<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
===========================================================================
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number
JUNE 30, 1998 0-23431
MILLER EXPLORATION COMPANY
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 38-3379776
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3104 LOGAN VALLEY ROAD
TRAVERSE CITY, MICHIGAN 49685-0348
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (616) 941-0004
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X__ No _____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
OUTSTANDING AT
CLASS AUGUST 14, 1998
----- ---------------
<S> <C> <C>
Common stock, $.01 par value 12,492,597 shares
</TABLE>
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<PAGE>
MILLER EXPLORATION COMPANY
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . .3
Consolidated Statements of Operations--
Three Months and Six Months Ended June 30,
1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . .3
Consolidated Balance Sheets--
June 30, 1998 and December 31, 1997. . . . . . . . . . . . . . .4
Consolidated Statement of Equity--
Six Months Ended June 30, 1998 . . . . . . . . . . . . . . . . .5
Consolidated Statements of Cash Flows--
Six Months Ended June 30, 1998 and 1997. . . . . . . . . . . . .6
Notes to Consolidated Financial Statements . . . . . . . . . . .7
Pro Forma Statements of Operations--
Three Months and Six Months Ended June 30, 1998 and 1997 . . . 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 19
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . 19
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 19
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
MILLER EXPLORATION COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------ -------------------
1998 1997 1998 1997
------ ------ ------- ------
(NOTE 1) (NOTE 1)
<S> <C> <C> <C> <C>
REVENUES:
Natural gas . . . . . . . . . . . . . . . . . . $4,895 $1,173 $ 8,484 $2,995
Crude oil and condensate. . . . . . . . . . . . 626 236 1,079 519
Other operating revenues. . . . . . . . . . . . 206 129 400 332
------ ------ ------- ------
Total operating revenues. . . . . . . . . . 5,727 1,538 9,963 3,846
------ ------ ------- ------
OPERATING EXPENSES:
Lease operating expenses and production taxes . 760 276 1,407 626
Depreciation, depletion and amortization. . . . 3,117 631 5,618 1,301
General and administrative. . . . . . . . . . . 784 516 1,833 901
------ ------ ------- ------
Total operating expenses. . . . . . . . . . 4,661 1,423 8,858 2,828
------ ------ ------- ------
OPERATING INCOME. . . . . . . . . . . . . . . . . . 1,066 115 1,105 1,018
------ ------ ------- ------
INTEREST EXPENSE. . . . . . . . . . . . . . . . . . (326) (208) (562) (390)
------ ------ ------- ------
INCOME (LOSS) BEFORE INCOME TAXES . . . . . . . . . 740 (93) 543 628
------ ------ ------- ------
INCOME TAX PROVISION (Note 2) . . . . . . . . . . . 139 5,522
------ -------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . $ 601 $ (93) $(4,979) $ 628
====== ====== ======= ======
-3-
<PAGE>
EARNINGS (LOSS) PER SHARE (Note 4). . . . . . . . .
Basic . . . . . . . . . . . . . . . . . . . . . $ .05 $ (0.51)
====== =======
Diluted . . . . . . . . . . . . . . . . . . . . $ .05 $ (0.51)
====== =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-4-
<PAGE>
<TABLE>
MILLER EXPLORATION COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
1998 1997
-------------- ------------------
(UNAUDITED) (NOTE 1)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 87 $ 146
Accounts receivable . . . . . . . . . . . . . . . . . . . 4,058 2,109
Inventories, prepaids and advances to operators . . . . . 716 994
Other current assets. . . . . . . . . . . . . . . . . . . -- 2,936
-------- --------
Total current assets. . . . . . . . . . . . . . . . . 4,861 6,185
-------- --------
OIL AND GAS PROPERTIES at cost (full cost method):
Proved oil and gas properties . . . . . . . . . . . . . . 81,769 29,324
Unproved oil and gas properties . . . . . . . . . . . . . 36,343 7,069
Less-Accumulated depreciation, depletion and amortization (17,969) (12,425)
-------- --------
Net oil and gas properties. . . . . . . . . . . . . . 100,143 23,968
-------- --------
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . 735 275
-------- --------
Total assets. . . . . . . . . . . . . . . . . . . . . $105,739 $ 30,428
======== ========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current portion of notes payable . . . . . . . . . . . . $ 500 $ 7,697
Accounts payable . . . . . . . . . . . . . . . . . . . . 9,841 3,870
Other accrued expenses . . . . . . . . . . . . . . . . . 1,011 603
-------- --------
Total current liabilities. . . . . . . . . . . . . . 11,352 12,170
-------- --------
NOTES PAYABLE . . . . . . . . . . . . . . . . . . . . . . . . 2,500 481
LONG-TERM DEBT. . . . . . . . . . . . . . . . . . . . . . . . 20,500 --
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . 8,179 --
-5-
<PAGE>
DEFERRED REVENUE. . . . . . . . . . . . . . . . . . . . . . . 1,637 1,664
COMMITMENTS AND CONTINGENCIES (NOTE 6). . . . . . . . . . . . 44,173
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; 12,492,597 shares outstanding. . . . . . 126 --
Additional paid in capital . . . . . . . . . . . . . . . 67,136 --
Deferred compensation. . . . . . . . . . . . . . . . . . (876) --
Combined equity. . . . . . . . . . . . . . . . . . . . . -- 8,588
Retained earnings (deficit). . . . . . . . . . . . . . . (4,815) 7,525
-------- --------
Total equity . . . . . . . . . . . . . . . . . . . . 61,571 16,113
-------- --------
Total liabilities and equity . . . . . . . . . . . . $105,739 $ 30,428
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-6-
<PAGE>
<TABLE>
MILLER EXPLORATION COMPANY
CONSOLIDATED STATEMENT OF EQUITY
(In thousands)
(Unaudited)
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID IN DEFERRED COMBINED RETAINED
STOCK STOCK CAPITAL COMPENSATION EQUITY EARNINGS
--------- ------ ---------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE--December 31, 1997 -- -- -- -- $ 8,588 $ 7,525
Net loss and capital prior to
S Corporation termination -- -- -- -- 173 (164)
S Corporation termination -- -- $16,122 -- (8,761) (7,361)
Common stock issuance -- $ 56 39,983 -- -- --
Combination transaction -- 69 10,156 -- -- --
Restricted stock issuance -- 1 875 $(876) -- --
Net loss after S Corporation
termination -- -- -- -- -- (4,815)
---- ---- ------- ----- ------- -------
BALANCE--June 30, 1998 -- $126 $67,136 $(876) $ -- $(4,815)
==== ==== ======= ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-7-
<PAGE>
<TABLE>
MILLER EXPLORATION COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------
1998 1997
-------- -------
(NOTE 1)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,979) $ 628
Adjustments to reconcile net income (loss) to net cash from
operating activities--
Depreciation, depletion and amortization. . . . . . . . . . . 5,618 1,301
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . (27) (27)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . 244 --
Changes in assets and liabilities--
Accounts receivable. . . . . . . . . . . . . . . . . . . . (1,949) (33)
Other assets . . . . . . . . . . . . . . . . . . . . . . . 3,088 250
Accounts payable . . . . . . . . . . . . . . . . . . . . . 5,971 (355)
Other accrued expenses . . . . . . . . . . . . . . . . . . 408 (330)
-------- -------
Net cash flows provided by operating activities . . . . 8,374 1,434
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration and development expenditures. . . . . . . . . . . . . . (18,861) (4,638)
