Exhibit 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Amendment No. 2)
Under the Securities Exchange Act of 1934*
TXCO Resources Inc.
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(Name of Issuer)
Common Stock, par value $0.01 per share
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(Title of Class of Securities)
87311M102
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(CUSIP Number of Class of Securities)
Daniel S. Loeb
Third Point LLC
390 Park Avenue
New York, NY 10022
(212) 224-7400
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
Copies to:
Michael A. Schwartz, Esq.
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, NY 10019-6099
(212) 728-8000
February 21, 2008
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(Date of Event which Requires
Filing of this Schedule)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of ss.ss. 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the
following box: [ ]
NOTE: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 240.13d-7 for other
parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
SCHEDULE 13D
- --------------------------- ---------------------------
CUSIP No. 87311M102 Page 2 of 7 Pages
- --------------------------- ---------------------------
- ----------- --------------------------------------------------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Third Point LLC
- ----------- --------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [X]
- ----------- --------------------------------------------------------------------
3 SEC USE ONLY
- ----------- --------------------------------------------------------------------
4 SOURCE OF FUNDS*
AF
- ----------- --------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
- ----------- --------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------- --------- ------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF SHARES
BENEFICIALLY OWNED 0
BY EACH REPORTING --------- ------------------------------------------------
PERSON WITH 8 SHARED VOTING POWER
2,820,000
--------- ------------------------------------------------
9 SOLE DISPOSITIVE POWER
0
--------- ------------------------------------------------
10 SHARED DISPOSITIVE POWER
2,820,000
- ----------- --------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON
2,820,000
- ----------- --------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
- ----------- --------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.3%
- ----------- --------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
OO
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SCHEDULE 13D
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CUSIP No. 87311M102 Page 3 of 7 Pages
- --------------------------- ---------------------------
- ----------- --------------------------------------------------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Daniel S. Loeb
- ----------- --------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [X]
- ----------- --------------------------------------------------------------------
3 SEC USE ONLY
- ----------- --------------------------------------------------------------------
4 SOURCE OF FUNDS*
AF
- ----------- --------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
- ----------- --------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- --------------------- --------- ------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF SHARES
BENEFICIALLY OWNED 0
BY EACH REPORTING --------- ------------------------------------------------
PERSON WITH 8 SHARED VOTING POWER
2,820,000
--------- ------------------------------------------------
9 SOLE DISPOSITIVE POWER
0
--------- ------------------------------------------------
10 SHARED DISPOSITIVE POWER
2,820,000
- ----------- --------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON
2,820,000
- ----------- --------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
- ----------- --------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.3%
- ----------- --------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- ----------- --------------------------------------------------------------------
This Amendment No. 2 to Schedule 13D ("Amendment No. 2") is filed on behalf
of Third Point LLC, a Delaware limited liability company (the "Management
Company") and Daniel S. Loeb, an individual ("Mr. Loeb" and together with the
Management Company, the "Reporting Persons"), and amends the Schedule 13D filed
on November 28, 2007 (as amended by Amendment No. 1 thereto filed on January 24,
2008 and this Amendment No. 2, the "Schedule 13D"). This Amendment No. 2 relates
to the common stock, par value $0.01 per share (the "Common Stock"), of TXCO
Resources Inc., a Delaware corporation (the "Company"). The Management Company
is the investment manager or adviser to a variety of funds and managed accounts
(such funds and accounts, the "Funds", and collectively with the Reporting
Persons, "Third Point"). The Funds directly own the Common Stock to which this
statement on Schedule 13D relates, and the Management Company and Mr. Loeb may
be deemed to beneficially own such Common Stock by virtue of the authority
granted to them by the Funds to vote and to dispose of the securities held by
the Funds, including the Common Stock. Capitalized terms used herein and not
otherwise defined have the meanings ascribed thereto in the Schedule 13D.
Item 4. Purpose of Transaction
Item 4 of the Schedule 13D is hereby amended by adding the following
thereto:
On February 21, 2008, Third Point Offshore Fund, Ltd. delivered to the
Company the notice required under the Company's bylaws of Third Point's
intention to nominate, at the 2008 Annual Meeting, three individuals - Jacob
Roorda, Todd Q. Swanson and Anthony Tripodo - to stand for election as Class A
directors of the Company for terms expiring in 2011. Third Point intends to
solicit proxies for the election of its nominees at the 2008 Annual Meeting.
On February 25, 2008, Third Point filed in the Delaware Court of Chancery
an Amended Verified Complaint (the "Amended Complaint") which, based on
newly-discovered internal emails and memoranda, provided further factual support
for the allegations in the Verified Complaint filed on January 23, 2008 and
added a separate count for breach of the duty of care. The Amended Complaint
alleges that newly-discovered memoranda and emails confirm that the purpose of
adding James Hewitt to the Board was to prevent Third Point from obtaining three
out of six seats on the Board at the 2008 Annual Meeting. The Amended Complaint
also alleges, based upon newly-discovered evidence, that the appointment of Mr.
Hewitt was the product of a breach of duty of care because Mr. Hewitt's
appointment was a rushed and reckless process, without due deliberation by, or
even a meeting of, the Board or its Governance and Nominating Committee. The
Amended Complaint further alleges that internal communications confirm that Mr.
Hewitt's appointment on January 11, 2008 was in direct response to a call for
action by James E. Sigmon, the Company's Chairman and CEO, on December 18, 2007
- - a few weeks after Third Point filed its Schedule 13D announcing its intent to
nominate a slate of directors to replace half of the Board at the 2008 Annual
Meeting and warning the Board not to deprive shareholders of the important
opportunity to elect three of the Board's six members.
The Amended Complaint also alleges that, contrary to the misleading
impression created by the Company's January 14 Press Release that the search for
Mr. Hewitt was a deliberative process, internal communications reveal that the
search for Mr. Hewitt was not a search at all, but a mad dash to add a seventh
director and that the Company's January 14 Press Release was designed to cover
up the Board's astonishing lack of care as well as the true purpose in
appointing Mr. Hewitt,
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namely, to ensure that Third Point and the Company's other shareholders could
only elect a minority of the Board at the 2008 Annual Meeting. Third Point
believes that the newly discovered evidence further underscores its allegation
that the Board appointed Mr. Hewitt in direct response to Third Point's original
13D and to dilute the potential influence of directors nominated by Third Point.
The description of the Amended Complaint contained herein is qualified by
reference to the Amended Verified Complaint, a copy of the public version of
which is filed herewith as Exhibit 99.4 and incorporated herein by reference in
its entirety.
* * *
In connection with their intended proxy solicitation, Third Point LLC and
certain of its affiliates intend to file a proxy statement with the Securities
and Exchange Commission (the "SEC") to solicit stockholders of the Company.
THIRD POINT LLC STRONGLY ADVISES ALL STOCKHOLDERS OF THE COMPANY TO READ THE
PROXY STATEMENT WHEN IT BECOMES AVAILABLE BECAUSE IT WILL CONTAIN IMPORTANT
INFORMATION, INCLUDING INFORMATION RELATING TO THE PARTICIPANTS IN ANY SUCH
PROXY SOLICITATION. SUCH PROXY STATEMENT, WHEN FILED, AND ANY OTHER RELEVANT
DOCUMENTS WILL BE AVAILABLE AT NO CHARGE ON THE SEC'S WEBSITE AT
HTTP://WWW.SEC.GOV.
