Document:

exv10w4

 

Exhibit 10.4

TERMINATION AGREEMENT

     THIS TERMINATION AGREEMENT (this “Termination Agreement”) is entered into as of the
29th day of April, 2008, by and among The Meridian Resource Corporation, a Texas corporation (said
corporation, together with its successors and assigns permitted under this Termination Agreement,
hereinafter referred to as the “Company”), and Michael J. Mayell ( the
“Executive”).

W I T N E S S E T H:

     WHEREAS, the Company and the Executive entered into that certain (i) Employment Agreement
dated as of the 18th day of August, 1993 (the “Employment Agreement”), (ii)
Agreement wherein the Company granted the Executive certain net profits interests in Company
properties dated the 27th day of June, 1995 (the “NPI Agreement”), and (iii)
Restricted Stock Grant and Executive Deferred Compensation Agreement dated as of the
31st day of July 1996 (the “DC Agreement”) (the Employment Agreement, NPI
Agreement and DC Agreement may collectively be referred to herein as the “Agreements”);

     WHEREAS, the Board of Directors of the Company has requested that the Executive terminate the
Agreements and enter into a new short-term employment agreement;

     WHEREAS, the Executive is willing to terminate the Agreements provided that certain terms in
the Agreements relating to such termination are fully taken into account in conjunction with this
Termination Agreement;

     WHEREAS, the Company and the Executive have agreed to terminate the Agreements on the terms
set forth herein;

     WHEREAS, the parties hereto desire to enter into this Termination Agreement to evidence the
foregoing in accordance with the terms and conditions set forth in this Termination Agreement;

     NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the
receipt and sufficiency of which are hereby acknowledged and confessed, the parties hereto hereby
agree as follows:

	I.	 	Termination.

     A. The Company and the Executive hereby agree to terminate the Employment Agreement and
the NPI Agreement (except to the extent that it is modified in Para. I.B. below) rights
thereunder effective as of the 29th day of April, 2008.

     B. In conjunction with such termination, the Company and the Executive acknowledge and
agree that the Executive is vested in his Net Profits Interests under the NPI Agreement
which have been assigned to the Executive or to which the Executive is entitled to an
assignment as a result of events occurring before April 28, 2008. Such Net Profits
Interests will remain unaffected by this Termination Agreement. More

 

 

particularly, and by way of illustration only, the Executive’s Net Profits Interest
rights with respect to any well spudded prior to April 28, 2008 are vested and are not
affected by this Agreement. The Company and the Executive further agree that,
notwithstanding the provisions of Paragraph C of Article IV, of the NPI Agreement or any
other provision of the NPI Agreement to the contrary, with respect to any well spudded after
April 28, 2008, within the geographical boundaries of any Property (or on lands pooled
therewith) subject to the NPI Agreement prior to April 28, 2008, the Net Profits
Interest with respect to such well shall be calculated by including in the computation of
“Chargeable Expenditures” with respect to such well the capital expenditures described in
clause (ii) of said Paragraph C of Article IV of the NPI Agreement. The Company and the
Executive further agree that after April 28, 2008 no new Net Profits Interests will be
assigned to the Executive under or pursuant to the NPI Agreement outside of the geographical
boundaries of any Property (or on lands pooled therewith) which was subject to a Net Profits
Interest grant prior to April 28, 2008.

     C. The Company and the Executive hereby agree to freeze the DC Agreement effective as
of the date hereof so that the Executive shall accrue no additional benefits under the DC
Plan with respect to periods after the date hereof, provided, however, that the Executive’s
deferral election for the 2008 calendar year shall remain in effect. The Company and the
Executive agree to enter into a termination agreement pursuant to which the the DC Agreement
shall be terminated effective as of the 29th day of April, 2008, and to each execute and
deliver any other document or certificate necessary to evidence such termination.. The
portion of the Executive’s account under the DC Agreement that is not subject to section
409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the rules and
regulations promulgated thereunder by the Department of Treasury and the Internal Revenue
Service (“Section 409A”) shall be distributed to the Executive immediately in
accordance with the existing termination provisions of Section 9.3 of the DC Agreement. The
remaining portion of the Executive’s account under the DC Agreement shall be distributed to
the Executive on the date of his Separation From Service if he is not a Specified Employee
on the date of his Separation From Service or on the date that is six months following the
date of his Separation From Service if he is a Specified Employee on the date of his
Separation From Service. For purposes of this Agreement, the terms “Separation From
Service” and “Specified Employee” shall have the meanings ascribed to those
terms in Section 409A. The Company and the Executive agree that the Executive shall have a
fully vested interest in his account under the DC Agreement and that the freezing and
termination of the DC Agreement shall not adversely impact the Executive’s rights with
respect to such benefits. The Company and the Executive agree that the Company may satisfy
its federal income tax withholding obligation and its Federal Insurance Contributions Act
withholding obligation with respect to the Executive’s benefit under the DC Agreement by
withholding therefrom shares of the Company’s Common Stock in an amount sufficient to
satisfy such withholding obligations.

     D. The Company and the Executive hereby agree to continue the employment of the
Executive under a new employment agreement to be executed concurrently with this Termination
Agreement in the form attached hereto as Exhibit A (the “New Employment Agreement”).

 

 

     E. Both parties agree to mutually cooperate to ensure compliance with this Termination
Agreement and fulfillment of the terms, conditions and obligations contained herein.
Without limiting the generality of the foregoing, the parties agree to execute and deliver
all such further documents, agreements and instruments and take such other and further
action as may be necessary or appropriate to carry out the purposes and intent of this
Termination Agreement. For example, to the extent any additional documents are necessary to
confirm the conveyance of any Net Profits Interest previously conveyed or to be conveyed
under the NPI Agreement, the Company will expeditiously deliver, execute, record or assign
any such documents, agreements and interests at the expense of the Company. In addition, to
the extent any corporate or board of directors action is necessary or appropriate to confirm
any issuance of shares of Company stock under the DC Agreement, the Company agrees to take
all such action. The Company further agrees to take such action which is reasonably
appropriate to bring the DC Agreement into documentary compliance with Section 409A.

