<PAGE>
DRAFT
AUGUST 13, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 1996
-------------
OR
----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period to
----------------- -----------------
Commission File Number 0-22650
-------
PETROCORP INCORPORATED
(Exact name of registrant as specified in its charter)
Texas 76-0380430
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
16800 Greenspoint Park Drive 77060-2391
Suite 300, North Atrium (Zip Code)
Houston, Texas
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (713) 875-2500
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if changed since last report)
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 such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the Registrant's classes of
stock, as of July 31, 1996:
Common Stock, $.01 per value 8,584,519
---------------------------- ---------
(Title of Class) (Number of Shares Outstanding)
<PAGE>
PETROCORP INCORPORATED
INDEX
-----
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheet at June 30, 1996 and December 31, 1995 1
Consolidated Statement of Operations for the quarters and six months ended June 30, 1996 and 1995 2
Consolidated Statement of Cash Flows for the six months ended June 30, 1996 and 1995 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6
PART II. OTHER INFORMATION 13
SIGNATURES 14
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
PETROCORP INCORPORATED
CONSOLIDATED BALANCE SHEET
(dollar amounts in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- --------------
Assets (Unaudited)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 22,898 $ 11,764
Accounts receivable, net 5,267 7,632
Other current assets 357 1,433
-------- --------
Total current assets 28,522 20,829
-------- --------
Property, plant and equipment:
Oil and gas properties, at cost, full cost method, net of
accumulated depreciation, depletion and amortization 77,041 79,667
Unproved properties not subject to depletion 3,812 4,406
Plant and related facilities, net 4,905 6,389
Other, net 2,203 3,128
-------- --------
87,961 93,590
-------- --------
Other assets, net 344 420
-------- --------
Total assets $116,827 $114,839
======== ========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 7,026 $ 5,259
Accrued liabilities 2,129 3,370
Current portion of long-term debt 6,822 5,856
-------- --------
Total current liabilities 15,977 14,485
-------- --------
Long-term debt 32,550 36,513
-------- --------
Deferred revenue 1,899 -
-------- --------
Deferred income taxes 3,099 2,320
-------- --------
Commitments and contingencies (Note 4)
Shareholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares
authorized, none issued - -
Common stock, $0.01 par value, 25,000,000 shares
authorized, 8,616,216 shares issued and
8,584,519 shares outstanding 86 86
Additional paid-in capital 71,170 71,170
Retained deficit, since October 1, 1992 (4,274) (6,043)
Foreign currency translation adjustment (3,363) (3,375)
Treasury stock, at cost (31,697 shares) (317) (317)
-------- --------
Total shareholders' equity 63,302 61,521
-------- --------
Total liabilities and shareholders' equity $116,827 $114,839
======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
1
<PAGE>
PETROCORP INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the quarter For the six months
ended June 30, ended June 30,
----------------------- -----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas $6,938 $ 6,244 $13,814 $ 12,337
Plant processing 459 473 926 932
Other (8) 282 179 548
------ ------- ------- --------
7,389 6,999 14,919 13,817
------ ------- ------- --------
Expenses:
Production costs 1,671 1,981 3,283 3,800
Depreciation, depletion and amortization 3,061 3,405 6,154 6,832
Oil and gas property valuation adjustment - 8,500 - 8,500
General and administrative 1,210 1,336 2,457 2,909
Other operating expenses 38 79 104 134
------ ------- ------- --------
5,980 15,301 11,998 22,175
------ ------- ------- --------
Income (loss) from operations 1,409 (8,302) 2,921 (8,358)
------ ------- ------- --------
Other income (expenses):
Investment and other income 258 234 1,433 418
Interest expense (892) (988) (1,800) (1,971)
Other expenses (7) (55) (7) (108)
------ ------- ------- --------
(641) (809) (374) (1,661)
------ ------- ------- --------
Income (loss) before income taxes 768 (9,111) 2,547 (10,019)
Income tax provision (benefit) 248 (184) 778 (524)
------ ------- ------- --------
Net income (loss) $ 520 $(8,927) $ 1,769 $ (9,495)
====== ======= ======= ========
Net income (loss) per common share $ 0.06 $ (1.03) $ 0.20 $ (1.09)
====== ======= ======= ========
Weighted average number of common shares 8,698 8,698 8,698 8,698
====== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of this statement.
2
<PAGE>
PETROCORP INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the six months
ended June 30,
----------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,769 $(9,495)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation, depletion and amortization 6,154 6,832
Oil and gas property valuation adjustment - 8,500
Gain on sale of gas gathering system (999) -
Deferred income tax provision (benefit) 778 (524)
------- -------
7,702 5,313
Change in operating assets and liabilities:
Accounts receivable 2,365 294
Other current assets 1,076 503
Accounts payable 1,767 (1,435)
Accrued liabilities (1,241) (375)
Other (190) 87
------- -------
Net cash provided by operating activities 11,479 4,387
------- -------
Cash flows from investing activities:
Proceeds from sale of oil and gas properties 3,950 103
Proceeds from sale of interest in plant and related facilities 1,211 -
Proceeds from sale of other property, plant and equipment 3,838 -
Additions to oil and gas properties (6,018) (6,992)
Additions to plant and related facilities (184) (174)
Additions to other property, plant and equipment (159) (651)
Additions to other assets - (9)
Proceeds from sale of short-term investment - 3,500
------- -------
Net cash provided by (used in) investing activities 2,638 (4,223)
------- -------
Cash flows from financing activities:
Proceeds from long-term debt 55 448
Repayment of long-term debt (3,053) (1,214)
------- -------
Net cash used in financing activities (2,998) (766)
------- -------
Effect of exchange rate changes on cash 15 109
------- -------
Net increase (decrease) in cash and cash equivalents 11,134 (493)
Cash and cash equivalents at beginning of period 11,764 10,127
------- -------
Cash and cash equivalents at end of period $22,898 $ 9,634
======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
PETROCORP INCORPORATED
----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION:
The unaudited consolidated financial statements of PetroCorp Incorporated
(the "Company" or "PetroCorp") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments, consisting of normal and recurring
adjustments necessary for a fair presentation, have been included. For further
information, refer to the consolidated financial statements and footnotes
thereto for the year ended December 31, 1995, included in the Company's 1995
Annual Report on Form 10-K pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. Interim period results are not necessarily indicative of
results of operations or cash flows for a full-year period.
NOTE 2 - HEDGING PROGRAM:
From time to time, the Company has utilized hedging transactions to manage
its exposure to price fluctuations on its sales of oil and natural gas.
Realized gains and losses from the Company's hedging activities are included in
oil and gas revenues in the period of the hedged production. Normally, any
realized and unrealized gains and losses prior to the period when the hedged
production occurs are deferred. To-date, the Company has used oil and natural
gas futures contracts or natural gas option contracts traded on the NYMEX to
hedge its oil and gas sales.
As a result of its hedging transactions, the Company reduced its oil and
gas revenues by $762,000 during the first six months of 1996 while reducing oil
and gas revenues by $39,000 during the first six months of 1995. As of June 30,
1996, the Company had deferred $163,000 of unrealized hedging losses related to
oil sales.
In connection with its oil and gas hedging program, the Company may be
exposed to the risk of financial loss in certain circumstances including
instances where production is less than expected, the Company's customers fail
to purchase or take delivery of the contracted sales quantities, or a sudden,
unexpected event materially impacts product prices. The Company attempts to
reduce these risks by limiting, at any point in time, its U.S. hedged oil and
natural gas sales volumes to approximately 85% of total U.S. sales volumes and
limiting its Canadian hedged natural gas sales volumes to approximately 65% of
total Canadian natural gas sales volumes. The Company had no oil or natural gas
futures contracts open as of August 12, 1996.
4
<PAGE>
NOTE 3 - DEFERRED REVENUE:
In March 1996, the Company's wholly-owned subsidiary, Fidelity Gas Systems,
Inc., sold its Southwest Oklahoma City Field gas gathering system for $3.8
million. The Company's total gain on the sale was $3.1 million, with $1.0
million being recognized in the first quarter of 1996 in "investment and other
income" on the consolidated statement of operations while the remaining $2.1
million of the gain was deferred. The $2.1 million deferred revenue will be
recognized in future periods as a component of gas revenues by partially
offsetting the gas gathering fees paid by the Company over the productive life
of the Company's Southwest Oklahoma City Field. During the second quarter of
1996, $190,000 was recognized, leaving a balance of $1.9 million in "deferred
revenue" on the consolidated balance sheet as of June 30, 1996.
NOTE 4 - COMMITMENTS AND CONTINGENCIES:
There are claims and actions pending against the Company. In the opinion
of management, the amounts, if any, which may be awarded in connection with any
of these claims and actions would not be material to the Company's consolidated
financial position or results of operations.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The Company's principal line of business is the production and sale of its
oil and natural gas reserves. Results of operations are dependent upon the
quantity of production and the price obtained for such production. Prices
received by the Company for the sale of its oil and natural gas have fluctuated
significantly from period to period. Such fluctuations affect the Company's
ability to maintain or increase its production from existing oil and gas
properties and to explore, develop or acquire new properties.
