<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
THE MERIDIAN RESOURCE CORPORATION
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
N/A
2) Aggregate number of securities to which transaction applies:
N/A
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
N/A
4) Proposed maximum aggregate value of transaction:
N/A
5) Total fee paid:
N/A
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
<PAGE> 2
1) Amount Previously Paid:
N/A
2) Form, Schedule or Registration Statement No.:
N/A
3) Filing Party:
N/A
4) Date Filed:
N/A
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<PAGE> 3
THE MERIDIAN RESOURCE CORPORATION
15995 N. BARKERS LANDING, SUITE 300
HOUSTON, TEXAS 77079
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF THE MERIDIAN RESOURCE CORPORATION:
The 1998 Annual Meeting of Shareholders of The Meridian Resource
Corporation (the "Company") will be held on August 28, 1998, at 10:00 a.m.
Houston time, at The West Lake Club, 510 West Lake Park Boulevard, Houston,
Texas, for the following purposes:
1. To elect three persons to serve as Class II Directors on
the Company's Board of Directors, to hold office until the 2001 Annual
Meeting of Shareholders or until such person's successor shall be duly
elected and qualified; and
2. To transact such other business as may properly come before
the meeting.
The Board of Directors has fixed the close of business on July 2, 1998,
as the record date for determination of shareholders who are entitled to notice
of and to vote either in person or by proxy at the 1998 Annual Meeting of
Shareholders and any adjournment thereof.
All shareholders are cordially invited to attend the meeting in person.
Even if you plan to attend the meeting, YOU ARE REQUESTED TO SIGN, DATE AND
RETURN THE ACCOMPANYING PROXY AS SOON AS POSSIBLE.
Each shareholder of the Company has previously received a copy of the
Company's 1997 Annual Report to Shareholders (the "Annual Report") or is
receiving a copy of the Annual Report contemporaneously herewith. In the event a
shareholder did not receive a copy of the Annual Report, such shareholder should
contact Ms. Natalie Aiman at the Company at (281) 558-8080 and the Company will
send a copy of the Annual Report to such shareholder free of charge.
By Order of the Board of Directors
Joseph A. Reeves, Jr.
Chairman of the Board and
Chief Executive Officer
July 31, 1998
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<PAGE> 4
THE MERIDIAN RESOURCE CORPORATION
15995 N. BARKERS LANDING, SUITE 300
HOUSTON, TEXAS 77079
------------------
PROXY STATEMENT
------------------
GENERAL INFORMATION
This Proxy Statement and the accompanying proxy card are furnished in
connection with the solicitation of proxies by order of the Board of Directors
of The Meridian Resource Corporation (the "Company") to be voted at the 1998
Annual Meeting of Shareholders (the "Meeting"), to be held at the time and place
and for the purposes set forth in the accompanying notice. Such notice, this
Proxy Statement and the form of Proxy are being mailed to shareholders on or
about August 3, 1998.
The Company will bear the costs of soliciting proxies in the
accompanying form. In addition to the solicitation made hereby, proxies also may
be solicited by telephone, telegram or personal interview by officers and
regular employees of the Company. The Company will reimburse brokers or other
persons holding stock in their names or in the names of their nominees for their
reasonable expenses in forwarding proxy material to beneficial owners of stock.
All duly executed proxies received prior to the Meeting will be voted
in accordance with the choices specified thereon, unless revoked in the manner
provided hereinafter. As to any matter for which no choice has been specified in
a proxy, the shares represented thereby will be voted by the persons named in
the proxy (i) "for" the election as director of the nominees listed herein and
(ii) in the discretion of such persons, in connection with any other business
that may properly come before the Meeting. A Shareholder who has executed and
returned a proxy may revoke it at any time prior to the exercise thereof by
written notice to the Secretary of the Company at the above address of the
Company or by the execution and delivery of a later dated proxy, or by attending
the Meeting and voting in person.
As of the close of business on July 2, 1998, the record date for
determining shareholders entitled to vote at the Meeting, the Company had
outstanding and entitled to vote 45,674,661 shares of Common Stock, $.01 par
value ("Common Stock"), entitled to one vote per share and 3,982,906 shares of
Preferred Stock, $1.00 par value ("Preferred Stock" and, together with the
Common Stock, "Voting Stock"), entitled to one vote per share. The outstanding
shares of Common Stock and Preferred Stock are the only shares of capital stock
of the Company entitled to vote.
The holders of a majority of the outstanding shares of Voting Stock as
of the record date, whether represented in person or by proxy, will constitute a
quorum for the transaction of business at the Meeting as to any matter for which
all of the Voting Stock is entitled to vote. The Certificate
<PAGE> 5
of Designation for the Preferred Stock, which was filed with the Secretary of
State of the State of Texas on June 30, 1998 (the "Certificate of Designation"),
provides that, until the earlier of (i) the termination of the Stock Rights and
Restrictions Agreement (defined below) and (ii) Shell Louisiana Onshore
Properties Inc. ("SLOPI") and its Affiliates owning less than 21% of the
outstanding Common Stock, the Preferred Stock is entitled to vote with the
Common Stock on all matters for which a vote of the holders of Common Stock is
taken, including the matters to be voted on at the Meeting. The Certificate of
Designation further provides that the Preferred Stock is entitled to elect that
number of directors (each a "Preferred Director") that equals the product
(rounded downward to the nearest whole number, but in no event less than one) of
the total number of directors following such election multiplied by 20%, and
also provides that the Preferred Stock is entitled to a class vote on (i) the
authorization, creation or issuance, or any increase in the authorized shares,
of a class of capital stock that is senior to or on parity with the Preferred
Stock and (ii) the amendment, modification, alteration or repeal of any of the
provisions of the Certificate of Designation.
Under Texas law, any unvoted position in a brokerage account with
respect to any matter will be considered as not voted and will not be counted
toward fulfillment of quorum requirements as to that matter.
A nominee for director receiving a plurality of votes cast at the
Meeting and entitled to be cast for such nominee will be elected as director.
Abstentions and broker non-votes will not be treated as a vote for or against a
particular director and will not affect the outcome of the election of
directors.
As of the record date, SLOPI, a subsidiary of Shell Oil Company
("Shell"), owned 12,082,030 shares of Common Stock and all of the outstanding
Preferred Stock (collectively, the "Shell Shares"), which represented
approximately 32.4% of the outstanding Voting Stock as of the record date.
Pursuant to the terms and conditions of a Stock Rights and Restrictions
Agreement dated June 30, 1998 (the "Stock Rights and Restrictions Agreement"),
between SLOPI and the Company, except in the event of certain extraordinary
circumstances, SLOPI is required to vote any Shell Shares that are in excess of
23% of the outstanding Voting Shares (the "Excess Shares") pro rata with the
votes of all Voting Shares, other than the Excess Shares, that are actually
voted for, against or abstain from voting on any matter for which all Voting
Shares are entitled to vote. Based upon the number of Voting Shares outstanding
on the record date, with respect to the election of Class II Directors, SLOPI
will have discretionary voting rights with respect to 11,421,240 Voting Shares,
and will be required to vote 3,322,116 Voting Shares pro rata with all other
Voting Shares, other than the Excess Shares, that are actually voted for,
against or abstain from voting with respect to the election of Class II
Directors; however, in the event the average of the last sales price of the
Common Stock reported on the New York Stock Exchange, Inc. (the "NYSE") for the
30 trading days immediately preceding the date of the Meeting is below $5.50 per
share on the date of the Meeting, SLOPI will have discretionary voting rights on
the election of Class II directors with respect to all of the Shell Shares. See
"Certain Relationships and Related Transactions--Shell Transaction--Stock Rights
and Restrictions Agreement--Voting Rights".
As the holder of all of the issued and outstanding Preferred Stock and
pursuant to the terms of the Certificate of Designation, SLOPI currently is
entitled to elect one director to the Company's Board of Directors at the
Meeting. As of the date of this Proxy Statement, however, SLOPI has not
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<PAGE> 6
yet exercised its right to nominate such Preferred Director and such seat will
remain unfilled until SLOPI elects such director at the Meeting or thereafter.
