<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
MILLER EXPLORATION COMPANY
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
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(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing party:
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(4) Date filed:
<PAGE>
MILLER EXPLORATION COMPANY
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The annual meeting (the "Annual Meeting") of stockholders of Miller
Exploration Company (the "Company") will be held at the Doubletree Hotel at
Allen Center, 400 Dallas Street, Houston, Texas, on Friday, June 11, 1999, at
10:00 a.m., local time, for the following purposes:
(1) to Elect two directors of the Company, each to serve until the 2002
annual meeting of stockholders of the Company;
(2) to consider and vote upon a proposal to amend the Company's Certificate
of Incorporation to increase the number of authorized shares of common
stock from 20,000,000 to 40,000,000
(3) to consider and vote upon the Company's Equity Compensation Plan for
Non-Employee Directors;
(4) to ratify the selection of Arthur Andersen LLP as the Company's
independent accountants for the year ending December 31, 1999; and
(5) to transact any other business that properly comes before the meeting.
The transfer books of the Company will not be closed, but only stockholders
of record at the close of business on May 6, 1999, are entitled to notice of and
to vote at the Annual Meeting or any adjournment thereof. A complete list of
these stockholders will be available for examination at the office of William J.
Baumgartner, Vice President-Finance, Chief Financial Officer and Secretary of
the Company, at 3104 Logan Valley Road, Traverse City, Michigan, during normal
business hours for ten days before the meeting.
By Order of the Board of Directors
William J. Baumgartner
Vice President-Finance, Chief Financial
Officer and Secretary
May ___, 1999
Your Vote is Important. Even if you plan to attend the meeting,
PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY.
<PAGE>
MILLER EXPLORATION COMPANY
Three Allen Center, Suite 4605
Houston, TX 77002
ANNUAL MEETING OF STOCKHOLDERS
June 11, 1999
PROXY STATEMENT
The enclosed proxy is solicited on behalf of the Board of Directors of
Miller Exploration Company (the "Company") for use at the annual meeting of
stockholders of the Company to be held on June 11, 1999, or any adjournment
thereof (the "Annual Meeting"). The Annual Meeting will be held at the the
Doubletree Hotel at Allen Center, 400 Dallas Street, Houston, Texas, at 10:00
a.m., local time. The record date for the stockholders entitled to notice of
and to vote at the Annual Meeting is the close of business on May 6, 1999 (the
"Record Date"). The approximate date on which this Proxy Statement and
accompanying Proxy are first being sent to stockholders is May 10, 1999.
The common stock of the Company, par value $.01 per share ("Common Stock"),
can be voted at the Annual Meeting only if the holder is present or represented
by proxy at the Annual Meeting. You may revoke your proxy at any time before it
is exercised by delivering a written notice of revocation to the Secretary of
the Company, by executing and delivering a later-dated proxy or by attending the
Annual Meeting and voting in person.
QUORUM AND VOTING
Holders of Common Stock of record at the close of business on the Record
Date are entitled to one vote for each share held on all matters submitted to a
vote of stockholders at the Annual Meeting or any adjournment thereof. The
holders of shares of Common Stock do not have cumulative voting rights. As of
the close of business on the Record Date, there were 12,560,124 shares of Common
Stock outstanding and entitled to vote at the Annual Meeting.
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock entitled to vote is necessary to constitute a
quorum at the Annual Meeting. If a quorum is not present (either in person or
by proxy), the stockholders entitled to vote who are present in person or by
proxy have the power to adjourn the Annual Meeting from time to time without
notice, other than an announcement at the Annual Meeting, until a quorum is
present. At any adjourned Annual Meeting at which a quorum is present in person
or by proxy, any business may be transacted that might have been transacted at
the Annual Meeting as originally noticed.
Abstentions and broker non-votes will be treated as shares that are present
and entitled to vote for purposes of determining the presence of a quorum for
the transaction of business. Abstentions and broker non-votes are tabulated
separately, with abstentions counted in tabulations of the votes cast on a
proposal for purposes of determining whether a proposal has been approved while
broker non-votes relating to a proposal are not counted as a vote cast with
respect to that proposal.
The election of directors will be determined by plurality vote and the
ratification of the appointment of Arthur Andersen LLP and the adoption of the
Equity Compensation Plan for Non-Employee Directors (the "Plan") each requires
the approval of a majority of the outstanding shares of Common Stock that are
present
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<PAGE>
at the Annual Meeting in person or by proxy and entitled to vote thereon.
Therefore, abstentions will have a neutral effect on the election of directors,
and will have the effect of votes against the proposal to ratify the selection
of independent accountants and the proposal seeking approval of the Plan,
whereas broker non-votes will have a neutral effect on all such proposals. The
proposal to amend the Company's Certificate of Incorporation to increase the
authorized shares of Common Stock must be approved by a majority of the shares
of Common Stock outstanding. Therefore, abstentions and broker non-votes will
have the effect of votes against the proposal to amend the Company's Certificate
of Incorporation to increase the authorized shares of Common Stock.
Shares represented by each Proxy that is properly executed and returned and
upon which no contrary instructions are indicated about a specified matter will
be voted as follows with respect to the specified matter: (i) FOR the election
of the two persons named in this Proxy Statement as the nominees of the Board of
Directors of the Company (the "Board of Directors") for election to the Board of
Directors; (ii) FOR the proposal to amend the Company's Certificate of
Incorporation to increase the number of authorized shares of Common Stock; (iii)
FOR the ratification of the appointment of Arthur Andersen LLP as the
independent accountants for the Company for 1999; (iv) FOR the Equity
Compensation Plan; and (v) in accordance with the discretion of the holders of
the Proxy with respect to any other business that properly comes before the
stockholders at the Annual Meeting.
ANNUAL REPORT
The annual report for the Company's fiscal year ended December 31, 1998,
including audited financial statements, is being furnished with this Proxy
Statement to stockholders of record as of the Record Date. The annual report
does not constitute a part of the proxy solicitation materials.
PROPOSAL ONE: ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of eight directors, two
of whom are standing for re-election. On January 12, 1999, in accordance with
the Company's Bylaws, the Board of Directors increased the size of the Board of
Directors to eight and appointed Richard J. Burgess as a director with a term
expiring on the date of the annual meeting of the stockholders of the Company in
2000. The Company's Certificate of Incorporation provides that the Board of
Directors shall be divided into three classes, with each class to be as nearly
equal in number as possible. Each class of directors serves a term of office of
three years, with the term of one class expiring at the annual meeting of
stockholders in each successive year and after their successors are duly elected
and qualified. Two directors will be elected at the Annual Meeting, each to
serve for a three-year term expiring at the annual meeting in 2002. The Board
of Directors has nominated the following two nominees for election as directors:
C.E. "Gene" Miller
Frank M. Burke, Jr.
Each of the nominees is presently a member of the Board of Directors whose
term will expire at the Annual Meeting. Should any nominee named in this Proxy
Statement for the office of director become unable or unwilling to accept
nomination or election, the person acting under the Proxy will vote for the
election, in his stead, of any other person whom the Board of Directors
recommends. The Board of Directors has no reason to believe that any nominee
named above will be unable or unwilling to serve if elected.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
ELECTION OF ALL NOMINEES AS DIRECTORS
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<PAGE>
PROPOSAL TWO: INCREASE OF THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK
The Company's Certificate of Incorporation (the "Certificate"), as
currently in effect, provides that authorized capital stock shall consist of
20,000,000 shares of Common Stock, $0.01 par value (the "Common Stock") and
2,000,000 shares of Preferred Stock, $0.01 par value. On April 29, 1999, the
Company's Board of Directors approved an amendment to the Certificate (the
"Amendment") to increase the number of shares of Common Stock authorized for
issuance under the Certificate by 20,000,000 to a total of 40,000,000 shares. As
more fully described below, the proposed Amendment is intended to provide the
Company flexibility to meet future needs for unreserved Common Stock. The
affirmative vote of holders of a majority of the outstanding shares of Common
Stock is required to approve the Amendment. The Board of Directors recommends
that stockholders vote FOR approval of the Amendment. The reasons for and the
possible effects of the amendment to the Certificate and certain information
regarding the Certificate are set forth below.
REASONS FOR AMENDMENT
As of April 29, 1999, 12,560,124 shares of Common Stock were issued and
outstanding and 1,145,250 remain reserved for issuance upon exercises of stock
options. Additionally,322,752 shares of Common Stock have been reserved for
issuance pursuant to a Warrant Agreement between the Company and Veritas DGC
Land, Inc. (the"Warrant"),120,000 shares have been reserved for issuance under
the Equity Compensation Plan for Non-Employee Directors and 200,000 shares have
been reserved (20,287 shares issued) under the Miller Oil Corporation Savings
Plan leaving only 5,987,403 shares of Common Stock available for future
issuance. The Board of Directors believes that the number of shares remaining
available is not adequate for the Company's future requirements.
Except as stated above, and for additional shares of Common Stock that may
become issuable to Veritas pursuant to the Warrants, the Company has no firm
plans to use the additional authorized shares of Common Stock. However, the
Company's Board of Directors believes that it is prudent to increase the number
of authorized shares of Common Stock to the proposed level in order to provide a
reserve of shares available for issuances in connection with possible future
actions. In particular, the Company's Board of Directors believes that the
current number of authorized shares needs to be increased to provide the
flexibility to effect other possible actions such as financing, corporate
mergers, establishing strategic relationships with corporate partners, employee
benefit plans and for other general corporate purposes. Currently there are no
plans, agreements or arrangements requiring the utilization of these additional
shares for such purposes. Having such additional authorized Common Stock
available for issuance in the future would allow the Board of Directors to issue
shares of Common Stock without the delay and expense associated with seeking
stockholder approval of an increase in the authorization. Elimination of such
delays and expense occasioned by the necessity of obtaining stockholder approval
will better enable the Company, among other things, to engage in financing
transactions and acquisitions as well as to take advantage of changing market
and financial conditions on a more competitive basis as determined by the Board
of Directors.
