SCHEDULE 14a INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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[X] Definitive Proxy Statement
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[_] Soliciting Material Pursuant to (S)240.14a-12
PETROCORP INCORPORATED
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(Name of Registrant as Specified In Its Charter)
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PETROCORP INCORPORATED
6733 South Yale Avenue
Tulsa, Oklahoma 74136
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held May 29, 2003
To the Shareholders of
PetroCorp Incorporated:
Notice is hereby given that the Annual Meeting of Shareholders of
PetroCorp Incorporated will be held at the Tulsa Room, 9th Floor, Bank of
Oklahoma Tower, 1 Williams Center, Tulsa, Oklahoma 74172, at 11:00 a.m., Tulsa
time, on Thursday, May 29, 2003, for the following purposes:
1. To elect four persons to serve as directors of the classified Board
of Directors until the 2006 annual meeting and until their successors are
elected and have qualified; and,
2. 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 April 21, 2003 will
be entitled to notice of and to vote at the Annual Meeting and any adjournment
or adjournments thereof. A copy of the Company's Annual Report on Form 10-K is
enclosed.
Shareholders are cordially invited to attend the Annual Meeting in
person. If you plan to attend the 2003 annual meeting of shareholder of
PetroCorp Incorporated, please take note of the following: DUE TO SECURITY
MEASURES IN PLACE AT THE BANK OF OKLAHOMA TOWER, IT WILL BE NECESSARY FOR YOU TO
CHECK IN AT THE WILLIAMS SECURITY DESK ON THE PLAZA LEVEL OF THE TOWER. YOU WILL
BE REQUIRED TO SURRENDER YOUR DRIVER'S LICENSE IN EXCHANGE FOR A VISITOR PASS.
YOUR DRIVER'S LICENSE WILL BE RETURNED TO YOU WHEN YOU DEPART THE BUILDING AND
RETURN THE VISITOR PASS.
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,
Steven R. Berlin, Secretary
Tulsa, Oklahoma
April 25, 2003
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.
PETROCORP INCORPORATED
6733 South Yale Avenue
Tulsa, Oklahoma 74136
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PROXY STATEMENT
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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, May 29, 2003, at the Tulsa Room, 9th Floor, Bank of
Oklahoma Tower, 1 Williams Center, Tulsa, Oklahoma 74172, at 11:00 a.m., Tulsa
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 April 25, 2003.
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 6733 South Yale Avenue,
Tulsa, Oklahoma 74136, 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 the nominees for director named in this Proxy Statement.
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. Directors will be elected by a plurality of the votes
cast by the holders at the Annual Meeting. 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.
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.
1
COMMON STOCK OUTSTANDING AND PRINCIPAL HOLDERS THEREOF
The Board of Directors has fixed the close of business on April 21,
2003 as the record date for the determination of shareholders entitled to notice
of and to vote at the Annual Meeting. On April 1, 2003, there were outstanding
12,656,726 shares of common stock, par value $.01 per share, of the Company.
Holders as of the record date will be entitled to one vote for each share of
common stock held of record by them for each proposition presented at the Annual
Meeting.
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 April 1, 2003 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, nominee for director
and executive officer set forth on the "Summary Compensation Table," and by all
directors and executive officers as a group:
Outstanding Option Total Percent of
Beneficial Owner (4) Shares Shares(6) Ownership Class
-------------------- ------ --------- --------- -----
George B. Kaiser
6733 South Yale
Tulsa, OK 74136(a) 4,804,962 0 4,804,962 38.0%
Kaiser-Francis Oil Company
6733 South Yale
Tulsa, OK 74136(b) 4,804,962 0 4,804,962 38.0%
Otter Creek Partners I, L.P.
400 Royal Palm Way, Suite 204
Palm Beach, FL 33480(c) 708,430 0 708,430 5.6%
St. Paul Fire and Marine Insurance Company
385 Washington Street
St. Paul, MN 55102 1,731,000 0 1,731,000 13.7%
Royce & Associates, Inc.
1414 Ave. of the Americas
New York, NY 10009 1,226,400 0 1,226,400 9.7%
Thomas N. Amonett (1) 1,000 22,000 23,000 (3)
Steven R. Berlin (1)(2)(d) 4,807,167 20,000 4,827,167 38.1%
Gary R. Christopher (1)(2) 3,500 85,650 89,150 (3)
Paul J. Coughlin, III (1)(e) 26,005 10,000 36,005 (3)
Richard L. Dunham (2) 5,000 45,000 50,000 (3)
Mark W. Files (1) 0 15,000 15,000 (3)
Thomas R. Fuller (1)(f) 47,403 17,300 64,703 (3)
W. Neil McBean (1) 137,206 46,000 183,206 1.4%
Lealon L. Sargent (1)(g) 209,845 47,000 256,845 2.0%
Robert C. Thomas (1) 1,000 22,000 23,000 (3)
All directors and executive officers as
a group (10) persons(h) 5,238,126 329,950 5,567,076 44.0%
--------
(1) Director
2
(2) Executive Officer
(3) Less than 1%
(4) Pursuant to a management agreement with PetroCorp, Kaiser-Francis provides
management services for PetroCorp. As such, the executive officers of PetroCorp,
with the exception of Messrs. Christopher and Dunham, are employed by
Kaiser-Francis and are not compensated by PetroCorp, other than through the
receipt of stock options. None of the PetroCorp stock option grants to
Kaiser-Francis employees exceed $100,000 in value per annum. As such, the
beneficial owner table above contains information only for Mr. Christopher, Mr.
Dunham and Mr. Berlin, who also serves as a director of PetroCorp.