The following table reflects certain operating data for the periods
presented:
<TABLE>
<CAPTION>
For the quarter For the six months
ended June 30, ended June 30,
--------------- ------------------
1996 1995 1996 1995
------- ------ -------- --------
<S> <C> <C> <C> <C>
Production:
United States:
Oil (Mbbls)............................................. 169 177 336 341
Gas (MMcf).............................................. 1,398 1,454 2,724 3,060
Oil equivalents (MBOE).................................. 402 419 790 851
Canada:
Oil (Mbbls)............................................. --- --- --- 1
Gas (MMcf).............................................. 758 722 1,615 1,554
Oil equivalents (MBOE).................................. 126 120 269 260
Total:
Oil (Mbbls)............................................. 169 177 336 342
Gas (MMcf).............................................. 2,156 2,176 4,339 4,614
Oil equivalents (MBOE).................................. 528 540 1,059 1,111
AVERAGE SALES PRICES (including the effects of hedging):
United States:
Oil (per Bbl)........................................... $17.47 $18.21 $17.82 $17.74
Gas (Mcf)............................................... 2.19 1.63 2.15 1.59
Canada:
Oil (per Bbl)........................................... --- --- --- 18.11
Gas (per Mcf)........................................... 1.21 0.91 1.22 0.91
Weighted average:
Oil (per Bbl)........................................... 17.47 18.21 17.82 17.74
Gas (per Mcf)........................................... 1.85 1.39 1.80 1.36
SELECTED DATA PER BOE:
Average sales price...................................... $13.14 $11.56 $13.04 $11.10
Production costs......................................... 3.16 3.67 3.10 3.42
General and administrative expenses...................... 2.29 2.47 2.32 2.62
Oil and gas depreciation, depletion and amortization..... 5.00 5.47 4.99 5.36
</TABLE>
6
<PAGE>
RESULTS OF OPERATIONS
Comparison of Second Quarter 1996 and Second Quarter 1995
Overview. The Company recorded $1.4 million in income from operations in the
second quarter of 1996 compared to a loss from operations of $8.3 million in the
second quarter of 1995. Excluding an $8.5 million oil and gas property
valuation adjustment recorded in 1995, the improvement between quarters is
primarily the result of a 33% increase in the Company's weighted average natural
gas price coupled with a 12% decrease in operating expenses. The Company
recorded net income of $520,000, or $0.06 per share, during the second quarter
of 1996 compared to a net loss of $8.9 million, or $1.03 per share, for the same
period in 1995.
Revenues. Total revenues increased 6% to $7.4 million in the second quarter
of 1996 from $7.0 million in the second quarter of 1995. Oil production
decreased 5% to 169 Mbbls from 177 Mbbls. Natural gas production decreased
slightly to 2,156 MMcf in the second quarter of 1996 from 2,176 MMcf in the
second quarter of 1995, resulting in an overall slight production decrease of 2%
to 528 MBOE from 540 MBOE. The Company sold a portion of its reserves in the
Canadian Hanlan Swan Hills Unit in May 1996 and certain producing reserves along
with its sale of non-producing mineral fee interests in the fourth quarter of
1995. Absent these property sales, second quarter 1996 production on a BOE
basis would have increased slightly by 1%. The Company's second quarter average
U.S. natural gas price increased 34% to $2.19 per Mcf in 1996 from $1.63 per Mcf
in 1995 while the Company's second quarter average Canadian natural gas price
increased 33% to $1.21 per Mcf from $0.91 per Mcf. As a result of hedging
transactions, the Company's second quarter 1995 U.S. and Canadian average
natural gas prices were reduced by $0.03 per Mcf and $0.06 per Mcf,
respectively, from the average prices that would have otherwise been received.
The Company's average oil price decreased 4% to $17.47 per barrel for the second
quarter of 1996 from $18.21 per barrel for the second quarter of 1995. As a
result of hedging transactions, the Company's second quarter 1996 average oil
price was reduced by $3.18 per barrel from the average price that would have
otherwise been received. Primarily as a result of the increase in natural gas
prices, partially offset by a slight decline in production, oil and gas revenues
increased 11% to $6.9 million for the second quarter of 1996 from $6.2 million
for the second quarter of 1995. Plant processing revenues decreased slightly to
$459,000 from $473,000, while other revenues were almost zero compared to
$282,000 in the prior year quarter. Other revenues declined due to reduced gas
gathering fees, resulting from the March 1996 sale of the Company's Oklahoma gas
gathering system, and lower average sulfur prices, $7.10 per long-ton compared
to $36.35 per long-ton.
Production Costs. Production costs declined 15% to $1.7 million in the second
quarter of 1996 compared to $2.0 million in the second quarter of 1995, while
production costs per BOE decreased 14% to $3.16 per BOE from $3.67 per BOE. The
decrease in production costs in absolute dollars and on a BOE basis results from
the Company's continued focus on reducing costs.
Depreciation, Depletion & Amortization (DD&A). Total DD&A decreased 10% to
$3.1 million in the second quarter of 1996 from $3.4 million in the second
quarter of 1995, primarily as a result of the decrease in the oil and gas DD&A
rate and the slight decrease in production. On a BOE basis, the oil and gas
DD&A rate decreased 9% to $5.00 per BOE from $5.47 per BOE.
Oil and Gas Property Valuation Adjustment. The Company follows the full cost
method of accounting for its oil and gas properties. Under this method, all
productive and non-productive exploration and development costs, incurred for
the purpose of finding oil and gas reserves, are capitalized and may not exceed
a calculated ceiling computed on a country-by-country basis. The ceiling is
calculated on a quarterly basis as the sum of (i) the present value (discounted
at 10%) of future net revenues from estimated production of proved oil and gas
reserves plus (ii) the lower of cost or estimated fair market
7
<PAGE>
value of the unproved properties, less (iii) the related income tax effects. At
June 30, 1995, primarily as a result of the impairment of the Company's
valuation of its unproved fee mineral interests and a decline in oil and gas
prices, the Company's net capitalized costs for its U.S. oil and gas properties
exceeded the ceiling by $8.5 million, resulting in the corresponding valuation
adjustment. The ceiling was calculated using $16.00 per barrel of oil and $1.52
per Mcf of natural gas, the prices in effect as of June 30, 1995.
General and Administrative Expenses. General and administrative expenses
decreased 8% to $1.2 million in the second quarter of 1996 from $1.3 million in
the second quarter of 1995 primarily due to a reduction in personnel.
Interest Expense. Interest expense decreased 10% to $892,000 in the second
quarter of 1996 from $988,000 million in 1995, primarily due to a reduction in
the Company's Series A and Series B senior notes outstanding between quarters.
During the second quarter of 1996 the Company had an outstanding balance of
$35.8 million of senior notes with a combination of adjustable and fixed
interest rates which averaged 7.4%. This compares to the second quarter of 1995
outstanding balance of $39.2 million of senior notes with a combination of
adjustable and fixed interest rates which averaged 7.5%.
Income Taxes. The Company recorded a $248,000 income tax provision on pre-tax
income of $768,000 in the second quarter of 1996 compared to an income tax
benefit of $184,000 on a pre-tax loss of $611,000 in the second quarter of 1995
(excluding the effect of the oil and gas property valuation adjustment of $8.5
million which is calculated on after-tax basis and has no effect on the income
tax benefit).
Comparison of Six Months Ended June 30, 1996 and Six Months Ended June 30, 1995
Overview. The Company recorded $2.9 million in income from operations in the
first six months of 1996 compared to a loss from operations of $8.4 million in
the first six months of 1995. Excluding an $8.5 million oil and gas property
valuation adjustment recorded in 1995, the improvement between periods is
primarily the result of a 32% increase in the Company's weighted average natural
gas price coupled with a 12% decrease in operating expenses. During the first
six months of 1996, the Company recorded net income of $1.8 million, or $0.20
per share, which includes $629,000, or $0.07 per share, related to the after-tax
gain on the sale of the gas gathering system in Oklahoma. During the first six
months of 1995 the Company recorded a net loss of $9.5 million, or $1.09 per
share.
Revenues. Total revenues increased 8% to $14.9 million in the first six
months of 1996 from $13.8 million in the first six months of 1995. Oil
production decreased slightly to 336 Mbbls from 342 Mbbls. Natural gas
production decreased 6% to 4,339 MMcf in the first six months of 1996 from 4,614
MMcf in the first six months of 1995, resulting in an overall production
decrease of 5% to 1,059 MBOE from 1,111 MBOE. The decrease in production on a
BOE basis was primarily the result of decreased natural gas production resulted
from freezing problems associated with the very cold winter in the Mid-Continent
area this year in addition to the reserves sold as discussed. Otherwise, new
production generally offset normal declines. The Company's first six months of
1996 average U.S. natural gas price increased 35% to $2.15 per Mcf in 1996 from
$1.59 per Mcf in 1995 while the Company's average Canadian natural gas price
increased 34% to $1.22 from $0.91. As a result of hedging transactions, the
U.S. average natural gas price the Company would have otherwise received during
the first six months of 1996 was reduced by $0.06 per Mcf. The Canadian natural
gas price for the first six months of 1995 was reduced by $0.03 per Mcf. The
Company's average U.S. oil price increased slightly to $17.82 per barrel for the
first six months of 1996 from $17.74 per barrel for the first six months of
1995. As a result of hedging transactions, the Company's average oil price for
the first six months of 1996 was reduced by $1.80 per barrel from the average
price that would have otherwise been received. As a result of the increase in
natural gas prices, partially offset by a decline in production, oil and gas
revenues increased 12% to $13.8
8
<PAGE>
million for the first six months of 1996 from $12.3 million for the first six
months of 1995. Plant processing revenues remained level at $926,000, while
other revenues declined 67% to $179,000 from $548,000. Other revenues declined
due to reduced gas gathering fees, resulting from the March 1996 sale of the
Company's Oklahoma gas gathering system, and lower average sulfur prices, $13.93
per long-ton compared to $33.05 per long-ton.
Production Costs. Production costs declined 14% to $3.3 million in the first
six months of 1996 compared to $3.8 million in the first six months of 1995,
while production costs per BOE decreased 9% to $3.10 per BOE from $3.42 per BOE.
The decrease in production costs in absolute dollars and on a BOE basis results
from the Company's continued focus on reducing costs.
Depreciation, Depletion & Amortization (DD&A). Total DD&A decreased 10% to
$6.2 million in the first six months of 1996 from $6.8 million in the first six
months of 1995, primarily as a result of the decrease in production volumes
coupled with a decrease in the oil and gas DD&A rate. On a BOE basis, the oil
and gas DD&A rate decreased 7% to $4.99 per BOE from $5.36 per BOE.
