Cause No. Filed 10 January 8 A11:39 Loren Jackson - District Clerk Harris County ED101J015626245 By: Sharon Carlton ELIEZER LEIDER, derivatively on behalf of THE MERIDIAN RESOURCE CORPORATION, v. Plaintiff, PAUL CHING, JOSEPH REEVES, MICHAEL MAYELL, E.L. HENRY, FENNER WELLER, JOHN SIMMONS, C. MARK PEARSON, ALTA MESA HOLDINGS, LP, and ALTA MESA ACQUISITION SUB, LLC, and Defendants. THE MERIDIAN RESOURCE CORPORATION, Nominal Defendant. IN THE DISTRICT COURT JUDICIAL DISTRICT HARRIS COUNTY, TEXAS SHAREHOLDER DERIVATIVE PETITION FOR BREACHES OF FIDUCIARY DUTY Plaintiff, by his attorneys, allege on information and belief, except for his own acts, which are alleged on knowledge, as follows: Pursuant to Rule 190.4 of the Texas Rules of Civil Procedure, plaintiff would show that discovery is intended to be conducted under Level 3 of this rule due to the complexity of this case.
INTRODUCTION 1. Plaintiff brings this action on behalf of The Meridian Resource Corporation ( Meridian or the Company against Defendants, Meridian and its Board of Directors seeking equitable relief for their breaches of fiduciary duty and other violations of state law arising out of their attempt to sell the Company to Alta Mesa Holdings, LP and Alta Mesa Acquisition Sub, LLC (collectively Alta Mesa by means of an unfair process and for an unfair price of $0.29 per share in cash, for a total transaction value of approximately $26.8 million (the Proposed Transaction. JURISDICTION AND VENUE 2. This Court has jurisdiction over this action because Meridian is a Texas Corporation headquartered and with its principal place of business in 1401 Enclave Parkway, Suite 300, Houston, Texas 77077 and therefore a citizen of Texas. 3. Venue is proper in this Court because the conduct at issue took place and had an effect in this County. PARTIES 4. Plaintiff is, and has been at all relevant times, the owner of shares of common stock of Meridian. 5. Meridian is a corporation organized and existing under the laws of the State of Texas. It maintains its principal corporate offices at 1401 Enclave Parkway, Suite 300, Houston, Texas 77077, and explores for, acquires, develops, and produces oil and natural gas reserves, primarily located onshore in south Louisiana and Texas; and offshore in the Gulf of Mexico. 6. Defendant John Ching ( Ching has been the President, Chief Executive Officer, and Chairman of the Board of the Company since 2008. Upon information and belief he can be served at 1401 Enclave Parkway, Suite 300, Houston, Texas 77077. 2
7. Defendant Joseph Reeves ( Reeves has been a director of the Company since 2008. Upon information and belief he can be served at 1401 Enclave Parkway, Suite 300, Houston, Texas 77077. 8. Defendant Michael Mayell ( Mayell has been a director of the Company since 2008. Upon information and belief he can be served at 1401 Enclave Parkway, Suite 300, Houston, Texas 77077. 9. Defendant E.L. Henry ( Henry has been a director of the Company since 1998. Upon information and belief he can be served at 1401 Enclave Parkway, Suite 300, Houston, Texas 77077. 10. Defendant Fenner Weller ( Weller has been a director of the Company since 2004. Upon information and belief he can be served at 1401 Enclave Parkway, Suite 300, Houston, Texas 77077. 11. Defendant John Simmons ( Simmons has been a director of the Company since 2004. Upon information and belief he can be served at 1401 Enclave Parkway, Suite 300, Houston, Texas 77077. 12. Defendant C. Mark Pearson ( Pearson has been a director of the Company since 2006. Upon information and belief he can be served at 1401 Enclave Parkway, Suite 300, Houston, Texas 77077. 13. Defendants referenced in 6 through 12 are collectively referred to as Individual Defendants and/or the Meridian Board. 14. Defendant Alta Mesa Holdings, LP is a Texas limited partnership that is engaged in the acquisition, exploration, development, and production of oil and gas properties. 3
15. Defendant Alta Mesa Acquisition Sub, LLC is a Texas limited liability company wholly owned by Alta Mesa Holdings, LP that was created for the purposes of effectuating the Proposed Transaction. OBLIGATIONS OF INDIVIDUAL DEFENDANTS 16. Each of the Individual Defendants owed to Meridian the duty of loyalty, good faith, due care and diligence in the management and administration of the affairs of the Company and in the use and preservation of its property and assets, along with the duty of full and candid disclosure of all material facts related thereto. Furthermore, the Individual Defendants owed a duty to Meridian to ensure that Meridian operated in compliance with all applicable federal and state laws, rules, and regulations, and that Meridian did not engage in any unsafe, unsound, or illegal business practices. 