THIRD POINT PARTICIPANT INFORMATION
In accordance with Rule 14a-12(a)(1)(i) of the Securities Exchange Act of 1934,
as amended, the following persons are anticipated to be, or may be deemed to be,
participants in any such proxy solicitation by Third Point LLC: Third Point LLC,
Daniel S. Loeb, Third Point Offshore Fund, Ltd., Third Point Ultra Ltd., Third
Point Partners LP, Third Point Partners Qualified LP and Lyxor/Third Point Fund
Limited, Jacob Roorda, Todd Q. Swanson and Anthony Tripodo. Certain of these
persons hold direct or indirect interests as follows: Third Point LLC may be
deemed to beneficially own 2,820,000 shares of Common Stock; Mr. Loeb may be
deemed to beneficially own 2,820,000 shares of Common Stock; Third Point
Offshore Fund, Ltd. may be deemed to beneficially own 1,459,500 shares of Common
Stock; Third Point Ultra Ltd. may be deemed to beneficially own 514,500 shares
of Common Stock; Third Point Partners LP may be deemed to beneficially own
239,800 shares of Common Stock; Third Point Partners Qualified LP may be deemed
to beneficially own 398,100 shares of Common Stock; Lyxor/Third Point Fund
Limited may be deemed to beneficially own 208,100 shares of Common Stock; and
Mr. Roorda, Mr. Swanson and Mr. Tripodo each have an interest in being nominated
and elected as a director of the Company.
Item 6. Contracts, Arrangements, Understandings or Relationships With Respect to
Securities of the Issuer.
Item 6 of the Schedule 13D is hereby amended by adding the following
thereto:
On January 23, 24 and 25, 2008, the Funds entered into standardized,
cash-settled swap agreements with UBS Securities LLC, as counterparty, for which
the Common Stock is the reference security. These agreements cover,
respectively, 150,000, 50,000 and 100,000 notional
5
shares and use reference prices of $11.77, $11.96 and $12.15, respectively.
Under each swap agreement, the Funds have taken the "long" side of the swap and
therefore are entitled to the economic benefits, and are subject to the economic
risks, of owning the Common Stock, but have no rights or powers with respect to
any shares of Common Stock as a result of those agreements. Neither the
Management Company, Mr. Loeb nor any of the Funds is the beneficial owner of any
shares of Common Stock as a result of the swap agreements described above, and,
accordingly, the number of shares of Common Stock stated as beneficially owned
by the Reporting Persons in this Schedule 13D does not include any ownership as
a result of such swap agreements. The swap agreements terminate on January 27,
2011, January 27, 2011 and January 28, 2011, respectively, or upon the written
notice of either party.
Item 7. Material to be Filed as Exhibits.
99.4 Copy of the Amended Verified Complaint for Declaratory and Injunctive
Relief filed in the Court of Chancery of the State of Delaware on
February 25, 2008, with exhibits (as redacted).
99.5 Power of Attorney granted by Daniel S. Loeb in favor of Zachary Snow,
Keith Waller, and Bruce Wilson, dated February 11, 2008.
[Signatures on following page]
6
SIGNATURES
After reasonable inquiry and to the best of our knowledge and belief,
the undersigned certify that the information set forth in this statement is
true, complete and correct.
Dated: February 27, 2008
THIRD POINT LLC
By: Daniel S. Loeb, Chief Executive Officer
By: /s/ Keith Waller
--------------------------------------------
Name: Keith Waller
Title: Attorney-in-Fact
DANIEL S. LOEB
By: /s/ Keith Waller
--------------------------------------------
Name: Keith Waller
Title: Attorney-in-Fact
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO SCHEDULE 13D
WITH RESPECT TO TXCO RESOURCES INC.]
Exhibit 99.4
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
)
THIRD POINT LLC, THIRD POINT OFFSHORE FUND, LTD., THIRD )
POINT PARTNERS LP, THIRD POINT ULTRA LTD., LYXOR/THIRD )
POINT FUND LTD., and THIRD POINT PARTNERS )
QUALIFIED LP, )
)
Plaintiffs, )
)
v. )
)
TXCO RESOURCES, INC., JAMES E. SIGMON, ALAN L. EDGAR, )
DENNIS B. FITZPATRICK, JON MICHAEL MUCKLEROY, MICHAEL J. )
PINT, ROBERT L. FOREE, JR., and JAMES L. HEWITT, )
)
Defendants. ) C.A. No. 3489-VCL )
)
)
)
VERIFIED AMENDED COMPLAINT FOR
------------------------------
DECLARATORY AND INJUNCTIVE RELIEF
---------------------------------
NATURE OF THE ACTION
1. This action is commenced pursuant to 8 Del. C. ss. 225 by Third Point
LLC, Third Point Offshore Fund, Ltd., Third Point Partners LP, Third Point Ultra
Ltd., Lyxor/Third Point Fund Ltd., and Third Point Partners Qualified LP
(collectively, "Third Point"), which collectively own and control over 8% of the
outstanding common stock of TXCO Resources, Inc. ("TXCO" or the "Company").
Third Point seeks to nullify TXCO's January 11, 2008 appointment of a director,
James L. Hewitt, to the TXCO board because it is the product of a breach of
fiduciary duty and is designed to, and will, interfere with the stockholder vote
in connection with the upcoming election of directors at the Company's annual
meeting, currently scheduled for May 9, 2008.
THIS DOCUMENT IS CONFIDENTIAL AND FILED UNDER SEAL. REVIEW AND ACCESS TO THIS
DOCUMENT IS PROHIBITED EXCEPT BY PRIOR COURT ORDER.
2. On November 28, 2007, Third Point announced that it intended to run a
slate of three directors at TXCO's 2008 annual meeting. Just weeks after Third
Point's announcement, Defendants disclosed that they had conducted a "year-long"
search and finally filled a "vacancy" on the board of directors with defendant
James L. Hewitt. The practical impact of Defendants' conduct, if allowed to
stand, will be to increase the size of the TXCO board from six to seven members.
This will impede Third Point's efforts to seek three out of six seats on TXCO's
board and the valuable opportunity for TXCO's stockholders to elect directors
who would constitute 50% of the board.
3. Recently discovered internal communications between TXCO board members
graphically reveal that Hewitt's appointment was a direct response to Third
Point's Schedule 13D. In a memorandum dated December 18, 2007, Defendant Sigmon,
TXCO's Chairman and CEO, pointedly asked his fellow directors to recruit a
seventh director ASAP in order to preclude Third Point from seeking three out of
six seats on the TXCO board:
We have talked about appointing another director since Steve Gose
resigned in December of last year. None of us has felt an urgency
to replace Steve and have gone about searching for his
replacement in an unhurried manner. As you know, we were about to
vote on Jim McBride when Third Point's filing made him rethink
his commitment leaving us back at square one.
It is the same Third Point filing that is the reason for my letter
today. If Third Point follows through with the plan of action
that they stated in the 13-d filling[sic], we will be in for a
proxy fight that we may well lose. . . * * *
In short, I do not think that Third Point's slate of directors
(whoever they are) would be doing anything differently than what
we are doing now. So the only real reason for their continuing on
this process is because we have 3 directors and one-half of the
current board up for election. It is simply an opportunity that
does not come up very often. This opportunity might not look so
attractive if we had 4 directors to their 3 even if they win the
proxy
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fight. They might be inclined to back-off if they knew they
could not control the board for at least another year.
Consequently, I believe it is imperative that we find another
director ASAP. Each of you is [sic] contact with men that would be
excellent board members. I strongly encourage each of you to
submit a name of someone who you think would be a good board
member. It will take time to go through the process of selecting
a board member so we need to start now! I have enclosed a copy of
a couple of the reports from analysts who cover TXCO to help you
in your recruiting efforts.
