<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 17, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
MILLER EXPLORATION COMPANY
(Exact name of Registrant as specified in its charter)
DELAWARE 1311 38-3379776
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
3104 LOGAN VALLEY ROAD
TRAVERSE CITY, MICHIGAN 49685-0348
(616) 941-0004
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
KELLY E. MILLER
PRESIDENT
MILLER EXPLORATION COMPANY
3104 LOGAN VALLEY ROAD
TRAVERSE CITY, MICHIGAN 49685-0348
(616) 941-0004
(Name, address, including zip code, and telephone number, including area code,
of Registrant's agent for service)
COPIES OF COMMUNICATION TO:
STEPHEN C. WATERBURY, ESQ. ALAN P. BADEN, ESQ.
WARNER NORCROSS & JUDD LLP VINSON & ELKINS L.L.P.
111 LYON STREET, N.W. 2300 FIRST CITY TOWER, 1001 FANNIN
GRAND RAPIDS, MICHIGAN 49503 HOUSTON, TEXAS 77002
(616) 752-2137 (713) 758-2222
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Section 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(1) PRICE(2)(3) FEE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per share... -- -- $51,750,000 $15,681.82
- ------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) In accordance with Rule 457(o) under the Securities Act, the number of
shares being registered and the proposed maximum offering price per share
are not included in this table.
(2) Estimated for purposes of calculating registration fee.
(3) Includes shares of Common Stock being offered by the Selling Stockholders
and shares issuable upon exercise of the Underwriters' over-allotment
option.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 17, 1997
PROSPECTUS
SHARES
[LOGO OF MILLER MILLER EXPLORATION COMPANY
EXPLORATION COMPANY
APPEARS HERE]
COMMON STOCK
Of the shares of common stock, par value $0.01 per share (the
"Common Stock"), offered hereby, shares are being sold by
Miller Exploration Company ("Miller" or the "Company"), and shares
are being sold by the Selling Stockholders named herein. See "Principal and
Selling Stockholders." The Company will not receive any part of the proceeds
from the sale of Common Stock by the Selling Stockholders. Prior to the
offering made hereby (the "Offering"), there has been no public market for the
Common Stock. It currently is estimated that the initial public offering price
will be between $ and $ per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price. Application has been made to include the Common Stock on
the Nasdaq National Market under the symbol "MEXP."
-----------
ANY INVESTMENT IN THE SECURITIES OFFERED HEREIN INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 11.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COM- MISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share...................... $ $ $ $
- --------------------------------------------------------------------------------
Total(3)....................... $ $ $ $
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) The Company and the Selling Stockholders named herein have agreed to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $ .
(3) The Company and the Selling Stockholders have granted the Underwriters a
30-day option to purchase up to additional shares of Common Stock
on the same terms and conditions as set forth above to cover over-
allotments, if any. If the Underwriters exercise this option in full, the
total Price to Public will be $ , the total Underwriting Discounts
and Commissions will be $ , the total Proceeds to Company will be
$ and the total Proceeds to Selling Stockholders will be $ .
See "Underwriting."
-----------
The shares of Common Stock are offered, subject to prior sale, when, as and
if delivered to and accepted by the Underwriters and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made against payment therefor,
on or about , 199 at the offices of Bear, Stearns & Co. Inc., 245
Park Avenue, New York, New York 10167.
BEAR, STEARNS & CO. INC.
RAYMOND JAMES & ASSOCIATES, INC.
STEPHENS INC.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
[MAP OR CHART]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS AND THE
IMPOSITION OF PENALTY BIDS. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, the information in this Prospectus assumes that the
Underwriters' over-allotment option will not be exercised. Unless otherwise
indicated, references herein to the "Company" or "Miller" are to Miller
Exploration Company, a Delaware corporation, and its subsidiaries and
predecessors, and pro forma information with respect to the reserves and
operating history of the Company included herein gives effect to the
Combination Transaction (defined below) as if it had already occurred. Certain
terms used herein relating to the oil and gas industry are defined in the
Glossary of Certain Oil and Gas Terms included elsewhere in this Prospectus.
THE COMPANY
Miller is an independent oil and gas exploration and production company with
established exploration efforts concentrated primarily in three regions: the
Mississippi Salt Basin, the onshore Gulf Coast region of Texas and Louisiana
and the Michigan Basin. Miller emphasizes the use of seismic data analysis and
imaging, as well as other emerging technologies, to explore for and develop oil
and natural gas in its core exploration areas. Miller is the successor to the
independent oil and natural gas exploration and production business first
established in Michigan by members of the Miller family in 1925.
In recent years, the Company has significantly grown its oil and natural gas
reserves and inventory of drilling prospects through its exploration,
development and strategic acquisition activities. Since 1993, the Company has
developed its base of properties and inventory of prospects in Mississippi,
Louisiana and Texas. Estimated proved reserves have increased 29%, from 19.6
Bcfe as of December 31, 1994 to 25.2 Bcfe as of September 30, 1997. The Company
has budgeted a significant increase in drilling activity and plans to drill 50
wells in 1998, the majority of which are exploratory wells in the Mississippi
Salt Basin. The Company's capital expenditure budget for both exploration and
development activity in all of its areas of concentration is $23.5 million for
1998. Miller incurred expenditures for exploration and development activity of
$6.2 million with respect to the Company's interest in 25 gross wells for the
year ended December 31, 1996 and $5.2 million with respect to the Company's
interest in 27 gross wells for the nine months ended September 30, 1997.
The Company's primary exploration effort is currently focused on the
Mississippi Salt Basin, which contains one of the largest onshore
concentrations of salt domes in North America. The Company owns interests in
approximately 63,000 gross leasehold acres (21,000 net to the Company) in the
Mississippi Salt Basin in prospective areas around 20 salt domes, which the
Company believes is one of the largest strategic lease positions around the
salt domes in the basin. Due to innovations over the last few years, seismic
technology now enables geoscientists to generate improved imaging of the flanks
of salt structures and associated faulting, the primary hydrocarbon trapping
mechanisms in this area. The Company commenced its exploration activities in
Mississippi in 1993 and has participated in the drilling of 21 wells, 11 of
which (52%) have been completed, establishing commercial production around six
salt domes. As of September 30, 1997, these wells had produced 29.2 Bcfe gross
(2.7 Bcfe net to the Company) and had established estimated gross proved
reserves of 74.3 Bcfe (6.9 Bcfe net to the Company). In the Mississippi Salt
Basin, the Company has used technologically advanced seismic data processing
methods to reinterpret existing regional 2-D seismic data and analyze and
interpret newly acquired 2-D seismic data. In addition, the Company is
currently participating in multiple 3-D seismic acquisition projects in this
region, which the Company believes will improve the identification of potential
hydrocarbon traps.
The Company's prospects in the Gulf Coast region of Texas and Louisiana also
lend themselves to 3-D seismic-aided exploration due to the geological
complexity prevalent in this region. Since 1994, the Company has participated
3
<PAGE>
in approximately 300 square miles of 3-D seismic surveys and the drilling of 50
gross wells within the boundaries of these surveys. Twenty-seven of the wells
drilled have been completed as commercially productive. As of September 30,
1997, these wells had established estimated proved reserves of 79.6 Bcfe (9.3
Bcfe net to the Company). The Company expects to participate in 9.0 gross wells
(2.7 net to the Company) in this area in 1998, all of which are supported by 3-
D seismic data.
The Company's current operations in Michigan were developed after 1988, when
the Company sold all of its producing properties to Conoco, Inc. In the
Michigan Basin, the Company has an interest in over 300 producing wells within
a leasehold position that is the result of prior successful exploration efforts
in the Niagaran Reef Trend. Miller's current Michigan Basin production is
predominantly long-lived, lower volume Antrim Shale production, as compared to
the higher volume wells of the onshore Gulf Coast and Mississippi Salt Basin.
The Company is continuing to pursue additional exploration opportunities in the
Michigan Basin.
The Company was organized in connection with the combination (the
"Combination Transaction") of the properties and businesses to be owned and
conducted by the Company after the closing of the Offering (the "Combined
Assets"). The Combined Assets consist of Miller Oil Corporation ("MOC"),
interests in oil and gas properties from oil and gas exploration companies
beneficially owned by members of the Miller family and interests in such
properties owned by long-time business partners and investors. No assets other
than those in which MOC or its affiliated entities currently have an interest
will be part of the Combined Assets. The Company and the owners of the Combined
Assets have entered into an Exchange and Combination Agreement dated as of
November 12, 1997, as amended (the "Combination Agreement"), that provides for
the issuance of an estimated 6,930,000 shares of Common Stock to such owners in
exchange for the Combined Assets upon the consummation of the Offering. The
owners of the Combined Assets will receive a number of shares of Common Stock
proportionate to the value of their ownership interests in the Combined Assets
calculated on the basis of the initial public offering price of the Common
Stock.
In this Prospectus, reference to historical combined financial information of
the Company means the historical combined results of the Company and its
affiliated oil and gas companies included in the Combination Transaction.
Reference to pro forma financial information of the Company means the
historical combined information, plus the contribution of the Combined Assets
from the non-affiliated participants in the Combination Transaction. See
"Selected Historical Combined Financial and Operating Data" and "Selected
Unaudited Pro Forma Combined Financial Data."
The Company's principal office is located at 3104 Logan Valley Road, Traverse
City, Michigan 49685-0348 and its telephone number is (616) 941-0004. The
Company also maintains offices in Houston, Texas and Jackson, Mississippi.
BUSINESS STRATEGY
The key elements of the Company's business strategy are as follows:
Focused Exploration Effort. The Company seeks to concentrate its
exploration activities in areas which provide the potential for the
discovery of significant reserves where a strategic leasehold position can
be acquired, where there has been limited application of advanced seismic
data interpretation techniques and where there are multiple potential pay
zones. The Company has assembled an extensive database in the Mississippi
Salt Basin, including basin-wide geologic studies, production data and well
data. The Company has an identified inventory of 22 prospects in the
Mississippi Salt Basin and seven prospects in the Texas and Louisiana Gulf
Coast region. The majority of these prospects have multiple drilling
locations. The Company's prospects in the Mississippi Salt Basin have been
delineated primarily with computer-enhanced analysis of 2-D seismic data,
while the Gulf Coast prospects have been identified primarily with 3-D
seismic data. The Company plans to conduct selected 3-D seismic surveys in
the Mississippi Salt Basin with respect to certain of these prospects to
further delineate drilling objectives.
4
<PAGE>
Exploit Prospect Inventory. The Company has an identified inventory of
over 32 exploration and development prospects, all of which it plans to
drill in 1998 and 1999. Based on the initial success of its salt dome
drilling, the Company intends to retain larger working interests in its
undrilled prospects. This Offering will enable the Company to retain a
larger working interest in its prospects, conduct an aggressive seismic
data acquisition program and accelerate its drilling activities.
Extensive Data Base. The Company has a significant library of technical
and proprietary data. The Company's current inventory includes over 1,900
miles of 2-D seismic data and 309 square miles of 3-D seismic data in the
three regions in which it currently operates. The acquisition of 3-D
seismic data on a large scale is often not cost effective. The Company
attempts to target the acquisition and application of 3-D seismic data by
applying its technical expertise to reprocessed 2-D seismic data. The
Company believes this approach allows it to more effectively target 3-D
seismic surveys, reducing overall finding and development costs.
Utilize Advanced Technology. The Company utilizes advanced technology in
analyzing, interpreting and visualizing seismic data to assemble and
develop its inventory of exploration and development drilling prospects.
This strategy has been pursued in proven geological regions that have
historically produced significant amounts of hydrocarbons. The Company has
focused its 3-D seismic efforts on areas that exhibit geological complexity
where 2-D seismic has been effective in increasing drilling success rates,
but has limitations in locating subtle trapping structures.
Experienced Technical Team. The Company has assembled a technical team
with an average of over 18 years of experience, the majority of which has
been in the Company's areas of current operations. This multi-disciplined
technical team has extensive experience with the acquisition, processing
and interpretation of both 2-D and 3-D seismic data and the use of 3-D work
stations to evaluate and develop drilling prospects.
SUMMARY DRILLING AND BUDGET DATA
The following table sets forth certain summary drilling and budget
information with respect to the Company's activities in its core regions for
the periods indicated. The final determination with respect to the drilling of
any well, including those currently budgeted, will depend on a number of
factors, including (i) the results of exploration efforts and the review and
analysis of the seismic data, (ii) the availability of sufficient capital
resources by the Company and other participants for drilling prospects, (iii)
economic and industry conditions at the time of drilling, including prevailing
and anticipated prices for oil and natural gas and the availability of drilling
rigs and crews, (iv) the financial results of the Company, (v) the availability
of leases on reasonable terms and (vi) the availability of permits for the
potential drilling location. There can be no assurance that the budgeted wells
will, if drilled, encounter reservoirs of commercial quantities of oil or
natural gas. For a description of the Company's drilling results, see "Business
and Properties--Drilling Activities."
<TABLE>
<CAPTION>
WELLS
DRILLED
DECEMBER
31, 1994 CAPITAL EXPENDITURES
THROUGH 1998 DECEMBER 31, 1994 BUDGETED CAPITAL
SEPTEMBER BUDGETED THROUGH EXPENDITURES FOR
30, 1997 WELLS SEPTEMBER 30, 1997 1998
---------- ---------- --------------------- --------------------
SEISMIC
LEASE SEISMIC & LEASE &
GROSS NET GROSS NET ACQUISITION DRILLING ACQUISITION DRILLING
----- ---- ----- ---- ----------- --------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mississippi Salt Basin.. 12 1.2 28 8.2 $3,085 $ 4,901 $335 $17,695
Onshore Gulf Coast
Texas................. 52 5.3 6 1.9 2,262 3,844 31 1,550
Louisiana............. 6 0.5 3 0.8 449 808 8 452
Michigan Basin/Other.... 21 3.3 13 9.4 624 1,700 78 3,400
--- ---- --- ---- ------ ------- ---- -------
Total............... 91 10.4 50 20.3 $6,420 $11,253 $452 $23,097
=== ==== === ==== ====== ======= ==== =======
</TABLE>
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered
By the Company.................. shares
By the Selling Stockholders..... shares
Common Stock to be Outstanding
after the Offering................ shares(1)
Use of Proceeds.................... The net proceeds of the Offering will be
used for repayment of all outstanding
indebtedness of approximately $5.3 million,
to fund capital expenditures relating to
exploration and development activities, to
increase working capital and for other
general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market
Symbol............................ "MEXP"
</TABLE>
- --------
(1) Includes an estimated 6,930,000 shares of Common Stock to be issued in
connection with the Combination Transaction. Does not include 711,500
shares of Common Stock issuable pursuant to employee stock options at an
exercise price per share equal to the initial public offering price and
107,500 shares of restricted Common Stock that are expected to be granted
to directors, officers and certain employees of the Company in connection
with the consummation of the Offering. See "Management--Executive
Compensation--Employee Benefit Plans--Stock Option and Restricted Stock
Plan of 1997."
RISK FACTORS
Any investment in the Common Stock involves a high degree of risk. For a
discussion of certain risks that a potential investor should evaluate carefully
prior to making an investment in the Common Stock, see "Risk Factors."
6
<PAGE>
SUMMARY HISTORICAL COMBINED AND PRO FORMA FINANCIAL AND OPERATING DATA
The following tables set forth summary historical combined data and pro forma
data of the Company as of the dates and for the periods indicated. The
historical combined financial data for the three years ended December 31, 1996
are derived from the combined financial statements of the Company which have
been audited by Arthur Andersen LLP, independent public accountants. These
audited combined financial statements of the Company and the related notes
thereto, included elsewhere in this Prospectus, are collectively referred to in
this Prospectus as the "Combined Financial Statements." The historical combined
financial data as of and for the nine months ended September 30, 1996 and 1997
are derived from unaudited combined financial statements of the Company which,
in the opinion of management, contain all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation thereof. Pro forma
data are based on assumptions and include adjustments as explained in the notes
to the unaudited pro forma financial data. The unaudited pro forma financial
statements are not necessarily indicative of the results of future operations
of the Company and should be read in conjunction with the Combined Financial
Statements. For a description of the Combination Transaction, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview." The following financial information should be read in conjunction
with "Capitalization," "Selected Historical Combined Financial and Operating
Data," "Selected Unaudited Pro Forma Combined Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Combined Financial Statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------- ---------------------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996 1996 1997 1997
------ ------ ------ ----------- ----------- ---------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Natural gas.......... $2,424 $2,748 $5,614 $6,831 $3,719 $4,329 $5,854
Crude oil and
condensate.......... 672 715 1,101 1,341 854 710 972
Other operating
revenues............ 167 296 395 395 355 492 492
------ ------ ------ ------ ------ ------ ------
Total operating
revenue........... 3,263 3,759 7,110 8,567 4,928 5,531 7,318
------ ------ ------ ------ ------ ------ ------
Operating expenses:
Lease operating
expenses and
production taxes.... 811 777 1,123 1,348 753 917 1,083
Depreciation,
depletion and
amortization........ 1,009 1,666 2,629 3,368 1,826 2,019 3,634
General and
administrative...... 1,200 1,270 1,591 1,866 1,002 1,335 1,610
------ ------ ------ ------ ------ ------ ------
Total operating
expenses.......... 3,020 3,713 5,343 6,582 3,581 4,271 6,327
------ ------ ------ ------ ------ ------ ------
Operating income....... 243 46 1,767 1,985 1,347 1,260 991
------ ------ ------ ------ ------ ------ ------
Interest expense....... (810) (1,017) (1,139) (351) (789) (922) (326)
Lawsuit settlement..... -- 3,521 -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes.......... (567) 2,550 628 1,634 558 338 665
Provision (benefit)
for income taxes(1)... -- -- -- 295 -- -- (29)
------ ------ ------ ------ ------ ------ ------
Net income (loss)(1)... $ (567) $2,550 $ 628 $1,339 $ 558 $ 338 $ 694
====== ====== ====== ====== ====== ====== ======
Pro forma net income
per share(1)(2)....... $ 0.19 $ 0.10
====== ======
Pro forma weighted
average shares
outstanding(2)........ 6,930 6,930
====== ======
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------- -------------------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996 1996 1997 1997
------- ------- ------- ----------- ----------- ----------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED)(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF CASH FLOWS
DATA:
Net cash provided by
operating activities.. $ 1,720 $ 509 $ 2,162 $ 3,887 $ 1,906 $ 2,201 $ 4,447
Net cash used in
investing activities.. (1,150) (150) (4,742) (4,235) (3,831) (2,487) (1,980)
Net cash provided by
(used in) financing
activities............ (395) (376) 2,811 579 1,834 (17) (2,770)
OTHER OPERATING DATA:
EBITDA(3)(5)........... $ 1,252 $ 1,712 $ 4,396 $ 5,353 $ 3,173 $ 3,279 $ 4,625
Operating cash
flow(4)(5)............ 441 673 3,229 4,679 2,366 2,315 4,286
Capital expenditures... 4,528 6,323 6,184 8,843 4,614 5,166 7,387
BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital........ $(1,769) $(1,980) $(2,682) $(2,957) $(2,688) $(3,466) $(3,741)
Oil and gas properties,
net................... 14,257 17,731 20,732 39,738 20,462 21,163 40,169
Total assets........... 16,444 20,005 24,050 43,056 22,883 23,993 42,999
Long-term debt,
including notes
payable............... 9,442 9,801 12,881 4,888 11,661 12,939 5,296
Equity(2).............. 5,596 7,410 7,769 24,990 7,943 8,032 25,253
</TABLE>
- --------
(1) Gives pro forma effect to the application of federal and state income taxes
to the Company as if it were a taxable corporation for the periods
presented. Upon the consummation of the Combination Transaction, the
Company will be required to record a one-time non-cash charge to earnings
in connection with establishing a deferred tax liability on the balance
sheet in accordance with SFAS No. 109, "Accounting for Income Taxes." If
the Combination Transaction had been consummated for the periods presented,
such charge would have been approximately $5.5 million. The ultimate amount
of the charge that will be recorded is dependent upon a number of factors
and cannot be determined until consummation of the Combination Transaction.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview."
(2) Pro forma net income per share has been computed assuming that an estimated
6,930,000 shares of Common Stock to be issued in connection with the
Combination Transaction have been outstanding since January 1, 1996.
(3) EBITDA represents earnings before interest expense, income taxes, a non-
operating gain on a lawsuit settlement and depreciation, depletion and
amortization.
(4) Operating cash flow represents cash flows from operating activities prior
to changes in assets and liabilities.
(5) The Company believes that EBITDA and operating cash flow may provide
additional information about the Company's ability to meet its future
requirements for debt service, capital expenditures and working capital.
EBITDA and operating cash flow are financial measures commonly used in the
oil and gas industry and should not be considered in isolation or as a
substitute for net income, operating income, cash flows from operating
activities or any other measure of financial performance presented in
accordance with generally accepted accounting principles or as a measure of
a company's profitability or liquidity. Because EBITDA excludes some, but
not all, items that affect net income and because operating cash flow
excludes changes in assets and liabilities and these measures may vary
among companies, the EBITDA and operating cash flow data presented above
may not be comparable to similarly titled measures of other companies.
8
<PAGE>
The following table sets forth historical combined information and pro forma
information of the Company with respect to production volumes, average sale
prices, average costs and number of wells drilled for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- -------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996 1996 1997 1997
------- ------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PRODUCTION VOLUMES:
Crude oil and
condensate (MBbls).... 39.5 31.6 46.5 57.2 35.0 33.4 46.8
Natural gas (MMcf)..... 1,228.4 1,324.0 2,030.0 2,468.2 1,555.3 1,713.0 2,373.3
Natural gas equivalent
(MMcfe)............... 1,465.7 1,513.3 2,309.1 2,811.6 1,765.0 1,913.3 2,654.4
AVERAGE SALE PRICES:
Crude oil and
condensate ($ per
Bbl).................. $ 17.00 $ 22.68 $ 23.66 $ 23.43 $ 24.44 $ 21.26 $ 20.75
Natural gas ($ per
Mcf).................. 1.97 2.08 2.77 2.77 2.39 2.53 2.47
Natural gas equivalent
($ per Mcfe).......... 2.11 2.29 2.91 2.91 2.59 2.63 2.57
AVERAGE COSTS ($ PER
MCFE):
Lease operating
expenses and
production taxes...... $ 0.55 $ 0.51 $ 0.49 $ 0.48 $ 0.43 $ 0.48 $ 0.41
Depreciation, depletion
and amortization...... 0.69 1.10 1.14 1.20 1.03 1.06 1.37
General and
administrative........ 0.82 0.84 0.69 0.66 0.57 0.70 0.61
NUMBER OF WELLS
DRILLED(1):
Gross.................. 27 39 25 25 18 27 27
Net(2)................. 2.5 5.2 2.7 4.1 1.6 2.5 3.3
</TABLE>
- --------
(1) For a description of the Company's drilling results, see "Business and
Properties--Drilling Activities."
(2) Wells in which the Company holds an after-payout working interest are not
included because such interests had not been earned at the time of
drilling.
9
<PAGE>
SUMMARY OIL AND NATURAL GAS RESERVE DATA
The following table sets forth summary data with respect to the Company's
estimated proved oil and natural gas reserves as of the dates indicated and the
estimated future net cash flows attributable thereto. Such estimates have been
prepared on a pro-forma basis after giving effect to the Combination
Transaction. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Overview." Information in this Prospectus relating
to estimated net proved oil and natural gas reserves at December 31, 1996 and
September 30, 1997, and the estimated future net revenues attributable thereto,
is based upon the reserve reports (the "Reserve Reports") prepared by S.A.
Holditch & Associates (as to Michigan Basin reserves) and Miller and Lents,
Ltd. (as to non-Michigan Basin reserves), independent petroleum engineers (the
"Independent Engineers"). Summaries of such Reserve Reports as of September 30,
1997 are attached as Appendices A and B to this Prospectus. See "Experts." All
calculations of estimated net proved reserves have been made in accordance with
the rules and regulations of the Securities and Exchange Commission (the "SEC")
and, except as otherwise indicated, give no effect to federal or state income
taxes otherwise attributable to estimated future net revenues from the sale of
oil and natural gas. In accordance with such regulations, the Reserve Reports
used oil and natural gas prices in effect at the respective dates of the
Reserve Reports. There are numerous uncertainties inherent in estimating
quantities of proved reserves and in projecting future rates of production and
timing of development expenditures, including many factors beyond the control
of the Company. See "Risk Factors--Uncertainty of Estimates of Oil and Natural
Gas Reserves" and "Business and Properties--Oil and Natural Gas Reserves."
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
1996 1997
------------------ -------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER UNIT DATA)
<S> <C> <C>
Net Proved Reserves:
Crude oil (MBbl)...................... 895.3 827.6
Natural gas (MMcf).................... 23,023.8 20,227.4
Natural gas equivalent (MMcfe)........ 28,395.6 25,193.0
Net Proved Developed Reserves:
Crude oil (MBbl)...................... 217.1 231.5
Natural gas (MMcf).................... 20,008.8 17,697.8
Natural gas equivalent (MMcfe)........ 21,311.4 19,086.8
Estimated future net revenues before
income taxes(1)........................ $ 67,759 $ 57,781
Present value of estimated future net
revenues before income taxes(2)........ $ 44,868 $ 38,207
</TABLE>
- --------
(1) The average prices for crude oil were $25.23 per Bbl at December 31, 1996
and $22.77 per Bbl at September 30, 1997. The average prices for natural
gas were $3.27 per Mcf at December 31, 1996 and $3.18 per Mcf at September
30, 1997. Includes income from Section 29 tax credits of $808 and $706, as
of December 31, 1996 and September 30, 1997, respectively.
(2) The present value of estimated future net revenues attributable to the
Company's reserves was prepared using constant prices as of the calculation
date, discounted at 10% per annum on a pre-tax basis.
10
<PAGE>
RISK FACTORS
Any investment in the Common Stock involves a high degree of risk.
Prospective purchasers of the Common Stock carefully should consider the risk
factors set forth below, as well as the other information contained in this
Prospectus. This Prospectus contains forward-looking statements. See "--
Forward-Looking Information." Actual results may differ materially from those
projected in the forward-looking statements as a result of any number of
factors, including risk factors set forth below.
DEPENDENCE ON EXPLORATORY DRILLING ACTIVITIES
The Company's revenues, operating results and future rate of growth are
substantially dependent upon the success of its exploratory drilling program,
which will be funded in part with the proceeds of the Offering. See "Use of
Proceeds." Exploratory drilling involves numerous risks, including the risk
that no commercially productive oil or natural gas reservoirs will be
encountered. The cost of drilling, completing and operating wells is often
uncertain, and drilling operations may be curtailed, delayed or canceled as a
result of a variety of factors, including unexpected drilling conditions,
pressure or irregularities in formations, equipment failures or accidents,
adverse weather conditions, compliance with governmental requirements and
shortages or delays in the availability of drilling rigs and the delivery of
equipment. Despite the use of 2-D and 3-D seismic data and other advanced
technologies, exploratory drilling remains a speculative activity. Even when
fully utilized and properly interpreted, 2-D and 3-D seismic data and other
advanced technologies only assist geoscientists in identifying subsurface
structures and do not enable the interpreter to know whether hydrocarbons are
in fact present in those structures. In addition, the use of 2-D and 3-D
seismic data and other advanced technologies requires greater predrilling
expenditures than traditional drilling strategies, and the Company could incur
losses as a result of such expenditures. The Company's future drilling
activities may not be successful. There can be no assurance that the Company's
overall drilling success rate or its drilling success rate for activity within
a particular region will not decline. Unsuccessful drilling activities could
have a material adverse effect on the Company's business, results of
operations and financial condition. The Company may not have any option or
lease rights in potential drilling locations it identifies. Although the
Company has identified numerous potential drilling locations, there can be no
assurance that they will ever be leased or drilled or that oil or natural gas
will be produced from these or any other potential drilling locations. In
addition, drilling locations initially may be identified through a number of
methods, some of which do not include interpretation of 3-D or other seismic
data. Wells that currently are included in the Company's capital budget may be
based upon statistical results of drilling activities in other areas that the
Company believes are geologically similar, rather than on analysis of seismic
or other data. Actual drilling results are likely to vary from such
statistical results and such variance may be material. Similarly, the
Company's drilling schedule may vary from its capital budget, and there is
increased risk of such variance from the 1998 capital budget because of future
uncertainties, including those described above. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
VOLATILITY OF OIL AND NATURAL GAS PRICES
The Company's revenues, operating results and future rate of growth are
substantially dependent upon the prevailing prices of, and demand for, oil and
natural gas. Historically, the markets for oil and natural gas have been
volatile and are likely to continue to be volatile in the future. Prices for
oil and natural gas are subject to wide fluctuation in response to relatively
minor changes in the supply of and demand for oil and natural gas, market
uncertainty and a variety of additional factors that are beyond the control of
the Company. These factors include worldwide and domestic supplies of oil and
natural gas, the ability of the members of the Organization of Petroleum
Exporting Countries to agree to and maintain oil price and production
controls, political instability or armed conflict in oil-producing regions,
the price and level of foreign imports, the level of consumer demand, the
price and availability of alternative fuels, the availability of pipeline
capacity, weather conditions, domestic and foreign governmental regulations
and taxes and the overall economic environment. It is impossible to predict
future oil and natural gas price movements with certainty. Declines in oil and
natural gas prices may have a material adverse affect on the Company's
financial condition, liquidity, ability to finance planned capital
11
<PAGE>
expenditures and results of operations. Lower oil and natural gas prices also
may reduce the amount of oil and natural gas that the Company can produce
economically. See "--Uncertainty of Estimates of Oil and Natural Gas
Reserves," "Business and Properties--Competition," "--Governmental Regulation"
and "--Environmental Matters."
The Company periodically reviews the carrying value of its oil and natural
gas properties under the full cost accounting rules of the SEC. Under these
rules, capitalized costs of proved oil and natural gas properties may not
exceed the present value of estimated future net revenues from proved
reserves, discounted at 10%. Application of the "ceiling" test generally
requires pricing future revenue at the unescalated prices in effect as of the
end of each fiscal quarter and requires a write-down for accounting purposes
if the ceiling is exceeded, even if prices were depressed for only a short
period of time. The Company may be required to write-down the carrying value
of its oil and natural gas properties when oil and natural gas prices are
depressed or unusually volatile. If a write-down is required, it would result
in a charge to earnings, but would not impact cash flow from operating
activities. Once incurred, a write-down of oil and natural gas properties is
not reversible at a later date.
UNCERTAINTY OF ESTIMATES OF OIL AND NATURAL GAS RESERVES
This Prospectus contains estimates of the Company's proved oil and natural
gas reserves and the estimated future net revenues therefrom based upon the
Company's own estimates or on Reserve Reports that rely upon various
assumptions, including assumptions required by the SEC as to oil and natural
gas prices, drilling and operating expenses, capital expenditures, taxes and
availability of funds. The process of estimating oil and natural gas reserves
is complex, requiring significant decisions and assumptions in the evaluation
of available geological, geophysical, engineering and economic data for each
reservoir. As a result, such estimates are inherently imprecise. Actual future
production, oil and natural gas prices, revenues, taxes, development
expenditures, operating expenses and quantities of recoverable oil and natural
gas reserves may vary substantially from those estimated by the Company or
contained in the Reserve Reports. Any significant variance in these
assumptions could materially affect the estimated quantity and value of
reserves set forth in this Prospectus. The Company's properties also may be
susceptible to hydrocarbon drainage from production by other operators on
adjacent properties. In addition, the Company's proved reserves may be subject
to downward or upward revision based upon production history, results of
future exploration and development, prevailing oil and natural gas prices,
mechanical difficulties, government regulation and other factors, many of
which are beyond the Company's control. Actual production, revenues, taxes,
development expenditures and operating expenses with respect to the Company's
reserves likely will vary from the estimates used, and such variances may be
material.
Data included in this Prospectus regarding the Company's reserves as of
December 31, 1994 have not been reported upon by the Independent Engineers.
Approximately 24% of the Company's total proved reserves at September 30, 1997
were undeveloped, which are by their nature less certain. Recovery of such
reserves will require significant capital expenditures and successful drilling
operations. The Company's Reserve Reports assume that substantial capital
expenditures by the Company will be required to develop such reserves.
Although cost and reserve estimates attributable to the Company's oil and
natural gas reserves have been prepared in accordance with industry standards,
no assurance can be given that the estimated costs are accurate, that
development will occur as scheduled or that the results will be as estimated.
See "Business and Properties--Oil and Natural Gas Reserves."
The present value of future net revenues referred to in this Prospectus
should not be construed as the current market value of the estimated oil and
natural gas reserves attributable to the Company's properties. In accordance
with applicable requirements of the SEC, the estimated discounted future net
cash flows from proved reserves generally are based on prices and costs as of
the date of the estimate, whereas actual future prices and costs may be
materially higher or lower. Actual future net cash flows also will be affected
by increases in consumption by oil and natural gas purchasers and changes in
governmental regulations or taxation. The timing of actual future net cash
flows from proved reserves, and thus their actual present value, will be
affected by the timing of both the production and the incurrence of expenses
in connection with development and production of oil and natural
12
<PAGE>
gas properties. In addition, the 10% discount factor, which is required by the
SEC to be used in calculating discounted future net cash flows for reporting
purposes, is not necessarily the most appropriate discount factor based on
interest rates in effect from time to time and risks associated with the
Company or the oil and natural gas industry in general.
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH AND IMPLEMENTATION OF GROWTH
STRATEGY
The Company's rapid growth has placed, and is expected to continue to place,
a significant strain on the Company's financial, technical, operational and
administrative resources. As the Company increases the number of projects it
is evaluating or in which it is participating, there will be additional
demands on the Company's financial, technical, operational and administrative
resources. Any increase in the Company's activities as an operator will
increase its exposure to operating hazards. See "--Operating Hazards and
Uninsured Risks." The Company has relied in the past and expects to continue
to rely on project partners and independent contractors, including geologists,
geophysicists and engineers, that have provided the Company with seismic
survey planning and management, project and prospect generation, land
acquisition, drilling and other services. At October 31, 1997, the Company had
18 full-time employees. Due to the competitive nature of the markets in which
the Company operates, the Company currently believes that the demand for
qualified geologists, geophysicists and engineers is increasing. See "--
Dependence on Key Personnel." As the Company increases the number of projects
it is evaluating or in which it is participating, there will be additional
demands on the Company's financial, technical, operational and administrative
resources and continued reliance by the Company on project partners and
independent contractors, and these strains on resources, additional demands
and continued reliance may negatively affect the Company. The Company's
ability to continue its growth will depend upon a number of factors, including
its ability to obtain leases or options on properties, its ability to acquire
additional 3-D seismic data, its ability to identify and acquire new
exploratory sites, its ability to develop existing sites, its ability to
continue to retain and attract skilled personnel, its ability to maintain or
enter into new relationships with project partners and independent
contractors, the results of its drilling program, hydrocarbon prices, access
to capital and other factors. Although the Company intends to upgrade its
technical, operational and administrative resources following the Offering and
to increase its ability to provide internally certain of the services
previously provided by outside sources, there can be no assurance that it will
be successful in doing so or that it will be able to continue to maintain or
enter into new relationships with project partners and independent
contractors. The failure to continue to upgrade the Company's technical,
administrative, operating and financial resources and control systems or the
occurrence of unexpected expansion difficulties, including difficulties in
recruiting or engaging and retaining geophysicists, geologists, engineers and
sufficient numbers of qualified personnel and independent contractors to
enable the Company to expand its role in the drilling and production phase, or
the reduced availability of seismic gathering, drilling or other services in
the face of growing demand, could have a material adverse effect on the
Company's business, financial condition and results of operations. There can
be no assurance that the Company will be successful in achieving growth or any
other aspect of its business strategy.
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company makes and will continue to make substantial capital expenditures
in its exploration and development projects. The Company intends to finance
these capital expenditures with the net proceeds from the Offering, cash flow
from operations and its existing financing arrangements. Additional financing
may be required in the future to fund the Company's developmental and
exploratory drilling and seismic activities. No assurance can be given as to
the availability or terms of any such additional financing that may be
required or that financing will continue to be available under the existing or
new financing arrangements. If additional capital resources are not available
to the Company, its drilling, seismic and other activities may be curtailed
and its business, financial condition and results of operations could be
materially adversely affected. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
13
<PAGE>
HISTORICAL OPERATING LOSSES AND VARIABILITY OF OPERATING RESULTS
Excluding unusual, one-time transactions, the Company incurred net losses in
1994 and 1995 of $0.6 million and $1.0 million, respectively, and net income
in 1996 and for the nine months ended September 30, 1997 of $0.6 million and
$0.3 million, respectively. There can be no assurance that the Company will be
profitable in the future. The development of the Company's business and its
participation in an increasingly larger number of projects have required and
will continue to require substantial expenditures. The Company's future
operating results may fluctuate significantly depending upon a number of
factors, including industry conditions, prices of oil and natural gas, rates
of drilling success, rates of production from completed wells and the timing
of capital expenditures. This variability could have a material adverse effect
on the Company's business, financial condition and results of operations.
There also may be other factors that significantly affect the Company's
quarterly operating results which are difficult to predict and which could
result in earnings falling short, for a particular period, of either a prior
fiscal period or investors' expectations. In addition, any failure or delay in
the realization of expected cash flows from operating activities could limit
the Company's ability to invest and participate in economically attractive
projects. See "Selected Historical Combined Financial and Operating Data,"
"Selected Unaudited Pro Forma Combined Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Combined Financial Statements.
RESERVE REPLACEMENT RISK
In general, production from oil and natural gas properties declines as
reserves are depleted, with the rate of decline depending on reservoir
characteristics. Except to the extent that the Company conducts successful
exploration and development activities or acquires properties containing
proved reserves, or both, the proved reserves of the Company will decline as
reserves are produced. The Company's future oil and natural gas production is
highly dependent upon its ability to economically find, develop or acquire
reserves in commercial quantities. The business of exploring for or developing
reserves is capital intensive. To the extent cash flow from operations is
reduced and external sources of capital become limited or unavailable, the
Company's ability to make the necessary capital investment to maintain or
expand its asset base of oil and natural gas reserves would be impaired. The
Company participates in a substantial percentage of its wells as non-operator.
The failure of an operator of the Company's wells to adequately perform
operations, or an operator's breach of the applicable agreements, could
adversely impact the Company. In addition, there can be no assurance that the
Company's future exploration and development activities will result in
additional proved reserves or that the Company will be able to drill
productive wells at acceptable costs. Furthermore, although the Company's
revenues could increase if prevailing prices for oil and natural gas increase
significantly, the Company's finding and development costs also could
increase. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
OPERATING HAZARDS AND UNINSURED RISKS
The oil and natural gas business involves certain operating hazards such as
well blowouts, craterings, explosions, uncontrollable flows of oil, natural
gas or well fluids, fires, formations with abnormal pressures, pipeline
ruptures or spills, pollution, releases of toxic gas and other environmental
hazards and risks, any of which could result in substantial losses to the
Company. The availability of a ready market for the Company's oil and natural
gas production also depends on the proximity of reserves to, and the capacity
of, oil and natural gas gathering systems, pipelines and trucking or terminal
facilities. The Company delivers natural gas through gas gathering systems and
gas pipelines that it does not own. Federal and state regulation of oil and
natural gas production and transportation, tax and energy policies, changes in
supply and demand and general economic conditions all could adversely affect
the Company's ability to produce and market its oil and natural gas. In
addition, the Company may be liable for environmental damage caused by
previous owners of property purchased and leased by the Company. As a result,
substantial liabilities to third parties or governmental entities may be
incurred, the payment of which could reduce or eliminate the funds available
for exploration, development or acquisitions or result in the loss to the
Company's properties. In accordance with customary industry practices, the
Company maintains insurance against some, but not all, of such risks and
losses. The Company carries only certain limited types of business
interruption insurance. The Company may elect to self-insure if management
believes that the cost of insurance, although available, is excessive relative
to the risks
14
<PAGE>
presented. The occurrence of an event that is not covered, or not fully
covered, by insurance could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition,
pollution and environmental risks generally are not fully insurable. The
Company participates in a substantial percentage of its wells on a non-
operated basis, which may limit the Company's ability to control the risks
associated with oil and natural gas operations. See "Business and Properties--
Operating Hazards and Uninsured Risks."
COMPETITION
The Company operates in the highly competitive areas of oil and natural gas
exploration, exploitation, acquisition and production. In seeking to acquire
desirable producing properties or new leases for future exploration and in
marketing its oil and natural gas production, as well as in seeking to acquire
the equipment and expertise necessary to operate and develop those properties,
the Company faces intense competition from a large number of independent,
technology-driven companies as well as both major and other independent oil
and natural gas companies. Many of these competitors have financial and other
resources substantially in excess of those available to the Company. Such
companies may be able to pay more for exploratory prospects and productive oil
and natural gas properties and may be able to define, evaluate, bid for and
purchase a greater number of properties and prospects than the Company's
financial or human resources merit. The Company's ability to explore for oil
and natural gas prospects and to acquire additional properties in the future
will depend upon its ability to conduct its operations, to evaluate and select
suitable properties and to consummate transactions in this highly competitive
environment. See "Business and Properties--Competition."
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
Oil and natural gas operations are subject to various federal, state and
local government laws and regulations which may be changed from time to time
in response to economic or political conditions. Matters subject to regulation
include discharge permits for drilling operations, drilling bonds, reports
concerning operations, spacing of wells, unitization and pooling of
properties, environmental protection and taxation. From time to time,
regulatory agencies have imposed price controls and limitations on production
by restricting the rate of flow of oil and natural gas wells below actual
production capacity to conserve supplies of oil and natural gas. The Company
also is subject to changing and extensive tax laws, the effects of which
cannot be predicted. The development, production, handling, storage,
transportation and disposal of oil and natural gas, by-products thereof and
other substances and materials produced or used in connection with oil and
natural gas operations are subject to laws and regulations primarily relating
to protection of human health and the environment. The discharge of oil,
natural gas or pollutants into the air, soil or water may give rise to
significant liabilities on the part of the Company to the government and third
parties and may result in the assessment of civil or criminal penalties or
require the Company to incur substantial costs of remediation. Legal
requirements frequently are changed and subject to interpretation, and the
Company is unable to predict the ultimate cost of compliance with these
requirements or their effect on its operations. No assurance can be given that
existing laws or regulations, as currently interpreted or reinterpreted in the
future, or future laws or regulations will not materially adversely affect the
Company's business, results of operations and financial condition. See
"Business and Properties--Governmental Regulation" and "--Environmental
Matters" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Environmental and Other Regulatory Matters."
RISKS OF HEDGING TRANSACTIONS
To manage its exposure to price risks in the marketing of its oil and
natural gas, the Company has in the past and expects to continue to enter into
oil and natural gas price hedging arrangements with respect to a portion of
its expected production. The Company's hedging policy provides that, without
the prior approval of the Company's Board of Directors, generally not more
than 50% of its production quantities can be hedged, and that any such hedges
shall not be longer than one year in duration. These arrangements may include
future contracts on the New York Mercantile Exchange ("NYMEX"). While intended
to reduce the effects of volatility of the price of oil and natural gas, such
transactions may limit potential gains by the Company if oil and natural gas
prices were to rise substantially over the price established by the hedge. In
addition, such transactions may expose the Company to the risk of financial
loss in certain circumstances, including instances in which (i) production is
less than expected, (ii) there is a widening of price differentials between
delivery points for the
15
<PAGE>
Company's production and the delivery point assumed in the hedge arrangement,
(iii) the counterparties to the Company's future contracts fail to perform the
contract or (iv) a sudden, unexpected event materially impacts oil or natural
gas prices. During 1994, 1995 and 1996, the Company did not hedge any of its
oil and natural gas production, and as of September 30, 1997, the Company had
hedged 13% of its natural gas production for the nine months then ended. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Hedging."
MARKETABILITY OF PRODUCTION
The marketability of the Company's production depends in part upon the
availability, proximity and capacity of natural gas gathering systems,
pipelines and processing facilities. The Company delivers natural gas through
gas gathering systems and gas pipelines that it does not own. Federal and
state regulation of oil and natural gas production and transportation, tax and
energy policies, changes in supply and demand and general economic conditions
all could adversely affect the Company's ability to produce and market its oil
and natural gas. See "Business and Properties--Governmental Regulation." Any
dramatic change in market factors could have a material adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company has assembled a team of geologists, geophysicists and engineers,
some of whom are non-employee consultants and independent contractors, having
considerable experience in oil and natural gas exploration and production,
including applying 2-D and 3-D imaging technology. The Company is dependent
upon the knowledge, skills and experience of these experts to provide 2-D and
3-D imaging and to assist the Company in reducing the risks associated with
its participation in oil and natural gas exploration projects. In addition,
the success of the Company's business also depends to a significant extent
upon the abilities and continued efforts of its management. The Company
expects to enter into employment agreements prior to consummation of the
Offering with four key management employees. See "Management--Executive
Compensation--Employment Agreements." The Company does not maintain key-man
life insurance with respect to any of its employees. Competition among oil and
gas companies for qualified geologists, geophysicists and engineers and other
technical experts and consultants is intense. The loss of services of key
management personnel or the Company's technical experts and consultants, or
the inability to attract additional qualified personnel, experts or
consultants, could have a material adverse effect on the Company's business,
financial condition, results of operations, development efforts and ability to
grow. There can be no assurance that the Company will be successful in
attracting and/or retaining its key management personnel or technical experts
or consultants. See "--Risks Associated with Management of Growth and
Implementation of Growth Strategy," "Management--Directors and Executive
Officers" and "Business and Properties--Employees."
TECHNOLOGICAL CHANGES
The oil and gas industry is characterized by rapid and significant
technological advancements and introductions of new products and services
utilizing new technologies. As others use or develop new technologies, the
Company may be placed at a competitive disadvantage, and competitive pressures
may force the Company to implement such new technologies at substantial costs.
In addition, other oil and gas companies may have greater financial, technical
and personnel resources that allow them to enjoy technological advantages and
may in the future allow them to implement new technologies before the Company.
There can be no assurance that the Company will be able to respond to such
competitive pressures and implement such technologies on a timely basis or at
an acceptable cost. One or more of the technologies currently utilized by the
Company or implemented in the future may become obsolete. In such cases, the
Company's business, financial condition and results of operations could be
materially adversely affected. If the Company is unable to utilize the most
advanced commercially available technology, the Company's business, financial
condition and results of operations could be materially and adversely
affected. See "Business and Properties--Competition."
SHORTAGES OF DRILLING RIGS, EQUIPMENT, SUPPLIES AND PERSONNEL
There is a general shortage of drilling rigs, equipment and supplies, which
the Company believes may intensify. The costs and delivery times of rigs,
equipment and supplies are substantially greater than in prior periods and
currently are escalating. Shortages of drilling rigs, equipment or supplies
could delay and adversely affect the Company's exploration and development
operations, which could have a material adverse effect on its business,
financial condition and results of operations.
16
<PAGE>
The demand for, and wage rates of, qualified rig crews have begun to rise in
the drilling industry in response to the increasing number of active drilling
rigs in service. Such shortages have in the past occurred in the industry in
times of increasing demand for drilling services. If the number of active
drilling rigs continues to increase, the oil and gas industry may experience
shortages of qualified personnel to operate drilling rigs, which could delay
the Company's drilling operations and adversely affect the Company's business,
financial condition and results of operations.
CONTROL BY CERTAIN STOCKHOLDERS
Upon consummation of the Offering and the Combination Transaction,
directors, executive officers and principal stockholders of the Company, and
certain of their affiliates, will beneficially own approximately % of the
Company's outstanding Common Stock (approximately % if the Underwriters
exercise the over-allotment option in full). Accordingly, these stockholders,
as a group, will be able to control the outcome of stockholder votes,
including votes concerning the election of directors, the adoption or
amendment of provisions in the Company's Certificate of Incorporation or
Bylaws and the approval of mergers and other significant corporate
transactions. The existence of these levels of ownership concentrated in a few
persons makes it unlikely that any other holder of Common Stock will be able
to affect the management or direction of the Company. These factors also may
have the effect of delaying or preventing a change in the management or voting
control of the Company. See "Principal and Selling Stockholders" and
"Description of Capital Stock."
CERTAIN ANTITAKEOVER CONSIDERATIONS
The Company's Certificate of Incorporation and Bylaws include certain
provisions that may have the effect of delaying, deterring or preventing a
future takeover or change in control of the Company without the approval of
the Company's Board of Directors. Such provisions also may render the removal
of directors and management more difficult. Among other things, the Company's
Certificate of Incorporation and/or Bylaws: (i) provide for a classified Board
of Directors serving staggered three-year terms; (ii) impose restrictions on
who may call a special meeting of stockholders; (iii) include a requirement
that stockholder action be taken only by unanimous written consent or at
stockholder meetings; (iv) specify certain advance notice requirements for
stockholder nominations of candidates for election to the Board of Directors
and certain other stockholder proposals; and (v) impose certain restrictions
and supermajority voting requirements in connection with specified business
combinations not approved in advance by the Company's Board of Directors. In
addition, the Company's Board of Directors, without further action by the
stockholders, may cause the Company to issue up to 2,000,000 shares of
preferred stock, $0.01 par value ("Preferred Stock"), on such terms and with
such rights, preferences and designations as the Board of Directors may
determine. Issuance of such Preferred Stock, depending upon the rights,
preferences and designations thereof, may have the effect of delaying,
deterring or preventing a change in control of the Company. Further, certain
provisions of the Delaware General Corporation Law (the "Delaware Law") impose
restrictions on the ability of a third party to effect a change in control and
may be considered disadvantageous by a stockholder. See "Description of
Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
the Offering could adversely affect the market price for the Common Stock. An
estimated 6,930,000 shares to be issued in the Combination Transaction will
not, at the time of issuance, be registered under the Securities Act of 1933,
as amended (the "Securities Act"), and, therefore, are not freely tradeable
unless subsequently registered under the Securities Act or exempted from such
registration. The Company has agreed that upon consummation of the Combination
Transaction it will enter into a Registration Rights Agreement with each
person receiving shares of Common Stock in the Combination Transaction.
Pursuant to the Registration Rights Agreement, such persons collectively will
receive piggyback registration rights that provide for the registration of the
resale of such shares at the Company's expense. Beginning one year after the
consummation of the Offering, all of such shares to be issued in the
Combination Transaction (other than the shares being offered hereby by the
Selling Stockholders) may be sold pursuant to the requirements of Rule 144
promulgated under the Securities Act ("Rule 144"), subject to certain volume
limitations, manner of sale and other requirements relating to the sale of
such securities. Up to
17
<PAGE>
711,500 shares of Common Stock issuable pursuant to stock options and 107,500
shares of restricted Common Stock are expected to be granted to directors,
officers and certain employees of the Company in connection with the Offering.
The Company anticipates that shares of Common Stock issuable upon exercise of
such options and the restricted stock awards will become available for future
sale in the public market pursuant to a subsequently filed registration
statement on Form S-8. The Company and its current stockholders, executive
officers and directors have agreed not to offer for sale, sell or otherwise
dispose of any shares of Common Stock for a period of 180 days after the date
of this Prospectus without the prior written consent of Bear, Stearns & Co.
Inc., subject to certain exceptions. Such consent may be given at any time and
without public notice. See "Management--Executive Compensation--Employee
Benefit Plans--Stock Option and Restricted Stock Plan of 1997," "Description
of Capital Stock--Registration Rights of Certain Stockholders," "Shares
Eligible for Future Sale" and "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the Common Stock in the Offering will experience an immediate
and substantial dilution in pro forma net tangible book value per share. See
"Dilution."
ABSENCE OF DIVIDENDS ON COMMON STOCK
The Company currently intends to retain any earnings for the future
operation and development of its business and currently does not anticipate
paying any cash dividends with respect to the Common Stock in the foreseeable
future. Any future dividends also may be restricted by agreements with the
Company's lenders. See "Dividend Policy."
NO PRIOR PUBLIC MARKET; POSSIBLE STOCK PRICE VOLATILITY
Before the Offering, there has been no public market for the Common Stock,
and an active public market for the Common Stock may not develop or, if
developed, may not be sustained. The initial public offering price will be
determined through negotiation between the Company and the Underwriters based
on several factors that may not be indicative of future market prices. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The consummation of the Offering provides
no assurance that an active trading market for the Common Stock will develop
or, if developed, that it will be sustained. The trading price of the Common
Stock and the price at which the Company may sell securities in the future
could be subject to large fluctuations in response to changes in government
regulations, quarterly variations in operating results, litigation, general
market conditions, the prices of oil and natural gas, announcements by the
Company and its competitors, the liquidity of the Company, the Company's
ability to raise additional funds and other events.
FORWARD-LOOKING INFORMATION
All statements other than statements of historical fact contained in this
Prospectus, including statements in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business and Properties,"
are forward-looking statements. Forward-looking statements in this Prospectus
generally are accompanied by words such as "anticipate," "believe,"
"estimate," "project," "expect" or similar statements. Such forward-looking
information involves important known and unknown risks and uncertainties and
other factors that may cause the actual results, performance or achievements
of the Company to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements.
Although the Company believes that the expectations reflected in such forward-
looking statements are reasonable, no assurance can be given that such
expectations will prove correct. Factors that could cause the Company's
results to differ materially from the results discussed in such forward-
looking statements include the risks described under "Risk Factors," such as
the fluctuations of the prices received or demand for the Company's oil and
natural gas, the uncertainty of drilling results and reserve estimates,
operating hazards, acquisition risks, requirements for capital, general
economic conditions, the competition from other exploration, development and
production companies and the effects of governmental and environmental
regulation. All forward-looking statements in this Prospectus are expressly
qualified in their entirety by the cautionary statements in this paragraph and
potential investors are cautioned not to place undue reliance on the forward-
looking statements made in this Prospectus.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company are estimated to be approximately $ ($ if
the Underwriters exercise their over-allotment option in full), and after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses. The Company will not receive any of the proceeds from the
sale of the shares of Common Stock by the Selling Stockholders in the
Offering.
The Company intends to use a portion of the net proceeds to repay all
borrowings under the Credit Facility (defined below). The remainder of the
proceeds will be used to fund future capital expenditures relating to
exploration and development activities, to increase working capital and for
other general corporate purposes. While the Company believes that the net
proceeds from the Offering, cash flow from operations and borrowings under its
Credit Facility should allow the Company to finance its operations through at
least 1998 based on current conditions, additional financing may be required
in the future to fund the Company's drilling and 3-D seismic acquisition
programs. To the extent that the net proceeds of the Offering are not used
immediately, they will be invested in short-term, interest-bearing
obligations.
MOC obtained a $5.0 million revolving line of credit (the "Original Line of
Credit") and a $1.0 million term loan (the "Term Loan") pursuant to a Business
Loan Agreement dated September 10, 1996 with First of America-Michigan, N.A.
("FOA"). FOA has made available an additional $0.5 million revolving line of
credit (the "Additional Line of Credit" and, together with the Original Line
of Credit and Term Loan, the "Credit Facility"). At September 30, 1997, $4.5
million was outstanding under the Original Line of Credit, no amount was
outstanding under the Additional Line of Credit, and $0.8 million was
outstanding under the Term Loan. Interest accrues under the Original Line of
Credit and Term Loan at a variable annual rate equal to the New York Consensus
Prime Rate, which was 8.5% at September 30, 1997, and under the Additional
Line of Credit at a variable annual rate equal to the New York Consensus Prime
Rate plus one-quarter of 1%. Indebtedness under the Original Line of Credit
and the Additional Line of Credit matures January 13, 1998, and indebtedness
under the Term Loan matures September 10, 2000. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
DIVIDEND POLICY
The Company currently intends to retain its earnings for future growth and,
therefore, does not anticipate paying cash dividends with respect to the
Common Stock in the foreseeable future. Under Delaware law, the Company is
permitted to pay dividends only out of surplus, or, if there is no surplus,
out of its net profits. Payments of future dividends, if any, will be at the
discretion of the Company's Board of Directors after taking into account
various factors, including the Company's financial condition, operating
results and current and anticipated cash needs.
19
<PAGE>
DILUTION
As of September 30, 1997, the Company's pro forma net tangible book value
would have been approximately $25.3 million, or approximately $3.64 per share
of Common Stock, after giving pro forma effect to the issuance of an estimated
6,930,000 shares of Common Stock in connection with the Combination
Transaction, the contribution of existing MOC shareholder notes and the
termination of MOC's S corporation status as if all such transactions had been
completed at such date. Net tangible book value per share represents the total
book value of the Company's tangible assets reduced by the amount of the
Company's total liabilities, divided by the number of shares of Common Stock
outstanding. After giving further effect to the sale by the Company of shares
of Common Stock at an assumed initial public offering price of $ per share
and the application of such net proceeds as described under "Use of Proceeds,"
the adjusted pro forma net tangible book value of the Common Stock as of
September 30, 1997 would have been $ per share. This represents an immediate
increase in pro forma net tangible book value of $ per share to the
Company's existing stockholders and an immediate dilution in pro forma net
tangible book value of $ per share to new investors purchasing shares of
Common Stock in the Offering at the initial public offering price. The
following table illustrates the per share dilution in pro forma net tangible
book value to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $
Pro forma net tangible book value per share at September 30,
1997........................................................... $3.64
Increase in pro forma net tangible book value per share
attributable to the sale of Common Stock in the Offering.......
Adjusted pro forma net tangible book value per share after giving
effect to the Offering...........................................
---
Dilution in net tangible book value to the purchasers of Common
Stock in the Offering............................................ $
===
</TABLE>
The following table sets forth, on a pro forma basis to give effect to the
Combination Transaction as of September 30, 1997, differences between (i) the
number of shares of Common Stock acquired from the Company by existing
stockholders and to be acquired from the Company by new investors purchasing
shares in the Offering and (ii) the total and average prices paid by existing
stockholders and to be paid by new investors purchasing shares in the Offering
(in each case based on an assumed initial public offering price of $ per
share):
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED(1) TOTAL CONSIDERATION(2) PRICE
-------------------- ---------------------- PER
NUMBER PERCENTAGE AMOUNT PERCENTAGE SHARE
--------- ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 6,930,000 % $25,253,311 % $3.64
New investors...........
--------- ----- ----------- ----- -----
Total............... 100.0% $ 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) These numbers do not include 711,500 shares of Common Stock issuable
pursuant to employee stock options at an exercise price per share equal to
the initial public offering price and 107,500 shares of restricted Common
Stock that are expected to be granted to directors, officers and certain
employees of the Company in connection with the Offering. See
"Management--Executive Compensation--Employee Benefit Plans--Stock Option
and Restricted Stock Plan of 1997."
(2) The existing stockholders of the Company, after giving effect to the
Combination Transaction, will have acquired all of their shares of Common
Stock in exchange for the Combined Assets; therefore, such stockholders
will have no direct cash cost with respect to the acquisition of such
shares.
20
<PAGE>
CAPITALIZATION
The following table sets forth (i) the historical combined capitalization of
the Company as of September 30, 1997, (ii) the pro forma capitalization of the
Company as of September 30, 1997 after giving effect to the issuance of an
estimated 6,930,000 shares of Common Stock in connection with the Combination
Transaction, the contribution of existing MOC shareholder notes and the
termination of MOC's S corporation status and (iii) the pro forma
capitalization of the Company as of September 30, 1997, as adjusted to give
effect to the sale of shares of Common Stock in the Offering at an assumed
initial public offering price of $ per share and the application of the
estimated net proceeds therefrom as described under "Use of Proceeds." This
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Combined Financial
Statements.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------
HISTORICAL PRO PRO FORMA
COMBINED FORMA AS ADJUSTED
---------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of notes payable and long-term
debt(1)........................................ $ 4,753 $ 4,753 $ --
Long-term debt(1)............................... 8,186 543 --
Equity(2):
Preferred Stock, $0.01 par value, 2,000,000
shares authorized; none issued and
outstanding.................................. -- -- --
Common Stock, $0.01 par value, 20,000,000
shares authorized; none issued and
outstanding; 6,930,000 issued and outstanding
pro forma; issued and outstanding pro
forma, as adjusted........................... -- 69
Additional paid-in capital.................... -- 25,184
Retained earnings............................. 7,835 -- --
Combined equity............................... 197 -- --
------- ------- -----
Total equity................................ 8,032 25,253
------- ------- -----
Total capitalization........................ $20,971 $30,549 $
======= ======= =====
</TABLE>
- --------
(1) See note 6 to the Combined Financial Statements.
(2) These numbers do not include 711,500 shares of Common Stock issuable
pursuant to employee stock options at an exercise price per share equal to
the initial public offering price in the Offering and 107,500 shares of
restricted Common Stock that are expected to be granted to directors,
officers and certain employees of the Company in connection with the
Offering. See "Management--Executive Compensation--Employee Benefit
Plans--Stock Option and Restricted Stock Plan of 1997."
21
<PAGE>
SELECTED HISTORICAL COMBINED FINANCIAL AND OPERATING DATA
The following table presents selected historical combined financial data of
the Company as of the dates and for the periods indicated. The historical
combined financial data as of and for each of the three years in the period
ended December 31, 1996 are derived from the Combined Financial Statements
which have been audited by Arthur Andersen LLP, independent public
accountants. The historical combined financial data as of and for the years
ended December 31, 1992 and 1993 are unaudited. The historical combined
financial data as of and for the nine months ended September 30, 1996 and 1997
are derived from unaudited combined financial statements of the Company which,
in the opinion of management, contain all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation thereof. The results
for the nine months ended September 30, 1997 are not necessarily indicative of
the results that may be achieved for the full year ending December 31, 1997.
The following table also sets forth certain pro forma income tax, net income
and net income per share information. Pro forma data are based on assumptions
and include adjustments as explained in the notes to the unaudited pro forma
financial data. The unaudited pro forma financial statements are not
necessarily indicative of the results of future operations of the Company and
should be read in conjunction with the Combined Financial Statements.
Historical net income (loss) per share has been omitted since such information
is not meaningful and the historically combined Company is not a separate
legal entity with a single capital structure. The following data should be
read in conjunction with "Capitalization," "Selected Unaudited Pro Forma
Combined Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Combined Financial Statements.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Natural gas.......... $ 3,302 $ 3,749 $ 2,424 $ 2,748 $ 5,614 $ 3,719 $ 4,329
Crude oil and
condensate.......... 835 817 672 715 1,101 854 710
Other operating
income.............. 258 268 167 296 395 355 492
------- ------- ------- ------- ------- ------- -------
Total operating
income............ 4,395 4,834 3,263 3,759 7,110 4,928 5,531
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Lease operating
expenses and
production taxes.... 781 539 811 777 1,123 753 917
Depreciation,
depletion and
amortization........ 1,313 1,300 1,009 1,666 2,629 1,826 2,019
General and
administrative...... 1,121 1,086 1,200 1,270 1,591 1,002 1,335
------- ------- ------- ------- ------- ------- -------
Total operating
expenses.......... 3,215 2,925 3,020 3,713 5,343 3,581 4,271
------- ------- ------- ------- ------- ------- -------
Operating income....... 1,180 1,909 243 46 1,767 1,347 1,260
------- ------- ------- ------- ------- ------- -------
Interest expense....... (753) (634) (810) (1,017) (1,139) (789) (922)
Lawsuit settlement..... -- -- -- 3,521 -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)...... $ 427 $ 1,275 $ (567) $ 2,550 $ 628 $ 558 $ 338
======= ======= ======= ======= ======= ======= =======
Pro forma income
before taxes(1)....... $ 1,634 $ 665
Pro forma provision
(benefit) for income
taxes(1).............. 295 (29)
------- -------
Pro forma net
income(1)............. $ 1,339 $ 694
======= =======
Pro forma net income
per share(1)(2)....... $ 0.19 $ 0.10
======= =======
Pro forma weighted
average shares
outstanding(2)........ 6,930 6,930
======= =======
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (at
end of period):
Working capital........ $ 927 $ (434) $(1,769) $(1,980) $(2,682) $(2,688) $(3,466)
Oil and gas
properties, net....... 12,520 14,150 14,257 17,731 20,732 20,462 21,163
Total assets........... 15,610 17,702 16,444 20,005 24,050 22,883 23,993
Long-term debt,
including notes
payable............... 7,643 9,213 9,442 9,801 12,881 11,661 12,939
Equity................. 6,508 6,787 5,596 7,410 7,769 7,943 8,032
</TABLE>
22
<PAGE>
- --------
(1) Gives pro forma effect to the application of federal and state income
taxes to the Company as if it were a taxable corporation for the periods
presented. Upon the consummation of the Combination Transaction, the
Company will be required to record a one-time non-cash charge to earnings
in connection with establishing a deferred tax liability on the balance
sheet in accordance with SFAS No. 109, "Accounting for Income Taxes." If
the Combination Transaction had been consummated for the periods
presented, such charge would have been approximately $5.5 million. The
ultimate amount of the charge that will be recorded is dependent upon a
number of factors and cannot be determined until consummation of the
Combination Transaction. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview."
(2) Pro forma net income per share has been computed assuming that an
estimated 6,930,000 shares of Common Stock to be issued in connection with
the Combination Transaction have been outstanding since January 1, 1996.
23
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The pro forma unaudited combined financial data set forth below has been
prepared to give effect to the Combination Transaction. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview." The pro forma unaudited statements of operations for the year ended
December 31, 1996 and for the nine months ended September 30, 1997 were
prepared on the basis that the Combination Transaction occurred on January 1,
1996 and January 1, 1997, respectively. The pro forma unaudited balance sheet
as of September 30, 1997 was prepared on the basis that the Combination
Transaction occurred on September 30, 1997. Pro forma data give effect to (i)
the revenue and direct operating expenses of the SASI Minerals Company
properties and other properties (from 10 unrelated investors) that will be
exchanged in the Combination Transaction. In addition, the pro forma data are
based on assumptions and include adjustments as explained in the notes to the
unaudited pro forma combined financial statements and are not necessarily
indicative of the results of future operations of the Company. The following
financial information should be read in conjunction with "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Combined Financial Statements.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SASI
MINERALS PRO
COMBINED COMPANY OTHER PRO FORMA FORMA
COMPANY PROPERTIES PROPERTIES ADJUSTMENTS COMBINED
-------- ---------- ---------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Natural gas............ $ 5,614 $ 841 $532 $ (156)(a) $6,831
Crude oil and
condensate............ 1,101 179 154 (93)(a) 1,341
Other operating
revenues.............. 395 395
------- ------ ---- ------- ------
7,110 1,020 686 (249) 8,567
Operating Expenses:
Lease operating
expenses and
production taxes...... 1,123 170 146 (91)(a) 1,348
Depreciation, depletion
and amortization...... 2,629 739 (b) 3,368
General and
administrative........ 1,591 275 (c) 1,866
------- ------ ---- ------- ------
5,343 170 146 923 6,582
Operating income......... 1,767 850 540 (1,172) 1,985
Interest expense......... (1,139) 788 (d) (351)
------- ------ ---- ------- ------
Income before income
taxes................... 628 850 540 (384) 1,634
Provision for income
taxes................... -- -- -- 295 (e) 295
------- ------ ---- ------- ------
Net income............... $ 628 $ 850 $540 $ (679) $1,339
======= ====== ==== ======= ======
Net income per common
share................... $ 0.19
======
Weighted average common
shares outstanding...... 6,930 (f) 6,930
======= ======
</TABLE>
24
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
SASI
MINERALS PRO
COMBINED COMPANY OTHER PRO FORMA FORMA
COMPANY PROPERTIES PROPERTIES ADJUSTMENTS COMBINED
-------- ---------- ---------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Natural gas............ $4,329 $1,031 $615 $ (121)(a) $5,854
Crude oil and
condensate............ 710 188 141 (67)(a) 972
Other operating
revenues.............. 492 492
------ ------ ---- ------- ------
5,531 1,219 756 (188) 7,318
Operating Expenses:
Lease operating
expenses and
production taxes...... 917 132 98 (64)(a) 1,083
Depreciation, depletion
and amortization...... 2,019 1,615 (b) 3,634
General and
administrative........ 1,335 275 (c) 1,610
------ ------ ---- ------- ------
4,271 132 98 1,826 6,327
Operating income......... 1,260 1,087 658 (2,014) 991
Interest expense......... (922) 596 (d) (326)
------ ------ ---- ------- ------
Income before income
taxes................... 338 1,087 658 (1,418) 665
Provision (benefit) for
income taxes............ -- -- -- (29)(e) (29)
------ ------ ---- ------- ------
Net income............... $ 338 $1,087 $658 $(1,389) $ 694
====== ====== ==== ======= ======
Net income per common
share................... $ 0.10
======
Weighted average common
shares outstanding...... 6,930 (f) 6,930
======= ======
</TABLE>
25
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
COMBINED PRO FORMA PRO FORMA
ASSETS COMPANY ADJUSTMENTS COMBINED
------ -------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current Assets:
Cash........................................ $ 107 $ $ 107
Accounts receivable......................... 2,253 2,253
Inventories................................. 47 47
Prepaid expenses............................ 36 36
Other current assets........................ 186 186
------- ------- -------
2,629 2,629
Oil and gas properties, net................... 21,163 19,513 (g) 40,169
(507)(h)
Property and equipment, net................... 201 201
------- ------- -------
Total assets.............................. $23,993 $19,006 $42,999
======= ======= =======
<CAPTION>
LIABILITIES AND EQUITY
----------------------
<S> <C> <C> <C>
Current Liabilities:
Notes payable............................... $ 4,515 $ $ 4,515
Current portion of long-term debt........... 238 238
Accounts payable and joint interest
advances................................... 1,134 1,134
Accrued interest............................ 202 202
Other accrued expenses...................... 6 275 (c) 281
------- ------- -------
6,095 275 6,370
Long-term debt................................ 8,186 (7,643)(i) 543
Deferred revenue.............................. 1,680 1,680
Deferred income taxes......................... -- 9,153 (j) 9,153
Equity:
Preferred Stock............................. -- -- --
Common Stock................................ -- 69 (g) 69
Additional paid-in capital.................. -- (275)(c) 25,184
19,444 (g)
(507)(h)
7,643 (i)
(9,153)(j)
8,032 (k)
Combined equity............................. 197 (197)(k) --
Retained earnings........................... 7,835 (7,835)(k) --
------- ------- -------
Total equity................................ 8,032 17,221 25,253
------- ------- -------
Total liabilities and equity.............. $23,993 $19,006 $42,999
======= ======= =======
</TABLE>
- --------
Notes to unaudited pro forma combined financial data:
- ----------------------------------------------------
(a) To reflect the elimination of operating results from certain non-strategic
oil and natural gas assets that will be sold by the Company prior to the
Combination Transaction.
(b) To reflect the estimated additional depreciation, depletion and
amortization expense resulting from the acquisition of the Combined Assets
in the Combination Transaction and the sale of certain non-strategic
assets using the unit-of-production method applied to the basis of the
properties acquired and sold.
(c) To reflect a bonus to be paid to certain employees upon consummation of
the Combination Transaction.
26
<PAGE>
(d) To reflect the reduction in interest expense attributable to MOC
shareholder notes being contributed in connection with the Combination
Transaction, resulting in the cancellation of the indebtedness (see (i)
below).
(e) Gives pro forma effect to the application of federal and state income
taxes to the Company as if it were a taxable corporation for the periods
presented. Upon the consummation of the Combination Transaction, the
Company will be required to record a one-time non-cash change to earnings
in connection with establishing a deferred tax liability on the balance
sheet in accordance with SFAS No. 109, "Accounting for Income Taxes." If
the Combination Transaction had been consummated for the periods
presented, such charge would have been approximately $5.5 million. The
ultimate amount of the charge that will be recorded is dependent upon a
number of factors and cannot be determined until consummation of the
Combination Transaction. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview."
(f) To reflect the issuance of Common Stock for the Combined Assets in the
Combination Transaction.
(g) To reflect the fair value of the Combined Assets being contributed in the
Combination Transaction.
(h) To reflect the reduction in the cost basis of the non-strategic properties
sold prior to consummation of the Combination Transaction, and the payment
of these proceeds to MOC's existing shareholders.
(i) To reflect the contribution of the MOC shareholder notes in connection
with the Combination Transaction, resulting in the cancellation of the
indebtedness.
(j) To reflect a deferred tax liability in accordance with SFAS No. 109,
"Accounting for Income Taxes," for the difference between the financial
reporting basis and the tax basis of the Company, after consummation of
the Combination Transaction.
(k) To reflect the reclassification of combined equity and the
reclassification of retained earnings as additional paid-in capital, upon
MOC's termination of its S corporation status.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Miller is an independent oil and gas company with its current exploration
effort concentrated in the Mississippi Salt Basin, the onshore Gulf Coast
region of Texas and Louisiana and the Michigan Basin. The Company has an
established production base in each area.
In 1972, the Miller family began to acquire a substantial and strategic
leasehold position and apply emerging seismic technology to discover oil and
natural gas reserves in the Northern Michigan Niagaran Reef Trend. The Company
also explored and had production in Texas, Wyoming, North Dakota and Montana.
In 1988, the Miller family and their affiliated companies sold their producing
properties to Conoco, Inc., reserving the undeveloped acreage in the Michigan
Basin. After the Conoco, Inc. sale, the Company shifted its focus to
development of the Antrim Shale formation in its Northern Michigan leases.
Since 1988, the Company has participated in drilling over 600 commercially
productive Antrim Shale wells. Since 1993, the Company has developed its base
of properties and inventory of prospects in Mississippi, Louisiana and Texas.
The Company uses the full-cost method of accounting for its oil and natural
gas properties. Under this method, all acquisition, exploration and
development costs, including any general and administrative costs that are
directly attributable to the Company's acquisition, exploration and
development activities, are capitalized in a "full-cost pool" as incurred. The
Company records depletion of its full-cost pool using the unit-of-production
method. To the extent that such capitalized costs in the full-cost pool (net
of depreciation, depletion and amortization and related deferred taxes) exceed
the present value (using a 10% discount rate) of estimated future net after-
tax cash flows from proved oil and natural gas reserves, such excess costs are
charged to operations. The Company has not been required to make any such
write-downs. Once incurred, a write-down of oil and natural gas properties is
not reversible at a later date.
The Company recently was organized as a Delaware corporation to serve as the
surviving company in the Combination Transaction. Pursuant to the Combination
Agreement among the Company and the owners of the Combined Assets, the Company
has agreed to issue to those owners, subject to the consummation of the
Offering and certain other customary conditions, an estimated 6,930,000 shares
of Common Stock in exchange for the Combined Assets. The owners of the
Combined Assets will receive a number of shares of Common Stock proportionate
to the value of their ownership interests in the Combined Assets calculated on
the basis of the initial public offering price of the Common Stock.
Because the Company, MOC and their affiliated oil and gas companies
participating in the Combination Transaction share common ownership and
management, the combination of those particular Combined Assets will be
accounted for as a reorganization of entities as prescribed by SEC Staff
Accounting Bulletin ("SAB") No. 47. The unaffiliated entities participating in
the Combination Transaction are not under the common ownership and management
of the Company. Consequently, the Company will account for the acquisition of
those unaffiliated assets under the purchase method of accounting, under which
the properties will be recorded at their estimated fair value at the date on
which the Combination Transaction is consummated.
The Company is not currently subject to federal income taxation because MOC
and the affiliated entities were not tax reporting entities but, instead,
taxes relating to the operations of MOC and the affiliated entities were
required to be paid by the owners thereof as S corporations. As a result, the
Company did not pay any taxes for any of these periods nor do the Combined
Financial Statements include any deferred tax liability, on a historical
basis. This tax treatment will continue until consummation of the Combination
Transaction, which will occur upon the consummation of the Offering, at which
time the Company will become subject to taxation as a C corporation.
For the reasons described above, the Combined Financial Statements do not
include a provision for deferred tax liability. At September 30, 1997, the
estimated tax basis of the Company's net assets was approximately $16.0
million less than the basis for financial accounting purposes. The difference
is primarily the result of deductions for oil and gas property costs for tax
purposes in excess of the recorded expense for
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<PAGE>
financial accounting purposes. As a result, upon the consummation of the
Combination Transaction, the Company will be required to record a one-time
non-cash charge to earnings for the deferred tax liability in accordance with
SFAS No. 109, "Accounting for Income Taxes." If the Combination Transaction
had been consummated at September 30, 1997, such charge would have been
approximately $5.5 million. The difference between the tax basis and the
financial accounting basis of the Company's net assets, and, therefore, the
ultimate amount of the charge that will be recorded, will continue to change
until the consummation of the Combination Transaction (which will be
contemporaneous with the consummation of the Offering) as a result of ongoing
differences between the amount of tax deductions and corresponding expenses
for financial accounting purposes. Accordingly, the ultimate amount of the
non-cash charge that will be recorded cannot be determined until consummation
of the Combination Transaction and such amount may vary significantly from the
estimate at September 30, 1997.
RESULTS OF OPERATIONS
The following table summarizes production volumes, average sales prices,
operating revenues and average costs for the Company's oil and natural gas
operations for the periods presented:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT
AMOUNTS)
<S> <C> <C> <C> <C> <C>
Production volumes:
Crude oil and condensate (MBbls)... 39.5 31.6 46.5 35.0 33.4
Natural gas (MMcf)................. 1,228.4 1,324.0 2,030.0 1,555.3 1,713.0
Natural gas equivalent (MMcfe)..... 1,465.7 1,513.3 2,309.1 1,765.0 1,913.3
Average sales prices:
Crude oil and condensate ($ per
Bbl).............................. $ 17.00 $ 22.68 $ 23.66 $ 24.44 $ 21.26
Natural gas ($ per Mcf)............ 1.97 2.08 2.77 2.39 2.53
Natural gas equivalent ($ per
Mcfe)............................. 2.11 2.29 2.91 2.59 2.63
Operating revenues:
Crude oil and condensate........... $ 672 $ 715 $ 1,101 $ 854 $ 710
Natural gas........................ 2,424 2,748 5,614 3,719 4,329
Average Costs ($ per Mcfe):
Lease operating expenses and
production taxes.................. $ 0.55 $ 0.51 $ 0.49 $ 0.43 $ 0.48
Depletion, depreciation and
amortization...................... 0.69 1.10 1.14 1.03 1.06
General and administrative......... 0.82 0.84 0.69 0.57 0.70
</TABLE>
Nine Months Ended September 30, 1997 Compared to the Nine Months Ended
September 30, 1996
Oil and natural gas revenues for the nine months ended September 30, 1997
increased 10% to $5.0 million from $4.6 million for the same period in 1996.
Production volumes for natural gas during the nine months ended September 30,
1997 increased 10% to 1,713.0 MMcf from 1,555.3 MMcf for the same period in
1996. Average natural gas prices increased 6% to $2.53 per Mcf for the nine
months ended September 30, 1997 from $2.39 per Mcf in the same period in 1996.
Production volumes for oil during the nine months ended September 30, 1997
decreased 4% to 33.4 MBbls from 35.0 MBbls for the same period in 1996.
Average oil prices decreased 13% to $21.26 per barrel during the nine months
ended September 30, 1997 from $24.44 per barrel in the same period in 1996.
This decrease in oil prices is primarily attributable to cyclical fluctuations
in the spot market for oil.
Lease operating expenses and production taxes for the nine months ended
September 30, 1997 increased 22% to $0.9 million from $0.8 million for the
same period in 1996. Lease operating expenses and production taxes increased
primarily due to increased production as described above, and an increase in
operating expenses per equivalent unit to $0.48 per Mcfe for the nine months
ended September 30, 1997 from $0.43 per Mcfe in the same period in 1996.
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<PAGE>
Depreciation, depletion and amortization ("DD&A") expense for the nine
months ended September 30, 1997 increased 11% to $2.0 million from $1.8
million for the same period in 1996. This increase was due to increased
production and a 3% increase in the 1997 depletion rate to $1.06 per Mcfe from
$1.03 per Mcfe in the nine months ended September 30, 1996, which was the
result of increased drilling and related seismic costs.
General and administrative expense for the nine months ended September 30,
1997 increased 33% to $1.3 million from $1.0 million for the same period in
1996, as a result of increases in the number of employees and related
benefits, plus increased office rent.
Interest expense for the nine months ended September 30, 1997 increased 17%
to $0.9 million from $0.8 million in the same period in 1996. Increases in
interest expense were due to increased debt levels in late 1996 and 1997
incurred to finance substantial leasehold acquisition activities in the
Mississippi Salt Basin area.
Net income for the nine months ended September 30, 1997 decreased to $0.3
million from $0.6 million for the same period in 1996, as a result of the
factors described above.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
Oil and natural gas revenues for 1996 increased 94% to $6.7 million from
$3.5 million in 1995. Production volumes for natural gas in 1996 increased 53%
to 2,030.0 MMcf from 1,324.0 MMcf in 1995. Average natural gas prices
increased 33% to $2.77 per Mcf in 1996 from $2.08 per Mcf in 1995. Production
volumes for oil in 1996 increased 47% to 46.5 MBbls from 31.6 MBbls in 1995.
Average oil prices increased 4% to $23.66 per Bbl in 1996 from $22.68 per Bbl
in 1995. The increase in oil and natural gas production was due primarily to
new wells being successfully drilled and completed during 1996, along with
recompletions of existing wells.
Lease operating expenses and production taxes for 1996 increased 45% to $1.1
million from $0.8 million in 1995. Lease operating expenses and production
taxes increased due to increased production generated from new oil and natural
gas wells drilled and completed since December 31, 1995. Operating expenses
per equivalent unit in 1996 decreased to $0.49 per Mcfe from $0.51 per Mcfe in
1995. The per unit cost decreased as a result of increased production of
natural gas which had lower per unit operating costs.
DD&A expense for 1996 increased 58% to $2.6 million from $1.7 million in
1995. This increase was due to the increase in oil and natural gas production
as well as a 4% increase in the depletion rate ($1.14 per Mcfe in 1996 from
$1.10 per Mcfe in 1995).
General and administrative expense for 1996 increased 25% to $1.6 million
from $1.3 million for 1995 due primarily to an increase in directors' fees,
salaries and wages and office rent.
Interest expense for 1996 increased 12% to $1.1 million from $1.0 million in
1995 due to increased debt levels in 1996.
Net income for 1996 decreased to $0.6 million from $2.5 million in 1995 as a
result of the factors described above, plus a $3.5 million favorable lawsuit
settlement received by the Company in 1995.
Year Ended December 31, 1995 Compared to the Year Ended December 31, 1994
Oil and natural gas revenues for 1995 increased 12% to $3.5 million from
$3.1 million in 1994. Production volumes for natural gas for 1995 increased 8%
to 1,324.0 MMcf from 1,228.4 MMcf in 1994. Average natural gas prices
increased 6% to $2.08 per Mcf in 1995 from $1.97 per Mcf in 1994. Production
volumes for oil for 1995 decreased 20% to 31.6 MBbls from 39.5 MBbls in 1994.
Average oil prices increased 33% to $22.68 per Bbl in 1995 from $17.00 per Bbl
in 1994.
Lease operating expenses and production taxes remained relatively stable at
approximately $0.8 million in 1995 and 1994. Lease operating expenses and
production taxes per equivalent unit in 1995 decreased to $0.51 per Mcfe from
$0.55 per Mcfe in 1994. The per unit cost decreased as a result of increased
production of natural gas which had lower per unit operating costs.
30
<PAGE>
DD&A expense for 1995 increased 65% to $1.7 million from $1.0 million in
1994 as a result of increased production as well as a 59% increase in the
depletion rate ($1.10 per Mcfe in 1995 from $0.69 per Mcfe in 1994). The
increased depletion rate was caused primarily by increased exploration
expenditures attributable to 3-D seismic surveys performed for new wells
drilled and completed since December 31, 1994 and downward revisions in
reserve estimates in 1995.
General and administrative expense for 1995 increased 6% to $1.3 million
from $1.2 million in 1994, primarily as a result of the hiring of additional
staff as well as salary increases and bonuses for existing employees.
Interest expense for 1995 increased to $1.0 million from $0.8 million in
1994. This increase in 1995 was due to the additional debt incurred to finance
operations.
Net income for 1995 was $2.5 million, compared to a net loss of $0.6 million
in 1994, as a result of the factors described above, plus a $3.5 million
favorable lawsuit settlement received by the Company in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of capital have been funds generated by
operations, equity capital contributions and borrowings, primarily from MOC's
shareholders and under the Credit Facility. The Company had working capital
deficits of $2.7 million at December 31, 1996 and $3.5 million at September
30, 1997.
The Credit Facility includes the $5.0 million Original Line of Credit, the
$0.5 million Additional Line of Credit and the $1.0 million Term Loan.
Principal outstanding under the Original Line of Credit and the Additional
Line of Credit matures January 13, 1998. Interest is payable monthly under the
Original Line of Credit at a variable annual rate equal to the New York
Consensus Prime Rate, which was 8.5% on September 30, 1997. Interest is
payable monthly under the Additional Line of Credit at a variable annual rate
equal to the New York Consensus Prime Rate plus one-quarter of 1%. Principal
outstanding under the Term Loan is payable in equal monthly installments of
$24,477 and matures September 10, 2000. Interest on the Term Loan is payable
monthly at the New York Consensus Prime Rate. At September 30, 1997,
borrowings under the Credit Facility were $5.3 million, consisting of $4.5
million under the Original Line of Credit and $0.8 million under the Term
Loan. As security for its obligations under the Credit Facility, MOC granted
to FOA a security interest in certain of its oil and natural gas interests and
other properties. A portion of the proceeds from this Offering will be used to
repay the amounts outstanding under the Credit Facility. See "Use of
Proceeds."
In 1991, the shareholders of MOC loaned to MOC an aggregate of $7.6 million
pursuant to separate loan agreements. Principal on the indebtedness is payable
in full on October 18, 2006. Interest is payable within 30 days after the end
of each quarter at the New York City Prime Rate, which was 8.5% per annum as
of September 30, 1997, plus 2%. As of September 30, 1997, no principal
payments had been made on the indebtedness, and all interest due and payable
by that date had been paid. The shareholders of MOC have agreed to contribute
the indebtedness to MOC as capital pursuant to the Combination Agreement,
resulting in cancellation of the indebtedness. Such cancellation is not
expected to result in income to the Company for federal income tax purposes.
See "--Overview."