The additional Common Stock to be authorized by adoption of the Amendment
would have rights identical to the currently outstanding Common Stock. Adoption
of the proposed Amendment and issuance of the Common Stock would not affect the
rights of the holders of currently outstanding Common Stock of the Company. If
the Amendment is adopted, it will become effective upon filing of the Amendment
with the Secretary of the State of Delaware. Further stockholder approval may be
required if it is proposed that any such shares are to be added to the number of
shares reserved for issuance under the Company's option plans, in compliance
with applicable rules and laws.
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<PAGE>
POSSIBLE EFFECTS OF THE AMENDMENT
If the proposed Amendment is approved, the Board of Directors may cause the
issuance of additional shares of Common Stock without further vote of
stockholders of the Company, except as provided under Delaware corporate law or
under the rules of NASDAQ or any national securities exchange on which shares of
Common Stock are then listed. Current holders of Common Stock have no preemptive
or similar rights, which means that current stockholders do not have a prior
right to purchase any new issue of capital stock of the Company in order to
maintain their proportionate ownership thereof. The effects of the issuance of
additional shares of Common Stock may also include dilution of the voting power
of currently outstanding shares and reduction of the portion of any dividends
and of liquidation proceeds that may be payable to the holders of currently
outstanding Common Stock.
In addition, the Board of Directors could use authorized but unissued
shares to create impediments to a takeover or a transfer of control of the
Company. Accordingly, the increase in the number of authorized shares of Common
Stock may deter a future takeover attempt which holders of Common Stock may deem
to be in their best interest or in which holders of Common stock may be offered
a premium for their shares over the market price.
The Board of Directors is not currently aware of any attempt to take over
or acquire the Company. While it may be deemed to have potential anti-takeover
effects, the proposed Amendment to increase the authorized Common Stock is not
prompted by any specific effort or takeover threat currently perceived by
management. Moreover, management does not currently intend to propose additional
anti-takeover measures in the foreseeable future.
THE BOARD BELIEVES THAT A VOTE TO APPROVE THE AMENDMENT TO THE CERTIFICATE OF
INCORPORATION IS IN THE BEST INTERESTS OF THE COMPANY AND UNANIMOUSLY RECOMMENDS
A VOTE FOR SUCH PROPOSAL.
PROPOSAL THREE: APPROVAL OF THE EQUITY COMPENSATION
PLAN FOR NON-EMPLOYEE DIRECTORS
Introduction and Purpose of the Plan
The Board of Directors firmly believes that the Company's long-term
interests are best advanced by aligning the interests of its non-employee
directors with the interests of its stockholders. To further align those
interests, on December 7, 1998 the Board of Directors adopted, subject to
stockholder approval, the Miller Exploration Company Equity Compensation Plan
for Non-Employee Directors (the "Plan"). The Plan enables the Company to
increase its non-employee directors' financial interest in the Company, and
thereby increase their personal interest in the Company's continued success,
through the payment of directors' fees in Company Common Stock. The Board of
Directors believes that the adoption and implementation of the Plan is in the
best interests of the Company and its stockholders and that it is advisable to
make shares of Common Stock available for grants under the Plan.
A maximum of 120,000 shares of Common Stock (subject to certain
antidilution adjustments) would be available for awards of Common Stock ("Stock
Awards") under the Plan. Shares to be issued under the Plan are expected to be
authorized but unissued shares.
The Plan would not be qualified under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and would not be subject to the
Employee Retirement Income Security Act of 1974.
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<PAGE>
The shares covered by the Plan have been registered under the Securities Act of
1933, as amended, pending shareholder approval.
The following is a summary of the principal features of the Plan. The
summary is qualified in its entirety by reference to the terms of the Plan, the
complete text of which is attached as Appendix A to this Proxy Statement.
Participants in the Plan
Under the Plan, non-employee directors (currently five individuals) would
be eligible to receive Stock Awards. Non-employee directors of the Company may
be deemed to have an interest in the Plan because they may be entitled to
receive Stock Awards under the Plan.
Administration of the Plan
The Plan would be administered by a committee designated by the Board of
Directors or, if no committee is designated, by the Board of Directors (the
"Committee").
The Committee would make determinations, subject to the terms of the Plan,
as to the persons to receive Stock Awards, the amount of Stock Awards to be
granted to each person, the terms of each grant and all other determinations
necessary or advisable for administration of the Plan. The Committee may amend
any Stock Awards from time to time in a manner consistent with the Plan;
provided, that no amendment may be effective relating to a particular Stock
Award without the consent of the relevant participant, except to the extent the
amendment operates solely to the benefit of the participant. The Committee
would have full authority and discretion to interpret the Plan.
The Board of Directors may terminate the Plan at any time and may from time
to time amend the Plan as it deems proper and in the best interests of the
Company, provided that no such amendment may impair any outstanding Stock Award
without the consent of the participant. Subject to stockholder approval, the
Plan took effect on December 7, 1998, and, unless earlier terminated by the
Board of Directors, the Plan will terminate on December 6, 2008. No award may
be made under the Plan after that date.
Stock Awards
The Committee has the power to determine whether to compensate participants
for Director's Fees earned in a fiscal year in shares of Common Stock or in
cash. "Director's Fees" are those amounts of income due and payable to a
participant for service as a director to the Company for a fiscal year,
including payments for attendance at meetings of the Board of Directors or
meetings of committees of the Board, and any retainer fee paid to members of the
Board, but excluding reimbursement of costs.
If the Committee determines to compensate a participant in the form of a
Stock Award rather than cash, the participant would be entitled to receive that
number of shares of Common Stock calculated by dividing the dollar amount of a
participant's Director's Fees for a fiscal year by the Market Value of the
Common Stock on the day before the Stock Award payment date. "Market Value"
means the last reported sales price on The Nasdaq Stock Market on the date in
question, or if the Common Stock was not traded on The Nasdaq Stock Market on
such date, the last reported sales price on the first day before the payment
date.
If the Committee determines to compensate a participant for the
participant's Director's Fees in shares of Common Stock rather than cash, the
Company will distribute to the participant the number of shares of Common Stock
calculated in accordance with the preceding paragraph on or before the 45th day
after the end
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of the Company's fiscal year in which the Director's Fees are earned. The
Committee may amend the time of payment before or after a Stock Award (i) in its
discretion, if the amendment benefits the participant; or (ii) in all other
cases, with the consent of the participant.
Subject to stockholder approval of the Plan, the Committee intends to grant
Stock Awards to each non-employee director. The current participants and the
dollar value of Director's Fees earned by each participant for fiscal year 1998
are set forth in the chart below. The Company cannot presently determine the
number of shares of Common Stock that each participant would be entitled to
receive because that number of shares will be determined based on the Market
Value of the Company's Common Stock on a date following the Annual Meeting.
NEW PLAN BENEFITS
Compensation Plan for Non-Employee Directors
Name and Position (1) Dollar Value
--------------------- ------------
Frank M. Burke, Jr., Director $22,250
Kenneth J. Foote, Director $21,000
Dan A. Hughes, Jr., Director $23,000
William Casey McManemin, Director $22,750
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(1) Richard J. Burgess was appointed as a director of the Company on January
12, 1999. Mr. Burgess will be entitled to participate in the Plan for
Director's Fees earned by him in 1999.
Federal Income Tax Consequences
For federal income tax purposes, a participant would be required to
recognize compensation income on the value of Common Stock at the time the Stock
Award is granted. At the time the participant recognizes compensation income,
the Company would be entitled to a corresponding deduction for federal income
tax purposes.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
APPROVAL OF THE EQUITY COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
To the Company's knowledge, set forth below is certain information, as of the
Record Date, regarding ownership of Common Stock by (i) each person who
beneficially owns more than 5% of the Company's outstanding shares of Common
Stock, (ii) each director and executive officer of the Company and (iii) all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial
Ownership of Common Stock (1)
-----------------------------------------
Sole Voting Shared
and Voting or Total
Dispositive Dispositive Beneficial Percent
Name and Address of Beneficial Owner Power(2) Power (3) Ownership(2) of Class
- ------------------------------------- ------------ ----------- ------------ --------
<S> <C> <C> <C> <C>
Skyline Asset Management, L.P (4)... 0 873,800 873,800 7.0%
311 South Wacker Drive,
Suite 4500
Chicago, Illinois 60606
Falcon Fund, Ltd (5)................ 0 757,700 757,700 6.0%
8235 Douglas Avenue, Suite 420
Dallas, Texas 75225
C.E. Miller(6)...................... 1,074,530 386,764 1,461,294 11.6%
3104 Logan Valley Road
Traverse City, Michigan 49685
Kelly E. Miller(7)................. 1,072,303 94,324 1,166,627 9.3%
3104 Logan Valley Road
Traverse City, Michigan 49685
David A. Miller(8)................. 713,854 90,124 803,978 6.4%
3104 Logan Valley Road
Traverse City, Michigan 49685
Daniel R. Miller(9)................ 847,529 75,034 922,563 7.3%
3104 Logan Valley Road
Traverse City, Michigan 49685
Sue Ellen Bell(10)................. 822,528 92,324 914,852 7.3%
3104 Logan Valley Road
Traverse City, Michigan 49685
Douglas A. Bell(11)................ 8,000 906,852 914,852 7.3%
3104 Logan Valley Road
Traverse City, Michigan 49685
William Casey McManemin(12)........ 17,400 1,042,480 1,059,880 8.4%
3738 Oak Lawn Avenue, Suite 300
Dallas, Texas 75219
SASI Minerals Company (13)......... 1,042,480 0 1,042,480 8.3%
1201 Market Street, Suite 1402
Wilmington, Delaware 19801
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
William J. Baumgartner (14)........ 26,744 12,637 39,381 *
Lew P. Murray (15)................. 27,696 1,612 29,308 *
Michael L. Calhoun (16)............ 9,250 1,399 10,649 *
Frank M. Burke, Jr.(17)............ 52,000 62,500 114,500 1.0%
Kenneth J. Foote (18).............. 61,390 1,500 62,890 *
Dan A. Hughes, Jr.(19)............. 26,541 0 26,541 *
Richard J. Burgess (20)............ 0 0 0 *
Executive Officers and Directors
as a group (8 persons)............ 2,330,908 1,600,205 3,931,113 31.3%
</TABLE>
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* Less than 1%.
