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Texas Pacific Land Corporation shareholder Gabi Gliksberg

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  • Describes why he plans to vote against Proposal 4 and in favor of stockholder proposals 6, 7, 8, 9, and 10
  • Highlights Glass Lewis support FOR Proposal 8, as well as several additional stockholder proposals

FORT LAUDERDALE, Fla., Nov. 14, 2022 (GLOBE NEWSWIRE) — Gabi Gliksberg, a long-time shareholder of Texas Pacific Land Corporation (NYSE: TPL), along with ATG Capital Management, announced today their plan to vote all shares that they own and advise AGAINST the Board’s recommendations on several proposals for the upcoming annual meeting, currently scheduled for November 16, 2022.

In the letter to shareholders released today, copied in full below, Mr. Gliksberg explains to shareholders that, in his view, a message must be sent to the Board of directors that legitimate corporate governance must be taken more seriously, and that furthering the best interests of stockholders – not of executives and Board members with minimal shareholdings – must be the top priority. The Board’s proposal to massively increase the number of authorized shares, giving the Board the ability to potentially massively dilute shareholders, is contrary to the best interests of long-term stockholders. In addition, the Board’s reputation of poor corporate governance is perhaps best underscored by its continued insistence on maintaining a stockholder agreement that disenfranchises shareholders, and infringes on their largest shareholder’s fundamental right to vote independently.

Dear Shareholders of Texas Pacific Land Corporation,

I am a long-time shareholder of Texas Pacific Land Corporation (NYSE: TPL) (“TPL” or the “Company”). I originally bought shares when TPL was just a straightforward Trust that for over 100 years was dedicated to the simple, but exceedingly effective, capital allocation model of using its cash flows to pay dividends and repurchase shares.  As a result, the stock has performed phenomenally well. Until a couple of years ago, I was content to collect my dividends and see my shares rise in value as TPL continued buying an ever-increasing percentage of its outstanding stock. In recent years, however, I have become increasingly concerned about the demonstrable poor condition of TPL’s corporate governance. I have tried to do something about it, including attempting to engage management in constructive dialogue, submitting a successful stockholder proposal at last year’s annual meeting recommending the Board declassify itself, litigating a Delaware 220 demand for books and records in order to understand whether or not misrepresentations were made by directors on multiple occasions, and also submitting stockholder Proposal 8 on this year’s ballot. I have seen other stockholders become more engaged in this effort as well. Five different stockholders submitted proposals that are on this year’s final proxy. In addition, Stephen Walker, of Lion Long Term Partners LP, has issued public letters that articulate a solid case for voting against Proposal 4.

Stockholder democracy is only effective in practice if individual stockholders make their voices heard to the Board and prudently exercise their right to vote on the matters before them. That is how progress can be made at a company like TPL. Proof of that is the victory we scored at last year’s annual meeting by securing passage of my declassification proposal. Passage of the Company’s Proposal 3 at this year’s annual meeting will now likely make that declassification a reality. My hope is that with this bylaw change, we will reduce director entrenchment and increase Board responsiveness to stockholders. But make no mistake: the Board did not move toward declassification on its own; it happened only because the stockholders of this Company made clear what they wanted.

The fast-approaching 2022 annual meeting will once again put a number of important governance-related proposals and issues before shareholders. In the interests of fostering open dialogue and deliberation among stockholders, I wanted to take a few moments and explain how I plan to vote on these proposals (and why). My views on the proposals are connected and flow from some common principles and observations.

First, the stockholders own this Company, not the Board. Indeed, it is telling that individual members of senior management and the Board (other than the Horizon Kinetics and SoftVest designees) own very small amounts of TPL stock. This can create a misalignment of interests between the Board and management, on the one hand, and the stockholder body, on the other. I believe that a healthier balance of power between stockholders and the Board is needed here, with specifically greater stockholder representation on the Board. The best interests of stockholders – not the Board’s self-perpetuation via entrenchment-benefiting voting mechanisms — should be the Board’s polestar.