ELECTION OF CLASS II DIRECTORS
Three directors will be elected by the holders of the Common Stock and
Preferred Stock at the Meeting to serve as the Class II Directors of the
Company's Board of Directors until the 2001 Annual Meeting of Shareholders or
until such person's successor shall be duly elected. The Board of Directors
recommends the election of E. L. Henry, Joe E. Kares and Gary A. Messersmith as
the Class II Directors. Messrs. Henry, Kares and Messersmith are currently
directors of the Company. Unless contrary instructions are set forth in the
proxies, it is intended that each person executing a proxy will vote all shares
represented by such proxy for the election as director of each of Messrs. Henry,
Kares and Messersmith. Should any of Messrs. Henry, Kares or Messersmith become
unable or unwilling to accept nomination or election, it is intended that the
person acting under the proxy will vote for the election of such other person as
the Board of Directors of the Company may recommend. Management has no reason to
believe that any of Messrs. Henry, Kares or Messersmith will be unable or
unwilling to serve if elected.
There are currently three Class II directorships up for election. With
respect to this Proposal, proxies cannot be voted for other than such
directorships.
DIRECTORS
The Company's Bylaws provide that the Board of Directors (other than
the Preferred Directors) shall be classified into three classes: Class I, Class
II and Class III Directors. In addition, pursuant to the terms and conditions of
the Certificate of Designation, the holders of the Preferred Stock are entitled
to elect that number of Preferred Directors that equals the product (rounded
downward to the nearest whole number, but in no event less than one) of the
total number of directors of the Company following such election multiplied by
20%. As the holder of all of the issued and outstanding Preferred Stock and
pursuant to the terms of the Certificate of Designation, SLOPI currently is
entitled to elect one director to the Company's Board of Directors at the
Meeting. As of the date of this Proxy Statement, however, SLOPI has not yet
exercised its right to nominate such Preferred Director and such seat will
remain unfilled until SLOPI elects such director at the Meeting or thereafter.
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<PAGE> 7
Set forth below is certain information concerning the current directors
of the Company, including the nominees for election as Class II Director, with
each person's business experience for at least the past five years.
<TABLE>
<CAPTION>
PRESENT
POSITIONS EXPIRATION
WITH THE DIRECTOR OF PRESENT
NAME AGE COMPANY SINCE TERM
---- --- --------- -------- ----------
<S> <C> <C> <C> <C>
Joseph A. Reeves, Jr. 51 Class III Director, 1990 1999
Chairman of the
Board and Chief
Executive Officer
Michael J. Mayell 51 Class III Director and 1990 1999
President
James T. Bond 73 Class I Director 1997 2000
E. L. Henry 62 Class II Director 1998 1998
Joe E. Kares 54 Class II Director 1990 1998
Gary A. Messersmith 49 Class II Director 1997 1998
Jack A. Prizzi 63 Class I Director 1993 2000
</TABLE>
- ----------
Joseph A. Reeves, Jr. is Chairman of the Board and Chief Executive
Officer of the Company. Prior to assuming his positions with the Company, Mr.
Reeves held similar positions with the Company's predecessor, Texas Meridian
Resources, Ltd. ("TMR"), from 1988 until 1990.
Michael J. Mayell is President of the Company. Prior to assuming such
position with the Company, Mr. Mayell held a similar position with TMR from 1988
to 1990.
James T. Bond is General Manager of H.L. Hawkins, Jr. Oil and Gas
located in Houston and New Orleans, Louisiana. He has been associated with such
company for fifty years.
E. L. Henry has been a partner with the law firm of Adams and Reese
L.L.P. in Baton Rouge, Louisiana since 1987. Mr. Henry was formerly Commissioner
of the Division of Administration for the State of Louisiana from 1980 through
1984, a member of the Louisiana House of Representatives from 1968 through 1980
and Speaker of the Louisiana House of Representatives from 1972 through 1980.
Joe E. Kares has been a partner with the public accounting firm of
Kares & Cihlar in Houston, Texas since 1980.
Gary A. Messersmith has been a partner with the law firm of Fouts &
Moore, L.L.P. in Houston, Texas since 1982.
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<PAGE> 8
Jack A. Prizzi has served as Managing Director of Jack A. Prizzi and
Co., an investment and financial advisory firm in New York, New York, since
December 1988.
MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors held four meetings during the year ended December
31, 1997. In 1997, each director attended at least 75% of the total combined
number of meetings held by the Board and by the committees on which each
director served.
The Board of Directors has an Executive Committee, an Audit Committee, an
Executive Compensation Committee, a Directors' Stock Plan Administration
Committee and an Employee Compensation Committee. The Company does not have a
nominating or other similar committee.
The Executive Committee is currently comprised of Messrs. Reeves and
Mayell and is responsible for assisting with the general management of the
business and affairs of the Company during intervals between meetings of the
Board of Directors. Twelve meetings of the Executive Committee were held in
1997.
The Audit Committee is currently comprised of Mr. Kares and is charged
with the duties of recommending the appointment of the independent certified
public accountants, reviewing their fees, ensuring that proper guidelines are
established for the dissemination of financial information, meeting periodically
with the independent auditors, the Board of Directors and certain officers of
the Company and its subsidiaries to ensure the adequacy of internal controls and
reporting, reviewing consolidated financial statements and performing any other
duties or functions deemed appropriate by the Board of Directors. Five Audit
Committee meetings were held in 1997. Pursuant to the terms and conditions of
the Certificate of Designation, at least one Preferred Director shall be a
member of the Audit Committee; therefore, it is expected that such Preferred
Director will be appointed to the Audit Committee immediately following his or
her appointment to the Board of Directors by the holders of the Preferred Stock.
The Executive Compensation Committee (the "Executive Compensation
Committee") is currently comprised of Messrs. Kares and Prizzi, both of whom are
non-employee directors of the Company. The Executive Compensation Committee is
responsible for determining the cash compensation to be paid to each of Messrs.
Reeves and Mayell. No Executive Compensation Committee meetings were held in
1997.
The Directors' Stock Plan Administration Committee is currently comprised
of Messrs. Reeves and Mayell and is responsible for administering the Company's
Non-Employee Director Stock Option Plan. No Directors' Stock Plan Administration
Committee meetings were held in 1997.
The Employee Compensation Committee is currently comprised of Messrs.
Reeves and Mayell, the Chief Executive Officer and President, respectively, of
the Company. The Employee Compensation Committee sets the salaries of all
employees, including the elected officers and other senior executives, other
than their own salaries (which are set by the Executive Compensation Committee),
and grants bonuses to such elected officers and other senior executives. No
Employee Compensation Committee meetings were held in 1997.
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<PAGE> 9
REPORT ON EXECUTIVE COMPENSATION
GENERAL POLICY
The Company's executive compensation program is designed to attract,
motivate and retain talented management personnel and to reward management for
successfully performing their duties and improving shareholder value.
Compensation and incentives are provided through the combination of cash
salaries and bonuses, stock option and other stock-based awards, and grants of
working and net profit interests in the Company's drilling prospects. The
Company's overall compensation package is intended to provide the Company's
executive officers with above average compensation for above average results and
performance, with an emphasis on compensation that rewards the executive for
actions that have demonstrably benefitted the long-term interests of the
Company. Decisions with respect to compensation for any particular executive
officer are based on a number of factors, including the individual's performance
and contribution to the future growth of the Company, the financial and
operational results of the Company and industry and market conditions.
Decisions with respect to the cash compensation of the Company's executive
officers are made in a bifurcated manner. The Employee Compensation Committee of
the Board of Directors, which is comprised of Messrs. Reeves and Mayell, the
Chief Executive Officer and President, respectively, of the Company, sets the
salaries of all employees (other than themselves), including elected officers
and other senior executives, and grants cash bonuses to such elected officers
and other senior executives within guidelines established by the Executive
Compensation Committee. Cash compensation decisions with respect to Messrs.
Reeves and Mayell are made by the Executive Compensation Committee and decisions
with respect to the granting of stock-based awards and the payment of other
non-cash compensation for all of the Company's executive officers, including
Messrs. Reeves and Mayell, are made by the full Board of Directors, with each of
Messrs. Reeves and Mayell abstaining with respect to matters pertaining to him.
The members of the Executive Compensation Committee also review and may modify,
if appropriate, the decisions of the Employee Compensation Committee.
The components of the Company's executive compensation program are more
specifically summarized below.
Base Salary.
The base salaries of the Company's executive officers are determined based
on their positions with the Company, their talents and experience and
competitive market factors, including the desire by the Company to attract and
retain executives with expertise and proven success in 3-D seismic exploration.
