstanding as of the Record Date and (ii) 67.8% of the voting power outstanding as of the Record Date. If the Full NYSE Proposal is approved, the Hybrid Preferred Stock will vote with the Company's Common Stock and the Convertible Preferred Stock on an as-converted basis on all matters

other than the election of directors and would represent approximately 40.4% of our total voting power.

Issuances to Related Parties

The issuance of 200,000 shares of Convertible Preferred Stock on March 30, 2007 would have resulted in the issuance of shares to Related Parties in violation of the 1% Test or 5% Test, as described below.

Ares. Prior to the Private Placement, Ares Corporate Opportunities Fund, L.P. owned approximately 6.3% of our then-outstanding shares of Common Stock and was accordingly a "substantial security holder" under the rules and regulations of the NYSE. Ares Corporate Opportunities Fund, L.P. and its affiliates (collectively, "Ares") were therefore subject to the 5% Test. Ares purchased approximately $150.0 million of Preferred Stock in the Private Placement. The issuance of $150.0 million of Convertible Preferred Stock to Ares in the Private Placement would have resulted in the issuance of securities convertible into approximately 7,894,737 shares of Common Stock, or 7.6% of the number of shares of Common Stock and the voting power outstanding before the Private Placement. Such issuance would have violated the 5% Test. Therefore, we issued 2,925 shares of Convertible Preferred Stock which by its terms is convertible into 2.8% of the number of shares of Common Stock and voting power outstanding before the Private Placement and 12,075 shares of Hybrid Preferred Stock which is not convertible into Common Stock and which does not have voting rights. Because of its current ownership of our securities, Ares continues to be a substantial security holder and is subject to the 1% Test or 5% Test.

If shareholder approval of the Full NYSE Proposal is obtained, the shares of Hybrid Preferred Stock held by Ares will be convertible (at an initial conversion price of $19.00 per share and assuming the elimination of fractional shares based on current holders of record of the Preferred Stock) into 6,355,263 shares of Common Stock, which shares equal (i) 6.1% of the number of shares of Common Stock outstanding as of the Record Date and (ii) 5.1% of the voting power outstanding as of the Record Date.

The Oaktree Funds. Prior to the Private Placement, OCM Principal Opportunities Fund III, L.P. and OCM Principal Opportunities Fund IIIA, L.P. (together, "POF III") owned approximately 3.1% of our then-outstanding shares of Common Stock. Because POF III did not have any other relationships with the Company, the Oaktree Funds were not subject to either the 1% Test or the 5% Test in connection with the Private Placement. However, the Oaktree Funds purchased approximately $600.0 million of Preferred Stock in the Private Placement, which resulted in the issuance of securities convertible into approximately 6,157,894 shares of Common Stock, or 5.9% of our outstanding shares of Common Stock and 4.9% of our voting power as of the Record Date. Because of their current ownership of our securities, the Oaktree Funds are currently a substantial security holder and are subject to the 1% Test or 5% Test.

If shareholder approval of the Full NYSE Proposal is obtained, the shares of Hybrid Preferred Stock held by the Oaktree Funds will be convertible (at an initial conversion price of $19.00 per share and assuming the elimination of fractional shares based on current holders of record of the Preferred Stock) into 25,421,052 shares of Common Stock, which shares equal (i) 24.4% of the number of shares of Common Stock outstanding as of the Record Date and (ii) 20.4% of the voting power outstanding as of the Record Date.

FMR Corp. Prior to the Private Placement, entities affiliated with FMR Corp. owned approximately 7.0% of our then-outstanding shares of Common Stock and was accordingly a "substantial security holder" under the rules and regulations of the NYSE. Although FMR Corp. and its affiliates (collectively, "FMR") might have been eligible to rely on the 5% test, we have applied the

1% Test to FMR's holdings. FMR purchased approximately $100.0 million of Preferred Stock in the Private Placement. The issuance of $100.0 million of Convertible Preferred Stock to FMR in the Private Placement would have resulted in the issuance of securities convertible into approximately 5,263,158 shares of Common Stock, or 5.1% of the number of shares of Common Stock and the voting power outstanding before the Private Placement. Such issuance would have violated the 1% Test and 5% Test. Therefore, we issued 1,952 shares of Convertible Preferred Stock which by its terms is convertible into 0.99% of the number of shares of Common Stock and voting power outstanding before the Private Placement and 8,048 shares of Hybrid Preferred Stock which is not convertible into Common Stock and which does not have voting rights. Because of its current ownership of our securities, FMR continues to be a substantial security holder and is subject to the 1% Test or 5% Test.

If shareholder approval of the Full NYSE Proposal is obtained, the shares of Hybrid Preferred Stock held by FMR will be convertible (at an initial conversion price of $19.00 per share and assuming the elimination of fractional shares based on current holders of record of the Preferred Stock) into 4,235,788 shares of Common Stock, which shares equal (i) 4.1% of the number of shares of Common Stock outstanding as of the Record Date and (ii) 3.4% of the voting power outstanding as of the Record Date.

Greenhill. Mr. Robert H. Niehaus is a director of the Company and is affiliated with Greenhill Capital Partners, LLC and its affiliated entities. Prior to March 30, 2007, Greenhill Capital Partners, L.P., Greenhill Capital Partners (Cayman), L.P., Greenhill Capital Partners (Executives), L.P. and Greenhill Capital, L.P. (collectively, "Greenhill") beneficially owned approximately 2.3% of our then-outstanding shares of Common Stock. Because of its relationship with Mr. Niehaus, Greenhill was subject to the 1% Test. Greenhill purchased approximately $75.0 million of Preferred Stock in the Private Placement. The issuance of $75.0 million of Convertible Preferred Stock to Greenhill would have resulted in the issuance of securities convertible into approximately 3,947,366 shares of Common Stock, or 3.8% of the number of shares of Common Stock and the voting power outstanding before the Private Placement. Such issuance would have violated the 1% Test. Therefore, we issued 1,463 shares of Convertible Preferred Stock which by its terms is convertible into 0.7% of the number of shares of Common Stock and voting power outstanding before the Private Placement and 6,037 shares of Hybrid Preferred Stock which is not convertible into Common Stock and which does not have voting rights. Because of its relationship with Mr. Niehaus, Greenhill continues to be subject to the 1% Test.

If shareholder approval of the Full NYSE Proposal is obtained, the shares of Hybrid Preferred Stock held by Greenhill will be convertible (at an initial conversion price of $19.00 per share and assuming the elimination of fractional shares based on current holders of record of the Preferred Stock) into 3,177,367 shares of Common Stock, which shares equal (i) 3.0% of the number of shares of Common Stock outstanding as of the Record Date and (ii) 2.5% of the voting power outstanding as of the Record Date.

Apollo. Mr. Jeffrey D. Benjamin, is a director of the Company and is a non-employee, senior advisor to Apollo. Prior to March 30, 2007, Apollo Management, L.P. (together with its affiliated entities, "Apollo") did not own any shares of our Common Stock. Prior to the Private Placement, we do not believe that Apollo was subject to either the 1% Test or the 5% Test. Nonetheless, we issued to Apollo only 975 shares of Convertible Preferred Stock which by its terms is convertible into 0.5% of the number of shares of Common Stock and voting power outstanding before the Private Placement and 4,025 shares of Hybrid Preferred Stock which is not convertible into Common Stock and which does not have voting rights. Although we do not believe Apollo is subject to the 1% or 5% Test, we are including this disclosure for your consideration in the event Apollo is deemed to be subject to the 1% Test.

If shareholder approval of the Full NYSE Proposal is obtained, the shares of Hybrid Preferred Stock held by Apollo will be convertible (at an initial conversion price of $19.00 per share and

assuming the elimination of fractional shares based on current holders of record of the Preferred Stock) into 2,118,421 shares of Common Stock, which shares equal (i) 2.0% of the number of shares of Common Stock outstanding as of the Record Date and (ii) 1.7% of the voting power outstanding as of the Record Date.

Change of Control

Shareholder approval is required under the NYSE rules prior to an issuance that will result in a change of control of the Company. The NYSE rules do not define "change of control." The issuance of 200,000 shares of Convertible Preferred Stock in the Private Placement would have resulted in the issuance of securities representing approximately 50.2% of the voting power of the Company after such issuance. We do not believe that such issuance would have constituted a change of control of the Company because the preferred stock was issued to multiple investors who are not part of the same group and several of whom were already our shareholders. However, to ensure that there was no violation of the Change of Control Test, as described above, we (i) issued 39,008 shares of Convertible Preferred Stock which by their terms were convertible into 19.7% of the number of shares of Common Stock and voting power outstanding before the Preferred Stock issuance and 160,992 shares of Hybrid Preferred Stock which are not convertible into Common Stock and which do not have voting rights and (ii) have included this disclosure for your consideration in the event any of these issuances are deemed to be a change of control under the NYSE rules.

If shareholder approval of the Full NYSE Proposal is obtained, (i) the shares of Hybrid Preferred Stock will represent 40.4% of our voting power and will be convertible (at an initial conversion price of $19.00 per share and assuming the elimination of fractional shares based on current holders of record of the Preferred Stock) into 84,732,595 shares of Common Stock representing 81.2% of our outstanding shares of Common Stock as of the Record Date and (ii) the Preferred Stock collectively will represent 50.2% of our voting power and will be convertible (at an initial conversion price of $19.00 per share and assuming the elimination of fractional shares based on current holders of record of the Preferred Stock) into 105,263,082 shares of Common Stock representing 100.8% of our outstanding shares of Common Stock as of the Record Date.

Anti-Dilution Provisions

The shares of Convertible Preferred Stock issued on March 30, 2007 are initially convertible into shares of our Common Stock at a conversion price of $19.00 per share. The Statement of Designation for each series of the Convertible Preferred Stock contains weighted average anti-dilution provisions that provide for an adjustment to the conversion price of the Convertible Preferred Stock (the "price based anti-dilution provisions") upon (i) the issuance of stock, convertible securities or options at a price below the then-current conversion price, (ii) the issuance of options to holders of Common Stock at less than the current market price, (iii) a dividend or distribution to holders of Common Stock in excess of $0.06 per share in any quarter or (iv) an equity tender offer or share repurchase by the Company at a price in excess of the current market price (each, an "Adjustment Event").

Issuance of Common Stock or securities convertible into or exercisable for Common Stock in contravention of the NYSE shareholder approval policy would permit the NYSE to seek delisting of the shares of Common Stock. Accordingly, we are seeking shareholder approval of the Full NYSE Proposal. If shareholder approval of the Full NYSE Proposal is not obtained, the terms of the Hybrid Preferred Stock will not be transformed into the Annex III Terms and therefore, unless the shareholders approve the Limited NYSE Proposal, the restrictions on conversion price adjustments for the Convertible Preferred Stock will continue to be effective. For more information regarding the removal of the restrictions on conversion price adjustments, see "Approval of the Removal of the Restrictions on Conversion Price Adjustments for the Convertible Preferred Stock."

Impact on the Company's Capitalization

If the Full NYSE Proposal is approved, the holders of Common Stock will experience dilution upon any conversion of the Hybrid Preferred Stock at a time when the Common Stock is trading at a price greater than $19.00 per share. On the Record Date, the Company had 104,387,720 shares of Common Stock issued and outstanding, 39,008 shares of Convertible Preferred Stock issued and outstanding and 160,922 shares of Hybrid Preferred Stock issued and outstanding. If the shareholders approve the Full NYSE Proposal, the 160,922 shares of Hybrid Preferred Stock would be convertible (at an initial conversion price of $19.00 per share and assuming the elimination of fractional shares based on current holders of record of the Preferred Stock) into 84,732,595 shares of Common Stock.

Consequences to the Company and the Holders of its Common Stock

The exact number of shares of Common Stock into which the Convertible Preferred Stock and the Hybrid Preferred Stock may ultimately be converted will vary over time upon the occurrence of any events that result in certain anti-dilutive adjustments to the conversion price and upon the accrual of any dividends that the Company elects not to pay in cash. Moreover, the exact number of shares of Common Stock into which the Convertible Preferred Stock and the Hybrid Preferred Stock will be convertible is also subject to proportional adjustment for stock splits, stock dividends, recapitalizations and the like. If shareholder approval of the Full NYSE Proposal is obtained, the shares of Hybrid Preferred Stock will be convertible (at an initial conversion price of $19.00 per share and assuming the elimination of fractional shares based on current holders of record of the Preferred Stock) into 84,732,595 shares of Common Stock, which shares equal (i) 81.2% of the number of shares of Common Stock outstanding as of the Record Date and (ii) 67.8% of the voting power outstanding as of the Record Date. If the Full NYSE Proposal is approved, the Hybrid Preferred Stock will vote with the Company's Common Stock and the Convertible Preferred Stock on an as-converted basis on all matters other than the election of directors and would represent approximately 40.4% of our total voting power.

Principal Terms of the Convertible Preferred Stock

The following summarizes the principal terms of the Convertible Preferred Stock. This discussion is not complete and is qualified in its entirety by, and should be read in conjunction with, the Statement of Designations establishing each series of the Convertible Preferred Stock (collectively, the "Convertible Preferred Stock Statements of Designation"), which are attached to this proxy statement as Annex A through Annex D.

Series A-1 7.0% Cumulative Convertible Perpetual Preferred Stock

The Series A-1 Convertible Preferred Stock has an initial liquidation preference equal to $10,000 per share and is convertible into Common Stock at a price of $19.00 per share, as may be adjusted in accordance with the terms of the Series A-1 Convertible Preferred Stock. The Company may force the conversion of the Series A-1 Convertible Preferred Stock at any time if the Common Stock trades for 20 days within a period of 30 consecutive days at a price above 175% of the then effective conversion price ($33.25 per share at the current conversion price of $19.00 per share) at any time during the 24 months after issuance, above 150% of the then effective conversion price ($28.50 per share at the current conversion price of $19.00 per share) thereafter through the 48^th month after issuance and above 125% of the then effective conversion price ($23.75 per share at the current conversion price of $19.00 per share) at any time thereafter. Cash dividends will accrue at the rate of 7.0% per annum prior to March 30, 2013 and at the rate of 9.0% per annum thereafter. In lieu of paying cash dividends, the Company may, under certain circumstances prior to March 30, 2013, pay such dividend at a rate of 9.0% per annum by adding the dividend to the liquidation preference of the shares of Series A-1 Convertible Preferred Stock. Upon the occurrence of a change of control, holders of the Series A-1 Convertible Preferred Stock may require the Company to repurchase their shares for cash at the liquidation preference plus accumulated dividends. Holders of the Series A-1 Convertible Preferred Stock have the right to vote with the holders of Common Stock, the holders of other series of Convertible Preferred Stock and, if the Full NYSE Proposal is approved, the holders of Hybrid Preferred Stock, together as a single class, on all matters submitted to the shareholders of the Company (except the election of directors and the approval of the Full NYSE Proposal or the Limited NYSE Proposal) on an as-converted basis. Holders of Series A-1 Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible Preferred Stock and, if the Full NYSE Proposal is approved, Series A-1 Hybrid Preferred Stock have the right to separately elect up to four directors (the "Preferred Directors"), subject to the rights of the holders of Series B Convertible Preferred Stock and Series C Convertible Preferred Stock to vote as separate classes to each elect one of such Preferred Directors. In addition, upon the occurrence of specified defaults in the Statements of Designation for the Convertible Preferred Stock and the Hybrid Preferred Stock, the holders of the Convertible Preferred Stock and Hybrid Preferred Stock, voting together as a class, have the right to elect four additional directors (the "Default Directors") until such default is cured.

Series A-2 7.0% Cumulative Convertible Perpetual Preferred Stock

The Series A-2 Convertible Preferred Stock has substantially the same rights as the Series A-1 Convertible Preferred Stock, except that holders of Series A-2 Convertible Preferred Stock do not have the right to elect directors (other than the Default Directors) and do not have any registration rights under the 7% Registration Rights Agreement. Shares of Series A-2 Convertible Preferred Stock automatically convert into shares of Series A-1 Convertible Preferred Stock when the holder thereof has provided the Company with a certificate certifying that either no filing is required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), with respect to such holder's acquisition of the shares of Series A-1 Convertible Preferred Stock or the waiting period applicable to such holder under the HSR Act has expired.

Series B 7.0% Cumulative Convertible Perpetual Preferred Stock

The Series B Convertible Preferred Stock was issued to the Oaktree Funds and has substantially the same rights as the Series A-1 Convertible Preferred Stock, except that the holders of Series B Convertible Preferred Stock have the right to designate one of the Preferred Directors and do not have registration rights under the 7.0% Registration Rights Agreement. The Series B Convertible Preferred Stock is convertible into Series A-1 Convertible Preferred Stock at any time at the election of the holder and will automatically convert into Series A-1 Convertible Preferred Stock when the Oaktree Funds cease to own an aggregate of 10,000 shares of Series B Convertible Preferred Stock and/or Hybrid Preferred Stock.

Series C 7.0% Cumulative Convertible Perpetual Preferred Stock

The Series C Convertible Preferred Stock was issued to Ares and has substantially the same rights as the Series A-1 Convertible Preferred Stock, except that the holders of Series C Convertible Preferred Stock have the right to designate one of the Preferred Directors and do not have any registration rights under the 7% Registration Rights Agreement. The Series C Convertible Preferred Stock is convertible into Series A-1 Convertible Preferred Stock at any time at the election of the holder and will automatically convert into Series A-1 Convertible Preferred Stock when Ares ceases to own an aggregate of 10,000 shares of Series C Convertible Preferred Stock and/or Hybrid Preferred Stock.

Principal Terms of the Hybrid Preferred Stock

The following summarizes the principal terms of the Hybrid Preferred Stock. This discussion is not complete and is qualified in its entirety by, and should be read in conjunction with, the Statement of Designation establishing each series of the Hybrid Preferred Stock (the "Hybrid Preferred Stock Statements of Designation"), which are attached to this proxy statement as Annex E and Annex F.

Series A-1 Hybrid Preferred Stock

If the Full NYSE Proposal is Approved. Initially the Series A-1 Hybrid Preferred Stock (the "Series A-1 Hybrid Preferred Stock") is not convertible into Common Stock. If shareholder approval of the Full NYSE Proposal is obtained, then the designations, preferences, limitations and relative voting rights of the Series A-1 Hybrid Preferred Stock will become identical to the designations, preferences, limitations and relative voting rights of the Series A-1 Convertible Preferred Stock contained in Annex III to the Statement of Designation for the Series A-1 Hybrid Preferred Stock, including the right to dividends and the right to convert into Common Stock.

If the Full NYSE Proposal is Not Approved. If shareholder approval of the Full NYSE Proposal is not obtained, cash dividends will accrue on the Series A-1 Hybrid Preferred Stock at a rate of 11.0% per annum. In addition, if shareholder approval of the Full NYSE Proposal has not been obtained by September 26, 2007, the annual dividend rate will increase by 0.50% per quarter (up to a maximum rate of 18% per annum) until the Full NYSE Proposal has been approved by the shareholders. Prior to the earlier of September 26, 2007 and the date that the shareholder approval of the Full NYSE Proposal is obtained, the Series A-1 Hybrid Preferred Stock may be redeemed only with the consent of the holders of the Hybrid Preferred Stock at a redemption price equal to 100% of the liquidation preference plus accrued dividends. After September 26, 2007 and prior to the shareholder approval of the Full NYSE Proposal, the Series A-1 Hybrid Preferred Stock is redeemable at the Company's option at any time, and must be redeemed on April 18, 2011, for cash at 125% of the liquidation premium plus accrued dividends. Upon the occurrence of a change of control, holders of Series A-1 Hybrid Preferred Stock may require the Company to repurchase their shares for cash at 101% of the liquidation preference plus accrued dividends. In addition, upon the occurrence of specified defaults in

the Statements of Designation for the Hybrid Preferred Stock the holders of Convertible Preferred Stock and Hybrid Preferred Stock, voting together as a class, have the right to elect four default directors until such default is cured. Prior to obtaining shareholder approval of the Full NYSE Proposal, the Series A-1 Hybrid Preferred Stock contains covenants restricting the Company's incurrence of additional indebtedness and requiring the Company to repurchase the shares following certain asset dispositions.

Series A-2 Hybrid Preferred Stock

The Series A-2 Hybrid Preferred Stock (the "Series A-2 Hybrid Preferred Stock") has substantially the same rights as the Series A-1 Hybrid Preferred Stock, except that holders of Series A-2 Hybrid Preferred Stock do not have any registration rights. Initially the Series A-1 Hybrid Preferred Stock is not convertible into Common Stock. If shareholder approval of the Full NYSE Proposal is obtained, then the designations, preferences, limitations and relative voting rights of the Series A-2 Hybrid Preferred Stock will become identical to the designations, preferences, limitations and relative voting rights of the Series A-2 Convertible Preferred Stock contained in Annex III to the Statement of Designation for the Series A-2 Hybrid Preferred Stock, including the right to dividends and the right to convert into Common Stock. Shares of Series A-2 Hybrid Preferred Stock automatically convert into shares of Series A-1 Hybrid Preferred Stock when the holder thereof has provided the Company with a certificate certifying that either no filing is required under the HSR Act with respect to such holder's acquisition of the shares of Series A-1 Hybrid Preferred Stock or the waiting period applicable to such holder under the HSR Act has expired.

Principal Differences Between the Hybrid Preferred Stock prior to and after Shareholder Approval of the Full NYSE Proposal

The following chart compares the principal terms of the Hybrid Preferred Stock (i) prior to shareholder approval of the Full NYSE Proposal and (ii) after shareholder approval of the Full NYSE Proposal.

	Prior to Shareholder Approval	Following Shareholder Approval
Dividend Rate	Initially 11.0% per annum; after September 26, 2007, the rate increases by 0.50% per annum for each 90-day period up to a maximum rate of 18% per annum	Prior to March 30, 2013, 7% per annum if paid in cash and 9% per annum if added to the liquidation preference On and after March 30, 2013, 9% per annum in cash
Liquidation Preference	$10,000 per share	$10,000 per share, plus any increase if, prior to March 30, 2013, dividends are paid as an addition to the liquidation preference

Voting Rights	No voting rights, except that the Hybrid Preferred Stock and the Convertible Preferred Stock vote together as a single class in the election of Default Directors	The Hybrid Preferred Stock votes on an as-converted basis with the Common Stock and the Convertible Preferred Stock, together as a single class, on all matters except election of directors The Series A-1 Hybrid Preferred Stock votes with the Series A-1 Convertible Preferred Stock, the Series B Convertible Preferred Stock and the Series C Convertible Preferred Stock, together as a single class, in the election of Preferred Directors The Hybrid Preferred Stock and the Convertible Preferred Stock vote together as a single class in the election of Default Directors
Mandatory Redemption	On April 18, 2011, at 125% of liquidation preference plus accrued and unpaid dividends	N/A
Optional Redemption	Prior to September 26, 2007, the Company may redeem the shares for cash at 100% of the liquidation preference plus accrued and unpaid dividends and only with the consent of all holders On or after September 26, 2007, the Company may redeem the shares for cash at 125% of the liquidation preference plus accrued and unpaid dividends	N/A
Optional Conversion by Holders	N/A	Holders may convert the shares into Common Stock at any time at the conversion price (initially $19.00 per share)

Forced Conversion	N/A	The Company may convert the shares into Common Stock if the volume-weighted average sale price of the Common Stock for at least 20 trading days in a period of 30 consecutive days exceeds 175% of the conversion price in the period through March 30, 2009, 150% of the conversion price in the period from March 31, 2009 through March 30, 2001 and 125% of the conversion price in the period thereafter; provided that the holders may elect to receive a cash payment in lieu of shares of Common Stock if the Company exercises the conversion option on or after March 31, 2011
Anti-Dilution Adjustments	N/A	The conversion price will be adjusted upon the following events:
		•	stock dividends or distributions
		•	stock splits, subdivisions or combinations
		•	the distribution of any options, rights or warrants exercisable within 180 days at a price below the market price
		•	issuer equity self-tenders or share repurchases at a premium to the market price at the time of announcement
		•	dividends of cash or property in excess of $0.06 but not more than $0.10 per share per quarter

		•	issuance of stock, convertible securities or options at a price per share below the conversion price
Change of Control	Upon a change of control, the holder may require the Company to purchase the shares for cash at 101% of the liquidation preference plus accrued and unpaid dividends	Upon a change of control, the holder may require the Company to purchase the shares for cash at 100% of the liquidation preference plus accrued and unpaid dividends
Protective Covenants	Limitation on line of business Limitation on indebtedness Limitation on sales of assets and subsidiary stock	N/A

Board Recommendation

The Board of Directors has approved the terms of the Full NYSE Proposal and determined that the Full NYSE Proposal is in the best interests of the Company and its shareholders and recommends that the shareholders vote "for" the Full NYSE Proposal.

Reasons for the Board Recommendation

We believe that the approval of the Full NYSE Proposal to adopt the Annex III Terms for the Hybrid Preferred Stock and to remove the restrictions on the conversion price adjustment contained in Section 10 of the Convertible Preferred Stock Statements of Designation are economically more favorable to the Company than the existing terms of the Hybrid Preferred Stock and the existing restrictions on the conversion price adjustment to the Convertible Preferred Stock for the following reasons:

•: The higher dividend rate on the Hybrid Preferred Stock prior to the adoption of the Annex III Terms;
•: The ability of the holders of the Hybrid Preferred Stock to put their shares to us at a premium upon a change of control prior to the adoption of the Annex III Terms;
•: The prohibition prior to the adoption of the Annex III Terms on dividends, rights offers or other distributions on shares of Common Stock or shares of preferred stock that rank junior to the Hybrid Preferred Stock with respect to dividends and liquidation preferences and the restriction on our ability to issue shares of such junior stock;
•: The separate class vote of the Hybrid Preferred Stock on certain change of control transactions unless the holders of the Hybrid Preferred Stock receive the consideration that such shareholder would have received had it been able to convert the Hybrid Preferred Stock into Common Stock immediately prior to such transaction;
•: The fact that we are restricted from incurring additional indebtedness without compliance with the debt incurrence covenant under the terms of the Hybrid Preferred Stock prior to the adoption of the Annex III Terms;

•: The fact that we would be required to use the proceeds we receive from certain asset sale transactions to repurchase shares of Hybrid Preferred Stock prior to adoption of the Annex III Terms;
•: The ability of the holders of Hybrid Preferred Stock to require us to mandatorily redeem their shares on April 18, 2011 prior to the adoption of the Annex III Terms; and
•: The additional cost to the Company resulting from a cash payment of any Adjustment Amount or the dilutive effect of issuing additional shares of Hybrid Preferred Stock in lieu of a cash payment in connection with an Adjustment Event that would otherwise result in a conversion price adjustment for the Convertible Preferred Stock.

Vote Required

The approval of the Full NYSE Proposal will require the affirmative vote of the holders of a majority of the votes cast by holders of shares of Common Stock on the proposal, provided that the total vote cast on the Full NYSE Proposal represents over 50% of the voting power of all shares of Common Stock outstanding. Abstentions are counted as "present" for purposes of determining the number of votes cast on this proposal and will have the same effect as a vote against this proposal. Broker non-votes are not counted as "present" for purposes of determining the number of votes cast on the Full NYSE Proposal, and therefore will have no effect on the outcome of the vote on the Full NYSE Proposal, other than with respect to the requirement that the votes cast represent over 50% of the voting power of all shares of Common Stock. Although holders of Convertible Preferred Stock generally vote on an as-converted basis with holders of Common Stock, holders of Convertible Preferred Stock do not have the right to vote on the Full NYSE Proposal. The shares of Hybrid Preferred Stock are non-voting and, therefore, holders of Hybrid Preferred Stock do not have the right to vote on the Full NYSE Proposal. Therefore, if the Full NYSE Proposal does not receive a majority of the votes cast by holders of shares of Common Stock, it will not be approved.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE DESIGNATIONS,
PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS SET FORTH ON ANNEX III OF
THE STATEMENTS OF DESIGNATION FOR THE HYBRID PREFERRED STOCK, THE
ISSUANCE OF COMMON STOCK UPON CONVERSION OF SUCH SHARES OF HYBRID
PREFERRED STOCK AND THE REMOVAL OF THE RESTRICTIONS ON CONVERSION
PRICE ADJUSTMENTS FOR THE CONVERTIBLE PREFERRED STOCK.

APPROVAL OF THE REMOVAL OF THE RESTRICTIONS ON CONVERSION PRICE
ADJUSTMENTS FOR THE CONVERTIBLE PREFERRED STOCK
(Proposal 3)

Overview

As described above in Proposal 2, the shares of Convertible Preferred Stock issued on March 30, 2007 are initially convertible into shares of our Common Stock at a conversion price of $19.00 per share. The Statement of Designation for each series of the Convertible Preferred Stock contains weighted average anti-dilution provisions that provide for an adjustment to the conversion price of the Convertible Preferred Stock (the "price based anti-dilution provisions") upon (i) the issuance of stock, convertible securities or options at a price below the then-current conversion price, (ii) the issuance of options to holders of Common Stock at less than the current market price, (iii) a dividend or distribution to holders of Common Stock in excess of $0.06 per share in any quarter or (iv) an equity tender offer or share repurchase by the Company at a price in excess of the current market price (each, an "Adjustment Event").