(5) All percentages are rounded to the nearest tenth and are based upon the
number of shares outstanding as of the date set forth above. For purposes of
computing the percentage of the outstanding shares owned by the persons
described in the table, any shares such persons are deemed to own by having a
right to acquire such shares by exercise of an option are included but shares
acquirable by other persons by the exercise of stock options are not included.
(6) Represents shares of common stock which may be acquired on April 1, 2002 or
60 days thereafter through the exercise of options.
(a) Includes 4,327,457 shares owned directly by Kaiser-Francis. Mr. Kaiser owns
78.23% of the capital stock of GBK Corporation. Affiliates of Kaiser own the
remaining 21.77% of the capital stock of GBK Corporation. GBK Corporation owns
all of the capital stock of Kaiser-Francis Oil Company.
(b) Includes 477,505 shares owned directly by George B. Kaiser. Mr. Kaiser owns
78.23% of the capital stock of GBK Corporation. Affiliates of Kaiser own the
remaining 21.77% of the capital stock of GBK Corporation. GBK Corporation owns
all of the capital stock of Kaiser-Francis Oil Company.
(c) Otter Creek Partners I, L.P. ("OCP"), Otter Creek International Ltd. ("OCI")
and HHMI XIII, L.L.C. ("HH") are considered a "group" pursuant to Rule 13d-3.
Otter Creek Management, Inc. manages investments for OCP, OCI and HH by making
investment decisions for them, including the decision to invest in PetroCorp.
The amount beneficially owned by each party is as follows: OCP, 222,314 shares;
OCI, 390,016 shares; HH, 96,100 shares.
(d) Includes 4,804,962 shares beneficially owned by Kaiser-Francis. Mr. Berlin
is an employee of Kaiser-Francis and may be deemed to be the beneficial owner of
these shares. Mr. Berlin disclaims beneficial ownership of these shares. (e)
Includes 26,005 shares owned by Longroad Partners, L.P.
(f) Includes 31,390 shares owned by Michmatt, LTD.
(g) Includes 1,225 shares owned by Mr. Sargent's wife, Elizabeth Sargent.
(h) Includes certain shares as to which beneficial ownership is disclaimed by
Mr. Berlin. If the 4,804,962 shares as to which beneficial ownership disclaimed
by Mr. Berlin were excluded, the percentage of officers and directors as a group
would be 6.0%.
ELECTION OF DIRECTORS
The Company's Board of Directors is composed of nine persons who hold
office for staggered three-year terms. Four directors are to be elected at the
Annual Meeting as Class I directors to serve until their terms expire in 2006.
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. Coughlin, Files, Fuller and Sargent to hold office until
the annual meeting of shareholders to be held in the year 2006, and until each
of their respective successors is elected and qualified.
3
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 I directors to hold office until the
annual meeting of shareholders to be held in the year 2006, his principal
position with the Company and his term as director of the Company.
Name Age Term Expires Director Since
---- --- ------------ --------------
Paul J. Coughlin, III
Director 38 2003 2001 to present
Mark W. Files
Director 61 2003 2000 to present
Thomas R. Fuller
Director 55 2003 2001 to present
Lealon L. Sargent
Chairman of the Board 72 2003 1983 to present
Paul J. Coughlin, III has been a director of PetroCorp since 2001. Mr.
Coughlin is the founder of Longroad Asset Management, LLC, a private investment
fund in Stamford, Connecticut. From October 1992 to August 2001, he was the
co-founder and General Partner of CoMac Partners, L.P., a private investment
fund, and its affiliates. From August 1991 to September 1992, Mr. Coughlin was a
Portfolio Manager in the Distressed Securities Investment Group at
Whitehead/Sterling. From 1988 to 1990, he was a Portfolio Manager of Distressed
Securities at Halcyon Investment/Alan B. Slifka & Company in New York, NY. From
1987 to 1988, he was a Senior Analyst at Deltec Securities, specializing in
Special Situations and Distressed investment. From 1986 to 1987, Mr. Coughlin
was in the Management Training Program at the Irving Trust Co. (now The Bank of
New York). Mr. Coughlin also serves as Chairman of the Board for Aluma Systems
Inc. and as a director of Washington Aluminum Corp.
Mark W. Files has been a director of PetroCorp since 2000. Since 1993,
he has been a member of the firm, Graham Partners, LLC, a company engaged in
consulting for emerging businesses on growth strategies. Prior to such time, he
was the Chief Financial Officer of Graham Resources, an independent oil and gas
company.
Thomas R. Fuller has been a director of PetroCorp since 2001. Mr.
Fuller is a partner in Diverse Energy Investments, an oil and gas property
acquisition company. He has been with the company since it was formed in 1985.
Mr. Fuller formerly held positions with Hillin Oil Company, First City National
Bank and Exxon Company, U.S.A., and has consulted for various companies on oil
and gas matters.
Lealon L. Sargent has been Chairman of the Board of PetroCorp 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 PetroCorp'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
4
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.
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/Position Age Expires Since
------------- --- ------- -----
Thomas N. Amonett
Director ..................... 59 2004 1993
Steven R. Berlin
Director ..................... 58 2005 2001
Gary R. Christopher
Director ..................... 53 2005 1996
W. Neil McBean
Director ..................... 55 2004 1983
Robert C. Thomas
Director ..................... 74 2004 1997
Thomas N. Amonett has been a director of PetroCorp since 1993. He has
served as President and Chief Executive Officer of Champion Technologies, Inc.,
which manufactures and sells oil field chemicals, since October 1999. Prior
thereto, he served as President and Chief Executive Officer of American
Residential Services, Inc., a home repair business, from October 1997 until
April 1999. He served as an independent business consultant from April 1999
until October 1999. He served as interim President and Chief Executive Officer
of Weatherford Enterra, Inc., an oil field service company, from July 1996 to
June 1997. Mr. Amonett also currently serves as a director of Stelmar Shipping,
Ltd., an international provider of petroleum product and crude oil
transportation services, and of Reunion Industries, Inc., a manufacturer of
industrial metal products and molded plastic products for various industries.
