The 1.5 Lien Notes
are jointly and severally guaranteed by all of the Companys
subsidiaries that guarantee the Companys indebtedness under the
EXCO Resources Credit Agreement and the indebtedness under the
Second Lien Term Loans, and are secured by second priority liens
on substantially all of the assets of the Company and such
guarantors. The 1.5 Lien Notes rank pari passu in right
of payment with one another and all of the Companys other
existing and future senior indebtedness, including the Companys
debt under the EXCO Resources Credit Agreement, the 1.75 Lien
Term Loans (as defined below), the remaining outstanding portion
of the Exchange Term Loan and the Companys 7.5% Senior Unsecured
Notes due September15, 2018 (2018
Notes) and 8.5% Senior Unsecured Notes due April15,
2022 (2022 Notes). However, because the
debt under the EXCO Resources Credit Agreement has a priority
claim to the collateral securing the 1.5 Lien Notes to the
Intercreditor Agreement (as defined below), the 1.5 Lien Notes
will rank (i)contractually junior to the Companys debt under the
EXCO Resources Credit Agreement and any other first lien
obligations (subject to the terms of the Intercreditor Agreement
described below), (ii) pari passu with one another,
(iii)contractually senior to the 1.75 Lien Term Loans, the
remaining outstanding portion of the Exchange Term Loan and any
future third lien obligations and (iv)structurally senior to all
of the Companys existing and future unsecured senior
indebtedness, including the Companys 2018 Notes and 2022 Notes,
in each case to the extent of the value of the collateral
securing the 1.5 Lien Notes.

The foregoing
description of the Indenture does not purport to be complete and
is qualified in its entirety by reference to the Indenture, a
copy of which is filed as Exhibit 4.1 to this Current Report on
Form 8-K and is incorporated by reference herein.

1.75 Lien
Term Loans and Second Lien Term Loan Exchange

In connection with
the offering of the 1.5 Lien Notes, on March 15, 2017, the
Company completed the Second Lien Term Loan Exchange whereby
approximately $682.8million in aggregate principal amount of its
outstanding Second Lien Term Loans, consisting of all of the
outstanding indebtedness under the Fairfax Term Loan and
approximately $382.8million in aggregate principal amount of the
Exchange Term Loan, were exchanged for approximately
$682.8million in aggregate principal amount of new 1.75 Lien Term
Loans, to a Purchase Agreement, dated March 15, 2017, by and
among the Company, Hamblin Watsa, as administrative agent under
the Fairfax Term Loan, Wilmington Trust, National Association, as
administrative agent under the Exchange Term Loan, and each of
the exchanging lenders party thereto (the Exchange
Agreement). The 1.75 Lien Term Loans were issued to
a 1.75 Lien Term Loan Credit Agreement, dated as of March 15,
2017, by and among the Company, certain of its subsidiaries, as
guarantors, and Wilmington Trust, National

3

Association, as
administrative agent and collateral trustee (the 1.75
Lien Term Loan Credit Agreement). Certain
affiliates of Hamblin Watsa and Fairfax, ESAS and Gen IV and
certain of its affiliates, as lenders of the Second Lien Term
Loans, participated in the Second Lien Term Loan Exchange. For
additional information, see Related Party Information
below.

Under the terms of
the Second Lien Term Loan Exchange, each exchanging Second Lien
Term Loan lender received $1,000 in aggregate principal amount of
1.75 Lien Term Loans for every $1,000 in aggregate principal
amount of Second Lien Term Loans tendered by such exchanging
lender. In addition, the Company issued the exchanging Second
Lien Term Loan lenders, at their election, either (i)warrants
representing the right to purchase an aggregate of 19,883,077
shares of Common Stock at an exercise price of $0.01 per share
(the Amendment Fee Warrants, and
collectively with the 1.5 Lien Notes Warrants and Commitment Fee
Warrants, the Warrants) (with the
number of shares of Common Stock underlying such Amendment Fee
Warrants based on 10% of the Companys fully-diluted outstanding
Common Stock on March 15, 2017 after giving effect to the
issuance of Common Stock underlying the Amendment Fee Warrants
and the Commitment Fee Warrants, but prior to giving effect to
the issuance of the 1.5 Lien Notes Warrants and any PIK interest
payments in Common Stock and subject to pro rata reduction for
any lender who elects to receive cash instead of Amendment Fee
Warrants) or (ii)approximately $8.6million in cash as a consent
fee for agreeing to certain amendments to the agreements
governing the Exchange Term Loan (as further described
below).