     F. The Executive agrees to vote in favor of an amendment to the Bylaws of the Company
to effect a separation of the roles of the Company’s Chairman of the Board and Chief
Executive Officer..

     G. The Executive agrees that his right to participate (either directly or through an
affiliated entity) with the Company in new oil and gas projects by acquiring a portion of
the Company’s working interest therein, including, without limitation, all rights under the
letter agreement dated July 1, 1994, by and between the Executive and the Company, shall
terminate on December 29, 2008. Such termination shall not affect in any way any such
working interests acquired before such date. This section does not apply to any NPI
interest, or benefit plan, or the DC Agreement to the extent that any such rights are
addressed herein.

     H. Executive represents and warrants to the Company that following the execution of
this Termination Agreement and the New Employment Agreement, except for the New Employment
Agreement, and the Consulting Agreement referred to therein, and the
Employment Agreement, there are no other agreements
relating to the compensation of the Executive, either written or oral.

	II.	 	Payments and Benefits.

     A. As part of this Termination Agreement, the Company shall pay or cause to be paid to
or on the behalf of the Executive the following amounts:

     1. the Executive’s current annual Base Salary (as defined in the
Employment Agreement) for the remainder of the Employment Period (as defined
in the Employment Agreement); and

     2. an amount equal to the last Annual Bonus paid to the Executive, (the
“Recent Bonus”) as defined in the Employment Agreement); and

 

 

     3. the product of two (2) times the sum of the current annual Base
Salary plus the Recent Bonus; and

     4. a lump sum retirement benefit equal to the difference between (i)
the actuarial equivalent to the benefit under any Retirement Plan (as
defined in the Employment Agreement) the Executive would receive if he
remained employed by the Company at the current annual Base Salary plus the
Recent Bonus for the remainder of the Employment Period and (ii) actuarial
equivalent of his benefit, if any, under any Retirement Plan.

     On the date of his Separation From Service if he is not a Specified
Employee on the date of his Separation From Service or on the date that is
six months following his Separation From Service if he is a Specified
Employee on the date of his Separation From Service the Company shall pay or
cause to be paid to the Executive, in a single sum in cash, the aggregate of
the amounts specified in clauses 1, 2, 3 and 4 of this Section IIA.

     It is hereby agreed by the Company and the Executive that the sum of
the amounts set forth in this section is UNITED STATES DOLLARS
$4,940,255.00.

     B. In the event it shall be determined that any payment, benefit or distribution
provided to the Executive hereunder or otherwise would constitute “parachute payments”
within the meaning of Section 280G of the Code and would be subject to the excise tax
imposed by Section 4999 of the Code, together with any interest or penalties imposed with
respect to such excise tax (“Excise Tax”), then the Executive shall be entitled to
receive an additional payment (a “Gross-Up Payment”) in an amount such that, after
payment (whether through withholding at the source or otherwise) by the Executive of all
taxes (including any interest or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and penalties imposed with respect
thereto), employment taxes and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed on such payment
(or such amount is paid on the Executive’s behalf with respect to such Excise Tax). Any
Gross-Up Payment that the Company is required to make to reimburse the Executive for
federal, state and local taxes imposed upon the Executive, including the amount of
additional taxes imposed upon the Executive due to the Company’s payment of the initial
taxes on such amounts, shall be made by the Company by the end of the Executive’s taxable
year next following the Executive’s taxable year in which the Executive remits the related
taxes to the taxing authority.

     C. The Company shall promptly reimburse the Executive for costs and expenses of legal
counsel and consultants related to the negotiation of the termination of the Agreements.
However, such amount shall be limited to a collective amount of an additional $100,000 for
expenses incurred by both Joseph A. Reeves and Michael J. Mayell beyond the amount
previously approved by the Board of Directors for that

 

 

purpose. Such payments under this Section II.D shall be made within ten (10) business
days after the delivery of the Executive’s written request for the payment accompanied by
such evidence of fees and expenses incurred as the Company may reasonably require. In any
event the Company shall pay the Executive such legal fees, consultants’ fees and expenses by
the last day of the Executive’s taxable year following the taxable year in which the
Executive incurred such legal fees, consultants’ fees and expenses. The legal fees,
consultants’ fees or expenses that are subject to reimbursement pursuant to this Section
II.D shall not be limited as a result of when the fees or expenses are incurred. The amount
of legal fees, consultants’ fees or expenses that is eligible for reimbursement pursuant to
this Section II.D during a given taxable year of the Executive shall not affect the amount
of expenses eligible for reimbursement in any other taxable year of the Executive. The
right to reimbursement pursuant to this Section II.D is not subject to liquidation or
exchange for another benefit.

     D. On the date of his Separation From Service if he is not a Specified Employee on the
date of his Separation From Service or on the date that is six months following the date of
his Separation From Service if he is a Specified Employee on the date of his Separation From
Service, the Company shall transfer ownership to the Executive of all furnishings and
artwork in the Executive’s office.

     E. All shares accrued to the Executive under the DC Agreement shall be delivered to the
Executive pursuant to the terms of such agreement as adjusted to reflect any changes
described in paragraph I.H.

	III.	 	Miscellaneous.

     A. This Termination Agreement shall be governed by and construed in accordance with the
laws of the State of Texas. Further, the Executive agrees that any legal proceeding to
enforce the provisions of this Termination Agreement shall be brought in Houston, Harris
County, Texas, and hereby waives his right to any pleas regarding subject matter or personal
jurisdiction and venue. The captions of this Termination Agreement are not part of the
provisions hereof and shall have no force or effect. This Termination Agreement may not be
amended or modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.

     B. Every notice, approval, request, demand, or statement required or permitted to be
given under this Termination Agreement shall be in writing and shall be deemed sufficiently
given when deposited in the mail, registered or certified, postage prepaid, and addressed to
the party hereto to which given as follows:

	 	 	 	 	 
	If to the Executive:
	 	 	 	 
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	If to the Company:	 	The Meridian Resource Corporation
	 	 	1401 Enclave Parkway, Suite 300
	 	 	Houston, Texas 77077
	 

	 	Attn:	 	 
	 

	 	 	 	 

 

 

or to such other address as either party shall have furnished to the other in writing in
accordance herewith. Written notice given by any other method shall be deemed effective
when actually received by the party.

