<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. ___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
PETROCORP INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
___________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
___________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
___________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
___________________________________________________________________________
5) Total fee paid:
___________________________________________________________________________
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
<PAGE>
PETROCORP INCORPORATED
16800 Greenspoint Park Drive
Suite 300, North Atrium
Houston, Texas 77060
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held October 28, 1999
To the Shareholders of
PetroCorp Incorporated:
Notice is hereby given that the Annual Meeting of Shareholders (the "Annual
Meeting") of PetroCorp Incorporated (the "Company") will be held at the
Company's offices, 16800 Greenspoint Park Drive, Suite 300, North Atrium,
Houston, Texas 77060, at 11:00 a.m., Houston time, on Thursday, October 28,
1999, for the following purposes:
1. To approve a Management Agreement between the Company and Kaiser-
Francis Oil Company, a Delaware corporation ("KFOC"), pursuant to which
KFOC will provide management and administrative support services for all of
the Company's operations and the operations of its wholly-owned
subsidiaries, both in the United States and in Canada, as more fully
described in the attached Proxy Statement. The Management Agreement is more
completely described in the accompanying Proxy Statement and a copy of the
Management Agreement is attached as Annex A.
2. To elect two persons to serve as directors of the classified
Board of Directors until the 2002 annual meeting and until their successors
are elected and have qualified.
3. To ratify the reappointment of PricewaterhouseCoopers LLP as the
Company's independent accountants for the fiscal year ending December 31,
1999.
4. To transact such other business as may properly come before the
Annual Meeting or any adjournment or adjournments thereof.
Shareholders of record at the close of business on September 27, 1999 will
be entitled to notice of and to vote at the Annual Meeting and any adjournment
or adjournments thereof.
Shareholders are cordially invited to attend the Annual Meeting in person.
Those who will not attend and who wish their shares voted are requested to sign,
date and mail promptly the enclosed proxy for which a stamped return envelope is
provided.
By Order of the Board of Directors,
Craig K. Townsend, Secretary
Houston, Texas
September 30, 1999
WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE ANNUAL MEETING, YOU ARE URGED TO
SIGN, DATE AND MAIL THE ENCLOSED PROXY PROMPTLY. IF YOU ATTEND THE ANNUAL
MEETING, YOU CAN VOTE EITHER IN PERSON OR BY YOUR PROXY.
<PAGE>
PETROCORP INCORPORATED
16800 Greenspoint Park Drive
Suite 300, North Atrium
Houston, Texas 77060
_________________
PROXY STATEMENT
_________________
SOLICITATION AND REVOCABILITY OF PROXIES
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of PetroCorp Incorporated, a Texas
corporation (the "Company"), for use at the Annual Meeting of Shareholders to be
held on Thursday, October 28, 1999, at the Company's offices, 16800 Greenspoint
Park Drive, Suite 300, North Atrium, Houston, Texas 77060, at 11:00 a.m.,
Houston time, and at any adjournment or adjournments thereof (such meeting and
adjournment(s) thereof referred to as the "Annual Meeting"). It is anticipated
that the proxy and this Proxy Statement will be mailed to shareholders on or
about September 30, 1999.
In addition to solicitation by mail, solicitation of proxies may be made by
personal interview, special letter, telephone or telegraph by the officers,
directors and employees of the Company. Brokerage firms will be requested to
forward proxy materials to beneficial owners of shares registered in the names
of such firms and will be reimbursed for their expenses. The cost of
solicitation of proxies will be paid by the Company.
A proxy received by the Company may be revoked by the shareholder giving
the proxy at any time before it is exercised. A shareholder may revoke a proxy
by notification in writing to the Company at 16800 Greenspoint Park Drive, Suite
300, North Atrium, Houston, Texas 77060, Attention: Secretary. A proxy may also
be revoked by execution of a proxy bearing a later date or by attendance at the
Annual Meeting and voting by ballot. A proxy in the form accompanying this Proxy
Statement, when properly executed and returned, will be voted in accordance with
the instructions contained therein. A proxy received by the Company which does
not withhold authority to vote or on which no specification has been indicated
will be voted in favor of approval of the Management Agreement (the "Management
Agreement") between the Company and Kaiser-Francis Oil Company, a Delaware
corporation ("KFOC"), described in this Proxy Statement and attached as Annex A,
in favor of the nominees for director named in this Proxy Statement and in favor
of the reappointment of PricewaterhouseCoopers LLP as the Company's independent
accountants.
Quorum and Transaction of Business
A quorum for the transaction of business at the Annual Meeting will be
present if the holders of a majority of the shares of Common Stock entitled to
vote are represented at the Annual Meeting in person or by proxy. Abstentions
and broker non-votes are counted as present in determining whether the quorum
requirement is satisfied. The affirmative vote of the holders of a majority of
shares of Common Stock excluding shares owned by KFOC (the "Disinterested
Shares") will be required to approve the Management Agreement. Directors will be
elected by a plurality of the votes cast by the holders at the Annual Meeting.
Ratification of the reappointment of the Company's independent accountants
requires a majority of the shares entitled to vote and as to which votes are
cast at the Annual Meeting. In the event the shareholders do not approve the
reappointment of PricewaterhouseCoopers LLP to audit the Company's financial
statements, the Audit Committee and Board of Directors will consider the
appointment of other accountants. Abstentions from voting on any matter will be
included in the voting tally and will have the same effect as a vote withheld on
the election of directors or against the approval of the Management Agreement or
ratification of the appointment of the independent accountants, as the case may
be. Because broker non-votes are not considered "shares present" with respect to
matters decided by a plurality of the votes or requiring the affirmative vote of
a majority of shares represented in person or by proxy at the Annual Meeting,
broker non-votes will not affect the
<PAGE>
outcome with respect to the approval of the Management Agreement, the election
of directors or the ratification of the reappointment of the independent
accountants.
At the date of this Proxy Statement, management of the Company does not
know of any business to be presented at the Annual Meeting other than those
matters set forth in the Notice accompanying this Proxy Statement. If any other
business should properly come before the Annual Meeting, it is intended that the
shares represented by proxies will be voted with respect to such business in
accordance with the judgment of the persons named in the proxy.
WHERE CAN YOU FIND MORE INFORMATION ABOUT THE COMPANY?
PetroCorp Incorporated files annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information filed by the
Company at the Securities and Exchange Commission's public reference rooms at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following regional offices of the Securities and Exchange Commission: Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and 7
World Trade Center, Suite 1300, New York, New York 10048. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on
the public reference rooms. The Company's filings are also available to the
public from commercial document retrieval services and at the Internet web site
maintained by the Securities and Exchange Commission at http://www.sec.gov.
The Securities and Exchange Commission allows the Company to "incorporate
by reference" information into this Proxy Statement. This means that we may
disclose important information to you by referring you to another document filed
separately with the Securities and Exchange Commission. The information
incorporated by reference is considered to be part of this Proxy Statement,
except for any information modified or superseded by information in (or
incorporated by reference in) this Proxy Statement. This Proxy Statement
incorporates by reference the documents set forth below that have been
previously filed with the Securities and Exchange Commission. The documents
contain important information about the Company and its finances.
PetroCorp Incorporated Securities and Exchange Commission Filings
(File No. 0-22650)
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1998, as
amended on Form 10-K/A filed by the Company on April 13, 1999; and
2. Quarterly Report on Form 10-Q for the period ended June 30, 1999, filed by
the Company on August 16, 1999.
The Company is also incorporating by reference additional documents that it
may file with the Securities and Exchange Commission between the date of this
Proxy Statement and the date of the Annual Meeting of shareholders. Statements
contained in documents incorporated by reference may be modified or superseded
by later statements in this Proxy Statement or by statements in subsequent
documents incorporated by reference, in which case you should refer to the later
statement.
The Company will provide, without charge, a copy of any or all of its
documents incorporated by reference in this Proxy Statement (other than exhibits
to such documents, unless the exhibits are specifically incorporated by
reference in such documents). You may obtain documents incorporated by reference
in this Proxy Statement by requesting them in writing or by telephone from the
appropriate party at the following address:
PetroCorp Incorporated
16800 Greenspoint Park Drive
Suite 300, North Atrium
Houston, Texas 77060
Attn: Craig Townsend
(281) 875-2500
If you would like to request documents from the Company, please do so by
October 15, 1999 to receive them before the Annual Meeting.
2
<PAGE>
You should rely only on the information contained or incorporated by
reference in this Proxy Statement to vote on the proposals before the Annual
Meeting. We have not authorized anyone to provide you with information that is
different from what is contained in this Proxy Statement. This Proxy Statement
is dated September 30, 1999. You should not assume that the information
contained in this Proxy Statement is accurate as of any date other than such
date, and the mailing of this Proxy Statement shall not create any implication
to the contrary.
The Company is a Texas corporation engaged in the oil and gas exploration and
production business. Its principal offices are located at 16800 Greenspoint Park
Drive, Suite 300, North Atrium, Houston, Texas 77060, and may be reached by
telephone at (281) 875-2500. Its common stock is registered pursuant to Section
12(g) of the Securities Exchange Act of 1934 and traded on the American Stock
Exchange.
3
<PAGE>
COMMON STOCK OUTSTANDING AND PRINCIPAL HOLDERS THEREOF
The Board of Directors has fixed the close of business on September 27,
1999 as the record date for the determination of shareholders entitled to notice
of and to vote at the Annual Meeting. At that date, there were outstanding
8,656,019 shares of common stock, par value $.01 per share, of the Company
("Common Stock"), and the holders thereof will be entitled to one vote for each
share of Common Stock held of record by them on that date.
Beneficial Ownership of Common Stock
The following table sets forth information with respect to the shares of
Common Stock owned of record and beneficially as of September 27, 1999 by all
persons who own of record or are known by the Company to own beneficially more
than 5% of the outstanding Common Stock, by each director and executive officer,
and by all directors and executive officers as a group:
<TABLE>
<CAPTION>
Shares Owned Beneficially
-----------------------------------
Name Number Percent
---- ----------------- ----------------
<S> <C> <C>
Gary R. Christopher (1).................................................... 4,334,957 50.0%
W. Neil McBean (2)......................................................... 245,046 2.8
A.F. (Tony) Pelletier (2).................................................. 101,504 1.2
J. Les Watson (2).......................................................... 20,500 *
Craig K. Townsend (2)...................................................... 48,621 0.6
Lealon L. Sargent (2)...................................................... 329,185 3.7
Thomas N. Amonett (3)...................................................... 7,000 *
G. Jay Erbe, Jr. (4)....................................................... 1,737,500 20.1
Stephen M. McGrath (5)..................................................... 1,000 *
Robert C. Thomas (3)....................................................... 7,000 *
All directors and executive officers as a group (10 persons) (6)........... 6,832,313 74.7
Kaiser-Francis Oil Company (7)............................................. 4,327,457 49.9
St. Paul Fire and Marine Insurance Company (8)............................. 1,737,000 20.1
Royce & Associates, Inc.................................................... 469,600 5.4
</TABLE>
_____________________
* Less than 0.5%.
(1) Includes 4,327,457 shares owned by KFOC. This director is an employee of
KFOC and may be deemed to be the beneficial owner of these shares. This
director disclaims beneficial ownership of these shares. Also includes
6,000 shares subject to issuance within 60 days upon the exercise of stock
options.
(2) Mr. McBean's amount includes 153,250 shares, Mr. Pelletier's amount
includes 93,000 shares, Mr. Watson's amount includes 20,000 shares, Mr.
Townsend's amount includes 45,000 shares and Mr. Sargent's amount includes
158,750 shares, all subject to issuance within 60 days upon the exercise of
stock options.
(3) Mr. Amonett's amount includes 6,000 shares and Mr. Thomas's amount includes
6,000 shares subject to issuance within 60 days upon the exercise of stock
options.
(4) Includes 873,000 shares owned by Park Avenue Exploration Corporation and
858,000 shares owned by United Stated Fidelity and Guaranty Company, both
wholly-owned subsidiaries of St. Paul Fire and Marine Insurance Company
("St. Paul"). Also includes 6,000 shares subject to issuance within 60 days
upon the exercise of stock options; these options were issued to this
director, who assigned them to his employer. This director is an officer of
St. Paul or a subsidiary thereof and may be deemed to be the beneficial
owner of these shares. This director disclaims beneficial ownership of
these shares.
(5) Includes 1,000 shares subject to issuance within 60 days from the exercise
of stock options. Excludes 5,000 shares subject to issuance within 60 days
upon the exercise of stock options; these options were issued to this
director, who assigned them to his employer.
(6) Includes 495,000 shares subject to issuance within 60 days upon the
exercise of stock options. Also includes certain shares as to which
beneficial ownership is disclaimed by Messrs. Erbe and Christopher. If the
aggregate of 6,064,457 shares as to which beneficial ownership is
disclaimed by Messrs. Erbe and Christopher were excluded, the percentage as
a group would be 8.4%.
(7) Address is 6733 South Yale, Tulsa, Oklahoma 74136. KFOC files a Schedule
13D.
4
<PAGE>
(8) Address is 385 Washington Street, St. Paul, Minnesota 55102. Consists of
873,000 shares owned by Park Avenue Exploration Corporation and 858,000
shares owned by United States Fidelity and Guaranty Company. Includes 6,000
shares subject to issuance within 60 days from the exercise of stock
options. Both of these companies are wholly-owned subsidiaries of St. Paul,
which has the power to direct the voting and disposition of the shares held
by such subsidiaries and, therefore, may be deemed to be the beneficial
owner of such shares. St. Paul acquired USF&G Corporation in February 1999.
The address of Park Avenue Exploration Corporation is 6225 Centennial Way,
Baltimore, Maryland 21209. The address of United States Fidelity and
Guaranty Company is 385 Washington Street, St. Paul, Minnesota 55102.
PROPOSAL NO. 1 - APPROVAL OF MANAGEMENT AGREEMENT
The Board of Directors of the Company has unanimously approved a
Management Agreement under which KFOC will provide management and administrative
support services for all of the Company's operations and the operations of its
wholly-owned subsidiaries, both in the United States and Canada. A copy of the
Management Agreement is attached to this Proxy Statement as Annex A. The
Management Agreement provides that it is subject to shareholder approval. In
addition to the approval of shareholders generally, the Board of Directors has
determined that a majority vote by the holders of the Disinterested Shares
should be required for approval. KFOC, which is not an owner of Disinterested
Shares, has indicated that it will vote its shares of common stock of the
Company in favor of approval of the Management Agreement.
The Company is a Texas corporation engaged in the oil and gas exploration
and production business. KFOC, a privately held Delaware corporation, is also
engaged in the oil and gas exploration and production business. KFOC owns
approximately forty-nine and nine-tenths percent (49.9%) of the issued and
outstanding common stock of the Company. In order to permit the Company to
manage its operations in a more cost efficient and effective manner and, as a
result, increase funds available to pursue growth opportunities and otherwise
maximize shareholder value, the Board unanimously recommends that the Management
Agreement be entered into with KFOC. Pending shareholder approval of the
Management Agreement, the Company has entered into a less comprehensive Interim
Consulting Agreement, dated August 3, 1999, and effective as of September 1,
1999, with KFOC. The Interim Consulting Agreement may be terminated by either
party upon thirty days prior written notice to the other party.
The Company recommends voting "for" the approval of the Management
Agreement.
IMPORTANT QUESTIONS ABOUT THE MANAGEMENT AGREEMENT
What am I being asked to vote on?
You are being asked to approve a Management Agreement between the Company and
KFOC.
Why am I being asked to vote?
The Management Agreement is with KFOC, which owns approximately 49.9% of the
Company's outstanding common stock. One officer and director of the Company is
an officer and employee of KFOC. As a result of these factors and to avoid
possible invalidity of the Management Agreement under Texas law, the Board of
Directors of the Company determined that the Management Agreement should be
submitted to the Company's shareholders for approval and that approval of
holders of a majority of the Disinterested Shares (i.e. the common stock of the
Company, excluding shares owned by KFOC) should be required.
