def14a
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 þ
Filed by a Party other than the Registrant o
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Soliciting Material Pursuant to §240.14a-12 |
The Meridian Resource
Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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THE MERIDIAN RESOURCE CORPORATION
1401 ENCLAVE PARKWAY, SUITE 300
HOUSTON, TEXAS 77077
NOTICE OF 2008 ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of The Meridian Resource Corporation:
The 2008 Annual Meeting of Shareholders of The Meridian Resource Corporation (the Company)
will be held on August 6, 2008, at 3:00 p.m. Houston time, at The WestLake Club, 570 WestLake Park
Boulevard, Houston, Texas, for the following purposes:
1. To elect persons to serve on the Companys Board of Directors as follows:
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To elect four persons to serve as Class III Directors on the Companys Board
of Directors, to hold office until the 2011 Annual Meeting of Shareholders or
until such persons successor shall be duly elected and qualified. |
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To elect one person to serve as an additional Class II Director on the
Companys Board of Directors, to hold office until the 2010 Annual Meeting of
Shareholders or until such persons successor shall be duly elected and
qualified. |
2. To ratify the appointment of BDO Seidman, LLP as the Companys independent registered
public accounting firm for 2008.
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 June 17, 2008, 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 2008 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 VOTE OVER THE INTERNET, AS DESCRIBED IN THE ACCOMPANYING
PROXY STATEMENT, OR SIGN, DATE AND RETURN THE PROXY CARD AS SOON AS POSSIBLE.
By Order of the Board of Directors
Joseph A. Reeves, Jr.
Chief Executive Officer
June 24, 2008
TABLE OF CONTENTS
THE MERIDIAN RESOURCE CORPORATION
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of proxies by order of
the Board of Directors of The Meridian Resource Corporation (the Company, Meridian, we, us
or our) to be voted at the 2008 Annual Meeting of Shareholders (the Meeting), to be held at the
time and place and for the purposes set forth in the accompanying notice.
Pursuant to the rules recently adopted by the Securities and Exchange Commission (SEC), the
Company is making this Proxy Statement and its 2007 Annual Report to Shareholders (the Annual
Report) available to shareholders electronically via the Internet. On or before June 27, 2008, we
will mail to our shareholders of record a Notice of Internet Availability of Proxy Materials (the
Notice). All shareholders will be able to access this Proxy Statement and our Annual Report on
the website referred to in the Notice or request to receive printed copies of the proxy materials.
Instructions on how to access the proxy materials over the Internet or to request a printed copy
may be found in the Notice. We believe that this new electronic process will expedite your receipt
of the proxy materials and reduce the cost and the environmental impact of our Annual Meeting.
The Notice will provide you with instructions on how to view our proxy materials for the
Annual Meeting on the Internet. The website on which you will be able to view our proxy materials
will also allow you to choose to receive future proxy materials electronically by email, which will
save us the cost of printing and mailing documents to you. If you choose to receive future proxy
materials by email, you will receive an email next year with instructions containing a link to the
proxy voting site. Your election to receive proxy materials by email will remain in effect until
you terminate it.
If you are voting over the Internet, your vote must be received by 11:59 p.m. Eastern time (or
10:59 p.m. Central time) on August 5, 2008 to be counted.
We will bear the costs of soliciting proxies. 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. We will reimburse brokers or other persons holding stock in their names
or in the names of their nominees for their reasonable expenses in forwarding the Notice and other
proxy material to beneficial owners of stock.
All proxies voted on the Internet by 11:59 p.m. Eastern time (or 10:59 p.m. Central time) on
August 5, 2008 or duly executed proxy cards we receive prior to the Meeting will be voted in
accordance with the choices specified on the proxy, unless revoked in the manner provided in this
Proxy Statement. As to any matter for which no choice has been specified in a proxy, the shares
represented by the proxy will be voted by the persons named in the proxy (i) FOR the election as
director of the nominees listed in this Proxy Statement, (ii) FOR the ratification of the
appointment of BDO Seidman, LLP as the Companys independent registered public accounting firm for
2008 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 or voted on the Internet may revoke it at any time prior to the
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exercise thereof by written notice to the Secretary of the Company at the address of the
Company set forth below, by the execution and delivery of a later dated proxy card, by voting again
at a later date on the Internet or by attendance at the Meeting and voting their shares in person.
As of the close of business on June 17, 2008, the record date (Record Date) for determining
shareholders entitled to vote at the Meeting, we had outstanding and entitled to vote 89,363,795
shares of Common Stock, $.01 par value (Common Stock). The outstanding shares of Common Stock
are the only shares of our capital stock 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. If your
shares are held in the name of a broker, banker or nominee, you will be asked for instructions on
how you would like the shares to be voted. Under New York Stock Exchange rules, if you do not
provide instructions on how to vote shares, your broker, banker or nominee may vote shares with
respect to the proposal for the election of directors and the ratification of the appointment of
the Companys independent registered public accounting firm. These broker non-votes will be
considered present for purposes of determining the presence or absence of a quorum. Broker
non-votes will not be counted as voted for or against a proposal.
The mailing address of the Companys principal executive office is 1401 Enclave Parkway, Suite
300, Houston, Texas 77077.
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PROPOSAL ONE
ELECTION OF DIRECTORS
Election of Class III Directors
Four directors will be elected by the holders of the Common Stock at the Meeting to serve as
the Class III Directors of the Companys Board of Directors until the 2011 Annual Meeting of
Shareholders or until such persons successor shall be duly elected. The Board of Directors
recommends the election of Joseph A. Reeves, Jr., Michael J. Mayell, Fenner R. Weller, Jr. and G.M.
Byrd Larberg as the Class III Directors. Each of Messrs. Reeves, Mayell, Weller and Larberg are
current directors of the Company whose term expires as of the date of the Meeting.
In addition to Messrs. Reeves, Mayell and Weller, each of whom has previously been elected by
our shareholders to serve as Class III Directors, we are asking our shareholders to elect Mr.
Larberg to serve as an additional Class III Director to serve until the 2011 Annual Meeting of
Shareholders or until his successor shall be duly elected. In accordance with the Companys
Bylaws, in 2007 the Board expanded the size of the Board to 11 persons and, effective January 1,
2008, appointed Mr. Larberg to fill one of the newly created directorships. The Board of Directors
recommends the election of Mr. G.M. Byrd Larberg as the additional Class III Director.
Unless contrary instructions are set forth in the proxies, it is intended that each person
executing a proxy will vote all shares represented by such proxy for the election of each of
Messrs. Reeves, Mayell, Weller and Larberg as a director. Should any of Messrs. Reeves, Mayell,
Weller and Larberg become unable or unwilling to accept nomination or election, it is intended that
the person acting under the proxy will vote for the election of such other person as the Board of
Directors of the Company may recommend. Management has no reason to believe that any of Messrs.
Reeves, Mayell, Weller and Larberg will be unable or unwilling to serve if elected.
There are currently four Class III directorships up for election. A nominee for director
receiving a plurality of votes cast at the Meeting and entitled to be cast for such nominee will be
elected as director. Abstentions and broker non-votes will not be treated as a vote for or against
a particular director and will not affect the outcome of the election of directors.
Election of Class II Director
In addition to the three persons who have previously been elected by our shareholders to serve
as Class II Directors, we are asking our shareholders to elect Mr. Paul Ching to serve as an
additional Class II Director to serve until the 2010 Annual Meeting of Shareholders or until his
successor shall be duly elected. In accordance with the Companys Bylaws, in 2007 the Board
expanded the size of the Board to 11 persons and, effective January 1, 2008, appointed Mr. Ching to
fill one of the newly created directorships. The Board of Directors recommends the election of Mr.
Paul Ching as the additional Class II Director.
Unless contrary instructions are set forth in the proxies, it is intended that each person
executing a proxy will vote all shares represented by such proxy for the election of Mr. Ching as
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a Class II Director. Should Mr. Ching become unable or unwilling to accept nomination or
election, it is intended that the person acting under the proxy will vote for the election of such
other person as the Board of Directors of the Company may recommend. Management has no reason to
believe that Mr. Ching will be unable or unwilling to serve if elected.
There is currently one Class II directorship up for election. A nominee for director
receiving a plurality of votes cast at the Meeting and entitled to be cast for such nominee will be
elected as director. Abstentions and broker non-votes will not be treated as a vote for or against
a particular director and will not affect the outcome of the election of directors.
The Board recommends that you vote for each nominee for director.
DIRECTORS
The Companys 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 directors successor is duly elected and qualified.
Set forth below is certain information concerning the current directors of the Company, with
each persons business experience for at least the past five years.
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EXPIRATION |
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PRESENT POSITIONS |
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DIRECTOR |
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OF PRESENT |
NAME |
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AGE |
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WITH THE COMPANY |
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TERM |
Joseph A. Reeves, Jr. |
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Class III Director and Chief Executive Officer (1)(6) |
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1990 |
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2008 |
Michael J. Mayell |
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Class III Director and President (1) |
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1990 |
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2008 |
Fenner R. Weller, Jr. |
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56 |
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Class III Director (2) |
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2004 |
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2008 |
G.M. Byrd Larberg |
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55 |
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Class III Director |
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2008 |
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2008 |
David W. Tauber |
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58 |
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Class I Director (3) |
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2004 |
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2009 |
John B. Simmons |
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55 |
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Class I Director (4) |
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2004 |
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2009 |
C. Mark Pearson |
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52 |
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Class I Director (5) |
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2006 |
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2010 |
E. L. Henry |
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72 |
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Class II Director (5) |
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1998 |
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2010 |
Joe E. Kares |
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64 |
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Class II Director |
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1990 |
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2010 |
Gary A. Messersmith |
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59 |
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Class II Director |
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1997 |
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2010 |
Paul Ching |
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61 |
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Class II Director (6) |
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2008 |
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2008 |
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Member of the Executive Committee and Directors Stock Option Plan
Administration Committee. |
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Member of the Audit Committee and the Compensation Committee. |
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Member of the Audit Committee and the Board Affairs Committee. |
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Member of the Audit Committee. |
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Member of the Board Affairs Committee and the Compensation Committee. |
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On April 29, 2008, Mr. Reeves relinquished the title of Chairman of the Board
and Mr. Ching was elected by the Board to serve in that capacity. In April 2008, the
Board appointed Mr. Ching to serve as an additional member of the Board Affairs
Committee. |
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Joseph A. Reeves, Jr. is Chief Executive Officer of the Company. Mr. Reeves, along with Mr.
Mayell, founded the Companys predecessor company, Texas Meridian Resources, Ltd. (TMR), during
1988 and from that time to the present has held this position with the Company. Mr. Reeves will
cease to serve as the Companys Chief Executive Officer on December 29, 2008. See Executive
Compensation Compensation Discussion and Analysis 2008 Compensation for Chief Executive
Officer and Chief Operating Officer.
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. Mr. Mayell will cease to serve as the Companys President
and Chief Operating Officer on December 29, 2008. See Executive Compensation Compensation
Discussion and Analysis 2008 Compensation for Chief Executive Officer and Chief Operating
Officer.
Fenner R. Weller, Jr. has been a general partner of Weller, Anderson, & Co., Ltd., a
securities firm, since 1995.
G.M. Byrd Larberg has worked as a consultant for the Company since October 2006. From 1998 to
2006, he was with Burlington Resources Inc., most recently as the Vice President of Geosciences.
While at Burlington he also held the positions of Executive Vice President & COO of Burlington
Resources International and Vice President of International Exploration. Prior to joining
Burlington Resources in 1998, he was with Shell Oil for 21 years in a variety of increasingly
responsible E&P related positions. These positions ranged from Exploration Manager (Domestic USA
Onshore) for Shell Western E&P Inc. to Vice President, E&P, Africa and Latin America for Pecten
International (a Shell Oil Affiliate).
David
W. Tauber has since 1984 been one of two owners of Tauber Oil Company, a
55 year old marketing Company that markets petrochemical products,
NGL products, fuel oil, carbon black feedstock and refinery feedstocks.
John B. Simmons served as Vice Chairman and Chief Executive Officer of Stewart & Stevenson,
LLC, a manufacturer, service provider and distributor of industrial and energy related equipment,
from January 2006 to January 2007. 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.
C. Mark Pearson has been President and Chief Executive Officer of Golden Energy LLC, an
independent oil and gas production company based in Denver, Colorado, or its predecessor, since its
formation in September 2005. Previously, he was President and Chief Executive Officer of Carbo
Ceramics Inc., an oilfield product and service company, from April 2001 to December 2005 and Vice
President, Marketing & Technology for Carbo Ceramics from March 1997 to 2001. Dr. Pearson was
Associate Professor of Petroleum Engineering at the Colorado School of Mines from 1995 to March
1997. He held a variety of technical and management positions with Atlantic Richfield Company
(ARCO) from 1984 to 1995.
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E. L. Henry was a partner with the law firm of Adams and Reese LLP in Baton Rouge, Louisiana
from 1987 until his retirement in 2001. Since 2001, he has been employed by Adams and Reese LLP on
a contract basis. 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, P.C., 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.
Paul Ching currently serves on the boards of three privately held technology start-up
companies, and is the chairman of one of those boards. He is also the Executive Advisor of the
Advanced Energy Consortium of the Bureau of Economic Geology at the University of Texas, which
consortium is dedicated to the search for applications of nanotechnology in the exploration and
production business. Mr. Ching was Vice President, Technical, Research & Development, for Shell
International E&P in the Netherlands from October 2002 to June 2007. He has held senior level
exploration and production related positions for Royal Dutch Shell and its affiliates for the past
34 years. His domestic experience includes both offshore and onshore. From the late 1980s through
the early 1990s Mr. Ching was the Division Production Manager, Houston, Texas, which was
responsible for Shells onshore operations in the United States. Internationally, he has held a
variety of positions including the General Manager of the Sarawak Gas Business for Shell Malaysia
and President of Pecten Producing Company (a Shell Affiliate). He was elected by the Board to
serve as Chairman of the Board of the Company on April 29, 2008.
PROPOSAL TWO
RATIFICATION OF THE APPOINTMENT OF BDO SEIDMAN, LLP AS THE COMPANYS
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2008
The Audit Committee has appointed BDO Seidman, LLP as the Companys independent registered
public accounting firm for 2008. The Board is asking shareholders to ratify this appointment.
Although the Company is not required to obtain shareholder ratification of the appointment of BDO
Seidman, LLP, the Board considers a proposal for shareholders to ratify such appointment to be an
opportunity for shareholders to provide input to the Audit Committee and the Board on a key
corporate governance issue.
The affirmative vote of a majority of the shares present in person or represented by proxy and
entitled to vote at the annual meeting is required to ratify the appointment of BDO Seidman, LLP.
Abstentions will be counted toward a quorum and considered shares present in person or by proxy and
entitled to vote. Accordingly, abstentions will have the effect of a vote against this proposal.
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Representatives of BDO Seidman, LLP are expected to be present at the annual meeting and will
be offered the opportunity to make a statement if they so desire. They will also be available to
answer questions.
The Board recommends a vote FOR ratification of the appointment of
BDO Seidman, LLP as the Companys independent registered public accounting
firm for 2008.
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
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 our web site at
www.tmrx.com. As set forth in the Principles, our Board of Directors 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 preside on
an alternating basis at each executive session.
We are committed to having sound corporate governance principles. Any shareholder may obtain
free of charge a printed copy of our Corporate Governance Principles and our Code of Ethics and
Business Conduct by sending a written request to 1401 Enclave Parkway, Suite 300, Houston, Texas
77077. This material may also be obtained from our website at www.tmrx.com.
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 in accordance with the Guidelines for the Selection of Non-Employee Directors as adopted
by the Board of Directors.
