UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
AMENDMENT NO. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: DECEMBER 31, 2003 Commission file number: 1-10671
THE MERIDIAN RESOURCE CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 76-0319553
(State of incorporation) (I.R.S. Employer Identification No.)
1401 ENCLAVE PARKWAY, SUITE 300, HOUSTON, TEXAS 77077
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 281-597-7000
Securities registered pursuant to Section 12(b) of the Act:
---------------------
(Title of each class) (Name of each exchange on which registered)
Common Stock, $0.01 par value New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]
Aggregate market value of shares of common stock held by non-affiliates
of the Registrant at June 30, 2003 $233,536,842
Number of shares of common stock outstanding at April 20, 2004: 68,132,518
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EXPLANATORY NOTE
This Amendment No. 1 on Form 10-K/A (the "Amendment") is being filed to
amend the annual report on Form 10-K of The Meridian Resource Corporation (the
"Company") filed with the Securities and Exchange Commission on March 15, 2004
(the "Original Report on Form 10-K"). The sole purpose of this Amendment is to
include Items 10, 11, 12, 13 and 14 of Part III previously intended to be
incorporated by reference through the Company's proxy statement for its 2004
annual meeting of shareholders, and to add a related exhibit in Item 15(a)3 of
Part IV. The Company will not be filing its proxy statement for its 2004 annual
meeting within 120 days following the end of its fiscal year 2003, and,
therefore, is filing this Amendment. Accordingly, Items 10-14 of Part III are
amended and restated in their entirety and Item 15(a)3 of Part IV is amended to
include the exhibits listed herein. The reference on the cover page of the
Original Report on Form 10-K to the incorporation by reference of the
registrant's proxy statement relating to its 2004 Annual Meeting is also
deleted. Except as otherwise stated herein, the Amendment does not amend any
other disclosure in the Original Report on Form 10-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICES OF THE REGISTRANT.
DIRECTORS
The Company's Bylaws provide that the Board of Directors shall be
classified into three classes: Class I Directors, Class II Directors and Class
III Directors. Each class serves for a term of three years or until a director's
successor is duly elected and qualified.
Set forth below is certain information concerning the current directors
of the Company, with each person's business experience for at least the past
five years.
PRESENT POSITIONS EXPIRATION OF
NAME AGE WITH THE COMPANY DIRECTOR SINCE PRESENT TERM
---- --- ----------------- -------------- -------------
E. L. Henry 68 Class II Director(1) 1998 2004
Joe E. Kares 60 Class II Director(1)(2) 1990 2004
Gary A. Messersmith 55 Class II Director(2) 1997 2004
David W. Tauber 54 Class I Director 2004 2004
Michael J. Mayell 56 Class III and President(3) 1990 2005
Joseph A. Reeves, Jr. 57 Class III Director, Chairman 1990 2005
of the Board and Chief
Executive Officer(3)
James T. Bond 79 Class I Director 1997 2006
------------
(1) Member of the Audit Committee.
(2) Member of the Executive Compensation Committee.
(3) Member of the Executive Committee, Director's Stock Option Plan
Administration Committee and Employee Compensation Committee.
E. L. Henry has been a partner with the law firm of Adams and Reese
L.L.P. in Baton Rouge, Louisiana since 1987. 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 partner with the law firm of Looper,
Reed & McGraw, a Professional Corporation, in Houston, Texas since 2001, and
from 1982 to 2001 was a partner with the law firm of Fouts & Moore, L.L.P. in
Houston, Texas.
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David W. Tauber has served as owner/principal of Tauber Oil Company, a
marketer of fuel oil and carbon black located in Houston, Texas, 1984.
Michael J. Mayell is President of the Company. Prior to assuming such
position with the Company, Mr. Mayell held a similar position with the Company's
predecessor, Texas Meridian Resources, Ltd. ("TMR"), from 1988 until 1990.
Joseph A. Reeves, Jr. is Chairman of the Board and Chief Executive
Officer of the Company. Prior to assuming his positions with the Company, Mr.
Reeves held similar positions with TMR from 1988 to 1990.
James T. Bond is President of JTB Exploration and was formerly General
Manager of H.L. Hawkins, Jr. Oil and Gas located in Houston and New Orleans,
Louisiana. He has been associated with such company for over fifty years.
AUDIT COMMITTEE; AUDIT COMMITTEE FINANCIAL EXPERT
The Company has a standing Audit Committee established in accordance
with Section 3(a)(58)(A) of the Exchange Act. The current members of the Audit
Committee are identified above. The Board of Directors has determined that Joe
E. Kares is an audit committee financial expert as defined in Item 401 of
Regulation S-K, and is independent as defined in applicable SEC and NYSE rules.
EXECUTIVE OFFICERS
The following table provides information with respect to the executive
officers of the Company. Each executive officer has been elected to serve until
his or her successor is duly appointed or elected by the Board of Directors or
his or her earlier removal or resignation from office.
YEAR FIRST
ELECTED
NAME OF OFFICER POSITION WITH THE COMPANY AGE AS OFFICER
--------------- ------------------------- --- ----------
Joseph A. Reeves, Jr. Chairman of the Board 57 1990
and Chief Executive Officer
Michael J. Mayell Director and President 56 1990
Lloyd V. DeLano Senior Vice President and Chief Accounting Officer 53 1993
James W. Carrington, Jr. Senior Vice President - Land and Legal - TMRX 53 1998
Alan S. Pennington Senior Vice President - Business Development - TMRX 50 1999
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) in April 1993. In June 1996, Mr.