Oil and Gas Property Valuation Adjustment. The Company follows the full cost
method of accounting for its oil and gas properties. Under this method, all
productive and non-productive exploration and development costs, incurred for
the purpose of finding oil and gas reserves, are capitalized and may not exceed
a calculated ceiling computed on a country-by-country basis. The ceiling is
calculated on a quarterly basis as the sum of (i) the present value (discounted
at 10%) of future net revenues from estimated production of proved oil and gas
reserves plus (ii) the lower of cost or estimated fair market value of the
unproved properties, less (iii) the related income tax effects. At June 30,
1995, primarily as a result of the impairment of the Company's valuation of its
unproved fee mineral interests and a decline in oil and gas prices, the
Company's net capitalized costs for its U.S. oil and gas properties exceeded the
ceiling by $8.5 million, resulting in the corresponding valuation adjustment.
The ceiling was calculated using $16.00 per barrel of oil and $1.52 per Mcf of
natural gas, the prices in effect as of June 30, 1995.
General and Administrative Expenses. General and administrative expenses
decreased 16% to $2.5 million in the first six months of 1996 from $2.9 million
in the first six months of 1995 primarily due to a reduction in personnel.
Investment and Other Income. Investment and other income increased to $1.4
million in the first six months of 1996 from $418,000 in the first six months of
1995 as a result of a $1.0 million gain on the sale of the Company's Oklahoma
City gas gathering system.
Interest Expense. Interest expense decreased 9% to $1.8 million in the second
quarter of 1996 from $2.0 million in 1995, primarily due to a reduction in the
Company's Series A and Series B senior notes outstanding between periods. During
the first six months of 1996 the Company had an outstanding balance of $35.8
million of senior notes with a combination of adjustable and fixed interest
rates which averaged 7.4%. This compares to the first six months of 1995
outstanding balance of $39.2 million of senior notes with a combination of
adjustable and fixed interest rates which averaged 7.5%.
Income Taxes. The Company recorded a $778,000 income tax provision on pre-tax
income of $2.5 million in the first six months of 1996 compared to an income tax
benefit of $524,000 on a pre-tax loss of $1.5 million in the first six months of
1995 (excluding the effect of the oil and gas property valuation adjustment of
$8.5 million which is calculated on after-tax basis and has no effect on the
income tax benefit).
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its capital expenditures and working
capital requirements with its cash flow from operations, debt and equity capital
and participation by institutional investors. As of June 30, 1996, the Company
had working capital of $12.5 million as compared to $6.3 million at December 31,
1995. The increase in working capital was primarily due to net cash provided by
operating activities and the sales of the Company's partial interest in the
Canadian Hanlan Swan Hills Unit and the Oklahoma City gas gathering system,
partially offset by capital expenditures. Net cash provided by operating
activities was $11.5 million and $4.4 million for the six months ended June 30,
1996 and 1995, respectively, while net cash provided by operating activities
before changes in operating assets and liabilities for the same periods was $7.7
million and $5.3 million, respectively.
The Company spent $6.4 million during the six months ended June 30, 1996
primarily related to exploration and development and the purchase of producing
properties. For the same period in 1995, the Company spent $7.8 million
primarily related to exploration and development.
The Company's Canadian subsidiary redeemed its redeemable preferred stock on
August 9, 1994 for $7.0 million and simultaneously issued $7.0 million in
nonrecourse long-term notes payable with similar financial terms. At June 30,
1996, the nonrecourse long-term notes payable balance was $6.2 million, of which
$2.1 million was classified as current.
In July 1993, PetroCorp refinanced its long-term debt through the issuance of
$40.0 million in senior notes. The Note Purchase Agreement established $10.0
million of Senior Adjustable Rate Notes Series A, due June 30, 1999 (the Series
A Notes), payable to a subsidiary of USF&G Corporation, and $30.0 million of
7.55% Senior Notes Series B, due June 30, 2008 (the Series B Notes), payable to
two wholly-owned subsidiaries of CIGNA Corporation and to four unaffiliated
institutional investors in amounts totalling $20.0 million and $10.0 million,
respectively. Mandatory redemptions commenced on December 31, 1994 for the
Series A Notes and commenced on December 31, 1995 for the Series B Notes. As of
June 30, 1996, the remaining principal balances for the Series A and B Notes
were $5.8 million and $27.4 million, respectively, for a total of $33.2 million.
Interest on the Series A Notes is adjustable, based on a spread of 115 basis
points over the London Interbank Offered Rate (LIBOR). The Company may select a
rate which may be applicable for a one-, three-or six-month period. Interest is
payable in arrears at the end of the selected period. Interest on the Series B
Notes is fixed at a rate of 7.55% and is payable semiannually in arrears.
From time to time, the Company has utilized hedging transactions to manage its
exposure to price fluctuations on its sales of oil and natural gas. Realized
gains and losses from the Company's hedging activities are included in oil and
gas revenues in the period of the hedged production. Normally, any realized and
unrealized gains and losses prior to the period when the hedged production
occurs are deferred. To-date, the Company has used oil and natural gas futures
contracts or natural gas option contracts traded on the NYMEX to hedge its oil
and gas sales.
As a result of its hedging transactions, the Company reduced its oil and gas
revenues by $762,000 during the first six months of 1996 while reducing oil and
gas revenues by $39,000 during the first six months of 1995. As of June 30,
1996, the Company had deferred $163,000 of unrealized hedging losses related to
oil sales.
In connection with its oil and gas hedging program, the Company may be exposed
to the risk of financial loss in certain circumstances including instances where
production is less than expected, the Company's customers fail to purchase or
take delivery of the contracted sales quantities, or a sudden,
10
<PAGE>
unexpected event materially impacts product prices. The Company attempts to
reduce these risks by limiting, at any point in time, its U.S. hedged oil and
natural gas sales volumes to approximately 85% of total U.S. sales volumes and
limiting its Canadian hedged natural gas sales volumes to approximately 65% of
total Canadian natural gas sales volumes. The Company had no oil or natural gas
futures contracts open as of August 12, 1996.
In March 1996, the Company's wholly-owned subsidiary, Fidelity Gas Systems,
Inc., sold its Southwest Oklahoma City Field gas gathering system for $3.8
million. The Company's total gain on the sale was $3.1 million, with $1.0
million being recognized in the first quarter of 1996 in "investment and other
income" on the consolidated statement of operations while the remaining $2.1
million of the gain was deferred. The $2.1 million deferred revenue will be
recognized in future periods as a component of gas revenues by partially
offsetting the gas gathering fees paid by the Company over the productive life
of the Company's Southwest Oklahoma City Field. During the second quarter of
1996, $190,000 was recognized, leaving a balance of $1.9 million in "deferred
revenue" on the consolidated balance sheet as of June 30, 1996.
In August 1996, the Company's Board of Directors increased the Company's
exploration and development capital budget by $3.0 million, or 33%. The
currently approved capital budget of $24.0 million for 1996, now includes $12.0
million for exploration and development and $10.0 million for producing property
acquisitions. However, actual levels of expenditures for planned exploration
and development projects and producing property acquisitions may vary
significantly due to many factors, including drilling results, oil and gas
prices, industry conditions and acquisition opportunities, among others.
The Company plans to finance its 1996 exploration and development expenditures
with existing working capital and cash flow from operations while it may finance
a portion of its 1996 producing property acquisitions with new borrowings. If
the Company increases its exploration, development and acquisition activities in
the future, capital expenditures may require additional funding obtained through
borrowings from commercial banks and other institutional sources, public
offerings of equity or debt securities and existing and future relationships
with institutional investment partners.
Except for the historical information contained herein, the matters discussed
in this management's discussion and analysis are forward-looking statements that
involve risks and uncertainties, and actual results could differ materially from
these expectations. Among the factors that could cause actual results to differ
materially are the timing and success of the company's drilling activities, the
volatility of the prices and supply and demand for oil and gas, the numerous
uncertainties inherent in estimating quantities of oil and gas reserves and
actual future production rates and associated costs, the usual hazards
associated with the oil and gas industry (including blowouts, cratering, pipe
failure, spills, explosions and other unforeseen hazards), and increases in
regulatory requirements, as well as other risks described from time to time in
the company's periodic reports filed with the Securities and Exchange
Commission.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation" (SFAS 123), which established financial accounting and reporting
standards for stock-based employee compensation plans. SFAS 123 encourages
companies to adopt a fair value based method of accounting for such plans but
continues to allow the use of the intrinsic value based method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (Opinion 25). Companies electing to continue accounting in
accordance with Opinion 25 must make pro forma disclosures of net income and
earnings per share as if the fair value based method defined in SFAS 123 had
been applied. With respect to any new awards issued, the Company will continue
to account for its stock-based compensation in accordance with Opinion 25 and
will
11
<PAGE>
make pro forma disclosures in accordance with the provisions of SFAS 123
beginning in its financial statements for the year ending December 31, 1996.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
- --------------------------
Not Applicable
Item 2 - Changes in Securities
- ------------------------------
Not Applicable
Item 3 - Defaults upon Senior Securities
- ----------------------------------------
Not Applicable
Item 4 - Submission of Matters to Vote of Security Holders
- -----------------------------------------------------------
(a) May 9, 1996 annual meeting of shareholders.
(b) (1) Election of Directors
<TABLE>
<CAPTION>
Number of Votes
---------------------------------------------------
Abstentions and
Nominee For Withheld Authority Broker Non-Votes
----------- --------- --------------------- ----------------
<S> <C> <C> <C>
G. Jay Erbe, Jr. 8,163,795 26,700 --
John A. Hill 8,163,795 26,700 --
Stephen M. Grath 8,163,795 26,700 --
</TABLE>
(2) Ratification of Price Waterhouse LLP as the independent accountants of
the Company for the fiscal year ending December 31, 1996.