In reviewing the base salaries of the Company's executive officers, the Company
considers data from published reports regarding compensation of executive
officers at other independent oil and gas companies, which may or may not
include companies represented in the peer group used in completing the Company's
performance graph. These reports are used as a check on the general
competitiveness of the Company's salaries and not as a means to mathematically
establish salaries within specified percentiles of salary ranges. During 1997,
base salary increases were made for each of the Company's executive officers
based on competitive industry measures and increases
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in the consumer price index applicable to Houston, Texas. Pursuant to deferred
compensation arrangements described below, both Messrs. Reeves and Mayell
elected to receive substantially all of their salaries in the form of rights to
restricted stock in lieu of cash payments.
Bonus Compensation.
Bonus compensation is provided to the Company's executive officers from
time to time based on the financial results of the Company and various
subjective factors, including the executive's contribution to the Company's
success in finding reserves and acquiring prospects, identifying and obtaining
sources of capital for the Company and increasing shareholder value. With
respect to the compensation of Messrs. Reeves and Mayell, bonus compensation is
intended to constitute a material portion of their annual cash compensation such
that a significant portion of their annual compensation is directly related to
performance. Each of Messrs. Reeves and Mayell received cash bonuses for 1997 of
$344,920. In awarding these cash bonuses, the Executive Compensation Committee
considered the significant contributions that each such executive officer made
to both the operations and finances of the Company during 1997, primarily in
connection with their work in connection with their leadership in furthering
recognition of the Company as a leader in 3-D seismic exploration and various
important prospect and seismic lease option acquisitions made in 1997 that are
expected to benefit the Company in 1998 and beyond.
Net Profit Interests.
The Company has adopted a program under which net profit interests are
granted to its executive officers and other key employees in prospects and wells
in which the Company is pursuing and drilling. In general, the net profit
interests granted to an individual or group of individuals range from 0.25% to
3.00% of any well and are subject to proportional reduction to the Company's
interests, and in certain cases payments pursuant to such net profits interests
will be made partially in Common Stock, at the election of the Company. Such
grants generally are intended to provide long-term incentive for the executive
officer or employee by aligning his or her interests with those of the Company
in its drilling efforts. Generally, such grants are not subject to vesting, the
continued employment of the individual with the Company or other conditions. The
Company did not grant any net profit interests in 1997. See "Certain
Relationships and Related Transactions--Participation Interests".
LONG-TERM INCENTIVE COMPENSATION
The Board of Directors believes that long-term incentive compensation is
an important component of the Company's compensation program and that the value
of long-term incentive compensation should be directly related to increases in
shareholder value. Thus, as part of total compensation, the Company provides
long-term incentive compensation to its executive officers through stock options
under the Company's stock option plans.
Under the Company's 1995 Long-Term Incentive Plan (the "1995 Plan") and
1997 Long-Term Incentive Plan (the "1997 Plan" and with the 1995 Plan, the
"Incentive Plans"), the Board of Directors has the authority to grant to the
Company's executive officers and key employees options to purchase shares of
Common Stock for terms of up to ten years, with vesting conditions established
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<PAGE> 11
by the Board of Directors, and other forms of stock-based compensation including
restricted stock. Awards under the Incentive Plans are intended to provide
incentives to the participants to increase shareholder value by providing
benefits that are directly related to the market value of the Common Stock. The
Board of Directors believes that stock-based compensation provides a desirable
form of incentive to the Company's executive officers in that stock-based
compensation received by an executive officer generally will be of no value to
the officer unless the value of the Common Stock increases.
Decisions as to whether to grant stock-based compensation and other awards
to an executive officer are made by the Board of Directors (with each of Messrs.
Mayell and Reeves abstaining with respect to matters pertaining to him) in light
of existing circumstances, including the executive officer's contributions to
the Company over the prior year and the expected contributions by the executive
officer in the future. If a stock option or other stock-based award is granted
to an executive officer, the number of shares of Common Stock subject to the
granted option or award will be based on, among other things, the level of
responsibility of the executive officer and the anticipated contribution of the
officer to the future growth of the Company. The Board of Directors also
considers the amount and terms of the options and other stock-based benefits
held by the executive officers.
During 1996, the Company, in lieu of cash compensation, granted to Messrs.
Reeves and Mayell rights to Common Stock pursuant to the 1995 Plan. Under such
grants, each of Messrs. Reeves and Mayell elected to utilize $180,000 and
$400,000 of his compensation for 1996 and 1997, respectively, to acquire rights
to Common Stock. In consideration of payment of compensation through rights to
Common Stock in lieu of cash consideration, the Company also granted to each of
these officers a 100% matching deferral that is subject to a one-year vesting.
Under the terms of the grants, the employee and matching deferrals are allocated
to a Common Stock account in which Common Stock rights are credited to the
accounts of the officer based on the number of shares that could be purchased at
the market price of the Common Stock at June 28, 1996, for the deferrals of
1996, and at December 31, 1996, for the deferrals of 1997. At December 31, 1997,
87,059 rights (including the Company's matching obligation) had been granted to
each of Messrs. Reeves and Mayell and an aggregate of 75,882 shares is reserved
for issuance pursuant to such program for any salary deferrals (and matching
grants) made in 1998 or beyond. No actual shares of Common Stock are issued, and
the officer has no rights with respect to any shares unless and until there is a
distribution. Distributions are to be made upon the death, retirement or
termination of employment of the officer. The obligations of the Company with
respect to this deferred compensation are unsecured obligations of the Company.
The Board of Directors believes that the granting of these Common Stock rights
in lieu of cash compensation enhances the Company's financial liquidity while
further aligning Messrs. Reeves' and Mayell's interests with those of the
Company's shareholders.
During 1997, the Board of Directors of the Company adopted the 1997 Plan,
which was approved by the Company's shareholders at the 1997 Annual Meeting of
Shareholders. The 1997 Plan supplemented the 1995 Plan and allows the Board of
Directors to make grants of stock options, restricted stock and performance
awards as the Board of Directors deems appropriate. During 1997, options to
purchase 257,926 shares of Common Stock were granted by the Company pursuant to
the 1997 Plan to its executive officers and employees, including options to
purchase 50,000 shares of Common Stock granted to each of Messrs. Reeves and
Mayell.
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RECENT TAX LEGISLATION
Section 162(m) ("Section 162(m)") of the Internal Revenue Code of 1986, as
amended, currently imposes a $1 million limitation on the deductibility of
certain compensation paid to the Company's five highest paid executive officers.
Excluded from the limitation is compensation that is "performance based".
Excluded compensation must meet certain criteria, including being based upon
predetermined objective standards approved by the Company's shareholders. Awards
under the Incentive Plans as well as bonus and salary compensation awarded to
the Company's executive officers do not currently satisfy the requirements of
Section 162(m); however, since the Company currently does not expect to be
paying federal income taxes in the near future, the Board of Directors and
Executive Compensation Committee do not believe that such non-deductibility will
have a material effect on the Company. The Board of Directors and Executive
Compensation Committee intend to take into account the potential application of
Section 162(m) with respect to incentive compensation awards and other
compensation decisions made by them in the future.
Joseph A. Reeves, Jr.
Michael J. Mayell
James T. Bond
Joe E. Kares*
Gary A. Messersmith
Jack A. Prizzi*
* Executive Compensation Committee member.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
As disclosed above, certain components of the compensation of the
executive officers of the Company, other than Messrs. Reeves and Mayell, are
determined by the Employee Compensation Committee of the Board of Directors of
the Company, which is comprised of Messrs. Reeves and Mayell. The decisions of
the Employee Compensation Committee, however, are subject to review and
modification by the Executive Compensation Committee and the full Board of
Directors of the Company. Stock-based and other non-cash compensation decisions
with respect to the Company's executive officers are made by the full Board of
Directors, with each of Messrs. Reeves and Mayell abstaining with respect to
matters pertaining to him. For a discussion of certain transactions between the
Company and members of the Board of Directors, see "Certain Relationships and
Related Party Transactions".
