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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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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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[ ] 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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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 2006 ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of The Meridian Resource Corporation:
The 2006 Annual Meeting of Shareholders of The Meridian Resource
Corporation (the "Company") will be held on June 21, 2006, at 2:00 p.m. Houston
time, at The West Lake Club, 570 West Lake Park Boulevard, Houston, Texas, for
the following purposes:
1. To elect two persons to serve as Class I Directors on the
Company's Board of Directors to hold office until the 2009 Annual Meeting
of Shareholders or until such person's successor shall be duly elected
and qualified.
2. To approve adoption of The Meridian Resource Corporation 2006
Non-Employee Directors' Incentive Plan.
3. To transact such other business as may properly come before
the meeting.
Information with respect to the above matters is set forth in the Proxy
Statement that accompanies this Notice.
The Board of Directors has fixed the close of business on April 24, 2006,
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 2006 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 2006 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
-s- Joseph A. Reeves
Joseph A. Reeves, Jr.
Chairman of the Board and
Chief Executive Officer
May 19, 2006
THE MERIDIAN RESOURCE CORPORATION
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 2006
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 19, 2006.
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)
"FOR" approval of the proposal to adopt The Meridian Resource Corporation 2006
Non-Employee Directors' Incentive Plan (the "2006 Director Incentive Plan") 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 April 24, 2006, the record date ("Record
Date") for determining shareholders entitled to vote at the Meeting, the Company
had outstanding and entitled to vote 86,926,502 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. The mailing address of the Company's principal executive office
is 1401 Enclave Parkway, Suite 300, Houston, Texas 77077.
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PROPOSAL ONE
ELECTION OF CLASS I DIRECTORS
Two 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 2009 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 and John B. Simmons as the Class I Directors. Each of Messrs. Tauber
and Simmons are current directors of the Company whose term expires as of the
date of the Meeting.
As previously reported, on March 13, 2006, James R. Montague, who was an
independent, Class I Director, notified the Company that he was resigning from
the Board of Directors of the Company to pursue other business interests. The
Company has begun a search to select another independent board member to fill
the vacancy caused by Mr. Montague's resignation. When a qualified candidate is
selected and has agreed to serve, the Board will appoint the candidate to fill
that vacancy.
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 and Simmons. Should
either of Messrs. Tauber or Simmons 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 either of
Messrs. Tauber or Simmons will be unable or unwilling to serve if elected.
There are currently two 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.
DIRECTORS
The business and affairs of the Company are 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 of Directors
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 of Directors in fulfilling its responsibilities, it
has adopted certain Corporate Governance Principles (the "Principles"), a copy
of which is 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.
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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
Director of Present
Name Age Present Positions With the Company Since Term
---- --- ---------------------------------- -------- ----------
David W. Tauber 56 Class I Director(1) 2004 2006
John B. Simmons 53 Class I Director(2) 2004 2006
E. L. Henry 70 Class II Director(3) 1998 2007
Joe E. Kares 62 Class II Director 1990 2007
Gary A. Messersmith 57 Class II Director 1997 2007
Joseph A. Reeves, Jr. 59 Class III Director, Chairman of 1990 2008
the Board and Chief Executive
Officer(4)
Michael J. Mayell 58 Class III Director and 1990 2008
President(4)
Fenner R. Weller, Jr. 54 Class III Director(5) 2004 2008
(1) Member of the Audit Committee and the Board Affairs Committee.
(2) Member of the Audit Committee.
(3) Member of the Board Affairs Committee and the Compensation Committee.
(4) Member of the Executive Committee and Directors' Stock Option Plan
Administration Committee (with respect to the Prior Director Plan, as
defined below).
(5) Member of the Audit Committee and the Compensation Committee.
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.
In 2006, John B. Simmons was named Vice Chairman and Chief Executive
Officer of Stewart & Stevenson, LLC, a new entity comprised of the former
Engineered Products and Power Products divisions of Stewart & Stevenson
Services, Inc., a manufacturer, service provider and distributor of industrial
and energy related equipment. He served as Senior Vice President, Treasurer and
Chief Financial Officer of Stewart & Stevenson Services, Inc. from 2002 until
2006, and as their Controller and Chief Accounting Officer from 2001 to 2002.
From 1997 to 2000, Mr. Simmons was Vice President and Chief Financial Officer of
Cooper Energy Services, a provider of power and compression equipment.
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.
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Joseph A. Reeves, Jr. is Chairman of the Board and Chief Executive
Officer of the Company. Mr. Reeves, along with Mr. Mayell, founded the Company's
predecessor company, Texas Meridian Resources, Ltd. ("TMR"), during 1988 and
from that time to the present has held these positions with The Meridian
Resource Corporation.
Michael J. Mayell is President and Chief Operating Officer and was, along
with Mr. Reeves, a co-founder of Meridian. Prior to assuming such positions with
the Company, Mr. Mayell held similar positions 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 and Weller are independent within the meaning of the Company's
director independence standards, which reflect exactly the New York Stock
Exchange ("NYSE") director independence standards, and have no current material
relationship with the Company, except as a director. As a result of the recent
resignation of James R. Montague from the Company's Board of Directors, the
Board does not currently have a majority of independent directors, as required
by the rules of the NYSE. The Company has notified the NYSE and has begun a
search to select another independent board member to fill the vacancy caused by
Mr. Montague's resignation. See "Proposal One -- Election of Class I Directors"
above.
PROPOSAL TWO
APPROVAL OF THE 2006 NON-EMPLOYEE DIRECTORS' INCENTIVE PLAN
GENERAL
The Company's prior Director Stock Option Plan (the "Prior Director
Plan") expired by its terms on December 31, 2005 and no additional stock options
may be granted under that plan. On May 16, 2006, the Company's Board of
Directors adopted the 2006 Director Incentive Plan, subject to approval by the
Company's shareholders.
The following summary of the material features of the 2006 Director
Incentive Plan is qualified by reference to the copy of the 2006 Director
Incentive Plan that is attached as Exhibit A to this proxy statement.
GENERAL TERMS
The 2006 Director Incentive Plan is administered by the Board of
Directors of the Company. The 2006 Director Incentive Plan provides for awards
consisting of grants of stock options or restricted Common Stock.
Each member of the Board who is not an employee of the Company or any of
its affiliates shall participate in the 2006 Director Incentive Plan during the
period that he or she serves as a non-employee director (each, a "Non-Employee
Director").
The aggregate number of shares of Common Stock authorized for grant under
the 2006 Director Incentive Plan is 500,000. The aggregate number of shares of
Common Stock with respect to which awards of restricted Common Stock may be
granted under the
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2006 Director Incentive Plan is 500,000. Each share of Common Stock that is
subject to an award counts as one share of Common Stock against the aggregate
number.
Generally, if an award granted under the 2006 Director Incentive Plan is
forfeited or cancelled for any reason, the shares allocable to the forfeited or
cancelled portion of the award may again be subject to an award granted under
the 2006 Director Incentive Plan. If shares are delivered to satisfy the
exercise price of any award, those shares will not be added to the aggregate
number of shares available under the 2006 Director Incentive Plan. If any shares
are withheld to satisfy tax obligations associated with any award, those shares
will not be added to the aggregate number of shares available under the 2006
Director Incentive Plan and will count against the aggregate number of shares
available under the 2006 Director Incentive Plan.
The Board of Directors may amend the terms of the 2006 Director Incentive
Plan at any time, subject to the stockholder approval requirements of the NYSE
and other rules and regulations applicable to the Company.
Awards granted under the 2006 Director Incentive Plan are generally
non-transferable by the holder other than by will or under the laws of descent
and distribution, and are generally exercisable during the holder's lifetime
only by the holder.
The 2006 Director Incentive Plan will continue indefinitely until it is
terminated pursuant to its terms.
OPTIONS
Under the 2006 Director Incentive 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 maximum
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
rights to the Director Option vest after the date of grant. 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.
The exercise price for Director Options may be paid (i) by cash,
certified check, bank draft or money order, (ii) by means of a cashless exercise
through a registered broker-dealer, or (iii) by any other form of payment which
is acceptable to the Board of Directors. The Board of Directors may also permit
a holder to pay the exercise price and any applicable tax withholding by
authorizing a third-party broker to sell all or a portion of the shares of
Common Stock acquired upon exercise of the option and remit to the Company a
sufficient portion of the sale proceeds to pay the exercise price and applicable
tax withholding.
The 2006 Director Incentive Plan prohibits any repricing of options after
their grant, other than in connection with a stock split or the payment of a
stock dividend.
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RESTRICTED COMMON STOCK
The Board of Directors may grant restricted Common Stock to any eligible
Non-Employee Director. The amount of an award of restricted Common Stock, and
any vesting or transferability provisions relating to such an award, are
determined by the Board of Directors in their sole discretion.
Subject to the terms and conditions of the 2006 Director Incentive Plan,
each Non-Employee Director who receives a restricted Common Stock award will
have the rights of a stockholder of the Company with respect to the shares of
restricted Common Stock included in the award during any period of restriction
established for the restricted Common Stock award. Dividends paid with respect
to restricted Common Stock (other than dividends paid by means of shares of
Common Stock or rights to acquire shares of Common Stock) will be paid to the
holder of restricted Common Stock currently. Dividends paid in shares of Common
Stock or rights to acquire shares of Common Stock will be added to and become a
part of the holder's restricted Common Stock.
EFFECT OF CERTAIN TRANSACTIONS AND CHANGE OF CONTROL
The 2006 Director Incentive Plan provides that appropriate adjustments
may be made to any outstanding award in case of any change in the Company's
outstanding Common Stock by reason of recapitalization, reorganization,
subdivision, merger, consolidation, combination, exchange, stock dividend, or
other relevant changes to the Company's capital structure. For any award granted
under the 2006 Director Incentive Plan, the Board of Directors may specify the
effect of a change in control of the Company with respect to that award.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax
consequences of the issuance and receipt of Director Options and restricted
Common Stock pursuant to the 2006 Director Incentive Plan under the law as in
effect on the date of this proxy statement. The rules governing the tax
treatment of such options and restricted stock are quite technical, so the
following discussion of tax consequences is necessarily general in nature and is
not complete. In addition, statutory provisions are subject to change, as are
their interpretations, and their application may vary in individual
circumstances. This summary does not purport to cover all federal tax
consequences associated with the 2006 Director Incentive Plan, nor does it
address state, local, or non-U.S. taxes.
