<PAGE>
 
                                                                     EXHIBIT 3.2

                                    BYLAWS

                                      OF

                           SUPERIOR FINANCIAL CORP.

                            A DELAWARE CORPORATION

                           (ADOPTED MARCH 27, 1998)



                                   ARTICLE I

                                    Offices
                                    -------

     1.  The address of its registered office in the State of Delaware is 1209
Orange Street, Wilmington, Delaware 19801, in the City of Wilmington, County of
New Castle.  The name of its registered agent at such address is The CT
Corporation.

     2.  The principal office of the corporation shall be in the State of
Arkansas and shall be located in the City of Fort Smith, County of Sebastian.
Directors' meetings (unless from time to time specifically otherwise ordered by
the Board of Directors) and appropriate corporate functions shall be held in
Fort Smith.

     3.  The Chief Executive Officer may, for his convenience, in discharging
his duties, locate at whatever place he deems desirable the necessary
secretarial and personal assistance for the efficient operation of his office.
The corporation may have such other offices, either within or without the State
of Arkansas, as the Board of Directors may designate or as the business of the
corporation may require from time to time.  Specialized personnel, such as
auditors, examiners, public relation officers, etc., shall be located in such
cities as the Chief Executive Officer may from time to time order.
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                                  ARTICLE II

                           Meetings of Stockholders
                           ------------------------

     1.  Place of Meetings.  The Board of Directors may designate any place,
         -----------------                                                  
either within or without the State of Arkansas, as the place of meeting for any
annual meeting or for any special meeting of the stockholders called by the
Board of Directors.

     2.  Annual Meetings.  Unless provided otherwise by the Board of Directors,
         ---------------                                                       
the annual meeting of stockholders shall be held in the City of Fort Smith,
Arkansas, on the third Wednesday in April of each year, if not a legal holiday,
but if a legal holiday, then on the next day that is not a legal holiday, for
the purpose of electing directors of the corporation and for the transaction of
such other business as may be properly brought before the meeting.

     3.  Substitute Annual Meetings.  If the annual meeting shall not be held on
         ---------------------------                                            
the day designated by these bylaws, a substitute annual meeting may be called in
accordance with the provisions of Section 4 of this Article.  A meeting so
called shall be designated and treated for all purposes as the annual meeting.

     4.  Special Meetings.  Special meetings of the stockholders may be called
         ----------------                                                     
at any time by the Chairman, and shall be called by the Chairman at the request
in writing of a majority of the entire Board of Directors.  Such request shall
state the purpose or purposes of the proposed meeting.

     5.  Notice of Meetings.  (a)  Written or printed notice stating the time
         ------------------                                                  
and place of the meeting shall be delivered not less than ten (10) nor more than
sixty (60) days before the date thereof, either personally or by mail, by or at
the direction of the Chairman, a Vice Chairman, the President, the Secretary or
other person calling the meeting, to each stockholder of record entitled to vote
at such meeting.  If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail addressed to the stockholder at his present

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address as it appears on the record of stockholders of the corporation, with
postage thereon prepaid.

          (b) In the case of an annual or substitute annual meeting, the notice
of the meeting need not specifically state the business to be transacted
thereat.  In the case of a special meeting the notice of meeting shall
specifically state the purpose or purposes for which the meeting is called.

          (c) When a meeting is adjourned for thirty (30) days or more, notice
of the adjourned meeting shall be given as in the case of an original meeting.
When a meeting is adjourned for less than thirty (30) days in any one
adjournment, it is not necessary to give any notice of the adjourned meeting
other than by announcement of the time and place of the adjourned meeting at the
meeting at which the adjournment is taken.

     6.  Quorum.  A majority of the shares entitled to vote, represented in
         ------                                                            
person or by proxy, shall constitute a quorum at meetings of stockholders.  If
there is no quorum at the opening of a meeting of stockholders, such meeting may
be adjourned from time to time by a vote of a majority of the shares voting on
the motion to adjourn; and, at any adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
original meeting.  The stockholders at a meeting at which a quorum is present
may continue to do business until adjournment, notwithstanding the withdrawal of
enough stockholders to leave less than a quorum.