(1) The number of shares stated are based on information provided by each person
listed and include shares personally owned of record by the person and
shares which, under applicable regulations, are considered to be otherwise
beneficially owned by the person.
(2) Excludes the following shares that may be acquired through the exercise of
stock options granted under the Company's Stock Option and Restricted Stock
Plan of 1997 (the "1997 Plan") and pursuant to a one-time grant to Mr.
Miller, which will not be exercisable before June 29, 1999.
Number of
Name Options
----- ---------
Kelly E. Miller........................ 294,000
Douglas A. Bell........................ 32,000
William Casey McManemin................ 8,000
William J. Baumgartner................. 91,250
Lew P. Murray.......................... 87,500
Michael L. Calhoun..................... 21,000
Frank M. Burke, Jr..................... 8,000
Kenneth J. Foote....................... 8,000
Dan A. Hughes, Jr...................... 8,000
Richard J. Burgess..................... 10,000
(3) These numbers include shares over which the listed person is legally
entitled to share voting or dispositive power by reason of joint ownership,
trust or other contract right, and shares held by spouses, children or other
relatives over whom the listed person may have substantial influence by
reason of relationship.
(4) Based on information set forth in Schedule 13G dated February 2, 1999, filed
with the Securities and Exchange Commission ("SEC") by Skyline Asset
Management, L.P. ("Skyline") The Schedule 13G reports that Skyline holds
such shares as investment advisor to certain client accounts over which
Skyline exercises discretion.
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<PAGE>
(5) Based on information set forth in Schedule 13G dated August 28, 1998, filed
with the SEC by Falcon Fund, Ltd. ("Falcon") and G. Houston Hall. The
Schedule 13G reports that Mr. Hall, as general partner of Falcon, has
voting and dispositive power with respect to the shares.
(6) Includes 224,940 shares held by the Kelly E. Miller Retained Annuity Trust
#1, 224,940 shares held by the Daniel R. Miller Retained Annuity Trust #1,
337,410 shares held by the David A. Miller Retained Annuity Trust #1 and
224,940 shares held by the Sue Ellen Bell Retained Annuity Trust #1, with
respect to each of which C.E. Miller is the sole trustee. Also includes
264,199 shares held by Eagle Investments, Inc. ("Eagle") and 122,565 shares
held by Eagle International, Inc. ("Eagle International"), each of which is
owned by a revocable trust of which C.E. Miller is the sole trustee.
(7) Includes 84,024 shares held by Miller and Miller, Inc., which is owned by a
revocable trust of which Kelly E. Miller is the sole trustee. Excludes
224,940 shares held by the Kelly E. Miller Retained Annuity Trust #1, of
which Kelly E. Miller's father, C.E. Miller, is the sole trustee and of
which Kelly E. Miller is the Grantor with the Trust established for the
benefit of his minor children as beneficiaries.
(8) Includes 84,024 shares held by Oak Shores Investments, Inc., which is owned
by a revocable trust of which David A. Miller is the sole trustee. Excludes
337,410 shares held by the David A. Miller Retained Annuity Trust #1, of
which David A. Miller's father, C.E. Miller, is the sole trustee and of
which David A. Miller is the Grantor with the Trust established for the
benefit of his minor children as beneficiaries.
(9) Includes 74,634 shares held by Double Diamond Enterprises, Inc., which is
owned by a revocable trust of which Daniel R. Miller is the sole trustee.
Excludes 224,940 shares held by the Daniel R. Miller Retained Annuity Trust
#1, of which Daniel R. Miller's father, C.E. Miller, is the sole trustee
and of which Daniel R. Miller is the Grantor with the Trust established for
the benefit of his minor children as beneficiaries.
(10) Includes 84,024 shares held by Frontier Investments, Inc., which is owned
by a revocable trust of which Sue E. Bell is the sole trustee. Excludes
224,940 shares held by the Sue Ellen Bell Retained Annuity Trust #1, of
which Sue E. Bell's father, C.E. Miller, is the sole trustee and of which
Sue E. Bell is the Grantor with the Trust established for the benefit of
her minor children as beneficiaries.
(11) Includes shares held by Mr. Bell's spouse, Sue Ellen Bell. Mr. Bell
disclaims beneficial ownership of these shares.
(12) Includes shares held by SASI Minerals Company. William McManemin is an
officer, director and shareholder of the Manager of SASI Minerals Company
and disclaims beneficial ownership of 1,042,480 of these shares.
(13) Includes shares held by SASI Minerals Company. William McManemin is an
officer, director and shareholder of the Manager of SASI Minerals Company
and disclaims beneficial ownership of 1,042,480 of these shares.
(14) Includes 12,637 shares held as part of the Miller Oil Corporation 401(k)
Savings Plan.
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<PAGE>
(15) Includes 1,612 shares held as part of the Miller Oil Corporation 401(k)
Savings Plan.
(16) Includes 1,399 shares held as part of the Miller Oil Corporation 401(k)
Savings Plan.
(17) Includes 59,500 shares held by Burke, Mayhorn Company, Ltd. and 53,000
shares held by TTC Burke, Ltd., which are private consulting and investment
companies controlled by Mr. Burke.
(18) Includes 1,500 shares held by Mr. Foote's spouse.
(19) Includes only those shares held by the Hughes Company, of which Mr. Hughes
is Exploration Manager and in which Mr. Hughes is a partner.
DIRECTORS AND EXECUTIVE OFFICERS
Biographical information as of April 23, 1999, is presented below for each
person who is either nominated for election as a director at the Annual Meeting
or is continuing as an incumbent director, and for each of the executive
officers of the Company.
Nominees for Election to Terms Expiring in 2002
C.E. "Gene" Miller (age 69) has served as the Chairman of the Board and a
director of the Company since its founding in 1997 and of Miller Oil
Corporation, the Company's predecessor ("MOC"), since MOC's founding in 1986.
Since 1982, Mr. Miller has served as President, Secretary and Treasurer of
Eagle, an oil and gas investment company affiliated with the Company, and since
1990 has served as President, Secretary and Treasurer of Eagle International, an
international oil and gas development company also affiliated with the Company.
Mr. Miller has been involved in the domestic oil and gas industry for over 35
years, primarily in Michigan and Texas. Mr. Miller is a past president of the
Michigan Oil and Gas Association and also served as a director of that
organization. Mr. Miller previously served as a vice president and director and
on the Executive Committee of the Independent Petroleum Association of America,
and as a director of the National Stripper Well Association. In addition, Mr.
Miller has been involved in a number of civic activities and is a member of
several boards of directors. Mr. Miller is the father of Kelly E. Miller, the
Company's President and Chief Executive Officer, and the father-in-law of
Douglas A. Bell, the Company's Vice President-Production.
Frank M. Burke, Jr. (age 59) has served as a director of the Company since
February 2, 1998. Mr. Burke has served as Chairman, Chief Executive Officer and
Managing General Partner of Burke, Mayborn Company, Ltd., a private investment
and consulting company located in Dallas, Texas, since 1984. Burke, Mayborn
Company Ltd. provides strategic and financial consulting to selected individuals
and entities. From 1960 to 1984, Mr. Burke was associated with Peat, Marwick,
Mitchell & Co., an international firm of certified public accountants. Mr.
Burke was elected partner in 1968, and served as a member of the Peat Marwick
Board of Directors from 1978 to 1984. During the same period Mr. Burke served
as Chairman, Energy Group for Peat Marwick International and National Director
of Energy and Natural Resources for Peat Marwick in the United States. Mr.
Burke presently serves as a director of Kaneb Services, Inc. (NYSE), Kaneb Pipe
Line Partners, L.P. (NYSE) and CMS Oil & Gas Co., a wholly owned subsidiary of
CMS Energy Corporation (NYSE). In addition, Mr. Burke serves on the board of
directors of numerous private corporations.
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<PAGE>
Incumbent Directors - Terms Expiring in 2000
Kelly E. Miller (age 44) has served as the President, Chief Executive
Officer and a director of the Company since its founding in 1997 and as
President and a director of MOC since MOC's founding in 1986. Since 1982, Mr.
Miller has served as a Vice President of Eagle. Mr. Miller serves on the Board
of Governors of the Independent Petroleum Association of America and the Boards
of Directors of the Michigan Oil and Gas Association and Republic Bancorp, Inc.
(NASDAQ). Mr. Miller has been involved in the oil and gas industry since 1978,
focusing his efforts in the areas of strategic planning, prospect development,
acquisition and administration. Mr. Miller received a B.S. degree with a major
in Petroleum Geology and a B.B.A. degree with a major in Petroleum Land
Management from the University of Oklahoma. Mr. Miller also completed the
Owner/President Management Program (OPM) through the Harvard University Graduate
School of Business. Mr. Miller is a Certified Petroleum Geologist with the
American Association of Petroleum Geologists, an international geological
organization. Mr. Miller is the son of C.E. Miller, the Company's Chairman of
the Board, and the brother-in-law of Douglas A. Bell, the Company's Vice
President-Production.
Dan A. Hughes Jr. (age 41) has served as a director of the Company since
February 2, 1998. Mr. Hughes is a partner in Dan A. Hughes Company, an oil and
gas exploration company located in Beeville, Texas, and has served as
Exploration Manager of Dan A. Hughes Company since 1985. Mr. Hughes currently
serves on the Regional Board of Trustees for the Independent Petroleum
Association of America and as Vice President for the Lower Gulf Coast District
for Texas Mid-Continent Oil & Gas Association. Mr. Hughes has been active in
the oil and gas industry for more than 20 years, overseeing exploration and
development activities in Texas and Louisiana, as well as internationally. Mr.
Hughes received a B.B.A. degree from Texas A&M University and attended Texas A&M
University for post graduate studies in geology. Mr. Hughes is involved in a
number of civic activities and is a member of several boards of directors and
executive committees.
