SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities and
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
ST. MARY LAND & EXPLORATION COMPANY
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement Number:
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3) Filing party:
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4) Date filed:
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<PAGE>
April 15, 1999
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Stockholders
which will be held at the Brown Palace Hotel, 321 Seventeenth Street, 2nd Floor,
Denver, Colorado on Wednesday, May 19, 1999 at 3:00 p.m. Mountain Daylight Time.
The matters to be acted upon at the meeting will include the election of
nine Directors and the approval of an amendment to the Stock Option Plans. In
addition, reports of the Company's operations and other matters of interest will
be made at the meeting.Shareholders will have an opportunity to ask questions of
general interest.
Please complete and sign the enclosed proxy card and return it promptly in
the accompanying envelope. This will ensure that your shares are represented at
the meeting even if you cannot attend. Returning your proxy card to us will not
prevent you from voting in person at the meeting if you are present and wish to
do so.
Thank you for your cooperation in returning your proxy card as promptly as
possible. We hope to see many of you at our meeting in Denver.
Very truly yours,
/s/ THOMAS E. CONGDON
---------------------
Thomas E. Congdon
Chairman
<PAGE>
ST. MARY LAND & EXPLORATION COMPANY
1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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May 19, 1999
TO ALL SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders of St.
Mary Land & Exploration Company will be held at the Brown Palace Hotel, 321
Seventeenth Street, 2nd Floor, Denver, Colorado on Wednesday, May 19, 1999 at
3:00 p.m. Mountain Daylight Time. The meeting shall have the following purposes:
1. To elect nine Directors to serve during the ensuing year and until
their successors are elected and qualified;
2. To approve an amendment to the Stock Option Plans increasing the
number of shares authorized to be issued under the plans by 950,000
to an aggregate total of 1,650,000;
3. To transact any other business which may properly come before the
meeting at the time and place scheduled or, should the meeting be
adjourned, at such time and place as it may be resumed.
Only Stockholders of record at the close of business on April 6, 1999 will
be entitled to vote at this meeting.
Please execute and return the accompanying proxy in the enclosed envelope
as soon as possible. Any Stockholder who signs and returns the accompanying
proxy shall have the power to revoke it at any time before it is exercised.
By Order of the Board of Directors
/s/ RICHARD C. NORRIS
---------------------
RICHARD C. NORRIS
Secretary
Denver, Colorado
April 15, 1999
<PAGE>
ST. MARY LAND & EXPLORATION COMPANY
1776 Lincoln Street, Suite 1100, Denver, Colorado 80203
(303) 861-8140
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 19, 1999
------------------------
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 at the Brown Palace Hotel, 321
Seventeenth Street, 2nd Floor, Denver, Colorado on Wednesday, May 19, 1999 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 15, 1999.
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 amendment to the Stock
Option Plans to increase the aggregate number of shares available for issuance
under those Plans by 950,000.
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, 1998 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 Board of Directors of the Company has fixed the close of business on
Friday, April 6, 1999 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 10,827,067 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, the affirmative vote of a majority
of shares represented in person or by proxy will be required to approve the
matters upon which the stockholders are to vote. Accordingly, any shares present
but not voted shall have the same effect as shares voted against approval.
<PAGE>
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.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership Owned
------------------- -------------------- -----
<S> <C> <C>
Stockholders Owning More Than 5%
Greenhouse Associates (1) 644,731 6.0
444 Madison Avenue, 34th Floor
New York, New York 10022
Prudential Investment Corporation 633,000 5.8
Two Gateway Center, Fourth Floor
Newark, NJ 07102-5096
Wellington Management Company 631,700 5.8
75 State Street, 19th Floor
Boston, MA 02109
Oppenheimer Capital 560,195 5.2
200 Liberty Street, 37th Floor
New York, New York 10281
Name and Position
of Beneficial Owner
-------------------
Directors and Executive Officers
Larry W. Bickle 10,800 (*)
Director
David C. Dudley (2)(3) 88,985 .8
Director
Richard C. Kraus 4,706 (*)
Director
R. James Nicholson (3)(4) 20,483 .2
Director
Arend J. Sandbulte (3)(5) 13,290 .1
Director
John M. Seidl (6) 6,606 (*)
Director
Thomas E. Congdon (7)(8) 122,767 1.1
Chairman and Director
Mark A. Hellerstein (9) 18,669 .2
President, Chief Executive Officer
and Director
Ronald D. Boone (10) 50,215 .5
Executive Vice President, Chief Operating
Officer and Director
All Executive Officers and Directors as a
Group (9 persons) (11) 336,521 2.9
</TABLE>
- -------------
(*) Ownership is less than 0.1 percent.
(1) 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 4,507 shares underlying stock options presently exercisable
or exercisable within 60 days.
(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 1,106 shares underlying stock options presently exercisable
or exercisable within 60 days.
(7) 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.
(8) Includes 36,451 shares underlying stock options presently exercisable
or exercisable within 60 days.
(9) Includes 14,689 shares underlying stock options presently exercisable
or exercisable within 60 days.
(10) Includes 41,824 shares underlying stock options presently exercisable
or exercisable within 60 days.
(11) Includes 83,382 shares underlying presently exercisable stock options.
2
<PAGE>
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 1999. 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 twice during 1998. 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 1998 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 1998, 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
<PAGE>
Nominees
- --------
The following information regarding the nominees is provided in
conjunction with their nomination for re-election.
<TABLE>
<CAPTION>
Age at
April 15, Director
Directors/Occupation and Background 1999 Since
----------------------------------- --------- --------
<S> <C> <C>
Thomas E. Congdon. Mr. Congdon has served the Company as 72 1966
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.
Mark A. Hellerstein. Mr. Hellerstein joined the Company 46 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 from 1995 to 1998.
Ronald D. Boone. Mr. Boone has served the Company as 51 1996
Executive Vice President since 1990, as Chief Operating
Officer since 1992 and as a director of the Company since
1996.
Larry W. Bickle. Mr. Bickle has served as a director of 53 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.
David C. Dudley. Mr. Dudley has served as a director of 48 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 52 1994
the Company since 1994. Mr. Kraus is currently President and
Chief Executive Officer of Carmeuse North America. 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.
4
<PAGE>
R. James Nicholson. Mr. Nicholson has served as a 61 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. He was elected Chairman of the
Republican National Committee in January 1997.
Arend J. Sandbulte. Mr. Sandbulte has served as a 65 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 the 60 1994
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,
subsidiaries of MAXXAM Inc.
</TABLE>
There are no family relationships 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.
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 and $300 for telephonic meetings. 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.
<TABLE>
<CAPTION>
Age at Officer
Name/Position and Background April 15, 1999 Since
---------------------------- -------------- -------
<S> <C> <C>
Thomas E. Congdon. Chairman. See "Board 72 1966
of Directors and Committees."
Mark A. Hellerstein. President and Chief 46 1991
Executive Officer. See "Board of Directors
and Committees."
Ronald D. Boone. Executive Vice President 51 1990
and Chief Operating Officer. See "Board of
Directors and Committees."