DIRECTOR OPTIONS
A Non-Employee Director generally is not required to recognize income on
the grant of a Director Option. Instead, ordinary income generally is required
to be recognized on the date a Director Option is exercised. In general, the
amount of ordinary income required to be recognized is an amount equal to the
excess, if any, of the fair market value of the shares on the exercise date over
the exercise price.
RESTRICTED COMMON STOCK
Unless a Non-Employee Director who receives an award of restricted Common
Stock makes an election under section 83(b) of the Code as described below, the
Non-Employee
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Director generally is not required to recognize ordinary income on the award of
restricted Common Stock. Instead, on the date the shares vest (i.e., become
transferable and no longer subject to forfeiture), the holder will be required
to recognize ordinary income in an amount equal to the excess, if any, of the
fair market value of the shares on such date over the amount, if any, paid for
such shares. If a section 83(b) election has not been made, any dividends
received with respect to restricted Common Stock that are subject at that time
to a risk of forfeiture or restrictions on transfer generally will be treated as
compensation that is taxable as ordinary income to the recipient. If a
Non-Employee Director makes a section 83(b) election within 30 days of the date
of transfer of the restricted Common Stock, the Non-Employee Director will
recognize ordinary income on the date the shares are awarded. The amount of
ordinary income required to be recognized is an amount equal to the excess, if
any, of the fair market value of the shares on the date of award over the
amount, if any, paid for such shares. In such case, the holder will not be
required to recognize additional ordinary income when the shares vest. However,
if the shares are later forfeited, a loss can only be recognized up to the
amount the holder paid, if any, for the shares.
GAIN OR LOSS ON SALE OR EXCHANGE OF SHARES
In general, gain or loss from the sale or exchange of shares received
upon exercise of a Director Option or under a restricted stock award under the
2006 Director Incentive Plan will be treated as capital gain or loss, provided
that the shares are held as capital assets at the time of the sale or exchange.
DEDUCTIBILITY BY THE COMPANY
In general, to the extent that a participant recognizes ordinary income
in the circumstances described above, the Company will be entitled to a
corresponding deduction, provided that, among other things, the income meets the
test of reasonableness, is an ordinary and necessary business expense, is not an
"excess parachute payment" within the meaning of section 280G of the Code (see
"Parachute Payments" below).
PARACHUTE PAYMENTS
Under the so-called "golden parachute" provisions of the Code, the
accelerated vesting of options and restricted stock in connection with a change
of control of a corporation may be required to be valued and taken into account
in determining whether participants have received compensatory payments,
contingent on the change of control, in excess of certain limits. If these
limits are exceeded, a portion of the amounts payable to the participant may be
subject to an additional 20% federal tax and may be nondeductible to the
corporation.
WITHHOLDING
Grants under the 2006 Director Incentive Plan are not subject to tax
withholding. If an award results in income subject to withholding, the Company
may require the participant to remit the withholding amount to the Company or
cause shares of Common Stock to be withheld or sold in order to satisfy the tax
withholding obligations.
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SECTION 409A
Awards under the 2006 Director Incentive Plan should not generally result
in the deferral of compensation that is subject to the requirements of section
409A of the Code.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE 2006
DIRECTOR INCENTIVE PLAN. Approval of the 2006 Director Incentive Plan requires
the affirmative vote of the holders of a majority of the shares of Common Stock
entitled to vote on the proposal and present in person or by proxy at the
Meeting. If not otherwise provided, proxies will be voted "FOR" approval of the
2006 Director Incentive Plan. Under Texas law, any unvoted position in a
brokerage account with respect to any matter will be not be considered as
entitled to vote on the proposal. Therefore, a broker non-vote will have no
effect on the outcome of the proposal. Shares that are represented at the
Meeting but abstain from voting will be counted as shares entitled to vote on
the proposal and will have the same effect as a vote "AGAINST" the proposal.
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 of Directors, and whether any
vacancies on the Board of Directors 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 of Directors or
the Board Affairs Committee through current Board of Directors 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 of Directors.
Under the Company's 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 the Company's Bylaws. The following summary is qualified
in its entirety by reference to the full text of the Company's 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
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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.
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, 2005.
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, 2005.
John B. Simmons, Chairman David W. Tauber Fenner R. Weller, Jr.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held six meetings during the year ended December
31, 2005. In 2005, 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 Option Plan Administration Committee (with respect
to the Prior Director Plan), 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. Twelve meetings of the Executive Committee were held in 2005.
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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 of
Directors has determined is "independent" within the meaning of the NYSE listing
standards and Rule 10A-3 under the Exchange Act. The Board of Directors has
determined that Mr. Simmons is an audit committee financial expert as defined in
applicable SEC and NYSE rules. The Board of Directors 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 to assist the
Board of Directors and as required by law, regulation and Board of Directors
directive, act on behalf of the Board of Directors, 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. Seven Audit Committee meetings
were held in 2005.
The Directors' Stock Option Plan Administration Committee is comprised of
Messrs. Reeves and Mayell and is responsible for administering the Prior
Director Plan. One Directors' Stock Option Plan Administration Committee meeting
was held in 2005.
The Board Affairs Committee is comprised of David W. Tauber and E.L.
Henry, each of whom the Board of Directors 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 of Directors 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 of Directors members, to recommend to the Board of
Directors director nominees for election at the annual meeting of shareholders
or for election by the Board of Directors to fill open seats between annual
meetings, to recommend to the Board of Directors committee appointments for
directors, to review and make recommendations to the Board of Directors
regarding non-employee director compensation, and to develop and recommend to
the Board of Directors corporate governance guidelines applicable to the
Company. One Board Affairs Committee meeting was held in 2005.
The Compensation Committee is comprised of E.L. Henry, serving as
chairman, and Fenner R. Weller, Jr., each of whom the Board of Directors 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 of Director'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 of Directors
regarding the executive compensation policies and programs that support the
Company's overall business strategy. In addition, the
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Compensation Committee will make recommendations to the Board of Directors
regarding succession planning and development for senior executives and
positions as needed. Nine Compensation Committee meetings were held in 2005.
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. Nine
directors attended the 2005 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).
Any shareholder may obtain free of charge a printed copy of the Company's
Corporate Governance Principles, Code of Ethics and Business Conduct, and
charters for the Audit, Board Affairs and Compensation Committees of the Board
of Directors, by sending a written request to 1401 Enclave Parkway, Suite 300,
Houston, Texas 77077. This material may also be obtained from the Company's
website at www.tmrx.com.
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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 as
Name of Officer Position With the Company Age Officer
--------------- ----------------------------------------------------------- --- ----------
Joseph A. Reeves, Jr. Chairman of the Board and Chief Executive Officer 59 1990
Michael J. Mayell Director and President 58 1990
Lloyd V. DeLano Senior Vice President and Chief Accounting Officer 55 1993
Alan S. Pennington Vice President -- Business Development -- TMRX 52 1999
Thomas J. Tourek* Senior Vice President -- Exploration -- TMRX 63 1999
A. Dale Breaux* Vice President -- Operations -- TMRX 57 2002
Kendall A. Trahan Vice President -- Land and Business Development -- TMRX 55 2005
* 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.
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.
Kendall A. Trahan joined Meridian in August 2005. Since June 1997, he
served as Vice President of Land with Carrizo Oil & Gas, Inc. From 1994 to 1997,
he served as Director of Joint Ventures Onshore Gulf Coast for Vastar Resources,
Inc. And from 1982 to 1994, he served as Area Landman and a Division Landman and
Director of Business Development for
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Arco Oil & Gas Company. Prior to that, Mr. Trahan served as Staff Landman for
Amerada Hess Corporation. He holds a Bachelor of Science degree from the
University of Louisiana.
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 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, 2005, through December 31, 2005, all officers, directors and greater
than ten-percent shareholders of the Company were in compliance with applicable
filing requirements.
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EXECUTIVE COMPENSATION
The following tables contain compensation data for the five highest paid
executive officers serving at the end of 2005 whose 2005 salary and annual bonus
compensation exceeded $100,000, and other individuals who would otherwise have
been included in this table but for the fact that such individuals were not
serving as executive officers of the Company at the end of 2005 (collectively,
the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation -------------------------
--------------------------------------------------------- Restricted Securities
Name and Other Annual Stock Underlying
Principal Position Year Salary($)(1) Bonus($)(1)(2) Compensation($)(3) Award($)(1) Options(#)
------------------ ---- ------------ -------------- ------------------ ----------- -----------
Joseph A. Reeves, Jr. ---------
2005 $121,587 $803,466 $ 120,161 $ 800,000
CEO ---------
2004 104,973 780,978 37,673 800,000
---------
2003 40,527 760,000 32,710 631,620
Michael J. Mayell ---------
2005 $121,587 $803,466 $ 120,161 $ 800,000
President ---------
2004 104,973 780,978 37,673 800,000
---------
2003 40,427 760,000 32,710 631,620
Lloyd V. DeLano $---------
$ --------- $---------
2005 $191,451 $752,861
Senior Vice President and ---------
--------- ---------
2004 185,353 688,271
Chief Accounting Officer ---------
--------- ---------
2003 169,399 368,026
James W. Carrington, Jr.(5) $---------
$ --------- $---------
2005 $ 80,122 $490,771
Executive Vice President, ---------
---------
2004 184,044 691,495 1,416
Land and Legal -- TMRX ---------
---------
2003 168,203 352,879 1,636
Alan S. Pennington $---------
$---------
$ ---------
2005 $217,233 $720,010
Vice President, Business ---------
---------
---------
2004 210,313 688,271
Development -- TMRX ---------
---------
---------
2003 192,210 369,063
Kendall Trahan(6) $---------
$---------
$ ---------
2005 $ 69,664 $ 10,833
Vice President, Land and
Business Development
Name and All Other
Principal Position Compensation($)(4)
------------------ ------------------
Joseph A. Reeves, Jr.