Steven R. Berlin has been a director of PetroCorp since June 2001 and
was elected Chief Financial Officer, Secretary and Treasurer in November 1999.
Mr. Berlin is also Vice President, Chief Financial Officer and Assistant
Secretary of Kaiser-Francis, where he has been employed since February 1999 on a
part time basis and since September 1999 on a full time basis. Prior to joining
Kaiser-Francis, Mr. Berlin was on the faculty of the University of Tulsa, where
he taught business and finance courses to graduate and undergraduate students
from September 1996 through August 1999. From 1973 through September 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.
5
Gary R. Christopher has been a director of PetroCorp since 1996 and was
elected President and Chief Executive Officer of PetroCorp as of August 3, 1999.
He was Acquisitions Coordinator of Kaiser-Francis Oil Company from January 1996
until December 31, 2001 when he became an employee of PetroCorp. Prior to that,
he served for five years as Senior Vice President and Manager of Energy lending
for Bank of Oklahoma.
W. Neil McBean served as Chief Executive Officer of PetroCorp from 1996
until August 1999 and President from 1986 until August 1999. Mr. McBean is
currently an independent management consultant in the oil and gas industry, and
since February, 2002, has been the Chief Executive Officer of Andex Resources,
LLC, a privately held independent oil and gas company. He has been a director of
PetroCorp since 1983. Mr. McBean graduated from the University of British
Columbia with a bachelor's degree in Chemical Engineering in 1969.
Robert C. Thomas has been a director of PetroCorp 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 director of ATP Oil and Gas Corporation.
Meetings and Committees of the Board of Directors
During the Company's last fiscal year, the Board of Directors of the
Company held six 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.
The Audit Committee, composed at the end of the last fiscal year of
Messrs. Coughlin, Files and Thomas (chairman), met twice during the last fiscal
year. Additionally, the chairman of the Audit Committee, on a quarterly basis,
conducts a telephonic meeting with the independent accountants after they have
completed their review of the interim financial statements. 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 tests of the
system of internal controls. The Audit Committee acts pursuant to the Audit
Committee Charter. Each of the members of the Audit Committee qualifies as an
"independent" Director under the current listing standards of the American Stock
Exchange. Mr. Files has been designated as the "Audit Committee Financial
Expert."
The Compensation and Benefits Committee, composed at the end of the
last fiscal year of Messrs. Amonett (chairman), Fuller, McBean and Sargent, met
one time 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, Fuller, McBean and Sargent, 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."
6
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 $15,000,
plus a fee of $1,000 for each meeting of the Board attended and $500 for each
meeting of a committee attended except for the Audit Committee Chairman, who
shall receive $2,500 per committee meeting beginning January 1, 2003. Mr. Berlin
accepts no compensation for his service on the Board.
In addition, each non-employee director of the Company receives an
option for 5,000 shares of Common Stock on the date of his or her appointment
and an option for 5,000 shares of Common Stock on the date of each Annual
Meeting of Shareholders of the Company. If there are insufficient shares of
Common Stock available to make the automatic director awards under the 2000
Stock Option Plan on the applicable date, then all directors who are entitled to
a grant on that applicable date will share ratably the number of shares then
available under the 2000 Stock Option Plan. Those directors will have no right
to receive a grant in the future with respect to any deficiency of shares
available on the grant date.
Director options become fully vested six months after the grant date.
The option purchase price of Director options will be the fair market value of
the stock on its effective grant date. Each director option automatically
includes a stock appreciation right. Director options expire ten years from the
grant date; however, they may be terminated earlier if the director ceases to be
a director of the Company. Upon the director's resignation date, vested Director
options may be exercised within three years.
Executive and Other Officers
The following table sets forth the names, ages and positions of each
executive officer of the Company, all of whom serve at the discretion of the
Board of Directors except Messrs. Christopher and Dunham who have employment
agreement with the Company further discussed on page 12. All of PetroCorp's
principal officers with the exception of Messrs. Christopher and Dunham, are
employees of Kaiser-Francis helping Kaiser-Francis fulfill its management
obligations under a management agreement with PetroCorp.
Name Age Position
---- --- --------
Gary R. Christopher ..................... 53 President and Chief Executive Officer
Steven R. Berlin ........................ 58 Chief Financial Officer, Secretary and Treasurer
Richard L. (Rick) Dunham ................ 50 Executive Vice President-Operations and Engineering
Craig Dolinsky .......................... 49 Vice President-Land
Ted Jacobson ............................ 62 Vice President- U.S. Operations
Richard P. Salamon ...................... 54 Vice President-Marketing
David H. Stevens ........................ 54 Vice President-Exploration
Steven E. Amos .......................... 48 Corporate Controller
Gary R. Christopher's and Steven R. Berlin's background information is
set forth above.
Richard L. (Rick) Dunham was elected Executive Vice
President-Operations and Engineering in December 2001. Mr. Dunham had previously
served as Senior Vice President-Engineering since November 1999. Mr. Dunham
became an employee of PetroCorp on January 1, 2002. Mr. Dunham previously served
as an employee of Kaiser-Francis and holding various positions at Kaiser-Francis
since joining Kaiser-Francis in 1985. He has been a member of the management
committee, Manager of Canadian Enhancements,
7
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 U.S. 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.
Craig M. Dolinsky was elected Vice President-Land in November 1999. Mr.