     C. Every provision of this Termination Agreement is intended to be severable such that
the invalidity or unenforceability of any provision of this Termination Agreement shall not
affect the validity or enforceability of any other provision of this Termination Agreement.

     D. The Company may withhold from any amounts payable under this Termination Agreement
such Federal, state or local taxes as shall be required to be withheld pursuant to any
applicable law or regulation.

     E. In the event that the Executive makes a demand upon the Company for any benefits or
amounts due hereunder and the Company rejects such demand, and the Executive ultimately
prevails in litigation resulting therefrom, the Company shall reimburse the Executive for
reasonable attorney fees incurred by the Executive in enforcing rights to which the
Executive shall have become entitled pursuant to this Termination Agreement. Such payments
to the Executive under this Section III.E shall be made within ten (10) business days after
the delivery of the Executive’s written request for the payment accompanied by such evidence
of fees incurred as the Company may reasonably require. In any event the Company shall pay
the Executive such legal fees by the last day of the Executive’s taxable year following the
taxable year in which the Executive incurred such legal fees. The legal fees that are
subject to reimbursement pursuant to this Section III.E shall not be limited as a result of
when the fees or expenses are incurred. The amount of legal fees that is eligible for
reimbursement pursuant to this Section III.E during a given taxable year of the Executive
shall not affect the amount of expenses eligible for reimbursement in any other taxable year
of the Executive. The right to reimbursement pursuant to this Section III.E is not subject
to liquidation or exchange for another benefit.

     F. As soon as reasonably practicable, the Company shall create an irrevocable grantor
trust (the “Rabbi Trust”) which shall be subject to the claims of creditors of the Company.
As soon as reasonably practicable, the Company shall transfer to the Rabbi Trust cash
sufficient (on an undiscounted basis) to pay the estimated amount of the portion of the
Executive’s benefit under the DC Agreement that is subject to Section 409A and the amounts
specified in clauses 1, 2, 3 and 4 of Section II.A. Such amount shall be paid from the
Rabbi Trust on the dates specified in Sections I.C and II.A herein, provided that the
Company shall remain liable to pay any such amounts which for any reason are not paid from
the Rabbi Trust. The trustee of the Rabbi Trust shall be a bank or trust company selected
by the Company. Pursuant to the terms of the Trust Agreement, the trustee shall pay over
all funds and shares under the Rabbi Trust to the

 

 

Executive on the date that is six months following the date of separation, as required
by Section 409A.

     G. Except as specifically contemplated by this Termination Agreement, this Termination
Agreement constitutes the entire agreement by the parties hereto relating to the subject
matter hereof and supersedes and replaces all prior and contemporaneous agreements,
arrangements or understandings, whether written or oral, between the Company and the
Executive.

     H. No failure by a party hereto to insist upon strict performance of any term,
covenant, condition or agreements of this Termination Agreement, or to exercise any right or
remedy provided for in this Termination Agreement upon breach of any provisions, and no
acceptance of payment or performance during the continuation of such breach, shall
constitute a waiver of any term, covenant or condition herein or a waiver of any subsequent
breach or default in the performance of any term, covenant, condition or agreements herein.

     I. This Termination Agreement may be executed in multiple counterparts, each of which
shall be deemed an original for all purposes, but all of which shall constitute one and the
same instrument.

     J. Any capitalized term used but not otherwise defined herein shall have the meaning
given to such term in the Employment Agreement, the NPI Agreement, or in the DC Agreement,
as the case may be.

 

 

     IN WITNESS WHEREOF, the undersigned have executed this Termination Agreement on the 29th day
of April, 2008, to be effective on the date first written above.

	 	 	 	 	 
	 	 	THE MERIDIAN RESOURCE CORPORATION
	 	 	a Texas corporation
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Lloyd V. DeLano
	 

	 	 	 	 
	 

	 	Name:
	 	Lloyd V. DeLano
	 

	 	 	 	 
	 

	 	Title:
	 	Senior Vice President
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	EXECUTIVE
	 
	 	 	 	 
	 	 	/s/ Michael J. Mayellexv10w5

 

Exhibit 10.5

AGREEMENT

     This AGREEMENT is made and entered into this 27th day of June, 1995, to be effective as of
the 1st day of January, 1994, hereinafter referred to as “EFFECTIVE DATE”, by and between:

JOSEPH A. REEVES, JR., hereinafter referred to as “EMPLOYEE", with an
address at 309 Gentilly Place, Houston, Texas 77024; and

TEXAS MERIDIAN RESOURCES CORPORATION and its AFFILIATES, as such term is defined
below within Paragraph J. of Article VIII., hereinafter collectively referred to as
“TMRC”, with an address at 15995 N. Barkers Landing, Suite 300, Houston, Texas
77079.

WITNESSETH THAT:

WHEREAS,

	 	(a)	 	TMRC is engaged in the business of acquiring, exploring, developing, operating,
producing and owning oil and gas properties;
	 
	 	(b)	 	the maintenance on its staff of qualified and experienced employees is
necessary for success in the business of TMRC;
	 
	 	(c)	 	EMPLOYEE has been engaged as an employee of TMRC since the 1st day of November,
1985, with various responsibilities associated with TMRC’s oil and gas properties; and
TMRC desires to provide EMPLOYEE with an incentive to remain in the employ of TMRC and
to provide to EMPLOYEE an opportunity to share in the results of EMPLOYEE’S endeavors
on behalf of TMRC in the form of an overriding royalty interest subject to certain
deductions and hereinafter referred to as a “NET PROFITS INTEREST” (“NPI”), for the
consideration hereinafter stated:

NOW, THEREFORE, in consideration of the mutual promises expressed herein, the adequacy of which
are hereby acknowledged and agreed to by EMPLOYEE and TMRC, EMPLOYEE and TMRC have COVENANTED and
AGREED and by these presents do COVENANT and AGREE as follows:

 

 

I.