$14,000
CEO
13,000
12,000
Michael J. Mayell
$14,000
President
13,000
12,000
Lloyd V. DeLano
$14,000
Senior Vice President and
13,000
Chief Accounting Officer
12,000
James W. Carrington, Jr.(5)
$11,881
Executive Vice President,
13,000
Land and Legal -- TMRX
12,000
Alan S. Pennington
$14,000
Vice President, Business
13,000
Development -- TMRX
12,000
Kendall Trahan(6)
$ 2,844
Vice President, Land and
Business Development
(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
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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; at June 30, 2004 ($6.94
per share), for deferrals during the second half of 2004; at December 31,
2004 ($6.05 per share), for deferrals during the first half of 2005; and at
June 30, 2005 ($4.78 per share), for deferrals during the second half of
2005. Pursuant to the DCP, Messrs. Reeves and Mayell each elected to defer
$315,810, $400,000 and $400,000 of their compensation for 2003, 2004 and
2005, respectively. As of December 31, 2005, each of Messrs. Reeves and
Mayell had rights (including matching deferrals) to 1,707,704 shares and
1,518,284 shares, respectively, with a total value (including matching
deferrals) as of December 31, 2005, of $7,172,357 and $6,376,793,
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
2005, 2004 and 2003 as follows: $701,907, $688,271, and $360,326,
respectively. Under the same plan Mr. Carrington was paid in 2005, 2004 and
2003 the following amounts: $490,771, $691,495, and $345,233, respectively.
Under the same plan, Mr. Pennington was paid in 2005, 2004 and 2003 the
following amounts: $701,907, $688,291, and $360,326, 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 2003, 2004 and 2005, net profits interests of 2%
were granted to each of Messrs. Reeves and Mayell in various prospects
acquired by the Company in 2003, 2004 and 2005. 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.
(5) Mr. Carrington resigned from the Company effective May 27, 2005.
(6) Mr. Trahan joined the Company effective August 8, 2005.
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SECURITIES AUTHORIZED FOR ISSUANCE UNDER
EQUITY COMPENSATION PLANS
The following table sets forth information as of December 31, 2005, with
respect to our compensation plans (including individual compensation
arrangements) under which equity securities are authorized for issuance:
Number of Securities
Number of Securities Remaining Available for
to be Issued Upon Weighted-Average Future Issuance Under
Exercise of Exercise Price of Equity Compensation Plans
Outstanding Options, Outstanding Options, (Excluding Securities
Plan Category Warrants and Rights Warrants and Rights Reflected in Column (a)(1))
------------- -------------------- -------------------- ---------------------------
(a) (b) (c)
Equity compensation
plans approved by
security holders 6,781,454 $3.44 2,162,478
Equity compensation
plans not approved
by security holders -- -- --
--------- ----- ---------
Total 6,781,454 $3.44 2,162,478
========= ===== =========
(1) Does not include 3,850,000 shares which have been reserved for issuance in
lieu of cash compensation under the Company's deferred compensation plan,
which plan was approved by security holders.
OPTION GRANTS IN FISCAL 2005
The following table sets forth those options granted to Named Executive
Officers during 2005. Mr. Trahan was the only Named Executive Officer to receive
option grants in fiscal 2005.
Potential
Realizable Value
at Assumed
Annual Rates of
% of Total Stock Price
Number of Options Appreciation for
Shares Granted to Exercise Option Term
Underlying Employees in Price Expiration ----------------
Name Options Granted Fiscal Year ($/share) Date 5%($) 10%($)
---- --------------- ------------ --------- ---------- ------ ------
Kendall A. Trahan 10,000 33.3% $4.92 7/15/2015 30,942 78,412
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The following table summarizes the number and value of options exercised
by the Named Executive Officers during 2005, as well as the number and value of
unexercised options owned by the Named Executive Officers as of December 31,
2005.
AGGREGATE OPTION EXERCISES IN FISCAL YEAR 2005
AND DECEMBER 31, 2005 OPTION VALUE
Number of Securities Value of Unexercised
Underlying In-the-Money
Unexercised Options Options at
at December 31, December 31,
2005(#) 2005($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($) Unexercisable(1) Unexercisable
---- --------------- ----------- -------------------- ---------------------
Joseph A. Reeves, Jr.(1) -- -- 1,600,000/----- $1,237,500/-----
Michael J. Mayell(1) -- -- 1,600,000/----- $1,237,500/-----
Lloyd V. DeLano -- -- 42,500/----- $20,625/-----
James W. Carrington, Jr. -----/----- -----/-----
-- --
11,000/----- $4,125/-----
Alan S. Pennington -- --
Kendall Trahan -----/-----
-- -- 2,500/7,500
(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, 2005, based on the difference between the market price of the
Common Stock at December 31, 2005 and the exercise price of the respective
warrants, was $3,595,936 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 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
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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.
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. 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
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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 9,607,528, which represents approximately
11% of the total number of shares of Common Stock outstanding. There are
currently 7,448,791 shares allocated to outstanding options or existing or
future stock rights under deferred compensation arrangements under the Incentive
Plans. Therefore, approximately 2,148,737 shares are available for grant of
additional options or stock-based compensation. As of December 31, 2005,
3,069,150 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 2005. 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 the
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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 of Directors meeting
attended in person or $1,000 for each Board of Directors meeting attended
telephonically, and $1,000 for each Board of Directors committee meeting
attended in person or $500 for each Board of Directors 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's prior Director Stock Option Plan (the "Prior Director
Plan") expired by its terms on December 31, 2005 and no additional stock options
may be granted under the plan. Stock options granted prior to the termination of
the Prior Director Plan will remain outstanding until such options have been
settled, terminated or forfeited. Under the Prior Director Plan, each
non-employee director was granted, on the date of his appointment, election,
reappointment or re-election as a member of the Board of Directors, an option
("Prior Director Plan 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 Prior Director Plan 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 Prior Director Plan 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
255,000 shares under the Prior Director Plan with a weighted average exercise
price of $7.30 per share.
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REPORT ON EXECUTIVE COMPENSATION
GENERAL POLICY AND PHILOSOPHY
The Compensation Committee's objective is to compensate executive
officers in a manner that promotes recruiting, motivating, and retaining
exceptional employees who will help the Company achieve its earnings and growth
objectives which are consistent with building stockholder value. Fixed
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.
The Compensation Committee consists exclusively of non-employee,
independent directors, and is responsible for overseeing the compensation and
benefit programs of the Company's senior executives. It maintains oversight on
the incentive and equity-based programs for the management team and other
employees. Consistent with the Company's Governance guidelines (located at:
www.tmrc.com) the Compensation Committee has established policies governing its
role and responsibilities in administering the compensation and benefits of all
of our executives including the named executive officers and Company's Chief
Executive Officer.
ACTIONS DURING 2005
For 2005 the newly organized Compensation Committee reviewed existing
market data, interviewed consultants and, upon engagement of an independent
outside compensation consultant, began a detailed review of the current programs
in place for the named executive officers and other key positions. This process
is underway at the time of the proxy and the outcome will allow the Committee to
more precisely describe the linkage between the current programs and the stated
philosophy and associated industry practices.
The 2005 compensation, as reflected in the Summary Compensation Tables,
was derived from contractual terms covering the annual bonus, the net profit
interest plans and the matching Company contributions under the Company's
deferred compensation plans.
In 2005, decisions with respect to the cash compensation of the Company's
executive officers were made in the following manner. 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
officers and other senior executives, and granted cash bonuses to such 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 Compensation Committee
continues to review the Company's compensation policies and procedures in light
of evolving corporate governance standards and changes in legislation and
regulation.
-21-
SPECIFIC STRATEGY FOR PAY COMPONENTS
Base Salary
The base salaries of the Company's employees are determined based on
their functional role with the Company, their talents and experience and
competitive market factors, including the deliberate strategy by the Company to
attract and retain executives with expertise and proven success in 3-D seismic
exploration. Generally, and for most employees, 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 and annual incentives of the Company's
executive officers, the Company considers data from published surveys and
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 solely 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. In addition to the annual
incentive the Company has paid a Christmas bonus of up to one month's base
salary to all of its employees during 2003, 2004 and 2005.
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.
Long-Term Incentive Equity-Based Compensation
The Board of Directors and the Compensation Committee believe that
long-term incentive compensation is an important component of the Company's
compensation program
-22-
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 and restricted stock grants under the Company's stock
option plans. It is the intention of the Board of Directors and the Compensation
Committee to continue to rely on the importance of each executive having a
significant portion of his or her financial well-being tied to the long-term
success of the Company and its shareholders. We believe further that stock-based
compensation in which the executives have a sizeable portion of their contingent
compensation at risk will be an important element of pay into the future.
DISCUSSION OF COMPENSATION OF THE CHIEF EXECUTIVE OFFICER AND PRESIDENT
During 2005, Messrs. Reeves' and Mayell's salaries and bonuses were paid
in accordance with their employment agreements. The Board of Directors and the
Compensation Committee believe that granting stock options and the approval of
bonus payments further align Messrs. Reeves and Mayell's interests with those of
the Company, rewarding them for their efforts that were instrumental to the
successful production efforts and the corresponding reserve replacements and,
therefore, the future success 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.
E.L. Henry
Fenner R. Weller, Jr.
-23-
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, 2000 through December 31, 2005. The graph assumes that the value of
the investment in the Common Stock and each index was $100 at December 31, 2000,
and that all dividends were reinvested.
(PERFORMANCE GRAPH)
2000 2001 2002 2003 2004 2005
DECEMBER 31, ---- ----- ----- ----- ------ ------
The Company 100 46.26 10.43 68.87 70.14 48.70
NYSE Market Index 100 91.09 74.41 96.39 108.85 117.84
Peer Group Index 100 71.24 69.55 91.08 129.58 184.78
The Company's Peer Group is comprised of Cabot Oil & Gas Corp.,
Chesapeake Energy Corporation, Comstock Resources, Inc., Denbury Resources,
Inc., Energy Partners Ltd., Petroquest Energy, Inc., Remington Oil & Gas
Corporation, St. Mary Land & Exploration, Stone Energy Corporation and Swift
Energy Company.
-24-
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 2005 with respect to Messrs.
Reeves and Mayell were made by the full Board of Directors, with each of Messrs.
Reeves and Mayell abstaining.
