May 4, 1998
To Our Shareholders:
You are cordially invited to attend the Annual Meeting of
Shareholders of Arch Petroleum Inc. The meeting will be held on the
11th Floor of the Fort Worth Club Building, 777 Taylor Street, Fort
Worth, Texas at 4:00 p.m. on May 29, 1998.
The Notice of Meeting and Proxy Statement on the following pages
cover the formal requirements for the business of the meeting.
Whether or not you find it possible to attend the meeting personally,
we hope you will have your stock represented by signing your proxy
exactly as your name appears thereon and returning it promptly.
We will have a social period after the meeting, beginning at
4:30 p.m. to provide an opportunity for shareholders to talk
informally with our Officers and Directors.
Sincerely yours,
Larry Kalas
Chief Executive Officer
<PAGE>
ARCH PETROLEUM INC.
777 Taylor Street, Suite II-A
Fort Worth, Texas 76102
NOTICE OF ANNUAL MEETING THURSDAY, MAY 29, 1998
4:00 P.M.
TO THE SHAREHOLDERS OF ARCH PETROLEUM INC.:
Notice is hereby given that the annual meeting of the
shareholders of Arch Petroleum Inc., a Delaware corporation, will be
held at 4:00 p.m., Friday, May 29, 1998, on the 11th floor of the
Fort Worth Club Building, 777 Taylor Street, Fort Worth, Texas, for
the following purposes:
1. To elect a board of six (6) directors to serve until the
next Annual Meeting of Shareholders when their respective
successors shall be elected and qualified.
2. To transact such other business as may properly be brought
before the meeting or any adjournments or postponements
thereof.
Only shareholders of record at the close of business on April
17, 1998, are entitled to notice of and to vote at the meeting or any
adjournments or postponements thereof.
Shareholders are invited to attend the meeting. Whether or not
you expect to attend, WE URGE YOU TO SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE PREPAID ENVELOPE. If you
attend the meeting, you may vote your shares in person, after
revoking your proxy.
If your shares are held of record by a broker, bank or other
nominee and you wish to attend the meeting, you should obtain a
letter from the broker, bank or other nominee confirming your
beneficial ownership of the shares and bring it to the meeting. In
order to vote your shares at the meeting, you must obtain from the
record holder a proxy issued in your name.
Regardless of how many shares you own, your vote is very
important. Please SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD
TODAY.
BY ORDER OF THE BOARD OF DIRECTORS
Randall W. Scroggins
Secretary
Fort Worth, Texas
May 4, 1998
<PAGE>
<TABLE>
TABLE OF CONTENTS
<S> <C>
SOLICITATION OF PROXIES ..................................... 1
THE MEETING ................................................. 1
ELECTION OF DIRECTORS ....................................... 2
OUTSTANDING VOTING SECURITIES OF THE COMPANY AND CERTAIN
SHAREHOLDERS........................................... 4
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS ............ 6
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .............. 11
INCORPORATION OF FINANCIAL INFORMATION BY REFERENCE ......... 11
OTHER MATTERS ............................................... 12
</TABLE>
<PAGE>
ARCH PETROLEUM INC.
777 Taylor Street, Penthouse Suite II-A
Fort Worth, Texas 76102
----------------
PROXY STATEMENT
----------------
ANNUAL MEETING OF SHAREHOLDERS
May 29, 1998
SOLICITATION OF PROXIES
This Proxy Statement is furnished by Arch Petroleum Inc., a
Delaware corporation (the "Company"), to the holders of outstanding
shares of the Common Stock, par value $0.01 per share, of the Company
(the "Common Stock") in connection with the solicitation of proxies
by the Company for use at the annual meeting of shareholders (the
"Meeting") to be held on May 29, 1998, and at any and all
adjournments or postponements thereof. This Proxy Statement and the
enclosed proxy card are first being mailed to shareholders on or
about May 4, 1998.
THE MEETING
Record Date, Quorum and Voting
The Board of Directors (the "Board") has established the close
of business on April 17, 1998 as the record date (the "Record Date")
for determining shareholders entitled to notice of and to vote at the
Meeting or any adjournments or postponements thereof. At the close
of business on such record date, there were an aggregate of
17,321,804 shares of Common Stock and shares of Convertible Preferred
Stock representing an aggregate of 7,272,730 shares of Common Stock
(on an as converted basis) and shares of Convertible Subordinated
Notes representing an aggregate of 1,818,179 shares of Common Stock
(on an as converted basis) issued and outstanding. Each holder of
Common Stock will be entitled to one vote for each share of Common
stock held by him at the close of business on such Record Date and
each holder of Convertible Preferred Stock and Convertible
Subordinated Notes will be entitled to one vote for each share of
Common Stock into which such holder's Convertible Preferred Stock and
Convertible Subordinated Notes may be converted at the close of
business on such Record Date. The holders of issued and outstanding
shares having a majority of the votes entitled to be cast at the
Meeting must be represented in person or by proxy in order to
constitute a quorum.