5
<PAGE>
What vote is required to approve the Management Agreement?
A majority of the holders of Disinterested Shares must vote in favor of
approving the Management Agreement. In addition, the affirmative vote of a
majority of the holders of shares entitled to vote and, in fact, voting at the
Annual Meeting (including shares voted by KFOC) will be required.
Has the Company's Board of Directors approved the Management Agreement?
Yes. The Company's Board of Directors unanimously approved the Management
Agreement at a Board meeting on July 21, 1999, and recommends that you vote to
approve the Management Agreement.
What is the purpose of the Management Agreement?
The Management Agreement provides for KFOC to conduct oil and gas operations and
to perform administrative functions on behalf of the Company. The Company
believes that it will permit management of the Company's affairs in a more cost
effective and efficient manner and, as a result, maximize shareholder value. For
example, the Company expects that the Management Agreement, along with previous
cost reductions, will initially result in the reduction of general and
administrative costs by an estimated $4.5 million from 1998 levels (including
direct and capitalized general and administrative costs) and thereby increase
funds available to pursue new growth opportunities. In order to enhance the
ability of KFOC to provide services to the Company efficiently, the Company
anticipates moving its headquarters to Tulsa, Oklahoma.
Who is KFOC?
KFOC is a privately held Delaware corporation, headquartered in Tulsa, Oklahoma,
engaged in the oil and gas exploration and production business. KFOC owns
beneficially approximately forty-nine and nine-tenths percent (49.9%) of the
issued and outstanding common stock of the Company. More specific information
about KFOC is set forth on page 11 of this Proxy Statement.
Under the Management Agreement, will the Company continue to grow?
Under the Management Agreement, KFOC would seek out and recommend corporate
growth opportunities to the Company's Board of Directors, including identifying
new oil and gas prospects and potential property acquisitions. Although there
can be no assurance that suitable opportunities will arise, it is the intent
that the Company will continue to take advantage of such opportunities when
presented.
What duties will KFOC perform under the Management Agreement?
The Management Agreement provides that KFOC will perform oil and gas operations
and administrative support functions to reduce administrative costs and,
thereby, allow greater growth opportunities by the Company and its subsidiaries,
PCC Energy Inc., PCC Energy Corp. and the latter's subsidiary, PCC Energy
Limited, with respect to their properties in both the United States and Canada.
Oil and gas operations to be performed by KFOC would include, for example:
. geological and geophysical functions, including prospect generation and
evaluation;
. identification and evaluation of potential property acquisitions and
divestitures;
. engineering;
. lease operations;
. marketing;
. contract negotiation and administration;
. regulatory compliance; and
. land functions.
6
<PAGE>
In addition, KFOC would perform administrative functions on behalf of PetroCorp,
including, for example:
. land functions;
. accounting, tax and audit functions;
. insurance;
. investor relations; and
. retaining third party consultants, such as attorneys and accountants, on
behalf of PetroCorp.
Will the Company's assets be commingled with those of KFOC?
No. The Company will retain title to its existing properties and any future
property acquisitions. KFOC may not commingle the Company's assets with those of
KFOC.
What functions will be retained by the Company?
Under the Management Agreement, KFOC may not make material decisions without the
approval of the Company's Board of Directors. Material decisions include:
. expenditures in excess of $250,000;
. sales of Company assets valued in excess of $500,000;
. long term production sales agreements;
. placement of certain liens on the Company's assets; and
. initiation or settlement of material litigation.
The Company's principal officers, who will be nominated by KFOC and approved by
the Company's Board of Directors, will be responsible for executing all
contracts and other instruments on behalf of the Company. Upon shareholder
approval of the Management Agreement, the Company anticipates that its principal
officers will be those listed on pages 12 and 13 of this Proxy Statement under
the subheading "Proposed Executive Officers of the Company."
KFOC will perform the other functions customarily performed by publicly traded
companies engaged in oil and gas exploration and development; however, KFOC will
retain third-party consultants to perform certain functions (such as legal
representation, auditing and independent engineering) that are not currently
performed in-house by either the Company or KFOC.
What is KFOC's fee for its services?
KFOC's compensation for rendering services under the Management Agreement has
three components:
. a Services Fee;
. an Overriding Royalty; and
. a working interest or "Back-In," to be effective after "prospect payout,"
as more fully described below.
For properties not operated by the Company, the Services Fee payable to KFOC
will, in most cases, be equal to $50.00 per month per well. As to properties
operated by the Company, KFOC will receive as its Services Fee the
administrative and overhead fees charged under applicable operating agreements.
The Company estimates that the aggregate Services Fee will equal approximately
$1.4 million per year at the current level of operation.
7
<PAGE>
As to new prospects identified by KFOC, whether on existing Company properties
or on properties acquired by the Company after the effective date of the
Management Agreement, KFOC will receive an overriding royalty interest of 1% or
2%, proportionately reduced in the event the Company owns less than the entire
interest in the burdened leases or the Company's leases cover less than the
entire mineral interest in the subject lands. (An "overriding royalty interest"
is a percentage interest in the gross production from an oil and gas lease, free
of the expense of production.)
In addition to the overriding royalty interest, KFOC will receive, after
"prospect payout" (as described below), an assignment of 15% or 25% of the
Company's working interest in the new prospects it identifies, all as further
described in the copy of the Management Agreement attached to this Proxy
Statement as Annex A. "Prospect payout" would be deemed to have occurred (and
KFOC would be entitled to a percentage of the Company's working interest in a
prospect) when the cumulative net proceeds received from the prospect equal the
cumulative exploration and development costs associated with the prospect.
KFOC will not receive an overriding royalty or an assignment of working interest
with respect to the Company's current or hereafter acquired proved oil and
gas reserves. Further, on certain excluded lands that are within existing areas
of mutual interest ("AMIs") with third parties, KFOC will not receive an
overriding royalty or an assignment of working interest with respect to new
prospects identified during the term of the AMIs.
In addition, the Company will reimburse KFOC for certain direct out-of-pocket
expenses identified in the Management Agreement that are incurred by KFOC in
performing its obligations thereunder.
What happens if disputes arise under the Management Agreement?
If disputes arise under the Management Agreement, either the Company or KFOC may
submit the dispute to a three member Resolution Committee, comprised of the
Chairman of the Company and one member from each of the respective Boards of
Directors of the Company and KFOC. If the Resolution Committee is unable to
resolve the dispute to the parties' mutual satisfaction, then either party may
submit the dispute to binding arbitration.
When will the Management Agreement take effect?
The Management Agreement will take effect on the first day of the month
following the month in which the Company's shareholders approve the Management
Agreement. Upon receipt of shareholder approval, KFOC will begin to assume the
performance of those operations of the Company not already being performed under
the Interim Consulting Agreement. It is anticipated that the transition to full
operation by KFOC will be completed shortly after shareholder approval, but in
any case within six months after such approval. Certain Company employees may
continue to be employed by the Company until completion of the transition
period.
How long will the Management Agreement remain in effect?
After the first anniversary of the effective date of the Management Agreement,
either party may terminate the Management Agreement upon six months advance
notice to the other party. The Management Agreement will remain in effect until
terminated by either party.
What happens if shareholder approval of the Management Agreement is not
obtained?
While the Interim Consulting Agreement between the Company and KFOC would
continue to operate at least temporarily, the failure of shareholders to approve
the Management Agreement might result in the need to hire contract employees to
provide the services that KFOC would provide under the Management Agreement.
8
<PAGE>
What risks might arise from the Management Agreement?
Operational inefficiencies may occur during the transition period.
During the transition period to operation by KFOC, which is not anticipated to
exceed six months, some operational inefficiencies may occur as KFOC's personnel
become familiar with the Company's properties and operations.
KFOC may not perform to the Company's satisfaction.
Although the Company believes that KFOC is well qualified to perform oil and gas
operations and administrative services on behalf of the Company, there is the
risk that KFOC may not perform the services to the Company's satisfaction. To
address this risk, the Management Agreement requires, among other matters, that
KFOC perform its duties in good faith, as a reasonable, prudent operator and in
compliance with applicable law. The Company may be entitled to indemnification
or damages if KFOC fails to perform in accordance with this standard of care.
Further, after the first anniversary of the effective date of the Management
Agreement, the Company may, upon six months notice, terminate KFOC if the
Company is dissatisfied with its performance.
The Company may need to hire contract employees to conduct the business.
After the end of the transition period to operation by KFOC, the Company will no
longer employ the personnel necessary to perform the Company's functions.
Consequently, should the Management Agreement be terminated by either party, the
Company will need to contract with another party to provide these services or
hire the personnel necessary to perform these functions. There is no assurance
that the Company will be able to timely and cost-effectively make such alternate
arrangements.
KFOC may have conflicts of interest with the Company.
KFOC is actively and substantially engaged in the oil and gas exploration and
production business, including, in some cases, operations in geographical areas
in which the Company currently owns interests. Under the Management Agreement,
KFOC may continue to engage in such activities, even though its activities might
be considered to be in competition with the Company's oil and gas activities.
Accordingly, in some cases, if KFOC acquires new properties or develops new
prospects on its own behalf, rather than on behalf of the Company, the potential
for actual or apparent conflicts of interest exists.
To address the potential for conflicts of interest, the Management Agreement
requires that KFOC, acting in good faith, evaluate whether new prospects should
be acquired on behalf of the Company, on behalf of KFOC, or on behalf of them
both, based on a variety of factors, including
. the geographic proximity and geologic comparability of the new prospect to
the parties' respective existing properties;
. the potential for drainage or other adverse impact by the new prospect on
the Company's existing properties;
. the nature and extent of risk involved in the new prospect; and
. budgetary constraints.
Under the Management Agreement, if the Company's Board of Directors adopts a
resolution determining that KFOC's prospect allocation is unreasonable or not
made in good faith, then KFOC must offer all of the prospect, or such portion as
the Company may elect, to the Company on the same terms as the prospect was
acquired by KFOC.
9
<PAGE>
KFOC may subcontract with its affiliates, resulting in conflicts of interest.
KFOC may from time to time arrange contracts with certain of its affiliates to
perform services on behalf of the Company. Such arrangements have the potential
to create real or apparent conflicts of interest. Accordingly, the Management
Agreement requires that any such affiliated transactions be under terms and
conditions at least as favorable as those prevailing for comparable transactions
between unaffiliated parties. If the Company's Board of Directors adopts a
resolution determining that the affiliated transaction does not satisfy this
standard, then the transaction shall not be binding upon the Company.
BACKGROUND
As a result of significant volatility in the oil and gas exploration and
production industry in the United States, the Board of Directors of the Company
began considering possible merger opportunities in 1995 and continued to
evaluate strategic opportunities to enhance shareholder value over the following
two years. In late 1997, the Board specifically directed W. Neil McBean, the
President and Chief Executive Officer of the Company, and Gary Christopher, a
director of the Company and officer of KFOC, to initiate discussions with
possible merger candidates. During the remainder of 1997 and the first eight
months of 1998, management of the Company conducted preliminary discussions with
several companies regarding potential business combinations, none of which
resulted in definitive proposals or offers.
In September 1998, Mr. Christopher advised the Board that George Kaiser,
the majority owner of KFOC, had raised the possibility of taking the Company
private, thereby reducing the number of the Company's shareholders and
eliminating the need to comply with certain federal securities laws. At a
meeting on October 14, 1998, KFOC proposed a plan under which certain
shareholders would have the option to retain undivided interests in the
Company's oil and gas properties while the remaining shareholders would be given
cash for their stock. This proposal was documented in a letter to the Company
dated October 21, 1998, and shortly thereafter the Board appointed a Special
Committee to consider the KFOC proposal and other proposals to maximize
shareholder value.
At the regularly scheduled Board meeting on November 12, 1998, the Special
Committee recommended, and the Board approved, the engagement of CIBC
Oppenheimer Corp. ("CIBC") to serve as financial advisor to the Company. CIBC
presented a report at such meeting on the strategic alternatives available to
the Company, including the proposal made in KFOC's letter of October 21, 1998.
The Board unanimously approved the recommendation of CIBC to pursue a "limited
auction," which CIBC believed would allow the Board the opportunity to assess
alternatives for maximizing value for all shareholders. To preserve the ability
of the Board to negotiate with possible bidders during this and other times when
the Company could be an acquisition target, the Special Committee also
recommended, and the Board approved, the adoption of a Shareholder Rights Plan.
Over the course of the next three months CIBC and Company personnel
prepared and distributed information to parties that might be interested in
acquiring the assets or stock of the Company. Presentations were made to several
interested parties in a "data-room" format and, ultimately, CIBC received
preliminary written proposals from several parties on or about March 1, 1999.
CIBC reviewed the auction process for the Board at its next regular meeting
on March 10, 1999. The Board unanimously determined to pursue two acquisition
proposals that had been received, one of which was for the Company's U.S.
operations and the other of which was for the Company's Canadian operations. At
the same time, the Board approved management's recommendation to initiate staff
reductions to improve the Company's cost structure and financial strength. While
the Board recognized this would limit the Company's U.S. exploration capability,
the Board believed the staff cuts would preserve the Company's ability to
acquire proved reserves and its Canadian exploration capability.
Over the course of the next four weeks, representatives of the Company,
CIBC and the parties whose preliminary proposals had been selected by the Board
negotiated possible terms of the proposed acquisitions. These negotiations
resulted in final proposals that were rejected by the Board as inadequate. In
the opinion of CIBC and the management of the Company, the financial strains
resulting from low oil and gas prices between late 1997 and
10
<PAGE>
early 1999 had impaired the ability of many companies in the industry to pursue
acquisitions, especially on terms that would be favorable to the Company.
On April 26, 1999, KFOC submitted a proposal to provide certain management
services to the Company that had previously been provided by the Company's own
employees. KFOC estimated that it could reduce the Company's general and
administrative costs associated with these services by 75%. In a series of
telephone conversations with each of the Board members during the first week of
May, each Board member indicated his support for the proposal.
On May 17, 1999, KFOC submitted written notice of revocation of its proxy
for the annual meeting of shareholders that was scheduled for the next day. In a
telephone conversation on May 17, KFOC advised the Company that it wanted the
next shareholder meeting to include consideration of the KFOC management
services proposal. Without KFOC's proxy, there were insufficient holders of the
Company's outstanding common stock present at the proposed annual meeting to
constitute a quorum. Accordingly, the meeting was adjourned without action being
taken on the proposals related to election of directors and ratification of
independent accountants that were to have been considered by the Company's
shareholders.
At its regularly scheduled meeting on May 18, 1999, the Board considered a
more detailed management services proposal that was received from KFOC that day.
The Board also directed management to negotiate and prepare the necessary
agreements for the proposed management services arrangement with KFOC. On May
20, 1999, the Company executed a letter of intent with KFOC reflecting the
principal terms of the arrangement, and thereafter pursued finalization of a
definitive management agreement.
The Management Agreement was approved by the Company's Board, subject to
approval of holders of the Disinterested Shares, at a special meeting on July
21, 1999. At such meeting, the Board also approved an Interim Consulting
Agreement with KFOC under which KFOC agreed to provide, during the period
pending shareholder approval, more limited services than those contemplated by
the Management Agreement. In addition and upon Mr. McBean's recommendation, the
Board approved the election of Mr. Christopher as President and Chief Executive
Officer of the Company effective upon execution of the Interim Consulting
Agreement and the Management Agreement, both of which were thereafter executed
on August 3, 1999.
ADDITIONAL INFORMATION ABOUT KAISER-FRANCIS OIL COMPANY
KFOC is a privately held independent oil and gas production company
headquartered in Tulsa, Oklahoma, with a Canadian exploration and production
office located in Calgary, Alberta. KFOC has had continuous involvement in the
oil and gas industry through predecessor entities since the 1930s. It is wholly-
owned by members of the George B. Kaiser family.