DeLano was named Vice President and Chief Accounting Officer of the Company and
in June 2002 he was named Senior Vice President. Mr. DeLano is a Certified
Public Accountant with 30 years of oil and natural gas experience.
James W. Carrington, Jr. joined the Company in March 1998 as Vice
President of Land of The Meridian Resource & Exploration LLC (a wholly-owned
subsidiary of the Company) ("TMRX") and in June 2002 he was named Senior Vice
President, Land and Legal, of TMRX. Prior to assuming his position with the
Company, Mr. Carrington was employed by CNG Producing Company.
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Alan S. Pennington joined the Company in August 1989 as Vice President
- Geology of TMRX and has held several positions with the Company. He has served
as Senior Vice President - Business Development of The Meridian Resource &
Exploration LLC (a wholly-owned subsidiary of the Company) since 2002.
Other than Mr. Bond, who is Mr. Mayell's father-in-law, there are no
family relationships among the officers and directors of the Company.
CODE OF ETHICS
The Company has adopted a Code of Ethics that applies to the Company's
principal executive officer and senior financial officers. A copy of the Code of
Ethics has been filed as Exhibit 14.1 to this report.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors and persons who beneficially own more than ten
percent of a registered class of the Company's equity securities to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission. Officers, directors and greater than ten-percent shareholders are
required by the regulations promulgated under Section 16(a) to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, during the period from
January 1, 2003, through December 31, 2003, all officers, directors and greater
than ten-percent shareholders of the Company were in compliance with applicable
filing requirements.
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ITEM 11. EXECUTIVE COMPENSATION.
The following tables contain compensation data for the five highest
paid executive officers serving at the end of 2003 whose 2003 salary and annual
bonus compensation exceeded $100,000, and other individuals who would otherwise
have been included in this table but for the fact that such individuals were not
serving as executive officers of the Company at the end of 2003 (collectively,
the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
-------------------------------------------------- ---------------------------
Other Annual Restricted Securities All Other
Name and Salary Bonus Compensation Stock Underlying Compensation
Principal Position Year ($)(1) ($)(1)(2) ($)(4) Award($)(1) Options(#) ($)(3)
------------------ ---- ------ --------- ------ ----------- ---------- ------
Joseph A. Reeves, Jr. 2003 $40,527 $760,000 $32,710 $631,620 $ -- $12,000
CEO 2002 57,693 879,071 58,810 800,000 -- 11,000
2001 40,613 760,000 -- 834,160 -- 10,500
Michael J. Mayell 2003 $40,427 $760,000 $32,710 $631,620 $ -- $12,000
President 2002 57,693 879,071 58,810 800,000 -- 11,000
2001 40,613 760,000 -- 834,160 -- 10,500
Lloyd V. DeLano 2003 $169,399 $368,026 $ -- $ -- $ -- $12,000
Senior Vice President and 2002 167,999 433,781 -- -- -- 11,000
Chief Accounting Officer 2001 167,999 437,395 -- -- -- 10,500
James W. Carrington, Jr. 2003 $168,203 $352,879 $ -- $ -- $ -- $12,000
Senior Vice President, 2002 166,812 417,789 -- -- -- 10,009
Land and Legal - TMRX 2001 166,812 419,014 -- -- -- 10,500
Alan S. Pennington 2003 $192,210 $369,063 $ -- $ -- $ -- $12,000
Senior Vice President,
Business 2002 190,621 384,724 -- -- -- 11,000
Development - TMRX 2001 190,621 437,395 -- -- -- 10,500
(1) Salary and bonus compensation excludes amounts deferred by
Messrs. Reeves and Mayell pursuant to a deferred compensation plan (the
"DCP"), which have been reported in the Restricted Stock Award column.
The DCP was approved by the Board of Directors and the shareholders of
the Company in 1996 as a method to preserve the Company's liquidity and
further align the executive officers' interests with those of the
Company's shareholders. No actual shares of Common Stock are issued and
the officer has no rights with respect to any shares unless and until
there is a distribution. Distributions cannot be made until the death,
retirement or termination of employment of the officer. Until
distribution, the value of such stock rights are subject to the general
credit of the Company and the market value of the Common Stock.
Pursuant to the DCP, the Company also granted to each officer an equal
matching deferral, which is subject to a one-year vesting and is
included in the Restricted Stock Award column. Under the terms of the
grants, the employee and matching deferrals are allocated to a Common
Stock account in which units are credited to the accounts of the
officer based on the number of shares that could be purchased at the
market price of the Common Stock at December 31, 1997 ($9 9/16 per
share), for the deferrals during the first half of 1998; at June 30,
1998 ($7 1/16 per share), for the deferrals during the second half of
1998; at December 31, 1998 ($3 3/16 per share), for the deferrals
during the first half of 1999; at June 30, 1999 ($3 7/8 per share), for
the deferrals during the second half of 1999; at December 31, 1999
($3.0625 per share) for the deferrals during the first half of 2000; at
June 30, 2000 ($5.703125 per share) for the deferrals during the second
half of 2000; at December 31, 2000 ($8.625 per share) for the deferrals
during the first half of 2001; and at June 30, 2001 ($7.17 per share)
for the deferrals during the second half of 2001; at December 31, 2001
($3.99 per share) for deferrals during the first half of 2002; at June
30, 2002 ($3.72 per share) for deferrals during the second half of
2002; at December 31, 2002,($0.90 per share) for deferrals during the
first half of 2003 and at June 30, 2003 ($4.73 per share) for deferrals
during the second half of 2003. Pursuant to the DCP, Messrs. Reeves and
Mayell each elected to defer $417,080, $400,000, and $315,810 of their
compensation for 2001, 2002 and 2003, respectively. As of December 31,
2003, each of Messrs. Reeves and Mayell had rights (including matching
deferrals) to 1,433,858 shares and 1,244,438 shares, respectively, with
a total value (including matching deferrals) as of December 31, 2003,
of $8,517,117 and $7,391,962, respectively. An amount equal to the
dividends, if any, that would have otherwise been paid with respect to
such shares had they actually been issued will be credited to the
respective Common Stock accounts as well.