Shares represented by the enclosed proxy card will be voted in
accordance with the directions indicated thereon, or, if no direction
is indicated, in accordance with the recommendations of the Board
contained in this Proxy Statement as to all shares represented by
that proxy card. Any shareholder executing and delivering the
enclosed proxy card may revoke such action prior to the Meeting by
duly executing a later-dated proxy or an instrument expressly
revoking the proxy, or by declaring its revocation at the Meeting.
The persons named as proxies in the proxy card were selected by the
Board and are currently directors of the Company.
<PAGE>
Management knows of no matters to be presented for action at the
Meeting other than those specified in this Proxy Statement and the
accompanying Notice of Annual Meeting. Should any other matter
properly come before the Meeting, proxies will be voted upon these
other matters in accordance with the best judgement of the persons
voting such proxies.
The Company will bear all costs related to the solicitation of
proxies pursuant to this statement.
<PAGE>
ELECTION OF DIRECTORS
Directors of the Company may be elected by vote of the holders
of a majority of the outstanding Common Stock who are represented at
the meeting in person or by proxy, as long as a quorum is present. A
shareholder's abstention from voting or a non-vote by such
shareholder's broker will therefore be counted in determining whether
such a majority vote was cast only if such shareholder is so
represented (either in person or by proxy) at the Meeting.
Abstentions or broker non-votes by or on behalf of shareholders not
so represented will be disregarded. Each director nominee so elected
will hold office until such nominee's successor has been elected and
qualified. The proxies given to the persons named in the enclosed
proxy card will be voted for the election of the nominees listed
below. In case of the inability of any of the nominees to serve,
such proxies will be voted for the balance of those named and for
substitute nominees, but the Board now knows of no reason to
anticipate that any substitutions will occur. Directors elected at
the Meeting cannot be removed prior to the next annual meeting except
by a majority vote of the shareholders at any meeting at which a
quorum of shareholders is present.
The Board of Directors unanimously recommends a vote FOR the
nominees listed below.
The Board of Directors has the responsibility for establishing
broad corporate policies and for the overall performance of the
Company, although it is not involved in day-to-day operations.
During 1997, the Board increased the authorized number of Directors
on the Board from six to seven and appointed Mr. Dale R. Haley of BJ
Services Company, U.S.A. to the Board, (see below).
The Board of Directors has an Audit Committee including two
non-employee directors, Messrs. Harris, Hill, and Mr. Kalas. This
committee will be responsible for matters relating to accounting
policies and practices, financial reporting and internal controls.
Each year it will recommend to the Board the appointment of a firm of
independent accountants to audit the financial statements of the
Company. The Committee will review with representatives of the
independent accountants the scope of the audit of the Company's
financial statements, results of that audit and any recommendations
with respect to internal controls and financial matters. In
fulfilling its responsibility, it will periodically meet with and
receive reports from the Company's management. The Company has no
standing nominating committee of the Board or committees serving
similar functions. All members of the Board of Directors attended the
sole meeting of the Board in 1997 with one exception. Consistent with
internal policies of Travelers Investment Group, John F. Gilsenan
will not stand for re-election to the Board of Directors of the
Company in 1998. Mr. Gilsenan has served the Company well since
October 1994 and the Company acknowledges his contribution. The
names of the Board's director nominees, the year that each nominee
first became a Director and certain other information about each
nominee are set forth below:
<PAGE>
<TABLE>
First
Name, Age and Principal Occupation Elected
Business Address During the Last Five Years Director
<S> <S> <S>
Johnny Vinson (66) Chairman of the Board of July 1986
Arch Petroleum Inc. the Company; served as
777 Taylor Street, President of the Company
Suite II from November 1987 to June
Fort Worth, TX 1988; Chairman of the
76102 Board of Threshold
Development Company ("TDC")
since 1975. TDC is an oil
and gas exploration company
which owned 13.9% of Arch's
common stock at Record
Date.
