1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] 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 Section 240.14a-12
SOUTH TEXAS DRILLING & EXPLORATION, INC.
- --------------------------------------------------------------------------------
(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:
--------------------------------------------------------------------
2
[SOUTH TEXAS DRILLING & EXPLORATION, INC. LOGO]
July 20, 2001
Dear Shareholder:
On behalf of the Board of Directors, we invite you to attend the 2001
Annual Meeting of Shareholders of South Texas Drilling & Exploration, Inc. We
will hold the meeting at 10:00 a.m., Central Time, on Friday, August 17, 2001,
at the Petroleum Club of San Antonio, 7th Floor Energy Plaza, 8620 N. New
Braunfels Street, San Antonio, Texas.
On the following pages you will find the Notice of Annual Meeting of
Shareholders and Proxy Statement giving information concerning the matters to be
acted on at the meeting. Our Annual Report to Shareholders describing South
Texas Drilling's operations during the year ended March 31, 2001 is enclosed.
We hope you will be able to attend the meeting in person. Whether or
not you plan to attend, please take the time to vote by completing and returning
your proxy card in the enclosed envelope before the meeting. If you attend the
meeting, you may, if you wish, revoke your proxy and vote in person.
Thank you for your interest in South Texas Drilling.
Sincerely,
Michael E. Little
Chairman and Chief Executive Officer
3
SOUTH TEXAS DRILLING & EXPLORATION, INC.
9310 BROADWAY, BLDG. I
SAN ANTONIO, TEXAS 78217
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FRIDAY, AUGUST 17, 2001
To the Shareholders of South Texas Drilling & Exploration, Inc.:
The Annual Meeting of Shareholders of South Texas Drilling &
Exploration, Inc. will be held on Friday, August 17, 2001, at 10:00 a.m. local
time at the Petroleum Club of San Antonio, 7th Floor Energy Plaza, 8620 N. New
Braunfels Street, San Antonio, Texas. At the meeting, we will ask you to
consider and take action on the following:
(1) election of six directors as members of the Board of Directors of
South Texas Drilling to serve until their successors have been
duly elected and qualified (Proposal 1);
(2) amendment and restatement of ARTICLE ONE of our articles of
incorporation to change our name to "Pioneer Drilling Company"
(Proposal 2);
(3) amendment and restatement of ARTICLE FOUR of our articles of
incorporation to (1) increase the number of authorized shares of
our common stock from 30,000,000 to 100,000,000 shares, (2)
increase the number of authorized shares of our preferred stock
from 1,000,000 to 10,000,000 shares and (3) amend the provisions
authorizing our Board of Directors to establish series of
unissued shares of our preferred stock by fixing and determining
the designations, preferences, limitations and relative rights,
including voting rights, of the shares of any series so
established to the fullest extent provided for in the Texas
Business Corporation Act (Proposal 3);
(4) amendment and restatement of Sections 1 and 3 of ARTICLE SEVEN of
our articles of incorporation to change the structure of our
Board of Directors to a classified board divided into three
classes with staggered terms of office and to provide that
members of our Board of Directors may not be removed except for
cause (Proposal 4);
(5) amendment of our articles of incorporation by adding a new
ARTICLE TWELVE that would increase the minimum percentage of the
outstanding shares of our capital stock necessary to call a
special meeting of our shareholders from 10% to 50% (Proposal 5);
(6) amendment and restatement of ARTICLE EIGHT of our articles of
incorporation to delete its specific indemnification requirements
with respect to our directors, officers and employees (Proposal
6);
(7) amendment and restatement of ARTICLE NINE of our articles of
incorporation to make its provisions relating to contracts or
transactions we may enter into with our directors or officers
consistent with the provisions of Article 2.35-1 of the Texas
Business Corporation Act (Proposal 7);
(8) amendment and restatement of ARTICLE ELEVEN of our articles of
incorporation to conform its limitation on a director's liability
to the provisions of Article 1302-7.06 of the Texas Miscellaneous
Corporation Laws Act (Proposal 8);
(9) ratification of the appointment of KPMG LLP as our independent
auditors for the fiscal year ending March 31, 2002 (Proposal 9);
and
(10) transaction of any other business that may properly come before
the Annual Meeting or any adjournment or postponement of the
meeting.
4
We are sending this notice and the attached proxy statement to our
shareholders on or about July 20, 2001. Our Board of Directors has set the close
of business on June 21, 2001 as the record date for determining shareholders
entitled to receive notice and vote at the Annual Meeting. A list of all
shareholders entitled to vote is available for inspection during normal business
hours at our principal offices at 9310 Broadway, Bldg. I, San Antonio, Texas
78217. This list will also be available at the meeting.
Your vote is very important. Whether or not you plan to attend the
Annual Meeting, we encourage you to read the proxy statement. Further, to be
sure your vote counts and to assure a quorum, please vote, sign, date and return
the enclosed proxy card whether or not you plan to attend the meeting.
By Order of the Board of Directors,
William D. Hibbetts
Secretary
San Antonio, Texas
July 20, 2001
5
SOUTH TEXAS DRILLING & EXPLORATION, INC.
PROXY STATEMENT
FOR 2001 ANNUAL MEETING OF SHAREHOLDERS
------------------------
QUESTIONS AND ANSWERS ABOUT
THE MEETING AND VOTING
Q: WHAT AM I BEING ASKED TO VOTE ON?
A: We are asking you to vote on the following:
o the election of six directors as members of the Board of Directors
of South Texas Drilling to serve until their successors have been
duly elected and qualified;
o the amendment of ARTICLE ONE of our articles of incorporation to
change our name to "Pioneer Drilling Company";
o the amendment of ARTICLE FOUR of our articles of incorporation to
(i) increase the number of authorized shares of our common stock
from 30,000,000 to 100,000,000 shares, (ii) increase the number of
authorized shares of our preferred stock from 1,000,000 to
10,000,000 shares and (iii) amend the provisions authorizing our
Board of Directors to establish series of unissued shares of our
preferred stock by fixing and determining the designations,
preferences, limitations and relative rights, including voting
rights, of the shares of any series so established to the fullest
extent provided for in the Texas Business Corporation Act;
o the amendment and restatement of Sections 1 and 3 of ARTICLE SEVEN
of our articles of incorporation to change the structure of our
Board of Directors to a classified board divided into three classes
with staggered terms of office and to provide that members of our
Board of Directors may not be removed except for cause;
o the amendment of our articles of incorporation by adding a new
ARTICLE TWELVE that would increase the minimum percentage of the
outstanding shares of our capital stock necessary to call a special
meeting of our shareholders from 10% to 50%;
o the amendment and restatement of ARTICLE EIGHT of our articles of
incorporation to delete its specific indemnification requirements
with respect to our directors, officers and employees;
o the amendment and restatement of ARTICLE NINE of our articles of
incorporation to make its provisions relating to contracts or
transactions we may enter into with our directors or officers
consistent with the provisions of Article 2.35-1 of the Texas
Business Corporation Act;
o the amendment and restatement of ARTICLE ELEVEN of our articles of
incorporation to conform its limitation on a director's liability
to the provisions of Article 1302-7.06 of the Texas Miscellaneous
Corporation Laws Act;
o the ratification of the appointment of KPMG LLP as our independent
auditors for the fiscal year ending March 31, 2002; and
o the transaction of any other business that may properly come before
the Annual Meeting or any adjournment or postponement of the
meeting.
Q: WHO MAY VOTE?
A: All shareholders of record as of the close of business on June 21, 2001,
the record date, are entitled to vote. Holders of our common stock are
entitled to one vote per share, and holders of our Series B preferred
stock are entitled to six and one-half votes per share. As of June 21,
2001, 14,695,921 shares of our common stock were outstanding and
184,615 shares of our Series B preferred stock were outstanding.
Q: WHO MAY ATTEND THE MEETING?
A: All shareholders as of the record date, or their duly appointed proxies,
may attend the meeting.
1
6
Q: HOW DO I VOTE?
A: You may vote in two ways:
o you may come to the Annual Meeting and cast your vote in person; or
o you may vote by completing, signing and returning the enclosed
proxy card. If you do, the persons named on the card will vote your
shares in the manner you indicate.
Q: WHO IS SOLICITING MY PROXY?
A: South Texas Drilling is soliciting your proxy on behalf of its Board of
Directors.
Q: WHAT HAPPENS IF I DO NOT INDICATE HOW I WISH TO VOTE ON ONE OR MORE OF
THE PROPOSALS?
A: If you return your signed proxy card, but do not indicate how you wish
to vote, the persons named as proxies will vote your shares FOR election
of all the nominees for director (Proposal 1); FOR each of the proposed
amendments to our articles of incorporation (Proposals 2 through 8); and
FOR ratification of the appointment of KPMG LLP as our independent
auditors for the year ending March 31, 2002 (Proposal 9). We are unaware
of any other matters that may come before the Annual Meeting. If they
do, the proxy holders will vote the proxies in their best judgment.
Q: WHAT IF I VOTE BY PROXY AND THEN CHANGE MY MIND?
A: You can revoke your proxy at any time before the Annual Meeting by:
o writing to South Texas Drilling's Secretary at the mailing address
in the answer to the last question on the next page;
o delivering a properly executed proxy dated after the date of the
proxy you want to revoke; or
o attending the Annual Meeting and casting your vote in person.
Q: WHEN DID SOUTH TEXAS DRILLING FIRST DISTRIBUTE THIS PROXY STATEMENT AND
THE ACCOMPANYING FORM OF PROXY TO SHAREHOLDERS?
A: We first distributed this proxy statement and the accompanying form of
proxy to our shareholders on or about July 20, 2001.
Q: WHAT CONSTITUTES A QUORUM?
A: The presence, in person or by proxy, of the holders of a majority of the
issued and outstanding shares entitled to vote at the meeting
constitutes a quorum. We need a quorum of shareholders to hold a valid
Annual Meeting. If you have properly signed and returned your proxy
card, you will be considered part of the quorum.
We will count abstentions and broker non-votes as present for the
purpose of establishing a quorum. A broker non-vote occurs when a broker
votes on some matters on the proxy card, but not on others because the
broker does not have the authority to do so. If a quorum is not present,
a majority in interest of those present or represented at the Annual
Meeting may adjourn the meeting, without notice other than an
announcement at the meeting, until a quorum is present or represented.
Q: WHAT VOTE IS REQUIRED FOR THE PASSAGE OF EACH OF THE PROPOSALS UP FOR
CONSIDERATION AT THE ANNUAL MEETING?
A: Directors are elected by a plurality of the votes cast at the meeting by
the holders of common stock and Series B preferred stock. Amending our
articles of incorporation for Proposals 2, 4, 5, 6, 7 and 8 requires the
affirmative vote of at least (1) two-thirds of the votes entitled to be
cast by the holders of our Series B preferred stock, voting as a
separate class, and (2) two-thirds of the votes entitled to be cast by
the holders of our common stock and Series B preferred stock, voting
together. Amending our articles of incorporation for Proposal 3 to
increase our authorized shares of common stock and to authorize our
Board of Directors to issue series of preferred stock in accordance with
Article 2.13 of the Texas Business Corporation Act requires the
affirmative vote of at least (1) two-thirds of the votes entitled to be
cast by the holders of our common stock and (2) two-thirds of the votes
entitled to be cast by the holders of our Series B preferred stock, each
voting as a separate class. Ratification of KPMG LLP as our independent
auditors for the fiscal year ending March 31, 2002 requires the
affirmative vote of a majority of the votes entitled to be cast by
2
7
the holders of shares of common stock and the affirmative vote of a
majority of the votes entitled to be cast by the holders of shares of
Series B preferred stock, in each case that voted for or against or
expressly abstained from voting. Abstentions and broker non-votes will
have no effect on the vote for directors and will have the effect of
votes against the amendments to our articles of incorporation. An
abstention will have the effect of a vote against the ratification of
the appointment of KPMG LLP as our independent auditors, and a broker
non-vote will not have any effect on the vote to ratify that
appointment.
Q: WHO WILL COUNT THE VOTES?
A: Representatives of Registrar & Transfer Co., the transfer agent for our
common stock, will tabulate the votes.
Q: WHAT SHARES ARE INCLUDED ON THE PROXY CARD?
A: The shares listed on your card represent all the shares of common stock
or Series B preferred stock held in your name (as distinguished from
shares held by a broker in "street" name). You will receive a separate
card from your broker if you hold shares in "street" name.
Q: WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
A: It indicates that your shares are held in more than one account, such as
two brokerage accounts, and are registered in different names. You
should vote each of the proxy cards to ensure that all your shares are
voted.
Q: WHAT IS SOUTH TEXAS DRILLING'S MAILING ADDRESS?
A: Our mailing address is South Texas Drilling & Exploration, Inc.,
9310 Broadway, Bldg. I, San Antonio, Texas 78217.
3
8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table shows the beneficial ownership of our common stock
as of June 30, 2001 by (1) each person we know who beneficially owns more than
5% of the outstanding shares of our common stock, (2) each of our directors, (3)
our chief executive officer and each of our other executive officers named in
the summary compensation table in this proxy statement and (4) all our directors
and executive officers as a group.
SHARES OF COMMON STOCK
BENEFICIALLY OWNED
----------------------
NAME AND ADDRESS OF
BENEFICIAL OWNER NUMBER PERCENT
------------------- ------ -------
WEDGE Energy Services, L.L.C. and 7,241,007(1) 49.3%
Mr. Issam M. Fares
1415 Louisiana, Suite 3000
Houston, TX 77002
T.L.L. Temple Foundation 1,799,647(2) 11.5%
109 Temple Blvd., Suite 300
Lufkin, Texas 75901-7321
Temple Interests, L.P. 199,391(3) 1.3%
109 Temple Blvd., Suite 300
Lufkin, Texas 75901-7321
Rowan Companies, Inc. 750,000 5.1%
1900 Post Oak Tower
5051 Westheimer
Houston, TX 77056
Wm. Stacy Locke 1,170,480(4) 7.6%
9310 Broadway, Bldg. I
San Antonio, Texas 78217
Michael E. Little 583,882(5) 3.9%
9310 Broadway, Bldg. I
San Antonio, Texas 78217
William D. Hibbetts 131,612(6) *
13007 Blanche Coker
San Antonio, TX 78216
William H. White 17,000(6) *
1415 Louisiana, Suite 3000
Houston, TX 77002
James M. Tidwell 10,000(7) *
1415 Louisiana, Suite 3000
Houston, TX 77002
C. John Thompson 10,000(7) *
1400 Smith, Suite EB 3466
Houston, Texas 77002
All executive officers and directors
as a group (7 persons) 2,173,338(8) 13.7%
- --------------
* Less than 1% (footnotes on next page)
4
9
(1) Based on information included in a Schedule 13D that WEDGE Energy
Services, L.L.C. and Mr. Issam M. Fares filed, as amended on May 24,
2001. WEDGE has advised us that Mr. Fares is the ultimate beneficial
owner of all the outstanding ownership interests of WEDGE. The Schedule
13D states that Messrs. White and Tidwell are officers of WEDGE and that
Mr. White is also a director of WEDGE.
(2) Includes 999,647 shares of common stock into which the 153,915 of shares
Series B preferred stock held by T.L.L. Temple Foundation are
convertible. Pursuant to a letter dated June 22, 2001, in response to
our June 21, 2001 notice of our intent to redeem all our outstanding
shares of Series B preferred stock on August 22, 2001, T.L.L. Temple
Foundation has elected to convert all its shares of our Series B
preferred stock before the close of business on August 22, 2001.
(3) Represents the 199,391 shares of common stock into which the 30,700
shares of Series B preferred stock held by Temple Interests, L.P. are
convertible. Pursuant to a letter dated June 22, 2001, in response to
our June 21, 2001 notice of our intent to redeem all our outstanding
shares of Series B preferred stock on August 22, 2001, Temple Interests,
L.P. has elected to convert all its shares of our Series B preferred
stock before the close of business on August 22, 2001.
(4) Includes 25,387 shares of common stock owned by members of Mr. Locke's
immediate family and options to purchase 800,000 shares of common stock.
(5) Includes options to purchase 260,000 shares of common stock.
(6) Includes options to purchase 5,000 shares of common stock.
(7) Includes options to purchase 10,000 shares of common stock.
(8) Includes options to purchase 1,173,333 shares of common stock.
All persons listed have sole voting and investment power with respect
to their shares unless otherwise indicated. The number of shares and percentage
of ownership for each person listed and for the directors and executive officers
as a group assume that shares of common stock that those persons may acquire
within 60 days are outstanding, unless otherwise indicated.
5
10
PROPOSAL 1
ELECTION OF DIRECTORS
Our Board of Directors currently consists of six directors. The term of
office for each of our directors will expire at the Annual Meeting.
The Board has selected Messrs. Michael E. Little, Wm. Stacy Locke,
William D. Hibbetts, C. John Thompson, James M. Tidwell and William H. White,
each of whom currently serves on the Board, as nominees for election to the
Board of Directors at the Annual Meeting. Messrs. Little, Locke, Hibbetts and
White were elected at our 2000 annual meeting of shareholders. Our Board of
Directors appointed Messrs. Tidwell and Thompson to the Board in March and May
2001, respectively, following Mr. Richard Phillips' resignation from the Board
of Directors in February 2001. Information regarding the ages and backgrounds of
the nominees is set forth below.
Historically, members of our Board of Directors have been elected for
one-year terms. However, if Proposal 4, relating to an amendment to our articles
of incorporation to provide for a classified Board of Directors, is approved by
the requisite vote of our shareholders, our Board of Directors will be divided
into three separate classes (Class I, Class II and Class III) with staggered
terms. If Proposal 4 is approved and the nominees for election to the Board of
Directors are elected, the classes of our Board of Directors would be as
follows:
o Class I would consist of Messrs. Hibbetts and Tidwell, who will
serve until our 2002 annual meeting of shareholders and, in each
case, until a successor is duly elected and qualified;
o Class II would consist of Messrs. Locke and Thompson, who will
serve until our 2003 annual meeting of shareholders and, in each
case, until a successor is duly elected and qualified; and
o Class III would consist of Messrs. Little and White, who will serve
until our 2004 annual meeting of shareholders and, in each case,
until a successor is duly elected and qualified.
At each annual meeting following this initial classification and election, the
successors to the class of directors whose terms expire at that meeting would be
elected for a term of office to expire at the third succeeding annual meeting
after their election and until their respective successors have been duly
elected and qualified.
If Proposal 4 is not approved by the requisite vote of our shareholders
and a classified Board of Directors is not created, then each director elected
at the Annual Meeting will serve until our 2002 annual meeting and, in each
case, until a successor is duly elected and qualified.
Assuming the presence of a quorum, the election of any director
requires the favorable vote of the holders of a plurality of the shares present
and voting, in person or by proxy, at the Annual Meeting. Any abstentions or
broker non-votes will not affect the vote. IF YOU PROPERLY SIGN AND RETURN THE
ENCLOSED PROXY, AND UNLESS YOU WITHHOLD AUTHORITY TO VOTE FOR ONE OR MORE OF THE
NOMINEES, THE PERSONS NAMED AS PROXIES WILL VOTE FOR THE ELECTION OF THE
NOMINEES LISTED BELOW. We do not expect that any of the nominees will refuse or
be unable to act as a director. If, however, any nominee becomes unable or
unwilling to serve as a director, the persons named as proxies intend to vote
the proxy shares for the election of any other person the Board of Directors may
designate.
NOMINEES FOR ELECTION
NAME AGE POSITION(S) HELD
- ---- --- ----------------
Michael E. Little 46 Chairman, Chief Executive Officer and Director
Wm. Stacy Locke 45 President, Chief Financial Officer and Director
William D. Hibbetts 52 Vice President, Chief Accounting Officer,
Secretary and Director
6
11
NAME AGE POSITION(S) HELD
- ---- --- ----------------
William H. White 47 Director
James M. Tidwell 54 Director
C. John Thompson 48 Director
Michael E. Little has served as one of our directors since November 1998
and became our Chairman of the Board and Chief Executive Officer in November
1998. Mr. Little served as President and Chief Executive Officer and as a
director of Dawson Production Services, Inc. from March 1982 until it was
acquired by Key Energy Services, Inc. in October 1998. He also served as
Chairman of the Board of Dawson Production Services, Inc. from March 1983 to
October 1998. From 1980 to 1982, Mr. Little was Vice President of Cambern
Engineering, Inc., a company that provided drilling and completion consulting
services in the Texas Gulf Coast area. From 1976 to 1980, he was employed by
Chevron USA as a drilling foreman and as a drilling engineer. Mr. Little
received his Bachelor of Science degree in Petroleum Engineering in 1978 from
Texas Tech University. He is also a director of Venus Exploration, Inc., an oil
and gas exploration and production company, and Intercontinental Bank Shares
Corporation, a bank holding company.
Wm. Stacy Locke has served as one of our directors since May 1, 1995.