The Company has budgeted capital expenditures of approximately $4.0 million
for the fourth quarter of 1997 and $23.5 million for 1998. Substantially all
of the capital expenditures will be used to fund 3-D seismic surveys, drilling
and development activities and leasehold acquisitions in the Company's project
areas. The actual amounts of capital expenditures and number of wells drilled
may differ significantly from such estimates.
The Company intends to fund its budgeted capital expenditures through the
end of 1998 from cash flow from operations, borrowings under the Credit
Facility and the net proceeds of this Offering.
The Company's revenues, profitability, future growth and ability to borrow
funds or obtain additional capital, and the carrying value of its properties,
substantially are dependent on prevailing prices of oil and natural gas. The
Company cannot predict future oil and natural gas price movements with
certainty. Declines in prices
31
<PAGE>
received for oil and natural gas may have an adverse effect on the Company's
financial condition, liquidity, ability to finance capital expenditures and
results of operations. Lower prices also may impact the amount of reserves
that can be produced economically by the Company.
The Company has experienced and expects to continue to experience
substantial working capital requirements primarily due to the Company's active
exploration and development programs and its increased participation
percentages and its technology enhancement programs. While the Company
believes that the net proceeds from this Offering, cash flow from operations
and borrowings under the Credit Facility should allow the Company to implement
its present business strategy through 1998, additional financing may be
required in the future to fund the Company's growth, development and
exploration program and continued technological enhancement. In the event such
capital resources are not available to the Company, its exploration and other
activities may be curtailed.
HEDGING
Beginning in 1997, the Company began using certain hedging instruments
(e.g., NYMEX futures contracts) for a portion of its natural gas production to
achieve a more predictable cash flow, as well as to reduce the exposure to
price fluctuations. The Company's hedging arrangements apply to only a portion
of its production (primarily in the Michigan Antrim Shale), provide only
partial price protection against declines in oil and natural gas prices and
limit potential gains from future increases in prices. See "Risk Factors--
Risks of Hedging Transactions." Such hedging arrangements may expose the
Company to risk of financial loss in certain circumstances, including
instances where production is less than expected, the Company's customers fail
to purchase contracted quantities of oil or natural gas or a sudden unexpected
event materially impacts oil or natural gas prices. For financial reporting
purposes, gains and losses related to hedging are recognized as oil and
natural gas revenues during the period the hedged transactions occur. The
Company expects that the amount of hedges that it has in place will vary from
time to time but at no time does it expect that hedging activities will be of
material significance.
Beginning in 1997, the Company began to follow a strategy of striving to
maximize return on investment through hedging a portion of its activities
relating to natural gas price volatility. While this strategy should help the
Company reduce its exposure to price risks, it also limits the Company's
potential gains from increases in market prices for natural gas. The Company
intends to continue to hedge up to 50% of its natural gas production to retain
a portion of the potential for greater upside from increase in natural gas
prices, while limiting to some extent the Company's exposure to declines in
natural gas prices. The Company does not believe that its current level of oil
production warrants a hedging policy. See "Risk Factors--Volatility of Oil and
Natural Gas Prices." During 1994, 1995 and 1996, the Company did not hedge any
of its oil or natural gas production, and as of September 30, 1997, the
Company had hedged 13% of its natural gas production for the nine months then
ended.
EFFECTS OF INFLATION AND CHANGES IN PRICE
The Company's results of operations and cash flows are affected by changing
oil and natural gas prices. If the price of oil and natural gas increases
(decreases), there could be a corresponding increase (decrease) in the
operating cost that the Company is required to bear for operations, as well as
an increase (decrease) in revenues. Recent rates of inflation have had a
minimal effect on the Company.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
128, "Earnings per Share" and SFAS No. 129, "Disclosure Information about
Capital Structure," which are effective for the Company's year-end 1997
financial statements. In 1997, FASB also issued SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," each of which will require expanded
disclosures effective for 1998. The Company does not expect the application of
these statements to have a material effect on its financial position,
liquidity or results of operations.
32
<PAGE>
ENVIRONMENTAL AND OTHER REGULATORY MATTERS
The Company's business is subject to certain federal, state and local laws
and regulations relating to the exploration for, and the development,
production and transportation of, oil and natural gas, as well as
environmental and safety matters. Many of these laws and regulations have
become more stringent in recent years, often imposing greater liability on a
larger number of potentially responsible parties. Although the Company
believes it is in substantial compliance with all applicable laws and
regulations, the requirements imposed by laws and regulations frequently are
changed and subject to interpretation, and the Company is unable to predict
the ultimate cost of compliance with these requirements or their effect on its
operations. Any suspensions, terminations or inability to meet applicable
bonding requirements could materially adversely affect the Company's business,
financial condition and results of operations. Although significant
expenditures may be required to comply with governmental laws and regulations
applicable to the Company, compliance has not had a material adverse effect on
the earnings or competitive position of the Company. Future regulations may
add to the cost of, or significantly limit, drilling activity. See "Risk
Factors--Governmental Regulation and Environmental Matters," "Business and
Properties--Governmental Regulation" and "--Environmental Matters."
33
<PAGE>
BUSINESS AND PROPERTIES
THE COMPANY
Miller is an independent oil and gas exploration and production company with
established exploration efforts concentrated primarily in three regions: the
Mississippi Salt Basin, the onshore Gulf Coast region of Texas and Louisiana
and the Michigan Basin. Miller emphasizes the use of seismic data analysis and
imaging, as well as other emerging technologies, to explore for and develop
oil and natural gas in its core exploration areas. Miller is the successor to
the independent oil and natural gas exploration and production business first
established in Michigan by members of the Miller family in 1925.
In recent years, the Company has significantly grown its oil and natural gas
reserves and inventory of drilling prospects through its exploration,
development and strategic acquisition activities. Since 1993, the Company has
developed its base of properties and inventory of prospects in Mississippi,
Louisiana and Texas. Estimated proved reserves have increased 29%, from 19.6
Bcfe as of December 31, 1994 to 25.2 Bcfe as of September 30, 1997. The
Company has budgeted a significant increase in drilling activity and plans to
drill 50 wells in 1998, the majority of which are exploratory wells in the
Mississippi Salt Basin. The Company's capital expenditure budget for both
exploration and development activity in all of its areas of concentration is
$23.5 million for 1998. Miller incurred expenditures for exploration and
development activity of $6.2 million with respect to the Company's interest in
25 gross wells for the year ended December 31, 1996 and $5.2 million with
respect to the Company's interest in 27 gross wells for the nine months ended
September 30, 1997.
The Company's primary exploration effort is currently focused on the
Mississippi Salt Basin, which contains one of the largest onshore
concentrations of salt domes in North America. The Company owns interests in
approximately 63,000 gross leasehold acres (21,000 net to the Company) in the
Mississippi Salt Basin in prospective areas around 20 salt domes, which the
Company believes is one of the largest strategic lease positions around the
salt domes in the basin. Due to innovations over the last few years, seismic
technology now enables geoscientists to generate improved imaging of the
flanks of salt structures and associated faulting, the primary hydrocarbon
trapping mechanisms in this area. The Company commenced its exploration
activities in Mississippi in 1993 and has participated in the drilling of 21
wells, 11 of which (52%) have been completed, establishing commercial
production around six salt domes. As of September 30, 1997, these wells had
produced 29.2 Bcfe gross (2.7 Bcfe net to the Company) and had established
estimated gross proved reserves of 74.3 Bcfe (6.9 Bcfe net to the Company). In
the Mississippi Salt Basin, the Company has used technologically advanced
seismic data processing methods to reinterpret existing regional 2-D seismic
data and analyze and interpret newly acquired 2-D seismic data. In addition,
the Company is currently participating in multiple 3-D seismic acquisition
projects in this region, which the Company believes will improve the
identification of potential hydrocarbon traps.
The Company's prospects in the Gulf Coast region of Texas and Louisiana also
lend themselves to 3-D seismic-aided exploration due to the geological
complexity prevalent in this region. Since 1994, the Company has participated
in approximately 300 square miles of 3-D seismic surveys and the drilling of
50 gross wells within the boundaries of these surveys. Twenty-seven of the
wells drilled have been completed as commercially productive. As of September
30, 1997, these wells had established estimated proved reserves of 79.6 Bcfe
(9.3 Bcfe net to the Company). The Company expects to participate in 9.0 gross
wells (2.7 net to the Company) in this area in 1998, all of which are
supported by 3-D seismic data.
The Company's current operations in Michigan were developed after 1988, when
the Company sold all of its producing properties to Conoco, Inc. In the
Michigan Basin, the Company has an interest in over 300 producing wells within
a leasehold position that is the result of prior successful exploration
efforts in the Niagaran Reef Trend. Miller's current Michigan Basin production
is predominantly long-lived, lower volume Antrim Shale production, as compared
to the higher volume wells of the onshore Gulf Coast and Mississippi Salt
Basin. The Company is continuing to pursue additional exploration
opportunities in the Michigan Basin.
34
<PAGE>
The Company was organized in connection with the combination of the
properties and businesses to be owned and conducted by the Company after the
closing of the Offering. The Combined Assets consist of MOC, interests in oil
and gas properties from oil and gas exploration companies beneficially owned
by members of the Miller family and interests in such properties owned by
long-time business partners and investors. No assets other than those in which
MOC or its affiliated entities currently have an interest will be part of the
Combined Assets. The Company and the owners of the Combined Assets have
entered into a Combination Agreement that provides for the issuance of an
estimated 6,930,000 shares of Common Stock to such owners in exchange for the
Combined Assets upon the consummation of the Offering. The owners of the
Combined Assets will receive a number of shares of Common Stock proportionate
to the value of their ownership interests in the Combined Assets calculated on
the basis of the initial public offering price of the Common Stock.
BUSINESS STRATEGY
The key elements of the Company's business strategy are as follows:
Focused Exploration Effort. The Company seeks to concentrate its
exploration activities in areas which provide the potential for the
discovery of significant reserves where a strategic leasehold position can
be acquired, where there has been limited application of advanced seismic
data interpretation techniques and where there are multiple potential pay
zones. The Company has assembled an extensive database in the Mississippi
Salt Basin, including basin-wide geologic studies, production data and well
data. The Company has an identified inventory of 22 prospects in the
Mississippi Salt Basin and seven prospects in the Texas and Louisiana Gulf
Coast region. The majority of these prospects have multiple drilling
locations. The Company's prospects in the Mississippi Salt Basin have been
delineated primarily with computer-enhanced analysis of 2-D seismic data,
while the Gulf Coast prospects have been identified primarily with 3-D
seismic data. The Company plans to conduct selected 3-D seismic surveys in
the Mississippi Salt Basin with respect to certain of these prospects to
further delineate drilling objectives.
Exploit Prospect Inventory. The Company has an identified inventory of
over 32 exploration and development prospects, all of which it plans to
drill in 1998 and 1999. Based on the initial success of its salt dome
drilling, the Company intends to retain larger working interests in its
undrilled prospects. This Offering will enable the Company to retain a
larger working interest in its prospects, conduct an aggressive seismic
data acquisition program and accelerate its drilling activities.
Extensive Data Base. The Company has a significant library of technical
and proprietary data. The Company's current inventory includes over 1,900
miles of 2-D seismic data and square miles of 3-D seismic data in the
three regions in which it currently operates. The acquisition of 3-D
seismic data on a large scale is often not cost effective. The Company
attempts to target the acquisition and application of 3-D seismic data by
applying its technical expertise to reprocessed 2-D seismic data. The
Company believes this approach allows it to more effectively target 3-D
seismic surveys, reducing overall finding and development costs.
Utilize Advanced Technology. The Company utilizes advanced technology in
analyzing, interpreting and visualizing seismic data to assemble and
develop its inventory of exploration and development drilling prospects.
This strategy has been pursued in proven geological regions that have
historically produced significant amounts of hydrocarbons. The Company has
focused its 3-D seismic efforts on areas that exhibit geological complexity
where 2-D seismic has been effective in increasing drilling success rates,
but has limitations in locating subtle trapping structures.
Experienced Technical Team. The Company has assembled a technical team
with an average of over 18 years of experience, the majority of which has
been in the Company's areas of current operations. This multi-disciplined
technical team has extensive experience with the acquisition, processing
and interpretation of both 2-D and 3-D seismic data and the use of 3-D work
stations to evaluate and develop drilling prospects.
35
<PAGE>
CORE EXPLORATION AND DEVELOPMENT REGIONS
Mississippi Salt Basin
The Company believes that the Mississippi Salt Basin, which extends from
Southwestern Alabama across central Mississippi into Northeastern Louisiana,
has a significant number of under-developed salt domes. This basin has
produced substantial amounts of oil and natural gas and continues to be a very
active exploration region. Oil and natural gas discovered in the Mississippi
Salt Basin have been produced from reservoirs with various stratigraphic and
structural characteristics, and may be found in multiple horizons from
approximately 3,500 feet to 19,000 feet in depth. Oil and natural gas reserves
around salt domes have been encountered in the Eutaw, Lower Tuscaloosa,
Washita-Fredericksburg, Paluxy, Rodessa, Sligo, Hosston and Cotton Valley
formations, all of which are normally pressured. The Company owns leasehold
interests in 63,000 gross acres (21,000 net to the Company) covering 20 known
salt domes. The Company's significant working interest partners in this basin
are Amerada Hess Corporation ("AHC") and Key Production Company, Inc. ("Key").
Until the late 1980s, geological models of the salt domes in the Mississippi
Salt Basin generally assumed that either the extreme and rapid growth of the
salt structure breeched the seals of any formations trapping hydrocarbons
against the domes or that the growth of the salt domes occurred after
hydrocarbons had migrated through the region, in either case, leaving the
formations around the salt domes nonproductive. From 1987 to 1991, Oryx Energy
Corporation ("Oryx") drilled three successful wells on Mississippi salt dome
structures, proving that the flanks of these salt domes were productive. AHC
purchased Oryx's entire interest in this area, and in 1993 the Company
purchased a 12.5% working interest from AHC in approximately 35,000 gross
acres surrounding seven domes. The Company selectively reprocessed an
extensive 2-D seismic database that had been acquired over these salt dome
prospects, and further acquired new 2-D seismic to improve the selection of
the drillsites along the flanks of the salt domes. Based on the positive
results of the first several prospects drilled, the Company acquired leasehold
interests around 13 additional salt domes that it considered to be
prospective.
The Company believes that the key to exploiting salt dome prospects
effectively is the accurate delineation of a salt dome's flanks, with the
recognition of fault patterns and the location of fault blocks with large
reserve potential. While the reinterpreted 2-D seismic data provided the
Company's explorationists with better imaging of a salt dome's subsurface
structures, it proved to have limitations in defining the exact locations of
the flanks of a salt dome. The Company believes that all of its unsuccessful
salt dome wells have either encountered the interior of the salt dome or were
too far off structure to encounter the anticipated hydrocarbon trap. The
Company believes that 3-D seismic imaging will allow it to more effectively
image such traps and better define the size and location of its drilling
targets. The Company believes that 3-D seismic imaging will improve its
ability to resolve and interpret such complex geologic structures based on its
effective use on similar onshore salt domes in Texas and Louisiana, as well as
offshore salt domes in the Gulf of Mexico. The Company intends to utilize its
reprocessed 2-D seismic database to more effectively manage its 3-D seismic
acquisition program. The Company currently is acquiring or making arrangements
to acquire approximately 120 square miles of proprietary 3-D seismic data over
and around three of its salt dome prospects. Additionally, the Company is
participating in a 270 square mile multi-party 3-D seismic survey, a portion
of which will cover prospective acreage around four of the Company's salt dome
prospects.
The Company owns an interest in eight producing wells in the Mississippi
Salt Basin that had aggregate average production in September 1997 of 28.1
MMcfe/d gross (2.1 MMcfe/d net to the Company) at depths ranging from 14,500
to 17,300 feet. Since the Company began its exploration activity in
Mississippi in 1993, it has participated in 21 wells drilled around six salt
dome structures, 11 of which (52%) established commercial production. The
Company has 28 wells (8.2 net wells) budgeted in 1998 for the Mississippi Salt
Basin with a capital expenditure budget of $15.4 million. The Company also has
budgeted $3.8 million for the acquisition of 3-D seismic around seven salt
domes in 1998, providing 3-D seismic data on 11 of 28 Mississippi Salt Basin
wells budgeted for 1998. As of September 30, 1997, the Company's Mississippi
Salt Basin wells had produced 29.2 Bcfe gross (2.7 Bcfe net to the Company)
and had established 74.3 Bcfe gross (6.9 Bcfe net to the Company) of estimated
proved reserves.
36
<PAGE>
The following is a description of the Company's two most significant
projects to date in the Mississippi Salt Basin:
Midway Dome. The Company currently has two wells producing around the Midway
Dome structure in Lamar County, Mississippi, the Allar #1 which was drilled in
July 1995 and the Patterson #1 drilled in February 1996. In September 1997,
these two wells produced an average of approximately 17.4 MMcfe/d gross on a
combined basis, (1.6 MMcfe/d net to the Company). As of September 30, 1997,
these wells had produced a combined total 9.6 Bcfe gross (0.9 Bcfe net to the
Company). The wells have estimated proved reserves of 35.0 Bcfe gross (3.2
Bcfe net to the Company). These wells produce from the Hosston formation at a
depth of approximately 15,500 feet and encountered net pay columns of 48 feet
on the Allar #1 and 40 feet on the Patterson #1. In 1998, the Company's
capital expenditure budget net to its interest is approximately $1.0 million
for the drilling of three additional wells in this prospect area.
Dry Creek Dome. Miller currently has two producing wells on the Dry Creek
Dome structure in Covington County, Mississippi, the Mineral Management #2
which was drilled in December 1994 and the McRaney #1 which was drilled in
February 1995. In September 1997, these two wells produced at an average
combined rate of 5.7 MMcfe/d gross on a combined basis (0.5 MMcfe/d net to the
Company), and have jointly produced a total of 13.7 Bcfe gross (1.3 Bcfe net
to the Company). As of September 30, 1997, these wells had estimated proved
reserves of 9.1 Bcfe gross (0.9 Bcfe net to the Company). The Mineral
Management #2 and the McRaney #1 both produce from the Hosston formation at a
depth of approximately 14,500 to 15,000 feet, and encountered net pay columns
of 148 feet and 244 feet, respectively. The Company has budgeted the drilling
of two additional Hosston wells on Dry Creek Dome in 1998, and the Company's
capital expenditure budget net to its interest is approximately $0.6 million
for these wells.
Onshore Gulf Coast of Texas and Louisiana
The Company believes that the onshore Gulf Coast area of Texas and Louisiana
is a high potential, multi-pay region that lends itself to 3-D seismic-
supported exploration due to its substantial structural and stratigraphic
complexity. The Company's current and anticipated 1998 drilling activities are
expected to be as an active working interest partner in select projects
proposed by Dan A. Hughes Company ("Hughes") in Zapata, Webb, Duval, Karnes
and McMullen Counties, Texas and Cameron and Terrebonne Parishes, Louisiana,
under an exploration agreement to which the Company has been a party since
1994. Before accepting a proposed prospect under the agreement, the Company
undertakes a thorough evaluation, considering geographic location, scale,
geological and geophysical model, anticipated drilling prospects, number of
pay zones, trend potential, expected project economics and access to market.
The Company incorporates its digital database, including geophysical,
geological and production data, and the opinions of regional geologists and
geophysicists in its participation decisions. Except within areas of mutual
interest ("AMI") formed around prospects offered under the exploration
agreement with Hughes, the Company is free to acquire leases, develop its own
prospects and explore in the onshore Gulf Coast region. The Company currently
expects to continue its joint venture relationships in the future, in addition
to generating its own prospects in the onshore Gulf Coast region.
Texas
The Company owns working interests in 30 wells in Texas that had aggregate
average production in September 1997 of 40.0 MMcfe/d gross (2.4 MMcfe/d net)
from depths ranging from 3,500 to 14,500 feet. Since the Company began its
exploration in Texas in 1987, it has participated in 263 square miles of 3-D
seismic surveys and 50 wells, of which 27 (54%) established commercial
production. The Company has six gross wells (1.9 net wells) budgeted for 1998
in the Texas Gulf Coast region with a 1998 capital expenditure budget of
approximately $1.6 million. The wells that the Company intends to drill in
1998 are 3-D seismic-supported and these exploratory tests would be drilled on
geologic structures where the Company has established commercial production in
its previous drilling attempts. As of September 30, 1997, the Company's Texas
wells had produced 5.8 Bcfe net to the Company and had established estimated
proved reserves of 5.7 Bcfe.
37
<PAGE>
The following is a description of three of the Company's significant current
projects in the onshore Gulf Coast area of Texas:
Dilworth Dome Project. The Dilworth Dome is a salt dome located in McMullen
County that was evaluated with 3-D seismic in 1996. Three oil sands were
developed in the Upper Wilcox (Carizzo Sand) at a depth of approximately 3,500
feet, with estimated total reserves of 613 MBbl and remaining reserves of 456
MBbl. The Company has a 25% working interest in this project. The Company has
participated in the drilling of 17 gross wells in this field, of which 11
wells have established commercial production. As of September 30, 1997, total
production from the 11 producing wells was 430 Bbl/d gross (75 Bbl/d net to
the Company). The Company is a participant in approximately 4,100 acres under
lease and/or farm-in, of which the Company owns approximately 1,025 net acres.
It is anticipated that two Carrizo test wells will be drilled in this project
in the fourth quarter of 1997.
Mirando Hondo Project. The Mirando Hondo project located in Zapata and Webb
Counties involves exploring the Berry R. Cox and South Aviators Fields, which
recently have been surveyed with 3-D seismic. The Company intends to
participate in the drilling of 2.0 gross wells (0.7 net) in 1998 that have
multiple objectives with the primary objective of the Upper Hinnant Sand.
These wells are expected to be drilled to depths of approximately 13,000 feet.
The Company recently participated in two Upper Hinnant Sand exploratory
discoveries which were developed as a result of 3-D seismic data. The Company
is a participant in approximately 5,450 gross acres under lease and/or farm-
in, and has a 1998 capital expenditure budget of approximately $1.0 million
for further development in this area.
McCaskill Project. The McCaskill Project is a Middle Wilcox objective
located in Karnes County. The Company participated in the drilling of the B.P.
Green #2 in 1993 and as of September 30, 1997, this well had produced 7.1 Bcfe
(0.5 Bcfe net to the Company) from the Middle Wilcox Green Sand located at a
depth of approximately 12,500 feet. After the drilling of the B.P. Green #2, a
3-D seismic study was undertaken in the area that resulted in the discovery of
the Goehring Wilbern #1. This well commenced production in October 1996, and
as of September 30, 1997 had produced 1.0 Bcfe (0.1 Bcfe net to the Company).
In 1998, the Company anticipates drilling one exploratory well in this project
based on 3-D seismic with an estimated cost of $0.2 million.
Louisiana
The Company owns working interests in producing properties in Cameron and
Terrebonne Parish, Louisiana that had aggregate average production for
September 1997 of 17.1 MMcfe/d gross (2.4 MMcfe/d net to the Company). Since
the Company began its exploration in Louisiana in 1995, it has participated in
21 square miles of 3-D seismic surveys and 14 gross wells, seven of which were
completed as commercially productive, four of which are currently producing.
The Company has 1.0 well (0.3 net to the Company) budgeted for 1997 and three
wells for 1998 in the Louisiana area, with a 1998 capital expenditure budget
of approximately $0.5 million. The exploratory wells that are budgeted for
drilling in 1998 are 3-D seismic-supported and are in the immediate area where
the Company previously had established commercial production. As of September
30, 1997, the Company's Louisiana wells had produced 4.1 Bcfe (0.3 Bcfe net to
the Company) and had established estimated gross proved reserves of 24.8 Bcfe
(3.5 Bcfe net to the Company).
The Company's most significant exploration project in the Louisiana region
to date is the Lapeyrouse Prospect in Terrebonne Parish, approximately three
miles southwest of the Bay Baptiste Field, which has produced over 120 Bcfe.
The Company participated in the LL&E #157 discovery well in 1994 in this area.
This well was drilled in transition zone waters of approximately 20 feet in
depth and commenced production in June 1996. As of September 30, 1997, the
well had produced a total of 2.4 Bcfe (0.5 Bcfe net to the Company). The
Company and its joint venture partners have approximately 1,500 gross acres
under lease in this project, and have 3-D seismic over the prospective area.
This 3-D seismic has confirmed three separate prospective locations. These
wells are expected to be drilled in depths ranging between 11,500 and 15,500
feet. The LL&E production platform was designed with facilities in place to
accommodate the future drilling. The Company has five wells budgeted for
drilling in 1997 and three wells budgeted for 1998 in this project, with a
total 1997-1998 capital expenditure budget of approximately $1.4 million.
38
<PAGE>
Michigan Basin
The Company has been involved in oil and natural gas exploration and
production activities in the Michigan Basin since 1925. These activities
include operations in the Northern and Western Niagaran Reef Trend (Silurian)
and the Antrim Shale (Devonian) in Otsego, Montmorency and Manistee Counties.
Beginning in 1988 the Company participated in the drilling of over 600 Antrim
Shale wells. The Company currently has an interest in over 300 Antrim Shale
wells, some of which have been assigned to third parties for the purpose of
monitizing the Section 29 tax credits available for production from the
assigned interests. See "--Joint Venture Exploration, Participation and Farm-
out Agreements." The balance of the wells was sold to fund the Company's
exploration program. The majority of these Antrim Shale wells are in Otsego
County and produce from depths of approximately 1,300 to 1,600 feet.
Production from the Antrim Shale, including the Section 29 tax credits
available from such production, continue to be the Company's primary producing
property base in this region. As a result of its shallow production in the
Antrim Shale, the Company has an interest in approximately 14,000 acres held
by production in Otsego County, with its deep rights being of interest,
primarily for the Niagaran Reef Trend located at depths of approximately 6,500
feet. The Company has an active drilling program anticipated for the Antrim
Shale in Montmorency County and Manistee County at depths of approximately
1,400 feet. The Company has approximately 8,700 gross acres leased in Manistee
County, which is expected to provide sufficient acreage for development of a
field if the drilling is deemed successful. The Company has a 100% working
interest in this project. The Company also has an active lease program in an
area of the Niagaran Reef Trend that the Company believes has been under-
explored. In addition, the Company is pursuing other on-going leasing efforts
in areas in the Michigan Basin. In 1998, the Company plans to evaluate a
4,500-acre lease block in Hillsdale County, with a 10 square mile 3-D seismic
survey. The project is located approximately 12 miles southwest of the Albion-
Scipio Field which has produced over 125 MBbl of oil and 200 Bcfe of natural
gas. These wells are expected to be drilled to a depth of approximately 3,500
feet to test the primary objective of the Trenton formation (Ordovician).
JOINT VENTURE EXPLORATION, PARTICIPATION AND FARM-OUT AGREEMENTS
The Company is a party to the joint venture exploration, participation,
farm-out and other agreements described below.
Mississippi Salt Basin Agreements
Since March 1993, the Company has entered into a series of joint venture
exploration agreements and farm-out agreements with AHC, Liberty Energy
Corporation, Bonray, Inc. and Key. These agreements govern the rights and
obligations of the Company and the other working-interest owners with respect
to lease acquisition, seismic surveys, drilling and development of specified
geographic AMIs over and around 20 salt domes in Southern Mississippi within
the Mississippi Salt Basin. Pursuant to these agreements, the Company has
acquired and will have the right to acquire 12.5% to 50% of the working
interest in leases owned or acquired by the parties within the AMIs. The
agreements expire between March 1, 1998 and January 1, 2000, except with
respect to AMIs where a joint operating agreement has been executed, in which
case the term extends as long as any lease within that AMI remains in effect.
The agreements to which AHC is a party create AMIs over 11 domes. Any party
may propose to drill an Initial Exploratory Well (defined below) in an AMI. If
a party elects not to participate in the drilling of an Initial Exploratory
Well in an AMI, the non-consenting party must assign to the proposing party
its interest in the AMI to the depth drilled by the Initial Exploratory Well.
Initial Exploratory Wells have been drilled in six of these AMIs and a seventh
is being drilled. With respect to the AMIs over four domes, a party electing
not to participate in a proposed 3-D seismic survey within an AMI must assign
to the proposing party 50% of its working interest in that AMI, excluding any
existing wellbores, upon completion of the 3-D seismic survey. Generally, a
party which elects not to participate in operations other than 3-D seismic
surveys and the drilling of the Initial
39
<PAGE>
Exploratory Wells, is subject to a 400% to 500% non-consent penalty. AHC is
generally the operator, except for geoscience operations proposed by another
party or where AHC elects not to participate in an operation. AHC has agreed
to market MOC's share of production from operations upon the AMIs.
Under the joint venture agreement between MOC and Key, if either party
elects not to participate on a proposed 3-D seismic program proposed by the
other party, the non-participating party will farm-out its non-producing
leasehold interest in that dome, retaining an option to participate after
payout of the seismic expenses and the drilling and completion expenses of the
exploratory well, for a proportionally reduced 25% working interest in the
exploratory well. The non-participating party will retain 25% of its original
leasehold interest outside the initial well but within the identified dome
area. Without mutual agreement, no more than two 3-D seismic surveys will be
committed to and/or conducted concurrently. Either party may propose an
Initial Exploratory Well, defined as the first exploratory well proposed and
drilled on each dome after a 3-D program has been conducted. A party electing
not to participate in an Initial Exploratory Well is obligated to assign to
the proposing party its interest in leases within that dome area to the depth
drilled by the Initial Exploratory Well. For wells drilled without conducting
a 3-D survey, a non-participating party is subject to a 400% non-consent
penalty. MOC is generally the operator for leasehold acquisition and
production operations, and Key is generally the operator for 3-D seismic,
drilling and completion operations.
Onshore Gulf Coast Agreements
MOC and Hughes executed a Participation Agreement dated January 1, 1994.
Pursuant to the provisions of the Participation Agreement, as extended for the
years 1995 and 1996, MOC had the option to participate with Hughes for a 25%
of 8/8ths working interest in prospects offered by Hughes during calendar
years 1994, 1995 and 1996. Pursuant to participation letters, MOC elected to
participate in a number of prospects including the Destino Prospect in Duval
County, Texas, the Dilworth Prospect in McMullen County, Texas, the South
Aviators Prospect in Zapata County, Texas, the McCaskill Prospect in Karnes
County, Texas, the Mirando Hondo Prospect in Webb County, Texas, the
Lapeyrouse Prospect in Terrebonne Parish, Louisiana and the Northwest Kings
Bayou Prospect in Cameron Parish, Louisiana. Each of the participation letters
identifies the prospect, county and area covered therein. The Participation
Agreement requires MOC to pay its proportionate share of actual costs, an
overhead fee, prospect bonuses and certain back-in working interests at
prospect payout and program payout. The Participation Agreement provides a
form of Joint Operating Agreement which is to be executed as to each prospect.
The Joint Operating Agreement generally provides that Hughes will be the
operator, that any party may propose to drill a well or other operation
subject to limitations with respect to concurrent wells and that parties
electing not to participate in a proposed operation are subject to a 400% non-
consent penalty. MOC is entitled to the benefit of any special marketing
arrangements or price structures that Hughes is able to negotiate in regard to
the sale but may elect to market its share of oil or natural gas in kind.
Michigan Basin Agreements
MOC entered into a Purchase and Sale Agreement dated as of January 1, 1995
with Miller Shale Limited Partnership for the purpose of monetizing the
Section 29 tax credits available from most of its Antrim gas wells in
Michigan, and a Purchase and Sale Agreement dated as of November 1, 1996 with
Miller Shale Limited Partnership for the purpose of selling part of the
reversionary interest retained by MOC under the prior Purchase and Sale
Agreement. Miller Shale Limited Partnership is a Michigan limited partnership
owned 1% by the general partner, Miller Shale S.V., L.L.C., an affiliate of
MOC, and 99% by the limited partner, Far Gas Acquisitions Corporation, an
unrelated party. As a result, pursuant to the terms of the two Purchase and
Sale Agreements, MOC has assigned its interest in the wells, leases, equipment
and other property to Miller Shale Limited Partnership, reserving three
separate production payments, an additional contingent payment and a
reversionary interest. The first and second production payments generally
entitle MOC to receive 97% of the net cash flow from the assigned properties
until a specified dollar amount or specified volume is achieved from
production attributable to the assigned interests. As of September 30, 1997,
the estimated remaining production volume was 9.0 Bcfe and the estimated
remaining dollar amount was $4.8 million. The third production payment
40
<PAGE>
and the additional contingent payment generally entitle MOC to receive 96% of
the net cash flow from additional specified volumes of production attributable
to the assigned interests. The reversionary interest entitles MOC to a
reassignment of 90% of the interests after a larger specified volume of
natural gas has been produced from the assigned interests. Miller Shale
Limited Partnership also is obligated to make quarterly payments to MOC
equivalent to a percentage of the tax credits available under Code Section 29
with respect to natural gas produced and sold from the interests assigned. MOC
also has an option to repurchase the assigned interests for fair market value
after December 31, 2002, the expiration date of the Section 29 tax credits.
OIL AND NATURAL GAS RESERVES
The Company's estimated total proved reserves of oil and natural gas as of
December 31, 1996, and September 30, 1997, on a pro forma basis after giving
effect to the Combination Transaction, and the present values attributable to
these reserves as of those dates were as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
1996 1997
------------------ -------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER UNIT DATA)
<S> <C> <C>
Net Proved Reserves:
Crude oil (MBbl)...................... 895.3 827.6
Natural gas (MMcf).................... 23,023.8 20,227.4
Natural gas equivalent (MMcfe)........ 28,395.6 25,193.0
Net Proved Developed Reserves:
Crude oil (MBbl)...................... 217.1 231.5
Natural gas (MMcf).................... 20,008.8 17,697.8
Natural gas equivalent (MMcfe)........ 21,311.4 19,086.8
Estimated future net revenues before
income taxes(1)........................ $ 67,759 $ 57,781
Present value of estimated future net
revenues before income taxes(2)........ $ 44,868 $ 38,207
</TABLE>
- --------
(1) The average prices for crude oil were $25.23 per Bbl at December 31, 1996
and $22.77 per Bbl at September 30, 1997. The average prices for natural
gas were $3.27 per Mcf at December 31, 1996 and $3.18 per Mcf at September
30, 1997. Includes income from Section 29 tax credits of $808 and $706, as
of December 31, 1996 and September 30, 1997, respectively.
(2) The present value of estimated future net revenues attributable to the
Company's reserves was prepared using constant prices as of the
calculation date, discounted at 10% per annum on a pre-tax basis.
The reserve estimates reflected above were prepared by the Independent
Engineers and are part of their Reserve Reports on the Company's natural gas
and oil properties. Summaries of such Reserve Reports as of September 30, 1997
are attached as Appendices A and B to this Prospectus.
In accordance with applicable requirements of the SEC, estimates of the
Company's proved reserves and future net revenues are made using sales prices
estimated to be in effect as of the date of such reserve estimates and are
held constant throughout the life of the properties (except to the extent a
contract specifically provides for escalation). Estimated quantities of proved
reserves and future net revenues therefrom are affected by natural gas and oil
prices, which have fluctuated widely in recent years. There are numerous
uncertainties inherent in estimating oil and natural gas reserves and their
estimated values, including many factors beyond the control of the Company.
The reserve data set forth in this Prospectus represents only estimates.
Reservoir engineering is a
41
<PAGE>
subjective process of estimating underground accumulations of natural gas and
oil that cannot be measured in an exact manner. The accuracy of any reserve
estimate is a function of the quality of available data and of engineering and
geologic interpretation and judgment. As a result, estimates of different
engineers, including those used by the Company, may vary. In addition,
estimates of reserves are subject to revision based upon actual production,
results of future development and exploration activities, prevailing natural
gas and oil prices, operating costs and other factors. The revisions may be
material. Accordingly, reserve estimates often are different from the
quantities of natural gas and oil that ultimately are recovered and are highly
dependent upon the accuracy of the assumptions upon which they are based. The
Company's estimated proved reserves have not been filed with or included in
reports to any federal agency. See "Risk Factors--Uncertainty of Estimates of
Oil and Natural Gas Reserves."
Estimates with respect to proved reserves that may be developed and produced
in the future often are based upon volumetric calculations and upon analogy to
similar types of reserves rather than actual production history. Estimates
based on these methods generally are less reliable than those based on actual
production history. Subsequent evaluation of the same reserves based upon
production history will result in variations in the estimated reserves and the
variations may be substantial.
DRILLING ACTIVITIES
The Company drilled, or participated in the drilling of, the following
number of wells during the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------------- SEPTEMBER 30,
1994 1995 1996 1997
--------- --------- --------- --------------
GROSS NET GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- --- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exploratory Wells(1):
Natural gas.................. 8 0.6 8 1.8 3 0.3 2 0.2
Oil.......................... 1 0.1 4 0.4 1 0.1 2 0.2
Non-productive............... 15 1.5 16 1.8 13 1.7 7 0.7
--- --- --- --- --- --- ------ ------
Total...................... 24 2.2 28 4.0 17 2.1 11 1.1
=== === === === === === ====== ======
Development Wells(2):
Natural gas.................. 3 0.3 8 0.8 -- -- 10 0.9
Oil.......................... -- -- 3 0.4 7 0.5 3 0.2
Non-productive............... -- -- -- -- 1 0.1 3 0.3
--- --- --- --- --- --- ------ ------
Total...................... 3 0.3 11 1.2 8 0.6 16 1.4
=== === === === === === ====== ======
</TABLE>
- --------
(1) Includes 2.0 gross (1.3 net to the Company) Antrim Shale wells for the
year ended December 31, 1995.
(2) Includes 2.0 gross (0.2 net to the Company) Antrim Shale wells for the
year ended December 31, 1994 and 5.0 gross (0.5 net to the Company) Antrim
Shale wells for the year ended December 31, 1996 and 9.0 gross (0.9 net to
the Company) Antrim Shale wells for the nine months ended September 30,
1997.
At September 30, 1997, the Company was in the process of drilling and/or
completing four gross (0.8 net to the Company) wells that are not reflected in
the table.
PRODUCTIVE WELLS AND ACREAGE
Productive Wells
The following table sets forth the Company's ownership interest as of
September 30, 1997 in productive oil and natural gas wells in the areas
indicated:
42
<PAGE>
<TABLE>
<CAPTION>
OIL NATURAL GAS TOTAL
--------- ------------- ----------
REGION GROSS NET GROSS NET GROSS NET
------ ----- --- ----- ------ ----- ----
<S> <C> <C> <C> <C> <C> <C>
Mississippi Salt Basin.................... 2 0.1 6 0.4 8 0.5
Onshore Gulf Coast
Texas................................... 10 0.5 20 1.1 30 1.6
Louisiana............................... -- -- 4 0.2 4 0.2
Michigan Basin/Other...................... 1 0.1 308 26.2 309 26.3
--- --- ----- ------ --- ----
Total................................. 13 0.7 338 27.8 351 28.5
=== === ===== ====== === ====
</TABLE>
Productive wells consist of producing wells and wells capable of production,
including wells waiting on pipeline connection. Wells that are completed in
more than one producing horizon are counted as one well. Of the gross wells
reported above, none had multiple completions.
Acreage
Undeveloped acreage includes leased acres on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil and natural gas, regardless of whether such acreage contains
proved reserves. A gross acre is an acre in which an interest is owned. A net
acre is deemed to exist when the sum of fractional ownership interests in gross
acres equals one. The number of net acres is the sum of the fractional
interests owned in gross acres expressed as whole numbers and fractions
thereof. The following table sets forth the approximate developed and
undeveloped acreage in which the Company held a leasehold mineral or other
interest at September 30, 1997:
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED TOTAL
------------ -------------- --------------
REGION GROSS NET GROSS NET GROSS NET
------ ------ ----- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Mississippi Salt Basin............ 4,800 482 57,796 21,014 62,596 21,496
Onshore Gulf Coast
Texas........................... 9,308 684 22,961 2,881 32,269 3,565
Louisiana....................... 687 42 18,658 1,683 19,345 1,725
Michigan Basin/Other.............. 20,414 1,258 39,374 16,078 59,788 17,336
------ ----- ------- ------ ------- ------
Total......................... 35,209 2,466 138,789 41,656 173,998 44,122
====== ===== ======= ====== ======= ======
</TABLE>
In addition, the Company has pre-seismic lease options to acquire an
additional 741 acres, substantially all of which expire within one year.
All of the leases for the undeveloped acreage summarized in the preceding
table will expire at the end of their respective primary terms unless the
existing leases are renewed or production has been obtained from the acreage
subject to the lease prior to that date, in which event the lease will remain
in effect until the cessation of production. To this end, the Company's
forecasted drilling schedule takes into consideration not only the
attractiveness of individual prospects, but the lease expirations as well. The
following table sets forth the minimum remaining terms of leases for the gross
and net undeveloped acreage:
<TABLE>
<CAPTION>
ACRES EXPIRING
--------------
GROSS NET
------- ------
<S> <C> <C>
Twelve Months Ending:
December 31, 1997........................................ 3,241 405
December 31, 1998........................................ 44,819 5,690
December 31, 1999........................................ 23,186 7,208
Thereafter............................................... 102,752 30,819
------- ------
Total.................................................. 173,998 44,122
======= ======
</TABLE>
43
<PAGE>
VOLUMES, PRICES AND PRODUCTION COSTS
The following table sets forth the production volumes, average prices
received and average production costs associated with the Company's sale of
oil and natural gas for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------- --------------------------
PRO PRO
FORMA FORMA
1994 1995 1996 1996 1996 1997 1997
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Production:
Crude oil and
condensate (MBbls)... 39.5 31.6 46.5 57.2 35.0 33.4 46.8
Natural gas (MMcf).... 1,228.4 1,324.0 2,030.0 2,468.2 1,555.3 1,713.0 2,373.3
Natural gas equivalent
(MMcfe).............. 1,465.7 1,513.3 2,309.1 2,811.6 1,765.0 1,913.3 2,654.4
Average sales prices:
Crude oil and
condensate ($ per
Bbl)................. $ 17.00 $ 22.68 $ 23.66 $ 23.43 $ 24.44 $ 21.26 $ 20.75
Natural gas ($ per
Mcf)................. 1.97 2.08 2.77 2.77 2.39 2.53 2.47
Natural gas equivalent
($ per Mcfe)......... 2.11 2.29 2.91 2.91 2.59 2.63 2.57
Average Costs ($ per
Mcfe):
Lease operating
expenses and
production taxes..... $ 0.55 $ 0.51 $ 0.49 $ 0.48 $ 0.43 $ 0.48 $ 0.41
Depreciation,
depletion and
amortization......... 0.69 1.10 1.14 1.20 1.03 1.06 1.37
General and adminis-
trative.............. 0.82 0.84 0.69 0.66 0.57 0.70 0.61
</TABLE>
COSTS INCURRED IN OIL AND NATURAL GAS ACTIVITIES
The following table sets forth the costs incurred by the Company in oil and
natural gas acquisition, exploration and development activities for the
periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- -------------
PRO PRO
FORMA FORMA
1994 1995 1996(1) 1996(1) 1997 1997
------ ------ ------- ------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Costs incurred for the year:
Property acquisition............. $ 872 $1,123 $2,264 $3,238 $3,033 $4,336
Exploration...................... 2,003 2,130 2,340 3,346 609 872
Development...................... 1,653 3,070 1,580 2,259 1,524 2,179
------ ------ ------ ------ ------ ------
Total.......................... $4,528 $6,323 $6,184 $8,843 $5,166 $7,387
====== ====== ====== ====== ====== ======
</TABLE>
- --------
(1) Includes $757 for the acquisition of proved producing properties.
Costs incurred represent amounts incurred by the Company for exploration,
property acquisition and development activities. Periodically, the Company
will receive proceeds from participants subsequent to project initiation for
an assignment of an interest in the project. These payments are represented by
proceeds from participants.
OIL AND NATURAL GAS MARKETING AND MAJOR CUSTOMERS
Most of the Company's oil and natural gas production is sold by its
operators under price sensitive or spot market contracts. The revenues
generated by the Company's operations are highly dependent upon the prices of
and demand for oil and natural gas. The price received by the Company for its
oil and natural gas production depends on numerous factors beyond the
Company's control, including seasonality, the condition of the United States
economy, foreign imports, political conditions in other oil-producing and
natural gas-producing countries,
44
<PAGE>
the actions of the Organization of Petroleum Exporting Countries and domestic
government regulation, legislation and policies. Decreases in the prices of
oil and natural gas could have an adverse effect on the carrying value of the
Company's proved reserves and the Company's revenues, profitability and cash
flow. Although the Company currently is not experiencing any significant
involuntary curtailment of its oil or natural gas production, market, economic
and regulatory factors in the future may materially affect the Company's
ability to sell its oil or natural gas production. See "Risk Factors--
Volatility of Oil and Natural Gas Prices" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." For the year ended
December 31, 1996, sales to the Company's three largest customers were
approximately 51%, 24% and 19%, respectively, of the Company's oil and natural
gas revenues. Due to the availability of other markets and pipeline
connections, the Company does not believe that the loss of any single oil or
natural gas customer would have a material adverse effect on the Company's
results of operations.
COMPETITION
The oil and gas industry is highly competitive in all of its phases. The
Company encounters competition from other oil and natural gas companies in all
areas of its operations, including the acquisition of seismic options and
lease options on properties. The Company's competitors include major
integrated oil and natural gas companies and numerous independent oil and
natural gas companies, individuals and drilling and income programs. Many of
the Company's competitors are large, well established companies with
substantially larger operating staffs and greater capital resources than the
Company's and which, in many instances, have been engaged in the exploration
and production business for a much longer time than the Company. Such
companies may be able to pay more for seismic and lease options on oil and
natural gas properties and exploratory prospects and to define, evaluate, bid
for and purchase a greater number of properties and prospects than the
Company's financial or human resources permit. The Company's ability to
acquire additional properties and to discover reserves in the future will be
dependent upon its ability to evaluate and select suitable properties and to
consummate transactions in a highly competitive environment. See "Risk
Factors--Competition" and "--Substantial Capital Requirements."
OPERATING HAZARDS AND UNINSURED RISKS
Drilling activities are subject to many risks, including the risk that no
commercially productive reservoirs will be encountered. There can be no
assurance that new wells drilled by the Company will be productive or that the
Company will recover all or any portion of its investment. Drilling for oil
and natural gas may involve unprofitable efforts, not only from dry wells, but
from wells that are productive but do not produce sufficient net revenues to
return a profit after drilling, operating and other costs. The cost of
drilling, completing and operating wells is often uncertain. The Company's
drilling operations may be curtailed, delayed or canceled as a result of
numerous factors, many of which are beyond the Company's control, including
title problems, weather conditions, compliance with governmental requirements
and shortages or delays in the delivery of equipment and services. The
Company's future drilling activities may not be successful and, if
unsuccessful, such failure may have a material adverse effect on the Company's
future results of operations and financial condition. See "Risk Factors--
Dependence on Exploratory Drilling Activities" and "--Shortages of Rigs,
Equipment, Supplies and Personnel."
In addition, the Company's use of 3-D seismic technology requires greater
pre-drilling expenditures than traditional drilling strategies. Although the
Company believes that its use of 3-D seismic technology will increase the
probability of success, unsuccessful wells are likely to occur. There can be
no assurance that the Company's drilling program will be successful or that
unsuccessful drilling efforts will not have a material adverse effect on the
Company.
The Company's operations are subject to hazards and risks inherent in
drilling for and producing and transporting oil and natural gas, such as
fires, natural disasters, explosions, encountering formations with abnormal
pressures, blowouts, cratering, pipeline ruptures and spills, any of which can
result in the loss of hydrocarbons, environmental pollution, personal injury
claims and other damage to properties of the Company and others. The Company
maintains insurance against some but not all of the risks described above. In
particular,
45
<PAGE>
the insurance maintained by the Company does not cover claims relating to
failure of title to oil and natural gas leases, trespass during 2-D and 3-D
survey acquisition or surface change attributable to seismic operations, and,
except in limited circumstances, losses due to business interruption. In
certain circumstances in which insurance is available the Company may not
purchase it. The occurrence of an event that is not covered, or not fully
covered, by insurance could have a material adverse effect on the Company's
financial condition and results of operations. See "Risk Factors--Operating
Hazards and Uninsured Risks."
EMPLOYEES
At October 31, 1997, the Company had 18 full-time employees, including three
geologists and one engineer. As drilling production activities increase, the
Company intends to hire additional technical, operational and administrative
personnel as appropriate. None of the Company's employees are represented by
any labor union. The Company believes its relations with its employees are
good. To optimize prospect generation and development, the Company uses the
services of independent consultants and contractors to perform various
professional services, particularly in the area of seismic data mapping,
acquisition leases and lease options, construction, design, well-site
surveillance, permitting and environmental assessment. Field and on-site
productions operation services, such as pumping, maintenance, dispatching,
inspection and testing, generally are provided by independent contractors. The
Company believes that this use of third-party service providers enhances its
ability to contain general and administrative expenses.
FACILITIES
The Company currently leases approximately 8,000 square feet of office space
for its principal offices in Traverse City, Michigan. The Company also leases
approximately 3,300 square feet of office space in Houston, Texas and
approximately 1,300 square feet of office space in Jackson, Mississippi.
TITLE TO PROPERTIES
The Company believes it has satisfactory title to all of its producing
properties in accordance with standards generally accepted in the oil and gas
industry. As is customary in the industry in the case of undeveloped
properties, little investigation of record title is made at the time of
acquisition (other than a preliminary review of local records).
Investigations, including a title opinion of legal counsel, generally are made
before commencement of drilling operations. The Company's properties are
subject to customary royalty, overriding royalty, carried, net profits,
working and other similar interests, liens incident to operating agreements,
liens for current taxes and other burdens. In addition, the Credit Facility is
secured by certain oil and natural gas interests and other properties of MOC.
GOVERNMENTAL REGULATION
The Company's oil and natural gas exploration, production and related
operations are subject to extensive rules and regulations promulgated by
federal and state agencies. Failure to comply with such rules and regulations
can result in substantial penalties. The regulatory burden on the oil and gas
industry increases the Company's cost of doing business and affects its
profitability. Although the Company believes it is in substantial compliance
with all applicable laws and regulations, the Company is unable to predict the
future cost or impact of complying with such laws because those laws and
regulations frequently are amended or reinterpreted.
State Regulation
The states in which the Company operates require permits for drilling
operations, drilling bonds and reports concerning operations and impose other
requirements relating to the exploration and production of oil and natural
gas. These states also have statutes or regulations addressing conservation
matters, including provisions for the unitization or pooling of oil and
natural gas properties, the establishment of maximum rates of production from
wells and the regulation of spacing, plugging and abandonment of such wells.
In addition, state laws generally
46
<PAGE>
prohibit the venting or flaring of natural gas, regulate the disposal of
fluids used in connection with operations and impose certain requirements
regarding the ratability of production.
Federal Regulation
The Company's sales of natural gas are affected by the availability, terms
and cost of transportation. The price and terms for access to pipeline
transportation are subject to extensive regulation. The Federal Energy
Regulatory Commission ("FERC") regulates the transportation and sale for
resale of natural gas in interstate commerce pursuant to the Natural Gas Act
of 1938 and the Natural Gas Policy Act of 1978. In the past, the federal
government has regulated the prices at which oil and natural gas can be sold.
While sales by producers of natural gas, and all sales of oil and natural gas
liquids currently can be made at uncontrolled market prices, Congress could
reenact price controls in the future.
In recent years, FERC has undertaken various initiatives to increase
competition within the natural gas industry. As a result of initiatives like
FERC Order 636, issued in April 1992 and its progeny, the interstate natural
gas transportation and marketing system has been substantially restructured to
remove various barriers and practices that historically limited non-pipeline
natural gas sellers, including producers, from effectively competing with
interstate pipelines for sales to local distribution companies and large
industrial and commercial customers. The most significant provisions of Order
No. 636 require that interstate pipelines provide transportation separate or
"unbundled" from their sales service, and require that pipelines provide firm
and interruptible transportation service on an open access basis that is equal
for all natural gas supplies. In many instances, the result of Order No. 636
and related initiatives has been to substantially reduce or eliminate the
interstate pipelines' traditional role as wholesalers of natural gas in favor
of providing only storage and transportation services. Although Order No. 636
has largely been upheld on appeal, several appeals remain pending in related
restructuring proceedings. It is difficult to predict when these remaining
appeals will be completed or their impact on the Company.
FERC has announced several important transportation-related policy
statements and proposed rule changes, including a statement of policy and a
request for comments concerning alternatives to its traditional cost-of-
service ratemaking methodology to establish the rates interstate pipelines may
charge for their services. A number of pipelines have obtained FERC
authorization to charge negotiated rates as one such alternative. In February
1997, FERC announced a broad inquiry into issues facing the natural gas
industry to assist FERC in establishing regulatory goals and priorities in the
post-Order No. 636 environment. Similarly, the Texas Railroad Commission
recently has changed its regulations governing transportation and gathering
services provided by intrastate pipelines and gatherers to prohibit undue
discrimination in favor of affiliates. While the changes being considered by
these federal and state regulators would affect the Company only indirectly,
they are intended to further enhance competition in natural gas markets.
Additional proposals and proceedings that might affect the natural gas
industry are pending before Congress, FERC, state commissions and the courts.
The natural gas industry historically has been very heavily regulated;
therefore, there is no assurance that the less stringent regulatory approach
recently pursued by FERC and Congress will continue.
The price the Company receives from the sale of oil and natural gas liquids
is affected by the cost of transporting products to markets. Effective January
1, 1995, FERC implemented regulations establishing an indexing system for
transportation rates for oil pipelines, which, generally, would index such
rates to inflation, subject to certain conditions and limitations. The Company
is not able to predict with certainty the effect, if any, of these regulations
on its operations. However, the regulations may increase transportation costs
or reduce well head prices for oil and natural gas liquids. See "Risk
Factors--Governmental Regulation and Environmental Matters" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Environmental and Other Regulatory Matters."
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to extensive and
changing federal, state and local laws and regulations relating to
environmental protection, including the generation, storage, handling,
emission,
47
<PAGE>
transportation and discharge of materials into the environment, and relating
to safety and health. The recent trend in environmental legislation and
regulation generally is toward stricter standards, and this trend likely will
continue. These laws and regulations may require the acquisition of a permit
or other authorization before construction or drilling commences; restrict the
types, quantities and concentration of various substances that can be released
into the environment in connection with drilling and production activities;
limit or prohibit construction, drilling and other activities on certain lands
lying within wilderness, wetlands and other protected areas; require remedial
measures to mitigate pollution from former operations such as plugging
abandoned wells; and impose substantial liabilities for pollution resulting
from the Company's operations. The permits required for various of the
Company's operations are subject to revocation, modification and renewal by
issuing authorities. Governmental authorities have the power to enforce
compliance with their regulations, and violators are subject to civil and
criminal penalties or injunction. Management believes that the Company is in
substantial compliance with current applicable environmental laws and
regulations, and that the Company has no material commitments for capital
expenditures to comply with existing environmental requirements. Nevertheless,
changes in existing environmental laws and regulations or in interpretations
thereof could have a significant impact on the Company, as well as the oil and
gas industry in general and thus the Company is unable to predict the ultimate
cost and effects of such continued compliance in the future.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") and comparable state statutes impose strict, joint and several
liability on certain classes of persons who are considered to have contributed
to the release of a "hazardous substance" into the environment. These persons
include the owner or operator of a disposal site or sites where a release
occurred and companies that disposed or arranged for the disposal of the
hazardous substances released at the site. Under CERCLA such persons or
companies may be liable for the costs of cleaning up the hazardous substances
that have been released into the environment and for damages to natural
resources, and it is not uncommon for the neighboring land owners and other
third parties to file claims for personal injury, property damage and recovery
of response costs allegedly caused by the hazardous substances released into
the environment. The Resource Conservation and Recovery Act ("RCRA") and
comparable state statutes govern the disposal of "solid waste" and "hazardous
waste" and authorize imposition of substantial civil and criminal penalties
for noncompliance. Although CERCLA currently excludes petroleum from its
definition of "hazardous substance," state laws affecting the Company's
operations impose clean-up liability relating to petroleum and petroleum-
related products. In addition, although RCRA classifies certain oil field
wastes as "non-hazardous," such exploration and production wastes could be
reclassified as hazardous wastes thereby making such wastes subject to more
stringent handling and disposal requirements.
The Company has acquired leasehold interests in numerous properties that for
many years have produced natural gas and oil. Although the Company believes
that the previous owners of these interests used operating and disposal
practices that were standard in the industry at the time, hydrocarbons or
other wastes may have been disposed of or released on or under the properties.
In addition, most of the Company's properties are operated by third parties
whose treatment and disposal or release of hydrocarbons or other wastes is not
under the Company's control. These properties and the wastes disposed thereon
may be subject to CERCLA, RCRA and analogous state laws. Notwithstanding the
Company's lack of control over properties operated by others, the failure of
the operator to comply with applicable environmental regulations may, in
certain circumstances, adversely impact the Company.
Federal regulations require certain owners or operators of facilities that
store or otherwise handle oil, such as the Company, to prepare and implement
spill prevention, control countermeasure and response plans relating to the
possible discharge of oil into surface waters. The Oil Pollution Act of 1990,
as amended ("OPA"), contains numerous requirements relating to the prevention
of and response to oil spills into waters of the United States. For onshore
facilities that may affect waters of the United States, OPA requires an
operator to demonstrate $10.0 million in financial responsibility, and for
offshore facilities the financial responsibility requirement is at least $35.0
million. Regulations currently are being developed under federal and state
laws concerning oil pollution prevention and other matters that may impose
additional regulatory burdens on the Company. In addition, the federal Clean
Water Act and analogous state laws require permits to be obtained to authorize
48
<PAGE>
discharge into surface waters or to construct facilities in wetland areas.
With respect to certain of its operations, the Company is required to maintain
such permits or meet general permit requirements. The Environmental Protection
Agency ("EPA") has adopted regulations concerning discharges of storm water
runoff. This program requires covered facilities to obtain individual permits,
participate in a group or seek coverage under an EPA general permit. The
Company believes that it will be able to obtain, or be included under, such
permits, where necessary, and to make minor modifications to existing
facilities and operations that would not have a material effect on the
Company. See "Risk Factors--Governmental Regulation and Environmental Matters"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Environmental and Other Regulatory Matters."
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors,
nominees for director, executive officers and certain key employees of the
Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
DIRECTORS--TERM EXPIRING IN
1998
C.E. "Gene" Miller.......... 67 Chairman of the Board and Director
Frank M. Burke, Jr.......... 57 Director*
DIRECTORS--TERM EXPIRING IN
1999
Kelly E. Miller............. 42 President, Chief Executive Officer
and Director
Dan A. Hughes, Jr........... 39 Director*
DIRECTORS--TERM EXPIRING IN
2000
William J. Baumgartner...... 42 Vice President-Finance, Chief Financial
Officer, Secretary and Director
William Casey McManemin..... 36 Director*
EXECUTIVE OFFICERS WHO ARE
NOT DIRECTORS
Douglas A. Bell............. 38 Vice President-Production
Lew P. Murray............... 41 Vice President-Exploration
CERTAIN KEY EMPLOYEES
Charles A. Morrison......... 48 Exploration Manager
Curtiss R. Yeiter........... 41 Treasurer
</TABLE>
- --------
*These individuals are expected to be appointed as directors of the Company
on or before consummation of the Offering.
49
<PAGE>
Set forth below is a description of the backgrounds of the directors,
nominees for director, executive officers and certain key employees of the
Company.
C.E. "GENE" MILLER has served as the Chairman of the Board and a director of
the Company since its founding in 1997 and of MOC since MOC's founding in
1986. Since 1982, Mr. Miller has served as President, Secretary and Treasurer
of Eagle Investments, Inc. ("Eagle"), an oil and gas investment company
affiliated with the Company, and since 1990 has served as President, Secretary
and Treasurer of Eagle International, Inc., ("Eagle International"), an
international oil and gas development company also affiliated with the
Company. Mr. Miller has been involved in the domestic oil and gas industry for
over 35 years, primarily in Michigan and Texas. Mr. Miller is a past president
of the Michigan Oil and Gas Association and also served as a director of that
organization. Mr. Miller previously served as a vice president and director
and on the Executive Committee of the Independent Petroleum Association of
America, and as a director of the National Stripper Well Association. In
addition, Mr. Miller has been involved in a number of civic activities and is
a member of several boards of directors.
KELLY E. MILLER has served as the President and Chief Executive Officer of
the Company since its founding in 1997 and as President and a director of MOC
since MOC's founding in 1986. Since 1982, Mr. Miller has served as a Vice
President of Eagle. Mr. Miller serves on the Board of Governors of the
Independent Petroleum Association of America and the Boards of Directors of
the Michigan Oil and Gas Association and Republic Bancorp, Inc. (NASDAQ). Mr.
Miller has been involved in the oil and gas industry since 1978, focusing his
efforts in the areas of strategic planning, prospect development, acquisition
and administration. Mr. Miller received a B.S. degree with a major in
Petroleum Geology and a B.B.A. degree with a major in Petroleum Land
Management from the University of Oklahoma. Mr. Miller also completed the
Owner/President Management Program (OPM) through the Harvard University
Graduate School of Business. Mr. Miller is a Certified Petroleum Geologist
with the American Association of Petroleum Geologists, an international
geological organization.
WILLIAM J. BAUMGARTNER has served as the Vice President-Finance, Chief
Financial Officer and Secretary and as a director of the Company since its
founding in 1997 and as Vice President--Finance and Chief Financial Officer of
MOC since 1991. Mr. Baumgartner previously held the positions of Controller,
Treasurer and Secretary of MOC. Mr. Baumgartner was employed in public
accounting and with various independent oil and gas exploration entities prior
to joining MOC in 1985. Mr. Baumgartner graduated from Ferris State College in
1979 with a B.S. degree in Accounting. Mr. Baumgartner is a member of the
Michigan Oil and Gas Association as well as various committees of the
Independent Petroleum Association of America.
FRANK M. BURKE, JR. has served as Chairman, Chief Executive Officer and
Managing General Partner of Burke, Mayborn Company, Ltd., a private investment
and consulting company located in Dallas, Texas, since 1984. Burke, Mayborn
Company Ltd. provides strategic and financial consulting to selected
individuals and entities. From 1960 to 1984, Mr. Burke was associated with
Peat, Marwick, Mitchell & Co., an international firm of certified public
accountants. Mr. Burke was elected partner in 1968, and served as a member of
the Peat Marwick Board of Directors from 1978 to 1984. During the same period
Mr. Burke served as Chairman, Energy Group for Peat Marwick International and
National Director of Energy and Natural Resources for Peat Marwick in the
United States. Mr. Burke presently serves as a director of Kaneb Services,
Inc. (NYSE), Kaneb Pipe Line Partners, L.P. (NYSE) and CMS NOMECO Oil & Gas
Co., a wholly owned subsidiary of CMS Energy Corporation (NYSE). In addition,
Mr. Burke serves on the board of directors of numerous private corporations.
DAN A. HUGHES JR. is a partner in Dan A. Hughes Company, an oil and gas
exploration company located in Beeville, Texas, and has served as Exploration
Manager of Dan A. Hughes Company since 1985. Mr. Hughes currently serves on
the Regional Board of Trustees for the Independent Petroleum Association of
America and as Vice President for the Lower Gulf Coast District for Texas Mid-
Continent Oil & Gas Association. Mr. Hughes has been active in the oil and gas
industry for more than 20 years, overseeing exploration and development
activities in Texas and Louisiana, as well as internationally. Mr. Hughes
received a B.B.A. degree from Texas
50
<PAGE>
A&M University and attended Texas A&M University for post graduate studies in
geology. Mr. Hughes is involved in a number of civic activities and is a member
of several boards of directors and executive committees.
WILLIAM CASEY MCMANEMIN is a Registered Professional Engineer in the state of
Texas and received a B.S. degree in Petroleum Engineering from Texas A&M
University. Since 1988 Mr. McManemin has served as an officer, shareholder and
director of the Manager of SASI Minerals Company and the General Partner of
Spinnaker Royalty Company, L.P. In addition, since September 1993, Mr.
McManemin has served as an officer, shareholder and director of the General
Partner of Republic Royalty Company. All of such companies are engaged in oil
and gas property acquisition, exploration and development. In addition to
membership in numerous oil and gas industry associations, Mr. McManemin is a
member of the Executive Committee of the Board of Trustees of The St. Mark's
School of Texas.
LEW P. MURRAY has served as Vice President-Exploration of the Company since
its founding in 1997 and of MOC since January 1996. Mr. Murray holds a B.S.
degree with a major in Geology from the University of Oklahoma. Mr. Murray is a
Certified Petroleum Geologist with the American Association of Petroleum
Geologists. Mr. Murray served as Exploration Manager of MOC from 1992 until
1996 and has been involved in the exploration program of MOC and its affiliates
since 1981. Mr. Murray's primary responsibilities involve the review and
recommendations of all domestic and international prospects.
DOUGLAS A. BELL has served as Vice President-Production of the Company since
its founding and of MOC since January 1996. In addition, Mr. Bell has served in
various production-related capacities with affiliates of MOC since his
graduation from Lake Superior State University in 1981. Mr. Bell's primary
responsibilities include production operations, well completions and reserve
analysis.
CURTISS R. YEITER, C.P.A. has served as Treasurer of the Company since its
founding in 1997 and Controller of MOC since 1993. Mr. Yeiter graduated from
Northern Michigan University with a B.S. degree in Accounting and became a
Certified Public Accountant in 1982. Mr. Yeiter was employed by the public
accounting firm of BDO Seidman, LLP from 1979 until 1989 at which time he began
employment with MOC. Mr. Yeiter's primary responsibilities involve financial
reporting, management of accounting and information systems and personnel
management.
CHARLES A. MORRISON will serve as Exploration Manager of the Company
effective December 1, 1997. Since 1981 Mr. Morrison has been the President of
Charles A. Morrison Consulting Geophysicist, Inc. located in Jackson,
Mississippi. Mr. Morrison graduated from Louisiana Tech University with a B.S.
degree in Geology. Prior to forming Charles A. Morrison Consulting
Geophysicist, Inc., Mr. Morrison served in a geophysical capacity with several
companies, including Western Geophysical Company, Cities Service Oil Company
and T.H. Clements and Associates. Mr. Morrison has been responsible for the
acquisition of over 30 3-D seismic surveys in the Upper Gulf Coast region and
has been involved in the interpretation of over 60 3-D seismic surveys in a
consulting capacity.
The Company's Board of Directors is divided into three classes with staggered
terms of office, initially ending as set forth above. Thereafter, the term for
each class will expire on the date of the third annual stockholders' meeting
for the election of directors following the most recent election of directors
for that class. Each director holds office until the next annual meeting of
stockholders for the election of directors of his class and until his successor
has been duly elected and qualified. Executive officers generally are elected
annually by the Board of Directors to serve, subject to the discretion of the
Board of Directors, until their successors are elected or appointed. The Board
of Directors of the Company has adopted a policy providing that directors are
expected to maintain, directly or indirectly, a minimum investment in the
Company of approximately $100,000.
There is no family relationship between any of the directors or between any
director and any executive officer of the Company except that C.E. Miller and
Kelly Miller are father and son and Douglas Bell is the son-in-law of C.E.
Miller and the brother-in-law of Kelly Miller. For information regarding
certain business
51
<PAGE>
relationships between the Company and certain of its directors and executive
officers, see "Certain Transactions."
COMMITTEES OF THE BOARD
On or before consummation of the Offering, the Company will establish two
standing committees of the Board of Directors: an Audit Committee and a
Compensation Committee. Messrs. Burke (Chairman), Hughes and McManemin are
expected to be members of the Audit Committee and Messrs. McManemin
(Chairman), Burke, Hughes, C.E. Miller and Kelly Miller are expected to be
members of the Compensation Committee. The Audit Committee will review the
functions of the Company's management and independent accountants pertaining
to the Company's financial statements and perform such other related duties
and functions as are deemed appropriate by the Audit Committee or the Board of
Directors. The Compensation Committee will recommend to the Board of Directors
the base salaries, bonuses and other incentive compensation for the Company's
officers. The Board of Directors will designate the Compensation Committee as
the administrator of the Company's Stock Option and Restricted Stock Plan of
1997 (the "1997 Stock Option Plan"). See "--Executive Compensation--Employee
Benefit Plans--Stock Option and Restricted Stock Plan of 1997."
DIRECTOR COMPENSATION
Directors who are also employees of the Company are not separately
compensated for serving on the Board of Directors. Directors who are not
employees of the Company and who attend a minimum number of three meetings per
year receive an annual retainer fee of $15,000 per year. In addition, each
non-employee director receives $1,000 for attendance at each meeting of the
Board of Directors and $500 for attendance at each committee meeting. The
Chairman of each committee receives $750 for each committee meeting attended.
All fees will be paid in shares of Common Stock. In addition, the Company
reimburses directors for the reasonable expenses incurred in connection with
attending meetings of the Board of Directors and its committees. Each non-
employee director is granted an option on the date of each annual meeting of
stockholders to purchase 3,000 shares of Common Stock. The per share exercise
price of options granted to directors is 100% of the fair market value of the
Common Stock on the date each option is granted. In addition, each non-
employee director nominee is expected to receive upon the consummation of the
Combination Transaction and this Offering an option to purchase 10,000 shares
of Common Stock at an exercise price per share equal to the initial public
offering price. See "--Executive Compensation--Employee Benefit Plans--Stock
Option and Restricted Stock Plan of 1997."
INDEMNIFICATION AND LIMITATION OF LIABILITY
Delaware Law Provisions
Limitation of Liability. The Delaware Law permits corporations to adopt a
provision in their certificate of incorporation eliminating, with certain
exceptions, the personal liability of a director of the corporation or its
stockholders for monetary damages for breach of the director's fiduciary duty
as a director. Under the Delaware Law, a corporation may not eliminate or
limit director monetary liability for (i) breaches of the director's duty of
loyalty to the corporation or its stockholders, (ii) acts or omissions not in
good faith or involving intentional misconduct or a knowing violation of law,
(iii) unlawful dividends, stock repurchases or redemptions or (iv)
transactions from which the director received an improper personal benefit.
This provision also may not limit a director's liability for violation of, or
otherwise relieve a corporation or its directors from the necessity of
complying with, federal or state securities laws, or affect the availability
of non-monetary remedies such as injunctive relief or rescission. The
Company's Certificate of Incorporation contains a provision stating that
directors shall not be personally liable for monetary damage to the Company,
except to the extent required by the Delaware Law.
Indemnification. The Delaware Law generally permits indemnification of
expenses incurred in the defense or settlement of a derivative or third-party
action, provided that there is a determination that indemnification is proper
because the person seeking indemnification acted in good faith and in a manner
the person reasonably
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believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal proceeding, the person had no reasonable cause to
believe the person's conduct was unlawful. Such indemnification shall be made
(i) by a majority vote of disinterested directors (even though less than a
quorum), (ii) by a committee of such directors designated by majority vote of
such directors (even though less than a quorum), (iii) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion or (iv) by the stockholders. Without court approval, however,
no indemnification may be made in respect of any derivative action in which
the person is adjudged liable to the corporation. The Delaware Law requires
indemnification of expenses when the individual being indemnified successfully
has defended the action on the merits or otherwise.
The Company's Certificate of Incorporation provides that directors and
executive officers shall be indemnified to the full extent provided by the
Delaware Law. As to other persons who are not directors or executive officers
but who may be eligible for indemnification, the Certificate of Incorporation
provides that such persons may be indemnified by the Company to the extent
permissible by law and the Certificate of Incorporation and as authorized by
the Board of Directors. The Certificate of Incorporation further provides that
the Company may purchase and maintain insurance to cover such expenses,
whether or not indemnification would be permissible under the Delaware Law in
the absence of insurance.
The Company intends to enter into an Indemnity Agreement with each of its
directors and executive officers which provides rights additional to those
available under the Delaware Law or the Company's Certificate of Incorporation
or Bylaws. The Indemnity Agreements provide for indemnification in certain
instances against liability and expenses incurred in connection with
proceedings brought by or in the right of the Company or by third parties by
reason of a person acting as an officer or director of the Company or of
another company at the request of the Company.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On or before the consummation of the Offering, the Company will establish a
Compensation Committee. Messrs. McManemin, Burke, Hughes, C.E. Miller and
Kelly Miller are expected to be members of the Compensation Committee. C.E.
Miller, the Chairman and a director of the Company, serves as President,
Secretary, Treasurer and a director of, and Kelly E. Miller, the President,
Chief Executive Officer and a director of the Company, serves as Vice
President of, Eagle and Eagle International. No executive officer of the
Company serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving as a member of
the Company's Board of Directors or Compensation Committee. In the past,
matters with respect to the compensation of executive officers of MOC were
determined by its Board of Directors, which currently includes C.E. Miller,
Kelly E. Miller, David A. Miller, David R. Miller and Sue Ellen Bell.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation paid by MOC to its President and each of the other persons who
will serve as executive officers of the Company whose annual salary and bonus
exceeded $100,000 for the fiscal year ended December 31, 1996. The table does
not include perquisites and other personal benefits for individuals for whom
the aggregate amount of such compensation does not exceed the lesser of (i)
$50,000 or (ii) 10% of individual combined salary and bonus for the named
executive officers in that year.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(A) COMPENSATION
--------------------------- -------- ------- --------------- ------------
<S> <C> <C> <C> <C>
Kelly E. Miller, President and
Chief Executive Officer......... $200,000 -- $9,500 $86,550(b)
William J. Baumgartner, Vice
President-Finance, Chief
Financial Officer and Secretary. $100,000 $30,000 $2,700 $ 618(c)
Lew P. Murray, Vice President-
Exploration..................... $ 80,000 $25,000 $7,800 $30,384(d)
</TABLE>
- --------
(a) Includes contributions made by MOC to its 401(k) Savings Plan on behalf of
the individuals listed.
(b) Includes $168 for travel accident insurance and $86,382 for royalty
program participation.
(c) Includes $421 for life insurance and $168 for travel accident insurance.
(d) Includes $391 for life insurance, $168 for travel accident insurance and
$29,825 for royalty program participation.
Employment Agreements
The Company intends to enter into employment agreements with each of Messrs.
Kelly Miller, Baumgartner, Murray and Morrison that provide for an annual base
salary in an amount not less than $250,000 for Mr. Miller, $150,000 for Mr.
Baumgartner, $140,000 for Mr. Murray and $150,000 for Mr. Morrison. Upon
consummation of this Offering, Messrs. Miller, Baumgartner, Murray and
Morrison also are expected to receive option grants, pursuant to the 1997
Stock Plan, to purchase 300,000, 100,000, 100,000 and 55,000 shares,
respectively, of Common Stock at the initial public offering price set forth
on the cover page of this Prospectus, which vest at the rate of one-fifth per
year beginning on the first anniversary of the grant date, and 60,000, 22,500,
15,000 and 10,000 shares of restricted Common Stock, respectively, which vest
at the rate of one-third per year beginning on the first anniversary of the
grant date. See "--Employee Benefit Plans--Stock Option and Restricted Stock
Plan of 1997."
Each of the employment agreements of Messrs. Miller, Baumgartner, Murray and
Morrison will have an initial three-year term. At the end of the first year of
such initial term and on every anniversary thereafter, the term of each
employment agreement automatically will be extended for one year, so that the
remaining term of the agreement will never be less than two years. Under each
agreement, the officer's employment may be terminated upon his death or
"disability," for "cause" or "good reason," (as those terms are defined in the
employment agreement) or for any reason upon 60 days' notice by the employee
or at will by the Company. Upon discretionary termination of employment by the
Company or termination by the employee for good reason, the employee's salary
and benefits will be continued for a period to be determined by the Company's
Board of Directors. Upon death, disability, discretionary termination by the
employee or termination for cause, no severance pay will be paid.
Each of the employment agreements provides that the employee is eligible to
participate in the Company's employee benefit plans, including the Company's
matching 401(k) Savings Plan and the 1997 Stock Option Plan.
Each of the employment agreements contain certain confidentiality
obligations. In addition, in each agreement the employee will agree not to
compete against the Company for a period of three months following termination
in any county or parish in which the Company is engaged (or is planning to
engage) in business in the oil and gas industry.
Certain Other Arrangements
The Company currently expects to pay a cash bonus upon the consummation of
the Offering to Messrs. Kelly Miller, Baumgartner, Murray, Yeiter, Bell and
Measley of $100,000, $60,000, $40,000, $50,000, $10,000 and $15,000,
respectively.
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Employee Benefit Plans
Stock Option and Restricted Stock Plan of 1997
General. On November 15, 1997, the Company adopted the 1997 Stock Option
Plan. The Board of Directors contemplates that the 1997 Stock Option Plan
primarily will be used to grant stock options. However, the 1997 Stock Option
Plan permits grants of restricted stock and tax benefit rights if determined
to be desirable to advance the purposes of the 1997 Stock Option Plan. In this
Prospectus, stock options, restricted stock and tax benefit rights are
referred to as "Incentive Awards."
Persons eligible to receive Incentive Awards under the 1997 Stock Option
Plan (with certain limitations discussed below) are directors, corporate
officers and other full-time employees of the Company and its subsidiaries.
A maximum of 1,200,000 shares of Common Stock (subject to certain
antidilution adjustments) will be available for Incentive Awards under the
1997 Stock Option Plan. The 1997 Stock Option Plan will not be qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and will not be subject to the Employee Retirement Income Security Act of
1974.
The 1997 Stock Option Plan will be administered by the Compensation
Committee of the Board of Directors. The Board of Directors, in its
discretion, also may require that the members of the Compensation Committee be
"outside directors" as defined in the rules issued pursuant to Section 162(m)
of the Code. The Compensation Committee will make determinations, subject to
the terms of the 1997 Stock Option Plan, as to the persons to receive
Incentive Awards, the amount of Incentive Awards to be granted to each person,
the terms of each grant and all other determinations necessary or advisable
for administration of the 1997 Stock Option Plan. The Compensation Committee
may amend the terms of Incentive Awards granted under the 1997 Stock Option
Plan from time to time in a manner consistent with the 1997 Stock Option Plan;
provided, that no amendment may be effective relating to a particular
Incentive Award without the consent of the relevant participant, except to the
extent the amendment operates solely to the benefit of the participant.
The 1997 Stock Option Plan took effect on November 15, 1997 and, unless
earlier terminated by the Board of Directors, the 1997 Stock Option Plan will
terminate on November 14, 2007. No award may be made under the 1997 Stock
Option Plan after that date. The Company intends to register shares covered by
the 1997 Stock Option Plan under the Securities Act.
Stock Options. Under the 1997 Stock Option Plan, participants may be granted
stock options. Certain stock options that may be granted to employees under
the 1997 Stock Option Plan may qualify as incentive stock options as defined
in Section 422(b) of the Code ("Incentive Stock Options"). Other stock options
will not be Incentive Stock Options within the meaning of the Code. Stock
options may be granted at any time prior to the termination of the 1997 Stock
Option Plan according to its terms or by action of the Compensation Committee.
The Compensation Committee will set forth the terms of individual grants of
stock options in stock option agreements that will contain such terms and
conditions, consistent with the provisions of the 1997 Stock Option Plan, as
the Compensation Committee determines to be appropriate. These restrictions
may include vesting requirements to encourage long-term ownership of shares.
The Company will receive no consideration upon the award of options. The
option price per share will be determined by the Compensation Committee;
provided, that the option price for an Incentive Stock Option will be a price
equal to or higher than the "market value" of the Company's Common Stock on
the date of grant. Each non-employee director automatically is granted an
option on the date of each annual meeting of stockholders to purchase 3,000
shares of Common Stock at an exercise price per share equal to 100% of the
fair market value of the Common Stock on the date each option is granted.
Although the term of each stock option will be determined by the
Compensation Committee, no Incentive Stock Option will be exercisable under
the 1997 Stock Option Plan after 10 years from the date it was granted.
Options generally will be exercisable for limited periods of time if an option
holder is terminated from
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<PAGE>
employment with the Company or its subsidiaries without cause, dies or becomes
disabled. If an option holder is terminated for cause, the option holder will
forfeit all rights to exercise any outstanding options. No individual
participant may be granted, during any calendar year, options to purchase more
than 10% of the total number of shares of Common Stock available under the
1997 Stock Option Plan. The Compensation Committee may permit an option holder
to exercise an option for an extended period, which may not extend beyond the
earlier of either three years from the date of termination or the date on
which the options expire by their terms, if (i) the option holder retires
after age 62 or upon any other age determined by the Compensation Committee
("Normal Retirement"), (ii) the option holder voluntarily terminates
employment with the written consent of the Compensation Committee after the
option holder has attained 55 years of age and completed 15 years of service
("Early Retirement") or (iii) the option holder voluntarily terminates
employment and the Compensation Committee determines the termination to be in
the best interests of the Company ("Consensual Severance").
Upon the consummation of the Offering, options under the 1997 Stock Option
Plan are expected to be granted to directors, officers and certain employees
of the Company to purchase a total of 711,500 shares of Common Stock at an
exercise price per share equal to the initial public offering price per share
set forth on the cover page of this Prospectus. These awards include options
to be granted to Messrs. Kelly Miller, Baumgartner, Murray, Bell and Morrison
to purchase 300,000, 100,000, 100,000, 40,000 and 55,000 shares of Common
Stock, respectively. All such options will have a term of 10 years and become
exercisable in cumulative annual increments of one-fifth of the total number
of shares of Common Stock subject thereto, beginning on the first anniversary
of the date of grant.
Upon the consummation of the Offering, each non-employee director of the
Company is expected to be granted an option to purchase 10,000 shares of
Common Stock. Any person who first becomes a non-employee director on or after
the consummation of the Offering automatically will be granted, on the date of
his or her election, an option to purchase 10,000 shares of Common Stock. In
addition, on the first business day following the date on which each annual
meeting of the Company's stockholders is held, each non-employee director then
serving automatically will be granted an option to purchase 3,000 shares of
Common Stock. Each option granted to non-employee directors will (i) have a
10-year term, (ii) have an exercise price per share equal to the fair market
value of a Common Stock share on the date of grant (the initial public
offering price in the case of options granted upon consummation of the
Offering) and (iii) become exercisable in cumulative annual increments of one-
fifth of the total number of shares of Common Stock subject thereto, beginning
on the first anniversary of the date of grant. If a non-employee director
resigns from the Board without the consent of a majority of the other
directors, such director's options may be exercised only to the extent they
were exercisable on the resignation date. The Board of Directors of the
Company has adopted a policy providing that directors are expected to
maintain, directly or indirectly, a minimum investment in the Company of
approximately $100,000.
Restricted Stock. In addition to the authority to grant stock options under
the 1997 Stock Option Plan, the 1997 Stock Option Plan will allow the
Compensation Committee to award restricted stock. Restricted stock will be
subject to such terms and conditions, consistent with the provisions of the
1997 Stock Option Plan, as the Compensation Committee from time to time may
determine. As with stock option grants, the Compensation Committee will set
forth the terms of individual awards of restricted stock in restricted stock
agreements. If a participant's employment or director or officer status is
terminated during the restricted period set by the Compensation Committee for
any reason other than death or disability, or any additional reason as may be
permitted by the Compensation Committee, then any shares of restricted stock
still subject to restrictions will be forfeited. Unless the Compensation
Committee provides otherwise in a restricted stock agreement, if a
participant's employment or director or officer status is terminated during
the restricted period by reason of death or disability, the restrictions on
the participant's shares will terminate automatically as of the date of death
or disability. The Compensation Committee, in its discretion, may provide that
all or part of the restrictions on the restricted stock will lapse upon
termination if the termination is by reason of Consensual Severance, Normal
Retirement or Early Retirement.
Without Compensation Committee authorization, a recipient of restricted
stock may not sell, exchange, transfer, pledge, assign or otherwise dispose of
such stock other than to the Company or by will or the laws of
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<PAGE>
descent or distribution. In addition, the Compensation Committee may impose
other restrictions on shares of restricted stock. However, holders of
restricted stock will enjoy all other rights of stockholders with respect to
restricted stock, including the right to vote restricted shares at
stockholders' meetings and the right to receive all dividends paid with respect
to restricted stock. Any securities received by a holder of restricted stock
pursuant to a stock dividend, stock split, recapitalization or reorganization
will be subject to the same terms, conditions and restrictions that are
applicable to the restricted stock for which such shares are received.
The Compensation Committee may provide that upon the occurrence of a "change
in control" of the Company (as defined in the 1997 Stock Option Plan), all
restricted stock or other Incentive Awards immediately would become fully
vested, nonforfeitable or otherwise no longer subject to any restriction. The
Compensation Committee may provide in the restricted stock agreement that the
number of shares that automatically will vest will be limited in value to the
extent that any payments that are deemed "parachute payments" as defined in
Section 280G9(b)(2) of the Code would not be subject to the excise tax imposed
by Section 4999 of the Code.
Upon the consummation of the Offering, Messrs. Kelly Miller, Baumgartner,
Murray and Morrison are expected to receive 60,000, 22,500, 15,000 and 10,000
shares of restricted Common Stock, respectively. As described above, an
individual's restricted stock agreement may provide that shares automatically
will vest upon a change in control and that such shares so vested will be
limited in value to the extent deemed parachute payments, as defined in the
Code. The restricted shares will vest at cumulative annual increments of one-
third of the total number of restricted shares of Common Stock subject thereto,
beginning on the first anniversary of the date of grant.
Tax Benefit Rights. The Compensation Committee also may grant tax benefit
rights under the 1997 Stock Option Plan. As with options and restricted stock,
the Compensation Committee will set forth the terms and conditions of tax
benefit rights granted and the participants to receive tax benefit rights in
written agreements. A tax benefit right entitles a participant to receive a
cash payment from the Company or its subsidiaries to encourage the participant
to exercise his or her options. The amount of the payment may not exceed the
amount calculated by multiplying the ordinary income, if any, realized by the
participant for federal tax purposes as a result of the exercise of a non-
Incentive Stock Option, or as a result of the disqualifying disposition of
shares acquired under an Incentive Stock Option, by the maximum federal income
tax rate (including any surtax or similar charge or assessment) for
corporations, plus the applicable state and local tax imposed on the exercise
of the option or disqualifying disposition. Tax benefit rights may be granted
only with respect to a stock option issued and outstanding or to be issued
under the 1997 Stock Option Plan or any prior plans. A participant may refuse
the issuance of a tax benefit right if the effect of the tax benefit right
would disqualify an Incentive Stock Option, change the date of the grant or
exercise price or impair the participant's existing stock options.