Under the NYSE rules, the inclusion of the price based anti-dilution provisions requires shareholder approval because such provisions could result in the number of shares of Common Stock into which the Convertible Preferred Stock is convertible exceeding the applicable 1%, 5% and 20% thresholds described above in Proposal 2. In order to prevent this result, Section 10 of the Statement of Designation for each series of Convertible Preferred Stock provides that (i) the conversion price will not be adjusted as a result of an Adjustment Event and (ii) in lieu of any adjustment to the conversion price that would otherwise result from an Adjustment Event, the Company will pay an amount per share of Convertible Preferred Stock equal to the amount by which the conversion price would have been adjusted if the restrictions in Section 10 were not applicable (the "Adjustment Amount"). The Company may pay the Adjustment Amount at its option in either cash or whole shares of Hybrid Preferred Stock. In addition, on March 28, 2007, we represented to the NYSE that, after the issuance of the Convertible Preferred Stock, the Company would not, without first obtaining shareholder approval of the price based anti-dilution provisions contained in the Convertible Preferred Stock, consummate any Adjustment Event, if such Adjustment Event would result in the conversion price for the Convertible Preferred Stock held by Ares (after subtracting any and all Adjustment Amounts, whether paid in cash, shares of Hybrid Preferred Stock or any other consideration) equaling an amount that is less than either the book or market value of the Common Stock as defined in Section 312.04(i) of the NYSE Listed Company Manual. The market price of our Common Stock on the date of issuance of the Convertible Preferred Stock was $16.58 per share. Accordingly, the Company is restricted from issuing Common Stock at a price that would cause the Adjustment Amount to exceed $2.42 without first obtaining shareholder approval.

If the Full NYSE Proposal or the Limited NYSE Proposal is approved, then conversion price adjustments in the event of an Adjustment Event will no longer be restricted and, as a result, upon the occurrence of an Adjustment Event, the conversion price of the Convertible Preferred Stock will be reduced based on a weighted average formula set forth in the Statement of Designation for each series of Convertible Preferred Stock attached hereto as Annexes A-D. Accordingly, a larger number of shares of Common Stock would be issuable upon the conversion of the Convertible Preferred Stock than if the restriction on conversion price adjustments remains in effect. The issuance of a larger number of shares of Common Stock could be dilutive to our existing shareholders.

restrictions on conversion price adjustments as a term of the sale and issuance of the Convertible Preferred Stock and Hybrid Preferred Stock on March 30, 2007.

Board Recommendation

The Board of Directors has determined that the Limited NYSE Proposal is in the best interests of the Company and its shareholders if the shareholders do not approve the Full NYSE Proposal. As a result, the Board has unanimously approved the adoption of the removal of the restrictions on the conversion price adjustments for the Convertible Preferred Stock contained in Section 10 of the Statement of Designation for each series of Convertible Preferred Stock and recommends a vote by the shareholders for approval of this action. Issuance of Common Stock or securities convertible into or exercisable for Common Stock in contravention of the NYSE shareholder approval policy would permit the NYSE to seek delisting of the shares of Common Stock. Accordingly, we are seeking shareholder approval of the Limited NYSE Proposal.

Reasons for Board Recommendation

We believe it is appropriate to eliminate the restrictions on conversion price adjustments for the Convertible Preferred Stock. The conversion price adjustment is a traditional provision contained in convertible securities that we feel is appropriate in light of the investment in us made by the purchasers of the Convertible Preferred Stock. If neither the Full NYSE Proposal nor the Limited NYSE Proposal is approved, the restrictions on the conversion price adjustments will remain in place and we would be unable to consummate a transaction involving an Adjustment Event without having to pay cash or issue additional shares of Hybrid Preferred Stock to the holders of Convertible Preferred Stock. This would reduce our flexibility to consummate a transaction involving an Adjustment Event and could result in the transaction being more costly to us and our shareholders.

By way of example, if the Company sold 50,000,000 shares of Common Stock at a price of $15.00 per share, the Adjustment Amount from such an Adjustment Event would be $1.30 per share of Convertible Preferred Stock. If the Full NYSE Proposal or the Limited NYSE Proposal was approved prior to such sale, then the conversion price would be reduced by the $1.30 Adjustment Amount to $17.70. Each share of Convertible Preferred Stock would then be convertible into approximately 565.0 shares of Common Stock (the current conversion rate is approximately 526.3 shares of Common Stock per share of Convertible Preferred Stock). Based upon the number of shares of Convertible Preferred Stock outstanding on the Record Date, such conversion price adjustment would result in the issuance of approximately 1,508,994 additional shares upon conversion and the same number of additional votes held by the holders of Convertible Preferred Stock. By contrast, if the Company sold the 50,000,000 shares of Common Stock at a price of $15.00 per share prior to approval of either the Full NYSE Proposal or the Limited NYSE Proposal, the Company would be required to pay the holders of the Convertible Preferred Stock an amount per share equal to the $1.30 Adjustment Amount, which would result in a total payment of $26,615,829.20. The Company would be required to make such payment at its option in either cash or shares of Hybrid Preferred Stock.

Additionally, based on the representation we made to the NYSE that we would not, without first obtaining shareholder approval of the price based anti-dilution provisions contained in the Convertible Preferred Stock, consummate any Adjustment Event if such Adjustment Event would result in the conversion price for the Convertible Preferred Stock held by Ares (after subtracting any and all Adjustment Amounts, whether paid in cash, shares of Hybrid Preferred Stock or any other consideration) equaling an amount that is less than $16.58. We believe that this restriction would be too restrictive on our flexibility in future stock issuances, including financings, corporate mergers and acquisitions, or other corporate purposes.

Vote Required

The approval of the Limited NYSE Proposal will require the affirmative vote of the holders of a majority of the votes cast by holders of shares of Common Stock on the proposal, provided that the total votes cast on the Limited NYSE Proposal represent over 50% of the voting power of all shares of Common Stock outstanding. Abstentions are counted as "present" for purposes of determining the number of votes cast on the Limited NYSE Proposal and will have the same effect as a vote against the Limited NYSE Proposal. Broker non-votes are not counted as "present" for purposes of determining the number of votes cast on the Limited NYSE Proposal, and therefore will have no effect on the outcome of the vote on the Limited NYSE Proposal, other than with respect to the requirement that the votes cast represent over 50% of the voting power of all shares of Common Stock. Although holders of Convertible Preferred Stock generally vote on an as-converted basis with holders of Common Stock, holders of Convertible Preferred Stock do not have the right to vote on the Limited NYSE Proposal. The shares of Hybrid Preferred Stock are non-voting and, therefore, holders of Hybrid Preferred Stock do not have the right to vote on the Limited NYSE Proposal. Therefore, if the Limited NYSE Proposal does not receive a majority of the votes cast by holders of shares of Common Stock, it will not be approved.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE REMOVAL OF THE
RESTRICTIONS ON CONVERSION PRICE ADJUSTMENTS FOR THE CONVERTIBLE
PREFERRED STOCK.

AMENDMENT OF 2005 LONG-TERM INCENTIVE PLAN
(Proposal 4)

The Board of Directors recommends that the shareholders approve an amendment to the EXCO Resources, Inc. 2005 Long-Term Incentive Plan (the "Incentive Plan"). The Incentive Plan was originally adopted by the Board of Directors and the shareholders of Holdings II on September 15, 2005. As a result of the merger of Holdings II with and into EXCO Holdings, the Incentive Plan was assumed by EXCO Holdings, effective as of September 30, 2005, and ratified by EXCO Holdings' shareholders, effective as of October 3, 2005, and EXCO Holdings' Board of Directors, effective as of October 5, 2005. On October 5, 2005, EXCO Holdings issued an aggregate of 4,574,300 option shares to its officers, directors and other employees.

As a result of the merger of EXCO Holdings with and into the Company, the Incentive Plan was assumed by the Company effective as of February 14, 2006 in accordance with the terms of that certain Agreement and Plan of Merger, dated February 9, 2006, which agreement, including the merger and the Company's assumption of the Incentive Plan contemplated thereby, were approved by (i) the boards of directors of the Company and EXCO Holdings, (ii) the sole shareholder of the Company, and (iii) the shareholders of EXCO Holdings, each of which approval was effective as of February 4, 2006. The awards previously granted under the Incentive Plan were converted into awards in the Company's Common Stock pursuant to the requirements of Treasury Regulation section 1.424-1. The Incentive Plan became known as the EXCO Resources, Inc. 2005 Long-Term Incentive Plan from and after February 14, 2006.

The Company believes that operation of the Incentive Plan is important in attracting and retaining employees in a competitive labor market, which is essential to the Company's long-term growth and success. The Board of Directors approved the increased number of shares authorized for issuance under the Incentive Plan based, in part, on increases and proposed increases in the number of fully-diluted shares of Common Stock outstanding and on a belief that the number of shares currently available under the Incentive Plan does not give the Company sufficient authority and flexibility to adequately provide for future incentives.

When the Incentive Plan was adopted in September 2005, we had approximately 260 employees. Since September 2005, we have completed five significant acquisitions pursuant to which we hired a total of approximately 250 new employees. Our aggregate full-time employee headcount as of May 31, 2007 was 582. The Company generally awards new employees stock options in an amount equal to ten percent of their base salary. We grant stock options to all new hires because we believe that all employees should be motivated to foster the continued growth and overall success of our Company and to maximize shareholder value. Under this philosophy, all of our employees, from the most senior executives of our organization to entry level, have aligned interests. For more information about our compensation philosophy, see "Compensation Discussion and Analysis."

A summary of the approximate number of employees hired and the approximate number of option shares granted in connection with each of the five significant acquisitions completed since September 2005 is set forth in the following table:

Acquisition		Number of Employees Hired	Option shares granted
TXOK acquisition		57	411,650
PGMT acquisition		46	150,500
Winchester acquisition		58	430,900
Vernon acquisition		40	258,500
Southern Gas acquisition		49	323,200

	Total	250	1,574,750

Since September 2005, we have hired approximately 135 other employees (some of whom are no longer employed by us) not specifically associated with any one of the transactions listed in the table above and granted stock options to purchase approximately 1,526,900 shares (not taking into account forfeitures) to those new hires. In addition, in accordance with our compensation philosophy, we granted stock option bonuses to all of our employees in December 2006 such that each employee received an option for that number of shares equal to 10% of such employee's annual base salary earned during the year, pro rata for any partial year of service. The aggregate amount of option shares issued in connection with the December 2006 bonus was 2,122,100 shares. Our growth coupled with our equity compensation program has led to a high annual stock usage rate, or "burn rate," under the Incentive Plan. However, we believe equity compensation is an essential component of our overall compensation program.

It is our understanding that Institutional Shareholder Services ("ISS") may recommend a vote against this proposal to amend our Incentive Plan. ISS evaluates equity incentive plans using a cost-based analysis. The cost of an equity incentive plan is expressed in terms of shareholder value transfer ("SVT"). SVT is measured using a binomial model that assesses the amount of shareholders' equity flowing out of the company to its employees and directors as options are exercised. After determining how much a plan will cost, ISS evaluates whether or not the cost is reasonable by comparing the cost to an allowable cap, which is generally industry-specific. Vote recommendations are driven almost exclusively by the quantitative analysis outlined above. This rigid quantitative analysis fails to take into consideration the following key factors of our equity compensation program:

•: All of our employees participate in our Incentive Plan. We encourage equity ownership at every level of our company and believe that this philosophy has played a fundamental role in our success.
•: It has been our practice to pay annual salaries at or near the 50^th percentile of our peer group and supplement salaries with stock options. As a result, our employees' financial interests are more closely aligned with our shareholders and the financial success of our company.
•: Competition for quality employees within the energy industry is intense. However, we have historically experienced a low employee turnover rate compared to our industry peers. We believe that stock options are a critical factor in attracting and retaining employees.
•: When calculating SVT, the ISS model only takes into consideration the number of fully-diluted shares of common stock outstanding as of the record date to determine market value. The shares of common stock issuable upon conversion of the Convertible Preferred Stock and, if the Full NYSE Proposal is approved, the Hybrid Preferred Stock would more than double our common shares outstanding as of the Record Date. We believe that this rigid ISS calculation fails to reflect the true picture of our capital structure and our market value because it excludes our shares of Convertible Preferred Stock and Hybrid Preferred Stock.
•: When calculating SVT, the ISS model allocates significantly more cost for "full-value" awards such as restricted stock than it does for stock options. Although our Incentive Plan allows us to grant "full-value" awards, we have historically only granted options to our employees and do not intend to grant any "full-value" awards in the future. Our past practice of granting only stock options is not taken into account under the ISS model.

Notwithstanding any possible adverse recommendation from ISS, our Board of Directors recommends that you vote in favor of or "FOR" this proposal to amend our Incentive Plan.

Summary of Proposed Amendment

The amendment was adopted, subject to shareholder approval, by the Board of Directors on May 15, 2007, to increase the number of shares authorized under the Incentive Plan by 10,000,000 shares.

The approval of the amendment to the EXCO Resources, Inc. 2005 Long-Term Incentive Plan to increase the total number of shares of Common Stock authorized for issuance under such plan will require the affirmative vote of the holders of a majority of the voting power of the shares of Common Stock and Convertible Preferred Stock outstanding and entitled to vote on the subject matter at the Annual Meeting.

Summary of the Incentive Plan Terms

The principal features of the Incentive Plan, including the proposed amendment, are summarized below. The following summary of the Incentive Plan does not purport to be complete, and is subject to and qualified in its entirety by reference to the complete text of the Incentive Plan, which has been filed as Annex G to this proxy statement.

Purpose. The purpose of the Incentive Plan is to attract and retain the services of key employees, consultants and outside directors of the Company and its subsidiaries and to provide such persons with a proprietary interest in the Company through the granting of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights and other awards, whether granted singly, or in combination, or in tandem, that will increase the interest of such persons in the Company's welfare, furnish an incentive to such persons to continue their services for the Company, provide a means through which the Company may attract able persons as employees, consultants and outside directors.

General. The existing Incentive Plan authorizes the issuance of 10,000,000 shares of Common Stock pursuant to grants of awards. As of the Record Date, there were outstanding awards to purchase a total of 9,166,469 shares of Common Stock under the Incentive Plan. The Incentive Plan is currently administered by the Company's compensation committee. If the amendment to the Incentive Plan is approved, the number of common shares authorized for issuance under the Incentive Plan will be 20,000,000 shares.

The maximum number of shares underlying awards of incentive stock options that may be granted under the Incentive Plan will be 20,000,000 shares if the amendment to the Incentive Plan is approved. In addition, the Incentive Plan will limit the maximum aggregate number of shares that a participant may receive under all awards under the Incentive Plan during any calendar year to 2,000,000 shares if the amendment to the Incentive Plan is approved.

Eligibility and Granting of Awards. The Incentive Plan authorizes the granting of stock options, stock appreciation rights, restricted stock, dividend equivalents, stock bonuses, and performance awards to officers, directors, employees, consultants, and other persons who provide services to the Company. However, only employees of the Company are eligible to receive incentive stock options. Subject to the terms of the Incentive Plan, the Committee will determine the persons to whom awards are to be made, determine the type, number and terms and conditions of awards, and all matters relating to awards, specify times at which awards will be exercisable or settleable (including performance conditions that may be required), prescribe forms of award agreements, interpret and specify rules and regulations relating to the administration of the Incentive Plan, and make all other determinations that may be necessary or advisable to administer the Incentive Plan. In making these determinations, a number of factors are taken into account, including the duties and responsibilities of the participant, the value of the participant's services to the Company, the participant's present and potential contribution to the success of the Company and other relevant factors. As of the Record Date, there

were approximately 599 officers, directors, employees and consultants eligible to receive grants under the Incentive Plan.

Stock Options. The Committee is authorized to grant non-qualified stock options and incentive stock options ("ISOs") qualifying under Section 422 of the Code. The exercise price per share subject to an option is determined by the Committee. However, the per share exercise price of an option cannot be less than 100% of the fair market value of a share of Common Stock on the date of grant. If an ISO is granted to a participant who owns or is deemed to own more than 10% of the combined voting power of all classes of stock of the Company (or any majority-owned subsidiary), the per share exercise price of the ISO must be at least 110% of the fair market value of a share of Common Stock on the date of grant. The Committee will determine the terms of each option at the time of the grant, including without limitation the methods by or forms in which shares of Common Stock will be delivered to participants. The maximum term of each option, the times at which each option will be exercisable, and provisions requiring forfeiture of unexercised options at or following termination of employment or service generally are fixed by the Committee, except that the Committee may not grant options with a term exceeding 10 years. The Committee may grant options subject to certain restrictions such as vesting pursuant to the Incentive Plan or an award agreement.

Stock Appreciation Rights. The Committee is authorized to grant stock appreciation rights ("SARs") as a stand alone award ("freestanding SARs") or in conjunction with options granted under the Incentive Plan ("tandem SARs"). SARs entitle a participant to receive an amount equal to the excess of the fair market value of a share of Common Stock on the date of exercise over the grant price of the SAR, payable in either cash or shares of Common Stock. Tandem SARs require the participant, upon exercise, to surrender the related stock option with respect to the number of shares as to which the SAR is exercised. The grant price of a SAR is determined by the Committee. However, the grant price of a SAR cannot be less than 100% of the fair market value of a share of Common Stock on the date of grant. The Committee will determine the terms of each SAR at the time of the grant, including without limitation, the methods by or forms in which shares of Common Stock will be delivered to participants. The maximum term of each SAR, the times at which each SAR will be exercisable, and provisions requiring forfeiture of unexercised SARs at or following termination of employment or service generally are fixed by the Committee, except that no freestanding SAR may have a term exceeding 10 years and no tandem SAR may have a term exceeding the term of the option granted in conjunction with the tandem SAR.

Restricted Stock and Restricted Stock Units. The Committee is authorized to grant restricted stock and restricted stock units. Restricted stock consists of shares of Common Stock that may not be sold, transferred, pledged, hypothecated, encumbered or otherwise disposed of, and that may be forfeited in the event of certain terminations of employment or service, prior to the end of a restricted period specified by the Committee. Restricted stock units are the right to receive shares of Common Stock at a future date in accordance with the terms of such grant upon the attainment of certain conditions specified by the Committee, which include substantial risk of forfeiture and restrictions on their sale or other transfer by the participant. The Committee determines the eligible participants to whom, and the time or times at which, grants of restricted stock or restricted stock units will be made, the number of shares or units to be granted, the price to be paid, if any, the time or times within which the shares covered by such grants will be subject to forfeiture, the time or times at which the restrictions will terminate, and all other terms and conditions of the grants. Restrictions or conditions could include, but are not limited to, the attainment of performance goals (as described below), continuous service with the Company, the passage of time or other restrictions or conditions.

Dividend Equivalents. The Committee is authorized to grant dividend equivalents in connection with other awards granted under the Incentive Plan, conferring on participants the right to receive cash, shares of Common Stock, other awards, or other property equal in value to dividends paid on a specific

number of shares of Common Stock or other periodic payments. Dividend equivalents credit to the holder of a dividend equivalent right may be paid currently or may be deemed to be reinvested in additional shares of Common Stock (which may thereafter accrue additional dividend equivalents). Any such reimbursement shall be at the fair market value of a share of Common Stock at the time of reinvestment. Dividend equivalent rights may be settled in cash or shares of Common Stock, or a combination thereof, in a single payment or in installments which payment date or dates will be specified in the applicable award agreement.

Other Stock Based Awards. The Committee is authorized to grant other stock-based awards under the Incentive Plan that are denominated or payable in, valued by reference to, or otherwise based on or related to shares of Common Stock, on such terms and conditions as the Committee may determine. Other stock-based awards may be granted alone or in addition with other awards granted under the Incentive Plan, and such other stock-based awards will be available as a form of payment in the settlement of other awards granted under the Incentive Plan. Other stock-based awards may be purchased for such consideration as the Committee shall determine and may be payable upon the completion of future service requirements. Except for certain limited situations, other stock-based awards subject solely to future service requirements shall be subject to restrictions for a period that will not be shorter than three years from the date of grant (but permitting pro-rata vesting over such time).

Performance Awards. The Committee is authorized to grant performance awards under the Incentive Plan, on which the right of a participant to exercise or receive a grant or settlement of an award, and the timing of the grant or settlement, may be subject to such performance conditions as may be specified by the Committee. Performance awards may be denominated either in dollars (referred to as "performance units") or in shares of Common Stock (referred to as "performance shares") that are paid to a participant upon the achievement of certain pre-established performance goals during a specified period. Subject to the requirements of the Incentive Plan, the Committee will determine performance award terms, including the required performance goals, the corresponding amounts payable upon achievement of such performance goals, termination and forfeiture provisions and the form of settlement. In certain circumstances, the Committee may, in its discretion, determine that the amount payable with respect to certain performance awards will be reduced from the amount of any potential awards. However, the Committee may not, in any event, increase the amount of compensation payable to an individual upon the attainment of a performance goal.

Resale Restrictions. Restricted stock consists of shares of Common Stock that may not be sold, transferred, pledged, hypothecated, encumbered or otherwise disposed of, and that may be forfeited in the event of certain terminations of employment or service, prior to the end of a restricted period specified by the Committee. The restrictions on the sale of any restricted stock are set forth in the applicable award agreement.

Assignment of Interest. Awards granted under the Incentive Plan generally are not assignable or transferable except by will or by the laws of descent and distribution, or to a designated beneficiary upon the participant's death, except that the Committee may, in its discretion and pursuant to the terms of an award agreement, permit transfers of awards and other rights (other than ISOs and tandem SARs granted in connection with ISOs) during the lifetime of the participant to (i) the spouse (or former spouse), children, or grandchildren of the participant or a sister or brother of the participant ("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, (iii) a partnership in which the only partners are (1) the participant or such Immediate Family Members and/or (2) entities which are controlled by the participant or Immediate Family Members, (iv) an entity exempt from federal income tax pursuant to Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code") or any successor provision thereto, or (v) a split interest in a trust or pooled income fund description in Section 2522(c)(2) of the Code or any successor provision thereto, provided, that there is no consideration for the transfer, the award agreement

pursuant to which such award is granted is approved by the Committee and expressly provides for the transfer and subsequent transfers shall be prohibited, except those by will or the laws of descent or distribution.

Forfeitures and Penalties. The Committee may impose on any award at the time of grant or thereafter, such additional terms and conditions as the Committee determines, including terms requiring forfeiture of awards in the event of a participant's termination of service. The Committee will specify the circumstances on which performance awards may be forfeited in the event of a termination of service by a participant prior to the end of a performance period or settlement of awards. Except as otherwise determined by the Committee, restricted stock will be forfeited upon a participant's termination of service during the applicable restriction period. Unless otherwise determined by the Committee, in the event of a forfeiture of an award with respect to which a participant paid cash or other consideration, the participant will be repaid such amount of cash or other consideration.

Charges and Deductions and Liens Therefor. Awards granted under the Incentive Plan may not be pledged, hypothecated, or otherwise encumbered or subject to any lien, obligation or liability of a participant to any party.

Amendment or Discontinuance. The Board of Directors may at any time and from time to time, without the consent of the participants, alter, amend, revise, suspend, or discontinue the Incentive Plan in whole or in part; provided, however, that no amendment which requires shareholder approval in order for the Incentive Plan and awards under the Incentive Plan to continue to comply with Sections 162(m), 421, and 422 of the Code, shall be effective unless such amendment shall be approved by the requisite vote of the shareholders of the Company entitled to vote thereon. Any such amendment shall, to the extent deemed necessary or advisable by the Committee, be applicable to any outstanding awards theretofore granted under the Incentive Plan, notwithstanding any contrary provisions contained in any Award Agreement. In the event of any such amendment to the Incentive Plan, the holder of any award outstanding under the Incentive Plan shall, upon request of the Committee and as a condition to the exercisability thereof, execute a conforming amendment in the form prescribed by the Committee to any Award Agreement relating thereto. Notwithstanding anything contained in the Incentive Plan to the contrary, unless required by law, no such amendment or alteration shall adversely affect any rights of participants or obligations of the Company to participants with respect to any award theretofore granted under the Incentive Plan without the consent of the affected participant.

Burn Rate

Burn rate is defined by ISS as the total number of share issuable from equity awards granted in a given year divided by the number of common shares outstanding. The Company's burn rate was 4.0% during the 12 months ending July 2, 2007. Since we went public within the past 3 years, ISS will not take our burn rate into account in determining whether to recommend that shareholders vote for this proposal.

Federal Income Tax Consequences of Awards

The following is a brief summary of certain federal income tax consequences relating to the transactions described under the Incentive Plan as set forth below. This summary does not purport to address all aspects of federal income taxation and does not describe state, local or foreign tax consequences. This discussion is based upon provisions of the Code and the treasury regulations issued thereunder (the "Treasury Regulations"), and judicial and administrative interpretations under the Code and Treasury Regulations, all as in effect as of the date hereof, and all of which are subject to change (possibly on a retroactive basis) or different interpretation.

New Law Affecting Deferred Compensation

In 2004, a new Section 409A was added to the Code to regulate all types of deferred compensation. If the requirements of Section 409A of the Code are not satisfied, deferred compensation and earnings thereon will be subject to tax as it vests, plus an interest charge at the underpayment rate plus 1% and a 20% penalty tax. Certain performance awards, stock options, stock appreciation rights, restricted stock units and certain types of restricted stock are subject to Section 409A of the Code.

Incentive Stock Options. A participant will not recognize income at the time an ISO is granted. When a participant exercises an ISO, a participant also generally will not be required to recognize income (either as ordinary income or capital gain). However, to the extent that the fair market value (determined as of the date of grant) of the Common Stock with respect to which the participant's ISOs are exercisable for the first time during any year exceeds $100,000, the ISOs for the Common Stock over $100,000 will be treated as nonqualified stock options, and not ISOs, for federal tax purposes, and the participant will recognize income as if the ISOs were nonqualified stock options.

In addition to the foregoing, if the fair market value of the Common Stock received upon exercise of an ISO exceeds the exercise price, then the excess may be deemed a tax preference adjustment for purposes of the federal alternative minimum tax calculation. The federal alternative minimum tax may produce significant tax repercussions depending upon the participant's particular tax status.

The tax treatment of any Common Stock acquired by exercise of an ISO will depend upon whether the participant disposes of such Common Stock prior to two years after the date the ISO was granted or one year after the Common Stock was transferred to the participant (referred to as the "Required Holding Period"). If a participant disposes of Common Stock acquired by exercise of an ISO after the expiration of the Required Holding Period, any amount received in excess of the participant's tax basis for such stock will be treated as short-term or long-term capital gain, depending upon how long the participant has held the stock. If the amount received is less than the participant's tax basis for such stock, the loss will be treated as short-term or long-term capital loss, depending upon how long the participant has held the stock.

If the participant disposes of Common Stock acquired by exercise of an ISO prior to the expiration of the Required Holding Period, the disposition will be considered a "disqualifying disposition." If the amount received for the Common Stock is greater than the fair market value of the Common Stock on the exercise date, then the difference between the ISO's exercise price and the fair market value of the Common Stock at the time of exercise will be treated as ordinary income for the tax year in which the "disqualifying disposition" occurs. The participant's basis in the Common Stock will be increased by an amount equal to the amount treated as ordinary income due to such "disqualifying disposition." In addition, the amount received in such "disqualifying disposition" over the participant's increased basis in the Common Stock will be treated as capital gain. However, if the price received for Common Stock acquired by exercise of an ISO is less than the fair market value of the Common Stock on the exercise date and the disposition is a transaction in which the participant sustains a loss which otherwise would be recognizable under the Code, then the amount of ordinary income that the participant will recognize is the excess, if any, of the amount realized on the "disqualifying disposition" over the basis of the Common Stock.

Nonqualified Stock Options. A participant generally will not recognize income at the time a nonqualified stock option is granted. When a participant exercises a nonqualified stock option, the difference between the exercise price and the fair market value of the Common Stock on the date of exercise will be treated as compensation taxable as ordinary income to the participant. The participant's tax basis for Common Stock acquired under a nonqualified stock option will be equal to the exercise price paid for such Common Stock, plus any amounts included in the participant's income as compensation. When a participant disposes of Common Stock acquired by exercise of a nonqualified

stock option, any amount received in excess of the participant's tax basis for such stock will be treated as short-term or long-term capital gain, depending upon how long the participant has held the Common Stock. If the amount received is less than the participant's tax basis for such stock, the loss will be treated as short-term or long-term capital loss, depending upon how long the participant has held the stock.

Special Rule if Exercise Price is Paid for in Common Stock. If a participant pays the exercise price of a nonqualified stock option with previously-owned shares of our Common Stock and the transaction is not a disqualifying disposition of Common Stock previously acquired under an ISO, the Common Stock received equal to the number of shares of Common Stock surrendered is treated as having been received in a tax-free exchange. The participant's tax basis and holding period for the Common Stock received will be equal to the participant's tax basis and holding period for the Common Stock surrendered. The Common Stock received in excess of the number of shares of Common Stock surrendered will be treated as compensation taxable as ordinary income to the participant to the extent of such shares' fair market value. The participant's tax basis in such Common Stock will be equal to its fair market value on the date of exercise, and the participant's holding period for such stock will begin on the date of exercise.