I pray that each of you will have a Merry Christmas and Happy New
Year. When we start the new year, I hope that we have a stack of
candidates to sort through. With your help, we can.
(A copy of Sigmon's December 18, 2007 memorandum is attached as
Exhibit A)
4. It did not take long for TXCO's directors to respond to Sigmon's call to
action. According to a December 20, 2007 e-mail authored by Sigmon, "Mike
Muckleroy responded very quickly to my call for nominations for a new director
to fill Steve's spot" and, by January 4, 2008, Sigmon recommended that members
of TXCO's Governance and Nominating Committee reach out to Hewitt, who was
described as a "long-time friend of Mike's [defendant Muckleroy]." On January 9,
2008, defendant Edgar reported to Sigmon that he had "a good chat with Jimmie
Hewitt" and that he would "e-mail Dennis [defendant Fitzpatrick], Bob [defendant
Foree] and Michael Pint and give them an update and push for a recommendation
for the board." In a January 9, 2008 e-mail, Defendant Edgar told defendants
Fitzpatrick, Foree and Pint (who are members of the governance and nomination
committee): "I think it is imperative to move along with our new board member
placement process, asap." The next morning, January 10, 2008, Edgar emailed
defendant Foree (the Chairman of the Governance and Nominating Committee)
asking, "Where are you this week? We need to get moving on the open TXCO board
slot and would like to have a meeting in order to make a recommendation to the
TXCO board."
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Later on January 10, Foree spoke by telephone with Hewitt and was ready to
approve his appointment to the TXCO board; and just minutes later defendant Pint
concluded, based upon his conversation with Foree, that "Jim Hewitt looks fine
to me. You have my vote. After all he is a banker." Neither the committee nor
the board met even once to discuss, or deliberate over, the appointment of
Hewitt. Instead, a draft unanimous consent appointing Hewitt was circulated by
TXCO's general counsel on the afternoon of January 10 and, by lunchtime on
January 11, it had been quickly executed by the entire board. An undoubtedly
relieved Sigmon emailed his fellow board members at 12:24 pm on January 11:
"Thank each of you again for your quick response to this item." It is hard to
imagine a more desultory and superficial process and a more brazen attempt to
expand a board for an improper purpose.
5. In their zeal to preclude Third Point from seeking to replace half of
the TXCO board, certain directors even reached out to Stephen M. Gose, the
director who had resigned in December 2006 to see if he would be willing to
rejoin the board as a seventh director, but it appears that Gose had pledged his
stock and rejoining the TXCO board would have been personally financially
detrimental. The frantic rush to appoint Hewitt after Third Point had surfaced
is in marked contrast to the leisurely and unhurried review of a potential
candidate, James McBride, which had taken many months -- between May 2007 and
December 2007. Although discovery is ongoing, McBride purportedly withdrew as a
potential candidate once Third Point filed its Schedule 13D. At that point, all
semblance of procedure and process disappeared as the TXCO board reacted to
Sigmon's call to action to find a director who would provide the critical
seventh vote if Third Point won three seats at the 2008 annual stockholder
meeting. Whatever purpose and motivation the TXCO board had prior to November
28, 2007, once Third Point filed its Schedule 13D, the TXCO board's primary
purpose in appointing
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Hewitt was to ensure that Third Point and TXCO's stockholders could only elect a
minority of the board at the upcoming stockholders meeting.
6. TXCO's six-member board of directors is divided into three classes.
Three seats (for the directors serving in Class A) are up for election in 2008,
one seat (for the sole director serving in Class B) is up for election in 2009,
and two seats (for the directors serving in Class C) are up for election in
2010.
7. On November 28, 2007, Third Point LLC announced that it intends to run a
slate of three nominees for the Class A seats up for election at TXCO's 2008
annual stockholder meeting. If successfully elected, Third Point's nominees will
comprise half of the six-member board. In a Schedule 13D announcing its intent
to run a slate, Third Point made clear that:
Because half of the Board is to be elected at the 2008
Annual Meeting, [Third Point] believe[s] that the 2008
Annual Meeting presents the Company's shareholders with a
timely and exceedingly important opportunity to ensure that
the Company effectively capitalizes on the value of its
development opportunities while properly identifying and
managing the risks associated with those ventures.
The Schedule 13D also disclosed the following:
The Reporting Persons caution the Board not to take any
steps to eliminate the shareholders' opportunity to elect
half of the Board at the 2008 Annual Meeting and warn that
if any such steps are taken the Reporting Persons will seek
to hold the Board to account.
8. TXCO and its board did not heed Third Point's caution. As shown above,
the TXCO board acted without proper process or due care, and responded to Third
Point's Schedule 13D filing by, inter alia, frantically searching for a
candidate and then rushing to appoint Hewitt to increase the size of the board
to seven members. The Company's January 14,
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2008 press release ("January 14 Press Release," attached hereto as Exhibit B)
disclosed that Hewitt was "filling a vacancy created by the retirement of
Stephen M. Gose Jr." Mr. Gose - the Company's former chairman - had retired more
than thirteen months before, in December 2006. The January 14 Press Release
further indicated that Hewitt's term would expire at the annual meeting of
stockholders in 2009 and quoted defendant James E. Sigmon, TXCO's Chairman,
President and CEO: "We have sought out a board member with extensive financial
experience, which will be a vital asset to the Company as TXCO continues to grow
and develop."
9. TXCO's January 14, 2008 announcement that, in effect, a "seventh slot"
on the TXCO board existed and had been filled is flatly inconsistent with the
Company's own 2007 proxy disclosures, months after Mr. Gose's resignation from
the board, that the board had fixed the number of directors at six. The April
10, 2007 proxy statement disseminated in connection with TXCO's May 2007 Annual
Meeting unambiguously stated: "Our Amended and Restated Bylaws authorize our
Board of Directors to fix the number of directors at a number no less than one
and no more than 10. Our Board of Directors presently consists of six members,
with three directors serving in Class A, one director serving in Class B, and
two directors serving in Class C. The number of directors has been fixed at six
in connection with the [2007] Meeting." (TXCO Proxy Statement dated April 10,
2007 ("2007 Proxy Statement") at page 2; emphasis added)
10. At no point during 2007 did the Company make any public disclosure that
the number of directors was fixed at a number other than six. Nor did the
Company make any disclosures concerning a purported "vacancy" created by the
December 2006 retirement of a director, or the efforts being made (if any) to
fill the purported vacancy. Only after being notified, on November 28, 2007,
that Third Point intended to run a slate of three directors for the
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six-member board did TXCO suddenly announce that the board had "sought out a
board member with extensive financial experience" and that a "vacancy" on a
purported seven-member board had been filled by defendant Hewitt.
11. TXCO's January 14 Press Release did not disclose that the TXCO board's
size had been reduced to six in connection with the 2007 annual meeting and that
there was, in fact, no "vacancy" to be filled. The January 14 Press Release and
the accompanying Form 8-K filing were designed to create the misleading
impression that Hewitt's appointment was unconnected to Third Point's
announcement that it intended to wage a proxy contest to replace half of the
TXCO board. As the internal communications between TXCO's board members
unequivocally demonstrate, and contrary to the false and misleading impression
created by the January 14 Press Release, Hewitt's appointment was a direct
response to Third Point's efforts to gain three out of six seats on the TXCO
board. Although the January 14 Press Release stated that Hewitt was "filling a
vacancy" created by the resignation of Mr. Gose, that vacancy had, in fact, been
eliminated in April 2007 when the board reduced the size of the board to six
members.