17. To discharge these duties, the Individual Defendants were required to exercise reasonable and prudent supervision over the management, policies, practices, controls, and financial and corporate affairs of Meridian. By virtue of their obligations to carry out their duties with the utmost loyalty, good faith, due care and diligence, the Individual Defendants were required, among other things, to: (a (b (c (d manage, conduct, supervise, and direct the employees, businesses and affairs of the Company in accordance with all applicable laws, rules and regulations, and the Company s charter and by-laws; neither violate nor knowingly, recklessly or negligently permit any officer, director or employee of the Company to violate applicable laws, rules and regulations and to exercise reasonable control and supervision over such officers and employees; ensure the prudence and soundness of policies and practices undertaken or proposed to be undertaken by the Company; remain informed as to how the Company, in fact, was operating, and upon receiving notice or information of unsafe, imprudent or unsound practices, 4
to make reasonable investigation in connection therewith and to take steps to correct that condition or practice; (e (f supervise the preparation, filing and/or dissemination of any SEC filing, press releases, audits, reports or other information disseminated by the Company and to examine and evaluate any reports of examinations or investigations concerning the practices, products or conduct of officers of the Company and to make full and accurate disclosure of all material facts, concerning inter alia, each of the subjects and duties set forth above; and preserve and enhance the Company s reputation as befits a public corporation and to maintain public trust and confidence in the Company as a prudently managed institution fully capable of meeting its duties and obligations. CONSPIRACY, AIDING AND ABETTING AND CONCERTED ACTION 18. In committing the wrongful acts alleged herein, each of the Defendants has pursued, or joined in the pursuit of, a common course of conduct, and acted in concert with and conspired with one another, in furtherance of their common plan or design. In addition to the wrongful conduct herein alleged as giving rise to primary liability, the Defendants further aided and abetted and/or assisted each other in breach of their respective duties as herein alleged. 19. During all relevant times hereto, the Defendants, and each of them, initiated a course of conduct which was designed to and did: (i permit Alta Mesa to attempt to eliminate the public shareholders equity interest in Meridian pursuant to a defective sales process, and (ii permit Meridian to buy the Company for an unfair price. In furtherance of this plan, conspiracy and course of conduct, Defendants, and each of them, took the actions as set forth herein. 20. Each of the Defendants herein aided and abetted and rendered substantial assistance in the wrongs complained of herein. In taking such actions, as particularized herein, to substantially assist the commission of the wrongdoing complained of, each Defendant acted with knowledge of the primary wrongdoing, substantially assisted the accomplishment of that 5
wrongdoing, and was aware of his or her overall contribution to, and furtherance of, the wrongdoing. The Defendants acts of aiding and abetting included, inter alia, the acts each of them are alleged to have committed in furtherance of the conspiracy, common enterprise and common course of conduct complained of herein. SUBSTANTIVE ALLEGATIONS 21. In a press release dated December 23, 2009, the Company announced that it had entered into a merger agreement with the Alta Mesa, stating: Houston, Texas December 23, 2009 The Meridian Resource Corporation (NYSE: TMR today announced that it has entered into a definitive agreement and plan of merger for Meridian to be acquired by Alta Mesa Holdings, LP, a privately held company, for $0.29 per share in cash, representing an equity value of approximately $26.8 million. In conjunction with this transaction, Alta Mesa will assume all of Meridian s outstanding obligations, including those under the company s senior secured credit agreement and its equipment loan agreement. The definitive agreement and plan of merger was unanimously approved by Meridian s board of directors, and the board has recommended that Meridian shareholders vote in favor of the merger agreement. In addition, Meridian received all necessary consents under its applicable loan agreements. Under the terms of the merger agreement, Meridian stockholders would receive $0.29 per share in cash, representing a premium of approximately 12 percent to Meridian s closing share price of $0.26 on December 22, 2009. 22. On December 29 2009, the Company filed a Form 8-K with the United States Securities and Exchange Commission ( SEC wherein it disclosed the operating Agreement and Plan of Merger for the Proposed Transaction (the Merger Agreement. The announcement and filings reveal that the Proposed Transaction is the product of a flawed sales process and is being consummated at an unfair price. 23. During the months prior to the Proposed Transaction, Meridian stock had been trading well in excess of the Proposed Transaction offer price of $0.29 per share. In fact, 6
