SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT TO
APPLICATION OR REPORT Filed
pursuant to Section 12, 13, or
15(d) of the Securities
Exchange Act of 1934
THE MERIDIAN RESOURCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
Commission File No. 1-10671
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report on Form 10-K for the
year ended December 31, 1998 as set forth in the pages attached hereto:
Part III, Items 10, 11, 12 and 13
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
PRESENT POSITIONS EXPIRATION OF
WITH THE DIRECTOR PRESENT
NAME AGE COMPANY SINCE TERM
- --------------------- ---- ------------------ -------- -------------
Joseph A. Reeves, Jr. 52 Class III Director, 1990 1999
Chairman of the Board
and Chief Executive
Officer
Michael J. Mayell 52 Class III Director and 1990 1999
President
James T. Bond 74 Class I Director 1997 2000
E. L. Henry 63 Class II Director 1998 2001
Joe E. Kares 55 Class II Director 1990 2001
Gary A. Messersmith 50 Class II Director 1997 2001
Jack A. Prizzi 64 Class I Director 1993 2000
Paul D. Ching 48 Preferred Director 1999 1999
- ----------------------------------
JOSEPH A. REEVES, JR. is Chairman of the Board and Chief Executive Officer of
the Company. Before 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. Before assuming such position
with the Company, Mr. Mayell held a similar position with TMR from 1988 to 1990.
Mr. Mayell is the son-in-law of Mr. Bond.
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. "BUBBA" HENRY has been a partner in the law firm of Adams and Reese
L.L.P. since 1987.
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.
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.
PAUL D. CHING is President and General Manager of Shell Continental Companies
and has been employed by Shell Oil Company or its affiliates for the past 25
years.
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<PAGE>
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.
YEAR FIRST
ELECTED
NAME OF OFFICER POSITION WITH THE COMPANY AGE AS OFFICER
--------------- ------------------------- --- ----------
Joseph A. Reeves, Jr. Chairman of the Board and Chief 52 1990
Executive Officer
Michael J. Mayell Director and President 52 1990
P. Richard Gessinger Executive Vice President 50 1997
and Chief Financial Officer
Lloyd V. DeLano Vice President and 48 1993
Chief Accounting Officer
- ----------------------------------
For additional information regarding Messrs. Reeves and Mayell, see
"Directors", above.
P. RICHARD GESSINGER joined the Company as Executive Vice President and Chief
Financial Officer in 1997. Prior to assuming such position with the Company, Mr.
Gessinger gained an extensive background in energy finance over the past 27
years as a commercial banker, investment banker and entrepreneur for such firms
as Rauscher Pierce Refsnes, Inc., Bear Sterns & Co., Inc., Citicorp Investment
Bank and Manufacturers Hanover Trust Company.
LLOYD V. DELANO joined the Company in January 1992 performing contract work
and became an employee of the Company in October of 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 of 1993 and in June
1996 was named Vice President and Chief Accounting Officer of the Company. Mr.
DeLano is a Certified Public Accountant with 25 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.
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, 1998, through December 31, 1998, all filing requirements applicable
to officers, directors and greater than ten-percent shareholders were complied
with, except that Mr. Kares was late in reporting the exercise of a stock option
to purchase 15,000 shares of Common Stock and Mr. Prizzi was late in reporting
the exercise of a stock option to purchase 15,000 shares of Common Stock and the
sale of 3,160 shares of Common Stock. In addition, Mr. Henry reported his
appointment to the Board of Directors on Form 5 rather than Form 3.