COMPENSATION
EXECUTIVE COMPENSATION
The following tables contain compensation data for the executive officers
serving at the end of 1997 whose 1997 salary and annual bonus compensation
exceeded $100,000, and two other
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<PAGE> 13
individuals who would otherwise have been included in this table but for the
fact that such individuals were not serving as executive officers of the Company
at the end of 1997 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------------------------ -------------------------
Other Restricted Securities
Name and Annual Stock Underlying All Other
Principal Position Year Salary($)(1) Bonus($)(1) Compensation($)(2) Award($)(1) Options(#) Compensation($)(4)
------------------ ---- ------------ ----------- ------------------ ----------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Joseph A. Reeves, Jr. 1997 $ 37,454 $344,920 -- $800,000 50,000 $ 9,575
CEO 1996 202,973 373,244 -- 455,004 50,000 6,953
1995 315,124 341,864 -- -- 35,000(3) 10,850
Michael J. Mayell 1997 37,454 344,920 -- 800,000 50,000 9,575
President 1996 202,973 373,244 -- 455,004 50,000 6,953
1995 315,124 341,864 -- -- 35,000(3) 10,850
Lloyd V. DeLano 1997 127,950 12,083 -- -- 7,500 8,677
Vice President and 1996 112,794 10,000 -- -- 5,000 6,123
Chief Accounting 1995 104,355 8,667 -- -- 15,000 8,357
Officer
Ronald T. Ivy 1997 127,949 12,083 -- -- 7,500 8,677
VP Production--TMRX 1996 115,485 10,000 -- -- 10,000 6,205
1995 40,107 19,000 8,522 -- 20,000 --
Michael R. Stamatedes 1997 127,841 12,083 -- -- 7,500 8,677
VP Geophysics--TMRX 1996 115,383 10,000 -- -- 7,500 6,202
1995 77,331 8,333 25,566 -- 20,000 5,833
</TABLE>
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(1) Salary and bonus compensation excludes amounts deferred by Messrs. Reeves
and Mayell pursuant to the 1995 Plan, which have been reported in the
Restricted Stock Award column. The Restricted Stock Award column also
includes the matching deferrals awarded by the Company pursuant to such
plan. In July 1996, the Company granted to Messrs. Reeves and Mayell rights
to Common Stock in lieu of cash compensation pursuant to the 1995 Plan. The
issuance of such shares are not guaranteed, and are unsecured obligations
of the Company. The purpose of such grants was to provide retirement
benefits to these executive officers and to enhance the Company's financial
liquidity. Under such grants, Messrs. Reeves and Mayell each elected in
July 1996 to defer $180,000 and $400,000 of his compensation for 1996 and
1997, respectively. The Company also granted to each officer an equal
matching deferral, which is subject to a one-year vesting. Under the terms
of the grants, the employee and matching deferrals are allocated to a
Common Stock account in which rights are credited to the accounts of the
officer based on the number of shares that could be purchased at the market
price of the Common Stock at June 28, 1996 ($9.00 per share), for the
deferrals of 1996, and at December 31, 1996 ($17.00 per share), for the
deferrals of 1997. During 1996, rights to 40,000 shares (including the
amount of matching deferrals) of restricted stock were granted to each of
Mr. Reeves and Mayell, having a fair market value on December 31, 1996 of
$680,000, and during 1997, rights to 47,059 shares (including the amount of
matching deferrals) of restricted stock were granted to each of Mr. Reeves
and Mayell, having a fair market value on December 31, 1997 of $450,002.
The total value of all restricted stock grants under these arrangements as
of December 31, 1997 and July 27, 1998 for each officer was $832,502 and
$687,500, respectively. No actual shares of Common Stock are issued and the
officer has no rights with respect to any shares unless and until there is
a distribution. Distributions are to be made upon the death, retirement or
termination of employment of the officer. An amount equal to the dividends,
if any, that would otherwise been paid with respect to such shares had they
actually been issued will be credited to the respective Common Stock
accounts as well.
-10-
<PAGE> 14
(2) Represents net profit interests aggregating 1% granted to each employee in
various prospects. Although such grants were intended to provide long-term
incentive for the employee by aligning his or her interests with those of
the Company in its drilling efforts, such grants are not subject to
vesting, the continued employment of the individual with the Company or
other conditions. Accordingly, such grants are considered part of the
Company's annual compensation package and not compensation under a
long-term incentive plan. Each grant of a net profits interest has been
valued based on a third party appraisal of the interest granted. All
amounts reflected in this column are attributable to such grants.
(3) Excludes 714,000 shares of Common Stock issuable to each of Messrs. Reeves
and Mayell with respect to warrants (the "Executive Officer Warrants")
received by them in connection with the Company's 1988 restructuring and
acquisition of Walker Energy Partners, which were amended in 1994 with
approval of shareholders to make various changes to more closely align the
terms of the warrants with the continued employment of the officers with
the Company.
(4) Company contributions to its 401(k) plan.
-11-
<PAGE> 15
The following table sets forth those options granted to the Named
Executive Officers during 1997:
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------
% of Total Potential Realizable Value at Assumed
Number of Options Annual Rates of Stock Price
Shares Granted to Exercise Appreciation for Option Term
Underlying Employees in Price Expiration -------------------------------------
Name Options Granted Fiscal Year ($/share) Date 5% ($) 10% ($)
---- --------------- ----------- --------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Joseph A. Reeves, Jr. 50,000 19.4% $ 11.125 4/30/07 $349,823 $886,519
Michael J. Mayell 50,000 19.4 11.125 4/30/07 349,823 886,519
Lloyd V. DeLano 7,500 2.9 11.125 4/30/07 52,473 132,978
Ronald T. Ivy 7,500 2.9 11.125 4/30/07 52,473 132,978
Michael R. Stamatedes 7,500 2.9 11.125 4/30/07 52,473 132,978
</TABLE>
- --------------
The following table summarizes the number and value of options exercised
by the Named Executive Officers during 1997, as well as the number and value of
unexercised options owned by the Named Executive Officers as of December 31,
1997.
AGGREGATE OPTION EXERCISES IN FISCAL YEAR 1997
AND DECEMBER 31, 1997 OPTION VALUE
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised In-the-Money
Options at Options at
Shares December 31, December 31,
Acquired Value 1997(#) 1997($)
on Realized Exercisable/ Exercisable/
Name Exercise(#) ($) Unexercisable (1) Unexercisable
- -------------------------- -------------- ------------ ------------------------ -----------------------
<S> <C> <C> <C> <C>
Joseph A. Reeves, Jr. (2) -- -- 212,250 / 78,750 $395,313 / $14,063
Michael J. Mayell (2) -- -- 212,250 / 78,750 395,313 / 14,063
Lloyd V. DeLano -- -- 42,500 / 22,500 55,938 / 2,813
Ronald T. Ivy -- -- 14,375 / 23,125 2,813 / 2,813
Michael R. Stamatedes -- -- 13,125 / 21,875 2,109 / 2,109
</TABLE>
- --------------
(1) Includes 10,000 unexercised options that were forfeited in 1998 by each of
the individuals named in the table.
(2) Excludes (i) the warrants (the "General Partner Warrants") granted to each
of Messrs. Reeves and Mayell in October 1990 in connection with the
Company's formation and (ii) the Executive Officer Warrants. The value
-12-
<PAGE> 16
of these warrants at December 31, 1997, based on the difference between the
market price of the Common Stock at December 31, 1997 and the exercise
price of the respective warrants was $5,793,687 for each of Messrs. Reeves
and Mayell.
COMPENSATION OF DIRECTORS
Non-employee directors of the Company receive an annual retainer,
payable in quarterly installments, of $20,000. Non-employee directors also are
reimbursed for expenses incurred in attending Board of Directors and committee
meetings, including those for travel, food and lodging. Directors and members of
committees of the Board of Directors who are employees of the Company or its
affiliates are not compensated for their Board of Directors and committee
activities.