As a result of the
Second Lien Term Loan Exchange, the Fairfax Term Loan was deemed
satisfied and paid in full and was terminated. In addition, to
the terms of the Second Lien Term Loan Exchange, each exchanging
lender of the Exchange Term Loan consented to the entry into an
amendment to the agreement governing the Exchange Term Loan to
eliminate substantially all of the covenants and events of
default included therein (the Exchange Term Loan
Amendment). The Exchange Term Loan Amendment became
effective on March 15, 2017 in connection with the closing of the
Second Lien Term Loan Exchange. Following the Second Lien Term
Loan Exchange, the Company has approximately $17.2million in
aggregate principal amount of Second Lien Term Loans outstanding,
consisting entirely of the remaining portion of the Exchange Term
Loan.

The terms of the
1.75 Lien Term Loans are governed by the 1.75 Lien Term Loan
Credit Agreement, which provides that the 1.75 Lien Term Loans
will mature on October26, 2020. to the 1.75 Lien Term Loan Credit
Agreement, interest accrues at a cash interest rate of 12.5% per
annum and interest will be payable March20, June20, September20
and December20 of each year, commencing on June20, 2017. Under
the terms of the 1.75 Lien Term Loan Credit Agreement, the
Company may, at its discretion prior to December31, 2018 and
subject to certain limitations thereafter, make PIK interest
payments on the 1.75 Lien Term Loans in shares of its Common
Stock or in issuances of additional 1.75 Lien Term Loans at a PIK
interest rate of 15% per annum, as further described below under
PIK Payments.

The 1.75 Lien Term
Loans are jointly and severally guaranteed by all of the Companys
subsidiaries that guarantee the Companys indebtedness under the
EXCO Resources Credit Agreement and the Second Lien Term Loans,
and are secured by third priority liens on substantially all of
the assets of the Company and such guarantors. The 1.75 Lien Term
Loans rank pari passu in right of payment with one
another and all of the Companys other existing and future senior
indebtedness, including the Companys debt under the EXCO
Resources Credit Agreement, the 1.5 Lien Notes, the remaining
outstanding portion of the Exchange Term Loan and the 2018 Notes
and 2022 Notes. However, because the debt under the EXCO
Resources Credit Agreement and the 1.5 Lien Notes have a priority
claim to the collateral securing the 1.75 Lien Term Loans to the
Intercreditor Agreement (as defined below), the 1.75 Lien Term
Loans rank (i)contractually junior to the Companys debt under the
EXCO Resources Credit Agreement, the 1.5 Lien Notes and any other
priority lien or second lien obligations (subject to the

4

terms of the
Intercreditor Agreement described below), (ii)
paripassu with one another, (iii)contractually
senior to the remaining outstanding portion of the Exchange Term
Loan and any future third lien obligations and (iv)structurally
senior to all of the Companys existing and future unsecured
senior indebtedness, including the Companys 2018 Notes and 2022
Notes, in each case to the extent of the value of the collateral
securing the 1.75 Lien Term Loans.

The foregoing
description of the Exchange Agreement, 1.75 Lien Term Loan Credit
Agreement and the Exchange Term Loan Amendment does not purport
to be complete and is qualified in its entirety by reference to
the Exchange Agreement, 1.75 Lien Term Loan Credit Agreement and
the Exchange Term Loan Amendment, copies of which are filed as
Exhibits 10.3, 10.4 and 10.5, respectively, to this Current
Report on Form 8-K and are incorporated by reference
herein.

PIK
Payments

Each of the
Indenture and the 1.75 Lien Term Loan Credit Agreement allow the
Company, on the terms and conditions described below, to make PIK
interest payments on the 1.5 Lien Notes and the 1.75 Lien Term
Loans, as applicable, in shares of the Companys Common Stock, or,
in certain circumstances, additional 1.5 Lien Notes or 1.75 Lien
Term Loans, as applicable.