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(2) Under the Company's Well Bonus Plan, Mr. DeLano received
bonus amounts in 2003, 2002 and 2001 as follows: $360,326, $376,781,
$437,395 respectively. Under the same plan Mr. Carrington was paid in
2003, 2002 and 2001 the following amounts: $345,233, $360,839 and
$419,014, respectively. Under the same plan, Mr. Pennington was paid in
2003, 2002 and 2001 the following amounts: $360,326, $376,781 and
$437,395, respectively.
(3) Includes Company contributions to its 401(k) plan.
(4) Includes the value conveyed during the applicable year
attributable to net profits interests assigned to the Named Executive
Officer during the applicable year in connection with their employment
agreements. In connection with such employment agreements, the Company
adopted in 1994 a program under which net profits interests are granted
to certain key employees of the Company in prospects and wells that the
Company is pursuing and drilling. In general, the net profits interest
is 2.00% of any well and is subject to proportional reduction to the
Company's interests. Pursuant to these arrangements, during 2002 and
2003, net profits interests of 2% were granted to each of Messrs.
Reeves and Mayell in various prospects acquired by the Company in 2002
and 2003. Although such grants were intended to provide long-term
incentive for the executive officer or employee by aligning his or her
interests with those of the Company in its drilling efforts, such
grants are not subject to vesting, the continued employment of the
individual with the Company or other conditions. Accordingly, such
grants are considered part of the Company's annual compensation package
and not compensation under a long-term incentive plan. Each grant of a
net profits interest is reflected in this table at a value based on a
third party appraisal of the interest granted or the Company's current
estimate of value for those prospects for which a third party appraisal
has not yet been completed. Such values are appraisals or estimates
only and the actual realized value of such interests may prove to be
higher or lower than the amounts reflected in this table. See also
"-Employment Agreements" and "-Well Bonus Plans and NPI Rights" below.
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The following table summarizes the number and value of options
exercised by the Named Executive Officers during 2003, as well as the number and
value of unexercised options owned by the Named Executive Officers as of
December 31, 2003.
AGGREGATE OPTION EXERCISES IN FISCAL YEAR 2003
AND DECEMBER 31, 2003 OPTION VALUE
Number of Value of Unexercised
Unexercised In-the-Money
Options at Options at
December 31, December 31,
2003(#) 2003($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($) Unexercisable(1) Unexercisable
---- -------------- ----------- ---------------- -------------
Joseph A. Reeves, Jr. (1) -- -- 1,625,000/----- 3,847,500/-----
Michael J. Mayell (1) -- -- 1,625,000/----- 3,847,500/-----
Lloyd V. DeLano -- -- 50,000/----- 64,125/-----
James W. Carrington, Jr. -- -- 17,500/----- 19,238/-----
Alan S. Pennington -- -- 16,000/----- 12,825/-----
(1) Excludes (i) the warrants (the "General Partner Warrants")
granted to each of Messrs. Reeves and Mayell in October 1990 in
connection with the Company's formation and (ii) warrants ("Executive
Officer Warrants") issued in prior years to Messrs. Reeves and Mayell
in connection with the surrender of certain "Class B Warrants" to the
Company. The value of these warrants at December 31, 2003, based on the
difference between the market price of the Common Stock at December 31,
2003 and the exercise price of the respective warrants, was $3,682,962
for each of Messrs. Reeves and Mayell.
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EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement ("Employment
Agreement") with each of Messrs. Reeves and Mayell. Each Employment Agreement is
for a term of three years, renewable annually for a term to extend three years
from such renewal date. Each Employment Agreement provides for compensation in a
minimum amount of $289,800 per annum along with annual bonuses in cash
substantially consistent with previous annual bonuses, to be reviewed at least
annually for possible increases, and additional bonuses and other perquisites in
accordance with Company policy. If either of Messrs. Reeves or Mayell terminates
his employment for "Good Reason" (as defined below), or is terminated by the
Company for other than "Good Cause" (as defined below), such individual would
receive a cash lump sum payment equal to the sum of (i) the base salary for the
remainder of the employment period under the Employment Agreement, (ii) an
amount equal to the last annual bonus paid to him, (iii) two times the sum of
his annual base salary and last annual bonus, (iv) all compensation previously
deferred and any accrued interest thereon, (v) a lump-sum retirement benefit
equal to the actuarial equivalent of the benefits lost by virtue of the early
termination of the employee and (vi) continuation of benefits under the
Company's benefit plans. If either of Messrs. Reeves or Mayell dies or is
terminated by the Company for Good Cause, such individual or such individual's
estate, as applicable, would receive all payments then due him under the
Employment Agreement through the date of termination, including a prorated
annual bonus and any compensation previously deferred. Each of Messrs. Reeves
and Mayell also is entitled under his Employment Agreement to certain gross-up
payments if an excise tax is imposed pursuant to Section 4999 of the Internal
Revenue Code, which imposes an excise tax on certain severance payments in
excess of three times an annualized compensation amount following certain
changes in control.