Acquisition of properties . . . . . . . . . . . . . . . . . . . . . (51,011) --
Proceeds from sale of oil and gas properties and purchases of
equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . 515 2,971
-------- -------
Net cash flows used in investing activities. . . . . . . . (69,357) (1,667)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of principal . . . . . . . . . . . . . . . . . . . . . . . (8,178) (459)
Net borrowing on notes payable. . . . . . . . . . . . . . . . . . . 23,500 282
Contributions, return of capital and stock proceeds, net. . . . . . 45,602 249
Payments of dividends . . . . . . . . . . . . . . . . . . . . . . . -- (200)
-------- -------
Net cash flows provided by (used in) financing activities. 60,924 (128)
-------- -------
-8-
<PAGE>
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . (59) (361)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE
PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 410
-------- -------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD. . . . . . . . . . . . . $ 87 $ 49
======== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 612 $ 613
======== =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-9-
<PAGE>
MILLER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION AND NATURE OF OPERATIONS
The consolidated financial statements of Miller Exploration Company
("Miller" or the "Company") and subsidiaries included herein have been
prepared by management without audit pursuant to the rules and regulations
of the Securities and Exchange Commission (the "SEC"). Accordingly, they
reflect all adjustments which are, in the opinion of management, necessary
for a fair presentation of the financial results for the interim periods.
Certain information and notes normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations. However,
management believes that the disclosures are adequate to make the
information presented not misleading. These consolidated financial
statements should be read in conjunction with the financial statements and
the notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
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
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Certain reclassifications have been made to prior period financial
statements to conform with the current presentation.
INITIAL PUBLIC OFFERING
On February 9, 1998, the Company completed the initial public offering
(the "Offering") of its Common Stock and concurrently completed the
Combination Transaction (as defined below). On that date, the Company sold
5,500,000 shares of its Common Stock for an aggregate purchase price of
$44.0 million. On March 9, 1998, the Company sold an additional 62,500
shares of its Common Stock for an aggregate purchase price of $0.5 million,
pursuant to the exercise of the underwriters' over-allotment option.
The consolidated financial statements as of and for the periods ended
March 31, 1998 include the accounts of the Company and its subsidiaries
after taking into effect the Offering and the Combination Transaction. The
financial statements as of or for the periods ending in 1997 include the
-10-
<PAGE>
MILLER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
accounts of the Company and its affiliated entities (as defined below)
before the Offering and the Combination Transaction as previously included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the
accounts of the Company and its subsidiaries after elimination of all
intercompany accounts and transactions.
THE COMBINATION TRANSACTION
The Company was formed as a Delaware corporation in November 1997 to
serve as the surviving company upon the completion of a series of
combination transactions (the "Combination Transaction"). The first part
of the Combination Transaction included the following activities: Miller
acquired all of the outstanding capital stock of Miller Oil Corporation
("MOC"), the Company's predecessor, and certain oil and gas interests
(collectively, the "Combined Assets") 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. (the "affiliated entities," 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 operations of all of these entities had
been managed through the same management team, and had been owned by the
same members of the Miller family. Miller completed the Combination
Transaction concurrently with consummation of the Offering.
PRINCIPLES OF COMBINATION
The accompanying financial statements as of and for the periods ending
in 1997 include the accounts of Miller, MOC and the other affiliated
entities described above, all of which share common ownership and
management. The Combination Transaction was accounted for as a
reorganization of entities under common control in a manner similar to a
pooling-of-interests, as prescribed by 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 accounts
as of and for the periods ending in 1997 have been prepared using the
-11-
<PAGE>
MILLER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
historical costs and results of operations of the affiliated entities.
There were no differences in accounting methods or their application among
the combining entities. All intercompany balances have been eliminated.
OTHER TRANSACTIONS COMPLETED CONCURRENTLY WITH THE OFFERING
In addition to the above combined activities of the Company, the
second part of the Combination Transaction that was consummated
concurrently with the Offering was the exchange by the Company of an
aggregate of approximately 1.6 million shares of Common Stock for interests
in certain other oil and gas properties that were owned by non-affiliated
parties. Because these interests were acquired from individuals who were
not under the common ownership and management of the Company, these
exchanges were accounted for under the purchase method of accounting. Under
that method, the properties were recorded at their estimated fair value at
the date on which the exchange was consummated (February 9, 1998). The
financial statements as of and for the periods ending in 1997 do not
include the activities of these non-affiliated interests.
In November 1997, the Company entered into a Purchase and Sale
Agreement (the "Agreement"), whereby the Company acquired interests in
certain crude oil and natural gas producing properties and undeveloped
properties from Amerada Hess Corporation ("AHC") for approximately $50.5
million, subject to adjustment. This purchase was consummated concurrently
with the Offering. This acquisition was accounted for under the purchase
method of accounting and was financed with the use of proceeds from the
Offering and with new bank borrowings. The financial statements as of and
for the periods ending in 1997 do not include the activities of these AHC
interests.
In February 1998, MOC terminated its S corporation status which
required the Company to reclassify combined equity and retained earnings as
additional paid-in capital.
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.
-12-
<PAGE>
MILLER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(2) INCOME TAXES
Before consummation of the Offering, the Company and the combined
entities either elected to be treated as S corporations under the Internal
Revenue Code or were otherwise not taxed as entities for federal income tax
purposes. The taxable income or loss has therefore been allocated to the
equity owners of the Company and the affiliated entities. Accordingly, no
provision was made for income taxes in the accompanying financial
statements as of and for the periods ending in 1997.
