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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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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
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
THE MERIDIAN RESOURCE CORPORATION
1401 ENCLAVE PARKWAY, SUITE 300
HOUSTON, TEXAS 77077
NOTICE OF 2005 ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of The Meridian Resource Corporation:
The 2005 Annual Meeting of Shareholders of The Meridian Resource
Corporation (the "Company") will be held on June 23, 2005, at 2:00 p.m. Houston
time, at The West Lake Club, 510 West Lake Park Boulevard, Houston, Texas, for
the following purposes:
1. To elect three persons to serve as Class III Directors on the Company's
Board of Directors, to hold office until the 2008 Annual Meeting of Shareholders
or until such person's successor shall be duly elected and qualified.
2. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on April 28, 2005,
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 2005 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 2005 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
May 2, 2005
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 2005
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 May 13, 2005.
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 "for" the election as director of the nominees listed herein and 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 April 28, 2005, the record date ("Record
Date") for determining shareholders entitled to vote at the Meeting, the Company
had outstanding and entitled to vote 86,567,665 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 CLASS III DIRECTORS
Three directors will be elected by the holders of the Common Stock at the
Meeting to serve as the Class III Directors of the Company's Board of Directors
until the 2008 Annual Meeting of Shareholders or until such person's successor
shall be duly elected. The Board of Directors recommends the election of Joseph
A. Reeves, Jr., Michael J. Mayell and Fenner R. Weller, Jr. as the Class III
Directors. Each of Messrs. Reeves, Mayell and Weller are current directors of
the Company whose term expires as of the date of the Meeting. 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. Reeves, Mayell and Weller. Should any of
Messrs. Reeves, Mayell and 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 any of Messrs.
Reeves, Mayell and Weller will be unable or unwilling to serve if elected.
There are currently three Class III 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.
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. 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.
-3-
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.
EXPIRATION
PRESENT POSITIONS DIRECTOR OF PRESENT
NAME AGE WITH THE COMPANY SINCE TERM
--------------------- --- ------------------------------------- -------- ----------
Joseph A. Reeves, Jr. 58 Class III Director, Chairman of the 1990 2005
Board and Chief Executive Officer (1)
Michael J. Mayell 57 Class III Director and 1990 2005
President (1)
Fenner R. Weller, Jr. 53 Class III Director (2) 2004 2005
David W. Tauber 55 Class I Director (3) 2004 2006
John B. Simmons 52 Class I Director (4) 2004 2006
James R. Montague 58 Class I Director (5) 2004 2006
E. L. Henry 69 Class II Director (5) 1998 2007
Joe E. Kares 61 Class II Director 1990 2007
Gary A. Messersmith 56 Class II Director 1997 2007
(1) Member of the Executive Committee and Director's Stock Option Plan
Administration Committee.
(2) Member of the Audit Committee and the Compensation Committee.
(3) Member of the Audit Committee and the Board Affairs Committee.
(4) Member of the Audit Committee.
(5) Member of the Board Affairs Committee and the Compensation Committee.
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.
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 Senior 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, 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.
-4-
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.
BOARD OF DIRECTORS INDEPENDENCE
The Board of Directors has affirmatively determined that Messrs. Henry,
Tauber, Simmons, Weller and Montague are independent within the meaning of the
NYSE listing standards and have no current material relationship with the
Company, except as a director.
IDENTIFYING AND EVALUATING NOMINEES FOR DIRECTORS
The Board Affairs Committee utilizes a variety of methods for identifying
and evaluating nominees for director. The Board Affairs Committee regularly
assesses 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 or the Board Affairs Committee through current Board
members, professional search firms, shareholders or other persons. Candidates
are 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 seeks 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 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 a 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
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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.
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 Messrs. Tauber, Weller and Simmons.
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, 2004.
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 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, 2004.
John B. Simmons, Chairman David W. Tauber Fenner R. Weller, Jr.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held four meetings during the year ended December
31, 2004. In 2004, 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 currently has an Executive Committee, an Audit
Committee, a Directors' Stock Plan Administration Committee, a Board Affairs
Committee and a Compensation Committee.
The Executive Committee is 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. 24 meetings of the Executive Committee were held in 2004.