The term "Good Reason" is defined in each Employment Agreement, with
respect to each of Messrs. Reeves and Mayell, generally to mean (i) a change in
the nature or scope of the duties or responsibilities of such individual, unless
remedied by the Company, (ii) any failure by the Company to pay any form of
compensation stated in each Employment Agreement, unless remedied by the
Company, (iii) requiring such individual to be based at any office or location
30 miles or more from the current location of the Company, other than travel
reasonably required in the performance of such individual's responsibilities,
(iv) any purported termination by the Company of such individual's employment
other than due to death or for Good Cause or (v) any failure of the Company to
require a successor of the Company to assume the terms of the Employment
Agreement. The term "Good Cause" is defined in each Employment Agreement,
generally to mean (i) such individual has been convicted of a felony that is no
longer subject to direct appeal, (ii) such individual has been adjudicated to be
mentally incompetent so as to affect his ability to serve the Company and such
adjudication is no longer subject to direct appeal or (iii) such individual has
been found guilty of fraud or willful misfeasance so as to materially damage the
Company and such finding is no longer subject to direct appeal.
In connection with the execution of their Employment Agreements, both
Messrs. Reeves and Mayell were granted a 2% net profits interest in the oil and
natural gas production from the Company's properties to the extent the Company
acquires a mineral interest therein. The net profits interest for Messrs. Reeves
and Mayell applies to all properties on which the Company expends funds during
their employment with the Company. The net profits interests represent real
property
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rights that are not subject to vesting or continued employment with the
Company. Messrs. Reeves and Mayell did not participate in the Well Bonus Plans
(as such term is defined under "-Well Bonus Plans and NPI Rights" below) for any
particular property to the extent their original 2% net profits interest grant
covered such property. See also note 4 under "-Summary Compensation Table" above
and "-Well Bonus Plans and NPI Rights" below.
Mr. Lloyd V. DeLano entered into an employment agreement with the
Company under which he is given the title Senior Vice President and Chief
Accounting Officer of the Company. Mr. DeLano's employment agreement provides
that he will receive a monthly salary of $14,000 and an annual bonus in the
amount determined in the discretion of the Company's Board of Directors. If Mr.
DeLano is terminated, depending on the circumstances, he may be entitled to
receive a payment equal to six times his monthly salary. Also, if a change in
control of the Company occurs, he may be entitled to receive his monthly salary
for eighteen months after such event.
Mr. James W. Carrington, Jr. entered into an employment agreement with
the Company under which he is given the title Executive Vice President - Land
and Legal. Mr. Carrington's employment agreement provides that he will receive a
monthly salary of $13,901 and an annual bonus in the amount determined in the
discretion of the Company's Board of Directors. If Mr. Carrington is terminated,
depending on the circumstances, he may be entitled to receive a payment equal to
six times his monthly salary. Also, if a change in control of the Company
occurs, he may be entitled to receive his monthly salary for eighteen months
after such event.
THE INCENTIVE PLANS
The Company's existing stock option plans (the "Incentive Plans")
authorize the Board of Directors or a Committee of the Board of Directors to
issue stock options, stock appreciation rights, restricted stock and performance
awards. The aggregate number of shares of Common Stock that currently may be
issued under the Incentive Plans is 10,227,415, which represents approximately
16.6% of the total number of shares of Common Stock outstanding. There are
currently 8,097,081 shares allocated to outstanding options or existing or
future stock rights under deferred compensation arrangements under the Incentive
Plans. Therefore, approximately 2,130,334 shares are available for grant of
additional options or stock-based compensation. As of December 31, 2003,
3,175,175 of the stock options granted under the Incentive Plans were
"in-the-money".
WELL BONUS PLANS AND NPI RIGHTS
During 1998, the Company implemented a net profits program that was
adopted effective as of November 1997. All employees participated in this
program. Pursuant to this program, the Company adopted three separate well bonus
plans: (i) The Meridian Resource Corporation Geoscientist Well Bonus Plan (the
"Geoscientist Plan"), (ii) The Meridian Resource Corporation TMR Employees Trust
Well Bonus Plan (the "Trust Plan") and (iii) The Meridian Resource Corporation
Management Well Bonus Plan (the "Management Plan"), and with the Trust Plan and
the Geoscientist Plan, (the "Well Bonus Plans"). The Executive Committee of the
Board of Directors, which is comprised of Messrs. Reeves and Mayell,
administered each of the Well Bonus Plans. The participants in each of the Well
Bonus Plans were designated by the Executive
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Committee in its sole discretion. Participants in the Management Plan were
limited to executive officers of the Company and other key management personnel
designated by the Executive Committee. Neither Messrs. Reeves nor Mayell
participated in the Management Plan, except with respect to a small number of
wells and prospects not covered by their original net profits grants described
under "-Employment Agreements" above. The participants in the Trust Plan
generally were all employees of the Company that did not participate in one of
the other Well Bonus Plans. Pursuant to the Well Bonus Plans, the Executive
Committee designated, in its sole discretion, the individuals and wells that
participated in each of the Well Bonus Plans. The Executive Committee also
determined the percentage bonus that was paid under each well and the
individuals that participated thereunder. The Well Bonus Plans covered all
properties on which the Company expended funds during each participant's
employment with the Company, with the percentage bonus generally ranging from
less than .1% to .5% of the net profits derived from each well included in the
well bonus plan, depending on the level of the employee.
Effective March 2001, the participants in the Geoscientist Plan were
notified that no additional future wells would be placed into the plan. During
2002, the Executive Committee decided to modify this position and for certain
key geoscientists the plan will include future new wells through July, 2002.