Under the
Indenture and the 1.75 Lien Term Loan Credit Agreement, the price
of the Companys Common Stock for determining PIK payments is
based on the trailing 20-day volume weighted average price as at
the end of the Determination Date (as defined in the Indenture or
the 1.75 Lien Term Loan Credit Agreement, as applicable).

The Companys
ability to make PIK payments in Common Stock under the 1.5 Lien
Notes and 1.75 Lien Term Loans is subject to the following
conditions: (i)the Company shall have received the Requisite
Shareholder Approval, (ii)the issuance of Common Stock as a PIK
payment shall not result in a beneficial owner of the 1.5 Lien
Notes or 1.75 Lien Term Loans, as applicable, such beneficial
owners affiliates and any person subject to aggregation with such
beneficial owner or its affiliates under Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the
Exchange Act), beneficially owning (as
defined in Rules 13d-3 or 13d-5 under the Exchange Act, except
that for purposes of this clause (ii)such holder shall be deemed
to have beneficial ownership of all shares that any such holder
has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total voting power of the
voting capital stock of the Company or any of its direct or
indirect parent entities (or their successors by merger,
consolidation or purchase of all or substantially all of their
assets) (such limitation on beneficial ownership, the
Beneficial Ownership Limitation), (iii)
the number of shares of Common Stock issued as a PIK payment
shall not exceed the amount of Common Stock that the Company is
authorized to issue under its Amended and Restated Certificate of
Formation, (iv)the Common Stock issued as a PIK payment shall be
(a)listed on the NYSE or any other exchange on which the Common
Stock is then listed or the over the counter market and (b)duly
authorized, validly issued and non-assessable, and the issuance
of such PIK Common Stock shall not be subject to any preemptive
or similar rights and (v)the Companys Resale Registration
Statement (as defined in the Indenture or 1.75 Lien Term Loan
Credit Agreement, as applicable) shall have been declared
effective by the SEC subject to the requirements of the
Registration Rights Agreement (as defined below). If the
foregoing conditions are not met and the Company otherwise has
the ability to elect to make PIK interest payments, the Company
may make PIK interest payments in additional 1.5 Lien Notes or
1.75 Lien Term Loans, as applicable.

Prior to
December31, 2018, the Company may make PIK payments in its Common
Stock on the 1.5 Lien Notes and the 1.75 Lien Term Loans in its
sole discretion, subject to the receipt of the Requisite
Shareholder Approval. After December31, 2018, the Company is
permitted to make PIK payments only

5

in the following
percentages of interest due based on its liquidity, which is
defined as (i)the sum of (a)the Companys unrestricted cash and
cash equivalents and (b)any amounts available to be borrowed
under the EXCO Resources Credit Agreement (to the extent then
available) less (ii)the face amount of any letters of credit
outstanding under the EXCO Resources Credit Agreement
(Liquidity):

Covenants,
Events of Default and Other Material Provisions of the Indenture
and 1.75 Lien Term Loan Credit Agreement

Subject to certain
exceptions, the covenants under the Indenture and the 1.75 Lien
Term Loans limit the ability of the Company and the ability of
its subsidiary guarantors to, among other things:

In addition, under
the Indenture, the Company may only incur secured indebtedness
senior to the 1.5 Lien Notes in excess of $150.0million if the
Company obtains consent from the holders of a majority in
aggregate principal amount of the 1.5 Lien Notes. Certain
affiliates of Hamblin Watsa and Fairfax currently hold a majority
in aggregate principal amount of the 1.5 Lien Notes.

The Indenture
provides that, prior to March20, 2018 the Company may redeem the
1.5 Lien Notes, in whole or in part, at a redemption price equal
to 50% of the principal amount of the 1.5 Lien Notes redeemed
plus an applicable make-whole premium. After March20, 2018, the
Company may redeem the 1.5 Lien Notes, in whole or in part, at
the redemption rates set forth in the Indenture plus accrued and
unpaid interest. Under the 1.75 Lien Credit Agreement, the
portion of the 1.75 Lien Term Loans that were originally derived
from the exchange of the Fairfax Term Loan (the
Fairfax Tranche)

6

may not be
voluntarily prepaid in whole or in part. However, the 1.75 Lien
Credit Agreement allows the portion of the 1.75 Lien Term Loans
that were originally derived from the exchange of the Exchange
Term Loan (the Exchange Tranche) to be
voluntarily prepaid, in whole or in part, at a price equal to 50%
of the principal amount of amount of such repaid portion of 1.75
Lien Term Loans plus an applicable make-whole amount or premium,
depending on whether such prepayment occurs prior to or after
October26, 2018.