3
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table contains compensation data for the five highest paid
executive officers serving at the end of 1998 whose 1998 salary and annual bonus
compensation exceeded $100,000, and one other individual who would otherwise
have been included in this table but for the fact that such individual was not
serving as an executive officer of the Company at the end of 1998 (collectively,
the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------------- ------------------------
OTHER RESTRICTED SECURITIES
NAME AND ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($)(1) COMPENSATION($)(3) AWARD($)(1) OPTIONS(#) COMPENSATION($)(4)
------------------ ---- ------------ ----------- ----------------- ----------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Joseph A. Reeves, Jr. 1998 $32,488 $526,010 $105,423 $748,800 1,500,000 $7,500
CEO 1997 37,454 344,920 48,300 800,000 50,000 9,575
1996 202,973 373,244 -- 455,004 50,000 6,953
Michael J. Mayell 1998 32,488 526,010 105,423 748,800 1,500,000 7,500
President 1997 37,454 344,920 48,300 800,000 50,000 9,575
1996 202,973 373,244 -- 455,004 50,000 6,953
P. Richard Gessinger 1998 200,000 7,500 * 58,379(6) 4,000 7,500
Executive Vice President 1997 16,667 8,333 -- -- 25,000 -
and Chief Financial
Officer (5)
Lloyd V. DeLano 1998 149,350 25,000 22,602 -- 25,000 7,646
Vice President and 1997 127,950 12,083 -- -- 7,500 8,677
Chief Accounting 1996 112,794 10,000 -- -- 5,000 6,123
Officer
Kevin McMichael
Former Executive Vice 1998 186,410 - 25,279 15,938(6) - 6,667
President (7) 1997 28,846 8,333 - 25,000 -
</TABLE>
- ---------
(1) Salary and bonus compensation excludes amounts deferred by Messrs. Reeves
and Mayell pursuant to a deferred compensation plan (the "DCP"), which have
been reported in the Restricted Stock Award Column. The DCP was approved by
the Board of Directors in 1996 as a method to preserve company liquidity
and further align the executive officers interests with those of the
Company's shareholders. 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 can only be made upon the death, retirement
or termination of employment of the officer. Until distribution, the value
of such stock rights are subject to the general credit of the Company and
the market value of the Company's Common Stock. Pursuant to the DCP, the
Company also granted to each officer an equal matching deferral, which is
subject to a one-year vesting and is included in the Restricted Stock Award
Column. Under the terms of the grants, the employee and matching deferrals
are allocated to a Common Stock account in which units 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 at December 31, 1997 ($9 9/16 per share),
for the deferrals during the first half of 1998, and at June 30, 1998 ($7
1/16 per share), for the deferrals during the second half of 1998).
Pursuant to the DCP, Messrs. Reeves and Mayell each elected to defer
$180,000, $400,000 and $374,400 of their compensation for 1996, 1997 and
1998, respectively. The total value of all grants (including the amount of
matching deferrals) under these arrangements as of December 31, 1998 was
$1,140,398. An amount equal to the dividends, if any, that would otherwise
have been paid with respect to such shares had they actually been issued
will be credited to the respective Common Stock accounts as well.
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<PAGE>
(3) The Company adopted in 1994 a program under which net profit interests are
granted to certain key employees of the Company in prospects and wells in
which the Company is pursuing and drilling. In general, the net profit
interests is 2.00% of any well and are subject to proportional reduction to
the Company's interests. Pursuant to these arrangements, during 1998, net
profit interests of 2% were granted to each of Messrs. Reeves and Mayell of
the Company in various prospects acquired by the Company in 1998. Although
such grants were 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, 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 is reflected in this
table at a value based on a third party appraisal of the interest granted
or the Company's current estimate of value for those prospects for which a
third party appraisal has not yet been completed.
(4) Company contributions to its 401(k) plan.
(5) Mr. Gessinger began employment with the Company in December 1997.
(6) Reflects restricted stock grants pursuant to such employee's employment
agreement. All 5,000 shares granted to Mr. McMichael are fully vested. Mr.
Gessinger is fully vested in 5,000 shares, with the remaining 13,215 shares
vesting over the next three years. At December 31, 1998, the value of such
restricted stock grants were $58,379 and $15,938 for each of Messrs.
Gessinger and McMichael, respectively.
(7) Mr. McMichael began employment with the Company in November 1997. Mr.
McMichael resigned as an officer and employee of the Company in November
1998.
5
<PAGE>
The following table sets forth those options granted to the Named Executive
Officers during 1998. None of these options were "in-the-money" as of December
31, 1998. All options are subject to vesting requirements.
OPTION GRANTS IN FISCAL 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS
SHARES GRANTED TO EXERCISE POTENTIAL REALIZABLE VALUE AT ASSUMED
UNDERLYING EMPLOYEES IN PRICE EXPIRATION ANNUAL RATES OF STOCK PRICE
NAME OPTIONS GRANTED FISCAL YEAR ($/SHARE) DATE APPRECIATION FOR OPTION TERM
- ------------------------- --------------- ------------ --------- -------------- ----------------------------------------
5% ($) 10% ($)
-------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Joseph A. Reeves, Jr. 1,500,000 46% $3 3/8 8/26/08 $8,246,279 $13,130,821
Michael J. Mayell 1,500,000 46% $3 3/8 8/26/08 8,246,279 13,130,821
P. Richard Gessinger 4,000 * $3 3/8 8/26/08 21,990 35,016
Lloyd V. DeLano 25,000 * $3 3/8 8/26/08 137,438 218,847
Kevin J. McMichael - - - - - -
</TABLE>
- --------------
* Less than 1%.