Under the Companys 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
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shareholders only after compliance with the procedures set forth in our Bylaws. The following
summary is qualified in its entirety by reference to the full text of our Bylaws.
Written notice of a shareholders intent to make such a nomination must be delivered to or
mailed and received at our principal executive offices 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 shareholders notice to us shall set forth (i) as to each
person whom the shareholder proposes to nominate for election or re-election as director, all
information relating to such person that is required to be disclosed in solicitations of proxies
for election of directors, or is otherwise required, in each case pursuant to Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), or any
successor regulation thereto, (ii) the name and record address of the shareholder proposing such
business, (iii) the class and number of shares of the Company that are beneficially owned by the
shareholder, (iv) a description of all arrangements or understandings between such shareholder and
each proposed nominee and any other person or persons (including their names) pursuant to which the
nomination or nominations are to be made by such shareholder and (v) a representation that such
shareholder intends to appear in person or by proxy at the meeting to nominate the persons named in
the notice. Such notice must be accompanied by a written consent of each proposed nominee to being
named as a nominee and to serve as a director if elected.
Nominations of Mr. Larberg and Mr. Ching
Mr. Larberg and Mr. Ching, the nominees who were added to the Board effective January 1, 2008,
were approved by the Board for inclusion in the list of nominees to be elected at the Meeting.
Each of Mr. Larberg and Mr. Ching was initially contacted by the Chief Executive Officer, and was
nominated after consultation with the full Board.
Board Independence
The Board of Directors has affirmatively determined that Messrs. Henry, Tauber, Simmons,
Weller, Pearson and Ching are independent within the meaning of our 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.
Codes of Conduct
In addition to our Corporate Governance Principles, the Board of Directors has adopted a Code
of Ethics for Senior Financial Officers and a Code of Ethics and Business Conduct for its
directors, officers and employees, copies of each of which are posted on our web site at
www.tmrx.com.
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Investor Information
Any shareholder may obtain free of charge a printed copy of our Corporate Governance
Principles, Code of Ethics for Senior Financial Officers, 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 our website at www.tmrx.com.
Board Structure and Committee Composition
The Board of Directors currently has an Executive Committee, an Audit Committee, a Directors
Stock Plan Administration Committee, a Board Affairs Committee and a Compensation Committee.
Audit Committee
We have a standing Audit Committee established in accordance with Section 3(a)(58)(A) of the
Exchange Act. 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 our
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, to act on behalf of the Board of Directors, in
its oversight of:
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the integrity of our financial statements; |
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our compliance with legal and regulatory requirements; |
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the engagement of our independent auditors and their qualifications and
independence; and |
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the performance of our internal audit function and independent auditors. |
Five Audit Committee meetings were held in 2007. The 2007 Report of our Audit Committee is
set out below under the caption Audit Committee Report.
Board Affairs Committee
The Board Affairs Committee is comprised of David W. Tauber, who serves as chairman, and E.L.
Henry, each of whom served throughout 2007, C. Mark Pearson, who was added to the Board Affairs
Committee in March 2007 and Paul Ching, who was added to the Board Affairs Committee in April 2008.
The Board of Directors has determined that each of Messrs. Tauber, Henry, Pearson and Ching 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 Companys web site at www.tmrx.com.
The Board of Directors has also adopted Corporate
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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 Companys web site at www.tmrx.com.
The functions of the Board Affairs Committee are:
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to monitor compliance with good corporate governance standards; |
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to identify individuals qualified to become Board of Directors members; |
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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; |
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to recommend to the Board of Directors committee appointments for directors; |
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to review and make recommendations to the Board of Directors regarding non-employee
director compensation; |
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to process and review any notices of fraud reported by employees and others; and |
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to develop and recommend to the Board of Directors corporate governance guidelines
applicable to the Company. |
One Board Affairs Committee meeting was held in 2007.
Compensation Committee
The Compensation Committee is comprised of E.L. Henry, serving as chairman, and Fenner R.
Weller, Jr., each of whom served throughout 2007, and C. Mark Pearson, who was appointed to the
Compensation Committee in March 2007. The Board of Directors has determined that each of Messrs.
Henry, Weller and Pearson 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 Companys
web site at www.tmrx.com.
The functions of the Compensation Committee are to discharge the Board of Directors
responsibilities relating to the evaluation and compensation of the Companys executive officers,
including but not limited to the Chief Executive Officer, the President and Chief Operating Officer
and other executive officers. The Compensation Committee also reviews and makes recommendations to
the Board of Directors regarding the executive compensation policies and programs that support our
overall business strategy. In addition, the Compensation Committee is also charged with making
recommendations to the Board of Directors regarding succession planning and development for senior
executives and positions as needed.
Six Compensation Committee meetings were held in 2007.
Executive 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
-10-
intervals between meetings of the Board of Directors. Twelve meetings of the Executive
Committee were held in 2007.
Attendance at Board and Committee Meetings and the Annual Meeting of Shareholders
The Board of Directors held seven meetings during the year ended December 31, 2007. In 2007,
each director, during the periods that he served, attended at least 75% of the total combined
number of meetings held by the Board of Directors and by the committees on which each such director
served.
In accordance with our Corporate Governance Principles, it is expected that each member of our
Board of Directors will make every effort to attend each Annual Meeting of Shareholders. Two
directors attended the 2007 Annual Meeting of Shareholders.
AUDIT COMMITTEE REPORT
We have reviewed and discussed with management the Companys audited financial statements as
of and for the year ended December 31, 2007.
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 Companys Annual
Report on Form 10-K for the year ended December 31, 2007.
John B. Simmons, Chairman
David W. Tauber
Fenner R. Weller, Jr.
COMMUNICATIONS WITH THE BOARD
Any shareholder or other interested party wishing to send written communications to any one or
more members of the Companys 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).
-11-
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 successor is duly
appointed or elected by the Board of Directors or his earlier removal or resignation from office.
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YEAR FIRST |
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ELECTED |
NAME OF OFFICER |
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POSITION WITH THE COMPANY |
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AGE |
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AS OFFICER |
Joseph A. Reeves, Jr.
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Chief Executive Officer
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61 |
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1990 |
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Michael J. Mayell
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COO and President
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61 |
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1990 |
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Lloyd V. DeLano
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Senior Vice President and Chief Accounting Officer
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57 |
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1993 |
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Alan S. Pennington
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Vice PresidentBusiness DevelopmentTMRX
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54 |
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1999 |
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Thomas J. Tourek*
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Senior Vice PresidentExplorationTMRX
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65 |
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1999 |
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Stephen Western*
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Senior Vice PresidentExplorationTMRX
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55 |
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2007 |
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A. Dale Breaux
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Vice PresidentOperationsTMRX
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59 |
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2002 |
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Steven G. Ives*
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Vice President TMRX
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46 |
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2005 |
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William Bishop*
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Vice PresidentLand and Business DevelopmentTMRX
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51 |
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2006 |
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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 over 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 as a contractor, after nearly 30 years of
experience at Shell in discovery and development exploration and production projects. He was named
Senior Vice President of Exploration in April 2003. 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. Since August 2007, Mr. Tourek is no longer serving as Vice President of
Exploration, although he continues his work with the Company in a non-executive capacity.
Mr. Stephen Western joined Meridian in September 2007. He has over 29 years of domestic
exploration experience in a variety of positions with increasing responsibilities, primarily with
large petroleum companies, including, ConocoPhillips, Burlington Resources, Vastar, Occidental Oil
& Gas, BP Exploration and Standard Oil. Prior to joining Meridian, Steve
-12-
was the Exploration Manager for the Northern Gulf of Mexico for ConocoPhillips Corporation.
His positions at Burlington Resources included Exploration Manager, U.S. Conventional Resources and
Global Chief Geophysicist. Steve received a B.S. in Physics from the University of Texas at
Arlington, an M.S. in Geology from Texas Christian University and an M.B.A. from Houston Baptist
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.
Steven G. Ives joined the Company in November 2001 and in April 2005 was named Vice President
- Finance of TMRX. Mr. Ives previous positions with the Company included Manager Finance and
Senior Financial Analyst. Mr. Ives has over 20 years of financial and management experience with
LandCare USA, Inc., Convest Energy Corporation and Sandefer Oil & Gas, Inc. Mr. Ives received his
Bachelor of Business Administration in Finance from Southwest Texas State University in 1986 and is
a licensed Certified Public Accountant.
William Bishop joined Meridian in December 2006 as Vice President, Land. He received his
Bachelor of Business Administration Degree in Petroleum Land Management from the University of
Texas in Austin in 1978. Mr. Bishop has over 28 years of professional and managerial oil and gas
land experience across the lower 48 states with both major and independent exploration and
production companies. His 28 years of experience include various duties with Mobil Oil
Corporation, Prairie Producing Company and Resource Development Partners.
There are no family relationships among the current officers and directors of the Company.
-13-
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Committee
It is the responsibility of the Compensation Committee of the Board of Directors to discharge
the Boards responsibilities relating to the evaluation and compensation of our executive officers,
including, but not limited to our Chief Executive Officer (CEO), Joseph A. Reeves, Jr., and our
Chief Operating Officer (COO), Michael J. Mayell, to establish and administer an overall
compensation program that promotes the long-term interests of the Company and our shareholders, and
to evaluate performance of our executive officers. In addition, the Compensation Committee is
responsible to make recommendations to the Board regarding succession planning and development for
senior executives and positions as needed.
Five of the six named officers whose compensation is described in this report have written
employment agreements with us; we maintain an oral employment agreement with the sixth officer. The
Compensation Committee reviews total compensation of our CEO and COO annually, when renewing the
contracts of those two individuals and at other intervals as necessary. The committee uses
information supplied by various sources, including Company management and outside compensation
consultants, to assist it in this review. The Compensation Committee makes recommendations to the
full Board of Directors, which in turn votes on all issues related to compensation for the Chief
Executive Officer and the Chief Operating Officer, with those officers abstaining on votes that
relate to themselves. 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. The Executive Committee, which is also comprised of Messrs. Reeves and Mayell,
performs several functions, including several related to compensation and administration of
compensatory programs.
Director compensation is revised as the Board considers appropriate with the entire Board of
Directors voting.
In 2006 and 2007, the Compensation Committee used the compensation consulting firm Longnecker
& Associates to provide comparative data and analysis regarding executive compensation. Longnecker
& Associates was selected by the Compensation Committee and reports directly to it. They have
performed no other work for us and have no other outside relationship to the Company or its
directors or officers. For further information, see Compensation Studies.
Compensation philosophy and objectives
In recommending overall total compensation levels for key employees, the Compensation
Committee strives to achieve and balance the following objectives:
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the hiring and retention of excellent employees possessing the background and skills
to achieve Company goals; |
-14-
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the alignment of these employees interests with those of the shareholders and the
Company in general; and |
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the achievement of important Company goals in short-, medium- and long-term. |
The philosophy we use in setting compensation levels and structures is based on these
underlying principles:
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pay should be linked to performance; |
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employees should have a sense of ownership and a long-term perspective; and |
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outstanding employee achievement should be recognized. |
In addition to these principles, we believe that the employees tenure with the Company should
be considered when reviewing his or her total compensation. Our executive officers have, on
average, 13 years of service with the Company and its predecessors. Four of the six named officers
have an average of 17 years of service. We value the depth of experience of our executive team in
oil and gas exploration and production generally, and in the properties and prospects of the
Company particularly.
Our compensation structure is designed to encourage and reward:
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replacement and increase of the Companys total oil and gas reserves; |
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efficient management of costs of producing oil and gas reserves; |
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attainment of the highest revenue possible for sales of oil and gas; and |
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ultimately, increased value of the Company as reflected in the price of our common
stock. |
Compensation studies
The Compensation Committee reviews data and analysis provided by its compensation consultant,
Longnecker & Associates, regarding executive compensation from a cross-section of other energy
companies. Such analysis is used for general reference only, to gauge the reasonableness and
competitiveness of both total compensation and structure of the compensation package, for our
executive officers. It has not been used as a mathematical means to establish salaries or other pay
within specified percentile ranges. The Compensation Committee continues to review such analyses
and any recommendations made by Longnecker & Associates, with the objective of aligning our pay
levels and structure more closely with shareholder interests.
Review of Compensation of Chief Executive Officer and Chief Operating Officer
The Compensation Committee reviews total compensation of the CEO and COO annually when their
employment contracts are renewed and at other intervals as necessary.
-15-
During 2007, the Compensation Committee continued its ongoing review of the total compensation
structure of these two officers. One objective of the review was to reconsider the extent to which
legacy elements of the program, based on contractual terms established in prior years and carried
forward, may have, over time, resulted in a divergence from the philosophy and objectives of the
Companys executive compensation program.
The Compensation Committee has reviewed and discussed the Companys corporate performance and
shareholder value as they relate to compensation of the CEO and COO, and evaluated their
performance in light of the Companys corporate performance and shareholder interests. Based upon
this review, related discussions and such other matters deemed relevant and appropriate by the
Compensation Committee (including the data and analysis provided by the Compensation Committees
compensation consultants, Longnecker & Associates), the Compensation Committee determined that the
compensation of the CEO and COO was excessive given the performance of the Company and should be
adjusted accordingly.
As discussed in greater detail below, the Compensation Committee was informed by Messrs.
Reeves and Mayell that each of Mr. Reeves and Mr. Mayell received payouts of approximately $3.6
million in 2007 and $5.4 million in 2006 from net profits interests (NPIs) the Company had granted
them pursuant to the NPI Agreements discussed below. The payouts from these previous NPI awards,
which the Compensation Committee viewed as excessive, particularly in light of the Companys recent
performance, were not a function of the performance of these executives and were not contractually
conditioned upon their continued employment by the Company.
In addition, under the employment agreements of the CEO and COO, their compensation was
insufficiently linked to performance. For example, in 2007 the amount of the annual cash bonus paid
to each of the CEO and COO was $760,000. The amount of these annual bonuses, under the terms of
their employment agreements, were wholly unrelated to their performance, but instead were required
to be substantially consistent with their previous annual bonuses.
Consequently, the Compensation Committee concluded that the existing compensation arrangements
for the CEO and COO did not reflect the Companys compensation philosophy or satisfy its
objectives, including in the following respects:
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Their compensation arrangements failed to align their interests with the interests
of the Company and its shareholders; |
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Their compensation was not meaningfully linked to their performance or the
performance of the Company; and |
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Their compensation arrangements failed to result in sufficient achievement of the
Companys business goals. |
As a result of this review, the Company renegotiated the employment agreements for these
executive officers and terminated certain other agreements that governed other elements of their
compensation packages. The new employment agreements were effective April 29, 2008. A description
of the revised compensation arrangement is provided below; see 2008 Compensation for Chief
Executive Officer and Chief Operating Officer.
-16-
Our Compensation Discussion and Analysis addresses both the package received by these
executive officers in 2007, as well as the revised compensation arrangements. Analysis of the
revised compensation arrangements is reflected in the section 2008 Compensation for Chief
Executive Officer and Chief Operating Officer. All other analysis, unless specifically noted,
relates to compensation awarded for 2007 in the context of certain past compensation practices.
Total compensation; allocation among different elements of compensation
As noted above, the Compensation Committee is responsible for making recommendations regarding
the compensation of the CEO and COO. The Executive Compensation Committee reviews total
compensation of the other named executive officers annually when their employment contracts are
renewed.
Each of our named executive officers has been with the Company for many years. Total
compensation and its components as of year-end 2007 were largely the cumulative result of
compensation decisions made for each of these individuals over a period of many years. For Messrs.