Effective December 2001, an agreement was executed to repurchase and
terminate certain interests in the Well Bonus Plans from current and former
employees in exchange for the issuance of Common Stock. The offering was for a
total of 1,940,991 shares of our Common Stock. The Common Stock was issued on
February 4, 2002, at the then current price of $3.48 per share.
COMPENSATION OF DIRECTORS
Non-employee directors of the Company receive an annual retainer,
payable in quarterly installments, of $20,000. Non-employee directors also are
reimbursed for expenses incurred in attending Board of Directors and committee
meetings, including those for travel, food and lodging. Directors and members of
committees of the Board of Directors who are employees of the Company or its
affiliates are not compensated for their Board of Directors and committee
activities.
The Company has a Non-Employee Director Stock Option Plan (the
"Director Stock Option Plan") pursuant to which options to purchase up to
570,000 shares of Common Stock may be granted. Under the Director Stock Option
Plan, each non-employee director is granted, on the date of his appointment,
election, reappointment or re-election as a member of the Board of Directors, an
option ("Director Option") to purchase 15,000 shares of Common Stock at an
exercise price per share equal to the fair market value of a share of Common
Stock on the date of grant. The duration of each Director Option is five years
from the date of grant, and each Director Option may be exercised in whole or in
part at any time after the date of grant; provided, however, that the option
vests with respect to 25% of the shares of Common Stock covered by such Director
Option one year after the date of grant, with respect to an additional 25% of
such shares of Common Stock two years after the date of grant, and with respect
to the remaining shares of Common Stock three years after the date of grant.
There are currently outstanding options to acquire 193,000 shares under the
Director Stock Option Plan with a weighted average exercise price of $4.45 per
share. There are currently 310,000 additional shares available for grant under
the Director Stock Option Plan.
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REPORT ON EXECUTIVE COMPENSATION
GENERAL POLICY
The Company's executive compensation program is designed to attract,
motivate and retain talented management personnel and to reward management for
successfully performing their duties and improving shareholder value.
Compensation and incentives are provided through the combination of cash
salaries and bonuses, stock option and other stock-based awards, and grants of
net profit interests in the Company's drilling prospects. The Company's overall
compensation package is intended to provide the Company's executive officers
with above average compensation for above average results and performance, with
an emphasis on compensation that rewards the executive for actions that have
demonstrably benefited the long-term interests of the Company. Decisions with
respect to compensation for any particular executive officer or employee are
based on a number of subjective factors, including the individual's performance
and contribution to the future growth of the Company, the financial and
operational results of the Company and industry and market conditions and the
need to insure the continued employment of individuals that the Board of
Directors believes are key to the long-term prospects of the Company.
Decisions with respect to the cash compensation of the Company's
executive officers were made in a bifurcated manner during 2003. The Employee
Compensation Committee of the Board of Directors, which is comprised of Messrs.
Reeves and Mayell set the salaries of all employees (except for themselves),
including elected officers and other senior executives, and granted cash bonuses
to such elected officers and other senior executives. Cash compensation
decisions with respect to Messrs. Reeves and Mayell were approved by the Board
of Directors, with Messrs. Reeves and Mayell abstaining. Decisions with respect
to the granting of stock-based awards and the payment of other non-cash
compensation for all of the Company's executive officers, including Messrs.
Reeves and Mayell, were made by the full Board of Directors, with each of
Messrs. Reeves and Mayell abstaining with respect to matters pertaining to
either one of them.
The components of the Company's executive compensation program are more
specifically summarized below.
BASE SALARY.
The base salaries of the Company's employees are determined
based on their positions with the Company, their talents and experience
and competitive market factors, including the desire by the Company to
attract and retain executives with expertise and proven success in 3-D
seismic exploration. Generally, base salaries are received in cash,
however, the Company adopted a deferred compensation program in 1996
that allows the Company's Chief Executive Officer, President and other
officers to receive payment of their salaries in deferred stock rights
in lieu of cash compensation. The purpose of this deferred compensation
program is to preserve company liquidity and further align the
executive officers' interests with those of the Company's shareholders.
Stock cannot be issued under such deferred compensation arrangements
until the death, retirement or termination of the executive officer,
and until such issuance, the value of such stock rights are subject to
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the general credit of the Company and changes in market value for the
Company's Common Stock.
In reviewing the base salaries of the Company's executive
officers, the Company considers data from published reports regarding
compensation of executive officers from a cross section of other energy
companies, which may or may not include companies represented in the
peer group used in completing the Company's performance graph. These
reports are used as a check on the general competitiveness of the
Company's salaries and not as a means to mathematically establish
salaries within specified percentiles of salary ranges.
BONUS COMPENSATION.
Bonus compensation is provided to the Company's executive
officers and other employees from time to time based on their
employment agreements, if any, the financial results of the Company and
various subjective factors, including the executive's or employee's
contribution to the Company's success in finding reserves and acquiring
prospects, identifying and obtaining sources of capital for the Company
and increasing shareholder value. A Christmas bonus of up to one
month's base salary was awarded and paid during 2001, 2002 and 2003 to
the Company's employees.
NET PROFIT INTERESTS.
The Company believes that the granting of participation
interests in the Company's prospects to its employees promotes in them
a proprietary interest in the Company's exploration efforts that
benefits the Company and its shareholders. To achieve this objective,
the Company grants an interest (either in the form of a bonus or real
property right, depending on the level of the employee) in the net
profits received from all wells drilled to all of its employees,
including its executive officers. Each employee's level of
participation in these well bonus plans is based on various factors,
including the employee's tenure, salary level, job classification and
contribution to the Company's long-term prospects.
