Lone Star Value Issues Open Letter To Endeavour International Shareholders

Supports Change at Endeavour International

Announces Intention to Vote in Favor of Talisman Group's Director Nominee and Against the Company's Proposal on Executive Compensation and Incentive Plan

May 13, 2014, 09:00 ET from Lone Star Value Management, LLC

NEW YORK, May 13, 2014 /PRNewswire/ -- Lone Star Value Management, LLC (together with its affiliates and other participants in its solicitation, "Lone Star Value"), a significant shareholder of Endeavour International Corporation ("Endeavour" or the "Company") (NYSE: END), owning 1,050,000 shares of common stock and $7.5 million of convertible securities, today issued an open letter to Endeavour shareholders.  Lone Star Value stated its intention to vote in favor of the election of Jason Taubman Kalisman, a director nominee of Talisman Group Investments, L.L.C. and its affiliates, at the upcoming 2014 Annual Meeting of Endeavour's shareholders, against the Company's proposal on executive compensation and against the approval of the Company's 2014 Stock Incentive Plan.  The full text of the letter is included below:

May 13, 2014

Endeavour International shareholders:

Lone Star Value Management, LLC is a significant shareholder of Endeavour International Corporation ("Endeavour" or the "Company"), owning 1,050,000 shares of common stock and $7.5 million of convertible securities.  As you know, the Annual Meeting of Endeavour's shareholders is just nine days away on May 22, 2014.  At this meeting, a fellow shareholder, Talisman Group Investments, L.L.C. (together with its affiliates "Talisman Group"), is seeking to elect its director candidate to the Board of Directors of Endeavour (the "Board").

Lone Star Value is deeply disappointed with Endeavour's long history of poor performance and value destruction.  The weak results from Endeavour's first quarter, its recent dilutive equity offering, and the disappointing guidance for the second quarter are merely the most recent examples in a long-running stretch of disappointing news for Endeavour's long-suffering shareholders.  The stock market appears to agree with this view – Endeavour's stock price is down 57% year to date and down 35% in the month of May alone (based on the closing price of $2.24 on Friday, May 9th).  We believe Endeavour's management lacks the competence and accountability required for Endeavour to realize its full potential as a company and for us, the shareholders, to realize the full potential of our investment.  For these reasons, we strongly support the Talisman Group's efforts to improve the Board and we intend to vote in favor of the election of the Talisman Group's nominee, Jason Taubman Kalisman, at the Annual Meeting.

In our view, the Board and all Endeavour shareholders can significantly benefit from Mr. Kalisman's turnaround and capital market experience and from having shareholder representation on the Board.  Lone Star Value also fully agrees with the Talisman Group's position that Endeavour possesses significant upside potential of as much as $10 a share should the Company be competently run and its assets properly managed.  Operating delays and missteps, poor cash flow management, and an ineffective CEO and Board have, in our view, led to the current disappointing state of affairs.  Yet, rather than hold the CEO accountable, the current Board has generously awarded him with compensation that is not properly tied to Endeavour's performance.  As a result, we agree with the Talisman Group and the recommendation of Institutional Shareholders Services ("ISS"), a leading proxy advisory firm, and intend to vote our shares "against" the advisory vote on executive compensation.  As Chairman of the Compensation Committee, John Connally III's main responsibility is to design appropriate compensation – both set at the right levels and tied to the right metrics.  Mr. Connally is also the Company's Lead Director.  Fortunately, he is up for re-election this year and Endeavour's shareholders have an opportunity to have their voices heard by not re-electing him.  Not only would voting against Mr. Connally produce a new Board member, but it would also require Endeavour to select a new Chairman of its Compensation Committee and a new Lead Director, which would provide an opportunity for Endeavour to re-evaluate all the Company's compensation practices as well as the independence of its Board.

On the heels of the deeply disappointing quarterly results Endeavour reported last week, there are a number of serious open questions that we believe other shareholders should consider:

1.  What has this Board done to address the Company's poor operating results and have they ensured that shareholders have full and transparent disclosure of the state of Endeavour's operations?  We believe this Board and management have continuously over-promised and under-delivered and that this lack of transparency in the Company's disclosure leads us to question whether the Board is either uninformed on the Company's operations or deliberately misleading the market and shareholders.

For example, when did Endeavour's management know that the Rochelle field would be down in April and that Nexen would be favoring production volumes from a nearby field over production volumes at Rochelle?  Why was this not announced in March or April of this year given that Rochelle was already offline in January and February?

2. What has this Board done to address the Company's significant and sustained stock underperformance?  Endeavour's stock has performed terribly on a total return basis under current CEO Bill Transier versus the S&P 500, Russell 2000 Total Return, and S&P 500 Energy Indices:

Performance from 10/31/2006-5/9/2014:


Endeavor International




S&P 500 Index




Russell 2000 Index




S&P 500 Energy Index



Source: Bloomberg, total returns calculated from 10/31/2006-5/9/2014 closing price.