Larry Kalas (48) Director, President and June 1988
Arch Petroleum Inc. Chief Executive Officer of
777 Taylor Street, the Company; served as
Suite II Vice President-
Fort Worth, TX Administration of the
76102 Company from July 1986 to
June 1988 when he was named
President and CEO.
Randall W. Director, Executive Vice July 1986
Scroggins (47) President and Secretary of
Arch Petroleum Inc. the Company; served as
777 Taylor Street, Vice President since April
Suite II 1990 and Secretary since
Fort Worth, TX July 1986; Director of TDC
76102 since 1975; He is the son-
in-law of Johnny Vinson.
Richard O. Retired banker and oil and June 1992
Harris (69) gas entrepreneur; Until
807 Indiana 1990, Senior Vice-President
Wichita Falls, TX of First National Bank of
76301 Amarillo, Texas.
C. Randall Hill (39) Attorney and oil and gas December
Vista Resources Inc. entrepreneur; Chairman of 1992
550 W. Texas, Suite the Board and Chief
700 Executive Officer of Vista
Midland, TX 79701 Resources, Inc. (an oil and
gas exploration and
production company); prior
to October 1992, practiced
law with the firm of Weil,
Gotshal & Manges in Dallas,
Texas.
Dale R. Haley (61) Senior Vice-President, December
BJ Services Industry Relations of BJ 1997
Company, U.S.A. Services Company, U.S.A.;
309 W. 7th Street, prior to 1995, same
Suite 1520 position for the Western
Fort Worth, TX Company. 76102
</TABLE>
<PAGE>
Compliance With Section 16 (a) Of the Securities Exchange Act
Section 16 (a) of the Securities Exchange Act requires the
Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to
file reports of ownership and changes in ownership on Forms 3, 4 and
5 with the Securities and Exchange Commission ("SEC") and the
National Association of Securities Dealers, Inc. ("NASD"). Officers,
directors and greater than ten percent shareowners are required by
SEC regulation to furnish the Company with copies of all Forms 3, 4
and 5 they file.
Based solely on the Company's review of the copies of such forms
it has received and written representations from certain reporting
persons that they were not required to file Form 5 for specified
fiscal years, the Company believes that all its officers, directors,
and greater than ten percent beneficial owners complied with all
filing requirements applicable to them with respect to transactions
during fiscal 1997.
OUTSTANDING VOTING SECURITIES OF THE COMPANY
AND CERTAIN SHAREHOLDERS
The following table provides information as to the beneficial
ownership of the Company's Common Stock as of the Record Date by each
director, named executive officer, all directors and executive
officers as a group, and each other person who is known to the
Company to beneficially owns 5% or more of the outstanding Common
Stock as of the Record Date. The percent of class figures are
calculated on the basis of the amount of outstanding securities plus
securities deemed outstanding pursuant to Rule 13D-3(d)(1) under the
Exchange Act (Item 403, Regulation S-K). These rules provide that
each person listed in this table be shown at their maximum voting
power as if that person had exercised and converted all their
possible securities and no other person listed in this table had
maximized their position.
<TABLE>
Title Name and Address Amount and Nature Percent
of Class of Beneficial Owner of Beneficial of Class
Ownership (1)
Directors and Executive Officers
<S> <S> <C> <C>
Common Stock Johnny Vinson (2) .......... 3,061,464 17.67%
Common Stock Larry Kalas ................ 556,786 3.21%
Common Stock Randall W. Scroggins (2) ... 2,730,914 15.77%
Common Stock Fred Cantu (3) ............. 130,000 *
Common Stock Troy Welch (5) ............. 25,500 *
Common Stock Richard O. Harris (4) ...... 34,000 *
Common Stock C. Randall Hill (5) ........ 20,000 *
Common Stock Dale R. Haley ............. 7,900 *
Common Stock All Directors and Officers
of the Company as a Group
(8 persons) (2)(3)(4)(5) ... 4,165,650 23.92%
</TABLE>
<PAGE>
<TABLE>
Title Name and Address Amount and Nature of Percent
of Class of Beneficial Owner Beneficial Ownership (1) of Class
Holders of More Than 5% of any Class of Voting Securities:
<S> <S> <C> <C>
Common Threshold Development 2,400,914 13.86%
Stock Company
777 Taylor Street
Penthouse Suite II-D
Fort Worth, Texas 76102
Common Amon G. Carter Foundation 900,000 5.20%
Stock 500 West 7th Street,
Suite 1212
Fort Worth, Texas 76102
Attention: Pat Harris
Common The Travelers Indemnity
Stock Company (6),(8) 5,454,547 23.95%
One Tower Square, #9 Plaza
Hartford, Connecticut
06183-2030
Attention: Allen Cantrell
Common CIGNA Investments,
Stock Inc. (7),(8) 3,636,362 17.35%
900 Cottage Grove Rd.
Hartford, Connecticut
06152-2307
Attention: Tom Shea
Convertible The Travelers Indemnity
Preferred Company 436,364 60.00%
Stock One Tower Square, #9 Plaza
Hartford, Connecticut
06183-2030
Attention: Allen Cantrell
Convertible CIGNA Investments, Inc. (9) 290,909 40.00%
Preferred 900 Cottage Grove Rd.