He has been our President and Chief Financial Officer since August 2000. He
previously served as our President and Chief Operating Officer from November
1998 to August 2000 and as our President and Chief Executive Officer from May
1995 to November 1998. Prior to joining South Texas Drilling, Mr. Locke was Vice
President-Investment Banking with Arneson, Kercheville, Ehrenberg & Associates,
Inc. from January 1993 to April 1995. He was Vice President-Investment Banking
with Chemical Banking Corporation's Texas Commerce Bank from 1988 to 1992. He
was Senior Geologist with Huffco Petroleum Corporation from 1982 to 1986. From
1979 to 1982, Mr. Locke worked for Tesoro Petroleum Corporation and Valero
Energy as a Geologist. Mr. Locke received his B.A. in Geology from the
University of California, Santa Barbara in 1978 and his M.B.A. from Southern
Methodist University in 1987.
William D. Hibbetts has served as one of our directors since June 1984
and as our Chief Accounting Officer since December 2000. He served as the Chief
Financial Officer of International Cancer Screening Laboratories from March 2000
to December 2000 and as the Chief Accounting Officer of Southwest Venture
Management Company from July 1988 to May 1999. Mr. Hibbetts was the
Treasurer/Controller of Gary Pools, Inc. from May 1986 to July 1988. He
previously served as an officer of South Texas Drilling from January 1982 until
May 1986. Before initially joining South Texas Drilling, Mr. Hibbetts served in
various positions as an accountant with KPMG Peat Marwick LLP from June 1971 to
December 1981, including as an audit manager from July 1978 to December 1981.
Mr. Hibbetts received his B.B.A. in Accounting from the University of Texas at
Austin in 1971.
William H. White has served as one of our directors since May 2000.
Mr. White has been the President and Chief Executive Officer of WEDGE Group
Incorporated since April 1997. WEDGE Group Incorporated is a diversified firm
with subsidiaries in engineering and construction, hotel, oil and gas services
and real estate businesses. From December 1995 to June 1998, Mr. White served as
the Chairman of the Democratic Party of Texas. He also served as Deputy
Secretary and Chief Operating Officer of the United States Department of Energy
from 1993 to 1995. Prior to his service with the Department of Energy, Mr. White
practiced law and served on the management committee of the law firm of Susman
Godfrey L.L.P. He also served as an adjunct professor at the University of Texas
School of Law. Mr. White is the founder and Chairman of the Board of Frontera
Resources, an international energy company with projects in emerging markets,
and Chairman of Howe-Baker International, one of the largest engineering and
construction firms for hydrocarbon processing. Mr. White is also a director of
USEC Inc., a global energy company which produces and sells uranium fuel
enrichment services for nuclear power plants.
James M. Tidwell has served as one of our directors since March 2001.
Mr. Tidwell currently serves as Vice President and Chief Financial Officer of
WEDGE Group Incorporated, a position which he has held since January 2000. From
June 1999 to January 2000, Mr. Tidwell served as President of Daniel Measurement
and Control, a division of Emerson Electric Company. From August 1996 to June
1999, he was Executive Vice President and Chief Financial Officer of Daniel
Industries, Inc., a leading supplier of specialized equipment and systems to
oil, gas and process operators and plants to measure and control the flow of
fluids. For more than five years prior to joining Daniel Industries, Inc., Mr.
Tidwell served as Senior
7
12
Vice President and Chief Financial Officer of Hydril Company, a worldwide leader
in engineering, manufacturing and marketing of premium tubular connections and
pressure control devices for oil and gas drilling and production.
C. John Thompson has served as one of our directors since May 2001. Mr.
Thompson has been Vice President and Co-Manager of Enron Energy Capital
Resources since February 2000. Enron Energy Capital Resources is a leading
provider of capital resources to the oil and gas industry. From September 1997
to February 2000, Mr. Thompson was a principal in Sagestone Capital Partners,
which provided investment banking services to the oil and gas industry and
portfolio management services to various institutional investors. From December
1990 to May 1997, Mr. Thompson held various positions with Enron Energy Capital
Resources and its predecessor companies. From 1977 until 1990, Mr. Thompson
worked in the energy banking industry. Mr. Thompson received his B.A. degree in
Finance from Texas Tech University and his M.B.A. degree from the University of
Texas at Austin.
In connection with our private placements of common stock to WEDGE, we
have agreed that, so long as WEDGE continues to own at least 10% of our
outstanding capital stock, we will support and cause to be placed on the ballot
at each election of our directors at least one person WEDGE designates as a
director nominee, who will also serve on the Audit and Compensation Committees
of our Board of Directors. We also agreed that, so long as WEDGE continues to
own at least 25% of our outstanding capital stock, at least two persons WEDGE
designates as director nominees will be placed on the ballot at each election of
our directors. In addition, Messrs. Little and Locke have executed a voting
agreement which obligates them to vote the shares of common stock they own in
favor of the WEDGE director nominee or nominees. See "Certain Relationships
and Related Transactions--Transactions with WEDGE Energy Services, L.L.C."
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
ELECTION OF EACH OF THE PERSONS NOMINATED FOR ELECTION TO THE BOARD OF
DIRECTORS.
INFORMATION CONCERNING MEETINGS
AND COMMITTEES OF THE BOARD OF DIRECTORS
DIRECTOR MEETINGS
Our Board of Directors held five meetings and acted by unanimous
written consent on six occasions in fiscal 2001. It has two standing committees;
an Audit Committee and a Compensation Committee. It does not have a nominating
committee or a committee performing similar functions. During fiscal 2001, each
member of the Board attended at least 75% of the aggregate number of meetings of
the Board and any committee on which he served, in each case during the period
in which he served, except for Mr. White.
AUDIT COMMITTEE
The Board initially formed its Audit Committee in fiscal 2001. The
initial Audit Committee, which was comprised of Messrs. White and Phillips, met
once during fiscal 2001. Following Mr. Phillips' resignation from the Board of
Directors in February 2001, the Board of Directors appointed Mr. Tidwell to the
Audit Committee. Thereafter, the Audit Committee met once during fiscal 2001. In
May 2001, the Board of Directors appointed Mr. Thompson to the Audit Committee.
As a result, the Audit Committee is currently comprised of Messrs. White,
Tidwell and Thompson.
Our common stock is listed on the American Stock Exchange. In that
connection, we have agreed to comply with the listing standards of the AMEX. We
believe each of the members of the Audit Committee is independent, as defined by
the published listing standards of the AMEX. The Audit Committee's role is one
of financial oversight. Our management is responsible for preparing our
financial statements, and our independent auditors are responsible for auditing
those financial statements. The Audit Committee is not providing any expert or
special assurance as to our financial statements or any professional
certification as to the independent auditors' work. The following functions are
the key responsibilities of the Audit Committee in carrying out its oversight:
o recommending the appointment of our independent auditors to the
Board of Directors;
o reviewing the scope of the independent auditors' examination and,
at the conclusion of that examination, reviewing the results of the
audit, including any comments or recommendations of the independent
auditors;
o reviewing our financial policies and accounting systems and
controls and our audited and interim unaudited financial
statements;
o preparing a report for inclusion in our proxy statement of its
review of our audited financial statements, including a statement
on whether it recommended that the Board include those financial
statements in our annual report on Form 10-K for that year;
8
13
o approving and ratifying the duties and compensation of our
independent auditors, both for audit and nonaudit services; and
o reviewing and assessing, on an annual basis, the adequacy of the
Audit Committee's charter and recommending revisions to the Board.
The Audit Committee meets separately with the independent auditors to
provide an open avenue of communication. The Audit Committee and the Board of
Directors are ultimately responsible for the selection, evaluation and
replacement of the independent auditors. The Audit Committee is governed by a
charter, a copy of which is attached to this proxy statement as Appendix A.
COMPENSATION COMMITTEE
The Board initially formed its Compensation Committee in fiscal 2001.
The initial Compensation Committee which was comprised of Messrs. White,
Hibbetts and Phillips, met once and took action by unanimous written consent on
one occasion during fiscal 2001. Mr. Hibbetts resigned from the Compensation
Committee in January 2001. Mr. Tidwell replaced Mr. Phillips as a member of the
Compensation Committee following Mr. Phillips' resignation from the Board of
Directors in February 2001. Our Board of Directors appointed Mr. Thompson to the
Compensation Committee in May 2001. The Compensation Committee determines
salaries for executive officers and incentive compensation for our senior
employees and key management personnel. For additional information concerning
the Compensation Committee, see "Report of the Compensation Committee Regarding
Executive Compensation."
DIRECTOR COMPENSATION
We pay to each of our nonemployee directors fees of $1,000 per quarter
for service on our Board of Directors and $250 for each Board meeting the
director attends. We also grant nonemployee directors options to purchase 10,000
shares of common stock on initially becoming a director and 5,000 shares of
common stock in each subsequent year pursuant to our 1995 and 1999 Incentive
Plans. We do not pay any additional compensation to our employees for serving as
directors, but we reimburse all directors for out-of-pocket expenses they incur
in connection with attending Board and Board committee meetings or otherwise in
their capacity as directors.
EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table provides information about our current executive
officers and key employees:
NAME AGE POSITION(S) HELD
- ---- --- ----------------
Michael E. Little 46 Chairman, Chief Executive Officer and Director
Wm. Stacy Locke 45 President, Chief Financial Officer and Director
William D. Hibbetts 52 Vice President, Chief Accounting Officer,
Secretary and Director
Wayne M. Squires 45 Vice President and Chief Operating Officer
Chris F. Parma 51 Vice President, Controller and Treasurer*
Andrew D. Mills 32 Vice President - East Texas Division*
Donald G. Lacombe 47 Vice President - Marketing*
- -------
* key employee.
9
14
For a description of the business backgrounds of Messrs. Little, Locke
and Hibbetts, see "Election of Directors" above.
Wayne M. Squires has served as our Vice President and Chief Operating
Officer since our acquisition of Pioneer Drilling Co. in August 2000. Mr.
Squires was President of Pioneer, which he co-founded in 1989. Mr. Squires was
President of PRC Drilling Co. from 1984 to 1987 and worked as a drilling
consultant from 1987 to 1988. Mr. Squires received his B.S. in Petroleum
Engineering from Penn State in 1979.
Chris F. Parma currently serves as our Vice President, Controller and
Treasurer. He previously served as our Chief Financial Officer from December
1995 to August 2000 and as our Secretary from December 1998 to December 2000. He
has been our Controller since October 1990. Before joining South Texas Drilling,
Mr. Parma served in various accounting positions with J.H. Uptmore & Associates,
Inc., a real estate development company. Mr. Parma received his B.B.A. in
Accounting from St. Mary's University in 1972 and his M.P.A. from the University
of Texas-San Antonio in 1988.
Andrew D. Mills has served as our Vice President-East Texas Division
since our acquisition of the contract drilling assets of Mustang Drilling, Ltd.
in March 2001. From August 1995 to April 2001, Mr. Mills served as the Vice
President, Drilling and Operations for Mustang. From June 1993 to August 1995,
he was Production Manager for Mustang, and from October 1991 to June 1993, he
served as construction superintendent for Mills and Sons Construction Co. of
Pasadena, Texas.
Donald G. Lacombe has served as our Vice President - Marketing since
August 2000. Prior to joining South Texas Drilling, he was Contracts and Sales
Manager for Grey Wolf Drilling's South Texas Division and for Fluornoy Drilling
Co. from April 1993 to August 2000. Mr. Lacombe was an Engineer for Dresser
Magcobar from 1978 to 1993. He was an Assistant Geologist for TransOcean Oil
from 1972 to 1975. Mr. Lacombe received his B.S. degree in Geology from Stephen
F. Austin State University and is presently chairman of the South Texas Chapter
of the International Association of Drilling Contractors (IADC). Mr. Lacombe is
Past President of the South Texas Chapter of the American Petroleum Institute
and is presently on the IADC Land Contracts Committee.
10
15
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation we paid or accrued for
services performed during the fiscal years ended March 31, 2001, 2000 and 1999
by our Chief Executive Officer and our President (the "named executive
officers"). No other officer was paid total compensation in excess of $100,000
during any of those fiscal years.
LONG-TERM COMPENSATION AWARDS
-----------------------------------------
ANNUAL COMPENSATION SECURITIES
NAME AND FISCAL ---------------------- OTHER ANNUAL UNDERLYING
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)(2) OPTIONS
-------------------- ------ --------- -------- --------------------- ---------------
Wm. Stacy Locke 2001 $142,315 - - -
Director, President 2000 $ 94,672 - - -
and Chief Financial 1999 $ 94,392 - $993(2) -
Officer
Michael E. Little 2001 $ 66,052 - - -
Director, Chairman 2000 $ 40,000 - - 650,000
and Chief Executive 1999 $ 15,915 - - 100,000
Officer
- ------------
(1) Excludes the value of perquisites and other personal benefits for both
of the named executive officers because the aggregate amounts did not
exceed 10% of the total annual salary and bonus reported for either
named executive officer.
(2) Includes value of personal use of a company-owned vehicle.
OPTION GRANTS IN LAST FISCAL YEAR
No options were granted to either of the named executive officers
during the fiscal year ended March 31, 2001.
STOCK OPTION EXERCISES AND 2001 FISCAL YEAR-END OPTION VALUES
The following table details the number and value of securities
underlying unexercised options held by the named executive officers at March 31,
2001. No options were exercised by the named executive officers during the
fiscal year ended March 31, 2001.
11
16
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END AT FISCAL YEAR END (1)
--------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------- ----------- ------------- ----------- -------------
Michael E. Little 260,000 390,000 $ 975,000 $1,462,500
Wm. Stacy Locke 800,000 0 3,300,000 0
- ---------
(1) Based on the closing price of $4.50 per share for our common stock on
the American Stock Exchange on March 30, 2001.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH WEDGE ENERGY SERVICES, L.L.C.
In February 2000, we completed a private placement of our common stock
to WEDGE Energy Services, L.L.C. WEDGE paid us an aggregate of $1,500,000 for
1,153,846 shares of common stock, or $1.30 per share. In May 2000, we completed
a second private placement of our common stock to WEDGE. WEDGE paid us an
aggregate of $8,000,000 for 3,678,161 shares of common stock, or $2.175 per
share.
On March 30, 2001, we issued and sold for cash a $9,000,000 principal
amount, 4.86% subordinated debenture to WEDGE. The debenture had a maturity date
of March 29, 2002 and was subordinated to all our outstanding bank debt or debt
incurred under our then current bank credit facilities or any extension or
renewal of any of those facilities. If we had obtained shareholder approval of
the conversion feature, the debenture would have become convertible at our
option or at the option of WEDGE into 2,400,000 shares of our common stock, at a
conversion price of $3.75 per share. We repurchased this debenture on May 18,
2001. We funded the repayment of the $9,000,000 face amount of the debenture,
together with the payment of $59,535 of accrued interest, with a short-term bank
borrowing. We then sold an additional 2,400,000 shares of our common stock to
WEDGE in a private placement for $9,048,000, or $3.77 per share.
The aggregate 7,232,007 shares of our common stock that WEDGE owns
represents 49.2% of our common stock outstanding, or 40.4% on a fully diluted
basis assuming conversion of all our outstanding Series B preferred stock and
outstanding stock options. William H. White and James M. Tidwell, who are
directors of South Texas Drilling, also serve as executive officers of Wedge.
In connection with our May 18, 2001 sale of 2,400,000 shares of common
stock to WEDGE, we granted preemptive rights in favor of WEDGE. These preemptive
rights give WEDGE the right to purchase additional shares of our capital stock
which we may offer to permit WEDGE to maintain the percentage of our capital
stock it holds immediately prior to our issuance of any additional shares of our
capital stock. WEDGE's preemptive rights will continue until WEDGE no longer
holds at least 10% of our outstanding common stock, provided that, in any case,
those rights will expire once our common stock has been listed on the American
12
17
Stock Exchange or another national securities exchange or the Nasdaq National
Market for four consecutive years. We also granted to WEDGE a right of first
offer to purchase shares of our common stock if we sell shares of our common
stock other than in a public trading market under Rule 144 or incident to any
registration rights granted by us. In addition, we have agreed that, so long as
WEDGE continues to own at least 10% of our outstanding capital stock, we will
support and cause to be placed on the ballot at each election of our directors
at least one person WEDGE designates as a director nominee, who will also serve
on the Audit and Compensation Committees of our Board of Directors. We also
agreed that, so long as WEDGE continues to own at least 25% of our outstanding
capital stock, at least two persons WEDGE designates as director nominees will
be placed on the ballot at each election of our directors. In addition, Messrs.
Little and Locke have executed a voting agreement which obligates them to vote
the shares of common stock they own in favor of the WEDGE director nominee or
nominees.
We have granted WEDGE both demand registration rights and piggy-back
registration rights in connection with our sales of shares of common stock to
WEDGE. These rights generally obligate us to cause the registration of the
shares of capital stock that WEDGE holds upon request and up to four times with
respect to WEDGE's demand registration rights and an unlimited number of times
with respect to WEDGE's piggy-back registration rights.
CERTAIN BUSINESS RELATIONSHIPS
At the end of fiscal year 2001, we were indebted to WEDGE in the
original principal amount of $9 million under the debenture referred to above.
William H. White and James M. Tidwell are executive officers of WEDGE and
directors of South Texas Drilling. The principal amount of $9 million owed under
the debenture was in excess of 5% of our total consolidated assets at the end of
the fiscal year ended March 31, 2001. As noted above, we repurchased the
debenture on May 18, 2001, and all of WEDGE's rights under the debenture have
been terminated.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors, executive officers and any persons beneficially owning more than 10%
of our common stock to report their initial ownership of our common stock and
any subsequent changes in that ownership to the SEC. Specific due dates for
these reports have been established, and we are required to disclose in this
proxy statement any failure to file by these dates. All required filings for the
2001 fiscal year were made on a timely basis, except that, for the fiscal year
ended March 31, 2001 (1) Mr. Squires failed to file a report on Form 3 to report
his initial ownership holdings of 167,031 shares of our common stock and options
to acquire 250,000 shares of our common stock, (2) Mr. Tidwell failed to timely
file a report on Form 3 to report the initial grant of options to acquire 10,000
shares of our common stock on his becoming a member of our Board of Directors,
(3) Mr. White failed to file a report on Form 3 to report his becoming a member
of our Board of Directors and failed to file a report on Form 5 reporting the
exercise of options to acquire 10,000 shares of our common stock (Mr. White did
report the acquisition of those shares pursuant to that exercise on a Form 4),
(4) Mr. Little made one late filing on Form 4 reporting the purchase of 20,000
shares of our common stock, (5) Mr. Hibbetts failed to file a report on Form 5
reporting two separate exercises of options to acquire an aggregate of 10,000
shares of our common stock (Mr. Hibbetts did report the acquisition of those
shares pursuant to those option exercises on a Form 4) and (6) WEDGE Energy
Services, L.L.C. made one late filing on Form 4 to report four separate
purchases of an aggregate of 9,000 shares of our common stock. Based solely on a
review of prior year filings made under Section 16(a) of the Securities Exchange
Act of 1934, Messrs. Hibbetts, Little, Locke and Phillips and T.L.L. Temple
Foundation have failed to make timely Section 16 filings in prior fiscal years.
In making these disclosures, we relied solely on written statements of
directors, executive officers and shareholders and copies of the reports that
they have filed with the SEC.
13
18
REPORT OF THE AUDIT COMMITTEE
To the Board of Directors of South Texas Drilling & Exploration, Inc.:
We have reviewed and discussed with management South Texas Drilling's
audited financial statements as of and for the year ended March 31, 2001.
In addition, we have discussed with KPMG LLP, South Texas Drilling's
independent accountants, the matters required to be discussed by Statement of
Auditing Standards No. 61, Communication with Audit Committees, as amended,
issued by the Auditing Standards Board of the American Institute of Certified
Public Accountants.
We have received and reviewed the written disclosures and the letter
from KPMG LLP required by Independent Standards Board's Standard No. 1,
Independence Discussions with Audit Committees, as amended, and we have
discussed with that firm its independence from South Texas Drilling. We also
considered whether KPMG LLP's provision of services that are not related to the
audit of South Texas Drilling's financial statements is compatible with
maintaining that firm's independence from South Texas Drilling.
Based on the reviews and discussions referred to above, we recommend to
the Board of Directors of South Texas Drilling that the audited financial
statements referred to above be included in South Texas Drilling's annual report
on Form 10-K for the year ended March 31, 2001 for filing with the Securities
and Exchange Commission.
THE AUDIT COMMITTEE
WILLIAM H. WHITE, CHAIRMAN
JAMES M. TIDWELL
C. JOHN THOMPSON
14
19
REPORT OF THE COMPENSATION COMMITTEE
REGARDING EXECUTIVE COMPENSATION
The Compensation Committee administers South Texas Drilling's executive
compensation program. The Committee is responsible for establishing appropriate
compensation goals for executive officers in meeting those goals. The Committee
seeks to reward senior management for building long-term shareholder value. In
addition, the Committee designs executive compensation programs to provide the
ability to attract, motivate and retain management personnel necessary to South
Texas Drilling's success.