KFOC holds over 8,000 producing property interests and operates
approximately 2,500 active oil or gas wells. KFOC has producing properties in 23
states and two Canadian provinces. Current net production from these properties
is approximately 250 million cubic feet of natural gas per day and 6,500 barrels
of oil per day. KFOC has district production offices in Ardmore and El Reno,
Oklahoma; Ellinwood, Kansas; Odessa and Perryton, Texas; and in Calgary,
Alberta. A Gulf Coast exploration office is located in Houston, Texas.
KFOC currently employs approximately 350 people, including more than 45 oil
and gas professionals with an average experience level of over 20 years. Of
these professionals, ten are geologists, two are geophysicists, 25 are petroleum
engineers, four are attorneys, and six are land personnel. KFOC also employs
many accounting and data processing professionals with various expertise in the
oil and gas producing business.
11
<PAGE>
PROPOSED EXECUTIVE OFFICERS OF THE COMPANY
The Company anticipates that the persons listed below will be nominated by KFOC
and elected as the principal executive officers of the Company at the effective
date of the Management Agreement, if it is approved. A.F. (Tony) Pelletier and
J. Les Watson are currently employees of the Company and are expected to remain
employees of the Company through the transition period contemplated by the
Management Agreement, at which time they may become employees of KFOC or one of
its affiliates. All of the other proposed principal executive officers are
currently KFOC employees.
Gary R. Christopher - President and Chief Executive Officer - Mr. Christopher
was elected President and Chief Executive Officer of the Company on August 3,
1999. Mr. Christopher has been a director of the Company since August 1996. He
is also a director of Middle Bay Oil Company, a publicly traded oil and gas
production company located in Houston, Texas. KFOC currently owns 25% of
Middle Bay. Mr. Christopher has been acquisitions coordinator for KFOC since
1996 and also held that position from 1985 until 1991 when he became Senior Vice
President and Manager of Energy Lending for Bank of Oklahoma. Approximately 78%
of the outstanding capital stock of Bank of Oklahoma is owned by George B.
Kaiser. Prior to 1985, Mr. Christopher held various engineering and management
positions with Texaco, Amerada Hess and the First National Bank of Tulsa. He
received a B.S. in Petroleum Engineering from the University of Missouri at
Rolla in 1973.
A.F. (Tony) Pelletier - Executive Vice President and Chief Operating Officer -
Mr. Pelletier is currently the Company's Vice President-U.S. Operations, having
been elected in November 1997 after serving as Vice President-Production since
May 1996. With 23 years experience in the oil and gas industry, Mr. Pelletier is
responsible for the Company's exploration and production activities in the
United States. Mr. Pelletier joined the Company in 1984 and has previously
served as General Manager - Gulf, Rockies and Canada Division, Engineering
Manager and Chief Reservoir Engineer. From 1978 to 1984, he served in a variety
of engineering and supervisory positions with Exxon Company, USA. Mr. Pelletier
is a registered professional engineer and received a B.S. in Mechanical
Engineering and an M.Eng. in Civil Engineering from Texas A&M University.
J. Les Watson - Vice President of Canadian Operations - Mr. Watson is currently
Vice President-Canadian Operations of the Company, having been elected in
November 1997 after serving as the Company's Canadian Exploration Manager for
five years. With 30 years experience in the Canadian oil and gas industry, Mr.
Watson is responsible for the Company's exploration and production activities in
Canada. Prior to joining the Company in 1993, Mr. Watson was Exploration Manager
for BHP Petroleum (Canada) Ltd. and previously held various management positions
with several independent oil companies in Calgary after his initial employment
with Amoco Canada in 1969. Mr. Watson is a registered professional geologist and
has a B.Sc. in Honours Geology from the University of British Columbia.
Richard L. Dunham - Vice President of Engineering - Mr. Dunham has held various
positions since joining KFOC in 1985. He has been a member of the management
committee, Manager of Canadian Enhancements, Special Projects Manager, and has
performed duties as a Petroleum, Reservoir, and Acquisitions Engineer. In
addition, Mr. Dunham has considerable experience in reserve analysis, economics
and risk analysis, gas marketing and contracts, and oil and gas litigation
throughout the US and western Canada. Mr. Dunham graduated Magna Cum Laude in
Petroleum Engineering from the University of Missouri at Rolla in 1973, and
joined Shell Oil Company in New Orleans, working South Louisiana and Offshore in
Operations and Reservoir Engineering. From 1979 through 1985 he held positions
as Acquisitions Engineer, Enhanced Recovery Projects Manager, Operations and
Engineering Manager for MAPCO, R&R Exploration, Twin Eagle Petroleum, Petra
Petroleum, and Santa Fe Minerals.
Steve Berlin - Vice President, Chief Financial Officer and Corporate Secretary -
Mr. Berlin is Vice President and Chief Financial Officer of KFOC, where he has
been employed since February 1999. Prior to joining KFOC, Mr. Berlin was on the
faculty of the University of Tulsa, where he taught business and finance courses
to graduate and undergraduate students. From 1973 through 1996, Mr. Berlin
worked for CITGO Petroleum Corporation and its predecessors in various financial
and management positions, including the last ten years as Chief Financial
Officer. Mr. Berlin has an MBA from the University of Wisconsin and is a
graduate of the Stanford Executive Program. He is a Certified Public Accountant
and has been honored by the Oklahoma society of CPA's as its Outstanding CPA in
Industry. Mr. Berlin has served on several boards including the Goodwill
Industries, the American Petroleum Institute, and the American Assembly of
Collegiate Schools of Business.
12
<PAGE>
Ted Jacobson - Vice President of Operations - Mr. Jacobson is Manager of
Drilling and Production for KFOC. He has been employed by KFOC since 1980. Mr.
Jacobson began his oil and gas career in 1967 with Sunray DX Oil Company (later
Sun Oil Company) in Corpus Christi, Texas, as a drilling and production
engineer. From 1969 through 1978, he served in various positions such as
Production Engineer, Manager of Conservation, Area Engineer and Region Manager
of Engineering in Tulsa, Oklahoma. From 1978 until 1980, he was District
Engineer with Sun Gas in the Houston, Texas, offshore office. Mr. Jacobson
graduated from St. Johns University in Minnesota in 1963 with a B.A. in Math and
Physics. He served in the U.S. Army Corp of Engineers from 1963 until 1967, when
he was discharged with the rank of Captain.
Michael W. Moore - Vice President of Marketing and Assistant Secretary - Mr.
Moore has been Manager of Marketing for KFOC since he joined the Company in
1980. Prior to that time, he served as General Counsel and Manager of Gas
Marketing for Edwin L. Cox in Dallas, Texas. He also worked as an attorney for
Tennessee Gas Pipeline Co., Columbia Gulf Pipeline Co. and Texas Oil and Gas
Corp. Mr. Moore has an undergraduate degree from Southern Methodist University
and graduated from the University of Houston Law School in 1969.
PROPOSAL NO. 2 - ELECTION OF DIRECTORS
The Company's Board of Directors is composed of seven persons who hold
office for staggered three-year terms. Two directors are to be elected at the
Annual Meeting as Class III directors to serve until their terms expire in 2002.
The Company recommends voting for the election of each of the nominees for
director listed below. If, for any reason, at the time of the election one or
more of such nominees should be unable to serve, the proxy will be voted for a
substitute nominee or nominees selected by the Board of Directors.
Unless authority is withheld, duly executed proxies will be voted for the
election of Messrs. Gary R. Christopher and Stephen M. McGrath to hold office
until the annual meeting of shareholders to be held in the year 2002 and until
each of their respective successors is elected and qualified.
The Company recommends voting "For" each of the nominees.
Nominees for Director
The following table sets forth the name and age of each nominee listed in
the enclosed form of proxy for Class III directors to hold office until the
annual meeting of shareholders to be held in the year 2002, his principal
position with the Company and his term as director of the Company.
<TABLE>
<CAPTION>
Name Age Term of Office Position
---- --- -------------- --------
<S> <C> <C> <C>
Gary R. Christopher 49 1996-Present Director
Stephen M. McGrath 64 1986-Present Director
</TABLE>
Gary R. Christopher has been a director of the Company since August 1996
and was elected President and Chief Executive Officer of the Company as of
August 3, 1999. He has been Acquisitions Coordinator of Kaiser-Francis Oil
Company since January 1996. Prior to that, he served for five years as Senior
Vice President and Manager of Energy Lending for Bank of Oklahoma.
Stephen M. McGrath has been a director of the Company since 1986. Mr.
McGrath served as a Managing Director for CIBC-Oppenheimer Corp. from 1997 until
his retirement in April 1998. Previously, Mr. McGrath served as an Executive
Vice President of Oppenheimer & Co., Inc., and as the Director of its Corporate
Finance Department. Prior to his employment by Oppenheimer in 1983, he was with
Warner-Lambert Company for 11 years as Senior Vice President of Planning and
Development. Before joining Warner-Lambert Company, Mr. McGrath was Controller
and Assistant Treasurer of Sterling Drug, Inc., and a CPA for Price Waterhouse &
Co. He also serves as a director of Alliance Pharmaceutical Corporation and of
several privately held companies.
13
<PAGE>
Other Directors
The following table sets forth the name and age of each director of the
Company not up for election this year, his principal position with the Company,
the year he became a director of the Company and the year that his term as a
director expires.
Term Director
Name Age Expires Since Position
---- --- ------- ----- --------
Lealon L. Sargent.......... 69 2000 1983 Chairman of the Board
W. Neil McBean............. 51 2001 1983 Director
Thomas N. Amonett.......... 55 2001 1993 Director
Robert C. Thomas........... 70 2001 1997 Director
G. Jay Erbe, Jr............ 52 2000 1992 Director
Lealon L. Sargent has been Chairman of the Board of the Company and a
director since 1983. Mr. Sargent co-founded PetroCorp in July 1983, and
previously served as Chief Executive Officer and as President and Chief
Operating Officer. Mr. Sargent worked in the oil and gas industry for over 39
years before retiring from the Company's management at the end of 1997. From
1981 to 1983, Mr. Sargent was President of ENI Exploration Company. From 1980 to
1981, he was President of Hamilton North America. Prior to that time, Mr.
Sargent spent the majority of his career with Tenneco Oil Company, rising to the
position of Senior Vice President of Worldwide Exploration and of North American
Onshore Exploration and Production. He received a B.S. in Geology from the
University of Oklahoma and an A.M.P. from Harvard Graduate School of Business.
W. Neil McBean served as Chief Executive Officer of the Company from 1996
until August 1999 and President from 1986 until August 1999. He has been a
director since 1983. Mr. McBean co-founded PetroCorp in 1983, and previously
served as Senior Vice President. Mr. McBean has 30 years of experience in the
oil and gas industry. During 1982 and 1983, he was Vice President of Production
for ENI Exploration Company. Prior to that time, he spent 13 years with Tenneco
Oil Company, where he served in a range of management and technical capacities.
Mr. McBean received a B.A.Sc. in Chemical Engineering from the University of
British Columbia.
Thomas N. Amonett has been a director of the Company since 1993. He served
as President and Chief Executive Officer of American Residential Services, Inc.,
from October 1997 until April 1999. He served as interim President and Chief
Executive Officer of Weatherford Enterra, Inc. from July 1996 to October 1997.
From 1992 to 1996, he served as Chairman of the Board and President of Reunion
Resources Company. Prior to that time, he was engaged in the practice of law
with Fulbright & Jaworski, L.L.P., where he was of counsel from 1986 to 1992.
Mr. Amonett currently serves as a director of ITEQ, Inc., and Reunion
Industries, Inc.
Robert C. Thomas has been a director since April 1997. Since 1994, Mr.
Thomas has been retired from Tenneco Gas Company, where he served as Chairman
and Chief Executive Officer from 1990. He originally joined Tenneco in 1956 and
served in a variety of engineering, management and executive positions in both
Tenneco Oil Company and Tenneco Gas Company. Mr. Thomas is currently a Senior
Associate with Cambridge Energy Research Associates and a director of Marine
Drilling Companies, Inc.
G. Jay Erbe, Jr. rejoined the Board of Directors in 1997 after having
previously served as a director of the Company from 1992 to 1996. Mr. Erbe has
been Vice President of St. Paul Fire and Marine Insurance Company since April
1998. Prior to that he served as Vice President of USF&G Corporation or of one
of its subsidiaries since 1991. He is also President of Park Avenue Exploration
Corporation, having assumed that office in 1992 after having been Executive Vice
President since 1990. Prior to that time, he was Vice President and Chief
Financial Officer of Manekin Corporation, a regional real estate company, for
four years.
Meetings and Committees of the Board of Directors
During the Company's last fiscal year, the Board of Directors of the
Company held five meetings. No director attended less than 75% of the total
number of meetings of the Board of Directors and committees of which he was a
member held during the period he served.
14
<PAGE>
The Audit Committee, composed at the end of the last fiscal year of Messrs.
Amonett, Erbe, Christopher, McGrath and Thomas, met two times during the last
fiscal year. The Audit Committee reviews with the Company's independent public
accountants the plan, scope and results of the annual audit and the procedures
for and results of internal controls.
The Compensation Committee, composed at the end of the last fiscal year of
Messrs. Amonett, Christopher and Erbe, met three times during the last fiscal
year. The Compensation Committee approves the salaries and other compensation of
officers, administers any existing bonus plans for executive and other officers,
makes recommendations to the Board regarding any present or future stock option
plans and, pursuant to the Company's Stock Option Plan, awards stock options to
executive and other officers who have been recommended by management.
The Nominating Committee, composed at the end of the last fiscal year of
Messrs. Amonett, Christopher, Erbe and Thomas, did not meet during the last
fiscal year but the entire Board did address director nominations at its
meetings. This committee nominates persons for election by the Company's
shareholders to the Board of Directors. Shareholders who wish to nominate
persons for election to the Board of Directors must comply with the provisions
of the Company's Bylaws described below under "Nominations and Proposals for
Next Annual Meeting."
Compensation of Directors
Each director who is not an employee of the Company is reimbursed for
expenses incurred in attending meetings of the Board of Directors or a committee
thereof and receives an annual retainer (paid on a quarterly basis) of $10,000,
plus a fee of $1,000 for each meeting of the Board attended and $500 for each
meeting of a committee attended.
Executive and Other Officers
The following table sets forth the name, age and position of each current
executive officer of the Company, all of whom serve at the discretion of the
Board of Directors.
<TABLE>
<CAPTION>
Years Employed by
Name Age Position the Company
---- --- -------- -----------
<S> <C> <C> <C>
Gary R. Christopher............. 49 President and Chief Executive Officer *
A. F. (Tony) Pelletier.......... 46 Vice President - U.S. Operations 15
J. Les Watson................... 53 Vice President - Canadian Operations 6
Craig K. Townsend............... 39 Vice President - Finance, Secretary 15
and Treasurer
</TABLE>
_____________________
(*) Mr. Christopher was elected as President and Chief Executive Officer
effective August 3, 1999. Prior to such time, this position was held by W.
Neil McBean.
Gary R. Christopher has been a director of the Company since August
1996, and he was elected President and Chief Executive Officer of the Company as
of August 3, 1999. He has been Acquisitions Coordinator of Kaiser-Francis Oil
Company since January 1996. Prior to that, he served for five years as Senior
Vice President and Manager of Energy Lending for Bank of Oklahoma.
15
<PAGE>
A.F. (Tony) Pelletier was elected Vice President-U.S. Operations in
November 1997 after serving as Vice President-Production since May 1996. With 23
years experience in the oil and gas industry, Mr. Pelletier is responsible for
the Company's exploration and production activities in the United States. Mr.
Pelletier joined the Company in 1984 and has previously served as General
Manager - Gulf, Rockies and Canada Division, Engineering Manager and Chief
Reservoir Engineer. From 1978 to 1984, he served in a variety of engineering and
supervisory positions with Exxon Company, USA. Mr. Pelletier is a registered
professional engineer and received a B.S. in Mechanical Engineering and an
M.Eng. in Civil Engineering from Texas A&M University.