Richard J. Burgess (age 68) has served as a director of the Company since
January 12, 1999. Mr. Burgess served as President and CEO of NOMECO before
retiring in 1994. NOMECO later became CMS Oil and Gas Company which is a wholly
owned subsidiary of CMS Energy Corporation (NYSE). Mr. Burgess received a B.S.
degree (honors) in Geology from the University of Manitoba and has held various
positions in the oil and gas industry since 1954. Mr. Burgess currently serves
on the Board of Directors of ROC Oil Company, Seagull Energy, Command Petroleum
and Sydney Oil Company, Michigan Oil and Gas Association, American Association
of Petroleum Geologists, Independent Petroleum Association of America and
various other industry organizations.
Incumbent Directors - Terms Expiring in 2001
William J. Baumgartner (age 44) has served as the Vice President-Finance,
Chief Financial Officer and Secretary and as a director of the Company since its
founding in 1997, and he served as Vice President-Finance and Chief Financial
Officer of MOC from 1991 until the founding of the Company. Mr. Baumgartner
previously held the positions of Controller, Treasurer and Secretary of MOC.
Mr. Baumgartner was employed in public accounting and with various independent
oil and gas exploration entities before joining MOC in 1985. Mr. Baumgartner
graduated from Ferris State University in 1979 with a B.S. degree in Accounting.
Mr. Baumgartner is a member of the Michigan Oil and Gas Association and the
Independent Petroleum Association of America.
William Casey McManemin (age 38) has served as a director of the Company
since February 2, 1998. Mr. McManemin is a Registered Professional Engineer in
the state of Texas, and he received a B.S. degree in Petroleum Engineering from
Texas A&M University. Since 1988 Mr. McManemin has served as an officer,
shareholder and director of the Manager of SASI Minerals Company and the General
Partner of
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Spinnaker Royalty Company, L.P. In addition, since September 1993, Mr. McManemin
has served as an officer, shareholder and director of the General Partner of
Republic Royalty Company. All of such companies are engaged in oil and gas
property acquisition, exploration and development, including activities in
several of the same regions and areas in which the Company's present and past
activities are located. In addition to membership in numerous oil and gas
industry associations, Mr. McManemin is a member of the Executive Committee of
the Board of Trustees of The St. Mark's School of Texas.
Kenneth J. Foote (age 42) has served as a director of the Company since
February 2, 1998. Mr. Foote has served as a managing director of First National
Acceptance Company, a private financial services company, since 1987. Mr.
Foote's primary responsibilities are in the areas of financial analysis,
taxation and strategic planning. Additionally, Mr. Foote is a director of First
National Bank of Michigan. From 1979 to 1982, Mr. Foote worked for the public
accounting firm of Arthur Andersen LLP and became a Certified Public Accountant
during that time. From 1982 to 1987, Mr. Foote was a principal in two real
estate ventures before joining First National Acceptance Company. Mr. Foote has
an A.B. degree in economics from Princeton University and received a masters in
accounting from New York University.
Executive Officers
Lew P. Murray (age 43) has served as Vice President-Exploration of the
Company since its founding in 1997, and he served in the same capacity for MOC
from January 1996 until the Company was founded. Mr. Murray holds a B.S. degree
with a major in Geology from the University of Oklahoma. Mr. Murray is a
Certified Petroleum Geologist with the American Association of Petroleum
Geologists. Mr. Murray served as Exploration Manager of MOC from 1992 until
1996 and has been involved in the exploration program of MOC and its affiliates
since 1981. Mr. Murray's primary responsibilities involve the review and
recommendations of all domestic and international prospects.
Douglas A. Bell (age 39) has served as Vice President-Production of the
Company since its founding, and he served in the same capacity for MOC from
January 1996 until the Company was founded. In addition, Mr. Bell has served in
various production-related capacities with affiliates of MOC since his
graduation from Lake Superior State University in 1981. Mr. Bell's primary
responsibilities include production operations, well completions and reserve
analysis. Mr. Bell is the son-in-law of C.E. Miller, the Company's Chairman of
the Board, and the brother-in-law of Kelly E. Miller, the Company's President
and Chief Executive Officer.
Michael L. Calhoun (age 39) has served as Vice President-Operations of the
Company since January 12, 1998. Mr. Calhoun is a Registered Professional
Engineer in the state of Texas and received a B.S. degree in Petroleum
Engineering and a B.A. degree in Business Administration from the University of
Texas. In addition Mr. Calhoun received a Masters in Business Administration
from Southern Methodist University. Since 1989, Mr. Calhoun has served in
several capacities for Amerada Hess Corporation, including as a Financial
Analyst, Manager of Production, Planning and Control, District Superintendent
and, most recently, as Operations Manager for the Gulf Coast District. From
1987 to 1989, Mr. Calhoun served as an engineer for Greenwich Oil Corporation in
Dallas, Texas, and from 1985 to 1987 as a field engineer for the Texas Railroad
Commission.
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<PAGE>
BOARD COMMITTEES AND MEETINGS
The Company's Board of Directors has three standing committees: the Audit
Committee, the Compensation Committee and the Stock Plan Committee.
Audit Committee. The Audit Committee is responsible for (i) recommending
to the Board of Directors the selection of independent accountants; (ii)
approving the nature and scope of services to be performed by the independent
accountants and reviewing the range of fees for such services; (iii) conferring
with the independent accountants and reviewing the results of the annual audit;
(iv) reviewing with the independent accountants the Company's internal auditing,
accounting and financial controls; (v) reviewing policies and practices
regarding compliance with laws and conflicts of interest; and (vi) reviewing all
material contractual matters. Messrs. Burke (Chairman), Foote, Hughes,
McManemin and Burgess currently serve on the Audit Committee. During 1998, the
Audit Committee held one meeting.
Compensation Committee. The Compensation Committee is responsible for (i)
reviewing and recommending to the full Board of Directors for approval the
annual base salary levels, annual incentive opportunity levels, long-term
incentive opportunity levels, executive perquisites, employment agreements (if
and when appropriate), change in control provisions/agreements (if and when
appropriate), benefits and supplemental benefits of the Company's Chief
Executive Officer and other key employees; (ii) recommending retainer and
attendance fees for directors who are not employees of the Company or any of its
subsidiaries; (iii) reviewing for their adequacy and competitiveness
compensation plans and awards as they relate to the Chief Executive Officer and
other key employees; and (iv) reviewing the Company's strategic and financial
plans to determine their relationship to the compensation program. Messrs.
McManemin (Chairman), Burke, Foote, Hughes and Burgess are members of the
Compensation Committee. During 1998, the Compensation Committee held no
meetings.
Stock Plan Committee. The Stock Plan Committee is responsible for (i)
advising, recommending and interpreting existing equity compensation plans,
including the 1997 Plan; (ii) reviewing and recommending to the full Board for
approval new or amended equity compensation plans or grants under existing
plans; and (iii) ensuring that the total equity compensation program and
practices of the Company are designed with full consideration of all accounting,
tax, securities law and regulatory requirements. Messrs. McManemin (Chairman)
Hughes, Burke, Foote, and Burgess are members of the Stock Plan Committee.
During 1998, the Stock Plan Committee held no meetings.
During the Company's last fiscal year, the Board of Directors held nine (9)
regular meetings. Each of the directors attended 75% or more of the aggregate of
(i) the total number of meetings of the Board of Directors and (ii) the total
number of meetings held by all committees of the Board of Directors on which
each served (during the periods that each served).
COMPENSATION OF DIRECTORS
The Board of Directors has adopted, subject to stockholder approval, the
Equity Compensation Plan for Non-Employee Directors. This plan permits the
Company to compensate its non-employee directors in Company Common Stock for
fees earned by such directors for their service to the Company.
Directors who are not employees of the Company receive a $15,000 annual
retainer fee plus $1,000 for attendance at each regular meeting of the Board of
Directors and $500 for attendance at each committee meeting, (committee chairmen
receive $750). Directors who also are employees of the Company receive no
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<PAGE>
annual retainer and are not compensated for attendance at Board or committee
meetings. The Company also reimburses directors for expenses associated with
attending Board and committee meetings.
Any person who first becomes a non-employee director automatically will be
granted, on the date of his or her election, an option to purchase 10,000 shares
of Common Stock. In addition, on the first business day following the date on
which each annual meeting of the Company's stockholders is held, each non-
employee director then serving will automatically be granted an option to
purchase 3,000 shares of Common Stock. Each option granted to non-employee
directors will (i) have a 10-year term, (ii) have an exercise price per share
equal to the fair market value of a Common Stock share on the date of grant and
(iii) become exercisable in cumulative annual increments of one-fifth of the
total number of shares of Common Stock subject thereto, beginning on the first
anniversary of the date of grant.
EXECUTIVE COMPENSATION
Compensation Summary
The following Summary Compensation Table shows certain information
concerning the compensation earned during the fiscal year ended December 31,
1998, by the Chief Executive Officer of the Company and each executive officer
who earned in excess of $100,000 and who served in positions other than Chief
Executive Officer at the end of the last completed fiscal year. The table does
not include perquisites and other personal benefits for individuals for whom the
aggregate amount of such compensation does not exceed the lesser of (i) $50,000
or (ii) 10% of individual combined salary and bonus for the named executive
officers in 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation Awards
------------------- --------------------
Number of
Restricted Shares All Other
Name and Principal Stock Underlying Compensation
- ------------------ Other Annual Awards (2) Options ------------
Position Year Salary Bonus(1) Compensation (3)
-------- ---- ------ ------- ----------- ----------- ---------- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Kelly E. Miller, President 1998 $276,057 $104,750 $480,000 330,000 $41,487
and Chief Executive 1997 275,000 207,708 91,374
Officer
William J. Baumgartner 1998 $146,635 $ 64,745 $180,000 100,000 $ 3,270
Vice President-Finance, 1997 125,000 30,000 15,233
Chief Financial Officer
and Secretary
Lew P. Murray, Vice 1998 $134,231 $ 44,750 $120,000 100,000 $11,251
President-Exploration 1997 100,000 25,000 29,580
Michael L. Calhoun, 1998 $131,885 $ 4,560 $ 16,000 25,000 $ 359
Vice President-
Operations
Douglas A. Bell, Vice 1998 $ 78,731 $ 15,252 $ 0 40,000 $ 359
President-Production
</TABLE>
______________________
(1) Includes contributions made by MOC to its 401(k) Savings Plan on behalf of
the individuals listed.