     7.  Notice of Nominations and Other Business at Annual Meetings.  (a)
         -----------------------------------------------------------       
Nominations of persons for election to the Board of Directors of the corporation
and the proposal of business to be considered by the stockholders may be made at
an annual meeting of stockholders (1) pursuant to the corporation's notice of
meeting, (2) by or at the direction of the Board of Directors, or (3) by any
stockholder of the corporation who was a stockholder of record at the time of
giving of the notice by the stockholder provided for in this Section, who is

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entitled to vote at the meeting and who complies with the notice procedures set
forth in this Section.

          (b) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (3) of paragraph (a) of this
Section, the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation.  To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of the corporation
not less than sixty (60) days nor more than ninety (90) days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced by more than thirty
(30) days or delayed by more than sixty (60) days from such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier than the
90th day prior to such annual meeting and not later than the close of business
on the later of the 60th day prior to such annual meeting or the 10th day
following the day on which public announcement of the date of such meeting is
first made.  Such stockholder's notice shall set forth (1) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (including such person's written
consent to be named in the proxy statement as a nominee and to serve as a
director if elected); (2) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (3) as to
the stockholder giving the notice and the beneficial owner, if any, on whose

                                       4
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behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the corporation's books, and of such beneficial
owner and (ii) the class and number of shares of the corporation which are owned
beneficially and of record by such stockholder and such beneficial owner.

          (c) Notwithstanding anything in the second sentence of paragraph (b)
of this Section to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the corporation is increased and there is
no public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the corporation at least
seventy (70) days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this Section shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the corporation.

          (d) Only such persons who are nominated in accordance with the
procedures set forth in this Section shall be eligible to serve as directors and
only such business shall be conducted at an annual meeting of stockholders as
shall have been brought before the meeting in accordance with the procedures set
forth in this section.  The Chairman of the meeting shall have the power and
duty to determine whether a nomination or any business proposed to be brought
before the meeting was made in accordance with the procedures set forth in this
Section and, if any proposed nomination or business is not in compliance with
these Bylaws, to declare that such defective proposed business or nomination
shall be disregarded.

                                       5
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          (e) For the purpose of this Section, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or a comparable national news service or in a document publicly filed by
the corporation with the Securities and Exchange Commission pursuant to Section
13, 14 or 15(d) of the Exchange Act.

          (f) Notwithstanding the foregoing provisions of this Section, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section.  Nothing in this section shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.

     8.  Conduct of Business.  The date and time of the opening and the closing
         -------------------                                                   
of the polls for each matter upon which the stockholders will vote at a meeting
shall be announced at the meeting by the person presiding over the meeting.  The
Board of Directors of the corporation may adopt by resolution such rules and
regulations for the conduct of the meeting of stockholders as it shall deem
appropriate.  Except to the extent inconsistent with any such rules and
regulations as adopted by the Board of Directors, the Chairman of any meeting of
stockholders shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are appropriate for the proper conduct of the meeting.   Such rules,
regulations or procedures, whether adopted by the Board of Directors or
prescribed by the Chairman of the meeting, may include, without limitation, the
following:  (i) the establishment of an agenda or order of business for the
meeting; (ii) rules and procedures for maintaining order at the meeting and the
safety of those present; (iii) limitations on attendance at or participation in
the meeting to stockholders of record of the corporation, their duly authorized
and constituted proxies or such other persons as the chairman of the meeting

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shall determine; (iv) restrictions on entry to the meeting after the time fixed
for the commencement thereof; and (v) limitations on the time allotted to
questions or comments by participants.  Unless and to the extent determined by
the Board of Directors or the Chairman of the meeting, meetings of stockholders
shall not be required to be held in accordance with the rules of parliamentary
procedure.

                                  ARTICLE III

                                   Directors
                                   ---------

     1.  General Powers.  The business and affairs of the corporation shall be
         --------------                                                       
managed by the Board of Directors or by such executive committee as the Board
may establish in accordance with the Certificate of Incorporation.

     2.  Election of Directors of Subsidiaries.  The nomination and election of
         -------------------------------------                                 
directors of each corporation which is or may in the future be a subsidiary of
the corporation shall be conducted in the manner prescribed in the certificate
of incorporation or bylaws of such subsidiary corporation.  To the extent
considered feasible, stock held in a subsidiary by the corporation will be voted
for nominees for director of the subsidiary proposed by the board of directors
of the subsidiary.  Unless provided otherwise by the Board of Directors, for
purposes of any annual or special meeting of stockholders of any corporation
which is wholly owned, the corporation waives notice of any such meeting and the
Chairman is authorized to appoint those persons who shall hold and vote the
corporation's proxy at such meetings.