12. The Form 8-K accompanying the January 14 Press Release stated that the
Company had embarked on a "year-long" search which resulted in the January 2008
appointment of Hewitt. This statement was a further attempt to give stockholders
the impression that Hewitt was filling a void left by the December 2006
resignation of Mr. Gose. Hewitt - who was touted as "a board member with
extensive financial experience" - was not filling a "void" created by Mr. Gose,
who was a geologist by training. Yet further doubt regarding the TXCO board's
true reasons for appointing Hewitt is raised once Hewitt's "extensive financial
experience" is compared to the very significant financial experience of the
existing TXCO board members, three of whom collectively have decades of
extensive financial and banking experience. Two
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directors qualify as audit committee financial experts under governing SEC
rules. One (director Pint) is a former state banking commissioner and former CFO
of the Federal Reserve Bank of Minnesota and has held the office of chairman,
president and director of 40 different banks and bank holding companies
throughout the country. Another (director Fitzpatrick) is a chartered financial
analyst and the president of an investment management firm. Still another
(director Edgar) has held senior positions at nationally-recognized investment
banks and has been involved in energy-related investment banking and equity
analysis for 25 years. The January 14 Press Release failed to explain why the
six-member TXCO board needed Hewitt's commercial banking experience and how
Hewitt's experience was materially or substantively different from those of
existing board members.
13. The TXCO board's appointment of Hewitt to fill a purported vacancy is
little more than an attempt to increase the size of the board from six to seven
members in the face of a challenge that would ask TXCO's stockholders to replace
half of the incumbent board. Defendants' conduct will frustrate and impede Third
Point's ability to wage an effective proxy contest and to replace half of the
TXCO board. If defendants' appointment of Hewitt to the board is allowed to
stand, Third Point will have lost the extremely valuable opportunity to gain a
50% representation on the board and instead be limited to seeking a minority
(three out of seven) position on the board. Such conduct will also preclude
TXCO's stockholders from voting for a slate that comprises half of the TXCO
board and who, if successfully elected, can exercise very meaningful influence
on TXCO's board. Defendants have offered no legitimate justification for such
conduct.
14. The TXCO board's conduct in filling a purported vacancy with defendant
Hewitt had no proper purpose. Rather, the TXCO board acted for the improper
purpose of
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obstructing the legitimate efforts of Third Point in the exercise of its rights
to undertake a proxy contest to replace half of the incumbent board and to
ensure that incumbent directors retain control of the board after the annual
meeting of stockholders. Such a purpose is clearly illegitimate and improper
under Delaware law.
BACKGROUND FACTS
The Plaintiffs
- --------------
15. Third Point LLC is a Delaware limited liability company and serves as
the investment manager or advisor to a variety of funds that directly own TXCO
common stock. Those funds - Plaintiffs Third Point Offshore Fund, Ltd., Third
Point Partners LP, Third Point Ultra Ltd., Lyxor/Third Point Fund Ltd., and
Third Point Partners Qualified LP ("Third Point Funds") - currently directly own
2,820,000 shares of TXCO common stock comprising approximately 8% of the
Company's outstanding voting power. The Schedule 13D disclosed that the Third
Point Funds had expended over $34 million of their own investment capital to
purchase the 2,750,000 shares reported as owned in the November 28, 2007
Schedule 13D filing. On January 18, 2008, various Third Point Funds purchased an
additional 70,000 shares of TXCO common stock. In addition, although it carries
no voting rights, Third Point has entered into a standardized equity swap
agreement with an institutional counterparty under which it has acquired the
economic benefits, and assumed the economic risks, of owning 1,130,000 shares of
TXCO common stock.
16. Third Point has informed the Company, in its Schedule 13D filed on
November 28, 2007, that it "believe[s] that the potential value in the Company's
existing development projects has not been adequately recognized in the market
price of the Common Stock" and that Third Point has "concerns about the
Company's ability to manage the opportunities presented by those projects given
what [Third Point] believe[s] to be
-9-
management's lack of development experience and technical expertise." The
Schedule 13D further states that "[a]s a result of these concerns, the Reporting
Persons intend to nominate at the 2008 annual meeting of the Company's
shareholders (the `2008 Annual Meeting') individuals who, if elected as
directors at the 2008 Annual Meeting, would constitute half of the Company's
board of directors." (Third Point Schedule 13D at page 4)
TXCO
- ----
17. Defendant TXCO is a Delaware Corporation with its principal place of
business in San Antonio, Texas. TXCO was formerly known as The Exploration
Company of Delaware, Inc. and is an independent oil and gas enterprise with
interests in the Maverick Basin, the onshore Gulf Coast region and the Marfa
Basin of Texas, and the Midcontinent region of western Oklahoma. According to
its most recent public filings, TXCO has 34,162,619 shares of common stock
outstanding, which trade on NASDAQ's Global Select Market under the "TXCO"
symbol.
18. Article Sixth of TXCO's Certificate of Incorporation broadly provides
that the terms of office for members of the TXCO board of directors shall be
divided into three classes - Class A, Class B and Class C - and directors in
those classes shall each serve as directors for staggered three-year terms.
Article Sixth of the Certificate further provides that vacancies shall, unless
otherwise required by law or by board resolution, "be filled only by a majority
vote of the directors then in office . . . and directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which they have been elected expires . . . ."
19. TXCO's Amended and Restated Bylaws (the "Bylaws") provide that the TXCO
board of directors "shall consist of no less than one (1) nor more than ten (10)
directors." Amended and Restated Bylaws, Art. III, ss. 2.
-10-
The Individual Defendants
- -------------------------
20. Defendant Michael J. Pint has served as a TXCO director since May 1997.
He is a Class C director, and his term expires in 2010. Mr. Pint has been a
member of the Audit Committee of TXCO's board since June 1997 and served as its
Chairman from April 1998 to May 2006. Mr. Pint also serves as an Audit Committee
Financial Expert, as defined by the SEC. According to the 2007 Proxy Statement,
Mr. Pint has more than 38 years banking experience, serving in the bank
regulatory arena as well as in the capacity of chairman, president and director
of 40 different banks and bank holding companies throughout the country.
Previous bank regulatory and management positions include a four-year term as
Commissioner of Banks of Minnesota and Chairman of the Minnesota Commerce
Commission and Senior Vice-President and Chief Financial Officer of the Federal
Reserve Bank of Minneapolis, Minnesota.
21. Defendant James E. Sigmon has served as the Company's President and
Chief Executive Officer since February 1985. Mr. Sigmon is a Class C director,
and his term expires in 2010. Mr. Sigmon, who has served as a director since
1984, was elected Chairman of the TXCO board in December 2006, following the
retirement of Stephen M. Gose, Jr.
22. Defendant Dennis B. Fitzpatrick was appointed to the TXCO board in
December 2005. Mr. Fitzpatrick is a Class A director, and his term expires in
2008. Mr. Fitzpatrick serves on the Audit and Governance and Nominating
Committees. Since May 2006 Mr. Fitzpatrick has served as Chairman of the Audit
Committee, and he, too, is an Audit Committee Financial Expert, as defined by
the SEC. Mr. Fitzpatrick has been the President and CEO of D.B. Fitzpatrick &
Co., Inc., an investment management firm based in Boise, Idaho, since 1984.
According to the 2007 Proxy Statement, Mr. Fitzpatrick is a chartered financial
analyst and holds a doctorate in finance and a bachelor's degree in applied
mathematics from the
-11-
University of Colorado. Prior to organizing D.B. Fitzpatrick & Co., Inc., Mr.
Fitzpatrick taught corporate finance and related courses at the University of
Idaho, Boise State University and the University of Colorado.