The Audit Committee is comprised of John B. Simmons, who serves as
chairman, David W. Tauber and Fenner R. Weller, Jr., 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 an Amended and Restated Audit Committee Charter, a copy of
which is posted on the Company's web site at www.tmrx.com. The functions of the
Audit Committee are
-6-
to assist the Board and as required by law, regulation and Board directive, act
on behalf of the Board, in its oversight of the integrity of the Company's
financial statements, the Company's compliance with legal and regulatory
requirements, the engagement of the Company's independent auditors and their
qualifications and independence and the performance of the Company's internal
audit function and independent auditors, in additional to preparing the report
the Securities and Exchange Commission rules require to be included in the
Company's annual proxy statement. Five Audit Committee meetings were held in
2004.
The Directors' Stock Plan Administration Committee is comprised of Messrs.
Reeves and Mayell and is responsible for administering the Company's
Non-Employee Director Stock Option Plan. Five Directors' Stock Plan
Administration Committee meetings were held in 2004.
The Board Affairs Committee is comprised of James R. Montague, serving as
chairman, David W. Tauber and E.L. Henry, each of whom the Board has determined
is "independent" within the meaning of the rules of the NYSE. The Board Affairs
Committee is governed by a written charter, a copy of which is 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 Ethics and Business Conduct for its directors, officers and
employees, copies of each of which are posted on the Company's web site at
www.tmrx.com. The functions of the Board Affairs Committee are to monitor
compliance with good corporate governance standards, to identify individuals
qualified to become Board members, to recommend to the Board director nominees
for election at the annual meeting of shareholders or for election by the Board
to fill open seats between annual meetings, to recommend to the Board committee
appointments for directors, to review and make recommendations to the Board
regarding non-employee director compensation, and to develop and recommend to
the Board corporate governance guidelines applicable to the Company. The Board
Affairs Committee was formed in October 2004 and the Committee held no meetings
in 2004.
The Compensation Committee is comprised of E.L. Henry, serving as
chairman, Fenner R. Weller, Jr., and James R. Montague, each of whom the Board
has determined is "independent" within the meaning of the rules of the NYSE. The
Compensation Committee is governed by a written charter, a copy of which is
posted on the Company's web site at www.tmrx.com. The functions of the
Compensation Committee are to discharge the Board's responsibilities relating to
the evaluation and compensation of the Company's executive officers, including
the Chief Executive Officer, the President and Chief Operating Officer and other
senior executives, and to produce an annual report on executive compensation for
inclusion in the Company's proxy statement. The Compensation Committee also
reviews and makes recommendations to the Board regarding the executive
compensation policies and programs that support the Company's overall business
strategy. In addition, the Compensation Committee will make recommendations to
the Board regarding succession planning and development for senior executives
and positions as needed. The current Compensation Committee, comprised solely of
independent directors, was appointed in October 2004, held no meetings in 2004
and made no decisions or recommendations with respect to 2004 compensation.
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 2004 Annual Meeting of Shareholders.
-7-
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).
EXECUTIVE AND CERTAIN OTHER OFFICERS
The following table provides information with respect to the executive
officers and certain other officers of the Company. Each has been elected to
serve until his or her successor is duly appointed or elected by the Board of
Directors or his or her earlier removal or resignation from office.
YEAR FIRST
ELECTED
NAME OF OFFICER POSITION WITH THE COMPANY AGE AS OFFICER
------------------------ --------------------------------------- --- ----------
Joseph A. Reeves, Jr Chairman of the Board and Chief 58 1990
Executive Officer
Michael J. Mayell Director and President 57 1990
Lloyd V. DeLano Senior Vice President and Chief 54 1993
Accounting Officer
James W. Carrington, Jr. Executive Vice President -- Land and 55 1998
Legal -- TMRX
Alan S. Pennington Vice President -- Busienss Development 51 1999
-- TMRX
Thomas J. Tourek* Senior Vice President -- Exploration -- 62 1999
TMRX
A. Dale Breaux* Vice President -- Operations -- TMRX 56 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.
-8-
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.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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, the Company believes that, during the period from
January 1, 2004, through December 31, 2004, all officers, directors and greater
than ten-percent shareholders of the Company were in compliance with applicable
filing requirements, except that David Tauber, a director of the Company, filed
a late report on Form 4 with respect to one transaction effected in September
2004.