Due to the use of different methods for tax and financial reporting
purposes in accounting for various transactions, the Company has temporary
differences between its tax basis and financial reporting basis. Had the
Company been a taxpaying entity before consummation of the Offering, a
deferred tax liability of approximately $5.4 million at December 31, 1997,
would have been recorded for this difference, with a corresponding
reduction in retained earnings.
Included in the deferred income tax provision for the six months ended
June 30, 1998, is a one-time non-cash accounting charge of $5.4 million to
record net deferred tax liabilities, for the differences between tax basis
and financial reporting basis, upon consummation of the Offering and the
termination of MOC's S corporation status. The effective income tax rate
for the Company for the six months ended June 30, 1998, was different than
the statutory federal income tax rate for the following reasons (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
Income tax provision (benefit) at the federal statutory rate. . . . . $ 251
Deferred tax liabilities recorded upon the Offering . . . . . . . . . 5,384
All other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . (113)
------
Income tax provision. . . . . . . . . . . . . . . . . . . . . . . . . $5,522
======
</TABLE>
The principal components of the Company's net deferred tax liabilities
at June 30, 1998, are (in thousands):
-13-
<PAGE>
MILLER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
Net deferred tax liabilities:
Intangible drilling costs. . . . . . . . . . . . . . . . . . . . . $3,075
Tax depletion and depreciation in excess of financial statement
amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,185
Financial statement carrying value in excess of tax basis of
purchased assets. . . . . . . . . . . . . . . . . . . . . . . . 2,543
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376
------
Total net deferred tax liabilities. . . . . . . . . . . . . . . . . . $8,179
======
</TABLE>
(3) HEDGING ACTIVITIES
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 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. For the six months ended June 30, 1998,
the Company had hedged 31% of its natural gas production. As of June 30,
1998, the Company had 1.7 Bcf of open natural gas contracts at prices
ranging from $2.29 to $2.37 per Mcf.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes
in the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a
company must formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting.
-14-
<PAGE>
MILLER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SFAS No. 133 is effective for fiscal years beginning after June 15,
1999 and cannot be applied retroactively. SFAS No. 133 must be applied to
(i) derivative instruments and (ii) certain derivative instruments embedded
in hybrid contracts that were issued, acquired or substantively modified
after December 31, 1997 (and, at the company's election, before January 1,
1998).
The Company has not yet quantified the impacts of adopting SFAS No.
133 on its financial statements and has not determined the timing of or
method of adoption of SFAS No. 133. However, SFAS No. 133 could increase
volatility in earnings and other comprehensive income.
(4) EARNINGS PER SHARE
Earnings per share has been omitted from the statement of operations
for the three-month and six-month periods ended June 30, 1997, since such
information is not meaningful and the historically combined Company was not
a separate legal entity with a singular capital structure. The computation
of earnings per share for the three-month and six-month periods ended
June 30, 1998 is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
------------ ----------
<S> <C> <C> <C>
Net income (loss) attributable to
basic and diluted EPS. . . . . . . . . . . . . . . . . $ 601 $(4,979)
Average common shares outstanding
applicable to basic EPS . . . . . . . . . . . . . . . . 12,493 9,791
Add: options treasury shares and restricted stock. . . . . 183 --
------- -------
Average common shares outstanding
applicable to diluted EPS . . . . . . . . . . . . . . . 12,676 9,791
Earnings (loss) per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . $ .05 $ (.51)
Diluted . . . . . . . . . . . . . . . . . . . . . . . . $ .05 $ (.51)
</TABLE>
-15-
<PAGE>
MILLER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Options and restricted stock were not included in the computation of
diluted earnings per share for the six months ended June 30, 1998 because
their effect was antidilutive.
(5) NOTES PAYABLE AND LONG-TERM DEBT
At December 31, 1997, the Company had a notes payable balance of
approximately $4.9 million which represented a borrowing against a $5.0
million bank line-of-credit and another $1.0 million line-of-credit. These
notes were paid in full during February 1998 from the proceeds of the
Offering.
In November 1997, the Chairman of the Company loaned to MOC $2.5
million, pursuant to a promissory note, for the purpose of making a down
payment in connection with the AHC acquisition. This note was paid in full
during February 1998 from the proceeds of the Offering.
During 1996, the Company also entered into a $1.0 million term loan
payable to a bank. At December 31, 1997 the balance of the term-loan was
approximately $0.7 million. The term loan was paid in full during February
1998 from the proceeds of the Offering.
In connection with the Offering, in February 1998, the Company entered
into a credit facility (the "Credit Facility") with Bank of Montreal,
Houston Agency ("BMO"). The Credit Facility consists of a three-year
revolving line of credit converting to a three-year term loan. The amount
of credit available during the revolving period and the debt allowed during
the term period may not exceed the Company's "borrowing base," or the
amount of debt that BMO and the other lenders under the Credit Facility
agree can be supported by the cash flow generated by the Company's
producing and non-producing proved oil and gas reserves. The borrowing base
is $34 million and may not exceed $75.0 million. Amounts advanced under
the Credit Facility bear interest, payable quarterly, at either (i) BMO's
announced prime rate or (ii) the London Inter-Bank Offered Rate plus a
margin rate ranging from 0.75% to 1.625%, as selected by the Company. In
addition, the Company is assessed a commitment fee equal to 0.375% of the
unused portion of the borrowing base, payable quarterly in arrears, until
the termination of the revolving period. At the termination of the
revolving period, the revolving line of credit will convert to a three-year
term loan with principal payable in 12 equal quarterly installments. The
Credit Facility includes certain negative covenants that impose limitations
on the Company and its subsidiaries with respect to, among other things,
-16-
<PAGE>
MILLER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
distributions with respect to its capital stock, the creation or incurrence
of liens, the incurrence of additional indebtedness, making loans and
investments, and mergers and consolidations. The obligations of the Company
under the Credit Facility are secured by a lien on all real and personal
property of the Company, including its oil and gas properties. At June 30,
1998, $20.5 million was outstanding under the Credit Facility and is
classified as long-term debt on the balance sheet.
In connection with the closing of the AHC acquisition, the Company has
a note payable to AHC of $3.0 million (at June 30, 1998) which is payable
as follows: $0.5 million in 1999, $1.0 million in 2000 and $1.5 million in
2001.