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<PAGE>
(2) The values of restricted stock awards reported in this column are calculated
using the closing market price of Common Stock on the date of grant.
Dividends will be paid on shares of restricted stock at the same rate
dividends are paid on Common Stock, if any. Restricted stock vests at
cumulative annual increments of one-half of the total number of shares of
restricted stock granted, beginning on the first anniversary of the date of
grant. The number of shares of restricted stock held by each named
individual and the aggregate value of those shares at the end of the
Company's 1998 fiscal year (as represented by the closing price of Common
Stock on December 31, 1998), without giving effect to the diminution of
value attributable to the restrictions on the Common Stock, are set forth
below:
<TABLE>
<CAPTION>
Number Aggregate
of Value
Shares
-------- --------
<S> <C> <C>
Mr. Miller 60,000 $480,000
Mr. Baumgartner 22,500 180,000
Mr. Murray 15,000 120,000
Mr. Calhoun 2,000 16,000
</TABLE>
(3) The compensation listed in this column for 1998 consisted of payments made
by the Company (i) for premiums on travel accident insurance policies as
follows: $174 for Mr. Miller; $174 for Mr. Baumgartner; $174 for Mr.
Murray; $174 for Mr. Calhoun; and $174 for Mr. Bell; (ii) for royalty
program participation as follows: $41,313 for Mr. Miller; $2,642 for Mr.
Baumgartner; and $10,656 for Mr. Murray; and (iii) for premiums on life
insurance policies as follows: $454 for Mr. Baumgartner; $421 for Mr.
Murray; $185 for Mr. Calhoun; and $195 for Mr. Bell. No payments of life
insurance premiums were made on behalf of Mr. Miller.
Stock Options
The Company's 1997 Plan is administered by the Stock Plan Committee of the
Board of Directors which has authority to determine the individuals to whom and
the terms upon which options will be granted, the number of shares to be subject
to each option and the form of consideration that may be paid upon the exercise
of an option.
The following tables set forth information regarding stock options granted
to and exercised by the named executive officers during the fiscal year ended
December 31, 1998:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM
------------------------------------------------------ -----------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE
OPTIONS IN FISCAL PRICE PER EXPIRATION
NAME GRANTED(1) YEAR SHARE DATE 0% 5% 10%
- -------------------- ----------- ----------- ---------- ------------ ---- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Kelly E. Miller (2) 318,650 31.5% $8.00 Feb. 8, 2008 $0 $1,405,446 $3,461,680
Kelly E. Miller (2) 11,350 1.1% $8.80 Feb. 8, 2008 $0 $ 55,067 $ 135,632
William J. Baumgartner(2) 100,000 9.9% $8.00 Feb. 8, 2008 $0 $ 441,063 $1,086,358
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Lew P. Murray 100,000 9.9% $8.00 Feb. 8, 2008 $0 $ 441,063 $1,086,358
Michael L. Calhoun 25,000 2.5% $8.00 Feb. 8, 2008 $0 $ 110,266 $ 271,590
Douglas A. Bell 40,000 4.0% $8.00 Feb. 8, 2008 $0 $ 176,425 $ 434,543
</TABLE>
(1) Options granted during 1998 under the 1997 Plan are exercisable with
respect to 20% of the shares beginning on the first anniversary of the date
of grant and become exercisable in cumulative 20% installments on each
anniversary date thereafter with full vesting occurring on the fifth
anniversary date of the grant. Executive officers of the Company are
entitled to exercise their options at a price determined by the Stock Plan
Committee, which was equal to the fair market value of Common Stock on the
date of grant. All options were granted for a term of ten years. Options
terminate, subject to certain limited exercise provisions, in the event of
death or termination of employment or directorship.
(2) The Company made a one-time grant of 270,000 and 2,500 stock options to
Messrs. Kelly Miller and Baumgartner, respectively, pursuant to the terms
of stock option agreements entered into between the Company and the named
individuals. The exercise price of the options is $8.00 per share and the
options vest at the rate of one-fifth per year beginning on the first
anniversary of the grant date.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISED IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTIONS VALUES(1)
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS
UNEXERCISED OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
-------------------------------------- ------------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Kelly E. Miller 0 330,000 $0 $0
William J. Baumgartner 0 100,000 $0 $0
Lew P. Murray 0 100,000 $0 $0
Michael L. Calhoun 0 25,000 $0 $0
Douglas A. Bell 0 40,000 $0 $0
</TABLE>
__________________
(1) No named executive officer exercised any stock options in 1998.
401(k) Savings Plan
In connection with the Combination Transaction, the Company adopted MOC's
401(k) Savings Plan (the "Savings Plan"). The Savings Plan is available to all
full-time employees upon commencement of their employment and provides for
discretionary matching contributions by the Company. The funds in the Savings
Plan are invested in equity and bond funds at the election of the participant.
The Company-paid matching contributions under the Savings Plan vest at a rate of
20% per year, beginning after three years of service. The Savings Plan balances
that have vested generally are paid at an employee's termination of employment
or retirement.
Life Insurance Program
The Company provides, at its sole cost, life insurance in the face amount
of $150,000 on each of the lives of Messrs. Baumgartner, Murray, Calhoun and
Bell each of whom is entitled to designate the beneficiary of the insurance
proceeds. Upon their death, $150,000 will be paid to the beneficiary designated
by Messrs.
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<PAGE>
Baumgartner, Murray, Calhoun or Bell. During 1998, the Company paid $454, $421,
$195 and $185 in premiums for Messrs. Baumgartner's, Murray's, Calhoun's and
Bell's respective policies.
Travel Insurance Program
The Company provides to each of Messrs. Kelly Miller, C.E. Miller,
Baumgartner, Calhoun, Murray and Bell, as well as to C.W. Measley, Jr., Land
Manager of the Company and MOC, travel accident insurance in the face amount of
$100,000, at no cost. The insurance covers accidental death and disability in
the course of business or personal travel anywhere in the world. Each covered
person is entitled to designate the beneficiary of the insurance proceeds.
During 1998, the Company paid $174 in premiums for each of the policies.
Tax Credit and Royalty Participation Programs
Tax Credit Participation Program. On April 14, 1995, MOC established the
Credit Participation Program (the "Tax Program"), which was designed to reward,
recognize and retain key employees of MOC who participated in an instrumental
manner in the acquisition, sale and/or brokerage of production of oil and
natural gas from non-conventional sources that qualified for certain tax credits
under Section 29 of the Code. Under the terms of the Tax Program, participants
were entitled to a percentage of any money received by the Tax Program,
including fees, reimbursements, down-payments and credits from brokerage
transactions. After payment of expenses, money was allocated among and
distributed to participants, pursuant to a participant's annual allocation
percentages, as determined by a majority vote of MOC's shareholders. If MOC
acquired properties for the purpose of the acquisition of Section 29 Credits and
MOC sold all or any part of the properties to which such credits applied, the
distribution of the proceeds for the Tax Program was net of the total invested
capital plus a 10% return. If a participant's employment was terminated, any
distributions pursuant to the Tax Program terminated and the balance of current
and future distributions to the participant remained in the Tax Program to be
allocated and distributed by MOC in its discretion.
No payments were made to Mr. Baumgartner in 1998 under the Tax Program.
The Tax Program was terminated concurrently with consummation of the Company's
initial public offering in February 1998 (the "Offering").
Royalty Participation Program. On December 31, 1992, MOC established the
Employee Participation Program (the "Royalty Program"), which was designed to
provide an incentive for certain key employees to contribute to the success of
MOC. Under the terms of the Royalty Program, participants received a percentage
of the overriding royalty working interest on all prospects generated by MOC. A
maximum of 1/32nd of 8/8ths overriding royalty working interest was reserved for
the Royalty Program on all prospects generated by MOC. If less than a 1/32nd of
8/8ths overriding royalty was reserved on such prospects, participants were
assigned a proportionate share of the overriding royalty that MOC retained. A
sliding scale overriding royalty was reserved against MOC's retained net revenue
interest, proportionately adjusted to MOC's working interest in any specific
property. The net revenue scale was used whether MOC retained an overriding
royalty on its prospects, acquired a working interest from a third party or sold
or distributed working interests to an entity owned by a shareholder of MOC.
The Royalty Program was limited to those properties that MOC had an initial
working interest in and the overriding royalty was not applied to farm-outs by
MOC, sale of lease positions, purchase of reserves or recovery from lawsuits.
If a participant's employment terminated, any overriding royalties previously
assigned to the participant reverted to MOC. In the event of a participant's
death, any royalties due to the participant were allocated to a beneficiary or
trust designated by the participant.
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<PAGE>
During 1998 Messrs. Miller, Baumgartner and Murray received $41,313, $2,642
and $10,656, respectively, under the Royalty Program. The Royalty Program was
terminated concurrently with consummation of the Offering.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. McManemin, Burke, Hughes, Burgess and Foote are members of the
Compensation Committee. No executive officer of the Company serves as a member
of the board of directors or compensation committee of any entity that has one
or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT
AND CHANGE IN CONTROL ARRANGEMENTS
Employment Agreements
The Company intends to enter into employment agreements with each of
Messrs. Kelly Miller, Baumgartner, Calhoun, Murray and Morrison that provide for
an annual base salary in an amount not less than $250,000 for Mr. Miller,
$150,000 for Mr. Baumgartner, $135,000 for Mr. Calhoun, $140,000 for Mr. Murray
and $150,000 for Mr. Morrison. Messrs. Miller, Baumgartner, Calhoun, Murray and
Morrison also have received option grants, pursuant to the 1997 Plan, to
purchase 60,000, 97,500, 25,000, 100,000 and 55,000 shares, respectively, of
Common Stock. The exercise price of the options is $8.00 per share, except that
for 11,350 of Mr. Miller's 60,000 shares, the exercise price is $8.80. The
options vest at the rate of one-fifth per year beginning on the first
anniversary of the grant date. Pursuant to the 1997 Plan, the Company also
granted to Messrs. Kelly Miller, Baumgartner, Calhoun, Murray and Morrison
60,000, 22,500, 2,000, 15,000 and 10,000 shares of restricted Common Stock,
respectively, which begin to vest at cumulative annual increments of one-half of
the total number of restricted shares beginning on the first anniversary of the
grant date.