Dolinsky has been a Landman with Kaiser-Francis from 1981 to present. His land
responsibilities have included several large acquisitions as well as exploration
and development of key plays in Oklahoma, Texas and Wyoming. In 1991, he began
Kaiser-Francis' land efforts in Canada. He continues to be involved in
exploration and development strategies, contracts, acquisitions and litigation
in both the U.S. and Canada. Mr. Dolinsky has a B.A. in Business Administration
from Western State College of Colorado and is a member of the American
Association of Petroleum Landmen, Tulsa Association of Petroleum Landmen and
Canadian Association of Petroleum Landmen.
Ted T. Jacobson was elected Vice President-Operations in November 1999.
Mr. Jacobson is also manager of Drilling and Production for Kaiser-Francis. He
has been employed by Kaiser-Francis 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.
Richard P. Salamon was elected Vice President-Marketing in November
2002. Since 1986, he has been employed by Kaiser-Francis Oil Company and
currently serves as Manager of Product Sales and Assistant Secretary. He has
previously served as Director of Natural Gas Marketing. Prior to that time, he
was Manager of Hydrocarbon Marketing for Samson Resources and Senior Vice
President of Premier Gas Company. From 1971 to 1984, Mr. Salamon held various
positions with El Paso Natural Gas Company and was responsible for Anadarko and
Permian Basin gas acquisitions. Mr. Salamon is a member of the International
Association for Energy Economics, and in his second term as Chairman of the
Natural Gas Committee he represents the Oklahoma Independent Petroleum
Association in natural gas matters before the Oklahoma Corporation Commission
and the Federal Energy Regulatory Commission. He also served as a Director of
the Natural Gas Association of Oklahoma. Mr. Salamon has a Masters Degree in
Economics from New Mexico State University.
David H. Stevens was elected Vice President-Exploration in November
1999. Mr. Stevens has been employed at Kaiser-Francis as a geologist and
geophysicist since 1987. He has supervised Kaiser-Francis prospect generating
efforts in the Gulf Coast as well as all Kaiser-Francis geophysical operations
during that time. Mr. Stevens has held various exploration management positions
since graduating from the University of Wyoming with a bachelors degree in
geology and geophysics in 1971, including Exploration Offshore Project Leader
with Conoco in Houston, Exploration Projects Director with Conoco in Oklahoma
City, Regional Exploration Manager with Grace Petroleum in Oklahoma City and
Exploration Vice President with Indian Wells Oil Co. in Tulsa.
8
Steven E. Amos was elected Corporate Controller in February 2000. Mr.
Amos has been an employee of Kaiser-Francis since October 1990. Prior to that,
he held various positions with several independent oil companies in Tulsa and
worked for the C.P.A. firm of Arthur Young & Company. Mr. Amos is a C.P.A. and
has a degree in accounting from the University of Arkansas and an M.B.A. from
the University of Tulsa.
Executive Compensation
All of PetroCorp's principal officers with the exception of Messrs.
Christopher and Dunham, are employees of Kaiser-Francis helping Kaiser-Francis
fulfill its management obligations under a management agreement with PetroCorp.
In this capacity, these officers of PetroCorp do not receive compensation from
PetroCorp, but instead receive compensation from Kaiser- Francis. This
compensation reflects efforts, not only on behalf of PetroCorp, but also for the
other companies they may serve, including Kaiser-Francis. As of January 1, 2002,
Gary R. Christopher and Richard L. Dunham became employees of PetroCorp.
Instead of paying rent, certain other overhead costs and compensation
to its principal officers other than Messrs. Christopher and Dunham, PetroCorp
pays Kaiser-Francis a management fee. For the year ended December 31, 2002,
PetroCorp paid Kaiser-Francis $1,965,000 in management fees under the management
agreement. Of that $1,965,000, $494,000 (or 25%) is considered by PetroCorp to
be reimbursement of officers' salaries and expenses. The remaining 75% of
management fees are related to other non-employee related costs and expenses.
The table below sets forth for the three fiscal years ended December 31, 2002,
2001 and 2000 all compensation paid to the chief executive officer and Executive
Vice President by PetroCorp. All executive officers which might otherwise be
named executive officers are employees of Kaiser-Francis and are compensated by
Kaiser-Francis, which in turn has a management agreement with PetroCorp.
Summary Compensation Table
Long-Term
Annual Compensation Compensation (1)
----------------------------------------------------------- ---------------------------------------------------------
Securities
Name and Principal Fiscal Other Annual Underlying All Other
Position (2) Year Salary($) Bonus($) Compensation Stock Options Compensation(2)
------------ ---- --------- -------- ------------ ------------- ---------------
Gary R. Christopher, 2002 $242,500 0 0 30,000 0
President and Chief 2001 0 0 0 30,000 0
Executive Officer 2000 0 0 0 19,650 0
Richard L. Dunham,
Executive Vice 2002 206,500 0 0 15,000 0
President, Operations 2001 0 0 0 15,000 0
and Engineering 2000 0 0 0 15,000 0
------------------------
(1) No officers or employees of PetroCorp participate in a restricted stock
plan, stock appreciation right plan or other long-term incentive plan.
(2) As of the fiscal year ended December 31, 2001, Messrs. Christopher and
Dunham were employees of Kaiser-Francis and were compensated by Kaiser-Francis,
which in turn has a management agreement with PetroCorp. Beginning
9
January 1, 2002, Messrs. Christopher and Dunham became employees of PetroCorp.
The following table sets forth certain information concerning stock options
granted to Mr. Christopher and Mr. Dunham during the 2002 fiscal year.
The following table sets forth certain information concerning stock options
granted to Named Executive Officers during the 2002 fiscal year.