-9-
EXECUTIVE COMPENSATION
The following tables contain compensation data for the five highest paid
executive officers serving at the end of 2004 whose 2004 salary and annual bonus
compensation exceeded $100,000, and other individuals who would otherwise have
been included in this table but for the fact that such individuals were not
serving as executive officers of the Company at the end of 2004 (collectively,
the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
-------------------------------------------------------- -----------------------
Restricted Securities
Name and Other Annual Stock Underlying All Other
Principal Position Year Salary($)(1) Bonus($)(1)(2) Compensation($)(3) Award($)(1) Options(#) Compensation($)(4)
------------------------- ---- ------------ -------------- ------------------ ----------- ---------- ------------------
Joseph A. Reeves, Jr. 2004 $104,973 $780,978 $ 37,673 $ 800,000 -------- $ 13,000
CEO 2003 40,527 760,000 32,710 631,620 -------- 12,000
2002 57,693 879,071 58,810 800,000 -------- 11,000
Michael J. Mayell 2004 $104,973 $780,978 $ 37,673 $ 800,000 -------- $ 13,000
President 2003 40,427 760,000 32,710 631,620 -------- 12,000
2002 57,693 879,071 58,810 800,000 -------- 11,000
Lloyd V. DeLano 2004 $185,353 $688,271 $ -------- $ ------- -------- $ 13,000
Senior Vice President and 2003 169,399 368,026 -------- ------- -------- 12,000
Chief Accounting Officer 2002 167,999 433,781 -------- ------- -------- 11,000
James W. Carrington, Jr. 2004 $184,044 $691,495 $ 1,416 $ ------- $ -------- $ 13,000
Executive Vice President, 2003 168,203 352,879 1,636 ------- -------- 12,000
Land and Legal - TMRX 2002 166,812 417,789 2,706 ------- -------- 10,009
Alan S. Pennington 2004 $210,313 $688,271 $ -------- $ ------- $ -------- $ 13,000
Vice President, Business 2003 192,210 369,063 -------- ------- -------- 12,000
Development - TMRX 2002 190,621 384,724 -------- ------- -------- 11,000
(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; 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; at June 30, 2003 ($4.73 per share), for
deferrals during the second half of 2003; at December 31, 2003 ($5.94 per
share), for deferrals during the first half of 2004; and at June 30, 2004 ($6.94
per share), for deferrals during the second half of 2004. Pursuant to the DCP,
Messrs. Reeves and Mayell each elected to defer $400,000, $315,810 and $400,000
of their compensation for 2002, 2003 and 2004, respectively. As of December 31,
2004, each of Messrs. Reeves and Mayell had rights (including matching
deferrals) to 1,560,364 shares and 1,370,944 shares, respectively, with a total
value (including matching deferrals) as of December 31, 2004, of $9,440,202 and
$8,294,211, 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.
(2) Under the Company's Well Bonus Plan, Mr. DeLano received bonus amounts
in 2004, 2003 and 2002 as follows: $688,271, $360,326 and $376,781 respectively.
Under the same plan Mr. Carrington was paid in 2004, 2003 and 2002 the
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following amounts: $691,495, $345,233 and $360,839, respectively. Under the
same plan, Mr. Pennington was paid in 2004, 2003 and 2002 the following amounts:
$688,291, $360,326 and $376,781, respectively.
(3) 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, 2003 and 2004, net profits interests of 2% were granted to each of Messrs.
Reeves and Mayell in various prospects acquired by the Company in 2002, 2003 and
2004. 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.
(4) Includes Company contributions to its 401(k) plan.
The following table summarizes the number and value of options exercised
by the Named Executive Officers during 2004, as well as the number and value of
unexercised options owned by the Named Executive Officers as of December 31,
2004.
AGGREGATE OPTION EXERCISES IN FISCAL YEAR 2004
AND DECEMBER 31, 2004 OPTION VALUE
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Shares December 31, December 31,
Acquired 2004(#) 2004($)
on Value Exercisable/ Exercisable/
Name Exercise(#) Realized($) Unexercisable(1) Unexercisable
------------------------- ----------- ----------- ---------------- -----------------
Joseph A. Reeves, Jr. (1) -- -- 1,625,000 / ---- 4,012,500 /------
Michael J. Mayell (1) -- -- 1,625,000 / ---- 4,012,500 /------
Lloyd V. DeLano -- -- 50,000 / ---- 66,875 /------
James W. Carrington, Jr. -- -- 17,500 / ---- 20,063 /------
Alan S. Pennington -- -- 16,000 / ---- 13,375 /------
(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, 2004, based on the difference between the market price of the
Common Stock at December 31, 2004 and the exercise price of the respective
warrants, was $4,901,892 for each of Messrs. Reeves and Mayell.