J. Les Watson was elected Vice President-Canadian Operations in
November 1997 after serving as the Company's Canadian Exploration Manager for
five years. With 30 years experience in the Canadian oil and gas industry, Mr.
Watson is responsible for the Company's exploration and production activities in
Canada. Prior to joining the Company in 1993, Mr. Watson was Exploration Manager
for BHP Petroleum (Canada) Ltd. and previously held various management positions
with several independent oil companies in Calgary after his initial employment
with Amoco Canada in 1969. Mr. Watson is a registered professional geologist and
has a B.Sc. in Honours Geology from the University of British Columbia.
Craig K. Townsend was elected Vice President-Finance, Secretary and
Treasurer in May 1996 after serving as the Company's Controller for nine years.
With 17 years experience in the oil and gas industry, Mr. Townsend is
responsible for the Company's finance, accounting and MIS activities. Prior to
joining the Company in 1983, he served for two years in the oil and gas audit
division of Arthur Andersen & Co. Mr. Townsend is a certified public accountant
and has a B.P.A. in Accounting from Mississippi State University.
16
<PAGE>
Executive Compensation
The following table sets forth for the three fiscal years ended
December 31, 1998, 1997 and 1996 all compensation received by the chief
executive officer and by each of the five other most highly compensated
executive officers of the Company.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Compensation(1)
---------------
Annual Compensation Securities
Fiscal ----------------------- Underlying All Other
Name and Principal Position Year Salary Bonus Stock Options Compensation(2)
- --------------------------- ------ -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
W. Neil McBean (3)(6) 1998 $204,167 $ 40,000 0 $9,500
President and Chief 1997 212,500 60,000 (3) 0 9,000
Executive Officer 1996 200,000 160,000 30,000 9,000
A.F. (Tony) Pelletier 1998 155,000 31,000 0 9,500
Vice President - U.S. Operations 1997 152,913 10,000 0 9,000
1996 142,500 40,000 20,000 8,900
J. Les Watson (4) 1998 109,066 23,790 0 7,710
Vice President - Canadian 1997 99,531 16,560 0 7,130
Operations
Craig K. Townsend 1998 112,742 0 0 7,487
Vice President - Finance, 1997 96,750 10,000 0 6,510
Secretary and Treasurer 1996 88,250 20,000 20,000 5,900
Laurent A. (Larry) Baillargeon (5)(6) 1998 128,333 0 0 6,750
Vice President - Corporate Land
and General Counsel
Michael L. Lord (6) 1998 155,000 31,000 0 9,500
Vice President - Corporate 1997 153,267 10,000 0 9,000
Development 1996 144,600 40,000 0 8,900
</TABLE>
_______________________
(1) No officers or employees of the Company participate in a restricted stock
plan, stock appreciation right plan or other long-term incentive plan.
(2) Consists of the Company's matching 401(k) contribution for such officers
except Mr. Watson. Mr. Watson receives a matching contribution from the
Company related to his Canadian Registered Retirement Savings Plan (RRSP).
(3) The Board of Directors awarded Mr. McBean a bonus under the 1997 Executive
Management Annual Incentive Compensation Plan of $132,000. While Mr. McBean
has elected to receive payment of only $60,000 of this bonus, he is entitled
to the remainder upon his request.
(4) Mr. Watson began serving as an executive officer in November 1997.
(5) Mr. Baillargeon began serving as an executive officer in November 1998.
(6) Messrs. McBean, Baillargeon and Lord are no longer employed by the Company
as of the date of this Proxy Statement.
17
<PAGE>
The following table sets forth at December 31, 1998 the number of options
and the value of unexercised options held by each of the executive officers
named in the Summary Compensation Table. None of these individuals exercised any
options during the last fiscal year.
Fiscal Year Ended December 31, 1998 Option Values
<TABLE>
<CAPTION>
Number of Shares Underlying Value of Unexercised
Unexpired Options at In-the-Money Options at
December 31, 1998 December 31, 1998 (1)
--------------------------------------- ------------------------------------
Name and Principal Position Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------------- ------------------- ------------------ ---------------- ------------------
<S> <C> <C> <C> <C>
W. Neil McBean
President and Chief
Executive Officer.................... 153,250 0 $35,438 $0
A. F. (Tony) Pelletier
Vice President - U.S. Operations..... 93,000 0 20,250 0
J. Les Watson
Vice President - Canadian
Operations........................... 20,000 0 0 0
Craig K. Townsend
Vice President - Finance,
Secretary and Treasurer.............. 45,000 0 0 0
Laurent A. (Larry) Baillargeon
Vice President - Corporate Land and 0 0 0 0
General Counsel
Michael L. Lord
Vice President - Corporate
Development.......................... 73,000 0 20,250 0
</TABLE>
______________________
(1) Based on the $5.75 per share closing price on the American Stock Exchange
at December 31, 1998.
Retention and Severance Arrangements
In connection with the Company's receipt of offers from third parties to
purchase certain assets of, or merge with, the Company, the Board of Directors
adopted retention and severance plans for the employees and executive officers
of the Company that were designed to retain the services of such persons while
the Company pursued such alternatives with third parties and otherwise
considered opportunities to maximize shareholder value.
The Severance Plan provides all of the Company's employees, except for
executive officers described below who participate in a separate plan, with
severance pay, subsidized medical benefits and outplacement services.
The Executive Severance Plan provides for twelve months of severance pay
for Messrs. McBean, Pelletier, Watson, Townsend, Baillargeon and Lord upon
either an involuntary termination by the Company or voluntary termination
following certain actions by the Company such as a reduction in responsibilities
or pay. Each of these executive officers would also be entitled to receive
subsidized medical benefits for twelve months and three days of outplacement
services for each year of service to the Company. Mr. Lord received $155,000
upon his departure from the Company in March 1999. Mr. Baillargeon received
$135,000 upon his departure in August 1999. Mr. McBean will receive $200,000 in
equal monthly installments over a 12-month period beginning in September 1999.
The Board of Directors also amended all of the outstanding options
currently granted to employees, including executive officers, to increase from
30 days to two years the length of time during which an employee may exercise
such options after an involuntary termination by the Company or voluntary
termination following certain actions by the Company such as a reduction in
responsibilities or pay.
18
<PAGE>
As of August 1999, the Board instituted a retention pay plan under which
all employees of the Company and its subsidiaries who are released involuntarily
by the Company will be eligible to receive upon release an amount equal to one-
third of the employee's base salary during the period from August 1 through the
release date.
Other Employee Benefits
Pursuant to an agreement with the Company, Mr. Sargent will receive $50,000
per year for ten years following his retirement from the Company, which was
effective at the end of 1997. Should his death occur prior to the receipt of all
benefits under this agreement, Mr. Sargent's surviving spouse or estate, as
applicable, will receive the remainder of such payments.
Indemnification of Officers and Directors
The Company's Articles of Incorporation provide that the liability of
directors for monetary damages shall be limited to the fullest extent
permissible under Texas law. This limitation of liability does not affect the
availability of injunctive relief or other equitable remedies.
The Company's Bylaws provide that the Company shall indemnify its directors
and officers to the fullest extent possible under Texas law. These
indemnification provisions require the Company to indemnify such persons against
certain liabilities and expenses to which they may become subject by reason of
their service as a director or officer of the Company or any of its affiliated
enterprises. The provisions also set forth certain procedures, including the
advancement of expenses, that apply in the event of a claim for indemnification.
19
<PAGE>
Stock Performance Graph
The following graph compares the performance of the Company's Common Stock
to the Standard & Poor's 500 Stock Index ("S&P 500 Index") and to the Standard &
Poor's Domestic Oil Index ("S&P Domestic Oil Index"). The graph assumes that the
amount of investment was $100 on December 31, 1993 and that all dividends were
reinvested.
[Stock Performance Graph Appears Here]
<TABLE>
========================================================================================
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- -------- --------
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PetroCorp Incorporated $100.00 $111.54 $ 74.36 $ 94.87 $ 84.62 $ 58.97
- ----------------------------------------------------------------------------------------
S&P 500 Index $100.00 $101.32 $139.40 $171.40 $228.59 $293.91
- ----------------------------------------------------------------------------------------
S&P Domestic Oil Index $100.00 $104.92 $119.46 $151.07 $179.75 $145.93
========================================================================================
</TABLE>
Pursuant to SEC rules, this section of this Proxy Statement is not deemed
"filed" with the SEC and is not incorporated by reference into the Company's
Annual Report on Form 10-K.
20
<PAGE>
Compensation Committee Report on Executive Compensation
The Compensation Committee ("the Committee") of the Company's Board of
Directors is pleased to present its report on executive compensation. This
report describes the components of the Company's executive officer compensation
program as currently in effect and the basis on which compensation has been
determined for the Chief Executive Officer and is currently determined for other
executive officers of the Company. If the proposed Management Agreement is
approved, this compensation program will continue in effect only for the
duration of the Transition Period (as defined in the Management Agreement
attached as Annex A hereto), after which the Company will no longer have any
employees of its own.
Committee and Philosophy. The Committee's duties include (i) establishing
the compensation program for the Chief Executive Officer, (ii) reviewing and
approving recommendations made by the Chief Executive Officer regarding the
compensation program for other executive officers, (iii) approving changes to
the base salary and incentive or bonus payments for the Chief Executive Officer
and other executive officers, and (iv) administering the Company's stock option
plan. Recommendations of the Committee are subject to the approval of the Board
of Directors. The following principles guide the Committee in its deliberations:
. Providing a competitive total compensation program that enables the
Company to retain, motivate and reward its executive officers.
. Creating compensation opportunities based on the Company's performance.
. Coordinating the compensation programs with the Company's annual and
long-term objectives and strategies.
. Working closely with the Chief Executive Officer to assure that the
compensation program supports the management style and culture of the
Company.
The three principal components of the Company's compensation program for
executive officers are base salary, annual incentive or bonus compensation, and
periodic grants under the stock option plan.
In determining overall compensation and executive performance, the
Committee places strong emphasis on performance measures that align the
officers' interests with those of shareholders, such as growth in oil and gas
reserves and in the underlying asset value of the Company, cash flows from
operating activities, reserve replacement costs per barrel of oil equivalent
("BOE") and production costs and general and administrative expenses per BOE, as
well as competitive compensation data. The Board of Directors has from time to
time retained outside compensation consultants to conduct compensation surveys
and advise the Committee concerning compensation matters, and the Committee has
surveyed the executive compensation levels of companies in the oil and gas
industry similar to the Company and believes that the overall compensation for
its executives is lower than the median of the companies surveyed.
Base Salary. Base salary levels are evaluated within the context of
prevailing base salaries paid to comparable executives in similar organizations
in the oil and gas industry. An individual officer's base salary is adjusted up
or down based on a subjective assessment of such officer's assigned duties and
responsibilities, current performance, potential, initiative, and other factors
determined by the Committee. In addition, the Company's financial performance
and business conditions are important factors in determining the appropriate
base salary for each executive officer. The Committee also takes into
consideration the recommendations of the Chief Executive Officer as to the
appropriate base salaries for other executive officers.
Annual Incentive Compensation Plan. In the fall of 1994 the Company's Board
of Directors approved adoption by the Company of the Executive Management Annual
Incentive Compensation Plan (the "Incentive Plan") to be administered by the
Committee. Messrs. McBean, Lord, Pelletier and Watson were covered by the Plan
for 1998, and additional participants may be added to the Incentive Plan in the
future upon recommendation by the Chief Executive Officer and approval of the
Committee. A new plan year begins on January 1 of each year unless otherwise
21
<PAGE>
determined by the Compensation Committee. Quantitative performance measures will
be established by the Compensation Committee in each plan year that reflect the
operating and financial success of the Company. These performance measures will
be used to determine the amount of the incentive bonus that is actually earned.
Such performance measures may change from year to year and the weight given to
each measure may also change to better reflect the Company's financial and
operating goals for a particular year. In 1998, each of the following
performance measures was weighted equally: (i) SEC 10 Value/Finding Costs
Ratio, which is the Company's 3-year trailing average ratio of SEC 10 value per
BOE (the discounted estimated pre-tax value of future net revenues) to finding
costs per BOE, divided by the 3-year industry peer group average (with such peer
group being determined by the Compensation Committee based on its subjective
determination of which independent oil and gas companies most closely resemble
the Company in size, operations and structure); (ii) Reserve Replacement Ratio,
which is the total proven oil and gas reserves found during the year divided by
the total oil and gas production volume during the year; (iii) Cash Flow Per
Share Growth, which is the percentage increase from the previous year's cash
flow from operations on a per share basis; (iv) Return on Net Assets, which is
the net income after taxes for the year divided by the average net assets during
the year computed; and (v) Discretionary Board Assessment, which is the Board's
subjective assessment of the Company's overall performance based on qualitative
factors and other financial or operating performance measures. Each performance
factor is measured against a pre-established target, and bonuses are earned to
the degree such targets are reached and surpassed. During 1998, participants in
the Incentive Plan were eligible to earn bonuses up to an amount equal to their
respective base salary. Following the distribution of the Company's proxy
statement for the 1998 annual meeting of shareholders, the Committee awarded Mr.
McBean $132,000 and Mr. Sargent $128,500 for 1997. While Mr. McBean has elected
to receive payment of only $60,000 of this 1997 bonus, he is entitled to the
remainder upon his request.
Other Annual Bonuses. Executive officers who do not participate in the
Incentive Plan may be given annual bonuses not determined pursuant to the
Incentive Plan. Such annual bonuses are awarded based on the Committee's
subjective determination of improvements in productive measures such as growth
in oil and gas reserves and in the underlying asset value of the Company, cash
flows from operating activities, finding costs per BOE and production costs and
general and administrative expenses per BOE. The Committee does not assign
specific weights to any of these factors when it determines the Company's
overall performance for the year and makes awards from a bonus fund established
based on its determination of this performance. Typically, these bonuses are
payable in three installments (50% in the year granted, 25% one year after grant
and 25% two years after grant) and are dependent upon the executive officer or
key employee remaining with the Company. The Committee takes into consideration
the recommendations of the Chief Executive Officer as to appropriate bonuses for
other executive officers.
Stock Option Plan. The Stock Option Plan is maintained by the Company to
provide the Chief Executive Officer and the other executive officers with an
additional incentive to promote the financial success of the Company as
reflected by increased value of the Company's Common Stock. In connection with a
major transaction and the reorganization of the Company into a corporation in
1992, the Chief Executive Officer and the other executive officers were each
granted a significant number of stock options. In 1996, smaller numbers of stock
options were granted to the Chief Executive Officer and other officers in order
to provide further incentives. No options were granted in 1998. These options
are, by their nature, at risk as to ultimate value, and the Committee believes
that this aligns the officers' rewards and incentives with shareholders'
interests. By their terms, all of these options vested in 1996 upon the sale by
two significant shareholders of all of their Common Stock to Kaiser-Francis. See
"Common Stock Outstanding and Principal Holders Thereof" above.
Retention and Severance Arrangements. In connection with the Company's
previously announced receipt of various offers from third parties to purchase
certain assets of, or merge with, the Company, the Board of Directors adopted
retention and severance plans for the employees and executive officers of the
Company that were designed to retain the services of such persons while the
Company pursued such alternatives with third parties and considered other
proposals to maximize value for the shareholders. These plans are described
above under the heading "Retention and Severance Arrangements."
Chief Executive Officer's Compensation. During 1998, Mr. McBean served as
Chief Executive Officer of the Company. The Committee determines the
compensation of the Chief Executive Officer in substantially the same manner as
the compensation of the other officers. In establishing the base salary for Mr.
McBean for the 1998 fiscal year, the Committee assessed (i) the performance of
the Company, (ii) total return to shareholders and (iii) progress toward
22
<PAGE>
implementation of the Company's strategic business plan. In addition, the
Committee took into consideration the compensation levels of chief executives in
similar oil and gas organizations. Mr. McBean's total compensation package also
includes a large portion in the form of stock options that were awarded in 1992
and in 1996.