Reeves and Mayell, our CEO and COO, the terms of their prior employment agreements have prohibited
the decrease of such compensation elements as salary or bonus. Some programs initiated in the
past, such as our well bonus plans in which wells included in the plans may produce oil and natural
gas over multiple years, were designed to provide potentially increasing benefits as the term of
employment lengthens and the employee realizes production from additional wells over time. Taken
together, these legacy factors have placed limitations on the Companys ability to use its
discretion to adjust total compensation and the distribution of the total among components such as
cash and non-cash elements, and long-term versus short-term incentives.
Total compensation for the named executive officers in 2007 was weighted toward cash elements,
with the cash component ranging from 52% to 100% of total compensation. As discussed above, this
allocation was largely the result of legacy agreements. Our CEO and COO, however, each elected to
receive equity compensation in lieu of a portion of their cash compensation. They have
consistently made this election for many years, and have accumulated significant ownership of our
common stock and rights to future issuances of shares over time. We believe their interests are
aligned with those of our shareholders to the extent of their ownership of these and other shares
of our common stock.
Total compensation has been increased over time by the long-term tenure of our executive
group. We generally consider the resulting accumulation of experience, knowledge and cooperation
to be important assets to the Company.
Compensation components; relation of components to our objectives
In order to achieve our objectives, we utilize a combination of compensation elements:
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Salaries and annual cash bonuses; |
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Profit-sharing incentives based on awards related to the net profits of our wells; |
-17-
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A deferred compensation plan with opportunities to invest in our common stock; |
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Long-term incentives based on equity awards; |
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Employment contracts with termination benefits; and |
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Benefits and limited perquisites. |
Salary. Salaries for our executive officers in 2007 were based on the initial salaries set
forth in their respective employment agreements. The prior employment agreements of our CEO and COO
provided that their annual base salary could not be decreased. We grant an annual salary increase
to all employees at the same time, usually in December. Executive officers are included in this
increase. In 2006, this company-wide cost of living increase was 4.5%. We may also grant a merit
or market-based increase to our executive officers or other employees, based upon a change in
responsibilities or other factors. Mr. Tourek is employed by the Company under an oral contract
which provides for an hourly rate of pay for actual hours worked. The hourly rate has not changed
since 2003, but may be changed with notice. Increases in salary provided to our named executive
officers ranged from 0% to 13% during 2007, and were 4.5% for our CEO and COO. Some increases in
excess of cost of living were granted on an individual basis.
Annual Bonus for Chief Executive and Chief Operating Officers. In 2007, we provided an annual
bonus payment to our Chief Executive Officer (CEO), Mr. Joseph A. Reeves, Jr., who during 2007 also
served as Chairman of the Board of Directors, and to our Chief Operating Officer (COO), Mr. Michael
J. Mayell, who also serves as President. The bonus amount was based on the terms of their
respective employment agreements that were in effect during 2007, which were substantially
identical. For further information regarding these agreements, see Potential Payments Upon
Termination or Change-in-Control below. Under the prior employment agreements, the executives
performance had no bearing on the determination of the amount of the annual bonus. Instead, the
prior employment agreements specified that such bonuses must be substantially consistent with
previous annual bonuses. The Compensation Committee could, at its discretion, recommend an increase
the bonus amount, but due to these contractual provisions the Compensation Committees ability to
reduce the amount of the annual bonus paid to the CEO or COO, or to link a reduction in such amount
to the performance of the CEO or COO, was severely constrained. For 2007, this contractual bonus
payment was $760,000 per year to each of these two executive officers. The amount has not increased
since 1998, as we believed that the fixed cash component of compensation within these two
employment agreements had been sufficiently established, and that any increase in compensation to
our CEO and COO, when appropriate, should be primarily directed toward at-risk performance awards
of either cash or equity.
It is important to note, however, that both our CEO and COO had the option to defer any
portion of their salary and contractual bonus, receiving rights to future issuances of shares of
common stock in lieu of cash (see Deferred Compensation below). Historically, since 1996, both
executive officers had substantially utilized this alternative, reducing the purely cash element of
their compensation, relative to salary and bonus.
Net profits interests. During 2007 and prior years, we granted net profits interests in
Company properties to our CEO and COO under the terms of substantially identical agreements
-18-
(NPI Agreements) with each of Messrs. Reeves and Mayell that became effective January 1,
1994, copies of which are filed as exhibits to our Annual Report on Form 10-K/A filed April 30,
2008. Under the NPI Agreements, Messrs. Reeves and Mayell were each assigned a real property
interest of a 2% proportional net profits interest in production from each property on which the
Company expends funds during the term of his employment. These permanent assignments of real
property interests were not subject to vesting, nor to continued employment with the Company. See
Narrative to Summary Compensation Table Net Profits Interests and 2008 Compensation for Chief
Executive Officer and Chief Operating Officer below for further information.
These
net profits interests pay the owner his or her proportionate share of revenue from sales of
production from a given property, less the costs of operating the
leasehold. They are not reduced by
the amounts of depreciation, depletion or other forms of capital
costs, and in that respect are more
favorable than the interest retained by the Company. This element of compensation was historically
intended by the
Company to provide incentive to our top executives to identify, acquire, drill, develop and
produce mineral interests in the most cost effective manner possible. Only developed and producing
properties provide net profits payments; therefore, those executives were motivated to expend
limited capital budgets for acquisition, drilling and development with care and efficiency.
Similarly, they are motivated throughout the lives of these properties to achieve the highest
possible sales prices for our products and the lowest possible
allocable operating costs.
In reviewing total compensation for our CEO and COO, the Compensation Committee included in
total compensation the initial value of such mineral interests assigned during the most recent
period. The valuation of the mineral interests is computed by a third party appraiser as of the
assignment date for the individual property. These appraisal valuations are reflected in the All
Other Compensation column of the Summary Compensation Table below. In addition, in reviewing the
elements and amounts of the compensation of the CEO and COO, the Compensation Committee also
considered amounts realizable from prior compensation, such as the cumulative annual income
received by Messrs. Reeves and Mayell in recent years from the Companys past grants of net profits
interests, to the extent these officers continued to own such interests at that time.
In April 2008, at the recommendation of the Compensation Committee and with the agreement of
the CEO and COO, the Company terminated the NPI Agreements. See 2008 Compensation for Chief
Executive Officer and Chief Operating Officer below.
Well bonus plans. During 2007, we provided profit sharing opportunities to all of our
employees other than the CEO and the COO through well bonus plans. Our named executive officers,
other than Messrs. Reeves and Mayell, each participate in The Meridian Resource Corporation
Management Well Bonus Plan (the Management Plan). Messrs. Reeves and Mayell comprise the
Executive Committee which administers the Management Plan; they do not participate in the plan.
Under the terms of the Management Plan, which was adopted in 1997, employees receive a cash
bonus computed with reference to the net profits of a pool of wells. Each employee in the
Management Plan participates at a level designated by the Executive Committee in each producing
well acquired or spudded during his or her term of employment with the Company.
-19-
Net profits for the purposes of this plan are computed as the revenue from sales of production
from a given property, less the costs of operating the leasehold. It does not include depreciation,
depletion or other forms of capital costs. The total of all participations for all wells for a
given individual may be paid in either cash or common stock of the Company and is currently paid in
cash. The participation factors for each of Messrs. DeLano, Pennington, Breaux and Tourek are 1/4th
of 1%.
Please refer to Narrative to Summary Compensation Table Well Bonus Plans for a more
detailed description of the Management Plan and other well bonus plans. We believe the Management
Plan provides similar incentives to key employees as do the net profits interests assigned to
Messrs. Reeves and Mayell (as described above). The well bonus plans also are designed to
accumulate participations as employment lengthens, which may increase employee retention.
Deferred Compensation. In 1996, we adopted a deferred compensation plan (DCP) applicable
specifically to our CEO and COO, Messrs. Reeves and Mayell. Under the terms of the DCP, Messrs.
Reeves and Mayell were given the option to defer any portion of their salary and/or bonus and
receive instead the right to future issuances of shares of common stock in return for such
deferral. No actual shares may be issued from the DCP until the employees death, retirement, or
termination of employment. The Company matched such deferrals on a one-for-one basis, subject to a
twelve month vesting schedule. The number of shares credited to each executive officer on the basis
of his deferred compensation, as well as Company matching shares, has been tracked in a notional
account, and the liability to the officers is subject to the general credit of the Company.
The purpose of the DCP was to create ownership opportunities for our top management, which in
turn provided them with long-term incentives and helped to align their interests with those of
other shareholders. The DCP also conserved cash resources of the Company, and provided our
executive officers with certain tax advantages. Historically, Messrs. Reeves and Mayell have
utilized the DCP significantly each year since it was adopted. In each of 2005, 2006 and 2007, they
each deferred $400,000, which was approximately 30% of the total annual cash compensation available
to them under salary and bonus programs. Over time, they have accumulated the right to receive a
substantial number of future shares. See 2008 Compensation for Chief Executive Officer and Chief
Operating Officer below. Together with shares, rights to receive future shares and stock options
owned outside the DCP, they each have a significant portion of their personal assets tied to the
long-term success of the Company.
For further information on the DCP, see Narrative to Summary Compensation Table Deferred
Compensation Plan and Non-Qualified Deferred Compensation below. Within the Summary Compensation
Table below, deferred salaries are reported in the Salary column, and the value of the matching
notional shares when granted are reported in the All Other Compensation column.
In April 2008, the Company terminated the DCP. See 2008 Compensation for Chief Executive
Officer and Chief Operating Officer below.
-20-
Equity awards. We have utilized the 1997 Plan and a previous plan, the Texas Meridian
Resources Corporation Long-Term Incentive Plan (1995 Plan), as well as the 2007 Long-Term
Incentive Plan (2007 Plan) to provide equity ownership awards and opportunities to our employees.
For further information about these plans, see Narrative to Summary Compensation Table
Long-Term Incentive Plans and Securities Authorized for Issuance under Equity Compensation Plans
below. We have granted options to purchase our common stock (stock options) to employees as
incentives in past years. More recently, we have utilized such awards as hiring inducements for new
employees. We have not granted awards under any of the plans to the named executive officers since
1998 (except for A. Dale Breaux, who was granted options for 15,000 shares in 2002 upon his
employment by the Company), and all previously granted awards have been vested for some time.
Consequently, we recognized no expense in 2007 for awards to the named executive officers, and none
is reported in the Option Awards column of the Summary Compensation Table below.
Generally, awards of stock options under the 1995 Plan and the 1997 Plan, which were utilized
for the grants made to the named executive officers, included an exercise price equal to the
closing price of our stock on the date of the grant, vesting over a three year period (25% on the
date of grant, and 25% on each of the first, second, and third anniversaries of the grant date),
and have a term of ten years.
We believe that equity awards provide an effective method to incentivize employees. In
granting fewer equity awards to top management in recent years, we took into consideration the
substantial equity positions already established by our CEO and COO. We also considered additional
equity awards in the context of total compensation. When granting equity awards, we consider the
impact such awards would have on our share-based compensation expense, and on shareholder dilution.
We may in the future increase our reliance on equity awards as a form of executive compensation.
Choice of equity vehicles. Each of the plans allows us to make grants of stock options,
restricted stock, and other forms of equity awards. Other than the notional stock rights utilized
in the DCP, we have utilized primarily stock options. We may choose to utilize other forms of
equity awards, such as restricted stock which vests over time, in the future. We believe that stock
options efficiently achieve the two objectives of equity ownership and incentive to increase the
value of our stock for all shareholders. Stock options create a higher level of potential
shareholder dilution than would an equivalent award of restricted stock. However, we believe they
provide relatively more performance incentive, as all options are granted at-the-money, and unlike
restricted stock, have no initial intrinsic cash value to the employee.
Procedures for granting equity awards. We grant awards to new employees on a discretionary
basis. Our current practice is to grant stock options to new employees on the date of hire, which
is not the date of their acceptance of our offer of employment, but rather, the first day they
report for work at the Company. Exercise price is determined by the closing price of our stock on
the date of grant.
Grants to directors are made under the terms of the Meridian Resource Corporation 2006
Non-Employee Directors Incentive Plan (the Director Plan). Although this plan allows for various
forms of equity awards, we have historically granted only awards of stock options.
-21-
Scheduled awards to directors are granted on the dates of their appointment, election, and
reelection to the Board of Directors. The exercise price is the closing price of our stock on the
date of grant. We may grant subsequent awards of stock options to our directors as recognition for
their service and to provide additional incentive to them, but historically we have not done so.
Any such future awards would be made in accordance with such policy as we may adopt, as discussed
below.
If we do resume grants of equity awards to employees for purposes other than hiring
incentives, we intend to first adopt a policy for the timing of such grants. We expect such a
policy will address the need to award grants on dates which are not in close proximity to the
timing of public announcements which may affect the price of our stock. Furthermore, we expect such
a policy will require careful administration and documentation of grant decisions and determination
of exercise prices.
Employment contracts and post-termination compensation. We have written employment agreements
with five of our named executive officers. Each agreement specifies a minimum salary and some form
of termination benefits. We believe that such benefits help provide an environment of relative
security in which our executives will achieve their best. Each named executive officer for whom
termination benefits have been provided has been employed by the Company for many years. The
provision of these benefits also assures them that their years of service are recognized and valued
by the Company.
For further details regarding the employment agreements and termination benefits, see
Potential Payments upon Termination or Change-in-Control below. For Messrs. Reeves and Mayell,
significant changes to the employment agreements were made effective April 29, 2008, described
below; see 2008 Compensation for Chief Executive Officer and Chief Operating Officer.
Post-termination compensation was substantially affected.
Benefits. We provide basic benefits to our named executive officers on the same basis we
provide benefits to other Company employees. We provide health and life insurance. We also provide
matching funds for those employees who contribute to our 401(k) savings plan, matching up to 6.5%
of their annual salary, subject to certain limitations as outlined in the 401(k) plan. These
matches are made in shares of common stock.
In addition, our named executive officers are each provided membership in a health or luncheon
club, which they may use for personal as well as business purposes. In addition, Messrs. Reeves and
Mayell personally own club memberships which from time to time are used for corporate purposes,
which expenses related to corporate purposes are paid for by the Company. The value of 401(k)
matching stock is included in the column All Other Compensation on the Summary Compensation Table
below. We have estimated the value of the personal use of club memberships, along with other
perquisites, to be less than $10,000 for each named executive officer. These amounts are therefore
not reported on the Summary Compensation Table.
-22-
Tax and Accounting Considerations
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 Companys
employees. 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 Companys shareholders. Awards under the Management Plan, as well as
bonus and salary compensation awarded to the Companys executive officers in 2007, did not satisfy
the requirements of Section 162(m). The Board of Directors takes into account the potential
application of Section 162(m) with respect to incentive compensation awards and other compensation
decisions.
We account for equity awards under the provisions of Statement of Financial Accounting
Standards No. 123 (revised 2004), Share-Based Payment (SFAS No. 123R). We charge the estimated fair
value of option and restricted stock awards to income over the time of service provided by the
employee to earn the award, typically the vesting period. The fair value of options is computed
using the Black-Scholes option pricing model. The compensation expense to the Company under SFAS
123(R) is one of the factors the Compensation Committee and the Board of Directors consider in
granting equity awards, and also may influence the vesting period chosen.
2008 Compensation for Chief Executive Officer and Chief Operating Officer
In April 2008 we made significant changes in the structure of the compensation of our top two
executives, Messrs. Reeves and Mayell, our CEO and COO. These changes are the result of much study
and discussion between the Compensation Committee, outside advisors, the full Board of Directors,
and the executives themselves. At issue in these discussions were serious considerations regarding
the continuing obligations of the Company under the legacy agreements, which have been terminated
as described below. The result of those discussions, we believe, is fair and equitable to both the
Company and the executives who were willing to accept changes which placed their compensation at
more risk than previously.
