REASONS TO REJECT THE DISSIDENT GROUP CONSENT PROPOSALS
The Board Size Proposal, the Vacancy Proposal and the Election Proposal, taken together, are designed to enable Red Mountain to take control of the Board. The Bylaw Amendment Repeal Proposal is designed to remove a provision in the Bylaws that the Board recently adopted protecting you, as stockholders, from a large stockholder effectively controlling the stockholder decision making process without your or the Board’s consent to such stockholder exercising such power. If the Bylaw Amendment Repeal Proposal is adopted and the applicable bylaw amendment is repealed, all stockholders, including large stockholders, would have the ability to vote shares of common stock owned by them and have such votes tallied as they would be in any election, whether or not a large stockholder existed. This would mean, for instance, that a stockholder who accumulated just slightly more than 50% of the Company’s common stock would have the ability to single-handedly approve all matters that require a simple majority vote of stockholders, even though up to 49.9% of the stockholders might oppose that action. Even a stockholder who only accumulated 45% of the Company’s stock would only need to convince a few other stockholders to vote their shares alongside those of the 45% holder in order for the 45% holder to be able to effectively control the stockholder decision making process. The Bylaw Restoration Proposal is designed to nullify unspecified provisions of the Company’s Bylaws which may be adopted by the Board in its efforts to act in and protect the best interests of the Company and its stockholders. The Board believes you should reject the Dissident Group Consent Proposals for the following reasons:
The Dissident Group Consent Solicitation is an attempt to seize control of the Board from the directors who are acting in the best interests of Cross Border’s stockholders.
· The Board believes that the Dissident Group is attempting to pressure stockholders into making a rushed judgment about the future of Cross Border by soliciting written consents immediately in advance of the Company’s 2012 Annual Meeting. All of the current members of the Cross Border Board will be up for election at that time and the Board believes that ALL stockholders should have the opportunity to participate in the election of the full Board at that time. One of the primary purposes of an annual stockholders meeting is to provide a forum for open discourse among stockholders, the board and management as to the future direction of the Company. Stockholders will have an opportunity to voice any concerns they may have regarding the Company’s present direction and leadership, and other stockholders, members of the Board and management will have an opportunity to respond. Following that discourse, stockholders will have an opportunity, considering in part the information they gather from the dialogue at the Annual Meeting, to vote on the matters subject to vote at the Annual Meeting, including the election of directors.
Please be advised, however, that while the Company will not seek to prohibit any proxy solicitation conducted by the Dissident Group at the 2012 Annual Meeting, the Company will enforce the amendments to the Bylaws adopted on November 14, 2011 which added a new Article XIII, “Acquisition of a Controlling Interest.” The amendments (the “Control Share Amendments”) generally provide that any person or associated group of persons who acquire 30% or more of the outstanding Common Stock of Cross Border (a “controlling interest”) obtains only such voting rights with respect to any shares of Common Stock such person(s) acquired after acquiring a controlling interest and any shares of Common Stock acquired within 90 days immediately preceding the date when such person(s) acquired a controlling interest as are conferred by a resolution of the stockholders of Cross Border approved by the holders of a majority of the voting power of Cross Border, excluding certain shares of the acquirer and any person that has agreed to act in concert with the acquirer with respect to the Common Stock of Cross Border.
