UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A
Amendment No. 1
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2009
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission file number: 1-10671
THE MERIDIAN RESOURCE CORPORATION
(Exact name of registrant as specified in its charter)
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TEXAS
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76-0319553
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(State of incorporation)
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(I.R.S. Employer Identification No.)
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1401 Enclave Parkway, Suite 300, Houston, Texas
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77077
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code:
281-597-7000
Securities registered pursuant to Section 12(b) of the Act:
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(Title of each class)
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(Name of each exchange on which registered)
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Common Stock, $0.01 par value
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes
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No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Exchange Act.
Yes
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No
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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
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No
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Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files.) Yes
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No
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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 registrants 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.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one.)
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Large Accelerated Filer
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Accelerated Filer
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Non-Accelerated Filer
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Smaller Reporting Company
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
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No
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Aggregate market value of shares of common stock held by non-affiliates
of the Registrant at June 30, 2009
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$
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31,337,635
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Number of shares of common stock outstanding at April 15, 2010:
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92,475,527
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TABLE OF CONTENTS
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 April 15, 2010 (the Original Report on Form 10-K). The sole purpose of
this Amendment is to provide Items 10, 11, 12, 13 and 14 of Part III of Form 10-K. Accordingly,
Items 10-14 of Part III are amended and restated in their entirety. In addition, in connection
with the filing of this Amendment and pursuant to the rules of the Securities and Exchange
Commission, the Company is including with this Amendment certain currently dated certifications.
Accordingly, Item 15 of Part IV has also been amended to reflect the filing of these currently
dated certifications. Except as otherwise stated herein, the Amendment does not amend any other disclosure in the
Original Report on Form 10-K.
1
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
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
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NAME
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AGE
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WITH THE COMPANY
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SINCE
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TERM
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Paul Ching
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Class II Director,
President and Chief
Executive Officer, and
Chairman of the Board
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2008
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2010
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Joseph A. Reeves, Jr.
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Class III Director (1)
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1990
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2011
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Michael J. Mayell
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Class III Director (1)
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1990
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2011
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Fenner R. Weller, Jr.
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Class III Director (2)
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2004
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2011
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John B. Simmons
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Class I Director (4)
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2004
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(6
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C. Mark Pearson
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Class I Director (5)
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2006
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(6
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E. L. Henry
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Class II Director (5)
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1998
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2010
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(1)
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Member of the Executive Committee and Directors Stock Option Plan Administration Committee.
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(2)
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Member of the Audit Committee and the Compensation Committee.
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(3)
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Member of the Audit Committee and the Board Affairs Committee.
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(4)
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Member of the Audit Committee.
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(5)
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Member of the Board Affairs Committee and the Compensation Committee.
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(6)
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Mr. Simmons and Mr. Pearsons terms ended in 2009, but they will continue to serve until
they are reelected or their successors are duly elected.
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Paul D. Ching currently serves on the boards of three privately held technology start-up
companies, and is the chairman of one of those boards. He serves on the board of Oilsands Quest,
Inc., a publicly held company. 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 held senior level exploration and production related positions
for Royal
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Dutch Shell and its affiliates for 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. Mr.
Ching also serves as our Chief Executive Officer and President. His extensive experience in
leadership positions in management and operation of oil and gas companies serve as the basis for
his guidance of the Company as an effective officer and Chairman.
Joseph A. Reeves, Jr. is the former Chief Executive Officer of the Company. Mr. Reeves, along
with Mr. Michael J. Mayell, founded the Companys predecessor company, Texas Meridian Resources,
Ltd. (TMR), in 1988. From that time to December 29, 2008, Mr. Reeves was Chief Executive Officer
of the Company, and until April 2008, he also served the Company as Chairman of the Board of
Directors. His extensive history with the Company and its properties is a valuable asset to the
Board, as well as his experience in management and leadership roles.
Mr. Michael J. Mayell is the former President and Chief Operating Officer of the Company.
From 1988 to December 29, 2008 he held the positions of President and Chief Operating Officer or
similar positions with the Company. Mr. Mayell brings value to the Board also by his long history
with the Company and its properties, and his former role in management.
Fenner R. Weller, Jr. has been a general partner of Weller, Anderson, & Co., Ltd., a
securities firm, since 1995. Mr. Weller has been on the Board for six years. He brings to the
Board his financial experience and knowledge of financial markets.
John B. Simmons has served as Vice President and Chief Financial Officer of Paul Davis
Restoration of Greater Houston since August 2007. He 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. Mr. Simmonss extensive financial experience
qualifies him to serve as the Chairman of the Audit Committee, and to function as the Boards
financial expert.
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, from its
formation in September 2005 to June 2009, and President of Energy Investments Consulting Services,
LLC, since February 2006. 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. His management experience in oil and gas, from both the exploration and
production industry and the service industry, is an asset to the Board, where he has served for the
past four years.
E. L. Henry was a partner with the law firm of Adams and Reese L.L.P. in Baton Rouge,
Louisiana from 1987 until his retirement in 2001. Since 2001, he has been employed by Adams &
Reese L.L.P. 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
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from 1968 through 1980 and Speaker of the Louisiana House of Representatives
from 1972 through 1980.
The Companys major producing properties are in Louisiana. Mr. Henrys legal expertise,
particularly in the area of oil and gas, has been a valuable resource to the Board for the past
twelve years, as has his experience with the legislative and administrative practices of the
government of the state of Louisiana.
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 Mr. Simmons is an audit committee financial expert as defined in
applicable SEC and NYSE rules. The Board of Directors has adopted a written charter for the Audit
Committee, and a current copy of the charter is available on our website at
www.tmrc.com
under the Investor Relations caption.
EXECUTIVE OFFICERS
The following table provides information with respect to the executive 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
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FIRST
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ELECTED
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NAME OF OFFICER
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POSITION WITH THE COMPANY
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AGE
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OFFICER
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Paul D. Ching
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President and Chief Executive
Officer, Chairman of the Board of
Directors
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2008
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Lloyd V. DeLano
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Senior Vice President, Chief
Accounting Officer, and Secretary
of the Company
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1993
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Alan S. Pennington
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Vice PresidentExploration and
Business DevelopmentTMRX
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1999
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A. Dale Breaux
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Vice PresidentOperationsTMRX
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2002
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Steven G. Ives
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Vice President Finance
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2005
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For additional information regarding Mr. Ching, see Directors, above.
Lloyd V. DeLano joined 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. In December 2008, Mr. DeLano was appointed Secretary 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 Exploration and
Business Development of TMRX.
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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. In July 2009, Mr. Ives was named Vice
President Finance of the Company. 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.
There are no family relationships among the current officers and directors of the Company.
CODES OF ETHICS
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 which are
posted on the Companys web site at www.tmrc.com. To obtain a printed copy of the Companys Code
of Ethics for Senior Financial Officers or Code of Ethics and Business Conduct send a written
request to 1401 Enclave Parkway, Suite 300, Houston, Texas 77077.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 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,
the Company believes that, during the period from January 1, 2009, through December 31, 2009, all
officers, directors and greater than ten-percent shareholders of the Company were in compliance
with applicable filing requirements. Through April 2010, a Form 5 due in February 2010 for Steven
G. Ives, Vice President TMRX, was filed late, on April 22, 2010.
ITEM 11. 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 President and Chief Executive Officer (CEO), Paul D. Ching, 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. The
Company does not currently employ an executive in the position of COO. 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. The Board of Directors
has adopted a written charter for the Compensation Committee, and a current copy of the charter is
available on our website at
www.tmrc.com
under the Investor Relations caption.
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All the named officers whose compensation is described in this report have written employment
agreements with us. The Compensation Committee reviews total compensation of our CEO annually, and
reviews the compensation of other executives as necessary. The committee uses information supplied
by various sources, including Company management and may use 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. The Compensation Committee also makes recommendations to the full Board regarding
compensation of other officers, including the awarding of any cash or equity-based bonuses.
Director compensation is revised as the Board considers appropriate with the entire Board of
Directors voting.
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;
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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.
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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.
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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. 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.
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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
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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. Compensation studies are not utilized every year.
Compensation of Chief Executive Officer
Mr. Paul D. Ching began serving as our President and CEO in December 2008. Mr. Ching became
Chairman of the Board in April 2008, and has been on our board since January 2008. Mr. Chings
compensation package, which is reflected in his employment agreement effective December 30, 2008,
includes the following:
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a salary of $41,667 per month, which equates to an annual rate of $500,000;
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a discretionary bonus at the sole option of the Board of Directors, of a maximum
amount equal to the amount he will have earned in salary during his tenure as
President and CEO;
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a total of 250,000 stock options with an exercise price of $.58 (closing market
price on first day of business of 2009) which vested 50% in six months and the
remainder one year from date of grant;
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provision for reimbursement of reasonable travel and living expenses, as Mr.