The following table summarizes the number of stock options and restricted
stock grants that are expected to be received by certain individuals under the
1997 Stock Option Plan upon the consummation of the Offering:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME OPTIONS(1)(2) RESTRICTED STOCK(3)
---- ------------- -------------------
<S> <C> <C>
Kelly E. Miller........................ 300,000 60,000
William J. Baumgartner................. 100,000 22,500
Lew P. Murray.......................... 100,000 15,000
Douglas A. Bell........................ 40,000 --
Directors and executive officers as a
group................................. 580,000 97,500
All employees as a group (other than
directors and executive officers)..... 131,500 10,000
</TABLE>
- --------
(1) The exercise price for options granted will be equal to the initial public
offering price.
(2) Options become exercisable in cumulative annual increments of one-fifth of
the total number of shares of Common Stock subject thereto, beginning on
the first anniversary of the date of grant.
(3) Shares of restricted stock will vest at cumulative annual increments of
one-third of the total number of shares subject thereto, beginning on the
first anniversary of the date of the grant.
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401(k) Savings Plan
In connection with the Combination Transaction, the Company will adopt MOC's
401(k) Savings Plan (the "Savings Plan"). The Savings Plan will be available
to all full-time employees after they have completed one year of service and
provides for discretionary matching contributions by the Company. The funds in
the Savings Plan are invested in equity (including the Company's stock) and
bond funds at the election of the participant. The Company-paid matching
contributions under the Savings Plan vest at a rate of 20% per year, beginning
after three years of service. The Savings Plan balances that have vested
generally are paid at termination or retirement.
Life Insurance Program
The Company provides, at its sole cost, life insurance in the face amount of
$150,000 on each of the lives of Messrs. Baumgartner and Murray, each of whom
is entitled to designate the beneficiary of the insurance proceeds. Upon their
death, $150,000 will be paid to the beneficiary designated by Messrs.
Baumgartner or Murray. During 1996, the Company paid $421 and $391 in premiums
for Messrs. Baumgartner's and Murray's respective policies.
Travel Insurance Program
The Company provides to each of Messrs. Kelly Miller, C.E. Miller,
Baumgartner, Murray and Bell, as well as to C.W. Measley, Jr., Land Manager of
the Company and MOC, travel accident insurance in the face amount of $100,000
at no cost. The insurance covers accidental death and disability in the course
of business or personal travel anywhere in the world. Each covered person is
entitled to designate the beneficiary of the insurance proceeds. During 1996,
the Company paid $168 in premiums for each of the policies.
Tax Credit and Royalty Participation Programs
Tax Credit Participation Program. On April 14, 1995, MOC established the
Credit Participation Program (the "Tax Program"), which is designed to reward,
recognize and retain key employees of MOC who participate in an instrumental
manner in the acquisition, sale and/or brokerage of production of oil and
natural gas from non-conventional sources that qualify for certain tax credits
under Section 29 of the Code. Under the terms of the Tax Program, participants
may be entitled to a percentage of any money received by the Tax Program,
including fees, reimbursements, down-payments and credits from brokerage
transactions. After payment of expenses, money is allocated among and
distributed to participants, pursuant to a participant's annual allocation
percentages, as determined by a majority vote of MOC's shareholders. If MOC
acquires properties for the purpose of the acquisition of Section 29 Credits
and MOC sells all or any part of the properties to which such credits apply,
the distribution of the proceeds for the Tax Program will be net of the total
invested capital plus a 10% return. If a participant's employment is
terminated, any distributions pursuant to the Tax Program will terminate and
the balance of current and future distributions to the participant will remain
in the Tax Program to be allocated and distributed by MOC in its discretion.
As of October 31, 1997, Mr. Baumgartner was the only participant in the Tax
Program. No payments were made under the Tax Program during 1996. On or before
consummation of the Offering, Mr. Baumgartner's right to participate in the
Tax Program will terminate.
Royalty Participation Program. On December 31, 1992, MOC established the
Employee Participation Program (the "Royalty Program"), which is designed to
provide an incentive for certain key employees to contribute to the success of
MOC. Under the terms of the Royalty Program, participants receive a percentage
of the overriding royalty working interest on all prospects generated by MOC.
A maximum of 1/32nd of 8/8ths overriding royalty working interest is reserved
for the Royalty Program on all prospects generated by MOC. If less than a
1/32nd of 8/8ths overriding royalty is reserved on such prospects,
participants are assigned a proportionate share of the overriding royalty that
MOC retains. A sliding scale overriding royalty is reserved against MOC's
retained net revenue interest, proportionately adjusted to MOC's working
interest in any specific property. The net revenue scale is used whether MOC
retains an overriding royalty on its prospects, acquires a
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<PAGE>
working interest from a third party or sells or distributes working interests
to an entity owned by a shareholder of MOC. The Royalty Program is limited to
those properties that MOC has an initial working interest in and the
overriding royalty is not applied to farm-outs by MOC, sale of lease
positions, purchase of reserves or recovery from lawsuits. If a participant's
employment is terminated, any overriding royalties previously assigned to the
participant will revert to MOC. In the event of a participant's death, any
royalties due to the participant will be allocated to a beneficiary or trust
designated by the participant.
As of October 31, 1997, the following individuals participated in the
Royalty Program: Mr. Kelly Miller had a 40% interest in the royalty interest;
Mr. Baumgartner had a 7.5% interest in the royalty interest; Mr. Murray had a
15% interest in the royalty interest; and Kevin J. Sullivan had a 3% interest
in the royalty interest. The stated percentages for Messrs. Miller and Murray
apply to prospects of MOC as of January 1, 1996. To the extent that a prospect
was included in the Royalty Program prior to January 1, 1996, with respect to
those properties, Messrs. Miller and Murray had a 32% and 8% interest in such
royalties, respectively, as of October 31, 1997. During 1996 Messrs. Miller,
Baumgartner and Murray received $86,382, $29 and $29,825, respectively, under
the Royalty Program. Mr. Sullivan did not receive any amount under the Royalty
Program in 1996. On or before the consummation of the Offering, the
participants' rights to participate in the Royalty Program will terminate.
CERTAIN TRANSACTIONS
THE COMBINATION TRANSACTION
The Company was recently formed as a Delaware corporation as part of the
combination of MOC with certain oil and natural gas interests owned by
companies beneficially owned by individual members of the Miller family and
certain oil and natural gas interests owned by long-time partners with and
investors in MOC. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview."
REGISTRATION RIGHTS AGREEMENT
The Company has agreed that upon the consummation of the Combination
Transaction it will enter into a Registration Rights Agreement with each
person who will become a stockholder of the Company upon the consummation of
the Combination Transaction. The Registration Rights Agreement will provide
each such person certain piggyback registration rights with respect to their
shares of Common Stock. See "Description of Capital Stock--Registration Rights
of Certain Stockholders."
TRANSACTIONS WITH C.E. MILLER AND AFFILIATES
The following information describes agreements or transactions between MOC
and C.E. Miller or his affiliates:
Service Agreement. MOC has entered into an Amended Service Agreement dated
January 1, 1997, amending a prior service agreement, with Eagle, an oil and
gas exploratory company beneficially owned by C.E. Miller, the Chairman of the
Board and a director of MOC and the Company. Under the amended agreement, MOC
provides Eagle with administrative, technical, consulting and other services
required by Eagle to operate its business in the ordinary course. These
services include, among others, developing prospects, coordinating,
permitting, drilling and facility construction and operation, maintaining
joint venture relationships and providing accounting, financial, tax and
budget-preparation services. As compensation for its services, Eagle has
agreed to pay MOC a fixed fee of $50,000 per calendar quarter, subject to
annual adjustments to be negotiated by MOC and Eagle, as well as additional
fees for specialized services as agreed by the parties. Eagle also agreed to
reimburse MOC its out-of-pocket expenses incurred in providing the services.
Either party may terminate the agreement at any time upon 60 days' prior
notice. Eagle paid MOC $100,000, $50,000 and $100,000 under the service
arrangement in 1996, 1995 and 1994, respectively, which the Company believes
is adequate compensation for the services provided to Eagle.
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1997 Drilling Program. MOC has entered into a 1997 Drilling Program
Exploration and Participation Agreement dated August 15, 1997 with Eagle and
certain companies affiliated with MOC who are participating in the Combination
Transaction. Under the agreement, MOC and the affiliated companies contributed
certain drilling inventory consisting of 13 prospects that had a high
probability of drilling operations beginning by December 31, 1997, and that
had pipelines and facilities in place, acreage and rights of way acquired and
drilling units or unitization agreements secured. As consideration for the
contribution of the wells, Eagle agreed to pay 100% of the actual acreage,
seismic, dry hole cost and cost of completion and facilities through the tanks
of the working interest represented by MOC and the affiliated companies. Eagle
will receive a proportionate 50% of MOC's and the affiliated companies' rights
to all depths that exist within the drilling unit or unitized area. In
addition, MOC and the affiliated companies agreed to contribute the use of
their existing facilities used for any common operations, such as production
platforms, flowlines, pipelines or rights of way. MOC and the affiliated
companies have the option to contribute additional prospects to Eagle, but
only upon the consent of C.E. Miller. The parties will terminate the agreement
upon the consummation of the Offering.
Sale of Non-strategic Assets. In an effort to divest certain non-strategic
assets before consummation of the Combination Transaction and the Offering,
MOC has agreed to sell to Eagle working and royalty interests in certain oil
and gas properties located in Michigan and Texas, as well as MOC's interests
in all wells, facilities and equipment associated with such properties. The
properties are located in areas where the Company does not intend to focus its
exploration and production activities. No part of the Company's 1997 or 1998
capital budgets is allocated to the properties. The purchase price is
$507,411, payable in cash at closing and will be distributed to the
shareholders of MOC. The Company believes that the purchase price is
representative of the fair market value of the interests being sold.
Sale and Lease of Principal Offices. In July 1996 MOC sold its principal
offices located at 3104 Logan Valley Road, Traverse City, Michigan to C.E.
Miller and Betty Miller for $700,000. Mr. Miller is Chairman of the Board and
a director of the Company and MOC. The Company is leasing the premises from
Mr. and Mrs. Miller under a five-year lease expiring in August 2001. The lease
provides that the rent on the premises is $6,058 a month for the first full 11
months of the lease and thereafter increases by 4% each year. The Company
believes that the rental rate is representative of the fair market rental rate
for the premises and that the purchase price was representative of the fair
market value of the property at the time of sale.
SHAREHOLDER NOTES
In 1991, the shareholders of MOC loaned to MOC an aggregate of $7.6 million
pursuant to separate loan agreements. Principal on the indebtedness is payable
in full on October 18, 2006. Interest is payable within 30 days after the end
of each quarter at the New York City Prime Rate, which was 8.5% per annum as
of September 30, 1997, plus 2%. As of September 30, 1997, no principal
payments had been made on the indebtedness, and all interest due and payable
by that date had been paid. The shareholders of MOC have agreed to contribute
the indebtedness to the Company as capital in connection with the Combination
Transaction, resulting in cancellation of the indebtedness. Such cancellation
is not expected to result in income to the Company for federal income tax
purposes. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview" and "--Liquidity and Capital Resources."
TAX CREDIT AND ROYALTY PARTICIPATION PROGRAMS
The Company has established the Tax Program and the Royalty Program under
which certain key employees are entitled to receive a stated percentage of tax
credits received by the Tax Program and/or royalties paid on certain prospects
generated by the Company. The participants' rights to participate in the Tax
Program and the Royalty Program will be terminated upon consummation of the
Offering. See "Management--Executive Compensation--Tax Credit and Royalty
Participation Programs."
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CONSULTING AGREEMENT
MOC and Frank M. Burke, Jr., a nominee for director of the Company, entered
into a Consulting Agreement dated June 1, 1996, as subsequently amended.
Pursuant to the Consulting Agreement, Mr. Burke provides MOC, as an
independent contractor, certain financial, tax, strategic, marketing and other
consulting services as requested by MOC. As compensation for these services,
MOC has agreed to pay Mr. Burke a fee of $275 per hour. This fee is scheduled
to increase to $325 per hour for services provided during 1998 and to $375 per
hour for services provided during and after 1999. MOC also has agreed to
reimburse Mr. Burke reasonable travel and other out-of-pocket expenses. The
initial term of the Consulting Agreement was 12 months and automatically is
renewed for successive 12-month periods unless terminated by either party upon
30 days' prior notice. As of September 30, 1997, MOC had paid Mr. Burke a
total of $44,867 in fees and expenses.
CERTAIN EXPLORATION PROGRAMS
A portion of the Company's exploration activities have been, and are
expected to continue to be, conducted as an active working interest partner in
select projects proposed in Texas and Louisiana by Hughes under an exploration
agreement in effect since 1994. Dan A. Hughes, Jr., a nominee for director of
the Company, is a partner in and Exploration Manager of Hughes. See "Business
and Properties--Core Exploration and Development Regions" and "--Joint Venture
Exploration, Participation and Farm-out Agreements."
In addition, the Company has provided to its affiliated oil and natural gas
exploration companies opportunities to invest in certain oil and natural gas
exploration and development projects in which the Company already has an
interest. In exchange for their interests in a project, the affiliated
companies, which are under common ownership with MOC, are required to pay
their proportionate share of a $50,000 prospect fee charged by the Company,
110% of the associated drilling costs and their proportionate share of the
royalty interests allocated to the Royalty Program. See "Management--Executive
Compensation--Tax Credit and Royalty Participation Programs." This program
will terminate upon the consummation of the Offering.
Any future material transactions between the Company and its affiliates will
be negotiated on an arms' length basis and approved by a majority of the
disinterested directors of the Company.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock on the date of this Prospectus and as
adjusted to reflect the sale of the Common Stock offered hereby of (i) each
stockholder of the Company selling Common Stock in this Offering (a "Selling
Stockholder"), (ii) each person the Company knows to be the beneficial owner
of 5% or more of the outstanding shares of Common Stock, (iii) each executive
officer listed in the Summary Compensation Table, (iv) each director and
nominee for director of the Company and (v) all executive officers, directors
and nominees for director of the Company as a group, assuming, in each case,
the issuance of an estimated aggregate of 6,930,000 shares of Common Stock to
all participants in the Combination Transaction. This table excludes employee
stock options and restricted stock that are expected to be granted pursuant to
the 1997 Stock Option Plan. See "Management--Executive Compensation--Employee
Benefit Plans--Stock Option and Restricted Stock Plan of 1997." Except as
indicated in the footnotes to this table and pursuant to applicable community
property laws, the Company believes that each stockholder named in this table
has sole investment and voting power with respect to the shares set forth
opposite such stockholder's name.
<TABLE>
<CAPTION>
SHARES
SHARES BENEFICIALLY
BENEFICIALLY SHARES OWNED AFTER
OWNED BEFORE THE BEING THE
OFFERING(1) OFFERED OFFERING(1)(2)
----------------- ------- --------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER NUMBER PERCENT
- ---------------- --------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
C.E. Miller(3)........................ 1,415,234 20.42%
Kelly E. Miller(4).................... 998,219 14.40%
David A. Miller(5).................... 883,945 12.76%
3104 Logan Valley Road
Traverse City, Michigan 49685
Daniel R. Miller(6)................... 988,829 14.27%
3104 Logan Valley Road
Traverse City, Michigan 49685
Sue Ellen Bell(7)..................... 998,219 14.40%
3104 Logan Valley Road
Traverse City, Michigan 49685
William J. Baumgartner................ -- -- -- --
Lew P. Murray......................... -- -- -- --
Douglas A. Bell....................... -- -- -- --
Frank M. Burke, Jr.................... -- -- -- --
Dan A. Hughes, Jr.(8)................. 26,541 0.38%
William Casey McManemin(9)............ 1,042,480 15.04%
SASI Minerals Company................. 1,042,480 15.04%
1201 Market Street, Suite 1402
Wilmington, Delaware 19801
Executive Officers and Directors as a
group................................ 3,482,474 50.25%
</TABLE>
- --------
(1) The number of shares of Common Stock beneficially owned and percentage of
ownership are based on 6,930,000 shares outstanding as of the date of this
Prospectus, which represents an estimate of the number of shares of Common
Stock that is expected to be issued in the Combination Transaction.
Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes the sole or shared power to vote or dispose of
securities, regardless of having an economic interest in such securities.
(2) Assumes the issuance of shares of Common Stock in the Offering
and no exercise of the Underwriters' over-allotment option. If the
Underwriters exercise their over-allotment option to purchase shares
of Common Stock from the Selling Stockholders in full, the number of
shares (and percentages
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of ownership) of Kelly E. Miller, David A. Miller, Daniel R. Miller and Sue
E. Bell will be ( %), ( %), ( %) and ( %), respectively,
and all other stockholders will beneficially own the same share amounts as
shown above.
(3) Includes 228,549 shares held by the Kelly E. Miller Retained Annuity Trust
#1, 228,549 shares held by the Daniel R. Miller Retained Annuity Trust #1,
342,823 shares held by the David A. Miller Retained Annuity Trust #1 and
228,549 shares held by the Sue Ellen Bell Retained Annuity Trust #1, with
respect to each of which C.E. Miller is the sole trustee. Also includes
264,199 shares held by Eagle and 122,565 shares held by Eagle
International, each of which is owned by a revocable trust of which C.E.
Miller is the sole trustee.
(4) Includes 914,195 shares held by the Kelly E. Miller Trust, a revocable
trust of which Kelly E. Miller is the sole trustee, and 84,024 shares held
by Miller and Miller, Inc., which is owned by a revocable trust of which
Kelly E. Miller is the sole trustee. Excludes 228,549 shares held by the
Kelly E. Miller Retained Annuity Trust #1, of which Kelly E. Miller's
father, C.E. Miller, is the sole trustee and of which Kelly E. Miller and
trusts for the benefit of his children are the beneficiaries.
(5) Includes 799,921 shares held by the David A. Miller Trust, a revocable
trust of which David A. Miller is the sole trustee, and 84,024 shares held
by Oak Shores Investments, Inc., which is owned by a revocable trust of
which David A. Miller is the sole trustee. Excludes 342,823 shares held by
the David A. Miller Retained Annuity Trust #1, of which David A. Miller's
father, C.E. Miller, is the sole trustee and of which David A. Miller and
trusts for the benefit of his children are the beneficiaries.
(6) Includes 914,195 shares held by the Daniel R. Miller Trust, a revocable
trust of which Daniel R. Miller is the sole trustee, and 74,634 shares
held by Double Diamond Enterprises, Inc., which is owned by a revocable
trust of which Daniel R. Miller is the sole trustee. Excludes 228,549
shares held by the Daniel R. Miller Retained Annuity Trust #1, of which
Daniel R. Miller's father, C.E. Miller, is the sole trustee and of which
Daniel R. Miller and trusts for the benefit of his children are the
beneficiaries.
(7) Includes 914,195 shares held by the Sue E. Bell Trust, a revocable trust
of which Sue E. Bell is the sole trustee, and 84,024 shares held by
Frontier Investments, Inc., which is owned by a revocable trust of which
Sue E. Bell is the sole trustee. Excludes 228,549 shares held by the Sue
Ellen Bell Retained Annuity Trust #1, of which Sue E. Bell's father, C.E.
Miller, is the sole trustee and of which Sue E. Bell and trusts for the
benefit of her children are the beneficiaries.
(8) Includes only those shares held by Hughes, of which Dan A. Hughes Jr. is
Exploration Manager and in which Mr. Hughes is a partner.
(9) Includes only those shares held by SASI Minerals Company. William
McManemin is an officer, director and shareholder of the Manager of SASI
Minerals Company and disclaims beneficial ownership of these shares.
Kelly Miller, David Miller, Daniel Miller and Sue Bell, who are the sons and
daughter of C.E. Miller, the Chairman of the Board and a director of the
Company, have advised the Company that they have included a portion of their
shares of Common Stock in the shares being sold in this Offering to pay income
taxes and to repay certain business loans to C.E. Miller.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, par value $0.01 per share, and 2,000,000 shares of Preferred
Stock, $0.01 par value per share, issuable in one or more series by the Board
of Directors of the Company. Upon consummation of the Combination Transaction
and the Offering, shares of Common Stock will be issued and outstanding
( shares if the Underwriters exercise their over-allotment option in
full), not including stock options for an aggregate of 711,500 shares of
Common Stock and 107,500 restricted shares of Common Stock that are expected
to be granted to directors, officers and certain employees of the Company in
connection with the Offering.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to the stockholders. The Certificate of
Incorporation of the Company does not allow the stockholders to take written
action without a meeting by less than unanimous consent. Each share of Common
Stock is entitled to
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participate equally in dividends, if, as and when declared by the Company's
Board of Directors, and in the distribution of assets in the event of
liquidation, subject in all cases to any prior rights of outstanding shares of
Preferred Stock. In addition, the Delaware Law limits the circumstances under
which the Company can pay dividends or make other distributions to its
stockholders. The Company has never paid cash dividends on its Common Stock.
The shares of Common Stock have no preemptive or conversion rights, redemption
rights or sinking fund provisions. The shares of Common Stock that will be
issued upon the consummation of the Combination Transaction and the Offering
will be duly authorized, validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors of the Company is authorized to issue, without
further stockholder approval, up to 2,000,000 shares of Preferred Stock from
time to time in one or more series and to fix such designations, powers,
preferences and relative voting, distribution, dividend, liquidation,
transfer, redemption, conversion and other rights, preferences,
qualifications, limitations or restrictions thereon. Any such Preferred Stock
could have priority over Common Stock as to dividends and as to the
distribution of the Company's assets upon any liquidation, dissolution or
winding up of the Company.
PROVISIONS AFFECTING CONTROL OF THE COMPANY
In addition to the control that will be vested in the existing stockholders
of the Company upon consummation of the Offering, the Company's Certificate of
Incorporation, Bylaws and other plans may affect control of the Company. See
"Risk Factors--Certain Antitakeover Considerations" and "--Control by Certain
Stockholders." The following provisions may have an antitakeover impact and
may make tender offers, proxy contests and certain mergers more difficult to
consummate.
Provisions Regarding the Board of Directors
Classified Board. The Company's Certificate of Incorporation classifies the
Company's Board of Directors into three classes serving staggered, three-year
terms. Classification of the Board of Director's could have the effect of
extending the time during which the existing Board of Directors could control
the operating policies of the Company even though opposed by the holders of a
majority of the outstanding shares of the Common Stock.
Nomination of Directors. Under the Company's Certificate of Incorporation,
all nominations for directors by stockholders are required to be delivered to
the Company in writing at least 120 days prior to the date of an annual
meeting of stockholders or, in the case of a special meeting of stockholders
at which a director or directors would be elected, at least seven days after
the date of notice of the special meeting. A nomination that is not received
prior to these deadlines would not be placed on the ballot. The Board of
Directors believes that advance notice of nominations by stockholders would
afford a meaningful opportunity to consider the qualifications of the proposed
nominees and, to the extent deemed necessary or desirable by the Board of
Directors, would provide an opportunity to inform stockholders about such
qualifications. Although this nomination procedure would not give the Board of
Directors any power to approve or disapprove stockholder nominations for the
election of directors, the nomination procedure could have the effect of
precluding a nomination for the election of directors at a particular meeting
if the proper procedures were not followed. The Board of Directors of the
Company has adopted a policy providing that directors are expected to
maintain, directly or indirectly, a minimum investment in the Company of
approximately $100,000.
Removal of Directors. Under the Delaware Law, a director of a corporation
generally may be removed, with or without cause, by the holders of a majority
of the shares entitled to vote at an election of directors. However, unless
the corporation's certificate of incorporation provides otherwise, if the
corporation's board of directors is classified, directors may be removed only
for cause. Also, in the case of a corporation having cumulative voting, if
less than the entire board is to be removed, no director may be removed
without cause if the votes cast against the director's removal would be
sufficient to elect the director if then cumulatively voted at an election of
the entire board of directors, or, if there are classes of directors, at any
election of the class of directors of which the director is a part. The
Company's Certificate of Incorporation provides that directors may be removed
only for cause. The Company's Certificate of Incorporation does not provide
for cumulative voting.
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Under the Company's Certificate of Incorporation, subject to the rights of
any series of Preferred Stock then outstanding, any director could be removed
from office, but only for cause, and only by stockholder action. Generally,
the vote for removal would require the affirmative vote of a majority of
shares entitled to vote at an election of directors. "Cause" for removal could
only be present in the circumstances specified in the Company's Certificate of
Incorporation. "Cause" is present when: (i) the director whose removal is
proposed has been convicted of a felony by a court of competent jurisdiction
and such conviction is no longer subject to direct appeal; (ii) the director
has been adjudicated by a court of competent jurisdiction to be liable for
negligence, or misconduct, in the performance of such person's duty to the
Company in a matter of substantial importance to the Company and such
adjudication is no longer subject to a direct appeal; (iii) the director has
become mentally incompetent, whether or not so adjudicated, which mental
incompetency directly affects such person's ability as a director of the
Company; or (iv) the director's actions or failure to act have been in
derogation of the director's duties, as provided in the Company's Bylaws or
otherwise provided by law. Any proposal for removal pursuant to clauses (iii)
or (iv) above that is initiated by the Board of Directors for submission to
the stockholders would require the affirmative vote of at least two-thirds of
the total number of directors then in office, excluding the director who is
the subject of the removal action and who shall not be entitled to vote
thereon.
Qualification of Directors. Under Article VIII of the Company's Certificate
of Incorporation, no person who has asserted or asserts any "Claim" (defined
below) against the Company or any subsidiary (a "Plaintiff"), and no person
who is or becomes associated or affiliated with any Plaintiff (a "Related
Person"), would be eligible to be elected or to serve as a director until the
Claim is "Finally Resolved" (defined below). A director who is validly
nominated and elected as a director and who thereafter becomes a Plaintiff or
Related Person would continue as a director for the remainder of the term for
which the director was elected or until the director's resignation or removal.
A director who is or becomes a Plaintiff or a Related Person would be required
to either (i) promptly take all steps necessary to cause the director to be
neither a Plaintiff nor Related Person or (ii) if the director cannot do so
and the Claim has not been Finally Resolved within the "Resolution Period"
(defined below), resign as a director, effective immediately, at or before the
end of such Resolution Period.
A "Claim" means any claim, cross-claim, counterclaim or third-party claim
pled in any action, suit or proceeding before any court, governmental agency
or instrumentality, arbitrator or similar body or authority. However, certain
claims are excluded, including: (i) one which, when aggregated with all other
claims asserted by the Plaintiff or any Related Person of such Plaintiff
against the Company or any subsidiary that have not been Finally Resolved,
could not, if decided adversely to the Company or a subsidiary, along with all
other aggregated claims, cross-claims, counterclaims and third-party claims,
result in liability in excess of 10% of the consolidated current assets of the
Company as of the most recent quarter or render the Company insolvent; (ii)
one arising pursuant to a contract between the Company and the pertinent
Plaintiff or Related Person that was approved by a majority of the Continuing
Directors (as defined below), including without limitation, claims arising
under any indemnity or employment contract; and (iii) claims asserted in the
right of the Company (i.e., derivative actions).
The term "Finally Resolved" means that a final order has been rendered with
respect to the Claim and all available appeals from such order have been
exhausted or the time for seeking such review has expired. The term
"Resolution Period" means the 30-day period beginning on the earlier of (i)
the date on which a director of the Company notifies the Board that the
director has become a Plaintiff or Related Person or (ii) the date on which
the Board determines that a director has become a Plaintiff or Related Person.
However, the Board could (but would not be required to) extend a Resolution
Period by up to 15 days if the director establishes to the Board's
satisfaction a reasonable likelihood that the Claim would be Finally Resolved
or such director would cease to be both a Plaintiff and a Related Person
during that extra 15-day period.
The Board of Directors of the Company would not nominate any person for
election as a director unless (i) the prospective nominee has provided the
Board of Directors with (x) all information necessary or appropriate to enable
the Board to determine whether the nominee is a Plaintiff or a Related Person
and (y) a signed statement that the prospective nominee is not aware of any
reason not disclosed to the Board of Directors why the prospective nominee
would or might be considered a Plaintiff or Related Person and (ii) after
receipt of the items the Board determines that the prospective nominee is not
a Plaintiff or Related Person.
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Any stockholder who is uncertain whether any person the stockholder desires
to nominate for election as a director is a Plaintiff or Related Person could
request a determination from the Board concerning that matter, upon delivering
to the Board of Directors certain information and other items and complying
with certain deadlines. Within 10 days after receiving a properly submitted
request (or, if it is impossible or impracticable to do so during such period,
as soon as practicable thereafter), the Board of Directors would be required
to consider the request and determine whether or not the candidate is a
Plaintiff or Related Person who could not be nominated for election to the
Board of Directors.
If a candidate who was the subject of a proper and timely submitted request
was determined not to be a Plaintiff or Related Person and the request was
submitted at least five days in advance of the last date on which the
requesting stockholder otherwise would have been entitled to give notice of
intent to nominate the candidate, then the Board of Director's determination
would operate as a waiver of the time limits otherwise applicable to the
giving of such notice of intent to the extent, if any, necessary to afford the
stockholder a period of five days after receipt of the Board of Director's
notice within which to give notice of intent to nominate the candidate.
If the Board of Directors determined that the candidate was a Plaintiff or
Related Person and the request was submitted at least five days in advance of
the last date on which the requesting stockholder otherwise would have been
entitled to give notice of intent to nominate, then the Board of Director's
determination would operate as a waiver of the time limits otherwise
applicable to the giving of notice of intent to nominate to the extent, if
any, necessary to afford the requesting stockholder a period of 15 days after
receipt of the Board of Director's notice within which to give notice of
intent to nominate another person in lieu of the ineligible candidate.
Whenever any stockholder was afforded an additional time period within which
to give notice of intention to nominate, the Board of Directors may afford the
other stockholders of the Company a comparable additional period of time
within which to give such notice.
While the Board of Directors believes that Article VIII of the Company's
Certificate of Incorporation ensures that directors and nominees for election
as directors will not have significant conflicts of interest with the Company,
Article VIII also may have the effect of making stockholder nominations of
director candidates more difficult.
Board Evaluation of Certain Offers
Article XI of the Company's Certificate of Incorporation provides that the
Board of Directors will not initiate, approve, adopt or recommend any offer of
any person or entity (other than the Company) to make a tender or exchange
offer for any Common Stock or Preferred Stock, to merge or consolidate the
Company with any other entity or to purchase or acquire all or substantially
all of the Company's assets, unless and until the Board of Directors of the
Company has evaluated the offer and determined that it would be in compliance
with all applicable laws and that the offer is in the best interests of the
Company and its stockholders. In doing so, the Board of Directors could rely
on an opinion of legal counsel who is independent from the offeror, and/or may
test the legality of the proposed offer before any court or agency that may
have appropriate jurisdiction over the matter.
In making its determination as to whether the transaction would be in the
best interests of the Company and its stockholders, the Board of Directors
would be required to consider all factors it deemed relevant, including but
not limited to: (i) the adequacy and fairness of the consideration to be
received by the Company and/or its stockholders, considering historical
trading prices of Common Stock, the price that could be achieved in a
negotiated sale of the Company as a whole, past offers to other corporations
and the future prospects of the Company; (ii) the possible social and economic
impact of the proposed transaction on the Company, its employees, customers
and suppliers; (iii) the potential social and economic impact of the proposed
transaction on the communities in which the Company and its subsidiaries
operate or are located; (iv) the business and financial condition and earnings
prospects of the offering party; (v) the competence, experience and integrity
of the offering party and its management; and (vi) the intentions of the
offering party regarding the use of the assets of the Company to finance the
transaction.
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Supermajority Vote Provisions
The Company's Certificate of Incorporation contains "supermajority" vote
requirements for certain business combinations. Article X of the Certificate
of Incorporation provides that, in addition to any vote required by law or
other provisions of the Certificate of Incorporation, the affirmative vote of
not less than 80% of the outstanding shares of "voting stock" (which is
defined as all shares of the Company stock that are entitled to vote generally
in the election of directors, voting as a single class) would be required for
the approval of certain "business combinations" between the Company or a
subsidiary and any "interested stockholder."
A "business combination" is generally defined for purposes of Article X as
including mergers, sales of all or substantially all of the assets of the
Company and certain other transactions. An "interested stockholder" is defined
as a person (other than the Company, its majority-owned subsidiaries or their
employee benefit plans), who, alone or together with affiliated persons,
beneficially owns 10% or more of the voting stock of the Company, as well as
certain other persons that are affiliated with an interested stockholder.
These requirements would not apply when the transaction was approved by a
majority of the "continuing directors," which are directors who are not
affiliated with an interested stockholder and who were either (i) elected to
the Board of Directors of the Company prior to the time that the interested
stockholder became an interested stockholder or (ii) designated, before their
initial election as directors, as continuing directors by a majority of the
then-continuing directors. The term excludes, however, certain persons who
became directors as a result of election contests within the meaning of Rule
14a-11 under the Securities Exchange Act of 1934, as amended, or other types
of proxy solicitations.
In addition, Article XII of the Certificate of Incorporation provides that,
in addition to any vote required by law or other provisions of the Certificate
of Incorporation, the affirmative vote of at least 80% of the shares held by
persons who are not interested stockholders (as defined in Article X) would be
required to approve business combinations (as defined in Article X) of the
Company or a majority owned subsidiary with any interested stockholder. This
requirement would not apply if (i) the business combination was approved by a
majority of the continuing directors (as defined in Article X) or (ii) certain
other detailed conditions are satisfied.
Restrictions on Amendments to Certificate of Incorporation and Bylaws of the
Company
Several provisions of the Company's Certificate of Incorporation require a
greater-than-majority vote to be amended. Specifically, Article XV(A) provides
that no amendment to the Certificate of Incorporation may alter, modify or
repeal any or all of the provisions of Article XII (supermajority vote/fair
price requirement for certain business combinations) or Article XV(A), unless
the amendment is adopted by the affirmative vote of not less than 80% of the
outstanding shares of voting stock held by stockholders who are not interested
stockholders.
Also, Article XV(B) of the Company's Certificate of Incorporation provides
that no amendment may alter, modify or repeal any or all of the provisions of
Articles VII (powers of the Board of Directors), VIII (Board of Directors
classification, nomination, qualification, etc.), X (supermajority vote
required for certain business combinations), XI (non-stockholder constituency
provision) or XIII (limitation of certain director liability), and the
stockholders would not have the right to alter, modify or repeal any or all
provisions of the Company's Bylaws, unless such amendment, alteration,
modification or repeal is adopted by the affirmative vote of the holders of
not less than 80% of the outstanding shares of voting stock. However, the
provisions of Article XV(B) would not apply to, and such 80% vote would not be
required for, any amendment, alteration, modification or repeal which has
first been approved by (i) the affirmative vote of 80% of the entire Board of
Directors, including the affirmative vote of at least one director of each
class of the Board of Directors and (ii) the affirmative vote of two-thirds of
the continuing directors.
Delaware Law Provisions
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware Law. Generally, Section 203 prohibits the Company from engaging in a
"business combination" (as defined in Section 203 of
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the Delaware Law) with an "interested stockholder" (defined generally as a
person owning 15% or more of the Company's outstanding voting stock) for three
years following the date that person becomes an interested stockholder, unless
(i) before that person became an interested stockholder, the Company's Board
of Directors either approved the transaction which resulted in the stockholder
becoming an interested stockholder or approved the business combination; (ii)
upon completion of the transaction that resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85% of
the voting stock outstanding at the time the transaction commenced (excluding
stock held by directors who are also officers of the Company and by employee
stock plans that do not provide employees with the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer); or (iii) following the transaction in which that
person became an interested stockholder, the business combination is approved
by the Company's Board of Directors and authorized at a meeting of
stockholders by the affirmative vote of the holders of at least two-thirds of
the outstanding voting stock not owned by the interested stockholder.
Section 203 restrictions also do not apply to certain business combinations
proposed prior to the consummation or abandonment of and subsequent to the
announcement or notification of one of certain extraordinary transactions
involving the Company and a person who was either not an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of the Company's Board of Directors. The
extraordinary transaction must be approved or not opposed by a majority of the
Board of Directors who were directors before any person became an interested
stockholder in the previous three years or who were recommended for election
or elected to succeed such directors by a majority of such directors then in
office.
REGISTRATION RIGHTS OF CERTAIN STOCKHOLDERS
The Company has agreed that upon consummation of the Combination Transaction
it will enter into a Registration Rights Agreement with the persons receiving
shares of Common Stock in such transaction. The Company expects approximately
6,930,000 shares of Common Stock to be issued in the Combination Transaction.
The actual number of shares of Common Stock issued to the participants in the
Combination Transaction will be determined on the basis of the initial public
offering price of the Common Stock. The Registration Rights Agreement will
provide these persons piggyback registration rights with respect to such
shares ("Registrable Securities"). As a result, in the event that the Company
proposes to register under the Securities Act any of its securities for its
own account, these stockholders, subject to certain exceptions, will have the
right to require the Company to include their Registrable Securities in the
registration.
In an underwritten offering, the Company may exclude a portion of the
Registrable Securities to be registered pursuant to the piggyback registration
rights on the written advice of the managing underwriter that marketing
factors require a limitation on the number of such shares to be included in
the offering. However, in no event may the value of the Registrable Securities
to be included in such registration be reduced to less than 10% of the total
value of securities included in the registration.
The Registration Rights Agreement contains customary indemnity by the
Company in favor of persons selling securities in a registration governed by
the Registration Rights Agreement, and by those persons in favor of the
Company and the underwriters, if any, relating to the information included in
or omitted from the applicable registration statement. The registration rights
will terminate as to any holder of Registrable Securities at the later of (i)
one year after the closing of the Offering or (ii) at such time as such holder
may sell under Rule 144 in a three-month period all Registrable Securities
then held by such holder.
Registration of shares under the Securities Act would result in such shares
becoming freely tradeable without restriction under the Securities Act (except
for shares purchased by affiliates of the Company) immediately upon the
effectiveness of such registration.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
68
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Combination Transaction and the Offering, the
Company will have shares of Common Stock outstanding (
shares if the Underwriters exercise their over-allotment option in full),
assuming that 6,930,000 shares are issued in the Combination Transaction. The
actual number of shares of Common Stock issued to the participants in the
Combination Transaction will be determined on the basis of the initial public
offering price of the Common Stock. Of the shares expected to be
outstanding, the shares of Common Stock offered hereby will be freely
transferable without restriction under the Securities Act unless they are held
by the Company's affiliates, as that term is used in Rule 144 under the
Securities Act. The Company issued the remaining outstanding shares of Common
Stock in reliance on exemptions from the registration requirements of the
Securities Act, and these shares are "restricted" securities under Rule 144.
These restricted shares may not be sold publicly unless they are registered
under the Securities Act, sold in compliance with Rule 144 or sold in a
transaction that is exempt from registration. The Company believes that the
earliest date on which these restricted shares will be eligible for sale under
Rule 144 is one year after the consummation of the Combination Transaction.
Therefore, no such shares will be eligible for immediate sale in the public
market without registration, and no shares will be eligible for sale under the
volume and other limitations of Rule 144 until the expiration of that one-year
period, at which time all of the shares of Common Stock currently outstanding
will become eligible for sale under Rule 144, based on current SEC rules and
subject to compliance with the volume limitations, manner of sale and other
requirements of Rule 144. Beginning two years after the consummation of the
Combination Transaction, all of those shares of Common Stock will become
eligible for sale under Rule 144(k) without regard to volume limitations,
manner of sale and other requirements of Rule 144, if they are not held by
affiliates of the Company. Shares of Common Stock received by the Selling
Stockholders in the Combination Transaction being offered hereby will not be
restricted securities under Rule 144.
In general, under Rule 144 a person (or persons whose sales are aggregated),
including an affiliate, who beneficially owns shares that have been
outstanding for at least one year is entitled to sell in broker transactions,
within any three-month period, a number of shares that does not exceed the
greater of (i) 1% of the then outstanding Common Stock (approximately
shares immediately after the Offering, assuming that 6,930,000
shares are issued in the Combination Transaction) or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks preceding
the sale, subject to the filing of a Form 144 with respect to the sale and
other limitations. In addition, except for affiliates and persons who acquired
shares from affiliates within the two preceding years, a person who
beneficially owns shares that have been outstanding for at least two years is
entitled to sell such shares under Rule 144(k) without regard to the manner-
of-sale, volume and other limitations of Rule 144. All shares of Common Stock,
other than those offered hereby, are subject to lock-up agreements with the
Underwriters for 180 days after the date of this Prospectus. See
"Underwriting."
Persons receiving shares of Common Stock in the Combination Transaction will
be entitled to certain piggyback registration rights with respect to such
shares under the Registration Rights Agreement. See "Description of Capital
Stock--Registration Rights of Certain Stockholders."
Prior to the Offering, there has been no public market for the securities of
the Company. No prediction can be made of the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial numbers
of shares by persons acquiring shares in the Combination Transaction or the
Offering could have a negative effect on the market price of the Common Stock.
69
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), through their representatives,
Bear, Stearns & Co. Inc., Raymond James & Associates, Inc. and Stephens Inc.
(the "Representatives"), severally have agreed to purchase from the Company
and the Selling Stockholders the aggregate number of shares of Common Stock
set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITER SHARES
----------- ------
<S> <C>
Bear, Stearns & Co. Inc...........................................
Raymond James & Associates, Inc...................................
Stephens Inc......................................................
-------
Total.........................................................
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
thereunder are subject to the approval of certain legal matters by their
counsel and to various other conditions. The nature of the obligations of the
Underwriters is such that they are committed to purchase all of the shares of
Common Stock offered hereby if any are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the public offering price set forth on the cover page of this
Prospectus, and at such price less a concession not in excess of $ per share
of Common Stock to certain other dealers who are members of the National
Association of Securities Dealers, Inc. The Underwriters may allow, and such
dealers may reallow, concessions not in excess of $ per share to certain
other dealers. After the Offering, the offering price, concessions and other
selling terms may be changed by the Underwriters. The Common Stock is offered
subject to receipt and acceptance by the Underwriters and to certain other
conditions, including the right to reject orders in whole or in part.
The Company and the Selling Stockholders have granted a 30-day over-
allotment option to the Underwriters to purchase up to an aggregate of
additional shares of Common Stock of the Company exercisable at the public
offering price less the underwriting discount. If the Underwriters exercise
such over-allotment option, then each of the Underwriters will be committed,
subject to certain conditions, to purchase such additional shares in
approximately the same proportion as set forth in the above table. All Common
Stock sold to the Underwriters upon exercise of their over-allotment option
will be sold by the Company and the Selling Stockholders. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of the shares of Common Stock offered hereby. The underwriting agreement
provides that the Company and the Selling Stockholders will indemnify the
Underwriters against certain liabilities under the Securities Act or will
contribute to payments that the Underwriters may be required to make in
respect thereof.
The Company's current stockholders holding an aggregate of shares of
Common Stock have agreed pursuant to lock-up agreements not to sell or offer
to sell or otherwise dispose of any shares of Common Stock currently held by
them, any right to acquire any shares of Common Stock or any securities
exercisable for or convertible into any shares of Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent
of Bear, Stearns & Co. Inc., other than as gifts or transfers by will or the
laws of descent and distribution, sales to the Company or pursuant to the
Underwriters' over-allotment option.
In addition, the Company has agreed that for a period of 180 days after the
date of this Prospectus it will not, without the prior written consent of
Bear, Stearns & Co. Inc., offer, sell or otherwise dispose of any shares of
Common Stock except for shares of Common Stock offered hereby, shares issued
and options granted pursuant to the 1997 Stock Option Plan and shares issued
or to be issued in acquisitions, if any.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial offering price for the Common Stock
will be determined by negotiations between the Company and the Representatives
of the Underwriters. Among the factors to be considered in such negotiations
are the results of
70
<PAGE>
operations of the Company in recent periods, estimates of the prospects of the
Company and the industry in which the Company competes, an assessment of the
Company's management, the general state of the securities markets at the time
of the offering and the prices of similar securities of generally comparable
companies. The Company has submitted an application for approval of its Common
Stock for quotation on the Nasdaq Stock Market's National Market under the
symbol "MEXP." There can be no assurance, however, that an active or orderly
trading market will develop for the Common Stock or that the Common Stock will
trade in the public markets subsequent to the offering at or above the initial
offering price.
In order to facilitate the offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock during and after the Offering. Specifically, the Underwriters may
over-allot or otherwise create a short position in the Common Stock for their
own account by selling more shares of Common Stock than have been sold to them
by the Company. The Underwriters may elect to cover any such short position by
purchasing shares of Common Stock in the open market or by exercising the
over-allotment option granted to the Underwriters. In addition, the
Underwriters may stabilize or maintain the price of the Common Stock by
bidding for or purchasing shares of Common Stock in the open market and may
impose penalty bids, under which selling concessions allowed to syndicate
members or other broker-dealers participating in the Offering are reclaimed if
shares of Common Stock previously distributed in the Offering are repurchased
in connection with stabilization transactions or otherwise. The effect of
these transactions may be to stabilize or maintain the market price of the
Common Stock at a level above that which might otherwise prevail in the open
market. The imposition of a penalty bid also may affect the price of the
Common Stock to the extent that it discourages resales thereof. No
representation is made as to the magnitude or effect of any such stabilization
or other transactions. Such transactions may be effected on the NASDAQ
National Market or otherwise and, if commenced, may be discontinued at any
time.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock being offered
hereby will be passed upon for the Company by Warner Norcross & Judd LLP,
Grand Rapids, Michigan. Certain legal matters will be passed upon for the
Underwriters by Vinson & Elkins L.L.P., Houston, Texas.
EXPERTS
The Combined Financial Statements as of December 31, 1995 and 1996 and for
each of the three years in the period ended December 31, 1996 and the
historical statement of revenues and direct operating expenses of the SASI
Minerals Company's Properties for the year ended December 31, 1996, all
included in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as stated in their reports with respect
thereto and are all included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said reports.
Summaries of the reserve reports of S.A. Holditch & Associates, independent
oil and gas consultants, with respect to the Company's Michigan oil and
natural gas reserves at December 31, 1996 and September 30, 1997, and of the
reserve reports of Miller and Lents, Ltd., independent oil and gas
consultants, with respect to the Company's non-Michigan oil and natural gas
reserves at December 31, 1996 and September 30, 1997, and certain information
with respect to the Company's oil and natural gas reserves derived from such
reports have been included in this Prospectus in reliance upon those firms as
experts with respect to the matters contained in those reports.
71
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the SEC a Registration Statement on Form S-1 (as
amended and together with all exhibits thereto, the "Registration Statement")
under the Securities Act, with respect to the shares of Common Stock offered
by this Prospectus. This Prospectus constitutes a part of the Registration
Statement and does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted from this
Prospectus as permitted by the rules and regulations of the SEC. Statements in
this Prospectus about the contents of any contract or other document are not
necessarily complete; reference is made in each instance to the copy of the
contract or other document filed as an exhibit to the Registration Statement.
Each such statement is qualified in all respects by such reference. The
Registration Statement and accompanying exhibits and schedules may by
inspected and copies may be obtained (at prescribed rates) at the public
reference facilities of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549. Copies of the Registration Statement also
may be inspected at the SEC's regional offices at 7 World Trade Center, Suite
1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. In addition, the Common Stock will
be listed on the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C.
20006-1500, where such material also may be inspected and copied.
As a result of the Offering, the Company will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
of 1934, as amended, and, in accordance therewith, will file periodic reports,
proxy statements and other information with the SEC. Such periodic reports,
proxy statements and other information will be available for inspection and
copying at the public reference facilities and regional offices referred to
above. In addition, these reports, proxy statements and other information also
may be obtained from the web site that the SEC maintains at
http://www.sec.gov.
The Company intends to furnish its stockholders annual reports containing
consolidated financial statements certified by its independent auditors and
quarterly reports for each of the first three quarters of each fiscal year
containing unaudited financial information.
72
<PAGE>
GLOSSARY OF CERTAIN OIL AND GAS TERMS
The following are abbreviations and definitions of certain terms commonly
used in the oil and gas industry and this Prospectus:
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used in
reference to oil or other liquid hydrocarbons.
Bbl/d. One stock tank barrel of oil or other liquid hydrocarbons per day.
Bcfe. One billion cubic feet of natural gas equivalent. In reference to
natural gas, natural gas equivalents are determined using the ratio of 6.0 Mcf
of natural gas to 1.0 Bbl of oil, condensate of natural gas liquids.
Completion. The installation of permanent equipment for the production of
oil or natural gas.
Developed Acreage. The number of acres which are allocated or assignable to
producing wells or wells capable of production.
Development Well. A well drilled within the proved area of an oil or natural
gas reservoir to the depth of a stratigraphic horizon known to be productive.
Drilling Costs. The costs associated with drilling and completing a well
(exclusive of seismic and land acquisition costs for that well and future
development costs associated with proved undeveloped reserves added by the
well) divided by total proved reserve additions.
Dry Well. A well found to be incapable of producing either oil or natural
gas in sufficient quantities to justify completion of an oil or natural gas
well.
Exploratory Well. A well drilled to find and produce oil or natural gas in
an unproved area, to find a new reservoir in a field previously found to be
productive of oil or natural gas in another reservoir or to extend a known
reservoir.
Farm-in or Farm-out. An agreement under which the owner of a working
interest in an oil and natural gas lease assigns the working interest or a
portion thereof to another party who desires to drill on the leased acreage.
The assignor usually retains a royalty or reversionary interest in the lease.
The interest received by an assignee is a "farm-in" while the interest in the
lease transferred by the assignor is a "farm-out."
Finding and Development Costs. Capital costs incurred in the acquisition,
exploration and development of proved oil and natural gas reserves divided by
proved reserve additions.
Gross Acres or Gross Wells. The total acres or wells, as the case may be, in
which the Company has a working interest.
MBbl. One thousand barrels of oil or other liquid hydrocarbons.
Mcf. One thousand cubic feet of natural gas.
Mcfe. One thousand cubic feet of natural gas equivalent.
MMcf. One million cubic feet of natural gas.
MMcf/d. One million cubic feet of natural gas per day.
MMcfe. One million cubic feet of natural gas equivalent.
MMcfe/d. One million cubic feet of natural gas equivalent per day.
Net Acres or Net Wells. Gross acres or wells multiplied, in each case, by
the percentage working interest owned by the Company.
73
<PAGE>
Net Production. Production that is owned by the Company less royalties and
production due others.
Oil. Crude oil or condensate.
Operating Income. Gross oil and natural gas revenue less applicable
production taxes and lease operating expenses.
Operator. The individual or company responsible for the exploration,
development and production of an oil or natural gas well or lease.
Present Value of Future Net Revenues or PV-10. The pretax present value of
estimated future revenues to be generated from the production of proved
reserves calculated in accordance with SEC guidelines, net of estimated
production and future development costs, using prices and costs as of the date
of estimation without future escalation, without giving effect to non-property
related expenses such as general and administrative expenses, debt service and
depreciation, depletion and amortization, and discounted using an annual
discount rate of 10%.
Proved Developed Reserves. Reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.
Proved Reserves. The estimated quantities of oil, natural gas and natural
gas liquids which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under
existing economic and operating conditions.
Proved Undeveloped Reserves. Reserves that are expected to be recovered from
new wells on undrilled acreage or from existing wells where a relatively major
expenditure is required for recompletion.
Royalty. An interest in an oil and natural gas lease that gives the owner of
the interest the right to receive a portion of the production from the leased
acreage (or of the proceeds of the sale thereof), but generally does not
require the owner to pay any portion of the costs of drilling or operating the
wells on the leased acreage. Royalties may be either landowner's royalties,
which are reserved by the owner of the leased acreage at the time the lease is
granted, or overriding royalties, which are usually reserved by an owner of
the leasehold in connection with a transfer to a subsequent owner.
Salt Dome. A generally dome-shaped intrusion into sedimentary rock that has
a mass of salt as its core. The impermeable nature of the salt structure may
act as a mechanism to trap hydrocarbons migrating through surrounding rock
formations.
Success Rate. The number of wells completed as a percentage of the number of
wells drilled.
2-D Seismic. The method by which a cross-section of the earth's subsurface
is created through the interpretation of reflecting seismic data collected
along a single source profile.
3-D Seismic. The method by which a three dimensional image of the earth's
subsurface is created through the interpretation of reflection seismic data
collected over a surface grid. 3-D seismic surveys allow for a more detailed
understanding of the subsurface than do conventional surveys and contribute
significantly to field appraisal, development and production.
Working Interest. An interest in an oil and natural gas lease that gives the
owner of the interest the right to drill for and produce oil and natural gas
on the leased acreage and requires the owner to pay a share of the costs of
drilling and production operations.
74
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMBINED FINANCIAL STATEMENTS OF MILLER EXPLORATION COMPANY AND AFFILIATED
ENTITIES
Report of Independent Public Accountants................................ F-2
Combined Balance Sheets as of December 31, 1995 and 1996, and September
30, 1997 (Unaudited)................................................... F-3
Combined Statements of Operations for the Years Ended December 31, 1994,
1995 and 1996 and for the Nine Months Ended September 30, 1996
(unaudited) and 1997 (unaudited)....................................... F-4
Combined Statements of Equity for the Years Ended December 31, 1994,
1995 and 1996 and for the Nine Months Ended September 30, 1997
(unaudited)............................................................ F-5
Combined Statements of Cash Flows for the Years Ended December 31, 1994,
1995 and 1996 and for the Nine Months Ended September 30, 1996
(unaudited) and 1997 (unaudited)....................................... F-6
Notes to Combined Financial Statements.................................. F-7
STATEMENTS OF THE SASI MINERALS COMPANY'S PROPERTIES:
Report of Independent Public Accountants................................ F-18
Historical Statements of Revenues and Direct Operating Expenses for the
Year Ended December 31, 1996 and for the Nine Months Ended September
30, 1996 (unaudited) and 1997 (unaudited).............................. F-19
Notes to Historical Statements of Revenues and Direct Operating
Expenses............................................................... F-20
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Miller Exploration Company:
We have audited the accompanying combined balance sheets of MILLER
EXPLORATION COMPANY (a Delaware corporation) and affiliated entities
identified in Note 1 (collectively, the "Company") as of December 31, 1995 and
1996, and the related combined statements of operations, equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Company as of
December 31, 1995 and 1996, and the combined results of their operations and
their cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Detroit, Michigan
October 10, 1997
F-2
<PAGE>
MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------ SEPTEMBER
1995 1996 30, 1997
----------- ----------- -----------
(UNAUDITED)
ASSETS
------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............. $ 179,823 $ 410,423 $ 106,771
Accounts receivable................... 1,235,923 2,245,606 2,252,581
Inventories........................... 55,419 47,347 47,347
Prepaid expenses...................... 56,356 65,970 36,059
Other current assets.................. 27,079 384,625 186,484
----------- ----------- -----------
Total current assets................ 1,554,600 3,153,971 2,629,242
----------- ----------- -----------
OIL AND GAS PROPERTIES--at cost (full
cost method):
Proved oil and gas properties......... 23,666,322 27,883,096 30,719,781
Unproved oil and gas properties....... 1,452,592 2,811,166 2,284,308
Less-Accumulated depreciation,
depletion and amortization........... (7,387,960) (9,962,378) (11,841,320)
----------- ----------- -----------
Net oil and gas properties.......... 17,730,954 20,731,884 21,162,769
----------- ----------- -----------
PROPERTY AND EQUIPMENT--NET............. 719,911 164,201 200,911
----------- ----------- -----------
Total assets........................ $20,005,465 $24,050,056 $23,992,922
=========== =========== ===========
<CAPTION>
LIABILITIES AND EQUITY
----------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Notes payable......................... $ 2,158,446 $ 3,942,661 $ 4,514,991
Current portion of long-term debt..... -- 215,710 238,235
Accounts payable...................... 815,579 890,727 742,914
Accounts payable--related parties..... 41,824 217,406 134,569
Oil and gas distributions payable..... 232,592 307,503 256,438
Accrued interest...................... 206,466 223,094 202,278
Other accrued expenses................ 79,517 38,851 5,867
----------- ----------- -----------
Total current liabilities........... 3,534,424 5,835,952 6,095,292
----------- ----------- -----------
LONG-TERM DEBT.......................... 7,643,000 8,722,952 8,185,927
DEFERRED REVENUE........................ 1,417,607 1,722,256 1,679,524
COMMITMENTS AND CONTINGENCIES (NOTE 7)
EQUITY:
Preferred stock, $0.01 par value;
2,000,000 shares authorized; none
outstanding.......................... -- -- --
Common stock, $0.01 par value;
20,000,000 shares authorized; none
outstanding.......................... -- -- --
Combined equity....................... 141,480 72,359 197,444
Retained earnings..................... 7,268,954 7,696,537 7,834,735
----------- ----------- -----------
Total equity........................ 7,410,434 7,768,896 8,032,179
----------- ----------- -----------
Total liabilities and equity........ $20,005,465 $24,050,056 $23,992,922
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-3
<PAGE>
MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ ----------------------
1994 1995 1996 1996 1997
---------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Natural gas........... $2,423,907 $ 2,747,650 $ 5,613,860 $3,718,518 $4,329,261
Crude oil and
condensate........... 672,332 715,420 1,100,472 854,238 709,689
Other operating
revenues............. 166,810 295,692 395,124 355,377 492,400
---------- ----------- ----------- ---------- ----------
Total operating
revenues........... 3,263,049 3,758,762 7,109,456 4,928,133 5,531,350
---------- ----------- ----------- ---------- ----------
OPERATING EXPENSES:
Lease operating
expenses and
production taxes..... 811,656 777,121 1,123,159 753,163 916,848
Depreciation,
depletion and
amortization......... 1,008,847 1,665,615 2,628,679 1,826,347 2,019,579
General and
administrative....... 1,199,889 1,270,062 1,591,093 1,001,362 1,334,583
---------- ----------- ----------- ---------- ----------
Total operating
expenses........... 3,020,392 3,712,798 5,342,931 3,580,872 4,271,010
---------- ----------- ----------- ---------- ----------
OPERATING INCOME........ 242,657 45,964 1,766,525 1,347,261 1,260,340
---------- ----------- ----------- ---------- ----------
INTEREST EXPENSE........ (810,056) (1,016,858) (1,138,912) (788,897) (922,142)
---------- ----------- ----------- ---------- ----------
LAWSUIT SETTLEMENT...... -- 3,520,557 -- -- --
---------- ----------- ----------- ---------- ----------
NET INCOME (LOSS)....... $ (567,399) $ 2,549,663 $ 627,613 $ 558,364 $ 338,198
========== =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-4
<PAGE>
MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES
COMBINED STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
COMBINED RETAINED TOTAL
EQUITY EARNINGS EQUITY
--------- ---------- ----------
<S> <C> <C> <C>
BALANCE--January 1, 1994 $ 300,732 $6,486,690 $6,787,422
Contributions and return of capital, net.. (23,524) -- (23,524)
Net loss.................................. -- (567,399) (567,399)
Dividends declared........................ -- (600,000) (600,000)
--------- ---------- ----------
BALANCE--December 31, 1994.................. 277,208 5,319,291 5,596,499
Contributions and return of capital, net.. (135,728) -- (135,728)
Net income................................ -- 2,549,663 2,549,663
Dividends declared........................ -- (600,000) (600,000)
--------- ---------- ----------
BALANCE--December 31, 1995.................. 141,480 7,268,954 7,410,434
Contributions and return of capital, net.. (69,121) -- (69,121)
Net income................................ -- 627,613 627,613
Dividends declared........................ -- (200,030) (200,030)
--------- ---------- ----------
BALANCE--December 31, 1996.................. 72,359 7,696,537 7,768,896
Contributions and return of capital, net
(unaudited).............................. 125,085 -- 125,085
Net income (unaudited).................... -- 338,198 338,198
Dividends declared (unaudited)............ -- (200,000) (200,000)
--------- ---------- ----------
BALANCE--September 30, 1997 (Unaudited)..... $ 197,444 $7,834,735 $8,032,179
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-5
<PAGE>
MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss).... $ (567,399) $2,549,663 $ 627,613 $ 558,364 $ 338,198
Adjustments to
reconcile net income
(loss) to net cash
from operating
activities--
Depreciation,
depletion and
amortization...... 1,008,847 1,665,615 2,628,679 1,826,347 2,019,579
Deferred revenue... -- (21,787) (27,008) (18,691) (42,732)
Lawsuit settlement. -- (3,520,557) -- -- --
Changes in assets
and liabilities--
Accounts
receivable...... 1,249,827 (199,978) (1,009,683) (495,442) (6,975)
Other current
assets.......... 325,245 65,535 (359,088) (309,862) 228,052
Accounts payable. (144,235) (60,318) 250,730 54,676 (230,650)
Oil and gas
distributions
payable......... (113,543) 20,507 74,911 65,030 (51,065)
Other accrued
expenses........ (38,728) 10,857 (24,038) 225,248 (53,800)
---------- ---------- ---------- ---------- ----------
Net cash flows
provided by
operating
activities.... 1,720,014 509,537 2,162,116 1,905,670 2,200,607
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Exploration and
development
expenditures........ (4,528,601) (6,323,294) (6,184,239) (4,613,868) (5,165,815)
Advance payment of
natural gas sales... -- 1,439,394 185,000 -- --
Proceeds from sale of
oil and gas
properties and
purchases of
equipment, net...... 3,378,514 1,212,893 1,256,997 782,420 2,678,641
Proceeds from lawsuit
settlement.......... -- 3,520,557 -- -- --
---------- ---------- ---------- ---------- ----------
Net cash flows
used in
investing
activities.... (1,150,087) (150,450) (4,742,242) (3,831,448) (2,487,174)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Payments of
principal........... -- -- (54,338) -- (514,500)
Net borrowing on
line-of-credit...... 229,090 359,356 2,784,215 1,859,800 572,330
Long-term debt
borrowing........... -- -- 350,000 -- --
Contributions and
return of capital,
net................. (23,524) (135,728) (69,121) 174,509 125,085
Payments of
dividends........... (600,000) (600,000) (200,030) (200,030) (200,000)
---------- ---------- ---------- ---------- ----------
Net cash flows
provided by
(used in)
financing
activities.... (394,434) (376,372) 2,810,726 1,834,279 (17,085)
---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS........... 175,493 (17,285) 230,600 (91,499) (303,652)
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF THE
PERIOD................ 21,615 197,108 179,823 179,823 410,423
---------- ---------- ---------- ---------- ----------
CASH AND CASH
EQUIVALENTS AT END OF
THE PERIOD............ $ 197,108 $ 179,823 $ 410,423 $ 88,324 $ 106,771
========== ========== ========== ========== ==========
SUPPLEMENTAL CASH FLOW
INFORMATION-- ........
Cash paid during the
period for--
Interest........... $ 769,118 $1,005,446 $1,122,284 $ 797,901 $ 942,958
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-6
<PAGE>
MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) ORGANIZATION, COMBINATION AND NATURE OF OPERATIONS
The Combination
Miller Exploration Company (Miller) was recently formed as a Delaware
corporation to serve as the surviving company upon the completion of a series
of combination transactions (the Combination). The Combination includes the
following transactions: Miller will acquire all of the outstanding capital
stock of Miller Oil Corporation (MOC) and certain oil and gas interests owned
by Miller & Miller, Inc., Double Diamond Enterprises, Inc., Frontier
Investments, Inc., Oak Shores Investments, Inc., Eagle Investments, Inc.
(d/b/a Victory, Inc.) and Eagle International, Inc. (all Michigan corporations
owned by the Miller family members who are beneficial owners of MOC) in
exchange for an aggregate consideration of approximately 5.3 million shares of
common stock of Miller (the Common Stock). Miller plans to complete the
Combination concurrently with the consummation of an initial public offering
of its Common Stock (see Note 15). The operations of all of these entities
have been managed through the same management team, and have been owned by the
same members of the Miller family.
Principles of Combination
The accompanying combined financial statements include the accounts of
Miller, MOC and the other affiliated entities described above, all of which
share common ownership and management (collectively, the Company). Upon
completion of the transactions described above, the combination will be
accounted for as a reorganization of entities under common control in a manner
similar to a pooling-of-interests, as prescribed by Securities and Exchange
Commission (SEC) Staff Accounting Bulletin No. 47 because of the high degree
of common ownership among, and the common control of, the combined entities.
Accordingly, the accompanying combined accounts have been prepared using the
historical costs and results of operations of the affiliated entities. There
were no differences in accounting methods or their application among the
combining entities.
Other Transactions Completed Concurrently With the Initial Public Offering
In addition to the above combined activities of the Company, concurrently
with the initial public offering, the Company will exchange an aggregate of
approximately 1.6 million shares of Common Stock for interests in certain
other oil and gas properties that are currently owned by non-affiliated
parties. Because these interests will be acquired from individuals who are not
under the common ownership and management of the Company, these exchanges will
be accounted for under the purchase method of accounting. Under that method,
the properties will be recorded at their estimated fair value at the date on
which the exchange is consummated. The combined financial statements do not
include the activities of these non-affiliated interests.
Nature of Operations
The Company is a domestic, independent energy company engaged in the
exploration, development and production of crude oil and natural gas. The
Company has established exploration efforts concentrated primarily in three
provinces: the Mississippi Salt Basin of central Mississippi; the onshore Gulf
Coast region of Texas and Louisiana; and the Michigan Basin.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Oil and Gas Properties
The Company follows the full cost method of accounting and capitalizes all
costs related to its exploration and development program, including the cost
of nonproductive drilling and surrendered acreage. Such capitalized costs
include lease acquisition, geological and geophysical work, delay rentals,
drilling, completing and equipping oil and gas wells, together with internal
costs directly attributable to property acquisition, exploration
F-7
<PAGE>
MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
and development activities. The capitalized costs are amortized on an overall
unit-of-production method based on total estimated proved oil and gas
reserves. Additionally, certain costs associated with major development
projects and all costs of unevaluated leases are excluded from the depletion
base until reserves associated with the projects are proved or until
impairment occurs.
To the extent that capitalized costs (net of accumulated depreciation,
depletion and amortization) exceed the sum of discounted estimated future net
cash flows from proved oil and gas reserves (using unescalated prices and
costs and a 10% per annum discount rate) and the lower of cost or market value
of unproved properties, such excess costs are charged against earnings. The
Company did not have any such charges against earnings during the years ended
December 31, 1994, 1995 or 1996 or during the nine months ended September 30,
1997.
Interim Financial Data (Unaudited)
The combined financial statements and related information as of and for the
nine months ended September 30, 1996 and 1997 included herein are unaudited
and, in the opinion of management, reflect all adjustments (consisting of only
recurring adjustments) necessary for a fair presentation of financial
position, results of operations and cash flows.
These unaudited combined financial statements should be read in conjunction
with the Company's combined financial statements as of and for the year ended
December 31, 1996. The results of operations for the nine months ended
September 30, 1996 and 1997 are not necessarily indicative of operating
results for a full year. Additionally, all other financial statement
information contained in the Notes to Combined Financial Statements, which
occurred subsequent to December 31, 1996, is unaudited.
Income Taxes
The Company and the combined affiliated entities have either elected to be
treated as S corporations under the Internal Revenue Code or are otherwise not
taxed as entities for federal income tax purposes. The taxable income or loss
is therefore allocated to the equity owners of the Company and the combined
affiliated entities. Accordingly, no provision was made for income taxes in
the accompanying combined financial statements.
Due to the use of different methods for tax and financial reporting purposes
in accounting for various transactions, including intangible drilling costs
and geological and geophysical costs, and for the sale of oil and gas
properties, the Company has temporary differences between its tax basis and
financial reporting basis. Had the Company been a taxpaying entity, a deferred
tax liability of approximately $5.9 million, $5.8 million and $5.5 million at
December 31, 1995 and 1996, and September 30, 1997, respectively, would have
been recorded for this difference, with a corresponding reduction in retained
earnings. Additionally, had the Company been a taxpaying entity, an income tax
provision (credit) of approximately $830,000, $45,000 and $(30,000) would have
been recorded for the years ended December 31, 1995 and 1996 and for the nine
months ended September 30, 1997, respectively.
Financial Instruments
The fair value of short-term financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses
approximate their carrying amounts in the financial statements due to the
short maturity of such instruments.
F-8
<PAGE>
MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The fair value of notes payable and long-term debt approximate their
carrying amounts in the financial statements as the individual borrowings bear
interest at floating market interest rates.
Revenue Recognition
Crude oil and natural gas revenues are recognized as production takes place
and the sale is completed and the risk of loss transfers to a third party
purchaser.
Inventories
Inventories consist of oil field casing utilized in the Company's
exploration activities. Inventories are valued at the lower of cost (first-in,
first-out method) or market.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of cash and U.S. Government
Securities with original maturities of three months or less.
Hedging Activities
Beginning in 1997, the Company began to periodically enter into hedging
arrangements to manage price risks related to crude oil and natural gas sales
and not for speculative purposes. The Company's hedging arrangements apply
only to a portion of its production, provide only partial price protection
against declines in crude oil and natural gas prices and limit potential gains
from future increases in prices. For financial reporting purposes, gains and
losses related to hedging are recognized as income when the hedged transaction
occurs. Historically, gains and losses from hedging activities have not been
material. During 1994, 1995 and 1996, the Company did not hedge any of its
crude oil or natural gas production. As of September 30, 1997, the Company had
the following volumes of open natural gas contracts:
<TABLE>
<CAPTION>
VOLUME
PRODUCTION PERIOD (MMCF) PRICE/MCF
----------------- ------ ---------
<S> <C> <C>
October 1997............................................. 51.0 $2.45
November 1997............................................ 44.3 2.90
December 1997............................................ 26.6 2.92
January 1998............................................. 8.9 2.98
February 1998............................................ 8.9 2.71
March 1998............................................... 8.9 2.48
</TABLE>
Net Income (Loss) Per Share
Net income (loss) per share has been omitted from the combined statements of
operations since such information is not meaningful and the historically
combined Company is not a separate legal entity with a singular capital
structure. Pro forma net income (loss) is presented elsewhere in the
Prospectus using the weighted average number of common shares outstanding
after giving effect to the Combination.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
F-9
<PAGE>
MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the
reporting periods. Accordingly, actual results could differ from these
estimates. Significant estimates include depreciation, depletion and
amortization of proved oil and natural gas properties. Oil and natural gas
reserve estimates, which are the basis for unit-of-production depletion and
the cost ceiling test are, inherently imprecise and are expected to change as
future information becomes available.
(3) ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following components:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Joint interest receivable......... $ 729,677 $1,002,996 $1,677,300
Oil and gas revenue receivable.... 495,693 1,226,980 575,110
Advance billings receivable....... 10,553 15,630 171
---------- ---------- ----------
Total accounts receivable..... $1,235,923 $2,245,606 $2,252,581
========== ========== ==========
</TABLE>
Joint interest receivable represents exploration, development and production
costs paid by the Company on behalf of joint owners in excess of amounts
collected from them. At December 31, 1995 and 1996, and September 30, 1997,
the joint interest receivable balance due from related parties total $362,508,
$655,263 and $713,482, respectively.
Oil and gas revenue receivable represents the Company's portion of revenue
attributable to production that was uncollected at year end.
Advance billings receivable represents the uncollected portion of amounts
billed by the Company to joint owners in advance of when the related well
costs have been incurred.
(4) PROPERTY AND EQUIPMENT - NET
Property and equipment - net consists primarily of office furniture,
equipment and computer software and hardware. Depreciation and amortization
are calculated using straight-line and accelerated methods over the estimated
useful lives of the related assets, which typically range from 5 to 20 years.
Depreciation expense for property and equipment totaled $36,081, $58,827,
$54,259 and $39,391 for the years ended December 31, 1994, 1995, 1996 and for
the nine months ended September 30, 1997, respectively.
(5) NET PRODUCTION PAYMENTS
During 1995, the Company transferred a limited-term working interest, based
on specified volumes, in certain natural gas producing properties to Miller
Shale Limited Partnership (MSLP), an affiliated entity. Under the terms of the
agreement, the Company will receive payments equal to 97% of the net profits
from MSLP, as defined in the agreement, arising from the production of those
properties.
The payments received by the Company are reflected on a gross basis in the
accompanying combined financial statements and the associated proved reserves
are also reflected in the accompanying supplemental oil and gas disclosures to
the combined financial statements.
During 1995 and 1996, the Company also received advance cash payments from
MSLP of $1,439,394 and $185,000, respectively. These proceeds have been
recorded as deferred revenue, which will be recognized in income as the
natural gas volumes under the agreement are delivered.
F-10
<PAGE>
MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The payments to be received by the Company, arising from this agreement, are
collateralized by a mortgage on the respective natural gas properties.
(6) NOTES PAYABLE AND LONG-TERM DEBT
At December 31, 1995, 1996 and September 30, 1997, the Company had a notes
payable balance of $2,158,446, $3,942,661 and $4,514,991, respectively, which
represent a borrowing against a $5,000,000 bank line-of-credit which bears
interest at the bank's prime rate. In October 1997, the Company extended this
line-of-credit until January 1998. In 1997, the Company also signed into
another $500,000 line-of-credit, which expires in January 1998 and bears
interest at the bank's prime rate plus one-quarter of 1%. These notes are
collateralized by the Company's reserved interest in the natural gas
properties discussed in Note 5.
During 1996, the Company also signed into a $1,000,000 term-loan payable to
a bank, with interest at the prime rate, maturing September 2000. This term-
loan requires quarterly payments of $24,477 and is collateralized by the
Company's reserved interest in the natural gas properties discussed in Note 5.
At December 31, 1996 and September 30, 1997, the balance of the term-loan was
$945,662 and $781,162, respectively.
The Company also has unsecured notes payable to stockholders, with interest
payable quarterly at 2% over the prime rate. The notes are due in October 2006
and are subordinate to the two notes payable and the term-loan. At December
31, 1995, 1996 and September 30, 1997, the balance of the notes payable to
stockholders were $7,643,000, $7,993,000 and $7,643,000, respectively. Minimum
principal payments on notes payable and long-term debt as of December 31, 1996
are as follows:
<TABLE>
<S> <C>
1997........................ $ 4,158,371
1998........................ 233,506
1999........................ 252,771
2000........................ 243,675
2001........................ --
Thereafter.................. 7,993,000
------------
$ 12,881,323
============
</TABLE>
(7) COMMITMENTS AND CONTINGENCIES
Leasing Arrangements
The Company leases its office building in Traverse City, Michigan from a
related party. The lease term is for five years beginning in 1996 and contains
an annual 4% escalation clause. The Company also leases office space in
Houston, Texas. Terms of the Houston lease agreement, which expires in
February 1998, provide for monthly rent of $1,663. In September 1997, the
Company signed into a new lease agreement in Houston for five additional
years.
Future minimum lease payments required of the Company for years ending
December 31, are as follows:
<TABLE>
<S> <C>
1997............................ $ 98,407
1998............................ 127,881
1999............................ 131,462
2000............................ 134,649
2001............................ 109,873
Thereafter...................... 62,366
--------
$664,638
========
</TABLE>
F-11
<PAGE>
MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Total net rent expense under these lease arrangements was $12,495, $18,009,
$59,735 and $72,894 for the years ended December 31, 1994, 1995 and 1996 and
for the nine months ended September 30, 1997, respectively.
Employee Benefit Plan
The Company has a qualified 401(k) savings plan (the Plan) covering
substantially all eligible employees. The Plan provides for discretionary
matching contributions by the Company. Contributions charged against
operations totaled $52,753, $38,714, $42,278 and $44,958 for the years ended
December 31, 1994, 1995 and 1996, and for the nine months ended September 30,
1997, respectively.
Tax Credit and Royalty Participation Programs
Various employees are eligible to participate in the Company's Tax Credit
and Royalty Participation Programs, which are designed to provide incentive
for certain key employees of the Company. Under the programs, the employees
will receive cash payments from the Company, based on overriding royalty
working interests, fees, reimbursements and other financial items. These
payments to the employees, which have been charged against operations, totaled
$257,301, $139,365, $116,236 and $100,113 for the years ended December 31,
1994, 1995 and 1996, and for the nine months ended September 30, 1997,
respectively. These programs will be terminated on or before the consummation
of the initial public offering (see Note 15).
Other
In the normal course of business, the Company may be a party to certain
lawsuits and administrative proceedings. Management cannot predict the
ultimate outcome of any pending or threatened litigation or of actual or
possible claims; however, management believes resulting liabilities, if any,
will not have a material adverse impact upon the Company's financial position
or results of operations.
(8) RELATED PARTY TRANSACTIONS
In July 1996, the Company sold the building it occupies to a related party
and subsequently leased a substantial portion of the building under the terms
of a five-year lease agreement (see Note 7). The Company realized a gain on
the sale of the property of approximately $160,000. This gain was deferred and
is being amortized in proportion to the gross rental charges under the
operating lease.
The Company provides technical and administrative services to a corporation
controlled by a related party. In connection with this arrangement $100,000,
$50,000, $100,000 and $150,000 were recognized as management fee income (See
Note 12) for the years ended December 31, 1994, 1995 and 1996 and for the nine
months ended September 30, 1997, respectively.
(9) LAWSUIT SETTLEMENT
In November 1995, the Company received $3,520,557 as its respective share of
an inverse condemnation lawsuit settlement which is reported in the 1995
combined statement of operations.
(10) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS TO
CREDIT RISK
Off-Balance Sheet Risk
The Company does not consider itself to have any material financial
instruments with off-balance sheet risks.
F-12
<PAGE>
MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to credit risk
include cash on deposit with one financial institution in which these deposits
exceed the Federally insured amount.
The Company extends credit to various companies in the oil and gas industry
in the normal course of business. Within this industry, certain concentrations
of credit risk exist. The Company, in its role as operator of co-owned
properties, assumes responsibility for payment to vendors for goods and
services related to joint operations and extends credit to co-owners of these
properties.
This concentration of credit risk may be similarly affected by changes in
economic or other conditions and may, accordingly, impact the Company's
overall credit risk. The Company periodically monitors its customers' and co-
owners' financial conditions.
(11) NON-CASH FINANCING ACTIVITIES
During 1996, the Company transferred $1,000,000 of its outstanding note
payable balance to a five-year term loan, as more fully discussed in Note 6.
This non-cash financing activity has been excluded from the combined statement
of cash flows.
(12) OTHER OPERATING REVENUES
The majority of the other operating revenues are reimbursements for general
and administrative activities that the Company performs on behalf of other
companies in the oil and gas industry. All other management fees that were
earned for exploration and development activities have been credited to oil
and gas property costs.
(13) SIGNIFICANT CUSTOMERS
Revenues from certain customers accounted for more than 10% of total crude
oil and natural gas sales as follows:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED FOR THE NINE
DECEMBER 31, MONTHS ENDED
---------------- SEPTEMBER 30,
1994 1995 1996 1997
---- ---- ---- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Amerada Hess Corporation................. 29% 44% 51% 41%
Muskegon Development Co. ................ 51% 37% 24% 25%
Dan A. Hughes Company ................... 4% 7% 19% 29%
</TABLE>
(14) NEW ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," and SFAS
No. 129, "Disclosure Information about Capital Structure," which are effective
for the Company's year-end 1997 financial statements. In 1997, the FASB also
issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," each of
which will require expanded disclosures effective for 1998. The Company does
not expect the application of these statements to have a material effect on
its financial position, liquidity or results of operations.
F-13
<PAGE>
MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(15) SUBSEQUENT EVENTS (UNAUDITED)
In November 1997, the Company filed a Registration Statement on Form S-1
with the SEC for an underwritten initial public offering of shares of common
stock.
(16) SUPPLEMENTAL FINANCIAL INFORMATION ON OIL AND GAS EXPLORATION,
DEVELOPMENT AND PRODUCTION ACTIVITIES (UNAUDITED)
The following information was prepared in accordance with the Supplemental
Disclosure Requirements of SFAS No. 69, "Disclosures About Oil and Gas
Producing Activities."
Users of this information should be aware that the process of estimating
quantities of "proved" and "proved developed" crude oil and natural gas
reserves is very complex, requiring significant subjective decisions in the
evaluation of all available geological, engineering and economic data for each
reservoir. The data for a given reservoir also may change substantially over
time as a result of numerous factors including, but not limited to, additional
development activity, evolving production history and continual reassessment
of the viability of production under varying economic conditions.
Consequently, material revisions to existing reserve estimates occur from time
to time. Although every reasonable effort is made to ensure that reserve
estimates reported represent the most accurate assessments possible, the
significance of the subjective decisions required and variances in available
data for various reservoirs make these estimates generally less precise than
other estimates presented in connection with financial statement disclosures.
Proved reserves represent estimated quantities of natural gas and crude oil
that geological and engineering data demonstrate, with reasonable certainty,
to be recoverable in future years from known reservoirs under economic and
operating conditions existing at the time the estimates were made.
Proved developed reserves are proved reserves expected to be recovered,
through wells and equipment in place and under operating methods being
utilized at the time the estimates were made.
The following estimates of proved reserves and future net cash flows as of
December 31, 1996 have been prepared by S.A. Holditch and Associates (as to
Michigan reserves) and Miller and Lents, Ltd. (as to non-Michigan reserves),
independent petroleum engineers. Estimates as of December 31, 1994 and 1995
have been prepared by the Company's petroleum engineers. All of the Company's
reserves are located in the United States.
F-14
<PAGE>
MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Estimated Quantities of Proved Oil and Gas Reserves
The following table sets forth the Company's net proved and proved developed
reserves at December 31 for each of the three years in the period ended
December 31, 1996, and the changes in the net proved reserves for each of the
three years in the period then ended as estimated by the Company's petroleum
engineers:
<TABLE>
<CAPTION>
TOTAL
--------------------
OIL
(BBL) GAS (MCF)
-------- ----------
<S> <C> <C>
Estimated Proved Reserves
December 31, 1993................................. 184,295 18,738,760
Revisions and other changes..................... (44,051) 916,558
Extensions and discoveries 90,963 4,013,200
Production (39,539) (1,228,436)
Sales of reserves............................... -- (3,982,000)
-------- ----------
December 31, 1994................................. 191,668 18,458,082
Revisions and other changes..................... (114,546) (7,491,183)
Extensions and discoveries...................... 101,995 6,134,382
Production...................................... (31,550) (1,323,972)
Sales of reserves............................... (12,587) (15,120)
-------- ----------
December 31, 1995................................. 134,980 15,762,189
Revisions and other changes..................... 40,301 2,054,011
Extensions and discoveries...................... 514,944 553,721
Purchase of reserves............................ -- 1,016,120
Production...................................... (46,514) (2,030,049)
-------- ----------
December 31, 1996................................. 643,711 17,355,992
======== ==========
Estimated Proved Developed Reserves
December 31, 1994................................. 111,404 15,173,123
======== ==========
December 31, 1995................................. 55,747 12,625,513
======== ==========
December 31, 1996................................. 121,018 15,221,205
======== ==========
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows Relating To Proved
Oil and Gas Reserves
The following information has been developed utilizing procedures prescribed
by SFAS No. 69 and based on crude oil and natural gas reserve and production
volumes estimated by the Company's petroleum engineers. It may be useful for
certain comparison purposes, but should not be solely relied upon in
evaluating the Company or its performance. Further, information contained in
the following table should not be considered as representative of realistic
assessments of future cash flows, nor should the Standardized Measure of
Discounted Future Net Cash Flows be viewed as representative of the current
value of the Company.
The future cash flows presented below are based on sales prices and cost
rates in existence as of the date of the projections. It is expected that
material revisions to some estimates of crude oil and natural gas reserves may
occur in the future, development and production of the reserves may occur in
periods other than those assumed and actual prices realized and costs incurred
may vary significantly from those used.
Management does not rely upon the following information in making investment
and operating decisions. Such decisions are based upon a wide range of
factors, including estimates of probable as well as proved reserves, and
varying price and cost assumptions considered more representative of a range
of possible economic conditions that may be anticipated.
F-15
<PAGE>
MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the Standardized Measure of Discounted Future
Net Cash Flows from projected production of the Company's crude oil and
natural gas reserves at December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Future revenues (a)............... $44,878,641 $56,791,948 $74,299,833
Future production costs (b)....... (19,266,315) (18,278,461) (21,325,631)
Future development costs (b)...... (387,064) (1,710,746) (4,347,721)
----------- ----------- -----------
Future net cash flows............. 25,225,262 36,802,741 48,626,481
Discount to present value at 10%
annual rate...................... (9,035,887) (14,448,768) (18,561,140)
----------- ----------- -----------
Standardized measure of discounted
future net cash flows (c)........ $16,189,375 $22,353,973 $30,065,341
=========== =========== ===========
</TABLE>
- --------
(a) Crude oil and natural gas revenues are based on year-end prices with
adjustments for changes reflected in existing contracts. There is no
consideration for future discoveries or risks associated with future
production of proved reserves.
(b) Based on economic conditions at year-end. Does not include administrative,
general or financing costs. Does not consider future changes in
development or production costs.
(c) Does not include income taxes as the Company is not currently subject to
federal income taxes.
Changes in Standardized Measure of Discounted Future Net Cash Flows
The following table sets forth the changes in the Standardized Measure of
Discounted Future Net Cash Flows at December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- ----------
<S> <C> <C> <C>
New discoveries.................... $ 4,427,252 $11,785,946 $6,317,599
Purchase of reserves............... -- -- 1,101,719
Sales of reserves in place......... (3,868,273) (126,561) --
Revisions to reserves.............. (683,730) (16,758,974) 7,886,770
Sales, net of production costs..... (2,284,583) (2,685,949) (5,591,173)
Changes in prices.................. (3,961,552) 27,250,655 (183,704)
Accretion of discount.............. (2,358,611) (1,618,937) (2,235,397)
Changes in timing of production and
other............................. 1,661,613 (11,681,582) 415,554
----------- ----------- ----------
Net change during the year......... $(7,067,884) $ 6,164,598 $7,711,368
=========== =========== ==========
</TABLE>
Capitalized Cost Related to Oil and Gas Producing Activities
The following table sets forth the capitalized costs relating to the
Company's natural gas and crude oil producing activities at December 31, 1995
and 1996:
<TABLE>
<CAPTION>
1995 1996
------------ -----------
<S> <C> <C>
Proved properties............................. $ 23,666,322 $27,883,096
Unproved properties........................... 1,452,592 2,811,166
------------ -----------
25,118,914 30,694,262
Less-- Accumulated depreciation, depletion and
amortization................................. (7,387,960) (9,962,378)
------------ -----------
$ 17,730,954 $20,731,884
============ ===========
</TABLE>
F-16
<PAGE>
MILLER EXPLORATION COMPANY AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Cost Incurred In Oil and Gas Producing Activities
The acquisition, exploration and development costs disclosed in the
following tables are in accordance with definitions in SFAS No. 19, "Financial
Accounting and Reporting by Oil and Gas Producing Companies."