-25-
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of April 14, 2006, 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) 5,342,648 5.8%
Michael J. Mayell(3) 5,040,779 5.5%
Lloyd V. DeLano(4) 94,766 *
Alan S. Pennington(5) 41,229 *
Kendall A. Trahan(6) 7,500 *
E. L. Henry(7) 24,750 *
Joe E. Kares(8) 18,750 *
Gary A. Messersmith(9) 42,222 *
David W. Tauber(10) 11,090 *
John B. Simmons(11) 7,500 *
Fenner R. Weller, Jr.(12) 50,000 *
All executive officers and directors as a group (11
persons)(2),(3),(4),(5),(6),(7),(8),(9),(10),(11) and
(12) 10,681,234 11.0%
Dimensional Fund Advisors Inc.(13) 4,433,169 5.1%
Barclays(14) 5,511,930 6.3%
* Less than one percent.
(1) Shares of Common Stock which are not outstanding but which can be acquired
by a person upon exercise of an option or warrant within sixty days are
deemed outstanding for the purpose of computing the percentage of
outstanding shares beneficially owned by such person. Each such person has
sole voting and dispositive power for its shares of Common Stock, unless
otherwise noted.
(2) Includes 880,063 shares, 714,000 shares and 1,600,000 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 1,728,079 vested
shares underlying deferred compensation arrangements. Excludes 23,297
unvested shares under deferred compensation arrangements. Mr. Reeves'
business address is 1401 Enclave Parkway, Suite 300, Houston, Texas 77077.
(3) Includes 880,063 shares, 714,000 shares and 1,600,000 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 1,538,659 vested
shares underlying deferred compensation
-26-
arrangements. Excludes 23,297 unvested shares under deferred compensation
arrangements. Mr. Mayell's business address is 1401 Enclave Parkway, Suite
300, Houston, Texas 77077.
(4) Includes 42,500 shares of Common Stock that Mr. DeLano has the right to
acquire upon the exercise of stock options.
(5) Includes 11,000 shares of Common Stock that Mr. Pennington has the right to
acquire upon the exercise of stock options.
(6) Includes 2,500 shares of Common Stock that Mr. Trahan has the right to
acquire upon the exercise of stock options. Excludes 7,500 shares
underlying options that are not exercisable within 60 days.
(7) Includes 18,750 shares of Common Stock that Mr. Henry has the right to
acquire upon the exercise of stock options. Excludes 11,250 shares
underlying options that are not exercisable within 60 days.
(8) Includes 18,750 shares of Common Stock that Mr. Kares has the right to
acquire upon the exercise of stock options. Excludes 11,250 shares of
Common Stock that are not exercisable within 60 days.
(9) Includes 18.750 shares of Common Stock that Mr. Messersmith has the right
to acquire upon the exercise of stock options. Excludes 11,250 shares of
Common Stock that are not exercisable within 60 days.
(10) 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.
(11) Includes 7,500 shares of Common Stock that Mr. Simmons has the right to
acquire upon the exercise of stock options. Excludes 22,500 shares
underlying options that are not exercisable within 60 days.
(12) Includes 7,500 shares of Common Stock that Mr. Weller has the right to
acquire upon the exercise of stock options. Excludes 37,500 shares
underlying options that are not exercisable within 60 days.
(13) This information is based on information contained in a Schedule 13G filing
made by Dimensional Fund Advisors Inc. ("Dimensional") with the Securities
and Exchange Commission on February 6, 2006. The principal business address
of Dimensional is 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401.
Dimensional, an investment advisor registered under Section 203 of the
Investment Advisors Act of 1940, furnishes investment advice to four
investment companies registered under the Investment Company Act of 1940,
and serves as investment manager to certain other commingled group trusts
and separate accounts. These investment companies, trusts and accounts are
the "Funds." In its role as investment advisor or manager, Dimensional
possesses investment and/or voting power over Common Stock held by the
Funds. However, all securities reported by Dimensional are owned by the
Funds.
-27-
(14) This information is based on information contained in a Schedule 13G filing
made by Barclays Global Investors, NA, Barclays Global Funds Advisors,
Barclays Global Investors, LTD and Barclays Global Investors Japan Trust
and Banking Company Limited ("Barclays") with the Securities and Exchange
Commission on January 26, 2006. The principal business address of Barclays
Global Investors, NA and Barclays Global Funds Advisors is 45 Freemont
Street, San Francisco, CA 94105. The principal business address of Barclays
Global Investors, LTD is Murray House, 1 Royal Mint Court, London, England
EC3N 4HH. The principal business address of Barclays Global Investors Japan
Trust and Banking Company Limited is Ebisu Prime Square Tower, 8th Floor,
1-1-39 Hiroo Shibuya-Ku, Tokyo 150-0012 Japan.
-28-
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 2005, 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 2005, each of Texas Oil
Distribution and Development, Inc. ("TODD") and JAR Resources LLC ("JAR")
(companies owned by Mr. Reeves) and Sydson Energy, Inc. ("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, JAR and Sydson collectively invested approximately $9,997,000 for
the year ended December 31, 2005, in oil and natural gas drilling activities for
which the Company was the operator. Net amounts due to TODD, JAR and Mr. Reeves
were approximately $2,308,000 as of December 31, 2005. Net amounts due to Sydson
and Mr. Mayell were approximately $2,330,000.
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, 2005, 2004
and 2003 and received fees of approximately $320,000, $255,000, and $210,000,
respectively. These fees exceeded 5% of the gross revenues of Kares & Cihlar for
2005. 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 $464,000 during 2005, $298,000 during 2004 and
$61,000 during 2003.
-29-
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, 2005, 2004 and 2003,
and received fees of approximately $19,000, $12,000, and $49,000, 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 $702,000 during 2005, $688,000 during 2004, $360,000 during 2003,
and $377,000 during 2002.
Mr. Joseph A. Reeves, Jr., an officer and Director of Meridian, has two
relatives currently employed by the Company. J. Drew Reeves, his son, is a staff
member in the Land Department. He has a Masters degree in Business
Administration from Louisiana State University and was employed as a Landman for
the firm of Land Management LLC in Metairie, Louisiana, prior to joining
Meridian in 2003. Mr. Drew Reeves was paid $100,000, $80,000 and $40,000 for the
years 2005, 2004 and 2003, respectively. Jeff Robinson is the son-in-law of
Joseph A. Reeves, Jr. and is employed as the Manager of the Company's
Information Technology Department and has been paid $111,000, $101,000 and
$42,000 for the years 2005, 2004 and 2003, respectively. Mr. Robinson earned his
undergraduate degree in MIS from Auburn University and was employed by BSI
Consulting for five years prior to joining Meridian in 2003. J. Todd Reeves, a
previous partner in the law firm of Creighton, Richards, Higdon and Reeves in
Covington, Louisiana, is the son of Joseph A. Reeves, Jr. This law firm provided
legal services for the Company for the years ended December 31, 2005 and 2004,
and received fees of approximately $32,000 and $67,000, respectively. Currently
he is a partner in the law firm of J. Todd Reeves and Associates, and is
providing legal services to the Company and received fees of approximately
$100,000 in 2005. Such fees exceeded 5% of the gross revenues for these firms
for those respective years. 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.
Michael W. Mayell, the son of Michael J. Mayell, an officer and Director
of Meridian, is a staff member in the Production Department, and was paid
$79,000, $60,000, and $30,000, for the years 2005, 2004 and 2003, respectively.
James T. Bond, former Director of Meridian, is the father-in-law of Michael J.
Mayell, and has provided consultant services to the Company and received fees in
the amount of $175,000, $124,000, and $115,000, for the years 2005, 2004 and
2003, respectively.
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, 2005. BDO Seidman,
LLP's engagement to conduct the audit of the Company for the fiscal year ended
December 31, 2006 was approved by the Audit Committee. 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.
-30-
AUDIT FEES
The following table presents fees for the audits of the Company's annual
consolidated financial statements for 2005 and 2004 provided by BDO Seidman, LLP
for the fiscal years ended December 31, 2005 and December 31, 2004.
2005 2004
-------- ----------
Audit Fees $628,629 $1,199,832
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.
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 2007
Annual Meeting of Shareholders (the "2007 Annual Meeting") must be received by
the Company no later than January 2, 2007, in order to be eligible for inclusion
in the Company's Proxy Statement and proxy used in connection with the 2007
Annual Meeting. Shareholder proposals as to which the Company receives notice
that are proposed to be brought before the 2007 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 the
Company receives the notice as to that matter prior to March 23, 2007.
By order of the Company's Board of Directors
Joseph A. Reeves
Joseph A. Reeves, Jr.