The Company made a one-time grant of 270,000 and 2,500 stock options to
Messrs. Kelly Miller and Baumgartner, respectively, pursuant to the terms of
stock option agreements entered into between the Company and the named
individuals. The exercise price of the options is $8.00 per share and the
options vest at the rate of one-fifth per year beginning on the first
anniversary of the grant date.
Each of the employment agreements of Messrs. Miller, Baumgartner, Calhoun,
Murray and Morrison will have an initial three-year term. At the end of the
first year of such initial term and on every anniversary thereafter, the term of
each employment agreement automatically will be extended for one year, so that
the remaining term of the agreement will never be less than two years. Under
each agreement, the officer's employment may be terminated upon his death or
"disability," for "cause" or "good reason," (as those terms are defined in the
employment agreement) or for any reason upon 45 days' notice by the employee or
at will by the Company. Upon discretionary termination of employment by the
Company or termination by the employee for good reason, the employee's salary
and benefits will be continued for a period of 52 weeks plus four additional
weeks for each year of service to the Company. Upon death, disability,
discretionary termination by the employee or termination for cause, no severance
pay will be paid. Upon a "change in control" (as defined in each employment
agreement) of the Company, the term of the employee's employment agreement shall
be automatically extended for three years following the date of the "change in
control." If during the one-year period after a "change in control" (i) the
Company terminates the employee's employment
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<PAGE>
other than for "cause" or if the employee is disabled; or (ii) the employee
terminates his employment for "good reason," then the employee shall receive an
amount equal to three times the sum of the employee's highest annual base
salary, and largest annual bonus, during the three years preceding the "change
in control." In addition, upon a "change in control" all of the employee's
unvested stock options and restricted stock shall vest immediately.
Each of the employment agreements provides that the employee is eligible to
participate in the Company's employee benefit plans, including the Company's
matching 401(k) Savings Plan and the 1997 Plan.
Each of the employment agreements contains certain confidentiality
obligations. In addition, in each agreement the employee agrees not to compete
against the Company for a period of one year following termination (or two years
if terminated for "cause") in any county or parish in which the Company has a
leasehold interest or active or pending seismic programs.
Indemnity Agreements
The Company has entered into indemnity agreements with Messrs. Miller,
Baumgartner, Calhoun, Murray and Morrison and with each director and officer of
the Company (collectively, the "Executives"). The indemnity agreements
indemnify each Executive against all expenses incurred in connection with any
action or investigation involving each Executive by reason of his or her
position with the Company (or with another entity at the Company's request).
The Executives also will be indemnified for costs, including judgments, fines
and penalties, indemnifiable under Delaware law or under the terms of any
current or future liability insurance policy maintained by the Company that
covers the Executives. An Executive involved in a derivative suit will be
indemnified for expenses and amounts paid in settlement. Indemnification is
dependent in every instance on the Executive meeting the standards of conduct
set forth in the indemnity agreements. If a potential change in control occurs,
the Company will fund a trust to satisfy its anticipated indemnification
obligations.
COMPENSATION COMMITTEE AND STOCK PLAN COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Board of Directors has two standing committees responsible for
executive compensation matters. The Compensation Committee of the Board of
Directors (the "Compensation Committee") develops and recommends to the Board of
Directors the compensation policies of the Company. The Compensation Committee
also administers the Company's compensation plans and recommends for approval by
the Board of Directors the compensation to be paid to the Chief Executive
Officer and, with the advice of the Board of Directors, the other executive
officers of the Company. The Compensation Committee consists of five directors,
none of whom are not current or former employees of the Company. The Stock Plan
Committee of the Board of Directors has overall responsibility for stock option
and restricted stock grants, including grant approval and plan administration.
The Stock Plan Committee consists of five directors, none of whom are current or
former employees of the Company.
The basic compensation philosophy of the Company is to provide competitive
salaries as well as competitive incentives to achieve superior financial
performance. The Company's executive compensation policies are designed to
achieve three primary objectives:
- Attract and retain well-qualified executives who will lead the Company
and achieve and inspire superior performance;
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<PAGE>
- Provide incentives for achievement of specific short-term individual
and corporate goals; and
- Align the interests of management with those of the stockholders to
encourage achievement of increases in stockholder value.
Executive compensation at the Company consists primarily of the following
components: base salary and benefits; amounts paid (if any) under the annual
bonus programs available to certain executive officers (see below); and
participation in the Company's stock option and equity-based incentive plans.
Each component of compensation is designed to accomplish one or more of the
three compensation objectives described above.
Base Salary
To attract and retain well-qualified executives, it is the Compensation
Committee's policy to establish base salaries at levels and provide benefit
packages that the Company believes to be competitive. Base salaries of
executives may be determined in part by comparing each executive's position with
similar positions in companies of similar type, size and financial performance.
In general, the Compensation Committee has targeted salaries to be commensurate
with base salaries paid for comparable positions in comparable size companies.
Other factors that have been considered by the Compensation Committee are the
executive's performance, the executive's current compensation and the Company's
performance (determined by reference to revenues cash flow, production growth
earnings and other factors).
The 1998 average base salary of executives increased over the previous
year's level as a result of a combination of factors, including increased
responsibilities.
Stock Option and Restricted Stock Plans
Awards under the Company's 1997 Plan are designed to encourage long-term
investment in the Company by participating executives, to align more closely
executive and stockholder interests and to reward executives and other employees
or building stockholder value. The Stock Plan Committee believes stock
ownership by management is beneficial and stock awards have been granted by the
Company to executives and other employees since the Company's formation. Since
its formation, the Stock Plan Committee has reviewed, modified (to the extent
appropriate) and taken final action as to the employees to be granted options
and/or restricted stock and the amount, timing, price and other terms of the
options and/or restricted stock.
Under the Company's 1997 Plan, which has been approved by the stockholders,
executives and other employees may be granted shares of restricted stock. These
shares are subject to restrictions that generally lapse over a period of three
years from the date of grant.
Under the 1997 Plan, executives and other employees may be granted options
to purchase shares of stock, as well as tax benefit rights. The Company has
never granted tax benefit rights and does not have a present intent of so doing.
The Company has granted both incentive stock options and nonqualified stock
options within the meaning of the Code. Most of the options granted have been
incentive stock options with an exercise price equal to the market price of the
Common Stock on the date of the grant. The Company may, however, grant options
with an exercise price above or below the market price on the date of grant.
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Compensation of the Chief Executive Officer
The Chief Executive Officer's compensation is based upon the policies and
objectives discussed above.
The Company intends to execute an employment agreement (the "Employment
Agreement") with Mr. Kelly Miller which provides for his continued service to
the Company through December 31, 2001 (with evergreen provisions), as Chief
Executive Officer. The Employment Agreement is described on page 19 of this
Proxy Statement under the heading "Employment Agreements and Termination of
Employment and Change in Control Arrangements."
The Employment Agreement provides that Mr. Miller's salary shall not be
less than $250,000 per year. Mr. Miller is entitled to receive fringe benefits
similar to those provided to senior executives of the Company through the term
of the Employment Agreement and any renewal period.
In 1998, Mr. Miller was not awarded options to purchase additional shares
of Common Stock. Due to the Company's fiscal constraints and low commodity
price environment, Mr. Miller has volunteered to reduce his base salary to
$150,000 per year.
Section 162(m) of the Internal Revenue Code of 1986, as amended, provides
that publicly held corporations may not deduct compensation paid to certain
executive officers in excess of $1 million annually, with certain exemptions.
The Company has examined its executive compensation policies in light of Section
162(m) and the regulations adopted by the Internal Revenue Service to implement
this section. It is not expected that any portion of the Company's deduction
for employee remuneration will be disallowed in 2000 or in future years by
reason of awards granted in 1999.
During 1998, all recommendations of the Compensation Committee were
unanimously approved by the Board of Directors without modification.
Respectfully submitted,
COMPENSATION COMMITTEE STOCK PLAN COMMITTEE
William Casey McManemin, Chairman William Casey McManemin, Chairman
Frank M. Burke, Jr. Dan A. Hughes, Jr.
Kenneth J. Foote
Dan A. Hughes, Jr.
C.E. Miller
Kelly E. Miller
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Combination Transaction
The Company was formed as a Delaware corporation as part of the combination
of MOC with certain oil and natural gas interests owned by companies
beneficially owned by individual members of the Miller family and certain oil
and natural gas interests owned by certain business partners and investors (the
"Combination Transaction"). The Combination Transaction was consummated in
connection with the Company's Offering in February 1998. William Casey
McManemin, a director of the Company, is an officer, shareholder and director of
the Manager of SASI Minerals Company, which exchanged interests in oil and
natural gas properties for shares of Common Stock in the Combination
Transaction. Kenneth J. Foote, a director of the Company, also exchanged
interests in oil and natural gas properties for shares of Common Stock in the
Combination Transaction.
Transactions with C.E. Miller and Affiliates
The following information describes agreements or transactions between MOC
and C.E. Miller, Chairman of the Board and a director of the Company and MOC, or
his affiliates:
As of April 1, 1999, Eagle Investments Inc., an affiliate of the Company,
committed to purchase up to a maximum of six million dollars ($6,000,000) of
Company leasehold, producing properties and/or prospects (collectively, the
"Assets"), and to assume any obligations under existing joint operating
agreements, participation agreements and any other agreements relating to the
Assets. The proceeds from sale of these Assets will be used to meet the
Company's May 1 and May 31 scheduled payment obligations to its senior lender,
the Bank of Montreal.
The purchase price of any such Assets purchased by Eagle will represent
fair market value as determined by an independent appraisal of such Assets or
the actions or inactions of one or more qualified industry participants with
respect to such Assets.