Options/SAR Grants in Last Fiscal Year
--------------------------------------
% of Total Grant
Options Options Granted Date
Granted to Employees in Exercise Expiration Present
Name (#)(1) Fiscal Year Price ($/Sh) Date Value $(3)
---- ------ ----------- ------------ ---- ----------
Gary R. Christopher, 30,000 19.5% $9.25 (2) $161,600
President and Chief
Executive Officer
Richard L. Dunham, 15,000 9.7 9.25 (2) 80,650
Executive Vice
President, Operations
and Engineering
---------------------
(1) Granted pursuant to 2002 awards under PetroCorp 2000 Stock Option Plan.
(2) The options granted pursuant to 2002 awards under the PetroCorp 2000 Stock
Option Plan vest and become exercisable 12 months after they are granted. Vested
options are exercisable only during the ten year period commencing on the grant
date.
(3) Present value at date of grant is based on the Black-Scholes Option Pricing
Model adopted for use in valuing executive stock options based on the following
assumptions: 36% volatility factor; underlying price of $9.25; option price of
$9.25; risk free rate of return of 5.3%; and no dividends. The actual value, if
any, an executive may realize will depend on the excess of the stock price over
the exercise price on the date the option is exercised, so there is no assurance
the value realized by the named executive will be at or near the value estimated
by the Black-Scholes Model.
10
The following table sets forth certain information concerning the
exercise of stock options by Messrs. Christopher and Dunham during fiscal year
2002 and the 2002 fiscal year-end value of unexercised options.
Aggregated Option/SAR Exercises in
Last Fiscal Year and FY-End Option/SAR Values
---------------------------------------------
Number of Unexercised Value of Unexercised In
Shares Options the Money Options at
Acquired Value at FY-End (#) FY-End ($)/(1)/
on Realized ------------------------------ ------------------------------
Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
-------------------------- ------------- ----------- ------------------------------ ------------------------------
Gary R. Christopher, 0 $0 55,650 30,000 $87,809 $30,000
President and Chief
Executive Officer
Richard L. Dunham, 0 0 30,000 15,000 69,300 15,000
Executive Vice
President, Operations
and Engineering
----------------------
/(1)/ Values are calculated by subtracting the exercise or base price from the
fair market value of the stock as of the exercise date or fiscal year-end, as
appropriate.
Equity Compensation Plan Information
The following table provides information about the Company's equity
compensations plans in effect at December 31, 2002, aggregated for two
categories of plans: those approved by shareholders and those not approved by
shareholders. Plans approved by shareholders include the 1992 PetroCorp Stock
Option Plan, the 1997 PetroCorp Non-Employee Director Stock Option Plan, and the
PetroCorp 2000 Stock Option Plan. The material features of the plans are
described below. There are no plans which have not been approved by
shareholders.
Number of securities
remaining available for
future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected( in
Plan Category warrants, and rights/(1)/ warrants, and rights/(1)/ the first column)/(1)(2)/
Equity compensation
plans approved by
security holders 496,650 $8.37 188,433
Equity compensation
plans not approved
by security holders 0 0 0
-------------------- ---------------------- ----------------------
Total 496,650 $8.37 188,433
--------------------------
/(1)/ As of December 31, 2002
/(2)/ Does not include 589,357 shares authorized under the 1992 PetroCorp Stock
Option Plan and 1997 PetroCorp Non-Employee Director Stock Option Plan which was
replaced by the PetroCorp 2000 Stock Option Plan.
11
PetroCorp 2000 Stock Option Plan
The maximum number of shares of common stock with respect to which
options, director options and stock appreciation rights may be granted under the
2000 Plan is 600,000; provided that no more than 225,000 shares will be subject
to new grants in any one year. The 2000 Plan currently has 188,433 shares
available for issuance pursuant to granting of future options. No awards may be
made pursuant to the 2000 Plan after December 31, 2005. The Compensation
Committee of the Board of Directors administers the 2000 Plan, including the
recipients of awards (other than automatic director options), exercise price,
vesting of the options (which may be no earlier than six months after the grant
date) and the period during which the options may be exercised (which may not
exceed ten years from the grant date). Each director who is not also an employee
of the Company receives awards automatically under the 2000 Plan. Directors
receive options for 5,000 shares on their date of election or appointment. In
addition, each director serving on the day of the regular annual meeting of
shareholders automatically receives a director option for 5,000 shares. Each
director option automatically includes a stock appreciation right. All options
granted under the 2000 Plan are incentive stock options. Stock appreciation
rights may only be granted in tandem with the grant of an option. For additional
description of the director options, see Director Compensation on page 7 of this
proxy statement.
1997 Non-Employee Director Stock Option Plan
1997 Non-Employee Director Stock Option Plan has been replaced by the
PetroCorp 2000 Stock Option Plan. The options granted under the 1997
Non-Employee Director Stock Option Plan have exercise prices ranging from $6.75
to $8.63 and are fully vested. There are currently 23,000 options outstanding
under the 1997 Director Plan. All options granted under the 1997 Plan expire on
or before October 31, 2009.
Amended and Restated 1992 PetroCorp Stock Option Plan
The Amended and Restated 1992 PetroCorp Stock Option Plan has been
replaced by the PetroCorp 2000 Stock Option Plan. The options granted under the
Amended and Restated 1992 PetroCorp Stock Option Plan have exercise prices
ranging form $5.00 to $10.00 and are fully vested. There are currently 80,000
options outstanding under the 1992 Plan. All options granted under the 1992 Plan
expire on or before February 28, 2006.
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.
Employment agreements are in effect between the Company and Messrs.
Christopher and Dunham. Mr. Christopher's agreement provides that Mr.
