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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
THE MERIDIAN RESOURCE CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
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CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
THE MERIDIAN RESOURCE CORPORATION
1401 ENCLAVE PARKWAY, SUITE 300
HOUSTON, TEXAS 77077
NOTICE OF 2004 ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of The Meridian Resource Corporation:
The 2004 Annual Meeting of Shareholders of The Meridian Resource
Corporation (the "Company") will be held on October 27, 2004, at 10:00 a.m.
Houston time, at The West Lake Club, 510 West Lake Park Boulevard, Houston,
Texas, for the following purposes:
1. To elect persons to serve on the Company's Board of Directors as
follows:
- To elect three persons to serve as Class II Directors on the
Company's Board of Directors, to hold office until the 2007 Annual
Meeting of Shareholders or until such person's successor shall be
duly elected and qualified.
- To elect three persons to serve as Class I Directors on the
Company's Board of Directors, to hold office until the 2006 Annual
Meeting of Shareholders or until such person's successor shall be
duly elected and qualified.
- To elect one person to serve as an additional Class III Director on
the Company's Board of Directors, to hold office until the 2005
Annual Meeting of Shareholders or until such person's successor
shall be duly elected and qualified.
2. To consider and act upon a shareholder proposal that the Company
nominate at least two candidates for each Board of Directors
position to be voted on by the shareholders.
3. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on September 9,
2004, as the record date for determination of shareholders who are entitled to
notice of and to vote either in person or by proxy at the 2004 Annual Meeting of
Shareholders and any adjournment thereof.
All shareholders are cordially invited to attend the meeting in person.
Even if you plan to attend the meeting, YOU ARE REQUESTED TO SIGN, DATE AND
RETURN THE ACCOMPANYING PROXY AS SOON AS POSSIBLE.
Each shareholder of the Company is receiving a copy of the 2004 Annual
Report to Shareholders (the "Annual Report") with this Proxy Statement. If you
did not receive a copy of the Annual Report, you should contact Lloyd V. DeLano
at the Company at (281) 597-7000 and the Company will send a copy of the Annual
Report to you free of charge.
By Order of the Board of Directors
Joseph A. Reeves, Jr.
Chairman of the Board and
Chief Executive Officer
September 23, 2004
THE MERIDIAN RESOURCE CORPORATION
1401 ENCLAVE PARKWAY, SUITE 300
HOUSTON, TEXAS 77077
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement and the accompanying proxy card are furnished in
connection with the solicitation of proxies by order of the Board of Directors
of The Meridian Resource Corporation (the "Company") to be voted at the 2004
Annual Meeting of Shareholders (the "Meeting"), to be held at the time and place
and for the purposes set forth in the accompanying notice. Such notice, this
Proxy Statement and the form of Proxy are being mailed to shareholders on or
about September 23, 2004.
The Company will bear the costs of soliciting proxies in the accompanying
form. In addition to the solicitation made hereby, proxies also may be solicited
by telephone, telegram or personal interview by officers and regular employees
of the Company. The Company will reimburse brokers or other persons holding
stock in their names or in the names of their nominees for their reasonable
expenses in forwarding proxy material to beneficial owners of stock.
All duly executed proxies received prior to the Meeting will be voted in
accordance with the choices specified thereon, unless revoked in the manner
provided hereinafter. As to any matter for which no choice has been specified in
a proxy, the shares represented thereby will be voted by the persons named in
the proxy (i) "for" the election as director of the nominees listed herein, (ii)
"against" the shareholder proposal to nominate at least two persons for each
director position and (iii) in the discretion of such persons, in connection
with any other business that may properly come before the Meeting. A shareholder
of the Company who has executed and returned a proxy may revoke it at any time
prior to the exercise thereof by written notice to the Secretary of the Company
at the above address of the Company or by the execution and delivery of a later
dated proxy, or by attendance at the Meeting and voting their shares in person.
As of the close of business on September 9, 2004, the record date ("Record
Date") for determining shareholders entitled to vote at the Meeting, the Company
had outstanding and entitled to vote 79,201,084 shares of Common Stock, $.01 par
value ("Common Stock"). The outstanding shares of Common Stock are the only
shares of capital stock of the Company entitled to vote at the Meeting. Each
share of Common Stock is entitled to one vote with respect to each matter to be
acted on at the Meeting.
The holders of a majority of the outstanding shares of Common Stock as of
the Record Date, whether represented in person or by proxy, will constitute a
quorum for the transaction of business at the Meeting as to any matter for which
all of the Common Stock is entitled to vote. Under Texas law, any unvoted
position in a brokerage account with respect to any matter will be considered as
not voted and will not be counted toward fulfillment of quorum requirements as
to that matter.
-2-
ELECTION OF DIRECTORS
In addition to the election of three Class II Directors whose current
terms expire as of the date of the Meeting, you are being asked to vote on the
election of three Class I Directors and one additional Class III Director. The
Company has increased the number of persons serving on the Board to comply with
recent New York Stock Exchange rule changes regarding independent directors. To
comply with our Bylaws, directorships are being added to Class I and Class III
to keep the number of directors in each Class as nearly equal as possible.
PROPOSAL ONE -
ELECTION OF DIRECTORS
ELECTION OF CLASS II DIRECTORS
Three directors will be elected by the holders of the Common Stock at the
Meeting to serve as the Class II Directors of the Company's Board of Directors
until the 2007 Annual Meeting of Shareholders or until such person's successor
shall be duly elected. The Board of Directors recommends the election of E.L.
Henry, Joe E. Kares and Gary A. Messersmith as the Class II Directors. Messrs.
Henry, Kares and Messersmith are each currently directors of the Company. Unless
contrary instructions are set forth in the proxies, it is intended that each
person executing a proxy will vote all shares represented by such proxy for the
election as director of each of Messrs. Henry, Kares and Messersmith. Should any
of Messrs. Henry, Kares and Messersmith become unable or unwilling to accept
nomination or election, it is intended that the person acting under the proxy
will vote for the election of such other person as the Board of Directors of the
Company may recommend. Management has no reason to believe that any of Messrs.
Henry, Kares and Messersmith will be unable or unwilling to serve if elected.
There are currently three Class II directorships up for election. A
nominee for director receiving a plurality of votes cast at the Meeting and
entitled to be cast for such nominee will be elected as director. Abstentions
and broker non-votes will not be treated as a vote for or against a particular
director and will not affect the outcome of the election of directors.
ELECTION OF CLASS I DIRECTORS
Three directors will be elected by the holders of the Common Stock at the
Meeting to serve as the Class I Directors of the Company's Board of Directors
until the 2006 Annual Meeting of Shareholders or until such person's successor
shall be duly elected. The Board of Directors recommends the election of David
W. Tauber, John B. Simmons and James R. Montague as the Class I Directors. In
accordance with our Bylaws, the Board appointed Messrs. Tauber, Simmons and
Montague during the past year to serve on the Board of Directors to fill a
vacancy on the Board or to fill a newly created Board seat. Unless contrary
instructions are set forth in the proxies, it is intended that each person
executing a proxy will vote all shares represented by such proxy for the
election as director of each of Messrs. Tauber, Simmons and Montague. Should any
of Messrs. Tauber, Simmons and Montague become unable or unwilling to accept
nomination or election, it is intended that the person acting under the proxy
will vote for the election of such other person as the Board of Directors of the
Company may recommend.
-3-
Management has no reason to believe that any of Messrs. Tauber, Simmons and
Montague will be unable or unwilling to serve if elected.
There are currently three Class I directorships up for election. A nominee
for director receiving a plurality of votes cast at the Meeting and entitled to
be cast for such nominee will be elected as director. Abstentions and broker
non-votes will not be treated as a vote for or against a particular director and
will not affect the outcome of the election of directors.
ELECTION OF CLASS III DIRECTORS
In addition to the two persons currently serving as Class III Directors,
one director will be elected by the holders of the Common Stock at the Meeting
to serve as an additional Class III Director of the Company's Board of Directors
until the 2005 Annual Meeting of Shareholders or until such person's successor
shall be duly elected. The Board of Directors recommends the election of Fenner
R. Weller, Jr. as the additional Class III Director. In accordance with the
Company's Bylaws, the Board appointed Mr. Weller in August 2004 to fill a newly
created Board seat. Unless contrary instructions are set forth in the proxies,
it is intended that each person executing a proxy will vote all shares
represented by such proxy for the election of Mr. Weller as director. Should Mr.
Weller become unable or unwilling to accept nomination or election, it is
intended that the person acting under the proxy will vote for the election of
such other person as the Board of Directors of the Company may recommend.
Management has no reason to believe that Mr. Weller will be unable or unwilling
to serve if elected.
There is currently one Class III directorship up for election. A nominee
for director receiving a plurality of votes cast at the Meeting and entitled to
be cast for such nominee will be elected as director. Abstentions and broker
non-votes will not be treated as a vote for or against a particular director and
will not affect the outcome of the election of directors.