Chings home is in Dallas, and the Companys offices are in Houston; and
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termination benefits that would guarantee full payment of the remainder of the
contract if termination were for various reasons, but not including death,
disability, or cause.
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Mr. Chings compensation does not include any of the Companys standard employee benefits,
such as health insurance and 401(K) plan matching contributions. In addition, so long as he is an
employee, he will not receive fees for his service on the Board of Directors or as Chairman of the
Board, although he continues to serve us in those capacities. As Chairman of the Board, he was
entitled to a total of $125,000 annually in fees for his services on the board, plus additional
smaller fees for meeting attendance.
In providing this compensation package to Mr. Ching, the Compensation Committee considered the
following:
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the interim nature of his appointment, which necessitated a focus on
shorter-term performance;
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the challenges facing the Company in December 2008, when he was hired, which
included the precipitous decrease in prices for our products experienced in the
second half of 2008, the loss of access to credit when the borrowing base under our
credit facility became fully drawn in December 2008, and a continued decline in
production;
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executive compensation studies provided by compensation consultants; and
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Mr. Chings added value as a current director familiar with the Company and its
business.
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As a result of these considerations, and of negotiations with Mr. Ching, the Compensation
Committee determined that a package consisting primarily of cash, but also including equity
incentives with a shortened vesting period, was appropriate. The salary was intended to be
somewhat above average for similar positions, for these reasons:
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The challenges facing the Company, and Mr. Chings added value due to experience
with the Company and in the industry;
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The dual nature of his duties, as both CEO and Chairman of the Board of
Directors, for which he would no longer receive director fees;
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The added personal inconvenience of weekly travel between his home and our
offices and time spent away from his family.
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Additionally, the provision of no employee benefits and the completely discretionary nature of
any bonus were factors in setting the salary somewhat above average. The Compensation Committee
used compensation information from consultants only for reference, and not to provide a specific
mathematical computation of compensation items.
The Committee did not recommend any changes to Mr. Chings base contract in 2009; it has been
extended several times. He continues to serve the Company under the terms of the contract on a
month to month basis. In January 2010, Mr. Ching was granted a cash bonus of $500,000 for his
performance during 2009. His accomplishments that year included
guiding the Company during a year of significant challenge, due to
our default under our primary credit facility, loss of access to
credit, and reduced prices for our products. He oversaw reductions in
operating and overhead expenses, and led a search for a strategic
partner for the Company, which culminated in the proposed merger with
Alta Mesa Holdings, LP.
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. 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 except Mr. Ching has been with the Company for many
years. Total compensation and its components as of year-end 2009 were largely the cumulative result
of compensation decisions made for each of these individuals over a period of many years. 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 2009 was weighted toward cash elements,
with the cash component ranging from 89% to 100% of total compensation. As discussed above, this
allocation was largely the result of legacy agreements. Through the well bonus plans, which are
paid in cash rather than shares, our executives have been given a stake in company performance.
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;
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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.
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In July 2008, we also initiated the Meridian Resource & Exploration LLC Retention Incentive
Compensation Plan, which was applicable to all employees other than top management, and included
executive officers other than our CEO and COO. The purpose of the plan was to encourage the
retention of valued employees for the immediate term. The employment market for experienced
personnel in the oil and gas industry had been very strong in recent years. The Company believed
the incentive program would help to equalize its employees compensation with current market
conditions and motivate them to continue their careers with Meridian. Participating employees were
given two months pay as a bonus at inception of the plan and another four months pay at
completion of an additional nine months of service on March 31, 2009.
Also in 2008, the Company provided certain protections to a group of employees, in which all
the named executive officers other than the then-current and former CEO and COO were included, by
introducing The Meridian Resource & Exploration LLC Change in Control and Severance Plan, effective
December 15, 2008. Under the terms of this plan, employees will receive severance payments,
accelerated vesting of any unvested equity awards, and extended health insurance benefits, in case
of termination of their employment after a change of control of the Company. The amount of
severance and other benefits varies by employee. The terms provided to each individual employee
were determined by the Executive Committee. The purpose of this plan was the same as the retention
plan described above.
Salary.
Salaries for our executive officers in 2009 were based on the initial salaries set
forth in their respective employment agreements. We typically grant an annual salary increase to
all employees at the same time, usually in December. Executive officers are included in this
increase. In 2009, we did not grant an increase, due to the Companys reduced cash flow from
operations and loss of access to credit under its primary credit facility. We typically have also
granted individual merit or market-based increases to our executive officers or other employees,
based upon a change in responsibilities or other factors. We did not make any such increases in
2009, however.
Discretionary cash bonus
. From time to time, the Executive Committee and / or the
Compensation Committee will award cash bonuses to employees for outstanding service. Other than
the bonus for our CEO Mr. Ching, described above, in 2009, only one such bonus was awarded, to Mr.
Steven G. Ives, Vice President, in the amount of $10,000. Mr. Ives discretionary bonus was
related to his ongoing work with our lenders under particularly challenging circumstances.
Well bonus plans.
During 2007, 2008, and 2009, we provided profit sharing opportunities to all
of our employees other than the CEO through well bonus plans. Our named executive officers, other
than Mr. Ching, each participate in The Meridian Resource Corporation Management Well Bonus Plan
(the Management 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 Company in each producing well acquired
or spudded during his or her term of employment with the Company.
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
9
paid in either cash or common stock of the Company and is currently paid in
cash. The participation factors for each of Messrs. DeLano and Pennington are 1/4th of 1%. The
participation factors for Mr.
Breaux are either 1/5
th
of 1% or 1/4th of 1%, depending on the spud dates of the
various wells in which he participates. The participation factors for Mr. Ives range from 0.15 of
1% to 1/4th of 1%, depending on the spud dates of the various wells in which he participates.
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. The Management Plan was
intended 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.
The well bonus plans also are designed to accumulate participations as employment lengthens,
which may increase employee retention.
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 significant awards under any of the plans to the named executive
officers since 2002, except for Mr. Ching, who received grants of options and non-vested stock as a
director and upon appointment as Chairman of the Board in 2008, and a larger grant of options upon
his appointment as CEO in January 2009. Consequently, we report no awards in the Option Awards
column of the Summary Compensation Table below, other than those for Mr. Ching.
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. Mr. Chings awards have varying vesting terms, but the most
significant grant, made upon his appointment as CEO, vested 50% on each of the first and second
six-month anniversaries of grant date, which was January 2, 2009 (i.e., they were fully vested on
the first anniversary of grant date.) This more accelerated vesting schedule recognizes the
shorter term nature of his assignment with the Company as our interim CEO.
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
incentive already provided by the Management Plan. 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. We have utilized primarily stock options, with
limited use of
10
non-vested stock grants. We may choose to utilize other forms of equity awards, such
as 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
non-vested stock. However, we believe they provide relatively more performance incentive, as all
options are granted at-the-money, and unlike stock shares, 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 primarily awards of stock options.
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.
The exception to that is that Mr. Ching was granted 15,873 shares of non-vested stock in 2008, upon
his appointment as Chairman of the Board.
Although the Company has not adopted a formal policy with regard to equity grants, our
practice is to use care in selecting the date of significant grants (other than hiring incentives,
which relate to the date of hire, and director election and reelection dates, which relate to those
election dates) so that grant dates are not in close proximity to the timing of public
announcements which may affect the price of our stock. We expect to continue to set exercise
prices at the closing price of our stock on the date of grant.
Employment contracts and post-termination compensation.
We have written employment agreements
with each of our current named executive officers. Each agreement specifies a minimum salary and
some form of termination benefits. In addition, The Meridian Resource & Exploration LLC Change in
Control and Severance Plan provides backup in case of employee termination due to change of
control. We believe that such benefits help provide an environment of relative security in which
our executives will achieve their best. With the exception of Mr. Ching, 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.
Benefits.
With the exception of Mr. Ching, who receives no 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 cash.
In addition, our named executive officers may be provided membership in a health or luncheon
club, which they may use for personal as well as business purposes. The 401(k) matching
contribution is
11
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.
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, 2008, and 2009,
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 Accounting Standards Codification Topic
718 (ASC 718). 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 ASC 718 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.
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
12
COMPENSATION TABLES AND ADDITIONAL INFORMATION
The following table sets forth a summary of compensation paid to our Chief Executive Officer,
Chief Accounting Officer and the three other most highly paid persons serving as executive officers
during 2009 for the years ended December 31, 2009, 2008, and 2007.