New employment contracts; termination of other contracts. Effective April 29, 2008 the
employment contracts for Messrs. Reeves and Mayell were terminated and replaced with new
agreements. The NPI Agreements were terminated and no further NPIs will be granted after April 27,
2008. Termination of the NPI Agreements, however, does not affect any prior interests acquired by
Mr. Reeves or Mr. Mayell before that date. The DCP was terminated, and a portion of the shares were
distributed as described below. By its terms, termination of the DCP is one of the events that
prompt a distribution. Messrs. Reeves and Mayell agreed to these changes in exchange for certain
cancellation payments described below. In addition, Mr. Reeves agreed to relinquish his title as
Chairman of the Board. As was the case with the prior agreements, Messrs. Reeves and Mayell both
received substantially identical new agreements.
The new employment agreements can be compared to the previous agreements as follows:
-23-
|
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Salary and guaranteed bonus, which together previously totaled $1,305,059, have been
reduced to $600,000 in salary. No annual bonus is payable under the new employment
agreements. |
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|
The termination date of the new employment agreements is December 29, 2008, at which
time Mr. Reeves will cease to serve as our CEO and Mr. Mayell will cease to serve as
our President and COO. The previous agreements terminated August 17, 2010 and carried a
provision under which the term was automatically refreshed for an additional three
years at each anniversary date; thus, the old contracts carried a perpetual two to
three year term. |
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|
Termination benefits under the old agreements were significant, and have been
reduced and simplified under the new contracts; under the old employment agreements,
described in detail below (see Compensation Tables and Additional Information,
Potential Payments upon Termination or Change-of-Control), these officers would
receive various benefits upon termination: |
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Upon termination by the Company for reasons other than death or good cause,
the contract would pay out salary to its termination (which, depending on the
date of termination in relation to the anniversary date of the contract, could
be a minimum of two years and a maximum of three years), plus one full annual
bonus based on the most recent one, plus a payment of two times the sum of
salary plus most recent annual bonus, plus continuation of benefits for the
remainder of the contract term; in addition, if the termination followed a
change of control, a tax gross up payment would be made; |
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Under the new agreements, termination benefits are generally limited to
payout of salary and, for the remainder of the term of the contract and until
October 31, 2010, continuation of benefits. |
The new employment agreements also contemplate that upon termination of such agreements on
December 29, 2008, each of Messrs. Reeves and Mayell would enter into a consulting agreement. The
consulting agreement would commence upon termination of the employment agreement and would extend
through April 2009. The Company would pay each of them a consulting fee of $50,000 per month.
Agreements to terminate prior compensation arrangements. In exchange for termination of the
employment agreements, the NPI agreements and the DCP, Messrs. Reeves and Mayell each entered into
a new employment agreement with the Company. In addition, each of them entered into a termination
agreement setting forth the payments made under the terms of the prior agreements upon their
termination.
Under his termination agreement, Mr. Reeves received, in accordance with his prior employment
agreement, payments of:
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$1,324,884, which is his current annual base salary under the prior employment
agreement for the remainder of the employment period under the prior employment
agreement; |
-24-
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$782,711, which is an amount equal to the last annual bonus paid to him; |
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$2,702,415, which is the product of two times the sum of the current annual base
salary plus the recent bonus referred to above; and |
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$25,000, which is a lump sum retirement benefit equal to the difference between (i)
the actuarial equivalent to the benefit under any retirement plan (as defined in the
prior employment agreement) he would receive if he remained employed by the Company at
the current annual base salary plus the recent bonus for the remainder of the
employment period under the prior employment Agreement and (ii) actuarial equivalent of
his benefit, if any, under any retirement plan. |
In addition, the Company will pay to the applicable taxing authorities on behalf of Mr. Reeves
gross up tax payments reflecting certain taxes imposed on the payments to him listed above.
Upon termination of the DCP, the Company will issue to Mr. Reeves 1,497,111 shares of the
Companys common stock, and Mr. Reeves will receive an estimated 856,057 additional shares of
common stock six months after the end of his employment with the Company, reflecting rights to
receive shares that Mr. Reeves has accumulated through compensation deferrals in prior years under
the DCP.
Under his termination agreement, Mr. Mayell received, in accordance with his prior employment
agreement, payments of:
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$1,311,765, which is his current annual base salary under the prior employment
agreement for the remainder of the employment period under the prior employment
agreement; |
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$782,711, which is an amount equal to the last annual bonus paid to him; |
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$2,702,415, which is the product of two times the sum of the current annual base
salary plus the recent bonus referred to above; and |
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$25,000, which is a lump sum retirement benefit equal to the difference between (i)
the actuarial equivalent to the benefit under any retirement plan (as defined in the
prior employment agreement) he would receive if he remained employed by the Company at
the current annual base salary plus the recent bonus for the remainder of the
employment period under the prior employment Agreement and (ii) actuarial equivalent of
his benefit, if any, under any retirement plan. |
Upon termination of the DCP, the Company will issue to Mr. Mayell 1,307,691 shares of the
Companys common stock, and Mr. Mayell will receive an estimated 856,057 additional shares of
common stock six months after the end of his employment with the Company, reflecting rights to
receive shares that Mr. Mayell has accumulated through compensation deferrals in prior years under
the DCP.
In making the recommendation, with the agreement of management, to terminate the NPI
Agreements, the Compensation Committee considered the long-term accumulation of property interests
granted to Messrs. Reeves and Mayell since the inception of the NPI arrangements in 1994. At that
time, the Company was in its early stages of development and had a critical need
-25-
to conserve cash. The Company drilled far fewer wells then than it has in recent years and oil
and natural gas prices were a fraction of what they are today. After an NPI has been granted, any
successful wells drilled with respect to that NPI may continue to produce oil and natural gas for a
number of years. Therefore, the cumulative NPI payments from all such prior wells in any given year
reflects the total income from NPIs granted over many years, to the extent that the executive has
retained ownership of such NPI. Each of Mr. Reeves and Mr. Mayells income from such wells, which
represents the accumulation of approximately 15 prior years of NPI grants, as compared to income
from 2007 grants only, and reflects significant increases in oil and natural gas commodity prices
in recent years, was approximately $3.6 million in 2007 and $5.4 million in 2006. Such cumulative
result was a significant part of the reason that the Compensation Committee recommended that the
Board terminate the NPI Agreements.
In determining and recommending the terms of the new employment agreements and the termination
agreements to the full Board, which approved the new employment agreements and termination
agreements, the Compensation Committee considered these additional important factors:
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The reduction in the estimated net present value of cash obligations, including
salary, guaranteed bonus, and termination benefits, under the old and new employment
contracts; |
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The potential value of net profits interests to be awarded under the NPI Agreements,
which, had they not been terminated, would have continued to be awarded so long as
these executives remained employed by the Company; |
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The loss of opportunity to defer taxation on a portion of salary and bonus, as well
as the opportunity to receive Company matching rights to future shares, prompted by the
termination of the DCP; and |
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The work and dedication of these two executives over the past 20 years of their
service to the Company and its predecessor. |
Discussion and analysis of new compensation structure.
Revisions and discontinuations. The Compensation Committee recommended numerous changes to
the roles and compensation arrangements of the CEO and COO in an effort to bring total compensation
and compensation structure for these executives into better conformance with the philosophy and
objectives stated above. The arrangements negotiated with these executives are reflected in the
termination agreements, new employment agreements and consulting agreements.
Issues noted with the 1993 employment contracts, which have now been addressed through the
provisions of the new employment agreements and the termination agreements, include:
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Cash bonus amounts were guaranteed and unrelated to performance, rather than
at-risk; |
-26-
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The automatic renewal of employment contracts for three years at every anniversary
date excessively limited the flexibility to the Company to make a change to management
if it so desired; |
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The Compensation Committee felt that overall, the contracts provided for potential
termination payments which were out of scale with the size of the Company and the
executives performance; and |
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Termination provisions did not consider the substantial accumulation of net profits
interests, equity and cash awards provided to these executives over their long service
to the Company, which could be expected to substantially reduce any financial shock of
termination. |
The NPI Agreements dated from 1994, a formative time in Company history, with facts and
circumstances different from today, when the Company has reached relative maturity. They were
terminated for several reasons, including:
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The NPI interest conveyances had become ineffective at aligning management and
shareholder interests because they take into account neither capital costs nor
commodity hedging contracts, both of which can significantly impact income and
shareholder value; |
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The NPI awards did not serve to link the executives compensation to his
performance; |
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Because payouts under prior NPI awards continue irrespective of whether or not the
executive remains employed by the Company, the NPI awards were ineffective as a
retention device; and |
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The conveyances create a permanent encumbrance on Company properties, which impacts
their value should we desire to market or exchange them. |
The DCP also dated from a much earlier time in Company history, 1996. It has served its
purposes of conserving cash and providing an equity award for many years. Those objectives continue
to be relevant and important, but the Compensation Committee believes they must be recalibrated
with other equally important objectives.
In recommending these changes, the central issue considered by the Compensation Committee was
pay for performance. The Committee observed that total compensation for the most recent several
years did not track Company performance as it should. They recognized that only a small portion of
the total compensation package was at risk. Therefore, the Compensation Committee recommended these
significant changes in the roles of the CEO and COO, including the completion of Mr. Reeves
service as the Companys CEO, which will occur on December 29, 2008, and significant reductions in
the compensation of the CEO and COO.
-27-
COMPENSATION COMMITTEE REPORT
In fulfilling its responsibilities, our Compensation Committee has reviewed and discussed the
Compensation Discussion and Analysis with our management. Based on this review and discussion, the
Compensation Committee recommended to the Board of Directors that the Compensation Discussion and
Analysis be included in this report.
E.L. Henry (Chairman)
Fenner R. Weller, Jr.
C. Mark Pearson
-28-
COMPENSATION TABLES AND ADDITIONAL INFORMATION
The following table sets forth a summary of compensation paid to our Chief Executive Officer,
Chief Operating Officer, Chief Accounting Officer and the two other most highly paid persons
serving as executive officers for the years ended December 31, 2007 and 2006. In addition, a former
executives compensation is presented.
Summary Compensation Table
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Change in |
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Pension |
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Value and |
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Nonqualified |
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All |
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Non-Equity |
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Deferred |
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Other |
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Name and |
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Stock |
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Option |
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Incentive Plan |
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Compensation |
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Compen- |
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Principal |
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Salary |
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Bonus |
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Awards |
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Awards |
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Compensation |
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Earnings |
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sation |
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Total |
Position |
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Year |
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($) |
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($) |
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($) |
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($) |
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($) |
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($) |
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($) |
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($) |
Joseph A. Reeves Jr. |
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2007 |
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545,059 |
(1) |
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782,711 |
(2) |
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492,679 |
(3) |
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1,820,449 |
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CEO & Chairman of the |
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2006 |
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521,587 |
(1) |
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781,733 |
(2) |
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551,924 |
(4) |
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1,855,244 |
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Board of Directors |
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Michael J. Mayell |
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2007 |
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545,059 |
(1) |
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782,711 |
(2) |
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492,679 |
(3) |
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1,820,449 |
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COO & President |
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2006 |
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521,587 |
(1) |
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781,733 |
(2) |
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551,924 |
(4) |
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1,855,244 |
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Lloyd V. DeLano |
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2007 |
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244,422 |
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451,019 |
(5) |
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14,625 |
(6) |
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710,066 |
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CAO & Sr. Vice President |
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2006 |
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211,021 |
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759,890 |
(5) |
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14,359 |
(6) |
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985,270 |
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Alan S. Pennington |
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2007 |
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232,003 |
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450,394 |
(7) |
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14,625 |
(6) |
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697,022 |
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VP Business Development |
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2006 |
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217,233 |
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759,567 |
(7) |
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14,300 |
(6) |
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991,100 |
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A. Dale Breaux, |
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2007 |
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219,000 |
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261,627 |
(8) |
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14,625 |
(6) |
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495,252 |
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VP Operations |
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Thomas J. Tourek |
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2007 |
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382,500 |
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285,402 |
(10) |
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667,902 |
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Former VP
Exploration(9) |
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2006 |
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322,598 |
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447,741 |
(10) |
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770,339 |
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1. |
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Salary for Messrs. Reeves and Mayell includes $400,000 each, which they each elected to
contribute to the DCP in each of 2006 and 2007. See also Narrative to Summary
Compensation Table Deferred Compensation Plan below and footnotes (3) and (4) to this
table below. |
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2. |
|
Bonus amounts for Messrs. Reeves and Mayell include $760,000 each in bonus payments
required to be paid by the Company under their employment agreements, in each of 2006 and
2007. For a description of these contracts, see Potential Payments Upon |
-29-
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Termination or Change-in-Control below. The totals also include $22,710 paid to each of
Messrs. Reeves and Mayell under our Christmas bonus program in 2007, and $21,733 paid to
each in 2006 under the same program. |
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3. |
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Includes $400,000 in Company matching contributions of notional stock to each of
Messrs. Reeves and Mayells deferred compensation accounts, $14,625 in Company matching
contributions of stock to each of their 401(k) savings account, and $78,054 which
represents the appraised value of net profits interest assignments made to each of them
during 2007. For further information, see Narrative to Summary Compensation Table Net
Profits Interests. The appraisals are provided by a third party, and are based on the
value of the net profits interest at the date of the assignment. |
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4. |
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Includes $400,000 in Company matching contributions of notional stock to each of
Messrs. Reeves and Mayells deferred compensation accounts, $14,300 in Company matching
contributions of stock to each of their 401(k) savings accounts, and $137,624 which
represents the appraised value of net profits interest assignments made to each of them
during 2006. |
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5. |
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Includes $440,602 and $750,515 for bonus paid to Mr. DeLano under the Management Plan
in 2007 and 2006, respectively. Also includes $10,417 and $9,375 bonus paid under our
Christmas bonus plan in 2007 and 2006, respectively. |
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6. |
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Represents Company matching contributions of stock to the named executive officers
401(k) savings account. |
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7. |
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Includes $440,602 and $750,515 for bonus paid to Mr. Pennington under the Management
Plan in 2007 and 2006, respectively. Also includes $9,792 and $9,052 bonus paid under our
Christmas bonus plan in 2007 and 2006, respectively. |
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8. |
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Includes $252,253 for bonus paid to Mr. Breaux under the Management Plan and $9,375
bonus paid under our Christmas plan. |
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9. |
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Mr. Tourek is no longer serving as Vice President of Exploration, although he continues
his work with the Company in a non-executive capacity. |
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10. |
|
Includes $275,402 and $437,741 for bonus paid to Mr. Tourek under the Management Plan
in 2007 and 2006, respectively. Also includes $10,000 bonus paid under our Christmas bonus
plan in each of 2007 and 2006. |
Grants of Plan-Based Awards
We granted no plan-based awards to the named executive officers during 2007 or in recognition
of 2007 performance. Therefore this table is not presented.
NARRATIVE TO SUMMARY COMPENSATION TABLE
Employment Agreements
During 2007, we had employment agreements with five of our named executive officers, which are
summarized under the caption Potential Payments Upon Termination or Change-in-Control below.
-30-
Net Profits Interests
We granted net profits interests in Company properties to our CEO and COO under the terms of
substantially identical NPI Agreements with each of Messrs. Reeves and Mayell that became effective
January 1, 1994. Under the NPI Agreements, Messrs. Reeves and Mayell were each assigned a 2% net
profits interest in production from each property in which the Company has acquired a mineral
interest. The assignment covers all properties on which the Company expends funds during the term
of employment by the assignee (Mr. Reeves or Mr. Mayell). The 2% interest is proportional to the
total mineral interest of the Company in the property, if less than 100%. These permanent
assignments of real property interests are not subject to vesting, nor to continued employment with
the Company.