DIRECTORS
The business and affairs of the Company is managed under the direction of
the Board of Directors to enhance the long-term value of the Company for its
shareholders. In exercising its authority to direct, the Board recognizes that
the long-term interests of its shareholders are best advanced by appropriate
consideration of other stakeholders and interested parties including employees
and their families, customers, suppliers, communities and society as a whole. To
assist the Board in fulfilling its responsibilities, it has adopted certain
Corporate Governance Principles (the "Principles"), a copy of which will be
posted on the Company's web site at www.tmrx.com. As set forth in the
Principles, the Board of Directors of the Company will schedule regular
executive sessions where non-management directors meet without management
participation. Effective on the date of the Meeting, the chairman of the Board
Affairs Committee and the chairman of the Compensation Committee shall preside
on an alternating basis at each executive session.
The Company's Bylaws provide that the Board of Directors shall be
classified into three classes: Class I Directors, Class II Directors and Class
III Directors. Each class serves for a term of three years or until a director's
successor is duly elected and qualified.
-4-
Set forth below is certain information concerning the current directors of
the Company, with each person's business experience for at least the past five
years.
PRESENT POSITIONS EXPIRATION OF
NAME AGE WITH THE COMPANY DIRECTOR SINCE PRESENT TERM
---- --- ---------------- -------------- ------------
E. L. Henry 68 Class II Director (1) (5) (6) 1998 2004
Joe E. Kares 60 Class II Director (1) (2) 1990 2004
Gary A. Messersmith 55 Class II Director (2) 1997 2004
David W. Tauber 54 Class I Director (4) (5) 2004 2004
John B. Simmons 52 Class I Director (4) 2004 2004
James R. Montague 57 Class I Director (5) (6) 2004 2004
Joseph A. Reeves, Jr. 57 Class III Director, Chairman 1990 2005
of the Board and Chief
Executive Officer (3)
Michael J. Mayell 57 Class III and President (3) 1990 2005
Fenner R. Weller, Jr. 53 Class III Director (4) (6) 2004 2004
(1) Current member of the Audit Committee.
(2) Current member of the Executive Compensation Committee.
(3) Member of the Executive Committee, Director's Stock Option Plan
Administration Committee and current member of the Employee Compensation
Committee.
(4) Member of the Audit Committee, effective as of the date of the Meeting.
(5) Member of the Board Affairs Committee, effective as of the date of the
Meeting.
(6) Member of the Compensation Committee, effective as of the date of the
Meeting.
E. L. Henry was a partner with the law firm of Adams and Reese L.L.P. in
Baton Rouge, Louisiana from 1987 until his retirement in 2001. Mr. Henry was
formerly Commissioner of the Division of Administration for the State of
Louisiana from 1980 through 1984, a member of the Louisiana House of
Representatives from 1968 through 1980 and Speaker of the Louisiana House of
Representatives from 1972 through 1980.
Joe E. Kares has been a partner with the public accounting firm of Kares &
Cihlar in Houston, Texas since 1980.
Gary A. Messersmith has been a Member of the law firm of Looper, Reed &
McGraw, a Professional Corporation, in Houston, Texas since 2001, and from 1982
to 2001 was a partner with the law firm of Fouts & Moore, L.L.P. in Houston,
Texas.
David W. Tauber has served as owner/principal of Tauber Oil Company, a
marketer of fuel oil and carbon black located in Houston, Texas, since 1984.
John B. Simmons has been Vice President, Treasurer and Chief Financial
Officer of Stewart & Stevenson Services, Inc. since 2002, and from 2001 to 2002
was their Controller and Chief Accounting Officer. Stewart & Stevenson Services,
Inc. is a manufacturer, service provider and distributor of industrial and
energy related equipment. From 1997 to 2000,
-5-
Mr. Simmons was Vice President and Chief Financial Officer of Cooper Energy
Services, a provider of power and compression equipment.
James R. Montague was president of IP Petroleum Co., an oil and gas
exploration and production company, from 1996 until 2001. From 2001 until he
retired in 2002, he was president of Encana Gulf of Mexico, also an oil and gas
exploration and production company. Mr. Montague also serves on the boards of
directors of Penn Virginia Resource Partners, L.P. and Magellan Midstream
Partners, L.P.
Joseph A. Reeves, Jr. is Chairman of the Board and Chief Executive Officer
of the Company. Prior to assuming his positions with the Company, Mr. Reeves
held similar positions with the Company's predecessor, Texas Meridian Resources,
Ltd. ("TMR"), from 1988 to 1990.
Michael J. Mayell is President of the Company. Prior to assuming such
position with the Company, Mr. Mayell held a similar position with TMR from 1988
until 1990.
Fenner R. Weller, Jr. has been a general partner of Weller, Anderson, &
Co., Ltd., a securities firm, since 1995.
BOARD OF DIRECTORS INDEPENDENCE
The Board of Directors has affirmatively determined that Messrs. Henry,
Tauber, Simmons, Weller and Montague are independent and have no current
material relationship with the Company, except as a director.
IDENTIFYING AND EVALUATING NOMINEES FOR DIRECTORS
The Board has utilized in the past, and the Board Affairs Committee will
utilize after the Meeting, a variety of methods for identifying and evaluating
nominees for director. The Board Affairs Committee will regularly assess the
appropriate size of the Board, and whether any vacancies on the Board are
expected due to retirement or otherwise. In the event that vacancies are
anticipated, or otherwise arise, the Board Affairs Committee will consider
various potential candidates for director. Candidates have in the past come to
the attention of the Board and may in the future come to the attention of the
Board Affairs Committee through current Board members, professional search
firms, shareholders or other persons. After the Meeting, these candidates will
be evaluated at regular or special meetings of the Board Affairs Committee, and
may be considered at any point during the year. In evaluating such nominations,
the Board Affairs Committee will seek to achieve a balance of knowledge,
experience and capability on the Board.
Under our Bylaws, a shareholder of the Company entitled to vote for the
election of directors, may, if he or she complies with the following procedures,
make a nomination for director at a shareholder meeting. Nominations for
director may be made by shareholders only after compliance with the procedures
set forth in our Bylaws. The following summary is qualified in its entirety by
reference to the full text of the Bylaws.
Written notice of a shareholder's intent to make such a nomination must be
delivered to or mailed and received at the principal executive offices of the
Company not less than 90 days
-6-
nor more than 120 days prior to the anniversary date of the immediately
preceding annual meeting of shareholders; provided, however, that in the event
that the annual meeting is called for date that is not within 30 days before or
after such anniversary date, notice by the shareholder to be timely must be so
received not later than the close of business on the tenth day following the day
on which such notice of the date of the meeting was mailed or public disclosure
of the annual meeting date was made, whichever occurs first. A shareholder's
notice to the Company shall set forth (i) as to each person whom the shareholder
proposes to nominate for election or re-election as director, all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or any successor regulation thereto, (ii)
the name and record address of the shareholder proposing such business, (iii)
the class and number of shares of the Company that are beneficially owned by the
shareholder, (iv) a description of all arrangements or understandings between
such shareholder and each proposed nominee and any other person or persons
(including their names) pursuant to which the nomination or nominations are to
be made by such shareholder and (v) a representation that such shareholder
intends to appear in person or by proxy at the meeting to nominate the persons
named in the notice. Such notice must be accompanied by a written consent of
each proposed nominee to being named as a nominee and to serve as a director if
elected.
SOURCES FOR NEW NOMINEES
With regard to the four new nominees that were added to the Board in the
last year and approved by the Board for inclusion in the list of nominees to be
elected at the Meeting, the Board's nominating process consisted of collecting
resumes of persons suggested by various members of the Board for consideration,
circulating those resumes among all Board members and then reaching a consensus
as to which persons should be contacted for further interviews with members of
the Board. Messrs. Tauber and Montague were initially contacted by the Chief
Executive Officer, Messrs. Simmons and Weller were initially contacted by
non-management directors, and all four were nominated after consultation with,
and with the consensus of, the full Board.
AUDIT COMMITTEE
The Company has a standing Audit Committee established in accordance with
Section 3(a)(58)(A) of the Exchange Act. The current members of the Audit
Committee are identified above. Effective on the date of the Meeting, the Audit
Committee will be reconstituted. See "Meetings and Committees of the Board of
Directors - Changes Effective on the Date of the 2004 Annual Meeting" below.
AUDIT COMMITTEE REPORT
We have reviewed and discussed with management the Company's audited
financial statements as of and for the year ended December 31, 2003.
We have discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61, Communications with Audit
Committees, as amended, by the Auditing Standards Board of the American
Institute of Certified Public Accountants.
We have received and reviewed the written disclosures and the letter from
the independent auditors required by Independence Standard No. 1, Independence
Discussions with
-7-
Audit Committees, as amended, by the Independence Standards Board, and have
discussed with the auditors the auditors' independence.