3. How has the Company's CEO, Bill Transier, deserved his $25.98 million of cumulative compensation for 2006-2013 and why should he be paid an additional $7.66 million should he be terminated without cause or should Endeavour experience a change in control?  Lone Star Value strongly disagrees with paying an underperforming executive officer 23% of the current market cap of the Company over a 7-year period in which the Company's share price has fallen from $16.17 to $2.24.  (Source: Bloomberg, closing prices on 10/31/2006 and 5/9/2014 used)

We also note that ISS has repeatedly expressed similar concerns with the CEO's executive compensation arrangement, stating: "Insufficient goal rigor has again resulted in pay-for-performance misalignment at the company, and the CEO's total pay increased while company's TSR continues to significantly underperform its GICS industry group and market index."– ISS 2013 Endeavour International Corporation Proxy Advisory

And further: "The company shifted to a full discretionary assessment of performance for bonus purposes, after citing extraordinary circumstances. The long-term incentive program raises several structural concerns as well: a substantial portion of the CEO's long-term awards insulates him from full exposure to stock price deterioration as each year's reward opportunity can be set at lower price hurdles, for example, and TSR-contingent awards do not preclude earnout during periods of negative TSR."– ISS 2014 Endeavour International Corporation Proxy Advisory

4.  How can we have any confidence that the Board is holding management accountable for its underperformance when the Company's Named Executive Officers are collectively being paid 7.7% of Endeavour's current market cap for 2013 ($8.78 million collectively among five executives)?  And which responsibilities and accomplishments of theirs have earned them this high compensation?  According to CEO Bill Transier:

"We don't operate the assets, nor do we control the infrastructure we produce through" – CEO Bill Transier, 5/8/2014 Endeavour earnings conference call 

5. How can the Board defend what we believe are indefensible corporate governance deficiencies, such as:

  • Combined CEO/Chairman role
  • High average Board compensation ($219k+)
  • Poor executive compensation structure that is not properly tied to operational performance
  • Material restrictions on the ability of shareholders to call special meetings
  • No shareholder right to act by written consent
  • Lack of independence on the Board (John Seitz serves as a non-independent member of the Nominating Committee of the Board in addition to being "overboarded" according to ISS standards which raises questions as to his ability to focus on Endeavour; in addition, Mr. Seitz serves on the Board of Gulf United Energy Inc. ("GLFE") whose Chairman and CEO is John Connally III; we would note that over the last 3 years, GLFE stock is down 99.8% and GLFE currently has an equity market value of $0.44 million)

6. Why has the Board not addressed ISS' serious and repeated concerns on corporate governance and CEO performance?  In light of its serious concerns, in 2013 ISS recommended that shareholders withhold their vote from the re-election of CEO Bill Transier to the Board and voiced serious concerns regarding the poor corporate governance practices at Endeavour: 

"ISS recommends WITHHOLD votes from the CEO, who is the only nominee up for election at the 2013 annual meeting for a material failure of governance. In January 2013, the board unilaterally amended the bylaws to remove shareholders' right to act by written consent and to introduce material restrictions to the exercise of the right to call special meetings. The board did not disclose a rationale for the amendments, nor has it put the amendments to the bylaws on the ballot for shareholder approval. The board's actions represent a significant impairment of shareholders' rights." – ISS 2013 Endeavour Corporation Proxy Advisory

And further: "ISS recommended WITHHOLD votes for Transier due to the unilateral amendment to the company's bylaws which diminished shareholder rights, and for the continued misalignment between pay and performance at the company."  - ISS 2014 Endeavour International Corporation Proxy Advisory

7. Can the current Board and management be trusted to reign in the high debt Endeavour carries, given its continued inability to improve the Company's performance and financial results? And can we as shareholders of Endeavour have confidence in the current leadership's abilities to restore our Company to profitability when the CEO, Mr. Transier, himself appears to have little confidence in his team's ability to execute such a turnaround, noting just recently:

"I'm not trying to be evasive but I'm not going to put some number out there that will disappoint again."  – CEO Bill Transier, 5/8/2014 Endeavour earnings conference call 

We believe it is simply too late with too much negative evidence for us to assume that Endeavour's behavior and performance will change without changing the personnel in the boardroom.  Lone Star Value believes that the addition of a shareholder representative to the Board is a critical first step towards an improved Board, renewed focus on accountability, and a better future for Endeavour.  Lone Star Value intends to vote its shares in favor of the election of Mr. Kalisman on the Board and against the approval of the Company's executive compensation or its 2014 Stock Incentive Plan.  We are voting for change.


Jeffrey E. Eberwein,

Lone Star Value Management

About Lone Star Value Management:

Lone Star Value Management, LLC ("Lone Star Value") is an investment firm that invests in undervalued securities and engages with its portfolio companies in a constructive way to help maximize value for all shareholders.  Lone Star Value was founded by Jeff Eberwein who was formerly a Portfolio Manager at Soros Fund Management and Viking Global Investors.  Lone Star Value is based in Old Greenwich, CT.

Investor contact: Jeffrey Eberwein (203) 542-7020

SOURCE Lone Star Value Management, LLC