PROPERTIES

A. TMRC is presently conducting geological, geophysical, land, drilling, production and marketing
operations in the pursuit of identifying and producing oil and gas hydrocarbons on properties
located in various geographic areas primarily within the United States of America, both onshore and
offshore. During the time period of EMPLOYEE’S employment with TMRC, EMPLOYEE will be performing
certain job functions, duties and responsibilities relative to EMPLOYEE’S personal expertise in the
review, evaluation, acquisition, maintenance, production and/or rationalization of certain oil and
gas prospects and properties identified by TMRC (in accordance with the procedures set forth below)
as acceptable opportunities. Such oil and gas prospects and properties are hereinafter referred to
collectively as the “PROPERTIES” and singularly as “PROPERTY” and, for purposes of this AGREEMENT,
shall be determined and identified as follows:

     (1) From time to time during the term of this AGREEMENT, the Vice President of Land
of TMRC shall notify both the Chief Executive Officer and the President of TMRC in writing
of each geographic area with respect to which TMRC has, at any time during EMPLOYEE’S
employment with TMRC, both:

     (a) expended at least $100,000.00 in identifying or acquiring geological or
geophysical, land and/or engineering data, including, but not limited to: 2-D
or 3-D seismic data purchased, licensed, or directly acquired; seismic permits;
surface and/or leasehold options or interests; and/or well logs and well data related to such

 

 

geographic area; and

     (b) acquired one or more PROPERTY INTERESTS. A “PROPERTY INTEREST” shall be
defined as (i) any oil, gas or mineral lease or leasehold interest therein or
option to acquire an oil, gas or mineral lease or leasehold interest therein, (ii)
any mineral fee interest, or (iii) any contractual right to acquire any oil, gas or
mineral leasehold interest or mineral fee interest, by purchase or exchange or by
commitment to drill or complete, or participate in the drilling or completion of,
any oil or gas well or wells located thereon, pursuant to farmin or farmout
agreement, exploration agreement, participation agreement, purchase agreement or
other agreement.

     (2) Such geographic area shall become a PROPERTY for purposes of this AGREEMENT
effective as of the date of delivery of such notice by the Vice President of Land of TMRC
unless both the Chief Executive Officer and the President of TMRC notify the Vice President
of Land of TMRC in writing, within thirty (30) days following delivery of such notice from
the Vice President of Land, that such geographic area shall not be deemed a PROPERTY for
the purposes of this AGREEMENT. A schedule of the geographic areas that presently
constitute PROPERTIES for purposes of this AGREEMENT is attached hereto as Exhibit
“A11 together with separate plats for each such PROPERTY attached consecutively
as Exhibits “A-l”, “A-2”, “A-3”, et seq., with the number of the Exhibit corresponding to
the number assigned to the PROPERTY on Exhibit “A” hereto and outlining the geographic
boundaries defined for each PROPERTY. Said Exhibits shall be updated with additional
PROPERTIES and plats, or

 

 

with revised plats, by TMRC as such additional PROPERTIES are determined and
identified in accordance with this AGREEMENT, and will be updated specifically upon
termination of EMPLOYEE’S employment with TMRC and/or termination of this AGREEMENT for any
reason. During, and only during, the time period of EMPLOYEE’S employment with TMRC, as
consideration for the benefits set forth herein, EMPLOYEE will use EMPLOYEE’S best efforts
and endeavors to perform EMPLOYEE’S regular job duties as to all the PROPERTIES.

     B. TMRC shall have the exclusive and continuing option during and throughout the term of this
AGREEMENT, and for the period thereafter during which EMPLOYEE’S NPI shall continue, pursuant to
Paragraph A. of Article VIII. hereof, as to each and every specific PROPERTY, to acquire oil, gas
and mineral leases, royalties, fee minerals, fee surface, pipelines or other production-related
facilities, and other similar interests in, under, or associated with lands comprising the
PROPERTIES and situated within the geographic boundaries of the PROPERTIES, said interests
hereinafter referred to as “MINERAL INTERESTS” when such interests include mineral ownership
rights, whether fee, servitude or leasehold. During the term of such exclusive option, EMPLOYEE
agrees that he shall not directly or indirectly, by, through or on behalf of himself or others,
acquire any MINERAL INTERESTS in any of the PROPERTIES.

II.

COSTS AND EXPENSES

     The MINERAL INTERESTS to be acquired within a particular PROPERTY, the terms and provisions
thereof, and the consideration to be paid therefor, shall be within the sole discretion of TMRC.
Except as expressly provided in Article IV. below, all of the costs and expenses

 

 

incurred in: (1) the acquisition and maintenance of MINERAL INTERESTS relative to the
PROPERTIES; (2) the geologic, geophysical and engineering evaluation of the PROPERTIES; and (3) the
preparation for, actual drilling and development of, and sale of oil, gas and other minerals (or
components and by-products thereof extracted by processing, treating or other similar procedures)
produced from or allocated to the PROPERTIES (including, but not limited to: option payments;
bonuses; delay rentals; damages; purchase payments; construction costs; brokers’ fees; landmen’s
fees; costs of abstracts; costs of surveys; title examinations, including the curing of title; the
acquisition, purchase or license of geologic or geophysical data; geological, geophysical and
engineering consulting fees; 2-D seismic surveys; 3-D seismic surveys; the drilling, testing and
completion costs of wells; plant or lease fuel; and the marketing, processing, treating and
transportation of oil, gas and other minerals (or components and by-products thereof extracted by
processing, treating or other similar procedures) to the point of sale to a third party other than
an AFFILIATE of TMRC, hereinafter referred to as the “SALES POINT”) shall be the responsibility of
and borne and paid for by TMRC.

III.