In April 2008, the Company terminated the NPI Agreements. See 2008 Compensation for Chief
Executive Officer and Chief Operating Officer above.
A net profits interest pays the owner his or her proportionate share of revenue from sales of
production from a given property, less the costs of operating the leasehold (including customarily
allowed general and administrative expenses). It does not include depreciation, depletion or other
forms of capital costs. It does not include gains or losses from hedging activities. Net profits
payments are typically paid for all wells in which a given party has an interest, on a monthly
basis, and will continue so long as the property produces.
In the Summary Compensation Table above, the value included for the Net Profits Interests has
been computed by a third party appraiser as of the assignment date for the individual property. The
assignment date is typically early in the process of creating a prospect for potential exploration.
The appraised values are estimated and thus may be higher or lower than the eventual values
realized. After an NPI has been granted, any successful wells drilled with respect to that NPI may
continue to produce oil and natural gas for a number of years. Therefore, the cumulative NPI
payments from all such prior wells in any given year reflects the total from NPIs granted over many
years. As a result of approximately 15 years of accumulating property interests under the NPI
Agreements, along with significant increases in oil and natural gas prices, the long-term success
of the Companys drilling program over that time and the higher number of wells drilled, the
revenues from the wells drilled on properties in which Mr. Reeves and Mr. Mayell have been granted
interests have become significant.
The property interests granted under the NPI Agreements are owned by Messrs. Reeves and Mayell
from the time of the grant and are not owned by the Company. Consequently, Mr. Reeves and Mr.
Mayells NPI payments from such wells are not revenues of the Company, and the payments to Messrs.
Reeves and Mayell with respect to such wells are not expenses of the Company. The Company does,
however, recognize as compensation expense an amount equal to the appraised value of the NPI
interest as of the time of the grant for the individual property, and that amount is reflected in
the Summary Compensation Table above. In any given year subsequent to the time of the grant, the
sum total of Mr. Reeves and Mr. Mayells portion of NPI payments attributable to the sum of all of
the grants over the last 15 years represents the cumulation of initial and subsequent drilling
activity on all of the NPI properties (to the extent such properties have continued to produce) and
may reflect significant price increases over that time, depending on the age of the well.
-31-
Although the NPI payment amounts subsequent to the time of the grant are not compensation
payments from the Company since the grants are owned by the individuals, the Compensation Committee
considered the amounts of such payments to the CEO and COO in 2007 and 2006, based on information
provided by Messrs. Reeves and Mayell, in evaluating the prior overall compensation package and in
making its recommendations for the new compensation program.
Well Bonus Plans
We provide profit sharing opportunities to all of our employees other than the CEO and the COO
through well bonus plans. Our named executive officers, other than Messrs. Reeves and Mayell, each
participate in The Meridian Resource Corporation Management Well Bonus Plan (the Management
Plan). Messrs. Reeves and Mayell administer the Management Plan. Neither Messrs. Reeves nor Mayell
participated in the Management Plan during 2007.
Under the terms of the Management Plan, which was adopted in 1997, participating employees
receive a cash bonus computed with reference to the net profits of a pool of wells. Net profits are
calculated as the proportionate share of revenue from sales of production from a given property,
less the costs of operating the leasehold (including customarily allowed general and administrative
expenses). It does not include depreciation, depletion or other forms of capital cost. The
Executive Committee, composed of Messrs. Reeves and Mayell, at its sole discretion, designates the
wells to be included in the program and assigns a percentage (usually 100%) of the net profits of
each designated well to form the bonus pool for that well. In practice, all wells drilled have
typically been designated. The Executive Committee also assigns a participation factor to each
employee in the Management Plan (ranging from 0.1% to 0.5%), based on his or her level of
responsibility in the Company. For each individual, this factor is applied to the bonus pool of
each designated well in which he or she participates. In practice, an employee participates in all
designated wells spudded during the participants employment with the Company. The total of all
such participations for a given individual may be paid in either cash or common stock of the
Company and is currently paid in the form of a cash bonus. The participation factors for each of
Messrs. DeLano, Pennington, Breaux and Tourek are 1/4th of 1%.
Under the terms of their employment agreements with us and the Management Plan, Messrs.
DeLano, Pennington, and Breaux are entitled to continue to receive bonuses from the Management Plan
after termination of their employment for the wells in which they were participating as of the
employment termination date.
Other well bonus plans are available to other employees. These include The Meridian Resource
Corporation TMR Employees Trust Well Bonus Plan and The Meridian Resource Corporation Geoscientist
Well Bonus Plan. All employees participate in one of the well bonus plans.
Deferred Compensation Plan
In 1996, we adopted a deferred compensation plan (DCP) applicable specifically to our CEO
and COO, Messrs. Reeves and Mayell. Under the terms of the DCP, Messrs. Reeves and
-32-
Mayell could defer any portion of their salary and/or bonus and receive the right to shares of
restricted stock in return for such deferral. The Company matched such deferrals on a one-for-one
basis, subject to one-year vesting terms (shares vest evenly over the twelve months). No actual
shares are issued and the executive officer has no rights with respect to any shares unless and
until there is a distribution. No actual shares may be issued until the employees death,
retirement, or termination of employment. Termination of the agreement by the Company also triggers
issuances of shares. Until such distribution of actual shares, the value of the notional shares is
subject to the general credit of the Company and the market value of our common stock.
The right to the number of shares credited to each executive officer on the basis of his
deferred compensation is tracked in a notional account. The right to the number of notional shares
granted in lieu of the deferred cash compensation is based on the market price of our common stock,
which we update at six-month intervals. We also track the notional shares under our 2007 Long-Term
Incentive Plan, reducing the balance of shares available for issuance under that plan for each
notional share granted under the DCP.
The pricing used to determine the number of notional shares in 2007 was $3.09 for the first
six months of the year (the closing price of our common stock on December 29, 2006, the last
trading day of that year) and $3.02 for the second six months of the year (the closing price of our
common stock on June 29, 2007, the last trading day of that month). The number of notional shares
credited to each of Messrs. Reeves and Mayells deferred compensation accounts was 261,572 for
2007, which includes the Company matching contribution. Of the 130,786 notional shares provided by
the Companys matching contribution to each of Messrs. Reeves and Mayell, 53,868 have not vested.
For further information, see Non-Qualified Deferred Compensation below.
Long-Term Incentive Plans
Our 1997 Plan authorized 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 1997
Plan expired by its terms on May 1, 2007 and on June 21, 2007, shareholders approved the 2007
Long-Term Incentive Plan (2007 Plan).
-33-
Outstanding Equity Awards at Year End
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Plan |
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Plan Awards: |
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Joseph A. Reeves,
Jr. |
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1,500,000 |
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3.375 |
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8/26/2008 |
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Michael J. Mayell |
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1,500,000 |
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3.375 |
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Lloyd V. DeLano |
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25,000 |
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3.375 |
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Alan S. Pennington |
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5,000 |
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3.375 |
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A. Dale Breaux |
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15,000 |
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3.000 |
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7/24/2012 |
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1. |
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Excludes (i) the warrants (the General Partner Warrants) granted to each of Messrs.
Reeves and Mayell in October 1990 in connection with the Companys 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, 2007, based on the difference between the market price of
the Common Stock at December 31, 2007 and the exercise price of the respective warrants,
was $1,542,393 for each of Messrs. Reeves and Mayell, and the total number of warrants
outstanding was 1,618,258 for each of Messrs. Reeves and Mayell. For further information on
the warrants, please see Note 10 to the financial statements included in our Form 10-K for
the year ended December 31, 2007. |
With the exception of Mr. Penningtons stock options, all stock options granted were from the
1997 Plan. Mr. Penningtons grant was from the 1995 Plan. All stock options listed in the table
utilized a three-year vesting schedule (25% on the date of grant, and 25% on each of the first,
second, and third anniversaries of the grant date). All stock options listed are fully vested.
Option Exercises and Stock Vested
No stock options were exercised during 2007. See Narrative to Summary Compensation Table
Deferred Compensation Plan above.
Pension Benefits
We have no pension benefits other than the Company contribution to the employees 401(k)
savings plan.
-34-
Nonqualified Deferred Compensation
The following table provides information relating to our Deferred Compensation Plan (DCP),
which during 2007 was provided only to Messrs. Reeves and Mayell. For details regarding the DCP,
see Narrative to Summary Compensation Table Deferred Compensation Plan above.
In April 2008, the Company terminated the DCP. See 2008 Compensation for Chief Executive
Officer and Chief Operating Officer above.
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in 2007(1) |
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in 2007(2) |
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at 12/31/07(4) |
Name |
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Joseph A. Reeves, Jr. |
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400,000 |
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400,000 |
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(2,777,504 |
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3,939,241 |
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Michael J. Mayell |
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400,000 |
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400,000 |
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(2,535,046 |
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3,596,390 |
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1. |
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Amounts in this column reflect 2007 deferrals of salary, which are included in totals
reported in the Salary column of the Summary Compensation Table. Messrs. Reeves and
Mayell were each credited a total of 130,786 notional shares for these 2007 salary
deferrals. |
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Company contributions reflect 2007 Company matching contributions to the salary
deferrals made in 2007. These amounts are included in the totals reported on the Summary
Compensation Table in the All Other Compensation column. The matching contributions
resulted in a total of 130,786 notional shares credited to the account of each Messrs.
Reeves and Mayell. |
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3. |
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Aggregate earnings (losses) reflect the change in the value of the participants
deferred compensation account which is not related to deferrals or matching contributions
in 2007, and is solely the result of movements in the price of our common stock. |
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4. |
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The aggregate balance at December 31, 2007 reflects the total notional shares credited
to the participants deferred compensation account since his participation began in 1996,
valued at the closing price of our common stock on December 31, 2007, the last trading day
of the year, which was $1.81. The total number of notional shares in Messrs. Reeves and
Mayells accounts at December 31, 2007 was 2,176,376 and 1,986,956, respectively. Of these
totals, 53,868 notional shares, valued at $97,501 are unvested for each Messrs. Reeves and
Mayell. These notional shares are the result of the 2007 Company matching contribution,
which, under the terms of the DCP, vest evenly over the twelve month period after the
matching contribution is made. In years prior to 2006, contributed amounts, inclusive of
both the participants deferred compensation and the Company matching contribution, were
reported on the Summary Compensation Table under the |
-35-
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heading Long-Term Compensation / Restricted Stock Award. For 2006 and 2007, the
participants deferred compensation is reported on the Summary Compensation Table in the
Salary column, and the Company matching contribution is reported in the All Other
Compensation column. |
Potential Payments Upon Termination or Change-in-Control
Employment Agreement with Joseph A. Reeves, Jr., Deferred Compensation Plan and NPI Agreement
On April 29, 2008, Mr. Reeves and the Company entered into a new employment agreement. The
new employment agreement does not provide for any payments upon a change-in-control.
Under the new employment agreement, upon the termination of Mr. Reeves employment other than
for death, disability or good cause, or if Mr. Reeves terminated his employment for good reason:
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(a) |
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we would pay his estate all base salary payments and accrued vacation pay then due
him under the new employment agreement through the date of termination, which is December
29, 2008; |
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for the remainder of the term of the employment agreement and until October 31, 2010,
we would continue Mr. Reeves and his familys benefits under our benefit plans and other
fringe benefits he may have been receiving at the time of termination. |
Under the new employment agreement, good reason is generally defined as:
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a change in the nature or scope of his duties or responsibilities; |
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any failure by us to pay any form of compensation stated in his employment
agreement; |
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requiring him to be based at any office or location 30 miles or more from our
current location in Houston, Texas, other than travel reasonably required in the
performance of his responsibilities; |
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any purported termination by us of his employment other than due to death,
disability or for good cause; or |
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any failure by us to require our successor to assume the terms of his employment
agreement. |
Under the new employment agreement, upon the termination of Mr. Reeves employment for death
or disability:
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we would pay his estate all salary and accrued vacation payments then due him under
his new employment agreement through the date of termination and for the remainder of the
employment period; |
-36-
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(b) |
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for the remainder of the employment period and until October 31, 2010, his family
would continue to receive benefits provided by the Company at least equal to those that
would have been provided if his employment had not been terminated. |
Under the new employment agreement, good cause is generally defined as:
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his conviction for a felony that is no longer subject to direct appeal; |
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he is adjudicated to be mentally incompetent so as to affect his ability to serve us
and such adjudication is no longer subject to direct appeal; or |
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he has been found guilty of fraud or willful misconduct so as to materially damage
us and such finding is no longer subject to direct appeal. |
The following discussion relates to Mr. Reeves agreements that were in effect during 2007 and
reflects payments that would have been made under those agreements in the circumstances described.
Those agreements were terminated in April 2008. For more information on agreements entered into in
2008, see 2008 Compensation for Chief Executive Officer and Chief Operating Officer above.
We had an employment agreement, dated August 18, 1993, with Mr. Joseph A. Reeves, Jr., our
Chairman of the Board during 2007 and Chief Executive Officer. The employment agreement was for a
term of three years, renewable annually for a term to extend three years from each renewal date.
The employment agreement provided for a base salary with annual increases consistent with prior
increases. Mr. Reeves base salary payments were $545,059 in 2007. Under the agreement, base salary
could not be reduced. In addition, the agreement provided for 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. The agreement also
included provisions relating to termination benefits.
Under the employment agreement with Mr. Reeves, the Company entered into a Deferred
Compensation Plan (DCP), which controlled the rights to shares of our common stock and the
distribution of the shares accrued in the deferred compensation account of the participants through
previous deferrals of compensation, including distribution of matching shares provided by the
Company. For further information on the DCP, see Narrative to Summary Compensation Table
Deferred Compensation Plan above.
Both the prior employment agreement and the DCP provided for different payouts and
distributions under differing circumstances of termination, each included in the analysis below.
The employment agreement provided for a tax gross-up payment to be made to Mr. Reeves if he
incurred excise tax from any payments made to him by the Company under any agreement. The tax
gross-up payment is intended to cover the costs of this additional excise tax to insure that he
receives, after tax, the total benefit intended by his employment agreement. We have included in
the analysis below, the estimated value of such a gross-up payment, only under those circumstances
in which we expect such a payment would be required of the Company.
-37-
Termination of Employment for Death
Upon the termination of Mr. Reeves employment because of death:
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we would pay his estate all payments then due him under his employment agreement
through the date of termination; |
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(b) |
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we would pay his estate under his employment agreement a prorated annual bonus based
on the bonus paid in the prior year; |
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(c) |
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we would distribute to his estate, in shares of our common stock, any compensation he
previously deferred, and all matching amounts accrued under the DCP, regardless of vesting
status on the date of death; |
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(d) |
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his family would continue to receive benefits provided by the Company to surviving
families of key employees; and |
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(e) |
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we would continue to convey to his estate a 2% net profits interest in properties
existing at date of termination, depending on the activities of the Company with regard to
each of those properties on an individual basis. |
If Mr. Reeves employment were to have terminated on December 31, 2007, because of death, we
estimate that the value of the payments and benefits described in clauses (a), (b) and (c) above he
would have been eligible to receive is as follows: (a) $-0-; (b) $-0-; and (c) 2,176,376 shares of
our common stock valued at $3,939,241 (which reflects the current value of amounts deferred and
reported in previous years), with an aggregate value of $3,939,241. In addition, item (e) is
estimated to be valued at approximately $336,000, based on the total value of net profits interests
conveyed to Mr. Reeves in the three most recent fiscal years. Based on the terms of the NPI
Agreement, such conveyances would have been made over a period of years after termination,
depending on the activity with regard to each property.