<TABLE>
<CAPTION>
Number of Votes
- ---------------------------------------------------
<S> <C> <C>
Abstentions and
For Against Broker Non-Votes
- ------------------------ ------- ----------------
8,187,895 2,600 --
</TABLE>
Item 5 - Other Information
- --------------------------
Not Applicable
Item 6 -
- ---------
(a) Exhibits
--------
3.1* Amended and Restated Articles of Incorporation of PetroCorp
Incorporated. Incorporated by reference to Exhibit 3.2 to the
Registration Statement on Form S-1 (Registration No. 33-36972)
initially filed with the Securities and Exchange Commission on August
26, 1993 (the "Registration Statement").
3.2 Amended and Restated Bylaws of PetroCorp Incorporated.
27 Financial Data Schedule
- -------------
* Incorporated by reference.
(b) Reports on Form 8-K
-------------------
Not Applicable
13
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
PETROCORP INCORPORATED
----------------------
(Registrant)
Date: August 13, 1996 /s/ CRAIG K. TOWNSEND
- -------------------------- -------------------------
Craig K. Townsend
Vice President - Finance,
Secretary and Treasurer
(On behalf of the Registrant
and as the Principal
Financial Officer)
14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C>
3.2 Amended and Restated Bylaws of PetroCorp Incorporated (as
of August 1, 1996)
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
PETROCORP INCORPORATED
(the "Company")
-------------------------------------------------------------------
Incorporated Under The Texas Business Corporation Act
-------------------------------------------------------------------
ARTICLE I
OFFICES
-------
Section 1.01. Principal Office. The principal business office of the
------------ ----------------
Company shall be at 16800 Greenspoint Park Drive, Suite 300, North Atrium,
Houston, Texas 77060.
Section 1.02. Other Offices. The Company may have such other business
------------ -------------
offices, within or without the State of Texas, as the Board of Directors may
from time to time establish or the business of the Company may require.
ARTICLE II
CAPITAL STOCK
-------------
Section 2.01. Certificates Representing Shares. Shares of the capital
------------ --------------------------------
stock of the Company shall be represented by certificates in such form or forms
as the Board of Directors may approve, provided that such form or forms shall
comply with all applicable requirements of law and of the Articles of
Incorporation. Such certificates shall be signed by the Chairman of the Board
and Chief Executive Officer, President or a Vice President, and by the Secretary
or an Assistant Secretary, of the Company and, if the Company shall have a seal,
may be sealed with the seal of the Company or may be imprinted or otherwise
marked with a facsimile of such seal. In the case of any certificate
countersigned by any transfer agent or registrar, provided such countersigner is
not the Company itself or an employee thereof, the signature of any or all of
the foregoing officers of the Company on such certificate may be represented by
a printed facsimile thereof. If any officer whose signature, or a facsimile
thereof, shall have been set upon any certificate shall cease, for any reason,
prior to the issuance or delivery of any such certificate to occupy the position
in right of which his signature, or facsimile thereof, was so set upon such
certificate, the Company may nevertheless adopt and issue such certificate with
the
<PAGE>
same effect as if such officer occupied such position as of the date of such
issuance, and issuance and delivery of such certificate shall constitute
adoption thereof by the Company. The certificates shall be consecutively
numbered, and, as they are issued, a record of such issuance shall be entered in
the books of the Company.
Section 2.02. Stock Certificate Book and Shareholders of Record. The
------------ -------------------------------------------------
Secretary of the Company shall maintain, among other records, a stock
certificate book, the stubs in which shall set forth the names and addresses of
the holders of all issued shares of the Company, the number of shares held by
each, the numbers of the certificates representing such shares, the dates of
issue of such certificates, and whether such certificates originate from
original issue or from transfer of shares. The names and addresses of
shareholders as they appear on the stock certificate book shall be and
constitute the official list of shareholders of record of the Company for all
purposes. The Company shall be entitled to treat the holder of record of any
shares as the owner thereof for all purposes, and, except as otherwise required
by law, shall not be bound to recognize any equitable or other claim to, or
interest in, such shares or any rights deriving from such shares on the part of
any other person, including, without limitation, a purchaser, assignee or
transferee, whether or not the Company shall have either actual or constructive
notice of the interest of such other person, unless and until such other person
becomes the holder of record of such shares.
Section 2.03. Shareholder's Change of Name or Address. Each shareholder
------------ ---------------------------------------
shall promptly notify the Secretary of the Company, at the Company's principal
business office, by written notice sent by certified mail, return receipt
requested, of any change in name or address of such shareholder from that as it
appears upon the official list of shareholders of record of the Company. Upon
receipt of such written notice, the Secretary of the Company shall enter such
changes into all affected Company records, including, but not limited to, the
official list of shareholders of record.
Section 2.04. Transfer of Stock. Shares of stock of the Company are
------------ -----------------
transferable only on the books of the Company by the holder of record thereof,
or by his or her duly authorized attorney or other legal representative, upon
surrender of the certificate or certificates representing such shares, properly
endorsed or assigned. The Board of Directors may make such rules and
regulations concerning the issue, transfer, registration and replacement of
certificates representing shares of the Company as it deems appropriate.
Section 2.05. Transfer Agent and Registrar. The Board of Directors may
------------ ----------------------------
appoint one or more transfer agents or registrars of the Company's shares, or
both, and may require all share certificates to bear the signature of a transfer
agent or registrar, or both.
Section 2.06. Lost, Stolen or Destroyed Certificates. The Company may
------------ --------------------------------------
issue a new certificate or certificates representing shares of stock of the
Company in the place of any certificate or certificates theretofore issued and
alleged to have been lost, stolen or destroyed, but the Board of Directors may,
as a condition to such issuance, require the owner of such lost, stolen or
destroyed certificate or certificates, or such owner's duly authorized attorney
or other
2
<PAGE>
legal representative, to (i) make and furnish to the Company an affidavit as to
such loss, theft or destruction, (ii) give a bond in such form and substance,
and with such surety or sureties, with fixed or open penalty, as the Board of
Directors may direct in order to indemnify the Company and its transfer agents
and registrars, if any, against any claim that may be made on account of the
alleged loss, theft or destruction of such certificate or certificates, and
(iii) satisfy any other conditions which the Board of Directors in its
discretion shall determine to be appropriate.
Section 2.07. Fractional Shares. Only whole shares of the stock of the
------------ -----------------
Company shall be issued. In case of any transaction by reason of which a
fractional share might otherwise be issued, the Board of Directors, or the
officers in the exercise of powers delegated by the Board of Directors, shall
take such measures consistent with the law, the Articles of Incorporation and
these Bylaws, including, but not limited to, the payment in cash of an amount
equal to the fair value of any fractional share, as they may deem proper to
avoid the issuance of any fractional share.
ARTICLE III
SHAREHOLDERS
------------
Section 3.01. Annual Meeting. The annual meeting of the shareholders for
------------ --------------
the election of directors and for the transaction of such other business as may
properly come before the meeting shall be held on such date, and at such time
and place, within or without the State of Texas, as shall be designated from
time to time by the Board of Directors. Failure to hold any annual meeting or
meetings shall not work a forfeiture or dissolution of the Company.
Section 3.02. Special Meetings. Except as otherwise provided by law or by
------------ ----------------
the Articles of Incorporation, special meetings of the shareholders may be
called by the Chairman of the Board and Chief Executive Officer, the President,
any one of the directors, or the holders of at least ten percent (10%) of all
the shares entitled to vote at the proposed special meeting, and shall be held
at the principal office of the Company, or at such other place, within or
without the State of Texas, and at such time as may be stated in the notice
calling any such meeting. Only business within the purpose or purposes
described in the notice required by Section 3.03 of these Bylaws may be
conducted at a special meeting of shareholders.
Section 3.03. Notice of Meetings; Waiver of Notice. Written or printed
------------ ------------------------------------
notice of each meeting of shareholders, stating the place, day and hour of the
meeting and, in case of a special shareholders' meeting, the purpose or purposes
for which the meeting is called, shall be delivered not less than ten (10) nor
more than sixty (60) days before the date of such meeting, either personally or
by mail, by or at the direction of the Chairman of the Board and Chief Executive
Officer, the President, the Secretary or the persons calling the meeting, to
each shareholder entitled to vote at such meeting. If mailed, such notice shall
be deemed to be delivered when deposited in the United States mail addressed to
the shareholder at his address
3
<PAGE>
as it appears on the share transfer records of the Company, with postage thereon
prepaid. Such further or earlier notice shall be given as may be required by
law. Any notice required to be given to a shareholder pursuant to this Section
3.03 or any other provision of these Bylaws, or the Articles of Incorporation of
the Company or any provision of the Texas Business Corporation Act, need not be
given to such shareholder if (a) notice of two (2) consecutive annual meetings
of shareholders of the Company, and all notices of meetings of shareholders of
the Company held during the period between such annual meetings, if any, or (b)
all (but in no event less than two (2)) payments (if sent by first class mail)
of distributions or interest on securities of the Company during any twelve-
month period, have been mailed to such shareholder at his address as shown on
the share transfer records of the Company and have been returned undeliverable,
and any action or meeting of shareholders of the Company taken or held without
notice to such shareholder shall have the same force and effect as if notice had
been duly given to such shareholder; provided, however, that if such shareholder
delivers to the Company a written notice setting forth his or her then current
address, the requirement that notice be given to such shareholder shall be
reinstated. The signing by a shareholder of a written waiver of notice of any
shareholders' meeting, whether before or after the time stated therein, shall be
equivalent to the receipt by such shareholder of all notice required to be given
with respect to such meeting. Attendance by a shareholder, whether in person or
by proxy, at a shareholders' meeting shall constitute a waiver of notice of such
meeting. No notice of any adjournment of any shareholders' meeting shall be
required.