BASE SALARIES
The Committee determines base salaries for executives initially by evaluating
executives' levels of responsibility, prior experience, breadth of knowledge and
equity compensation, as well as external pay practices in the contract drilling
industry. The Committee is aware that base salaries for South Texas Drilling's
executive officers, including Mr. Little's base salary, are below those that
other comparably sized, publicly traded companies pay their executive officers.
The Committee intends to review executive salaries annually based on a variety
of factors, including individual performance, general levels of market salary
increases and South Texas Drilling's overall results. The Committee grants
salary increases within a pay-for-performance framework. The Committee assesses
performance for base salary purposes using a qualitative, rather than
quantitative, performance assessment. The Committee does not use a specific
performance formula or a weighting of factors in determining base salary levels.
However, the Committee considers operating performance, execution of South Texas
Drilling's business strategy, earnings levels and progress in implementing
business development efforts in establishing base salary increases for
executives. Mr. Little received a base salary of $66,052 during the fiscal year
ended March 31, 2001. In February 2001 the Compensation Committee determined to
increase Mr. Little's salary to $153,840.
STOCK OPTION PLANS
The Committee feels that South Texas Drilling has adequately
compensated for its relatively low executive base salaries by making stock
option grants to its executive officers under its 1995 and 1999 Stock Option
Plans. The Committee believes this equity-based compensation provides
appropriate incentive to executive management to seek maximum shareholder
benefit. During the fiscal year ended March 31, 2001, South Texas Drilling
granted stock options to two of its executives, Messrs. William D. Hibbetts and
Wayne M. Squires, for a total of 275,000 shares of its common stock. ___ The
options granted to Mr. Hibbetts will vest at a rate of 20% per year, commencing
on the first anniversary of the grant date. The options granted to Mr. Squires
will vest at a rate of one-third per year, commencing on the first anniversary
of the grant date. All these options will expire 10 years from the grant date
or, in some circumstances, earlier in accordance with the terms of the Stock
Option Plans.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m)
Section 162(m) of the Internal Revenue code generally disallows a
deduction to public companies to the extent of excess annual compensation over
one million dollars paid to certain executive officers, except for qualified
performance-based compensation. South Texas Drilling had no nondeductible
compensation expense for the year ended March 31, 2001. The Committee plans to
review this matter as appropriate and take action as may be necessary to
preserve the deductibility of compensation payments to the extent reasonably
practical and consistent with the South Texas Drilling's objectives.
This report is furnished by the Compensation Committee of the Board of
Directors.
WILLIAM H. WHITE, CHAIRMAN
JAMES M. TIDWELL
C. JOHN THOMPSON
15
20
PERFORMANCE GRAPH
The following graph compares, for the period from March 31, 1996 to March 31,
2001, the cumulative shareholder return on our common stock with the cumulative
total return on the AMEX Composite Index and a peer group index we selected that
includes four public companies within our industry. The comparison assumes that
$100 was invested on March 31, 1996 in our common stock, the AMEX Composite
Index and the peer group index and further assumes all dividends were
reinvested. During the period from March 31, 1996 through March 7, 2001, our
common stock was traded on the over-the-counter market and quoted in the
National Quotation Bureau's "Pink Sheets." Since March 8, 2001, our shares of
common stock have been listed on the American Stock Exchange.
The companies that comprise the peer group index are TMBR/Sharp
Drilling, Inc., Grey Wolf, Inc., Patterson Energy, Inc and UTI Energy Corp.
COMPARISON OF CUMULATIVE TOTAL RETURN
[GRAPH]
3/31/96 3/31/97 3/31/98 3/31/99 3/31/00 3/31/01
---------------------------------------------------------------------------------------------
South Texas Drilling 100 170 411 161 429 1,286
---------------------------------------------------------------------------------------------
AMEX Composite Index 100 98 137 136 193 154
---------------------------------------------------------------------------------------------
Peer Group Index 100 288 466 224 828 1,178
---------------------------------------------------------------------------------------------
16
21
PROPOSAL 2
AMENDMENT OF ARTICLES OF INCORPORATION TO
CHANGE OUR NAME TO "PIONEER DRILLING COMPANY"
Our Board of Directors has approved by unanimous vote a resolution to
amend and restate ARTICLE ONE of our articles of incorporation to change our
name to "Pioneer Drilling Company." The proposed amendment would replace the
text of ARTICLE ONE with the text of ARTICLE ONE set forth in the form of
certificate of amendment to our articles of incorporation which we have attached
as Appendix B to this proxy statement. That form of certificate of amendment
sets forth each of the proposed amendments to our articles of incorporation that
we discuss in this proxy statement. If all those amendments are adopted, in each
case by the requisite vote of our shareholders, we will file a certificate of
amendment with the Secretary of State of the State of Texas in substantially the
form of Exhibit B. If less than all of the proposed amendments are adopted, the
certificate of amendment that we file will reflect only those amendments that
are adopted. If the proposed amendment to change our name is adopted, the name
change will become effective when we file the certificate of amendment with the
Secretary of State of the State of Texas.
Adoption of the proposed amendment to our articles of incorporation
will require the affirmative vote of at least (1) two-thirds of the votes
entitled to be cast by the holders of our Series B preferred stock, voting as a
separate class, and (2) two-thirds of the votes entitled to be cast by the
holders of our common stock and Series B preferred stock, voting together.
Abstentions and broker non-votes will have the effect of votes against this
proposal. IF YOU EXECUTE AND RETURN THE ACCOMPANYING PROXY, THE PERSONS NAMED IN
THE PROXY WILL VOTE IN ACCORDANCE WITH THE CHOICE YOU SPECIFY ON THE PROXY, OR,
IF YOU DO NOT PROPERLY INDICATE A CHOICE, IN FAVOR OF THE ADOPTION OF THE
PROPOSED AMENDMENT.
REASONS FOR THE PROPOSED AMENDMENT
Our Board of Directors believes that our current corporate name, "South
Texas Drilling & Exploration, Inc." is no longer appropriately descriptive of
our company, in that third parties may view it as an expression of an intention
to confine our business operations to South Texas. In our fiscal year ended
March 31, 2001, we significantly expanded our operations by acquiring Pioneer
Drilling Co. and moving into the East Texas region through the acquisition of
the contract drilling assets of Mustang Drilling, Ltd. It is possible that the
future growth of our company could involve further geographic expansion. In
addition, because we discontinued our oil and gas exploration and development
operations in our fiscal year ended March 31, 1999, our Board of Directors
believes we should delete the word "exploration" from our corporate name. Our
Board of Directors believes we should change our name to "Pioneer Drilling
Company" because that name closely resembles the name of our principal operating
subsidiary, Pioneer Drilling Co., Ltd., the entity through which we market our
services and conduct substantially all our operations.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
AMENDMENT AND RESTATEMENT OF ARTICLE ONE OF OUR ARTICLES OF INCORPORATION TO
CHANGE OUR NAME TO "PIONEER DRILLING COMPANY."
17
22
PROPOSAL 3
AMENDMENT OF ARTICLES OF INCORPORATION TO INCREASE AUTHORIZED SHARES
AND TO AUTHORIZE THE BOARD OF DIRECTORS TO ISSUE SERIES OF PREFERRED STOCK
IN ACCORDANCE WITH ARTICLE 2.13 OF THE TEXAS BUSINESS CORPORATION ACT
Our Board of Directors has approved by unanimous vote a resolution
proposing that ARTICLE FOUR of our articles of incorporation be amended and
restated to (1) increase the number of authorized shares of our common stock
from 30,000,000 to 100,000,000 shares, (2) increase the number of authorized
shares of our preferred stock from 1,000,000 to 10,000,000 shares and (3) amend
the provisions authorizing our Board of Directors to establish series of our
preferred stock by fixing and determining the designations, preferences,
limitations and relative rights, including voting rights, of the shares of any
series so established to the fullest extent provided for in the Texas Business
Corporation Act. The proposed amendment would replace the text of ARTICLE FOUR
with the text of ARTICLE FOUR set forth in the form of certificate of amendment
to our articles of incorporation which we have attached as Appendix B to this
proxy statement. Upon approval of the proposed amendment by the requisite vote
of our shareholders at the Annual Meeting, the amendment will become effective
when we file the certificate of amendment with the Secretary of State of the
State of Texas.
Adoption of the proposed amendment to our articles of incorporation
will require the affirmative vote of at least (1) two-thirds of the votes
entitled to be cast by the holders of our common stock and (2) two-thirds of the
votes entitled to be cast by the holders of Series B preferred stock, each
voting as a separate class. Abstentions and broker non-votes will have the
effect of a vote against this amendment to our articles of incorporation. IF YOU
EXECUTE AND RETURN A PROXY, THE PERSONS NAMED IN THE ACCOMPANYING PROXY WILL
VOTE IN ACCORDANCE WITH THE CHOICE SPECIFIED THEREON, OR, IF NO CHOICE IS
PROPERLY INDICATED, IN FAVOR OF THE ADOPTION OF THE PROPOSED AMENDMENT.
REASONS FOR THE PROPOSED AMENDMENT
Under Texas law, we may only issue shares of common stock or preferred
stock to the extent we have shares of capital stock authorized for issuance
under our articles of incorporation. Our articles of incorporation currently
authorize us to issue up to 30,000,000 shares of common stock and 1,000,000
shares of preferred stock. As of the date of this proxy statement, 14,695,921
shares of our common stock were issued and outstanding, 3,856,951 shares of our
common stock were reserved for issuance on exercise of options outstanding under
our 1995 and 1999 stock option plans and conversion of the outstanding shares of
our Series B preferred stock. Also as of the date of this proxy statement,
184,615 shares of our Series B preferred stock were outstanding. As a result,
the number of shares of our common stock available for issuance, after taking
into account shares reserved for issuance on the exercise of stock options and
the conversion of our outstanding shares of Series B preferred stock, is
11,447,128 and the number of shares of our preferred stock available for
issuance is 815,385. Our Board of Directors believes it desirable to have
additional authorized shares of common stock and preferred stock available for
possible future financing and acquisition transactions, employee benefit plans
and other corporate purposes. We do not have any fixed plans or intentions to
issue any of these additional authorized shares. However, we may consider
completing an equity offering including possibly a public offering of shares of
our common stock, in the near future if market conditions warrant such an
offering.
The proposed amendment will also amend the provisions of ARTICLE FOUR
authorizing our Board of Directors to establish and set the terms of series of
our preferred stock to conform those provisions to the provisions of Article
2.13 of the Texas Business Corporation Act as currently in effect. Article 2.13
of the Texas Business Corporation Act has been amended in several respects since
our articles of incorporation were adopted in 1979. Although our Board of
Directors is already authorized to issue series of preferred stock by fixing and
determining the rights and preferences thereof, our Board of Directors believes
it is desirable to conform the provisions our articles of incorporation contain
to those that the Texas Business Corporation Act sets forth.
EFFECTS OF THE PROPOSED AMENDMENT
If adopted by the requisite vote of our shareholders, the proposed
amendment will (1) increase the total number of shares of common stock from
30,000,000 to 100,000,000 shares, (2) increase the total number of shares of
preferred stock from 1,000,000 to 10,000,000 shares and (3) amend the provisions
authorizing our Board of Directors to establish series of unissued shares of our
preferred stock by fixing and determining the designations,
18
23
preferences, limitations and relative rights, including voting rights, of the
shares of any series so established to the fullest extent provided for in
Article 2.13 of the Texas Business Corporation Act.
The increase in authorized shares of common stock and preferred stock
will not have any immediate effect on the rights of existing shareholders.
However, we would not be required to obtain shareholder approval to issue
authorized but unissued shares of our common stock or preferred stock, unless
required to do so by applicable law or the rules of any stock exchange on which
our shares may be listed. The American Stock Exchange, on which our common stock
is currently listed, requires shareholder approval in certain instances,
including in connection with acquisition transactions, where the present or
potential issuance of shares could result in an increase equal to or in excess
of 20% of the number of shares or common stock outstanding before the issuance
of the stock. Our Board of Directors does not currently intend to seek
shareholder approval prior to any issuance of our capital stock, unless
applicable law or the rules of the AMEX require that approval.
Except for the preemptive rights we have granted WEDGE which we
discussed under "Certain Relationships and Related Transactions - Transactions
with Management and Others" above, the holders of outstanding shares of our
common stock and Series B preferred stock have no preemptive rights to purchase
any shares of capital stock we issue in the future. As a result, if our Board of
Directors elects to issue additional shares of our common stock or preferred
stock, most of our existing shareholders would not have any preferential rights
to purchase the newly issued shares, and the newly issued shares may decrease
the existing shareholders' percentage equity ownership and, depending on the
price at which they are issued, could be dilutive to the existing shareholders.
If the proposed amendment is adopted by the requisite vote of our
shareholders, the revisions to the provisions of ARTICLE FOUR authorizing our
Board of Directors to establish and set the terms of series of our preferred
stock to conform those provisions to the provisions of Article 2.13 of the Texas
Business Corporation will have the effect of deleting various requirements and
restrictions and providing our Board of Directors with greater authority in
setting the terms of any future series of preferred stock it designates. The
provisions that would be deleted include:
o a requirement that all series of our preferred stock that have
voting power must vote as a single class;
o a requirement that dividends on each series of our preferred stock
must be paid quarterly on the last day of March, June, September
and December of each year;
o a requirement that dividends on our preferred stock shall be
cumulative and a restriction that cumulations shall not bear
interest;
o a restriction on the declaration or payment of dividends on our
common stock unless all accrued and unpaid dividends on our
preferred stock have been declared and paid in full;
o a requirement that each series of our preferred stock must rank
equally with each other series of our preferred stock as to payment
of dividends;
o a requirement that the liquidation preference for each series of
our preferred stock must include an amount equal to all cumulated
but unpaid dividends;
o a requirement that holders of all series of our preferred stock
must share in the distribution of our assets on a pro rata basis in
the event the assets distributable on the liquidation of our
company are insufficient to permit full payment of the liquidation
preferences otherwise payable to those holders;
o a requirement that payment for any redemption of shares of our
preferred stock must be paid in cash and include an amount equal to
all cumulated but unpaid dividends; and
o specified notice requirements applicable to the holders of shares
of any series of our preferred stock.
Our Board of Directors desires the full authority permitted under
Section 2.13 of the Texas Business Corporation Act in connection with setting
the terms of new series of our preferred stock. Our Board of Directors believes
the proposed amendment would give it appropriate flexibility to establish series
of preferred stock on a case-by-case basis. Shareholders should note, however,
that the authorization of additional shares of our preferred stock and the
vesting of greater authority in our Board of Directors to set the terms of new
series of preferred stock
19
24
could adversely affect the rights of holders of our common stock and Series B
preferred stock. This will depend on the relative designations, preferences,
limitations and relative rights, including voting rights, granted to new series
of preferred stock the Board of Directors may designate in the future.
The increase in the authorized number of shares of our common stock and
preferred stock and the greater authority that would be provided to our Board of
Directors under the proposed amendment could be used by our Board of Directors
to make more difficult, and thereby discourage, delay or prevent, an attempt to
acquire control of South Texas Drilling. For example, the shares could be
privately placed with purchasers who might support our Board of Directors in
opposing a hostile takeover bid. The issuance of the new shares also could be
used to dilute the stock ownership and voting power of a third party seeking to
remove directors, replace incumbent directors, accomplish certain business
combinations or alter, amend or repeal provisions of our articles of
incorporation or bylaws. To the extent that it impedes any such attempts, the
issuance of shares following the adoption of the proposed amendment may serve to
perpetuate existing management. While the proposed amendment may have potential
antitakeover effects, this proposal is not prompted by any specific effort or
takeover threat currently perceived by our Board of Directors or management.
Although our Board of Directors is required to make any determination to issue
such stock based on its judgment as to the best interests of our shareholders,
our Board of Directors could act in a manner that would discourage an
acquisition attempt or other transaction that some, or a majority, of our
shareholders might believe to be in their best interests or in which
shareholders might receive a premium for their stock over the then market price
of such stock. For a discussion of other provisions of our articles of
incorporation and bylaws that may have antitakeover effects, see "Special Note
Regarding Antitakeover Effects of Proposals 4 and 5" below.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENT
TO AND RESTATEMENT OF ARTICLE FOUR OF OUR ARTICLES OF INCORPORATION TO INCREASE
THE NUMBER OF SHARES OF COMMON STOCK AND PREFERRED STOCK AND TO AUTHORIZE THE
BOARD OF DIRECTORS TO ISSUE SERIES OF PREFERRED STOCK IN ACCORDANCE WITH ARTICLE
2.13 OF THE TEXAS BUSINESS CORPORATION ACT.
20
25
SPECIAL NOTE REGARDING
ANTITAKEOVER EFFECTS OF PROPOSALS 4 AND 5
GENERAL
Our Board of Directors has approved by unanimous vote (1) a resolution
proposing that ARTICLE SEVEN of our articles of incorporation be amended and
restated to change the structure of our Board of Directors to a classified board
divided into three classes with staggered terms of office and to provide that
members of our Board of Directors may not be removed except for cause (the
"Classified Board Amendment") and (2) a resolution proposing that our articles
of incorporation be amended by adding a new ARTICLE TWELVE that would increase
the minimum percentage of the outstanding shares of our capital stock necessary
to call a special meeting of our shareholders from 10% to 50% (the "Special
Meeting Amendment"). As we discuss more fully below, our Board of Directors
believes these proposed amendments are in the best interests of our
shareholders.
REASONS FOR THE PROPOSED AMENDMENTS
Our Board of Directors believes that a classified board structure
facilitates continuity and stability of leadership and policy by helping ensure
that, at any given time, a majority of our directors will have prior experience
as directors of our company and will be familiar with its business and
operations. This will, in the view of our Board of Directors, permit more
effective long-term planning and help create long-term value for our
shareholders.
Our Board of Directors also believes that the existing threshold
requirement for holders of our capital stock to call a special meeting of our
shareholders is too low. The existing requirement, which the Texas Business
Corporation Act establishes in the absence of a contrary provision in the
articles of incorporation, permits a special meeting to be called by holders of
at least 10% of all the shares entitled to vote at the proposed special meeting.
Our Board of Directors believes the existing threshold requirement exposes us to
the possibility of having to incur the time and expense of preparing for a
special meeting of our shareholders without a showing of substantial support for
the meeting by our shareholders. Our Board of Directors believes the decision of
whether to hold such a meeting should properly rest with the holders of at least
50% of the shares entitled to vote at the proposed special meeting.
The Classified Board Amendment and the Special Meeting Amendment are
also intended to increase the bargaining leverage of our Board of Directors, on
behalf of our shareholders, in any future negotiations concerning a potential
change of control of our company. Our Board of Directors has observed that
certain tactics that bidders employ in making unsolicited bids for control of a
corporation, including hostile tender offers and proxy contests, have become
relatively common in modern takeover practice. Our Board of Directors considers
those tactics to be highly disruptive to a corporation and often contrary to the
overall best interests of its shareholders. In particular, bidders frequently
use these tactics in conjunction with an attempt to acquire a corporation at an
unfairly low price. In some cases, a bidder will make an offer for less than all
the outstanding capital stock of the target company, potentially leaving
shareholders with the alternatives of partially liquidating their investment at
a time that may be disadvantageous to them or retaining an investment in the
target company under substantially different management with objectives that may
not be the same as the new controlling shareholder. The concentration of control
in our company that could result from such an offer could deprive our remaining
shareholders of the benefits of listing on the American Stock Exchange and
public reporting under the Securities Exchange Act of 1934, as amended. While
our Board of Directors does not intend to foreclose or discourage reasonable
merger or acquisition proposals, it believes that value for our shareholders can
be enhanced by encouraging would-be acquirers to forego hostile tender offers
and negotiate with the Board terms that are fair to all shareholders.
Our Board of Directors believes that the adoption of the Classified
Board Amendment and the Special Meeting Amendment will (1) discourage disruptive
tactics and takeover attempts at unfair prices or on terms that do not provide
all shareholders with the opportunity to sell their stock at a fair price and
(2) encourage third parties who may seek to acquire control of our company to
initiate such an acquisition through negotiations directly with our Board of
Directors. Our Board also believes these amendments will help give it the time
necessary to evaluate unsolicited offers, as well as appropriate alternatives,
in a manner that assures fair treatment of our shareholders. These amendments
could, however, have the effect of discouraging a third party from making a
tender offer or otherwise attempting to obtain control of our company, even
though such an attempt might be beneficial to our company and our shareholders.
These proposed amendments may also make more difficult or discourage a proxy
21
26
contest that is unrelated to a change of control of our company, and will have
the effect of making it more difficult to change the composition of our Board of
Directors generally.
Our Board of Directors recognizes that a takeover might in some
circumstances be beneficial to some or all of our shareholders, but,
nevertheless, believes that the benefits of seeking to protect its ability to
negotiate with the proponent of an unfriendly or unsolicited proposal to take
over or restructure our company outweigh the disadvantages of discouraging those
proposals.