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<PAGE>
 
     3.  Chairman.  There shall be a Chairman of the Board of Directors elected
         --------                                                              
by the Directors from their number at any meeting of the Board.  The Chairman
shall preside at all meetings of the Board of Directors.

     4.  Vice Chairman.  There may be one or more Vice Chairmen of the Board of
         -------------                                                         
Directors elected by the Directors from their number at any meeting of the
Board.  In the absence of the Chairman, one of the Vice Chairmen, in the order
of their election unless otherwise designated by the Board, shall preside at all
meetings of the Board.

     5.  Compensation.  The Board of Directors may compensate Directors for
         ------------                                                      
their services as such and may provide for the payment of all expenses incurred
by Directors in attending regular and special meetings of the Board.



                                  ARTICLE IV

                             Meetings of Directors
                             ---------------------

     1.  Regular Meetings.  A regular meeting of the Board of Directors shall be
         ----------------                                                       
held immediately after, and at the same place as, the annual meeting of the
stockholders.  In addition, the Board of Directors may provide, by resolution,
the time and place, either within or without the State of Arkansas, for the
holding of additional regular meetings.

     2.  Special Meetings.  Special meetings of the Board of Directors may be
         ----------------                                                    
called by or at the request of the Chairman, a Vice Chairman, the President, or
a majority of the Board of Directors.  Such meetings may be held within or
without the State of Arkansas.

     3.  Notice of Meetings.  Regular meetings of the Board of Directors may be
         ------------------                                                    
held without notice.  The person or persons calling a special meeting of the
Board of Directors shall, at least two days before the meeting, give notice

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thereof by any usual means of communication.  Such notice need not specify the
purpose for which the meeting is called.  Attendance by a Director at a meeting
shall constitute a waiver of notice of such meeting, except where a Director
attends a meeting for the purpose of objecting to the transaction of any
business because the meeting is not lawfully called.

     4.  Quorum.  A majority of the number of Directors of the corporation shall
         ------                                                                 
constitute a quorum for the transaction of business at any meeting of the Board
of Directors.

     5.  Manner of Acting.  Except as otherwise provided in these bylaws, an act
         ----------------                                                       
of the majority of the Directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.

     6.  Informal Action by Directors.  Any action required or permitted to be
         ----------------------------                                         
taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a meeting if all members of the Board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board or committee.

     7.  Committees of the Board of Directors.  There shall be such committees
         ------------------------------------                                 
as the Board of Directors may establish, in accordance with the provisions of
the Certificate of Incorporation, provided that the Chairman of the Board may
designate such committees and appoint members thereof if such designation and
appointment are ratified by the Board of Directors at the next regular meeting
of the Board.

                                       9
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                                   ARTICLE V

                                   Officers
                                   --------

     1.  Number.  The Officers of the corporation shall be a Chairman, such
         ------                                                            
number of Vice Chairmen as may be created by the Board of Directors, a Chief
Executive Officer, a President, a Secretary, a Treasurer, and such Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers as
the Board of Directors may from time to time elect.  Any two or more offices may
be held by the same person.

     2.  Election and Term.  The officers of the corporation shall be elected by
         -----------------                                                      
the Board of Directors, provided that any person may be designated an officer by
the Chairman if such designation is subsequently ratified by the Board of
Directors at the next regular meeting of the Board of Directors.  Such election
may be held at any regular or special meeting of the Board of Directors.  Each
officer shall hold office until his death, resignation, retirement, removal,
disqualification or until his successor is elected and qualified.

     3.  Compensation.  The compensation of all officers of the corporation
         ------------                                                      
shall be fixed by the Board of Directors.

     4.  Chairman.  The Chairman shall have general executive powers and shall
         --------                                                             
be the Chief Executive Officer of the corporation and, subject to the control of
the Board of Directors, shall supervise and control the management of the
corporation.  The Chairman shall, when present, preside at all meetings of the
stockholders or name another to preside.  He or she may sign, with any other
proper officer, any deeds, mortgages, bonds, contracts or other instruments
which may lawfully be executed on behalf of the corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be delegated by the Board of

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Directors to some other officer or agent; and, in general, he or she shall
perform all duties incident to the office of chief executive officer and such
other duties as may be prescribed by the Board of Directors from time to time.