LONG-TERM INCENTIVE COMPENSATION.
The Board of Directors believes that long-term incentive
compensation is an important component of the Company's compensation
program and that the value of long-term incentive compensation should
be directly related to increases in shareholder value. Thus, as part of
total compensation, the Company provides long-term incentive
compensation to its executive officers through stock options under the
Company's stock option plans.
Under the Company's existing stock option plans (collectively,
the "Incentive Plans"), the Board of Directors has the authority to
grant to the Company's executive officers and key employees options to
purchase shares of Common Stock for terms of up to ten years, with
vesting conditions established by the Board of Directors, and other
forms of stock-based compensation including restricted stock. Awards
under the Incentive Plans are intended to provide incentives to the
participants to increase shareholder value by providing
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benefits that are directly related to the market value of the Common
Stock. The Board of Directors believes that stock-based compensation
provides a desirable form of incentive to the Company's executive
officers in that stock-based compensation received by an executive
officer generally will be of no value to the officer unless the value
of the Common Stock increases.
If a stock option or other stock-based award is granted to an
executive officer, the number of shares of Common Stock subject to the
granted option or award will be based on, among other things, the level
of responsibility of the executive officer and the anticipated
contribution of the officer to the future growth of the Company. The
Board of Directors also considers the amount and terms of the options
and other stock-based benefits held by the executive officers.
DISCUSSION OF COMPENSATION OF THE CHIEF EXECUTIVE OFFICER AND PRESIDENT
During 2003, Messrs. Reeves' and Mayell's salaries and bonuses were
paid in accordance with their employment agreements. The Board of Directors
believes that granting stock options and the approval of bonus payments further
align Messrs. Reeves and Mayell's interests with those of the Company and
further insures their continued employment with the Company and rewards them for
their efforts that were instrumental to the future prospects of the Company.
TAX MATTERS
Section 162(m) ("Section 162(m)") of the Internal Revenue Code of 1986,
as amended, currently imposes a $1 million limitation on the deductibility of
certain compensation paid to the Company's five highest paid executive officers.
Excluded from the limitation is compensation that is "performance based".
Excluded compensation must meet certain criteria, including being based upon
predetermined objective standards approved by the Company's shareholders. Awards
under the Incentive Plans as well as bonus and salary compensation awarded to
the Company's executive officers do not currently satisfy the requirements of
Section 162(m); however, since the Company currently does not expect to be
paying federal income taxes in the near future, the Board of Directors and
Executive Compensation Committee do not believe that such non-deductibility will
have a material effect on the Company. The Board of Directors intend to take
into account the potential application of Section 162(m) with respect to
incentive compensation awards and other compensation decisions made by them in
the future.
Joseph A. Reeves, Jr. Michael J. Mayell
James T. Bond E. L. Henry
Joe E. Kares Gary A. Messersmith
David W. Tauber
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As discussed above, certain components of the compensation of the
executive officers of the Company, other than Messrs. Reeves and Mayell, are
determined by the Employee Compensation Committee of the Board of Directors of
the Company, which is comprised of Messrs. Reeves and Mayell. Stock-based and
other non-cash compensation decisions with respect to the Company's executive
officers are made by the full Board of Directors, with each of Messrs. Reeves
and Mayell abstaining with respect to matters pertaining to either one of them.
For a discussion of certain transactions between the Company and members of the
Board of Directors, see "Certain Relationships and Related Transactions"
beginning on page 19 of this report. In addition, cash compensation decisions
during 2003 with respect to Messrs. Reeves and Mayell were made by the full
Board of Directors, with each of Messrs. Reeves and Mayell abstaining.
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STOCK PERFORMANCE GRAPH
The following performance graph compares the performance of the Common
Stock to the New York Stock Exchange Market Index and Peer Group Index from
December 31, 1998 through December 31, 2003. The graph assumes that the value of
the investment in the Common Stock and each index was $100 at December 31, 1998,
and that all dividends were reinvested.
(PERFORMANCE GRAPH)
DECEMBER 31, 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----
The Company 100 96.08 270.59 125.18 28.24 186.35
NYSE Market Index 100 102.71 163.87 120.64 91.60 126.87
Peer Group Index 100 109.50 112.11 102.12 83.42 108.07
The Company's Peer Group is comprised of Anadarko Petroleum
Corporation, Apache Corporation, Burlington Resources Inc., Chesapeake Energy
Corporation, EEX Corporation, Noble Affiliates, Inc., Ocean Energy, Inc.* Pogo
Producing Company, Questar Corporation and The Williams Company Inc.
* Ocean Energy, Inc. merged with Devon Energy Corporation in 2003.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of April 20, 2004, with
respect to the beneficial ownership of Common Stock by (a) each director, (b)
each Named Executive Officer, (c) each shareholder known by the Company to be
the beneficial owner of more than 5% of the Common Stock and (d) all executive
officers and directors of the Company as a group.
NUMBER OF SHARES
BENEFICIALLY
NAME OWNED(1) PERCENT
---- -------- -------
Joseph A. Reeves, Jr. (2) 4,893,138 6.7%
Michael J. Mayell (3) 4,571,954 6.3%
Lloyd V. DeLano (4) 96,443 *
James W. Carrington, Jr. (5) 79,477 *
Alan S. Pennington (6) 18,192 *
James T. Bond (7) 35,000 *
E. L. Henry (8) 18,500 *
Joe E. Kares (9) 27,500 *
Gary A. Messersmith (10) 40,972 *
David A. Tauber (11) 6,340 *
All executive officers and directors as a
group (10 persons) (2), (3), (4), (5), (6),
(7), (8), (9), (10), (11) 9,787,516 12.7%
Shell Oil Company (12) 7,082,030 10.4%
* Less than one percent.