(6) COMMITMENTS AND CONTINGENCIES
STOCK OPTIONS AND RESTRICTED STOCK
During 1997, the Company adopted the Stock Option and Restricted Stock
Plan of 1997 (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. These stock options,
restricted stock and tax benefit rights are collectively referred to as
"Incentive Awards." Persons eligible to receive Incentive Awards under the
1997 Stock Option Plan 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) are
available for Incentive Awards under the 1997 Stock Option Plan. Upon
consummation of the Offering in February 1998, a total of 577,850 stock
options were granted by the Company to directors, corporate officers and
other full-time employees of the Company. Additionally, upon consummation
of the Offering, 109,500 shares of restricted stock were transferred to
certain employees. At the time of the issuance of the restricted stock,
compensation expense of approximately $0.9 million was deferred. The
restricted stock will begin to vest at cumulative increments of one-half of
the total number of restricted stock of Common Stock subject thereto,
beginning on the first anniversary of the date of grant. Because the shares
of restricted stock are subject to the risk of forfeiture during the
vesting period, compensation expense (equivalent to the Offering price per
share of $8.00) will be recognized ratably over the two-year vesting period
as the risk of forfeiture passes.
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<PAGE>
MILLER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Also in February 1998, the Company made a one-time grant of an
aggregate of 272,500 stock options to certain officers pursuant to the
terms of stock option agreements entered into between the Company and the
officers.
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.
(7) NON-CASH INVESTING ACTIVITIES
During 1998, the Company recorded a one-time non-cash charge of
approximately $5.4 million for the termination of MOC's S corporation
status, as more fully discussed in Note 2, and acquired certain oil and gas
properties owned by non-affiliated parties for approximately $12.8 million
of its Common Stock, as more fully discussed in Note 1. These non-cash
investing activities have been excluded from the combined statement of cash
flows.
PRO FORMA FINANCIAL DATA
The pro forma financial data has been prepared to give effect to the
Combination Transaction and the Offering and the application of the
estimated net proceeds therefrom. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview." The
pro forma statements of operations for the three months and six months
ended June 30, 1998 and 1997 were prepared on the basis that the
Combination Transaction and the Offering occurred on January 1, 1997. Pro
forma data gives effect to the revenues and direct operating expenses of
the properties acquired from the non-affiliated participants in the
Combination Transaction (the "Acquired Properties"). In addition, the pro
forma data are based on assumptions and include adjustments as explained in
the notes to the pro forma data and are not necessarily indicative of the
results of future operations of the Company. The following financial
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
financial statements.
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<PAGE>
<TABLE>
PRO FORMA STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- ----------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Natural gas<Fa>. . . . . . . . . . . . . . . . . . $ 4,895 $ 4,295 $ 9,958 $10,663
Crude oil and condensate<Fa> . . . . . . . . . . . 626 986 1,266 2,224
Other operating revenues . . . . . . . . . . . . . 206 129 400 332
------- ------- ------- -------
Total operating revenues . . . . . . . . . . . . 5,727 5,410 11,624 13,219
------- ------- ------- -------
Operating Expenses:
Lease operating expenses and production taxes<Fa>. 760 438 1,615 1,054
Depreciation, depletion and amortization<Fb> . . . 3,077 2,201 6,469 5,022
General and administrative<Fc> . . . . . . . . . . 784 621 1,533 1,111
------- ------- ------- -------
Total operating expenses . . . . . . . . . . . . 4,621 3,260 9,617 7,187
------- ------- ------- -------
Operating Income . . . . . . . . . . . . . . . . . . . 1,106 2,150 2,007 6,032
------- ------- ------- -------
Interest Expense<Fd> . . . . . . . . . . . . . . . . . (326) (244) (562) (525)
------- ------- ------- -------
Income before income taxes . . . . . . . . . . . . . . 780 1,906 1,445 5,507
------- ------- ------- -------
Provision for income taxes<Fe> . . . . . . . . . . . . 153 504 379 1,570
------- ------- ------- -------
Net income . . . . . . . . . . . . . . . . . . . . . . $ 627 $ 1,402 $ 1,066 $ 3,937
======= ======= ======= =======
Earnings per share<Ff>:
Basic. . . . . . . . . . . . . . . . . . . . . . . $ 0.05 $ 0.11 $ 0.09 $ 0.32
Diluted. . . . . . . . . . . . . . . . . . . . . . 0.05 0.11 0.08 0.31
Average number of shares outstanding<Ff>:
Basic. . . . . . . . . . . . . . . . . . . . . . . 12,493 12,493 12,493 12,493
Diluted. . . . . . . . . . . . . . . . . . . . . . 12,676 12,676 12,678 12,678
<FN>
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<PAGE>
- ------------------------
Notes to pro forma financial data (unaudited):
<Fa> Includes results of operations from the Acquired Properties.
<Fb> Reflects the estimated additional depreciation, depletion and
amortization expense resulting from the acquisition of the Acquired
Properties using the unit-of-production method.
<Fc> Reflects estimated incremental general and administrative expenses
expected to be incurred as a direct result of increased operations
after the Combination Transaction. Such expenses are primarily from
increased salaries and additional new employees to perform
administrative and operational activities ($0.5 million per year) and
the elimination of the Royalty Participation Program ($0.1 million per
year). Excluded from this amount is $275,000 of non-recurring bonuses
paid to certain employees of the Company in connection with
consummation of the Offering.
<Fd> Reflects 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, the
cancellation of other indebtedness with the use of proceeds from the
Offering and the increase in interest expense from the new borrowing
under the Credit Facility.
<Fe> 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 consummation of the Combination Transaction,
the Company was required to record a one-time non-cash charge to
earnings of $5.4 million in connection with establishing a deferred
tax liability on the balance sheet. This non-recurring charge has
been excluded from the statements.
<Ff> Reflects the issuance of Common Stock in exchange for certain of the
Combined Assets in the Combination Transaction and the issuance of
Common Stock in the Offering.
</FN>
</TABLE>
ITEM 2. 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 efforts 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
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<PAGE>
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
directly are 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 was organized as a Delaware corporation in November 1997
to serve as the surviving company in the Combination Transaction. On
February 9, 1998, pursuant to the agreements among the Company and the
owners of the Combined Assets, the Company issued to those owners
approximately 6.9 million shares of Common Stock. Additionally, the
Company acquired interests in certain properties from AHC for approximately
$50.5 million in cash. The issuance of the shares and the cash payment
were completed on February 9, 1998, in connection with the Company's
initial public offering.