Termination of Employment for Good Cause
Upon the termination of Mr. Reeves employment for Good Cause:
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we would pay him all payments then due him under his employment agreement through the
date of termination; |
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we would pay him under his prior employment agreement a prorated annual bonus based
on the bonus paid in the prior year; |
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(c) |
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we would distribute to him, in shares of our common stock, any compensation he
previously deferred under the DCP, and he will forfeit all notional shares credited to his
deferred compensation account as Company matching grants, regardless of their vesting
status on the date of termination; and |
-38-
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we would continue to convey to him a 2% net profits interest in properties existing
at date of termination, depending on the activities of the Company with regard to each of
those properties on an individual basis. |
If Mr. Reeves employment were to have terminated on December 31, 2007, for Good Cause, we
estimate that the value of the payments and benefits described in clauses (a), (b) and (c) above he
would have been eligible to receive is as follows: (a) $-0-; (b) $-0-; and (c) 1,088,188 shares of
our common stock valued at $1,969,620 (which reflects the current value of amounts deferred and
reported in previous years), with an aggregate value of $1,969,620. In addition, item (d) is
estimated to be valued at approximately $336,000, based on the total value of net profits interests
conveyed to Mr. Reeves in the three most recent fiscal years. Based on the terms of the NPI
Agreement, such conveyances would have been made over a period of years after termination,
depending on the activity with regard to each property.
Good Cause was generally defined in Mr. Reeves prior employment agreement as:
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his conviction for a felony that is no longer subject to direct appeal; |
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he is adjudicated to be mentally incompetent so as to affect his ability to serve us
and such adjudication is no longer subject to direct appeal; or |
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he has been found guilty of fraud or willful misconduct so as to materially damage
us and such finding is no longer subject to direct appeal. |
Cause was generally defined in the DCP as discharge for reasons involving fraud,
embezzlement, theft, commission of a felony, proven dishonesty in the course of employment which
damaged the Company, or disclosure of trade secrets.
Termination of Employment by Mr. Reeves for Good Reason, or by us for other than death or Good
Cause
If we had terminated Mr. Reeves employment for any reason other than death or Good Cause, or
if Mr. Reeves had terminated his employment for Good Reason:
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we would pay him his current base salary for the remainder of the employment period
under the employment agreement; |
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(b) |
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we would pay him under his employment agreement an amount equal to the last annual
bonus paid to him; |
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(c) |
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we would pay him under his employment agreement two times the sum of his annual base
salary and last annual bonus; |
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we would distribute to him, in shares of our common stock, all compensation
previously deferred under the DCP, including all vested Company matching shares, but not
unvested shares; |
-39-
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we would pay him under his employment agreement a lump-sum retirement benefit equal
to the actuarial equivalent of the benefits lost by virtue of the early termination of his
employment; |
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for the remainder of the term of the employment agreement, we would continue Mr.
Reeves and his familys benefits under our benefit plans and other fringe benefits he may
have been receiving at the time of termination; and |
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we would continue to convey to him a 2% net profits interest in properties existing
at date of termination, depending on the activities of the Company with regard to each of
those properties on an individual basis. |
If Mr. Reeves employment had been terminated by us on December 31, 2007, for any reason other
than death or Good Cause, or if Mr. Reeves had terminated his employment for Good Reason, we
estimate that the value of the payments and benefits described in clauses (a), (b), (c), (d), (e)
and (f) above he would have been eligible to receive is as follows: (a) $1,433,580; (b) $782,711;
(c) $2,655,540 (d) 2,122,508 shares of our common stock valued at $3,841,739 (which reflects the
current value of amounts deferred and reported in previous years); (e) $38,750; and (f) $118,364,
with an aggregate value of $8,870,684. In addition, if such termination followed a change in
control, Mr. Reeves may be entitled to a tax gross up payment to cover the costs of additional
excise taxes. We estimate that payment would have been approximately $2,046,362, which would
increase the aggregate value of payment upon termination to $10,917,046.
The terms of the DCP required that in case of termination due to disability or retirement, all
shares in the deferred compensation account, including unvested shares, would be distributed to the
participant. As of December 31, 2007, the value of the 53,868 unvested notional shares in Mr.
Reeves deferred compensation account was $97,501. This would have increased total payments upon
termination from the $8,870,684 noted above to $8,968,185.
In addition, item (g) is estimated to be valued at approximately $336,000, based on the total
value of net profits interests conveyed to Mr. Reeves in the three most recent fiscal years. Based
on the terms of the NPI Agreement, such conveyances would have been made over a period of years
after termination, depending on the activity with regard to each property.
Good Reason was generally defined in Mr. Reeves prior employment agreement as:
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a change in the nature or scope of his duties or responsibilities; |
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any failure by us to pay any form of compensation stated in his employment
agreement; |
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requiring him to be based at any office or location 30 miles or more from our
current location in Houston, Texas, other than travel reasonably required in the
performance of his responsibilities; |
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any purported termination by us of his employment other than due to death or for
Good Cause; or |
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any failure by us to require our successor to assume the terms of his employment
agreement. |
Change of Control
The terms of the DCP provided that unvested notional shares in the participants deferred
compensation account would immediately vest upon a change in control of the Company. As of December
31, 2007, Mr. Reeves had a total of 53,868 notional shares unvested at a value of $97,501.
Employment Agreement with Michael J. Mayell, Deferred Compensation Plan and NPI Agreement
On April 29, 2008, Mr. Mayell and the Company entered into a new employment agreement. The new
employment agreement does not provide for any payments upon a change-in-control.
Under the new employment agreement, upon the termination of Mr. Mayells employment other than
for death, disability or good cause, or if Mr. Mayell terminated his employment for good reason:
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(a) |
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we would pay his estate all base salary payments and accrued vacation pay then due
him under the new employment agreement through the date of termination, which is December
29, 2008; |
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(b) |
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for the remainder of the term of the employment agreement and until October 31, 2010,
we would continue Mr. Mayells and his familys benefits under our benefit plans and other
fringe benefits he may have been receiving at the time of termination. |
Under the new employment agreement, good reason is generally defined as:
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a change in the nature or scope of his duties or responsibilities; |
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any failure by us to pay any form of compensation stated in his employment
agreement; |
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requiring him to be based at any office or location 30 miles or more from our
current location in Houston, Texas, other than travel reasonably required in the
performance of his responsibilities; |
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any purported termination by us of his employment other than due to death,
disability or for good cause; or |
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any failure by us to require our successor to assume the terms of his employment
agreement. |
Under the new employment agreement, upon the termination of Mr. Mayells employment for death
or disability:
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(a) |
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we would pay his estate all salary and accrued vacation payments then due him under
his new employment agreement through the date of termination and for the remainder of the
employment period; |
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(b) |
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for the remainder of the employment period and until October 31, 2010, his family
would continue to receive benefits provided by the Company at least equal to those that
would have been provided if his employment had not been terminated. |
Under the new employment agreement, good cause is generally defined as:
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his conviction for a felony that is no longer subject to direct appeal; |
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he is adjudicated to be mentally incompetent so as to affect his ability to serve us
and such adjudication is no longer subject to direct appeal; or |
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he has been found guilty of fraud or willful misconduct so as to materially damage
us and such finding is no longer subject to direct appeal. |
The following discussion relates to Mr. Mayells agreements that were in effect during 2007
and reflects payments that would have been made under those agreements in the circumstances
described. Those agreements were terminated in April 2008. For more information on agreements
entered into in 2008, see 2008 Compensation for Chief Executive Officer and Chief Operating
Officer above.
We had an employment agreement, dated August 18, 1993, with Mr. Michael J. Mayell our
President and Chief Operating Officer. The employment agreement was for a term of three years,
renewable annually for a term to extend three years from each renewal date. The employment
agreement provided for a base salary with annual increases consistent with prior increases. Mr.
Mayells base salary payments were $545,059 in 2007. Under the agreement, base salary could not be
reduced. In addition, the agreement provided for 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. The agreement also
included provisions relating to termination benefits.
Under the prior employment agreement with Mr. Mayell, the Company entered into a Deferred
Compensation Plan (DCP), which controlled the rights to shares of our common stock and the
distribution of the shares accrued in the deferred compensation account of the participants through
previous deferrals of compensation, including distribution of matching shares provided by the
Company. For further information on the DCP, see Narrative to Summary Compensation Table
Deferred Compensation Plan above.
Both the prior employment agreement and the DCP provide for different payouts and
distributions under differing circumstances of termination, each included in the analysis below.
The employment agreement provided for a tax gross-up payment to be made to Mr. Mayell if he
incurred excise tax from any payments made to him by the Company under any agreement. The tax
gross-up payment is intended to cover the costs of this additional excise tax to insure that he
receives, after tax, the total benefit intended by his employment agreement. We have included in
the analysis below, the estimated value of such a gross-up payment, only under those circumstances
in which we expect such a payment would be required of the Company.
-42-
Termination of Employment for Death
Upon the termination of Mr. Mayells employment because of death:
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(a) |
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we would pay his estate all payments then due him under his employment agreement
through the date of termination; |
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(b) |
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we would pay his estate under his employment agreement a prorated annual bonus based
on the bonus paid in the prior year; |
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(c) |
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we would distribute to his estate, in shares of our common stock, any compensation he
previously deferred, and all matching amounts accrued under the DCP, regardless of vesting
status on the date of death; |
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(d) |
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his family would continue to receive benefits provided by the Company to surviving
families of key employees; and |
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(e) |
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we would continue to convey to his estate a 2% net profits interest in properties
existing at date of termination, depending on the activities of the Company with regard to
each of those properties on an individual basis. |
If Mr. Mayells employment were to have terminated on December 31, 2007, because of death, we
estimate that the value of the payments and benefits described in clauses (a), (b) and (c) above he
would have been eligible to receive is as follows: (a) $-0-; (b) $-0-; and (c) 1,986,956 shares of
our common stock valued at $3,596,390 (which reflects the current value of amounts deferred and
reported in previous years), with an aggregate value of $3,596,390. In addition, item (e) is
estimated to be valued at approximately $336,000, based on the total value of net profits interests
conveyed to Mr. Mayell in the three most recent fiscal years. Based on the terms of the NPI
Agreement, such conveyances would have been made over a period of years after termination,
depending on the activity with regard to each property.
Termination of Employment for Good Cause
Upon the termination of Mr. Mayells employment for Good Cause:
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(a) |
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we would pay him all payments then due him under his prior employment agreement
through the date of termination; |
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(b) |
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we would pay him under his prior employment agreement a prorated annual bonus based
on the bonus paid in the prior year; |
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(c) |
|
we would distribute to him, in shares of our common stock, any compensation he
previously deferred under the DCP, and he would forfeit all notional shares credited to
his deferred compensation account as Company matching grants, regardless of their vesting
status on the date of termination; and |
-43-
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(d) |
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we would continue to convey to him a 2% net profits interest in properties existing
at date of termination, depending on the activities of the Company with regard to each of
those properties on an individual basis. |
If Mr. Mayells employment were to have terminated on December 31, 2007, for Good Cause, we
estimate that the value of the payments and benefits described in clauses (a), (b) and (c) above he
would have been eligible to receive is as follows: (a) $-0-; (b) $-0-; and (c) 993,478 shares of
our common stock valued at $1,798,195 (which reflects the current value of amounts deferred and
reported in previous years), with an aggregate value of $1,798,195. In addition, item (d) is
estimated to be valued at approximately $336,000, based on the total value of net profits interests
conveyed to Mr. Mayell in the three most recent fiscal years. Based on the terms of the NPI
Agreement, such conveyances would have been made over a period of years after termination,
depending on the activity with regard to each property.
Good Cause was generally defined in Mr. Mayells prior employment agreement as:
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his conviction for a felony that is no longer subject to direct appeal; |
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he is adjudicated to be mentally incompetent so as to affect his ability to serve us
and such adjudication is no longer subject to direct appeal; or |
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he has been found guilty of fraud or willful misconduct so as to materially damage
us and such finding is no longer subject to direct appeal. |
Cause was generally defined in the DCP as discharge for reasons involving fraud,
embezzlement, theft, commission of a felony, proven dishonesty in the course of employment which
damaged the Company, or disclosure of trade secrets.
Termination of Employment by Mr. Mayell for Good Reason, or by us for other than death or Good
Cause
If we had terminated Mr. Mayells employment for any reason other than death or Good Cause, or
if Mr. Mayell had terminated his employment for Good Reason:
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(a) |
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we would pay him his current base salary for the remainder of the employment period
under the Employment Agreement; |
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(b) |
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we would pay him an amount equal to the last annual bonus paid to him; |
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(c) |
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we would pay him two times the sum of his annual base salary and last annual bonus; |
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(d) |
|
we would distribute to him, in shares of our common stock, all compensation
previously deferred, including all vested Company matching shares, but not unvested
shares; |
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(e) |
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we would pay him a lump-sum retirement benefit equal to the actuarial equivalent of
the benefits lost by virtue of the early termination of his employment; |
-44-
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(f) |
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for the remainder of the term of the employment agreement, we would continue Mr.
Mayells and his familys benefits under our benefit plans and other fringe benefits he
may have been receiving at the time of termination; and |
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(g) |
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we would continue to convey to him a 2% net profits interest in properties existing
at date of termination, depending on the activities of the Company with regard to each of
those properties on an individual basis. |
If Mr. Mayells employment had been terminated by us on December 31, 2007, for any reason
other than death or Good Cause, or if Mr. Mayell had terminated his employment for Good Reason, we
estimate that the value of the payments and benefits described in clauses (a), (b), (c), (d), (e)
and (f) above he would have been eligible to receive is as follows: (a) $1,433,580; (b) $782,711;
(c) $2,655,540 (d) 1,933,088 shares of our common stock valued at $3,498,889 (which reflects the
current value of amounts deferred and reported in previous years); (e) $38,750; and (f) $122,169,
with an aggregate value of $8,531,639. In addition, if such termination followed a change in
control, Mr. Mayell may be entitled to a tax gross up payment to cover the costs of additional
excise taxes. We estimate that payment would have been approximately $2,048,055, which would
increase the aggregate value of payments upon termination to $10,579,694.
The terms of the DCP required that in case of termination due to disability or retirement, all
shares in the deferred compensation account, including unvested shares, would be distributed to the
participant. As of December 31, 2007, the value of the 53,868 unvested notional shares in Mr.
Mayells deferred compensation account was $97,501. This would have increased total payout from the
$8,531,639 noted above to $8,629,140.
In addition, item (g) is estimated to be valued at approximately $336,000, based on the total
value of net profits interests conveyed to Mr. Mayell in the three most recent fiscal years. Based
on the terms of the NPI Agreement, such conveyances would have been made over a period of years
after termination, depending on the activity with regard to each property.
Good Reason was generally defined in Mr. Mayells prior employment agreement as:
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a change in the nature or scope of his duties or responsibilities; |
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any failure by us to pay any form of compensation stated in his employment
agreement; |
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requiring him to be based at any office or location 30 miles or more from our
current location in Houston, Texas, other than travel reasonably required in the
performance of his responsibilities; |
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any purported termination by us of his employment other than due to death or for
Good Cause; or |
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any failure by us to require our successor to assume the terms of his employment
agreement. |
-45-
Change of Control
The terms of the DCP provided that unvested notional shares in the participants deferred
compensation account would immediately vest upon a change in control of the Company. As of December
31, 2007, Mr. Mayell had a total of 53,868 notional shares unvested at a value of $97,501.
Employment Agreement with Lloyd V. DeLano
We have an employment agreement, dated November 5, 1997, with Lloyd V. DeLano, our Senior Vice
President and Chief Accounting Officer. The employment agreement is for a term of one year,
renewable automatically for six-month terms unless terminated before the expiration of any
six-month term. The employment agreement provides for a base salary with annual increases in our
discretion. Mr. DeLanos base salary payments were $244,422 in 2007. In addition, the agreement
provides for annual bonuses at the discretion of our Board of Directors. Mr. DeLano is also a
participant in our Management Well Bonus Plan.