All sales of Assets will be subject to the approval of the outside
directors of the Company and the Company will have the absolute right to
repurchase, on or before December 31, 1999, all of the Assets purchased by
Eagle. The Assets cannot be repurchased individually, and must be repurchased in
their entirety excepting those Assets where drilling operations have begun. The
repurchase price for such Assets will be the purchase price paid by Eagle plus
interest at the prime rate announced from time to time by the Bank of Montreal.
Service Agreement. MOC has entered into an Amended Service Agreement dated
January 1, 1997, amending a prior service agreement, with Eagle, an oil and gas
exploratory company beneficially owned by C.E. Miller. Under the amended
agreement, MOC provides Eagle with administrative, technical, consulting and
other services required by Eagle to operate its business in the ordinary course.
These services include, among others, developing prospects, coordinating,
permitting, drilling and facility construction and operation, maintaining joint
venture relationships and providing accounting, financial, tax and budget-
preparation services. As compensation for its services, Eagle has agreed to pay
MOC a fixed fee of $50,000 per calendar quarter, subject to annual adjustments
to be negotiated by MOC and Eagle, as well as additional fees for specialized
services as agreed by the parties. Eagle also agreed to reimburse MOC its out-
of-pocket expenses incurred in providing the services. Either party may
terminate the agreement at any time upon 60 days' prior notice. Eagle paid MOC
$200,000 under the service arrangement in 1998, which the Company believes is
adequate compensation for the services provided to Eagle. On March 1, 1999, by
mutual agreement, the parties have agreed to terminate the Service Agreement
effective May 1, 1999.
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<PAGE>
1997 Drilling Program. MOC has entered into a 1997 Drilling Program
Exploration and Participation Agreement dated August 15, 1997 with Eagle and
certain companies affiliated with MOC who participated in the Combination
Transaction. Under the agreement, MOC and the affiliated companies contributed
certain drilling inventory consisting of 13 prospects that had a high
probability of drilling operations beginning by December 31, 1997, and that had
pipelines and facilities in place, acreage and rights of way acquired and
drilling units or unitization agreements secured. As consideration for the
contribution of the wells, Eagle agreed to pay 100% of the actual acreage,
seismic, dry hole cost and cost of completion and facilities through the tanks
of the working interest represented by MOC and the affiliated companies. Eagle
will receive a proportionate 50% of MOC's and the affiliated companies' rights
to all depths that exist within the drilling unit or unitized area. In
addition, MOC and the affiliated companies agreed to contribute the use of their
existing facilities used for any common operations, such as production
platforms, flowlines, pipelines or rights of way. MOC and the affiliated
companies have the option to contribute additional prospects to Eagle, but only
upon the consent of C.E. Miller. The parties terminated the agreement upon
consummation of the Company's initial public offering in February 1998.
Sale of Non-strategic Assets. In an effort to divest certain non-strategic
assets before consummation of the Combination Transaction and the Offering, MOC
sold to Eagle working and royalty interests in certain oil and natural gas
properties located in Michigan and Texas, as well as MOC's interests in all
wells, facilities and equipment associated with such properties. The properties
are located in areas where the Company does not intend to focus its exploration
and production activities. No part of the Company's 1998 or 1999 capital
budgets were or are allocated to the properties. The purchase price was
$507,411, payable in cash and was distributed to the shareholders of MOC. The
Company believes that the purchase price was representative of the fair market
value of the interests being sold.
Sale and Lease of Principal Offices. In July 1996 MOC sold its principal
offices located at 3104 Logan Valley Road, Traverse City, Michigan to C.E.
Miller and Betty Miller for $700,000. The Company is leasing the premises from
Mr. and Mrs. Miller under a five-year lease expiring in August 2001. The lease
provides that the rent on the premises is $6,058 a month for the first full 11
months of the lease and thereafter increases by 4% each year. The Company
believes that the rental rate is representative of the fair market rental rate
for the premises and that the purchase price was representative of the fair
market value of the property at the time of sale.
Loan to MOC. Pursuant to a promissory note dated November 26, 1997, C.E.
Miller, as trustee of the C.E. Miller Trust, loaned $2.5 million to MOC, which
MOC used to fund a down payment made in connection with the Combination
Transaction. The loan was paid in full during February 1998 from the proceeds
received in the Offering.
Shareholder Notes
In 1991, the shareholders of MOC loaned to MOC an aggregate of $7.6 million
pursuant to separate loan agreements. The shareholders of MOC contributed the
indebtedness to the Company as capital in connection with the Combination
Transaction, which resulted in cancellation of the indebtedness. Such
cancellation is not expected to result in income to the Company for federal
income tax purposes.
Tax Credit and Royalty Participation Programs
The Company established the Tax Program and the Royalty Program under which
certain key employees were entitled to receive a stated percentage of tax
credits received by the Tax Program and/or
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<PAGE>
royalties paid on certain prospects generated by the Company. The participants'
rights to participate in the Tax Program and the Royalty Program terminated upon
consummation of the Offering.
Consulting Agreement
MOC and Frank M. Burke, Jr., a director of the Company, entered into a
Consulting Agreement dated June 1, 1996, as subsequently amended. Pursuant to
the Consulting Agreement, Mr. Burke provides MOC, as an independent contractor,
certain financial, tax, strategic, marketing and other consulting services as
requested by MOC. As compensation for these services, MOC has agreed to pay Mr.
Burke a fee of $325 per hour for services provided during 1998 and $375 per hour
for services provided during and after 1999. MOC also has agreed to reimburse
Mr. Burke reasonable travel and other out-of-pocket expenses. The initial term
of the Consulting Agreement was 12 months and automatically is renewed for
successive 12-month periods unless terminated by either party upon 30 days'
prior notice. There were no payments made to Mr. Burke in 1998 under this
agreement.
Certain Exploration Programs
Portions of the Company's exploration activities have been conducted as an
active working interest partner in select projects in Texas and Louisiana by the
Hughes Company under an exploration agreement in effect since 1994. Dan A.
Hughes, Jr., a director of the Company, is a partner in and Exploration Manager
of the Hughes Company. At the time the exploration agreement was entered into,
Mr. Hughes was not a director of the Company. Revenues attributable to these
properties were approximately $4.4 million as of December 31, 1998.
In addition, the Company had provided to its affiliated oil and natural gas
exploration companies opportunities to invest in certain oil and natural gas
exploration and development projects in which the Company already had an
interest. In exchange for their interests in a project, the affiliated
companies, which are under common ownership with MOC, were required to pay their
proportionate share of a $50,000 prospect fee charged by the Company, 110% of
the associated drilling costs and their proportionate share of the royalty
interests allocated to the Royalty Program. This program terminated upon
consummation of the Offering.
Any future material transactions between the Company and its affiliates
will be approved by a majority of the disinterested directors of the Company.
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Company's Common Stock to the Standard & Poor's 500 Stock Index and an industry
index comprised of the common stock of companies in the oil and gas development
and exploration industry (the "Peer Group"), assuming an investment of $100 on
the date of the Offering through December 31, 1998. The Standard & Poor's 500
Stock Index is a broad equity market index published by Standard & Poor's. The
Peer Group was selected by the Company and includes the companies listed in the
footnote to the graph below. Cumulative total return is measured by dividing
(i) the sum of (a) the cumulative amount of dividends for the measurement
period, assuming dividend reinvestment, and (b) the difference between the share
price at the end and the beginning of the measurement period; by (ii) the share
price at the beginning of the measurement period.
The dollar values for total stockholder return plotted in the graph below
are shown in the following table:
Company Peer Group S&P 500
2/4/98 $ 100.00 $ 100.00 $ 100.00
3/2/98 $ 111.00 $ 101.17 $ 104.05
4/1/98 $ 126.63 $ 112.60 $ 110.06
5/1/98 $ 98.50 $ 110.52 $ 111.33
6/1/98 $ 98.50 $ 97.85 $ 108.35
7/1/98 $ 100.00 $ 95.50 $ 114.07
8/3/98 $ 92.25 $ 78.09 $ 110.48
9/1/98 $ 65.63 $ 63.94 $ 98.74
10/1/98 $ 58.63 $ 76.19 $ 97.96
11/2/98 $ 78.13 $ 75.74 $ 110.40
12/1/98 $ 56.25 $ 59.12 $ 116.72
1/1/99 $ 56.25 $ 59.56 $ 122.08
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February 4, 1998 December 31, 1998
----------------- -----------------
The Company $100.00 $ 56.25
S & P 500 100.00 122.08
Peer Group 100.00 59.56
COMPARISON OF CUMULATIVE
TOTAL STOCKHOLDER RETURN
________________________
* The Peer Group includes [Cabot Oil & Gas Corp., Coho Energy, Inc., Comstock
Resources, Inc., Clayton Williams Energy, Inc., Devon Energy Corp., St. Mary
Land & Exploration Co,. Range Resources Corp., Stone Energy, Meridian Resource
Corp., Wiser Oil Co., and Cross Timbers Oil Co.]
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
officers, and persons who beneficially own more than 10% of the outstanding
shares of Common Stock, to file reports of ownership and changes in ownership of
shares of Common Stock with the Securities and Exchange Commission. Directors,
officers and greater than 10% beneficial owners are required by Securities and
Exchange Commission regulations to furnish the Company with copies of all
Section 16(a) reports they file. To the Company's knowledge, based on its review
of the copies of such reports received by it, or written representations from
certain reporting persons that no reports on Form 5 were required for those
persons for the 1998 fiscal year, the Company believes that its officers and
directors complied with all applicable filing requirements during the Company's
last fiscal year, except that the initial Form 3s for the Company's officers and
directors were filed on February 12, 1998.
PROPOSAL FOUR:
RATIFICATION OF AUDITORS
The Board of Directors has selected Arthur Andersen LLP as the auditors of
the Company for the current fiscal year. The Company expects that
representatives of Arthur Andersen LLP will be present at the Annual Meeting to
respond to appropriate questions and will have an opportunity to make a
statement if they desire to do so.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY VOTE
FOR THE RATIFICATION OF THE SELECTION OF ARTHUR ANDERSEN LLP AS THE COMPANY'S
AUDITORS FOR 1999.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the annual meeting of
stockholders in the year 2000 and that a stockholder would like to have included
in the proxy statement and form of proxy relating to that meeting must be
received by the Company for consideration not later than January ___, 1999, to
be considered for inclusion in the proxy statement and form of proxy relating to
that meeting. The Company's
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management will have discretionary voting authority with respect to stockholder
proposals raised at the next annual meeting of stockholders which are not
submitted to the Company at least 45 days prior to such meeting, without
including any discussion of the matter in the proxy statement.