For further discussion of the Offering and the Combination
Transaction, see Note 1 to the Consolidated Financial Statements.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
The following table summarizes production volumes, average sales
prices, operating revenues and average costs for the Company's oil and
natural gas operations for the periods presented (in thousands, except per
unit amounts):
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<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1998 1997 1998 1997
------ ------ ------ ------
(HISTORICAL) (PRO FORMA)
(Dollars in thousands, except per unit amounts)
<S> <C> <C> <C> <C>
Production volumes:
Crude oil and condensate (Mbbls) . . . . . . . . 54 12 54 53
Natural gas (Mmcf) . . . . . . . . . . . . . . . 2,258 558 2,258 2,150
Natural gas equivalent (Mmcfe) . . . . . . . . . 2,582 630 2,582 2,468
Average sales prices:
Crude oil and condensate ($ per Bbl) . . . . . . $11.59 $19.69 $11.59 $18.60
Natural gas ($ per Mcf). . . . . . . . . . . . . 2.17 2.10 2.17 2.00
Natural gas equivalent ($ per Mcfe). . . . . . . 2.14 2.24 2.14 2.14
Operating revenues:
Crude oil and condensate . . . . . . . . . . . . $ 626 $ 236 $ 626 $ 986
Natural gas. . . . . . . . . . . . . . . . . . . 4,895 1,173 4,895 4,295
Average Costs ($ per Mcfe):
Lease operating expenses and production taxes . $ .29 $ .44 $ .29 $ .18
Depletion, depreciation and amortization . . . . 1.21 1.00 1.19 .89
General and administrative . . . . . . . . . . . .30 .82 .30 .25
</TABLE>
Because of the significance of the Combination Transaction which
occurred on February 9, 1998, the results of operations have been presented
above on a pro forma and historical basis, and the results of operations
will be described below on a pro forma basis. For additional information
regarding the Combination Transaction, see Note 1 to the Consolidated
Financial Statements and the Pro Forma Statements of Operations in this
filing.
PRO FORMA THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO PRO FORMA THREE
MONTHS ENDED JUNE 30, 1997
Oil and natural gas revenues for the three months ended June 30, 1998
increased 5% to $5.5 million from $5.3 million for the same period in 1997.
Production volumes for natural gas during the three months ended June 30,
1998 increased 5% to 2,258 MMcf from 2,150 MMcf for the same period in
1997. Average natural gas prices increased 8% to $2.17 per Mcf for the
three months ended June 30, 1998 from $2.00 per Mcf in the same period in
1997. Production volumes for oil during the three months ended June 30,
1998 increased 2% to 54 MBbls from 53 MBbls for the same period in
1997. Average oil prices decreased 38% to $11.59 per barrel during the
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<PAGE>
three months ended June 30, 1998 from $18.60 per barrel in the same period
in 1997. The changes in commodity prices were experienced by the industry
as a whole during the first six months of 1998.
Lease operating expenses and production taxes for the three months
ended June 30, 1998 increased 74% to $0.8 million from $0.4 million for the
same period in 1997. 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 $.29 per Mcfe for
the three months ended June 30, 1998 from $.18 per Mcfe in the same period
in 1997.
Depreciation, depletion and amortization ("DD&A") expense for the
three months ended June 30, 1998 increased 40% to $3.1 million from $2.2
million for the same period in 1997. This increase was due to a 34%
increase in the 1998 depletion rate to $1.19 per Mcfe from $.89 per Mcfe
for the three months ended June 30, 1997. The higher depletion rate was
the combined result of increased production and an increase in costs
subject to DD&A.
General and administrative expense for the three months ended June 30,
1998 increased 26% to $0.8 million from $0.6 million for the same period in
1997, as a result of increases in the number of employees and related
salaries and benefits.
Interest expense for the three months ended June 30, 1998 increased
34% to $0.3 million from $0.2 million in the same period in 1997, as a
result of increased debt levels in 1998 for substantial exploration and
development activities in the Mississippi Salt Basin area.
Net income for the three months ended June 30, 1998 decreased to $0.6
million from $1.4 million for the same period in 1997, as a result of the
factors described above.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
The following table summarizes production volumes, average sales
prices, operating revenues and average costs for the Company's oil and
natural gas operations for the periods presented (in thousands, except per
unit amounts):
-23-
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1998 1997 1998 1997
------ ------ ------ ------
(HISTORICAL) (PRO FORMA)
(Dollars in thousands, except per unit amounts)
<S> <C> <C> <C> <C>
Production volumes:
Crude oil and condensate (Mbbls) . . . . . . . . 89 24 103 108
Natural gas (Mmcf) . . . . . . . . . . . . . . . 4,093 1,160 4,786 4,490
Natural gas equivalent (Mmcfe) . . . . . . . . . 4,627 1,304 5,404 5,138
Average sales prices:
Crude oil and condensate ($ per Bbl) . . . . . . $12.12 $21.62 $12.29 $ 20.59
Natural gas ($ per Mcf). . . . . . . . . . . . . 2.07 2.58 2.08 2.37
Natural gas equivalent ($ per Mcfe). . . . . . . 2.15 2.69 2.15 2.51
Operating revenues:
Crude oil and condensate . . . . . . . . . . . . $1,079 $ 519 $1,266 $ 2,224
Natural gas. . . . . . . . . . . . . . . . . . . 8,484 2,995 9,958 10,663
Average Costs ($ per Mcfe):
Lease operating expenses and production taxes . $ .30 $ .48 $ .30 $ .21
Depletion, depreciation and amortization . . . . 1.21 1.00 1.20 .98
General and administrative . . . . . . . . . . . .40 .69 .28 .22
</TABLE>
Because of the significance of the Combination Transaction which
occurred on February 9, 1998, the results of operations have been presented
above on a pro forma and historical basis, and the results of operations
will be described below on a pro forma basis. For additional information
regarding the Combination Transaction, see Note 1 to the Consolidated
Financial Statements and the Pro Forma Statements of Operations in this
filing.
PRO FORMA SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO PRO FORMA SIX
MONTHS ENDED JUNE 30, 1997
Oil and natural gas revenues for the six months ended June 30, 1998
decreased 13% to $11.2 million from $12.9 million for the same period in
1997. Production volumes for natural gas during the six months ended
June 30, 1998 increased 7% to 4,786 MMcf from 4,490 MMcf for the same
period in 1997. Average natural gas prices decreased 12% to $2.08 per
Mcf for the six months ended June 30, 1998 from $2.37 per Mcf in the same
period in 1997. Production volumes for oil during the six months ended
June 30, 1998 decreased 5% to 103 MBbls from 108 MBbls for the same
period in 1997. Average oil prices decreased 40% to $12.29 per barrel
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<PAGE>
during the six months ended June 30, 1998 from $20.59 per barrel in the
same period in 1997. This decrease in commodity prices was experienced by
the industry as a whole during the first six months of 1998.
Lease operating expenses and production taxes for the six months ended
June 30, 1998 increased 53% to $1.6 million from $1.1 million for the same
period in 1997. 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 $.30 per Mcfe for the six months
ended June 30, 1998 from $.21 per Mcfe in the same period in 1997.