     5.  Vice Chairmen.  The Vice Chairmen in the order of their election,
         -------------                                                    
unless otherwise determined by the Board of Directors, shall, in the absence or
disability of the Chairman, perform the duties and exercise the powers that the
Board of Directors may have assigned the Chairman.  In addition, they shall
perform such other duties and shall have such other powers as the Board of
Directors shall prescribe.

     6.  President.  The President shall, in the absence or disability of the
         ---------                                                           
Chairman, and Vice Chairman, exercise the powers that the Board of Directors may
have assigned the Chairman.  In addition, he or she shall perform such other
duties and shall have such other powers as the Board of Directors or Chief
Executive Officer shall prescribe.

     7.  Vice Presidents.  The Vice Presidents in the order of their election,
         ---------------                                                      
unless otherwise determined by the Board of Directors, shall, in the absence or
disability of the President, exercise the powers that the Board of Directors may
have assigned the President.  In addition, they shall perform such other duties
and shall have such other powers as the Board of Directors or Chief Executive
Officer shall prescribe.

     8.  Secretary.  The Secretary shall keep accurate records of the acts and
         ---------                                                            
proceedings of all meetings of stockholders and all meetings of the Board of
Directors.  He or she shall give all notices required by law, the Certificate of
Incorporation and these bylaws.  He or she shall have general charge of the
corporate books and records and of the corporate seal and shall affix the
corporate seal to any lawfully executed instruments requiring it.  He or she
shall have general charge of the stock transfer books of the corporation.  He or

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she shall sign such instruments as may require his or her signature, and, in
general, shall perform all duties incident to the office of Secretary and such
other duties as may be assigned to him or her from time to time by the Chairman
of the Board or by the Board of Directors.

     9.  Treasurer.  The Treasurer shall have custody of all funds and
         ---------                                                    
securities belonging to the corporation and shall receive, deposit or disburse
the same under the direction of the Board of Directors.  He or she shall keep
full and accurate accounts of the finances of the corporation in books
especially provided for that purpose.  The Treasurer shall, in general, perform
all duties incident to his or her office and such other duties as may be
assigned to him or her from time to time by the Chairman of the Board or by the
Board of Directors.

     10. Assistant Secretaries and Treasurers.  The Assistant Secretaries and
         ------------------------------------                                
Assistant Treasurers shall, in the absence or disability of the Secretary or the
Treasurer, respectively, perform the duties and exercise the powers of those
offices and shall, in general, perform such other duties as shall be assigned to
them by the Secretary or the Treasurer, respectively, or by the Chairman of the
Board or the Board of Directors.

     11. Bonds.  The Board of Directors may by resolution require that any or
         -----                                                               
all officers, agents and employees of the corporation give bond to the
corporation, with sufficient sureties, conditioned on the faithful performance
of the duties of their respective offices or position, and to comply with such
other conditions as may from time to time be required by the Board of Directors.

     12. Certificate of Incorporation.  The foregoing provisions of this
         ----------------------------                                   
Article are subject to the Certificate of Incorporation.

                                       12
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                                  ARTICLE VI

                        Contracts, Checks and Deposits
                        ------------------------------

     1.  Contracts.  The Board of Directors may authorize any officer or
         ---------                                                      
officers, agent or agents, to enter into any contract or execute and deliver any
instrument on behalf of the corporation, and such authority may be general or
confined to specific instances.

     2.  Checks and Drafts.  All checks, drafts or other orders for the payment
         -----------------                                                     
of money issued in the name of the corporation shall be signed by such officer
or officers, agent or agents of the corporation and in such manner as shall from
time to time be determined by resolution of the Board of Directors.

     3.  Deposits.  All funds of the corporation not otherwise employed shall be
         --------                                                               
deposited to the credit of the corporation in such depositories as the Board of
Directors shall direct.

     4.  Loans.  No loans shall be contracted on behalf of the corporation and
         -----                                                                
no evidence of indebtedness shall be issued in its name unless authorized by a
resolution of the Board of Directors.  Such authority may be general or confined
to specific instances.