</TABLE>
5
<PAGE>
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 among the executive officers. There are
no arrangements or understandings between any officer and any other person
pursuant to which that officer was elected.
EXECUTIVE COMPENSATION
In addition to salaries, the Company has granted stock options to
executive management and selected other personnel. These individuals also
participate with other members of management in a net profits interest bonus
plan and with selected other employees in the prior stock appreciation rights
("SARs") plan. All employees are eligible to participate in the Company's cash
bonus plan. These plans are described on pages 8-11 of this proxy statement.
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 1998.
<TABLE>
<CAPTION>
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)
- ------------------ ---- --------- ----- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Hellerstein 1998 $253,333 $216,172 (2) - 14,976 $ 10,000
President and Chief 1997 235,000 410,167 (2) - 9,241 9,500
Executive Officer 1996 219,167 63,563 - 56,239 (3) 9,500
Ronald D. Boone 1998 202,667 193,074 (2) - 11,980 10,000
Executive Vice President 1997 186,667 389,735 (2) - 7,372 9,500
and Chief Operating Officer 1996 173,333 54,279 - 48,622 (3) 9,500
Ralph H. Smith (4) 1998 180,000 50,000 - - 10,000
Senior Vice President - 1997 176,000 51,150 - 6,767 9,500
Mid-Continent 1996 169,333 8,350 - 15,425 (3) 1,740
David L. Henry (5) 1998 135,867 55,650 - 8,064 8,152
Chief Financial Officer 1997 129,933 38,850 - 5,014 5,236
1996 85,295 350 - 14,573 (3) -
Thomas E. Congdon 1998 81,067 109,919 (2) - 4,792 4,864
Chairman of the Board 1997 80,000 424,123 (2) - 3,036 4,800
1996 80,000 8,350 - 47,547 (3) 4,800
</TABLE>
- -----------
(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 Nov-
ember 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.
(4) Ralph H. Smith resigned effective February 25, 1999.
(5) David L. Henry became an executive officer April 29, 1996, compensated
at an annual salary of $125,000. Mr. Henry resigned effective February
28, 1999.
6
<PAGE>
Stock options granted to the Company's five highest compensated executive
officers during 1998 are set forth in the following two tables.
<TABLE>
<CAPTION>
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 Exercise Expiration --------------------------
NAME Options Granted in 1998 Per Share Date 5% 10%
- ---- --------------- ------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Mark A. Hellerstein 14,976 (1) 6.3% $18.50 12/31/08 $174,239 $441,556
Ronald D. Boone 11,980 (1) 5.0% $18.50 12/31/08 139,382 353,221
Ralph H. Smith - - - - - -
David L. Henry 8,064 (1) 3.4% $18.50 12/31/08 93,821 237,761
Thomas E. Congdon 4,792 (1) 2.0% $18.50 12/31/08 55,753 141,288
</TABLE>
- ------------
(1) Stock options granted effective December 31, 1998 pursuant to the
Company's Stock Option Plan as described on page 8 of this proxy
statement.
AGGREGATED OPTION/SAR EXERCISES IN 1998 AND
DECEMBER 31, 1998 OPTION/SAR VALUE
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised Options/SARs In-the-Money
Held at Options/SARs at
Shares December 31, 1998 December 31, 1998 (1)
Acquired Value ------------------------------------------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Hellerstein - - 6,087 52,618 $ - $108,354
Ronald D. Boone (2) - - 39,942 41,961 304,000 89,233
Ralph H. Smith - - - 14,877 - -
David L. Henry - - - 14,610 - -
Thomas E. Congdon - - 32,150 20,368 - 54,270
</TABLE>
- --------------
(1) On December 31, 1998, the last reported sales price of the Common Stock
as quoted on the Nasdaq National Market System was $18.50.
(2) 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 as of December 31, 1998. Mr. Boone exercised an addi-
tional 5,000 shares in February 1999.
7
<PAGE>
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. Effective
January 1, 1998, the Company adopted the Employee Stock Purchase Plan.
Cash Bonus Plan. In March 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 five 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 Board of Directors
determines the performance adjusted base salary of the Chief Executive Officer
of the Company. 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.
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.
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 of
the Common Stock 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.
8
<PAGE>
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 an aggregate number of non-tax
qualified options each year equal to the average number of options granted to
the two most senior employees of the Company proportionately divided among the
directors and 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.
Employee Stock Purchase Plan. Effective January 1, 1998, the Company adopted
the Employee Stock Purchase Plan. 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.
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.
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").
9
<PAGE>
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 6. 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, generally
if the average stock appreciation during this period is 15% 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.
10
<PAGE>
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 five 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.
Compensation of the Chief Executive Officer
- -------------------------------------------
The compensation of Mark A. Hellerstein, President and Chief Executive
Officer, consisted of the same components and criteria as other executive
officers including base salary, cash bonus, net profits interest bonus and stock
options. His base salary is reviewed annually by the Committee and is targeted
to be slightly below the median salary for the industry with a greater emphasis
on incentive compensation tied to Company performance. Mr. Hellersteins' base
salary in 1998 increased $10,000 or 4% over 1997. His cash bonus declined by
approximately $194,000 in 1998 compared to 1997 primarily as a result of the SAR
payments. The 1991 grant paid in 1997 was issued at $4.26 per share while the
1992 grant paid in 1998 was issued at $11.50 per share. Both grants were capped
at $20.50 per share pursuant to the Stock Option Plan. Mr. Hellerstein was
granted stock options in 1998 using the same formula as that used for all other
employees.
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 6, 1999 Arend J. Sandbulte
11
<PAGE>
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.
<TABLE>
<CAPTION>
Estimated Annual Pension Estimated Annual Pension
Benefits for Executives Benefits for Executives
Hired before 1995 with > Hired after 1995 with >
Remuneration 15 years of service 25 years of service
------------ ------------------------ -------------------------
<S> <C> <C>
$100,000 $ 65,234 $ 35,000
150,000 103,734 52,500
200,000 142,234 70,000
250,000 180,734 87,500
300,000 219,234 105,000
350,000 257,734 122,500
</TABLE>
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, 1998, the named executive officers have the following
years of credited service:
Mark A. Hellerstein 7
Ronald D. Boone 8
Ralph H. Smith 3
David L. Henry 3
Thomas E. Congdon 33
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.
12
<PAGE>
PERFORMANCE GRAPH
The following Performance Graph compares the Company's cumulative total
stockholder return on its Common Stock for the period December 31, 1993 to
December 31, 1998 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]
<TABLE>
<CAPTION>
COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG ST. MARY LAND & EXPLORATION COMPANY,
THE S&P 500 INDEX, AND THE SIC CODE INDEX
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ST. MARY LAND & EXPLORATION COMPANY 100.00 109.47 117.08 210.06 297.50 158.57
SIC CODE INDEX 100.00 104.80 115.26 153.26 155.34 124.43
S&P 500 INDEX 100.00 101.32 139.40 171.41 228.59 293.92
</TABLE>
Assumes $100 invested on December 31, 1993 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.