Second, the Board’s actions convey a message of hostility to stockholder initiatives and a desire to keep power over the Company’s affairs concentrated in its own hands as much as possible. This is in some ways an old story. At the time of conversion from a trust to the present corporate structure, Co-Trustees David Barry and John Norris appointed the C-Corp’s Board instead of holding a stockholder vote. They also adopted a classified board structure, meaning that they themselves would not stand for re-election until 2023! Worst of all, as a condition of the conversion, some of the Company’s largest stockholders had to enter into a Stockholders’ Agreement (the subject of my Proposal 8) and thereby give up much of their rights and freedoms as shareholders. Having obtained the concentration of power they wanted, the Board has consistently tried to preserve the status quo. The Board opposed my declassification proposal last year – both before the Securities and Exchange Commission and then at the annual meeting. Now, they pat themselves on the back for including the binding version of the proposal of the by-law change at this year’s meeting. I consider that a little too late. They should have endorsed my proposal last year if they were serious advocates of good stewardship. This year, the Board is opposing every single stockholder proposal being presented at the upcoming meeting. Many of the Board’s opposition statements in the Schedule 14A share a common theme: a purported fear of actions that could be “disruptive” to business operations. That concern rings hollow to me. In my view, it sounds more like a desire to be insulated from accountability to the Company’s stockholders, and to constrain as much as possible stockholders’ ability to serve as a check on the Board. Accountability can be disruptive, but that certainly does not make it a bad thing.

Finally, TPL is a great Company. It has a business model that has generated terrific returns for its stockholders. TPL derives the majority of its revenues and profits from what I view to be passive businesses. As royalty volumes have increased – thanks mostly to the numerous exploration and production companies that have spent billions of dollars drilling on TPL’s acreage – revenues and profits have followed. This is a reflection of the assets that the Company was fortunate to inherit; it is simply not a reflection of extraordinary skill or entrepreneurial zeal on the part of management. Based on the recent enormous increases in management compensation, it appears that the Board does not see it that way. This business may be boring, but it is lucrative and stockholders like it. There is no need for someone to try to “fix” it. The Board should have the attitude of prudent stewards, not of dealmakers or empire builders.

With the above in mind, I plan to vote against Proposal 4 and to vote for Proposals 6, 7, 8, 9, and 10.

Proposal 4, in my view, is bad for the stockholders as a whole. The Board wants to increase the number of authorized TPL common shares from 7,756,156 to 46,536,936 shares. The Board’s discussion of this proposal in the Schedule 14A talks about implementing a stock split designed to lower the trading price and thereby “attract a broader investor base and increase stock liquidity.” But that same discussion also emphasizes that, if the Proposal passes, the Company (meaning management and the Board) would have the ability to issue additional stock for such purposes as “the sale of securities to raise capital” and “payment of consideration for acquisitions.” Later in the discussion, acquisitions come up again: “the Company desires to have the flexibility to use Common Stock as consideration for the acquisition of additional assets.” That is a red flag. TPL’s existing business is apparently too dull for management, so they and the Board want to try their hands as dealmakers. Using the Company’s stock as currency in transactions would dilute the ownership of existing stockholders without having to be bothered with calling a special meeting to obtain their approval before issuing new shares. This is consistent with the themes, discussed above, that the Board seeks insulation from stockholder accountability while, in its haste to fix a business model that is not broken, failing to act as prudent stewards of stockholder value. The proposed stock split, in my opinion, is presented as a diversion, and the Board has not explained why the Company needs to attract a broader investor base or why the stock needs more liquidity. I am voting against Proposal 4.