Section 3.04. Registered Holders of Shares, Closing of Share Transfer
------------ -------------------------------------------------------
Records and Record Date. The Company may regard the person in whose name any
- -----------------------
shares issued by the Company are registered in the share transfer records of the
Company at any particular time (including, without limitation, as of a record
date fixed pursuant to this Section 3.04) as the owner of those shares at that
time for purposes of voting those shares, receiving distributions thereon or
notices in respect thereof, transferring those shares, exercising rights of
dissent with respect to those shares, exercising or waiving any preemptive right
with respect to those shares, entering into agreements with respect to those
shares in accordance with Articles 2.22 or 2.30 of the Texas Business
Corporation Act, or giving proxies with respect to those shares. Neither the
Company nor any of its officers, directors, employees, or agents shall be liable
for regarding that person as the owner of those shares at that time for those
purposes, regardless of whether that person does not possess a certificate for
those shares.
For the purpose of determining shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof, or shareholders
entitled to receive a distribution by the Company (other than a distribution
involving a purchase or redemption by the Company of any of its own shares) or a
share dividend, or in order to make a determination of shareholders for any
other proper purpose (other than determining shareholders entitled to consent to
action by shareholders proposed to be taken without a meeting of shareholders),
the Board of Directors of the Company may provide that the share transfer
records of the Company shall be closed for a stated period but not to exceed, in
any case, sixty (60) days. If the share transfer records shall be closed for
the purpose of determining shareholders entitled to notice of or to vote at a
meeting of shareholders, such records shall be closed for at least the ten (10)
days
4
<PAGE>
immediately preceding such meeting. In lieu of closing the share transfer
records, the Board of Directors may fix in advance a date as the record date for
any such determination of shareholders, such date in any case to be not more
than sixty (60) days and, in the case of a meeting of shareholders, not less
than ten (10) days, prior to the date on which the particular action requiring
such determination of shareholders is to be taken. If the share transfer
records are not closed and no record date is fixed for the determination of
shareholders entitled to notice of or to vote at a meeting of shareholders, or
shareholders entitled to receive a distribution (other than a distribution
involving a purchase or redemption by the Company of any of its own shares) or a
share dividend, the date on which notice of the meeting is mailed or the date on
which the resolution of the board of directors declaring such distribution or
share dividend is adopted, as the case may be, or, in the case of a special
meeting called by shareholders pursuant to Section 3.02 of these Bylaws, the
date on which the first shareholder signs the notice for such meeting, shall be
the record date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this Section 3.04, such determination shall apply to any adjournment
thereof except where the determination has been made through the closing of the
share transfer records and the stated period of such closing has expired.
Unless a record date shall have previously been fixed or determined
pursuant to this Section 3.04, whenever action by shareholders is proposed to be
taken by consent in writing without a meeting of shareholders, the Board of
Directors of the Company may fix a record date for the purpose of determining
shareholders entitled to consent to that action, which record date shall not
precede, and shall not be more than ten (10) days after, the date upon which the
resolution fixing the record date is adopted by the Board of Directors of the
Company. If no record date has been fixed by the Board of Directors of the
Company and the prior action of the Board of Directors is not required by the
Texas Business Corporation Act, the record date for determining shareholders
entitled to consent to action in writing without a meeting shall be the first
date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Company by delivery to its registered
office, its principal place of business, or an officer or agent of the Company
having custody of the books in which proceedings of meetings of shareholders are
recorded. Delivery shall be by hand or by certified or registered mail, return
receipt requested. Delivery to the Company's principal place of business shall
be addressed to the Chairman of the Board and Chief Executive Officer or the
President. If no record date shall have been fixed by the Board of Directors of
the Company and prior action of the Board of Directors of the Company is not
required by the Texas Business Corporation Act, the record date for determining
shareholders entitled to consent to action in writing without a meeting shall be
at the close of business on the date on which the Board of Directors of the
Company adopts a resolution taking such prior action.
Section 3.05. Voting List. The officer or agent having charge of the
------------ -----------
share transfer records for shares of stock of the Company shall make, at least
ten (10) days before each meeting of shareholders, a complete list of the
shareholders entitled to vote at such meeting or any adjournment thereof,
arranged in alphabetical order, with the address of and the number of shares
held by each, which list, for a period of ten (10) days prior to such meeting,
shall be kept
5
<PAGE>
on file at the principal place of business of the Company and shall be subject
to lawful inspection by any shareholder at any time during usual business hours.
Such list shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any shareholder during the
whole time of the meeting. Failure to comply with this Section shall not affect
the validity of any action taken at such meeting.
Section 3.06. Quorum and Officers. A quorum shall be present at a meeting
------------ -------------------
of shareholders if the holders of a majority of the shares entitled to vote are
represented at the meeting in person or by proxy, unless otherwise provided in
the Articles of Incorporation. Unless otherwise provided in the Articles of
Incorporation or these Bylaws, once a quorum is present at a meeting of
shareholders, the shareholders represented in person or by proxy at the meeting
may conduct such business as may be properly brought before the meeting until it
is adjourned, and the subsequent withdrawal from the meeting of any shareholder
or the refusal of any shareholder represented in person or by proxy to vote
shall not affect the presence of a quorum at the meeting. Unless otherwise
provided in the articles of incorporation or these bylaws, the shareholders
represented in person or by proxy at a meeting of shareholders at which a quorum
is not present may adjourn the meeting until such time and to such place as may
be determined by a vote of the holders of a majority of the shares represented
in person or by proxy at that meeting. The Chairman of the Board and Chief
Executive Officer or the President shall preside at, and the Secretary shall
keep the records of, each meeting of shareholders, and, in the absence of either
such officer, these duties shall be performed by any other officer authorized by
these Bylaws or any person appointed by resolution duly adopted at the meeting.
Section 3.07. Voting at Meetings. Each outstanding share shall be
------------ ------------------
entitled to one (1) vote on each matter submitted to a vote at a meeting of
shareholders, except to the extent that the Articles of Incorporation or these
Bylaws or the laws of the State of Texas provide otherwise. With respect to any
matter, other than the election of directors or a matter for which the
affirmative vote of the holders of a specified portion of the shares entitled to
vote is required by the Texas Business Corporation Act, the affirmative vote of
the holders of a majority of the shares entitled to vote on that matter and
represented in person or by proxy at a meeting of shareholders at which a quorum
is present shall be the act of the shareholders, unless otherwise provided in
the Articles of Incorporation or these Bylaws.
Unless otherwise provided in the Articles of Incorporation or these Bylaws,
directors shall be elected by a plurality of the votes cast by the holders of
shares entitled to vote in the election of directors at a meeting of
shareholders at which a quorum is present.
Section 3.08. Proxies. A shareholder may vote either in person or by
------------ -------
proxy executed in writing by the shareholder and filed with the Secretary of the
Company prior to or at the meeting to which such proxy relates. A telegram,
telex, cablegram, or similar transmission by the shareholder, or a photographic,
photostatic, facsimile, or similar reproduction of a writing executed by the
shareholder, shall be treated as an execution in writing for purposes of this
Section 3.08. No proxy shall be valid after eleven (11) months from the date of
its execution unless otherwise provided in the proxy. A proxy shall be
revocable unless the proxy form
6
<PAGE>
conspicuously states that the proxy is irrevocable and the proxy is coupled with
an interest, or unless the proxy is otherwise made irrevocable by law.
Section 3.09. Balloting. Upon the demand of any shareholder, the vote
------------ ---------
upon any question before a meeting of shareholders shall be taken by ballot. At
each shareholders' meeting inspectors of election may be appointed by the
presiding officer of the meeting, and at any meeting for the election of
directors inspectors of election shall be so appointed on the demand of any
shareholder present or represented by proxy and entitled to vote in such
election of directors. No director or candidate for the office of director
shall be appointed as an inspector of election. The number of votes cast by
shares in any election of directors shall be recorded in the minutes of the
meeting at which such election was held.
Section 3.10. Record of Shareholders. The Company shall keep at its
------------ ----------------------
principal business office, or at the office of its transfer agents or
registrars, a record of the original issuance of shares issued by the Company
and a record of each transfer of those shares that have been presented to the
Company for registration or transfer. Such records shall contain the names and
addresses of all past and current shareholders of the Company and the number and
class of shares issued by the Company held by each of them.
Section 3.11. Actions Without a Meeting. Any action required by statute
------------ -------------------------
to be taken at any annual or special meeting of shareholders, or any action
which may be taken at any annual or special meeting of shareholders, may be
taken without a meeting, without prior notice, and without a vote, if a consent
or consents in writing, setting forth the action so taken, shall be signed by
the holder or holders of all shares entitled to vote with respect to the action
that is subject to the consent.
A telegram, telex, cablegram or similar transmission by a shareholder, or a
photographic, photostatic, facsimile or similar reproduction of a writing signed
by a shareholder, shall be regarded as signed by the shareholder for purposes of
this Section 3.11. If any action by shareholders is taken by written consent,
any articles or documents filed with the Secretary of State as a result of the
taking of the action shall state, in lieu of any statement required by statute
concerning any vote of shareholders, that written consent has been given in
accordance with the provisions of Article 9.10 of the Texas Business Corporation
Act and that any written notice required by such Article 9.10 has been given.
Any such signed written consent shall be placed in the minute book of the
Company.
7
<PAGE>
ARTICLE IV
BOARD OF DIRECTORS
------------------
Section 4.01. Qualification and Number.
------------ ------------------------
(a) The property, business and affairs of the Company shall be managed and
controlled by the Board of Directors and, subject to any restrictions imposed by
law, by the Articles of Incorporation or by these Bylaws, the Board of Directors
may exercise all the powers of the Company. Directors need not be residents of
Texas or shareholders of the Company absent provision to the contrary in the
Articles of Incorporation or laws of the State of Texas.