Termination of Employment Due to Death, Disability or for Cause
Upon the termination of Mr. DeLanos employment due to his death, disability or for cause, or
upon Mr. DeLanos voluntary termination of employment other than for good reason, we will pay him
all accrued but unpaid salary, vacation and sick leave benefits through the date of termination.
Termination of Employment Without Cause
If we terminate Mr. DeLanos employment without cause, we will pay him (a) all accrued but
unpaid salary, vacation and sick leave benefits through the date of termination and (b) his monthly
salary for the remainder of the then-existing term of his employment agreement.
If we had terminated Mr. DeLanos employment on December 31, 2007, without cause, we estimate
that the value of the payments and benefits described in clauses (a) and (b) above he would have
been eligible to receive is as follows: (a) $-0-; and (b) $83,333; with an aggregate value of
$83,333.
Termination of Employment for Good Reason
If Mr. DeLano terminates his employment for good reason, we will pay him (a) all accrued but
unpaid salary, vacation and sick leave benefits through the date of termination and (b) his monthly
salary for six months after the date of termination.
If Mr. DeLano had terminated his employment on December 31, 2007, for good reason, we estimate
that the value of the payments and benefits described in clauses (a) and (b) above he would have
been eligible to receive is as follows: (a) $-0-; and (b) $125,000; with an aggregate value of
$125,000.
-46-
Voluntary Termination by Mr. DeLano
If Mr. DeLano terminates his employment voluntarily other than for good reason, we will pay
him all accrued but unpaid salary, vacation and sick leave benefits through the date of
termination.
Termination of Employment after a Change of Control
If we terminate Mr. DeLanos employment within six months after a change of control, we will
pay him (a) all accrued but unpaid salary, vacation and sick leave benefits through the date of
termination and (b) his monthly salary for 18 months after the date of termination. If we had
terminated Mr. DeLanos employment on December 31, 2007 after a change of control, we estimate the
value of the payments and benefits described in clauses (a) and (b) above he would have been
eligible to receive is (a) $-0-; and (b) $375,000, with an aggregate value of $375,000.
Under Mr. DeLanos employment agreement, a change of control is generally defined as:
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acquisition by any person of more than 50% of our common stock; |
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certain changes in the composition of the individuals constituting a majority of the
members of the Board of Directors, except for changes approved by the existing Board; |
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a merger or other transaction, unless at least 50% of the voting power of the
surviving entity is held by at least 50% of the holders of our voting securities
immediately prior to the transaction; or |
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a sale of more than 50% of our assets. |
Termination by Mr. DeLano for good reason is generally defined as:
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our failure to pay Mr. DeLano in accordance with his employment agreement; |
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our failure to comply with any material provision of his employment agreement; or |
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cancellation of the Management Well Bonus Plan or Mr. DeLanos participation in that
plan. |
Termination by us of Mr. DeLano for cause is generally defined as:
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his conviction of a felony; |
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his failure or refusal to comply with our policies; |
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his engaging in conduct amounting to fraud, dishonesty, gross negligence, willful
misconduct or conduct that is unprofessional, unethical or detrimental to our
reputation; or |
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his failure to perform his duties under his employment agreement. |
-47-
Participation by Mr. DeLano in the Management Well Bonus Plan
If Mr. DeLanos employment is terminated for any reason, he will continue to receive payments
under the Management Well Bonus Plan to the extent that we receive revenue from wells that were
included in the bonus pool at the time of termination of employment. If Mr. DeLanos employment had
terminated on December 31, 2007, we estimate the value of remaining payments to him from the
Management Well Bonus Plan to be $1,161,000, based on PV-10 prices at December 31, 2007.
Employment Agreement with Alan S. Pennington
We have an employment agreement, dated November 5, 1999, with Alan S. Pennington, our Vice
President of Business Development. The employment agreement is for a term of one year, renewable
automatically for six-month terms unless terminated before the expiration of any six-month term.
The employment agreement provides for a base salary with annual increases in our discretion. Mr.
Penningtons base salary payments were $232,003 in 2007. In addition, the agreement provides for
annual bonuses at the discretion of our Board of Directors. Mr. Pennington is also a participant in
our Management Well Bonus Plan.
Termination of Employment Due to Death, Disability or for Cause
Upon the termination of Mr. Penningtons employment due to his death, disability or for cause,
or upon Mr. Penningtons voluntary termination of employment other than for good reason, we will
pay him all accrued but unpaid salary, vacation and sick leave benefits through the date of
termination.
Termination of Employment Without Cause
If we terminate Mr. Penningtons employment without cause, we will pay him (a) all accrued but
unpaid salary, vacation and sick leave benefits through the date of termination and (b) his monthly
salary for the remainder of the then-existing term of his employment agreement.
If we had terminated Mr. Penningtons employment on December 31, 2007, without cause, we
estimate that the value of the payments and benefits described in clauses (a) and (b) above he
would have been eligible to receive is as follows: (a) $-0-; and (b) $78,333; with an aggregate
value of $78,333.
Termination of Employment for Good Reason
If Mr. Pennington terminates his employment for good reason, we will pay him (a) all accrued
but unpaid salary, vacation and sick leave benefits through the date of termination and (b) his
monthly salary for six months after the date of termination.
If Mr. Pennington had terminated his employment on December 31, 2007, for good reason, we
estimate that the value of the payments and benefits described in clauses (a) and (b) above he
would have been eligible to receive is as follows: (a) $-0-; and (b) $117,500; with an aggregate
value of $117,500.
-48-
Voluntary Termination by Mr. Pennington
If Mr. Pennington terminates his employment voluntarily other than for good reason, we will
pay him all accrued but unpaid salary, vacation and sick leave benefits through the date of
termination.
Termination of Employment after a Change of Control
If we terminate Mr. Penningtons employment within six months after a change of control, we
will pay him (a) all accrued but unpaid salary, vacation and sick leave benefits through the date
of termination and (b) his monthly salary for 18 months after the date of termination. If we had
terminated Mr. Penningtons employment on December 31, 2007 after a change of control, we estimate
that the value of the payments and benefits described in clauses (a) and (b) above he would have
been eligible to receive is (a) $-0-; and (b) $352,500; with an aggregate value of $352,500.
Under Mr. Penningtons employment agreement, a change of control is generally defined as:
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acquisition by any person of more than 50% of our common stock; |
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certain changes in the composition of the individuals constituting a majority of the
members of the Board of Directors, except for changes approved by the existing Board; |
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a merger or other transaction, unless at least 50% of the voting power of the
surviving entity is held by at least 50% of the holders of our voting securities
immediately prior to the transaction; or |
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a sale of more than 50% of our assets. |
Termination by Mr. Pennington for good reason is generally defined as:
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our failure to pay Mr. Pennington in accordance with his employment agreement; |
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our failure to comply with any material provision of his employment agreement; or |
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cancellation of the Geoscientist Well Bonus Plan or Mr. Penningtons participation
in that plan. |
Termination by us of Mr. Pennington for cause is generally defined as:
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his conviction of a felony; |
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his failure or refusal to comply with our policies; |
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his engaging in conduct amounting to fraud, dishonesty, gross negligence, willful
misconduct or conduct that is unprofessional, unethical or detrimental to our
reputation; or |
-49-
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his failure to perform his duties under his employment agreement. |
Participation by Mr. Pennington in the Management Well Bonus Plan
If Mr. Penningtons employment is terminated for any reason, he will continue to receive
payments under the Management Well Bonus Plan to the extent that we receive revenue from wells that
were included in the bonus pool at the time of termination of employment. If Mr. Penningtons
employment had terminated on December 31, 2007, we estimate the value of remaining payments to him
from the Management Well Bonus Plan to be $1,161,000, based on PV-10 prices at December 31, 2007.
Employment Agreement with A. Dale Breaux
We have an employment agreement, dated July 24, 2002, with A. Dale Breaux, our Vice President
of Operations. The employment agreement is for a term of one year, renewable automatically for
six-month terms unless terminated before the expiration of any six-month term. The employment
agreement provides for a base salary with annual increases in our discretion. Mr. Breauxs base
salary payments were $219,000 in 2007. In addition, the agreement provides for annual bonuses at
the discretion of our Board of Directors. Mr. Breaux is also a participant in our Management Well
Bonus Plan.
Termination of Employment Due to Death, Disability or for Cause
Upon the termination of Mr. Breauxs employment due to his death, disability or for cause, or
upon Mr. Breauxs voluntary termination of employment other than for good reason, we will pay him
all accrued but unpaid salary, vacation and sick leave benefits through the date of termination.
Termination of Employment Without Cause
If we terminate Mr. Breauxs employment without cause, we will pay him (a) all accrued but
unpaid salary, vacation and sick leave benefits through the date of termination and (b) his monthly
salary for the remainder of the then-existing term of his employment agreement.
If we had terminated Mr. Breauxs employment on December 31, 2007, without cause, we estimate
that the value of the payments and benefits described in clauses (a) and (b) above he would have
been eligible to receive is as follows: (a) $-0-; and (b) $14,516; with an aggregate value of
$14,516.
Termination of Employment for Good Reason
If Mr. Breaux terminates his employment for good reason, we will pay him (a) all accrued but
unpaid salary, vacation and sick leave benefits through the date of termination and (b) his monthly
salary for six months after the date of termination.
If Mr. Breaux had terminated his employment on December 31, 2007, for good reason, we estimate
that the value of the payments and benefits described in clauses (a) and (b) above he
-50-
would have been eligible to receive is as follows: (a) $-0-; and (b) $112,500; with an
aggregate value of $112,500.
Voluntary Termination by Mr. Breaux
If Mr. Breaux terminates his employment voluntarily other than for good reason, we will pay
him all accrued but unpaid salary, vacation and sick leave benefits through the date of
termination.
Termination of Employment after a Change of Control
If we terminate Mr. Breauxs employment within six months after a change of control, we will
pay him (a) all accrued but unpaid salary, vacation and sick leave benefits through the date of
termination and (b) his monthly salary for 18 months after the date of termination. If we had
terminated Mr. Breauxs employment on December 31, 2007 after a change of control, we estimate that
the value of the payments and benefits described in clauses (a) and (b) above he would have been
eligible to receive is (a) $-0-; and (b) $337,500; with an aggregate value of $337,500.
Under Mr. Breauxs employment agreement, a change of control is generally defined as:
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acquisition by any person of more than 50% of our common stock; |
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certain changes in the composition of the individuals constituting a majority of the
members of the Board of Directors, except for changes approved by the existing Board; |
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a merger or other transaction, unless at least 50% of the voting power of the
surviving entity is held by at least 50% of the holders of our voting securities
immediately prior to the transaction; or |
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a sale of more than 50% of our assets. |
Termination by Mr. Breaux for good reason is generally defined as:
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our failure to pay Mr. Breaux in accordance with his employment agreement; |
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our failure to comply with any material provision of his employment agreement; or |
Termination by us of Mr. Breaux for cause is generally defined as:
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his conviction of a felony; |
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his failure or refusal to comply with our policies; |
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his engaging in conduct amounting to fraud, dishonesty, gross negligence, willful
misconduct or conduct that is unprofessional, unethical or detrimental to our
reputation; or |
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his failure to perform his duties under his employment agreement. |
-51-
Participation by Mr. Breaux in the Management Well Bonus Plan
If Mr. Breauxs employment is terminated for any reason, he will continue to receive payments
under the Management Well Bonus Plan to the extent that we receive revenue from wells that were
included in the bonus pool at the time of termination of employment. If Mr. Breauxs employment had
terminated on December 31, 2007, we estimate the value of remaining payments to him from the
Management Well Bonus Plan to be $497,800 based on PV-10 prices at December 31, 2007.
Arrangement with Thomas J. Tourek
We had no employment agreement with Thomas J. Tourek, our former Senior Vice President of
Exploration, who worked for us as an independent contractor under an oral arrangement. In 2007, we
paid Mr. Tourek base compensation of $382,500. Mr. Tourek also participated in the Management Well
Bonus Plan.
-52-
DIRECTOR COMPENSATION
The following table summarizes compensation paid to non-employee directors for 2007. Messrs.
Reeves and Mayell are the only employee directors and they do not receive any additional
compensation for their service on the Board of Directors.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value and |
|
|
|
|
|
|
Fees Earned or |
|
|
|
|
|
|
|
|
|
Non-Equity |
|
Nonqualified |
|
|
|
|
|
|
Paid in |
|
Stock |
|
Option |
|
Incentive Plan |
|
Deferred |
|
All Other |
|
|
|
|
Cash |
|
Awards |
|
Awards(8) |
|
Compensation(8) |
|
Compensation |
|
Compensation |
|
Total |
Name |
|
($) |
|
($) |
|
($) |
|
($) |
|
Earnings |
|
($) |
|
($) |
E. L. Henry(1) |
|
|
46,500 |
|
|
|
|
|
|
|
28,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,367 |
|
Joe Kares(2) |
|
|
42,500 |
|
|
|
|
|
|
|
28,867 |
|
|
|
|
|
|
|
|
|
|
|
505,664 |
(9)(10) |
|
|
577,031 |
|
Gary A. Messersmith(3) |
|
|
41,000 |
|
|
|
|
|
|
|
28,867 |
|
|
|
|
|
|
|
|
|
|
|
613,181 |
(11)(12) |
|
|
683,048 |
|
C. Mark Pearson(4) |
|
|
48,000 |
|
|
|
|
|
|
|
13,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,731 |
|
John B. Simmons(5) |
|
|
60,000 |
|
|
|
|
|
|
|
53,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,129 |
|
David W. Tauber(6) |
|
|
59,500 |
|
|
|
|
|
|
|
36,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,079 |
|
Fenner R. Weller(7) |
|
|
59,000 |
|
|
|
|
|
|
|
63,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122,129 |
|
|
|
|
1. |
|
Mr. Henry is a Member of the Board Affairs Committee and is Chairman of the
Compensation Committee. On June 21, 2007, he was granted 15,000 options to purchase common
stock with a grant date fair value of $17,100. He holds options to purchase 30,000 shares
of our common stock. |
|
2. |
|
On June 21, 2007, Mr. Kares was granted 15,000 options to purchase common stock with a
grant date fair value of $17,100. He holds options to purchase 30,000 shares of our common
stock. |
|
3. |
|
On June 21, 2007, Mr. Messersmith was granted 15,000 options to purchase common stock
with a grant date fair value of $17,100. He holds options to purchase 30,000 shares of our
common stock. |
|
4. |
|
Dr. Pearson is a Member of the Board Affairs Committee and the Compensation Committee.
On June 21, 2007, he was granted 15,000 options to purchase common stock with a grant date
fair value of $17,100. Dr. Pearson holds options to purchase 30,000 shares of our common
stock. |
|
5. |
|
Mr. Simmons is Chairman of the Audit Committee. He holds options to purchase 45,000
shares of our common stock. |
-53-
|
|
|
6. |
|
Mr. Tauber is a Member of the Audit Committee and the Board Affairs Committee. Mr.
Tauber holds options to purchase 45,000 shares of our common stock. |
|
7. |
|
Mr. Weller is a Member of the Audit Committee and the Compensation Committee. Mr.