The Company has a Non-Employee Director Stock Option Plan (the
"Director Stock Option Plan") pursuant to which options to purchase up to
270,000 shares of Common Stock may be granted. Under the Director Stock Option
Plan, each non-employee director (other than a Preferred Director) is granted,
on the date of his appointment, election, reappointment or re-election as a
member of the Board of Directors, an option ("Director Option") to purchase
15,000 shares of Common Stock at an exercise price equal to the fair market
value of a share of Common Stock on the date of grant. Preferred Directors are
granted options to purchase 15,000 shares of Common Stock upon initial
appointment and upon such director's third successive re-election. The duration
of each Director Option is five years from the date of grant, and each Director
Option may be exercised in whole or in part at any time after the date of grant;
provided, however, that the option vests with respect to 25% of the shares of
Common Stock covered by such Director Option one year after the date of grant,
with respect to an additional 25% of such shares of Common Stock two years after
the date of grant, and with respect to the remaining shares of Common Stock
three years after the date of grant. There are currently outstanding options to
acquire 170,000 shares under the Director Stock Option Plan with a weighted
average exercise price of $12.11 per share.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement ("Employment
Agreement") with each of Messrs. Reeves and Mayell. Each Employment Agreement is
for a term of three years, renewable annually for a term to extend three years
from such renewal date. Each Employment Agreement provides for compensation in a
minimum amount of $289,800 per annum, to be reviewed at least annually for
possible increases, and annual bonuses and other perquisites in accordance with
Company policy. In the event either of Messrs. Reeves or Mayell terminates his
employment for "Good Reason" (as defined below), or is terminated by the Company
for other than "Good Cause" (as defined below), such individual would receive a
cash lump sum payment equal to the sum of (i) the base salary for the remainder
of the employment period under the Employment Agreement, (ii) an amount equal to
the last annual bonus paid to him, (iii) two times the sum of his annual base
salary and last annual bonus paid to him, (iv) all compensation previously
deferred and any accrued interest thereon, (v) a lump-sum retirement benefit
equal to the actuarial equivalent of the benefits lost by virtue of the early
termination of the employee and (vi) continuation of benefits under the
Company's benefit plans. In the event either of Messrs. Reeves or Mayell dies or
is terminated by the Company for Good Cause, such individual or such
individual's estate, as applicable, would receive all payments then due him
under the Employment Agreement through the date of termination, including a
prorated annual bonus and any compensation previously deferred. Each of
-13-
<PAGE> 17
Messrs. Reeves and Mayell also is entitled under his Employment Agreement to
certain gross-up payments if an excise tax is imposed pursuant to Section 4999
of the Code, which imposes an excise tax on certain severance payments in excess
of three times an annualized compensation amount following certain changes in
control.
The term "Good Reason" is defined in each Employment Agreement, with
respect to each of Messrs. Reeves and Mayell, generally to mean (i) a change in
the nature or scope of the duties or responsibilities of such individual, unless
remedied by the Company; (ii) any failure by the Company to pay any form of
compensation stated in each Employment Agreement, unless remedied by the
Company; (iii) requiring such individual to be based at any office or location
30 miles or more from the current location of the Company, other than travel
reasonably required in the performance of such individual's responsibilities;
(iv) any purported termination by the Company of such individual's employment
other than due to death or for Good Cause; or (v) any failure of the Company to
require a successor of the Company to assume the terms of the Employment
Agreement. The term "Good Cause" is defined in each Employment Agreement, with
respect to each of Messrs. Reeves and Mayell, generally to mean (i) such
individual has been convicted of a felony and such conviction is no longer
subject to direct appeal, (ii) such individual has been adjudicated to be
mentally incompetent so as to affect his ability to serve the Company and such
adjudication is no longer subject to direct appeal, or (iii) such individual has
been found guilty of fraud or willful misfeasance so as to materially damage the
Company and such finding is no longer subject to direct appeal.
EXECUTIVE OFFICERS
The following table provides information with respect to the executive
officers of the Company. Each executive officer has been elected to serve until
his or her successor is duly appointed or elected by the Board of Directors or
his or her earlier removal or resignation from office.
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED
NAME OF OFFICER POSITION WITH THE COMPANY AGE AS OFFICER
--------------- ------------------------- --- ----------
<S> <C> <C> <C>
Joseph A. Reeves, Jr. Chairman of the Board 51 1990
and Chief Executive Officer
Michael J. Mayell Director and President 51 1990
P. Richard Gessinger Executive Vice President 50 1997
Kevin McMichael Executive Vice President 42 1997
Lloyd V. DeLano Vice President and 47 1993
Director of Accounting
</TABLE>
- --------------
For additional information regarding Messrs. Reeves and Mayell, see
"Directors" above.
-14-
<PAGE> 18
P. Richard Gessinger joined the Company as Executive Vice President in
1997. Prior to assuming such position with the Company, Mr. Gessinger gained an
extensive background in energy finance over the past 24 years as a commercial
banker, investment banker and entrepreneur for such firms as Rauscher Pierce
Refsnes, Inc., Bear Stearns & Co. Inc., Citicorp Investment Bank and
Manufacturers Hanover Trust Company.
Kevin McMichael joined the Company as Executive Vice President and
Chief Operating Officer in 1997. Prior to joining the Company, Mr. McMichael was
Vice President and General Manager of Domestic Exploration for Louisiana Land &
Exploration, Inc. In this capacity, he was responsible for the Company's onshore
and offshore 3-D-based exploration program as well as its entry into the deep
water Gulf of Mexico.
Lloyd V. DeLano joined the Company in January 1992 performing contract
work and became an employee of the Company in October 1992. Mr. DeLano was named
Vice President - Director of Accounting of The Meridian Resource & Exploration
Company (a wholly-owned subsidiary of the Company) in April 1993 and in June
1996 was named Vice President of the Company. Mr. DeLano is a Certified Public
Accountant with 24 years of oil and natural gas experience.
Other than Mr. Bond, who is Mr. Mayell's father-in-law, there are no
family relationships among the officers and directors of the Company.
-15-
<PAGE> 19
STOCK PERFORMANCE GRAPH
The following performance graph compares the performance of the Common
Stock to the New York Stock Exchange Market Index and a Peer Group Index
(described below) from January 1, 1993 through December 31, 1997. The graph
assumes that the value of the investment in the Common Stock and each index was
$100 at December 31, 1992, and that all dividends were reinvested. In prior
years, the Company compared the performance of the Common Stock to the American
Stock Exchange Market Index and the American Stock Exchange Natural Resources
Industry Index (the "ANRI"), each of which ceased to exist or was reformulated
during 1997. Therefore, the Company has elected to compare the performance of
the Common Stock to the New York Stock Exchange Market Index and a Peer Group
Index comprised of companies that formerly were part of the ANRI.
[GRAPH]
<TABLE>
<CAPTION>
December 31, 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
The Company 100 169 200 279 351 196
NYSE Market Index 100 114 111 144 174 229
Peer Group Index 100 121 113 147 186 188
</TABLE>
Assumes: $100 invested on December 1, 1992 all, dividends reinvested and fiscal
year ending December 31. The Company's Peer Group is comprised of Anadarko
Petroleum Corporation, Apache Corporation, Burlington Resources Inc., Chesapeake
Energy Corporation, Consolidated Natural Gas Company, EEX Corporation, Enron
Corp., Noble Affiliates, Inc., Oryx Energy Company, Pogo Producing Company,
Questar Corporation, Seagull Energy Corporation, SONAT Inc., Union Pacific
Resources Group Inc. and The Williams Company Inc.
-16-
<PAGE> 20
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of July 15, 1998, with
respect to the beneficial ownership of Common Stock by (a) each director, (b)
each Named Executive Officer, (c) each shareholder known by the Company to be
the beneficial owner of more than 5% of the Common Stock and (d) all executive
officers and directors of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY
NAME OWNED (1) PERCENT
- ----------------------------------------------------- ------------ -------
<S> <C> <C>
Joseph A. Reeves, Jr. (2)............................ 1,812,027 3.8%
Michael J. Mayell (3)................................ 1,715,899 3.6
P. Richard Gessinger (4)............................. 29,500 *
Kevin McMichael (5).................................. 25,500 *
Lloyd V. DeLano (6).................................. 57,168 *
James T. Bond (7).................................... 18,500 *
E. L. Henry.......................................... --
Joe E. Kares (8)..................................... 36,250 *
Gary A. Messersmith (9).............................. 7,700 *
Jack A. Prizzi (10).................................. 46,250 *
Ronald T. Ivy (11)................................... 27,500 *
Michael R. Stamatedes (12)........................... 25,500 *
All executive officers and directors as a group
(9 persons) (2), (3), (4), (5), (6), (7), (8), (9),
(10)................................................. 3,748,794 7.7
SLOPI (13)........................................... 24,919,458 42.6
Mellon Bank Corporation (14)......................... 2,815,603 6.1
Phemus Corporation (15).............................. 2,785,860 6.1
</TABLE>
- ----------
* Less than one percent.
(1) Shares of Common Stock which are not outstanding but that can be acquired
by a person upon exercise of an option or warrant within 60 days are deemed
outstanding for the purpose of computing the percentage of outstanding
shares beneficially owned by such person.
(2) Includes 464,007 shares, 714,000 shares and 281,000 shares of Common Stock
that Mr. Reeves has the right to acquire upon the exercise of the General
Partner Warrants, Executive Officer Warrants, and stock options under the
Company's stock option plans, respectively.