CERTAIN EXISTING ANTITAKEOVER PROVISIONS
The existence of some provisions in our corporate documents and Texas
law may have the effect, either alone or in combination, of making more
difficult or discouraging a tender offer, proxy contest or other takeover
attempt that our Board of Directors opposes but that a shareholder might
consider to be in its best interest. These provisions include the provisions in
our articles of incorporation that give our Board of Directors the authority to
issue and set the terms of our preferred stock, provisions in our bylaws
regulating the ability of our shareholders to bring matters for action at
meetings our shareholders and provisions in the Texas Business Corporation Act
that restrict mergers and other business combinations with affiliated
shareholders.
Authorization to Issue and Set the Terms of Preferred Stock. Our
articles of incorporation authorize our Board of Directors, without any action
by our shareholders, to divide our preferred stock into series and to fix and
determine for each series the relative rights and preferences of shares in such
series, including preferences, limitations or relative rights with respect to
redemption rights, conversion rights, if any, voting rights, if any, dividend
rights and preferences on liquidation. Proposal 3 that this proxy statement sets
forth relates to a proposed amendment to our articles of incorporation that
would amend these provisions to provide our Board of Directors with greater
authority in setting the terms of the preferred stock as well as to increase the
number of authorized shares of preferred stock from 1,000,000 to 10,000,000
shares.
The issuance of shares of preferred stock could adversely affect the
voting power and value of our common stock, discourage an unsolicited
acquisition proposal or make it more difficult for a third party to gain control
of our company. Although our Board of Directors is required to make any
determination to issue such stock based on its judgment as to the best interests
of our shareholders, our Board of Directors could act in a manner that would
discourage an acquisition attempt or other transaction that some, or a majority,
of our shareholders might believe to be in their best interests or in which
shareholders might receive a premium for their stock over the then market price
of such stock. See "Proposal 3 - Amendment of Articles of Incorporation to
Increase Authorized Shares and to Authorize the Board of Directors to Issue
Series of Preferred Stock in Accordance with Article 2.13 of the Texas Business
Corporation Act - Effects of the Proposed Amendment."
Shareholder Proposals. Our Board of Directors recently amended and
restated our bylaws to, among other things, establish advance-notice and other
procedural requirements that apply to shareholder nominations of persons for
election to the board of directors at any annual or special meeting of
shareholders and to shareholder proposals that shareholders take any other
action at any annual meeting. In the case of any annual meeting, a shareholder
proposing to nominate a person for election to the board of directors or
proposing that any other action be taken must give our corporate secretary
written notice of the proposal not less than 120 days and not more than 180 days
before the anniversary date of the immediately preceding annual meeting. These
shareholder proposal deadlines are subject to exceptions if the pending annual
meeting date differs by more than specified periods from that anniversary date.
If the chairman of our board of directors, a majority of our board of directors
or our chief executive officer calls a special meeting of shareholders for the
election of directors, a shareholder proposing to nominate a person for that
election must give our corporate secretary written notice of the proposal not
earlier than 180 days prior to that special meeting and not later than the last
to occur of (1) 120 days prior to that special meeting or (2) the 10th day
following the day we publicly disclose the date of the special meeting. Our
bylaws prescribe the specific information any advance written shareholder notice
must contain. We have attached a copy of our amended and restated bylaws as
Appendix C to this proxy statement.
The advance-notice procedure may have the effect of precluding a
contest for the election of directors or the consideration of shareholder
proposals if the proper procedures are not followed, and of discouraging or
deterring a third party from conducting a solicitation of proxies to elect its
own slate of directors or to approve its
22
27
own proposal, without regard to whether consideration of those nominees or
proposals might be harmful or beneficial to our company and our shareholders.
Texas Business Combination Law. As a Texas corporation with publicly
held stock, we are subject to Part Thirteen of the Texas Business Corporation
Act (the "Business Combination Law"). In general, the Business Combination Law
prevents an "affiliated shareholder," which is generally defined as a person who
is or was within the preceding three-year period the beneficial owner of 20% or
more of a corporation's outstanding voting shares, or its affiliates or
associates from entering into or engaging in a business combination with a
public corporation organized in Texas during the three-year period immediately
following the date that person became an affiliated shareholder unless:
o before the date that person became an affiliated shareholder, the
board of directors of the corporation approves the business
combination or the acquisition of shares made by that person on the
date that person became an affiliated shareholder; or
o not less than six months after the date that person became an
affiliated shareholder, the holders of at least two-thirds of the
corporation's outstanding voting shares not beneficially owned by
the affiliated shareholder or its affiliates or associates approve
the business combination by their affirmative vote at a meeting
duly called for that purpose.
The Business Combination Law defines a "business combination" to include:
o mergers or share exchanges;
o dispositions of assets having an aggregate value equal to 10% or
more of the market value of the assets of the corporation or of the
outstanding common stock or representing 10% or more of the earning
power or net income of the corporation;
o certain issuances or transactions by the corporation that would
increase the affiliated shareholder's number of shares of the
corporation;
o certain liquidations or dissolutions; and
o the receipt of tax, guarantee, loan or other financial benefits by
an affiliated shareholder other than proportionately as a
shareholder of the corporation.
The Business Combination law expressly provides that, in discharging
the duties of a director under the Business Combination Act or otherwise, a
director, in considering the best interests of the corporation, may consider the
long-term as well as the short-term interests of the corporation and its
shareholders, including the possibility that those interests may be best served
by the continued independence of the corporation.
Both the Classified Board Amendment and the Special Meeting Amendment
are permitted by Texas law and are consistent with the rules of the American
Stock Exchange on which our common stock is listed. These proposed amendments
are not the result of any specific efforts to obtain control of our company. Our
Board of Directors does not presently contemplate recommending the adoption of
any further amendments to our articles of incorporation that would affect the
ability of third parties to effect a change in control of our Company. However,
our Board of Directors may, in the future, review the advisability of adopting
other measures that may affect takeovers in the context of applicable law and
judicial decisions.
23
28
PROPOSAL 4
AMENDMENT OF ARTICLES OF INCORPORATION
TO IMPLEMENT A CLASSIFIED BOARD OF DIRECTORS
Our Board of Directors has approved by unanimous vote a resolution to
amend and restate Sections 1 and 3 of ARTICLE SEVEN our articles of
incorporation to provide for the classification of our Board of Directors into
three classes of directors with staggered terms of office and to provide that
members of our Board of Directors may not be removed except for cause. The
proposed amendment would replace the text of Sections 1 and 3 of ARTICLE SEVEN
with the text of Sections 1 and 3 of ARTICLE SEVEN set forth in the form of
certificate of amendment to our articles of incorporation which we have attached
as Appendix B to this proxy statement. Upon approval of the proposed amendment
by the requisite vote of our shareholders at the Annual Meeting, the amendment
will become effective when we file the certificate of amendment with the
Secretary of State of the State of Texas.
Historically, members of our Board of Directors have been elected
annually for terms of one year. Texas law permits provisions in a company's
articles of incorporation or bylaws that provide for a classified board of
directors. The proposed Classified Board Amendment would provide that directors
will be classified into three classes, as nearly equal in number as possible.
One class would hold office initially for a term expiring at our 2002 annual
meeting of shareholders; another class would hold office initially for a term
expiring at our 2003 annual meeting of shareholders; and another class would
hold office initially for a term expiring at our 2004 annual meeting of
shareholders. At each annual meeting following this initial classification and
election, the successors to the class of directors whose terms expire at that
meeting would be elected for a term of office to expire at the third succeeding
annual meeting after their election and until their successors have been duly
elected and qualified. See "Election of Directors" as to the composition of each
class of directors if this proposal is adopted.
If adopted, the Classified Board Amendment could significantly extend
the time required to effect a significant change in the composition of our Board
of Directors. Currently, a complete change in the composition of our Board of
Directors can be made by shareholders holding a plurality of the votes cast at a
single annual meeting. If we implement a classified board of directors, it will
take at least two annual meetings for even a majority of shareholders to effect
a change in the majority of our Board of Directors, without the cooperation of
the incumbent members of the Board, because only a minority of the directors
will be elected at each meeting. Our articles of incorporation expressly deny
the right to cumulate votes in the election of directors.
Under Texas law, a director chosen to fill a vacancy on a classified
board will hold office for the unexpired term of his predecessor in office.
Texas law also provides that, unless the articles of incorporation provide
otherwise, directors serving on a classified board of directors may be removed
only for cause. The proposed amended and restated Section 3 of ARTICLE SEVEN
expressly states that a member of our Board of Directors may be removed only for
cause and, subject to any rights our Board of Directors may establish for the
holders of any series of our preferred stock to remove any directors they may
become entitled to elect under the provisions the Board establishes for that
series, will require the affirmative vote of the holders of at least a majority
of the votes of all outstanding shares of our capital stock generally entitled
to vote in the election of directors, voting together as a single class, at a
meeting of shareholders expressly called for that purpose. Currently, all our
directors are elected annually, and neither our articles of incorporation nor
our bylaws provides for the removal of directors.
Adoption of the Classified Board Amendment will require the affirmative
vote of at least (1) two-thirds of the votes entitled to be cast by the holders
of our Series B preferred stock, voting as a separate class, and (2) two-thirds
of the votes entitled to be cast by the holders of our common stock and Series B
preferred stock, voting together. Abstentions and broker non-votes will have the
effect of votes against this proposal. IF YOU EXECUTE AND RETURN THE
ACCOMPANYING PROXY, THE PERSONS NAMED IN THE PROXY WILL VOTE IN ACCORDANCE WITH
THE CHOICE YOU SPECIFY ON THE PROXY, OR, IF YOU DO NOT PROPERLY INDICATE A
CHOICE, IN FAVOR OF THE ADOPTION OF THE PROPOSED AMENDMENT.
ADVANTAGES
The proposed Classified Board Amendment is designed to facilitate
continuity and stability in the leadership and policies of our Board of
Directors by helping ensure that, at any given time, a majority of our
24
29
directors will have prior experience as directors of our company and will be
familiar with its business and operations. This will, in the view of our Board
of Directors, permit more effective long-term planning and help create long-term
value for our shareholders. Our Board of Directors also believes that the
Classified Board Amendment will assist it in protecting the interests of our
shareholders in the event of a hostile or unsolicited bid for control of our
company.
DISADVANTAGES
The Classified Board Amendment could make it more difficult for our
shareholders to change the composition of our Board of Directors even if our
shareholders believe such a change would be desirable. Because of the additional
time that may be required to change the composition of our Board of Directors,
the Classified Board Amendment will also tend to make it more difficult to
change our incumbent management. In addition, because the Classified Board
Amendment would increase the amount of time required for a takeover bidder to
obtain control of our company without the cooperation of our Board of Directors,
even if the takeover bidder were to acquire a majority of our outstanding
capital stock, it will tend to discourage certain tender offers, perhaps
including tender offers that our shareholders may feel would be in their best
interests.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENT
AND RESTATEMENT OF SECTIONS 1 AND 3 OF ARTICLE SEVEN OF OUR ARTICLES OF
INCORPORATION TO PROVIDE FOR THE CLASSIFICATION OF OUR BOARD OF DIRECTORS INTO
THREE CLASSES OF DIRECTORS WITH STAGGERED TERMS OF OFFICE.
25
30
PROPOSAL 5
AMENDMENT TO ARTICLES OF INCORPORATION TO
INCREASE THE PERCENTAGE OF SHAREHOLDERS
REQUIRED TO CALL A SPECIAL MEETING OF SHAREHOLDERS
Our Board of Directors has approved by unanimous vote a resolution to
amend our articles of incorporation by adding a new ARTICLE TWELVE that would
increase the minimum percentage of the outstanding shares of our capital stock
necessary to call a special meeting of our shareholders from 10% to 50%. The
text of the proposed new ARTICLE TWELVE is set forth in the form of certificate
of amendment to our articles of incorporation which we have attached as Appendix
B to this proxy statement. Upon approval of the proposed amendment by the
requisite vote of our shareholders at the Annual Meeting, the amendment will
become effective when we file the certificate of amendment with the Secretary of
State of the State of Texas.
Our Board of Directors believes that the existing threshold requirement
for holders or our capital stock entitled to call a special meeting of our
shareholders is too low and that the decision of whether to hold such a meeting
should properly rest with the holders of at least 50% of the shares entitled to
vote at the proposed special meeting. The existing requirement, which the Texas
Business Corporation Act establishes in the absence of a contrary provision in
the articles of incorporation, permits a special meeting to be called by holders
of at least 10% of all the shares entitled to vote at the proposed special
meeting.
Adoption of the proposed amendment to our articles of incorporation
will require the affirmative vote of at least (1) two-thirds of the votes
entitled to be cast by the holders of our Series B preferred stock, voting as a
separate class, and (2) two-thirds of the votes entitled to be cast by the
holders of our common stock and Series B preferred stock, voting together.
Abstentions and broker non-votes will have the effect of votes against this
proposal. IF YOU EXECUTE AND RETURN THE ACCOMPANYING PROXY, THE PERSONS NAMED IN
THE PROXY WILL VOTE IN ACCORDANCE WITH THE CHOICE YOU SPECIFY ON THE PROXY, OR,
IF YOU DO NOT PROPERLY INDICATE A CHOICE, IN FAVOR OF THE ADOPTION OF THE
PROPOSED AMENDMENT.
ADVANTAGES
Our Board of Directors believes that increasing the minimum percentage
of the outstanding shares of our capital stock necessary to call a special
meeting of our shareholders from 10% to 50% will allow us to avoid the
possibility of having to incur the time and expense of preparing for a special
meeting of our shareholders without a showing of substantial support for the
meeting by our shareholders.
DISADVANTAGES
The increase in the minimum percentage of the outstanding shares of our
capital stock necessary to call a special meeting of our shareholders will tend
to make it more difficult for shareholders to call a meeting, even if the
subject of the proposed special meeting is a matter that a majority of our
shareholders would like to consider at a special meeting, if given the
opportunity to do so. This amendment may also make more difficult or discourage
a proxy contest involving our company. As a result, this amendment could have
the effect of discouraging a third party from making a tender offer or otherwise
attempting to obtain control of our company, even though such an attempt might
be beneficial to our company and our shareholders.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENT
OF OUR ARTICLES OF INCORPORATION TO ADD THE NEW PROPOSED ARTICLE TWELVE TO
INCREASE THE MINIMUM PERCENTAGE OF THE OUTSTANDING SHARES OF OUR CAPITAL STOCK
NECESSARY TO CALL A SPECIAL MEETING OF OUR SHAREHOLDERS FROM 10% TO 50%.
26
31
PROPOSAL 6
AMENDMENT TO ARTICLES OF INCORPORATION TO
DELETE THE SPECIFIC INDEMNIFICATION REQUIREMENTS
WITH RESPECT TO DIRECTORS, OFFICERS AND EMPLOYEES
Our Board of Directors has approved by unanimous vote a resolution to
amend and restate ARTICLE EIGHT of our articles of incorporation to delete its
specific indemnification requirements with respect to our directors, officers
and employees and revise the indemnification provisions to simply state that our
company shall have the power to, and our Board of Directors shall have the
authority to cause our company to:
o indemnify each of our directors, officers, employees and agents,
and each person who is or was serving at our request as a director,
officer, partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another foreign or domestic corporation, an
employee benefit plan or any other enterprise or other entity, to
the fullest extent applicable law permits; and
o purchase and maintain insurance on behalf of any such person
against any liability asserted against such person in any such
capacity, whether or not we have the power to indemnify that person
against that liability under the Texas Business Corporation Act.
The proposed amendment would replace the text of ARTICLE EIGHT with the text of
ARTICLE EIGHT set forth in the form of certificate of amendment to our articles
of incorporation which we have attached as Appendix B to this proxy statement.
Upon approval of the proposed amendment by the requisite vote of our
shareholders at the Annual Meeting, the amendment will become effective when we
file the certificate of amendment with the Secretary of State of the State of
Texas.
Adoption of the proposed amendment to our articles of incorporation will
require the affirmative vote of at least (1) two-thirds of the votes entitled to
be cast by the holders of our Series B preferred stock, voting as a separate
class, and (2) two-thirds of the votes entitled to be cast by the holders of our
common stock and Series B preferred stock, voting together. Abstentions and
broker non-votes will have the effect of votes against this proposal. IF YOU
EXECUTE AND RETURN THE ACCOMPANYING PROXY, THE PERSONS NAMED IN THE PROXY WILL
VOTE IN ACCORDANCE WITH THE CHOICE YOU SPECIFY ON THE PROXY, OR, IF YOU DO NOT
PROPERLY INDICATE A CHOICE, IN FAVOR OF THE ADOPTION OF THE PROPOSED AMENDMENT.
REASONS FOR THE PROPOSED AMENDMENT
ARTICLE EIGHT of our articles of incorporation currently provides that
we must indemnify any person (and the heirs, executors and administrators of
that person) who is or was a director, officer or employee of our company or of
any other corporation which that person served as such at our request and of
which we are in any way interested.
Our Board of Directors believes the group of persons ARTICLE EIGHT
currently requires us to indemnify is overly broad, because it includes all our
employees as well as employees of certain other corporations. Our Board of
Directors believes that it should have discretion to determine if and when we
should indemnify any person who is not one of our directors or executive
officers. In that connection, our board of directors recently amended and
restated our bylaws to, among other things:
o provide that each person who at any time shall serve or shall have
served as a director or executive officer of our company, or any
person who, while a director or executive officer of our company,
is or was serving at our written request as a director, officer,
partner, venturer, proprietor, trustee, employee, agent or similar
functionary of another foreign or domestic corporation,
partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise, shall be entitled to
indemnification as and to the fullest extent permitted by Article
2.02-1 of the Texas Business Corporation Act;
o provide that we may, by adoption of a resolution of our Board of
Directors, indemnify and advance expenses to (1) an officer of our
company who is not an executive officer of our company, (2) an
27
32
employee of our company or (3) an agent of our company to the
extent and subject to the conditions as our Board of Directors may
determine;
o provide that we may indemnify and advance expenses to persons who
are not or were not directors or executive officers of our company,
but who are or were serving at our written request as a director,
officer, partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another foreign or domestic corporation,
partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise against any liability asserted
against him and incurred by him in such a capacity or arising out
of his status as such a person to the extent and subject to the
conditions as our Board of Directors may determine;
o establish provisions for the entitlement to advances and
reimbursement of expenses that relate to claims for
indemnification; and
o establish procedures for the determination of entitlement to
indemnification, including special procedures that would be
applicable following a change in control of our company.
We have attached a copy of our amended and restated bylaws as Appendix
C to this proxy statement.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENT
AND RESTATEMENT OF ARTICLE EIGHT OF OUR ARTICLES OF INCORPORATION TO DELETE ITS
SPECIFIC INDEMNIFICATION REQUIREMENTS WITH RESPECT TO OUR DIRECTORS, OFFICERS
AND EMPLOYEES.
28
33
PROPOSAL 7
AMENDMENT TO ARTICLES OF INCORPORATION TO CONFORM THE
PROVISIONS RELATING TO TRANSACTIONS WITH DIRECTORS OR OFFICERS TO
THE PROVISIONS OF ARTICLE 2.35-1 OF THE TEXAS BUSINESS CORPORATION ACT
Our Board of Directors has approved by unanimous vote a resolution to
amend and restate ARTICLE NINE of our articles of incorporation to make its
provisions relating to contracts or transactions we may enter into with any of
our directors or officers consistent with the provisions of Article 2.35-1 of
the Texas Business Corporation Act. The proposed amendment would replace the
text of ARTICLE NINE with the text of ARTICLE NINE set forth in the form of
certificate of amendment to our articles of incorporation which we have attached
as Appendix B to this proxy statement. Upon approval of the proposed amendment
by the requisite vote of our shareholders at the Annual Meeting, the amendment
will become effective when we file the certificate of amendment with the
Secretary of State of the State of Texas.
Adoption of the proposed amendment to our articles of incorporation
will require the affirmative vote of at least (1) two-thirds of the votes
entitled to be cast by the holders of our Series B preferred stock, voting as a
separate class, and (2) two-thirds of the votes entitled to be cast by the
holders of our common stock and Series B preferred stock, voting together.
Abstentions and broker non-votes will have the effect of votes against this
proposal. IF YOU EXECUTE AND RETURN THE ACCOMPANYING PROXY, THE PERSONS NAMED IN
THE PROXY WILL VOTE IN ACCORDANCE WITH THE CHOICE YOU SPECIFY ON THE PROXY, OR,
IF YOU DO NOT PROPERLY INDICATE A CHOICE, IN FAVOR OF THE ADOPTION OF THE
PROPOSED AMENDMENT.
REASONS FOR THE PROPOSED AMENDMENT
Our Board of Directors views the proposed amendment as a technical
change to make the provisions of ARTICLE NINE of our articles of incorporation
consistent with those set forth in Article 2.35-1 of the Texas Business
Corporation Act to avoid possible conflicts with the statutory provisions. In
addition, our Board of Directors believes the validation mechanisms for
interested director or officer transactions that Article 2.35-1 of the Texas
Business Corporation Act provides for are more appropriate than the mechanism
that ARTICLE NINE of our articles of incorporation currently sets forth.