                                  ARTICLE VII

             Certificate for Shares, Issuance and Transfer Thereof
            ----------------------------------------------------- 

     1.  Certificates for Shares.  Certificates representing shares of the
         -----------------------                                          
corporation shall be issued, in such form as the Board of Directors shall
determine, to every stockholder for the fully-paid shares owned by him or her.
These certificates shall be signed by the Chairman of the Board of Directors, or
the President or any Vice President, and by the Secretary, Assistant Secretary,
Treasurer or Assistant Treasurer.  The Board of Directors may authorize the use
of facsimile signatures.  All certificates shall be consecutively numbered or

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<PAGE>
 
otherwise identified; and the name and address of the persons to whom they are
issued, with the number of shares and date of issue, shall be entered on the
stock transfer books of the corporation.

     2.  Transfer of Shares.  Transfer of shares shall be made on the stock
         ------------------                                                
transfer books of the corporation only upon surrender of the certificates for
the shares sought to be transferred by the record holder thereof or by his duly
authorized agent, transferee or legal representative.  All certificates
surrendered for transfer shall be canceled before new certificates for the
transferred shares shall be issued.

     3.  Closing Transfer Books and Fixing Record Date.  (a)  For the purpose of
         ---------------------------------------------                          
determining stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the Board of Directors may provide that the stock transfer books
shall be closed for a stated period but not to exceed, in any case, sixty (60)
days.  If the stock transfer books shall be closed for the purpose of
determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten (10) days immediately
preceding such meeting.

          (b) In lieu of closing the stock transfer books, the Board of
Directors may fix in advance a date as the record date for such determination of
stockholders, such record date in any case to be not more than sixty (60) days
and, in case of a meeting of stockholders, not less than ten (10) days
immediately preceding the date on which the particular action, requiring such
determination of stockholders, is to be taken.

                                       14
<PAGE>
 
          (c) If the stock transfer books are not closed and no record date is
fixed for the determination of stockholders, or stockholders entitled to receive
payment of a dividend, the date on which notice of the meeting is mailed or the
date on which the resolution of the Board of Directors declaring such dividend
is adopted, as the case may be, shall be the record date for such determination
of stockholders.

     5.  Voting Lists.  The officer or agent having charge of the stock transfer
         ------------                                                           
books for shares of the corporation shall make, at least ten (10) days before
each meeting of stockholders, a complete list of the shareholders entitled to
vote at such meeting, or any adjournment thereof, arranged in alphabetical
order, with the address of and the number of shares held by each, which list,
for a period of ten (10) days prior to such meeting, shall be kept on file at
the principal office of the corporation and shall be subject to inspection by
any stockholder 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 stockholder during the whole time of the
meeting.  The original stock transfer book shall be prima facie evidence as to
who are the stockholders entitled to examine such list or transfer books or to
vote at any meeting of stockholders.

     6.  Lost Certificates.  The corporation may authorize the issuance of a new
         -----------------                                                      
certificate in place of a certificate claimed to have been lost or destroyed,
upon receipt of an affidavit of such fact from the person claiming the loss or
destruction.  When authorizing such issuance of a new certificate, the
corporation may require the claimant to give the corporation a bond in such sum
as it may direct to indemnify the corporation against loss from any claim with
respect to the certificate claimed to have been lost or destroyed; or the
corporation may, by resolution reciting that the circumstances justify such

                                       15
<PAGE>
 
action, authorize the issuance of a new certificate without requiring such a
bond.


                                 ARTICLE VIII

                              General Provisions
                              ------------------

     1.  Dividends.  The Board of Directors may from time to time declare, and
         ---------                                                            
the corporation may pay, dividends in cash, stock or property on its outstanding
shares in the manner and upon the terms and conditions provided by law and by
its charter.

     2.  Waiver of Notice.  Whenever any notice is required to be given to any
         ----------------                                                     
stockholder or director under the provisions of the laws of Delaware or under
the provisions of the Certificate of Incorporation or bylaws of this
corporation, 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.

     3.  Fiscal Year.  The fiscal year of the corporation shall be as fixed by
         -----------                                                          
the Board of Directors.  If no fiscal year is fixed, then a calendar year will
be used.

     4.  Amendments.  Except as otherwise provided herein, these bylaws may be
         ----------                                                           
amended or repealed by the affirmative vote of a majority of the Directors then
holding office at any regular or special meeting of the Board of Directors.

                                       16
<PAGE>
 
                                  ARTICLE IX.

                                Indemnification
                                ---------------

1.  Definitions.  As used in this Section the following terms shall have the
    -----------                                                             
meanings set out below:

     (a) "Board" - the Board of Directors of the Corporation.