-17-
<PAGE> 21
(3) Includes 464,007 shares, 714,000 shares and 281,000 shares of Common Stock
that Mr. Mayell has the right to acquire upon the exercise of the General
Partner Warrant, Executive Warrants, and stock options under the Company's
stock option plans, respectively.
(4) Includes 25,000 shares of Common Stock that Mr. Gessinger has the right to
acquire upon the exercise of stock options.
(5) Includes 25,000 shares of Common Stock that Mr. McMichael has the right to
acquire upon the exercise of stock options.
(6) Includes 55,000 shares of Common Stock that Mr. DeLano has the right to
acquire upon the exercise of stock options.
(7) Includes 7,500 shares of Common Stock that Mr. Bond has the right to
acquire upon the exercise of stock options.
(8) Includes 36,250 shares of Common Stock that Mr. Kares has the right to
acquire upon the exercise of stock options.
(9) Includes 7,500 shares of Common Stock that Mr. Messersmith has the right to
acquire upon the exercise of stock options.
(10) Includes 43,750 shares of Common Stock that Mr. Prizzi has the right to
acquire upon the exercise of stock options.
(11) Includes 27,500 shares of Common Stock that Mr. Ivy has the right to
acquire upon the exercise of stock options.
(12) Includes 25,000 shares of Common Stock that Mr. Stamatedes has the right to
acquire upon exercise of stock options.
(13) SLOPI's address is P.O. Box 7986, Newark, Delaware. Includes 12,082,030
shares of Common Stock as well as 12,837,428 shares of Common Stock
issuable upon conversion of the Preferred Stock. Assuming the exercise of
all outstanding options and warrants to purchase Common Stock and
conversion of the Preferred Stock, SLOPI would beneficially own 39.9% of
the outstanding Common Stock.
(14) The business address of Mellon Bank Corporation is One Mellon Bank Center,
Pittsburgh, Pennsylvania 15258.
(15) The business address of Phemus Corporation is 600 Atlantic Avenue, Boston,
Massachusetts 02210-2203. Includes 20,000 shares issued pursuant to the
exercise of stock options exercisable within 60 days.
-18-
<PAGE> 22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SHELL TRANSACTION
On June 30, 1998, the Company acquired substantially all of Shell's and
its affiliates' onshore oil and gas property interests located in south
Louisiana pursuant to the Shell Transactions (as defined below). The Shell
Transactions were consummated pursuant to a merger (the "LOPI Transaction")
between a wholly-owned subsidiary of the Company and Louisiana Onshore
Properties Inc. ("LOPI"), an indirect wholly-owned subsidiary of Shell, and a
separate cash purchase of oil and gas properties (the "SWEPI Acquisition" and,
with the LOPI Transaction, the "Shell Transactions") from Shell Western E&P
Inc., an indirect subsidiary of Shell ("SWEPI"). The LOPI Transaction was
consummated pursuant to the terms and conditions of an Agreement and Plan of
Merger dated March 27, 1998 (the "LOPI Agreement"), between the Company, a
wholly-owned subsidiary of the Company, LOPI and SLOPI. Pursuant to the terms of
the LOPI Agreement, upon consummation of the merger, the Company issued to SLOPI
12,082,030 shares of Common Stock and 3,982,906 shares of Preferred Stock. Such
shares of Preferred Stick are convertible into a total of 12,837,428 shares of
Common Stock. In light of the large ownership position that was issued to SLOPI
in the LOPI Transaction and in recognition of both the Company's and SLOPI's
desire that the Company function as an independent oil and gas company, SLOPI
and the Company entered into certain arrangements that define and limit SLOPI's
and the Company's respective rights and obligations. These arrangements between
the parties are defined in the Stock Rights and Restrictions Agreement, the
Certificate of Designation and a Registration Rights Agreement dated June 30,
1998 (the "Registration Rights Agreement"), between the Company and SLOPI, which
are summarized below.
The SWEPI Acquisition was consummated pursuant to the terms and
conditions of a Purchase and Sale Agreement dated effective as of October 1,
1997, between a subsidiary of the Company and SWEPI. The Company paid $42.5
million in cash for the oil and gas property interests acquired in the SWEPI
Acquisition, which is subject to adjustment based upon production and expenses
between October 1, 1997 and June 30, 1998.
Stock Rights and Restrictions Agreement
The Stock Rights and Restrictions Agreement contains terms and
provisions that limit SLOPI's and its affiliates' control of the Company while
protecting their interests in the context of certain extraordinary transactions
by (i) allowing SLOPI to maintain representation on the Company's Board of
Directors, (ii) restricting SLOPI's and its affiliates' ability to propose or
effect certain business combinations with the Company, (iii) restricting the
ability of SLOPI and its affiliates to sell certain portions of their shares of
Common Stock and Preferred Stock, subject to certain exceptions designed to
permit them to sell such shares over time and to sell such shares in the event
of certain business combinations involving the Company, (iv) limiting SLOPI's
and its affiliates' discretionary voting rights to 23% of the total voting
shares, except with respect to certain extraordinary events and in situations in
which the Average Per Share Market Value (as defined below) of the Common Stock
has been less than $5.50 per share or the Company is in material breach of its
obligations under the agreements governing the LOPI Transaction, (v) permitting
SLOPI and its affiliates to purchase additional securities of the Company in
order to maintain a 21% beneficial ownership interest of the Common Stock if the
Company proposes to issue additional shares of Common Stock or securities
-19-
<PAGE> 23
convertible into Common Stock, (vi) restricting SLOPI's and its affiliates'
ability to purchase additional shares of Common Stock and (vii) allowing SLOPI
and its affiliates to receive additional shares of Common Stock or cash in the
event they sell shares of Common Stock received upon conversion of the Preferred
Stock for less than the conversion price in effect on the date of conversion of
such Preferred Stock.
Directors. The Stock Rights and Restrictions Agreement and the
Certificate of Designation together provide that, until the earlier of (i) the
termination of the Stock Rights and Restrictions Agreement and (ii) SLOPI and
its affiliates beneficially own less than 21% of the outstanding Common Stock,
SLOPI may elect at least one member of the Company's Board of Directors and
additional members in the event the number of Board seats is increased to ten or
more so that SLOPI is able to nominate that number of directors that equals the
product (rounded downward to the nearest whole number, but in no event less than
one) of the total number of directors following such election multiplied by 20%.
So long as there is at least one director elected by the holders of Preferred
Stock serving on the Company's Board of Directors, at least one director elected
by the holders of Preferred Stock is required to be a member of the Company's
audit committee.
Business Transactions. Subject to certain limited exceptions, the Stock
Rights and Restrictions Agreement prohibits SLOPI and its affiliates from
engaging or proposing to engage in any business combination transaction with the
Company unless such proposal is made after June 30, 2001 and, on the date such
transaction is proposed, there is no Preferred Director or director nominated by
SLOPI and its affiliates serving on the Board of Directors.
Transfer Restrictions. The Stock Rights and Restrictions Agreement
generally prohibits SLOPI and its affiliates from selling or otherwise
transferring the Shell Shares; provided, however, beginning on June 30, 2000,
they may sell an incremental 25% of the Common Stock issued in the LOPI
Transaction or upon conversion of the Preferred Stock until June 30, 2003, at
which time they may sell 100% of such shares of Common Stock. In addition,
beginning on June 30, 2001, SLOPI and its affiliates may sell or transfer an
incremental one-third of the shares of Preferred Stock issued in the LOPI
Transaction until June 30, 2003, at which time they may sell or transfer 100% of
such Preferred Stock. SLOPI and its affiliates, however, may sell their Shell
Shares at any time in connection with a tender offer for the Common Stock,
subject to a right of first refusal by the Company to purchase such shares at
105% of the tender offer price.
Limitation on Purchase of Common Stock. Subject to certain limited
exceptions, the Stock Rights and Restrictions Agreement prohibits SLOPI and its
affiliates from purchasing or acquiring any additional shares of Common Stock
(except upon conversion of the Preferred Stock or future share issuances
required by the LOPI Agreement or the Stock Rights and Restrictions Agreement)
until June 30, 2001.