ARTICLE NINE of our articles of incorporation currently provides, among
other things, that any contract (1) between us and one or more of our directors,
(2) between us and any firm of which one or more of our directors are members or
employees, or in which they are interested or (3) between us and any corporation
or association of which one or more of our directors are shareholders, members,
directors, officers or employees, or in which they are interested, shall be
valid for all purposes, notwithstanding his or their participation in the
action, if the fact of such interest shall be disclosed or otherwise known to
the Board of Directors and the Board of Directors shall, nevertheless, authorize
or ratify the contract or transaction, the interested director or directors to
be counted in determining whether a quorum is present and to be entitled to vote
on such authorization or ratification. This provision was contained in the
articles of incorporation we originally filed with the Secretary of State of the
State of Texas in 1979 and predates Article 2.35-1, which was added to the Texas
Business Corporation Act in 1985.
Article 2.35-1 of the Texas Business Corporation Act provides in
pertinent part that an otherwise valid contract or transaction between a
corporation and one or more of its directors or officers, or between a
corporation and any other domestic or foreign corporation or other entity in
which one or more of its directors or officers are directors or officers or have
a financial interest shall be valid notwithstanding whether the director or
officer is present at or participates in the meeting of the Board of Directors
or committee thereof which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose, if any one of the
following is satisfied:
o the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board of Directors or committee
in good faith authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or
29
34
o the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the
shareholders; or
o the contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified by the Board of
Directors, a committee thereof or the shareholders.
Article 2.35-1 of the Texas Business Corporation Act does not contemplate that
its provisions may be varied by the provisions of a corporation's articles of
incorporation.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENT
AND RESTATEMENT OF ARTICLE NINE OF OUR ARTICLES OF INCORPORATION TO CONFORM ITS
PROVISIONS RELATING TO CONTRACTS OR TRANSACTIONS WE MAY ENTER INTO WITH ANY OF
OUR DIRECTORS OR OFFICERS TO THE PROVISIONS OF ARTICLE 2.35-1 OF THE TEXAS
BUSINESS CORPORATION ACT.
30
35
PROPOSAL 8
AMENDMENT TO ARTICLES OF INCORPORATION TO CONFORM THE
LIMITATION ON A DIRECTOR'S LIABILITY TO THE PROVISIONS OF
ARTICLE 1302-7.06 OF THE TEXAS MISCELLANEOUS CORPORATION LAWS ACT
Our Board of Directors has approved by unanimous vote a resolution to
amend and restate ARTICLE ELEVEN of our articles of incorporation to conform its
limitation on a director's liability to the provisions of Article 1302-7.06 of
the Texas Miscellaneous Corporation Laws Act. The proposed amendment would
replace the text of ARTICLE ELEVEN with the text of ARTICLE ELEVEN set forth in
the form of certificate of amendment to our articles of incorporation which we
have attached as Appendix B to this proxy statement. Upon approval of the
proposed amendment by the requisite vote of our shareholders at the Annual
Meeting, the amendment will become effective when we file the certificate of
amendment with the Secretary of State of the State of Texas.
Adoption of the proposed amendment to our articles of incorporation
will require the affirmative vote of at least (1) two-thirds of the votes
entitled to be cast by the holders of our Series B preferred stock, voting as a
separate class, and (2) two-thirds of the votes entitled to be cast by the
holders of our common stock and Series B preferred stock, voting together.
Abstentions and broker non-votes will have the effect of votes against this
proposal. IF YOU EXECUTE AND RETURN THE ACCOMPANYING PROXY, THE PERSONS NAMED IN
THE PROXY WILL VOTE IN ACCORDANCE WITH THE CHOICE YOU SPECIFY ON THE PROXY, OR,
IF YOU DO NOT PROPERLY INDICATE A CHOICE, IN FAVOR OF THE ADOPTION OF THE
PROPOSED AMENDMENT.
REASONS FOR THE PROPOSED AMENDMENT
Our Board of Directors views the proposed amendment as a technical
change to make the provisions of ARTICLE ELEVEN of our articles of incorporation
consistent with the Article 1302-7.06 of the Texas Miscellaneous Corporation
Laws Act, which provides in pertinent part as follows:
The articles of incorporation of a corporation may provide
that a director of the corporation shall not be liable, or
shall be liable only to the extent provided in the articles of
incorporation, to the corporation or its shareholders or
members for monetary damages for an act or omission in the
director's capacity as a director, except that this article
does not authorize the elimination of limitation of the
liability of a director to the extent the director is found
liable for: (1) a breach of the director's duty of loyalty to
the corporation or its shareholders; (2) an act or omission
not in good faith that constitutes a breach of duty of the
director to the corporation or an act or omission that
involves intentional misconduct or a knowing violation of the
law; (3) a transaction from which the director received an
improper benefit, whether or not the benefit resulted from an
action taken within the scope of the director's office; or (4)
an act or omission for which the liability of a director is
expressly provided by an applicable statute.
Our Board of Directors believes our charter provision should be
consistent with the authorizing provision contained in the statute to avoid
possible conflicts in the interpretation of the provision our articles of
incorporation sets forth.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
AMENDMENT AND RESTATEMENT OF ARTICLE ELEVEN OF OUR ARTICLES OF INCORPORATION TO
CONFORM ITS LIMITATION ON A DIRECTOR'S LIABILITY TO THE PROVISIONS OF ARTICLE
1302-7.06 OF THE TEXAS MISCELLANEOUS CORPORATION LAWS ACT.
31
36
PROPOSAL 9
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
The Board has selected KPMG LLP to serve as our independent auditors
for the year ending March 31, 2002. Although shareholder ratification is not
required, the Board has directed that such appointment be submitted to the
shareholders for ratification at the Annual Meeting. KPMG LLP has served as our
independent auditors since 1979. Representatives of KPMG LLP will be present at
the meeting, will be given an opportunity to make a statement if they so desire
and will be available to respond to appropriate questions of any shareholders.
Assuming the presence of a quorum, the affirmative vote of a majority
of the votes entitled to be cast by the holders of shares of our common stock
and the affirmative vote of a majority of the votes entitled to be cast by the
holders of shares of our Series B preferred stock, in each case that voted for
or against or expressly abstained from voting, is necessary to ratify the
selection of KPMG LLP as our independent auditors for the year ending March 31,
2002. The enclosed form of proxy provides a means for you to vote for the
ratification of selection of independent auditors, to vote against it or to
abstain from voting with respect to it. IF YOU EXECUTE AND RETURN A PROXY, THE
PERSONS NAMED IN THE ACCOMPANYING PROXY WILL VOTE IN ACCORDANCE WITH THE CHOICE
SPECIFIED THEREON, OR IF NO CHOICE IS PROPERLY INDICATED, IN FAVOR OF THE
RATIFICATION OF THE SELECTION OF KPMG LLP AS INDEPENDENT AUDITORS. In
determining whether this item has received the requisite number of affirmative
votes, an abstention will have the effect of a vote against the ratification of
the appointment of our independent auditors and a broker non-vote will not have
any effect on the vote.
AUDIT FEES
KPMG LLP's fees for our fiscal 2001 audit were $153,225.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
We did not incur any fees to KPMG LLP in fiscal 2001 with respect to
financial information systems design and implementation services.
ALL OTHER FEES
KPMG LLP's fees for all other professional services rendered to us in
fiscal 2001 were $56,861.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS INDEPENDENT AUDITORS OF SOUTH
TEXAS DRILLING FOR THE YEAR ENDING MARCH 31, 2001.
EXPENSES RELATED TO THIS PROXY SOLICITATION
We will pay all expenses relating to this proxy solicitation. In
addition to this solicitation by mail, our officers, directors and regular
employees may solicit proxies by telephone or personal call without extra
compensation for that activity. We also expect to reimburse banks, brokers and
other persons for reasonable out-of-pocket expenses in forwarding proxy material
to beneficial owners of our common stock and Series B preferred stock and
obtaining the proxies of those owners. We estimate these expenses to be
approximately $7,500.
OTHER INFORMATION
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
Under rules the SEC has established, any shareholder who wishes to have
a qualified proposal considered for inclusion in our proxy statement for our
2002 annual meeting of shareholders must send notice of the proposal to our
Corporate Secretary at our principal executive offices, 9310 Broadway, Bldg I,
San Antonio, Texas 78217, so that we receive that notice by no later than the
close of business on February 20, 2002, unless the date of our 2002 annual
meeting of shareholders is more than 30 days from the anniversary date of our
2001 Annual Meeting of Shareholders in which case the deadline is a reasonable
time before we print and mail our proxy materials for the 2002 annual meeting of
shareholders. If you submit a shareholder proposal, you must provide your name
and address, the number of shares of common stock you hold of record or
beneficially, the date or dates on which you acquired those shares and
documentary support for any claim of beneficial ownership.
32
37
In addition, our bylaws establish an advance notice procedure for
shareholder proposals to be brought before an annual meeting. In general, the
procedure provides that shareholders must submit proposals to us in writing
containing certain information specified in our bylaws not earlier than 180 days
and not less than 90 days prior to the first anniversary of our preceding year's
annual meeting. These requirements are in addition to the SEC's requirements
that a shareholder must comply with to have a shareholder proposal included in
our proxy statement. We have attached a copy of our bylaws as Appendix C to this
proxy statement. Shareholders must deliver the proposals to our Corporate
Secretary at South Texas Drilling & Exploration, 9310 Broadway, Bldg I, San
Antonio, Texas 78217.
OTHER MATTERS
Our Board of Directors does not intend to bring any other matters
before the Annual Meeting and has not been informed that any other matters are
to be presented by others. If any other matters properly come before the Annual
Meeting, the persons named in the enclosed form of proxy will vote all proxies
according to their best judgment. The form of proxy provides that the persons
named as proxies have discretionary authority to vote on matters not known or
determined on the date of this proxy statement.
By Order of the Board of Directors
William D. Hibbetts
Corporate Secretary
San Antonio, Texas
July 20, 2001
33
38
APPENDIX A
SOUTH TEXAS DRILLING & EXPLORATION, INC.
AUDIT COMMITTEE CHARTER
ORGANIZATION
There shall be a committee of the Board of Directors of South Texas Drilling &
Exploration, Inc. (the "Corporation") to be known as the Audit Committee. The
Audit Committee shall be composed of not less than three members of the Board of
Directors who are independent of the management of the Corporation and are free
of any relationship that, in the opinion of the Board of Directors, would
interfere with the exercise of independent judgment as a committee member.
The members of the Audit Committee shall be elected at each annual
organizational meeting of the Board of Directors and serve until (1) the next
annual organizational meeting of the Board of Directors and (2) their successors
are duly elected and qualified. Unless a chairman is elected by the full Board
of Directors, the members of the Audit Committee may designate a chairman by
majority vote of the full Audit Committee membership.
STATEMENT OF POLICY
The Audit Committee shall provide assistance to the corporate directors in
fulfilling their responsibility to the Corporation's stockholders, potential
stockholders and the investment community relating to corporate accounting,
reporting practices of the Corporation and the quality and integrity of the
financial reports of the Corporation. In so doing, it is the responsibility of
the Audit Committee to maintain free and open means of communication between the
directors, the independent auditors and the financial management of the
Corporation.
RESPONSIBILITIES
In carrying out its responsibilities, the Audit Committee's policies and
procedures should remain flexible, in order to permit the Audit Committee to
best react to changing conditions and to ensure to the directors and
stockholders that the corporate accounting and reporting practices of the
Corporation are in accordance with all applicable requirements and are of the
highest quality.
In carrying out these responsibilities, the Audit Committee will:
Review and recommend to the directors the independent auditors to be
selected to audit the consolidated financial statements of the
Corporation and its subsidiaries.
Meet with the independent auditors and financial management of the
Corporation to review the scope of the proposed audit for the current
year and the audit procedures to be utilized, and at the conclusion
thereof review such audit, including any comments or recommendations of
the independent auditors.
Annually approve the fees and other compensation to be paid to the
independent auditors.
Require a formal written statement from the independent auditors
consistent with Independence Standards Board Standard No. 1. The Audit
Committee is responsible for oversight of auditor independence and
shall discuss annually with the independent auditors any relationships
or services that may impact the auditors' independence, and take, or
recommend to the full Board of Directors, actions to ensure that
independence.
Discuss with the independent auditors their judgment about the quality
of the Corporation's accounting principles and the underlying estimates
as required by SAS No. 90, Audit Committee Communications.
Review with the independent auditors and financial and accounting
personnel the adequacy and effectiveness of the accounting and
financial controls of the Corporation, and elicit any recommendations
for the improvement of such internal control procedures or particular
areas where new or more detailed
A-1
39
controls or procedures are desirable. Particular emphasis should be
given to the adequacy of such internal controls to expose any payments,
transactions or procedures that might be deemed illegal or otherwise
improper. Further, the Audit Committee periodically should review the
Corporation's internal policy statements to determine their adherence
to the Corporation's code of conduct.
Review the financial statements contained in the annual report to
stockholders with management and the independent auditors to determine
that the independent auditors are satisfied with the disclosure and
content of the financial statements to be presented to the stockholders
of the Corporation. Any changes in accounting principles should be
reviewed.
Require that the independent auditors communicate to the Audit
Committee (or be satisfied that management has communicated) with
regard to their quarterly reviews any matters of the types described in
SAS No. 61.
Provide sufficient opportunity for the Corporation's independent
auditors to meet with the members of the Audit Committee without
members of management present. Among the items to be discussed in these
meetings are the independent auditors' evaluation of the Corporation's
financial, accounting and auditing personnel and the cooperation that
the independent auditors received during the course of the audit.
Investigate any matter brought to its attention within the scope of its
duties, with the power to retain outside counsel for this purpose if,
in its judgment, that is appropriate.
Review accounting and financial human resources and succession planning
within the Corporation.
Submit the minutes of all meetings of the Audit Committee to, or
discuss the matters discussed at each committee meeting with, the Board
of Directors.
Review this charter periodically, as conditions dictate, but at least
annually, and update this charter if necessary or appropriate.
Perform any other activities consistent with this charter, the
Corporation's articles of incorporation, bylaws and other governing
documents, as the Audit Committee or the Board of Directors deems
necessary or appropriate.
A-2
40
APPENDIX B
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
OF
SOUTH TEXAS DRILLING & EXPLORATION, INC.
Pursuant to and in accordance with the provisions of Article 4.04 of
the Texas Business Corporation Act (the "TBCA"), South Texas Drilling &
Exploration, a Texas corporation (the "Corporation"), hereby adopts the
following Articles of Amendment to its Articles of Incorporation:
ARTICLE I
The name of the Corporation is South Texas Drilling & Exploration.
ARTICLE II
The following amendments to the articles of incorporation were adopted
by the shareholders of the Corporation on ____________ __, 2001.
The amendment to ARTICLE ONE changes the name of the Corporation to
"Pioneer Drilling Company".
The amendment to ARTICLE ONE alters or changes ARTICLE ONE of the
original or amended articles of incorporation and the full text of the provision
altered is as follows:
"ARTICLE ONE
Name
The name of the Corporation is Pioneer Drilling Company."
The amendment to ARTICLE FOUR (1) increases the number of authorized
shares of the Corporation's Common Stock from 30,000,000 to 100,000,000 shares,
(2) increases the number of authorized shares of the Corporation's Preferred
Stock from 1,000,000 to 10,000,000 shares and (3) amends the provisions
authorizing the Corporation's Board of Directors to establish series of unissued
shares of Preferred Stock by fixing and determining the designations,
preferences, limitations, and relative rights, including voting rights, of the
shares of any series so established to the fullest extent provided for in the
Texas Business Corporation Act.
The amendment alters or changes ARTICLE FOUR of the original or amended
articles of incorporation and the full text of the altered provisions is as
follows:
"ARTICLE FOUR
Capital Stock
The aggregate number of shares that the Corporation shall have the
authority to issue, is 110,000,000 shares, consisting of 100,000,000 shares of
common stock, par value $0.10 per share ("Common Stock"), and 10,000,000 shares
of preferred stock, par value $1.00 per share ("Preferred Stock").
The descriptions of the different classes of capital stock of the
Corporation and the preferences, designations, relative rights, privileges and
powers, and the restrictions, limitations and qualifications thereof, of said
classes of stock are as follows:
B-1
41
Division A
The shares of Preferred Stock may be divided into and issued in one or
more series, the relative rights and preferences of which series may vary in any
and all respects. The Board of Directors of the Corporation is hereby vested
with the authority to establish series of Preferred Stock by fixing and
determining all the preferences, limitations and relative rights of the shares
of any series so established, to the extent not provided for in these Articles
of Incorporation or any amendment hereto, and with the authority to increase or
decrease the number of shares within each such series; provided, however, that
the Board of Directors may not decrease the number of shares within a series
below the number of shares within such series that is then issued. The authority
of the Board of Directors with respect to each such series shall include, but
not be limited to, determination of the following:
(1) the distinctive designation and number of shares of that series;
(2) the rate of dividend (or the method of calculation thereof) payable
with respect to shares of that series, the dates, terms and other conditions
upon which such dividends shall be payable, and the relative rights of priority
of such dividends to dividends payable on any other class or series of capital
stock of the Corporation;
(3) the nature of the dividend payable with respect to shares of that
series as cumulative, noncumulative or partially cumulative, and if cumulative
or partially cumulative, from which date or dates and under what circumstances.
(4) whether shares of that series shall be subject to redemption, and,
if made subject to redemption, the times, prices, rates, adjustments and other
terms and conditions of such redemption (including the manner of selecting
shares of that series for redemption if fewer than all shares of such series are
to be redeemed);
(5) the rights of the holders of shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation (which rights may be different if such action is voluntary than if
it is involuntary), including the relative rights of priority in that event as
to the rights of the holders of any other class or series of capital stock of
the Corporation;
(6) the terms, amounts and other conditions of any sinking or similar
purchase or other fund provided for the purchase or redemption of shares of that
series;
(7) whether shares of that series shall be convertible into or
exchangeable for shares of capital stock or other securities of the Corporation
or of any other corporation or entity, and, if provision is made for conversion
or exchange, the times, prices, rates, adjustments and other terms and
conditions of such conversion or exchange;
(8) the extent, if any, to which the holders of shares of that series
shall be entitled (in addition to any voting rights provided by law) to vote as
a class or otherwise with respect to the election of directors of the
Corporation or otherwise;
(9) the restrictions and conditions, if any, upon the issue or reissue
of any additional Preferred Stock ranking on a parity with or prior to shares of
that series as to dividends or upon liquidation, dissolution or winding up;
(10) any other repurchase obligations of the Corporation, subject to
any limitations of applicable law; and
(11) notwithstanding their failure to be included in (1) through (10)
above, any other designations, preferences, limitations or relative rights of
shares of that series.
Any of the designations, preferences, limitations or relative rights (including
the voting rights) of any series of Preferred Stock may be dependent on facts
ascertainable outside these Articles of Incorporation.
B-2
42
Shares of any series of Preferred Stock shall have no voting rights
except as required by law or as provided in the preferences, limitations and
relative rights of that series.
Division B
1. Dividends. Dividends may be paid on the Common Stock out of any
assets of the Corporation available for such dividends, subject to the rights of
all outstanding shares of capital stock ranking senior to the Common Stock in
respect of dividends.
2. Distribution of Assets. In the event of any liquidation, dissolution
or winding up of the Corporation, after there shall have been paid to or set
aside for the holders of capital stock ranking senior to the Common Stock in
respect of rights upon liquidation, dissolution or winding up the full
preferential amounts to which they are respectively entitled, the holders of the
Common Stock shall be entitled to receive, pro rata, all the remaining assets of
the Corporation available for distribution to its shareholders.
3. Voting Rights. The holders of the Common Stock shall be entitled to
one vote per share for all purposes upon which such holders are entitled to
vote.
Division C
1. No Preemptive Rights. No shareholder of the Corporation shall, by
reason of his holding shares of any class or series of capital stock of the
Corporation, have any preemptive or preferential right to acquire or subscribe
for any additional, unissued or treasury shares of any class or series of
capital stock of the Corporation now or hereafter to be authorized, or any
notes, debentures, bonds or other securities convertible into or carrying any
right, option or warrant to subscribe to or acquire shares of any class or
series of capital stock of the Corporation now or hereafter to be authorized,
whether or not the issuance of any such shares, or such notes, debentures, bonds
or other securities, would adversely affect the dividends or voting or other
rights of such shareholder, and the Board of Directors may issue or authorize
the issuance of shares of any class or series of capital stock of the
Corporation, or any notes, debentures, bonds or other securities convertible
into or carrying rights, options or warrants to subscribe to or acquire shares
of any class or series of capital stock of the Corporation, without offering any
such shares, either in whole or in part, to the existing shareholders of any
class or series of capital stock of the Corporation.