SOLICITATION OF PROXIES
Solicitation of proxies will be made initially by mail. In addition,
directors, officers and employees of the Company and its subsidiaries may
solicit proxies by telephone or facsimile or personally without additional
compensation. Proxies may be solicited by nominees and other fiduciaries who may
mail materials to or otherwise communicate with the beneficial owners of shares
held by them. The Company will bear all costs of solicitation of proxies,
including the charges and expenses of brokerage firms, banks, trustees or other
nominees for forwarding proxy materials to beneficial owners. The Company has
engaged its stock transfer agent, American Stock Transfer an Trust Company to
assist in solicitation of proxies.
By Order of the Board of Directors
William J. Baumgartner
Vice President-Finance, Chief
Financial Officer and Secretary
May 10, 1999
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<PAGE>
Appendix A
Executive Compensation Plan for Non-Employee Directors
<PAGE>
MILLER EXPLORATION COMPANY
EQUITY COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
SECTION 1
Establishment and Purpose of Plan
------------- --- ------- -- ----
The Company hereby establishes the Equity Compensation Plan for Non-
Employee Directors (the "Plan") for its non-employee directors. The purposes of
the Plan are to provide an opportunity and means by which non-employee directors
can increase their financial interest in the Company, and thereby increase their
personal interest in the Company's continued success, through the payment of
directors' fees in Company Common Stock.
SECTION 2
Definitions
-----------
The following words have the following meanings unless a different meaning
is plainly required by the context:
2.1 "Award" means the award of Common Stock to a Participant under the
Plan.
2.2 "Committee" means a committee designated by the Board of Directors of
the Company to administer the Plan or, if no committee is designated, the Board
of Directors.
2.3 "Common Stock" means the Common Stock of the Company, $.01 par value.
2.4 "Company" means Miller Exploration Company, a Delaware corporation,
and its subsidiaries.
2.5 "Director's Fee" means the amount of income payable to a Participant
for service as a director for a fiscal year, including without limitation
payments for attendance at meetings of the Board of Directors or meetings of
committees of the Board of Directors, and any retainer fee paid to members of
the Board of Directors, but excluding reimbursement of costs.
<PAGE>
2.6 "Market Value" of any security on any given date means if the security
is listed for trading on The Nasdaq Stock Market or one or more national
securities exchanges, the last reported sales price on the date in question, or
if such security shall not have been traded on such principal exchange on such
date, the last reported sales price on the first day prior thereto on which such
security was so traded.
2.7 "Non-Employee Director" shall mean a director of the Company who is
not employed by the Company or its subsidiaries.
2.8 "Participant" means the Non-Employee Directors of the Company who are
granted Awards under the Plan.
SECTION 3
Administration
--------------
3.1 Power and Authority. The Committee shall administer the Plan. Except
as limited in this Plan, the Committee shall have full power and authority to
interpret the provisions of the Plan and Awards granted under the Plan, to
supervise the administration of the Plan and Awards granted under the Plan and
to make all other determinations considered necessary or advisable under the
Plan. All determinations, interpretations, and selections made by the Committee
regarding the Plan shall be final and conclusive. The Committee may delegate
recordkeeping, calculation, payment, and other ministerial administrative
functions to individuals designated by the Committee, who may be employees of
the Company.
3.2 Awards to Participants. In accordance with and subject to the
provisions of the Plan, the Committee shall have the authority to determine all
provisions of Awards as the Committee may deem necessary or desirable and as are
consistent with the terms of the Plan, including the authority to determine
whether and when Awards will be granted, the persons to be granted Awards, and
the amount of Awards to be granted to each person. Awards shall be awarded by
the Committee, and Awards may be amended by the Committee consistent with the
Plan, provided that no such amendment may become effective without the consent
of the Participant, except to the extent that the amendment benefits the
Participant.
3.3 Indemnification of Committee Members. Neither any member or former
member of the Committee nor any individual to whom authority is or has been
delegated shall be personally responsible or liable for any act or omission in
connection with the performance of powers or duties or the exercise of
discretion or judgment in the administration and implementation of the Plan.
Each person who is or shall have been a member of the Committee
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<PAGE>
shall be indemnified and held harmless by the Company from and against any cost,
liability, or expense imposed or incurred in connection with such person's or
the Committee's taking or failing to take any action under the Plan. Each such
person shall be justified in relying on information furnished in connection with
the Plan's administration by any appropriate person or persons.
SECTION 4
Shares Subject to the Plan
------ ------- -- --- ----
4.1 Number of Shares. Subject to adjustment as provided in Section 4.2, a
maximum of 120,000 shares of Common Stock shall be available for Awards under
the Plan. Such shares may be authorized but unissued shares.
4.2 Adjustments. If the number of shares of Common Stock outstanding
changes by reason of a stock dividend, stock split, recapitalization, merger,
consolidation, combination, exchange of shares, or any other change in the
corporate structure or shares of the Company, the aggregate number and class of
shares available for Awards under the Plan shall be appropriately adjusted. No
fractional shares shall be issued pursuant to the Plan, and any fractional
shares resulting from adjustments shall be eliminated from the respective Award,
with an appropriate cash adjustment for the value of any Awards eliminated.
SECTION 5
Awards
------
5.1 Grant. Subject to adjustments provided in Section 4.2, the Committee,
in its discretion, may determine to compensate a Participant for the
Participant's Director's Fee in shares of Common Stock rather than cash.
5.2 Determination of Number of Shares. If the Committee determines to
compensate a Participant in shares of Common Stock rather than cash, the number
of shares of Common Stock (rounded to the nearest whole share) to be awarded to
a Participant shall be calculated by dividing the dollar amount of a
Participant's Director's Fee for a fiscal year by the Market Value of the Common
Stock on the day before the payment date.
5.3 Time of Payment by the Company. If a Participant is compensated for
the Participant's Director's Fee in shares of Common Stock rather than cash
pursuant to an Award
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<PAGE>
hereunder, the Company shall distribute or cause to be distributed to a
Participant the number of shares of Common Stock as calculated in Section 5.2 on
or before the 45th day after the end of the Company's fiscal year in which the
Director's Fees are earned. The time of payment may be amended before or after
an Award (a) by the Committee in its sole discretion, if the terms of such
amendment benefits the Participant, or (b) in all other cases, by the Committee
with the consent of the Participant.
SECTION 6
General Provisions
------- ----------
6.1 No Rights to Awards. No Participant or other person shall have any
claim to be granted any Award, and there is no obligation of uniformity of
treatment of Participants. The terms and conditions of the Awards of the same
type and the determination of the Committee to grant a waiver or modification of
any Award and the terms and conditions thereof need not be the same with respect
to each Participant.
6.2 Compliance With Laws; Listing and Registration of Shares. All
issuances of Common Stock under the Plan shall be subject to applicable laws,
rules, and regulations, and to the requirement that if at any time the Committee
determines, in its sole discretion, that the listing, registration, or
qualification of the shares covered thereby upon any securities exchange or
under any state or federal law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in connection
with, the issue of shares thereunder, such Award may not be granted in whole or
in part, unless and until such listing, registration, qualification, consent, or
approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.
6.3 No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company from adopting or continuing in effect other or
additional compensation arrangements, including the grant of options and other
stock-based awards, and such arrangements may be either generally applicable or
applicable only in specific cases.
6.4 No Right to Directorship. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the directorship
of the Company.
6.5 Governing Law. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in accordance
with the laws of the State of Delaware and applicable federal law.
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<PAGE>
6.6 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
6.7 Unfunded Plan. This Plan shall be an unfunded plan within the meaning
of the Internal Revenue Code of 1986, as amended. Benefits provided in the Plan
constitute only an unsecured contractual promise to pay in accordance with the
terms of the Plan by the Company.
SECTION 7
Effective Date and Duration of the Plan
--------- ---- --- -------- -- --- ----
This Plan shall take effect December 7, 1998, which is the effective date
of approval by the Board of Directors, provided that, if required by applicable
law, rule or regulation or by the listing standards of any securities exchange
or quotation service, an Award granted before stockholder approval shall be
subject to approval of the Plan by the Company's stockholders at a regular or
special meeting. Unless earlier terminated by the Board of Directors, no Award
shall be granted under this Plan after December 6, 2008.
SECTION 8
Termination and Amendment
----------- --- ---------
The Board may terminate the Plan at any time, or may from time to time
amend the Plan, provided that no such amendment may impair any outstanding Award
without the consent of the Participant. No termination, amendment, or
modification of the Plan shall become effective with respect to any Award
previously granted under the Plan without the prior written consent of the
Participant holding such Award unless such amendment or modification benefits
the Participant.
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<PAGE>
AMERICAN STOCK TRANSFER & TRUST CO.
40 WALL STREET, NEW YORK, NEW YORK 10005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Kelly E. Miller and William J. Baumgartner as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them, to represent and vote, as designated below, all shares of Common Stock of
Miller Exploration Company (the "Company") held of record by the undersigned on
May 6, 1999, at the Annual Meeting of Stockholders to be held on June 11, 1999
or any adjournment thereof.
(TO BE SIGNED ON REVERSE SIDE.)
SEE REVERSE
SIDE
<TABLE>
<CAPTION>
<S><C>
/X/ PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
WITHHOLD
FOR AUTHORITY NOMINEES: C.E. "Gene" Miller
1. ELECTION OF Frank M. Burke, Jr.
DIRECTORS / / / / FOR AGAINST ABSTAIN
2. PROPOSAL NO. 2 / / / / / /
FOR, except vote withheld from the following nominee(s):
3. PROPOSAL NO. 3 / / / / / /
- -------------------------------------------------------- 4. PROPOSAL NO. 4 / / / / / /
SIGNATURE(S) __________________________DATE _______________________________1999
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
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