Based on the reviews and discussions referred to above, we recommended to
the Board of Directors that the financial statements referred to above be
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2003.
Joe E. Kares, Chairman E. L. Henry
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
PRIOR TO THE 2004 ANNUAL MEETING. The information provided in this section
relates to the period prior to the Meeting. Effective on the date of the
Meeting, the Board will reconstitute its committees and form certain additional
committees to comply with recent changes in Securities and Exchange Commission
("SEC") and New York Stock Exchange ("NYSE") rules. See "Changes Effective on
the Date of the 2004 Annual Meeting" below.
The Board of Directors held five meetings during the year ended December
31, 2003. In 2003, each director attended at least 75% of the total combined
number of meetings held by the Board of Directors and by the committees on which
each director served.
The Board of Directors has an Executive Committee, an Audit Committee, an
Executive Compensation Committee, a Directors' Stock Plan Administration
Committee and an Employee Compensation Committee. The Company does not currently
have a nominating or other similar committee.
The Executive Committee is currently comprised of Messrs. Reeves and
Mayell and is responsible for assisting with the general management of the
business and affairs of the Company during intervals between meetings of the
Board of Directors. Twelve meetings of the Executive Committee were held in
2003.
The Audit Committee is currently comprised of Messrs. Kares and Henry and
is charged with the duties of recommending the appointment of the independent
certified public accountants, reviewing their fees, ensuring that proper
guidelines are established for the dissemination of financial information,
meeting periodically with the independent auditors, the Board of Directors and
certain officers of the Company and its subsidiaries to ensure the adequacy of
internal controls and reporting, reviewing consolidated financial statements and
performing any other duties or functions deemed appropriate by the Board of
Directors. All members of the Audit Committee are non-employee directors. The
Board of Directors has determined that each current member of the Audit
Committee is "independent", as such term is defined in sections 303.01(B)(2)(a)
and (3) of the NYSE listing standards. Two Audit Committee meetings were held in
2003. The Audit Committee is governed by a written charter approved by the Board
of Directors. A copy of the current charter is included in Appendix A to the
Company's 2001 proxy statement. The Board has adopted, to be effective on the
date of the Meeting, an Amended and Restated Audit Committee Charter, a copy of
which is included as Appendix A to this proxy statement.
-8-
The Executive Compensation Committee is currently comprised of Messrs.
Kares and Messersmith, each of whom is a non-employee director of the Company.
The Executive Compensation Committee is generally responsible for determining
the cash compensation to be paid to each of Messrs. Reeves and Mayell; however,
during 2002 and 2003, compensation decisions with respect to Messrs. Reeves and
Mayell were made by the full Board of Directors with Messrs. Reeves and Mayell
abstaining.
The Directors' Stock Plan Administration Committee is currently comprised
of Messrs. Reeves and Mayell and is responsible for administering the Company's
Non-Employee Director Stock Option Plan. Two Directors' Stock Plan
Administration Committee meetings were held in 2003.
The Employee Compensation Committee is currently comprised of Messrs.
Reeves and Mayell. The Employee Compensation Committee sets the salaries of all
employees, including the elected officers and other senior executives, and
grants bonuses to such elected officers and other senior executives. The
salaries of the members of the Employee Compensation Committee are set by the
Executive Compensation Committee or the full Board of Directors. Six Employee
Compensation Committee meetings were held in 2003.
CHANGES EFFECTIVE ON THE DATE OF THE 2004 ANNUAL MEETING. Effective on the
date of the Meeting, the Board will reconstitute its committees and form certain
additional committees to comply with recent changes in SEC and NYSE rules. The
Board has appointed John B. Simmons, who will serve as chairman, David W. Tauber
and Fenner R. Weller, Jr. to serve on the Audit Committee, each of whom the
Board has determined is "independent" within the meaning of the NYSE listing
standards and Rule 10A-3 under the Exchange Act. The Board has determined that
Mr. Simmons is an audit committee financial expert as defined in applicable SEC
and NYSE rules. The Board has adopted, to be effective on the date of the
Meeting, an Amended and Restated Audit Committee Charter, a copy of which is
included as Appendix A to this proxy statement and will be posted to the
Company's web site at www.tmrx.com.
Effective on the date of the Meeting, the Board will form a Board Affairs
Committee. The Board has appointed James R. Montague, who will serve as
chairman, David W. Tauber and E.L. Henry to serve on that committee, each of
whom the Board has determined is "independent" within the meaning of the rules
of the NYSE. The Board Affairs Committee will be governed by a written charter,
a copy of which will be posted on the Company's web site at www.tmrx.com. The
Board has also adopted Corporate Governance Principles to be followed by the
Board Affairs Committee, and has adopted a Code of Business Conduct and Ethic
for its directors, officers and employees, copies of each of which will be
posted on the Company's web site at www.tmrx.com.
Effective on the date of the Meeting, the Board will reconstitute the
Compensation Committee. The Board has appointed E.L. Henry, who will serve as
chairman, Fenner R. Weller, Jr., and James R. Montague to serve on that
committee, each of whom the Board has determined is "independent" within the
meaning of the rules of the NYSE. The Compensation Committee will be governed by
a written charter, a copy of which will be posted on the Company's web site at
www.tmrx.com.
-9-
ATTENDANCE AT THE ANNUAL MEETING OF SHAREHOLDERS
The Company's Board of Directors holds a regular meeting in conjunction
with the Annual Meeting of Shareholders. Therefore, the directors are encouraged
to and generally attend the Company's Annual Meeting of Shareholders. All
directors attended the 2003 Annual Meeting of Shareholders.
COMMUNICATIONS WITH THE BOARD
Any shareholder or other interested party wishing to send written
communications to any one or more of the Company's Board of Directors may do so
by sending them in care of Investor Relations at 1401 Enclave Parkway, Suite
300, Houston, Texas 77077. All such communications will be forwarded to the
intended recipient(s).
-10-
EXECUTIVE AND CERTAIN OTHER OFFICERS
The following table provides information with respect to the executive
officers and certain other officers of the Company. Each 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 57 1990
and Chief Executive Officer
Michael J. Mayell Director and President 57 1990
Lloyd V. DeLano Senior Vice President and Chief Accounting Officer 53 1993
James W. Carrington, Jr. Executive Vice President - Land and Legal - TMRX 54 1998
Alan S. Pennington Vice President - Business Development - TMRX 50 1999
Thomas J. Tourek* Senior Vice President - Exploration - TMRX 61 1999
A. Dale Breaux* Vice President - Operations - TMRX 55 2002
---------------
* Non-executive officer.
For additional information regarding Messrs. Reeves and Mayell, see "Directors",
above.
Lloyd V. DeLano joined the Company in January 1992 performing contract
work and became an employee of the Company in October 1992. Mr. DeLano was named
Vice President - Director of Accounting of The Meridian Resource & Exploration
LLC, a wholly owned subsidiary of the Company ("TMRX"), in April 1993 and in
June 1996 was named Vice President and Chief Accounting Officer of the Company.
Mr. DeLano is a Certified Public Accountant with 30 years of oil and natural gas
experience.
James W. Carrington, Jr. joined the Company in March 1998 as Vice
President of Land of TMRX. Prior to assuming his position with the Company, Mr.
Carrington was employed by CNG Producing Company.
Alan S. Pennington joined the Company in August 1989 as Vice President -
Geology of TMRX and has held several positions with the Company. He is presently
Vice President - Business Development of TMRX.
Thomas J. Tourek joined Meridian in June 1999, after nearly 30 years of
experience at Shell in the discovery and development exploration and production
projects. His successes in managing and performing geological and geophysical
(including 3-D) evaluations span the greater Gulf of Mexico Basin, Europe,
Africa, Latin America, and the Middle and Far East. Mr. Tourek holds a Bachelor
of Science Degree in Geology from Wittenberg University, and a Masters Degree
and Ph.D in Geology from Johns Hopkins University.
A. Dale Breaux joined the Company in 2002 and is currently the Vice
President--Operations of TMRX. Mr. Breaux has nearly 30 years of field and
management experience in onshore and offshore drilling operations at Sun Oil
Company, Campbell Energy Corporation, and Petrofina. Mr. Breaux holds a Bachelor
of Science in Petroleum Engineering from the University of Louisiana in
Lafayette.
There are no family relationships among the current 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 SEC. 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,
-11-
the Company believes that, during the period from January 1, 2003, through
December 31, 2003, all officers, directors and greater than ten-percent
shareholders of the Company were in compliance with applicable filing
requirements, except that in July 2004, Joseph A. Reeves, Jr., Chairman of the
Board and Chief Executive Officer of the Company, and Michael J. Mayell,
President of the Company, each filed a Form 4 to reflect automatic anti-dilution
adjustments under the General Partner Warrants, from the issuance of the
warrants through July 12, 2004, to the number of shares of common stock issuable
under the warrants. The warrants were issued by the Company to each of Messrs.