(1) Shares of Common Stock which are not outstanding but
which can be acquired by a person upon exercise of an option or warrant
within sixty days are deemed outstanding for the purpose of computing
the percentage of outstanding shares beneficially owned by such person.
(2) Includes 406,539 shares, 689,978 shares, 714,000 shares
and 1,625,000 shares of Common Stock that Mr. Reeves has the right to
acquire upon the exercise of the General Partner Warrant, Executive
Warrants, and stock
-16-
options under the Company's stock option plans, respectively. Also
includes 1,457,621 vested shares underlying deferred compensation
arrangements. Excludes 21,723 unvested shares under deferred
compensation arrangements. Mr. Reeves' business address is 1401 Enclave
Parkway, Suite 300, Houston, Texas 77077.
(3) Includes 284,661 shares, 689,978 shares, 714,000 shares
and 1,625,000 shares of Common Stock that Mr. Mayell has the right to
acquire upon the exercise of the General Partner Warrant, Executive
Warrants, and stock options under the Company's stock option plans,
respectively. Also includes 1,258,315 vested shares underlying deferred
compensation arrangements. Excludes 31,609 unvested shares under
deferred compensation arrangements. Mr. Mayell's business address is
1401 Enclave Parkway, Suite 300, Houston, Texas 77077.
(4) Includes 50,000 shares of Common Stock that Mr. DeLano has
the right to acquire upon the exercise of stock options.
(5) Includes 17,500 shares of Common Stock that Mr. Carrington
has the right to acquire upon the exercise of stock options.
(6) Includes 16,500 shares of Common Stock that Mr. Pennington
has the right to acquire upon the exercise of stock options.
(7) Includes 15,000 shares of Common Stock that Mr. Bond has
the right to acquire upon the exercise of stock options. Excludes
15,000 shares underlying options that are not exercisable within 60
days.
(8) Includes 7,500 shares of Common Stock that Mr. Henry has
the right to acquire upon the exercise of stock options. Excludes 7,500
shares underlying options that are not exercisable within 60 days.
(9) Includes 27,500 shares of Common Stock that Mr. Kares has
the right to acquire upon the exercise of stock options. Excludes 7,500
shares underlying options that are not exercisable within 60 days.
(10) Includes 27,500 shares of Common Stock that Mr.
Messersmith has the right to acquire upon the exercise of stock
options. Excludes 7,500 shares underlying options that are not
exercisable within 60 days.
(11) Excludes 15,000 shares underlying options that are not
exercisable within 60 days.
(12) Based solely upon a Schedule 13D filed with the
Securities and Exchange Commission. Shell Oil Company controls Shell
Louisiana Onshore Properties Inc. ("SLOPI"). Shell Oil Company's
business address is One Shell Plaza, Houston, Texas 77002. SLOPI's
business address is P.O. Box 7986, Newark, Delaware.
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EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information as of December 31, 2003,
with respect to our compensation plans (including individual compensation
arrangements) under which equity securities are authorized for issuance:
Number of securities
remaining available for
Number of securities to Weighted-average future issuance under
be issued upon exercise exercise price of equity compensation plans
of outstanding options, outstanding options, (excluding securities
Plan Category warrants and rights warrants and rights reflected in column (a)(1))
------------- ------------------- ------------------- ---------------------------
Equity compensation plans
approved by security holders 6,236,995 $3.66 2,130,334
Equity compensation plans not
approved by security holders -- -- --
Total 6,236,995 $3.66 2,130,334
(1) Does not include 3,600,000 shares which have been reserved for issuance in
lieu of cash compensation under the Company's deferred compensation plan, which
plan was approved by security holders.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
PARTICIPATION INTERESTS
In the ordinary course of business, the Company offers participation in
exploration prospects to industry partners. Terms of each participation vary
depending on the risk and economic conditions existing in the oil and gas
industry at the time of grant. In addition, in an effort to provide the
Company's executive officers and key employees with additional incentive to
identify and develop successful exploratory prospects for the Company, the
Company has adopted a policy of offering to its principal executive officers and
key employees responsible for the identification and development of prospects
the right to participate in each of the prospects pursued by the Company. Such
participation has been on the same terms and conditions as the Company and in
certain instances, its internal partners and is currently limited in aggregate
to an approximate 8% working interest in any prospect. The maximum percentage
that either Messrs. Reeves or Mayell may elect to participate in any prospect is
a 4% working interest. Beginning with 2002, each of Messrs. Reeves and Mayell
have participated in every prospect that the Company has drilled on a 3.5%
working interest basis. Prior to 2002, through 1994, Messrs. Reeves and Mayell
each participated with the Company for a 1.5% working interest basis on all
drilled prospects.
During 2003, both Messrs. Reeves and Mayell, either personally or
through wholly-owned or affiliated corporations, participated as working
interest owners in properties of the Company. Under the terms of the operating
and other agreements relating to the Company's wells and prospects, the Company,
as operator, incurs various expenses relating to the prospect or well that are
then billed to the working interest owner. During 2003, each of TODD (a company
owned by Mr. Reeves) and Sydson (a company owned by Mr. Mayell) were indebted to
the Company for certain expenses paid by the Company in respect of their working
interest in various prospects and wells in which the Company acted as operator.