23. Defendant Jon Michael Muckleroy was appointed to the TXCO board of
directors in December 2005. Mr. Muckleroy is a Class A director, and his term
expires in 2008. Mr. Muckleroy serves on the Compensation, and Governance and
Nominating Committees. According to the 2007 Proxy Statement, Mr. Muckleroy has
managed a private oil and gas investment portfolio since retiring as Chairman
and CEO of Enron Liquid Fuels in 1993. Mr. Muckleroy received a bachelor's
degree in finance and marketing from Southern Methodist University and has been
employed in numerous executive positions in the energy industry.
24. Defendant Robert L. Foree, Jr. has served as a director since May 1997
and as a member of the Audit and Compensation Committees of the Board of
Directors since June 1997. Mr. Foree is a Class A director, and his term expires
in 2008. He has been a member of the Governance and Nominating Committee and
served as its Chairman since its inception in May 2001. According to the 2007
Proxy Statement, Mr. Foree has been active in the exploration and development of
oil and gas properties and currently serves as the President of a Dallas-based
private oil and gas exploration and production company.
25. Defendant Alan L. Edgar has served as a director since May 2000, and as
a member of the Compensation Committee of the Board of Directors from that time
until February 2004. Mr. Edgar is a Class B director, and his term expires in
2009. He also served as a member of the Audit Committee from May 2000 through
February 2004. According to the 2007 Proxy Statement, Mr. Edgar has been
involved in energy related investment banking and equity analysis for over 35
years. Since 1998, Mr. Edgar has served as President of a privately
-12-
held company specializing in exploration and production related mergers and
acquisitions advisory and financing. Mr. Edgar's previous energy investment
banking experience includes serving as Managing Director and Co-Head of the
Energy Group of Donaldson, Lufkin & Jenrette Securities, Inc. (Credit Suisse
First Boston), from 1990 to 1997, as Managing Director of the Energy Group of
Prudential-Bache Capital Funding from 1987 to 1990 and as Corporate and Research
Director of Schneider, Bernet & Hickman, Inc. (Thompson, McKinnon) from 1972
through 1986.
26. According to a Form 8-K filed by TXCO on January 14, 2008, James L.
Hewitt was elected by the TXCO board to serve as a director on January 11, 2008.
The January 14 Press Release states that the board elected and appointed Hewitt
to fill a purported vacancy created by the December 2006 retirement of Stephen
M. Gose, Jr. Mr. Gose was a Class B director, whose term would have expired in
2009. Thus, if properly elected to the TXCO board, Hewitt's term would expire in
2009.
The December 2006 Retirement of Stephen M. Gose, Jr.
- ----------------------------------------------------
27. On December 11, 2006 the Company announced that, on December 7, 2006,
the TXCO board of directors had received a notice of resignation from Stephen M.
Gose, Jr., a director and Chairman of the TXCO board. Mr. Gose, a geologist by
training, had served as Chairman of the TXCO board since 1984. James E. Sigmon
was elected by the board of directors to replace Mr. Gose as Chairman of the
TXCO board. The December 11, 2006 press release announcing Mr. Gose's retirement
stated: "Continuing on the board are Alan L. Edgar, Robert L. Foree Jr., Michael
J. Pint, Dennis B. Fitzpatrick and Jon Michael Muckleroy."
28. At no point in the thirteen months following the announcement of Mr.
Gose's retirement was there any disclosure to TXCO stockholders concerning any
alleged
-13-
"vacancy" on TXCO's board of directors created by Mr. Gose's resignation, or the
steps, if any, taken by the board to search for candidates to fill that
"vacancy."
The May 2007 Annual Meeting: The TXCO Board Fixes the Size of the Board At Six
Members.
- --------------------------------------------------------------------------------
29. The Company held its annual meeting of stockholders on May 11, 2007. In
connection with that meeting, the Company disseminated the 2007 Proxy Statement.
There was no hint in the 2007 Proxy Statement that the TXCO board actually
comprised seven members and that there was an unfilled vacancy created by the
retirement of Mr. Gose five months earlier. To the contrary, the 2007 Proxy
Statement (at page 2, emphasis added) makes it crystal clear that TXCO had a
six-person board, not a seven-person board with a vacancy:
Our Restated Certificate of Incorporation provides that the terms
of office of the members of our Board of Directors be divided
into three classes, Class A, Class B and Class C, the members of
which serve for staggered three-year terms. The terms of the
current Class A, Class B and Class C directors are set to expire
at the annual meeting of stockholders in 2008, 2009 and 2007,
respectively. Our Amended and Restated Bylaws authorize our Board
of Directors to fix the number of directors at a number no less
than one and no more than 10. Our Board of Directors presently
consists of six members, with three directors serving in Class A,
one director serving in Class B, and two directors serving in
Class C. The number of directors has been fixed at six in
connection with the [2007 Stockholder] Meeting.
-14-
Third Point Notifies the Company of Its Intention to Wage a Proxy Contest and
Seek 50% Representation on the Company's Board of Directors.
- -----------------------------------------------------------------------------
30. On November 28, 2007, Third Point LLC filed a Schedule 13D in which it
disclosed that it may be deemed to have beneficial ownership of 2,750,000 shares
of TXCO common stock, which comprised approximately 8% of the Company's
outstanding voting power. The Schedule 13D made it clear that Third Point
intends to nominate at the 2008 annual meeting three individuals to serve as
Class A directors and that, if elected, Third Point's nominees would comprise
three out of six members on the TXCO board of directors. The Schedule 13D also
expressed concern regarding the Company's ability to manage the opportunities
presented by its development projects and management's lack of development
experience and technical expertise. The Schedule 13D cautioned the TXCO board
"not to take any steps to eliminate the shareholders' opportunity to elect half
of the Board at the 2008 Annual Meeting" and warned that "if any such steps are
taken the Reporting Persons will seek to hold the Board to account."
TXCO Mobilizes and Responds to Third Point
- ------------------------------------------
31. On November 30, 2007, TXCO had a six-member board and the company was
facing a proxy contest that, in the words of Defendant Sigmon, they "may well
lose."
32. Defendants quickly responded to Third Point by hiring litigation
counsel within days of the Schedule 13D, and mounting a defensive campaign
against what Defendant Sigmon described in his December 18 memorandum as an
"attack" by Third Point. TXCO and its outside advisors did extensive research on
Third Point and its principal Dan Loeb. For example, TXCO representatives
contacted officers in other companies in which Third Point had taken activist
positions, such as Massey Energy and Pogo Producing Company. On December 5,
2007, TXCO's newly-hired litigation counsel furnished a memorandum to Sigmon and
to
-15-
TXCO's general counsel titled: "Corporate and Litigation Strategies in Response
to Actions of Daniel Loeb and Third Point, LLC."
33. Faced with the real prospect of three Third Point directors on a board
of six members, Defendants fast mounted a campaign to appoint a seventh director
in order to dilute Third Point's potential presence on the board. Certain
defendants even reached out to Stephen M. Gose -- who had retired a year earlier
- -- to determine whether he might be interested in rejoining the board to provide
the seventh slot (so much for the "financial experience" for which the TXCO
board was allegedly searching). As the December 18 memorandum confirms, TXCO's
Chairman and CEO was desperate and called his fellow board members to action,
requesting that they submit names of potential candidates. In response,
defendant Muckleroy identified his longtime friend James Hewitt and, within
days, and without any board or committee meetings to deliberate or discuss the
appointment, the TXCO board executed a unanimous consent approving Hewitt's
appointment to the TXCO board.
TXCO Suddenly Announces That It Has Filled the Purported Vacancy Created By the
13-Month Old Resignation of Stephen M. Gose, Jr.