The Board believes that the solicitation of proxies by the Dissident Group for the Company’s 2012 Annual Meeting, in and of itself, will result in RMR and Black Rock being deemed “Acquiring Persons” under the “Acquisition of a Controlling Interest” provision in the Company’s Bylaws thereby restricting the voting rights of all shares acquired or controlled by RMR and Black Rock after or within the 90 days immediately preceding the date they became “Acquiring Persons.” The Board believes that, in the event a stockholder delivers a proxy to RMR and Black Rock in connection with the 2012 Annual Meeting, that stockholder becomes “associated” with RMR and Black Rock for the purposes of exercising voting rights. In light of such stockholder becoming “associated” with RMR and Black Rock for such purpose, to the extent that such stockholder’s proxy, together with all other proxies granted by other stockholders, would cause RMR and Black Rock to possess voting rights with respect to 30% or more of the outstanding common stock of Cross Border, the Company believes that the Control Share Amendments operate to restrict the voting rights of such stockholder’s shares with respect to any proposals or director nominees the Dissident Group puts forth at the Company’s 2012 Annual Meeting unless and until such voting rights are granted by the holders of a majority of the Common Stock not included in the “association.” The Company believes that as a result of the Control Share Amendments, any stockholder whose shares would have been subject to restricted voting rights based upon their delivery of a proxy to RMR and Black Rock will only be able to vote in favor of any proposals or director nominees that the Dissident Group puts forward at the 2012 Annual Meeting by actually attending the 2012 Annual Meeting in person. As described in further detail below under “Background,” the applicability of the Control Share Amendments to the solicitation of proxies by RMR and Black Rock is currently the subject of litigation in the State of Nevada.
· A consent in favor of the Dissident Group Consent Proposals would be a consent to reconstitute the Board such that your duly elected directors will no longer represent a majority of the members of the Board. Instead, the Dissident Nominees would comprise a majority of the Board and would effectively have the power to control all decisions of the Board.
· The existing Board has a strong track record of acting in the best interests of Cross Border’s stockholders. A majority of the members of the Board are independent and disinterested directors who are committed to enhancing value for all of the Company’s stockholders.
· Red Mountain is neither providing other stockholders with a control premium nor a clear and defined path to realizing value for their investment in the Company. The Board believes that it is not in the best interest of all stockholders to turn over control of the Company to any individual stockholder or group of stockholders. We want to emphasize that your Board is firmly committed to acting in the best interests of the Company and all its stockholders.
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· From the Board’s perspective, the Dissident Group’s Consent Solicitation Statement provides no indication as to how the Dissident Nominees would operate the Company different from the current Board. It is possible that the Dissident Group’s intent is to effect a change in the composition of the Board with an aim to, subject to the Dissident Nominees’ fiduciary duties under Nevada law, facilitate a sale of the Company or its assets (in whole or in part) to RMR on terms favorable to RMR. Your Board believes you have a right to be advised of RMR’s ultimate intentions with respect to its proposed changes to the Board and the strategic direction of the Company before RMR asks you to consent to a change in the composition of the Board.
· Prior to RMR first filing a preliminary version of its Consent Solicitation Statement with the SEC, RMR had never provided the Company with any nominations for directors, proposals for stockholder resolutions or suggestions for business combinations. Had RMR approached the Company with constructive proposals prior to waging a consent solicitation, the Company would have gladly engaged in productive discussions with RMR.
· The solicitation itself is consuming time and resources that would be better spent on improving the Company’s business and strategic position, thereby undermining the Company’s implementation of its goal of maximizing stockholder value. With that goal in mind, the Board has been engaged in an evaluation of numerous strategic alternatives including capital raising and other financing opportunities, asset divestitures, joint ventures and/or a corporate sale, merger or other business combination.
The Dissident Nominees have conflicts of interest and are not in a position to best serve the interests of the Company’s stockholders.
· The Dissident Group would like you to believe that the Dissident Nominees, if elected, would be able to oversee the Company’s business and pursue the best interests of the Company’s stockholders free from conflicts of interest. However, the Board believes that the Company’s stockholders should have serious concerns that the Dissident Nominees would have substantial conflicts of interest and would not be in a position to independently evaluate the Company’s business and undertake a review of all of the Company’s strategic options.
· Five of the six Dissident Nominees are current officers or directors of RMR. In addition, both Cross Border and RMR are engaged in the business of oil and gas exploration. While if elected to the Board, the Dissident Nominees would be subject to their fiduciary duties under Nevada law, given the tremendous overlap between Cross Border’s and RMR’s lines of business, your Board believes you should have significant concerns regarding the Dissident Nominees’ ability to effectively govern both Cross Border and RMR concurrently, and have access to confidential information of both companies, without conflicts of interests or divided loyalties.