Voting Rights. The Stock Rights and Restriction Agreement provides that
SLOPI and its affiliates shall be entitled to vote, in their complete discretion
and on all matters, such number of its shares of Voting Stock that constitute up
to 23% of the then outstanding shares of Voting Stock eligible to be cast for
such matter. SLOPI and its affiliates will be required to vote any shares of
Voting Stock that are Excess Shares pro rata with the votes of all shares of
Voting Stock, other than the Excess Shares, that are actually voted for, against
or abstain from voting on the matter. SLOPI's
-20-
<PAGE> 24
and its affiliates' voting rights will not be limited and they will have
discretionary voting rights with respect to all of the Shell Shares in the event
(i) the matter to be voted on involves certain business combination
transactions, (i) the matter to be voted on involves a change of control of the
Company or (iii) on the date the matter is voted on the average closing price of
the Common Stock on the NYSE for the immediately preceding 30 trading days (the
"Average Per Share Market Value") is less than $5.50 per share. Except for
increased discretionary voting rights, SLOPI is entitled to no additional rights
under the Stock Rights and Restrictions Agreement or other documents and
agreements executed in connection with the Shell Transactions by virtue of the
Average Per Share Market Value of the Common Stock falling below $5.50 per
share.
Shell Purchase Rights. The Stock Rights and Restrictions Agreement
provides that, if SLOPI and its affiliates beneficially own shares of Common
Stock that after consummation of a proposed transaction by the Company would
represent less than 21% of the outstanding shares of Common Stock, the Company
shall provide SLOPI and its affiliates the right to purchase shares of Common
Stock (or securities exchangeable into Common Stock) such that, following
SLOPI's purchase and the consummation of the contemplated transaction, SLOPI and
its affiliates would beneficially own 21% of the Common Stock.
Company Support of Certain Stock Sales. The Stock Rights and
Restrictions Agreement provides that if the proceeds received by SLOPI and its
affiliates on the sale of Common Stock issued upon conversion of the Preferred
Stock is less than approximately $10.52 per share, the Company shall pay in cash
an amount equal to, or issue additional shares of Common Stock to SLOPI and its
affiliates equal in amount to, the difference between the proceeds received on
the sale of such Common Stock and $10.52 per share.
Certificate of Designation
The terms of the Preferred Stock are set forth in the Certificate of
Designation. The Preferred Stock has an aggregate stated value of $135 million
and ranks prior to the Common Stock as to distribution of assets and payment of
dividends. The Preferred Stock is entitled to receive, when and as declared by
the Board of Directors, a cash dividend at the rate of 4% per annum on the
stated value per share; provided, however, dividends shall cease to accrue on an
incremental one-third of the shares of Preferred Stock on the third, fourth and
fifth anniversaries of the LOPI Transaction so that no dividends will accrue on
any shares of Preferred Stock after June 30, 2003. Each share of Preferred Stock
is entitled to one vote on matters submitted to the Company's shareholders for
their approval. Until the earlier of (i) the termination of the Stock Rights and
Restrictions Agreement and (ii) SLOPI and its affiliates beneficially own less
than 21% of the outstanding Common Stock, the holders of the Preferred Stock may
elect at least one member of the Company's Board of Directors and additional
members in the event the number of Board seats is increased to ten or more so
that SLOPI is able to nominate that number of directors that equals the product
(rounded downward to the nearest whole number, but in no event less than one) of
the total number of directors following such election multiplied by 20%. The
Preferred Stock may be converted into Common Stock at any time by the holder
thereof. In addition, on or after June 30, 2001, the Closing Date, the Preferred
Stock will automatically convert into Common Stock in the event the mean Per
Share Market Value (as defined in the Certificate of Designation) exceeds 150%
of the conversion price (approximately $10.52 per share) for 75 consecutive
trading days.
-21-
<PAGE> 25
Registration Rights Agreement
The shares of Common Stock issued in the LOPI Transaction and the
shares of Common Stock that will be issued upon conversion of the Preferred
Stock are restricted stock and are not freely transferable and tradable.
Therefore, the Company and SLOPI entered into the Registration Rights Agreement
to facilitate the sale or transfer of the shares of Common Stock owned by SLOPI.
SLOPI and its affiliates will have the right to require the Company to file a
registration statement with the Securities and Exchange Commission on ten
separate occasions for the resale of all or a portion of the eligible Common
Stock owned by SLOPI. However, the Company will not be obligated to file a
requested registration statement in the event that the aggregate number of
shares of eligible Common Stock to be included in such requested registration is
less than 2 1/2% of the issued and outstanding Common Stock or if the Company
reasonably determines that the filing thereof at the time requested, or the
offering of the eligible Common Stock pursuant thereto, would materially and
adversely affect a pending or proposed offering of securities of the Company or
other transaction or require premature disclosure of information not otherwise
required to be disclosed to the potential detriment of the Company. In addition,
if the Company at any time proposes to file a registration statement relating to
a public offering of Common Stock to be sold for cash that would permit the
registration of eligible Common Stock held by SLOPI and its affiliates, SLOPI
and its affiliates will be entitled to include all or a portion of the eligible
Common Stock owned by them in such registration statement and offering unless it
is determined that the distribution of such stock would materially adversely
affect the distribution of the securities being registered for sale by the
Company, in which case SLOPI's participation in such registration will be
reduced.
PARTICIPATION INTERESTS
In the ordinary course of business, the Company offers participation in
exploration prospects to industry partners. Terms of each participation vary
depending on the risk and economic conditions existing in the oil and gas
industry at the time of participation. In addition, in an effort to provide the
Company's executive officers and key employees with additional incentive to
identify and develop successful exploratory prospects for the Company, the
Company has adopted a policy of offering to its principal executive officers and
key employees responsible for the identification and development of prospects
the right to participate in each of the prospects pursued by the Company. Such
participation is required to be on the same terms and conditions as the Company
and its outside partners and is currently limited in aggregate to an approximate
8% working interest in any prospect. Other than prospects in the Chocolate Bayou
Field, in which Mr. Reeves and Mr. Mayell each have a 3.3% working interest, and
other non-productive prospects completed prior to 1994, in which Messrs. Reeves
and Mayell each had a working interest of 3.5%, Messrs. Reeves and Mayell have
elected to participate in all Company prospects for a 1.5% working interest but
are paying an increased percentage of costs equal to other outside participants
who participate on the same basis.
During 1997, both Messrs. Reeves and Mayell, either personally or
through wholly-owned or affiliated corporations, participated as working
interest owners in properties of the Company as described above. Under the terms
of the operating and other agreements relating to the Company's wells and
prospects, the Company, as operator, incurs various expenses relating to the
prospect or well that are then billed to the working interest owner. During
1997, each of TODD (a company owned by Mr. Reeves) and Sydson (a company owned
by Mr. Mayell) were indebted to the Company
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<PAGE> 26
for expenses paid by the Company in respect of their working interest in various
prospects and wells in which the Company acted as operator.
TODD and Sydson collectively invested approximately $2,315,000 for the
year ended December 31, 1997 in oil and natural gas drilling activities for
which the Company was the operator. Aggregate amounts due from such entities for
such activities were approximately $2,500,000 as of December 31, 1997, which
have been reduced by amounts owed to them from the Company. TODD and Sydson each
executed a note agreement in favor of the Company, dated December 31, 1997, for
$1,510,699 related to certain amounts due, which matures on December 30, 1998
and accrues interest at variable market rates. TODD and Sydson participated
under the same terms negotiated with unaffiliated working interest owners.
The Company believes that the granting of participation interests in
the Company's prospects to its employees promotes in them a proprietary interest
in the Company's exploration efforts that benefits the Company and its
shareholders. To achieve this objective, the Company has entered into agreements
with certain executive officers and key employees of the Company and a trust for
the benefit of all employees of the Company whereby such persons or trust are
granted net profit interests in the oil and natural gas production from certain
properties to the extent the Company acquires a mineral interest therein. The
net profit interests received are equivalent to overriding royalty interests
less a proportionate share of the costs incurred by the Company and its
participating working interest owners for landowner royalties, severance and
production taxes and normal lease operating expenses, exclusive of drilling well
overhead rates and costs associated with the establishment or enhancement of
production. The interests to be granted with respect to any property will be
proportionately reduced to the extent the interest of the Company and its
participating working interest owners is less than 100%. The net profit
interests for an individual officer or employee applies to all properties on
which the Company expends funds during the employee's employment with the
Company for the identification or acquisition of geological, land or engineering
data or for the drilling of a well at the discretion of the Company. The net
profit interest with respect to a particular well continues following the
officer's termination of employment so long as there is not a three-year period
following the expiration or termination of the last mineral interest in such
property during which the Company does not have a mineral interest therein.