If the use of previously acquired Common Stock to pay the exercise price of a nonqualified stock option constitutes a disqualifying disposition of Common Stock previously acquired under an ISO, the participant will have ordinary income as a result of the disqualifying disposition in an amount equal to the excess of the fair market value of the Common Stock surrendered, determined at the time such Common Stock was originally acquired on exercise of the ISO, over the aggregate exercise price paid for such Common Stock. As discussed above, a disqualifying disposition of Common Stock previously acquired under an ISO occurs when the participant disposes of such stock before the end of the Required Holding Period. The other tax results from paying the exercise price with previously-owned stock are as described above, except that the participant's tax basis in the Common Stock that is treated as having been received in a tax-free exchange will be increased by the amount of ordinary income recognized by the participant as a result of the disqualifying disposition.

Stock Awards. A participant who receives a stock award generally will recognize as ordinary income the excess, if any, of the fair market value of the Common Stock at such time as the Common Stock is no longer subject to forfeiture or restrictions, over the amount paid, if any, by the participant for such Common Stock. However, a participant who receives a stock award may make an election under Section 83(b) of the Code within 30 days of the date of transfer of the stock award to recognize ordinary income on the date of transfer of the stock award equal to the excess of the fair market value of the Common Stock subject to the stock award (determined without regard to the restrictions on such Common Stock) over the purchase price, if any, of such stock. If a participant does not make an election under Section 83(b) of the Code, then the participant will recognize as ordinary income any dividends received with respect to the Common Stock subject to the stock award. At the time of sale of such stock, any gain or loss realized by the participant will be treated as either short-term or long-term capital gain (or loss) depending on the holding period. For purposes of determining any gain or loss realized, the participant's tax basis will be the amount previously taxable as ordinary income.

Stock Appreciation Rights. Generally, a participant who receives freestanding SARs will not recognize taxable income at the time the freestanding SAR is granted, provided that the SAR is exempt from or complies with Section 409A of the Code. If an employee receives the appreciation inherent in the SARs in cash, the cash will be taxed as ordinary income to the recipient at the time it is received. If an employee receives the appreciation inherent in the SARs in stock, the spread between the then current market value and the grant price, if any, will be taxed as ordinary income to the recipient at the time it is received.

In general, there will be no federal income tax deduction allowed to the Company upon the grant or termination of SARs. However, upon the exercise of a SAR, the Company will be entitled to a deduction equal to the amount of ordinary income the recipient is required to recognize as a result of the exercise.

Other Awards. In the case of an award of restricted stock units, performance awards, dividend equivalent rights or other stock or cash awards, the recipient will generally recognize ordinary income in an amount equal to any cash received and the fair market value of any shares received on the date of payment or delivery, provided that the award is exempt from or complies with Section 409A of the Code. In that taxable year, the Company will receive a federal income tax deduction in an amount equal to the ordinary income which the participant has recognized.

Federal Tax Withholding. Any ordinary income realized by a participant upon the exercise of an award under the Incentive Plan is subject to withholding of federal, state and local income tax and to withholding of the participant's share of tax under the Federal Insurance Contribution Act ("FICA") and the Federal Unemployment Tax Act ("FUTA").

To satisfy federal income tax withholding requirements, we will have the right to require that, as a condition to delivery of any certificate for Common Stock, the participant remit to the Company an amount sufficient to satisfy the withholding requirements. Alternatively, we may withhold a portion of the Common Stock (valued at fair market value) that otherwise would be issued to the participant to satisfy all or part of the withholding tax obligations.

Withholding does not represent an increase in the participant's total income tax obligation, since it is fully credited toward his or her tax liability for the year. Additionally, withholding does not affect the participant's tax basis in any Common Stock. Compensation income realized and tax withheld will be reflected on Forms W-2 supplied to employees by January 31 of the succeeding year.

Deferred compensation that is subject to Section 409A of the Code will be subject to certain federal income tax withholding and reporting requirements.

Tax Consequences to the Company. To the extent that a participant recognizes ordinary income in the circumstances described above, the Company will be entitled to a corresponding deduction provided that, among other things, the income meets the test of reasonableness, is an ordinary and necessary business expense, is not an "excess parachute payment" within the meaning of Section 280G of the Code and is not disallowed by the $1,000,000 limitation on certain executive compensation under Section 162(m) of the Code.

Million Dollar Deduction Limit and Other Tax Matters. The Company may not deduct compensation of more than $1,000,000 that is paid to an individual who, on the last day of the taxable year, is either the Company's chief executive officer or is among one of the four other most highly-compensated officers for that taxable year. The limitation on deductions does not apply to certain types of compensation, including qualified performance-based compensation. The Company intends that benefits in the form of stock options, SARs, stock related awards, and other performance-based awards will be constructed so as to constitute qualified performance-based compensation and, as such, will be exempt from the $1,000,000 limitation on deductible compensation.

If an individual's rights under the Incentive Plan are accelerated as a result of a change in control and the individual is a "disqualified individual" under Section 280G of the Code, the value of any such accelerated rights received by such individual may be included in determining whether or not such individual has received an "excess parachute payment" under Section 280G of the Code, which could result in (i) the imposition of a 20% federal excise tax (in addition to federal income tax) payable by the individual on the value of such accelerated rights, and (ii) the loss by the Company of a compensation deduction.

Plan Benefits

The Company cannot currently determine the benefits or number of shares subject to awards that may be granted in the future to eligible participants under the Incentive Plan because the grant of awards and terms of such awards are to be determined in the sole discretion of the Committee. As of the Record Date, the weighted average exercise price of all outstanding stock options was $11.24 per share and the weighted average remaining contractual life is 8.81 years. The following table sets forth information with respect to the total stock awards granted to the following persons and groups under the Incentive Plan.

Name	Number of Shares Subject to Options Granted under the Incentive Plan	Weighted Average Exercise Price ($)
Douglas H. Miller Chairman and Chief Executive Officer	1,765,000	$	7.74
Stephen F. Smith Vice Chairman and President	423,300	$	8.17
J. Douglas Ramsey, Ph.D. Vice President, Chief Financial Officer and Treasurer	196,700	$	8.59
Harold L. Hickey Vice President and Chief Operating Officer	196,700	$	8.59
William L. Boeing Vice President, General Counsel and Secretary	526,200	$	12.47
All current executive officers as a group	3,156,900	$	8.73
All current directors who are not executive officers as a group	350,000	$	10.09
Jeffrey D. Benjamin	50,000	$	7.50
Earl E. Ellis	50,000	$	7.50
Robert H. Niehaus	50,000	$	7.50
Boone Pickens	50,000	$	7.50
Robert L. Stillwell	50,000	$	7.50
Vincent J. Cebula(1)	50,000	$	16.58
Jeffrey S. Serota(2)	—		—
Rajath Shourie(3)	—		—
All employees, including current officers who are not executive officers as a group	5,659,569	$	12.71

(1): Represents a stock option to purchase 50,000 shares of our Common Stock issued to Mr. Cebula, a Managing Director of Oaktree, as an initial grant upon becoming one of our directors in March 2007 pursuant to the Amended and Restated 2007 Director Plan of EXCO Resources, Inc. This stock option is held directly by Mr. Cebula for the benefit of the Oaktree Funds. Pursuant to the policies of Oaktree, Mr. Cebula must hold this stock option on behalf of and for the sole benefit of the Oaktree Funds and is assigning all economic, pecuniary, and voting rights to the Oaktree Funds. Mr. Cebula disclaims beneficial ownership of these securities, except to the extent of any indirect pecuniary interest therein. The shares reported for Mr. Cebula do not include 3,200,000 shares of our common stock, 11,700 shares of Series B Convertible Preferred Stock and 48,300 shares of Series A-1 Hybrid Preferred Stock, in each case, held directly by the Oaktree Funds. Mr. Cebula disclaims beneficial ownership of these securities, except to the extent of any indirect pecuniary interest therein.
(2): In connection with Mr. Serota's appointment to our board of directors in March 2007, Mr. Serota was granted options to acquire 50,000 shares of our common stock. These stock options are held

by Mr. Serota for the benefit of the Ares Entities. Pursuant to the policies of the Ares Entities, Mr. Serota holds these stock options as a nominee for the sole benefit of the Ares Entities and has assigned all economic, pecuniary and voting rights to the Ares Entities. Mr. Serota disclaims beneficial ownership of these securities.

(3): It is anticipated that Mr. Shourie will be elected to our Board by the holders of the Convertible Preferred Stock pursuant to the Statements of Designation promptly following the Annual Meeting. Upon his election, Mr. Shourie will be granted options to acquire 50,000 shares of our common stock.

Once the final Preferred Stock Director Designee is elected to our Board by the holders of the Convertible Preferred Stock, such person will be granted options to acquire 50,000 shares of our common stock.

On July 13, 2007, the closing price of the Common Stock on the NYSE was $17.65 per share.

Vote Required

THE BOARD OF DIRECTORS RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE AMENDMENT TO THE EXCO
RESOURCES, INC. 2005 LONG-TERM INCENTIVE PLAN.

AMENDMENT TO THIRD AMENDED AND RESTATED ARTICLES OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK
(Proposal 5)

The Board of Directors recommends that the Company's Third Amended and Restated Articles of Incorporation be amended to increase the total number of shares of authorized capital stock of the Company from 260,000,000 to 360,000,000, 350,000,000 shares of which will be Common Stock, par value $0.001 per share, and 10,000,000 shares of which will be preferred stock, par value $0.001 per share.

Background

Under Texas law, the Company may only issue shares of Common Stock to the extent that the shares are authorized by the Company's articles of incorporation. Currently, the Company's Third Amended and Restated Articles of Incorporation authorize 260,000,000 shares of Common Stock and 10,000,000 shares of preferred stock. The proposed amendment will increase the authorized Common Stock to 350,000,000 shares, and the preferred stock will remain at 10,000,000 shares.

Under Article 4.01 of the Texas Business Corporation Act (the "TBCA"), the Company's Board of Directors must adopt a resolution setting forth the proposed amendment to the articles of incorporation and either call a special meeting of the shareholders entitled to vote on the amendment or direct that the proposed amendment be considered at the next annual meeting of the shareholders entitled to vote on the amendment. The corporation must give notice to each shareholder entitled to vote. At the meeting, a vote of the shareholders entitled to vote in person or by proxy must be taken for or against the proposed amendment. Unless the articles of incorporation or the TBCA require a greater vote, generally, an affirmative vote by at least two-thirds of the votes entitled to be cast on the amendment by each voting group entitled to vote is needed for the adoption of the amendment.

Purpose

The proposed increase in the authorized Common Stock has been recommended by the Board of Directors to ensure that an adequate number of shares of common and preferred stock is available for future use. The Board believes that the proposed increase will make available a sufficient number of authorized shares of common and preferred stock for future issuances, including financings, corporate mergers and acquisitions, use in employee benefit plans, stock splits, stock dividends or other corporate purposes. In particular, the Board believes that the proposed increase is necessary in light of (1) the Private Placement, which, if the Full NYSE Proposal is approved, will permit the conversion of all of the Preferred Stock (at an initial conversion price of $19.00 per share and assuming the elimination of fractional shares, based on current holders of record of the Preferred Stock) into 105,263,082 shares of Common Stock and (2) the proposed amendment to the Incentive Plan to increase the total number of shares of Common Stock authorized for issuance under such plan by 10,000,000 shares. Accordingly, we would have 218,817,271 shares of Common Stock outstanding or reserved for issuance upon conversion of the Preferred Stock or exercise of options. In addition, if the Full NYSE Proposal is approved, the Company will be required pursuant to the Stock Purchase Agreement to authorize and reserve for issuance a number of shares equal to 110% of the number of shares of Common Stock issuable upon conversion of the Preferred Stock. The availability of additional shares of Common Stock will provide the Company with greater flexibility in taking any of these actions and would allow it to issue shares of its common or preferred stock without the delay or expense of obtaining shareholder approval, except to the extent required by state law or the requirements of the NYSE or any other applicable exchange or quotation system for particular transactions. We have no present plans, arrangements, commitments or understanding with respect to the issuance of any of the additional shares of Common Stock that would be authorized by adoption of the amendment.

Effect on Existing Shareholders

Current holders of Common Stock have no preemptive or similar rights, which means that they do not have a prior right to purchase any new issue of common or preferred stock in order to maintain their proportionate ownership thereof. The issuance of additional shares of common or preferred stock could decrease the proportionate equity interest and voting power of the Company's current shareholders and, depending on the price paid for the additional shares, could result in dilution in the book value of shares held by the current shareholders.

Possible Anti-Takeover Effects

As a result of the proposed increase in the authorized Common Stock, the Board of Directors may cause the issuance of additional shares without further shareholder approval, unless shareholder approval is otherwise required by law or the rules of the NYSE or any other securities exchange or quotation system on which the Common Stock is then listed or quoted.

Although the Board of Directors has no present intention of issuing additional shares for such purposes, the proposed increase in the number of authorized shares of Common Stock could enable the Board of Directors to render more difficult or discourage an attempt by another person or entity to obtain control of the Company. Any issuance of Common Stock or preferred stock with voting rights could, under certain circumstances, have the effect of delaying or preventing a change in control of the Company by increasing the number of outstanding shares entitled to vote and by increasing the number of votes required to approve a change in control. Such additional shares could be issued by the Board of Directors in a public or private sale, merger or similar transaction, increasing the number of outstanding shares and thereby diluting the equity interest and voting power of a party attempting to obtain control of the Company. Such issuances could therefore deprive shareholders of benefits that could result from such an attempt, such as the realization of a premium over the market price. Moreover, the issuance of additional shares of Common Stock or preferred stock to persons friendly to the Board could make it more difficult to remove incumbent management and directors from office even if such change were to be favorable to shareholders generally.

In addition, the Company's Third Amended and Restated Articles of Incorporation currently permit the Board of Directors to issue up to 10,000,000 shares of preferred stock and to establish, by resolution, one or more series of preferred stock and the powers, designations, preferences and participating, optional or other special rights of each share of preferred stock. The preferred stock may 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 and the designation of conversion rights that entitle holders of preferred stock to convert their shares into Common Stock on terms that are dilutive to holders of Common Stock. The amendment proposed for shareholder approval would, however, not affect the number of authorized shares of preferred stock.

The Company's Third Amended and Restated Articles of Incorporation provide that special meetings of shareholders may be called by one or more shareholders only if such shareholder(s) hold shares aggregating at least 25% of the outstanding Common Stock. The Company's bylaws provide that any shareholder seeking to bring business before, or to nominate candidates for election as directors at, an annual meeting of shareholders must be a shareholder of record at the time of giving notice of the annual meeting, be entitled to vote at the annual meeting and provide timely notice of its proposal in writing to the corporate secretary. To be timely, a shareholder's notice would have to be delivered or mailed to and received by the corporate secretary at the Company's principal offices, for a notice recommending a director candidate, on or between the 90^th and 180^th day before the anniversary of the date on which the Company mailed its proxy materials for the preceding year's annual meeting and, for any other notice, on or between the 90^th and 180^th day before the annual meeting or not later than

10 days after the public announcement of the date of the annual meeting, if such public announcement is not made at least 75 days prior to the annual meeting. These provisions could have the effect of discouraging attempts to acquire the Company or change the policies formulated by management even if some or a majority of the shareholders believe these actions are in their best interest. These provisions could, therefore, prevent shareholders from receiving a premium over the market price for the shares of Common Stock they hold.

Other than as described above, neither the Third Amended and Restated Articles of Incorporation of the Company nor the Amended and Restated Bylaws of the Company contain any provisions that would have an anti-takeover effect. The Board of Directors does not presently intend to propose other anti-takeover provisions in future proxy solicitations. The Board of Directors is not aware of any attempt or proposal to take over or transfer control of the Company.

The Amendment

The proposed amendment would amend the first paragraph of Article IV (Capitalization) of the Third Amended and Restated Articles of Incorporation to read as follows:

"The aggregate number of shares of capital stock that the Corporation will have authority to issue is 360,000,000 shares, which shall consist of 350,000,000 shares of Common Stock, par value $0.001 per share (the "Common Stock"), and 10,000,000 shares of preferred stock, par value $0.001 per share ("Preferred Stock")."

If approved by the shareholders, the proposed amendment will become effective upon the filing of Articles of Amendment with the Secretary of State of the State of Texas.

Vote Required

The Charter Amendment Proposal requires the affirmative vote of the holders of at least two-thirds of the shares of (i) Common Stock outstanding and entitled to vote thereon, and (ii) Common Stock and Convertible Preferred Stock outstanding and entitled to vote thereon voting together as a single class.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS
VOTE "FOR" THE AMENDMENT TO THE THIRD AMENDED AND
RESTATED ARTICLES OF INCORPORATION.

APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(Proposal 6)

The Company's independent registered public accounting firm for the fiscal year ended December 31, 2006 was the firm of KPMG LLP. It is expected that one or more representatives of such firm will attend the Annual Meeting, will have the opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions. The audit committee of the Company has selected the firm of KPMG LLP as the Company's principal independent registered public accounting firm for the fiscal year ending December 31, 2007.

The affirmative vote of a majority of the voting power of the shares of Common Stock and Convertible Preferred Stock present in person or by proxy, and entitled to vote on the subject matter at the Annual Meeting is required for ratification.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS
VOTE "FOR" THE RATIFICATION OF THE SELECTION OF KPMG LLP TO SERVE
AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM FOR THE YEAR ENDING DECEMBER 31, 2007.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

On June 2, 2006, the audit committee of the Company dismissed PricewaterhouseCoopers LLP ("PWC") as the Company's independent registered public accounting firm and approved the appointment of KPMG LLP as the Company's independent registered public accounting firm to audit the Company's financial statements for the fiscal year ending December 31, 2006. By written consent effective June 2, 2006, the Board of Directors of the Company ratified the audit committee's decision to change independent registered public accounting firms and the appointment of KPMG LLP.

The reports of PWC on the consolidated financial statements of the Company as of December 31, 2005 and for the period from October 3, 2005 through December 31, 2005 (successor entity), the period from January 1, 2005 through October 2, 2005 (predecessor entity) and as of and for the year ended December 31, 2004 (predecessor entity) did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principle.

During the period from October 3, 2005 through December 31, 2005 (successor entity), the period from January 1, 2005 through October 2, 2005 (predecessor entity) and year ended December 31, 2004 (predecessor entity), and through June 2, 2006, there were no disagreements with PWC on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of PWC, would have caused PWC to make reference thereto in its reports on the financial statements for such periods.

The Company's management has concluded that from December 31, 2004 until September 30, 2006, the Company did not maintain effective controls over the preparation and review of the quarterly and annual tax provision and the related financial statement presentation and disclosure of income tax matters and that this deficiency represents a material weakness (as defined under standards established by the American Institute of Certified Public Accountants ("AICPA")). Specifically, the controls of the Company were not adequate to ensure the completeness, timeliness and accuracy of the tax provision and the related current and deferred tax balances. This control deficiency resulted in the restatement of the consolidated financial statements of the Company for the quarters ended June 30, 2005 and September 30, 2005 and adjustments resulting from interim reviews of the quarters ended March 31,

2005 and 2006 and audit adjustments to the consolidated financial statements for the years ended December 31, 2004 and 2005, affecting income tax expense and the deferred tax liability accounts. In connection with the audits of the Company's consolidated financial statements for the years ended December 31, 2004 and 2005, PWC informed the audit committee that it believed the Company's controls over the accounting for taxes were not adequate and that this deficiency represented a material weakness (as defined under standards established by the AICPA). The Company described this material weakness and the Company's efforts to remediate it in Item 9A in the Company's Forms 10-K for the years ended December 31, 2004 and December 31, 2005 and in Item 4 of the Company's Forms 10-Q for the quarters ended in 2005 and 2006. The audit committee discussed this material weakness with PWC and has authorized PWC to respond fully to the inquiries of KPMG LLP concerning such material weakness.

The Company has provided the foregoing disclosure to PWC and PWC has furnished a letter addressed to the SEC stating whether PWC agrees with the statements made above by the Company. This letter was filed as Exhibit 16.1 to the Current Report on Form 8-K of the Company filed with the SEC on June 8, 2006.

During the period from October 3, 2005 through December 31, 2005 (successor entity), the period from January 1, 2005 through October 2, 2005 (predecessor entity) and the year ended December 31, 2004 (predecessor entity), and through June 2, 2006, the Company did not consult with KPMG LLP regarding (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's consolidated financial statements, and neither a written report was provided to the Company nor oral advice was provided to the Company by KPMG LLP that the Company concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue or (ii) any matter that was either the subject of a "disagreement," as defined in Item 304(a)(1)(iv) of Regulation S-K, or a "reportable event" described in Item 304(a)(1)(v) of Regulations S-K.

Fees

Aggregate fees for professional services provided to us by KPMG LLP ("KPMG") and PWC for the years ended December 31, 2005 and 2006 were as follows:

	2005		2006
	PWC		PWC		KPMG		Total
	(in thousands)
Audit Fees(a)	$	1,692	$	1,514	$	1,446	$	2,960
Audit-Related Fees(b)		3		400		1,717		2,117
Tax Fees(c)		—		10		108		118
All Other Fees		—		1		—		1

Total	$	1,695	$	1,925	$	3,271	$	5,196

(a): Fees for audit services include fees associated with the annual audit, the reviews of EXCO's quarterly reports on Form 10-Q and our Form S-1 registration statement filed with the SEC in connection with our IPO that was completed on February 14, 2006.
(b): Audit-related fees principally included accounting consultations and fees incurred related to our 2006 acquisitions, our Form S-1 registration statement filed with the SEC in connection with the resale of shares of our Common Stock acquired in the Equity Buyout and Sarbanes-Oxley compliance test work.
(c): Tax fees, when incurred, include tax compliance and tax planning.

In considering the nature of the services provided by KPMG and PWC, the audit committee determined that such services are compatible with the provision of independent audit services. The audit committee discussed these services with KPMG and PWC and our management to determine that they are permitted under the rules and regulations concerning auditor independence promulgated by the SEC to implement the Sarbanes-Oxley Act of 2002, as well as the American Institute of Certified Public Accountants.

Pre-Approval of Independent Registered Public Accounting Firm Fees and Services Policy

The audit committee has adopted a policy that requires advance approval of all audit services and non-audit services performed by the independent registered public accounting firm or other public accounting firms. Audit services approved by the audit committee within the scope of the engagement of the independent registered public accounting firm are deemed to have been pre-approved. The policy further provides that pre-approval of non-audit services by the independent registered public accounting firm will not be required if:

•: the aggregate amount of all such non-audit services provided by the independent registered public accounting firm to us does not constitute more than 5% of the total amount of revenues paid by us to the independent auditor during that fiscal year;
•: such non-audit services were not recognized by us at the time of the independent registered public accounting firm's engagement to be non-audit services; and
•: such non-audit services are promptly brought to the attention of the audit committee and approved by the audit committee prior to the completion of the audit.

The audit committee may delegate to one or more members of the audit committee the authority to grant pre-approval of non-audit services provided that such member or members reports any decision to the audit committee at its next scheduled meeting.

The audit committee pre-approved all of the aggregate audit fees, audit-related fees, tax fees and other fees set forth in the table.

OTHER BUSINESS

The Board knows of no other business to be brought before the Annual Meeting. If, however, any other business should properly come before the Annual Meeting, the persons named in the accompanying proxy will vote the proxy in accordance with applicable law and as they may deem appropriate in their discretion, unless directed by the proxy to do otherwise.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following tables set forth as of June 1, 2007 (unless otherwise specified) the number and percentage of shares of our Common Stock, Convertible Preferred Stock and Hybrid Preferred Stock beneficially owned by: (i) each person known by us to beneficially own more than 5% of the outstanding shares of our Common Stock, Convertible Preferred Stock or Hybrid Preferred Stock; and (ii) each of our directors, each of our named executive officers and all of our directors and executive officers as a group. The table also sets forth the beneficial ownership of our Common Stock by such holders assuming that shareholder approval of the Full NYSE Proposal had been obtained as of June 1, 2007.

Beneficial ownership is determined in accordance with the rules of the SEC. Beneficial ownership information is based on the most recent Forms 3, 4 and 5 and Schedules 13D and 13G filings with the SEC and reports made directly to us. In computing the number of shares of Common Stock beneficially owned by a person and the beneficial ownership percentage of that person, shares of Common Stock subject to options held by that person that are currently exercisable or exercisable within 60 days of June 1, 2007 and shares of Common Stock issuable upon conversion of Convertible Preferred Stock and Hybrid Preferred Stock (assuming shareholder approval of the Full NYSE Proposal) are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person. Percentage of beneficial ownership of our Common Stock is based upon 104,334,050 shares of Common Stock, 39,008 shares of Convertible Preferred Stock and 160,992 shares of Hybrid Preferred Stock outstanding as of June 1, 2007. To our knowledge, except as set forth in the footnotes to this table and subject to applicable community property laws, each person named in the table has sole voting and investment power with respect to the shares set forth opposite such person's name. Unless otherwise indicated in a footnote, the address for each individual listed below is c/o EXCO Resources, Inc., 12377 Merit Drive, Suite 1700, Dallas, Texas 75251.

Principal Shareholders

										Common Stock Beneficial Ownership
				Convertible Preferred Stock			Hybrid Preferred Stock			No Approval of Full NYSE Proposal(2)			Approval of Full NYSE Proposal(3)
	Common Stock(1)
	Common Stock(1)															Voting Power (Approval of Full NYSE Proposal)
Beneficial owner	Shares	% of Class		Shares	% of Class		Shares	% of Class		Shares	% of Class		Shares	% of Class		Voting Power (Approval of Full NYSE Proposal)
*Holders of more than 5%*
Thomas Boone Pickens, Jr.(4) 8117 Preston Road Suite 260W Dallas, TX 75225	10,661,100	10.2	%	—	—		—	—		10,661,100	10.2	%	10,661,100	10.2	%	5.1	%
Oaktree Capital Group Holdings GP, LLC(5) 333 S. Grand Avenue, 28th Floor Los Angeles, CA 90071	3,212,500	3.1	%	11,700	30.0	%	48,300	30.0	%	9,370,394	8.5	%	34,791,446	25.6	%	16.6	%
FMR Corp.(6) 82 Devonshire Street Boston, MA 02109	8,301,500	8.0	%	1,952	5.0	%	8,048	5.0	%	9,328,867	8.9	%	13,564,655	12.4	%	6.5	%
Ares Corporate Opportunities Fund, L.P. Ares Corporate Opportunities Fund II, L.P.(7) c/o Ares Management LLC 1999 Avenue of the Stars Suite 1900 Los Angeles, CA 90067	6,545,833	6.3	%	2,925	7.5	%	12,075	7.5	%	8,085,307	7.6	%	14,440,570	12.9	%	6.9	%
Cyrus Capital Partners, LP(8) 399 Park Avenue, 39th Floor New York, NY 10022	—	—		1,951	5.0	%	8,049	5.0	%	1,026,842	1.0	%	5,263,157	4.8	%	2.5	%

American International Group, Inc.(9) 70 Pine Street New York, New York 10270		—		—		1,951		5.0	%	8,049		5.0	%	1,026,842		1.0	%	5,263,157		4.8	%	2.5	%
Steven A. Cohen(10) 72 Cummings Point Road, Stamford, Connecticut 06902		5,296,909		5.1	%	—		—		—		—		5,296,909		5.1	%	5,296,909		5.1	%	2.5	%

(1): Does not include the shares of our Common Stock into which the shares of Convertible Preferred Stock shown in the "Convertible Preferred Stock" column are convertible.
(2): Includes the shares of our Common Stock into which the shares of Convertible Preferred Stock shown in the "Convertible Preferred Stock" column are convertible. The Convertible Preferred Stock is convertible at any time at the holder's election into a number of shares of our Common Stock equal to the quotient of the then-current liquidation preference divided by the then-current conversion price. Initially, the liquidation preference is $10,000 per share and the conversion price is $19.00 per share, which equates to each share of Convertible Preferred Stock being initially convertible into approximately 526.3 shares of our Common Stock, subject to adjustment for fractional shares. The Convertible Preferred Stock also votes with our Common Stock on all matters, other than the election of directors, on an as converted basis.
(3): Includes the shares of our Common Stock into which the shares of Convertible Preferred Stock shown in the "Convertible Preferred Stock" column and the shares of Hybrid Preferred Stock shown in the "Hybrid Preferred Stock" column are convertible. The Convertible Preferred Stock is, and assuming approval of the Full NYSE Proposal, the Hybrid Stock will be, convertible at any time at the holder's election into a number of shares of our Common Stock equal to the quotient of the then-current liquidation preference divided by the then-current conversion price. Initially, the liquidation preference is $10,000 per share and the conversion price is $19.00 per share, which equates to each share of Convertible Preferred Stock and Hybrid Preferred Stock being initially convertible into approximately 526.3 shares of our Common Stock, subject to adjustment for fractional shares. The Convertible Preferred Stock and, assuming approval of the Full NYSE Proposal, the Hybrid Preferred Stock also vote with our Common Stock on all matters, other than the election of directors, on an as converted basis.
(4): Based solely on the information contained in the Form 4 filed with the SEC on July 11, 2007. Includes 25,000 shares of our Common Stock subject to stock options that are exercisable within 60 days of June 1, 2007.
(5): Includes 3,142,400 shares of our Common Stock held by OCM Principal Opportunities Fund III, L.P. ("Fund III"), 57,600 shares of our Common Stock held by OCM Principal Opportunities Fund IIIA, L.P. ("Fund IIIA"), 5,850 shares of Convertible Preferred Stock and 24,150 shares of Hybrid Preferred Stock held by OCM Principal Opportunities Fund IV, L.P. ("Fund IV") and 5,850 shares of Convertible Preferred Stock and 24,150 shares of Hybrid Preferred Stock held by OCM EXCO Holdings, LLC ("OCM EXCO"). Oaktree Capital Group Holdings GP, LLC ("Oaktree Group") ultimately controls Fund III, Fund IIIA, Fund IV and OCM EXCO.
: Oaktree Group is a limited liability company managed by an executive committee, the members of which are Howard S. Marks, Bruce A. Karsh, Sheldon M. Stone, D. Richard Masson, Larry W. Keele, Stephen A. Kaplan, John B. Frank, David Kirchheimer and Kevin L. Clayton. Each such person disclaims beneficial ownership of the securities listed, except to the extent of any pecuniary interest therein.
: Also includes 12,500 shares which represent the vested portion of a stock option to purchase 50,000 shares of our Common Stock issued to Mr. Cebula, a Managing Director of Oaktree, as an initial grant upon becoming one of our directors in March 2007 pursuant to the Amended and Restated 2007 Director Plan of EXCO Resources, Inc. This stock option is held directly by Mr. Cebula for the benefit of the Oaktree Funds. Pursuant to the policies of Oaktree, Mr. Cebula must hold this stock option on behalf of and for the sole benefit of the Oaktree Funds and has assigned all economic, pecuniary and voting rights to the Oaktree Funds. Mr. Cebula disclaims beneficial ownership of these securities, except to the extent of any indirect pecuniary interest therein.
(6): Fidelity Management & Research Company ("Fidelity"), a wholly-owned subsidiary of FMR Corp. and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, is the beneficial owner of 8,398,815 shares, or 8.0%, of our outstanding Common Stock as a result of acting as investment adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940. The number of shares of our Common Stock owned by the investment companies includes 1,027,367 shares of Common Stock resulting from the assumed conversion of 1,952 shares of Convertible Preferred Stock. The investment companies also hold 8,048 shares of Hybrid Preferred Stock, which would be convertible into 4,235,788 shares of Common Stock if shareholder approval of the Full NYSE Proposal is obtained. If such shares of Common Stock issuable upon conversion of the Hybrid Preferred Stock were included, then Fidelity would be the beneficial owner of 1,264,603 shares, or 11.5%, of our outstanding Common Stock.
: Edward C. Johnson 3d and FMR Corp., through its control of Fidelity, and the funds each has sole power to dispose of the 8,398,815 shares owned by the funds.