Depreciation, depletion and amortization ("DD&A") expense for the six
months ended June 30, 1998 increased 29% to $6.5 million from $5.0 million
for the same period in 1997. This increase was due to a 22% increase in
the 1998 depletion rate to $1.20 per Mcfe from $.98 per Mcfe for the six
months ended June 30, 1997. The higher depletion rate was the combined
result of increased production and an increase in costs subject to DD&A.
General and administrative expense for the six months ended June 30,
1998 increased 38% to $1.5 million from $1.1 million for the same period in
1997, as a result of increases in the number of employees and related
salaries and benefits.
Interest expense for the six months ended June 30, 1998 increased 7%
to $0.6 million from $0.5 million in the same period in 1997, as a result of
increased debt levels in 1998 for substantial exploration and development
activities in the Mississippi Salt Basin area.
Net income for the six months ended June 30, 1998 decreased to $1.1
million from $3.9 million for the same period in 1997, as a result of the
factors described above.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary sources of capital have been funds
generated by operations, capital contributions and borrowings, primarily
from MOC's shareholders and under bank credit facilities. The Company had
working capital deficits of $6.0 million (excluding current maturities of
notes payable) at June 30, 1998 and $6.0 million at December 31, 1997.
The Company has entered into the Credit Facility with BOM. The Credit
Facility consists of a three-year revolving line of credit converting to a
three-year term loan. The amount of credit available during the revolving
period and the debt allowed during the term period may not exceed the
Company's "borrowing base," or the amount of debt that BOM and the other
lenders under the Credit Facility agree can be supported by the cash flow
generated by the Company's producing and non-producing proved oil and
natural gas reserves. Under the Credit Facility the borrowing base is
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<PAGE>
$34 million and may not exceed $75.0 million. Amounts advanced under the
Credit Facility bear interest, payable quarterly, at either (i) BOM's
announced prime rate or (ii) the London Inter-Bank Offered Rate plus a
margin rate ranging from 0.75% to 1.625%, as selected by the Company. In
addition, the Company is assessed a commitment fee equal to 0.375% of the
unused portion of the borrowing base, payable quarterly in arrears, until
the termination of the revolving period. At the termination of the
revolving period, the revolving line of credit will convert to a three-year
term loan with principal payable in 12 equal quarterly installments. The
Credit Facility includes certain negative covenants that impose limitations
on the Company and its subsidiaries with respect to, among other things,
distributions with respect to its capital stock, the creation or incurrence
of liens, the incurrence of additional indebtedness, making loans and
investments and mergers and consolidations. The obligations of the Company
under the Credit Facility are secured by a lien on all real and personal
property of the Company, including its oil and natural gas properties. At
June 30, 1998, $20.5 million was outstanding under the Credit Facility.
In connection with the closing of the AHC acquisition, the Company has
a note payable to AHC of $3.0 million (at June 30, 1998) which is payable
during 1999-2001.
Pursuant to a promissory note dated November 26, 1997, the C.E. Miller
Trust loaned on an unsecured basis $2.5 million to MOC, which MOC used to
fund a down payment made in connection with the Combination Transaction.
This note was paid in full during February 1998 from the proceeds of the
Offering.
At December 31, 1997, the Company had an approximate notes payable
balance of $5.0 million which represented a borrowing against a $5.0
million bank line-of-credit and another $1.0 million line-of-credit. These
notes were paid in full during February 1998 from the proceeds of the
Offering.
During 1996, the Company also entered into a $1.0 million term loan
payable to a bank. At December 31, 1997, the balance of the term loan was
$0.7 million. The term loan was paid in full during February 1998 from the
proceeds of the Offering.
The Company has budgeted capital expenditures of approximately $44.3
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. Actual capital expenditures for the six
months ended June 30, 1998 were approximately $18.9 million.
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<PAGE>
The Company intends to fund its budgeted capital expenditures through
the end of 1998 from cash flow from operations and borrowings under the
credit facility.
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 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 technology enhancement programs. While the Company
believes that 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
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, provide only partial price protection against
declines in oil and natural gas prices and limit potential gains from
future increases in prices. 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.
The Company's hedging strategy is to maximize its 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
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<PAGE>
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 increases in natural gas
prices, while limiting to some extent the Company's exposure to declines in
natural gas prices. For the six months ended June 30, 1998, the Company
had hedged 31% of its natural gas production. As of June 30, 1998, the
Company had 1.7 Bcf of open natural gas contracts at prices ranging from
$2.29 to $2.37 per Mcf.
For additional information regarding recently issued accounting
standards impacting the accounting for hedging activities, see Note 3 to
the Consolidated Financial Statements in this filing.
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.
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.
COMPUTER MODIFICATIONS FOR YEAR 2000
The Year 2000 issue exists because many computer systems and
applications abbreviate dates by eliminating the first two digits of the
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<PAGE>
year, assuming that these two digits would always be "19." Unless
corrected, this shortcut is expected to cause problems when the century
date occurs. On that date, some computer programs may recognize the date
as January 1, 1900 instead of January 1, 2000. This may cause the
Company's systems to incorrectly process critical financial and operational
information, or stop processing altogether. Additionally, computer
applications may be affected before January 1, 2000, if calculations into
the year 2000 are involved.
The Company has a plan to address the Year 2000 issue and will
continue to assess the impact of the Year 2000 issue on the remainder of
its computer-based systems and applications throughout 1998. If the
Company's plans are not successful, there could be a significant disruption
of the Company's ability to bill customers and pay suppliers, as well as a
possible slowdown of certain computer-dependent processes. Based on
currently available information, management presently does not anticipate
that the costs to address the Year 2000 issues or potential operating
disruptions will have an adverse impact on the Company's financial
conditions, results of operations or liquidity.
FORWARD-LOOKING STATEMENTS
This discussion and analysis of financial condition and results of
operations, and other sections of this Form 10-Q, contain forward-looking
statements that are based on management's beliefs, assumptions, current
expectations, estimates and projections about the oil and gas industry, the
economy and about the Company itself. Words such as "anticipates,"
"believes," "estimates," "expects," "forecasts," "intends," "is likely,"
"plans," "predicts," "projects," variations of such words and similar
expressions are intended to identify such forward-looking statements.
These statements are not guarantees of future performance and involve
certain risks, uncertainties and assumptions ("Future Factors") that are
difficult to predict with regard to timing, extent, likelihood and degree
of occurrence. Therefore, actual results and outcomes may differ materially
from what may be expressed or forecasted in such forward-looking
statements. Furthermore, the Company undertakes no obligation to update,
amend or clarify forward-looking statements, whether as a result of new
information, future events or otherwise.