Summary Compensation Table
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Change in
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Pension
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Value and
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Non-Equity
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Nonqualified
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All
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Incentive
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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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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
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Position
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Year
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($)
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($)
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($)
(1)
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($)
(1)
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($)
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($)
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($)
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($)
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Paul D. Ching, CEO, President,
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2009
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500,000
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(2)
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62,500
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562,500
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& Chairman of the Board of Directors
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2008
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50,000
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27,600
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100,750
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(3)
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178,350
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Lloyd V. DeLano,
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2009
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260,750
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325,551
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(4)
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15,925
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(5)
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602,226
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Sr. Vice President,
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2008
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260,750
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638,749
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(4)
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14,950
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(5)
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914,449
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CAO, and Secretary
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2007
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244,422
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451,019
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(4)
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14,625
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(5)
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710,066
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Alan S. Pennington
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2009
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245,105
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320,336
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(6)
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15,925
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(5)
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581,366
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VP Business
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2008
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245,105
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585,490
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(6)
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14,950
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(5)
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845,545
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Development
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2007
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232,003
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450,394
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(6)
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14,625
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(5)
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697,022
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A. Dale Breaux,
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2009
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234,675
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252,794
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(7)
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15,925
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(5)
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503,394
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VP Operations
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2008
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234,675
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369,843
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(7)
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14,950
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(5)
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619,468
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2007
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219,000
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261,627
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(7)
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14,625
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(5)
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495,252
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Steven G. Ives,
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2009
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173,920
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195,907
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(8)
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15,504
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(5)
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385,331
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VP
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2008
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173,920
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233,497
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(8)
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14,950
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(5)
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422,367
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13
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1.
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Stock awards and option awards are stated at the grant date fair value as determined in
accordance with Accounting Standards Codification Topic 718. See Footnote 10 to the
Consolidated Financial Statements included in our 2009 Original Report on Form 10-K for
assumptions used in valuing these awards. See the Grants of Plan-Based Awards table for
further information regarding 2009 awards.
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2.
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In January 2010, Mr. Ching was awarded a $500,000 cash bonus for performance during
2009.
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3.
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Includes $100,750 in directors fees.
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4.
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Includes $238,634, $534,426, and $440,602 for bonus paid to Mr. DeLano under the
Management Plan in 2009, 2008, and 2007, respectively. In 2009 and 2008, respectively,
also includes $86,917 and $43,458 retention bonus paid under the Meridian Resource &
Exploration LLC Retention Incentive Compensation Plan. For further information, see
Narrative to Summary Compensation Table Retention Bonus. Also in 2008, includes
$50,000 discretionary performance recognition bonus. Also includes $10,865 and $10,417
bonus paid under our Christmas bonus plan in 2008 and 2007, respectively.
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5.
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Represents Company matching contributions to the named executive officers 401(k)
savings account. In 2009, these contributions were made in cash; in prior years, all
contributions were made with our common stock.
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6.
|
|
Includes $238,634, $534,426, and $440,602 for bonus paid to Mr. Pennington under the
Management Plan in 2009, 2008, and 2007, respectively. In 2009 and 2008, respectively,
also includes $81,702 and $40,851 retention bonus. Also includes $10,213 and $9,792 bonus
paid under our Christmas bonus plan in 2008 and 2007, respectively.
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7.
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Includes $174,569, $320,952 and $252,253 for bonus paid to Mr. Breaux under the
Management Plan in 2009, 2008 and 2007, respectively. In 2009 and 2008, respectively, also
includes $78,225 and $39,113 retention bonus. Includes $9,778 and $9,374 bonus paid under
our Christmas bonus plan in 2008 and 2007, respectively.
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8.
|
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Includes $127,934 and $186,868 for bonus paid to Mr. Ives under the Management Plan in
2009 and 2008, respectively. In 2009 and 2008, respectively, also includes $57,973 and
$28,987 retention bonus paid under the Meridian Resource & Exploration LLC Retention
Incentive Compensation Plan. Also includes $10,000 and $10,395 discretionary performance
recognition bonus in 2009 and 2008, respectively. In 2008, also includes $7,247 bonus paid
under our Christmas bonus plan.
|
Grants of Plan-Based Awards
The following table provides information on all grants of plan-based awards to our named
executive officers in 2009.
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Option
|
|
|
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Stock
|
|
Awards:
|
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|
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Grant Date
|
|
|
|
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Awards:
|
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Number of
|
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Exercise Price
|
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Fair Value of
|
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|
|
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Number of
|
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securities
|
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of Option
|
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Stock and
|
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|
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shares of
|
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underlying
|
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Awards ($ /
|
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Option
|
Name
|
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Grant Date
|
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stock (#)
|
|
options (#)
|
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Sh)
|
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Awards ($)
|
Paul D. Ching
|
|
01/02/2009
|
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|
|
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250,000
|
|
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$
|
0.58
|
|
|
$
|
62,500
|
|
14
Narrative to Summary Compensation Table
Employment Agreements
During 2009, we had employment agreements with each of our named executive officers, which are
summarized under the caption Potential Payments Upon Termination or Change-in-Control below.
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 Mr. Ching, each participate in
The Meridian Resource Corporation Management Well Bonus Plan (the Management Plan).
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 Mr. DeLano and Mr. Pennington are 1/4
th
of 1%.
The participation factors for Mr. Breaux are either
1/5
th
of
1% or 1/4th of 1%, depending on the spud dates of the various wells in
which he participates. The participation
factors for Mr. Ives range from 0.15 of 1% to 1/4th of 1%, depending on the spud dates of the
various wells in which he participates.
Under the terms of their employment agreements with us and the Management Plan, Messrs.
DeLano, Pennington, Breaux, and Ives 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.
Retention Bonus
In July 2008, we initiated the Meridian Resource & Exploration LLC Retention Incentive
Compensation Plan, which was applicable to all employees other than top management, and included
executive officers other than our CEO and COO. The purpose of the plan was to encourage the
retention of valued employees for the immediate term. The employment market for experienced
personnel in the oil and gas industry had been very strong in recent years. The Company believed
the incentive program would help to equalize its employees compensation with current market
conditions and motivate them to continue their careers with Meridian. Participating employees were
given two months pay as a bonus at
15
inception of the plan and another four months pay at completion of an additional nine months
of service on March 31, 2009.
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).
Discretionary Cash Bonus
Our compensation committee periodically makes discretionary cash awards for exceptional
performance. In 2009, the committee granted awards to Mr. Ching (which is not reflected on the
Summary Compensation Table, as it was paid in 2010) and to Mr. Ives. These are described further
in Compensation Discussion and Analysis, above.
16
Outstanding Equity Awards at Year End
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Option Awards
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Stock Awards
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Equity
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Equity
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Incentive
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Incentive
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Plan
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Plan
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Awards:
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Equity
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Awards:
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Market or
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Incentive
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Number
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Payout
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Plan
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of
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Value of
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Awards:
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Unearned
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Unearned
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Number
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Number of
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Market Value of
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Shares,
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Shares,
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Number
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Number of
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of
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Shares or
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Shares or
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Units or
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Units or
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of
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Securities
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Securities
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Units of
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Units of
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Other
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Other
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Securities
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Underlying
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Underlying
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Stock
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Stock
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Rights
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Rights
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Underlying
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Unexercised
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Unexercised
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Option
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That
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That
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That
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That
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Unexercised
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Options
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Unearned
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Exercise
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Option
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Have Not
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Have Not
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Have Not
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Have Not
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Options
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Unexercisable
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Options
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Price
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Expiration
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Vested
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Vested
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Vested
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Vested
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Name
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Exercisable (#)
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(#)
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(#)
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($)
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Date
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(#)
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($)
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(#)
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($)
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Paul D. Ching
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7,500
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(1)
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7,500
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(1)
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1.79
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01/02/2013
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3,750
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(1)
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11,250
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(1)
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2.83
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08/06/2013
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125,000
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(2)
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125,000
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(2)
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0.58
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01/02/2019
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Lloyd V. DeLano
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Alan S. Pennington
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A. Dale Breaux
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15,000
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(3)
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3.00
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7/24/2012
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Steven G. Ives
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1,500
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(4)
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3.99
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11/05/2011
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1.
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Options vest 25% on the first and second anniversary of grant date, and 50% on the third
anniversary of grant date. Grant dates were January 2, 2008 and August 6, 2008 for these
two grants, respectively.
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2.