2. Share Dividends. Subject to any restrictions in favor of any series
of Preferred Stock provided in the relative rights and preferences of such
series, the Corporation may pay a share dividend in shares of any class or
series of capital stock of the Corporation to the holders of shares of any class
or series of capital stock of the Corporation.
3. No Cumulative Voting. Cumulative voting for the election of
directors is expressly prohibited as to all shares of any class or series of
capital stock of the Corporation."
The amendment to ARTICLE SEVEN changes the structure of the
Corporation's Board of Directors to a classified board divided into three
classes with staggered terms of office and provides that members of the
Corporation's Board of Directors may not be removed except for cause.
The amendment alters or changes Section 1 of ARTICLE SEVEN of the
original or amended articles of incorporation and the full text of the altered
provision is as follows:
"Section 1. Number, Election and Terms of Directors. The number of
directors which will constitute the whole Board of Directors shall be fixed from
time to time by a majority of the directors then in office, subject to an
increase in the number of directors by reason of any provisions contained in or
established pursuant to Article Four, but in any event will not be less than
three. The directors, other than those who may be elected by the holders of any
series of Preferred Stock, will be divided into three classes (with each class
to be as nearly equal in number as possible): Class I, Class II and Class III.
Each director will serve for a term ending on the third annual meeting of the
Corporation's shareholders following the annual meeting at which that director
was elected; provided, however,
B-3
43
that the directors first designated as Class I directors will serve for a term
expiring at the annual meeting of the Corporation's shareholders next following
March 31, 2002, the directors first designated as Class II directors will serve
for a term expiring at the annual meeting of the Corporation's shareholders next
following March 31, 2003, and the directors first designated as Class III
directors will serve for a term expiring at the annual meeting of the
Corporation's shareholders next following March 31, 2004. Each director will
hold office until the annual meeting of the Corporation's shareholders at which
that director's term expires and, the foregoing notwithstanding, will serve
until his successor shall have been duly elected and qualified or until his
earlier death, resignation or removal.
At each annual meeting of the Corporation's shareholders, the directors
elected to succeed those whose terms then expire will be of the same class as
the directors they succeed, unless, by reason of any intervening changes in the
authorized number of directors, the Board of Directors shall have designated one
or more directorships whose term then expires as directorships of another class
in order more nearly to achieve equality of number of directors among the
classes.
In the event of any change in the authorized number of directors, each
director then continuing to serve as such will nevertheless continue as a
director of the class of which he is a member until the expiration of his
current term, or his prior death, resignation or removal. Subject to the
applicable provisions of the Texas Business Corporation Act, as amended, the
Board of Directors will specify the class to which a newly created directorship
will be allocated."
Election of directors need not be by written ballot unless the Bylaws
of the Corporation so provide.
The amendment also alters or changes Section 3 of ARTICLE SEVEN of the
original or amended articles of incorporation and the full text of the altered
provision is as follows:
"Section 3. Removal of Directors. No director of the Corporation may be
removed from office as a director by vote or other action of the shareholders or
otherwise except for cause, and then only by the affirmative vote of the holders
of at least a majority of the votes of all outstanding shares of capital stock
of the Corporation generally entitled to vote in the election of directors,
voting together as a single class, at a meeting of shareholders called expressly
for that purpose. Except as applicable law otherwise provides, cause for the
removal of a director will be deemed to exist only if the director whose removal
is proposed: (i) has been convicted, or has been granted immunity to testify in
any proceeding in which another has been convicted, of a felony by a court of
competent jurisdiction and that conviction is no longer subject to direct
appeal; (ii) has been found to have been grossly negligent or guilty of
misconduct in the performance of his duties to the Corporation in any matter of
substantial importance to the Corporation by (A) the affirmative vote of a
majority of the Directors then in office at any meeting of the Board of
Directors called for that purpose or (B) a court of competent jurisdiction; or
(iii) has been adjudicated by a court of competent jurisdiction to be mentally
incompetent and such mental incompetency directly affects his ability to serve
as a director of the Corporation. Notwithstanding the foregoing, whenever
holders of outstanding shares of one or more series of Preferred Stock are
entitled to elect members of the Board of Directors pursuant to the provisions
applicable in the case of arrearages in the payment of dividends or other
defaults established by the Board of Directors with respect to any series of
Preferred Stock pursuant to the provisions of Article Four, any such director of
the Corporation so elected may be removed in accordance with the provisions
established by the Board of Directors with respect to that series."
The amendment to ARTICLE EIGHT deletes the specific indemnification
requirements with respect to the Corporation's directors, officers and
employees.
The amendment alters or changes ARTICLE EIGHT of the original or
amended articles of incorporation and the full text of the altered provision is
as follows:
B-4
44
"ARTICLE EIGHT
Indemnification
The Corporation shall have the power to (and the Board of Directors
shall have the authority to cause the Corporation to) indemnify each of its
directors, officers, employees and agents, and each person who is or was serving
at the request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another foreign
or domestic corporation, an employee benefit plan or any other enterprise or
other entity, to the fullest extent permitted by applicable law. Any repeal or
modification of any provision of the bylaws of the Corporation providing for
indemnification of any of such persons shall not adversely affect any right or
protection of such person existing pursuant to those bylaws with respect to any
act or omission occurring prior to the time of such repeal or modification. The
Corporation shall also have the power to (and the Board of Directors shall have
the authority to cause the Corporation to) purchase and maintain insurance on
behalf of any such person, whether or not such person is then serving, against
any liability asserted against such person in any such capacity, or arising out
of such person's status as such, whether or not the Corporation would have the
power to indemnify such person against such liability under the Texas Business
Corporation Act, as amended."
The amendment to ARTICLE NINE makes the provisions relating to
contracts or transactions the Corporation may enter into with its directors or
officers consistent with the provisions of Article 2.35-1 of the Texas Business
Corporation Act.
The amendment alters or changes ARTICLE NINE of the original or amended
articles of incorporation and the full text of the altered provision is as
follows:
"ARTICLE NINE
Transactions with the Corporation
Any contract or transaction between the Corporation and one or more of
its directors or officers, or between the Corporation and any other domestic or
foreign corporation or other entity in which one or more of its directors or
officers are directors or officers or have a financial interest, shall be valid
notwithstanding whether the director or officer is present at or participates in
the meeting of the Board of Directors of the Corporation or committee thereof
which authorizes the contract or transaction, or solely because his or their
votes are counted for such purpose, if any one of the following is satisfied:
(1) the material facts as to his or their relationships or
interests and as to the contract or transaction are disclosed
or are known to the Board of Directors of Corporation or a
committee thereof, and the Board of Directors or such
committee in good faith authorizes the contract or transaction
by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors be less
than a quorum; or
(2) the material facts as to his or their relationships or
interests and as to the contract or transaction are disclosed
or are known to the shareholders entitled to vote thereon, and
the contract or transaction is specifically approved in good
faith by vote of the shareholders of the Corporation; or
(3) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the
Board of Directors of the Corporation, a committee thereof or
the shareholders of the Corporation."
No director or officer of the Corporation shall be liable to account to the
Corporation for any profits realized by, from or through any contract or
transaction by reason of any interest therein when that contract or transaction
has been authorized or ratified in accordance with the foregoing provisions of
this Article Nine. This Article Nine shall
B-5
45
not be construed to invalidate any contract or transaction which would otherwise
be valid in the absence of the provisions hereof."
The amendment to ARTICLE ELEVEN conforms the limitation on a director's
liability to the provisions of Article 1302-7.06 of the Texas Miscellaneous
Corporation Laws Act.
The amendment alters or changes ARTICLE ELEVEN of the original or
amended articles of incorporation and the full text of the altered provision is
as follows:
"ARTICLE ELEVEN
Limitation of Liability
No director of the Corporation shall have any liability to the
Corporation or any of its shareholders for monetary damages for any act or
omission in the director's capacity as a director of the Corporation, except
that nothing in this Article Eleven shall eliminate or limit the liability of a
director to the extent the director is found liable for: (1) a breach of the
director's duty of loyalty to the Corporation or its shareholders; (2) an act or
omission not in good faith that constitutes a breach of duty of the director to
the Corporation or an act or omission that involves intentional misconduct or a
knowing violation of the law; (3) a transaction from which the director received
an improper benefit, whether or not the benefit resulted from an action taken
within the scope of the director's office; or (4) an act or omission for which
the liability of a director is expressly provided by an applicable statute. If
the Texas Miscellaneous Corporation Laws Act, as amended, or the Texas Business
Corporation Act, as amended, is hereafter amended so as to authorize action
further eliminating or limiting the liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by such statutes, as so amended. The provisions of this Article
Eleven shall not be deemed to limit or preclude indemnification of a director by
the Corporation for any liability of a director which has not been eliminated or
limited by the provisions of this Article Eleven. Any repeal or modification of
this Article Eleven shall be prospective only and shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification."
The amendment to add ARTICLE TWELVE increases the minimum percentage
of the outstanding shares of the Corporation's capital stock necessary to call a
special meeting of the Corporation's shareholders from 10% to 50%.
The amendment to add ARTICLE TWELVE is an addition to the original or
amended articles of incorporation and the full text of the added provision is as
follows:
"ARTICLE TWELVE
Special Meetings of Shareholders
Special meetings of shareholders of the Corporation may be called by
the Corporation's chairman of the board or president or the Board of Directors.
Subject to the provisions of the Corporation's bylaws governing special
meetings, holders of not less than 50% of the outstanding shares of capital
stock of the Corporation entitled to vote at the proposed special meeting may
also call a special meeting of shareholders of the Corporation by furnishing the
Corporation a written request which states the purpose or purposes of the
proposed meeting in the manner set forth in the bylaws."
ARTICLE III
The number of shares of the Corporation outstanding at the time of the
adoption of the amendments was ___________ shares of Common Stock and 184,615
shares of Series B Preferred Stock; and the number of shares entitled to vote on
each of the amendments was _____________ shares of Common Stock and __________
shares of Series B Preferred Stock.
B-6
46
The designation and number of outstanding shares of each class entitled
to vote as a class on the amendments to ARTICLE ONE, ARTICLE SEVEN, ARTICLE
EIGHT, ARTICLE NINE and ARTICLE ELEVEN and to add ARTICLE TWELVE were as
follows:
Class Number of Shares
----- ----------------
Series B Preferred Stock 184,615
The designation and number of outstanding shares of each class entitled
to vote as a class on the amendment to ARTICLE FOUR was as follows:
Class Number of Shares
----- ----------------
Series B Preferred Stock 184,615
Common Stock
ARTICLE IV
The number of votes for the amendment to ARTICLE ONE was ___________
and the number of votes against the amendment to ARTICLE ONE was ____________.
The number of shares of each class voted for and against the amendment
to ARTICLE ONE was:
Number of
Class Shares Voted For Against
----- ------------ --- -------
Series B Preferred Stock
The number of votes for the amendment to ARTICLE FOUR was ___________
and the number of votes against the amendment to ARTICLE FOUR was ____________.
The number of shares of each class voted for and against the
amendment to ARTICLE FOUR was:
Number of
Class Shares Voted For Against
----- ------------ --- -------
Series B Preferred Stock
Common Stock
The number of votes for the amendment to ARTICLE SEVEN was ___________
and the number of votes against the amendment to ARTICLE SEVEN was ____________.
B-7
47
The number of shares of each class voted for and against the amendment
to ARTICLE SEVEN was:
Number of
Class Shares Voted For Against
----- ------------ --- -------
Series B Preferred Stock
The number of votes for the amendment to ARTICLE EIGHT was ___________
and the number of votes against the amendment to ARTICLE EIGHT was ____________.
The number of shares of each class voted for and against the amendment
to ARTICLE EIGHT was:
Number of
Class Shares Voted For Against
----- ------------ --- -------
Series B Preferred Stock
The number of votes for the amendment to ARTICLE NINE was ___________
and the number of votes against the amendment to ARTICLE NINE was ____________.
The number of shares of each class voted for and against the amendment
to ARTICLE NINE was:
Number of
Class Shares Voted For Against
----- ------------ --- -------
Series B Preferred Stock
The number of votes for the amendment to ARTICLE ELEVEN was ___________
and the number of votes against the amendment to ARTICLE ELEVEN was ___________.
The number of shares of each class voted for and against the amendment
to ARTICLE ELEVEN was:
Number of
Class Shares Voted For Against
----- ------------ --- -------
Series B Preferred Stock
The number of votes for the amendment to add ARTICLE TWELVE
was ___________ and the number of votes against the amendment to add
ARTICLE TWELVE was ___________.
B-8
48
The number of shares of each class voted for and against the amendment
to add ARTICLE TWELVE was:
Number of
Class Shares Voted For Against
----- ------------ --- -------
Series B Preferred Stock
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to the Articles of Incorporation to be duly executed as of the ____
day of ___________, 2001.
SOUTH TEXAS DRILLING & EXPLORATION, INC.
By:
-------------------------------------
Name:
Title:
B-9
49
APPENDIX C
AMENDED AND RESTATED
BYLAWS
OF
SOUTH TEXAS DRILLING & EXPLORATION, INC.
The following Amended and Restated Bylaws, adopted by the Board of
Directors of South Texas Drilling & Exploration, Inc. (the "Corporation") as of
July 1, 2001 (these "Bylaws"), shall govern the business of the Corporation,
unless and until such time as these Bylaws may be amended pursuant to the
provisions hereof:
ARTICLE I
CAPITAL STOCK
Section 1. Certificates Representing Shares. The Corporation shall
deliver certificates representing shares of capital stock of the Corporation to
which holders of its capital stock (each a "Shareholder") are entitled. Such
certificates shall be signed by the Chief Executive Officer, the President or a
Vice President of the Corporation and either the Secretary or an Assistant
Secretary of the Corporation, and shall bear the seal of the Corporation or a
facsimile thereof. The signature of any such officer on any such share
certificate may be facsimile. In case any officer who has signed or whose
facsimile signature has been placed on any such share certificate shall have
ceased to be such officer before such certificate is issued, it may be issued by
the Corporation with the same effect as if he were such officer at the date of
its issuance.
Section 2. Shareholders of Record. The Board of Directors of the
Corporation (the "Board of Directors") may appoint one or more transfer agents
or registrars of any class of capital stock of the Corporation. Unless and until
such appointment is made, the Secretary of the Corporation shall maintain, among
other records, a stock transfer book, the stubs in which shall set forth the
names and addresses of the holders of all issued shares of capital stock of the
Corporation, the number of shares held by each, the certificate numbers
representing those shares, the dates of issue of the certificates representing
those shares, and whether those shares were issued in connection with original
issuances or as a result of transfers. The names and addresses of Shareholders
as they appear on the stock transfer book shall be the official list of
Shareholders of record for all purposes. The Corporation shall be entitled to
treat the holder of record of any shares of capital stock of the Corporation as
the owner thereof for all purposes and shall not be bound to recognize any
equitable or other claim to, or interest in, those shares or any rights deriving
from those shares, on the part of any other person, including, without
limitation, a purchaser, assignee or transferee, unless and until that other
person becomes the holder of record of those shares, whether or not the
Corporation shall have either actual or constructive notice of the interest of
that other person.
Section 3. Transfer of Shares. Shares of capital stock of the
Corporation shall be transferable on the stock transfer books of the Corporation
by the holder of record thereof, or his duly authorized attorney or legal
representative, upon endorsement and surrender for cancellation of the
certificates for such shares. All certificates surrendered for transfer shall be
canceled, and no new certificate shall be issued until a former certificate or
certificates for a like number of shares shall have been surrendered and
canceled, except that in the case of a lost, destroyed or mutilated certificate,
a new certificate may be issued therefor upon such conditions as the Board of
Directors or the Secretary or any other officer of the Corporation may prescribe
for the protection of the Corporation and any transfer agent or registrar
appointed by the Board of Directors under Section 2 of this Article I.
C-1
50
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings. All meetings of Shareholders shall be
held at the registered office of the Corporation, or at such other place within
or without the State of Texas as may be designated by the Board of Directors or
the officer of the Corporation calling the meeting.
Section 2. Annual Meeting. Annual meetings of the Shareholders shall be
held during each calendar year on a date and at a time designated by the Board
of Directors, and on any subsequent day or days to which such meeting may be
adjourned, for the purposes of electing directors of the Corporation (each, a
"Director") and of transacting such other business as may properly come before
the meeting. Failure to designate a time for the annual meeting or to hold the
annual meeting at the designated time shall not work a dissolution of the
Corporation.
Section 3. Special Meetings. Special meetings of the Shareholders may
be called by the Board of Directors or the Chairman of the Board, the Chief
Executive Officer or the President of the Corporation. Special meetings of
Shareholders shall be called by the President or the Secretary of the
Corporation on the written request of the holders of shares of capital stock of
the Corporation constituting at least the percentage of outstanding shares of
capital stock of the Corporation entitled to vote at such meeting that the
Articles of Incorporation specify as the minimum percentage necessary to call a
special meeting of the Shareholders (or in the absence of such specification,
the minimum percentage necessary to call a special meeting that the TBCA (as
Section 4 of this Article II defines that term) specifies). Such request shall
state the purpose or purposes of that meeting and the matters proposed to be
acted on at that meeting. Upon receipt of such request and any related notice
required by Sections 8 and/or 9 of this Article II, the Board of Directors shall
set a date for the special meeting, set a record date in accordance with Section
5 of this Article II, and shall cause an appropriate officer of the Corporation
to give the notice required under Section 4 of this Article II. This Section 3
shall be subject to the rights, if any, of holders of any class or series of
capital stock of the Corporation to call special meetings.
Section 4. Notice of Meeting. Written notice of all meetings of the
Shareholders stating the place, day and hour of the meeting and, in the case of
a special meeting, the purpose or purposes for which the meeting is called
(which may include, in the case of any special meeting called at the written
request of Shareholders pursuant to the provisions of Section 3 of this Article
II, any purpose or purposes (in addition to the purpose or purposes stated by
the requesting Shareholders pursuant to Section 3 of this Article II) as the
Board of Directors may determine), shall be delivered not less than 10 nor more
than 60 days before the date of the meeting, either personally or by mail, by or
at the direction of the President or the Secretary of the Corporation or the
other officer or person calling the meeting, to each Shareholder entitled to
vote at such meeting unless the Board of Directors is seeking Shareholder
approval of a plan of merger or exchange, in which case notice shall be
delivered not less than 20 nor more than 60 days before the meeting to all
Shareholders, whether or not entitled to vote. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail addressed to a
Shareholder at his address as it appears on the stock transfer books of the
Corporation, with postage thereon prepaid. Any notice required to be given to
any Shareholder under any provision of the Texas Business Corporation Act, as
from time to time amended (the "TBCA"), the Articles of Incorporation of the
Corporation (as amended from time to time and including each statement
respecting any class or series of preferred stock of the Corporation which has
been filed by the Corporation in accordance with the provisions of Article 2.13
of the TBCA, the "Articles of Incorporation") or these Bylaws need not be given
to the Shareholder if (1) notice of two consecutive annual meetings and all
notices of meetings held during the period between those annual meetings, if
any, or (2) all (but in no event less than two) payments (if sent by first class
mail) of distributions or interest on securities during a 12-month period have
been mailed to that person, addressed at his address as shown on the stock
transfer books of the Corporation, and have been returned undeliverable. Any
action or meeting taken or held without notice to such a person shall have the
same force and effect as if the notice had been duly given. If such a person
delivers to the Corporation a written notice setting forth his then current
address, the requirement that notice be given to that person shall be
reinstated.
Section 5. Fixing of Record Date. The Board of Directors shall fix and
shall have the exclusive authority to fix, in advance, a date as the record date
for the purpose of determining Shareholders entitled to notice of or to vote at
any annual or special meeting of Shareholders or any adjournment thereof, or
Shareholders entitled to receive a distribution by the Corporation (other than a
distribution involving a purchase or redemption by the
C-2
51
Corporation of any of its own shares) or a share dividend, or in order to make a
determination of Shareholders for any other proper purpose. Such date, in any
case, shall be not more than 60 days, and in the case of a meeting of
Shareholders not less than 10 days (20 days if the Shareholders will be asked to
vote on a plan of merger or exchange at that meeting), prior to the date on
which the particular action requiring such determination of Shareholders is to
be taken.
Section 6. Voting List. The officer or agent having charge of the stock
transfer books of the Corporation shall make, at least 10 days before each
meeting of Shareholders, a complete list of the Shareholders entitled to vote at
such meeting or any adjournment thereof, arranged in alphabetical order, with
the address of and the number of shares held by each, which list, for a period
of 10 days prior to such meeting, shall be kept on file at the registered office
of the Corporation and shall be subject to inspection by any Shareholder at any
time during usual business hours. Such list shall also be produced and kept open
at the time and place of the meeting and shall be subject to the inspection of
any Shareholder during the whole time of the meeting. The original stock
transfer books shall be prima facie evidence as to who are the Shareholders
entitled to examine such list or transfer books or to vote at any meeting of
Shareholders. Failure to comply with any requirements of this Section 6 shall
not affect the validity of any action taken at such meeting.