Omnibus Budget Reconciliation Act of 1993. Section 162(m) of the Omnibus
Budget Reconciliation Act of 1993 limits the deductibility to the Company of
cash compensation in excess of $1 million paid to the Company's chief executive
officer and the next four highest paid officers during any fiscal year,
beginning with 1994, unless such compensation meets certain requirements. During
1998, the Committee reviewed compensation programs in light of the requirements
of this law. The Committee does not expect the new law to impact the Company in
1999 or for the foreseeable future in any significant way, if at all.
COMPENSATION COMMITTEE
THOMAS N. AMONETT
GARY R. CHRISTOPHER
G. JAY ERBE, JR.
Pursuant to SEC rules, this section of this Proxy Statement is not deemed
"filed" with the SEC and is not incorporated by reference into the
Company's Annual Report on Form 10-K.
Compensation Committee Interlocks and Insider Participation
From time to time in the past, the Company has raised necessary working
capital through the issuance of debt to related parties. In July 1993, United
States Fidelity and Guaranty Company (a wholly-owned subsidiary of St. Paul)
purchased $10.0 million of Senior Adjustable Rate Notes Series A, due June 30,
1999 (the "Series A Notes"). PetroCorp used the proceeds of the Series A Notes,
together with proceeds from the issuance of other notes to unaffiliated parties,
to refinance a $22.0 million 5.5% senior note payable to USF&G Corporation which
was subsequently acquired by St. Paul. Interest on the Series A Notes is
adjustable based on a spread of 115 basis points over the London Interbank
Offered Rates ("LIBOR"). The Company may select a rate that will be applicable
for a one, three or six-month period. Interest is payable in arrears at the end
of the selected period. Mandatory redemptions commenced on December 31, 1994 for
the Series A Notes. Mr. Erbe is an officer of St. Paul.
Certain Transactions
From time to time in the past, the Company has raised necessary working
capital through the issuance of debt to related parties, including a subsidiary
of St. Paul. See "Compensation Committee Interlocks and Insider Participation"
above. Mr. Erbe is an officer of St. Paul.
In connection with the purchase by Kaiser-Francis of Common Stock from two
significant shareholders during 1996, Kaiser-Francis succeeded to rights under a
registration rights agreement previously entered into between the Company and
those shareholders, which agreement is substantially similar to another
registration rights agreement previously entered into between the Company and
two subsidiaries of St. Paul. Mr. Christopher is an officer of Kaiser-Francis,
and Mr. Erbe is an officer of St. Paul.
All such transactions were approved by the Board of Directors of the
Company, and the Company believes that each such transaction was on terms that
were comparable to those that might have been obtained by the Company on an
arm's length basis from unaffiliated parties.
23
<PAGE>
Section 16 Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Securities Exchange Act of 1934, the Company's
directors, executive officers, and ten percent shareholders are required to
report to the Securities and Exchange Commission, by specific due dates,
transactions and holdings in the Company's Common Stock. Subject to and in
accordance with Item 405 of Regulation S-K, the Company believes that during the
fiscal year ended December 31, 1998, all such filing requirements were satisfied
in a timely manner.
PROPOSAL NO. 3 - RATIFICATION AND APPOINTMENT OF
INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has selected PricewaterhouseCoopers
LLP as its independent accountants to audit the consolidated financial
statements of the Company for the fiscal year ending December 31, 1999.
PricewaterhouseCoopers LLP has advised the Company that it will have a
representative in attendance at the Annual Meeting who will have the opportunity
to make a statement if such representative desires to do so and who will respond
to appropriate questions presented at such meeting.
Management recommends that the reappointment of PricewaterhouseCoopers LLP
as independent accountants of the Company for the fiscal year ending December
31, 1999 be ratified by the shareholders. Unless otherwise indicated, all
properly executed proxies will be voted for such ratification. An adverse vote
will cause the Audit Committee and Board of Directors to consider the
appointment of other accountants in the following year.
The Company recommends voting "For" Proposal No. 3.
OTHER MATTERS
The Board of Directors knows of no matters other than those described above
that are likely to come before the Annual Meeting. If any other matters properly
come before the meeting, persons named in the accompanying form of proxy intend
to vote such proxy in accordance with their best judgment on such matters.
NOMINATIONS AND PROPOSALS FOR NEXT ANNUAL MEETING
A shareholder wishing to nominate a candidate for election to the Board of
Directors at any annual or special meeting is required pursuant to the Company's
Bylaws to give written notice to the Secretary of the Company, together with a
written consent of such person to serve as a director, 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. In addition, the notice must comply with certain
provisions set forth in the Company's Bylaws and may be disregarded if such
provisions are not observed.
24
<PAGE>
Any proposals of holders of Common Stock of the Company intended to be
presented at the annual meeting of shareholders of the Company to be held in
2000 must be received by the Company at 16800 Greenspoint Park Drive, Suite 300,
North Atrium, Houston, Texas 77060, Attention: Secretary, no later than December
30, 1999, to be included in the proxy statement relating to that meeting.
By Order of the Board of Directors,
Craig K. Townsend, Secretary
September 30, 1999
THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON FORM
10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 TO INTERESTED SECURITY HOLDERS
ON REQUEST. THE COMPANY WILL FURNISH TO ANY SUCH PERSON ANY EXHIBITS DESCRIBED
IN THE LIST ACCOMPANYING SUCH REPORT UPON PAYMENT OF REASONABLE FEES RELATING TO
THE COMPANY'S FURNISHING SUCH EXHIBITS. REQUESTS FOR COPIES SHOULD BE DIRECTED
TO THE COMPANY AT 16800 GREENSPOINT PARK DRIVE, SUITE 300, NORTH ATRIUM,
HOUSTON, TEXAS 77060, ATTENTION: SECRETARY.
25
<PAGE>
ANNEX A
MANAGEMENT AGREEMENT
between
PETROCORP INCORPORATED
and
KAISER-FRANCIS OIL COMPANY
<PAGE>
MANAGEMENT AGREEMENT
This Management Agreement (the "Agreement") is made this 3rd day of
August, 1999 between PetroCorp Incorporated, a Texas corporation and Kaiser-
Francis Oil Company, a Delaware corporation ("Kaiser-Francis") (each a "Party"
and collectively the "Parties").
W I T N E S S E T H
WHEREAS, PetroCorp Incorporated, is a Texas corporation engaged in the oil
and gas exploration and production business, whose shares of common stock (the
"PetroCorp Common Stock") are registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934 and are traded on the facilities of the American
Stock Exchange under the trading symbol "PEX"); and
WHEREAS, Kaiser-Francis, a privately held Delaware corporation also engaged
in the oil and gas exploration and production business, owns beneficially
approximately forty-nine and nine-tenths percent (49.9%) of the issued and
outstanding PetroCorp Common Stock; and
WHEREAS, in order to maximize shareholder value and in an effort to manage
its affairs in a more cost effective and efficient manner, PetroCorp
Incorporated desires to engage Kaiser-Francis to provide management and
administrative support services, as more fully described herein, with respect to
all of PetroCorp's operations and the operations of its wholly-owned
subsidiaries, both in the United States of America and in Canada;
NOW, THEREFORE, in consideration of the mutual covenants herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Defined Terms. The following terms, when used herein, shall have the
meanings set forth below:
"Administrative Services" means the services to be rendered by Kaiser-
-----------------------
Francis as described in Section 2.2 below.
A-1
<PAGE>
"Affiliate" means, with respect to a person or entity, any person or entity
---------
that directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with such person, and the term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management, activities or policies of any person
or entity.
"Affiliated Transactions" has the meaning provided in Section 4.2 below.
-----------------------
"Affiliated Transaction Standard" has the meaning provided in Section 4.2
-------------------------------
below.
"Agreement" means this Agreement, as it may be amended from time to time.
---------
"Back-In" has the meaning provided in Section 3.1C below.
-------
"Business" means PetroCorp's business activities during the term of this
--------
Agreement.
"Effective Date" has the meaning provided in Section 8.1 below.
--------------
"Geological and Geophysical Costs" means the cost of (i) acquiring licenses
--------------------------------
to any geological or geophysical data which is owned by third parties
("speculative" or "spec" data), (ii) acquiring any geological or geophysical
data proprietary to PetroCorp, and (iii) any processing, reprocessing and third
party interpretation of either spec or proprietary data.
"Good Faith" means honesty in fact and free of improper motive.
----------
"Kaiser-Francis" has the meaning set forth in the above preamble.
--------------
"Kaiser-Francis Compensation" means the Services Fee, the ORRI Interest,
---------------------------
and the Back in, collectively.
"Land Costs" means the cost and expense incurred to acquire leases and/or
----------
farm out agreements, including, but not limited to lease bonus, delay rentals,
shut-in payments, option payments, brokers' fees, title examination and legal
fees, and other land costs.
"Material Decisions" has the meaning set forth in Section 2.5 herein.
------------------
"New Prospect" means a Prospect first identified by or to PetroCorp after
------------
the date hereof and prior to the Termination Date.
"New Prospects on Acquired Lands" means New Prospects that are comprised of
-------------------------------
all or any portion of the lands covered by oil and gas leases and/or fee or
other mineral interests of whatsoever nature acquired by PetroCorp after the
Effective Date, provided, however, that New
A-2
<PAGE>
Prospects on Acquired Lands shall in no event include leases or lands acquired
by PetroCorp that constitute Proved Oil and Gas Reserves.
"New Prospects on Existing Lands" means New Prospects that are comprised of
-------------------------------
all or any portion of the lands covered by the oil and gas leases and/or fee or
other mineral interests of whatsoever nature described in Exhibit 1.1 attached
hereto.
"Non-Operated Properties" means all properties in which PetroCorp now or
-----------------------
hereafter owns an oil and gas lease and/or fee or other mineral interest of
whatsoever nature but of which PetroCorp is not the operator.
"Non-Operator's Fees" means, with respect to the Non-Operated Properties,
-------------------
the sum of $50.00 per month per well (whether a drilling, producing, water
source or disposal well); provided, however, that with respect to multiple well
leases or units that are treated as a single accounting unit, the Non-Operator's
fees shall be $50.00 per month per such lease or unit unless Kaiser-Francis in
Good Faith concludes that the administrative burdens associated with such lease
or unit are proportional to the number of wells thereon, in which case Kaiser-
Francis may charge up to $50.00 per well.
"Non-Public Information" means information and records furnished by
----------------------
PetroCorp with respect to its business and properties, together with any
reports, analyses, summaries, spreadsheets, evaluations, memoranda or other
documents prepared or generated by Kaiser-Francis or its consultants or agents
on the basis of such information, whether in written, graphic, electronic or any
other format, to the extent such information is of a nature that is customarily
maintained as confidential and not disclosed by publicly traded companies
engaged in the oil and gas exploration and production business. Such information
includes, but is not limited to, seismic data, reserve reports, Prospect
analyses, and privileged attorney-client communications.
"Oil and Gas Operations" means the operations to be conducted by Kaiser-
----------------------
Francis on behalf of PetroCorp as described in Section 2.3 below.
"Operator's Fees" means, with respect to the PetroCorp Operated Properties,
---------------
all administrative and overhead fees received by PetroCorp under applicable
joint operating or unit operating agreements(including, without limitation,
administrative and overhead fees attributable to PetroCorp's working interest).
"ORRI Interest" has the meaning provided in Section 3.1B below.
-------------
"PetroCorp" means PetroCorp Incorporated and its wholly-owned subsidiaries,
---------
(i) PCC Energy, Inc., and (ii) PCC Energy Corp. and its subsidiary, PCC Energy,
Limited (each of such subsidiaries being Alberta, Canada corporations).
"PetroCorp Common Stock" has the meaning set forth in the above preamble.
----------------------
A-3
<PAGE>
"PetroCorp Operated Properties" means properties, now or hereafter
-----------------------------
acquired, that are operated by PetroCorp.
"Prospect" means a geological structure, feature or anomaly that is
--------
believed to have potential for producing oil and/or gas in commercial
quantities.
"Prospect Allocation" has the meaning provided in Section 4.1B below.
-------------------
"Prospect Area" means the lands within the boundaries of an area comprising
-------------
the Prospect, as such boundaries are designated by PetroCorp (with respect to
Prospects identified prior to the Effective Date) or Kaiser-Francis (with
respect to Prospects identified after the Effective Date), as the case may be.
"Prospect Exploration and Development Costs" means the following costs
------------------------------------------
incurred in exploring, developing and operating the Prospect Area or lands
pooled therewith: (i) Land Costs, (ii) Geological and Geophysical Costs; (iii)
the cost and expenses incurred in connection with administrative proceedings
relating to the Prospect Area or lands pooled therewith, including but not
limited to proceedings for the forced integration or unitization of lands in the
Prospect Area or lands pooled therewith; (iv) the cost of drilling, redrilling,
testing, logging, coring, evaluating, completing, equipping and operating,
sidetracking, recompleting, reworking and plugging any and all wells drilled on
the Prospect Area or lands pooled therewith (and including overhead borne by
PetroCorp as determined in accordance with applicable joint operating agreements
the accounting procedures); (v) the cost of acquiring or constructing any
surface facilities and/or pipelines for or related to the transporting,
servicing or treating of oil, gas or other hydrocarbons produced from the
Prospect Area or lands pooled therewith; and (vi) all other costs and losses
borne by PetroCorp relating to the Prospect Area or lands pooled therewith.
"Prospect Net Proceeds" means the proceeds, payments, income or value
----------------------
received by, or attributable to, the parties or their successors and assigns,
with respect to the Prospect or lands pooled therewith from all sources
whatsoever, including without limitation, the following:
i. in the case of sales (including advance sales) of oil, gas, sulphur
and/or other hydrocarbons or hydrocarbons products or any other substances
produced and sold from or attributable to the Prospect Area or lands pooled
therewith, the actual amounts or value received therefor (and in the case of
utilization of products out of the Prospect Area or lands pooled therewith, the
market value thereof; for purposes hereof, "market value" means the amount or
value received by the parties with respect to first sales of comparable quality
and quantity occurring in the Prospect Area, except that where gas is processed
in a plant either on or off the premises, it means the gross amount or value
received from the first sale at the tailgate of the plant, after deducting plant
processing costs, of that portion of the processed liquids, condensate,
gasoline, distillate, sulphur and plant products extracted and saved from such
gas together with the residue gas attributable to the oil, gas, sulphur and
other hydrocarbons produced from the Prospect Area or lands pooled therewith),
after deducting therefrom all royalties, overriding
A-4
<PAGE>
royalties and other leasehold burdens payable out of production, and all
production, excise, severance, ad valorem and other taxes applicable to such
production, together with any applicable dehydration, compression,
transportation or other charges incurred to render the oil or gas or other
products merchantable or deliverable;
ii. the actual price or value received from the salvage or sale of any
interest in any personal property, fixtures or equipment located on the Prospect
Area or lands pooled therewith or used or obtained in connection therewith and
including any rental proceeds received from the rental thereof, less the cost of
salvaging;
iii. contributions, goods or services or payments of cash received from
third parties toward the drilling of a well or any other operation on the
Prospect Area or lands pooled therewith;
iv. any insurance proceeds received pursuant to any insurance contract
relating to any loss including, without limitation, loss of control, blowout or
loss of income with respect to any well or operation on the Prospect Area or
lands pooled therewith; and
v. proceeds from the licensing of proprietary seismic data, the cost of
which forms part of the Prospect Exploration and Development Costs, which data
covers the Prospect Area or lands pooled therewith.
"Prospect Payout" means that point in time at which the cumulative Prospect
---------------
Net Proceeds are equal to the cumulative Prospect Exploration and Development
Costs.
"Proved Developed Oil and Gas Reserves" means reserves that can be expected
-------------------------------------
to be recovered through existing wells with existing equipment and operating
methods. Additional oil and gas expected to be obtained through the application
of fluid injection or other improved recovery techniques for supplementing the
natural forces and mechanisms of primary recovery should be included as "proved
developed reserves" only after testing by a pilot project or after the operation
of an installed program has confirmed through production response that increased
recovery will be achieved.