Meridian shares traded as high as $0.51 per share on September 10, 2009. In addition, Meridian stock traded at over $3.20 per share in 2008 prior to the general economic downturn that shook most of the stock market. 24. Moreover, the Company has a book value of $0.56 per share. Further, at least one Wall Street analyst had a price target of $2.50 per share before the Proposed Transaction was announced. 25. Accordingly, the consideration shareholders are to receive is inadequate. Alta Mesa is picking up Meridian at the most opportune time, at a time when Meridian s stock price is trading at a huge discount to its intrinsic value. 26. In addition, as part of the Merger Agreement, Defendants agreed to certain onerous and preclusive deal protection devices that operate conjunctively to make the Proposed Transaction a fait d accompli and ensure that no competing offers will emerge for the Company. 27. By way of example, 8.4(a of the Merger Agreement includes a no solicitation provision barring the Board and any Company personnel from attempting to procure a price in excess of the amount offered by Alta Mesa. Despite the fact that they have locked up the Company and bound it to not solicit alternative bids, the Merger Agreement provides other ways that guarantee the only suitor will be Alta Mesa. 28. Pursuant to 8.4 of the Merger Agreement, should an unsolicited bidder arrive on the scene, the Company must notify Alta Mesa of the bidder s offer as well as keep Alta Mesa informed of the status of the negotiations and discussions with other bidders. Thereafter, should the Board determine that the unsolicited offer is superior, Alta Mesa is granted three business days to amend the terms of the Merger Agreement to make a counter-offer that only needs to be at least as favorable to the Company s shareholders as the unsolicited offer so that the unsolicited 7
offer is no longer considered superior. Alta Mesa is able to match the unsolicited offer because it is granted unfettered access to the unsolicited offer, in its entirety, eliminating any leverage that the Company has in receiving the unsolicited offer. 29. In other words, the Merger Agreement gives Alta Mesa access to any rival bidder s information and allows Alta Mesa a free right to top any superior offer. Accordingly, no rival bidder is likely to emerge and act as a stalking horse for Alta Mesa, because the Merger Agreement unfairly assures that any auction will favor Alta Mesa and piggy-back upon the due diligence of the foreclosed second bidder. 30. In addition, the Merger Agreement provides that a termination fee of $3 million must be paid to Alta Mesa by Meridian if the Company decides to pursue said other offer, thereby essentially requiring that the alternate bidder agree to pay a naked premium for the right to provide the shareholders with a superior offer. 31. Ultimately, these preclusive deal protection provisions illegally restrain the Company s ability to solicit or engage in negotiations with any third party regarding a proposal to acquire all or a significant interest in the Company. The circumstances under which the Board may respond to an unsolicited written bona fide proposal for an alternative acquisition that constitutes or would reasonably be expected to constitute a superior proposal are too narrowly circumscribed to provide an effective fiduciary out under the circumstances. Likewise, these provisions also foreclose any likely alternate bidder from providing the needed market check of Alta Mesa s inadequate offer price. DEMAND PURSUANT TO TEXAS BUSINESS CORPORATIONS ACT ARTICLE 5.14 32. Pursuant to Texas Business Corporations Act Article 5.14, in a letter dated December 29, 2009, plaintiff made a demand upon the current Meridian Board of Directors, informing the Board of the identity of the alleged wrongdoers; describing the factual basis for the 8