Future Factors include, but are not limited to the results of the
Company's exploratory drilling activities, volatility of oil and natural
gas prices, uncertainty of estimates of oil and natural gas reserves,
implementation of the Company's growth strategy and its management of
future growth, substantial capital requirements associated with the
Company's operations, risks related to replacement of oil and natural gas
reserves, operating hazards and uninsured risks, competition, government
regulation and environmental matters, the Company's hedging policies and
transactions, marketability of production, dependence on key personnel,
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technological changes and shortages of drilling rigs, equipment, supplies
and personnel. These are representative of the Future Factors that could
cause a difference between an ultimate actual outcome and a preceding
forward-looking statement.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently named as a defendant in any lawsuits
and/or administrative proceedings arising in the ordinary course of
business.
ITEM 5. OTHER INFORMATION
The Company's Bylaws contain provisions regarding the procedure and
permissibility of stockholder proposals. Under the Bylaws no matter may be
presented for stockholder action at an annual or special meeting of
stockholders unless such matter is: (i) specified in the notice of the
meeting (or any supplement to the notice) given by or at the direction of
the Board of Directors; (ii) otherwise presented at the meeting by or at
the direction of the Board of Directors; (iii) properly presented for
action at the meeting by a stockholder in accordance with the notice
provisions set forth in the Bylaws and any other applicable requirements;
or (iv) a procedural matter presented, or accepted for presentation, by the
Chairperson of the meeting in his or her sole discretion.
For a matter to be properly presented by a stockholder, the
stockholder must have given timely notice of the matter in writing to the
Secretary of the Company. To be timely, the notice must be delivered to or
mailed to and received at the principal executive offices of the Company
not less than 120 calendar days prior to the date corresponding to the date
of the Company's proxy statement or notice of meeting released to
stockholders in connection with the last preceding annual meeting of
stockholders in the case of an annual meeting (unless the Company did not
hold an annual meeting within the last year, or if the date of the upcoming
annual meeting changed by more than 30 days from the date of the last
preceding meeting, then the notice must be delivered or mailed and received
not more than seven days after the earlier of the date of the notice of the
meeting or public disclosure of the date of the meeting), and not more than
seven days after the earlier of the date of the notice of the meeting or
public disclosure of the date of the meeting in the case of a special
meeting. The notice by the stockholder must set forth: (i) a brief
description of the matter the stockholder desires to present for
stockholder action; (ii) the name and record address of the stockholder
proposing the matter for stockholder action; (iii) the class and number of
shares of capital stock of the Company that are beneficially owned by the
stockholder; and (iv) any material interest of the stockholder in the
matter proposed for stockholder action.
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The stockholder proposal, together with any accompanying supporting
statement, may not in the aggregate exceed 500 words. Except to the extent
that a stockholder proposal submitted pursuant to the Bylaws is not made
available at the time of mailing, the notice of the purposes of the meeting
shall include the name and address of and the number of shares of the
voting security held by the proponent of each stockholder proposal.
A stockholder may submit matters and proposals for stockholder action
at any annual or special stockholder meeting if the matters and proposals
are of general concern to, and are proper subjects for action by, the
stockholders. A submitted proposal or matter may not be presented for
stockholder action if it: (i) relates to the enforcement of a personal
claim or the redress of a personal grievance against the Company, its
management or any other person; (ii) consists of a recommendation, request
or mandate that action be taken with respect to a matter, including a
general economic, political, racial, religious, social or similar cause,
that is not significantly related to the Company's business or is not
within the Company's power to effectuate; (iii) has, at the stockholder's
request, previously been submitted in either of the last two annual
stockholder meetings and the stockholder has failed to present the
proposal, in person or by proxy, for action at the meeting; (iv) is
substantially similar to a matter or proposal presented within the
preceding five calendar years: (x) if it was submitted once during the past
five annual meetings and it received less than 3% of the total votes cast,
or (y) if it was submitted twice during the past five annual meetings and
it received less than 6% of the total votes cast at the time of its second
submission, or (z) if it was submitted three times during such period and
it received less than 10% of the votes cast at the time of its third
submission (if any of (x), (y) or (z) apply, the proposal may be omitted
for three years after the latest previous submission); or (v) consists of a
recommendation or request that the management take action with respect to a
matter relating to the conduct of the Company's ordinary business
operations.
Notwithstanding the above, if the stockholder desires to require the
Company to include the stockholder's proposal in the Company's proxy
materials, matters and proposals submitted for inclusion on the agenda
shall be governed by the rules and regulations under the Securities
Exchange Act of 1934, as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. The following documents are filed as exhibits to this
report on Form 10-Q:
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EXHIBIT NO. DOCUMENT
3.1 Certificate of Incorporation of the Registrant.
Previously filed as an exhibit to the Company's
Registration Statement on Form S-1 (333-40383), and
incorporated herein by reference.
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. Previously filed
as an exhibit to the Company's Registration Statement
on Form S-1 (333-40383), and incorporated herein by
reference.
11.1 Computation of Earnings Per Share.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during
the fiscal quarter ended June 30, 1998.
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SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
MILLER EXPLORATION COMPANY
Date: August 13, 1998 By: /S/ WILLIAM J. BAUMGARTNER
William J. Baumgartner
Vice President-Finance, Chief
Financial Officer and Secretary
(Principal Accounting and Financial
Officer)
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EXHIBIT INDEX
EXHIBIT NO. DOCUMENT
3.1 Certificate of Incorporation of the Registrant.
Previously filed as an exhibit to the Company's
Registration Statement on Form S-1 (333-40383), and
incorporated herein by reference.
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. Previously filed
as an exhibit to the Company's Registration Statement
on Form S-1 (333-40383), and incorporated herein by
reference.
11.1 Computation of Earnings Per Share.
27 Financial Data Schedule.
<PAGE>
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.
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
<PAGE>
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
brought before such meeting, unless the question is one upon which by
express provision of the statutes or of the Certificate of Incorporation a
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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
such a stockholder or proxy other than the individual who
proposed the resolution or motion.
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(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 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.