(b) The number of directors of the Company (exclusive of directors to be
elected by the holders of any one or more classes or series of preferred stock
of the Company or any other class or series of stock of the Company, other than
the common stock, which may at some time by outstanding, voting separately as a
class or classes) shall be fixed at seven and may thereafter be increased,
subject to Section 7.02 of these Bylaws, or decreased (provided that any
decrease does not shorten the term of any incumbent director) from time to time
by amendment of these Bylaws. Such number shall, without the necessity of any
amendment of this Section 4.01(b), automatically be increased from time to time
as may be necessary to permit the inclusion of the Board of Directors of any
director elected by a separate vote of holders of any one or more classes or
series of preferred stock of the Company, or any other class or series of stock
of the Company, other than common stock, that are outstanding at the time of
such increase.
Section 4.02. Term, Removal and Vacancies.
------------ ---------------------------
(a) The Board of Directors (exclusive of directors to be elected by the
holders of any one or more classes or series of preferred stock of the Company
or any other class or series of stock of the Company other than the common
stock, which may at some time be outstanding, voting separately as a class or
classes) shall be divided into three classes, as nearly equal in number as
possible, with the term of office of one class expiring each year. At the first
election of directors following the adoption of these Bylaws, the directors of
the first class shall be elected to hold office for a term expiring at the next
succeeding annual meeting, the directors of the second class shall be elected to
hold office for a term expiring at the second succeeding annual meeting and the
directors of the third class shall be elected to hold office for a term expiring
at the third succeeding annual meeting. At each annual meeting of shareholders,
the respective successors to the class of directors whose terms shall then
expire shall be elected to hold office for a term expiring at the third
succeeding annual meeting. Any increase in the number of directors elected by
holders of common stock shall be apportioned among the classes of directors so
as to make each class as nearly equal in number as possible.
(b) Notwithstanding any other provisions of the Articles of Incorporation
or the Bylaws (and notwithstanding the fact that some lesser percentage may be
specified by law, the Articles of Incorporation or these Bylaws), any director
or the entire board of directors may be
8
<PAGE>
removed with or without cause only by the affirmative vote of not less than the
holders of two-thirds of all shares of stock of the Company entitled to vote at
a meeting of shareholders, voting together as a single class. Notwithstanding
the foregoing, and except as otherwise required by law, whenever the holders of
any one or more classes or series of preferred stock of the Company or any other
class or series of stock of the Company other than the common stock, which may
at some time be outstanding, shall have the right, voting separately as a class
or classes, to elect one or more directors of the Company, the provisions of
this Section 4.02(b) shall not apply with respect to the director or directors
elected by such holders of preferred stock or other stock.
(c) Any vacancies in the Board of Directors, for any reason, and any newly
created directorships resulting from any increase in the number of directors (to
the extent permitted by law) shall be filled by the Board of Directors, acting
by not less than a majority of the directors then in office, even if less than a
quorum (which majority may consist of a sole remaining director). Any directors
so chosen to fill any such vacancies or newly created directorships shall,
unless otherwise required by law, hold office until next election of the class
for which such directors shall have been chosen and until their respective
successors shall be duly elected and qualified. Notwithstanding the foregoing,
and except as otherwise required by law, whenever the holders of any one or more
classes or series of preferred stock of the Company or any other class or series
of stock of the Company other than the common stock, which may at some time be
outstanding, shall have the right, voting separately as a class or classes, to
elect one or more directors of the Company, the provisions of this Section
4.02(c) shall not apply with respect to the director or directors elected by
such holders of preferred stock or other stock.
(d) At the first meeting of the Board of Directors (or unanimous consent in
lieu thereof) following each annual shareholders' meeting, the Board of
Directors may elect one or more advisory directors, to serve until their
successors are elected and qualify, or until their earlier death or resignation.
The advisory directors shall be given notice of meetings of the Board of
Directors and the opportunity to attend and participate in such meetings. The
advisory directors shall not be entitled to vote in respect of any matters voted
in by the Board of Directors and shall not be counted for any purpose in
determining the presence of any meeting or a quorum of directors or the number
of members constituting the Board of Directors.
Section 4.03. Nominations. No person (other than a person nominated or
------------ -----------
recommended for nomination by the Board of Directors or any nominating committee
thereof or any person to be elected by the holders of any one or more classes or
series of preferred stock of the Company or any other class or series of stock
of the Company other than the common stock which may be outstanding at some
time, voting separately as a class or classes) shall be eligible for election as
a director at any annual or special meeting of shareholders unless a written
notice regarding such person's nomination, together with the written consent of
such person to serve as a director, is received from a shareholder of record by
the Secretary of the Company not later than the close of business on the tenth
day following the date on which notice of such meeting is first given to
shareholders. Each such notice shall set forth (i) the name, age, business
address and residence address of each nominee proposed in such notice, (ii) the
principal
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occupation or employment of each such nominee, (iii) the number of shares of
stock of the Company which are beneficially owned by each such nominee, and (iv)
such other information in respect of such nominee as would be required by the
federal securities laws and the rules and regulations promulgated thereunder in
respect of any individual nominated as a director of the Company and for whom
proxies are solicited by the board of directors. The Chairman of any meeting of
shareholders may, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the foregoing procedure, and
if he should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
Section 4.04. Regular Meetings. Regular meetings of the Board of
------------ ----------------
Directors shall be held immediately following each annual meeting of
shareholders, at the place of such annual meeting, and at such other times and
places, within or without the State of Texas, as the Board of Directors shall
determine. No notice of any kind of such regular meetings is required to be
given to either old or new members of the Board of Directors.
Section 4.05. Special Meetings. Special meetings of the Board of
------------ ----------------
Directors shall be held at any time pursuant to call of the Chairman of the
Board and Chief Executive Officer, the President or four directors. The
Secretary shall give notice of each special meeting to each director at the
director's usual business or residence address by mail at least seven (7) days
before such meeting, or in person, by telegraph, telex or telephone at least one
(1) day before such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail with postage thereon prepaid.
Except as otherwise provided by law, by the Articles of Incorporation, or by
these Bylaws, such notice need not specify the business to be transacted at, or
the purpose of, such meeting. The signing of a written waiver of notice of any
special meeting by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be equivalent to the receipt by such
person or persons of all notice required to be given with respect to such
meeting. Attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, except where a director attends a meeting for the
express and announced purpose of objecting to the transaction of any business on
the ground that the meeting is not lawfully called or convened.
Section 4.06. Quorum and Voting. A majority of the number of directors
------------ -----------------
fixed by these Bylaws shall constitute a quorum of the Board of Directors for
the transaction of business, and the vote of a majority of the directors present
at a meeting at which a quorum is present shall be and constitute the act of the
Board of Directors, unless the act of a greater number shall be required by law,
by the Articles of Incorporation, or by these Bylaws. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn such meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 4.07. Procedure at Meetings. The Board of Directors, at each
------------ ---------------------
regular meeting held immediately following the annual meeting of shareholders,
may appoint one of their number as chairman. The chairman, if one is appointed,
shall preside at meetings of the Board. In his absence at any meeting or if a
chairman is not appointed, any officer authorized by these Bylaws
10
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or any member of the Board selected by the members present shall preside. The
Secretary of the Company shall act as secretary at all meetings of the Board.
In his absence, the presiding officer of the meeting may designate any person to
act as secretary. At meetings of the Board of Directors, the business shall be
transacted in such order as the Board may from time to time determine.
Section 4.08. Presumption of Assent. Any director of the Company who is
------------ ---------------------
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless a
dissent shall be entered in the minutes of the meeting, or unless the director
shall file a written dissent to such action with the person acting as secretary
of the meeting before the adjournment thereof or shall forward such written
dissent by registered mail to the Secretary of the Company immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
Section 4.09. Compensation. The directors may be paid their expenses, if
------------ ------------
any, of attendance at each meeting of the Board of Directors or at any meeting
of the Executive Committee or any other committee of the Board of Directors, if
any, to which such director may be elected in accordance with Section 4.10 or
4.11 of these Bylaws and may be paid a fixed sum for attendance at each meeting
of the Board of Directors and, unless otherwise prescribed by law, the Articles
of Incorporation or these Bylaws, such other compensation as may from time to
time be fixed by the Board of Directors. No such compensation shall preclude
any director from serving the Company in any other capacity and receiving
compensation therefor.
Section 4.10. Executive Committee. The Board of Directors, by resolution
------------ -------------------
adopted by a majority of the full Board of Directors, may designate an Executive
Committee, which committee shall consist of one or more of the directors of the
Company and may consist of one or more of the directors of the Company as
alternative members, who may, subject to any limitations imposed by the Board of
Directors, replace absent or disqualified members at any meeting of the
Executive Committee. The Executive Committee may exercise such authority of the
Board of Directors in the conduct of the business and affairs of the Company as
the Board of Directors may, by resolution duly adopted, delegate to it, except
as prohibited or limited by law. The designation of such Executive Committee
and the delegation thereto of authority shall not operate to relieve the Board
of Directors, or any member thereof, of any responsibility imposed by law. Any
member of the Executive Committee may be removed, with or without cause, at any
time by the Board of Directors. The Executive Committee shall keep regular
minutes of its proceedings and shall report the same to the Board of Directors
when required. The minutes of the proceedings of the Executive Committee shall
be placed in the minute book of the Company. Members of the Executive Committee
shall receive such compensation as may be approved by the Board of Directors for
such service and will be reimbursed for reasonable expenses actually incurred by
reason of membership on the Executive Committee.
Section 4.11. Other Committees. The Board of Directors, by resolution
------------ ----------------
adopted by a majority of the full Board of Directors, may designate from among
its members one or more
11
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additional committees, each of which shall be comprised of one or more of its
members, and may designate one or more of its members as alternate members of
any committee, who may, subject to any limitation imposed by the Board of
Directors, replace absent or disqualified members at any meeting of that
committee. Such committees may exercise such authority of the Board of
Directors in the conduct of the business and affairs of the Company as the Board
of Directors may, by resolution duly adopted, delegate, except as prohibited or
limited by law. The designation of any such committee and the delegation
thereto of authority shall not operate to relieve the Board of Directors, or any
member thereof, of any responsibility imposed by law. Any member of such a
committee may be removed, with or without cause, at any time by the Board of
Directors. Each such committee shall keep regular minutes of its proceedings
and shall report the same to the Board of Directors when required. The minutes
of the proceedings of each such committee shall be placed in the minute book of
the Company. Members of any such committees shall receive such compensation as
may be approved by the Board of Directors for such service and will be
reimbursed for reasonable expenses actually incurred by reason of membership on
such committee.