Stock Hartford, Connecticut
06152-2307
Attention: Tom Shea
</TABLE>
* Represents less than 1% of the outstanding shares of Common
Stock.
(1) Unless and to the extent otherwise indicated below, the figures
presented in this column represent shares of stock owned
directly of record by the indicated holders.
<PAGE>
(2) Includes 2,400,914 shares of Common Stock owned directly of
record by Threshold Development Company ("TDC"). Messrs. Vinson
and Scroggins, by virtue of their ownership of shares of TDC and
their positions as officers or directors of TDC, share the power
to vote or direct the voting and to dispose of or direct the
disposition of such shares of Common Stock held of record by
TDC, and are therefore deemed to beneficially own those shares.
(3) Includes options exercisable for an aggregate of 40,000 shares
of Common Stock.
(4) Includes options exercisable for an aggregate of 16,690 shares
of Common Stock.
(5) Includes options exercisable for an aggregate of 20,000 shares
of Common Stock.
(6) Includes 4,363,640 shares of Common Stock issuable upon
conversion of Convertible Preferred Stock held of record by the
Travelers Indemnity Company ("Travelers"), 109,090 shares of
Common Stock issuable upon conversion of 9.75% Series A
Convertible Subordinated Notes due 2004 ("Series A Notes")
issued to The Travelers Life and Annuity Company ("TLAC") and
981,817 shares of Common Stock issuable upon conversion of
Adjustable Rate Series B Notes due 2004 ("Series B Notes")
issued to TLAC.
(7) Includes 1,034,545 shares of Common Stock issuable upon
conversion of Convertible Preferred Stock held of record by
Connecticut General Life Insurance Company ("CGLIC"), 25,855
shares of Common Stock issuable upon conversion of Series A
Notes issued to CGLIC, 232,690 shares of Common Stock issuable
upon conversion of Series B Notes issued to CGLIC, 1,874,545
shares of Common Stock issuable upon conversion of Convertible
Preferred Stock issued to CIGNA Mezzanine Partners III, L.P.
("Mezzanine"), 46,873 shares of Common Stock issuable upon
conversion of Series A Notes issued to Mezzanine and 421,854
shares of Common Stock issuable upon conversion of Series B
Notes issued to Mezzanine.
(8) The beneficial shares of Travelers, TLAC, CGLIC and Mezzanine
arose from a combined private placement transaction on October
20, 1994. As a group, the maximum voting power of the
collective entities is 34.4%.
(9) Includes 103,454.5 shares of Convertible Preferred Stock held
of record by CGLIC and 187,454.5 shares of Convertible
Preferred Stock held of record by Mezzanine.
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Table of Summary Compensation
The following table sets forth certain information regarding
compensation paid during each of the last three years to the
Company's Chief Executive Officer and each of the Company's other
executive officers, based on salary and bonus (in excess of $100,000)
earned during 1997.
<TABLE>
Annual
Compensation
Name and Principal Year Salary Bonus
Position
<S> <C> <C> <C>
Johnny Vinson (1) 1997 $175,000 $100,000
Chairman of the Board 1996 175,000 50,000
1995 175,000 50,000
Larry Kalas (2) 1997 150,000 75,000
President & Chief 1996 150,000 50,000
Executive Officer
1995 150,000 25,000
Annual
Compensation
Name and Principal Year Salary Bonus
Position
Randall W. Scroggins (3) 1997 $125,000 $40,000
Vice President & 1996 125,000 30,000
Secretary
1995 125,000 20,000
<PAGE>
Fred Cantu (4) 1997 75,000 35,000
Treasurer & Chief 1996 75,000 25,000
Financial Officer
1995 75,000 10,000
Troy Welch 1997 95,000 35,000
Vice President 1996 95,000 25,000
1995 74,900 -0-
</TABLE>
(1) Johnny Vinson entered into an employment contract with the
Company on July 19, 1996, amended on January 27, 1997, that contains
terms to provide him with certain severance pay upon termination.