- --------------------------------------------------------------------------------
34. On January 14, 2008, TXCO issued a press release stating that the TXCO
board of directors had elected and appointed Hewitt as an independent Class B
director "filling a vacancy created by the retirement of Stephen M. Gose, Jr. in
December 2006. Mr. Hewitt will complete Mr. Gose's term as a Class B director,
which extends until the Company's 2009 annual meeting." The January 14 Press
Release described Hewitt's financial qualifications and quoted defendant Sigmon
as follows: "Mr. Hewitt brings valuable expertise to the board . . . [w]e have
sought out a board member with extensive financial experience, which will be a
vital asset to the Company as TXCO continues to grow and develop."
-16-
35. The January 14 Press Release did not disclose, as the 2007 Proxy
Statement made clear, that the TXCO board only comprised six - not seven -
members. Indeed, if the 2007 Proxy Statement was truthful and accurate, there
was no "vacancy" to be filled. Rather, the TXCO board, in effect, created a new
directorship after Third Point had publicly announced its 8% ownership position
and intention to wage a proxy contest in which it would seek three board seats
on the six-member board. The practical effect of Hewitt's appointment, if
allowed to stand, is that the TXCO board now comprises seven members. Thus, at
most, Third Point will be able to seek, and TXCO's stockholders will be able to
elect, only three out of seven seats - a minority position - on the TXCO board
at the upcoming annual meeting of stockholders. Indeed, as Sigmon's December 18
memorandum made abundantly clear, defendants believed that expanding the board
to seven members might make Third Point "back-off if they knew they could not
control the board for at least another year."
36. The January 14 Press Release attempted to justify Hewitt's appointment
by creating the impression that he was being appointed to fill the vacancy
dating back to Mr. Gose's December 2006 retirement. By attempting to "relate
back" to Mr. Gose - through referring to a "vacancy" for which TXCO "sought out
a board member with extensive financial experience" - the TXCO board sought to
disguise its creation of a new directorship in the face of an election challenge
by stockholders. That Hewitt's appointment was made for an improper purpose is
confirmed by the fact - nowhere disclosed in the January 14 Press Release - that
the TXCO board already has three board members who have decades of significant
financial experience, and two already qualify as audit committee financial
experts under the SEC rules.
37. The January 14 Press Release is silent as to how Hewitt's "extensive
financial experience" for which the Company purportedly did a "year-long" search
differs
-17-
materially and substantively from that of the existing board of directors. Nor
did the January 14 Press Release disclose the circumstances surrounding the
expedited search for and appointment of Mr. Hewitt, namely, that he was a long
time friend of defendant Muckleroy, that he was identified in mid-December 2007
in response to a call for action by Sigmon, and that members of the Governance
and Nominating Committee did not even speak to Hewitt until a day or two before
his appointment to the TXCO board.
IRREPARABLE HARM
38. Third Point and TXCO's other stockholders will suffer irreparable harm
absent the injunctive and declaratory relief sought herein. TXCO's stockholders,
including Third Point, are entitled to know the composition of the TXCO board
prior to TXCO's annual meeting currently scheduled for May 9, 2008. It is
clearly material to TXCO's stockholders whether Third Point, one of TXCO's
single largest stockholders, is waging a proxy contest for 50% representation on
TXCO's board or a minority position. Absent a final judicial determination on
that point sufficiently prior to the May 9, 2008 stockholder meeting, Third
Point and TXCO's other stockholders face irreparable injury. Third Point and
TXCO's stockholders will also suffer irreparable harm because they will lose the
ability to replace half of the TXCO board of directors. In addition, every day
that defendant Hewitt occupies a position on the TXCO board that he has no
lawful right to occupy constitutes irreparable harm to stockholders.
COUNT I
(BREACH OF FIDUCIARY DUTY FOR INTERFERING WITH STOCKHOLDER FRANCHISE)
39. Plaintiffs repeat and reallege the allegations above as if fully set
forth herein.
-18-
40. Defendants owe fiduciary duties of loyalty, due care and good faith to
the stockholders of TXCO, including Third Point.
41. Defendants have breached their fiduciary duties because they are
engaged in a course of conduct which has impeded, and will continue to impede,
the effectiveness of the stockholder vote at the upcoming election of directors.
In response to a notification by a dissident stockholder that it intends to seek
to replace half of the incumbent board at the May 2008 annual stockholders
meeting, defendants in effect created, and then filled, a new directorship on
the TXCO board.
42. Defendants' conduct was an unreasonable and unjustifiable response to
Third Point's notification that it intended to wage a proxy contest to replace
half the TXCO board. The impact of defendants' wrongful conduct is to
immediately increase the size of the board from six to seven members and,
thereby, preclude Third Point from seeking to replace half of the seats on the
TXCO board at the upcoming contested election of directors. Defendants' conduct
is also preclusive because it will deprive TXCO's stockholders from voting in
favor of a slate that would comprise 50% of the TXCO board. Defendants' conduct
is also coercive because it, in effect, forces TXCO's stockholders to elect - at
most - a minority, rather than half, of the TXCO board.
43. Defendants' public explanation for appointing defendant Hewitt to the
TXCO board lacks credibility and is patently inadequate to discharge defendants'
burden of justifying the election and appointment of defendant Hewitt to the
TXCO board.
44. Plaintiffs have no adequate remedy at law.
-19-
COUNT II
(BREACH OF FIDUCIARY DUTY FOR MANIPULATION
OF THE CORPORATE MACHINERY)
45. Plaintiffs repeat and reallege the allegations above as if fully set
forth herein.
46. The Company's Restated and Amended Bylaws and Certificate of
Incorporation broadly allow directors to fill vacancies. However, a board of
directors cannot manipulate the corporate machinery for improper and/or
inequitable purposes.
47. Defendants' election and appointment of Hewitt to the TXCO board was
made for an improper and inequitable purpose, to wit, to interfere with the
rights of TXCO's stockholders to wage an effective proxy contest and gain
control over half of the TXCO board of directors.
48. In light of, inter alia, the conduct of the TXCO board in selecting and
appointing Hewitt, the timing of the TXCO board's conduct, the disclosures in
the 2007 Proxy Statement fixing the size of the TXCO board at six, and the
qualifications and experience of existing members of the TXCO board, there is
cogent and persuasive evidence -- supported by TXCO's internal memoranda and
e-mails -- that the TXCO board's conduct in creating a new directorship and then
filling it with defendant Hewitt had no legitimate or proper purpose. Rather,
the evidence suggests that defendants' conduct was primarily motivated by a
desire to interfere with (i) Third Point's effort to seek representation on half
of the TXCO board, (ii) the rights of TXCO's stockholders to elect directors
that would constitute half of the TXCO board of directors.
49. Defendants have no compelling justification for their conduct in
appointing Hewitt to the TXCO board.
50. Plaintiffs have no adequate remedy at law.
-20-
COUNT III
(BREACH OF FIDUCIARY DUTY OF LOYALTY AND GOOD FAITH)
51. Plaintiffs repeat and reallege the allegations above as if fully set
forth herein.
52. Defendants owe duties of loyalty and good faith to TXCO's stockholders,
including Third Point.
53. Defendants' conduct in appointing Hewitt to the board will have the
effect of thwarting Third Point's efforts to wage an effective proxy contest and
to seek half of the seats on the TXCO board. The evidence suggests that
defendants' primary purpose in appointing Hewitt to the TXCO board was also to
perpetuate control of the incumbent board. Defendants' conduct is preclusive
because it will deprive TXCO's stockholders from voting in favor of a slate that
will, if successful, constitute half the TXCO board. This is a valuable and
meaningful opportunity to influence management and direction of the Company.