: Members of the family of Edward C. Johnson 3d, Chairman of FMR Corp., are the predominant owners, directly or through trusts, of Series B shares of Common Stock of FMR Corp., representing 49% of the voting power of FMR Corp. The Johnson family group and all other Series B shareholders have entered into a shareholders' voting agreement under which all Series B shares will be voted in accordance with the majority vote of Series B shares. Accordingly, through their ownership of voting Common Stock and the execution of the shareholders' voting agreement, members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR Corp.
: Neither FMR Corp. nor Edward C. Johnson 3d, Chairman of FMR Corp., has the sole power to vote or direct the voting of the shares owned directly by the Fidelity Funds, which power resides with the Funds' Boards of Trustees. Fidelity carries out the voting of the shares under written guidelines established by the Funds' Boards of Trustees.
: Fidelity Management Trust Company, a wholly-owned subsidiary of FMR Corp. and a bank as defined in Section 3(a)(6) of the Securities Exchange Act of 1934, is the beneficial owner of 109,200 shares of our outstanding Common Stock as a result of its serving as investment manager of the institutional account(s) owning such shares. Edward C. Johnson 3d and FMR Corp., through its control of Fidelity Management Trust Company, each has sole dispositive power and sole power to vote or to direct the voting of these shares.
: Pyramis Global Advisors Trust Company ("PGATC"), 53 State Street, Boston, Massachusetts, 02109, an indirect wholly-owned subsidiary of FMR Corp. and a bank as defined in Section 3(a)(6) of the Securities Exchange Act of 1934, is the beneficial owner of 591,105 shares, or 0.6%, of our outstanding Common Stock as a result of its serving as investment manager of institutional accounts owning such shares. The number of shares of our Common Stock owned by the institutional account(s) includes 82,105 shares of our Common Stock resulting from the assumed conversion of 156 shares of Convertible Preferred Stock. The institutional accounts also hold 644 shares of Hybrid Preferred Stock, which would be convertible into 338,947 shares of Common Stock if shareholder approval of the Full NYSE Proposal is obtained. If such shares of Common Stock issuable upon conversion of the Hybrid Preferred Stock were included, then PGATC would be the beneficial owner of 930,052 shares, or 0.8%, of our outstanding Common Stock. Edward C. Johnson 3d and FMR Corp., through its control of PGATC, each has sole dispositive power and sole power to vote or to direct the voting of these shares.
(7): Includes 6,533,333 shares of our Common Stock held by Ares Corporate Opportunities Fund, L.P. ("ACOF") and an aggregate of 1,539,474 shares of our Common Stock initially issuable upon conversion of 2,925 shares of Convertible Preferred Stock held by ACOF (together with certain affiliated co-investing entities) and Ares Corporate Opportunities Fund II, L.P. (together with certain affiliated co-investing entities) (collectively, the "ACOF Investors"). ACOF also holds 12,075 shares of Hybrid Preferred Stock, convertible into 14,440,570 shares of Common Stock if shareholder approval of the Full NYSE Proposal is obtained. ACOF Management, L.P. ("ACOF Management") is the general partner of ACOF (and its affiliated co-investing entities). ACOF Management II, L.P. ("ACOF Management II") is the general partner of ACOF II (and its affiliated co-investing entities). ACOF Operating Manager, L.P. ("ACOF Operating") is the general partner of ACOF Management and the manager of ACOF. ACOF Operating Manager II, L.P., ("ACOF Operating II") is the general partner of ACOF Management II and the manager of ACOF II. Ares Inc. is the general partner of ACOF Operating and ACOF Operating II. Ares Management LLC ("Ares Management") indirectly owns 100% of the limited partnership interests of ACOF Operating Manager and ACOF Operating Manager II. Ares Partners Management Company, LLC ("Ares Partners"), directly or indirectly owns all of the outstanding capital stock of Ares Inc. and Ares Management. Each of the members of Ares Partners has the right to receive distributions in respect of the sale of investments by the entities named above, including the shares of our Common Stock, Convertible Preferred Stock and Hybrid Preferred Stock, in accordance with their membership interests in Ares Partners. Under applicable law, certain of these members and their respective spouses (where applicable) may be deemed to be beneficial owners having indirect ownership of the securities owned of record by the ACOF Investors by virtue of such status. Each of the entities named above (other than the ACOF Investors) and the members of Ares Partners and their respective spouses (where applicable) disclaim beneficial ownership of all securities reported herein.
: Also includes 12,500 shares of our Common Stock, which represents the vested portion of stock options to acquire 50,000 shares of our Common Stock which were issued to one of our directors, Jeffrey Serota, as an initial grant pursuant to the Amended and Restated 2007 Director Plan of EXCO Resources, Inc. upon becoming one of our directors in March 2007. These stock options are held by Mr. Serota for the benefit of Ares Management and certain funds managed by or affiliated with Ares Management (collectively, the "Ares Entities"). Pursuant to the policies of the Ares Entities, Mr. Serota holds these stock options as a nominee for the sole benefit of the Ares Entities and has assigned all economic, pecuniary and voting rights to the Ares Entities. Mr. Serota disclaims beneficial ownership of these securities.
(8): Cyrus Capital Partners LP, a registered investment advisor, is the investment manager for the following shareholders: 1,648 shares of Convertible Preferred Stock and 6,802 shares of Hybrid Preferred Stock held by Cyrus Opportunities Master Fund II, Ltd., 49 shares of Convertible Preferred Stock and 201 shares of Hybrid Preferred Stock held by Cyrus Short Credit Master Fund, Ltd. and 254 shares of Convertible Preferred Stock and 1,046 shares of Hybrid Preferred Stock held by CRS Fund, Ltd.
(9): Includes 137 shares of Convertible Preferred Stock and 563 shares of Hybrid Preferred Stock held by AIG Annuity Insurance Company, 49 shares of Convertible Preferred Stock and 201 shares of Hybrid Preferred Stock held by Merit Life Insurance Co., 156 shares of Convertible Preferred Stock and 209 shares of Hybrid Preferred Stock held by AIG Life Insurance Company, 156 shares of Convertible Preferred Stock and 209 shares of Hybrid Preferred Stock held by American International Life Assurance Company of New York, 59 shares of Convertible Preferred Stock and 241 shares of Hybrid Preferred Stock held by American General Assurance Company, 105 shares of Convertible Preferred Stock and 435 shares of Hybrid Preferred Stock held by The United States Life Insurance Company, 16 shares of Convertible Preferred Stock and 64 shares of Hybrid Preferred Stock held by American International Group, Inc. Retirement Plan, 316 shares of Convertible Preferred Stock and 1,304 shares of Hybrid Preferred Stock held by The Variable Annuity Life Insurance Company and 758 shares of Convertible Preferred Stock and 3,132 shares of Hybrid Preferred Stock held by American General Life Insurance Company, each an affiliate of American

International Group, Inc. Additionally, 199 shares of Convertible Preferred Stock and 821 shares of Hybrid Preferred Stock are owned by certain open ended management investment companies for which AIG Global Investment Corp. ("AIGGIC") or AIG SunAmerica Asset Management Corp. (each a direct or indirect wholly owned subsidiary of American International Group, Inc.) acts as investment adviser or sub-adviser. AIGGIC, an SEC registered investment adviser, is a part of AIG Global Investment Group ("AIGGIG"). AIGGIG is comprised of a group of international companies (including AIGGIC), which provide investment advice and market asset management products and services to clients around the world.

(10): Includes 3,034,472 shares of Common Stock held by CR Intrinsic Investments, LLC ("CR Intrinsic Investments") and 2,262,437 of Common Stock held by Sigma Capital Associates, LLC ("Sigma Capital Associates," located at 540 Madison Avenue, New York, New York 10022). CR Intrinsic Investors, LLC ("CR Intrinsic Investors"), Sigma Capital Management, LLC ("Sigma Management," located at 540 Madison Avenue, New York, New York 10022) and Steven A. Cohen do not directly own any Shares. Pursuant to an investment management agreement, CR Intrinsic Investors maintains investment and voting power with respect to the securities held by CR Intrinsic Investments. Pursuant to an investment management agreement, Sigma Management maintains investment and voting power with respect to the securities held by Sigma Capital Associates. Mr. Cohen controls CR Intrinsic Investors and Sigma Management. By reason of the provisions of Rule 13d-3 of the Securities Exchange Act of 1934, as amended, each of (i) CR Intrinsic Investors and Mr. Cohen may be deemed to own beneficially 3,034,472 Shares and (ii) Sigma Management and Mr. Cohen may be deemed to own beneficially 2,262,437. Each of CR Intrinsic Investors, Sigma Management and Mr. Cohen disclaim beneficial ownership of these securities.

Executive Officers and Directors

Beneficial owner	Shares(1)	Options exercisable within 60 days	Percentage of shares outstanding
*Named Executive Officers*
Douglas H. Miller(2)	5,429,473	867,500	5.2	%
Stephen F. Smith(3)	791,116	201,650	*
J. Douglas Ramsey, Ph.D.(4)	774,125	90,850	*
William L. Boeing	256,550	256,550	*
Harold L. Hickey	348,525	90,850	*
*Directors*
Jeffrey D. Benjamin(5)	488,284	25,000	*
Vincent J. Cebula(6)	12,500	12,500	*
Earl E. Ellis(7)	487,681	25,000	*
Robert H. Niehaus(8)	3,140,085	25,000	3.0	%
Thomas Boone Pickens, Jr.(9)	10,661,100	25,000	10.2	%
Jeffrey S. Serota(10)	—	—	*
Robert L. Stillwell(11)	52,822	25,000	*
All executive officers and directors as a group (13 persons)	22,500,178	1,666,150	21.6	%

(1): Includes the options exercisable within 60 days shown in the options column.
(2): Includes 562,916 shares of our Common Stock held in six trusts for the benefit of immediate family members.
(3): Includes 39,142 shares of our Common Stock held in two trusts for the benefit of immediate family members.
(4): Includes 614,309 shares of our Common Stock held by a limited partnership in which Dr. Ramsey holds a 97.2% limited partnership interest.
(5): Includes the right to acquire 1,281 shares of our Common Stock pursuant to the Payment Plan granted to Mr. Benjamin as deferred compensation in lieu of cash for his service on our Board of Directors and committees for the quarter ended March 31, 2007. These shares vest immediately and are to be settled in our Common Stock upon the earlier to occur of (1) as soon as

administratively feasible after the date on which Mr. Benjamin incurs a "Termination of Service" under the Payment Plan and (2) upon the occurrence of a "Change in Control" under the Payment Plan. The number of shares are equal to the amount of compensation deferred under the Payment Plan divided by $16.60 which was the closing price for our Common Stock on April 2, 2007. See "—Director Compensation" for a discussion of the Payment Plan.

(6): These 12,500 shares represent the vested portion of a stock option to purchase 50,000 shares of our Common Stock issued to Mr. Cebula, a Managing Director of Oaktree, as an initial grant upon becoming one of our directors in March 2007 pursuant to the Amended and Restated 2007 Director Plan of EXCO Resources, Inc. This stock option is held directly by Mr. Cebula for the benefit of the Oaktree Funds. Pursuant to the policies of Oaktree, Mr. Cebula must hold this stock option on behalf of and for the sole benefit of the Oaktree Funds and has assigned all economic, pecuniary and voting rights to the Oaktree Funds. Mr. Cebula disclaims beneficial ownership of these securities, except to the extent of any indirect pecuniary interest therein. The shares reported for Mr. Cebula do not include 3,200,000 shares of our Common Stock, 11,700 shares of Series B Convertible Preferred Stock and 48,300 shares of Series A-1 Hybrid Preferred Stock, in each case, held directly by certain of the Oaktree Funds. Mr. Cebula disclaims beneficial ownership of these securities, except to the extent of any indirect pecuniary interest therein.
(7): Includes 678 shares of our Common Stock issued pursuant to the Payment Plan to Mr. Ellis in lieu of cash as compensation for his service on our Board of Directors and committees for the quarter ended March 31, 2007. See "—Director Compensation" for a discussion of the Payment Plan.
(8): Beneficial ownership consists of 1,450,018 shares of our Common Stock owned by Greenhill Capital Partners, L.P., 207,189 shares of our Common Stock owned by Greenhill Capital Partners (Cayman), L.P., 228,860 shares of our Common Stock owned by Greenhill Capital Partners (Executives), L.P., 458,415 shares of our Common Stock owned by Greenhill Capital, L.P., 753 shares of Convertible Preferred Stock owned by Greenhill Capital Partners II, L.P., 295 shares of Convertible Preferred Stock owned by Greenhill Capital Partners (Cayman) II, L.P., 52 shares of Convertible Preferred Stock owned by Greenhill Capital Partners (Executives) II, L.P., and 363 shares of Convertible Preferred Stock owned by Greenhill Capital Partners (Employees) II, L.P. Does not include 3,107 shares of Hybrid Preferred Stock owned by Greenhill Capital Partners II, L.P., 1,218 shares of Hybrid Preferred Stock owned by Greenhill Capital Partners (Cayman) II, L.P., 214 shares of Hybrid Preferred Stock owned by Greenhill Capital Partners (Executives) II, L.P., and 1,498 shares of Hybrid Preferred Stock owned by Greenhill Capital Partners (Employees) II, L.P. By virtue of his ownership and management positions at the entities which control the Greenhill funds referred to in the preceding sentence, Mr. Niehaus may be deemed to beneficially own these shares. Mr. Niehaus disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein. Beneficial ownership also includes options held by Mr. Niehaus to purchase 25,000 shares of our Common Stock pursuant to the 2005 Long-Term Incentive Plan and 603 shares of our Common Stock directly held by Mr. Niehaus and issued pursuant to the Payment Plan to Mr. Niehaus in lieu of cash as compensation for his service on our Board of Directors and committees for the quarter ended March 31, 2007. See "—Director Compensation" for a discussion of the Payment Plan.
(9): Based solely on the information contained in the Form 4 filed with the SEC on July 11, 2007.
(10): In connection with Mr. Serota's appointment to our Board of Directors in March 2007, Mr. Serota was granted options to acquire 50,000 shares of our Common Stock. Options to acquire 12,500 of these shares vested on March 30, 2007. These stock options are held by Mr. Serota for the benefit of the Ares Entities. Pursuant to the policies of the Ares Entities, Mr. Serota holds these stock options as a nominee for the sole benefit of the Ares Entities and has assigned all economic,

pecuniary and voting rights to the Ares Entities. Mr. Serota disclaims beneficial ownership of these securities. Amounts reported do not include the shares of our Common Stock, Convertible Preferred Stock and Hybrid Preferred Stock referred to in note 7 to the beneficial ownership table for "Holders of more than 5%" above, with respect to which Mr. Serota disclaims beneficial ownership.

(11): Includes the right to acquire 603 shares of our Common Stock pursuant to the Payment Plan granted to Mr. Stillwell as deferred compensation in lieu of cash for his service on our Board of Directors and committees for the quarter ended March 31, 2007. These shares vest immediately and are to be settled in our Common Stock upon the earlier to occur of (1) as soon as administratively feasible after the date on which Mr. Stillwell incurs a "Termination of Service" under the Payment Plan and (2) upon the occurrence of a "Change in Control" under the Payment Plan. The number of shares are equal to the amount of compensation deferred under the Payment Plan divided by $16.60 which was the closing price for our Common Stock on April 2, 2007. See "—Director Compensation" for a discussion of the Payment Plan.
*: Less than 1%.

DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS

Shareholder proposals to be included in the proxy statement for the next annual meeting must be received by the Company at its principal executive offices on or before March 1, 2008 or, if the Company holds its next annual meeting on a date that is more than 30 days from the anniversary of the 2007 Annual Meeting, a reasonable time before the Company begins to print and send its proxy materials, for inclusion in the Company's proxy statement relating to that meeting. Shareholders wishing to submit proposals to be presented directly at the 2008 Annual Meeting of Shareholders instead of by inclusion in next year's proxy statement must follow the submission criteria and deadlines set forth in our bylaws. To be timely in connection with an annual meeting, a shareholder proposal must be received by the Company at its principal executive offices as follows: (a) with respect to recommending a director candidate, not before January 15, 2008 or after April 15, 2008; (b) with respect to other shareholder proposals, not before the date that is 180 days prior to the annual meeting or after the date that is 90 days prior to the annual meeting; and (c) with respect to shareholder proposals other than for recommending a director candidate, and in the event a public announcement of the date of the annual meeting is not made at least 75 calendar days prior to the date of the annual meeting, not later than the close of business on the 10th calendar day following the day on which public announcement is first made of the annual meeting. SEC rules permit management to vote proxies in its discretion if (i) notice of the proposal as described above is received and shareholders are advised in the 2008 proxy statement about the nature of the matter and how management intends to vote on such matter; or (ii) timely notice of the proposal is not received.

ANNUAL REPORT AND FINANCIAL STATEMENTS; DOCUMENTS INCORPORATED BY REFERENCE

The SEC allows us to "incorporate by reference" information into this document. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be a part of this proxy statement, except for any information that is superseded by information that is included directly in this document or in any other subsequently filed document that is also incorporated by reference herein.

This proxy statement incorporates by reference the documents listed below that we have previously filed with the SEC. These documents contain important information about the Company and its financial condition.

•: Annual Report on Form 10-K for the year ended December 31, 2006, including audited financial information contained therein (the "Annual Report").
•: Current Report on Form 8-K dated March 28, 2007 and filed on April 2, 2007 (except for information furnished in connection with such Current Report pursuant to Item 7.01, which shall not be incorporated by reference into this proxy statement), as amended by Amendment No. 1 to our Current Report on Form 8-K/A filed on April 2, 2007 and Amendment No. 2 to our Current Report on Form 8-K/A filed on June 12, 2007.
•: Quarterly Report on Form 10-Q for the quarter ended March 30, 2007.

Our Annual Report accompanies the mailing of this proxy statement.

You may obtain copies of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2006, Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 and Current Report on Form 8-K dated March 28, 2007 and filed on April 2, 2007, as amended, without charge by sending a written request to EXCO Resources, Inc., 12377 Merit Drive, Suite 1700, Dallas,

Texas 75251, Attn: Secretary or by calling (214) 368-2084. These reports are also available at www.excoresources.com.

		By Order of the Board of Directors,
		William L. Boeing Vice President, General Counsel and Secretary
Dallas, Texas July 16, 2007

IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING AND WISH THEIR STOCK TO BE VOTED ARE URGED TO DATE, SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.

Annex A

STATEMENT OF DESIGNATION
OF
SERIES A-1 7.0% CUMULATIVE CONVERTIBLE PERPETUAL PREFERRED STOCK
OF
EXCO RESOURCES, INC.

Pursuant to Article 2.13 of
the Texas Business Corporation Act

EXCO RESOURCES, INC., a Texas corporation (the "Company"), does hereby certify that (a) the following resolution was duly adopted on March 27, 2007 by action of the Board of Directors thereof, with the provisions thereof fixing the designations, preferences, limitations and relative rights, including voting rights and the number of shares of the series and the dividend rate being set by action of the Board of Directors thereof, and (b) such resolution was duly adopted by all necessary action on the part of the Company:

RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Company by the provisions of Article Four of its Third Amended and Restated Articles of Incorporation (the "Articles of Incorporation") and pursuant to Article 2.13 of the Texas Business Corporation Act, the Board of Directors hereby creates a series of preferred stock of the Company and hereby states that the designations, preferences, limitations and relative rights of which, shall be as follows:

1. Designation and Amount; Ranking.

(a) There shall be created from the 10,000,000 shares of preferred stock, par value $0.001 per share, of the Company authorized to be issued pursuant to the Articles of Incorporation, a series of preferred stock, designated as the "Series A-1 7.0% Cumulative Convertible Perpetual Preferred Stock," par value $0.001 per share (the "Preferred Stock"), and the number of shares of such series shall be 200,000. Such number of shares may be decreased by resolution of the Board of Directors; provided that no decrease shall reduce the number of shares of Preferred Stock to a number less than that number of shares of Preferred Stock then outstanding plus the number of shares of Preferred Stock issuable upon exercise of options or rights (including, without limitation, conversion rights) then outstanding.

(b) The Preferred Stock will, with respect to both dividend rights and rights upon a Liquidation, rank (i) senior to all Junior Stock, (ii) on parity with all Parity Stock and (iii) junior to all Senior Stock.

2. Definitions. As used herein, the following terms shall have the following meanings:

(a) "7.0% Statements" means the Statements of Designation with respect to each series of 7.0% Preferred Stock.

(b) "7.0% Preferred Stock" means, collectively, the Preferred Stock, the Series A-2 Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock.

(c) "Accrued Dividends" means, with respect to any share of Preferred Stock, as of any date, the accrued and unpaid dividends on such share from and including the most recent Dividend Payment Date (or the Original Issue Date, if such date is prior to the first Dividend Payment Date) through and including such date.

(d) "Additional Directors" has the meaning set forth in Section 3(e)(i).

(e) "Adjustment Event" has the meaning set forth in Section 10.

(f) "Adjustment Payment" has the meaning set forth in Section 10.

(g) "Adjustment Record Date" has the meaning set forth in Section 10.

(h) "Agent Members" has the meaning set forth in Section 11(a)(iv).

(i) "All-Stock Change of Control" has the meaning set forth in Section 4(j).

(j) "Announcement Date" has the meaning set forth in Section 8(a)(v).

(k) "Articles of Incorporation" has the meaning set forth in the recitals.

(l) "Asset Disposition" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) by the Company or any Subsidiary, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of this definition as a "disposition"), of

(i) any shares of Capital Stock of a Subsidiary (other than directors' qualifying shares or shares required by applicable law to be held by a Person other than the Company or a Subsidiary);

(ii) all or substantially all the assets of any division or line of business of the Company or any Subsidiary; or

(iii) any other assets of the Company or any Subsidiary outside of the ordinary course of business of the Company or such Subsidiary

(other than, in the case of (i), (ii) and (iii) above, (A) a disposition by a Subsidiary to the Company or by the Company or a Subsidiary to a Subsidiary, (B) a disposition of assets in a single transaction or a series of related transactions with a fair market value of less than $25.0 million; (C) a disposition of cash or Temporary Cash Investments; (D) the trade or exchange by the Company or any Subsidiary of any oil or natural gas property or interest therein of the Company or such Subsidiary for any oil or natural gas property or interest therein of another Person or for the Capital Stock of a Person engaged in the Oil and Gas Business, including any cash or cash equivalents necessary in order to achieve an exchange of equivalent value; provided, however, that the value of the oil or natural gas property or interest therein received by the Company or any Subsidiary in such trade or exchange (including any cash or cash equivalents) is at least equal to the fair market value (as determined in good faith by the Board of Directors, which determination shall be conclusive evidence of compliance with this provision and which shall be evidenced by a resolution) of the oil or natural gas property or interest therein or Capital Stock of a Person engaged in the Oil and Gas Business (including any cash or cash equivalents) so traded or exchanged; and (E) the creation of a Lien (but not the sale or other disposition of the property subject to such Lien)).

(m) "Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at a rate of 7¹/4% per annum, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended); provided, however, that if such Sale/Leaseback Transaction results in a Capital Lease Obligation, the amount of Indebtedness represented thereby will be determined in accordance with the definition of "Capital Lease Obligation."

(n) "Bankruptcy Event" means (i) the entry by a court having jurisdiction in the premises (A) of a decree or order for relief in respect of the Company or a Significant Subsidiary of an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law, (B) of a decree or order adjudging the Company or a Significant Subsidiary as bankrupt or insolvent or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or a Significant Subsidiary under any applicable federal or state law or (C) appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or a Significant Subsidiary or of any substantial part of its respective property, or ordering the winding

up or liquidation of its respective affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days, or (ii) the commencement by the Company or a Significant Subsidiary of a voluntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by such Person to the entry of a decree or order for relief in respect of the Company or such Significant Subsidiary in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against such Person, or the filing by such Person of a petition or answer or consent seeking reorganization or relief under any applicable federal or state law, or the consent by such Person to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or such Significant Subsidiary or of any substantial part of its respective property, or the making by such Person of an assignment for the benefit of creditors, or the admission by such Person in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company or a Significant Subsidiary in furtherance of any such action.

(o) "Board of Directors" means the Board of Directors of the Company or, with respect to any action to be taken by the Board of Directors, any committee of the Board of Directors duly authorized to take such action.

(p) "Business Day" means any day other than a Saturday, Sunday or other day on which banking institutions are not required to be open in the State of New York.

(q) "Calendar Quarter" means each three-month quarterly period ended March 31, June 30, September 30 or December 31.

(r) "Capital Lease Obligation" means an obligation that is required to be classified and accounted for as a capital lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty.

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

(t) "Certificated Preferred Stock" has the meaning set forth in Section 11(a)(ii).

(u) "Change of Control" means the occurrence of any of the following events:

(i) the occurrence of a "Change of Control" as such term is defined in the Credit Facility, while such Credit Facility remains in effect, or of any similar event as set forth in any other agreement governing Indebtedness of the Company or any of its Subsidiaries in excess of $100.0 million, while such agreement remains in effect;

(ii) the sale, lease or transfer, in one or a series of related transactions, of all or substantially all of the Company's assets (determined on a consolidated basis) to any "person" or "group" (as such terms are used in Section 13(d)(3) of the Exchange Act);

consolidation or merger do not beneficially own more than 50% of the Voting Stock of the continuing or surviving corporation immediately after such transaction;

(iv) the acquisition, directly or indirectly, by any "person" or "group" (as such terms are used in Section 13(d)(3) of the Exchange Act) of beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of more than 50% of the Voting Stock of the Company; or

(v) the Board of Directors (excluding any Preferred Directors and any Additional Directors) shall not consist of at least 66²/3% of Continuing Directors.

(v) "Change of Control Notice" has the meaning set forth in Section 4(b).

(w) "Change of Control Offer" has the meaning set forth in Section 4(a).

(x) "Change of Control Payment Date" has the meaning set forth in Section 4(b)(iii).

(y) "Change of Control Price" has the meaning set forth in Section 4(a).

(z) "Combined Holders" means as of any date the holders of at least 60% of the then-outstanding shares of 7.0% Preferred Stock and Hybrid Preferred Stock, voting together as a single class.

(aa) "Common Stock" means the common stock, par value $0.001 per share, of the Company, or any other class of stock resulting from successive changes or reclassifications of such common stock consisting solely of changes in par value, or from par value to no par value, or as a result of a subdivision, combination, or merger, consolidation or similar transaction in which the Company is a constituent corporation.

(bb) "Company" has the meaning set forth in the recitals.

(cc) "Company Conversion Date" has the meaning set forth in Section 7(c)(iii).

(dd) "Company Conversion Notice" has the meaning set forth in Section 7(c)(i).

(ee) "Company Conversion Option" has the meaning set forth in Section 7(c)(i).