     (b) "Claim" - any threatened or pending or completed claim, action, suit,
or proceeding, whether civil, criminal, administrative or investigative and
whether made judicially or extra-judicially, or any separate issue or matter
therein, as the context requires.

     (c) "Determining Body" - (i) those members of the Board who are not named
as parties to the Claim for which indemnification is being sought ("impartial
Directors"), if there are at least three Impartial Directors, or (ii) a
committee of at least three directors appointed by the Board (regardless whether
the members of the Board of Directors voting on such appointment are fewer than
three Impartial Directors or if the Board of Directors or the committee
appointed pursuant to clause (ii) of this paragraph so directs (regardless
whether the members thereof are Impartial Directors), independent legal counsel,
which may be the regular outside counsel of the Corporation.

     (d) "Disbursing Officer" - the Chief Executive Officer of the Corporation
or, if the Chief Executive Officer is a party to the Claim for which
indemnification is being sought, any officer not a party to such Claim who is
designated by the Chief Executive Officer to be the Disbursing Officer with
respect to indemnification request related to the Claim, which designation shall
be made promptly after receipt of the initial request for indemnification with
respect to such Claim.

     (e) "Expenses" - any expenses or costs (including, without limitation,
attorney's fees, judgements, punitive or exemplary damages, fines and amounts
paid in settlement).

                                       17
<PAGE>
 
     (f) "Indemnitee" - each person who is or was a director or officer of the
Corporation or the spouse of such person.

2.  Indemnity.
    --------- 

     (a) To the extent such Expenses exceed the sum or amounts paid or due under
or pursuant to (i) policies of liability insurance maintained by the
Corporation, (ii) policies of liability insurance maintained by or on behalf of
the Indemnitee, and (iii) provisions for indemnification in the by-laws,
resolutions or other instruments of any entity other than the Corporation, the
Corporation shall indemnify Indemnitee against any Expenses actually and
reasonably incurred by him (as they are incurred) in connection with any Claim
either against him or as to which he is involved solely as a witness or person
required to give evidence, by reason of his position.

          (i)   as a director or officer of the Corporation,

          (ii)  as a director or officer of any subsidiary of the Corporation or
as a fiduciary with respect to any employee benefit plan of the Corporation,

          (iii) as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other for profit or not for
profit entity or enterprise, if such position is or was held at the request of
the Corporation, or

          (iv)  as the spouse of any person who is or was a director or officer
of the Corporation  with respect to any Claim involving the spouse arising by
reason of such person's position as described in clauses (i) , (ii) or (iii),
whether relating to service in such position before or after the effective date
of this Section, if he (i) is successful in his defense of the Claim on the
merits or otherwise or (ii) has been found by the Determining Body (acting in
good faith) to have met the Standard of Conduct; provided that (A) the amount

                                       18
<PAGE>
 
otherwise payable by the Corporation may be reduced by the Determining Body to
such amount as it deems proper if it determines that the Claim involved the
receipt of a personal benefit by Indemnitee, and (B) no indemnification shall be
made in respect of any Claim as to which Indemnitee shall have been adjudged by
a court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable for willful or intentional misconduct in the performance of his duty
to the Corporation or to have obtained an improper personal benefit, unless, and
only to the extent that, a court shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for such Expenses as
the court deems proper.

     (b) The Standard of Conduct is met when the conduct by an Indemnitee with
respect to which a Claim is asserted was conduct that he reasonably believed to
be in, or not opposed to, the best interest of the Corporation, and, in the case
of a criminal action or proceeding, that he had no reasonable cause to believe
was unlawful.  The termination of any Claim by judgment, or order, settlement,
conviction, or upon a plea of nolo contendere or it equivalent, shall not, of
itself, create a presumption that Indemnitee did not meet the Standard of
Conduct.