Acquisition costs include costs incurred to purchase, lease or otherwise
acquire property.
Exploration costs include exploration expenses, additions to exploration
wells in progress and depreciation of support equipment used in exploration
activities.
Development costs include additions to production facilities and equipment,
additions to development wells in progress and related facilities and
depreciation of support equipment and related facilities used in development
activities.
The following table sets forth costs incurred related to the Company's oil
and gas activities for the years ended December 31:
<TABLE>
<CAPTION>
1994 1995 1996(A)
---------- ---------- ----------
<S> <C> <C> <C>
Property acquisition costs.............. $ 872,201 $1,123,468 $2,264,508
Exploration costs....................... 2,003,137 2,130,162 2,340,046
Development costs....................... 1,653,263 3,069,664 1,579,685
---------- ---------- ----------
Total................................. $4,528,601 $6,323,294 $6,184,239
========== ========== ==========
</TABLE>
- --------
(a) Includes $757,500 for the acquisition of proved producing properties.
Results Of Operations From Oil and Gas Producing Activities
The following table sets forth the Company's results of operations from oil
and gas producing activities for the years ended December 31, 1994, 1995 and
1996. The results of operations below do not include general and
administrative expenses, general taxes and interest expense.
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Operating Revenues--
Natural gas........................... $2,423,907 $2,747,650 $5,613,860
Crude oil and condensate.............. 672,332 715,420 1,100,472
---------- ---------- ----------
Total operating revenues............ 3,096,239 3,463,070 6,714,332
========== ========== ==========
Operating expenses--
Lease operating expenses and
production taxes..................... 811,656 777,121 1,123,159
Depreciation, depletion and
amortization......................... 1,008,847 1,665,615 2,628,679
---------- ---------- ----------
Total operating expenses............ 1,820,503 2,442,736 3,751,838
---------- ---------- ----------
Results of operations................... $1,275,736 $1,020,334 $2,962,494
========== ========== ==========
</TABLE>
F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Miller Exploration Company:
We have audited the accompanying historical statement of revenues and direct
operating expenses of the SASI Minerals Company's Properties (Historical
Summary) for the year ended December 31, 1996. The Historical Summary is the
responsibility of Miller Exploration Company's management. Our responsibility
is to express an opinion on the Historical Summary based on our audit.
We have conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Historical Summary is free of
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the Historical Summary. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation
of the Historical Summary. We believe that our audit provides a reasonable
basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of
complying with the Securities and Exchange Commission's rules for inclusion in
the Registration Statement on Form S-1 as described in Note 1 and is not
intended to be a complete presentation of the SASI Minerals Company's
Properties' revenues and expenses.
In our opinion, the Historical Summary presents fairly, in all material
respects, the revenues and direct operating expenses of the SASI Minerals
Company's Properties for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Detroit, Michigan
October 24, 1997
F-18
<PAGE>
SASI MINERALS COMPANY'S PROPERTIES
HISTORICAL STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, --------------------
1996 1996 1997
------------------ --------- ----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Natural gas.......................... $ 841,226 $ 495,734 $1,030,942
Crude oil and condensate............. 179,455 102,700 187,898
---------- --------- ----------
Total revenues......................... 1,020,681 598,434 1,218,840
DIRECT OPERATING EXPENSES:
Lease operating expenses and
severance taxes..................... 170,513 89,897 131,528
---------- --------- ----------
REVENUES IN EXCESS OF DIRECT OPERATING
EXPENSES.............................. $ 850,168 $ 508,537 $1,087,312
========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE>
SASI MINERALS COMPANY'S PROPERTIES
NOTES TO HISTORICAL STATEMENTS OF
REVENUES AND DIRECT OPERATING EXPENSES--(CONTINUED)
(1) BASIS OF PRESENTATION
The accompanying statements of revenues and direct operating expenses of the
natural gas and oil producing properties represent the interests in certain
producing properties which are currently owned by the SASI Minerals Company
(the Properties). The interests in these Properties are to be exchanged for
shares of common stock of Miller Exploration Company (the Company)
concurrently with the Company's initial public offering.
The accompanying statements of revenues and direct operating expenses for
the year ended December 31, 1996, and for the nine months ended September 30,
1996 and 1997 do not include general and administrative expenses, interest
income or expense, a provision for depreciation, depletion and amortization or
any provision for income taxes since historical expenses are not necessarily
indicative of the costs to be incurred by the Company. In addition, these
statements do not include any exploration or development expenses related to
the discovery and subsequent development of the Properties.
Historical financial information reflecting the financial position, results
of operations and cash flows of the Properties are not presented because the
entire acquisition cost will be assigned to the oil and gas property
interests. Accordingly, the historical statements of revenues and direct
operating expenses have been presented in lieu of the financial statements
required under Rule 3-05 and Staff Accounting Bulletin No. 80 of the
Securities and Exchange Commission Regulations S-X.
The statements of revenues and direct operating expenses and related
information for the nine months ended September 30, 1996 and 1997 included
herein are unaudited and, in the opinion of management, reflect all
adjustments (consisting of only recurring adjustments) necessary for a fair
presentation of the results of operations.
The results of operations for the nine months ended September 30, 1996 and
1997 are not necessarily indicative of operating results for a full year.
Additionally, all other financial statement information contained in these
Notes, which occurred subsequent to December 31, 1996, is unaudited.
(2) SUPPLEMENTAL FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
Estimated Quantities of Proved Oil and Gas Reserves (Unaudited)
Reserve information presented below is based on reports prepared by Miller
and Lents, Ltd., independent petroleum engineers for the Company, using prices
and costs in effect at December 31, 1996. Changes in reserve estimates were
derived by adjusting the December 31, 1996 quantities and values for (a)
historical production using historical prices and costs and (b) new discovery
information using prices and costs at December 31, 1996.
Proved reserves are estimated quantities of crude oil and natural gas which
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are those which are expected
to be recovered through existing wells with existing equipment and operating
methods. Below are the net quantities of proved reserves and proved developed
reserves for the Properties.
<TABLE>
<CAPTION>
OIL (BBLS) GAS (MCF)
---------- ---------
<S> <C> <C>
Proved reserves at January 1, 1996.................. 27,628 956,944
Extensions, discoveries and other additions......... 67,690 2,734,783
Production.......................................... (8,618) (410,127)
------ ---------
Proved reserves at December 31, 1996................ 86,700 3,281,600
====== =========
Proved developed reserves at December 31, 1996...... 59,000 3,139,700
====== =========
</TABLE>
F-20
<PAGE>
SASI MINERALS COMPANY'S PROPERTIES
NOTES TO HISTORICAL STATEMENTS OF REVENUES AND
DIRECT OPERATING EXPENSES--(CONTINUED)
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Oil and Gas Reserves (Unaudited)
The "Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Reserves" (Standardized Measure) is a disclosure
requirement under SFAS No. 69. The Standardized Measure does not purport to
present the fair market value of the proved oil and natural gas reserves. This
would require consideration of expected future economic and operating
conditions, which are not taken into account in calculating the Standardized
Measure.
Under the Standardized Measure, future cash inflows were estimated by
applying year-end prices, adjusted for fixed and determinable escalations, to
the estimated future production of year-end proved reserves. Future cash
inflows were reduced by estimated future production and development costs
based on year-end costs to determine pre-tax cash inflows. Future net cash
inflows were discounted using a 10% annual discount rate to arrive at the
Standardized Measure. The following Standardized Measure and changes in the
Standardized Measure are based on the reserve estimate done at December 31,
1996 on the basis of prices and costs at that date.
Set forth below is the Standardized Measure relating to proved oil and gas
reserves at December 31, 1996:
<TABLE>
<S> <C>
Future cash inflows......................................... $12,146,500
Future costs--
Future production and development costs................... (2,703,600)
-----------
Future net cash inflows..................................... 9,442,900
10% discount................................................ (2,664,700)
-----------
Standardized Measure of discounted future net cash flows
(a)........................................................ $ 6,778,200
===========
</TABLE>
- --------
(a) Does not include income taxes as the Company is not currently subject to
federal income taxes.
Changes in Standardized Measure of Discounted Future Net Cash Flows Relating
to Proved Oil and Gas Reserves (Unaudited)
The following is an analysis of the changes in the Standardized Measure
during 1996:
<TABLE>
<S> <C>
Standardized Measure--Beginning of year...................... $1,243,781
Increases (decreases)--
Sales, net of production costs............................. (850,168)
Discoveries and extensions, net of related future
development and production costs.......................... 6,508,965
Accretion of discount...................................... (124,378)
----------
Standardized Measure--End of year............................ $6,778,200
==========
</TABLE>
F-21
<PAGE>
[LETTERHEAD]
October 24, 1997
Miller Oil Corporation
3104 Logan Valley Road
Traverse City, MI 49685-0348
Attention: Mr. W.J. Baumgartner
Gentlemen:
At the request of Miller Oil Corporation (Miller), S.A. Holditch &
Associates, Inc. (Holditch) has prepared a reserve and economic evaluation of
certain oil and gas interests in nineteen Antrim Shale gas projects as of
September 30, 1997. The nineteen Antrim Shale projects evaluated are: Bass
Lake, Big Bass Lake, Caulkins Lake, Dover, East Heart Lake, Emerald Lake,
Gingell Lake, Heart Lake, Lower Chubb Lake, No Lake, Opal Lake, Perch Lake,
Round Lake, Shupac Lake, State Chester 31, Sturgeon River, Traverse Lake,
Viking Lake, and Mitchell Lake II. The results of this study are summarized in
the table below.
ESTIMATED NET RESERVES & INCOME
CERTAIN OIL AND GAS INTERESTS
EVALUATED FOR
MILLER OIL CORPORATION
AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PROVED
PRODUCING
REMAINING RESERVES RESERVES
------------------ ----------
<S> <C>
Gas--MMscf 8,761.580
INCOME DATA (M$)
Future Net Revenue 31,055.610
Deductions
Severance Tax 1,667.384
Operating Expense 11,425.430
Investment 36.090
Future Net Income 17,926.710
Discounted FNI @ 10% 9,066.293
</TABLE>
The working interests were evaluated with the Internal Revenue Service
Section 29 Unconventional Fuel Tax Credit (Section 29 Tax Credit) where
appropriate. The Section 29 Tax Credit was included in the economic analysis
as if it were actual revenue and income to the particular interest being
evaluated. We only show the actual tax credit which will be available to the
interests if the owners of the interests can use it. The actual tax
implications of the tax credit were not considered.
Section 29 Tax Credit was included for the gas used for lease fuel on all
projects except Mitchell Lake II. Miller gets 30% of the tax credit gas from
the sales gas volume and 50% of the tax credit gas from the lease fuel volume.
The lease fuel gas volume is included in the gross and net tax credit gas
volumes shown in the report.
A-1
<PAGE>
However, the lease fuel gas volume is not included in the gross and net gas
production volume shown in the report.
Section 29 Tax Credits are included where appropriate in the revenue and
income values shown above.
RESERVE ESTIMATES
Production data analysis methods were used to generate the performance of
the Antrim Shale wells included in this report. Gas and water production data
were evaluated for the nineteen Antrim Shale projects in Michigan. The primary
tool used in our analysis was SHALEGAS(TM), a three-dimensional, two-phase,
finite-difference reservoir simulation model developed by S.A. Holditch &
Associates, Inc. SHALEGAS(TM) was created specifically to study
unconventional, naturally fractured gas shales, such as the Antrim Shale in
the Michigan basin, the Eastern Devonian Shales in the Appalachian basin, and
the Barnett Shale in the Fort Worth basin.
Basic formation properties, such as relative permeability, desorption
isotherm, free gas porosity, and gas gravity, were used which Holditch had
previously developed through evaluation of historical production data in the
Michigan Antrim Shale play. Specific properties which were estimated for this
evaluation included initial pressure, calculated based on the depth of the
producing intervals; and net pay thickness, based on well log data; from wells
within the projects analyzed and nearby offset projects. Other estimated
average well properties, such as permeability, natural fracture spacing,
porosity, and initial free gas saturation, were based on an analysis of
production data from the projects.
The actual production forecast and reserves estimates were shrunk to account
for the removal of non-hydrocarbon gases, particularly CO/2/, from the well
stream. The gas volumes shown in the economics summaries are plant sales
volumes at 14.73 psi. The plant sales volumes have been shrunk for CO/2/
content. The produced volumes for all projects were shrunk for CO/2/ content
from their present CO/2/ content to a 28% CO/2/ content over the 30 year life
of the projected reserves. All gas production volumes presented on the
economic summaries are estimated plant sales volumes.
Reserve estimates are strictly technical judgments. The accuracy of any
reserve estimate is a function of the quality of data available and of
engineering and geological interpretations. The reserve estimates presented in
this report are believed reasonable; however, they are estimates only and
should be accepted with the understanding that reservoir performance
subsequent to the date of the estimate may justify their revision.
RESERVE CATEGORIES
Reserves were assigned to the proved producing reserve category. Oil and gas
reserves by definition fall into one of the following categories: proved,
probable, and possible. These categories are further divided into appropriate
reserve status categories: developed and undeveloped. The developed reserve
category is even further divided into the appropriate reserve status
subcategories: producing and nonproducing. Nonproducing reserves include shut-
in and behind-pipe reserves. The reserve categories used in this report
conform to the definitions approved by the Society of Petroleum Engineers,
Inc. Board of Directors, March 7, 1997. The definitions of proved, probable,
and possible reserves used in this report are presented in Exhibit No. 1.
Probable reserves are less certain to be recovered than proved reserves and
possible reserves are less certain to be recovered than probable reserves. The
reserves and income attributable to the various reserve categories included in
this report have not been adjusted to reflect the varying degrees of risk
associated with them and they are not comparable.
ECONOMIC TERMS
Net revenue (sales) is defined as the total proceeds from the sale of oil,
condensate, and gas before any deductions. Net revenue (sales) also includes
the Section 29 Tax Credit. The net Section 29 Tax Credit is also
A-2
<PAGE>
shown separately in the economic reports in Exhibit No. 2. Future net income
(cashflow) is future net revenue less net lease operating expenses and state
severance or production taxes. Future net income (cashflow) includes only those
deductions for general and administrative expenses charged by the operator to
each particular well on a monthly basis. No provisions for State or Federal
income taxes are made in this evaluation. The present worth (discounted
cashflow) at various discount rates is calculated monthly.
PRICES, EXPENSES, AND ESCALATION PARAMETERS
All oil and gas product prices, expenses, and escalation parameters used in
this report were supplied by Miller. Data from Miller were accepted as
presented. A summary of the price, expense, and escalation parameters used is
shown below. Additional details on the economic parameters are contained in
Exhibit No. 2.
Gas--A gas price of $3.39 per MMBtu was used. The gas prices were held
constant for the life of the project. Gas prices were not escalated.
Oil--No oil price was used since no oil reserves were assigned in this
report.
Section 29 Tax Credit--A $1.026 per MMBtu Section 29 Tax Credit was used.
The Section 29 Tax Credit was escalated 3% per year starting in 1997 until
January 1, 2003, when the tax credit is scheduled to expire.
Monthly Operating Costs--The initial monthly operating costs range from
$402 per well per month to $1,439 per well per month. Monthly operating
costs were held constant for the life of the project. Monthly operating
costs were not escalated.
Variable Operating Costs--The variable operating costs range from $0.105
to $0.977 per Mscf. The variable operating costs were held constant for the
entire life of the project. The variable operating costs were not
escalated. The variable operating costs are paid by the working interest
owners and are calculated using the shrunk gas volume.
Post Production Costs--The post production costs (PPC) net of the PPC
credit range from $-0.29 per Mscf to $0.38 per Mscf. The PPC were held
constant for the entire life of the project. The PPC were not escalated.
The post production costs net of the PPC credit are paid by the working
interest owners and are calculated using the shrunk gas volume.
Capital Costs--Capital costs were included in this report at the
estimated time of expenditure. Capital costs were held constant for the
life of the project. Capital costs were not escalated.
Severance Tax--The gas severance tax was adjusted for the variable
operating costs. The Gross Gas Revenue was reduced by the variable
operating costs before the 6% severance tax was applied.
OWNERSHIP
The leasehold interests were supplied by Miller and were accepted as
presented. No attempt was made by the undersigned to verify the title or
ownership of the interests evaluated.
GENERAL
All data used in this study were obtained from Miller, public industry
information sources, or the non-confidential files of Holditch. A field
inspection of the properties was not made in connection with the preparation of
this report.
The potential environmental liabilities attendant to ownership and/or
operation of the properties have not been addressed in this report. Abandonment
costs, clean-up costs, and possible salvage value of the equipment were not
considered in this report.
In evaluating the information at our disposal related to this report, we have
excluded from our consideration all matters which require a legal or accounting
interpretation or any interpretation other than those of an engineering or
geological nature. In assessing the conclusions expressed in this report
pertaining to all aspects of
A-3
<PAGE>
oil and gas evaluations, especially pertaining to reserve evaluations, there
are uncertainties inherent in the interpretation of engineering data, and such
conclusions represent only informed professional judgments.
Data and worksheets used in the preparation of this evaluation will be
maintained in our files in Pittsburgh and New Orleans and will be available
for inspection by anyone having proper authorization by Miller.
This report was prepared solely for the use of the party to whom it is
addressed and any disclosure made by said party of this report and/or the
contents thereof shall be solely the responsibility of said party, and shall
in no way constitute any representation of any kind whatsoever of the
undersigned with respect to the matters being addressed.
We appreciate the opportunity to serve you and are available should you need
further assistance in this matter.
Very truly yours,
S.A. Holditch & Associates, Inc.
/s/ W. Denton Copeland, P.E.
W. Denton Copeland, P.E.
Vice President
A-4
<PAGE>
EXHIBIT NO. 1
PETROLEUM RESERVES DEFINITIONS
SOCIETY OF PETROLEUM ENGINEERS (SPE)
AND
WORLD PETROLEUM CONGRESSES (WPC)
RESERVES
Reserves are those quantities of petroleum/1/ which are anticipated to be
commercially recovered from known accumulations from a given date forward. All
reserve estimates involve some degree of uncertainty. The uncertainty depends
chiefly on the amount of reliable geologic and engineering data available at
the time of the estimate and the interpretation of these data. The relative
degree of uncertainty may be conveyed by placing reserves into one of two
principal classifications, either proved or unproved. Unproved reserves are
less certain to be recovered than proved reserves and may be further sub-
classified as probable and possible reserves to denote progressively
increasing uncertainty in their recoverability.
The intent of the Society of Petroleum Engineers (SPE) and the World
Petroleum Congresses (WPC) in approving additional classifications beyond
proved reserves is to facilitate consistency among professionals using such
terms. In presenting these definitions, neither organization is recommending
public disclosure of reserves classified as unproved. Public disclosure of the
quantities classified as unproved reserves is left to the discretion of the
countries or companies involved.
Estimation of reserves is done under conditions of uncertainty. The method
of estimation is called deterministic if a single best estimate of reserves is
made based on known geological, engineering, and economic data. The method of
estimation is called probabilistic when the known geological, engineering, and
economic data are used to generate a range of estimates and their associated
probabilities. Identifying reserves as proved, probable, and possible has been
the most frequent classification method and gives an indication of the
probability of recovery. Because of potential differences in uncertainty,
caution should be exercised when aggregating reserves of different
classifications.
Reserves estimates will generally be revised as additional geologic or
engineering data becomes available or as economic conditions change. Reserves
do not include quantities of petroleum being held in inventory, and may be
reduced for usage or processing losses if required for financial reporting.
Reserves may be attributed to either natural energy or improved recovery
methods. Improved recovery methods include all methods for supplementing
natural energy or altering natural forces in the reservoir to increase
ultimate recovery. Examples of such methods are pressure maintenance, cycling,
waterflooding, thermal methods, chemical flooding, and the use of miscible and
immiscible displacement fluids. Other improved recovery methods may be
developed in the future as petroleum technology continues to evolve.
PROVED RESERVES
Proved reserves are those quantities of petroleum which, by analysis of
geological and engineering data, can be estimated with reasonable certainty to
be commercially recoverable, from a given date forward, from known reservoirs
and under current economic conditions, operating methods, and government
regulations. Proved reserves can be categorized as developed or undeveloped.
- --------
/1/ PETROLEUM: For the purpose of these definitions, the term petroleum refers
to naturally occurring liquids and gases which are predominately comprised
of hydrocarbon compounds. Petroleum may also contain non-hydrocarbon
compounds in which sulfur, oxygen, and/or nitrogen atoms are combined with
carbon and hydrogen. Common examples of non-hydrocarbons found in petroleum
are nitrogen, carbon dioxide, and hydrogen sulfide.
A-5
<PAGE>
If deterministic methods are used, the term reasonable certainty is intended
to express a high degree of confidence that the quantities will be recovered.
If probabilistic methods are used, there should be at least a 90% probability
that the quantities actually recovered will equal or exceed the estimate.
Establishment of current economic conditions should include relevant
historical petroleum prices and associated costs and may involve an averaging
period that is consistent with the purpose of the reserve estimate,
appropriate contract obligations, corporate procedures, and government
regulations involved in reporting these reserves.
In general, reserves are considered proved if the commercial producibility
of the reservoir is supported by actual production or formation tests. In this
context, the term proved refers to the actual quantities of petroleum reserves
and not just the productivity of the well or reservoir. In certain cases,
proved reserves may be assigned on the basis of well logs and/or core analysis
that indicate the subject reservoir is hydrocarbon bearing and is analogous to
reservoirs in the same area that are producing or have demonstrated the
ability to produce on formation tests.
The area of the reservoir considered as proved includes (1) the area
delineated by drilling and defined by fluid contacts, if any, and (2) the
undrilled portions of the reservoir that can reasonably be judged as
commercially productive on the basis of available geological and engineering
data. In the absence of data on fluid contacts, the lowest known occurrence of
hydrocarbons controls the proved limit unless otherwise indicated by
definitive geological, engineering or performance data.
Reserves may be classified as proved if facilities to process and transport
those reserves to market are operational at the time of the estimate or there
is a reasonable expectation that such facilities will be installed. Reserves
in undeveloped locations may be classified as proved undeveloped provided (1)
the locations are direct offsets to wells that have indicated commercial
production in the objective formation, (2) it is reasonably certain such
locations are within the known proved productive limits of the objective
formation, (3) the locations conform to existing well spacing regulations
where applicable, and (4) it is reasonably certain the locations will be
developed. Reserves from other locations are categorized as proved undeveloped
only where interpretations of geological and engineering data from wells
indicate with reasonable certainty that the objective formation is laterally
continuous and contains commercially recoverable petroleum at locations beyond
direct offsets.
Reserves which are to be produced through the application of established
improved recovery methods are included in the proved classification when (1)
successful testing by a pilot project or favorable response of an installed
program in the same or an analogous reservoir with similar rock and fluid
properties provides support for the analysis on which the project was based,
and, (2) it is reasonably certain that the project will proceed. Reserves to
be recovered by improved recovery methods that have yet to be established
through commercially successful applications are included in the proved
classification only (1) after a favorable production response from the subject
reservoir from either (a) a representative pilot or (b) an installed program
where the response provides support for the analysis on which the project is
based and (2) it is reasonably certain the project will proceed.
UNPROVED RESERVES
Unproved reserves are based on geologic and/or engineering data similar to
that used in estimates of proved reserves; but technical, contractual,
economic, or regulatory uncertainties preclude such reserves being classified
as proved. Unproved reserves may be further classified as probable reserves
and possible reserves.
Unproved reserves may be estimated assuming future economic conditions
different from those prevailing at the time of the estimate. The effect of
possible future improvements in economic conditions and technological
developments can be expressed by allocating appropriate quantities of reserves
to the probable and possible classifications.
A-6
<PAGE>
PROBABLE RESERVES
Probable reserves are those unproved reserves which analysis of geological
and engineering data suggests are more likely than not to be recoverable. In
this context, when probabilistic methods are used, there should be at least a
50% probability that the quantities actually recovered will equal or exceed
the sum of estimated proved plus probable reserves.
In general, probable reserves may include (1) reserves anticipated to be
proved by normal step-out drilling where sub-surface control is inadequate to
classify these reserves as proved, (2) reserves in formations that appear to
be productive based on well log characteristics but lack core data or
definitive tests and which are not analogous to producing or proved reservoirs
in the area, (3) incremental reserves attributable to infill drilling that
could have been classified as proved if closer statutory spacing had been
approved at the time of the estimate, (4) reserves attributable to improved
recovery methods that have been established by repeated commercially
successful applications when (a) a project or pilot is planned but not in
operation and (b) rock, fluid, and reservoir characteristics appear favorable
for commercial application, (5) reserves in an area of the formation that
appears to be separated from the proved area by faulting and the geologic
interpretation indicates the subject area is structurally higher than the
proved area, (6) reserves attributable to a future workover, treatment, re-
treatment, change of equipment, or other mechanical procedures, where such
procedure has not been proved successful in wells which exhibit similar
behavior in analogous reservoirs, and (7) incremental reserves in proved
reservoirs where an alternative interpretation of performance or volumetric
data indicates more reserves than can be classified as proved.
POSSIBLE RESERVES
Possible reserves are those unproved reserves which analysis of geological
and engineering data suggests are less likely to be recoverable than probable
reserves. In this context, when probabilistic methods are used, there should
be at least a 10% probability that the quantities actually recovered will
equal or exceed the sum of estimated proved plus probable plus possible
reserves.
In general, possible reserves may include (1) reserves which, based on
geological interpretations, could possibly exist beyond areas classified as
probable, (2) reserves in formations that appear to be petroleum bearing based
on log and core analysis but may not be productive at commercial rates, (3)
incremental reserves attributed to infill drilling that are subject to
technical uncertainty, (4) reserves attributed to improved recovery methods
when (a) a project or pilot is planned but not in operation and (b) rock,
fluid, and reservoir characteristics are such that a reasonable doubt exists
that the project will be commercial, and (5) reserves in an area of the
formation that appears to be separated from the proved area by faulting and
geological interpretation indicates the subject area is structurally lower
than the proved area.
RESERVE STATUS CATEGORIES
Reserve status categories define the development and producing status of
wells and reservoirs.
DEVELOPED: Developed reserves are expected to be recovered from existing
wells including reserves behind pipe. Improved recovery reserves are
considered developed only after the necessary equipment has been installed, or
when the costs to do so are relatively minor. Developed reserves may be
subcategorized as producing or non-producing.
PRODUCING: Reserves subcategorized as producing are expected to be
recovered from completion intervals which are open and producing at the
time of the estimate. Improved recovery reserves are considered producing
only after the improved recovery project is in operation.
NON-PRODUCING: Reserves subcategorized as non-producing include shut-in
and behind-pipe reserves. Shut-in reserves are expected to be recovered
from (1) completion intervals which are open at the time of the estimate
but which have not started producing, (2) wells which were shut-in for
market conditions or pipeline connections, or (3) wells not capable of
production for mechanical reasons. Behind-pipe reserves
A-7
<PAGE>
are expected to be recovered from zones in existing wells, which will
require additional completion work or future recompletion prior to the
start of production.
UNDEVELOPED RESERVES: Undeveloped reserves are expected to be recovered: (1)
from new wells on undrilled acreage, (2) from deepening existing wells to a
different reservoir, or (3) where a relatively large expenditure is required to
(a) recomplete an existing well or (b) install production or transportation
facilities for primary or improved recovery projects.
A-8
<PAGE>
EXHIBIT 2
ECONOMIC PARAMETERS
<TABLE>
<CAPTION>
POST
NUMBER OF PRODUCTION
WELLS COSTS NET
QUALIFIED INTERESTS FIXED OP VARIABLE OF PPC
FOR TAX VALID TO BTU COST OP COST CREDIT
PROJECT WELLS CREDIT WI% NRI% DATE FACTOR $/WELL/MO $/MCF $/MCF
------- ----- --------- --------- --------- --------- ------ --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bass Lake............... 20 20 10.00622% 8.53369% 01/1997 0.940 723 0.387 0.38
10.00622% 8.65006% Life
Big Bass Lake........... 10 10 4.85150% 3.83032% Life 0.950 1.024 0.310 0.38
Caulkins Lake........... 23 23 13.34163% 12.02963% 01/2001 1.028 707 0.105 0.31
13.34163% 12.07218% 01/2010
13.34163% 12.11474% Life
Dover................... 22 22 9.70300% 7.76240% Life 0.990 569 0.193 0.37
Emerald Lake............ 8 8 12.88680% 8.95632% 01/1998 0.899 430 0.219 0.35
12.88680% 9.53622% Life
Gingell Lake............ 13 13 25.38952% 22.80424% Life 0.987 577 0.361 0.33
Heart Lake.............. 17 17 10.10729% 7.33934% Life 0.949 630 0.977 0.32
Heart Lake E............ 21 21 7.95950% 5.68350% 01/2000 0.982 402 0.157 0.36
7.95950% 5.69052% Life
Lower Chubb Lake........ 19 19 16.00995% 13.32841% 01/2001 0.985 518 0.188 0.27
16.00995% 13.36536% Life
No Lake................. 36 36 1.81931% 1.34607% 01/1997 1.034 412 0.182 0.30
1.81931% 1.25788% 01/1998
1.81931% 1.34607% Life
Opal Lake............... 13 13 9.94125% 7.95485% Life 0.960 586 0.210 0.28
Perch Lake.............. 17 17 15.16094% 10.44290% 01/1997 1.067 1,210 0.213 0.30
15.16094% 9.77184% 01/2000
15.16094% 10.44290% 01/2007
15.16094% 11.11396% Life
Round Lake.............. 18 18 13.69539% 10.06338% 01/2002 1.044 563 0.184 0.29
13.69539% 10.51821% Life
Shupac Lake............. 10 10 15.16094% 11.37070% Life 1.062 587 0.596 0.12
State Chester 31........ 5 5 13.77826% 10.89259% Life 0.950 1,439 0.835 -0.29
Sturgeon River.......... 11 11 6.06438% 4.85150% Life 0.996 865 0.375 0.38
Traverse Lake........... 13 13 10.99168% 6.18282% Life 0.963 678 0.170 0.35
Viking Lake............. 13 13 12.88680% 9.31482% Life 0.978 467 0.220 0.31
Mitchell Lake II........ 19 0 14.43593% 11.41407% Life 1.066 720 0.200 0.08
</TABLE>
A-9
<PAGE>
APPENDIX B
[LETTERHEAD]
November 11, 1997
Mr. Doug Bell
Miller Oil Corporation
3104 Logan Valley Road
Traverse City, Michigan 49684
Re:Miller Oil Corporation
Proved Reserves and Future Net
Revenues
As of September 30, 1997
SEC Price Case
MOC2 Revised Interests
Dear Mr. Bell:
At your request, we estimated the proved oil, condensate, and natural gas
reserves and projected the future net revenue from these reserves attributable
to the net revised combined interests (MOC2) in the Miller Oil Corporation
properties as of September 30, 1997. The forecast of future net revenues is
based on constant prices and costs. The results of our evaluation are as
follows:
<TABLE>
<CAPTION>
NET RESERVES FUTURE NET REVENUE
-------------------- ---------------------------
OIL AND DISCOUNTED AT
CONDENSATE, GAS, UNDISCOUNTED, 10% PER YEAR,
RESERVE CATEGORY MBBLS. MMCF M$ M$
---------------- ----------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Proved Producing 197.2 7,669.1 23,282.4 17,889.2
Proved Nonproducing 34.3 1,267.1 2,676.2 1,352.1
Proved Undeveloped 596.1 2,529.6 13,895.9 9,899.7
----- -------- -------- --------
Total Proved 827.6 11,465.8 39,854.5 29,141.0
</TABLE>
Proved reserves and future net revenue were determined in accordance with
the definitions contained in the Securities and Exchange Commission Regulation
S-X, Rule 4-10(a) as shown in the Appendix.
Future net revenue is defined as the leasehold revenue attributable to the
evaluated working interests less operating expenses, royalties, overhead
charges, production and ad valorem taxes, and future capital expenditures. The
effects of depreciation, depletion, or Federal Income Tax are not considered.
For the forecast of future net revenue, the costs to abandon these properties
were assumed to be equal to the salvage values. Therefore, neither capital
costs to abandon nor salvage values for the production facilities or wells are
included in the projections. Future costs of restoration of all properties
evaluated herein to satisfy environmental standards are not deducted from the
estimates of future net revenue as such estimates are beyond the scope of this
assignment. Estimates of future net revenue and discounted future net revenue
are not intended and should not be construed to represent fair market value
for these properties.
Proved reserves were based on decline curve analysis, material balance
calculations, volumetric estimates, and analogous well performance. Reserve
estimates from volumetric estimates and from analogy comparisons are often
less certain than reserve estimates based on well performance obtained over a
period during which a substantial portion of the reserves was produced. No
provisions for the possible consequences of adjustments, if any, to projected
volumes and future net revenue for the purposes of production balancing are
included in this study.
B-1
<PAGE>
In conducting this evaluation, we relied upon production histories,
accounting and cost data, and other engineering and geological data supplied
by Miller Oil Corporation, various operators, and public information. We
relied upon representations by Miller Oil Corporation of the ownership
interests and have accepted them as presented with no independent verification
of their accuracy as such is not with the scope of this report.
The prices of the oil and condensate and natural gas for each property were
provided by Miller Oil Corporation and were represented as those prices
received for oil, condensate, and natural gas for September 1997. The gas
prices were represented to be net of gathering, transportation, and basis
adjustments. Adjustments to the gas price for Btu content were included in the
forecast of future net revenues. Both the oil and gas prices were projected to
remain constant for the life of each property.
Operating expenses and capital expenditures were based on information
provided by Miller Oil Corporation and were held constant for the life of the
property.
The evaluations presented in this report, with the exceptions of those
parameters specified by others, reflect our informed judgments based on
accepted standards of professional investigation but are subject to those
generally recognized uncertainties associated with interpretation of
geological, geophysical, and engineering information. Government policies and
market conditions different from those employed in this study may cause the
total quantity of oil or gas to be recovered, actual production rates, prices
received, or operating and capital costs to vary from those presented in this
report.
The details of this investigation are available in our office should you
require additional information. Please call us if you have questions
concerning this matter.
Very truly yours,
Miller and Lents, Ltd.
By /s/ Larry M. Gring
----------------------------------
Larry M. Gring
Senior Vice President
LMG/psh
Enclosures
B-2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UN-
DER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 11
Use of Proceeds........................................................... 19
Dividend Policy........................................................... 19
Dilution.................................................................. 20
Capitalization............................................................ 21
Selected Historical Combined Financial and Operating Data................. 22
Selected Unaudited Pro Forma Combined Financial Data...................... 24
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 28
Business and Properties................................................... 34
Management................................................................ 49
Certain Transactions...................................................... 59
Principal and Selling Stockholders........................................ 62
Description of Capital Stock.............................................. 63
Shares Eligible for Future Sale........................................... 69
Underwriting.............................................................. 70
Legal Matters............................................................. 71
Experts................................................................... 71
Available Information..................................................... 72
Glossary of Certain Oil and Natural Gas Terms............................. 73
Index to Financial Statements............................................. F-1
Engineers' Reports........................................................
Report of S.A. Holditch & Associates..................................... A-1
Report of Miller and Lents, Ltd.......................................... B-1
</TABLE>
----------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE SHARES OF THE COMMON STOCK, WHETHER OR NOT PAR-
TICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
[LOGO OF MILLER EXPLORATION COMPANY APPEARS HERE]
MILLER EXPLORATION
COMPANY
COMMON STOCK
----------------
PROSPECTUS
----------------
BEAR, STEARNS & CO. INC.
RAYMOND JAMES & ASSOCIATES, INC.
STEPHENS INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All the amounts shown are estimated
except the Securities and Exchange Commission (the "SEC") registration fee,
the National Association of Securities Dealers, Inc. (the "NASD") filing fee
and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC registration fee............................................. $15,682
NASD filing fee.................................................. 5,675
Nasdaq National Market listing application fee................... *
Printing and engraving expenses.................................. *
Legal fees and expenses.......................................... *
Accounting fees and expenses..................................... *
Engineering fees and expenses.................................... *
Miscellaneous.................................................... *
-------
Total........................................................ $ *
=======
</TABLE>
- --------
*To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "Delaware Law")
provides that a Delaware corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (a "proceeding") (other than an action by or in the right of
the corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. A Delaware corporation
may indemnify any person under such Section in connection with a proceeding by
or in the right of the corporation to procure judgment in its favor, as
provided in the preceding sentence, against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense
or settlement of such action, except that no indemnification shall be made in
respect thereof unless, and then only to the extent that, a court of competent
jurisdiction shall determine upon application that such person is fairly and
reasonably entitled to indemnity for such expenses as the court shall deem
proper. A Delaware corporation must indemnify a present or former director or
officer of a corporation who was successful on the merits or otherwise in
defense of any action, suit or proceeding or in defense of any claim, issue or
matter in any proceeding, by reason of the fact that he is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith. A Delaware
corporation may pay for the expenses (including attorneys' fees) incurred by
an officer or director in defending a proceeding in advance of the final
disposition upon receipt of an undertaking by or on behalf of such officer or
director to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the corporation.
Section 102(b)(7) of the Delaware Law permits a corporation to provide in
its certificate of incorporation that a director shall not be personally
liable to the corporation or its stockholders for monetary damages for a
breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to
II-1
<PAGE>
the corporation or its stockholders, (ii) for any acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) in respect of certain unlawful dividend payments or stock
redemptions or repurchases, or (iv) for any transaction from which the
director derived an improper personal benefit. Article XIII of the
Registrant's Certificate of Incorporation eliminates the liability of
directors to the fullest extent permitted by Section 102(b)(7) of the Delaware
Law. The Delaware Law permits the purchase of insurance on behalf of directors
and officers against any liability asserted against directors and officers and
incurred by such persons in such capacity, or arising out of their status as
such, whether or not the corporation would have the power to indemnify
directors and officers against such liability.
Before or immediately after the consummation of the Offering, the Registrant
intends to acquire officers' and directors' liability insurance for members of
its Board of Directors and executive officers. In addition, before or
immediately after the consummation of the Offering, the Registrant expects to
enter into agreements to indemnify its directors and officers. A form of such
indemnity agreement is filed as Exhibit 10.2 to this Registration Statement.
At present, there is no pending litigation or other proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought, nor is the Registrant aware of any threatened litigation that may
result in claims for indemnification by any officer or director.
Reference is made to the form of Underwriting Agreement, to be filed as
Exhibit 1.1 to this Registration Statement, that provides for indemnification
of the directors and officers signing this Registration Statement and certain
controlling persons of the Registrant against certain liabilities, including
those arising under the Securities Act, in certain instances by the
Underwriters.
Articles XIII and XIV of the Registrant's Certificate of Incorporation and
Article VI of the Registrant's Bylaws provide for indemnification of directors
and officers to the fullest extent permitted by Section 145 of the Delaware
Law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with its formation, on November 14, 1997 the Registrant issued
100 shares of Common Stock to Kelly E. Miller as sole trustee of the Kelly E.
Miller Trust. The Registrant issued such shares to Mr. Miller upon his payment
of $100 therefor in a transaction exempt under Section 4(2) of the Securities
Act. The Registrant entered into the Exchange and Combination Agreement
effective November 12, 1997 (the "Combination Agreement") with certain trusts
for the benefit of Mr. Miller and members of his family, with certain
affiliated oil and gas exploration companies, and with certain oil and gas
exploration companies that have been long-time partners and investors in MOC,
the Registrant's predecessor. Pursuant to the Combination Agreement, persons
owning shares of certain common stock and certain interests in oil and natural
gas properties (in which the Registrant's predecessor also has an interest)
have agreed to exchange such shares and interests for a number of shares of
Common Stock of the Registrant proportionate to the value of their ownership
interests in the assets being contributed calculated on the basis of the
initial public offering price of the Common Stock. The transaction
contemplated by the Combination Agreement is subject to the consummation of
the Offering and certain other conditions. A copy of the Combination Agreement
is attached to this Registration Statement as Exhibit 2.1.
No brokers or underwriters have been or will be involved in the issuance of
Common Stock in the transaction contemplated by the Combination Agreement. All
certificates for the shares of Common Stock so issued will bear restrictive
legends. In connection with the offering and sale described above, the
Registrant relied on Section 4(2) of the Securities Act and Rule 506 of
Regulation D thereunder for an exemption from the registration requirements of
the Securities Act. The Common Stock was offered only to "accredited
investors" (as defined in Regulation D) or to purchasers who, in the
reasonable belief of the Registrant, either alone or with his or her purchaser
representative, had such knowledge and experience in financial and business
matters that he or she was capable of evaluating the merits and risks of the
investment. Such shares were also offered and sold in reliance upon exemptions
from registration or qualification under certain state securities laws. Except
with
II-2
<PAGE>
respect to the stock to be sold by the Selling Stockholders pursuant to this
Registration Statement, the persons acquiring shares of Common Stock
represented in the Combination Agreement that they were purchasing such shares
for investment only and without a view towards resale.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement among the Registrant, the
Selling Stockholders and the Underwriters*
2.1 Exchange and Combination Agreement dated November 12,
1997
2.2(a) Letter Agreement amending Exchange and Combination
Agreement
2.2(b) Letter Agreement amending Exchange and Combination
Agreement
2.2(c) Letter Agreement amending Exchange and Combination
Agreement
3.1 Certificate of Incorporation of the Registrant
3.2 Bylaws of the Registrant
4.1 Certificate of Incorporation. See Exhibit 3.1.
4.2 Bylaws. See Exhibit 3.2.
4.3 Form of Specimen Stock Certificate*
5.1 Form of Opinion of Warner Norcross & Judd LLP (including
the consent of such firm) as to the validity of the se-
curities being offered. Executed opinion to be filed by
amendment.
10.1 Stock Option and Restricted Stock Plan of 1997**
10.2 Form of Director and Officer Indemnity Agreement
10.3 Form of Employment Agreement for Kelly E. Miller, Wil-
liam J. Baumgartner, Lew P. Murray and Charles A. Morri-
son**
10.4 Lease Agreement between Miller Oil Corporation and C.E.
and Betty Miller, dated July 24, 1996
10.5(a) Business Loan Agreement between First of America Bank-
Michigan and Miller Oil Corporation dated September 10,
1996
10.5(b)(i) Mortgage, Security Agreement and Assignment between
First of America Bank-Michigan and Miller Oil Corpora-
tion dated May 1, 1995*
10.5(b)(ii) Mortgage, Security Agreement and Assignment between
First of America Bank-Michigan and Miller Oil Corpora-
tion dated September 10, 1996
10.5(c) $5,000,000 Promissory Note of Miller Oil Corporation
payable to First of America Bank-Michigan dated Septem-
ber 10, 1996, with amendment
10.5(d) $1,000,000 Promissory Note of Miller Oil Corporation
payable to First of America Bank-Michigan dated Septem-
ber 10, 1996
10.5(e) $500,000 Promissory Note of Miller Oil Corporation pay-
able to First of America Bank-Michigan dated March 21,
1997, with amendment
10.5(f) Subordination Agreement among First of America Bank-
Michigan, Miller Oil Corporation, Kelly E. Miller, David
A. Miller, Daniel R. Miller and Sue Ellen Bell dated Oc-
tober 6, 1995*
10.6 Letter Agreement dated November 10, 1997, between Miller
Oil Corporation and C.E. Miller, regarding sale of cer-
tain assets
10.7 Amended Service Agreement dated January 1, 1997, between
Miller Oil Corporation and Eagle Investments, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ----------- ---
<C> <S> <C>
10.8 Form of Registration Rights Agreement (included as Exhibit
E to Exhibit 2.1)
10.9 Consulting Agreement dated June 1, 1996 between Miller Oil
Corporation and Frank M. Burke, Jr., with amendment
11.1 Computation of Earnings per Share
21.1 Subsidiaries of the Registrant
23.1 Consent of Warner Norcross & Judd LLP (included in Exhibit
5.1)
23.2 Consent of Arthur Andersen LLP
23.3 Consent of S.A. Holditch & Associates
23.4 Consent of Miller and Lents, Ltd.
23.5 Consents of Director Nominees
24.1 Limited Power of Attorney
27.1 Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
**Management contract or compensatory plan or arrangement.
(b) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are inapplicable or the requested
information is shown in the financial statements or related notes.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to provisions described in Item 14 above, or otherwise,
the Registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes: (i) that for purposes of determining any
liability under the Securities Act, the information omitted from the form of
prospectus filed as part of this Registration Statement in reliance upon Rule
430A and contained in the form of prospectus filed by the Registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared
effective; (ii) that for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof; and (iii) to
provide to the Underwriters at the closing specified in the Underwriting
Agreement, certificates in such denominations and registered in such names as
required by the Underwriters to permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Traverse
City, State of Michigan, on November 17, 1997.
Miller Exploration Company
(Registrant)
/s/ Kelly E. Miller
By___________________________________
Kelly E. Miller
President and Chief Executive
Officer
Date: November 17, 1997
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ C. E. Miller Chairman of the Board and November 17,
____________________________________ Director 1997
C. E. Miller
/s/ Kelly E. Miller President, Chief Executive November 17,
____________________________________ Officer and Director 1997
Kelly E. Miller (Principal Executive
Officer)
/s/ William J. Baumgartner Vice President-Finance, November 17,
____________________________________ Chief Financial Officer and 1997
William J. Baumgartner Director (Principal
Financial Officer)
</TABLE>
II-5
<PAGE>
EXHIBIT 2.1
EXCHANGE AND COMBINATION AGREEMENT
THIS AGREEMENT (this "Agreement") is made and entered into by and
between Miller Exploration Company, a Delaware corporation (the "Company"),
and the persons and entities identified below as the "Contributors" who
execute a counterpart of this Agreement, and, solely with respect to the
representations, warranties and agreements set forth in Section 4.3,
Section 5.1, Section 5.2, and Section 5.4 hereof, and with respect to
Article VIII hereof, Miller Oil Corporation, a Michigan corporation
("MOC"). The date of this Agreement shall be the date on which the Company
executes and delivers this Agreement, as evidenced next to its signature
herein.
RECITALS:
WHEREAS, the Company has been organized under the General Corporation
Law of Delaware (the "Delaware Act") for the purpose of combining certain
oil and gas properties and operations owned and/or conducted by the
Contributors or MOC, in connection with an underwritten public offering
(the "Public Offering") of shares of its Common Stock (the "Stock"),
pursuant to a registration statement to be prepared on Form S-1 (the
"Registration Statement") and filed with the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"1933 Act"), and related registrations pursuant to the laws of any other
jurisdictions within the United States ("Blue Sky Laws") that require such
registration;
WHEREAS, the Company is governed by the Delaware Act, by the Company's
Certificate of Incorporation which was filed with the Delaware Secretary of
State on the effective date hereof, and by the Company's Bylaws (the
"Organizational Documents");
WHEREAS, the Contributors own, or are the stockholders of MOC which
owns, working interests in the various oil and gas prospects/projects
identified on EXHIBIT A-1, which are individually described in more detail
on EXHIBIT A-3 through EXHIBIT A-112, respectively (the "Properties"), and
the percentage working interest of each Contributor and MOC as to each of
the Properties is set forth thereon under the Contributor's or MOC's name
and opposite the name of each of the Properties;
WHEREAS, the Contributors own, or are stockholders of MOC which owns
net revenue interests in the Properties, and the percentage net revenue
interests of each Contributor and MOC as to each of the Properties is set
forth on EXHIBIT A-2 under the Contributor's or MOC's name and opposite the
name of each of the Properties;
WHEREAS, Gilbert Brueckner, C&H Exploration, LLC, Ken Foote, L.H.
Hardy, Dennis LeJeune, O.O. Investments, Inc., Albert Stevens, Giorgio
<PAGE>
Vozza and Niblick Exploration, LLC (collectively, the "1994 JEP
Contributors") is each a party to that certain Miller Oil Corporation Joint
Exploration Program 1994 Participation Agreement dated as of May 23, 1994
(the "1994 JEP"), pursuant to which MOC has acquired, on behalf of the 1994
JEP Contributors, working and net revenue interests in certain of the
Properties, as identified on EXHIBIT A-1 and EXHIBIT A-2, respectively (the
"1994 JEP Interests");
WHEREAS, C&H Exploration, LLC, Ken Foote, Albert Stevens, and Niblick
Exploration, LLC (the "1995 JEP Contributors") is each a party to that
certain Miller Oil Corporation Joint Exploration Program 1995 Participation
Agreement dated as of May 18, 1995 (the "1995 JEP"), pursuant to which MOC
has acquired, on behalf of the 1995 JEP Contributors, working and net
revenue interests in certain of the Properties, as identified on EXHIBIT A-1
and EXHIBIT A-2, respectively (the "1995 JEP Interests");
WHEREAS, Eagle Investments, Inc., a Michigan corporation d/b/a
Victory, Inc. (the "Victory") owns undivided working and net revenue
interests in certain of the Properties, as identified on EXHIBIT A-1 and
EXHIBIT A-2, respectively (the "Victory Interests");
WHEREAS, Eagle International, Inc., a Michigan corporation ("Eagle")
owns undivided working and net revenue interests in certain of the
Properties, as identified on EXHIBIT A-1 and EXHIBIT A-2, respectively (the
"Eagle Interests");
WHEREAS, SASI Minerals Company, a Delaware corporation ("SASI") owns
undivided working and net revenue interests in certain of the Properties,
as identified on EXHIBIT A-1 and EXHIBIT A-2, respectively (the "SASI
Interests");
WHEREAS, Dan A. Hughes, Jr. ("Hughes") owns undivided working and net
revenue interests in certain of the Properties, as identified on EXHIBIT A-1
and EXHIBIT A-2, respectively, such amounts representing an undivided 10%
of his working and net revenue interests in such Properties (the "Hughes
Interests");
WHEREAS, Miller and Miller, Inc. ("Miller and Miller"), owns undivided
working and net revenue interests in certain of the Properties, as
identified on EXHIBIT A-1 and EXHIBIT A-2, respectively (the "Miller and
Miller Interests");
WHEREAS, Frontier Investments, Inc. ("Frontier"), owns undivided
working and net revenue interests in certain of the Properties, as
identified on EXHIBIT A-1 and EXHIBIT A-2, respectively (the "Frontier
Interests");
WHEREAS, Oak Shores Investment, Inc. ("Oak Shores"), owns undivided
working and net revenue interests in certain of the Properties, as
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<PAGE>
identified on EXHIBIT A-1 and EXHIBIT A-2, respectively (the "Oak Shore
Interests");
WHEREAS, Double Diamond Enterprises, Inc. ("Double Diamond"), owns
undivided working and net revenue interests in certain of the Properties,
as identified on EXHIBIT A-1 and EXHIBIT A-2, respectively (the "Double
Diamond Interests");
WHEREAS, Kelly E. Miller, as Trustee of the Kelly E. Miller Trust,
u/a/d April 29, 1986 (the "Kelly E. Miller Trust"), and Sue E. Bell, as
Trustee of the Sue E. Bell Trust, u/a/d February 7, 1989 (the "Sue E. Bell
Trust"), and David A. Miller, as Trustee of the David A. Miller Trust,
u/a/d July 14, 1989 (the "David A. Miller Trust"), and Daniel R. Miller, as
Trustee of the Daniel R. Miller Trust, u/a/d April 5, 1989 (the "Daniel R.
Miller Trust"), and C.E. Miller, as Trustee of the Kelly E. Miller Retained
Annuity Trust # 1, u/a/d November 3, 1997 (the "KEM Annuity Trust"), and
C.E. Miller, as Trustee of the Daniel R. Miller Retained Annuity Trust #1 ,
u/a/d November 3, 1997 (the "DRM Annuity Trust"), and C.E. Miller, as
Trustee of the Sue Ellen Bell Retained Annuity Trust # 1, u/a/d November 3,
1997 (the "SEB Annuity Trust"), and C.E. Miller, as Trustee of the David A.
Miller Retained Annuity Trust # 1, u/a/d November 7, 1997 (the "DAM Annuity
Trust") (collectively, the "MOC Contributors") together are the holders of
100%, of the issued and outstanding capital stock of MOC (the "MOC Stock"),
which owns undivided working and net revenue interests in certain of the
Properties, as identified on EXHIBIT A-1 and EXHIBIT A-2, respectively (the
"MOC Interests");
WHEREAS, the parties hereby intend to complete an exchange (the
"Exchange") whereby (i) the 1994 JEP Contributors, the 1995 JEP
Contributors, Victory, Eagle, SASI, Hughes, Miller and Miller, Frontier,
Oak Shores, and Double Diamond (collectively, the "Interest Contributors");
and (ii) the MOC Contributors (together with the Interest Contributors, the
"Contributors"), will exchange the above-described interests or stock, as
the case may be, owned by each of them (collectively, the "Contributed
Properties") for capital stock of the Company (the "Exchange Stock"), in a
transaction intended to qualify for tax-free treatment under Section 351 of
the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, the parties desire to set forth the terms and conditions of
the Exchange and to provide for certain obligations among the parties
following the Closing, and to enter into certain related transactions
described herein;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual acts and promises hereinafter set forth, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
-3-
<PAGE>
ARTICLE I
THE COMPANY; THE OFFERING
Section 1.1. The Company's Organizational Documents existing as of
the date of this Agreement have been delivered to all of the Contributors.
The parties hereto agree that the Company, acting through its Board of
Directors (the "Board"), shall have the right to make such amendments to
the Organizational Documents as may be necessary or desirable in the
judgment of the Board to effectuate the purposes of this Agreement and to
effectuate the Public Offering on terms and conditions acceptable to the
Board, provided, however, that the Exchange Stock shall be of the same
class of stock as that to be issued in the Public Offering.
Section 1.2. It is contemplated that in the Public Offering, the
Company will offer to the public for cash, through underwriters selected by
the Company (the "Underwriters"), shares of Stock on terms, including the
number of shares to be offered, the public offering price and any
over-allotment option, as shall be determined by the Board in its sole
discretion. All decisions of the Board shall be final and conclusive.
ARTICLE II
TRANSFER OF CONTRIBUTED PROPERTIES IN CONSIDERATION OF EXCHANGE STOCK
Section 2.1. SUBSCRIPTION AND PURCHASE. Subject to the terms and
conditions of this Agreement, each Contributor hereby subscribes for and
agrees to purchase its "Applicable Percentage" (as defined below) of the
Exchange Stock, at the time, on the terms and for the consideration set
forth in Section 2.2 below. The Applicable Percentage of Exchange Stock
attributable to each Contributor shall be the percentage set forth opposite
such Contributor's name on EXHIBIT B attached hereto. The total number of
Exchange Stock to be issued under this Agreement shall be determined by the
Board in consultation with the Underwriters, prior to Closing.
Section 2.2. TRANSFER OF CONTRIBUTED PROPERTIES FOR EXCHANGE STOCK.
Subject to satisfaction of the conditions to Closing set forth herein, in
consideration for the issuance by the Company of the Applicable Percentage
of Exchange Stock subscribed for pursuant to Section 2.1 hereof, and
effective as of 11:59 p.m., September 30, 1997 (the "Effective Time"):
a. Each 1994 JEP Contributor hereby assigns and transfers to the
Company all of his, her, or its right, title and interest in and
to the 1994 JEP Interests, and agrees to execute and deliver such
instruments of assignment and any other documents or instruments
of transfer deemed necessary by the Company to effectuate the
transfer.
b. Each 1995 JEP Contributor hereby assigns and transfers to the
Company all of his, her, or its right, title and interest in and
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<PAGE>
to the 1995 JEP Interests, and agrees to execute and deliver such
instruments of assignment and any other documents or instruments
of transfer deemed necessary by the Company to effectuate the
transfer.
c. Victory hereby assigns and transfers to the Company all of its
right, title and interest in and to the Victory Interests, and
agrees to execute and deliver such instruments of assignment and
any other documents or instruments of transfer deemed necessary
by the Company to effectuate the transfer.
d. Eagle hereby assigns and transfers to the Company all of its
right, title and interest in and to the Eagle Interests, and
agrees to execute and deliver such instruments of assignment and
any other documents or instruments of transfer deemed necessary
by the Company to effectuate the transfer.
e. SASI hereby assigns and transfers to the Company all of its
right, title and interest in and to the SASI Interests, and
agrees to execute and deliver to the Company, in recordable form,
instruments of assignment and any other documents or instruments
of transfer deemed necessary by the Company to effectuate the
transfer.
f. Hughes hereby assigns and transfers to the Company all of his
right, title and interest in and to the Hughes Interests, and
agrees to execute and deliver to the Company, in recordable form,
instruments of assignment and any other documents or instruments
of transfer deemed necessary by the Company to effectuate the
transfer.
g. Miller and Miller hereby assigns and transfers to the Company all
of its right, title and interest in and to the Miller and Miller
Interests, and agrees to execute and deliver to the Company, in
recordable form, instruments of assignment and any other
documents or instruments of transfer deemed necessary by the
Company to effectuate the transfer.
h. Frontier hereby assigns and transfers to the Company all of its
right, title and interest in and to the Frontier Interests, and
agrees to execute and deliver to the Company, in recordable form,
instruments of assignment and any other documents or instruments
of transfer deemed necessary by the Company to effectuate the
transfer.
i. Oak Shores hereby assigns and transfers to the Company all of its
right, title and interest in and to the Oak Shores Interests, and
agrees to execute and deliver to the Company, in recordable form,
instruments of assignment and any other documents or instruments
-5-
<PAGE>
of transfer deemed necessary by the Company to effectuate the
transfer.
j. Double Diamond hereby assigns and transfers to the Company all of
its right, title and interest in and to the Double Diamond
Interests, and agrees to execute and deliver to the Company, in
recordable form, instruments of assignment and any other
documents or instruments of transfer deemed necessary by the
Company to effectuate the transfer.
k. KEM Annuity Trust hereby assigns and transfers to the Company all
of the MOC Stock issued in its name, and shall execute and
deliver to the Company an Assignment Separate From Certificate in
substantially the form of that attached hereto as EXHIBIT C, and
shall deliver therewith the original certificates issued in its
name representing the MOC Stock, and any other documents or
instruments of transfer deemed necessary by the Company to
effectuate the transfer.
l. DRM Annuity Trust hereby assigns and transfers to the Company all
of the MOC Stock issued in its name, and shall execute and
deliver to the Company an Assignment Separate From Certificate in
substantially the form of that attached hereto as EXHIBIT C, and
shall deliver therewith the original certificates issued in its
name representing the MOC Stock, and any other documents or
instruments of transfer deemed necessary by the Company to
effectuate the transfer.
m. SEB Annuity Trust hereby assigns and transfers to the Company all
of the MOC Stock issued in its name, and shall execute and
deliver to the Company an Assignment Separate From Certificate in
substantially the form of that attached hereto as EXHIBIT C, and
shall deliver therewith the original certificates issued in its
name representing the MOC Stock, and any other documents or
instruments of transfer deemed necessary by the Company to
effectuate the transfer.
n. DAM Annuity Trust hereby assigns and transfers to the Company all
of the MOC Stock issued in its name, and shall execute and
deliver to the Company an Assignment Separate From Certificate in
substantially the form of that attached hereto as EXHIBIT C, and
shall deliver therewith the original certificates issued in its
name representing the MOC Stock, and any other documents or
instruments of transfer deemed necessary by the Company to
effectuate the transfer.
o. Kelly E. Miller Trust hereby assigns and transfers to the Company
all of the MOC Stock issued in its name, and shall execute and
deliver to the Company an Assignment Separate From Certificate in
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<PAGE>
substantially the form of that attached hereto as EXHIBIT C, and
shall deliver therewith the original certificates issued in its
name representing the MOC Stock, and any other documents or
instruments of transfer deemed necessary by the Company to
effectuate the transfer.
p. Sue E. Bell Trust hereby assigns and transfers to the Company all
of the MOC Stock issued in its name, and shall execute and
deliver to the Company an Assignment Separate From Certificate in
substantially the form of that attached hereto as EXHIBIT C, and
shall deliver therewith the original certificates issued in its
name representing the MOC Stock, and any other documents or
instruments of transfer deemed necessary by the Company to
effectuate the transfer.
q. David A. Miller Trust hereby assigns and transfers to the Company
all of the MOC Stock issued in its name, and shall execute and
deliver to the Company an Assignment Separate From Certificate in
substantially the form of that attached hereto as EXHIBIT C, and
shall deliver therewith the original certificates issued in its
name representing the MOC Stock, and any other documents or
instruments of transfer deemed necessary by the Company to
effectuate the transfer.
r. Daniel R. Miller Trust hereby assigns and transfers to the
Company all of the MOC Stock issued in its name, and shall
execute and deliver to the Company an Assignment Separate From
Certificate in substantially the form of that attached hereto as
EXHIBIT C, and shall deliver therewith the original certificates
issued in its name representing the MOC Stock, and any other
documents or instruments of transfer deemed necessary by the
Company to effectuate the transfer.
Section 2.3. ISSUANCE OF EXCHANGE STOCK FOR CONTRIBUTED PROPERTIES.
Upon satisfaction of the conditions to Closing set forth herein, and in
consideration for and upon completion of the transfers of the Contributed
Properties in accordance with Section 2.2 above, the Company agrees to
issue to each Contributor the Applicable Percentage of Exchange Stock
subscribed for by such Contributor pursuant to Section 2.1 hereof.
ARTICLE III
CLOSING; CONDITIONS TO CLOSING
Section 3.1. CLOSING. The transactions contemplated hereby shall be
consummated (the "Closing") immediately preceding the consummation of the
purchase of Stock by the Underwriters pursuant to the Underwriting
Agreement (as defined in Section 3.2 below). The Closing shall occur at
the same place and on the same date as, and immediately prior to, the
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<PAGE>
closing of the purchase of Stock contemplated by the Underwriting Agreement
(as defined in Section 3.2 below).
It is the intent of the parties hereto that the transfers of
Contributed Properties shall qualify as transfers to a controlled
corporation pursuant to Section 351 of the Code, and that immediately after
the transfers and the issuance of Stock pursuant to the Public Offering the
Contributors and the purchasers of such Stock, as a group, shall be in
control of the Company within the meaning of Section 351 and 368 of the
Code.
Section 3.2. CONDITIONS TO CLOSING.
(a) The obligations of each Contributor hereunder are subject to the
following conditions precedent: (i) the execution and delivery by the
Company and the Underwriters of a written, binding, firm commitment
underwriting agreement, that legally obligates the Underwriters to pay for
Stock on terms and at a price acceptable to the Board, which agreement
contains no conditions precedent to such payment except for the
consummation of the transactions contemplated herein and contains no
contingencies to such payment other than standard contingencies by which
the Underwriters, under exceptional circumstances, may be excused from
performing (the "Underwriting Agreement"); (ii) consummation of the
transactions contemplated hereby with respect to all, but not less than
all, of the other Contributors signatory hereto, (iii) all of the
representations and warranties of the Company and MOC made herein shall be
materially true and complete on the Closing Date as if made on such date;
and (iv) each of the other parties hereto shall have performed and complied
in all material respects with the covenants and agreements contained in
this Agreement that are required to be performed and complied with by them
at the time of or prior to the Closing. In addition, as a condition
subsequent to the obligations of each Contributor hereunder, the closing of
the purchase of Stock contemplated by the Underwriting Agreement (as
defined in Section 3.2 below), must occur promptly following the Closing.
(b) The obligations of the Company hereunder are subject to the
following conditions precedent: (i) all consents and approvals by, or
filings with, any governmental authority, agency or official, or any other
person required in connection with the execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated
hereby, and which are required to be obtained prior to closing, shall have
been received or made and shall be in full force and effect, (ii) the
consummation of the transactions contemplated hereby with respect to all,
but not less than all, of the Contributors signatory hereto, (iii) each
Contributor shall have completed, executed and delivered to the Company a
Purchaser Questionnaire, in the form acceptable to the Company, (iv) the
Board, in its sole discretion after consultation with its advisors, shall
have determined that the issuance of the Exchange Stock hereunder does not
require registration under the 1933 Act or any Blue Sky Laws, or if such
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<PAGE>
registration is required, that all actions necessary to register such
shares shall have been taken, (v) all of the representations and warranties
of the Contributors and MOC made herein shall be materially true and
complete on the Closing Date as if made on such date; and (vi) each of the
other parties hereto shall have performed and complied in all material
respects with the covenants and agreements contained in this Agreement that
are required to be performed and complied with by them at the time of or
prior to the Closing.
(c) To facilitate the Closing, prior to Closing Hughes, SASI, Miller
and Miller, Frontier, Oak Shores, and Double Diamond shall each execute a
recordable assignment of interests required to be delivered by it pursuant
to Section 2.2, and Kelly E. Miller Trust, Sue E. Bell Trust, David A.
Miller Trust, Daniel R. Miller Trust, KEM Annuity Trust, SEB Annuity Trust,
DRM Annuity Trust and DAM Annuity Trust shall each execute the Assignment
Separate From Certificate required to be delivered by it pursuant to
Section 2.2, and each Contributor and MOC shall execute a closing
certificate required to be delivered by it pursuant to Section 5.8, and,
prior to Closing, shall deposit them with Mika, Meyers, Beckett & Jones,
P.L.C., to be held by that firm pending the Closing. Upon satisfaction of
all of the conditions to Closing set forth herein, such firm is hereby
authorized to deliver those assignments to the Company on behalf of such
parties.
3.3. TERMINATION.
(a) This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing:
(i) By mutual consent of the Company and a number of Contributors to
whom, in the aggregate, are allocated in this Agreement at least
75% of the Exchange Stock issuable hereunder;
(ii) By the Company or any of the Contributors if the Closing does not
occur by February 14, 1997, unless the Closing has not occurred
because of the failure of the party seeking termination to
perform the agreements and covenants under this Agreement
required to be performed by such party on or prior to the
Closing;
(iii) By the Company or any of the Contributors if a court of
competent jurisdiction or governmental, regulatory or
administrative agency or commission shall have issued an
order or decree or ruling, or taken any other action, in
each case permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement;
or
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<PAGE>
(iv) By the Company if the Board, in consultation with the
Underwriters, determines that the Public Offering is not likely
to be consummated on acceptable terms, or at an acceptable
initial offering price.
(b) In the event of termination of this Agreement as provided in
Section 3.3(a) above, written notice of such termination shall be promptly
given to the other parties and this Agreement shall terminate without
further action. Following such action, this Agreement shall become
immediately null and void and have no effect, and no party hereto shall
have any liability to the other parties hereto by reason of any term or
provision contained herein, and Mika, Meyers, Beckett & Jones shall return
the assignments deposited in accordance with Section 3.2(c) to the parties
that deposited such assignments.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
Section 4.1. INVESTMENT AND TAX REPRESENTATIONS AND WARRANTIES OF
CONTRIBUTORS. Each Contributor as to itself and not to the others, hereby
represents, warrants and agrees, severally and not jointly, as follows:
(a) The Contributor (i) is acquiring the Exchange Stock being
issued to the Contributor hereunder for its own account for an indefinite
period and not with a view to, or for resale in connection with, any
distribution thereof, except pursuant to Article VII hereof; (ii)
understands and acknowledges that such Exchange Stock have not been
registered under the 1933 Act or any Blue Sky Laws by reason of certain
exemptions from the registration provisions thereof which depend upon,
among other things, the bona fide nature of such holder's investment intent
as expressed herein; (iii) is able to bear the economic risk of investment
in such Exchange Stock and is capable of evaluating the risks and merits of
that investment; and (iv) understands and acknowledges that the Exchange
Stock will be "restricted securities" as that term is defined in Rule 144
under the 1933 Act and that the certificate representing such Exchange
Stock will bear a legend stating that transfer is prohibited unless (A) the
transfer is exempt from the registration requirements under the 1933 Act
and any applicable state securities law and an opinion of counsel
reasonably satisfactory to the Company that such transfer is exempt
therefrom is delivered to the Company or (B) the transfer is made pursuant
to an effective registration statement under the 1933 Act and any
applicable state securities law.
(b) The Contributor acknowledges receipt of the Company's draft
Organizational Documents and its Private Placement Memorandum of even date
herewith relating to the Exchange, and has received all the information
considered necessary or appropriate by the Contributor for deciding whether
to acquire the Exchange Stock, including, without limitation, the
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<PAGE>
appendices to the Private Placement Memorandum and the Registration
Statement, the reserve report prepared by S.A. Holditch and Associates, as
of September 30, 1997, and the reserve report prepared by Miller & Lents,
Ltd, as of September 30, 1997. The Contributor has had an opportunity to
ask questions and receive answers from the Company regarding the terms and
conditions of the issuance of the Exchange Stock, the basis upon which the
Applicable Percentages have been determined, and the business, properties,
prospects and financial condition of the Company and to obtain additional
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to the Contributor or to which the
Contributor had access.
(c) The address set forth on the Contributor's signature page to
this Agreement is the Contributor's true and correct principal place of
business, and the Contributor has no present intention of becoming a
resident of, or maintaining its principal place of business in, any other
state or jurisdiction.
(d) In connection with the investment in the Exchange Stock, the
Contributor has had an opportunity to employ and consult with personnel who
are experienced in evaluating and investing in securities of companies
involved in oil and gas exploration and production activities and the
Contributor acknowledges that the Contributor is able to fend for itself,
can bear the economic risk of its investment, and has such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risks of the investment in the Exchange Stock.
(e) The Contributor (i) has adequate means of providing for the
current needs and possible contingencies of the Contributor, apart from any
income that the Contributor might earn from an investment in the Company;
and (ii) has no need for liquidity of the investment made by the
Contributor in the Company.
(f) Except with respect to the Registrable Securities of a
Selling Stockholder (as defined in Section 7.1), the Contributor has no
present intention to sell, exchange, gift or otherwise dispose of any of
the Exchange Stock received by the Contributor pursuant to this Agreement.
(g) The Contributor will not receive any Exchange Stock in
consideration for services rendered, or to be rendered, for the benefit of
the Company.
(h) The Contributor will not receive any Exchange Stock in
exchange for indebtedness of the Company or for interest on indebtedness of
the Company.
Section 4.2. OTHER REPRESENTATIONS AND WARRANTIES OF CONTRIBUTORS.
Each Contributor, as to itself and not to the others, hereby represents,
warrants and agrees, severally and not jointly, as follows:
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(a) The Contributor has all requisite power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. All proceedings and approvals necessary to authorize
the execution and delivery of this Agreement and consummation of the
transactions contemplated hereby have been completed or received. This
Agreement has been duly executed and delivered by the Contributor and,
assuming the due authorization, execution and delivery hereof by the other
parties hereto, constitutes a legal, valid and binding obligation of the
Contributor enforceable against the Contributor in accordance with its
terms, except as the enforceability hereof may be limited by (A)
bankruptcy, insolvency, reorganization, fraudulent conveyance or other laws
relating to or affecting the enforcement of creditors' rights or the
collection of debtors' obligations in general or by general equitable
principles, (B) laws relating to the availability of specific performance,
injunctive relief or other equitable remedies, and (C) to the extent the
indemnification provisions of this Agreement may be limited by applicable
federal or state law.
(b) To the knowledge of the Contributor, there is no action,
claim, or proceeding pending or threatened to which the Contributor is or
would be a party before any court or governmental authority acting in an
adjudicative capacity or any arbitrator or arbitration tribunal with
respect to which there is a reasonable likelihood of a determination
having, or which, insofar as reasonably can be foreseen, in the future
would have a material adverse effect on the interests being transferred to
the Company hereby by the Contributor.
(c) The Contributor is not subject to any outstanding order,
writ, injunction or decree having, or which, insofar as reasonably can be
foreseen, in the future would have a material adverse effect on the
interests being transferred to the Company hereby by the Contributor.
(d) As to Interest Contributors only, to the knowledge of the
Contributor, the Contributor owns all of the right, title and interest in
and to the working and net revenue interests described as owned by the
Contributor in the Recitals hereto. The Contributor has not sold,
assigned, pledged, encumbered, or otherwise transferred such interests, and
such interests are free and clear of all liens, encumbrances and defects
(collectively, "Liens"), except for the following ("Permitted
Encumbrances"):
(i) burdens, encumbrances and obligations taken into account in
computing the working interest and net revenue interest of the
Contributor in Exhibits A-1 and A-2;
(ii) all rights to consent by, required notices to, filings with, or other
actions by governmental entities in connection with the sale or
conveyance by such Contributor of the Contributed Properties if the same
are customarily obtained subsequent to such sale or conveyance;
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(iii) rights of reassignment upon surrender of the Contributed
Properties held by such Contributor's predecessors in
interest;
(iv) rights and regulatory powers reserved to or vested in any
municipality or governmental, statutory or public authority;
(v) liens for taxes, fees, claims, charges, assessments, government
charges or levies not yet due, or which are being contested in
good faith and by appropriate proceedings; and
(vi) mechanics', materialmen's, operators' or other like liens arising
in the ordinary course of business which are not yet due, or
which are being contested in good faith and by appropriate
proceedings and for which there is no material risk of forfeiture
or loss of any of the Contributed Properties.
(e) As to the MOC Contributors only, such Contributor owns all
of the right, title and interest in and to the capital stock described as
owned by the Contributor in the Recitals hereto, free and clear of all
Liens, except Liens that will be released and discharged prior to Closing.
(f) To the knowledge of the Contributor, the condition and
operation of the interests described as owned by the Contributor in the
Recitals hereto, do not violate any federal, state, local or other laws or
regulations or any order or requirement of any court or governmental agency
or authority in any material respect, including without limitation, those
laws, regulations, orders or requirements relating to environment or
health. To the knowledge of the Contributor, such operations are not
subject to any existing, pending or, threatened action, suit,
investigation, inquiry or proceeding by or before any court or governmental
agency or authority under any federal, state or local environmental law,
rule or regulation, except in each case for any matter that would not have
a material adverse effect on the interests being transferred to the Company
hereby by the Contributor.
(g) The execution, delivery and performance of this Agreement by
the Contributor and the consummation of the transactions contemplated
hereby by the Contributor will not conflict with or result in a breach of
any of the terms and provisions of, or constitute a default (or an event
which with notice or lapse of time, or both, would constitute a default) or
require consent under the terms of any agreement, instrument, franchise,
license or permit to which the Contributor is a party or, to the
Contributor's knowledge, by which the Contributor may be bound, except for
(A) consents that may be required from third parties to the assignment of
the interests being transferred by such Contributor hereby, (B) approvals
that may be required to be obtained from governmental entities who are
lessors under leases forming a part of the Contributed Properties (or who
administer such leases on behalf of such lessors) and which are customarily
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obtained subsequent to sale or conveyance (the "Post-Closing Governmental
Consents"), and (C) waivers of requirements under applicable operating or
other agreements relating to maintaining uniform interests.
(h) The execution, delivery and performance of this Agreement by
the Contributor and the consummation of the transactions contemplated
hereby by the Contributor will not violate or conflict with any provision
of the charter or organizing documents of the Contributor, if any, or, to
the Contributor's knowledge, any judgment, decree, order, statute, rule or
regulation of any court or any public, governmental or regulatory agency or
body having jurisdiction over the Contributor. To the Contributor's
knowledge, no consent, approval, authorization, order, registration,
filing, qualification, license or permit of or with any court or any
public, governmental or regulator agency or body having jurisdiction over
the Contributor is required for the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated
hereby, except such as have been obtained or will be obtained by the
Contributor prior to Closing, and except for Post-Closing Governmental
Consents, if any. Contributor has no reason to believe that such Post-Closing
Governmental Consents will not be delivered in a timely manner
following the Closing.
(i) As to Interest Contributors only, to the knowledge of the
Contributor, there are no gas imbalances existing with respect to the
interests described as owned by the Contributor in the Recitals hereto.
Section 4.3. REPRESENTATIONS AND WARRANTIES OF MOC. MOC hereby
represents, warrants and agrees as follows:
(a) It has all requisite power and authority to execute and
deliver this Agreement. All proceedings and approvals necessary to
authorize the execution and delivery of this Agreement by it have been
completed or received. This Agreement has been duly executed and delivered
by it and, assuming the due authorization, execution and delivery hereof by
the other parties hereto, constitutes a legal, valid and binding obligation
of it enforceable against it in accordance with its terms, except as the
enforceability hereof may be limited by (A) bankruptcy, insolvency,
reorganization, fraudulent conveyance or other laws relating to or
affecting the enforcement of creditors' rights or the collection of
debtors' obligations in general or by general equitable principles, (B)
laws relating to the availability of specific performance, injunctive
relief or other equitable remedies, and (C) to the extent the
indemnification provisions of this Agreement may be limited by applicable
federal or state law.
(b) To the extent that any statements or omissions made in the
Registration Statement or the Private Placement Memorandum are made in
reliance on and in conformity with information furnished to the Company by
MOC, such Registration Statement and Private Placement Memorandum, each on
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its effective date, shall conform in all material respects with the
requirements of the 1933 Act and the rules and regulations of the SEC
thereunder, and, to such extent, will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
(c) There is no action, claim, or proceeding pending or, to the
knowledge of MOC, threatened, to which MOC is or would be a party before
any court or governmental authority acting in an adjudicative capacity or
any arbitrator or arbitration tribunal with respect to which there is a
reasonable likelihood of a determination having, or which, insofar as
reasonably can be foreseen, in the future would have a material adverse
effect on MOC or on its assets or business prospects.
(d) MOC is not subject to any outstanding order, writ,
injunction or decree having, or which, insofar as reasonably can be
foreseen, in the future would have a material adverse effect on it or on
its assets or business prospects.
(e) There have been no claims made or actions or proceedings
brought against any officer or director of MOC arising out of or pertaining
to any action or omission within the scope of his or her employment or
position with MOC, which claim, action or proceeding is material to MOC.
(f) MOC owns all of the right, title and interest in and to the
MOC Interests, free and clear of all liens, encumbrances and defects
(collectively, "Liens"), except for Permitted Encumbrances, for those Liens
disclosed in the Registration Statement, and for those Liens that are not
materially affect the value of the MOC Interests.
(g) The operations of MOC and the operation of the MOC
Interests, do not violate any federal, state, local or other laws or
regulations or any order or requirement of any court or governmental agency
or authority in any material respect, including without limitation, those
laws, regulations, orders or requirements relating to environment or
health. Such operations are not subject to any existing, pending or, to
the knowledge of MOC, threatened action, suit, investigation, inquiry or
proceeding by or before any court or governmental agency or authority under
any federal, state or local environmental law, rule or regulation, except
in each case for any matter that would not have a material adverse effect
on MOC or on its assets or business prospects.
(h) The execution, delivery and performance of this Agreement by
MOC and the consummation of the transactions contemplated hereby by MOC
will not (A) conflict with or result in a breach of any of the terms and
provisions of, or constitute a default (or an event which with notice or
lapse of time, or both, would constitute a default) or require consent
under the terms of any agreement, instrument, franchise, license or permit
to which MOC is a party or by which MOC may be bound or (B) violate or
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conflict with any provision of the charter or organizing documents of MOC,
or any judgment, decree, order, statute, rule or regulation of any court or
any public, governmental or regulatory agency or body having jurisdiction
over MOC. No consent, approval, authorization, order, registration,
filing, qualification, license or permit of or with any court or any
public, governmental or regulatory agency or body having jurisdiction over
MOC is required for the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby,
except such as have been obtained or will be obtained by MOC prior to
Closing.
(i) There are no gas imbalances existing with respect to the MOC
Interests.
(j) The financial information attributable to MOC and included
in the combined financial statements included in the Registration Statement
(including the related notes and schedules) fairly presents, in all
material respects, the financial position of MOC as of its date, and the
financial information attributable to MOC and included in the combined
statements of income and changes in financial position included in the
Registration Statement (including any related notes and schedules) fairly
presents the results of operations, stockholders' equity, retained earnings
and changes in financial position, as the case may be, of MOC for the
periods set forth therein (subject, in the case of unaudited financial
statements, to normal year-end audit adjustments not material in amount or
effect), in each case in accordance with methods of accounting used by MOC
for federal income tax purposes during the periods involved, except as may
be noted therein. Since the date of the above-referenced financial
information, there has been no material adverse change in the financial
condition, assets or operation of the business of MOC from that set forth
in the Private Placement Memorandum and in the Registration Statement.
Section 4.4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby represents, warrants and agrees as follows:
(a) The Company has all requisite power and authority to execute
and deliver this Agreement. All proceedings and approvals necessary to
authorize the execution and delivery of this Agreement by the Company have
been completed or received. This Agreement has been duly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery hereof by the other parties hereto, constitutes a legal, valid and
binding obligation of it enforceable against it in accordance with its
terms, except as the enforceability hereof may be limited by (A)
bankruptcy, insolvency, reorganization, fraudulent conveyance or other laws
relating to or affecting the enforcement of creditors' rights or the
collection of debtors' obligations in general or by general equitable
principles, (B) laws relating to the availability of specific performance,
injunctive relief or other equitable remedies, and (C) to the extent the
indemnification provisions of this Agreement may be limited by applicable
federal or state law.
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(b) There is no action, claim, or proceeding pending or, to the
knowledge of the Company, threatened, to which the Company is or would be a
party before any court or governmental authority acting in an adjudicative
capacity or any arbitrator or arbitration tribunal with respect to which
there is a reasonable likelihood of a determination having, or which,
insofar as reasonably can be foreseen, in the future would have a material
adverse effect on the Company or on the Company's assets or business
prospects.
(d) The Company is not subject to any outstanding order, writ,
injunction or decree having, or which, insofar as reasonably can be
foreseen, in the future would have a material adverse effect on the Company
or on the Company's assets or business prospects.
(e) There have been no claims made or actions or proceedings
brought against any officer or director of the Company arising out of or
pertaining to any action or omission within the scope of his or her
employment or position with the Company, which claim, action or proceeding
is material to the Company.
(f) The execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions contemplated hereby by
the Company will not (A) conflict with or result in a breach of any of the
terms and provisions of, or constitute a default (or an event which with
notice or lapse of time, or both, would constitute a default) or require
consent under the terms of any agreement, instrument, franchise, license or
permit to which the Company is a party or by which the Company may be bound
or (B) violate or conflict with any provision of the charter or organizing
documents of the Company, or any judgment, decree, order, statute, rule or
regulation of any court or any public, governmental or regulatory agency or
body having jurisdiction over the Company. No consent, approval,
authorization, order, registration, filing, qualification, license or
permit of or with any court or any public, governmental or regulator agency
or body having jurisdiction over the Company is required for the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby, except such as have been obtained or will
be obtained by the Company prior to Closing.
(g) After the Public Offering, the outstanding capital stock of
the Company will consist solely of: (i) the shares of Exchange Stock
issued to the Contributors under this Agreement; (ii) the shares of Common
Stock issued in the Public Offering; and (iii) stock issued or issuable
pursuant to the "Incentive Awards" described in the Registration Statement.
Except as set forth in this Agreement and as disclosed in the Registration
Statement , there are no outstanding subscriptions, options, warrants,
rights or convertible or exchangeable securities issued by the Company.
Except for this Agreement and the agreements and commitments necessary to
consummate the Public Offering, there are no other agreements or
commitments to which the Company is a party relating to the issued or
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unused capital stock or other securities of the Company, including without
limitation, any agreement or commitment to issue, deliver, or sell, or
cause to be issued, delivered or sold, shares of capital stock or other
securities of the Company, or granting or obligating the Company to grant,
extend or enter into any subscription, option, warrant, right or
convertible or exchangeable security or other similar agreement or
commitment with respect to the capital stock of the Company. All of the
shares of Exchange Stock that will be issued pursuant to Section 2.3 hereof
will be validly issued, fully paid and nonassessable and will not be
subject to any preemptive rights.
(h) The information provided to Contributors in the Private
Placement Memorandum, in the Registration Statement and in the other
written documents and materials delivered to them by the Company in
connection herewith does not contain any untrue statement of a material
fact, nor does it omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(i) None of the Exchange Stock are being issued for indebtedness
of the Company or for interest on such indebtedness, and there is no
indebtedness existing between the Company and any Contributor nor will
there be created any indebtedness in favor of any Contributor as a result
of the transactions contemplated by this Agreement.
ARTICLE V
COVENANTS AND AGREEMENTS
Section 5.1. RESTRICTION ON TRANSFERS AND DISTRIBUTIONS.
(a) Each Contributor agrees not to sell, transfer, convey, encumber,
lease or otherwise dispose of, or elect not to participate in an operation
with respect to, such Contributor's Contributed Properties from the date
hereof until the Closing.
(b) MOC agrees not to sell, transfer, convey, encumber, lease or
otherwise dispose of, or elect not to participate in an operation with
respect to, the MOC Interests.
(c) After the Effective Time, MOC shall not make, and the MOC
Contributors shall not receive, any dividends or other distributions or
payments with respect to MOC Stock (whether in cash or property), except
for an amount equal to the tax burden from any taxable income attributable
to MOC after the Effective Time. In determining the tax burden, it shall
be assumed that all such taxable income is taxable at the highest nominal
statutory income tax rates applicable to the MOC Contributors (regardless
of whether the effective marginal rates are different, for example, as a
result of phase outs, limitations or other provisions). Until the Closing,
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MOC shall not (a) issue any capital stock or debt securities, or any
rights, options, or securities convertible or exchangeable therefor, or (b)
amend or modify its certificates or articles of incorporation, by-laws or
other governing documents or instruments. Nothing in this Section 5.1
shall prohibit the Company from paying interest that accrues on the Notes
(as defined in Section 5.5) before or after the Effective Time, nor does
anything herein prohibit the Noteholders (as defined in Section 5.5) from
receiving such interest.
(d) The Interest Contributors shall not have any right to receive or
retain any cash, revenues or other property related to his, her, or its
respective interests in the production attributable to the Contributed
Properties for the periods or portions thereof beginning on or after the
Closing.