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Options granted on January 2, 2009, vesting 50% on each of the first and second
six-month anniversaries of the grant date. These options were granted in conjunction with
Mr. Chings appointment as interim CEO and President.
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3.
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Mr. Breauxs options were granted on July 24, 2002 and 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).
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17
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4.
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Mr. Ives options were granted on November 5, 2001 and 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).
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Mr. Breauxs and Mr. Ivesstock options were granted from the 1997 Plan. Each of Mr. Chings
grants of 15,000 stock options were from the 2006 Non-Employee Directors Incentive Plan. Mr.
Chings grant of 250,000 stock options was from the 2007 Plan.
Option Exercises and Stock Vested
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Option Awards
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Stock Awards
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Number of Shares
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Number of Shares
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Acquired on
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Value Realized on
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Acquired on
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Value Realized on
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Name
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Exercise (#)
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Exercise ($)
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Vesting (#)
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Vesting ($)
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Paul D. Ching
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15,873
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$
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5,238
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Pension Benefits
We have no pension benefits other than the Company contribution to the employees 401(k)
savings plan.
Nonqualified Deferred Compensation
The Company has no plans for deferral of compensation.
Potential Payments Upon Termination or Change-in-Control
Employment Agreement with Paul D. Ching
We have an employment agreement, effective as of December 30, 2008 with Paul D. Ching, our
interim President and Chief Executive Officer. The employment agreement was originally for a term
of six months and was renewed through March 31, 2010. Mr. Ching continues to serve as our CEO on a
month to month basis. The employment agreement provides for a base salary of $41,667 per month,
which equates to an annual rate of $500,000. In addition, the agreement provides for a bonus at
the discretion of our Board of Directors, to be a maximum of 100% of the total compensation earned
by Mr. Ching during his tenure as interim CEO. The agreement also provides specifically for
reimbursement of reasonable travel and living expenses while away from home on business. As Mr.
Chings home is in Dallas and the Companys offices are in Houston, these expenses are not
incidental. Finally, the agreement specifies that Mr. Ching will not be entitled to participate in
any of the Companys employee benefit plans.
Termination of Employment Due to Death, Disability or for Cause
Upon the termination of Mr. Chings employment due to his death, disability or for cause, or
upon Mr. Chings voluntary termination of employment other than for good reason, we will pay him
all accrued but unpaid salary through the date of termination.
18
Termination of Employment Without Cause, or Termination of Employment for Good Reason
If we terminate Mr. Chings employment without cause, or Mr. Ching terminates his employment
for good reason, we will pay him (a) all accrued but unpaid salary through the date of termination
and (b) his monthly salary for the remainder of the term of his employment agreement.
Termination of Employment after a Change of Control
If we or our successor terminate Mr. Chings employment after a change of control, we will pay
him (a) all accrued but unpaid salary through the date of termination and (b) his monthly salary
for the remainder of the term of his employment agreement.
If we had terminated Mr. Chings employment on December 31, 2009 after a change of control, we
estimate the value of the payments he would have been eligible to receive was $125,000, as the
Company had resolved to extend his contract through March 31, 2010, though the extension had not
yet been executed. He was also eligible to receive a discretionary performance bonus for 2009
performance which had already been discussed with him and accrued in our financial statements. The
amount of this bonus was $500,000, and it was paid in January 2010. Under Mr. Chings 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.
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Termination by Mr. Ching for good reason is generally defined as:
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our failure to pay Mr. Ching in accordance with his employment agreement; or
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our failure to comply with any material provision of his employment agreement.
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Termination by us of Mr. Ching for cause is generally defined as:
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his conviction of a felony or crime involving moral turpitude;
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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.
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Employment Agreement with Lloyd V. DeLano
We have an employment agreement, dated December 17, 2008, 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 one-year terms unless terminated before the expiration of any term.
The employment agreement provides for a base salary with annual increases in our discretion. Mr.
DeLanos base salary payments were $260,750 in 2009. In addition, the agreement provides for
annual
19
bonuses at the discretion of our Board of Directors. Mr. DeLano is also a participant in
our Management Well Bonus Plan.
Mr. DeLano is a participant in the Meridian Resource & Exploration LLC Change in Control and
Severance Plan (Plan), which was adopted effective December 15, 2008. The Plan expires December
15, 2009, but is automatically renewable for one-year terms each year so long as the Company does
not terminate the Plan with six months notice. Should a change
in control occur, the Plan will
terminate one year after the change in control. Should Mr. DeLanos individual participation in
the Plan be revoked, he must be given nine months notice. Mr. DeLanos participation in the Plan
was granted on February 20, 2009.
Under the terms of Mr. DeLanos participation in the Plan, he is entitled to certain benefits
if the Company experiences a change in control. The benefits are described below under
Termination of Employment after Change in Control.
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 of
employment. As of December 31, 2009, this would have been $20,058.
Termination of Employment Without Cause or Termination by the Employee for Good Reason
If we terminate Mr. DeLanos employment without cause, or if he terminates his employment with
us for good reason, as defined in his employment agreement, 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. In addition, we will: (c) continue his medical insurance benefits for a
period of 18 months after his termination of employment. If we had terminated Mr. DeLanos
employment on December 31, 2009, without cause, or had he terminated on that date 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) $20,058; (b) $391,125; and (c) $20,270 with
an aggregate value of $431,453.
Termination of Employment after a Change in Control
If we terminate Mr. DeLanos employment after a change in control during the term of the Plan,
we will (a) pay him all accrued but unpaid salary, vacation and sick leave benefits through the
date of termination; (b) pay him his monthly salary for 18 months after the date of termination;
(c) continue his medical insurance benefits for a period of 18 months after his termination of
employment at no cost to him; and (d) pay him a single lump sum amount representing 18 months
premiums for the basic life insurance provided by the Company on his date of termination. These
benefits are in addition to the benefits which would accrue to him for termination under his
employment contract, which include (e) his monthly salary for 18 months after the date of
termination. If we had terminated Mr. DeLanos employment on December 31, 2009 after a change in
control, we estimate the value of the payments and benefits described in clauses (a), (b), (c), and
(d) above he would have been eligible to receive is (a) $20,058; (b) $391,125, (c) $25,200, (d)
$2,592, and (e) $391,125, with an aggregate value of $830,100.
20
Under the Plan, a change in control is generally defined as:
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a merger or other transaction, unless at least 70% of the voting power of the
surviving entity is held by at least 70% of the holders of our voting securities
immediately prior to the transaction; or
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acquisition by any person, other than a Specified Owner*, as defined, of more
than 30% of the voting power of our outstanding securities; or
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a sale, transfer, lease, or other disposition of all or substantially all of the
Companys assets
unless
: (1) at least 70% of the voting power of the acquiring
entity or its parent is held by at least 70% of the holders of the Companys voting
securities immediately prior to the transaction, in substantially the same
proportions as they held voting shares of the Companys stock immediately prior to
the transaction; or (2) the individuals who comprise the Companys board of
directors constitute a majority of the members of the board or other governing body
of the acquiring entity or its parent company; or
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the individuals comprising the Companys board of directors or their incumbents
cease to be a majority of the board of directors (incumbent directors are defined
generally as those
nominated or appointed by members of the current board or by members who become
incumbents); or
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Company stockholders approve a plan of complete dissolution or liquidation.
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*
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Specified Owners is defined as including the Company or its affiliates; any employee
benefit plan it sponsors or maintains; owners of more than 50% of the Companys voting stock who
acquired the stock either directly from the Company or from Joseph A. Reeves, Jr. or Michael J.
Mayell; Messrs. Reeves or Mayell; an owner of more than 50% of the Companys voting stock who
achieved this ownership through a merger if at least 70% of the voting shares of the surviving
entity or its parent are owned by the holders of the Companys voting securities immediately prior
to the transaction, in substantially the same proportions as they held voting shares of the
Companys stock immediately prior to the transaction.
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Under the terms of his employment agreement, 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, or to
comply with any material provision of the agreement;
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a material change in the scope of Mr. DeLanos duties and responsibilities, his
facilities and secretarial assistance, or his direct report (which is the CEO);
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the assignment of Mr. DeLano to an office location more than 30 miles distant
from the Companys current location;
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failure of the Company to comply with any indemnification agreement provided to
Mr. DeLano; or
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the refusal to assume the employment agreement by any Company successor or
assign.
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Under the terms of his employment agreement, termination by us of Mr. DeLano for cause is
generally defined as:
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his conviction of a felony or a crime of moral turpitude;
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his failure or refusal to comply with our policies;
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21
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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 diligently perform his duties under his employment agreement.