13
<PAGE>
EMPLOYMENT AGREEMENT
On September 1, 1991, the Company entered into an employment agreement
with Mr. Hellerstein. His current salary is $260,000 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.
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.
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 St. Mary
Operating Company, formerly Anderman/Smith Operating Company ("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 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. Mr.
Smith resigned February 25, 1999.
As a result of their prior employment by Anderman/Smith, Ronald D. Boone
and two 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
another former Anderman/Smith employee manages these corporations, Mr. Boone
participates in their investment decisions. The Board of Directors has approved
Mr. Boone's involvement in Princeton Resources and Baron Oil.
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 of 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 1999.
14
<PAGE>
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
Amendment to the Stock Option Plans
The Company's stockholders are being asked to approve an amendment to
the Company's Stock Option Plans which will increase the total number of shares
of Common Stock that may be issued under the Stock Option Plans by 950,000 to
1,650,000.
All 700,000 shares of Common Stock presently covered by the unamended
Stock Option Plans have been allocated to outstanding options and accordingly
the Company is presently not able to grant additional options under the
unamended Stock Option Plans. On March 25, 1999, the Board of Directors approved
an amendment to the Stock Option Plans increasing the number of shares
authorized to be issued under the Stock Option Plans to 1,650,000. The primary
purpose of the amendment is to ensure that the Company will have a sufficient
reserve of Common Stock available for the Stock Option Plans.
The Board of Directors believes that the availability of stock options
is important to the Company and enhances stockholder value by increasing the
Company's ability to attract, retain and motivate key employees of the Company
through providing them with the means of acquiring an interest in the Company.
The Company intends to issue additional options under the amended Stock Option
Plans over an extended uncertain period of time and it is anticipated that the
additional stock options will be issued both to present and to future key
employees of the Company.
The following is a summary of the principal features of the Stock
Option Plans, as amended. Copies of the Stock Option Plans will be furnished by
the Company to any stockholder upon written request to the Corporate Secretary.
The Stock Option Plans consist of two separate but companion option
plans:
1. The Stock Option Plan adopted by the Board of Directors effective
November 21, 1996 to replace the 1992 SAR Plan, and
2. The ISO Plan adopted by the Board of Directors effective March 27,
1997.
The Stock Option Plan
All current and former employees, consultants and members of the Board
of Directors of the Company or of any subsidiary of the Company are eligible to
participate in the Stock Option Plan. As of December 31, 1998, 55 persons had
been designated by the Board of Directors to participate in the Stock Option
Plan.
15
<PAGE>
The total number of shares of Common Stock which may be issued under
the Stock Option Plan is 1,650,000. However, to the extent that options are
issued under the ISO Plan, the shares of Common Stock that may be issued under
the Stock Option Plan are reduced. At the discretion of the Board of Directors
the Stock Option Plan may be administered by a Committee of two or more
non-employee Directors appointed by the Board. Optionees under the Stock Option
Plan shall be selected at the discretion of the Board or such Committee from
among those eligible participants who, in the opinion of the Board or such
Committee, are or were in a position to contribute materially to the Company's
continued growth and development and to its long-term success. Subject to the
provisions of the Stock Option Plan, the Board or such Committee shall have
complete discretion in determining the terms and conditions and number of
Options granted under the Stock Option Plan.
Options granted under the Stock Option Plan are to be exercisable at
the market price of the Company's Common Stock on the date of grant, are to have
a term not to exceed ten years and may not be exercised prior to five years
following the date of grant. Options under the Plan will fully vest (i) just
prior to the completion of an acquisition of the Company or (ii) upon
termination of the optionee's employment with the Company due to death,
disability or normal retirement. Unexercised options will terminate (i) upon
completion of an acquisition of the Company or (ii) upon termination of the
optionee's employment with the Company for cause. Nothing contained in the Stock
Option Plan shall be construed to give any employee or consultant any right to
continued employment or association with the Company.
Each option under the Stock Option Plan must be evidenced by a written
option agreement that specifies the exercise price, the duration of the option,
the number of shares of stock to which the option applies, and such vesting or
exercisability restrictions and other terms and conditions which the Board or
Committee may impose.
The principal federal income tax consequences of the issuance and
exercise of options under the Stock Option Plan are, in general, as follows:
1. Options issued under the Stock Option Plan are not intended to
qualify as "incentive stock options" under the Internal Revenue Code.
2. Upon the issuance of an option under the Stock Option Plan, the
optionee will have no taxable income and the Company will have no tax deduction.
3. Upon exercise of an option under the Stock Option Plan, the optionee
will realize ordinary taxable income in an amount equal to the excess of the
fair market value of the underlying shares of Common Stock at the time the
option is exercised over the exercise price of the option for such shares.
4. The amount of income recognized by the optionee will be deductible
by the Company as compensation in the year in which ordinary income is
recognized by the optionee by reason of exercise of options under the Stock
Option Plan.
5. An optionee's basis for the shares of Common Stock acquired pursuant
to the exercise of options under the Stock Option Plan will be the option
exercise price plus any amount recognized as ordinary income by reason of the
exercise of the options.
6. Upon the sale of the Common Stock acquired pursuant to the exercise
of options under the Stock Option Plan, capital gain or loss will be realized by
the optionee in the amount by which the sales price is greater or less than the
basis of such stock. Such gain or loss will be long-term or short-term depending
on whether the shares were held for more than one year after the option was
exercised.
The ISO Plan
The ISO Plan is a companion option plan with the Stock Option Plan. It
is intended that the ISO Plan will be an alternative to the 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 options granted under the Stock Option Plan or incentive
stock options granted under the ISO Plan. All employees of the Company or any
subsidiary of the Company are eligible to participate in the ISO Plan. As of
December 31, 1998, 24 persons had been designated by the Board of Directors to
participate in the ISO Plan.
16
<PAGE>
The total number of shares of Common Stock which may be issued under
the ISO Plan is 1,650,000. However, to the extent that options are issued under
the Stock Option Plan, the shares of Common Stock that may be issued under the
ISO Plan are reduced. At the discretion of the Board of Directors the ISO Plan
may be administered by a Committee of two or more non-employee Directors
appointed by the Board. Optionees under the ISO Plan shall be selected at the
discretion of the Board or such Committee from among those eligible participants
who, in the opinion of the Board or such Committee, are in a position to
contribute materially to the Company's continued growth and development and to
its long-term success. Subject to the provisions of the ISO Plan, the Board or
such Committee shall have complete discretion in determining the terms and
conditions and number of options granted under the ISO Plan.
It is intended that options granted under the ISO Plan will constitute
"incentive stock options" under the Internal Revenue Code and thus the ISO Plan
provides that options granted thereunder are to be (i) exercisable at the market
price of the Company's Common Stock on the date the options are granted, (ii)
nontransferable by the optionee, and (iii) terminated if not exercised within 3
months of an optionee's termination of employment with the Company. Further,
options granted under the ISO Plan will have a term of no more that ten years
(five years in the case of ten percent or more shareholders). Options under the
ISO Plan will fully vest (i) just prior to the completion of an acquisition of
the Company or (ii) upon termination of the optionee's employment with the
Company due to death, disability or normal retirement. Unexercised options will
terminate (i) upon completion of an acquisition of the Company or (ii) upon
termination of the optionee's employment with the Company for cause. Nothing
contained in the ISO Plan shall be construed to give any employee any right to
continued employment with the Company.