The following table summarizes the number and value of options exercised by
the Named Executive Officers during 1998, as well as the number and value of
unexercised options owned by the Named Executive Officers as of December 31,
1998. None of the options summarized in this table were "in-the-money" as of
December 31, 1998.
AGGREGATE OPTION EXERCISES IN FISCAL YEAR 1998
AND DECEMBER 31, 1998 OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES DECEMBER 31, DECEMBER 31,
ACQUIRED VALUE 1998(#) 1998($)
ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) ($) UNEXERCISABLE (1) UNEXERCISABLE
- --------------------------- ----------- --------- ----------------- --------------------
<S> <C> <C> <C> <C>
Joseph A. Reeves, Jr. (1) -- -- 1,200,000/581,000 0/0
Michael J. Mayell (1) -- -- 1,200,000/581,000 0/0
P. Richard Gessinger -- -- 4,000/26,000 0/0
Lloyd V. DeLano -- -- 18,750/61,250 0/0
Kevin J. McMichael -- -- -- 0/0
</TABLE>
- ---------------------------
(1) Excludes (i) 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) Warrants ("Executive Officer Warrants") issued in prior
years to Messrs. Reeves and Mayell in connection with the surrender of
certain "Class B warrants" to the Company. The value of these warrants at
December 31, 1998, based on the difference between the market price of the
Common
6
<PAGE>
Stock at December 31, 1998 and the exercise price of the respective
warrants was $1,386,248 for each of Messrs. Reeves and Mayell.
OTHER
In August 1998, the Board of Directors, with Messrs. Reeves and Mayell
abstaining, approved a bonus program pursuant to which the Company would pay
Messrs. Reeves and Mayell each $300,000 on each of January 1, 1999, January 1,
2000 and January 1, 2001, provided such individuals remain employed by the
Company on such dates.
COMPENSATION OF DIRECTORS
Non-employee directors of the Company (other than the Preferred Director)
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.
Pursuant to the Director Plan, options to purchase up to 270,000 shares of
Common Stock may be granted. Under the Director 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") for 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. 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 all
remaining shares of Common Stock three years after the date of grant. There are
currently outstanding options to acquire 165,000 shares under the Director Stock
Option Plan with a weighted average exercise price of $9.13 per share. There are
currently only 45,000 additional shares available for grant under the Director
Plan.
Mr. Messersmith also receives a retainer of $8,330 per month for legal
services he renders on behalf of the Company and also participates in the Well
Bonus Plans, pursuant to which he was paid $22,600 during 1998.
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. If 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 bonus, (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. If
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 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
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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 generally to mean (i)
such individual has been convicted of a felony that 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 that 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 that is no longer
subject to direct appeal.
Mr. P. Richard Gessinger has entered into an employment agreement with the
Company under which he is given the title Chief Financial Officer and Executive
Vice President of the Company. Mr. Gessinger's employment agreement provides
that he will receive a monthly salary of $16,666.67 and an annual bonus at the
discretion of the Company's Board of Directors. If Mr. Gessinger is terminated,
depending on the circumstances, he may be entitled to a payment equal to twelve
times his monthly salary. If the Company changes control, he may be entitled to
receive his monthly salary for twelve months after the Company changes control.
Mr. Lloyd V. DeLano has entered into an Employment Agreement with the Company
under which he is given the title Vice President of the Company. The Employment
Agreement provides that Mr. DeLano will receive a monthly salary of $12,445.84
and an annual bonus in the amount determined in the discretion of the Company's
Board of Directors. If Mr. DeLano is terminated, he may, depending on the
circumstances, be entitled to receive a payment equal to six times his monthly
salary. Also, if the Company changes control, he may be entitled to receive his
monthly salary for eighteen months after the Company changes control.
THE INCENTIVE PLANS
The Company's Board of Directors have adopted The Meridian Resource
Corporation 1997 Long-Term Incentive Plan and 1995 Long-Term Incentive Plan
(together, the "Plans"). The Plans authorize the Board of Directors or a
Committee of the Board of Directors to issue stock options, stock appreciation
rights, restricted stock and performance awards. The aggregate number of shares
of Common Stock that currently may be issued under the Plans is 4,549,043, which
represents approximately 10% of the total outstanding number of shares of Common
Stock. This number may change in order to maintain that number at 10% of the
total outstanding number of shares of Common Stock. There are currently
4,498,300 shares allocated to outstanding options or stock rights under deferred
compensation arrangements under the Plans. As of December 31, 1998, none of the
stock options granted under the Plans were "in-the-money".