Christopher will be employed by the Company in the position of President and
Chief Executive Officer. Mr. Dunham's agreement provides that Mr. Dunham will be
employed by the Company in the position of Executive Vice President and Manager
of Operations and Engineering. Both agreements are for three years beginning
January 1, 2002. The Company may only terminate the agreements for cause. The
agreements automatically terminate in the event of a business combination
transaction as defined in the agreement, the effective date of which is to be
mutually agreed upon by the executive and the Company, but in no event later
than the first day of the third full calendar
12
month following the month in which the business combination transaction is
consummated. The agreements provide for an annual incentive bonus based
primarily upon growth of the Company. Such bonus may not exceed fifty percent of
the executive's annual salary. In the event of a business combination
transaction, Messrs. Christopher and Dunham are entitled to severance payments,
the amounts of which are determined, in part, by the value of the Company at the
time of the business combination transaction, as well as the transaction value.
The amount of the severance payment may not exceed five times the executive's
annual salary. The employment agreements of Messrs. Christopher and Dunham were
filed as exhibits to the Company's Annual Report on Form 10-K, filed March 26,
2002.
Compensation Committee Interlocks and Insider Participation
Mr. Files has been nominated as a director upon the recommendation of St.
Paul, but he is not employed by or otherwise associated with St. Paul, a
beneficial owner of approximately 13.7% of PetroCorp.
Messrs. Coughlin and Fuller were nominated as directors by the board of
directors of Southern Mineral Corporation pursuant to a merger agreement between
PetroCorp and Southern Mineral whereby Southern Mineral was merged into
PetroCorp Acquisition Company, a wholly owned subsidiary of PetroCorp
Incorporated.
13
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 500 Integrated Oil and Gas Index ("S&P Integrated Oil & Gas Index"). The
graph assumes that the amount of investment was $100 December 31, 1997 and that
all dividends were reinvested.
Comparison of Cumulative Total Return
[GRAPH]
==================================================================================================================
12/31/1997 12/31/1998 12/31/1999 12/31/2000 12/31/2001 12/31/2002
------------------------------------------------------------------------------------------------------------------
PetroCorp Incorporated -
------------------------------------------------------------------------------------------------------------------
Closing Price $ 8.25 $ 5.75 $ 5.81 $ 9.75 $ 9.00 $ 10.25
------------------------------------------------------------------------------------------------------------------
PetroCorp Inc. $100.00 $ 69.70 $ 70.42 $118.18 $109.09 $124.24
------------------------------------------------------------------------------------------------------------------
S&P 500 Index $100.00 $128.58 $155.63 $141.46 $124.65 $ 97.10
------------------------------------------------------------------------------------------------------------------
S&P 500 Integrated Oil & Gas $100.00 $108.89 $128.14 $141.53 $133.39 $117.12
==================================================================================================================
Compensation Committee Report on Executive Compensation
With the implementation of the Company's Management Agreement with
Kaiser-Francis, as described below under "Certain Transactions," no executive
officers, other than Gary Christopher and Richard Dunham, will receive direct
compensation from the Company in future years except pursuant to the 2000 Stock
Option Plan.
The 2000 Plan is administered by the Compensation Committee. Subject to the
terms of the 2000 Plan, the Compensation Committee selects the employees to be
granted awards, determine the terms and provisions of awards, construes the 2000
Plan, prescribes and rescinds rules and regulations relating to the 2000 Plan
and make any other determinations necessary or advisable for the administration
of the 2000 Plan. With respect to the 2002 fiscal year, the awards granted
during the 2002 fiscal year were based on the evaluation by the Compensation
Committee of the performance of the Company and the performance of the
14
individual officer. The responsibility of each executive officer for the various
established corporate goals and the performance in meeting those goals were
considered in awarding options.
All forms of compensation under the 2000 Plan relate to the Common Stock of
the Company. The maximum aggregate number of shares of Common Stock with respect
to which options, directors options and stock appreciation rights may be granted
from time to time under the Plan is 600,000; provided, however, that no more
than 225,000 shares will be subject to new grants in any one year. During fiscal
year 2002, 154,000 options were granted under the 2000 Plan to employees and
directors of PetroCorp. The 2000 Plan will terminate on the tenth anniversary of
its approval by shareholders; however, no awards shall be made pursuant to the
2000 Plan after December 31, 2005. In determining the compensation for
PetroCorp's two employees, Messrs. Christopher and Dunham, the Compensation
Committee retained PricewaterhouseCoopers, LLP to provide industry compensation
information as part of its basis for determining executive compensation.
COMPENSATION COMMITTEE
THOMAS N. AMONETT - CHAIRMAN
THOMAS R. FULLER
W. NEIL McBEAN
LEALON L. SARGENT
Audit Committee Report
The role of the audit committee is to assist the board of directors in its
oversight of the Company's financial reporting process, system of internal
controls, audit processes and compliance with laws, regulations and Company
policies. In this capacity, the Audit Committee operates under a Charter, which
sets forth the duties and responsibilities of the Audit Committee. The Audit
Committee reviewed the Charter at its meeting on March 6, 2003, and changed it
to reflect the impact of various law and regulatory changes on corporate
governance and audit committee responsibilities. The full text of the Charter is
included in the Proxy as Appendix A.
Management of the Company is responsible for the preparation, presentation
and integrity of the Company's financial statements, the Company's accounting
and financial reporting principles and its system of internal controls. The
independent accountants are responsible for auditing the Company's financial
statements and expressing an opinion as to their conformity with generally
accepted accounting principles. The Audit Committee's responsibility is to
monitor and review these processes.