Section 7. Voting; Proxies. Except to the extent otherwise provided in
the Articles of Incorporation, each Shareholder entitled to vote shall be
entitled to one vote for each such share, either in person or by proxy executed
in writing by him or by his duly authorized attorney-in-fact. If any written
proxy designates two or more persons to act as proxies for any meeting of
Shareholders, a majority of those persons present at the meeting of Shareholders
shall have and may exercise all the powers that written proxy confers on all the
persons it so designates, unless that proxy provides otherwise. No proxy shall
be valid after 11 months from the date of its execution unless otherwise
provided in the proxy. Each proxy shall be revocable unless the proxy form
conspicuously states that the proxy is irrevocable and the proxy is coupled with
an interest.
Section 8. Nomination of Directors. (a) Subject to such rights of the
holders of any class or series of the Corporation's capital stock as the
Articles of Incorporation may prescribe, only persons who are nominated in
accordance with the procedures this Section 8 sets forth will be eligible for
election by Shareholders as Directors. Nominations of persons for election to
the Board of Directors may be made at any meeting of Shareholders at which
Directors are to be elected: (1) by or at the direction of the Board of
Directors or any committee of the Board of Directors which the Board of
Directors has duly designated and empowered to nominate persons for election as
Directors; or (2) by any Shareholder who (A) is a Shareholder of record at the
time that Shareholder gives the notice this Section 8 specifies below, (B) will
be entitled to vote at that meeting in the election of the Director for whom
that Shareholder is making the nomination and (C) complies with this Section 8.
(b) For a Shareholder to bring any nomination of a person for
election as a Director properly before any meeting of Shareholders, that
Shareholder must have given timely notice of that nomination (a "Nomination
Notice") in proper written form to the Secretary of the Corporation. To be
timely, a Shareholder's Nomination Notice must be delivered to the Secretary of
the Corporation, or mailed and received by the Secretary of the Corporation, at
the principal offices of the Corporation: (1) if it relates to an election at
any annual meeting of Shareholders, not later than the close of business on the
90th day and not earlier than the 180th day prior to the first anniversary of
the preceding year's annual meeting; provided, however, that, if the date of the
pending annual meeting is more than 30 days before or more than 60 days after
that anniversary date, that Nomination Notice will be timely if it is so
delivered not later than the last to occur of the close of business on (A) the
90th day prior to the pending annual meeting or (B) the 10th day following the
day on which the Corporation first makes a public announcement of the date of
the pending annual meeting; and (2) if it relates to any special meeting of
Shareholders, and the notice given of that meeting under the provisions of
Section 4 of this Article II states that Directors will be elected at that
meeting, not earlier than 180 days prior to that special meeting and not later
than the last to occur of the close of business on (A) the 90th day prior to
that special meeting or (B) the 10th day following the day on which the
Corporation first makes a public announcement of the date of that special
meeting. The public disclosure of an adjournment of any annual or special
meeting will not in any event commence a new time period for the giving of any
Nomination Notice.
(c) To be in proper written form, any Nomination Notice of a
Shareholder must: (1) set forth (A) as to each person whom that Shareholder
proposes to nominate for election as a Director, (i) the name, age and
C-3
52
business address of that person, (ii) the principal occupation or employment of
that person, (iii) the class or series and number of shares of capital stock of
the Corporation which that person owns beneficially or of record and (iv) all
other information, if any, relating to that person which Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations thereunder would require the Corporation or that Shareholder to
disclose in a proxy statement or any other filing in connection with
solicitations of proxies for an election of directors and (B) as to that
Shareholder and the beneficial owner, if any, of capital stock of the
Corporation on whose behalf the nomination is being made, (i) the name and
address of that Shareholder as they appear in the stock records of the
Corporation and the name and address of that beneficial owner, (ii) the class or
series and the number of shares of capital stock of the Corporation which that
Shareholder and that beneficial owner each owns beneficially or of record, (iii)
a description of all arrangements and understandings between that Shareholder or
that beneficial owner and each proposed nominee of that Shareholder and any
other person or persons (including their names) pursuant to which the
nomination(s) are to be made by that Shareholder, (iv) a representation by that
Shareholder that he intends to appear in person or by proxy at that meeting to
nominate the person(s) named in that Nomination Notice, (v) a representation
whether the Shareholder or the beneficial owner, if any, intends or is part of a
group which intends (x) to deliver a proxy statement and/or form of proxy to
holders of at least the percentage of the Corporation's outstanding capital
stock required to elect the nominee and/or (y) to otherwise solicit proxies from
Shareholders in support of such nomination and (vi) all other information, if
any, relating to that Shareholder and that beneficial owner which Section 14 of
the Exchange Act and the rules and regulations thereunder would require the
Corporation or that Shareholder to disclose in a proxy statement or any other
filing in connection with solicitations of proxies for an election of directors;
and (2) be accompanied by a written consent of each person that Shareholder
proposes to nominate for election as a Director to be named as such a nominee
and to serve as a Director if elected. The Corporation may require any proposed
nominee to furnish such other information as it may reasonably request to
determine the eligibility of such proposed nominee to serve as a Director.
(d) Except as the Articles of Incorporation, these Bylaws or
applicable law otherwise provides, the chairman of any meeting of Shareholders
at which Directors are to be elected will have the power and duty to determine
whether nominations of persons for election as Directors have been made in
accordance with the procedures this Section 8 sets forth (including whether the
Shareholder or beneficial owner, if any, on whose behalf the nomination is made
solicited (or is part of a group which solicited) or did not so solicit, as the
case may be, proxies in support of such Shareholder's nominee in compliance with
such Shareholder's representation as clause (c)(1)(B)(v) of this Section 8
requires) and, if that chairman determines that any such nomination has not been
made in compliance with these procedures, to declare to that meeting that such
nomination is defective and will be disregarded. Notwithstanding the foregoing
provisions of this Section 8, if the Shareholder (or a qualified representative
of the Shareholder) does not appear at the annual or special meeting of the
Shareholders to present a nomination, such nomination shall be disregarded,
notwithstanding that proxies in respect of such vote may have been received by
the Corporation.
(e) Notwithstanding anything in Section 8(b) to the contrary, if
the number of Directors to be elected at an annual meeting of Shareholders is
increased and the Corporation has not made a public announcement at least 100
days prior to the first anniversary of the preceding year's annual meeting of
Shareholders, which announcement (1) names all the nominees for Director or (2)
specifies the size of the increased Board of Directors, a Shareholder's
Nomination Notice will be timely, but only with respect to nominees for any new
positions that increase creates, if that Nomination Notice is delivered to the
Secretary of the Corporation, or mailed and received by the Secretary of the
Corporation at, the principal offices of the Corporation not later than the
close of business on the 10th day following the day on which the Corporation
first makes that public announcement.
(f) For purposes of this Section 8 and Section 9 of this Article
II, "public announcement" means disclosure in a press release the Dow Jones News
Service, Associated Press or any comparable national news service in the United
States reports or in a document the Corporation publicly files with the
Securities and Exchange Commission under the Exchange Act.
(g) Notwithstanding the foregoing provisions of this Section 8,
a Shareholder also must comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters this
Section 8 sets forth.
C-4
53
Section 9. Other Shareholder Business. (a) At any annual meeting the
Corporation holds pursuant to Section 2 of this Article II, the Shareholders
will transact only such business, in addition to the election of Directors, as
has been properly brought before that meeting. Except as the Articles of
Incorporation otherwise provides, to be brought properly before any annual
meeting, business other than the election of Directors ("Other Business") must
be (1) business the notice of that meeting (or any supplement thereto) given by
or at the direction of the Board of Directors specifies, (2) business otherwise
properly brought before that meeting by or at the direction of the Board of
Directors and (3) business (A) properly brought before that meeting by a
Shareholder who (i) is a Shareholder of record at the time that Shareholder
gives the notice this Section 9 specifies below, (ii) will be entitled to vote
on that business at that meeting and (iii) complies with this Section 9, (B)
that is a proper subject for Shareholder action and (C) is properly introduced
at that meeting.
(b) For a Shareholder to bring any Other Business properly
before any annual meeting of Shareholders, that Shareholder must have given
timely notice thereof (a "Business Notice") in proper written form to the
Secretary of the Corporation. To be timely, a Shareholder's Business Notice must
be delivered to the Secretary of the Corporation, or mailed and received by the
Secretary of the Corporation at, the principal offices of the Corporation not
later than the close of business on the 90th day and not earlier than the 180th
day prior to the first anniversary of the preceding year's annual meeting;
provided, however, that, if the date of the pending annual meeting is more than
30 days before or more than 60 days after that anniversary date, that Business
Notice will be timely if it is so delivered not later than the last to occur of
the close of business on (1) the 90th day prior to that pending annual meeting
or (2) the 10th day following the day on which the Corporation first makes a
public announcement of the date of the pending meeting. The public disclosure of
an adjournment of any annual meeting will not in any event commence a new time
period for the giving of any Business Notice.
(c) To be in proper written form, any Business Notice of a
Shareholder must set forth: (1) as to each matter of Other Business that
Shareholder proposes to bring before an annual meeting, (A) a brief description
of that Other Business, (B) the text of the proposal or business (including the
text of any resolutions proposed for consideration and, in the event that such
business includes a proposal to amend the Articles of Incorporation or these
Bylaws, the language of the proposed amendment), (C) the reasons for conducting
that Other Business at an annual meeting and (D) each material interest in that
Other Business of that Shareholder and the beneficial owner, if any, of capital
stock of the Corporation on whose behalf that proposal is being made; and (2) as
to that Shareholder and each such beneficial owner, (A) the name and address of
that Shareholder as they appear on the Corporation's books and the name and
address of that beneficial owner, (B) the class or series and the number of
shares of capital stock of the Corporation which that Shareholder and that
beneficial owner each owns beneficially or of record, (C) a description of all
arrangements and understandings between that Shareholder or that beneficial
owner and any other person or persons (including their names) in connection with
that Other Business, (D) a representation by that Shareholder that he intends to
appear in person or by proxy at that meeting to bring that Other Business before
that meeting and (E) a representation whether the Shareholder or the beneficial
owner, if any, intends or is part of a group which intends (i) to deliver a
proxy statement and/or form of proxy to holders of at least the percentage of
the Corporation's outstanding capital stock required to approve or adopt the
proposal and/or (ii) otherwise to solicit proxies from Shareholders in support
of such proposal. The foregoing notice requirements shall be deemed satisfied by
a Shareholder if the Shareholder has notified the Corporation of his intention
to present a proposal at an annual meeting in compliance with Rule 14a-8 (or any
successor thereof) promulgated under the Exchange Act and such Shareholder's
proposal has been included in a proxy statement that has been prepared by the
Corporation to solicit proxies for that annual meeting.
(d) Except as applicable law otherwise provides, the chairman of
any annual meeting of Shareholders will have the power and duty to determine
whether proposals by Shareholders of any Other Business to be brought before
that meeting have been made in accordance with the procedures this Section 9
sets forth (including whether the Shareholder or beneficial owner, if any, on
whose behalf the proposal is made solicited (or is part of a group which
solicited) or did not so solicit, as the case may be, proxies in support of such
Shareholder's proposal in compliance with such Shareholder's representation as
clause (c)(2)(E) of this Section 9 requires) and, if that chairman determines
that any such proposal has not been made in compliance with these procedures, to
declare to that meeting that such proposal is defective and will be disregarded.
(e) At any special meeting the Corporation holds pursuant to
Section 3 of this Article II, the Shareholders will transact only such business
as (1) the notice given of that meeting under the provisions of Section
C-5
54
4 of this Article II sets forth and (2) constitutes matters incident to the
conduct of that meeting as the chairman of that meeting determines to be
appropriate.
(f) Notwithstanding the foregoing provisions of this Section 9,
a Shareholder also must comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters this
Section 9 sets forth.
Section 10. Quorum and Required Vote. The holders of a majority of the
issued and outstanding shares of capital stock of the Corporation entitled to
vote at a meeting of Shareholders, represented in person or by proxy, shall
constitute a quorum as to any matter to be presented at that meeting, but, if a
quorum is not present or represented, a majority in interest of those present or
represented may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. Unless otherwise provided in the Articles of Incorporation,
Directors that are elected by Shareholders shall be elected by a plurality of
the votes cast by the holders of shares of capital stock of the Corporation
entitled to vote in the election of Directors at a meeting of Shareholders at
which a quorum is present. With respect to any other matter, except for any
matter for which the affirmative vote of the holders of a specified portion of
the shares entitled to vote is required by the TBCA, the Articles of
Incorporation or these Bylaws, the affirmative vote of the holders of a majority
of the shares of capital stock of the Corporation entitled to vote on, and that
voted for or against or expressly abstained with respect to, that matter at a
meeting of Shareholders at which a quorum is present shall be the act of the
Shareholders.
Section 11. Officers. The Chief Executive Officer of the Corporation
shall, if present, preside at and be the chairman of, and the Secretary of the
Corporation shall keep the records of, each meeting of Shareholders. In the
absence, or failure or refusal to perform, of either such officer, his duties
shall be performed by another officer of the Corporation appointed by the Board
of Directors or appointed at the meeting.
Section 12. Conduct of Meetings. At each meeting of the Shareholders,
the manner of voting shall be by ballot, by voice vote or by a showing of hands,
at the discretion of the chairman of the meeting. The chairman of a meeting of
Shareholders shall have the power to appoint inspectors of election and to
establish and interpret rules and regulations for the conduct of the meeting.
Those rules and regulations may include, without limitation, the following: (1)
the establishment of an agenda or order of business for the meeting; (2) rules
and procedures for maintaining order at the meeting and the safety of those
present; (3) limitations on attendance at or participation in the meeting to
Shareholders of record, their duly authorized and constituted proxies or such
other persons as the chairman of the meeting may determine; (4) restrictions on
entry to the meeting after the time fixed for the commencement thereof; and (5)
limitations on the time allotted to questions or comments by participants.
Except to the extent the chairman of any meeting otherwise prescribes, no rules
of parliamentary procedure will govern any meeting of Shareholders.
ARTICLE III
DIRECTORS
Section 1. Authority of Directors; Number; Qualifications. The business
and affairs of the Corporation shall be managed under the direction of the Board
of Directors, which may exercise all powers of the Corporation and do all lawful
acts and things on behalf of the Corporation, except for those powers or acts
that applicable law, the Articles of Incorporation or these Bylaws require the
Shareholders to exercise or do. As of the date of the adoption of these Bylaws,
the Board of Directors consists of six Directors. Subject to any limitations
contained in the Articles of Incorporation, the number of Directors may be
increased or decreased from time to time by resolution of the Board of Directors
or by due election of that number of Directors by the Shareholders, but no
decrease shall have the effect of shortening the term of any incumbent Director.
Directors need not be residents of the State of Texas or Shareholders.
Section 2. Chairman of the Board; Order of Business. The Board of
Directors, in its discretion, may elect from the Directors a Chairman of the
Board, who, if present, shall preside at meetings of the Board of
C-6
55
Directors. The Board of Directors will transact business at its meetings in such
order as the Chairman of the Board or the Board of Directors by resolution shall
determine.
Section 3. Vacancies. Any vacancy occurring in the Board of Directors
or any directorship to be filled by reason of an increase in the number of
Directors may be filled by election at an annual or special meeting of
Shareholders called for that purpose or by the affirmative vote of a majority of
the remaining Directors, though less than a quorum of the whole Board of
Directors; provided, however, that any directorship to be filled by the Board of
Directors by reason of an increase in the number of Directors may be filled for
a term of office continuing only until the next election of one or more
Directors by the Shareholders; and provided, further, that the Board of
Directors may not fill more than two directorships to be filled by reason of an
increase in the number of Directors during the period between any two successive
annual meetings of Shareholders. Subject to the foregoing, a Director elected to
fill a vacancy shall be elected for the unexpired term of his predecessor in
office. The provisions of this Section 3 shall be subject to the rights, if any,
of holders of any class or series of capital stock of the Corporation to elect
Directors and remove Directors elected by them and to fill any vacancy in any
such directorship.
Section 4. Place of Meeting. Meetings of the Board of Directors may be
held either within or without the State of Texas, at whatever place is specified
by the person or persons calling the meeting (except that, in the case of the
annual meeting of the Board of Directors, the place of the meeting shall be as
provided in Section 5 of this Article III).
Section 5. Regular Meetings. The Board of Directors shall meet each
year immediately following the annual meeting of the Shareholders, at the place
of such meeting, for the transaction of such business as may properly be brought
before it. No notice of annual meetings need be given to either existing or
newly elected members of the Board of Directors. Regular meetings may be held at
such other times as shall be designated from time to time by the Board of
Directors.
Section 6. Special Meetings. Special meetings of the Board of Directors
may be held at any time upon the call of the Chairman of the Board or the Chief
Executive Officer of the Corporation or a majority of the Directors. Notice of
special meetings shall be given to each Director, and may be given by any of the
following methods: (1) by mail or telegram sent to the last known business or
residence address of such Director at least four days before the meeting or (2)
by facsimile to the last known business or residence facsimile number of such
Director transmitted at least two days before the meeting. For purposes of the
foregoing sentence, notice shall be deemed given (1) by mail, when deposited in
the U.S. mail, postage prepaid, or by telegram, when the telegram is delivered
to the telegraph company for transmittal and (2) by facsimile, when transmittal
is confirmed by the sending facsimile machine. In calculating the number of
days' notice received by a Director, the date the notice is given by any of the
foregoing methods shall be counted, but the date of the meeting to which the
notice relates shall not be counted. Notice of the time, place and purpose of a
special meeting may be waived in writing before or after such meeting, and shall
be equivalent to the giving of notice. Attendance of a Director at such meeting
shall also constitute a waiver of notice thereof, except where the Director
attends for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened. Except as
otherwise herein provided, neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
Section 7. Quorum. Subject to the requirements of applicable law, a
majority of the number of Directors fixed in the manner provided in these Bylaws
as from time to time amended shall constitute a quorum for the transaction of
business, but a smaller number may adjourn any duly called meeting of the Board
of Directors from time to time until they can secure the attendance of a quorum.
The act of a majority of the Directors present at any meeting of the Board of
Directors at which a quorum is present shall be the act of the Board of
Directors, unless the act of a greater number is required by applicable law. Any
regular or special Directors' meeting may be adjourned from time to time by
those present, whether a quorum is present or not.
Section 8. Committees. The Board of Directors, by resolution or
resolutions passed by a majority of the whole Board of Directors, may designate
one or more members of the Board of Directors to constitute an executive
committee (the "Executive Committee") and one or more other committees, which
shall in each case consist of such number of Directors as the Board of Directors
may determine. The Executive Committee shall have and may exercise, subject to
such restrictions as may be contained in the Articles of Incorporation or that
may be imposed by
C-7
56
applicable law, all the authority of the Board of Directors, including without
limitation the power and authority to declare a dividend and to authorize the
issuance of shares of capital stock of the Corporation. Each other committee
shall have and may exercise such powers of the Board of Directors in the
management of the business and affairs of the Corporation, including without
limitation the power and authority to declare a dividend and to authorize the
issuance of shares of capital stock of the Corporation, as the Board of
Directors may determine by resolution and specify in the respective resolutions
appointing them, subject to such restrictions as may be contained in the
Articles of Incorporation or that may be imposed by applicable law. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors. A majority of all
the members of any such committee may fix its rules of procedure, determine its
action and fix the time and place, whether within or without the State of Texas,
of its meetings and specify what notice thereof, if any, shall be given, unless
the Board of Directors shall provide otherwise by resolution. The Board of
Directors shall have power to change the membership of any such committee at any
time, to fill vacancies therein and to disband any such committee, for any
reason, at any time and from time to time. Each committee shall keep regular
minutes of its proceedings and report the same to the Board of Directors when
required.
Section 9. Compensation. Directors may be paid such compensation, if
any, for service as a Director as may be fixed by the Board of Directors from
time to time; provided, that no such payment shall preclude any Director from
serving the Corporation in any other capacity and receiving compensation
therefor. Directors may also be reimbursed for their expenses, if any, of
attendance at each regular or special meeting of the Board of the Directors or
any committee thereof.
Section 10. Action Without a Meeting. Any action required or permitted
to be taken at a meeting of the Board of Directors or any committee thereof may
be taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all the members of the Board of Directors or
committee, as the case may be, and such consent shall have the same force and
effect as a unanimous vote at a meeting.
ARTICLE IV
OFFICERS
Section 1. Officers. The officers of the Corporation shall be elected
by the Board of Directors, and shall include a Chief Executive Officer, a
President and a Secretary. The Board of Directors, in its discretion, may also
elect a Chief Financial Officer, a Chief Operating Officer, one or more Vice
Presidents, a Treasurer and such other officers as the Board of Directors may
from time to time designate, all of whom shall hold office until the first
meeting of the Board of Directors after the annual meeting of Shareholders next
succeeding his election, and until his successor is elected and qualified or
until his earlier resignation or removal. Any two or more offices may be held by
the same person. The Board of Directors may designate which of such officers are
to be treated as executive officers for purposes of these Bylaws or for any
other purpose.