Section 4.12. Action Without a Meeting. Any action required by statute to
------------ ------------------------
be taken at a meeting of the Board of Directors of the Company, or which may be
taken at such meeting or at a meeting of any committee appointed by the Board of
Directors, may be taken without a meeting if a consent in writing, setting forth
the action so taken, shall be signed by each director entitled to vote at such
meeting, and such consent shall have the same force and effect as a unanimous
vote of the directors. Such signed consent, or a signed copy thereof, shall be
placed in the minute book of the Company.
ARTICLE V
OFFICERS
--------
Section 5.01. Number. The officers of the Company shall consist of a
------------ ------
Chairman of the Board and Chief Executive Officer, a President, one or more Vice
Presidents, a Secretary, a Treasurer, and, in addition, such other officers and
assistant officers and agents as may be deemed necessary or desirable. Officers
shall be elected or appointed by the Board of Directors. In its discretion, the
Board of Directors may leave unfilled any office or offices, except those of
President, Treasurer and Secretary. Two or more offices may be held by the same
person.
Section 5.02. Election; Term; Qualification. Officers shall be chosen by
------------ -----------------------------
the Board of Directors annually at the first meeting of the Board of Directors
following each annual shareholders' meeting. Each officer shall hold office
until a successor has been chosen and qualified, or until the officer's death,
resignation, or removal.
Section 5.03. Removal. Any officer or agent elected or appointed by the
------------ -------
Board of Directors may be removed by the Board of Directors, with or without
cause, whenever in its judgment the best interests of the Company will be served
thereby, but such removal shall be
12
<PAGE>
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create any
contract rights.
Section 5.04. Vacancies. Any vacancy in any office for any cause may be
------------ ---------
filled by the Board of Directors at any meeting.
Section 5.05. Duties. The officers of the Company shall have such powers
------------ ------
and duties, except as modified by the Board of Directors, as generally pertain
to their respective offices, as well as such powers and duties as from time to
time may be conferred by the Board of Directors and by these Bylaws.
Section 5.06. The Chairman of the Board and Chief Executive Officer. The
------------ -----------------------------------------------------
Chairman of the Board and Chief Executive Officer shall be the chief executive
officer of the Company, shall have general direction of the business and affairs
of the Company and general supervision over its several officers, subject,
however, to the control of the Board of Directors and shall see that all orders
and resolutions of the Board of Directors are carried into effect. The Chairman
of the Board and Chief Executive Officer may sign, with the Secretary or an
Assistant Secretary, certificates representing shares of stock of the Company.
The Chairman of the Board and Chief Executive Officer shall execute and deliver,
in the name and on behalf of the Company, (i) contracts or other instruments
authorized by the Board of Directors, and (ii) contracts or instruments in the
usual and regular course of business, pursuant to Section 6.02 hereof, except in
cases when the execution and delivery thereof shall be expressly delegated or
permitted by the Board of Directors or by these Bylaws to some other officer or
agent of the Company, and, in general, shall perform all duties incident to the
office of Chairman of the Board and Chief Executive Officer and such other
duties as from time to time may be assigned to him by the Board of Directors or
as are prescribed by these Bylaws.
Section 5.07. The President. The President shall be the chief operating
------------ -------------
officer of the Company. The President shall in the absence of the Chairman of
the Board and Chief Executive Officer, perform the duties and exercise the power
of the Chairman of the Board and Chief Executive Officer and shall perform such
other duties and have such other powers as the Board of Directors may from time
to time prescribe. The President may sign certificates of stock of the Company.
Section 5.08. The Vice Presidents. At the request of the Chairman of the
------------ -------------------
Board and Chief Executive Officer or the President, or in their absence or
disability, the Vice Presidents, or any of them, in the order of their election
or in any other order determined by the Board of Directors, shall perform the
duties of the Chairman of the Board and Chief Executive Officer or the
President, and, when so acting, shall have all the powers of, and be subject to
all restrictions upon, the Chairman of the Board and Chief Executive Officer or
the President. Any action taken by a Vice President in the performance of the
duties of the Chairman of the Board and Chief Executive Officer or the President
shall be conclusive evidence of the absence or inability to act of the Chairman
of the Board and Chief Executive Officer or the President at the time such
action was taken. The Vice Presidents shall perform such other duties as may,
from
13
<PAGE>
time to time, be assigned to them by the Board of Directors or the Chairman of
the Board and Chief Executive Officer or the President. A Vice President may
sign, with the Secretary or an Assistant Secretary, certificates representing
shares of stock of the Company.
Section 5.09. Secretary. The Secretary shall keep the minutes of all
------------ ---------
meetings of the shareholders, of the Board of Directors, and of the Executive
Committee, if any, and any other committees of the Board of Directors, in one or
more books provided for such purpose and shall see that all notices are duly
given in accordance with the provisions of these Bylaws or as required by law.
The Secretary shall be the custodian of the corporate records and of the seal,
if any, of the Company and shall see, if the Company has a seal, that the seal
of the Company is affixed to all documents, the execution of which on behalf of
the Company under its seal is duly authorized. The Secretary shall have general
charge of the stock certificate books, transfer books and stock ledgers, and
such other books and papers of the Company as the Board of Directors may direct,
all of which shall, at all reasonable times, be open to the examination of any
director upon application at the principal business office of the Company during
business hours, and, in general, shall perform all duties and exercise all
powers incident to the office of Secretary and such other duties and powers as
the Board of Directors or the President from time to time may assign to or
confer upon him.
Section 5.10. Treasurer. The Treasurer shall keep complete and accurate
------------ ---------
records of account, showing at all times the financial condition of the Company.
The Treasurer shall be the legal custodian of all money, notes, securities and
other valuables which may from time to time come into the possession of the
Company. The Treasurer shall furnish at meetings of the Board of Directors, or
whenever requested, a statement of the financial condition of the Company, and
shall perform such other duties as these Bylaws may require or the Board of
Directors may prescribe.
Section 5.11. Assistant Officers. Any Assistant Secretary or Assistant
------------ ------------------
Treasurer appointed by the Board of Directors shall have power to perform, and
shall perform, all duties incumbent upon the Secretary or Treasurer of the
Company, respectively, subject to the general direction of such respective
officers, and shall perform such other duties as these Bylaws may require or the
Board of Directors may prescribe.
Section 5.12. Salaries. The salaries or other compensation of the
------------ --------
officers of the Company shall be fixed from time to time by the Board of
Directors. No officer shall be prevented from receiving such salary or other
compensation by reason of the fact that he is also a director of the Company.
Section 5.13. Bonds of Officers. The Board of Directors may secure the
------------ -----------------
fidelity of any officer of the Company by bond or otherwise, on such terms and
with such surety or sureties, conditions, penalties or securities as shall be
deemed proper by the Board of Directors.
Section 5.14. Delegation. The Board of Directors may delegate temporarily
------------ ----------
the powers and duties of any officer of the Company, in case of his absence or
for any other reason, to any
14
<PAGE>
other officer of the Company, and may authorize the delegation by any officer of
the Company of any of his powers and duties to any agent or employee of the
Company, subject to the general supervision of such officer.
ARTICLE VI
MISCELLANEOUS
-------------
Section 6.01. Dividends and Other Distributions. Dividends and other
------------ ---------------------------------
distributions on or with respect to the outstanding shares of stock of the
Company, subject to the provisions of the Texas Business Corporation Act and of
the Articles of Incorporation, if any, concerning same, may be declared by the
Board of Directors at any regular or special meeting. Dividends may be declared
and paid in cash, in property or in the Company's own shares, except as
otherwise provided by law. Subject to limitations upon the authority of the
Board of Directors imposed by law or by the Articles of Incorporation, the
declaration and provision for payment of dividends shall be at the discretion of
the Board of Directors. Any dividend or other distribution declared pursuant to
this Section 6.01 shall be payable to the persons registered as shareholders of
the Company on the Company's share transfer records as of the record date for
such dividend or other distribution as set pursuant to these Bylaws, and the
person in whose name shares are registered in the share transfer records of the
Company as of such record date shall be deemed to be the owner of the shares so
registered in his name at such time.
Section 6.02. Contracts. The Chairman of the Board and Chief Executive
------------ ---------
Officer and the President shall have the power and authority to execute and
deliver, in the name and on behalf of the Company, contracts or instruments in
the usual and regular course of business, and, in addition, the Board of
Directors may authorize any officer or officers, or any agent or agents, of the
Company to enter into any contract or execute and deliver any instrument in the
name and on behalf of the Company, and such authority may be general or may be
confined to specific instances. Unless so authorized by the Board of Directors
or by these Bylaws, no officer, agent or employee shall have any power or
authority to bind the Company by any contract or engagement, or to pledge its
credit or to render it pecuniarily liable for any purpose or in any amount.
Section 6.03. Checks, Drafts, Etc. All checks, drafts or other orders for
------------ --------------------
the payment of money, notes or other evidences of indebtedness issued in the
name of the Company shall be signed by such officers or employees of the Company
as shall from time to time be authorized pursuant to these Bylaws or by
resolution of the Board of Directors.
Section 6.04. Depositories. All funds of the Company shall be deposited
------------ ------------
from time to time to the credit of the Company in such banks or other
depositories as the Board of Directors may from time to time designate, and upon
such terms and conditions as shall be fixed by the Board of Directors. The
Board of Directors may from time to time authorize the opening and
15
<PAGE>
maintaining with any such depository as it may designate of general and special
accounts, and may make such special rules and regulations with respect thereto
as it may deem expedient.