In the performance of its oversight function, the Audit Committee addressed
the following specific matters:
We reviewed the quarterly Forms 10-Q and the year-end financial statements
included in the Form 10-K for the year 2002 and discussed them with management
and the independent accountants,
We discussed with management and the independent accountant the current and
potential future impact to the Company of the Sarbanes-Oxley Act of 2002, along
with related regulatory changes by the Securities and Exchange Commission and
the American Stock Exchange,
We discussed with the independent accountants the matters required to be
discussed by Statement on Auditing Standards No. 61,
15
We received the written disclosures from the independent accountants
required by Independence Standards Board Standard No. 1,
We discussed with the independent accountants matters relevant to the
planning and implementation of their audit of the Company's financial
statements,
We reviewed the fees paid to the independent accountants,
PricewaterhouseCoopers LLP ("PwC"). Aggregate fees for professional services
rendered for the Company by PwC for the years ended December 31, 2001 and 2002
were:
2001 2002
---- ----
Audit $184,794 $166,990
Audit Related 41,725 43,350
Tax 112,544 80,452
All Other 39,004 0
------------------- -----------------
Total 378,067 290,792
The Audit fees for the years ended December 31, 2001 and 2002,
respectively, were for professional services rendered for the audits of the
consolidated financial statements of the Company, audit work performed related
to SMC Ecuador, Inc., interim reviews of the financial statements of the Company
for inclusion in Form 10-Q and assistance relating to the filing of registration
statements.
The Audit Related fees for the years ended December 31, 2001 and 2002,
respectively, were for assurance and related services related to audits of
schedules in connection with JBH acquisition, Westland WOGP acquisition,
Freeport-McMoran/Mobil acquisition, Westland WPC acquisition, and PCC Energy,
Inc.
Tax fees for the years ended December 31, 2001 and 2002, respectively, were
for services related to tax compliance, including the preparation of tax returns
and claims for refund; and tax planning and tax advice, including assistance
with tax audits and appeals, advice related to mergers and acquisitions, or
requests for technical advice.
All Other fees for the year ended December 31, 2001 related to the
executive compensation study.
The Company's Audit Committee has not yet adopted/enacted pre-approval
policies and procedures for audit and non-audit services. Therefore, the proxy
disclosure does not include pre-approval policies and procedures and related
information. The Company is early-adopting components of the proxy fee
disclosure requirements; the requirement does not become effective until
periodic annual filings for the first fiscal year ending after December 15,
2003.
Based on these reviews and discussions, the Committee recommended to the
Board of Directors that the financial statements be included in the Company's
Annual Report on Form 10-K, for filing with the Securities and Exchange
Commission.
AUDIT COMMITTEE
ROBERT C. THOMAS - CHAIRMAN
PAUL J. COUGHLIN, III
MARK W. FILES
16
Certain Transactions
In connection with the purchase by Kaiser-Francis of PetroCorp common
stock from two significant shareholders during 1996, Kaiser-Francis succeeded to
rights under a registration rights agreement previously entered into between
PetroCorp and those shareholders, which agreement is substantially similar to
another registration rights agreement previously entered into between PetroCorp
and two subsidiaries of St. Paul.
As part of a restructuring plan, on August 3, 1999, PetroCorp's board
entered into the Kaiser-Francis management agreement, under which Kaiser-Francis
provides management, technical, and administrative support services for all of
PetroCorp's operations in the United States and Canada. The shareholders of
PetroCorp approved the management agreement in October 1999 and it took effect
on November 1, 1999. A new slate of corporate officers was approved at that
time.
The management agreement provides that Kaiser-Francis will perform oil
and gas operations and administrative support functions with respect to
PetroCorp's properties in both the United States and Canada.
Oil and gas operations to be performed by Kaiser-Francis 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.
In addition, Kaiser-Francis performs 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.
17
Under the management agreement, Kaiser-Francis may not make material
decisions without the approval of PetroCorp's Board of Directors. Material
decisions include:
. expenditures in excess of $250,000;
. sales of PetroCorp 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.
PetroCorp's principal officers, who are approved by PetroCorp's Board
of Directors, are responsible for executing all contracts and other instruments
on behalf of the Company.
For properties not operated by PetroCorp, the services fee payable to
Kaiser-Francis is, in most cases, equal to $50.00 per month per well. As to
properties operated by PetroCorp, Kaiser-Francis receives as its services fee
the administrative and overhead fees charged under applicable operating
agreements.
During the year ended December 31, 2001, Kaiser-Francis received an
additional service fee of $12,500. Effective January 1, 2002, Gary Christopher
and Richard Dunham left Kaiser-Francis and became employees of PetroCorp. At
that time, the monthly service fees paid to Kaiser-Francis were reduced by a
net, monthly amount of $8,333.
For services of a non-routine nature that are performed in-house by
Kaiser-Francis, Kaiser-Francis shall receive compensation at a mutually agreed
rate that is competitive with the generally available rate charged for such
services. PetroCorp also reimburses Kaiser-Francis for certain direct
out-of-pocket expenses identified in the management agreement that are incurred
by Kaiser-Francis in performing its obligations thereunder. For the year ended
December 31, 2002, Kaiser-Francis received $1,965,000 from PetroCorp for
management fees under the management agreement.
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. The Company
believes that during the fiscal year ended December 31, 2002, all such filing
requirements were satisfied in a timely manner.
INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP, independent public accountants, has been
reappointed by the Board of Directors of the Company as independent auditors for
the Company to examine and report on its financial statements for 2003.
Representatives of PricewaterhouseCoopers are expected to be present at the
Shareholders' Annual Meeting, with the opportunity to make a statement if they
desire to do so, and will be available to respond to appropriate questions.
18
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, before
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.