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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, 2009, we estimate the value of remaining payments to him from the
Management Well Bonus Plan to be $471,000, based on PV-10 prices at December 31, 2009.
Employment Agreement with Alan S. Pennington
We have an employment agreement, dated December 17, 2008, with Alan S. Pennington, our Vice
President of Business Development. The employment agreement is for a term of one year, renewable
automatically for one-year terms unless terminated before the expiration of any term. The
employment agreement provides for a base salary with annual increases in our discretion. Mr.
Penningtons base salary payments were $245,105 in 2009. 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 Payments to Mr. Pennington
The terms of Mr. Penningtons employment contract, other than annual salary and his title and
responsibilities, are substantially similar to those described above for Mr. DeLano.
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. As of December 31, 2009, this would have been zero.
If we terminate Mr. Penningtons employment without cause, or if he terminates his employment
for good reason, as defined in his employment agreement, we will (a) pay him all accrued but unpaid
salary, vacation and sick leave benefits through the date of termination and (b) pay him his
monthly salary for 18 months, as well as (c) continue medical benefits for 18 months. If we had
terminated Mr. Penningtons employment on December 31, 2009, without 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) $367,658, and (c) $20,270; with an aggregate value
of $387,928.
The terms of Mr. Penningtons participation in the Meridian Resource & Exploration LLC Change
in Control and Severance Plan (Plan) are substantially the same as those for Mr. DeLano,
described above. Mr. Penningtons participation in the Plan was effective February 25, 2009. If
we terminate Mr. Penningtons employment after a change in control during the term of the Plan, we
will (a) pay him all accrued but unpaid salary, vacation and sick leave benefits through the date
of termination; (b) pay him his monthly salary for 18 months after the date of termination; (c)
continue his medical insurance benefits for a period of 18 months after his termination of
employment at no cost to him; and (d) pay him a single lump sum amount representing 18 months
premiums for the basic life insurance provided by the Company on his date of termination. These
benefits are in addition to the benefits which
22
would accrue to him for termination under his
employment contract, which include (e) his monthly salary for 18 months after the date of
termination. If we had terminated Mr. Penningtons employment on December 31, 2009 after a change
in control, we estimate the value of the payments and benefits described in clauses (a), (b), (c),
and (d) above he would have been eligible to receive is (a) $-0-; (b) $367,658, (c) $25,200, (d)
$2,538, and (e) $367,658, with an aggregate value of $763,054.
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, 2009, we estimate the value of remaining payments to him
from the Management Well Bonus Plan to be $471,000, based on PV-10 prices at December 31, 2009.
Employment Agreement with A. Dale Breaux
We have an employment agreement, dated December 17, 2008, with A. Dale Breaux, our Vice
President of Operations. The employment agreement is for a term of one year, renewable
automatically for one-year terms unless terminated before the expiration of any term. The
employment agreement provides for a base salary with annual increases in our discretion. Mr.
Breauxs base salary payments were $234,675 in 2009. 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 Payments to Mr. Breaux
The terms of Mr. Breauxs employment contract, other than annual salary and his title and
responsibilities, are substantially similar to those described above for Mr. DeLano.
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.
As of December 31, 2008, this would have been $10,154.
If we terminate Mr. Breauxs employment without cause, or if he terminates his employment for
good reason, as defined in his employment agreement, we will (a) pay him all accrued but unpaid
salary, vacation and sick leave benefits through the date of termination and (b) pay him his
monthly salary for 18 months, as well as (c) continue medical benefits for 18 months. If we had
terminated Mr. Breauxs employment on December 31, 2009, without 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) $10,154, (b) $352,013, and (c) $1,354; with an aggregate
value of $363,521.
The terms of Mr. Breauxs participation in the Meridian Resource & Exploration LLC Change in
Control and Severance Plan (Plan) are substantially the same as those for Mr. DeLano, described
above. Mr. Breauxs participation in the Plan was effective February 20, 2009. If we terminate
Mr. Breauxs employment after a change in control during the term of the Plan, we will (a) pay him
all accrued but unpaid salary, vacation and sick leave benefits through the date of termination;
(b) pay him his monthly salary for 18 months after the date of termination; (c) continue his
medical insurance benefits for a period of 18 months after his termination of employment at no cost
to him; and (d) pay him a single lump sum amount representing 18 months premiums for the basic
life insurance provided by the Company on his date of termination. These benefits are in addition
to the benefits which would accrue to him for termination under his employment contract, which
include (e) his monthly salary for 18 months after the
23
date of termination. If we had terminated
Mr. Breauxs employment on December 31, 2009 after a change in control, we estimate the value of
the payments and benefits described in clauses (a), (b), (c), and (d) above he would have been
eligible to receive is (a) $10,154; (b) $352,013, (c) $1,692, (d) $2,490, and (e) $352,013, with an
aggregate value of $718,362.
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, 2009, we estimate the value of remaining payments to him from the
Management Well Bonus Plan to be $212,000 based on PV-10 prices at December 31, 2009.
Employment Agreement with Steven G. Ives
We have an employment agreement, dated December 17, 2008, with Steven G. Ives, our Vice
President of Finance. The employment agreement is for a term of one year, renewable automatically
for one-year terms unless terminated before the expiration of any term. The employment agreement
provides for a base salary with annual increases in our discretion. Mr. Ives base salary payments
were $173,920 in 2009. In addition, the agreement provides for annual bonuses at the discretion of
our Board of Directors. Mr. Ives is also a participant in our Management Well Bonus Plan.
Termination Payments to Mr. Ives
The terms of Mr. Ives employment contract, other than annual salary and his title and
responsibilities, are substantially similar to those described above for Mr. DeLano.
Upon the termination of Mr. Ives employment due to his death, disability or for cause, or
upon Mr. Ives 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. As of
December 31, 2009, this would have been $13,378.
If we terminate Mr. Ives employment without cause, or if he terminates his employment for
good reason, as defined in his employment agreement, we will (a) pay him all accrued but unpaid
salary, vacation and sick leave benefits through the date of termination and (b) pay him his
monthly salary for 18 months, as well as (c) continue medical benefits for 18 months. If we had
terminated Mr. Ives employment on December 31, 2009, without 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) $13,378, (b) $260,880, and (c) $9,382; with an aggregate value of
$283,641.
The terms of Mr. Ives participation in the Meridian Resource & Exploration LLC Change in
Control and Severance Plan (Plan) are substantially the same as those for Mr. DeLano, described
above. Mr. Ives participation in the Plan was effective February 20, 2009. If we terminate Mr.
Ives employment after a change in control during the term of the Plan, we will (a) pay him all
accrued but unpaid salary, vacation and sick leave benefits through the date of termination; (b)
pay him his monthly salary for 18 months after the date of termination; (c) continue his medical
insurance benefits for a period of 18 months after his termination of employment at no cost to him;
and (d) pay him a single lump sum amount representing 18 months premiums for the basic life
insurance provided by the Company on his date of termination. These benefits are in addition to
the benefits which would accrue to him for termination under his employment contract, which include
(e) his monthly salary for 18 months after the date of termination. If we had terminated Mr. Ives
employment on December 31, 2009 after a change in
24
control, we estimate the value of the payments
and benefits described in clauses (a), (b), (c), and (d) above he would have been eligible to
receive is (a) $13,378; (b) $260,880, (c) $11,664, (d) $2,142, and (e) $260,880, with an aggregate
value of $548,944.
Participation by Mr. Ives in the Management Well Bonus Plan
If Mr. Ives 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. Ives employment had
terminated on December 31, 2009, we estimate the value of remaining payments to him from the
Management Well Bonus Plan to be $120,000 based on PV-10 prices at December 31, 2009.
DIRECTOR COMPENSATION
The following table summarizes compensation paid to non-employee directors for 2009. Mr.
Ching became an employee director as of December 30, 2008 and did not receive any additional
compensation for his service on the Board of Directors after that date; for information regarding
his compensation, see the Summary Compensation Table.
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Change in
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Fees
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Pension
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Earned
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Value and
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or
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Non-Equity
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Nonqualified
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Paid in
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Stock
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Option
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Incentive Plan
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Deferred
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All Other
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Cash
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Awards
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Awards
(9)
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Compensation
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Compensation
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Compensation
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Total
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Name
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($)
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($)
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($)
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($)
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Earnings
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($)
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($)
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E. L. Henry
(1)
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46,000
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46,000
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Joe Kares
(2)
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39,500
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251,559
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(9)(10)
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291,059
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(resigned)
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G. M. Byrd Larberg
(3)
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34,500
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43,625
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(11)
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78,125
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(resigned)
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Michael J. Mayell
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43,000
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246,301
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(12)
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289,301
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Gary A. Messersmith
(4)
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37,500
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|
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|
|
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295,798
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(13)(14)
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333,298
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(resigned)
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C. Mark Pearson
(5)
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48,250
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48,250
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John B. Simmons
(6)
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|
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60,000
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|
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|
|
|
|
|
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|
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60,000
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Joseph A. Reeves
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43,000
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245,910
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(15)
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|
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288,910
|
|
|
|
|
|
|
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David W. Tauber
(7)
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23,500
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23,500
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Fenner R. Weller
(8)
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50,500
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50,500
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25
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1.