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SECTION 13. STOCKHOLDER PROPOSALS. Except as otherwise provided
by statute, the Corporation's Certificate of Incorporation (the
"Certificate of Incorporation"), or these bylaws:
(a) No matter may be presented for stockholder action at an
annual or special meeting of stockholders unless such matter is:
(i) specified in the notice of the meeting (or any supplement to
the notice) given by or at the direction of the Board of
Directors; (ii) otherwise presented at the meeting by or at the
direction of the Board of Directors; (iii) properly presented for
action at the meeting by a stockholder in accordance with the
notice provisions set forth in this Section and any other
applicable requirements; or (iv) a procedural matter presented,
or accepted for presentation, by the Chairperson of the meeting
in his or her sole discretion.
(b) For a matter to be properly presented by a stockholder,
the stockholder must have given timely notice of the matter in
writing to the Secretary of the corporation. To be timely, the
notice must be delivered to or mailed to and received at the
principal executive offices of the corporation not less than 120
calendar days prior to the date corresponding to the date of the
corporation's proxy statement or notice of meeting released to
stockholders in connection with the last preceding annual meeting
of stockholders in the case of an annual meeting (unless the
corporation did not hold an annual meeting within the last year,
or if the date of the upcoming annual meeting changed by more
than 30 days from the date of the last preceding meeting, then
the notice must be delivered or mailed and received not more than
seven days after the earlier of the date of the notice of the
meeting or public disclosure of the date of the meeting), and not
more than seven days after the earlier of the date of the notice
of the meeting or public disclosure of the date of the meeting in
the case of a special meeting. The notice by the stockholder
must set forth: (i) a brief description of the matter the
stockholder desires to present for stockholder action; (ii) the
name and record address of the stockholder proposing the matter
for stockholder action; (iii) the class and number of shares of
capital stock of the corporation that are beneficially owned by
the stockholder; and (iv) any material interest of the
stockholder in the matter proposed for stockholder action.
(c) The stockholder proposal, together with any
accompanying supporting statement, shall not in the aggregate
exceed 500 words. Except to the extent that a stockholder
proposal submitted pursuant to this Section is not made available
at the time of mailing, the notice of the purposes of the meeting
shall include the name and address of and the number of shares of
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the voting security held by the proponent of each stockholder
proposal.
(d) A stockholder may submit matters and proposals for
stockholder action at any annual or special stockholder meeting
if the matters and proposals are of general concern to, and are
proper subjects for action by, the stockholders. A submitted
proposal or matter may not be presented for stockholder action if
it: (i) relates to the enforcement of a personal claim or the
redress of a personal grievance against the corporation, its
management, or any other person; (ii) consists of a
recommendation, request, or mandate that action be taken with
respect to a matter, including a general economic, political,
racial, religious, social, or similar cause, that is not
significantly related to the corporation's business or is not
within the corporation's power to effectuate; (iii) has, at the
stockholder's request, previously been submitted in either of the
last two annual stockholder meetings and the stockholder has
failed to present the proposal, in person or by proxy, for action
at the meeting; (iv) is substantially similar to a matter or
proposal presented within the preceding five calendar years: (x)
if it was submitted once during the past five annual meetings and
it received less than 3% of the total votes cast, or (y) if it
was submitted twice during the past five annual meetings and it
received less than 6% of the total votes cast at the time of its
second submission, or (z) if it was submitted three times during
such period and it received less than 10% of the votes cast at
the time of its third submission (if any of (x), (y) or (z)
apply, the proposal may be omitted for three years after the
latest previous submission); or (v) consists of a recommendation
or request that the management take action with respect to a
matter relating to the conduct of the corporation's ordinary
business operations.
(e) Notwithstanding the above, if the corporation is
subject to the solicitation rules and regulations of the
Securities Exchange Act of 1934, as amended, and the stockholder
desires to require the Corporation to include the stockholder's
proposal in the Corporation's proxy materials, matters and
proposals submitted for inclusion on the agenda shall be governed
by those rules and regulations;
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
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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.
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
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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
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.
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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
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
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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 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
-10-
<PAGE>
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.
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.
-11-
<PAGE>
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 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.
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<PAGE>
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.
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
-13-
<PAGE>
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
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.
-14-
<PAGE>
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,
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,
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<PAGE>
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
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.
-16-
<PAGE>
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 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
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<PAGE>
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.
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.
-18-
<PAGE>
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.
-19-
<PAGE>
EXHIBIT 11.1
<TABLE>
MILLER EXPLORATION COMPANY
COMPUTATION OF EARNINGS PER COMMON SHARE
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1998
--------------------- ---------------------
(In thousands, except (In thousands, except
per share data) per share data)
<S> <C> <C>
BASIC EARNINGS (LOSS) PER
SHARE
Net income (loss) $ 601 $(4,979)
Shares
Weighted average shares outstanding 12,493 9,791
------- -------
Basic earnings (loss) per share $ .05 $ (.51)
======= =======
DILUTED EARNINGS (LOSS) PER
SHARE
Net income (loss) $ 601 $(4,979)
Shares
Weighted average shares outstanding 12,676 9,791
------- -------
Diluted earnings (loss) per share $ .05 $ (.51)
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q FOR MILLER EXPLORATION COMPANY AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 87
<SECURITIES> 0
<RECEIVABLES> 4,059
<ALLOWANCES> 0
<INVENTORY> 89
<CURRENT-ASSETS> 4,834
<PP&E> 118,112
<DEPRECIATION> (17,969)
<TOTAL-ASSETS> 105,739
<CURRENT-LIABILITIES> 11,352
<BONDS> 0
<COMMON> 126
0
0
<OTHER-SE> 61,445
<TOTAL-LIABILITY-AND-EQUITY> 105,739
<SALES> 9,562
<TOTAL-REVENUES> 9,963
<CGS> 0
<TOTAL-COSTS> 8,858
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 562
<INCOME-PRETAX> 543
<INCOME-TAX> 5,522
<INCOME-CONTINUING> (4,979)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,979)
<EPS-PRIMARY> (.51)
<EPS-DILUTED> (.51)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q FOR MILLER EXPLORATION COMPANY AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 87
<SECURITIES> 0
<RECEIVABLES> 4,059
<ALLOWANCES> 0
<INVENTORY> 89
<CURRENT-ASSETS> 4,834
<PP&E> 118,112
<DEPRECIATION> (17,969)
<TOTAL-ASSETS> 105,739
<CURRENT-LIABILITIES> 11,352
<BONDS> 0
<COMMON> 126
0
0
<OTHER-SE> 61,445
<TOTAL-LIABILITY-AND-EQUITY> 105,739
<SALES> 5,521
<TOTAL-REVENUES> 5,727
<CGS> 0
<TOTAL-COSTS> 4,661
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 326
<INCOME-PRETAX> 740
<INCOME-TAX> 139
<INCOME-CONTINUING> 601
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 601
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