Chairman of the Board and
Chief Executive Officer
May 19, 2006
-31-
Exhibit A
THE MERIDIAN RESOURCE CORPORATION
2006 NON-EMPLOYEE DIRECTORS' INCENTIVE PLAN
THE MERIDIAN RESOURCE CORPORATION
2006 NON-EMPLOYEE DIRECTORS' INCENTIVE PLAN
ARTICLE I ESTABLISHMENT, PURPOSE AND DURATION......................... 1
1.1 Establishment............................................... 1
1.2 Purpose of the Plan......................................... 1
1.3 Duration of the Plan........................................ 1
ARTICLE II DEFINITIONS................................................. 1
2.1 Affiliate................................................... 1
2.2 Award....................................................... 1
2.3 Award Agreement............................................. 1
2.4 Board....................................................... 1
2.5 Code........................................................ 1
2.6 Company..................................................... 2
2.7 Corporate Change............................................ 2
2.8 Date of Grant............................................... 2
2.9 Disability.................................................. 2
2.10 Dividend Equivalent......................................... 2
2.11 Fair Market Value........................................... 2
2.12 Fiscal Year................................................. 2
2.13 Holder...................................................... 2
2.14 Minimum Statutory Tax Withholding Obligation................ 2
2.15 Non-Employee Director....................................... 2
2.16 Option...................................................... 2
2.17 Optionee.................................................... 2
2.18 Option Price................................................ 2
2.19 Period of Restriction....................................... 2
2.20 Plan........................................................ 3
2.21 Restricted Stock............................................ 3
2.22 Restricted Stock Award...................................... 3
2.23 Section 409A................................................ 3
2.24 Stock....................................................... 3
ARTICLE III ELIGIBILITY AND PARTICIPATION............................... 3
3.1 Eligibility................................................. 3
3.2 Participation............................................... 3
-i-
ARTICLE IV GENERAL PROVISIONS RELATING TO AWARDS....................... 3
4.1 Authority to Grant Awards................................... 3
4.2 Dedicated Shares; Maximum Awards............................ 3
4.3 Shares That Count Against Limit............................. 3
4.4 Non-Transferability......................................... 4
4.5 Requirements of Law......................................... 4
4.6 Changes in the Company's Capital Structure.................. 4
4.7 Election Under Section 83(b) of the Code.................... 7
4.8 Forfeiture Events........................................... 7
4.9 Award Agreements............................................ 7
4.10 Amendments of Award Agreements.............................. 7
4.11 Rights as Stockholder....................................... 7
4.12 Issuance of Shares of Stock................................. 7
4.13 Restrictions on Stock Received.............................. 8
4.14 Compliance With Section 409A................................ 8
ARTICLE V OPTIONS..................................................... 8
5.1 Authority to Grant Options.................................. 8
5.2 Option Grants............................................... 8
5.3 Vesting of Option........................................... 8
5.4 Duration of Option.......................................... 8
5.5 Option Agreement............................................ 8
5.6 Exercise of Option.......................................... 9
5.7 No Rights as Stockholder.................................... 9
ARTICLE VI RESTRICTED STOCK AWARDS..................................... 9
6.1 Restricted Stock Awards..................................... 9
6.2 Restricted Stock Award Agreement............................ 10
6.3 Holder's Rights as Stockholder.............................. 10
ARTICLE VII ADMINISTRATION.............................................. 10
7.1 Awards...................................................... 10
7.2 Authority of the Board...................................... 10
7.3 Decisions Binding........................................... 11
7.4 No Liability................................................ 11
ARTICLE VIII AMENDMENT OR TERMINATION OF PLAN............................ 11
8.1 Amendment, Modification, Suspension, and Termination........ 11
8.2 Awards Previously Granted................................... 11
-ii-
ARTICLE IX MISCELLANEOUS............................................... 12
9.1 Unfunded Plan/No Establishment of a Trust Fund.............. 12
9.2 Awards Do Not Grant Any Right To Continue To Serve On
Board....................................................... 12
9.3 Tax Withholding............................................. 12
9.4 Gender and Number........................................... 13
9.5 Severability................................................ 13
9.6 Headings.................................................... 13
9.7 Other Compensation Plans.................................... 13
9.8 Successors.................................................. 13
9.9 Law Limitations/Governmental Approvals...................... 13
9.10 Delivery of Title........................................... 13
9.11 Inability to Obtain Authority............................... 14
9.12 Investment Representations.................................. 14
9.13 Persons Residing Outside of the United States............... 14
9.14 Governing Law............................................... 14
-iii-
THE MERIDIAN RESOURCE CORPORATION
2006 NON-EMPLOYEE DIRECTORS' INCENTIVE PLAN
ARTICLE I
ESTABLISHMENT, PURPOSE AND DURATION
1.1 ESTABLISHMENT. The Company hereby establishes an incentive
compensation plan, to be known as "The Meridian Resource Corporation 2006
Non-Employee Directors' Incentive Plan," as set forth in this document. The Plan
permits the grant of Options and Restricted Stock. The Plan shall become
effective on the later of (a) the date the Plan is approved by the Board and (b)
the date the Plan is approved by the stockholders of the Company.
1.2 PURPOSE OF THE PLAN. The Plan is intended to advance the best
interests of the Company, its Affiliates and its stockholders by providing
Non-Employee Directors with an opportunity to obtain or increase their
proprietary interest in the Company, thereby encouraging them to serve as a
member of the Board and continue to contribute to the success of the Company.
1.3 DURATION OF THE PLAN. The Plan shall continue indefinitely until it
is terminated pursuant to Section 8.1. The applicable provisions of the Plan
will continue in effect with respect to an Award granted under the Plan for as
long as such Award remains outstanding.
ARTICLE II
DEFINITIONS
The words and phrases defined in this Article shall have the meaning set
out below throughout the Plan, unless the context in which any such word or
phrase appears reasonably requires a broader, narrower or different meaning.
2.1 "AFFILIATE" means any corporation, partnership, limited liability
company or association, trust or other entity or organization which, directly or
indirectly, controls, is controlled by, or is under common control with, the
Company. For purposes of the preceding sentence, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any entity or organization, shall mean the
possession, directly or indirectly, of the power (a) to vote more than fifty
percent (50%) of the securities having ordinary voting power for the election of
directors of the controlled entity or organization, or (b) to direct or cause
the direction of the management and policies of the controlled entity or
organization, whether through the ownership of voting securities or by contract
or otherwise.
2.2 "AWARD" means, individually or collectively, a grant under the Plan
of Options and Restricted Stock, in each case subject to the terms and
provisions of the Plan.
2.3 "AWARD AGREEMENT" means an agreement that sets forth the terms and
conditions applicable to an Award granted under the Plan.
2.4 "BOARD" means the board of directors of the Company.
2.5 "CODE" means the United States Internal Revenue Code of 1986, as
amended from time to time.
1
2.6 "COMPANY" means The Meridian Resource Corporation, a Texas
corporation, or any successor (by reincorporation, merger or otherwise).
2.7 "CORPORATE CHANGE" shall have the meaning ascribed to that term in
Section 4.6(c).
2.8 "DATE OF GRANT" shall have the meaning ascribed to that term in
Section 5.2.
2.9 "DISABILITY" means, as determined by the Board in its discretion
exercised in good faith, a permanent and total disability as defined in section
22(e)(3) of the Code. A determination of Disability may be made by a physician
selected or approved by the Board and, in this respect, the Holder shall submit
to an examination by such physician upon request by the Board.
2.10 "DIVIDEND EQUIVALENT" means a payment equivalent in amount to
dividends paid to the Company's stockholders.
2.11 "FAIR MARKET VALUE" of the Stock as of any particular date means
(a) if the Stock is traded on a stock exchange, the closing sale price of the
Stock on that date as reported on the principal securities exchange on which the
Stock is traded, or (b) if the Stock is traded in the over-the-counter market,
the average between the high bid and low asked price on that date as reported in
such over-the-counter market; provided that (1) if the Stock is not so traded,
(2) if no closing price or bid and asked prices for the Stock was so reported on
that date or (3) if, in the discretion of the Board, another means of
determining the fair market value of a share of Stock at such date shall be
necessary or advisable, the Board may provide for another means for determining
such fair market value.
2.12 "FISCAL YEAR" means the Company's fiscal year.
2.13 "HOLDER" means a person who has been granted an Award or any person
who is entitled to receive shares of Stock under an Award.
2.14 "MINIMUM STATUTORY TAX WITHHOLDING OBLIGATION" means, with respect
to an Award, the amount the Company or an Affiliate is required to withhold for
federal, state and local taxes based upon the applicable minimum statutory
withholding rates required by the relevant tax authorities.
2.15 "NON-EMPLOYEE DIRECTOR" means a member of the Board who is not an
employee of the Company or any of its Affiliates
2.16 "OPTION" means a "nonqualified stock option" to purchase Stock
granted pursuant to Article V that does not satisfy the requirements of section
422 of the Code.
2.17 "OPTIONEE" means a person who has been granted an Option or any
other person who is entitled to exercise an Option under the Plan.
2.18 "OPTION PRICE" shall have the meaning ascribed to that term in
Section 5.2.
2.19 "PERIOD OF RESTRICTION" means the period during which Restricted
Stock is subject to a substantial risk of forfeiture (based on the passage of
time, the achievement of performance goals, or upon the occurrence of other
events as determined by the Board, in its discretion), as provided in Article
VI.
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2.20 "PLAN" means The Meridian Resource Corporation 2006 Non-Employee
Directors' Incentive Plan, as set forth in this document as it may be amended
from time to time.
2.21 "RESTRICTED STOCK" means shares of restricted Stock issued or
granted under the Plan pursuant to Article VI.
2.22 "RESTRICTED STOCK AWARD" means an authorization by the Board to
issue or transfer Restricted Stock to a Holder.
2.23 "SECTION 409A" means section 409A of the Code and Department of
Treasury rules and regulations issued thereunder.
2.24 "STOCK" means the common stock of the Company, $0.01 par value per
share (or such other par value as may be designated by act of the Company's
stockholders).
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY. The persons who are eligible to receive Awards under
the Plan are Non-Employee Directors.
3.2 PARTICIPATION. Each Non-Employee Director shall be a participant in
the Plan during the period he or she serves as a Non-Employee Director.
ARTICLE IV
GENERAL PROVISIONS RELATING TO AWARDS
4.1 AUTHORITY TO GRANT AWARDS. The Board shall grant Options to
Non-Employee Directors as specified in the Plan and may grant additional Awards
to Non-Employee Directors as the Board shall from time to time determine, under
the terms and conditions of the Plan. Subject only to any applicable limitations
set out in the Plan, the number of shares of Stock to be covered by any Award to
be granted under the Plan shall be as determined by the Board in its sole
discretion.
4.2 DEDICATED SHARES; MAXIMUM AWARDS.
(a) The aggregate number of shares of Stock with respect to which Awards
may be granted under the Plan is 500,000.
(b) The aggregate number of shares of Stock with respect to which full
value awards (awards of Restricted Stock) may be granted under the Plan is
500,000.
(c) Each of the foregoing numerical limits stated in this Section 4.2
shall be subject to adjustment in accordance with the provisions of Section 4.6.
4.3 SHARES THAT COUNT AGAINST LIMIT.
(a) If shares of Stock are withheld from payment of an Award to satisfy
tax obligations with respect to the Award, such shares of Stock will count
against the aggregate number of shares of Stock with respect to which Awards may
be granted under the Plan.
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(b) If shares of Stock are tendered in payment of an Option Price of an
Option, such shares of Stock will not be added to the aggregate number of shares
of Stock with respect to which Awards may be granted under the Plan.
(c) To the extent that any outstanding Award is forfeited or cancelled
for any reason or is settled in cash in lieu of shares of Stock, the shares of
Stock allocable to such portion of the Award may again be subject to an Award
granted under the Plan.