Reeves and Mayell in 1990.
-12-
EXECUTIVE COMPENSATION
The following tables contain compensation data for the five highest paid
executive officers serving at the end of 2003 whose 2003 salary and annual bonus
compensation exceeded $100,000, and other individuals who would otherwise have
been included in this table but for the fact that such individuals were not
serving as executive officers of the Company at the end of 2003 (collectively,
the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
---------------------------------------------------- -----------------------
Restricted Securities
Name and Other Annual Stock Underlying All Other
Principal Position Year Salary($)(1) Bonus($)(1)(2) Compensation($)(4) Award($)(1) Options(#) Compensation($)(3)
------------------ ---- ------------ -------------- ------------------ ----------- ---------- ------------------
Joseph A. Reeves, Jr. 2003 $ 40,527 $760,000 $32,710 $631,620 $-- $12,000
CEO 2002 57,693 879,071 58,810 800,000 -- 11,000
2001 40,613 760,000 -- 834,160 -- 10,500
Michael J. Mayell 2003 $ 40,427 $760,000 $32,710 $631,620 $-- $12,000
President 2002 57,693 879,071 58,810 800,000 -- 11,000
2001 40,613 760,000 -- 834,160 -- 10,500
Lloyd V. DeLano 2003 $169,399 $368,026 $ -- $ -- $-- $12,000
Senior Vice President and 2002 167,999 433,781 -- -- -- 11,000
Chief Accounting Officer 2001 167,999 437,395 -- -- -- 10,500
James W. Carrington, Jr. 2003 $168,203 $352,879 $ -- $ -- $-- $12,000
Executive Vice President, 2002 166,812 417,789 -- -- -- 10,009
Land and Legal - TMRX 2001 166,812 419,014 -- -- -- 10,500
Alan S. Pennington 2003 $192,210 $369,063 $ -- $ -- $-- $12,000
Vice President, Business 2002 190,621 384,724 -- -- -- 11,000
Development - TMRX 2001 190,621 437,395 -- -- -- 10,500
(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 and the shareholders of the
Company in 1996 as a method to preserve the Company's 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 cannot be made until 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 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
December 31, 1997 ($9 9/16 per share), for the deferrals during the first
half of 1998; at June 30, 1998 ($7 1/16 per share), for the deferrals
during the second half of 1998; at December 31, 1998 ($3 3/16 per share),
for the deferrals during the first half of 1999; at June 30, 1999 ($3 7/8
per share), for the deferrals during the second half of 1999; at December
31, 1999 ($3.0625 per share) for the deferrals during the first half of
2000; at June 30, 2000 ($5.703125 per share) for the deferrals during the
second half of 2000; at December 31, 2000 ($8.625 per share) for the
deferrals during the first half of 2001; and at June 30, 2001 ($7.17 per
share) for the deferrals during the second half of 2001; at December 31,
2001 ($3.99 per share) for deferrals during the first half of 2002; at
June 30, 2002 ($3.72 per share) for deferrals during the second half of
2002; at December 31, 2002,($0.90 per share) for deferrals during the
first half of 2003 and at June 30, 2003 ($4.73 per share) for deferrals
during the second half of 2003. Pursuant to the DCP, Messrs. Reeves and
Mayell each elected to defer $417,080, $400,000, and $315,810 of their
compensation for 2001, 2002 and 2003, respectively. As of December 31,
2003, each of Messrs. Reeves and Mayell had rights (including matching
deferrals) to 1,433,858 shares and 1,244,438 shares, respectively, with a
total value (including matching deferrals) as of December 31, 2003, of
$8,517,117 and $7,391,962, respectively. An amount equal to the dividends,
if any, that would have otherwise been paid with respect to such shares
had they actually been issued will be credited to the respective Common
Stock accounts as well.
-13-
(2) Under the Company's Well Bonus Plan, Mr. DeLano received bonus
amounts in 2003, 2002 and 2001 as follows: $360,326, $376,781, $437,395
respectively. Under the same plan Mr. Carrington was paid in 2003, 2002
and 2001 the following amounts: $345,233, $360,839 and $419,014,
respectively. Under the same plan, Mr. Pennington was paid in 2003, 2002
and 2001 the following amounts: $360,326, $376,781 and $437,395,
respectively.
(3) Includes Company contributions to its 401(k) plan.
(4) Includes the value conveyed during the applicable year
attributable to net profits interests assigned to the Named Executive
Officer during the applicable year in connection with their employment
agreements. In connection with such employment agreements, the Company
adopted in 1994 a program under which net profits interests are granted to
certain key employees of the Company in prospects and wells that the
Company is pursuing and drilling. In general, the net profits interest is
2.00% of any well and is subject to proportional reduction to the
Company's interests. Pursuant to these arrangements, during 2002 and 2003,
net profits interests of 2% were granted to each of Messrs. Reeves and
Mayell in various prospects acquired by the Company in 2002 and 2003.
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.
Such values are appraisals or estimates only and the actual realized value
of such interests may prove to be higher or lower than the amounts
reflected in this table. See also "-Employment Agreements" and "-Well
Bonus Plans and NPI Rights" below.
The following table summarizes the number and value of options exercised
by the Named Executive Officers during 2003, as well as the number and value of
unexercised options owned by the Named Executive Officers as of December 31,
2003.
AGGREGATE OPTION EXERCISES IN FISCAL YEAR 2003
AND DECEMBER 31, 2003 OPTION VALUE
Number of Value of Unexercised
Unexercised In-the-Money
Options at Options at
December 31, December 31,
2003(#) 2003($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($) Unexercisable(1) Unexercisable
---- -------------- ----------- ---------------- -------------
Joseph A. Reeves, Jr. (1) -- -- 1,625,000/- 3,847,500/-
Michael J. Mayell (1) -- -- 1,625,000/- 3,847,500/-
Lloyd V. DeLano -- -- 50,000/- 64,125/-
James W. Carrington, Jr. -- -- 17,500/- 19,238/-
Alan S. Pennington -- -- 16,000/- 12,825/-
(1) Excludes (i) the warrants (the "General Partner Warrants")
granted to each of Messrs. Reeves and Mayell in October 1990 in connection
with the Company's formation and (ii) 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, 2003, based on the
difference between the market price of the Common Stock at December 31,
2003 and the exercise price of the respective warrants, was $3,682,962 for
each of Messrs. Reeves and Mayell.
-14-
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 along with annual bonuses in cash
substantially consistent with previous annual bonuses, to be reviewed at least
annually for possible increases, and additional 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 annual 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 Internal
Revenue Code, which imposes an excise tax on certain severance payments in
excess of three times an annualized compensation amount following certain
changes in control.
The term "Good Reason" is defined in each Employment Agreement, with
respect to each of Messrs. Reeves and Mayell, generally to mean (i) a change in
the nature or scope of the duties or responsibilities of such individual, unless
remedied by the Company, (ii) any failure by the Company to pay any form of
compensation stated in each Employment Agreement, unless remedied by the
Company, (iii) requiring such individual to be based at any office or location
30 miles or more from the current location of the Company, other than travel
reasonably required in the performance of such individual's responsibilities,
(iv) any purported termination by the Company of such individual's employment
other than due to death or for Good Cause or (v) any failure of the Company to
require a successor of the Company to assume the terms of the Employment
Agreement. The term "Good Cause" is defined in each Employment Agreement,
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 and such
adjudication is no longer subject to direct appeal or (iii) such individual has
been found guilty of fraud or willful misfeasance so as to materially damage the
Company and such finding is no longer subject to direct appeal.
In connection with the execution of their Employment Agreements, both
Messrs. Reeves and Mayell were granted a 2% net profits interest in the oil and
natural gas production from the Company's properties to the extent the Company
acquires a mineral interest therein. The net profits interest for Messrs. Reeves
and Mayell applies to all properties on which the Company expends funds during
their employment with the Company. The net profits interests represent
-15-
real property rights that are not subject to vesting or continued employment
with the Company. Messrs. Reeves and Mayell did not participate in the Well
Bonus Plans (as such term is defined under "-Well Bonus Plans and NPI Rights"
below) for any particular property to the extent their original 2% net profits
interest grant covered such property. See also note 4 under "-Summary
Compensation Table" above and "-Well Bonus Plans and NPI Rights" below.
Mr. Lloyd V. DeLano entered into an employment agreement with the Company
under which he is given the title Senior Vice President and Chief Accounting
Officer of the Company. Mr. DeLano's employment agreement provides that he will
receive a monthly salary of $14,000 and an annual bonus in the amount determined
in the discretion of the Company's Board of Directors. If Mr. DeLano is
terminated, depending on the circumstances, he may be entitled to receive a
payment equal to six times his monthly salary. Also, if a change in control of
the Company occurs, he may be entitled to receive his monthly salary for
eighteen months after such event.