(ff) "Consolidated EBITDA" for any period means the sum of Consolidated Net Income, plus the following to the extent deducted in calculating such Consolidated Net Income:

(i) all income tax expense of the Company and its consolidated Subsidiaries;

(ii) Consolidated Interest Expense;

(iii) depreciation, depletion, exploration and amortization expense of the Company and its consolidated Subsidiaries (excluding amortization expense attributable to a prepaid operating activity item that was paid in cash in a prior period); and

in each case for such period, and less, to the extent included in calculating such Consolidated Net Income and in excess of any costs or expenses attributable thereto and deducted in calculating such Consolidated Net Income, the sum of:

(1) the amount of deferred revenues that are amortized during such period and are attributable to reserves that are subject to Volumetric Production Payments; and

(2) amounts recorded in accordance with GAAP as repayments of principal and interest pursuant to Dollar Denominated Production Payments.

Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization and non-cash charges of, a Subsidiary shall be added to Consolidated Net Income to compute Consolidated EBITDA only to the extent (and in the same proportion, including by reason of minority interests) that the net income or loss of such Subsidiary was included in calculating Consolidated Net Income and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to such Subsidiary or its shareholders.

(gg) "Consolidated EBITDA Ratio" as of any date of determination means the ratio of

(i) the aggregate amount of Consolidated EBITDA for the period of the most recent four consecutive fiscal quarters ending (a) at least 45 days prior to the date of such determination or (b) if the Company is on the date of such determination an "accelerated filer," the earlier of 45 days prior to the date of such determination or the date of filing of the Company's most recent Quarterly Report on Form 10-Q filed by the Company as an "accelerated filer" to

(ii) Consolidated Interest Expense for such four fiscal quarters;

provided, however, that

(1) if the Company or any Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated EBITDA Ratio is an Incurrence of Indebtedness, or both, Consolidated EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period,

(2) if the Company or any Subsidiary has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of such period or if any Indebtedness is to be repaid, repurchased, defeased or otherwise discharged (in each case other than Indebtedness Incurred under any revolving credit facility unless such Indebtedness has been permanently repaid and has not been replaced) on the date of the transaction giving rise to the need to calculate the Consolidated EBITDA Ratio, Consolidated EBITDA and Consolidated Interest Expense for such period shall be calculated on a pro forma basis as if such discharge had occurred on the first day of such period and as if the Company or such Subsidiary has not earned the interest income actually earned during such period in respect of cash or Temporary Cash Investments used to repay, repurchase, defease or otherwise discharge such Indebtedness,

(3) if since the beginning of such period the Company or any Subsidiary shall have made any Asset Disposition, Consolidated EBITDA for such period shall be reduced by an amount equal to Consolidated EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period, or increased by an amount equal to Consolidated EBITDA (if negative), directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and the continuing Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any

Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Subsidiary to the extent the Company and the continuing Subsidiaries are no longer liable for such Indebtedness after such sale),

(4) if since the beginning of such period the Company or any Subsidiary (by merger or otherwise) shall have made an acquisition of assets, including any acquisition of assets occurring in connection with a transaction requiring a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, Consolidated EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such acquisition occurred on the first day of such period, and

(5) if since the beginning of such period any Person (that subsequently became a Subsidiary or was merged with or into the Company or any Subsidiary since the beginning of such period) shall have made any Asset Disposition or acquisition of assets that would have required an adjustment pursuant to clause (3) or (4) above if made by the Company or a Subsidiary during such period, Consolidated EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition or acquisition occurred on the first day of such period.

For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting Officer of the Company. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness, but if the remaining term of such Interest Rate Agreement is less than 12 months, then such Interest Rate Agreement shall only be taken into account for that portion of the period equal to the remaining term thereof).

If any Indebtedness is incurred under a revolving credit facility and is being given pro forma effect, the interest on such Indebtedness shall be calculated based on the average daily balance of such Indebtedness for the four fiscal quarters subject to the pro forma calculation to the extent that such Indebtedness was incurred solely for working capital purposes.

(hh) "Consolidated Interest Expense" means, for any period, the total interest expense of the Company and its consolidated Subsidiaries, plus, to the extent not included in such total interest expense, and to the extent incurred by the Company or its Subsidiaries, without duplication,

(i) interest expense attributable to Capital Lease Obligations;

(ii) amortization of debt discount and debt issuance costs;

(iii) capitalized interest;

(iv) non-cash interest expense;

(v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing;

(vi) net payments pursuant to Currency Agreements and Interest Rate Agreements;

is one minus the effective combined tax rate of the issuer of such Preference Stock (expressed as a decimal) for such period (as estimated by the chief financial officer of the Company in good faith);

(viii) interest incurred in connection with investments in discontinued operations;

(ix) interest accruing on any Indebtedness of any other Person to the extent such Indebtedness is Guaranteed by (or secured by the assets of) the Company or any Subsidiary; and

(x) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust;

provided, however, that there shall be excluded from Consolidated Interest Expense any non-cash amortization or write-off of fees and expenses incurred in connection with the completion of (i) the issuance of the 7.0% Preferred Stock, (ii) the issuance of the Hybrid Preferred Stock, (iii) the transactions with Anadarko Petroleum Corporation and certain of its affiliates as described in the Company's Annual Report on Form 10-K for the year ended December 31, 2006, (vi) the repayment of the EXCO Partners Operating Partnership, LP Senior Term Credit Agreement, dated October 2, 2006, and the amendment and restatement of its Senior Revolving Credit Agreement, dated October 2, 2006, as of the Original Issue Date, (v) the payment in connection with the termination of the Company's Second Amended and Restated Equity Contribution Agreement, dated October 13, 2006 on the Original Issue Date, and (vi) the amendment and restatement of the Company's Amended and Restated Credit Agreement, dated March 17, 2006, on or before May 2, 2007.

(ii) "Consolidated Net Income" means, for any period, the net income of the Company and its consolidated Subsidiaries; provided, however, that there shall not be included in such Consolidated Net Income:

(i) any net income of any Person (other than the Company) if such Person is not a Subsidiary, except that

(1) subject to the exclusion contained in clause (iv) below, the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to a Subsidiary, to the limitations contained in clause (iii) below); and

(2) the Company's equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income;

(ii) any net income (or loss) of any Person acquired by the Company or a Subsidiary in a pooling of interests transaction (or any transaction accounted for in a manner similar to a pooling of interests) for any period prior to the date of such acquisition;

(iii) any net income of any Subsidiary if such Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Subsidiary, directly or indirectly, to the Company, except that

Company or another Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to another Subsidiary, to the limitation contained in this clause); and

(2) the Company's equity in a net loss of any such Subsidiary for such period shall be included in determining such Consolidated Net Income;

(iv) any gain (or loss) realized upon the sale or other disposition of any assets of the Company, its consolidated Subsidiaries or any other Person (including pursuant to any sale-and-leaseback arrangement) which are not sold or otherwise disposed of in the ordinary course of business and any gain (or loss) realized upon the sale or other disposition of any Capital Stock of any Person;

(v) any impairment losses on oil and natural gas properties;

(vi) extraordinary gains or losses;

(vii) any unrealized non cash gains or losses or charges in respect of Hedging Obligations (including those resulting from the application of FAS 133) and any termination losses or charges incurred with respect to the termination of Hedging Obligations;

(viii) any non cash compensation charge arising from any grant of stock, stock options or other equity based awards; and

(ix) the cumulative effect of a change in accounting principles;

in each case, for such period.

(jj) "Continuing Directors" means individuals who are directors of the Company on the Original Issue Date (other than any Preferred Directors) or whose election was approved by a vote of a majority of individuals who were Continuing Directors.

(kk) "Conversion Date" has the meaning set forth in Section 7(b)(iii).

(ll) "Conversion Notice" has the meaning set forth in Section 7(b)(i).

(mm) "Conversion Price" means $19.00, subject to adjustment as set forth in Section 8.

(nn) "Conversion Right" has the meaning set forth in Section 7(a)(i).

(oo) "Convertible Securities" means indebtedness or shares of Capital Stock convertible into or exchangeable for Common Stock.

(pp) "Convertible Stock Registration Default" means a "Registration Default" as defined in the Convertible Stock Registration Rights Agreement.

(qq) "Convertible Stock Registration Rights Agreement" means the Registration Rights Agreement among the Company and the initial purchasers of 7.0% Preferred Stock and Hybrid Preferred Stock (and any transferees thereof as may become parties thereto from time to time), dated as of March 28, 2007, relating to the Preferred Stock, the Series A-1 Hybrid Preferred Stock after the NYSE Approval Date and the shares of Common Stock issuable upon conversion of the shares of 7.0% Preferred Stock and, after the NYSE Approval Date, the Hybrid Preferred Stock (as amended from time to time).

(rr) "Credit Facility" means the Amended and Restated Credit Agreement, dated as of March 17, 2006, as amended, by and among the Company, certain of its Subsidiaries, the lenders defined therein, JPMorgan Chase Bank, N.A., as Administrative Agent, and J.P. Morgan Securities Inc., as Sole Bookrunner and Lead Arranger, together with the related documents thereto, as amended, extended, renewed, restated, supplemented or otherwise modified (in whole

or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time, and any agreement (and related document) governing Indebtedness incurred to refinance, extend, renew, refund, repay, prepay, purchase, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, in whole or in part, the borrowings and commitments then outstanding or permitted to be outstanding under such Credit Facility or a successor Credit Facility, whether by the same or any other lender or group of lenders.

(ss) "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement with respect to currency values.

(tt) "Current Market Price" has the meaning set forth in Section 8(a)(vii).

(uu) "Default" means (i) if the Company is permitted to add the amount of any dividend on the 7.0% Preferred Stock and, after the NYSE Approval Date, the Hybrid Preferred Stock on the applicable Dividend Payment Date to the Liquidation Preference in accordance with Section 3(b) and Section 3(c) of this Statement, the Company's failure to pay any dividend in cash on the 7.0% Preferred Stock or, after the NYSE Approval Date, the Hybrid Preferred Stock on the applicable Dividend Payment Date or to add the amount of such dividend to the Liquidation Preference in accordance with Section 3(b) and Section 3(c) of this Statement, (ii) if the Company is not permitted to add the amount of any dividend on the 7.0% Preferred Stock and, after the NYSE Approval Date, the Hybrid Preferred Stock on the applicable Dividend Payment Date to the Liquidation Preference in accordance with Section 3(b) and Section 3(c) of this Statement, the Company's failure to pay any dividend in cash on the 7.0% Preferred Stock or, after the NYSE Approval Date, the Hybrid Preferred Stock on the applicable Dividend Payment Date, (iii) the Company's violation of Section 3(e)(ii), Section 3(f) or Section 3(g) of this Statement, (iv) the Company's failure to comply with the provisions of Section 4 of this Statement (other than the failure to purchase the 7.0% Preferred Stock and, after the NYSE Approval Date, the Hybrid Preferred Stock in compliance with Section 4 of this Statement), provided that such failure continues for 30 days after the Company's receipt of a Default Notice (v) the Company's failure to purchase the 7.0% Preferred Stock and, after the NYSE Approval Date, the Hybrid Preferred Stock in compliance with Section 4 of this Statement, (vi) the Company's failure to comply with the provisions of Section 5 of this Statement so as to deprive the Holders of their right to elect Preferred Directors, (vii) the Company's failure to comply with its obligations under Section 7(a)(i), 7(b)(ii) or Section 7(c)(v) of this Statement, (viii) the Company's failure to comply with Section 9 of this Statement, (ix) the Company's failure to maintain the listing of the Common Stock on the NYSE or another U.S. national securities exchange or (x) the Company's failure to comply with Section 10 of this Statement.

(vv) "Default Notice" means written notice of an event described in the definition of "Default" given to the Company by the holders of 25% or more of the then-outstanding shares of 7.0% Preferred Stock and, after the NYSE Approval Date, the Hybrid Preferred Stock specifying the default, directing that the default be remedied and stating that such notice is a "Default Notice."

(ww) "Deferral Period" has the meaning set forth in the Registration Rights Agreements.

(xx) "Distribution Threshold" has the meaning set forth in Section 8(a)(iv).

(yy) "Disqualified Stock" means, with respect to any Person, any Capital Stock (other than the Hybrid Preferred Stock prior to the NYSE Approval Date) which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder) or upon the happening of any event:

(i) matures or is mandatorily redeemable (other than redeemable only for Capital Stock of such Person which is not itself Disqualified Stock) pursuant to a sinking fund obligation or otherwise;

(ii) is convertible or exchangeable at the option of the holder for Indebtedness or Disqualified Stock; or

(iii) is mandatorily redeemable or must be purchased upon the occurrence of certain events or otherwise, in whole or in part,

in each case on or prior to March 30, 2017; provided, however, that any Capital Stock that would not constitute Disqualified Stock but for the provisions thereof giving holders thereof the right to require such Person to purchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to March 30, 2017 shall not constitute Disqualified Stock if (A) the "asset sale" or "change of control" provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock than the terms applicable to the Hybrid Preferred Stock contained in Sections 9(c) and 4, respectively, of Annex I or Annex II to the Hybrid Statements, as then in effect and (B) any such requirement only becomes operative after compliance with such terms applicable to the Hybrid Preferred Stock, including the purchase of any shares of Hybrid Preferred Stock tendered pursuant thereto.

The amount of any Disqualified Stock that does not have a fixed redemption, repayment or repurchase price will be calculated in accordance with the terms of such Disqualified Stock as if such Disqualified Stock were redeemed, repaid or repurchased on any date on which the amount of such Disqualified Stock is to be determined pursuant hereto; provided, however, that if such Disqualified Stock could not be required to be redeemed, repaid or repurchased at the time of such determination, the redemption, repayment or repurchase price will be the book value of such Disqualified Stock as reflected in the most recent financial statements of such Person.

(zz) "Dividend Payment Date" means March 15, June 15, September 15 and December 15 of each year, commencing June 15, 2007.

(aaa) "Dividend Rate" means, for any period, (i) if the dividend is paid in cash, 7.0% per annum for the period from the Original Issue Date to but excluding March 30, 2013 and 9.0% per annum thereafter and (ii) 9.0% per annum if the dividend is not paid in cash on the applicable Dividend Payment Date. The Dividend Rate at which such dividends shall have accrued over any period shall be determined at the time of payment thereof based on whether such dividends are paid in cash or allowed to be added to the Liquidation Preference pursuant to Section 3(b) and Section 3(c).

(bbb) "Dividend Record Date" means, with respect to any dividend payable on a Dividend Payment Date, the preceding February 28, May 31, August 31 and November 30 and, with respect to any dividend payable on any other date, such date as may be determined by the Board of Directors.

(ccc) "Dollar Denominated Production Payments" means production payment obligations recorded as liabilities in accordance with GAAP, together with all undertakings and obligations in connection therewith

(ddd) "DTC" means The Depository Trust Company.

(eee) "EPOP Credit Facility" means the Senior Revolving Credit Agreement, dated October 2, 2006, among EXCO Partners Operating Partnership, LP, certain of its subsidiaries and JPMorgan Chase Bank, N.A., as Administrative Agent, together with the related documents thereto, as amended, extended, renewed, restated, supplemented or otherwise modified (in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time, and any agreement (and related document) governing Indebtedness incurred to refinance, extend, renew, refund, repay, prepay, purchase, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, in whole or in part, the borrowings and

commitments then outstanding or permitted to be outstanding under such EPOP Credit Facility or a successor EPOP Credit Facility, whether by the same or any other lender or group of lenders.

(fff) "Excess Distribution Amount" has the meaning set forth in Section 8(a)(iv).

(ggg) "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

(hhh) "Excluded Distributions" has the meaning set forth in Section 8(a)(iv).

(iii) "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Original Issue Date, including those set forth in:

(i) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants;

(ii) statements and pronouncements of the Financial Accounting Standards Board;

(iii) such other statements by such other entity as approved by a significant segment of the accounting profession; and

(iv) the rules and regulations of the SEC governing the inclusion of financial statements (including pro forma financial statements) in periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the SEC. All ratios and computations based on GAAP contained in this Statement shall be computed in conformity with GAAP.

(jjj) "Global Preferred Stock" has the meaning set forth in Section 11(a)(iii).

(kkk) "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any Person and any obligation, direct or indirect, contingent or otherwise, of such Person:

(i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise); or

(ii) entered into for the purpose of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part);

provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing any obligation.

(lll) "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Oil and Natural Gas Hedging Contract, Interest Rate Agreement or Currency Agreement.

(mmm) "Holder" or "holder" means a holder of record of shares of the Preferred Stock.

(nnn) "Hybrid Preferred Stock" means, collectively, the Series A-1 Hybrid Preferred Stock and the Series A-2 Hybrid Preferred Stock.

(ooo) "Hybrid Preferred Stock Registration Default" means a "Registration Default" as defined in the Hybrid Preferred Stock Registration Rights Agreement.

(ppp) "Hybrid Preferred Stock Registration Rights Agreement" means the Registration Rights Agreement among the Company and the initial purchasers of Hybrid Preferred Stock (and any

transferees thereof as may become parties thereto from time to time), dated as of March 28, 2007, relating to the Hybrid Preferred Stock prior to the NYSE Approval Date (as amended from time to time).

(qqq) "Hybrid Statements" means the Statements of Designation with respect to each series of Hybrid Preferred Stock.

(rrr) "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Person at the time it becomes a Subsidiary. The term "Incurrence" when used as a noun shall have a correlative meaning.

(sss) "Indebtedness" means, with respect to any Person on any date of determination (without duplication):

(i) the principal in respect of (1) indebtedness of such Person for money borrowed and (2) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable, including, in each case, any premium on such indebtedness to the extent such premium has become due and payable;

(ii) all Capital Lease Obligations of such Person and all Attributable Debt in respect of Sale/Leaseback Transactions entered into by such Person;

(iii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business);

(iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, bankers' acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in clauses (i) through (iii) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following payment on the letter of credit);

(v) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock of such Person, or with respect to any Subsidiary of such Person, the amount of all obligations of such Subsidiary with respect to any Preference Stock of such Subsidiary, in either case the principal amount of such Disqualified Stock or Preference Stock to be determined in accordance with this Statement;

(vi) all obligations of the type referred to in clauses (i) through (v) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee;

(vii) all obligations of the type referred to in clauses (i) through (vi) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets and the amount of the obligation so secured;

(viii) to the extent not otherwise included in this definition, Hedging Obligations of such Person; and

(ix) any Guarantee by such Person of production or payment with respect to Production Payments and Reserve Sales.

Except as expressly provided in clause (ix) above, Production Payments and Reserve Sales shall not constitute "Indebtedness".

Notwithstanding the foregoing, in connection with the purchase by the Company or any Subsidiary of any business or assets, the term "Indebtedness" will exclude post-closing payment adjustments to which the seller may become entitled to the extent such payment is determined by a final closing balance sheet or such payment depends on the performance of such business or assets after the closing; provided, however, that, at the time of closing, the amount of any such payment is not determinable and, to the extent such payment thereafter becomes fixed and determined, the amount is paid within 30 days thereafter.

The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all obligations as described above; provided, however, that in the case of Indebtedness sold at a discount, the amount of such Indebtedness at any time will be the accreted value thereof at such time.

(ttt) "Initial Preferred Shares" has the meaning set forth in Section 7(c)(ii)).

(uuu) "Interest Rate Agreement" means any interest rate swap agreement, interest rate cap agreement or other financial agreement or arrangement with respect to exposure to interest rates.

(vvv) "Issue Date" means with respect to a share of Preferred Stock, the date of issuance of such share of Preferred Stock.

(www) "Junior Stock" means all classes of common stock of the Company and each other class of capital stock or series of preferred stock established after the Original Issue Date by the Board of Directors, the terms of which do not expressly provide that such class or series ranks senior to or on parity with the Preferred Stock as to dividend rights or rights upon a Liquidation.

(xxx) "Junior Stock Event" has the meaning set forth in Section 3(g).

(yyy) "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof).

(zzz) "Liquidation" means the voluntary or involuntary liquidation, dissolution or winding-up of the Company.

(aaaa) "Liquidation Preference" means, as of any date, with respect to each share of Preferred Stock the sum of (a) $10,000.00 and (b) the amount of any accrued and unpaid dividends that on or prior to such date have been added to the Liquidation Preference in accordance with Section 3(b) and Section 3(c).

(bbbb) "Mandatory Conversion Percentage" means the percentage set forth in the following table:

Date of Conversion	Mandatory Conversion Percentage
March 30, 2007 through March 30, 2009	175	%
March 31, 2009 through March 30, 2011	150	%
March 31, 2011 and thereafter	125	%

(cccc) "Maximum Distribution Amount" has the meaning set forth in Section 8(a)(iv).

(dddd) "Moody's" means Moody's Investors Service, Inc. and any successor to its rating agency business.

(eeee) "NYSE" means the New York Stock Exchange, Inc.

(ffff) "NYSE Approval Date" means the date on which the NYSE Shareholder Approval is obtained.

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

(hhhh) "NYSE Shareholder Approval" means the requisite approval of the NYSE Approval Proposal, as required by the NYSE or any other U.S. national securities exchange on which the Common Stock is then listed, by the holders of the Capital Stock of the Company entitled to vote; provided that for purposes of Section 10 of the 7.0% Statements such term shall mean either (i) requisite approval by such holders of clauses (i)-(iii) of the definition of NYSE Approval Proposal or (ii) the requisite approval by such holders of only clause (iii) of the definition of NYSE Approval Proposal.

(iiii) "Officer" means the Chairman of the Board of Directors, the President, any Vice President, the Treasurer, the Secretary or any Assistant Secretary of the Company.

(jjjj) "Officers' Certificate" means a certificate signed by two Officers.

(kkkk) "Oil and Gas Business" means:

(i) the acquisition, exploration, exploitation, development, operation and disposition of interests in oil, natural gas, and other hydrocarbon and mineral properties;

(ii) the gathering, marketing, distribution, treating, processing, storage, refining, selling and transporting of any production from such interests or properties and the marketing of oil, natural gas, other hydrocarbons and minerals obtained from unrelated Persons;

(iii) any business relating to or arising from exploration for or exploitation, development, production, treatment, processing, storage, refining, transportation, gathering or marketing of oil, natural gas, other hydrocarbons and minerals and products produced in association therewith;

(iv) any other related energy business, including power generation and electrical transmission business where fuel required by such business is supplied, directly or indirectly, from oil, natural gas, other hydrocarbons and minerals produced substantially from properties in which the Company or its Subsidiaries, directly or indirectly, participate;

(v) any business relating to oil field sales and service; and

(vi) any activity necessary, appropriate or incidental to the activities described in the preceding clauses (i) through (v) of this definition.

(llll) "Oil and Natural Gas Hedging Contract" means any oil and natural gas hedging agreement and other agreement or arrangement designed to protect the Company or any Subsidiary against fluctuations in oil and natural gas prices.

(mmmm) "Opinion of Counsel" means a written opinion from legal counsel who is acceptable to the Transfer Agent. The counsel may be an employee of or counsel to the Company or the Transfer Agent.

(nnnn) "Option" means rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

(oooo) "Original Issue Date" means March 30, 2007.

(pppp) "Parity Stock" means the Hybrid Preferred Stock, the 7.0% Preferred Stock (other than the Preferred Stock) and any class of capital stock or series of preferred stock established after the Original Issue Date by the Board of Directors, the terms of which expressly provide that such class or series will rank on parity with the Preferred Stock as to dividend rights or rights upon a Liquidation.

(qqqq) "Person" means any individual, corporation, general partnership, limited partnership, limited liability partnership, joint venture, association, joint-stock company, trust, limited liability company, unincorporated organization or government or any agency or political subdivision thereof.

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

(ssss) "Preferred Directors" has the meaning set forth in Section 5(c)(i).

(tttt) "Preferred Stock" has the meaning set forth in Section 1(a).

(uuuu) "Production Payments and Reserve Sales" means the grant or transfer to any Person of a Dollar Denominated Production Payment, Volumetric Production Payment, royalty, overriding royalty, net profits interest, master limited partnership interest or other interest in oil and natural gas properties, reserves or the right to receive all or a portion of the production or the proceeds from the sale of production attributable to such properties.

(vvvv) "Purchased Shares" has the meaning set forth in Section 8(a)(v).

(wwww) "Redemption Date" has the meaning set forth in Section 4(k)(i).

(xxxx) "Redemption Notice" has the meaning set forth in Section 4(k)(i).

(yyyy) "Redemption Price" has the meaning set forth in Section 4(k).

(zzzz) "Register" has the meaning set forth in Section 4(b).

(aaaaa) "Registration Rights Agreements" means the Convertible Stock Registration Rights Agreement and the Hybrid Preferred Stock Registration Rights Agreement.

(bbbbb) "Required Holders" means as of any date the holders of at least 60% of the then-outstanding shares of 7.0% Preferred Stock and, after the NYSE Approval Date, the Hybrid Preferred Stock, voting together as a single class.

(ccccc) "Reservation Default" has the meaning set forth in Section 3(d).

(ddddd) "Sale/Leaseback Transaction" means an arrangement relating to property owned by the Company or a Subsidiary on January 20, 2004 or thereafter acquired by the Company or a Subsidiary whereby the Company or a Subsidiary transfers such property to a Person and the Company or a Subsidiary leases it from such Person.

(eeeee) "SEC" or "Commission" means the United States Securities and Exchange Commission.

(fffff) "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

(ggggg) "Senior Indenture" means that certain Indenture, dated January 20, 2004, by and among the Company, the guarantors listed on the signature pages thereto, and Wilmington Trust Company, as trustee, as in effect on the Original Issue Date.

(hhhhh) "Senior Stock" means each class of capital stock or series of preferred stock established after the Original Issue Date by the Board of Directors, the terms of which expressly provide that such class or series will rank senior to the Preferred Stock as to dividend rights or rights upon a Liquidation.

(iiiii) "Series A-1 Hybrid Preferred Stock" means the series of preferred stock, par value $0.001 per share, of the Company designated as the "Series A-1 Hybrid Preferred Stock" having the rights and privileges set forth in the Series A-1 Hybrid Statement of Designation.

(jjjjj) "Series A-2 Hybrid Preferred Stock" means the series of preferred stock, par value $0.001 per share, of the Company designated as the "Series A-2 Hybrid Preferred Stock" having the rights and privileges set forth in the Series A-2 Hybrid Statement of Designation.

(kkkkk) "Series A-2 Preferred Stock' means the series of preferred stock, par value $0.001 per share, of the Company designated as the "Series A-2 7.0% Cumulative Convertible Perpetual Preferred Stock" having the rights and privileges set forth in the Series A-2 7.0% Cumulative Convertible Perpetual Preferred Stock Statement of Designation.

(lllll) "Series B Preferred Stock" means the series of preferred stock, par value $0.001 per share, of the Company designated as the "Series B 7.0% Cumulative Convertible Perpetual Preferred Stock" having the rights and privileges set forth in the Series B 7.0% Cumulative Convertible Perpetual Preferred Stock Statement of Designation.

(mmmmm) "Series C Preferred Stock" means the series of preferred stock, par value $0.001 per share, of the Company designated as the "Series C 7.0% Cumulative Convertible Perpetual Preferred Stock" having the rights and privileges set forth in the Series C 7.0% Cumulative Convertible Perpetual Preferred Stock Statement of Designation.

(nnnnn) "Series 1 Preferred Stock" means, collectively, the Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock and, after the NYSE Approval Date, the Series A-1 Hybrid Preferred Stock.

(ooooo) "Series 1 Required Holders" means, as of any date, the holders of at least 60% of the then-outstanding shares of Series 1 Preferred Stock, voting together as a single class.

(ppppp) "Shareholder Approval" means the requisite approval, as required by the NYSE or any other U.S. national securities exchange on which the Common Stock is then listed, by the holders of the Capital Stock of the Company entitled to vote, in order for the Company to issue all shares of Common Stock issuable upon full conversion of the 7.0% Preferred Stock and, after the NYSE Approval Date, the Hybrid Preferred Stock (other than the Shareholder Approval to be obtained in connection with the NYSE Shareholder Approval).

(qqqqq) "Shareholder Meeting" means the annual or special meeting of shareholders to be called by the Company for the purpose of obtaining the NYSE Shareholder Approval and electing the Preferred Directors.

(rrrrr) "Significant Subsidiary" has the meaning set forth in Section 1-02(w) of Regulation S-X under the Securities Act.

(sssss) "Special Dividend" has the meaning set forth in Section 3(a).

(ttttt) "Standard & Poor's" means Standard & Poor's, a division of the McGraw-Hill Companies, Inc., and any successor to its rating agency business.

(uuuuu) "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred).

(vvvvv) "Statement" means this Statement of Designation with respect to the Preferred Stock, as amended from time to time.

(wwwww) "Subsidiary" means, with respect to any Person, (i) any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Voting Stock is at the time owned or controlled, directly or indirectly, by (a) such Person, (b) such Person and one or more Subsidiaries of such Person or (c) one or more Subsidiaries of such Person, (ii) a partnership or limited liability company of which such Person or one of its Subsidiaries is the general partner or managing member, as applicable, or (iii) any other Person in which such Person has the power to elect or direct the election of at least a majority of the directors or other governing body of such Person. Notwithstanding anything to the contrary contained in this Statement, all references to the Company and its consolidated Subsidiaries or to financial information prepared on a consolidated basis in accordance with GAAP shall be deemed to include the Company and its Subsidiaries as to which financial statements are prepared on a consolidated basis in accordance with GAAP and to financial information prepared on such a consolidated basis.