4.4 NON-TRANSFERABILITY. Except as specified in the applicable Award
Agreements or in domestic relations court orders, an Award shall not be
transferable by the Holder (whether for consideration or otherwise) other than
by will or under the laws of descent and distribution, and shall be exercisable,
during the Holder's lifetime, only by him or her. Any attempted assignment of an
Award in violation of this Section 4.4 shall be null and void. In the discretion
of the Board, any attempt to transfer an Award other than under the terms of the
Plan and the applicable Award Agreement may terminate the Award.
4.5 REQUIREMENTS OF LAW. The Company shall not be required to sell or
issue any shares of Stock under any Award if issuing those shares of Stock would
constitute or result in a violation by the Holder or the Company of any
provision of any law, statute or regulation of any governmental authority.
Specifically, in connection with any applicable statute or regulation relating
to the registration of securities, upon exercise of any Option or pursuant to
any other Award, the Company shall not be required to issue any shares of Stock
unless the Board has received evidence satisfactory to it to the effect that the
Holder will not transfer the shares of Stock except in accordance with
applicable law, including receipt of an opinion of counsel satisfactory to the
Company to the effect that any proposed transfer complies with applicable law.
The determination by the Board on this matter shall be final, binding and
conclusive. The Company may, but shall in no event be obligated to, register any
shares of Stock covered by the Plan pursuant to applicable securities laws of
any country or any political subdivision. In the event the shares of Stock
issuable on exercise of an Option or pursuant to any other Award are not
registered, the Company may imprint on the certificate evidencing the shares of
Stock any legend that counsel for the Company considers necessary or advisable
to comply with applicable law, or, should the shares of Stock be represented by
book or electronic entry rather than a certificate, the Company may take such
steps to restrict transfer of the shares of Stock as counsel for the Company
considers necessary or advisable to comply with applicable law. The Company
shall not be obligated to take any other affirmative action in order to cause or
enable the exercise of an Option or any other Award, or the issuance of shares
of Stock pursuant thereto, to comply with any law or regulation of any
governmental authority.
4.6 CHANGES IN THE COMPANY'S CAPITAL STRUCTURE.
(a) The existence of outstanding Awards shall not affect in any way the
right or power of the Company or its stockholders to make or authorize any or
all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, any merger or consolidation of the
Company, any issue of bonds, debentures, preferred or prior preference shares
ahead of or affecting the Stock or Stock rights, the dissolution or liquidation
of the Company, any sale or transfer of all or any part of its assets or
business or any other corporate act or proceeding, whether of a similar
character or otherwise.
(b) If the Company shall effect a subdivision or consolidation of Stock
or other capital readjustment, the payment of a Stock dividend, or other
increase or reduction of the number of
4
shares of Stock outstanding, without receiving compensation therefor in money,
services or property, then (1) the number, class or series and per share price
of Stock subject to outstanding Options or other Awards under the Plan shall be
appropriately adjusted (subject to the restriction in Section 4.10 prohibiting
repricing) in such a manner as to entitle a Holder to receive upon exercise of
an Option or other Award, for the same aggregate cash consideration, the
equivalent total number and class or series of Stock the Holder would have
received had the Holder exercised his or her Option or other Award in full
immediately prior to the event requiring the adjustment, and (2) the number and
class or series of Stock then reserved to be issued under the Plan shall be
adjusted by substituting for the total number and class or series of Stock then
reserved that number and class or series of Stock that would have been received
by the owner of an equal number of outstanding shares of Stock of each class or
series of Stock as the result of the event requiring the adjustment.
(c) If while unexercised Options or other Awards remain outstanding under
the Plan (1) the Company shall not be the surviving entity in any merger,
consolidation or other reorganization (or survives only as a subsidiary of an
entity other than an entity that was wholly-owned by the Company immediately
prior to such merger, consolidation or other reorganization), (2) the Company
sells, leases or exchanges or agrees to sell, lease or exchange all or
substantially all of its assets to any other person or entity (other than an
entity wholly-owned by the Company), (3) the Company is to be dissolved or (4)
the Company is a party to any other corporate transaction (as defined under
section 424(a) of the Code and applicable Department of Treasury regulations)
that is not described in clauses (1), (2) or (3) of this sentence (each such
event is referred to herein as a "Corporate Change"), then, except as otherwise
provided in an Award Agreement or another agreement between the Holder and the
Company (provided that such exceptions shall not apply in the case of a
reincorporation merger), or as a result of the Board's effectuation of one or
more of the alternatives described below, there shall be no acceleration of the
time at which any Award then outstanding may be exercised, and no later than ten
days after the approval by the stockholders of the Company of such Corporate
Change, the Board, acting in its sole and absolute discretion without the
consent or approval of any Holder, shall act to effect one or more of the
following alternatives, which may vary among individual Holders and which may
vary among Awards held by any individual Holder (provided that, with respect to
a reincorporation merger in which Holders of the Company's ordinary shares will
receive one ordinary share of the successor corporation for each ordinary share
of the Company, none of such alternatives shall apply and, without Board action,
each Award shall automatically convert into a similar award of the successor
corporation exercisable for the same number of ordinary shares of the successor
as the Award was exercisable for ordinary shares of Stock of the Company):
(1) accelerate the time at which some or all of the Awards then
outstanding may be exercised so that such Awards may be exercised in full
for a limited period of time on or before a specified date (before or
after such Corporate Change) fixed by the Board, after which specified
date all such Awards that remain unexercised and all rights of Holders
thereunder shall terminate;
(2) require the mandatory surrender to the Company by all or
selected Holders of some or all of the then outstanding Awards held by
such Holders (irrespective of whether such Awards are then exercisable
under the provisions of the Plan or the applicable Award Agreement
evidencing such Award) as of a date, before or after such Corporate
Change, specified by the Board, in which event the Board shall thereupon
5
cancel such Award and the Company shall pay to each such Holder an amount
of cash per share equal to the excess, if any, of the per share price
offered to stockholders of the Company in connection with such Corporate
Change over the exercise prices under such Award for such shares;
(3) with respect to all or selected Holders, have some or all of
their then outstanding Awards (whether vested or unvested) assumed or
have a new award of a similar nature substituted for some or all of their
then outstanding Awards under the Plan (whether vested or unvested) by an
entity which is a party to the transaction resulting in such Corporate
Change and which is affiliated or associated with such Holder in the same
or a substantially similar manner as the Company prior to the Corporate
Change, or a parent or subsidiary of such entity, provided that (A) such
assumption or substitution is on a basis where the excess of the
aggregate fair market value of the Stock subject to the Award immediately
after the assumption or substitution over the aggregate exercise price of
such Stock is equal to the excess of the aggregate fair market value of
all Stock subject to the Award immediately before such assumption or
substitution over the aggregate exercise price of such Stock, and (B) the
assumed rights under such existing Award or the substituted rights under
such new Award, as the case may be, will have the same terms and
conditions as the rights under the existing Award assumed or substituted
for, as the case may be;
(4) provide that the number and class or series of Stock covered
by an Award (whether vested or unvested) theretofore granted shall be
adjusted so that such Award when exercised shall thereafter cover the
number and class or series of Stock or other securities or property
(including, without limitation, cash) to which the Holder would have been
entitled pursuant to the terms of the agreement or plan relating to such
Corporate Change if, immediately prior to such Corporate Change, the
Holder had been the holder of record of the number of shares of Stock
then covered by such Award; or
(5) make such adjustments to Awards then outstanding as the Board
deems appropriate to reflect such Corporate Change (provided, however,
that the Board may determine in its sole and absolute discretion that no
such adjustment is necessary).
In effecting one or more of the alternatives set out in paragraphs (3),
(4) or (5) immediately above, and except as otherwise may be provided in an
Award Agreement, the Board, in its sole and absolute discretion and without the
consent or approval of any Holder, may accelerate the time at which some or all
Awards then outstanding may be exercised.
(d) In the event of changes in the outstanding Stock by reason of
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the date
of the grant of any Award and not otherwise provided for by this Section 4.6,
any outstanding Award and any Award Agreement evidencing such Award shall be
subject to adjustment by the Board in its sole and absolute discretion as to the
number and price of Stock or other consideration subject to such Award. In the
event of any such change in the outstanding Stock, the aggregate number of
shares of Stock available under the Plan may be appropriately adjusted by the
Board, whose determination shall be conclusive.
(e) After a merger of one or more corporations into the Company or after
a consolidation of the Company and one or more corporations in which the Company
shall be the surviving corporation, each Holder shall be entitled to have his
Restricted Stock
6
appropriately adjusted based on the manner in which the shares of Stock were
adjusted under the terms of the agreement of merger or consolidation.
(f) The issuance by the Company of stock of any class or series, or
securities convertible into, or exchangeable for, stock of any class or series,
for cash or property, or for labor or services either upon direct sale or upon
the exercise of rights or warrants to subscribe for them, or upon conversion or
exchange of stock or obligations of the Company convertible into, or
exchangeable for, stock or other securities, shall not affect, and no adjustment
by reason of such issuance shall be made with respect to, the number, class or
series, or price of shares of Stock then subject to outstanding Options or other
Awards.
4.7 ELECTION UNDER SECTION 83(B) OF THE CODE. No Holder shall exercise
the election permitted under section 83(b) of the Code with respect to any Award
without the written approval of the Chief Financial Officer of the Company. Any
Holder who makes an election under section 83(b) of the Code with respect to any
Award without the written approval of the Chief Financial Officer of the Company
may, in the discretion of the Board, forfeit any or all Awards granted to him or
her under the Plan.
4.8 FORFEITURE EVENTS. The Board may specify in an Award Agreement that
the Holder's rights, payments, and benefits with respect to an Award shall be
subject to reduction, cancellation, forfeiture, or recoupment upon the
occurrence of certain specified events, in addition to any otherwise applicable
vesting or performance conditions of an Award. Such events may include, but
shall not be limited to, removal from the Board for cause, violation of material
policies of the Company and its Affiliates, breach of noncompetition,
confidentiality, or other restrictive covenants that may apply to the Holder, or
other conduct by the Holder that is detrimental to the business or reputation of
the Company and its Affiliates.
4.9 AWARD AGREEMENTS. Each Award shall be embodied in a written
agreement that shall be subject to the terms and conditions of the Plan. The
Award Agreement shall be signed by an executive officer of the Company on behalf
of the Company, and may be signed by the Holder to the extent required by the
Board. The Award Agreement may specify the effect of a change in control of the
Company on the Award. The Award Agreement may contain any other provisions that
the Board in its discretion shall deem advisable which are not inconsistent with
the terms and provisions of the Plan.