Section 6.05. Endorsement of Stock Certificates. Subject to the specific
------------ ---------------------------------
directions of the Board of Directors, any certificate representing any share or
shares of stock issued by a corporation and owned by the Company, including
reacquired shares of the Company's own stock, may, for sale or transfer, be
endorsed in the name of the Company by the Chairman of the Board and Chief
Executive Officer, the President or any Vice President, and such endorsement may
be attested or witnessed by the Secretary or any Assistant Secretary, either
with or without the affixing thereto of the corporate seal of the Company.
Section 6.06. Corporate Seal. The Board of Directors may by resolution
------------ --------------
adopt a corporate seal for the Company, but the Company shall not be required to
have a corporate seal. The corporate seal, if any, of the Company shall be in
such form as the Board of Directors shall approve, and such seal, or a facsimile
thereof, may be impressed on, affixed to or in any manner reproduced upon
instruments of any nature required to be executed by officers of the Company.
Section 6.07. Fiscal Year. The fiscal year of the Company shall begin and
------------ -----------
end on such dates as the Board of Directors at any time shall determine.
Section 6.08. Books and Records. The Company shall keep correct and
------------ -----------------
complete books and records of account and shall keep minutes of the proceedings
of its shareholders and Board of Directors, and shall keep at its registered
office or principal place of business, or at the office of its transfer agent or
registrar, a record of its shareholders, giving the names and addresses of all
shareholders and the number and class of the shares held by each.
Section 6.09. Resignations. Any director or officer of the Company may
------------ ------------
resign at any time. Such resignations shall be made in writing and shall take
effect at the time specified therein, or, if no time is so specified, at the
time of receipt by the President or Secretary of the Company. The acceptance of
a resignation shall not be necessary to make it effective, unless expressly so
provided in the resignation.
Section 6.10. Indemnification of Officers and Directors.
------------ -----------------------------------------
(a) The Company shall indemnify any person who was or is a named
defendant or respondent or is threatened to be made a named defendant or
respondent to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative or investigative, any
appeal to such an action, suit or proceeding and any inquiry or investigation
that could lead to such an action, suit or proceeding (collectively, such
actions, suits, proceedings, appeals, inquiries and investigations are referred
to collectively as "Proceedings" and individually as "Proceeding") by reason of
the fact that such person either is or was a director or officer of the Company,
or, while a director or officer of the Company, is or was serving at the request
of the Company as a director, officer, partner, venturer,
16
<PAGE>
proprietor, trustee, employee, agent or similar functionary of another domestic
or foreign corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise, against judgments, penalties
(including excise and similar taxes), fines, settlements and reasonable expenses
actually incurred by such person in connection with such Proceeding if it is
determined that such person conducted himself in good faith, and if such conduct
was in such person's official capacity as a director or officer of the Company,
in a manner he reasonably believed to be in the best interests of the Company
and, in all other cases, in a manner he reasonably believed was not opposed to
the best interests of the Company, and, in the case of any criminal Proceeding,
had no reasonable cause to believe his conduct was unlawful, provided that if a
person is found liable to the Company or is found liable on the basis that
personal benefit was improperly received by him, the indemnification (i) shall
be limited to reasonable expenses (including court costs and attorneys' fees)
actually incurred by the person in connection with the Proceeding and (ii) shall
not be made in respect of any Proceeding in which the person shall have been
found liable for willful or intentional misconduct in the performance of his
duty to the Company. The Company may pay or reimburse expenses incurred by a
director or officer in connection with such persons appearance as a witness or
other participation in a Proceeding at a time when such person is not a named
defendant or respondent in such Proceeding.
(b) The determination to be made in such subsection (a) of this
Section 6.10 shall be made (i) by the Board of Directors by a majority vote of a
quorum consisting of directors who at the time of the vote are not named
defendants or respondents in the Proceeding; or (ii) if such a quorum cannot be
obtained, by a majority vote of a committee of the Board of Directors,
designated to act in the matter by a majority vote of all directors, consisting
solely of two or more directors who at the time of the vote are not named
defendants or respondents to the Proceeding; or (iii) by special legal counsel
selected by the Board of Directors or a committee of the Board by vote as set
forth in subsection (i) or (ii), or, if such a quorum cannot be obtained and
such a committee cannot be established, by a majority vote of all directors; or
(iv) by the shareholders in a vote that excludes the shares held by directors
who are named defendants or respondents in the Proceeding. A determination as
to the reasonableness of expenses (including court costs and attorneys' fees)
shall be made in the same manner as the determination that indemnification is
permissible; provided, however, that if the determination required to be made
under subsection (a) of this Section 6.10 is made by special legal counsel, the
determination as to reasonableness of expenses shall be made in the manner
specified in this subsection (b)(iii) for the selection of legal counsel.
(c) Reasonable expenses incurred by a director or officer in
connection with a Proceeding, may be paid by the Company in advance of the final
disposition of such Proceeding and without any of the determinations specified
in subsection (b) of this Section 6.10 upon receipt by the Company of a written
affirmation by the director or officer of his good faith belief that he has met
the standard of conduct necessary for indemnification under this Section 6.10
and a written undertaking by or on behalf of the director or officer to repay
such amount if it is ultimately determined that he is not entitled to be
indemnified by the Company as
17
<PAGE>
authorized in this Section 6.10, which undertaking shall be an unlimited general
obligation of such director or officer and may be unsecured.
(d) The right to indemnification conferred in this Section 6.10 shall
be a contract right and shall not be deemed exclusive of any other rights to
which those identified may be entitled under any other law, bylaw, agreement,
vote of shareholder or disinterested directors, or otherwise, both as to action
in their official capacities and as to action in another capacity while acting
as a director or officer and shall continue as to a person who has ceased to be
a director or officer and shall insure to the benefit of their heirs, executors
and administrators of such person. Any indemnification of or advance of
expenses to a director or officer in accordance with this Section 6.10 shall be
reported in writing to the shareholders in accordance with the provisions of
Article 2.02-1 of the Texas Business Corporation Act or any successor provision
thereto.
(e) The Company may purchase and maintain insurance on behalf of any
person who is or was a director, officer or employee of the Company, or who is
or was serving at the request of the Company as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, other enterprise, or employee benefit plan, against any
liability asserted against or incurred by that person in such a capacity or
arising out of his status as such a person, whether or not the Company would
have the power to indemnify such person against such liability under this
Section 6.10.
(f) The Company intends that the indemnification provided hereunder
shall indemnify its officers and directors to the fullest extent possible under
the Texas Business Corporation Act; and if any indemnification which would
otherwise be granted by this Section 6.10 shall be disallowed by any competent
court or administrative body as illegal, then any officer or director with
respect to whom such adjudication was made, and any other officer or director,
shall be indemnified to the fullest extent permitted under the Texas Business
Corporation Act.
Section 6.11. Meetings by Conference Telephone. Subject to the provisions
------------ --------------------------------
of these Bylaws or the laws of the State of Texas concerning notice of meetings,
shareholders, members of the Board of Directors or members of any committee
designated by the Board of Directors may participate in and hold any meeting
required or permitted under these Bylaws or the laws of the State of Texas by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
Participation in a meeting pursuant to this Section 6.11 shall constitute
presence in person at such meeting, except where a person participates in the
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
18
<PAGE>
ARTICLE VII
BYLAWS
------
Section 7.01. Amendments. These Bylaws may be altered, amended or
------------ ----------
repealed, or new Bylaws may be adopted, by the affirmative vote of a majority of
the Board of Directors at any duly held meeting of the Board of Directors, or by
the holders of a majority of the shares represented at any duly held meeting of
shareholders, provided that notice of such proposed action shall have been
contained in the notice of any such meeting.
Section 7.02. Restrictions on Amendments. Notwithstanding any other
------------ --------------------------
provisions of these Bylaws and in addition to any requirements of the provisions
of any class or series of stock of the Company that may be outstanding, no
amendment to these Bylaws shall amend, alter, change or repeal any of the
provisions of this Section 7.02 or Section 4.02 of these Bylaws, nor shall any
amendment increase or decrease the number of directors provided in accordance
with Section 4.01(b) of these Bylaws, unless such amendment, alteration, change
or repeal shall receive either (a) the affirmative vote of the holders of not
less than two-thirds of all shares of stock of the Company entitled to vote at a
meeting of shareholders, voting together as a single class; or (b) the
affirmative vote of a majority of directors in office.
19
<PAGE>
CERTIFICATE OF SECRETARY
------------------------
The undersigned, being the duly elected and acting Secretary of
PetroCorp Incorporated hereby certifies that the foregoing Bylaws were duly
adopted by the Board of Directors of said corporation, effective
August 1, 1996.
IN WITNESS WHEREOF, I have hereunto set my hand on this 1st day of
August, 1996.
/s/ Craig K. Townsend
---------------------------------------------
Craig K. Townsend, Secretary
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> APR-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 22,898 22,898
<SECURITIES> 0 0
<RECEIVABLES> 5,267 5,267
<ALLOWANCES> (50) (50)
<INVENTORY> 0 0
<CURRENT-ASSETS> 28,522 28,522
<PP&E> 169,153 169,153
<DEPRECIATION> (81,193) (81,193)
<TOTAL-ASSETS> 116,827 116,827
<CURRENT-LIABILITIES> 15,977 15,977
<BONDS> 0 0
0 0
0 0
<COMMON> 86 86
<OTHER-SE> 63,216 63,216
<TOTAL-LIABILITY-AND-EQUITY> 116,827 116,827
<SALES> 6,938 13,814
<TOTAL-REVENUES> 7,389 14,919
<CGS> 0 0
<TOTAL-COSTS> 5,980 11,998
<OTHER-EXPENSES> (7) (7)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 892 1,800
<INCOME-PRETAX> 768 2,547
<INCOME-TAX> 248 778
<INCOME-CONTINUING> 768 2,547
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 520 1,769
<EPS-PRIMARY> .06 .20
<EPS-DILUTED> .06 .20
</TABLE>