Mr. James W. Carrington, Jr. entered into an employment agreement with the
Company under which he is given the title Executive Vice President - Land and
Legal of TMRX. Mr. Carrington's employment agreement provides that he will
receive a monthly salary of $13,901 and an annual bonus in the amount determined
in the discretion of the Company's Board of Directors. If Mr. Carrington is
terminated, depending on the circumstances, he may be entitled to receive a
payment equal to six times his monthly salary. Also, if a change in control of
the Company occurs, he may be entitled to receive his monthly salary for
eighteen months after such event.
THE INCENTIVE PLANS
The Company's existing stock option plans (the "Incentive 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 Incentive Plans is 8,954,881, which represents approximately
11.3% of the total number of shares of Common Stock outstanding. There are
currently 7,208,825 shares allocated to outstanding options or existing or
future stock rights under deferred compensation arrangements under the Incentive
Plans. Therefore, approximately 1,746,056 shares are available for grant of
additional options or stock-based compensation. As of December 31, 2003,
3,175,175 of the stock options granted under the Incentive Plans were
"in-the-money".
WELL BONUS PLANS AND NPI RIGHTS
During 1998, the Company implemented a net profits program that was
adopted effective as of November 1997. All employees participated 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"), and with the Trust Plan and
the Geoscientist Plan, (the "Well Bonus Plans"). The Executive Committee of the
Board of Directors, which is comprised of Messrs. Reeves and Mayell,
administered each of the Well
-16-
Bonus Plans. The participants in each of the Well Bonus Plans were designated by
the Executive Committee in its sole discretion. Participants in the Management
Plan were limited to executive officers of the Company and other key management
personnel designated by the Executive Committee. Neither Messrs. Reeves nor
Mayell participated in the Management Plan, except with respect to a small
number of wells and prospects not covered by their original net profits grants
described under "-Employment Agreements" above. The participants in the Trust
Plan generally were all employees of the Company that did not participate in one
of the other Well Bonus Plans. Pursuant to the Well Bonus Plans, the Executive
Committee designated, in its sole discretion, the individuals and wells that
participated in each of the Well Bonus Plans. The Executive Committee also
determined the percentage bonus that was paid under each well and the
individuals that participated thereunder. The Well Bonus Plans covered all
properties on which the Company expended funds during each participant's
employment with the Company, with the percentage bonus generally ranging from
less than .1% to .5% of the net profits derived from each well included in the
well bonus plan, depending on the level of the employee.
Effective March 2001, the participants in the Geoscientist Plan were
notified that no additional future wells would be placed into the plan. During
2002, the Executive Committee decided to modify this position and for certain
key geoscientists the plan will include future new wells through July, 2002.
Effective December 2001, an agreement was executed to repurchase and
terminate certain interests in the Well Bonus Plans from current and former
employees in exchange for the issuance of Common Stock. The offering was for a
total of 1,940,991 shares of our Common Stock. The Common Stock was issued on
February 4, 2002, at the then current price of $3.48 per share.
COMPENSATION OF DIRECTORS
In the periods immediately prior to the Meeting, each non-employee
director of the Company has received an annual retainer, payable in quarterly
installments, of $20,000. Effective on the date of the Meeting, each
non-employee director of the Company will receive an annual retainer, payable in
quarterly installments, of $25,000. In addition, each of the chairmen of the
Audit Committee, Board Affairs Committee and the Compensation Committee will
receive annual payments of $10,000, $2,500 and $2,500, respectively. The other
members of the Audit Committee will receive annual payments of $6,500. Each
non-employee director will also receive $2,500 for each Board meeting attended
in person or $1,000 for each Board meeting attended telephonically, and $1,000
for each Board committee meeting attended in person or $500 for each Board
committee meeting attended telephonically. As in the past, non-employee
directors will also be reimbursed for expenses incurred in attending Board of
Directors and committee meetings, including those for travel, food and lodging.
Directors and members of committees of the Board of Directors who are employees
of the Company or its affiliates are not compensated for their Board of
Directors and committee activities.
The Company has a Non-Employee Director Stock Option Plan (the "Director
Stock Option Plan") pursuant to which options to purchase up to 570,000 shares
of Common Stock may be granted. Under the Director Stock Option Plan, each
non-employee director is granted, on the date of his appointment, election,
reappointment or re-election as a member of the Board
-17-
of Directors, an option ("Director Option") to purchase 15,000 shares of Common
Stock at an exercise price per share 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 the remaining shares of Common Stock three years after the
date of grant. There are currently outstanding options to acquire 175,000 shares
under the Director Stock Option Plan with a weighted average exercise price of
$5.90 per share. There are currently 231,250 additional shares available for
grant under the Director Stock Option Plan.
REPORT ON EXECUTIVE COMPENSATION
GENERAL POLICY
The Company's executive compensation program is designed to attract,
motivate and retain talented management personnel and to reward management for
successfully performing their duties and improving shareholder value.
Compensation and incentives are provided through the combination of cash
salaries and bonuses, stock option and other stock-based awards, and grants of
net profit interests in the Company's drilling prospects. The Company's overall
compensation package is intended to provide the Company's executive officers
with above average compensation for above average results and performance, with
an emphasis on compensation that rewards the executive for actions that have
demonstrably benefited the long-term interests of the Company. Decisions with
respect to compensation for any particular executive officer or employee are
based on a number of subjective factors, including the individual's performance
and contribution to the future growth of the Company, the financial and
operational results of the Company and industry and market conditions and the
need to insure the continued employment of individuals that the Board of
Directors believes are key to the long-term prospects of the Company.
Decisions with respect to the cash compensation of the Company's executive
officers were made in a bifurcated manner during 2003. The Employee Compensation
Committee of the Board of Directors, which is comprised of Messrs. Reeves and
Mayell set the salaries of all employees (except for themselves), including
elected officers and other senior executives, and granted cash bonuses to such
elected officers and other senior executives. Cash compensation decisions with
respect to Messrs. Reeves and Mayell were approved by the Board of Directors,
with Messrs. Reeves and Mayell abstaining. Decisions with respect to the
granting of stock-based awards and the payment of other non-cash compensation
for all of the Company's executive officers, including Messrs. Reeves and
Mayell, were made by the full Board of Directors, with each of Messrs. Reeves
and Mayell abstaining with respect to matters pertaining to either one of them.
The components of the Company's executive compensation program are more
specifically summarized below.
-18-
Base Salary.
The base salaries of the Company's employees are determined based on their
positions with the Company, their talents and experience and competitive market
factors, including the desire by the Company to attract and retain executives
with expertise and proven success in 3-D seismic exploration. Generally, base
salaries are received in cash, however, the Company adopted a deferred
compensation program in 1996 that allows the Company's Chief Executive Officer,
President and other officers to receive payment of their salaries in deferred
stock rights in lieu of cash compensation. The purpose of this deferred
compensation program is to preserve company liquidity and further align the
executive officers' interests with those of the Company's shareholders. Stock
cannot be issued under such deferred compensation arrangements until the death,
retirement or termination of the executive officer, and until such issuance, the
value of such stock rights are subject to the general credit of the Company and
changes in market value for the Company's Common Stock.
In reviewing the base salaries of the Company's executive officers, the
Company considers data from published reports regarding compensation of
executive officers from a cross section of other energy companies, which may or
may not include companies represented in the peer group used in completing the
Company's performance graph. These reports are used as a check on the general
competitiveness of the Company's salaries and not as a means to mathematically
establish salaries within specified percentiles of salary ranges.
Bonus Compensation.
Bonus compensation is provided to the Company's executive officers and
other employees from time to time based on their employment agreements, if any,
the financial results of the Company and various subjective factors, including
the executive's or employee's contribution to the Company's success in finding
reserves and acquiring prospects, identifying and obtaining sources of capital
for the Company and increasing shareholder value. A Christmas bonus of up to one
month's base salary was awarded and paid during 2001, 2002 and 2003 to the
Company's employees.
Net Profit Interests.
The Company believes that the granting of participation interests in the
Company's prospects to its employees promotes in them a proprietary interest in
the Company's exploration efforts that benefits the Company and its
shareholders. To achieve this objective, the Company grants an interest (either
in the form of a bonus or real property right, depending on the level of the
employee) in the net profits received from all wells drilled to all of its
employees, including its executive officers. Each employee's level of
participation in these well bonus plans is based on various factors, including
the employee's tenure, salary level, job classification and contribution to the
Company's long-term prospects.
-19-
Long-Term Incentive Compensation.
The Board of Directors believes that long-term incentive compensation
is an important component of the Company's compensation program and that
the value of long-term incentive compensation should be directly related to
increases in shareholder value. Thus, as part of total compensation, the
Company provides long-term incentive compensation to its executive officers
through stock options under the Company's stock option plans.