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
-11-
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 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 3 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 $15,954 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
-12-
employment agreement provides that he will receive a monthly salary of $15,842
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.
Mr. Alan S. Pennington entered into an employment agreement with the
Company under which he is given the title Vice President - Business Development
of TMRX. Mr. Pennington's employment agreement provides that he will receive a
monthly salary of $18,103 and an annual bonus in the amount determined in the
discretion of the Company's Board of Directors. If Mr. Pennington 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 9,229,282, which represents approximately
11% of the total number of shares of Common Stock outstanding. There are
currently 7,013,050 shares allocated to outstanding options or existing or
future stock rights under deferred compensation arrangements under the Incentive
Plans. Therefore, approximately 2,216,232 shares are available for grant of
additional options or stock-based compensation. As of December 31, 2004,
3,071,150 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 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
during 2004. 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.
-13-
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
Each non-employee director of the Company receives 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
receives annual payments of $10,000, $2,500 and $2,500, respectively. The other
members of the Audit Committee receive annual payments of $6,500. Each
non-employee director receives $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. Non-employee directors also are reimbursed for
expenses incurred in attending Board of Directors and committee meetings,
including those for travel, food and lodging. Directors and members of
committees of the Board of Directors who are employees of the Company or its
affiliates are not compensated for their Board of Directors and committee
activities.
The Company has a Non-Employee Director Stock Option Plan (the "Director
Stock Option Plan") pursuant to which options to purchase up to 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 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 240,000 shares under the Director Stock
Option Plan with a weighted average exercise price of $7.43 per share. There are
currently 126,250 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.
-14-
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.
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 2002, 2003 and 2004 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
-15-
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.
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 2004, 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). 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.
-16-
COMPENSATION COMMITTEE
In October 2004, the Board of Directors reconstituted the Compensation
Committee to be comprised solely of independent directors. The reconstituted
Compensation Committee will evaluate executive compensation with respect to the
calendar year, 2005, but made no decisions or recommendations as a committee
with respect to 2004 compensation. Accordingly, this Report on Executive
Compensation for 2004, is submitted by the entire Board of Directors.
Joseph A. Reeves, Jr. Michael J. Mayell E. L. Henry
Joe E. Kares Gary A. Messersmith James R. Montague
John B. Simmons David W. Tauber. Fenner R. Weller, Jr.
-17-
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, 2004. 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, 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
The Company 100 282 130 29 194 198
NYSE Market Index 100 102 93 76 99 111
Peer Group Index 100 161 120 95 133 187
The Company's Peer Group is comprised of Anadarko Petroleum Corporation,
Apache Corporation, Burlington Resources, Inc., Chesapeake Energy Corporation,
EEX Corporation and Noble Affiliates, Inc.
-18-
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 2004 with respect to Messrs.
Reeves and Mayell were made by the full Board of Directors, with each of Messrs.
Reeves and Mayell abstaining.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of April 15, 2005, 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
NAME BENEFICIALLY OWNED (1) PERCENT
-------------------------------------- ---------------------- -------
Joseph A. Reeves, Jr. (2) 4,919,593 5.6%
Michael J. Mayell (3) 4,711,255 5.3%
Lloyd V. DeLano (4) 98,652 *
James W. Carrington, Jr. (5) 90,565 *
Alan S. Pennington (6) 43,652 *
E. L. Henry (7) 21,000 *
Joe E. Kares (8) 15,000 *
Gary A. Messersmith (9) 38,472 *
James R. Montague (10) 1,000 *
David W. Tauber (11) 11,090 *
John B. Simmons(12) -0- *
Fenner R. Weller, Jr.(13) 42,500 *
All executive officers and
directors as a group (12 persons) (2),
(3), (4), (5), (6), (7), (8), (9),
(10), (11), (12) and (13) 9,992,779 10.8%
*Less than one percent.
-19-
(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 849,154 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 1,319,690 vested shares underlying
deferred compensation arrangements. Excludes 22,169 unvested shares under
deferred compensation arrangements. Mr. Reeves' business address is 1401 Enclave
Parkway, Suite 300, Houston, Texas 77077.
(3) Includes 849,154 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 1,224,980 vested shares underlying
deferred compensation arrangements. Excludes 22,169 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 15,000 shares underlying
options that are not exercisable within 60 days.
(8) Includes 15,000 shares of Common Stock that Mr. Kares has the right to
acquire upon the exercise of stock options. Excludes 15,000 shares underlying
options that are not exercisable within 60 days.