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Mr. Henry is a Member of the Board Affairs Committee and is Chairman of the
Compensation Committee. He holds options to purchase 15,000 shares of our common stock.
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2.
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Mr. Kares resigned from the Board of Directors effective October 13, 2009. He holds no
options to purchase shares of our common stock.
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3.
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Mr. Larberg resigned from the Board of Directors effective October 13, 2009. He holds
no options to purchase shares of our common stock.
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4.
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Mr. Messersmith resigned from the Board of Directors effective October 13, 2009. He
holds no options to purchase shares of our common stock.
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5.
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Mr. Pearson is a Member of the Board Affairs Committee and the Compensation Committee.
Mr. Pearson holds options to purchase 30,000 shares of our common stock.
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6.
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Mr. Simmons is Chairman of the Audit Committee. He holds options to purchase 15,000
shares of our common stock.
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|
7.
|
|
Mr. Tauber resigned from the Board of Directors as of July 9, 2009. Mr. Tauber holds
no options to purchase shares of our common stock.
|
|
8.
|
|
Mr. Weller is a Member of the Audit Committee and the Compensation Committee. Mr.
Weller holds options to purchase 30,000 shares of our common stock.
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9.
|
|
Includes $101,184 paid to Mr. Kares as a bonus under the Management Well Bonus Plan.
See Narrative to Summary Compensation Table Well Bonus Plans for further information.
Mr. Kares participation in the plan is 1/4th of 1%.
|
|
10.
|
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Includes $150,375 in fees paid to Kares & Cihlar, an accounting firm of which Mr. Kares
is a partner. The fees were for accounting services.
|
|
11.
|
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Includes $43,625 in consulting fees paid to Mr. Larberg for his work for the Company in
the area of portfolio management.
|
|
12.
|
|
Includes $210,385 in consulting fees paid to Mr. Mayell for service related to the
transition of management in early 2009, $13,000 in matching funds paid to his 401(k)
savings account, $21,092 in premiums for health and basic life insurance paid by the
Company, and $1,824 estimated personal use of club memberships provided by the Company
under the terms of his 2008 compensation termination agreement. Mr.
Mayell owns warrants to purchase 936,499 shares of our common stock.
|
|
13.
|
|
Includes $159,048 paid to Mr. Messersmith as a bonus under the Management Well Bonus
Plan. See Narrative to Summary Compensation Table Well Bonus Plans for further
information. Mr. Messersmith participation in the plan is 1/4th of 1%.
|
|
14.
|
|
Includes $136,750 in fees paid to Looper, Reed & McGraw, a law firm of which Mr.
Messersmith is a member.
|
|
15.
|
|
Includes $210,385 in consulting fees paid to Mr. Reeves for service related to the
transition of management in early 2009, $6,835 in matching funds paid to his 401(k) savings
account, $21,092 in premiums for health and basic life insurance paid by the Company, and
$7,598 estimated personal use of club memberships provided by the Company under the terms
of his 2008 compensation termination agreement. Mr. Reeves owns
warrants to purchase 936,499 shares of our common stock.
|
In addition to the amounts included above, Messrs. Reeves and Mayell received certain
distributions of stock, cash, and goods in 2009 related to the termination contracts completed with
them in 2008, which contracts are described in detail in our prior year (2008) report. These
expenses were accrued in 2008 and included in that years report on executive compensation. See
also Item 13, Certain Relationships and Related Transactions, and Director Independence,
-Transactions below for further information.
26
Each non-employee director of the Company receives an annual retainer, payable in quarterly
installments, of $25,000. The Chairman of the Board, so long as he is not an employee, receives an
additional annual retainer of $100,000, payable in quarterly installments. 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-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. Kares and Mr. Messersmith have participated in the Management Well Bonus Plan since 1998
and 2002, respectively. Their participation in new well bonus pools ceased as of April 2008, at
their request. They will continue to receive bonuses for participation in well bonus pools for
years prior to 2008.
27
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information, as of April 30, 2010, 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 Form 10-K/A, and all of our executive
officers and directors as a group.
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|
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Number of
|
|
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|
|
Shares
|
|
|
|
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Beneficially
|
|
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Name
|
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Owned (1)
|
|
Percent
|
Paul D. Ching (2)
|
|
|
152,123
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Lloyd V. DeLano
|
|
|
79,096
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Allen D. Breaux (3)
|
|
|
71,104
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Steven G.
Ives (10)
|
|
|
35,435
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Alan S. Pennington
|
|
|
57,334
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
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E. L. Henry (4)
|
|
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28,000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Michael J. Mayell (5)
|
|
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2,680,760
|
|
|
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2.87
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%
|
|
|
|
|
|
|
|
|
|
C. Mark Pearson (6)
|
|
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30,000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Joseph A. Reeves, Jr. (7)
|
|
|
2,900,509
|
|
|
|
3.11
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%
|
|
|
|
|
|
|
|
|
|
John B. Simmons (8)
|
|
|
15,000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Fenner R. Weller, Jr. (9)
|
|
|
52,500
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
All executive officers and directors as a group
(11 persons) (2), (3), (4), (5), (6), (7), (8),
and(9)
|
|
|
6,101,861
|
|
|
|
6.45
|
%
|
|
|
|
*
|
|
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 136,250 shares of Common Stock that Mr. Ching has the right to acquire
upon the exercise of stock options. Excludes 143,750 shares of Common Stock underlying
options owned by Mr. Ching that are not exercisable within 60 days.
|
|
3.
|
|
Includes 15,000 shares of Common Stock that Mr. Breaux has the right to acquire
upon the exercise of stock options.
|
28
|
|
|
4.
|
|
Includes 15,000 shares of Common Stock that Mr. Henry has the right to acquire
upon the exercise of stock options.
|
|
5.
|
|
Includes 936,499 shares of Common Stock that Mr. Mayell has the right to
acquire upon the exercise of the General Partner Warrants. For
further information on the General Partner Warrants, see Footnote 10 to the
Consolidated Financial Statements included in our 2009 Original Report on Form 10-K. Mr.
Mayells business address is Sydson Energy, 4600 Post Oak Place Dr., Suite 306,
Houston, TX, 77027.
|
|
6.
|
|
Includes 30,000 shares of Common Stock that Mr. Pearson has the right to
acquire upon the exercise of stock options.
|
|
7.
|
|
Includes 936,499 shares of Common Stock that Mr. Reeves has the right to
acquire upon the exercise of the General Partner Warrants. For further information on
the General Partner Warrants, see Footnote 10 to the Consolidated Financial Statements
included in our 2009 Original Report on Form 10-K. Mr. Reeves business address is
Matrix Energy, LLC, 1401 Enclave Parkway, Suite 300, Houston, Texas 77077
.
|
|
8.
|
|
Includes 15,000 shares of Common Stock that Mr. Simmons has the right to
acquire upon the exercise of stock options.
|
|
9.
|
|
Includes 18,750 shares of Common Stock that Mr. Weller has the right to acquire
upon the exercise of stock options. Excludes 11,250 shares of Common Stock underlying
options that are not exercisable within 60 days.
|
|
10.
|
|
Includes 1,500 shares that Mr. Ives has the right to acquire
upon the exercise of stock options.
|
29
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information, as of April 30, 2010, 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)
|
|
|
7,067,939
|
|
|
|
7.64
|
%
|
152 West 57
th
Street
|
|
|
|
|
|
|
|
|
New York, NY 10019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dimensional Fund Advisors Inc. (2)
|
|
|
5,279,173
|
|
|
|
5.71
|
%
|
Pallisades West, Building One
|
|
|
|
|
|
|
|
|
6300 Bee Cave Road
|
|
|
|
|
|
|
|
|
Austin, Texas 78746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bradley Louis Radoff (3)
|
|
|
5,400,000
|
|
|
|
5.84
|
%
|
1177 West Loop South, Suite 1625
|
|
|
|
|
|
|
|
|
Houston, TX 77027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 11, 2010.