(xxxxx) "Temporary Cash Investments" means any of the following:

(i) any investment in direct obligations of the United States of America or any agency thereof or obligations guaranteed by the United States of America or any agency thereof;

(ii) investments in demand and time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any State thereof or any foreign country recognized by the United States of America, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $50.0 million (or the foreign currency equivalent thereof) and has outstanding debt which is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) or any money-market fund sponsored by a registered broker dealer or mutual fund distributor;

(iii) investments in deposits available for withdrawal on demand with any commercial bank that is organized under the laws of any country in which the Company or any Subsidiary maintains an office or is engaged in the Oil and Gas Business; provided, however, that (A) all such deposits have been made in such accounts in the ordinary course of business and (B) such deposits do not at any one time exceed $10.0 million in the aggregate;

(iv) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (i) above entered into with a bank meeting the qualifications described in clause (ii) above;

(v) investments in commercial paper, maturing not more than 90 days after the date of acquisition, issued by a corporation organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to Standard & Poor's;

(vi) investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by Standard & Poor's or "A" by Moody's; and

(vii) investments in money market funds that invest substantially all their assets in securities of the types described in clauses (i) through (vi) above.

(yyyyy) "Trading Day" means a day during which trading securities generally occurs on the NYSE or, if the Common Stock is not listed on the NYSE, on the principal national securities exchange on which the Common Stock is then listed or, if the Common Stock is not listed on a national securities exchange, on the automated quotation system on which the Common Stock is then authorized for quotation.

(zzzzz) "Transaction" has the meaning set forth in Section 9(c).

(aaaaaa) "Transfer Agent" means Continental Stock Transfer & Trust Company, the Company's duly appointed transfer agent, registrar and conversion and dividend disbursing agent for the Preferred Stock. The Company may, in its sole discretion, remove the Transfer Agent with at least ten days' prior notice to the Transfer Agent; provided, that the Company shall appoint a successor Transfer Agent who shall accept such appointment prior to the effectiveness of such removal.

(bbbbbb) "Transfer Restricted Securities" means each share of Preferred Stock (or the shares of Common Stock into which such share of Preferred Stock is convertible) until (i) the date on which the resale of such security or its predecessor has been effectively registered under the Securities Act and disposed of in accordance therewith or (ii) the date on which such security or predecessor is distributed to the public pursuant to Rule 144 under the Securities Act or is eligible for sale pursuant to Rule 144(k) under the Securities Act.

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

(dddddd) "Triggering Determination Date" has the meaning set forth in Section 8(a)(iv).

(eeeeee) "Triggering Distribution" has the meaning set forth in Section 8(a)(iv).

(ffffff) "Volume Weighted Average Price" of the Common Stock on any date means the volume weighted average sale price per share on such date on the NYSE, or if the Common Stock is not listed on the NYSE, on the principal national securities exchange on which the Common Stock is then listed or, if the Common Stock is not listed on a national securities exchange, an automated quotation system on which the Common Stock is then listed or authorized for quotation, in each case as reported by Bloomberg Financial Markets (or any successor thereto) through its "Volume at Price" functions and ignoring any block trades (which, for purposes of this definition means any transfer of more than 100,000 shares (subject to adjustment to reflect stock dividends, stock splits, stock combinations and other similar events)). In the absence of such a listing or quotation, the Volume Weighted Average Price will be an amount reasonably determined in good faith by the Board of Directors to be the fair value of the Common Stock and evidenced in a resolution.

(gggggg) "Volumetric Production Payments" means production payment obligations recorded as deferred revenue in accordance with GAAP, together with all undertakings and obligations in connection therewith.

(hhhhhh) "Voting Stock" means, with respect to any Person, securities of any class or classes of Capital Stock in such Person entitling the holders thereof to vote for the election of directors or other members of the governing body of such Person (other than solely by reason of a contingency).

(iiiiii) "Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or one or more other Wholly Owned Subsidiaries.

3. Dividends.

(a) The Holders of shares of Preferred Stock shall be entitled to receive, when, as and if authorized or declared by the Board of Directors out of funds legally available for that purpose (subject to Section 12(e)), on each Dividend Payment Date, dividends on each share of Preferred Stock, at a rate per annum equal to the Dividend Rate on the Liquidation Preference as of such Dividend Payment Date, subject to increase as set forth in Sections 3(d) and 3(e). Dividends shall be cumulative from the Issue Date and shall be payable quarterly in arrears, if, as and when so authorized and declared by the Board of Directors, on each Dividend Payment Date, commencing on the first Dividend Payment Date following the Original Issue Date; provided, that if any such payment date is not a Business Day then such dividend shall be payable on the next Business Day. Each dividend shall be payable to the Holders of Preferred Stock as they appear on the Register at the close of business on the corresponding Dividend Record Date. All dividends paid with respect to shares of Preferred Stock shall be paid pro rata to the Holders entitled thereto. The amount of dividends payable per share of Preferred Stock for each full quarterly dividend period shall be computed by dividing the applicable Dividend Rate by four and multiplying the resulting number by the Liquidation Preference of such share as of the applicable Dividend Payment Date. The amount of dividends payable for the initial dividend period, or any other period shorter or longer than a full dividend period, shall be computed on the basis of twelve 30-day months and a 360-day year. Dividend payments shall be aggregated per Holder and shall be made to the nearest cent (with $.005 being rounded upward). The Company shall declare a special cash dividend on the NYSE Approval Date in the amount of Accrued Dividends through the NYSE Approval Date (the "Special Dividend") to all Holders on the NYSE Approval Date, and the Special Dividend shall be paid to such Holders within five (5) Trading Days after the NYSE Approval Date.

(b) Accrued Dividends on any share of Preferred Stock which are not declared and paid in full in cash on any Dividend Payment Date shall be added to the Liquidation Preference of such share of Preferred Stock on such Dividend Payment Date and, thereafter, may no longer be declared or paid as dividends in cash. If the Company elects to add Accrued Dividends to the Liquidation Preference in accordance with Section 3(b) and Section 3(c), then on or prior to the Dividend Record Date for such dividend, the Company shall provide written notice to the Holders and the Transfer Agent of such election and shall prepare and transmit to the Transfer Agent an Officers' Certificate setting forth the Liquidation Preference which will become effective after the corresponding Dividend Payment Date.

(c) Notwithstanding the provisions of Section 3(b), the Company shall not be permitted to add Accrued Dividends to the Liquidation Preference and must pay dividends on shares of Preferred Stock in cash:

(i) prior to receipt of the NYSE Shareholder Approval;

(ii) following the occurrence of a Default, regardless of whether such Default is subsequently cured or waived by the Required Holders;

(iii) on or after March 30, 2013;

(iv) following a Junior Stock Event; or

(v) if the Liquidated Damages Rate (as defined in the Registration Rights Agreements) following a Convertible Stock Registration Default or a Hybrid Preferred Stock Registration Default equals the Maximum Rate (as defined in the Registration Rights Agreements), through but excluding the date on which such Convertible Preferred Registration Default or Hybrid Preferred Stock Registration Default is cured.

(d) If at any time the Company does not reserve and keep available for issuance the number of shares of Common Stock required pursuant to Section 7(a)(iv) (a "Reservation Default"), then the Dividend Rate shall be increased by 6.00% per annum, from and including the date on which any such Reservation Default shall occur through but excluding the date on which the Reservation Default shall have been cured or waived by the Required Holders.

(e) Upon the occurrence of a Default:

(i) the Combined Holders will have the right to elect four additional directors to the Board of Directors (the "Additional Directors") as provided in Section 5(d) to serve until the date on which such Default is cured or waived by the Combined Holders; provided however, that in the event of a Default as described in clause (ii) of the definition thereof, the Combined Holders shall not have the right to elect four Additional Directors upon the occurrence of such Default and instead will have the right to elect two Additional Directors if such Default continues for 90 days after the applicable Dividend Payment Date and two Additional Directors if such Default continues for 180 days after the applicable Dividend Payment Date as provided in Section 5(d) to serve until the date on which such Default is cured or waived by the Combined Holders. Notwithstanding the foregoing, upon the occurrence of a Default prior to the date of the Shareholder Meeting at which the initial four Preferred Directors are elected, the number of Additional Directors that may be elected shall be increased by two directors until such Shareholder Meeting. At the Shareholder Meeting at which the initial four Preferred Directors are elected, if the number of Additional Directors then serving on the Board of Directors exceeds four, the Combined Holders shall cause such excess Additional Directors to resign effective as of the date of such Shareholder Meeting. The number of Additional Directors shall not exceed four at any time (or six prior to the Shareholder Meeting at which the initial four Preferred Directors are elected) regardless of the occurrence of one or more Defaults as set forth in the 7.0% Statements or the Hybrid Statements.

(ii) the Company shall be prohibited from declaring or paying any dividends or distributions on (other than cash paid in lieu of fractional shares), or otherwise repurchasing, redeeming or otherwise acquiring any shares of, Capital Stock of the Company (other than the 7.0% Preferred Stock and Hybrid Preferred Stock and shares of Junior Stock pursuant to any bona fide employee or director incentive or benefit plan or arrangement of the Company or any Subsidiary heretofore or hereafter adopted by the Board of Directors or the cashless exercise of Options) or any of its Subsidiaries until the date on which such Default is cured or waived by the Required Holders; and

(iii) the Dividend Rate shall increase by 3.00% (except for a Default described in clause (ix) of the definition thereof, for which such increase shall be 6.00%) from and including the date on which the Default shall occur and be continuing through but excluding the date on which the Default is cured or waived by the Required Holders; provided, however, that in the event of a Default as described in clause (ii) of the definition thereof, the Dividend Rate shall not increase unless such Default continues for 30 days after the applicable Dividend Payment Date; and provided, further, that the Dividend Rate shall not be increased pursuant to this Section 3(e)(iii) in connection with a Convertible Stock Registration Default, a Hybrid

Preferred Stock Registration Default or a Reservation Default; and provided, further, that the Dividend Rate shall not be increased further pursuant to this Section 3(e)(iii) for a subsequent Default occurring while the Dividend Rate is already increased pursuant to this Section 3(e)(iii).

(f) No dividend will be declared or paid upon, or any sum set apart for the payment of dividends upon, any outstanding share of the Preferred Stock or Parity Stock with respect to any dividend period unless all dividends for all preceding dividend periods have been declared and paid, or declared and, if such dividends are to be paid in cash, a sum of cash sufficient for the payment thereof is set apart for the payment of such dividend, upon all outstanding shares of Preferred Stock and Parity Stock. Notwithstanding the foregoing, if full cumulative dividends have not been paid on the Preferred Stock and all Parity Stock, all dividends declared and paid on the Preferred Stock and such Parity Stock shall be declared and paid pro rata so that the amounts of dividends declared and paid per share on the Preferred Stock and such Parity Stock will in all cases bear to each other the same ratio that accumulated and unpaid dividends per share on the shares of Preferred Stock and such Parity Stock bear to each other.

(g) No dividends or other distributions (other than cash paid in lieu of fractional shares) may be declared, made or paid, or set apart for payment upon, any Junior Stock, nor may any Junior Stock be redeemed, purchased or otherwise acquired for any consideration (or any money paid to or made available for a sinking fund for the redemption of any Junior Stock) by or on behalf of the Company or any of its Subsidiaries, unless (i) all Accrued Dividends shall have been or contemporaneously are declared and paid in cash, or are declared and a sum of cash sufficient for the payment thereof is set apart for such payment, on the Preferred Stock and all Parity Stock for all dividend periods terminating on or prior to the date of such declaration, payment, redemption, purchase or acquisition, (ii) after giving pro forma effect to such declaration, payment, redemption, purchase or acquisition, the Company has aggregate undrawn but available borrowing capacity under the Credit Facility and the EPOP Credit Facility of at least $500 million, (iii) the Consolidated EBITDA Ratio on such date exceeds 3.5 to 1.0 and (iv) in the event of a dividend or distribution (other than Excluded Distributions) in excess of the Maximum Distribution Amount per Calendar Quarter, the Holders of Preferred Stock receive an equivalent dividend or distribution of the amount of such dividend or distribution in excess of the Maximum Distribution Amount per Calendar Quarter that would be payable to such Holders if such shares of Preferred Stock had been converted into Common Stock immediately prior to such dividend or distribution (such declaration, payment, redemption, purchase or acquisition made in accordance with clauses (i) through (iv), a "Junior Stock Event"). The restrictions set forth in this Section 3(g) shall not apply to the purchase or other acquisition of Junior Stock pursuant to any bona fide employee or director incentive or benefit plan or arrangement of the Company or any Subsidiary heretofore or hereafter adopted by the Board of Directors or the cashless exercise of Options. Notwithstanding the foregoing provisions of this Section 3(g), (A) the Company shall not make a dividend or distribution to holders of Junior Stock (other than in connection with a Liquidation or a merger or consolidation of the Company) of assets or other property other than a dividend or distribution consisting exclusively of shares of Common Stock or cash in compliance with the terms of this Statement and (B) the Company shall not make a dividend or distribution of cash to holders of Junior Stock (other than cash in lieu of fractional shares, or upon a Liquidation or a merger or consolidation of the Company) (1) if the Company or any Significant Subsidiary is, after the expiration of any applicable cure period, in default under the Credit Facility or any of its then-existing credit facilities or other Indebtedness in excess of $100.0 million, which default then permits, or would with the notice or lapse of time permit, the acceleration of Indebtedness thereunder, or (2) following a Bankruptcy Event.

4. Change of Control.

(a) In connection with the occurrence of a Change of Control, the Company shall make an offer to purchase all of the outstanding shares of Preferred Stock (a "Change of Control Offer") for an amount of cash per share of Preferred Stock equal to the Liquidation Preference as of the Change of Control Payment Date, plus Accrued Dividends through the Change of Control Payment Date (the "Change of Control Price") on the terms set forth in this Section 4. The right of the Holders of Preferred Stock pursuant to this Section 4 are in addition to, and not in lieu of, the rights of the Holders of Preferred Stock pursuant to Section 7(a).

(b) Within ten (10) Trading Days after the occurrence of a Change of Control, the Company shall give notice of such Change of Control (the "Change of Control Notice") by first class mail to each Holder of Preferred Stock at such Holder's address appearing in the securities register maintained in respect of the Preferred Stock by the Transfer Agent or the Company (the "Register"). Such Change of Control Notice shall state:

(i) the event causing such Change of Control and the date of occurrence of such Change of Control;

(ii) that a Change of Control Offer is being made pursuant to this Section 4 and that all shares of Preferred Stock tendered will be accepted for payment;

(iii) the Change of Control Price and the period of time during which the Company may accept for payment shares of Preferred Stock, which shall be as soon after the date of the notice as legally permissible and shall terminate no earlier than 30 days and not later than 60 days from the date the Change of Control Offer is commenced (such termination date, as it may be extended pursuant to Section 4(c), the "Change of Control Payment Date");

(iv) that any shares of Preferred Stock not tendered for payment pursuant to the Change of Control Offer shall continue to accrue dividends and be convertible in accordance with the terms thereof;

(v) the then-applicable Conversion Price;

(vi) that, unless the Company defaults in the payment of the Change of Control Price, all shares of Preferred Stock accepted for payment pursuant to the Change of Control Offer shall cease to accrue dividends on the Change of Control Payment Date;

(vii) that any Holder electing to have shares of Preferred Stock repurchased in the Change of Control Offer shall be required to surrender such certificates representing the shares of Preferred Stock to the Company or its designated agent at the address specified in the Change of Control Notice prior to the close of business on the Change of Control Payment Date;

(viii) that any Holder of Preferred Stock shall be entitled to withdraw such election if the Company or its designated agent receives, not later than the close of business on the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder of such shares of Preferred Stock, the number of shares of Preferred Stock such Holder delivered for purchase and a statement of the number of shares of Preferred Stock for which such Holder is withdrawing its election to have such shares of Preferred Stock repurchased;

(ix) that shares of Preferred Stock that have been tendered pursuant to the Change of Control Offer may be converted pursuant to Section 7(a) only if such tendered shares have been properly withdrawn;

(x) that a Holder whose shares of Preferred Stock are being purchased only in part shall be issued a new certificate, of like tenor, for the unpurchased shares of Preferred Stock represented by any certificate surrendered; and

(xi) the instructions that Holders of Preferred Stock must follow in order to tender their shares of Preferred Stock.

(c) If (i) on or prior to the NYSE Approval Date the aggregate Liquidation Preference as of the Change of Control Payment Date of shares of 7.0% Preferred Stock that will remain outstanding after the Company's repurchase of the shares of 7.0% Preferred Stock tendered pursuant to the Change of Control Offer is less than $50 million or (ii) after the NYSE Approval Date the aggregate Liquidation Preference as of the Change of Control Payment Date of shares of 7.0% Preferred Stock and Hybrid Preferred Stock that will remain outstanding after the Company's repurchase of the shares of 7.0% Preferred Stock and Hybrid Preferred Stock tendered pursuant to the Change of Control Offer is less than $250 million, then the Company shall extend the Change of Control Payment Date by ten (10) days and shall announce such extension in compliance with Rule 14e-1(d) under the Exchange Act. The Company shall not extend the Change of Control Payment Date more than once pursuant to this Section 4(c).

(d) On the Change of Control Payment Date, the Company shall, to the extent of funds legally available therefor (subject to Section 12(e)), accept for payment the shares of Preferred Stock tendered and not withdrawn pursuant to the Change of Control Offer. On the Business Day immediately following the Change of Control Payment Date, the Company shall deposit with a paying agent an amount equal to the aggregate Change of Control Price in respect of all shares of Preferred Stock so tendered and not withdrawn. The paying agent shall promptly mail to each Holder of shares of Preferred Stock so accepted payment in an amount equal to the Change of Control Price for such shares and new certificates for the unpurchased shares of Preferred Stock surrendered, if any.

(e) The Company shall make a public announcement of the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date.

(f) Notwithstanding anything herein to the contrary, if the shares of Preferred Stock are Global Preferred Stock, then any Change of Control Notice shall be delivered and such shares of Preferred Stock shall be tendered or withdrawn in accordance with the applicable procedures of the DTC.

(g) The Change of Control Offer shall be made in compliance with, and subject to, all applicable laws, including federal and state securities laws. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 4, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4 by virtue thereof.

(h) The Company shall not be required to make a Change of Control Offer in connection with a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Section 4 and purchases all shares of Preferred Stock validly tendered and not withdrawn under such Change of Control Offer.

(i) If a Change of Control Payment Date is on or after a Dividend Record Date but on or prior to the related Dividend Payment Date, then any Accrued Dividends shall be payable to Holders who tender shares of Preferred Stock pursuant to the Change of Control Offer.

(j) Notwithstanding anything herein to the contrary, a Change of Control shall not be deemed to have occurred if in the case of a merger or consolidation described in clause (iii) of the

definition of Change of Control, (i) all of the consideration, excluding cash payments for fractional shares, the purchase of Options and pursuant to dissenters' appraisal rights, in the merger or consolidation constituting the Change of Control consists of Capital Stock (other than Preference Stock) traded on a national securities exchange or quoted on an automated quotation system (or which will be so traded or quoted when issued or exchanged in connection with such Change of Control), which are readily marketable, free of any restrictions on resale or transfer or subject to an effective registration statement under the Securities Act, and as a result of such transaction or transactions the shares of Preferred Stock become convertible solely into such Capital Stock (other than Preference Stock), excluding cash payments for fractional shares and cash payments pursuant to dissenters' appraisal rights (an "All-Stock Change of Control") and (ii) the Holders of at least 66²/3% of the outstanding shares of 7.0% Preferred Stock and, after the NYSE Approval Date, Hybrid Preferred Stock, voting together as a class, have approved the All-Stock Change of Control.

(k) If the Company has extended the Change of Control Payment Date pursuant to Section 4(c), and on the Trading Day following the Change of Control Payment Date (i) shares of 7.0% Preferred Stock with an aggregate Liquidation Preference as of the Change of Control Payment Date of less than $50 million remain outstanding (if the Change of Control Payment Date is on or prior to the NYSE Approval Date) or (ii) shares of 7.0% Preferred Stock and Hybrid Preferred Stock with an aggregate Liquidation Preference as of the Change of Control Payment Date of less than $250 million remain outstanding (if the Change of Control Payment Date is after the NYSE Approval Date), the Company shall have the right to redeem all, but not less than all, such remaining shares of 7.0% Preferred Stock and, if the Change of Control Payment Date is after the NYSE Approval Date, Hybrid Preferred Stock for cash at a price per share equal to the Liquidation Preference as of the Redemption Date, plus Accrued Dividends through the Redemption Date (the "Redemption Price"), in immediately available funds, subject to the following terms and conditions:

(i) In the event of a redemption pursuant to this Section 4(k), the Company shall give notice of such redemption (the "Redemption Notice") by first class mail to each Holder of Preferred Stock, at such Holder's address appearing in the Register within five (5) Business Days after the Change of Control Payment Date. Such notice shall be given not more than thirty (30) nor less than fifteen (15) days before the date fixed for redemption (the "Redemption Date") and shall state:

(1) the Redemption Date;

(2) the amount of the Redemption Price;

(3) that the Holders shall be required to surrender such certificates representing the shares of Preferred Stock to the Company or its designated agent at the address specified in the Redemption Notice;

(4) that the Preferred Stock shall cease to be outstanding and the Holders thereof shall cease to be Holders of Preferred Stock on and after the Redemption Date and thereafter shall only be entitled to receive the Redemption Price, without interest, upon the surrender of the share certificate therefor;

(5) that, unless the Company defaults in the payment of the Redemption Price, all shares of Preferred Stock shall cease to accrue dividends on the Redemption Date; and

(6) the instructions that Holders of Preferred Stock must follow in order to receive the Redemption Price for their shares of Preferred Stock.

(ii) Each Holder of shares of Preferred Stock called for redemption pursuant to this Section 4(k) shall surrender the certificate or certificates representing such shares to the

Company or its designated agent at the address specified in the Redemption Notice, duly endorsed, in the manner and at the place designated in the Redemption Notice. On the Redemption Date, the Company shall, to the extent of funds legally available therefor, subject to Section 12(e), deposit with a paying agent an amount equal to the aggregate Redemption Price in respect of all shares of Preferred Stock. The paying agent shall, upon the later of the Redemption Date or receipt of the certificate or certificates representing shares of Preferred Stock properly surrendered in the manner specified in the Redemption Notice, promptly mail to each Holder of shares of Preferred Stock payment in an amount equal to the Redemption Price for such shares of Preferred Stock.

(iii) On and after the Redemption Date, unless the Company defaults in the payment in full of the aggregate Redemption Price, dividends on the Preferred Stock shall cease to accumulate, and all rights of the Holders of such shares shall terminate with respect thereto, other than the right to receive the Redemption Price per share, without interest; provided, however, that if a Redemption Notice shall have been given as provided in this Section 4(k) and the aggregate Redemption Price shall have been irrevocably deposited with a paying agent, in trust for the equal and ratable benefit of the Holders of the shares of Preferred Stock to be redeemed, then, at the close of business on the day on which such funds are deposited with the paying agent, the Holders of the shares of Preferred Stock to be redeemed shall cease to be shareholders of the Company and shall be entitled only to receive the Redemption Price per share, without interest.

(iv) In order to facilitate the redemption of shares of Preferred Stock pursuant to this Section 4(k), the Board of Directors may fix a record date for the determination of shares of Preferred Stock to be redeemed, or may cause the transfer books of the Company for the Preferred Stock to be closed, not more than thirty (30) days or less than fifteen (15) days prior to the applicable Redemption Date.

(v) Notwithstanding anything herein to the contrary, if the shares of Preferred Stock are Global Preferred Stock, then any Redemption Notice shall be delivered and such shares of Preferred Stock shall be tendered or withdrawn in accordance with the applicable procedures of the DTC.

(l) Without limiting any other rights and remedies in this Statement, in the event the assets of the Company available for distribution to the Holders of shares of Preferred Stock upon a Change of Control shall be insufficient to pay in full all amounts to which such Holders are entitled pursuant to this Section 4 and all change of control payments required by the terms of Parity Stock, then without limiting such Holder's other rights such assets or the proceeds thereof shall be distributed among the holders of the Preferred Stock and such Parity Stock ratably, in proportion to the full distributable amounts for which holders of the Preferred Stock and such Parity Stock are entitled upon such Change of Control.

5. Voting Rights.

(a) The Holders of shares of Preferred Stock shall not be entitled to any voting rights except as hereinafter provided in this Section 5 or as otherwise provided by law.

into shares of Common Stock at the Conversion Price on the record date for the determination of the shareholders entitled to vote on such matters or, if no such record date is established, at the date such vote is taken or any written consent of shareholders is first executed. The Holders shall be entitled to notice of any shareholders' meeting at the time and in the manner given to the holders of the Common Stock in accordance with the bylaws of the Company.

(i) For so long as 25% or more of the Initial Preferred Shares are outstanding, the Series 1 Required Holders shall be entitled, but not obligated, to elect four directors (the "Preferred Directors") to serve on the Board of Directors at any annual meeting of shareholders or special meeting held to elect such directors, or at a special meeting of the holders of the Series 1 Preferred Stock called as hereinafter provided; provided that the right to elect four directors pursuant to this Section 5(c)(i) shall be reduced by (A) one director for so long as the Series B Preferred Stock has the right to elect a director pursuant to the Statement of Designation for the Series B Preferred Stock and (B) one director for so long as the Series C Preferred Stock has the right to elect a director pursuant to the Statement of Designation for the Series C Preferred Stock. If less than 25% but 10% or more of the Initial Preferred Shares are outstanding, the number of Preferred Directors which may be elected pursuant to this Section 5(c)(i) will decrease to two (which number shall be reduced by (x) one director for so long as the Series B Preferred Stock has the right to elect a director pursuant to the Statement of Designation for the Series B Preferred Stock and (y) one director for so long as the Series C Preferred Stock has the right to elect a director pursuant to the Statement of Designation for the Series C Preferred Stock), and if less than 10% of the Initial Preferred Shares are outstanding, the holders of the Series 1 Preferred Stock shall not have the right to elect any Preferred Directors pursuant to this Section 5(c)(i); provided, however, that notwithstanding any such decrease in the number of Preferred Directors which may be elected pursuant to this Section 5(c)(i), the Preferred Directors serving on the Board of Directors at the time of such decrease shall serve on the Board of Directors until the next annual meeting of shareholders or their earlier death, resignation or removal pursuant to this Section 5(c).

(ii) Notwithstanding the provisions of Section 5(c)(i), if all of the Hybrid Preferred Stock has been redeemed in accordance with the Hybrid Statements, for so long as 25% or more of the shares of 7.0% Preferred Stock issued on the Original Issue Date remain outstanding, the number of Preferred Directors that the Series 1 Required Holders shall be entitled, but not obligated, to elect shall be reduced to two, and two Preferred Directors, as designated in writing by the holders of a majority of the shares of Series 1 Preferred Stock outstanding, shall be automatically removed from the Board of Directors (or if the holders of a majority of the shares of Series 1 Preferred Stock outstanding have not designated the two Preferred Directors to be removed within ten Business Days of the date on which the last share of Hybrid Preferred Stock is redeemed, the Board of Directors shall select such two Preferred Directors); provided that the right to elect two directors pursuant to this Section 5(c)(ii) shall be reduced by (A) one director for so long as the Series B Preferred Stock has the right to elect a director pursuant to the Statement of Designation for the Series B Preferred Stock and (B) one director for so long as the Series C Preferred Stock has the right to elect a director pursuant to the Statement of Designation for the Series C Preferred Stock. If all of the Hybrid Preferred Stock has been redeemed in accordance with the Hybrid Statements and less than 25% but 10% or more of the shares of 7.0% Preferred Stock issued on the Original Issue Date remain outstanding, the number of Preferred Directors which may be elected pursuant to this Section 5(c)(ii) will decrease to one (which number shall be reduced by (x) one director for so long as the Series B Preferred Stock has the right to elect a director pursuant

to the Statement of Designation for the Series B Preferred Stock and (y) one director for so long as the Series C Preferred Stock has the right to elect a director pursuant to the Statement of Designation for the Series C Preferred Stock), and if all of the Hybrid Preferred Stock has been redeemed in accordance with the Hybrid Statements and less than 10% of the shares of 7.0% Preferred Stock issued on the Original Issue Date remain outstanding, the holders of the Series 1 Preferred Stock shall not have the right to elect any Preferred Directors pursuant to this Section 5(c)(ii); provided, however, that notwithstanding any such decrease in the number of Preferred Directors which may be elected pursuant to this Section 5(c)(ii), the Preferred Directors serving on the Board of Directors at the time of such decrease shall serve on the Board of Directors until the next annual meeting of shareholders or their earlier death, resignation or removal pursuant to this Section 5(c).

