TXCO Faces Lawsuit for Alleged Illegal Practices, Intends to Defend

TXCO Resources Inc. reported that a lawsuit has been filed against the Company and its directors in the Court of Chancery of the State of Delaware. The action was brought by Third Point LLC and various Third Point affiliates, which claim to collectively own and control more than 8 percent of the outstanding common stock of TXCO.

This lawsuit arises from the appointment of James L. Hewitt as an independent, Class B director on Jan. 11, 2008, to fill the 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 TXCO's 2009 Annual Meeting.

The lawsuit alleges that TXCO’s board breached its fiduciary duty when it appointed Mr. Hewitt to the board of directors. The plaintiffs seek injunctive and declaratory relief to nullify the appointment of Mr. Hewitt to TXCO's board of directors and to award fees and costs of litigation.

TXCO believes the appointment of Mr. Hewitt as a director was valid and that his extensive background in finance, banking and business brings valuable experience to TXCO’s board of directors.

The Company believes the allegations in the Third Point lawsuit are without merit and intends to vigorously defend the suit.