· Your Board has always acted with integrity, and believes that integrity is an essential condition to Board membership. With that in mind, your Board believes that you should have significant concerns relating to the disclosure in the Dissident Group’s Consent Solicitation Statement regarding certain allegations made by the National Association of Securities Dealers, Inc. (“NASD”) against Alan W. Barksdale. According to the Dissident Group, in 2004 the NASD alleged that Mr. Barksdale solicited an attorney to make contributions to officials of an issuer with which Stephens Inc. was engaging in municipal securities business. Mr. Barksdale was an investment banker of Stephens at the time. Without admitting or denying the allegations, Mr. Barksdale entered into an acceptance, waiver and consent decree that provided for a 30-day suspension from associating with any NASD member and a $5,000 fine.
Cross Border has already addressed, or is in the process of addressing, the core business and governance concerns communicated by RMR.
· The Dissident Group’s complaint about the lack of a recent annual meeting of the Company’s stockholders is moot. The Company has already scheduled the date for its 2012 annual meeting of stockholders for May 9, 2012. At that meeting, all of the current members of the Board will be up for election. While the Dissident Group’s complaint regarding holding of annual meetings may relate to the Company’s predecessor, the Company was formed in January, 2011 with a shareholder vote, and in the Board’s view, May, 2012 is a very reasonable timeframe for the Company’s first annual meeting as it will be a reasonable period of time after the Company’s first annual audit is completed. The Dissident Group is forcing the Company to waste valuable time and financial resources fighting a consent solicitation when the Dissident Group, as well as ALL other stockholders of the Company, will have an opportunity to voice their concerns at the ballot box at the Company’s 2012 annual meeting.
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· The Board is committed to enhancing stockholder value by exploring all strategic options available to the Company. The Company entered into a letter of intent relating to a potential merger with American Standard Energy Corp. (“American Standard”) in furtherance of that goal. Ultimately the Company determined that it would not be in the Company’s or its stockholders’ best interests to consummate a merger with American Standard at this time, and the Company broke off discussions with American Standard prior to entering into a binding agreement to consummate a transaction. The Board believes it acted in the Company’s and the stockholders’ best interests in pursuing what appeared to be a promising opportunity, and similarly acted in the Company’s and the stockholders’ best interests when, after further investigation and due diligence, it determined that a merger with American Standard would not be beneficial to stockholders at this time. The Dissident Group apparently concurs with the Board’s ultimate decision to not pursue the American Standard transaction, and is apparently upset with the Company’s determination to even consider a potential value enhancing proposition in the first place.
· Cross Border has executed its business strategy in its first year as a public company to increase reserves, production and cash flow. To facilitate this, the Company raised private capital, a strategy that was embraced by the Dissident Group as evidenced by its participation in the capital raise. In 2012, the Company plans to raise capital to support the numerous low to moderate risk drilling and workover oil opportunities that have been identified and already proposed by many of the Company’s operating partners. The Company believes that successful execution of this strategy will further add value to the Company and its stockholders. However, the Company remains attentive to alternative strategic opportunities such as a merger with, or acquisition of, another company or companies, including with members of the Dissident Group.
The Dissident Group Consent Solicitation is an attempt to disenfranchise Cross Border’s stockholders with respect to a recent voting right granted to them pursuant to a Bylaw amendment adopted by your Board.