ASSIGNMENT TO EMPLOYEE

     A. To the extent that TMRC has acquired, acquires, or there are acquired for the account of
TMRC, MINERAL INTERESTS in PROPERTIES, TMRC has GRANTED, SOLD, TRANSFERRED, ASSIGNED and CONVEYED
and by these presents does GRANT, SELL, TRANSFER, ASSIGN and CONVEY unto EMPLOYEE, as an overriding
royalty interest, subject to certain deductions and calculated on the proceeds received from the
sale of the hereinafter described minerals, such overriding royalty interest hereinafter referred
to as a

 

 

“NET PROFITS INTEREST” (“NPI”), two percent (2.00%) of one hundred percent (100.0%) of the
oil, gas and minerals (or components and by-products thereof extracted by processing, treating or
other similar procedures) in and under and that may be produced, saved and sold from PROPERTIES or
from lands pooled therewith, under and by virtue of MINERAL INTERESTS, or any renewals or
extensions thereof, free and clear of all of the costs and expenses of exploration, development,
operation, production, marketing, processing, treating, and transportation to the SALES POINT,
except for those costs and expenses specifically defined below in Article IV.A.2. hereof as
CHARGEABLE EXPENDITURES.

     B. For purposes of this AGREEMENT, take-or-pay payments, buy out/buy down payments, lawsuit
settlement payments and any and all other income, hereinafter referred to collectively as MINERAL
INCOME, received as a result of or in relation to negotiations or contracts for the sale of oil,
gas and other minerals (or by-products thereof extracted by processing, treating or other similar
procedures) that may be produced and saved from PROPERTIES or from lands pooled therewith, under
and by virtue of MINERAL INTERESTS, shall be treated as proceeds from the production and sale of
oil, gas and other minerals (or by-products thereof extracted by processing, treating or other
similar procedures), in that EMPLOYEE shall be entitled to receive the same percentage of NPI in
such MINERAL INCOME as set forth above in Paragraph A. of this Article III., subject to deduction
of a proportionate share of legal and/or professional consulting fees incurred by TMRC in
connection with any settlement or claim brought to enforce TMRC’S rights to such MINERAL INCOME.

     C. With respect to any NPI due EMPLOYEE under Paragraph A. of this Article III., if the
MINERAL INTEREST acquired by TMRC in any PROPERTY (prior to any assignments of

 

 

working interest from TMRC to other industry participants) is less than one hundred percent
(100.0%) of the working interest under a relevant oil and gas lease, or such oil and gas lease or
fee acquisition covers less than one hundred percent (100.0%) of the mineral fee estate, the NPI
herein assigned and conveyed to EMPLOYEE shall be proportionately reduced to the proportion thereof
which the working interest acquired bears to the entire working interest, or which the mineral fee
estate covered by such MINERAL INTEREST bears to the entire mineral fee estate.

     D. It is expressly agreed that TMRC, its successors and assigns, shall have the right to pool
or unitize all or any portion or portions of the lands and interests affected by the MINERAL
INTERESTS, including the NPI herein conveyed, and to alter or terminate any pooling or unitization
agreement, without the joinder or consent of EMPLOYEE, his successors or assigns. In the event of
production from any such pooled unit or from any unit created by a regulatory body having
jurisdiction, the NPI herein conveyed shall be computed on the proportionate part of the production
from such pooled unit that is allocated to the MINERAL INTERESTS subject to said NPI, and unless
otherwise allocated by order of a regulatory body, the amount of such production to be so allocated
from each such unit shall be that proportion of such total production that the surface area of the
MINERAL INTERESTS affected thereby and included within such unit bears to the total surface area of
all lands within such unit.

     E. TMRC does hereby grant warranties of title and indemnifications as set forth in the form of
Assignment attached hereto as Exhibit “B”, hereinafter referred to as the “ASSIGNMENT”. TMRC hereby
grants and transfers to EMPLOYEE and his successors and assigns, to the extent so transferable, the
benefit of and the rights to enforce the covenants and warranties, if any, which TMRC may be
entitled to enforce against TMRC’S predecessors in title, with full rights

 

 

of substitution and subrogation thereto. Subsequent to the effective date hereof, TMRC
hereby expressly agrees to protect, defend, indemnify and hold harmless EMPLOYEE, his legal
representatives, successors and assigns, from and against any and all liabilities, damages, claims,
demands, liens (including discharge of all liens), suits, causes of action, and any liability of
whatsoever kind, character or nature arising out of, incident to or in connection with TMRC’S
operations on the PROPERTIES or on lands pooled therewith, or TMRC’S failure to properly plug and
abandon any wells or to restore the lands to as near their prior condition as is reasonably
practical. In the event of title failure as to any MINERAL INTERESTS hereunder, EMPLOYEE shall not
be responsible for reimbursement of any funds received by him pursuant to this AGREEMENT prior to
notification by TMRC of such defect, and TMRC shall be responsible for reimbursement to any
appropriate parties on behalf of EMPLOYEE as to any such overpayment or improper payment.

     F. Within ten (10) days following the earlier of: (1) receipt by TMRC of a written request by
EMPLOYEE; or (2) the date of actual spudding of a well on a particular PROPERTY, or on lands pooled
therewith, in which TMRC (or its successors) holds a MINERAL INTEREST, TMRC shall assign and
transfer unto EMPLOYEE, in the form of the ASSIGNMENT, the NPI set forth above in Paragraphs A. and
B. of this Article III. as to the MINERAL INTERESTS then held by TMRC in the particular PROPERTY or
PROPERTIES. In the event TMRC does not then hold record title to any or all of said MINERAL
INTERESTS, TMRC shall subsequently, upon its receipt of such record title, assign and transfer to
EMPLOYEE the NPI set forth above in the form of the ASSIGNMENT. TMRC shall cause any such
ASSIGNMENT to be recorded in the appropriate records of the applicable counties

 

 

and/or parishes and shall provide EMPLOYEE with a certified or true and correct copy of any
such recorded ASSIGNMENT. Each separate ASSIGNMENT shall be effective as of the date TMRC acquired
its interest, whether actual or beneficial, in such PROPERTIES or the MINERAL INTERESTS in the
PROPERTIES, or lands pooled therewith.

IV.