(9) Includes 15,000 shares of Common Stock that Mr. Messersmith has the
right to acquire upon the exercise of stock options. Excludes 15,000 shares
underlying options that are not exercisable within 60 days.
(10) Excludes 30,000 shares underlying options that are not exercisable
within 60 days.
(11) Includes 3,750 shares of Common Stock that Mr. Tauber has the right
to acquire upon the exercise of stock options. Excludes 26,250 shares underlying
options that are not exercisable within 60 days.
(12) Excludes 30,000 shares underlying options that are not exercisable
within 60 days.
(13) Excludes 30,000 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
-20-
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 2004, both Messrs. Reeves and Mayell, either personally or through
wholly-owned or affiliated corporations, participated as working interest owners
in properties of the Company. Under the terms of the operating and other
agreements relating to the Company's wells and prospects, the Company, as
operator, incurs various expenses relating to the prospect or well that are then
billed to the working interest owner. During 2004, each of TODD and JAR
(companies 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 $8,539,000 for the
year ended December 31, 2004, in oil and natural gas drilling activities for
which the Company was the operator. Net amounts due to TODD and Mr. Reeves were
approximately $1,751,000 as of December 31, 2004. Net amounts due to Sydson and
Mr. Mayell were approximately $2,115,000.
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, 2004, 2003
and 2002 and received fees of approximately $255,000, $210,000 and $282,000,
respectively. These fees exceeded 5% of the gross revenues of Kares & Cihlar for
2004. 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 $298,000 during 2004 and $61,000 during 2003.
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, 2004, 2003 and 2002,
and received fees of approximately $12,000, $49,000 and $27,000, respectively.
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 $688,000 during 2004, $360,000 during 2003, and $377,000 during
2002.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
BDO Seidman, LLP served as the Company's principal independent registered
public accounting firm for the fiscal year ended December 31, 2004. Ernst &
Young LLP served as the Company's principal independent accountants for the
first part of the fiscal year ended December 31, 2003, and BDO Seidman, LLP
served as the Company's principal independent registered public accounting firm
for the remainder of the fiscal year ended December 31, 2003. 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.
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AUDIT FEES
The following table presents fees for the audits of the Company's annual
consolidated financial statements for 2004 and 2003 and for other services
provided by BDO Seidman, LLP for the fiscal years ended December 31, 2004 and
December 31, 2003.
2004 2003
------------ ----------
Audit Fees............................ $1,277,744(1) $596,951(1)
Tax Fees.............................. 59,500(2) 67,200(2)
(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
years 2003 and 2004. The related fees for this work in 2003 and 2004 were
$364,814 and $1,199,832, respectively. The remaining $232,137 and $77,912 audit
fees were billed by Ernst & Young LLP in 2003 and 2004, respectively.
(2) 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.
Either the Audit Committee or the 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 the Audit Committee Chairman approves any such
engagement, he discusses such approval with the Audit Committee at its next
meeting.
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.
On September 25, 2003, the Company retained the services of BDO Seidman,
LLP as its new independent registered public accounting firm to audit the
Company's financial statements. The retention of BDO Seidman, LLP 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, LLP regarding the application of
accounting principles or the type of audit opinion that BDO Seidman, LLP 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
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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.
SHAREHOLDER PROPOSALS
Any proposal by a shareholder to be presented at the Company's 2006 Annual
Meeting of Shareholders (the "2006 Annual Meeting") must be received by the
Company no later than January 2, 2006, in order to be eligible for inclusion in
the Company's Proxy Statement and proxy used in connection with the 2006 Annual
Meeting. Shareholder proposals as to which we receive notice that are proposed
to be brought before the 2006 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 March 24, 2006.
By order of the Company's Board of Directors
Joseph A. Reeves, Jr.
Chairman of the Board and
Chief Executive Officer
May 2, 2005
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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 June 23, 2005, and at any
adjournment(s) thereof, on the following matters more particularly described in
the Proxy Statement dated May 2, 2005.
(Continued and to be signed on the reverse side)
ANNUAL MEETING OF SHAREHOLDERS OF
THE MERIDIAN RESOURCE CORPORATION
JUNE 23, 2005
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 III Directors.
Nominees:
- Joseph A. Reeves, Jr.
- Michael J. Mayell
- Fenner R. Weller, Jr.
[ ] 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. 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.