allegations of wrongdoing; describing how such wrongdoing is harmful to the Company; and requesting that the Board take remedial action, including without limitation, to ensure that the transaction s consideration is fair to Meridian and its shareholders.. 33. Pursuant to Texas Business Corporations Act Article 5.14 (C, No shareholder may commence a derivative proceeding until: (1 a written demand is filed with the corporation setting forth with particularity the act, omission, or other matter that is the subject of the claim or challenge and requesting that the corporation take suitable action; and (2 90 days have expired from the date the demand was made, unless the shareholder has earlier been notified that the demand has been rejected by the corporation or unless irreparable injury to the corporation is being suffered or would result by waiting for the expiration of the 90-day period. 34. The Proposed Transaction is expected to close in the first half of 2010. If plaintiff delayed filing an action for 90 days then there would be insufficient time for Plaintiff to properly litigate the case, including conducting discovery and necessary motion practice. Thus, waiting 90 days before mounting a challenge to the Proposed Transaction will cause irreparable harm to the corporation. 35. Accordingly, Plaintiff seeks injunctive and other equitable relief to prevent the irreparable injury that Company shareholders will continue to suffer absent judicial intervention. CLAIM FOR RELIEF COUNT I Derivative Claim For Breach Of Fiduciary Duties (Against Individual Defendants 42. Plaintiff repeats all previous allegations as if set forth in full herein. 43. Plaintiffs have no adequate remedy at law. 44. As fiduciaries of Meridian, the Individual Defendants are obligated to conduct the 9
business of the Company with loyalty, candor and independence and in good faith. This cause of action is asserted based upon the Defendants acts in violation of state law, which acts constitute a breach of fiduciary duty and waste of the Company s corporate assets. 45. The Defendants have violated the fiduciary duties of care, loyalty, candor and independence owed to Meridian, have engaged in unlawful self-dealing, and have acted to put their personal interests and/or the interests of Alta Mesa ahead of the interests of Meridian. 46. The Individual Defendants have violated their fiduciary duties by agreeing to the Proposed Transaction without regard to the fairness of the Proposed Transaction to Meridian. By the acts, transactions and courses of conduct alleged herein, the Individual Defendants, individually and acting as part of a common plan, knowingly or recklessly failed to exercise the care required, and breached their duties of loyalty, good faith, candor and independence owed to Meridian because, among other reasons, they failed to take steps to maximize the value of Meridian and entered into preclusive deal protection provisions. 47. By reason of the foregoing acts, the Individual Defendants have failed to exercise ordinary care and diligence in the exercise of their fiduciary obligations toward Meridian. 48. In addition, Defendants, in their roles as executives and/or Directors of the Company, participated in the acts alleged herein and/or acted in gross disregard of the facts and/or failed to exercise due care to prevent the unlawful conduct. 49. Each of the Defendants, individually and collectively, have breached and/or aided and abetted breaches of fiduciary duties owed to Meridian. 50. As a direct and proximate result of the Defendants conduct, Meridian will suffer irreparable harm if the Proposed Transaction proceeds. 10
COUNT II Aiding and Abetting (Against Alta Mesa 51. Plaintiff repeats all previous allegations as if set forth in full herein. 52. As alleged in more detail above, Alta Mesa is well aware that the Individual Defendants have breached their fiduciary duties in connection with the Proposed Transaction. Defendants Alta Mesa aided and abetted the Individual Defendants breaches of fiduciary duties. follows: 53. As a result, Plaintiff and the Class members are being harmed. 54. Plaintiff and the Class have no adequate remedy at law. REQUEST FOR RELIEF WHEREFORE, plaintiff, derivatively on behalf of Meridian, requests judgment as (A (B enjoining, preliminarily and permanently, the Proposed Transaction; in the event that the transaction is consummated prior to the entry of this Court s final judgment, rescinding it or awarding Plaintiff and the Class rescissory damages; (C an award of monetary damages, on behalf of Meridian, against all of the Defendants, for all losses and/or damages suffered by Meridian as a result of the wrongdoings complained of herein, together with prejudgment and post-judgment interest thereon, in an amount to be proved at trial; (D awarding plaintiff his fees and expenses incurred in this action, including reasonable allowance of fees for plaintiff s attorneys and experts; and (E Granting plaintiff such other and further relief as the Court may deem just and proper. 11
Respectfully submitted, THE BRISCOE LAW FIRM, LLP Willie Briscoe 8117 Preston Road, Suite 300 Dallas, Texas 75225 Tel: 214-706-9314 Fax: 214-706-9315 Attorney for Eliezer Leider, Plaintiff OF COUNSEL LEVI & KORSINSKY, LLP Eduard Korsinsky Eric M. Andersen 30 Broad Street, 15 th Floor New York, New York 10004 Tel: (212 363-7500 Fax: (212 363-7171 DATED: January 8, 2010 12