4.10 AMENDMENTS OF AWARD AGREEMENTS. The terms of any outstanding Award
under the Plan may be amended from time to time by the Board in its discretion
in any manner that it deems appropriate and that is consistent with the terms of
the Plan. However, no such amendment shall adversely affect in a material manner
any right of a Holder without his or her written consent. Except as specified in
Section 4.6(b), the Board may not directly or indirectly lower the exercise
price of a previously granted Option.
4.11 RIGHTS AS STOCKHOLDER. A Holder shall not have any rights as a
stockholder with respect to Stock covered by an Option until the date, if any,
such Stock is issued by the Company; and, except as otherwise provided in
Section 4.6, no adjustment for dividends, or otherwise, shall be made if the
record date therefor is prior to the date of issuance of such Stock.
4.12 ISSUANCE OF SHARES OF STOCK. Shares of Stock, when issued, may be
represented by a certificate or by book or electronic entry.
7
4.13 RESTRICTIONS ON STOCK RECEIVED. The Board may impose such
conditions and/or restrictions on any shares of Stock issued pursuant to an
Award as it may deem advisable or desirable. These restrictions may include, but
shall not be limited to, a requirement that the Holder hold the shares of Stock
for a specified period of time.
4.14 COMPLIANCE WITH SECTION 409A. Awards shall be designed, granted and
administered in such a manner that they are either exempt from the application
of, or comply with, the requirements of Section 409A.
ARTICLE V
OPTIONS
5.1 AUTHORITY TO GRANT OPTIONS. Subject to the terms and provisions of
the Plan, the Board shall grant Options under the Plan to Non-Employee Directors
in such number and upon such terms as provided in this Article V.
5.2 OPTION GRANTS. Subject to the availability under the Plan of a
sufficient number of shares of Stock that may be issuable upon the exercise of
outstanding Options, each Non-Employee Director shall be granted, on the date he
or she is appointed, elected, reappointed or reelected a member of the Board
(the "Date of Grant"), an Option under the Plan to purchase 15,000 shares of
Stock at a price per share (the "Option Price") equal to 100 percent (100%) of
the Fair Market Value of the Stock on the Date of Grant. An Option granted under
the Plan may not be granted with any Dividend Equivalents rights.
5.3 VESTING OF OPTION. An Option shall vest in accordance with the
following schedule if the Holder of the Option is a Non-Employee Director on the
date described below: (a) on the first anniversary of the Date of Grant, the
Option shall vest and may be exercised as to twenty-five percent (25%) of the
shares of Stock subject to the Option, (a) on the second anniversary of the Date
of Grant, the Option shall vest and may be exercised as to an additional
twenty-five percent (25%) of the shares of Stock subject to the Option, and (c)
on the third anniversary of the Date of Grant, the Option shall vest and may be
exercised as to the remaining fifty percent (50%) of the shares of Stock subject
to the Option, so that on the third anniversary of the Date of Grant the Option
may be exercised as to all of the shares of Stock subject to the Option. In the
event the Non-Employee Director ceases to be a member of the Board for any
reason, the Option shall not continue to vest after the Non-Employee Director
ceases to be a member of the Board.
5.4 DURATION OF OPTION. An Option shall not be exercisable after the
earlier of (a) the fifth anniversary of the Date of Grant, (b) the date the
Non-Employee Director ceases to be a Non-Employee Director and a director of any
Affiliate for any reason other than such individual's death or Disability or the
Non-Employee Director becoming an employee of the Company or an Affiliate, (c)
90 days following the date the Non-Employee Director (or a former Non-Employee
Director who continued as a director of an Affiliate) dies or incurs a
Disability, and (d) the later of the date the Non-Employee Director who becomes
an employee of the Company or an Affiliate after receiving an Award under the
Plan (i) ceases to be a member of the Board and (ii) ceases to be an employee of
the Company or an Affiliate.
5.5 OPTION AGREEMENT. Each Option grant under the Plan shall be
evidenced by an Award Agreement that shall specify (a) the Option Price, (b) the
duration of the Option, (c) the
8
number of shares of Stock to which the Option pertains, (d) the exercise
restrictions applicable to the Option and (e) such other provisions as the Board
shall determine that are not inconsistent with the terms and provisions of the
Plan.
5.6 EXERCISE OF OPTION.
(a) General Method of Exercise. Subject to the terms and provisions of
the Plan and the applicable Award Agreement, Options may be exercised in whole
or in part from time to time by the delivery of written notice in the manner
designated by the Board stating (1) that the Holder wishes to exercise such
Option on the date such notice is so delivered, (2) the number of shares of
Stock with respect to which the Option is to be exercised and (3) the address to
which any certificate representing such shares of Stock should be mailed. Except
in the case of exercise by a third party broker as provided below, in order for
the notice to be effective the notice must be accompanied by payment of the
Option Price by any combination of the following: (a) cash, certified check,
bank draft or postal or express money order for an amount equal to the Option
Price under the Option, (b) an election to make a cashless exercise through a
registered broker-dealer (if approved in advance by the Board or an executive
officer of the Company) or (c) any other form of payment which is acceptable to
the Board.
(b) Exercise Through Third-Party Broker. The Board may permit a Holder to
elect to pay the Option Price and any applicable tax withholding resulting from
such exercise by authorizing a third-party broker to sell all or a portion of
the shares of Stock acquired upon exercise of the Option and remit to the
Company a sufficient portion of the sale proceeds to pay the Option Price and
any applicable tax withholding resulting from such exercise.
5.7 NO RIGHTS AS STOCKHOLDER. An Optionee shall not have any rights as a
stockholder with respect to Stock covered by an Option until the date a stock
certificate for such Stock is issued by the Company; and, except as otherwise
provided in Section 4.6, no adjustment for dividends, or otherwise, shall be
made if the record date therefor is prior to the date of issuance of such
certificate.
ARTICLE VI
RESTRICTED STOCK AWARDS
6.1 RESTRICTED STOCK AWARDS. The Board may make Awards of Restricted
Stock to eligible Non-Employee Directors selected by it. The amount of, the
vesting and the transferability restrictions applicable to any Restricted Stock
Award shall be determined by the Board in its sole discretion. If the Board
imposes vesting or transferability restrictions on a Holder's rights with
respect to Restricted Stock, the Board may issue such instructions to the
Company's share transfer agent in connection therewith as it deems appropriate.
The Board may also cause the certificate for shares of Stock issued pursuant to
a Restricted Stock Award to be imprinted with any legend which counsel for the
Company considers advisable with respect to the restrictions or, should the
shares of Stock be represented by book or electronic entry rather than a
certificate, the Company may take such steps to restrict transfer of the shares
of Stock as counsel for the Company considers necessary or advisable to comply
with applicable law.
9
6.2 RESTRICTED STOCK AWARD AGREEMENT. Each Restricted Stock Award shall
be evidenced by an Award Agreement that contains any vesting, transferability
restrictions and other provisions not inconsistent with the Plan as the Board
may specify.
6.3 HOLDER'S RIGHTS AS STOCKHOLDER. Subject to the terms and conditions
of the Plan, each recipient of a Restricted Stock Award shall have all the
rights of a stockholder with respect to the shares of Restricted Stock included
in the Restricted Stock Award during the Period of Restriction established for
the Restricted Stock Award. Dividends paid with respect to Restricted Stock in
cash or property other than shares of Stock or rights to acquire shares of Stock
shall be paid to the recipient of the Restricted Stock Award currently.
Dividends paid in shares of Stock or rights to acquire shares of Stock shall be
added to and become a part of the Restricted Stock. During the Period of
Restriction, certificates representing the Restricted Stock shall be registered
in the Holder's name and bear a restrictive legend to the effect that ownership
of such Restricted Stock, and the enjoyment of all rights appurtenant thereto,
are subject to the restrictions, terms, and conditions provided in the Plan and
the applicable Award Agreement. Such certificates shall be deposited by the
recipient with the Secretary of the Company or such other officer of the Company
as may be designated by the Board, together with all stock powers or other
instruments of assignment, each endorsed in blank, which will permit transfer to
the Company of all or any portion of the Restricted Stock which shall be
forfeited in accordance with the Plan and the applicable Award Agreement.
ARTICLE VII
ADMINISTRATION
7.1 AWARDS. The Plan shall be administered by the Board. The Board shall
have full and exclusive power and authority to administer the Plan and to take
all actions that the Plan expressly contemplates or are necessary or appropriate
in connection with the administration of the Plan with respect to Awards granted
under the Plan.
7.2 AUTHORITY OF THE BOARD. The Board shall have full and exclusive
power to interpret and apply the terms and provisions of the Plan and Awards
made under the Plan, and to adopt such rules, regulations and guidelines for
implementing the Plan as the Board may deem necessary or proper, all of which
powers shall be exercised in the best interests of the Company and in keeping
with the objectives of the Plan. A majority of the members of the Board shall
constitute a quorum for the transaction of business, and the vote of a majority
of those members present at any meeting shall decide any question brought before
that meeting. Any decision or determination reduced to writing and signed by a
majority of the members shall be as effective as if it had been made by a
majority vote at a meeting properly called and held. All questions of
interpretation and application of the Plan, or as to Awards granted under the
Plan, shall be subject to the determination, which shall be final and binding,
of a majority of the whole Board. No member of the Board shall be liable for any
act or omission of any other member of the Board or for any act or omission on
his own part, including but not limited to the exercise of any power or
discretion given to him under the Plan, except those resulting from his own
gross negligence or willful misconduct. In carrying out its authority under the
Plan, the Board shall have full and final authority and discretion, including
but not limited to the following rights, powers and authorities to (a) determine
the persons to whom and the time or times at which Awards will be made; (b)
determine the number and exercise price of shares of Stock covered in each Award
subject to the terms and provisions of the Plan
10
(including, but not limited to, the provisions of Section 4.10 which prohibit
repricing); (c) determine the terms, provisions and conditions of each Award,
which in the case of Restricted Stock need not be identical and need not match
the default terms set forth in the Plan; (d) accelerate the time at which any
outstanding Award will vest; (e) prescribe, amend and rescind rules and
regulations relating to administration of the Plan; and (f) make all other
determinations and take all other actions deemed necessary, appropriate or
advisable for the proper administration of the Plan.