Section 5.2. ALLOCATION OF REVENUES AND EXPENSES.
(a) Each Interest Contributor hereby agrees that all revenues from
the sale of oil and gas produced prior to the Effective Time with respect
to such Interest Contributor's Contributed Properties, and all costs and
expenses attributable thereto which are properly accrued for any period or
portion thereof ending at or prior to the Effective Time in accordance with
the method of accounting used in connection with the operating agreements
applicable to such properties, shall be for such Interest Contributor's
account, and all revenues from the sale of oil and gas produced after the
Effective Time with respect to such Interest Contributor's Contributed
Properties, and all costs and expenses attributable thereto which are
properly accrued for any period or portion thereof beginning after the
Effective Time, shall be for the account of the Company.
(b) Within 120 days after the Closing, the Company shall apply the
foregoing subsection (a) and shall determine with respect to each Interest
Contributor and the Contributed Properties transferred by such Contributor
under this Agreement: (1) the net profit or net loss, as the case may be,
for periods ending at or prior to the Effective Time, but not received or
paid on or prior to Closing (the "Contributor Net Profit" or "Contributor
Net Loss", as the case may be), and (2) the net profit or net loss, as the
case may be, for periods beginning after the Effective Time, and received
or paid on or prior to Closing (the "Company Net Profit" or "Company Net
Loss", as the case may be). The Company shall provide a written report of
the same to each Contributor within such 120 day period. Within ten days
following the date of the written report, the Company shall pay each such
Contributor the Contributor Net Profit and Company Net Loss attributable to
such Contributor's Contributed Properties, and such Contributor shall pay
the Company the Company Net Profit and the Contributor Net Loss
attributable to such Contributed Properties, and each such Contributor
hereby agrees to indemnify the Company against such costs and expenses. In
any case, the amount of the payment shall be reduced by the income tax
burden of the Net Profit on the payor, and the income tax benefit of the
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Net Loss to the payee. In determining the tax burden or tax benefit, it
shall be assumed that the Net Profit is taxable as income, and the Net Loss
is allowable as a deduction, at the highest nominal statutory income tax
rates applicable to the person (regardless of whether the effective
marginal rates are different, for example, as a result of phase outs,
limitations or other provisions).
Section 5.3. RULE 144 REPORTING. With a view to making available
the benefits of certain rules and regulations of the SEC that may permit
the sale of the Exchange Stock to the public without registration, the
Company agrees to use its best efforts to:
(a) Make and keep public information regarding the Company
available as those terms are understood and defined in Rule 144 under the
1933 Act, at all times from and after ninety (90) days following the
effective date of the Registration Statement;
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), at any time after it
has become subject to such reporting requirements;
(c) So long as a Contributor owns any Exchange Stock that
constitutes "restricted securities" as defined in Rule 144, furnish to such
Contributor forthwith upon written request a written statement by the
Company as to its compliance with the reporting requirements of Rule 144
(at any time from and after ninety (90) days following the effective date
of the Registration Statement), and of the 1933 Act and the Exchange Act
(at any time after it has become subject to such reporting requirements), a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed as such a Contributor may reasonably
request in availing itself of any rule or regulation of the SEC allowing a
Contributor to sell any such securities without registration.
Section 5.4. CONDUCT OF BUSINESS. Each of the Company, the
Contributors (solely with respect to their respective Contributed
Properties), and MOC hereby agrees that prior to the Closing, and except as
otherwise contemplated herein or consented to in writing by the other
parties hereto, it shall conduct its business in the ordinary course and
shall use reasonable efforts to preserve intact its present business and
relationships.
Section 5.5. CONTRIBUTION OF NOTES. MOC is currently indebted to
Kelly E. Miller, Sue E. Bell, David A. Miller, and Daniel R. Miller (for
purposes of this Section 5.5, the "Noteholders") under those four
promissory notes, each in the original principal amount of $1,910,500,
which are described in the Registration Statement (collectively, the
"Notes"). Prior to the Closing, the Noteholders shall each contribute to
the capital of MOC the Notes and the indebtedness represented thereby.
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Section 5.6. "MARKET STAND-OFF" AGREEMENT. Each Contributor agrees
that, if requested by the Underwriters or the Company, it will not offer,
sell, grant any option for the sale of, or otherwise transfer or dispose
of, directly or indirectly, or agree to do any of the foregoing with
respect to, any securities of the Company held by such Contributor (other
than those included in the Registration Statement pursuant to Article VII
hereof) during the one hundred eighty (180) day period following the
effective date of the Registration Statement, without the consent of the
representative of the Underwriters. Each Contributor agrees to enter into
a written agreement with the Underwriters substantially to that effect, if
so requested by the Underwriters or the Company.
Section 5.7. CONSENTS. Each Contributor covenants and agrees to
obtain prior to Closing all consents, waivers and approvals required in
connection with the execution and delivery of, and performance of its
obligations under, this Agreement, except for the "Post-Closing
Governmental Consents", if any, for which Contributor covenants and agrees
to obtain within 120 days following the Closing.
Section 5.8. COMPANY COVENANT. The Company covenants and agrees to
take all actions necessary such that the Exchange Stock (excluding the
Registrable Shares actually included in the Public Offering) will comprise
at least 80% of the shares of Stock outstanding immediately preceding the
consummation of the Public Offering, assuming the exercise at Closing of
any Company Stock rights, options, warrants, or subscriptions that are
vested at Closing and are exercisable at a price less than the initial
offering price of the Stock in the Public Offering, and after accounting
for any Stock issued at Closing for services rendered or to be rendered,
and excluding all of the shares of Stock issued by the Company for its own
account pursuant to the Registration Statement.
Section 5.9. CLOSING CERTIFICATE. Each Contributor and MOC shall
execute and deliver at Closing a certificate stating and affirming that (i)
all of the representations and warranties of such Contributor or MOC, as
the case may be, are true and complete on the Closing Date as if made on
such date; and (ii) such Contributor or MOC, as the case may be, has
performed and complied in all material respects with the covenants and
agreements contained herein that are required to be performed or complied
with by it at the time of or prior to the Closing.
ARTICLE VI
INDEMNIFICATION
Section 6.1. INDEMNIFICATION.
(a) On the terms and subject to the conditions of this Section 6.1,
each Contributor hereby agrees to indemnify, defend and hold harmless the
Company from and against any and all actions, suits, proceedings, claims,
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demands, assessments, judgments, liabilities, losses, damages, costs and
expenses, including without limitation, any interest, fines, court costs
and attorneys' fees, to the extent arising out of or based upon any breach
by such Contributor of any representation, warranty or covenant made or
given by such Contributor herein.
(b) On the terms and subject to the conditions of this Article VI,
each Stock Contributor hereby agrees to indemnify, defend and hold harmless
the Company from and against any and all actions, suits, proceedings,
claims, demands, assessments, judgments, liabilities, losses, damages,
costs and expenses, including without limitation, any interest, fines,
court costs and attorneys' fees, to the extent arising out of or based upon
any breach by MOC of any representation, warranty or covenant made or given
by MOC herein.
(c) On the terms and subject to the conditions of this Section 6.1,
the Company hereby agrees to indemnify, defend and hold harmless the
Contributors from and against any and all actions, suits, proceedings,
claims, demands, assessments, judgments, liabilities, losses, damages,
costs and expenses, including without limitation, any interest, fines,
court costs and attorneys' fees, arising out of or based upon:
(i) any breach by the Company of any representation, warranty or
covenant made or given by the Company herein; or
(ii) the ownership or operation of the Contributed Properties from and
after the Closing, including, without limitation:
(A) the presence, release, or disposal of any material subject
to environmental, health and safety laws on or from any of
the Contributed Properties or the MOC Interests;
(B) the disposal, arrangement for disposal, transportation,
release or placement by the Company of any such material on,
from or to any such properties; and
(C) any noncompliance by the Company with environmental, health
and safety laws after the Closing.
In connection with, but without limiting, the foregoing, it is specifically
understood and agreed that such obligations and liabilities relating to the
ownership and/or operation of the Contributed Properties after the Closing
shall be deemed to include all matters arising out of the condition of the
Properties on the date of Closing (including, without limitation, all
obligations to properly plug and abandon, or replug and re-abandon, wells
located on the Contributed Properties, to restore the surface of the
Contributed Properties and to comply with, or to bring the Properties into
compliance with, applicable environmental laws, rules, regulations, and
orders, including conducting any remediation activities which may be
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required on or otherwise in connection with activities on the Contributed
Properties), regardless of whether such condition or the events giving rise
to such condition arose or occurred before or after the Closing, and the
assumptions and indemnifications by the Company herein shall expressly
cover and include such matters.
(d) The indemnification obligations set forth in this Section 6.1
with respect to a breach of a representation or warranty shall be subject
to the limitations set forth in Section 9.5.
Section 6.2. INDEMNITY PROCEDURE; THIRD-PARTY CLAIMS.
(a) If a Contributor or the Company (each, an "Indemnified Party")
makes a claim for indemnification hereunder based upon a third party claim,
the Indemnified Party will give the party against which the claim is made
(the "Indemnifying Party") prompt notice of such third party claim and of
its demand for indemnification hereunder, and the Indemnifying Party will
assume the defense thereof by representatives chosen by it; PROVIDED,
HOWEVER, that the Indemnified Party shall be entitled to participate in the
defense thereof and to employ counsel at its own expense to assist in the
handling of such Indemnity Claim.
(b) If the Indemnifying Party, within twenty (20) days after notice
of any such third party Indemnity Claim fails to assume the defense
thereof, the Indemnified Party shall (upon further notice to the
Indemnifying Party) have the right to undertake the defense, compromise or
settlement of such third party claim, subject to the right of the
Indemnifying Party to assume the defense of such third party claim at any
time prior to the settlement, compromise or final determination thereof
(including reimbursement to the Indemnified Party of all expenses incurred
by it in defending against any such third party Indemnity Claim but only if
and to the extent that the Indemnified Party is entitled to indemnification
on the Indemnity Claim itself).
(c) Anything in this Section 6.2 to the contrary notwithstanding, (i)
the Indemnifying Party shall not, without the written consent of the
Indemnified Party (which consent shall not be unreasonably withheld),
settle or compromise any third party Indemnity Claim or consent to the
entry of any judgment which imposes any future obligation on the
Indemnified Party or which does not include as an unconditional term
thereof the giving by the claimant or the plaintiff to the Indemnified
Party a release from all liability in respect to such Indemnity Claim.
(d) The Indemnified Party shall provide the Indemnifying Party with
such assistance (without charge) as may reasonably be requested by the
Indemnifying Party in connection with any indemnification or defense
provided for herein.
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Section 6.3. INDEMNITY PROCEDURE; OTHER THAN THIRD-PARTY CLAIMS.
(a) If an Indemnified Party makes a claim for indemnification
hereunder which does not involve a third party claim, the Indemnified Party
shall transmit to the Indemnifying Party a written notice of such claim and
of its demand for indemnification hereunder, describing in reasonable
detail the nature of the claim, an estimate of the amount of the damages
attributable to such claim and the basis for the Indemnifying Party's
liability for such claim. If the Indemnifying Party does not dispute such
claim in writing within 60 days after it receives the aforedescribed
notice, the claim shall become a liability of the Indemnifying Party,
payable within 30 days of the expiration of such 60 day period. If the
Indemnifying Party does dispute the claim within such period of time, such
dispute shall be resolved by litigation in an appropriate court of
competent jurisdiction. Any amount owed by a Contributor to the Company
under this Section 6.3 may be paid, in whole or in part, by transferring to
the Company a number of Exchange Stock having a market value on the date
prior to such transfer at least equal to the amount owed hereunder,
provided, however, to the extent such market value of the transferred
Exchange Stock is less than the amount owed, the Contributor shall pay the
balance in immediately available funds.
Section 6.4. NOTICES. The failure to provide notice as described in
this Article VI shall not excuse any party from its continuing obligations
hereunder; however, any claim shall be reduced by the damages resulting
form such party's delay or failure to provide notice as provided herein.
ARTICLE VII
REGISTRATION RIGHTS
Section 7.1. CERTAIN DEFINITIONS. In addition to the other terms
defined in this Agreement, the following terms used in this Article VII
shall have the meanings set forth below:
(a) "Selling Stockholder" shall mean the Contributors identified
on EXHIBIT D.
(b) "Other Stockholders" shall mean persons other than Selling
Stockholders who, by virtue of agreements with the Company, are entitled to
include their securities in the registration pursuant to the Registration
Statement.
(c) "Registrable Securities" shall mean (i) the number of shares
of Exchange Stock held by a Selling Stockholder which shall be equal to the
number of shares identified on EXHIBIT D, expressed as a percentage of the
total Exchange Stock, and which in the aggregate is less than 20% of all of
the Exchange Stock to be issued hereunder.
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<PAGE>
(d) The terms "register," "registered" and "registration" shall
refer to a registration effected by preparing and filing the Registration
Statement in compliance with the 1933 Act and applicable rules and
regulations thereunder, and the declaration or ordering of the
effectiveness of the Registration Statement.
(e) "Registration Expenses" shall mean all expenses incurred in
effecting any registration pursuant to this Article VII, including, without
limitation, all registration, qualification, and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for the Company,
blue sky fees and expenses, and expenses of any regular or special audits
incident to or required by any such registration, but shall not include
Selling Expenses and fees and disbursements of counsel for the Selling
Stockholders (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
(f) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and
fees and disbursements of counsel for any Selling Stockholder (other than
the fees and disbursements of counsel included in Registration Expenses).
Section 7.2. COMPANY REGISTRATION.
(a) Except as set forth below in this Section 7.2, the Company
will use its best efforts to include all the Registrable Securities in the
Registration Statement (and any related qualification under Blue Sky Laws
or other compliance), and in any underwriting involved therein.
(b) The right of any Selling Stockholder to registration
pursuant to this Section 7.2 shall be conditioned upon such Selling
Stockholder's participation in the related underwriting and the inclusion
of such Selling Stockholder's Registrable Securities in the underwriting to
the extent provided herein. All Selling Stockholders proposing to
distribute their securities through such underwriting shall (together with
the Company and the other holders of securities of the Company with
registration rights to participate therein distributing their securities
through such underwriting) enter into an underwriting agreement in
customary form with the representative of the Underwriters.
(c) If any person does not agree to the terms of any such
underwriting, he shall be excluded therefrom by written notice from the
Company or the Underwriters. Any Registrable Securities or other
securities excluded or withdrawn from such underwriting shall be withdrawn
from such registration.
Section 7.3. EXPENSES OF REGISTRATION. All Registration Expenses
incurred in connection with any registration, qualification or compliance
pursuant to Section 7.2 shall be borne by the Company.
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<PAGE>
Section 7.4. INDEMNIFICATION.
(a) The Company will indemnify each Contributor, each of its
officers, directors and partners, legal counsel, and accountants and each
person controlling such Contributor within the meaning of Section 15 of the
1933 Act, with respect to which registration, qualification, or compliance
has been effected pursuant to this Article VII, against all expenses,
claims, losses, damages, and liabilities (or actions, proceedings, or
settlements in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
prospectus, offering circular, or other document (including any related
registration statement, notification, or the like) incident to any such
registration, qualification, or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of the 1933 Act or any rule or regulation
thereunder applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration,
qualification, or compliance, and will reimburse each such Contributor,
each of its officers, directors, partners, legal counsel, and accountants
and each person controlling such Contributor, for any legal and any other
expenses reasonably incurred in connection with investigating and defending
or settling any such claim, loss, damage, liability, or action; PROVIDED,
HOWEVER, that the Company will not be liable in any such case to the extent
that any such claim, loss, damage, liability, or expense arises out of or
is based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular, or other
document (including any related registration statement, notification, or
the like) incident to any such registration, qualification, or compliance,
or based on any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, which statement or omission is based upon written
information furnished to the Company by such Contributor and stated to be
specifically for use therein. It is agreed that the indemnity agreement
contained in this Section 7.4(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent
has not been unreasonably withheld).
(b) Each Selling Stockholder will, if Registrable Securities
held by him are included in the securities as to which such registration,
qualification, or compliance is being effected, indemnify the Company, each
of its directors, officers, partners, legal counsel, and accountants, each
person who controls the Company within the meaning of Section 15 of the
1933 Act, each other such Selling Stockholder and Other Stockholder, and
each of their officers, directors, and partners, and each person
controlling such Selling Stockholder or Other Stockholder, against all
claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue
-26-
<PAGE>
statement) of a material fact contained in any such registration statement,
prospectus, offering circular, or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
will reimburse the Company and such Selling Stockholders, Other
Stockholders, directors, officers, partners, legal counsel, and
accountants, persons, or control persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability, or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular, or other document in
reliance upon and in conformity with written information furnished to the
Company by such Selling Stockholder and stated to be specifically for use
therein, provided, however, that the obligations of such Selling
Stockholder hereunder shall not apply to amounts paid in settlement of any
such claims, losses, damages, or liabilities (or actions in respect
thereof) if such settlement is effected without the consent of such Selling
Stockholder (which consent shall not be unreasonably withheld).
(c) Each party entitled to indemnification under this Section
7.4 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the
defense of such claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense of such
claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld), and
the Indemnified Party may participate in such defense at such party's
expense, and provided further that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 7.4, to the extent such failure is not
prejudicial. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be
reasonably required in connection with defense of such claim and litigation
resulting therefrom.
(d) If the indemnification provided for in this Section 7.4 is
held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage, or
expense referred to therein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party hereunder, shall contribute to the
-27-
<PAGE>
amount paid or payable by such Indemnified Party as a result of such loss,
liability, claim, damage, or expense in such proportion as is appropriate
to reflect the relative fault of the Indemnifying Party on the one hand and
of the Indemnified Party on the other in connection with the statements or
omissions that resulted in such loss, liability, claim, damage, or expense
as well as any other relevant equitable considerations. The relative fault
of the Indemnifying Party and of the Indemnified Party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the
Indemnified Party and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or
omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten
public offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall control.
Section 7.5. INFORMATION BY SELLING STOCKHOLDER. Each Selling
Stockholder of Registrable Securities shall furnish to the Company such
information regarding such Selling Stockholder and the distribution
proposed by such Selling Stockholder as the Company may reasonably request
in writing and as shall be reasonably required in connection with any
registration, qualification, or compliance referred to in this Article VII.
Section 7.6. DELAY OF REGISTRATION. No Selling Stockholder shall
have any right to take any action to restrain, enjoin, or otherwise delay
any registration as the result of any controversy that might arise with
respect to the interpretation or implementation of this Article VII.
Section 7.8. OTHER REGISTRATION RIGHTS. At the Closing, the
Company and the Contributors, including the Selling Stockholders, shall
execute and deliver a Registration Rights Agreement in the form of that
attached hereto as EXHIBIT E, which, subject to the limitations set forth
therein, provides the Contributors with certain rights to have the Exchange
Stock registered under the circumstances described therein.
ARTICLE VIII
TERMINATION OF CERTAIN ARRANGEMENTS
Section 8.1. TERMINATION OF 1994 JEP. The 1994 JEP Contributors and
MOC hereby agree that, effective immediately upon the Closing, the 1994 JEP
shall become immediately null and void and have no effect, and no party
thereto shall have any liability to the other parties thereto by reason of
any term or provision contained therein, except as provided below in this
Section 8.1. Each 1994 JEP Contributor hereby represents and warrants to
-28-
<PAGE>
the Company, to each other and to MOC that the Contributed Properties
attributable to him, her or it as listed on EXHIBIT A-1 and EXHIBIT A-2
constitute all of the rights and interest held by him, her or it under and
pursuant to the 1994 JEP. Subject to and effective upon the Closing, MOC
and the 1994 JEP Contributors hereby mutually release and discharge each
other from any further obligations and liabilities under the 1994 JEP,
except for the obligations either may have to the other under the 1994 JEP
to account for revenues and expenses accrued and incurred prior to Closing.
Section 8.2. TERMINATION OF 1995 JEP. The 1995 JEP Contributors and
MOC hereby agree that, effective immediately upon the Closing, the 1995 JEP
shall become immediately null and void and have no effect, and no party
thereto shall have any liability to the other parties thereto by reason of
any term or provision contained therein, except as provided below in this
Section 8.2. Each 1995 JEP Contributor hereby represents and warrants to
the Company, to each other and to MOC that the Contributed Properties
attributable to him, her or it as listed on EXHIBIT A-1 and EXHIBIT A-2
constitute all of the rights and interest held by him, her or it under and
pursuant to the 1995 JEP. Subject to and effective upon the Closing, MOC
and the 1995 JEP Contributors hereby mutually release and discharge each
other from any further obligations and liabilities under the 1995 JEP,
except for the obligations either may have to the other under the 1995 JEP
to account for revenues and expenses accrued and incurred prior to Closing.
Section 8.3. TERMINATION OF 1997 DRILLING PROGRAM. Victory and MOC
hereby agree that, effective immediately upon the Closing, that certain
agreement titled "Eagle Investments, Inc./MOC 1997 Drilling Program,
Exploration and Participation Agreement," dated as of August 15, 1997,
shall become immediately null and void and have no effect, and no party
thereto shall have any liability to the other parties thereto by reason of
any term or provision contained therein, except as provided below in this
Section 8.3. Victory hereby represents and warrants to the Company and to
MOC that the Contributed Properties attributable to it as listed on EXHIBIT
A-1 and EXHIBIT A-2 constitute all of the rights and interest held by it
under and pursuant to the above-referenced agreement. Subject to and
effective upon the Closing, MOC and Victory hereby mutually release and
discharge each other from any further obligations and liabilities under the
above-referenced agreement, except for the obligations either may have to
the other under the above-referenced agreement to account for revenues and
expenses accrued and incurred prior to Closing.
ARTICLE IX
MISCELLANEOUS
Section 9.1. ENTIRE AGREEMENT. This Agreement (together with any
exhibits and documents delivered pursuant hereto), and the various
agreements and instruments contemplated hereby constitute the entire
agreement between the parties hereto with respect to the subject matter
-29-
<PAGE>
hereof, and supersede all prior agreements and understandings relating to
the subject matter of this Agreement. There are no representations,
warranties, covenants, promises or agreements on the part of any party
hereto to or with any other party hereto with respect to the matters set
forth herein which are not explicitly set forth herein, in the agreements
and instruments contemplated hereby, or in the Private Placement
Memorandum.
Section 9.2. GOVERNING LAW; JURISDICTION. This Agreement shall be
governed by and construed in accordance with the laws of the state of
Michigan. Any action, suit or proceeding seeking to enforce any provision
of, or based on any matter arising out of or in connection with, this
Agreement or the transactions contemplated hereby may be brought against
any of the parties in the federal or state courts situated in the state of
Michigan, and each of the parties hereby consents to the exclusive
jurisdiction of such courts (and of the appropriate appellate courts) in
any such suit, action or proceeding and waives any objection to venue laid
therein. Process in any such suit, action or proceeding may be served on
any party anywhere in the world, whether within or without the state of
Michigan.
Section 9.3. COUNTERPARTS. This Agreement may be executed by
facsimile and/or in counterparts, and when so executed, each counterpart
shall be deemed to be an original and said counterparts together shall
constitute one and the same instrument. This Agreement shall be binding
upon each party that executes a counterpart of this Agreement,
notwithstanding the fact that certain of the persons or entities identified
as Contributors herein elect not to execute this Agreement.
Section 9.4. SUCCESSORS. The representations, warranties and
agreements contained in this Agreement shall be binding on each party
hereto and the successors, assigns, and legal representatives of each such
party and shall inure to the benefit of the other parties and their
respective successors and permitted assigns.
Section 9.5. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained herein or made pursuant hereto,
and any indemnity obligations related to any breaches thereof, whether
express or implied, shall survive the Closing Date and shall continue in
full force and effect for a period lasting until the second anniversary of
this Agreement, and thereafter shall be of no force or effect unless a
representation or a warranty shall have been breached and the party that
made the representation or warranty shall have been given notice of such
breach within such period, in which event the survival period for such
representation or warranty and the related indemnity obligations shall be
tolled. All covenants and agreements contained in this Agreement shall
survive the Closing Date for so long as such covenants and agreements shall
have applicability.
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<PAGE>
Section 9.6. MODIFICATION AND AMENDMENT. This Agreement may be
modified and amended only by the written consent of all of the parties
hereto.
Section 9.7. ASSIGNMENT. This Agreement shall not be assignable
by operation of law or otherwise except with the prior written consent of
all of the parties hereto.
Section 9.8. NOTICES. Any notice or other communication required or
permitted under this Agreement shall be by facsimile actually received or
in writing and mailed by certified or registered mail, return receipt
requested, postage prepaid. Any such notice shall be deemed given upon its
receipt at the following address:
(a) If to the Company and/or MOC:
c/o Miller Exploration Company
3104 Logan Valley Road
Traverse City, Michigan 49685-0348
Attention: President
with a copy to:
Mika, Meyers, Beckett & Jones, P.L.C.
200 Ottawa Avenue, Suite 700
Grand Rapids, Michigan 49503
Attention: John M. DeVries, Esq.
(b) If to a Contributors, at the address set forth beneath such
Contributor's name on the signature pages hereto.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MILLER EXPLORATION COMPANY, a Delaware
corporation
By: /s/ Kelly E. Miller
-------------------------------------------------
Its: President and Chief Executive Officer
--------------------------------------------
MILLER OIL CORPORATION, a Michigan
corporation
By: /s/ Kelly E. Miller
-------------------------------------------------
Its: President
--------------------------------------------
CONTRIBUTORS: See attached counterpart
signature pages
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<PAGE>
COUNTERPART SIGNATURE PAGE TO
-----------------------------
EXCHANGE AND CONTRIBUTION AGREEMENT
-----------------------------------
INDIVIDUAL:
- ----------
Date: November 12, 1997
/s/ Dan A. Hughes, Jr.
---------------------------------------
DAN A. HUGHES, JR.
Principal Place of Business Address:
208 E. Houston St.
---------------------------------------
Beeville, TX 78104
---------------------------------------
---------------------------------------
Social Security Number:
----------------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
-----------------------------
EXCHANGE AND CONTRIBUTION AGREEMENT
-----------------------------------
INDIVIDUAL:
- ----------
Date: November __, 1997
/s/ Giorgio Vozza
----------------------------------------
GIORGIO VOZZA
Principal Place of Business Address:
3180 Racquet Club Drive, Suite G
----------------------------------------
Traverse City, MI 49684
----------------------------------------
----------------------------------------
Social Security Number:
-----------------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
-----------------------------
EXCHANGE AND CONTRIBUTION AGREEMENT
-----------------------------------
INDIVIDUAL:
- ----------
Date: November 12, 1997
/s/ Albert F. Stevens / /s/ Joanna R. Stevens
---------------------------------------------
ALBERT STEVENS
Principal Place of Business Address:
305 Commerce Drive
---------------------------------------------
Moorestown NJ 08057
---------------------------------------------
---------------------------------------------
Social Security Number:
---------------------
---------------------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
-----------------------------
EXCHANGE AND CONTRIBUTION AGREEMENT
-----------------------------------
INDIVIDUAL:
- ----------
Date: November 10, 1997
/s/ Ken Foote
----------------------------------------------
KEN FOOTE
Mail: P.O. Box 4010, East Lansing, MI 48826
-----------------------------------------------
Delivery: 241 E. Saginaw Suite 500
-----------------------------------------------
East Lansing, MI 48823
-----------------------------------------------
Social Security Number:
-----------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
-----------------------------
EXCHANGE AND CONTRIBUTION AGREEMENT
-----------------------------------
INDIVIDUAL:
- ----------
Date: November 10, 1997
/s/ Gilbert Brueckner
--------------------------------
GILBERT BRUECKNER
Principal Place of Business Address:
Milw. Marble & Granite Co.
------------------------------------
4535 W. Mitchell St.
------------------------------------
Milw., WI 53214
Social Security Number:
------------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
-----------------------------
EXCHANGE AND CONTRIBUTION AGREEMENT
-----------------------------------
INDIVIDUAL:
- ----------
Date: November 10, 1997
/s/ L.H. Hardy, Jr
--------------------------------
L.H. HARDY, JR
Principal Place of Business Address:
325 Commons Ford
------------------------------------
Austin, TX 78733
------------------------------------
------------------------------------
Social Security Number:
------------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
-----------------------------
EXCHANGE AND CONTRIBUTION AGREEMENT
-----------------------------------
INDIVIDUAL:
- ----------
Date: November 10, 1997
/s/ Dennis LeJeune
---------------------------------------
DENNIS LEJEUNE
Principal Place of Business Address:
12935 W. Bay Shore
---------------------------------------
Traverse City, MI
---------------------------------------
49684
---------------------------------------
Social Security Number:
---------------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
-----------------------------
EXCHANGE AND CONTRIBUTION AGREEMENT
-----------------------------------
TRUST:
- -----
Date: November 13, 1997
DAVID A. MILLER TRUST
u/a/d July 14, 1989
By: /s/ David A. Miller
------------------------------
David A. Miller, Trustee
Principal Place of Business Address:
P.O. Box 348
---------------------------------
Traverse City, MI 49685
---------------------------------
---------------------------------
State of Settlement: Michigan
Tax Identification Number:
<PAGE>
COUNTERPART SIGNATURE PAGE TO
-----------------------------
EXCHANGE AND CONTRIBUTION AGREEMENT
-----------------------------------
TRUST:
- -----
Date: November ___, 1997
DAVID A. MILLER RETAINED AUTHORITY
TRUST #1 u/a/d November 3, 1997
By: /s/ C.E. Miller
-------------------------------------
C.E. Miller, Trustee
Principal Place of Business Address:
----------------------------------------
3104 Logan Valley Road
----------------------------------------
Traverse City, MI 49684
----------------------------------------
State of Settlement: Michigan
Tax Identification Number:______________
<PAGE>
COUNTERPART SIGNATURE PAGE TO
-----------------------------
EXCHANGE AND CONTRIBUTION AGREEMENT
-----------------------------------
TRUST:
- -----
Date: November __, 1997
KELLY E. MILLER TRUST
u/a/d April 29, 1986
By: /s/ Kelly E. Miller
-------------------------------
Kelly E. Miller, Trustee
Principal Place of Business Address:
3104 Logan Valley Road
----------------------------------
Traverse City, MI 49684
----------------------------------
----------------------------------
State of Settlement: Michigan
Tax Identification Number:
--------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
-----------------------------
EXCHANGE AND CONTRIBUTION AGREEMENT
-----------------------------------
TRUST:
- -----
Date: November __, 1997
KELLY E. MILLER RETAINED ANNUITY
TRUST #1 u/a/d November 3, 1997
By: /s/ C. E. Miller
---------------------------------
C. E. Miller, Trustee
Principal Place of Business Address:
3104 Logan Valley Road
-------------------------------------
Traverse City, MI 49684
-------------------------------------
-------------------------------------
State of Settlement: Michigan
Tax Identification Number: __________
<PAGE>
COUNTERPART SIGNATURE PAGE TO
-----------------------------
EXCHANGE AND CONTRIBUTION AGREEMENT
-----------------------------------
TRUST:
- -----
Date: November __, 1997
Daniel R. MILLER RETAINED ANNUITY
TRUST #1 u/a/d November 3, 1997
By: /s/ C. E. Miller
---------------------------------
C. E. Miller, Trustee
Principal Place of Business Address:
-------------------------------------
3104 Logan Valley Road
-------------------------------------
Traverse City, MI 49684
-------------------------------------
State of Settlement: Michigan
Tax Identification Number: __________
<PAGE>
COUNTERPART SIGNATURE PAGE TO
-----------------------------
EXCHANGE AND CONTRIBUTION AGREEMENT
-----------------------------------
TRUST:
- -----
Date: November __, 1997
DANIEL R. MILLER TRUST
u/a/d April 5, 1989
By: /s/ Daniel R. Miller
---------------------------------
Daniel R. Miller, Trustee
Principal Place of Business Address:
-------------------------------------
3104 Logan Valley Road
-------------------------------------
Traverse City, MI 49684
-------------------------------------
-------------------------------------
State of Settlement: Michigan
Tax Identification Number: __________
<PAGE>
COUNTERPART SIGNATURE PAGE TO
-----------------------------
EXCHANGE AND CONTRIBUTION AGREEMENT
-----------------------------------
TRUST:
- -----
Date: November __, 1997
SUE E. BELL TRUST
u/a/d February 7, 1989
By: /s/ Sue E. Bell
---------------------------------
Sue E. Bell, Trustee
Principal Place of Business Address:
-------------------------------------
3104 Logan Valley Road
-------------------------------------
Traverse City, MI 49684
-------------------------------------
State of Settlement: Michigan
Tax Identification Number: __________
<PAGE>
COUNTERPART SIGNATURE PAGE TO
-----------------------------
EXCHANGE AND CONTRIBUTION AGREEMENT
-----------------------------------
TRUST:
- -----
Date: November __, 1997
SUE ELLEN BELL RETAINED ANNUITY
TRUST #1 u/a/d November 3, 1997
By: /s/ C. E. Miller
------------------------------
C.E. Miller, Trustee
Principal Place of Business Address:
---------------------------------
3104 Logan Valley Road
---------------------------------
Traverse City, MI 49684
---------------------------------
State of Settlement: Michigan
Tax Identification Number:
-------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
-----------------------------
EXCHANGE AND CONTRIBUTION AGREEMENT
-----------------------------------
LIMITED LIABILITY COMPANY:
- -------------------------
Date: November 11, 1997
C & H EXPLORATION, L.L.C.
By: /s/ Jerry D. Campbell
--------------------------------
(Authorized Signature)
Jerry D. Campbell -- Vice President
-----------------------------------
(Print Name and Title of Signatory)
Principal Place of Business Address:
1009 S. Ballenger Hwy
-----------------------------------
Flint, MI 48532
-----------------------------------
-----------------------------------
State of Formation: Michigan
-------------
Tax Identification Number:
------------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
-----------------------------
EXCHANGE AND CONTRIBUTION AGREEMENT
-----------------------------------
LIMITED LIABILITY COMPANY:
- -------------------------
Date: November 11, 1997
NIBLICK EXPLORATION, L.L.C.
By: /s/ Charles F. Knight
--------------------------------
(Authorized Signature)
Charles F. Knight, Equity Owner
-----------------------------------
(Print Name and Title of Signatory)
Principal Place of Business Address:
7252 S. Glen Lake Road
-----------------------------------
Traverse City, Michigan 49636
-----------------------------------
-----------------------------------
State of Formation: Michigan
-------------
Tax identification Number:
------------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
-----------------------------
EXCHANGE AND CONTRIBUTION AGREEMENT
-----------------------------------
CORPORATION:
- -----------
Date: November 11, 1997
MILLER AND MILLER, INC., a Michigan
corporation
By: /s/ Kelly E. Miller
--------------------------------
(Authorized Signature)
Kelly E. Miller, President
-----------------------------------
(Print Name and Title of Signatory)
Principal Place of Business Address:
P.O. Box 348
-----------------------------------
Traverse City, MI 49685-0348
-----------------------------------
-----------------------------------
Tax Identification Number:
------------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
-----------------------------
EXCHANGE AND CONTRIBUTION AGREEMENT
-----------------------------------
CORPORATION:
- -----------
Date: November __, 1997
DOUBLE DIAMOND ENTERPRISES, INC., a
Michigan corporation
By: /s/ Daniel R. Miller
--------------------------------
(Authorized Signature)
Daniel R. Miller, Trustee
-----------------------------------
(Print Name and Title of Signatory)
Principal Place of Business Address:
-----------------------------------
3104 Logan Valley Road
-----------------------------------
Traverse City, MI 49684
-----------------------------------
Tax Identification Number:
------------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
-----------------------------
EXCHANGE AND CONTRIBUTION AGREEMENT
-----------------------------------
CORPORATION:
- -----------
Date: November __, 1997
EAGLE INTERNATIONAL, INC., a Michigan
corporation
By: /s/ C. E. Miller
--------------------------------
(Authorized Signature)
C. E. Miller, President
-----------------------------------
(Print Name and Title of Signatory)
Principal Place of Business Address:
-----------------------------------
3104 Logan Valley Road
-----------------------------------
Traverse City, MI 49684
-----------------------------------
Tax identification Number:
------------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
-----------------------------
EXCHANGE AND CONTRIBUTION AGREEMENT
-----------------------------------
CORPORATION:
- -----------
Date: November __, 1997
EAGLE INVESTMENTS, INC.
(d/b/a/ Victory, Inc.), a Michigan
corporation
By: /s/ C. E. Miller
--------------------------------
(Authorized Signature)
C. E. Miller, President
-----------------------------------
(Print Name and Title of Signatory)
Principal Place of Business Address:
-----------------------------------
3104 Logan Valley Road
-----------------------------------
Traverse City, MI 49684
-----------------------------------
Tax identification Number:
------------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
-----------------------------
EXCHANGE AND CONTRIBUTION AGREEMENT
-----------------------------------
CORPORATION
- -----------
Date: November , 1997
--
FRONTIER INVESTMENTS, INC., a Michigan
corporation
By: /s/ Sue Ellen Bell
--------------------------------
(Authorized Signature)
Sue Ellen Bell, President
-----------------------------------
(Print Name and Title of Signatory)
Principal Place of Business Address:
-----------------------------------
3104 Logan Valley Road
-----------------------------------
Traverse City, MI 49684
-----------------------------------
Tax Identification Number:
------------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
-----------------------------
EXCHANGE AND CONTRIBUTION AGREEMENT
-----------------------------------
CORPORATION:
- -----------
Date: November , 1997
--
OAK SHORES INVESTMENT INC., a Michigan
corporation
By: /s/ David A. Miller
--------------------------------
(Authorized Signature)
David A. Miller, President
-----------------------------------
(Print Name and Title of Signatory)
Principal Place of Business Address:
3104 Logan Valley Road
-----------------------------------
Traverse City, MI 49684
-----------------------------------
-----------------------------------
Tax Identification Number:
------------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
-----------------------------
EXCHANGE AND CONTRIBUTION AGREEMENT
-----------------------------------
CORPORATION
- -----------
Date: November 11, 1997
NAME OF CORPORATION:
SASI MINERALS COMPANY
Principal Place of Business Address:
1201 Market Street
Suite 1402
Wilmington, DE 19801
STATE OF INCORPORATION:
Delaware
By: /s/ William Casey McManemin
-----------------------------------
William Casey McManemin
Agent and Attorney-in-Fact
Tax Identification Number:
<PAGE>
COUNTERPART SIGNATURE PAGE TO
-----------------------------
EXCHANGE AND CONTRIBUTION AGREEMENT
-----------------------------------
CORPORATION:
- -----------
Date: November 10, 1997
--
O.O. INVESTMENTS, INC., a Nebraska
-----------
corporation
By: /s/ Tom M. Ostergard
----------------------------------
(Authorized Signature)
Tom M. Ostergard President
--------------------------------------
(Print Name and Title of Signatory)
Principal Place of Business Address:
7001 Stevens Ridge Road
--------------------------------------
Lincoln, NE 68516
--------------------------------------
--------------------------------------
Tax Identification Number:
------------
<PAGE>
EXHIBIT E
REGISTRATION RIGHTS AGREEMENT
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of __________, 1997, between and among Miller Exploration
Company, a Delaware corporation (the "Company"), and the persons identified
on EXHIBIT A attached hereto (the "Stockholders").
RECITALS:
WHEREAS, on even date herewith the Stockholders have acquired from the
Company the number of shares of the Company's Common Stock ("Common Stock")
set forth opposite their respective names on EXHIBIT A attached hereto
(together, the "Shares"); and
WHEREAS, the issuance of the Shares constitutes the issuance of
"restricted securities" within the meaning of Rule 144 promulgated under
the Securities Act (as defined below), and as such the Company and the
Stockholders have set forth herein their agreement as to the manner in
which the Shares may be transferred and registered under said Securities
Act, which agreement was a condition to the purchase and sale of the
Shares,
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereto agree as follows:
SECTION 1
RESTRICTIONS ON TRANSFERABILITY OF SHARES; REGISTRATION RIGHTS
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth below:
(a) "Closing" shall mean the date of the initial issuance of the
Shares.
(b) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the
Securities Act.
(c) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, or any similar successor federal statute and the rules
and regulations thereunder, all as the same shall be in effect from time to
time.
(d) "Holder" shall mean the Stockholders and any holder of
Registrable Securities to whom the registration rights conferred by this
Agreement have been transferred in compliance with Section 1.8 hereof.
(e) "Other Stockholders" shall mean persons other than Holders
who, by virtue of agreements with the Company, are entitled to include
their securities in certain registrations hereunder.
<PAGE>
(f) "Registrable Securities" shall mean (i) the Common Stock and
(ii) any Common Stock issued by the Company as a dividend (issuance of
Common Stock with respect to Shares issued and outstanding) or other
distribution of Common Stock with respect to the Shares, and (iii) any
Common Stock into which the Shares are converted.
(g) The terms "register," "registered" and "registration" shall
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the
effectiveness of such registration statement.
(h) "Registration Expenses" shall mean all expenses incurred in
effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification, and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for the Company,
blue sky fees and expenses, and expenses of any regular or special audits
incident to or required by any such registration, but shall not include
Selling Expenses and fees and disbursements of counsel for the Holders (but
excluding the compensation of regular employees of the Company, which shall
be paid in any event by the Company).
(i) "Rule 144" shall mean Rule 144 as promulgated by the
Commission under the Securities Act, as such Rule may be amended from time
to time, or any similar successor rule that may be promulgated by the
Commission.
(j) "Rule 145" shall mean Rule 145 as promulgated by the
Commission under the Securities Act, as such Rule may be amended from time
to time, or any similar successor rule that may be promulgated by the
Commission.
(k) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to
time.
(l) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and
fees and disbursements of counsel for any Holder (other than the fees and
disbursements of counsel included in Registration Expenses).
1.2 "PIGGY BACK" REGISTRATION.
(a) If the Company shall determine to register any of its
securities in a registered public offering, other than (i) the first such
offering by the Company, (ii) a registration relating solely to employee
benefit plans, (iii) a registration relating solely to a Rule 145
transaction, and (iv) a registration on any registration form that does not
permit secondary sales, the Company will:
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<PAGE>
(1) promptly give to each Holder written notice thereof; and
(2) use its best efforts to include in such registration (and
any related qualification under blue sky laws or other compliance),
except as set forth in Section 1.2(b) below, and in any underwriting
involved therein, all the Registrable Securities specified in a
written request or requests, made by any Holder and received by the
Company within twenty (20) days after the written notice from the
Company described in clause (i) above is mailed or delivered by the
Company. Such written request may request that all or a part of a
Holder's Registrable Securities be included in such registration.
(b) UNDERWRITING. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting,
the Company shall so advise the Holders as a part of the written notice
given pursuant to Section 1.2(a)(1). In such event, the right of any
Holder to registration pursuant to this Section 1.2 shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of
such Holder's Registrable Securities in the underwriting to the extent
provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company and the other
holders of securities of the Company with registration rights to
participate therein distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with
the representative of the underwriter or underwriters selected by the
Company.
Notwithstanding any other provision of this Section 1.2, if the
representative of the underwriters advises the Company in writing that
marketing factors require a limitation on the number of securities to be
underwritten, the representative may (subject to the limitations set forth
below) limit the number of Registrable Securities to be included in, the
registration and underwriting; PROVIDED, HOWEVER, that the aggregate value
of securities (including Registrable Securities) to be included in such
registration by the Company's Stockholders (including the Holders) may not
be so reduced to less than ten percent (10%) of the total value of all
securities included in such registration. The Company shall so advise all
holders of securities requesting registration, and the number of securities
that are entitled to be included in the registration and underwriting shall
be allocated first to the Company for securities being sold for its own
account and thereafter as set forth in Section 1.9.
If any person does not agree to the terms of any such underwriting, he
shall be excluded therefrom by written notice from the Company or the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
If securities are so withdrawn from the registration and if the number of
Registrable Securities to be included in such registration was previously
reduced as a result of marketing factors, the Company shall then offer to
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<PAGE>
all persons who have retained the right to include securities in the
registration the right to include additional securities in the registration
in an aggregate amount equal to the number of shares so withdrawn, with
such securities to be allocated among the persons requesting additional
inclusion in accordance with Section 1.9 hereof.
1.3 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Section 1.2 shall be borne by the Company.
1.4 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its
officers, directors and partners, legal counsel, and accountants and each
person controlling such Holder within the meaning of Section 15 of the
Securities Act, with respect to which registration, qualification, or
compliance has been effected pursuant to this Section 1, and each
underwriter, if any, and each person who controls within the meaning of
Section 15 of the Securities Act any underwriter, against all expenses,
claims, losses, damages, and liabilities (or actions, proceedings, or
settlements in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
prospectus, offering circular, or other document (including any related
registration statement, notification, or the like) incident to any such
registration, qualification, or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of the Securities Act or any rule or regulation
thereunder applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration,
qualification, or compliance, and will reimburse each such Holder, each of
its officers, directors, partners, legal counsel, and accountants and each
person controlling such Holder, each such underwriter, and each person who
controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating and defending or
settling any such claim, loss, damage, liability, or action; PROVIDED,
HOWEVER, that the Company will not be liable in any such case to the extent
that any such claim, loss, damage, liability, or expense arises out of or
is based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular, or other
document (including any related registration statement, notification, or
the like) incident to any such registration, qualification, or compliance,
or based on any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, which statement or omission is based upon written
information furnished to the Company by such Holder or underwriter and
stated to be specifically for use therein. It is agreed that the indemnity
agreement contained in this Section 1.4(a) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability, or action if such
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<PAGE>
settlement is effected without the consent of the Company (which consent
has not been unreasonably withheld).
(b) Each Holder will, if Registrable Securities held by him are
included in the securities as to which such registration, qualification, or
compliance is being effected, indemnify the Company, each of its directors,
officers, partners, legal counsel, and accountants and each underwriter, if
any, of the Company's securities covered by such a registration statement,
each person who controls the Company or such underwriter within the meaning
of Section 15 of the Securities Act, each other such Holder and Other
Stockholder, and each of their officers, directors, and partners, and each
person controlling such Holder or Other Stockholder, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out
of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus,
offering circular, or other document, or any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, and will reimburse the
Company and such Holders, Other Stockholders, directors, officers,
partners, legal counsel, and accountants, persons, underwriters, or control
persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability, or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus,
offering circular, or other document in reliance upon and in conformity
with written information furnished to the Company by such Holder and stated
to be specifically for use therein, provided, however, that the obligations
of such Holder hereunder shall not apply to amounts paid in settlement of
any such claims, losses, damages, or liabilities (or actions in respect
thereof) if such settlement is effected without the consent of such Holder
(which consent shall not be unreasonably withheld).
(c) Each party entitled to indemnification under this Section
1.4 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the
defense of such claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense of such
claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld), and
the Indemnified Party may participate in such defense at such party's
expense, and provided further that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 1.4, to the extent such failure is not
prejudicial. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement that does not
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<PAGE>
include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be
reasonably required in connection with defense of such claim and litigation
resulting therefrom.
(d) If the indemnification provided for in this Section 1.4 is
held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage, or
expense referred to therein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party hereunder, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such loss,
liability, claim, damage, or expense in such proportion as is appropriate
to reflect the relative fault of the Indemnifying Party on the one hand and
of the Indemnified Party on the other in connection with the statements or
omissions that resulted in such loss, liability, claim, damage, or expense
as well as any other relevant equitable considerations. The relative fault
of the Indemnifying Party and of the Indemnified Party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the
Indemnified Party and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or
omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten
public offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall control.
1.5 INFORMATION BY HOLDER. Each Holder of Registrable Securities
shall furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request
in writing and as shall be reasonably required in connection with any
registration, qualification, or compliance referred to in this Section 1.
1.6 RULE 144 REPORTING. With a view to making available the benefits
of certain rules and regulations of the Commission that may permit the sale
of "restricted securities" to the public without registration, the Company
agrees to use its best efforts to:
(a) Make and keep public information regarding the Company
available as those terms are understood and defined in Rule 144 under the
Securities Act, at all times from and after ninety (90) days following the
effective date of the first registration under the Securities Act filed by
the Company for an offering of its securities to the general public;
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<PAGE>
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act at any time after it has become subject to such reporting
requirements;
(c) So long as a Holder owns any "restricted securities" within
the meaning of Rule 144, furnish to the Holder forthwith upon written
request a written statement by the Company as to its compliance with the
reporting requirements of Rule 144 (at any time from and after ninety (90)
days following the effective date of the first registration statement filed
by the Company for an offering of its securities to the general public),
and of the Securities Act and the Exchange Act (at any time after it has
become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and
documents so filed as a Holder may reasonably request in availing itself of
any rule or regulation of the Commission allowing a Holder to sell any such
securities without registration.
1.7 TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights to
cause the Company to register securities granted to a Holder by the Company
under this Section 1 may be transferred or assigned by a Holder only to a
transferee or assignee of not less than _______ Shares (as presently
constituted and proportionately adjusted for any increase or decrease in
the number of Shares resulting from (a) a subdivision or consolidation of
Shares or any other capital adjustment, (b) the payment of a stock dividend
(i.e. an issuance of stock with respect to Shares issued and outstanding),
or (c) other increase or decrease in such Shares affected without receipt
of consideration by the Company), provided that the Company is given
written notice at the time of or within a reasonable time after said
transfer or assignment, stating the name and address of the transferee or
assignee and identifying the securities with respect to which such
registration rights are being transferred or assigned, and, provided
further, that the transferee or assignee of such rights assumes the
obligations of such Holder under this Section 1.
1.8 "MARKET STAND-OFF" AGREEMENT. If requested by the Company and an
underwriter of the Shares (or other securities) of the Company, each
Stockholder agrees that it shall not sell or otherwise transfer or dispose
of any Shares (or other securities) of the Company held by such stockholder
(other than those included in the registration) during the one hundred
eighty (180) day period following the effective date of a registration
statement of the Company filed under the Securities Act.
The Company may impose stop-transfer instructions with respect to the
shares (or securities) subject to the foregoing restriction until the end
of said one hundred eighty (180) day period.
1.9 ALLOCATION OF REGISTRATION OPPORTUNITIES. In any circumstance in
which all of the Registrable Securities and other securities of the Company
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<PAGE>
having registration rights (the "Other Shares") requested to be included in
a registration on behalf of the Holders or Other Stockholders cannot be so
included as a result of limitations of the aggregate number of Registrable
Securities and Other Shares that may be so included, the number of
Registrable Securities and Other Shares that may be so included shall be
allocated among the Holders and Other Stockholders requesting inclusion of
securities pro rata on the basis of the number of Registrable Securities
and Other Shares that are held by such Holders and Other Stockholders;
provided, however, in order that such allocation shall not operate to
reduce the aggregate number of Registrable Securities and Other Shares to
be included in such registration, if any Holder or Other Stockholder does
not request inclusion of the maximum number of shares of Registrable
Securities and Other Shares allocated to him pursuant to the
above-described procedure, the remaining portion of his allocation shall be
reallocated among those requesting Holders and Other Stockholders whose
allocations did not satisfy their requests pro rata on the basis of the
number of shares of Registrable Securities and Other Shares that would be
held by such Holders and Other Stockholders, assuming inclusion, and this
procedure shall be repeated until all of the shares of Registrable
Securities and Other Shares which may be included in the registration on
behalf of the Holders and Other Stockholders have been so allocated.
1.10 DELAY OF REGISTRATION. No Holder shall have any right to take
any action to restrain, enjoin, or otherwise delay any registration as the
result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.11 REGISTRATION PROCEDURES. In the case of each registration
effected by the Company pursuant to Section 1 hereof, the Company will keep
each Holder advised in writing as to the initiation of each registration
and as to the completion thereof. At its expense, the Company will use its
best efforts to:
(a) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement;
(b) Furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the
prospectus, as a Holder from time to time may reasonably request;
(c) Notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
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<PAGE>
necessary to make the statements therein not misleading or incomplete in
the light of the circumstances then existing, and at the request of any
such seller, prepare and furnish to such seller a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
shares, such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or incomplete in
the light of the circumstances then existing;
(d) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or automated trading
system on which similar securities issued by the Company are then listed,
PROVIDED, HOWEVER, that nothing contained herein shall require the Company
to list the Registrable Securities if no similar securities of the Company
are then listed; and
(e) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission.
1.12 TERMINATION OF REGISTRATION RIGHTS. The right of any Holder to
request inclusion in any registration pursuant to Section 1.2 shall
terminate on the later of (i) the first date that all Registrable
Securities held by such Holder may immediately be sold under Rule 144
during any ninety (90) day period, or (ii) the first anniversary of the
date of this Agreement.
SECTION 2
MISCELLANEOUS
2.1 GOVERNING LAW. This Agreement shall be governed in all respects
by the laws of the State of Michigan.
2.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
2.3 ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement (including
the Exhibits hereto) constitutes the full and entire understanding and
agreement between the parties with regard to the subject matter hereof.
Neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated, except by a written instrument signed by the
Company and the holders of at least a majority of the Registrable Shares
and any such amendment, waiver, discharge or termination shall be binding
on all the Holders, but in no event shall the obligation of any Holder
hereunder be materially increased, except upon the written consent of such
Holder.
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<PAGE>
2.4 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by United
States first-class mail, postage prepaid, or delivered personally by hand
or nationally recognized courier addressed (a) if to a Holder, as indicated
on the list of Holders attached hereto as EXHIBIT A, or at such other
address as such holder or permitted assignee shall have furnished to the
Company in writing, or (b) if to the Company, at 3104 Logan Valley Road,
Traverse City, Michigan 49685-0348, or at such other address as the Company
shall have furnished to each holder in writing. All such notices and other
written communications shall be effective (i) if mailed, five (5) days
after mailing and (ii) if otherwise delivered, upon delivery.
2.5 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any Holder, upon any breach or default of the
Company under this Agreement shall impair any such right, power or remedy
of such Holder nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind
or character on the part of any Holder of any breach or default under this
Agreement or any waiver on the part of any Holder of any provisions or
conditions of this Agreement must be made in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies,
either under this Agreement or by law or otherwise afforded to any Holder,
shall be cumulative and not alternative.
2.6 RIGHTS; SEPARABILITY. Unless otherwise expressly provided
herein, a Holder's rights hereunder are several rights, not rights jointly
held with any of the other Holders. In case any provision of the Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
2.7 INFORMATION CONFIDENTIAL. Each Holder acknowledges that the
information received by it pursuant hereto may be confidential and for its
use only, and it will not use such confidential information in violation of
the Exchange Act or reproduce, disclose or disseminate such information to
any other person (other than its employees or agents having a need to know
the contents of such information, and its attorneys), except in connection
with the exercise of rights under this Agreement, unless the Company has
made such information available to the public generally or such Holder is
required to disclose such information by a governmental body.
2.8 TITLES AND SUBTITLES. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and
are not to be considered in construing this Agreement.
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<PAGE>
2.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Rights
Agreement effective as of the day and year first above written.
MILLER EXPLORATION COMPANY
By
------------------------------------------
Its
-------------------------------------
STOCKHOLDERS: (See signature pages
attached hereto)
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<PAGE>
RIGHTS AGREEMENT SIGNATURE PAGES
INDIVIDUAL:
Date: November __, 1997
_____________________________________
Name of Individual
_____________________________________
(Signature)
Address of Principal Residence :
_____________________________________
_____________________________________
_____________________________________
_____________________________________
Social Security Number
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<PAGE>
CORPORATION:
Please include articles of incorporation and corporate resolutions
certified by the secretary of the corporation authorizing execution of this
Agreement by the person signing below.
Date: November __, 1997
_____________________________________
Name of Corporation
_____________________________________
Principal Place of Business Address:
_____________________________________
_____________________________________
_____________________________________
State of Incorporation
By: _________________________________
(Authorized Signature)
_____________________________________
(Print Name and Title of Signatory)
_____________________________________
Tax Identification Number
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<PAGE>
PARTNERSHIP:
Please include a certified copy of the Partnership Agreement or any other
documentation necessary to establish the authority of the person signing
this Agreement.
Date: November __, 1997
_____________________________________
Name of Partnership
Principal Place of Business Address:
_____________________________________
_____________________________________
_____________________________________
State of Formation
By: __________________________________
(Authorized Signature)
_____________________________________
(Print Name and Title of Signatory)
_____________________________________
Tax Identification Number
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<PAGE>
TRUST:
Please include a certified copy of the Trust Agreement and any other
documentation necessary to establish the authority of the person signing
this Agreement.
Date: November __, 1997
_____________________________________
Name of Trust
Principal Place of Business Address:
_____________________________________
_____________________________________
_____________________________________
State of Settlement
By:__________________________________
(Authorized Signature)
_____________________________________
(Print Name and Title of Signatory)
_____________________________________
Tax Identification Number
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<PAGE>
OTHER:
Please specify the nature of the entity and provide all documentation
necessary to establish the power of such entity to subscribe for the shares
and the authority of the person signing this Agreement.
Date: November __, 1997
_____________________________________
Name of Entity
Principal Place of Business Address:
_____________________________________
_____________________________________
_____________________________________
State of Formation
By:__________________________________
(Signature of Authorized Person)
_____________________________________
(Print Name and Title of Signatory)
_____________________________________
Tax Identification Number
-16-
<PAGE>
CORPORATE ACKNOWLEDGMENT
STATE OF ___________________ )
) SS.
COUNTY OF _________________ )
On this _____ day of _______________, 19 ___, before me, a Notary
Public in and for said State, duly commissioned and sworn, personally
appeared _______________________, personally known to me (or proved to me
on the basis of satisfactory evidence) to be the
___________________________________________ of
_______________________________, a ______________________________
corporation, and executed the within instrument, on behalf of such
corporation, and acknowledged to me that such corporation executed the
same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal on the date in this certificate first above written.
_____________________________________
, Notary Public
My Commission expires:
_____________________________________
(Notary Seal)
-17-
<PAGE>
PARTNERSHIP ACKNOWLEDGMENT
STATE OF ___________________ )
) SS.
COUNTY OF _________________ )
On this _____ day of _______________, 19 ___, before me, a Notary
Public in and for said State, duly commissioned and sworn, personally
appeared _______________________, personally known to me (or proved to me
on the basis of satisfactory evidence) to be the General Partner of
_______________________________, a ______________________________
partnership, and executed the within instrument, on behalf of such
corporation, and acknowledged to me that such corporation executed the
same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal on the date in this certificate first above written.
_____________________________________
, Notary Public
My Commission expires:
_____________________________________
(Notary Seal)
-18-
<PAGE>
TRUST ACKNOWLEDGMENT
STATE OF ___________________ )
) SS.
COUNTY OF _________________ )
On this _____ day of _______________, 19 ___, before me, a Notary
Public in and for said State, duly commissioned and sworn, personally
appeared _______________________, personally known to me (or proved to me
on the basis of satisfactory evidence) to be a Trustee of the
_______________________________, Trust, and executed the within instrument,
on behalf of said Trust.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal on the date in this certificate first above written.
_____________________________________
, Notary Public
My Commission expires:
_____________________________________
(Notary Seal)
-19-
<PAGE>
OTHER ACKNOWLEDGMENT
STATE OF ___________________ )
) SS.
COUNTY OF _________________ )
On this _____ day of _______________, 19 ___, before me, a Notary
Public in and for said State, duly commissioned and sworn, personally
appeared _______________________, personally known to me (or proved to me
on the basis of satisfactory evidence) to be a
_______________________________, of ______________________________, and
executed the within instrument, on behalf of said
___________________________________.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal on the date in this certificate first above written.
_____________________________________
, Notary Public
My Commission expires:
_____________________________________
(Notary Seal)
-20-
<PAGE>
INDIVIDUAL ACKNOWLEDGMENT
STATE OF ___________________ )
) SS.
COUNTY OF _________________ )
On this _____ day of _______________, 19 ___, before me, a Notary
Public in and for said State, duly commissioned and sworn, personally
appeared _______________________ and executed the within instrument, on his
or her own behalf.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal on the date in this certificate first above written.
_____________________________________
, Notary Public
My Commission expires:
_____________________________________
(Notary Seal)
-21-
<PAGE>
Exhibit 2.2(a)
[LETTERHEAD APPEARS HERE]
November 12, 1997
Facsimile Transmission
- ----------------------
To: Combination Transaction Participants
Dear Participants:
In reference to the Clarification of Registration Rights Agreement please
----------------------------------------------
note the following change:
The first portion of Section 1.7 of the registration Rights Agreement
should read as follows (italicized language inserted):
1.7 Transfer or Assignment of Registration Rights. The rights to cause
---------------------------------------------
the company to register securities granted to a Holder by the company
under this Section1 may be transferred or assigned by a Holder only
to a transferee or assignee of not less than one half of the Shares
held by such Holder on the date hereof (as presently constituted and
proportionately adjusted....
Please sign in the space provided below and fax to me as soon as possible
in Dallas at 214-443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
Agreed and Accepted:
By: /s/ David A. Miller
-----------------------------------
David A. Miller
Date: November 12, 1997
<PAGE>
[LETTERHEAD APPEARS HERE]
November 12, 1997
Facsimile Transmission
- ----------------------
To: Combination Transaction Participants
Dear Participants:
In reference to the Clarification of Registration Rights Agreement please
----------------------------------------------
note the following change:
The first portion of Section 1.7 of the registration Rights Agreement
should read as follows (italicized language inserted):
1.7 Transfer or Assignment of Registration Rights. The rights to cause
---------------------------------------------
the company to register securities granted to a Holder by the company
under this Section1 may be transferred or assigned by a Holder only
to a transferee or assignee of not less than one half of the Shares
held by such Holder on the date hereof (as presently constituted and
proportionately adjusted....
Please sign in the space provided below and fax to me as soon as possible
in Dallas at 214-443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
Agreed and Accepted:
By: /s/ Giorgio Vozza
-----------------------------------
Giorgio Vozza
Date: November 12, 1997
<PAGE>
[LETTERHEAD APPEARS HERE]
November 12, 1997
Facsimile Transmission
- ----------------------
To: Combination Transaction Participants
Dear Participants:
In reference to the Clarification of Registration Rights Agreement please
----------------------------------------------
note the following change:
The first portion of Section 1.7 of the registration Rights Agreement
should read as follows (italicized language inserted):
1.7 Transfer or Assignment of Registration Rights. The rights to cause
---------------------------------------------
the company to register securities granted to a Holder by the company
under this Section1 may be transferred or assigned by a Holder only
to a transferee or assignee of not less than one half of the Shares
held by such Holder on the date hereof (as presently constituted and
proportionately adjusted....
Please sign in the space provided below and fax to me as soon as possible
in Dallas at 214-443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
Agreed and Accepted:
By: /s/ Ken Foote
-----------------------------------
Ken Foote
Date: November 12, 1997
<PAGE>
[LETTERHEAD APPEARS HERE]
November 12, 1997
Facsimile Transmission
- ----------------------
To: Combination Transaction Participants
Dear Participants:
In reference to the Clarification of Registration Rights Agreement please
----------------------------------------------
note the following change:
The first portion of Section 1.7 of the registration Rights Agreement
should read as follows (italicized language inserted):
1.7 Transfer or Assignment of Registration Rights. The rights to cause
---------------------------------------------
the company to register securities granted to a Holder by the company
under this Section1 may be transferred or assigned by a Holder only
to a transferee or assignee of not less than one half of the Shares
held by such Holder on the date hereof (as presently constituted and
proportionately adjusted....
Please sign in the space provided below and fax to me as soon as possible
in Dallas at 214-443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
Agreed and Accepted: SASI Minerals Company
By: /s/ William Casey McManemin
-----------------------------------
William Casey McManemin
Attorney-In-Fact
Date: November 12, 1997
<PAGE>
[LETTERHEAD APPEARS HERE]
November 12, 1997
Facsimile Transmission
- ----------------------
To: Combination Transaction Participants
Dear Participants:
In reference to the Clarification of Registration Rights Agreement please
----------------------------------------------
note the following change:
The first portion of Section 1.7 of the registration Rights Agreement
should read as follows (italicized language inserted):
1.7 Transfer or Assignment of Registration Rights. The rights to cause
---------------------------------------------
the company to register securities granted to a Holder by the company
under this Section1 may be transferred or assigned by a Holder only
to a transferee or assignee of not less than one half of the Shares
held by such Holder on the date hereof (as presently constituted and
proportionately adjusted....
Please sign in the space provided below and fax to me as soon as possible
in Dallas at 214-443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
Agreed and Accepted:
By: /s/ L.H. Hardy
-----------------------------------
L.H. Hardy
Date: November 12, 1997
<PAGE>
[LETTERHEAD APPEARS HERE]
November 12, 1997
Facsimile Transmission
- ----------------------
To: Combination Transaction Participants
Dear Participants:
In reference to the Clarification of Registration Rights Agreement please
----------------------------------------------
note the following change:
The first portion of Section 1.7 of the registration Rights Agreement
should read as follows (italicized language inserted):
1.7 Transfer or Assignment of Registration Rights. The rights to cause
---------------------------------------------
the company to register securities granted to a Holder by the company
under this Section1 may be transferred or assigned by a Holder only
to a transferee or assignee of not less than one half of the Shares
held by such Holder on the date hereof (as presently constituted and
proportionately adjusted....
Please sign in the space provided below and fax to me as soon as possible
in Dallas at 214-443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
Agreed and Accepted:
By: /s/ Dan A. Hughes
-----------------------------------
Dan A. Hughes
Date: November 12, 1997
<PAGE>
[LETTERHEAD APPEARS HERE]
November 12, 1997
Facsimile Transmission
- ----------------------
To: Combination Transaction Participants
Dear Participants:
In reference to the Clarification of Registration Rights Agreement please
----------------------------------------------
note the following change:
The first portion of Section 1.7 of the registration Rights Agreement
should read as follows (italicized language inserted):
1.7 Transfer or Assignment of Registration Rights. The rights to cause
---------------------------------------------
the company to register securities granted to a Holder by the company
under this Section1 may be transferred or assigned by a Holder only
to a transferee or assignee of not less than one half of the Shares
held by such Holder on the date hereof (as presently constituted and
proportionately adjusted....
Please sign in the space provided below and fax to me as soon as possible
in Dallas at 214-443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
Agreed and Accepted:
By: /s/ Sue Ellen Bell
-----------------------------------
Sue Ellen Bell
Date: November 12, 1997
<PAGE>
[LETTERHEAD APPEARS HERE]
November 12, 1997
Facsimile Transmission
- ----------------------
To: Combination Transaction Participants
Dear Participants:
In reference to the Clarification of Registration Rights Agreement please
----------------------------------------------
note the following change:
The first portion of Section 1.7 of the registration Rights Agreement
should read as follows (italicized language inserted):
1.7 Transfer or Assignment of Registration Rights. The rights to cause
---------------------------------------------
the company to register securities granted to a Holder by the company
under this Section1 may be transferred or assigned by a Holder only
to a transferee or assignee of not less than one half of the Shares
held by such Holder on the date hereof (as presently constituted and
proportionately adjusted....
Please sign in the space provided below and fax to me as soon as possible
in Dallas at 214-443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
Agreed and Accepted:
By: /s/ Albert F. Stevens/Joanna R. Stephens
-----------------------------------------
Albert F. Stevens/Joanna R. Stephens
Date: November 12, 1997
<PAGE>
[LETTERHEAD APPEARS HERE]
November 12, 1997
Facsimile Transmission
- ----------------------
To: Combination Transaction Participants
Dear Participants:
In reference to the Clarification of Registration Rights Agreement please
----------------------------------------------
note the following change:
The first portion of Section 1.7 of the registration Rights Agreement
should read as follows (italicized language inserted):
1.7 Transfer or Assignment of Registration Rights. The rights to cause
---------------------------------------------
the company to register securities granted to a Holder by the company
under this Section1 may be transferred or assigned by a Holder only
to a transferee or assignee of not less than one half of the Shares
held by such Holder on the date hereof (as presently constituted and
proportionately adjusted....
Please sign in the space provided below and fax to me as soon as possible
in Dallas at 214-443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
Agreed and Accepted:
By: /s/ Charles F. Knight
-----------------------------------------
Charles F. Knight
Date: November 12, 1997
<PAGE>
[LETTERHEAD APPEARS HERE]
November 12, 1997
Facsimile Transmission
- ----------------------
To: Combination Transaction Participants
Dear Participants:
In reference to the Clarification of Registration Rights Agreement please
----------------------------------------------
note the following change:
The first portion of Section 1.7 of the registration Rights Agreement
should read as follows (italicized language inserted):
1.7 Transfer or Assignment of Registration Rights. The rights to cause
---------------------------------------------
the company to register securities granted to a Holder by the company
under this Section1 may be transferred or assigned by a Holder only
to a transferee or assignee of not less than one half of the Shares
held by such Holder on the date hereof (as presently constituted and
proportionately adjusted....
Please sign in the space provided below and fax to me as soon as possible
in Dallas at 214-443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
Agreed and Accepted:
By: /s/ G. O. Brueckner
-----------------------------------------
G. O. Brueckner
Date: November 12, 1997
<PAGE>
[LETTERHEAD APPEARS HERE]
November 12, 1997
Facsimile Transmission
- ----------------------
To: Combination Transaction Participants
Dear Participants:
In reference to the Clarification of Registration Rights Agreement please
----------------------------------------------
note the following change:
The first portion of Section 1.7 of the registration Rights Agreement
should read as follows (italicized language inserted):
1.7 Transfer or Assignment of Registration Rights. The rights to cause
---------------------------------------------
the company to register securities granted to a Holder by the company
under this Section1 may be transferred or assigned by a Holder only
to a transferee or assignee of not less than one half of the Shares
held by such Holder on the date hereof (as presently constituted and
proportionately adjusted....
Please sign in the space provided below and fax to me as soon as possible
in Dallas at 214-443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
Agreed and Accepted:
By: /s/ Tom M. Ostergard
-----------------------------------------
Tom M. Ostergard
Date: November 13, 1997
<PAGE>
[LETTERHEAD APPEARS HERE]
November 12, 1997
Facsimile Transmission
- ----------------------
To: Combination Transaction Participants
Dear Participants:
In reference to the Clarification of Registration Rights Agreement please
----------------------------------------------
note the following change:
The first portion of Section 1.7 of the registration Rights Agreement
should read as follows (italicized language inserted):
1.7 Transfer or Assignment of Registration Rights. The rights to cause
---------------------------------------------
the company to register securities granted to a Holder by the company
under this Section1 may be transferred or assigned by a Holder only
to a transferee or assignee of not less than one half of the Shares
held by such Holder on the date hereof (as presently constituted and
proportionately adjusted....
Please sign in the space provided below and fax to me as soon as possible
in Dallas at 214-443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
Agreed and Accepted:
By: /s/ C. E. Miller
-----------------------------------------
C. E. Miller
Date: November 12, 1997
<PAGE>
[LETTERHEAD APPEARS HERE]
November 12, 1997
Facsimile Transmission
- ----------------------
To: Combination Transaction Participants
Dear Participants:
In reference to the Clarification of Registration Rights Agreement please
----------------------------------------------
note the following change:
The first portion of Section 1.7 of the registration Rights Agreement
should read as follows (italicized language inserted):
1.7 Transfer or Assignment of Registration Rights. The rights to cause
---------------------------------------------
the company to register securities granted to a Holder by the company
under this Section1 may be transferred or assigned by a Holder only
to a transferee or assignee of not less than one half of the Shares
held by such Holder on the date hereof (as presently constituted and
proportionately adjusted....
Please sign in the space provided below and fax to me as soon as possible
in Dallas at 214-443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
Agreed and Accepted:
By: /s/ Kelly E. Miller
-----------------------------------------
Kelly E. Miller
Date: November 12, 1997
<PAGE>
[LETTERHEAD APPEARS HERE]
November 12, 1997
Facsimile Transmission
- ----------------------
To: Combination Transaction Participants
Dear Participants:
In reference to the Clarification of Registration Rights Agreement please
----------------------------------------------
note the following change:
The first portion of Section 1.7 of the registration Rights Agreement
should read as follows (italicized language inserted):
1.7 Transfer or Assignment of Registration Rights. The rights to cause
---------------------------------------------
the company to register securities granted to a Holder by the company
under this Section1 may be transferred or assigned by a Holder only
to a transferee or assignee of not less than one half of the Shares
held by such Holder on the date hereof (as presently constituted and
proportionately adjusted....
Please sign in the space provided below and fax to me as soon as possible
in Dallas at 214-443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
Agreed and Accepted:
By: /s/ Howard Holsman
-----------------------------------------
Howard Holsman
Date: November 14, 1997
<PAGE>
[LETTERHEAD APPEARS HERE]
November 12, 1997
Facsimile Transmission
- ----------------------
To: Combination Transaction Participants
Dear Participants:
In reference to the Clarification of Registration Rights Agreement please
----------------------------------------------
note the following change:
The first portion of Section 1.7 of the registration Rights Agreement
should read as follows (italicized language inserted):
1.7 Transfer or Assignment of Registration Rights. The rights to cause
---------------------------------------------
the company to register securities granted to a Holder by the company
under this Section1 may be transferred or assigned by a Holder only
to a transferee or assignee of not less than one half of the Shares
held by such Holder on the date hereof (as presently constituted and
proportionately adjusted....
Please sign in the space provided below and fax to me as soon as possible
in Dallas at 214-443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
Agreed and Accepted:
By: /s/ Jerry D. Campbell
-----------------------------------------
Jerry D. Campbell
Date: November 13, 1997
<PAGE>
Exhibit 2.2(b)
[LETTERHEAD APPEARS HERE]
November 12, 1997
Facsimile Transmission
- ----------------------
To: Combination Transaction Participants
Identified on the Attached Revised Exhibit B
Dear Participant:
Thank you for promptly reviewing the various documents and for your
expeditious reply. I apologize that the documents needed to be modified. Timing
is everything, and I hope you can appreciate all that we have to do in the
window of time available. I am currently at the printer finalizing the
Registration Statement before filing with the Securities and Exchange
Commission.
There are two additional matters requiring your immediate attention,
which need to be cared for prior to our filing.
IPO Valuation Error
-------------------
Much to my embarrassment, we were advised of a mathematical error in the
IPO valuation worksheet (Exhibit E to the Private Placement Memorandum). On page
2, under Undeveloped Prospects - Mirando Hondo (Hinnant 114#1), the value of
SASI's interest was not considered, and value was attributed to other parties
who have no interest in that prospect. It is important and fair to all parties
that this adjustment be proportionally applied to all parties. A corrected IPO
valuation worksheet and a revised Exhibit B to the Exchange and Combination
Agreement showing the recomputed Applicable Percentage of Exchange Stock
allocated to each Contributor are attached.
Clarification of Indemnity Language
-----------------------------------
Without limiting the provisions of Section 6.1 and Section 7.4 of the
Exchange and Combination Agreement, the Company and the Contributors hereby
acknowledge and agree that where the Company's indemnification obligations under
Section 6.1(c) and Section 7.4(a) of the Exchange and Combination Agreement run
in favor of the "Contributors", those obligations shall be deemed to run in
favor of the Contributors and their respective officers, directors, partners,
authorized agents, legal counsel and accountants.
Without limiting the provisions of Section 1.4(a) of the Registration
Rights Agreement, the Company and the Holders hereby acknowledge and agree that
where the Company's indemnification obligations under Section 1.4(a) of the
Registration Rights Agreement run in favor of the "Holders", those obligations
shall be deemed to run in favor of the Holders and their respective officers,
directors, authorized agents, legal counsel and accountants.
<PAGE>
Combination Transaction Participants
Page 2
November 12, 1997
Please feel free to call me at (214) 521-4767, ext. 134, if you have any
questions concerning this letter or any other matter regarding the Combination
Transaction.
If you agree to the foregoing proposal, please sign in the space below
and fax a copy of the signed version to me at (214)443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
/sc
Enclosure
Agreed and accepted:
By: /s/ David A. Miller
-----------------------
David A. Miller
Date: November 12, 1997
----------------------
<PAGE>
Combination Transaction Participants
Page 3
November 12, 1997
Please feel free to call me at (214) 521-4767, ext. 134, if you have any
questions concerning this letter or any other matter regarding the Combination
Transaction.
If you agree to the foregoing proposal, please sign in the space below
and fax a copy of the signed version to me at (214)443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
/sc
Enclosure
Agreed and accepted:
By: /s/ Giorgio Vozza
-----------------------
Giorgio Vozza
Date: November 12, 1997
----------------------
<PAGE>
Combination Transaction Participants
Page 4
November 12, 1997
Please feel free to call me at (214) 521-4767, ext. 134, if you have any
questions concerning this letter or any other matter regarding the Combination
Transaction.
If you agree to the foregoing proposal, please sign in the space below
and fax a copy of the signed version to me at (214)443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
/sc
Enclosure
Agreed and accepted:
By: /s/ Ken Foote
-----------------------
Ken Foote
Date: November 12, 1997
----------------------
<PAGE>
Combination Transaction Participants
Page 5
November 12, 1997
Please feel free to call me at (214) 521-4767, ext. 134, if you have any
questions concerning this letter or any other matter regarding the Combination
Transaction.
If you agree to the foregoing proposal, please sign in the space below
and fax a copy of the signed version to me at (214)443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
/sc
Enclosure
Agreed and accepted:
SASI Minerals Company
By: /s/ William Casey McManemin
---------------------------
William Casey McManemin
Attorney-In-Fact
Date: November 12, 1997
----------------------
<PAGE>
Combination Transaction Participants
Page 6
November 12, 1997
Please feel free to call me at (214) 521-4767, ext. 134, if you have any
questions concerning this letter or any other matter regarding the Combination
Transaction.
If you agree to the foregoing proposal, please sign in the space below
and fax a copy of the signed version to me at (214)443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
/sc
Enclosure
Agreed and accepted:
By: /s/ L.H. Hardy
-----------------------
L.H. Hardy
Date: November 12, 1997
----------------------
<PAGE>
Combination Transaction Participants
Page 7
November 12, 1997
Please feel free to call me at (214) 521-4767, ext. 134, if you have any
questions concerning this letter or any other matter regarding the Combination
Transaction.
If you agree to the foregoing proposal, please sign in the space below
and fax a copy of the signed version to me at (214)443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
/sc
Enclosure
Agreed and accepted:
By: /s/ Dan A. Hughes
-----------------------
Dan A. Hughes
Date: November 12, 1997
----------------------
<PAGE>
Combination Transaction Participants
Page 8
November 12, 1997
Please feel free to call me at (214) 521-4767, ext. 134, if you have any
questions concerning this letter or any other matter regarding the Combination
Transaction.
If you agree to the foregoing proposal, please sign in the space below
and fax a copy of the signed version to me at (214)443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
/sc
Enclosure
Agreed and accepted:
By: /s/ Sue Ellen Bell
-----------------------
Sue Ellen Bell
Date: November 12, 1997
----------------------
<PAGE>
Combination Transaction Participants
Page 9
November 12, 1997
Please feel free to call me at (214) 521-4767, ext. 134, if you have any
questions concerning this letter or any other matter regarding the Combination
Transaction.
If you agree to the foregoing proposal, please sign in the space below
and fax a copy of the signed version to me at (214)443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
/sc
Enclosure
Agreed and accepted:
By: /s/ Albert F. Stevens/Joanna R. Stevens
---------------------------------------
Albert F. Stevens/Joanna R. Stevens
Date: November 12, 1997
----------------------
<PAGE>
Combination Transaction Participants
Page 10
November 12, 1997
Please feel free to call me at (214) 521-4767, ext. 134, if you have any
questions concerning this letter or any other matter regarding the Combination
Transaction.
If you agree to the foregoing proposal, please sign in the space below
and fax a copy of the signed version to me at (214)443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
/sc
Enclosure
Agreed and accepted:
By: /s/ Charles F. Knight
---------------------------------------
Charles F. Knight
Date: November 12, 1997
----------------------
<PAGE>
Combination Transaction Participants
Page 11
November 12, 1997
Please feel free to call me at (214) 521-4767, ext. 134, if you have any
questions concerning this letter or any other matter regarding the Combination
Transaction.
If you agree to the foregoing proposal, please sign in the space below
and fax a copy of the signed version to me at (214)443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
/sc
Enclosure
Agreed and accepted:
By: /s/ G. O. Brueckner
---------------------------------------
G. O. Brueckner
Date: November 12, 1997
----------------------
<PAGE>
Combination Transaction Participants
Page 12
November 12, 1997
Please feel free to call me at (214) 521-4767, ext. 134, if you have any
questions concerning this letter or any other matter regarding the Combination
Transaction.
If you agree to the foregoing proposal, please sign in the space below
and fax a copy of the signed version to me at (214)443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
/sc
Enclosure
Agreed and accepted:
By: /s/ Jerry D. Campbell
---------------------------------------
Jerry D. Campbell
Date: November 12, 1997
----------------------
<PAGE>
Combination Transaction Participants
Page 13
November 12, 1997
Please feel free to call me at (214) 521-4767, ext. 134, if you have any
questions concerning this letter or any other matter regarding the Combination
Transaction.
If you agree to the foregoing proposal, please sign in the space below
and fax a copy of the signed version to me at (214)443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
/sc
Enclosure
Agreed and accepted:
By: /s/ C.E. Miller
---------------------------------------
C.E. Miller
Date: November 12, 1997
----------------------
<PAGE>
Combination Transaction Participants
Page 14
November 12, 1997
Please feel free to call me at (214) 521-4767, ext. 134, if you have any
questions concerning this letter or any other matter regarding the Combination
Transaction.
If you agree to the foregoing proposal, please sign in the space below
and fax a copy of the signed version to me at (214)443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
/sc
Enclosure
Agreed and accepted:
By: /s/ Kelly E. Miller
---------------------------------------
Kelly E. Miller
Date: November 12, 1997
----------------------
<PAGE>
Combination Transaction Participants
Page 15
November 12, 1997
Please feel free to call me at (214) 521-4767, ext. 134, if you have any
questions concerning this letter or any other matter regarding the Combination
Transaction.
If you agree to the foregoing proposal, please sign in the space below
and fax a copy of the signed version to me at (214)443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
/sc
Enclosure
Agreed and accepted:
By: /s/ Howard Holsman
---------------------------------------
Howard Holsman
Date: November 12, 1997
----------------------
<PAGE>
Combination Transaction Participants
Page 16
November 12, 1997
Please feel free to call me at (214) 521-4767, ext. 134, if you have any
questions concerning this letter or any other matter regarding the Combination
Transaction.
If you agree to the foregoing proposal, please sign in the space below
and fax a copy of the signed version to me at (214)443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
/sc
Enclosure
Agreed and accepted:
By: /s/ Dennis LeJeune
---------------------------------------
Dennis LeJeune
Date: November 12, 1997
----------------------
<PAGE>
Combination Transaction Participants
Page 17
November 12, 1997
Please feel free to call me at (214) 521-4767, ext. 134, if you have any
questions concerning this letter or any other matter regarding the Combination
Transaction.
If you agree to the foregoing proposal, please sign in the space below
and fax a copy of the signed version to me at (214)443-1180.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
/sc
Enclosure
Agreed and accepted:
By: /s/ Tom M. Ostergard
---------------------------------------
Tom M. Ostergard
Date: November 12, 1997
----------------------
<PAGE>
Exhibit 2.2(c)
[LOGO OF MILLER OIL
CORPORATION APPEARS HERE]
November 12, 1997
Fascimile Transmission
- ----------------------
To: Combination Transaction Participants
Dear Participant:
As you are aware, we have been discussing a possible acquisition by Miller
Exploration Company ("MEC") of a significant additional interest in the
Mississippi Salt Dome properties to be owned by MEC after consummation of the
Combination Transaction.
We are contemplating a transaction in which the closing would be
conditioned upon closing of the initial public offering. We may be required,
however, to make a non-refundable down payment of at least 5% of the purchase
price with the seller. The down payment will be made by Miller Oil Corporation
("MOC") on behalf of the participants in the Combination Transaction.
To summarize the proposed transaction, upon closing of the initial public
offering, MEC would acquire all of Amerada Hess Corporation's ("AHC") interests
in the Mississippi Salt Dome basin properties.
The interests acquired from AHC would include a 75% working interest in the
AMIs over seven (7) salt domes, a 50% working interest in the AMIs over two (2)
salt domes, AHC's interest (subject to farmout agreements) in two (2) other
domes, field office, equipment, facilities, flow lines, seismic data, computer
mapping database, joint venture agreements, and gas purchase, transportation and
processing contracts. MEC may also employ some of AHC's personnel.
The terms of the proposed transaction are as follows: The purchase price
would be approximately $50 million, payable $2.5 million as a non-refundable
down payment upon execution of a purchase and sale agreement, $42.5 million upon
closing within a short period after the closing of the initial public offering
and $5 million from a percentage of the revenue stream of and when MEC has
recovered $45 million, its capital expenditures for exploration and development
attributable to the acquired interest and a return on its investment. The
effective date would be approximately November 1, 1997.
This acquisition would require the issuance of additional stock and, as a
result your proportionate ownership in MEC would be reduced. It should be
recognized that, although your percentage of ownership would be less, you would
own your proportionate share of a company with a higher valuation.
<PAGE>
Combination Transaction Participants
Page 2
November 12, 1997
No assurance can be given as to whether the proposed transaction will be
consummated or that the terms would be the same as discussed above.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
I hereby confirm receipt of this letter and my invesment decision evidenced in
the Exchange and Combination Agreement.
By: /s/ Albert F. Stevens/Joanna R. Stevens
----------------------------------------
Albert F. Stevens/Joanna R. Stevens
Date: November 12, 1997
--------------------------
<PAGE>
Combination Transaction Participants
Page 2
November 12, 1997
No assurance can be given as to whether the proposed transaction will be
consummated or that the terms would be the same as discussed above.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
I hereby confirm receipt of this letter and my invesment decision evidenced in
the Exchange and Combination Agreement.
By: /s/ Charles F. Knight
----------------------------------------
Charles F. Knight
Date: November 12, 1997
--------------------------
<PAGE>
Combination Transaction Participants
Page 2
November 12, 1997
No assurance can be given as to whether the proposed transaction will be
consummated or that the terms would be the same as discussed above.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
I hereby confirm receipt of this letter and my invesment decision evidenced in
the Exchange and Combination Agreement.