Under the Company's existing stock option plans (collectively, the
"Incentive Plans"), the Board of Directors has the authority to grant to
the Company's executive officers and key employees options to purchase
shares of Common Stock for terms of up to ten years, with vesting
conditions established by the Board of Directors, and other forms of
stock-based compensation including restricted stock. Awards under the
Incentive Plans are intended to provide incentives to the participants to
increase shareholder value by providing benefits that are directly related
to the market value of the Common Stock. The Board of Directors believes
that stock-based compensation provides a desirable form of incentive to the
Company's executive officers in that stock-based compensation received by
an executive officer generally will be of no value to the officer unless
the value of the Common Stock increases.
If a stock option or other stock-based award is granted to an executive
officer, the number of shares of Common Stock subject to the granted option
or award will be based on, among other things, the level of responsibility
of the executive officer and the anticipated contribution of the officer to
the future growth of the Company. The Board of Directors also considers the
amount and terms of the options and other stock-based benefits held by the
executive officers.
DISCUSSION OF COMPENSATION OF THE CHIEF EXECUTIVE OFFICER AND PRESIDENT
During 2003, Messrs. Reeves' and Mayell's salaries and bonuses were paid
in accordance with their employment agreements. The Board of Directors believes
that granting stock options and the approval of bonus payments further align
Messrs. Reeves and Mayell's interests with those of the Company and further
insures their continued employment with the Company and rewards them for their
efforts that were instrumental to the future prospects of the Company.
TAX MATTERS
Section 162(m) ("Section 162(m)") of the Internal Revenue Code of 1986, as
amended, currently imposes a $1 million limitation on the deductibility of
certain compensation paid to the Company's five highest paid executive officers.
Excluded from the limitation is compensation that is "performance based".
Excluded compensation must meet certain criteria, including being based upon
predetermined objective standards approved by the Company's shareholders. Awards
under the Incentive Plans as well as bonus and salary compensation awarded to
the Company's executive officers do not currently satisfy the requirements of
Section 162(m); however, since the Company currently does not expect to be
paying federal income taxes in the near future, the Board of Directors and
Executive Compensation Committee do not believe that
-20-
such non-deductibility will have a material effect on the Company. The Board of
Directors intend to take into account the potential application of Section
162(m) with respect to incentive compensation awards and other compensation
decisions made by them in the future.
Joseph A. Reeves, Jr. Michael J. Mayell
James T. Bond E. L. Henry
Joe E. Kares Gary A. Messersmith
David W. Tauber
-21-
STOCK PERFORMANCE GRAPH
The following performance graph compares the performance of the Common
Stock to the New York Stock Exchange Market Index and Peer Group Index from
December 31, 1998 through December 31, 2003. The graph assumes that the value of
the investment in the Common Stock and each index was $100 at December 31, 1998,
and that all dividends were reinvested.
DECEMBER 31, 1998 1999 2000 2001 2002 2003
------------ ---- ---- ---- ---- ---- ----
The Company 100 96.08 270.59 125.18 28.24 186.35
NYSE Market Index 100 102.71 163.87 120.64 91.60 126.87
Peer Group Index 100 109.50 112.11 102.12 83.42 108.07
The Company's Peer Group is comprised of Anadarko Petroleum Corporation,
Apache Corporation, Burlington Resources Inc., Chesapeake Energy Corporation,
EEX Corporation, Noble Affiliates, Inc., Ocean Energy, Inc.* Pogo Producing
Company, Questar Corporation and The Williams Company Inc.
* Ocean Energy, Inc. merged with Devon Energy Corporation in 2003.
-22-
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As discussed above, certain components of the compensation of the
executive officers of the Company, other than Messrs. Reeves and Mayell, are
determined by the Employee Compensation Committee of the Board of Directors of
the Company, which is comprised of Messrs. Reeves and Mayell. 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 either one of them.
For a discussion of certain transactions between the Company and members of the
Board of Directors, see "Certain Relationships and Related Transactions" below.
In addition, cash compensation decisions during 2003 with respect to Messrs.
Reeves and Mayell were made by the full Board of Directors, with each of Messrs.
Reeves and Mayell abstaining.
Effective on the date of the Meeting, the Compensation Committee will be
reconstituted. See "Meetings and Committees of the Board of Directors - Changes
Effective on the Date of the 2004 Annual Meeting."
PROPOSAL TWO
SHAREHOLDER PROPOSAL THAT THE COMPANY ADOPT A POLICY THAT THE
COMPANY NOMINATE AT LEAST TWO CANDIDATES FOR EACH BOARD OF
DIRECTORS POSITION TO BE VOTED ON BY THE SHAREHOLDERS
Mr. Glenn Thomas, 390 Valley View Avenue, Paramus, NJ 07652, holder of
over 2,000 shares of Common Stock, has given formal notice that he will
introduce a resolution at the Meeting. The Company is not responsible for such
proposal, which provides as follows:
"Resolved, that the shareholders of The Meridian Resource
Corporation (the "Company") hereby request that the Company's Board of
Directors (the "Board") establish a policy and practice of selecting a
minimum of two worthy candidates for each director position on the Board
to be voted on by the shareholders. Additionally, each nominee should be
presented in such a manner that the shareholders will not know which
candidate is preferred by the Board."
THE COMPANY'S STATEMENT IN OPPOSITION
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE AGAINST THIS PROPOSAL FOR THE FOLLOWING
REASONS:
The Board of Directors recommends that shareholders reject this proposal.
The Company's current method of nominating a single candidate for each
directorship position is consistent with the longstanding and widespread
practice of major companies and is in the best interests of shareholders. Your
Board nominates the individuals that it believes are best qualified to serve as
directors. Your Board does not believe that nominating additional, less
qualified candidates would result in a more effective Board. Requiring the Board
to supply a slate of nominees that it could not recommend would benefit neither
shareholders nor the election
-23-
process. Additionally, we believe that few qualified candidates would be willing
to participate in this type of contested election without the recommendation of
the Board.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE AGAINST APPROVAL
OF THE PROPOSAL REGARDING THE ADOPTION OF A POLICY OF THAT THE COMPANY NOMINATE
AT LEAST TWO CANDIDATES FOR EACH BOARD OF DIRECTORS POSITION TO BE VOTED ON BY
THE SHAREHOLDERS.
-24-
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of August 20, 2004, with
respect to the beneficial ownership of Common Stock by (a) each current
director, (b) each Named Executive Officer, (c) each shareholder known by the
Company to be the beneficial owner of more than 5% of the Common Stock and (d)
all executive officers and directors of the Company as a group.
NUMBER OF
SHARES
BENEFICIALLY
NAME OWNED (1) PERCENT
---- ------------ -------
Joseph A. Reeves, Jr. (2) 5,051,772 6.0%
Michael J. Mayell (3) 4,738,620 5.7%
Lloyd V. DeLano (4) 98,652 *
James W. Carrington, Jr. (5) 79,477 *
Alan S. Pennington (6) 18,192 *
E. L. Henry (7) 22,250 *
Joe E. Kares (8) 35,000 *
Gary A. Messersmith (9) 44,722 *
David W. Tauber (10) 6,340 *
John B. Simmons(11) -0-
Fenner R. Weller, Jr.(12) 42,500 *
James R. Montague(13) 1,000 *
All executive officers and directors as a group (12
persons) (2), (3), (4), (5), (6), (7), (8), (9), (10),
(11), (12) and (13) 10,134,775 11.5%
*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 406,539 shares, and 802,069 shares, 714,000 shares and
1,625,000 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 1,504,164 vested shares underlying deferred compensation
arrangements. Excludes 21,723 unvested shares under deferred compensation
arrangements. Mr. Reeves' business address is 1401 Enclave Parkway, Suite
300, Houston, Texas 77077.
(3) Includes 284,661 shares, and 802,069 shares, 714,000 shares and
1,625,000 shares of Common Stock that Mr. Mayell has the right to acquire
upon the exercise of the General Partner Warrant, Executive Warrants, and
stock options under the Company's stock option plans, respectively. Also
includes 1,312,890 vested shares
-25-
underlying deferred compensation arrangements. Excludes 31,609 unvested
shares under deferred compensation arrangements. Mr. Mayell's business
address is 1401 Enclave Parkway, Suite 300, Houston, Texas 77077.
(4) Includes 50,000 shares of Common Stock that Mr. DeLano has the
right to acquire upon the exercise of stock options.
(5) Includes 17,500 shares of Common Stock that Mr. Carrington has
the right to acquire upon the exercise of stock options.
(6) Includes 16,500 shares of Common Stock that Mr. Pennington has
the right to acquire upon the exercise of stock options.
(7) Includes 7,500 shares of Common Stock that Mr. Henry has the
right to acquire upon the exercise of stock options. Excludes 3,750 shares
underlying options that are not exercisable within 60 days.
(8) Includes 35,000 shares of Common Stock that Mr. Kares has the
right to acquire upon the exercise of stock options.