NET PROFITS

     A. 1. As to the production and sale of oil, gas and minerals (or components and by-products
thereof extracted by treating, processing or other similar procedures) from each separate well
located on a PROPERTY or on lands pooled therewith, the term “NET PROFITS” shall, for purposes of
this AGREEMENT, be defined as the amount by which the proceeds from the overriding royalty
interest set forth above in Paragraph A. of Article III. derived from each separate well located
on a PROPERTY or on lands pooled therewith, on a well-by-well basis, before deducting any
CHARGEABLE EXPENDITURES, exceeds the sum of all appropriate CHARGEABLE EXPENDITURES as such term
is defined hereinbelow.

     A.2. As to the production and sale of oil, gas and minerals (or components and by-products
thereof extracted by treating, processing or other similar procedures) from each separate well
located on a PROPERTY or on lands pooled therewith, the term “CHARGEABLE EXPENDITURES” shall, for
purposes of this AGREEMENT, be defined as the same percentage as is the overriding royalty
interest granted pursuant to this AGREEMENT multiplied by the total sum of the following expenses
associated, directly or indirectly, with the MINERAL INTERESTS and incurred by TMRC and its
INTERNAL WORKING INTEREST PARTNERS (hereinafter defined) relative to each separate well, on a
well-by-well basis, and in which

 

 

EMPLOYEE holds an NPI hereunder:

(i) the severance, production, excise, ad valorem, windfall profits and other taxes on or
measured by production attributable to said MINERAL INTERESTS; (ii) the cost of operating
and maintaining the applicable well (normal lease operating expenses), exclusive of
Drilling Well Overhead Rates as provided for in any applicable Joint Operating Agreement,
and exclusive of any costs and expenses associated with establishment or enhancement of
production including but not limited to the costs of drilling, workovers (other than normal
lease operating expenses associated therewith), re-drills, deepening, sidetracking,
plugging back, purchasing and setting surface equipment, and/or the construction of
pipeline or plant facilities; plus

	 	(iii)	 	the fees or other consideration paid by TMRC to any third party other than an
AFFILIATE of TMRC for services in connection with marketing production of oil and/or
gas from or attributable to such MINERAL INTERESTS.

For purposes of this AGREEMENT, the term “INTERNAL WORKING INTEREST PARTNERS” shall be defined as
any and all parties who hold a cost sharing ownership interest, either actual or beneficial, on a
cash basis, by virtue of agreements between TMRC and any such party or parties, in and to any
MINERAL INTERESTS as such are defined hereunder provided such MINERAL INTERESTS are acquired by or
through TMRC. Any CHARGEABLE EXPENDITURES set forth above as (ii) shall not exceed the lowest
amounts set forth in any applicable Joint Operating Agreement for each such well governing the
operations of TMRC as to such well. Insofar as this AGREEMENT is concerned, TMRC shall be deemed
the “Operator” and EMPLOYEE the “Non-Operator” as those terms are used in any said Joint Operating

 

 

Agreement.

     B. The NET PROFITS payment or distribution shall be paid to EMPLOYEE, as to oil, gas, or other
minerals (or components and by-products thereof extracted by treating, processing or other similar
procedures), not later than thirty (30) days following the end of the month in which TMRC receives
actual payment therefor from the purchaser or from the Operator of the PROPERTY from which such
product is produced. Any NET PROFITS payment or distribution shall be accompanied by a statement
setting forth sufficient details of the NET PROFITS calculations as to each separate well, and as
to each separate PROPERTY generating MINERAL INCOME, for which payment is made.

     C. It is expressly stated and agreed herein that CHARGEABLE EXPENDITURES do not include any of
the following:

	 	(i)	 	any and all LEASE burdens including but not limited to landowner royalties,
overriding royalties, net profits interest payments, production payments, financing
arrangements and other similar interests which may burden any of the PROPERTIES or
MINERAL INTERESTS in the PROPERTIES as a result of agreements between TMRC and any
third parties; and
	 
	 	(ii)	 	capital expenditures associated with wells, production and marketing
facilities, including but not limited to the costs of drilling, workovers (other than
normal lease operating expenses associated therewith), re-drills, deepening,
sidetracking, plugging back, purchasing and setting surface equipment, and/or the
construction of pipeline or plant facilities.
	 
	 	D.	 	As to the production and sale of oil, gas and minerals (or components and
bi-products

 

 

	 	 	 	thereof) from each separate well located on a PROPERTY or on lands pooled herewith,
if CHARGEABLE EXPENDITURES in any calendar month exceed the proceeds in the same
month for a particular well resulting in a net loss, such net loss shall be carried
forward and applied against the NET PROFITS of the succeeding month, or months, for
that particular well. It is expressly provided and agreed herein that all NET
PROFITS as to wells shall be calculated solely on a well- by-well basis. A net loss
as to any individual well may not be carried forward or applied against the NET
PROFITS of any other individual well, regardless of whether or not there are
multiple wells located within the same PROPERTY, or on lands pooled therewith.

	 	E.	 	It is intended that the NPI shall be borne solely by TMRC; however, in the
event TMRC negotiates agreements with other industry participants in which all or some
portion of the NPI is to burden the working interest of such other industry
participants, any assignments or deeds, in whole or in part, of the PROPERTIES or of
the MINERAL INTERESTS in the PROPERTIES (or portions thereof) from TMRC into such other
industry participants shall be made expressly subject to this AGREEMENT. Except as
otherwise provided below, no assignment of the PROPERTIES or of the MINERAL INTERESTS
in the PROPERTIES out of TMRC shall reduce the amount of NPI held and retained by
EMPLOYEE.

              The NPI of EMPLOYEE shall be subject to the terms, conditions and provisions of any Joint
Operating Agreement at any time heretofore or hereafter entered into by TMRC with any third parties
covering any MINERAL INTERESTS affected by the NPI, including by way

 

 

of illustration and not by limitation, any provision requiring forfeiture of interest for
nonparticipation, recoupment of multiple recovery costs, and the like, to the extent that TMRC
would forfeit all or some portion of its MINERAL INTEREST for nonparticipation either forever or
until recoupment of drilling and/or operating costs by the third parties electing to participate,
or such other like reason; and in the event any such provisions come into effect, EMPLOYEE’S NPI in
such MINERAL INTEREST shall be suspended until such time, if ever, as such multiple recovery of
costs by the participating leasehold owners has been recovered or such other cause for suspension
is removed and such MINERAL INTEREST of TMRC is reinstated, at which time EMPLOYEE’S NPI shall be
so reinstated. Notwithstanding the foregoing, in connection with entering into any agreements with
third parties containing any such provisions requiring forfeiture of interest for nonparticipation,
recoupment of multiple recovery costs or the like, TMRC shall endeavor to cause such third parties
thereto to agree severally to bear and pay the NPI of EMPLOYEE with respect to TMRC’S MINERAL
INTEREST affected by such agreement, to the extent such proceeds are relinquished to such third
parties under the terms of such agreement.