"Proved Undeveloped Reserves" means reserves that are expected to be
---------------------------
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. Reserves on undrilled
acreage shall be limited to those drilling units offsetting productive units
that are reasonably certain of production when drilled. Proved reserves for
other undrilled units can be claimed only where it can be demonstrated with
certainty that there is continuity of production from the existing productive
formation. Under no circumstances should estimates for proved undeveloped
reserves be attributable to any acreage for which an application of fluid
injection or other improved recovery technique is contemplated, unless such
techniques have been proved effective by actual tests in the area and in the
same reservoir.
"Proved Oil and Gas Reserves" means Proved Oil and Gas Reserves (including
---------------------------
Proved Developed Oil and Gas Reserves and Proved Undeveloped Oil and Gas
Reserves), as defined in
A-5
<PAGE>
the Securities and Exchange Commission's Reg. (S)210.4-10, as determined by an
independent engineering firm.
"Services" means (i) the Administrative Services and (ii) the Oil and Gas
--------
Operations.
"Services Fee" has the meaning provided in Section 3.1A below.
------------
"Term" has the meaning provided in Section 8.2 below.
----
"Termination Date" has the meaning provided in Section 8.2 below.
----------------
ARTICLE II.
KAISER-FRANCIS SERVICES
2.1 Kaiser-Francis Services.
-----------------------
A. Standard of Care. During the Term of this Agreement and on the terms
----------------
and conditions set forth herein, Kaiser-Francis shall perform the Services
in Good Faith and using that degree of care and skill which (i) with
respect to the Administrative Services, is usually and customarily observed
by publicly traded corporations; and (ii) with respect to the Oil and Gas
Operations, is usually and customarily observed in the oil and gas industry
(and with respect to Kaiser-Francis's operation of PetroCorp's Operated
Properties, is consistent with that degree of care and skill which would be
employed by a reasonable prudent operator).
B. Compliance. Kaiser-Francis shall perform the Services (i) in
----------
compliance with the Articles of Incorporation and Bylaws of PetroCorp; and
(ii) in compliance in all material respects with applicable federal, state,
provincial and local laws. Kaiser-Francis shall use commercially reasonable
efforts to comply with all contracts, leases, orders, security instruments
and other agreements to which PetroCorp is a party or by which PetroCorp is
bound. Notwithstanding the foregoing, Kaiser-Francis shall not be required
to expend its own funds or make any payment or incur any liability to any
third party to assure compliance with such governing documents, laws or
agreements.
2.2 Conduct of Administrative Services. Subject to the provisions of Section
----------------------------------
2.5 respecting Material Decisions, Kaiser-Francis shall perform the following
functions for and on behalf of PetroCorp:
A. All management and administrative services as may be required for the
reasonable conduct of PetroCorp's business as presently or hereafter
conducted, including, without limitation, human resources (including,
without limitation,
A-6
<PAGE>
coordination of employee benefits, including severance payments, COBRA
coverages and quarterly separation benefit payments to Lealon Sargent),
audit, accounting, tax, insurance, payroll, and investor relations. Without
limiting the foregoing, throughout the Term, Kaiser-Francis shall maintain,
for the benefit of PetroCorp and at PetroCorp's expense, insurance
coverages that are usual and customary for publicly traded corporations in
the oil and gas industry and consistent with past practices of PetroCorp.
Such coverages shall include but not be limited to the following:
Commercial General Liability Insurance, Excess/Umbrella Liability
Insurance, Boiler and Machinery/Business Interruption Insurance covering
the Hanlan-Robb Plant and related facilities, "All Risk" Property
Insurance, Operator's Extra Expense Insurance, Directors and Officers
Liability Insurance and other insurance coverages as appropriate;
B. Making such arrangements with and employing, at the expense and for
the benefit of PetroCorp, such accountants, attorneys, banks, transfer
agents, custodians, underwriters, insurance companies and other persons as
may from time to time be reasonably necessary for the conduct of
PetroCorp's business;
C. Functions appropriate to a corporation organized under the laws of the
State of Texas with a class of capital stock consisting of common shares
registered under Section 12(g) of the Securities Exchange Act of 1934 and
traded on the facilities of the American Stock Exchange, including, but not
limited to, duties imposed by the provisions of the Texas Business
Corporation Act, the Securities Exchange Act of 1934, and the Rules and
Regulations of the American Stock Exchange; and
D. Such other administrative functions as are routinely and customarily
conducted in the ordinary course of business by publicly traded
corporations engaged in oil and gas exploration and production.
2.3 Conduct of Oil and Gas Operations. Subject to the provisions of Section
---------------------------------
2.5 respecting Material Decisions, Kaiser-Francis shall perform the following
functions on behalf of PetroCorp:
A. Land. Maintenance of land records, including, but not limited to,
----
maintenance of records relating to lease and well names, numbers, status,
and locations, payment of shut-in and delay rentals an other lease
maintenance functions, preparation and maintenance of division orders, and
the like;
B. Well. Well performance reviews, including, but not limited to,
----
preparation and review of, and making of recommendations and elections with
respect to, proposals for drilling, completion, workovers, or other
operations with respect to the wells, preparation and submission of
regulatory applications, compliance with plugging and abandoning
requirements, making of recommendations and decisions concerning equipment
A-7
<PAGE>
requirements, and, where applicable, monitoring of the operator's
performance of such activities with respect to the wells;
C. Engineering. Engineering and general oil field operations including,
-----------
but not limited to, evaluation of outside proposals for exploration and
exploitation of oil and gas properties, reserve evaluations and production
forecasting, AFE costs, joint interest billings, and invoices, preparation
and filing of regulatory reports, monitoring of allowables, monitoring of
well profitability, and pursuit of opportunities for enhancement of
existing oil and gas production;
D. Geological and Geophysical. Geological and seismic operations,
--------------------------
including, but not limited to, acquisition, processing and interpretation
of seismic data (whether internally or externally), and evaluation of
internally and externally developed proposals and review of logs, isopach
maps, and structure maps;
E. Acquisitions and Divestitures. Identification of, and, with respect
-----------------------------
to Material Decisions, making of recommendations to PetroCorp
Incorporated's Board of Directors with respect to, acquisition or
disposition of existing or hereafter acquired properties of PetroCorp,
including, but not limited to lease purchases, acreage trades, farm out,
and farmins, and other arrangements relating to the acquisition or
disposition of properties;
F. Marketing. Contracting for the gathering, treating, processing,
---------
transportation and sale of oil, gas and other hydrocarbons produced from or
attributable to PetroCorp's properties (including, but not limited to, gas
balancing with respect thereto) and collection of revenue from such sales;
G. Operations. Performance of PetroCorp's duties as well operator, where
----------
applicable;
H. Contracts. Contract negotiation, administration, and review,
---------
including, but not limited to, joint operating agreement, farm out,
farmins, and production sale agreements;
I. Accounting. Payment and collection of operating expenses, including,
----------
but not limited to, joint interest billings; revenue disbursements; and
budgeting and forecasting of capital and operating revenues and expenses;
J. Purchasing. Procurement in the ordinary course of business of
----------
equipment, supplies and other goods and services reasonably necessary for
the efficient day to day operation of the Business
K. Compliance. Regulatory compliance, including, but not limited to,
----------
application for, or maintenance of, and compliance with all required
governmental permits and authorizations with respect to PetroCorp's
properties or the Business; preparation and filing of all applications,
reports, notices, and other regulatory filings or reports required
A-8
<PAGE>
by any federal, state (or provincial), or local authority with respect to
PetroCorp's properties or Business; and participation in hearings and other
administrative proceedings on behalf of PetroCorp.
L. Institutional Investors. Performance of PetroCorp's obligations with
-----------------------
respect to its institutional investors, including, but not limited to,
Queen Sand Resources, Inc. and UBS, pursuant to assignments by PetroCorp to
such institutional investors of overriding royalty interests, net profits
interests or other like interests in oil and gas properties and ancillary
agreements between PetroCorp and the institutional investors.
M. Other. Such other functions as are usually and customarily performed
-----
by an oil and gas exploration and production company not heretofore
enumerated in this Paragraph.
2.4 Duties Retained by PetroCorp. Notwithstanding the delegation to Kaiser-
----------------------------
Francis in Section 2.3 above of responsibility for negotiation of contracts on
behalf of PetroCorp, it is expressly understood and agreed that PetroCorp,
acting through its officers appointed in accordance with Section 10.1 hereof,
retains all responsibility and authority for execution on behalf of PetroCorp of
such contracts, agreements, assignments, documents and other instruments as may
be useful or necessary in the conduct of PetroCorp's Business during the term
hereof. Further, except with respect to the Kaiser-Francis' Compensation,
Kaiser-Francis shall not take title to any properties owned by PetroCorp as of
the date hereof, and, with respect to properties subsequently acquired on behalf
of PetroCorp, Kaiser-Francis shall either take title in PetroCorp's name or
assign, or cause to be assigned, record title to PetroCorp within a reasonable
time thereafter.
2.5 Material Decisions. Kaiser-Francis, whether or not acting through or
------------------
together with PetroCorp officers as provided in Section 10.1 herein, shall not
make any commitment on behalf of PetroCorp without the prior approval of the
Board of Directors of PetroCorp Incorporated if the commitment (a "Material
Decision") would:
A. obligate PetroCorp to an expenditure or liability of in excess of two
hundred and fifty thousand dollars ($250,000), or its non-cash equivalent,
over the term of the agreement or commitment;
B. obligate PetroCorp to sell or dispose of an asset or group of assets
having a value in excess of five hundred thousand dollars ($500,000);
C. obligate PetroCorp to sell oil, gas or other hydrocarbons produced
from or attributable to PetroCorp's properties under a contract having a
term longer than one (1) year;
D. place a lien, security interest, mortgage, pledge, production payment,
or other encumbrance upon any of PetroCorp's properties (other than such
liens and security
A-9
<PAGE>
interests as arise in the ordinary course of PetroCorp's business,
including liens arising by operation of law, under joint operating
agreements, or under mechanics and materialmen's lien laws);
E. initiate or compromise any litigation or threatened litigation matter
involving potential rights or liabilities of PetroCorp asserted to be in
excess of Fifty Thousand Dollars ($50,000.00).
2.6 Record-Keeping and Reporting.
----------------------------
A. Reporting to the Board of Directors. Kaiser-Francis shall prepare and
-----------------------------------
submit to the Board of Directors of PetroCorp Incorporated the following
information and reports:
1. Annually: Budget for operations and capital expenditures.
--------
2. Quarterly: the following reports, all substantially comparable to
---------
the form of such reports historically presented to the Board of
Directors by PetroCorp's management:
a. Summary Financial Information,
b. Summary Income Statement,
c. Summary Results of Operations from Oil and Gas Producing
Activities, and Full Cost Ceiling Test Report,
d. Summary Year-to-Date Comparison of actual performance to
budget and reforecasted budget, and
e. Summary narrative description of operations in the calendar
quarter.
3. At each meeting of the Board of Directors:
-----------------------------------------
a. Information relevant to any Material Decision, together with
Kaiser-Francis's recommendation with respect thereto and reasons
therefor, and a summary of actions taken pursuant to Material
Decisions since the preceding meeting of the Board of Directors;
b. Filings made with the Securities and Exchange Commission
since the preceding meeting of the Board of Directors;
c. Such other summary reports and information as the PetroCorp
Incorporated Board of Directors may reasonably require.
A-10
<PAGE>
B. Reporting to Third Parties. Kaiser-Francis shall prepare and submit
--------------------------
to third parties, including regulatory authorities, joint interest owners
and institutional investors, such reports and information as may be
required by applicable law or PetroCorp's contracts with such third
parties.
C. Maintenance of Books and Records. Kaiser-Francis shall maintain the
--------------------------------
books and records of PetroCorp, utilizing Kaiser-Francis software and
hardware or third party software or hardware, in accordance with applicable
laws and with generally accepted accounting principles applied on a basis
consistent with the prior practices of PetroCorp.
2.7 Commingling of Assets. Kaiser-Francis shall separately maintain and not
---------------------
commingle the assets of PetroCorp with those of Kaiser-Francis.
2.8 Transition Period. PetroCorp acknowledges that the first six months
-----------------
following the Effective Date shall be a transition period in which
Administrative Services and Oil and Gas Operations are shifted from PetroCorp to
Kaiser-Francis (the "Transition" and "Transition Period"). During this period,
Kaiser-Francis will cause PetroCorp to continue certain employees in the
employment of PetroCorp until the completion of the Transition. Kaiser-Francis
shall use its best efforts to complete the Transition as soon as practicable and
shall complete the Transition within the Transition Period.
ARTICLE III.
KAISER-FRANCIS COMPENSATION
3.1 Compensation. PetroCorp shall pay Kaiser-Francis, as Kaiser-Francis' sole
------------
compensation for providing the Services, the Kaiser-Francis Compensation,
comprised of the following:
A. Services Fee. PetroCorp shall pay Kaiser-Francis a monthly fee for
------------
the Services equal to 100% of the Operator's Fees and Non-Operator's Fees,
respectively, for each of the PetroCorp Operated Properties and Non-
Operated Properties.
B. Overriding Royalty. As additional consideration for the performance
------------------
of the Services, Kaiser-Francis shall receive the following proportionately
reduced overriding royalty interests (collectively, the "ORRI Interest"):
(i) New Prospects on Existing Lands. With respect to each New
-------------------------------
Prospect on Existing Lands, Kaiser-Francis shall receive a proportionately
reduced overriding royalty interest equal to 1% of 8/8ths of oil, gas and
------------
other hydrocarbons produced from or attributable to, PetroCorp's existing
or hereafter acquired oil and gas leases
A-11
<PAGE>
and/or fee or other mineral interests covering lands within the respective
Prospect Area.
Notwithstanding the foregoing, Kaiser-Francis shall not be
entitled to an overriding royalty interest in the lands described in
Exhibit 3.1B, except that, with respect to each New Prospect (a) covering
lands included in any of the respective Areas of Mutual Interest described
in such Exhibit 3.1B, and (b) identified after the expiration of the
respective Area of Mutual Interest, Kaiser-Francis shall receive a
proportionately reduced overriding royalty interest equal to 2% of 8/8ths
------------
of oil, gas and other hydrocarbons produced from or attributable to,
PetroCorp's oil and gas leases and/or fee or other mineral interest
covering lands within such Prospect Area.
(ii) New Prospects on Acquired Lands. Except as provided below, with
-------------------------------
respect to each New Prospect on Acquired Lands, Kaiser-Francis shall
receive a proportionately reduced overriding royalty interest equal to 2%
--
of 8/8ths of oil, gas and other hydrocarbons produced from or attributable
---------
to, PetroCorp's hereafter acquired oil and gas leases and/or fee or other
mineral interests covering lands within the respective Prospect Area.
Notwithstanding the foregoing, Kaiser-Francis shall not be
---
entitled to an overriding royalty interest on hereafter acquired lands to
the extent the lands are Proved Oil and Gas Reserves. Further, if, in an
acquisition of Proved Oil and Gas Reserves, PetroCorp also hereafter
acquires lands that are not Proved Oil and Gas Reserves ("Unproved Lands")
then (i) with respect to Unproved Lands within Prospects identified by
parties other than Kaiser-Francis prior to such acquisition, Kaiser-Francis
shall not be entitled to an overriding royalty interest; and (ii) with
respect to Unproved Lands within Prospects identified by Kaiser-Francis
after such acquisition, Kaiser-Francis shall receive a proportionately
reduced overriding royalty interest equal to 1% of 8/8ths of oil, gas and
------------
other hydrocarbons produced from or attributable to, PetroCorp's oil and
gas leases and/or fee or other mineral interest covering lands within such
Prospect Area.