     (c) Promptly upon becoming aware of the existence of any Claim as to which
he may be indemnified hereunder, Indemnitee shall notify the Chief Executive
Officer of the Corporation of the Claim and whether he intends to seek
indemnification hereunder.  If such notice indicates that Indemnitee does so
intend, the Chief Executive Officer shall promptly advise the Board thereof and
notify the Board that the establishment of the Determining Body with respect to
the Claim will be a matter presented at the next regularly scheduled meeting of
the Board.  After the Determining Body has been established, the Chief Executive
Officer shall inform the Indemnitee thereof and Indemnitee shall immediately

                                       19
<PAGE>
 
provide the Determining Body with all facts relevant to the Claim known to him.
Within 60 days of the receipt of such information, together with such additional
information as the Determining Body may request of Indemnitee, the Determining
Body shall determine, and shall advise Indemnitee of its determination, whether
Indemnitee has met the Standard of Conduct.  The Determining Body may extend
such 60 day period by no more than an additional 60 days.

     (d) Indemnitee shall promptly inform the Determining Body upon his becoming
aware of any relevant facts not therefore provided by him to the Determining
Body, unless the Determining Body has obtained such facts by other means.  If,
after determining that the Standard of Conduct has been met, the Determining
Body obtains facts of which it was not aware at the time it made such
determination, the Determining Body on its own motion, after notifying the
Indemnitee and providing him an opportunity to be heard, may, on the basis of
such facts, revoke such determination, provided that in the absence of actual
fraud by Indemnitee no such revocation may be made later than 30 days after
final disposition of the Claim.

     (e) In the case of any Claim not involving a proposed, threatened or
pending criminal proceeding,

          (i) If Indemnitee has, in the good faith judgment of the Determining
Body, met the Standard of Conduct, the Corporation may, in its sole discretion
after notice to Indemnitee, assume all responsibility for the defense of the
Claim, and, in any event, the Corporation and the Indemnitee each shall keep the
other informed as to the progress of the defense, including prompt disclosure of
any proposals for settlement; provided that if the Corporation is a party to the
Claim and Indemnitee reasonably determines that there is a conflict between the
positions of the Corporation and Indemnitee with respect to the Claim, then
Indemnitee shall be entitled to conduct his defense, with counsel of his choice;

                                       20
<PAGE>
 
and provided further that Indemnitee shall in any event be entitled at is
expense to employ counsel chosen by him to participate in the defense of the
Claim; and

          (ii) The Corporation shall fairly consider any proposals by Indemnitee
for settlement of the Claim.  If the Corporation (A) proposes a settlement
acceptable to the person asserting the Claim, or (B) believes a settlement
proposed by the person asserting the Claim should be accepted, it shall inform
Indemnitee of the terms thereof and shall fix a reasonable date by which
Indemnitee shall respond.  If Indemnitee agrees to such terms, he shall execute
such documents as shall be necessary to effect the terms, he shall execute such
documents as shall be necessary to effect the settlement.  If he does not agree
he may proceed with the defense of the Claim in any manner he chooses, but if he
is not successful on the merits or otherwise, the Corporation's obligation to
indemnify him for any Expenses incurred following his disagreement shall be
limited to the lesser of (A) the total Expenses incurred by him following his
decision not to agree to such proposed settlement or (B) the amount the
Corporation would have paid pursuant to the terms of the proposed settlement.
If, however, the proposed settlement would impose upon Indemnitee any
requirement to act or refrain from acting that would materially interfere with
the conduct of his affairs, Indemnitee  may refuse such settlement and proceed
with the defense of the Claim, if he so desires, at the Corporation's expense
without regard to the limitations imposed by the preceding sentence.  In no
event, however, shall the Corporation be obligated to indemnify Indemnitee for
any amount paid in a settlement that the Corporation has not approved.

     (f) In the case of a Claim involving a proposed, threatened or pending
criminal proceeding, Indemnitee shall be entitled to conduct the defense of the
Claim, and to make all decisions with respect thereto, with counsel of his

                                       21
<PAGE>
 
choice; provided that the Corporation shall not be obligated to indemnify
Indemnitee for an amount paid in settlement that the Corporation has not
approved.

     (g) After notifying the Corporation of the existence of a Claim, Indemnitee
may from time to time request the Corporation to pay the Expenses (other than
judgments, fines, penalties or amounts paid in settlement) that he incurs in
pursuing a defense of the Claim prior to the time that the Determining Body
determines whether the Standard of Conduct has been met.  If the Disbursing
Officer believes the amount requested to be reasonable, he shall pay to
Indemnitee the amount requested (regardless of Indemnitee's apparent ability to
repay such amount) upon receipt of an undertaking by or on behalf of Indemnitee
to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation under the circumstances.  If the
Disbursing Officer does not believe such amount to be reasonable, the
Corporation shall pay the amount deemed by him to be reasonable and Indemnitee
may apply directly to the Determining Body for the remainder of the amount
requested.