By: /s/ L. H. Hardy
----------------------------------------
L. H. Hardy
Date: November 14, 1997
--------------------------
<PAGE>
Combination Transaction Participants
Page 2
November 12, 1997
No assurance can be given as to whether the proposed transaction will be
consummated or that the terms would be the same as discussed above.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
I hereby confirm receipt of this letter and my invesment decision evidenced in
the Exchange and Combination Agreement.
By: /s/ G. O. Brueckner
----------------------------------------
G. O. Brueckner
Date: November 12, 1997
--------------------------
<PAGE>
Combination Transaction Participants
Page 2
November 12, 1997
No assurance can be given as to whether the proposed transaction will be
consummated or that the terms would be the same as discussed above.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
I hereby confirm receipt of this letter and my invesment decision evidenced in
the Exchange and Combination Agreement.
SASI Minerals Company
By: /s/ William Casey McManemin
----------------------------------------
William Casey McManemin
Attorney-in-fact
Date: November 13, 1997
--------------------------
<PAGE>
Combination Transaction Participants
Page 2
November 12, 1997
No assurance can be given as to whether the proposed transaction will be
consummated or that the terms would be the same as discussed above.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
I hereby confirm receipt of this letter and my invesment decision evidenced in
the Exchange and Combination Agreement.
By: /s/ David A. Miller
----------------------------------------
David A. Miller
Date: November 13, 1997
--------------------------
<PAGE>
Combination Transaction Participants
Page 2
November 12, 1997
No assurance can be given as to whether the proposed transaction will be
consummated or that the terms would be the same as discussed above.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
I hereby confirm receipt of this letter and my invesment decision evidenced in
the Exchange and Combination Agreement.
By: /s/ Giorgio Vozza
----------------------------------------
Giorgio Vozza
Date: November 14, 1997
--------------------------
<PAGE>
Combination Transaction Participants
Page 2
November 12, 1997
No assurance can be given as to whether the proposed transaction will be
consummated or that the terms would be the same as discussed above.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
I hereby confirm receipt of this letter and my invesment decision evidenced in
the Exchange and Combination Agreement.
By: /s/ Tom Ostergard
----------------------------------------
Tom Ostergard
Date: November 13, 1997
--------------------------
<PAGE>
Combination Transaction Participants
Page 2
November 12, 1997
No assurance can be given as to whether the proposed transaction will be
consummated or that the terms would be the same as discussed above.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
I hereby confirm receipt of this letter and my invesment decision evidenced in
the Exchange and Combination Agreement.
By: /s/ Jerry D. Campbell
----------------------------------------
Jerry D. Campbell
Date: November 14, 1997
--------------------------
<PAGE>
Combination Transaction Participants
Page 2
November 12, 1997
No assurance can be given as to whether the proposed transaction will be
consummated or that the terms would be the same as discussed above.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
I hereby confirm receipt of this letter and my invesment decision evidenced in
the Exchange and Combination Agreement.
By: /s/ Dan A. Hughes Jr.
----------------------------------------
Dan A. Hughes Jr.
Date: November 13, 1997
--------------------------
<PAGE>
Combination Transaction Participants
Page 2
November 12, 1997
No assurance can be given as to whether the proposed transaction will be
consummated or that the terms would be the same as discussed above.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
I hereby confirm receipt of this letter and my invesment decision evidenced in
the Exchange and Combination Agreement.
By: /s/ C. E. Miller
----------------------------------------
C. E. Miller
Date: November 12, 1997
--------------------------
<PAGE>
Combination Transaction Participants
Page 2
November 12, 1997
No assurance can be given as to whether the proposed transaction will be
consummated or that the terms would be the same as discussed above.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
I hereby confirm receipt of this letter and my invesment decision evidenced in
the Exchange and Combination Agreement.
By: /s/ Kelly E. Miller
----------------------------------------
Kelly E. Miller
Date: November 12, 1997
--------------------------
<PAGE>
Combination Transaction Participants
Page 2
November 12, 1997
No assurance can be given as to whether the proposed transaction will be
consummated or that the terms would be the same as discussed above.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
I hereby confirm receipt of this letter and my invesment decision evidenced in
the Exchange and Combination Agreement.
By: /s/ Howard Holsman
----------------------------------------
Howard Holsman
Date: November 12, 1997
--------------------------
<PAGE>
Combination Transaction Participants
Page 2
November 12, 1997
No assurance can be given as to whether the proposed transaction will be
consummated or that the terms would be the same as discussed above.
Sincerely,
MILLER OIL CORPORATION
/s/ Kelly E. Miller
Kelly E. Miller
President
KEM/sc
I hereby confirm receipt of this letter and my invesment decision evidenced in
the Exchange and Combination Agreement.
By: /s/ Dennis LeJeune
----------------------------------------
Dennis LeJeune
Date: November 14, 1997
--------------------------
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
MILLER EXPLORATION COMPANY
The undersigned, Kelly E. Miller, for the purposes of incorporating
and organizing a corporation under the General Corporation Law of the State
of Delaware, does execute this Certificate of Incorporation and does hereby
certify as follows:
ARTICLE I
The name of the corporation is MILLER EXPLORATION COMPANY.
ARTICLE II
The address of the corporation's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle 19801. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by
the corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV
The total authorized capital stock of the corporation is 20 million
(20,000,000) shares of common stock, $.01 par value per share, and 2 million
(2,000,000) shares of preferred stock, $.01 par value per share.
The following provisions are applicable to the authorized stock of the
corporation:
(A) PROVISIONS APPLICABLE TO COMMON STOCK:
(1) All shares of common stock shall be of one class. Each
holder of common stock shall be entitled to one vote for each share
held by the shareholder.
<PAGE>
(2) Subject to the preferential dividend rights, if any,
applicable to shares of preferred stock and subject to applicable
requirements, if any, with respect to the setting aside of sums for
purchase, retirement or sinking funds for preferred stock, the holders of
common stock shall be entitled to receive, to the extent permitted by law,
such dividends as may be declared from time to time by the Board of
Directors.
(3) In the event of the voluntary or involuntary liquidation,
dissolution, distribution of assets or winding up of the corporation, after
distribution in full of the preferential amounts, if any, to be distributed
to the holders of shares of preferred stock, holders of common stock shall
be entitled to receive all of the remaining assets of the corporation of
whatever kind available for distribution to shareholders ratably in
proportion to the number of shares of common stock held by them. The Board
of Directors may distribute in kind to the holders of common stock such
remaining assets of the corporation or may sell, transfer or otherwise
dispose of all or any part of such remaining assets to any person and may
sell all or any part of the consideration so received and distribute any
balance thereof in kind to holders of common stock. The merger or
consolidation of the corporation into or with any other corporation, or the
merger or consolidation of any other corporation into it, or any purchase
or redemption of shares of stock of the corporation of any class, shall not
be deemed to be a dissolution, liquidation or winding up of the corporation
for the purposes of this paragraph.
(4) The holders of common stock shall not have any preemptive or
other preferential right to additional or treasury shares of the
corporation.
(B) PROVISIONS APPLICABLE TO PREFERRED STOCK:
(1) Provisions to be fixed by the Board of Directors:
The Board of Directors is expressly authorized at any time, and
from time to time, to provide for the issuance of shares of preferred stock
in one or more series, each with such voting powers, full or limited, or
without voting powers, and with such designations, preferences and
relative, participating, conversion, optional or other rights, and such
qualifications, limitations or restrictions thereof, as shall be stated in
the resolution or resolutions providing for the issue thereof adopted by
the Board of Directors, and as are not stated in these Articles of
Incorporation, or any amendments thereto, including (without limiting the
generality of the foregoing) the following:
-2-
<PAGE>
(a) The distinctive designation and number of shares comprising such
series, which number may (except where otherwise provided by the Board of
Directors in creating such series) be increased or decreased (but not below
the number of shares then outstanding) from time to time by action of the
Board of Directors.
(b) The stated value of the shares of such series.
(c) The dividend rate or rates on the shares of such series and the
relation which such dividends shall bear to the dividends payable on any
other class of capital stock or on any other series of preferred stock, the
terms and conditions upon which and the periods in respect of which
dividends shall be payable, whether and upon what conditions such dividends
shall be cumulative and, if cumulative, the date or dates from which
dividends shall accumulate.
(d) Whether the shares of such series shall be redeemable and, if
redeemable, whether redeemable for cash, property or rights, including
securities of any other corporation, and whether redeemable at the option
of the holder or the corporation or upon the happening of a specified
event, the limitations and restrictions with respect to such redemption,
the time or times when, the price or prices or rate or rates at which, the
adjustments with which and the manner in which such shares shall be
redeemable, including the manner of selecting shares of such series for
redemption if less than all shares are to be redeemed.
(e) The rights to which the holders of shares of such series shall be
entitled, and the preferences, if any, over any other series (or of any
other series over such series), upon the voluntary or involuntary
liquidation, dissolution, distribution or winding up of the corporation,
which rights may vary depending on whether such liquidation, dissolution,
distribution or winding up is voluntary or involuntary, and, if voluntary,
may vary at different dates.
(f) Whether the shares of such series shall be subject to the
operation of a purchase, retirement or sinking fund and, if so, whether and
upon what conditions such fund shall be cumulative or noncumulative, the
extent to which and the manner in which such fund shall be applied to the
purchase or redemption of the shares of such series for retirement or to
other corporation purposes and the terms and provisions relative to the
operation thereof.
(g) Whether the shares of such series shall be convertible into or
exchangeable for shares of any other class or of any
-3-
<PAGE>
other series of any class of capital stock of the corporation or any other
corporation, and, if so convertible or exchangeable, the price or prices or
the rate or rates of conversion or exchange and the method, if any, of
adjusting the same, and any other terms and conditions of such conversion
or exchange.
(h) The voting powers, if any, of the shares of such series, and
whether and under what conditions the shares of such series (alone or
together with the shares of one or more of other series having similar
provisions) shall be entitled to vote separately as a single class, for the
election of one or more additional directors of the corporation in case of
dividend arrearages or other specified events, or upon other matters.
(i) Whether the issuance of any additional shares of such series, or
of any shares of any other series, shall be subject to restrictions as to
issuance, or as to the powers, preferences or rights of any such other
series.
(j) Any other preferences, privileges and powers and relative
participating, optional or other special rights, and qualifications,
limitations or restrictions of such series, as the Board of Directors may
deem advisable and as shall not be inconsistent with the provisions of
these Articles of Incorporation.
(2) Provisions Applicable to All Preferred Stock:
(a) All preferred stock shall rank equally and be identical in all
respects except as to the matters permitted to be fixed by the Board of
Directors, and all shares of any one series thereof shall be identical in
every particular except as to the date, if any, from which dividends on
such shares shall accumulate.
(b) Shares of preferred stock redeemed, converted, exchanged,
purchased, retired or surrendered to the corporation, or which have been
issued and reacquired in any manner, may, upon compliance with any
applicable provisions of the General Corporation Law of the State of
Delaware, be given the status of authorized and unissued shares of
preferred stock and may be reissued by the Board of Directors as part of
the series of which they were originally a part or may be reclassified into
and reissued as part of a new series or as a part of any other series, all
subject to the protective conditions or restrictions of any outstanding
series of preferred stock.
-4-
<PAGE>
ARTICLE V
The incorporator of the corporation is Kelly E. Miller, whose mailing
address is 3104 Logan Valley Road, Traverse City, Michigan 49684.
ARTICLE VI
Whenever a compromise or arrangement is proposed between this corporation
and its creditors or any class of them and/or between this corporation and its
stockholders or any class of them, a court of equitable jurisdiction within the
State of Delaware may, on the application in a summary way of this corporation
or of any creditor or stockholder thereof or on the application of any receiver
or receivers appointed for this corporation under <Section>291 of Title 8 of the
Delaware Code or on the application of trustees in dissolution or of any
receiver or receivers appointed for this corporation under <Section>279 of Title
8 of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three fourths in value of the creditors or class
of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to such compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
ARTICLE VII
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized:
(A) To make, amend or repeal the Bylaws of the corporation.
(B) To authorize and cause to be executed mortgages and liens upon the
real and personal property of the corporation.
(C) To set apart out of any of the funds of the corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserve in the manner in which it was created.
(D) To designate one or more committees, each committee to consist of one
or more of the directors of the corporation. The Board may designate one or more
directors as alternate members of any committee, who may
-5-
<PAGE>
replace any absent or disqualified member at any meeting of the committee. The
Bylaws may provide that in the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not the member or members constitute a
quorum, unanimously may appoint another member of the Board of Directors to act
at the meeting in place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
or in the Bylaws of the corporation, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to the following matters: (1) approving or
adopting, or recommending to the stockholders, any action or matter expressly
required by the Delaware General Corporation Law to be submitted to stockholders
for approval or (2) adopting, amending or repealing any Bylaw of the
corporation.
(E) When and as authorized by the stockholders in accordance with law, to
sell, lease or exchange all or substantially all of the property and assets of
the corporation, including its goodwill and its corporate franchises, upon such
terms and conditions and for such consideration, which may consist in whole or
in part of money or property including shares of stock in, and/or other
securities of, any other corporation or corporations, as the Board of Directors
shall deem expedient and in the best interests of the corporation.
(F) To appoint and determine the duties of the officers of the corporation
and to establish the rights, powers, duties, rules and procedures that (1)
govern the Board of Directors, including without limitation the vote required
for any action by the Board of Directors and (2) affect the directors' power to
manage the affairs of the corporation.
(G) To create and issue, by way of distributions to stockholders, as
dividends or otherwise, rights or options entitling the holders thereof to
purchase from the corporation shares of any class or series of the corporation's
capital stock. Such rights or options shall be evidenced in such manner as the
Board shall approve and shall set forth the terms upon which, the time within
which and the price at which such shares may be purchased from the corporation
upon the exercise of any such right or option. The terms and conditions of such
rights or options may include, without limitation, provisions which adjust the
option price or number of shares issuable under such rights or options in the
event of an acquisition of shares or a reorganization, merger, consolidation,
sale of assets or other occurrence involving the corporation, and restrictions
or conditions that preclude or limit the entitlement, exercise or transfer of
such rights or options by any person or persons who, after the date of creation
or issuance of such rights or options, acquires, obtains the right to acquire
-6-
<PAGE>
or offers to acquire, directly or indirectly, beneficial ownership of a
specified number or percentage of the corporation's outstanding voting shares or
other shares of the corporation, or that invalidate or void such rights or
options held by any such person or persons.
(H) No Bylaw shall be adopted by stockholders which shall impair or
impede the implementation of the foregoing.
ARTICLE VIII
Members of the Board of Directors of the corporation shall be elected,
replaced and removed as follows:
(A) The number of directors shall be determined from time to time by
resolution of the Board of Directors, provided that a vacancy in the Board of
Directors need not be filled immediately, and until filled, such lesser number
shall constitute the entire Board of Directors. Except as otherwise provided in
this Article, directors shall be elected at the annual meeting of stockholders,
and each such director elected shall hold office until the annual meeting for
the year in which the director's term expires and until the director's successor
is elected. A director need not be a stockholder, a citizen of the United States
or a resident of the State of Delaware.
(B) The Board of Directors shall be divided into three classes as nearly
equal in number as possible, with the term of office of one class expiring each
year. At each annual meeting of the stockholders, the successors of the class of
directors whose term expires at that meeting shall be elected to hold office for
a term expiring at the annual meeting of stockholders held in the third year
following the year of their election.
(C) Subject to the rights of holders of any classes or series of Preferred
Stock then outstanding, only persons who are nominated in accordance with the
following procedures shall be eligible for election as directors:
(1) Nominations of candidates for election as directors of the
corporation at an annual meeting may be made at the annual meeting of
stockholders by or at the direction of the Board of Directors by any
nominating committee or person appointed by the Board or by any stockholder
of the corporation entitled to vote for the election of Directors at the
annual meeting who complies with any notice procedures contained in the
corporation's Bylaws.
(2) Nominations, other than those made by or at the direction of the
Board, shall be made pursuant to timely notice in writing to the Secretary of
the corporation. To be timely, a stockholder's notice
-7-
<PAGE>
shall be delivered to or mailed and received at the principal executive
offices of the corporation not less than 120 days prior to the date of the
meeting in the case of an annual meeting, and not more than seven days
following the date of notice of the meeting in the case of a special meeting.
Such stockholder's notice to the Secretary shall set forth: (a) as to each
person whom the stockholder proposes to nominate for election or re-election
as a director, (i) the name, age, business address and residence address of
the person; (ii) the principal occupation or employment of the person; (iii)
the class and number of shares of capital stock of the corporation which are
beneficially owned by the person and (v) such other information relating to
the person that is required to be disclosed in solicitations for proxies for
election of directors pursuant to Rule 14a under the Securities Exchange Act
of 1934, as amended; and (b) as to the stockholder giving the notice (i) the
name and record address of the stockholder and (ii) the class and number of
shares of capital stock of the corporation which are beneficially owned by
the stockholder. The corporation may require any proposed nominee to furnish
such other information as may reasonably be required by the corporation to
determine the eligibility of such proposed nominee to serve as director of
the corporation. No person shall be eligible for election as a director of
the corporation unless nominated in accordance with the procedures set forth
herein.
(3) The chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with
the foregoing procedure, and if the chairman so determines, the chairman
shall so declare to the meeting and the defective nomination shall be
disregarded.
(D) Subject to the rights of the holders of any series of Preferred Stock
then outstanding, any vacancy occurring in the Board of Directors caused by
resignation, removal, death, disqualification or other incapacity, and any newly
created directorships resulting from an increase in the number of directors,
shall be filled by a majority vote of directors then in office whether or not a
quorum and shall not be filled by the stockholders. When the number of directors
is changed, any newly created or eliminated directorship shall be so apportioned
among the classes of directors as to make all classes as nearly equal in number
as possible. Each director chosen to fill a vacancy or newly created
directorship shall hold office for the term coinciding with the class of his or
her directorship and until his or her successor shall be elected and qualify. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
(E) Subject to the rights of the holders of any series of Preferred Stock
then outstanding, any director may be removed from office at any time by the
holders of a majority of the shares entitled to vote on the election
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<PAGE>
of directors, but only for cause. "Cause" is present when: (1) the director
whose removal is proposed has been convicted of a felony by a court of competent
jurisdiction and such conviction is no longer subject to direct appeal; (2) the
director has been adjudicated by a court of competent jurisdiction to be liable
for negligence, or misconduct, in the performance of the director's duty to the
corporation in a matter of substantial importance to the corporation and such
adjudication is no longer subject to a direct appeal; (3) the director has
become mentally incompetent, whether or not so adjudicated, which mental
incompetency directly affects the director's ability as a director of the
corporation or (4) the director's actions or failure to act have been in
derogation of the director's duties, as provided in the Bylaws of the
corporation or otherwise provided by law. Any proposal for removal pursuant to
(3) or (4) that is initiated by the Board of Directors for submission to the
stockholders requires the affirmative vote of at least two-thirds of the total
number of directors then in office, excluding the director who is the subject of
the removal action and who shall not be entitled to vote thereon.
(F) Any director may resign at any time and such resignation shall take
effect upon receipt thereof by the Chief Executive Officer or the Secretary
unless otherwise specified in the resignation.
(G) Notwithstanding any provision to the contrary, the provisions contained
in this Section shall not be amended, altered, modified or repealed, and no
provision inconsistent with this Article may be adopted, except upon either (1)
the affirmative vote of the holders of not less than two-thirds of the
outstanding stock of the corporation entitled to vote in elections of directors
or (2) the affirmative vote of a majority of the whole Board of Directors and
the affirmative vote of the holders of a majority of such outstanding stock
present in person or represented by proxy at any meeting of stockholders.
(H) (1) No person who has asserted or hereafter asserts any Claim against the
corporation or any Subsidiary (a "Plaintiff"), and no person who is or
becomes an Affiliate or Associate of any Plaintiff, so long as such person
continues to be such an Affiliate or Associate (a "Related Person"), shall be
eligible to be elected or to serve as a director of the corporation until
after such Claim is Finally Resolved, PROVIDED, that a director of the
corporation who is validly nominated and elected a director and who
thereafter becomes a Plaintiff or Related Person shall not solely by reason
of becoming a Plaintiff or Related Person cease to be a director, but rather
shall continue as a director for the remainder of the term for which the
person was elected or until the person's resignation or removal; PROVIDED
FURTHER, that it shall be the duty of any such director promptly to notify
the Board of Directors that the person is or has become a Plaintiff or
Related Person and to either promptly take all
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steps as may be necessary to cause himself or herself to be neither a
Plaintiff nor Related Person or, if all such steps cannot be or have not been
taken and the person continues to be either a Plaintiff or Related Person and
the pertinent Claim has not been Finally Resolved within the pertinent
Resolution Period, resign as a director of the corporation, effective
immediately, at or before the end of such Resolution Period.
(2) For purposes of this Section, the definitions set forth in Article X
shall apply to such terms used in this Article as if the definitions were
fully restated in this Article. In addition, the following terms shall have
the following respective meanings:
(a) In addition to the definition of "Control" set forth in Article X,
for purposes of this Article, a controlling relationship between any
person and another person shall be deemed to exist whenever (but shall
not be limited to a situation in which) the former person directly or
indirectly holds or owns at least 15% of the outstanding securities of
any class or series of voting securities issued by, or at least 15% of
the aggregate voting power with respect to, the latter person.
(b) "Claim" means any claim, cross-claim, counterclaim or third-party
claim pled in any action, suit or proceeding (whether at law, in equity
or otherwise and regardless of the character of the relief sought) before
or subject to the jurisdiction of any court, governmental agency or
instrumentality, arbitrator or similar body or authority, other than:
(i) one which, when aggregated with all other claims, cross-
claims, counterclaims and third-party claims asserted by the pertinent
Plaintiff or any Related Person of such Plaintiff against the
corporation or any Subsidiary that have not been Finally Resolved, if
decided adversely to the corporation or a Subsidiary, along with all
other aggregated claims, cross-claims, counterclaims and third-party
claims, could not result in an order or orders compelling the
corporation and/or any of its Subsidiaries to pay out or otherwise
dispose of cash or any other assets having an aggregate value in
excess of 10% of the consolidated current assets of the corporation as
of the quarter then most recently ended or render the corporation
insolvent; or
(ii) one arising pursuant to a contract between the corporation
and the pertinent Plaintiff or Related Person that was approved by a
majority of the Continuing Directors (as defined in Article X of this
Certificate of Incorporation), including without limitation claims
arising under any indemnity or employment contract; or
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(iii) one asserted in the right of the corporation.
(c) When used with respect to any particular Claim, the
term "Finally Resolved" means that a final order has been
rendered with respect to such Claim and all available appeals
from such order have been exhausted or the time for seeking such
review has expired.
(d) "Resolution Period" means, in any case, the 30-day
period beginning on the earlier of (i) the date on which a
director of the corporation notifies the Board of Directors that
such director has become a Plaintiff or Related Person or
(ii) the date on which the Board of Directors determines that a
director of the corporation has become a Plaintiff or Related
Person; PROVIDED, that the Board of Directors may (but is not
required to) extend a Resolution Period for one period not to
exceed 15 additional days if the director establishes to the
Board's satisfaction a reasonable likelihood that during such
extended period the pertinent Claim will be Finally Resolved or
such director will cease to be both a Plaintiff and a Related
Person.
(3) The Board of Directors of the corporation (acting by at
least a majority of all directors, excluding any who have acknowledged
themselves to be or have been determined to be Plaintiffs or Related
Persons at the time of such Board action and excluding any director or
directors whose status as Plaintiff or Related Person is the subject
of such action) shall have the authority to determine whether any
director of the corporation is or is not or has ceased to be a
Plaintiff or Related Person, and the Board of Directors (acting by at
least a majority of all directors, excluding any who have acknowledged
themselves to be or have been determined to be Plaintiffs or Related
Persons and, if the matter at issue relates to the next annual meeting
of stockholders of the corporation to occur after such Board action,
excluding any director whose term of office would expire at such
meeting and who at the time of such action has not irrevocably decided
not to stand for reelection) shall have the authority to determine
whether any person nominated or proposed for nomination as a director
or who is the subject of a stockholder request as provided below is
ineligible to be so nominated and elected by virtue of being a
Plaintiff or Related Person. Each such Board determination shall be
based upon such information as has been brought to the attention of
the Board (whether in a stockholder request or otherwise) at the time
such determination is made, and no Board determination that any
director or other person is or is not or has ceased to be a Plaintiff
or Related Person shall preclude the Board from reconsidering the
matter and making the contrary determination in light of any facts or
circumstances first coming to the attention of the Board after the
prior determination was made.
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(4) The Board of Directors shall not nominate any person for
election as a director of the corporation unless such prospective
nominee has provided the Board with (i) all such information as the
Board (or any member thereof not excluded from determining the status
of such person as a Plaintiff or Related Person) has deemed necessary
or appropriate to enable the Board to determine such status and (ii) a
signed statement by the prospective nominee that such person, having
reviewed this Section, is aware of no reason not disclosed to the
Board why he or she would or might be considered a Plaintiff or
Related Person (which statement also shall include an undertaking by
such person that if he or she is nominated, such person promptly will
inform the Board, by written notice to the Chairman of the Board or
the Secretary of the corporation, if at any time prior to the election
to which such person's nomination relates he or she becomes aware of
any fact or circumstance, whether in existence on the date such
undertaking is given or arising afterward, which has given such person
any reason to believe that the person is or might be considered a
Plaintiff or Related Person), and unless after receipt of such
information and such statement, the Board has determined that the
prospective nominee is not a Plaintiff or Related Person.
(5) Any stockholder who is uncertain whether any person the
stockholder desires to nominate for election as a director of the
corporation (a "candidate") is a Plaintiff or Related Person may
request a determination from the Board concerning that matter. Any
such request must be in writing, identify the candidate, set forth
all reasons why the stockholder has such uncertainty concerning the
candidate, explain why the stockholder believes that the candidate
should not be considered a Plaintiff or Related Person and include an
undertaking by or on behalf of the stockholder that, if the candidate
is determined not to be a Plaintiff or Related Person, the stockholder
promptly will inform the Board in the manner specified in
Paragraph (4) above if any time prior to the election of directors
next occurring the stockholder learns of any fact or circumstance
(whether in existence on the date of the request or arising afterward)
which has given the stockholder any other reason to believe that or to
be uncertain whether the candidate is or might be considered a
Plaintiff or Related Person. Any such request also must be
accompanied by a signed statement of the candidate to which the
request relates stating that, having reviewed this Section and the
request, the candidate knows of no reason not stated in the request
why the candidate would or might be considered a Plaintiff or Related
Person and believes for the reasons stated in the request that he or
she should not be considered a Plaintiff or Related Person, which
statement also shall include an undertaking by the candidate
comparable to that of the requesting stockholder. With respect to any
meeting at which directors are to be elected, a stockholder may submit
requests as to any number of candidates up to and including five times
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the number of directors to be elected at such meeting. A request may
be submitted at any time at which the stockholder properly may give
notice of intent to nominate a candidate for election as a director
(other than a time at which such giving of notice of intent is proper
only by virtue of the provisions of Paragraph (7) of this Section) and
no request may be submitted at any other time. No request shall be
deemed "submitted" for any purposes hereunder unless and until it is
delivered in person to the Chairman of the Board or the Secretary of
the corporation or delivered to the principal offices of the
corporation addressed to the attention of the Chairman or the
Secretary. No request shall constitute a notice of intent to nominate
any candidate unless it expressly states that it is intended as such a
notice and it otherwise complies with all applicable requirements for
such a notice. Neither submission of a request, nor any action taken
thereafter with respect to such request, shall operate as a waiver of
or otherwise relieve any stockholder of any otherwise applicable
procedural requirements respecting nomination of director candidates,
except as and to the extent contemplated in Paragraph (7).
(6) If any request satisfying the requirements of Paragraph (5)
is timely and properly submitted, the Board of Directors, within
10 days following the date such request is submitted (or, if it is
impossible or impracticable to do so during such period, as soon as
practicable thereafter), shall consider the request and determine
whether the candidate who is the subject of the request is ineligible
to be nominated or elected a director by virtue of being a Plaintiff
or Related Person. As promptly as possible following such action, the
requesting stockholder shall be notified in writing of the nature of
such determination and, if the determination made is that the
candidate is a Plaintiff or Related Person, the basis for such
determination. In any other case in which the Board determines that
any candidate as to which a notice of intent to nominate has been
given is ineligible to be nominated or elected a director by virtue of
being a Plaintiff or Related Person (including any case in which a
contrary determination previously has been made in response to a
stockholder request), the stockholder that gave such notice of intent
shall be notified in writing of such determination and the basis
therefor as promptly as possible thereafter.
(7) If a candidate who is the subject of a proper and timely
submitted request meeting the requirements of Paragraph (5) is
determined by the Board not to be a Plaintiff or Related Person and
the request was submitted at least five days in advance of the last
date on which the requesting stockholder otherwise would have been
entitled to give notice of intent to nominate such candidate, then the
Board's determination shall operate as a waiver of the time limits
otherwise applicable to the giving of such notice of intent to the
extent, if any, necessary to afford the stockholder a period of five
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days following the date on which notice of the Board's determination
is given to the stockholder within which to give notice of intent to
nominate such candidate. If, in response to a timely and properly
submitted request, the Board determines that the candidate who is the
subject of the request is a Plaintiff or Related Person and the
request was submitted at least five days in advance of the last date
on which the requesting stockholder otherwise would have been entitled
to give notice of intent to nominate, then the Board's determination
shall operate as a waiver of the time limits otherwise applicable to
the giving of notice of intent to nominate to the extent, if any,
necessary to afford the requesting stockholder a period of 15 days
following the date on which notice of the Board's determination is
given to the stockholder within which to give notice of intent to
nominate another person in lieu of the ineligible candidate. In any
other case in which the Board determines that a candidate is a
Plaintiff or Related Person, such determination shall operate as a
waiver if and only to the extent expressly so provided in the
resolutions setting forth such determination or subsequent Board
resolution. Whenever any stockholder is afforded an additional time
period within which to give notice of intention to nominate, the Board
may afford the other stockholders of the corporation a comparable
additional period of time within which to give such notice.
ARTICLE IX
Any action required to be taken or which may be taken at any annual or
special meeting of stockholders of the corporation may be taken without a
meeting by written consents setting forth the action so taken signed by the
holders of all shares of stock of the corporation entitled to vote thereon.
ARTICLE X
(A) In addition to any affirmative vote required by (1) law and
(2) this Certificate of Incorporation, including, without limitation,
Article XII, and except as otherwise expressly provided in Section (B) of
this Article, the affirmative vote of the holders of not less than 80% of
the outstanding shares of Voting Stock shall be required for the approval
or authorization of any Business Combination of the corporation or any
Subsidiary of the corporation with any Interested Stockholder (as these
terms are defined below).
(B) The provisions of paragraph (A) of this Article shall not apply
to any transaction which shall have been approved by a majority of the
Continuing Directors (as defined below).
(C) For the purposes of this Article and Articles XI through XV, the
following definitions shall apply:
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(1) An "Affiliate" of a specified person is any person that
directly, or indirectly through one or more intermediaries, controls,
or is controlled by, or is under common control with, the specified
person;
(2) An "Associate" of a specified person is:
(a) Any corporation, partnership, unincorporated
association or other entity of which such person is a director,
officer or partner or is, directly or indirectly, the owner of
20% or more of any class of Voting Stock;
(b) Any trust or other estate in which the person has a
beneficial interest of 20% or more or as to which such specified
person serves as trustee or in a similar fiduciary capacity in
connection with the trust or estate; or
(c) Any relative or spouse of the person, or any relative
of the spouse, who has the same residence as such person.
(3) The term "Business Combination" means:
(a) Any merger or consolidation of the corporation or any
Subsidiary with an Interested Stockholder or any other
corporation, partnership, unincorporated association or other
entity if the merger or consolidation is caused by the Interested
Stockholder and as a result of such merger or consolidation
Section 203(a) of the General Corporation Law of the State of
Delaware is not applicable to the surviving entity;
(b) The sale, lease, exchange, mortgage, pledge, transfer
or other disposition (in one transaction or a series of
transactions), except proportionately as a stockholder of such
corporation, to or with an Interested Stockholder, whether as
part of a dissolution or otherwise, of assets of the corporation
or of any Subsidiary which assets have an aggregate market value
equal to 10% or more of either the aggregate market value of all
the assets of the corporation determined on a consolidated basis
or the aggregate market value of all the outstanding stock of the
corporation;
(c) Any transaction which results in the issuance or
transfer by the corporation or by any Subsidiary of any stock of
the corporation or of such Subsidiary to an Interested
Stockholder, except (i) pursuant to the exercise, exchange or
conversion of securities exercisable for, exchangeable for or
convertible into stock of such corporation or any such Subsidiary
which securities were outstanding prior to the time that the
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Interested Stockholder became such; (ii) pursuant to a merger
under Section 251(g) of the General Corporation Law of the State
of Delaware; (iii) pursuant to a dividend or distribution paid or
made, or the exercise, exchange or conversion of securities
exercisable for, exchangeable for or convertible into stock of
such corporation or any such Subsidiary which security is
distributed, pro rata to all holders of a class or series of
stock of such corporation subsequent to the time the Interested
Stockholder became such; (iv) pursuant to an exchange offer by
the corporation to purchase stock made on the same terms to all
holders of said stock; or (v) any issuance or transfer of stock
by the corporation, PROVIDED, HOWEVER, that in no case under
(iii)-(v) above shall there be an increase in the Interested
Stockholder's proportionate share of the stock of any class or
series of the corporation or of the voting stock of the
corporation;
(d) Any transaction involving the corporation or any
Subsidiary which has the effect, directly or indirectly, of
increasing the proportionate share of the stock of any class or
series, or securities convertible into the stock of any class or
series, of the corporation or of any Subsidiary which is owned by
the Interested Stockholder, except as a result of immaterial
changes due to fractional share adjustments or as a result of any
purchase or redemption of any shares of stock not caused,
directly or indirectly, by the Interested Stockholder; or
(e) Any receipt by the Interested Stockholder of the
benefit, directly or indirectly (except proportionately as a
stockholder of such corporation) of any loans, advances,
guarantees, pledges or other financial benefits (other than those
expressly permitted in (a)-(d) above) provided by or through the
corporation or any Subsidiary.
As used in this definition, a "series of related transactions"
shall be deemed to include not only a series of transactions with
the same Interested Stockholder, but also a series of separate
transactions with an Interested Stockholder or any Affiliate or
Associate of such Interested Stockholder.
(4) A "Continuing Director" is a member of the Board of
Directors who is not an Affiliate, Associate or a representative of
the Interested Stockholder and was either (a) first elected as a
director prior to the time that the Interested Stockholder became an
Interested Stockholder or (b) was designated, before the person's
initial election as a director, as a Continuing Director by a majority
of the then Continuing Directors; PROVIDED, HOWEVER, that the term
"Continuing Director" specifically excludes any individual whose
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initial assumption of office occurs as a result of either an actual or
threatened election contest (as that term is used in Rule 14a-11 of
Regulation 14A promulgated under the Securities Exchange Act of 1934,
as amended) or other actual or threatened solicitation of proxies or
consents by or on behalf of any person other than the corporation's
Board of Directors.
(5) "Control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting stock,
by contract or otherwise. A person who is the owner of 20% or more of
the outstanding Voting Stock of any corporation, partnership,
unincorporated association or other entity shall be presumed to have
control of such entity, in the absence of proof by a preponderance of
the evidence to the contrary.
(6) "Equity security" means any one of the following:
(a) Any stock or similar security, certificate of interest
or participation in any profit-sharing agreement, voting trust
certificate or voting share;
(b) Any security convertible, with or without
consideration, into an equity security or any warrant or other
security carrying any right to subscribe to or purchase an equity
security;
(c) Any put, call, straddle or other option or privilege of
buying an equity security from or selling an equity security to
another without being bound to do so.
(7) The term "Interested Stockholder" means:
(a) Any person (other than the corporation and any
Subsidiary) that is the owner of 10% or more of the corporation's
outstanding voting stock; or
(b) Any person that is an Affiliate or Associate of the
corporation and was the owner of 10% or more of the corporation's
outstanding voting stock at any time within the three-year period
immediately prior to the date on which it is sought to be
determined whether such person is an Interested Stockholder, and
the Affiliates and Associates of such person.
(8) A person shall be an "owner" of any Voting Stock if the
person individually or with or through any of its Affiliates or
Associates:
(a) beneficially owns such stock, directly or indirectly;
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(b) has (i) the right to acquire such stock (whether such
right is exercisable immediately or only after the passage of
time) pursuant to any agreement, arrangement or understanding, or
upon the exercise of conversion rights, exchange rights, warrants
or options, or otherwise; PROVIDED, HOWEVER, that a person shall
not be deemed the owner of stock tendered pursuant to a tender or
exchange offer made by such person or any of such person's
Affiliates or Associates until such tendered stock is accepted
for purchase or exchange or (ii) the right to vote such stock
pursuant to any agreement, arrangement or understanding,
PROVIDED, HOWEVER, that a person shall not be deemed the owner of
any stock because of such person's right to vote such stock if
the agreement, arrangement or understanding to vote such stock
arises solely from a revocable proxy or consent given in response
to a proxy or consent solicitation made to 10 or more persons; or
(c) has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting (except voting pursuant to
a revocable proxy or consent as described in item (ii) of clause
(b) of this paragraph), or disposing of such stock with any other
person that beneficially owns, or whose affiliates or associates
beneficially own, directly or indirectly, such stock.
(9) The term "person" means any individual, corporation,
partnership, unincorporated association or other entity.
(10) The term "Subsidiary" means any corporation of which a
majority of any class of equity security is owned, directly or
indirectly, by the corporation; provided, that for the purposes of the
definition of Interested Stockholder set forth in paragraph (7) of
this Section (C), the term "Subsidiary" shall mean only a corporation
of which a majority of each class of equity security is owned,
directly or indirectly, by the corporation.
(11) The term "Substantial Part" shall mean more than 10% of the
total consolidated assets of the corporation in question as of the end
of the most recent fiscal year ended prior to the time the
determination is being made.
(12) The term "Voting Stock" shall mean stock of any class or
series entitled to vote generally in the election of directors and,
with respect to any entity that is not a corporation, any equity
interest entitled to vote generally in the election of the governing
body of such entity. Each reference in this Article to a percentage
of shares of Voting Stock shall refer to the percentage of the votes
entitled to be cast by such shares.
(D) For purposes of determining whether a person is an Interested
Stockholder, the number of shares of Voting Stock deemed to be outstanding
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shall include shares deemed owned by that person through application of
paragraph (C), defining "owner," but shall not include any other shares of
Voting Stock which may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options or
otherwise.
(E) A majority of the Continuing Directors shall have the power and duty
to determine, for purposes of this Article and Article XII, on the basis of
information known to them:
(1) The number of Voting Stock of which any person is the beneficial
owner;
(2) Whether a person is an Affiliate or Associate of another;
(3) Whether a person has an agreement, arrangement or understanding
with another as to the matters referred to in the definition of "owner" set
forth above;
(4) Whether the assets subject to any Business Combination constitute
a "Substantial Part" as defined above;
(5) Whether two or more transactions constitute a "series of related
transactions" as described above; and
(6) Such other matters with respect to which a determination is
required under this Article and Article XII.
Any such determination shall be conclusive and binding for all purposes of this
Article and Article XII.
ARTICLE XI
The Board of Directors shall not initiate, approve, adopt or recommend any
offer of any party other than the corporation to make a tender or exchange offer
for any equity security of the corporation, or to engage in any Business
Combination, unless and until it shall have first evaluated the proposed offer
and determined in its judgment that the proposed offer would be in compliance
with all applicable laws. In evaluating a proposed offer to determine whether it
would be in compliance with law, the Board of Directors shall consider all
aspects of the proposed offer, including the manner in which the offer is
proposed to be made, the documents proposed for the communication of the offer
and the effects and consequences of the offer if consummated, in the light of
the laws of the United States of America and affected states and foreign
countries. In connection with this evaluation, the Board may seek and rely upon
the opinion of independent legal counsel and it may test the legality of the
proposed offer in any
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state, federal or foreign court or before any state, federal or foreign
administrative agency which may have jurisdiction. If the Board of
Directors determines in its judgment that a proposed offer would be in
compliance with all applicable laws, the Board of Directors shall then
evaluate the proposed offer and determine whether the proposed offer is in
the best interests of the corporation and its stockholders; the Board of
Directors shall not initiate, approve, adopt or recommend any such offer
which in its judgment would not be in the best interests of the corporation
and its stockholders. In evaluating a proposed offer to determine whether
it would be in the best interests of the corporation and its stockholders,
the Board of Directors shall consider all factors which it deems relevant
including, without limitation:
(A) The fairness of the consideration to be received by the
corporation and its stockholders under the proposed offer, taking into
account the trading price of the corporation's stock immediately prior to
the announcement of the proposed offer, the historical trading prices of
the corporation's stock, the price that might be achieved in a negotiated
sale of the corporation as a whole, premiums over the trading price of
their securities which have been proposed or offered to other companies in
the past in connection with similar offers and the future prospects of the
corporation;
(B) The possible social and economic impact of the proposed offer and
its consummation on the corporation and its employees, customers and
suppliers;
(C) The possible social and economic impact of the proposed offer and
its consummation on the communities in which the corporation and its
Subsidiaries operate or are located;
(D) The business and financial conditions and earnings prospects of
the offering party, including, without limitation, debt service and other
existing or likely financial obligations of the offering party;
(E) The competence, experience and integrity of the offering party
and its management; and
(F) The intentions of the offering party regarding the use of the
assets of the corporation to finance the transaction.
ARTICLE XII
(A) In addition to any affirmative vote required by (1) law and
(2) the other provisions of this Certificate of Incorporation, including
without limitation Article X and except as otherwise expressly provided in
paragraph (B) of this Article, the affirmative vote of not less than 80% of
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the outstanding shares of Voting Stock held by stockholders who are not
Interested Stockholders shall be required for the approval or authorization
of any Business Combination of the corporation or any Subsidiary with any
Interested Stockholder (as these terms are defined in Article X).
(B) The provisions of paragraph (A) of this Article shall not apply
to any particular Business Combination, and such Business Combination shall
require only such affirmative vote as is required by law and any other
provision of this Certificate of Incorporation, if either of the following
paragraphs (1) or (2) apply:
(1) The Business Combination shall have been approved by a
majority of the Continuing Directors; or
(2) All of the following conditions shall have been met:
(a) The Business Combination will result in an involuntary
sale, redemption, cancellation or other termination of ownership
of shares of any class of Voting Stock of the corporation owned
by stockholders who do not vote in favor of the Business
Combination and the aggregate amount of the cash and the market
value as of the valuation date of other readily marketable
consideration to be received by such stockholders for such shares
shall be at least equal to the Minimum Price Per Share;
(b) The consideration to be received by holders of a
particular class of outstanding Voting Stock shall be in cash or
in the same form as the Interested Stockholder previously has
paid for shares of such class of Voting Stock. If the Interested
Stockholder has paid for shares of any class of Voting Stock in
varying forms of consideration, the form of consideration of such
class of Voting Stock shall be either cash or the form used to
acquire the largest number of shares of such class of Voting
Stock previously acquired by it;
(c) From the time the Interested Stockholder became an
Interested Stockholder:
(i) Such Interested Stockholder shall have taken steps
to ensure that the corporation's Board of Directors included
at all times representation by Continuing Directors
proportionate to the stock holdings of the corporation's
holders of Voting Stock not affiliated with such Interested
Stockholder (with a Continuing Director to occupy any
resulting fractional board position);
(ii) There shall have been no reduction in the rate of
dividends payable on the corporation's stock except as may
have been approved by unanimous vote of the directors;
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(iii) The Interested Stockholder shall not have
acquired any newly issued shares of stock, directly or
indirectly, from the corporation (except upon conversion of
convertible securities acquired by it prior to becoming an
Interested Stockholder or as a result of a prorated stock
dividend or stock split);
(iv) The Interested Stockholder shall not have acquired
any additional shares of the corporation's outstanding stock
or securities convertible into stock except as a part of the
transaction which resulted in such person becoming an
Interested Stockholder; and
(v) The Interested Stockholder shall not have received
the benefit, directly or indirectly (except proportionately
as a stockholder), of any loans, advances, guarantees,
pledges or other financial assistance or tax credits
provided by the corporation, nor made any major change in
the corporation's business or equity capital structure
without the unanimous approval of the directors, in either
case prior to the consummation of the Business Combination.
(d) A proxy statement responsive to the requirements of the
Securities Exchange Act of 1934, as amended, shall have been
mailed to all stockholders of the corporation for the purpose of
soliciting stockholder approval of the Business Combination
containing at the front thereof in a prominent place any
recommendations as to the advisability (or inadvisability) of the
Business Combination which the Continuing Directors, or any of
them, may choose to state and, if deemed advisable by a majority
of the Continuing Directors, an opinion of a reputable investment
banking firm as to the fairness (or not) of the terms of the
Business Combination, from the point of view of the remaining
public stockholders of the corporation (such investment banking
firm to be selected by a majority of the Continuing Directors and
to be paid a reasonable fee for its services by the corporation
upon receipt of such opinion); and
(e) There has been five years between the date that the
Interested Stockholder became an Interested Stockholder and the
date that the Business Combination is consummated.
(C) For the purposes of this Article the following definitions shall
apply:
(1) All the definitions set forth in Article X(C) shall apply as
if fully restated here;
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(2) "Minimum Price Per Share" means the sum of (a) the highest
per share price as determined below, and (b) the aggregate amount, if
any, by which 6% per year of such highest per share price exceeds the
aggregate amount of all stock dividends per share paid in cash since
the Determination Date. For Common Stock, the highest per share price
is the highest of the following:
(a) The highest per share price, including any brokerage
commissions, transfer taxes and soliciting dealers' fees, paid
by the Interested Stockholder within the five-year period
immediately prior to the Announcement Date, or in the transaction
in which the stockholder became an Interested Stockholder,
whichever is higher.
(b) The highest per share price bid in the public market
for such Common Stock during the five years immediately preceding
the Announcement Date.
For any class or series of outstanding stock other than
Common Stock, whether or not the Interested Stockholder
previously has acquired any shares of a particular class or
series of stock, the highest per share price is the highest of
the following:
(a) The highest per share price, including any brokerage,
commissions, transfer taxes and soliciting dealers' fees, paid by
the Interested Stockholder for any shares of the class or series
of stock acquired by it within the five-year period immediately
prior to the Announcement Date, or in the transaction in which
the stockholder became an Interested Stockholder, whichever is
higher.
(b) The highest preferential amount per share to which the
holders of shares of the class or series of stock are entitled in
the event of any voluntary or involuntary liquidation,
dissolution or winding up of the corporation.
(c) The highest per share price bid in the public market
for such class or series of stock during the five years
immediately preceding the Announcement Date.
The calculation of the Minimum Price Per Share shall require
appropriate adjustments for capital changes, including without
limitation stock splits, stock dividends and reverse stock
splits.
(3) "Announcement Date" means the first general public
announcement or the first communication generally to stockholders of
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the corporation, whichever is earlier, of the proposal or intention to
make a proposal concerning a Business Combination.
(4) "Determination Date" means the date on which an Interested
Stockholder first became an Interested Stockholder.
(5) "Market Value" means either of the following:
(a) With respect to shares, the highest closing sale price
during the 30-day period immediately preceding the date in
question of a share:
(i) As listed on the composite tape for New York Stock
Exchange-listed securities.
(ii) If not listed pursuant to subparagraph (i), as
listed on the composite tape for American Stock Exchange-
listed securities.
(iii) If not listed pursuant to subparagraph (i) or
(ii), as listed on the composite tape for the principal
United States security exchange registered under the
Securities Exchange Act of 1934, as amended.
(iv) If not listed pursuant to subparagraph (i), (ii)
or (iii), the highest closing bid during the 30-day period
preceding the date in question as listed on The Nasdaq Stock
Market or any other system then in use.
(v) If a listing is not available pursuant to sub-
paragraphs (i) through (iv), then the fair market value of
the shares on the date in question, as determined by the
Continuing Directors.
(b) With respect to property other than cash or shares, the
fair market value of the property on the day in question, as
determined by the Continuing Directors.
(6) "Valuation Date" means:
(a) In a Business Combination voted upon by stockholders,
the day prior to the date of the stockholder vote or the day
which is 20 calendar days prior to the consummation of the
Business Combination, whichever is later.
(b) In a Business Combination not voted upon by
stockholders, the date of the consummation of the Business
Combination.
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(D) A majority of the Continuing Directors shall have the power and
duty to determine, for purposes of this Article, on the basis of
information known to them:
(1) All the matters set forth in Article X(E);
(2) The market value of any consideration other than cash to be
received by stockholders;
(3) Whether or not any consideration other than cash to be
received by stockholders is readily marketable;
(4) The amount of the Minimum Price Per Share;
(5) Whether or not the consideration to be received by
stockholders is equal to the Minimum Price Per Share; and
(6) Such other matters with respect to which a determination is
required under this Article.
Any such determination shall be conclusive and binding for all purposes of
this Article.
(E) Nothing contained in this Article shall be construed to relieve
any Interested Stockholder from any fiduciary and other standards of
conduct and obligations imposed by law. The fact that any Business
Combination complies with the provisions of paragraph (B)(2) of this
Article shall not be construed to impose any fiduciary duty, obligation or
responsibility on the Board of Directors, or any member thereof, to approve
such Business Combination or recommend its adoption or approval to the
stockholders of the corporation, nor shall such compliance limit, prohibit
or otherwise restrict in any manner the Board of Directors, or any member
thereof, with respect to evaluations of, or actions and responses taken
with respect to, such Business Combination.
ARTICLE XIII
No director of the corporation shall be personally liable to the
corporation or its stockholders for monetary damages for breach of
fiduciary duty by such director as a director; PROVIDED, HOWEVER, that this
Article shall not eliminate or limit the liability of a director to the
extent provided by applicable law (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under section 174 of the General
Corporation Law of the State of Delaware, or (iv) for any transaction from
which the director derived an improper personal benefit. No amendment to or
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repeal of this Article shall apply to or have any effect on the liability
or alleged liability of any director of the corporation for or with respect
to any acts or omissions of such director occurring prior to such amendment
or repeal.
ARTICLE XIV
Directors and executive officers of the corporation shall be
indemnified as of right, and shall be entitled to the advancement of
expenses, to the fullest extent now or hereafter permitted by law in
connection with any actual or threatened civil, criminal, administrative or
investigative action, suit or proceeding, (whether brought by or in the
name of the corporation, a subsidiary or otherwise) arising out of their
service to the corporation or a subsidiary, or to another organization at
the request of the corporation or a subsidiary. Persons who are not
directors or executive officers of the corporation similarly may be
indemnified in respect of such service to the extent authorized at any time
by the Board of Directors of the corporation. The corporation may purchase
and maintain insurance to protect itself and any such director, officer or
other person against any liability asserted against him or her and incurred
by him or her in respect of such service whether or not the corporation
would have the power to indemnify him or her against such liability by law
or under the provisions of this Article. The provisions of this Article
shall be deemed contractual and shall be applicable to actions, suits or
proceedings, whether arising from acts or omissions occurring before or
after the adoption hereof, and to directors, officers and other persons who
have ceased to render such service, and shall inure to the benefit of the
heirs, executors and administrators of the directors, officers and other
persons referred to in this Article.
ARTICLE XV
The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner
now or hereafter prescribed by statute and this Certificate of
Incorporation, and all rights conferred upon stockholders herein are
granted subject to this reservation.
(A) No amendment to this Certificate of Incorporation shall alter,
modify or repeal any or all of the provisions of Article XII of this
Certificate of Incorporation, or this paragraph (A) of Article XV, unless
adopted by the affirmative vote of not less than 80% of the outstanding
shares of Voting Stock held by stockholders who are not Interested
Stockholders.
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(B) No amendment to this Certificate of Incorporation shall alter,
modify or repeal any or all of the provisions of Articles VII, VIII, IX, X,
XI or XIII of this Certificate of Incorporation, or this paragraph (B) of
Article XV, and the stockholders of the corporation shall not have the
right to alter, modify or repeal any or all provisions of the Bylaws of the
corporation, unless such amendment, alteration, modification or repeal is
adopted by the affirmative vote of the holders of not less than 80% of the
outstanding shares of Voting Stock; provided, that this paragraph (B) shall
not apply to, and such 80% vote shall not be required for, any amendment,
alteration, modification or repeal which has first been approved by (1) the
affirmative vote of 80 percent of the entire Board of Directors, which
shall include the affirmative vote of at least one director of each class
of the Board of Directors and (2) the affirmative vote of two-thirds of the
Continuing Directors.
Dated: November 7, 1997 /s/ Kelly E. Miller
-----------------------------------
Kelly E. Miller
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EXHIBIT 3.2
BYLAWS
OF
MILLER EXPLORATION COMPANY
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the
corporation shall be in the City of Wilmington, County of New Castle, State
of Delaware.
SECTION 2. OTHER OFFICES. The corporation may have offices
at such places, both within and without the State of Delaware, as the Board
of Directors may from time to time determine or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. TIMES AND PLACES OF MEETINGS. All meetings of the
stockholders shall be held, except as otherwise provided by statute, the
Certificate of Incorporation or these Bylaws, at such time and place as may
be fixed from time to time by the Board of Directors. Meetings of
stockholders may be held within or without the State of Delaware as shall
be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
SECTION 2. ANNUAL MEETINGS. Annual meetings of the
stockholders shall be held each year at such time and on such day as may be
designated by the Board of Directors. Annual meetings shall be held to
elect, by a plurality vote, successors to those members of the Board of
Directors whose terms expire at the meeting and to transact only such other
business as may be properly brought before the meeting in accordance with
these Bylaws.
SECTION 3. SPECIAL MEETINGS. Special meetings of the
stockholders may be called by an executive officer whenever directed by the
Board of Directors. Such request shall state the purpose of the proposed
meeting.
<PAGE>
SECTION 4. WRITTEN NOTICE. Written notice of all meetings of
stockholders, stating the place, date and hour, and in the case of a
special meeting, the purpose or purposes thereof, shall be given to each
stockholder entitled to vote thereat, not less than 10 nor more than 60
days before the date fixed for the meeting.
SECTION 5. WAIVER OF NOTICE. Whenever notice is required to
be given under the provisions of the statutes or of the Certificate of
Incorporation or by these Bylaws, a written waiver, signed by the person
entitled to notice, whether before or after the time stated therein, shall
be deemed equivalent to notice. Attendance of a stockholder at a meeting
shall constitute a waiver of notice of such meeting, except when the
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice unless so
required by the Certificate of Incorporation or by these Bylaws.
SECTION 6. STOCKHOLDER LIST. The officer who has charge of
the stock ledger of the corporation shall prepare and make, at least 10
days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to
the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held. The list
shall be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
SECTION 7. QUORUM. The holders of a majority of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business, except as otherwise provided
by statute or by the Certificate of Incorporation. If, however, such
quorum shall not be present or represented at any meeting of the
stockholders, the officer of the corporation presiding as chairman of the
meeting shall have the power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall
be present or represented. At such adjourned meetings at which a quorum
shall be present or represented, any business may be transacted which might
have been transacted at the meeting as originally notified.
SECTION 8. VOTE REQUIRED. When a quorum is present at any
meeting, the vote of the holders of a majority of the stock having voting
power present in person or represented by proxy shall decide any question
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brought before such meeting, unless the question is one upon which by
express provision of the statutes or of the Certificate of Incorporation a
different vote is required, in which case such express provision shall
govern and control the decision of such question.
SECTION 9. VOTING RIGHTS. Except as otherwise provided by
the Certificate of Incorporation or the resolution or resolutions of the
Board of Directors creating any class of stock, each stockholder shall at
every meeting of stockholders be entitled to one vote in person or by proxy
for each share of the capital stock having voting power held by such
stockholder.
SECTION 10. ACTION WITHOUT A MEETING. Unless otherwise
provided in the Certificate of Incorporation, no action required or
permitted to be taken at any annual or special meeting of stockholders of
the corporation may be taken by written consents without a meeting.
SECTION 11. CONDUCT OF MEETINGS. Meetings of stockholders
generally shall follow accepted rules of parliamentary procedure, subject
to the following:
(a) The chairman of the meeting shall have absolute
authority over matters of procedure and there shall be no appeal
from the ruling of the chairman. If, in his or her absolute
discretion, the chairman deems it advisable to dispense with the
rules of parliamentary procedure as to any one meeting of
stockholders or part thereof, the chairman shall so state and
clearly shall state the rules under which the meeting or
appropriate part thereof shall be conducted.
(b) If disorder should arise which, in the absolute
discretion of the chairman, prevents the continuation of the
legitimate business of the meeting, the chairman may quit the
chair and announce the adjournment of the meeting; and upon his
or her so doing, the meeting is immediately adjourned without the
necessity of any vote or further action of the stockholders.
(c) The chairman may ask or require anyone not a bona fide
stockholder of record on the record date, or a validly appointed
proxy of such a stockholder, to leave the meeting.
(d) The chairman may introduce nominations, resolutions or
motions submitted by the Board of Directors for consideration by
the stockholders without a motion or second. Except as the
chairman shall direct, a resolution or motion not submitted by
the Board of Directors shall be considered for vote only if
proposed by a stockholder of record on the record date or a
validly appointed proxy of such a stockholder and seconded by
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such a stockholder or proxy other than the individual who
proposed the resolution or motion.
(e) Except as the chairman shall direct, and subject to any
other provisions of the Certificate of Incorporation, no matter
may be presented to the meeting that has not been submitted in
writing to the Secretary for inclusion in the agenda at least 10
days before the date of the meeting.
(f) When all stockholders present at a meeting in person or
by proxy have been offered an opportunity to vote on any matter
properly before a meeting, the chairman may at his or her
discretion declare the polls to be closed and no further votes
may be cast or changed after such declaration. If no such
declaration is made by the chairman, the polls shall remain open
and stockholders may cast additional votes or change votes until
the inspectors of election have delivered their final report to
the chairman.
(g) When the chairman has declared the polls to be closed
on all matters then before a meeting, the chairman may declare
the meeting to be adjourned pending determination of the results
by the inspectors of election. In such event, the meeting shall
be considered adjourned for all purposes, and the business of the
meeting shall be finally concluded upon delivery of the final
report of the inspectors of election to the chairman at or after
the meeting.
(h) When the chairman determines that no further matters
may properly come before a meeting, he may declare the meeting to
be adjourned, without motion, second or vote of the stockholders.
(i) When the chairman has declared a meeting to be
adjourned, unless the chairman has declared the meeting to be
adjourned until a later date, no further business may properly be
considered at the meeting even though stockholders or holders of
proxies representing a quorum may remain at the site of the
meeting.
SECTION 12. INSPECTORS OF ELECTION. The Board of Directors
or, if they shall not have so acted, the Chief Executive Officer shall
appoint, prior to any meeting of stockholders, one or more inspectors (who
may be directors and/or employees of the corporation) to act at the meeting
and make a written report thereof. The corporation may designate one or
more persons as alternate inspectors to replace any inspector who fails to
act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
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discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to
the best of the inspector's ability.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM OF DIRECTORS. The number of
directors which shall constitute the whole Board shall be not less than
three and shall be determined from time to time by resolution of the Board
of Directors as provided in the Certificate of Incorporation. The
directors, other than those who may be elected by the holders of any class
or series of stock having a preference over Common Stock as to dividends or
upon liquidation, shall be divided into three classes, as nearly equal in
number as possible, with the term of office of one class expiring each
year. At each annual meeting of the stockholders, the successors of the
class of directors whose term expires at that meeting shall be elected to
hold office for a term expiring at the annual meeting of stockholders held
in the third year following the year of their election.
SECTION 2. POWERS. The business of the corporation shall be
managed by its Board of Directors, which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these Bylaws directed
or required to be exercised or done by the stockholders.
SECTION 3. VACANCIES. Vacancies and newly created
directorships resulting from any increase in the authorized number of
directors may be filled as provided in the Certificate of Incorporation.
SECTION 4. RESIGNATION AND REMOVAL. Any director may resign
at any time as provided in the Certificate of Incorporation. Any or all of
the directors may be removed, but only for cause, as provided in the
Certificate of Incorporation.
SECTION 5. COMPENSATION OF DIRECTORS. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, the Board
of Directors shall have the authority to fix the compensation of directors.
The directors may be paid their expenses, if any, of attendance at each
meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board or a stated salary as director. No
such payment shall preclude any director from serving the corporation in
any other capacity and receiving compensation therefor. Members of special
or standing committees may be allowed like compensation for attending
committee meetings.
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SECTION 6. PLACE OF MEETINGS. The Board of Directors of the
corporation may hold meetings, both regular and special, either within or
without the State of Delaware.
SECTION 7. FIRST MEETING OF NEWLY ELECTED BOARD. The first
meeting of each newly elected Board of Directors shall be held following
the annual meeting of stockholders and no notice of such meeting shall be
necessary to the newly elected directors legally to constitute the meeting,
provided a quorum shall be present. In the event such meeting is not held
immediately following the annual meeting of stockholders, the meeting may
be held at such time and place as shall be specified in a notice given as
hereinafter provided for special meetings of the Board of Directors or as
shall be specified in a written waiver signed by all of the directors.
SECTION 8. REGULAR MEETINGS. Regular meetings of the Board
of Directors may be held without notice at such time and at such place as
shall from time to time be determined by the Board.
SECTION 9. SPECIAL MEETINGS. Special meetings of the Board
of Directors may be called by the Chairman, Chief Executive Officer or
Secretary or by any two directors on two days' notice to each director,
either personally, by mail, by telegram or by facsimile transmission.
SECTION 10. PURPOSE NEED NOT BE STATED. Neither the business
to be transacted at nor the purpose of any regular or special meeting of
the Board of Directors need be specified in the notice of such meeting.
SECTION 11. QUORUM. At all meetings of the Board of Directors
a majority of the directors shall constitute a quorum for the transaction
of business and the acts of a majority of the directors present at any
meeting at which there is a quorum shall be acts of the Board of Directors
except as may be otherwise specifically provided by statute or by the
Certificate of Incorporation. If a quorum shall not be present at any
meeting of the Board of Directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
SECTION 12. ACTION WITHOUT A MEETING. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors
or of any committee thereof may be taken without a meeting, if a written
consent thereto is signed by all members of the Board or of such committee,
as the case may be, and such written consent is filed with the minutes of
the proceedings of the Board or committee.
SECTION 13. MEETING BY TELEPHONE OR SIMILAR EQUIPMENT. The
Board of Directors or any committee designated by the Board of Directors
may participate in a meeting of such Board or committee by means of
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conference telephone or similar communications equipment by means through
which all persons participating in the meeting can hear each other and
participation in a meeting pursuant to this section shall constitute
presence in person at such meeting.
SECTION 14. WRITTEN NOTICE. Notices to directors shall be in
writing and delivered personally or mailed to the directors at their
addresses appearing on the books of the corporation. Notice by mail shall
be deemed to be given at the time when the same shall be mailed. Notice to
directors also may be given by telegram or by facsimile transmission, which
shall be deemed given at the time when the same shall be sent.
SECTION 15. WAIVER OF NOTICE. Whenever notice is required to
be given under the provisions of the statutes or of the Certificate of
Incorporation or by these Bylaws, a written waiver, signed by the person
entitled to notice, whether before or after the time stated therein, shall
be deemed equivalent to notice. Attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except when a director
attends a meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the directors or members
of a committee of directors need be specified in any written waiver of
notice unless so required by the Certificate of Incorporation or by these
Bylaws.
ARTICLE IV
COMMITTEES OF DIRECTORS
SECTION 1. EXECUTIVE COMMITTEE. The Board of Directors, by
resolution adopted by a majority of the directors present at any meeting
at which there is a quorum, may appoint an Executive Committee whose
membership shall consist of two or more members of the Board of Directors
as it may deem advisable from time to time to serve at the pleasure of the
Board. The Board of Directors also may appoint directors to serve as
alternates for members of the committee in the absence or disability of
regular members. The Board of Directors may fill any vacancies as they
occur. The Executive Committee shall have and may exercise the powers of
the Board of Directors in the management of the business affairs and
property of the corporation during the intervals between meetings of the
Board of Directors, subject to law and to such limitations and controls as
the Board of Directors may impose from time to time.
SECTION 2. AUDIT COMMITTEE. The Audit Committee, if there be
one, shall cause a suitable examination of the financial records and
operations of the corporation and its subsidiaries to be made by the
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internal auditor of the corporation. The Audit Committee also shall
recommend to the Board of Directors the employment of independent certified
public accountants to examine the financial statements of the corporation
and its subsidiaries, review examination reports of the corporation and its
subsidiaries prepared by regulatory authorities and report to the Board of
Directors at least once each calendar year.
SECTION 3. COMPENSATION COMMITTEE. The Compensation Committee,
if there be one, shall review the personnel policies, plans and programs of
the corporation, including individual salaries of executive officers, and
submit recommendations to the Board of Directors. The Compensation
Committee also shall review the administration and results of operation of
the corporation's pension plans, confer with and receive reports from the
actuaries and investment managers of the pension plans, make
recommendations related to such plans and review all material pension plan
changes. The Compensation Committee also shall recommend to the Board of
Directors the retainer and attendance fee for nonemployee directors.
SECTION 4. NOMINATING COMMITTEE. The Nominating Committee, if
there be one, shall develop and recommend to the Board of Directors
criteria for the selection of candidates for directors, seek out and
receive suggestions concerning possible candidates, review and evaluate the
qualifications of possible candidates and recommend to the Board candidates
for vacancies occurring from time to time and for the slate of directors to
be proposed on behalf of the Board of Directors at the annual meeting of
stockholders. The Nominating Committee will consider nominees recommended
by the stockholders as properly submitted to the Secretary of the
corporation.
SECTION 5. OTHER COMMITTEES. The Board of Directors may
designate such other committees as it may deem appropriate and such
committees shall exercise the authority delegated to them.
SECTION 6. COMMITTEE MEETINGS. Each committee provided for
above shall meet as often as its business may require and may fix a day and
time each week or at other intervals for regular meetings, notice of which
shall not be required. Whenever the day fixed for a meeting shall fall on
a holiday, the meeting shall be held on the business day following or on
such other day as the committee may determine. Special meetings of the
committees may be called by the chairman of the committee or any two
members other than the chairman and notice thereof may be given to the
members by telephone, telegram, letter or facsimile transmission. A
majority of its members shall constitute a quorum for the transaction of
the business of any committee. A record of the proceedings of each
committee shall be kept and presented to the Board of Directors.
SECTION 7. SUBSTITUTES. In the absence or disqualification
of a member of a committee, the members thereof present at a meeting and
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not disqualified from voting, whether or not they constitute a quorum,
unanimously may appoint another member of the Board to act at a meeting in
place of such absent or disqualified member.
ARTICLE V
OFFICERS
SECTION 1.
(a) CENTRAL STAFF. The officers of the corporation shall
be chosen by the Board of Directors at its first meeting after
the annual meeting of stockholders, or as soon as practicable
after the annual election of directors in each year, and shall
include a Chairman of the Board, a President, a Secretary and a
Treasurer. The Board of Directors also may appoint one or more
Vice Presidents, one or more Assistant Secretaries and Assistant
Treasurers, and such other officers as the Board may deem
necessary. The Chairman of the Board and President shall be
chosen from among the directors, but no other officer need be a
director. Either the Chairman of the Board or the President also
shall be designated as the Chief Executive Officer. Any two of
the above offices, except those of the President and Vice
President, may be held by the same person.
(b) DIVISIONAL OFFICERS. The Board of Directors or the
Chief Executive Officer may, as they shall deem necessary,
designate certain individuals as divisional officers. Any titles
so given to divisional officers may be withdrawn at any time with
or without cause by the Board of Directors or the Chief Executive
Officer.
SECTION 2. TERM OF OFFICE. Each officer shall hold office
at the pleasure of the Board. The Board of Directors may remove any
officer for cause or without cause. Any officer may resign his or her
office at any time, such resignation to take effect upon receipt of written
notice thereof by the corporation unless otherwise specified in the
resignation. If the office of any officer becomes vacant for any reason,
the vacancy may be filled by the Board.
SECTION 3. CHAIRMAN OF THE BOARD. The Chairman of the Board
shall, when present, preside at all meetings of the stockholders and at all
meetings of the Board of Directors, and shall have such other duties and
powers as may be imposed or given by the Board of Directors. In the case
of absence or inability to act of the President or Chief Executive Officer,
the Chairman of the Board shall exercise all of the duties and
responsibilities of such officer until the Board of Directors shall
otherwise direct.
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SECTION 4. PRESIDENT. The President shall, subject to the direction
of the Board of Directors, see that all orders and resolutions of the Board of
Directors are carried into effect and shall perform all other duties necessary
or appropriate to the President's office, subject, however, to the President's
right (unless otherwise limited by the Board of Directors) and the right of the
directors to delegate any specific powers to any other officer or officers of
the corporation. In the case of absence or inability to act of the Chairman of
the Board or the Chief Executive Officer, the President shall exercise all of
the duties and responsibilities of such officer until the Board of Directors
shall otherwise direct.
SECTION 5. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer, in
addition to duties as Chairman of the Board or President, as the case may be,
shall have final authority, subject to the control of the Board of Directors,
over the general policy and business of the corporation and shall have the
general control and management of the business and affairs of the corporation.
The Chief Executive Officer shall have the power, subject to the control of the
Board of Directors, to appoint, suspend or discharge and to prescribe the duties
and to fix the compensation of such agents and employees of the corporation,
other than the officers appointed by the Board, as he or she may deem necessary.
SECTION 6. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall, subject only to the control of the Board of Directors, have general
charge, control and supervision over the financial policy and administration of
the corporation and shall have such other duties and powers as may be imposed or
given by the Board of Directors. The Chief Financial Officer shall report only
and directly to the Board of Directors.
SECTION 7. CHIEF OPERATING OFFICER. There may be elected a Chief
Operating Officer who shall, if elected, have general charge, control and
supervision over the administration and operations of the corporation and shall
have such other duties and powers as may be imposed or given by the Board of
Directors. If no Chief Operating Officer is elected, the duties and powers of
the Chief Operating Officer shall be performed by the Chief Executive Officer.
SECTION 8. VICE PRESIDENTS. The Vice President or Vice Presidents
shall perform such duties and have such powers as the Chief Executive Officer or
the Board of Directors may from time to time prescribe. The Board of Directors
may at its discretion designate one or more of the Vice Presidents to be an
Executive Vice President or Senior Vice President. Any Vice President so
designated shall have such duties and responsibilities as the Board shall
prescribe.
SECTION 9. SECRETARY. The Secretary shall attend all meetings of the
stockholders, and of the Board of Directors and the
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Executive Committee, and shall preserve in the books of the corporation true
minutes of the proceedings of all such meetings. The Secretary shall safely keep
in his or her custody the seal of the corporation, if any, and shall have
authority to affix the same to all instruments where its use is required or
appropriate. The Secretary shall give all notices required or appropriate
pursuant to statute, the Certificate of Incorporation, Bylaws or resolution. The
Secretary shall perform such other duties as may be delegated by the Board of
Directors or by the Executive Committee.
SECTION 10. TREASURER. The Treasurer shall have custody of all
corporate funds and securities and shall keep in books belonging to the
corporation full and accurate accounts of all receipts and disbursements. The
Treasurer shall deposit all moneys, securities and other valuable effects in the
name of the corporation in depositories as may be designated for that purpose by
the Board of Directors. The Treasurer shall disburse the funds of the
corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the Chief Executive Officer and
directors at the regular meetings of the Board, and whenever requested by them,
an account of all his or her transactions as Treasurer and of the financial
condition of the corporation. If required by the Board of Directors, the
Treasurer shall deliver to the Chief Executive Officer of the corporation and
keep in force a bond in form, amount and with a surety or sureties satisfactory
to the Board of Directors, conditioned for faithful performance of the duties of
his or her office, and for restoration to the corporation in case of his or her
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and property of whatever kind in his or her possession or under
his or her control belonging to the corporation.
SECTION 11. ASSISTANT SECRETARY AND ASSISTANT TREASURER. There may be
elected an Assistant Secretary and Assistant Treasurer who shall, in the
absence, disability or nonfeasance of the Secretary or Treasurer, perform the
duties and exercise the powers of such persons, respectively.
SECTION 12. OTHER OFFICERS. All other officers, as may from time to
time be appointed by the Board of Directors, shall perform such duties and
exercise such authority as the Board of Directors shall prescribe. All
divisional officers, as may from time to time be appointed by the Board of
Directors or the Chief Executive Officer, shall perform such duties and exercise
such authority as the Board of Directors or the Chief Executive Officer shall
prescribe.
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ARTICLE VI
INDEMNIFICATION
SECTION 1. INDEMNIFICATION OTHER THAN IN ACTIONS BY OR IN THE RIGHT OF
THE CORPORATION. Any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that the person is
or was a director, or executive officer of the corporation or, is or was a
director or executive officer of the corporation and is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, limited liability company, joint venture, trust or
other enterprise, whether for profit or not, shall be indemnified by the
corporation against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe such conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, that the person had reasonable cause to believe that such conduct
was unlawful. Persons who are not directors or executive officers of the
corporation may be similarly indemnified in respect of such service to the
extent authorized at any time by the Board of Directors, except as otherwise
provided by law.
SECTION 2. INDEMNIFICATION IN ACTIONS BY OR IN THE RIGHT OF THE
CORPORATION. Any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
the person is or was a director or executive officer of the corporation, or is
or was a director or executive officer of the corporation and is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, limited liability company, joint venture,
trust or other enterprise, whether for profit or not, shall be indemnified by
the corporation against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or settlement
of such action or suit if he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
corporation. Indemnification shall not be made for a claim, issue or matter in
which the person shall have been adjudged to be liable to the corporation unless
and
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only to the extent that the Court of Chancery of the State of Delaware or the
court in which such action or suit was brought shall determine upon application,
that despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery of the State of Delaware or such other
court shall deem proper. Persons who are not directors or executive officers of
the corporation may be similarly identified in respect of such service to the
extent authorized at any time by the Board of Directors, except as otherwise
provided by law.
SECTION 3. EXPENSES. To the extent that a director, officer or other
person whose indemnification is authorized by the Board of Directors, has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1 or 2 of this Article, or in defense of any
claim, issue or matter therein, he or she shall be indemnified against all
expenses (including attorneys fees) actually and reasonably incurred by him or
her in connection therewith.
SECTION 4. DETERMINATION OF RIGHT OF INDEMNIFICATION. Any
indemnification under Section 1 or 2 of this Article (unless ordered by a court)
shall be made by the corporation only as authorized in the specific case upon a
determination that indemnification is proper in the circumstances because the
person has met the applicable standard of conduct set forth in Sections 1 and 2.
Such determination shall be made (a) by a majority vote of the directors who are
not parties to such action, suit or proceeding, even though less than a quorum,
or (b) if there are no such directors, or if such directors so direct, by
independent legal counsel (who may be the regular counsel of the corporation) in
a written opinion, or (c) by the stockholders.
SECTION 5. ADVANCEMENT OF EXPENSES. Expenses incurred in defending a
civil or criminal action, suit or proceeding described in Sections 1 or 2 of
this Article shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding as authorized by the Board of
Directors in the manner provided in Section 4 upon receipt of an undertaking by
or on behalf of the director, officer, employee or agent to repay such amount
unless it ultimately shall be determined that he or she is not entitled to be
indemnified by the corporation as authorized in this section.
SECTION 6. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The
indemnification and advancement of expenses provided by this Article shall not
be deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under the Certificate of
Incorporation, any Bylaw, agreement, vote of stockholders or disinterested
directors, or otherwise, both as to action in the person's official capacity and
as to action in another capacity while holding such office and shall continue as
to a person who has ceased to be a director,
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officer, employee or agent and shall inure to the benefit of his or her
heirs, executors and administrators.
SECTION 7. INSURANCE. The corporation may purchase and
maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, limited liability company, joint venture,
trust or other enterprise against any liability asserted against him or her
and incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the corporation would have the power to
indemnify him or her against such liability under the provisions of this
Article.
SECTION 8. MERGERS. For the purposes of this Article,
references to the "corporation" include all constituent corporations
absorbed in a consolidation or merger, as well as the resulting or
surviving corporation, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, limited
liability company, joint venture, trust or other enterprise, whether for
profit or not, shall stand in the same position under the provisions of
this Article with respect to the resulting or surviving corporation if he
or she had served the resulting or surviving corporation in the same
capacity.
ARTICLE VII
SUBSIDIARIES
SECTION 1. SUBSIDIARIES. The Board of Directors, the Chief
Executive Officer or any executive officer designated by the Board of
Directors may vote the shares of stock owned by the corporation in any
subsidiary, whether wholly or partly owned by the corporation, in such
manner as they may deem in the best interests of the corporation,
including, without limitation, for the election of directors of any
subsidiary corporation, for any amendments to the charter or bylaws of any
such subsidiary corporation or for the liquidation, merger or sale of
assets of any such subsidiary corporation. The Board of Directors, the
Chief Executive Officer or any executive officer designated by the Board of
Directors may cause to be elected to the Board of Directors of any such
subsidiary corporation such persons as they shall designate, any of whom
may, but need not be, directors, executive officers or other employees or
agents of the corporation. The Board of Directors, the Chief Executive
Officer or any executive officer designated by the Board of Directors may
instruct the directors of any such subsidiary corporation as to the manner
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in which they are to vote upon any issue properly coming before them as the
directors of such subsidiary corporation and such directors shall have no
liability to the corporation as the result of any action taken in
accordance with such instructions.
SECTION 2. SUBSIDIARY OFFICERS NOT EXECUTIVE OFFICERS. The
officers of any subsidiary corporation shall not, by virtue of holding such
title and position, be deemed to be officers of the corporation, nor shall
any such officer of a subsidiary corporation, unless such officer also
shall be a director or officer of the corporation, be entitled to have
access to any files, records or other information relating or pertaining to
the corporation, its business and finances or to attend or receive the
minutes of any meetings of the Board of Directors or any committee of the
corporation, except as and to the extent expressly authorized and permitted
by the Board of Directors or the Chief Executive Officer.
ARTICLE VIII
CERTIFICATES OF STOCK
SECTION 1. FORM. Every holder of stock in the corporation
shall be entitled to have a certificate, signed by, or in the name of the
corporation by, the Chief Executive Officer, President or a Vice President
and the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the corporation, certifying the number of shares
owned by such stockholder in the corporation.
SECTION 2. FACSIMILE SIGNATURE. Where a certificate is
signed (a) by a transfer agent or an assistant transfer agent, or (b) by a
transfer clerk acting on behalf of the corporation and a registrar, the
signature of any such Chief Executive Officer, President, Vice President,
Treasurer, Assistant Treasurer, Secretary or Assistant Secretary may be a
facsimile. In case any officer, transfer agent or registrar who has
signed, or whose facsimile signature has been placed upon a certificate,
shall have ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the corporation with the
same effect as if the person were such officer, transfer agent or registrar
at the date of issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the corporation alleged
to have been lost or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost or
destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost
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or destroyed certificate or certificates, or the person's legal
representative, to give the corporation a bond in such sum as it may direct
as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost or destroyed.
SECTION 4. TRANSFERS OF STOCK. Upon surrender to the
corporation or the transfer agent of the corporation of a certificate for
shares duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
SECTION 5. FIXING OF RECORD DATE BY BOARD. For the purpose
of determining the stockholders entitled to notice of or to vote at any
meeting of stockholders, or any adjournment thereof, or to express consent
to or dissent from any corporate action in writing without a meeting, or
for the purpose of determining stockholders entitled to receive payments of
any dividend or the distribution or allotment of any rights or evidences of
interests arising out of any change, conversion or exchange of capital
stock, or for the purpose of any other action, the Board of Directors may
fix, in advance, a date as the record date for any such determination of
stockholders. Such date shall not be more than 60 days nor less than 10
days before the date of any such meeting, nor more than 60 days prior to
effectuation of any other action proposed to be taken. Only stockholders
of record on a record date so fixed shall be entitled to notice of and to
vote at such meeting or to receive payment of any dividend or the
distribution or allotment of any rights or evidences of interests arising
out of any change, conversion or exchange of capital stock.
SECTION 6. ADJOURNMENTS. When a determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders has been made as provided in this Article, the determination
applies to any adjournment of the meeting, unless the Board fixes a new
record date for the adjourned meeting.
SECTION 7. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to recognize the exclusive rights of a person registered on its
books as the owner of shares to receive dividends and to vote as such owner
and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether
or not it shall have express or other notice thereof, except as otherwise
provided by the laws of Delaware.
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ARTICLE IX
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors at any
regular or special meeting pursuant to law. Dividends may be paid in cash,
in property or in shares of capital stock, subject to the provisions of the
Certificate of Incorporation.
SECTION 2. RESERVES. Before payment of any dividends, there
may be set aside out of any funds of the corporation available for
dividends such sum or sums as the directors from time to time, in their
absolute discretion, think proper as a reserve or reserves to meet
contingencies, for equalizing dividends, for repairing or maintaining any
property of the corporation or for such other purpose as the directors
shall think conducive to the interests of the corporation and the directors
may modify or abolish any such reserve in the manner in which it was
created.
SECTION 3. CHECKS. All checks or demands for money and notes
of the corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
SECTION 4. FISCAL YEAR. The fiscal year of the corporation
shall be fixed by resolution of the Board of Directors.
SECTION 5. SEAL. The corporate seal, if any, shall have
inscribed thereon the name of the corporation, and the words "Corporate
Seal, Delaware." The seal may be used by causing it or a facsimile thereof
to be impressed, affixed, reproduced or otherwise.
ARTICLE X
AMENDMENTS
Subject to any provisions of the Certificate of Incorporation,
these Bylaws may be amended, altered, changed or repealed at any regular or
special meeting of the Board of Directors. Subject to any revisions of the
Certificate of Incorporation, these Bylaws also may be amended, altered,
changed or repealed at any regular or special meeting of stockholders
provided that notice of such meeting indicates that amendment of the Bylaws
is a purpose of the meeting, and the proposed amendment has been provided
to the stockholders as required under these Bylaws and applicable law.
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EXHIBIT 5.1
[LETTERHEAD OF WARNER NORCROSS & JUDD LLP APPEARS HERE]
November ___, 1997
Miller Exploration Company
3104 Logan Valley Road
Traverse City, Michigan 49685-0348
Re: REGISTRATION STATEMENT ON FORM S-1
Gentlemen:
We represent Miller Exploration Company, a Delaware corporation
(the "Company"), with respect to the above-captioned Registration Statement
on Form S-1 (the "Registration Statement") filed pursuant to the Securities
Act of 1933, as amended (the "Act") to register ________ shares of the
Company's common stock, $0.01 par value ("Common Stock").
As counsel for the Company, we are familiar with its Certificate
of Incorporation and Bylaws and have reviewed the various proceedings taken
by the Company to authorize the issuance of the Common Stock to be sold
pursuant to the Registration Statement. We have also reviewed and assisted
in preparing the Registration Statement. In our review, we have assumed
the genuineness of all signatures, the legal capacity of all natural
persons, the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as
certified or photostatic copies and the authenticity of the originals of
such copies.
On the basis of the foregoing we are of the opinion that when the
Registration Statement has become effective under the Act, any and all shares of
Common Stock that are the subject of the Registration Statement will, when
issued upon payment of the purchase price therefore to the Company, be validly
issued, fully paid and nonassessable .
This opinion is rendered for purposes of Item 16 of Form S-1 and
Item 601 of Regulation S-K and may not be used, quoted or referred to or
filed for any other purpose without our prior written permission.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and the references to our firm in the Registration
Statement.
Very truly yours,
WARNER NORCROSS & JUDD LLP
DRAFT
Stephen C. Waterbury, A Partner
<PAGE>
EXHIBIT 10.1
MILLER EXPLORATION COMPANY
STOCK OPTION AND RESTRICTED STOCK PLAN OF 1997
SECTION 1
ESTABLISHMENT OF PLAN; PURPOSE OF PLAN
1.1 ESTABLISHMENT OF PLAN. The Company hereby establishes the Stock
Option and Restricted Stock Plan of 1997 (the "Plan") for its directors,
corporate and Subsidiary officers and other employees. The Plan permits the
grant or award of Options, Restricted Stock, and Tax Benefit Rights.
1.2 PURPOSE OF PLAN. The purpose of the Plan is to provide
directors, officers and employees of the Company and its Subsidiaries with an
increased incentive to make significant contributions to the long-term
performance and growth of the Company and its Subsidiaries, to join the
interests of directors, officers and key employees with the interests of the
Company's stockholders through the opportunity for increased stock ownership,
and to attract and retain officers and key employees. The Plan is further
intended to provide flexibility to the Company in structuring long-term
incentive compensation to best promote the foregoing objectives.
SECTION 2
DEFINITIONS
The following words have the following meanings unless a different
meaning is plainly required by the context:
2.1 "Act" means the Securities Exchange Act of 1934, as amended.
2.2 "Board" means the Board of Directors of the Company.
2.3 Unless otherwise defined in the grant or agreement applicable to
an Incentive Award, "Change in Control" means:
(a) the sale, lease, exchange, or other transfer of
substantially all the assets of the Company (in one transaction
or in a series of related transactions) to, or the merger or
consolidation of the Company with, a corporation that is not
controlled by the Company; or
<PAGE>
(b) a change in control of the Company of a nature that
would be required to be reported in a response to Item 6(e) of
Schedule 14A of Regulation 14A issued under the Act, provided
that, without limitation, such change in control shall be deemed
to have occurred if (i) any "person" (as such term is used in
Section 13(d) and 14(d)(2) of the Act) is or becomes the
beneficial owner, directly or indirectly, of securities of the
Company representing twenty-five percent (25%) or more of the
combined voting power of the Company's then outstanding
securities, or (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the
Board cease for any reason to constitute at least a majority of
the Board (unless the election or nomination for election by the
Company's stockholders of each new director was approved by a
vote of at least two-thirds (2/3) of the directors then still in
office who were directors at the beginning of the period).
2.4 "Code" means the Internal Revenue Code of 1986, as amended.