     The NPI of EMPLOYEE shall be subject to the terms, conditions and provisions of any farmout
or other agreements under which TMRC acquires or may acquire its MINERAL INTEREST in a PROPERTY,
including by way of illustration and not by way of limitation, any provision of an applicable
farmout agreement requiring reduction of TMRC’S interest in any oil, gas or mineral lease after
payout of an earning well or wells thereunder. In the event any such provisions come into effect,
EMPLOYEE’S NPI in such MINERAL INTEREST shall be proportionately reduced at the time of such
payout under any such farmout agreement and shall

 

 

be applicable only to the interest then held by TMRC.

               All NPIs assigned by TMRC to EMPLOYEE shall be subject to the terms, conditions and
provisions of the leases, any assignments and/or subleases theretofore made or agreed to be made
by TMRC, and any amendments or modifications of the leases, theretofore or thereafter made, and
EMPLOYEE agrees that any such amendments or modifications may be made without the consent or
joinder of EMPLOYEE.

     F. In the event TMRC, after completion of its geologic evaluation of a PROPERTY, determines
for any reason, and in TMRC’S sole discretion, mat it is not willing to join in the drilling of a
well on such PROPERTY, but if it is able to secure the drilling of the PROPERTY by a sale to a
third party other than an AFFILIATE of TMRC, or its successors, through farmout or otherwise, and
if TMRC first secures the prior written approval of EMPLOYEE, such approval not to be unreasonably
withheld, EMPLOYEE’S NPI set forth above shall be reduced appropriately pursuant to such approval
and agreement. Any assignments or deeds, in whole or in part, made pursuant to any such sale shall
reflect and be made expressly subject to such approval and agreement.

     G. In the event TMRC reaches agreeable terms for the outright sale to a third party purchaser
of all of its interest in all or any portion of any PROPERTY after production has been established
on such PROPERTY, TMRC will notify EMPLOYEE within five (5) business days of execution of the
letter of intent by both TMRC and such purchaser by providing EMPLOYEE with a copy of such letter
of intent. Any such sale shall fully recognize and bear the NPI assigned hereunder and be made
expressly subject to this AGREEMENT unless EMPLOYEE simultaneously negotiates the sale of his NPI
to such purchaser.

 

 

V.

NO OBLIGATION

     Nothing contained herein shall be deemed or construed to require or obligate TMRC to acquire
any PROPERTY or MINERAL INTEREST or to conduct any drilling or completion operations thereon,
except that TMRC agrees to exercise reasonable diligence to protect against the inequitable
drainage of oil, gas or other minerals from such PROPERTY or MINERAL INTEREST. During the term of
this AGREEMENT, the acquisition of interests in, and operations on, any PROPERTIES or MINERAL
INTERESTS in PROPERTIES by TMRC, and the extent and duration thereof, as well as the perpetuation
by TMRC of any PROPERTY or MINERAL INTERESTS in PROPERTIES by operations, payments, or otherwise,
shall be within the sole judgment and discretion of TMRC, and TMRC shall have the right at any
time to surrender, abandon or otherwise terminate, in whole or in part, any oil, gas and mineral
lease or option to acquire a lease comprising a MINERAL INTEREST, without liability to EMPLOYEE.

VI.

STANDARD

     TMRC agrees to use reasonable diligence in marketing the oil, gas and other minerals produced
from PROPERTIES, or lands pooled therewith, under and by virtue of MINERAL INTERESTS.

VII.

TREATMENT OF NET PROFITS INTEREST

     A. The EMPLOYEE shall be fully and completely responsible for all federal and/or state

 

 

income taxes attributable to the NPI.

     B. All sums payable to EMPLOYEE attributable to any NPI shall be free and clear of the debts
and contracts of TMRC and of all liabilities for levies and attachments and proceedings of every
kind and character, in law or equity.

     C. EMPLOYEE may dispose of, pledge, mortgage, assign and convey all or any part of the NPI
regardless of whether EMPLOYEE is, or is not, an employee of TMRC. Any disposal, assignment or
conveyance of all or any part of the NPI shall be made expressly subject to all of the terms,
conditions and provisions of this AGREEMENT. Any transfer, assignment or conveyance of an interest
in the NPI conveyed by EMPLOYEE herein shall be effective as to TMRC only at 7:00 a.m. on the first
day of the next succeeding calendar month following the receipt by TMRC or its successors or
assigns of a certified copy of the recorded instrument or judgment evidencing such transfer,
assignment or conveyance. TMRC and its successors and assigns are relieved of any responsibility
for determining when any interest of EMPLOYEE in the NPI shall increase, diminish or be
extinguished or revert to any other individual, partnership, corporation, trust, unincorporated
association, or other entity or association, hereinafter referred to as “PERSON”, until TMRC or its
successors or assigns are furnished evidence thereof in accordance with the foregoing provisions of
this Paragraph, and EMPLOYEE and his heirs and assigns agree to hold TMRC and its successors and
assigns harmless from all loss or expense that may result from any incorrect payment in the absence
of compliance with the aforesaid provisions.

VIII.