Unless earlier terminated by the Board of Directors, the ISO Plan shall
terminate on the date ten years subsequent to the date of the adoption of the
ISO Plan by the Board, after which date no options may be granted under the ISO
Plan. The Board of Directors may at any time terminate the ISO Plan and from
time to time may amend or modify the ISO Plan, provided, however that no such
action of the Board, without approval of the shareholders, may: (i) increase the
total amount of Common Stock which may be purchased through options granted
under the ISO Plan; or (ii) change the class of employees eligible to receive
options under the ISO Plan.
Each option under the ISO Plan must be evidenced by a written option
agreement that specifies the exercise price, the duration of the option, the
number of shares of stock to which the option applies, and such vesting or
exercisability restrictions and other terms and conditions which the Board or
Committee may impose.
The principal federal income tax consequences of the issuance and
exercise of options under the ISO Plan are, in general, as follows:
1. Options issued under the ISO Plan are intended to qualify as
"incentive stock options" under the Internal Revenue Code.
2. Upon the issuance of an option under the ISO Plan, the optionee will
have no taxable income and the Company will have no tax deduction.
3. The tax consequences upon exercise of the option and later
disposition of the shares of Common Stock acquired thereby depend upon whether
the optionee satisfies the holding period rule whereby the optionee must hold
the shares for more than one year after exercise and two years after the date of
issuance of the option.
17
<PAGE>
4. If the optionee satisfies the holding period rule, the optionee will
not realize income upon exercise of the option (although the excess of the fair
market value of the shares on the date of exercise over the option price must be
included as an adjustment in computing alternative minimum taxable income) and
the Company will not be allowed an income tax deduction at any time. The
difference between the option price and the amount realized upon disposition of
the shares by the optionee will constitute a long-term capital gain or loss, as
the case may be.
5. If the optionee fails to observe the holding period rule, the
portion of any gain realized upon such disqualifying disposition of the shares
which does not exceed the excess of the fair market value at the date of
exercise over the option price will be treated as ordinary income to the
optionee, the balance of any gain or any loss will be treated as capital gain or
loss (long-term or short-term depending on whether the shares were held for more
than one year after the option was exercised) and the Company will be entitled
to a deduction equal to the amount of ordinary income upon which the optionee is
taxed.
Two option grants have been made by the Company covering 4,268 shares
on the basis of the amendment to the Stock Option Plans to increase the number
of authorized shares, subject to stockholder approval. Such options were granted
to non-executive officer employees as a result of the Company allowing
non-supervisory technical employees to participate in the plan and have an
exercise price of $18.50 per share, which was the fair market value of the
Common Stock on the date of grant, and expire December 31, 2008. The actual
value that a particular optionee may realize will depend on the excess of the
Common Stock price over the exercise price on the date vested options are
exercised.
Since the Board of Directors believes that the proposed increase in the
number of shares authorized for issuance under the Stock Option Plans will
attract, retain and motivate key employees and enhance stockholder value, the
Board of Directors recommends that stockholders vote FOR approval of the
increase in number of authorized shares available for issuance under the Stock
Option Plans.
Other than the election of Directors and the approval of the amendment to
the Stock Option Plans, 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 1998 by Section 16(a) under the
Securities Exchange Act of 1934.
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 1999 fiscal year. Arthur Andersen LLP has served as the
Company's independent accountants since 1997 and is familiar with the business
and financial procedures of the Company. To the knowledge of management, neither
this firm nor any of its 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. A representative of Arthur
Andersen LLP is expected to attend the meeting.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 2000 Annual
Meeting of Stockholders must be received by the Company on or before November 1,
1999 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.
18
<PAGE>
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
Richard C. Norris
Secretary
April 15, 1999
19
<PAGE>
Appendix A
ST. MARY LAND & EXPLORATION COMPANY
AS AMENDED MARCH 25, 1999
STOCK OPTION PLAN
ARTICLE I
ESTABLISHMENT AND PURPOSE
1.1 Establishment. St. Mary Land & Exploration Company, a Delaware
corporation (the "Company"), hereby establishes a stock option plan for key
employees, consultants and members of the Board of Directors 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 STOCK OPTION
PLAN (the "Plan"). The Company shall enter into Option agreements with Optionees
pursuant to the Plan.
1.2 Purpose. The purpose of the Plan is to enhance shareholder value by
attracting, retaining and motivating key employees, consultants and members of
the Board of Directors 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
ELIGIBILITY AND PARTICIPATION
All current and former employees, consultants and members of the Board of
Directors of the Company (the "Board"), and of any subsidiary of the Company,
are eligible to participate in the Plan and receive Options under the Plan.
Optionees under the Plan shall be selected by the Board, in its sole discretion,
from among those current and former employees, consultants and members of the
Board of the Company, and of any subsidiary of the Company, who, in the opinion
of the Board, are or were in a position to contribute materially to the
Company's continued growth and development and to its long-term success.
ARTICLE III
ADMINISTRATION
Administration. The Board shall be responsible for administering the Plan.
(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.
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(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 members of the Committee may be Directors who are
eligible to receive Options under the Plan, but Options may be granted to
such persons only by action of the full Board and not by action of 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, and, by resolution or resolutions to provide for the creation and
issuance of any Option, to fix the terms upon which and the time or times
at or within which, and the price or prices at which any shares may be
purchased from the Company upon the exercise of an Option. Such terms, time
or times and price or prices shall, in every case, be set forth or
incorporated by reference in the instrument or instruments evidencing an
Option, and shall be consistent with the provisions of the Plan.
(c) Where a Committee has been created by the Board pursuant to this
Article III, 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 IV
STOCK SUBJECT TO THE PLAN
4.1 Number. The total number of shares of common stock of the Company (the
"Stock") hereby made available and reserved for issuance under the Plan upon
exercise of Options shall be 1,650,000 shares. Notwithstanding anything to the
contrary contained in the foregoing, to the extent that options are issued under
any Incentive Stock Option Plan adopted by the Company, the shares of common
stock reserved for issuance pursuant to Options granted under this Plan shall be
reduced. The aggregate number of shares of Stock available under the Plan shall
be subject to adjustment as provided in Section 4.3.
4.2 Unused Stock. If an Option shall expire or terminate for any reason
without having been exercised in full, or if an "immaculate cashless exercise"
(as described in Section 5.4) results in the issuance of a reduced number of
shares in satisfaction of an option grant, the unpurchased shares of Stock
subject thereto shall (unless the Plan shall have terminated) become available
for other Options under the Plan.
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4.3 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 4.1 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.