(9) Includes 35,000 shares of Common Stock that Mr. Messersmith has
the right to acquire upon the exercise of stock options.
(10) Excludes 15,000 shares underlying options that are not
exercisable within 60 days.
(11) Excludes 15,000 shares underlying options that are not
exercisable within 60 days.
(12) Excludes 15,000 shares underlying options that are not
exercisable within 60 days.
(13) Excludes 15,000 shares underlying options that are not
exercisable within 60 days.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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. The maximum percentage that either Messrs.
Reeves or Mayell may elect to participate in any prospect is a 4% working
interest. Beginning with 2002, each of Messrs. Reeves and Mayell have
participated in every prospect that the Company has drilled on a 3.5% working
interest basis. Prior to 2002, through 1994, Messrs. Reeves and Mayell each
participated with the Company for a 1.5% working interest basis on all drilled
prospects.
During 2003, both Messrs. Reeves and Mayell, either personally or through
wholly-owned or affiliated corporations, participated as working interest owners
in properties of the
-26-
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 2003, each of TODD (a company owned by Mr. Reeves) and Sydson (a
company owned by Mr. Mayell) were indebted to the Company for certain expenses
paid by the Company in respect of their working interest in various prospects
and wells in which the Company acted as operator.
TODD and Sydson collectively invested approximately $5,161,000 for the
year ended December 31, 2003, in oil and natural gas drilling activities for
which the Company was the operator. Net amounts due from TODD and Mr. Reeves
were approximately $5,000 as of December 31, 2003. Net amounts due from Sydson
and Mr. Mayell were approximately $344,000.
OTHER
Joe E. Kares, a member of the Board of Directors, 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, 2003, 2002,
and 2001 and received fees of approximately $210,000 $282,000 and $269,000,
respectively. These fees exceeded 5% of the gross revenues of Kares & Cihlar for
2003. 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. Kares also participated in the Well Bonus Plans pursuant to
which he was paid approximately $61,000.
Mr. Gary A. Messersmith, a Director of Meridian, is currently a Member of
the law firm of Looper, Reed and McGraw in Houston, Texas, which provided legal
services for the Company for the years ended December 31, 2003, 2002 and 2001,
and received fees of approximately $49,000, $27,000 and $58,000, respectively.
He previously was a partner in the law firm of Fouts & Moore, L.L.P., in
Houston, Texas, which provided legal services for the Company for the years
ended December 31, 2001 and received fees of approximately $66,000. Management
believes that such fees were equivalent to fees that would have been paid to
similar firms providing such services in arm's length transactions. In addition,
the Company has Mr. Messersmith on a personal retainer of $8,333 per month
relating to his services provided to the Company and a bonus in the form of
personal property valued at $12,500 was awarded during 2002. Mr. Messersmith
also participated in the Management Plan, pursuant to which he was paid
approximately $360,000 during 2003, $377,000 during 2002, $401,000 during 2001.
-27-
PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Ernst & Young LLP served as the Company's principal independent
accountants for the first part, and BDO Seidman LLP served as the Company's
principal independent accountants for the remainder of the fiscal year ended
December 31, 2003. The Company anticipates that BDO Seidman LLP will serve as
the Company's principal independent accountants for the fiscal year ending
December 31, 2004. A representative of BDO Seidman LLP will attend the Meeting
with the opportunity to make a statement if he or she desires to do so and to
respond to appropriate questions.
The following table presents fees for the audits of the Company's annual
consolidated financial statements for 2003 and 2002 and for other services
provided by BDO Seidman LLP and Ernst & Young LLP.
2003 2002
---- ----
Audit Fees............................................................ 596,951(1) 387,150
Audit-Related Fees.................................................... -- --
Tax Fees.............................................................. 67,200 64,020
All Other Fees........................................................ -- --
(1) Due to a change in independent accountants in 2003, BDO Seidman LLP reviewed
the third quarter financial information for 2003 and audited the full year,
2003. The related fees for this work were $364,814. All other fees were billed
by Ernst & Young LLP.
Either the Audit Committee or Mr. Kares, as Chairman of the Audit Committee,
approved all engagements of the independent accountants in advance, except with
respect to the appointment of the independent audit firm, which is made by the
Audit Committee. In the event Mr. Kares approves any such engagement, he
discusses such approval with the Audit Committee at its next meeting.
TAX FEES
Tax fees are primarily for tax compliance and tax consulting services. The
Audit Committee concluded that the provision of tax services was compatible with
maintaining Ernst & Young LLP's independence and all services rendered in
connection with such fees were pre-approved by the Audit Committee.
CHANGE IN INDEPENDENT ACCOUNTANTS
In June 2003, the Company invited several accounting firms, including
Ernst & Young LLP, the Company's former independent accountant, to submit
proposals to be engaged to perform the Company's audit work. The Company's
decision to invite such proposals was approved by the Audit Committee of the
Board. Ernst & Young declined to submit a proposal.
-28-
On September 25, 2003, the Company retained the services of BDO Seidman
LLP as its new independent accountant to audit the Company's financial
statements. The retention of BDO Seidman was approved by the Audit Committee of
the Board. During the two years ended December 31, 2002 and during the
subsequent interim period through September 25, 2003, the Company did not
consult with BDO Seidman regarding the application of accounting principles or
the type of audit opinion that BDO Seidman might render on the Company's
financial statements.
Neither of the reports issued by Ernst & Young with respect to the
Company's financial statements for the years ended December 31, 2002 and 2001
contained an adverse opinion or a disclaimer of opinion, or was qualified or
modified as to uncertainty, audit scope or accounting principles, except that
Ernst & Young's report with respect to the year ended December 31, 2002
contained an explanatory paragraph indicating that there was substantial doubt
as to the Company's ability to continue as a going concern. Since that time, the
Company has obtained additional equity financing, a portion of which was used to
reduce borrowings under its respective credit facilities to address the
liquidity issues related to the "going concern" modification of Ernst & Young's
report.
During the two years ended December 31, 2002 and during the subsequent
interim period through September 25, 2003, the Company had no disagreement with
Ernst & Young on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of Ernst & Young, would have caused it to make
reference to the subject matter of the disagreement in connection with its
report.
Ernst & Young informed the Company that, as part of Ernst & Young's review
of the Company's financial statements for the year ended December 31, 2002,
Ernst & Young determined that there was a material weakness relating to
deficiencies in the internal controls of the Company's financial reporting
process, including the gathering and review of data presented in the financial
statement footnotes and in Management's Discussion and Analysis. This condition
did not lead to a disagreement. The Company has taken, and continues to take,
steps to adopt the recommendation of Ernst & Young to strengthen its financial
reporting process and to ensure the Company has sufficient in-house financial
reporting resources. Further, the Company has adopted additional procedures
which it believes will further strengthen its internal controls by requiring
more intensive internal review procedures. The Company has and continues to take
the necessary steps to insure the accuracy of all public reporting with proper
internal controls.
OTHER BUSINESS
Management does not intend to bring any business before the Meeting other
than the matters referred to in the accompanying notice and at this date has not
been informed of any matters that may be presented to the Meeting by others. If,
however, any other matters properly come before the Meeting, it is intended that
the persons named in the accompanying proxy will vote, pursuant to the proxy, in
accordance with their best judgment on such matters.
-29-
SHAREHOLDER PROPOSALS
Any proposal by a shareholder to be presented at the Company's 2005 Annual
Meeting of Shareholders (the "2005 Annual Meeting") must be received by the
Company no later than May 27, 2005, in order to be eligible for inclusion in the
Company's Proxy Statement and proxy used in connection with the 2005 Annual
Meeting. Shareholder proposals as to which we receive notice that are proposed
to be brought before the 2005 Annual Meeting (outside the process of the SEC's
rule on shareholder proposals) will be considered not properly brought before
the meeting, and will be out of order, unless we receive the notice as to that
matter prior to July 29, 2005.
By order of the Company's Board of Directors
Joseph A. Reeves, Jr.
Chairman of the Board and
Chief Executive Officer
September 23, 2004
-30-
APPENDIX A
THE MERIDIAN RESOURCE CORPORATION
CHARTER OF THE AUDIT COMMITTEE
(EFFECTIVE AS OF OCTOBER 27, 2004)
The purpose of the Audit Committee of the Board is to assist the Board and
as required by law, regulation and Board directive, act on behalf of the Board,
in its oversight of (i) the integrity of the Company's financial statements,
(ii) the Company's compliance with legal and regulatory requirements, (iii) the
engagement of the Company's independent auditors and their qualifications and
independence, and (iv) the performance of the Company's internal audit function
and independent auditors, in addition to preparing the report the SEC rules
require be included in the Company's annual proxy statement. This Charter sets
out the structure and responsibilities of the Audit Committee.
