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Lone Star Value Issues Open Letter To Endeavour International Shareholders

  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

PR Newswire

NEW YORK, May 13, 2014

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 9^th). 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:
END EQUITY           Endeavor International    -86%      Underperformance
SPX INDEX            S&P 500 Index             60%       -147%
RTY INDEX            Russell 2000 Index        60%       -146%
S5ENRS INDEX         S&P 500 Energy Index      86%       -173%
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:

    oCombined CEO/Chairman role
    oHigh average Board compensation ($219k+)
    oPoor executive compensation structure that is not properly tied to
      operational performance
    oMaterial restrictions on the ability of shareholders to call special
      meetings
    oNo shareholder right to act by written consent
    oLack 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.

Sincerely,

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
 
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