TODD and Sydson collectively invested approximately $5,161,000 for the
year ended December 31, 2003, in oil and natural gas drilling activities for
which the Company was the operator. Net amounts due from TODD and Mr. Reeves
were approximately $5,000 as of December 31, 2003. Net amounts due from Sydson
and Mr. Mayell were approximately $344,000.
OTHER
Joe E. Kares, a member of the Board of Directors, is a partner in the
public accounting firm of Kares & Cihlar, which provided the Company and its
affiliates with accounting services for the years ended December 31, 2003, 2002,
and 2001 and received fees of approximately $210,000 $282,000 and $269,000,
respectively. These fees exceeded 5% of the gross revenues of Kares & Cihlar for
2003. The Company believes that these fees were equivalent to the fees that
would have been paid to similar firms providing its services in arm's length
transactions. Mr. Kares also participated in the Well Bonus Plans pursuant to
which he was paid approximately $61,000.
Mr. Gary A. Messersmith, a Director of Meridian, is currently a partner
in the law firm of Looper, Reed and McGraw in Houston, Texas, which provided
legal services for the Company for the years ended December 31, 2003, 2002 and
2001, and received fees of approximately $49,000, $27,000 and $58,000,
respectively. He previously was a partner in the law firm of Fouts & Moore,
L.L.P., in Houston, Texas, which provided legal services for the Company for the
years ended
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December 31, 2001 and received fees of approximately $66,000. Management
believes that such fees were equivalent to fees that would have been paid to
similar firms providing such services in arm's length transactions. In addition,
the Company has Mr. Messersmith on a personal retainer of $8,333 per month
relating to his services provided to the Company and a bonus in the form of
personal property valued at $12,500 was awarded during 2002. Mr. Messersmith
also participated in the Management Plan, pursuant to which he was paid
approximately $360,000 during 2003, $377,000 during 2002, $401,000 during 2001.
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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Ernst & Young LLP served as the Company's principal independent
accountants for the first part, and BDO Seidman LLP served as the Company's
principal independent accountants for the remainder of the fiscal year ended
December 31, 2003
The following table presents fees for the audits of the Company's
annual consolidated financial statements for 2003 and 2002 and for other
services provided by BDO Seidman LLP and Ernst & Young LLP.
2003 2002
------- -------
Audit Fees .............................. 596,951(1) 387,150
Audit-Related Fees ...................... -- --
Tax Fees ................................ 67,200 64,020
All Other Fees .......................... -- --
(1) Due to a change in independent accountants in 2003, BDO Seidman LLP reviewed
the third quarter financial information for 2003 and audited the full year,
2003. The related fees for this work were $364,814. All other fees were billed
by Ernst & Young LLP.
Either the Audit Committee or Mr. Kares, as Chairman of the Audit
Committee, approved all engagements of the independent accountants in advance,
except with respect to the appointment of the independent audit firm, which is
made by the Audit Committee. In the event Mr. Kares approves any such
engagement, he discusses such approval with the Audit Committee at its next
meeting.
TAX FEES
Tax fees are primarily for tax compliance and tax consulting services.
The Audit Committee has concluded that the provision of tax services is
compatible with maintaining Ernst & Young LLP's independence and all services
rendered in connection with such fees were pre-approved by the Audit Committee.
PART IV
ITEM 15.
(a) 3. Exhibits
14.1 Code of Ethics
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or
Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended.
31.2 Certification of President pursuant to Rule 13a-14(a) or Rule 15d-14(a)
under the Securities Exchange Act of 1934, as amended.
31.3 Certification of Chief Accounting Officer pursuant to Rule 13a-14(a) or
Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended.
32.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or
Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended,
and 18 U.S.C. Section 1350.
32.2 Certification of President pursuant to Rule 13a-14(b) or Rule 15d-14(b)
under the Securities Exchange Act of 1934, as amended, and 18 U.S.C.
Section 1350.
32.3 Certification of Chief Accounting Officer pursuant to Rule 13a-14(b) or
Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended, and
18 U.S.C. Section 1350.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE MERIDIAN RESOURCE CORPORATION
BY: /s/ JOSEPH A. REEVES, JR.
----------------------------------
Chief Executive Officer
(Principal Executive Officer)
Director and Chairman of the Board
Date: April 29, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
BY: /s/ JOSEPH A. REEVES, JR Chief Executive Officer April 29, 2004
------------------------------ (Principal Executive Officer)
Joseph A. Reeves, Jr Director and Chairman
of the Board
BY: /s/ MICHAEL J. MAYELL President and Director April 29, 2004
------------------------------
Michael J. Mayell
BY: /s/ LLOYD V. DELANO Chief Accounting Officer April 29, 2004
------------------------------
Lloyd V. DeLano
BY: /s/ JAMES T. BOND Director April 29, 2004
------------------------------
James T. Bond
BY: /s/ JOE E. KARES Director April 29, 2004
------------------------------
Joe E. Kares
BY: /s/ GARY A. MESSERSMITH Director April 29, 2004
------------------------------
Gary A. Messersmith
BY: /s/ DAVID W. TAUBER Director April 29, 2004
------------------------------
David W. Tauber
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
14.1 Code of Ethics
31.1 Certification of Chief Executive Officer - Section 302
31.2 Certification of President - Section 302
31.3 Certification of Chief Accounting Officer - Section 302
32.1 Certification of Chief Executive Officer - Section 906
32.2 Certification of President - Section 906
32.3 Certification of Chief Accounting Officer - Section 906
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