(iii) Form of Assignment of ORRI. After a New Prospect has been
--------------------------
identified, PetroCorp shall execute, acknowledge and deliver to Kaiser-
Francis an Assignment of Overriding Royalty Interest, substantially in the
form of Exhibit 3B-1 (with respect to properties in the United States) or
Exhibit 3B-2 (with respect to properties in Canada) attached hereto, with
respect to such New Prospect promptly upon request by Kaiser-Francis. Such
Assignment shall provide that the overriding royalty interest shall be
proportionately reduced in the event that PetroCorp owns less than the
entire working interest in and to the leases or mineral interests subject
thereto or such leases cover less than the entire mineral estate.
C. Back-In. As further additional consideration for the performance of
-------
the
A-12
<PAGE>
Services, Kaiser-Francis shall receive after Prospect Payout with respect
to each New Prospect an undivided working interest as provided below
(herein, collectively, the "Back-In"):
(i) New Prospects on Existing Lands. With respect to each New
-------------------------------
Prospect on Existing Lands, Kaiser-Francis shall receive a Back-In equal to
15% of PetroCorp's existing or hereafter acquired interest in the oil and
---
gas leases and fee mineral interests covering lands within the respective
Prospect Area.
Notwithstanding the foregoing, Kaiser-Francis shall not be
entitled to a Back-In in and to the lands described in Exhibit 3.1B;
provided, however, that with respect to each New Prospect (a) covering
lands included in any of the respective Areas of Mutual Interest described
in such Exhibit 3.1B, and (b) identified after the expiration of the
respective Area of Mutual Interest, Kaiser-Francis shall receive after
Prospect Payout an undivided working interest equal to 25% of PetroCorp's
---
interest in oil and gas leases and fee mineral interests covering lands
within such Prospect Area.
(ii) New Prospects on Acquired Lands. With respect to each New
-------------------------------
Prospect on Acquired Lands, Kaiser-Francis shall receive a Back-In equal to
25% of PetroCorp's hereafter acquired interest in the oil and gas leases
---
and fee mineral interests covering lands within the respective Prospect
Area.
Notwithstanding the foregoing, Kaiser-Francis shall not be
entitled to a Back-In in and to hereafter acquired lands to the extent the
lands are Proved Oil and Gas Reserves. Further, if, in an acquisition of
Proved Oil and Gas Reserves, PetroCorp also hereafter acquires Unproved
Lands, then (i) with respect to Unproved Lands within Prospects identified
by parties other than Kaiser-Francis prior to such acquisition, Kaiser-
Francis shall not be entitled to a Back-In; and (ii) with respect to
Unproved Lands within Prospects identified by Kaiser-Francis after such
acquisition, Kaiser-Francis shall receive a Back-In equal to 15% of
---
PetroCorp's hereafter acquired interest in the oil and gas leases and fee
mineral interests covering lands within the respective Prospect Area.
(iii) Form of Assignment of Back-In. For each New Prospect,
-----------------------------
PetroCorp shall furnish Kaiser-Francis quarterly Prospect Payout statements
setting forth the cumulative Prospect Net Proceeds and Prospect Exploration
and Development Costs, and, within thirty (30) days after Prospect Payout
has occurred, PetroCorp shall execute, acknowledge and deliver to Kaiser-
Francis a Partial Assignment of Oil and Gas Leases, substantially in the
form of Exhibit 3.1C attached hereto, of Kaiser-Francis's undivided working
interest in the oil and gas leases and fee mineral interests in the
Prospect Area, such assignment to be made without warranty, except that
PetroCorp shall warrant the interest so assigned to be free of claims and
encumbrances arising by, through, or under PetroCorp but not otherwise.
A-13
<PAGE>
3.2 Provisions Respecting Payment of Costs of Administrative Services.
-----------------------------------------------------------------
Kaiser-Francis shall pay all costs of the Services except the following expenses
which shall be borne by PetroCorp:
A. Oil and Gas Operations. Direct expenses of oil and gas operations
----------------------
(including, without limitation, drilling, completion, plugging and
abandoning, production, gathering, processing, and transportation) charged
to working interests owners;
B. Consulting Fees. Third-party legal, accounting, engineering, and
---------------
consulting fees and expenses; provided, however, that Kaiser-Francis shall
not charge as a third-party expense the cost of performing such services
that (i) either were performed in-house by PetroCorp prior to the date
hereof; or (ii) are customarily performed in-house by Kaiser-Francis after
the date hereof;
C. Filing Fees. Filing, processing, and other fees of regulatory
-----------
agencies, including, but not limited to, state oil and gas commissions,
state securities commissions, the Securities and Exchange Commission, the
American Stock Exchange, Department of Justice, and the like;
D. Director, Officer and Employee Expenses. The costs and expenses of
---------------------------------------
PetroCorp's directors, officers, and employees (except officers and
employees of Kaiser-Francis), including: (i) Director and Officer Liability
Insurance; (ii) Directors' fees and expenses; (iii) all compensation and
other expenses of any officers of PetroCorp who are not KF Nominees; and
(iv) PetroCorp officer and employee expenses, including but not limited to
insurance and other benefits;
E. Facility Expenses. Rent for facilities and other occupancy expenses,
-----------------
except rent for facilities of Kaiser-Francis and occupancy expenses
associated with facilities of Kaiser-Francis;
F. Travel and Entertainment. Travel and entertainment expense reasonably
------------------------
incurred directly for the benefit of PetroCorp in the performance of the
Services and not covered by the provisions of applicable joint operating
agreements;
G. Other. Other third-party expenses not heretofore enumerated which an
-----
oil and gas exploration and development company registered under Section
12(g) of the Securities Exchange Act of 1934 with a class of capital stock
listed for trading on the American Stock Exchange would incur in the usual
and customary conduct of its own corporate affairs.
A-14
<PAGE>
As used in this section, third-party expenses shall include expenses,
whether payable to an Affiliate of Kaiser-Francis or to a non-affiliated entity,
only to the extent such expenses are competitive with those otherwise generally
available in the area in which services or materials were furnished.
ARTICLE IV.
CONFLICTS OF INTEREST
4.1 Corporate Opportunities.
-----------------------
A. Kaiser-Francis Opportunities. PetroCorp hereby acknowledges that
----------------------------
Kaiser-Francis and its Affiliates are actively and substantially engaged in
the oil and gas exploration business, and agrees that Kaiser-Francis and
its Affiliates (including the officers of Kaiser-Francis who may be KF
Officer Nominees) shall be free to continue to engage in such business,
whether or not such business is deemed to be in competition with PetroCorp.
Subject to Kaiser-Francis's compliance with the Section 4.1B no business in
which Kaiser-Francis or its Affiliates (including officers of Kaiser-
Francis who may be KF Officer Nominees) engage shall be deemed to be a
corporate opportunity of PetroCorp.
B. Prospect Allocation. Kaiser-Francis shall cause Prospects developed
-------------------
by Kaiser-Francis employees after the Effective Date to be (i) developed
for the account of Kaiser-Francis or (ii) to be developed for the account
of PetroCorp or (iii) for the account of both Kaiser-Francis and PetroCorp
in such percentages as Kaiser-Francis shall determine (the "Prospect
Allocation") based upon the following factors:
(1) the geographic proximity of the Prospect to existing oil and gas
production, non-producing oil and gas leasehold positions, or
Prospects of Kaiser-Francis and/or PetroCorp;
(2) the geological comparability of the Prospect to existing oil and
gas production, non-producing oil and gas leasehold positions, or
exploration or exploitation prospects of Kaiser-Francis and/or
PetroCorp;
(3) the potential adverse impact of the Prospect on existing oil and
gas production, non-producing oil and gas leasehold positions, or
Prospects of Kaiser-Francis and/or PetroCorp, as a result of drainage
or other factors;
(4) the nature and extent of the risk involved in the Prospect; and,
(5) budgetary constraints.
A-15
<PAGE>
The Prospect Allocations by Kaiser-Francis shall be binding upon PetroCorp
provided, and subject to the conditions, that: (i) Kaiser-Francis shall have
reported in writing a reasonable summary (including a summary of the factors set
forth above) to the Board of Directors of PetroCorp Incorporated prior to or as
soon as possible after the acquisition of the Prospect, but in no event later
than the commencement of any drilling or reworking operation thereon and the
Board of Directors of PetroCorp Incorporated shall not have adopted at such
meeting a resolution objecting to the Prospect Allocation; and (ii) Kaiser-
Francis made the Prospect Allocation in Good Faith. If the Board of Directors
adopts a resolution objecting to any Prospect Allocation and PetroCorp
establishes that Kaiser-Francis's determination was unreasonable or not in Good
Faith, then the Prospect Allocation shall not be binding upon PetroCorp and the
acquired Prospect (or such portion thereof as PetroCorp may elect to acquire)
shall be offered to PetroCorp under the same terms and conditions as the
Prospect was acquired by Kaiser-Francis.
4.2 Affiliated Transactions. All transactions between Kaiser-Francis and its
-----------------------
Affiliates and PetroCorp ("Affiliated Transactions") shall be on terms and
conditions at least as favorable to PetroCorp as those prevailing in the
exploration and production industry for comparable transactions between
unaffiliated parties (the "Affiliated Transaction Standard"). The determination
of Kaiser-Francis that the Affiliated Transaction Standard in respect of an
Affiliated Transaction is met shall be binding upon PetroCorp provided, and
subject to the conditions, that (i) Kaiser-Francis shall have reported in
writing a reasonable summary (including, but not limited to, a reasonable
summary of the terms and conditions of the Affiliated Transaction) of the
Affiliated Transaction to the Board of Directors at the meeting of the Board
next following the consummation of the Affiliated Transaction (or prior to the
consummation of the Affiliated Transaction if required under the Texas Business
Corporation Act or other applicable law) and the Board of Directors of PetroCorp
Incorporated shall not have adopted at such meeting a resolution objecting to
the Affiliated Transaction; and (ii) Kaiser-Francis made the determination in
Good Faith. If the Board of Directors adopts a resolution objecting to any
Affiliated Transaction and PetroCorp establishes that Kaiser-Francis's
determination was unreasonable or not in Good Faith, then the Affiliated
Transaction shall not be binding upon PetroCorp.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of Kaiser-Francis. Kaiser-Francis represents
and warrants to PetroCorp that the following are, and at all times during the
term of this Agreement shall remain, true and correct:
A. Organization and Authority. Kaiser-Francis has all requisite power and
capacity, is under no legal restraint, and has all necessary authority to
enter into this Agreement and perform its obligations hereunder. Kaiser-
Francis is a corporation duly
A-16
<PAGE>
organized and constituted and existing under the laws of the State of
Delaware and is qualified to conduct business in each of the jurisdictions
in which such qualification is necessary to perform its obligations
hereunder. The Agreement has been duly executed and delivered by Kaiser-
Francis, and the execution and delivery of this Agreement, the consummation
of the transactions contemplated hereby and the compliance by Kaiser-
Francis with the terms of this Agreement do not and will not conflict with
or result in a breach of any terms of, or constitute a default under, the
Articles of Incorporation or Bylaws of Kaiser-Francis or any other material
agreement, instrument, writ, order, judgment or decree to which Kaiser-
Francis is a party or is subject or by which it is bound. This Agreement
constitutes a valid obligation of Kaiser-Francis enforceable in accordance
with its terms except as limited by bankruptcy, insolvency, reorganization
or other such laws concerning the rights of creditors.
B. No Claims. To the knowledge of Kaiser-Francis, except with respect to
such matters that would not, if determined adversely to Kaiser-Francis,
have a material adverse effect on Kaiser-Francis or its ability to perform
its obligations hereunder, Kaiser-Francis is not in default under any
applicable laws or under any order of any court or governmental
administrative body having jurisdiction, and there are no claims, actions,
suits or proceedings, pending or threatened, against Kaiser-Francis at law
or in equity, or before or by any administrative body having jurisdiction,
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received. To the knowledge of Kaiser-Francis, there is
no claim, litigation, action, suit or proceeding, administrative or
judicial, pending or threatened which seeks to restrain or seeks damages in
connection with the consummation of the transactions contemplated herein.
C. Personnel. Except with respect to third-party legal, accounting,
---------
consulting and other services for which it is contemplated herein that
Kaiser-Francis will contract with consultants, Kaiser-Francis has and at
all times during the term of this Agreement shall have in its employ or
available to it personnel sufficient in numbers and training to enable it
to perform its obligations hereunder.
D. Intellectual Property Rights. To the extent Kaiser-Francis uses
----------------------------
third-party software, seismic data or other intellectual property in the
performance of the Services, Kaiser-Francis has (or at the time it uses
such third-party property in connection with the performance of the
Services will have) such licenses and authorizations necessary to authorize
its use of such third-party software, seismic data or other intellectual
property. Kaiser-Francis has not received any notification that it has
infringed upon or is infringing upon, or has engaged in or is engaging in
any unauthorized use or misappropriation of, any intellectual property
owned by or belonging to any other person; and there is no pending or
threatened claim, and no basis for the assertion of any claim, against
Kaiser-Francis with respect to any such infringement, unauthorized use or
misappropriation.
A-17
<PAGE>
ARTICLE VI.
INDEMNIFICATION
6.1 Indemnification by Kaiser-Francis. Kaiser-Francis hereby agrees to defend,
---------------------------------
indemnify and hold harmless PetroCorp and its officers, directors, shareholders,
employees, agents and Affiliates (collectively, the "PetroCorp Indemnitees")
from any and all threatened or actual claims, demands, causes of action, suits,
proceedings, losses, damages, fines, penalties, liabilities, costs and expenses
of any nature, including attorneys' fees and court costs (collectively,
"Claims"), sustained or incurred by or asserted against the PetroCorp
Indemnitees arising from (i) the breach of this Agreement by Kaiser-Francis; and
(ii) the gross negligence or willful misconduct of Kaiser-Francis in connection
with the rendering of the Services.
6.2 Indemnification by PetroCorp. PetroCorp hereby agrees to defend, indemnify
----------------------------
and hold harmless Kaiser-Francis and its officers, directors, shareholders,
employees, agents and Affiliates (collectively, the "Kaiser-Francis
Indemnitees") from any and all threatened or actual Claims sustained or incurred
by or asserted against the Kaiser-Francis Indemnitees arising from (i) the
breach of this Agreement by PetroCorp; (ii) Kaiser-Francis's performance of the
Services, except to the extent PetroCorp is entitled to indemnification with
respect thereto from Kaiser-Francis pursuant to Section 6.1 above.
6.3 Indemnification Procedures. A Party requesting indemnification pursuant to
--------------------------
this Article VI (the "Indemnified Party") shall promptly give notice to the
Party from whom indemnification is sought (the "Indemnifying Party") of the
Claim for which indemnification is sought, and the Indemnifying Party shall
defend such Claim by counsel selected by the Indemnifying Party (provided that
such counsel shall be reasonably satisfactory to the Indemnified Party), and the
Indemnifying Party shall pay all expenses therefor. The Indemnified Party may,
at its own expense, employ separate counsel and participate in defense of such
Claims.
6.4 Survival. The indemnification provisions of this Article VI shall survive
--------
the termination of this Agreement for a period of four (4) years.
ARTICLE VII.
CONFIDENTIALITY
7.1 Confidentiality. Kaiser-Francis shall maintain the confidentiality of all
---------------
Non-Public Information with respect to PetroCorp, its business or its assets;
provided, however, that Kaiser-Francis may disclose such Non-Public Information
(i) in any judicial or alternative dispute resolution proceeding to resolve
disputes between PetroCorp and Kaiser-Francis arising hereunder; (ii) to the
extent disclosure is legally required under applicable laws or any agreement to
which PetroCorp is a party or by which it is bound, provided, however, that
prior to making
A-18
<PAGE>
any legally required disclosures in any judicial, regulatory or dispute
resolution proceeding, Kaiser-Francis shall, if so advised by counsel, seek a
protective order or other relief to prevent or reduce the scope of such
disclosure; and (iii) to PetroCorp's existing or potential lenders, investors,
joint interest owners, purchasers, or other parties with whom PetroCorp may
enter into contractual relationships, to the extent deemed by Kaiser-Francis to
be reasonably necessary or desirable to enable it to perform the Services,
provided that Kaiser-Francis shall require such third parties to execute
agreements to maintain the confidentiality of the Non-Public Information so
disclosed; and (iv) if authorized by the Board of Directors of PetroCorp
Incorporated. Kaiser-Francis acknowledges that the Non-Public Information is
being furnished to Kaiser-Francis for the sole and exclusive purpose of enabling
it to perform the Services, and the Non-Public Information may not be used by it
for any other purpose. The provisions of this Section shall survive the
termination of this Agreement.