WELL BONUS PLANS
In addition, during 1998, the Company implemented a new net profits program
that was adopted effective as of November 1997. All employees are eligible to
participate in this program. Pursuant to this program, the Company adopted three
separate well bonus plans: (i) The Meridian Resource Corporation Geoscientist
Well Bonus Plan (the "Geoscientist Plan"); (ii) The Meridian Resource
Corporation TMR Employees Trust Well Bonus Plan (the "Trust Plan") and (iii) The
Meridian Resource Corporation Management Well Bonus Plan (the "Management
Plan"). The Executive Committee of the Board of Directors, which is comprised of
Messrs. Reeves and Mayell, administers each of the Well Bonus Plans. The
participants in each of the Well Bonus Plans are designated by the Executive
Committee in its sole discretion. Participants in the Management Plan are
limited to executive offices of the Company and other key management personnel
designated by the Executive Committee. Neither Messrs. Reeves or Mayell will
participate in the Management Plan, except with respect to a small number of
wells and prospects not covered by their original net profit grants described
above in footnote 1 of the Summary Compensation Table. The participants in the
Trust Plan generally will be all employees of the Company that do not
participate in one of the other Well Bonus Plans.
Pursuant to the Well Bonus Plans, the Executive Committee designates, in its
sole discretion, the individuals and wells that will participate in each of the
Well Bonus Plans. The Executive Committee also determines the percentage bonus
that will be paid under each well and the individuals that will participate
thereunder. It is intended that these well bonuses function similar to an actual
net profit interests, except that the employee will not have a real
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property interest and his or her rights to such bonuses will be subject to a
one-year vesting period, except for grants in 1998 for which all employees were
deemed vested.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
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. 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 "Item 13--Certain Relationships and Related Transactions". In addition, cash
compensation decisions during 1998 with respect to Messrs. Reeves and Mayell
were made by the full Board of Directors, with each of Messrs. Reeves and Mayell
abstaining.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of April 30, 1999, 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 officers
and directors of the Company as a group.
NUMBER OF SHARES
BENEFICIALLY
NAME OWNED (1) PERCENT
- ----------------------------------------------------- ---------------- -------
Joseph A. Reeves, Jr.(2) ............................ 1,994,109 4.2%
Michael J. Mayell(3) ................................ 1,897,093 4.0
P. Richard Gessinger(4) ............................. 42,938 *
Kevin McMichael ..................................... 5,000 *
Lloyd V. DeLano(5) .................................. 67,211 *
James T. Bond(6) .................................... 26,000 *
E. L. Henry(7) ...................................... --
Joe E. Kares(8) ..................................... 40,000 *
Gary A. Messersmith(9) .............................. 15,200 *
Jack A. Prizzi(10) .................................. 50,000 *
All executive officers and directors as a group (9
persons) (2), (3), (4), (5), (6), (7), (8), (9), (10) 4,137,531 8.4%
Shell Oil Company(11) ............................... 24,919,458 42.5%
Phemus Corporation (12) ............................. 2,785,860 6.1%
KAIM Non-Traditional LP (13) ........................ 3,309,527 7.2%
CharlesBank Capital Partners(14) .................... 1,785,860 8.3%
- ---------------------
* Less than one percent.
1. Shares of Common Stock which are not outstanding but which can be acquired
by a person upon exercise of an option or warrant within sixty days are
deemed outstanding for the purpose of computing the percentage of
outstanding shares beneficially owned by such person.
2. Includes 464,016 shares, 714,000 shares, and 79,077 shares of Common Stock
that Mr. Reeves 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. Also includes 581,000 vested shares
underlying deferred compensation arrangements. Excludes 22,876 unvested
shares under deferred compensation arrangements and 1,500,000 shares
underlying options not exercisable within 60 days. Mr. Reeves' business
address is 15995 N. Barkers Landing, Suite 300, Houston, Texas 77079.
3. Includes 464,016 shares, 714,000 shares, and 79,077 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. Also includes 581,000 vested shares
underlying deferred compensation arrangements. Excludes 22,870 unvested
shares under deferred compensation arrangements
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and 1,500,000 shares underlying options not exercisable within 60 days. Mr.
Mayell's business address is 15995 N. Barkers Landing, Suite 300, Houston,
Texas 77079.
4. Includes 26,000 shares of Common Stock that Mr. Gessenger has the right to
acquire upon the exercise of stock options. Excludes 3,000 shares underling
options not exercisable within 60 days.
5. Includes 61,250 shares of Common Stock that Mr. DeLano has the right to
acquire upon the exercise of stock options. Excludes 18,750 shares
underling options not exercisable within 60 days.