     (h) After it has been determined that the Standard of Conduct was met, for
so long as and to the extent that the Corporation is required to indemnify
Indemnitee under this Agreement, the provisions of Paragraph (g) shall continue
to apply with respect to Expenses incurred after such time, expect that (i) no
undertaking shall be required of Indemnitee and (ii) the Disbursing Officer
shall pay to Indemnitee such amount of any fines, penalties or judgments against
him which have become final as the Corporation is obligated to indemnify him.

     (i) Any determination by the Corporation with respect to settlements of a
Claim shall be made by the Determining Body.

                                       22
<PAGE>
 
     (j) The Corporation and Indemnitee shall keep confidential, to the extent
permitted by law and their fiduciary obligations, all facts and determinations
provided or made pursuant to or arising out of the operation of this Agreement,
and the Corporation and Indemnitee shall instruct it or his agents and employees
to do likewise.

3.  Enforcement.
    ----------- 

     (a) The rights provided by this Section shall be enforceable by Indemnitee
in any court of competent jurisdiction.

     (b) If Indemnitee seeks a judicial adjudication of his rights under this
Section, Indemnitee shall be entitled to recover from the Corporation, and shall
be indemnified by the Corporation against, any and all Expenses actually and
reasonably incurred by him in connection with such proceeding, but only if he
prevails therein.  If it shall be determined that Indemnitee is entitled to
receive part but not all of the relief sought, then the Indemnitee shall be
entitled to be reimbursed for all Expenses incurred by him in connection with
such judicial adjudication if the amount to which he is determined to be
entitled exceeds 50% of the amount of his claim.  Otherwise, the Expenses
incurred by Indemnitee in connection with such judicial adjudication shall be
appropriately prorated.

     (c) In any judicial proceeding described in this subsection, the
Corporation shall bear the burden of proving that Indemnitee is not entitled to
any Expenses sought with respect to any Claim.

4.  Saving Clause.  If any provision of this Section is determined by a court
    -------------                                                            
having jurisdiction over the matter to require the Corporation to do or refrain
from doing any act that is in violation of applicable law, the court shall be
empowered to modify or reform such provision so that, as modified or reformed,
such provision provides the maximum indemnification permitted by law, and such
provision, as so modified or reformed, and the balance of this Section, shall be
applied in accordance with their terms.  Without, the generality of the

                                       23
<PAGE>
 
foregoing, if any portion of this Section shall be invalidated on any ground,
the Corporation shall nevertheless indemnify an Indemnitee to the full extent
permitted by any applicable portion of this Section that shall not have been
invalidated and to the full extent permitted by law with respect to that portion
that has been invalidated.

5.  Non-Exclusivity.
    --------------- 

     (a) The indemnification and advancement of Expenses provided by or granted
pursuant to this Section shall not be deemed exclusive of any other rights to
which Indemnitee is or may become entitled under any statue, article of
incorporation, by-law, authorization of shareholders or directors, agreement, or
otherwise.

     (b) It is the intent of the Corporation by this Section to indemnify and
hold harmless Indemnitee to the full extent permitted by law, so that if
applicable law would permit the Corporation to provide broader indemnification
rights that are currently permitted, the Corporation shall indemnify and hold
harmless Indemnitee to the full extent permitted by applicable law
notwithstanding that the other terms of this Section would provide for lesser
indemnification.

6.  Successors and Assigns.  This Section shall be binding upon the Corporation,
    ----------------------                                                      
its successors and assigns, and shall inure to the benefit of the Indemnitee's
heirs, personal representatives, and assigns and to the benefit of the
Corporation, its successors and assigns.

7.  Indemnification of Other Persons.
    -------------------------------- 

     (a) The Corporation may indemnify any person not covered by Section 1
through 6 to the extent provided in a resolution of the Board or a separate
Section of these By-laws.

     (b) Nothing in this Section 11 shall obligate the Corporation to indemnify
or advance expenses to any person who was a director, officer or agent of any
corporation merged into this Corporation or otherwise acquired by this

                                       24
<PAGE>
 
Corporation.  Any such person's right to indemnification or advancement of
expenses, if any, shall consist of those rights contained in the agreement
relating to such merger or acquisition.

                                       25