MISCELLANEOUS

     A. This AGREEMENT shall be for a term commencing on the EFFECTIVE DATE

 

 

and terminating on the earlier of (i) fifty (50) years following the date hereof or (ii) the
date upon which the EMPLOYEE ceases to be an employee of TMRC. At the end of such term, the NPI
of EMPLOYEE and the terms and provisions of this AGREEMENT shall survive and continue only with
respect to each of the oil and gas prospects and properties then constituting PROPERTIES under this
AGREEMENT; provided, however, the NPI of EMPLOYEE and the terms and provisions of this AGREEMENT
shall terminate with respect to each such PROPERTY upon the expiration of the first continuous
three-year period during which TMRC neither owns nor acquires any MINERAL INTEREST in such
PROPERTY. Until the expiration of such first three-year continuous period, EMPLOYEE shall be
entitled to receive the NPI set forth above in Paragraphs A. and B. of Article in. in any and all
MINERAL INTERESTS acquired by TMRC in such PROPERTY, whether or not such MINERAL INTEREST is
acquired subsequent to the termination of EMPLOYEE’S employment with TMRC .

     B. This AGREEMENT and all disputes arising hereunder shall be interpreted, construed and
resolved according to the laws of the State of Texas, except that any dispute arising under this
AGREEMENT over the right or title to a MINERAL INTEREST or PROPERTY or to an NPI therein shall be
governed by and resolved according to the substantive laws of the state in which the MINERAL
INTEREST or PROPERTY is situated exclusive of said state’s conflict of laws principle.

     C. EMPLOYEE, and any representative or representatives authorized by EMPLOYEE, shall have the
right during TMRC’S regular business hours and upon reasonable advance written notice by EMPLOYEE,
to audit the accounts and records of TMRC relative to this AGREEMENT for any period within four (4)
years prior to the date such audit actually commences. TMRC agrees to make adjustments to its
records and accounts to correct and clarify deficiencies revealed by any

 

 

such audit, ha addition, TMRC shall retain the required records for such period of time
sufficient to allow for the audit of those records by the Internal Revenue Service, as provided by
the Internal Revenue Code of 1986, as amended from time to time, and for such period of time
sufficient to allow for the audit of those records by the appropriate state taxing authority as
provided by similar provisions of state tax laws.

     D. The article headings used in this AGREEMENT are inserted for convenience only and shall be
disregarded in construing this AGREEMENT.

     E. If any portion of this AGREEMENT is rendered invalid by a court of proper jurisdiction, the
balance of this AGREEMENT shall continue in full force and effect.

     F. This AGREEMENT and its exhibits, attachments, or related documents and
instruments constitute the sole and entire agreement between EMPLOYEE and TMRC with respect to
the subject matter hereof, shall not be modified or amended except pursuant to a written amendment
executed by both EMPLOYEE and TMRC, and shall be binding upon, inure to the benefit of, and extend
to their respective heirs, representatives and successors. Both EMPLOYEE and TMRC hereby
acknowledge receipt of a true and correct copy of this AGREEMENT.

     G. The rights and remedies herein granted are cumulative, and the exercise thereof by EMPLOYEE
or TMRC shall be without prejudice to the enforcement of any other rights or remedies authorized by
law, or by other provisions of this AGREEMENT. The pursuit of any rights or remedies shall not
constitute a waiver of any other amounts due or damages accruing by reason of the violation of the
terms, provisions and covenants herein contained.

     H. EMPLOYEE and TMRC shall, from time to time, and at all times, and without additional
consideration therefor, do all such further acts and execute and deliver all further

 

 

instruments and documents as shall be reasonably required in order fully to perform and carry
out the terms of this AGREEMENT.

     I. To be effective, any notice, request or other communication permitted or required to be
given by either party hereunder shall be given in writing and may be effected by placing the same
in the United States mail, certified with return receipt requested, postage prepaid, by delivery by
courier service, by prepaid telegram or by facsimile transmission, and shall be deemed given the
date and hour three (3) days following the date and hour at which the same is deposited with a
clerk of the United States Postal Service, or when so delivered by courier service or by prepaid
telegram filed with a telegraph company or on completion and confirmation of a facsimile
transmission, addressed to the respective party to be notified as follows:

	 	 	 	 	 	 	 
	 

	 	(a) If to TMRC:
	 	Texas Meridian Resources Corporation

15995 N. Barkers Landing, Suite 300

Houston, Texas 77079 Attn: Vice

President — Land Telephone: (713)

558-8080 Facsimile: (713) 558-5547
	 	 
	 
	 	 	 	 	 	 
	 

	 	(b) If to EMPLOYEE:
	 	Joseph A. Reeves, Jr.

15995 N. Barkers Landing, Suite 300

Houston, Texas 77079 Telephone: (713)

558-8080 Facsimile: (713) 558-5595
	 	 

or to such other address of which notice was given. Either party may change such party’s address
for notice, or the person to whose attention such notice is to be directed, by giving notice to
the other party in accordance with this Paragraph.

     J. Unless the context otherwise requires, the following term, when used in this AGREEMENT,
shall have the following meaning:

 

 

     “AFFILIATE” shall mean any PERSON directly or indirectly, through one or more intermediaries,
controlling, controlled by or under common control with the PERSON in question. The term “control”,
as used in the immediately preceding sentence, means, with respect to a PERSON that is a
corporation, the right to the exercise, directly or indirectly, of more than 50% of the voting
rights attributable to the shares of the controlled corporation, and with respect to a PERSON that
is not a corporation, the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of the controlled PERSON.

     K. This AGREEMENT supersedes that certain Agreement dated December 30, 1993, effective as of
the 1st day of January, 1994, between TMRC and EMPLOYEE. Said prior Agreement is herein expressly
terminated.

recited.

     IN WITNESS WHEREOF, this AGREEMENT has been executed as of the date above recited.

	 	 	 	 	 
	EMPLOYEE:

 	 
	/s/ Joseph A. Reeves, Jr.
 	 
	 
	WITNESSES:

 	 	 
	/s/ Nicola L. Maddox
 	 
	 
	 	 	 
	/s/ Jean Llewellen
 	 
	 

TEXAS MERIDIAN RESOURCES CORPORATION

 

 

	 	 	 	 	 
	 	 	 
	By:  	/s/ Michael Mayell
 	 
	 
	WITNESSES:

 	 	 

	 	 	 	 	 
	/s/ Nicola L. Maddox
 	 
	 
	/s/ Jean Llewellen

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