6. Includes 15,000 shares of Common Stock that Mr. Bond has the right to
acquire upon the exercise of stock options. Excludes 15,000 shares
underling options not exercisable within 60 days.
7. Excludes 30,000 shares underlying options that are not exercisable within
60 days.
8. Includes 40,000 shares of Common Stock that Mr. Kares has the right to
acquire upon the exercise of stock options. Excludes 15,000 shares
underling options not exercisable within 60 days.
9. Includes 15,000 shares of Common Stock that Mr. Messersmith has the right
to acquire upon the exercise of stock options. Excludes 30,000 shares
underling options not exercisable within 60 days.
10. Includes 47,500 shares of Common Stock that Mr. Prizzi has the right to
acquire upon the exercise of stock options. Excludes 7,500 shares underling
options not exercisable within 60 days.
11. Based solely upon a Schedule 13D filed with the Securities and Exchange
Commission. Shell Oil Company controls Shell Louisiana Onshore Properties
Inc. ("SLOPI"), which is the record holder of 12,082,030 shares of Common
Stock and preferred stock that is convertible into 12,837,428 shares of
Common Stock. Shell Oil Company's business address is One Shell Plaza,
Houston, Texas 77002. SLOPI's business 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.
12. Based solely upon a Schedule 13G filed with the Securities and Exchange
Commission. The business address of Phemus Corporation is 600 Atlantic
Avenue, Boston, Massachusetts 02210-2203. Includes 20,000 shares underlying
stock options exercisable within 60 days.
13. The business address of KAIM Non-Traditional, L.P., is 1800 Avenue of the
Stars, 2nd Floor, Los Angeles, California 90067.
14. Based solely upon a Schedule 13G filed with the Securities and Exchange
Commission. The business address of CharlesBank Capital Partners is 600
Atlantic Avenue, 26th floor, Boston, MA 02210
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SHELL TRANSACTION
On June 30, 1998, the Company acquired all of Shell's and its affiliates
onshore oil and gas property interests located in south Louisiana pursuant to
the Shell Transactions. 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 wholly-owned 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 that 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 after October 1, 1997.
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 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 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 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
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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 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 other than
the Excess Shares that are actually voted for, against or abstain from voting on
the matter. SLOPI's 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 voting on the average
per share market value for the Common Stock is less than $5.50 per share.
Currently, the average per share market value of the Common Stock is below $5.50
per share; therefore, it is not expected that SLOPI's discretionary voting
rights at the meeting will be limited.
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
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increased to ten or more so that SLOPI is able to nominate 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%. 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.
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 grant. 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 right to have a 3.3%
working interest, and prospects completed prior to 1994, in which Messrs. Reeves
and Mayell each has a working interest of 3.5%, the maximum percentage that
either Messrs. Reeves and Mayell may elect to participate in any prospect is a
1.5% working interest.
During 1998, both Messrs. Reeves and Mayell, either personally or through
wholly-owned or affiliated corporations, participated as working interest owners
in properties of the Company. 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 1998, each of TODD (a company owned
by Mr. Reeves) and Sydson (a company owned by Mr. Mayell) were indebted to the
Company for expenses paid by the Company in respect of their working interest in
various prospects and wells in which the Company acted as operator. To date,
Todd and Sydson have participated in every prospect that the Company has drilled
a 1.5% working interest upon the same terms and conditions as other third party
working interest owners.
TODD and Sydson collectively invested approximately $2,126,000 for the year
ended December 31, 1998, in oil and natural gas drilling activities for which
the Company was the operator. Collective amounts due from such entities for such
activities were approximately $4,450,000 as of December 31, 1998, which have
been netted by amounts owed to them from the Company. The Company executed note
agreements with TODD and Sydson dated December 31, 1997, for $1,510,699 each
related to certain amounts due, which matured on December 30, 1998, and
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accrue interest at variable market rates. TODD and Sydson participated under the
same terms negotiated with unaffiliated working interest owners.
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, 1998,
1997 and 1996 and received fees of approximately $57,000, $27,000 and $56,000,
respectively. These fees exceeded 5% of the gross revenues of Kares & Cihlar for
1996. 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. Messersmith on personal retainer of $8,333.33 per
month relating to services provided to the Company personally by Mr.
Messersmith. Mr. Messersmith also participates in the Well Bonus Plans pursuant
to which he was paid $22,600 during 1998.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
THE MERIDIAN RESOURCE CORPORATION
By: /s/ JOSEPH A. REEVES, JR.
Joseph A. Reeves, Jr.
Chief Executive Officer
(Principal Executive Officer)
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