ARTICLE V
TERMS OF STOCK OPTIONS
5.1 Grant of Options. Subject to Section 4.1, Options may be granted to
current and former employees, consultants and members of the Board of the
Company and of any subsidiary of the Company at any time and from time to time
as determined by the Board. The Board shall have complete discretion in
determining the terms and conditions and number of Options granted to each
Optionee. In making such determinations, the Board may take into account the
nature of services rendered by such current and former employees, consultants
and members of the Board, their present and potential contributions to the
Company and such other factors as the Board in its discretion shall deem
relevant.
5.2 Option Agreement; Terms and Conditions to Apply Unless Otherwise
Specified. As determined by the Board on the date of grant, each Option shall be
evidenced by an option agreement (the "Option Agreement") that specifies: the
Option price; the duration of the Option; the number of shares of Stock to which
the Option applies; such vesting or exercisability restrictions which the Board
may impose; and any other terms or conditions which the Board may impose. All
such terms and conditions shall be determined by the Board at the time of grant
of the Option.
(a) If not otherwise specified by the Board, the following terms and
conditions shall apply to Options granted under the Plan:
(i) Term. The duration of the Option shall be for ten years from
the date of grant.
(ii) Exercise of Option. Unless an Option is terminated as
provided hereunder, an Optionee may exercise an Option pursuant to a
vesting schedule as determined by the Board. The Option may however
not be exercised prior to five years following the date of its grant.
(iii) Termination. Each Option granted pursuant to the Plan shall
expire upon the earliest to occur of:
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(A) The date set forth in such Option, not to exceed ten
years from the date of grant;
(B) The completion of the merger or sale of substantially
all of the Stock or assets of the Company with or to another
company in a transaction in which the Company is not the
survivor, except for the merger of the Company into a
wholly-owned subsidiary (and the Company shall not be considered
the surviving corporation for purposes hereof if the Company is
the survivor of a reverse triangular merger), provided that the
Company shall have given the Optionee at least thirty days' prior
written notice of its intent to enter into such merger or sale;
or
(C) The termination of the employment of an Optionee for
cause by the Company.
(iv) Acceleration. The Option shall become fully exercisable
irrespective of its other provisions (i) immediately prior to the
completion of the merger or sale of substantially all of the stock or
assets of the Company in a transaction in which the Company is not the
survivor, except for the merger of the Company into a wholly-owned
subsidiary (and the Company shall not be considered the surviving
corporation for purposes hereof if the Company is the survivor of a
reverse triangular merger); or (ii) upon termination of the Optionee's
employment with the Company or a subsidiary thereof because of death,
disability or normal retirement.
(v) Transferability. In addition to the Optionee, the Option may
be exercised, to the extent exercisable by the Optionee, by the person
or persons to whom the Optionee's rights under the Option pass by will
or the laws of descent and distribution, by the spouse or the
descendants of the Optionee or by trusts for such persons, to whom or
which the Optionee may have transferred the Option, or by legal
representative of any of the foregoing. Any such transfer shall be
made only in compliance with the Securities Act of 1933, as amended,
and the requirements therefor as set forth by the Company.
(b) The Board shall be free to specify terms and conditions other than
and in addition to those set forth above, in its discretion.
(c) All Option Agreements shall incorporate the provisions of the Plan
by reference.
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5.3 Option Price. No Option granted pursuant to the Plan shall have an
Option price that is less than the fair market value of Stock on the date the
Option is granted, as determined by the Board. The Option exercise price shall
be subject to adjustment as provided in Section 4.3 above.
5.4 Payment. Payment for all shares of Stock shall be made at the time that
an Option, or any part thereof, is exercised, and no shares shall be issued
until full payment therefor has been made. Payment shall be made (i) in cash, or
(ii) if acceptable to the Board, in Stock, by the surrender of Option rights
hereunder valued at the difference between the Option exercise price plus income
taxes to be withheld, if any, and the fair market value of the common stock
(referred to as "immaculate cashless exercise"), or in some other form.
ARTICLE VI
WRITTEN NOTICE, ISSUANCE OF STOCK
CERTIFICATES, SHAREHOLDER PRIVILEGES
6.1 Written Notice. An Optionee wishing to exercise an Option shall give
written notice to the Company, in the form and manner prescribed by the Board.
Full payment for the shares of Stock acquired pursuant to the Option must
accompany the written notice.
6.2 Issuance of Stock Certificates. As soon as practicable after the
receipt of written notice and payment, the Company shall deliver to the Optionee
a certificate or certificates for the requisite number of shares of Stock.
6.3 Privileges of a Shareholder. An Optionee or any other person entitled
to exercise an Option under the Option Agreement shall not have shareholder
privileges with respect to any Stock covered by the Option until the date of
issuance of a stock certificate for such Stock.
ARTICLE VII
RIGHTS OF OPTIONEES
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 or
consultant's employment at any time, nor confer upon any employee or consultant
any right to continue in the employ of the Company or a subsidiary corporation.
ARTICLE VIII
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.
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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 Optionee holding the Option.
ARTICLE IX
ACQUISITION, MERGER OR LIQUIDATION
9.1 Acquisition.
(a) In the event that an acquisition occurs with respect to the
Company, the Company shall have the option, but not the obligation, to
cancel Options outstanding as of the effective date of such acquisition,
whether or not such Options are then exercisable, in return for payment to
the Optionees of an amount equal to a reasonable estimate of an amount
(hereinafter the "Spread"), determined by the Board, equal to the
difference between the net amount per share payable in the acquisition or
as a result of the acquisition, less the exercise price of the Option. In
estimating the Spread, appropriate adjustments to give effect to the
existence of the Options shall be made, such as deeming the Options to have
been exercised, with the Company receiving the exercise price payable
thereunder, and treating the Stock receivable upon exercise of the Options
as being outstanding in determining the net amount per share.
(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
Options regardless of how the acquisition is effectuated, whether by direct
purchase, through a merger or similar corporate transaction, or otherwise.
In cases where the acquisition consists of the acquisition of assets of the
Company, the net amount per share shall be calculated on the basis of the
net amount receivable with respect to shares upon a distribution and
liquidation by the Company after giving effect to expenses and charges,
including but not limited to taxes, payable by the Company before the
liquidation can be completed.
(c) Where the Company does not exercise its option under this
Section 9.1 the remaining provisions of this Article IX shall apply, to the
extent applicable.
9.2 Merger or Consolidation. If the Company shall be the surviving
corporation in any merger or consolidation, any Option granted hereunder 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.
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9.3 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 Option outstanding hereunder to terminate as of the effective date
of such dissolution, liquidation, merger or consolidation. However, the Optionee
either (i) shall be offered a firm commitment whereby the resulting or surviving
corporation in a merger or consolidation will tender to the Optionee an option
(the "Substitute Option") to purchase its shares on terms and conditions both as
to number of shares and otherwise, which will substantially preserve to the
Optionee the rights and benefits of the Option outstanding hereunder granted by
the Company, or (ii) shall have the right immediately prior to such dissolution,
liquidation, merger, or consolidation to exercise any unexercised Options
whether or not then vested, subject to the other provisions of the Plan. The
Board shall have absolute and uncontrolled discretion to determine whether the
Optionee has been offered a firm commitment and whether the tendered Substitute
Option will substantially preserve to the Optionee the rights and benefits of
the Option outstanding hereunder.
ARTICLE X
SECURITIES REGISTRATION
10.1 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 Optionee shall cooperate with the Company and take such action
as is necessary to permit registration or qualification of such Options or
Stock.
10.2 Representations. Unless the Company has determined that the following
representation is unnecessary, each person exercising an Option under the Plan
may be required by the Company, as a condition to the issuance of the shares of
Stock pursuant to exercise of the Option, 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 person
exercising an Option to sell the shares received in an open market transaction.
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ARTICLE XI
TAX WITHHOLDING
Whenever shares of Stock are to be issued in satisfaction of Options
exercised under the Plan, 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.
ARTICLE XII
INDEMNIFICATION
To the extent permitted by law, each person who is or shall have been a
member of the Board or the Committee 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 XIII
REQUIREMENTS OF LAW
13.1 Requirements of Law. The granting of Options 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.
13.2 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 XIV
EFFECTIVE DATE OF PLAN
The Plan shall be effective on November 21, 1996.
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ARTICLE XV
NO OBLIGATION TO EXERCISE OPTION
The granting of an Option shall impose no obligation upon the holder
thereof to exercise such Option.
THIS STOCK OPTION PLAN was adopted by the Board of Directors of St. Mary
Land & Exploration Company on November 21, 1996, to be effective upon adoption.
The Plan was amended on March 25, 1999 to increase the number of shares
available for issuance under Article IV to 1,650,000.
ST. MARY LAND & EXPLORATION COMPANY
By: /s/ RICHARD C. NORRIS
----------------------------------
Title: Vice President-Finance, Secretary
and Treasurer
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Appendix B
ST. MARY LAND & EXPLORATION COMPANY
INCENTIVE STOCK OPTION PLAN
AS AMENDED MARCH 25, 1999
ARTICLE I
ESTABLISHMENT AND PURPOSE
1.1 Establishment. St. Mary Land & Exploration Company, a Delaware
corporation (the "Company"), hereby establishes a stock option plan for key
employees providing material services to the Company or a subsidiary of the
Company as described herein, which shall be known as the "ST. MARY LAND &
EXPLORATION COMPANY INCENTIVE STOCK OPTION PLAN" (the "Plan"). It is intended
that the options issued to employees pursuant to the Plan constitute incentive
stock options within the meaning of Section 422 of the Internal Revenue Code.
The Company shall enter into stock option agreements with recipients of options
pursuant to the Plan.
1.2 Purpose. The purpose of the Plan is to enhance shareholder value by
attracting, retaining and motivating key 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 Definitions. Whenever used herein, the following terms shall have the
respective meanings set forth below, unless the context clearly requires
otherwise, and when such meaning is intended, the term shall be capitalized.
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Committee provided for by Article IV
hereof, which may be created at the discretion of the Board.
(d) "Company" means St. Mary Land & Exploration Company, a Delaware
corporation.
(e) "Date of Exercise" means the date the Company receives notice, by
an Optionee, of the exercise of an Option pursuant to Section 8.1 of the
Plan. Such notice shall indicate the number of shares of Stock the Optionee
intends to acquire pursuant to exercise of the Option.
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(f) "Employee" means any person, including an officer or director of
the Company or a Subsidiary Corporation, who is employed by the Company or
a Subsidiary Corporation.
(g) "Fair Market Value" means the fair market value of Stock upon
which an option is granted under the Plan, determined as follows:
(i) If the Stock is listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange, the Fair
Market Value shall be the last reported sale price of the Stock on the
composite tape of such exchange on the date of issuance of this
option, or if such day is not a normal trading day, the last trading
day prior to the date of issuance of this option, and if no such sale
is made on such day, the Fair Market Value shall be the average
closing bid and asked prices for such day on the composite tape of
such exchange; or
(ii) If the Stock is not so listed or admitted to unlisted
trading privileges, the Fair Market Value shall be the mean of the
last reported bid and asked prices reported by the National
Association of Securities Dealers Quotation System (or, if not so
quoted on NASDAQ, by the National Quotation Bureau, Inc.) on the last
trading day prior to the date of issuance of the option.
(h) "Incentive Stock Option" means an Option granted under the Plan
which is intended to qualify as an "incentive stock option" within the
meaning of Section 422 of the Code.
(i) "Option" means the right, granted under the Plan, to purchase
Stock of the Company at the option price for a specified period of time.
(j) "Optionee" means an Employee holding an Option under the Plan.
(k) "Parent Corporation" shall have the meaning set forth in
Section 424(e) of the Code with the Company being treated as the employer
corporation for purposes of this definition.
(l) "Subsidiary Corporation" shall have the meaning set forth in
Section 424(f) of the Code with the Company being treated as the employer
corporation for purposes of this definition.
(m) "Significant Shareholder" means an individual who, within the
meaning of Section 422(b)(6) of the Code, owns stock possessing more than
ten percent of the total combined voting power of all classes of stock of
the Company or of any Parent Corporation or Subsidiary Corporation of the
Company. In determining whether an individual is a Significant Shareholder,
an individual shall be treated as owning stock owned by certain relatives
of the individual and certain stock owned by corporations in which the
individual is a shareholder, partnerships in which the individual is a
partner, and estates or trusts of which the individual is a beneficiary,
all as provided in Section 424(d) of the Code.
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(n) "Stock" means the $.01 par value common stock of the Company.
2.2 Gender and Number. Except when otherwise indicated by the context, any
masculine terminology when used in the Plan also shall include the feminine
gender, and the definition of any term herein in the singular also shall include
the plural.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
All Employees are eligible to participate in the Plan and receive Incentive
Stock Options under the Plan. Optionees in the Plan shall be selected by the
Board, in its sole discretion, from among those Employees who, in the opinion of
the Board, are in a position to contribute materially to the Company's continued
growth and development and to its long-term financial success.
ARTICLE IV
ADMINISTRATION
The Board shall be responsible for administering the Plan.
(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; 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, and, by resolution or resolutions to provide for the creation and
issuance of any Option, to fix the terms upon which, the time or times at
or within which, and the price or prices at which any shares of Stock may
be purchased from the Company upon the exercise of an Option. Such terms,
time or times and price or prices shall, in every case, be set forth or
incorporated by reference in the instrument or instruments evidencing an
Option, and shall be consistent with the provisions of the Plan.
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(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 total number of shares of Stock hereby made available and
reserved for issuance under the Plan upon exercise of Options shall be 1,650,000
shares. Notwithstanding anything to the contrary contained in the foregoing, to
the extent that options are issued under any other current Stock Option Plan
adopted by the Company, the shares of Stock reserved for issuance pursuant to
Options granted under the Plan shall be reduced. The aggregate number of shares
of Stock available under the Plan shall be subject to adjustment as provided in
Section 5.3.
5.2 Unused Stock. If an Option shall expire or terminate for any reason
without having been exercised in full, the unpurchased shares of Stock subject
thereto shall (unless the Plan shall have terminated) become available for other
Options under the Plan.
5.3 Adjustment in Capitalization. In the event of any change in the
outstanding shares of Stock 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.
ARTICLE VI
DURATION OF THE PLAN
Subject to approval of shareholders, the Plan shall be in effect for ten
years from the date of its adoption by the Board. Any Options outstanding at the
end of such period shall remain in effect in accordance with their terms. The
Plan shall terminate before the end of such period if all Stock subject to it
has been purchased pursuant to the exercise of Options granted under the Plan.
ARTICLE VII
TERMS OF STOCK OPTIONS
7.1 Grant of Options. Subject to Section 5.1, Options may be granted to
Employees at any time and from time to time as determined by the Board. The
Board shall have complete discretion in determining the terms and conditions and
number of Options granted to each Optionee. In making such determinations, the
Board may take into account the nature of services rendered by such Employees,
their present and potential contributions to the Company and its Subsidiary
Corporations, and such other factors as the Board in its discretion shall deem
relevant.
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(a) The total Fair Market Value (determined at the date of grant) of
shares of Stock with respect to which incentive stock options granted are
exercisable for the first time by the Optionee during any calendar year
under all plans of the Company under which incentive stock options may be
granted (and all such plans of any Parent Corporations and any Subsidiary
Corporations of the Company) shall not exceed $100,000. Hereinafter, this
requirement is sometimes referred to as the "$100,000 Limitation".
(b) The Board is expressly given the authority to issue amended or
replacement Options with respect to shares of Stock subject to an Option
previously granted hereunder. An amended Option amends the terms of an
Option previously granted and thereby supersedes the previous Option. A
replacement Option is similar to a new Option granted hereunder except that
it provides that it shall be forfeited to the extent that a previously
granted Option is exercised, or except that its issuance is conditioned
upon the termination of a previously granted Option.
7.2 No Tandem Options. Where an Option granted under the Plan is intended
to be an Incentive Stock Option, the Option shall not contain terms pursuant to
which the exercise of the Option would affect the Optionee's right to exercise
another Option, or vice versa, such that the Option intended to be an Incentive
Stock Option would be deemed a tandem stock option within the meaning of the
regulations under Section 422 of the Code.
7.3 Option Agreement; Terms and Conditions to Apply Unless Otherwise
Specified. As determined by the Board on the date of grant, each Option shall be
evidenced by an Option agreement (the "Option Agreement") that includes the
non-transferability provisions required by Section 10.2 hereof and that
specifies: the Option price; the duration of the Option; the number of shares of
Stock to which the Option applies; such vesting or exercisability restrictions
which the Board may impose; a provision implementing the $100,000 Limitation;
and any other terms or conditions which the Board may impose. All such terms and
conditions shall be determined by the Board at the time of grant of the Option.
(a) If not otherwise specified by the Board, the following terms and
conditions shall apply to Options granted under the Plan:
(i) Term. The duration of the Option shall be for ten years from
the date of grant.
(ii) Exercise of Option. Unless an Option is terminated as
provided hereunder, an Optionee may exercise an Option pursuant to a
vesting schedule as determined by the Board.
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(iii) Termination. Each Option granted pursuant to the Plan shall
expire upon the earliest to occur of:
(A) The date set forth in such Option, not to exceed ten
years from the date of grant (five years in the case of a
Significant Shareholder);
(B) The completion of the merger or sale of substantially
all of the Stock or assets of the Company with or to another
company in a transaction in which the Company is not the
survivor, except for the merger of the Company into a
wholly-owned subsidiary and, provided that the Company shall have
given the Optionee at least thirty days' prior written notice of
its intent to enter into such merger or sale (and the Company
shall not be considered the surviving corporation for purposes
hereof if the Company is the survivor of a reverse triangular
merger);
(C) Ninety days following the termination of the employment
of an Optionee, except for termination for cause by the Company
or termination because of the Optionee's death or disability (in
which event of termination of employment due to the Optionee's
death or disibility, the Option shall expire one year following
the termination of employment of an Optionee); or
(D) Immediately upon the termination of the employment of an
Optionee for cause by the Company.
(iv) Nontransferability. All Options granted under the Plan shall
be nontransferable by the Optionee, other than by will or the laws of
descent and distribution, and shall be exercisable during the
Optionee's lifetime only by the Optionee.
(b) The Board shall be free to specify terms and conditions other than
and in addition to those set forth above, in its discretion.
(c) All Option Agreements shall incorporate the provisions of the Plan
by reference.
7.4 Option Price. No Option granted pursuant to the Plan shall have an
Option price that is less than the Fair Market Value of Stock on the date the
Option is granted. Incentive Stock Options granted to Significant Shareholders
shall have an Option price of not less than 110% of the Fair Market Value of
Stock on the date of grant. The Option exercise price shall be subject to
adjustment as provided in Section 5.3 above.
7.5 Payment. Payment for all shares of Stock shall be made at the time that
an Option, or any part thereof, is exercised, and no shares shall be issued
until full payment therefor has been made. Payment shall be made (i) in cash, or
(ii) if acceptable to the Board, in Stock or in some other form; provided,
however, in the case of an Incentive Stock Option, that such other form of
payment does not prevent the Option from qualifying for treatment as an
"incentive stock option" within the meaning of the Code.
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ARTICLE VIII
WRITTEN NOTICE, ISSUANCE OF STOCK
CERTIFICATES, SHAREHOLDER PRIVILEGES
8.1 Written Notice. An Optionee wishing to exercise an Option shall give
written notice to the Company, in the form and manner prescribed by the Board.
Full payment for the shares of Stock to be acquired pursuant to the exercise of
the Option must accompany the written notice.
8.2 Issuance of Stock Certificates. As soon as practicable after the
receipt of written notice and payment, the Company shall deliver to the Optionee
a certificate or certificates for the requisite number of shares of Stock.
8.3 Privileges of a Shareholder. An Optionee or any other person entitled
to exercise an Option under the Option Agreement shall not have shareholder
privileges with respect to any Stock covered by the Option until the date of
issuance of a stock certificate for such Stock.
ARTICLE IX
TERMINATION OF EMPLOYMENT OR SERVICES
9.1 Death or Disability. Subject to any prior partial exercise of the
Option, if an Optionee's employment terminates by reason of Optionee's death or
permanent and total disability, the Option may be exercised up to one hundred
percent of the shares originally subject to the Option at any time prior to the
expiration date of the Option or within 12 months after the date of such death
or disability, whichever period is the shorter, by the person or persons
entitled to do so under the Optionee's will or, if the Optionee shall fail to
make a testamentary disposition of an Option or shall die intestate, the
Optionee's legal representative or representatives.
9.2 Termination other than for Cause or Due to Death. In the event of an
Optionee's termination of employment other than by reason of death or permanent
and total disability, the Optionee may exercise such portion of his Option as
was vested and exercisable by him at the date of such termination (the
"Termination Date") at any time within ninety days of the Termination Date. In
any event, the Option cannot be exercised after the expiration of the term of
the Option. Options not exercised within the applicable period specified above
shall terminate.
(a) In the case of an Employee, a change of duties or position within the
Company or an assignment of employment in a Subsidiary Corporation or Parent
Corporation of the Company, if any, or from such a Corporation to the Company,
shall not be considered a termination of employment for purposes of the Plan.
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(b) The Option Agreements may contain such provisions as the Board shall
approve with reference to the effect of approved leaves of absence upon
termination of employment.
9.3 Termination for Cause. In the event of an Optionee's termination of
employment, which termination is by the Company or a Subsidiary Corporation for
cause, any Option or Options held by him under the Plan, to the extent not
exercised before such termination, shall terminate upon notice of termination
for cause.
ARTICLE X
RIGHTS OF OPTIONEES
10.1 Service. 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.
10.2 Non-transferability. All Options granted under the Plan shall be
nontransferable by the Optionee, other than by will or the laws of descent and
distribution, and shall be exercisable during the Optionee's lifetime only by
the Optionee.
ARTICLE XI
OPTIONEE-EMPLOYEE'S TRANSFER
OR LEAVE OF ABSENCE
For purposes of the Plan:
(a) A transfer of an Optionee who is an Employee from the Company to a
Subsidiary Corporation or Parent Corporation, or from one such Corporation
to another, or
(b) A leave of absence for such an Optionee (i) which is duly
authorized in writing by the Company or a Subsidiary Corporation, and
(ii) if the Optionee holds an Incentive Stock Option, which qualifies under
the applicable regulations under the Code which apply in the case of
incentive stock options,
shall not be deemed a termination of employment. However, under no circumstances
may an Optionee exercise an Option during any leave of absence, unless
authorized by the Board.
ARTICLE XII
AMENDMENT, MODIFICATION, AND
TERMINATION OF THE PLAN
(a) The Board may at any time terminate and from time to time may
amend or modify the Plan, provided, however, that no such action of the
Board, without approval of the shareholders, may:
(i) increase the total amount of Stock which may be purchased
through Options granted under the Plan, except as provided in
Article V;
(ii) change the class of Employees eligible to receive Options;
(b) 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 Optionee holding the Option.
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ARTICLE XIII
ACQUISITION, MERGER OR LIQUIDATION
13.1 Acquisition.
(a) In the event that an acquisition occurs with respect to the
Company, the Company shall have the option, but not the obligation, to
cancel Options outstanding as of the effective date of such acquisition,
whether or not such Options are then exercisable, in return for payment to
the Optionees of an amount equal to a reasonable estimate of an amount
(hereinafter the "Spread"), determined by the Board, equal to the
difference between the net amount per share payable in the acquisition or
as a result of the acquisition, less the exercise price of the Option. In
estimating the Spread, appropriate adjustments to give effect to the
existence of the Options shall be made, such as deeming the Options to have
been exercised, with the Company receiving the exercise price payable
thereunder, and treating the shares receivable upon exercise of the Options
as being outstanding in determining the net amount per share.
(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 50% of the issued and outstanding shares of Stock of
the Company. The Company shall have the above option to cancel Options
regardless of how the acquisition is effectuated, whether by direct
purchase, through a merger or similar corporate transaction, or otherwise.
In cases where the acquisition consists of the acquisition of assets of the
Company, the net amount per share shall be calculated on the basis of the
net amount receivable with respect to shares upon a distribution and
liquidation by the Company after giving effect to expenses and charges,
including but not limited to taxes, payable by the Company before the
liquidation can be completed.
(c) Where the Company does not exercise its option under this
Section 13.1 the remaining provisions of this Article XIII shall apply, to
the extent applicable.
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13.2 Merger or Consolidation. If the Company shall be the surviving
corporation in any merger or consolidation, any Option granted hereunder 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.
13.3 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 Option outstanding hereunder to terminate as of the effective date
of such dissolution, liquidation, merger or consolidation. However, the Optionee
either (i) shall be offered a firm commitment whereby the resulting or surviving
corporation in a merger or consolidation will tender to the Optionee an option
(the "Substitute Option") to purchase its shares on terms and conditions both as
to number of shares and otherwise, which will substantially preserve to the
Optionee the rights and benefits of the Option outstanding hereunder granted by
the Company, or (ii) shall have the right immediately prior to such dissolution,
liquidation, merger, or consolidation to exercise any unexercised Options
whether or not then vested, subject to the provisions of the Plan. The Board
shall have absolute and uncontrolled discretion to determine whether the
Optionee has been offered a firm commitment and whether the tendered Substitute
Option will substantially preserve to the Optionee the rights and benefits of
the Option outstanding hereunder. In any event, any Substitute Option for an
Incentive Stock Option shall comply with the requirements of Code
Section 424(a).
ARTICLE XIV
SECURITIES REGISTRATION
14.1 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 Optionee shall cooperate with the Company and take such action
as is necessary to permit registration or qualification of such Options or
Stock.
14.2 Representations. Unless the Company has determined that the following
representation is unnecessary, each person exercising an Option under the Plan
may be required by the Company, as a condition to the issuance of the shares
pursuant to exercise of the Option, 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, (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 person
exercising an Option to sell the shares received in an open market transaction.
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ARTICLE XV
TAX WITHHOLDING
Whenever shares of Stock are to be issued in satisfaction of Options
exercised under the Plan, 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.
ARTICLE XVI
INDEMNIFICATION
To the extent permitted by law, each person who is or shall have been a
member of the Board or the Committee 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 any Subsidiary Corporation may have to indemnify them or hold them
harmless.
ARTICLE XVII
REQUIREMENTS OF LAW
17.1 Requirements of Law. The granting of Options 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.
17.2 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 XVIII
EFFECTIVE DATE OF PLAN
The Plan shall be effective on March 27, 1997.
ARTICLE XIX
COMPLIANCE WITH CODE
Incentive Stock Options granted hereunder are intended to qualify as
"incentive stock options" under Code Section 422. If any provision of the Plan
is susceptible to more than one interpretation, such interpretation shall be
given thereto as is consistent with Incentive Stock Options granted under the
Plan being treated as incentive stock options under the Code.
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ARTICLE XX
NO OBLIGATION TO EXERCISE OPTION
The granting of an Option shall impose no obligation upon the holder
thereof to exercise such Option.
ARTICLE XXI
SHAREHOLDER APPROVAL
The Plan was approved by a vote of a majority of the shares of common stock
of the Company on May 21, 1997.
THIS INCENTIVE STOCK OPTION PLAN was adopted by the Board of Directors of
St. Mary Land & Exploration Company on March 27, 1997, to be effective upon
adoption. The Plan was amended on March 25, 1999 to increase the number of
shares available for issuance under Article V to 1,650,000.
ST. MARY LAND & EXPLORATION COMPANY
By: /s/ RICHARD C. NORRIS
----------------------------------
Title: Vice President-Finance, Secretary
and Treasurer
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