(iii) At any time after voting power to elect Preferred Directors shall become vested and be continuing in the holders of Series 1 Preferred Stock pursuant to this Section 5(c), or if a vacancy shall exist in the office of the director elected by such holders, a proper officer of the Company shall, upon the written request of the holders of 20% or more of the then-outstanding shares of Series 1 Preferred Stock addressed to the Secretary of the Company, call a special meeting of the holders of Series 1 Preferred Stock for the purpose of electing the Preferred Directors that such holders are entitled to elect. If such meeting shall not be called by a proper officer of the Company within twenty (20) days after personal service of such written request upon the Secretary of the Company, or within twenty (20) days after mailing the same within the United States by certified mail, addressed to the Secretary of the Company at its principal executive offices, then the holders of 20% or more of the then-outstanding shares of Series 1 Preferred Stock may designate in writing a holder of Series 1 Preferred Stock to call such meeting at the expense of the Company, and such meeting may be called by the Person so designated upon the notice required for the annual meetings of shareholders of the Company and shall be held at the place for holding the annual meeting of shareholders. Any holder of Series 1 Preferred Stock so designated shall have, and the Company shall provide, access to the lists of shareholders to be called pursuant to the provisions hereof. At any such meeting called for the purpose of electing Preferred Directors, the presence in person or by proxy of the holders of record of a majority of the shares of Series 1 Preferred Stock then outstanding shall constitute a quorum for the election of Preferred Directors to be elected by such holders. A Preferred Director vacancy shall be filled by vote of the Series 1 Required Holders in the manner set forth herein. Each Preferred Director who shall have been elected as provided in this Section 5(c) may be removed during his or her term of office, whether with or without cause, by the Series 1 Required Holders and may not be removed without the consent of the Series 1 Required Holders except as provided in Section 5(c)(ii) following the redemption of all of the Hybrid Preferred Stock in accordance with the Hybrid Statements.

principal executive offices, then the holders of 20% or more of the then-outstanding shares of 7.0% Preferred Stock or Hybrid Preferred Stock may designate in writing one of the holders of 7.0% Preferred Stock or Hybrid Preferred Stock to call such meeting at the expense of the Company, and such meeting may be called by the Person so designated and shall be held at the place for holding the annual meeting of shareholders. Any holder of 7.0% Preferred Stock or Hybrid Preferred Stock so designated shall have, and the Company shall provide, access to the lists of shareholders to be called pursuant to the provisions hereof. At any such meeting called for the purpose of electing Additional Directors, the presence in person or by proxy of the holders of record of a majority of the shares of 7.0% Preferred Stock and Hybrid Preferred Stock then outstanding shall constitute a quorum for the election of Additional Directors to be elected by the Combined Holders. An Additional Director vacancy shall be filled only by vote of the Combined Holders, in the manner set forth herein. Each Additional Director who shall have been elected as provided in this Section 5(d) may be removed during his or her term of office, whether with or without cause, by the Combined Holders and may not be removed without the consent of the Combined Holders. Immediately after all Defaults with respect to the 7.0% Preferred Stock and the Hybrid Preferred Stock as set forth in the respective Statements of Designation therefor, have been cured or waived by the Combined Holders, the Additional Directors shall no longer be directors, the number of directors constituting the Board of Directors shall be decreased by four and the remaining directors shall take such action as may be required by applicable law to remove the Additional Directors.

(e) In exercising the voting rights set forth in this Section 5, except as otherwise provided in Section 5(b), each share of Preferred Stock shall have one vote per share.

(f) So long as any shares of Preferred Stock are outstanding, in addition to any other vote or consent of shareholders required by law or by the Articles of Incorporation or this Statement:

(i) the Company shall not authorize or create, increase the authorized amount of, or issue shares of any class or series of Senior Stock or Parity Stock (other than (A) the Hybrid Preferred Stock issued on the Original Issue Date and all shares of Series A-1 Hybrid Preferred Stock issuable upon conversion of the Series A-2 Hybrid Preferred Stock issued on the Original Issue Date in accordance with the Statement of Designation therefor and (B) the 7.0% Preferred Stock issued on the Original Issue Date and all shares of 7.0% Preferred Stock issuable upon conversion of such shares of 7.0% Preferred Stock into a different series of 7.0% Preferred Stock in accordance with the respective Statements of Designation therefor) without the affirmative vote of the Required Holders, given in person or by proxy;

(ii) the Company shall not amend, alter, waive or repeal any provision of its Articles of Incorporation or this Statement, whether by merger, consolidation, reorganization or otherwise, that would adversely affect any Holder without the affirmative vote of the Required Holders, given in person or by proxy; provided that any amendment, alteration, waiver or repeal of any provision of its Articles of Incorporation or this Statement, whether by merger, consolidation, reorganization or otherwise, that would adversely affect the liquidation preference, conversion price, conversion price adjustments, Change of Control Price, Adjustment Payment, dividend rate and preferences of the Preferred Stock or any other payment upon the Preferred Stock shall require the affirmative vote of each Holder of outstanding shares of Preferred Stock, given in person or by proxy; provided, further, that the Company shall not amend, alter, waive or repeal the foregoing proviso without the affirmative vote of each Holder of Preferred Stock, given in person or by proxy; and provided, further, that the Company shall not amend, alter, waive or repeal Section 5(c) without the affirmative vote of the holders of a majority of the outstanding shares of Series B Preferred Stock and Series C Preferred Stock, voting together as a single class, given in person or by proxy;

(iii) the Company shall not, by dividend or otherwise, distribute property (other than shares of Common Stock or cash as otherwise permitted in Section 3) or issue Options of the type contemplated by Section 8(a)(iii) or engage in an equity self tender offer or share repurchase without the affirmative vote of the Required Holders, given in person or by proxy;

(iv) the Company shall not, except as required by the 7.0% Statements and the Hybrid Statements, increase the size of the Board of Directors to more than seven (7) directors without the affirmative vote of the Required Holders, given in person or by proxy; and

(v) the affirmative vote of at least 66²/3% of the outstanding shares of 7.0% Preferred Stock and, after the NYSE Approval Date, Hybrid Preferred Stock, voting together as a single class, given in person or by proxy, shall be required to approve any All-Stock Change of Control.

(g) Any action to be taken at any annual or special meeting of shareholders by the Holders of Preferred Stock may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the Holder or Holders of shares of Preferred Stock having no less than the minimum number of votes that would be required to take such action at a meeting at which the shares of Preferred Stock were present and voted. Prompt written notice of the taking of any action by the Holders of Preferred Stock by less than unanimous written consent shall be given to the Holders of Preferred Stock who did not consent in writing to the action.

6. Liquidation Rights.

(a) In the event of any Liquidation, each Holder of shares of Preferred Stock shall be entitled to receive and to be paid out of the assets of the Company available for distribution to its shareholders for each share of Preferred Stock an amount equal to the greater of (i) the Liquidation Preference as of the date of Liquidation, plus Accrued Dividends thereon through the date of Liquidation, and (ii) the amount that would be payable to such Holder if such shares of Preferred Stock had been converted to Common Stock immediately prior to such Liquidation, in each case, in preference to the holders of, and before any payment or distribution is made on, any Junior Stock, including, without limitation, Common Stock; provided, however, that the foregoing clause (ii) shall not be operative, and shall be void ab initio, with respect to any Liquidation that occurs while there is Indebtedness outstanding under the Senior Indenture if the inclusion of clause (ii) in this Statement would cause the Preferred Stock to be "Disqualified Stock" (as defined in the Senior Indenture) under the Senior Indenture.

(b) Neither the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all the assets or business of the Company (other than in connection with the liquidation, winding-up or dissolution of its business) nor the merger or consolidation of the Company into or with any other Person shall be deemed to be a Liquidation for purposes of this Section 6.

(c) After the payment to the Holders of the shares of Preferred Stock of full preferential amounts provided for in this Section 6, the Holders of Preferred Stock as such shall have no right or claim to any of the remaining assets of the Company.

(d) In the event the assets of the Company available for distribution to the Holders of shares of Preferred Stock upon a Liquidation shall be insufficient to pay in full all amounts to which such Holders are entitled pursuant to Section 6(a) and all liquidating payments on any shares of Parity Stock, then such assets or the proceeds thereof shall be distributed among the holders of the Preferred Stock and Parity Stock ratably, in proportion to the full distributable amounts for which holders of the Preferred Stock and Parity Stock are entitled upon such Liquidation.

7. Conversion.

(a) Conversion Right.

(i) Without limiting the Company's rights to exercise the Company Conversion Option pursuant to Section 7(c), each Holder of a share of Preferred Stock shall have the right, at such Holder's option, exercisable at any time and from time to time to convert all or any portion of such Holder's shares of Preferred Stock, subject to the terms and provisions of this Section 7 (the "Conversion Right"). Upon a Holder's election to exercise the Conversion Right, the shares of Preferred Stock for which the Conversion Right is exercised shall be converted into such whole number of shares of Common Stock equal to the product of the number of shares of Preferred Stock being so converted multiplied by the quotient of (A) the Liquidation Preference as of the Conversion Date, plus Accrued Dividends through the Conversion Date, divided by (B) the Conversion Price then in effect; provided, however, that the Company may, at its option, elect to pay Accrued Dividends through the Conversion Date in cash, in which event the amount in clause (A) shall not include Accrued Dividends through the Conversion Date.

(ii) No fractional shares of Common Stock shall be issued upon the conversion of any shares of Preferred Stock. If more than one share of Preferred Stock shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate Liquidation Preference as of the Conversion Date, plus Accrued Dividends through the Conversion Date (subject to the Company's right to pay such unpaid dividends in cash pursuant to Section 7(a)(i)), on all shares of Preferred Stock so surrendered. If the conversion of any share or shares of Preferred Stock results in a fractional share of Common Stock issuable but for the immediately preceding two sentences, the Company shall pay a cash amount in lieu of issuing such fractional share in an amount equal to such fractional interest multiplied by the Volume Weighted Average Price on the Trading Day immediately prior to the Conversion Date or the Company Conversion Date, as applicable.

(iii) A Holder of Preferred Stock shall not be entitled to any rights of a holder of shares of Common Stock until such Holder has converted such Holder's Preferred Stock, and only to the extent the shares of Preferred Stock are deemed to have been converted into shares of Common Stock in accordance with the provisions of this Section 7.

(iv) At all times prior to the NYSE Shareholder Approval, the Company shall reserve and keep available for issuance such number of its authorized but unissued shares of Common Stock as will from time to time be sufficient to permit the conversion of all shares of 7.0% Preferred Stock issued on the Original Issue Date. At all times following the NYSE Shareholder Approval, the Company shall reserve and keep available for issuance such number of its authorized but unissued shares of Common Stock equal to 110% of the number of shares of Common Stock issuable upon conversion of all outstanding shares of 7.0% Preferred Stock and Hybrid Preferred Stock. The Company shall take all action permitted by law to increase the authorized number of shares of Common Stock if at any time there shall be insufficient authorized but unissued shares of Common Stock to permit such reservation or to permit the conversion of all outstanding shares of 7.0% Preferred Stock or Hybrid Preferred Stock. The Company covenants that all Common Stock that may be issued upon conversion of Preferred Stock shall upon issuance be duly authorized, fully paid and non-assessable. The Company further covenants that, if at any time the Common Stock shall be listed on the NYSE or any other national securities exchange or quoted on an automated quotation system, the Company will, if permitted by the rules of such national securities exchange or automated quotation system, cause to be listed or quoted on such exchange or

automated quotation system, all Common Stock issuable upon conversion of the Preferred Stock.

(b) Conversion Right Procedures.

(i) The Conversion Right of a Holder of Preferred Stock shall be exercised by the Holder by the surrender to the Company of the certificates representing shares of Preferred Stock to be converted at any time during usual business hours at the Company's principal place of business or the offices of the Transfer Agent, accompanied by written notice to the Company in the form of Exhibit B hereto that the Holder elects to convert all or a portion of the shares of Preferred Stock represented by such certificate (a "Conversion Notice") and specifying the name or names (with address or addresses) in which a certificate or certificates for shares of Common Stock are to be issued and (if so required by the Company or the Transfer Agent) by a written instrument or instruments of transfer in form reasonably satisfactory to the Company or the Transfer Agent duly executed by the Holder or its legal representative.

(ii) As promptly as practicable after the surrender of the certificate or certificates for Preferred Stock as aforesaid and the receipt of the Conversion Notice and in no event later than three Trading Days thereafter, the Company shall issue and shall deliver or cause to be issued and delivered to such Holder, or to such other Person on such Holder's written order (A) one or more certificates representing the number of validly issued, fully paid and non-assessable whole shares of Common Stock to which the Holder of Preferred Stock being converted, or the Holder's transferee, shall be entitled, (B) if less than the full number of shares of Preferred Stock evidenced by the surrendered certificates is being converted, a new certificate or certificates, of like tenor, for the number of shares of Preferred Stock evidenced by the surrendered certificate or certificates, less the number of shares being converted, (C) cash for any payment of Accrued Dividends through the Conversion Date if the Company elects to pay such dividends in cash pursuant to Section 7(a)(i) and (D) cash for any fractional interest in respect of a share of Common Stock arising upon such conversion settled as provided in Section 7(a)(ii).

(iii) Each conversion shall be deemed to have been made at the close of business on the date of the later to occur of giving the Conversion Notice and of surrendering the certificate or certificates representing the Preferred Stock to be converted (the "Conversion Date") so that the rights of the Holder thereof as to the Preferred Stock being converted shall cease except for the right to receive the Common Stock (and cash dividends, if elected by the Company, and cash in lieu of fractional shares) payable under Section 7(a), and the Person entitled to receive shares of Common Stock shall be treated for all purposes as having become the record holder of those shares of Common Stock at that time.

(iv) The issuance or delivery of certificates for Common Stock upon the conversion of shares of Preferred Stock pursuant to Section 7(a) or Section 7(c) shall be made without charge to the converting Holder of shares of Preferred Stock for such certificates or for any tax in respect of the issuance or delivery of such certificates or the securities represented thereby, and such certificates shall be issued or delivered in the respective names of, or in such names as may be directed by, the Holders of the shares of Preferred Stock converted; provided, however, that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate in a name other than that of the Holder of the shares of Preferred Stock converted, and the Company shall not be required to issue or deliver such certificate unless or until the Person or Persons requesting the issuance or delivery thereof shall have paid to the Company the amount of such tax or shall have established to the reasonable satisfaction of the Company that such tax has been paid.

(i) At any time and from time to time and subject to the provisions of this Section 7(c), the Company shall have the option (the "Company Conversion Option") to cause all or any portion of the Preferred Stock to be automatically converted into that number of whole shares of Common Stock for each share of Preferred Stock equal to the quotient of (A) the Liquidation Preference as of the Company Conversion Date, plus Accrued Dividends through the Company Conversion Date, divided by (B) the Conversion Price then in effect, with any resulting fractional shares of Common Stock to be settled in accordance with Section 7(a)(ii); provided, however, that the Company may, at its option, elect to pay Accrued Dividends through the Company Conversion Date in cash, in which event the amount in clause (A) shall not include Accrued Dividends through the Company Conversion Date. The Company may exercise the Company Conversion Option only if the Volume Weighted Average Price of the Common Stock equals or exceeds the Mandatory Conversion Percentage of the Conversion Price then in effect for at least 20 Trading Days in any period of 30 consecutive Trading Days, including the last Trading Day of such 30-day period, ending on the Trading Day prior to the date of the Company's issuance of a press release announcing the Company's exercise of the Company Conversion Option in accordance with this Statement (a "Company Conversion Notice"). If the Company Conversion Option is exercised on or after March 30, 2011, the Holders of the shares of Preferred Stock for which the Company Conversion Option is exercised will have the option to receive, in lieu of the shares of Common Stock issuable pursuant to this Section 7(c)(i), a cash payment per share of Preferred Stock for which the Company Conversion Option is exercised equal to the Liquidation Preference as of the Company Conversion Date, plus Accrued Dividends through the Company Conversion Date.

(ii) Notwithstanding the provisions of Section 7(c)(i), prior to the NYSE Approval Date, the Company may only exercise the Company Conversion Option to convert all, but not less than all, of the outstanding 7.0% Preferred Stock. After the NYSE Approval Date, the Company may exercise the Company Conversion Option to convert all or any portion of the outstanding 7.0% Preferred Stock and Hybrid Preferred Stock (ratably among all holders of 7.0% Preferred Stock and Hybrid Preferred Stock); provided that the Company may not exercise the Company Conversion Option for less than the lesser of (A) 25% of the sum of (1) the number of shares of 7.0% Preferred Stock issued on the Original Issue Date plus (2) the number of shares of Hybrid Preferred Stock issued on the Original Issue Date (the sum of clauses (1) and (2) collectively, the "Initial Preferred Shares") or (B) all outstanding 7.0% Preferred Stock and Hybrid Preferred Stock if such outstanding shares represent less than 25% of the Initial Preferred Shares. The Company Conversion Option may not be exercised during a Convertible Stock Registration Default, a Hybrid Preferred Stock Registration Default, if a Deferral Period is in effect or if, on the date that the Company would be permitted to issue a Company Conversion Notice, the Company has knowledge of a pending corporate development that the Company reasonably believes would make it appropriate to suspend the availability of any effective shelf registration statement at any time prior to the 30th day after the Company Conversion Date.

(with subsequent prompt notice by mail) to the Holders of Preferred Stock (not later than four Trading Days after the date of the Company Conversion Notice) of the Company's election to exercise the Company Conversion Option. The conversion date will be a date selected by the Company (the "Company Conversion Date") and will be after (but no more than five Trading Days after) the date on which the Company issues the Company Conversion Notice.

(iv) In addition to any information required by applicable law or regulation, the Company Conversion Notice shall state, as appropriate (A) the Company Conversion Date, (B) the number of shares of Common Stock to be issued upon conversion of each share of Preferred Stock and whether the Company has elected to pay Accrued Dividends through the Company Conversion Date in cash, (C) the number of shares of Preferred Stock to be converted and (D) that dividends on the Preferred Stock to be converted will cease to accrue on the Company Conversion Date.

(v) Following delivery of a Company Conversion Notice, upon surrender of the Preferred Stock by a Holder thereof and, if applicable, notice to the Company of the Holder's election to receive a cash payment as provided in Section 7(c)(i), the Company shall issue and shall deliver or cause to be issued and delivered to such Holder, or to such other Person on such Holder's written order, (A) one or more certificates representing the number of validly issued, fully paid and non-assessable whole shares of Common Stock to which a Holder of the Preferred Stock being converted, or a Holder's transferee, shall be entitled, (B) if less than the full number of shares of Preferred Stock evidenced by the surrendered certificates is being converted, a new certificate or certificates, of like tenor, for the number of shares of Preferred Stock evidenced by the surrendered certificate or certificates, less the number of shares being converted, (C) cash for payment of Accrued Dividends through the Company Conversion Date if the Company elects to pay dividends in cash pursuant to Section 7(c)(i), (D) cash for any fractional interest in respect of a share of Common Stock arising upon such conversion settled as provided in Section 7(a)(ii) or (E) if applicable, and in lieu of (A), (C) and (D), a cash payment if elected by the Holder as provided in Section 7(c)(i).

(vi) Each conversion pursuant to a Company Conversion Option shall be deemed to have been made at the close of business on the Company Conversion Date so that the rights of the Holder thereof as to the Preferred Stock being converted will cease except for the right to receive the shares of Common Stock or cash issuable under this Section 7(c), and, if applicable, the Person entitled to receive shares of Common Stock shall be treated for all purposes as having become the record holder of those shares of Common Stock at that time.

(vii) In case any shares of Preferred Stock are to be converted pursuant to this Section 7(c), such Holder's right to voluntarily convert its shares of Preferred Stock pursuant to Section 7(a) shall terminate at 5:00 p.m., New York City time, on the Trading Day immediately preceding the Company Conversion Date.

(d) Accrued Dividends. If a Conversion Date or a Company Conversion Date is on or after a Dividend Record Date but on or prior to the related Dividend Payment Date, then Accrued Dividends will be payable to Holders with respect to the exercise of a Conversion Right or a Company Conversion Option on the Conversion Date or Company Conversion Date, as applicable.

8. Adjustment of Conversion Price.

(a) Subject to Section 10, the Conversion Price shall be adjusted from time to time (without duplication) by the Company as follows:

(i) If the Company shall pay a dividend or make a distribution to holders of outstanding Common Stock in shares of Common Stock, the Conversion Price in effect immediately prior

to the record date for the determination of shareholders entitled to receive such dividend or other distribution shall be decreased so that the same shall equal the price determined by multiplying (A) the Conversion Price in effect immediately prior to such record date by (B) a fraction, of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on such record date and of which the denominator shall be the sum of (1) the number of shares of Common Stock outstanding at the close of business on such record date plus (2) the total number of shares of Common Stock constituting such dividend or other distribution. Such adjustment shall be made successively whenever any such dividend or distribution is made and shall become effective immediately after such record date. For the purpose of this clause (i), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company. The Company will not pay any dividend or make any distribution on Common Stock held in the treasury of the Company. If any dividend or distribution of the type described in this clause (i) is declared but not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price that would then be in effect had such dividend or distribution not been declared.

(ii) If the Company shall subdivide its outstanding Common Stock into a greater number of shares, or combine its outstanding Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to the day upon which such subdivision or combination becomes effective shall be, in the case of a subdivision of Common Stock, proportionately decreased and, in the case of a combination of Common Stock, proportionately increased. Such adjustment shall be made successively whenever any such subdivision or combination of the Common Stock occurs and shall become effective immediately after the date upon which such subdivision or combination becomes effective.

(iii) If the Company shall issue Options to holders of its outstanding Common Stock entitling them for a period expiring within 180 days after such issuance to subscribe for or purchase shares of Common Stock or Convertible Securities at a price per share of Common Stock, calculated by including the aggregate proceeds to the Company upon issuance and any additional consideration payable to the Company upon any such conversion, exchange or exercise (in each case before deduction of any discounts, commissions, fees and other expenses of issuance and marketing), that is less than the Current Market Price per share of Common Stock (as determined in accordance with clause (vii) of this Section 8(a)) on the record date for the determination of shareholders entitled to receive such Options, the Conversion Price in effect immediately prior thereto shall be adjusted so that the same shall equal the price determined by multiplying (A) the Conversion Price in effect immediately prior to such record date by (B) a fraction, of which the numerator shall be sum of (1) the number of shares of Common Stock outstanding at the close of business on such record date plus (2) the number of shares of Common Stock that the aggregate proceeds to the Company from such offering (including any additional consideration per share of Common Stock payable to the Company upon any such conversion, exchange or exercise (before deduction of any discounts, commissions, fees and other expenses of issuance and marketing)) would purchase at the Current Market Price per share of Common Stock on such record date, and of which the denominator shall be the sum of (x) the number of shares of Common Stock outstanding at the close of business on such record date plus (y) the number of additional shares of Common Stock offered or subject to issuance upon the conversion, exchange or exercise of such securities offered. Such adjustment shall be made successively whenever any such Options are issued, and shall become effective immediately after such record date.

equal to the minimum aggregate consideration receivable by the Company upon such conversion, exchange or exercise. If at the end of the period during which such Options are exercisable, not all Options shall have been exercised, the Conversion Price shall be readjusted to the Conversion Price that would then be in effect had the adjustments made upon the issuance of such Options been made on the basis of delivery of only the number of shares of Common Stock actually issued. If such Options are not so issued, the Conversion Price shall again be adjusted to be the Conversion Price that would then be in effect if the record date for the determination of shareholders entitled to receive such Options had not been fixed. In determining whether any Options entitle the holders thereof to subscribe for or purchase shares of Common Stock at a price less than the Current Market Price per share of Common Stock and in determining the aggregate offering price of the total number of shares of Common Stock so offered, there shall be taken into account any consideration received by the Company for such Options and any amount payable on conversion, exchange or exercise thereof, and the value of such consideration, if other than cash, shall be the fair market value thereof as determined in good faith by the Board of Directors and evidenced by a resolution. No adjustment of the Conversion Price shall be made pursuant to this Section 8(a)(iii) if the Holders of Preferred Stock receive such Options based on the number of shares of Common Stock issuable upon conversion of the Preferred Stock.

(iv) If the Company shall, by dividend or otherwise, distribute during any Calendar Quarter (a "Triggering Distribution") to holders of its Common Stock a payment of cash or other property (excluding (A) any dividend or distribution of Common Stock for which an adjustment was made pursuant to Section 8(a)(i), (B) any subdivision or combination of Common Stock for which an adjustment was made pursuant to Section 8(a)(ii), (C) any issuance of Options for which an adjustment was made pursuant to Section 8(a)(iii) and (D) any dividend or distribution in connection with a Liquidation or a merger or a consolidation of the Company (collectively the "Excluded Distributions")) in an amount per share of Common Stock that, when combined with the per share amounts (calculated at the time of each of such earlier distributions) of all other such dividends and distributions (other than Excluded Distributions) made within such Calendar Quarter to holders of Common Stock, exceeds $0.06 per share (as it may be adjusted pursuant to this Section 8(a), the "Distribution Threshold"), then the Conversion Price will be adjusted by subtracting from the Conversion Price in effect immediately prior to the close of business on the record date for such Triggering Distribution (a "Triggering Determination Date") an amount equal to the excess, if any, of (1) the lesser of (x) $0.10 per share (as it may be adjusted pursuant to this Section 8(a), the "Maximum Distribution Amount") and (y) the amount of such dividend or distribution per share, over (2) the Distribution Threshold (the "Excess Distribution Amount"). Holders of Preferred Stock will receive an equivalent dividend or distribution of the amount of such dividend or distribution in excess of the Maximum Distribution Amount per Calendar Quarter (without any adjustments of the Conversion Price pursuant to this Section 8(a)(iv)) and that would be payable to such Holders if such shares of Preferred Stock had been converted into Common Stock immediately prior to such dividend or distribution pursuant to Section 3(g)(iv). Such adjustment will become effective immediately prior to the opening of business on the day following the date on which the Triggering Distribution is paid. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price that would then be in effect if such dividend or other distribution had not been declared. Each of the Distribution Threshold and the Maximum Distribution Amount shall be subject to adjustment under the same circumstances under which the Conversion Price is subject to adjustment under this Section 8(a); provided, however, that no adjustment will be made to the Distribution Threshold or Maximum Distribution Amount for any adjustment made to the Conversion Price pursuant to this

Section 8(a)(iv). The value of any non-cash dividend or distribution pursuant to this Section 8(a)(iv) shall be determined in good faith by the Board of Directors and evidenced by a resolution.

(v) If any tender offer or share repurchase is made by the Company or any of its Subsidiaries for all or any portion of Common Stock, then, if the tender offer or share repurchase shall require the payment to shareholders of consideration per share of Common Stock having a fair market value (as determined reasonably and in good faith by the Board of Directors of the Company and evidenced by a resolution) that exceeds the Current Market Price per share of Common Stock (as determined in accordance with clause (vii) of this Section 8(a)) on the date prior to the announcement of such tender offer or share repurchase (the "Announcement Date"), the Conversion Price shall be decreased so that the same shall equal the amount determined by multiplying (A) the Conversion Price in effect immediately prior to the close of business on the Trading Day prior to the Announcement Date by (B) a fraction, of which the numerator shall be the product of (1) the number of shares of Common Stock outstanding (including Purchased Shares) at the close of business on the Trading Day prior to the Announcement Date multiplied by (2) the Current Market Price on the Trading Day prior to the Announcement Date and the denominator of which shall be the sum of (x) the fair market value of the aggregate consideration payable to shareholders based on the acceptance (up to any maximum specified in the terms of the tender offer or share repurchase) of all shares of Common Stock validly tendered and not withdrawn (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of (I) the number of shares of Common Stock outstanding (less any Purchased Shares) at the close of business on the Trading Day prior to the Announcement Date and (II) the Current Market Price on the Trading Day prior to the Announcement Date, such adjustment to become effective immediately prior to the opening of business on the day following the Announcement Date. In the event that the Company is obligated to purchase shares pursuant to any such tender offer or share repurchase, but the Company is permanently prevented by applicable law from effecting any or all such purchases or any or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price that would have been in effect based upon the number of shares actually purchased, if any. If the application of this clause (v) of Section 8(a) to any tender offer or share repurchase would result in an increase in the Conversion Price, no adjustment shall be made for such tender offer or share repurchase under this clause (v). For purposes of this Section 8(a)(v), the term "tender offer" shall mean and include both tender offers and exchange offers, all references to "purchases" of shares in tender offers (and all similar references) shall mean and include both the purchase of shares in tender offers and the acquisition of shares pursuant to exchange offers, and all references to "tendered shares" (and all similar references) shall mean and include shares tendered in both tender offers and exchange offers.

such issuance (including any additional consideration per share of Common Stock payable to the Company upon any such conversion, exchange or exercise (before deduction of any discounts, commissions, fees and other expenses of issuance and marketing)) would purchase at the Conversion Price per share of Common Stock on the date of such issuance, and of which the denominator shall be the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issuance plus (y) the number of additional shares of Common Stock issued or subject to issuance upon the conversion, exchange or exercise of such securities issued. Such adjustment shall be made successively whenever any such shares of Common Stock, Convertible Securities or Options are issued, and shall become effective upon such issuance.

For purposes of this Section 8(a)(vi), the issuance by the Company of Convertible Securities or Options shall be deemed to involve the immediate issuance of the maximum number of shares of Common Stock issuable upon the conversion, exchange or exercise of such Convertible Securities or Options for a consideration equal to the minimum aggregate consideration receivable by the Company upon such conversion, exchange or exercise. If Convertible Securities or Options are issued by the Company that result in an adjustment to the Conversion Price pursuant to this Section 8(a)(vi) and such Convertible Securities or Options are not converted, exchanged or exercised prior to the expiration of the right of the holders of such Convertible Securities or Options to effect any such action, then immediately upon such expiration the Conversion Price shall be readjusted to the Conversion Price that would then be in effect had the adjustments made upon the issuance of such Convertible Securities or Options been made on the basis of delivery of only the number of shares of Common Stock actually issued. In determining whether any Convertible Securities or Options entitle the holders to subscribe for or purchase shares of Common Stock at a price less than the Conversion Price per share of Common Stock and in determining the aggregate offering price of the total number of shares of Common stock so offered, there shall be taken into account any consideration received by the Company for such Convertible Securities or Options and any amount payable on conversion, exercise or exchange thereof, and the value of such consideration, if other than cash, shall be the fair market value thereof as determined in good faith by the Board of Directors and evidenced by a resolution.