I. Structure and Qualifications
The Audit Committee shall consist of at least three directors all of whom
shall be independent and all of whom shall be able to read and understand
fundamental financial statements, including the Company's balance sheet, income
statement, and cash flow statement. The Chair of the Audit Committee shall have
such accounting, financial or other experience as shall be required by the rules
of the Securities and Exchange Commission and by the New York Stock Exchange.
To be considered independent the director must meet the requirements of
the Corporate Governance Rules of the New York Stock Exchange and Rule
10A-3(b)(1) of the rules and regulations under the Securities Exchange Act of
1934.
If an Audit Committee member simultaneously serves on the audit committee
of more than two other public companies, then the Board must determine that such
simultaneous service would not impair the ability of such member to effectively
serve on the Company's audit committee and disclose such determination in the
annual proxy statement.
Additionally, the Audit Committee shall have at least one audit committee
financial expert within the meaning of Item 401(h)(2) of Regulation S-K of the
Securities and Exchange Commission.
II. Meetings
The Audit Committee shall meet at least four times a year. One of such
meetings shall immediately precede the completion and release of the annual
financial results of the Company and one of such meetings shall be subsequent to
such release and shall receive any applicable report by the Company's
independent auditors with respect to the prior year's audit and shall review and
approve the audit plan for the current fiscal year. Both of such meetings shall
include representatives of the independent auditors and shall include an
opportunity for the Committee to meet with the independent auditors separately
from management.
-A-1-
III. Responsibilities
The Audit Committee shall:
1. Review the accounting policies, procedures, and practices of the
Company, including critical accounting policies and practices,
internal accounting systems and financial reporting processes and
procedures with management and with the Company's independent
auditors and review any issues identified by management or the
independent auditors regarding accounting and financial policies and
procedures and any alternative treatment of financial information
discussed by management and the independent auditors, including the
treatment preferred by the independent auditors.
2. Review and approve in advance in accordance with Section 10A-3(i) of
the Securities Exchange Act of 1934 all auditing and non-audit
services provided by the Company's independent auditors. The
Committee may delegate advance approval of such engagements to a
member thereof provided such approvals are reviewed with the
Committee at its next meeting.
3. Review and discuss the annual financial statements and quarterly
financial statements of the Company with management and the
independent auditors, including the Company's disclosures under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations", including in such review an inquiry as to
the independent auditors' characterization of the accounting
principles selected by management and judgments made by management
material to the presentation of such financial statement.
4. Obtain and review, at least annually, a formal written report from
the Company's independent auditors delineating: (a) the independent
auditors' internal quality-control procedures; (b) any material
issues raised by the most recent internal quality-control review, or
peer review, of the firm, or by any inquiry or investigation by
governmental or professional authorities, within the preceding five
years, respecting one or more independent audits carried out by the
firm, and any steps taken to deal with any such issues; and (c) all
relationships between the independent auditor and the Company. Based
on such report and the work of the independent auditor, the Audit
Committee shall evaluate the qualifications, performance and
independence of the independent auditor and report thereon to the
Board.
-A-2-
5. Possess the sole authority to select, retain, evaluate, oversee, set
compensation for and, when appropriate, terminate the independent
auditors. In connection with such selections, the Audit Committee
shall advise the independent auditors that they are to report to the
Committee.
6. Review any accounting changes which have a material impact on the
obligations or financial statements of the Company; review filings
made with the Securities and Exchange Commission as required; and
hold such other conferences or undertake such other reviews with
management and with the independent auditors as the Committee may
deem appropriate or as the independent auditors may request.
7. Inquire of management and the independent auditors to assure that
the independent auditors have not engaged in any prohibited
activities within the provisions of section 10A(g) of the Securities
Exchange Act of 1934.
8. Discuss with management of the Company the Company's philosophy and
approach to earnings press releases, as well as to financial
information and earnings guidance provided to analysts and rating
agencies, including the type of information to be disclosed and the
type of presentations to be made.
9. Obtain advice and assistance from outside legal, accounting, or
other advisors, as necessary to carry out its duties. Pursuant to
approval of this Charter, no further requirement of Board approval
for such engagements is required and the Company shall provide all
funding necessary to engage the independent auditors, to engage such
outside legal, accounting or other advisors and for the
administrative needs of the Audit Committee.
10. Discuss the Company's major financial risk exposures and the
guidelines, policies and practices regarding risk assessment and
risk management, including derivative policies, insurance programs
and steps management has taken to monitor and control major
financial risks.
11. Meet separately with management, with internal auditors or other
personnel responsible for the internal audit function, and with
independent auditors.
12. Review with the independent auditor any audit problems or
difficulties encountered in the course of the audit, including any
restrictions in the scope of the independent auditor's activities or
-A-3-
on access to requested information and any disagreements with
management and management's response. Also, the Audit Committee
shall obtain from the independent auditors copies of all written
communications to management of the Company in any way related to
the Company's financial statements or reports or the integrity of
the Company's financial books, records, practices or procedures.
13. Set clear hiring policies for employees or former employees of the
independent auditors.
14. Report regularly to the Board and review with the Board any issues
relating to the quality or integrity of the Company's financial
statements, the Company's compliance with legal or regulatory
requirements, the performance and independence of the Company's
independent auditors, or the performance of the internal audit
function.
15. Conduct an annual review of the work of the Audit Committee,
including review of: (a) major issues regarding accounting
principles and financial statement presentations, including any
significant changes in the Company's selection or application of
accounting principles, and major issues as to the adequacy of the
Company's internal controls and any special audit steps adopted in
light of material control deficiencies; (b) analyses prepared by
management and/or the independent auditor setting forth significant
financial reporting issues and judgments made in connection with the
preparation of the financial statements, including analyses of the
effects of alternative GAAP methods on the financial statements; (c)
the effect of regulatory and accounting initiatives, as well as
off-balance sheet structures on the financial statements of the
Company; and (d) the type and presentation of information that has
been included in earnings press releases, paying particular
attention to any use of "pro forma," or "adjusted" non-GAAP,
information, as well as financial information and earnings guidance
provided to analysts and rating agencies.
16. Establish procedures for the receipt, retention, and treatment of
complaints regarding accounting, internal accounting controls and
auditing matters and for the confidential, anonymous submission by
employees of the Company of concern regarding questionable
accounting or auditing matters.
17. Review at least annually all transactions between the Company and
its executive officers and directors, including transactions with
affiliates of executive officers or directors, other than
-A-4-
compensation arrangements approved by the Compensation Committee of
the Board, employee benefit arrangements made available generally to
the employees, and compensation of directors.
18. Review and annually approve a code of ethics for the senior
financial officer of the Company as required by section 406 of the
Sarbanes-Oxley Act of 2002.
19. Conduct at least annually a performance evaluation of the Audit
Committee.
IV. Compensation
Director's and Board Committee fees are the only compensation an Audit
Committee member may receive from the Company. If a director satisfies the
definition of an independent director, then his or her receipt of a pension or
other form of deferred compensation from the Company for prior service, provided
such compensation is not contingent in any way on continued service, will not
preclude him or her from satisfying the requirement that director's fees are the
only form of compensation he or she receives from the Company.
-A-5-
THE MERIDIAN RESOURCE CORPORATION
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of The Meridian Resource Corporation, a Texas
corporation (the "Company"), hereby constitutes and appoints Joseph A. Reeves,
Jr. and Michael J. Mayell, and each of them, his true and lawful agents and
proxies, as proxies, with full power of substitution in each, to vote, as
designated on the reverse side, all shares of Common Stock, $.01 par value, of
the Company which the undersigned would be entitled to vote at the Annual
Meeting of Shareholders of the Company to be held October 27, 2004, and at any
adjournment(s) thereof, on the following matters more particularly described in
the Proxy Statement dated September 23, 2004.
(Continued and to be signed on the reverse side)
ANNUAL MEETING OF SHAREHOLDERS OF
THE MERIDIAN RESOURCE CORPORATION
OCTOBER 27, 2004
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach along perforated line and mail in the envelope provided.
Please sign, date and return promptly in the enclosed envelope. Please mark your
vote in blue or black ink as shown here. [X]
1. Election of three Class II Directors, three Class I Directors and one Class
III Director.
Nominees:
- E.L. Henry (Class II)
- Joe E. Kares (Class II)
- Gary A. Messersmith (Class II)
- David W. Tauber (Class I)
- John B. Simmons (Class I)
- James R. Montague (Class I)
- Fenner R. Weller, Jr. (Class III)
[ ] FOR ALL NOMINEES
[ ] WITHHOLD AUTHORITY TO VOTE FOR ALL NOMINEES
[ ] FOR ALL EXCEPT
(See instructions below)
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you wish to
withhold, as shown here: -
2. To approve a shareholder proposal that the Company nominate at least two
candidates for each Board of Directors position to be voted on by the
shareholders.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment thereof.
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that changes
to the registered name(s) on the account may not be submitted via this method.
[ ]
Signature of Shareholder_______________________ Date:
Signature of Shareholder_______________________ Date:
Note: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate
name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.