The Board may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Award to a Holder in the manner and to the
extent the Board deems necessary or desirable to further the Plan's objectives.
Further, the Board shall make all other determinations that may be necessary or
advisable for the administration of the Plan. As permitted by law and the terms
and provisions of the Plan, the Board may delegate its authority as identified
in this Section 7.2. The Board may employ attorneys, consultants, accountants,
agents, and other persons, any of whom may be an employee of the Company, and
the Board, the Company, and its officers shall be entitled to rely upon the
advice, opinions, or valuations of any such persons.
7.3 DECISIONS BINDING. All determinations and decisions made by the
Board pursuant to the provisions of the Plan and all related orders and
resolutions of the Board shall be final, conclusive and binding on all persons,
including the Company, its stockholders, Holders and the estates and
beneficiaries of Holders.
7.4 NO LIABILITY. Under no circumstances shall the Company or the Board
incur liability for any indirect, incidental, consequential or special damages
(including lost profits) of any form incurred by any person, whether or not
foreseeable and regardless of the form of the act in which such a claim may be
brought, with respect to the Plan or the Company's or the Board's roles in
connection with the Plan.
ARTICLE VIII
AMENDMENT OR TERMINATION OF PLAN
8.1 AMENDMENT, MODIFICATION, SUSPENSION, AND TERMINATION. Subject to
Section 8.2, the Board may, at any time and from time to time, alter, amend,
modify, suspend, or terminate the Plan and any Award Agreement in whole or in
part; provided, however, that, without the prior approval of the Company's
stockholders and except as provided in Section 4.6, the Board shall not directly
or indirectly lower the Option Price of a previously granted Option, and no
amendment of the Plan shall be made without stockholder approval if stockholder
approval is required by applicable law or stock exchange rules.
8.2 AWARDS PREVIOUSLY GRANTED. Notwithstanding any other provision of
the Plan to the contrary, no termination, amendment, suspension, or modification
of the Plan or an Award Agreement shall adversely affect in any material way any
Award previously granted under the Plan, without the written consent of the
Holder holding such Award.
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ARTICLE IX
MISCELLANEOUS
9.1 UNFUNDED PLAN/NO ESTABLISHMENT OF A TRUST FUND. Holders shall have
no right, title, or interest whatsoever in or to any investments that the
Company or any of its Affiliates may make to aid in meeting obligations under
the Plan. Nothing contained in the Plan, and no action taken pursuant to its
provisions, shall create or be construed to create a trust of any kind, or a
fiduciary relationship between the Company and any Holder, beneficiary, legal
representative, or any other person. To the extent that any person acquires a
right to receive payments from the Company under the Plan, such right shall be
no greater than the right of an unsecured general creditor of the Company. All
payments to be made hereunder shall be paid from the general funds of the
Company and no special or separate fund shall be established and no segregation
of assets shall be made to assure payment of such amounts, except as expressly
set forth in the Plan. No property shall be set aside nor shall a trust fund of
any kind be established to secure the rights of any Holder under the Plan. The
Plan is not intended to be subject to the Employee Retirement Income Security
Act of 1974, as amended.
9.2 AWARDS DO NOT GRANT ANY RIGHT TO CONTINUE TO SERVE ON BOARD. Nothing
in the Plan or in any Award Agreement shall confer upon any Non-Employee
Director any right to continue to serve as a member of the Board or shall affect
the right of the Company and its stockholders to terminate the services of any
Non-Employee Director as a member of the Board at any time, with or without
cause. The granting of any Award shall not impose upon the Company or any
Affiliate any obligation to utilize the services of any Non-Employee Director.
The right of the Company or any Affiliate to terminate the services of any
person shall not be diminished or affected by reason of the fact that an Award
has been granted to him, and nothing in the Plan or an Award Agreement shall
interfere with or limit in any way the right of the Company or its Affiliates to
terminate the services provided by any Non-Employee Director at any time or for
any reason not prohibited by law.
9.3 TAX WITHHOLDING. The Company or any Affiliate shall be entitled to
deduct from other compensation payable to each Holder any sums required by
federal, state or local tax law to be withheld with respect to the vesting or
exercise of an Award or lapse of restrictions on an Award. In the alternative,
the Company may require the Holder (or other person validly exercising the
Award) to pay such sums for taxes directly to the Company or any Affiliate in
cash or by check within one day after the date of vesting, exercise or lapse of
restrictions. In the discretion of the Board, and with the consent of the
Holder, the Company may reduce the number of shares of Stock issued to the
Holder upon such Holder's exercise of an Option to satisfy the tax withholding
obligations of the Company or an Affiliate; provided that the Fair Market Value
of the shares of Stock held back shall not exceed the Company's or the
Affiliate's Minimum Statutory Tax Withholding Obligation. The Board may, in its
discretion, permit a Holder to satisfy any Minimum Statutory Tax Withholding
Obligation arising upon the vesting of an Award by delivering to the Holder a
reduced number of shares of Stock in the manner specified herein. If permitted
by the Board and acceptable to the Holder, at the time of vesting of shares
under the Award, the Company shall (a) calculate the amount of the Company's or
an Affiliate's Minimum Statutory Tax Withholding Obligation on the assumption
that all such shares of Stock vested under the Award are made available for
delivery, (b) reduce the number of such shares of Stock made available for
delivery so that the Fair Market Value of the shares of Stock withheld on the
vesting date approximates the Company's or an
12
Affiliate's Minimum Statutory Tax Withholding Obligation and (c) in lieu of the
withheld shares of Stock, remit cash to the United States Treasury and/or other
applicable governmental authorities, on behalf of the Holder, in the amount of
the Minimum Statutory Tax Withholding Obligation. The Company shall withhold
only whole shares of Stock to satisfy its Minimum Statutory Tax Withholding
Obligation. Where the Fair Market Value of the withheld shares of Stock does not
equal the amount of the Minimum Statutory Tax Withholding Obligation, the
Company shall withhold shares of Stock with a Fair Market Value slightly less
than the amount of the Minimum Statutory Tax Withholding Obligation and the
Holder must satisfy the remaining minimum withholding obligation in some other
manner permitted under this Section 9.3. The withheld shares of Stock not made
available for delivery by the Company shall be retained as treasury shares or
will be cancelled and the Holder's right, title and interest in such shares of
Stock shall terminate. The Company shall have no obligation upon vesting or
exercise of any Award or lapse of restrictions on an Award until the Company or
an Affiliate has received payment sufficient to cover the Minimum Statutory Tax
Withholding Obligation with respect to that vesting, exercise or lapse of
restrictions. Neither the Company nor any Affiliate shall be obligated to advise
a Holder of the existence of the tax or the amount which it will be required to
withhold.
9.4 GENDER AND NUMBER. If the context requires, words of one gender when
used in the Plan shall include the other and words used in the singular or
plural shall include the other.
9.5 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
9.6 HEADINGS. Headings of Articles and Sections are included for
convenience of reference only and do not constitute part of the Plan and shall
not be used in construing the terms and provisions of the Plan.
9.7 OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect
any other option, incentive or other compensation or benefit plans in effect for
the Company or any Affiliate, nor shall the Plan preclude the Company from
establishing any other forms of incentive compensation arrangements for
Non-Employee Directors.
9.8 SUCCESSORS. All obligations of the Company under the Plan with
respect to Awards granted hereunder shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise, of all or substantially
all of the business and/or assets of the Company.
9.9 LAW LIMITATIONS/GOVERNMENTAL APPROVALS. The granting of Awards and
the issuance of shares of Stock under the Plan shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
9.10 DELIVERY OF TITLE. The Company shall have no obligation to issue or
deliver evidence of title for shares of Stock issued under the Plan prior to (a)
obtaining any approvals from governmental agencies that the Company determines
are necessary or advisable; and (b) completion of any registration or other
qualification of the Stock under any applicable national or foreign law or
ruling of any governmental body that the Company determines to be necessary or
advisable.
13
9.11 INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any shares of Stock hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such shares of Stock as to
which such requisite authority shall not have been obtained.
9.12 INVESTMENT REPRESENTATIONS. The Board may require any person
receiving Stock pursuant to an Award under the Plan to represent and warrant in
writing that the person is acquiring the shares of Stock for investment and
without any present intention to sell or distribute such Stock.
9.13 PERSONS RESIDING OUTSIDE OF THE UNITED STATES. Notwithstanding any
provision of the Plan to the contrary, in order to comply with the laws in other
countries in which the Company or any of its Affiliates operates, the Board, in
its sole discretion, shall have the power and authority to (a) determine which
Affiliates shall be covered by the Plan; (b) amend or vary the terms and
provisions of the Plan and the terms and conditions of any Award granted to
persons who reside outside the United States; (c) establish subplans and modify
exercise procedures and other terms and procedures to the extent such actions
may be necessary or advisable -- any subplans and modifications to Plan terms
and procedures established under this Section 9.13 by the Board shall be
attached to the Plan document as Appendices; and (d) take any action, before or
after an Award is made, that it deems advisable to obtain or comply with any
necessary local government regulatory exemptions or approvals. Notwithstanding
the above, the Board may not take any actions hereunder, and no Awards shall be
granted, that would violate the Securities Exchange Act of 1934, as amended, the
Code, any securities law or governing statute or any other applicable law.
9.14 GOVERNING LAW. The provisions of the Plan and the rights of all
persons claiming thereunder shall be construed, administered and governed under
the laws of the State of Texas.
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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 21, 2006, and at any
adjournment(s) thereof, on the following matters more particularly described in
the Proxy Statement dated May 19, 2006.
(Continued and to be signed on the reverse side)
ANNUAL MEETING OF SHAREHOLDERS OF
THE MERIDIAN RESOURCE CORPORATION
JUNE 21, 2006
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 two Class I Directors.
Nominees:
- David W. Tauber
- John B. Simmons
[ ] FOR ALL NOMINEES
[ ] WITHHOLD AUTHORITY 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. Approval of The Meridian Resources Corporation 2006 Non-Employee Directors'
Incentive Plan
[ ] 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.