The provisions of this Section 8(a)(vi) shall not be applicable to any issuance for which an adjustment to the Conversion Price is otherwise provided under this Section 8(a).

(vii) For the purpose of any computation under this Section 8(a), the current market price (the "Current Market Price") per share of Common Stock on any date shall be calculated by the Company and shall be the average of the Volume Weighted Average Prices for (A) the twenty consecutive Trading Days ending on the Trading Day prior to the Announcement Date with respect to tender offers or share repurchases under Section 8(a)(v) or (B) the ten consecutive Trading Days ending on the earlier of (1)(x) the record date for the determination of shareholders entitled to receive Options with respect to issuances under Section 8(a)(iii) or (y) the Triggering Determination Date with respect to distributions under Section 8(a)(iv) or (2) unless otherwise specified by an applicable provision of this Section 8, the "ex-date" with respect to distributions, issuances or other events requiring such computation under this Section 8. For purposes of this paragraph, the term "ex-date," when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way in the applicable securities market or on the applicable securities exchange without the right to receive such issuance or distribution.

security) is converted or exchanged into any combination of cash, securities or other property, the date fixed for determination of shareholders entitled to receive such dividend, distribution, cash, security or other property (whether or not such date is fixed by the Board of Directors of the Company or by statute, contract or otherwise).

(c) If one or more events occurs requiring an adjustment be made to the Conversion Price for a particular period, adjustments to the Conversion Price shall be determined by the Board of Directors to reflect the combined impact of all Conversion Price adjustment events, as set out in this Section 8, during such period.

(d) No adjustment in the Conversion Price shall be required:

(i) unless such adjustment would require an increase or decrease of at least 0.5% in the Conversion Price as last adjusted; provided, however, that any adjustments that would be required to be made but for this Section 8(d)(i) shall be carried forward and taken into account in any subsequent adjustment; and, provided further, that all calculations under this Section 8 shall be made to the nearest cent or to the nearest one-ten thousandth of a share, as the case may be, with one half cent and 0.00005 of a share, respectively, being rounded upward;

(ii) for issuances of Common Stock or Options pursuant to a plan for reinvestment of dividends or interest or any other present or future employee benefits plan or program of the Company or any of its Subsidiaries;

(iii) upon the issuance of any shares of Common Stock pursuant to (A) either the conversion of the 7.0% Preferred Stock or the Hybrid Preferred Stock or any other Option or Convertible Securities outstanding as of the Original Issue Date and the terms and conditions of which are not subsequently amended or (B) the conversion, exchange or exercise of any Convertible Securities or Options for which an adjustment to the Conversion Price was previously made pursuant to this Section 8(a) and the terms and conditions of which are not subsequently amended;

(iv) for a change in the par value of the Common Stock or the change in the Common Stock from par value to no par value, or from no par value to par value;

(v) for the payment of Accrued Dividends; or

(vi) with respect to Section 8(a)(v), if such tender offer or share repurchase is made to fund a stock grant or award pursuant to or under any benefit or incentive plan of the Company or any Subsidiary in order to prevent dilution of the holders of Common Stock that would result from issuance of such grant or award.

(e) In the event that at any time as a result of any adjustment made pursuant to this Section 8 or otherwise, it will be necessary for the Company to obtain Shareholder Approval, then the Company shall use its reasonable best efforts to obtain such Shareholder Approval as promptly as practicable.

(f) Whenever the Conversion Price shall be adjusted as provided in Section 8(a), the Company shall file, at the office of the Transfer Agent, a statement showing in detail the facts requiring such adjustment and the Conversion Price that shall be in effect after such adjustment, and the Company shall also cause a copy of such statement to be sent by mail, first class postage prepaid, to each Holder at its address appearing in the Register. Each such statement shall be signed by the Company's chief financial officer. Where appropriate, such copy may be given in advance and may be included as part of a notice required to be mailed under the provisions of Section 8(g). The Company shall, upon written request at any time of any Holder, furnish or cause to be furnished to such Holder a certificate setting forth (i) all adjustments and readjustments to

the Conversion Price, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock which at the time would be received upon the conversion of such Holder's shares of Preferred Stock if such shares were convertible at such time at the Conversion Price at that time in effect.

(g) In the event the Company shall propose to take any action of the type described in Section 8(a), the Company shall give notice to each Holder, in the manner set forth in Section 8(f), which notice shall specify the record date, if any, with respect to any such action and the approximate date on which such action is to take place. Such notice shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect on the Conversion Price and the number of shares of Common Stock which shall be deliverable upon conversion of shares of the Preferred Stock. Except as otherwise provided herein, (x) in the case of any action that would require the fixing of a record date, such notice shall be given at least five days prior to the date so fixed and (y) in the case of all other action, such notice shall be given at least five days prior to the taking of such proposed action.

9. Recapitalization, Reclassification and Changes in Common Stock.

Upon the occurrence of any:

(a) reclassification or change of the outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination);

(b) merger or consolidation of the Company with or into another Person (other than a Subsidiary) other than a merger or consolidation in which the Company is the resulting or surviving Person and which does not result in any reclassification or change of outstanding Common Stock; or

(c) sale or other disposition of all or substantially all of the property and assets of the Company (on a consolidated basis) to any other Person (any of the foregoing events in clauses (a) through (c), a "Transaction");

then the Preferred Stock shall be convertible after the Transaction into the kind and amount of shares of stock or other securities or other property or assets (including cash) that the holders of Preferred Stock would have been entitled to receive upon such Transaction had such Preferred Stock been converted into Common Stock immediately prior to such Transaction after giving effect to any adjustment. The provisions of this Section 9 shall apply to successive Transactions. In the event that holders of the Common Stock shall have the opportunity to elect the form of consideration to be received in a Transaction, then the Company shall make adequate provision whereby each Holder of the Preferred Stock shall have a reasonable opportunity to determine the form of consideration into which all of such Holder's shares of Preferred Stock, shall be convertible from and after the effective date of such Transaction. Such determination shall be (i) subject to any limitations to which all of the holders of Common Stock are subject, including, but not limited to, pro rata reductions applicable to any portion of the consideration payable in such Transaction and (ii) conducted in such a manner as to be completed by the date that is the earlier of (a) the deadline for elections to be made by holders of Common Stock and (b) five Trading Days prior to the anticipated effective date of such Transaction. If this Section 9 applies to a Transaction, Section 8 shall not apply to such Transaction; however, the provisions of this Section 9 shall not limit the rights of Holders of Preferred Stock pursuant to Section 4.

10. Restriction on Conversion Price Adjustments.

Prior to the earlier of the NYSE Shareholder Approval and the occurrence of a Triggering Date, the Company shall not effect any of the transactions described in Sections 8(a)(iii) through 8(a)(vi),

other than issuances of Common Stock or Options pursuant to a plan for reinvestment of dividends or interest or any other present or future employee benefits plan or program of the Company or any of its Subsidiaries (each, an "Adjustment Event"), without the consent of the Required Holders. If an Adjustment Event occurs prior to the NYSE Shareholder Approval, no adjustment to the Conversion Price shall be made for the Adjustment Event, and in lieu of any Conversion Price adjustment that otherwise would be applicable to an Adjustment Event but for this Section 10, the Company shall pay to each Holder an amount per share of Preferred Stock equal to (a) the remainder of (i) the Conversion Price immediately prior to the Adjustment Event minus (ii) the Conversion Price that would otherwise result from such Adjustment Event but for this Section 10, multiplied by (b) the number of shares of Common Stock into which such share of Preferred Stock is convertible as of the date the Conversion Price adjustment would otherwise be effective for such Adjustment Event (the "Adjustment Payment"). The Company may, at its option, elect to pay the Adjustment Payment either in cash or in a number of fully paid whole shares of Series A-1 Hybrid Preferred Stock determined by dividing (1) the Adjustment Payment to be paid to each Holder on the basis of all shares of Preferred Stock held of record by such Holder as of the close of business on the date on which the Conversion Price adjustment would otherwise be effective for the applicable Adjustment Event (the "Adjustment Record Date"), whether evidenced by one or more certificates, by (2) $10,000, with amounts in respect of any fractional shares to be paid in cash by the Company. The Company shall pay the Adjustment Payment within five (5) Trading Days after the date on which the Conversion Price adjustment would otherwise be effective for the applicable Adjustment Event to Holders as of the close of business on the Adjustment Record Date. After the NYSE Shareholder Approval, the provisions of Sections 8(a)(iii) through 8(a)(vi) shall apply to all Adjustment Events.

11. Certificates.

(a) Form and Dating.

(i) The Preferred Stock certificate may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Company) including the legends set forth in Section 11(d). Each Preferred Stock certificate shall be dated the date of its authentication.

(ii) Subject to Section 11(a)(iii) hereof, the Preferred Stock shall be initially issued and thereafter evidenced only in definitive, certificated form ("Certificated Preferred Stock").

(iii) Upon the registration of the Preferred Stock pursuant to an effective registration statement under the Securities Act, Certificated Preferred Stock may be exchanged for a beneficial interest in one or more fully registered global certificates with the global securities legend set forth in Exhibit A hereto (the "Global Preferred Stock"), which shall be deposited on behalf of the Holders represented thereby with the Transfer Agent, as custodian for DTC (or with such other custodian as DTC may direct), and registered in the name of DTC or a nominee of DTC, duly executed by the Company and authenticated by the Transfer Agent as hereinafter provided. The number of shares of Preferred Stock represented by Global Preferred Stock may from time to time be increased or decreased by adjustments made on the records of the Transfer Agent and DTC or its nominee as hereinafter provided.

DTC or by the Transfer Agent as the custodian of DTC or under such Global Preferred Stock, and DTC may be treated by the Company, the Transfer Agent and any agent of the Company or the Transfer Agent as the absolute owner of such Global Preferred Stock for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Transfer Agent or any agent of the Company or the Transfer Agent from giving effect to any written certification, proxy or other authorization furnished by DTC or impair, as between DTC and its Agent Members, the operation of customary practices of DTC governing the exercise of the rights of a holder of a beneficial interest in any Global Preferred Stock.

The signature shall be conclusive evidence that such Preferred Stock certificate has been authenticated under this Statement. The Transfer Agent shall authenticate and deliver certificates for shares of Preferred Stock for original issue upon a written order of the Company signed by two Officers or by an Officer and an Assistant Treasurer of the Company. Such order shall specify the number of shares of Preferred Stock to be authenticated and the date on which the original issue of Preferred Stock is to be authenticated. The Transfer Agent may appoint an authenticating agent reasonably acceptable to the Company to authenticate the certificates for Preferred Stock. Unless limited by the terms of such appointment, an authenticating agent may authenticate certificates for Preferred Stock whenever the Transfer Agent may do so. Each reference in this Statement to authentication by the Transfer Agent includes authentication by such agent. An authenticating agent has the same rights as the Transfer Agent or agent for service of notices and demands.

(i) When Certificated Preferred Stock is presented to the Transfer Agent with a request to register the transfer of such Certificated Preferred Stock certificates or to exchange such Certificated Preferred Stock for Certificated Preferred Stock representing an equal number of shares of Preferred Stock, the Transfer Agent shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; provided, however, that the Certificated Preferred Stock surrendered for transfer or exchange:

(1) shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Company and the Transfer Agent, duly executed by the holder thereof or its attorney duly authorized in writing; and

(2) is being transferred or exchanged pursuant to an effective registration statement under the Securities Act or pursuant to clause (II) below, and is accompanied by the following additional information and documents, as applicable:

(I) if such Certificated Preferred Stock is being delivered to the Transfer Agent by a holder for registration in the name of such holder, without transfer, a certification from such holder to that effect (in substantially the form of Exhibit C hereto); or

an Opinion of Counsel or other evidence reasonably satisfactory to it as to the compliance with such exemption from registration under the Securities Act.

(ii) Subject to the restrictions set forth in Section 11(a)(iii), Certificated Preferred Stock may not be exchanged for a beneficial interest in Global Preferred Stock except upon satisfaction of the requirements set forth below. Upon receipt by the Transfer Agent of Certificated Preferred Stock, duly endorsed or accompanied by appropriate instruments of transfer, in form and substance reasonably satisfactory to the Company and the Transfer Agent, together with written instructions directing the Transfer Agent to make, or to direct DTC to make, an adjustment on its books and records with respect to such Global Preferred Stock to reflect an increase in the number of shares of Preferred Stock represented by the Global Preferred Stock, then the Transfer Agent shall cancel such Certificated Preferred Stock and cause, or direct DTC to cause, in accordance with the standing instructions and procedures existing between DTC and the Transfer Agent, the number of shares of Preferred Stock represented by the Global Preferred Stock to be increased accordingly. If no Global Preferred Stock is then outstanding, the Company shall issue and the Transfer Agent shall authenticate, upon written order of the Company in the form of an Officers' Certificate, a new Global Preferred Stock certificate representing the appropriate number of shares.

(iii) The transfer and exchange of Global Preferred Stock or beneficial interests therein shall be effected through DTC, in accordance with this Statement (including applicable restrictions on transfer set forth herein, if any) and the procedures of DTC therefor.

(iv) Any Person having a beneficial interest in Global Preferred Stock that is being transferred or exchanged pursuant to an effective registration statement under the Securities Act or pursuant to another exemption from registration thereunder may upon request, but only with the consent of the Company, and if accompanied by a certification from such Person to that effect (in substantially the form of Exhibit C hereto), exchange such beneficial interest for Certificated Preferred Stock representing the same number of shares of Preferred Stock. Upon receipt by the Transfer Agent of written instructions or such other form of instructions as is customary for DTC from DTC or its nominee on behalf of any Person having a beneficial interest in Global Preferred Stock and upon receipt by the Transfer Agent of a written order or such other form of instructions as is customary for DTC or the Person designated by DTC as having such a beneficial interest in a Global Preferred Stock only, then, the Transfer Agent or DTC, at the direction of the Transfer Agent, will cause, in accordance with the standing instructions and procedures existing between DTC and the Transfer Agent, the number of shares of Preferred Stock represented by Global Preferred Stock to be reduced on its books and records and, following such reduction, the Company will execute and the Transfer Agent will authenticate and deliver to the transferee Certificated Preferred Stock. Certificated Preferred Stock issued in exchange for a beneficial interest in Global Preferred Stock pursuant to this Section 11(c)(iv) shall be registered in such names and in such authorized denominations as DTC, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Transfer Agent. The Transfer Agent shall deliver such Certificated Preferred Stock to the Persons in whose names such Preferred Stock are so registered in accordance with the instructions of DTC.

(v) Notwithstanding any other provisions of this Statement (other than the provisions set forth in Section 11(c)(vi)), Global Preferred Stock may not be transferred as a whole except by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC or any such nominee to a successor depository or a nominee of such successor depository.

(vi) If at any time:

(1) DTC notifies the Company that DTC is unwilling or unable to continue as depository for the Global Preferred Stock and a successor depository for the Global Preferred Stock is not appointed by the Company within ninety (90) days after delivery of such notice;

(2) DTC ceases to be a clearing agency registered under the Exchange Act and a successor depository for the Global Preferred Stock is not appointed by the Company within ninety (90) days; or

(3) the Company, in its sole discretion, notifies the Transfer Agent in writing that it elects to cause the issuance of Certificated Preferred Stock under this Statement,

then the Company will execute, and the Transfer Agent, upon receipt of a written order of the Company signed by two Officers or by an Officer and an Assistant Treasurer of the Company requesting the authentication and delivery of Certificated Preferred Stock to the Persons designated by the Company, will authenticate and deliver Certificated Preferred Stock equal to the number of shares of Preferred Stock represented by the Global Preferred Stock, in exchange for such Global Preferred Stock.

(vii) At such time as all beneficial interests in Global Preferred Stock have either been exchanged for Certificated Preferred Stock, converted or canceled, such Global Preferred Stock shall be returned to DTC for cancellation or retained and canceled by the Transfer Agent. At any time prior to such cancellation, if any beneficial interest in Global Preferred Stock is exchanged for Certificated Preferred Stock, converted or canceled, the number of shares of Preferred Stock represented by such Global Preferred Stock shall be reduced and an adjustment shall be made on the books and records of the Transfer Agent with respect to such Global Preferred Stock, by the Transfer Agent or DTC, to reflect such reduction.

(d) Legends.

(i) Except as permitted by the following paragraph (ii), each certificate evidencing the Global Preferred Stock and the Certificated Preferred Stock shall bear a legend in substantially the following form:

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

"THESE SECURITIES ARE SUBJECT TO A PREFERRED STOCK PURCHASE AGREEMENT DATED AS OF MARCH 28, 2007 AMONG THE COMPANY AND THE PURCHASERS NAMED THEREIN, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THESE SECURITIES MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 5.01 OF SUCH PREFERRED STOCK PURCHASE AGREEMENT. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SECTION 5.01 OF SUCH PREFERRED STOCK PURCHASE AGREEMENT. THE COMPANY WILL FURNISH A COPY OF SUCH PREFERRED STOCK PURCHASE AGREEMENT TO THE RECORD HOLDER OF THE CERTIFICATE WITHOUT CHARGE ON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE."

(ii) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by Global Preferred Stock) pursuant to Rule 144 under the Securities Act or an effective registration statement under the Securities Act:

(1) in the case of any Transfer Restricted Security that is Certificated Preferred Stock, the Transfer Agent shall permit the Holder thereof to exchange such Transfer Restricted Security for Certificated Preferred Stock that does not bear a restrictive legend and rescind any restriction on the transfer of such Transfer Restricted Security; and

(2) in the case of any Transfer Restricted Security that is represented by Global Preferred Stock the Transfer Agent shall permit the Holder thereof to exchange such Transfer Restricted Security for Certificated Preferred Stock that does not bear a restrictive legend and rescind any restriction on the transfer of such Transfer Restricted Security, if the Holder's request for such exchange was made in reliance on Rule 144 under the Securities Act and the Holder certifies to that effect in writing to the Transfer Agent (such certification to be in the form set forth in Exhibit C hereto).

(e) Obligations with Respect to Transfers of Preferred Stock.

(i) To permit registrations of transfers and exchanges, the Company shall execute and the Transfer Agent shall authenticate Preferred Stock certificates as required pursuant to the provisions of this Section 11.

(ii) All Preferred Stock certificates issued upon any registration of transfer or exchange of Preferred Stock certificates shall be the valid obligations of the Company, entitled to the same benefits under this Statement as the Preferred Stock certificates surrendered upon such registration of transfer or exchange.

(iii) Prior to due presentment for registration of transfer of any shares of Preferred Stock, the Transfer Agent and the Company may deem and treat the Person in whose name such shares of Preferred Stock are registered as the absolute owner of such Preferred Stock and neither the Transfer Agent nor the Company shall be affected by notice to the contrary.

(iv) No service charge shall be made to a Holder of Preferred Stock for any registration of transfer or exchange upon surrender of any Preferred Stock certificate at the office of the Transfer Agent maintained for that purpose. However, the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Preferred Stock certificates.

(v) Upon any sale or transfer of shares of Preferred Stock (including any Preferred Stock represented by Global Preferred Stock) pursuant to an effective registration statement under the Securities Act or pursuant to Rule 144 under the Securities Act (and based upon an Opinion of Counsel reasonably satisfactory to the Company if it so requests), in the case of any Certificated Preferred Stock, the Company and the Transfer Agent shall permit the holder thereof to exchange such Preferred Stock for Certificated Preferred Stock that does not bear a restrictive legend and rescind any restriction on the transfer of such Preferred Stock issuable in respect of the conversion of the Preferred Stock.

made to Holders under the Preferred Stock shall be given or made only to the Holders (which shall be DTC or its nominee in the case of the Global Preferred Stock). The rights of beneficial owners in any Global Preferred Stock shall be exercised only through DTC subject to the applicable rules and procedures of DTC. The Transfer Agent may rely and shall be fully protected in relying upon information furnished by DTC with respect to its members, participants and any beneficial owners.

(vii) The Transfer Agent shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Statement or under applicable law with respect to any transfer of any interest in any Preferred Stock other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Statement, and to examine the same to determine substantial compliance as to form with the express requirements hereof.

(f) Replacement Certificates. If a mutilated Preferred Stock certificate is surrendered to the Transfer Agent or if the Holder of a Preferred Stock certificate claims that the Preferred Stock certificate has been lost, destroyed or wrongfully taken, the Company shall issue and the Transfer Agent shall countersign a replacement Preferred Stock certificate if the reasonable requirements of the Transfer Agent are met. If required by the Transfer Agent or the Company, such holder shall furnish an indemnity bond sufficient in the judgment of the Company and the Transfer Agent to protect the Company and the Transfer Agent from any loss which either of them may suffer if a Preferred Stock certificate is replaced. The Company and the Transfer Agent may charge the holder for their expenses in replacing a Preferred Stock certificate.

(g) Temporary Certificates. Until definitive Preferred Stock certificates are ready for delivery, the Company may prepare and the Transfer Agent shall countersign temporary Preferred Stock certificates. Temporary Preferred Stock certificates shall be substantially in the form of definitive Preferred Stock certificates but may have variations that the Company considers appropriate for temporary Preferred Stock certificates. Without unreasonable delay, the Company shall prepare and the Transfer Agent shall countersign definitive Preferred Stock certificates and deliver them in exchange for temporary Preferred Stock certificates.

(h) Cancellation.

(i) In the event the Company shall purchase or otherwise acquire Certificated Preferred Stock, the same shall thereupon be delivered to the Transfer Agent for cancellation.

(ii) At such time as all beneficial interests in Global Preferred Stock have either been exchanged for Certificated Preferred Stock, converted, repurchased or canceled, such Global Preferred Stock shall thereupon be delivered to the Transfer Agent for cancellation.

(iii) The Transfer Agent and no one else shall cancel and destroy all Preferred Stock certificates surrendered for transfer, exchange, replacement or cancellation and deliver a certificate of such destruction to the Company unless the Company directs the Transfer Agent to deliver canceled Preferred Stock certificates to the Company. The Company may not issue new Preferred Stock certificates to replace Preferred Stock certificates to the extent they evidence Preferred Stock which the Company has purchased or otherwise acquired.

12. Other Provisions.

validity of any conversion, distribution, rights, warrant, reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding-up, or the vote upon any such action. Any notice that was mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the holder receives the notice.

(b) Shares of Preferred Stock issued and reacquired will be retired and canceled promptly after reacquisition thereof and, upon compliance with the applicable requirements of Texas law, will have the status of authorized but unissued shares of preferred stock of the Company undesignated as to series and may with any and all other authorized but unissued shares of preferred stock of the Company be designated or redesignated and issued or reissued, as the case may be, as part of any series of preferred stock of the Company, except that any issuance or reissuance of shares of Preferred Stock must be in compliance with this Statement.

(d) Unless otherwise specifically provided herein, all notice periods referred to herein shall commence on the date of the mailing of the applicable notice.

(e) If at any time the Company is required to make any payment to a Holder pursuant to this Statement (including, without limitation, pursuant to Section 3(a), 4(d) or 4(k)(ii)), the Company does not have sufficient funds legally available to make such payment, the Company shall, to the extent permitted by applicable law (including the Texas Business Corporation Act), revalue its consolidated assets and liabilities and reduce its stated capital so as to increase the amount of capital and surplus legally available to enable such payment, and the Company shall make as much of such required payment as possible, ratably to each Holder in proportion to the number of shares of Preferred Stock held by such Holder, and shall thereafter from time to time, as soon as it shall have funds available therefor, make payment of as much of the remaining amount of such required payment as it legally may until it has made such payment in its entirety. For the avoidance of doubt, such partial payments shall not reduce or waive the rights of the holders of the Preferred Stock hereunder.

(f) All references herein to provisions of the Texas Business Corporation Act shall be deemed to be references to the analogous provisions of the Texas Corporation Law and Texas For-Profit Corporation Law upon the earlier of (i) January 1, 2010 or (ii) the date of adoption by the Company of the Texas Business Organizations Code.

IN WITNESS WHEREOF, the Company has caused this Statement to be signed this 28th day of March, 2007.

		EXCO RESOURCES, INC.
		By:	/s/ J. Douglas Ramsey, Ph.D.

		Name:	J. Douglas Ramsey, Ph.D.
		Title:	Vice President and Chief Financial Officer

EXHIBIT A

GLOBAL SECURITY LEGENDS

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE& CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE& CO. HAS AN INTEREST HEREIN.

TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE STATEMENT OF DESIGNATION REFERRED TO BELOW.

A-1

EXHIBIT B

NOTICE OF CONVERSION

(To be Executed by the Holder
in order to Convert the Preferred Stock)

The undersigned hereby irrevocably elects to convert shares of Series A-1 7.0% Cumulative Convertible Perpetual Preferred Stock (the "Preferred Stock"), represented by stock certificate No(s). (the "Preferred Stock Certificates"), into shares of common stock ("Common Stock") of EXCO Resources, Inc. (the "Company") according to the conditions of the Statement of Designation of the Preferred Stock (the "Statement of Designation"), as of the date written below. If shares are to be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith the Preferred Stock Certificates. No fee will be charged to the holder for any conversion, except for transfer taxes, if any. The original of each Preferred Stock Certificate is attached hereto (or evidence of loss, theft or destruction thereof).

The undersigned represents and warrants that all offers and sales by the undersigned of the shares of Common Stock issuable to the undersigned upon conversion of the Preferred Stock shall be made pursuant to registration of the Common Stock under the Securities Act of 1933 (the "Act"), or pursuant to any exemption from registration under the Act.

Capitalized terms used but not defined herein shall have the meanings ascribed thereto in or pursuant to the Statement of Designation.

Date of Conversion:

Applicable Conversion Price:

Number of shares of Preferred Stock to be converted (plus Accrued Dividends):

Number of shares of Common Stock to be issued: *

Signature:

Name:

Address:**

Fax No.:

*: The Company is not required to issue shares of Common Stock until the original Preferred Stock Certificate(s) (or evidence of loss, theft or destruction thereof) to be converted are received by the Company or the Transfer Agent. The Company shall issue and deliver shares of Common Stock to an overnight courier not later than three Business Days following receipt of the original Preferred Stock Certificate(s) to be converted.
**: Address where shares of Common Stock and any other payments or certificates shall be sent by the Company.

B-1

EXHIBIT C

CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR
REGISTRATION OF TRANSFER OF PREFERRED STOCK

Re:: Series A-1 7.0% Cumulative Convertible Perpetual Preferred Stock (the "Preferred Stock") of EXCO Resources, Inc. (the "Company")

This Certificate relates to shares of Preferred Stock held in *o book-entry or *o definitive form by (the "Transferor").

The Transferor*

o: has requested the Transfer Agent by written order to deliver in exchange for its beneficial interest in the Preferred Stock held by DTC shares of Preferred Stock in definitive, registered form equal to its beneficial interest in such Preferred Stock (or the portion thereof indicated above); or
o: has requested the Transfer Agent by written order to exchange or register the transfer of such shares of Preferred Stock.

In connection with such request and in respect of such Preferred Stock, the Transferor does hereby certify that the Transferor is familiar with the Statement of Designation relating to the above-captioned Preferred Stock and that the transfer of this Preferred Stock does not require registration under the Securities Act of 1933 (the "Securities Act") because *:

o: Such Preferred Stock is being acquired for the Transferor's own account without transfer.
o: Such Preferred Stock is being transferred to the Company.
o: Such Preferred Stock is being transferred in reliance on and in compliance with an exemption from the registration requirements of the Securities Act (and based on an Opinion of Counsel if the Company so requests).

					[INSERT NAME OF TRANSFEROR]
					by:
Date:

*: Please check applicable box.

C-1

Annex B

STATEMENT OF DESIGNATION
OF
SERIES A-2 7.0% CUMULATIVE CONVERTIBLE PERPETUAL PREFERRED STOCK
OF
EXCO RESOURCES, INC.

Pursuant to Article 2.13 of
the Texas Business Corporation Act

1. Designation and Amount; Ranking.

(a) There shall be created from the 10,000,000 shares of preferred stock, par value $0.001 per share, of the Company authorized to be issued pursuant to the Articles of Incorporation, a series of preferred stock, designated as the "Series A-2 7.0% Cumulative Convertible Perpetual Preferred Stock," par value $0.001 per share (the "Preferred Stock"), and the number of shares of such series shall be 200,000. Such number of shares may be decreased by resolution of the Board of Directors; provided that no decrease shall reduce the number of shares of Preferred Stock to a number less than that number of shares of Preferred Stock then outstanding plus the number of shares of Preferred Stock issuable upon exercise of options or rights (including, without limitation, conversion rights) then outstanding.

2. Definitions. As used herein, the following terms shall have the following meanings:

(a) "7.0% Statements" means the Statements of Designation with respect to each series of 7.0% Preferred Stock.

(b) "7.0% Preferred Stock" means, collectively, the Preferred Stock, the Series A-1 Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock.