ST. MARY LAND & EXPLORATION COMPANY
1776 Lincoln Street, Suite 1100, Denver, Colorado 80203
(303) 861-8140
PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 20, 1998
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The accompanying proxy is solicited by the Board of Directors of St. Mary
Land & Exploration Company (the "Company") for use at the annual meeting of
stockholders (the "Annual Meeting") to be held in the Forum Room of Norwest
Bank, 1740 Broadway, Denver, Colorado on Wednesday, May 20, 1998 at 3:00 p.m.
local time, and at any and all adjournments thereof, for the purposes set forth
in the Notice of Annual Meeting of Stockholders. The Company anticipates that
this Proxy Statement and the accompanying form of proxy will be first sent or
given to stockholders on or about April 16, 1998.
Any stockholder giving such a proxy has the right, at any time before it
is voted, to revoke the proxy by giving written notice to the Secretary of the
Company, by executing a new proxy bearing a later date, or by voting in person
at the Annual Meeting. A proxy, when executed and not revoked, will be voted in
accordance therewith. If no instructions are given, proxies will be voted FOR
management's slate of directors and FOR approval of the Employee Stock Purchase
Plan and FOR approval of the increase in the number of authorized shares of
common stock ("Common Stock").
All expenses in connection with the solicitation of proxies will be borne
by the Company. The solicitation will be made by mail. The Company will also
supply brokers or persons holding stock in the names of brokers or their
nominees with such number of proxies, proxy material and annual reports as they
may require for mailing to beneficial owners and will reimburse them for their
reasonable expenses incurred in connection therewith. Certain directors,
officers and employees of the Company not specifically employed for that purpose
may, without additional compensation, solicit proxies by mail, telephone,
facsimile transmission, telegraph or personal interview.
UPON WRITTEN REQUEST, THE COMPANY WILL PROVIDE, WITHOUT CHARGE, A COPY OF
ITS ANNUAL REPORT ON FORM 10-K, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES
THERETO, FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 TO EACH RECORD OR
BENEFICIAL OWNER OF ITS COMMON STOCK ON THE RECORD DATE. THERE WILL BE A
REASONABLE CHARGE FOR COPIES OF THE EXHIBITS TO THE REPORT, LIMITED TO THE
COMPANY'S REASONABLE EXPENSES IN FURNISHING THE EXHIBITS. SUCH REQUESTS SHOULD
BE DIRECTED TO THE COMPANY AT 1776 LINCOLN STREET, SUITE 1100, DENVER, COLORADO
80203, ATTENTION: ADELE LINNEMAN.
VOTING SECURITIES
The close of business on Friday, April 3, 1998 has been fixed by the Board
of Directors of the Company as the record date for the determination of
stockholders entitled to notice of and to vote at the Annual Meeting. On that
date, the Company had outstanding 10,984,023 shares of Common Stock, all of
which are entitled to vote on the matters to come before the Annual Meeting.
Each outstanding share of common stock entitles the holder to one vote.
The presence in person or by proxy of one-third of the outstanding shares of
common stock is necessary to constitute a quorum at the meeting, but if a quorum
should not be present, the meeting may be adjourned from time to time until a
quorum is obtained. If a quorum is present, approval of the amendment to the
Company's Certificate of Incorporation requires the affirmative vote of a
majority of all stockholders entitled to vote. Approval of all other matters
upon which the stockholders are to vote requires the affirmative vote of a
majority of shares represented in person or by proxy at the meeting.
Accordingly, any shares present but not voted shall have the same effect as
shares voted against approval.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows beneficial ownership of shares of the Company's
outstanding common stock as of the record date (i) by all persons, insofar as is
known to the Company, owning more than 5% of such stock and (ii) by each
director, each of the executive officers, and all directors and executive
officers as a group.
Name and Position Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership Owned
------------------- -------------------- -------
Stockholders Owning More Than 5%
Greenhouse Associates (1) 644,731 5.9
Directors and Executive Officers
Larry W. Bickle 8,200 (*)
Director
David C. Dudley (2)(3) 86,679 .8
Director
Richard C. Kraus 2,600 (*)
Director
R. James Nicholson (3)(4) 18,777 .2
Director
Arend J. Sandbulte (3)(5) 11,584 .1
Director
John M. Seidl 4,900 (*)
Director
Thomas E. Congdon (6)(7) 107,782 1.0
Chairman and Director
Mark A. Hellerstein (8) 8,756 (*)
President, Chief Executive
Officer and Director
Ronald D. Boone (9) 42,649 .4
Executive Vice President and
Chief Operating Officer
Ralph H. Smith (10) 3,742 (*)
Senior Vice President -
Mid-Continent
David L. Henry - -
Vice President-Finance, Chief
Financial Officer and Secretary
All Executive Officers and Directors 295,669 2.7
as a Group (11 persons) (11)
- -------------
(*) Ownerhsip is less than 0.1 percent.
(1) The address of Greenhouse Associates is Dudley & Company, 444 Madison
Avenue, 34th Floor, New York, New York 10022. Greenhouse Associates is a
Dudley family general partnership, the partners of which include David C.
Dudley.
(2) Includes 64,473 shares which represents 10% of the total number of shares
of Common Stock owned by Greenhouse Associates, in which Mr. Dudley is a
10% general partner.
(3) Includes 3,401 shares underlying presently exercisable stock options.
(4) Held by the defined benefit plan of a corporate affiliate as to which
Mr. Nicholson has voting and investment power.
(5) Includes 400 shares held of record by the spouse of Arend J. Sandbulte as
to which he may be deemed to be the beneficial owner.
(6) Includes 12,205 shares held of record by the spouse of Thomas E. Congdon
as to which he may be deemed to be the beneficial owner. Thomas E.
Congdon and members of his extended family own approximately 30 percent
of the outstanding common stock of the Company. While no formal
arrangements exist, these extended family members may be inclined to act
in concert with Mr. Congdon on matters related to control of the Company.
(7) Includes 32,150 shares underlying presently exercisable stock options.
(8) Includes 6,087 shares underlying presently exercisable stock options.
(9) Includes 39,942 shares underlying presently exercisable stock options.
(10) Includes 1,942 shares held of record by the spouse of Ralph H. Smith as
to which he may be deemed to be the beneficial owner.
(11) Includes 103,042 shares underlying presently exercisable stock options.
2
BOARD OF DIRECTORS AND COMMITTEES
All directors of the Company are elected annually. At this meeting, nine
directors are to be elected to serve for one year or until their successors are
elected and qualified. The Company's nominees for these directorships are
identified below, all of whom are currently serving in that capacity.
The proxies will be voted for such persons as the Company shall determine
unless a contrary specification is made in the proxy. All nominees have
indicated their willingness to serve as directors of the Company. However, if
any nominee is unable or should decline to serve as a director, it is the
intention of the persons named in the proxy to vote for such other person as
they in their discretion shall determine.
The Board of Directors, acting as a Nominating Committee of the Whole,
selects director nominees and will consider suggestions by stockholders for
names of possible future nominees delivered in writing to the Secretary of the
Company on or before November 1 in any year for election at the next Annual
Meeting. The Board performed its Nominating Committee functions during the
course of regular meetings of the full Board of Directors in early 1998. The
Board has a Compensation Committee whose primary function is to oversee the
administration of the Company's employee benefit plans and to establish the
Company's compensation policies. The Compensation Committee recommends to the
Board the compensation arrangements for senior management and directors,
adoption of compensation plans in which officers and directors are eligible to
participate, and the granting of stock options or other benefits under
compensation plans. See "Report of Compensation Committee" contained herein.
This committee, comprised of Richard C. Kraus, Chairman, R. James Nicholson and
Arend J. Sandbulte, met once during 1997. All members of the committee attended
the meeting. The Board also has an Audit Committee to assist the Board in
fulfilling its responsibilities for financial reporting by the Company. The
Audit Committee recommends the engagement and discharge of independent auditors,
directs and supervises special investigations when necessary, reviews with
independent auditors the audit plan and the results of the audit, reviews the
independence of the independent auditors, considers the range of audit fees, and
reviews the scope and results of the Company's procedures for internal auditing
and the adequacy of its system of internal accounting controls. Members of the
audit committee are John M. Seidl, Chairman, Larry W. Bickle and Richard C.
Kraus. The audit committee met twice during 1997 to review the audit plan and
the results of the audit and to plan and recommend auditors for the next audit.
All members of the audit committee attended each meeting.
During 1997, the full Board of Directors met six times. No director
attended less than 75% of the Board and committee meetings held during the
Director's tenure on the Board and its committees.
3
Nominees
- --------
The following information regarding the nominees is provided in
conjunction with their nomination for re-election.
Age at Director
Directors/Occupation and Background April 16, 1998 Since
----------------------------------- -------------- --------
Thomas E. Congdon. Mr. Congdon has served the Company 71 1966
as an officer and director since 1966, including service as
its President and Chief Executive Officer for more than 25
years. Mr. Congdon is also a director, officer or general
partner of a number of family corporations and partnerships
which produce scientific and statistical software, iron ore
and agricultural products, manage marketable securities and
own and operate developed real estate. From 1980 to 1991, he
was Chairman of the Board of Directors of CoCa Mines Inc.,
which was an affiliate of the Company during that time. From
1974 to 1994, he was a director of Colorado National
Bankshares Inc., a bank holding company.
Mark A. Hellerstein. Mr. Hellerstein joined the Company 45 1992
in September 1991 and served as Executive Vice President and
Chief Financial Officer until May 1992, at which time he was
elected President and a director of the Company. Mr.
Hellerstein was elected Chief Executive Officer of the
Company in May 1995. He also has served as Chairman of the
Board of Summo Minerals since 1995. From 1987 through August
1991 (excluding October 1989 to May 1990), he served as Vice
President-Finance, Chief Financial Officer and Secretary for
CoCa Mines Inc.
Ronald D. Boone. Mr. Boone has served the Company as 50 1996
Executive Vice President since 1990, as Chief Operating
Officer since 1992 and as a director of the Company since
1996. From 1981 to 1990, he was employed in various
capacities by Anderman/Smith Operating Company, an affiliate
of the Company during that period, most recently as Vice
President-Production and Engineering.
Larry W. Bickle. Mr. Bickle has served as a director of 52 1995
the Company since 1995. He is currently Managing Director of
Haddington Ventures, L.L.C., a private company that invests
in midstream energy companies and assets. He is also a
Director of Unisource, Inc., the holding company for Tucson
Electric. He formerly founded and was Chairman and Chief
Executive Officer of TPC Corporation, a public gas storage
and transportation company.
4
David C. Dudley. Mr. Dudley has served as a director of 47 1986
the Company since 1986. Since 1983, he has served as
Operating Manager of Dudley & Associates, LLC, Denver,
Colorado, a closely-held oil and gas exploration and
production firm. Since 1985, he has served as a member of
the New York investment advisory firm Dudley & Company LLC.
In addition, since 1980 Mr. Dudley has served as a general
partner of Greenhouse Associates, a closely-held investment
partnership.
Richard C. Kraus. Mr. Kraus has served as a director of 51 1994
the Company since 1994. From 1981 to 1997 he was employed by
Echo Bay Mines Ltd., a public company engaged primarily in
mining operations, most recently as a Director and its
President and Chief Executive Officer.
R. James Nicholson. Mr. Nicholson has served as a 60 1987
director of the Company since 1987. Since 1978, he has
served as President of Nicholson Enterprises, Inc., a land
development company. Mr. Nicholson has also served as
President of Renaissance Homes, a residential home building
company, since 1988. From 1974 to 1997 he served as a
director of Lerch, Bates & Associates, Inc., a consulting
engineering firm. He was elected Chairman of the Republican
National Committee in January 1997.
Arend J. Sandbulte. Mr. Sandbulte has served as a 64 1989
director of the Company since 1989. From 1964 to 1996, he
was employed by Minnesota Power & Light Company, a
publicly-held, diversified energy utility, most recently as
its Chairman of the Board, President and Chief Executive
Officer, and continues as a director of this utility, a
position to which he was first elected in 1983.
John M. Seidl. Mr. Seidl has served as a director of 59 1994
the Company since 1994. He currently serves as Chairman,
President, Chief Executive Officer and director of CellNet
Data Systems. From 1989 to 1993, he served as an officer and
director of MAXXAM Inc., a public company, and of Kaiser
Aluminum Corporation and The Pacific Lumber Company, sub-
sidiaries of MAXXAM Inc.
There are no family relationships (first cousin or closer) among the
directors. There are no arrangements or understandings between any director and
any other person pursuant to which that director was or is to be elected.
5
Director Compensation
- ---------------------
Each non-employee director receives 600 shares of the Company's stock
per year for serving as a director and is paid $750 for each meeting attended.
Non-employee directors named to the various committees are paid $600 for each
committee meeting attended. Directors are reimbursed for expenses incurred in
attending Board and committee meetings. Members of the Board of Directors also
participate in the Company's Stock Option Plan as described below under
Executive Compensation.
EXECUTIVE OFFICERS OF THE COMPANY
The following background information is provided on the Company's
executive officers.
Age at Officer
Name/Position and Background April 16,1998 Since
---------------------------- ------------- -------
Thomas E. Congdon. Chairman. See "Board of Directors 71 1996
and Committees."
Mark A. Hellerstein. President and Chief Executive 45 1991
Officer. See "Board of Directors and Committees."
Ronald D. Boone. Executive Vice President and Chief 50 1990
Operating Officer. See "Board of Directors and Committees."
Ralph H. Smith. Senior Vice President - Mid-Continent. 55 1995
Mr. Smith has served the Company as Senior Vice President -
Mid-Continent since 1995. From 1982 to 1994, he was
Executive Vice President of Anderman/Smith Operating
Company, an affiliate of the Company during that period.
David L. Henry. Vice President-Finance, Chief Financial 41 1996
Officer and Secretary. Mr. Henry joined the Company in 1996
as Vice President-Finance and Chief Financial Officer. From
1983 to 1996, he was employed in corporate finance
investment banking positions with Boettcher & Company, Inc.,
CharterWest Capital Co. and most recently as
Director-Corporate Finance for Hanifen, Imhoff Inc.
The executive officers of the Company serve at the pleasure of the Board
of Directors and do not have fixed terms. Executive officers generally are
elected at the regular meeting of the Board immediately following the annual
stockholder meeting. Any officer or agent elected or appointed by the Board of
Directors may be removed by the Board whenever in its judgment the best
interests of the Company will be served thereby without prejudice, however, to
contractual rights, if any, of the person so removed.
There are no family relationships (first cousin or closer) among the
executive officers. There are no arrangements or understandings between any
officer and any other person pursuant to which that officer was elected.
6
EXECUTIVE COMPENSATION
In addition to salaries, the Company has granted stock appreciation
rights ("SARs") to certain executive management personnel. These individuals
also participate with other members of management in a net profits interest
bonus plan and with selected other employees in a stock option plan. All
employees are eligible to participate in the Company's cash bonus plan. These
plans are described on pages 9-12 of this proxy.
The following table sets forth the annual and long term compensation
received during each of the Company's last three years by the Chief Executive
Officer of the Company and by the four other highest compensated executive
officers of the Company during 1997.
SUMMARY COMPENSATION TABLE
--------------------------
Long Term Compensation
-------------------------
Awards
-------------------------
Annual Compensation Restricted All Other
Name and ---------------------- Stock Options/ Compensation
Principal Position Year Salary($) Bonus Awards($) SARs (#) ($) (1)
- ------------------ ---- --------- -------- --------- -------- ------------
Mark A. Hellerstein 1997 $235,000 $410,167 (2) - 9,241 $ 9,500
President and Chief 1996 219,167 63,563 - 56,239 (3) 9,500
Executive Officer 1995 205,000 32,631 - 7,547 9,240
Ronald D. Boone 1997 186,667 389,735 (2) - 7,372 9,500
Executive Vice President 1996 173,333 54,279 - 48,622 (3) 9,500
and Chief Operating Officer 1995 163,333 24,325 - 6,038 9,240
Ralph H. Smith (4) 1997 176,000 51,150 - 6,767 9,500
Senior Vice President - 1996 169,333 8,350 - 15,425 (3) 1,740
Mid-Continent 1995 41,750 350 - - -
David L. Henry (5) 1997 129,933 38,850 - 5,014 5,236
Vice President-Finance, 1996 85,295 350 - 14,573 (3) -
Chief Financial Officer and
Secretary
John P. Congdon (6) 1997 113,500 254,948 (2) - 1,400 6,810
1996 108,667 27,140 - 30,470 (3) 6,520
1995 104,533 13,850 - 3,898 6,160
- --------------
(1) Amounts consist of the Company's contribution to the 401(k) Savings Plan.
(2) Includes cash bonuses and payments pursuant to the Company's SAR Plan and
Net Profits Interest Bonus Plan.
(3) Includes SARs granted January 1, 1996, options granted effective November
21, 1996 pursuant to the Stock Option Plan to cap appreciation for all SARs
at $20.50 per SAR, and options granted on December 31, 1996 pursuant to the
Company's Stock Option Plan and ISO Plan.
(4) Ralph H. Smith became an executive officer October 1, 1995, compensated at
an annual salary of $167,000.
(5) David L. Henry became an executive officer April 29, 1996, compensated at
an annual salary of $125,000.
(6) John P. Congdon retired effective March 1, 1998. Mr. Congdon's option
awards reflect the forfeiture of 2,080 unvested options granted in 1996 and
2,972 unvested options granted in 1997.
7
Stock options granted to the Company's five highest compensated
executive officers during 1997 are set forth in the following two tables.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
- ------------------------------------------------------------------------------------- Potential Realizable Value
Percentage of at Assumed Annual Rates of
Total Stock Price Appreciation
Options Granted for Option Term
Number of to Employees Base Price Expiration --------------------------
NAME Options Granted in 1997 Per Share Date 5% 10%
- -------- --------------- --------------- ---------- ---------- ---------- ----------
Mark A. Hellerstein 2,492 (1) 3.4% $29.38 12/31/06 $ 46,037 $ 116,666
6,749 (2) 6.5% $35.00 12/31/07 148,554 376,466
Ronald D. Boone 1,972 (1) 2.7% $29.38 12/31/06 36,430 92,322
5,400 (2) 5.2% $35.00 12/31/07 118,861 301,217
Ralph H. Smith 1,907 (1) 2.6% $29.38 12/31/06 35,229 89,278
4,860 (2) 4.7% $35.00 12/31/07 106,975 271,096
David L. Henry 1,402 (1) 1.9% $29.38 12/31/06 25,900 65,636
3,612 (2) 3.5% $35.00 12/31/07 79,505 201,481
John P. Congdon (3) 614 (1) 1.7% $29.38 12/31/06 11,343 28,745
786 (2) 3.0% $35.00 12/31/07 17,301 43,844
- ------------
(1) Stock options granted effective May 21, 1997 pursuant to the Company's
Stock Option Plan as described on page 10 of this proxy statement.
(2) Stock options granted effective December 31, 1997 pursuant to the Company's
Stock Option Plan as described on page 10 of this proxy statement.
(3) John P. Congdon retired effective March 1, 1998 and forfieted 2,972
unvested options
AGGREGATED OPTION/SAR EXERCISES IN 1997 AND
DECEMBER 31, 1997 OPTION/SAR VALUE
Number of Value of Unexercised
Unexercised Options/SARs In-the-Money
Held at Options/SARs at
Shares December 31, 1997 December 31, 1997 (1)
Acquired Value ------------------------------ ------------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------- ----------- --------- ----------- ------------- ------------- ---------------
Mark A. Hellerstein (2) 41,379 1,024,988 6,087 37,642 $ 143,045 $ 544,553
Ronald D. Boone (3) 7,307 229,805 39,942 29,981 1,204,518 198,455
Ralph H. Smith - - - 16,228 - 173,525
David L. Henry - - - 13,587 - 162,098
John P. Congdon (4) - - 14,660 13,389 421,942 87,348
- --------------
(1) On December 31, 1997, the last reported sales price of the Common Stock
as quoted on the Nasdaq National Market System was $35.00.
(2) On September 1, 1991, the Company granted Mr. Hellerstein an option to
purchase 27,307 shares of the Company's Common Stock at an exercise price
of $3.30 per share. The option was exercised in 1997.
(3) On November 1, 1990, the Company granted Mr. Boone an option to purchase
27,307 shares of the Company's Common Stock at an exercise price of $3.30
per share. The option expires ten years from the date of grant. In 1997,
7,307 shares were exercised, leaving 20,000 shares remaining under this
option.
(4) John P. Congdon retired effective March 1, 1998. Mr. Congdon's
unexercisable options held at December 31, 1997 reflect the forfeiture of
2,080 unvested options granted in 1996 and 2,972 unvested options granted
in 1997.
8
Incentive Compensation Plans
- ----------------------------
Effective January 1992, the Company adopted the Cash Bonus Plan, the Net
Profits Interest Bonus Plan, and the Stock Appreciation Rights Plan ("SAR
Plan"). On November 21, 1996 the Company adopted the Stock Option Plan and on
March 27, 1997 the Company adopted the Incentive Stock Option Plan.
Cash Bonus Plan. In January of each year the Board of Directors of the
Company determines whether the Company's performance during the prior year
warrants payment of a cash bonus to employees. If so, the Board designates key
employees to participate in the Cash Bonus Plan and the aggregate amount of
bonuses to be paid to those designated persons, which amount is to be not less
than ten nor more than fifty percent of their aggregate base salaries. The Cash
Bonus Plan participants share in such aggregate amount pro rata to the
performance adjusted base salary of each participant. The performance adjusted
base salary is between zero and one hundred percent of the employee's base
salary for the prior calendar year as determined by his or her supervisor. The
performance adjusted base salary of the Chief Executive Officer of the Company
is determined by the Board of Directors. No participant may receive a pro rata
portion of the aggregate bonus amount in excess of fifty percent of his or her
salary for the prior year and a participant must be employed by St. Mary at the
time the cash bonuses are awarded. The Board of Directors has the unilateral
right to terminate or modify the Cash Bonus Plan.
Net Profits Interest Bonus Plan. Each year the Board of Directors of the
Company designates key employees to participate in the Net Profits Interest
Bonus Plan for the following calendar year. Participation is contingent upon the
participant continuing to be an employee of the Company throughout the entire
calendar year. The participants receive a bonus based on the aggregate net
profits earned by the Company's interests in oil and gas wells completed or
acquired during the following year. The total amount of the bonus pool to be
distributed to all participants for such year is ten percent of net profits
after the Company has recovered one hundred percent of all costs incurred by it
with respect to those wells. The bonus pool increases to twenty percent of
aggregate net profits after the Company has recovered two hundred percent of
costs.
Participants in the Net Profits Interest Bonus Plan for a year share in
the net profits bonus pool for the year in proportion to their relative weighted
base salaries during that year. For this purpose, the salaries of the President
and the Executive Vice President of the Company are weighted at one hundred
percent of their base salaries and the salaries of all other participants are
weighted at two-thirds thereof or less.
In the event that the Company engages in a large oil and gas acquisition
during a calendar year, which is defined as a project having a cost of more than
75 percent of the average annual aggregate costs expended by the Company for
other oil and gas projects during such year and during the preceding two
calendar years, such large project is accounted for as a separate pool and the
ten and twenty percent net profits interests are proportionately reduced to the
extent that this large project exceeds that 75 percent comparison. Moreover, the
costs of the Company to be recovered in determining the net profits of a large
project include interest. Oil and gas projects with aggregate costs incurred
over more than one year are also accounted for as a separate pool if such costs
exceed 10 percent of the Company's average annual expenditures for acquisition,
exploration and development during the initial year and the preceding two
calendar years, exclusive of this project and other similar large projects.
The Company has the right at any time to acquire the rights of all
participants in any Plan Year if the participants holding no less than
two-thirds of the Plan Year's interests have agreed in writing to the terms and
conditions of a buyout of that Plan Year. The Board of Directors has the right
at any time to terminate or modify prospectively the Net Profits Interest Bonus
Plan.
9
Stock Appreciation Rights Plan. Effective January 1, 1992 the Company
adopted a SAR Plan. Participation in the plan was limited to the directors and
the most senior employees of the Company. The SAR Plan was designed to provide a
participant with the opportunity five years after he was allocated a stock
appreciation right to receive with respect to such right a cash amount equal to
100% of his base salary for the year of grant if the per share value of the
Common Stock during such five-year period increased at an average rate of 25%
per annum. This plan was replaced by a Stock Option Plan on November 21, 1996,
subject to all SARs then granted. As part of this new option plan, substantially
all of the SARs previously granted were capped at $20.50, the market price on
that date, and an equal number of stock options were granted to replace them
with an exercise price of $20.50 which allows the holders to realize the same
appreciation as would otherwise have been realized under the SAR Plan.
Stock Option Plan. Effective November 21, 1996 the Company adopted a Stock
Option Plan. Directors and selected employees of the Company are granted options
under the Stock Option Plan at the discretion of the Board of Directors. Options
are exercisable five years after grant and expire unless exercised within ten
years of grant.
The Board of Directors of the Company each year determines the
participants in the Stock Option Plan. The right of a participant to an
allocated stock option vests 25% immediately and the balance ratably over a
three-year period following the award of the option so that if such participant
terminates his employment prior to three years after an award, the award will be
proportionately reduced. However, by Board resolution, the options of a
participant employed by the Company for no less than 12 years who retires after
reaching age 60 and who does not subsequently become a full-time employee of a
competitor prior to reaching age 65 shall not be subject to any reduction.
Non-employee directors currently receive each year non-tax qualified options for
1,000 shares which vest over a three-year period in the same manner as for
employee participants, except that the options of a director who retires after
five years of service shall become fully vested upon retirement. The Board of
Directors retains the right to terminate or modify prospectively the Stock
Option Plan at any time.
In addition, the Board of Directors adopted on March 27, 1997 an
Incentive Stock Option Plan ("ISO Plan") which is intended to be a companion
option plan with the Stock Option Plan. The ISO Plan is an alternative to the
above-described Stock Option Plan for those employees designated by the Board of
Directors to be granted stock options, with such employees electing at the time
of grant whether the options to be granted shall be non-tax qualified options
granted under the above-described Stock Option Plan or incentive stock options
granted under the ISO Plan.
10
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
administers the Company's executive compensation programs. After consideration
of the Committee's recommendations, the full Board of Directors reviews and
approves the salaries of all elected officers, including those of the executive
officers named in the Summary Compensation Table on page 7. The Committee is
responsible for all other elements of executive compensation, including cash
bonuses, stock options, and the Net Profits Interest Bonus. The Committee is
also responsible for approving the salaries of all officers, reviewing salary
policies for all employees and approving the amount and distribution of payments
made under the Cash Bonus Plan. In addition, the Committee reviews the
performance of the Company's pension and 401(k) plans with the trustees of the
plans.
The goals of the Company's integrated executive compensation programs
include the following:
1. Attract and retain talented management personnel.
2. Encourage management to obtain superior returns for the Company's
stockholders.
3. Promote preservation of the Company's capital base.
Salaries
- --------
In order to emphasize performance-based incentive compensation, base
salaries are targeted to be slightly below the median salary for the industry.
The Committee, with the assistance of management, determines the salary ranges
for various positions based on survey data from the Company's industry peer
group. The Committee then reviews management's recommendations for executive
salaries and the performance summaries on which they are based. Final salary
recommendations are made by the Committee to the full Board based on experience,
sustained performance, and comparison to peers inside and outside the Company.
Incentive Compensation
- ----------------------
The Company also has established three compensation plans which have the
potential to increase annual compensation if the economic performance of the
Company and its employees so warrants. These plans, which are described in
detail in the "Incentive Compensation Plans" section of the Proxy Statement,
have certain specific objectives.
1. The Net Profits Interest Bonus Plan is designed to reward the personal
contributions made by various management personnel to the Company's financial
success. Plan participants share in the net profits in proportion to their
relative weighted salaries during the year. Recognizing that the primary
incentive for profitable acquisitions and operations needs to be provided to the
most senior of the executive officers, the salaries of the president and the
executive vice president are weighted at 100% and the salaries of all other
participants are weighted at two-thirds of actual base salary or less.
2. The Stock Option Plan is intended to reward executive management of
the Company for long-term increases in the value of the Company's stock. The
Stock Option Plan focuses on appreciation of the market price of the Company's
stock over a five year period. As presently implemented by the Board (and in
conjunction with the SARs as to the options granted November 21, 1996), if the
average stock appreciation during this period is 25% per year, then the persons
granted stock options at the beginning of the period will, at the end of five
years, have the opportunity to receive an amount equal to 100% of their base
salary at the time the stock option was granted. The options may be exercised at
any time during a five year period beginning five years after the grant. This
Stock Option Plan is designed to encourage management's concern for long-term
appreciation of the stockholders' interest. In addition, the Board of Directors
approved on March 27, 1997 an Incentive Stock Option Plan ("ISO Plan") which is
intended to be a companion option plan with the Stock Option Plan. The ISO Plan
is an alternative to the above-described Stock Option Plan for those employees
designated by the Board of Directors to be granted stock options, with such
employees electing at the time of grant whether the options to be granted shall
be non-tax qualified options granted under the above-described Stock Option Plan
or incentive stock options granted under the ISO Plan.
11
3. The Company also has established a Cash Bonus Plan. Each year the
Board of Directors evaluates the overall performance of the Company for the year
and with the assistance of management determines the total cash bonus available
to be allocated to employees. The proportional participation of each designee is
a function of his or her performance during the year. As the minimum cash bonus
distribution would equal ten percent of the salaries of designated participants,
employees are motivated to achieve individual excellence even if the business
climate affecting the oil and gas industry is poor.
Conclusion
- ----------
The Company's executive compensation is linked to individual and
corporate performance and stock price appreciation. Base salaries are set below
the median for the industry so that incentivized compensation can have its
intended effect. The Compensation Committee plans both to continue the policy of
linking executive compensation to individual and corporate performance and
returns to stockholders and to provide a cash bonus incentive to key employees
which will provide performance motivation independent of the ups and downs of
the oil and gas industry's business cycle.
Richard C. Kraus, Chairman
R. James Nicholson
April 3, 1998 Arend J. Sandbulte
12
RETIREMENT PLANS
Pension Plan
- ------------
The Company's Pension Plan is a qualified, non-contributory defined
benefit plan which is available to substantially all employees. This Plan was
amended in 1994 to conform with the changes required by the Tax Reform Act of
1986 and to reduce the plan formula. The Company also has a supplemental pension
plan for certain executive officers to provide for benefits in excess of
Internal Revenue Code limits.
The following table shows the estimated maximum annual benefits payable
upon retirement at age 65 as a straight life annuity to participants in the
Pension Plans for the indicated levels of average annual compensation and years
of service.
Estimated Annual Pension Estimated Annual Pension
Benefits for Executives Benefits for Executives
Hired before 1995 with more Hired after 1995 with more
Remuneration than 15 years of service than 25 years of service
- ------------ --------------------------- --------------------------
$100,000 $ 67,454 $ 35,000
125,000 86,704 43,750
150,000 105,954 52,500
175,000 125,204 61,250
200,000 144,454 70,000
250,000 182,954 87,500
The qualified plan provides a benefit after 25 years of service equal to
35% of final average compensation, subject to Internal Revenue Code limits.
Final average compensation is the average of the highest 3 consecutive years of
the 10 years preceding termination of employment. For each named executive
officer, the level of compensation used to determine benefits payable under the
qualified pension plan is such officer's average of the base salaries (excluding
bonus) shown in the Summary Compensation Table.
The supplemental plan provides executives hired prior to 1995, after
completing 15 years of service and reaching age 65, a benefit equal to 40% of
final average compensation plus 37% of final average compensation integrated
with the social security wage base without regard to compensation limitations
provided under the qualified plan less the benefit provided by the qualified
plan. For executives hired after 1994, the supplemental benefit is calculated
using the formula for the qualified plan without the limitation imposed by
Section 415 of the Internal Revenue Code, less the benefit provided by the
qualified plan.
As of December 31, 1997, the named executive officers have the following
years of credited service:
Mark A. Hellerstein 6
Ronald D. Boone 7
Ralph H. Smith 2
David L. Henry 2
401(k) Plan
- -----------
The Company's 401(k) Profit Sharing Plan is a defined contribution
pension plan qualified under the Employee Retirement Income Security Act of
1974. The 401(k) Plan allows eligible employees to contribute up to nine percent
of their income on a pre-tax and/or after tax basis through contributions to the
401(k) Plan. The Company matches each employee's contributions up to six
percent of the employee's pre-tax income. The Company also may contribute
additional funds to the 401(k) Plan each year in its discretion. Company
contributions vest over an employee's first five years of employment.
13
PERFORMANCE GRAPH
The following Performance Graph compares the Company's cumulative total
stockholder return on its Common Stock for the period December 31, 1992 to
December 31, 1997 with the cumulative total return of the Standard Industrial
Classification Code ("SIC Code") for Crude Petroleum and Natural Gas and the S&P
500 Index. The SIC Code for Crude Petroleum and Natural Gas is 1311. The
identities of the companies included in the index will be provided upon request.
[GRAPH APPEARS HERE]
COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG ST. MARY LAND & EXPLORATION COMPANY,
THE S&P 500INDEX, AND THE SIC CODE INDEX
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
-------- -------- -------- -------- -------- --------
ST. MARY LAND & EXPLORATION COMPANY 100.00 107.74 117.94 126.14 226.31 320.51
SIC CODE INDEX 100.00 119.15 124.87 137.33 182.60 185.09
S&P 500 INDEX 100.00 110.08 111.54 153.45 188.69 251.64
- --------------
Assumes $100 invested on December 31, 1992 in St. Mary Land & Exploration
Company, S&P 500 Index and SIC Code Index for Crude Petroleum and Natural
Gas.
*Total return assumes reinvestment of dividends.
14
EMPLOYMENT AGREEMENT
On September 1, 1991, the Company entered into an employment agreement
with Mr. Hellerstein. His current salary is $250,000 per year. Compensation is
reviewed annually. Mr. Hellerstein participates in the Company's benefit plans
and is entitled to bonuses and incentive compensation as determined by the Board
of Directors and the Chairman of the Company. The agreement is terminable at any
time upon 30 days' notice by either party. Upon termination of the agreement by
the Company for any reason whatsoever (other than death, disability or
misconduct by Mr. Hellerstein), the Company is obligated to continue to pay his
compensation, including insurance benefits, for a period of one year.
The Company also entered into an employment agreement with Mr. Smith
effective October 1, 1995 and amended as of February 23, 1998. His current
salary is $180,000 per year. Mr. Smith participates in the Company's benefit
plans and is entitled to bonuses and incentive compensation as determined by the
Board of Directors. The agreement allows Mr. Smith to elect to participate on an
annual basis as a working interest owner in oil and gas interests acquired by
the Company and managed through the Company's Mid-Continent (Tulsa) office
during each year, which election is in lieu of participation in the Company's
Net Profits Interest Bonus Plan. In addition, the Company administers Mr.
Smith's interests at no charge. This agreement is terminable at any time and
without further obligation upon six months notice by either party.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Set forth below is a description of transactions entered into between the
Company and certain of its officers and directors during the last three years.
Other transactions between the Company and its wholly-owned subsidiary St. Mary
Operating Company, formerly Anderman/Smith Operating Company ("Anderman/ Smith")
and some of its key personnel are described in Footnote 9 to the financial
statements contained in the Form 10-K filed by the Company for 1997. Certain of
these transactions will continue in effect and may result in conflicts of
interest between the Company and such individuals. Although these persons may
owe fiduciary duties to the Company and its stockholders, there can be no
assurance that conflicts of interest will always be resolved in favor of the
Company.
R. James Nicholson has served as a director of the Company since 1987. He
is also active in the real estate business. See "Nominees". Mr. Nicholson owns a
17% interest in a 40-acre parcel subject to a preferential distribution right in
favor of Parish Corporation (a wholly-owned subsidiary of the Company) in the
amount of $1,265,000.
Ralph H. Smith was hired as Senior Vice President - Mid-Continent on
October 1, 1995. During the previous 14 years he was a shareholder of
Anderman/Smith and the principal manager of its activities in the Anadarko
Basin. Along with the Company, he acquired a working interest in all of the oil
and gas rights acquired through Anderman/Smith. The Board of Directors has
approved the cost-bearing working interest participation by Mr. Smith, at his
annual election as to participation and amount, of up to 10% of all working
interests acquired by the Company each year which are managed from the
Mid-Continent (Tulsa) office. Mr. Smith elected to participate at 7.5% for 1997
and 0% for 1998.
As a result of their prior employment by Anderman/Smith, Ronald D. Boone
and three other Vice Presidents own working interests and royalty interests in
many of the Company's properties, earned as part of two Anderman/Smith employee
benefit programs and from other Anderman/Smith entities in which they
participated. They have no royalty participation in any new Company properties.
Mr. Boone also owns 50% of Princeton Resources Ltd. and has a 33%
interest in Baron Oil Corporation, entities which manage oil and gas working and
royalty interests which he acquired as a result of his Anderman/Smith
employment. While these corporations are managed by another former
Anderman/Smith employee, Mr. Boone participates in their investment decisions.
The Board of Directors has approved Mr. Boone's involvement in Princeton
Resources and Baron Oil.
15
From time to time, David C. Dudley, a director of the Company, offers the
Company the right to participate in lease acquisition, exploration and
development prospects in which Mr. Dudley's firm has an interest. The Company
currently is not participating in any such prospect.
During 1993 and 1994 the Company and others, having reserved to
themselves the maximum working interest desired by each of them, sought to
obtain the participation of outside parties in the drilling on an exploratory
well on the Patterson Prospect in Louisiana. During 1994, in an effort to obtain
the required amount of outside participation, the Board of Directors approved
participation by any officer, employee or director who wished to acquire a
portion of the available working interest on a promoted basis. Thomas E.
Congdon, Dudley & Associates, LLC and Ronald D. Boone (through Princeton
Resources Ltd.) all participated. A dry well was drilled in early 1995. The
Company and its partners believe that the area remains prospective and plan to
test a new prospect during 1998.
The Company's By-Laws provide that no director may pursue a business or
investment opportunity for himself if he has obtained knowledge of such
opportunity through his affiliation with the Company, provided that the Company
is interested in pursuing such opportunity and is financially or otherwise able
to pursue the opportunity. Moreover, no officer or employee of the Company may
pursue for his own account an oil and gas opportunity unless (a) with respect to
an officer of the Company, the interest has been approved by the Board of
Directors and (b) with respect to a non-officer of the Company, such interest of
the employee has been approved by a senior officer of the Company with full
knowledge of such opportunity. These restrictions do not apply to the
acquisition of less than one percent of the publicly traded stock of another
company as long as the Company is not at such time engaged in any present or
pending transaction with the other company.
OTHER MATTERS TO BE VOTED UPON
Employee Stock Purchase Plan
- ----------------------------
Effective September 18, 1997, the Board of Directors adopted an
Employee Stock Purchase Plan. The purpose of the Employee Stock Purchase Plan is
to enhance stockholder value by attracting, retaining and motivating key
employees of the Company and of any subsidiary of the Company by providing them
with a means to acquire a proprietary interest in the Company's success.
The total number of shares of Common Stock of the Company that may be
issued under the Employee Stock Purchase Plan is 500,000. The Employee Stock
Purchase Plan provides for semi-annual offerings of the Common Stock of the
Company to employees commencing on January 1 and July 1 and terminating on June
30 and December 31 of each year through 2017 (the "Semi-Annual Programs"). The
first Semi-Annual Program, subject to stockholder approval, commenced on January
1, 1998 and terminates on June 30, 1998.
All employees of the Company who have completed one year of continuous
employment are eligible to participate in subsequent Semi-Annual Programs.
Employees who elect to participate in a Semi-Annual Program do so by means of
after-tax payroll deductions equal to not less than 1 percent and not more than
15 percent of their base salary. Employees may discontinue their participation
in a Semi-Annual Program at any time and may withdraw all amounts withheld
pursuant to a Semi-Annual Program or may elect to decrease their participation
on one occasion during the term of a Semi-Annual Program. Employees may not
purchase more than $25,000 in fair market value of the Company's Common Stock in
any calendar year through the Employee Stock Purchase Plan.
16
The price of shares of Common Stock purchased on behalf of employees
with payroll deductions at the termination of a Semi-Annual Program is equal to
the lower of 85 percent of the closing price of the Common Stock of the Company
on the Nasdaq National Market System on the commencement date of a Semi-Annual
Program or 85 percent of the closing price of the Common Stock of the Company on
the Nasdaq National Market System on the termination date of a Semi-Annual
Program.
Since the Board of Directors believes that the Employee Stock Purchase
Plan will attract, retain and motivate employees of the Company and of any
subsidiary of the Company, the Board of Directors recommends that the
stockholders vote FOR the approval of the Employee Stock Purchase Plan.
Increase in Authorized Shares of Common Stock
- ---------------------------------------------
The Company has 15,000,000 authorized shares of $.01 par value common
stock ("Common Stock"), of which 10,984,023 shares were outstanding as of April
3, 1998.
On March 26, 1998, the Board of Directors approved an amendment to the
Company's Certificate of Incorporation to increase the number of authorized
shares of Common Stock to 50,000,000 shares, subject to approval of the
stockholders.
Since the Board of Directors believes that the proposed increase in the
number of authorized shares of Common Stock will provide the Company with
additional financial flexibility, the Board of Directors recommends that
stockholders vote FOR approval of the increase in number of authorized shares of
Common Stock.
Other than the election of Directors, the approval of the Employee Stock
Purchase Plan and the approval of an increase in the number of authorized shares
of Common Stock, the Company is aware of no matters to be submitted to a vote of
the stockholders at the Annual Meeting.
COMPLIANCE WITH SECTION 16(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
Based solely on a review of reports filed with the Company, all directors
and executive officers timely filed all reports regarding transactions in the
Company's securities required to be filed during 1997 by Section 16(a) under the
Securities Exchange Act of 1934.
17
INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Arthur Andersen LLP as the
independent public accountants to audit the books, records and accounts of the
Company for its 1998 fiscal year.
The report of Arthur Andersen LLP on the Company's financial statements
as of December 31, 1997 and the report of Coopers & Lybrand L.L.P. on the
Company's financial statements as of December 31, 1996 and for each of the two
years in the period ended December 31, 1996 contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles. Further, during the two most recent fiscal
years and interim period subsequent to December 31, 1997, there have been no
disagreements with Arthur Andersen LLP or Coopers & Lybrand L.L.P. on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure or any reportable events. The Company first engaged
Arthur Andersen LLP as the independent public accountants for its fiscal 1997
year based on the Company's effort to obtain what it believes to be more
cost-effective accounting and auditing services.
To the knowledge of management, neither of these accounting firms nor any
of their members has any direct or material indirect financial interest in the
Company nor any connection with the Company in any capacity other than as
independent public accountants.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1999 Annual
Meeting of Stockholders must be received by the Company on or before November 1,
1998 in order to be eligible for inclusion in the Company's proxy statement and
form of proxy. To be so included, a proposal must also comply with all
applicable provisions of Rule 14a-8 under the Securities Exchange Act of 1934.
OTHER MATTERS
Management does not know of any other matters to be brought before the
Annual Meeting of Stockholders. If any other matters not mentioned in this proxy
statement are properly brought before the meeting, the individuals named in the
enclosed proxy intend to vote such proxy in accordance with their best judgment
on such matters.
By Order of the Board of Directors
/s/ DAVID L. HENRY
----------------------------------
David L. Henry
Secretary
April 16, 1998
18
EXHIBIT 10.50
ST. MARY LAND & EXPLORATION COMPANY
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
ESTABLISHMENT AND PURPOSE
1.1 Establishment. St. Mary Land & Exploration Company, a Delaware
corporation (the "Company"), hereby establishes an employee stock purchase plan
for employees of the Company or of a subsidiary of the Company, providing
material services to the Company, which shall be known as the ST. MARY LAND &
EXPLORATION COMPANY EMPLOYEE STOCK PURCHASE PLAN (the "Plan").
1.2 Purpose. The purpose of the Plan is to enhance shareholder value by
attracting, retaining and motivating employees of the Company and of a
subsidiary of the Company by providing them with a means to acquire a
proprietary interest in the Company's success.
ARTICLE II
DEFINITIONS
2.1 Account. "Account" shall mean the account maintained by the Plan
Administrator consisting of payroll deductions with respect to such Participant
as adjusted for amounts used to purchase Stock and distributions to the
Participant.
2.2 Base Pay. "Base Pay" shall mean regular straight-time earnings
excluding payments for overtime, shift premium, bonuses and other special
payments, commissions and other incentive payments and as further defined in
Section 8.1.
2.3 Board. "Board" shall mean the Board of Directors of the Company.
2.4 Employee. "Employee" means any person who is customarily employed on a
full-time or part-time basis by the Company or a Subsidiary Corporation and is
regularly scheduled to work more than 20 hours per week.
2.5 Offering. "Offering" shall mean a semi-annual offering of the Company's
Stock as further described in Section 6.1.
2.6 Offering Commencement Date and Offering Termination Date. "Offering
Commencement Date" and "Offering Termination Date" are defined in Section 6.1.
2.7 Option. "Option" shall mean a Participant's right to purchase Stock of
the Company as of each Offering Termination Date for each Offering with the
accumulated payroll deductions in the Participant's Account.
2.8 Participant. "Participant" shall mean an Employee who becomes a
Participant by completing an authorization for payroll deduction under Section
3.4.
-1A-
2.9 Plan Administrator. "Plan Administrator" shall mean the Vice President
of Accounting and Administration or such other person as may be designated from
time to time by the Board of the Company.
2.10 Stock. "Stock" shall mean shares of the Company's common stock subject
to this Plan.
2.11 Subsidiary Corporation. "Subsidiary Corporation" shall mean any
present or future corporation which (i) would be a "subsidiary corporation" of
St. Mary Land & Exploration Company as that term is defined in Section 424 of
the Internal Revenue Code and (ii) is designated as a Participant in the Plan by
the Committee.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 Initial Eligibility. Any Employee who shall have completed one year of
continuous employment and who is employed by the Company on the next following
Offering Commencement Date shall be eligible to participate in Offerings under
the Plan which commence on or after such Offering Commencement Date.
3.2 Leave of Absence. For purposes of participation in the Plan, a person
on leave of absence shall be deemed to be an Employee until his employment with
the Company otherwise terminates.
3.3 Restrictions on Participation. Notwithstanding any provisions of the
Plan to the contrary, no Employee shall be granted an Option
(a) if, immediately after the grant, such Employee would own Stock or
hold outstanding Options to purchase Stock possessing 5% or more of the
total combined voting power or value of all classes of stock of the Company
(for purposes of this paragraph, the rules of Section 424(d) of the Code
shall apply in determining stock ownership of any Employee); or
(b) which permits his rights to purchase Stock under all employee
stock purchase plans of the Company to accrue at a rate which exceeds
$25,000 in fair market value of the Stock (determined at the time such
option is granted) for each calendar year in which such Option is
outstanding.
3.4 Commencement of Participation. An Employee who meets the requirements
of Section 3.1 may become a Participant by completing an authorization for a
payroll deduction on the form provided by the Company and filing it with the
Plan Administrator on or before the date set for such purpose by the Plan
Administrator, which date shall be prior to the Offering Commencement Date for
the Offering (as such terms are defined below). Payroll deductions for a
Participant shall commence on the applicable Offering Commencement Date when his
authorization for a payroll deduction becomes effective and shall end on the
Offering Termination Date of the Offering to which such authorization is
applicable unless sooner terminated by the Participant as provided in Article X.
-2A-
ARTICLE IV
ADMINISTRATION
Administration. The Board shall be responsible for administering the Plan
and appointing the Plan Administrator.
(a) The Board is authorized to interpret the Plan; to prescribe,
amend, and rescind rules and regulations relating to the Plan; to provide
for conditions and assurances deemed necessary or advisable to protect the
interests of the Company with respect to the Plan; and to make all other
determinations necessary or advisable for the administration of the Plan.
Determinations, interpretations, or other actions made or taken by the
Board with respect to the Plan and Options granted under the Plan shall be
final and binding and conclusive for all purposes and upon all persons.
(b) At the discretion of the Board the Plan may be administered by a
Committee of two or more non-employee Directors appointed by the Board (the
"Committee"). The Committee shall have full power and authority, subject to
the limitations of the Plan and any limitations imposed by the Board, to
construe, interpret and administer the Plan and to make determinations
which shall be final, conclusive and binding upon all persons, including
any persons having any interests in any Options which may be granted under
the Plan, or Stock purchased under the Plan.
(c) Where a Committee has been created by the Board pursuant to this
Article IV, references in the Plan to actions to be taken by the Board
shall be deemed to refer to the Committee as well, except where limited by
the Plan or by the Board.
(d) No member of the Board or the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Option granted under it.
ARTICLE V
STOCK SUBJECT TO THE PLAN
5.1 Number. The maximum number of shares of Stock which shall be issued
under the Plan, subject to adjustment upon changes in capitalization of the
Company as provided in Section 5.2 shall be 500,000 shares. If the total number
of shares of Stock for which Options are exercised on any Offering Termination
Date in accordance with Article V exceeds the maximum number of shares of Stock
remaining in the Plan, the Company shall make a pro rata allocation of the
shares available for delivery and distribution in as nearly a uniform manner as
shall be practicable and as it shall determine to be equitable, and the balance
of payroll deductions credited to the Account of each Participant under the Plan
shall be returned to him as promptly as possible.
5.2 Adjustment in Capitalization. In the event of any change in the
outstanding shares of Stock of the Company by reason of a stock dividend or
split, recapitalization, reclassification, or other similar capital change, the
aggregate number of shares of Stock set forth in Section 5.1 shall be
appropriately adjusted by the Board, whose determination shall be conclusive. In
any such case, the number and kind of shares of Stock that are subject to any
Option and the Option price per share shall be proportionately and appropriately
adjusted without any change in the aggregate Option price to be paid therefor
upon exercise of the Option.
-3A-
ARTICLE VI
OFFERINGS
6.1 Semi-Annual Offerings. The Plan will be implemented by semi-annual
offerings of the Company's Stock (the "Offerings") commencing on January 1 and
July 1 of such year and terminating on June 30 and December 31 of such year,
respectively. The first Offering shall commence on January 1, 1998 and, unless
all shares of Stock in the Plan shall have been purchased prior thereto, the
last Offering shall commence on July 1, 2017.
As used in the Plan, "Offering Commencement Date" means the January 1 or
July 1, as the case may be, on which the particular Offering begins and
"Offering Termination Date" means the June 30 or December 31, as the case may
be, on which the particular Offering terminates.
ARTICLE VII
PAYROLL DEDUCTIONS
7.1 Amount of Deduction. At the time a Participant files his authorization
for payroll deduction, deductions shall be made from his Base Pay in accordance
with such authorization on each payday which falls on or after the Offering
Commencement Date and on or before the Offering Termination Date during the time
he is a Participant at the rate of not less than 1% and not more than 15% of his
Base Pay during the Offering. In the case of a part-time hourly Employee, such
Employee's Base Pay during an Offering shall be determined by multiplying such
Employee's hourly rate of Base Pay during the Offering by the number of
regularly scheduled hours of work for such Employee during such Offering.
7.2 Participant's Account. All payroll deductions made for a Participant
shall be credited to his Account under the Plan. A Participant may not make any
separate cash payment into such Account.
7.3 Changes in Payroll Deductions. A Participant may discontinue his
participation in the Plan as provided in Article X or on one occasion only
during the Offering period may elect to decrease the percentage of Base Pay of
his contributions to his Account by filing with the Plan Administrator a new
payroll deduction authorization, but no other change can be made during an
Offering.
7.4 Leave of Absence. If a Participant goes on a leave of absence, such
Participant shall have the right to elect either: (a) to withdraw the balance in
his or her Account pursuant to Section 9.2 or (b) to remain a Participant in the
Plan authorizing deductions to be made from payments by the Company to the
Participant during such leave of absence, if any.
-4A-
ARTICLE VIII
GRANTING OF OPTION
8.1 Number of Option Shares. On the Commencement Date of each Offering, a
Participant shall be deemed to have been granted an Option to purchase shares of
the Stock of the Company equal to (i) that percentage of the Employee's Base Pay
which he has elected to have withheld (but not in any case less than 1% or more
than 15%) multiplied by (ii) the Employee's Base Pay during the period of the
Offering (iii) divided by the lesser of 85% of the market value of Stock on the
applicable Offering Commencement Date or 85% of the market value of each share
of Stock on the applicable Offering Termination Date. The market value of the
Stock shall be determined as provided in paragraphs (a) and (b) of Section 8.2
below. An Employee's Base Pay during the six-month period of an Offering shall
be determined by multiplying his normal weekly Base Pay rate (as adjusted during
the Offering period) by 26 or the hourly rate by 1,040; provided that, in the
case of a part-time hourly Employee, the Employee's Base Pay during the period
of an Offering shall be determined by multiplying such Employee's hourly Base
Pay rate by the number of regularly scheduled hours of work for such Employee
during such Offering.
8.2 Option Price. The option price of each share of Stock purchased with
payroll deductions made during such annual Offering for a Participant therein
shall be the lower of:
(a) 85% of the closing price of the Stock on the Offering Commencement
Date or the nearest prior business day on which trading occurred on the
NASDAQ National Market System; or
(b) 85% of the closing price of the Stock on the Offering Termination
Date or the nearest prior business day on which trading occurred on the
NASDAQ National Market System. If the Stock of the Company is not admitted
to trading on any of the aforesaid dates for which closing prices of the
Stock are to be determined, then reference shall be made to the fair market
value of the Stock on that date, as determined on such basis as shall be
established or specified for the purpose by the Board.
ARTICLE IX
EXERCISE OF OPTION
9.1 Automatic Exercise. A Participant's Option for the purchase of Stock
with payroll deductions made during any Offering will be deemed to have been
exercised automatically on the Offering Termination Date applicable to such
Offering for the purchase of the number of full shares of Stock which the
accumulated payroll deductions in his Account at that time will purchase at the
applicable option price (but not in excess of the number of shares of Stock for
which Options have been granted to the Participant pursuant to Section 8.1).
9.2 Withdrawal of Account. By written notice to the Plan Administrator, at
any time prior to the Offering Termination Date applicable to any Offering, a
Participant may elect to withdraw all the accumulated payroll deductions in his
Account at such time.
9.3 Fractional Shares. Fractional shares will not be issued under the Plan
and any accumulated payroll deductions which would have been used to purchase
fractional shares will be returned to any Participant promptly following the
Offering Termination Date, without interest, unless the Participant has elected
to participate in the next following Offering, in which case such deductions
shall be retained in the Participant's Account and applied to the purchase of
shares of Stock in such Offering.
9.4 Transferability of Option. During a Participant's lifetime, Options
held by such Participant shall be exercisable only by that Participant.
-5A-
9.5 Delivery of Stock. As promptly as practicable after the Offering
Termination Date of each Offering, the Company will deliver to each Participant,
as appropriate, the Stock purchased upon exercise of his Option.
ARTICLE X
WITHDRAWAL
10.1 In General. As indicated in Section 9.2, a Participant may withdraw
payroll deductions credited to his Account under the Plan at any time by giving
written notice to the Plan Administrator of the Company. All of the
Participant's payroll deductions credited to his Account will be paid to him
promptly after receipt of his notice of withdrawal, and no further payroll
deductions will be made from his pay during such Offering. The Company may, at
its option, treat any attempt to borrow by an Employee on the security of his
accumulated payroll deductions as an election, under Section 9.2, to withdraw
such deductions.
10.2 Effect on Subsequent Participation. A Participant's withdrawal from
any Offering will not have any effect upon his eligibility to participate in any
succeeding Offering or in any similar plan which may hereafter be adopted by the
Company.
10.3 Termination of Employment. Upon termination of the Participant's
employment for any reason, including retirement (but excluding death while in
the employ of the Company) prior to the Offering Termination Date, the payroll
deductions credited to his Account will be returned to him or in the case of his
death to the person or persons entitled thereto under Section 19.1.
10.4 Termination of Employment Due to Death. Upon termination of the
Participant's employment because of his death, his beneficiary as defined in
Section 19.1, or if none is designated, his estate shall have the right to elect
by written notice given to the Plan Administrator of the Company prior to the
earlier of the Offering Termination Date or the expiration of a period of 60
days commencing with the date of the death of the Participant either:
(a) to withdraw all of the payroll deductions credited to the
Participant's Account under the Plan, or
(b) to exercise the Participant's Option for the purchase of Stock on
the Offering Termination Date next following the date of the Participant's
death for the purchase of the number of full shares of Stock which the
accumulated payroll deductions in the Participant's Account at the date of
the Participant's death will purchase at the applicable option price, and
any excess in such Account will be returned to said beneficiary, without
interest.
In the event that no such written notice of election shall be duly received
by the office of the Plan Administrator of the Company, the beneficiary shall
automatically be deemed to have elected, pursuant to paragraph (b), to exercise
the Participant's Option.
10.5 Leave of Absence. A Participant on leave of absence shall, subject to
the election made by such Participant pursuant to Section 7.4, continue to be a
Participant in the Plan so long as such Participant remains an Employee.
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ARTICLE XI
INTEREST
11.1 Payment of Interest. No interest will be paid or allowed on any money
paid into the Plan or credited to the Account of any Participant, including
money which is distributed to an Employee or his beneficiary pursuant to any
provision of this Plan.