2.5 "Committee" means a committee the Board shall designate to
administer the Plan. The Committee shall consist of at least two members
of the Board appointed by the Board, all of whom shall be "Non-Employee
Directors" (as defined below). The Board, in its discretion, may also
require that members of the Committee be "outside directors" as defined in
the rules issued under Section 162(m) of the Code.
2.6 "Common Stock" means the Common Stock of the Company.
2.7 "Company" means Miller Exploration Company, a Delaware
corporation, and its predecessors.
2.8 "Competition" means participation, directly or indirectly, in the
ownership, management, financing or control of any business that is the
same as or similar to the present or future businesses of the Company or
any Subsidiary. Such participation may be by way of employment, consulting
services, directorship, or officership. Ownership of less than three
percent (3%) of the shares of any corporation whose shares are traded
publicly on any national or regional stock exchange or over the counter
shall not be deemed Competition.
2.9 "Consensual Severance" means the voluntary termination of all
employment by the Participant with the Company or any of its Subsidiaries
that the Committee determines to be in the best interests of the Company.
2.10 "Early Retirement" means the voluntary termination of all
employment by a Participant with the written consent of the Committee after
the Participant has attained 55 years of age and completed 10 years of
service with the Company or any of its Subsidiaries.
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2.11 "Incentive Award" means the award or grant of an Option,
Restricted Stock, or Tax Benefit Right to a Participant under the Plan.
2.12 "Market Value" of any security on any given date means if the
security is listed for trading on The Nasdaq Stock Market or one or more
national securities exchanges, the last reported sales price on the date in
question, or if such security shall not have been traded on such principal
exchange on such date, the last reported sales price on the first day prior
thereto on which such security was so traded; or if that is not applicable,
the value as determined by any means deemed fair and reasonable by the
Committee, which determination shall be final and binding on all parties.
2.13 "Non-Employee Director" shall have the meaning set forth in Rule
16b-3 under the Act as in effect from time to time.
2.14 "Normal Retirement" means the voluntary termination of all
employment by a Participant after the Participant has attained 62 years of
age, or such other age as shall be determined by the Committee in its sole
discretion or as otherwise may be set forth in the Incentive Award
agreement or other grant document with respect to a Participant and a
particular Incentive Award.
2.15 "Option" means the right to purchase Common Stock at a stated
price for a specified period of time.
2.16 "Participant" means the directors, officers and other key
employees of the Company and its Subsidiaries who are granted an Incentive
Award under the Plan.
2.17 "Restricted Period" means the period of time during which
Restricted Stock awarded under the Plan is subject to restrictions. The
Restricted Period may differ among Participants and may have different
expiration dates with respect to shares of Common Stock covered by the same
Incentive Award.
2.18 "Restricted Stock" means Common Stock awarded to a Participant
under Section 6 of the Plan.
2.19 "Subsidiary" means any corporation or other entity of which fifty
percent (50%) or more of the outstanding voting stock or voting ownership
interest is directly or indirectly owned or controlled by the Company, or
by one or more Subsidiaries of the Company.
2.20 "Tax Benefit Right" means any right granted to a Participant
under Section 7 of the Plan.
2.21 "Total Disability" means that the Participant, for physical or
mental reasons, is unable to perform the essential functions of his or her
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duties for the Company for 120 consecutive days, or 180 days during any
twelve month period.
SECTION 3
ADMINISTRATION
3.1 POWER AND AUTHORITY. The Committee shall administer the Plan.
Except as limited in this Plan, the Committee shall have full power and
authority to interpret the provisions of the Plan and Incentive Awards
granted under the Plan, to supervise the administration of the Plan and the
Incentive Awards granted under the Plan and to make all other
determinations considered necessary or advisable under the Plan. All
determinations, interpretations and selections made by the Committee
regarding the Plan shall be final and conclusive. The Committee shall hold
its meetings at such times and places as it deems advisable. Action may be
taken by a written instrument signed by all of the members of the
Committee, and any action so taken shall be fully as effective as if it had
been taken at a meeting duly called and held. The Committee may delegate
recordkeeping, calculation, payment, and other ministerial administrative
functions to individuals designated by the Committee, who may be employees
of the Company or its Subsidiaries.
3.2 GRANTS OR AWARDS TO PARTICIPANTS. In accordance with and subject
to the provisions of the Plan, the Committee shall have the authority to
determine all provisions of Incentive Awards as the Committee may deem
necessary or desirable and as are consistent with the terms of the Plan,
including, without limitation, the authority to: (a) determine whether and
when Incentive Awards will be granted, the persons to be granted Incentive
Awards, the amount of Incentive Awards to be granted to each person and the
terms of the Incentive Awards to be granted; (b) determine and amend
vesting schedules, if any; (c) permit delivery or withholding of stock in
payment of the exercise price or to satisfy tax withholding obligations;
and (d) waive any restrictions or conditions applicable to any Incentive
Award. Incentive Awards shall be granted or awarded by the Committee, and
Incentive Awards may be amended by the Committee consistent with the Plan,
provided that no such amendment may become effective without the consent of
the Participant, except to the extent that the amendment operates solely to
the benefit of the Participant.
3.3 INDEMNIFICATION OF COMMITTEE MEMBERS. Neither any member or
former member of the Committee nor any individual to whom authority is or
has been delegated shall be personally responsible or liable for any act or
omission in connection with the performance of powers or duties or the
exercise of discretion or judgment in the administration and implementation
of the Plan. Each person who is or shall have been a member of the
Committee shall be indemnified and held harmless by the Company from and
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against any cost, liability or expense imposed or incurred in connection
with such person's or the Committee's taking or failing to take any action
under the Plan. Each such person shall be justified in relying on
information furnished in connection with the Plan's administration by any
appropriate person or persons.
SECTION 4
SHARES SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. Subject to adjustment as provided in Section
4.3 of the Plan, a maximum of 1,200,000 shares of Common Stock shall be
available for Incentive Awards under the Plan. Such shares may be
authorized but unissued shares.
4.2 LIMITATION UPON INCENTIVE AWARDS. No Participant shall be
granted, during any calendar year, Incentive Awards with respect to more
than 10% of the total number of shares of Common Stock available for
Incentive Awards under the Plan set forth in Section 4.1 of the Plan,
subject to adjustment as provided in Section 4.3 of the Plan.
4.3 ADJUSTMENTS. If the number of shares of Common Stock outstanding
changes by reason of a stock dividend, stock split, recapitalization,
merger, consolidation, combination, exchange of shares or any other change
in the corporate structure or shares of the Company, the aggregate number
and class of shares available for grants or awards under the Plan, together
with the Option prices, award limits and other appropriate terms of this
Plan, shall be appropriately adjusted. No fractional shares shall be
issued pursuant to the Plan, and any fractional shares resulting from
adjustments shall be eliminated from the respective Incentive Award, with
an appropriate cash adjustment for the value of any Incentive Awards
eliminated. If an Incentive Award is canceled, surrendered, modified,
expires or is terminated during the term of the Plan but prior to the
exercise or vesting of the Incentive Award in full, the shares subject to
but not purchased or retained by the Participant under such Incentive Award
shall be available for other Incentive Awards. If shares subject to and
otherwise deliverable upon the exercise of an Incentive Award are
surrendered to the Company in connection with the exercise or vesting of an
Incentive Award, the surrendered shares subject to the Incentive Award
shall be available for other Incentive Awards.
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SECTION 5
OPTIONS
5.1 GRANT.
(a) OFFICERS AND EMPLOYEES. Except as set forth below for Non-
Employee Directors, a Participant may be granted one or more Options
under the Plan. Options shall be subject to such terms and
conditions, consistent with the other provisions of the Plan, as shall
be determined by the Committee in its sole discretion. The Committee
may vary, among Participants and among Options granted to the same
Participant, any and all of the terms and conditions of the Options
granted under the Plan. Subject to the limitation imposed by
Section 4.2 of the Plan, the Committee shall have complete discretion
in determining the number of Options granted to each Participant. The
Committee may designate whether or not an Option is to be considered
an incentive stock option as defined in Section 422(b) of the Code.
(b) NON-EMPLOYEE DIRECTORS. Subject to the limitation imposed
by Section 4.2 and the adjustments imposed by Section 4.3, an Option
to purchase 3,000 shares of Common Stock shall be granted automatically
on the date of the Company's 1998 Annual Meeting of Stockholders and
the date of each annual meeting thereafter to each director of the
Company who is, at the close of each such annual meeting, a Non-
Employee Director. In addition, each Non-Employee Director shall at
the time of his or her initial election or appointment be granted a
Stock Option to purchase 10,000 shares of Common Stock. The Options
shall be granted at an option price equal to the fair market value of
the Common Stock at the date of grant of the option and shall be
subject to such terms and conditions, consistent with the other
provisions of the Plan, as may be determined by the Committee in its
sole discretion. Options granted to Non-Employee Directors shall not
be treated as incentive stock options under Section 422(b) of the
Code.
5.2 OPTION AGREEMENTS. Each Option shall be evidenced by an Option
agreement containing such terms and conditions, consistent with the
provisions of the Plan, as the Committee from time to time determines. To
the extent not covered by the Option agreement, the terms and conditions of
this Section 5 shall govern.
5.3 OPTION PRICE. The per share Option price shall be determined by
the Committee. The per Share Option Price of any Option intended to qualify
as an incentive stock option under Section 422(b) of the Code shall be
equal to or greater than 100% of the Market Value on the date of grant.
The date of grant of an Option shall be the date the Option is authorized
by the Committee or a future date specified by the Committee as the date
for issuing the Option.
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5.4 MEDIUM AND TIME OF PAYMENT. The exercise price for each share
purchased pursuant to an Option granted under the Plan shall be payable in
cash or, if the Committee consents, in shares of Common Stock (including
Common Stock to be received upon a simultaneous exercise). The time and
terms of payment may be amended before or after exercise of an Option (a)
by the Committee in its sole discretion, if the terms of such amendment are
more favorable to the Participant, or (b) in all other cases, by the
Committee with the consent of the Participant. The Committee may from time
to time authorize payment of all or a portion of the Option price in the
form of a promissory note or installments according to such terms as the
Committee may approve. The Board may restrict or suspend the power of the
Committee to permit such loans and may require that adequate security be
provided.
5.5 OPTIONS GRANTED TO TEN PERCENT STOCKHOLDERS. No Option granted
to any Participant who at the time of such grant owns, together with stock
attributed to such Participant under Section 424(d) of the Code, more than
ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any of its Subsidiaries may be designated as an
incentive stock option, unless such Option provides an exercise price equal
to at least one hundred ten percent (110%) of the Market Value of the
Common Stock, and the exercise of the Option after the expiration of five
years from the date of grant of the Option is prohibited by its terms.
5.6 LIMITS ON EXERCISABILITY. Options shall be exercisable for such
periods as may be fixed by the Committee. Options intended to qualify as
incentive stock options shall have terms not to exceed ten years from the
grant date. The Committee may in its discretion require a Participant to
continue service with the Company and its Subsidiaries for a certain length
of time prior to an Option becoming exercisable and may eliminate such
delayed vesting provisions. The Committee may also vary, among
Participants and among Options granted to the same Participant, any and all
of the terms and conditions of Options granted under the Plan.
5.7 TRANSFERABILITY.
(a) GENERAL. Unless the Committee otherwise consents or
unless the terms of the Option agreement provide otherwise, no
Option granted under the Plan may be sold, transferred, pledged,
assigned or otherwise alienated or hypothecated, other than by
will or by the laws of descent and distribution.
(b) OTHER RESTRICTIONS. The Committee may impose such
restrictions on any shares of Common Stock acquired pursuant to
the exercise of an Option under the Plan as it deems advisable,
including, without limitation, restrictions intended to assure
compliance with applicable federal or state securities laws.
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5.8 TERMINATION OF EMPLOYMENT OR DIRECTORSHIP.
(a) GENERAL. If a Participant ceases to be employed by or a
director of the Company or one of its Subsidiaries for any reason
other than the Participant's death, Total Disability, termination
for cause, or any additional provision as determined by the
Committee, the Participant may exercise an Option for a period of
90 days after such termination of employment or directorship, but
only to the extent the Participant was entitled to exercise the
Option on the date of termination and would be entitled to
exercise the Option if employed at the date of exercise, unless
the Committee otherwise consents or the terms of the Option
agreement provide otherwise. For purposes of the Plan, the
following shall not be deemed a termination of employment: (i) a
transfer of employment among the Company and its Subsidiaries;
(ii) a leave of absence, duly authorized in writing by the
Company, for military service or for any other purpose approved
by the Company if the period of such leave does not exceed 90
days; (iii) a leave of absence in excess of 90 days, duly
authorized in writing by the Company, provided the employee's
right to reemployment is guaranteed either by statute or
contract; or (iv) a termination of employment with continued
service as an officer or director. For purposes of the Plan,
termination of employment shall be considered to occur on the
date on which the employee is no longer obligated to perform
services for the Company or any of its Subsidiaries and the
employee's right to reemployment is not guaranteed either by
statute or contract, regardless of whether the employee continues
to receive compensation from the Company or any of its
Subsidiaries after such date.
(b) DEATH. If a Participant dies either while an employee
or director of the Company or one of its Subsidiaries, or dies
after termination of employment or directorship other than for
cause and other than as a result of voluntary termination but
during the time when the Participant could have exercised an
Option under the Plan, the Option issued to such Participant
shall be exercisable by the personal representative of such
Participant or other successor to the interest of the Participant
for a period of one year after the Participant's death, but only
to the extent that the Participant was entitled to exercise the
Option on the date of death or termination of employment or
directorship, whichever first occurred, and would be entitled to
exercise the Option if employed at the date of exercise, unless
the Committee otherwise consents or the terms of the Option
agreement provide otherwise.
(c) TOTAL DISABILITY. If a Participant ceases to be an
employee or a director of the Company or one of its Subsidiaries
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due to the Participant's Total Disability, the Participant may
exercise an Option for a period of one year following such
termination of employment, but only to the extent the Participant
was entitled to exercise the Option on the date of such event,
unless the Committee otherwise consents or the terms of the
Option agreement provide otherwise.
(d) ADDITIONAL PROVISIONS IN OPTION AGREEMENTS. The
Committee may, in its sole discretion, provide by resolution or
by including provisions in any Option agreement entered into with
a Participant that the Participant may exercise any outstanding
options upon termination due to Early Retirement, Normal
Retirement or Consensual Severance for a period of time after
such termination as may be determined by the Committee, PROVIDED
that (i) such period may not extend beyond the earlier of three
(3) years after the date of termination or the date on which the
Options expire by their terms, (ii) the Participant may exercise
the Option only to the extent the Participant was entitled to
exercise the Option on the date of termination, and (iii) the
Participant shall have no further right to exercise any Options
after termination due to Early Retirement, Normal Retirement or
Consensual Severance if the Committee determines the Participant
has entered into Competition with the Company.
(e) VOLUNTARY TERMINATION. Except as provided in Section
5.8(d), if a Participant voluntarily terminates employment with
the Company or one of its Subsidiaries, the Participant shall
have no further right to exercise any Option previously granted
him, unless the terms of the Option Agreement provide otherwise.
(f) TERMINATION FOR CAUSE. If a Participant is terminated
for cause, the Participant shall have no further right to
exercise any outstanding unexercised Option issued under the
Plan.
(g) SUSPENSION OF EXERCISABILITY. If the Participant
receives notice from the Company that the Participant may be
terminated for cause, the Participant shall have no right to
exercise any Options previously granted for a period of sixty
days from the receipt of such notice. If the Participant is
terminated for cause within such sixty-day period, the
Participant shall have no further right to exercise any Option
previously granted. If the Participant is not terminated for
cause within the sixty-day period, the provisions of the Option
agreement and the Plan shall continue to apply to the
exercisability of the Participant's Options.
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SECTION 6
RESTRICTED STOCK
6.1 GRANT. A Participant may be granted Restricted Stock under the
Plan. Restricted Stock shall be subject to such terms and conditions,
consistent with the other provisions of the Plan, as shall be determined by
the Committee in its sole discretion. Restricted Stock shall be awarded on
the condition that the Participant remain in the employ of the Company or
one of its Subsidiaries during the Restricted Period. Such condition shall
have no effect on the right of the Company or any Subsidiary to terminate
the Participant's employment at any time. No payment is required from a
Participant for an award of Restricted Stock.
6.2 RESTRICTED STOCK AGREEMENTS. Each award of Restricted Stock
shall be evidenced by a Restricted Stock agreement containing such terms
and conditions, consistent with the provisions of the Plan, as the
Committee from time to time determines.
6.3 TERMINATION OF EMPLOYMENT OR DIRECTORSHIP.
(a) GENERAL. If a Participant ceases to be employed by or
a director of the Company or one of its Subsidiaries for any
reason other than the Participant's death, Total Disability, or
any other additional provisions as determined by the Committee
pursuant to Section 6.3(c), then any shares of Restricted Stock
still subject to restrictions on the date of such termination
shall automatically be forfeited and returned to the Company.
For purposes of the Plan, the following shall not be deemed a
termination of employment: (i) a transfer of employment among
the Company and its Subsidiaries; (ii) a leave of absence, duly
authorized in writing by the Company, for military service or for
any other purpose approved by the Company if the period of such
leave does not exceed 90 days; (iii) a leave of absence in excess
of 90 days, duly authorized in writing by the Company, provided
the employee's right to reemployment is guaranteed either by
statute or contract; or (iv) a termination of employment with
continued service as an officer or director. For purposes of the
Plan, termination of employment shall be considered to occur on
the date on which the employee is no longer obligated to perform
services for the Company or any of its Subsidiaries and the
employee's right to reemployment is not guaranteed either by
statute or contract, regardless of whether the employee continues
to receive compensation from the Company or any of its
Subsidiaries after such date.
(b) DEATH OR TOTAL DISABILITY. Unless the terms of the
Restricted Stock agreement or grant provide otherwise, in the
event a Participant terminates employment or directorship with
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the Company or one of its Subsidiaries because of death or Total
Disability during the Restricted Period, the restrictions
applicable to the shares of Restricted Stock shall automatically
terminate and the Restricted Stock shall vest as of the date of
termination.
(c) ADDITIONAL PROVISIONS AS DETERMINED BY COMMITTEE. The
Committee may, in its sole discretion, provide provisions in any
Restricted Stock agreement permitting, or by resolution approve,
vesting of all or part of any Restricted Stock awarded to a
Participant upon termination due to Early Retirement, Normal
Retirement, Consensual Severance or a Change in Control.
6.4 RESTRICTIONS ON TRANSFERABILITY.
(a) GENERAL. Unless the Committee otherwise consents or
unless the terms of the Restricted Stock agreement provide
otherwise, shares of Restricted Stock shall not be sold,
exchanged, transferred, pledged or otherwise disposed of by a
Participant during the Restricted Period other than to the
Company pursuant to subsection 6.3 or 6.4(b) or by will or the
laws of descent and distribution.
(b) SURRENDER TO THE COMPANY. If any sale, exchange,
transfer, pledge or other disposition, voluntary or involuntary,
of Restricted Stock that has not vested shall be made or
attempted during the Restricted Period, except as provided above
in subsections 6.3 and 6.4(a), the Participant's right to the
Restricted Stock shall immediately cease and terminate, and the
Participant shall promptly forfeit and surrender to the Company
all such Restricted Stock.
(c) OTHER RESTRICTIONS. The Committee may impose other
restrictions on any Restricted Stock as the Committee deems
advisable.
6.5 RIGHTS AS A STOCKHOLDER. During the Restricted Period, a
Participant shall have all rights of a stockholder with respect to his
Restricted Stock, including (a) the right to vote any shares at
stockholders' meetings; (b) the right to receive, without restriction, all
cash dividends paid with respect to such Restricted Stock; and (c) the
right to participate with respect to such Restricted Stock in any stock
dividend, stock split, recapitalization or other adjustment in the Common
Stock of the Company or any merger, consolidation or other reorganization
involving an increase or decrease or adjustment in the Common Stock of the
Company. Any new, additional or different shares or other security
received by the Participant pursuant to any such stock dividend, stock
split, recapitalization or reorganization shall be subject to the same
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terms, conditions and restrictions as those relating to the Restricted
Stock for which such shares were received.
6.6 DEPOSIT OF CERTIFICATES; LEGENDING OF RESTRICTED STOCK.
(a) DEPOSIT OF CERTIFICATES. Any certificates evidencing
shares of Restricted Stock awarded pursuant to the Plan shall be
registered in the name of the relevant Participant and deposited,
together with a stock power endorsed in blank, with the Company.
In the discretion of the Committee, any such certificates may be
deposited in a bank designated by the Committee or delivered to
the Participant. Certificates for shares of Restricted Stock
that have vested shall be delivered to the Participant upon
request within a reasonable period of time. The Participant
shall sign all documents necessary or appropriate to facilitate
such delivery.
(b) LEGEND. Any certificates evidencing shares of
Restricted Stock awarded pursuant to the Plan shall bear the
following legend:
This certificate is held subject to the terms and
conditions contained in a restricted stock agreement
that includes a prohibition against the sale or
transfer of the stock represented by this certificate
except in compliance with that agreement, and that
provides for forfeiture upon certain events. A copy of
that agreement is on file in the office of the
Corporation.
6.7 RESALE. The Participant shall agree not to resell or
redistribute such Restricted Stock after the Restricted Period except upon
such conditions as the Company may reasonably specify to ensure compliance
with federal and state securities laws.
SECTION 7
TAX BENEFIT RIGHTS
7.1 GRANT. A Participant may be granted Tax Benefit Rights under the
Plan to encourage a Participant to exercise Options and provide certain tax
benefits to the Company. A Tax Benefit Right entitles a Participant to
receive from the Company or a Subsidiary a cash payment not to exceed the
amount calculated by multiplying the ordinary income, if any, realized by
the Participant for federal tax purposes as a result of the exercise of a
non-qualified stock option, or the disqualifying disposition of shares
acquired under an incentive stock option, by the maximum federal income tax
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rate (including any surtax or similar charge or assessment) for
corporations, plus any other applicable state and local tax against which
the Company is entitled to a deduction or credit by reason of exercise of
the Option or the disqualifying disposition.
7.2 RESTRICTIONS. A Tax Benefit Right may be granted only with
respect to an Option issued and outstanding or to be issued under the Plan
or any other Plan of the Company or its Subsidiaries that has been approved
by the stockholders as of the effective date of the Plan and may be granted
concurrently with or after the grant of the Option. Such rights with
respect to outstanding Options shall be issued only with the consent of the
Participant if the effect would be to disqualify an incentive stock option,
change the date of grant or the exercise price, or otherwise impair the
Participant's existing Options.
7.3 TERMS AND CONDITIONS. The Committee shall determine the terms
and conditions of any Tax Benefit Rights granted and the Participants to
whom such rights will be granted with respect to Options under the Plan or
any other plan of the Company and those terms and conditions shall be set
forth in written agreements. The Committee may amend, cancel, limit the
term of, or limit the amount payable under a Tax Benefit Right at any time
prior to the exercise of the related stock option, unless otherwise
provided under the terms of the Tax Benefit Right. The net amount of a Tax
Benefit Right, subject to withholding, may be used to pay a portion of the
Option price, unless otherwise provided by the Committee.
SECTION 8
CHANGE IN CONTROL
Without in any way limiting the Committee's discretion, the Committee
may include in any Incentive Award provisions for acceleration of any
vesting or other similar requirements or for the elimination of any
restrictions upon Incentive Awards upon a Change in Control of the Company.
The Committee may also include provisions for Participants to receive cash
in lieu of outstanding Options upon a Change in Control of the Company.
SECTION 9
GENERAL PROVISIONS
9.1 NO RIGHTS TO AWARDS. No Participant or other person shall have
any claim to be granted any Incentive Award, and there is no obligation of
uniformity of treatment of employees, Participants or holders or
beneficiaries of Incentive Awards. The terms and conditions of the
Incentive Awards of the same type and the determination of the Committee to
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grant a waiver or modification of any Incentive Award and the terms and
conditions thereof need not be the same with respect to each Participant.
9.2 WITHHOLDING. The Company or a Subsidiary shall be entitled to
(a) withhold and deduct from future wages of a Participant (or from other
amounts that may be due and owing to a Participant from the Company or a
Subsidiary), or make other arrangements for the collection of, all amounts
deemed necessary to satisfy any and all federal, state and local
withholding and employment-related tax requirements attributable to an
Incentive Award, including, without limitation, the grant, exercise or
vesting of, or payment of dividends with respect to, an Incentive Award or
a disqualifying disposition of Common Stock received upon exercise of an
incentive stock option; or (b) require a Participant promptly to remit the
amount of such withholding to the Company before taking any action with
respect to an Incentive Award. Unless the Committee determines otherwise,
withholding may be satisfied by withholding Common Stock to be received
upon exercise or by delivery to the Company of previously owned Common
Stock.
9.3 COMPLIANCE WITH LAWS; LISTING AND REGISTRATION OF SHARES. All
Incentive Awards granted under the Plan (and all issuances of Common Stock
or other securities under the Plan) shall be subject to applicable laws,
rules and regulations, and to the requirement that if at any time the
Committee determines, in its sole discretion, that the listing,
registration or qualification of the shares covered thereby upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as
a condition of, or in connection with, the granting of such Incentive Award
or the issue or purchase of shares thereunder, such Incentive Award may not
be exercised in whole or in part, or the restrictions on such Incentive
Award shall not lapse, unless and until such listing, registration,
qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Committee.
9.4 NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained
in the Plan shall prevent the Company or any Subsidiary from adopting or
continuing in effect other or additional compensation arrangements,
including the grant of options and other stock-based awards, and such
arrangements may be either generally applicable or applicable only in
specific cases.
9.5 NO RIGHT TO EMPLOYMENT. The grant of an Incentive Award shall
not be construed as giving a Participant the right to be retained in the
employ or directorship of the Company or any Subsidiary. The Company or
any Subsidiary may at any time dismiss a Participant from employment, free
from any liability or any claim under the Plan, unless otherwise expressly
provided in the Plan or in any written agreement with a Participant.
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9.6 GOVERNING LAW. The validity, construction and effect of the Plan
and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Michigan and applicable federal
law.
9.7 SEVERABILITY. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of the Plan, and the Plan shall be construed
and enforced as if the illegal or invalid provision had not been included.
SECTION 10
EFFECTIVE DATE AND DURATION OF THE PLAN
This Plan shall take effect November 17, 1997, which is the day of approval
by the Company's stockholders. Unless earlier terminated by the Board of
Directors, no Incentive Award shall be granted under this Plan after
November 16, 2007.
SECTION 11
TERMINATION AND AMENDMENT
The Board may terminate the Plan at any time, or may from time to time
amend the Plan, provided that no such amendment may impair any outstanding
Incentive Award without the consent of the Participant, except according to
the terms of the Incentive Award. No termination, amendment or
modification of the Plan shall become effective with respect to any
Incentive Award previously granted under the Plan without the prior written
consent of the Participant holding such Incentive Award unless such
amendment or modification operates solely to the benefit of the
Participant.
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EXHIBIT 10.2
INDEMNITY AGREEMENT
THIS AGREEMENT ("Agreement") is made as of ___________, 1997, by
and between MILLER EXPLORATION COMPANY, a Delaware corporation (the
"Company"), and ______________________ ("Indemnitee").
It is essential to the Company to attract and retain as directors
and officers the most capable persons available. The substantial increase
in corporate litigation subjects directors and officers of publicly-traded
companies to expensive litigation risks at the same time that the
availability of economic directors' and officers' liability insurance has
been severely limited. In furtherance of the express policy of the Company
to indemnify its directors and officers so as to provide them with the
maximum possible protection permitted by law, and in consideration of
Indemnitee's agreement to serve as a director or officer of the Company,
the parties are entering into this Agreement.
ACCORDINGLY, the parties agree as follows:
SECTION 1. DEFINITIONS. As used in this Agreement:
(a) "Expenses" means all costs, expenses and obligations paid or
incurred in connection with investigating, litigating, being a witness
in, defending or participating in, or preparing to litigate, defend,
be a witness in or participate in any matter that is the subject of a
Proceeding (as defined below), including attorneys' and accountants'
fees and court costs.
(b) "Proceeding" means any threatened, pending or completed
action, suit or proceeding, or any inquiry or investigation, whether
brought by or in the right of the Company or otherwise and whether of
a civil, criminal, administrative or investigative nature, in which
Indemnitee may be or may have been involved as a party or otherwise by
reason of the fact that Indemnitee is or was a director, officer,
employee, agent or fiduciary of the Company, or by reason of any
action taken by Indemnitee or any inaction on Indemnitee's part while
acting as a director, officer, employee, agent or fiduciary of the
Company, or by reason of the fact that Indemnitee is or was serving at
the request of the Company as a director, officer, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust or
other enterprise.
(c) "Resolution Costs" includes any amount paid in connection
with a Proceeding and in satisfaction of a judgment, fine, penalty or
any amount paid in settlement.
<PAGE>
SECTION 2. AGREEMENT TO SERVE. Indemnitee agrees to serve as a
director and/or officer of the Company for so long as Indemnitee is duly
elected or appointed or until the tender of Indemnitee's written
resignation.
SECTION 3. INDEMNIFICATION. The indemnification provided under this
Agreement shall be as follows:
(a) The Company shall indemnify Indemnitee against all Expenses
actually and reasonably incurred by Indemnitee in connection with any
Proceeding. Additionally, in any Proceeding other than a Proceeding
by or in the right of the Company, the Company shall indemnify
Indemnitee against all Resolution Costs actually and reasonably
incurred by Indemnitee in connection with the Proceeding. No
indemnification shall be made under this subsection:
(i) with respect to remuneration paid to Indemnitee if it
is determined by a final judgment or other final adjudication
that the remuneration was in violation of law;
(ii) on account of any suit in which judgment is rendered
against Indemnitee for an accounting of profits made from the
purchase or sale by Indemnitee of securities of the Company
pursuant to the provisions of Section 16 of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions
of any federal, state or local law;
(iii) on account of Indemnitee's conduct that is determined
by a final judgment or other final adjudication to have been
knowingly fraudulent, deliberately dishonest or willful
misconduct;
(iv) on account of Indemnitee's conduct that a final
judgment or other final adjudication is determined to have been
in bad faith, in opposition to best interests of the Company or
produced an unlawful personal benefit;
(v) with respect to a criminal proceeding if the Indemnitee
knew or reasonably should have known that Indemnitee's conduct
was illegal; or
(vi) if a final decision by a court having jurisdiction in
the matter determines that indemnification under this Agreement
is not lawful.
(b) In addition to any indemnification provided under Subsection
3(a) above, the Company shall indemnify Indemnitee against any
Expenses or Resolution Costs incurred by Indemnitee, regardless of the
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nature of the Proceeding that Expenses and/or Resolution Costs were
incurred, if the Expenses or Resolution Costs would have been covered
under any directors' and officers' liability insurance policies in
effect on the effective date of this Agreement or that become
effective on any later date.
(c) In addition to any indemnification provided under
Subsections 3(a) and 3(b) above, the Company shall provide Indemnitee,
to the fullest extent allowed by law as now or later enacted or
interpreted, with indemnification against any Expenses and/or
Resolution Costs incurred by Indemnitee in connection with any
Proceeding. To the extent a change in the laws of the State of
Delaware (whether by statute or judicial decision) permits greater
indemnification, either by agreement or otherwise, than presently
provided by law or this Agreement, it is the intent of the parties
that Indemnitee shall enjoy by this Agreement the greater benefits
afforded by the change.
(d) Without limiting Indemnitee's right to indemnification under
any other provision of this Agreement, the Company shall indemnify
Indemnitee in accordance with the provisions of this subsection if
Indemnitee is a party to or threatened to be made a party to or
otherwise involved in any Proceeding by or in the right of the Company
to procure a judgment in its favor by reason of the fact that
Indemnitee was or is a director and/or officer of the Company or is or
was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against all Expenses actually and
reasonably incurred by Indemnitee and any amounts paid by Indemnitee
in settlement of the Proceeding, but only if Indemnitee acted in good
faith in a manner that Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company, except that no
indemnification shall be made under this subsection in respect of any
claim, issue or matter that Indemnitee shall have been adjudged to be
liable to the Company in the performance of his duty to the Company,
unless and only to the extent that any court in which the Proceeding
was brought determines upon application that, despite the adjudication
of liability but in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity, in which
event indemnification shall be limited to expenses actually and
reasonably incurred.
(e) Notwithstanding anything in this Agreement to the contrary,
before a Change in Control (as defined in Section 5 below), Indemnitee
shall not be entitled to indemnification pursuant to this Agreement in
connection with any Proceeding initiated by Indemnitee against the
Company or any director, officer, employee, agent or fiduciary of the
Company (in such capacity) unless the Company has joined in or
consented to the initiation of the Proceeding.
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SECTION 4. PAYMENT OF INDEMNIFICATION.
(a) Expenses incurred by the Indemnitee and subject to
indemnification under Section 3 above shall be paid directly by the
Company or reimbursed to the Indemnitee within two (2) days after the
receipt of a written request of the Indemnitee providing that
Indemnitee undertakes to repay any amount paid or advanced under this
Section to the extent that it is ultimately determined that Indemnitee
is not entitled to indemnification under Section 3.
(b) Except as otherwise provided in Section 4(a) above, any
indemnification under Section 3 above shall be made no later than
thirty (30) days after receipt by the Company of the written request
of Indemnitee, unless within that 30-day period the Board of
Directors, by a majority vote of a quorum consisting of directors who
are not parties to the Proceeding, determines that the Indemnitee is
not entitled to the indemnification set forth in Section 3 or unless
the Board of Directors refers the Indemnitee's indemnification request
to independent legal counsel. In cases where there are no directors
who are not parties to the Proceeding, the indemnification request
shall be referred to independent legal counsel. If the
indemnification request is referred to independent legal counsel, then
Indemnitee shall be paid no later than forty-five (45) days after
Indemnitee's initial request to the Company unless within that time
independent legal counsel presents to the Board of Directors a written
opinion stating in unconditional terms that indemnification is not
allowed under Section 3 of this Agreement. If a Change in Control
occurs and results in individuals who were directors before the
circumstances giving rise to the Change in Control ceasing for any
reason to constitute a majority of the Board of Directors, the above
determination, if any, shall be made by independent legal counsel and
not the Board of Directors. The Company agrees to pay the reasonable
fees of the independent legal counsel and to fully indemnify that
counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant to this Agreement. If there has
not been a Change in Control, independent legal counsel shall be
selected by the Board of Directors, and if there has been a Change in
Control, the independent legal counsel shall be selected by
Indemnitee.
(c) The right to indemnification payments as provided by this
Agreement shall be enforceable by Indemnitee in any court of competent
jurisdiction. The burden of proving that indemnification is not
permitted by this Agreement shall be on the Company or on the person
challenging the indemnification. Neither the failure of the Company,
including its Board of Directors, to have made a determination prior
to the commencement of any Proceeding that indemnification is proper,
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nor an actual determination by the Company, including its Board of
Directors or independent legal counsel, that indemnification is not
proper, shall bar an action by Indemnitee to enforce this Agreement or
create a presumption that Indemnitee is not entitled to
indemnification under this Agreement. If the Board of Directors or
independent legal counsel determines in accordance with Section 4(b)
above that Indemnitee would not be permitted to be indemnified in
whole or in part, Indemnitee shall have the right to commence
litigation in any court in the State of Michigan having subject
matter jurisdiction and that venue is proper seeking an independent
determination by the court or challenging the determination by the
Board of Directors or independent legal counsel, and the Company
hereby consents to service of process and to appear in that
Proceeding. Expenses incurred by Indemnitee in connection with
successfully establishing Indemnitee's right to indemnification, in
whole or in part, shall also be reimbursed by the Company.
SECTION 5. ESTABLISHMENT OF TRUST. In the event of a Potential
Change in Control of the Company (as defined below), the Company shall,
upon written request by Indemnitee, create a trust for the benefit of the
Indemnitee and from time to time upon written request of Indemnitee shall
fund the trust in an amount sufficient to satisfy any and all Expenses or
Resolution Costs that may properly be subject to indemnification under
Section 3 above anticipated at the time of each request. The amount or
amounts to be deposited in the trust pursuant to this funding obligation
shall be determined by a majority vote of a quorum consisting of directors
who are not parties to the Proceeding or the Chief Executive Officer of the
Company. If all of those individuals are parties to the Proceeding, the
amount or amounts to be deposited in the trust shall be determined by
independent legal counsel. The terms of the trust shall provide that upon
a Change in Control (i) the trust shall not be revoked or the principal of
the trust fund invaded, without the written consent of the Indemnitee; (ii)
the trustee shall advance, within two (2) business days of a request by the
Indemnitee, any amount properly payable to Indemnitee under Subsection 4(a)
of this Agreement; (iii) the trust shall continue to be funded by the
Company in accordance with the funding obligation set forth above; (iv) the
trustee shall promptly pay to the Indemnitee all amounts that the
Indemnitee shall be entitled to indemnification pursuant to this Agreement
or otherwise; and (v) all unexpended funds in the trust shall revert to the
Company upon a final determination by a court of competent jurisdiction
that the Indemnitee has been fully indemnified under the terms of this
Agreement. The trustee shall be chosen by the Indemnitee and shall be a
national or state bank having a combined capital and surplus of not less
than $50,000,000. At the time of each draw from the trust fund, the
Indemnitee shall provide the trustee with a written request providing that
Indemnitee undertakes to repay the amount to the extent that it is
ultimately determined that Indemnitee is not entitled to indemnification.
Any funds, including interest or investment earnings, remaining in the
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trust fund shall revert and be paid to the Company if (i) a Change in
Control has not occurred; and (ii) if the Board of Directors or the Chief
Executive Officer of the Company determines that the circumstances giving
rise to that particular funding of the trust no longer exists. Nothing in
this section shall relieve the Company of any of its obligations under this
Agreement.
For purposes of this Agreement, the following definitions shall
apply:
(a) "Change in Control" shall mean (i) the failure of the
Continuing Directors at any time to constitute at least a majority of
the members of the Company's Board of Directors; (ii) the acquisition
by any Person (as defined in Section 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Act")) other than an
Excluded Holder of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Act) of twenty percent (20%) or more of
the outstanding Common Stock or the combined voting power of the
Company's outstanding securities entitled to vote generally in the
election of directors; (iii) the approval by the shareholders of the
Company of a reorganization, merger or consolidation, unless with or
into a Permitted Successor; or (iv) the approval by the shareholders
of the Company of a complete liquidation or dissolution of the Company
or the sale or disposition of all or substantially all of the assets
of the Company other than to a Permitted Successor.
(b) "Continuing Directors" mean the individuals constituting the
Company's Board of Directors as of the date of this Agreement and any
subsequent directors whose election or nomination for election by the
Company's shareholders was approved by a vote of two-thirds (2/3) of
the individuals who are then Continuing Directors, but specifically
excluding any individual whose initial assumption of office occurs as
a result of either an actual or threatened election contest (as the
term is used in Rule 14a-11 of Regulation 14A promulgated under the
Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Company's Board of
Directors.
(c) "Excluded Holder" means the Company, a Subsidiary or any
employee benefit plan (i.e., any plan or program established by the
Company or a Subsidiary for the compensation or benefit of employees
of the Company or any of its Subsidiaries) of the Company or a
Subsidiary or any trust holding Common Stock or other securities
pursuant to the terms of an employee benefit plan.
(d) "Permitted Successor" means a corporation that, immediately
following the consummation of a transaction specified in clauses (iii)
and (iv) of the definition of "Change in Control" above, satisfies
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each of the following criteria: (A) sixty percent (60%) or more of
the outstanding common stock of the corporation and the combined
voting power of the outstanding securities of the corporation entitled
to vote generally in the election of directors (in each case
determined immediately following the consummation of the applicable
transaction) is beneficially owned, directly or indirectly, by all or
substantially all of the Persons who were the beneficial owners of the
Company's outstanding Common Stock and outstanding securities entitled
to vote generally in the election of directors (respectively)
immediately prior to the applicable transaction, (B) no Person other
than an Excluded Holder beneficially owns, directly or indirectly,
twenty percent (20%) or more of the outstanding common stock of the
corporation or the combined voting power of the outstanding securities
of the corporation entitled to vote generally in the election of
directors (for these purposes the term Excluded Holder shall include
the corporation, any Subsidiary of the corporation and any employee
benefit plan of the corporation or any such Subsidiary or any trust
holding common stock or other securities of the corporation pursuant
to the terms of any such employee benefit plan), and (C) at least a
majority of the board of directors is comprised of Continuing
Directors.
(e) "Person" means any individual, corporation (including any
non-profit corporation), general or limited partnership, limited
liability company, joint venture, estate, trust, association,
organization or other entity or governmental body.
(f) A "Potential Change in Control" shall be deemed to have
occurred if (i) the Company enters into an agreement, the consummation
of that would result in the occurrence of a Change in Control; (ii)
any person (including the Company) publicly announces an intention to
take or to consider taking actions that once consummated would
constitute a Change in Control; or (iii) the Board of Directors adopts
a resolution to the effect that, for purposes of this Agreement, a
Potential Change in Control has occurred.
(g) "Subsidiary" means any corporation or other entity of which
fifty percent (50%) or more of the outstanding voting stock or voting
ownership interest is directly or indirectly owned or controlled by
the Company or by one or more Subsidiaries of the Company.
SECTION 6. PARTIAL INDEMNIFICATION; SUCCESSFUL DEFENSE. If
Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of the Expenses or
Resolution Costs actually and reasonably incurred by Indemnitee but not,
however, for the total amount, the Company shall nevertheless indemnify
Indemnitee for the portion of the Expenses or Resolution Costs that
Indemnitee is entitled. Moreover, notwithstanding any other provision of
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this Agreement, to the extent that Indemnitee has been successful on the
merits or otherwise in defense of any or all claims relating in whole or in
part to a Proceeding or in defense of any issue or matter in a Proceeding,
including dismissal without prejudice, Indemnitee shall be indemnified
against all Expenses incurred in connection with that Proceeding.
SECTION 7. CONSENT. Unless a Change in Control has occurred, the
Company shall not be liable to indemnify Indemnitee under this Agreement
for any amounts paid in settlement of any Proceeding made without the
Company's written consent. The Company shall not settle any Proceeding in
any manner that would impose any penalty or limitation on Indemnitee
without Indemnitee's written consent. Neither the Company nor the
Indemnitee shall unreasonably withhold their consent to any proposed
settlement.
SECTION 8. SEVERABILITY. If this Agreement or any portion of this
Agreement (including any provision within a single section, subsection or
sentence) shall be held to be invalid, void or otherwise unenforceable on
any ground by any court of competent jurisdiction, the Company shall
nevertheless indemnify Indemnitee as to any Expenses or Resolution Costs
with respect to any Proceeding to the full extent permitted by law or any
applicable portion of this Agreement that shall not have been invalidated,
declared void or otherwise held to be unenforceable.
SECTION 9. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The
indemnification provided by this Agreement shall be in addition to any
other rights that Indemnitee may be entitled under the Certificate of
Incorporation, the Bylaws, any agreement, any vote of shareholders or
disinterested directors, the Delaware General Corporation Law, or
otherwise, both as to actions in Indemnitee's official capacity and as to
actions in another capacity while holding office.
SECTION 10. NO PRESUMPTION. For purposes of this Agreement, the
termination of any claim, action, suit or proceeding, by judgment, order,
settlement (whether with or without court approval) or conviction, or upon
a plea of nolo contendere, or its equivalent, shall not create a
presumption that Indemnitee did not meet any particular standard of conduct
or have any particular belief or that a court has determined that
indemnification is not permitted by applicable law.
SECTION 11. SUBROGATION. In the event of payment under this
Agreement, the Company shall be subrogated to the extent of the payment to
all of the rights of recovery of Indemnitee, who shall execute all
documents required and shall do everything that may be necessary to secure
those rights, including the execution of all documents necessary to enable
the Company to effectively bring suit to enforce those rights.
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SECTION 12. NO DUPLICATION OF PAYMENTS. The Company shall not be
liable under this Agreement to make any payment to the extent Indemnitee
has otherwise actually received payment (under any insurance policy, Bylaw
or otherwise) of the amounts otherwise indemnifiable under this Agreement.
SECTION 13. NOTICE. Indemnitee shall, as a condition precedent to
his right to be indemnified under this Agreement, give to the Company
notice in writing as soon as practicable of any claim for which indemnity
will or could be sought under this Agreement. Notice to the Company shall
be directed to Miller Exploration Company, 3104 Logan Valley Road, Traverse
City, Michigan 49684, Attention: Chairman of the Board, with a copy to the
President (or to any other individual or address that the Company
designates in writing to Indemnitee). Notice shall be deemed received
three (3) days after the date postmarked if sent by prepaid mail properly
addressed. In addition, Indemnitee shall give the Company any information
and cooperation that it may reasonably require and is within Indemnitee's
power to give.
SECTION 14. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall constitute an original, and all
of which taken together shall constitute a single document.
SECTION 15. CONTINUATION OF INDEMNIFICATION. The indemnification
rights provided to Indemnitee under this Agreement, including the right
provided under Subsection 4(a) above, shall continue after Indemnitee has
ceased to be a director, officer, employee, agent or fiduciary of the
Company or any other corporation, partnership, joint venture, trust or
other enterprise that Indemnitee served in any of those capacities at the
request of the Company.
SECTION 16. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the Company and Indemnitee and their
respective successors and assigns, including any direct or indirect
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company, spouses, heirs,
and personal and legal representatives.
SECTION 17. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable
to contracts made and to be performed in that State without giving effects
to the principles of conflicts of laws.
SECTION 18. LIABILITY INSURANCE. To the extent the Company maintains
an insurance policy or policies providing directors' and officers'
liability insurance, Indemnitee shall be covered by the policy or policies,
in accordance with its or their terms, to the maximum extent of the
coverage available for any officer, employee, agent or fiduciary of the
Company.
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SECTION 19. PERIOD OF LIMITATIONS. No legal action shall be brought
and no cause of action shall be asserted by or on behalf of the Company or
any affiliate of the Company against Indemnitee, Indemnitee's spouse,
heirs, executors or personal or legal representatives after the expiration
of two (2) years from the date of accrual of the cause of action, and any
claim or cause of action of the Company or its affiliate shall be
extinguished and deemed released unless asserted by the timely filing of a
legal action within the two (2) year period; provided, however, that if any
shorter period of limitations is otherwise applicable to any cause of
action the shorter period shall govern.
SECTION 20. AMENDMENTS; WAIVER. No supplement, modification,
amendment, or waiver of this Agreement or any of its terms shall be binding
unless executed in writing by all of the parties to this Agreement or, in
the case of waiver, by the party against whom the waiver is asserted. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provisions of this Agreement (whether or
not similar) nor shall any waiver constitute a continuing waiver.
The parties have executed this Agreement as of the date stated in the
first paragraph of this Agreement.
ATTEST: MILLER EXPLORATION COMPANY
___________________________ By _____________________________________
Secretary
Its _________________________________
INDEMNITEE
________________________________________
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EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS IS AN EMPLOYMENT AGREEMENT (the "Agreement") between MILLER
EXPLORATION COMPANY, a Delaware corporation, ("Company"), and ____________
_____________________ ("Employee"). The parties agree as follows:
1. EFFECTIVE DATE AND TERM. This Agreement will take effect as of
___________, 1997. The initial term of this Agreement will be three (3)
years following its effective date. On each anniversary of the effective
date, the term of this Agreement will automatically be extended one year,
to restore the unexpired term to three years, unless either party gives
notice to the other party before such anniversary date, stating that the
Agreement will not be so extended, in which case the term of this Agreement
will not be extended and will expire on the third anniversary date
following the notice. If the Employment terminates at any time before
expiration of this Agreement, then notwithstanding such expiration the
parties will remain obligated to comply with their respective obligations
under Paragraph 5. The Employee's obligations and the Company's rights
under Paragraphs 8, 9 and 10 shall survive expiration of this Agreement,
and shall continue in full force and effect.
2. EMPLOYMENT. The Employee will serve as ________________________
of the Company, or in other executive positions assigned by the Company
(the "Employment"). The Employee's duties will be those assigned
by the Company's Board of Directors and will be consistent with the
Employee's position. The Employment will be full time, and the Employee's
entire business time and efforts will be devoted to the performance of
Employee's duties for the Company during the term of the Employment,
provided that nothing in this Paragraph shall prevent the Employee from
engaging in additional activities in connection with personal investments
and community affairs that are not inconsistent with the Employee's duties
under this Agreement.
3. TERMINATION OF EMPLOYMENT. During the term of this Agreement,
the Employment may be terminated as provided in Paragraph 5. After
expiration of this Agreement, either party may terminate the Employment at
will.
4. COMPENSATION. The Employee will be compensated during the
Employment as follows:
a. SALARY. The Employee will be paid an annual salary of
$_____________, subject to adjustment as provided below, which
will be payable in equal periodic installments according to the
Company's customary payroll practices, but no less frequently
than monthly. The Employee's salary will be reviewed by the
Board of Directors not less frequently than annually, and may be
<PAGE>
adjusted upward or downward in the sole discretion of the Board
of Directors, but in no event will the salary be less than
$______________ per year.
b. BENEFITS. The Employee will, during the term of
Employment, be permitted to participate in such pension, 401(k),
profit sharing, bonus, life insurance of $__ million,
hospitalization, major medical, and other employee benefit plans
of the Company that may be in effect from time to time, to the
extent the Employee is eligible under the terms of those plans
(collectively, the "Benefits").
c. BUSINESS EXPENSES. The Company will reimburse the
Employee for reasonable ordinary and necessary business expenses
incurred in the performance of duties on behalf of the Company,
subject to Employee's prompt submission of proper documentation
for tax and accounting purposes.
5. TERMINATION OF EMPLOYMENT. During the term of this Agreement,
Employee's Employment may be terminated in the following circumstances:
a. DEATH. The Employment will terminate automatically in
the event of Employee's death.
b. DISABILITY. If Employee becomes "disabled", the
Company may elect to terminate Employee's Employment due to such
disability. For the purposes of this Agreement, the Employee
will be deemed to be "disabled" if, for physical or mental
reasons, the Employee is unable to perform the essential
functions of the Employee's duties under this Agreement for 120
consecutive days, or 180 days during any twelvemonth period, as
determined in accordance with this Paragraph. The disability of
the Employee will be determined by a medical doctor selected by
written agreement of the Company and the Employee upon the
request of either party by notice to the other. If the Company
and the Employee cannot agree on the selection of a medical
doctor, each of them will select a medical doctor and the two
medical doctors will select a third medical doctor who will
determine whether the Employee has a disability. The
determination of the medical doctor selected under this Paragraph
will be binding on both parties.
c. TERMINATION BY COMPANY FOR CAUSE. The Company may
terminate Employee's Employment for Cause only if the Employee:
i. engages in wilful misconduct detrimental to the
interests of Company; or
ii. refuses to perform services that he is required to
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perform under this Agreement after explicit instructions
from the Board of Directors ordering Employee to perform
such services.
Employee will not be deemed to have engaged in conduct
constituting Cause for termination if he acted in the reasonable
good faith belief that the actions in question were not against
the interests of Company, unless the actions in question were
contrary to specific instructions of the Board of Directors.
Employee's Employment may not be terminated for Cause unless
Employee first has the opportunity to make a presentation at a
meeting of the Board of Directors, and is given, at least ten
(10) days before such meeting, a written description of the basis
for the possible termination of Employee's Employment for Cause.
If the Company becomes aware after termination of Employee's
Employment other than for Cause that Employee engaged prior to
the termination of Employment in wilful misconduct constituting
Cause, the Company may recharacterize such termination as having
been for Cause, after providing Employee with the notice and
opportunity for hearing provided above.
d. TERMINATION BY EMPLOYEE FOR GOOD REASON. Employee may
terminate the Employment for Good Reason if:
i. the Company materially breaches its obligations to
Employee under this Agreement; and
ii. Employee notifies the Board of Directors in
writing, within 60 days after the act or omission in
question, asserting that the act or omission in question
constitutes Good Reason and explaining why such act or
omission constitutes a material breach; and
iii. the Company fails, within 45 days after such
notification, to take reasonable steps to cure the breach;
and
iv. Employee resigns by written notice within 30 days
after expiration of the 45 day period under (iii) above.
If Employee terminates the Employment for Good Reason, Employee
will be paid Severance Pay as provided in Paragraph 6.
Employee's failure to object to a material breach as provided
above will not waive Employee's right to resign with Good Reason
after following the above procedure with regard to any future
material breach.
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e. DISCRETIONARY TERMINATION BY EMPLOYEE. Employee may
terminate the Employment at will, with at least 60 days advance
written notice, and Employee agrees not to prepare to leave the
Employment with Company without giving such notice.
f. DISCRETIONARY TERMINATION BY COMPANY. Company may
terminate the Employee's Employment at will, but if it does so it
will pay Employee Severance Pay as provided in Paragraph 6.
Upon termination of Employee's Employment, Employee shall not be entitled
to any further compensation from Company or any Affiliate, except: (i)
unpaid salary installments through the end of the week in which the
Employment terminates; and (ii) any vested benefits accrued prior to the
date the Employment terminates under the terms of any written benefit
program; and (iii) Severance Pay (if any) becoming due under Paragraph 6.
6. SEVERANCE PAY. The Company will pay Employee the Severance Pay
described in this Paragraph if the Company terminates the Employee's
Employment during the term of this Agreement other than under Paragraph
5(b) ("Disability") or Paragraph 5(c) ("Cause"). A purported termination
of the Employment under Paragraph 5(b) ("Disability") or (c) ("Termination
by Company for Cause") that is ultimately found to have been improper shall
be deemed to have been a termination under Paragraph 5(f) ("Discretionary
Termination by Employee"). The Company will also pay Employee the
Severance Pay described in this Paragraph if the Employee terminates his
Employment during the term of this Agreement for Good Reason, as provided
in Paragraph 5(d) (Termination by Employee for Good Reason").
a. AMOUNT AND DURATION OF SEVERANCE PAY. Subject to the
other provisions of this Paragraph 6, the Severance Pay will
consist of:
i. continuation of Employee's weekly salary for _____
weeks (the "Severance Pay Period"); and
ii. continuation during the Severance Pay Period, at
Company's expense, of Employee's employee and dependent
health, dental and prescription drug coverage for the
remaining term of this Agreement (without affecting
Employee's right to elect COBRA continuation coverage
beginning on the expiration date of this Agreement), subject
to Employee's continuing payment of the normal employee
contribution.
Severance Pay will end in the event of Employee's death.
b. CONDITIONS TO SEVERANCE PAY. In order to be eligible
for the Severance Pay, Employee must meet the following
conditions:
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i. Employee must comply with Employee's obligations
under Paragraphs 8, 9 and 10 of this Agreement;
ii. Employee must not claim unemployment compensation
for any week for which Employee receives Severance Pay;
iii. Employee must promptly sign and continue to honor
a general release, in form acceptable to Company, of any and all claims
against Company, its affiliates (defined for purposes of this Agreement
as subsidiaries and other entities in which the Company has an ownership
interest), and all of their officers, directors, employees and agents,
to the extent that such claims relate in any way to Employee's
Employment or its termination. The release will not waive the Employee's
right to any payments due under this Paragraph 6, or Employee's rights
to any vested benefits accrued prior to the date of Employment
termination under the terms of any written benefit plan;
iv. Employee must resign, upon written request by Company, from all
positions with or representing Company or any Affiliate, including but
not limited to membership on boards of directors; and
v. Employee must provide Company during the term of
this Agreement with consulting services regarding matters
within the scope of Employee's former duties, upon request
by the Board of Directors, provided that Employee will only
be required to provide such services by telephone at
Employee's reasonable convenience, and not for more than
five (5) hours in any month.
c. OFFSETS TO SEVERANCE PAY. The Severance Pay due to
Employee for any week will be reduced by:
i. any earnings from other employment or self-employment received or
accrued for Employee's benefit during such week, with any excess of such
other earnings over the Severance Pay for any week to be carried forward
and applied to reduce Severance Pay for subsequent weeks;
ii. any disability benefits received by Employee; and
iii. if Severance Pay continues after the date of
Employee's death, the death benefit under any life insurance
policy provided to Employee by Company as a fringe benefit.
7. CONFLICTS OF INTEREST. During the Employment, the Employee will not
acquire any financial interest in, accept gifts or favors from, or
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establish any relationship other than on behalf of the Company with, any
customer, supplier, distributor, or other person who does or seeks to do
business with the Company, unless Employee has disclosed the financial
interest, gift, favor, or relationship to the Company's Board of Directors
and has received the written approval of Board of Directors for such
activity or transaction. If any member of Employee's family engages or
proposes to engage in any relationship or activity which would be covered
by the preceding sentence if engaged in by Employee, Employee will
immediately report such proposed or actual relationship or activity to the
Board of Directors in writing.
8. LOYALTY AND CONFIDENTIALITY; COMPANY PROPERTY. The Employee will
be loyal to the Company during the Employment and will forever hold in
strictest confidence and will not use or disclose any information regarding
the Company's techniques, processes, developmental or experimental work,
trade secrets, customer or prospect names or information, or proprietary or
confidential information relating to the current or planned products,
services, sales, employees or business of the Company, except as such
disclosure or use may be required in connection with the Employee's work
for the Company. Upon termination of the Employment, the Employee will
deliver to the Company any and all materials relating to the Company's
business, including without limitation all customer lists and information,
keys, financial information, business notes, business plans, Company
provided autos or other equipment, credit cards, memoranda, specifications
and documents. All Company property will be returned promptly and in good
condition except for normal wear. The Employee agrees not to retain any
copies, reproductions or summaries of any such materials. This covenant
will continue in effect after termination of the Employment and shall
survive expiration of this Agreement. The parties agree that any breach
or threatened breach of the Employee's covenants in this Paragraph 8 would
cause the Company irreparable harm, and that injunctive relief would be
appropriate.
9. IDEAS, CONCEPTS AND INVENTIONS RELATING TO COMPANY'S BUSINESS.
All business ideas and concepts and all inventions, improvements and
developments made or conceived by the Employee, either solely or in
collaboration with others, during the Employment, whether or not during
working hours, and relating to the Company's business or any aspect
thereof, or to any business or product the Company is considering entering
or developing, shall become and remain the exclusive property of the
Company, its successors and assigns. The Employee shall disclose promptly
in writing to the Company all such inventions, improvements and
developments, and will cooperate in confirming, protecting and obtaining
legal protection of the Company's ownership rights. This provision shall
continue in effect after termination of the Employment and shall survive
expiration of this Agreement as to ideas, concepts, inventions,
improvements and developments made or conceived in whole or in part prior
to the date the Employment terminates. The parties agree that any breach
of the Employee's covenants in this Paragraph 9 would cause the Company
irreparable harm, and that injunctive relief would be appropriate.
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The Employee represents and warrants that all ideas, concepts,
inventions, improvements and developments which the Employee invented or
conceived prior to becoming employed by the Company, to which the Employee,
or any assignee of the Employee, now claims title, and which are to be
excluded from this Agreement, are completely described on an exhibit signed
by the parties and attached to this Agreement. If no such exhibit is
attached, then Employee represents and warrants that there are no such
inventions, improvements or developments.
10. COVENANT NOT TO COMPETE. During the Employment, and for three
(3) months after termination of the Employment, the Employee will not (i)
engage in the oil and gas exploration or development business or any other
business in which the Company is engaged or planning to engage on the date
the Employment terminates; or (ii) directly or indirectly compete with the
Company; or (iii) perform services for, advise, be financially interested
in, or own any interest in or loan money to, any other business engaged (or
seeking the Employee's services with a view to becoming engaged) in any
business in which the Company is engaged or planning to engage on the date
the Employment terminates; or (iv) solicit or suggest, or provide
assistance to anyone else seeking to solicit or suggest, that any person
having or contemplating a Covered Relationship with Company or an affiliate
refrain from entering into or terminate such relationship, or enter into
any similar relationship with anyone else instead of Company or such
affiliate (as used in this Paragraph 10, a "Covered Relationship includes a
customer relationship, a vendor relationship, or any other contractual or
independent contractor relationship). The Employee's commitments in this
paragraph will continue in effect after termination of the Employment for
the three (3) month period provided above, but will only be in effect
during that period in the following geographic area: each county or parish
in which the Company does business (provided that any activity directed
towards customers with facilities inside the covered area will be covered
even if the Employee is located or the activities undertaken outside the
covered area). The parties agree that any breach or threatened breach of
the Employee's commitments in this Paragraph 10 would cause the Company
irreparable harm, and that injunctive relief would be appropriate.
It is agreed that the decision of the Company's Board of
Directors as to whether a post-employment activity by Employee violates
this Paragraph 10 will be conclusive, if reasonable.
11. ENTIRE AGREEMENT. No agreements or representations, oral or
otherwise, express or implied, with respect to the Employee's Employment
with the Company or any of the subjects covered by this Agreement have been
made by either party which are not set forth expressly in this Agreement,
and this Agreement supersedes any pre-existing employment agreements and
any other agreements on the subjects covered by this Agreement.
12. AMENDMENT AND WAIVER. This Agreement has been authorized by the
Company's Board of Directors. No employee, officer or agent of the Company
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has authority to offer Employment other than employment terminable at will,
or to limit the Company's ability to terminate Employment at will in any
way; employment on any other terms may only be authorized by a written
resolution of the Board of Directors. No provisions of this Agreement may
be amended, modified, waived or discharged unless such waiver, modification
or discharge is agreed to in a writing specifically authorized by a written
Board resolution, and signed by the Employee and by such officer as may be
specifically designated by the Board of Directors of the Company in such
resolution. No waiver by either party at any time of any breach or non-
performance of this Agreement by the other party shall be deemed a waiver
of any prior or subsequent breach or non-performance.
13. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement will not affect the validity or enforceability
of any other provision of this Agreement, which will remain in full force
and effect. If a court of competent jurisdiction ever determines that any
provision of this Agreement (including but not limited to all or any part
of the non-competition covenant in Paragraph 10) is unenforceable as
written, it is the intent of the parties that such provision shall be
deemed narrowed or revised in such jurisdiction (as to geographic scope,
duration, or any other matter) to the extent necessary to allow its
enforcement. Such revision shall thereafter govern in such jurisdiction,
subject only to any allowable appeals of such court decision.
14. ASSIGNABILITY. This Agreement contemplates personal services by
the Employee, and Employee may not transfer or assign Employee's rights or
obligations under this Agreement. This Agreement may be assigned by the
Company to any subsidiary or parent corporation or a division of such
corporation, or to any entity which succeeds to all or substantially all of
the Company's businesses. The Company is not required to assign this
Agreement, but if it is assigned as provided above, the Employee will be
given notice and this Agreement and the Employee's Employment hereunder
will continue in effect.
15. NOTICES. Notices to a party under this Agreement must be
personally delivered or sent by certified mail (return receipt requested)
and will be deemed given upon post office delivery or attempted delivery to
the recipient's last known address. Notices to the Company must be sent to
the attention of the Company's Chief Executive Officer.
16. ARBITRATION. The Company and the Employee agree that the sole and
exclusive method for resolving any dispute between them regarding this
Agreement or its interpretation application or any other dispute or claim
relating to the employment relationship between them or its termination
shall be arbitration under the procedures set forth in this Paragraph;
provided, however, that nothing in this Paragraph prohibits a party from
seeking preliminary or permanent injunctive relief, or from seeking
judicial enforcement of the arbitration award. The arbitrator(s) for
determining any dispute covered by this Paragraph shall be selected by
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mutual agreement of the Company and the Employee. If either party demands
arbitration of a dispute covered by this Paragraph, an arbitrator shall be
selected, and the arbitrator shall hold a hearing at which both parties may
appear, with or without counsel, and present evidence and argument. Pre-hearing
discovery shall be allowed in the discretion of and to the extent
deemed appropriate by the arbitrator, and the arbitrator shall have
subpoena power. The procedural rules for an arbitration hearing under this
Paragraph shall be the rules of the American Arbitration Association for
Commercial Arbitration Hearings and such rules as the arbitrator may
determine. The hearing shall be held in Traverse City, Michigan. The award
of the arbitrator(s) shall be final and binding and may be enforced by and
certified as a judgment of any court of competent jurisdiction. The fees
and expenses of the arbitrator shall be paid by equally by the Company and
the Employee.
17. GOVERNING LAW. The validity, interpretation, and construction of
this Agreement are to be governed by the laws of the State of Michigan,
without regard to principles of conflicts of law.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the
date and year first above written.
_____________________________________
"Employee"
MILLER EXPLORATION COMPANY
By __________________________________
Its ______________________________
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EXHIBIT 10.4
LEASE AGREEMENT
Notice: Michigan Law establishes rights and obligations for parties to
rental agreements. This Agreement is required to comply with the Truth in
Renting Act. If you have a question about the interpretation or legality
of a provision of this Agreement, you may want to seek assistance from a
lawyer or other qualified person.
1. This Lease Agreement ("Lease") is made this 24th day of July,
1996, between Clyde E. and Betty E. Miller ("Lessor"), whose address is
8233 E. Shore Drive, Traverse City, MI., and Miller Oil Corporation
(Lessee), whose address is P.O. Box 348, Traverse City, MI.
2. Lessor leases to Lessee the following premises located at 3104
Logan Valley Road: All space excepting Suite 100, in the Township of
Garfield, County of Grand Traverse, State of Michigan.
3. PURPOSE: Lessee is to occupy the premises as an Oil and Gas
Exploration Company.
4. TERM: This lease shall be for 60 months beginning the 24th day of
August, 1996.
5. RENT: During the term of this Lease, Lessee shall pay the
following:
a) $1,563.00 on execution of this Agreement for the partial
month of August.
b) $6,058.00 on the first day of each of the next eleven months
commencing September 1, 1996, then increasing by four
percent (4%) each year thereafter.
6. LATE CHARGE: An amount of $50.00 late charge shall be charged if
the monthly rent is in default 14 days.
7. UTILITIES: Lessee is responsible for the following: Heat, electric,
trash and snow removal, water, sewer, lawn and parking lot maintenance and all
other operational expenses incidental to occupancy.
8. SECURITY DEPOSIT: None required.
9. ACCESS TO PREMISES: Lessee agrees that Lessor or any of his agents
shall have the right to enter said premises during all reasonable hours to
examine or protect the same; to show to prospective buyers or renters, or to
make such repairs, additions or alterations as may be deemed necessary by said
Lessor or his agents.
<PAGE>
10. ALTERNATIONS: Lessee shall not make any alterations in or
additions to the premises, nor shall Lessee permit any decorating or like
work to be done without Lessor's prior written consent in each and every
instance first obtained; and Lessee agrees if Lessor so requests to pay for
the cost of removing any work done in violation of this provision and of
restoring the premises to their condition prior to such work without
limiting the generality of the foregoing, no radio or television
installation requiring outside antennas shall be installed. The Lessee
shall not install any additional key lock on any door opening on a corridor
without the written consent of the Lessor. The Lessor shall have the
right to determine the size of electrical fuses and the Lessee shall not
substitute fuses of greater capacity.
11. ASSIGNMENT AND SUB-LEASE: Lessee shall not assign this Lease nor
sub-let the premises, without prior written consent of Lessor.
12. DAMAGE BY FIRE OR OTHER CASUALTY: If the premises are partially
damaged by fire or other casualty, but can be restored to tenantable
condition, Lessor shall repair the premises with reasonable dispatch. The
Lessee's obligation to pay rent shall be suspended during the time that the
premises remain untenantable. If the premises are destroyed by fire or
other casualty or if the premises cannot be restored to tenantable
condition within a reasonable time, either party shall have the right to
terminate this lease by written notice to the other party.
13. DAMAGE BY FIRE OR OTHER CASUALTY/WAIVER OF SUBROGATION: Each
party releases the other party from any liability for loss, damage or
injury caused by the fire or other casualty for which insurance (permitting
waiver of liability and waiver of insurer's rights of subrogation) is
carried by the insured party to the extent of any recovery by the insured
party under such insurance policy.
14. DEFAULT: In the event the Lessee breaches this Lease by vacating
the premises prior to the expiration of the term and/or failing to pay the
rent provided, such action shall be considered a default under the terms of
this Lease and Lessor shall be entitled to damages provided by law,
including but not limited to all losses of rental payments sustained by
Lessor as a result of the premises remaining vacant, or losses incurred by
reletting the premises for the remainder of the term at a lessor rate than
herein provided, the costs of gaining possession, and other costs and
damages as provided herein or by law. However, Lessor shall have an
obligation in the event the Lessee vacates the premises prior to expiration
of the term of this Lease to minimize those damages. Either party shall be
entitled to have a court competent jurisdiction determine the actual amount
owed, if any.
In the event the Lessee breaches this Lease by vacating the
premises prior to expiration of the term hereof, or by the Lessor
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repossessing said premises due to the Lessee default or failure to carry
out the covenants, conditions or agreements, including the failure to pay
rent, of this Lease and the related Rules and Regulations, the Lessor may
apply the Security Deposit to all damages suffered to the date of
repossession, and all damages as may be suffered or consequently accrued
thereafter by reason of the Lessee's default or breach. Such damages are
those permitted by law under this contract. All enforcement provisions in
the event of default under the terms of this Lease shall be in compliance
with the law and rules provided therefore.
15. Lessee must carry comprehensive general liability insurance,
naming Clyde E. and Betty E. Miller as certificate holder on all coverages.
Lessor to provide property insurance coverage.
16. CONTENTS INSURANCE: Lessee shall carry renter's insurance on all
of Lessees' personal property as contents of the retired premises.
17. PROHIBITED PRACTICES ON THE PREMISES: Neither the Lessee nor his
family, employees, agents, guests or licenses shall perform or permit any
practice that may damage the reputation of or otherwise be injurious to the
building or be disturbing. Such prohibited practices consist of making
loud and raucous or improper noises in the building; interfering with other
Residents or those visiting other Residents; allowing rubbish, waste
material or products to accumulate on the premises; permitting intoxicating
liquors to be manufactured on the premises; throwing rags, garbage,
rubbish, etc. into toilets, bathtubs, sinks or any other place not provided
for and not keeping hall doors closed while cooking. Lessor may consider
any such prohibited practices to be a breach of the Lease.
18. QUIET ENJOYMENT: Upon Lessee paying the rent and performing all
of the other provisions of this Lease, Lessor agrees that Lessee shall
peacefully and quietly have, hold and enjoy the premises during the term of
this Lease.
19. REPAIRS: At the expiration of the Lease, Lessee shall return the
premises to Lessor in as good condition as when taken except for reasonable
use and wear.
20. RULES AND REGULATIONS: Lessee shall comply with all of the
attached rules and regulations governing the premises and with all of
Lessor's charges and additions to the rules and regulations what are
permitted under MCL 554.631 to 554.641 as amended.
21. SEVERABILITY: If any provision of this Lease should be or become
invalid, such invalidity shall not in any way affect any of the other
provisions of this Lease which shall continue to remain in full force and
effect.
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22. TRUTH IN RENTING ACT (MCL 554.631-554.641) PROVISIONS: Lessor and
Lessee specifically agree that this Lease shall not, is not intended or
shall it be construed to violate any of the Truth in Renting Act. If,
however, any provision of this Lease does in fact reach any such result,
then such provision shall be null and void but the other provisions of this
Lease shall continue to remain in full force and effect.
23. USE OF PREMISES: Lessee shall use and occupy the premises in such
a manner as would comply with all public health and police regulations.
24. WAIVER: If Lessor should waive any provisions of this Lease, it
shall not be construed as a waiver of a further breach of such provision.
25. Lessor and Lessee agree that all parties to this Lease will
comply with Michigan Public Act 348 of 1972 as to the timely preparation
and delivery and compliance of all required forms and notices.
Specifically, as follows: (1) Lessor will prepare and deliver to Lessee the
"Security Deposit Information Letter to Tenants"; (2) Lessee will prepare
and deliver to Lessor (within 7 days after possession) a copy of
"Commencement Inventory Checklist for Tenant"; (3) Lessor will prepare and
furnish copy of "Termination Inventory Checklist for Owners or Manager"
after occupancy has been terminated; (4) Lessor will prepare and furnish
copy of "Landlord or Manager Itemized List of Damages for Tenant" to the
Lessee after occupancy has been terminated.
26. LEASE BINDING: The provisions of this Lease shall be binding upon
and shall be for the benefit of Lessor and Lessee and their respective
successors in interest.
/S/ C.E. MILLER ___________________________________
C.E. Miller Miller Oil Corporation
/S/ BETTY E. MILLER /S/ KELLY E. MILLER
Betty E. Miller Kelly E. Miller, President
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EXHIBIT 10.5(a)
BUSINESS LOAN AGREEMENT
Agreement by and between First of America Bank-Michigan, N.A. (herein
termed "Bank"), and MILLER OIL CORPORATION (herein termed "Borrower").
Borrower has requested certain extensions of credit which will be evidenced
by a promissory note(s) as follows:
A FIVE MILLION AND NO/100 ($5,000,000.00) DOLLAR SECURED LINE OF CREDIT AS
EVIDENCED BY A PROMISSORY NOTE DATED SEPTEMBER 10, 1996 AND ANY EXTENSIONS,
RENEWALS AND MODIFICATIONS THEREOF.
A ONE MILLION AND NO/100 ($1,000,000.00) DOLLAR SECURED TERM LOAN AS
EVIDENCED BY A PROMISSORY NOTED DATED SEPTEMBER 10, 1996 AND ANY
EXTENSIONS, RENEWALS AND MODIFICATIONS THEREOF.
In consideration of the mutual promises set forth herein and the
extension(s) of credit as described above and subject to Borrower's
satisfactory fulfillment of all conditions precedent to the borrowing, Bank
and Borrower agree as follows:
ARTICLE I - DEFINITIONS
The following terms shall have the following meanings in this Agreement:
1.1 All Accounting terms not specifically defined herein shall have the
meaning of such terms as used in accordance with generally accepted
accounting principles. In the event of a dispute relative to the
meaning of an accounting term, the determination thereof by an
independent certified public accountant, chosen by the Borrower, and
acceptable to the Bank shall be controlling.
1.2 "INDEBTEDNESS" means and includes:
(a) All indebtedness and liabilities of whatsoever kind, nature and
description owed to Bank by Borrower, whether direct or indirect,
absolute or contingent, due or to become due or whether now
existing or hereafter arising, and howsoever evidenced or
acquired, and whether joint or several, and including, costs and
expenses described in Section 12.4 of this Agreement and, without
limitation,
(b) All future advances which the Bank at any time may, but shall not
be required to, make for the protection or preservation of the
Bank's rights and interests arising hereunder, including, without
limitation, advances for taxes, levies, assessments, insurance,
and reasonable attorneys' fees,
<PAGE>
(c) All costs and expenses incurred by the Bank in connection with
enforcement of the documents evidencing or securing the Indeptedness
or incurred in the protection and preparation for sale of any of its
collateral including, without limitation, attorneys' fees and court
costs, and
(d) All obligations arising out of foreign exchange contracts between the
Borrower and the Bank or any bank or financial institution which is an
affiliate of First of America Bank Corporation, and all obligations
arising out of the issuance of a letter or letters of credit at the
request of the Borrower of the Bank or any bank or financial
institution which is an affiliate of First of America Bank
Corporation.
1.3 "LOAN DOCUMENTS" means any document evidencing the Indebtedness, any
document securing the Indebtedness, any guarantee of the Indebtedness and
any document executed in connection with or referred to in any of the
foregoing.
1.4 "NOTE" shall mean any promissory note of the Borrower evidencing any loan
or advance or extension or renewal thereof made by the Bank to the
Borrower, under this Agreement.
1.5 "PERSON" shall mean and include an individual, partnership, corporation,
limited liability company, trust, unincorporated organization, government
or any department or agency thereof.
1.6 "RELATED PERSON" shall include, but shall not be confined to, any Person
related to Borrower by common control or ownership.
1.7 "SUBORDINATED DEBT" shall mean indebtedness of the Borrower owed to any
officer, employee, director, shareholder or Related Person which is
subordinated to all Indebtedness, of the Borrower to the Bank under the
terms and conditions approved in writing by the Bank.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that:
2.1 It is a duly organized, legally existing CORPORATION in good standing under
the laws of the State of Michigan and qualified to do business in any other
state in which it conducts its business.
2.2 It has the power and is duly authorized to enter into this Agreement and to
execute and deliver to the Bank, now and from time to time hereafter,
additional instruments, resolutions, agreements and other instruments or
documents relating to the borrowing of monies from the Bank. It has, by
proper action, authorized and empowered those
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persons whose signatures appear on this Agreement, and any instruments,
documents and exhibits that have been delivered in connection herewith, to
execute the same for and on its behalf.
2.3 The execution by it of this Agreement or any other agreements, instruments,
or documents which may, from time to time hereafter, be executed in respect
hereto and delivered to Bank, shall not constitute a breach of any
provisions contained in its articles of incorporation or bylaws, or if
applicable, partnership agreement, or any agreements to which it is now a
party and that the performance by it of its obligations hereunder or any
agreements executed by it and delivered hereunder shall not constitute an
event of default under any other agreement to which it is now a party.
2.4 The financial statements of the Borrower delivered to the Bank accurately
state the financial condition of the Borrower as of the date of such
statements. The Borrower has disclosed to the Bank in writing all of its
known material liabilities, direct or contingent. None of the statements,
representations or warranties (financial or otherwise) furnished by the
Borrower to the Bank in connection with this Agreement contain any untrue
statements, nor omit or will omit a material fact necessary to make the
statements contained therein or herein, in light of the circumstances when
made, not misleading. There is no fact which the Borrower has not disclosed
to the Bank in writing which has a material adverse effect on the
properties, business or condition (financial or otherwise) of the Borrower,
or of the ability of the Borrower to fully perform its obligations under
this Agreement.
2.5 The Borrower is in compliance with all known applicable requirements of all
governmental authorities (federal, state and local), including without
limitation the payment of taxes. the filing of tax returns and reports and
is complying with all environmental laws, ordinances, rules and
regulations. The Borrower possesses such franchises, licenses, permits,
patents, copyrights, trademarks, and consents of appropriate governmental
bodies to own property and as are necessary or useful to carry on its
ordinary course of business.
2.6 There is no litigation undisclosed to the Bank, legal or administrative
proceedings, investigations or other action of any nature, pending or, to
its knowledge, threatened against or affecting it, which involves the
possibility of any judgement or liability which may materially or adversely
affect any of the Borrower's property or its right to carry on its business
as now conducted. Details of all litigation, legal or administrative
proceedings, investigation or other action of similar nature, pending or
threatened against it, at any time during the term of this Agreement, will
be brought to the attention of Bank, in writing, forthwith.
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2.7 It has good and valid title to all of its property and assets free of any
adverse lien, security interest or encumbrance, except liens, security
interests and encumbrances disclosed to Bank by Borrower in writing prior
to the date hereof.
2.8 All of the funds lent to it pursuant to this Loan Agreement have been or
will be used exclusively in Borrower's business operation and will not be
diverted or used in any other manner.
2.9 All representations and warranties in this Agreement and any agreement
given by Borrower to Bank pursuant to this Agreement are true and correct
and no material fact has been omitted.
2.10 If real estate or any interest therein has been mortgaged, conveyed, or
assigned by Borrower to Bank as security for payment of the Indebtedness,
Borrower has no knowledge of any violations or notices of any violations of
any federal or state law or any ordinance, regulation or requirement of the
state or governmental authority, including but not limited to, any
environmental law, ordinance or regulation, which affects the mortgaged,
conveyed, or assigned premises or the use of such premises by the Borrower.
ARTICLE III - SECURITY
3.1 Security. As security for the Indebtedness, Borrower hereby grants to
Bank:
(a) A security interest in all deposits, accounts, instruments, letters of
credit, negotiable documents, chattel paper or any other property in
which the Borrower has rights and which are at any time in possession
or control of the Bank;
(b) As further security for the Indebtedness, the following additional
security, the terms of which have been disclosed, described as
follows:
MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT DATED MAY 1, 1995;
MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT (2) EACH DATED
SEPTEMBER 10, 1996
3.2 It is further agreed that any security agreement, mortgage or other
document previously or hereafter executed by the Borrower in favor of Bank
shall secure repayment of all Indebtedness, whether or not presently
contemplated by the parties and that the security described above shall
secure repayment of the Indebtedness whether or not presently contemplated
by the parties and that a default in the terms of any note, security
agreement, mortgage or other agreement from Borrower to Bank shall
constitute a default of all notes, security
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agreements, mortgages, and other agreements, and that Bank may, at its
option, proceed in exercising its rights thereunder in any order or manner
it may choose, the purpose of this Agreement being to cross-collateralize
all Indebtedness.
ARTICLE IV - AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that so long as any Indebtedness is
outstanding or so long as this Agreement is in affect, the Borrower shall:
4.1 Maintain, preserve, and keep its buildings and properties and every part
thereof in good repair, working order, and condition and from time to time
make all necessary and proper repairs, renewals, replacements, additions,
betterments, and improvements thereto, so that at all times the efficiency
thereof shall be fully preserved and maintained.
4.2 Duly pay and discharge or cause to be paid and discharged all taxes,
assessments, and other governmental charges imposed upon it and its
properties or any part thereof or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies, which if unpaid could
become a lien or charge upon its property, except such items as are being
in good faith appropriately contested and for which the Borrower has
provided adequate reserves.
4.3 Carry on and conduct its business in substantially the same manner and in
substantially the same fields as such business is now and has previously
been carried on, and maintain its legal existence, and comply with all
valid and applicable statutes, rules and regulations.
4.4 Maintain a standard, modern system of accounting in accordance with
generally accepted accounting principles (GAAP); deliver to Bank financial
reports in a form satisfactory to Bank as Bank may request from time to
time; permit the duly authorized representatives) of Bank at all reasonable
times to examine and inspect the books and records of Borrower or any
related business entity of Borrower, and to make abstracts and copies
thereof, and to visit and inspect any of the Borrower's property wherever
same may be located.
4.5 Borrower shall comply with all applicable federal, state and local laws,
ordinances, rules and regulations, including, but not limited to, all
environmental laws, ordinances, rules and regulations and shall keep any
real property or interest therein mortgaged, conveyed, or assigned to
secure payment of the Indebtedness free and clear of any liens imposed
pursuant to such laws, ordinances, rules and regulations, and deliver to
Bank such information and reports in form satisfactory to Bank as Bank may
request from time to time to establish compliance with such laws.
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4.6 Borrower shall comply with all applicable federal, state and local laws,
ordinances, rules and regulations concerning wage payments, minimum wages,
overtime laws and payment of withholding taxes, and deliver to Bank such
reports and information in form satisfactory to Bank as Bank may request
from time to time to establish compliance with such laws.
4.7 If real estate or any interest therein is mortgaged, conveyed or assigned
by the Borrower to the Bank as security for payment of the Indebtedness,
Borrower shall comply with all warranties, covenants and representations of
such mortgage, conveyance or assignment which warranties, covenants and
representations are incorporated by reference herein in their entirety.
ARTICLE V - NEGATIVE COVENANTS
Borrower covenants and agrees that so long as any Indebtedness is
outstanding or so long as this Agreement is in effect, Borrower shall not
without prior written consent of Bank:
5.1 Incur indebtedness for borrowed money, other than to Bank, or act as
guarantor for any indebtedness of others, or lend money.
5.2 Mortgage, pledge, assign, hypothecate, incumber or grant a security
interest in any of its assets except to Bank nor sell, transfer or assign
any of its assets, properties or business except in the ordinary course of
business. For the purpose hereof sale of accounts receivable or entering
into capital leases of personal property, or both, shall be deemed the
incurring of indebtedness for borrowed money.
5.3 Invest in, organize or participate in the organization or in the creation
of any other business entity, or merge or consolidate with or into any
other entity.
ARTICLE VI - ADDITIONAL COVENANTS
6.1 FINANCIAL REPORTS. Borrower covenants in accordance with paragraph
4.5 that it will deliver to Bank:
(a) Within 120 days after the end of each fiscal year, Borrower's annual
financial report, prepared on a REVIEWED basis by a certified public
accountant chosen by Borrower and acceptable to Bank which shall include a
balance sheet, statement of income, statement of reconciliation of net
worth, statement of changes in financial position and notes to financial
statements, or
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(b) Within 120 days after the end of each fiscal year, Borrower's
annual financial report prepared on a basis and in form acceptable to
Bank to include, but not limited to:
(c) ANNUAL IRS TAX RETURNS AND AN ANNUAL LIST OF CURRENT WELLS AND
THE ACTIVITY OF THE WELLS.
6.2 SUBORDINATION OF DEBT. Any officer, employee, director, shareholder, member
or Related Person of Borrower shall subordinate all indebtedness including
interest thereon (herein termed "Junior Indebtedness"), which may at any
time now or hereafter be owed to any officer, employee, director,
shareholder, member or Related Person by the Borrower in favor of all
Indebtedness, including interest thereon (herein termed "Senior
Indebtedness"). Borrower shall obtain and deliver to Bank subordination
agreements from said officers, employees, directors, shareholders, members
or Related Persons for said Junior Indebtedness in form and content
acceptable to Bank. Upon the occurrence of a default under this Agreement,
Borrower shall without notice from Bank immediately cease payment of any
fees or advances to any officer, employee, director, shareholder, member or
Related Person and shall also cease payment of the sums, if any allowed to
be paid by the terms of the Subordination Agreement(s).
6.3 DEPOSIT ACCOUNTS. Borrower shall establish and maintain its principal
deposit accounts at the Bank for so long as any Indebtedness remains
outstanding or so long as this agreement remains in effect.
ARTICLE VII - DEFAULT AND REMEDIES
7.1 The Borrower shall be in default hereunder upon the happening of any
of the following:
(a) The occurrence of a default under the terms of any Loan Documents or
any promissory note(s), security agreement(s), mortgage(s) or other
agreement(s) executed in connection herewith, including any and all
renewals, extensions or modifications thereof; or
(b) Non-payment when due of any Indebtedness; or
(c) Non-performance of any covenant or agreement contained or referred to
herein, or contained in any other agreement with Bank, whether now
existing or hereafter arising; or
(d) If any warranty, representation or statement made or furnished to Bank
by or on behalf of Borrower, in connection with this Agreement, or to
induce Bank to make a loan to Borrower, proves to have been false in
any material respect when made or furnished; or
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<PAGE>
(e) Death, dissolution, termination or existence, insolvency, appointment of a
receiver for any part of the property of, assignment for the benefit of
creditors by, or the commencement of any proceeding under any bankruptcy or
insolvency laws by or against the Borrower or any endorser, guarantor or
surety for the Borrower.