The salaries of the officers shall be determined by the Board of
Directors, and may be altered by the Board of Directors from time to time except
as otherwise provided by contract. No officer of the Corporation will have any
contractual right against the Corporation for compensation by reason of his
election or appointment as an officer of the Corporation beyond the date of his
service as such, except as a written employment or other contract otherwise may
provide. All officers shall be entitled to be paid or reimbursed for all costs
and expenditures reasonably incurred in connection with the Corporation's
business.
Section 2. Vacancies. Whenever any vacancy shall occur in any office by
death, resignation, increase in the number of officers of the Corporation, or
otherwise, the same shall be filled by the Board of Directors, and the officer
so elected shall hold office until the first meeting of the Board of Directors
after the annual meeting of Shareholders next succeeding his election, and until
his successor is elected and qualified or until his earlier resignation or
removal.
Section 3. Removal. The Board of Directors may remove any officer with
or without cause at any time, but any such removal will not prejudice the
contractual rights of that officer, if any, against the Corporation. Election or
appointment of an officer or agent shall not of itself create contract rights.
C-8
57
Section 4. Chief Executive Officer. The Chief Executive Officer of the
Corporation will, subject to the control of the Board of Directors: (1) have
general supervision and control of the affairs, business, operations and
properties of the Corporation; (2) see that all orders and resolutions of the
Board of Directors are carried into effect; (3) have the power to appoint and
remove all subordinate officers, employees and agents of the Corporation, except
for those the Board of Directors elects or appoints; and (4) sign and execute,
under the seal of the Corporation, all contracts, instruments, mortgages and
other documents (collectively, "documents") of the Corporation which require
that seal, except as applicable law otherwise requires or permits any document
to be signed and executed and except as these Bylaws, the Board of Directors or
the Chief Executive Officer authorizes other officers of the Corporation to sign
and execute documents. The Chief Executive Officer also will perform such other
duties and may exercise such other powers as generally pertain to his office or
these Bylaws or the Board of Directors by resolution assigns to him from time to
time.
Section 5. Powers and Duties of Other Officers. The other officers of
the Corporation will have such powers and duties in the management of the
Corporation as the Board of Directors by resolution may prescribe and, except to
the extent so prescribed, as generally pertain to their respective offices,
subject to the control of the Board of Directors. The Board of Directors may
require any officer, agent or employee to give security for the faithful
performance of his duties.
Section 6. Delegation of Authority. In the case of any absence of any
officer of the Corporation or for any other reason that the Board of Directors
may deem sufficient, the Board of Directors may delegate some or all of the
powers or duties of such officer to any other officer or to any Director,
employee, Shareholder or agent for whatever period of time seems desirable.
ARTICLE V
INDEMNITY
Section 1. Indemnification of Directors and Executive Officers. The
Corporation shall indemnify each person who at any time shall serve, or at any
time after the date of adoption of these Bylaws shall have served, as a Director
or executive officer of the Corporation, or any person who, while a Director or
executive officer of the Corporation, is or was serving at the written request
of the Corporation as a director, officer, partner, venturer, proprietor,
trustee, employee, agent or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise (each such person referred to herein as an
"Indemnitee"), in each case as and to the fullest extent Article 2.02-1 of the
TBCA permits. The foregoing right of indemnification shall not be deemed
exclusive of any other rights to which an Indemnitee may be entitled as a matter
of law or under any agreement, other provision of these Bylaws, vote of
Shareholders or Directors, or other arrangement. The Corporation may enter into
indemnification agreements with its officers and Directors that contractually
provide to them the benefits of the provisions of this Article V and include
related provisions meant to facilitate the Indemnitees' receipt of such benefits
and such other indemnification protections as the Board of Directors may deem
appropriate.
Section 2. Advancement or Reimbursement of Expenses. The rights of each
Indemnitee provided under Section 1 of this Article V shall include, but not be
limited to, the right to be indemnified and to have expenses advanced by the
Corporation in all proceedings to the fullest extent Article 2.02-1 of the TBCA
permits. In addition, to the extent an Indemnitee is, by reason of his Corporate
Status (as Section 9 of this Article V defines that term), a witness or
otherwise participates in any proceeding at a time when he is not named a
defendant or respondent in the proceeding, the Corporation shall indemnify him
against all expenses actually and reasonably incurred by him or on his behalf in
connection therewith. The Corporation shall pay all reasonable expenses incurred
by or on behalf of any Indemnitee in connection with any proceeding or claim,
whether brought by the Corporation or otherwise, in advance of any determination
respecting entitlement to indemnification pursuant to this Article V within 10
days after the receipt by the Corporation of a written request from that
Indemnitee accompanied by documentation reasonably evidencing such expenses and
requesting such payment or payments from time to time, whether prior to or after
final disposition of such proceeding or claim; provided that the Indemnitee
undertakes and agrees in writing that he will reimburse and repay the
Corporation for any expenses so advanced to the extent that it shall ultimately
be determined, in accordance with the provisions of Article 2.02-1 of the TBCA,
that he is not entitled to be indemnified against such expenses.
C-9
58
Section 3. Determination of Request. Upon written request to the
Corporation by an Indemnitee for indemnification pursuant to these Bylaws, a
determination, if required by applicable law, with respect to that Indemnitee's
entitlement thereto shall be made in accordance with Article 2.02-1 of the TBCA;
provided, however, that, notwithstanding the foregoing, if a Change in Control
(as Section 9 of this Article V defines that term) shall have occurred, such
determination shall be made by Independent Counsel (as Section 9 of this Article
V defines that term) selected by the Board of Directors from a list of three
reasonably acceptable choices proposed by the Indemnitee, unless the Indemnitee
shall request that such determination be made in accordance with Article 2.02-1F
(1) or (2) of the TBCA. The Corporation shall pay any and all reasonable fees
and expenses of Independent Counsel incurred in connection with any such
determination. If a Change in Control shall have occurred, the Indemnitee shall
be presumed (except as otherwise expressly provided in this Article V) to be
entitled to indemnification under this Article V upon submission of a request to
the Corporation for indemnification, and thereafter the Corporation shall have
the burden of proof in overcoming that presumption in reaching a determination
contrary to that presumption. The presumption shall be used by Independent
Counsel, or such other person or persons determining entitlement to
indemnification, as a basis for a determination of entitlement to
indemnification unless the Corporation provides information sufficient to
overcome that presumption by clear and convincing evidence or the investigation,
review and analysis of Independent Counsel or such other person or persons
convinces him or them by clear and convincing evidence that the presumption
should not apply.
Section 4. Effect of Certain Proceedings. The termination of any
proceeding or of any claim against any Indemnitee in a proceeding by judgment,
order, settlement or conviction, or on a plea of nolo contendere or its
equivalent, shall not (except as this Article V otherwise expressly provides) by
itself adversely affect the right of that Indemnitee to indemnification or
create a presumption that he did not conduct himself in good faith and in a
manner that he reasonably believed, in the case of conduct in his official
capacity, that was in the best interests of the Corporation or, in all other
cases, that was not opposed to the best interests of the Corporation or, with
respect to any criminal proceeding, that he had reasonable cause to believe that
his conduct was unlawful, and that Indemnitee shall be deemed to have been found
liable in respect of any claim only after he shall have been so adjudged by a
court of competent jurisdiction after exhaustion of all appeals therefrom.
Section 5. Expenses of Enforcement of Article. In the event that any
Indemnitee, pursuant to this Article V, seeks a judicial adjudication to enforce
his rights under, or to recover damages for breach of, any rights created under
or pursuant to this Article V, that Indemnitee shall be entitled to recover from
the Corporation, and shall be indemnified by the Corporation against, any and
all expenses he actually and reasonably incurs in that judicial adjudication but
only if he prevails therein. If it shall be determined in that judicial
adjudication that the Indemnitee is entitled to receive part but not all of the
indemnification or advancement of expenses sought, the expenses the Indemnitee
incurs in connection with that judicial adjudication shall be reasonably
prorated in good faith by counsel for the Indemnitee.
Section 6. Indemnification of Other Officers, Employees and Agents. The
Corporation, by adoption of a resolution of the Board of Directors, may
indemnify and advance expenses to (1) an officer of the Corporation who is not
an executive officer of the Corporation, (2) an employee of the Corporation or
(3) an agent of the Corporation to the same extent and subject to the same
conditions (or to such lesser extent and/or with such other conditions as the
Board of Directors may determine) under which it may indemnify and advance
expenses to an Indemnitee under this Article V; and the Corporation may
indemnify and advance expenses to persons who are not or were not Directors or
executive officers of the Corporation, but who are or were serving at the
written request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another foreign
or domestic corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise against any liability asserted against
him and incurred by him in such a capacity or arising out of his status as such
a person to the same extent and subject to the same conditions (or to such
lesser extent and/or with such other conditions as the Board of Directors may
determine) that it may indemnify and advance expenses to Indemnitees under this
Article V.
Section 7. Insurance Arrangements. The Corporation may, but is not
required to, procure or maintain insurance or other similar arrangements, at its
expense, to protect itself and any person, including any Indemnitee, who is or
was a director, officer, employee, agent or fiduciary of the Corporation or who
is or was serving at the request of the Corporation as a director, officer,
partner, venturer, proprietor, trustee, employee, agent or similar functionary
of another corporation, partnership, joint venture, proprietorship, trust,
employee benefit plan or other
C-10
59
enterprise, against any expense, liability or loss asserted against or incurred
by that person, in such a capacity or arising out of his status as such a
person, whether or not the Corporation would have the power to indemnify that
person against that expense or liability.
Section 8. Severability. If a court of competent jurisdiction holds any
provision or provisions of this Article V to be invalid, illegal or
unenforceable for any reason whatsoever, the validity, legality and
enforceability of the remaining provisions of this Article V shall not in any
way be affected or impaired thereby; and, to the fullest extent possible, the
provisions of this Article V shall be construed so as to give effect to the
intent manifested by the provision held invalid, illegal or unenforceable.
Section 9. Definitions. The following terms are used herein as follows:
"Change in Control" means a change in control of the
Corporation occurring after the date of adoption of these Bylaws of a nature
that would be required to be reported in response to Item 6(e) of Schedule 14A
of Regulation 14A (or in response to any similar item on any similar schedule or
form) under the Exchange Act, whether or not the Corporation is then subject to
such reporting requirement; provided, however, that, without limitation, a
Change in Control shall be deemed to have occurred if at any time after the date
of adoption of these Bylaws (1) any "person" (as Sections 13(d) and 14(d) under
the Exchange Act use that term) is or becomes the "beneficial owner" (as Rule
13d-3 under the Exchange Act defines that term), directly or indirectly, of
securities of the Corporation representing 40% or more of the combined voting
power of the Corporation's then outstanding Voting Stock (as defined below)
without the prior approval of at least two-thirds of the members of the Board of
Directors in office immediately prior to that person's attaining that percentage
interest; (2) the Corporation is a party to a merger, consolidation, share
exchange, sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board of Directors in office immediately
prior to that transaction or event constitute less than a majority of the Board
of Directors thereafter, or (3) during any 15-month period, individuals who at
the beginning of that period constituted the Board of Directors (including for
this purpose any new Director whose election or nomination for election by the
Shareholders was approved by a vote of at least a majority of the Directors then
still in office who were Directors at the beginning of that period) cease for
any reason to constitute at least a majority of the Board of Directors.
"Corporate Status" means the status of a person who is or was
a director, officer, partner, employee, agent or fiduciary of the Corporation or
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such person is or was serving at the written
request of the Corporation.
"Disinterested Director" means a Director who is not a named
defendant or respondent to the proceeding or subject to a claim in respect of
which indemnification is sought by Indemnitee.
"Independent Counsel" means, with respect to any determination
involving an Indemnitee's rights to indemnification under this Article V, a law
firm, or a member of a law firm, that is experienced in matters of corporation
law and neither contemporaneously is, nor in the five years theretofore has
been, retained to represent: (a) the Corporation or the Indemnitee in any matter
material to either such party, (b) any other party to the proceeding giving rise
to a claim for indemnification hereunder or (c) the beneficial owner, directly
or indirectly, of securities of the Corporation representing 40% or more of the
combined voting power of the Corporation's then outstanding Voting Stock.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the
Corporation or the Indemnitee in an action to determine the Indemnitee's rights
to indemnification under these Bylaws.
"Other enterprise" shall include, but shall not be limited to,
an "other entity" as Section 1.01 of the TBCA (including any amendment that may
from time to time be made to that Section) defines that term.
"Voting Stock" means all outstanding shares of all classes and
series of capital stock of the Corporation entitled to vote generally in the
election of Directors, considered as one class; and, if the Corporation shall
have shares of Voting Stock entitled to more or less than one vote for any such
share, any reference in this
C-11
60
Article V to a percentage in voting power of Voting Stock shall be calculated by
reference to the percentage of votes the holders of those shares are entitled to
cast generally in the election of Directors.
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 1. Amendments. These Bylaws may be amended or repealed, or new
bylaws may be adopted, by (1) the Board of Directors, unless the Shareholders in
amending, repealing or adopting a particular bylaw (pursuant to the provisions
of clause (2) of this sentence) expressly provide that the Board of Directors
may not amend or repeal that bylaw or unless the Articles of Incorporation or
the TBCA reserves the power to take such action to the Shareholders in whole or
part, or (2) the affirmative vote of the holders of at least a majority of the
shares of capital stock of the Corporation entitled to vote on the matter,
unless the Articles of Incorporation or a bylaw adopted by the Shareholders
provides otherwise as to all or some portion of these Bylaws; provided, however,
that any amendment or repeal of any provision of Article V of these Bylaws shall
not adversely affect any right or protection of an Indemnitee thereunder with
respect to any act or omission occurring prior to the time of that amendment or
repeal.
Section 2. Waiver. Whenever any notice is required to be given to any
Shareholder, Director or member of any committee of the Board of Directors under
the provisions of any law, the Articles of Incorporation or these Bylaws, a
waiver thereof in writing signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be equivalent to
the giving of such notice. Attendance of a person at a meeting will constitute a
waiver of notice of that meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Shareholders, the Board of Directors or any
committee of the Board of Directors need be specified in any written waiver of
notice unless the Articles of Incorporation or these Bylaws so require.
Section 3. Conference Telephone Meetings. Meetings of Shareholders or
the Board of Directors, or any committee thereof, may be held by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other. Participation in a
meeting pursuant to this Section 3 shall constitute presence in person at such
meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
Section 4. Offices. The principal office of the Corporation shall be
located at 9310 Broadway, Bldg. I, San Antonio, Texas 78217, unless and until
changed by resolution of the Board of Directors. The Corporation may also have
offices at such other places as the Board of Directors may from time to time
designate or as the business of the Corporation may require.
Section 5. Resignations. Any Director or officer of the Corporation may
resign at any time. Any such resignation shall be made in writing and shall take
effect at the time specified therein, or, if no time be specified, at the time
of its receipt by the Chief Executive Officer or Secretary of the Corporation.
The acceptance of a resignation shall not be necessary to make it effective,
unless expressly so provided in the resignation.
Section 6. Seal. The seal of the Corporation shall be circular in form
with a five-pointed star in the center and the name of the Corporation and the
word "Texas" around the margin, or be in such other form as may be fixed by
resolution of the Board of Directors. The seal may be used by causing it or a
facsimile thereof to be impressed on, affixed to or in any manner reproduced on
instruments of any nature required to be executed by its officers.
Section 7. Fiscal Year. The fiscal year of the Corporation shall be the
year beginning on April 1, or such other fiscal year as shall be fixed by
resolution of the Board of Directors.
C-12
61
(Front of Card)
SOUTH TEXAS DRILLING & EXPLORATION, INC.
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 17, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Wm. Stacy Locke and William D. Hibbetts, and
each of them, with full power of substitution and resubstitution to represent
the undersigned and to vote all the shares of common stock or Series B preferred
stock of South Texas Drilling & Exploration, Inc., a Texas corporation (the
"Company"), which the undersigned is entitled to vote at the Annual Meeting of
Shareholders of the Company to be held on August 17, 2001 and at any adjournment
or postponement thereof (1) as hereinafter specified on the proposals listed on
the reverse side hereof and as more particularly described in the Proxy
Statement of the Company dated July 20, 2001 (the "Proxy Statement") and (2) in
their discretion on such other matters as may properly come before the meeting.
Every properly signed proxy that is returned prior to the meeting will be voted
in accordance with the specifications made thereon. IF NOT OTHERWISE SPECIFIED,
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED (1) FOR THE NOMINEES LISTED
IN PROPOSAL 1, (2) FOR EACH OF THE PROPOSED AMENDMENTS TO OUR ARTICLES OF
INCORPORATION IN PROPOSALS 2, 3, 4, 5, 6, 7 AND 8 AND (3) FOR THE RATIFICATION
OF KPMG LLP AS OUR INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING MARCH 31,
2002 IN PROPOSAL 9.
The undersigned hereby acknowledges receipt of the Company's annual report for
the fiscal year ended March 31, 2001 and its Notice of 2001 Annual Meeting of
Shareholders and the related Proxy Statement.
(Back of Card)
PLEASE MARK, SIGN AND DATE YOUR PROXY CARD
AND PROMPTLY RETURN IT IN THE ENCLOSED ENVELOPE.
ANNUAL MEETING OF SHAREHOLDERS
SOUTH TEXAS DRILLING & EXPLORATION, INC.
August 17, 2001
Please fold and detach here.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
[X] Please mark votes in blue or black ink as in this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING
PROPOSALS:
PROPOSAL 1. To elect the nominees listed at right to the Board of
Directors to serve until their respective successors are elected and qualified.
[ ] FOR all nominees [ ] WITHHOLD NOMINEES:
listed at right (except as AUTHORITY to vote for all Michael E. Little
indicated to the contrary nominees listed at right. Wm. Stacy Locke
below).* William D. Hibbetts
William H. White
James M. Tidwell
C. John Thompson
* INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, PLEASE WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED HERE:
______________________________________________.
62
PROPOSAL 2. To amend and restate ARTICLE ONE of the Company's articles
of incorporation to change the Company's name to "Pioneer Drilling Company."
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 3. To amend and restate ARTICLE FOUR of the Company's articles
of incorporation to (1) increase the number of authorized shares of the
Company's common stock from 30,000,000 to 100,000,000 shares, (2) increase the
number of authorized shares of the Company's preferred stock from 1,000,000 to
10,000,000 shares and (3) amend the provisions authorizing the Company's Board
of Directors to establish series of unissued shares of the Company's preferred
stock by fixing and determining the designations, preferences, limitations and
relative rights, including voting rights, of the shares of any series so
established to the fullest extent provided for in the Texas Business Corporation
Act.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 4. To amend and restate Sections 1 and 3 of ARTICLE SEVEN of
the Company's articles of incorporation to change the structure of the Company's
Board of Directors to a classified board divided into three classes with
staggered terms of office and to provide that members of the Company's Board of
Directors may not be removed except for cause.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 5. To amend the Company's articles of incorporation by adding
a new ARTICLE TWELVE that would increase the minimum percentage of the
outstanding shares of the Company's capital stock necessary to call a special
meeting of its shareholders from 10% to 50%.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 6. To amend and restate ARTICLE EIGHT of the Company's
articles of incorporation to delete its specific indemnification requirements
with respect to the Company's directors, officers and employees.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 7. To amend and restate ARTICLE NINE of the Company's articles
of incorporation to make its provisions relating to contracts or transactions
between the Company and its directors or officers consistent with the provisions
of Article 2.35-1 of the Texas Business Corporation Act.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 8. To amend and restate ARTICLE ELEVEN of the Company's
articles of incorporation to conform its limitation on a director's liability to
the provisions of Article 1302-7.06 of the Texas Miscellaneous Corporation Laws
Act.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 9. To ratify the appointment of KPMG LLP as the Company's
independent auditors for the fiscal year ending March 31, 2002.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
63
MARK HERE FOR MARK HERE IF YOU
ADDRESS CHANGE PLAN TO ATTEND
AND NOTE AT LEFT [ ] THE MEETING [ ]
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE ON ANY OTHER
MATTER THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR
POSTPONEMENT THEREOF.
The undersigned hereby revokes all previous proxies given by the
undersigned with respect to the Company's 2001 Annual Meeting of Shareholders.
This Proxy may be revoked at any time prior to a vote thereon.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Date: Signature:
--------------------- ----------------------------
Date: Signature:
---------------------- ----------------------------
NOTE: Please sign exactly as your name(s) appears on this
card. Joint owners should each sign. When signing as attorney, executor,
administrator, trustee, guardian or other similar capacity, please give
full title as such. If a corporation, please print full corporation name and
have authorized officer sign and indicate title. If a partnership, please
print partnership name and have authorized person sign and indicate title.