7.2 Insider Trading. Kaiser-Francis acknowledges that it is aware that the
---------------
United States securities laws prohibit any person who has material, non-public
information concerning PetroCorp from purchasing or selling any securities of
PetroCorp or from communicating such information to any other person under
circumstances in which it is reasonably foreseeable that such person is likely
to purchase or sell such securities, and Kaiser-Francis will prohibit its
employees, consultants and agents who are involved in the rendering of the
Services from engaging in such practices.
ARTICLE VIII.
TERM AND TERMINATION
8.1 Effective Date. The effective date ("Effective Date") of this Agreement
--------------
shall be the opening of business on the first day of the month next following
the month in which the shareholders of PetroCorp shall approve this Agreement.
8.2 Term. The term of this Agreement (the "Term") shall commence at the
----
Effective Date and end (the "Termination Date") at the close of business on the
last day of the sixth (6th) full calendar month following notice of termination
by a Party; provided, however, no Party shall give notice of termination of this
Agreement until after the first anniversary date of the Effective Date of this
Agreement.
8.3 Renegotiation. At any time during which Kaiser-Francis and its Affiliates
-------------
own less than thirty-five percent (35%) of the issued and outstanding common
stock of PetroCorp, either Party (the "Proposing Party") may propose to the
other Party (the "Responding Party") changes in any of the terms and provisions
of this Agreement (a "Renegotiation Proposal"). Promptly upon receipt of a
Renegotiation Proposal, the Parties shall, for a period of at least twenty (20)
business days, negotiate in Good Faith in an effort to reach an agreement
respecting the Renegotiation Proposal. The provisions of this section shall not
be in derogation of the provisions of the preceding section respecting notice of
termination of this Agreement.
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<PAGE>
ARTICLE IX.
AUDIT RIGHTS AND DISPUTE RESOLUTION
9.1 Audit Rights. PetroCorp shall have the right at any time during the Term
------------
of this Agreement, but not more than once in any twelve-month period, to audit,
examine and make copies of or extracts from the books and records of PetroCorp
and, to the extent necessary to verify the performance by Kaiser-Francis of its
obligations under this Agreement (including, without limitation, the Kaiser-
Francis Compensation), the books and records of Kaiser-Francis (the "Audit
Right"). PetroCorp may exercise the Audit Right through such auditors (excluding
legal counsel) as the Board of Directors of PetroCorp Incorporated may determine
in its sole discretion. PetroCorp shall (i) exercise the Audit Right only upon
reasonable notice to Kaiser-Francis and (ii) use reasonable efforts to conduct
the Audit Right in such a manner as to minimize the inconvenience and disruption
to Kaiser-Francis.
9.2 Resolution Committee. Either Party may request at any time during the Term
--------------------
hereof a resolution committee (the "Resolution Committee") to attempt to resolve
disputes arising hereunder. The Resolution Committee shall be comprised of three
members, being the Chairman of the Board of PetroCorp Incorporated, who shall
chair the Resolution Committee, and one member selected by of each of the
respective Boards of the Parties (provided that the representative of the
PetroCorp Incorporated Board shall not be an officer, director or employee of
Kaiser-Francis). The Board of Directors of either Party may submit any dispute
to the Resolution Committee by written request to the chairman of the Resolution
Committee, who shall, within twenty (20) days thereafter call a meeting of the
Resolution Committee. The Resolution Committee shall attempt to resolve the
dispute, provided, however, that the recommendation of the Resolution Committee
shall not be binding upon either Party. If within thirty (30) days after the
Resolution Committee is convened, the Resolution Committee is unable to reach a
consensus on resolution of the dispute, or either of the Parties is dissatisfied
by the resolution proposed by the Resolution Committee, then either Party may
pursue its legal and equitable remedies in an arbitration proceeding as provided
hereinbelow.
9.3 Arbitration. In the event of a dispute between PetroCorp and Kaiser-
-----------
Francis hereunder that has not been resolved by the Dispute Resolution Committee
within thirty (30) days after the Resolution Committee is convened, then the
dispute may, upon the written notice of any party, be submitted to the American
Arbitration Association ("AAA") for binding arbitration in Tulsa, Oklahoma,
before a panel of three (3) arbitrators, one selected by each party and the
third selected by the two so selected. If either party fails to timely designate
an arbitrator or if the two so selected are unable to agree upon the appointment
of a third, then any party may apply to the AAA requesting the appointment of
the arbitrator. The arbitration shall be conducted under the United States
Arbitration Act (9 U.S.C. (S) 1 et seq). Except as contradicted by the United
States Arbitration Act or the provisions of this Agreement, the arbitration
shall be conducted in
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<PAGE>
accordance with the rules of the American Arbitration Association then in
effect, including, without limitation, the Code of Ethics for Arbitrators in
Commercial Disputes. The majority decision of the arbitrators on any point or
points will be final. Judgment may be entered upon any award made hereunder in
any court having jurisdiction in the premises. Each Party shall pay its own
costs of the arbitration including attorneys' fees, preparation and travel
expenses. All other costs of arbitration, including the cost of the arbitrators,
shall be borne equally by the parties.
9.4 Attorneys' Fees and Expenses. In any action brought by a party hereto to
----------------------------
enforce the obligations of any other party hereto, the prevailing party shall be
entitled to collect from the opposing party to such action such party's
reasonable litigation costs and attorneys fees and expenses (including court
costs, reasonable fees of accountants and experts, and other expenses incidental
to the litigation).
ARTICLE X.
PETROCORP INCORPORATED GOVERNANCE
10.1 Officers of PetroCorp Incorporated. During the Term of this Agreement:
----------------------------------
A. Kaiser-Francis shall nominate annually for election as officers of
PetroCorp Incorporated such persons (which may include employees of Kaiser-
Francis) as Kaiser-Francis deems appropriate to conduct the business and
affairs of PetroCorp (the "KF Officer Nominees"); and,
B. Subject to the exercise by the members of the Board of Directors of
their fiduciary obligations arising under the Texas Business Corporations
Act, the Board of Directors of PetroCorp Incorporated shall elect the KF
Nominees as the officers of PetroCorp Incorporated and,
C. Subject to their election by the Board of Directors, Kaiser-Francis
shall cause the KF Officer Nominees to serve as the officers of PetroCorp
Incorporated at the sole cost of Kaiser-Francis.
D. The officers of PetroCorp Incorporated for the period of time
commencing on the Effective Date and continuing until the annual meeting of
shareholders of PetroCorp Incorporated and thereafter until their
successors are elected are set forth in Schedule 10.1 attached hereto.
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<PAGE>
ARTICLE XI.
MISCELLANEOUS PROVISIONS
11.1 Notices. All notices or advices required or permitted to be given by or
-------
pursuant to this Agreement, shall be given in writing. All such notices and
advices shall be (i) delivered personally, (ii) delivered by facsimile or
delivered by U.S. Registered or Certified Mail, Return Receipt Requested mail,
or (iii) delivered for overnight delivery by a nationally recognized overnight
courier service. Such notices and advices shall be deemed to have been given (i)
the first business day following the date of delivery if delivered personally or
by facsimile, (ii) on the third business day following the date of mailing if
mailed by U.S. Registered or Certified Mail, Return Receipt Requested, or (iii)
on the date of receipt if delivered for overnight delivery by a nationally
recognized overnight courier service. All such notices and advices and all other
communications related to this Agreement shall be given as follows:
If to PetroCorp: To such person or persons as the Board of
Directors of PetroCorp Incorporated by
Resolution shall designate and in the absence
of such designation to each member of the Board
of Directors.
With Copy to: Mayor, Day, Caldwell & Keeton, L.L.P.
700 Louisiana, Suite 1900
Houston, Texas 77002
Attn: Cheryl S. Phillips
(713) 225-7059 - Telephone
(713) 225-7047 - Facsimile
If to Kaiser-Francis: Steve Berlin
KAISER-FRANCIS OIL COMPANY
P.O. Box 21468
Tulsa, OK 74121-1468
(918) 491-4501 - Telephone
(918) 491-4694 - Facsimile
With Copy to: Frederic Dorwart
Old City Hall
124 East Fourth Street
Tulsa, OK 74103
(918) 583-9945 - Telephone
(918) 583-8251 - Facsimile
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<PAGE>
or to such other address as the party may have furnished to the other parties in
accordance herewith, except that notice of change of addresses shall be
effective only upon receipt.
11.2 Year 2000 Compliance. Kaiser-Francis shall take reasonable steps to
--------------------
insure (i) that any wells, pipelines or other facilities or equipment and any
operations, systems or applications used directly or indirectly to support the
operations contemplated by this Agreement, including any components thereof or
systems related thereto or embedded therein, correctly process date information
before, during and after midnight, December 31, 1999 (including accepting date
input, providing date output, and performing calculations and comparisons on
dates or portions of dates) and function accurately and without interruption
before, during and after January 1, 2000 through January 1, 2005 without any
change in operations associated with the advent of January 1, 2000; and (ii)
that operations under or in support of this Agreement will not be materially
disrupted by the inability of any material vendors, suppliers, or subcontractors
for goods or services to likewise correctly process such date information and
continue operations without interruption due to the advent of January 1, 2000.
11.3 Governing Law. This Agreement shall be subject to, and interpreted by and
-------------
in accordance with, the laws (excluding conflict of law provisions) of the State
of Oklahoma.
11.4 Entire Agreement. This Agreement is the entire Agreement of the parties
----------------
respecting the subject matter hereof. There are no other agreements,
representations or warranties, whether oral or written, respecting the subject
matter hereof.
11.5 Construction. This Agreement, and all the provisions of this Agreement,
------------
shall be deemed drafted by all of the parties hereto.
11.6 Authority. Each of the persons signing below on behalf of a party hereto
---------
represents and warrants that he or she has full requisite power and authority to
execute and deliver this Agreement on behalf of the parties for whom he or she
is signing and to bind such party to the terms and conditions of this Agreement.
11.7 Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original. This Agreement shall become effective only
when all of the parties hereto shall have executed the original or counterpart
hereof. This agreement may be executed and delivered by a facsimile transmission
of a counterpart signature page hereof.
11.8 Successors and Assigns. This Agreement may not be assigned (including
----------------------
performance by subcontract) by either Party hereto. This Agreement shall be
binding upon and shall inure to the benefit of the Parties and their respective
successors.
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<PAGE>
11.9 No Third Party Beneficiaries. This is not a third party beneficiary
-----------------------------
contract. No person or entity other than Kaiser-Francis, the Kaiser-Francis
Indemnitees, PetroCorp, and the PetroCorp Indemnitees shall have any rights
under this Agreement.
11.10 Amendments. This Agreement may be amended or modified only in a writing
----------
which specifically references this Agreement.
11.11 Relationship of the Parties. Nothing in this Agreement shall be
---------------------------
construed to create a partnership or joint venture, nor to authorize either
Party to act as agent for or representative of the other Party. Each Party shall
be deemed an independent contractor and neither Party shall act as, or hold
itself out as acting as, agent for any other Party.
11.12 No Waiver. A Party to this Agreement may decide not to require, or fail
----------
to require, full or timely performance of any obligation arising under this
Agreement. The decision not to require, or failure of a Party to require, full
or timely performance of any obligation arising under this Agreement (whether on
a single occasion or on multiple occasions) shall not be deemed a waiver of any
such obligation. No such decisions or failures shall give rise to any claim of
estoppel, laches, course of dealing, amendment of this Agreement by course of
dealing, or other defense of any nature to any obligation arising hereunder.
11.13 Time of the Essence. Time is of the essence with respect to each
-------------------
obligation arising under this Agreement.
11.14 Unenforceability. In the event any provision of this Agreement, or the
----------------
application of such provision to any person or set of circumstances, shall be
determined to be invalid, unlawful, or unenforceable to any extent for any
reason, the remainder of this Agreement, and the application of such provision
to persons or circumstances other than those as to which it is determined to be
invalid, unlawful, or unenforceable, shall not be affected and shall continue to
be enforceable to the fullest extent permitted by law.
Dated the date first set forth above.
KAISER-FRANCIS OIL COMPANY
By: /s/ D. Joseph Graham
-------------------------------------------
D. Joseph Graham, Chief Financial Officer
PETROCORP INCORPORATED
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<PAGE>
By: /s/ W. Neil McBean
---------------------------------------
W. Neil McBean, President & CEO
SCHEDULE 10.1
PETROCORP INCORPORATED OFFICERS
Gary Christopher, President and Chief Executive Officer*
Tony Pelletier, Executive Vice President and Chief Operating Officer
Richard Dunham, Vice President for Engineering
Steve Berlin, Vice-President and Chief Financial Officer
Ted Jacobson, Vice-President for Operations
Les Watson, Vice President of Canadian Operations
Michael W. Moore, Vice-President for Marketing
Reece A. Hembree, Treasurer
Frederic Dorwart, Secretary
Sheryl Green, Assistant Secretary
Eric C. Lowe, Assistant Secretary
Michael W. Moore, Assistant Secretary
Bruce Kenney, Assistant Secretary
Matthew M. Browne, Assistant Secretary
* The Chairman of the Board shall be elected by the Board of
Directors.
PCC ENERGY CORP. & PCC ENERGY, INC. OFFICERS
Les Watson, Vice President
A-25
<PAGE>
Proxy PETROCORP INCORPORATED
ANNUAL MEETING OF SHAREHOLDERS -- OCTOBER 28, 1999
This Proxy Is Solicited on Behalf of the Board of Directors
The undersigned holder of Common Stock of PetroCorp Incorporated (the
"Company") hereby appoints Gary R. Christopher and Craig K. Townsend, or any
one of them, his or her proxies with full power of substitution, to vote at the
Annual Meeting of Shareholders of the Company and at any adjournment thereof,
the number of votes which the undersigned would be entitled to cast if
personally presented on all matters coming before the meeting.
1. Proposal to approve a Management Agreement between the Company and Kaiser-
Francis Oil Company, a Delaware Corporation ("KFOC"), pursuant to which
KFOC will provide management and administrative support services for all of
the Company's operations and the operations of its wholly-owned
subsidiaries, both in the United States and in Canada.
[_] FOR [_] AGAINST [_] ABSTAIN
2. Election of directors for a term expiring in 2002:
[_] FOR [_] WITHHOLD AUTHORITY
All nominees listed below to vote for all nominees
(except as marked below) listed below
Gary R. Christopher
Stephen M. McGrath
3. Proposal to ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants for the fiscal year ending December 31,
1999.
[_] FOR [_] AGAINST [_] ABSTAIN
(continued and to be signed on other side)
- -------------------------------------------------------------------------------
4. To consider and take action, in accordance with their best judgment, upon
any other matter which may properly come before the meeting or any
adjournment thereof.
All as more particularly described in the proxy statement dated September 30,
1999 relating to such meeting, receipt of which is hereby acknowledged.
INSTRUCTIONS: To withhold authority to vote for any nominee, draw a line
through or strike out that nominee's name as set forth above.
This proxy when properly executed will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, this proxy will be
voted FOR Proposals 1 and 3 and FOR the nominees listed in Proposal 2.
-----------------------------------
-----------------------------------
Signature of Shareholder(s)
Please sign your name exactly as
name appears hereon. Joint owners
must each sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give
your full title as it appears
herein.
Dated: ______________________, 1999
Please mark, sign, date and return in the enclosed envelope, which requires
no postage if mailed in the United States.