Weller holds options to purchase 45,000 shares of our common stock. |
|
8. |
|
Option awards are stated as the amount included in 2007 share-based compensation
expense for the option awards granted to each named director through the end of fiscal year
2007, including amounts attributable to grants in prior years. See Footnote 1 to the
Consolidated Financial Statements included in our 2007 Annual Report on Form 10-K for
assumptions used in valuing these awards, and the methodology for recognizing the related
expense. The expense has been modified in accordance with disclosure rules for this Item
402 of Regulation S-K, to eliminate forfeiture assumptions in computing the expense for the
year. There were no actual forfeitures during 2007 by any of the named directors. All
options are options to purchase our common stock. |
|
9. |
|
Includes $274,626 paid to Mr. Kares as a bonus under the Management Well Bonus Plan.
Mr. Kares will not participate in any new wells that are spud after
April 21, 2008 and that become part of the Management Well Bonus
Plan. He will continue to participate in the Plan with respect to
wells spudded on or before April 21, 2008.
See Narrative to Summary Compensation Table Well Bonus Plans for further information.
Mr. Kares participation in the plan is 1/4th of 1%. |
|
10. |
|
Includes $231,038 in fees paid to Kares & Cihlar, an accounting firm of which Mr. Kares
is a partner. The fees were for accounting services. |
|
11. |
|
Includes $440,602 paid to Mr. Messersmith as a bonus under the Management Well Bonus
Plan. Mr. Messersmith will not participate in any new wells that are
spud after April 21, 2008 and that become part of the Management
Well Bonus Plan. He will continue to participate in the Plan with
respect to wells spudded on or before April 21, 2008. See Narrative to Summary Compensation Table Well Bonus Plans for further
information. Mr. Messersmith participation in the plan is 1/4th of 1%. |
|
12. |
|
Includes a $100,000 payment to Gary A. Messersmith, PC, for corporate management of
legal affairs of the Company and representation under a month to month arrangement with the
Company, which arrangement was terminated as of April 22, 2008.
Under the terms of the agreement, Mr. Messersmith was paid $8,333 per month. Also
includes $72,579 in fees paid to Looper, Reed & McGraw, a law firm of which Mr. Messersmith
is a member. |
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 Companys 1995 Director Stock Option Plan (the 1995 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 1995 Director Plan will remain outstanding until such
options have been settled, terminated or forfeited. Under the 1995 Director Plan and the 2006
Non-Employee Directors Incentive Plan adopted by our shareholders, each non-
-54-
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 (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 Director Plan Option is five years
from the date of grant, and each Director Plan Option may be exercised in whole or in part at any
time after the date of grant; provided, however, that the option vests with respect to 25% of the
shares of Common Stock covered by such Director 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.
Mr. Messersmith and Mr. Kares have participated in the Management Well Bonus Plan since 1998
and 2002, respectively. Neither Mr. Messersmith nor Mr. Kares will participate in any new wells that are spud after April
21, 2008 and that become part of the Management Well Bonus Plan.
They will continue to participate in the Plan with respect to wells
spudded on or before April 21, 2008.
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 Companys
executive officers are made by the full Board of Directors, with each of Messrs. Reeves and Mayell
abstaining with respect to matters pertaining to himself. 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 2007 with respect to 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 himself.
-55-
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information, as of April 23, 2008, with respect to the number
and percentage of shares of Common Stock beneficially owned by our directors, the executive
officers named in the Summary Compensation Table in this Proxy Statement, and all of our executive
officers and directors as a group.
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
Shares |
|
|
|
|
Beneficially |
|
|
Name |
|
Owned (1) |
|
Percent |
|
|
|
|
|
|
|
|
|
Joseph A. Reeves, Jr. (2) |
|
|
5,825,549 |
|
|
|
6.15 |
% |
Michael J. Mayell (3) |
|
|
5,512,893 |
|
|
|
5.83 |
% |
Lloyd V. DeLano (4) |
|
|
90,554 |
|
|
|
* |
|
Alan S. Pennington (5) |
|
|
45,293 |
|
|
|
* |
|
A Dale Breaux (6) |
|
|
51,493 |
|
|
|
* |
|
E. L. Henry (7) |
|
|
31,750 |
|
|
|
* |
|
Joe E. Kares (8) |
|
|
18,750 |
|
|
|
* |
|
Gary A. Messersmith (9) |
|
|
32,222 |
|
|
|
* |
|
C. Mark Pearson (10) |
|
|
7,500 |
|
|
|
* |
|
David W. Tauber (11) |
|
|
43,790 |
|
|
|
* |
|
John B. Simmons (12) |
|
|
37,500 |
|
|
|
* |
|
Fenner R. Weller, Jr. (13) |
|
|
97,500 |
|
|
|
* |
|
G.M. Byrd Larberg |
|
|
11,000 |
|
|
|
* |
|
Paul Ching |
|
|
-0- |
|
|
|
|
|
All executive officers and
directors as a group (14
persons) (2), (3), (4), (5),
(6), (7), (8), (9), (10), (11),
(12), (13), (14) and (15) |
|
|
11,805,794 |
|
|
|
13.21 |
% |
|
|
|
* |
|
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 904,987 shares, 714,000 shares and 1,500,000 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 Companys stock option plans, respectively. Also includes
2,250,423 shares underlying deferred compensation arrangements. Mr. Reeves business address
is 1401 Enclave Parkway, Suite 300, Houston, Texas 77077. |
-56-
|
|
|
3. |
|
Includes 904,987 shares, 714,000 shares and 1,500,000 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 Companys stock option plans, respectively. Also includes
2,061,003 shares underlying deferred compensation arrangements. Mr. Mayells business address
is 1401 Enclave Parkway, Suite 300, Houston, Texas 77077. |
|
4. |
|
Includes 25,000 shares of Common Stock that Mr. DeLano has the right to acquire upon the
exercise of stock options. |
|
5. |
|
Includes 5,000 shares of Common Stock that Mr. Pennington has the right to acquire upon the
exercise of stock options. |
|
6. |
|
Includes 15,000 shares of Common Stock that Mr. Breaux has the right to acquire upon the
exercise of stock options. |
|
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 of Common Stock 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 7,500 shares of Common Stock that Mr. Pearson has the right to acquire upon the
exercise of stock options. Excludes 22,500 shares of Common Stock that are not exercisable
within 60 days. |
|
11. |
|
Includes 37,500 shares of Common Stock that Mr. Tauber has the right to acquire upon the
exercise of stock options. Excludes 7,500 shares underlying options that are not exercisable
within 60 days. |
|
12. |
|
Includes 37,500 shares of Common Stock that Mr. Simmons has the right to acquire upon the
exercise of stock options. Excludes 7,500 shares underlying options that are not exercisable
within 60 days. |
|
13. |
|
Includes 45,000 shares of Common Stock that Mr. Weller has the right to acquire upon the
exercise of stock options. |
|
14. |
|
Excludes 15,000 shares of Common Stock underlying options owned by Mr. Larberg that are not
exercisable within 60 days. |
|
15. |
|
Excludes 15,000 shares of Common Stock underlying options owned by Mr. Ching that are not
exercisable within 60 days |
-57-
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information, as of April 23, 2008, with respect to each
shareholder, other than directors and executive officers, known by us to beneficially own more than
5% of the Common Stock.
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
Shares |
|
|
|
|
Beneficially |
|
|
Name and Address of Beneficial Owner |
|
Owned |
|
Percent |
|
|
|
|
|
|
|
|
|
Donald Smith
& Co. (1)
152 West
57th
Street
New York, NY 10019 |
|
|
8,934,789 |
|
|
|
10.0 |
% |
|
|
|
|
|
|
|
|
|
Dimensional
Fund Advisors Inc. (2)
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401 |
|
|
7,319,360 |
|
|
|
8.19 |
% |
|
|
|
|
|
|
|
|
|
Barclays
Global Investors, NA (3)
45 Freemont Street
San Francisco, CA 94105 |
|
|
4,852,680 |
|
|
|
5.43 |
% |
|
|
|
|
|
|
|
|
|
Wellington Management Company, LLP (4)
75 State Street
Boston, MA 02109 |
|
|
9,282,600 |
|
|
|
10.39 |
% |
|
|
|
1. |
|
This information is based on information contained in a Schedule 13G filing made by Donald
Smith & Co., Inc. with the Securities and Exchange Commission on February 8, 2008. All
securities reported in this schedule are owned by advisory clients of Donald Smith & Co.,
Inc., no one of which, to the knowledge of Donald Smith & Co., Inc., owns more than 5% of the
class. |
|
2. |
|
This information is based on information contained in a Schedule 13G/A filing made by
Dimensional Fund Advisors Inc. (Dimensional) with the Securities and Exchange Commission on
February 6, 2008. 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. |
|
3. |
|
This information is based on information contained in a Schedule 13G filing made by Barclays
Global Investors, NA and Barclays Global Funds Advisors (Barclays) with the Securities and
Exchange Commission on February 5, 2008. |
|
4. |
|
This information is based on information contained in a Schedule 13G filing made by
Wellington Management Company, LLP, with the Securities and Exchange Commission on January 10,
2008. All securities reported in this schedule are owned by advisory clients of Wellington
Management Company, LLP, no one of which, to the knowledge of Wellington Management Company,
LLP, owns more than 5% of the class. |
-58-
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Participation Interests
In the ordinary course of business, we offer 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 our
executive officers and key employees with additional incentive to identify and develop successful
exploratory prospects for the Company, we have adopted a policy of offering to our 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.
Effective January 1, 1994, Messrs. Reeves and Mayell were each granted a 2% net profits
interest in the oil and natural gas production from our properties to the extent we acquire a
mineral interest therein. The net profits interest for Messrs. Reeves and Mayell applies to all
properties on which we expend 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
described under Narrative to Summary Compensation Table Well Bonus Plans above) for any
particular property to the extent their original 2% net profits interest grant covered such
property. See also note 8 under Summary Compensation Table above and Narrative to Summary
Compensation Table Net Profits Interests and Well Bonus Plans above.
During 2007, 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 Companys wells and
prospects, the Company, as operator, incurs various expenses relating to the prospect or well that
are then billed to the working interest owners. From time to time during 2007, 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 on the same basis as other working interest owners 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 $9,871,000 for the year ended
December 31, 2007, in oil and natural gas drilling activities for which the Company was the
operator. Net amounts due from TODD, JAR and Mr. Reeves were approximately $1,753,000 as of
December 31, 2007. Net amounts due from Sydson and Mr. Mayell were approximately $827,000 as of
December 31, 2007.
-59-
Other
Joe E. Kares,
a member of our 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, 2007, 2006 and 2005 and received fees of approximately $231,000, $227,000
and $320,000, respectively. These fees exceeded 5% of the gross revenues of Kares & Cihlar for
2007. The Company believes that these fees were equivalent to the fees that would have been paid to
similar firms providing its services in arms length transactions. Mr. Kares also participated in
the Management Well Bonus Plan pursuant to which he was paid approximately $275,000 during 2007, $438,000
during 2006 and $464,000 during 2005. Mr. Kares will not participate
in any new wells that are spud after April 21, 2008 and that become
part of the Management Well Bonus Plan. He will continue to
participate in the Plan with respect to wells spudded on or before
April 21, 2008.
Mr. Gary A. Messersmith, a member of our Board of Directors, 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, 2007, 2006 and 2005, and received fees of approximately $73,000,
$26,000 and $19,000, respectively. Management believes that such fees were equivalent to fees that
would have been paid to similar firms providing such services in arms length transactions. In
addition, until April 21, 2008, the Company paid Gary A. Messersmith, PC $8,333 per month relating to his services
provided to the Company, at which time that arrangement was
terminated. Mr. Messersmith also participated in
the Management Well Bonus Plan, pursuant to
which he was paid approximately $441,000 during 2007, $751,000 during 2006 and $702,000 during
2005. Mr. Messersmith will not participate in any new wells that are
spud after April 21, 2008 and that become part of the Management
Well Bonus Plan. He will continue to participate in the Plan with
respect to wells spudded
on or before
April 21, 2008.
Mr. G. M. Larberg, a recently added Director of the Company, is a petroleum industry
consultant that provided the Company with services for the years ended December 31, 2007 and 2006,
and received consulting fees of approximately $223,000 and $21,000, respectively.
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 $168,000, $146,000 and $100,000 for the years 2007, 2006 and 2005,
respectively. Jeff Robinson is the son-in-law of Joseph A. Reeves, Jr. and is employed as the
Manager of the Companys Information Technology Department and has been paid $164,000, $150,000 and
$111,000 for the years 2007, 2006 and 2005, 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 year ended December 31, 2005, and received
fees of approximately $32,000. 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
$371,000 in 2007, $337,000 in 2006 and $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 arms
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 $129,000, $114,000 and $79,000 for the
years 2007, 2006 and 2005, respectively. James T. Bond, former Director of Meridian who is
-60-
deceased, was the father-in-law of Michael J. Mayell, and provided consultant services to the
Company and received fees in the amount of $48,000, $155,000 and $175,000 for the years 2007, 2006
and 2005, respectively.
Review Policy
Our Board of Directors has not adopted any specific policies or procedures for the review,
approval or ratification of transactions between the Company and related persons.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
BDO Seidman, LLP served as our principal independent registered public accounting firm for the
fiscal year ended December 31, 2007. BDO Seidman, LLPs engagement to conduct the audit of the
Company for the fiscal year ended December 31, 2008 was approved by the Audit Committee. A
representative of BDO Seidman, LLP will attend the Meeting with the opportunity to make a statement
if he or she desires to do so and to respond to appropriate questions.
AUDIT FEES
The following table presents fees for the review and annual audits of the Companys
consolidated financial statements for 2007 and 2006 provided by BDO Seidman, LLP for the fiscal
years ended December 31, 2007 and December 31, 2006. We have not paid any other professional fees
to BDO Seidman, LLP except for the fees relating to the review and annual audits.
|
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2007 |
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2006 |
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Audit Fees |
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$ |
589,075 |
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$ |
624,296 |
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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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires the Companys officers and directors and
persons who beneficially own more than ten percent of a registered class of the Companys 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,
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the Company believes that, during the period from January 1, 2007, through December 31, 2007,
all officers, directors and greater than ten-percent shareholders of the Company were in compliance
with applicable filing requirements, except for Mr. A. Dale Breaux, Vice President of Operations,
for whom a Form 5 due in February 2008 was filed on April 24, 2008, and except for Mr. Paul Ching,
Director, for whom a Form 3 due January 11, 2008 was filed on January 16, 2008.
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 Companys 2009 Annual Meeting of
Shareholders (the 2009 Annual Meeting) must be received by the Company no later than February 24,
2009, in order to be eligible for inclusion in the Companys Proxy Statement and proxy used in
connection with the 2009 Annual Meeting. Shareholder proposals as to which the Company receives
notice that are proposed to be brought before the 2009 Annual Meeting (outside the process of the
SECs 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 May 8,
2009.
By order of the Companys Board of Directors
Joseph A. Reeves, Jr.
Chief Executive Officer
June 24, 2008
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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 August 6, 2008, and at any adjournment(s) thereof, on the following
matters more particularly described in the Proxy Statement dated June 24, 2008.
(Continued and to be signed on the reverse side)
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ANNUAL MEETING OF SHAREHOLDERS
OF
THE MERIDIAN RESOURCE CORPORATION
AUGUST 6, 2008
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. þ
1. Election of four Class III Directors and one Class II Director
Nominees:
Joseph A. Reeves, Jr. (Class III)
Michael J. Mayell (Class III)
Fenner R. Weller, Jr. (Class III)
G.M. Byrd Larberg. (Class III)
Paul Ching (Class II)
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FOR ALL NOMINEES |
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WITHHOLD AUTHORITY FOR ALL NOMINEES |
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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 appointment of BDO Seidman, LLP as the Companys independent registered public
accounting firm for 2008
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FOR |
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AGAINST |
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ABSTAIN |
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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. o
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Signature of Shareholder |
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Signature of Shareholder |
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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.
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