ARTICLE XII
NO RIGHT TO EMPLOYMENT
Nothing in the Plan shall interfere with or limit in any way the right of
the Company or a Subsidiary Corporation to terminate any Employee's employment
at any time, nor confer upon any Employee any right to continue in the employ of
the Company or a Subsidiary Corporation.
ARTICLE XIII
AMENDMENT, MODIFICATION, AND
TERMINATION OF THE PLAN
The Board may at any time terminate and from time to time may amend or
modify the Plan. Any amendment or modification of the Plan by the Board may be
accomplished without approval of the shareholders of the Company, except in the
event that shareholder approval of such amendment or modification is required by
any law or regulation governing the Company.
No amendment, modification, or termination of the Plan shall in any manner
adversely affect any outstanding Option under the Plan without the consent of
the Participant holding the Option.
ARTICLE XIV
ACQUISITION, MERGER OR LIQUIDATION
14.1 Acquisition.
(a) In the event that an acquisition occurs with respect to the
Company, the Company may, but shall not be required to, cancel an Offering
and all Options outstanding as of the effective date of such acquisition,
whether or not such Options are then exercisable. In that event, the
payroll deductions credited to the Account of each Participant shall be
returned to him. If the Company does not elect to cancel the Offering, such
Offering shall terminate on the day immediately prior to the effective date
of the Acquisition and such date shall be considered the Offering
Termination Date for the Offering.
(b) For purposes of this section, an "acquisition" shall mean any
transaction in which substantially all of the Company's assets are acquired
or in which a controlling amount of the Company's outstanding shares are
acquired, in each case by a single person or entity or an affiliated group
of persons and entities. For purposes of this section, a controlling amount
shall mean more than fifty percent of the issued and outstanding shares of
Stock of the Company. The Company shall have the above option to cancel an
Offering and all Options regardless of how the acquisition is effectuated,
whether by direct purchase, through a merger or similar corporate
transaction, or otherwise.
(c) Where the Company does not exercise its option under this Section
14.1 the remaining provisions of this Article XIV shall apply, to the
extent applicable.
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14.2 Merger or Consolidation. If the Company shall be the surviving
corporation in any merger or consolidation, any Offering shall pertain to and
apply to the securities to which a holder of the number of shares of Stock
subject to the Option would have been entitled in such merger or consolidation,
provided that the Company shall not be considered the surviving corporation for
purposes hereof if the Company is the survivor of a reverse triangular merger.
14.3 Other Transactions. A dissolution or a liquidation of the Company or a
merger and consolidation in which the Company is not the surviving corporation
(the Company shall not be considered the surviving corporation for purposes
hereof if the Company is the survivor of a reverse triangular merger) shall
cause every Offering outstanding hereunder to terminate as of the effective date
of such dissolution, liquidation, merger or consolidation. In that event, the
payroll deductions credited to the Account of each Participant shall be returned
to him.
ARTICLE XV
SECURITIES REGISTRATION
15.1 Securities Registration. In the event that the Company shall deem it
necessary or desirable to register under the Securities Act of 1933, as amended,
or any other applicable statute, any Options or any Stock with respect to which
an Option may be or shall have been granted or exercised, or to qualify any such
Options or Stock under the Securities Act of 1933, as amended, or any other
statute, then the Participant shall cooperate with the Company and take such
action as is necessary to permit registration or qualification of such Options
or Stock.
15.2 Representations. Unless the Company has determined that the following
representation is unnecessary, each person participating in an Offering may be
required by the Company, as a condition to the issuance of the shares of Stock
pursuant to such Offering to make a representation in writing (i) that he is
acquiring such shares for his own account for investment and not with a view to,
or for sale in connection with, the distribution of any part thereof within the
meaning of the Securities Act of 1933, and (ii) that before any transfer in
connection with the resale of such shares, he will obtain the written opinion of
counsel for the Company, or other counsel acceptable to the Company, that such
shares may be transferred without registration thereof. The Company may also
require that the certificates representing such shares contain legends
reflecting the foregoing. To the extent permitted by law, including the
Securities Act of 1933, nothing herein shall restrict the right of a Participant
to sell the shares received in an open market transaction.
ARTICLE XVI
TAX WITHHOLDING
Whenever shares of Stock are to be issued pursuant to an Offering, the
Company shall have the power to require the recipient of the Stock to remit to
the Company an amount sufficient to satisfy federal, state, and local
withholding tax requirements, if any.
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ARTICLE XVII
INDEMNIFICATION
To the extent permitted by law, each person who is or shall have been a
member of the Board or the Committee and the Plan Administrator shall be
indemnified and held harmless by the Company against and from any loss, cost,
liability, or expense that may be imposed upon or reasonably incurred by him in
connection with or resulting from any claim, action, suit, or proceeding to
which he may be a party or in which he may be involved by reason of any action
taken or failure to act under the Plan and against and from any and all amounts
paid by him in settlement thereof, with the Company's approval, or paid by him
in satisfaction of judgment in any such action, suit, or proceeding against him,
provided he shall give the Company an opportunity, at its own expense, to handle
and defend the same before he undertakes to handle and defend it on his own
behalf. The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such persons may be entitled under the
Company's certificate of incorporation or bylaws, as a matter of law, or
otherwise, or any power that the Company or a Subsidiary Corporation may have to
indemnify them or hold them harmless.
ARTICLE XVIII
REQUIREMENTS OF LAW
18.1 Requirements of Law. The granting of Options pursuant to an Offering
and the issuance of shares of Stock upon the exercise of an Option shall be
subject to all applicable laws, rules, and regulations, and to such approvals by
any governmental agencies or national securities exchanges as may be required.
18.2 Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Colorado.
ARTICLE XIX
MISCELLANEOUS
19.1 Designation of Beneficiary. A Participant may file a written
designation of a beneficiary who is to receive any Stock or cash. Such
designation of beneficiary may be changed by the Participant at any time by
written notice to the Plan Administrator of the Company. Upon the death of a
Participant and upon receipt by the Company of proof of identity and existence
at the Participant's death of a beneficiary validly designated by him under the
Plan, the Company shall deliver such Stock or cash to such beneficiary. In the
event of the death of a Participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such Participant's death,
the Company shall deliver such Stock or cash to the executor or administrator of
the estate of the Participant, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its discretion, may
deliver such Stock or cash to the spouse or to any one or more dependents of the
Participant as the Company may designate. No beneficiary shall, prior to the
death of the Participant by whom he has been designed, acquire any interest in
the Stock or cash credited to the Participant under the Plan.
19.2 Transferability. Neither payroll deductions credited to a
Participant's Account nor any rights with regard to the exercise of an Option or
to receive Stock under the plan may be assigned, transferred, pledged, or
otherwise disposed of in any way by the Participant other than by will or the
laws of descent and distribution. Any such attempted assignment, transfer,
pledge or other disposition shall be without effect, except that the Company may
treat such act as an election to withdraw funds in accordance with Section 9.2.
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19.3 Use of Funds. All payroll deductions received or held by the Company
under this Plan may be used by the Company for any corporate purpose and the
Company shall not be obligated to segregate such payroll deductions.
19.4 Effect of Plan. The provisions of the Plan shall, in accordance with
its terms, be binding upon, and inure to the benefit of, all successors of each
Employee in the Plan, including, without limitation, such Employee's estate and
the executors, administrators or trustees thereof, heirs and legatees, and any
receiver, trustee in bankruptcy or representative of creditors of such Employee.
ARTICLE XX
EFFECTIVE DATE OF PLAN
The Plan shall be effective on January 1, 1998.
THIS EMPLOYEE STOCK PURCHASE PLAN was adopted by the Board of Directors of
St. Mary Land & Exploration Company on September 18, 1997, to be effective upon
adoption.
The Plan requires approval of the shareholders of the Company and shall be
submitted to a vote for their approval by the Board of Directors as soon as is
practicable. If this Plan is not approved by vote of the shareholders within 12
months after its adoption by the Board of Directors, it shall be void and any
Offering then in process shall terminate and all Participants shall be returned
the balances in their Accounts. Participants may retain, however, any Stock
already purchased pursuant to a completed Offering and the Company shall deduct
and withhold from any amounts subsequently due and owing to the Participant such
federal, state and local taxes as shall be required pursuant to applicable law
based on failure of the Plan to qualify as an "employee stock purchase plan" as
defined under Internal Revenue Code Section 423.
ST. MARY LAND & EXPLORATION COMPANY
By: /s/ MARK A. HELLERSTEIN
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Title: President and Chief Executive Officer
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