· On November 14, 2011, your Board adopted the Control Share Amendments. The Control Share Amendments generally provide that any person or associated group of persons who acquire 30% or more of the outstanding Common Stock of Cross Border (a “controlling interest”) obtains only such voting rights with respect to any shares of Common Stock such person(s) acquired after acquiring a controlling interest and any shares of Common Stock acquired within 90 days immediately preceding the date when such person(s) acquired a controlling interest as are conferred by a resolution of the stockholders of Cross Border approved by the holders of a majority of the voting power of Cross Border, excluding certain shares of the acquirer and any person that has agreed to act in concert with the acquirer with respect to the Common Stock of Cross Border. The Board believes that the Dissident Group Consent Solicitation, in and of itself, results in RMR and Black Rock being deemed “Acquiring Persons” under the “Acquisition of a Controlling Interest” provision in the Company’s Bylaws. The Board believes that, in the event a stockholder delivers a consent to RMR and Black Rock, that stockholder becomes “associated” with RMR and Black Rock for the purposes of exercising voting/consent rights with respect to the Dissident Group Consent Proposals. In light of such stockholder becoming “associated” with RMR and Black Rock for such purpose, to the extent that such stockholder’s consent, together with all other consents granted by other stockholders, would cause RMR and Black Rock to possess voting/consents rights with respect to 30% or more of the outstanding common stock of Cross Border, the Company believes that the Control Share Amendments operate to restrict the voting/consent rights of such stockholder’s shares with respect to the Dissident Group Consent Proposals unless and until such voting/consent rights are granted by the holders of a majority of the Common Stock not included in the “association.” On December 13, 2011, RMR and Black Rock jointly filed a complaint in the Eighth Judicial District Court, Clark County, Nevada (the “District Court”) seeking, among other things, a declaration by the District Court that a proxy solicitation conducted by RMR and Black Rock would not, in and of itself, result in either RMR or Black Rock being deemed an “Acquiring Person” under the “Acquisition of a Controlling Interest” provision in the Company’s Bylaws. RMR and Black Rock subsequently amended their complaint to seek a declaration by the District Court that the Dissident Group Consent Solicitation would not trigger the “Acquisition of a Controlling Interest” provision in the Company’s Bylaws. The District Court dismissed RMR’s and Black Rock’s request for declaratory relief on the grounds that it was not properly plead as a derivative claim. The Company anticipates that RMR and Black Rock will amend their complaint and continue to pursue their arguments. The Company plans to vigorously contest any such action.
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· Your Board adopted the Control Share Amendments to prevent any single stockholder from effectively controlling the outcome of all stockholder votes without your approval. If the Dissident Group Consent Solicitation is successful, you will lose the protections that your Board recently provided to you by the addition of this provision in the Bylaws. If the Bylaw Amendment Repeal Proposal is adopted and the Control Share Amendments are repealed, all stockholders, including large stockholders, would have the ability to vote shares of common stock owned by them and have such votes tallied as they would be in any election, whether or not a large stockholder existed. This would mean, for instance, that a stockholder who accumulated just slightly more than 50% of the Company’s common stock would have the ability to single-handedly approve all matters that require a simple majority vote of stockholders, even though up to 49.9% of the stockholders might oppose that action. Even a stockholder who only accumulated 45% of the Company’s stock would only need to convince a few other stockholders to vote their shares alongside those of the 45% holder in order for the 45% holder to be able to effectively control the stockholder decision making process.
FOR THE FOREGOING REASONS, THE BOARD OF DIRECTORS OF THE COMPANY STRONGLY BELIEVES THAT THE DISSIDENT GROUP CONSENT SOLICITATION IS NOT IN THE BEST INTERESTS OF THE COMPANY’S STOCKHOLDERS.
WE URGE STOCKHOLDERS TO REJECT THE DISSIDENT GROUP CONSENT SOLICITATION AND REVOKE ANY CONSENT PREVIOUSLY SUBMITTED.
DO NOT DELAY. IN ORDER TO HELP ENSURE THAT THE EXISTING BOARD IS ABLE TO ACT IN YOUR BEST INTERESTS, AND TO PRESERVE YOUR ABILITY TO PREVENT A SINGLE STOCKHOLDER FROM GAINING UNREASONABLE CONTROL OVER ALL FUTURE STOCKHOLDER VOTES WITHOUT YOUR PRIOR CONSENT, PLEASE SIGN, DATE AND RETURN THE ENCLOSED BLUE CONSENT REVOCATION CARD AS PROMPTLY AS POSSIBLE.