7.2 Upon the occurrence of a default, described above, the Bank may at its
option, declare that principal and accrued interest thereon of all
Indebtedness to be immediately due and payable forthwith, without
presentation, demand, protest or notice of any kind, all of which are
hereby expressly waived. Bank shall have all the rights and remedies of a
Secured Party under the Uniform Commercial Code, as enacted in Michigan.
Bank may set off any of the Borrower's deposits or accounts, including any
balances evidenced by a certificate of deposit and any other indebtedness
of the Bank to Borrower against the Indebtedness, without first looking to
any collateral securing payment thereof.
7.3 Acceptance of payment or waiver of any default shall not operate as a
waiver of later defaults, nor of any other rights of the Bank.
ARTICLE VIII - SALE OF BORROWER
The entire amount of unpaid principal and accrued interest shall become due
and payable forthwith at the option of the Bank if control of the Borrower
shall be sold to any other person, firm or corporation, whether for cash or
by merger or consolidation, or if the assets of the Borrower shall be sold
or transferred to any other person, firm or corporation. The Bank shall be
the sole judge as to the occurrence of the foregoing, which judgement shall
be binding upon the parties hereto.
ARTICLE IX - ADDITIONAL PROVISIONS
9.1 The repayment of principal an any and all existing notes payable to
shareholders shall not be allowed without the prior approval of the Bank.
Interest only payments shall be allowed. The repayment of any indebtedness
to related companies, which is not subordinated to the Bank, arising out of
the course of normal business shall also be allowed without prior Bank
approval.
ARTICLE X - NOTICES
Unless specifically provided otherwise, any notice for purposes of
this agreement or any other Loan Documents shall be given in writing or by
facsimile (fax) transmission and shall be addressed or delivered to the
respective addresses set forth below, or to such other address as may have
been previously designated by the intended recipient by notice given in
accordance with this Article. If transmitted by facsimile or personal
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<PAGE>
delivery, the notice shall be effective when transmission is confirmed or
when delivered, respectively. Mailed notices shall be sufficient if sent
by first-class mail, postage prepaid, and the notice shall be deemed
effective when sent. No notice of change of address shall be effective
except upon actual receipt, and service of a notice required by any
applicable statute shall be considered complete when the requirements of
that statute are met. This Article shall not be construed in any way to
affect or impair any waiver of notice or demand provided in any Loan
Documents or to require giving of notice or demand to or upon any person in
any situation or for any reason.
<TABLE>
<CAPTION>
<S> <C>
BORROWER: MILLER OIL CORPORATION BANK: First of America Bank-Michigan, N.A.
3104 Logan Valley P.O. Box 1252
Traverse City, MI 49684 Traverse City, MI 49685-1252
</TABLE>
ARTICLE XI - COMPLETE AGREEMENT
11.1 All documents and exhibits attached to this Agreement shall for all
purposes be considered a part of this Agreement and this Agreement
shall include all the provisions stated in said documents and
exhibits. In the event of a conflict between the terms used in this
Agreement, and the terms set forth in said documents or exhibits, the
terms of this Agreement shall govern.
11.2 This Agreement is a continuing agreement and shall continue in effect
notwithstanding that from time to time, no Indebtedness may exist.
This Agreement may be terminated by receipt by Bank of written notice
of termination from Borrower or by Bank mailing by first class mail a
written notice of termination to Borrower, and in either of such
events, this Agreement shall continue as to any Indebtedness then
existing and as to any and all renewals, extensions or modifications
thereof made after such event.
11.3 This Agreement and the Loan Documents may be executed in several
counter-parts, each of which shall be an original and all of which
shall together constitute one and the same agreement.
11.4 Any appraisals of the Borrower's property obtained in connection with
an extension of credit or proposed extension of credit from the Bank
to the Borrower, are for the sole benefit of the Bank and do not
constitute a representation of value of such property by the Bank to
the Borrower.
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<PAGE>
11.5 Nothing contained in this Agreement or any agreement given pursuant hereto
shall be deemed or construed as creating a partnership or a joint venture
between the Bank and any other person or cause the Bank to be responsible
in any way for the debts or obligations of the Borrower or any other
person.
11.6 This Agreement is personal to the parties hereto and is for their sole
benefit and is not made for the express or implied benefit of any
other person or entity.
11.7 This Agreement, together with any exhibits and other documents and
instruments mentioned herein, constitutes the entire agreement between the
Bank and the Borrower. Any and all prior, contemporaneous, oral or written
agreements, understandings, statements, customs or practices between the
Bank and the Borrower pertaining to the transactions contemplated herein
are merged herein. No party has made any representations, warranties or
inducements, express or implied, to any other party, except as expressly
set forth herein.
11.8 Neither this Loan Agreement nor any document attached hereto, nor any
provision hereof, may be modified, waived, discharged or terminated
orally, but only by an instrument signed by Borrower and Bank.
ARTICLE XII - MISCELLANEOUS PROVISIONS
12.1 A determination that any provision of this Agreement is unenforceable or
invalid shall not affect the enforceability or validity of any other
provision and the determination that the application of any provision of
this Agreement to any person or circumstance is illegal or unenforceable
shall not affect the enforceability or validity of such provision as it may
apply to other persons or circumstances.
12.2 This Agreement, and its validity, enforcement and interpretation,
shall be governed by the laws of the State of Michigan (without regard
to any conflict of laws principles) and applicable United States
federal law.
12.3 Without limitation of any Loan Documents and to the extent not prohibited
by applicable laws, Borrower shall pay when due, and reimburse to Bank on
demand, and indemnify Bank from, all out-of-pocket fees, costs, and
expenses paid or incurred by Bank in connection with the negotiation,
preparation and execution of this Agreement and the other Loan Documents
(and any amendments, approvals, consents, waivers and releases requested,
required, proposed or done from time to time), or in connection with the
disbursement, administration or collection of the loan or the enforcement
of the obligations or the exercise of any right or remedy of Bank,
including fees and expenses of Bank's counsel; appraisal, re-appraisal and
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survey costs; title insurance charges and premiums; title search or
examination costs, including abstracts, abstractors' certificates and
uniform commercial code searches; judgment and tax lien searches for
Borrower and each guarantor of the Indebtedness; fees and costs of
environmental investigations and site assessments; recordation taxes,
documentary stamp taxes, transfer taxes and mortgage taxes; filing and
recording fees, and loan brokerage fees. Borrower shall pay all costs and
expenses incurred by Bank, including attorneys' fees, if the obligations or
any part thereof are sought to be collected by or through an attorney at
law, whether or not involving probate, appellate, administrative or
bankruptcy proceedings. Borrower shall pay all costs and expenses of
complying with the Loan Documents. Borrower's obligations under this
Section shall survive the delivery of the Loan Documents, the making of
advances, the payment in full of the obligations, the release or
termination of the Loan Documents, the foreclosure of any lien or
conveyance in lieu of foreclosure, any bankruptcy or other debtor relief
proceeding, and any other event whatsoever.
12.4 Borrower hereby irrevocably submits generally and unconditionally for
itself and in respect of its property to the jurisdiction of any state
court, or any United States federal court, sitting in the State of Michigan
and to the jurisdiction of any state court or any United States federal
court, sitting in the state in which any of the collateral for the
Indebtedness is located, over any suit, action or proceeding arising out of
or relating to this Agreement or the Indebtedness. Borrower hereby
irrevocably waives, to the fullest extent permitted by law, any objection
that Borrower may now or hereafter have to the laying of venue in any such
court and any claim that any such court is an inconvenient forum. Borrower
hereby agrees and consents that, in addition to any methods of service or
process provided for under applicable law, all service of process in any
such suit, action or proceeding in any state court, or any United States
federal court, sitting in the State of Michigan may be made by certified or
registered mail, return receipt requested, directed to Borrower at its
address for notice stated in the Loan Documents, or at a subsequent address
of which Bank received actual notice from Borrower in accordance with the
Loan Documents, and service so made shall be complete five (5) days after
the same shall have been so mailed. Nothing herein shall affect the right
of Bank to serve process in any manner permitted by law or limit the right
of Lender to bring proceedings against Borrower in any other court of
jurisdiction.
12.5 Borrower will, on request of Bank, promptly correct any defect, error or
omission in any Loan Document; execute, acknowledge, deliver, procure,
record or file such further instruments and do such further acts deemed
necessary, desirable or proper by Bank to carry out the purposes of the
Loan Documents and to identify and subject to the
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<PAGE>
liens and security interest of the Loan Documents any property intended to
be covered thereby, including any renewals, additions, substitutions,
replacements, or appurtenances to said property; execute, acknowledge,
deliver, procure, file or record any document or instrument deemed
necessary, desirable, or proper by Bank to protect the liens or the
security interest under the Loan Documents against the rights or interests
of third persons; and provide such certificates, documents, reports,
information, affidavits and other instruments and do such further acts
deemed necessary, desirable or proper by Bank to comply with the
requirements of any agency having jurisdiction over Bank. The Borrower
authorizes the Bank to correct and cure obvious errors and omissions in the
Agreement and in any Loan Document.
THE UNDERSIGNED AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER
CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR
CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY
RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE
OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THE INDEBTEDNESS.
Executed this 10TH day of SEPTEMBER, 1996.
<TABLE>
<CAPTION>
<S> <C>
BANK: FIRST OF AMERICA BANK-MICHIGAN, N.A.
BORROWER: Miller Oil Corporation
/S/ SCOT J. MACDONALD
Scot J. MacDonald, Senior Vice President /S/ KELLY E. MILLER
Kelly E. Miller, President
Federal Tax I.D. No.: 38-2607711
</TABLE>
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EXHIBIT 10.5(b)(ii)
FIRST OF AMERICA BANK-MICHIGAN, N.A.
MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT
THIS AGREEMENT made and entered this 10th day of September, 1996,
by and between MILLER OIL CORPORATION, a Michigan corporation of 3104 Logan
Valley Road, Traverse City, Michigan, 49684 (hereinafter referred to as
"Debtor"), and FIRST OF AMERICA BANK-MICHIGAN, N.A. of 901 S. Garfield,
Traverse City, Michigan 49684 (hereinafter referred to as "Lender");
W I T N E S S E T H :
Lender is entering into a certain loan transaction with Debtor
wherein Lender has agreed to lend to the Debtor the aggregate sum of
$5,000,000.00. Concurrently herewith the Debtor has delivered its
Promissory Notes, duly executed, in the total principal amount of FIVE
MILLION AND NO/100 DOLLARS, made payable to the Lender all in accordance
with the terms set forth in said Note. The Note and Lender's heretofore
issued Loan Commitment are collectively referred to herein as the "Loan
Documents."
In consideration of the covenants and upon the conditions
contained herein and in the Loan Documents, the parties hereto AGREE:
1. MORTGAGE AND SECURITY AGREEMENT. Debtor hereby mortgages, conveys,
assigns, warrants and grants a security interest to Secured Party in
all of the property, including royalty interests, working interest,
partnership interests and limited partnership interests in certain oil
and gas wells and production units described in Schedule "A" attached
hereto, whether now owned or hereafter acquired (herein referred to as
the "Collateral"), and any proceeds therefrom, together with all of
the Debtor's interest in the following:
(a) Any presently existing lease unitization, pooling or operating
agreements and the units created thereby or operated thereunder,
which are specifically described in Schedule "A" or which relate
to any of the leasehold interests described therein.
(b) The oil, gas and other hydrocarbons which are in, under, upon,
produced or that may be produced from the leasehold interests
described in Schedule "A."
(c) Any production sale contracts, options or other agreements
affecting the sale of production from the leasehold interests
described in Schedule "A," all of which said interests, rights
and leases, together with any additions thereto which may be
subject to the lien hereby created are pledged to secure payment
of the indebtedness and the performance of Debtor's obligations
under the Loan Documents.
<PAGE>
2. ASSIGNMENT OF PRODUCTION.
(a) As further security for the payment of the indebtedness, the
Debtor hereby assigns to the Lender, effective upon demand of
Lender, which demand shall only be made upon Debtor's default,
all oil, gas and other hydrocarbons which are hereafter produced
and which accrue to the leasehold interests, royalty interests,
working interests, partnership interests or limited partnership
interests described in Schedule "A" attached hereto.
(b) All parties producing, purchasing or receiving any such
production or hydrocarbons or the proceeds therefrom, including
lessees of any mineral acres mortgaged hereunder, are authorized
and directed by Debtor to deliver or pay all such hydrocarbons,
the proceeds therefrom, production and royalty payments to
Lender, as Assignee, and Lender of Debtor. Such parties shall be
fully protected and held harmless by Debtor and shall be under no
obligation to see to the application by Lender of any proceeds or
payments received by it.
(c) All payments received by the Lender shall be applied in
accordance with the terms of the Loan Documents.
3. DEBTOR'S WARRANTIES AND COVENANTS. Debtor hereby represents, warrants
and agrees that:
(a) Debtor will pay the indebtedness secured by this Mortgage,
Security Agreement and Assignment of production, and any and all
other obligations or liabilities to Lender in accordance with the
Loan Documents.
(b) Debtor is now, or will be at the time Debtor acquires possession
thereof, the owner of the Collateral free from any liens,
encumbrances or security interests except for the security
interest granted hereby and assessments and restrictions of
record and Debtor shall defend the Collateral against all claims
and demands of every kind and nature.
(c) Debtor will keep the Collateral free from liens, encumbrances and
other security interests.
(d) Debtor will not sell or otherwise assign the Collateral or any
interest therein without the prior written consent of Lender.
(e) As its option, Lender may discharge taxes, liens or security
interests or other encumbrances at any time levied or placed on
the Collateral, and Debtor agrees to reimburse Lender on Demand
for any payment made or any expense incurred by Lender pursuant
to the authorization.
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<PAGE>
(f) No mortgage or financing statement covering the Collateral or any
part thereof or any proceeds thereof is on file in any public
office, and at the request of Lender, Debtor will join with
Lender in executing one (1) or more financing statements in form
satisfactory to Lender and will pay the cost of filing the same
in all public offices wherever filing is deemed by Lender to be
necessary or desirable.
(g) Debtor has good and marketable title to all of the mortgaged
property, pledged and assigned to the Lender as security for the
loan and that said property interests are free and clear of all
other liens or encumbrances except those being discharged at the
time of closing.
4. FURTHER ASSURANCES. The Debtor will execute and deliver to Lender
such other and further instruments and will do such other and further
acts as in the opinion of the Lender may be necessary to carry out
more effectively the purposes and intent of the Loan Documents.
5. TAXES. The Debtor will promptly pay all taxes, assessments and other
governmental charges legally imposed on the Collateral, the proceeds
therefrom or the Lender's interest therein.
6. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute a default under this Mortgage and Security Agreement.
(a) Debtor's failure to observe and perform any of the terms and
conditions of the Loan Documents.
(b) The occurrence of any event of default specified in any of the
Loan Documents.
(c) The occurrence of any event which results in the acceleration of
the maturity of the indebtedness of Debtor under the Loan
Documents.
(d) Any representation or warranty made by Debtor in any Loan
Document proves to be untrue in any material respect.
(e) The mortgage lien and security interest granted hereunder are
subordinate or inferior in priority to the lien or claim of any
other person or entity.
(f) Debtor becomes insolvent or Lender deems itself insecure, or
feels that Debtor is not capable of meeting the debt service
requirements of the loan.
(g) Debtor becomes the subject of bankruptcy or reorganization
proceedings under the provisions of any bankruptcy or insolvency
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<PAGE>
law, a receiver or trustee, or Debtor makes an assignment for the
benefit of creditors.
(h) Failure of Debtor, within thirty (30) calendar days after notice
from Lender, to cure a default in the due performance or
observance of any covenant or agreement contained in the payment
of principal or interest.
7. SECURED PARTY'S RIGHTS UPON DEFAULT.
(a) In the event of a default as provided herein, the entire
indebtedness secured by this Agreement shall become due and
payable immediately at Lender's option and Lender shall have the
rights and remedies provided by law and/or the Loan Documents,
including the right to take possession of the Collateral with or
without demand and with or without process of law and to sell the
Collateral, at one or more sales, as an entirety or in parts, as
Lender may elect.
(b) The parties hereto agree that any requirement of reasonable
notice shall be met if Lender sends such notice to Debtor at
least five (5) days prior to the date of sale, disposition or
other event giving rise to required notice. It is further hereby
agreed that public sale of the Collateral by auction, conducted
after advertisement of the time and place thereof in a newspaper
circulated in the county in which the sale is to be held shall be
deemed to be commercially reasonable disposition of the
Collateral. Debtor shall be liable for any deficiency remaining
after such deficiency or the amount required to redeem the
Collateral shall include reasonable attorneys fees and costs and
expenses incurred in connection with the acquisition of
possession and disposition thereof.
(c) The proceeds of any sale of the Collateral or any part thereof
shall be applied as follows:
(1) To the payment of all expenses incurred by the Lender in the
performance of its duties, including but not limited to
expenses or taking possession, of any sale, of advertisement
thereof, of conveying or court costs, compensation of
agents, employees and legal fees;
(2) To the payment of interest to the date of such payment on
any indebtedness of Debtor to Lender.
(3) To the payment of principal on any indebtedness of Debtor to
Lender.
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<PAGE>
(4) Any surplus thereafter remaining shall be paid to the Debtor
or Debtor's successors or assigns as their interests may
appear.
8. INCORPORATION BY REFERENCE. All of the terms, provisions and
conditions contained in the Loan Documents are hereby incorporated by
reference as if fully set forth herein.
9. INDEBTEDNESS SECURED. The indebtedness secured hereunder includes:
(a) All obligations incurred under the Loan Documents.
(b) Any promissory note evidencing additional loans which the Lender
may make from time to time to Debtor, the Lender not being
obligated, however, to make such additional loans.
(c) Any sums advanced, or expenses or costs incurred by Lender which
are made or incurred pursuant to the terms of any of the Loan
Documents plus interest hereon at the rate specified in the Loan
Documents or otherwise agreed upon from the date of advances or
the incurring of such expenses or costs until reimbursed.
(d) Any extensions or renewals of all such indebtedness described in
Paragraph 9(a) through 9(c) above, whether or not the Lender
executes an extension agreement or renewal instruments.
10. INVALIDITY. In the event any term, provision or condition of the
Agreement or of the other Loan Documents is invalid or unenforceable,
the same shall be deemed several from the remainder of such terms,
provisions or conditions which shall remain in full force and effect
to the maximum extent permitted by law.
11. GOVERNING LAW. This Agreement shall be governed by and interpreted
and construed in accordance with the laws of the State of Michigan.
12. REVERSION OF INTERESTS. If the indebtedness shall be fully paid and
the covenants herein contained shall be fully performed, then all
interest of the Debtor in the Collateral shall revert to the Debtor
and Lender's interest in said property shall cease; and upon request
by Debtor, the Lender shall execute such instruments as are necessary
to reconvey the Collateral to Debtor.
13. RIGHTS CUMULATIVE. Each and every right, power and remedy herein
given to the Lender shall be cumulative and not exclusive; and each
and every right, power and remedy may be exercised from time to time
and so often and in such order as may be deemed expedient by Lender,
and the exercise of any such right, power or remedy shall not be
deemed a waiver of any other right, power or remedy.
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<PAGE>
14. COUNTERPARTS. This instrument may be executed in counterpart by the
parties hereto, and to facilitate recording, the signature pages of
each identical instrument may be combined into one original document.
15. BINDING EFFECT. This Agreement shall bind and inure to the benefit of
the parties hereto, their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
Signed in the Presence of: DEBTOR:
MILLER OIL CORPORATION
____________________________ By: /S/ KELLY E. MILLER
Kelly E. Miller
____________________________ Its: President
SECURED PARTY:
FIRST OF AMERICA BANK-MICHIGAN, N.A.
____________________________ By: /S/ SCOT J. MACDONALD
Scot J. MacDonald
____________________________ Its: Senior Vice President
STATE OF MICHIGAN )
: ss.
County of Grand Traverse )
On this 10th day of September, 1996, before me a Notary Public in
and for said County, personally appeared the above-named Kelly E. Miller on
behalf of MILLER OIL CORPORATION, a Michigan corporation, to me known to be
the same person in and who executed the foregoing instrument and
acknowledged the same to be his free act and deed.
___________________________________________
Notary Public: ____________________________
County: ___________________________________
My Commission Expires: ____________________
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<PAGE>
STATE OF MICHIGAN )
: ss.
County of Grand Traverse )
On this 10th day of September, 1996, before me a Notary Public in and
for said County, personally appeared the above-named SCOT J. MACDONALD,
Senior Vice President of FIRST OF AMERICA BANK-MICHIGAN, N.A., to me known
to be the same person in and who executed the foregoing instrument and
acknowledged the same to be his free act and deed.
___________________________________________
Notary Public: ____________________________
County: ___________________________________
My Commission Expires: ____________________
Prepared by: When recorded, return to: SAME
Karen Ouellette
First of America Bank-Michigan, N.A.
171 Monroe Avenue, N.W., Grand Rapids, MI 49503
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<PAGE>
EXHIBIT 10.5(c)
$5,000,000.00 PROMISSORY NOTE SEPTEMBER 10, 1996
On OCTOBER 10, 1997, MILLER OIL CORPORATION (herein termed
"Borrower"), for value received, promises to pay to the order of First of
America Bank-Michigan, N.A., (herein termed "Bank") at its offices in
TRAVERSE CITY, Michigan, the principal sum of FIVE MILLION AND NO/100
Dollars (U.S.) ($5,000,000.00), or such other amount as is reflected upon
the books and records of the Bank, with interest thereon, until paid, plus
all of the Bank's expenses (including reasonable attorney's fees and court
costs) incurred in the enforcement and collection of this Note.
Borrower agrees to pay a variable rate of interest on the unpaid
principal balance at an annual rate equal to:
NYCP Rate from time to time in effect plus ZERO percent (0.00%) per
annum. NYCP Rate as used herein shall mean: NEW YORK CONSENSUS PRIME IS
DEFINED AS "THE MAXIMUM PRIME RATE AS PUBLISHED IN THE WALL STREET
JOURNAL", BUT IF THE RATE IS NO LONGER PUBLISHED THEN A RATE APPROVED BY
FIRST OF AMERICA BANK-MICHIGAN, N.A. WILL BE SUBSTITUTED. THIS RATE MAY
NOT NECESSARILY BE THE LOWEST RATE OF INTEREST CHARGED BY THE BANK TO ANY
OF ITS CUSTOMERS. NEW YORK CONSENSUS PRIME RATE IS AN "INDEX" AND THE
ACTUAL RATE CHARGED TO ANY BORROWER FOR A SPECIFIC LOAN MAY BE ABOVE OR
BELOW THAT "INDEX".
Rate changes shall be effective on the day any adjustment is made to
the NYCP Rate unless otherwise noted as follows: N/A
Interest shall be payable on the 10TH day of OCTOBER, 1996 and on the
same day of each MONTH thereafter and shall be computed for the actual
number of days elapsed on the basis of a year consisting of 360 days.
Interest hereunder shall accrue from SEPTEMBER 10, 1996 or from the date of
the first advance made by the Bank. Interest on all advances shall be
computed from the respective dates thereof until the same are paid in full.
The principal payable hereunder at any given date shall be equivalent to
all advances made by the Bank to or at the request of the Borrower as of
that date less principal payments previously received by the Bank. Advances
hereunder shall at all times be made at the sole discretion of the Bank,
and Bank shall not have any obligation whatsoever to make any such
advances.
All payments made as scheduled on this Note shall be applied, to the
extent thereof, to accrued but unpaid interest, unpaid principal, and any
other sums due and unpaid to Bank under the Loan Documents, in such manner
and order as Bank may elect in its discretion. All prepayments on this
Note shall be applied, to the extent thereof, to accrued but unpaid
interest on the amount prepaid, to the remaining principal, and any other
sums due and unpaid to Bank under the Loan Documents, in such manner and
order as Bank may elect in its discretion. Remittances in payment of any
part of the Indebtedness other than in the required amount in immediately
<PAGE>
available U.S. funds shall not, regardless of any receipt or credit issued
therefor, constitute payment until the required amount is actually received
by the holder hereof in immediately available U.S. funds and shall be made
and accepted subject to the condition that any check or draft may be
handled for collection in accordance with the practice of the collecting
bank or banks. Acceptance by the holder hereof of any payment in an amount
less than the amount then due on any Indebtedness shall be deemed an
acceptance on account only and shall not in any way excuse the existence of
a default. "Loan Documents" means any document evidencing the
Indebtedness, any document securing the Indebtedness, any guaranty of the
Indebtedness and any document executed in connection with or referred to in
any of the foregoing. "Indebtedness" means this Note and all other
liabilities, whether direct or indirect, absolute or contingent, now or
hereafter existing, due or to become due, several or otherwise of the
Borrower to the Bank.
If a payment is 10 days or more late, Borrower will be charged 5.0% of
the regularly scheduled payment. Upon default, including failure to pay
upon final maturity, Bank, at its option, may also, if permitted under
applicable law, increase the interest rate on this Note by 2.0 percentage
points. The interest rate will not exceed the maximum rate permitted by
applicable law.
Borrower does hereby pledge to the Bank, all deposits and other
property of the Borrower now or hereafter in the possession, custody or
control of Bank for any purpose and does hereby grant to Bank a security
interest in or lien upon the property described in:
BUSINESS LOAN AGREEMENT DATED EVEN DATE; SUBORDINATION AGREEMENTS DATED
OCTOBER 6, 1995; MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT DATED MAY 1,
1995; MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT (2) EACH DATED EVEN DATE
or as described in any other security agreement, mortgage, document or loan
agreement executed at any time by the Borrower and delivered to the Bank
(herein collectively termed "Collateral") as security for the payment of
this Note and for the payment of all Indebtedness. Collateral securing
other obligations of Borrower to Bank may also secure this Note. The
surrender of this Note upon payment or otherwise shall not affect the right
of Bank to retain the Collateral as security for any other Indebtedness.
Upon default in payment of this Note, or default in payment of any
Indebtedness, or if there is a default under any of the Loan Documents or
any security agreement, mortgage, loan agreement, or document given in
connection with the Collateral, or if the security afforded by the
Collateral at any time in the sole opinion of the Bank becomes
insufficient, or if any material representation made by the Borrower to
Bank for the purpose of obtaining credit appears to the Bank to be untrue,
or the commencement of a case under any federal or state bankruptcy or
insolvency law by or against the Borrower, or if Borrower fails generally
-2-
<PAGE>
to pay its debts as such debts become due, or if proceedings are taken to
attach, garnishee or levy on any deposits, credits, funds or other property
of the Borrower, or the Borrower fails to notify the Bank of any material
adverse change in its financial status, this Note and all Indebtedness
shall, at the option of the Bank, become immediately due and payable in
full without notice, presentation or demand for payment, all such being
hereby waived by the Borrower and in such event, it is agreed that the Bank
may exercise all rights and remedies available to it under any security
agreement, mortgage, loan agreement, or document relating to or otherwise
securing any of the Indebtedness or, which may be available to Bank under
the Uniform Commercial Code as in effect in the State of Michigan or other
applicable law. Delay or forbearance by the Bank in the exercise of any
right granted hereunder shall not operate as a waiver thereof. The
Borrower authorizes the Bank to correct and cure any obvious errors or
omissions in this Note.
All loan advances to the Borrower shall be evidenced by this Note. A
separate note will not be required of the Borrower upon each advance.
Records prepared by the Bank in the ordinary course of business shall be
evidence of the dates and amounts of disbursements, payments, interest
rates and applicable effective dates thereof.
Loan advances to the Borrower shall be made by the Bank upon the
written request of those officers or agents of the Borrower duly authorized
by appropriate resolution or partnership agreement of the Borrower on file
with the Bank. The Bank is also authorized and directed to accept
telephonic instructions to make further advances for credit to the
Borrower's CHECKING account, number __________.
The following is applicable if checked and initialed by Borrower:
KEM [ ] Interest shall be paid by the Borrower on the 10TH day of each
MONTH by debiting the Borrowers CHECKING account, number __________.
Borrower and all sureties, endorsers, guarantors and any other party
now or hereafter liable for the payment of this Note in whole or in part,
hereby submit (and waive all rights; to object) to non-exclusive personal
jurisdiction in the State of Michigan, and venue in the county in which
payment is to be made as specified in this Note, for the enforcement of any
and all obligations under this Note and the Loan Documents. This Note
shall be governed by the laws of the State of Michigan.
A determination that any provision of this Note is unenforceable or
Invalid shall not affect the enforceability or validity of any other
provision and the determination that the application of any provision of
this Note to any person or circumstance is illegal or unenforceable shall
not affect the enforceability or validity of such provision as it may apply
to other persons or circumstances. The remaining provisions of this Note
-3-
<PAGE>
shall remain operative and in full force and effect and shall in no way be
affected prejudiced, or disturbed thereby. This Note may not be amended
except in a writing specifically intended for the purpose and executed by
the party against whom enforcement of the amendment is sought. In the
event any provisions of this Note are inconsistent with the provisions of
the Loan Documents, or any other agreements or documents executed in
connection with this Note, this Note shall control. Borrower warrants and
represents to Bank and all other holders of this Note that the loan
evidenced by this Note is and will be for business or commercial purposes
and not primarily for personal, family, or household use. The terms,
provisions, covenants and conditions hereof shall be binding upon Borrower
and the heirs, devisees, representatives, successors and assigns of
Borrower. Any reference herein to a day or business day shall be deemed to
refer to a banking day which shall be a day on which Bank is open for the
transaction of business, excluding any national holidays, and any
performance which would otherwise be required on a day other than a banking
day shall be timely performed in such instance, if performed on the next
succeeding banking day. Notwithstanding such timely performance, interest
shall continue to accrue hereunder until such payment or performance has
been made.
It is agreed that the Bank shall have the right at all times without
demand or notice of any kind, to set off, hold, appropriate, or apply any
balance, credits, deposits, accounts or monies of Borrower or any
indebtedness of Bank to Borrower, in such order of application as Bank may
from time to time elect, as security for, or in payment of this Note or the
Indebtedness, either before or after maturity.
All parties to the Loan Documents intend to comply with applicable
usury law. In no event (including but not limited to prepayment, default,
demand for payment, or acceleration of maturity) shall the interest taken,
reserved, contracted for, charged or received under this Note or under any
of the other Loan Documents or otherwise, exceed the maximum nonusurious
amount permitted by applicable law (the "Maximum Amount"). If, from any
possible construction of any document interest would otherwise be payable
in excess of the Maximum Amount, then IPSO FACTO, such document shall be
reformed and the interest payable reduced to the Maximum Amount, without
necessity of execution of any amendment or new document. If the holder
hereof ever receives interest in an amount which apart from this provision
would exceed the Maximum Amount, the excess shall. without penalty, be
refunded to the payor, or at the option of such payor, be applied to the
unpaid principal of this Note in inverse order of maturity of installments
and not to the payment of interest. The holder hereof does not intend to
charge or receive unearned Interest on acceleration. All interest paid or
agreed to be paid to the holder hereof shall be spread throughout the full
term (including any renewal or extension) of the debt so that the amount of
interest does not exceed the Maximum Amount.
-4-
<PAGE>
If more than one party shall execute this Note, the term "Borrower" as
used herein shall mean all parties signing this Note whether as maker or
endorser and each of them, and all such parties shall be jointly and
severally obligated hereunder. The Borrower hereby waives presentment,
demand, protest and notice of dishonor and agrees that each Borrower, if
more than one, shall not be released or discharged by reason of any
execution, indulgence or release given to any person, or by the Bank's
release, sale or non-action with respect to the Collateral or any guaranty
or other undertaking securing this Note. If this Note is not dated when
executed by the Borrower, Bank is hereby authorized, without notice to the
Borrower, to date this Note as of the date when the principal balance
hereunder has been advanced to the Borrower in whole or in part, Borrower
acknowledges receipt of a fully completed copy of this Note.
THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
THE UNDERSIGNED AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY. AFTER
CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR
CHOICE. KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES
ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE
PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS PROMISSORY
NOTE OR THE INDEBTEDNESS.
ADDRESS: BORROWER: MILLER OIL CORPORATION
3104 Logan Valley
Traverse City, MI 49684 /S/ KELLY E. MILLER
Kelly E. Miller, President
-5-
<PAGE>
AMENDMENT TO NOTE
#0005290-2001
Effective OCTOBER 15, 1997, this Agreement amends a certain Promissory Note
----------------
dated SEPTEMBER 10, 1996, originally in the principal sum of FIVE MILLION and
------------------ ------------
no/100 ($5,000,000.00) Dollars between First of America Bank, N.A. as payee
---------------
(hereinafter called "Bank") and MILLER OIL CORPORATION (hereinafter called
----------------------
"Borrower") wherein the present principal balance owing is $4,678,720.81 with
-------------
interest paid to OCTOBER 10, 1997.
----------------
The Bank and Borrower hereby agree:
1. THE MATURITY DATE IS HEREBY EXTENDED TO JANUARY 13, 1998
All other terms and conditions of this note are unchanged and remain in full
force and effect.
In WITNESS WHEREOF, the Bank and Borrower have executed this amendment on the
dates set opposite their signatures.
BANK: FIRST OF AMERICA BANK, N.A.
Dated: /s/ Scot J. MacDonald
--------------- --------------------------------------
BY: Scot J. MacDonald
ITS: Senior Vice President
BORROWER: MILLER OIL CORPORATION
Dated: /s/ Kelly E. Miller
--------------- --------------------------------------
BY: Kelly E. Miller, President
[LOGO OF FIRST OF AMERICA APPEARS HERE]
<PAGE>
EXHIBIT 10.5(d)
$1,000,000.00 PROMISSORY NOTE SEPTEMBER 10, 1996
FOR VALUE RECEIVED, MILLER OIL CORPORATION (herein termed "Borrower"),
promises to pay to the order of First of America Bank-Michigan, N.A.
(herein termed "Bank") at its offices in TRAVERSE CITY, Michigan, the
principal sum of ONE MILLION AND NO/100 Dollars (U.S.)($1,000,000.00), or
such other amount as is reflected upon the books and records of the Bank,
with interest thereon, until paid, plus all of the Bank's expenses
(including reasonable attorney's fees and court costs) incurred in
enforcement of collection of this Note.
Borrower agrees to pay a variable rate of interest on the unpaid
principal balance at an annual rate equal to:
NYCP Rate from time to time in effect plus ZERO percent (0.00%) per
annum.
NYCP Rate as used herein shall mean: NEW YORK CONSENSUS PRIME IS
DEFINED AS "THE MAXIMUM PRIME RATE AS PUBLISHED IN THE WALL
STREET JOURNAL", BUT IF THE RATE IS NO LONGER PUBLISHED THEN A
RATE APPROVED BY FIRST OF AMERICA BANK-MICHIGAN, N.A. WILL BE
SUBSTITUTED. THIS RATE MAY NOT NECESSARILY BE THE LOWEST RATE OF
INTEREST CHARGED BY THE BANK TO ANY OF ITS CUSTOMERS. NEW YORK
CONSENSUS PRIME RATE IS AN "INDEX" AND THE ACTUAL RATE CHARGED TO
ANY BORROWER FOR A SPECIFIC LOAN MAY BE ABOVE OR BELOW THAT
"INDEX".
Rate changes shall be effective on the day any adjustment is made to
the NYCP Rate unless otherwise noted as follows: N/A.
Interest shall be computed on the actual number of days elapsed on the
basis of a year consisting of 360 days. Interest herein shall accrue from
SEPTEMBER 10, 1996 or from the date of the first advance made by the Bank.
Borrower agrees to pay, at any office of the Bank, the unpaid
principal balance and interest, in 47 consecutive MONTHLY installments,
plus a final installment of the unpaid balance. Installments consist of:
[ ] $24,477.28 Principal and accrued interest, each but in no event shall
installments be less than the sum of accrued interest to date of payment,
with the payment to be first applied to accrued interest on the unpaid
balance at the rate set forth above. Installments shall begin on the 10TH
day of OCTOBER, 1996, and thereafter be paid an the same day of each
succeeding MONTH until SEPTEMBER 10, 2000, when the whole of said principal
and interest shall be due and payable. If Borrower pays installments of
principal and accrued interest, Borrower understands that with a variable
rate of interest, principal amortization may also vary. Borrower promises
to pay installments, in no event less than the accrued interest to date of
payment, plus if requested by Bank, additional principal payments
<PAGE>
sufficient to amortize this Note in conformance with the amortization
schedule calculated at the time of execution of the Note.
All payments made as scheduled on this Note shall be applied, to the
extent thereof, to accrued but unpaid interest, unpaid principal, and any
other sums due and unpaid to Bank under the Loan Documents, in such manner
and order as Bank may elect in its discretion. All prepayments on this
Note shall be applied, to the extent thereof, to accrued but unpaid
interest on the amount prepaid, to the remaining principal installments,
and any other sums due and unpaid to Bank under the Loan Documents, in such
manner and order as Bank may elect in its discretion, including but not
limited to application to principal installments in inverse order of
maturity. Remittances in payment of any part of the Indebtedness other
than in the required amount in immediately available U.S. funds shall not,
regardless of any receipt or credit issued therefor, constitute payment
until the required amount is actually received by the holder hereof in
immediately available U.S. funds and shall be made and accepted subject to
the condition that any check or draft may be handled for collection in
accordance with the practice of the collecting bank or banks. Acceptance
by the holder hereof of any payment in an amount less than the amount then
due on any Indebtedness shall be deemed an acceptance on account only and
shall not in any way excuse the existence of a default. "Loan Documents"
means any document evidencing the Indebtedness, any document securing the
Indebtedness, any guaranty of the Indebtedness and any document executed in
connection with or referred to in any of the foregoing. "Indebtedness"
means this Note and all other liabilities, whether direct or indirect,
absolute or contingent, now or hereafter existing, due or to become due,
several or otherwise of the Borrower to the Bank.
If a payment is 10 days or more late, Borrower will be charged 5.0% of
the regularly scheduled payment. Upon default, including failure to pay
upon final maturity, Bank, at its option, may also, if permitted under
applicable law, increase the interest rate on this Note by 2.0 percentage
points. The interest rate will not exceed the maximum rate permitted by
applicable law.
Borrower does hereby pledge to the Bank all deposits and other
property of the Borrower now or hereafter in the possession, custody or
control of Bank for any purpose and does hereby grant to Bank a security
interest in or lien upon the property described in:
BUSINESS LOAN AGREEMENT DATED EVEN DATE; SUBORDINATION AGREEMENTS DATED
OCTOBER 6, 1995; MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT DATED MAY 1,
1995; MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT (2) EACH DATED EVEN DATE
or as described in any other security agreement, mortgage, document or loan
agreement executed at any time by the Borrower and delivered to the Bank
(herein collectively termed "Collateral") as security for the payment of
this Note and for the payment of all Indebtedness. Collateral securing
other obligations of Borrower to Bank may also secure this Note. The
-2-
<PAGE>
surrender of this Note upon payment or otherwise shall not affect the right
of Bank to retain the Collateral as security for any other Indebtedness.
Upon default in payment of this Note, or default in payment of any
Indebtedness, or if there is a default under any of the Loan Documents or
any security agreement, mortgage, loan agreement, or document given in
connection with the Collateral, or if the security afforded by the
Collateral at any time in the sole opinion of the Bank becomes
insufficient, or if any material representation made by the Borrower to
Bank for the purpose of obtaining credit appears to the Bank to be untrue,
or the commencement of a case under any federal or state bankruptcy or
insolvency law by or against the Borrower, or if Borrower fails generally
to pay its debts as such debts become due, or if proceedings are taken to
attach, garnishee or levy on any deposits, credits, funds or other property
of the Borrower, or the Borrower fails to notify the Bank of any material
adverse change in its financial status, this Note and all Indebtedness
shall, at the option of the Bank, become immediately due and payable in
full without notice, presentation or demand for payment, all such being
hereby waived by the Borrower and in such event, it is agreed that the Bank
may exercise all rights and remedies available to it under any security
agreement, mortgage, loan agreement, or document relating to or otherwise
securing any of the Indebtedness or, which may be available to Bank under
the Uniform Commercial Code as in effect in the State of Michigan or other
applicable law. Delay or forbearance by the Bank in the exercise of any
right granted hereunder shall not operate as a waiver thereof. The
Borrower authorizes the Bank to correct and cure any obvious errors or
omissions in this Note.
The following is applicable if checked and initialed by Borrower:
KEM [ ] Principal and interest shall be paid by the Borrower on the 10TH
day of each MONTH by debiting the Borrowers CHECKING account, number
___________.
Borrower and all sureties, endorsers, guarantors and any other party
now or hereafter liable for the payment of this Note in whole or in part,
hereby submit (and waive all rights to object) to non-exclusive personal
jurisdiction in the State of Michigan, and venue in the county in which
payment is to be made as specified in this Note, for the enforcement of any
and all obligations under this Note and the Loan Documents. This Note
shall be governed by the laws of the State of Michigan.
A determination that any provision of this Note is unenforceable or
Invalid shall not affect the enforceability or validity of any other
provision and the determination that the application of any provision of
this Note to any person or circumstance is illegal or unenforceable shall
not affect the enforceability or validity of such provision as it may apply
to other persons or circumstances. The remaining provisions of this Note
shall remain operative and in full force and effect and shall in no way be
-3-
<PAGE>
affected prejudiced, or disturbed thereby. This Note may not be amended
except in a writing specifically intended for the purpose and executed by
the party against whom enforcement of the amendment is sought. In the
event any provisions of this Note are inconsistent with the provisions of
the Loan Documents, or any other agreements or documents executed in
connection with this Note, this Note shall control. Borrower warrants and
represents to Bank and all other holders of this Note that the loan
evidenced by this Note is and will be for business or commercial purposes
and not primarily for personal, family, or household use. The terms,
provisions, covenants and conditions hereof shall be binding upon Borrower
and the heirs, devisees, representatives, successors and assigns of
Borrower. Any reference herein to a day or business day shall be deemed to
refer to a banking day which shall be a day on which Bank is open for the
transaction of business, excluding any national holidays, and any
performance which would otherwise be required on a day other than a banking
day shall be timely performed in such instance, if performed on the next
succeeding banking day. Notwithstanding such timely performance, interest
shall continue to accrue hereunder until such payment or performance has
been made.
It is agreed that the Bank shall have the right at all times without
demand or notice of any kind, to set off, hold, appropriate, or apply any
balance, credits, deposits, accounts or monies of Borrower or any
indebtedness of Bank to Borrower, in such order of application as Bank may
from time to time elect, as security for, or in payment of this Note or the
Indebtedness, either before or after maturity.
All parties to the Loan Documents intend to comply with applicable
usury law. In no event (including but not limited to prepayment, default,
demand for payment, or acceleration of maturity) shall the interest taken,
reserved, contracted for, charged or received under this Note or under any
of the other Loan Documents or otherwise, exceed the maximum nonusurious
amount permitted by applicable law (the "Maximum Amount"). If, from any
possible construction of any document interest would otherwise be payable
in excess of the Maximum Amount, then IPSO FACTO, such document shall be
reformed and the interest payable reduced to the Maximum Amount, without
necessity of execution of any amendment or new document. If the holder
hereof ever receives interest in an amount which apart from this provision
would exceed the Maximum Amount, the excess shall. without penalty, be
refunded to the payor, or at the option of such payor, be applied to the
unpaid principal of this Note in inverse order of maturity of installments
and not to the payment of interest. The holder hereof does not intend to
charge or receive unearned Interest on acceleration. All interest paid or
agreed to be paid to the holder hereof shall be spread throughout the full
term (including any renewal or extension) of the debt so that the amount of
interest does not exceed the Maximum Amount.
If more than one party shall execute this Note, the term "Borrower" as
used herein shall mean all parties signing this Note whether as maker or
endorser and each of them, and all such parties shall be jointly and
-4-
<PAGE>
severally obligated hereunder. The Borrower hereby waives presentment,
demand, protest and notice of dishonor and agrees that each Borrower, if
more than one, shall not be released or discharged by reason of any
execution, indulgence or release given to any person, or by the Bank's
release, sale or non-action with respect to the Collateral or any guaranty
or other undertaking securing this Note. If this Note is not dated when
executed by the Borrower, Bank is hereby authorized, without notice to the
Borrower, to date this Note as of the date when the principal balance
hereunder has been advanced to the Borrower in whole or in part, Borrower
acknowledges receipt of a fully completed copy of this Note.
THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
THE UNDERSIGNED AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY. AFTER
CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR
CHOICE. KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES
ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE
PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS PROMISSORY
NOTE OR THE INDEBTEDNESS.
ADDRESS: BORROWER: MILLER OIL CORPORATION
3104 Logan Valley
Traverse City, MI 49684 /S/ KELLY E. MILLER
Kelly E. Miller, President
-5-
<PAGE>
EXHIBIT 10.5(e)
$500,000.00 PROMISSORY NOTE MARCH 21, 1997
On OCTOBER 10, 1997, MILLER OIL CORPORATION (herein termed
"Borrower"), for value received, promises to pay to the order of First of
America Bank-Michigan, N.A., (herein termed "Bank") at its offices in
TRAVERSE CITY, Michigan, the principal sum of FIVE HUNDRED THOUSAND AND
NO/100 Dollars (U.S.) ($500,000.00), or such other amount as is reflected
upon the books and records of the Bank, with interest thereon, until paid,
plus all of the Bank's expenses (including reasonable attorney's fees and
court costs) incurred in the enforcement and collection of this Note.
Borrower agrees to pay a variable rate of interest on the unpaid
principal balance at an annual rate equal to:
NYCP Rate from time to time in effect plus ONE QUARTER OF ONE percent
(0.25%) per annum. NYCP Rate as used herein shall mean: NEW YORK CONSENSUS
PRIME IS DEFINED AS "THE MAXIMUM PRIME RATE AS PUBLISHED IN THE WALL STREET
JOURNAL", BUT IF THE RATE IS NO LONGER PUBLISHED THEN A RATE APPROVED BY
FIRST OF AMERICA BANK-MICHIGAN, N.A. WILL BE SUBSTITUTED. THIS RATE MAY
NOT NECESSARILY BE THE LOWEST RATE OF INTEREST CHARGED BY THE BANK TO ANY
OF ITS CUSTOMERS. NEW YORK CONSENSUS PRIME RATE IS AN "INDEX" AND THE
ACTUAL RATE CHARGED TO ANY BORROWER FOR A SPECIFIC LOAN MAY BE ABOVE OR
BELOW THAT "INDEX".
Rate changes shall be effective on the day any adjustment is made to
the NYCP Rate unless otherwise noted as follows: N/A
Interest shall be payable on the 10TH day of MAY, 1997 and on the same
day of each MONTH thereafter and shall be computed for the actual number of
days elapsed on the basis of a year consisting of 360 days. Interest
hereunder shall accrue from MARCH 21, 1997 or from the date of the first
advance made by the Bank. Interest on all advances shall be computed from
the respective dates thereof until the same are paid in full. The
principal payable hereunder at any given date shall be equivalent to all
advances made by the Bank to or at the request of the Borrower as of that
date less principal payments previously received by the Bank. Advances
hereunder shall at all times be made at the sole discretion of the Bank,
and Bank shall not have any obligation whatsoever to make any such
advances.
All payments made as scheduled on this Note shall be applied, to the
extent thereof, to accrued but unpaid interest, unpaid principal, and any
other sums due and unpaid to Bank under the Loan Documents, in such manner
and order as Bank may elect in its discretion. All prepayments on this
Note shall be applied, to the extent thereof, to accrued but unpaid
interest on the amount prepaid, to the remaining principal, and any other
sums due and unpaid to Bank under the Loan Documents, in such manner and
order as Bank may elect in its discretion. Remittances in payment of any
part of the Indebtedness other than in the required amount in immediately
<PAGE>
available U.S. funds shall not, regardless of any receipt or credit issued
therefor, constitute payment until the required amount is actually received
by the holder hereof in immediately available U.S. funds and shall be made
and accepted subject to the condition that any check or draft may be
handled for collection in accordance with the practice of the collecting
bank or banks. Acceptance by the holder hereof of any payment in an amount
less than the amount then due on any Indebtedness shall be deemed an
acceptance on account only and shall not in any way excuse the existence of
a default. "Loan Documents" means any document evidencing the
Indebtedness, any document securing the Indebtedness, any guaranty of the
Indebtedness and any document executed in connection with or referred to in
any of the foregoing. "Indebtedness" means this Note and all other
liabilities, whether direct or indirect, absolute or contingent, now or
hereafter existing, due or to become due, several or otherwise of the
Borrower to the Bank.
If a payment is 10 days or more late, Borrower will be charged 5.0% of
the regularly scheduled payment. Upon default, including failure to pay
upon final maturity, Bank, at its option, may also, if permitted under
applicable law, increase the interest rate on this Note by 2.0 percentage
points. The interest rate will not exceed the maximum rate permitted by
applicable law.
Borrower does hereby pledge to the Bank all deposits and other
property of the Borrower now or hereafter in the possession, custody or
control of Bank for any purpose and does hereby grant to Bank a security
interest in or lien upon the property described in:
BUSINESS LOAN AGREEMENT DATED EVEN DATE; SUBORDINATION AGREEMENTS DATED
OCTOBER 6, 1995; MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT DATED MAY 1,
1995; MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT (2) EACH DATED EVEN DATE
or as described in any other security agreement, mortgage, document or loan
agreement executed at any time by the Borrower and delivered to the Bank
(herein collectively termed "Collateral") as security for the payment of
this Note and for the payment of all Indebtedness. Collateral securing
other obligations of Borrower to Bank may also secure this Note. The
surrender of this Note upon payment or otherwise shall not affect the right
of Bank to retain the Collateral as security for any other Indebtedness.
Upon default in payment of this Note, or default in payment of any
Indebtedness, or if there is a default under any of the Loan Documents or
any security agreement, mortgage, loan agreement, or document given in
connection with the Collateral, or if the security afforded by the
Collateral at any time in the sole opinion of the Bank becomes
insufficient, or if any material representation made by the Borrower to
Bank for the purpose of obtaining credit appears to the Bank to be untrue,
or the commencement of a case under any federal or state bankruptcy or
insolvency law by or against the Borrower, or if Borrower fails generally
-2-
<PAGE>
to pay its debts as such debts become due, or if proceedings are taken to
attach, garnishee or levy on any deposits, credits, funds or other property
of the Borrower, or the Borrower fails to notify the Bank of any material
adverse change in its financial status, this Note and all Indebtedness
shall, at the option of the Bank, become immediately due and payable in
full without notice, presentation or demand for payment, all such being
hereby waived by the Borrower and in such event, it is agreed that the Bank
may exercise all rights and remedies available to it under any security
agreement, mortgage, loan agreement, or document relating to or otherwise
securing any of the Indebtedness or, which may be available to Bank under
the Uniform Commercial Code as in effect in the State of Michigan or other
applicable law. Delay or forbearance by the Bank in the exercise of any
right granted hereunder shall not operate as a waiver thereof. The
Borrower authorizes the Bank to correct and cure any obvious errors or
omissions in this Note.
All loan advances to the Borrower shall be evidenced by this Note. A
separate note will not be required of the Borrower upon each advance.
Records prepared by the Bank in the ordinary course of business shall be
evidence of the dates and amounts of disbursements, payments, interest
rates and applicable effective dates thereof.
Loan advances to the Borrower shall be made by the Bank upon the
written request of those officers or agents of the Borrower duly authorized
by appropriate resolution or partnership agreement of the Borrower on file
with the Bank. The Bank is also authorized and directed to accept
telephonic instructions to make further advances for credit to the
Borrower's CHECKING account, number ___________.
The following is applicable if checked and initialed by Borrower:
KEM [ ] Interest shall be paid by the Borrower on the 10TH day of each
MONTH by debiting the Borrowers CHECKING account, number ___________.
Borrower and all sureties, endorsers, guarantors and any other party
now or hereafter liable for the payment of this Note in whole or in part,
hereby submit (and waive all rights to object) to non-exclusive personal
jurisdiction in the State of Michigan, and venue in the county in which
payment is to be made as specified in this Note, for the enforcement of any
and all obligations under this Note and the Loan Documents. This Note
shall be governed by the laws of the State of Michigan.
A determination that any provision of this Note is unenforceable or
Invalid shall not affect the enforceability or validity of any other
provision and the determination that the application of any provision of
this Note to any person or circumstance is illegal or unenforceable shall
not affect the enforceability or validity of such provision as it may apply
to other persons or circumstances. The remaining provisions of this Note
-3-
<PAGE>
shall remain operative and in full force and effect and shall in no way be
affected prejudiced, or disturbed thereby. This Note may not be amended
except in a writing specifically intended for the purpose and executed by
the party against whom enforcement of the amendment is sought. In the
event any provisions of this Note are inconsistent with the provisions of
the Loan Documents, or any other agreements or documents executed in
connection with this Note, this Note shall control. Borrower warrants and
represents to Bank and all other holders of this Note that the loan
evidenced by this Note is and will be for business or commercial purposes
and not primarily for personal, family, or household use. The terms,
provisions, covenants and conditions hereof shall be binding upon Borrower
and the heirs, devisees, representatives, successors and assigns of
Borrower. Any reference herein to a day or business day shall be deemed to
refer to a banking day which shall be a day on which Bank is open for the
transaction of business, excluding any national holidays, and any
performance which would otherwise be required on a day other than a banking
day shall be timely performed in such instance, if performed on the next
succeeding banking day. Notwithstanding such timely performance, interest
shall continue to accrue hereunder until such payment or performance has
been made.
It is agreed that the Bank shall have the right at all times without
demand or notice of any kind, to set off, hold, appropriate, or apply any
balance, credits, deposits, accounts or monies of Borrower or any
indebtedness of Bank to Borrower, in such order of application as Bank may
from time to time elect, as security for, or in payment of this Note or the
Indebtedness, either before or after maturity.
All parties to the Loan Documents intend to comply with applicable
usury law. In no event (including but not limited to prepayment, default,
demand for payment, or acceleration of maturity) shall the interest taken,
reserved, contracted for, charged or received under this Note or under any
of the other Loan Documents or otherwise, exceed the maximum nonusurious
amount permitted by applicable law (the "Maximum Amount"). If, from any
possible construction of any document interest would otherwise be payable
in excess of the Maximum Amount, then IPSO FACTO, such document shall be
reformed and the interest payable reduced to the Maximum Amount, without
necessity of execution of any amendment or new document. If the holder
hereof ever receives interest in an amount which apart from this provision
would exceed the Maximum Amount, the excess shall. without penalty, be
refunded to the payor, or at the option of such payor, be applied to the
unpaid principal of this Note in inverse order of maturity of installments
and not to the payment of interest. The holder hereof does not intend to
charge or receive unearned Interest on acceleration. All interest paid or
agreed to be paid to the holder hereof shall be spread throughout the full
term (including any renewal or extension) of the debt so that the amount of
interest does not exceed the Maximum Amount.
-4-
<PAGE>
If more than one party shall execute this Note, the term "Borrower" as
used herein shall mean all parties signing this Note whether as maker or
endorser and each of them, and all such parties shall be jointly and
severally obligated hereunder. The Borrower hereby waives presentment,
demand, protest and notice of dishonor and agrees that each Borrower, if
more than one, shall not be released or discharged by reason of any
execution, indulgence or release given to any person, or by the Bank's
release, sale or non-action with respect to the Collateral or any guaranty
or other undertaking securing this Note. If this Note is not dated when
executed by the Borrower, Bank is hereby authorized, without notice to the
Borrower, to date this Note as of the date when the principal balance
hereunder has been advanced to the Borrower in whole or in part, Borrower
acknowledges receipt of a fully completed copy of this Note.
THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
THE UNDERSIGNED AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY. AFTER
CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR
CHOICE. KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES
ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE
PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS PROMISSORY
NOTE OR THE INDEBTEDNESS.
ADDRESS: BORROWER: MILLER OIL CORPORATION
3104 Logan Valley
Traverse City, MI 49684 /S/ KELLY E. MILLER
Kelly E. Miller, President
-5-
<PAGE>
AMENDMENT TO NOTE
#0006290-0101
Effective OCTOBER 10, 1997, this Amendment amends a certain Promissory Note
----------------
dated SEPTEMBER 10, 1996, originally in the principal sum of FIVE HUNDRED
------------------ ------------
THOUSAND and no/100 ($500,000.00) Dollars between First of America Bank, N.A. as
- -------- ----------
payee (hereinafter called "Bank") and MILLER OIL CORPORATION (hereinafter called
----------------------
"Borrower") wherein the present principal balance owing is $-0- with interest
----
paid to OCTOBER 10, 1997.
----------------
The Bank and Borrower hereby agree:
1. THE MATURITY DATE IS HEREBY EXTENDED TO JANUARY 13, 1998
All other terms and conditions of this note are unchanged and remain in full
force and effect.
In WITNESS WHEREOF, the Bank and Borrower have executed this amendment on the
dates set opposite their signatures.
BANK: FIRST OF AMERICA BANK, N.A.
Dated: /s/ Scot J. MacDonald
--------- --------------------------------------
BY: Scot J. MacDonald
ITS: Senior Vice President
BORROWER: MILLER OIL CORPORATION
Dated: /s/ Kelly E. Miller
--------- --------------------------------------
BY: Kelly E. Miller, President
[LOGO OF FIRST OF AMERICA
APPEARS HERE]
<PAGE>
EXHIBIT 10.6
November 10, 1997
Mr. C.E. Miller
Eagle Investment, Inc.
P.O. Box 348
Traverse City, MI 49685
Re: Letter Agreement
Property Sale
Dear Mr. Miller:
This letter will serve as an agreement between Miller Oil Corporation
("MOC") and Eagle Investments, Inc. ("Eagle") for the sale of non-operated
working interest and overriding royalty interest in certain properties
located in Michigan and Texas. MOC as seller and Eagle as buyer agree to
the following terms and conditions:
1. MOC will sell all of its right, title, and interest to Eagle in the
properties described on Exhibit "A" attached hereto.
2. The effective date of the sale will be January 1, 1998, with closing
to occur as soon as possible in January.
3. The purchase price will be $507,411.00.
4. The assignment to Eagle will include all of MOC's interest in all
wells, facilities, and equipment associated with the properties.
5. MOC does not warrant title to the interest in any of the properties.
<PAGE>
Page 2
Eagle Investments
October 29, 1997
Should the foregoing meet with your approval, please indicate by executing
where provided below and return to MOC's Houston, TX office.
Sincerely,
MILLER OIL CORPORATION
/s/ C.W. Measley, Jr.
C.W. Measley, Jr.
Land Manager
Agreed to and accepted this 13 day of November, 1997.
Eagle Investments, Inc.
By: /s/ C.E. Miller
-------------------------------
C.E. Miller
<PAGE>
<TABLE>
<CAPTION>
WELL NAME OPERATOR ST CTY/PARISH WI NRI
<S> <C> <C> <C> <C> <C>
Other
Abrahamson 3-7 Miller Oil MI Mason 25.606930% 24.068427%
Bagley Niagaran 11-14-23 Terra MI Otsego 0.015574% 0.013410%
Bassett 1-16 Samson MI Mecosta 8.230500% 5.990029%
Brown Ranch Project Burke TX Throckmorton 0.000000% 0.312500%
Carey 1-23 W&W MI Manistee 20.000000% 16.871875%
Cooley 1-13A Adams MI Mecosta 0.000000% 1.460388%
Courand #1 Burke TX Atascosa 0.000000% 0.400000%
Crawford Rose Lake 1-11 Dart MI Osceola 4.575107% 3.330106%
Gelow 1-12 H&H MI Otsego 0.000000% 0.081610%
Goose Lake Plant Dart MI Osceola 5.000000% 0.000000%
Guerra Mineral Trust (NCT) DA Hughes TX Starr 14.125000% 11.639844%
Guy F. Stovall Trust #2 DA Hughes TX Wharton 4.394792% 3.471093%
Habrecht 1-13 West Bay MI Grand Traverse 5.000000% 3.962540%
Imogene P/L Burke TX Atascosa 0.000000% 0.000000%
Joseph 2-23 Dynamic MI Manistee 0.000000% 0.003910%
Kalner Unit #1 Venus TX Wharton 0.785536% 0.614682%
Kalk St. Townsite 1-17 Global MI Kalkaska 0.000000% 0.020815%
Kantz 1-12A West Bay MI Grand Traverse 2.376625% 1.857740%
Lakeland Assoc. 1-32 Michigan Prod. MI Manistee 0.800000% 0.581720%
Spider Lake 1-3 HD-1 West Bay MI Grand Traverse 4.703900% 3.657265%
St. Vienna 1-34C Shell MI Montmorency 0.937500% 0.668750%
Tecon Lake 1-14 Hawkins MI Otsego 2.500000% 2.118750%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WELL NAME OPERATOR ST CTY/PARISH WI NRI
ANTRIM:
<S> <C> <C> <C> <C> <C>
Bagley 400 Antrim Terra MI Otsego 0.000000% 0.009239%
Charlton 27 Field Trendwell MI Otsego 0.000000% 0.069430%
Chester 12 (Fox) Antrim O.I.L. MI Otsego 1.006150% 0.880610%
Chester 12 (Fox) Antrim O.I.L. MI Otsego 0.000000% 0.100400%
Chester 16 Antrim Oilfield Inv. MI Otsego 0.000000% 0.312535%
Chester Antrim One Enster MI Otsego 0.000000% 0.168800%
Gilchrist Antrim Wolverine MI Montmorency 0.000000% 0.206350%
Hardwood Antrim Wolverine MI Montmorency 0.000000% 0.029300%
Mid-Charlton Ph.l S.Add-On Terra MI Otsego 0.000000% 0.776138%
Mid-Charlton Phase I Terra MI Otsego 0.000000% 0.021622%
Mid-Charlton Phase II Terra MI Otsego 0.000000% 0.013003%
Otsego Lake Antrim Muskegon MI Otsego 0.000000% 0.032740%
St. Bagley 4-36 HRF Antrim MI Otsego 0.000000% 0.775000%
St. Charlton B1-36 Wolverine MI Otsego 0.000000% 0.225000%
St. Charlton B2-36 Wolverine MI Otsego 0.000000% 0.225000%
Terra Pigeon Terra MI Otsego 0.000000% 0.748700%
Vienna 31 Gas Field Trendwell MI Mont/Otsego 0.000000% 0.059760%
</TABLE>
<PAGE>
EXHIBIT 10.7
AMENDED
SERVICE AGREEMENT
THIS SERVICE AGREEMENT is entered into this 1st day of January, 1997,
by and between MILLER OIL CORPORATION, a Michigan corporation ("MOC"),
Eagle Investment, Inc., a Michigan corporation ("Eagle"), and supersedes
all similar and existing agreements.
RECITALS
Eagle and desire to obtain various services and the expertise
necessary to acquire, maintain, develop, select, explore and operate oil
and gas leases in the State of Michigan, throughout the Continental United
States and internationally. Eagle does not desire to hire the personnel
necessary to perform such services, as the frequency and extent of Eagle's
oil and gas investments may vary dramatically from time to time.
MOC employs various individuals with experience in the areas of
general administration, oil and gas lease acquisition, lease management,
geological and geophysical sciences, mapping, drafting, engineering, and
financial and tax management and general estate planning. MOC desires to
provide its services to Eagle on the terms and conditions set forth in this
Agreement.
ACCORDINGLY, THE PARTIES AGREE AS FOLLOWS:
1. Services. MOC agrees to provide Eagle with such services as the
parties agree are necessary and desirable to permit Eagle to operate their
business in the ordinary course, including, but not limited to, the
following:
(a) Recommend the acquisition of certain oil and gas mineral
leases, minerals or fee interests.
(b) Rental and expiration recommendation reporting.
(c) Coordination of geological and geophysical services.
(d) Development of prospects.
(e) Coordination of permitting, drilling, completion, facility
construction and operation, contract negotiations of oil and
gas purchase and sale contracts and negotiation of farm-in
and farm-out agreements.
(f) Maintenance of joint venture participant communication and
reporting.
<PAGE>
(g) Raising capital or investment funds as desired by Eagle.
(h) Representation of Eagle through state, national and
international industry organizations and associations.
(i) Representation on legal and legislative matters and
regulatory affairs.
(j) Accounting, financial, and tax preparation and analysis,
including budget preparation.
(k) Risk management, securing of all personal, property and
casualty insurance.
(l) Review and/or development of annual reserve appraisal.
(m) Drafting and cartographic services.
(n) Clerical, tax and/or management functions associated with
any of the above services, including securing of any and all
outside professionals.
(o) Analyze and recommend venture capital opportunities
available outside the oil and gas industry.
(p) Engineering and consulting services to Eagle to efficiently
and economically maintain the producing properties.
2. MOC Personnel. It is understood that the services provided to
Eagle hereunder will be performed by those employees of MOC who perform
equivalent services for MOC in the normal course of their employment.
Accordingly, MOC shall not be obligated to make available any services to
the extent that doing so would unreasonably interfere with the performance
by an MOC employee of services for MOC or otherwise cause unreasonable
burden to MOC, in light of the purposes of this Agreement. The parties
agree that upon thirty (30) days' prior written notice to Eagle, MOC may
reduce the level of any services provided under this Agreement consistent
with a reduction of MOC's provision of comparable services for itself.
Notwithstanding the other provisions of this Agreement to their contrary,
the obligation of MOC to make available services may be terminated in whole
or in part by MOC or Eagle upon not less than sixty (60) days' prior
written notice to Eagle or to MOC, as the case may be.
3. Compensation.
(a) Fee for Services. CEM and Eagle will each pay to MOC a
fixed fee of $50,000 per quarter, subject to (annual)
adjustments to be negotiated by the parties, for making the
services available whether or not Eagle elects to utilize
-2-
<PAGE>
the services; provided, however, that in the event of the
termination by MOC or by Eagle of MOC's obligations to
provide any of the services, such fixed fee shall be
appropriately reduced. Such fees shall be due and payable
by Eagle on the first business day of each quarter during
the period in which services are being provided. Eagle
shall also pay to MOC such additional fees in an amount to
be agreed to by the parties as from time to time may be
required for certain specialized services provided by MOC.
(b) Expenses. Eagle shall reimburse MOC for its out-of-pocket
expenses (other than any wage or fringe benefit costs of MOC
employees) incurred in providing the services. Such
reimbursement payments shall be due and payable 15 days
after receipt of invoices therefor.
4. Independent Contractor Status. MOC shall render and perform the
services hereunder as an independent contractor in accordance with its own
standards, subject to its compliance with the provisions of this Agreement
and with all applicable laws, ordinances and regulations. Neither this
Agreement nor any operation under it is intended to be, or shall be deemed
to be, or shall be treated as a general or limited partnership,
association, joint venture, or agency relationship between MOC and Eagle.
5. Disclaimer; Limited Liability.
(a) MOC makes no express or implied representation, warranty, or
guarantee relating to the services to be performed under
this Agreement or the quality or results of the services.
(b) MOC shall not be liable to Eagle for any expense, claim,
loss or damage, including, without limitation, indirect,
special, consequential or exemplary damages suffered other
than by reason of MOC's intentional failure to perform, or
gross negligence in performing, the services pursuant to
this Agreement.
6. Confidentiality. Each party shall hold, and cause its affiliates
and their consultant and advisors to hold, in strict confidence, all
information concerning the other party in its possession or furnished by
the other or the other's party in its pursuant to this Agreement (except to
the extent that such information can be shown to have been (a) in the
public domain through no fault of such party or (b) later lawfully acquired
from other sources by such party), and neither party shall release or
disclose such information to any other person, except its advisors, bankers
and other consultants and advisors, unless compelled to disclose by
judicial or administrative process or, as advised by counsel, by other
requirements of law. Each party shall be deemed to have satisfied its
obligation to hold confidential information concerning or supplied by the
-3-
<PAGE>
other party if it exercises the same care as it takes to preserve
confidentiality for its own similar information.
7. Term and Effective Date. This Agreement shall become effective
January 1, 1997, and may be canceled at any time for any reason by either
party hereto by giving the other party to this agreement sixty (60) days'
advance written notice.
8. Warranty; Indemnification. MOC does not warrant the title to any
instrument offered to Eagle. Eagle agrees to defend, indemnify, and hold
harmless MOC against and in respect of any and all loss, cost, damage or
expense, incurred with respect to any claims, actions, suits, proceedings
or assessments arising out of the services provided by MOC or the
settlement thereof, including, without limitation, interest, penalties and
reasonable attorneys fees, costs and expenses.
9. Assignment. Neither party to this agreement may assign, convey,
transfer or sell its rights and/or obligations herein without the advance
written consent of the other party hereto.
10. Entire Agreement. This Agreement encompasses the entire
understanding and agreement between the parties and hereby supersedes any
and all prior or contemporaneous agreements, oral or written, made between
the parties with respect to the subject matter hereof and the transactions
herein contemplated.
11. Delay and Waiver. No delay on the part of either party in
exercising any of its respective rights hereunder of the failure to
exercise the same, nor the acquiescence in or waiver of a breach of any
term, provision or condition of this Agreement shall be deemed or construed
to operate as waiver of any such rights or acquiescence thereto, except for
the specific instance of delay, waiver or acquiescence.
12. Amendment. This Agreement may not be changed orally, but only by
an agreement in writing signed by the party against whom enforcement of any
waiver, change or modification or discharge is sought.
13. Successors. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs,
representatives, successors and assigns. No provision of this Agreement
shall in any other way inure to the benefit of any third person so as to
constitute any such person as a third party beneficiary of the Agreement or
of any one or more of the terms hereof, or otherwise give rise to any cause
of action in any person not a party hereto.
14. Severability. The invalidity or supersedes of any provision of
this Agreement pursuant to any applicable law shall not affect the validity
or enforceability of the remaining provisions hereof, but this Agreement
shall be construed as if not containing the provision held invalid or
unenforceable.
-4-
<PAGE>
15. Applicable Law. This Agreement has been made and entered into
the State of Michigan, and in the event of any dispute hereunder this
Agreement shall be governed by and construed in accordance with the laws of
the State of Michigan.
16. Headings. The headings to the various paragraphs of this
Agreement have been inserted for convenient reference only, and shall not
have the effect of amending or changing the express terms and provisions of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
MILLER OIL CORPORATION
By: /s/Kelly E. Miller
Kelly E. Miller
Its: President
EAGLE INVESTMENTS, INC.
By: /s/C.E. Miller
C. E. Miller
Its: ___________________________________
-5-
<PAGE>
EXHIBIT 10.9
CONSULTING AGREEMENT
THIS AGREEMENT, effective June 1, 1996, by and between FRANK M.
BURKE, JR. (hereinafter called "Counselor") and Miller Oil Corporation
(hereinafter called "Client").
WITNESSETH:
WHEREAS, Client is desirous to retaining Counselor as an independent
financial consultant for the period and upon the terms and conditions
provided herein;
NOW, THEREFORE, for and in consideration of the compensation to be
paid Counselor hereunder and the mutual covenants herein contained,
Counselor and Client hereby agree as follows:
1. TERM. The term of this Agreement shall be for a period beginning
on the first day of the calendar month following the date of this Agreement
(or on the date hereof if such date is the first day of a calendar month)
and continuing for twelve (12) consecutive calendar months thereafter.
This Agreement shall be automatically renewed for successive twelve (12)
month periods unless written notice of termination is given by one party to
the other party at least thirty (30) days prior to the expiration date of
any such twelve (12) month period, including the initial twelve (12) month
period.
2. FEES. Client shall pay the Counselor for his services hereunder
a fee of $275.00 per hour, payable on or before ten (10) days after the end
of each calendar month during the term of this Agreement.
3. TIME. Counselor shall upon request of Client devote to Client as
much time as is available and required.
<PAGE>
4. SERVICES. During the term of this Agreement, Counselor shall, in
the capacity of an independent contractor, furnish such financial, tax,
strategic, marketing and operational planning and review of Client's
internal data, including financial statements, on a regular basis, as
requested by Client. It is understood and agreed that (a) Counselor will
be providing only consulting services and will not be providing legal, tax
or accounting services and Client shall not rely upon him for such
services, and (b) Counselor is providing services to Client on a limited
basis and is, therefore, engaged in the same or other services for other
clients and is not in any manner prohibited from engaging in such other
business or businesses as Counselor may desire. In addition, it is
understood that Client shall cooperate with Counselor in endeavoring to
schedule his work hereunder so that it will not unreasonably interfere with
his other business or businesses.
5. EXPENSES. Upon proper accounting, Counselor shall be reimbursed
for all reasonable travel and other out-of-pocket expenses incurred by him
in connection with his consultation with Client. All such expenses shall
be reimbursed to Counselor with the monthly fee payment due after said
accounting is submitted to Client.
6. TEMPORARY INCAPACITY. Counselor shall be excused from performing
any consulting services hereunder for Client during periods of temporary
incapacity.
7. CONFIDENTIAL INFORMATION. All information relating to the
business of Client and its affiliates including, but not limited to, the
identity of customers and suppliers, arrangements with which such customers
-2-
<PAGE>
and suppliers and technical data relating to the Client's facilities and
services, shall be treated as confidential by Counselor both during and
after the term of this Agreement. Except with the prior written approval
of Client, or as required by law, Counselor shall not disclose any of such
information at any time to any person except authorized personnel of Client
and its affiliates. In the event of a breach or threatened breach by
Counselor of the provisions of this paragraph, the Client shall, in
addition to any other available remedies, be entitled to an injunction
restraining Counselor from disclosing, in whole or in part, any of such
information or from rendering any services to any person to whom any of
such information may have been disclosed or is threatened to be disclosed.
8. WORK PAPERS. All data, drawings and other records or written
material prepared or complied by Counselor under the terms of this
Agreement or furnished to Counselor during the term hereof by Client, any
of its affiliates or any person dealing with the Client or any of its
affiliates shall, as between Counselor or Client and its affiliates, be the
sole and exclusive property of the Client and its affiliates, and none of
such data, drawings or other records or written material shall be retained
by Counselor upon termination of this Agreement.
9. TERMINATION. Except as provided in paragraph 1. above, Client
cannot terminate this Agreement except upon the occurrence of one of the
following contingencies:
(a) Should Counselor die;
-3-
<PAGE>
(b) Should Counselor, for more than six months, by reason of injury
or illness become incapable of satisfactorily performing his
duties hereunder; or
(c) Should Counselor be adjudicated a bankrupt or be convicted of a
felony or a crime involving moral turpitude or a crime which in
the sole judgment of the Client adversely affects the utility of
his services; or
(d) Should Counselor fail to comply with the terms and conditions
hereof.
Counselor or his heirs or personal representatives shall be given written
notice of Client's intent to terminate this Agreement pursuant to this
paragraph and shall have thirty (30) days after receipt of such notice to
correct, if possible, the specified contingency.
10. AMENDMENT. This Agreement shall not be changed orally, but only
by a written instrument to which Client and Counselor are both parties.
11. INDEPENDENT CONTRACTOR. Counselor shall employ his own means and
methods of accomplishing the projects assigned to him by Client form time
to time and shall not be subject to the control of Client in respect to the
details of such work. It is understood and agreed that Counselor shall act
as an independent contractor in the performance of his obligations and
services under this Agreement and no employer-employee relationship exists
between Client and Counselor.
12. PAYEE. It is further understood and agreed that Counselor is
performing the services hereunder as a partner of Burke, Mayborn Company,
-4-
<PAGE>
Ltd., a Texas limited partnership, and all payments due Counselor hereunder
shall be made payable to Burke, Mayborn Company, Ltd. at the address
specified in paragraph 14. below.
13. INTERPRETATION. This Agreement and the rights and obligations
hereunder shall be binding upon and inure to the benefit of the parties
hereto and their respective legal representatives, and shall also bind and
inure to the benefit of any successor of Client by merger or consolidation
or any assignee of all or substantially all of its properties.
14. NOTICES. Any notices required or permitted to be given under
this Agreement shall be deemed to have been duly given when delivered or
mailed by United States registered mail, return receipt requested,
addressed as follows:
If to Counselor: Frank M. Burke, Jr.
1717 Main Street, Suite 5800
Dallas, Texas 75201-4680
If to Client: Miller Oil Corporation
P.O. Box 348
Traverse City, Michigan 49685-0348
Attn: Kelly Miller
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
15. GOVERNING LAW. This Agreement shall be governed by the laws of
the State of Texas.
-5-
<PAGE>
EXECUTED to become effective on the day and year first above written.
/S/ FRANK M. BURKE, JR.
Frank M. Burke, Jr.
"Counselor"
MILLER OIL CORPORATION
"Client"
by: /S/ KELLY MILLER
Kelly Miller, President
-6-
<PAGE>
[LETTERHEAD OF BURKE, MAYBORN COMPANY, LTD. APPEARS HERE]
September 30, 1997
Mr. Kelly Miller
President
Miller Oil Company
P.O. Box 348
Traverse City, Michigan 49685-0348
Dear Kelly:
Over the past month I have been reviewing the billing rate which Burke, Mayborn
Company, Ltd. uses for my consulting time. After reviewing the rates charged by
senior partners of major consulting, accounting and law firms, we have concluded
that we should increase the minimum hourly rate for my services to $375.00 per
hour effective January 1, 1998. However, since your present billing rate is
$275.00 per hour, I plan to phase in the new billing rate by adjusting my
billing rate for services to your company during calendar year 1998 to $325.00.
The billing rate will be raised to $375.00 for services rendered on or after
January 1, 1999.
If you have any questions regarding the change in billing rates, please do not
hesitate to call me.
Best regards.
Yours very truly,
/s/ Frank M. Burke
Frank M. Burke
Enclosure
FMB:cl
<PAGE>
EXHIBIT 11.1
MILLER EXPLORATION COMPANY
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
1996 SEPTEMBER 30, 1997
----------------------- ---------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
PRIMARY INCOME PER SHARE
(in thousands, except per share data)
Net Income $ 628 $ 1,339 $ 338 $ 694
Shares
Weighted average shares outstanding
Combined Assets 6,930 6,930
========= =========
Primary income per share $ 0.19 $ 0.10
========= =========
FULLY DILUTED INCOME PER SHARE
(in thousands, except per share data)
Net income $ 628 $ 1,339 $ 338 $ 694
Shares
Weighted average shares outstanding
Combined Assets 6,930 6,930
========= =========
Fully diluted income per share $ 0.19 $ 0.10
========= =========
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
1996 SEPTEMBER 30, 1997
----------------------- ------------------
<S> <C> <C>
CALCULATION OF PRO FORMA
PRIMARY AND FULLY DILUTED
NET INCOME PER COMMON SHARE
(in thousands, except per share data)
Pro Forma Net Income Attributable
to Common Shares $ 1,339 $ 694
Pro Forma Weighted Average Shares 6,930 6,930
--------- ---------
Pro Forma Income per Common Share $ 0.19 $ 0.10
========= =========
</TABLE>
<PAGE>
CALCULATION OF ACTUAL
WEIGHTED AVERAGE SHARES OUTSTANDING (in thousands)
<TABLE>
<S> <C> <C>
Beginning Balance -- --
Combined Assets 6,930 6,930
----- -----
Ending Weighted Average Balance 6,930 6,930
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF MILLER EXPLORATION COMPANY
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION OR ORGANIZATION
---- --------------------------------------
<S> <C> <C>
Miller Oil Corporation* Michigan
</TABLE>
* Gives effect to the Combination Transaction
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in
this registration statement of our report dated October 10, 1997 on the
combined financial statements of Miller Exploration Company and affiliated
entities and our report dated October 24, 1997 on the statement of revenues
and direct operating expenses of the SASI Minerals Company's Properties, all
included herein and to all references to our Firm included in this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Detroit, Michigan
November 14, 1997
<PAGE>
EXHIBIT 23.3
[LETTERHEAD APPEARS HERE]
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to (i) the use in the Prospectus (the
"Prospectus") constituting a part of the Registration Statement on Form S-1
filed by Miller Exploration Company, a Delaware corporation (the
"Company"), under the Securities Act of 1933, as amended (the "Act"), of
information contained in our reserve reports relating to the oil and gas
reserves and revenue, as of December 31, 1996, and September 30, 1997, of
certain interests of the Company and the information derived from such reports,
(ii) the inclusion of a summary of such reserve report as of September 30, 1997
as Appendix A to such Prospectus, (iii) all references to such summary, reports,
and this firm in such Prospectus, and further consent to our being named as an
expert therein, and (iv) the incorporation of this consent in any Registration
Statement filed for the same offering pursuant to Rule 462(b) under the Act.
S. A. HOLDITCH & ASSOCIATES, INC.
/s/ W. Denton Copeland, P.E.
----------------------------
W. Denton Copeland, P.E.
Vice President
New Orleans, Louisiana
November 14, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to (i) the use in the Prospectus (the "Prospectus")
constituting a part of the Registration Statement on Form S-1 filed by Miller
Exploration Company, a Delaware corporation (the "Company"), under the
Securities Act of 1933, as amended (the "Act"), of information contained in our
reserve reports relating to the oil and gas net reserves and future net revenue,
as of December 31, 1996 and September 30, 1997, of certain interests of the
Company and the information derived from such reports, (ii) the inclusion of a
summary of such reserve report as of September 30, 1997 as Appendix B to such
Prospectus, (iii) all references to such summary, reports and this firm in such
Prospectus, and further consent to our being named as an expert therein, and
(iv) the incorporation of this consent in any Registration Statement filed for
the same offering pursuant to Rule 462(b) under the Act.
MILLER AND LENTS, LTD.
/s/ Larry M. Gring
Larry M. Gring
Houston, Texas Senior Vice President
November 17, 1997
<PAGE>
EXHIBIT 23.5
Consent of
Person Named as about to Become a Director of
Miller Exploration Company
In conformity with Rule 438 of the Securities Act of 1933, as amended,
the undersigned hereby consents to be named in the Registration Statement on
Form S-1 to be filed by Miller Exploration Company (the "Company") with the
Securities and Exchange Commission as a person about to become a director of the
Company.
Date: November 12, 1997
/s/ Frank M. Burke, Jr.
--------------------------------
Frank M. Burke, Jr.
<PAGE>
Consent of
Person Named as about to Become a Director of
Miller Exploration Company
In conformity with Rule 438 of the Securities Act of 1933, as amended,
the undersigned hereby consents to be named in the Registration Statement on
Form S-1 to be filed by Miller Exploration Company (the "Company") with the
Securities and Exchange Commission as a person about to become a director of the
Company.
Date: November 12, 1997
/s/ Dan A. Hughes, Jr.
-----------------------------
Dan A. Hughes, Jr.
<PAGE>
Consent of
Person Named as about to Become a Director of
Miller Exploration Company
In conformity with Rule 438 of the Securities Act of 1933, as amended,
the undersigned hereby consents to be named in the Registration Statement on
Form S-1 to be filed by Miller Exploration Company (the "Company") with the
Securities and Exchange Commission as a person about to become a director of the
Company.
Date: November 12, 1997
/s/ William McManemin
------------------------------------
William McManemin
<PAGE>
EXHIBIT 24.1
LIMITED POWER OF ATTORNEY
The undersigned, in his capacity as a director or officer, or
both, as the case may be, of Miller Exploration Company, does hereby
appoint Kelly E. Miller and William J. Baumgartner, and either of them, his
attorney or attorneys with full power of substitution to execute in his
name, in his capacity as a director or officer, as the case may be, of
Miller Exploration Company, a Form S-1 Registration Statement of Miller
Exploration Company, any and all pre-effective or post-effective amendments
to such Registration Statement, and to file the same with all exhibits
thereto and all other documents in connection therewith with the Securities
and Exchange Commission.
November 7, 1997 /s/ C.E. "Gene" Miller
--------------------------------------------
C.E. "Gene" Miller, Chairman of the
Board and Director
<PAGE>
LIMITED POWER OF ATTORNEY
The undersigned, in his capacity as a director or officer, or both, as the
case may be, of Miller Exploration Company, does hereby appoint Kelly E. Miller
his attorney or attorneys with full power of substitution to execute in his
name, in his capacity as a director or officer, as the case may be, of Miller
Exploration Company, a Form S-1 Registration Statement of Miller Exploration
Company, any and all pre-effective or post-effective amendments to such
Registration Statement, and to file the same with all exhibits thereto and all
other documents in connection therewith with the Securities and Exchange
Commission.
November 6, 1997 /s/ William J. Baumgartner
------------------------------------------
William J. Baumgartner, Vice President-
Finance, Chief Financial Officer and
Director
<PAGE>
LIMITED POWER OF ATTORNEY
The undersigned, in his capacity as a director or officer, or both, as the
case may be, of Miller Exploration Company, does hereby appoint William J.
Baumgartner his attorney or attorneys with full power of substitution to execute
in his name, in his capacity as a director or officer, as the case may be, of
Miller Exploration Company, a Form S-1 Registration Statement of Miller
Exploration Company, any and all pre-effective or post-effective amendments to
such Registration Statement, and to file the same with all exhibits thereto and
all other documents in connection therewith with the Securities and Exchange
Commission.
November 6, 1997 /s/ Kelly E. Miller
----------------------------------------
Kelly E. Miller, President, Chief
Executive Officer and Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM S-1 FOR MILLER EXPLORATION COMPANY AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 410,423 106,771
<SECURITIES> 0 0
<RECEIVABLES> 2,245,606 2,252,581
<ALLOWANCES> 0 0
<INVENTORY> 47,347 47,347
<CURRENT-ASSETS> 3,153,971 2,629,242
<PP&E> 30,694,262 33,004,089
<DEPRECIATION> (9,962,378) (11,841,320)
<TOTAL-ASSETS> 24,050,056 23,992,922
<CURRENT-LIABILITIES> 5,835,952 6,095,292
<BONDS> 0 0
<COMMON> 0 0
0 0
0 0
<OTHER-SE> 7,768,896 8,032,179
<TOTAL-LIABILITY-AND-EQUITY> 24,050,056 23,992,922
<SALES> 6,714,332 5,038,950
<TOTAL-REVENUES> 7,109,456 5,531,350
<CGS> 0 0
<TOTAL-COSTS> 5,342,931 4,271,010
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,138,912 922,142
<INCOME-PRETAX> 627,613 338,198
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 627,613 338,198
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 627,613 338,198
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