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
2004 must be received by the Company at 6733 South Yale Avenue, Tulsa, Oklahoma
74136, Attention: Secretary, no later than December 30, 2003, to be included in
the proxy statement relating to that meeting.
By Order of the Board of Directors,
Steven R. Berlin, Secretary
Tulsa, Oklahoma
April 25, 2003
THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 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 6733 SOUTH YALE AVENUE, TULSA, OKLAHOMA 74136,
ATTENTION: SECRETARY.
19
Appendix A
PETROCORP INCORPORATED
AUDIT COMMITTEE CHARTER
Purpose
The primary purpose of the Audit Committee (the "Committee") is to assist the
Board of Directors (the "Board") in fulfilling its responsibilities to oversee
management's conduct of the Company's financial reporting process. This includes
the review of financial reports and other financial information provided by the
Company to any governmental or regulatory body, the public or other users
thereof, the Company's systems of internal accounting financial and disclosure
controls, and the annual independent audit of the Company's financial
statements. This specifically includes monitoring the responsibilities of
Kaiser-Francis Oil Company (provided that the management contract is in place)
with respect to its financial reporting responsibilities for the company. In so
doing, the Audit Committee will endeavor to maintain free and open means of
communication between the Directors, the independent auditors and the financial
management of the Corporation.
In discharging its oversight role, the Committee is empowered to investigate any
matter brought to its attention with full access to all books, records,
facilities and personnel of the Company and the power to retain outside counsel,
auditors or other experts for this purpose. The Board and the Committee are in
place to represent the Company's shareholders; accordingly, the outside auditor
is ultimately accountable to the Board and the Committee.
The Committee shall review the adequacy of the Charter on an annual basis.
Membership
The Committee shall be comprised of not less than three members of the Board,
and the Committee's composition will meet the independence and experience
requirements of the Section 10A(M)(3) of the Securities Exchange Act of 1934 and
also the requirements of the American Stock Exchange at all times the company
has shares listed on that exchange.
Accordingly, all of the members will be directors:
1. Who have no relationship to the Company that may interfere with
the exercise of their independence from management and the
Company; and
2. Who are financially literate or who become financially literate
within a reasonable period of time after appointment to the
Committee. In addition, at least one member of the Committee will
have accounting or related financial management expertise.
Key Responsibilities
The Committee's job is one of oversight and it recognizes that the Company's
management is responsible for preparing the Company's financial statements and
that the outside auditors are responsible for auditing those financial
statements. Additionally, the Committee recognizes that financial management, as
well as the outside auditors, have more time, knowledge and more detailed
information on the Company than do Committee members; consequently, in carrying
out its oversight responsibilities, the Committee is not providing any expert or
special assurances as to the Company's financial statements or any professional
certification as to the outside auditor's work.
A-1
The following functions shall be the common recurring activities of the
Committee in carrying out its oversight function. These functions are set forth
as a guide with the understanding that the Committee may diverge from this
guide, as appropriate, given the circumstances.
. The Committee shall review with the management and the outside
auditors the audited financial statements to be included in the
Company's Annual Report on Form 10-K and review and consider with the
outside auditors the matters required to be discussed by Statement on
Auditing Standards ("SAS") No. 61.
. As a whole, or through the Committee chair, the Committee shall
review with the outside auditors the Company's interim financial
results to be included in the Company's quarterly reports to be filed
with Securities and Exchange Commission and the matters required to
be discussed by SAS No. 61; this review will occur prior to the
Company's filing of the Form 10-Q.
. The Committee shall review with the independent auditors
management's financial and accounting personnel, the adequacy and
effectiveness of the accounting, financial and disclosure controls of
the Corporation, and elicit recommendations for the improvement of
such control procedures in particular areas where new and more
detailed controls or procedures are desirable. Particular emphasis
shall be given the adequacy of such controls to expose payments,
transactions, or procedures that might be deemed illegal or otherwise
improper or provide for the possibility of the disclosure of untrue
or misleading information.
. The Committee shall:
- Request from the outside auditors annually a formal written
statement delineating all relationships between the auditor and
the Company consistent with Independence Standards Board
Standard Number 1;
- Discuss with the outsider auditors any such disclosed relationship
and the impact on the outside auditor's independence;
- Recommend that the Board take appropriate action in response to the
outside auditor's report to satisfy itself of the auditor's
independence; and
- Establish procedures to receive and evaluate confidential and/or
anonymous submissions by employees or contractors to the
company regarding internal, disclosure and accounting controls
or accounting and auditing matters.
. The Committee, subject to any action that may be taken by the
full Board, shall have the ultimate authority and responsibility to
select, evaluate and, where appropriate, replace the outside auditor.
A-2
Appendix B
PETROCORP INCORPORATED
ANNUAL MEETING OF SHAREHOLDERS - May 29, 2003
This Proxy Is Solicited on Behalf of the Board of Directors
The undersigned holder of Common Stock of PetroCorp Incorporated (the
"Company") hereby appoints Frederic Dorwart and Tamara R. Wagman, 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. Election of directors for a term expiring in 2006;
[_] FOR [_] WITHHOLD AUTHORITY
All nominees listed below to vote for all nominees
(except as marked below) listed below
Lealon L. Sargent
Paul J. Coughlin, III
Mark W. Files
Thomas R. Fuller
INSTRUCTIONS: To withhold authority to vote for any nominee, draw a line
through or strike out that nominee's name as set forth above.
2. 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.
(continued and to be signed on other side)
_____________________________________________________
All as more particularly described in the proxy statement dated April
25, 2003 relating to such meeting, receipt of which is hereby acknowledged.
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 the nominees listed in Proposal 1.
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: ______________________, 2003
Please mark, sign, date and return in the enclosed envelope, which
requires no postage if mailed in the United States.