Defendants' creation of a new directorship and filling it with Hewitt is also
coercive because it will force TXCO's stockholders (including Third Point) to
elect, at best, a minority position on the TXCO board.
54. Defendants' conduct violates the fiduciary duties of loyalty and good
faith.
55. Plaintiffs have no adequate remedy at law.
COUNT IV
(BREACH OF DUTY OF CARE)
56. Plaintiffs repeat and reallege the allegations above as if fully set
forth herein.
-21-
57. Within days of learning that Third Point had filed a Schedule 13D,
Defendants rushed to take action to ensure that Third Point and TXCO's
stockholders could, at most, elect only a minority of the TXCO board. The
members of the TXCO board acted without due care or deliberation and with
extreme haste in early January to appoint Hewitt to the TXCO board. In fact,
members of the Governance and Nominating Committee had little or minimal
substantive input into Hewitt's appointment, which was pushed by TXCO's
President and CEO in order to prevent loss in the upcoming proxy contest.
Neither the Governance and Nominating Committee nor the TXCO board formally met
to deliberate over Hewitt's appointment. It appears that the Chairman of the
Governance and Nominating Committee, Robert Foree, spoke to Hewitt for the first
time on the day before the TXCO board unanimously approved Hewitt's appointment.
The rush to appoint Hewitt was in stark contrast to its languid approach to
search for a new director over the prior year.
58. Plaintiffs have no adequate remedy at law.
COUNT V
(BREACH OF DUTY OF DISCLOSURE)
59. Plaintiffs repeat and reallege the allegations above as if fully set
forth herein.
60. The 2007 Proxy Statement represented that the TXCO board was comprised
of six, not seven, members. However, the January 14 Press Release, in effect,
states that TXCO board was comprised of seven, not six, members and that there
was an unfilled vacancy created by the retirement of Stephen M. Gose, Jr. in
December 2006.
61. Defendants' failure accurately to disclose, as the 2007 Proxy Statement
makes crystal clear, that the size of the TXCO board was, and is, fixed at six
directors rather than seven constitutes a failure to disclose a material fact.
-22-
62. Defendants' January 14 Press Release was designed to give the
misleading impression that Hewitt was appointed to fill a bona fide need for
financial experience on TXCO's board of directors. Defendants' publicly-stated
reasons for appointing Hewitt to the TXCO board were misleading and pretextual.
The January 14 Press Release misled stockholders because it suggested that the
search for Mr. Hewitt was a deliberative and careful search for a director with
financial experience whose addition to the board would fill a genuine need.
63. In fact, the search for Mr. Hewitt was precisely the opposite. As
Sigmon's December 18 memorandum and subsequent email correspondence between the
directors, make abundantly clear, Hewitt's appointment was the product of a
rushed and reckless process that occurred in just a few days in order to add a
seventh director to the TXCO board so as to defend against Third Point and
preclude it from running a slate that could constitute half of the TXCO board.
There was minimal substantive input by the Governance and Nominating Committee
and there was little or no deliberation by the TXCO board regarding Hewitt's
appointment. In these circumstances, the January 14 Press Release was flatly
misleading because it gave the impression that Hewitt's appointment was the
product of a "year-long" deliberative search, when it was not. Defendants'
failure to disclose the full circumstances surrounding the search for, and
appointment of, Hewitt and that the primary purpose of appointing defendant
Hewitt to the TXCO board was to impede Third Point from seeking half of the
seats on the TXCO board were failures to disclose material facts.
64. Defendants' January 14 Press Release also failed to disclose a number
of additional material facts. For example, Defendants failed to disclose that
several TXCO board members already have "extensive financial experience" that
was allegedly sought by the TXCO board in the search for Mr. Gose's successor.
Defendants also failed to explain how Hewitt's
-23-
financial experience is different from the substantial financial experience of
several other board members, and why the Company required such specific
financial experience from the successor to Mr. Gose (who himself was a
geologist). Defendants also failed to disclose any details regarding the alleged
search undertaken by the Company for Mr. Gose's successor except for a cryptic
comment in the Form 8-K accompanying the January 14 Press Release that the
search had been "year-long." The January 14 Press Release also failed to
disclose that certain defendants had, in mid-December, approached former
director Gose to see if he could rejoin the TXCO board. Gose obviously was not
the "financial expert" that defendants misleadingly disclosed that they had been
searching for. It is not surprising that defendants deliberately decided not to
disclose details of the "search" because disclosure would have revealed that the
"search" was not a search at all, but a mad dash to get any director, at
whatever cost, to create and fill a seventh slot. In short, the January 14 Press
Release was designed to cover up the defendants' astonishing lack of care as
well as the true purpose in appointing Hewitt, namely, to ensure that Third
Point and TXCO's shareholders could only elect a minority of the TXCO board at
the 2008 annual stockholders meeting.
65. Plaintiffs have no adequate remedy at law.
-24-
WHEREFORE, plaintiffs respectfully request that this Court enter Judgment
against defendants and in favor of plaintiffs, and that the Court issue an Order
and Judgment:
(a) Declaring that the TXCO board currently comprises of six directors,
namely, directors Pint (Class C), Sigmon (Class C), Fitzpatrick (Class
A), Muckleroy (Class A), Foree (Class A) and Edgar (Class B);
(b) Nullifying the appointment and election of James L. Hewitt to the TXCO
board of directors on or about January 11, 2008 and declaring that
such appointment and election was invalid, null and void and of no
legal effect;
(c) Declaring that defendants have violated their fiduciary duties to
plaintiffs and to TXCO's stockholders by their adoption of measures
that were intended to interfere with and impede the stockholder
franchise;
(d) Declaring that defendants have violated their fiduciary duties of
loyalty, good faith, due care and disclosure;
(e) Enjoining defendants from taking any action to seat James L. Hewitt as
a TXCO director;
(f) Requiring defendants to make prompt, corrective disclosures of
material facts;
(g) Enjoining defendants from amending TXCO's bylaws or altering the size
of TXCO's board of directors where such conduct would have the effect
of impeding or interfering with Third Point's efforts to seek to
replace half the TXCO board at the 2008 TXCO annual meeting of
stockholders;
(h) Enjoining defendants, preliminarily and permanently, from further
violating their fiduciary duties;
-25-
(i) Awarding plaintiffs the costs and disbursements of this action
together with reasonable attorneys' fees; and
(j) Awarding plaintiffs such other and further relief as the Court may
deem just and proper.
YOUNG CONAWAY STARGATT
& TAYLOR, LLP
/s/ C. Barr Flinn
-----------------------------------------
C. Barr Flinn (# 4092)
Danielle Gibbs (# 3698)
Kathaleen McCormick (# 4579)
The Brandywine Building
1000 West Street, 17th Floor
Wilmington, Delaware 19801
OF COUNSEL: (302) 571-6600
Attorneys for Plaintiffs
Tariq Mundiya, Esquire
Samuel M. Leaf, Esquire
Anna M Hershenberg, Esquire
WILLKIE FARR & GALLAGHER LLP
787 Seventh Avenue
New York, N.Y. 10019-6099, U.S.A.
Dated: February 25, 2008
EXHIBIT A
[TXCO Resources Logo]
December 18, 2007
TXCO Board Members
Gentlemen:
We have talked about appointing another director since Steve Gose resigned in
December of last year. None of us have has felt an urgency to replace Steve and
have gone about searching for his replacement in an unhurried manner. As you
know, we were about to vote on Jim McBride when Third Point's filing made him
rethink his commitment leaving us back at square one.