My Proposal 8 is intended to improve corporate governance at our Company, as explained more fully in my supporting statement in the Schedule 14A. Horizon Kinetics and SoftVest are large stockholders with real economic stakes in TPL’s success. According to the Schedule 14A, Horizon Kinetics alone owns almost 20% of TPL. Yet, the Stockholder’s Agreement ties these entities’ hands and prevents them from acting with the same freedom a typical stockholder has. For example, as long as these stockholders’ designees are on the Board, they cannot (a) freely vote their shares (instead they often must vote lockstep in favor of Board recommendations), (b) nominate candidates for election to the Board, transact in TPL’s voting securities above a defined beneficial ownership threshold, inspect TPL’s books and records, or propose certain changes to TPL’s business or management, (c) make any statement about TPL and related persons that “undermines, disparages or otherwise reflects detrimentally” on such persons, or (d) initiate legal proceedings against TPL. The effect of these restrictions is to give the Board the power to control the decisions of an enormously influential percentage of shares on many significant corporate matters. In my view, this is a mechanism whose sole purpose is director entrenchment, and I do not believe that such restrictions are justified. They merely stack stockholder votes on many key issues in favor of whatever result a majority of the Board wants, even if Horizon Kinetics and/or SoftVest actually oppose that result.

Glass Lewis, one of the premier Proxy Advisory firms, opined that shareholders should vote FOR Proposal 8, and their report makes the case better than my words can. They state: “in light of the positive governance changes and other improvements that these stockholders catalyzed …we believe the most appropriate and shareholder-friendly approach at this juncture would be to release the two Horizon and Softvest designees from their obligations under such agreement. In our view, although these shareholders currently have representatives on the board, we believe they, like any other shareholder, should generally be free to vote their shares how they see fit in line with their own interests and perspectives on the best direction for the Company”.

Let’s be clear: if not for the actions of Horizon Kinetics and Softvest in their 2019 proxy fight, there would not be regular Board elections or even an annual shareholder meeting. They have skin in the game, they are long-term owners, and they have repeatedly proven to be more interested in sincere corporate governance than the former trustees.

Proposal 8 is non-binding, but if it passes, the Board will become keenly aware of how shareholders feel about this issue, and will have the option of immediately fixing this deficiency in TPL’s governance. If the Board ignores stockholders’ expressed wishes, that lack of responsiveness could alienate the major proxy advisory firms and have implications for next year’s Board elections. Further, if Horizon Kinetics and SoftVest vote against Proposal 8 (logically, that would only occur if their obligations in the Stockholders’ Agreement forced them to), then an intelligent Board member would net out that voting block to understand where shareholders really fall on the issue. I am voting yes on Proposal 8, and I encourage your support as well.

I am also voting for Proposals 6, 7, 9 and 10. Many of these proposals appear to me to be designed to improve the Board’s responsiveness to stockholders and/or to give stockholders a greater say on important corporate matters. Although the Board raises a number of technical objections in its opposition statements, I suspect the technicalities could be worked out during the implementation process in a way that satisfies those concerns should these proposals pass and the Board decide to implement them. Further, this Board has shown time and again that they have not earned the benefit of the doubt on governance matters. The apparent intent behind these proposals is to enhance stockholder democracy, not hinder it. By voting in favor, I am sending a message to the Board that the balance of power between the Board and stockholders needs to be adjusted in the latter’s favor.

I look forward to seeing many of you in Dallas this week.

Gabi Gliksberg

Managing Partner

ATG Capital Management LLC

The Company filed a definitive proxy statement on October 7, 2022, which is available at https://www.sec.gov/Archives/edgar/data/1811074/000110465922106944/tm2227513d1_def14a.htm and additional filings are available on the SEC’s website at http://www.sec.gov.

ATG Capital Management LLC

ATG Capital Management LLC (“ATG”) is a privately-held investment firm, founded by Gabi Gliksberg, that manages investment vehicles for a small number of investors. ATG invests primarily in public equity markets, utilizing alternative strategies and shareholder activism, in pursuit of providing superior, long term investment returns. Visit atgfund.com for more information.

Contact:

Gabi Gliksberg

ATG Capital Management, LLC

tpl@atgfund.com

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