<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No.0-23431
MILLER EXPLORATION COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-3379776
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3104 Logan Valley Road
Traverse City, Michigan 49685-0348
- ---------------------------------------- ------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (616)941-0004
------------------------------
Securities registered pursuant to Section 12(g) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _______
-------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's voting stock held by non-
affiliates of the registrant as of April 29, 1999 was $17,270,170.
The registrant had 12,560,124 shares of Common Stock outstanding on April
29, 1999.
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Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, the
Registrant hereby amends its Annual Report on Form 10-K for the year ended
December 31, 1998 to include Items 10, 11, 12 and 13 as follows:
PART III
Item 10. Directors and Executive Officers of the Registrant.
--------------------------------------------------
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.
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.
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.
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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.
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 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.
3
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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.
Item 11. Executive Compensation.
----------------------
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 ALL OTHER
RESTRICTED SHARES COMPENSATION
NAME AND PRINCIPAL OTHER ANNUAL STOCK UNDERLYING ------------
POSITION YEAR(1) SALARY BONUS(2) COMPENSATION AWARDS OPTIONS (4)
- --------------------------- ------ ------- -------- ------------ --------- ------- ------------
<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
</TABLE>
4
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
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, Vice 1998 $131,885 $ 4,560 $ 16,000 25,000 $ 359
President-
Operations
Douglas A. Bell, Vice 1998 $ 78,731 $ 15,252 $ 0 40,000 $ 359
President-Production
</TABLE>
______________________
(1) Information for 1997 is that of MOC, the Company's predecessor.
(2) Includes contributions made by MOC to its 401(k) Savings Plan on behalf of
the individuals listed.
(3) 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
of
Shares Aggregate Value
------ ---------------
<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>
(4) 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:
5
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<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at
Assumed Annual Rates of Stock
Price
Individual Grants Appreciation for Option Term
-------------------------------- ----------------------------
Percent of
Total
Number of Options
Securities Granted to
Underlying Employees in Exercise
Options 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
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)
Value of Unexercised In-the-Money
Number of Securities Underlying 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. 0 100,000 $0 $0
Baumgartner
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.
6
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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. 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
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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.
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
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 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
8
<PAGE>
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 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
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.
Item 12. 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>
</TABLE>
9
<PAGE>
<TABLE>
<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
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 *
</TABLE>
10
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Executive Officers and Directors
as a group (8 persons) 2,330,908 1,600,205 3,931,113 31.3%
</TABLE>
- -------------------------------
* 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:
<TABLE>
<CAPTION>
Number of
Name Options
- --------------------------- -------
<S> <C>
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
</TABLE>
(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 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.
(5) Based on information set forth in Schedule 13G dated August 28, 1998, filed
with the Securities and Exchange Commission ("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.
11
<PAGE>
(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.
(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.
Item 13. 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.
12
<PAGE>
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.
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.
13
<PAGE>
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 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.
14
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: April 30, 1999 MILLER EXPLORATION COMPANY
By: /s/ William J. Baumgartner
---------------------------------------
William J. Baumgartner
Vice President-Finance, Chief Financial
Officer and Secretary
15