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 8, 2010. 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, none of
which, to the knowledge of Dimensional, owns more than 5% of the class.
|
|
(3)
|
|
This information is based on information contained in a Schedule 13G filing made by
Bradley Louis Radoff with the Securities and Exchange Commission on January 26, 2010.
|
30
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets forth information as of December 31, 2009, with respect to our
compensation plans (including individual compensation arrangements) under which equity securities
are authorized for issuance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities
|
|
|
|
|
|
|
|
|
|
|
|
remaining available for
|
|
|
|
|
|
|
|
|
|
|
|
future issuance under
|
|
|
|
Number of securities to
|
|
|
Weighted-average
|
|
|
equity compensation
|
|
|
|
be issued upon exercise
|
|
|
exercise price of
|
|
|
plans
|
|
|
|
of outstanding options,
|
|
|
outstanding options,
|
|
|
(excluding securities
|
|
Plan Category
|
|
warrants and rights
|
|
|
warrants and rights
|
|
|
reflected in column (a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Equity compensation
plans approved by
security holders
|
|
|
2,276,998
|
|
|
$
|
0.36
|
|
|
|
4,140,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans not approved
by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,276,998
|
|
|
$
|
0.36
|
|
|
|
4,140,000
|
|
|
|
|
|
|
|
|
|
|
|
Proposed
Merger
As previously reported, on December 22, 2009, the Company entered
into an Agreement and Plan of Merger (Merger Agreement)
with Alta Mesa Holdings, LP (Alta Mesa) and Alta Mesa
Acquisition Sub, LLC, a direct wholly owned subsidiary of Alta Mesa
(Merger Sub). Under the terms of the Merger Agreement, as
amended, shareholders will receive $0.33 per share of common stock,
to be paid in cash, and Alta Mesa will assume the Companys
debts and obligations. The Company would be merged into Alta Mesa
Acquisition Sub, LLC with the Merger Sub as the surviving entity,
resulting in a change in control of the Company. The Companys
stock would cease to be publicly traded. The merger is subject to
approval by holders of two thirds of the Companys outstanding
shares of common stock. The Company filed a proxy statement regarding
the proposed merger on February 8, 2010, in which the Companys
board recommended that shareholders vote in favor of the merger. For
further information on the proposed merger, refer to the proxy
statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Transactions
Messrs. Joseph A. Reeves, Jr. and Michael J. Mayell, each of whom was an officer of the Company
until December 29, 2008 and is a current Director of Meridian, are working interest partners of the
Company. Historically since 1994, affiliates of Meridian have been permitted to hold interests in
projects of the Company. With the approval of the Board of Directors, Texas Oil Distribution and
Development, Inc. (TODD) and JAR Resources LLC (JAR), entities controlled by Joseph A. Reeves,
Jr. and Sydson Energy, Inc. (Sydson), an entity controlled by Michael J. Mayell, have each
invested in Meridian drilling locations, where applicable, at a 1.5% to 4% working interest basis.
The maximum total percentage at which either officer was allowed to participate in any prospect was
a 4% working interest. The right to participate in new oil and gas projects was terminated as of
December 29, 2008, under the settlement agreements with Messrs. Reeves and Mayell described
immediately below. On a collective basis, TODD, JAR and Sydson invested $997,000, $4,321,000, and
$9,871,000, for the years ended December 31, 2009, 2008, and 2007, respectively, in oil and natural
gas drilling activities. The former officers continued to be offered participation in new wells in
2009, from prospects initiated prior to December 29, 2008. Net amounts due to (from) TODD, JAR,
Matrix Petroleum LLC (see below) and Mr. Reeves were approximately $76,000 and ($1,981,000) as of
December 31, 2009 and 2008, respectively. Net amounts due to Sydson and Mr. Mayell were
approximately $466,000 and $232,000 as of December 31, 2009 and 2008, respectively.
Messrs. Reeves and Mayell each entered into consulting agreements with the Company, commencing
December 30, 2008. Each provided professional services to the Company for a monthly fee; the
agreements terminated on April 30, 2009, with a total of
$217,000 and $223,000 paid to or on behalf of each of
Messrs. Reeves and Mayell, respectively, during 2009, including 401(k)
matching funds. During 2008, the Company settled certain compensation-related
contracts
31
with Messrs. Reeves and Mayell, accruing a total of $9,894,000 for obligations under the
settlements, included in Due to affiliates in the
Companys Consolidated Balance Sheet for
December 31, 2008. See Note 12 to the Consolidated Financial Statements included in our 2009
Original Report on Form 10-K for further details. As a result of this settlement, during the second
quarter of 2009, the Company paid $4,954,000 and $4,940,000 to Messrs. Reeves and Mayell,
respectively. Funds for the payments were provided from those previously set aside in the related
Rabbi Trust. In addition to the cash payment, each of the former officers received 550,588 shares
of Company stock distributed from the Rabbi Trust. Under the terms of other employment contracts
entered into in 2008, Messrs. Reeves and Mayell also continued to receive such employee benefits as
medical insurance throughout 2009, as well as other fringe benefits, primarily the maintenance of
certain club memberships on their behalf. The Company was obligated to continue these benefits to
each of these two former officers through October 2010.
Under the terms of the 2008 settlements with Messrs. Reeves and Mayell, in 2009 the Company
transferred to them the furniture, equipment, and artwork from their Meridian executive offices.
The Company also elected to settle the club membership benefit with a lump sum payment to each of
the two former officers in late 2009. Mr. Mayell received a lump sum payment of approximately
$30,000 in December 2009 and Mr. Reeves received approximately $22,000 in February 2010; the
Company discontinued payment of the dues after each of those settlements.
During 2009, Matrix Petroleum LLC (Matrix), an entity controlled by Mr. Reeves, entered into a
lease of office space from Meridian. The Company has invoiced Matrix a total of $77,000 for rent
and minor charges for use of Meridian office support staff.
As described in Note 11 of the Notes to Consolidated Financial Statements in our 2009 Original
Report on Form 10-K (Note 11), Messrs. Reeves and Mayell are entitled to certain grants of net
profits interests in properties initiated for development during their term of employment. As
properties develop from geological studies to executed mineral leases, Messrs. Reeves and Mayell
receive interests in the mineral leases. Such grants were valued by third party appraisal at
$137,350 and $78,054 for the years 2008 and 2007, respectively. Grants made in 2009 were
negligible.
In December 2009, the Company reached a settlement agreement with Mr. Reeves, TODD, and JAR
(collectively, the Reeves Parties) regarding amounts the Reeves Parties claimed were owed to them
by the Company under various agreements, all of which involve the Companys and the Reeves Parties
ownership interests in various oil and natural gas properties. In settlement of these claims: 1)
the Company agreed to credit by $600,000 the balance owed by the Reeves Parties to the Company as
joint interest partners; 2) the Reeves Parties paid the Company $400,000 against their joint
interest accounts in December 2009 and agreed to bring their account balances current by May 2010;
3) the Company indemnified the Reeves Parties against claims arising prior to the settlement date
of December 22, 2009 in regard to the properties in which the Reeves Parties share an interest with
the Company; and 4) the Reeves Parties ownership in each property was clarified and listed,
including those potential properties included in areas of study performed during Mr. Reeves tenure
as an officer. Together with credits for the Reeves Parties share of fourth quarter revenues on
the properties, these transactions brought the balance between the Company and Reeves Parties to
the amount cited above, $76,000 owed by the Company to Reeves.
The Company also entered a settlement contract with Mr. Mayell and Sydson (together, Mayell
Parties) on December 17, 2009, clarifying and listing the Mayell Parties ownership in each oil
and natural gas property, including those potential properties included in areas of study performed
during Mr. Mayells tenure as an officer. The Company provided the Mayell Parties with
indemnifications as to claims arising before the date of settlement, with regard to the properties
in which the Mayell Parties share an interest
with the Company.
32
Mr. Joe Kares, a former Director of Meridian, is a partner in the public accounting firm of Kares &
Cihlar, which provided the Company with accounting services for the years ended December 31, 2009,
2008, and 2007 and received fees of approximately $150,000, $216,000, and $231,000, respectively.
Such fees exceeded 5% of the gross revenues of Kares & Cihlar for those respective years. Mr. Kares
also participated in the Management Plan described in Note 11, pursuant to which he was paid
approximately $101,000 during 2009, $335,000 during 2008, and $275,000 during 2007. Mr. Kares
resigned from the Board of Directors effective October 13, 2009.