During such time as the officer has a net profit interest in a particular well,
the agreement provides that the Company will have an exclusive option to acquire
leases and other mineral interests therein.
OTHER
Joe E. Kares, a member of the Executive Compensation Committee, is a
partner in the public accounting firm of Kares & Cihlar, which provided the
Company and its affiliates with accounting services for the years ended December
31, 1997, 1996 and 1995 and received fees of approximately $27,000, $56,000 and
$68,000, respectively. These fees exceeded 5% of the gross revenues of Kares &
Cihlar for 1996 and 1995. The Company believes that these fees were equivalent
to the fees that would have been paid to similar firms providing its services in
arm's length transactions.
Mr. Messersmith is a partner in the law firm of Fouts & Moore, L.L.P.,
in Houston, Texas, which periodically provides legal services for the Company.
In addition, the Company has Mr.
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<PAGE> 27
Messersmith on personal retainer of $8,333.33 per month relating to services
provided to the Company personally by Mr. Messersmith.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors and persons who beneficially own more than ten
percent of a registered class of the Company's equity securities to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission. Officers, directors and greater than ten-percent shareholders are
required by the regulations promulgated under Section 16(a) to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, during the period from
January 1, 1997, through December 31, 1997, all filing requirements applicable
to officers, directors and greater than ten-percent shareholders were complied
with, except that Mr. Reeves was a month late in reporting a purchase of 7,000
shares of Common Stock and Mr. Kares failed to report a change in beneficial
ownership due to the exercise of options to purchase 15,000 shares of Common
Stock.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Ernst & Young LLP served as the Company's principal independent
accountants for the fiscal year ended December 31, 1997, and has been
recommended by the Audit Committee to so serve for the current year. A
representative of Ernst & Young LLP will attend the Meeting with the opportunity
to make a statement if he or she desires to do so and to respond to appropriate
questions.
OTHER BUSINESS
Management does not intend to bring any business before the Meeting
other than the matters referred to in the accompanying notice and at this date
has not been informed of any matters that may be presented to the Meeting by
others. If, however, any other matters properly come before the Meeting, it is
intended that the persons named in the accompanying proxy will vote, pursuant to
the proxy, in accordance with their best judgment on such matters.
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<PAGE> 28
SHAREHOLDER PROPOSALS
Any proposal by a shareholder to be presented at the Company's 1999
Annual Meeting of Shareholders must be received by the Company no later than
April 30, 1999 in order to be eligible for inclusion in the Company's Proxy
Statement and proxy used in connection with such meeting.
By order of the Company's Board of Directors
Joseph A. Reeves, Jr.
Chairman of the Board and
Chief Executive Officer
July 31, 1998
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<PAGE> 29
THE MERIDIAN RESOURCE CORPORATION
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of The Meridian Resource Corporation, a
Texas corporation (the "Company"), hereby constitutes and appoints Joseph A.
Reeves, Jr. and Michael J. Mayell, and each of them, his true and lawful agents
and proxies, as proxies, with full power of substitution in each, to vote, as
designated on the reverse side, all shares of Common Stock, $.01 par value, of
the Company which the undersigned would be entitled to vote at the Annual
Meeting of Shareholders of the Company to be held August 28, 1998 and at any
adjournment(s) thereof, on the following matters more particularly described in
the Proxy Statement dated July 31, 1998.
(To Be Signed on REVERSE SIDE)
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE
WITHHOLD
FOR the authority to vote for
following the nominee
nominees named herein
1. Election of
Class II [ ] [ ]
Directors
Nominees: E. L. Henry
Joe E. Kares
Gary A. Messersmith
2. In their discretion the proxies are authorized to vote upon such other
business as may properly come before the meeting.
Receipt is hereby acknowledged of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated July 31, 1998, and the Annual
Report to Shareholders of the Company for the year ended December 31, 1997.
Please mark, sign, date and return this proxy card promptly using the
enclosed envelope.
SIGNATURE(S) DATE , 1998
------------------------------------ -----------------
Note: Please sign your name exactly as name appears hereon. Co-fiduciaries and
joint owners must each sign. When signing as attorney, executor,
administrator, trustee of guardian, please give full title as such. If a
corporation, please sign in the full corporate name by the president or
other authorized officer. If a partnership, please sign in the partnership
name by authorized person.
<PAGE> 30
THE MERIDIAN RESOURCE CORPORATION
SHELL LOUISIANA ONSHORE PROPERTIES INC.
COMMON STOCK PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of The Meridian Resource Corporation, a
Texas corporation (the "Company"), hereby constitutes and appoints Joseph A.
Reeves, Jr. and Michael J. Mayell, and each of them, its true and lawful agents
and proxies, as proxies, with full power of substitution in each, to vote, all
shares of Common Stock, $.01 par value, of the Company which the undersigned
would be entitled to vote at the Annual Meeting of Shareholders of the Company
to be held August 28, 1998 and at any adjournment(s) thereof, on the following
matters more particularly described in the Proxy Statement dated July 31, 1998,
as follows: (i) as designated below for shares of Common Stock for which the
undersigned has discretionary voting rights as provided in Section 2.5 of the
Stock Rights and Restrictions Agreement dated June 30, 1998 (the "Stock Rights
and Restrictions Agreement") between the undersigned and the Company and (ii) as
required by the terms of the Stock Rights and Restrictions Agreement for shares
of Common Stock for which the undersigned does not have discretionary voting
rights as provided in Section 2.5 of the Stock Rights and Restrictions
Agreement.
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE
WITHHOLD
FOR the authority to vote for
following the nominee
nominees named herein
1. Election of
Class II [ ] [ ]
Directors
Nominees: E. L. Henry
Joe E. Kares
Gary A. Messersmith
2. In their discretion the proxies are authorized to vote upon such other
business as may properly come before the meeting.
Receipt is hereby acknowledged of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated July 30, 1998, and the Annual
Report to Shareholders of the Company for the year ended December 31, 1997.
Please mark, sign, date and return this proxy card promptly using the
enclosed envelope.
SHELL LOUISIANA ONSHORE PROPERTIES INC.
By
--------------------------------------------
Name:
-----------------------------------------
Title: DATE , 1998
---------------------------------------- ------------------
Note: Please sign your name exactly as name appears hereon. Co-fiduciaries and
joint owners must each sign. When signing as attorney, executor,
administrator, trustee of guardian, please give full title as such. If a
corporation, please sign in the full corporate name by the president or
other authorized officer. If a partnership, please sign in the partnership
name by authorized person.
<PAGE> 31
THE MERIDIAN RESOURCE CORPORATION
SHELL LOUISIANA ONSHORE PROPERTIES INC.
PREFERRED STOCK PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder of the Series A Cumulative Preferred Stock of
The Meridian Resource Corporation, a Texas corporation (the "Company"), hereby
constitutes and appoints Joseph A. Reeves, Jr. and Michael J. Mayell, and each
of them, its true and lawful agents and proxies, as proxies, with full power of
substitution in each, to vote, as designated below, all shares of Preferred
Stock, $1.00 par value, of the Company which the undersigned would be entitled
to vote at the Annual Meeting of Shareholders of the Company to be held August
28, 1998 and at any adjournment(s) thereof, on the following matters more
particularly described in the Proxy Statement dated July 31, 1998.
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE
WITHHOLD
FOR the authority to vote for
following the nominee
nominees named herein
1. Election of
Class II [ ] [ ]
Directors
Nominees: E. L. Henry
Joe E. Kares
Gary A. Messersmith
2. In their discretion the proxies are authorized to vote upon such other
business as may properly come before the meeting.
Receipt is hereby acknowledged of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated July 30, 1998, and the Annual
Report to Shareholders of the Company for the year ended December 31, 1997.
Please mark, sign, date and return this proxy card promptly using the
enclosed envelope.
SHELL LOUISIANA ONSHORE PROPERTIES INC.
By
--------------------------------------------
Name:
-----------------------------------------
Title: DATE , 1998
---------------------------------------- ------------------
Note: Please sign your name exactly as name appears hereon. Co-fiduciaries and
joint owners must each sign. When signing as attorney, executor,
administrator, trustee of guardian, please give full title as such. If a
corporation, please sign in the full corporate name by the president or
other authorized officer. If a partnership, please sign in the partnership
name by authorized person.