Under the
Indenture, an Event of Default shall give the holders of at least
25% of the aggregate principal amount of 1.5 Lien Notes then
outstanding the right to declare the principal, premium, if any,
interest and any other monetary obligations on all of the 1.5
Lien Notes to be due and payable immediately. In addition, an
Event of Default under the Indenture would cause both the cash
interest rate and PIK payment interest rate of the 1.5 Lien Notes
to increase by 2% per annum. An Event of Default under the
Indenture includes, among other things, a failure to make
payments when they are due and the failure of the Company or the
subsidiary guarantors, under certain circumstances, to comply
with the obligations, covenants or agreements under the
Indenture.

Under the 1.75
Lien Term Loan Credit Agreement, an Event of Default shall give
the administrative agent, at the request of the majority of the
lenders thereunder, the ability to (i)terminate the lenders
commitments under the 1.75 Lien Term Loans and (ii)declare the
outstanding indebtedness under the 1.75 Lien Term Loans due and
payable in whole, including accrued and unpaid interest thereon.
An Event of Default under the 1.75 Lien Term Loans includes,
among other things, the failure to make payments when they are
due, the material incorrectness of a representation or warranty
made by the Company or its subsidiary guarantors at the time such
representation or warranty was made and the failure to comply
with restrictive covenants.

to the Indenture,
a Change of Control gives the holders of the 1.5 Lien Notes the
right to require the Company to repurchase the 1.5 Lien Notes at
101% of the aggregate principal amount thereof outstanding, plus
accrued and unpaid interest thereon to the date of the
repurchase. In addition, under the 1.75 Lien Term Loan Credit
Agreement, a Change of Control constitutes an Event of Default,
which, subject to certain limitations, may allow the 1.75 Lien
Term Loan lenders to declare the 1.75 Lien Term Loans to be due
and payable, in whole or in part, including accrued but unpaid
interest thereon, plus a make-whole payment with respect to the
Fairfax Tranche.

Each of the
Indenture and the 1.75 Lien Term Loan Credit Agreement also
contain certain restrictions on the Companys ability to engage in
certain asset sales. In the event of such sales, the Company must
generally either invest the net cash proceeds from such sales in
its business within 360 days or make an offer to repay a portion
of the 1.5 Lien Notes or 1.75 Lien Term Loans, as applicable,
plus, in the case of the 1.75 Lien Term Loans, a make-whole
payment (with respect to the Fairfax Tranche) or a premium (with
respect to the Exchange Tranche).

Under the terms of
the Indenture, the holders of the 1.5 Lien Notes agree not to
sell, assign, transfer or dispose of 1.5 Lien Notes without the
consent of Eligible Holders (as defined in the Indenture) holding
a majority of the principal amount of 1.5 Lien Notes held by such
Eligible Holders (which consent may be withheld in the sole and
absolute discretion of the Eligible Holders) at any time prior to
March20, 2019. The Indenture also provides that a proposed
transfer at any time on or after March20, 2019 would be subject
to a customary right of first refusal and tag-along right held by
the Eligible Holders. Under the terms of the 1.75 Lien Term Loan
Credit Agreement, any proposed transfer of 1.75 Lien Term Loans
would be subject to a right of first refusal held by the
Commitment Parties.

The Indenture also
provides that the Company must meet certain Liquidity thresholds
at the time that certain of its other outstanding indebtedness
matures or it will incur an Event of Default under the

7

Indenture. On
September15, 2018, unless all of the 2018 Notes have been
redeemed, repurchased or refinanced, then prior to any payment at
maturity of the 2018 Notes, the Company must have Liquidity of at
least $200.0million. On October26, 2020, unless all of the
indebtedness under the remaining outstanding portion of the
Exchange Term Loan and/or the 1.75 Lien Term Loan Credit
Agreement shall have been redeemed, repurchased or refinanced,
then prior to any payment at maturity of such indebtedness, the
Company must have Liquidity of at least $200.0million.

Warrants