The value of this severance package as of February 28, 1998 would be
$350,000.
(2) Larry Kalas entered into an employment contract with the
Company on July 19, 1996, amended on January 27, 1997, that contains
terms to provide him with certain severance pay upon termination.
The value of this severance package as of February 28, 1998 would be
$300,000.
(3) Randall W. Scroggins entered into an employment contract
with the Company on July 19, 1996, amended on January 27, 1997, that
contains terms to provide him with certain severance pay upon
termination. The value of this severance package as of February 28,
1998 would be $250,000.
(4) Fred Cantu entered into an employment contract with the
Company on May 19, 1997 that contains terms to provide him with
certain severance pay upon termination. The value of this severance
package as of February 28, 1998 would be $75,000.
Option Grants and Option Exercises During 1997
There were no stock options granted to nor any stock options
exercised by any of the executive officers in 1997.
Compensation of Directors
Directors are paid $600 each per directors' meeting attended
and $600 per committee meeting attended as members of the Audit
Committee.
<PAGE>
Report of the Compensation Committee of the Board of Directors on
Executive Compensation
The Compensation Committee of the Board of Directors comprises
all its directors and has furnished the following report on executive
compensation:
Under the supervision of the Compensation Committee of the Board
of Directors, the Company has developed and implemented
compensation policies and plans, which are intended to enhance the
profitability of the Company, and thus shareholder value, by
aligning closely the financial interests of its officers and key
executives with those of its shareholders. To implement these
goals, annual salaries are based primarily upon a review of past
and present corporate and individual performance, with reference to
salary data in similar-sized corporations so that such salaries are
generally competitive. The Company also relies to a significant
degree on annual discretionary incentive compensation and the award
of non-qualified stock options to attract and retain Company
officers and other key employees of outstanding abilities and to
motivate them to perform to the full extent of their abilities.
Both types of incentive compensation are variable and depend upon
corporate and individual performance so as to encourage a sharp and
continuing focus on building profitability and shareholder value.
No specific weighing, however, is given to Company or individual
performance.
The Committee has complete discretion in determining all
compensation amounts (including whether any annual discretionary
incentive payments or stock option awards are made and, if so,
the amounts thereof) regardless of whether corporate or
individual performance goals are achieved. The Committee
exercised its complete discretion in setting total compensation
for 1997.
In evaluating corporation performance for purposes of setting
the salary and incentive compensation of the Chief Executive
Officer and the Company's other officers, the Committee has given
first consideration to a successful corporate-wide performance in
terms of sales and earnings, and secondarily has taken particular
note of management's success in securing additional market share
during a period of prolonged depression in the oil and gas
industry. The Committee, as a matter of policy generally, and
with respect to 1997 in particular, viewed all the foregoing
items as elements of corporate, and not individual performance.
Individual salary and other compensation decisions for all
officers are based primarily on overall Company performance.
The Committee has also taken into account, in its review of
management performance and compensation, management's consistent
commitment to the long-term success of the Company through the
development of new oil and gas properties and natural gas
pipelines while monitoring improvement in the Company's financial
condition. In addition, in evaluating such commitment, the
Committee has also noted the continued level of shareholdings of
the Company's officers.
<PAGE>
Although, as stated above, the Committee considered corporate
performance as the primary factor in its compensation decisions,
the Committee also considered individual performance. The
Committee, however, does not quantify individual performance nor
relate individual performance to any specific goals or targets.
The Committee has complete discretion in its evaluation of
individual performance.
Based on its evaluation of individual performance, the
Committee believes that the Company's officers are dedicated to
achieving significant improvements in long-term financial
performance and that the compensation policies, plans and methods
the Company has implemented and administered have contributed and
will continue to contribute to achieving this management focus.
The Committee considered such dedication as an element of each
officer's past and present performance. The Committee believes
that dedication is an intangible element and cannot be measured;
therefore, the Committee does not apply any specific weighing to
its views about the dedication of each officer. The Committee
considers total compensation, base salary, annual incentive, and
stock option grant, in establishing each element of compensation.
The Committee does not use any predetermined formula or assign
any specific weight to the various factors considered in awarding
bonuses.
Immediately prior to the end of each year, the Committee
considers the desirability of granting to the Chief Executive
Officer and the Company's other officers, as well as other key
executives, awards under the Company's stock option plan. The
Committee believes that its past grants of such options to
purchase common stock of the Company, at the market price in
effect on the day prior to the date of such grant, has