It is this same Third Point filing that is the reason for my letter today. If
Third Point follows through with the plan of action that they stated in the 13-d
filling, we will be in for a proxy fight that we may well lose. Today's
shareholder is looking only at a short time frame to get a return and commonly
takes the small, quick return over the larger, longer time frame return. Third
Point has a following among investors who see them as a catalyst to get the
quick return. Since our share volume was larger than normal after their
announcement, I would anticipate that a lot more investors of their type now own
our shares.
I am not sure that we really fit the mold of companies that these types of
investors typically attack. They commonly attack companies whose board has not
been sensitive to shareholder value. As you know, our board has been proactive
in seeking to increase shareholder value. Two years ago the board instituted a
search for "strategic alternatives" that included the potential sale of the
company. That process led to a doubling of the company's stock in the last two
years.
One type of company commonly attacked is one that has assets that can be sold
for a greater value than the market is giving them.
REDACTED
- 2- December 18, 2007
REDACTED
Another type of company that these investors commonly attack is one that is
obviously undervalued by the market and can be sold to another company at
significant premium.
REDACTED
In short, I do not think that Third Point's slate of directors (whoever they
are) would be doing anything differently than what we are doing now. So the only
reason for their continuing on this process is because we have 3 directors and
one-half of the current board up for election. It is simply an opportunity that
does not come up very often. This opportunity might not look so attractive if we
had 4 directors to their 3 even if they win the proxy fight. They might be
inclined to back-off if they knew they could not control the board for at least
another year.
Consequently, I believe it is imperative that we find another director ASAP.
Each of you is contact with men that would be excellent board members. I
strongly encourage each of you to submit a name of someone who you think would
be a good board member. It will take time to go through the process of selecting
a board member so we need to start now! I have enclosed a copy of a couple of
the reports from analysts who cover TXCO to help you in your recruiting efforts.
I pray that each of you will have a Merry Christmas and Happy New Year. When we
start the new year, I hope that we have a stack of candidates to sort through.
With your help, we can.
Sincerely,
/s/ James E. Sigmon
James E. Sigmon
Chairman, President & CEO
EXHIBIT B
EX-99.1 2 ex99.htm TXCO's 01/14/08 PRESS RELEASE RE BOARD APPT.
[TXCO Resources Logo]
Exhibit 99.1
------------
For Immediate Release Contact Information
Monday, January 14, 2008 Investors: Roberto R. Thomas
(210) 496-5300 ext. 214, bthomae@txco.com
Media: Paul Hart
(210) 496-5300 ext. 264, pdhart@txco.com
TXCO RESOURCES BOARD FILLS VACANT POSITION
SAN ANTONIO - January 14, 2008 - The Board of Directors of TXCO Resources
Inc. (Nasdaq:TXCO) today announced the election and appointment of James L.
Hewitt as an independent, Class B director, filling a vacancy created by the
retirement of Stephen M. Gose Jr. in December 2006. Mr. Hewittt will complete
Mr. Gose's term as a Class B director, which extends until the Company's 2009
annual meeting.
Mr. Hewitt, 66, of Orlando, Florida, has an extensive background in
finance, banking and business. He is Chairman, President and CEO of Hewitt
Financial Consulting Inc. of Orlando. In 2000, he formed United Heritage Bank of
Orlando and served as Chairman of the bank and its holding company until their
sale to Marshall & Ilsley Bank of Milwaukee, Wisconsin, in 2007. Earlier, the
was the founder and a principal owner of the Orlando Magic of the National
Basketball Association and founder and CEO of United American Holding Corp., a
bank holding company that merged with Colonial BankGroup of Montgomery, Alabama,
in 1998. He earned a finance and accounting degree from Florida State
University.
"Mr. Hewitt brings valuable expertise to the board", said Chairman,
President and CEO James E. Sigmon. "We have sought out a board member with
extensive financial experience, which will be a vital asset to the Company as
TXCO continues to grow and develop."
About TXCO Resources
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TXCO Resources, formerly The Exploration Company, is an independent oil and
gas enterprise with interests in the Maverick Basin, the onshore Gulf Coast
region and the Marfa Basin of Texas, and the Midcontinent region of western
Oklahoma. It has a consistent record of long-term growth in its proved oil and
gas reserves, leasehold acreage position, production and cash flow through its
established exploration and development programs. TXCO's business strategy is to
build shareholder value by acquiring undeveloped mineral interests and
internally developing a multi-year drilling inventory through the use of
advanced technologies, such as 3-D seismic and horizontal drilling. It accounts
for its oil and gas operations under the successful efforts method of accounting
and trades its common stock on Nasdaq's Global Select Market under the symbol
"TXCO."
More information about potential factors that could affect the Company's
operating and financial results is included in TXCO's annual report on Form 10-K
for the year ended Dec. 31, 2006, and its Form 10-Q for the period ended June
30, 2007. These and all previously filed documents are on file at the Securities
and Exchange Commission and can be viewed on TXCO's Web site at www.txco.com.
Copies are available without charge upon request from the Company.
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Exhibit 99.5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS THAT the undersigned hereby constitute and
appoint ZACHARY SNOW, KEITH WALLER and BRUCE WILSON and each of them severally,
as the true and lawful attorneys and agents of each of the undersigned, with
power to act with or without the others and with full power of substitution and
resubstitution, to execute in the name, place and stead of each of the
undersigned any statement or report, including any amendment to any statement or
report, required to be filed with respect to the undersigned (whether such
filing includes one or more or all of the undersigned) under Section 13 or
Section 16 of the United States Securities Exchange Act of 1934, as amended, and
any rules, regulations and requirements thereunder, including any forms or
statements required to be submitted in connection with any electronic filing, or
any statement or report, including any amendment to any statement or report,
required to be filed with respect to any of the undersigned under any comparable
laws, rules, regulations and requirements of any foreign jurisdiction, and to
file any of the same with the Securities and Exchange Commission and any other
appropriate U.S. and foreign regulatory authorities, said attorneys and agents
having full power and authority to do and perform in the name and on behalf of
any of the undersigned every act necessary to be done in the premises as fully
and as effectually as the undersigned might or could do in person; and each of
the undersigned hereby ratifies and confirms all that said attorneys and agents
shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents as of
February 11, 2008.
/s/ Daniel S. Loeb
------------------------------------------------
Daniel S. Loeb
THIRD POINT LLC
By: /s/ Daniel S. Loeb
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Name: Daniel S. Loeb
Title: Chief Executive Officer
THIRD POINT OFFSHORE FUND, LTD.
By: /s/ Daniel S. Loeb
-------------------------------------------
Name: Daniel S. Loeb
Title: Director
[Additional signatures on following page]
THIRD POINT PARTNERS LP
By: Third Point Advisors LLC, its General
Partner
By: /s/ Daniel S. Loeb
-------------------------------------------
Name: Daniel S. Loeb
Title: Managing Member
THIRD POINT PARTNERS QUALIFIED LP
By: Third Point Advisors LLC, its General
Partner
By: /s/ Daniel S. Loeb
-------------------------------------------
Name: Daniel S. Loeb
Title: Managing Member
THIRD POINT ULTRA LTD.
By: Third Point LLC, its Investment Manager
By: /s/ Daniel S. Loeb
-------------------------------------------
Name: Daniel S. Loeb
Title: Chief Executive Officer
LYXOR/THIRD POINT FUND LIMITED
By: Third Point LLC, its Investment Manager
By: /s/ Daniel S. Loeb
-------------------------------------------
Name: Daniel S. Loeb
Title: Chief Executive Officer
[Signatures to Power of Attorney]