Mr. Gary A. Messersmith, a former Director of Meridian, is currently a member of the law firm of
Looper, Reed & McGraw P.C. in Houston, Texas, which provided legal services for the Company for the
years ended December 31, 2009, 2008, and 2007, and received fees of approximately $137,000,
$118,000, and $73,000, respectively. In addition, during 2007, the Company paid Gary A.
Messersmith, P.C. $8,333 per month relating to his services provided to the Company. The retainer
was paid through March, 2008, then discontinued. Mr. Messersmith also participated in the
Management Plan described in Note 11, pursuant to which he was paid approximately $159,000 during
2009, $527,000 during 2008, and $441,000 during 2007. Mr. Messersmith resigned from the Board of
Directors effective October 13, 2009.
During 2008, both Mr. Kares and Mr. Messersmith requested the Company discontinue their
participation in the Management Well Bonus Plan as to new wells drilled after mid-April 2008. Their
participation as to wells previously drilled is unchanged.
Mr. G. M. Larberg, a former Director of Meridian, is a petroleum industry consultant that provided
the Company with services for the years ended December 31, 2009, 2008, and 2007, and received
consulting fees of approximately $44,000, $210,000, and $223,000, respectively. Mr. Larberg
resigned from the Board of Directors effective October 13, 2009.
Mr. J. Drew Reeves, the son of Mr. Joseph A. Reeves, Jr., is a staff member in the Land Department.
Mr. Drew Reeves was paid $218,000, $227,000, and $168,000, for the years 2009, 2008, and 2007,
respectively. Mr. 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 $198,000, $193,000,
and $164,000, for the years 2009, 2008, and 2007, respectively. Mr. J. Todd Reeves, the son of
Joseph A. Reeves, Jr., is a partner in the law firm of J. Todd Reeves and Associates, which
provides legal services to the Company and received fees of approximately $63,000 in 2009, $197,000
in 2008, and $371,000 in 2007. Such fees exceeded 5% of the gross revenues for the firm for those
respective years.
Mr. Michael W. Mayell, the son of Mr. Michael J. Mayell, an officer until December 29, 2008 and a
current Director of Meridian, is a staff member in the Production Department, and was paid
$174,000, $169,000, and $129,000 for the years 2009, 2008, and 2007, respectively. Mr. James T.
Bond, former Director of Meridian, was the father-in-law of Mr. Michael J. Mayell; he provided
consulting services to the Company and received fees in the amount of $48,000 for the year 2007.
Earnings during 2008 and 2009 noted above for related party employees include the impact of the
Retention Incentive Compensation Plan.
33
Board Independence, Board Leadership Structure, and Risk Oversight
The Board of Directors has affirmatively determined that Messrs. Henry, Simmons, Weller, and
Pearson 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. Paul D. Ching, also a director, was
appointed to serve as interim Chief Executive Officer (CEO) and President of the Company,
effective December 30, 2008, until such time that the Board appoints permanent replacements for the
positions of CEO and President. During the interim period that Mr. Ching serves as CEO and
President, he may be deemed not to be an independent board member. As a result, from December 30,
2008, through October 13, 2009, the Company was deemed to be in violation of Rule 303A.01 of the
New York Stock Exchanges Listed Company Manual, which requires listed companies to have a majority
of independent directors. Effective October 13, 2009, three of our non-independent directors
voluntarily resigned: Mr. Kares, Mr. Larberg, and Mr. Messersmith. The Company is now in
compliance with this listing criterion. The resignations were not the result of any disagreement
with the Company on any matter relating to the Companys operations, policies or practices. Rather,
the resigning directors agreed to resign to facilitate compliance with NYSE rules for listed
companies. The Company currently has seven directors, of which four are independent.
The roles of CEO and President have been combined with Chairman of the Board in the person of
Mr. Ching since December 2008. The combination of these roles is effective and efficient for this
period in the Companys history, as we seek to addresses our liquidity and credit issues and work
to find a strategic partner. Mr. Ching works and communicates closely with the Board on our
progress in this effort, and his position of leadership on the Board facilitates that involvement
and oversight by the other members of the Board. As a smaller company, we value the efficiency of
this arrangement, which is intended to be temporary, and rely on the diversity and strength of our
Board to balance any apparent concentration of influence from Mr. Chings combined roles.
In accordance with Rule 303A.02, at the end of Mr. Chings tenure as interim CEO and
President, he expects to return to his status as an independent director.
The Board as a whole is responsible for risk oversight, with the Audit Committee more
specifically responsible for assessing financial risk. Due to restrictions under the forbearance
agreement with the lenders under our primary credit facility, we are currently unable to address
risk related to commodity price fluctuation as we are prohibited from originating new hedging
contracts. However, our historical practice has been to engage in hedging of a portion of our
future production. This activity is overseen by Mr. Ching, our CEO and Chairman of the Board, and
the full Board receives reports on hedging strategy and execution. Other significant risks include
exploratory and investment risk. Significant investments and new strategies or areas of
exploration are reviewed and discussed by the Board, as are significant divestitures of property.
The Board annually reviews and approves the capital budget. The Board also reviews the Companys
insurance program and policies. Our management team is responsible for identifying and mitigating
other risks, with Board involvement as necessary. We have no single officer in charge of risk
management but rather, have allocated such responsibilities among our management team members based
on their areas of operation within the Company.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
BDO Seidman, LLP served as our principal independent registered public accounting firm for the
fiscal year ended December 31, 2009. BDO Seidman, LLPs engagement to conduct the audit of the
Company for the fiscal year ended December 31, 2009 was approved by the Audit Committee.
34
Audit Fees
The following table presents fees for the quarterly reviews and annual audit of the Companys
consolidated financial statements for 2009 and 2008 provided by BDO Seidman, LLP for the fiscal
years ended December 31, 2009 and December 31, 2008. We have not paid any other professional fees
to BDO Seidman, LLP except for the fees relating to the review and annual audits.
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
Audit Fees
|
|
$
|
495,727
|
|
|
$
|
530,349
|
|
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.
35
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)
1. and 2. No financial statements or schedules are filed with this report on Form 10-K/A.
3.
Exhibits:
10.55
|
|
Twelfth Amendment to Forbearance and Amendment Agreement,
dated as of April 15, 2010, among The Meridian Resource Corporation,
certain of its subsidiaries, Fortis Capital Corp., as administrative
agent, and the several banks, financial institutions and other
entities from time to time parties to the Amended and Restated Credit
Agreement, dated as of December 23, 2004, as amended, among The
Meridian Resource Corporation, Fortis Capital Corp., as administrative
agent, and the lenders party thereto (incorporated by reference to
Exhibit 10.1 of the Companys Current Report on Form 8-K filed
April 20, 2010).
|
|
10.56
|
|
Second Amendment to Compromise and Settlement Agreement,
dated April 15, 2010, among The Meridian Resource Corporation, Shell
Oil Company and SWEPI, LP (incorporated by reference to Exhibit 10.2
of the Companys Current Report on Form 8-K filed April 20,
2010).
|
|
*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 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 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.
|
* filed
herewith
36
s
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/ PAUL D. CHING
|
|
|
|
Chief Executive Officer
|
|
|
|
(Principal Executive Officer)
|
|
|
Date: April 30, 2010
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/ PAUL D. CHING
Paul D. Ching
|
|
Chief Executive Officer
(Principal Executive Officer)
Director and Chairman of the Board
|
|
April 30, 2010
|
|
|
|
|
|
|
|
BY:
|
|
/s/ LLOYD V. DELANO
Lloyd V. DeLano
|
|
Chief Accounting Officer
|
|
April 30, 2010
|
|
|
|
|
|
|
|
BY:
|
|
/s/ JOSEPH A. REEVES, JR.
Joseph A. Reeves, Jr.
|
|
Director
|
|
April 30, 2010
|
|
|
|
|
|
|
|
BY:
|
|
/s/
MICHAEL J. MAYELL
Michael J. Mayell
|
|
Director
|
|
April 30, 2010
|
|
|
|
|
|
|
|
BY:
|
|
/s/ E. L. HENRY
E. L. Henry
|
|
Director
|
|
April 30, 2010
|
|
|
|
|
|
|
|
BY:
|
|
/s/ JOHN B. SIMMONS
John B. Simmons
|
|
Director
|
|
April 30, 2010
|
|
|
|
|
|
|
|
BY:
|
|
/s/ FENNER
R. WELLER, JR.
Fenner R. Weller, Jr.
|
|
Director
|
|
April 30, 2010
|
|
|
|
|
|
|
|
BY:
|
|
/s/ C. MARK PEARSON
C. Mark Pearson
|
|
Director
|
|
April 30, 2010
|
Meridian (NYSE:TMR)
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